Federal User Fees: Budgetary Treatment, Status, and Emerging Management
Issues (Letter Report, 12/19/97, GAO/AIMD-98-11).

Pursuant to a congressional request, GAO identified 27 agencies that
rely on federal user fees for a significant portion of their budget,
focusing on: (1) identifying of changes in agency reliance on user fees
since passage of the Budget Enforcement Act (BEA) of 1990; (2)
describing the ways user fees are structured in the budget, including
what budgetary controls govern the availability and use of theses fees
and how they are treated under BEA; and (3) identifying of issues for
consideration in the future design and management of user fees.

GAO noted that: (1) since the 1990 enactment of BEA, the 27 agencies in
its review have increased or maintained their reliance on user fees as a
source of funding; (2) several of the regulatory agencies GAO surveyed
were given authority to substantially increase user fee collections and
to use these fees for program purposes; (3) importantly, most new user
fees enacted between fiscal years 1991 and 1996 were authorized to
offset discretionary spending; (4) the Congress authorized new user fees
either: (a) to maintain program size by replacing general fund
appropriations, which may then be used to fund other activities or (b)
to increase program size without increasing budget authority and outlay
totals; (5) this growth in new and existing fees does not add to the
amount of spending that is scored under BEA discretionary spending
limits, but frees up discretionary resources for other purposes; (6)
although federal agencies often collect user fees for similar purposes,
not all user fees are treated alike in the federal budget; (7) some user
charges must be deposited in the general fund of the U.S. Treasury,
while others are required by law to provide funding for specific
purposes; (8) yet, even when fees are dedicated to the agency or
activities that generated the fee, there are differences in when and how
the fees are made available to the agency and in how much flexibility
agencies have in using the fee revenue; (9) the attempt to distinguish
between fees collected for the government's business-type activities
from those derived from the government's power to tax was always
problematic; (10) how fees are categorized has become increasingly
important by the fact that under BEA scoring rules some fees are netted
against their accounts' budget authority and outlay spending and not
counted against discretionary spending limits; (11) the disparate
treatment of fees--particularly those associated with discretionary
spending--raises issues for congressional control, agency management,
and competition for limited federal resources; (12) in shifting to a
more fee-reliant government, inconsistencies in budgetary treatment of
fees with similar characteristics are likely to increase; (13) unlike
agencies that rely primarily on appropriated funds from general
revenues, both the Congress and fee-reliant agencies face additional
policy and management issues such as how to: (a) meet the needs for
accountability to both the Congress and fee payers, including agreement
on priorities and the appropriate assessment of fees and (b) define the
relationship between fee-financed and appropriated activities,
particularly if resource disparities between the two groups increase.

--------------------------- Indexing Terms -----------------------------

 REPORTNUM:  AIMD-98-11
     TITLE:  Federal User Fees: Budgetary Treatment, Status, and 
             Emerging Management Issues
      DATE:  12/19/97
   SUBJECT:  User fees
             General fund appropriation accounts
             Accountability
             Budget controllability
             Budget outlays
             Budget authority

             
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Cover
================================================================ COVER


Report to the Chairman, Committee on the Budget, House of
Representatives

December 1997

FEDERAL USER FEES - BUDGETARY
TREATMENT, STATUS, AND EMERGING
MANAGEMENT ISSUES

GAO/AIMD-98-11

Federal User Fees

(935209)


Abbreviations
=============================================================== ABBREV

  AMS - Agricultural Marketing Service
  APHIS - Animal and Plant Health Inspection Service
  BEA - Budget Enforcement Act
  CBO - Congressional Budget Office
  COBRA85 - Consolidated Budget Reconciliation Act of 1985
  DOD - Department of Defense
  FCA - Farm Credit Administration
  FCC - Federal Communications Commission
  FHFB - Federal Housing Finance Board
  FRTIB - Federal Retirement Thrift Investment Board
  FTC - Federal Trade Commission
  GPRA - Government Performance and Results Act
  GIPSA - Grain Inspection, Packers and Stockyards Administration
  GRH - Gramm-Rudman-Hollings
  INS - Immigration and Naturalization Service
  IOAA - Independent Offices Appropriation Act of 1952
  MMS - Minerals Management Service
  NRC - Nuclear Regulatory Commission
  NTIS - National Technical Information Service
  OBRA90 - Omnibus Reconciliation Act of 1990
  OBRA93 - Omnibus Reconciliation Act of 1993
  OMB - Office of Management and Budget
  OTS - Office of Thrift Supervision
  PAYGO - pay-as-you-go
  PCC - Panama Canal Commission
  PTO - Patent and Trademark Office
  PMAs - Power Marketing Administrations
  SEC - Securities and Exchange Commission
  TVA - Tennessee Valley Authority
  USEC - United States Enrichment Corporation
  USFWS - United States Fish and Wildlife Service

Letter
=============================================================== LETTER


B-275109

December 19, 1997

The Honorable John R.  Kasich
Chairman
Committee on the Budget
House of Representatives

Dear Mr.  Chairman: 

Federal user fees\1 --such as agricultural commodity grading fees,
trademark registration fees, and park entrance fees--provided the
United States government with $196.4 billion in revenues in fiscal
year 1996.\2

This total amounted to 12 percent of all federal revenues collected
in fiscal year 1996 and was more than twice the amount collected from
excise taxes, estate and gift taxes, and customs duties combined. 
User fee collections have grown steadily since the early 1980s and
have played several roles in the federal budget.  They have financed
new spending by replacing or supplementing agency appropriations
capped by deficit reduction agreements.  They also have fostered more
business-like practices in the government by making some agencies\3
wholly reliant on fees to finance their operations.  In other cases,
user fees have provided revenues for deficit reduction. 

If user fee collections continue to grow, how the Congress oversees
and federal agencies manage these fees will continue to increase in
importance.  You asked us to identify agencies that rely on fees for
a significant portion of their budget.  We identified 27 agencies
where fees from the public represented 20 percent or more of their
funding averaged over fiscal years 1991 through 1996.  For these
agencies, you asked us to (1) identify changes in agency reliance on
user fees since passage of the Budget Enforcement Act\4 (BEA) of 1990
and (2) describe the ways user fees are structured in the budget,
including what budgetary controls govern the availability and use of
these fees and how they are treated under BEA.  Based on these
findings, you also asked us to identify issues for consideration in
the future design and management of user fees. 


--------------------
\1 The Office of Management and Budget (OMB) defines user fees as "a
general term referring to fees charged to users directly availing
themselves of, or subject to, a government service, program, or
activity, in order to cover the government's costs." OMB's October
revisions to OMB Circular A-11 for the fiscal year 1999 budget
expanded and clarified the term user fee.  The revised definition
excludes fees deposited in the general fund of the Treasury.  OMB's
revised definition is comparable to how fees are defined in this
report, except for voluntary payments to social insurance programs,
which OMB classified as user fees and we did not.  The Federal
Accounting Standards Advisory Board (FASAB) uses the term "exchange
revenue" which it defines as "inflows of resources to a Government
entity that the entity has earned.  They arise from exchange
transactions, which occur when each party to the transaction
sacrifices value and receives value in return." Both OMB and FASAB
include regulatory fees in their definitions.  Exchange revenue is
reported on an accrual basis.  All amounts included in this report
are shown on a budgetary or cash basis.  See footnote 2 for a fuller
explanation of OMB's definition of offseting collections from the
public. 

\2 Total federal user fees is the amount shown in the Budget of the
United States Government, Fiscal Year 1998--Analytical Perspectives
for offsetting collections from the public.  OMB included the
following in this total:  medicare premiums, Outer Continental Shelf
payments, naval petroleum reserve lease receipts, spectrum auction
proceeds, sale of property and services, interest income, deposit
insurance funds, loan guaranty and other insurance premiums, loan
repayments, both distributed and undistributed offsetting receipts,
and all offsetting collections to appropriation or fund accounts. 

\3 As used in this report, the term agency refers to the grouping of
activities shown as bureaus or listed as other independent agencies
in the President's budget request to the Congress.  See appendix I,
Scope and Methodology, for more discussion on the use of this term. 

\4 BEA divides federal spending into (1) discretionary spending
controlled through annual appropriation acts, which is further
subdivided and capped for fiscal years 1998 through 2000 and (2)
direct, or mandatory, spending controlled by permanent law.  BEA
constrains discretionary spending through fixed dollar amounts,
called spending limits or caps, on total budget authority and outlays
for each fiscal year through 2002.  Mandatory spending and receipts
are constrained through a pay-as-you-go (PAYGO) requirement that the
cumulative effects of legislation in this area must not increase the
deficit.  See the glossary for more information on BEA.  Receipts are
normally scored as PAYGO under BEA requirements unless the law
directs that they be used to offset discretionary spending. 


   RESULTS IN BRIEF
------------------------------------------------------------ Letter :1

Since the 1990 enactment of BEA, the 27 agencies in our review have
increased or maintained their reliance on user fees as a source of
funding.  Several of the regulatory agencies we surveyed were given
authority to substantially increase user fee collections and to use
these fees for program purposes.  For example, in fiscal year 1991,
the Federal Communications Commission (FCC) received less than 1
percent of its new funding from user fees.  However, by fiscal year
1996 user fees made up 73 percent of the agency's operating budget. 
For those agencies that relied at least in part on general fund
appropriations in fiscal year 1991, new or existing fee authority was
used to maintain rather than supplement agency funding.  Only the
Immigration and Naturalization Service (INS) received increases in
general fund appropriations and in fee collections, some of which was
the result of new authority. 

