LEXIS-NEXIS® Congressional Universe-Document
LEXIS-NEXIS® Congressional
Copyright 1999
Federal News Service, Inc.
Federal News Service
MARCH 9, 1999, TUESDAY
SECTION: IN THE NEWS
LENGTH: 2926 words
HEADLINE: PREPARED STATEMENT OF
SUSAN J. IRVING
ASSOCIATE DIRECTOR, BUDGET ISSUES
ACCOUNTING AND INFORMATION MANAGEMENT DIVISION
UNITED STATES GENERAL ACCOUNTING OFFICE
BEFORE THE
HOUSE APPROPRIATIONS COMMITTEE
TRANSPORTATION SUBCOMMITTEE
SUBJECT - BUDGET ISSUES
TRUST FUNDS IN THE BUDGET
BODY:
Mr. Chairman, Members of the Subcommittee:
It is a pleasure to appear here today to talk about budget accounting and
budget enforcement as they relate to
trust funds and other special
funds in the budget. As requested, my statement today will discuss three areas: (1)
the structure of the federal budget---especially categorizations within the
unified budget, (2) the budget outlook, discretionary caps, and enforcement
situation as we enter a projected era of unified budget surpluses, and (3)
potential implications of changes in the treatment of the
aviation programs.
Budget Structure
The unified budget was adopted in 1969 as a way of capturing all federal
receipts and expenditures. This was seen as important to permit the federal
budget to be used as an instrument of economic/fiscal policy. In addition, if
the budget is to help the Congress and the President allocate federal
resources, it should cover all activities and
transactions that are federal in nature and not subject to the economic
disciplines of the marketplace. Removing something that is federal in nature
from the budget does not make it less a government activity. If relevant
activities of the budget are omitted, the budget presents an incomplete picture
of the true magnitude of the federal government's activities. Equally
important, the budget display needs to show distinctions between types of
federal programs and the information necessary for evaluating the budget year
and future years. Such a balance between a unified overview and sufficient
compositional information ensures that programs included in the budget are
subject to the kind of priority-setting and oversight deliberations the
Congress must make during the budget and appropriations debate.
As all of you know, the Congress provides
funds to agencies through budget accounts. These accounts vary in their orientation,
specificity, and size.1 A relatively few large accounts are associated with
three-quarters of budgetary resources, and the rest are comparatively quite
small. Accounts may be oriented to program, process, organization, or
object--and more than one orientation is likely to be found in a given agency.
For example, the Federal
Aviation Administration (FAA) has four major budget accounts covering funding for
airport grants, operations, capital improvements, and research and development.
The Congress has also recognized the variation among federal programs and
activities in how it provides funding to these activities. For example, because
the school year and the fiscal year do not match, the Congress generally
advance-funds education programs so that the school year begins with funding for the first
quarter in place. Some
funds expire in 1 year if not obligated; others are available for several years, and
some are permanently available for obligation.
What is a
Trust Fund? How Do
Trust Funds Fit Into the Federal Budget?
The federal budget consists of several types of
funds: the general
fund, special
funds, public enterprise
funds, intragovernmental
funds, and trust funds.2 All of these except
trust funds are considered to be
"federal
funds." All unified budget transactions fall within either of two
fund groups: (1) federal
funds and (2)
trust funds.
Although some budget summary tables show only 12 major
trust funds, in fiscal year 1997 there were 110
trust funds.3 These covered a wide range of purposes: from social insurance (social
security and medicare),
employee compensation (pensions and health benefits), insurance, natural
resources and environmental cleanup to transportation. Social Security is by
far the largest
trust fund, followed by federal employee retirement
funds (civilian and military) and the medicare
trust funds.
The term
"trust fund" as used in the federal budget is neither the same as a private
trust fund nor does it have unique characteristics within the federal budget. The manager
of a private
trust has a fiduciary obligation to the beneficiary and must manage the
trust's assets on behalf of that beneficiary according to the stipulations of the
trust. The manager cannot unilaterally alter the terms of that
trust. In contrast, the federal government both owns the assets of most
trust funds and can, through legislation, raise or lower the
fund's collections or payments, or alter the purposes of the
trust fund.4
Within the federal budget there is no substantive
difference between a
trust fund and a special
fund. Both are internal accounting devices used to track the collection and use of
funds earmarked for specific purposes. The only difference between a
"special"
fund and a
"trust fund" is the word
"trust" in the legislation establishing the account.
If a
trust/special
fund collects more in receipts than it spends in a year, its annual surplus adds to
the unified budget surplus--or reduces the unified deficit if it spends more
than it receives. For example, for fiscal year 1998, within the unified
budget's $70 billion surplus, a federal
funds deficit of $83 billion was offset by a Social Security
Trust Funds surplus of $99 billion and other
trust fund surpluses of $54 billion. Even these surplus figures, however,
can be misleading since a significant portion of
trust fund revenue comes from transfers within the budget. The largest of these general
fund transfers is interest credited to the
trust funds. Interest is credited to a
trust fund because under current law
trust funds
"lend" any annual cash surpluses to the general
fund.5 These surpluses are commingled with other revenues and used to finance other
governmental activities. While all of these general
fund transfers were instituted for a purpose--often to better allocate costs--the
fact remains that they are intragovernmental transfers. Without such transfers,
the
trust funds as a whole would run a deficit.
