An Analysis of

President Reagan's Budget Revisions

for Fiscal Year 1982

Staff Working Paper

March 1981

Prepared at the Request of the

Committee on Appropriations

House of Representatives

NOTICE

TKere Should Be No Release

of This Document Until

•'. - 10 a.m. (E.S.t.)

Wednesday, March 25; 1981

CONGRESS OF THE UNITED STATES CONGRESSIONAL BUDGET OFFICE
AN ANALYSIS OF

PRESIDENT REAGAN'S BUDGET REVISIONS

FOR FISCAL YEAR 1982

The Congress of the United States

Congressional Budget Office

For sale by the Superintendent of Documents, U.S. Government Printing Office

Washington, D.C. 20402
NOTES

Unless otherwise indicated, all years referred to in this

report are fiscal years.

Details in the text and tables of this report may not add

to totals because of rounding.
CONGRESSIONAL BUDGET OFFICE Allot M RMin

U.S. CONGRESS Director

WASHINGTON, D.C. 20515

ERRATA SHEET

AN ANALYSIS OF PRESIDENT REAGAN'S BUDGET

REVISIONS FOR FISCAL YEAR 1982

Page 22; In Table 8, the percentage amounts in the column labeled

"Administration Proposal11 should read:

Correspondingly, the text on page xix (second paragraph)

and page 20 (second paragraph) should be changed. As

shown by the numbers above, under the Administration's

tax cut proposal, those with incomes above $100,000

would receive somewhat less in tax savings in calendar

year 1981 than their current share of tax payments, and

those, with incomes between $10,000 and $20,000 would

receive somewhat more.

Page A-A; The first line of the second full paragraph should read:

"The direct loan program imposes additional interest

costs of $200 million to $900 million annually on U.S.

citizens."

Page A-18: The last sentence in the third paragraph should read:

"Funding would be provided for treatment plants, but

not for collector sewers."

Page A-39: In the first full paragraph, the second and third

sentences—upon closer examination, CBO has determined

that the reference to the GAO estimates of administrative costs as a percent of the total costs were misconstrued and are not germane to the discussion.

In the second full paragraph, the end of the second

sentence should read:

 Mwhich constitute about 64

percent of the funds to be included in the block

grant."

Page A-42; The top line should read: "CBO estimates that this

proposal would save approximately $100 million in

fiscal year 1981 and $^00 million in fiscal year 1982."
PREFACE

An Analysis of President Reagan's Budget Revisions for Fiscal Year

1982 was prepared at the request of the House Committee on Appropriations

to update an earlier Congressional Budget Office (CBO) analysis of the 1982

budget submitted by President Carter in January. This report analyzes the

possible economic impact of President Reagan's budget proposals, examines

the major features of the President's revenue and spending proposals for

1982, and presents CBO reestimates of those proposals based on alternative

economic assumptions and on CBO's estimating methods and assumptions. It

briefly describes the federal credit budget, off-budget outlays, and the

federal debt. Finally, the report analyzes in some detail the major budget

increases proposed in national security programs and the proposed spending

reductions in other federal activities.

The report was prepared by the staff of all CBO divisions under the

supervision of William J. Beeman, James L. Blum, David S. C. Chu,

Nancy M. Gordon, Stanley L. Greigg, Raymond C. Scheppach, and James M.

Verdier. Robert L. Faherty, Patricia H. Johnston, Francis S. Pierce, and

Johanna Zacharias edited the manuscript. It was typed for publication by

the Budget Analysis and Natural Resources and Commerce Divisions.

Alice M. Rivlin

Director

March 1981

in

CONTENTS

Page

PREFACE iii

SUMMARY xiii

CHAPTER I. THE ECONOMIC OUTLOOK AND THE

ADMINISTRATION'S FISCAL POLICY . . 1

The Administration's Fiscal Policy ... . 2

The Administration's and the January

Budgets Compared 2

The CBO Baseline Projection 3

Estimates of the Impact of the

Administration's Budget Proposals—

Based on Historical Experience ... . 5

Administration and CBO Alternative

Projections Compared 6

Other Factors Influencing the Estimates .. . 12

Conclusion 13

CHAPTER II. REVENUE ESTIMATES AND TAX PROPOSALS . 15

Administration and CBO Estimates of

Revenues 15

Administration Revenue Proposals and

Other Options 17

Individual Income Tax Cuts 19

Business Tax Cuts 25

Tax Subsidies and Spending Cuts 30

CHAPTER III. SPENDING PROPOSALS AND REESTIMATES . 33

President Reagan's Budget Revisions ... . 34

CBO Spending Reestimates 44

Off-Budget Outlays and Federal Debt .. . 56

CHAPTER IV. THE CREDIT BUDGET 61

Congressional Action on the Credit Budget . . 62

Exemptions from Appropriation Limitations . . 64

Adjustments to the Credit Budget 64

The Revised Credit Budget by Function .. . 66
CONTENTS (CONTINUED)

CHAPTER V. MAJOR INCREASES IN NATIONAL

SECURITY PROGRAMS 73

Overview of the Administration's National

Defense Program 73

Military Personnel . 77

Military Retirement Pay 79

Operation and Maintenance 80

Procurement 82

Research and Development 87

Military Construction 88

Atomic Energy Defense Activities ... . 89

CHAPTER VI. OVERVIEW OF THE ADMINISTRATION'S

PROPOSED SPENDING REDUCTIONS . . 91

Human Resources 91

Transportation 96

Energy 98

Alternative Approaches to Reducing

Federal Spending 100

APPENDIX A. AN ANALYSIS OF THE MA3OR BUDGET

REDUCTIONS RECOMMENDED BY

THE ADMINISTRATION A-l

National Defense (Function 050)

Sale of Surplus Silver A-2

International Affairs (Function 150)

Eximbank Loan Program A-4

Energy (Function 270)

Rural Electrification Administration Loans

and Loan Guarantees A-6

Synthetic Fuels A-8

Solar Energy Development . . . . . . A-10

Fossil Energy Research and Development . A-12

Energy Conservation A-14

Energy Regulation A-16

Natural Resources and Environment (Function 300)

Municipal Waste Treatment Grants . . . A-18

VI
CONTENTS (CONTINUED)

APPENDIX A. (CONTINUED)

Agriculture (Function 350)

Farmers Home Administration A-20

Dairy Price Support Program A-22

Commerce and Housing Credit (Function 370)

Postal Service Subsidies A-24

Transportation (Function 400)

Federal Mass Transit Capital Grants . . . A-26

Federal Mass Transit Operating Subsidies . A-28

Federal Highway Construction Grants . . A-30

Amtrak Subsidies A-32

Conrail A-34

Community and Regional Development

(Function 450)

Economic Development Administration and

Regional Planning Commissions . . . A-36

Education, Training, Employment, and

Social Services (Function 500)

Elementary and Secondary Education

Programs (Block Grants) A-38

Student Assistance—Guaranteed

Student Loans . . . . . . . . A-41

Student Assistance—Pell Grants ... . A-44

Student Loan Marketing Association . . . A-47

CETA Public Service Employment . . . A-49

CETA Adult and Youth Training Programs . A-51

Health (Function 550)

Health and Social Services Programs

(Block Grants) A-53

Medicaid A-56

Medicare A-58

Income Security (Function 600)

Social Security Benefits for Students

Aged 18 through 21 A-60

Social Security Minimum Benefits . . . . A-62

Civil Service Retirement A-64

Unemployment Insurance Extended Benefits . A-66

Trade Adjustment Assistance for Workers . A-68

vii
CONTENTS (CONTINUED)

APPENDIX A. (CONTINUED)

Income Security (Function 600—Continued)

Subsidized Housing A-70

Aid to Families with Dependent Children . A-72

Child Nutrition A-75

Food Stamps A-77

Administration of Justice (Function 750)

Legal Services Corporation A-79

All Functions

Federal Pay Comparability Standard:

Nondefense Agencies A-81

APPENDIX B. BUDGET AUTHORITY AND OUTLAYS

BY FUNCTION, FISCAL YEARS 1980-1982 . B-l

vin
TABLES

TABLE 1.

TABLE 2.

TABLE 3.

TABLE 4.

TABLE 5.

TABLE 6.

ADMINISTRATION'S BUDGET TOTALS . . .

A COMPARISON OF ECONOMIC ASSUMPTIONS

TAX REDUCTIONS IMPLICIT IN THE CBO

BASELINE PROJECTION

ADMINISTRATION AND CBO ESTIMATES

OF REVISED REVENUE REQUEST

ADMINISTRATION LEGISLATIVE AND ADMINISTRATIVE PROPOSALS FOR REVENUES

ADMINISTRATION INCOME TAX CUT COMPARED TO

INFLATION-INDUCED INCOME TAX INCREASES

AND SOCIAL SECURITY TAX INCREASES . . .

EFFECTS OF PROPOSED ADMINISTRATION

INCOME TAX RATE CUT BY INCOME CLASS

1

4

5

16

18

19

21

TABLE 7.

TABLE 8. DISTRIBUTION BY INCOME CLASS OF TOTAL

TAX SAVING FROM PERSONAL

TAX CUT OPTIONS 22

TABLE 9. REVENUE EFFECTS OF INDIVIDUAL AND BUSINESS

TAX CUT OPTIONS 26

TABLE 10. FEDERAL SPENDING TRENDS 33

TABLE 11. COMPARISON OF JANUARY AND MARCH SPENDING

PROPOSALS FOR FISCAL YEARS 1981 AND 1982 . 34

TABLE 12. MARCH BUDGET REVISIONS FOR

FISCAL YEARS 1981-1984 35

TABLE 13. COMPARISON OF JANUARY AND MARCH

ECONOMIC ASSUMPTIONS USED FOR

ADMINISTRATION SPENDING ESTIMATES .. . 36

TABLE 14. MAJOR ADMINISTRATION OUTLAY REESTIMATES,

FISCAL YEARS 1981 AND 1982 37

TABLE 15. PROGRAMMATIC INCREASES TO THE

JANUARY BUDGET 39

IX
TABLES (CONTINUED)

TABLE 16. PROJECTED OUTLAYS FOR SOCIAL SECURITY

NET PROGRAMS 41

TABLE 17. COMPOSITION OF THE ADMINISTRATION'S BUDGET

FOR FISCAL YEARS 1981-1984 42

TABLE 18. PROGRAMMATIC DECREASES TO THE

JANUARY BUDGET 43

TABLE 19. COMPARISON OF ADMINISTRATION AND

CBO ECONOMIC ASSUMPTIONS FOR

SPENDING ESTIMATES 45

TABLE 20. CBO OUTLAY REESTIMATES BASED ON

DIFFERENT ECONOMIC ASSUMPTIONS .. . 47

TABLE 21. CBO OUTLAY REESTIMATES BASED ON

OTHER ESTIMATING DIFFERENCES ... . 49

TABLE 22. OUTLAYS OF OFF-BUDGET FEDERAL ENTITIES . . 56

TABLE 23. DISTRIBUTION OF FEDERAL FINANCING BANK

OUTLAYS, NET 58

TABLE 24. ESTIMATES OF THE LEVEL OF FEDERAL DEBT

SUBJECT TO STATUTORY LIMIT 59

TABLE 25. THE ADMINISTRATION'S REVISED CREDIT

BUDGET TOTALS 61

TABLE 26. CREDIT BUDGET FOR 1981: JANUARY AND

MARCH REVISED ESTIMATES COMPARED

TO SECOND BUDGET RESOLUTION 63

TABLE 27. CREDIT BUDGET LIMITATIONS AND EXEMPTIONS . 65

TABLE 28. ADJUSTMENTS TO THE CREDIT BUDGET ... . 65

TABLE 29. THE ADMINISTRATION'S CREDIT BUDGET REVISIONS

FOR NEW DIRECT LOAN OBLIGATIONS .. . 67

TABLE 30. THE ADMINISTRATION'S CREDIT BUDGET REVISIONS

FOR NEW LOAN GUARANTEE COMMITMENTS . 70
TABLES (CONTINUED)

TABLE 31. COMPARISON OF INFLATION INCREASES OF

SELECTED COMPONENTS OF THE DEFENSE

DEPARTMENT BUDGET UNDER CBO AND

ADMINISTRATION JANUARY AND MARCH

ECONOMIC ASSUMPTIONS 75

TABLE 32. SUMMARY OF BUDGET AUTHORITY AND

OUTLAYS FOR MAJOR DEFENSE

APPROPRIATION TITLES 76

TABLE 33. COMPARISON OF PROCUREMENT BUDGET

AUTHORITY FOR FISCAL YEARS 1980-1982 . . 82

TABLE 34. COMPARISON OF AIRCRAFT PROGRAMS FOR

FISCAL YEARS 1981 AND 1982 83

TABLE 35. COMPARISON OF NAVY SHIP PROGRAMS FOR

FISCAL YEARS 1981 AND 1982 84

TABLE 36. COMPARISON OF MAJOR ARMY PROGRAMS

FOR 1981 AND 1982 86

TABLE 37. COMPARISON OF READINESS PROGRAMS FOR

FISCAL YEARS 1980-1982 87

TABLE 38. COMPARISON OF ADMINISTRATION AND CBO

ESTIMATES OF POTENTIAL REVENUES FROM

TRANSPORTATION USER CHARGES ... . 103

XI

SUMMARY

The President's budget revisions propose a dramatic change in

government policies designed to slow inflation, encourage saving and

investment, stimulate economic growth, and strengthen national defense.

Toward these ends the President proposes to reduce sharply the growth of

federal budget outlays over the next five years, cut personal taxes over the

next three years, reduce business taxes through accelerated depreciation,

and increase significantly the relative share of the budget allocated to

national defense.

The Administration aims at achieving a balanced budget by 1984. It

proposes to cut spending and taxes in 1981-1984 substantially below the

levels called for in the January budget submitted by the previous

Administration (see Summary Table 1). The cuts would be moderate in 1981

and increase in subsequent years. The result would be to hold the growth of

federal outlays during the next three years to less than 6 percent annually,

compared to an average growth of about 13 percent per year since 1977.

This would reduce the size of the federal budget relative to the total

economy from 23.0 percent of Gross National Product (GNP) in 1981 to

19.3 percent in 1984 (see Summary Table 2). At the same time, the tax cuts

proposed by the President would lower federal revenues relative to GNP

from 21.1 percent in 1981 to 19.3 percent in 1984.

SUMMARY TABLE 1. FEDERAL BUDGET TOTALS FOR FISCAL YEARS

1980-1984 (In billions of dollars)

Actual

1980 1981

Estimates

1982 1983 1984

Revenues

January budget

March revisions

Outlays

January budget

March revisions

520.0

520.0

579.6

579.6

607.5

600.3

662.7

655.2

711.8

650.3

739.3

695.3

809.2

709.1

817.3

732.0

922.3

770.7

890.3

770.2

Budget Surplus or

Deficit (-)

January budget

March revisions

-59.6

-59.6

-55.2

-54.9

-27.5

-45.0

-8.0

-22.8

32.0

0.5

XHl
The Administration also proposes to increase the share of defense in

the budget from 23.4 percent in 1980 to 33.2 percent in 1984. Defense

spending would grow by an average of 17.1 percent annually between 1980

and 1984, while nondefense spending would be held to an increase of about

1 percent per year after 1981. In real terms, adjusting for inflation, defense

spending would grow by an average of over 8 percent per year between 1980

and 1984, but nondefense spending would fall to a level 15 percent lower in

1984 than in 1980.

SUMMARY TABLE 2. FEDERAL BUDGET TRENDS (By fiscal year)

Actual

1980 1981

Administration Estimate

1982 1983 1984

Percentage Growth

Revenues 11.6 15.4 8.3 9.0 8.7

Outlays 17.4 13.0 6.1 5.3 5.2

Defense 18.2 19.3 16.5 19.7 13.1

Nondefense 17.2 11.1 2.7 -0.1 1.7

Percent of GNP

Revenues 20.3 21.1 20.4 19.7 19.3

Outlays 22.6 23.0 21.8 20.3 19.3

Defense 5.3 5.7 5.9 6.3 6.4

Nondefense 17.3 17.3 15.9 14.1 12.9

Relative Composition of

Budget Outlays (percent)

Defense 23.4 24.7 27.2 30.9 33.2

Nondefense 76.6 75.3 72.8 69.1 66.8

ADMINISTRATIONS BUDGET PROPOSALS

The President's budget revisions contain four major changes from

current policies:

o A 30 percent reduction in marginal tax rates on personal income,

phased in over three years;

o Much faster tax depreciation of capital expenditures;

xiv
o A large cutback in nondefense spending; and

o A substantial increase in defense spending.

Tax Changes

t

The President proposes to cut individual income taxes by 10 percent a

year for three years, starting on July 1, 1981. This proposal is essentially

the same as the Roth-Kemp bill, but without its indexing for inflation after

the third year. The President's proposed income tax cut would reduce

federal revenues by $44 billion in fiscal year 1982, and by $118 billion in

1984. While large by historical standards, the proposed tax cut

approximately offsets the higher taxes resulting from the effects of

inflation and from the past-1980 increases in Social Security taxes that were

enacted in 1977.

The Administration's proposal to increase business depreciation

allowances retroactive to January 1, 1981, would reduce tax revenues by

$10 billion in 1982 and by $30 billion in 1984. The accelerated depreciation

proposal is a slightly modified version of the 10-5-3 plan initiated by

Congressmen Jones and Conable. It also includes provisions for real estate

depreciation similar to those approved last year by the Senate Committee

on Finance in its 2-4-7-10 depreciation proposal. The revenue losses from

the President's proposal would be relatively low at first, because the

changes would be phased in over five years, but the losses of federal revenue

would then rise to an annual level of about $85 billion by 1989.

Spending Changes

The Administration is proposing program decreases that would lower

projected budget outlays for 1981-1984 by about $250 billion from the levels

contained in the January budget. Almost 30 percent—$74 billion—of the

program reductions, however, are yet to be identified.

The Administration exempted selected benefit payments, defined as

the "social safety net," from any major spending reductions. These include

basic Social Security benefits for the elderly, Medicare, railroad retirement,

Supplemental Security Income, basic unemployment insurance, and certain

veterans1 benefits. The budget outlays for these programs are projected to

increase by 50 percent between 1980 and 1984, and would constitute about

40 percent of total spending by 1984.

With defense spending also increasing by an even faster rate (by

88 percent between 1980 and 1984), and net interest costs remaining about

the same, the brunt of the spending reductions falls upon the rest of the

budget. About one-half of the proposed reductions that are identified in the

xv
March budget revisions are for grants to state and local governments and for

benefit payments to individuals. The major cuts in grant programs include

the elimination of public service employment programs together with a

consolidation and reduction in funding levels of various health and social

services programs, state and local education grant programs, and youth

training and employment programs. Other grants for energy, environment,

transportation, and community development would also be cut.

Reductions are also proposed in several benefit payment programs that

are administered by state and local governments, such as Medicaid, child

nutrition programs, and assistance payments (AFDC). Other benefit

payments that are directly administered by the federal government would

also be cut, including certain Social Security benefits (the $122 monthly

minimum payment, student benefits, disability benefits, and certain death

benefits), food stamps, trade adjustment benefits, and other unemployment

benefits.

Somewhat more than 10 percent of the spending reductions from the

January budget represent withdrawal of the previous Administration's

proposals for a new youth education and training initiative, for a refundable

investment tax credit, and for an 8 percent Social Security tax credit. The

remaining reductions from the January budget include various energy,

transportation, agriculture, and other subsidies and aid to business and

industry; greater levels of offsetting receipts to be derived from stockpile

sales and mineral leasing; and various administrative reductions, personnel

adjustments, pay revisions, and other changes in government services. In

addition, the President has endorsed a number of spending cuts proposed by

the previous Administration in the January budget. These include annual

rather than semiannual cost-of-living adjustments for federal employee

retirement benefits, annual rather than semiannual adjustments for dairy

price supports, and reductions for impact aid and other education programs.

The Administration has proposed substantial added funds for defense,

not only increasing the amounts requested in the appropriation supplemental

for fiscal year 1981, but asking for substantially more spending authority in

1982 than proposed by the previous Administration. Most of the added funds

are for procurement programs for all of the military services, almost

entirely for weapons already in production. In addition, the Administration

proposes a 5.3 percent pay raise for all military personnel in July 1981 in

addition to the 9.1 percent October 1981 pay raise assumed in the January

budget. Large increases in defense funds are also projected for 1983 and

1984, but few details have been provided about how these additional funds

would be used.

xvi
ECONOMIC IMPACT OF THE ADMINISTRATION'S PROPOSALS

The economic assumptions that underlie the President's March revisions

are more optimistic than those used for the January budget. The

differences in 1981 are slight, but after that they become substantial. The

Administration's scenario shows real economic growth averaging

0.8 percentage points higher over the 1982-1986 period than does the

January budget, and inflation averaging 1.5 percentage points lower.

The Congressional Budget Office (CBO) has estimated the economic

effects of the Administration's policies in the light of historical experience.

Estimates of the economy, even without major policy changes, cannot be

projected with a high degree of reliability, and the effects of policy changes

are subject to even more uncertainty. Thus, the CBO estimates of the

economic effects of the Administration's budget proposals are subject to a

large margin of error. These projections, which are shown as the "CBO

Alternative" in Summary Table 3, show generally higher inflation and

unemployment and less real economic growth than the Administration's over

the 1981-1984 period.

There are four possible explanations of why the CBO economic

projections based on historical experience may be more pessimistic than the

Administration's projection.

o The economic baselines may differ. The Administration has not

provided the Congress with its assessment of how the economy

would behave absent its proposed fiscal policy changes. It may be

more optimistic in its assumptions about world oil prices, weather,

international economic relations, and so on, than is the CBO.

o The Administration's fiscal policies, especially the tax cuts, could

have a more favorable effect on economic growth and inflation than

historical experience suggests. Such an effect would come largely

from a sharper increase in labor supply and/or a larger increase in

saving and investment than has occurred in the past.

o The monetary policy assumed in CBO's alternative projection differs

from that of the Administration's scenario. In addition, the Administration assumes a much quicker impact of tight money on inflation

than indicated by past experience.

o The Administration is assuming substantial changes in government

regulations. CBO was unable to estimate their economic impact

since they have not yet been specified.

xvn

75-743 0-81- 2
SUMMARY TABLE 3. A COMPARISON OF ECONOMIC ASSUMPTIONS (By

calendar year)

Economic Variable 1981 1982 1983 1984 1985 1986

GNP (percent change, year over year)

January Budget

Administration

CBO Alternative a/

Real GNP (percent change,

year over year)

January Budget

Administration

CBO Alternative a/

GNP Deflator (percent change,

year over year)

January Budget

Administration

CBO Alternative a/

CPI (percent change, year over year)

January Budget

Administration

CBO Alternative a/

Unemployment Rate (percent,

annual average)

January Budget

Administration

CBO Alternative a/

91-Day Treasury Bills (percent,

annual average)

January Budget

Administration

CBO Alternative a/

11.*

11.1

11.8

0.9

1.1

1.3

10.5

9.9

10.3

12.5

11.1

11.3

7.8

7.8

7.8

13.5

11.1

12.6

13.1

12.8

11.9

3.5

4.2

2.5

9.3

8.3

9.2

10.3

8.3

9.5

7.5

7.2

7.9

11.0

8.9

13.7

12.3

12.4

11.5

3.5

5.0

2.7

8.5

7.0

8.6

8.7

6.2

8.9

7.1

6.6

7.8

9.*

7.8

11.5

11.8

10.8

11.*

3.7

*.5

3.0

7.8

6.0

8.1

7.7

5.5

8.2

6.7

6.*

7.7

8.5

7.0

10.2

11.0

9.8

11.7

3.7

*.2

3.8

7.0

5.*

7.5

7.0

*.7

7.7

6.3

6.0

7.5

7.7

6.0

9.7

10.2

9.3

10.9

3.7

*.2

3.7

6.3

*.9

7.0

6.3

*.2

7.1

6.0

5.6

7.2

6.8

5.6

9.3

a/ Based on the Administration's budget assumptions, derived by removing from

the current policy baseline all tax changes not already legislated, and then

incorporating the effects of the Administration's proposals.

NOTE: These projections were prepared using the Commerce Department's preliminary estimates of data for 1980.

XVlll
On the other hand, there are at least three factors that could make

the next five years turn out to be even worse than historical experience

would suggest.

o World commodity prices--especially for oil and food—may rise more

rapidly than assumed. Poor weather, political unrest in the Middle

East, or other adverse events could push inflation higher than

projected.

o The CBO estimates make no allowance for a variety of secondary

effects that might result from the proposed spending cuts, such as

an increase in state and local taxes to offset lost federal funds, or

increased claims on welfare entitlement programs by persons losing

other benefits under the spending cuts.

o CBO has made no allowance for the possibility that phasing in the

Administration's accelerated depreciation proposal may initially

result in some postponement of investment as businesses wait for

the arrival of larger tax benefits.

THE ADMINISTRATION'S TAX PROPOSAL

The cuts in marginal income tax rates over three years as proposed by

the Administration should result in some increase in incentives to save and

to work and reduce some of the distortions in investment that result from

very high marginal tax rates. The tax savings for different income groups

under the Administration's proposal are roughly proportional to their tax

payments under present law. Taxpayers with incomes over $100,000,

however, do receive a somewhat larger share of the total savings than their

share of current payments, while those with incomes between $10,000 and

$20,000 receive somewhat less. Increases in the standard deduction,

personal exemption, and other provisions that provide greater tax savings to

lower-income taxpayers than rate cuts could be used to modify the

distribution of the tax cut.

The Administration's depreciation reform proposal is intended to

stimulate capital formation and long-term productivity growth. As proposed, the program would reduce tax revenues by approximately $10 billion

in fiscal year 1982 but increase them to about $85 billion by 1989. If the

Congress wanted to scale down the future-year revenue losses from

depreciation reform, a provision similar to the 2-4-7-10 plan approved last

year by the Senate Committee on Finance is one option. The revenue loss

from that proposal would be about $20 billion by fiscal year 1986 compared

to $50 to $60 billion from the Administration's proposal. The business share

xix
of the tax could also be expanded in order to provide more stimulus to

capital investment and productivity. Evidence suggests that corporations

save more than 50 percent of increases in their after-tax income, much

more than the percentage saved by individuals. The business share of the

cut could be increased by putting the depreciation changes into effect

immediately rather than phasing them in, by adding a cut in the top 46

percent corporate tax rate, or making the 10 percent investment tax credit

partially refundable.

CBO BUDGET REESTIMATES

Inflation, unemployment, and other levels of economic activity have

major effects on federal revenues and outlays. Although the differences

between the Administration and CBO economic projections are within the

range of forecasting error, the more pessimistic CBO projection implies

sizable additional spending for indexed benefit payments, unemployment

compensation, and net interest costs. In addition, use of CBOfs spending

rates and programmatic assumptions would also add significant amounts to

the Administration's spending estimates. CBOfs repricing of the March

budget indicates that, if all of the Administration's spending proposals were

approved by the Congress, outlays could be over $6 billion higher in 1981,

over $25 billion higher in 1982, and $45-$50 billion higher in 1984 than

projected by the Administration.

More than half of the differences in outlay estimates can be attributed

to differences in the economic assumptions used for making the budget

estimates. In the CBO projection, higher interest rates are estimated to add

about $8 billion to 1982 outlays and over $12 billion to projected outlays in

1984 for net interest costs (see Summary Table 4). The effects of higher

projected inflation would add about $1 billion to 1982 outlays for Social

Security and other indexed benefit payments, and $9 billion by 1984. Higher

inflation would also mean higher prices paid by hospitals for food, fuel,

equipment, and other supplies, which results in higher Medicare outlays.

Higher inflation would also affect Medicaid outlays, since the Administration proposes to limit federal Medicaid expenditures after 1982 by the

increase in the GNP deflator. As a result, CBO estimates that Medicare and

Medicaid outlays would be $1.6 billion higher by 1984 than projected by the

Administration. CBO?s projection of higher oil prices would also add an

estimated $1.4 billion to defense fuel costs in 1982 and $3.4 billion by 1984.

Higher unemployment would also add about $2 billion to 1982 outlays

for unemployment compensation, and $6 billion by 1984. Higher

unemployment, inflation, and interest rates would also raise federal outlays

for food stamps, assistance payments, and interest costs for the guaranteed

student loan program by over $1 billion in 1982 and almost $3 billion by

1984.

xx
SUMMARY TABLE 4. CBO BUDGET OUTLAY REESTIMATES OF ADMINISTRATION SPENDING PROPOSALS BASED ON

ALTERNATIVE ECONOMIC ASSUMPTIONS AND

OTHER FACTORS (By fiscal year, in billions of

dollars)

1981 1982 1983 1984

Alternative Economic Assumptions

Net interest 1.2 8.1 13.3 12.5

Social Security and other

indexed benefit payments 0.2 0.9 3.0 9.3

Medicare and Medicaid — 0.1 0.7 1.6

Defense fuel costs 0.3 1.4 2.4 3.4

Unemployment compensation -0.7 1.9 4.6 6.0

Other programs 0.2 1.1 2.4 2.8

Subtotal 1.1 13.5 26.3 35.6

Alternative Programmatic Assumptions,

Spending Rates, and Other Factors

Defense programs 0.5 5.1 2.1 7.3

Farm price supports 1.6 0.8 1.0 0.7

Social Security and other

income security programs -0.1 1.8 2.6 2.7

OCS rents and royalties 0.9 -0.3 -1.5 -2.9

Other programs 2.5 5.3 3.5 4.2

Subtotal 5.3 12.8 7.6 12.0

Total Reestimates 6.5 26.3 33.9 47.6

CBO also estimates that 1982 defense purchases are underfunded by

$6.7 billion in the Administration's budget. As a result of higher inflation

assumptions for defense purchases than those used by the Administration,

CBO estimates that an additional $1.6 billion in new budget authority would

be required for projected fuel consumption, $2.7 billion for full funding of

proposed weapons purchases, and $2.4 billion for defense supplies and other

purchases.

In addition to the differences in economic assumptions discussed

above, CBO in a number of instances makes different programmatic

assumptions, and uses different spending rates, than those of the

xxi
Administration. CBO bases its assumed spending patterns on analyses of

historical outlay trends and careful monitoring of actual outlays as they are

reported monthly by the Treasury Department. Similarly, CBO's

programmatic assumptions are based on its own analyses of trends in the

growth of benefit populations and the utilization of federal benefits, and

other factors. As shown in Summary Table 4, the use of these different

spending rate and programmatic assumptions result in rather sizable

reestimates of the Administration's projected outlays.

The largest CBO reestimate of Administration outlay projections

resulting from the use of different spending patterns is for defense

programs. CBO estimates that 1982 defense outlays will be about $5 billion

higher than projected by the Administration, primarily because of higher

spending from prior-year obligations and contracts for procurement of

weapons. CBO also projects higher defense outlays in 1984 using historical

patterns of spending in relation to increases in budget authority.

CBO also projects higher spending for farm price supports, Social

Security and other benefit payments, and higher rents and royalties on the

Outer Continental Shelf. This results from using different programmatic

assumptions about farm production, the growth in benefit populations, and

the level of royalty payments and lease sales.

On the revenue side of the budget, the differences between the twp

projections are slight. CBO's projection of lower real growth through 1984

is offset by higher inflation, so that CBOfs projection of nominal incomes is

very close to the Administration's.

The combined effects of CBO!s outlay and revenue reestimates would

add $8 billion to the Administration's projected budget deficit for fiscal

year 1981 and $22 billion to the 1982 deficit. They would also result in a

projected budget deficit of almost $50 billion in 1984 instead of a small

surplus (see Summary Table 5).

PROGRAMMATIC IMPACTS OF THE ADMINISTRATION'S BUDGET

REDUCTIONS

Almost all of the reductions focus on that portion of the budget that

remains after expenditures for defense, the social safety net, and interest

are excluded. This portion, which represents approximately 30 percent of

the budget, consists mainly of programs in the fields of education,

employment and training, food, nutrition, health, social services, energy,

and transportation. Approximately one-third of the budget reductions for

these programs are in grants to state and local governments. The reductions

XXil
SUMMARY TABLE 5. CBO ESTIMATES OF BUDGET TOTALS BASED ON

ADMINISTRATION TAX AND SPENDING PROPOSALS (By fiscal year, in billions of dollars)

1981 1982 1983 1984

Revenues

Administration 600 650 709 771

CBO 599 654 707 769

Outlays

Administration 655 695 732 770

CBO 662 721 766 818

Surplus or Deficit (-)

Administration -55 -45 -23 1

CBO -63 -67 -59 -49

are to be made by tightening eligibility criteria, eliminating and reducing

some programs, and consolidating outlays for others into block grants to

state and local authorities.

An effort is being made to redesign some programs so as not to

jeopardize the "truly needy." The proposals affecting child nutrition, food

stamps, and postsecondary student assistance are illustrative of this

approach. Reductions in Aid to Families with Dependent Children (AFDC),

housing assistance, Medicaid, and public service employment (PSE) would,

however, fall more heavily on the poor. Although in general the impacts

may not be large, some people may be affected by more than one program

cutback, raising the possibility that some would experience substantial

reductions in their total benefits. For example, a parent of two children

with relatively high work-related expenses could experience cuts in AFDC,

food stamps, and child nutrition benefits; together they could reduce the

family's disposable income by 10 to 25 percent.

The interrelations between programs may result in a number of

secondary and offsetting budget effects from the proposed cuts. For

example, eliminating PSE jobs would increase spending for public assistance

and food stamps while decreasing revenues from Social Security payroll

XXill
taxes and federal income taxes. Preliminary estimates indicate that federal

spending for public assistance and food stamps might increase by 3 to

5 percent of total PSE costs while federal taxes might decrease by 6 to

10 percent of total PSE cost.

The transportation budget reductions are primarily in the area of state

and local operating grants and capital grants for transit and highways, and

reductions in federal programs such as Amtrak and Conrail that are not

cost-effective. Although many of the cuts in federal funding would be

offset by higher fees or contributions from state and local governments,

some reductions in service are likely. This would probably be the case for

all passenger rail service, for rail freight service in the Northeast, and for

small-town transit services. Relatively few users would be severely

disadvantaged; the most severe impacts would be felt by firms forced to

relocate or to pay more for transportation.

The Congress may wish to consider additional or different spending

cuts. Some options covered in this report include changing the way benefits

from entitlement programs are indexed for inflation, providing incentives to

states for hospital rate setting, and increasing transportation user fees.

Others include private financing of the Strategic Petroleum Reserve,

eliminating or reducing the breeder reactor program, and eliminating

maritime industry subsidies and agriculture deficiency payments.

xxiv
CHAPTER I. THE ECONOMIC OUTLOOK AND THE ADMINISTRATION'S FISCAL POLICY

The Administration has proposed a dramatic change in government

policies designed to slow inflation, encourage saving and investment, and

stimulate economic growth. The Administration's fiscal policy consists of a

sharp reduction in the growth of federal outlays beginning in 1982 and

continuing for the next four years, together with large federal tax cuts over

the next several years. The budget estimates (Table 1) show a balanced

budget by 1984.

TABLE 1. ADMINISTRATION'S BUDGET TOTALS (By fiscal year, in

billions of dollars)

Actual

1980

1981 1982 1983 1984

Revenues

Target Outlay Ceiling

Target Surplus or Deficit (-)

Percent of GNP

Revenues

Target outlay ceiling

Percent Growth

520.0 600.3

579.6 655.2

-59.6 -54.9

20.3

22.6

21.1

23.0

650.3

695.3

-45.0

20.4

21.8

709.1 770.7

732.0 770.2

-22.8 0.5

19.

20,

19.

19,

Revenues

Outlays

11.6

17.4

15.4

13.0

8.3

6.1

9.0

5.3

8.7

5.2

Assuming enactment of the Administration's program, attainment of

the fiscal and economic objectives depends to a large degree on the reaction

of the economy. Estimates of the economic effect of policy changes are

always difficult to make. The course of the economy, even without policy

changes, cannot be predicted with a high degree of reliability, and the

effects of policy changes are subject to even more uncertainty. Forecasting

the effects at this time is particularly difficult for at least two reasons:
o The unusual economic conditions we are now experiencing--a

sustained high level of inflation together with high unemployment,

relatively low capacity utilization, and record high interest

rates--have raised some questions about using historical experience as a guide to the future; and

o The policy changes proposed by the Administration, particularly

the multiyear cut in personal income taxes, are unusually large.

Hence, the estimates presented below are subject to a large margin of error.

THE ADMINISTRATION'S FISCAL POLICY

The Administration's proposals involve a shift in federal priorities

from nondefense to defense spending and from public allocation of resources

to increased private allocation. The spending proposals include:

o A sharp increase in defense spending, averaging about 9 percent

per year in real terms during the 1980-1986 period; and

o Large reductions in nondefense spending, building from about

$48 billion in fiscal year 1982 to $138 billion in 1984, relative to

the January spending proposals. The spending cuts are mostly

concentrated in grants to state and local governments and in

transfer programs.

Individuals and businesses would receive substantial tax cuts. Specifically,

the Administration's major tax proposals are:

o For individual income taxes, rate cuts of 10 percent in July 1981,

July 1982, and July 1983; and

o For business, much faster tax depreciation of capital and some

liberalization of the investment tax credit. The depreciation

proposal is similar to the well-known "10-5-3" proposal (with

somewhat longer depreciation lives for structures). The first

phase of the business tax cuts would be retroactive to January 1,

1981, followed by additional phases in 1982 through 1985.

THE ADMINISTRATION'S AND THE JANUARY BUDGETS COMPARED

In comparison to the January budget, the Administration's budget

recommends much slower growth in outlays in coming years, greater
emphasis on defense spending, larger tax reductions, and a larger deficit in

1982. On the outlay side, the Administration's recommendation is

$7.5 billion lower in fiscal year 1981, $44.0 billion lower in 1982, and

$120.1 billion lower in 1984. On the receipts side, the Administration's

recommendations are $7.2 billion lower in 1981, $61.5 billion lower in 1982,

and $151.6 billion lower in 1984. The revised budget calls for a slower

decline in the deficit--to $45.0 billion for 1982, compared with $27.5 billion

in the January budget. (A detailed comparison of the January budget and

the Administration's budget is provided in Chapter HI.)

The economic assumptions that underly the Administration's budget

are more optimistic than those underlying the January budget (see Table 2).

The differences in 1981 are slight, but after that they become substantial.

The Administration's scenario shows real growth averaging 0.8 percentage

points per year higher over the 1982-1986 period, and inflation averaging

1.5 percentage points lower.

THE CBO BASELINE PROJECTION

Estimates of the performance of the economy under alternative

policy options require an assumption about the baseline economic conditions--that is, the economic path that would be followed without the

specific policy changes being studied. The baseline used here is the CBO

baseline projection. For 1981 and 1982, that projection is a forecast of

economic activity assuming the continuation of the tax and spending policies

of the Second Concurrent Resolution on the Budget for Fiscal Year 1981.

The baseline projection includes no spending cuts below current policies.

The tax reductions in the resolution were assumed to include a 10 percent

personal income tax cut effective July 1, 1981, and accelerated depreciation

(the Senate Finance Committee proposal) retroactive to January 1, 1981.

For 1983 through 1986, the CBO projection assumes a moderate

growth of real nonfederal spending and productive capacity, which on the

basis of postwar experience implies tax cuts sufficient to prevent a rise in

effective tax rates--that is, tax increases resulting from the interaction of

the progressive tax system and rising nominal incomes. These additional tax

reductions accumulate to roughly $110 billion by 1986 (see Table 3).

Without such adjustments, the rising tax burden would slow economic

activity substantially.
TABLE 2. A COMPARISON OF ECONOMIC ASSUMPTIONS (By calendar year)

Economic Variable 1981 1982 1983 1984 1985 1986

GNP (percent change, year over year)

Administration

January Budget

CBO Baseline

CBO Alternative a/

Real GNP (percent change,

year over year)

Administration

January Budget

CBO Baseline

CBO Alternative a/

GNP Deflator (percent change,

year over year)

Administration

January Budget

CBO Baseline

CBO Alternative a/

CPI (percent change, year over year)

Administration

January Budget

CBO Baseline

CBO Alternative a/

Unemployment Rate (percent,

annual average)

Administration

January Budget

CBO Baseline

CBO Alternative a/

91-Day Treasury Bills (percent,

annual average)

Administration

January Budget

CBO Baseline

CBO Alternative a/

11.1

11.*

11.9

11.8

1.1

0.9

1.*

1.3

9.9

10.5

10.3

10.3

11.1

12.5

11.3

11.3

7.8

7.8

7.7

7.8

11.1

13.5

12.7

12.6

12.8

13.1

12.3

11.9

*.2

3.5

2.9

2.5

8.3

9.3

9.2

9.2

8.3

10.3

9.5

9.5

7.2

7.5

7.6

7.9

8.9

11.0

13.8

13.7

12.*

12.3

11.8

11.5

5.0

3.5

2.9

2.7

7.0

8.5

8.6

8.6

6.2

8.7

9.0

8.9

6.6

7.1

7.5

7.8

7.8

9.*

11.6

11.5

10.8

11.8

11.7

11.*

*.5

3.7

3.3

3.0

6.0

7.8

8.1

8.1

5.5

7.7

8.3

8.2

6.*

6.7

7.*

7.7

7.0

8.5

10.3

10.2

9.8

11.0

11.2

11.7

*.2

3.7

3.*

3.8

5.*

7.0

7.6

7.5

*.7

7.0

7.7

7.7

6.0

6.3

7.2

7.5

6.0

7.7

9.8

9.7

9.3

10.2

10.8

10.9

*.2

3.7

3.5

3.7

*.9

6.3

7.1

7.0

*.2

6.3

7.2

7.1

5.6

6.0

7.0

7.2

5.6

6.8

9.6

9.3

a/ Based on the Administration's budget assumptions, derived by removing from

the current policy baseline all tax changes not already legislated, and then

incorporating the effects of the Administration's proposals.

NOTE: These projections were prepared using the Commerce Department's preliminary estimates of data for 1980.
TABLE 3. TAX REDUCTIONS IMPLICIT IN THE CBO BASELINE

PROJECTION (By calendar year, in billions of dollars, on an

NIA basis)

1981 1982 1983 1984 1985 1986

Specified Tax Cuts

Unspecified Tax Cuts

Total

-18

-18

-47

-47

-55

-30

-85

-64

-50

-114

-74

-80

-154

-85

-110

-195

ESTIMATES OF THE IMPACT OF THE ADMINISTRATION'S BUDGET

PROPOSALS—BASED ON HISTORICAL EXPERIENCE

Economists have developed several large-scale econometric models

based on the history of the U.S. economy since World War II. These models

can be used to answer the question: What does past experience tell us about

the likely effect of a given policy change? Since the models differ in

structure, they tend to give somewhat different answers. CBO has

developed techniques for averaging their results. \j

CBO's estimates indicate that the effects of the Administration's

proposed budget changes on Gross National Product, prices, and unemployment in the first five years would not be greatly different from the effects

of the policies assumed in the CBO baseline projection. The comparison is

shown in Table 2, in the projections for "CBO Baseline" and "CBO Alternative." While the annual rates of growth would differ, the cumulative

difference over the projection period would be negligible. (The Administration's changes would, of course, make a difference in the future size of the

federal sector and in the allocation of resources.) The CBO projection has

assumed tax cuts that are smaller than those specified by the Administration, but the Administration is recommending less spending than assumed in

the CBO current policy projection. Since the Administration's additional tax

cuts would be approximately offset by its spending cuts, it is not surprising

that the macroeconomic effects of the two policies are similar.

JY See Congressional Budget Office, The Multipliers Project: A Methodology for Analyzing the Effects of Alternative Economic Policies

(August 1977).
Relative to a baseline with no tax cuts, the Administration's proposals would significantly increase real economic growth and lower the

unemployment rate while causing some upward push on inflation in the

outyears. The delayed inflationary impact is reduced by the increases in

productive capacity in the later years that result largely from the cuts in

business taxes.

ADMINISTRATION AND CBO ALTERNATIVE PROJECTIONS COMPARED

The CBO estimate of the economic impact of the Administration's

budget derived from postwar experience ("CBO Alternative" in Table 2) may

also be compared with the Administration's economic scenario ("Administration" in Table 2). There are only minor differences in 1981. Both foresee

lackluster real growth and continued high inflation. Between 1982 and 1986,

the differences are more substantial. In the CBO estimate, real GNP

growth averages 1 I/* percent a year less than in the Administration's

estimate, inflation averages 1 3/4 percent a year higher, and the Treasury

bill rate averages 3 3/4 percentage points higher. Economic growth is

slower in the early years of the CBO alternative projection perhaps because

supply effects occur later, as suggested by the convergence of growth rates

in outyears. At the same time, inflation responds more slowly to monetary

policy in the CBO alternative, as suggested by historical experience.

Although the differences between the economic projections of the

Administration and CBO are within the range of forecasting error, the

differences have significant budget implications. A reestimate of the

Administration budget outlays to take account of the effects of the more

pessimistic CBO projection shows sizable increases in indexed benefit

payments, unemployment insurance, and net interest costs (see Chapter HI).

The CBO economic projection applied to Administration policies adds about

$35 billion to outlays by fiscal year 1984.

There are four possible, not mutually exclusive, explanations of why

the CBO economic projection derived from historical experience may be

more pessimistic than the Administration's projection of the economy under

its program:

o The economic baselines from which the effects of changed fiscal

policies have been calculated may differ. The Administration has

not provided the Congress with its assessment of how the

economy would behave absent its proposed fiscal policy changes,

but its baseline projection may be more optimistic in its assumptions about world oil prices, weather, international economic

relations, and so on, than is the CBO five-year projection.
o The proposed fiscal policy changes, especially the tax reductions,

may have a greater impact on total productive capacity than

postwar experience suggests.

o The monetary policy assumed in CBOfs estimates differs from the

monetary policy assumed in the Administration's scenario. In

addition, the latter assumes a much quicker impact of tight

money on inflation than is indicated by previous episodes of

restrictive monetary policy.

o The Administration is assuming unspecified, but apparently substantial, changes in government regulations, which could affect

prices, resource allocation, and economic growth. The CBO

estimates assumed no regulatory changes.

The first explanation cannot be assessed until the Administration's

baseline projection is made available to the Congress. More can be said

about the last three possible explanations.

Fiscal Policy Changes and Total Productive Capacity

The Administration's economic policies could have a more favorable

effect on the growth of real output and on inflation than indicated in

Table 2. This could happen if the tax cuts were to have a larger effect on

total productive capacity than is suggested by historical experience. If such

an effect occurred, it would come largely from a sharper increase in labor

supply and/or a larger increase in saving and investment than has been seen

in the past.

Labor Supply. A personal income tax cut could generate a large

increase in labor supply if a substantial portion of the population responded

to the increased take-home pay by working more hours. A cut in marginal

tax rates, such as proposed in Roth-Kemp, might have this effect.

A 1978 review of the literature in this area concluded that a

10 percent rise in disposable wages might induce a net increase in the labor

supply of 1 to 3 percent. 2/ The evidence indicates that most of the

2/ Congressional Budget Office, An Analysis of the Roth-Kemp Tax Cut

Proposal (October 1978). In his more recent review of the literature,

Donald Fullerton concluded that a 1 1/2 percent net increase in labor

supply from a 10 percent rise in the disposable wage was most reasonable. Donald Fullerton, "On the Possibility of an Inverse Relationship

Between Tax Rates and Government Revenues," NBER Working Paper

No. 467.

7
sensitivity of work/leisure choices is concentrated among second earners in

households, especially married women,

Those findings illustrate the possible impact of the proposed tax cut

on labor supply. If one generously assumes that the average marginal tax

rate is 30 percent, three 10 percent cuts would eventually reduce that rate

by about 8 percentage points. That change in after-tax earnings, combined

with the more optimistic labor-supply elasticity (0.3), implies that the labor

supply could grow by an additional! two-thirds percentage point per year

through 1986 as a result of the tax reductions.

Saving and Investment. Another possible supply-side response to

decreased marginal personal income tax rates would be an increase in saving

and investment. The Administration's proposed personal income tax cut

could boost savings more than past tax cuts because a larger portion of the

benefit of the tax cut would accrue to persons with above-aver age incomes.

Moreover, some empirical studies have found a positive relationship between

saving and the after-tax rate of return. One study found that a 1 percent

increase in the return on capital led to a 0.4 percent increase in saving. 3/

But even with such an optimistic estimate of saving response, a doubling in

the after-tax rate of return would increase the capital stock by less than

1.5 percent in the first year. 4/

Three 10 percent tax cuts would not, by themselves, double the

after-tax rate of return. Assuming an average marginal rate of 40 percent

on income from savings, the tax reductions would reduce that rate by about

11 percentage points. Assuming--again very generously--that current

saving equals one-tenth of the capital stock and that all additional saving is

channeled into productive investment,, the capital stock could increase by an

additional one-half of a percentage point a year through 1986. Even this

rate of growth may be overly optimistic. Major capital projects typically

require several years to plan, design, finance, and implement. The full

impact of tax changes designed to promote capital formation would probably

not be felt during the first few years.

3/ Michael Boskin, "Taxation, Saving, and the Rate of Interest," Journal of

Political Economy, vol. 86 (April 1978).

t+J In 1979, given personal saving (flow-of-funds basis) of $121 billion, a

100 percent increase in after-tax return would have increased savings

by about $48.4 billion, which was less than 1.5 percent of the capital

stock including housing and consumer durables. Congressional Budget

Office, The Productivity Problem; Alternatives for Action (January

1981).

8
The first few years, of course, are only the beginning. The effects of

greater saving and investment are cumulative and become increasingly

important in the longer run. If, for example, the stock of business fixed

capital were to grow at a rate one percentage point higher than the average

of the 1970s (about 2.5 percent per year), it would become one-third larger

by the end of the century--enough to increase labor productivity 5 to

10 percent by the year 2000. Such a change would make an important

contribution to the growth of living standards.

Overall Effect. The effect of lower tax rates on productive capacity

and real output could be substantial. Using generous assumptions about the

ways in which people respond to tax cuts, the cuts could increase the

productive capacity of the economy by about 3 percent in 1986, which

means that the average annual growth of real output could increase by

one-half of a percentage point per year through 1986 as a result of such

supply responses. 5/

Monetary Policy

The Administration's projection is based on the assumption of a

steady reduction in money-supply growth during the forecast period: "To

that end, the economic scenario assumes that the growth rates of money and

credit are steadily reduced from the 1980 levels to one-half of those levels

by 1986." 6/

The monetary policy assumptions raise two major questions. Is the

assumption of halving the growth of money consistent with the rest of the

Administration's projection, especially the near double-digit growth of

nominal GNP through 1986? Can the assumed monetary policy slow the

momentum of inflation without causing lost production and jobs?

Consistency. Halving the growth of the money supply while increasing the rate of economic growth would require an increase in the rate

at which money turns over--that is, its velocity. The two-year annual rate

5/ The additional assumptions used to derive this estimate include constant returns to scale, market-clearing factor prices, and a homogeneous labor supply.

6/ A Program for Economic Recovery, p. 23.

75-743 0-81- 3
of growth of M1B income velocity is shown in the chart below. The chart is

divided into two parts, showing actual performance from 1970 to 1980 and

the Administration's assumptions from 1980 to 1986. As can be seen, the

assumed growth rates in the velocity of money exceed previous experience.

Percent Change in the Velocity of M1B from Two Years Earlier

e e cc

I 5

c

(D

»

 4

c

re

-= o 0 3

4-<

c

1 2

1

0

Actual

Implicit in the

Regan Administration's

Economic Assumptions.