Although federal agencies often collect user fees for similar
purposes, not all user fees are treated alike in the federal budget. 
Some user charges must be deposited in the general fund of the U.S. 
Treasury, while others are required by law to provide funding for
specific purposes.  Yet, even when fees are dedicated to the agency
or activities that generated the fee, there are differences in when
and how the fees are made available to the agency and in how much
flexibility agencies have in using the fee revenue.  The attempt to
distinguish between fees collected for the government's business-type
activities from those derived from the government's power to tax was
always problematic.  How fees are categorized has become increasingly
important by the fact that under BEA scoring rules, some fees are
netted against their accounts' budget authority and outlay spending. 
If offset, growth in new and existing fees does not add to the amount
of spending that is scored under BEA discretionary spending limits,
but frees up discretionary resources for other purposes.  Most new
user fees enacted between fiscal years 1991 and 1996 were authorized
to offset discretionary spending. 

The disparate treatment of fees--particularly those associated with
discretionary spending--raises issues for congressional control,
agency management, and competition for limited federal resources.  In
shifting to a more fee-reliant government, inconsistencies in
budgetary treatment of fees with similar characteristics are likely
to increase.  Unlike agencies that rely primarily on appropriated
funds from general revenues, both the Congress and fee-reliant
agencies face additional policy and management issues such as how to
(1) meet the needs for accountability to both the Congress and fee
payers, including agreement on priorities and the appropriate
assessment of fees and (2) define the relationship between
fee-financed and appropriated activities, particularly if resource
disparities between the two groups increase. 


   BACKGROUND
------------------------------------------------------------ Letter :2

Given the scope and variety of federal activities, the federal budget
is inevitably complex.  This is particularly seen in the federal
budgetary treatment of receipts.  The 1967 President's Commission on
Budget Concepts recommended a dual system of accounting for federal
receipts.  The Commission recommended that receipts from activities
which were essentially governmental in nature, including regulation
and general taxation, be reported as receipts, and that receipts from
business-type activities "offset to the expenditures to which they
relate." The Commission recommended this system so that budget totals
could present a clear picture of the extent of governmental activity. 

In practice, however, the distinction was never sharp as evidenced by
the fact that revenue from business-type transactions, termed
"offsetting collections," are not made available to agencies in the
same way. 

  -- Collections credited to appropriation or fund accounts go
     directly to expenditure accounts.  Here, legislation requires
     that collections be credited to an appropriation or fund account
     and offset spending in the account without further legislative
     action.  Collections are typically credited to revolving funds
     when they are the main source of financing and are permanently
     appropriated to fund business-like activities, such as the
     Postal Service.  However, offsetting collections to
     appropriation or fund accounts are not limited to business-like
     or self-supporting activities.\5

  -- Offsetting receipts are required by law to be deposited into
     receipt accounts.  Additional congressional action is necessary
     to move these into, most often, special or trust fund
     expenditure accounts.  Offsetting receipts offset budget
     authority and outlays, but at a level other than at the
     expenditure account.  The U.S.  Fish and Wildlife Service's
     (USFWS) migratory bird conservation activities are funded
     through appropriated offsetting receipts. 

Whatever the budget accounting, the Congress grants agencies
authority to spend offsetting collections either through permanent or
current appropriations.  For example, the Congress permits some
agencies to obligate fees credited directly to appropriation or fund
accounts without further congressional action.  In this report, we
refer to this type of permanent authority as spending authority.  In
other cases, the Congress requires some agencies to obtain budget
authority through current appropriations before spending offsetting
receipts.  In this report, we refer to this budget authority as an
appropriation. 


--------------------
\5 There are six types of federal budget accounts--general fund,
special fund, nonrevolving trust fund, public enterprise revolving
fund, revolving trust fund, and intragovernmental fund--and all can
receive user fees from the public.  All budget accounts are
classified as either expenditure or receipt accounts.  Receipt
accounts record income and are credited with either governmental or
offsetting receipts.  Expenditure accounts may receive
appropriations, can be credited directly with collections, and record
outlays.  See the glossary for a further description of these
accounts. 


   SCOPE AND METHODOLOGY
------------------------------------------------------------ Letter :3

To better understand differences in how offsetting collections for
business-type activities are treated in the budget process and how
they have fared recently, we created a universe of 27 agencies to
review that rely on fees as a source of funds.  We defined
fee-reliant agencies using the following criteria (1) fees from the
public must be used to support the agency that generated the fee, (2)
services, goods, or benefits must be provided in exchange for fees
and the exchange should be closely linked in time, and (3) new fees
from the public must represent 20 percent or more of the agency's
gross outlays less offsetting collections from federal sources
averaged over fiscal years 1991 through 1996. 

To identify changes in agency reliance on user fees since the passage
of BEA, we used OMB actual year data to construct a series of
analyses that described trends in budget authority and collections
for fee-reliant agencies.  Data used in this report cover fiscal
years 1991 through 1996.  OMB codes also allowed us to track changes
in discretionary versus mandatory classifications of agency funding
and shifts from current to permanent budget or spending authority. 

To review the classification and treatment of fees in budget
accounts, we used OMB codes created for the Administration's annual
budget request.  These codes allowed us to identify (1) fees from the
public and their classification as an offsetting receipt or an
offsetting collection credited to an appropriation or fund account,
(2) the type of expenditure account the fee is credited to, and (3)
the fee's availability for obligation in a given fiscal year. 

To identify issues for consideration in the future design and
management of such fees, we conducted interviews with budget
officials at CBO, OMB and 6 of the 27 agencies we identified as
fee-reliant. 

This report discusses user fees in a budget context and not from a
financial management perspective.  Issues related to reporting of
fees in financial statements or compliance with standards, such as
OMB Circular A-25, User Charges and the Statements of Federal
Financial Accounting Concepts and Standards No.  4, Managerial Cost
Accounting Standards, are not addressed in this report. 

Details of our scope and methodology are contained in appendix I and
related GAO products are listed at the end of the report. 

Our work was performed in Washington, D.C.  between September 1996
and September 1997 in accordance with generally accepted government
auditing standards.  We requested comments on a draft of this report
from the Director of the Office of Management and Budget or his
designee.  On December 12, 1997, the Deputy Associate Director for
Budget Analysis and Systems in the Budget Review Division provided us
with comments, which are discussed in the "Agency Comments and Our
Evaluation" section. 


   AGENCIES INCREASINGLY RELY ON
   USER FEES
------------------------------------------------------------ Letter :4

The agencies we reviewed increased the overall amount of fees they
collected and these fees constituted a larger proportion of their
budgets in fiscal year 1996 than in fiscal year 1991.  Fee
collections among the 27 agencies we surveyed totaled $74.9 billion
in fiscal year 1996.  As noted earlier, federal user fees provided
the United States government with $196.4 billion in revenues in
fiscal year 1996.\6 Of this total, Congress has earmarked $154.3
billion to the agencies that generated the fees, while $42.1 billion
was not earmarked to specific agencies but was credited to the
general fund of the Treasury.  Fees collected by the 27 agencies in
our review represented 49 percent of the $154.3 billion in earmarked
user fees from the public in fiscal year 1996. 

In fiscal year 1991, these 27 agencies collected $58 billion from the
public in user fees to support their activities.  By fiscal year
1996, this amount had grown to $74.9 billion.  Although these figures
are dominated by the Postal Service, which accounted for $13 billion
of the $17 billion increase, collections increased 27 percent in real
terms between these years.\7 Between 1991 and 1996, all agencies we
studied either increased or roughly maintained the percent of their
budgets funded though user fees.  During this time period, the
Congress substantially increased the fee-reliance of some regulatory
agencies, such as the Federal Trade Commission, the Federal
Communications Commission, and the Securities and Exchange
Commission. 

Additional user fee collections appear to have replaced appropriated
funds or to have reduced the size of decreases in appropriated funds. 
Replacement of general fund appropriations can also be seen in that
most increases in user fees enacted between fiscal years 1991 and
1996 were designated as discretionary spending for BEA purposes.  The
classification of these fees and increased use of fee collections to
offset discretionary spending has lessened the impact of BEA spending
limits on agencies that collect fees. 


--------------------
\6 See footnote 2 for revenue sources included in OMB's definition of
offsetting collections from the public. 

\7 Adjusted based on 1996 dollars. 


      CONGRESS HAS INCREASED
      SEVERAL FEDERAL AGENCIES'
      RELIANCE ON USER FEES
---------------------------------------------------------- Letter :4.1

As shown in table 1, 8 out of 27 agencies in our survey showed
increased reliance on user fees from fiscal year 1991 to fiscal year
1996.  Of the 27 agencies in our review, 15 were fully funded, or
nearly so, by fees from the public in fiscal year 1991 and remained
so through fiscal year 1996 according to budgetary data.  Of the
remaining 12 agencies, 6 substantially increased their reliance on
fees from fiscal years 1991 to 1996.  Congress increased fee reliance
of two additional agencies, though not to the extent of the agencies
noted above.  Four agencies saw the percentage of their budgets
funded through user fees remain stable between fiscal year 1991 and
1996. 