How Do
Trust Funds Fit Into the Budget Enforcement Regime?
The Budget Enforcement Act 6 (BEA) established a budgetary control regime that
divided the budget into two major parts: discretionary spending, defined as
spending that
stems from annual appropriations acts, and direct spending, or spending that
flows directly from authorizing legislation; this latter is often known as
mandatory. As all of you know, discretionary spending is controlled by annual
dollar limits (spending caps). Mandatory spending and receipts legislation are
controlled by a pay-as-you-go (PAYGO) requirement that legislation enacted
during a session of Congress be deficit neutral.
There is no single rule for budgetary control of
trust funds. Knowing that a given account has been designated a
trust fund does not tell you either whether spending is controlled through the
appropriations process or whether it is subject to any limitations.
Trust funds are classified as discretionary or mandatory depending on the nature of the
substantive legislation creating the
fund--i.e, depending on the nature of the activity funded by the
trust fund. For example, Medicare and employee pensions are
"direct spending," or
mandatory, programs. Outlays are solely a function of the design of the
program, such as eligibility requirements and benefit formulas. As a result,
under the BEA enforcement provisions, spending for these programs is subject to
the PAYGO rules.7 In contrast, spending for discretionary--i.e.,
appropriated--programs is governed by the spending caps regardless of whether
that spending flows from federal
funds or trust funds. Spending from discretionary
trust funds, such as the transportation
trust funds, often is controlled by obligation limits, which limit outlays.
As you know, when the Congress created the various transportation
trust funds, it dedicated
trust fund receipts to
trust fund purposes, but retained annual control over the timing of the expenditures.
Therefore, spending from these
trust funds is dependent on annual appropriations and has counted under the discretionary
caps.
Budget Outlook and the Discretionary Caps
After nearly 30 years of unified budget
deficits, current projections are for surpluses
"as far as the eye can see." Although many recent budget agreements (Gramm-Rudman-Hollings, the Budget
Enforcemet Act, and the Balanced Budget Agreement) were designed to achieve
this fiscal position, the BEA's enforcement regime does not end with the advent
of a surplus. Direct spending is still subject to the PAYGO rules, and
discretionary spending is still subject to specified dollar caps.8
According to the Congressional Budget Office (CBO), discretionary spending in
1999 made up about one-third of total outlays. Under the caps, these outlays
will remain almost unchanged in dollar terms between fears 1999 and 2002. Even
if discretionary spending grows with inflation between fiscal years 2002 and
2009, it will fall to 29 percent of total outlays.
Discretionary caps were first imposed
by the BEA in 1990. Their structure has varied. The matrix below shows the
current structure of the discretionary caps and its evolution. For most
categories, there are limits on both budget authority and outlays. However,
because spending from the transportation
trust funds is controlled by obligation limits, for the highway and mass transit
categories, there are only outlay caps.9
Table 1: Discretionary spending Categories by Fiscal Year
(NOTE: TABLE NOT TRANSMITTABLE)
Over the next few years, the limits on discretionary spending are very tight,
as shown in figure 1. The statutory caps are below the fiscal year 1999 freeze
level (the 1999 freeze line) and substantially below the fiscal year 1999 level
adjusted for inflation.
If the appropriations designated as emergency for fiscal year 1999 were to be
repeated as nonemergency spending this year, budget authority for fiscal
year 2000 would have to be cut by $26 billion below the fiscal year 1999
appropriated level. Even if those emergency appropriations from fiscal year
1999 are not repeated for fiscal year 2000, budget authority must be cut $10
billion below the fiscal year 1999 nominal level.
Figure 1: How Tight are the Budget Authority Caps?
(NOTE: FIGURE NOT TRANSMITTABLE)
In its outlook volume, CBO noted the outlay caps
"may be even harder to meet." Outlays are projected to rise by $21 billion between fiscal years 1998 and
1999. However, if the Congress froze appropriations at the fiscal year 1999
nominal dollar level, outlays in fiscal year 2000 would be $13 billion over the
outlay caps.
In summary then, the Congress and the President face a real challenge on the
discretionary side of the
budget this year. To comply with the current statutory caps, discretionary
spending must be cut from its fiscal year 1999 appropriated level: budget
authority by $10 billion and outlays by $13 billion, even assuming that none of
the emergency spending is continued.
Potential Implications of Changing Budget Treatment for
Aviation Programs
You asked me to discuss briefly the Airport and Airway
Trust Funds in this context. In our March 1995 report, we discussed the budgetary
treatment of transportation
trust funds.10 We noted that there is some tension between the collection of earmarked
revenues and the trade- offs the Congress must make about spending priorities.
Last year the Congress chose to make a change in the operations of the Highway
Trust Fund--both its highway account and its mass transit account. The major changes
were: (1) creation of separate outlay caps for highway and
mass transit and (2) specification of annual guaranteed minimum spending
levels--tied in the case of highways to Highway
Trust Fund receipts.