1970 1972 1974 1976 1978 1980 1982 1984 1986

SOURCES: Federal Reserve System, Board of Governors, Executive Office of the President, Office of

Management and Budget.

More troublesome, the rapid rise in money velocity is assumed to

occur simultaneously with a substantial drop in interest rates. Since

velocity growth is a rough measure of the demand for money relative to

supply, the assumption is that the price of money--interest rates--will fall

while the relative demand for money is increasing.

Inflation. An important characteristic of monetary policy assumed in

the Administration's projection is that it can induce a substantial slowdown

in inflation without also causing a reduction in output and employment.

Such a favorable outcome would be a sharp break with the past. Inflation,

once started, appears to develop substantial momentum. Because of that

momentum, previous attempts to reduce inflation with tight money have

initially resulted in higher unemployment and decreased output, and only

subsequently in lower inflation.

10
In a review of periods of restrictive monetary policies through the

1969-1970 recession, Milton Friedman concluded that ". . . prices reacted

decidedly later than production, and reacted with a lag varying from eleven

to thirty-one months." 7/ Professor Friedman was examining the initial

reaction of prices; others have estimated that the full impact of tight

money on prices occurs with a lag of perhaps five to ten years. The

experience of the most recent recessions in 1973-1975 and in 1980 does not

suggest that the costs in output and jobs were any smaller than in earlier

downturns.

The stubborn momentum of inflation, even when product and labor

markets are slack, is a historical fact that has been built into the large

econometric models. The momentum of inflation may, however, be the

result of widespread expectations that future government policies, most

notably monetary policy, will continue to feed inflation. Thus, a credible

change in monetary policy could change expectations as to future inflation,

which in turn could reduce the upward bias of wage and price decisions,

sharply slowing inflation without sacrificing output and employment.

Unfortunately, it is by no means certain that tight monetary

policy—however steadfast and credible—will translate wholly and quickly

into reduced inflation. Previous Federal Reserve annoucements of restrictive policies—as in the autumn of 1979—have not brought significant

immediate reductions in inflation. More important, there may be other

reasons for the stubborn momentum of inflation even during periods of slack

product and labor markets. Particularly relevant in the 1970s was the

ability of some individuals and groups to maintain their customary growth in

real income in the face of adverse changes in prices--as when the doubling

of world oil prices in 1979 brought an upward adjustment of many other

prices and wages.

It must be recognized, however, that the policies proposed by the

Administration are a sharp departure from the recent past. No one can be

certain that a restrictive monetary policy cannot reduce inflation more

quickly, and with less cost, in this new environment. Certainly the

Administration's projected inflation rates are possible. If they turn out to

be correct, the prospects for the entire policy package are favorable. But

as yet there is no empirical basis for assuming such an outcome. 8/

7/ Milton Friedman, "Have Monetary Policies Failed?" American Economic Review (May 1972), p. 14.

8/ Robert 3. Gordon, "Why Stopping Inflation May Be Costly: Evidence

from Fourteen Historical Episodes," National Bureau of Economic

Research Inc., working paper (February 27, 1981).

11
Regulatory Change

The Administration's economic package includes the promise of

substantial changes in the government regulation of prices, resource allocation, environment, health, and safety. Large econometric models typically

assume that the regulatory environment remains unchanged. Consequently,

the impact of such changes would have to be estimated independently of

those models and factored into their projections.

Clearly, the economic impact of regulatory change can be large. For

example, CBO estimated that trucking deregulation could lower the

Consumer Price Index by 0.3 to 0.5 percentage points by 1985. 9/ The

deregulation of airlines over the past four years has led to significant

operating economies, thus moderating the price increases resulting from

sharply increased fuel costs. The deregulation of railroads (the Staggers

Rail Act of 1980) will also lead to significant operating economies,

improving the financial condition of the railroads (although the net effect on

prices will be related to price increases on goods such as coal and wheat, for

which rail is the only transportation alternative). Furthermore, although

decontrol of domestic crude oil prices is expected to raise the Consumer

Price Index by 4.3 to 4.6 percentage points between 1979 and 1983, K)/ this

change, like the others just mentioned, will improve resource allocation,

increasing the overall productive capacity of the economy.

It is not possible at this time to estimate the impact of the

Administration's regulatory changes, since they have not yet been specified.

As they are spelled out, their effects should be estimated and the projections adjusted accordingly.

OTHER FACTORS INFLUENCING THE ESTIMATES

The foregoing discussion has focused on reasons why the outcome of

the Administration's economic policies could be more favorable than indicated by postwar experience. On the other hand, there are at least three

factors that could make the next five years, even with enactment of the

Administration's policies, significantly worse than history suggests.

First, world commodity prices--especially for oil and food—may rise

more rapidly than assumed. Poor weather, political unrest in the Middle

9/ Inflation Impact Analysis for S. 2245, March 27, 1980.

K)/ CBO, Letter to Senator Kennedy, 3une 13, 1980.

12
East, or other adverse events could push inflation significantly higher than

projected. The CBO estimates simply assume that there will be no such

adverse price "shocks" through 1986--an assumption that caused projections

made in the 1970s persistently to underestimate future inflation.

Second, the CBO estimates have made no allowance for a variety of

secondary effects resulting from the proposed spending cuts. To the extent

that state and local governments would raise taxes to offset lost federal

funds, or that persons losing benefits would make claims on welfare

entitlement programs, or that exports would be lost as a result of cuts in

Export-Import Bank funding, and so on, the budget cuts would have a

negative effect on the economic outlook. Moreover, to the extent that the

budget cuts would reduce government capital spending, overall capital

formation--and consequently the future growth of productivity--could be

less than projected by CBO.

Third, the CBO estimates have made no allowance for the possibility

that phasing in the Administration's accelerated depreciation proposal may

initially have an inhibiting effect on investment. The phasing in could result

in some postponement of investment as businesses wait for the arrival of

larger tax benefits. If this were to happen on a large scale, the short-run

benefits would be reduced. Once the program was fully in place, however,

there could be a surge of investment, reflecting purchases that had been

previously postponed, ll/

CONCLUSION

The Administration has proposed major changes in budget policies

that would shift priorities from nondefense to defense spending and from

public to private allocation of resources. It is the Administration's

expectation that these policies will promptly produce a large favorable

effect on inflation and economic growth. CBO!s analysis indicates that, on

the basis of historical experience, the Administration's economic scenario is

optimistic, but certainly not impossible.

ll/ Congressional Budget Office, Entering the 1980s: Fiscal Policy Choices

(January 1980), pp. 74-80.

13

CHAPTER II. REVENUE ESTIMATES AND TAX PROPOSALS

The Reagan Administration budget for fiscal year 1982 projects

revenues of $650.3 billion, including an individual income tax cut of

$44.2 billion, a business tax cut of $9.7 billion from accelerated depreciation, and $2.6 billion in tax increases from user charges and other legislative

and administrative changes.

The Administration^ proposed individual and business tax cuts would

grow sharply in future years as part of its multiyear budget program. The

individual income tax cuts would approximately offset the effects of

"bracket creep" from inflation and of higher social security taxes scheduled

for those years.

Using somewhat less optimistic economic assumptions, CBO estimates that revenues after the Administration's proposed tax cut would be

slightly above those estimated by the Administration in fiscal year 1982,

slightly lower in fiscal years 1983 and 1984, and somewhat higher thereafter.

A number of alternative revenue proposals have been made in the

Congress, including those to scale back the size of the Administration's

proposed individual income tax cut; to provide more tax relief to lowerincome taxpayers; to focus more of the cut on specific incentives for

increased saving, investment, and work; and to modify and expand the

business tax cut portion of the package. This chapter discusses the

Administration's and CBOfs revenue estimates and presents some of these

alternative proposals.

While the Administration does not propose any reductions in specialpurpose tax subsidies, many of the spending cuts it has proposed are justified

in part by the argument that tax subsidies serving the same purpose will be

continued. This chapter notes a number of other instances in which spending

cuts and tax subsidies could usefully be considered together.

ADMINISTRATION AND CBO ESTIMATES OF REVENUES, FISCAL YEARS

1981-1986

The Administration estimates that revenues under current law would

increase from $608.8 billion in fiscal year 1981 to $1,153.9 billion in fiscal

15
year 1986. The Administration's large proposed tax cuts, combined with

increases in user charges and other small increases, are estimated to reduce

taxes by $51.3 billion in fiscal year 1982, and $213.7 billion by fiscal year

1986 (see Table 4).

TABLED ADMINISTRATION AND CBO ESTIMATES OF REVISED

REVENUE REQUEST (By fiscal year, in billions of dollars)

1981 1982 1983 1984 1985 1986

Administration

Current Law a/

Tax Cuts

Individual

Business

Other

Total

CBO

Current Law a/

Tax Cuts

Individual

Business

Other

Total

608.8

-6.4

-2.5

0.2

600.3

607.6

-6.4

-2.5

0.2

598.9

701.6

-44.2

-9.7

2.6

650.3

706.5

-43.9

-10.8

2.6

654.4

806.2

-81.4

-18.6

3.0

709.1

805.1

-80.8

-20.3

3.0

707.0

915.5

-118.1

-30.0

3.3

770.7

915.7

-119.9

-30.2

3.3

768.9

1,028.1

-141.5

-44.2

7.6b/

849.9

1,040.3

-146.7

-40.5

7.6b/

860.7

1,153.9

-162.4

-59.3

8. Ob/

940.2

1,187.0

-172.6

-51.2

8. Ob/

971.2

SOURCE: Treasury Department, CBO, Joint Committee on Taxation.

a/ Current law receipts are the receipts that would be generated under

current (1981) law at the level of economic activity resulting from the

proposed budget.

b/ Includes $3.9 billion in 1985 and $4.0 billion in 1986 from extension of

expiring highway trust fund taxes.

Projecting less economic growth and more persistent inflation than

the Reagan Administration, CBO estimates that receipts after the Administration's proposed tax cut will be $4.1 billion higher than the Administration

estimate for fiscal year 1982 (Table 4). In this year, CBO!s estimate of

16
higher prices (including higher oil prices) and higher interest rates pushes up

receipts more than the CBO estimate of lower incomes depresses them.

CBOfs receipts estimates are slightly below the Administration's for

fiscal years 1983 and 1984--$2.1 billion lower in 1983 and $1.8 billion lower

in 1984. In these years, the effects on receipts of the lower incomes

projected by CBO outweigh the effects of the higher prices. After 1984,

CBO projects real growth rates approaching those in the Administration

projection. These increasing real growth rates, coupled with the continued

higher rates of inflation, push the CBO estimates of receipts for fiscal years

1985 and 1986 above those of the Reagan Administration. By 1986, CBO!s

revenue estimate is $31.0 billion higher than that of the Administration.

Most of the difference between the CBO and the Administration

estimates is the result of different economic assumptions. Only minor

differences result from technical variations in revenue estimating techniques.

ADMINISTRATION REVENUE PROPOSALS AND OTHER OPTIONS

Table 5 gives a detailed breakdown of the Administration's proposed

tax changes for fiscal years 1981-1986, including the increases in user

charges and other small legislative and administrative tax increases.

The following issues concerning the Administration's tax proposals

have received the most attention to date:

o Should a large multiyear tax cut be enacted before corresponding

spending cuts have been put in place, or should future tax cuts

depend on future spending cuts and the future course of the

economy?

o Should a greater share of the total income tax savings than the

Administration proposes be given to lower-income taxpayers, and

if so, how would this affect incentives to save?

o Will cuts in marginal income tax rates provide sufficient incentives for increased saving and work effort, or should provisions be

included in the tax cut that are more narrowly focused on those

goals?

o Can modifications be made in the Administration's depreciation

reform proposal that would make it less costly in future years and

more effective per dollar of reduced taxes in stimulating productive investment?

17
TABLE 5. ADMINISTRATION LEGISLATIVE AND ADMINISTRATIVE

PROPOSALS FOR REVENUES (By fiscal year, in billions of

dollars)

Proposal 1981 1982 1983 198* 1985 1986

Individual Income Tax

Rate Reductions -6.* -**.2 -81.* -118.1 -1*1.5 -162.*

Accelerated Depreciation

Individual -0.3 -2.1 -3.7 -5.7 -8.3 -11.3

Corporate -2.2 -7.6 -15.0 -2*.* -36.0 -*8.0

User Charges

Inland waterways — 0.2 0.3 0.3 0.3 0.3

Highways — — — — 3.8 *.0

Airport and airways 0.2 1.9 2.2 2.* 2.8 3.1

Land and water conservation fund — — — — a/ a/

Taxation of Federal

Employee Injury Payments a/ 0.1 0.1 0.1 0.1 0.1

Increase in Passport

and Visa Fees a/ 0.1 0.1 0.1 0.1 0.1

Increase in Railroad

Retirement Payroll Taxes — 0.3 0.* 0.* 0.* 0.*

Other — — j— a/ a/ a/

Total -8.6 -51.3 -97.1 -1**.8 -178.3 -213.7

SOURCE: Treasury Department,

a/ Less than $50 million.

o Should the business tax cut portion of the package be enlarged by

adding reductions in corporate tax rates, increases in the investment tax credit, or reductions in payroll taxes?

A discussion of these issues follows, beginning with the Administration's proposed individual income tax cut and some alternative proposals,

and concluding with business tax cuts.

18
INDIVIDUAL INCOME TAX CUTS

One-Year Versus Three-Year Cuts

The Administration proposes to cut individual income tax rates by

10 percent a year for three years, starting on 3uly 1, 1981. Compared with

present law, this would reduce rates by 5 percent in calendar year 1981,

15 percent in calendar year 1982, 25 percent in calendar year 1983, and

30 percent in calendar year 1984. While the Administration proposal would

reduce revenues by large amounts in those years, it is important to keep in

mind that, without a tax cut, income taxes rise continually because of the

effects of inflation on the graduated income tax rate schedule--the socalled "bracket creep." In addition, Social Security payroll tax increases

enacted in 1977 will push up payroll taxes over the next five years by

substantial amounts. Thus, as shown in Table 6, a large share of the

Administration's proposed tax cut would simply offset these tax increases.

TABLE 6. ADMINISTRATION INCOME TAX CUT COMPARED TO

INFLATION-INDUCED INCOME TAX INCREASES AND

SOCIAL SECURITY TAX INCREASES (By fiscal year, in

billions of dollars)

1981 1982 1983 1984 1985 1986

Administration Income

TaxCuta/ -6.4 -43.9-80.8 -119.9 -146.7 -172.6

Tax Increases from

Income tax "bracket creep" b/

Since 1979 15 30 55 85 115 160

Since 1981 - 15 35 60 95 135

1977 Social Security legislation

(starting January 1, 1981) 10 22 25 27 39 45

a/ CBO estimate.

b/ Estimated by holding income taxes constant as a percentage of personal

income, starting in the base year.

19
Locking in a three-year tax cut now would impose a strong discipline

on future spending. But if the Congress is unable to cut spending by

amounts that roughly correspond to the size of those tax cuts, the result

could be continuing large deficits into the indefinite future. To reduce this

risk, the Congress could approve just the first-year 10 percent installment

now, reserving for the future any decision on additional installments.

Table 9 later in this chapter shows the effect of a 10 percent rate cut,

effective October 1, 1981.

Distribution of the Tax Cut by Income Class

Table 7 shows the distribution by income class of the tax savings

from the Administration's proposal in detail, including the percentage

reduction in tax liability and the percentage increase in after-tax income in

each income class. Table 8 compares the distribution of the total tax

savings from the Administration's proposal with the total distribution of tax

payments under current law. Those with incomes above $100,000 would

receive a somewhat greater share of the total tax savings than their share

of total current tax payments, while the share of total tax savings received

by those with incomes between $10,000 and $20,000 would be less than their

share of tax payments under current law, since rate cuts have relatively

small effects in those income brackets.

Table 8 also shows the distribution of tax savings by income class

from a number of commonly suggested alternatives to the Administration's

proposed rate cut. Each of them would concentrate more of the tax savings

on those with lower incomes. With the exception of bracket widening and

the increase in the earned income tax credit, these alternatives do not

reduce marginal rates. They would, therefore, not increase the after-tax

rate of return to saving and work in the same way that a marginal rate cut

does.

Providing a greater share of the tax savings to lower-income groups

might lead to a lesser increase in savings, since lower-income people might

save less of their increases in income than would higher-income people. The

evidence on this is not conclusive, however. Saving tends to vary more with

age than it does with income, and many economists believe that, on the

average, people in all income classes save about the same percentage of

increases in their disposable income.

Incentives for Saving, Work, and Investment

Cuts in marginal income tax rates could increase savings in two ways.

First, taxpayers would have more disposable income, and some portion of

20
TABLE 7. EFFECTS OF PROPOSED ADMINISTRATION INCOME TAX RATE CUT BY INCOME CLASS,

CALENDAR YEAR 1982 AT 1981 INCOME LEVELS a/

Total Tax

Total Current Reduction

Law Tax From Proposed Average

Expanded Total Liability Rate Cut Tax

Income Returns b/ (In billions (In billions Reduction

Class (In millions) of dollars) of dollars) (In dollars)

0-5,000 18.1

5-10,000 16.1

10-15,000 13.4

15-20,000 10.9

20-30,000 17.0

30-50,000 13.7

50-100,000 3.6

100-200,000 0.6

200,000 and over 0.2

Total 93.6

-0.2

6.4

16.3

23.0

58.6

85.7

51.6

24.1

21.1

286.6

-0.1

-1.1

-2;5

-3.5

-8.6

-12.8

-7.7 -2

-3.0 -4

-2.2 -13

-41.5

-4

-69

-184

-323

-509

-937

,126

,667

,346

-443

Percentage

Percentage Increase in

Reduction in After-Tax

Tax Liability Income

£/

17.4

15.1

15.3

14.8

14.9

14.9

12.3

10.5

14.5

0.2

1.0

1.7

2.1

2.4

3.1

4.5

5.7

7.0

1.8

SOURCE: Joint Committee on Taxation and CBO.

a/ The Administration proposes to reduce tax rates by 10 percent a year,

rates for calendar year 1982 would thus be approximately 15 percent.

b/ Includes taxable and nontaxable

classes below $10,000.

c/ Greater than 100 percent.

returns. The 17.6 million nontaxable

starting July 1, 1981. The

returns are concentrated in

reduction in

the income
TABLE 8. DISTRIBUTION BY INCOME CLASS OF TOTAL TAX SAVING FROM PERSONAL TAX CUT OPTIONS

(In Percents)

K)

K)

Expanded

Income

Class

0-10,000

10-20,000

20-30,000

30-50,000

50-100,000

100,000 and over

Total

Share

Number

of

Returns

36.6

25.9

18.1

14.6

3.9

0.9

100.0

of Total

Tax Payments

Under Current

Law

2.2

13.7

20.4

29.9

18.0

15.8

100.0

Share of Tax

Administration

Proposal

3.3

8.7

21.1

31.0

18.0

17.9

100.0

10 Percent

Social

Security

Credit

6.7

24.1

28.4

31.0

8.2

1.6

100.0

10 Percent

Bracket

Widening

5.4

18.1

21.3

31.5

16.0

7.8

100.0

Savings From

$100

Personal

Exemption

Increase

8.7

22.2

25.3

29.9

11.0

3.0

100.0

$100-$200

Standard

Deduction

Increase a/

18.3

35.4

28.3

16.3

1.8

0.0

100.0

EITC Increase b/

90.5

9.5

0.0

0.0

0.0

0.0

100.0

SOURCE: Joint Committee on Taxation and CBO.

NOTE: The table reflects 1981 income levels.

a/ Increase from $2,300 to $2,400 for individuals, and from $3,400 to $3,600 for joint returns.

b/ The earned income tax credit (EITC) would increase from 10 to 11 percent of first $5,000 of earnings, with

phase-out at $14,000 of earnings rather than at $10,000.
that would be saved. This result occurs from any kind of tax cut, although,

as just noted, the increase in saving might be somewhat larger if more of

the tax cut went to higher-income taxpayers who might save more of their

additional income.

Second, cuts in marginal rates increase the after-tax rate of return

to saving, which could in turn increase the total amount that is saved. In

theory, however, the effects of this higher rate of return could be offset if

people save for specific goals, since, with lower taxes and higher retained

income, people could meet their future needs with less saving. The net

effect on total saving is uncertain, since the available evidence is inconclusive, but it is probably reasonable to assume some positive effect.

Cuts in marginal rates would also increase the after-tax return from

additional hours of work. The overall effect on hours worked, like the

effect on saving, is in theory ambiguous because the rate cut gives

incentives both to work more because the reward is greater, and to work

less because financial needs can be met with less work and some people

prefer to do other things with their extra time. The available evidence

indicates that, on the average, primary workers in a family may increase

their hours worked by perhaps 1 percent in response to a 10 percent increase

in disposable wages, while secondary workers—mostly married women—may

increase their hours worked by as much as 4 percent.

Additional Saving Incentives. Because of uncertainty about the

extent to which across-the-board reductions in marginal tax rates would

increase saving, many in the Congress have proposed tax changes that are

aimed more narrowly at that objective.

In evaluating alternative tax cuts intended to stimulate saving, it is

important to distinguish between proposals that merely increase one kind of

saving at the expense of others, and those that may add to total savings.

Proposals to exclude some dollar amount of interest income from tax, for

example, or to provide special incentives for education or housing accounts,

are unlikely to encourage much additional saving beyond what would

otherwise take place. Furthermore, they increase the incentive to "game"

the tax system by borrowing money, deducting the interest, and putting the

proceeds in tax-favored savings accounts. The sharp increase in second

mortgages in recent years illustrates the potential for this kind of activity.

One variant of the interest-exclusion proposals may be more promising, however. It would allow all savers to exclude the same percentage of

their interest income from tax, rather than allowing a flat dollar exclusion

for everyone. This would reduce taxes on increases in saving in all income

23
classes and at all levels of saving. While a large share of the tax cut would

still be simply a reward for existing levels of savings, there would always be

a small reward for increases in saving as well. To lessen incentives to game

the system by borrowing elsewhere and putting the money in savings

accounts, allowable interest deductions could be reduced by the same

percentage amount as the exclusion.

Another promising possibility is to increase the tax incentives for

IRA and Keough retirement savings plans. Because of the large penalties

for early withdrawal, these plans are more likely to stimulate saving that

would not otherwise take place than are proposals that encourage only

short-term savings that can readily be withdrawn for other uses. They also

represent a more stable and reliable source of funds for investment.

Increases in private saving for retirement could also reduce future demands

on the Social Security system.

Investment Incentives. While increased saving is an important goal,

savings must be put to productive use if they are to enhance long-run

productivity and reduce inflation. A discussion of all of the institutional and

other barriers to the effective use of savings is beyond the scope of this

chapter, but some personal tax cut changes have been suggested that could

encourage more efficient and productive investment. Reducing the top

70 percent tax rate on investment income to 50 percent immediately, rather

than waiting for three years as the Administration has proposed, would

reduce the present diversion of resources into tax shelters and other

speculative and unproductive investments. It would also reduce the top rate

on capital gains from 28 percent to 20 percent, thus increasing the mobility

of capital and making it easier for investors to shift their assets into more

productive areas. Capital gains taxes could also be reduced by increasing

the amount that is excluded from tax from 60 percent to 70 or 75 percent,

or by indexing the base price for inflation. There is no guarantee, of course,

that cutting capital gains taxes would cause investment resources to flow

only into productive areas. Investors in gold coins, real estate, corporate

stock, and venture capital would all be similarly benefited.

The Marriage Penalty and Incentives to Work

The President's proposed reductions in marginal tax rates would leave

relatively unchanged the additional tax a working married couple pays

compared to what the couple would pay if not married. This extra tax,

called the marriage penalty, generally applies when the second worker earns
at least 20 percent of the couple's total income, and reaches its maximum

when each spouse earns 50 percent of the total.

The rate reductions would, however, alleviate one of the problems

currently associated with the marriage penalty—the discouraging effect

high marginal tax rates can have on the labor force participation of

secondary workers. As noted earlier, the work versus leisure decisions of

married women are especially sensitive to changes in marginal tax rates.

The favorable effects of the total tax cut on incentives to work could

be enhanced, however, if some portion of the tax cut were devoted to

reducing the marriage penalty, since this would concentrate the tax savings

on secondary workers whose work response is likely to be greatest.

One proposal to reduce the marriage penalty would allow married

couples to deduct 10 percent of the first $30,000 of earnings of the lesserearning spouse. This proposal only roughly compensates for the marriage

penalty—some couples would get less than the penalty, some more. It

would, however, effectively reduce the marginal tax rates facing secondary

workers by 10 percent over and above the reduction they would get from a

general rate cut.

Another proposal would give married couples a tax credit for the full

amount of their marriage penalty, exactly offsetting the marriage penalty

for most couples. This would result in an even greater reduction in marginal

tax rates for most second earners than the proposal for a 10 percent

deduction, leading to an even greater increase in total hours worked.

The tax reductions from both proposals for fiscal years 1982-1986 are

shown in Table 9.

BUSINESS TAX CUTS

While there is controversy and uncertainty over the share of personal

tax cuts that may go into savings, it is clear that a very large share of

business tax cuts would be saved, mainly in the form of higher retained

corporate earnings. Evidence suggests that corporations save more than 50

percent of increases in their after-tax income, much more than the percentage saved by individuals. Thus, one certain way of ensuring that a large

portion of the tax cut goes into saving would be to increase the share

devoted to business cuts. This could be done by adding corporate rate cuts

or increases in the investment tax credit to the tax cut package. The

business tax cut could also be increased in the early years by eliminating the

25

75-743 0-81- 4
TABLE 9. REVENUE EFFECTS OF INDIVIDUAL AND BUSINESS TAX

CUT OPTIONS (By fiscal year, in billions of dollars)

Option 1982 1983 1984 1985 1986

10 Percent Reduction in

Individual Income Tax Rates -33 -39 -46 -55 -64

Marriage Penalty a/

10 Percent Deduction

Tax Credit

Administration Depreciation

without Phase-in

2-4-7-10 Depreciation

First-Year Depreciation,

with 5-Year Phase-in b/

Reduction in Top Corporate Rate

from 46 to W Percent

Partially Refundable

Investment Tax Credit c/

Refundable 8 Percent

Credit Against Payroll Taxes d/

-4

-10

-18

-13

-9

-4

-3

-6

-7

-12

-32

-18

-15

-4

-3

-7

-9

-15

-42

-18

-19

-4

-4

-8

-10

-17

-50

-19

-23

-5

-4

-9

-12

-20

-56

-20

-20

-5

-5

-10

SOURCE: Joint Committee on Taxation and CBO.

a/ The revenue losses in 1982 do not fully reflect the relative costs of the

deduction and the credit, since the credit has an earlier effective date

(January 1, 1981), and the deduction starts at 5 percent of the first

$30,000 of income on July 1, 1981, and rises to 10 percent only on

January 1, 1982.

b/ Includes elimination of investment tax credit.

c/ Includes outlays.

d/ Employer share only; includes outlays.

gradual phase-in of accelerated depreciation proposed by the Administration

and effecting the total change immediately. There are other possible

changes in depreciation that might result in somewhat greater increases in

productivity than the Administration's plan. They are discussed below.

26
Accelerated Depreciation

Increases in depreciation allowances are intended to encourage

additional investment, and to offset the effects of inflation on the real

value of depreciation deductions. The higher deductions for depreciation

make new investments more attractive to businesses, increasing investment

and ultimately improving productivity and reducing inflationary pressures.

The Administration's depreciation proposal is a modified version of

the 10-5-3 plan that has been sponsored by a large number of Congressmen

and Senators. The 10-5-3 plan would assign depreciable lives of 10 years to

most industrial buildings, three years to cars and light trucks, and five years

to other equipment, while liberalizing the investment tax credit for equipment. The Administration's proposal is essentially the same except that it

puts equipment used for research and development in the three-year

category, and gives lives of 15 years to offices, leased stores and factories,

and low-income rental housing, and 18 years to other rental housing.

The other major depreciation proposal is the 2-4-7-10 plan passed

last fall by the Senate Committee on Finance. This proposal assigns lives of

two, four, seven, or ten years to equipment other than public utility

property, and gives optional audit-proof lives of 15 years to low-income

rental housing and owner-occupied commercial and industrial buildings, and

20 years to other buildings. The bill also simplifies depreciation accounting

and modifies investment tax credit rates for equipment.

One concern with the Administration's plan is that it may fail to

stimulate investment as much as it might during the first five years,

because it is phased in. This gives businesses an incentive to postpone

investments in anticipation of the greater tax savings that will be available

later. This could be avoided if the plan were put fully into effect right

away. While this would increase the revenue loss in the early years (see

Table 9), this might be considered desirable if the Congress decides to

increase the business share of the tax cut.

Another possible concern with the Administration's depreciation proposal is the very large revenue losses that could result in future years,

reaching $50 to $60 billion by fiscal year 1986 and rising to about $85 billion

before leveling off around 1989. The Finance Committee's 2-4-7-10

proposal would result in lower revenue losses in future years, reaching only

about $20 billion by fiscal year 1986.

A broader concern with all depreciation proposals, as well as with

current law, is that the effective tax rate can vary significantly from asset

27
to asset, and that these rates can change substantially depending on the

future rate of inflation. The effective rate of tax on the income from .

investments depends on how closely the depreciation deductions allowed

under the tax law correspond to the actual depreciation of the asset. If this

correspondence is closer for some assets than for others, the law taxes some

assets more heavily than others, and this impairs the efficiency of the

investment process. The magnitude of the inefficiency that is implied by

varying effective tax rates has not been estimated precisely, but at current

rates of inflation it is probably not more than a few billion dollars in lost

production. If inflation stays at current high levels or increases, however,

the problem could become more serious.

The Administration proposal implies especially large variations in

effective tax rates. Under present rates of inflation, the Administration

proposal has much lower effective rates for short-lived assets than it has for

long-lived assets. This is because of the combined effects of accelerated

depreciation and a liberalized investment tax credit. If the inflation rate

were to fall substantially, short-lived assets would actually receive a subsidy

in excess of the income from the assets. \J The tax rates also vary under

the 2-4-7-10 plan from asset to asset, and with different inflation rates, but

the variations are much smaller than with the Administration's plan.

One way of reducing the sensitivity of depreciation allowances to

future rates of inflation would be to allow assets to be written off entirely,

or "expensed," in the first year. Since prices would not change significantly

during that year, inflation could not erode the value of depreciation allowances before the asset is completely written off, as happens now. In order

to prevent longer-lived assets from having a disproportionate advantage in

the competition for funds, however, the first year write-offs could be 90 to

95 percent of the price of a very short-lived asset, but less, perhaps 70 to 75

percent, for longer-lived assets. No additional write-offs would be permitted after the first year. This is the essence of the 3orgenson-Auerbach

"First-Year Plan" for capital recovery that has received some discussion

during the past year. The revenue loss from the First-Year Plan would be

quite large in the first year or two, but that could be avoided by phasing it

in, as shown in Table 9. An alternative way of reducing the sensitivity of

depreciation to inflation would be explicitly to index depreciation allowances, but that would be quite complicated.

\J For a more detailed explanation, see Jane Gravelle, Depreciation Policy

Options, Congressional Research Service Report 80-182E, (October 10,

1980), pp. 15-22.

28
Corporate Rate Cut

Reducing the top corporate tax rate from 46 percent to 44 percent

would reduce corporate taxes by about $4 billion a year (see Table 9). While

only about 13 percent of all businesses are incorporated, they account for

about 85 percent of all business income. A corporate rate cut would add to

business saving and increase business investment, although the direct

stimulus to investment would be less than from increases in depreciation

allowances or investment tax credits in which the tax cut is tied directly to

new investment. One way to increase the stimulus effect of a rate cut, and

also offset the investment-deterring effect of the Administration's proposed

phase-in of depreciation, would be to enact the rate cut with an effective

date several years hence. This would encourage firms to accelerate some of

their capital purchases because the value of their depreciation allowances

would be less once the rate cut took effect.

A cut in the top corporate rate would also reduce somewhat the

double taxation of dividends, and allow corporations to compete more

effectively for investment funds with more lightly taxed sectors of the

economy, such as housing. Cuts in the lower 17 to 40 percent rates that

apply to the first $100,000 of corporate income would have little effect on

investment, since only a very small share of total investment is accounted

for by these smaller corporations. Lowering the rates for small corporations

would also increase the existing incentives to use small corporations as tax

shelters, since the rates are already much lower than the rates on

comparable levels of personal income.

Investment Tax Credit Increase

Increasing the present 10 percent investment tax credit would also

increase business saving and investment. Many firms would not be able to

use the additional credit in the year eligible investments were made,

however, since their tax liability would be less than the amount of the

credit. Currently, all firms combined would claim only about half of a one

percentage point increase in the credit in the first year.

An alternative, suggested by the Carter Administration in its fiscal

year 1982 budget, would be to make the existing 10 percent credit partially

refundable, that is, payable in cash if it exceeded a firm's tax liability.

Under the Carter proposal, 30 percent of the credit would have been

refundable if the tax liability was less than the credit, with the rest carried

back or forward to other years as under present law. The main beneficiaries

29
of such a proposal would be firms with low tax liability and/or high levels of

investment. At the present time, this would include auto and steel

companies, railroads, airlines, and utilities, as well as rapidly growing firms,

such as new high-technology companies.

The Reagan Administration has withdrawn the Carter proposal,

resulting in a reduction in outlays in function 370 of $2.3 billion in fiscal

year 1982.

Payroll Tax Cut

Cutting Social Security payroll taxes paid by employers is another

way of reducing business taxes. While it would help small labor-intensive

firms and many financial and service-industry firms that would not benefit

significantly from liberalized depreciation allowances, it would have relatively little effect on business investment. It would reduce labor costs,

however, thereby increasing employment and reducing future inflation by

modest amounts.

The Carter Administration proposed that employers and employees be

given an income tax credit equal to 8 percent of their Social Security

payroll taxes, which is approximately equivalent to cutting payroll taxes

directly. The income tax credit would have been refundable to employers if

it exceeded their income tax liability. Table 9 shows the revenue and outlay

effects. The main beneficiaries of the refundability feature would have

been nonprofit organizations and state and local governments, which pay no

federal taxes, and firms with little or no tax liability. The Reagan

Administration has also withdrawn this proposal, reducing outlays below the

Carter budget by an estimated $1.2 billion in function 370, $0.2 billion in

function 500, and $0.5 billion in function 850.

TAX SUBSIDIES AND SPENDING CUTS

The Reagan Administration has not proposed any reduction in specialpurpose tax subsidies—so-called "tax expenditures." Cuts in tax subsidies

can reduce future deficits or make more funds available for broad, acrossthe-board tax cuts, just as spending cuts can. Reducing tax subsidies and

using the extra revenue to fund general tax cuts would extend tax relief

more broadly, and would give taxpayers more discretion in how they use

their tax savings. Tax expenditures provide tax savings only to those in

special circumstances, or those who act in specified ways.

30
Considering changes in tax subsidies along with changes in related

spending and loan programs could make it easier to determine the best use

of scarce resources. If spending and loan programs are being cut because

the activity that is subsidized does not have a high national priority, for

example, the tax subsidy might be eliminated as well. If, on the other hand,

some level of federal support is considered necessary, examining the tax and

spending programs together would enable the Congress to determine which

form of subsidy was more cost effective.

Some comparisons of this kind occur in the Administration's

February 18 and March 10 budget revision documents, in which the existence

of tax subsidies is sometimes cited as one of the justifications for cutting

back spending programs. Examples include:

o Cuts in grants and loans for energy conservation and solar energy

(tax credits will be continued);

o Cuts in trade adjustment assistance (benefits are partly tax-free);

o Cuts in Farmers Home Administration and Department of Energy

gasohol subsidies (excise tax exemption and tax credits will be

continued);

o Elimination of Department of Energy hydropower subsidies (21

percent investment tax credit will be continued); and

o Elimination of National Consumer Cooperative Bank (special tax

treatment for co-ops will be continued).

Similar comparative evaluations might be made of other tax subsidies

and direct spending and loan programs slated for large cuts. Some examples

include:

Tax Subsidy

Domestic International Sales Corporation (DISC) export subsidy

Targeted jobs tax credit

Tax incentives for historic preservation

Tax-exempt small issue industrial

revenue bonds

Proposed Cut

Export-Import Bank loans

CETA public service jobs

Interior Department historic preservation grant program

Economic Development Administration grants and loans

31
Tax Subsidy Proposed Cut

Special tax treatment of low-income Department of Housing and Urban

rental housing Development Section 8 rental

housing subsidy program

Parental personal exemption for Department of Education grants

students age 19 or over and loans to college students

32
CHAPTER III. SPENDING PROPOSALS AND REESTIMATES

President Reagan's budget revisions for fiscal year 1982 propose a

sharp reduction in the growth of federal budget outlays beginning in 1982

and continuing for the next several years. The new Administration plans to

hold the growth of federal outlays during 1982-1984 to less than 6 percent

annually, compared to an average growth of about 13 percent per year since

1977. The effect of slower spending growth would be to reduce the size of

the federal budget relative to the total economy from 23.0 percent of Gross

National Product (GNP) in 1981 to 19.3 percent in 198*.

The President also proposes to change significantly the relative

composition of the federal budget by increasing the share of the budget

allocated to defense spending from 24.7 percent in 1981 to 33.2 percent in

1984. As shown in Table 10, the spending proposals for the next three years

stand in sharp contrast to the trends since 1977.

TABLE 10. FEDERAL SPENDING TRENDS (By fiscal year)

Actual March Budget Revisions

1977 1980 1981 1982 1983 1984

Budget Outlays (in billions

of dollars)

National defense

Nondefense

Total

Relative Composition

(percent)

National defense

Nondefense

Total

Shares of GNP

(percent)

National defense

Nondefense

Total

97.5

305.2

402.7

24.2

75.8

100.0

5.2

16.4

21.6

135.9

443.7

579.6

23.4

76.6

100.0

5.3

17.3

22.6

162.1

493.1

655.2

24.7

75.3

100.0

5.7

17.3

23.0

188.8

506.5

695.3

27.2

72.8

100.0

5.9

15.9

21.8

226.0

506.0

732.0

30.9

69.1

100.0

6.3

14.1

20.3

255.6

514.6

770.2

33.2

66.8

100.0

6.4

12.9

19.3

33
The budget proposals submitted March 10 also diverge significantly

from those made by the Carter Administration in January. As shown in

Table 11, President Reagan's budget estimates project outlays of

$655.2 billion in 1981 and $695.3 billion in 1982. These estimates represent

reductions in total outlays of $7.5 billion in 1981 and $44.0 billion for 1982

from the levels recommended by President Carter. Since President Reagan

recommends higher defense spending for both 1981 and 1982, the reductions

in nondefense programs are even larger than the reductions in total outlays.

TABLE 11. COMPARISON OF JANUARY AND MARCH SPENDING PROPOSALS FOR FISCAL YEARS 1981 AND 1982 (Outlays in

billions of dollars)

Major Category

National Defense

Payments for Individuals

Net Interest

All Other

Total

1980

Actual

135.9

271.2

52.5

120.1

579.6

1981 Estimate

January March

Budget Revisions

161.1 162.1

319.2 317.4

67.0 64.1

115.5 111.5

662.7 655.2

1982 Estimate

January March

Budget Revisions

184.4 188.8

353.4 337.3

74.8 68.2

126.8 100.9

739.3 695.3

This chapter provides an overview for federal spending of President

Reagan's revisions to the 1982 budget prepared by the Carter Administration. The next section gives a brief description of the major new proposals

and changes to the budget estimates submitted by President Carter. The

chapter then moves to a discussion of CBOfs repricing of the Reagan

Administration spending estimates, using an alternative set of economic

assumptions described in Chapter I and CBO's estimating methods and

programmatic assumptions. It concludes with a discussion of off-budget

outlays and the federal debt.

PRESIDENT REAGAN'S BUDGET REVISIONS

The Reagan Administration March budget revisions can be divided into

three categories: (1) reestimates of the January budget based on new

economic assumptions and other factors; (2) proposed program increases,

largely for defense spending; and (3) proposed spending reductions for almost

34
all nondefense programs. Table 12 shows the magnitude of each category

for 1981-1984. In addition, the Administration plans to make further

spending reductions in 1983 and subsequent years, in order to achieve a

balanced budget by 1984. These further reductions amount to $30 billion in

1983 and $44 billion in 1984, and are to be identified in later messages and

budgets.

TABLE 12. MARCH BUDGET REVISIONS FOR FISCAL YEARS 1981-1984

(In billions of dollars)

Category 1981 1982 1983 1984

January Outlay Projections 662.7 739.3 817.3 890.3

Administration revisions

Reestimates and

technical adjustments

Program increases

Program decreases

Other reductions to be

proposed later

March Outlay Targets

-7.0

5.6

-6.1

—

655.2

-14.4

10.7

-40.3

—

695.3

-20.9

23.5

-58.1

-29.8

732.0

-33.4

29.1

-71.6

-44.2

770.2

Administration Spending Reestimates

A significant part of the outlay reductions in President Reagan's

budgets for 1981-1984 result from Administration reestimates based on a

new set of economic assumptions and other factors. As shown in Table 13,

the March budget revisions assume a somewhat lower unemployment rate

and sharply lower inflation and interest rates than were used for the January

budget estimates. As a result, the Administration now projects net interest

costs to be almost $3 billion lower in 1981 and $6.6 billion lower in 1982

than estimated earlier. Outlays for unemployment compensation benefits

under current law also are now expected to be lower than projected in

January—by $0.7 billion in 1981 and by $1.4 billion in 1982. The July 1981

Social Security cost-of-living adjustment (COLA) is projected by the Administration to be 11.2 percent (compared to 12.3 percent in the January

budget), and the July 1982 COLA is projected to be 9.2 percent (compared
with 11.3 percent in January). Estimated outlays for Social Security and

other indexed retirement and disability benefits under existing law have

been revised downward accordingly by $0.5 billion in 1981 and by $2.3 billion

in 1982 (see Table 1*).

TABLE 13. COMPARISON OF JANUARY AND MARCH ECONOMIC

ASSUMPTIONS USED FOR ADMINISTRATION SPENDING

ESTIMATES (By calendar year)

Economic Variable 1981 1982 1983 1984

Prices

GNP deflator (percent

change, year over year)

January budget 10.5 9.3 8.5 7.8

March revisions 9.9 8.3 7.0 6.0

Consumer Price Index (percent

change, year over year)

January budget 12.5 10.3 8.7 7.7

March revisions 11.1 8.3 6.2 5.5

Unemployment Rate (percent,

annual average)

January budget 7.8 7.5 7.1 6.7

March revisions 7.8 7.2 6.6 6.4

Interest Rate, 91-Day Treasury

Bills (annual average)

January budget 13.5 11.0 9.4 8.5

March revisions 11.1 8.9 7.8 7.0

The Administration also reestimated defense outlays downward for

both 1981 and 1982 by $2.6 billion and $3.6 billion, respectively. The bulk of

these reestimates are for outlays under existing contracts.

Rents and royalties on the Outer Continental Shelf (OCS) were revised

upward by $1.6 billion in 1981 and $0.4 billion in 1982 because of technical

reestimates and revised oil price projections. These rents and royalties are

recorded in the budget as offsetting receipts, and thus have the effect of

reducing net budget outlays.

36
Under the revised interest rate assumptions, the interest subsidy

provided to students through the guaranteed student loan program is

expected to be lower than was assumed for the January budget. As a result,

the March outlay estimates have been revised downward by $0.3 billion in

1981 and $0.5 billion in 1982. Outlays have also been reestimated for the

Government National Mortgage Association (GNMA) tandem programs to

reflect the new interest rate assumptions and recent mortgage sales

experience. Outlays for the Federal Housing Administration (FHA) and the

National Credit Union Administration (NCUA) also were reestimated to

reflect recent program experience and other factors. The GNMA, FHA, and

NCUA reestimates add $0.2 billion to outlays in 1981 and lower 1982 outlays

by $0.7 billion.

TABLE 14. MAJOR ADMINISTRATION OUTLAY REESTIMATES, FISCAL

YEARS 1981 AND 1982 (In billions of dollars)

Factor 1981 1982

Lower Interest Rates

Net interest -2.9 -6.6

Student loan guarantees -0.3 -0.5

Lower Cost-of-Living Adjustments

Social Security -0.4 -2.0

Other indexed retirement

and disability benefits -0.1 -0.3

Lower Unemployment

Unemployment compensation -0.7 -1.4

Other Factors

Defense programs

OCS rents and royalties

GNMA, FHA, and NCUA

Medicare and Medicaid

Mass transit

All other

Total

-2.6

-1.6

0.2

0.7

0.4

0.3

-7.0

-3.6

-0.4

-0.7

1.3

0.2

-0.4

-14.4

SOURCE: Fiscal Year 1982 Budget Revisions (March 10, 1981).

37
While most of the reestimates have the effect of lowering outlay

estimates for both 1981 and 1982, a few reestimates have the opposite

effect. Projected outlays for Medicare and Medicaid, for example, were

increased by $0.7 billion in 1981 and $1.3 billion in 1982. The March 10

budget revisions state that a major source of the 1982 increase was the

deletion of the Carter Administration's assumption that issuance of voluntary cost increase guidelines for hospitals would significantly lower the rate

of hospital cost inflation. Removing this assumption had the effect of

increasing 1982 outlays by $0.8 billion. Estimated mass transit outlays also

were increased from the January budget levels by $0.4 billion in 1981 and

$0.2 billion in 1982, because of higher than anticipated obligations in 1980

and early 1981.

Program Increases

The Administration proposes program increases, largely for defense

spending, that would add $69 billion to the level of outlays projected for the

period 1981-1984 in the January budget. The program additions for the

Department of Defense are estimated to add $62 billion to budget outlays

during this period. Most of the added Defense funds for 1982 are for

procurement of weapons already in production as well as spare parts,

ammunition, and other military equipment. Other principal defense spending increases are for research and development activities, and for operations

and maintenance.

The Administration also proposes a 5.3 percent pay raise for all

military personnel in July 1981, in addition to the 9.1 percent October 1981

pay raise assumed in the January budget. The purpose of the additional pay

raise is to help reduce the outflow of experienced enlisted personnel from

the armed services. The July pay raise adds $1.9 billion in budget authority

and outlays to the 1982 defense budget recommended by the Carter

Administration.

All of the military services would receive added funding so that their

relative allocations of the defense budget remain the same. Few details

have been provided about how the additional funds in 1983 and 1984 would

be used. A further discussion of the Administration's defense budget

proposals is contained in Chapter V.

As shown in Table 15, other programmatic increases to the January

budget are quite small, and are concentrated largely in the areas of

international security assistance and energy programs. The Administration

is proposing to increase security assistance to Egypt and Israel. Direct

credits for foreign military sales would also be increased by $632 million by

shifting several country programs from guaranteed sales and increasing

38
overall financing by $274 million. In addition, the Administration is

requesting an additional $250 million military and economic assistance

contingency funds for the creation of a revolving fund for procuring military

equipment for eventual transfer to other countries.

The Administration also proposes to add funds for atomic energy

defense activities and for nuclear energy programs. Funds are included in

the revised budget to build the Clinch River breeder reactor and to start

design studies for a large, commercial-size breeder reactor. Additional

funds are also included for the Strategic Petroleum Reserve to offset the

loss of receipts from the termination of the crude oil entitlements program

resulting from the decontrol of domestic oil prices.

TABLE 15. PROGRAMMATIC INCREASES TO THE JANUARY BUDGET

(By fiscal year, outlays in billions of dollars)

Program 1981 1982 1983 1984

Department of Defense-Military

Military pay 0.4 1.9 2.0 1.9

Other programs 3.5 7.6 19.7 25.3

Subtotal 3.9 9.5 21.7 27.2

International Security

Assistance — 0.4 0.8 1.0

Strategic Petroleum Reserve 1.3 0.3 a/ a/

Other Energy Programs 0.1 0.4 0.7 0.7

Other 0.2 0.1 0.3 0.3

Total 5.6 10.7 23.5 29.1

SOURCE: Fiscal Year 1982 Budget Revisions, Appendix B.

a/ Less than $50 million.

Program Decreases

The Administration recommends program decreases that would lower

projected budget outlays for 1981-1984 by $250 billion from the levels

contained in the January budget. Almost 30 percent—$74 billion—of the

program reductions, however, are yet to be identified.

39
The Administration used the following nine criteria for developing its

spending reduction proposals:

(1) The preservation of the "social safety net";

(2) The revision of entitlements to eliminate unintended benefits;

(3) The reduction of benefits for people with middle to upper

incomes;

(4) The recovery of allocable costs by means of user fees;

(5) The application of rigorous standards to economic subsidy programs;

(6) A stretch-out of public sector capital investment programs;

(7) The imposition of fiscal restraint on other programs of national

interest;

(8) Consolidation of many categorical grants to state and local

governments into block grants; and

(9) The reduction of federal overhead, personnel costs, and program

waste and inefficiency.

Under the first criterion, the Administration exempted selected programs from any major spending reductions, including basic Social Security

benefits, Medicare, railroad retirement, unemployment insurance, Supplemental Security Income, and certain veterans1

 benefits. Some reductions,

however, are proposed in these programs under the second criterion. For

example, in the Social Security programs, the Administration proposes to

eliminate the $122-per-month minimum benefit, to phase out student

benefits, to eliminate certain death benefits, and to establish an overall

limit on disability benefits. The Administration also proposes to make

various changes in unemployment compensation programs, including eliminating the national extended benefits program, and various reforms to the

Aid to Families with Dependent Children (AFDC) and Child Support Enforcement programs.

The Administration estimates that outlays for the social safety net

programs will amount to $241.4 billion in 1981, rising to $262.6 billion in

1982 and $308.8 billion in 1984 (see Table 16). This represents an increase

of 50 percent over 1980 in current dollars, and 10 percent in real terms.

With defense spending also increasing by an even faster rate, 2/ and net

interest costs remaining about the same, the rest of the budget has to bear

2/ National defense outlays are projected to increase by 88 percent

between 1980 in current dollars, and 38 percent in real terms.
TABLE 16. PRO3ECTED OUTLAYS FOR SOCIAL SAFETY NET PROGRAMS (By fiscal year, in billions of dollars)

Program

Actual Administration Estimates

1980 1981 1982 1983 1984

Social Security (OASDI)

Railroad Retirement

Medicare

Basic Unemployment Benefits

Assistance Payments (AFDC)

Supplemental Security Income

Veterans' Benefits and Services

Income security programs

Hospital and medical care

Total

117.1

4.7

35.0

16.4

7.3

6.4

11.7

6.5

205.2

137.8

5.3

41.2

22.2

7.8

7.3

13.0

6.8

241.4

154.8

5.7

47.1

18.6

6.8

8.0

14.3

7.2

262.6

170.1

6.1

54.2

16.5

6.9

9.4

15.5

7.5

286.1

184.4

6.3

61.4

16.6

6.9

8.7

16.6

7.9

308.8

SOURCE: Office of Management and Budget.

the brunt of the spending reductions. As shown in Table 17, the Administration proposals would reduce budget outlays in the remaining portion of the

budget from $187.6 billion in 1981 to $138 billion in 1984, assuming that the

budget savings to be identified later by the Administration will be focused in

this area. This would represent an absolute reduction of over 25 percent in

current dollars, and 40 percent in real terms, using the economic assumptions underlying the Administration's budget proposals. The relative share of

these programs in the total budget would fall from 32.1 percent in 1980 to

only 17.9 percent in 1984.