                                Table 1
                
                   Change in Fee Reliance Among Fee-
                 Reliant Agencies, Fiscal Years 1991 to
                                  1996

----------------------------------------  ----------------------------
Agencies Nearly or Fully Funded By Fees (15)
----------------------------------------------------------------------
--Comptroller of the Currency             --Nuclear Regulatory
--Other Department of Defense Trust       Commission
Funds                                     --Office of Thrift
--Farm Credit Administration              Supervision
--Federal Housing Finance Board           --Panama Canal Commission
--Federal Retirement Thrift Investment    --Patent and Trademark
Board                             Office
--National Credit Union Administration    --Postal Service
--National Technical Information Service  --Power Marketing
                                          Administrations
                                          --Tennessee Valley
                                          Authority\a
                                          --U.S. Enrichment
                                          Corporation


Agencies That Increased Fee Reliance Substantially (6)
----------------------------------------------------------------------
--Animal and Plant Health Inspection      --Federal Trade Commission
Service                           Service
--Bureau of Reclamation                   --Securities and Exchange
--Federal Communications Commission       Commission
                                          --U.S. Customs Service


Agencies That Increased Fee Reliance Slightly (2)
----------------------------------------------------------------------
--Immigration and Naturalization          --U.S. Mint Service


Agencies Where Fee Reliance Remained Stable (4)
----------------------------------------------------------------------
--Agricultural Marketing Service          --Minerals Management
--Grain Inspection, Packers and           Service
Stockyards Administration         --U.S. Fish and Wildlife
                                          Service
----------------------------------------------------------------------
Note:  Agencies we categorized as nearly or fully funded by fees
received, on average, over 95 percent of their funding from fees from
fiscal years 1991 through 1996.  Agencies that increased fee reliance
substantially increased fee reliance between 21 percent and 70
percent between these fiscal years.  Agencies that increased fee
reliance slightly increased fee reliance between 8 percent and 10
percent.  Agencies we categorized as where fee reliance remained
stable either increased fee reliance by less than 3 percent or
decreased fee reliance by less than 3 percent. 

\a We classified the Tennessee Valley Authority (TVA) as nearly or
fully funded by fees because it was funded mainly through revenues
from current power operations and borrowing against future power
revenues. 

Many of the 15 agencies were fully funded, or nearly so, by fees from
the public from fiscal years 1991 to 1996.  The Congress authorized
substantial fee increases for two of these agencies, the Patent and
Trademark Office (PTO) and the Nuclear Regulatory Commission (NRC),
in the Omnibus Budget and Reconciliation Act of 1990 (OBRA90). 
While many of these 15 agencies are primarily regulatory in nature,
they also include service agencies, such as the Department of
Commerce's National Technical Information Service (NTIS) and the
Postal Service.  Several of these 15 agencies are involved in banking
or credit regulation, such as the Office of Thrift Supervision and
the National Credit Union Administration, among others.  These
banking and credit regulatory agencies are usually supported through
examination or assessment fees on their members. 

Six agencies in our survey substantially increased their reliance on
fees from fiscal years 1991 to 1996.  Again, these agencies are
primarily regulatory.  The increased reliance on user charges among
these agencies resulted mainly from legislative changes requiring
increased collections for activities such as licenses, filings, and
applications. 

  -- In fiscal year 1991, FCC received less than 1 percent of its new
     budget authority from user fees.  However, the Omnibus Budget
     and Reconciliation Act of 1993 (OBRA93) increased the fees that
     FCC charges to cover the cost of the application and licensing
     of radio stations, telecommunications equipment, and radio
     operators, so that by fiscal year 1996 user fees made up 71
     percent of the agency's new budget authority.\8

  -- The fiscal year 1993 Commerce, Justice, State and the Judiciary
     Appropriation Act increased filing fees charged jointly by the
     Department of Justice and the Federal Trade Commission (FTC) to
     review proposed mergers.  These fees had originally gone into
     effect in fiscal year 1990 and covered all costs associated with
     reviewing proposed mergers that might reduce competition.  In
     fiscal year 1991, FTC received 18 percent of its new budget
     authority from user charges.  With the 1993 fee increases, this
     grew to 69 percent by fiscal year 1996. 

  -- In fiscal year 1991, the Securities and Exchange Commission
     (SEC) received 19 percent of its new budget authority from user
     charges.  Beginning that year, user fees became an increasingly
     important component of SEC appropriations so that by fiscal year
     1996 these fees made up 70 percent of the agency's new budget
     authority. 

  -- The U.S.  Customs Service doubled its reliance on fees, as new
     budget authority from fees grew from 41 percent in fiscal year
     1991 to 71 percent in fiscal year 1996.  This increase was
     largely a function of the North American Free Trade Agreement
     Implementation Act of 1993, which extended the collection of
     Customs Service user fees through September 2003, increased air
     and sea passenger collections, and lifted air and sea passenger
     country exemptions through September 1997. 

  -- In fiscal year 1991, the Animal and Plant Health Inspection
     Service (APHIS) received less than 9 percent of its new
     budgetary authority from user fees.  APHIS' revenues increased
     primarily because four programs previously funded with
     appropriations were converted to user fee funding between fiscal
     years 1991 and 1993.  As a result, by fiscal year 1996 APHIS
     received 31 percent of new budget authority from user fees. 

  -- In addition, the Bureau of Reclamation increased its reliance on
     user fees between fiscal years 1991 and 1996 due to, among other
     activities, increased offsetting receipts appropriated to carry
     out provisions of the Central Valley Project Improvement Act. 

The Congress increased the reliance of the U.S.  Mint and INS on user
fees, though not to the extent of the agencies noted above.  Although
the U.S.  Mint's collections increased, the most significant change
was structural.  In fiscal year 1996, the U.S.  Mint was restructured
to operate with a single revolving fund.  Although INS fee
collections from the public more than doubled between fiscal years
1991 and 1996, from $411 million to $922 million, fees as a portion
of INS's new budget authority increased only slightly due to large
increases in general fund appropriations. 

With four agencies--the U.S.  Fish and Wildlife Service, Minerals
Management Service, Agricultural Marketing Service (AMS), the Grain
Inspection, Packers and Stockyards Administration (GIPSA)--the
percentage of their budgets funded through user fees remained stable
between fiscal years 1991 and 1996. 


--------------------
\8 OBRA93 also gave FCC authority to auction licenses to use parts
of the radio spectrum.  We have not included proceeds from the
spectrum auctions in our analysis since it is unlikely that the
revenue from these asset sales will become available to FCC. 


      USER FEES INCREASINGLY
      OFFSET DISCRETIONARY
      SPENDING
---------------------------------------------------------- Letter :4.2

Most new user fees enacted between fiscal years 1991 and 1996 were
designated as offsets to discretionary spending for BEA purposes.  In
fiscal year 1991, 6 of the 27 agencies, the Postal Service, APHIS,
SEC, NRC, INS and FCC, had 90 percent or more of their total spending
classified as discretionary spending.  By fiscal year 1996, four
additional agencies, PTO, NTIS, FTC, and the Panama Canal Commission,
had more than 90 percent of their total spending classified as
discretionary spending.  Spending for two of these additional
agencies, NTIS and the Panama Canal Commission, went from 100 percent
mandatory spending in fiscal year 1991 to 100 percent discretionary
spending by fiscal year 1996.  For NTIS, this occurred when its
operations were converted from a trust fund to a self-supporting
revolving fund.  For the Panama Canal Commission this change is
attributable to the decision made by OMB in fiscal year 1993 not to
include fees that offset spending in discretionary accounts in the
PAYGO baseline.\9

The Bureau of Reclamation also had a significant increase in the
percent of total spending classified as discretionary.  In fiscal
year 1991, 60 percent of Reclamation's total spending was classified
as discretionary spending, but by fiscal year 1996 this percentage
had increased to 86 percent.  Of the 27 agencies in our survey, 14
saw an increase in the percent of agency spending classified as
discretionary between fiscal years 1991 and 1996, 5 agencies saw a
decrease, while 8 agencies showed no change.  See table III.1 in
appendix III for detailed information on the BEA classifications for
each agency in our survey. 


--------------------
\9 See appendix III for a discussion of this OMB decision. 


      INCREASED USER FEE
      COLLECTIONS REPLACED GENERAL
      FUND APPROPRIATIONS
---------------------------------------------------------- Letter :4.3

Table 2 compares growth from current appropriations\10 versus growth
from all sources, including fees from the public, from fiscal years
1991 through 1996.\11 See table IV.1 in appendix IV for detailed
information on current and permanent appropriations for the 27
agencies in our survey. 



