Federal Trust and Other Earmarked Funds: Answers to Frequently Asked
Questions (Other Written Prod., 01/01/2001, GAO/GAO-01-199SP).

GAO published this report on federal trust and other earmarked funds.
GAO developed this report to answer some basic questions that often
arise about trust funds and other earmarked funds.

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

 REPORTNUM:  GAO-01-199SP
     TITLE:  Federal Trust and Other Earmarked Funds: Answers to
	     Frequently Asked Questions
      DATE:  01/01/2001
   SUBJECT:  Federal funds
	     Trust funds
	     Budget surplus
	     Funds management
	     Unified budgets
	     Budget deficit
IDENTIFIER:  Thrift Savings Fund
	     Medicare Trust Fund
	     Cooperative Endangered Species Conservation Fund
	     Oil Spill Liability Trust Fund
	     Indian Trust Fund
	     Reclamation Fund
	     Civil Service Retirement and Disability Trust Fund
	     Unemployment Insurance Trust Fund
	     Social Security Disability Insurance Trust Fund
	     Federal Hospital Insurance Trust Fund
	     Supplementary Medical Insurance Trust Fund
	     Land and Water Conservation Fund
	     Nuclear Waste Fund
	     Postal Service Fund
	     Bank Insurance Fund
	     Savings Association Insurance Fund
	     Abandoned Mine Reclamation Fund
	     Highway Trust Fund

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GAO-01-199SP

GAO United States General Accounting Office January 2001 FEDERAL TRUST

AND OTHER EARMARKED FUNDS

Answers to Frequently Asked Questions

GAO- 01- 199SP

Page 1 GAO- 01- 199SP Trust Fund FAQs

5 7 1.1 What Are Federal Trust Funds? 7 1.2 How Are Federal Trust Funds
Different From Private Trust Funds? 7 1.3 How Do Federal Trust Funds Fit
Within the Unified Budget

Concept 8 1.4 What Fund Types Within the Federal Budget Are Earmarked? 9 1.5
What Are the Differences Between Earmarked Fund Types? 10 1.6 How Many
Earmarked Funds Are There? 12 1.7 Why Are Earmarked Funds Established? 14
1.8 When Were Earmarked Funds Established? 15 1.9 By Design, Earmarked Funds
May Accumulate Balances. What

Do Balances Really Mean? 16 1.10 What Receipt Sources Contribute to Fund
Balances? 17 1.11 What Do Funds Do With Their Balances? 17 1.12 What Do the
Treasury Securities Represent? 18 1.13 To What Extent Do Earmarked Funds
Earn Interest? 19

20 2.1 What Are the Sources of Income for Earmarked Funds? 20 2.2 What
Purposes and Activities Do Earmarked Funds Finance? 23 2.3 What Is the
Relationship Between the Sources and Uses of

Earmarked Funds? 23 2.4 What Earmarked Funds Serve Long- Term Commitments?
What Is

the Rationale for Earmarking Receipts for These Long- Term Commitments? 24
2.5 What Were the Revenues, Gross Outlays, and Balances of

Earmarked Accounts in Fiscal Year 1999? What Portions of These Amounts
Represent Long- Term Commitments? 25 2.6 How Do Accumulated Balances of
Earmarked Funds Affect the

Government's Ability to Meet Its Long- Term Commitments? 26 28 3.1 Are
Earmarked Funds Treated Differently in the Budget Process? 28 3.2 Are
Earmarked Funds Discretionary or Mandatory? 28 3.3 What Does “Off-
Budget” Mean? Are “Off- Budget” Funds

Governed by Different Rules? 29 3.4 What Kinds of Special Treatment Have
Been Given to Some

Earmarked Funds? What Arguments Have Been Used for Such Treatment? 30
Preface

Contents Section 1: What Are Federal Trust and Other Earmarked Funds?

Section 2: What Is the Composition of Earmarked Funds?

Section 3: How Are Earmarked Funds Controlled in the Federal Budget Process?

Page 2 GAO- 01- 199SP Trust Fund FAQs

31 4.1 How Has the Composition of Earmarked Versus Unearmarked

Federal Receipts Changed Over Time? 31 4.2 What Is the Effect of Earmarked
Funds in Measuring Unified

Budget Deficits or Surpluses? 32 4.3 What Are the Implications of Investing
Balances in Treasury

Securities? 33 4.4 What Issues Are Raised by Proposals to Permit Earmarked

Revenues in the Private Sector? 34 4.5 What Does It Mean When People Say the
Fund Balances Are Used

for Other Than Intended Purposes? 36 38 Transparency Issues 38 Signaling
Issues 40

Appendix I: Scope and Methodology 43 Appendix II: Description of Selected
Earmarked Funds 45 Appendix III: List of Funds' Revenues, Gross Outlays, and
Balances

for Fiscal Year 1999 75 Appendix IV: Glossary 88 Appendix V: GAO Staff
Acknowledgments 92

Table 2.1: Breakout of Fiscal Year 1999 Revenues, Gross Outlays, and
Balance, by Fund Type 26 Table III. 1: Earmarked Funds Revenues, Gross
Outlays, and Balances

for Fiscal Year 1999 75 Table III. 2: Top 10 Funds in Each Earmarked Fund
Type, by Total

Revenues 87 Figure 1. 1: Fund Types in the Federal Budget 9 Figure 1. 2:
Comparison of the Number of Earmarked Funds to Funds'

Total Revenues 14 Figure 2. 1: Concentration of Revenues Among Earmarked
Funds 20 Figure 2. 2: Sources and Uses of Nonrevolving Trust Fund Receipts
22 Figure 2. 3: Sources and Uses of Special Fund Receipts 22 Figure 4. 1:
Trust Funds' Share of Total Receipts and GDP Over Time 31 Figure 4. 2:
Effect of Trust Fund Surpluses/ Deficits on Unified Budget

Totals Over Time 33 Section 4: How Do

Earmarked Funds Affect Federal Fiscal Position?

Section 5: Policy and Design Issues Related to Earmarked Funds

Appendixes Tabl es Figures

Page 3 GAO- 01- 199SP Trust Fund FAQs

Reclassification of Indian Tribal Funds From Federal Trust Funds to
Nonbudgetary Deposit Funds 8 Application of Trust Fund Criteria 11 Recording
Earmarked Funds 13 Setting Aside Annual Surpluses of Funds Earmarked for
Long- Term

Commitments to Reduce Debt 37

Abbreviations

AIR- 21 Aviation Investment and Reform Act for the 21 st Century CCC
Commodity Credit Corporation CSRD Civil Service Retirement and Disability
CSRS Civil Service Retirement System DCA Deficit Control Act DI Disability
Insurance ESRD End Stage Renal Disease FCC Federal Communications Commission
FEGLI Federal Employees Government Life Insurance FEHB Federal Employees
Health Benefits FEHBP Federal Employees Health Benefits Program FERS Federal
Employees Retirement System FICA Federal Insurance Contributions Act FUTA
Federal Unemployment Tax Act GDP Gross Domestic Product HI Hospital
Insurance LTC Long- Term Care LWCF Land and Water Conservation Fund OASI
Old- Age and Survivors Insurance OMB Office of Management and Budget OPM
Office of Personnel Management PAYGO Pay- as- you- go REHB Retired Employees
Health Benefits SMI Supplemental Medical Insurance TEA- 21 Transportation
Equity Act for the 21 st Century TVA Tennessee Valley Authority UC
Unemployment Compensation USDA United States Department of Agriculture Text
Boxes

Page 4 GAO- 01- 199SP Trust Fund FAQs

Page 5 GAO- 01- 199SP Trust Fund FAQs

In fiscal year 1999, trust fund receipts represented nearly half of all
federal budget receipts. Despite their importance in the budget, the
relationship between federal trust funds- such as the Social Security or
Medicare trust funds- and other earmarked funds- such as the Nuclear Waste
Fund or the Postal Service Fund- and the rest of the federal budget can be
confusing to both policymakers and the public. There is confusion about the
distinction between federal trust funds and private trust funds, about how
trust funds compare to other fund types, about how earmarked funds are
controlled in the federal budget, and about the relationship between fund
accounting and the government's overall financial condition.

Prior to 1969, three concepts were variously used as federal budgets: (1)
administrative, (2) consolidated cash, and (3) federal sector in the
national income accounts. The most commonly used of these, the
administrative budget, excluded the operations of all trust funds, which
were shown in the consolidated cash and national income accounts budgets.
Trust fund transactions did not receive much attention in appropriations
debates and action. The administrative budget was viewed as an increasingly
incomplete and unreliable measure of government activities.

Acting on a recommendation from the 1967 Report of the President's
Commission on Budget Concepts, the federal government adopted a unified
budget for fiscal year 1969- including the transactions of both federal and
trust funds in calculating a single budget surplus or deficit. Separate
accounts were maintained for the individual trust funds, and tabulations
were made of the trust fund and federal fund groups in total. Although the
decision to include trust fund transactions in the 1969 budget produced a
single statement of the United States government's use of funds, it did not
definitively resolve concerns about the budget treatment of trust funds.
Rather, it opened a new debate on trust fund budget treatment and status.
For example, some observers raised concerns that inadequate attention was
being paid to whether trust fund surpluses were being used to finance and
mask increasing federal funds deficits.

We developed this report to provide answers to some basic questions that
often arise about trust funds and other earmarked funds. In addition,
appendix II contains a more specific discussion about some of the larger
earmarked funds, and appendix IV contains a glossary of relevant budget
terms. Preface

Preface Page 6 GAO- 01- 199SP Trust Fund FAQs

This document was prepared under the direction of Paul L. Posner and Susan
J. Irving, who may be reached at (202) 512- 9573 if there are any questions.

Paul L. Posner Managing Director Federal Budget Issues Strategic Issues

Susan J. Irving Director Federal Budget Issues Strategic Issues

Page 7 GAO- 01- 199SP Trust Fund FAQs A1.1 Federal trust funds represent one
accounting mechanism used to

link earmarked receipts 1 with the expenditures of those receipts. The
Office of Management and Budget (OMB) and the Department of the Treasury
determine budgetary designation as a trust fund when a law both earmarks
receipts to a program and identifies the account as a “trust
fund” account.

A1.2 In the federal budget the meaning of the term “trust”
differs significantly from its private sector usage. In the private sector,
a person creates a private trust fund using his or her own assets to benefit
a stated individual( s). The creator of the trust names a trustee who has a
fiduciary responsibility to manage the designated assets in accordance with
the stipulations of the trust. In the federal sector, the Congress creates a
federal trust fund in law and designates a funding source to benefit stated
groups or individuals. 2 However, in contrast to a private trust fund, the
federal government does not have a fiduciary responsibility to the trust
beneficiaries, and it can raise or lower future trust fund collections and
payments or change the purposes for which the collections are used by
changing existing laws. Moreover, the federal government has custody and
control of the funds as well as the earnings of most federal trust funds.

There are cases- such as the federal employees' Thrift Savings Fund 3 -in

which the federal government holds nonfederal monies in trust as a custodian
on behalf of some entity outside the government. Since the government makes
no decisions about the amount of these deposits or how they are spent, they
are not considered to be federal trust funds. Rather, they are considered to
be nonbudgetary and are excluded from the federal budget. Accordingly, these
funds are not included within the scope of this report. The following text
box discusses the example of Indian Tribal Funds, which the government
recently reclassified from trust to nonbudgetary deposit funds.

1 In this report, the term “earmarked receipts” refers to
collections that, by law, have been dedicated to a specific fund for a
specific purpose or program. 2 In some cases, such as gift funds, the
federal government is the beneficiary of the trust.

3 The Thrift Savings Fund is composed of individual accounts maintained by
the Federal Retirement Thrift Investment Board on behalf of individual
federal employee participants in the fund. These participants may select how
their contributions are distributed among three investment funds. Section 1

What Are Federal Trust and Other Earmarked Funds?

Q1.1 What Are Federal Trust Funds

Q1.2 How Are Federal Trust Funds Different From Private Trust Funds?

Section 1 What Are Federal Trust and Other Earmarked Funds?

Page 8 GAO- 01- 199SP Trust Fund FAQs

Reclassification of Indian Tribal Funds From Federal Trust Funds to
Nonbudgetary Deposit Funds

Beginning in fiscal year 2000, the federal budget no longer includes funds
that are owned by Indian tribes but are held and managed in a fiduciary
capacity by the government on behalf of the tribes. These Indian tribal
funds were included in the budget totals beginning with the adoption of the
unified budget in 1969 through fiscal year 1999 under the generic title
“tribal trust funds.” However, they are trusts in the private
sector meaning of the term. For example, the funds include (1) Indian-owned
assets derived from tribal-owned natural resources, (2) judgments against
the United States, and (3) monies derived from legislative acts and for
government obligations. Appropriate application of current federal budget
concepts dictates that most of the Indian tribal funds should not have been
included in the budget or been subject to budgetary constraints, and
accordingly they have been reclassified as nonbudgetary deposit funds. This
reclassification affects only budget coverage, not the operation of the
funds or ownership of the funds' assets. The funds will continue to be
managed by the federal government according to present law, with the same
rights and responsibilities that existed prior to the reclassification.

A1.3 The unified budget, as conceived by the 1967 Report of the President's
Commission on Budget Concepts, includes the full range of federal
activities, regardless of their fund type or whether they are on- or off-
budget. 4 The unified budget can be divided into two fund groups: (1)
federal funds and (2) trust funds. Section 4.2 of this report discusses the
effect of both groups of funds on the unified budget totals.

As shown in figure 1.1, within these two fund groups there are six fund
types: (1) the general fund, (2) special funds, (3) public enterprise funds,
(4) intragovernmental funds, (5) nonrevolving trust funds, and (6) revolving
trust funds. All of these, except the two types of trust funds, are
considered to be “federal funds.”

4 On- budget refers to transactions included in the budget. Off- budget
refers to transactions required by law to be excluded from the budget even
though they are part of total government transactions. The budget combines
the on- and off- budget totals to derive unified or consolidated totals for
federal activity. Nonbudgetary refers to transactions of the government that
do not belong in the budget because they do not represent a cost to the
government. Q1.3 How Do Federal

Trust Funds Fit Within the Unified Budget Concept?

Section 1 What Are Federal Trust and Other Earmarked Funds?

Page 9 GAO- 01- 199SP Trust Fund FAQs

Figure 1. 1: Fund Types in the Federal Budget

A1.4 Trust funds are created to account for monies that are earmarked; that
is, dedicated for a specific purpose. While earmarked monies are heavily
concentrated in trust funds, trust funds are not the only way earmarked
monies can be accounted for in the federal budget. For example, special and
public enterprise funds also are used for programs primarily financed by
earmarked collections. Trust, special, and public enterprise funds are used
to account for the receipt and expenditure of monies earmarked by the
government for carrying out specific purposes and programs in accordance
with legislation. 5 Revolving trust funds are similar to public enterprise
funds: they carry out a cycle of business- type operations and their
earmarked receipts are basically revenues generated by their business
activities. Nonrevolving trust funds, such as Social Security, are similar
to special funds, such as Funds for Strengthening

5 Some general fund accounts also receive earmarked receipts in the form of
offsetting collections- either from the public or from federal sources- that
are credited directly to the account and are available for use, often
without further legislative action. These have been discussed in Budget
Issues: Earmarking in the Federal Government (GAO/ AIMD- 95216FS, Aug. 1,
1995) and Federal User Fees: Budgetary Treatment, Status, and Emerging
Management Issues (GAO/ AIMD- 98- 11, Dec. 19, 1997). Q1.4 What Fund Types

Within The Federal Budget Are Earmarked?

Federal Budget Trust Funds

Federal Funds

General Funds ?Special Funds ?Public Enterprise Funds ?Intragovernmental
Funds ?Nonrevolving Trust Funds

?Revolving Trust Funds Analogous fund types =

Section 1 What Are Federal Trust and Other Earmarked Funds?

Page 10 GAO- 01- 199SP Trust Fund FAQs

Markets, Income, and Supply: they are used to account for earmarked receipts
and spending that primarily are not the result of business- type activities.

Among authorizing statutes for similar kinds of programs there is no
consistency in whether they are funded by earmarked receipts or general fund
appropriations. For example, both the Coast Guard Military Retirement System
and the general Military Retirement System are noncontributory pension
plans. However, the Coast Guard's system is financed through the general
fund while the Military Retirement System is financed through a trust fund.
Another example of the inconsistency is the Multinational Species
Conservation Fund and the Cooperative Endangered Species Conservation Fund.
Both funds support efforts to protect endangered species and their habitats,
yet the former is financed through a general fund while the latter is a
special fund.

A1.5 The major difference between the four types of earmarked funds is
whether the activities they finance are business- or non- business- type
activities- not whether the funds are labeled “trust funds.”
Both revolving trust funds and public enterprise funds primarily are used
for businesstype activities, whereas both nonrevolving trust funds and
special funds primarily are used for non- business- type activities.

There are no substantive differences between a revolving trust fund and a
public enterprise fund. Both are credited with offsetting collections to
finance the costs of their business- type activities. For example, the
Veterans Special Life Insurance revolving trust fund and the Veterans
Reopened Insurance public enterprise fund both finance payments on Veterans'
life insurance claims.

Similarly, there is no substantive distinction between a nonrevolving trust
fund and a special fund. Both are used to track receipts and spending for
programs that have specific taxes or other revenues earmarked for their use.
By definition, the only difference between them is whether the word

“trust” is included in the legislation establishing the account.
For example, the Environmental Protection Agency's Hazardous Substance
Superfund- a fund with receipts earmarked for environmental cleanup- was
designated by law as a trust fund, while the Department of Energy's Nuclear
Waste Fund- also having earmarked receipts and similar purposes- was
established in legislation as a separate fund and is shown by Treasury and
OMB as a special fund. Notwithstanding the definition and examples like
this, our analysis found that in practice there is a Q1.5 What Are the

Differences Between Earmarked Fund Types?

Section 1 What Are Federal Trust and Other Earmarked Funds?

Page 11 GAO- 01- 199SP Trust Fund FAQs

notable difference between the use of nonrevolving trust and special funds:

Trust fund monies predominantly fund long- term commitments, whereas no
special fund monies currently fund long- term commitments. (See section 2.4
for a discussion of what funds serve long- term commitments.)

Trust fund accounts are more likely to fund large dollar programs than
special fund accounts.

The text box below discusses how OMB determines whether an account is a
trust fund.

Application of Trust Fund Criteria

OMB's policy is to identify receipts as belonging to a trust fund if the
receipts have the following two attributes: (1) they are dedicated by law to
a particular program or set of programs and (2) they are dedicated to
accounts designated in law as “trust accounts.” It is possible,
however, for an account to be labeled a trust fund in legislation but,
because it does not have funding that meets the above criteria for
dedication to a trust fund, OMB and Treasury would not consider it to be a
trust fund. For example, the Violent Crime Reduction Trust Fund was
established pursuant to the Violent Crime Control and Law Enforcement Act of
1994. Notwithstanding its name, because the fund is substantively a means of
accounting for general fund appropriations and does not consist of dedicated
receipts, it is classified by OMB and Treasury as a federal fund rather than
a trust fund.

Section 1 What Are Federal Trust and Other Earmarked Funds?

Page 12 GAO- 01- 199SP Trust Fund FAQs A1.6 In fiscal year 1999, Treasury
identified 224 federal trust funds and

247 special funds. However, in doing our analysis, which was based on OMB
budget data, we identified 130 federal trust funds. 6 This included 120
nonrevolving trust funds and 10 revolving trust funds. Using OMB budget
data, we also identified 149 special funds and 113 public enterprise funds.
A complete list of these funds, including their fiscal year 1999 incomes,
gross expenditures, and end- of- year balances is shown in appendix III. 7

The text box below discusses how earmarked funds are recorded in the federal
budget and in federal financial statements.

6 OMB and Treasury report funds differently. While Treasury records
earmarked funds in separate accounts, OMB does not always report them
separately in annual budget documents. Because the federal budget rounds
amounts to millions of dollars, it does not show funds with amounts less
than $500, 000. Accordingly, OMB instructs agencies to consolidate small
trust fund accounts with larger general fund accounts. In addition, OMB will
sometimes report trust fund groups rather than individual trust funds.
Groups may include two or more trust funds with similar purposes. For
example, it groups the five trust funds related to “foreign service
national separation liability” associated with five different agencies
under one group trust fund name. However, Treasury tracks monies for each
discrete trust fund account down to the penny in order to fulfill its
governmentwide accounting and cash management responsibilities. Thus,
Treasury's count of funds represents the actual number of separate entities
designated as earmarked funds.