The future unidentified spending cuts would represent reductions of

over 16 percent in 1983 and 22 percent in 1984 from the levels now

projected by the Administration for these other programs. Included in these

programs are grants to states and local governments; various payments for

individuals such as federal employee retirement and disability benefits,

Medicaid, Food Stamps and housing assistance; and other federal operations,

such as foreign aid, scientific research and space activities, energy programs, farm price supports, commerce and housing credit, transportation,

health research and education, administration of justice, and general

government programs.

41

75-743 0-81- 5
TABLE 17. COMPOSITION OF THE ADMINISTRATION'S BUDGET FOR

FISCAL YEARS 1981-1984

Major Category

Actual

1980

Administration Estimates

1981 1982 1983 1984

Outlays in billions of dollars

National Defense

Social Safety Net

Net Interest

All Other a/

Total

135.9

205.2

52.5

186.1

579.6

162.1

241.4

64.1

187.6

655.2

188.8

262.6

68.2

175.7

695.3

226.0

286.1

68.9

150.8

732.0

255.6

308.8

67.8

138.0

770.2

Percent Distribution

National Defense

Social Safety Net

Net Interest

All Other a/

Total

23.4

35.4

9.1

32.1

100.0

24.7

36.8

9.8

28.6

100.0

27.2

37.8

9.8

25.3

100.0

30.9

39.1

9.4

20.6

100.0

33.2

40.1

8.8

17.9

100.0

SOURCE: Office of Management and Budget.

a/ For 1983-1984, the estimates assume that budget savings to be identified later will be in the all other category.

The spending cuts that are proposed in the Administration's March

budget revisions fall disproportionately on grants to state and local governments. The President recommends $10 billion in outlay reductions in 1982

for these grants (other than for benefit payments such as Medicaid) from the

levels proposed by the Carter Administration in January. As shown in

Table 18, these proposed reductions account for one-quarter of the

$40.3 billion in programmatic decreases to the January budget. The major

cuts in grant programs for 1982 include the elimination of public service

employment programs (for an outlay saving of $3.5 billion); the consolidation

and reduction in funding levels of various health and social services

programs, state and local education grant programs, and youth training and

employment programs ($3.6 billion); and reductions in a large number of

other categorical grants ($2.9 billion).
TABLE 18. PROGRAMMATIC DECREASES TO THE JANUARY BUDGET

(By fiscal year, outlays in billions of dollars)

Program 1981 1982 1983 198*

Grants to State and Local Governments

Eliminate public service

employment programs 0.5 3.5 4.1 *. *

Consolidate various health

and social services,

education, and youth

programs 0.1 3.6 5.7 6.1

Other reductions 0.3 2.9 6.* 9.2

Subtotal, grants 0.9 10.0 16.2 19.8

Payments for Individuals

Medicaid and other

programs administered

by states and localities 0.* 3.* 5.* 7.5

Social Security 0.1 2.5 3.8 4.7

Food Stamps 0.1 2.3 2.2 2.8

Other reductions 0.3 2.6 1.9 1.5

Subtotal, payments 1.1 10.9 13.3 16.5

Withdrawal of Carter Administration

Legislative Proposals 0.2 *.* 7.6 8.*

Other Program Reductions

Defense Department 0.3 1.1 2.7 3.8

Subsidies and aid to

business and industry 1.8 5.9 6.* 7.9

Human resources and

community development

programs 1.3 2.2 3.0 3.3

Mineral leasing stockpile

sales and other

offsetting receipts 0.3 1.7 2.9 3.7

Administrative reductions,

personnel adjustments, pay

revisions, and other reduced

government services 0.2 1.9 2.7 4.0

Other reductions 0.1 2.3 3.2 4.1

Subtotal, other reductions 3.9 15.1 21.0 26.9

Total 6.1 40.3 58.1 71.6

SOURCE: Fiscal Year 1982 Budget Revisions, Appendix C.
Reductions of $3.4 billion in outlays are also proposed in several

benefit payment programs that are administered by state and local governments, such as Medicaid, child nutrition programs, and assistance payments

(AFDC). Decreases in 1982 outlays for other payments for individuals are

also recommended, including Food Stamps ($2.3 billion), Social Security

benefits ($2.5 billion), and trade adjustment assistance ($1.2 billion).

The Administration does not support the previous Administration's

proposal to make 30 percent of the investment tax credit refundable, nor its

recommendation for an 8 percent Social Security tax credit. Under the

latter proposal, the credit would have been refundable to state and local

governments and nonprofit organizations, and would have resulted in outlays

of $1.9 billion in 1982. The Administration also does not support the

proposed youth education and training initiative for which $2.0 billion in

budget authority was included in the January budget. Withdrawal of these

proposals reduces 1982 estimated outlays by $4.4 billion.

The remaining reductions from the January budget include various

energy, transportation, agriculture, and other subsidies and aid to business

and industry; greater levels of offsetting receipts to be derived from

stockpile sales and mineral leasing; and various administrative reductions,

personnel adjustments, pay revisions, and other reduced government services. In addition, the President has endorsed a number of spending cuts

proposed by the previous Administration in the January budget. These

include annual cost-of-living adjustments for federal employee retirement

benefits instead of twice-a-year adjustments, annual instead of twice-a-year

adjustments for dairy price supports, and reductions for impact school aid

and other education programs.

Chapter VI contains a further discussion of the Administration's

proposed budgetary savings. Appendix A provides an analysis for 38 of the

Administration's budget reduction proposals.

CBO SPENDING REESTIMATES

This section presents the results of CBO's reestimates of the March

budget revisions, using an alternative set of economic assumptions discussed

in Chapter I and CBO's estimating methods and programmatic assumptions.

This repricing of the March budget indicates that, if all of the Administration's spending proposals were approved by the Congress, outlays could be

over $6 billion higher in 1981, over $25 billion higher in 1982, and $45-

$50 billion higher in 1984 than projected by the Administration. More than

half of these possible outlay increases can be attributed to differences in

the economic assumptions used for making the budget estimates.

44
Alternative Economic Assumptions

The economic assumptions used for the March budget revisions and by

CBO for this analysis differ with respect to several economic variables that

affect spending estimates. The CBO assumptions show higher inflation,

higher interest rates, and higher unemployment for the 1981-1984 period, all

of which mean higher budget outlays. Table 19 provides a comparison

between the Administration's and CBOfs assumptions about how the economy

would perform under the President's budgetary proposals.

TABLE 19. COMPARISON OF ADMINISTRATION AND CBO ECONOMIC

ASSUMPTIONS FOR SPENDING ESTIMATES (By calendar year)

Economic Variable 1981 1982 1983 1984

Prices

GNP deflator (percent

change, year over year)

Administration 9.9 8.3 7.0 6.0

CBO 10.3 9.2 8.6 8.1

Consumer Price Index

(percent change, year over year)

Administration 11.1 8.3 6.2 5.5

CBO 11.3 9.5 8.9 8.2

Unemployment Rate (percent,

annual average)

Administration 7.8 7.2 6.6 6.4

CBO 7.8 7.9 7.8 7.7

Interest Rate, 91-Day Treasury

Bills (percent, annual average)

Administration 11.1 8.9 7.8 7.0

CBO 12.6 13.7 11.5 10.2

As a result of the higher inflation assumptions, CBO's reestimates of

indexed benefit payment programs are based on larger annual cost-of-living

adjustments (COLAs) than were used for the March revisions. For example,
the annual Social Security COLAs projected by CBO are significantly higher

than those assumed by the Administration, especially for 1983 and 1984, as

shown below.

Annual Social Security COLAs (percent)

1981 1982 1983 1984

Administration 11.2 9.3 6.6 5.8

CBO 11.6 9.8 9.2 8.4

CBO also assumes higher fuel prices in 1982 than were assumed for the

March budget revisions. These prices affect defense fuel costs and the

Strategic Petroleum Reserve program. The Administration's defense budget

estimates are based on fuel price increases of only 8.7 percent between 1981

and 1982, while CBO assumes that fuel costs will increase by about

20 percent. CBO also assumes higher crude oil acquisition prices for the

Strategic Petroleum Reserve in fiscal year 1982—$46.25 per barrel versus

the Administration's assumption of $42.29 per barrel. The price in the

second quarter of 1981 is $40 per barrel.

The direct impact of CBO!s less optimistic economic assumptions on

projected budget outlays is shown in Table 20. The difference in interest

rate assumptions accounts for the largest spending reestimates. Under

CBOfs alternative assumptions, net interest costs during 1981-1984 would be

about $35 billion higher than projected by the Administration. The interest

subsidy costs of the Guaranteed Student Loan program would also be higher

under CBO's assumptions, and would add over $2 billion to federal outlays

during the 1981-1984 period. CBO also estimates that interest receipts for

the Exchange Stabilization Fund would be about $600 million higher over the

four-year period as a result of CBO's higher interest rate assumptions.

The effect of the higher cost-of-living adjustments assumed by CBO

throughout the 1981-1984 period would be to add about $14 billion to budget

outlays for Social Security and other indexed retirement and disability

programs. CBO also estimates that higher prices would add about

$1.6 billion to the costs of Medicare during this period, and almost $1 billion

for Medicaid. Under the Administration's proposals, increases in Medicaid

funding would be limited by the increase in the GNP deflator. The higher

GNP deflator projected by CBO would result in higher outlays in 1983 and

1984 than estimated by the Administration. Higher fuel prices could add

another $7 billion to defense spending during 1981-1984, and $800 million to

the costs of the Strategic Petroleum Reserve.

46
If unemployment were to remain at 7.8 percent as assumed by CBO,

unemployment compensation would be about $12 billion higher during 1982-

1984 than projected for the March budget revisions, assuming that the

Administration's legislative proposals for these programs are approved. If

the national extended benefits program is not eliminated, for example, the

costs of unemployment compensation could be even higher.

TABLE 20. CBO OUTLAY REESTIMATES BASED ON DIFFERENT

ECONOMIC ASSUMPTIONS (By fiscal year, in billions of dollars)

Changes from March Revisions

Economic Assumptions 1981 1982 1983 1984

Higher Interest Rates

Interest on the public debt 2.0 10.8 18.0 20.1

Other interest -0.2 -1.0 -1.6 -2.1

Interest received by trust funds -0.7 -1.7 -3.1 -5.5

Subtotal, net interest 1.2 8.1 13.3 12.5

Guaranteed Student Loans 0 71 0.7 0.9 0.7

Exchange Stabilization Fund -' -0.2 -0.2 -0.2

Subtotal, interest rates 1.3 8.6 14.0 13.0

Higher Inflation

Social Security 0.2 0.8 2.6 7.6

Other indexed retirement

and disability programs a/ 0.2 0.4 1.7

Medicare and Medicaid — 0.1 0.7 1.6

Subtotal, inflation 0.2 1.0 3.7 10.9

Higher Fuel Prices

Defense fuel costs 0.3 1.4 2.4 3.4

Strategic Petroleum Reserve 0.1 0.2 0.3 0.2

Naval Petroleum Reserve receipts a/ -0.1 -0.1 -0.2

Subtotal, fuel prices 0.4 1.5 2.6 3.5

Higher Unemployment and

Inflation

Unemployment compensation -0.7 1.9 4.6 6.0

Food Stamps and AFDC — 0.5 1.5 2.2

Subtotal -0.7 2.4 6.1 8.2

Total 1.1 13.5 26.3 35.6

a/ Less than $50 million.

47
. The net effect of the different economic assumptions used by CBO is

to add about $13 billion to the Administration's budget outlay estimate for

1982, $26 billion to 1983, and $36 billion to 1984.

Other Estimating Differences

In addition to using alternative economic assumptions, CBO also, in a

number of instances, uses different spending rate patterns and programmatic assumptions from those used by the Administration for estimating

budget outlays. CBO bases its spending patterns on analyses of historical

outlay trends and careful monitoring of the monthly Treasury statements.

Similarly, CBOfs programmatic assumptions are based on its own analyses of

trends in the growth of beneficiary populations, utilization of federal

benefits and services, and other factors. As shown in Table 21, the use of

these different spending rate and programmatic assumptions result in rather

sizable reestimates of the Administration's projected outlays for 1981-1984.

Under CBO's estimating methods and programmatic assumptions, budget

outlays would be about $13 billion higher in 1982 than projected by the

Administration, and $12 billion in 1984. CBO's reestimates for most of the

programs shown in Table 21 are discussed briefly below.

Defense Programs. Defense programs represent the largest CBO

reestimate of the Administration's outlay projections resulting from the use

of different spending patterns. CBO estimates that defense outlays for

procurement and other activities will be $5.1 billion higher than projected

by the Administration in 1982 and $7.3 billion higher in 1984. The major

differences between the CBO and Administration estimates for 1982 are for

procurements, particularly for the level of spending that will result from

prior-year obligations and contracts.

CBO's estimates for procurement expenditures through 1984 assume

sufficient industrial capacity to execute the President's program, without

the creation of any bottlenecks. CBO also assumes that the Defense

Department can obligate in the historical pattern the sharp increases in

budget authority requested by the President. The Department of Defense

obligated 50 percent more funds during the first quarter of fiscal year 1981

than the comparable period of fiscal year 1980, whereas obligations for

calendar year 1980 were only 15 percent higher than calendar year 1979.

There is evidence that the rate of procurement spending could

accelerate in 1982 rather than slow down. The January budget proposed a

$2.4 billion or 42 percent increase in 1982 for the fast-spending procurement programs for aircraft spare parts, support equipment, and ammunition

48
TABLE 21. CBO OUTLAY REESTIMATES BASED ON OTHER ESTIMATING

DIFFERENCES (By fiscal year, in billions of dollars)

Changes from March Revisions

Program 1981 1982 1983 1984

Defense Programs

Energy Programs

Natural Resources and

Environment Programs

Farm Price Supports

Mortgage Credit and

Thrift Insurance

Federal-Aid Highways and

Urban Mass Transportation

Community Development

Support Assistance

Disaster Assistance

Education and Social

Services Programs

Social Security

Other Income Security

Veterans Benefits and

Services

OCS Rents and Royalties

All Other, Net

Total

0.5

0.2

0.1

1.6

§/

0.1

1.0

0.1

1.1

0.3

-0.4

0.5

0.9

-0.6

5.3

5.1

0.8

0.8

0.8

1.2

0.8

0.8

0.3

0.8

0.6

1.1

a/

-0.3

-0.1

12.8

2.1

0.4

0.8

1.0

0.5

0.4

0.3

0.4

0.6

1.8

0.8

-0.2

-1.5

0.3

7.6

7.3

0.4

1.2

0.7

0.4

I/

a/

0.6

0.2

1.8

0.9

-0.2

-2.9

1.6

12.0

a/ Less than $50 million.

programs; the revised budget request expands this funding. Both CBO and

Administration outlay rates are not disaggregated enough to account for this

shift in program composition, which could result in an underestimate of

actual spending.

Various economic and programmatic factors affect procurement outlays, but budget authority levels in prior years are most important.

Procurement budget authority grew at an average rate of 23.8 percent

between 1979 and 1981, and it is projected to grow 36.6 percent between

1980 and 1981 alone, based on the President's request. Major increases in
procurement budget authority historically show up one to three years later

in outlays. CBO's outlay estimates are consistent with this historical lag;

procurement outlays are estimated to grow from $35.3 billion in 1981 to

$45.2 billion in 1982, an increase of $9.9 billion or 28 percent.

CBO uses 1981 spending rates to estimate 1982 outlays because

underlying economic and programmatic factors are not expected to change

dramatically between these years. CBOfs economic assumptions indicate

that the procurement inflation rate will be only slightly greater in 1981 than

in 1982 (10.1 percent versus 9.5 percent). Individual procurement programs

do not appear to be experiencing significant slippages or acceleration, with

the exception of the Trident submarine. Only much lower inflation rates

and much slower delivery of major purchases, resulting in slowdown and

slippage in procurement progress payments, could cause total 1982 procurement spending to be as low as Administration estimates.

CBO has reestimated defense outlays for the President's program in

1983 and 1984, based on aggregate spending rates. Although the reestimate

for this period is not as detailed as the 1981 and 1982 reestimates, the

results shown in Table 21 are consistent with the 1981 and 1982 analyses.

CBO outlay estimates increase steadily with the proposed increases in

budget authority. The pattern of Administration estimates is more irregular; the year-to-year outlay increases range from about $27 billion to

about $48 billion with the smallest increases in 1982 and 1984.

Energy Programs. The use of different spending rate patterns also

accounts for most of the differences between the CBO and the Administration estimates for energy program outlays. For example, CBOf

s estimate

for alternative fuels production assumes a faster spending of funds for the

first round of feasibility studies and cooperative agreements than the

Administration's. However, CBOfs outlay estimates in 1981 for the second

round, proposed for rescission by the President, are lower than the

President's because the spendout rate was adjusted to reflect delays in the

obligation of second-round funds until later in the fiscal year.

The CBO 1982 outlay estimates for energy conservation programs are

also higher than the Administration's by $160 million. Because of the

historically slow spendout of new budget authority in these programs, CBO

estimates that first- and second-year savings from the proposed rescission

would be less (by $33 million in 1981 and $80 million in 1982) than those

assumed by the Administration. In addition, despite the 75 percent

reduction in the 1982 budget authority request from the 1981 appropriated

level, CBO estimates that large carryover balances from prior-years' funding

will result in 1982 outlays $80 million higher than those projected by the

Administration.

50
CBO also estimates that 1981 outlays for energy supply R&D activities

will be $105 million higher than estimated by the Administration, because of

different assumptions about spending rates. CBO projects uranium enrichment outlays to be $198 million higher in 1982 than the Administration,

largely because of lower revenue estimates. CBO also expects that

Bonneville Power Administration outlays will be $227 million higher in 1982

than projected in the March revisions, because of lower receipts and higher

levels of program activity. Finally, CBO estimates that Department of

Energy administration and regulation outlays will be $40 million lower in

1981 and $77 million higher in 1982 as a result of slower curtailment of

energy programs than assumed by the Administration.

Natural Resources and Environment Programs. The major reason for

outlay estimating differences for natural resources and environment programs for 1982 involves different assumptions about offsetting budget

receipts derived from the sale of timber and the leasing of minerals on

federal lands. The March budget revisions anticipate approximately a

40 percent increase in timber receipts over the 1981 level, while CBO

projects a rise of only about 20 percent. The apparent reason for the

Administration's large increase in 1982 timber receipts is its forecast

increase in new housing starts in fiscal year 1982. CBO anticipates that

such a rise in new housing starts would cause less of an increase in federal

timber receipts, based on the historical relationship between new housing

starts and federal timber receipts.

The President's 1982 budget request anticipates an increase in mineral

leasing receipts of about 40 percent over the 1981 estimate. A significant

portion of this increase ($200 million) would result from accelerated leasing

in the National Petroleum Reserve in Alaska. The remainder of this

increase ($181 million) is expected to result from increases in mineral prices

in fiscal year 1982. The Administration estimate of mineral leasing receipts

in 1982 is approximately $127 million higher than the CBO estimate,

because of different mineral price and production assumptions. The CBO

outlay estimate for construction grants for sewage treatment plants are also

higher than the Administration's estimates by $160 million in 1981,

$250 million in 1982, and over $500 million by 1984. The CBO reestimates

result from different assumptions regarding the spending rate for the

program, and the timing and magnitude of the impact of the rescission in

1981.

Farm Price Supports. CBO projects significantly higher outlays for

farm price support programs than the Administration for both 1981 and

1982, because of differences in assumptions about farm production and

market conditions. For 1981, the largest outlay estimating difference

appears in the feed and food grain support program. CBO estimates that

51
more wheat will be placed in the farmer-owned reserve, and less corn will

be sold by the Commodity Credit Corporation (CCC) than assumed by the

Administration. This would add $945 million to 1981 outlays. CBO also

projects higher milk production, which would add $462 million to the level of

milk price support outlays estimated by the Administration. In addition,

CBO has a lower estimate for short-term expert credit payments

($96 million) and a higher estimate for the livestock emergency feed

program ($50 million) in 1981 than projected by the Administration.

The outlay estimating difference is smaller for 1982 farm price

supports. CBO projects expenditures of $840 million above the Administration's. The primary outlay difference is for dairy price supports

($743 million). CBO assumes higher levels of milk production than the

Administration, which would result in continuing large CCC purchases of

dairy products. CBO's higher production assumption is based on an analysis

of production-feed ratios. CBO also projects higher wheat and feed grain

commodity loans than the Administration. This would add about

$100 million to 1982 outlays.

Mortgage Credit and Thrift Insurance. CBO estimates that 1982

outlays for the two mortgage purchase programs of the Government

National Mortgage Association (GNMA) will total $1,334 million, about

$660 million higher than the Administration's estimate of $670 million. The

CBO estimate assumes lower mortgage sale levels and higher discount point

costs on these sales than assumed by the Administration, as shown in the

following table:

(In millions of dollars)

Administration CBO

Estimate Estimate Difference

Mortgage sales 2,700 2,000 -700

Discount costs 620 560 -60

CBO also assumes a higher GNMA auction yield than the Administration

(11.5 percent compared to 10.7 percent).

The other major outlay estimating difference for 1982 involves net

outlays by the Federal Savings and Loan Insurance Corporation (FSLIC). The

Administration has revised downward the 1982 outlay estimate for the

FSLIC by $186 million from the January budget. The change assumes more

optimistic interest rate assumptions, which would allow the agency to sell

52
assets purchased from troubled institutions. These assets are normally held

by the FSLIC until they are able to be sold at a profit, or at least at a level

where losses are not incurred.

CBO assumes interest rates will not decline sufficiently to warrant the

sale of these additional assets in 1982. In addition, because of current

trends in the industry, including high interest rates and declining new

savings deposits, the CBO estimate assumes assistance to savings and loans

will be $335 million higher than the Administration estimates, which

assumes a normal level of approximately $200 million. Actual purchases of

assets and loans to insured institutions exceeded $1 billion in 1980, and are

expected to be at approximately the same level in 1981.

Federal-Aid Highways and Urban Mass Transportation. CBO estimates

that outlays for federal-aid highways and urban mass transportation grants

will be $800 million higher in 1982 than projected by the Administration.

The largest estimating difference ($473 million) is for urban mass transportation grants, for which CBO projects faster spending for new operating

assistance grants and higher levels of spending in 1982 from prior-year

capital grants. CBO!s projections are based on historical spending patterns

for operating assistance grants and the 1980-1981 outlay experience for

capital grants. CBO believes that the Administration has overestimated by

$200 million the budget savings to be achieved by a reduction in new capital

grants.

CBOfs analysis of the Administration's outlay estimates for federal-aid

highway construction grants suggests that they are low by $100 million in

1981 and by about $328 million in 1982. The CBO analysis is based on

historical spending patterns, and takes into account the Administration's

1982 first-quarter obligation ceiling.

Community Development Support Assistance. CBO projects significantly higher outlays in both 1981 and 1982 than the Administration for

community development support assistance, based on CBOfs analysis of

actual spending trends. CBO projects a 20 percent growth in outlays in 1981

for Community Development Block Grants, based on actual outlays for the

first quarter. In each of the program's four full years of operation, firstquarter outlays have been about one-quarter of total fiscal year outlays, and

quarterly spending patterns have varied little. Actual outlays for the first

quarter of fiscal year 1981 were $1.2 billion, or 25 percent of CBO's

$4.7 billion estimate for the full year. The program has ample balances of

prior-year obligations ($6.4 billion at the start of 1981) to support CBO's

projected level of spending, which is $762 million above the Administration's

estimate.

53
CBO also estimates that 1981 outlays for Urban Development Action

Grants will be $235 million higher than projected by the Administration.

Spending for this program has grown rapidly in recent years, from

$73 million in 1979 to $225 million in 1980. CBO expects this rapid growth

to continue, based on the programfs success in obligating funds quickly, and

the fact that most projects begin construction soon after obligation. The

Administration, on the other hand, assumes that, rather than continue,

spending growth will level off in 1981.

The estimating differences between CBO and the Administration

continue in 1982, although they narrow somewhat. CBO expects the basic

Community Development Block Grant program to slow its spending growth

as the bulk of prior-year obligations are expended. Outlay growth for the

Urban Development Action Grant program should also slow as the pipeline is

cleared of prior-year balances.

Disaster Assistance. The CBO estimate of outlays for various disaster

assistance programs is approximately $300 million higher than the

President's for fiscal year 1982 and $600 million in 1984. CBO projected

estimates for these programs are based on recent program experience,

adjusted for inflation, whereas the President's expected program levels are

at or lower than recent experience, with no adjustments for inflation. Since

all of these programs are highly sensitive to natural disasters, the risk in any

given year of substantial unexpected spending is great, especially in the

flood insurance program, for which contingent liabilities are expected to

exceed $107 billion in 1982.

Education and Social Services Programs. CBO anticipates that spending for various education and social services programs will be $1.1 billion

higher in 1981 and $800 million higher in 1982 than projected by the

Administration, based on CBO's analysis of recent spending patterns. In

addition, the CBO estimate of the Guaranteed Student Loan program

assumes that legislation requested by the President will be enacted by July

1, 1981, but will not be fully implemented until October 1,1981. This

implementation schedule will result in smaller savings in fiscal years 1981

and 1982 than will be the May enactment and July implementation schedule

implicit in the Administration's estimate.

Social Security. In addition to higher projected annual cost-of-living

adjustments, CBO projects slightly higher growth in Social Security recipients during the next four years than assumed by the Administration. In

addition, CBO assumes that smaller savings will result from the Administration's management initiative to remove disabled recipients from the benefit

roles as soon as recovery occurs. These differences in programmatic
assumptions result in $340 million higher outlays for 1981, over $600 million

for 1982, and $1.8 billion by 1984.

Other Income Security. There are also a number of differences

between CBO and the Administration on programmatic assumptions for

other security programs. For example, CBO projects that the average

monthly number of AFDC recipients will be higher throughout the next four

years than assumed by the Administration. CBO projects average monthly

recipient levels of 11.2 million for 1981 and 11.4 million for 1982, compared

with the Administration's estimates of 10.8 million and 10.7 million respectively. CBO also has included $230 million in its 1981 outlay estimates

because of a recent appeals court decision requiring the Railroad Retirement Board to pay additional windfall benefits, including retroactive payments. These payments have not been included in the Administration's

estimates. In addition, CBO assumes a slower implementation of the

Administrtion's Food Stamp legislative changes. The Administration's outlay

estimates for Food Stamps assume that full-year savings from the proposed

legislation can be achieved in 1982, whereas CBO assumes full implementation would not be achieved until March 1982.

Veterans' Benefits and Services. In fiscal year 1981, the CBO estimate

of outlays for veterans' benefits and services exceeds the President's

estimate by about $500 million. The largest difference, for readjustment

benefits, results from a higher CBO estimate of trainees. Extrapolations of

actual fall 1980 enrollment figures, the anticipation of continued high

unemployment through the remainder of fiscal year 1981, and the 10 percent

rate increase enacted in 1980, all indicate a much higher number of trainees

than estimated by the Administration. In fiscal year 1982, the difference

between the Administration's and CBO's estimates of readjustment benefits

outlays drops substantially and is insignificant in the outyears.

CBO estimates outlays from the veterans' loan guarantee revolving

fund in fiscal year 1981 to be $163 million higher than estimated by the

President, because of a substantially lower CBO estimate of loan asset sales

and a higher CBO estimate of discounts paid on such sales. Estimating

differences for this account in fiscal years 1982-1984 are small.

In the veterans' pension benefits program, CBO estimates fiscal year

1982 outlays $135 million below the President's estimated level. This

estimating difference grows to $180 million by 1984 and results from CBO's

expectation that the rate of accessions to the P.L. 95-588 pension rolls will

decline faster than predicted by the Administration.

55
PCS Rents and Royalties, CBO estimates that rents and royalties on

the Outer Continental Shelf (OCS) will be $900 million less than projected

by the Administration for 1981, but $300 million higher in 1982, and

substantially higher in 1983 and 198* ($1.5 billion and $2.9 billion

respectively). The 1981 difference largely results from different

assumptions about the level of royalty payments. For 1982-198*, the

differences are largely caused by different assumptions about the level of

bonuses to be derived from new lease sales.

OFF-BUDGET OUTLAYS AND FEDERAL DEBT

The March budget revisions also contain new estimates for off-budget

outlays and federal debt. Off-budget outlays are the net transactions of

various entities that are federally owned and operated, but are excluded

from the unified budget totals under provisions of law. The outlays of offbudget entities are added to the unified budget deficit to derive the total

federal deficit that has to be financed by borrowing from the public and by

other means. When off-budget outlays are financed by Treasury borrowing,

the additional debt is subject to the statutory debt limit.

TABLE 22. OUTLAYS OF OFF-BUDGET FEDERAL ENTITIES (By fiscal

year, in billions of dollars

Off-Budget

Federal Entity

1980

Actual

1981 Estimates 1982 Estimates

January March January March

Budget Revisions Budget Revisions

Federal Financing Bank 14.5 23.1 23.1 18.2 15.1

Postal Service Fund -0.4 0.2 0.6 -0.1 1.4

Rural Electrification and

Telephone Revolving Bank 0.2 0.2 0.2 0.2 0.2

U.S. Railway Association a/ -0.3 -0.3 a/ a/

Synthetic Fuels Corp. 0.0 0.0 0.0 0.0 0.0

Total 14.2 23.2 23.6 18.3 16*7

a/ Less than $50 million.

56
Off-Budget Outlays

The Federal Financing Bank (FFB) was established in 1974 to provide

an efficient method for financing certain borrowing activities by federal

agencies. The FFB itself does not operate any programs. Rather, it assists

other government programs by purchasing loan assets, or by making loans

for which other agencies guarantee repayment. The Administration believes

that the operations of the FFB have weakened budgetary control over

federal credit programs, and is proposing to reform its operations and to

decrease substantially its loan outlays. The net reduction in FFB outlays in

1982 is estimated to be $3.1 billion, as shown in Table 22. The reduction in

estimated FFB outlays in 1982 is partially offset by an increase of

$1.5 billion in net outlays for the Postal Service Fund.

As shown in Table 23, the Administration now estimates that FFB

outlays for net purchases of agency loan assets will be $4.8 billion in 1982, a

decrease of $1.9 billion from the level estimated in the January budget, and

$7.8 billion below the level currently estimated for 1981. The decreases

result from lower sales of certificates of beneficial ownership (CBOs) by the

Farmers Home Administration and the Rural Electrification Administration

(REA) to the FFB. The Administration also estimates that FFB outlays for

direct loans net of repayments will be over $1.1 billion lower in 1982 than

estimated in January. The major reductions are for FFB lending on behalf

of the Student Loan Marketing Association ($1.4 billion) and the REA

($0.9 billion). FFB net outlays for low-rent public housing in 1982 have been

reestimated upward by $1.6 billion.

Federal Debt

The Administration now estimates that federal debt subject to the

statutory limit will rise from $908.7 billion at the end of fiscal year 1980 to

$1,071.2 billion by the end of fiscal year 1982. This represents an increase

of $162.5 billion, or 18 percent, during the two-year period. The increase is

$17.6 billion greater than projected in the January budget, largely because

of the higher unified budget deficit now estimated for 1982.

The current statutory limit on federal debt is $985 billion. It was

enacted on February 7, 1981, and expires on September 30, 1981. The

Administration's latest estimates indicate that the current limit will be

reached before September 30. CBOfs reestimates of the revenue and outlay

estimates in the March budget revisions indicate that the deficit for 1981

57

75-743 0-81- 6
TABLE 23. DISTRIBUTION OF FEDERAL FINANCING BANK (FFB)

OUTLAYS, NET (By fiscal year, in billions of dollars)

1981 Estimates 1982 Estimates

Description

1980 January March January March

Actual Budget Revisions Budget Revisions

Purchases of Agency

Loan Assets

Farmers Home Admin.

Rural Elec. Admin.

Subtotal

Direct Loans (Purchases

of Agency Guaranteed

Loans)

REA

Foreign military sales

credit

Student Loan Marketing Assn.

Low-rent public

housing

Other

Subtotal

Interest , Transfer of

Surplus, and Administrative Expenses

Total, FFB Outlays

6.9

0.7

7.6

2.5

1.9

1.1.

0.1

1.2

6.8

0.1

14.5

12.4

0.5

13.0

4.3

2.0

1.1

1.5

1.3

10.1

a/

23.1

12.1

0.5

12.6

4.2

2.0

2.1

1.1

1.1

10.5

a/

23.1

6.1

0.6

6.7

5.1

2.2

1.9

0.9

1.3

11.5

a/

18.2

4.4

0.4

4.8

4.2

1.9

0.5

2.6

1.2

10.3

a/

15.1

a/ Less than $50 million.

could be about $8 billion higher than projected by the Administration, so

that the current limit could be reached even earlier. The Administration's

estimates of the level of public debt subject to limit for 1981 and 1982 are

shown in Table 24.

58
TABLE 2*. ESTIMATES OF THE LEVEL OF FEDERAL DEBT SUBJECT TO

STATUTORY LIMIT (By fiscal year, in billions of dollars)

1981 Estimates 1982 Estimates

Federal Debt

1980 January March January March

Actual Budget Revisions Budget Revisions

Increase in Debt Subject

to Limit

Unified budget deficit

Deficit of off-budget

federal entities

Trust fund surpluses

Means of financing

(other than borrowing) and other

adjustments

Total increase

59.6

14.2

8.8

-1.5

81.1

55.2

23.2

4.5

-4.3

78.5

54.9

23.6

5.7

-5.5

78.7

27.5

18.3

19.2

1.3

66.4

45.0

16.7

21.7

0.4

83.8

Debt Subject to Limit,

Beginning of Year 827.6 908.7

Debt Subject to Limit,

End of Year 908.7 987.3

908.7 987.3 987.4

987.4 1,053.6 1,071.2

59

CHAPTER IV. THE CREDIT BUDGET

President Reagan's budget revisions for fiscal year 1982 propose a

sharp reduction in the amount of new direct loans and loan guarantees to be

extended by federal agencies in both 1981 and 1982. The revised 1981 credit

budget reaches $140.2 billion, 9 percent—or $13.6 billion—below the January

budget's estimate (see Table 25). The reduction proposed for 1982 is

sharper: a 14 percent reduction from the January estimate, to $127.9 billion.

The brunt of the reduction in both years is borne by the loan guarantee

programs; primary loan guarantee commitments would be cut by $29.4

billion over the two years under the Administration's proposal. New direct

loan obligations are only reduced by $5.2 billion.

TABLE 25. THE ADMINISTRATION'S REVISED CREDIT BUDGET

TOTALS (By fiscal year, in billions of dollars)

Credit Activity

1981 Estimates 1982 Estimates

1980 January March January March

Actual Budget Revisions Budget Revisions

New Direct Loan Obligations

Agency direct loans, on

and off-budget

FFB direct loans

Total, direct loans

Less FFB loan asset

purchases

Direct loans, adjusted

39.2

22.2

61.4

-12.1

49.3

43.3

30.9

74.2

-16.6

57.6

39.7

31.5

71.2

-16.2

55.0

35.4

24.8

60.2

-8.2

52.0

33.8

21.8

55.6

-6.2

49.4

New Loan Guarantee

Commitments

Gross guarantees

Less secondary guarantees

Less guarantees of direct

loans

Primary loan guarantees

Total, Credit Budget

161.0 202.1 184.7 196.4 168.7

_64.4 -73.2 -66.2 -74.3 -64.7

-24.4 -32.7 -33.3 -25.2 -25.4

72.2

121.5

96.2

153.8

85.2

140.2

96.9

148.9

78.5

127.9

61
Both the January credit budget and the March revisions anticipate an

increase in new federal credit in 1981 over the 1980 level, and a decrease in

1982, relative to the 1981 total. Under the March revisions, the upswing in

1981 is less pronounced and the downswing in 1982 is much sharper than in

the January budget. The January budget estimates envisioned a 26 percent

increase in new credit in 1981 over the 1980 level, whereas the March

revisions anticipate only a 15 percent increase. The credit budget total for

1982 was expected to fall slightly relative to the 1981 total, according to

the January estimates, so that commitments for new credit in 1982 would be

23 percent above the 1980 level. Under President Reagan's proposals,

however, new direct loan obligations and new loan guarantee commitments

in 1982 will only be 5 percent above the 1980 level.

In relative terms, the reduction in credit is greater than the reduction

in direct spending. The credit reductions are steeper in part because few

credit programs fall within the large portions of the budget whose size the

Administration intends to maintain, defense and "social safety net"

programs. The remaining portions of the budget, including most credit

programs, have been targeted for proportionally greater decreases.

CONGRESSIONAL ACTION ON THE CREDIT BUDGET

i The Congress may act on the credit budget by setting targets in the

concurrent budget resolutions for aggregate new credit activity and by

enacting limitations on individual programs in appropriation legislation. In

the concurrent budget resolutions for 1981, the Congress set targets for

direct loans and for primary and secondary loan guarantees. \J According to

the credit budget totals presented in January, it was expected that each of

these targets would be exceeded (see Table 26). The revised budget

reductions bring the 1981 totals for direct loan obligations and primary loan

guarantee commitments within the second budget resolution targets. The

revised estimate of secondary loan guarantee commitments—primarily

Government National Mortgage Association (GNMA) guarantees of

mortgage-backed securities of the Federal Housing Administration and

Veterans1 Administration--still exceeds the target by $13.2 billion. The

increase in GNMA guarantees reflects the increased demand for federally

assisted mortgages when interest rates are high and credit availability

limited.

I/ Secondary loan guarantees are guarantees of loans by one federal

agency which have already been guaranteed by another federal agency.

62
TABLE 26. CREDIT BUDGET FOR 1981: JANUARY AND MARCH

REVISED ESTIMATES COMPARED TO SECOND BUDGET

RESOLUTION (In billions of dollars)

Second

Budget January March

Credit Activity Resolution Budget Revisions

New Direct Loan Obligations

On-budget 44.6 42.1

Off-budget 28.9 32.2

Total, gross direct loans 73.5 74.2 71.2

Primary Loan Guarantee

Commitments a/ 82.8 92.8 81.8

Secondary Loan Guarantee

Commitments 53.0 73.2 66.2

a/ Does not include correction for TVA guarantees; does include correction to January reestimates for Biomass Energy Development.

Reductions in credit program activity levels can be achieved either

through changes in the basic law governing a program or through enactment

of limitations on annual activity. These limitations are included in the

regular appropriation bills. The majority of the reductions proposed by the

Reagan Administration do not require amendments of basic law; many will,

therefore, require Congressional approval of limitations in appropriations.

For 1982 the reductions take the form of revised limitation requests. For

1981, reductions are either in the form of withdrawal of requested supplemental increases in limitations or of reductions in previously enacted

limitations. Reductions achieved through withdrawal of supplemental

requests total $0.9 billion in direct loan obligations, primarily for reduced

Small Business Administration disaster loans, and $13.8 billion in gross loan

guarantee commitments, primarily for home mortgage credit. No

Congressional action is required to achieve these reductions. Reductions in

previously enacted limitations are essentially amendments to limitations set

in appropriations acts for 1981. These reductions are analogous to rescissions of appropriations.

For a few programs, the Administration is requesting changes in

authorizing statutes. Most of these are requests for dismantling and

63
terminating programs. Programs to be terminated include biomass and

geothermal energy development loan guarantees, the Economic Development Administration, HDD's program of housing rehabilitation loans and the

Consumer Cooperative Bank. Termination of these programs accounts for a

reduction of $0.6 billion in new direct loan obligations and of $0.7 billion in

new loan guarantee commitments in 1982.

The Administration can take action on its own to reduce some credit

program levels, as long as the action is within discretion granted by the

Congress. Administrative actions announced in the revised budget include

increased interest rates for veterans1 life insurance programs and restrictions on Federal Financing Bank (FFB) activity. The Administration plans to

curtail use of the FFB as a lender by the Farmers Home Administration, the

Rural Electrification Administration, and the Student Loan Marketing

Association. These agencies will increasingly be directed to private lenders

for sources of funds.

EXEMPTIONS FROM APPROPRIATION LIMITATIONS

A large portion of the credit budget consists of programs that are

exempt from appropriation limitations. The Carter Administration

exempted programs for which it considered annual limitations on new

lending contrary to the nature of the programs. Most such programs were

either entitlement programs, for which the government is legally bound to

provide funds, or insurance and disaster programs, which require flexibility

for effective response to emergencies. The Reagan Administration adopted

these criteria for exemption in its budget revisions.

By nature, the programs subject to appropriation limitations tend to

offer more opportunity for discretionary changes than do the exempt

programs. For this reason, as shown in Table 27, the largest reductions from

the January estimates occur in the portion of the credit budget subject to

limitations. Achievement of the reductions in credit proposed by the

Administration depends on enactment by the Congress of the requested

limitations.

ADJUSTMENTS TO THE CREDIT BUDGET

The Administration has made several technical adjustments to the

credit budget totals, which have a substantial impact. They shift the

January credit budget estimates downward by $11.5 billion for 1981 and $3.7

billion in 1982 (see Table 28).
TABLE 27. CREDIT BUDGET LIMITATIONS AND EXEMPTIONS (By fiscal

year, in billions of dollars)

New Direct Loan

Obligations

Exempt from

limitation

Requested for

limitation

1981 Estimates

Change

January March from

Budget Revisions January

34.6 34.3 -0.3

23.0 20.7 -2.3

Total 57.6 55.0 -2.6

Primary Loan Guarantee

Commitments

Exempt from

limitation 48.8 43.8 -5.0

Requested for

limitation 47.4 41.4 -6.0

Total 96.2 85.2 -11.0

1982 Estimates

Change

January March from

Budget Revisions January

29.4 26.1 -3.3

22.6 23.3 0.7

52.0 49.4 -2.6

25.0 23.3 -1.7

71.9 55.2 -16.7

96.9 78.5 -18.4

TABLE 28. ADJUSTMENTS TO THE CREDIT BUDGET (By fiscal year, in

billions of dollars)

Credit Activity

Direct Loan Obligations, Total

Less FFB loan asset purchases

Direct Loan Obligations, Adjusted

Primary Loan Guarantee

Commitments, Unadjusted

TVA guarantees of FFB loans

Biomass energy development

Primary Loan Guarantee

Commitments, Adjusted

1981 Estimates

January March

Budget Revisions

74.2 71.2

-16.6 -16.2

57.6 55.0

91.1 81.8

3.4 3.4

1.7

96.2 85.2

1982 Estimates

January March

Budget Revisions

60.2 55.6

-8.2 -6.2

52.0 49.4

92.4 74.0

4.5 4.5

96.9 78.5
The adjustment to new direct loan obligations corrects for double

counting of direct loans sold by the Farmers Home Administration (FmHA)

and other agencies to the Federal Financing Bank. Such loans are counted

twice in the new direct loan obligation totals, originally as new FmHA

obligations and then, when the FFB purchases the loans, as new FFB

obligations. The revised total eliminates this double counting.

The first adjustment to the loan guarantee totals involves loans made

by the FFB under guarantees by the Tennessee Valley Authority (TVA).

When the FFB makes direct loans to borrowers at the request of another

federal agency, it requires a guarantee that the agency will repay the

principal and interest in case of default by the borrower. These guarantees

are included in the total of new loan guarantee commitments, but then are

deducted as guarantees of direct loans when computing primary loan

guarantees. Because of a dispute about the nature of TVA's activity, the

January budget did not include the TVA guarantees in the total of new loan

guarantee commitments. OMB did, however, deduct the amount of the TVA

guarantees, as guarantees of direct loans, from the total of all new

guarantee commitments, even though the guarantees were not included in

the total. The Administration's March revisions put the original TVA

guarantees back into the total of loan guarantee commitments to correct

the primary guarantee total.

The second loan guarantee adjustment simply includes $1.7 billion in

additional 1981 loan" guarantee commitments for biomass energy development, inadvertently excluded from the credit budget totals of the January

budget.

THE REVISED CREDIT BUDGET BY FUNCTION

The revised program levels for the 1981 and 1982 credit budgets are

detailed in Tables 29 and 30 by function. The largest reductions in 1981

direct lending occur in International Affairs (Export-Import Bank and the

economic support fund), and Community and Regional Development (Small

Business Administration disaster loans, HUD rehabilitation loans, and rural

development activities of FmHA). Most programs involving economic

development activities are scheduled for reduction. In 1982, the largest

direct loan decreases are scheduled for the Energy, Agriculture, and

Commerce and Housing Credit functions, which contain reductions in the

Rural Electrification Administration and FmHA loans. The largest changes

in loan guarantee levels for both 1981 and 1982 occur in the Commerce and

Housing Credit function. Three agencies, SBA, FHA, and GNMA, account

for reductions in gross loan guarantee commitments of over $14 billion in

1981 and over $18 billion in 1982. The FHA and GNMA changes involve

significant decreases in the supply of federally supported home mortgage

credit.

66
TABLE 29. THE ADMINISTRATION'S CREDIT BUDGET REVISIONS FOR NEW DIRECT LOAN

OBLIGATIONS, BY FUNCTION (By fiscal year, in millions of dollars)

Function

International Affairs (150)

Functional development

assistance

Economic support fund

Foreign military sales

credit

FFB loans

Food for Peace

Export-Import Bank

Other 150

Total, 150

General Science, Space and

Technology (250)

NASA-FFB loans

Energy (270)

Rural Electrification

Administration

FFB loans

Tennessee Valley

Authority— FFB loans

Other energy

Total, 270

Natural Resources and

Environment (300)

Interior Dept. loan program

Agriculture (350)

Agriculture credit (FmHA)

FFB loans

Commodity Credit

Corporation

Total, 350

Commerce and Housing

Credit (370)

Rural housing (FmHA)

FFB loans

National Credit Union

Administration

SBA business loan fund

FFB loans

FSLIC

1980

Actual

445

713

635

2,380

877

4,365

5

9,419

107

1,175

3,188

2,436

8

6,807

12

7,528

5,257

4,947

17,732

6,752

4,681

327

761

149

589

1981

January

Budget

396

735

640

2,600

916

5,900

11

11,198

102

1,100

4,774

3,437

112

9,424

25

8,810

7,121

3,596

19,527

6,709

7,341

2,227

789

360

1,055

Estimates

March

Revisions

396

255

640

2,600

840

5,148

11

9,890

102

913

4,736

3,437

22

9,109

25

8,721

7,045

3,571

19,337

6,393

7,067

2,081

744

293

1,055

1982

January

Budget

475

1,000

1,020

3,000

878

5,000

11

11,384

144

1,100

5,752

4,501

96

11,449

34

5,658

2,305

4,620

12,583

5,395

4,161

3,671

875

360

190

Estimates

March

Revisions

369

1,000

1,652

2,700

808

4,400

1

10,930

144

700

4,600

4,501

2

9,803

24

3,008

1,166

4,520

8,694

4,746

3,645

3,671

759

295

190

(Continued)
TABLE 29. (Continued)

1981 Estimates

1980

Function Actual

Commerce and Housing

Credit (continued)

Federal Housing Administration

Housing for elderly/

handicapped

GNMA mortgage purchase

assistance 2

National Consumer Co-op

Bank

Other 370

Total, 370 17

Transportation (400)

Amtrak— FFB loans 1

Other rail programs

FFB loans

Other transportation

Total, 400 1

Community and Regional

Development (450)

Rural development (FmHA) 1

FFB loans 1

Rural Telephone Bank

Economic Development

Administration

SBA disaster loans 1

Rehabilitation loans

Community development—FFB loans

Other 450

Total, 450 4

Education, Training, Employment

and Social Services (500)

National Direct Student

Loans

Guaranteed Student Loans

SLMA-FFB loans 1

College housing

Total, 500 1

Health (550)

Health programs

FFB loans

Total, 550

301

933

,195

22

331

,041

,073

150

149

35

,407

,423

,443

200

116

,237

203

45

98

,765

305

271

,070

114

,759

66

39

105

January

Budget

282

896

1,824

187

8

21,678

237

115

308

29

689

1,667

1,608

185

116

2,850

197

270

127

7,021

186

346

1,095

106

1,733

66

52

118

March

Revisions

282

896

1,824

62

8

20,704

237

115

308

29

689

1,507

1,597

185

66

2,070

45

127

71

5,669

186

343

2,095

76

2,700

66

52

118

1982 Estimates

January

Budget

278

851

305

147

9

16,241

56

156

269

34

515

326

1,064

185

116

490

215

270

24

2,691

286

455

1,923

95

2,759

93

76

169

March

Revisions

278

851

3,605

13

40

18,093

56

116

269

34

475

196

1,021

185

—440

—

180

24

2,047

286

588

500

50

1,424

93

76

169

(Continued)
TABLE 29. (Continued)

1981 Estimates

Function

Income Security

Low-rent public housing

FFB loans

Other Income Security

Total, 600

Veterans' Benefits and

Services (700)

Life insurance

Housing

Education

Total, 700

General Government (800)

GSA--FFB loans

General Purpose Fiscal

Assistance (850)

Loans to District of

Columbia

Direct Loans, Unadjusted

Less FFB loan asset

purchases

Direct Loans, Adjusted

1980

Actual

1,318

119

1

1,438

256

362

8

626

51

90

61,358

-12,110

49,248

January

Budget

300

1,458

4

1,762

301

408

10

718

110

133

74,238

-16,637

57,601

March

Revisions

300

1,684

4

1,988

210

408

10

627

110

133

71,200

-16,261

54,939

1982 Estimates

January

Budget

300

957

6

1,263

298

436

10

744

6

220

60,203

-8,230

51,973

March

Revisions

300

2,654

6

2,960

202

436

10

648

31

145

55,586

-6,208

49,378
TABLE 30. THE ADMINISTRATION'S CREDIT BUDGET REVISIONS FOR NEW LOAN

GUARANTEE COMMITMENTS, BY FUNCTION (By fiscal year, in millions of

dollars)

Function

National Defense (050)

Defense production

International Affairs (150)

Foreign military sales

credit

Export-Import Bank

Other 150

Total, 150

Energy (270)

Rural Electrification Administration

Synthetic Fuels Corporation

Alternative fuels

production

Tennessee Valley Authority

Biomass loan guarantees

Other energy

Total, 270

Agriculture (350)

Agriculture credit (FmHA)

Commodity Credit Corporation

Total, 350

Commerce and Housing

Credit (370)

Rural housing (FmHA)

Chrysler loan guarantees

Small Business Administration

Federal Housing Administration

GNMA mortgage-backed

securities

Other, 370

Total, 370

Transportation (400)

Ship financing

Railroad assistance

Aircraft purchase

Total, 400

1980

Actual

1

1,450

8,031

350

9,831

5,687

—

2,43 — 6

— 84

8,207

5,420

744

6,164

4,778

800

4,809

29,106

63,165

153

102,811

1,223

278

247

1,747

1981

January

Budget

30

2,546

8,560

320

11,426

5,145

1,500

4,500

3,437

1,761

258

16,601

7,532

1,947

9,479

7,426

700

5,878

39,000

72,000

150

125,154

1,200

395

324

1,919

Estimates

March

Revisions

30

2,546

7,559

270

10,375

5,095

1,500

4,500

3,437

20

57

14,577

7,456

1,947

9,402

7,152

700

4,888

34,155

64,000

138

111,033

900

395

300

1,595

1982

January

Budget

30

2,931

9,420

430

12,781

5,145

2,000

4,50 — 1

35

204

11,885

2,636

2,000

4,636

4,211

—

5,925

44,000

72,360

125

126,621

1,400

354

350

2,104

Estimates

March

Revisions

30

2,573

8,220

250

11,043

5,245

2,000

4,50 — 1

— 2

11,747

1,597

2,000

3,597

3,695

—

4,445

35,000

64,208

138

107,486

1,050

354

100

1,504

(Continued)
TABLE 30. (Continued)

Function

Community and Regional

Development (450)

Rural development (FmHA)

Community development

grants

Economic Development

Administration

Other, 450

1980

Actual

2,509

157

48

26

Total, 450 2,740

Education, Training, Employment

and Social Services (500)

Guaranteed Student Loans 4,750

Guarantees of SLMA

obligations 1,070

Total, 500

Health (550)

5,820

65

1981

January

Budget

2,349

250

425

7

3,031

7,185

1,095

8,280

100

Estimates

March

Revisions

2,338

250

163

7

2,758

7,185

2,095

9,280

100

1982

January

Budget

1,564

250

425

64

2,303

5,697

1,923

7,620

176

Estimates

March

Revisions

1,000

250

30

1,280

5,697

500

6,197

176

Income Security (600)

Low-rent public

housing 17,013

Veteran!s Benefits and

Services (700)

Housing 6,310

General Purpose Fiscal

Assistance (850)

New York City loan

guarantees 300

Total, Gross Loan Guarantees 161,019

Less secondary guarantees -64,393

Less guarantees of direct

18,423 17,839 20,081 17,446

7,422

300

7,422

300

7,383

756

loans

Total, Primary Loan

Guarantees

-24,383

72,243

7,383

756

202,151 184,711 196,407 168,675

-73,190 -66,190 -74,317 -64,742

-32,697 -33,314 -25,151 -25,443

96,264 85,207 96,939 78,490

CHAPTER V. MAJOR INCREASES IN NATIONAL SECURITY PROGRAMS

National security is the only area in which the March budget revisions

request significant increases over the January budget for both 1981 and

1982. The major portion of these increases are for national defense

programs as shown below.