                                Table 2
                
                  Fee-Reliant Agency Growth in Current
                 Appropriations Versus All Sources From
                     Fiscal Years 1991 Through 1996

                                                              Fiscal
                                                              Years
                                           Compound growth    1991-
                                               rate\a          1996
                                           ---------------  ----------
                                                   Current         All
                                            appropriations   sources\b
Agency                                           (percent)   (percent)
-----------------------------------------  ---------------  ----------
Agricultural Marketing Service                       -1.37        1.32
Animal and Plant Health Inspection                    1.86        1.69
 Service
Grain Inspection, Packers and Stockyards              2.44        1.51
 Administration
Federal Communications Commission                   -12.77       11.29
Federal Trade Commission                            -13.18        5.56
Immigration and Naturalization Service               14.13       15.42
Patent and Trademark Office                          -2.06       12.64
Securities and Exchange Commission                   -8.33       12.00
Nuclear Regulatory Commission                         0.30        0.40
Power Marketing Administrations                      -0.45        0.21
Tennessee Valley Authority                           -4.19        1.05
Bureau of Reclamation                                -3.61       -1.47
Minerals Management Service                          -0.83       -0.50
U.S. Fish and Wildlife Service                       -1.12        2.98
U.S. Customs Service                                  2.46        4.19
U.S. Mint                                           -100.0       26.13
Postal Service                                      -24.90        4.55
----------------------------------------------------------------------
Note:  When amounts are shown in constant dollars, which excludes
inflation, all of the fee-reliant agencies show negative growth in
current appropriations except for INS. 

\a Compound growth rate means the average annual growth rate from
fiscal years 1991 through 1996. 

\b Includes federal and nonfederal offsetting collections and funding
from permanent and current budget authority. 

Twelve fee-reliant agencies that received current appropriations,
either from general revenue or special fund appropriations, showed
negative growth in appropriated funds.  However, once user fees and
other permanent budget authority were included, 15 of the 17 agencies
shown in table 2 either increased their budgets or had decreases less
than the decrease in current appropriations.  For example, current
appropriations for SEC declined by 8.3 percent between fiscal years
1991 and 1996.  However, after fees were included in SEC's budget
totals, the agency's budget grew 12 percent over this period. 
Current appropriations for the Bureau of Reclamation declined by 3.6
percent between fiscal years 1991 and 1996.  However, user fee
revenues helped reduce the effect of this decline on the Bureau's
budget so that it experienced only about a 1.5 percent reduction
during this period. 


--------------------
\10 Current appropriations are provided by annual appropriation acts
and are scored against BEA discretionary spending limit totals. 
Current appropriations include general, special, and trust fund
appropriations. 

\11 Nine agencies--the Federal Retirement Thrift Investment Board,
Other DOD Trust Funds, Farm Credit Administration, Comptroller of the
Currency, Office of Thrift Supervision, Federal Housing Finance
Board, National Credit Union Administration, Panama Canal Commission,
and U.S.  Enrichment Corporation--were excluded from this table
because they did not receive current appropriations from fiscal years
1991 to 1996.  The National Technical Information Service was also
excluded because it received only small current appropriations in
fiscal years 1993 and 1995. 


   BUDGETARY TREATMENT AMONG
   AGENCIES THAT COLLECT USER FEES
   IS INCONSISTENT
------------------------------------------------------------ Letter :5

The 27 fee-reliant agencies in our review varied in how their user
fees were classified, what kind of account they were deposited into,
the legislative controls on the amount or use of these fees, and how
they were treated under BEA.  As a result, user fees for similar
programs were often treated quite differently in the federal budget
process.  For example, some agricultural inspection fees were netted
against their accounts' budget authority and outlays, which reduced
spending counted against BEA discretionary spending limits.  Other
agricultural fees were appropriated as new budget authority and were
counted as discretionary spending.  While these fees offset spending,
they do so at the department and subfunction levels.  In this case,
the offset can be used to provide room under the spending caps
elsewhere and not necessarily for the program generating the fee. 

Table 3 lists these 27 agencies and identifies whether, in fiscal
year 1996, they received user fees from the public primarily as
collections credited to an appropriation or fund accounts or as
offsetting receipts. 



                                Table 3
                
                 Twenty-Seven Fee-Reliant Agencies and
                       Their Fee Classifications

----------------------------------------  ----------------------------
Agencies That Primarily Had C Fund Accounts (18)
----------------------------------------------------------------------
--Comptroller of the Currency             --Office of Thrift
--Other Department of Defense Trust       Supervision
Funds                                     --Panama Canal Commission
--Farm Credit Administration              --Patent and Trademark
--Federal Communications Commission       Office
--Federal Housing Finance Board           --Postal Service
--Federal Trade Commission                --Power Marketing
--Grain Inspection, Packers and           Administrations
Stockyards Administration         --Securities and Exchange
--National Credit Union Administration    Commission
--National Technical Information          --Tennessee Valley
Service                           Authority
                                          --U.S. Enrichment
                                          Corporation
                                          --U.S. Mint



Agencies That Primarily Received Offsetting Receipts (8)
----------------------------------------------------------------------
--Animal and Plant Health Inspection      --Minerals Management
Service                           Service
--Bureau of Reclamation                   --Nuclear Regulatory
--Federal Retirement Thrift Investment    Commission
Board                             --U.S. Customs Service
--Immigration and Naturalization Service  --U.S. Fish and Wildlife
                                          Service


Agencies That Received a Mix of Offsetting Collections (1)
----------------------------------------------------------------------
--Agricultural Marketing Service
----------------------------------------------------------------------
Note:  Agencies that we categorized as primarily having collections
credited to appropriation or fund accounts received at least 75
percent of their fees from the public in this manner in fiscal year
1996.  Agencies we categorized as primarily receiving offsetting
receipts received at least 75 percent of their fees in this manner in
fiscal year 1996.  The one agency we categorized as receiving a mix
of offsetting collections received less than 75 percent of its
offsetting collections in the form of collections credited to
appropriation or fund accounts or as offsetting receipts in fiscal
year 1996. 

As shown in table 3, 18 of the 27 agencies we identified as
fee-reliant received fees from the public primarily as collections
credited to appropriation or fund accounts.  Eight other agencies
received fees mainly as offsetting receipts, with two of those being
authorized to use fees received during the year to reduce their
appropriations.  In practice, this treatment is similar to those
agencies that have collections credited to their appropriation or
fund accounts.  One agency collected fees that were not predominantly
one type or the other. 

The following sections provide more detail on the different budgetary
treatment of these user fees.  See appendix II for a detailed listing
of budgetary characteristics for each of the 27 agencies in our
review. 


      BUDGETARY TREATMENT OF
      COLLECTIONS CREDITED TO
      APPROPRIATION OR FUND
      ACCOUNTS
---------------------------------------------------------- Letter :5.1

As shown in table 3, we identified 18 fee-reliant agencies that
received user fees as collections credited to appropriation or fund
accounts.  This treatment was typical for agencies that conduct
business-type operations and are largely self-supporting through the
exchange of fees for goods or services.  Most of these agencies are
authorized to use these collections without further congressional
action.  In some cases, this reflects the belief that an agency--such
as the Postal Service--might not be able to respond quickly to its
customers if it were required to go through the appropriations
process.  In other cases, the amount collected is too insignificant
or unpredictable to be separately appropriated and, instead, is
included in a general operating account.  Of these 18 agencies, 12
were funded entirely, or mostly so, through public enterprise funds. 
Fees for two agencies, the Comptroller of the Currency and commissary
sales in the DOD Trust Funds, were deposited in trust revolving
funds. 

Collections for four agencies--FCC, the Federal Trade Commission
(FTC), PTO, and SEC--were deposited in general fund expenditure
accounts.  Collections credited to a general fund expenditure account
may be broad-based and cover the agency's operations as well as
specific fee activities.  Where the definition of costs charged to
users was broadened to include indirect costs, this can mean that the
agency is entirely supported by fees.  For instance, PTO is fully
funded through fees.  Of PTO's $631 million in new budget authority
for fiscal year 1996, $82 million was appropriated from a special
fund and $549 million from spending authority from offsetting
collections.  In other cases, fees may supplement an agency's general
fund appropriation.  In fiscal year 1996, the Southwestern Power
Administration's operations and maintenance account was funded
primarily through $30 million in current appropriations from general
revenues, but received an additional $3 million in collections. 

Although there are exceptions, figure 1 outlines the ways collections
are generally credited to appropriation or fund accounts in the
budget process, differences in BEA spending categories among these
collections, and subsequent BEA scoring treatment.  As shown in
figure 1, collections credited to appropriation or fund accounts may
either (1) offset discretionary spending at the account level or (2)
be treated as negative direct spending, which has no effect on
discretionary spending limits.  As noted above, collections credited
to discretionary appropriation or fund accounts are netted against
account budget authority and outlays.  For example, of the $100
million in new budget authority available to FTC in fiscal year 1996,
only $35 million in its Salaries and Expenses account counted towards
BEA budget authority limits.  The remaining $65 million from
offsetting collections was not scored. 

   Figure 1:  Collections Credited
   to Appropriation or Fund
   Accounts in the Budget Process

   (See figure in printed
   edition.)


         TIMING OF LEGISLATIVE
         ACTION AND OTHER CONTROLS
-------------------------------------------------------- Letter :5.1.1

In a number of instances, the Congress has authorized agencies to
obligate collections for program purposes without further
congressional action, a form of permanent budget authority.  Although
fees credited directly to revolving funds are by definition available
for the agency's use, this does not make program size solely a
function of fee collections.  The Congress can limit the amount
available to an agency, typically through provisions in appropriation
acts.  Nearly a third of the agencies in our study with one or more
revolving funds had a limitation on obligations between fiscal years
1991 and 1996.  An agency's use of revolving funds may also be
limited through the apportionment process, which limits the amount of
obligations an agency or program can incur within a particular time
period, program, activity, or project. 


