Budget Issues

Trust Funds in the Budget Gao ID: T-AIMD/RCED-99-110 March 9, 1999

This testimony discusses budget accounting and budget enforcement as they relate to trust funds and other special funds in the federal budget. GAO focuses on 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 the United States enters a projected era of unified budget surpluses; and (3) the potential implications of changes in the treatment of the aviation programs.

GAO noted that: (1) the unified budget was adopted in 1969 as a way of capturing all federal receipts and expenditures; (2) the federal budget consists of several types of funds: (a) the general fund; (b) special funds; (c) public enterprise funds; (d) intragovernmental funds; and (e) trust funds; (3) all of these except trust funds are considered to be federal funds; (4) 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; (5) if a trust/special fund collects more 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; (6) the Budget Enforcement Act (BEA) established a budgetary control regime that divided the budget into two major parts: (a) discretionary spending, defined as spending that stems from annual appropriations acts; and (b) direct spending, or spending that flows directly from authorizing legislation; (7) after nearly 30 years of unified budget deficits, current projections are for surpluses; (8) discretionary caps were first imposed by the BEA in 1990; (9) according to the Congressional Budget Office, discretionary spending in 1999 made up about one-third of total outlays; (10) under the caps, these outlays will remain almost unchanged in dollar terms between fiscal years 1999 and 2002; (11) Federal Aviation Administration (FAA) receives funding from both the Airport and Airway Trust Fund and from general fund appropriations; (12) the Airport and Airway Trust Fund is used almost entirely to support FAA activities; (13) the budgetary implications of creating a new separate spending category for aviation depends on the design of the category; (14) in the past, separate caps within the overall discretionary spending limit were designed to place firewalls between different areas of spending--regardless of whether funding was from the trust fund or the general fund; (15) however, if a separate category is designed as a guaranteed minimum funding level, there are additional issues; (16) 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 dollars; (17) providing guaranteed funding levels to any one activity in the budget protects that activity from competition with other areas for scarce resources; and (18) the design of any guarantee can have implications for other federal activities and for federal resources.

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