National

Defense

Budget

Authority

Outlays

1980

Actual

145.8

135.9

(In billions of dollars)

1981 Estimates 1982 Estimates

January

Budget

173.9

161.1

March

Revisions

180.7

162.1

January

Budget

200.3

March

Revisions

226.3

188.8

President Reagan proposes budget authority of $180.7 billion for 1981

and $226.3 billion for 1982—an increase of $45.6 billion. These proposals

compare to requested budget authority of $173.9 billion for 1981 and

$200.3 billion for 1982 in the January budget. Administration outlay

estimates of $188.8 billion for 1982 exceed estimated 1981 levels by

$26.7 billion. For 1982, the President's requested budget authority increase

includes roughly $20 billion to cover inflationary growth in prices and pay,

and about $26 billion of real growth (about 13 percent) for various defense

programs, based on CBO economic assumptions.

OVERVIEW OF THE ADMINISTRATION'S NATIONAL DEFENSE PROGRAM

The March budget revisions provide only a partial picture of the ways

in which the Reagan Administration may change the military force

structure. All the major program initiatives of the Carter Administration

are continued, including such major investment programs as the MX landbased missile, the Trident II submarine-launched missile, and the CX cargo

aircraft. Only one major new defense program is unveiled—the manned

strategic bomber, and even the design of the aircraft is unspecified.

Financial data provided with the revisions indicate that there are

sufficient funds programmed in the out years to support an increase of

73

75-743 0-81- 7
93,500 military personnel by 1986. How these numbers of added personnel

will be achieved and how they will be used is unclear. The budget revisions

do provide some added funds to increase current recruitment and retention

programs.

In the research and development area, the 1982 revisions give only

slight attention to the development of entirely new weapons (except for the

manned bomber), but place considerable emphasis on improving the performance of weapons already in or about to enter production.

Procurement receives the largest increase in funding, with the

emphasis clearly on increasing orders for weapons already in production. In

order to increase naval capability quickly, the President proposes to

reactivate a battleship and an aircraft carrier and to acquire and convert

many commercial vessels to meet Navy standards.

The number of procurement items requested in the January budget was

lower than the level planned a year earlier by the Carter Administration.

The Reagan Administration revisions in many cases restore the procurement

level to that of the earlier plan. Since higher procurement levels reduce

unit costs, this may signal the adoption of a procurement strategy that will

emphasize ordering weapons in amounts that will receive more nearly the

optimum price.

The January budget emphasized readiness; the March revisions repeat

that emphasis. Added funding is provided for all items required to sustain

forces in a future war—stockpiles of ammunition, spare parts, and support

equipment.

Finally, the proposed increases do not appear to be concentrated on

any special mission or military force. Among the military services, the

Marine Corps appears the primary beneficiary of increased procurement

funding. For example, the 1982 appropriation request for Marine Corps

procurement is six times larger than actual spending in 1980. The overall

distribution of funds among the Army, Navy-Marine Corps, and Air Force

remains unchanged, however, and each major mission area receives at least

some additional funding.

As a result of higher inflation assumptions for defense purchases than

used by the Administration in the March revisions, CBO estimates that an

additional $6.7 billion in budget authority will be required to fulfill the

Administration's projected growth in defense procurement programs in 1982.

This additional budget authority includes $1.6 billion for projected fuel

consumption, $2.7 billion for full funding of proposed weapon purchases, and

$2.4 billion for defense supplies and other purchases. If CBOfs estimates of

inflation, rather than those of the Administration (see Table 31), prove
correct, then the 1982 defense purchases are underfunded by about

$6.7 billion in the March budget revisions compared to a $5.4 billion

estimate of underfunding in the January budget.

TABLE 31. COMPARISON OF INFLATION INCREASES OF SELECTED

COMPONENTS OF THE DEFENSE DEPARTMENT BUDGET

UNDER CBO AND ADMINISTRATION JANUARY AND

MARCH ECONOMIC ASSUMPTIONS (By fiscal year, in percentage change)

Component 1981 1982 1983 1984 1985 1986

Fuel

CBOa/ 30.1 20.1 14.5 12.3 12.1 12.1

January budget 23.3 9.7 8.6 8.0 7.2 6.4

March revisions 26.6 8.7 7.3 6.2 5.5 5.0

Procurement

CBOa/ 9.2 8.9 8.5 8.3 8.1 8.1

January budget 8.6 8.0 7.5 7.5 6.5 6.4

March revisions 7.4 6.5 5.8 5.4 5.1 5.0

Total Defense

CBOa/ 12.7 10.8 8.9 8.4 8.0 7.6

January budget b/ — — — — — —

March revisions 11.4 8.9 6.9 6.2 5.6 5.3

a/ Based on CBO assumptions for all purchases except military and civilian

pay, for which the Administration's pay raises are used.

b/ The January total defense deflator does not provide a valid basis for

comparison because it assumes a different set of pay raise assumptions.

Table 32 summarizes the budget authority and outlays for major

defense programs, including real growth in budget authority for the March

estimates. The following sections discuss each of the major programs in

greater detail, except family housing.

75
TABLE 32. SUMMARY OF BUDGET AUTHORITY (BA) AND OUTLAYS (O) FOR

MAJOR DEFENSE APPROPRIATION TITLES (By fiscal year, in billions of

dollars)

1981 Estimates a/ 1982 Estimates

Title

Real

January March January March Growth

Budget Revisions Budget b/ Revisions in BA b/ c/

Military Personnel

BA

0

Retirement Pay

BA

0

Operation & Maintenance

BA

O

Procurement

BA

O

Research & Development

BA

0

Military Construction

BA

O

Family Housing

BA

O

Atomic Energy— Defense

BA

O

Other

BA

0

Total

BA

O

33.5

33.5

13.8

13.8

52.9

51.2

45.0

35.4

16.1

15.4

3.3

2.5

2.1

1.9

3.6

3.6

3.6

3.8

173.9

161.1

33.8

33.7

13.9

13.9

54.4

52.3

48.2

34.1

16.7

15.2

3.5

2.5

2.0

1.9

3.6

3.5

4.6

5.0

180.7

162.1

38.4

38.3

15.6

15.6

61.5

59.7

49.1

40.1

19.8

18.5

5.6

2.9

2.2

2.0

4.7

4.5

3.5

2.9

200.3

184.4

38.8

38.7

15.7

15.7

63.3

61.3

68.8

40.1

21.3

19.2

5.8

2.7

2.2

2.0

5.0

4.6

5.4

4.5

226.3

188.8

0.5

0.5

2.4

16.3

2.9

2.0

-0.1

1.1

0.4

26.0

a/ The 1981 pay supplemental has been taken out of the various titles in this table and

consolidated in the "Other" category.

b/ Preliminary, subject to change.

c/ Real growth in the President's 1982 budget over 1981, based on CBO economic

assumptions with President's pay raise.

76
MILITARY PERSONNEL

The March budget revisions propose funding of $38.8 billion for the

military personnel appropriation title, an increase of $465 million above the

January budget request. The request for 1982 contains about 1 percent real

growth over 1981, based on both the Administration's economic assumptions

and CBO's projected inflation rates. By 1986, the programmatic and

inflation assumptions in the March revisions would add $19.9 billion to the

estimates in the January budget.

The revised requests for fiscal years 1981 and 1982 include all of the

programmatic initiatives contained in the January appropriation requests.

The March revisions propose increases above the January levels of

$300 million in 1981 and $465 million in 1982. These are distributed among

three categories: increased average manpower strength (based on fiscal

year averages) in the active and reserve forces; repricing of existing

programs based on changes in the number of participants or revised price

assumptions; and new programs. Each category is discussed below.

Increased Average Manpower Strength

The March budget revisions propose to increase the average strength

of the active military forces above January levels by approximately 7,900 in

1981 and 18,230 in 1982. The Administration requested this growth in

military manpower to support the increased force levels planned for the

future and to improve the manning of existing forces. The Air Force

accounts for 10,930 of the increased average strength in 1982.

Approximately $184 million in 1981 and $433 million in 1982 above the

January budget levels are requested to fund increased average strength

levels. These increases reflect not only the planned personnel growth

discussed above but also recent improvements in recruitment and retention.

Because of these improvements, the military forces are larger, have greater

retention, and are more experienced than anticipated. All these factors

require funding increases for additional pay and for items such as basic

quarter allowances, variable housing allowances, and permanent changes of

station.

The March revisions would fund approximately 26,300 more military

personnel annually than did the January budget in fiscal years 1983 through

1986. The January and March budget projected increases in military

personnel above current levels (1981) are shown below.

77
(By fiscal year, in average strength)

1981 1982 1983 1984 1985 1986

January

Budget — 20,150 33,200 48,700 62,400 67,200

March

Revisions 7,900 38,380 59,500 75,000 88,700 93,500

Expansion or Repricing of Existing Programs

The March budget revisions propose increases of approximately

$131 million in 1981 and $102 million in 1982 to cover growth in the number

of participants in existing programs or changes in the pricing assumptions

used to calculate the costs of these programs. Increases of $38 million in

1981 and $30 million in 1982 are proposed to fund fully the Selective Reenlistment Bonus program. These increases reflect growth in the level of

reenlistees rather than programmatic changes. Increases of $23 million in

1981 and $7 million in 1982 are proposed to finance permanent change of

station (PCS) moves that were not made during 1980 because of funding

constraints.

New Programs

The March revisions contain several new plans for fiscal years 1981

and 1982. The major 1981 initiative is a proposed military pay raise of

5.3 percent effective July 1, 1981, in addition to the 9.1 percent pay raise

proposed for October 1, 1981. The added cost of the July 1 pay raise would

be $420 million in 1981 and $1.9 billion in 1982. This extra raise represents

an across-the-board approach to improving military retention as opposed to

more targeted increases, such as special bonuses.

The second 1981 initiative proposes a 3uly 1, 1981 increase in the

"MALT Plus" allowance (mileage allowance in lieu of transportation plus per

diem) associated with permanent change of station travel. The allowance

would increase from seven cents per mile and $35 per diem to sixteen cents

per mile and $50 per diem. An increase of $91 million is requested to fund

this proposal for the last quarter of fiscal year 1981. Since the sixteen

cents per mile and $50 per diem formula is expected to cost approximately

the same as the January proposal for 1982 of eighteen cents per mile and

$45 per diem, no increased funding has been requested for 1982.

The third new 1981 program is the proposed funding of the aviation

continuation bonus to provide additional financial incentives for pilots. This

78
program was authorized but not funded for fiscal year 1981 because the

services were unable to formulate a plan for paying the bonus. The January

budget requested $22 million for both 1981 and 1982 for the bonus. The Air

Force, Navy, and Marine Corps have requested an additional $57 million in

1981 and $77 million in 1982 to implement the bonus program.

The revisions propose reductions in marginal programs of approximately $82 million in 1981 and $135 million in 1982, with the major portion

coming from the temporary elimination of the cost-of-living allowance

(COLA) paid to personnel stationed in West Germany. Because of the

improved standing of the dollar against the deutschemark, payment of the

COLA will not be necessary in 1981 and 1982. Also proposed are reductions

in housing allowances and subsistence costs (also because of the improved

dollar-deutschemark relationship) and savings from management headquarters realignments.

Two new programs are proposed for 1982. The first is a "Bachelor

COLA" proposal to pay a partial cost-of-living allowance to unaccompanied

personnel overseas who are furnished government quarters and subsistence.

Personnel in this category would be paid 47 percent of the COLA paid to

unaccompanied personnel living on the economy. (Personnel in West

Germany would not receive this allowance in 1982.) The purpose of this plan

is to remove the financial disadvantage suffered by unaccompanied personnel overseas. This proposal would cost $26 million.

The second initiative for 1982 would utilize existing authority to pay

bonuses and special pay to personnel in shortage skills. The Reagan

Administration requests $44 million in special pay and bonuses for personnel

in the pay grades E-6 through E-8 serving in combat leadership positions and

for career personnel in critical skills.

Also included in the revised 1982 budget is an additional $150 million

in legislative contingency funds to fund legislation the Administration

intends to propose during fiscal year 1982. The specific initiatives to be

proposed have not yet been determined by the Administration.

MILITARY RETIREMENT PAY

The President's budget revisions contain $13.9 billion for the retired

pay appropriation title in 1981 and $15.7 billion in 1982. These amounts

represent reductions from the January budget of approximately $29 million

in 1981 and $329 million in 1982, reflecting the Reagan Administration's

revised economic assumptions.

79
The Administration proposes enactment of the Janaury proposal for

annual, rather than semi-annual, Consumer Price Index (CPI) adjustments to

retirement pay. The Administration estimates savings from this proposal of

$68 million in 1981 and $380 million in 1982, compared to the January

estimated savings of $85 million and $477 million, respectively. Using

CBO's economic assumptions, CBO estimates that savings of $95 million in

1981 and $440 million in 1982 would result from enactment of the legislation.

The revised budget no longer assumes enactment of the Uniformed

Services Retirement Benefits Act. Since this legislation would not have

become effective until fiscal year 1983, the deletion of the proposal has no

budgetary effect in 1982.

OPERATION AND MAINTENANCE

The March revisions for operation and maintenance add $1.8 billion in

both 1981 and 1982 to the January request. The March changes to the

January operation and maintenance budget are shown below.

(By fiscal year, budget authority in millions of dollars)

Operation and

Maintenance 1981 1982

January Request 54,074 61,492

Fuel 246 235

Reductions -419 -1,061

Readiness 491 1,836

Fact of Life 1,370 145

Other 96 636

March Request 55,858 63,283

CBO estimates that the March revisions would have to include

$0.4 billion and $1.6 billion more in budget authority and about $0.3 billion

and $1.4 billion more in outlays in 1981 and 1982, respectively, to fund fully

the defense fuel requirement. CBO economic assumptions indicate price

growth for defense fuel purchases will be much greater than assumed in the

Reagan Administration revisions. The difference in 1982 is particularly

great; CBO projects price growth to be about 20.1 percent, compared to the

Administration's assumed 8.7 percent. The impact of these differences is

shown below.

80
(By fiscal year)

Actual Estimates

1980 1981 1982

Requirements

(in millions of barrels) 177.0 183.0 188.0

Requested Budget

Authority (in billions of dollars) 7.2 9.2 10.3

CBO Reestimate of

Budget Authority Request

(in billions of dollars) 7.2 9.6 11.9

Additional Funding

Requirement (in billions of dollars) — 0.4 1.6

CBO's fuel price growth estimate for 1982 is based on the following

assumptions:

o Iraq and Iran oil exports will recover slowly and not reach pre-war

levels until at least 1983.

o Oil production for other OPEC countries will be fairly constant,

except that in mid-1981 Saudi Arabia will reduce its output to its

target level of 8.5 million barrels per day in response to Iraqi and

Iranian production and other factors.

o World economic growth will increase demand; specifically, 1981

will be a year of modest world economic growth, but 1982 and 1983

will be years of full recovery.

The reductions shown in the above operation and maintenance table

result from cutting back marginal programs, management efficiencies, and

lower price growth assumptions. Readiness increases are designed to

enhance near-term force capability, including about $200 million for exercises, $400 million for real property maintenance, and $400 million for depot

maintenance. Fact-of-iife increases add money for cases in which price

growth exceeded expectations and emergencies and unanticipated operations

were unfunded.

Civilian personnel levels, funded primarily under operation and maintenance, increase by about 19,600 in 1981 and about 30,000 in 1982, although

the added costs of these increases are partially offset by a reduction in the

proposed 1982 civilian pay raise from 5.5 percent to 4.8 percent.

81
PROCUREMENT

Procurement receives the major emphasis in the March revisions for

defense programs. Of the total net defense increases, 47.6 percent in fiscal

year 1981 and 76.6 percent in fiscal year 1982 are for procurement. The

total net increase over the two-year period is $23 billion, with $25.3 billion

in increases partially offset by $2.3 billion in decreases. Table 33 shows the

annual increases in procurement by service.

TABLE 33. COMPARISON OF PROCUREMENT BUDGET AUTHORITY

FOR FISCAL YEARS 1980-1982, BY SERVICE (In billions of

dollars)

Program

Army

Navy Shipbuilding

Navy /Marine Corps a/

Marine Corps Procurement

Air Force

Defense Agencies

Total

1980

Actual

6.4

6.6

8.9

0.3

12.7

0.3

35.3

President

for

January

Budget

9.0

7.5

11.9

0.5

15.8

0.3

45.0

's Program

1981

March

Revisions

10.7

7.8

12.0

0.5

16.9

0.3

48.2

President

for

January

Budget

9.9

6.6

13.1

1.2

17.8

0.5

49.1

's Program

1982

March

Revisions

15.1

10.3

16.5

1.8

24.6

0.5

68.8

a/ Includes naval aircraft procurement, weapons procurement, and other

procurement.

Aircraft Procurement

Of the total two-year increases for procurement, 39.4 percent are for

the procurement of aircraft and related costs. The Reagan Administration

has added 377 aircraft, a 40 percent increase, over the January program (see

Table

The most significant aircraft decision relates to the production of 222

Strategic Long-Range Combat Aircraft (new manned bomber) at a cost of

$2.1 billion in 1982 for initial production (plus $335 million for R&D). The

82
TABLE 34. COMPARISON OF AIRCRAFT PROGRAMS FOR FISCAL

YEARS 1981 AND 1982 (In units procured)

President's Program

for 1982

Program

President's Program

for 1981

January January March January January March

1980 1981 1981 1980 1981 1981

Budget Budget Revisions Budget Budget Revisions

Army

Navy /Marine Corps

Air Force

Total

80

104

282

466

103

188

306

597

103

188

365

656

118

179

212

509

86

121

130

337

114

283

258

655

January budget provided no procurement funds for this program, despite

explicit instruction by the last Congress to begin production. Plans call for

attaining a production rate of four planes per month by fiscal year 1985 and

operational capability by fiscal year 1986. A final decision on the design of

this aircraft will not be made, however, until the summer of 1981.

Other new procurement decisions call for the production of the AV8-B

tactical (vertical/short take-off and landing) aircraft for the Marine Corps.

A major portion of the additional funding is to purchase tactical

aircraft already in production. These added 186 aircraft are priced at

substantially lower unit costs, because the production level is moved closer

to the optimal economic level. This action may signal a procurement

strategy of buying aircraft in amounts to achieve this lower unit price. The

assignments of 130 of the added aircraft as Navy training aircraft

emphasizes the Reagan Administration's firm commitment to support the

Navy flight training program.

The emphasis on the need to increase the number of refueling aircraft

is evidenced by the addition of eight KG 10 tankers and the decision to

initiate a program to reengine at least 300 of the Air Force KC-135 tanker

aircraft. The Air Force also has ordered larger fuel tanks to extend the

range of F-15 aircraft.

83
Naval Forces

The Reagan Administration is especially concerned about size of

today's fleet, and is committed to increasing the number of ships. To this

end, its March revision has added $4 billion in fiscal years 1981 and 1982

combined for Naval ship procurement.

The program for the acquisition of new ships was not changed for

fiscal year 1981, but four new ships have been added to the fiscal year 1982

program, restoring nearly all reductions made by the previous Administration in the January 1981 program as shown in Table 35.

TABLE 35. COMPARISON OF NAVY SHIP PROGRAMS FOR FISCAL

YEARS 1981 AND 1982 (In units procured)

Program

President's Program

for 1981

January January March

1980 1981 1981

Budget Budget Revisions

President's Program

for 1982

January January March

1980 1981 1981

Budget Budget Revisions

Trident Submarine

Attack Submarine

Guided Missile

Cruiser

Guided Missile

Frigate

Amphibious

Warfare Ship

Mine Counter

Measures Ship

Fleet Oiler

ASW Surveillance

Ship

Salvage Ship

Maritime Prepositioning Ship a/

Total

1

1

2

4

1

—

—

5

1

2

17

1

2

2

6

1

—

—

5

1

18

1

2

2

6

1

—

—

5

1

18

1

1

3

4

....

1

—

4

2

3

19

1

1

2

1

1

1

*

2

1

1*

1

2

3

3

1

1

4

2

1

18

a/ Plans may not be comparable because of change in ship design.
The addition of new ships does not fully reflect the extent of the

Reagan Administration's commitment to an expanded Navy. In 1982 funds

are provided to reactivate a battleship (USS New Jersey) and an aircraft

carrier (USS Oriskany). Also in 1982, long lead funds are added for the

reactivation of an additional battleship, construction of a Nimitz class

nuclear aircraft carrier, and an Amphibious Warfare Ship (LSD-41), all to

begin in 1983. The new Administration, however, has not yet submitted its

1983 authorization request and its 1983 through 1986 program for shipbuilding.

The program for mobility and support ships also reflect an increased

tempo. Six additional SL-7 fast logistic ships and one additional roll on/roll

off (RO/RO) cargo ship are scheduled for modification in 1982. The SL-7s

are designated to deploy Army units to Europe or other areas, while the

RO/RO ship is expected to be used for prepositioned Marine Corps equipment. These actions will substantially accelerate improvements in the U.S.

capability to deploy land forces.

Major Army Procurement Items

The Reagan Administration has restored many of the reductions to

Army programs that were reflected in the January budget. As shown in

Table 36, however, in several cases only part of the programs were restored.

One area that obviously received special attention in the March

revisions was tank procurement. M-l tank orders are increased by 360 units.

Authorization for 120 new M60A3 tanks is requested for fiscal year 1981 and

funds to convert 480 M60A1 tanks to the more capable M60A3 model are

also added. In sum, the budget revisions provide 960 more capable tanks

than were requested in the January budget. The revisions also provide funds

to expand the M-l tank production base so that annual production will reach

1,080 by 1985, several years earlier than proposed by the previous Administration.

The large added investment in tank production and modernization

signals a reaffirmation of the U.S. commitment to maintain a capability

fight a major land war. Other significant evidence of that reaffirmation is

the addition in the revisions of $1.1 billion for trucks, radios, and other

support equipment to fill shortages in POMCUS (material prepositioned in

Europe) Sets 1 through 4.

85
TABLE 36. COMPARISON OF MAJOR ARMY

AND 1982 (In units procured)

PROGRAMS FOR 1981

Program

President's Program

for 1981

January January March

1980 1981 1981

Budget Budget Revisions

President's Program

for 1982

January January March

1980 1981 1981

Budget Budget Revisions

Aircraft

AH-64 attack

helicopter — — —

UH-60 Blackhawk

helicopter 80 80 80

Tracked Fighting

Vehicles

Ml tank 569 360 569

M60A3 tank — — 120

M60A1-A3

conversions 120 — 120

Fighting vehicle 400 300 400

Air Defense

Roland 600 400 400

Divad gun 12

Patriot 183 130 130

Other Missile

Systems

Hellfire —

14 8

96 78

720

360

600

1,230

98

391

569

464

12

130

14

96

720

360

600

795

50

364

2,760 502 1,075

Marine Corps

The Marine Corps procurement appropriation received the largest

percentage increase of any major appropriation in the January budget

submission. The March budget revisions provide ever further substantial

increases. As a result, the Marine Corps program for 1982 is more than six

and one-half times greater than the amount provided in 1980, as shown in

Table 33.

The $673 million added in the budget revisions provides for added

ammunition, spare parts, equipment modification, missiles, communication

86
gear, and other support equipment, principally for Marine Corps ground

forces. Marine Corps Air elements, funded in other Navy appropriations,

benefit from the addition of $657 million to initiate production of the AV8B

aircraft and $44 million for ground-support equipment for new F-18 aircraft.

Readiness

In recent years there has been great concern about the level of

readiness funding. Table 37 shows the funding levels for readiness in two

areas—aircraft spare parts and support equipment and munitions for 1980-

1982.

TABLE 37. COMPARISON OF READINESS PROGRAMS FOR FISCAL

YEARS 1980-1982 (In millions of dollars)

President's Program President's Program

for 1981 for 1982

1980 January March January March

Program Actual Budget Revisions Budget Revisions

Aircraft Spare Parts

and Support Equipment

Munitions

Total

2,626

1,563

4,189

4,282

2,093

6,375

4,880

2,179

7,059

5,911

2,754

8,665

7,396

4,173

11,569

One of the primary goals of the January budget was to address the

perceived shortages in readiness funding. As Table 37 shows, the January

budget was increased by $2.3 billion over the 1981 budget. The Reagan

Administration provides an additional $3.6 billion to these programs for 1981

and 1982. Thus, if the new proposals are approved, the fiscal year 1982

level will be 2.8 times greater than actual spending in 1980.

RESEARCH AND DEVELOPMENT

While the March revisions to the budget provide a net increase in

funding for research and development (R&D) of $0.6 billion in 1981 and

$1.5 billion in 1982, the R&D share of the defense budget declines in both

87
1981 and 1982. In 1982, the R&D share declines from 10.1 percent in the

January budget to 9.6 percent in the March budget.

The major program increases, reflecting Administration decisions with

significant long-term impact, are $335 million for the development of a

manned bomber, with an initial operational capability in 1986, and

$129 million to speed the Low Altitude Defense (LOAD) demonstration

program. The LOAD program could lead to a $10 billion anti-ballistic

missile system to defend MX missile sites. The MX missile program is

continued at essentially the same level as provided in the January budget.

Other increases that could produce long-range effects include

$48 million to accelerate development of new chemical-biological defense

equipment, $136 million for the design of the DDG-X destroyer, $49 million

for the design of other ships, $42 million for the design of a new lightweight torpedo, and $34 million for the design of a small Extreme Low

Frequency system to improve communications with strategic submarines.

In keeping with the emphasis on procurement in the March budget

revision, much of the remaining increases are to speed or sustain development efforts for weapons systems that are in, or about to enter, production,

as opposed to basic research or the development of new weapons.

MILITARY CONSTRUCTION

The March request for military construction budget authority is

$5.8 billion for fiscal year 1982, an increase of $0.2 billion over the January

request. Construction in the Indian Ocean/Persian Gulf region to support

the Rapid Deployment Force (RDF) is the largest single component of the

proposed increase to the January budget. Included in the $117 milion for the

RDF are facility upgrade requests of approximately $45 million at Diego

Garcia and $72 million at classified locations.

Other major construction projects contributing to the March revision

increase are the Roland Air Defense Missile facilities ($31 million), AW ACS

alert facilities ($23 million), MX ballistic missile system development

($21 million), upgrading of overseas dependent schools ($40 million), and fuel

storage facility for the Defense Logistics Agency ($29 million). The March

revisions also reflect savings of $212 million, primarily from lower inflation

estimates and contracting efficiencies.

88
ATOMIC ENERGY DEFENSE ACTIVITIES

The 1982 request for atomic energy defense activities includes about

$1 billion real growth over 1981, primarily for increased production of

special nuclear materials and missile warheads (about $700 million). The

March revisions provide increases to the January budget amounting to about

$300 million, including $180 million for weapons activities, about

$100 million for additional materials production, and about $50 million for

defense waste management and naval reactor development.

89

75-743 0 - 81 -

CHAPTER VI. OVERVIEW OF THE ADMINISTRATION'S PROPOSED

SPENDING REDUCTIONS

If the Administration's proposals for reducing spending are enacted,

programs that now account for about 30 percent of the federal budget will

absorb essentially all of the effects. The major share of the reductions

would affect areas such as education, employment and training, nutrition,

health, and social services; there would also be a profound impact on

transportation and energy programs.

Grants to state and local governments make up about half of the

portion of the budget that would be cut. In 1982, the Administration

recommends a reduction of $13.4 billion in outlays for these grants (relative

to the January budget), accounting for almost one-third of the total

decrease. Of the $13.4 billion cut, about one-fourth would affect grants

that pay cash or in-kind benefits to individuals; the remainder would involve

grants such as those for community development, education, the environment, energy, and transportation.

This chapter gives an overview of the major spending reductions the

Administration proposes, with a supplement (Appendix A) that briefly

analyzes each of the major proposed cuts. Most of the chapter provides

information on the cumulative impact of some of the proposed spending

reductions and on the interrelationships among them. The final section

outlines some possibilities for spending reductions that might be alternatives

or additions to the Administration's proposals.

As mentioned above, most of the proposed reductions would affect the

areas of human resources, energy, and transportation. The following

sections discuss each area in turn. The first section, on human resource

programs, is the longest because the bulk of the proposed dollar reductions—nearly two-thirds—would involve them. Further, it is in this area

that the interactive and cumulative effects of proposed cuts are the most

pronounced.

HUMAN RESOURCES

This area includes education, employment and training, health,

income-assistance, and social services programs. The proposed cuts in

human resources include tightening eligibility criteria for benefit programs

91
such as Aid to Families with Dependent Children (AFDC), child nutrition,

and Food Stamps. They would also involve eliminating some programs, the

largest being public service employment (PSE), and consolidating certain

other grant programs, combined with reduced aggregate funding levels.

A substantial portion of the savings to be achieved in the human

resources area would occur as a result of lowering overall funding levels for

current categorical programs, which would be consolidated into block grants

to states and localities. Spending reduction combined with consolidation

might not bring about a comparable reduction in services, however, because

of simplified administrative requirements. Furthermore, recipient states

and localities would have greater flexibility in designing their own programs;

this could enable them to meet local needs more efficiently than under the

current multiplicity of programs. But these effects would fall far short of

compensating for the proposed reductions in federal spending that accompany the prog ram-consolidation initiatives. Hence, reduced service levels

and/or increased state and local taxes could result. (See Appendix A for

further discussion of the effects of consolidating these programs.)

. Resource

Little information is available on the geographic distribution of the

effects of reduced spending in human resources. For reductions associated

with grant consolidation, specification of the mechanisms by which block

grant funds would be allocated would be essential to make any assessment of

regional impact. Even with that specification, determining the overall

geographic impact is impossible because of severe data limitations.

Effects on Indiyiduals

The Administration has stated that its proposed spending reductions in

the human resources area are designed to eliminate programs that are not

essential and to modify overly generous programs while not jeopardizing the

"truly needy." The proposals affecting child nutrition, Food Stamps, and

postsecondary student assistance are illustrative of this approach. By

lowering the income-eligibility standards for these programs, program

benefits would be better directed toward persons who are most needy. The

burden of some proposals, however—for example, reductions in AFDC,

housing assistance, Medicaid, and PSE--would fall heavily on the poor.

92
A rough assessment of some of the major modifications proposed by

the Administration for public assistance programs can be made. I/ Considering first only the changes proposed for AFDC, more than 325,00*0 families

(8 percent of the current recipients) would no longer be eligible for benefits.

The proposals would cause a reduction of about 6 percent in average benefit

levels for families who continue to be eligible. Although Food Stamps and

child nutrition benefits might increase somewhat as a result of reduced

AFDC benefits, these programs too would be cut back under the Administration's program.

The impact of the Administration's AFDC proposals would differ,

though, depending on whether a recipient family has any income from

earnings. Forty-four percent of the dollar reductions would occur in

benefits of families with earners, who make up 13 percent of all AFDC

recipient families.

Among AFDC families with earners, about 39 percent would become

ineligible for AFDC benefits as a result of the Administration's proposals.

Another 42 percent would have their benefits reduced by an average of

33 percent. Twelve percent would gain a small amount in benefits (6 percent on average) as a result of the Administration's proposal to standardize

work-related and child-care deductions. The Administration's proposals

would have no impact on the remaining 7 percent of families.

Many people would be affected by a combination of several program

cutbacks, raising the possibility that some would experience substantial

reductions in their total benefits. For example, a recipient parent with two

children and with work-related expenses could encounter cuts in AFDC, food

stamps, and child-nutrition benefits; the combined effect could reduce the

family's disposable income by 10 to 30 percent. In addition, the family

would probably experience cuts in Medicaid and other health services, and in

those social services provided through federal grants to states. The

combined impact of the Administration's proposals for public assistance

programs would be to narrow substantially the income differences between

recipient families with earnings and those without. The effect might be to

reduce significantly the incentive to get a job. This possibility is discussed

below.

I/ The CBO is currently examining the cumulative effects of the Admini-

""" stration's proposals for public assistance. Results of this analysis should

be available soon after publication of this report.

93
Secondary Effects on the Federal Budget

Because of interrelations among programs and individual responses to

certain program changes, secondary effects can result from proposed budget

cuts. Some cuts could generate either additional savings or further

expenditures in other programs. In the latter instance, the secondary effect

is termed an "offset."

Assessing the overall magnitude of the possible offsets arising from

the Administration's proposals is difficult. When a change in one program

alters expenditures in another, the size of this effect depends on the

specific provisions of the latter program. Hence, estimating offsets when

changes in several interrelated programs are proposed simultaneously is a

complex undertaking.

The Administration's estimates of potential savings take account of

some offsets. Eliminating the minimum Social Security benefit would

reduce gross Social Security expenditures, for example, but it would cause a

simultaneous increase in Supplemental Security Income (SSI) payments (see

Appendix A). The Administration's estimates reflect this offset by reporting

net savings in Social Security. They also reflect the increase in certain

education grants that would result from eliminating Social Security student

benefits to adults.

There are other instances of offsetting cost increases, though, that the

Administration's estimates do not take into account. For example, some of

the changes in AFDC and Food Stamps would tend to make jobs less

financially rewarding. Standardizing deductions for work-related and childcare expenses and counting the earned-income tax credit as income in

calculating AFDC benefits would, for many recipients, reduce the net gain

in spendable income obtained from working. This diminished incentive to

work could lead to lower employment and earnings among program recipients, causing an offsetting increase in federal expenditures. This result

may be especially serious after an AFDC parent has been employed for four

months, when there would be a sudden, substantial drop in the AFDC benefit

under the Administration's proposal to eliminate both the standard deduction

and the disregard of one-third of earnings for such families.

The extent to which work disincentives might occur can be demonstrated by an example that contrasts current policies in the AFDC and Food

Stamp programs to the Administration's proposals. Under current programs,

an AFDC recipient parent with two children who earns the average amount

for all AFDC families substantially increases the family's spendable income
by working—from $466 to $616, on average. This is a gain of 32 percent.

By contrast, under the Administration's proposals, after four months,

working would not increase this family's spendable income at all.

The Administration has proposed that a "workfare" requirement be

imposed on recipients of public assistance. This might act to maintain work

effort despite the small associated financial gain. To the extent that

public-assistance families with earners respond to the reduced work incentives by giving up their jobs in the private sector, however, there may be a

lessened chance of their becoming independent of public assistance in the

future.

Another budget offset might occur as a result of adopting the

Administration's proposal that states be allowed to reduce AFDC benefits by

some share of the value of Food Stamps and housing assistance that families

receive. At present, AFDC payments are counted as income in determining

rent charges—now fixed at a maximum of 25 percent of income—in assisted

housing. Reducing tenants1 AFDC benefits by part of the value of their

housing subsidies would lower their rent payments, thereby increasing

federal outlays for housing assistance. Under current rent rules, every $1.00

reduction in AFDC payments resulting from this proposal would increase

federal housing assistance expenditures by about $0.25. Furthermore,

because only about one-half of the AFDC benefit reduction would be

reflected in reduced federal outlays (the other half lowering state incomeassistance expenditures), the housing-assistance offset to this proposal could

amount to as much as one-half of the federal savings. If the Administration's separate proposal to raise tenant rent payments over the next five

years to 30 percent of income were also adopted, the offset could reach

60 percent.

A further offset would occur if the proposal to consolidate a number

of diverse health and social services programs into block grants with substantially less total funding resulted in cuts in some specific programs; this is

not unlikely. A number of the services now provided under categorical

programs—for example, family planning, genetic services, and immunization--generate offsetting savings in later years; in some cases, these offsets

exceed the costs of the services themselves. If such services were cut back,

the offsetting increases in costs would probably be borne both by states and

by the federal government.

Eliminating PSE jobs would increase spending for public assistance and

Food Stamps while decreasing revenues from Social Security payroll taxes

and federal income taxes. Preliminary estimates indicate that federal
spending for public assistance and Food Stamps might increase by 3 to

5 percent of the total PSE cost; federal taxes might decrease by 6 to

10 percent of the total PSE cost. (Estimates of the effect on outlays for

Unemployment Insurance are not yet available.)

Secondary program effects can also work to increase budgetary

savings. For example, tighter restrictions on AFDC eligibility would reduce

Medicaid outlays. Ending the eligibility of an AFDC recipient mother with

two children could reduce federal outlays for Medicaid by about $900 a year.

If the proposals for AFDC that would mandate changes were adopted, more

than 325,000 families would be removed from categorical eligibility, reducing Medicaid expenditures by at least $70 million in fiscal year 1982. On

the other hand, if the Administration proposal for capping Medicaid grants

to the states were also adopted (see Appendix A), this secondary effect

would disappear, because the level of the proposed cap is so low relative to

state expenditures that the federal share of Medicaid would almost certainly

become a fixed dollar grant.

TRANSPORTATION

In transportation, the Administration's proposed cuts follow three

themes. First, they would reduce the federal grants to state and local

governments that provide transit operating aid and most highway assistance.

Second, they would reduce federal subsidies to industries or wealthy

individuals, as with the proposed user fees for inland waterways, the Coast

Guard, deep-draft shipping, and general aviation. And third, they would

reduce federal programs that do not appear to be cost-effective, as with

Amtrak and Conrail. (Appendix A provides further detail on these cuts.)

Impacts on Regions

Certain regions are likely to be affected most directly by the proposed

changes in federal transportation programs. In most cases, the biggest

effect would be pressure on state and local governments to use their own

resources to replace lost federal funds. This would certainly be the case for

highways, transit operating aid, and the commuter services now provided by

Amtrak and Conrail. In other cases, such as the remaining Amtrak services

and federal aid for new subway systems, state and local aid would be

unlikely to increase much, and these services might be discontinued.

96
Under current law, transit operating aid goes to virtually every city,

the largest dollar amounts going to the biggest urban areas. The New York

metropolitan area receives $220 million, for example, and Los Angeles

$85 million. On a per rider basis, the federal subsidy is much greater in

small and medium-sized cities. Although the big cities would almost

certainly compensate for the federal cuts through increased local aid or

higher fares, some smaller cities might be forced to reduce service.

The cut in transit capital grants would have its largest effect on

Detroit, Honolulu, Houston, and Los Angeles--that is, cities now with new

systems in the planning stages. Given the large capital costs of these

systems, and the often modest benefits, these cities would probably not

pursue their construction plans without the current 80 percent federal

subsidy. Furthermore, Atlanta, Baltimore, Buffalo, Miami, and Washington,

D.C., would probably not be able to complete portions of systems planned, but

not yet under construction.

The reduction in funding for Conrail would force a major restructuring

of rail service in the Northeast and parts of the Midwest east of Chicago

and St. Louis. Service on many branch lines and lightly traveled main lines

would probably be dropped, and increased rate increases would affect most

current rail users. Increased state and local subsidies for some of these

freight operations and for commuter operations in New York, Philadelphia,

and other cities may be available. These added costs would probably be

offset in part by improved service for most heavy rail users and for shippers

located on main lines.

Most of the planned cuts in highway aid would likely be replaced with

state funding, probably financed by increased fuel taxes and other user fees.

Since the largest cuts are being made in secondary (primarily rural) and

urban roads, it is hard to identify regions that would be more severely

affected than others.

By 1985, the cuts proposed for Amtrak would affect virtually every

area of the country except the corridor between Boston and Washington and

perhaps a few other heavily traveled routes. Given the high cost of

passenger rail service, the relatively small number of intercity passengers

carried, and the general availability of buses and other means of transport,

states would probably not finance many of the Amtrak routes. Important

exceptions are the commuter routes operated by Amtrak in Chicago and

elsewhere.

97
In summary, the impacts of the proposed reductions in particular

transportation programs would affect a number of specific cities and regions

more than others; but overall they could achieve some rough geographic

balance. The Conrail cut would be concentrated in the Northeast. The

Amtrak cut would predominate in other areas. The highway cuts would

reduce aid to the primary urban network, as well as aid to secondary rural

roads. The effects of cuts in transit operating aid would be greatest for

large cities, but they would involve a greater proportion of operating costs

in small and medium-sized cities.

Impacts on Individuals and Firms

The effects on service levels and user fees would depend on the extent

to which other governmental units could replace the federal financing

withdrawn. Reductions in federal highway and transit support would greatly

increase pressures on state and local governments to fund those services,

thus many of the potential effects might be averted by state and local

actions. Overall, the impact on the general public of such changes would

probably be slight, although the financial burdens would shift more toward

users and to state and local taxpayers. Because requirements and regulations associated with federal support would no longer be in effect, however,

some cost-saving efficiencies might be realized.

Although many of the cuts in federal transportation financing would be

compensated for by contributions from users or other levels of government,

some reduction in services might well occur. This would most likely be the

case for all passenger rail service, rail freight service in the Northeast, and

small-town transit services. The services withdrawn as a result of reduced

federal support would, in general, be the ones now most lightly used.

Relatively few users would be seriously disadvantaged as a result; the most

severe impacts would be felt by firms that are forced to relocate or to pay

more for transportation as a result of discontinued rail freight service.

ENERGY

Most of the Administration's proposed budget cuts in the energy area

would reduce the level of federal support given to new forms of energy

supply. Demonstration plants for synthetic gas and liquid fuel production, to

be funded by the Department of Energy, would be eliminated. Support for

research and development of new technologies involving fossil fuels would

be reduced, as would support for demonstration and commercialization of

98
solar energy forms; longer-range solar research would continue. Although

the private sector, and perhaps the Synthetic Fuels Corporation, might be

able to absorb some of these activities, a net reduction in the total effort in

these areas might well occur. Conservation activities would also be

reduced, notably near-term research in such areas as energy from urban

waste. Similarly, government involvement in advanced automotive engine

design would be curtailed.

Many regulatory activities would also be cut. Among these are energy

labeling on appliances, preparation of gasoline rationing plans as a hedge

against a major disruption in the supply of foreign oil, conversion of utility

fuels, and pending prosecutions of oil and product price control violators.

Impact of the Cuts on Regions

The geographical impact of the proposed changes in energy development programs are greatly varied; no particular geographic pattern has

emerged. The synthetic fuels cut would affect the Ohio Valley and

Appalachia, where most demonstration plants are located. Reductions in

the uranium enrichment program would affect plants in Tennessee, Kentucky, and Ohio. The solar program cuts would affect the sun belt, the

Northeast, and the Midwest. Reductions in weatherization assistance would

likewise have broad geographical impacts. Thus, although particular

changes could have substantial consequences on particular states and

regions, the cuts in energy programs appear in general to be broadly

distributed across the country.

Impact of the Cuts on Individuals and Firms

Reduction of the Synthetic Fuels Program would likely terminate a set

of demonstration projects, and it would adversely affect the companies--

mostly coal and engineering firms—that now operate demonstration plants.

Likewise, a cut in the uranium enrichment program would lead to reduced

production of enriched uranium for fuel; but because of sizable existing

uranium inventories and lower-than-projected demand, the price that consumers pay for electricity would be only marginally affected over the long

run. Cuts in solar energy development would refocus support on technological rather than product development. An exception to the above

pattern, however, is the proposed change in the program providing weatherization assistance to low-income persons: this proposal would reduce one

source of direct aid to low-income people.

99
The effect of the proposed reductions in the energy area would affect

certain industries, but it would have little immediate impact beyond those

industries. Although the decrease in federal support might slow the rate at

which the U.S. economy converts to alternative energy sources, the impact

would be extremely small. Long-run energy prices might, however, be

marginally higher owing to the reductions in the federal programs.

ALTERNATIVE APPROACHES TO REDUCING FEDERAL SPENDING

To date, the Administration has not identified all the spending

reductions that would be needed to reach its outlay targets for 1983 and

beyond. In order to hold recommended outlays to $770 billion in fiscal year

1984, the Administration would have to specify further budget cuts of

$30 billion in 1983 and $44 billion in 1984. If the economic assumptions the

Administration has used prove to be too optimistic, even larger spending

reductions would be required to meet its targets. For this reason, the

Congress may wish to consider additional spending cuts. These alternatives

fall into two categories: those that would diminish the federal budget's

sensitivity to inflation, and those that would cut current programs more

deeply than the Administration has proposed so far. In a report issued in

February 1981, CBO presented a number of budget reduction options. 2/

Many of the options presented in that report are also among the Administration's proposals; several others are not. The options discussed in the

remainder of this chapter have not been put forth by the Administration.

Changes in the Automatic Indexing of Entitlement Program Benefits

The Administration's budget proposals have so far included no change

in the way benefits from entitlement programs are indexed to keep pace

with inflation. (The one exception is a proposal to make the cost-of-living

adjustment for federal employee retirement programs once rather than

twice a year.) Of particular concern with regard to indexation are Social

Security and various federal civilian and veteran retirement programs,

which are explicitly indexed to the Consumer Price Index (CPI).

Altogether, these programs will cost the federal government more

than $185 billion in 1981, which is close to 30 percent of all federal

expenditures. The July 1980 cost-of-living adjustment (COLA) for Social

2/ See CBO, Reducing the Federal Budget: Strategies and Examples, Fiscal

Years 1982-1986 (FFebruar e y T9S1).

100
Security, for example, was 14.3 percent; this alone added $17 billion to

fiscal year 1981 outlays. In total, each one-percentage-point increase in the

CPI increases federal outlays for indexed benefit programs by about

$2 billion a year.

The use of automatic indexing has come into question for a number of

reasons. First, prices have increased faster than wages during the last

several years, and as a result, beneficiaries of indexed programs have been

better protected from inflation than have active wage earners. Second,

because of the unusually large weight given to housing in the CPI, this index

has risen faster than prices as measured by other commonly used indexes.

Finally, if the rate of inflation should come down more slowly than the

Administration has projected, the costs of these programs could be much

higher than predicted.

Several policy options to modify the indexing of benefit payments have

been advanced. These include adopting a different index that gives a more

representative weight to housing; limiting the annual COLA to the lower of

the rise in the CPI or a wage index; limiting the annual COLA to less than

the full increase of the CPI—possibly to 85 percent of the total increase; or

making COLA increases ad hoc instead of automatic by instituting a review

procedure like the one now used to adjust pay for federal white-collar

employees. If Social Security benefits, for example, were indexed this year

according to the lower of wages or prices, the amount of savings could

approximate $4- billion in 1982. An 85 percent cap on the CPI could save

nearly $3 billion in that year.

Incentives to States for Hospital Rate Setting

Curbing the growth of hospital costs offers considerable potential for

reducing federal spending. Hospital costs have been rising rapidly for some

time, averaging 15 percent a year between 1968 and 1979. These increases

have contributed to the substantial growth in federal outlays for both

Medicare and Medicaid.

Eight states now set maximum rates for hospital charges. Although

the programs differ significantly from state to state, recent studies have

demonstrated that, overall, they have been effective in restraining increases

in hospital costs. By means of financial incentives, the federal government

could encourage other states to adopt rate-setting programs. The result

could lead not only to reduced federal and state outlays, but also to reduced

payments by private purchasers of hospital care as well.

101
One proposal would have the federal government share with the states

some of the savings to Medicare that derive from state efforts in this area.

At present, states with effective rate-setting programs cut their outlays by

only $0.11 (principally, the state share of Medicaid) for every $1.00 that

Medicare and Medicaid outlays are reduced. Allowing states to keep a

larger share of these savings might induce additional states to initiate ratesetting efforts. Such incentives could be augmented by automatically

granting waivers for alternative Medicare and Medicaid reimbursement

policies to states participating in the program.

Increased Transportation User Fees

Another method of offsetting federal outlays would be to take greater

advantage of user fees for various forms of transportation. Although the

Administration's proposals take some steps in this direction by increasing

user fees for aviation facilities, Coast Guard services, deep-draft ports, and

inland waterways, these steps do not fully exploit the potential of user

charges. Indeed, the increases in user charges proposed by the Administration would collect only about one-quarter of the revenues that would be

generated under the set of possible user charges examined by CBO (see

Table 38). By increasing user fees to higher levels, the Administration could

effect further revenue gains of about $3 billion in fiscal year 1982 and more

than $14 billion in the 1982-1986 period. These increases would have only

minor effects on the viability of most transportation firms, since in general

they would entail only small increases in overall operating costs. They

would also help to place all modes of transportation on a more equal footing,

thus encouraging more efficient use and development of the nation's

transportation resources.

Strategic Petroleum Reserve

The Strategic Petroleum Reserve appears to be the most effective

policy available for mitigating the economic effects of a petroleum supply

disruption. The reserve entails substantial cost, however. Given the

likelihood of oil price increases in this decade, the oil in the reserve

emerges as a potential speculative asset.

Private investors might be willing to purchase oil for the reserve if

they were guaranteed the full appreciation of their oil. Alternatively, in

accordance with the Energy Policy and Conservation Act of 1975, the

President could direct firms to hold their own dedicated reserves. Either

102
TABLE 38. COMPARISON OF ADMINISTRATION AND CBO ESTIMATES OF

POTENTIAL REVENUES FROM TRANSPORTATION USER

CHARGES, 1982-1986 (In millions of dollars)

Program 1982 1983 1984 1985 1986

FiveYear

Total

Inland Waterways 250

Aviation Facilities a/ b/ 110

Coast Guard Services 100

Deep-Draft Ports 0

Total 460

(Administration Estimates)

260 270 300 320 1,400

260 430 571 700 2,070

200 300 400 500 1,500

220 240 250 270 980

940 1,240 1,520 1,790 5,950

Inland Waterways

Aviation Facilities a/

Coast Guard Services

Deep-Draft Ports

Total

(CBO Estimates)

1,210 1,590 1,650 1,640 1,630 7,720

1,000 1,100 1,200 5,000

800 830 870 3,970

800 900

710 760

590 730 810 820 850 3,800

3,310 3,980 4,260 4,390 4,550 20,490

SOURCES: For the Administration's estimates, Fiscal Year 1982 Budget

Revision, Appendix C; for CBO's estim ates, C BO, Red uc ing

Budget; Strategies and Examles, Fiscal Years

.

1982-1986 (February 1981).

a/ Increase over taxes in effect in 1980.

•Mr

b/ Preliminary estimates.