      BUDGETARY TREATMENT OF
      OFFSETTING RECEIPTS
---------------------------------------------------------- Letter :5.2

As shown in table 3, eight of the agencies we identified as
fee-reliant received most of their fees from the public through
offsetting receipts.  Based on the agencies in our review, most that
receive all or most of their funding from offsetting receipts are not
entirely fee-reliant.  Offsetting receipts are generally appropriated
to a special, nonrevolving trust or general fund account to support
the agency or activity that generated the fee.  Agencies derive these
fees from many of the same types of transactions as those credited as
collections to appropriation or fund accounts. 

Although there are exceptions, figure 2 outlines the ways offsetting
receipts are generally treated in the budget process, differences in
BEA spending categories among these receipts, and BEA scoring
treatments.  As is the case for collections credited to appropriation
or fund accounts, offsetting receipts also may be classified as
either discretionary or mandatory spending under BEA.  If offsetting
receipts are classified as discretionary, they may (1) offset
discretionary spending at the agency (executive department or
independent agency) and subfunction level or (2) be used, in the case
of some regulatory agencies, to reimburse general or special fund
appropriations similar to collections credited to appropriation or
fund accounts.  If offsetting receipts are classified as mandatory
spending, they are treated as negative direct spending and used to
meet PAYGO requirements on the mandatory side of the budget. 

In those instances where offsetting receipts offset discretionary
spending at the agency or subfunction level, they provide room under
the caps for additional spending, but not necessarily for the account
or agency that generated the fees.  For example, fees generated by
the Animal and Plant Health Inspection Service (APHIS), are treated
as offsets to spending for the Department of Agriculture as a whole. 

   Figure 2:  Offsetting Receipts
   in the Budget Process

   (See figure in printed
   edition.)


         TIMING OF LEGISLATIVE
         ACTION AND OTHER CONTROLS
-------------------------------------------------------- Letter :5.2.1

The Congress may--as is true for funding from general revenues--make
offsetting receipts available in a permanent appropriation.  Unlike
current authority in which the Congress annually sets the program
level which can not be exceeded without further congressional action,
permanent authority is available in the first year as well as in
succeeding years. 

The Congress can also decide to cap the amount of fee receipts
available in a given fiscal year by making the budget authority
definite--that is, for a fixed amount.  If the amount of fees
collected exceeds the amount appropriated, then the excess fees are
held in special or trust receipt accounts to be made available in
subsequent years or deposited in the general fund of the Treasury.\12
Typically, fees that are permanently appropriated are not for a fixed
or definite amount; instead, the program retains for obligation
whatever fees it generates.  In contrast, fees that are currently
appropriated are more likely to be for a specific amount. 

Increasingly, fees generated by some regulatory agencies are used to
reimburse or reduce amounts appropriated to an agency.  Agencies with
this authority fund their activities either through (1) general or
special fund appropriations, which their legal authority directs be
reduced as fees are collected or (2) fees appropriated to special
fund expenditure accounts that are then used to offset spending in
another account, such as the agency's main operating account.\13

Two agencies in our survey--NRC and INS--are required by law to
reimburse their appropriations with receipts collected during the
fiscal year.  This budgetary treatment is similar to the treatment of
user fees collected by FTC and FCC, as both agencies' appropriations
are reduced dollar for dollar as collections are credited to their
appropriation accounts. 

Many of these regulatory receipts, including some of those for NRC,
were previously classified as governmental and deposited in the
general fund of the Treasury.  However, in OBRA90, the Congress
authorized NRC to charge fees to its licensees to cover all its
appropriation except for that amount appropriated from the Nuclear
Waste Fund.  As a result, nearly all of NRC's budget is financed by
fees.  For instance, in fiscal year 1996, NRC was appropriated $472.6
million which was reduced during the fiscal year by $461.6 million in
offsetting collections.  The result was a net fiscal year 1996
appropriation of $11 million.  Although NRC had budget authority
equal to $472.6 million only the $11 million was subject to BEA
discretionary spending limits. 


--------------------
\12 Seven of the 11 agencies that received some offsetting receipts
had appropriations for a fixed amount. 

\13 These fees usually offset spending in the generating agency at
the account level up to a specified amount.  Any fees collected in
excess of this amount may be made available either immediately, at a
specified time in the future, through the reprogramming process, if
applicable, or in a subsequent appropriation.  From the agency's
perspective, this system has both advantages and disadvantages.  The
advantage is the assurance of funding up to the appropriated amount
whether or not fees are collected for the full amount.  The
disadvantage is that the agency may not be permitted to spend fees
collected in excess of its general or special fund appropriation.  In
addition, the Congress may also direct that fee balances be deposited
in the general fund of the Treasury. 


      BUDGETARY TREATMENT OF
      SIMILAR USER FEES
---------------------------------------------------------- Letter :5.3

Although fees are treated differently for similar activities,
increasingly authority is being provided to allow fees to offset
discretionary spending no matter what the source or purpose of the
fee.  To illustrate, table 4 shows five accounts that receive fees
from the public for their inspection services.  Although there are no
economic differences in these transactions, there were significant
differences in budgetary treatment.  For purposes of BEA scoring,
fees in all five accounts either reduce budget authority and outlays
subject to discretionary limitations or do not affect discretionary
spending because they are classified as mandatory. 



                                Table 4
                
                Budgetary Treatment and BEA Scoring for
                          Inspection Services

                                Budgetary
Agency/Fee type                 treatment of fees   BEA scoring
------------------------------  ------------------  ------------------
Agency: APHIS                   Account Title:      Account classified
                                Salaries and        as discretionary.
Activity: Agricultural          expenses            Appropriated
quarantine inspection                               receipts are
                                Account Type:       treated as new
Fee Type: proprietary           general fund        budget authority
receipt                         expenditure         at the account
                                account             level and offset
                                                    at the agency
                                Type of Authority:  (Department of
                                current budget      Agriculture) and
                                authority           subfunction level.
                                                    These offsetting
                                                    receipts are
                                                    scored as zero
                                                    under BEA.

Agency: Nuclear Regulatory      Account Title:      Account and
Commission                      Salaries and        receipts are
                                expenses            classified as
Activity: Inspection,                               discretionary.
oversight and licensing of      Account Type:       Offsetting
nuclear facilities              general fund        governmental
                                expenditure         receipts are
Fee Type: offsetting            account             required by law to
governmental receipts                               offset
                                Type of Authority:  appropriation.
                                current budget      Only the net
                                authority           amount is included
                                                    in BEA scoring of
                                                    discretionary
                                                    spending.

Agency: AMS                     Account Title:      Account and
                                Marketing           offsetting
Activity: Inspection of egg     services            collections are
handlers and hatcheries,                            classified as
grading of tobacco and cotton,  Account Type:       discretionary.
and other                       general fund        Budget authority
marketing services              expenditure         and outlays are
                                account             offset by the
Fee Type: offsetting                                amount of
collections to an               Type of Authority:  collections. Only
appropriation or fund           permanent spending  the net amount is
account                         authority           included in BEA
                                                    scoring of
                                                    discretionary
                                                    spending.

Agency: GIPSA                   Account Title:      Account and
                                Inspection and      offsetting
Activity: Grain inspection,     weighing services   collections were
weighing and grading services                       classified as
                                Account Type:       mandatory at the
Fee Type: offsetting            public enterprise   time of our
collections to an               revolving fund      review. Recently
appropriation or fund                               this account was
account                         Type of Authority:  reclassified
                                permanent spending  because of a
                                authority.          concept change. As
                                                    a mandatory
                                                    account it had no
                                                    effect on
                                                    discretionary
                                                    spending. As a
                                                    discretionary
                                                    account, budget
                                                    authority and
                                                    outlays are offset
                                                    by the amount of
                                                    collections.

Agency: AMS                     Account Title:      Account and
                                Miscellaneous       receipts are
Activity: Inspection and        Trust Funds         mandatory.
grading of agricultural                             Included in the
commodities                     Account Type:       direct spending
                                trust fund          baseline. No
Fee Type: Proprietary                               effect on
receipts                        Type of Authority:  discretionary
                                permanent budget    spending.
                                authority
----------------------------------------------------------------------
APHIS' fees for agricultural quarantine inspection are a dedicated
source of revenue that are earmarked for the purposes for which they
were collected.  Since proprietary receipts are offsetting, any fees
provided in appropriations language to APHIS are offset against
discretionary spending limits.  However, because APHIS is part of a
larger agency, the benefits of this offset accrue to the Department
of Agriculture as a whole and for the agricultural research and
services subfunction. 

NRC receipts are called offsetting governmental because they are
governmental receipts by nature but are required by law to offset
spending.  Originally, some of NRC's receipts were governmental and
not earmarked for NRC's use.  However, beginning with OBRA90, NRC
and several other regulatory agencies were authorized to recover
total agency costs or, in some cases, amounts in excess of agency
costs.  The appropriations language for these agencies directed that
the collections be treated as offsetting.  OMB subsequently created
the offsetting governmental receipt classification to distinguish
these receipts from other types of receipts. 

AMS fees for inspection and cotton and tobacco grading, and GIPSA's
grain inspection fees are both authorized to be credited directly to
appropriation or fund accounts.  GIPSA was classified as a mandatory
account at the time of our review and therefore it and its
collections were treated as direct or mandatory spending subject to
PAYGO requirements.\14 Recently, this GIPSA account was reclassified
by OMB applying BEA scoring rules that, in most cases, where the
Congress has provided permanent authority but has imposed an
obligation limitation, the account will be treated as discretionary. 