Because this report was written primarily from a budgetary perspective, we
used OMB budget data to analyze earmarked funds. Accordingly, our analysis
does not separately identify funds with amounts less than $500, 000.
Although, to the extent possible, we individually counted trust funds that
OMB grouped together, we could not always separately identify expenditures
that had been merged or consolidated with other accounts. As a result, the
number of earmarked funds we identify is more than the number of funds
tracked by OMB but fewer than the actual number tracked by Treasury.
According to OMB, there were 112 trust funds and trust fund groupings in
fiscal year 1999. Alternatively, Treasury tracked 224 trust funds in fiscal
year 1999.

7 In some cases, we could not separately identify expenditures and fund
balances because these budget data had been merged or consolidated with
other accounts. In these cases, we listed fund groups in our appendix. Q1.6
How Many

Earmarked Funds Are There?

Section 1 What Are Federal Trust and Other Earmarked Funds?

Page 13 GAO- 01- 199SP Trust Fund FAQs

Recording Earmarked Funds

As part of its governmentwide accounting responsibility, the Treasury
establishes numbered accounts for each agency of the government. Receipts
are recorded in “receipt accounts” and expenditures in
“expenditure accounts.” Nonrevolving trust and special funds are
recorded differently from revolving trust and public enterprise funds.

Nonrevolving trust and special funds are comprised of both receipt accounts
and expenditure accounts. Receipt accounts are grouped by unique 4-digit
receipt account numbers. Each of these numbers correlates to one
nonrevolving trust or special fund, which may have one or more receipt
accounts. Typically, these funds will have a single expenditure account.
However, some funds have multiple expenditure accounts, each with a separate
expenditure account number. For example, the Oil Spill Liability Trust
Fund's receipt account symbol is 8185. It obtains receipts from five
different sources such as excise taxes, earnings on investments, and fines
and penalties, with each in a separate receipt account-8185.10, 8185.20,
8185.30, 8185.40, and 8185.50. Coincidentally, the fund also includes six
expenditure accounts for purposes such as oil spill response, oil spill
research, and pipeline safety.

In some cases, matching receipt accounts with their related expenditure
accounts is difficult because the expenditures for accounts with relatively
small dollar amounts and similar purposes have been consolidated into a
different account altogether-sometimes not even a special or trust fund
account. For example, the receipts for “Fees, Operation and
Maintenance of Recreation Facilities, Forest Service” are credited to
a special fund receipt account (12-5072.00). However, the corresponding
expenditures from these receipts are reported in the general fund account,
“National Forest System” (12-1106).

Revolving trust funds and public enterprise funds are relatively easier to
identify because each has a unique expenditure account number. In addition,
these funds do not use receipt accounts; they primarily collect monies from
their business-type or market- oriented activities that are credited to
expenditure accounts. These collections are then used to offset expenses.

Federal accounting standards classify revenue to the government as part of
either an exchange or a nonexchange transaction. 8 Exchange revenue is
revenue resulting from the government's business-type activities; hence it
includes most user charges. The standards require that financial statements
recognize exchange revenue at the time that a government entity provides
goods or services, measured at the price likely to be received. Thus,
financial statements for public enterprise and revolving trust funds- the
budget accounts used for business-type activities-would recognize revenue
when it is earned rather than when it is paid. In the Financial Report of
the United States Government, intragovernmental exchange revenue would be
deducted from the totals.

Nonexchange revenue includes inflows of resources arising from the
government's sovereign power to tax, as well as voluntary donations. These
revenues are recognized when the collection is probable (i.e., a reporting
entity has established a specifically identifiable, legally enforceable
claim to cash or assets) and the amount can reasonably be estimated.
Nonrevolving trust and special funds generally would have nonexchange
revenue.

8 According to the Statement of Federal Financial Accounting Standards
(SFFAS) No. 7, Accounting for Revenue and Other Financing Sources and
Concepts for Reconciling Budgetary and Financial Accounting, exchange
revenues, also known as earned revenues, arise when a government entity
provides goods and services to the public or to another government entity
for a price. Nonexchange revenues arise primarily from exercise of the
government's power to demand payments from the public (e. g., taxes, duties,
fines, and penalties) but also include donations. The term
“revenue” does not encompass all financing sources of government
reporting entities; for example, most of the appropriations they receive are
not included.

Section 1 What Are Federal Trust and Other Earmarked Funds?

Page 14 GAO- 01- 199SP Trust Fund FAQs

Almost 100 percent of trust fund revenues are concentrated in 20 funds,
nearly 90 percent of special fund revenues are concentrated in 20 funds, and
about 90 percent of public enterprise fund revenues are concentrated in 16
funds. Figure 1.2 below compares the number of funds in each fund type to
the total revenues of each fund type.

Figure 1. 2: Comparison of the Number of Earmarked Funds to Funds' Total
Revenues

A1.7 Earmarked funds are established as a way to link receipts to a specific
purpose or activity. This concept of dedicated receipts can be very
appealing to a public interested in supporting that purpose or activity.
Although for trust, special, and public enterprise funds, the earmarking of
receipts by law indicates the government's intent to restrict the use of
those funds to the specified purpose, the government can always change this
restriction by changing the law. As discussed in section 5, designation as a
trust fund does not in and of itself impose a greater commitment on the
government to carry out that activity than it has to carry out other
government activities. However, the confusion of the federal use of the term
“trust fund” with the private sector use of the term may lead
the public to expect a similar commitment and hence may provide some degree
of political protection. This “protection” may affect the
allocation Q1.7 Why Are

Earmarked Funds Established?

Total Revenues of Earmarked Funds

Trust Special

Public Enterprise

Number of Earmarked Funds

Trust Special Public Enterprise

Section 1 What Are Federal Trust and Other Earmarked Funds?

Page 15 GAO- 01- 199SP Trust Fund FAQs

of resources within the budget. Constituencies may create pressure to spend
earmarked revenues because the revenues are there, regardless of the need
for the spending at the moment or the priority that would otherwise be given
such spending. Ironically, earmarked funds may also constrain program
spending when the spending threatens to outstrip accumulated balances. This
is because the fund balance determines whether Treasury has the legal
authority to issue checks for a program. 9

In practice, as discussed in section 2.3, the strength of the link between
the source and use of earmarked receipts can vary considerably. While the
link is clear in many cases, such as with the payroll tax portion of social
insurance programs, in some cases the source and use of monies appear
unrelated. For example, the Elk Hills School Lands (special) fund was
established to dispense a percentage of the sale proceeds from the Elk Hills
Naval Petroleum Reserve for payment to the State of California for its
Teachers' Retirement Fund. Although the sources are very different from
those for social insurance funds, the sources and uses of funds are linked
for gifts and bequests and for business- type funds. For business- type
funds- public enterprise and revolving trusts- the earmarking of receipts
received as payment for goods or services permits an ongoing cycle of
business activity.

A1.8 One of the earliest of the largest trust funds established was the
Civil Service Retirement and Disability fund, set up in 1920. Since then,
trust funds have often been created in response to the public policy
concerns of the time. For example, during the bleak economic times of the
1930s, the Unemployment and the Federal Old- Age & Survivors Insurance trust
funds were created. During the more prosperous 1950s, Federal Disability
Insurance was added and, in the 1960s, two medical trust funds: Federal
Hospital Insurance and Federal Supplementary Medical Insurance. In the
1980s, the Leaking Underground Storage Tank Trust Fund was created. This
trust fund provides funds for responding to releases from leaking
underground petroleum tanks.

The oldest of the largest special funds is the Reclamation Fund, established
in 1902. The largest special fund (in terms of receipts) is Funds for
Strengthening Markets, Income, and Supply (Section 32) which was established
in 1935. Later, the Land and Water Conservation Fund was

9 The Antideficiency Act prohibits incurring obligations or making
expenditures in excess of amounts available in appropriation or fund
accounts, unless specifically authorized by law. Q1.8 When Were

Earmarked Funds Established?

Section 1 What Are Federal Trust and Other Earmarked Funds?

Page 16 GAO- 01- 199SP Trust Fund FAQs

established by the Land and Water Conservation Act of 1964. The Nuclear
Waste Fund was established in 1983 by the Nuclear Waste Policy Act to
finance the disposal of spent fuel from nuclear powered electrical
generators. Special funds are established from time to time to meet specific
needs for funds to finance specified activities. For example, the Elk Hills
School Lands (special) Fund was established as a result of the Fiscal Year
1996 National Defense Authorization Act to finance payment to the State of
California for its Teachers' Retirement Fund.

The largest public enterprise fund by far is the Postal Service Fund. It was
established by the 1970 Postal Reorganization Act. Other large public
enterprise funds include the Commodity Credit Corporation Fund, a
predecessor of which was established in 1933, and the Tennessee Valley
Authority Fund (TVA). 10 TVA was established during the depression and
created by the Act of May 18, 1933. More recently established public
enterprise funds are the Bank Insurance Fund, the Federal Savings and Loan
Insurance Corporation Resolution Fund, and the Savings Association Insurance
Fund. These funds were established by the Financial Institutions Reform
Recovery and Enforcement Act of 1989. 11

A1.9 The vast majority of earmarked funds take in more than their current
needs. 12 On an annual basis, this is often described as having a

“surplus.” The accumulated surpluses result in these funds
having a

“balance.” The balances of earmarked funds are assets of the
funds in that they provide a claim on the general fund of the Treasury for
future spending. However, the balances are not cash. As with all other money
collected by the government, the general fund of the Treasury receives the
actual earmarked taxes and fees paid by the public. Treasury then credits
these collections as assets (often in the form of Treasury securities) to
the appropriate fund accounts. From the general fund's perspective, these
fund assets are a liability. From the standpoint of the government as a
whole, the earmarked funds' assets and the general fund's liabilities offset
each other so that neither an asset nor a liability is shown for the federal

10 The Postal Service Fund accounts for over half of all public enterprise
fund outlays, while the Commodity Credit Corporation Fund and the Tennessee
Valley Authority Fund account for about 8 percent and 6 percent of all
public enterprise fund outlays, respectively.

11 The Bank Insurance Fund and the Savings Association Insurance Fund are
both successors of previous funds. 12 In fiscal year 1999, only 53 of 392
earmarked funds had balances of less than $500,000. Q1.9 By Design,

Earmarked Funds May Accumulate Balances. What Do Balances Really Mean?

Section 1 What Are Federal Trust and Other Earmarked Funds?

Page 17 GAO- 01- 199SP Trust Fund FAQs

government as a whole in the consolidated Financial Report of the United
States Government. The relationship between earmarked fund balances and the
claim on future resources depends on whether the program financed by the
fund was structured so that earmarked receipts would cover the future
program claims. Not all funds are structured to be actuarially sound.
Depending on the financing structure, the balance may or may not equal the
future claim. For example, the current and expected earmarked receipts from
Social Security are not structured to cover the expectations for future
payments stemming from the program's defined benefit structure. Conversely,
the Highway Trust Fund has no defined benefit structure other than that
based on receipts to the fund. Although payments from both funds are limited
to the fund balance, the difference in benefit structure leads to a
different expectation for future payments beyond its balance. The
relationship between fund balances and the government's ability to meet
future commitments is discussed further in section 2. 6.

A1.10 Fund balances stem from a combination of earmarked receipts (e. g.,
taxes and collections from market- oriented activities) and appropriated
contributions from the general fund. These contributions include such things
as interest payments, the employer share of federal employee pension costs,
and in some cases, such as Medicare's Supplemental Medical Insurance (SMI)
trust fund, what might be viewed as a subsidy from the general fund.
Excluding interest payments and the federal employer's share of
compensation- related payments (pensions, etc.), 39 out of 269 nonrevolving
trust and special funds received general fund contributions totaling about
$72 billion during fiscal year 1999. Of this amount, about $70 billion was
related to Medicare.

A1.11 Whether and how funds invest their balances is based on specific legal
authorizations by the Congress. Trust funds generally are required by 31 U.
S. C. 9702 to be invested in government obligations at an annual interest
rate of at least 5 percent. Most of the balances of earmarked funds are
invested in special, nonmarketable U. S. Treasury securities; Treasury
credits the appropriate fund with the securities. If the fund reaches a
point where outgoing payments exceed current receipts, the fund may redeem
these securities to make the required payments. A few funds do not invest in
Treasury securities and simply hold credit balances. Finally, some earmarked
funds are specifically authorized by the Congress to invest outside Treasury
securities. For example, the Civil Service Retirement and Disability trust
fund also carries but does not routinely invest in federal Q1. 10 What
Receipt

Sources Contribute to Fund Balances?

Q1.11 What Do Funds Do With Their Balances?

Section 1 What Are Federal Trust and Other Earmarked Funds?

Page 18 GAO- 01- 199SP Trust Fund FAQs

agency securities while TVA invests in a portfolio of securities designed to
earn interest in line with overall equity market performance.

A1.12 When an earmarked fund invests in U. S. Treasury securities, it has

“lent” money to the general fund of the Treasury. The value of
the securities held is recorded as “debt held by government
accounts” and represents debt owed by one part of the government to
another. 13 In many ways, the special U. S. Treasury securities held by
government accounts are indistinguishable from the marketable government
debt sold to the public. A maturity date is set, interest is accrued at
established market rates, and the securities count as part of the overall
federal debt. These securities, however, are not traded in the financial
markets. They can only be redeemed by the Treasury Department. The interest
they earn is simply credited to the fund accounts in the form of additional
Treasury securities.

Debt held by government accounts represents over a third of gross federal
debt and like publicly held debt is guaranteed for principal and interest by
the full faith and credit of the United States government. At the end of
fiscal year 2000, debt held by government accounts was about $2.2 trillion.
This debt does not appear on the government's consolidated financial
statements because it represents internal debt- amounts that one part of the
government owes to another part of the government. However, it does
constitute a liability for the Treasury since the Treasury must pay back the
debt held by government accounts when these accounts need to redeem their
securities to be able to make their expenditures. When this happens,
Treasury would have to obtain cash to finance the government's spending
either through increased taxes, spending cuts, increased borrowing from the
public, retiring less debt (if the unified budget is in surplus), or some
combination thereof.

13 Debt held by government accounts plus debt held by the public are the two
components of gross federal debt, which totaled about $5. 7 trillion at the
end of fiscal year 2000. A key difference between the two components of debt
is their effect on credit markets. Changes in debt held by the public
approximates the federal government's competition for credit with the
private sector in the credit markets and affects current interest rates and
private capital accumulation. In contrast, changes in debt held by
government accounts does not compete with the private sector for available
funds in the credit market. However, when the government accounts redeem
their securities to obtain cash to make expenditures, Treasury competes with
the private sector for cash by borrowing more from the public (or redeeming
less debt held by the public if in a unified surplus position). For
additional information on federal debt, see Federal Debt: Answers to
Frequently Asked Questions- An Update (GAO/ OCG- 99- 27, May 28, 1999).
Q1.12 What Do the

Treasury Securities Represent?

Section 1 What Are Federal Trust and Other Earmarked Funds?

Page 19 GAO- 01- 199SP Trust Fund FAQs A1.13 Generally, earmarked funds earn
interest on balances. The extent

to which funds may earn interest and the rate at which interest is earned is
determined by specific legal authorization from the Congress. As discussed
in section 1. 11, most of the balances of earmarked funds are invested in
special, nonmarketable U. S. Treasury securities. In some cases, laws may
permit that the interest earned by one fund's investment be used for a
different purpose. For example, the interest earned by the Abandoned Mine
Reclamation Fund (a special fund) is transferred to the United Mine Workers'
Combined Benefits Fund.

Some funds with relatively small balances, such as the Radiation Exposure
Compensation Trust Fund, do not invest their balances but receive interest
as if they had invested. Because of provisions contained in the
Transportation Equity Act for the 21 st Century, as amended, the Highway
Trust Fund is unusual in that securities held after September 30, 1998, are
noninterest bearing. Q1. 13 To What Extent

Do Earmarked Funds Earn Interest?

Page 20 GAO- 01- 199SP Trust Fund FAQs A2.1 Nonrevolving trust and special
funds obtain revenues primarily

through earmarked receipts, such as Social Security payroll taxes, and, to a
far lesser extent, offsetting collections. 1 In contrast, revolving trust
and public enterprise funds operate primarily through offsetting collections
resulting from their business- type activities. Although there were 392
trust, special, and public enterprise funds in the budget during fiscal year
1999, a few large funds received most of the revenues. In fact, about 78
percent of all earmarked revenues were associated with just six funds in
fiscal year 1999, with the remaining 22 percent earmarked to all other 386
funds. These six large funds included the two Social Security trust funds,
the two Medicare trust funds, the Civil Service Retirement and Disability
trust fund, and the Postal Service public enterprise fund. Figure 2.1
illustrates this concentration of revenues.

Figure 2. 1: Concentration of Revenues Among Earmarked Funds

1 Offsetting collections are monies credited directly to expenditure
accounts rather than receipt accounts. Section 2

What Is the Composition of Earmarked Funds?

Q2.1 What Are the Sources of Income for Earmarked Funds?

Social Security Medicare Civil Service Retirement

Postal All Other

Section 2 What Is the Composition of Earmarked Funds?

Page 21 GAO- 01- 199SP Trust Fund FAQs

The concentration of earmarked revenues in a few funds can also be seen in
the sources and uses of fund receipts. Specific sources and uses of funds in
fiscal year 1999 are described below.

Nonrevolving trust funds received almost two- thirds of their receipts from
taxes and contributions related to social insurance (largely Social Security
and Medicare). About 12 percent of receipts stemmed from interest earnings
on balances and another 16 percent from other federal fund transfers, such
as the federal government's contribution to its employees' pension funds.

Special funds received over half of their receipts from customs duties,
permits, and regulatory fees. Nearly a third was derived from business or
market- oriented activities with the public such as income from housing
loans, rents and royalties, and fees for other services such as nuclear
waste disposal and recreational programs.

About 95 percent of revolving trust fund collections came from federal
employee health benefit contributions (81.4 percent) and federal employees'
life insurance premiums (13.3 percent).

Over half of public enterprise fund collections came from postal revenues
with the remainder collected from multiple sources such as the Commodity
Credit Corporation and the Tennessee Valley Authority.

Figure 2. 2 shows the types of sources and uses, by budget function, of
receipts for nonrevolving trust funds and figure 2.3 shows the sources and
uses of receipts for special funds.

Section 2 What Is the Composition of Earmarked Funds?

Page 22 GAO- 01- 199SP Trust Fund FAQs

Figure 2. 2: Sources and Uses of Nonrevolving Trust Fund Receipts

Notes: a Includes receipts such as federal contributions to Medicare and
Social Security, and employing agency

contributions to retirement programs. b Includes receipts such as excise
taxes, fees, and sale of government property.

c Includes outlays such as those for federal pension programs, for example
the Civil Service Retirement and Disability Trust Fund. d Includes budget
functions such as Transportation, Natural Resources and Environment, and
Veterans Benefits.

Figure 2.3: Sources and Uses of Special Fund Receipts

Notes: a Includes receipts for such things as royalties and rents, fees,
sale of products, and interest on investments.

b Includes other budget functions such as Energy, Income Security, and
General Government.

Sources of Nonrevolving Trust Funds

Other Federal Fund Payments Interest Earnings

All Other Social Insurance

Uses of Nonrevolving Trust Funds

Medicare Income Security Social Security

All Other Functions d a

b c

Sources of Special Funds

Permits and Regulatory Services

Customs Duties All Other

Income from Loans and Investments

Uses of Special Funds

Administration of Justice All Other Functions

Commerce and Housing Credit Natural

Resources and Environment a b

Section 2 What Is the Composition of Earmarked Funds?

Page 23 GAO- 01- 199SP Trust Fund FAQs A2.2 Every budget function included
some activities financed by

earmarked funds in fiscal year 1999. However, as was the case for revenues,
the distribution was not even. Gross outlays financed by earmarked revenues
were also concentrated in a few specific areas.

Over 75 percent of nonrevolving trust fund dollars supported social
insurance programs, including Social Security (50.9 percent) and Medicare
(27.5 percent). Income security, which primarily includes pension programs,
ran third, consuming about 11 percent of total gross outlays.

Although special funds served a broader variety of functions than trust
funds, they were heaviest in commerce and housing credit (35.8 percent),
administration of justice (21 percent), and natural resources and
environment (13.7 percent).

Revolving trust fund spending was highly concentrated in the health budget
function (86. 8 percent), which is completely driven by federal employees'
health benefits.

Public enterprise fund monies were dominated by the Postal Service fund and
thus were concentrated in the commerce and housing credit function (58.7
percent). A large portion (28. 4 percent) of public enterprise fund monies
served multiple functions.