You asked me to discuss issues related to providing treatment for the Airport
and Airway
Trust Fund analogous to that for the Highway
Trust Fund. As background, I should note that obtaining a picture of
aviation financing is more complicated than obtaining a picture of highway financing.
Almost all highway programs are carried out by bureaus within the Department of
Transportation. In contrast, although the FAA is responsible for the greatest
share of
aviation-related activities, the Department of Defense (DOD) and the National
Aeronautics and Space Administration (NASA) also play major roles.11
In addition, most highway programs are funded by the Highway
Trust Fund, but
aviation-related activities receive far more general
fund support. NASA and DOD
aviation-related activities are funded in those agencies' appropriations and financed
through general
funds. The FAA receives funding both from the Airport and Airway
Trust Fund and from general
fund appropriations.
The Airport and Airway
Trust Fund is used almost entirely to support FAA activities. Figure 2 shows reported
trust fund receipts minus outlays for fiscal years 1980 through 1999. As this figure
shows, in recent years the outlays from the
trust fund have exceeded the receipts collected.12
Figure 2: Airport and Airway
Trust Fund, Tax Receipts Minus Outlays Source: As reported by the Department of
Transportation.
(NOTE: FIGURE NOT TRANSMITTABLE)
As noted, the FAA also receives a significant share of its funding from general
fund appropriations. Figure 3 shows the composition of FAA appropriations for
fiscal
years 1980 through 1999.
Figure 3: Composition of FAA Appropriations
(NOTE: FIGURE NOT TRANSMITTABLE)
Finally, you asked about the budgetary implications of creating a new separate
spending category for
aviation. In part, that depends on the design of the category. In the past, separate
caps within the overall discretionary spending limit were designed to place
firewalls between different areas of spending and to limit trade-offs to
programs within each category. For example, creation of separate defense and
nondefense caps did not guarantee minimum funding levels for either category,
but it did limit the extent to which one could be increased at the expense of
the other. The same would be true for a separate cap for
aviation spending--regardless of whether funding was from the
trust fund or the general
fund.
However, if a separate category is designed as a guaranteed
minimum funding level, there are additional issues. For example, if creation of
a separate spending category for
aviation resulted in increased spending on
aviation, and the remaining caps were not lowered to offset this, total discretionary
spending would increase, and the surplus would fall (or the deficit increase).
If
aviation spending were increased and this increase was carved out of the general
discretionary cap, then the remaining activities within that general category
would compete for fewer total dollars.
Conclusion In general, providing guaranteed funding levels to any one activity
in the budget protects that activity from competition with other areas for
scarce resources. The design of any guarantee can have implications for other
federal activities and for federal resources. Whether to provide such a
guarantee and to what activities is fundamentally a decision about priorities
that only the Congress and the President can make.
This concludes my
statement. My colleagues and I would be happy to answer any questions you or
your colleagues may have.
*****FOOTNOTES*****
1 Budget Account Structure: A Descriptive Overview (GAO/AIMD-95-179, September
18, 1995).
2 There are both revolving and nonrevolving
trust funds, but that difference is not relevant to this analysis.
3 This is based on the Congressional Research Service report Federal
Trust Funds: How Many, How Big, and What Are They For?, updated June 30, 1998.
4 The federal government manages some
trust funds in a fiduciary capacity, such as
trust funds owned by Indian tribes. These are not discussed in this testimony.
5 As part of the change in treatment of the Highway
Trust Fund in the Transportation Equity Act for the 21st Century (TEA-21) (P.L. 105-
178), interest is no longer
paid to the Highway
Trust Fund.
6 Balanced Budget and Emergency Deficit Control Act of 1985 as amended by the
Budget Enforcement Act of 1990 (BEA) as further amended by the Omnibus Budget
Reconciliation Act of 1993 and the Budget Enforcement Act of 1997.
7 Social Security has its own set of budget enforcement rules which protect its
balances and remove its transactions from the deficit/surplus estimates and
calculations made according to BEA.
8 CBO has opined that BEA enforcement applies regardless of whether or not
there is a deficit. OMB has noted that there is still an
"on budget" (budget less social security and postal service) deficit so the question is
moot.
9 Accounts in the highway category provide contract authority, which is
liquidated from the Highway
Trust Fund. Budget accounts for mass transit include both contract authority, liquidated
from the Highway
Trust
Fund, and authorizations of appropriations from the General
Fund of the Treasury. Contract authority is a form of budget authority that permits
obligations to be incurred in advance of appropriations.
10 Correspondence to Honorable Frank R. Wolf on Transportation
Trust Funds. GAO/AIMD-95-95R, March 15, 1995.
11 DOD provides air traffic control services to military and civil users. The
latest figures available from DOD indicated that it cost the department
approximately $680 million to provide services related to the National Airspace
System in fiscal year 1995. NASA's
aviation activities include
aviation research and in fiscal year 1999, the Congress appropriated $1.2 billion to
NASA for these activities.
12 The Airport and Airway
Trust Fund balance at the end of fiscal year 1997 was $6.4 billion.
END
LOAD-DATE: March 10, 1999