103
arrangement would transfer the costs of reserve development away from the

federal budget. Placing the financing of the Strategic Petroleum Reserve in

the private sector could save the government up to $4 billion in fiscal year

1982.

Breeder Reac tor Prpg ram

The federal breeder reactor program, including a general research and

development effort and the Clinch River Breeder Reactor, could be terminated, yielding a saving of $700 million in fiscal year 1982. Many analysts

believe that breeder technology will not be economically viable in this

century. This may be the case if uranium prices stay low in the face of

lower-than-anticipated demand for nuclear fuel, or if reprocessing costs are

higher than anticipated.

Elimination of Maritime Industry Subsidies

The federal government now subsidizes roughly $150 million of the

costs of U.S. shipyards a year so that they can meet the competition of

foreign shipbuilders, which can build ships for about half the cost of

U.S. shipyards. Further subsidies of about $350 million a year are paid to

offset the higher operating costs of U.S. shipping companies, again for the

purpose of meeting competition from foreign ships.

The Administration has proposed to discontinue funding for three of

the five new ships the construction of which would be financed beginning

this year. It has not proposed cutting ship operating subsidies. If the

Congress ended the two subsidy programs, further savings in the first five

years would total about $500 million, and the amount would be even greater

in future years. At the same time, however, there would be some loss of

U.S. shipbuilding capacity, some possible adverse effects on export and

import prices, and some loss of employment in shipbuilding regions and in

the industries that furnish shipbuilding materials.

Elimination of Deficiency Payments

Another option not proposed by the Administration is to eliminate

deficiency payments to grain and upland cotton farmers. These payments

have largely fulfilled their purpose—to smooth the transition toward fuller

participation in the world market. Elimination of deficiency payments could

save $130 million annually over the next several years.
APPENDIXES

75-743 0-81- 9

APPENDIX A. AN ANALYSIS OF THE MAJOR BUDGET REDUCTIONS

RECOMMENDED BY THE ADMINISTRATION

This appendix analyzes 38 of the budget reductions recommended by

the President in his Fiscal Year 1982 Budget Revisions, submitted to the

Congress on March 10, 198L The reductions analyzed here represent those

that have either large fiscal year 1982 budget savings or small 1982 savings,

but large longer-run impacts. The numbers in the tables are those of the

Administration and represent budget savings relative to President Carter's

January budget submission.

A- 1
Sale of Surplus Silver

Program Cuts from the January Budget

Administration (In millions of dollars)

Estimates 1981 1982 1983 1984 1985 1986

Budget Authority

Outlays

0

0

507

507

507

507

75

75

-206

-206

-206

-206

Source: Fiscal Year 1982 Budget Revisions, Appendix C.

The General Services Administration (GSA) maintains a stockpile of

strategic and critical materials for U.S. defense and industrial production in

the event of war mobilization. Surplus holdings, as determined by the

Federal Emergency Management Agency on the advice of the National

Security Council and others, are disposed of by GSA subject to enactment of

authorizing legislation. Currently, the stockpile contains 139.5 million troy

ounces of silver valued, according to Administration estimates, at approximately $2.1 billion. Silver has not been required for the strategic stockpile

since 1976 because supplies in the United States, Mexico, and Canada are

considered adequate for wartime needs.

Beginning in fiscal year 1982, the Administration proposes accelerating the disposal of the surplus silver planned in the January budget. That

budget assumed disposals of 15 million troy ounces per year through 1990.

The Reagan Administration's revised estimates assume the disposals would

be completed in 1984, with total sales of 52 million troy ounces each year in

1982 and 1983 and the remaining 20.5 million troy ounces in 1984. Under

the Administration's accelerated disposal plan, which requires enactment of

authorizing legislation, additional offsetting receipts would total $677

million through fiscal year 1986—assuming an average price of $15.00 per

troy ounce. Because GSA reimburses the Treasury $1.29 for every ounce

sold, its offsetting receipts from sifter disposals are correspondingly lower.

Silver prices for March 1-12, 1981, averaged $11.78 per troy ounce. If this

price should not increase, receipts from the disposal of the entire surplus

would be lower than the Administration's estimate by about $449 million and

the savings from the January budget would drop by $159 million through

1986.

A- 2
Provisions in the Strategic and Critical Materials Stock Piling Revision

Act of 1979 require that GSA disposal operations avoid undue disruption of

usual commodity markets. When GSA last entered the silver marketdisposing of nearly 300 million troy ounces of silver from August 1967

through November 1970—the price of silver did not drop below the prevailing price when sales commenced. These disposals averaged 86 million troy

ounces per year and occurred mostly during a period of rising silver prices.

There is no assurance that the disposals planned for 1981-1984 can be

achieved without disruption because of uncertainty in market conditions,

although the proposed quantities are significantly below actual annual

disposals during 1967-1970.

The disposal of silver might be viewed as an artificial budget reduction

measure in that the sale of assets does not reduce federal purchases of

goods and services. Because the silver inventory is unnecessary, however, it

might best be used as a source of federal revenue. As an offsetting receipt,

the disposals reduce budget authority and outlay totals and may also

counterbalance budget requests to purchase other stockpile materials.

A- 3
Eximbank Loan Program

Program Cuts from the January Budget

Administration (In millions of dollars)

Estimates 1981 1982 1983 198* 1985 1986

Budget Authority

Outlays

748

70

571

236

891

523

1,266

782

1,690

1,026

2,117

1,2<W

Source: Fiscal Year 1982 Budget Revisions, Appendix C.

The Export-Import Bank direct loan program extends credit at subsidized rates for the purpose of expanding U.S. exports; Eximbank lends at

rates that attempt to match foreign credit subsidies, and will provide credit

in cases where borrowers are unable to obtain financing. The Administration has recommended that the Bank's authority to make new direct

loans be reduced to $*.* billion in 1982, down 12 percent from the President

Carter's budget and 31 percent from current policy.

The direct loan program imposes additional interest costs of $200 million to $900 million annually on the U.S. government; these costs show up as

transfers to foreign importers and increases in profits to U.S. exporters who

are directly involved.

The effects of reducing the program are uncertain. The proposed cut

would probably reduce the profits of some exporting industries, particularly

commercial airframe and commercial nuclear power plant manufacturers.

Whether this would reduce employment is uncertain, because the effect of

Eximbank lending on the volume of exports is uncertain. To the extent that

the subsidized loans increase exports, they will increase subsidized exports

relative to other exports.

Another option would be to terminate new commitments of funds

under this program, not renew expiring preliminary commitments of funds,

and not renegotiate any existing contracts at lower interest rates.

Eximbank loans and guarantees against exports have ranged between *

and 7 percent of total U.S. exports since 1975. At the end of 1979,

Eximbank had loans and guarantees outstanding against more than $3 billion

A-
in exports in each of these states: California, Illinois, New York, Pennsylvania, and Washington. But because the relation between Eximbank loans

and the volume of exports is uncertain, no information about regional

unemployment effects can be adduced.

A- 5
Rural Electrification Administration Loans and Loan Guarantees

Program Cuts from the January Budget

Administration (In millions of dollars)

Estimates 1981 1982 1983 198* 1985 1986

Budget Authority 187 5,5*5 6,0*5 6,58* 7,1167 7,796

Outlays 62 1,988 3,565 *,966 5,909 6,928

Note: Includes REA insured loans and FFB direct loans under REA loan

guarantees. Savings are primarily due to elimination of FFB direct

loans. All savings acrue off-budget.

Source: CBO estimate, based on the policies contained in Fiscal Year 1982

Budget Revisions.

The Rural Electrification Administration (REA) issues loan guarantees

and makes insured loans to cooperatives and private companies for the

purpose of providing and improving electric and telephone services in rural

areas. The bulk of REA activity involves issuing guarantees for long-term

loans (35 years) made by the Federal Financing Bank (FFB) to borrowers at

interest rates just slightly above the Treasury's rate. In addition, direct

loans are made out of the Rural Electrification and Telephone Revolving

Fund and the Rural Telephone Bank. These loans—also called insured loansbear either 2 percent or 5 percent interest rates and must be repaid within a

period not to exceed 35 years. They go to utilities with low user density and

represent about 10 percent of REA-related lending.

The Administration's proposal would discontinue FFB lending to

holders of REA loan guarantees, effective October 1, 1981; reduce the level

of insured loans by eliminating new telephone loans and decreasing new

electric loans; and substitute 5 percent insured loans for 2 percent insured

loans. Changes in the insured loan program account for slightly less than

10 percent of the reductions in budget authority and outlays shown above.

The REA does not plan to reduce the amount of loan guarantees that it

will issue. REA borrowers who would have obtained funds through the FFB

at negotiated terms would probably be able to switch to private market

A- 6
sources without experiencing substantially higher interest rates or shorter

repayment periods. Some experts believe that loss of the FFEVs coordinating

role would ultimately mean slightly higher interest rates, but it is not

possible to quantify this impact. More than 90 percent of the outlay savings

associated with the Administration's proposal would result from reduced

FFB lending.

The Administration's proposal is projected to result in slightly higher

utility rates for consumers who would otherwise receive service through

systems financed with low-interest insured loans. This is most likely to

include residents of sparsely settled rural areas in the upper Midwest and

West. Because of planning and construction, a time lag of two to three

years can be expected before the change would cause utility rates to rise.

Because REA!s Rural Electrification and Telephone Revolving Fund

and the FFB are both off-budget agencies, no federal budget savings would

be associated with the proposal. A lower level of FFB lending would

however, reduce total federal indebtedness and shift a corresponding amount

of lending to the private market. This would be consistent with the facts

that REA has completed its original objective of establishing utility service

in rural America and that rural consumers, as a group, are no longer

economically disadvantaged relative to all other consumers.

A- 7
Synthetic Fuels

Program Cuts from the January Budget

Administration (In m illions of dollars)

Estimates "T9ST T9S2 1983 198* T5S3

Budget Authority

Outlays

547

263

772

789

1,060

840

356

730

128

214

5

241

Source: Fiscal Year 1982 Budget Revisions, Appendix C.

Both the Department of Energy (DOE) and the Synthetic Fuels

Corporation (SFC) currently support synthetic fuels research, demonstration, and development. The Synthetic Fuels Corporation was created by the

Congress in 1979 to be the lead agency in support of synthetic fuels

technology, and was appropriated $12.2 billion to carry out a range of

subsidies and guarantees that would lead to rapid synfuel deployment. The

Department of Energy, however, has also been appropriated funds to

demonstrate synthetic fuel technologies, although the thrust of the DOE

program lies more in support for pilot plants to demonstrate technological

viability, whereas the SFC is oriented toward demonstrating the commercial

viability of full-scale plants.

The President's budget for fiscal year 1982 proposes to terminate five

DOE-supported demonstration projects—two Solvent Refined Coal plants

(SRC-1 and SRC-II), two high-Btu gasification plants, and one medium-Btu

gasification plant. The Administration intends to shift the focus of federal

synthetic fuel programs away from small-scale, directly funded demonstration plants toward larger, commercial-scale plants with support provided by

SFC loan guarantees. In addition, the budget also proposes the rescission of

$300 million in 1980 appropriated funds for a second round of DOE

solicitations for feasibility studies and cooperative agreements. The firstround awards for these alternative fuel activities have been made and

remain unaffected.

Demonstration plants provide information and experience concerning

technological, environmental, and cost risks. Traditionally, however, these

risks are the province of the private sector. Moreover, earnings in the

energy sector have expanded dramatically, both absolutely and as a percenA- 8
tage of total corporate profits in the economy. Thus, private financing may

be available for demonstration projects that confront these risks. Further,

the economic efficiency of these demonstration plants can be questioned.

By allowing federal equity in the projects, the government may allow some

degree of "gold-plating11--in the form of unnecessary features—and cost

overruns, as the financial risk of private-sector participants decreases.

On the other hand, by reducing many of the uncertainties surrounding

synfuel plants and processes, demonstration plants may lower the premium

demanded by capital markets. In addition, by buying this experience, the

government may lower the costs of subsequent synfuel plants and outputs,

and speed their development. Finally, such a demonstration program may

add to the long-term competitiveness of the industry, by bringing more

smaller firms into the industry.

With the elimination of the DOE program, the federal synthetic fuels

program would be run primarily by the Synthetic Fuels Corporation, which is

empowered to make financial arrangements necessary to support those

commercial-scale projects deemed most deserving. Unification of the

synfuels program within the SFC may eliminate a source of funding for

small-scale demonstration plants such as those the proposal would cut. On

the other hand, the support SFC can offer for larger, commercial-scale

plants may induce some private-sector demonstrations.

This budget proposal may cause several localities to lose a potentially

significant source of local economic activity—specifically, Newman,

Kentucky (SRC-I); Morgantown, West Virginia (SRC-II); Memphis, Tennessee

(medium-Btu plant); Perry County, Illinois (high-Btu plant); and Noble

County, Ohio (high-Btu plant). In addition, the firms and local governments

engaged in or supporting these demonstration plants would be affected.

The Synthetic Fuels Corporation and the DOE program were established in an environment of lower energy prices and price expectations.

Thus, there is some merit to the claim that the level of support necessary to

assist synfuel development should be reassessed. It is unclear, however, that

such a reassessment would obviously lead solely to the termination of

demonstration plants.

Some policy options exist to lessen the impact of these proposals on

synfuels development. These include waiving antitrust considerations and

allowing large energy firms to enter more joint ventures at the demonstration level, and issuing synfuels purchasing agreements to guarantee the

marketability of fuels produced during the learning phase of the industry.

A- 9
Solar Energy Development

Program Cuts from the January Budget

Administration (In millions of dollars)

Estimates ""1981 1982 19X3T9S 5 I9S5

Budget Authority

Outlays

99

79

390

380

457

443

403

437

362

362

309

309

Source: Fiscal Year 1982 Budget Revisions, Appendix C.

The Administration proposes to shift the Department of Energyfs solar

activities away from near-term development, demonstration, and commercialization efforts into longer-range research and development projects that

are too risky for private firms to undertake. The Active and Passive solar

programs would be refocused upon the development of active and passive

cooling technologies. The Photovoltaics program would continue advanced

research and technology efforts, eliminating product and market development. Similarly, the Solar Thermal program would continue technological

development of solar thermal electric, and process heat systems, but reduce

involvement in product development. Technological research and development would continue in the Wind, Biomass, International (Solaris), and

Alcohol programs. The Information and Program Direction programs would

be sharply reduced, reflecting cutbacks in marketing efforts.

Construction of a permanent facility for the Solar Energy Research

Institute would be deferred. The Market Analysis program would be

eliminated, reflecting reduced commercialization efforts. The Ocean

Systems and MX-missile renewable energy systems (MX-RES) programs

would also be eliminated, because they are perceived to be too risky for

potential payback.

Elimination of federal involvement in near-term research, development, demonstration, and commercialization efforts may slow the market

penetration of solar technologies and products. Most firms involved in solar

technology and product development are developing specialized products for

limited geographical areas due to capital constraints characteristic of small

businesses. Their marketing efforts depend heavily upon research and

information provided to lenders, builders, and consumers by federally

A-iO
assisted organizations such as the Regional Solar Energy Centers. Without

federal support, they may lack the financial resources to carry out effective

marketing and information programs. (Consumers of solar products are

generally middle- and upper-income families and small businesses.)

Withdrawal of federal support for near-term research and development

may slow the adoption of solar technologies, thus prolonging dependence on

high-grade energy inputs such as oil, gas, and electricity for the low-grade

energy requirements of space heating and hot water. Solar products and

technologies represent decentralized uses of energy, utilizing renewable

energy inputs that are more resilient to shocks or interruptions than are

centralized power sources.

Solar development has received the most attention in California and

the sunbelt states. Solar cooling technologies that would benefit the warm

climate regions of the West and South are still in the infant stage of

development. Solar water and space heating technologies that may have

benefits in regions with wide seasonal temperature variations are not yet

widely accepted or understood by the public. Passive solar development,

which relies primarily on site and architectural design characteristics, may

require additional research and information assistance to become independently viable and generally accepted.

In light of the rapid development of solar technology and products,

federal withdrawal from near-term development and commercialization may

be prudent. The future federal role may lie in disseminating information to

the marketplace, and in the support of long-term research and development

of projects that are too risky for the private sector. In addition to the solar

budget expenditures provided by the Department of Energy, federal tax

credits of 40 percent for solar product installations continue to provide

consumers with an incentive to apply solar technology.

A-ll
Fossil Energy Research and Development

Program Cuts from the January Budget

Administration (In millions of dollars)

Estimates 1981 19X2 19XJ5 1984 19S:>

Budget Authority

Outlays

50

121

360

321

498 661

404 503

614

595

517

519

Source: Fiscal Year 1982 Budget Revisions, Appendix C.

Department of Energy fossil energy research and development programs conduct activities aimed at improving technologies for producing and

using coal, oil, and gas. These activities include construction and operation

of pilot plants, which tend to subsidize the development of new technologies

by private industry.

The Administration proposes to save $121 million in 1981 outlays and

$321 million in 1982, by revamping the fossil energy research and development programs and terminating certain commercialization activities. This

proposal would reduce spending on near-term activities but continue supporting more basic long-range technologies. The Administration believes

this funding is no longer needed because the energy industry has stepped up

its research and development funding. The new policies—tax relief and

reduced regulation, for example--may enhance the private sector's ability

and willingness to develop new technologies. In addition, the Synthetic

Fuels Corporation may help finance these activities without direct federal

funding. Finally, the recent decontrol of oil prices, and the possible

deregulation of natural gas, will likely provide additional financial incentives for private-sector investment.

Projects specifically slated for reduced federal funding include the

recently completed H-coal plant in Cattlesburg, Kentucky, and the Donor

Solvent plant in Baystown, Texas. Together, these projects account for $389

million of prior federal funding and would require about $527 million more

for five years of planned operational testing. Further, eliminating the

magnetohydrodynamics program will leave a nearly completed facility in

Butte, Montana, and a facility in Tullahoma, Tennessee, without federal

support. Federal funding of $89 million was planned for the operation of

A-12
the Montana facility through fiscal year 1985. In addition to these specific

pilot plants and test facilities, funds are being reduced substantially for

other fossil fuel research and development—for example, coal liquefaction,

gasification, and mining, as well as oil and oil shale technologies.

Pilot plants, like the larger commercial-scale demonstration plants,

help reduce technological and economic uncertainties. Relatively high

earnings in the energy sector, and the possibility of large payoffs, indicate

that greater private-sector participation may be expected. In specific

cases—the Donor Solvent Plant and the H-Coal Plant, for example—the

capital costs have been provided by the federal government, and cutting

further federal funds may be appropriate. The plants can now be made

available to the firms involved, which have the proper incentives to operate

and maintain them. As long as the federal government continues operation

and maintenance, private firms have little incentive to offer their

resources.

The primary difficulty of the proposal is that the private sector may

not take advantage of this opportunity to fund research and development if

the risks associated with these technologies are perceived as too high, even

with some assistance from the Synthetic Fuels Corporation. Some projects—enhanced oil recovery research, for example—may result in nearterm benefits to firms that replace federal funding, and in such cases

withdrawal of federal funds may be appropriate. Some technologies that the

government deems close to commercialization may still be considered too

risky by the private sector. Slow development of some of these technologies

may result in continued high levels of dependence on foreign oil supplies.

The impact of the proposed cuts may also fall directly on localities, firms,

and contractors immediately involved in or relying on various construction

projects and pilot plant operation.

Policies that would foster more rapid development of synthetic fuels

without direct federal funding would help reduce the impact of this proposal

on fossil fuel technology development. These options include waiving

antitrust provisions that tend to restrict the formation of joint ventures for

research, development, and commercialization, and issuing purchasing

agreements to guarantee the marketability of fuels produced by the new

technologies. Creating an environment conducive to the development and

commercialization of the technologies may provide incentives for more

private-sec tor participation in basic fossil energy research and development.

A-13
Energy Conservation

Program Cuts from the January Budget

Administration (In millions of dollars)

Estimates 1981 19X2 1983 19&4 1983 1986

Budget Authority

Outlays

207

42

677

442

63 1

645

461

623

408

467

407

407

Source: Fiscal Year 1982 Budget Revisions, Appendix C.

Department of Energy conservation programs are aimed at all energyusing sectors, including building and community systems, industry, transportation, and state and local jurisdictions. There are also multisector

programs and Energy Impact Assistance. In addition, the Carter Administration had scheduled the new residential and commercial retrofit program

to begin in fiscal year 1982.

In fiscal year 1980, assistance to states, cities, and low-income

persons accounted for $441.5 million of the $780.7 million appropriated for

conservation. Grants for hospitals and schools and for low-income weatherization received $342.7 million of the $441.5 million, with information

programs and planning grants accounting for the rest. Transportation

programs, at $113.4 million, were the next largest portion of the federal

conservation effort. Most of these funds were used for research and

development. Building and community systems received $103.4 million, used

for a variety of research and development and informational programs. The

industrial and multisector programs received $79.3 million between them,

mostly for research and development performed either directly or through

grantees. The Energy Impact Assistance program received $43.0 million to

aid local governments and other eligible jurisdictions.

The Administration's proposed cuts include a reduction of federal

support for near-term and commercialization projects, leaving such projects

as energy from urban waste, advanced automotive engine design, and

industrial processes to be tested by the private sector. High-risk and longterm research and development projects, such as advanced design batteries,

are being retained. The President's proposal also largely eliminates the

federal promulgation of new appliance and building efficiency standards.

A-14
Many small information programs are being cut or eliminated altogether. In

addition, the number of conservation financial assistance programs is being

trimmed: low-income weatherization assistance is being folded into the

community development block grant (CDBG) program. State and local energy

conservation agencies1 funds for conservation planning, management, and

outreach would be cut. Grants for school and hospital conservation measures

are being retained at a reduced rate.

Low-income persons receiving weather ization assistance may be

affected if states use CDBG funds for other purposes. As currently

constituted, the CDBG program allows localities and states great latitude in

determining their own spending priorities. Low-income weatherization

programs would have to compete at the local level with other programs. The

competition for CDBG funds is likely to grow in intensity if the Administration budget cuts are enacted and if the use of CDBG funds for commercial

development is permitted.

Small businesses that now receive technical conservation assistance and

are not in a position to hire outside consultants may be less able to respond to

increased energy prices. Small communities that lack access to privatesector energy auditors—who are located in major metropolitan areas in any

case—may be affected by the elimination of the Residential Conservation

Service's auditors training program. Consumers in general may be affected

by the elimination of the federal mandatory appliance efficiency standards

program, which might reduce energy costs of appliances they intend to

purchase.

Manufacturers of consumer durables may also be affected by the

elimination of unified federal efficiency standards. In their absence, states

may enact their own standards (a few have already done so and more are

considering such measures) that would, in all likelihood, be uneven and might

prevent the economies of scale offered by unified standards.

In addition to direct expenditures on conservation, the federal government grants a tax credit for conservation measures, which the Administration

would retain. Tax expenditures during fiscal year 1982 are expected to total

$799 million. Altogether, the revisions would cut the total federal conservation budget by approximately 20 percent relative to the current policy.

A-15

75-743 0-81-1 0
Energy Regulation

Program Cuts from the January Budget

Administration (In millions of dollars)

Estimates 1981 1982 1983 1984 1985 1986

Budget Authority

Outlays

111

68

159 1<

179 U

ft 136

tf 138

133

129

123

123

Source: Fiscal Year 1982 Budget Revisions, Appendix C.

The Economic Regulatory Administration (ERA), the Office of Hearings and Appeals, the Federal Energy Regulatory Commission, and the

Gasoline Rationing Preimplementation Project constitute the major regulatory arms of the Department of Energy. They seek through a variety of

mandatory restrictions, enforcement and emergency preparedness activities,

and information programs to encourage conservation and production of

energy, and to reinforce some of the chief provisions of the major energy

acts—most notably, the amended Emergency Petroleum Allocation Act

(EPAA), and the Power and Industrial Fuel Use Act of 1978.

In conjunction with the immediate decontrol of oil prices, the President has proposed substantial cuts in the price and allocation activities of

these agencies. In addition, he has proposed cutting a variety of enforcement and information programs, as well as emergency preparedness operations designed to prepare and implement policies to respond to an oil supply

cutoff. Most notably he has proposed:

o Eliminating the Gasoline Rationing Preimplementation Project

Office, and reducing ERA's emergency preparedness office to a

skeleton staff (savings of $93.9 million in fiscal year 1982);

o Reducing funding for enforcement of EPAA in response to

immediate oil price decontrol, and increased emphasis on more

rapid expediting of pending cases (savings of $50.4 million in fiscal

year 1982);

o Eliminating the fuels conversion office of ERA entirely, and

reducing its utilities programs and regulatory intervention office

A-16
by eliminating financial and technical assistance to state regulatory agencies (savings of $31.1 million in fiscal year 1982).

A variety of smaller savings in the ERA budget and related items have also

been proposed.

Any effort to estimate the impact of these cuts involves a wide series

of assumptions. The savings achieved through eliminating programs

designed to prepare for an oil shortfall will have no significant impact if

there is no shortfall, or if other plans are developed that are relatively

costless to analyze and administer. Similarly, the effect of reducing the

compliance and enforcement operations on oil price controls depends upon

the likely outcome of cases now in progress; if, for example, substantial

penalties would be collected or ordered paid to consumers were funding for

these operations to be continued, the cut could result in corresponding losses

to the government or specific groups of consumers. Finally, reducing

government involvement with fuel use, particularly in the case of utilities,

may not greatly slow the ongoing trend toward voluntary conversion to coal.

In many instances, however, "noneconomic obstacles" appear to stand in the

way of such conversions—such as the regulatory bias against new construction on the part of state Public Utility Commissions. Eliminating the fuels

conversion and regulatory intervention operations may limit utilities1 ability

to overcome state regulatory obstacles.

The regional impact of the proposed cuts is also impossible to estimate

without making a number of speculative assumptions, since the cuts will not

immediately and directly affect any single region. If an oil shortfall were to

occur in the absence of a contingency plan, oil-dependent regions—notably

New England, the Mid-Atlantic states, Florida, and California—would likely

be most severely hurt. If the proposed cuts were to slow the rate of

conversion from oil and natural gas, the effect of an oil shortfall on these

areas would be exacerbated.

Depending upon the size and duration of the shortfall, it is likely that

these regional impacts would be greatly outweighed by aggregate economic

effects. The Administration has preserved some policies such as the

Strategic Petroleum Reserve to mitigate the overall economic losses.

Eliminating these planning and preimplementation projects could, however,

seriously limit future policy options to respond to a shortfall.

A-17
Municipal Waste Treatment Grants

Program Cuts from the January Budget

Administration (In m illi ons of dollars)

Estimates 1981 1982 T333 1984 T9S3

Budget Authority 1,700 3,700 1,600 2,000 2,300 2,600

Outlays 20 290 1,450 2,270 2,270 2,275

Source: Fiscal Year 1982 Budget Revisions, Appendix C.

The Environmental Protection Agency (EPA) makes grants to municipalities for the planning, design, and construction of wastewater treatment

facilities. EPA provides 75 percent of the allowable construction costs, or

85 percent if the project employs alternative or innovative technology.

Funding levels have averaged almost $4 billion a year, making it by far

EPA!s largest program in terms of direct budgetary outlay.

The Administration has proposed rescinding $586 million in 1980

unobligated funds, $1 billion in 1981 funds, and $114 million from a previous

direct appropriation. The $114 million represents the remaining unobligated

funds of the $480 million appropriated in fiscal year 1976 for hardship areas

in Title 3 of the Public Works Employment Appropriations Act (Public Law

94-447). No funds are requested for 1982 until reforms are enacted, and

then a request for $2.4 billion will be submitted. Budget authority for

1983-1985 will be limited to $2.4 billion (approximately 55 percent of the

amount in the Carter Administration budget).

The major proposed reform would limit the types of projects eligible

for federal funding. Principally, it would eliminate federal funding of

projects that serve future community growth or do not result in direct

environmental improvement. Projects would be built for the current population rather than for the population projected for the year 2000. Funding

would be provided for treatment plants, but not for interceptor sewers.

The impact of the proposed cuts would depend on whether the states

and communities perceive the cuts as eliminating, or merely delaying,

federal funding for projects. In cases where federal funding was eliminated,

some projects would likely still be built (perhaps on a reduced scale). In

A-18
cases where federal funding would only be delayed, the states and communities might delay a project rather than go ahead without the federal funding.

If projects affected by the cuts were built anyway, state and local funds

would be substituted for federal money, and the burden would be borne by

those taxpayers or by water users through higher rates. To the extent that

projects were deferred, built on a smaller scale, or not built at all, water

users and the construction industry would be adversely affected.

The impact of these changes on various regions of the country will

depend on at least three factors:

o Allotment Formula. The formula that allocates money among the

states comes up for reauthorization this year.

o Speed of Obligation. States differ in terms of how quickly they

obligate funds and hence in the size of their current unobligated

funds. States that obligate quickly (and hence have few unobligated funds) will feel the cuts this year or the next.

o Reallocation Mechanism. Under current law, states must obligate

funds within two years, or the money is reallocated to other

states that have already obligated their funds. A recent EPA

study—known as the 1990 Study—has proposed faster reallocation, whereas CBOf

s Reducing the Federal Budget; Strategies and

Examples suggests that any reallocation mechanism will create

perverse incentives to spend money in a hurry, so that it may be

better not to reallocate at all. Under reduced funding levels, the

issue may become moot since money will tend to be obligated

within the two-year limit.

The Administration proposal would reduce outlays through limitation

of eligibility. Several other options for limiting spending are available.

They include:

o Reducing the percent share of federal money on all projects (as

opposed to the Administration proposal to limit eligibility but

keep the current federal share on eligible projects).

o Instituting user charge systems (however, the Congress repealed

the industrial cost recovery provisions of the 1977 Clean Water

Act last year).

o Instituting controls on unobligated money (over $4 billion after

rescissions; without controls, this money might be spent quickly

and ineffectively).

A-19
Farmers Home Administration

Program Cuts from the January Budget

Administration (In millions of dollars)

Estimates 1981 1982 1983 1984 1985 1986

Budget Authority 80 1,523 1,606 1,708 1,801 1,889

Outlays 77 1,502 1,629 1,762 1,862 1,942

Note: Although the FmHA lends to agriculture, rural community facilities, and rural housing, the cuts shown here include only agricultural lending.

Source: CBO estimates based on policies contained in Fiscal Year 1982

Budget Revisions,

The Farmers Home Administration (FmHA) provides loans for agriculture, rural community facilities, and rural housing, and was recently

given lead responsibility in rural development planning and coordination. In

most programs, the FmHA is intended to be a "lender of last resort" for

qualified applicants who can find no other source of financing. Some loans

carry interest rates substantially below prevailing market levels to provide

special assistance to low-income rural people and farmers who have

suffered losses due to natural disasters. For example, under existing law,

low-income farmers can obtain real estate loans at 5 percent interest and

operating loans at 7 percent. Emergency disaster loans up to $500,000 at

5 percent are available to all farmers who cannot obtain credit elsewhere,

and housing loans at very low-interest are made to low-income families.

In recent years, FmHA activities have expanded rapidly. Between

1976 and 1980, FmHA loans and grants increased from $5.4 billion a year to

$13.0 billion a year. FmHA now accounts for about 10 percent of farm real

estate lending compared with 5 or 6 percent in the mid-1970s.

The Administration's major proposal is to raise interest rates on FmHA

loans to cover the governments cost of borrowing funds. This would reduce

the level of lending primarily in the following categories: farm ownership

and emergency disaster loans; water, waste disposal, and community facility

A-20
loans and grants; and rural housing loans. The Administration also proposes

to terminate a small loan guarantee program for business and industry in

1982.

Within the farm sector, the Administration's proposal would cause

FmHA lending to fall by about $1.5 billion in 1982, and by $1.9 billion in

1986. This would encourage some borrowers to shift to other sources of

credit, such as the Farm Credit Administration and private banks. This

adjustment will be easiest for farmers who have been able to build a

favorable equity position. Since many FmHA borrowers do not fall in this

category, the Administration plans to increase funds for operating loans

primarily to assist existing borrowers.

Low-income and beginning farmers, who would otherwise use lowinterest FmHA loans to enter farming, are most likely to be adversely

affected by this proposal. Although these types of farms are scattered

throughout the United States, they are most commonly found in the

Southeast and Midwest. The reduction in emergency disaster loans is not

likely to have a significant impact on farming, since many of these

borrowers can obtain credit elsewhere, and subsidized federal crop insurance is being expanded.

In the water, waste disposal, and community facility programs, the

Administration proposes to increase interest rates from 5 percent to the

average municipal bond rate and to reduce the level of loans and grants. In

1982, water and waste disposal loans and grants would be reduced $553 million, to an amount roughly equal to one-half their 1981 level. This decision

would result in program activity comparable to annual levels during the

period from 1973 to 1975. The burden of the adjustment would fall

primarily on rural communities of not more than 10,000 population. It is

expected that FmHA!s activity would decline from a current level of about

2,000 new systems or systems improvements a year to less than 1,200.

In the rural housing programs, the Administration's proposal would

eliminate interest subsidies to moderate-income borrowers, cut rural rental

housing loan commitments slightly, and maintain funds for low-income

housing at about the 1981 level.

The Administration's proposal would reduce FmHA loan and grant

activity in 1982 to about the level prevailing in the mid-1970s. It would also

reduce the real cost of FmHA programs by cutting back interest rate

subsidies and the likely number of loan defaults. Estimated savings resulting

from this action would be $200 million in 1982, increasing to $900 million in

1986.

A-21
Dairy Price Support Program

Program Cuts from the January Budget

Administration (In millions of dollars)

Estimates 1981 1982 1983 1984 1985 1986

Budget Authority

Outlays

0

0

0

0

0

0

0

0

0

0

0

0

Source: Fiscal Year 1982 Budget Revisions, Appendix C.

To assure the public of an adequate supply of milk, the federal

government supports the price of milk by purchasing surplus manufactured

dairy products—butter, cheese and nonfat dry milk. These purchases

prevent farm milk prices from dropping precipitously during seasons of

heavy production in late spring and early summer, which would tend to lower

future production. Thus, a minimal level of government purchases—that is,

2 to 4 percent of total annual production—contributes to stabilizing supplies

and prices. At the same time, however, price supports have substantially

raised dairy farm prices, encouraging expanded production. High farm

prices have caused retail milk prices to rise, thereby reducing consumption.

The result is a perverse situation of surplus milk production on one hand, and

on the other, rising government purchases, higher retail prices, and lower

consumption.

For the past four years, the price support level for milk has been set

at the start of each marketing year (on October 1) at 80 percent of its

parity price—the minimum level authorized by current law, and raised each

April 1 to reflect changes in prices paid by farmers. The Administration's

recommendation has two components: legislatively to eliminate the April

1981 increase in the milk price support; and to lower the level in October

1981 to a still unspecified level. Apparently, this proposal is intended to set

the level of price support at 75 percent of parity. (That is the level to

which the milk price support would revert automatically anyway if current

law were simply allowed to expire this coming September.) Because this

recommendation was also in the January budget, no savings are shown. As

compared with the continuation of current policy, CBO estimates that the

proposal would save $150 million in 1981, and $6.6 billion over the 1982-1986

period.

A-22
Even at 75 percent of parity, CBO estimates annual milk support

prices during fiscal years 1982-1984 will average more than 20 percent

above current levels and provide a minimum farm price that covers the

costs of producing most of the nation's milk. The effects of reducing the

milk price support—to 75 percent of parity would be felt most acutely by

high-cost producers, particularly in southeastern states, where about 12 percent of all U.S. milk is produced. A lower level of price support would slow

the growth rate of milk production during 1982-1984 and would lower

producers1 average cash receipts by 7 percent. The projected level of milk

production at 75 percent of parity is more than adequate, however, to

maintain stable prices and supplies. With milk support prices at 75 percent

of parity, government purchases for 1982-1984 would average 6 percent of

annual milk production—more than is needed to achieve low to moderate

price variability.

If the Administration's proposal is adopted, consumers would benefit

from lower prices, and consumption would increase. Retail dairy product

prices during 1982-1984 would average about 5 percent lower than at

present, and commercial consumption about 1.2 percent greater. In particular, low- and moderate-income families and larger families would

benefit.

A-23
Postal Service Subsidies

Program Cuts from the January Budget

Administration (In millions of dollars) ^^ ^

Estimates "TSST 1982 1983 T9SS T933

Budget Authority

Outlays

0

0

250

250

150

150

237

237

226

226

258

258

Source: Fiscal Year 1982 Budget Revisions, Appendix C.

The federal government directly supports the U.S. Postal Service

mainly through two types of payments—one for revenue forgone and another

for public services. Without reduction, these payments could total $800

million and $644 million, respectively, in fiscal year 1982. The revenue

forgone payment reimburses the Postal Service for providing free postage to

blind and handicapped persons and for reducing second, third, and fourth

class postage for certain mailers—mainly religious and other nonprofit

organizations, small newspapers, libraries, and educational institutions. The

public service payment helps finance operations, such as Saturday mail

delivery, that are not cost effective.

The Administration proposes deeper total cuts in the federal payments

to the Postal Service than those included in the Carter Administration

budget. The estimated additional savings total $1.1 billion through fiscal

year 1986 and are mostly attributable to reductions in the revenue forgone

payment, which was not affected by the January budget.

Revenue Forgone. Reductions in the federal revenue forgone payment

would mean higher postage rates for certain mailers, averaging an estimated

15 percent for fiscal year 1982. Such higher rates would mainly affect many

small newspapers, through reduced profits or higher advertising rates, and

budgets of nonprofit organizations. The impact on nonprofit organizations,

as a group, would be small because the subsidy represents less than 0.2

percent of their reported net income for 1978 (excluding religious groups).

Also, such organizations already receive substantial federal assistance in the

form of grants and tax expenditures for charitable contributions.

A-24
For households, cuts in the revenue forgone subsidy could mean a

reduction in mail from religious, educational, and other nonprofit organizations. Upper-income households would be affected most because they

receive a disproportionately high share of the reduced rate mail. Much of

this mail is unsolicited, however, and the resulting higher postage rates

could reduce the volume of so-called junk mailings.

Public Service. Reduction of the public service payment could result

in postage rate increases, cutbacks in certain services, or some combination

of both. If service reductions did not occur, postage rates could increase by

as much as an estimated 1.5 percent for the proposed fiscal year 1982

reduction.

Of possible service reductions, elimination of Saturday mail delivery

offers the greatest potential to offset a reduced subsidy. A move to fiveday delivery would affect most mailers and households, particularly higherincome groups that receive disproportionately large volumes of mail.

Because of holidays, there are at least nine weeks in the year when mail is

delivered on only five days; thus the public might readily adjust to

elimination of Saturday deliveries. Other potential service cuts would have

a more selective impact. Eliminating delivery to remote areas, for

example, would primarily affect rural residents.

Management improvements could limit the impact of a reduced public

service payment. The General Accounting Office is currently reviewing the

Postal Service's transportation network, its revenue protection efforts, and

its management information system as areas in which cost savings could be

achieved. According to preliminary estimates, potential improvements in

postal transportation could generate savings of approximately $200

million—more than half of the proposed 1982 cut in the public service

payment. Such savings could be used to support some services that would no

longer be subsidized.

As an alternative to the reductions proposed in the budget, the

Congress could consider even deeper cuts in the federal payments or their

complete elimination.

A-25
Federal Mass Transit Capital Grants

Program Cuts from the January Budget

Administration (In millions of dollars) __

Estimates 1981 1982 1983 1984 1985 1986

Budget Authority 250 1,340 1,635 1,795 1,845 1,860

Outlays 54 420 805 1,153 1,535 1,649

Source: Fiscal Year 1982 Budget Revisions, Appendix C.

At present, the federal government's Urban Mass Transportation

Administration (UMTA) provides capital grants on an 80-to-20 federal-tolocal matching basis. Of the $2.5 billion in UMTA grants appropriated for

1981, about 38 percent goes into buses and related facilities, 32 percent into

modernizing existing rail systems, 26 percent into constructing new rail

systems and extending existing systems, and 5 percent into miscellaneous

other programs. Some $600 million more is also available for transit

through Interstate transfer grants; this money is used mostly to extend or

improve existing rail systems.

The Administration plans two major changes in the transit capital

grants program. First, it would make no new commitments for rail-system

construction, although those systems already being built would be completed. Second, the Urban Initiatives program ($200 million a year), which

was designed to promote urban development around transit improvements,

would be eliminated by 1983. In addition, the amount of Interstate transfer

grants used for transit grants would be held to current levels, but they would

not be terminated. Small cuts would be made in other programs; these

include cutting 1982 grants for buses and grants for planning in subsequent

years.

Cities with rail projects now underway (Atlanta, Baltimore, Buffalo,

Miami, and Washington, D.C.) would not be affected immediately, although

proposed extensions to these cities1 systems would almost certainly not be

funded. Construction of the Washington, D.C., Metro would continue to

whatever extent Interstate transfers made possible, but most of the

$1.7 billion in Stark-Harris funds needed to complete the full 101-mile

system would not be available (perhaps as much as 25 miles would not be

completed). F

 A-26
Cities now planning new rail systems (including Detroit, Honolulu,

Houston, and Los Angeles) would suffer the effects of the cuts most

severely. These cities would continue, though, to receive bus grants. Cities

with older rail systems and other large cities dependent on bus transit

(including Boston, Chicago, New York, and Philadelphia) would probably not

be greatly affected. But, extensions to their existing rail systems would be

less likely to receive funds than in the past. Cities with large segments of

the Interstate system withdrawn from construction (Boston, Chicago, and

Washington, D.C., for example) would face some delay in using these funds.

The same level of cuts as that proposed by the Administration could be

achieved by reducing the federal match for all capital grants from the

present 80-to-20 rate to about 50-to-50. This would, however, shift the

burden of the proposed cuts more heavily onto the older rail cities and cities

with large bus systems and off of cities with new rail systems still in the

planning stage. With a lower match, some state and local government would

probably elect not to undertake certain capital-intensive projects.

A-27
Federal Mass Transit Operating Subsidies

Program Cuts from the January Budget

Administration (In millions of dollars)

Estimates 1981 1982 1983 1984 1985 1986

Budget Authority

Outlays

0

0

0

0

370

208

7*0

512

1,105

899

1,105

1,088

Source: Fiscal Year 1982 Budget Revisions, Appendix C.

The Urban Mass Transportation Administration (UMTA) provides operating assistance (which legally can be used for capital projects as well) on a

50-to-50 federal-to-local matching basis for virtually every city with a

public transit system. The first such assistance was provided in 1975 at a

level of $300 million. Funding from UMTA has grown rapidly: in 1979, it

exceeded $1 billion, and $1.1 billion is appropriated for 1981. An additional

$75 million is available to aid rural and small-city transit systems.

According to Administration plans, federal transit operating aid would

be entirely eliminated in 1985. Funds for 1982 would be held at the 1981

level of $1.1 billion. For the next three years, annual cuts of one-third of

present appropriations would be enacted. The Administration's outlay

estimate for 1981 and 1982 is about $350 million a year less than CBO's

estimate, apparently because of differences in assumptions about how fast

cities will use the existing program's funds. Three-fourths of federal

operating aid is allocated among cities under a formula that provides

disproportionately large amounts to small and medium-sized cities. The

Administration proposes to cut this portion of funding first, so that during

the phase-down period 1983-1985 more of the burden would be felt by

smaller cities. The federal subsidy per rider is much greater for smaller,

less transit-dependent cities, however, so that they might face more drastic

fare increases or service cutbacks. In terms of absolute dollars, however,

the largest urban areas would lose the most. Urban areas apportioned more

than $20 million for 1981 are New York ($220 million), Los Angeles ($85 million), Chicago ($82 million), Philadelphia ($53 million), Detroit ($37 million),

San Francisco ($31 million), Boston ($29 million), and Washington, D.C.

($28 million).

A-28
In 1979, federal operating aid met about 15 percent of the nation's

public transit costs, with fares making up 45 percent, local government aid

28 percent, and state aid 12 percent of costs. For most large cities such as

Boston and New York, federal operating aid made up less than 10 percent of

costs. Loss of federal operating aid would compel local transit authorities

to contemplate several difficult choices. Fares could be raised (the increase

needed by 1985 would be about 30 percent above 1979 fares), more aid could

be sought from state and local sources (about 40 percent above such

subsidies than at present); or services could be cut back. The most likely

recourse would be some combination of these options.

Similar savings could be achieved by decreasing the overall program

level while giving cities the option of using federal aid either for capital or

for operating costs. This approach would encourage cities to hold fare

increases down and defer replacing aging equipment. Continued deterioration of existing systems is one likely effect of such a policy. Another option

would be to modify certain costly federal laws and regulations. Two

examples are the relatively new requirements for bus lifts and subway

elevators for handicapped riders, and the labor-protection legislation mandated by Section 13c of the Urban Mass Transportation Act. (Section 13c

inhibits the use of some innovative and quite cost-effective forms of mass

transit and, in general, appears to give labor unions veto power over some

management changes.) Although the savings from these changes could be

substantial, they would probably be insufficient fully to offset loss of

federal aid.

A-29
Federal Highway Construction Grants

Program Cuts from the January Budget

Administration (In millions of dollars)

Estimates 1981 1982 1983 1984 1985 1986

Budget Authority 0 2,000 2,300 2,265 2,385 2,205

Outlays 0 404 1,498 1,919 1,995 2,130

Source: Fiscal Year 1982 Budget Revisions, Appendix C.

The federal highway program provides matching funds to the states for

highway construction, safety, and resurfacing and rehabilitation. (The

federal share is 90 percent for the Interstate system, 75 to 80 percent for

other roads.) In recent years, about 60 percent (down from 90 percent

historically) of federal funds have been restricted to the highways most

important for interstate commerce--the Interstate system and the primary

highway system. Remaining federal funds have been used largely for

bridges, local roads, and roads that feed into the national systems, as well as

a number of specific projects (the Great River Road, for example.)

The 1982 funds already appropriated by the Congress are less than the

1981 level, and the Administration's proposal represents a small increase in

budget authority relative to this total. Since the Carter Administration

budget had increased the request for 1982, the Reagan Administration total

is a reduction from that level. In future years, the overall program would

grow more slowly than inflation. Although details are not available, most of

the special categorical grants would be eliminated or combined into block

grants, and the completion of lower priority projects would be stretched out.

The use of Interstate transfer grants for highway projects would also be held

down for a few years. The remaining funds would probably be concentrated

more on the Interstate and primary systems, including the rehabilitation of

these systems. This would mean less federal funding for the secondary

(rural) system and for urban arterials.

States with large amounts of federal-aid urban highway roads ($800

million in 1981 and 1982) and secondary, farm-to-market roads ($600 million

in 1981 and $400 million in 1982) would be hardest hit. Nine states received

A-30
37 percent of the secondary funds in 1981: Texas, Alaska, Pennsylvania,

California, New York, Ohio, North Carolina, Michigan, and Missouri. The

states receiving the smallest amounts from the secondary program were

mostly smaller, eastern states: Delaware, Hawaii, New Hampshire, Rhode

Island, Vermont, Connecticut, Maine, and Massachusetts. The federal-aid

urban program is concentrated in the largest urbanized states; 10 states

received 58 percent of the total authorization for 1981: California, New

York, Illinois, Texas, Pennsylvania, Ohio, Michigan, New Jersey, Florida, and

Massachusetts. The 12 states receiving the least in federal-aid urban funds

($3.9 million) were: Alaska, Delaware, Hawaii, Maine, Montana, Nevada,

New Hampshire, New Mexico, North Dakota, South Dakota, Vermont, and

Wyoming.

Other large miscellaneous programs that are probably included in the

proposed Reagan Administration cut are: economic growth highways

($50 million), rail-highway crossing demonstrations ($67 million), railhighway crossing elimination ($190 million), and pavement marking ($65 million).

If the states were to increase their highway spending to compensate

fully for lost federal funds, state tax increases equivalent to about two

cents a gallon on motor fuel would be needed by 1986. Increases in user fees

for heavy trucks would be one way to spread the costs more equitably.

Federal user fees on cars and trucks could also be increased to offset

the effect on the deficit of higher federal highway spending. These funds,

as much as $2 billion a year by 1986, would be deposited in the Highway

Trust Fund. In any case, some increase in federal user fees will be needed in

the near future to maintain the financial health of the Highway Trust Fund

even under the Administration's highway proposal.

A-31

75.743 0-81-1 1
Amtrak Subsidies

Program Cuts from the January Budget

Administration (In millions of dollars)

Estimates 1981 1982 1983 1984 1985 1986

Budget Authority 25 380 550 700 900 987

Outlays 25 304 497 689 858 1,037

Source: Fiscal Year 1982 Budget Revisions, Appendix C.

The National Railroad Passenger Corporation (Amtrak) operates passenger trains along the Northeast Corridor (between Washington, D.C., and

Boston) and 36 other intercity routes. The corporation was established in

1971 to provide service previously operated by private railroads. Although

conceived as a for-profit operation, it never has covered its costs with

passenger revenues. The federal government currently subsidizes 62 percent

of Amtrakfs operating costs and all of its capital costs. (In fiscal year 1981,

Amtrak will receive about $650 million in federal operating subsidies and

$200 million in capital grants.) Nonsubsidy revenues cover about 37 percent

of Amtrak's operating costs, while local subsidies provide the remaining

1 percent. The Amtrak Act of 1979 set a 1985 goal of recovering 50 percent

of Amtrak's operating costs through passenger revenues.

The Administration is proposing a sharp reduction in federal subsidies

for Amtrak. In particular, it would require Amtrak to cover 50 percent of

its operating costs through fares by the end of 1982, 60 percent by 1983,

70 percent by 1984, and 80 percent by 1985. It proposes funding Amtrak at

$613 million in 1982--$488 million in operating funds and $125 million in

capital and labor protection funds. (According to an Amtrak statement on

March 16, 1981, Amtrak is requesting $623 million in operating funds and

$230 million in capital and labor protection funds.)

The greatest impact of the proposal would be outside the Northeast

Corridor. In fiscal year 1980, revenues (including operating revenues and

local subsidies) covered about 50 percent of the fully allocated costs of

Northeast Corridor operations, while short-haul trains recovered about

38 percent and long-haul trains recovered 34 percent. Thus, the requireA-32
ment of 50 percent cost recovery would mean immediate fare increases of

about 60 percent on short-haul routes and 75 percent on long-haul routes.

By 1985, the proposal would require more than a 50 percent increase in fares

on the Northeast Corridor, while fares on all other routes would more than

double. Such large fare increases would probably result in sharp declines in

ridership. Unless states assumed a drastically increased share of the total

subsidy (state financial support accounted for less than $8 million in 1980

compared with about $700 million in federal subsidies), these reductions in

patronage would require still higher fare increases and could ultimately

force Amtrak to terminate service along many routes outside the Corridor.

Under the Administration proposal, about one-third of the routes

outside the Northeast Corridor would probably remain intact through 1982.

Some of the most promising short-haul routes (in terms of cost recovery)

outside the Corridor include Niagara Falls to New York, Chicago to St.

Louis, Chicago to Carbondale, Chicago to Quincy, Los Angeles to San Diego,

New York to Montreal, Chicago to Port Huron, and Chicago to Dubuque.