A2.3 Because revolving trust and public enterprise funds carry out a cycle
of business- type operations, the sources and uses of monies for these funds
are directly related. 2 In addition, for the majority of nonrevolving trust
and special fund revenues, the relationship between the sources and uses of
the revenues is relatively direct. For example, Old- Age Survivors and
Disability Insurance Trust Funds receive most of their monies from Federal
Insurance Contributions Act (FICA) taxes paid by employees and their
employers, and they use the monies to finance Social Security payments to
individuals and to invest in Treasury securities. The sources and uses of
monies for Medicare taxes and premiums 3 and pension

2 Because revolving trust and public enterprise funds receive monies through
offsetting collections deposited in expenditure accounts and do not have
receipt accounts, detailed data on the explicit sources of monies were not
always readily available. However, the collections would be payments from
the public or another federal entity for goods or services provided by the
fund's business activity.

3 Nearly three- fourths of the SMI portion of Medicare is financed from
general fund contributions. Q2. 2 What Purposes

and Activities Do Earmarked Funds Finance?

Q2. 3 What Is the Relationship Between the Sources and Uses of Earmarked
Funds?

Section 2 What Is the Composition of Earmarked Funds?

Page 24 GAO- 01- 199SP Trust Fund FAQs

programs are also directly related. However, in some cases the relationship
is less direct. For example, the largest special fund, Funds for
Strengthening Markets, Income, and Supply (Section 32) is financed by 30
percent of customs duties collected and automatically appropriated for
expanding outlets for nonbasic agricultural commodities. Most of these
earmarked customs duties are used primarily to support child nutrition
programs. 4

A2.4 Funds that provide social insurance, 5 federal insurance, federal
pensions, and certain education benefits represent what we classify as long-
term commitments of the federal government. 6 About 93 percent of all
nonrevolving trust fund outlays were associated with funds representing
long- term commitments. Some examples of earmarked funds that do not
represent long- term commitments include gift funds, such as the Library of
Congress gift fund; funds that transfer collected revenues to state or local
governments for local use, such as the special fund for Mineral Leasing on
Public Lands; and transportation funds, such as the Highway Trust Fund.
Although only 38 of the 392 earmarked funds were dedicated to long- term
commitments in fiscal year 1999, these funds represented the vast proportion
of dollars collected. Most long- term commitments were associated with
nonrevolving trust funds rather than revolving trust or public enterprise
funds; none were associated with special funds. The payments for long- term
commitments that were made by these funds tended to be cash payments to or
on behalf of individuals rather than services to the general public.
Overall, projected fund balances may not equal the future claims the federal
government could be responsible for under current law. For example, Social
Security's trust funds are projected to have balances sufficient to fund
benefits through 2037, leaving an unfunded claim at that date of about 28
percent of benefits owed. 7

4 See appendix II for more detailed discussion of this fund. 5 For social
insurance funds, we included the funds listed in the Federal Accounting
Standards Advisory Board's Statement of Federal Financial Accounting
Standards (SFFAS) No. 17, Accounting for Social Insurance, August 1999.

6 Long- term commitments are not an established budget concept; individuals
may differ on what they perceive should be included in this category. 7
Status of the Social Security and Medicare Programs. A Summary of the 2000
Annual Reports (Revised April 2000), Social Security and Medicare Boards of
Trustees. Q2.4 What Earmarked

Funds Serve Long- Term Commitments? What Is the Rationale for Earmarking
Receipts for These Long- Term Commitments?

Section 2 What Is the Composition of Earmarked Funds?

Page 25 GAO- 01- 199SP Trust Fund FAQs

One rationale for earmarking revenues to finance long- term commitments is
that the benefits are financed by the contributions made by the
beneficiaries. However, the current projections for the earmarked revenues
for the largest long- term commitment programs would be insufficient to
fully finance expected benefits: that is, the earmarked financing of the
program is not structured to fully cover future benefits. For example, only
about a quarter of the revenues paid into Medicare's Supplemental Medical
Insurance trust fund stem from enrollees' monthly premiums; the bulk of the
program's financing comes from federal general revenues. In theory,
monitoring the funding status of long- term commitments may trigger policy
action if a fund becomes too far out of balance. For example, in the past,
the threat of trust fund depletion led to changes in the Social Security
program and its financing. Recently, concerns over the long- term viability
of the Social Security trust funds have led to myriad proposals for reform.
Other measures that indicate fund solvency are discussed in more detail in
section 5.

Although long- term commitments are in many cases financed by earmarked
revenues, this is not always the case. For example, long- term commitments
related to some pensions and some environmental cleanup are financed through
general fund revenues instead of earmarked funds. The lifecycle costs of
capital 8 also typically are financed by general funds.

A2.5 Nonrevolving trust funds receive and use the bulk of earmarked
revenues, even though there are more special funds and almost as many public
enterprise funds. Moreover, nonrevolving trust funds are overwhelmingly used
for financing programs that make long- term commitments. Table 2.1 below
shows the earmarked revenues, outlays, and balances by fund type for fiscal
year 1999, separately identifying amounts earmarked for long- term
commitments.

8 Life- cycle costs of capital include initial costs plus costs of operation
and maintenance, and any costs of decommissioning or disposal. Capital
assets are tangible assets (such as buildings, equipment, and information
technology) that are owned by the federal government and primarily used to
deliver federal services. Q2. 5 What Were The

Revenues, Gross Outlays, and Balances of Earmarked Accounts in Fiscal Year
1999? What Portions of These Amounts Represent Long- Term Commitments?

Section 2 What Is the Composition of Earmarked Funds?

Page 26 GAO- 01- 199SP Trust Fund FAQs

Table 2.1: Breakout of Fiscal Year 1999 Revenues, Gross Outlays, and
Balance, by Fund Type

Dollars in billions

Revenues Gross outlays Fund balances Fund type Number of

funds Total Long- term commitments Total Long- term

commitments Total Long- term commitments

Nonrevolving trust 120 $ 983 $ 916 $ 771 $ 718 $ 1,847 $ 1,786 Special 149
27 0 14 a 0 40 a 0 Revolving trust 10 22 3 21 2 29 22 Public enterprise 113
120 9 127 8 163 55

Totals 392 $ 1,152 $ 928 $ 933 a $ 728 $ 2,079 a $ 1,863 a This amount is
understated because some special fund appropriations have been

consolidated into general fund accounts. Thus, an unknown portion of special
fund outlays are included in general fund outlays and some special fund
balances is included in general fund balances.

A2.6 Annual surpluses can accumulate into large trust fund balances.
However, because these balances are really bookkeeping credits to the fund
with the actual cash commingled with other collections, the accumulation of
large balances does not by itself affect the government's ability to meet
long- term commitments or make a program more sustainable in the future. In
other words, accumulated balances do not increase the government's ability
to acquire future resources to meet longterm commitments. Nor do they
necessarily represent the full future cost of existing commitments. From a
macro perspective, the critical question is not how much a trust fund has in
assets but whether the government as a whole has the economic capacity to
finance the claims on the trust funds for benefits now and in the future and
at the cost of other competing claims for scarce resources. The President's
Budget includes a useful discussion on the relationship of balances to the
economy.

“Increases in trust fund balances do strengthen the ability to pay
future benefits if the surplus in the trust fund is matched by an
improvement in the Government's net financial position. It is in this sense
that future benefits can be prefunded. If a trust fund surplus is matched by
a corresponding reduction in publicly held debt, then the Government's
financial position will be improved. This makes it easier to finance future
benefits in two respects. The first, direct effect, is that this debt
reduction reduces future interest payments and frees up general receipts to
finance the future benefits. The second is that debt reduction increases the
Q2.6 How Do

Accumulated Balances of Earmarked Funds Affect the Government's Ability to
Meet Its Long- Term Commitments?

Section 2 What Is the Composition of Earmarked Funds?

Page 27 GAO- 01- 199SP Trust Fund FAQs

resources available for investment in the economy as a whole. Greater
investment now increases future incomes and wealth, which will provide more
real economic resources to support the benefits, and may prolong the
solvency of the trust funds.” 9

From a micro perspective, projected trust fund balances can provide a vital
signaling function for policymakers about underlying fiscal imbalances in
covered programs. However, balances do not provide meaningful information
about program sustainability, 10 notwithstanding that financial condition is
often gauged by the solvency of the fund. Extending a trust fund's solvency
without reforms to make the underlying program more sustainable over the
long- term can obscure the warning signals that trust fund balances provide,
thereby creating a false sense of security and delaying needed reform.

9 Analytical Perspectives, Budget of the United States Government, Fiscal
Year 2001, p. 346. 10 By program sustainability, we are referring to the
Nation's ability to finance promised benefits over the long run.

Page 28 GAO- 01- 199SP Trust Fund FAQs A3.1 Fund type does not determine how
fund spending is controlled.

The budget distinguishes between federal funds and trust funds; however,
this designation does not control federal spending. Although some have
advocated the creation of earmarked funds with an eye toward giving these
monies special treatment, these are not the labels that matter for budgetary
control. The Deficit Control Act (DCA) 1 divides the budget into

“discretionary” and “mandatory” categories- and it
is these categories that determine how a fund is controlled. What matters
for budget control is whether an earmarked fund is classified as
discretionary or mandatory and whether it has any special rules accompanying
it.

All spending classified as discretionary (whether from earmarked or general
funds) is subject to annual adjustable dollar limits (spending caps) and is
controlled through the regular appropriations process. Mandatory spending is
subject to pay- as- you- go (PAYGO) rules, regardless of whether its
financing source is earmarked or general fund. These rules require that the
aggregate effect of new legislation that either increases mandatory spending
or decreases receipts be deficit neutral (that is not increase the deficit
or decrease the surplus). The two Social Security trust funds are exempt
from these general budget enforcement procedures but are subject to special
rules of each chamber of the Congress barring legislation that would erode
trust fund balances. The legal authority to issue checks for programs
financed by earmarked funds is limited to their fund balances, except where
there is authority to borrow.

A3.2 DCA classification is relatively consistent across fund types. The
majority of each earmarked fund type is mandatory. A large number (59) of
nonrevolving trust funds and special funds have both mandatory and
discretionary authority. The public enterprise group has more individual
funds (24) with strictly discretionary spending than do the other earmarked
fund types.

Of the 392 funds we analyzed for fiscal year 1999, we were able to determine
DCA classification for 367. 2 The revenues and outlays for 268 of

1 The actual title of this act is the Balanced Budget and Emergency Deficit
Control Act of 1985, as amended. However, for simplicity, we refer to it as
DCA. It is often referred to as the Budget Enforcement Act (BEA) because
that act added the current sequestration process and designated accounts as
either mandatory or discretionary.

2 DCA classification data were not readily available for 25 of the 392 funds
because they had no receipts or expenditures during fiscal year 1999.
Section 3

How Are Earmarked Funds Controlled in the Federal Budget Process?

Q3.1 Are Earmarked Funds Treated Differently in the Budget Process?

Q3.2 Are Earmarked Funds Discretionary or Mandatory?

Section 3 How Are Earmarked Funds Controlled in the Federal Budget Process?

Page 29 GAO- 01- 199SP Trust Fund FAQs

these 367 funds were completely mandatory. Spending from these funds was
governed by the legislation that established the program, that is,
eligibility criteria and benefit formulas. Another 31 funds were completely
discretionary. Spending from these funds was controlled by the
appropriations process and was subject to the spending caps, thus limiting
the amounts that could be spent from the funds. Finally, 68 funds had a
mixture of mandatory and discretionary revenues and outlays. The Hazardous
Substance Superfund (trust fund) is an example of such a case. The outlays
of this fund are all discretionary while revenues have both mandatory and
discretionary components. The mandatory revenues stem from taxes, fines,
recoveries and interest while the discretionary revenues stem from
additional appropriations from the general fund.

A3.3 Every year since 1971 at least one federal entity has been
“offbudget.”

Off- budget federal entities are federally owned and controlled, but their
transactions are excluded from the budget totals by law. The offbudget
federal entities currently consist of the two Social Security trust funds
and the Postal Service public enterprise fund. "Off- budget" is a display
distinction not a control distinction.

As discussed in section 1.3, the federal government uses the unified budget
concept as the foundation for its budgetary analysis and presentation. It is
a comprehensive display of the full range of federal activities, regardless
of fund type or on- and off- budget status. Thus, whether a fund is
“on- budget” or “off- budget” affects the way totals
are displayed in various summary budget tables. However, it has no effect on
the collection or expenditure of funds or on the way the funds are
controlled. As discussed in section 3.1, it is the DCA mandatory and
discretionary categories and Social Security's special rules that determine
how a fund is controlled. Taking a fund off- budget does not by itself
exempt it from DCA controls. Whether a fund is exempt from DCA depends on
the existence of a law specifying exclusion, such as the specific exclusion
of Social Security contained in DCA. Q3. 3 What Does “OffBudget”

Mean? Are

“Off- Budget” Funds Governed by Different Rules?

Section 3 How Are Earmarked Funds Controlled in the Federal Budget Process?

Page 30 GAO- 01- 199SP Trust Fund FAQs A3.4 Since 1974, the Postal Service-
a public enterprise fund- has been

moved on- and off- budget. Currently, it is off- budget, financed by
business transactions with the public, and excluded from DCA controls.
Social Security was taken off- budget in response to concern about its
financial condition, fear that use of its surpluses to offset other spending
would hurt the program, and criticism that surplus Social Security taxes
were hiding the size of budget deficits. It is excluded from DCA controls
and subject to its own set of congressional rules designed to prohibit
legislation that would erode its surpluses.

During the 106 th Congress, proposals were made to move a number of
additional funds off- budget: the Airport and Airway Trust Fund, the Civil
Service Retirement and Disability (trust) Fund, the Nuclear Waste (special)
Fund, the Inland Waterways and Harbor Maintenance Trust Funds, and the Land
and Water Conservation (special) Fund. All these proposals would also have
excluded these funds from DCA controls. Proponents argue that the
combination of off- budget and DCA exclusion is a stronger way to set aside
earmarked monies and assure that they are used in the near term for their
dedicated purpose rather than for general government activities. Opponents
of off- budget designations argue that changing its label or category does
not make an activity less federal, does not change total federal revenues or
spending, and contributes to a more confusing picture of the federal
government's total taxes and spending. Opponents of DCA exemptions argue
that removing a fund's transactions from the existing budgetary
Congressional controls reduces the ability of the President and the Congress
to make trade- offs across government priorities.

Special budgetary treatment has been provided to the transportation trust
funds without moving them off- budget or excluding them from DCA. The
Transportation Equity Act for the 21 st Century (TEA- 21), enacted in 1998,
guaranteed specific levels of funding for many highway and mass transit
programs based on the user tax receipts credited to the Highway Account of
the Highway Trust Fund. More recently, a similar treatment of the Airport
and Airway trust fund was provided in the Aviation Investment and Reform Act
for the 21 st Century (AIR- 21), enacted April 5, 2000. Since these funds
are technically under the discretionary caps, their guaranteed funding
levels in effect reduced the ability of policymakers to make tradeoffs among
discretionary spending programs. Q3.4 What Kinds of

Special Treatment Have Been Given to Some Earmarked Funds? What Arguments
Have Been Used for Such Treatment?

Page 31 GAO- 01- 199SP Trust Fund FAQs A4.1 Historical budget data on
earmarked receipts are only readily

available for those earmarked to trust funds. It is the trust fund
historical trends that are most important, however, because they hold about
90 percent of all earmarked balances. Over the last 50 years, trust fund
receipts have grown both as a share of total federal receipts and as a share
of Gross Domestic Product (GDP). Today, annual trust fund receipts make up
about half of all federal receipts and about 10 percent of GDP. In fiscal
year 1950, trust fund receipts made up only about one- seventh of total
receipts and about 2 percent of GDP. Even in 1970, after the enactment of
Medicare, trust fund receipts made up less than a third of all federal
receipts. The big jump in the mid 1980s in large part reflects the effect of
the Social Security Amendments of 1983 when payroll taxes were set higher
than needed to cover current expenditures, causing the trust fund balances
to grow. Figure 4.1 illustrates this growth.

Figure 4. 1: Trust Funds' Share of Total Receipts and GDP Over Time

Source: Historical Tables, Budget of the United States Government, Fiscal
Year 2001,

tables 1.2 and 1.4

Section 4 How Do Earmarked Funds Affect Federal Fiscal Position?

Q4.1 How Has the Composition of Earmarked Versus Unearmarked Federal
Receipts Changed Over Time?

0 10

20 30

40 50

60 70

80 90

100
19501952195419561958196019621964196619681970197219741976197819801982198419861988199019921994199619982000
est.

Fi scal year Percent of total

dol l ars Share of total receipts Share of GDP

Section 4 How Do Earmarked Funds Affect Federal Fiscal Position?

Page 32 GAO- 01- 199SP Trust Fund FAQs A4.2 Again, historical budget data do
not readily separate special and

public enterprise funds from other federal funds. There are rich historical
data, however, on federal versus trust fund surpluses and deficits. The sum
of trust fund and federal fund surpluses/ deficits comprise the annual
unified budget total. Accordingly, any trust fund surpluses add to the
unified budget totals (increasing a surplus or reducing a deficit), and any
trust fund deficits subtract from them. Since 1963, in the aggregate, trust
funds have been running surpluses, thus reducing the federal government's
need to borrow from the public. As discussed earlier, these surpluses
generally are invested in special U. S. Treasury securities. For fiscal year
2000, the unified budget had a surplus of $237.0 billion- the cumulative
result of a trust funds surplus of $228.7 billion (including interest
received from federal funds) and a federal funds surplus of $8.3 billion
(including interest paid to trust funds). As discussed in section 1.10,
trust funds receive contributions from the general fund for such things as
interest payments, the employer share of federal employee pension costs,
and, in some cases, such as Medicare, what might be viewed as a subsidy from
the general fund. Interest payments make up a significant portion of these
contributions. For example, if the $128.9 billion in interest paid to trust
funds were excluded from surplus calculations, the fiscal year 2000 federal
funds surplus of $8.3 billion would increase to a surplus of $137.2 billion.
Similarly, the trust funds surplus of $228.7 billion would be reduced to a
surplus of only $99.8 billion.

Figure 4. 2 illustrates the extent to which trust fund surpluses/ deficits
have affected the unified budget deficit or surplus over time. 1

1 For additional information on deficits/ surpluses and their relationship
to federal debt, see Federal Debt: Answers to Frequently Asked Questions- An
Update (GAO/ OCG- 99- 27, May 28, 1999). Q4.2 What Is the Effect

of Earmarked Funds in Measuring Unified Budget Deficits or Surpluses?

Section 4 How Do Earmarked Funds Affect Federal Fiscal Position?

Page 33 GAO- 01- 199SP Trust Fund FAQs

Figure 4. 2: Effect of Trust Fund Surpluses/ Deficits on Unified Budget
Totals Over Time

Note: Data exclude the extra quarter in fiscal year 1976, which resulted
from the shift in fiscal years from July 1st to October 1st.

Source: Historical Tables, Budget of the United States Government, Fiscal
Year 2001,

table 1.4, pages 25 and 26, and the Final Monthly Treasury Statement of
Receipts and

Outlays of the United States Government, For Fiscal Year 2000 through
September 30, 2000, and Other Periods.

A4.3 When earmarked funds hold balances as Treasury securities, the
securities represent a future claim on the Treasury. While the security is
an asset to the earmarked fund, it is a liability to the general fund of the
Treasury. 2 If earmarked surpluses are used to finance other governmental
activities, the government's need for additional cash to finance these
activities is less than what it otherwise would have been. Using earmarked
surpluses to redeem debt held by the public does not reduce gross federal

2 The same would be true whether the balances are invested in Treasury
securities or simply maintained as uninvested balances. Q4.3 What Are the

Implications of Investing Balances in Treasury Securities?

-500,000 -400,000

-300,000 -200,000

-100,000 0

100,000 200,000

300,000
19501952195419561958196019621964196619681970197219741976197819801982198419861988199019921994199619982000

Fiscal years

Millions of dollars

Trust funds Federal funds Unified results

Section 4 How Do Earmarked Funds Affect Federal Fiscal Position?

Page 34 GAO- 01- 199SP Trust Fund FAQs

debt because debt held by government accounts increases by the same amount
that debt held by the public decreases. However, as discussed in section
2.6, using these surpluses to reduce publicly- held debt not only improves
the government's net financial position but, because it frees up private
funds for other investments, also promotes future economic growth. As a
result, the government's ability to pay the future claims for which the
surpluses were earmarked would be enhanced. Therefore, if the trust fund
surpluses were used to strengthen the government's fiscal position by
causing unified surpluses to be higher or deficits lower than they otherwise
would have been, then the government's ability to pay future benefits could
be improved. Currently, there is bipartisan consensus to use the surpluses
of the largest long- term commitment- Social Security- to redeem publicly-
held debt.