The last example, AMS's grading of agricultural commodities, is
classified as mandatory spending because the fees for these
activities are authorized as receipts to a trust fund.  These fees
and their activities are not subject to discretionary spending
limits. 


--------------------
\14 The classification depends on whether the fees are authorized to
be charged in appropriations acts or authorizing statutes. 


   ISSUES FOR CONSIDERATION IN THE
   DESIGN AND MANAGEMENT OF USER
   FEES
------------------------------------------------------------ Letter :6

Increased reliance on fee collections as an agency's primary source
of funding has implications for federal budgeting and management that
may call for a reexamination of the basic principles as well as the
actual practices underlying the treatment of fees.  Offsetting can
inhibit congressional tradeoffs based on the relative merit of
programs and can obscure the amount of spending for fee-reliant
agencies.  The current trend to net fees against spending at the
account or agency level offers agencies some stability, even
potential growth, not available to most agencies dependent on current
appropriations.  However, fee-reliant agencies are faced with some
unique challenges that make management of these agencies more
complex. 

How user fees are structured reflects competing considerations and
the sometimes differing interests of the Congress, OMB, agencies, and
the fee payers.  Some believe that agencies will have less motivation
to collect and users to pay if the fees are not credited to the
activity that generated the fee.  Others have cautioned that
earmarking fees reduces congressional flexibility in making resource
decisions and can complicate agency oversight.  Still others maintain
that the merits of a program--not its ability to generate
fees--should influence funding decisions and program size,
particularly in the context of continuing reductions in overall
discretionary spending.  In considering these trade-offs, it is
important that budgetary treatment of fees influence, but not drive,
resource and management decisions. 


      INCONSISTENCIES BETWEEN
      BUDGET CONCEPTS AND FEE
      CLASSIFICATIONS ARE LIKELY
      TO INCREASE
---------------------------------------------------------- Letter :6.1

As scoring differences become more important and distinctions in fee
classifications more ambiguous, fee structure is likely to be driven
by budget rules that make certain designs most advantageous.  The
1967 Commission on Budget Concepts could not have anticipated how
discretionary caps would serve to erode the criteria it proposed to
distinguish the budgetary treatment of fees.  The obvious advantage
of netting fees against program spending and the pressures to earmark
fees for certain uses make it more likely in today's budget
environment that fees from the public will be treated as offsets to
appropriations under BEA caps, regardless of whether the underlying
federal activity is business or governmental in nature.  An agency is
likely to consider offsetting collections that are credited directly
to its appropriation or fund account more advantageous than a receipt
that offsets at the department and subfunction level.  Moreover,
inconsistencies have emerged in the budgetary treatment of fees with
similar characteristics and purposes, and these differences have
important implications for budgetary decisions among these programs. 

Any further examination of fees might include a broader range of user
charges not discussed in this report, including possibly excise taxes
and those fees collected under authority provided by the Independent
Offices Appropriation Act of 1952.\15 Questions could be asked, such
as the following:  What rules make sense for comparable types of
activities?  What are the best ways of presenting user fees in a
unified budget that will be inclusive and consistent?  Finally,
recognizing that not all activities are alike, What treatment will
provide the most appropriate oversight and control for a particular
fee-reliant activity? 


--------------------
\15 See the glossary for a discussion of the Independent Offices
Appropriation Act of 1952. 


      FEE-RELIANT AGENCIES FACE
      UNIQUE MANAGEMENT ISSUES
---------------------------------------------------------- Letter :6.2

Fee-reliant agencies face management issues not faced by those that
depend primarily on general fund appropriations.  Agencies' reliance
on fees may raise expectations that these agencies will be
self-supporting, thereby prompting questions about the applicability
of market or business-like principles to their funding and
operations.  For example, dependence on fees may cause these programs
to become more vulnerable to cyclical swings in demand and fee
income.  This in turn raises questions about how to respond to such
downturns in income, such as whether general appropriations should be
used to subsidize operations if fees decline.  If these agencies are
expected to operate in a market environment--especially without an
appropriations "safety net"--pressures to provide exemptions from
government rules and regulations on procurement and personnel may
arise.  Balancing these with other issues, such as accountability to
the Congress and the general taxpayer, will be a continuing
challenge. 

Increasingly, agencies are being asked to provide greater
accountability.  Where the Congress and fee payers agree on
priorities, there may be no conflict between oversight and
accountability to the Congress and accountability to fee payers. 
However, where congressional and fee payer priorities differ, the
agency may be under greater pressure to satisfy the demands of fee
payers, particularly if the exchange of fee for service is voluntary. 

Even where there may be agreement in principle that fees should be
charged for an activity, there is the possibility of increased
conflict between different payers about the allocation among them. 
Moreover, few agencies provide purely business-type services.  To the
extent that fee-reliant agencies also provide services to the general
public and do not receive general fund appropriations, fees may have
to be set to subsidize non-fee-related costs and activities, which
can prompt further conflict between the fee payers and those
receiving these broader benefits. 

In addition, agencies with some fee-funded activities will have to
redefine relationships between fee-funded and appropriated
activities.  Agencies will be faced with the inequities, real or
perceived, that different funding sources may create.  In addition to
any perceived funding imbalances between fee and appropriations
supported programs, management challenges can arise from differences
in their funding status.  For example, during times of government
shutdowns, programs with authority to obligate fees without
congressional action were among those able to continue operating
while programs and staff funded solely through current appropriations
were shutdown and furloughed. 


   AGENCY COMMENTS AND OUR
   EVALUATION
------------------------------------------------------------ Letter :7

OMB officials agreed that different budgetary treatments have
occurred as agencies have sought and the Congress has enacted laws
that allow agencies to use the fees they generate to offset spending. 
Several comments by OMB officials suggested that offsetting correctly
applied, that is, offsetting that results from business-like
activities, does not inhibit tradeoffs between programs or limit
congressional flexibility in decision-making because this type of
spending is self-controlling.  These comments assume that it is
possible to make clear distinctions between business-like and
governmental activities.  Although the 1967 President's Commission on
Budget Concepts recommended a dual system of accounting based on
these distinctions, such distinctions have been difficult to make in
practice.  A clear line between governmental and business-type
activities is even less likely to be applied in the future given the
overwhelming benefits of offsetting under BEA discretionary spending
limits. 

OMB officials also provided a number of technical and clarifying
comments, which we incorporated in the report where appropriate. 


---------------------------------------------------------- Letter :7.1

We are sending copies of this report to other interested Members of
the Congress and the Director of the Office of Management and Budget. 
We will make copies available to others on request.  Please call me
at (202) 512-9142 if you or your staff have any questions.  This
report was prepared under the direction of Barbara Bovbjerg.  Major
contributors were Denise Fantone, Tim Minelli, Carlos Diz
(Attorney-Advisor), John Mingus, and Paul Yoon (Intern). 

Sincerely yours,

Susan J.  Irving
Associate Director, Budget Issues


SCOPE AND METHODOLOGY
=========================================================== Appendix I

To better understand the roles fees have had as a funding source
since BEA was enacted, we reviewed all agencies in which fees for
business or regulatory services to the public provided a significant
and continuing source of funding.  Twenty-seven agencies met our
criteria. 

We defined our universe of fee-reliant agencies using the following
criteria:  (1) fees from the public must be used to support the
agency that generated the fee, (2) services, goods, or benefits must
be provided in exchange for fees and the exchange should be closely
linked in time, and (3) budget authority from fees from the public
must represent 20 percent or more of the agency's gross outlays from
federal sources averaged over fiscal years 1991 through 1996.  This
excludes offsetting collections and associated outlays from federal
sources. 

To meet these criteria, we excluded (1) agencies that collected fees
that were deposited in the general fund of the Treasury instead of
designated for the agency's use, (2) insurance and retirement
programs because of the delay between when a fee is paid and when
there is a pay out, although many of these programs, such as the
Federal Deposit Insurance Corporation are totally self-supporting,
(3) credit programs because they involve subsidies, (4) agencies that
receive fees from the public that are then transferred to another
federal agency or a state, (5) agencies that receive fees from the
public intermittently, (6) Government-sponsored enterprises, such as
the Federal Reserve, which receive funding from the public, but are
classified as private and not included in the federal budget, and (7)
agencies that receive most of their fees from other federal agencies,
although many of the agencies included have some funding from this
source. 

Certain accounts of the agencies we identified as fee-reliant were
excluded from subsequent analyses.  Insurance and credit accounts
were excluded from Bureau of Reclamation and National Credit Union
Administration totals, except for the examination and regulatory fees
that are deposited in the Credit Union Share Insurance Fund and
transferred to the Operating Fund account.  Other DOD Trust Funds
includes only those accounts that received offsetting collections
from the public for commissary sales.  Accounts on gift funds and
separation pay were excluded from Other DOD Trust Funds totals.  The
Funds for Strengthening Markets, Income, and Supply account was
excluded from Agricultural Marketing Service totals because most of
its funding is transferred to other programs, principally child
nutrition.  Also, the Universal Service Fund and the Spectrum Auction
Program account were excluded from Federal Communication Commission
totals. 