Promising long-haul routes include Washington to Montreal, Chicago to

Seattle, Chicago to Los Angeles, Chicago to New Orleans, Los Angeles to

Seattle, Chicago to New York/Boston, Boston to Newport News, and New

York to Savannah. The likeliest routes to be terminated under the proposal

include New Haven to Springfield, Chicago to Milwaukee, Portland to

Vancouver, Washington to Martinsburg, Washington to Cincinnati, Chicago

to Valparaiso, Portland to Eugene, Chicago to Texas, Los Angeles to New

Orleans, and New York to New Orleans. In fiscal year 1980, these routes

recovered less than 30 percent of their total costs from nonfederal revenue

sources. Moreover, as the increasingly stringent cost recovery goals are

phased in between 1982 and 1985, further reductions in the route network

would be required. These reductions will have minimal effects on other

modes of transportation since Amtrak now carries only 1 percent of

intercity passenger traffic.

Generally, most of the impact of this proposal would fall on persons of

average income or above, since these constitute the majority of Amtrak's

passengers.

The cost savings associated with route reductions would be offset in

the short run by labor protection payments to employees affected by service

termination. Amtrak estimates that labor protection costs could total as

much as $200 million in 1982. Amtrak assumes that, under the Administration proposal, all services outside the Northeast Corridor would be terminated, resulting in a 60 percent reduction in Amtrak's labor force. Actual

labor protection costs are difficult to estimate, however, since they depend

on the specific services terminated. Moreover, labor protection payments

extend for a maximum of six years depending on the individual's seniority.

These costs therefore represent temporary, short-run costs that will accompany reductions in Amtrak service.

A-33
Conrail

Program Cuts from the January Budget

Administration (In millions of dollars)

Estimates 1981 1982 1983 198* 1985 1986

Budget Authority

Outlays

25

125

5

-95

102

102

0

0

0

0

0

0

Note: The January budget provided no funds for Conrail in 1982 or

afterward, pending studies due from Conrail on April 1, 1981.

Compared with the current policy, the Administration's cuts represent a reduction of about $500 million in budget authority for 1982,

$400 million for 1983, and $300 million for 198* through 1986.

Source: Fiscal Year 1982 Budget Revisions, Appendix C.

Conrail was established in 1976 by combining eight bankrupt northeastern railroads. The Congress has heavily subsidized Conrail's operations

and capital needs ($3.3 billion since 1976). In fiscal year 1982, and under

current policy, Conrail may need as much as $560 million in subsidies.

Although ConraiPs operating losses have decreased from $367 million in

1977 to $211 million in 1980, annual losses continue for at least three

reasons.

o Conrail has a surplus of branchlines and mainlines. Of Conrailfs

17,000 route miles, it has 9,200 miles of light-density branchlines.

Of these, approximately 5,000 miles qualify for abandonment. In

addition, Conrail probably has 1,900 miles of excess mainlines,

which it can reduce to either secondary mainlines or branchlines.

o Conrail operates more than 1,800 daily commuter trains carrying

over *50,000 commuters. Although it operates these services on a

"cost" basis for various state and regional authorities, Conrail

concludes that it loses money on them and that the states are slow

to pay. Together, direct losses and slow payments cost Conrail

$80 million annually.

o Labor protection agreements impose huge costs. By increasing

labor productivity and therefore furloughing some of its work

A-3*
force, Conrail adds to its labor protection obligations. The

Congress has authorized, for labor protection, $485 million with ail

but $106 million appropriated; this should last through 1982. In

1980, Conrail paid 10,800 claims with an average monthly cost of

$480 per claim for a total of $5.2 million per month.

The Administration proposes to eliminate Conrailfs subsidy after two

years. It supports the proposed 1981 supplemental budget authority of $325,

and requests 1982 budget authority amounting to $50 million.

These drastic cuts would force Conrail to take action in several key

areas. First, it would have to prune immediately 4,000 miles of lightdensity lines and consolidate its duplicate east-west mainlines. These cuts,

involving current revenues of $125 million, would adversely affect small towns

located along branchlines, small cities located along duplicate mainlines,

and some agricultural areas in Illinois, Indiana, and Ohio. Second, Conrail

would have to furlough as many as 11,000 employees (15 percent of the

present labor force). Available labor protection funds would be depleted

quickly, and the federal government could be obligated to provide as much

as $1.6 billion in additional funds for this purpose. Third, in order to reduce

short-run costs, Conrail would defer maintenance on track and other capital

assets that the federal government paid $3 billion to rehabilitate. This

would impair Conrailfs long-run ability to provide service. Finally, Conrail

might abandon its commuter lines, leaving the regional transportation

authorities to find a new operator or to operate these

lines themselves.

State and local governments, manufacturers, and agricultural cooperatives that depend on particular branchlines might agree to subsidize them at

$50 million a year. There could be a controlled transfer of some lines to

other major carriers, provided that labor protection responsibility did not

transfer as well. Finally, if railroad unions would agree to modify cost-ofliving escalator clauses and to streamline work rules, Conrail might be able

to reduce its operating costs.

Reductions in rail service could lead to increases or extensions in

other programs, thereby offsetting some of the savings shown above. Local

rail service assistance currently provides aid for branchlines, although the

Administration's budget would reduce this program. Existing labor protection agreements make severance and furlough pay a federal responsibility,

and could generate huge offsetting costs unless these agreements are

changed. A continuation of commuter rail operations would require

additional funds, probably from states and regional transport authorities.

A-35
Economic Development Administration and Regional Planning Commissions

Program Cuts from the January Budget

Administration (In millions of dollars)

Estimates 1981 1982 1983 1984 1985 1986

Budget Authority

Outlays

476

25

749

481

823

613

893

721

967

857

1,046

1,006

Source: Fiscal Year 1982 Budget Revisions, Appendix C.

The Economic Development Administration (EDA), an agency of the

Department of Commerce, funds public works improvements and planning

efforts, and also makes loans and loan guarantees to firms needing help to

locate, expand, or remain in distressed areas. Eight regional commissions

established under Title V of the Public Works and Development Act of 1965

and the Appalachian Regional Commission (ARC) provide similar types of

aid and also encourage multistate planning and coordination. Currently,

about 80 percent of the U.S. population lives in areas designated eligible for

EDA aid, and every state generally receives some funds. The Title V

commissions cover 34 states, and the ARC covers 13, with parts of some

states covered by both the Title V commissions and the ARC. In fiscal year

1981, appropriations for the EDA were $625 million. Direct business loans

were $116 million of this amount. In addition, EDA had $425 million in

business loan guarantee authority in 1981. Also in fiscal year 1981, the

Commissions were authorized at $425 million, about 80 percent of which

represented ARC funding. About two-thirds of ARC funding, or $215

million in fiscal year 1981, is allocated to the Appalachian Development

Highway System.

The Administration proposal would terminate the EDA, the regional

commissions, and the nonhighway programs of the ARC, by rescinding all

remaining budget authority for fiscal year 1981 and providing no funding for

1982 or thereafter. The Carter Administration had also proposed that the

Title V commissions be terminated in fiscal year 1982 but that ARC funding

be continued.

Many localities would be affected by the EDA reductions because EDA

aid is spread quite broadly. Broad eligibility usually increases substitution

A-36
of federal funds for funds available elsewhere from prviate or governmental

sources. On the other hand, the scanty available evidence suggests that

EDA aids some projects that would not have gone forward or would have

been funded at a smaller scale without federal assistance. The net

additional investment generated may be due at least in part to administrative targeting requirements in the EDA legislation. The agency is required

to give priority to applications from the more distressed among eligible

areas, and to firms with credit difficulties located in those areas. Furthermore, nearly 20 percent of the jobs created by EDA projects funded in fiscal

year 1980 are expected to go to the long-term unemployed. Since other job

programs are also being cut, these persons could be severely affected.

Likewise, since the ARC aids a very distressed area, cutting its programs

would affect the poor.

Options that would reduce the cost of EDA and regional commission

programs without eliminating them entirely include:

o Restricting aid more narrowly to those areas suffering the greatest economic difficulties. Funding could be reduced to reflect the

increased targeting.

o Consolidating the EDA and regional commission programs with

other programs aimed at economic development, such as the

Urban Development Action Grant program, which the Administration has proposed consolidating with the Community Development

Block Grant program. Funding could be reduced to reflect the

decreased overlap among programs.

o Smaller, but still significant, savings would be realized if the

interest rates charged in EDA direct loan programs were raised to

the rate charged by private lenders on EDA guaranteed loans.

A-37
Elementary and Secondary Education Programs (Block Grants)

Program Cuts from the January Budget

Administration (In millions of dollars)

Estimates 1981 1982 1983 1984 1985 1986

Budget Authority 1,398 1,527 1,807 2,044 2,244 2,455

Outlays 113 1,122 1,726 1,724 1,782 1,918

Note: See text for discussion of estimating differences.

Source: Fiscal Year 1982 Budget Revisions, Appendix C.

The Administration proposes to consolidate most federal aid for

elementary and secondary education into block grants. The programs

involved include two large categorical grant programs—Title I of the

Elementary and Secondary Education Act (ESEA), which currently provides

over $3 billion in grants for services to disadvantaged students, and about $1

billion in grants for services to handicapped children. The remaining

programs vary in size and include a number—for example, metric education—

that currently are funded for less than $2 million each.

The Administation's proposal would consolidate these programs into

block grants, one to states and one to local education agencies (LEAs), and

cut funding in 1981 by 25 percent relative to the levels in the 1981

Continuing Resolution. In 1982, funding would increase by 7 percent from

the proposed 1981 level but would remain 20 percent below the 1981

continuing resolution. Because of inflation, this would represent approximately a 28 percent decline in real terms in 1982.

The figures in the table above are the Administration's estimates of

the proposed changes relative to the January budget. However, since the

January budget also contains changes from current policy, these numbers

should not be interpreted as changes from current service levels.

Unless states and localities were to maintain the targeting of funds

required by the current categorical programs and increase their own support

to compensate for the reduction in federal funds, the Administration's

proposal would result in substantial cutbacks in specific types of services.

A-38
Reductions in educational services would also occur if states and localities

were to begin substituting federal funds for local and state revenues—which

they are prohibited from doing under the current categorical programs, but

which they would be permitted to do under the proposal.

While consolidation of these programs might generate administrative

savings that would offset some of the reduction in funding, any such offset

would be far smaller than the magnitude of the cuts proposed by the

Administration. A General Accounting Office (GAO) study of 31 federal

categorical education programs in one region found that, although total

administrative costs (at federal, state, and local levels) ranged as high as 18

percent of total funds, the average was about 4 percent. Therefore, longterm administrative savings from consolidation could be at most a few

percent of total costs—as compared to the 28 percent real reduction

requested by the Administration. Another GAO study found no evidence

that consolidation would produce even small administrative savings. Over

the short term, administrative costs might even increase, as states and

localities altered their administrative structures to conform to the new

funding. (For example, under the Administration's proposal, over 85 percent

of the funds would entirely bypass the states—many of which have sophisticated administrative structures—and would result in additional administrative responsibilities for localities.)

The group most affected under the Administration's proposal would

probably be poor and underachieving students. They are currently the

primary recipients of the highly targeted funds distributed under Title I of

the Elementary and Secondary Education Act, which constitute about 86

percent of the funds to be included in the block grant. These students would

lose the most if all services in the block grant were reduced proportionately.

If LEAs responded to consolidation by redistributing funds, the disproportionate impact on poor and underachieving students could be either mitigated or exacerbated. Moreover, since the proportion of poor students

varies greatly from district to district, the proposal would lower total

(federal, state, and local) expenditures for elementary and secondary

education to a much greater degree in poor districts than in others. For

example, in the typical district—in which Title I funds make up about 3 or 4

percent of total per pupil expenditures—a 20 percent reduction in Title I

would correspond to less than a 1 percent reduction in total expenditures. In

contrast, in some of the nation's poorest districts—where Title I accounts

for nearly a third of total per pupil expenditures—a 20 percent reduction in

Title I would correspond to a 6 or 7 percent reduction in expenditures.

Depending on differences between the formula for allocating funds under

the block grants and the current Title I allocation system, the effects of the

Administration's proposal could be focused either more or less sharply on the

poorest school districts.

A-39
One alternative to the Administration's proposal would be to reduce

funding for current categorical programs. This could either be a uniform

reduction—paralleling the Administration's request—or a selective reduction

of programs deemed by the Congress to be less effective, less important, or

poorly managed. A second alternative, similar to the Domenici-Bellmon

proposal of 1977, would be to create a larger number of block grants,

perhaps four or five in total, which would combine only related programs.

Programs for the disadvantaged, for example, could go into one block grant,

while funding for the handicapped could go into another. A third alternative

would be to create a mix of categorical and block grant programs, retaining

a few of the largest and most targeted federal programs (perhaps Title I and

Education for the Handicapped) as categorical programs, while combining

the remaining programs into one or more block grants. All of these

proposals would permit greater targeting of federal funds—and of reductions

in federal funds—than would the Administration's proposal.
Student Assistance—Guaranteed Student Loans

Program Cuts from the January Budget

Administration (In millions of dollars)

Estimates 1981 1982 1983 198* 1985 1986

Budget Authority

Outlays

25

24

25

25

27

27

30

30

32

32

34

34

Note: See text for discussion of estimating differences.

Source: Fiscal Year 1982 Budget Revisions, Appendix C.

The Guaranteed Student Loan (GSL) program subsidizes student and

parent loans provided by private and state lenders and guarantees them

against default. All students enrolled at least half-time are eligible to

borrow up to $2,500 for dependent undergraduates, $3,000 for independent

undergraduates, and $5,000 for graduate students. The federal government

pays interest charges for students while they are in school. Interest of 7 or

9 percent is charged to the borrower thereafter. Parents can borrow up to

$3,000 a year, but their loans immediately enter repayment at 9 percent

interest. The government also pays lenders special allowance payments that

vary each quarter and ensure lenders a yield on their total outstanding loan

balances equal to the average of the 91-day Treasury bill rates for the

preceeding quarter plus 3.5 percentage points. Since eligibility for GSLs

was expanded in 1979 to include all students, the program has grown rapidly.

Between 1979 and 1981, the amount borrowed increased from $2 billion

annually to $6.5 billion, and federal costs increased from $0.* billion to

$2.5 billion. (Approximately $1.9 billion wil be needed in 1981 to pay

obligations on loans provided in prior years, and $0.6 billion to pay obligations on new loans.)

The Administration proposes cutting costs in the GSL program in three

ways. First, it would limit borrowing to students1 remaining assessed need

after other forms of aid were taken into account (including the expected

contribution from family resources). Second, it would eliminate the inschool interest subsidy. Third, it would eliminate all federal subsidies,

except the guarantee against default, for parent loans. These reductions

would be implemented by July 1, 1981, to achieve fiscal year 1981 savings.
CBO estimates that this proposal would save approximately $1 million in

fiscal year 1981 and $9 million in fiscal year 1982. CBO's estimates of

savings are approximately 15 percent higher than the Administration's, both

because of different economic assumptions (as to interest rates) and because

of different assumptions about the effects of the changes on the demand for

loans. This level of savings is not reflected in the above table because most

of the Administration's proposal was already incorporated in the January

budget.

The needs requirement would reduce the eligible population by approximately 50 percent, although there need not be a corresponding reduction in

participants since currently only about one-third of those eligible actually

borrow. Restricting borrowing to assessed need could also affect the supply

of capital available through private lenders. Requiring a needs assessment

would increase the program's complexity. Furthermore, limiting borrowing

to remaining need would reduce lenders' yield per dollar loaned because the

average loan amount would go down but administrative costs for each loan

would not. These changes would make the program less attractive to

lenders and, as a result, some students (particularly the most needy

students, who often are less preferred borrowers because they less frequently have established banking relationships and because they are higherrisk borrowers) could have difficulty obtaining loans.

Eliminating the interest subsidy would achieve appreciable cost

savings, but it would do so by increasing the debt burden on all borrowers.

On average, annual interest subsidies amount to between $150 and $200 per

loan per year. Although eliminating this subsidy would make GSLs less

attractive to borrowers, it is unlikely that demand would decline below the

50 percent reduction resulting from the needs requirement since the remaining borrowers have few other resources with which to finance their

educations.

Reducing the scope of the GSL program would probably not increase

costs in other federal student assistance programs because loans already

represent the last source of student aid used by students. Rather,

restricting eligibility for loans would mean either that students and their

families would pay a greater share of educational costs or that students

would have to change their educational plans—that is, attend a less costly

school or drop out altogether.

Examples of other ways to reduce GSL program costs are: to reimpose

a family income cap on loan eligibility or to reduce the amount paid to

lenders. The amount of savings in the first case would depend on the level

of the income cap. This approach would lessen the likelihood that the supply
of GSL funds would shrink substantially because it would allow lenders to

provide large enough loans to retain their current yield. A slight reduction

in payments to lenders might still ensure them sufficient yield to maintain

their willingness to provide student loan capital, but significant reductions

in payments would eliminate their profit in the program and would almost

certainly result in a serious reduction in the supply of loan capital.
Student Assistance—Pell Grants

Program Cuts from the January Budget

Administration (In millions of dollars)

Estimates 1981 1982 1983 1984 1985 1986

Budget Authority

Outlays

150

50

296

205

323

224

350

242

376

260

400

277

Note: See text for discussion of estimating differences.

Source: Fiscal Year 1982 Budget Revisions, Appendix C.

The Pell Grant program (previously known as the Basic Educational

Opportunity Grants program) was established in 1972 to provide grants to

low-income undergraduate students enrolled at least half-time in college or

postsecondary vocational/technical schools. The level of grant varies,

depending on the contribution to college expenses that can be expected from

a student's family. The major determinant of expected contribution is a

family!s discretionary income—that is, its gross income minus a family living

allowance.

The Middle-Income Student Assistance Act of 1978 (MISAA) and the

Higher Education Amendments of 1980 expanded significantly the scope of

the Pell Grant program. Families with higher incomes (generally up to

$25,000) were made eligible for grants, grant limits were increased, and the

equity in the family home was eliminated as a consideration in determining

financial need.

The continuing resolution for fiscal year 1981 provides $2.2 billion for

Pell Grants, but the level of services assumed in the resolution (an $1,800

maximum grant) would require an additional $1.5 billion, both because of

cost overruns in fiscal year 1980 and because of recent estimates of higher

program costs in fiscal year 1981.

For fiscal year 1981, the Administration proposes a combination of

changes that would (1) keep the maximum grant at $1,750, (2) rescind the

previously approved inflation adjustment in the family living allowance, (3) require a $750 self-help contribution from every student, (4) rescind the liberalized cost-of-education definitions included in
the Higher Education Amendments of 1980, and (5) eliminate administrative allowances to institutions for providing Pell Grants. CBO estimates that these changes would reduce program costs (budget authority) by

$725 million in fiscal year 1981, compared with the Administration estimate

reflected in the 3anuary budget of $150 million. JY

To control Pell Grant costs in fiscal year 1982, the Administration

proposes retaining the changes proposed for 1981, increasing the assessment

rate on discretionary income, and eliminating the deduction of state and

local income taxes from income in determining the family contribution.

Both CBO and the Administration estimate that incorporating these changes

would keep program costs to $2.5 billion in 1982. CBO estimates, however,

that this would represent a reduction of approximately $700 million from

current policy, whereas the Administration's estimated savings are approximately $300 million.

The cuts for fiscal year 1981 would affect all Pell Grant recipients.

Although the largest percentage reduction in benefits would occur for

moderate and middle-income students, most of the overall reduction would

occur in awards to lower-income students because they represent the

majority of recipieants. Approximately 250,000 fewer students would receive

grants, and the average award would be reduced by about $150 (a 14 percent

decrease). By 1982, the Administration's policy would focus more heavily on

reducing benefits to the least needy Pell Grant recipients. Approximately

575,000 fewer students would receive grants in fiscal year 1982 than are

receiving grants in the 1980-1981 academic year, a reduction of 20 percent.

These changes would eliminate many moderate- to middle-income

families from eligibility, thus retargeting the program on the most needy.

In inflation-adjusted terms, however, even awards for the most needy

students would fall considerably behind previous levels.

Reducing Pell Grant eligibility would likely increase the demand for

other forms of student assistance, particularly Guaranteed Student Loans.

Other options to reduce Pell Grant program costs could be adopted in

place of or in addition to some of the Administration's proposals. One

option would be to repeal the provision in the 1980 Higher Education

Amendments that excludes home equity from consideration in determining

J./ This cost estimate includes additional funding that would be needed if

eligibility increased as the result of adopting the Administration's

proposal to eliminate Social Security benefits for adult students.
the expected family contribution. Another would require independent

students with spouses or children to contribute much more toward their

education than is expected from families in which the student is a

dependent. Alternatively, Social Security and Veteran benefits could be

counted as student assistance rather than as income, thus reducing students

assessed need for Pell Grants.
Student Loan Marketing Association (Sallie Mae)

Program Cuts from the January Budget

Administration (In millions of dollars)

Estimates 1981 1982 1983 1984 1985 1986

Budget Authority -1,000 1,423 2,211 2,543 2,543 2,543

Outlays -1,000 1,423 2,211 2,543 2,543 2,543

Note: These are decreases in off-budget (FFB) budget authority and outlays.

Source: Fiscal Year 1982 Budget Revisions, Appendix C.

Sallie Mae, established in 1972, is a private for-profit governmentchartered corporation that serves as a source of loan capital and as a

secondary market for Guaranteed Student Loans (GSLs). Through Sallie

Mae, lenders can borrow additional capital to make student loans (using

their current student loan portfolios as collateral), or they can sell their

student loan portfolios to Sallie Mae. Sallie Mae can finance its activities

by selling stock, by borrowing in the private capital markets, or by

borrowing from the Federal Financing Bank (FFB) under a guarantee by the

Education Department (ED). Sallie Mae borrows at Treasury bill rates, and

thus its activity has no direct effect on the federal budget. At present,

Sallie Mae finances most of its activity through the FFB, but ED!s authority

to guarantee the borrowing expires at the end of fiscal year 1984.

The Administration proposes phasing out Sallie Mae's access to federal

borrowing. This proposal would actually increase federal credit activity

(FFB loans) by $1.0 billion in fiscal year 1981, but it would reduce offbudget FFB borrowing by $1.4 billion in 1982. Sallie Mae would no longer be

able to borrow through the FFB after 1982.

Although eliminating Sallie Mae's authority to borrow from the FFB

would reduce the amount of GSL capital available to students, it is not clear

how much this change, in combination with other changes proposed for the

GSL program, would reduce GSL borrowers1 access to loans. The change

could affect Sallie Mae and students in either of two ways.

On the one hand, Sallie Mae might be able to replace the federal

borrowing with private capital, although that would probably be more

A-47

75-743 0-81-1 2
expensive. The increased costs would no doubt be passed on, at least in part,

to the lenders through Sallie Mae. Increased operating costs would reduce

lenders1 yield, which could lessen the supply of loans.

On the other hand, Sallie Mae might not survive without federal

financing, in which case a major provider of student loan capital and

servicer of student loans would be lost. This could reduce appreciably the

attractiveness of GSLs to some lenders, particularly some of the largevolume lenders that currently rely heavily on Sallie Mae. A significant

reduction in the supply of loan capital could make it difficult for some

students to borrow. But the Administration also proposes, concomitant with

terminating Sallie Mae's access to the FFB, to reduce the demand for

student loans by limiting eligibility to students with assessed financial need.

This reduction in loan demand would offset the possible reduction in the

supply of loans. Furthermore, states that have established their own lenders

and secondary markets would probably replace some of the lost capital. To

the extent that any reduction in Sallie Maefs activity was offset by state

financing secured through the sale of tax-exempt bonds, however, federal

revenues would also be reduced slightly.

Although eliminating Sallie Mae's access to the FFB would reduce

total federal credit activity, it would not necessarily reduce the level of

credit activity in the economy as a whole. If Sallie Mae were to borrow an

equivalent amount through private sources, aggregate credit activity would

not be affected at all.

An alternative to gradually eliminating Sallie Mae's FFB borrowing

would be to terminate it immediately. This would, however, make it

difficult for Sallie Mae to establish borrowing relationships with private

lenders, and could seriously jeopardize its financial viability.
CETA Public Service Employment

Program Cuts from the January Budget

Administration (In millions of dollars)

Estimates 1981 1982 1983 1984 1985 1986

Budget Authority 149 4,558 4,222 4,561 4,931 5,341

Outlays 535 3,545 4,073 4,408 4,762 5,143

Source: Fiscal Year 1982 Budget Revisions, Appendix C.

The Comprehensive Employment and Training Act (CETA) provides

federal funds to state and local governments to administer employment and

training programs. CETA currently authorizes two public service employment (PSE) programs: Title II-D is intended to address structural employment problems and Title VI, cyclical employment problems. Actually,

however, the two programs are quite similar, providing jobs to persons in

families receiving public assistance and to low-income unemployed persons.

These groups are generally more likely to represent persons with structural

rather than cyclical employment problems.

In 1978, the CETA reauthorization included major changes in the PSE

programs that were designed to alleviate previous problems concerning

targeting, fiscal substitution, transition into unsubsidized jobs, and fraud and

abuse. The 1978 changes—including increased participant targeting and

wage restrictions—appear to have been somewhat successful in addressing

these problems.

The Administration's proposal would eliminate all CETA PSE jobs by

the end of fiscal year 1981--about 315,000 full-year equivalent jobs under

the continuing resolution. With the current PSE hiring freeze, and eliminating the remaining participants during the last four months of fiscal year

1981, 100,000 fewer full-year equivalent PSE jobs would be funded in fiscal

year 1981 and all 315,000 jobs would be eliminated in fiscal year 1982.

Depending on the extent of fiscal substitution, the net job loss to the

economy would be between 50,000 and 80,000 public service jobs in fiscal

year 1981 and between 160,000 and 250,000 in fiscal year 1982.

In order to implement the Administration's proposal, approximately

one-half of the current PSE participants would have to be fired, laid off, or

A-49
absorbed by sponsoring agencies; the other participants would leave through

natural attrition. The long-run effects of PSE elimination on participants

are uncertain; however, preliminary estimates indicate that, on average,

PSE increases the participant's post-program earnings.

Eliminating PSE would increase spending for public assistance and food

stamps, and would decrease revenues from Social Security payroll taxes and

federal income taxes. Unemployment insurance would also be affected.

Preliminary estimates indicate that federal spending for public assistance

and food stamps might increase by 3 to 5 percent of the total PSE cost;

federal taxes might decrease by 6 to 10 percent of the total PSE cost.

Estimates of the effect on unemployment insurance outlays are not yet

available.

Approximately two-thirds of PSE jobs are in state and local government agencies. Eliminating PSE would therefore probably reduce local

services. In addition, in order to eliminate PSE jobs, contracts with service

deliverers would have to be voided, which might make organizations wary of

future involvement in other CETA programs.

Several possible options exist: (1) phase PSE jobs out more slowly,

eliminating them by the end of fiscal year 1982; (2) eliminate countercyclical PSE only (100,000 Title VI jobs); (3) fund PSE only in areas of high

unemployment; and (4) switch some PSE funding into other training programs.

A-50
CETA Adult and Youth Training Programs

Program Cuts from the January Budget

Administration (In millions of dollars)

Estimates 1981 1982 1983 1984 1985 1986

Budget Authority

Outlays

0

0

856

670

1,07*

892

1,263

1,09*

1,452

1,290

1,6*0

1,*87

Note: Includes Title II-B,C, YETP, YCCIP, and SYEP. YACC is not

included because the elimination was also proposed in the January

budget.

Source: Fiscal Year 1982 Budget Revisions, Appendix C.

The Comprehensive Employment and Training Act (CETA) provides

federal funds to state and local governments to administer employment and

training programs. CETA Title II-B,C currently authorizes training programs for persons of all ages; Titles IV and VIII authorize programs only for

youth. iy Title IV authorizes several programs: the Youth Community

Conservation and Improvement Projects (YCCIP), the Youth Employment

and Training Programs (YETP), the Summer Youth Employment Program

(SYEP), and the Job Corps. Title VIII authorizes the Young Adult Conservation Corps (YACC). Current policy spending for these programs would total

$4.9 billion in fiscal year 1982-$2.3 billion in Title II-B,C; $139 million in

YCCIP; $849 million in YETP; $845 million in SYEP; $604 million in Job

Corp; and $217 million in YACC.

The Administration is proposing several major changes in these programs:

o YCCIP and YETP, which expire in June 1981, would not be

reauthorized and these services could be offered through Title IIB,C;

CETA also authorizes training programs through Titles III—Special

Federal Responsibilities--and Title VII—Private Sector Initiatives

Program. Current policy spending for these two titles in fiscal year

1982 would be $646 million.

A-51
o SYEP would not be reauthorized for fiscal year 1983 and beyond,

but SYEP programs could also be offered through Title H-B,C; and

o YACC would be eliminated by the end of fiscal year 1982.

Proposed fiscal year 1982 total spending for Titles II-B,C, IV, and VIII

would be approximately 20 percent below current policy, although spending

in those programs for youth only would be 40 percent below current policy.

Proposed fiscal year 1982 spending for Title II-B,C would be only 2 percent

above Title II-B,C current policy without YCCIP and YETP.

Providing services through one grant rather than several grants could

result in lower administrative costs in the long run, although these savings

are likely to be far smaller than the proposed funding reductions. Moreover,

if administrative costs were to increase initially, service levels would be

temporarily reduced by more than the spending reduction would indicate.

The effect of the proposal on the distribution of services and on

participants is uncertain. YCCIP, YETP, and SYEP services can be provided

through Title II-B,C; however, no legislative changes are being proposed to

Title II-B,C to take into account differences among programs or to ensure

that more services would be provided to youth. Given proposed funding

levels, it seems fairly likely that youth would receive fewer services than

under current policies, especially since youth have different needs from

adults and are harder to serve in conventional programs.

One option would be to adopt the Administration's proposal to fund

services only through Title II-B,C but provide sufficient funds to continue

the current level of services for youth. Another option would be to

consolidate the youth programs under Title IV, but keep them separate from

the Title II-B,C programs for which adults are eligible.

A-52
Health and Social Services Programs (Block Grants)

Program Cuts from the January Budget

Administration (In millions of dollars)

Estimates 1981 1982 1983 19X4 I9S5198 6

Budget Authority 0 2,315 2,619 2,847 3,031 3,112

Outlays 0 1,836 3,129 3,330 3,316 3,397

Note: See text for discussion of estimating differences.

Source: Fiscal Year 1982 Budget Revisions, Appendix C.

The Administration has proposed consolidating 26 health service

programs, 13 social service programs, and low-income energy assistance into

block grants at a substantially reduced level of funding. The programs

included are extremely varied in focus, administrative structure, and size.

They include grants to states for payments to individuals (low-income

energy assistance), block grants for service delivery (Title XX grants to

states for social services), categorical grants to states for services (some of

the drug and alcohol abuse funds), and direct federal funding of services

(some family planning services under Title X of the Public Health Service

Act). They include programs targeted at specific income groups (Title XX

social services) as well as programs targeted at individuals with specific

problems (developmental disabilities) or at specific public health problems

(fluoridation). They range in size from $2 million to almost $3 billion a

year.

The Administration's proposal would combine these diverse programs

into four block grants to states, one incorporating 11 preventive health

service programs, the second consolidating 15 other health programs, the

third comprising 12 social services, and the fourth consisting of low-income

energy assistance and emergency social services.

The Administration proposes to reduce funding for these programs in

1982 by 25 percent relative to 1981. Because of inflation, the request is

about 32 percent below the level required to maintain the current level of

services. This represents a significant reduction in total federal support for

health and social services, because the programs involved represent about

A-53
two-thirds of federal spending for social services and over half of federal

spending for discretionary health services programs (excluding benefits for

federal employees and annuitants).

The figures in the table above are the Administration's estimates of

the proposed changes relative to the January budget. However, since the

January budget also contains changes from current policy, these numbers

should not be interpreted as changes from current service levels.

The Administration's proposal would probably result in large cutbacks

in the services currently funded through the programs involved, but the

severity of the cutbacks would depend on three factors other than the size

of the federal funding reduction: (1) compensating increases in state and

local funding, (2) offsetting administrative savings resulting from consolidation, and (3) other efficiencies resulting from consolidation.

The extent to which states and localities would increase their own

support to replace lost federal funds is not known. It is likely, however, that

many jurisdictions, faced with tax-limitation referenda and other fiscal

constraints, would be hard pressed to find sufficient additional revenues to

compensate for the proposed cuts.

Over the long term, consolidation may result in administrative savings,

but, for several reasons, any such savings would be far smaller than the

funding reductions proposed by the Administration. First, the proposed

reduction of funding is four to five times the total administrative costs (at

federal, state, and local levels) of the typical federal categorical program.

Second, the sparse available data show that some block grant programs have

higher administrative costs than the typical categorical program. Third,

many states may face temporary difficulties in administering the programs

until they build up the relevant expertise. Fourth, about a third of the funds

involved in the proposal—Title XX grants for social services—are already

administered as a block grant.

Consolidation could produce additional savings by making service

delivery more efficient in other respects as well. For example, it might

permit more comprehensive planning at the state and local level, lessen

duplication between programs, and permit the mix of services to be tailored

more closely to particular local needs. There are no data that would permit

precise estimates of how large such added efficiencies might be, but there

are several reasons to expect that, at least in the short term, they would not

substantially mitigate the proposed cuts in funding. First, a recent GAO

study of the existing social services block grant program—Title XX grants to

states—found widespread waste and administrative laxness even after years

of program operation. Second, many of the specific programs involved

A-54
seemingly overlap very little (particularly in the case of the Preventive

Health Block Grant, which would incorporate, for example, rat control,

fluoridation, and family planning services). Third, in the case of the health

grants, many states currently lack a particular state agency ready to absorb

planning for, and coordination of, the disparate programs involved.

The poor would probably suffer most from the Administration's proposal, because most of the programs to be consolidated are currently

targeted toward low-income groups. The proposed reduction in funding

would itself have this effect, and the proposed consolidation could make the

impact even more severe if states were not required to maintain a

comparable degree of targeting after consolidation. It is not possible,

however, to specify more precisely which groups would be affected most.

The various programs involved serve very diverse groups of people, such as

crippled children, alcoholics, the retarded, low-income disabled individuals

in need of homemaker services, and those at risk for genetic disease. Which

of these groups would be most affected would depend on how states

redistributed funds in response to consolidation.

Depending on the allocations of funds by the states, the proposed

cutback could produce offsetting increases in other costs to federal, state,

or local governments. A number of the services provided under the current

categorical programs—for example, family planning, genetic services, and

immunizations—generate offsetting savings, in some cases probably greater

than the costs of the services themselves. If such services were cut back,

the offsetting increases in costs would probably be borne both by states and

by the federal government.

Several alternative proposals would be feasible. One would be to

create a larger number of narrower block grants. This would avoid lumping

together disparate programs (such as drug abuse services and medical

services for crippled children) that would be combined under the Administration's proposal, thereby allowing closer targeting of federal funds. A

second would consolidate related programs (such as alcoholism and drug

abuse services) while leaving them as categorical programs under federal

control. A third would retain some categorical programs on the basis of

size, demonstrated effectiveness, or efficient administration, while consolidating other programs into block grants. As an alternative to the Administration's across-the-board cut of 25 percent, the federal government could

selectively cut or eliminate programs that appear ineffective or poorly

managed.

A-55
Medicaid

Program Cuts from the January Budget

Administration (In m illions of dollars)

Estimates 1981 T5ST T9S3 T9S5

Budget Authority 589 1,185 2,608 3,969 5,164 6,535

Outlays 339 9W 2,365 3,682 4,898 6,206

Note: In 1981, figures include savings from proposed immediate collection of disallowed claims, which is not discussed below.

Source: Fiscal Year 1982 Budget Revisions, Appendix C.

Medicaid, a joint federal and state program, provides a wide range of

health-care services to eligible low-income persons on an entitlement basis.

Federal law requires state Medicaid programs to extend eligibility to

recipients of cash assistance from the Aid to Families with Dependent

Children (AFDC) and Supplemental Security Income (SSI) programs. States

must provide these recipients with a basic set of services and may choose to

offer additional services. States may also choose to extend Medicaid

eligibility to other groups of persons who are not receiving cash assistance.

A portion of each state's Medicaid costs; are covered by the federal

government the federal portion rises as state per capita income falls.

The Administration proposes to reduce expected federal expenditures

for Medicaid by restricting the entitlement aspect of Medicaid through a

cap on future increases in federal outlays. The 1981 level of federal

expenditures would be limited to $100 million below the current base

estimate for 1981. Federal expenditures would be allowed to rise 5 percent

in 1982. After 1982, federal Medicaid expenditures would be adjusted each

year by the rate of inflation as measured by the GNP deflator. The stateby-state distribution of the reduction in 1981 and in subsequent years has

not yet been determined. States would be given additional flexibility to

adjust to reduced federal funding by changing reimbursement levels, the

range of services covered, and the criteria for eligibility.

Estimates of savings from a Medicaid cap are very sensitive to

economic assumptions, particularly the rates of inflation and unemployment.

A-56
For example, if inflation were to be higher than assumed by the Administration, the capped level of Medicaid expenditures would rise more quickly and

this would lead to lower savings from the proposed Medicaid cap than those

shown above.

The proposed cap on federal matching funds for Medicaid would reduce

/federal grants to states for Medicaid by 5 percent in 1982 (in real terms).

By shifting to states the full cost of services beyond those that could be

purchased at the 1981 adjusted level of funding, it would also increase the

incentive states now face to contain the costs of their Medicaid programs.

At the same time, states would realize the full savings from avoiding

expenditures that exceeded the fiscal year 1981-adjusted level.

Although the Medicaid cap would affect all states to some extent, the

effects upon individual states would vary. First, grants under a cap would

depend on current expenditures—that is, on past decisions about eligibility

and benefits, rather than on future changes. Second, states that are

expecting larger-than-average increases in Medicaid expenditures would

experience the greatest burden, because higher Medicaid costs, caused by

growth in a state's low-income population or large increases in medical care

prices, would not be accommodated by this cap. Third, states in which

unemployment is particularly sensitive to economic downturns would find it

more difficult to adjust to cyclical variations in Medicaid expenditures.

The effect of a Medicaid cap upon persons now eligible would depend

on the areas in which state flexibility was expanded and on the decisions

made by states about reducing expenditures. Although states could compensate for reduced federal funds by increasing their own expenditures for

Medicaid, most states would make efforts to lower the program's cost.

Among the actions states might be permitted to take are expanding the use

of contract purchasing, reducing hospital reimbursement, and exercising

greater use of cost sharing. States might also eliminate certain benefits or

restrict eligibility.

Alternative ways to reduce federal outlays for Medicaid include giving

states increased flexibility to establish lower reimbursement levels for

hospital care and medical supplies, modifying the formula used to calculate

each state's federal Medicaid grant, eliminating certain categories of

persons currently eligible for Medicaid, or dropping some benefits, such as

dental care.

A-57
Medicare

Program Cuts from the January Budget

Administration (In millions of dollars)

Estimates 1981 1982 1983 1984 1985 1986

Budget Authority

Outlays

0

-518

0

522

0

0

0

0

0

0

0

0

Note: Savings from repeal of benefit expansions are not included in this

table since they were included in the January budget. Changes

shown are for repeal of delay of hospital payments only.

Source: Fiscal Year 1982 Budget Revisions, Appendix C.

Under the Medicare program, the federal government finances hospital

and medical services for more than 28 million persons who are aged and/or

disabled.

The Administration proposes to repeal the delay in Medicare payments

to hospitals incorporated in the Omnibus Reconciliation Act of 1980 (Public

Law 96-499) and a number of benefit expansions enacted last year but not

yet put into effect. The proposal would reduce Medicare outlays by about

1 percent. The largest savings would come from cancelling a legislated

suspension of interim payments to hospitals during the last three weeks of

September 1981, which would shift outlays to 1982. The most important

benefit expansions proposed for repeal are those for home health services

and pneumonia vaccinations.

Repealing the suspension of interim payments to hospitals is mostly an

accounting change. Outlays for 1981 would increase by $518 million, while

outlays for 1982 would decrease by $522 million (see table). The repeal

would also spare hospitals the inconvenience of having their interim

payments interrupted and would avoid an ultimate slight increase in

Medicare reimbursements resulting from increased hospital borrowing.

In home health care, the Administration proposes to reinstate the 100-

visit maximum and to drop occupational therapy as a possible qualifying

A-58
requirement for home health benefits. P.L. 96-499f

s elimination of the

three day-prior hospitalization requirement would not be repealed, however.

The proposal would discourage the use of home health services to some

extent. Despite the possibilities of home health care's substituting for

institutional care, the proposed repeal would reduce Medicare outlays.

Repeal of the pneumococcal vaccination benefit would result in fewer

elderly persons1 obtaining immunization. CBO has projected that the benefit

will prolong the lives of about 5,000 persons over the period 1982-1986.

Although repeal would reduce Medicare outlays in the short run, it would

have only a negligible effect in later years. Indeed, when reductions in

medical spending associated with decreased longevity are excluded, repeal

of the benefit would ultimately increase Medicare outlays.

Other options to reduce costs associated with Medicare include

increased use of cost sharing, increased premiums for Supplementary

Medical Insurance (SMI), and reduced reimbursements to health-care providers. Cost sharing could be increased by raising the SMI deductible or by

requiring beneficiaries to pay 10 percent of hospital expenses after the first

day of a hospital stay. SMI premiums could be raised to a rate based on the

original formula of premiums defraying 50 percent of the costs of benefits,

or they could be frozen at the current rate of about 25 percent of the costs

of benefits. Payments to hospitals could be reduced by expanding reimbursement limits to cover ancillary costs or by giving states financial

incentives to regulate hospital rates.

A-59
Social Security Benefits for Students Aged 18 through 21

Program Cuts from the January Budget

(In millions of dollars)

1981 1982 1983 198* 1985 1986

Budget Authority 00000 0

Outlays 35 1,000 1,625 2,000 2,125 2,250

Source: Fiscal Year 1982 Budget Revisions, Appendix C.

Unmarried full-time students, aged 18 through 21, who are dependents

of retired, disabled, or deceased workers are currently entitled to Social

Security benefits. (For those not attending school full time, child benefits

cease at age 18.) Approximately 750,000 students now are assisted by this

program, receiving an average benefit of about $255 a month.

The Administration proposes to phase out this benefit. Benefits would

be restricted to existing recipients, and their benefits would be reduced by

25 percent a year over the next four years. Outlays would decrease by $1

billion in 1982 and by over $2 billion in 1985, by which time the program

would have ended under the Administration's proposal.

The rationale for this program has been based on the Social Security

system's mandate to insure workers, their spouses, and their dependents

against the risks of old age, disability, and death. Since most 18-through 21-

year-old full-time students are still dependent on their families for financial

support, it has been argued that this coverage should be extended to them as

it is to other dependents.

Students benefiting from this provision tend to be from lower income

families than other students. A study published in 1977 indicated that the

median family income for families of college students beneficiaries was only

71 percent of the median income for all families with unmarried children

aged 18 to 2k who were in college full time.

Other federal educational assistance programs such as Basic Educational Opportunity Grants (Pell Grants), could help some recipients adjust to

the loss of benefits, but others already obtain the maximum financial

A-60
assistance under this program. Pell Grants, which are means tested, are

limited to the lower of $1,800 per year or 50 percent of costs. A CBO

model of this program shows that most low-income student beneficiaries are

already at their limits. Indeed, additional outlays for Pell Grants resulting

from the Social Security benefit cut are estimated to be slightly less than

$25 million in 1982, offsetting only about 2 percent of Social Security

savings. The Administration has, however, also proposed cuts in funding for

Pell Grants, which would reduce the amount that all participants could

receive.

Guaranteed Student Loans (GSLs) would be available to many students

losing benefits. Some students are already borrowing the maximum amount

from this program, however, and new participants in the program pay

interest rates of 9 percent. If the Administration's proposed changes to the

GSL program were adopted, these students might have difficulty obtaining

loans, since students from lower-income families are generally less preferred borrowers and the supply of GSL loan capital might be substantially

reduced. Estimates of the additional federal expenditures from increased

use of GSLs resulting from the Social Security cut are not available.

A-61
Social Security Minimum Benefits

Program Cuts from the January Budget

Administration (In millions of dollars)

Estimates 1981 1982 1983 198* 1985 1986

Budget Authority 00000 0

Outlays 50 1,000 1,100 1,100 1,100 1,100

Source: Fiscal Year 1982 Budget Revisions, Appendix C.

Under present law, Social Security recipients are guaranteed a

minimum benefit of $122 a month, regardless of the actual amount to which

they are entitled on the basis of their earnings histories. In 1979, the

amount of the initial benefit award was frozen, with the effects that, over

time, inflation will erode the benefit's real worth to new beneficiaries, but

fewer recipients will have entitlements below the minimum based on their

own earnings. Once a retiree is awarded the minimum benefit, that sum

(like all other Social Security benefits) is indexed annually to changes in the

CPI.

The Administration's budget proposes to discontinue the minimum

benefit and instead to compute all present and future benefits on the basis

of past earnings. As a result, about 3 million retirees now receiving the

minimum benefit would have their benefit amounts recalculated, although

not all would have their benefit amounts reduced. Resulting outlay

reductions would amount to less than 1 percent of Social Security retirement benefits, which are otherwise not proposed for cuts.

The Administration estimates that about half of all present beneficiaries would not suffer a reduction of income as a result of the proposal.

Persons thought not to be affected include the 28 percent who receive a

supplement based on their spouse's earnings (that is, people who are dually

entitled), the 1* percent who are receiving Supplemental Security Income

(SSI), and a small number of persons whose earned Social Security benefit is

equal to the minimum. Indeed, benefit savings of $1.3 billion in 1982 would

be offset by $0.3 billion in increased outlays for SSI, according to the

Administration.

A-62
The remaining beneficiaries would experience a reduction in income,

however. According to the Department of Health and Human Services

(HHS), 6 percent of persons receiving the minimum benefit are federal civil

service annuitants, and another 6 percent are state and local government

annuitants not covered by Social Security. Many of the remaining 37

percent of all beneficiaries probably have relatively low incomes. HHS

tabulations show that most recipients of minimum benefits have worked only

sporadically in employment covered by Social Security. Since SSI benefits

amount to only about 75 percent of the federal poverty level income for

single persons and about 85 percent for couples, poor persons whose incomes

are above these levels would have benefit reductions that were at best only

partly offset by SSI.

The proposal would cause some offsetting federal outlay increases in

programs other than SSI. Federal outlays for food stamps would increase.

In addition, many of the people who would become eligible for SSI would also

become eligible for Medicaid, increasing state and federal outlays for that

program. Federal outlays would not increase, however, if Medicaid grants

were capped as proposed in the Administration budget.

A-63

75-743 0-81-1 3
Civil Service Retirement

Program Cuts from the January Budget

Administration (In millions of dollars)

Estimates 1$&1 1982198 3

Budget Authority

Outlays

0

0

0

0

0

0

0

0

0

0

0

0

Source: Fiscal Year 1982 Budget Revisions, Appendix C.

Civil Service Retirement (CSR) annuities are currently adjusted twice

a year to reflect changes in the Consumer Price Index (CPI). The first

adjustment is received in October and the second in April. These semiannual cost-of-living adjustments (COLAs) are twice as frequent as the

increases provided Social Security beneficiaries, and in recent years have

exceeded the average pay adjustments provided active employees.

The Administration proposes that the October COLA be eliminated

beginning in 1981 and that a once-a-year adjustment be made each March,

beginning in 1982. According to the Administration's economic assumptions,

the March 1982 adjustment would be 10.1 percent in lieu of two separate

increases that would occur under current law (5.8 percent in October 1981

and 4.3 percent in March 1982). The once-a-year indexation for CSR could

generate outlay savings of $2.1 billion through fiscal year 1986. The savings

could, of course, change under different assumptions about the size of

future federal pay adjustments and future rates of inflation. Because this

recommendation was also in the January budget, no savings are shown in the

table above.

A typical annuitant and a typical survivor now on the rolls receive

annual CSR payments of $11,020 and $4,700, respectively. A move to oncea-year adjustments would mean a loss of income for the typical annuitant

and survivor of about $319 and $136, respectively, during fiscal year 1982.

The proposed changes would initially affect 1.3 million federal retirees

and 0.4 million survivors. Approximately one-third of these annuitants

receive CSR payments of less than $6,000 a year, and about 40 percent

receive more than $10,000, although other sources of retirement income are

A-64
not uncommon. Approximately 13 percent of the affected annuitants live in

Maryland, Virginia, and the District of Columbia; and another 34 percent in

five other states (California, Florida, New York, Pennsylvania, and Texas).

Other possibilities could be considered for reducing federal costs of

civil service retirement through two basic approaches—limiting future

benefits or increasing contributions by employees and off-budget agencies.

Potential benefit changes include more stringent indexation provisions and

lower annuities for persons who choose to retire before age 65. A second

approach would increase employee and agency contribution rates as a means

of improving the recognition of retirement costs in the budget and bringing

the government's cost for civilian retirement closer to that which would

obtain if private-sector practices were adopted. A two-percentage-point

increase in the employee contribution, possibly phased in over three or four

years, would represent approximately half of the estimated additional

actuarial cost of providing COLAs equal to 100 percent of changes in the

CPI. Thus, federal retirees would continue to receive protection against

inflation without limitation but would pay part of the extra cost while

employed.

A-65
Unemployment Insurance Extended Benefits

Program Cuts from the January Budget

Administration (In millions of dollars)

Estimates 1981 1982 1983 1984 1985 1986

Budget Authority

Outlays

400

505

0

0

200

103

0

82

100

274

200

286

Note: See text for discussion of estimating differences.

Source: Fiscal Year 1982 Budget Revisions, Appendix C.

Regular state unemployment programs usually provide up to 26 weeks

of potential benefits to unemployed workers. The extended benefit program

provides up to an additional 13 weeks of aid during periods of high

unemployment. Under current law, extended benefits are payable ("trigger

on") under two conditions. First, in an individual state, extended benefits

trigger on when the state's insured unemployment rate exceeds 4 percent

and is at least 120 percent of the rate during the same period of the

previous two years or, at the state's option, simply when the insured

unemployment rate exceeds 5 percent. Second, extended benefits are

payable in all states when the national insured unemployment rate exceeds

4.5 percent. Currently, extended benefit claimants (in state-triggered

programs) represent about 11 percent of all unemployment insurance claimants.

The Administration recommends changing the unemployment insurance

extended benefit program by:

o Eliminating the national extended benefit trigger;

o Removing extended benefit claimants in calculating the insured

unemployment rate;

o Raising the state-specific trigger rate from 4 to 5 percent and the

state optional rate from 5 to 6 percent; and

o Requiring 20 weeks of work during the base period to qualify for

extended benefits.

A-66
Eliminating the national trigger, assuming it was on, would have the

same effect as the trigger going from on to off, as happened recently. In

January 1981, the national insured unemployment rate dropped below

4.5 percent, causing approximately 200,000 of the 660,000 workers receiving

extended benefits to lose their aid. These long-term unemployed workers

were in 27 states with low unemployment rates where the state triggers

were not on.

Excluding extended benefit claimants from calculation of the insured

unemployment rate would have the immediate effect of lowering that rate,

making it less likely that extended benefits would be available. In the

long run, however, more workers might receive extended benefits because of

this change so that total outlays might actually be increased in future years.

This could happen because the 120 percent criterion for triggering-on state

extended benefits woud be easier to meet in the future if past insured

unemployment rates were lower; hence the state triggers might go on

earlier than in the absence of this change, while the effect on triggering-off

would be less certain.

Raising the state-specific trigger rates would likely reduce the number

of states in which extended benefits are paid. Currently, of the 26 states

with state triggers on, 22 have insured unemployment rates above 5 percent

and 11 have rates above 6 percent. Increasing state trigger rates would

have the effect of delaying extended benefit payments during periods of

increasing unemployment and more quickly terminating payments during

periods of decreasing unemployment.