When an earmarked fund's annual outlays for benefits and expenses exceed
annual earmarked receipts, it redeems some of its Treasury securities. The
Treasury would need to obtain cash to redeem these securities. Cash could be
obtained either through increased taxes, spending cuts, increased borrowing
from the public, retiring less debt (if the unified budget is in surplus),
or some combination thereof.

A4.4 Allowing earmarked revenues to be invested in the stock market, as has
recently been proposed for some trust funds, would have consequences for the
programs financed by those revenues, the U. S. economy, and federal budget
policy. 3 Historically, the rates of return on stocks have exceeded interest
rates on Treasury securities, although stock returns are more variable.
While the prospect of higher stock market returns might allow the funds to
pay benefits longer without other program changes, the government would also
face greater risk and other implementation issues. For example, if stock
investing were implemented in isolation of other program reforms, the trust
funds would inevitably need to liquidate their stock portfolios to pay
promised benefits and would be vulnerable to losses in the event of a
general downturn in the market.

Proposals for government stock investing typically suggest investing
passively in a broad- based stock index to reduce both the costs and the
fear that the government, through its stock ownership, would influence

3 For additional information on this topic, see Social Security Financing:
Implications of Government Stock Investing for the Trust Fund, the Federal
Budget, and the Economy (GAO/ AIMD/ HEHS- 98- 74, April 22, 1998). Q4. 4
What Issues Are

Raised by Proposals to Permit the Investment of Earmarked Revenues in the
Private Sector?

Section 4 How Do Earmarked Funds Affect Federal Fiscal Position?

Page 35 GAO- 01- 199SP Trust Fund FAQs

individual companies. Although index investing would help achieve these
goals, it would not completely eliminate the possibility of political
influence over stock selections. Nor would it answer the question of what to
do about voting rights. Even choosing not to vote would affect corporate
decision- making by enhancing the voting power of other shareholders or
investment managers.

In contrast to the current situation in which earmarked funds hold their
balances in Treasury securities, stock investing would have the immediate
effect of decreasing the unified surplus (or increasing any unified deficit)
because, under current budget scoring rules, stock purchases would be
treated as outlays. This is because monies would actually be expended
outside the government and any money used to purchase stocks would no longer
be invested in Treasury securities, thus reducing Treasury's available cash.
To the extent that this resulted in unified budget deficits, the Treasury
would need to borrow from the public to replace cash used to buy stocks,
unless offsetting spending or revenue actions were taken. This would have no
effect on gross federal debt. However, if stock purchases were scored under
different rules than other types of federal spending, they could be excluded
from government outlays.

Without compensating changes in fiscal policy, stock investing would not
significantly alter the effect of federal finances on national saving and
the economy. To cover a deficit, the government would increase borrowing
from the public, but it would offset this action by purchasing stocks from
other investors. This asset shuffle could lead to higher stock prices and
higher interest rates, undercutting somewhat the potential gain from stock
investing and increasing the government's cost of borrowing. Even with such
price effects, higher returns might result in the government still coming
out ahead by investing in stocks. However, any higher returns earned by the
government would otherwise have accrued to other investors. In short, by
itself, government stock investing should have no appreciable effect on
future national income.

Although the immediate budgetary effect of investing in stocks would lead to
decreased unified budget surpluses or possible deficits, stock investing
might also indirectly lead to changes in federal fiscal policy that could
increase national saving. By making earmarked fund surpluses unavailable to
the Treasury, stock investing could focus more attention on any budgetary
imbalances that may exist when such surpluses are excluded. Increased
attention could prompt policymakers to address an imbalance either by
cutting spending or raising revenue. Such fiscal actions could boost
national saving and long- term economic growth.

Section 4 How Do Earmarked Funds Affect Federal Fiscal Position?

Page 36 GAO- 01- 199SP Trust Fund FAQs A4.5 Concerns have been raised that,
because the actual earmarked

cash borrowed from the funds is commingled in the Treasury with other
receipts and used to pay whatever bills the government currently has on
hand, the federal government has inappropriately diverted funds for purposes
other than what was intended. Treasury accounts for earmarked monies by
crediting these collections to the appropriate funds. Any surpluses
resulting from these collections are then lent to the general fund of the
Treasury and the funds in most cases are given special, nonmarketable
Treasury securities in return. 4 These special securities are claims on the
Treasury (i. e., IOUs) that can be redeemed in the future to obtain the cash
needed to pay the intended benefits. However, if sufficient surpluses are
not available to redeem the securities, the government would either need to
increase borrowing from the public, raise future taxes, reduce future
spending, retire less debt (if the unified budget is in surplus), or some
combination thereof. This future need for cash to redeem Treasury securities
emphasizes the importance of using earmarked surpluses to reduce debt held
by the public, thereby increasing economic growth and making it easier for
the government to pay these future commitments.

Although the special Treasury securities are nonmarketable, like other
Treasury securities they are backed by the full faith and credit of the
United States government. History provides no evidence to suggest that the
U. S. would not honor these obligations as it does its other obligations. In
fact, some trust funds support programs with long- term commitments in which
current expenditures on benefits and administration have already exceeded
dedicated annual tax revenues (that is, the funds have run a cash deficit).
These trust funds have redeemed some of their Treasury securities to make
current benefit payments. For example, from 1992 through 1998, the Medicare
Hospital Insurance (Part A) Trust Fund had a cash deficit and, as needed,
redeemed a portion of its accumulated securities each year to pay current
claims. The combined Social Security trust funds also redeemed some of their
Treasury securities to cover their cash deficits starting in the mid- 1970s
through the early 1980s, when payroll taxes were increased. The combined
Social Security trust funds are projected to reach the point at which
current expenditures exceed annual cash receipts by 2015.

4 Even if the surpluses were not invested in Treasury securities, they would
be used for other purposes. Q4. 5 What Does It

Mean When People Say the Fund Balances Are Used for Other Than Intended
Purposes?

Section 4 How Do Earmarked Funds Affect Federal Fiscal Position?

Page 37 GAO- 01- 199SP Trust Fund FAQs

The following text box discusses the implications of using earmarked fund
surpluses of long- term commitments for debt reduction.

Setting Aside Annual Surpluses of Funds Earmarked for Long-Term Commitments
to Reduce Debt

In fiscal year 1999, about $125 billion of the $201 billion in annual
surplus earmarked funds collected for long-term commitments was related to
Social Security, leaving about $76 billion related to other long-term
commitments, such as pensions, insurance, and other social insurance
programs. There was bipartisan consensus to use the surpluses associated
with Social Security to reduce debt held by the public-a concept sometimes
referred to as a “lockbox.” Because the government spent the
remaining surpluses related to other long- term commitments, if these
surpluses had instead been used to reduce debt held by the public, spending
would have had to be cut and/or taxes raised.

Page 38 GAO- 01- 199SP Trust Fund FAQs

The federal budget is an instrument of national policymaking. It seeks to
facilitate the Nation's economic stabilization and growth as well as the
allocation of resources among competing claims. Accordingly, it is essential
that the budget be transparent, that is, understandable, to as much of the
public and as many of their elected representatives as possible.
Transparency permits the public to participate intelligently in the
important decisions that the budget brings to bear. In addition, the budget
should provide decisionmakers with sufficient information to signal when and
what forms of corrective actions are needed.

Federal budget concepts are based on the recommendations set forth by the
1967 budget commission almost 35 years ago. Although they apply broadly in
the budget process, not all recommendations were implemented and they do not
address certain issues that are plaguing lawmakers and budget scorekeepers.
For example, issues such as longterm commitments, Social Security reforms,
biennial budgeting, and accrual of long- term costs raise concern among
budget scorekeepers. Accordingly, there have been proposals for a new budget
concepts commission. Should such a commission convene, it could consider a
number of the issues raised in the following sections.

Certain aspects of earmarked funds can reduce budget transparency. First,
the term “trust fund” in the federal budget does not mean what
it does in the private sector. Unlike a private trust fund, the federal
government can unilaterally change the terms of a trust fund financed
program; it can raise or lower future trust fund collections and payments
and change the purposes for which the collections can be used. Also, some
believe that the government has a greater commitment to carry out an
activity financed by a trust fund than its commitment to other government
activities. This is not true. For example, the U. S. Constitution provides
that the government is responsible for the common defense of the nation- an
activity that is not financed through a trust fund. The lack of a trust fund
financing arrangement is certainly not an indication that the government has
some lesser commitment to a strong national defense than it does to trust
fund activities. Contrary to what many citizens may believe, the absence or
presence of a trust fund does not necessarily represent the strength of the
government's commitment to a particular activity.

While earmarking does not confer any permanent, unchangeable benefit to a
program, it may influence debates about program creation or changes if the
program is financed in whole or in part by its beneficiaries. Given these
political benefits, earmarking as a means of specifying the financing for a
program is unlikely to disappear. However, transparency could be Section 5

Policy and Design Issues Related to Earmarked Funds

Transparency Issues

Section 5 Policy and Design Issues Related to Earmarked Funds

Page 39 GAO- 01- 199SP Trust Fund FAQs

increased by recognizing the similarity between nonrevolving trust funds and
special funds and between revolving trust funds and public enterprise funds.
Do we need four fund types when two might suffice?

Consideration should be given to whether budget transparency could be
improved by eliminating the use of the term “trust fund” in the
federal budget. Use of a term that is not identical to a private sector term
with a different meaning could clear up some of the public's confusion. For
example, using the term “special fund” instead of trust fund
could eliminate the confusion. Also, it might increase consistency within
the budget given the lack of distinction between fund types. Alternatively,
an entirely new term could be developed to encompass current trust, special,
and public enterprise fund labels.

Finally, it may be confusing that gross federal debt can increase during a
time when budget surpluses are being used to pay down the debt. This occurs
because gross federal debt includes both debt held by government accounts
(that is, the balances in earmarked funds) and debt held by the public.
Trust funds are generally required by law to be invested in government
obligations. When such earmarked funds have annual surpluses- as in the
current case of Social Security trust funds- debt held by government
accounts increases. Using the earmarked surpluses to reduce debt held by the
public merely exchanges publicly held debt for debt held by government
accounts; gross federal debt remains unchanged. If the surpluses in
earmarked funds are not all used to reduce debt held by the public, total
debt would increase even when the budget is in surplus. Moreover, reforms to
Social Security and Medicare can increase balances and hence could increase
gross federal debt if they increase any near- term surpluses in these funds.

Some reconsideration of how debt is defined might help clarify the
situation. For example, the term “debt held by government
accounts”- essentially a bookkeeping entry of what has been earmarked
to particular purposes in excess of spending- could be reconsidered. This
debt might be excluded from gross federal debt so that gross federal debt
reflects only borrowing from the public which is a better concept for
analyzing the effect of the budget on the economy. 1 Debt held by government
accounts

1 Debt held by the public is a useful measure because it represents the
cumulative burden of past federal borrowing on today's economy and the
federal budget. Because debt held by government accounts is neither equal to
future benefit payments nor a measure of the commitments of the current
system, it cannot be seen as a measure of this future burden.

Section 5 Policy and Design Issues Related to Earmarked Funds

Page 40 GAO- 01- 199SP Trust Fund FAQs

could also be excluded from the amount that is subject to the federal debt
limit. The balances of debt held by government accounts could be tracked and
interest paid, but it would not be called “debt.” This single
clarification could make public discourse on debt more transparent.

The federal budget is intended to facilitate the allocation of resources
among competing claims as well as the Nation's economic stabilization and
growth. As a general principle, decision- making is enhanced if the
government recognizes the costs of its commitments at the time it makes
them. For most programs, cash- based budgeting accomplishes this. However,
for some programs, such as credit, pension, and insurance, cashbased
measurement is incomplete and potentially misleading. For such programs and
others established to account for long- term commitments like Social
Security, the budget in some cases attempts to accumulate earmarked balances
in anticipation of future claims.

Because an earmarked fund's accumulated balance does not necessarily reflect
the full future cost of existing government commitments, it is not an
adequate measure of a fund's solvency or sustainability. As discussed in
section 2.3, the relationship between projected future fund balances and the
claim on future resources depends on whether the program financed by the
fund was structured such that earmarked receipts would cover the future
program claims stemming from its benefit structure. However, when programs
are not designed to be fully self- financed, their projected accumulated
balances can provide a vital signaling function about underlying fiscal
imbalances. For example, under current law, the longterm projected balances
in the Social Security trust funds will not cover the cost of Social
Security benefits projected for the same long- term period. In that case and
others, the information on accumulated fund balances provides an indication
of the solvency of the fund but does not fully inform policymakers about
either the size of the benefit promised or the sustainability of the
programs financed by earmarked funds. Tracking the estimated future balances
in earmarked funds does make it possible, however, to estimate how much more
funding is needed to pay for the commitments that have been promised. A
shortfall between the long- term projected fund balance and projected costs
can signal that the fund, either by design or because of changes in
circumstances, is collecting insufficient monies to finance future payments.
This signaling device can eventually prompt policymakers to action.

The difficulty of developing meaningful measures of fund sustainability is
exacerbated by the length of time covered by long- term commitments. The
longer the span of time between the collection and the expenditure of
Signaling Issues

Section 5 Policy and Design Issues Related to Earmarked Funds

Page 41 GAO- 01- 199SP Trust Fund FAQs

funds, the greater the uncertainty involved in forecasting future needs.
Social insurance, pensions, and other programs that create long- term
commitments will frequently grapple with these timing issues. Having several
measures may in fact be the most informative. For example, Social Security
uses three alternative sets of economic and demographic assumptions to
estimate a range of possible future experiences. 2

In that balances do not fully inform policymakers and the public about the
long- term sustainability of the programs financed by earmarked funds,
consideration is warranted of other ways to make long- term commitments more
apparent when making budget decisions. For example, similar to credit
programs, one might look at the net present value of estimated costs and
receipts for specific programs. Alternatively, constructing meaningful
measures that would trigger some action, such as expected program growth
beyond a specified share of GDP, might offer another means to focus
policymaker attention on certain long- term commitments. For example, we
have suggested that Medicare reforms could include a trigger that would
require the President to propose how to deal with the growth and the
Congress to vote on the proposal, either accepting it or developing an
alternative. 3 Whether ways to make long- term commitments more apparent
should represent changes in how the budget is measured or simply changes in
budget display would need to be considered based on what is appropriate for
each type of program. As we have said before, the future sustainability of
programs is the key issue policymakers should address- i. e., the capacity
of the economy and budget to afford the

2 The three sets of estimates include low-, high-, and intermediate- cost
assumptions that are used to prepare 10- year and 75- year estimates. The
low- cost alternative is more optimistic for trust fund financing, the high-
cost alternative is more pessimistic, and the intermediatecost alternative
reflects the “best estimate” of future experience.

3 Medicare Reform: Issues Associated With General Revenue Financing (GAO/ T-
AIMD- 00- 126, Mar. 27, 2000).

Section 5 Policy and Design Issues Related to Earmarked Funds

Page 42 GAO- 01- 199SP Trust Fund FAQs

commitment. Fund solvency can help, but only if promoting solvency improves
the future sustainability of the program.

Page 43 GAO- 01- 199SP Trust Fund FAQs

OMB and Treasury report funds differently. For example, because amounts in
the federal budget are rounded to millions of dollars, OMB instructs
agencies to consolidate small accounts with larger general fund accounts. 1
However, Treasury tracks monies for each discrete trust fund account down to
the penny in order to fulfill its governmentwide accounting and cash
management responsibilities. Thus, Treasury's count of funds represents the
actual number of separate entities designated as earmarked funds.

Because this report was written primarily from a budgetary perspective, we
used OMB budget data to analyze earmarked funds. Accordingly, our analysis
does not separately identify funds with amounts less than $500,000.
Although, to the extent possible, we individually counted trust funds that
OMB grouped together, we could not always separately identify expenditures
that had been merged or consolidated with other accounts. As a result, the
number of earmarked funds we identify is more than the number of funds
tracked by OMB but fewer than the actual number tracked by Treasury.

The budget data we used were extracted from automated information collected
and maintained by OMB. We obtained this data for the fiscal year 2001
budget, which included data for fiscal year 1999. We extracted account data
on receipts (including source information), offsetting collections, gross
outlays, and balances (including unappropriated, unobligated, and obligated
balance data). We also extracted data on budget function and Deficit Control
Act classification as mandatory or discretionary. We excluded (1) financing
accounts, since they are nonbudgetary; (2) funds established after 1999; and
(3) legislative proposals included in the 2001 budget. Although we did not
independently verify the extracted data for every earmarked fund, we
reconciled account data for a judgmentally selected set of funds to the
published Budget of the United States Government, Fiscal Year 2001- Appendix
and, in many

cases to the Department of Treasury's receipt data published in the United
States Government Annual Report- Appendix. We defined earmarked funds that
carry some degree of long- term commitment as those that finance federal
insurance programs, social

1 OMB also will sometimes report trust fund groups rather than individual
trust funds. Groups may include two or more trust funds with similar
purposes. For example, it groups the five trust funds related to
“foreign service national separation liability” associated with
five different agencies under one group trust fund name Appendix I

Scope and Methodology

Appendix I Scope and Methodology

Page 44 GAO- 01- 199SP Trust Fund FAQs

insurance programs, and federal pensions. We recognize that there is no
universal agreement on which programs constitute federal insurance 2 and
social insurance. We determined our list based on the programs previously
identified by OMB and the Federal Accounting Standards Advisory Board. We
also included earmarked pension funds that had filed under P. L 95- 595 as
well as others we identified. In addition, we included two railroad funds
related to Social Security and Unemployment Insurance and two Department of
Defense education funds that represent exchange transactions.

To develop historical perspective on earmarked funds, we reviewed relevant
literature. In addition, we met with budget specialists from OMB, CRS, and
CBO and held telephone conversations with specialists from the Department of
Treasury. We obtained comments on this report and incorporated them as
appropriate.

Our work was performed in Washington, D. C., and was done in accordance with
generally accepted auditing standards.

2 See Budget Issues: Budgeting for Federal Insurance Programs (GAO/ AIMD-
97- 16, Sept. 30, 1997).

Page 45 GAO- 01- 199SP Trust Fund FAQs

Earmarked funds serve a multitude of purposes and can vary considerably in
their makeup. To provide a sense of this variety, this appendix briefly
describes the background and purpose of some of the bigger funds and each
fund's Deficit Control Act category, fiscal year 1999 fund data, investment
information, and current issues. We include funds from each of the four
types of earmarked funds and have ordered them alphabetically.

Airport and Airway Trust Fund (Nonrevolving Trust Fund)

Civil Service Retirement and Disability Fund (Nonrevolving Trust Fund)

Commodity Credit Corporation Fund (Public Enterprise Fund)

Federal Employees and Retired Employees Health Benefits Funds (Revolving
Trust Fund)

Employees Life Insurance Fund (Revolving Trust Fund)

Highway Trust Fund (Nonrevolving Trust Fund)

Land and Water Conservation (Special Fund)

Medicare (Hospital Insurance and Supplemental Medical Insurance)
(Nonrevolving Trust Funds)

Military Retirement Fund (Nonrevolving Trust Fund)

Nuclear Waste Fund (Special Fund)

Postal Service Fund (Public Enterprise Fund)

Strengthening Markets, Income, and Supply (Section 32) (Special Fund)

Social Security (Old- Age and Survivors Insurance Fund and Disability
Insurance Fund) (Nonrevolving Trust Funds)

Tennessee Valley Authority Fund (Public Enterprise Fund)

Unemployment Insurance Fund (Nonrevolving Trust Fund)

Universal Service Fund (Special Fund) Appendix II

Description of Selected Earmarked Funds

Appendix II Description of Selected Earmarked Funds

Page 46 GAO- 01- 199SP Trust Fund FAQs Fund type, authorization, background,
and purpose:

The Airport and Airway Trust Fund is a nonrevolving trust fund established
by Title II of the Airport and Airway Revenue Act of 1970 (section 208 of P.
L. 91- 258). The “Aviation Trust Fund,” as it is also known, was
established to provide funding for capital improvements and operations for
the nation's airport and airway system. The most recent reauthorization of
aviation programs occurred with passage of the Wendell H. Ford Aviation
Investment and Reform Act for the 21st Century (P. L. 106- 181).

The aviation trust fund receives the vast majority of its funding from a
percentage tax on domestic airline tickets and a flight segment tax.
Additional funding is obtained from taxes on aviation fuels, cargo waybills,
and international departures and arrivals.