The 27 agencies span 7 of the 13 appropriations subcommittees:  (1)
Agriculture and Rural Development, (2) Commerce, Justice, State, and
the Judiciary, (3) Defense, (4) Energy and Water Development, (5)
Interior and Related Agencies, (6) Treasury, Postal, and General
Government, and (7) Veterans Administration, Housing and Urban
Development, and Independent Agencies. 

As used in this report, the term "agency" refers to the grouping of
activities shown as "bureaus" or listed as "other independent
agencies" in the President's budget request to the Congress.  The
bureau designation generally corresponds to a subordinate
organization in an executive department.  Although this structure
will include both fee and non-fee programs and activities, we
selected this level of aggregation because it is organizationally
comprehensive and more readily understood than either of the
alternatives, appropriation account or program activity.  For
example, the U.S.  Fish and Wildlife Service is more recognizable an
entity than the various accounts, such as Resource Management,
Migratory Bird Conservation, and Sport Fish Restoration, that make up
the agency.  In two cases the bureau designation does not correspond
with a single entity.  Other DOD Trust Funds described above, and the
Power Marketing Administrations, which includes 5 separate
organizational entities. 

To review the classification and treatment of fees in budget
accounts, we used OMB codes created for the President's annual budget
request.  These codes allowed us to identify (1) fees from the public
and their classification as an offsetting receipt or a collection
credited to an appropriation or fund account, (2) the type of
expenditure account the fee is credited to, and (3) the fee's
availability for obligation in a given fiscal year. 

Using OMB actual year data we constructed a series of analyses that
described trends in budget authority and collections for these
agencies.  Our trend data only includes new appropriations and
spending authority available to an agency and not funding from
unobligated balances.  We did not include unobligated balances
because the data coding did not distinguish between unobligated
balances from fees and those from other sources. 

Data in this report cover fiscal years 1991 through 1996.  OMB's
codes also allowed us to track changes in discretionary versus
mandatory classifications of agency funding and shifts from current
to permanent budget or spending authority.  Our observations are
based on 6 years of OMB data for those agencies selected.  This work
describes overall trends in 27 fee-financed agencies, but is not
generalizable to all agencies with fees. 

We also conducted interviews in six agencies:  Agricultural Marketing
Service, National Technical Information Service, Nuclear Regulatory
Commission, Patent and Trademark Office, Securities and Exchange
Commission, and U.S.  Fish and Wildlife Service. 


BUDGETARY CHARACTERISTICS OF
FEE-RELIANT AGENCIES, FISCAL YEAR
1996
========================================================== Appendix II

                                                                                                                 Timing of
                         Fees from the public                             Expenditure account fund type     legislative action     Amount available
                        ----------------------                          ----------------------------------  -------------------  --------------------
                                                 Fees from
                                                       the
                        Offsetting                  public
                        collection                (percent   Fees from                 Special
                              s to  Offsetting          of     federal     General          or   Revolving  Permanen             Indefini
Agency                    accounts    receipts  outlays\a)     sources        fund  trust fund        fund         t    Current        te    Definite
----------------------  ----------  ----------  ----------  ----------  ----------  ----------  ----------  --------  ---------  --------  ----------
Federal Retirement                           X       215.8                                   X                     X                    X
 Thrift Investment
 Board
National Credit Union            X                   129.2                                               X         X                    X
 Administration
United States                    X                   122.2                                               X         X                    X
 Enrichment
 Corporation
Office of Thrift                 X                   113.2                                               X         X                    X
 Supervision
Patent and Trademark             X           X       108.6                       X                                 X          X         X           X
 Office
Comptroller of the               X                   105.8           X                                   X         X                    X
 Currency
Panama Canal                     X                   105.5                                               X         X                    X
 Commission
United States Mint               X                   105.1                                               X         X                    X
Postal Service                   X                   101.0           X                                   X         X                    X
Federal Housing                  X                   100.0                                               X         X                    X
 Finance Board
National Technical               X                   100.0           X                                   X         X                    X
 Information Service
Power Marketing                  X           X        98.7           X           X           X           X         X          X         X           X
 Administrations
Farm Credit                      X                    95.0                                               X         X                    X
 Administration
Other DOD Trust Funds            X                    94.3           X                                   X         X                    X
Tennessee Valley                 X                    88.9           X                                   X         X                    X
 Authority
Nuclear Regulatory               X           X        88.8           X           X                                 X          X         X           X
 Commission
Securities and                   X                    85.5           X           X                                 X                    X
 Exchange Commission
Bureau of Reclamation                        X        83.4           X           X           X           X         X          X         X           X
Agricultural Marketing           X           X        81.1           X           X           X           X         X                    X
 Service
Federal Communications           X                    73.2           X           X                                 X                               \b
 Commission
Minerals Management              X           X        72.8                       X           X                     X          X         X           X
 Service
United States Customs            X           X        70.0           X           X           X                     X          X         X           X
 Service
Federal Trade                    X                    64.7           X           X                                 X                               \c
 Commission
Grain Inspection,                X                    54.4                                               X         X                    X
 Packers and
 Stockyards
 Administration
Immigration and                  X           X        37.7           X           X           X                     X                    X
 Naturalization
 Service
United States Fish and           X           X        36.1           X           X           X                     X          X         X           X
 Wildlife Service
Animal and Plant                 X           X        30.2           X           X           X                     X          X         X
 Health Inspection
 Service
-----------------------------------------------------------------------------------------------------------------------------------------------------
Notes:  (1) Categories are as shown in OMB budget documents and have
not been independently verified.  For a fuller discussion of accounts
with spending authority and permanent appropriations see Budget
Issues:  Inventory of Accounts With Spending Authority and Permanent
Appropriations, 1996 (GAO/AIMD-96-79, May 31, 1996).

(2) This table includes only those agency accounts that have fees
from the public.  An agency may have additional accounts that only
get general fund appropriations or were excluded as noted in appendix
I.  Revolving funds include public enterprise and trust revolving
funds. 

\a Gross outlays minus offsetting collections from federal sources. 

\b The Federal Communications Commission's Salaries and Expenses
account had a limitation on spending authority from offsetting
collections for fiscal year 1996. 

\c The Federal Trade Commission's Salaries and Expenses account had a
limitation on spending authority from offsetting collections for
fiscal year 1996. 


BEA CLASSIFICATION OF FEE-RELIANT
AGENCIES
========================================================= Appendix III

The Budget Enforcement Act of 1990, as amended, divided spending at
the budget account level into two broad categories:  discretionary
and mandatory.  BEA classification is assigned to expenditure
accounts within agencies.  Some accounts may have both mandatory and
discretionary funds and they are identified separately for BEA
scoring purposes.  Legislative changes to mandatory spending enacted
in a given fiscal year are required to be deficit neutral in the
aggregate.  Discretionary spending is held to fixed annual limits. 

Table III.1 shows the change in classification from fiscal year 1991
to fiscal year 1996 for accounts in the 27 agencies we reviewed. 
During this time, there was an increase in the percentage of spending
classified as discretionary spending for 14 of the 27 agencies.  Four
agencies showed decreases in spending classified as discretionary,
while spending classifications for nine agencies in our survey did
not change. 



                              Table III.1
                
                     Mandatory Versus Discretionary
                Classification for Fee-Reliant Agencies

                                          Mandatory     Discretionary
                                         (percent of     (percent of
                                           funding)        funding)
                                        --------------  --------------
Agency                                    FY91    FY96    FY91    FY96
--------------------------------------  ------  ------  ------  ------
25 percent or more change from mandatory to discretionary
----------------------------------------------------------------------
National Technical Information Service     100       0       0     100
Panama Canal Commission                    100       0       0     100
Patent and Trademark Office                 74       0      26     100
Bureau of Reclamation                       40      14      60      86

Less than 25 percent change from mandatory to discretionary
----------------------------------------------------------------------
Agricultural Marketing Service              78      59      22      41
Federal Trade Commission                    18       0      82     100
United States Customs Service               35      22      65      78
Animal and Plant Health Inspection          10       1      90      99
 Service
Power Marketing Administrations             91      86       9      14
Grain Inspection, Packers and               59      57      41      43
 Stockyards Administration
Minerals Management Service                 71      69      29      31
Federal Communications Commission            1       0      99     100
Nuclear Regulatory Commission                1       0      99     100
Securities and Exchange Commission\a         0       0     100     100

No change: mandatory to discretionary
----------------------------------------------------------------------
Comptroller of the Currency                100     100       0       0
Other DOD Trust Funds                      100     100       0       0
Farm Credit Administration                 100     100       0       0
Federal Housing Finance Board              100     100       0       0
Federal Retirement Thrift Investment       100     100       0       0
 Board
National Credit Union Administration       100     100       0       0
Office of Thrift Supervision               100     100       0       0
United States Enrichment Corporation       100     100       0       0

No change: discretionary to mandatory
----------------------------------------------------------------------
Immigration and Naturalization Service       0       0     100     100

25 percent or more change from discretionary to mandatory
----------------------------------------------------------------------
United States Mint                          75     100      25       0

Less than 25 percent change from discretionary to mandatory
----------------------------------------------------------------------
Tennessee Valley Authority\a                98      98       2       2
United States Fish and Wildlife             30      35      70      65
 Service
Postal Service\a                             0       0     100     100
----------------------------------------------------------------------
\a Three agencies--SEC, the Postal Service, TVA--had less than a 1
percent change in the amount of funding classified as discretionary
or mandatory spending between fiscal years 1991 and 1996. 

