OFF-BUDGET STATUS OF FEDERAL ENTITIES: BACKGROUND AND CURRENT PROPOSALS
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Off-Budget Status of Federal Entities:
Background and Current Proposals
Bill Heniff Jr.
Analyst in American National Government
Government and Finance Division
During the 106th Congress, several proposals have been introduced to provide off-
budget status to certain trust funds and other special funds, in which revenues are
collected for specified purposes. These proposals would prohibit the receipts and
disbursements of the funds from being counted as new budget authority, outlays,
receipts, or deficit or surplus for purposes of the President’s budget, the congressional
budget, or the Balanced Budget and Emergency Deficit Control Act of 1985.
Proponents argue that taking a fund off budget provides an assurance that the federal
government is fulfilling its contract with taxpayers by ensuring the collected receipts will
be used for the dedicated purpose rather than for general government activities.
Opponents argue that removing a fund from the unified budget would free its
transactions from statutory and congressional budget enforcement procedures, thereby
weakening budget controls and limiting the ability of the President and Congress to make
trade-offs between all possible government priorities.
Prior to 1968, the federal budget was represented by three competing measures of
federal financial activities: the administrative budget; the national income accounts budget;
and the consolidated cash budget. The federal government did not have a single
presentation of its annual budget, and the most frequently used one, the administrative
budget, did not encompass the full range of federal financial activities. Only the revenues
and expenditures from federal fund transactions were included; all trust-fund transactions
were excluded from the administrative budget.
As trust-fund activities increased, the existing budget presentations were seen as
inadequate in representing the full impact of federal government financial activities on the
national economy. The 1967 Report of the President’s Commission on Budget Concepts
stated that “the budget should, as a general rule, be comprehensive of the full range of
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federal activities.”1 The commission recommended a unified budget, consolidating the
revenues and expenditures from both federal and trust funds. In 1968, President Lyndon
B. Johnson adopted the unified budget for his FY1969 budget submission to Congress,
and every President since then has used the unified budget.
Initially, the unified budget excluded only the Board of Governors of the Federal
Reserve System, the Exchange Stabilization Fund, and government-sponsored enterprises,
which are privately owned. By the early 1980s, however, several additional government
entities had received off-budget status, usually by statute.2 In 1984, for example, seven
federal entities were off budget: Federal Financing Bank; Rural Electrification
Administration and Rural Telephone Bank; Strategic Petroleum Reserve Account; United
States Synthetic Fuels Corporation; United States Railway Association; Board of
Governors of the Federal Reserve System; and U.S. Postal Service. In addition, the Social
Security and Hospital Insurance (i.e., Medicare, Part A) trust funds were scheduled to go
off budget beginning with FY1993. This increase in off-budget entities prompted a review
of the budgetary treatment of these federal activities by the Task Force on the Budget
Process of the House Committee on Rules, the so-called Beilenson task force, named after
its chair, Representative Anthony Beilenson. The task force recommended that all off-
budget entities, and those entities scheduled to go off budget, be placed back on budget.
The Board of Governors of the Federal Reserve System and the U.S. Postal Service were
to be partially excluded, because of their independent status.
Although the proposed legislation resulting from the work of the task force was not
enacted into law, several of its recommendations were incorporated into the Balanced
Budget and Emergency Deficit Control Act of 1985 (Title II of P.L. 99-177; 99 Stat.
budget entities be included in the President’s budget and the congressional budget. The
Board of Governors of the Federal Reserve System and government-sponsored enterprises
remained off budget. In addition, the off-budget status of the Federal Old-Age and
Survivors Insurance Trust Fund and the Federal Disability Insurance Trust Fund
(commonly referred to as the Social Security trust funds) was accelerated, to begin with
the FY1986 budget; the off-budget status of these trust funds is discussed below.
Current Off-Budget Federal Entities
Currently, there are two federal entities off budget: the Social Security trust funds
and the Postal Service Fund. Both were initially included in the unified budget beginning
in FY1969. Congress removed these entities from the budget generally to provide
assurance that changes in the Social Security program and U.S. Postal Service operations
were not made on the basis of budgetary considerations.