Deficit Control Act category: Mandatory receipts and discretionary outlays

Budget subfunction: Air transportation (402)

Fiscal year 1999 fund data:

(Dollars in millions)

Income $11,121

Source of funds: Taxes (governmental receipts) $10,391 Offsetting
collections 32 Proprietary receipts 0 General fund transfers: 698

Interest $698 Appropriations 0 Other 0

Outlays $ 8,089 Balance at end of year $12,446

Investments: The fund is invested in nonmarketable federal securities.

Current issues: In April 2000, the Wendell H. Ford Aviation Investment and
Reform Act for the 21st Century (AIR- 21) was enacted. This law Airport and
Airway

Trust Fund (20- 8103- 0- 7- 402)

Appendix II Description of Selected Earmarked Funds

Page 47 GAO- 01- 199SP Trust Fund FAQs

changes the budgetary treatment of the Airport and Airway Trust Fund so that
it is similar to that of the Highway Trust Fund (i. e., establishes annual
guaranteed minimum funding levels that are tied to receipts.) Providing
guaranteed funding levels to any one activity in the budget protects that
activity from competition with other areas for finite resources. GAO has
previously testified on guaranteed funding levels and trust fund control in
the budget. 1

Fund type, authorization, background, and purpose:

Civil Service Retirement and Disability (CSRD) is a nonrevolving trust fund
covering the defined benefit components of the two major federal civilian
retirement systems: the Civil Service Retirement System (CSRS) and the
Federal Employees' Retirement System (FERS). According to the Office of
Personnel Management's annual report, the CSRS and FERS retirement plans
cover about 90 percent of the federal civilian workforce.

From 1920 to 1984, CSRS was the retirement plan covering most civilian
federal employees. In 1935, the Congress enacted the Social Security system
for private sector workers. The Congress extended Social Security coverage
to state and local government workers in the early 1950s and, in 1983, the
Congress enacted P. L. 98- 21, which mandated that workers hired into
permanent federal positions on or after January 1, 1984, be covered by
Social Security.

In June 1986, the Congress passed the Federal Employees' Retirement System
Act of 1986 (P. L. 99- 335) creating FERS. Unlike CSRS, which is a defined
benefit plan, 2 FERS has three components: (1) Social Security defined
benefit, (2) a FERS defined benefit pension, and (3) the Federal Thrift
Savings Plan defined contribution plan. CSRS was closed to new entrants
after December 31, 1983.

Deficit Control Act category: Primarily mandatory; some discretionary
outlays

1 Budget Issues: Trust Funds in the Budget (GAO/ T- AIMD/ RCED- 99- 110,
March 8, 1999) and Budget Issues: Cap Structure and Guaranteed Funding (GAO/
T- 99- 210, July 21, 1999). 2 Federal workers covered by CSRS also may
participate in the thrift savings plan, but their total contribution is
limited to 5 percent of pay and they receive no matching contributions from
their employing agency. Civil Service

Retirement and Disability Fund (24- 8135- 0- 7- 602)

Appendix II Description of Selected Earmarked Funds

Page 48 GAO- 01- 199SP Trust Fund FAQs Budget subfunction: Federal employee
retirement and disability (602)

Fiscal year 1999 fund data:

(Dollars in millions)

Income $ 74,522

Source of funds: Governmental receipts: employee contributions $ 4,421
Proprietary receipts 0 Offsetting collections 0 General fund transfers:
70,101

Interest $33,579 Appropriations 21,427 Other (employer contributions) 15,095

Outlays $ 43,932 Balance at end of year $481,273

Investments: The fund is invested in interest- bearing securities of the U.
S. government. It also carries, but does not routinely invest in certain
federal agency securities.

Current issues: At present, there is no looming financial crisis facing
either CSRS or FERS. According to the actuaries of the Office of Personnel
Management, both programs will have sufficient resources to meet their
obligations for the indefinite future. Periodically, proposals have been
made to take the CSRD trust fund off- budget, as has been done with the
Social Security trust funds. For example, since 1993, at least three bills
have been introduced to move the CSRD trust fund off- budget. However, none
of these bills was enacted.

Congressional interest in the civil service retirement programs in the past
has tended to focus on the “under- funding” of retirement
annuities in CSRS. While FERS was set up to be fully funded, CSRS has always
been

Appendix II Description of Selected Earmarked Funds

Page 49 GAO- 01- 199SP Trust Fund FAQs

funded on a pay- as- you- go basis. 3 In other words, payments into the CSRD
trust fund were used to pay benefits to already retired workers rather than
to prefund the pension benefits of current workers. Proposals to prefund
CSRS in the same manner as FERS have tended to founder on the issue of
whether they would be given additional budget authority or make higher
contributions from their existing budget authority. While recording
additional budget authority in agency budgets would properly reflect the
costs of CSRS employees, the accumulation of large surplus balances in the
trust fund does not by itself affect the government's ability to meet
commitments or make a program more sustainable in the future.

Fund type, authorization, background, and purpose:

The Commodity Credit Corporation (CCC) fund is a public enterprise fund. CCC
was established in 1933 as one of the first pieces of New Deal legislation
proposed by President Roosevelt. CCC was originally incorporated under a
Delaware charter and was reincorporated in 1948 as a federal corporation
within the U. S. Department of Agriculture (USDA) by the Commodity Credit
Corporation Charter Act (P. L. 80- 806). CCC was established to stabilize,
support, and protect farm incomes and prices and to assist in maintaining
balanced and adequate supplies of agricultural commodities and in
facilitating their orderly distribution. CCC carries out this mission by
financing a variety of income and commodity support programs through direct
payments and loans. These programs assist in the production and marketing of
agricultural commodities such as feed grains, wheat, rice, and cotton. CCC's
mission was expanded in recent years to include the financing of a range of
commodity export, resource conservation, and disaster assistance programs.
Among other things, these programs are intended to enhance price
competitiveness of U. S. commodities in foreign markets, assist producers in
implementing conservation practices on their farms, and indemnify producers
for the extraordinary losses of crops or livestock resulting from weather-
related

3 Because the full costs of CSRS are not met by the combined total of
employee contributions, agency contributions, and the supplemental payments
from Treasury, some future CSRS benefits will of necessity be paid from
contributions that were made to the fund on behalf of employees who are
covered by FERS. This would have created an unfunded liability for FERS.
However, funding for this liability is provided through a series of 30- year
amortization payments from the general fund of the Treasury to the CSRD
trust fund. Commodity Credit

Corporation Fund (12- 4336- 0- 3- 999)

Appendix II Description of Selected Earmarked Funds

Page 50 GAO- 01- 199SP Trust Fund FAQs

disasters and pest infestations. CCC uses offsetting collections from the
sale of commodities, loan repayments, interest income, dairy assessments,
and various other program fees. CCC has no employees; its operations are
carried out principally through the personnel and facilities of USDA's Farm
Service Agency, Foreign Agricultural Service, and Natural Resources and
Conservation Service.

Deficit Control Act category: Mandatory

Budget subfunction: Multiple functions (999)

Fiscal year 1999 fund data:

(Dollars in millions)

Income $ 9,882

Source of funds: Taxes (governmental receipts): $ 0 Proprietary receipts 0
General fund transfers 0 Offsetting collections: 9,882

Interest $ 0 Federal sources 1, 621 Nonfederal sources 8, 261

Gross outlays $29,182 Balance at end of year $ 1,402

Fund type, authorization, background, and purpose:

This account is a revolving trust fund and combines the Federal Employees
Health Benefits fund (FEHB) and the Retired Employees Health Benefits fund
(REHB). Authorized by the Federal Employees Health Benefits Act of 1959 (P.
L. 86- 382), the FEHB program began operations on July 1, 1960. The basic
structure of FEHB has undergone Federal Employees and

Retired Employees Health Benefits Funds (24- 9981- 0- 8- 551)

Appendix II Description of Selected Earmarked Funds

Page 51 GAO- 01- 199SP Trust Fund FAQs

relatively few changes since the program began operation. 4 The REHB program
was created by the Retired Federal Employees Health Benefits Act (P. L. 86-
724). Together, these two funds comprise the FEHB trust fund.

FEHBP is the nation's largest voluntary employer- sponsored health insurance
program and is administered by the Office of Personnel Management (OPM).
Employees and retirees share the costs of health coverage with the federal
government, which pays 72 percent of premium costs, on average. 5 FEHBP
serves as an insurance purchaser contracting with several hundred private
health plans to offer health benefits to federal employees, retirees, and
their dependents. OPM negotiates premiums and benefits with participating
health plans but it does not directly reimburse claims or directly provide
health care services. Participation in FEHBP is voluntary and enrollees may
change from one plan to another during annual “open seasons.” At
the time of retirement, eligible enrollees must make a one- time election to
continue to participate in FEHBP as retirees. Participating retirees pay the
same premiums as active employees.

Deficit Control Act category: Primarily mandatory

Budget subfunction: Health care services (551) 4 Since 1991, OPM has
required participant plans to implement cost containment procedures and
policies such as hospital precertification, case management, and development
of preferred provider networks.

5 The Balanced Budget Act of 1997 (P. L. 105- 33) established a new formula
that permanently sets the government's share of premiums at 72 percent of
the average total premium cost of all plans in the FEHBP, weighted by the
number of participants in each plan. The government share cannot exceed 75
percent of the premium of any particular plan.

Appendix II Description of Selected Earmarked Funds

Page 52 GAO- 01- 199SP Trust Fund FAQs Fiscal year 1999 fund data:

(Dollars in millions)

Income $18,039

Source of funds: Taxes (governmental receipts): employee contributions $ 0
Proprietary receipts 0 General fund transfers 0 Offsetting collections:
18,039

Interest $ 360 Employer/ government contributions 12,759 Employee/ annuitant
contributions 4, 920

Outlays $18,463 Balance at end of year $ 5,813

Investments: The fund is invested in nonmarketable, market- based government
debt securities, which have a yield that equals the average of all
marketable government debt securities with 4 or more years to maturity.

Current issues: As of October 1, 2000, OPM began allowing employees of the
executive branch agencies to pay their share of FEHB insurance costs with
pretax dollars, thus increasing employees after- tax income. Only current
employees will be able to pay their premiums in this manner. We have
estimated that the tax loss associated with this method of payment will be
over $700 million annually.

S. 2218 and H. R. 4040 have been introduced to establish a long- term care
(LTC) insurance program for federal employees and annuitants, current and
retired members of the uniformed services, and their qualified relatives.
Under these proposals, OPM would contract with private insurance carriers or
a consortium of insurers to provide LTC benefits. Insured individuals would
be responsible for 100 percent of premiums.

Fund type, authorization, background, and purpose:

This revolving trust fund finances payment to a private insurance company
for federal employees' group life insurance (FEGLI) and expenses incurred by
OPM to administer the program. The life insurance program Employees Life

Insurance Fund (24- 8424- 0- 8- 602)

Appendix II Description of Selected Earmarked Funds

Page 53 GAO- 01- 199SP Trust Fund FAQs

was created by the Federal Employees Group Life Insurance Act of 1954 (P. L.
83- 598) and covers about 90 percent of eligible employees, annuitants, and
many of their family members.

The FEGLI program provides basic coverage and three types of optional
coverage, including standard, additional, and family optional coverage.
FEGLI is administered through a contract with Metropolitan Life Insurance
Company. Basic insurance is determined by the amount of an employee's annual
rate of basic pay, rounded to the next highest thousand, plus $2,000. All
federal employees are automatically covered by basic insurance unless they
decline. Starting in 1995, living benefits were added to the FEGLI program.
Living benefits allow eligible terminally ill enrollees to receive their
basic insurance benefits during the last stage of their lives.

Deficit Control Act category: Primarily mandatory

Budget subfunction: Federal employee retirement and disability (602)

Fiscal year 1999 fund data:

(Dollars in millions)

Income $ 2,945

Source of funds: Taxes (governmental receipts) $ 0 Proprietary receipts 0
General fund transfers 0 Offsetting collections: 2,945

Interest $1,311 Nonfederal sources 1, 240 Other (Agency contributions) 394

Outlays $ 1,561 Balance at end of year $20,486

Investments: The fund is invested in nonmarketable, market- based government
debt securities, which have a yield that equals the average of all
marketable government debt securities with 4 or more years to maturity.

Appendix II Description of Selected Earmarked Funds

Page 54 GAO- 01- 199SP Trust Fund FAQs Fund type, authorization, background,
and purpose:

The Highway Trust Fund is a nonrevolving trust fund comprised of two
accounts: highways and mass transit. The Highway Trust Fund was created by
Title II of P. L. 84- 627, the Highway Revenue Act of 1956. This 1956 act
provided funding for construction of the interstate highway system and for
some other federal highway programs. The Highway Trust Fund was established
as a way to provide funding for capital construction and this remains its
principal focus.

The mass transit account, created by the Surface Transportation Assistance
Act of 1982 (P. L. 97- 424), represented the culmination of a long
congressional debate about the position of transit in the national
transportation system. The transit account provided a consistent federal
funding source for capital spending on new and rehabilitated mass transit
infrastructure and for other purposes.

Deficit Control Act category: Mandatory receipts; predominantly
discretionary outlays

Budget subfunction: Ground transportation (401)

Fiscal year 1999 fund data:

(Dollars in millions)

Income $39,427

Source of funds: Taxes (governmental receipts) $39,299 Offsetting
collections 126 Proprietary receipts: interest 2

Outlays $29,036 Balance at end of year $28,979

Investments: The fund is invested in nonmarketable Treasury securities which
are noninterest bearing.

Current issues: Over the last 40 years, the Highway Trust Fund and the
federal program it supports have been changed numerous times. In almost
every instance, the Congress has chosen to expand the scope of the federal
highway program. At various times over the same period, the Highway Trust
Fund

(20- 8102- 0- 7- 401)

Appendix II Description of Selected Earmarked Funds

Page 55 GAO- 01- 199SP Trust Fund FAQs

Congress has also chosen to increase the revenue stream into the trust fund
by raising federal excise taxes on motor fuels. Over the last several years,
a number of bills have proposed to both move the Highway Trust Fund off-
budget and exempt it from DCA controls in order to ensure that highway
spending is not held down in order to lower the federal deficit.

Instead of moving the fund off- budget, legislation in May 1998 established
minimum guaranteed spending levels. The Transportation Equity Act for the
21st Century (P. L. 105- 178), referred to as TEA- 21, 6 established two new
categories within the discretionary spending caps set forth in the DCA: the
highway category and the mass transit category, each with its own outlay
caps through fiscal year 2003. TEA- 21 also established minimum obligation
limitations or spending levels for the highway and mass transit categories
for fiscal years 1999 through 2003. For the highway category, these minimum
spending levels are tied to receipts (from the previous year) of the highway
category. TEA- 21 provides a mechanism for adjusting these spending levels
upward or downward each year based on actual receipts from 2 years prior to
the fiscal year, as reported by Treasury, plus revised Treasury receipt
projections for the fiscal year in question. For example, for fiscal year
2000, TEA- 21 requires that this adjustment be calculated by comparing (1)
actual highway account receipts for fiscal year 1998 with the TEA- 21
projection of these receipts and (2) revised projections of the highway
account receipts for fiscal year 2000 with the TEA- 21 projection of these
receipts. The sum of these differences becomes the adjusted funding level.
GAO has previously testified on guaranteed funding levels and trust fund
control in the budget. 7

Fund type, authorization, background and purpose:

The Land and Water Conservation Fund (LWCF) is a special fund administered
by the Department of the Interior. The fund was created by the Land and
Water Conservation Fund Act of 1965 (Pub. L. 88- 578). The fund was
originally authorized through fiscal year 1989 but was

6 A technical corrections bill provided additional clarification of funding
formulas, highway safety regulations related to drunk driving, and certain
budget offsets. The technical corrections for TEA- 21 were ultimately
incorporated into Title IX of the Internal Revenue Service Restructuring and
Reform Act of 1988 (P. L. 105- 206), which was enacted on July 22, 1998.

7 Budget Issues: Trust Funds in the Budget (GAO/ T- AIMD/ RCED- 99- 110,
March 9, 1999) and Budget Issues: Cap Structure and Guaranteed Funding (GAO/
T- 99- 210, July 21, 1999). Land and Water

Conservation Fund (14- 5005- 0- 2- 303)

Appendix II Description of Selected Earmarked Funds

Page 56 GAO- 01- 199SP Trust Fund FAQs

reauthorized through fiscal year 2015 by the Omnibus Budget Reconciliation
Act of 1987.

Revenues to the fund are comprised of federal recreation fees, proceeds from
the sale of surplus federal real property, part of the motorboat fuel tax,
and part of the receipts from oil and gas leases on the Outer Continental
Shelf. The latter item constitutes the bulk of the revenues to the fund.

LWCF funds are available to support federal land acquisition and state
recreation programs only upon appropriation by the Congress. Appropriations
are made for the Forest Service in the Department of Agriculture and to
three Department of the Interior agencies (National Park Service, Fish and
Wildlife Service, and Bureau of Land Management).

Deficit Control Act category: Mandatory receipts and discretionary outlays

Budget subfunction: Recreational resources (303)

Fiscal year 1999 fund data:

(Dollars in millions)

Income $ 908

Source of funds: Taxes (governmental receipts) [motorboat fuels tax] $ 1
General fund transfers (intragovernmental transfers)

Interest Appropriations Other Proprietary receipts: 907

Outer Continental Shelf lands rent $899 Surplus property sales 8 Offsetting
collections 385

Outlays $ 1,087 Balance at end of year $12,936

Investments: The Land and Water Conservation Fund is not authorized to
invest surplus funds in Treasury securities.

Appendix II Description of Selected Earmarked Funds

Page 57 GAO- 01- 199SP Trust Fund FAQs Current issues: Concerns have been
raised that, over the years, spending

from the LWCF has been held down to help reduce the federal budget deficit.
A substantial balance of unappropriated funds has accumulated, and even if
funds were appropriated at the authorized level, the fund would be unlikely
to spend down the balance in the near future. Some advocates see the current
budget surpluses as an opportunity to spend more money on these activities.

Bills to greatly expand federal financial support for land and resource
acquisition and for protection and recreation have been introduced during
the 106th Congress. Some proposals would replace annual appropriations with
a permanent appropriation. Other proposals would take the LWCF off- budget
and exempt it from any general budget limitation. The House passed H. R 701
on May 11, 2000. This bill would increase funding for LWCF by transferring
up to $900 million annually from a newly established Conservation and
Reinvestment Act Fund. Funding for federal land acquisition would remain
subject to appropriations acts while a portion of the funds would not be
subject to appropriations.

Fund type, authorization, background, and purpose:

Medicare, financed through two nonrevolving trust funds, is a federal health
insurance program enacted in 1965. Initially, eligible Americans age 65 or
older were covered. Coverage was later extended to certain disabled persons
by the Social Security Amendments of 1972. Medicare is the nation's largest
health insurance program. It is administered by the Health Care Financing
Administration, which contracts with insurance companies for claims
processing services.

Medicare has two parts, A and B, and two trust funds, HI and SMI, each of
which is financed differently.

Part A: Federal Hospital Insurance (HI) Component: Medicare Part A is
financed through the HI trust fund, which covers inpatient hospital, skilled
nursing facility, home health, and hospice services. It is financed by a
1.45 percent payroll tax on employers and employees. It also receives a
portion of federal income taxes paid on Social Security benefits. All
citizens 65 years of age or older with credit for at least 40 quarters of
employment are fully covered for life under Social Security. They are
entitled to Part A at no cost. Senior citizens without sufficient quarters
of coverage can purchase Part A for premiums based on the actuarial value of
benefits. Persons who have received Social Security disability benefits for
24 Medicare Trust Funds

(20- 8004- 0- 7- 571 and 20- 8005- 0- 7- 571)

Appendix II Description of Selected Earmarked Funds

Page 58 GAO- 01- 199SP Trust Fund FAQs

months and most people with kidney disease- End Stage Renal Disease (ESRD)-
are also entitled to Part A without additional premiums.

Part B: Federal Supplementary Medical Insurance (SMI) Component: Medicare
Part B is financed through the SMI trust fund. It is a voluntary program
under which anyone age 65 or older, disabled persons, or ESRD patients
entitled to Part A can purchase coverage for a wide range of outpatient
services ranging from physicians' services to clinical laboratory tests.
Enrollees pay a monthly premium that covers about 25 percent of program
costs; federal general revenues pay the remainder. Beneficiaries are
responsible for a $100 annual deductible payment. For most covered services,
beneficiaries are also responsible for 20 percent coinsurance. If a Medicare
beneficiary qualifies for Medicaid (an income- tested program), the Medicaid
program will pay his or her Medicare Part B premiums.

Deficit Control Act category: Benefit payments, comprising about 98 percent
of gross outlays, are mandatory; administrative expenses, comprising about 2
percent of outlays, are discretionary.