Requiring 20 weeks of work during the one-year base period would

limit extended benefit payments to those unemployed workers with a

relatively strong prior labor force attachment. Present state laws differ

widely as to minimum requirements for unemployment insurance eligibility.

Estimates of budgetary savings that would result from these program

changes are sensitive to assumptions about future unemployment rates. To

the extent that Administration and CBO assumptions about these rates

differ, the savings estimates will also differ.

A-67
Trade Adjustment Assistance for Workers

Program Cuts from the January Budget

Administration (In millions of dollars)

Estimates 1981 1982 1983 1984 1985 1986

Budget Authority

Outlays

0

0

1,150

1,150

760

760

380

380

380

380

380

380

Note: See text for discussion of estimating differences.

Source: Fiscal Year 1982 Budget Revisions, Appendix C.

The current program of trade adjustment assistance (TAA) for

workers, established by Title II of the Trade Act of 1974, was designed to

compensate and assist those workers who lose their jobs or suffer reduced

employment because of import competition. The program provides trade

readjustment allowances (TRA), job search allowances, relocation allowances, training, and employment services. Trade readjustment allowances

are payable at 70 percent of a worker's previous wage up to a maximum of

the average wage in manufacturing, currently $269 a week. They are

reduced by the amount of any unemployment compensation received and by

50 percent of earnings of eligible workers who are on reduced hours.

Readjustment allowances may be received for up to 52 weeks. An additional

26 weeks are available to older workers and to workers participating in

approved training programs. The allowances are generally substantially

higher than regular unemployment compensation and continue for a longer

period.

The Administration has proposed that trade readjustment allowances

be reduced to the same level as unemployment compensation, that they not

be paid until all unemployment compensation has expired, and that they not

be payable after 52 weeks of benefits have been received under the two

programs combined.

Trade adjustment assistance programs historically have had two

goals: (1) to compensate workers laid off because of import competition

arising from free trade policies, and (2) to help affected workers adjust and

find new jobs.

A-68
The proposed modifications to TAA would result in substantial budgetary savings by eliminating readjustment allowances for many workers who

suffer only short-term unemployment or reduced hours, and by reducing the

levels and duration of benefits for others. The Administration estimates

that fiscal year 1982 budgetary savings from the proposals would total

$1.2 billion, cutting outlays for readjustment allowances by 77 percent.

CBO savings estimates are 10 to 25 percent higher because of differences in

estimates of weekly benefit amounts and in estimates of the distributional

characteristics of the TAA participant population. CBO estimates that

87 percent of the workers who would receive readjustment allowances under

current policies in fiscal year 1982 would lose these benefits under the

proposal. Workers who continued to receive benefits would lose, on average,

$100 weekly from their benefits. The reduced benefit level might mitigate

any disincentive effect that readjustment allowances have on the efforts of

workers to seek new employment.

Although the changes would help ensure that workers continuing to

receive readjustment allowances would be more likely to be those suffering

long-term unemployment, they might not result in increased adjustment

activities for them. The modifications do not include provisions to

strengthen the training, job search, relocation, or employment services

provisions of TAA. The reduced benefit level could hinder adjustment to the

extent that truly dislocated workers need time and resources to adjust over

and above those provided by unemployment insurance. On the other hand,

the proposed changes would partially reduce the discrepancy in benefits

between workers suffering long-term unemployment because of increased

imports and those suffering long-term unemployment for other reasons,

although substantial discrepancies would remain.

More than 80 percent of current outlays are paid to auto workers.

This figure probably will not fall substantially in 1982. Other industries with

laid-off workers receiving TAA include steel, textiles, apparel, coal, and

electrical equipment. The effects of the proposed benefit reductions are

thus likely to be greatest in the northeastern and northern midwest regions

of the country, and in California.

Several other options for modifying TAA have been proposed. Trade

readjustment allowances could be made available for a full 52 weeks

following the expiration of unemployment compensation. The definition of

import-injured worker could be modified so as to target assistance more on

the long-term unemployed or to reduce disparities in program coverage.

Adjustment services and benefits could be enhanced, and new delivery

systems tried. Finally, provisions to reduce adjustment problems, such as

mandatory pre-layoff notification, could be adopted.

A-69
Subsidized Housing

Program Cuts from the January Budget

Administration (In millions of dollars)

Estimates 1981 1982 1983 198* 1985 1986

Budget Authority 5,093 10,100 13,753 16,180 18,370 20,653

Outlays 3 1*3 5*1 1,091 1,671 2,**0

Note: Figures exclude the effect of the withdrawal of a proposed fiscal

year 1981 supplemental appropriation request for public housing

operating subsidies.

Source: Fiscal Year 1982 Budget Revisions, Appendix C.

The Section 8 and public housing programs subsidize the housing costs

of lower-income families living in newly built or already existing rental

units. Under both programs, the government makes payments to the owners

of the units sufficient to cover the difference between the full cost of the

dwellings and the tenants1 contributions toward their own living expenses—

currently limited to no more than 25 percent of their incomes.

Each year, the government makes forward-funded 15- to *0-year

commitments under these programs to subsidize some number of additional

households, adding to the base of those already receiving aid. As of the end

of fiscal year 1980, approximately 3 million subsidy commitments were

outstanding and 2.3 million housing units were available for occupancy.

Outlays for all assisted housing programs totaled $5.* billion during that

year—a figure expected to rise to about $8 billion by 1982. The Carter

Administration budget estimated that the approximately $30 billion in longterm budget authority appropriated in fiscal year 1981 could support 255,000

additional assistance commitments. The January budget also requested an

additional $29.6 billion in 1982 authority to fund 260,000 more commitments.

The Administration has proposed reducing funding for subsidized

housing by:

A-70
o Rescinding $5.1 billion in long-term budget authority already appropriated for fiscal year 1981, including $300 million for public

housing modernization;

o Reducing fiscal year 1982 funding for new assistance commitments

by more than $9 billion and shifting the program mix toward a

slightly greater reliance on less costly existing-housing assistance;

o Phasing in a tenant rent increase that would raise the maximum

payment from 25 to 30 percent of income over a five-year period; and

o Reducing funding for public housing modernization by $500 million

in fiscal year 1982 and by $800 million in each of the four years

thereafter.

Rescinding $5.1 billion in 1981 budget authority would reduce the

number of new assistance commitments made in that year to 210,000 by the

Administration's estimate—approximately the 1980 level of 206,000. Reducing new fiscal year 1982 funding as proposed by the Administration is

expected to lower the 1982 assistance increment to 175,000 households.

Together, the funding reductions for new subsidy commitments proposed for

the entire 1981-1986 period are expected to reduce outlays by $1.9 billion

during those six years.

The Administration is also recommending shifting the fiscal year 1982

program mix from the Carter Administration proposal of a 50-50 program

mix to one of 45 percent new construction and 55 percent existing housing.

This change would further reduce long-term funding requirements but would

increase outlays slightly for the next few years because of the shorter time

required to lease existing units.

Phasing in a rent increase as proposed by the Administration beginning

in fiscal year 1982 would reduce outlays by about $100 million in that year,

with annual savings rising to more than $1 billion by 1986. Average rent

payments would increase by about $5 per month for each of the five years,

but even after the changes were fully implemented, assisted tenants would

be paying substantially less in rent than unassisted lower-income tenants,

who pay on average 40 percent of their incomes.

The Administration's proposed reduction in funding for public housing

modernization—including the proposed 1981 rescission—would reduce budget

authority requirements by $4 billion through 1986 and would lower five-year

outlays by about $200 million by the Administration's estimate.

A-71
Aid to Families with Dependent Children (AFDC)

Program Cuts from the January Budget

Administration (In millions of dollars)

Estimates 1981 1982 1983 1984 1985 1986

Budget Authority

Outlays

0

0

636

636

802

802

884

884

975

975

1,003

1,003

Note: Savings under Child Support Enforcement are included.

Source: Fiscal Year 1982 Budget Revisions, Appendix C.

Aid to Families with Dependent Children (AFDC) is a state-administered program providing cash assistance to needy families on behalf of a

dependent child whose father or mother is deceased, disabled, absent from

the home, or—in some states—unemployed. The dependent child must be

living with a close relative or in an approved foster-family home or

institution. Although states establish their own program provisions, the

federal government sets general guidelines, reviews and sanctions the state

programs, and shares program costs with the states by matching 50 to 78

percent of expenditures depending on each state!s per capita personal

income. In fiscal year 1980, the federal government spent $6.8 billion in

matching funds for AFDC benefits and program administration; about 3.6

million families received AFDC payments.

States determine maximum payment amounts according to projected

needs of families and family size. Maximum payments are provided to

families with no countable income. State maximum payments in 1980

ranged from $140 to $569 per month. The payment guaranteed a family is

determined by subtracting other income received by the family (beyond

certain disregarded amounts) from the state AFDC maximum payment level.

The Administration has proposed several initiatives to reduce federal

outlays for AFDC. The proposed cuts would save about $1.0 billion of the

$7.8 billion projected as the federal share, under current policy, of fiscal

year 1982 expenditures (the savings represent $600 million more than the

savings proposed in the January budget). Among the most important

proposals are:

A-72
o Requiring the establishment of state workfare programs that would

require able recipients to work in return for their benefits;

o Counting income of all household members, including those not in

the AFDC assistance unit, in determining eligibility and benefits; and

o Limiting child-care deductions, standardizing work-related

expenses, and applying more stringent eligibility tests after a

recipient has earnings for four months.

Most of the proposals would either remove AFDC recipients from the

rolls or reduce their payments. The Administration estimates that about

400,000 families would lose all AFDC benefits and another 258,000 families

would have their benefits reduced. The proposals would also increase

marginal tax rates for families with earnings, especially after four months

of earnings when the amount of disregarded earned income would be

substantially reduced.

The establishment of workfare or community work experience programs within states would encourage more low-income persons to participate in the labor force. States might encounter problems, however, in

finding sufficient jobs to assign to AFDC recipients, especially jobs providing career opportunities. Workfare programs might also reduce the financial

incentives to work in other jobs.

Currently, states are not required to count the income of all members

of a household when determining AFDC eligibility and benefits, although

they may count incomes of household members such as adoptive stepparents

or persons who contribute directly to the child's welfare. The proposal

would require states to consider incomes of nonadoptive stepparentsmembers of about 4 percent of AFDC families—and other nonrelated

members of the household when calculating benefits. This change would

eliminate payments to families whose total incomes exceeded the eligibility

limits and could reduce work incentives, since the actual gain from

employment would be substantially less.

The Administration also proposes to standardize the amount of workrelated expenses that can be disregarded when benefits are calculated and

to limit the amount of deductible child-care costs. Currently, monthly

AFDC benefits are reduced by two dollars for every three dollars a recipient

earns beyond $30 plus work-related expenses plus child-care costs. The

proposal calls for a $75 standard allowance for work expenses in addition to

the $30 earned income disregard. The one-third income disregard would be

applied to the earnings remaining after deducting these exclusions for the

first four months a job was held. After that period, benefits would be

A-73
reduced by the total amount of earnings less the new work-related expenses

and child-care deductions.

Standardizing the treatment of work-related and child-care expenses

would simplify program administration but could increase work disincentives

among AFDC recipients. Also, there would be considerable variation in the

way different AFDC families would be affected by the new formulawindfalls for those whose work-related expenses are below the standard

allowance and exceptionally large benefit reductions for those whose workrelated and child-care expenses exceed the allowed deductions.

The proposed changes in the calculation of AFDC benefits would

reduce AFDC program outlays for both the federal government and the

states, but there would be offsetting costs in other programs. Currently,

three out of four AFDC families receive food stamps as well. Reductions in

AFDC caseloads and benefits would expand eligibility for and increase the

amounts of food stamps. In addition, federal housing assistance subsidies for

some AFDC families would increase. Persons who refused to accept the

assigned work for their benefits might also be eligible for more assistance

from certain state welfare programs, causing additional costs to the states.

Other options to reduce AFDC outlays fall into two categories: total

system changes and incremental changes. Replacing the AFDC program

with a negative income tax plan is an example of a total system change.

Alternative incremental changes include: extending work-experience

requirements through the current Work Incentive (WIN) or Comprehensive

Employment and Training Act (GETA) programs; setting the work-expense

disregard at a lower level and indexing this value over time to keep up with

the change in wages; and capping total work-expense and child-care

deductions to a percentage—for example, one-third—of total earnings.
Child Nutrition

Program Cuts from the January Budget

Administration (In millions of doilars)

Estimates 1981 1982 1983 198* 1985 1986

Budget Authority 35 1,774 1,917 2,083 2,212 2,355

Outlays 0 1,620 1,756 1,913 2,034 2,170

Source: Fiscal Year 1982 Budget Revisions, Appendix C.

Programs for child nutrition, which under current law provisions would

cost the federal government over $5 billion in fiscal year 1982, encompass a

wide array of activities. They include the national school lunch program,

the breakfast program, the special milk program, several child-care and

summer feeding programs, special nutrition programs for groups deemed

especially vulnerable, and other programs. Of these, the national school

lunch program is the largest, accounting for about 80 percent of all federal

child nutrition expenditures; it subsidizes about 82 percent of the cost of

free school lunches, 75 percent of reduced-price lunches, and 24 percent of

paid lunches.

To reduce federal program expenditures and target them more toward

the financially and nutritionally needy, the Administration has proposed

major changes that would eliminate or substantially cut most federal child

nutrition programs. The proposed reductions would entail:

o Eliminating subsidies for families with annual incomes above 185

percent of the poverty level;

o Reducing subsidies for families with annual incomes between 125

and 185 percent of the poverty level;

o Eliminating subsidies for summer meal programs, snacks, and the

special milk program in schools with subsidized meal programs;

o Eliminating the inflation adjustment in most remaining subsidies;

o Eliminating funding for new food-service equipment for schools,

and grants to states for nutrition education and training;

A-75
o Eliminating people deemed less needy from the Special Supplemental Food program that provides food for women, infants, and

children; and

o Combining into a block grant all nutrition assistance to Puerto

Rico.

Federal support would stop for the 14.5 million middle- and upperincome students whose school districts now receive meal subsidies of up to

$60 per student each year. Eligibility for support would continue for about

10 million children from poor families, who would receive fully subsidized

school lunches, an additional 3 million children who would also receive fully

subsidized school breakfasts, and another 1.9 million less needy students who

would receive annual lunch subsidies of $115 per year. In fiscal year 1982,

the amount students pay for reduced-price lunches would increase from 20

cents to about 60 cents; paid lunches would increase from about 70 cents to

between $1.25 and $1.50.

These changes would reduce federal costs by 35 to 40 percent in fiscal

year 1982 and would refocus child nutrition programs on students considered

most needy. According to some studies, students in the lowest familyincome groups obtain the greatest nutritional benefit from these programs.

On the other hand, if the proposals were enacted, some still-eligible,

low-income children might not actually continue to receive benefits,

because some schools might drop the programs. If many of the students who

would be required to pay the full costs of meals were to drop out of the

program, some schools might have difficulty financing the programs,

especially since reductions have also been proposed in the special milk

program. In addition, many school districts are near their legal taxing limits

and would have difficulty meeting the needed increased funding costs.

A-76
Food Stamps

Program Cuts from the January Budget

Administration (In millions of dollars)

Estimates 1981 1982 1983 198* 1985 1986

Budget Authority 150 2,328 2,179 2,810 3,175 3,391

Outlays 1*8 2,30* 2,167 2,795 3,157 3,373

Source: Fiscal Year 1982 Budget Revisions, Appendix C.

Food stamps subsidize the food purchases of low-income households.

Each household meeting eligibility requirements—an income test (net

income below the poverty level), an asset test (assets less than $1,500), and

a work requirement—receives stamps redeemable for food purchases. Stamp

allotments vary by household size and net income level. Allotments are

annually indexed, based upon changes in the Thrifty Food Plan, the U. S.

Department of Agriculture's lowest-cost plan for a nutritionally adequate

diet. Under current policy, in fiscal 1982 the program would cost about

$12.* billion, participation would average about 22.7 million people per

month, and monthly benefits would be about $*3 per person.

The Administration proposes to reduce costs through two broad types

of changes: lower the income limit for eligibility and tighten other program

requirements. The net effect of these changes would be to reduce the

number of eligible households by between *00,000 and 600,000 (about 3

percent), eliminate all recipients in Puerto Rico, and reduce program costs

by 19 percent in fiscal year 1982. The proposed changes are:

o Lower gross income eligibility to 130 percent of the poverty level;

o Reduce food stamp allotments for free school lunches;

o Delete September-to-December projection of the price index in

computing allotments, prorate first-month benefits, and freeze

income deductions;

o Use monthly reporting and retrospective accounting ($21 million

increase in cost in fiscal year 1982; net savings thereafter); and

A-77
o Combine Puerto Rican nutrition assistance into a block grant.

The impact of these proposals would vary by household composition.

Eligibility for food stamps would be reduced more for smaller than for

larger households. For example, among households without earnings (80

percent of the caseload), the eligibility limit would be lowered 20 percent

for a single-person household but less than 2 percent for a four-person

household. Smaller households include most of the elderly and disabled

receiving food stamps.

Households with school-aged children would lose more in benefits than

most other groups. These households account for about 35 percent of all

recipient households, and are generally headed by single females. Because

the Administration's school lunch proposal is based on the number of

children, not on income, it would affect those households with the lowest

incomes as much or more than those with higher incomes.

Because of implementation delays and unindexed program parameters,

the reductions in benefits would be proportionately greater in the out years.

The saving estimates do not reflect the off-setting increase in food stamp

costs that would occur if other income support programs were modified as

the Administration has suggested, nor do they reflect the offset to total

federal expenditures of the block grant to Puerto Rico.

One alternative method to reduce costs might be to increase the

benefit reduction rate used to calculate food stamp allotments. Increasing

the rate from 30 percent to 33 percent would save $500 to $600 million in

fiscal year 1982. In contrast to the school lunch offset, this option would be

administratively simple, would affect virtually all households, and could be

quickly implemented. It does, however, raise work disincentives somewhat.

A-78
Legal Services Corporation

Program Cuts from the January Budget

Administration (In millions of dollars)

Estimates ' 'l98'l I!^8S T5S5 19SV " " " 1983'" T93S

Budget Authority

Outlays

0

0

347

312

364

364

382

382

401

401

421

421

Source: Fiscal Year 1982 Budget Revisions, Appendix C.

The Legal Services Corporation (LSC)—a private, nonprofit corporation established in 1974 legislation—is wholly funded by separate federal

appropriations, totaling $321 million for fiscal year 1981. Through about

320 local programs, employing some 6,000 lawyers, it provides legal

assistance to the poor in civil matters. Most of the poor now have at least

minimal access to LSC programs, although effectiveness is limited by large

caseloads.

The funding authorization for the Legal Services Corporation has

expired and, beginning in fiscal year 1982, the Administration is not

requesting reauthorization of appropriations for LSC. Rather, legal services

for the poor would be authorized within the proposed consolidated block

grant to states for social services. Detailed budget estimates, however, do

not reflect an adjustment for transfer of LSC funding to the proposed block

grant. The Administration assumes that increased "pro bono publico"

efforts, as part of the professional responsibility of private attorneys, would

augment legal services financed by the block grant program.

At present, the Corporation authorizes local programs to provide free

legal services to persons at or below 125 percent of the poverty guidelines

of the Office of Management and Budget. This currently represents

maximum allowable incomes of $4,738 for a single individual; $9,313 for a

family of four; or $12,363 for a family of six. Within these maximum

income levels, there is wide variation among local plans, some having

eligibility requirements below the guidelines and others ranging up to 12.5

percent of the guidelines. The most recent information available from the

U.S. Bureau of the Census (1979 data) indicates that 5.6 million families

have incomes at or below the poverty guidelines.

A-79

75-743 0-81-1 4
The current program recognizes that legal aid to the poor is also

provided by pro bono services of private attorneys and financial support

from other federal programs—including Title XX (Social Services) of the

Social Security Act, the Older Americans Act, and General Revenue

Sharing.

There is no way of ascertaining the impact that terminating separate

LSC funding would have on the level and quality of legal aid to the poor.

Some of the existing local programs would be continued under the proposed

block grant; but in other cases, programs might be reduced or discontinued

altogether because of other local priorities. It is also uncertain that the

level of donated services to the poor would increase. The Administration's

proposed budget reduction thus runs the risk that legal assistance to the

poor would once again become demonstrably inadequate—a condition that

gave rise to the current program.

The Congress could consider other possibilities for reducing the

federal cost of legal aid to the poor. Stricter eligibility requirements could

be imposed, or separate LSC funding could be reduced to a minimal level

that would anticipate contributions from other public and private funds.

Stricter eligibility requirements could include lowering the maximum

income standard from 125 percent to 100 percent of the OMB poverty

guidelines, thus reducing program costs by about 5 percent. More stringent

changes in eligibility could expand the LSC definition of income to include

cash from governmental income maintenance programs or even to include

in-kind benefits (such as food stamps and public housing assistance).

Including in-kind benefits could reduce current appropriations by about 30

percent.

Another alternative would be to increase the amount of pro bono

services by private attorneys. Some have suggested that lawyers donate

services, or equivalent financial contributions, ranging from 5 to 15 percent

of total client-related time. If each attorney in the United States

contributed an average of 32 hours of free service each year—about 1.5

percent of a 2,080-hour work-year--the resource equivalent of the LSC

would be available to 30.5 million poor persons (based on an LSC estimate

that uses 1970 Census data).

A-80
Federal Pay Comparability Standard: Nondefense Agencies

Program Cuts from the January Budget

Administration

..•.•i . . Estimates 1981 °~1$82"" 19&5 ~T9S? I9S3

Budget Authority

Outlays

0

0

159 635

149 616

1,132

1,161

1,540

1,597

2,022

2,131

Source: Fiscal Year 1982 Budget Revisions, Appendix C.

The pay of federal employees is adjusted every year through a process

that compares federal salaries with those paid for similar work in private

industry. The adjustment process does not take into account fringe benefits

such as health insurance, life insurance, paid time off, and retirement.

These benefits are established by independent authority and may be changed

through separate legislative action. Under current law, the President

adjusts federal white-collar salaries each October after considering salary

data for similar work in the private sector. The President may, subject to

Congressional disapproval, propose alternative adjustments based on factors

other than pay comparability. Pay adjustments in October 1978, 1979, and

1980 were held down because of budgetary and economic considerations.

The President's budget anticipates comprehensive legislative changes

in the determination of annual pay adjustments for federal civilian

employees. As with proposals of previous Administrations, the pay reform

package would require that the value of fringe benefits be considered when

determining compensation comparability between federal and nonfederal

jobs. Certain changes are also again proposed in determining wages for

federal blue-collar workers. The Administration's plan includes a new

feature that would gradually reduce federal compensation, over the next

three years, by 6 percent in order to reflect opportunities for job transfers

within government, employment security, and other intangible advantages of

federal employment. According to Administration estimates, the savings

from this new feature could reach $5.6 billion in 1982-1986. Preliminary

CBO estimates suggest that savings could be greater because of differences

in assumptions about current payroll costs. Using CBO baseline amounts,

savings from pay comparability as now determined would increase by $194

million. In comparison with the January budget, they would increase by $16

million.

A-81
The 3anuary budget assumed an October 1981 federal pay raise of 5.5

percent rather than a 13.5 percent adjustment to achieve pay comparability

as now determined. The difference of 8.0 percentage points includes

decreases of 4.9 percentage points associated with consideration of fringe

benefits and 3.1 percentage points for further budgetary savings. The March

budget proposes an even lower October 1981 increase of 4.8 percent; it

includes the same decrease for fringe benefits (4.9 percentage points) and an

additional decrease of 3.8 percentage points for phasing-in of the new

reduction for intangible factors.

Changes in the size of future annual federal pay adjustments will

affect 2.1 million civilian employees—about 70 percent of whom currently

receive annual wages ranging between $10,000 and $30,000. The new

approach for determining compensation comparability would reduce future

federal pay increases for all employees by the same percentage even though

they do not all receive the same fringe benefit advantages. Because of

differences in age, sex, marital status, and income level, compensation

among many groups of federal workers would be disproportionately

affected—especially among noncareer employees, single persons, women,

and younger workers.

Fringe benefit factors developed by the Office of Personnel Management (OPM) indicate that the fiscal year 1982 pay adjustment would be 1.5

percent if the new plan were implemented in 1982 as proposed by the

Administration. This estimate and the 4.8 percent in the revised budget

both reflect a phase-in of the 6 percent reduction under the new standard

for comparing pay and benefits. The 4.8 percent estimate, however, was

derived from the January 1980 budget and does not reflect OPMfs existing

total compensation analysis. As indicated in a May 1980 CBO report on

federal compensation reform, adjusting pay to take account of fringe

benefits requires a number of judgments regarding what benefits to compare

and how to measure their costs.

As alternatives to the Administration's bill, the Congress could consider other legislative strategies that would lead to long-term changes in

federal compensation. For example, pay and benefit reforms could be

enacted independently of each other. Or the President could be authorized

to submit to the Congress an alternate pay plan based on specific differences between federal and nonfederal benefits, which the Congress could

revise or reject. Under such alternative strategies, the Congress would not

be limited to comparability with private-sector compensation as its only

criterion for changes in federal compensation.

A-82
APPENDIX B. BUDGET AUTHORITY AND OUTLAYS BY FUNCTION,

FISCAL YEARS 1980-1982

This appendix provides actual figures for 1980 and the Administration's estimates for 1981 and 1982 of budget authority and outlays for major

federal activities, grouped by function and subfunction. The appendix

contains the 1981 and 1982 estimates for both the January budget and the

March revisions, as well as the change between January and March.

The functional categories are used by the Congress in its annual

budget resolutions. They provide a useful basis for discussing national

budget priorities.

The appendix table was prepared by the Office of Management and

Budget.

B-l
BUDGET AUTHORITY BY FUNCTION AND PROGRAM

(In million s of dollars)

1981 estimate 1982 estimate

05O NATIONAL DEFENSE

051 Department of Defense-Military

Mi 1 i t a r v np>r =;nnn«=> 1

O53

054

Retired militar y per sonne 1

Proposed legislation . . . . .

Operation and maintenance

Procurement

Research, development,' test and evaluation....

Militar y construction

Fam i 1 y hous i ng

Revolving funds and other

Proposed legislation

A 1 1 owances : Civilia n and militar y pay raises

Existin g Law

Proposed legislation

Other legislation

Subtotal Department of Defense-Military

Atomic energy defense activities

Defense-related activities

Emergency planning, preparedness , &mob i 1 izat i on

GSA stockpile sales and related

Proposed legislation

Other

9uhtnta1 n«=»f <=»n«5p>- r«=> 1 a tp»H an t i v i t i p»s

Deductions for offsetting receipts

Tntal hurlne>t authority/ . > .

i you

Actual

31 ,014

1 1 ,965

46,365

35,283

13,561

2,293

1 ,526

615

142,621

2,991

132

-60

85

156

-4

145,764

January

36,709

13,917

-85

54 ,074

44 , 951

16,054

3, 327

2 ,014

-657

17O.305

3. 658

162

- 144

-210

101

-91

173,869

Rev i sed

37,016

13,888

-86

55,858

48. 198

16,653

3,457

2,030

-327

.420

177, 1O7

3,658

161

' -144

- 194

98

-78

-3

180,683

Change

308

-29

-2

1 ,785

3,247

598

129

16

33O

420

6,8O2

-1

*

16

-3

12

6,814

January

38 . 363

16,077

-477

61 ,492

49.065

19,841

5 . 554

2, 156

-402

3,771

220

195,660

4,704

186

-123

-2 1O

123

-24

-3

200,337

Revi sed

38,828

15,748

-38O

63,283

68.824

21 ,321

5,778

2,24O

-49

342

5,497

370

221 ,8O2

5,OOO

183

-123

-726

121

-544

-3

226,255

Change

465

-328

97

1 ,791

19,759

1 ,48O

224

84

353

342

1,726

150.

26, 143

296

-2

- 1

-516

-2

-520

25,918

- $5OO thousand or less.
OUTLAYS BY FUNCTION AND PROGRAM

(In million s of dollars)

1981 estimate 1982 estimate

O5O NATIONAL DEFENSE

051

O53

054

Department of Defense-Military

Mi 1 i tary personnel

Retired militar y personnel

Proposed legislation

Operation and maintenance

Procurement

Research, development, test and evaluation....

Militar y construction

Fami 1 y hous i ng

Revolving funds and other

Proposed legislation

Allowances: Civilia n and militar y pay raises

Existin g Law

Proposed legislation

Other legislation

Subtotal, Department of Defense-Military

Atomic energy defense activities

Defense-related activitie s

Emergency planning, preparedness , &mob i 1 i zat i on

GSA stockpile sales and related

Proposed legislation

Other

Subtotal, Defense-related activities

Deductions for offsetting receipts

Total outlays

i aou

Actual

30,842

1 1 ,920

44, 770

29,021

13, 127

2.450

1 ,680

-969

132,840

2,878

133

-62

72

142

-4

135,856

January

36, 71 1

13,880

-85

52, 1 17

35,422

15 , 44 1

2,526

1 ,861

-273

157.6OO

3,587

149

- 144

-2 10

1O9

-96

-3

161 ,088

Rev i sed

36,955

13,870

-86

53,757

34,068

15, 160

2,53O

1 ,872

61

414

158,600

3,601

148

-145

-194

106

-84

-3

162, 1 15

Change

244

-10

-2

1 ,640

-1,354

-281

4

1 1

334

414

1 ,OOO

15

-1

- *

16

-3

12

1 ,027

January

38 . 291

16,049

-477

59,659

40, 120

18,485

2,919

1 ,959

-932

3,707

220

1 8O , OOO

4,478

169

-159

-210

124

-76

-3

184 ,399

Rev i sed

38,754

15,721

-380

61 ,335

40,064

19, 156

2,679

2,OO2

-653

342

5,4O4

6

370

1 84,800

4,626

166

-160

-726

122

-597

-3

188,826

Change

463

-328

96

1 ,676

-56

671

-24O

43

279

342

1 ,697

6

150

4.8OO

148

-2

-1

-516

-2

-521

4,427

- $500 thousand or less.
BUDGET AUTHORITY BY FUNCTION AND PROGRAM

(In million s of dollars)

1981 estimate 1982 estimate

/

0 INTERNATIONAL AFFAIRS

151 Foreign economic and financial assistance

International Development Cooperation Agency..

MH 1 t i 1 ?\ t pr T\ 1 rJovfa 1 nnme»nt hanU«;

152

153

154

155

P L 48O--Food aid

Peace Corps

Economic support fund/Peacekeeping operations.

Refugee assistance

Other programs

Offsetting receipts

Subtotal, Foreign economic and financial assista

nee

Militar y assistance

Grant militar y assis tance

Foreign militar y educat i on and t ra i ni ng

Foreign militar y sales cred it

Relocation of facilitie s (Israel)

Offsetting receipts and other

Subtotal Militar y assi stance

Conduct of foreign affairs

Administration of foreign affairs

International organizations & conferences

Other

Subtotal , Conduct of foreign affairs

Foreign information and exchange activities

Ex i s t i ng 1 aw

Subtotal, Foreign information and exchange activ

i t ies

International financial programs

Export Import Bank

Foreign militar y sales trust fund (net)

Internat i ona 1 monetarv proa rams

i you

Actual

1 ,856

2,308

886

1OO

1 ,972

483

54

-350

7.31O

1 10

25

645

236

-333

682

821

486

36

1 ,343

518

518

1,842

3,997

January

1 ,974

1 ,584

1 ,305

109

2, 153

491

67

-376

7.306

1 10

28

500

-276

363

998

517

38

1 ,553

577

577

7,021

2,889

5.516

Revi sed

1 ,964

1 ,044

1,229

106

2, 153

469

62

-360

6,666

110

28

500

-276

363

995

517

36

1 ,548

573

573

6, 167

2.889

5.516

Change January

-1O 2.726

-540 2.414

-76 1,263

-3 122

2.45O

-22 611

-5 66

16 -431

-64O 9,222

34

36

850

-286

633

-3 1,281

724

-2 43

-5 2.O48

-4 687

-4 687

-854 4,594

2 , 376

Rev i sed

2, 167

1 ,478

1 , 163

95

2,600

568

^ 52

-416

7,708

138

48

1,482

-286

1,382 '

1 ,247

564

40

1 ,851

662

662

3,974

2,376

Change

-559

-936

-100

-27

150

-42

-14

14

- 1 ,514

105

12

632

749

-34

-16O

-3

-196

-25

-25

-62O
BUDGET AUTHORITY BY FUNCTION AND PROGRAM

(In millions of dollars)

1981 estimate 1982 estimate

15O INTERNATIONAL AFFAIRS

International commodity agreements

Loan repayments(U K )

Subtotal International financial programs

Deductions for offsetting receipts

1~otal budciet authority

* - $500 thousand or less.

OUTLAYS

(In

CP

V-n

15O INTERNATIONAL AFFAIRS

151 Foreign economic and financial assistance

International Development Cooperation Agency..

Mu 1 1 i 1 ateral devel opment banks

P L 48O--Food aid

Peace Corps ...

Economic support fund/Peacekeeping operations.

Refugee assistance

Other programs .

Offsetting receipts

Subtotal, Foreign economic and financial assista

nee

152 Militar y assistance

Grant militar y assi stance

Foreign militar y education and training

Foreign militar y sales cred i t

Rel ocat ion of facilitie s (Israel)

Offsetting receipts and other

Subtotal, Militar y assistance

iy«u

Actual

-77

5,761

-96

15,519

BY FUNCT:

mil l ions

1980

Actual

1 ,609

784

1 ,073

101

1 ,904

446

39

-350

5,607

219

26

644

341

-335

894

January R

88

-79

15,435

-81

25, 153

tON AND PROGRAM

of dol 1 ars )

1981

January R

1 .828

988

1 ,471

107

2. 104

486

57

-376

6,664

151

26

595

360

-278

854

evised Change

88

-79

14,581 -854

-81 -*

23.65O -1,503

est imate

evised Change

1,786 -42

898 -90

1,395 -76

104 -3

2, 104

468 -18

54 -3

-360 16

6,449 -216

151

26

595

360

-278

854

January

239

-80

7, 129

-79

19,639

January

1 .898

1,219

1 ,263

12.1

2.314

585

68

-431

7,O38

148

34

660

68

-288

622

Revi sed

120

-80

6,390

-79

17,914

1982 estimate

Revi sed

1,802

1 ,O95

1 , 163

98

2,342

546

60

-416

6,69O

188

40

969

68

-288

977

Change

-1 19

-739

- *

-1 ,725

Change

-96

-124

-100

-23

28

-38

-7

14

-347

4O

6

309

355
OUTLAYS BY FUNCTION AND PROGRAM

(In million s of dollars)

1981 estimate 1982 estimate

15O INTERNATIONAL AFFAIRS

153 Conduct of foreign affairs

Administration of foreign affairs

International organizations & conferences

Other .

Subtotal , Conduct of foreign affairs

154 Foreign information and exchange activities

*• x i s t i ng law

Subtotal, Foreign information and exchange activ

i t ies

155 International financial programs

Export Import Bank

Foreign militar y sales trust fund ( net )

Proposed 1 egislat ion ".....

nj International monetary programs

i International commodity agreements .. .

^ Exchange stab i 1 i zat i on fund

Loan repayments(U K )

Subtotal , International financial programs

Deductions for offsetting receipts ... .

Total outlays

Actual

842

492

33

1 ,367

534

534

1 836

1 , 137

12

-482

-77

2,427

-96

1O 733

January

9 16

539

39

1 , 494

588

588

2 35O

5

-483

-79

1 ,793

-81

11,31 4

Revised Change

938 22

539

38 - 1

1 ,515 21

585 -3

585 -3

2 361 1 1

5

-331 152

-79

1,956 163

- 8 1 - +

1 1 , 278 -36

January

1 122

668

42

1 .831

61O

6 10

2 657

30

-476

-80

2,131

-79

12 , 152

Revised

1 075

508

40

1 ,622

590

590

2 O58

-321

10

-274

-8O

1 ,392

-79

1 1 , 192

Change

-48

- 16O

-2

-210

-2O

-20

-599

-321

-2O

202

-738

_ *

-960

- $500 thousand or less.
BUDGET AUTHORITY BY FUNCTION AND PROGRAM

(In million s of dollars)

1981 estimate

250 GENERAL SCIENCE, SPACE, AND TECHNOLOGY

251 General science and basic research

National Science Foundation programs

Department of Energy general science programs.

Smithsonian scientific information exchange

activitie s

Subtotal, General science and basic research....

03

253 Space f1igh t

Ex i st ing law

Subtotal, Space flight.

254 Space, science, applications, and technology

Ex i st i ng 1 aw

Subtotal, Space, science, applications, and tech

no 1ogy

255 Supporting space activities

Existing 1 aw

Subtotal, Supporting space activities.

Deductions for offsetting receipts

Total budget authority

1982 estimate

Actual January Revised

1

2

2

1

1

6

991 1,083 1,000

470 504 504

* + *

,461 1,588 1,505

,820 3,143 3,191

,820 3, 143 3, 191

,425 1,416 1,359

,425 1,416 1,359

439 451 450

439 451 450

-3 -4 -4

,141 6,593 6,502

Change January Revised

-83 1,359 1.O39

607 567

* *

-83 1,966 1,606

48 3,802 3,623

48 3,802 3,623

-56 1 ,782 1 ,472

-56 1,782 1,472

-* 558 527

-* 558 527

-4 -4

-92 8, 1O4 7,223

Change

-32O

-40

-360

-178

-178

-31 1

-31 1

-32

-32

-881

* - $500 thousand or less.
OUTLAYS BY FUNCTION AND PROGRAM

(In million s of dollars)

1981 estimate 1982 estimate

250 GENERAL SCIENCE, SPACE, AND TECHNOLOGY

251 General science and basic research

National Science Foundation programs

Department of Energy general science programs.

Smithsonian scientific information exchange

activitie s

Subtotal, General science and basic research....

253 Space f1ight

Existing law

CP

' Subtotal , Space f1ight

254 Space, science, applications, and technology

Exist i ng 1 aw

Subtotal. Space, science, applications, and tech

no 1ogy

255 Supporting space activities

Exist i ng 1 aw

Subtotal . Supporting space activities

Deductions for offsetting receipts

Total outlays

* - $500 thousand or less.

Actual

912

469

*

1 ,381

2,594

2,594

1 ,346

1 ,346

405

405

-3

5,722

January

1 ,O07

510

1,518

2,984

2,984

1 ,330

1 ,330

431

431

-4

6,258

Revised

971

51O

*

1 ,482

3,O21

3,021

1 ,285

1 ,285

43O

43O

-4

6,215

Change January Revised

-36 1 , 190 981

597 573

* *

-36 1,787 1,555

38 3,679 3,487

38 3,679 3,487 .

-44 1,635 1,425

-44 1,635 1,425

-* 494 467

-* 494 467

-4 -4

-43 7,590 6,93O

Change

O

-2O9

-24

-232

-192

-192

-21O

-210

-26

-26 !

-660
BUDGET AUTHORITY BY FUNCTION AND PROGRAM

(In million s of dollars)

198O

Actual

1981 estimate

January Revised Change

1982 estimate

January Revised Change

270 ENERGY

CP

271 Energy supply

Energy security reserve (payment to the Synthe

tic Fuels Corporation)

Alternative fuels production (DOE)

Biomass energy development. .

Spent fuel storage fund (proposed)

Uranium enrichment and other

Petroleum reserves and other (gross)

TVA

Other power marketing (gross)

Fossi 1 programs

Other

Offsetting receipts

Subtotal Energy supply

272 Energy conservation

Energy conservat ion (DOE )

Solar Energy & Energy Conservation Bank (HUD).

Subtotal , Energy conservation

274 Emergency energy preparedness

Strategic petroleum reserve

Strategic petroleum reserve entitlements and

roya 1 1 i es

Strategic petroleum reserve receipts .

Subtotal , Emergency energy preparedness

\

276 Energy information, policy, and regulation

Energy Information Administration .

Federal Energy Regulatory Commission

Economic Regulatory Administration

Nuclear Regulatory Commission

Alaska Gas Inspection

Department of Energy administration & other...

Subtotal, Energy information, policy, and regula

t ion

12 212

5 518

1 , 27.0

245

287

1 5 , 000

186

835

2, 724

-1 ,464

36 813

736

736

-2 OOO

- 2 , OOO

91

68

151

400

8

233

951

30O

1 ,286

334

208

1 11 1

2 799

- 1 , 267

4 770

753

121

874

1 486

1 845

- 1 845

1 ,486

105

76

255

454

22

305

1.217

-300

- 1 , 246

443

320

207

822

2,718

- 1 ,554

1 411

546

*

546

2 791

540

-540

2, 791

91

76

144

452

2 1

285

1 .069

-3OO

-1 246

-30O

-843

-13

-1

-289

-81

-287

-3 359

-2O7

-121

-328

1 3O5

- 1 3O5

1 305

1 3O5

- 1 4

- 1 1 1

-2

- -j

-2O

-148

569

257

2 026

41O

1 552

2 855

- 1 520

6 147

872

127

999

3 650

248

-248

3 650

127

86

1 84

501

37

402

1 . 336

164

234

2 O26

409

435

2 524

- 1 84O

3 952

195

195

3 883

3 883

80

82

28

5O1

37

273

1 .001

-4O4

-23

- *

- 1 116

-331

-32O

-2 195

-677

- 127

-8O4

233

-248

248

233

-47

-4

- 156

-129

-335
BUDGET AUTHORITY BY FUNCTION AND PROGRAM

(In million s of dollars)

1981 estimate 1982 estimate

27O ENERGY

Deductions for offsetting receipts

Total budget authority

* - $5OO thousand or less.

OUTLAY'

(Ir

gj 270 ENERGY

I

»— »

271 Energy supply

Energy security reserve (payment to the Synthe

tic Fuels Corporation)

Alternative fuels production (DOE) •

Biomass energy development

Spent fuel storage fund (proposed)

Uranium enrichment and other

Petroleum reserves and other (gross)

TVA

Other power marketing (gross)

Foss i 1 programs

Other

Offsetting receipts

Subtotal Energy supply

272 Energy conservation

Energy conservation (DOE)

Solar Energy & Energy Conservation Bank (HUD).

Subtotal . Enerav conservation

Actual

-53

36,447

January

-58

8,289

5 BY FUNCTION AND PROGF

i million s of dollars)

19£

Actual

26

243

345

1 ,710

103

791

2,819

-1 ,464

4,574

568

568

January

28

200

163

- 100

196

556

2,000

220

958

2.773

-1 .267

5,727

705

47

752

Revi sed

-58

5,758

JAM

M estimate

Revi sed

28

100

14

196

551

1,998

219

749

2,776

-1 ,554

5.O78

663

663

Change

-2,530

January

-58

12,075

Revi sed

-58

8,974

Change

-3, 1O1

======= =

1982 estimate

Change

-100

-148

10O

-5

-2

-1

-209

3

-287

-649

-42

-47

-88

January

52

225

132

200

272

339

2,000

89

1,417

3.028

-1 ,520

6,234

931

136

1 .067

Revi sed

52

-25

1O

-121

313

2,OOO

89

446

2,643

-1 ,84O

3,568

489

489

Change

-25O

-122

-2OO

-393

-26

- *

-971

-385

-32O

-2,666

-442

-136

-578
OUTLAYS BY FUNCTION AND PROGRAM

(In million s of dollars)

1981 estimate 1982 estimate

CP

ro ENERGY

274 Emergency energy preparedness

Strategic petroleum reserve

Strategic petroleum reserve entitlements and

roya 1 t i es

Strategic petroleum reserve receipts

Subtotal , Emergency energy preparedness

276 Energy information, policy, and regulation

Energy Information Administration

Pederal Energy Regulatory Commission

Economic Regulatory Administration

Nuclear Regulatory Commission

Alaska Gas Inspection . .

Department of Energy administration & other...

Subtotal, Energy information, policy, and regula

t i on

Deductions for offsetting receipts.

Total outlays

Actual

342

342

75

67

132

378

5

225

882

-53

6 313

January

2 O18

1 000

- 1 845

1 , 173

102

79

212

437

2 1

295

1 145

-58

8 739

Revi sed

2, 5O7

540

-54O

• 2,507

90

79

144

434

20

293

1 060

-58

9 25O

Change

489

-460

1 , 305

1 ,334

- 12

-68

-2

- 1

-2

-85

512

January

2 567

1 093

-248

3,412

127

85

216

484

36

370

1 317

-^8

1 1 973

Rev i sed

3 67 1

3,671

78

81

40

484

35

263

982

-58

8 652

Change

1 104

- 1 093

248

259

-49

-4

-176

— *

-107

-335

-3 32 1

- $500 thousand or less.
BUDGET AUTHORITY BY FUNCTION AND PROGRAM

(In million s of dollars)

1981 estimate

198O

Actual January Revised Change

1982 estimate

January Revised Change

300 NATURAL RESOURCES AND ENVIRONMENT

CP

301

302

303

304

Water resources

Soil Conservation Service

Corps of Engineers . . .. .

Department of the Interior

Proposed legislation

Other

Offsetting receipts

Proposed legislation

Subtotal Water resources

Conservation and land management

Management of national forests , cooperat ive for

estry, and forestry research( Forest Serv'ice)

Management of publ ic lands (BLM)

Mining reclamation and enforcement

Conservation of agricultural lands

Youth Conservation Corps

Indian lands

Coastal zone management and other programs. . . .

Offsetting receipts

Subtotal Conservation and land management

Recreational resources

Land and water conservation fund

Urban park grants & historic preservation fund

Operation of recreation resources

Subtotal , Recreational resources

Pollution control and abatement

Regulatory, enforcement, and research programs

Super fund

0 i 1 pol 1 u t i on funds

Sewage treatment plant construction grants....

Subtotal. Pollution control and abatement

214

3,293

656

57

-62

4, 157

1 ,965

440

180

540

74

79

-691

2 586

539

165

969

1 ,672

1 ,235

37

3,4OO

4.672

224

3,070

849

7

53

-55

4 , 148

1 ,943

512

175

583

60

95

61

-8O5

2 624

409

" 52

961

1 423

1 ,302

72

31

3,305

4 . 7 10

223

3,118

812

7

48

-55

4, 153

1 ,932

508

173

578

22

95

61

-805

2,564

159

10

944

1,11 2

1 ,282

62

31

1 ,6O5

2.980

-2

48

-37

-5

5

-1 1

-4

-2

-5

-38

- *

-*

-60

-250

-43

-18

-31 1

-20

- 10

- 1 , 7OO

-1 .730

198

3 . 395

943

63

-56

4 , 543

2,034

524

246

584

60

87

55

- 1 121

2 ,471

520

108

1 ,045

1 ,673

1,312

249

29

3.7OO

5.290

186

3, 165

850

14

-47

4, 168

1,961

476

180

527

86

18

- 1 121

2 , 127

45

5

1 ,069

1,11 9

1 , 154

199

29

1 .382

-12

-23O

-93

-49

9

'-375

-74

-48

-67

-57

-60

-1

-37

-344

-475

-103

24

-554

-158

-5O

- *

-3,7OO

-3.909
BUDGET AUTHORITY BY FUNCTION AND PROGRAM

(In million s of dollars)

1981 estimate 1982 estimate

300 NATURAL RESOURCES AND ENVIRONMENT

306 Other natural resources

National Oceanic & Atmospheric Admin

Proposed legislation

Other

Subtotal Other natural resources

Deductions for offsetting receipts

Total budget authority

* - $5OO thousand or less.

OUTLAYS

a,

 (In

30O NATURAL RESOURCES AND ENVIRONMENT

301 Water resources

Soil Conservation Service .

Corps of Engineers

Department of the Interior ... .

Proposed 1 eo i s 1 at i on

Other

Offsetting receipts

Proposed legislation

Subtotal Water resources

302 Conservation and land management

Management of national forests ,cooperat ive for

estry, and forestry research^ Forest Service)

Management of publ ic lands (BLM)

Mining reclamation and enforcement

Conservation of aaricultural lands

Actual

727

675

1 ,401

-1 ,439

13,051

BY FUNCTION

mil l ions of

1980

Actual

250

3,258

798

50

-62

4,294

1,798

456

85

548

January

771

746

1,518

-1,717

12,705

Revised Change

754 -18

736 -1O

1,49O -28

-1,862 -145

10,436 -2,269

January

856

124

8O3

1 ,782

-2, 187

13,572

AND PROGRAM

dol 1 ars )

1981 estimate

January

259

3,388

857

3

67

-55

4,518

1 ,933

472

158

605

Revised Change

257 -1

3,351 -37

848 -9

3

67

-55

4,471 -48

1,922 -11

468 -4

156 -2

600 -4

January

220

3,412

929

4

70

-56

4,578

2, 153

494

134

565

Revised

774

2

756

1 ,532

-2,469

7,858

1982 estimate

Revi sed

212

3, 182

845

4

30

-47

4,226

1 ,989

445

1 1 1

547

Change

-82

-122

-47

-251

-281

-5,714

Change

-7

-230

-84

-40

9

-352

-164

-48

-23

-18
OUTLAYS BY FUNCTION AND PROGRAM

(In million s of dollars)

1981 estimate 1982 estimate

CP

4?

3OO NATURAL RESOURCES AND ENVIRONMENT

Youth Conservation Corps

Indianlands

Coastal zone management and other programs....

Offsetting receipts . . .

Subtotal Conservation and land management

3O3 Recreational resources

Land and water conservation fund

Urban park grants & historic preservation fund

Operation of recreation resources

Subtotal Recreational resources

304 Pollution control and abatement

Regulatory, enforcement, and research programs

Superf und

0 i 1 po 1 1 u t i on funds . . . . . . ...

Sewage treatment plant construction grants....

Subtotal Pollution control and abatement .

306 Other natural resources

National Oceanic & Atmospheric Admin

Proposed legislation

Other

Subtotal , Other natural resources

Deductions for offsetting receipts

Total outlays

Actual

80

52

-691

2,328

595

53

1 ,059

1 ,707

1 , 143

23

4,343

5,510

720

692

1 ,412

-1 ,439

13,812

January

61

83

72

-805

2.578

518

102

1 ,O43

1 ,663

1 ,243

33

36

4,200

5,512

795

76O

1 ,556

-1,717

14, 1 1O

Revi sed

28

83

72

-805

2,524

443

89

1,028

1 ,56O

1 ,223

1 1

36

4, 180

5,450

784

750

1 ,534

-1 ,862

13,676

Change

-33

_ *

_ *

-54

-75

-13

-15

-103

-20

-22

-2O

-62

-12

-10

-22

-145

-433

January

63

83

53

-1.12 1

2

1

1

1

4

5

1

-2

14

,425

556

94

,031

.681

,338

163

29

.230

,76O

879

120

783

,782

, 187

,039

Revi sed

3

82

33

-1,12 1

2.O91

318

64

1 ,016

1 ,398

1 ,238

83

14

3,840

5, 175

79O

2

737

1 ,529

-2,469

1 1 ,950

Change

-60

- 1

-20

 (

-334

-238

-30

-15

-283

-100

-80

-15

-39O

-585

-89

-118

-46

-253

-281

-2,O89

$50O thousand or less.
BUDGET AUTHORITY BY FUNCTION AND PROGRAM

(In million s of dollars)

35O AGRICULTURE

198O

Actual

1981 estimate

January Revised Change

1982 estimate

January Revised Change

351 Farm income stabilization

Price-support and related programs

Proposed legislation

Federal Crop Insurance Corporation. .