Most of the change in classification is attributable to a decision
made by OMB in fiscal year 1993 not to include fees that offset
spending in discretionary accounts in the PAYGO baseline.  A
technical revision by OMB for the fiscal year 1995 budget (OMB
Circular A-11, Preparation and Submission of the Budget Estimates,
Sec.  21.2, p.  62 (August 4, 1993)) clarified that collections
credited to discretionary appropriation or fund accounts would be
classified as discretionary.  According to OMB, prior to this change
double counting had occurred in preparing the federal budgets after
enactment of BEA.  Collections credited to appropriation or fund
accounts were counted as mandatory receipts (because they had
permanent spending authority), and, at the same time, were netted
against discretionary spending according to budget concept rules. 
Although this correction did not change the impact of collections
credited to appropriation or fund accounts on discretionary spending,
it means that if discretionary spending were ever to exceed the
annual caps, all discretionary resources, including these offsetting
collections, would be subject to sequestration.  For example, if a
sequestration had occurred in fiscal year 1996, all of FCC's budget
authority in its Salaries and Expenses account would have been
subject to sequestration.  For FCC this would have been $202 million. 
However, without the need for sequestration, only $59 million, or the
net budget authority, is counted as discretionary spending. 


CURRENT VERSUS PERMANENT
APPROPRIATIONS
========================================================== Appendix IV

Current and permanent appropriations refer to the timing of
legislative action in making budget authority available to an agency. 
When budget authority is enacted permanently, it is available until
spent.  Such authority can be the result of substantive legislation
or appropriations acts.  When budget authority is enacted as current
authority, the appropriations language specifies how long the funds
will be available.  In general, current appropriations are classified
as discretionary and are under the jurisdiction of the appropriations
committees and their subcommittees.  While there are exceptions,
permanent appropriations are more likely to be classified as direct,
or mandatory, spending and be under the jurisdiction of authorizing
committees. 

Table IV.1 shows that from fiscal years 1991 through 1996 spending
authorized as permanent increased for 13 of the 27 agencies in our
survey.  Twelve other agencies did not see changes in the percent of
the their funding classified as either permanent or current.  The
remaining two agencies, GIPSA and APHIS, had small declines in
funding from what was permanently appropriated. 



                               Table IV.1
                
                Permanent Versus Current Appropriations
                        for Fee-Reliant Agencies

                                          Permanent        Current
                                         (percent of     (percent of
                                           funding)        funding)
                                        --------------  --------------
Agency                                    FY91    FY96    FY91    FY96
--------------------------------------  ------  ------  ------  ------
25 percent or more change from current to permanent appropriations
----------------------------------------------------------------------
Federal Communications Commission            1      71      99      29
Securities and Exchange Commission          19      70      81      30
Federal Trade Commission                    18      69      82      31
United States Mint                          74     100      26       0

Less than 25 percent change from current to permanent appropriations
----------------------------------------------------------------------
Patent and Trademark Office                 74      87      26      13
United States Fish and Wildlife             40      51      60      49
 Service
Bureau of Reclamation                       37      44       6      56
United States Customs Service               34      39      66      61
Immigration and Naturalization Service      29      33      71      67
Agricultural Marketing Service              79      81      21      19
Minerals Management Service                 71      72      29      28
United States Enrichment Corporation        98     100       2       0
Postal Service                              99     100       1       0

No change: permanent to current
----------------------------------------------------------------------
Comptroller of the Currency                100     100       0       0
Other DOD Trust Funds                      100     100       0       0
Farm Credit Administration                 100     100       0       0
Federal Housing Finance Board              100     100       0       0
Federal Retirement Thrift Investment       100     100       0       0
 Board
National Credit Union Administration       100     100       0       0
National Technical Information Service     100     100       0       0
Office of Thrift Supervision               100     100       0       0
Panama Canal Commission                    100     100       0       0
Tennessee Valley Authority                  98      98       2       2
Power Marketing Administrations             91      91       9       9

No change: current to permanent
----------------------------------------------------------------------
Nuclear Regulatory Commission                1       1      99      99

Less than 25 percent change from permanent to current appropriations
----------------------------------------------------------------------
Grain Inspection, Packers and               59      57      41      43
 Stockyards Administration
Animal and Plant Health Inspection          10       9      90      91
 Service
----------------------------------------------------------------------

CURRENT APPROPRIATIONS FOR
FEE-RELIANT AGENCIES VERSUS
SUBCOMMITTEE AGENCIES, FISCAL
YEARS 1992 THROUGH 1996
=========================================================== Appendix V

                                                                       Compound
                                                                       rate of
                                                                        growth
                       Change in current budget authority (percent)   (percent)
                      ----------------------------------------------  ----------
Appropriation
subcommittee and
agency                   FY92-93     FY93-94     FY94-95     FY95-96     FY92-96
--------------------  ----------  ----------  ----------  ----------  ----------
Agriculture and Rural Development
--------------------------------------------------------------------------------
Agricultural               -4.01        1.46       -5.19      -12.96       -5.32
 Marketing Service
Animal and Plant           -1.98        3.12       -1.93        0.00       -0.22
 Health Inspection
 Service
Farm Credit                 0.00        0.00        0.00        0.00        0.00
 Administration
Grain Inspection,          -0.06       -1.90        0.23        0.00       -0.44
 Packers and
 Stockyards
 Administration
================================================================================
Agriculture, Rural         11.58        6.08       -1.57       -7.26        1.84
 Development
 Appropriations
================================================================================
Subtotal: Fee-             -2.12        2.72       -2.18       -1.31       -0.74
 Reliant Agencies
Subtotal: All Other        12.21        6.22       -1.54       -7.49        2.07
 Subcommittee
 Agencies


Commerce/Justice/State/Judiciary
--------------------------------------------------------------------------------
Federal                    10.84      -27.43      -32.09      -14.49      -17.33
 Communications
 Commission
Federal Trade               0.65       -2.48      -19.02      -43.64      -18.19
 Commission
Immigration and             3.05        8.68       35.21       20.81       16.30
 Naturalization
 Service
National Technical          0.00        0.00        0.00        0.00        0.00
 Information
 Service\a
Patent and Trademark       -2.00        1.91       -7.17        0.00       -1.87
 Office
Securities and            -19.21      -54.53       86.67       -4.63      -10.07
 Exchange Commission
================================================================================
Commerce/Justice/           6.90        1.64        5.21        7.86        5.37
 State/Judiciary
 Appropriation
================================================================================
Subtotal: Fee-              1.35       -2.18       27.60       14.33        9.66
 Reliant Agencies
Subtotal: All Other         7.29        1.89        3.77        7.35        5.05
 Subcommittee
 Agencies


Defense
--------------------------------------------------------------------------------
Other DOD Trust             0.00        0.00        0.00        0.00        0.00
 Funds
================================================================================
Defense                     6.18       -4.88        1.07       -0.09       -2.57
 Appropriation -
================================================================================
Subtotal: Fee-              0.00        0.00        0.00        0.00        0.00
 Reliant Agencies
================================================================================
Subtotal: All Other        -6.18       -4.88        1.07       -0.09       -2.57
 Subcommittee
 Agencies


Energy and Water Development
--------------------------------------------------------------------------------
Nuclear Regulatory          5.37       -0.93       -2.06       -9.92       -2.04
 Commission
Power Marketing             6.24       -9.62      -34.08       35.62       -3.75
 Administrations
Tennessee Valley            0.00        4.05       -1.76      -21.01       -5.21
 Authority
================================================================================
Energy and Water            0.92       -0.03       -7.04       -5.75       -3.04
 Development
 Appropriations
================================================================================
Subtotal: Fee-              4.97       -3.49      -13.02        0.22       -3.06
 Reliant Agencies
================================================================================
Subtotal: All Other         0.72        0.14       -6.75       -6.02       -3.04
 Subcommittee
 Agencies


Interior and Related Agencies
--------------------------------------------------------------------------------
Bureau of                  -9.53        0.21        0.03       -1.49       -2.78
 Reclamation
Minerals Management        -1.85       -0.82       -2.53       -3.09       -2.08
 Service
United States Fish         -2.03       -5.70       -7.14       -0.30       -3.83
 and Wildlife
 Service
================================================================================
Interior and Related       -4.71        9.91     -0.24 -       11.51       -1.94
 Agencies
 Appropriations
================================================================================
Subtotal: Fee-             -5.60       -2.43       -3.23       -1.21       -3.13
 Reliant Agencies
================================================================================
Subtotal: All Other        -4.56       11.93        0.19      -12.93       -1.75
 Subcommittee
 Agencies


Treasury/Postal/General Government
--------------------------------------------------------------------------------
Comptroller of the          0.00        0.00        0.00        0.00        0.00
 Currency
Office of Thrift            0.00        0.00        0.00        0.00        0.00
 Supervision
United States              -2.06       -0.67        1.60       -1.68       -0.71
 Customs Service
United States Mint          1.62        5.10        0.41     -100.00     -100.00
Postal Service            -19.21      -54.53       86.67       -4.63      -10.07
================================================================================
Treasury/Postal/       > 4.90  0.79 1.75    -5.44  0.43
 General Government