Budget subfunction: Medicare (571)

Fiscal year 1999 fund data:

Federal Hospital Insurance

(Dollars in millions)

Income $153,018

Source of funds: Taxes (governmental receipts) $132,337 Offsetting
collections 3 Proprietary receipts: 1, 403

Interest $ 2 Premiums 1,401 General fund transfers: 19,275

Interest 9,286 Appropriations 7,413 Other (federal employer contributions)
2,576

Outlays $131,503 Balance at end of year $138,421

Appendix II Description of Selected Earmarked Funds

Page 59 GAO- 01- 199SP Trust Fund FAQs

Federal Supplementary Medical Insurance

(Dollars in millions)

Income $85,457

Source of funds: Taxes (governmental receipts) $ 0 Offsetting collections
179 Proprietary receipts 20,167

Interest $ 7 Premiums 20,160 General fund transfers: 65,111

Interest 2,926 Appropriations 62,185

Outlays $80,697 Balance at end of year $45,649

Investments: The Social Security Act requires that funds not necessary to
meet current expenditures be invested in interest- bearing obligations of
the United States or in obligations guaranteed as to both principal and
interest by the United States. These investments are carried at face value
as determined by Treasury.

Current issues: Absent changes, the long- term financial outlook for the
Medicare program is bleak. Under the Trustees' 1999 intermediate
projections, HI and SMI expenditures taken together are expected to increase
dramatically, rising from about 12 percent of all federal revenues in 1999
to about 25 percent by mid- century, even without any additions to the
benefit package. Over the same time frame, Medicare's expenditures are
expected to double as a share of the economy, from 2.5 percent to 5.3
percent.

Medicare trust fund reports show that the HI component had a cash deficit
from 1992 through 1998 but is now running a surplus that is projected to
continue until 2025. Nevertheless, the Medicare program is fiscally
unsustainable in its present form as the disparity between program
expenditures and program revenues is expected to reopen and widen
dramatically after 2025. Moreover, the program has not adopted modern,
market- based management tools and its benefit package contains gaps in
desired coverage compared to private employer coverage. Compounding

Appendix II Description of Selected Earmarked Funds

Page 60 GAO- 01- 199SP Trust Fund FAQs

the difficulties of responding to these competing concerns is the sheer size
of the Medicare program- even modest program changes send ripples across the
program's 39- million beneficiary population and the approximately 1 million
health care providers that bill the program.

A number of legislative proposals dealing with Medicare benefits and
financing have been made. Options to reform Medicare must balance the needs
of all parties and require hard choices based on affordability, equity,
adequacy, feasibility, and acceptance.

Fund type, authorization, background, and purpose:

The Military Retirement Fund is a nonrevolving trust fund. It was
established by the Department of Defense Authorization Act of 1984.

The military retirement system provides benefits for retirement after a
military career, disability retirement, and survivor benefits for eligible
survivors of deceased retirees. Benefits are paid after 20 years of active
service, regardless of age, and are intended more to retain qualified
personnel through a full 20- year career than to provide adequate retirement
income. The system seeks to minimize turnover and the government's training
costs for skilled personnel and to encourage the retirement of service
members who have become too old to meet the physical and mental demands of
military service. The military retirement system is a noncontributory (i.
e., no employee contributions) defined benefit plan.

Deficit Control Act category: Mandatory

Budget subfunction: Federal employee retirement and disability (602)
Military Retirement

Fund (97- 8097- 0- 7- 602)

Appendix II Description of Selected Earmarked Funds

Page 61 GAO- 01- 199SP Trust Fund FAQs Fiscal year 1999 fund data:

(Dollars in millions)

Income $ 38,227

Source of funds: Taxes (governmental receipts): employee contributions $ 0
Proprietary receipts 0 Offsetting collections 0 General fund transfers:
38,227

Interest $12,560 Appropriations 15,250 Other (employer contributions) 10,417

Outlays $ 31,889 Balance at end of year $151,853

Investment: The fund is invested in nonmarketable, special- issue Treasury
securities.

Current issues: A variety of major changes in military retirement were
enacted in the fiscal year 2000 National Defense Authorization Act (P. L.
106- 65). Some of the changes included (1) allowing military personnel the
option of retiring under the “Redux” system with a cash bonus of
$30,000 or under a more generous pre- Redux formula without the bonus
payment; 8 (2) allowing military personnel to enroll in the federal civil
service's Thrift Savings Plan; (3) repealing dual compensation laws that
required military retirees in the federal civil service to forfeit some or
all of their retired pay; and (4) authorizing a special payment to some
people who receive both military nondisability retired pay and Department of
Veterans Affairs disability compensation.

8 Redux refers to cuts incorporated in military retirement pay for persons
who would first be retiring in mid- 2006. Redux was established in the
Military Retirement Reform Act of 1986 (P. L. 99- 348) based on allegations
that military retirement cost too much, had overly generous benefits, and
contributed to inefficient military personnel management.

Appendix II Description of Selected Earmarked Funds

Page 62 GAO- 01- 199SP Trust Fund FAQs Fund type, authorization, background,
and purpose:

The Nuclear Waste Fund is a special fund under the jurisdiction of the
Department of Energy. It was established by the Nuclear Waste Policy Act of
1982, Public Law 97- 425, enacted January 7, 1983. It finances the
activities of the nuclear waste disposal program, which consists of the
development, acquisition, and operation of facilities for the disposal of
nuclear waste.

The act requires that reactor operators pay (1) fees for electricity
generated by a civilian nuclear power reactor and (2) a one- time fee for
spent nuclear fuel for power generated prior to the act. These fees are
credited to the fund. The act said that, in return for these fees, the
Secretary of Energy, beginning not later than January 31, 1998, would
provide for the disposal of the high- level radioactive waste or spent
nuclear fuel accumulated at nuclear power plants. The Secretary was
authorized to make expenditures from the fund for purposes of authorized
radioactive waste disposal activities, subject to appropriations that would
remain available until expended. Balances in the fund may be invested in
Treasury securities.

Deficit Control Act category: Discretionary

Budget subfunction: Energy Supply (271)

Fiscal year 1999 fund data:

(Dollars in millions)

Income $ 768

Source of funds: Taxes (governmental receipts) Proprietary receipts : $662

Fees for Services $662 General fund transfers (intragovernmental transfers)
106

Interest 106 Appropriations Other Offsetting collections

Outlays $ 188 Balance at end of year $7,927

Nuclear Waste Fund (89- 5227- 0- 2- 271)

Appendix II Description of Selected Earmarked Funds

Page 63 GAO- 01- 199SP Trust Fund FAQs Investments: The fund is invested in
U. S. Treasury securities, which are

classified as “available- for- sale” and are reported at market
value.

Current issues: The goal of accepting radioactive waste into a repository at
Yucca Mountain, Nevada, in 1998 was not achieved. The goal now is to open
the facility in 2010 at the earliest. The lack of a disposal site has been a
contentious issue over the years. Nuclear utilities, which have paid for the
waste disposal program for years through the fee on nuclear power, have
become concerned over the delays and the need to store spent nuclear fuel.
Some delays have been blamed on poor program management, while the
Department of Energy contends that tight funding has been a major barrier.
Congressional approval is required to spend the fees collected, and only
about half of the fees collected have been appropriated to the program. Some
surplus in the fund may be needed to pay future costs after nuclear plants
have ceased operation.

In the 106th Congress, bills to modify the civilian waste program were
considered in both houses. The House Commerce Committee approved H. R. 45,
which would have moved the Nuclear Waste Fund off- budget and exempted it
from DCA controls. Although appropriations would still be required for all
expenditures from the fund, the appropriations would not be subject to
budget caps. This proposal raised considerable concern from the House Budget
Committee. The Senate bill (S. 1287) would leave the current funding
mechanism in place but would authorize waste shipments to the repository
site if it receives a Nuclear Regulatory Commission construction permit. S.
1287 passed both houses of Congress but the President vetoed the legislation
on April 25, 2000. A Senate override attempt on May 2, 2000, was
unsuccessful.

Fund type, authorization, background, and purpose:

The U. S. Postal Service is financed through a public enterprise fund. The
Service's roots date back to 1775 when the Continental Congress appointed
Benjamin Franklin as Postmaster General. Throughout the years, the mode and
price of mail delivery changed. In 1970, President Nixon signed into law the
Postal Reorganization Act (P. L. 91- 375), the most comprehensive postal
legislation in nearly two centuries. The 1970 act removed the Post Office
Department from the President's cabinet, retained the postal mail monopoly,
ended the authority of the Congress to set employee wages and postage rates,
and granted the new independent establishment substantial fiscal autonomy
over its operations. Its primary mission is to provide universal postal
service at reasonable rates. It must also remain self- supporting from
postal revenues. Postal Service Fund

(18- 4020- 0- 3- 372)

Appendix II Description of Selected Earmarked Funds

Page 64 GAO- 01- 199SP Trust Fund FAQs

Currently, the Postal Service is one of two off- budget federal entities;
the other is Social Security. By law, the government must exclude the
transactions of off- budget programs from the totals of the President's
budget and the Congress' budget resolutions, even though they are part of
total government transactions.

Deficit Control Act category: Excluded

Budget subfunction: Postal Service (372)

Fiscal year 1999 fund data:

(Dollars in millions)

Income $62,943

Source of funds: Taxes (governmental receipts) $ 0 Proprietary receipts 0
General fund transfers 0 Offsetting collections: 62,943

Interest $ 29 Federal sources 957 Nonfederal sources 61,957

Gross outlays $63,964 Balance at end of year $22,107

Investments: The Postal Service invests in nonmarketable U. S. Treasury
securities.

Current issues: Direct and indirect competition to the Postal Service is
growing. Advances in communications technology, privatized and deregulated
foreign postal services, and consumer demand fueled by dramatic growth in
Internet commerce make it imperative to raise the quality and ease of use of
products and services. In particular, the Postal Service has been hampered
by long- standing challenges in labormanagement relations that, if
continued, may hinder efforts to achieve desired improvements. Continued
success will depend heavily on the Postal Service's ability to control
operating costs, improve productivity, strengthen internal controls, and
ensure the integrity of its services.

Appendix II Description of Selected Earmarked Funds

Page 65 GAO- 01- 199SP Trust Fund FAQs Fund type, authorization, background,
and purpose:

Funds for Strengthening Markets, Income, and Supply (Section 32) is a
special fund administered by the Agricultural Marketing Service of the
Department of Agriculture. Section 32 of the Act of August 24, 1935, Chap.
641 (7 USC 612c) authorized a permanent appropriation equal to 30 percent of
the gross receipts from duties collected under the customs laws to be
maintained in a separate fund. The money was first made available during the
depression to assist farmers suffering from price- depressing surpluses.

Funds must be used for (1) encouraging the export of farm products through
producer payments or other means, (2) encouraging the domestic consumption
of farm products by diverting them from normal channels and expanding use by
low- income groups, and (3) reestablishing farmers' purchasing power. The
Secretary of Agriculture has wide discretion in deciding how to achieve
these objectives since the legislation provided that the sums shall be
expended for one or more of the specified purposes and at such times, in
such manner, and in such amounts as the Secretary determines. However, no
more than 25 percent may be spent on any one commodity or product.

Most of the money credited to this special fund is transferred to the Food
and Nutrition Service and is used to purchase commodities under section 6 of
the National School Lunch Act and other authorities specified in the child
nutrition appropriation. In fiscal year 1999 just over $5 billion was
transferred to Child Nutrition Programs. An amount equal to 30 percent of
receipts collected on fishery products ($ 66 million in 1999) was
transferred to the Department of Commerce for fisheries research. The
remaining funds are available for administrative expenses for direct
commodity purchases and to serve as a contingency reserve.

Deficit Control Act category: Mandatory

Budget subfunction: Food and nutrition assistance (605) Funds for

Strengthening Markets, Income, and Supply (Section 32) (12- 5209- 0- 2- 605)

Appendix II Description of Selected Earmarked Funds

Page 66 GAO- 01- 199SP Trust Fund FAQs Fiscal year 1999 fund data:

(Dollars in millions)

Income $5,681

Source of funds: Taxes (governmental receipts): customs duties $5,680
Proprietary receipts General fund transfers Offsetting collections:
Nonfederal sources 1

Outlays 833 Transfers to other accounts $5,114

Balance at end of year $ 486

Investments: This fund has no investments in Treasury Securities.

Current issues: Among the issues identified by the Congressional Research
Service is the issue of whether 30 percent of customs receipts is still an
appropriate source and level of funding. The Congress designated this level
in 1935 on the premise that 30 percent of the population then lived on
farms. Thus, the amount theoretically represented the farmers'

“fair share” of customs revenues. Today only about 2 percent of
the population live on farms. Those who take exception to that argument
contend that the food and fiber system accounts for about 13 percent of GDP
and provides 23 million jobs. Only about 3 percent of the customs receipts
are spent on the direct purchase of agricultural products. The bulk of the
fund receipts are transferred to the Food and Nutrition Service and are
being used to reimburse schools and other institutions for meals served to
children. If this level were reduced, discretionary appropriations would
have to be increased to maintain the same level of child nutrition programs.

Fund type, authorization, background, and purpose:

In 1935, the Social Security Act was enacted, establishing a program to
provide monthly retirement benefits to workers. Program benefits are
generally based on average lifetime taxable earnings. Over the years, the
benefit amount, taxable income base, and tax rates have substantially
increased. Participation in the program has become mandatory for most
workers. In addition to changes in benefits and taxation, the law has also
Social Security Trust

Funds (20- 8006- 0- 7- 651 and 20- 8007- 0- 7- 651)

Appendix II Description of Selected Earmarked Funds

Page 67 GAO- 01- 199SP Trust Fund FAQs

been amended to add survivor's coverage and to provide benefits for the
disabled. As a result, Title II of the Social Security Act now provides for
two programs that are financed by two nonrevolving trust funds: the Federal
Old- Age and Survivors Insurance Trust Fund (OASI) and the Federal
Disability Insurance Trust Fund (DI).

Each of these programs is financed by Federal Insurance Contribution Act and
Self- Employment Contributions Act payroll tax contributions from employees
and employers that are placed in separate nonrevolving trust funds from
which benefits are paid. Both programs are federally administered by the
Social Security Administration.

Old Age and Survivors Insurance Component: Under the OASI program, workers
may retire at age 65 and receive full benefits. 9 Retirees man opt to retire
as early as age 62 and receive reduced benefits.

Disability Insurance Component: The DI program is administered by both the
federal government and state entities (Disability Determination Services).
The DI program pays benefits to individuals who are unable to work for long
periods because of medical conditions that prevent substantial gainful
activity.

Over time, there have been several proposals to remove Social Security from
the federal budget. Measures were enacted in 1983 and 1985 specifying that
Social Security should not be included in the budget. In 1990, Social
Security's off- budget status was reaffirmed and was also removed from
calculations in the sequestration process . Although the program is part of
the unified budget, budget totals are shown both on a unified basis
(including Social Security) and excluding Social Security.

Deficit Control Act category: Benefit payments, comprising over 99 percent
of gross outlays, are mandatory; administrative expenses, comprising less
than 1 percent of outlays, are discretionary. Both trust funds are excluded
from DCA controls but are subject to special enforcement provisions.

Budget subfunction: Federal employee retirement and disability (602) 9 The
normal retirement age, when a person may first become entitled to unreduced
retirement benefits, is currently 65 years and 2 months. However, under
current law, it is scheduled to gradually increase to 67 for persons
reaching that age in 2027 or later.

Appendix II Description of Selected Earmarked Funds

Page 68 GAO- 01- 199SP Trust Fund FAQs Fiscal year 1999 fund data:

Old- Age and Survivors Insurance

(Dollars in millions)

Income $449,489

Source of funds Taxes (governmental receipts): employee/ employer
contributions

$383,559 General fund transfers (intragovernmental transfers) 63,409

Interest $46,847 Appropriations 10,188 Other (employer contributions) 6,374
Proprietary receipts 9 Offsetting collections 2, 512

Outlays $340,427 Balance at end of year $762,374

Disability Insurance

(Dollars in millions)

Income $67,791

Source of funds Taxes (governmental receipts): employee/ employer
contributions

$60,909 General fund transfers (intragovernmental transfers) 6,870

Interest $5,223 Appropriations 636 Other (employer contributions) 1,011
Proprietary receipts 12 Offsetting collections 0

Outlays $52,142 Balance at end of year $92,628

Appendix II Description of Selected Earmarked Funds

Page 69 GAO- 01- 199SP Trust Fund FAQs Investments: OASI and DI trust fund
balances may be invested only in

interest- bearing obligations of the United States or in obligations
guaranteed as to both principal and interest by the United States. These
investments consist of U. S. Treasury special issues and bonds. Special
issues are special public debt obligations for purchase exclusively by the
trust funds. They are always purchased and redeemed at face value.

Current issues: The Social Security program is not in long- term actuarial
balance. This means Social Security revenues are not expected to be
sufficient to pay all benefit obligations through 2075. Without changing the
current program, excess cash revenues from payroll and income taxes are
expected to begin declining substantially in the near future. After 2014,
cash revenues will be insufficient to pay all program costs and Social
Security will have to start redeeming some of its assets to obtain the cash
needed to pay benefits. The trust funds are expected to be exhausted in
2037. 10

Two important factors affecting Social Security's pending financing problems
are increasing life expectancy and the rapidly approaching retirement of the
baby boom generation. The oldest of this generation will reach early
retirement age (62) in 2008, and the youngest will reach it in 2026. This
large number of longer living retirees would substantially increase program
costs and strain the ability of the program to pay benefits even if they
were the only factors affecting future costs.

Exacerbating the problem of the retirement of the baby boom generation is
the relatively smaller generation that follows it. The post- baby boom
generation, which resulted from the rapid decline in birth rates from the
mid- 1960s to the mid- 1980s, will result in relatively fewer workers to
support a larger number of retirees.

Numerous proposals have been forwarded to address Social Security financing
issues. In our opinion, such proposals should be evaluated based on three
criteria: (1) sustainable solvency, (2) equity and adequacy, and (3)
feasibility and transparency.

10 Based on the intermediate assumptions of Social Security's 2000 Annual
Report.

Appendix II Description of Selected Earmarked Funds

Page 70 GAO- 01- 199SP Trust Fund FAQs Fund type, authorization, background,
and purpose:

The Tennessee Valley Authority (TVA) fund is a public enterprise fund. TVA
is a wholly owned government corporation created by the Tennessee Valley
Authority Act of 1933 (16 U. S. C. 831- 831dd). It was established to
develop the resources of the Tennessee Valley region in order to strengthen
the regional and national economy and the national defense. TVA's programs
are divided into two categories: power and nonpower programs. Substantially
all TVA revenues and assets are attributable to the power program. The power
program has historically been separate from the nonpower programs and is
required to be self- supporting; it does not receive any annual
appropriations. Although most of the funding for TVA's nonpower programs has
historically been provided by annual appropriations, beginning in fiscal
year 2000, they will be funded primarily by power revenues.

Deficit Control Act category: Primarily mandatory

Budget subfunction: Multiple functions (999)

Fiscal year 1999 fund data:

(Dollars in millions)

Income $6,588

Source of funds: Taxes (governmental receipts): $ 0 Proprietary receipts 0
General fund transfers: 50

Appropriations $ 50 Offsetting collections: 6,538

Interest 0 Federal sources 77 Nonfederal sources 6, 827 Capital transfers
and debt repayment -366

Gross outlays $6,906 Balance at end of year $ 644

Investments: TVA maintains an investment fund to provide funding for the
decommissioning of nuclear power plants. The funds are invested in Tennessee
Valley

Authority Fund (64- 4110- 0- 3- 999)

Appendix II Description of Selected Earmarked Funds

Page 71 GAO- 01- 199SP Trust Fund FAQs

securities designed to achieve a return in line with overall equity market
performance.

Current issues: TVA faces increasing competition in electricity markets,
deregulation, and the possibility of losing legislative protections.

Fund type, authorization, background, and purpose:

The financial transactions of the federal, state, and railroad unemployment
insurance systems are made through the nonrevolving Unemployment Trust Fund.
Such unemployment compensation (UC), established by the Social Security Act
of 1935, as amended, was intended to (1) provide temporary relief through
partial wage replacement for workers who lose jobs for economic reasons and
(2) help stabilize the economy during recessions. The UC system operates in
each state, the District of Columbia, Puerto Rico, and the Virgin Islands.
Federal law sets broad rules that the 53 state programs must follow and
levies a payroll tax on employers under the Federal Unemployment Tax Act
(FUTA). States set most of the specific rules for eligibility, benefits, and
financing. States also process claims and pay the benefits. The U. S.
Treasury receives federal and state payroll taxes, maintains the trust fund,
and makes loans to states with insolvent accounts.