Social Security Trust Funds. Like other trust funds, the Social Security trust funds
were incorporated into the unified budget beginning in 1968 so as to present the full range
1Report of the President’s Commission on Budget Concepts (Washington: GPO, October 1967),
2The President may present the budget “in such form and detail” as he may determine, under the
authority granted by the Budget and Accounting Act of 1921. However, excluding an entity from
the congressional budget process and sequestration process requires a statute.
of federal activities in a single budget. The Social Security Amendments of 1983 (P.L. 98-
21; 97 Stat. 65, specifically 97 Stat. 137-138) set forth a process gradually to take the
Social Security and Medicare (except Part B) trust funds off budget by FY1993. The trust
funds first were to be treated as a separate major functional category in the budget, and
then they would be removed from the budget totals beginning in FY1993.
The 1985 Balanced Budget Act (see 99 Stat. 1093-1094) accelerated this process by
providing that the receipts and expenditures from the Social Security trust funds be
removed from the President’s budget and congressional budget resolutions, beginning in
FY1986. Under the enforcement mechanism established by the 1985 Balanced Budget
Act, the trust funds transactions were included in calculating the surplus or deficit totals
for the purposes of determining if a sequestration—the across-the-board cancellation of
budgetary resources—was required. However, Social Security program benefits were
exempt from any sequestration.
The 1990 Budget
Partial Text of Social Security Off-BudgetEnforcement Act (Title XIII of
Provision of the Budget Enforcement Act of 1990P.L. 101-508; 104 Stat. 1388-573
through 630, specifically 104
Sec. 13301. Off-Budget Status of OASDI TrustStat. 1388-623) reaffirmed the
Funds.off-budget status of the Social
(a) Exclusion of Social Security From AllSecurity trust funds by excluding
Budgets.—Notwithstanding any other provision ofthe receipts and expenditures of
law, the receipts and disbursements of the Federalthe Social Security trust funds
Old-Age and Survivors Insurance Trust Fund andfrom the surplus or deficit totals
the Federal Disability Insurance Trust Fund shallin the President’s budget and the
not be counted as new budget authority, outlays,congressional budget resolution,
receipts, or deficit or surplus for purposes of—and from the surplus or deficit
(1) the budget of the United Statescalculations in the sequestration
Government as submitted by the President,process. (For further information
(2) the congressional budget, oron the off-budget status of Social
(3) the Balanced Budget and DeficitSecurity, see CRS Report 98-422
Control Act of 1985.EPW, Social Security and the
Federal Budget: What Does
Social Security’s Being “Off
Postal Service Fund. The U.S. Postal Service was established by the Postal
Reorganization Act of 1970 (P.L. 91-375; 84 Stat. 719-787) as an independent entity,
replacing the Cabinet-level Post Office Department, to allow it to operate on a business-
like basis. The act also created the Postal Service Fund, which consisted of the receipts
associated with the operations of the U.S. Postal Service, such as revenues from services
it provided. In its first year of existence, FY1973, the U.S. Postal Service was included
in the unified budget, as was the Post Office Department it replaced. The Postal Service
Fund was taken off budget by administrative action the following year, to reflect the
independent status of the U.S. Postal Service. It remained off budget until FY1986, when
the Balanced Budget Act of 1985 provided that all off-budget entities be placed back on
budget. Citing its independent status and need to operate free from budget pressures
unrelated to its operation, Congress took the transactions of the Postal Service Fund off
budget in 1989 (Omnibus Budget Reconciliation Act of 1989; P.L. 101-239; 103 Stat.
Arguments For and Against Off-Budget Status
The current proposals to provide off-budget status to additional funds generally
follow the 1990 Budget Enforcement Act language that reaffirmed the off-budget status
of the Social Security trust funds. All the off-budget proposals would prohibit a fund’s
receipts and disbursements from being counted as new budget authority, outlays, receipts,
or deficit or surplus for purposes of the President’s budget, the congressional budget, or
the Balanced Budget Act of 1985. Under these terms, off-budget status would effectively
free the receipts and expenditures of a fund from point-of-order controls under the
Congressional Budget Act of 1974, and the discretionary spending limits and pay-as-you-
go rules under the 1985 Balanced Budget Act. In addition, most of the current proposals
would exempt a fund’s expenditures from any general budget limitation imposed by statute
on budget outlays. This latter provision would protect the fund’s expenditures from any
other spending limitations the President and Congress may adopt in the future.