Deficit Control Act category: Primarily mandatory

Budget subfunction: Multiple functions (999) Unemployment Trust

Fund (20- 8042- 0- 7- 999)

Appendix II Description of Selected Earmarked Funds

Page 72 GAO- 01- 199SP Trust Fund FAQs Fiscal year 1999 fund data:

(Dollars in millions)

Income $31,681

Source of funds: Taxes (governmental receipts) $26,480 Proprietary receipts
3 Offsetting collections 0 General fund transfers: 5,198

Interest $4,795 Appropriations 403 Other 0

Outlays $24,938 Balance at end of year $77,699

Investments: The fund is invested in nonmarketable Treasury Certificates of
Indebtedness and special- issue Treasury bonds.

Current issues: Changes in the federal- state UC system are being considered
during the 106th Congress. For example, S. 462 proposes to shift some
federal UC responsibilities to the states. Broader UC reform legislation has
been introduced in H. R. 1830, which would provide incentives to states to
expand eligibility, strengthen administrative financing, and improve the
solvency of state accounts. The Taxpayer Refund and Relief Act of 1999,
passed by the House and Senate on August 5, 1999, included a provision to
repeal the UC surtax extension after December 31, 2004. However, the
President vetoed the bill on September 23, 1999. Other bills, including S.
103 and S. 625, as amended, also contain provisions to repeal the FUTA
surtax.

Fund type, authorization, background, and purpose:

The Universal Service Fund is a special fund under the jurisdiction of the
Federal Communications Commission (FCC). The fund was established as a
result of the Telecommunications Act of 1996 (Public Law 104- 104 enacted on
February 8, 1996). The act requires every carrier of interstate
telecommunications services to contribute funds to preserve and advance
universal service. The universal service concept was created to ensure the
Universal Service Fund

(27- 5183- 0- 2- 376)

Appendix II Description of Selected Earmarked Funds

Page 73 GAO- 01- 199SP Trust Fund FAQs

availability of telecommunications services for all consumers, including
low- income consumers as well as those in rural and high cost areas.

The contributions by the providers are used to support carriers offering
services in high cost areas of the United States and those offering services
to low income consumers. Also, telecommunications carriers and certain other
eligible providers receive support payments for providing discounted service
to schools, libraries, and health care providers.

Deficit Control Act category: Mandatory

Budget subfunction: Other advancement of commerce (376)

Fiscal year 1999 fund data:

(Dollars in millions)

Income $3,752

Source of funds: Governmental receipts : statutory assessments $3,752
Proprietary receipts General fund transfers (intragovernmental transfers)

Interest Appropriations Offsetting collections

Outlays $3,293 Balance at end of year $1,479

Investments: This fund has no investments.

Current issues: According to the Congressional Research Service, most
policymakers support the universal service concept. However, the FCC's
implementation of the schools and libraries provision of the 1996 act has
generated significant controversy. Oversight of the schools and libraries
program by the Congress was intense, with congressional comments ranging
from those who called for the abolishment of the program, to those who
supported the program but felt it needed major revisions, to those who
continued to support the program as funded and designed. Concerns regarding
the schools and libraries program focus on: the administrative structure
designed to implement the program; the scope and funding level of the
program; and the potential for fraud, waste, and

Appendix II Description of Selected Earmarked Funds

Page 74 GAO- 01- 199SP Trust Fund FAQs

abuse. An additional related issue- industry billing practices- has also had
an impact on the schools and libraries program.

Page 75 GAO- 01- 199SP Trust Fund FAQs

This appendix lists each earmarked fund's revenues, gross outlays, and
balance for fiscal year 1999. Table III. 1 lists the funds in alphabetical
order, grouped by fund type. Table III. 2 lists the largest 10 funds, in
terms of total revenue for each fund type.

Available budget data for certain funds, typically small nonrevolving trust
and special funds, were, in some instances, consolidated or merged for
budget presentation purposes. As a result, budget data did not always permit
us to de- aggregate the data belonging to specific funds. Also, when amounts
were transferred or appropriated from one account to another account,
outlays are reflected in the accounts that received the transferred or
appropriated amounts.

Table III. 1: Earmarked Funds Revenues, Gross Outlays, and Balances for
Fiscal Year 1999

(Dollars in millions)

Fund name Fund type Revenues Gross outlays Balance

Advances for Cooperative Work, Department of Energy Nonrevolving trust 0 2 5
Airport and Airway Trust Fund Nonrevolving trust 11,121 8, 089 12,446
American Battle Monuments Commission Gift Fund Nonrevolving trust 27 14 41
Aquatic Resources Trust Fund Nonrevolving trust 462 348 1,276 Architect of
the Capitol Gift Fund Nonrevolving trust 0 0 0 Armed Forces Retirement Home
Trust Fund Nonrevolving trust 53 73 197 Barry Goldwater Scholarship and
Excellence in Education Foundation Nonrevolving trust 3 3 61 Bequests and
Gifts, Federal Emergency Management Agency Nonrevolving trust 0 0 2 Black
Lung Disability Trust Fund Nonrevolving trust 599 1,000 -6,239 b Cheyenne
River Sioux Tribe Terrestrial Wildlife Restoration Trust Fund Nonrevolving
trust 4 0 4 Christopher Columbus Scholarship Foundation Nonrevolving trust 1
0 7 Civil Service Retirement and Disability Fund Nonrevolving trust 74,522
43,932 481,273 Claims Court Judges Retirement Fund Nonrevolving trust 2 1 7
Coast Guard Gift Fund Nonrevolving trust 0 0 2 Cooperative Fund (Papago)
Nonrevolving trust 2 0 31 Corporation for National Community Service Gift
Fund Nonrevolving trust 96 56 399 Court of Veterans Appeals Retirement Fund
Nonrevolving trust 0 0 3 Department of State Conditional Gift Fund
Nonrevolving trust 1 0 17 Department of State Unconditional Gift Fund
Nonrevolving trust 1 0 0

Appendix III List of Funds' Revenues, Gross Outlays, and Balances for Fiscal
Year 1999

Appendix III List of Funds' Revenues, Gross Outlays, and Balances for Fiscal
Year 1999

Page 76 GAO- 01- 199SP Trust Fund FAQs

Fund name Fund type Revenues Gross outlays Balance

Departmental Administration Gift Fund, Agriculture Nonrevolving trust 1 1 2
District of Columbia Federal Pension Liability Trust Fund Nonrevolving trust
3, 357 140 3217 District of Columbia Judicial Retirement and Survivors
Annuity Fund Nonrevolving trust 71 2 75 Education Benefits Fund, Department
of Defense Nonrevolving trust 237 178 676 Federal Judicial Center Foundation
Gift Fund Nonrevolving trust 0 1 1 Financial Assistance Corporation Trust
Fund Nonrevolving trust 7 0 106 Fish and Wildlife Service Contributed Funds
Nonrevolving trust 6 4 8 Foreign Military Sales Trust Fund Nonrevolving
trust 11,624 12,159 5, 509 Foreign National Employees Separation Pay Trust
Fund Nonrevolving trust 15 27 304 Foreign Service National Separation
Liability Trust Fund, Agency for International Development Nonrevolving
trust 2 1 12 Foreign Service National Separation Liability Trust Fund,
Broadcasting Board of Governors Nonrevolving trust 0 0 0 Foreign Service
National Separation Liability Trust Fund, Department of State Nonrevolving
trust 8 6 76 Foreign Service National Separation Liability Trust Fund,
International Trade Administration Nonrevolving trust 0 11 0 Foreign Service
National Separation Liability Trust Fund, U. S. Information Agency
Nonrevolving trust 0 0 8 Foreign Service Retirement and Disability Fund
Nonrevolving trust 1, 120 538 10,132 Forest Service Trust Funds a
Nonrevolving trust 193 133 408 General Post Fund, National Homes, Department
of Veterans Affairs Nonrevolving trust 33 29 52 Geological Survey
Contributed Funds Nonrevolving trust 0 2 2 Gifts and Bequests Trust Fund,
Department of Commerce Nonrevolving trust 1 1 1 Harbor Maintenance Trust
Fund Nonrevolving trust 607 295 1,736 Harry S. Truman Memorial Scholarship
Fund Nonrevolving trust 4 5 57 Hazardous Substance Superfund Nonrevolving
trust 1, 017 1,717 4,443 Highway Trust Fund Nonrevolving trust 39,427 29,036
28,979 Host Nation Support Fund for Relocation Nonrevolving trust 0 0 0
Indian Tribal Funds a Nonrevolving trust 438 322 304 Inland Waterways Trust
Fund Nonrevolving trust 118 88 361 Inspection and Grading of Farm Products,
Agricultural Marketing Service Nonrevolving trust 116 105 15 Inspection and
Grading of Farm Products, Food Safety Inspection Service Nonrevolving trust
4 4 0

Appendix III List of Funds' Revenues, Gross Outlays, and Balances for Fiscal
Year 1999

Page 77 GAO- 01- 199SP Trust Fund FAQs

Fund name Fund type Revenues Gross outlays Balance

Interest, Miscellaneous Trust Fund, Department of Treasury Nonrevolving
trust 1 0 0 Israeli Arab and Eisenhower Exchange Fellowship Program Trust
Fund Nonrevolving trust 0 1 21 James Madison Memorial Fellowship Trust Fund
Nonrevolving trust 3 2 43 Japan- United States Friendship Trust Fund
Nonrevolving trust 28 2 42 John C. Stennis Center for Public Service
Development Trust Fund Nonrevolving trust 1 1 9 Judicial Officers Retirement
Fund Nonrevolving trust 33 14 120 Judicial Survivors Annuities Fund
Nonrevolving trust 37 11 318 Kuwait Civil Reconstruction Trust Fund
Nonrevolving trust 0 0 2 Leaking Underground Storage Tank Trust Fund
Nonrevolving trust 268 65 1,389 Library of Congress Gift and Trust Funds a
Nonrevolving trust 31 26 52 Lower Bruel Sioux Tribe Terrestrial Wildlife
Restoration Trust Fund Nonrevolving trust 1 0 0 Medicare, Part A (Federal
Hospital Insurance Trust Fund) Nonrevolving trust 153,018 131,503 138,421
Medicare, Part B (Federal Supplementary Medical Insurance Trust Fund)
Nonrevolving trust 85,457 80,697 45,649 Military Retirement Fund
Nonrevolving trust 38,227 31,889 151,853 Miscellaneous Contributed Funds,
Agricultural Research Service Nonrevolving trust 22 18 22 Miscellaneous
Contributed Funds, Department of Agriculture Nonrevolving trust 5 0 0
Miscellaneous Trust Funds, a Administration of Foreign Affairs Nonrevolving
trust 2 2 10 Miscellaneous Trust Funds, Agency for International Development
Nonrevolving trust 0 0 2 Miscellaneous Trust Funds, Animal and Plant Health
Inspection Service Nonrevolving trust 13 13 6 Miscellaneous Trust Funds,
Appalachian Regional Commission Nonrevolving trust 6 5 2 Miscellaneous Trust
Funds, Bureau of Land Management Nonrevolving trust 13 12 15 Miscellaneous
Trust Funds, a Federal Highway Administration Nonrevolving trust 50 26 71
Miscellaneous Trust Funds, Health Services Administration Nonrevolving trust
52 60 115 Morris K. Udall Scholarship Fund Nonrevolving trust 1 1 23

Appendix III List of Funds' Revenues, Gross Outlays, and Balances for Fiscal
Year 1999

Page 78 GAO- 01- 199SP Trust Fund FAQs

Fund name Fund type Revenues Gross outlays Balance

National Archives Gift Fund Nonrevolving trust 1 1 7 National Botanic Garden
Gift Fund Nonrevolving trust 0 0 0 National Endowment for the Arts Gift Fund
Nonrevolving trust 1 0 0 National Endowment for the Humanities Gift Fund
Nonrevolving trust 1 0 0 National Park Service Miscellaneous Trust Fund
Nonrevolving trust 15 15 25 National Science Foundation Gift Fund
Nonrevolving trust 37 42 27 National Security Education Trust Fund
Nonrevolving trust 3 6 52 National Service Life Insurance Fund Nonrevolving
trust 1, 677 1,732 11,962 Natural Resources Conservation Service
Miscellaneous Contributed Funds Nonrevolving trust 5 2 25 Office of
International Cooperation and Development Miscellaneous Contributed Fund
Nonrevolving trust 2 1 7 Oil Spill Liability Fund Nonrevolving trust 75 141
1,017 Other Commissions and Boards Nonrevolving trust 0 0 0 Other Department
of Defense Trust Funds a Nonrevolving trust 37 39 26 Peace Corps
Miscellaneous Trust Funds Nonrevolving trust 1 1 2 Post- Vietnam Era
Veterans Education Account Nonrevolving trust 6 20 108 Proprietary Receipts,
Miscellaneous Trust Funds, Department of Transportation Nonrevolving trust 0
0 0 Radiation Exposure Compensation Trust Fund Nonrevolving trust 0 13 9
Rail Industry Pension Fund Nonrevolving trust 3, 193 3,000 15,255 Railroad
Social Security Equivalent Benefit Account Nonrevolving trust 5, 482 5,318
-1,058 b Reclamation Trust Funds Nonrevolving trust 23 13 42 Ricky Ray
Hemophilia Relief Fund Nonrevolving trust 0 0 0 Rivers and Harbors
Contributed Funds Nonrevolving trust 350 252 394 Sales of Unclaimed
Abandoned and Seized Goods, Customs Service Nonrevolving trust 4 7 1
Science, Space, and Technology Education Trust Fund Nonrevolving trust 2 1
15 Social Security (Federal Disability Insurance Trust Fund) Nonrevolving
trust 67,791 52,142 92,628 Social Security (Federal Old- Age Survivors Trust
Fund) Nonrevolving trust 449,489 340,427 762,374 South Dakota Terrestrial
Wildlife Habitat Restoration Trust Fund Nonrevolving trust 10 0 10 Special
Workers' Compensation Funds a Nonrevolving trust 145 143 57 Supplemental
Annuity Pension Fund, Railroad Retirement Board Nonrevolving trust 94 75 56
Tax Court Judges Survivors Annuity Fund Nonrevolving trust 0 0 7 Tribal
Trust Fund Nonrevolving trust 0 0 0 U. S. Capitol Preservation Commission
Trust Fund Nonrevolving trust 1 0 28

Appendix III List of Funds' Revenues, Gross Outlays, and Balances for Fiscal
Year 1999

Page 79 GAO- 01- 199SP Trust Fund FAQs

Fund name Fund type Revenues Gross outlays Balance

U. S. Government Life Insurance Fund, Department of Veterans Affairs
Nonrevolving trust 7 12 80 Unemployment Trust Fund Nonrevolving trust 31,681
24,938 77,699 United Mine Workers Combined Benefits Fund Nonrevolving trust
230 230 0 Vaccine Injury Compensation Trust Fund Nonrevolving trust 194 60
1,400 Voluntary Separation Incentive Fund Nonrevolving trust 172 156 893

Assessment Funds (Comptroller of the Currency) Revolving trust 394 402 304
Coast Guard Miscellaneous Trust Revolving Funds Revolving trust 7 7 0
Commissary Funds (Federal Prison System) Revolving trust 192 192 108
Employees and Retired Employees Health Benefits Fund Revolving trust 18,039
18,463 5, 813 Employees Life Insurance Fund Revolving trust 2, 945 1,561
20,486 Milk Market Assessment Fund Revolving trust 36 62 0 National Archives
Trust Fund Revolving trust 15 15 15 Other Department of Defense Trust
Revolving Funds Revolving trust 17 17 0 Surcharge Collections, Sales of
Commissary Stores Revolving trust 284 350 216 Veterans Special Life
Insurance Fund Revolving trust 239 201 1,668

Abandoned Mine Reclamation Fund Special 360 267 1,736 Allied Contributions
and Cooperation Account, Department of Defense Special 208 126 17
Alternative Fuels Production Special 1 0 13 Assets Forfeiture Fund Special
613 502 728 Aviation User Fees Special 0 0 0 Central Valley Project
Restoration Fund Special 49 38 47 Colorado River Dam Fund, Boulder Canyon
Project Special 65 58 12 Construction, Rehabilitation, Operation and
Maintenance, WAPA Special 63 268 168 Continuing Fund, Southeastern Power
Administration Special 2 0 2 Continuing Fund, Southwestern Power
Administration Special 2 2 0 Cooperative Endangered Species Conservation
Fund Special 29 38 191 Crime Victims Fund Special 985 348 1,629 Customs
Services at Small Airports Special 3 3 3 Department of the Treasury
Forfeiture Fund Special 347 300 413 Disease Control, Research, and Training
Special 2 0 0

Appendix III List of Funds' Revenues, Gross Outlays, and Balances for Fiscal
Year 1999

Page 80 GAO- 01- 199SP Trust Fund FAQs

Fund name Fund type Revenues Gross outlays Balance

Disposal of Surplus Real and Related Personal Property Special 9 4 87
Diversion Control Fee Account Special 54 63 77 Elk Hills School Lands Fund
Special 0 36 262 Emergency Preparedness Grants Special 8 7 17 Environmental
Dispute Resolution Fund Special 0 3 3 Environmental Services Special 10 0 63
Essential Air Service and Rural Airport Improvement Fund Special 48 42 13
Everglades Restoration Account Special 4 0 4 Expenses of Transportation
Audit Contracts and Contract Administration Special 8 9 25 Exxon Valdez
Settlement Fund Special 0 1 2 Falcon and Amistad Operating and Maintenance
Fund Special 1 1 2 Federal Aid in Wildlife Restoration Special 226 213 436
FHA- Mutual Mortgage Insurance Program Account Special 3, 559 0 0
Fishermen's Contingency Fund Special 0 0 3 Fishermen's Guaranty Fund Special
0 0 3 Fishermen's Protective Fund Special 0 0 1 Forest Products Program
Special 0 0 3 Forest Service Permanent Appropriations a Special 228 366 580
Funds for Strengthening Markets, Income, and Supply (Section 32) Special 5,
681 833 486 Gifts to the United States for Reduction of the Public Debt
Special 1 0 0 Guarantees of Mortgate- Backed Securities Loan Guarantee
Program Account Special 355 0 701 H- 1B Nonimmigrant Petitioner Account
Special 74 2 1 Historic Preservation Fund Special -150 37 2,154 Immigration
Support a Special 1, 142 1,182 152 Indian Health Facilities Special 5 0 0
Informant Payments Special 8 8 0 Internal Revenue Collections for Puerto
Rico Special 235 235 0 Internal Revenue Service Miscellaneous Retained Fees
Special 88 88 0 International Center, Washington, D. C. Special 3 3 3
International Litigation Fund Special 2 1 8 Interstate Land Sales Fund
Special 0 0 0 Judiciary Filing Fees Special 107 115 286 Judiciary
Information Technology Fund Special 228 233 176

Appendix III List of Funds' Revenues, Gross Outlays, and Balances for Fiscal
Year 1999

Page 81 GAO- 01- 199SP Trust Fund FAQs

Fund name Fund type Revenues Gross outlays Balance

Land Acquisition Accounts Special 1 93 173 Land and Water Conservation Fund
Special 1, 293 1,087 12,936 Leases of Lands Acquired for Flood Control,
Navigation, and Allied Purposes Special 1 1 0 Management of Lands and
Resources, Bureau of Land Management Special 1 0 0

Manufactured Home Inspection and Monitoring Special 15 15 10 Medical Care,
Department of Veterans Affairs Special 574 0 51 Migratory Bird Conservation
Account Special 65 55 38 Mineral Leasing and Associated Payments Special 478
478 0 Miscellaneous Permanent Appropriations, Bureau of Indian Affairs a
Special 72 72 83 Miscellaneous Permanent Appropriations, Office of Special
Trustee for American Indians Special 23 9 47 Miscellaneous Permanent Payment
Accounts, Bureau of Land Management a Special 34 118 90 Miscellaneous
Permanent Appropriations, Fish and Wildlife Service Special 2 4 3
Miscellaneous Special Funds, Department of Defense a Special 76 68 253
National Forest System Special 4 0 78 National Forests Fund, Payment to
States Special 3 3 0 National Indian Gaming Commission, Gaming Activity Fees
Special 5 0 5 National Institutes of Health Miscellaneous Accounts Special
13 0 0 National Wildlife Refuge Fund Special 8 19 6 Natural Resource Damage
Assessment Fund Special 61 17 72 North American Wetlands Conservation Fund
Special 1 14 41 Nuclear Waste Fund Special 768 188 7,927 Office of Federal
Housing Enterprise Oversight Special 16 16 4 Operation and Maintenance of
Quarters, Bureau of Indian Affairs Special 5 4 4 Operation and Maintenance,
General, Corps of Engineers Special 33 0 33 Operation of the National Park
System Special 7 0 7 Other Permanent Appropriations, National Park Service a
Special 50 30 71 Overseas Military Facility Investment Recovery Special 4 29
48 Panama Canal Commission Compensation Fund Special 7 6 79 Payments to
Copyright Owners Special 243 174 772 Payments to States Under Federal Power
Act Special 3 3 3 Perishable Agricultural Commodities Act Fund Special 8 9
10

Appendix III List of Funds' Revenues, Gross Outlays, and Balances for Fiscal
Year 1999

Page 82 GAO- 01- 199SP Trust Fund FAQs

Fund name Fund type Revenues Gross outlays Balance

Permanent Appropriations, Corps of Engineers a Special 14 19 14 Permanent
Operating Funds, Bureau of Land Management a Special 17 24 47 Pipeline
Safety Special 34 34 33 Presidential Election Campaign Fund Special 61 26 0
Program Expenses, Federal Retirement Thrift Investment Board Special 75 59
39 Promote and Develop Fishery Products and Research Pertaining to American
Fisheries Special 0 5 7 Radiological Emergency Preparedness Fund Special 13
10 3 Range Betterment Fund Special 3 3 4 Range Improvements Special 8 10 6
Reclamation Fund Special 1, 050 317 2,245 Recreation Fee Permanent
Appropriations a Special 145 68 216 Recreational Fee Demonstration Program
Special 3 2 4 Refunds, Transfers, and Expenses of Operation, Puerto Rico
Special 104 100 18 Registry Administration Special 3 3 0 Registry Fees
Special 2 1 4 Research and Education Activities, Native American
Institutions Endowment Fund Special 5 0 19 Salaries and Expenses, Animal and
Plant Health Inspection Service Special 172 0 117 Salaries and Expenses,
Food and Drug Administration Special 1 0 0 Salaries and Expenses, Financial
Management Service Special 13 0 0 Salaries and Expenses, Nuclear Regulatory
Commission Special 442 0 0 Salaries and Expenses, Patent and Trademark
Office Special 0 0 0 Salaries and Expenses, U. S. Customs Service Special 1,
208 0 0 Service Charges, Deposits, and Forfeitures, Bureau of Land
Management Special 12 11 11 Spectrum Auction Program Account Special 290
1,411 0 Supplemental Security Income Program Special 2 0 2 United States
Capitol Police Memorial Fund Special 1 1 0 United States Trustee System Fund
Special 116 138 123 Universal Service Fund Special 3, 752 3,293 1,479
Uranium Enrichment Decontamination and Decommissioning Fund Special 608 228
1,651 Utah Reclamation Mitigation and Conservation Account Special 21 20 121
Wildlife Conservation Special -1 2 4

Appendix III List of Funds' Revenues, Gross Outlays, and Balances for Fiscal
Year 1999

Page 83 GAO- 01- 199SP Trust Fund FAQs

Fund name Fund type Revenues Gross outlays Balance

Wildlife Conservation and Appreciation Fund Special 0 1 3 Agricultural
Credit Insurance Fund Liquidating Account Public Enterprise 1,060 30 61
Alternative Agricultural Research and Commercialization Corporation
Revolving Fund Public Enterprise 5 5 3 Assistance for the Independent States
of the Former Soviet Union: Ukraine Export Credit Insurance Public
Enterprise 2 0 30 Aviation Insurance Revolving Fund Public Enterprise 4 0 76
Bank Insurance Fund Public Enterprise 3,022 1,987 28,111 Board of Governors
of the Federal Reserve System Public Enterprise 189 189 0 Bonneville Power
Administration Fund Public Enterprise 2,629 2,426 997 Business Loan Fund
Liquidating Account Public Enterprise 313 0 779 Canteen Service Revolving
Fund Public Enterprise 218 218 39 Central Liquidity Facility Public
Enterprise 155 155 0 Check Forgery Insurance Fund Public Enterprise 0 3 4
Coastal Zone Management Fund Public Enterprise 4 7 3 Colorado River Basins
Power Marketing Fund, Western Area Power Administration Public Enterprise
104 75 67 Commodity Credit Corporation Fund Public Enterprise 9,882 29,182
1, 402 Commodity Credit Corporation Guaranteed Loans Liquidating Account
Public Enterprise 234 0 59 Community Development Credit Union Revolving Loan
Fund Public Enterprise 4 2 3 Community Development Loan Guarantees
Liquidating Account Public Enterprise 24 4 134 Cooperative Acquisitions
Program Revolving Fund Public Enterprise 2 2 3 Credit Union Share Insurance
Fund Public Enterprise 527 268 4,121 Damage Assessment and Restoration
Revolving Fund Public Enterprise 13 0 16 Disaster Assistance Direct Loan
Liquidating Account Public Enterprise 4 0 0 Disaster Loan Fund Liquidating
Account Public Enterprise 229 63 67 Economic Assistance Loans- Liquidating
Account Public Enterprise 1,075 0 67 Economic Development Revolving Fund
Liquidating Account Public Enterprise 11 5 9 Economics and Statistics
Administration Revolving Fund Public Enterprise 5 6 2 Equal Employment
Opportunity Commission Education, Technical Assistance and Training
Revolving Fund Public Enterprise 2 1 3 Exchange Stabilization Fund Public
Enterprise 1,385 0 39,916 Export- Import Bank of the United States
Liquidating Account Public Enterprise 1,150 258 1,308

Appendix III List of Funds' Revenues, Gross Outlays, and Balances for Fiscal
Year 1999

Page 84 GAO- 01- 199SP Trust Fund FAQs

Fund name Fund type Revenues Gross outlays Balance

Farm Credit System Insurance Fund Public Enterprise 122 59 1,370 Federal
Consumer Information Center Fund Public Enterprise 7 6 3 Federal Crop
Insurance Corporation Fund Public Enterprise 622 2,299 2,262 Federal Housing
Finance Board Public Enterprise 18 18 5 Federal Ship Financing Fund
Liquidating Account Public Enterprise 11 6 0 Federal Ship Financing Fund,
Fishing Vessels Liquidating Account Public Enterprise 8 2 17 Federal Tax
Lien Revolving Fund Public Enterprise 6 6 6 FHA- General and Special Risk
Insurance Funds Liquidating Account Public Enterprise 559 1,057 899 FHA-
Mutual Mortgage and Cooperative Housing Insurance Funds Liquidating Account
Public Enterprise 4,939 4,620 15,417 Financial Assistance Corporation
Assistance Fund, Liquidating Account Public Enterprise 194 499 1,562
Flexible Subsidy Fund Public Enterprise 48 17 292 Foreign Military Loan
Liquidating Account Public Enterprise 229 43 0 Federal Savings and Loan
Insurance Corporation Resolution Fund Public Enterprise 3,922 339 2,870
Guarantees of Mortgage- Backed Securities Liquidating Account Public
Enterprise 428 93 5,769 Health Education Assistance Loans Liquidating
Account Public Enterprise 20 20 13 Health Maintenance Organization Loan and
Loan Guarantee Fund Public Enterprise 2 0 11 Helium Fund Public Enterprise
16 6 31 Homeowners Assistance Fund, Department of Defense Public Enterprise
44 127 36 Homeownership Assistance Fund Public Enterprise 1 0 23 House
Revolving Funds Public Enterprise 0 0 8 Housing and Other Credit Guaranty
Programs Liquidating Account Public Enterprise 84 62 14 Housing for the
Elderly or Handicapped Fund Liquidating Account Public Enterprise 772 382
1,114 Indian Loan Guaranty and Insurance Fund Liquidating Account Public
Enterprise 2 2 0 Inspection and Weighing Services Public Enterprise 37 35 8
Interior Franchise Fund Public Enterprise 51 39 17 Investment in Securities
Investor Protection Corporation Public Enterprise 0 0 1,000 Isotope
Production and Distribution Program Fund Public Enterprise 31 31 11 Lower
Colorado River Basin Development Fund Public Enterprise 163 201 53 Low- Rent
Public Housing- Loans and Other Expenses Public Enterprise 83 116 886

Appendix III List of Funds' Revenues, Gross Outlays, and Balances for Fiscal
Year 1999

Page 85 GAO- 01- 199SP Trust Fund FAQs

Fund name Fund type Revenues Gross outlays Balance

Medical Center Research Organizations Public Enterprise 105 105 18 Medical
Facilities Guarantee and Loan Fund Public Enterprise 6 3 63 Medical
Facilities Revolving Fund Public Enterprise 3 3 6 National Defense Stockpile
Transaction Fund Public Enterprise 449 240 960 National Flood Insurance Fund
Public Enterprise 1,416 1,350 611 National Flood Mitigation Fund Public
Enterprise 0 8 42 Nehemiah Housing Opportunity Fund Public Enterprise 0 2 24
Nonprofit Sponsor Assistance Liquidating Account Public Enterprise 0 0 6
National Technical Information Service Revolving Fund Public Enterprise 34
36 39 Office of Thrift Supervision Public Enterprise 143 142 156 Oklahoma
City National Memorial Trust Public Enterprise 0 2 3 Operating Fund,
National Credit Union Administration Public Enterprise 106 104 28 Overseas
Private Investment Corporation Liquidating Account Public Enterprise 11 1 26
Overseas Private Investment Corporation Noncredit Account Public Enterprise
328 55 3,038 Panama Canal Commission Dissolution Fund Public Enterprise 1 0
7 Panama Canal Revolving Fund Public Enterprise 756 683 374 Parking
Revolving Fund Public Enterprise 3 15 30 Pension Benefit Guaranty
Corporation Fund Public Enterprise 1,866 1,201 9,369 Perkins Loan Revolving
Fund Public Enterprise 0 1 0 Pershing Hall Revolving Fund Public Enterprise
0 0 1 Pollution Control Equipment Fund Liquidating Account Public Enterprise
0 3 0 Postal Service Fund Public Enterprise 62,943 63,964 22,107 Presidio
Trust Public Enterprise 54 35 43 Property Management Fund, Agency for
International Development Public Enterprise 0 0 3 Railroad Rehabilitation
and Improvement Liquidating Account Public Enterprise 7 3 0 Rental Housing
Assistance Fund Public Enterprise 34 34 8 Reregistration and Expedited
Processing Revolving Fund Public Enterprise 18 22 11 Reserve Mobilization
Income Insurance Fund Public Enterprise 1 5 17 Resolution Trust Corporation
Revolving Fund Public Enterprise 0 0 4 Revolving Fund (Liquidating Programs)
Public Enterprise 53 7 102 Revolving Fund for Administrative Expenses Public
Enterprise 34 34 15 Revolving Fund for Certification and Other Services
Public Enterprise 4 7 4 Revolving Fund for Loans Liquidating Account Public
Enterprise 6 0 0 Rural Communication Development Fund Liquidating Account
Public Enterprise 1 3 1

Appendix III List of Funds' Revenues, Gross Outlays, and Balances for Fiscal
Year 1999

Page 86 GAO- 01- 199SP Trust Fund FAQs

Fund name Fund type Revenues Gross outlays Balance

Rural Development Insurance Fund Liquidating Account Public Enterprise 541
627 229 Rural Development Loan Fund Liquidating Account Public Enterprise 4
1 2 Rural Electrification and Telecommunications Liquidating Account Public
Enterprise 2,788 2,143 517 Rural Housing Insurance Fund Liquidating Account
Public Enterprise 2,172 1,068 483 Rural Telephone Bank Liquidating Account
Public Enterprise 318 32 657 Saint Lawrence Seaway Development Corporation
Public Enterprise 13 13 16 Savings Association Insurance Fund Public
Enterprise 693 257 10,224 Senate Revolving Funds Public Enterprise 0 0 8
Service- Disabled Veterans Insurance Fund Public Enterprise 71 61 41
Servicemembers' Group Life Insurance Fund Public Enterprise 402 402 5
Special Defense Acquisition Fund Public Enterprise 8 6 83 Special
Therapeutic and Rehabilitation Activities Fund Public Enterprise 40 38 15
Surety Bond Guarantees Revolving Fund Public Enterprise 7 8 41 Tennessee
Valley Authority Fund Public Enterprise 6,588 6,906 644 United States
Enrichment Corporation Fund Public Enterprise 0 5 478 United States Mint
Public Enterprise Fund Public Enterprise 1,399 1,419 183 Upper Colorado
River Basin Fund Public Enterprise 180 81 140 Vessel Operations Revolving
Fund Public Enterprise 533 477 55 Veterans Housing Benefit Program Fund
Liquidating Account Public Enterprise 700 330 159 Veterans Reopened
Insurance Fund Public Enterprise 62 68 510 War Risk Insurance Revolving Fund
Public Enterprise 2 1 31 Working Capital Fund, Federal Emergency Management
Agency Public Enterprise 23 20 14

Notes: a indicates that, for presentation purposes, funds were grouped. b
indicates that the negative balances shown are a result of outstanding debts
to Treasury that exceed the funds' assets.

Appendix III List of Funds' Revenues, Gross Outlays, and Balances for Fiscal
Year 1999

Page 87 GAO- 01- 199SP Trust Fund FAQs

Table III. 2: Top 10 Funds in Each Earmarked Fund Type, by Total Revenues

(Dollars in millions)

Trust Funds Special Funds Public Enterprise Funds Top 10 Funds Total

Revenues Top 10 Funds Total Revenues Top 10 Funds Total

Revenues

Federal Old- Age Survivors Insurance Trust Fund

$449,489 Funds for Strengthening Markets, Income, and Supply (Section 32)

$5,681 Postal Service Fund $62,943 Federal Hospital

Insurance Fund 153,018 Universal Service Fund 3,752 Commodity Credit

Corporation Fund 9,882

Federal Supplementary Medical Insurance Trust Fund

85,457 FHA- Mutual Mortgage Insurance Program Account

3,559 Tennessee Valley Authority Fund

6,904 Civil Service Retirement

and Disability Fund 74,522 Salaries and Expenses,

U. S. Customs Service 1,208 FHA- Mutual Mortgage

and Cooperative Housing Insurance Funds Liquidating Account

4,939 Federal Disability

Insurance Trust Fund 67,791 Immigration Support 1, 142 FSLIC Resolution Fund
3,922

Highway Trust Fund 39,427 Reclamation Fund 1,050 Bank Insurance Fund 3,022
Military Retirement Fund 38,227 Land and Water

Conservation Fund 1,293 Rural Electrification and

Telecommunications Liquidating Account

2,788 Unemployment Trust

Fund 31,681 Crime Victims Fund 985 Bonneville Power Administration Fund
2,629 Employees and Retired Employees Health Benefits Fund

18,039 Nuclear Waste Fund 768 Rural Housing Insurance Fund Liquidating
Account

2,172 Military Sales Program 11,624 Assets Forfeiture Fund 613 Pension
Benefit Guaranty

Corporation Fund 1,866

Page 88 GAO- 01- 199SP Trust Fund FAQs Budget caps Adjustable dollar limits
under the Deficit Control Act

that specify maximum amounts of budget authority and outlays for each fiscal
year provided by the regular appropriations process. If appropriations are
enacted that cause discretionary spending to exceed the limits, a
sequestration will occur to eliminate the amount of the excess.

Budget function Groups of accounts that present budget authority, outlays,
receipts, and tax expenditures according to the national needs being
addressed. Each budget account is generally placed in the single budget
function (e. g., transportation or health) that best reflects its major
purpose, an important national need. There are 19 major functions, most of
which are divided into subfunctions.

Debt held by government accounts That part of gross federal debt held by
earmarked funds and invested in special, nonmarketable U. S. Treasury
securities or in agency debt. Essentially, these securities represent debt
owed by one part of the federal government to another.

Debt held by the public That part of gross federal debt held outside of the
federal government. This includes any federal debt held by individuals,
corporations, state or local governments, the Federal Reserve System, and
foreign governments and central banks.

Deficit Control Act (DCA) Legislation that established statutory limits on
federal government spending. The actual title of this act is the Balanced
Budget and Emergency Deficit Control Act of 1985, as amended. However, for
simplicity, we refer to it as DCA. It also is often referred to as the
Budget Enforcement Act (BEA) because that act added the current
sequestration process and designated accounts as either mandatory or
discretionary.

Discretionary A term that usually modifies either “spending,”
“appropriations,” or “amount.” Discretionary
spending refers to outlays controllable through the regular congressional
appropriations process. Appendix IV

Glossary

Appendix IV Glossary

Page 89 GAO- 01- 199SP Trust Fund FAQs Earmarked receipts Collections
dedicated by law for a specific purpose or

program. Earmarked receipts comprise the receipts of trust, special, and
public enterprise fund accounts, as well as offsetting collections credited
to appropriations accounts.

Exchange revenue An accounting term, exchange revenue includes most user
charges (i. e., revenue resulting from the government's business- type
activities). Also known as earned revenue, it arises when a government
entity provides goods and services to the public or to another government
entity for a price.

Fund balance The cumulative net effect of a fund's total receipts and
outlays.

Fund surplus/ deficit The difference between a fund's receipts and outlays
over a given period, usually a fiscal year. When receipts are greater than
outlays, a surplus results. When receipts are less than outlays, a deficit
results.

Gross Domestic Product An economic term referring to the value of all final
goods and services produced within the borders of the United States in a
given period of time, whether produced by residents or nonresidents.

Mandatory A term that usually modifies either “spending,”
“appropriations,” or “amount.” Mandatory spending
refers to outlays for entitlement programs such as food stamps, Medicare,
veterans' pensions, payment of interest on the public debt, and
nonentitlements such as payments to states from Forest Service receipts. By
defining eligibility and setting the benefit or payment rules, the Congress
controls spending for these programs indirectly rather than directly through
the appropriations process.

Nonexchange revenue An accounting term, nonexchange revenue includes inflows
of resources arising from the government's sovereign power to tax, as well
as voluntary donations.

Appendix IV Glossary

Page 90 GAO- 01- 199SP Trust Fund FAQs Nonrevolving trust funds Accounts
designated as trust funds by law and used

to track receipts and spending for programs that have specific taxes or
other revenues dedicated by law for their use.

Offsetting collections Collections that are deducted from gross budget
authority and outlays rather than added to receipts and, by law, are
credited directly to expenditure accounts. Usually, they may be spent for
the purposes of the account without further action by the Congress. They
result from business- type or marketoriented activities with the public and
other government accounts.

Outlays The issuance of checks, disbursement of cash, or electronic transfer
of funds made to liquidate a federal obligation. Outlays during a fiscal
year may be for payment of obligations incurred in prior years or in the
same year. They flow in part from unexpended balances of prior- year
budgetary resources and in part from budgetary resources provided for the
year in which the money is spent.

Pay- as- you- go (PAYGO) A requirement, established by the Deficit Control
Act, as amended, that the aggregate effect of new legislation that increases
direct spending or decreases receipts be neutral (that is, not increase the
deficit or decrease the surplus).

Program sustainability The nation's ability to finance promised benefits
over the long- run.

Public enterprise fund An account authorized to be credited with offsetting
collections, primarily from the public, that are generated by, and are
earmarked to finance a continuing cycle of business- type operations in
accordance with statute.

Revolving trust fund An account designated as a “trust fund” by
law and authorized to be credited with offsetting collections that are used
to carry out a cycle of business- type operations in accordance with
statute.

Appendix IV Glossary

Page 91 GAO- 01- 199SP Trust Fund FAQs Special fund One or more accounts
used to track receipts and

spending for programs that have specific taxes or other revenues dedicated
by law for their use but which are not designated in law as “trust
funds.”

Unified budget Under budget concepts set forth in the 1967 Report of the
President's Commission on Budget Concepts, a comprehensive budget in which
receipts and outlays from federal and trust funds are consolidated. When
these fund groups are consolidated to display budget totals, transactions
that are outlays of one fund group for payment to the other fund group (that
is, interfund transactions) are deducted to avoid double counting. The
unified budget should, as conceived by the President's Commission, be
comprehensive of the full range of federal activities. By law, budget
authority, outlays, and receipts of off- budget programs (currently only the
U. S. Postal Service and Social Security) are excluded from the budget, but
data relating to off- budget programs are displayed in the budget documents.

Page 92 GAO- 01- 199SP Trust Fund FAQs

Christine E. Bonham, Assistant Director Robert M. Sexton, Senior Analyst
Carol M. Henn, Senior Analyst

Frank Maguire, Senior Attorney (935313) Appendix V

GAO Staff Acknowledgments Strategic Issues Office of the General Counsel

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