Proponents argue that a dedicated fund in the budget, particularly a trust fund,
represents a contract with taxpayers that the money will be spent on its intended purpose
and not on other government activities. Taking a fund off budget provides an assurance
that the President and Congress will fulfill that contract by removing any incentive to
spend less on the fund’s intended purpose in order to spend more on other government
activities. Moreover, citing the 1967 Report of the President’s Commission on Budget
Concepts, proponents argue that providing off-budget status “allows the identity and
integrity of trust fund transactions and balances to be preserved.”4
Because actual spending for some trust funds usually does not match revenues during
a fiscal year, proponents further argue that including these trust fund balances in the
unified budget either understates the true size of the budget deficit, or overstates the true
size of the budget surplus. Excluding a fund’s transactions from the budget totals would
provide an incentive to match more closely a fund’s income and spending.
While off-budget status frees the revenues and disbursements of these funds from
statutory and congressional controls under the 1974 Congressional Budget Act and the
1985 Balanced Budget Act, supporters argue that a more appropriate control on fund
spending is the amount of revenue dedicated to the fund. As long as spending does not
exceed the dedicated revenues, they argue that a fund’s transactions do not contribute to
any budget deficit.
Opponents of off-budget proposals, on the other hand, reaffirm the argument made
for a unified budget by the President’s Commission on Budget Concepts in 1967. They
argue that the federal budget should include the full range of government activities,
regardless of whether any certain activity is financed through a trust fund or the general
3The appropriated subsidy provided to the U.S. Postal Service for reimbursements of reduced-rate
and free mail remains on budget.
4Report on the President’s Commission on Budget Concepts, p. 26.
Opponents further argue that off-budget status provides these funds with preferential
treatment in the budget process. Off-budget programs would be protected from the
statutory and congressional budget enforcement procedures, while on-budget programs
would remain constrained by the existing fiscally tight controls. This unequal treatment
effectively weakens budget enforcement and restricts the flexibility of decision makers to
make trade-offs between all government activities when deciding priorities.
Finally, opponents have noted that the federal budget consists of numerous trust and
special funds.5 If off-budget status is provided to certain funds, then the incentive will
exist to provide it to the remaining funds that have a dedicated purpose. Opponents argue
that, if this were to occur, Congress would further reduce its ability to control the size of
the budget and the deficit or surplus, and ultimately the size of the federal government.
Proposals Providing Off-Budget Status in the 106th Congress
Several measures have been introduced in the 106th Congress to provide off-budget
status to certain trust funds and special funds, including the Airport and Airway Trust
Fund, the Nuclear Waste Fund, the Inland Waterways Trust Fund, the Harbor
Maintenance Trust Fund, and several new and existing special funds for conservation
activities. So far during the 106th Congress, one proposal, taking the Airport and Airway
Trust Fund off budget, has been passed by the House, and another, taking the Nuclear
Waste Fund off budget, has been reported by a House committee.
Airport and Airway Trust Fund. Off-budget status has been proposed for the
aviation trust fund in order to provide an assurance that tax revenues deposited in the trust6
fund will actually be spent on aviation infrastructure needs. The Aviation Investment and
Reform Act for the 21st Century, commonly referred to as AIR-21 or the Federal Aviation
Administration (FAA) reauthorization bill, H.R. 1000, includes a provision providing off-
budget status to the Airport and Airway Trust Fund (Title IX). On May 28, 1999, the bill
was reported by the House Committee on Transportation and Infrastructure (H.Rept. 106-
“Bill” Young and John Kasich failed by a vote of 179-248. The House subsequently
adopted the AIR-21 bill by a vote of 316-110. The Senate version of the FAA
reauthorization bill, S. 82, the Air Transportation Improvement Act (S.Rept. 106-9), does
not include an off-budget provision.
5In FY1997, there were over 100 trust funds. For more information on the number and balances
of trust fund accounts, see: (1)CRS Report 96-686, Federal Trust Funds: How Many, How Big,
and What Are They For?, by David Koitz, Philip Winters, and Dawn Nuschler, and (2) U.S.
Office of Management and Budget, Budget of the United States Government, FY2000, Analytical
Perspectives, (Washington: GPO, February 1999), pp. 335-350.
6The argument to take the aviation trust fund off budget is similar to those put forward for other
transportation trust funds. For further discussion on the budgetary treatment of transportation trust
funds, see CRS Report 98-63, Transportation Trust Funds: Budgetary Treatment, by John W.
Fischer. For more specific information on the aviation trust fund, see CRS Report RS20177,th
Airport and Airway Trust Fund Issues in the 106 Congress, by John W. Fischer.
Nuclear Waste Fund. Taking the Nuclear Waste Fund off budget has been
proposed in order to insulate the program from competition with other federal programs
for funding, and to ensure that all revenues collected will be devoted to the fund’s intended
purpose. On May 20, the House Committee on Commerce reported favorably H.R. 45,
the Nuclear Waste Policy Act of 1999 (H.Rept. 106-155), which included a provision
taking the transactions of the Nuclear Waste Fund off budget (Section 301(f)). Unlike the
general off-budget language described above, H.R. 45 does not include a provision to
exempt the Nuclear Waste Fund expenditures from any general statutory limitation on
budget outlays. The bill has not been considered on the House floor. The Senate version,
S. 1287, the Nuclear Waste Policy Amendments of 1999 (S.Rept. 106-98), does not
include an off-budget provision. The Senate Committee on Energy and Natural Resources
reported S. 1287 favorably on June 24.
Inland Waterways Trust Fund and Harbor Maintenance Trust Fund. Off-
budget status for the other transportation trust funds has been proposed for the purpose
of ensuring that taxes that are paid by transportation users are spent on the intended
purposes. Representative Bud Shuster and others introduced H.R. 111, the Truth in
Budgeting Act, to provide for off-budget treatment for the Airport and Airways Trust
Fund, the Inland Waterways Trust Fund, and the Harbor Maintenance Trust Fund. The
bill was referred to the Committees on Transportation and Infrastructure and on the
Budget on January 6, 1999.
Land and Water Conservation Fund and Other Conservation Activities Funds.
Taking several federal conservation activities off budget is intended to ensure that the
revenues raised from outer continental shelf oil and gas activities will be dedicated to the7
preservation and conservation of other natural resources. Senator Barbara Boxer and
Representative George Miller have sponsored identical legislation in the Senate and
House, respectively, providing off-budget status to two existing and six new special funds
for conservation activities.8 S. 446 was referred to the Senate Committee on Energy and
Natural Resources on February 23, 1999, and H.R. 798 was referred to the House
Committees on Resources and on Agriculture on February 23, 1999. These bills or other
legislation authorizing conservation programs, H.R. 701 and S. 25, may be marked up and
reported by their respective committees before the end of the year. Also, Representative
Tom Campbell introduced H.R. 452 to provide off-budget treatment for the receipts and
disbursements of the Land and Water Conservation Fund. The bill was referred to the
Committees on the Budget and on Resources on February 2, 1999.
7For more information on conservation activity proposals, see CRS Report RL30133, Resource
Protection and Recreation: A Comparison of Bills to Increase Funding, by Jeffrey Zinn,
8The two existing funds are the Land and Water Conservation Fund and the Historic Preservation
Fund. The six new funds include the Farmland, Ranchland, Open Space, and Forestland Protection
Fund, the Federal and Indian Lands Restoration Fund, the Living Marine Resources Conservation
Fund, the Native Fish and Wildlife Conservation and Restoration Trust Fund, the Endangered and
Threatened Species Recovery Fund, and the Urban Park and Recreation Recovery Fund.