Agricultural credit insurance fund(FmHA)

Oth^r proa rams

Una I located salaries and expenses . . . .

Subtotal Farm i ncome stdbi 1 ization

CD 352 Agricultural research and services

( . Rpe^p>apr~n ppnrjr^ms , , , , .

^ Proposed legislation

Extensionprograms

Market ing programs . . . . ...

Proposed legislation

Animal and plant health programs

Economic intel 1 igence

Other programs

Una 1 located overhead . . ... .

Offsetting receipts

Subtotal, Agricultural research and services....

Deductions for offsetting receipts

Total budget authority

3 056

12

335

43

191

3,637

56O

286

76

251

145

64

86

-66

1,402

-95

4,945

3 300

230

297

36

210

4 O73

635

10

3O4

82

282

159

70

10O

-70

1 ,572

-5

5,640

3 300

229

297

35

209

4,O69

629

10

3O4

80

279

156

66

96

-66

1 ,554

-5

5,618

-2

-2

- 1

-4

-6

- *

-2

-3_ 0

-4

-4

4

-18

-22

2 296

544

795

4 1

2 19

3 ,894

692

10

3O5

94

-25

295

178

72

12O

-72

1 ,670

-5

5,559

2, 296

543

803

41

216

3,899

694

1O

317

91

-48

294

17 1

67

1 14

-68

1 ,643

-5

5,537

-1

9

-3

6

1

12

-3

-23

-1

-6

-4

-7

4

-27

-22

======= =

* - $500 thousand or less.
OUTLAYS BY FUNCTION AND PROGRAM

(In million s of dollars)

1980

Actual

1981 estimate

January Revised Change

1982 estimate

January Revised Change

35O AGRICULTURE

CP

ON

351

352

Ded

Farm income stabilization

Pr i ce- suppor t and related programs

Proposed legislation . ... .

Federal Crop Insurance Corporation

Agricultural credit insurance fund(FmHA)

Other programs . . . ...

Unallocated salaries and expenses

Subtotal Farm i ncome stabil ization

Agricultural research and services

Research programs

Proposed legislation

Extension programs

Marketing programs. .

Proposed legislation

Animal and plant health programs. . .

Economic intel 1 igence

Other programs

Unal located overhead

Offsetting receipts

Subtotal, Agricultural research and services....

uctions for offsetting receipts

Total outlays

2,717

38

478

36

190

3,459

546

288

81

251

147

64

86

-66

1 ,398

-95

4,762

-84

-138

265

-745

43

204

-454

644

2

302

87

277

157

69

102

-70

1 ,571

-5

1,11 2

-25

-218

364

-754

42

2O3

-388

638

2

302

85

274

155

65

98

-66

1 .553

-5

1,161

59

-80

98

-9

-2

-1

66

-6

- *

-2

-3

-3

-4

-4

4

-17

48

2, 151

-86

183

64O

48

214

3. 148

688

6

303

95

-25

296

177

71

1 19

-72

1 ,659

-5

4,803

2 . OO6

-253

182

613

48

21 1

2.8O7

690

6

316

92

-48

295 v

171

67

112

-68

1 .632

-5

4,434

-145

-167

-1

-26

-3

-341

1

12

-3

-23

-1

-6

-4

-7

4

-27

-369

* - $500 thousand or less.
BUDGET AUTHORITY BY FUNCTION AND PROGRAM

(In million s of dollars)

1981 estimate

370 COMMERCE AND HOUSING CREDIT

371 Mortgage credit and thrift insurance

Mortgage purchase activities (GNMA)

Mortgage credit (FHA)

Housing for the elderly or handicapped

Rural housing programs (FmHA)

National Credit Union Administration

Subtotal. Mortgage credit and thrift insurance..

CP

372 Postal Service

Ex i st i ng 1 aw

Subtotal, Postal Service.

376 Other advancement and regulation of commerce

Payments in excess of corporate tax liabilit y

(proposed)

Smal 1 bus i ness ass i stance

National Consumer Cooperative Bank

Technology ut i1ization

Economic and demographic statistics

Chrysler Corp. loan guarantee program

International Trade Administration

Other

Subtotal, Other advancement and regulation of co

mmerce

Deductions for offsetting receipts

Total budget authority

1982 estimate

1 »OVJ

Actual

1 ,

2,

1 ,

6,

1 ,

1 ,

2,

869

324

806

282

20O

481

677

677

788

67

241

750

2

103

39O

340

— *

January

1 ,407

344

78 1

618

197

3. 347

1 ,343

1 .343

227

881

122

271

272

1

120

395

2,290

Revised

1,391

344

781

617

3, 133

1,343

1,343

874

19

264

270

1

1 17

384

1 ,930

Change January

-15 492

305

774

-* 2,218

-197 310

-213 4.O98

1,11 9

1,11 9

-227 3.493

-7 802

-103 136

-7 313

-2 198

1

-3 146

- 1 1 4O4

-360 5,494

Revised

2,255

305

774

2,094

250

5,678

869

869

624

291

190

1

196

359

1 ,662

Change

1 ,763

-123

-60

1 ,579

' -250

-250

-3,493

-178

-136

-22

-8

50

-45

-3,832

10,497 6,979 6,406 -573 10,71 1 8,2O9 -2,502

- $5OO thousand or less.
OUTLAYS BY FUNCTION AND PROGRAM

(In million s of dollars)

1981 estimate 1982 estimate

LU

i

0H0—

370 COMMERCE AND HOUSING CREDIT

371 Mortgage credit and thrift insurance

Mortgage purchase activities (GNMA)

Mortgage credit (FHA)

Housing for the elderly or handicapped

Rural housing programs (FmHA)

Federal Deposit Insurance Corporation

Federal Savings & Loan Insurance Corp & other

National Credit Union Administration

Subtotal, Mortgage credit and thrift insurance..

372 Postal Service

Existing law . ... . ... . .. .

Subtotal Postal Service

376 Other advancement and regulation of commerce

Payments in excess of corporate tax liabilit y

( proposed )

Smal 1 business assistance

National Consumer Cooperative Bank

Techno 1 ogy uti 1 ization

Economic and demographic statistics

Chrysler Corp. loan guarantee program

International Trade Admi ni-strat ion . . ... .

Other

Subtotal, Other advancement and regulation of co

mmerce

Deductions for offsetting receipts

Total outlays .

Actual

1 358

151

753

1 719

-922

552

85

3,696

1 ,677

1 ,677

95O

9

241

794

2

86

328

2 409

- *

7, 782

January

52 1

61

800

-739

- 1 450

4 15

198

- 194

1 343

1 343

?27

838

136

264

291

1

1 18

432

2 307

3 456

Revised

875

47

800

-762

- 1 ,450

415

39

-36

1 ,343

1 343

779

63

259

290

1

1 15

419

1 925

— *

3 233

Change

354

- 14

-23

-159

158

-227

-59

-72

-5

-2

-3

- 13

-382

-223

January

1 013

- 1 16

780

1 57 1

- 1 , 5OO

-650

287

1 ,385

1 1 19

1 119

3 493

881

128

305

210

1

146

389

5 554

8 058

Revi sed

529

- 168

78O

1 .485

- 1 , 5OO

-836

137

428

869

869

775

-8

286

202

1

175

35O

1 781

— *

3,O78

Change

-484

-51

-86

- 186

-150

-957

-25O

-250

-3,493

-106

- 136

-2O

-8

29

-39

-3 773

-4 980

* - $5OO thousand or less.
BUDGET AUTHORITY BY FUNCTION AND PROGRAM

(In million s of dollars)

1981 estimate 1982 estimate

4OO TRANSPORTATION

401 Ground transportation

H i ghways

Proposed legislation

Mass transit

Amtrak

Con rai l

Other ra i 1 roads

Regulation

Subtotal , Ground transportation

402 Air transportation

Grants- in-a id for airports

Other airways and airports (FAA)

— Aeronautical research and technology

i Air carrier subsidies

^ Regulation

Subtotal , Air transportation

403 Water transportation

Marine safety & transportat ion(Coast Guard)...

Proposed legislation

Ocean shipping

Regulation

Subtotal , Water transportation.

407 Other transportation

Ex i s t i ng 1 aw

Subtotal , Other transportation

Deductions for offsetting receipts

Total budget authority

1»OU

Actual

9, 177

2,565

873

550

775

79

14,019

677

2,592

560

96

29

3,954

1,681

507

1 1

2, 199

97

97

-60

20,210

January

9

4

2

18

2

4

2

2

26

,534

,932

906

535

,985

86

,978

722

,861

528

1 14

30

,255

,015

- 1

939

12

.965

1 13

1 13

-60

,251

Revised

9

4

2

18

2

3

2

2

25

,507

,657

881

510

,9O4

82

,542

450

,842

522

1 14

29

,957

,012

- 1

935

12

,957

1 1 1

1 1 1

-60

,508

Change

-27

-275

-25

-25

-81

-3

-436

-272

-19

-6

- 1

-297

-3

-5

- *

-8

-2

-2

-743

January

1O, 907

5, 197

993

5O

861

85

18,O93

75O

3.O93

583

1 14

31

4,571

2, 175

-9

601

13

2,779

122

122

-56

25,509

Revised

8,694

215

3,821

613

5O

442

79

13,913

450

2,917

5O1

58

30

3,956

2, 166

-9

481

1 1

2,649

1 13

1 13

-156

20,475

Change

-2,212

215

-1 ,376

-380

-419

-6

-4, 179

-3OO

-176

-82

-56

- 1

-615

-9

-12O

-1

-131

-9

-9

-100

-5,034

* - $5OO thousand or less.
OUTLAYS BY FUNCTION AND PROGRAM

(In million s of dollars)

1981 estimate 1982 estimate

CP

K)

O

DO TRANSPORTATION

1 »OU

Actual January Revi sed Change January Revi sed Change

401 Ground transportation

H i ghways

Proposed legislation

Mass transi t

Amtrak

Conra i 1

Other ra i 1 roads

Regu lation

Subtotal , Ground transportation

9,523

3,307

823

641

706

79

15,O79

9,021

3 , 705

769

535

2,997

85

17 , 112

9,002

4,039

744

41O

2,963

82

17,240

-20

335

-25

-125

-34

-3

128

8.836

3,827

943

50

8O2

84

14 ,542

8,341

32

3,554.

639

150

599

78

13,394

-494

32

-273

-3O4

100

-2O3

-6

-1 , 149

402 Air transportation

4O3

407

Grants- i n-aid for airports

Other airways and airports (FAA)

Aeronautical research and technology

A ir carrier subsidies

Regulation

Subtotal , Air transportation

Water transportation

Marine safety & transportat ion(Coast Guard)...

Proposed legislation

Ocean shipping

Regulation

Subtotal , Water transportation

Other transportation

Existing lav/

Subtotal , Other transportation

Deductions for offsetting receipts .

Total outlays

590

2,546

509

89

28

3,762

1 ,613

611

1 1

2,235

104

104

-60

21 , 120

524

2,736

542

1 18

30

3,951

1 .928

- 1

1 ,000

12

2 ,939

1 12

1 12

-60

24,054

475

2,711

537

1 18

29

3,871

1 ,926

_ j

952

12

2,888

108

108

-60

24,047

-49

-25

-5

-1

-80

-3

-48

- *

-51

-3

-3

-7

535

2,935

556

1 14

31

4,171

2, 122

— Q

654

12

2,779

1 15

1 15

-56

21 .551

485

2,791

516

63

30

3,884

2.O43

-9

582

.1 1

2,627

1 10

110

-156

19,858

-50

- 144

-41

-51

-1

-286

-79

-72

-1

-152

-5

-5

-100

-1,692

- $50O thousand or less.
BUDGET AUTHORITY BY FUNCTION AND PROGRAM

(In millions of dollars)

1981 estimate 1982 estimate

CP

5O COMMUNITY AND REGIONAL DEVELOPMENT

451 Community development

Community development block grants

Urban development block grants

Rehab i 1 i tat i on 1 oans

Neighborhood Reinvestment Corporation

Pennsylvania Avenue development

Other programs

Subtotal , Communi ty devel opment

452 Area and regional development

Rural development and business assistance

Proposed legislation

Economic development assistance

Coastal energy impact

Inland energy impact

Indian programs

Appalachian Regional Commis (part to highways)

Other Regional Commissions

Other programs

Offsetting receipts

Subtotal , Area and regional development

453 Disaster relief and insurance

SBA Disaster loans

Federal emergency management activities

Drought assistance and other

Subtotal , Disaster rel ief and insurance

Deductions for offsetting receipts

Total budget authority

Actual

4,427

110

12

4O

338

4,927

647

553

-35

43

1, 183

365

109

228

-3O4

2,79O

1 , 2O8

1 , 182

35

2,426

-32

10, 1 10

January

3.695

675

130

12

32

367

4,911

803

667

62

1 , 134

348

77

1 1 1

-375

2,826

1 ,470

1 ,038

10

2,518

-25

10,230

Revised

4,370

19

12

32

320

4,752

775

322

-40

10

1 , 132

238

56

1 10

-375

2,228

690

582

1O

1 ,282

-25

8,237

Change

675

-675

-11 1

_ *

-48

-159

-28

-345

-4O

-52

-2

-110

-21

_ *

*

-598

-78O

-456

-1 ,236

-1 ,993

January

3.96O

675

134

15

31

387

5,202

499

635

674

1

50

1 , 175

350

151

-266

3,268

729

10

739

-25

9, 184

Revi sed

4, 166

15

19

316

4,516

488

635

50

*

1 , 12O

141

-260

2, 175

597

10

607

-25

7,272

Change

206

-675

-134

-12

-71

-686

-1 1

-624

— *

-50

-56

-350

-10

6

-1 ,094

-132

-132

-1,912

$50O thousand or less.
450 COMMUNITY AND REGIONAL DEVELOPMENT

OUTLAYS BY FUNCTION AND PROGRAM

(In million s of dollars)

1980

Actual

1981 estimate

January Revised Change

1982 estimate

January Revised Change

CP

451

452

453

Community development

Community development block grants

Urban development block grants

Rehab i 1 i t'a t i on 1 oans ...

Neighborhood Reinvestment Corporation

Pennsylvania Avenue development

Other programs

Subtotal , Community development

Area and regional development

Rural development and business assistance

Proposed legislation

Economic development assistance

Local pub 1 ic works

Coastal energy impact

Inland energy impact

Indian programs. .

Appalachian Regional Commis (part to highways)

Other Regional Commissions

Other programs . ...

Offsetting receipts

Subtotal , Area and regional development

%

Disaster relief and insurance

SBA Disaster loans

Federal emergency management activities

Drnunht a«s<=; i «; tann*a and othf^r

Subtotal , Disaster rel ief and insurance

Deductions for offsetting receipts

Tntal outlaws

4, 126

165

12

24

551

4,878

798

629

416

28

7

991

348

1 10

157

-304

3, 180

949

1,070

23

2,043

-32

10,068

3,938

365

133

12

36

576

5.O61

897

458

15O

41

3O

1 ,004

336

87

207

-375

2,835

2,300

944

29

3,273

-25

1 1 , 144

4,303

94

12

36

562

5,008

881

448

150

37

30

1,002

331

79

206

-375

2 , 789

1,520

936

29

2,485

-25

10,257

365

-365

-39

_ *

-14

-53

-16

-1 1

-4

-2

-5

-8

_ *

*

-46

-780

-9

-789

-887

3,998

610

135

15

34

531

5.322

933

1 1

614

60

50

59

947

331

33

163

-266

2,935

-99

936

15

852

-25

9,084

4,613

-64

15

19

444

5,027

913

1 1

24O

60

38

16

897

254

26

153

-26O

2,348

-91

806

15

730

-25

8,080

615

-610

-199

-14

-87

-295

-20

-374

-12

-43

-49

-77

-7

-10

6

-586

8

-130

-122

- 1 , 004

- $5OO thousand or less.
BUDGET AUTHORITY BY FUNCTION AND PROGRAM

(In million s of dollars)

1981 estimate

Actual January Revised ' Change

1982 estimate

January Revised Change

50O EDUCATION, TRAINING, EMPLOYMENT, AND SOCIAL SERVICES

501 Elementary, secondary, and vocational education

Local education block grant (proposed)

St?te education block grant (proposed)

Elementary and secondary education

Proposed legislation

Education for the handicapped

Vocational and adult education

Indian education

I mpac t a i d ... .

Other ...

Subtotal, Elementary, secondary, and vocational

educat i on

502 Higher education

Student financial assistance

CP Loan guarantees to students and parents

i^j Higher and continuing education

V>> Special institutions

Subtotal Higher education

503 Research and general education aids

Educational research and improvement

Unal located salaries and overhead

Cultural activities

Other

Subtotal, Research and general education aids...

504 Training and employment

Temporary employment assistance

Employment and training assistance

Proposed legislation

Other general programs

Older workers . . ... .

Work incentive program

Federal -State empl oyment service

Subtotal . Trainina and employment

3,596

1 ,051

927

346

825

479

7 225

3,496

1 ,609

442

188

5 735

375

161

661

146

1 ,344

1 ,627

6,493

90

267

365

781

9.623

3. 795

1 102

921

356

642

473

7 288

4, 169

2.234

397

2O4

7 003

386

248

674

149

1 .456

729

7.246

96

277

365

845

9.558

2,856

834

694

354

724

354

5 816

4,018

1 ,847

329

2O4

6 399

322

247

650

148

1 ,367

495

7,246

94

211

365

814

9.291

-94O

-268

-227

82

- 1 19

- 1 473

-150

-387

' -67

-604

-64

-1

-24

_ *

-88

-234

-2

-31

-267

4.203

QQO

1 225

904

384

4Q1

488

8 505

4 , 09 1

2.346

437

248

7 121

389

255

768

157

1 .569

114 2

7. 374

1 125

105

277

385

9O4

11.31 2

3 647

7 15

144

49

623

343

401

44

5 966

3,795

1 ,774

382

248

6 198

144

246

456

157

1 .003

3,567

90

277

365

752

5.O51

3 647

7 15

-4,059

-9OO

- 1 176

-281

-4 1

-444

-2 538

-296

-572

-55

-922

-245

-9

-312

- *

-566

- 1 142

-3,807

- 1 125

- 1 5

-20

-152

-6. 261
BUDGET AUTHORITY BY FUNCTION AND PROGRAM

(In million s of dollars)

1981 estimate 1982 estimate

5OO EDUCATION, TRAINING, EMPLOYMENT, AND SOCIAL SERVICES

505 Other labor services

Ex i s t i no; law

Subtotal Other labor services

506 Social services

Tax credit for non-profit institutions (prop).

Grants to States for social services

Proposed legislation . . ...

Rehabilitation services and research for the

hand i capped

Community service programs

Services for children, youth, and families, the

elderly and other special groups

Domestic volunteer programs

Other social services

Subtotal , Social services

Deductions for offsetting receipts

Total budget authority

* - $500 thousand or less.

OUTLAYS

(In

5OO EDUCATION, TRAINING, EMPLOYMENT, AND SOCIAL SERVICES

5O1 Elementary, secondary, and vocational education

Local education block grant (proposed)

State education block grant (proposed)

Elementary and secondary education

Proposed legislation

Education for the handicapped

iyeu --

Actual

572

572

2,889

574

550

1,981

146

1 1

6,150

-28

30,622

BY FUNCTION

mil l ions of

•4 QPO —

Actual

3,569

822

January

626

626

2,562

966

536

1,716

165

12

5,958

-30

31 ,859

Revised Change

6O8 -19

6O8 -19

2 562

944 -22

536 -*

1,717 1

156 -9

6 -6

5,921 -37

-30 *

29,371 -2,488

January

638

688

237

3, 132

-4 1

1,011

542

2,095

186

13

7, 173

-32

36,336

AND PROGRAM

dol 1 ars )

1981 estimate

January

3,371

1 .074

Revised Change

3,303 -67

1.O69 -5

January

3,942

50

1 .088

Revi sed

648

648

3.8OO

1 ,846

145

6

5,798

-32

24,632

1982 estimate

Revi sed

255

50

2,647

9O8

Change

-40

-40

-237

-3, 132

3,841

-1 ,O1 1

-542

-248

-40

-7

-1 ,375

*

-11,703

Change

255

50

-1,296

-50

-18O
OUTLAYS BY FUNCTION AND PROGRAM

(In millions of dollars)

1981 estimate 1982 estimate

50O EDUCATION, TRAINING, EMPLOYMENT, AND SOCIAL SERVICES

Vocational and adult education

Indian education

Impact aid

Other ;

Subtotal, Elementary, secondary, and vocational

education

502 Higher education

Student financial assistance

Loan guarantees to students and parents

Higher and continuing education

Special institutions

Subtotal , Higher education

^/, 503 Research and general education aids

Educational research and improvement

Unal located salaries and overhead

Cul tural activities

Other

Subtotal, Research and general education aids...

504 Training and employment

Temporary employment assistance

Employment and training assistance

Proposed legislation

Other general programs

Older workers

Work incentive program

Federal -State employment service

Subtotal , Training and employment

505 Other labor services

Exist ing law

Subtotal , Other labor services

Actual

863

395

690

393

6,732

3,683

1 ,408

410

193

5,694

401

170

632

154

1 ,357

1 ,796

7,O65

97

235

395

756

10,345

551

551

January

937

294

799

466

6.942

3,743

2, 109

452

212

6.516

394

234

671

173

1 ,473

974

7,400

100

265

365

831

9,935

605

605

Revi sed

86O

293

873

455

6,852

3,692

1 ,788

424

212

6,117

384

233

670

173

1 ,460

844

6,856

98

265

365

826

9,255

588

588

Change

-77

-1

73

-12

-90

-5O

-321

-28

-399

-1 1

-1

-1

- *

-12

.

-130

-544

-2

-5

-680

-17

-17

January

1 ,092

332

443

419

7,366

3,947

2,350

384

246

6.927

387

249

745

157

1 ,539

1 ,096

7,347

875

105

277

385

904

10,989

664

664

Revised

877

306

450

347

5,841

3,742

1 ,792

326

246

6, 1O6

298

242

551

157

1,248

26

4,664

90

277

365

752

6, 173

626

626

Change

-215

-26

8

-72

-1 ,525

-205

-558

-58

-821

-89

-8

-194

- *

-29O

-1 ,069

-2,683

-875

-16

-20

-152

-4,816

-37

-37
OUTLAYS BY FUNCTION AND PROGRAM

(In millions of dollars)

1981 estimate

30 EDUCATION, TRAINING, EMPLOYMENT, AND SOCIAL SERVICI

BOG Social services

Tax credit for non-profit institutions (prop).

Grants to States for social services

Proposed legislation

Rehabilitation services and research for the

handicapped . . . .

Community service programs

Services for children, youth, and families. the

elderly and other special groups

Domestic volunteer programs

Other social services

Subtotal Social services ... .

Deductions for offsetting receipts

Total outlays

198O

Actual

ES

2,763

427

592

2, 185

133

16

6,116

-28

30,767

January

3, 136

960

538

1 .524

156

18

6,332

-30

31 ,773

Revised

3, 136

956

538

1 ,525

153

15

6,323

-30

30,565

Change January

237

3 1 16

-4 1

-4 1,003

-* 544

1 2 , OO4

-3 183

-3 13

-9 7,058

* -32

-1,208 34.511

Revised

3,500

161

245

1 ,773

147

7

5,834

-32

25,797

Change

-237

-3, 116

3,541

-842

-299

-231

-36

-5

-1 ,224

*

-8,714

- $5OO thousand or less.
BUDGET AUTHORITY BY FUNCTION AND PROGRAM

(In million s of dollars)

1981 estimate 1982 estimate

50 HEALTH

551

552

553

554

Health care services

Med i care

Proposed legislation

Medicaid grants

Proposed legislation

Medicaid administration

Proposed legislation

Health services & prevention block grant(prop)

Other health care services

Proposed legislation

Subtotal , Health care services

Health research

National Institutes of Health research

ADAMHA

Other research programs

Subtotal , Health research

Education and training of health care work force

National Institutes of Health training

Health Resources Admi ni strat ion&other training

ADAMHA

Subtotal, Education and training of health care

work force

Consumer and occupational health and safety

Consumer safety •

Occupational safety and health

Subtotal, Consumer and occupational health and s

a f e t y

Deductions for offsetting receipts

Total budget authority

Actual

35,855

14,445

98

3,902

54 , 300

3,21 1

233

198

3,642

218

591

1 14

923

658

337

995

-17

59,844

January

44 .874

3

17,267

-31

98

4 , 104

66 . 314

3,367

240

188

3,795

227

333

1 16

675

723

379

1 , 102

-3

71 ,884

Revised

45, 170

4

17,266

-620

9O

4.O20

65,931

3,344

229

166

3,739

169

265

94

528

706

371

1 ,O77

-3 .

71 ,271

Change

296

1

- 1

-589

-7

-83

-384

-23

-1 1

-22

-57

-58

-68

-21

-147

-17

-8

-25

-613

January

5G,84O

31

18.896

-95

103

-3

4,520

-5

80,287

3.611

276

198

4,O86

237

183

1 14

534

754

418

•1 , 172

-3

86,075

Revi sed

56,821

-28

18,862

-1,280

79

-7

1 .400

2, 136

_ <j

77.976

3.585

261

148

3,994

177

133

83

394

697

394

1 ,091

-3

83,451

Change

-19

-59

-35

- 1, 185

. -24

-4

1 ,400

-2,384

-1

-2,310

-26

-15

-50

-92

-60

-50

-31

-14O

-57

-24

-81

*

-2.624

$5OO thousand or less.
OUTLAYS BY FUNCTION AND PROGRAM

(In million s of dollars)

1981 estimate 1982 estimate

550 HEALTH

551 Health care services

Medicare

Proposed legislation

Medicaid grants

Proposed legislation

Medicaid administration

Proposed legislation. . .

Health services & prevention block grant(prop)

Other health care services

Proposed legislation

Subtotal , Heal th care services

552 Health research

National Institutes of Health research

ADAMHA

m Other research programs

QO Subtotal , Heal th research

553 Education and training of health care work force

National Institutes of Health training

Health Resources Admi ni strat ion&other training

ADAMHA

Subtotal, Education and training of health care

work force

554 Consumer and occupational health and safety

Consumer safety

Occupational safety and health

Subtotal, Consumer and occupational health and s

afety

Deductions for offsetting receipts

Total outlays

i»eu

Actual

35,O34

13,957

71

3,958

53,019

3,029

255

158

3,442

193

404

122

719

674

327

1 ,OO1

-17

58, 165

January

40,065

-84

16,483

-31

93

4,121

60,648

3. 198

199

165

3,563

212

419

125

755

701

369

1 ,070

-3

66,032

Revi sed

4O,752

403

16,482

-370

86

4,079

61 ,432

3, 176

193

158

3,528

197

408

122

727

680

362

1 ,O42

-3

66,725

Change

688

487

- 1

-339

-7

-42

785

-22

-6

-7

-35

-15

-1 1

-2

-28

-21

-7

-29

693

January^

47 ,O44

-446

18,215

-95

98

-3

4, 183

-5

68,991

3,433

237

174

3,844

222

322

1O4

649

752

404

1 , 156

-3

74,636

Revised

48,292

-1 , 198

18,244

-1 ,039

74

-7

500

3, 157

-7

68,017

3,429

251

144

3,823

154

266

96

516

708

38O

1 ,088

-3

73,441

Change

1,247

-752

29

-944

-23

-4

500

-1 ,O26

-1

-974

-4

14

-30

-21

-68

-56

-8

-133

-44

-24

-68

*

- 1, 195

- $50O thousand or less.
BUDGET AUTHORITY BY FUNCTION AND PROGRAM

(In million s of dollars)

1981 estimate 1982 estimate

K)

Actual January

)0 INCOME SECURITY

601 General retirement and disabilit y insurance

<;orial cjpruritv (OASD!) 115.997 131. 048

602

603

604

6O5

Proposed legislation

Railroad retirement 4 4OO 4 848

Proposed legislation . . ... . .

Special benefits for disabled coal miners 1,848 1,902

Proposed legislation . . . . ..... .

Other . . . . . 17 14

Subtotal, General retirement and disability insu

ranee 122,262 137,813

Federal employee retirement and disabilit y

Retirement and disabilit y programs 24 466 27 952

Proposed legislation .. .

Federal employees workers' compensation 266 311

Proposed legislation

Subtotal, Federal employee retirement and disabi

1 i ty 24 732 28 263

Unemployment compensation

Federal unemployment benefits and related 1 , 25O 2,952

Proposed legislation

Railroad benefits 7 131

Unempl oympnt trust fund 15 436 19 179

Proposed legislation ...

Advances and receipts 1 010 313

Proposed legislation. . .

Subtotal Unemployment compensation 17 7O3 22 575

Housing assistance

Existing law . . 27 813 30 87O

Subtotal Housing assistance 27 813 30 870

Food and nutrition assistance

Food stamps 9. 182 11 .084

Revised

132,419

4,816

1 ,772

14

139,022

27.976

316

28,292

3,000

-6O

131

18,610

-40O

313

21 ,594

25,612

25,612

1O.934

Change January'

1 .371 15O, 145

247

-32 5,384

118

-13O 1.88O

15

1,209 157,790

24 30,654

-698

5 353

29 3O,3O8

48 1.893

-60

-569 24,222

-4OO - 1 , 357

-128

-6OO

-981 24,031

-5,258 31,386

-5,258 31,386

-15O 12.882

Revi sed

150,947

100

5,314

190

1 ,873

15

158,439

3O,466

-558

345

-50

3O.2O3

1 ,780

-1 ,375

21 ,770

-2OO

-221

-5OO

21 ,254

21 ,242

21 ,242

12 . 392

Change

801

-147

-70

72

-7

649

-189

141

-8

-50

-105

-1 13

-1 ,375

-2.453

1 , 157

-93

100

-2,777

- 1O, 144

- 1O, 144

-491
BUDGET AUTHORITY BY FUNCTION AND PROGRAM

(In million s of dollars)

1981 estimate 1982 estimate

€

V

3

l*>

0

5OO INCOME SECURITY

Proposed legislation

Nutritio n assistance to Puerto Rico(prop)

WIC-food supplements

Proposed legislation

Chi 1 d nutr i t ion programs

Proposed legislation

School lunch and other nutrition programs

Proposed legislation

Subtotal , Food and nutrition assistance

609 Other income security

Supplemental security income

Proposed legislation

AFDC and other

Proposed legislation

Earned income tax credit

Refugee ass i stance

Energy hardship assistance

Proposed legislation

Foster care and adoption assistance (in social

services block grant proposal in 5O6 )

Other

Subtotal . Other income security

Total budget authority

i »eu

Actual

758

3, 180

655

13,774

6,468

7,709

1 275

617

1 618

227

17,914

224, 198

January

927

3,354

718

16,083

7,278

7,728

1 203

948

1 850

31 1

232

19,550

255, 154

Revi sed

927

3,354

-35

714

15,894

7,233

10

7,7O5

1 ,203

898

1 ,850

354

23O

19,483

249,896

Change

-35

-4

-190

-45

10

-23

-50

43

-2

-66

-5,257

January

-487

1 ,068

4, 198

-453

828

18,O37

7.983

-45

6,263

-531

1,11 5

767

1 ,85O

346

252

1 8 , 000

279,551

Rev

-2

4

- 1

14

7

6

-1

1

1

16

261

ised

,636

922

742

-17

, 125

,763

728

-182

,31O

,799

182

, 1 16

, 182

, 1 15

684

,4OO

243

,357

,8O5

Change

-2, 15O

922

-326

-17

-74

-1 ,31O

-1OO

-182

-3,728

-183

227

-147

-651

-83

-45O

-346

-9

-1 ,643

-17,747

* - $5OO thousand or less.
OUTLAYS BY FUNCTION AND PROGRAM

(In million s of dollars)

1981 estimate 1982 estimate

1»OU

Actual January Revi sed Change January Revi sed Change

DO INCOME SECURITY

601

602

603

6O4

605

General retirement and disabilit y insurance

Social secur i ty (OASDI )

Proposed legislation

Ra i 1 road ret i rement

Proposed legislation

Special benefits for disabled coal miners

Proposed legislation

Pension benefit guaranty corporation

Other . . .

Subtotal, General retirement and disability i nsu

ranee

Federal employee retirement and disability

Retirement and disabilit y programs

Proposed legislation

Federal employees workers' compensation

Proposed legislation

Subtotal, Federal employee retirement and disabi

1 i ty

Unemployment compensation

Federal unemployment benefits and related

Proposed legislation

Ra i 1 road benef its

Unemployment trust fund

Proposed legislation

Advances and receipts

Proposed legislation

Subtotal , Unemployment compensation

Housing assistance

Exi st ing law

Subtotal , Housing assistance

Food and nutrition assistance

Food stamps

117,117

4,737

1 ,843

-27

13

123,684

14,442

233

14,675

1 ,3O4

15,708

1 ,01O

18,023

5,514

5,514

9, 1 17

138.260

5.295

2.O13

-37

16

145,547

17,292

-12

31 1

17,591

2,996

137

22,694

313

26, 14O

6,861

6,861

10,950

137,903

-100

5,336

-10

1 ,883

-38

16

144,991

17,214

-1

316

17,528

3,044

-6O

137

21 ,999

-515

313

24,918

6,808

6,8O8

10,801

-357

-100

41

-10

-13O

-1

-557

-78

1 1

5

-62

48

-6O

-695

-515

-1 ,222

-53

-53

-149

159.648

-23

6,013

- 186

1 ,875

167,

20,

-29

15

313

185

157, 4OO

-2,643

5,956

-230

1 ,

162,

19,

-655

19,

1 ,

22,

-1 ,

-

-

21 ,

8,

8,

12,

353

883

893

*

322

610

128

600

878

465

465

722

19,

1 ,

-1 ,

20,

-

-

-

18,

8,

8,

12,

869

-31

15

336

802

515

345

-50

582

78O

375

*

070

786

221

500

968

237

237

238

-2,248

-2,620

-57

-44

-6

-2

-4,976

-383

14O

-8

-50

-301

-1 13

- 1 . 375

-2,253

824

-93

1OO

-2,91O

-228

-228

-484
OUTLAYS BY FUNCTION AND PROGRAM

(In million s of dollars)

1981 estimate 1982 estimate

GOO INCOME SECURITY

Proposed legislation '

V

3

10

K)

Nutrition assistance to Puerto Rico(prop)

WIC-food supplements

Proposed legislation

Child nutrition programs

Proposed legislation

School lunch and other nutrition programs

Proposed legislation •

Subtotal , Food and nutrition assistance

609 Other income security

Supplemental security income

Proposed legislation

AFDC and other

Proposed legislation

Earned income tax credit

Refugee assistance

Energy hardship assistance

Proposed legislation

Foster care and adoption assistance (in social

services block grant proposal in 5O6 )

Other

Subtotal , Other income security

Total outlays

i»eu

Actual

717

3,377

804

14,015

6,411

7,308

1 275

368

1 577

250

17, 190

193, 100

January

904

3.356

696

15,905

7,305

7,794

1 2O3

881

1 896

289

239

19,605

231 ,650

Revised

954

3,356

693

15,803

7,260

10

7,818

1 203

85O

1 896

354

238

19,627

229,675

Change

50

-4

-103

-45

10

24

-31

65

-2

22

-1,975

January

-482

994

3,959

-429

716

17,481

8,017

-45

8,216

-531

1 1 15

768

1 ,850

346

251

19,987

255,006

Revi sed

-2,610

3

-1

13

7

8

- 1

1

1

18

241

872

724

-16

,895

,646

645

-176

,924

,833

169

,022

, 182

, 1 15

714

,400

244

,316

,363

Change

-2, 128

872

-270

-16

-65

-1,218

-72

-176

-3,557

-183

214

-194

-651

-54

-45O

-346

-6

-1 ,670

-13,643

* - $50O thousand or less.
BUDGET AUTHORITY BY FUNCTION AND PROGRAM

(In million s of dollars)

1981 estimate 1982 estimate

V

3

DO VETERANS BENEFITS AND SERVICES

701 Income security for veterans

Ser v i cp-connec ted compensation

Proposed legislation

Non-service-connected pensions

Burial and other benefits . .

Nat i ona 1 serv i ce lif e i nsu ranee trust fund ....

U.S. Government 1 ife insurance trust fund

A l l other insurance programs

Insurance program receipts

Subtotal , Income security for veterans

7O2 Veterans education, training, and rehabilitation

Existing law . ... .

Proposed legislation

Subtotal, Veterans education, training, and reha

bi 1 i tat ion

703 Hospital and medical care for veterans

Medical care and hospital services

Proposed legislation

Construction

Medical administration, research, and other...

Subtotal, Hospital and medical care for veterans

705 Other veterans benefits and services

Undistributed VA overhead and other

Proposed legislation

Non-VA support programs

Subtotal, Other veterans benefits and services..

Deductions for offsetting receipts

Total budget authority

Actual

7, 353

3,608

186

1 ,O44

38

5

-464

11 ,770

2, 374

2,374

5,832

402

175

6,409

624

34

658

-2

21 ,208

January

8 ,584

3,860

199

1 , 135

34

6

-474

13, 344

2 ,041

2,041

6,365

549

196

7, 1 1O

668

34

702

-3

23, 194

Revised Change

8,584

3,860

199

1 , 135

34

6

-474

13,344

2 , 04 1

-14 -14

2,027 -14

6,326 -39

-26 -26

386 -163

192 -3

6.879 -231

654 -14

- * - *

34 -*

688 -14

-3

22,934 -26O

January

8,658

1 ,039

4, 106

204

1 , 162

32

8

-478

14,731

1 658

31

1 ,689

7,005

-47

673

220

7,851

678

1

38

717

-3

24,984

Revised

8,658

946

4,O95

2O4

1 , 162

32

8

-478

14,627

1 ,658

-32

1 ,626

6,675

-1O7

570

204

7,342

612

-1

35

646

_3

24,238

Change

-93

-1 1

-1O4

-63

-63

-330

-60

-103

-16

-509

-66

-2

-2

-70

-746

* - $5OO thousand or less.
OUTLAYS BY FUNCTION AND PROGRAM

(In million s of dollars)

1981 estimate 1982 estimate

)0 VETERANS BENEFITS AND SERVICES

7O1 Income security for veterans

Service-connected compensation

Proposed legislation

Non-service-connected pensions

Burial and other benefits

National service lif e insurance trust fund....

U.S Government lif e insurance trust fund.,

Al 1 other insurance programs

Insurance program receipts

Subtotal , Income security for veterans

702 Veterans education, training, and rehabilitation

Ex i st i ng 1 aw

Proposed legislation

Subtotal, Veterans education, training, and reha

bi 1 i tat ion

703 Hospital and medical care for veterans

Medical care and hospital services

Proposed legislation

Construction

Medical administration, research, and other...

Subtotal, Hospital and medical care for veterans

704 Veterans housing

Loan guaranty revolving fund

Direct loan revolving fund

Other (HUD participation trust fund)

Subtotal , Veterans housing

705 Other veterans benefits and services

Undistributed VA overhead and other

Proposed legislation

Non-VA support . programs

iyou

Actual

7,434

3,585

183

928

77

-55

-464

1 1 ,688

2,342

2,342

5,981

309

225

6,515

28

-67

16

-23

633

32

January

8 492

3,840

198

1 ,036

67

-55

-474

13, 1O3

1 ,956

1 ,956

6 , 306

384

245

6,935

-42

- 1 19

55

- 106

671

35

Revised Change

8 492

3,840

198

956 -79

67

-67 -12

-474

13,012 -91

1 ,956

-14 -14

1 ,942 -14

6,265 -4O

-26 -26

356 -28

241 -3

6,837 -98

-42 : .

-119

55

- 1 06

656 -15

- * _ *

35 -*

January

8 643

952

4,085

204

1 ,O62

62

-54

-478

14 ,477

1 ,588

1 ,589

6,983

-47

558

242

7,737

25

-72

-6

-53

677

1

37

Revi sed

8 643

867

4,074

204

979

62

-67

-478

14,285

1 , 588

-63

1 ,526

6,653

-107

459

226

7,232

25

-72

-6

-53

6O8

-1

36

Change

-85

-1 1

-84

-12

-192

-63

-63

-330

-60

-99

-16

-505

-69

-2

-2
OUTLAYS BY FUNCTION AND PROGRAM'

(In million s of dollars)

Total outlays

laov

Actual

rs AND SERVICES

sr veterans benefits and services.. 665

Fsetting receipts -2

21 183

January

706

-3

22 591

Revised Change

690 -15

-3

22,372 -219

January

715

-3

24 462

Revised

643

-3

23 629

Change

-73

-833

* - $500 thousand or less.
BUDGET AUTHORITY BY FUNCTION AND PROGRAM

(In millions of dollars)

1981 estimate 1982 estimate

50 ADMINISTRATION OF JUSTICE

751

752

753

754

Federal law enforcement activities

General investigation (FBI)

Narcotics violation investigation (DEA)

Alcohol, tobaccco, and firearms investigation

(ATF)

Border enforcement activities (Customs & INS).

Protection activities (Secret Service)

Proposed legislation

Other enforcement

Subtotal, Federal law enforcement activities....

Federal litigative and judicial activities

Civi l and criminal prosecution and representation

Proposed legislation . .. .

Federal judicial activities

Legal Services Corporation

Subtotal, Federal litigative and judicial activi

ties

Federal correctional activities

Existing 1 aw . .

Subtotal , Federal correctional activities

Criminal justice assistance

Existing law

Subtotal , Criminal justice assistance

Deductions for offsetting receipts

Total budget authority

130VJ

Actual

614

201

143

800

179

278

2,214

459

G1O

300

1,370

320

320

498

498

-1 1

4,391

January

682

224

152

872 '

185

320

2,435

501

674

321

1 ,496

355

355

183

183

- 12

4,458

Revised

676

215

150

857

183

3O7

2,389

500

674

321

1 ,495

351

351

174

174

-12

4,397

Change

-6

-9

-3

-14

-2

-13

-46

_ *

- *

-5

-5

-9

-9

-61

January

744

236

160

895

187

1

359

2,582

554

- 13

753

347

1 ,641

379

379

235

235

- 12

4,825

Revi sed

739

229

151

843

187

322

2,470

528

-13

753

1,268

372

372

73

73

- 12

4,171,

Change

-5

-8

-9

-52

-1

-1

-37

-112

-26

-347

-373

-7

-7

-162

-162

-654

* - $50O thousand or less.
OUTLAYS BY FUNCTION AND PROGRAM

(In million s of dollars)

1981 estimate 1982 estimate

?

5O ADMINISTRATION OF JUSTICE

751 Federal law enforcement activities

General investigation (FBI)

Narcotics violation investigation (DEA)

Alcohol, tobaccco, and firearms investigation

(ATF )

Border enforcement activities (Customs & INS).

Protection activities (Secret Service)

Proposed legislation

Other enforcement

Subtotal, Federal law enforcement activities....

752 Federal litigativ e and judicial activities

Civi l and criminal prosecution and representation

Proposed legislation

Federal judicial activities

Legal Services Corporation

Subtotal, Federal litigativ e and judicial activi

ties

753 Federal correctional activities

Ex i st i ng 1 aw

Subtotal , Federal correctional activities

754 Criminal justice assistance

E x i s t i ng lav/

Subtotal , Criminal justice assistance

Deductions for offsetting receipts. . . . '.

Total outlays

1»OU

Actual

609

204

146

816

179

282

2,237

452

575

32O

1 ,347

342

342

656

656

-1 1

4,570

January

679

221

151

862

181

321

2.415

503

685

328

1,515

367

367

501

501

- 12

4,786

Revised

678

214

148

850

178

309

2,377

498

685

328

1,511

358

358

498

498

-12

4,732

Change

-1

-8

-3

-12

-4

-12

-38

-4

-4

-9

-9

-3

-3

-54

January

743

232

158

866

186

1

35O

2,536

540

-12

746

347

1 ,620

378

378

359

359

- 12

4,882

Revi sed

739

225

149

814

184

314

2,425

514

-12

746

35

1 ,283

372

372

308

3O8

- 12

4,376

Change

-4

-8

-9

-52

-2

-1

-36

-11 1

-26

-312

-337

-6

-6

-51

-51

-5O6
BUDGET AUTHORITY BY FUNCTION AND PROGRAM

(In million s of dollars)

1981 estimate 1982 estimate

i»eu

Actual January Revised Change January Revi sed Change

50 GENERAL GOVERNMENT

801

8O2

803

804

805

806

Legislative functions

E x i s t i ng lav/

Subtotal , Legislative functions

Executive direction and management

E xi st i ng law

Subtotal, Executive direction and management....

Central fiscal operations

Col 1 ect ion of taxes

Federa 1 F i nanc i ng Bank

Other fiscal operations

Subtotal , Central fiscal operations

General property and records management

Real property '

Personal property

Records management

Other

Subtotal , General property and records managemen

t

Central personnel management

Ex i st ing law

Proposed legislation . ... .

Subtotal , Central personnel management

Other general government

Territories

Proposed legislation

Indian affairs

Treasuryclaims

Other

1 , 106

1 , 106

102

102

2,288

-253

448

2,484

*

154

85

167

406

145

145

210

465

438

-531

1,11 4

1.11 4

1 14

1 14

2,503

-1 16

433

2,820

586

91

185

862

166

166

173

144

305

-27

1 , 122 7

1 , 122 7

109 -6

109 -6

2,479 -23

-1 16

425 -9

2,788 -32

584 -2

89 -2

18O -5

853 -9

164 -3

164 -3

173 -*

144

305

-33 -6

1 ,2O8

1 .208

1 13

1 13

2,649

-128

477

2,998

121

170

98

199

588

168

168

199

1

15

378

-37

1 ,209

1,209

107

1O7

2,566

-124

441

2,882

160

90

187

437

156

156

153

15

378

-58

1

1

-6

-6

-84

3

-36

-1 16

-121

-10

-8

-12

-151

-12

-12

-45

-1

-21
BUDGET AUTHORITY BY FUNCTION AND PROGRAM

(In million s of dollars)

1981 estimate 1982 estimate

7

80O G

Dec

8OO G

8O1

802

8O3

IC3OVJ — — — — — — — —

Actual January Revised Change

iENERAL GOVERNMENT

Subtotal , Other general government 583 596 590 -6

luctions for offsetting receipts -224 • -267 -269 -2

Total budget authority 4,602 5.405 5,354 -51

* - $50O thousand or less.

OUTLAYS BY FUNCTION AND PROGRAM

(In million s of dollars)

1981 estimate

Actual January Revised Change

ENERAL GOVERNMENT

Legislative functions

Existing law 1.O32 1.174 1,181 7

Subtotal Legislative functions . . ' . 1,032 1.174 1,181 7

Executive direction and management

Existing law .. 97 113 ,106 -7

Subtotal, Executive direction and management.... 97 113 106 -7

Central fiscal operations

Collection of taxes 2 335 2 493 2 454 -39

Federa 1 F i nanc i ng Bank . -253 -116 -116

Other fiscal operations 440 443 435 -9

Subtotal. Central fiscal ©Derations 2.522 2.820 2.773 -47

January Revised Change

555 488 -67

-193 -188 4

5,439 5.O91 -347

1982 estimate

January Revised Change

1 , 173 1 , 174 1

1 . 173 1 , 174 1

113 106 -7

113 106 -7

2,634 2,540 -94

-128 -124 3

473 - 438 -35

2,979 2.854 -126
OUTLAYS BY FUNCTION AND PROGRAM

(In million s of dollars)

1981 estimate 1982 estimate

•p§

8OO GENERAL GOVERNMENT

804 General property and records management

Real property

Personal property

Records management

Other .

Subtotal , General property and records managemen

t

8O5 Central personnel management

Ex i st i ng 1 aw

Proposed legislation

Subtotal , Central personnel management

8O6 Other general government

Territories .

Proposed legislation

Indian affairs .

Treasury claims

Other

Subtotal Other general government

Deductions for offsetting receipts

Total outlays

Actual

-47

161

84

167

364

154

154

126

475

438

-480

559

-224

4 505

January

28

255

89

181

554

168

168

198

153

3O5

-48

608

-267

5 17O

Revi sed

23

250

87

174

534

165

165

198

153

305

-50

605

-269

5 096

Change

-5

-5

-3

-7

-2O

-3

-3

- *

-2

-2

-2

-74

January

28

154

97

209

487

165

165

202

1

13

378

-72

522

- 193

5 246

Revi sed

2

142

88

195

427

153

153

157

13

378

-85

462

-188

4 987

Change

-26

-12

-9

- 14

-60

-12

- 12

-45

- 1

-14

-6O

4

-260

- $50O thousand or less.
BUDGET AUTHORITY BY FUNCTION AND PROGRAM

(In million s of dollars)

1981 estimate 1982 estimate

5O GENERAL PURPOSE FISCAL ASSISTANCE

851 General revenue sharing

General revenue sharing payments

A dm inistration

Subtotal General revenue sharing

852 Other general purpose fiscal assistance

Tax credit for state & local govts (proposed).

Payments and loans to the District of Columbia

New York City loan guarantee program

Paymts to States from Forest Service receipts.

Payments in 1 ieu of taxes

Other payments to States and counties from Fed

eral land management activities

Payments to territories and Puerto Rico

Other

Subtotal, Other general purpose fiscal assistanc

e

Total budget authority

* - $5OO thousand or less.

OUTLAYS

(In

.O GENERAL PURPOSE FISCAL ASSISTANCE

851 General revenue sharing

Administration

<;iiH-»-r»ta 1 nfsnp>ral revenue sharina

Actual

6,855

6

6,861

439

1

280

1O8

380

593

5

1.805

8,667

BY FUNCTION

mil l ions of

Actual

6,829

6

6.835

January

4,570

7

4,577

465

1

223

1O3

469

365

5

1 ,631

6,2O8

Revised Change

4 570

7 _*

4,577 -*

405 -60

1

223

1O3

507 38

365

5

1,609 -22

6,185 -22

AND PROGRAM

dol 1 ars )

1981 estimate

January

5, 156

7

5. 163

Revised Change

5, 156

7 _*

5,163 -*

January

4.57O

7

4 . 577

495

581

1

275

583

370

5

2,310

6,887

1982

January

4,559

7

4,566

Revised

4,570

7

4.577

542

1

275

45

653

370

5

1,891

6,468

estimate

Revi sed

4,559

7

4,566

Change

- *

- *

-495

-39

- *

45

70

-419

-419

Change

- *

- *
OUTLAYS BY FUNCTION AND PROGRAM

(In millions of dollars)

1981 estimate 1982 estimate

1980

Actual January Revised Change January Revised Change

850 GENERAL PURPOSE FISCAL ASSISTANCE

852 Other general purpose fiscal assistance

Tax credit for state & local govts (proposed) . 495 -495

Payments and loans to the District of Columbia 425 468 4O8 -60 6O6 532 -75

New York City loan guarantee program 1 1 1 1 1 -*

Paymts to -States from Forest Service receipts. 280 223 • 223 275 275

Payments in 1 ieu of taxes 103 108 1O8 45 45

Other payments to States and counties from Fed

eral land management activities 38O 469 507 38 582 652 7O

Payments to territories and Puerto Rico 555 415 415 370 37O

Other 5 7 7 5 5

Subtotal, Other general purpose fiscal assistanc

e

Total outlays ,

* - $5OO thousand or less.

1 ,749

8,584

1 ,691

6,854

1 ,669

6,832

-22

-22

2.336

6,902

1 ,881

6,447

-455

-455
BUDGET AUTHORITY BY FUNCTION AND PROGRAM

(In million s of dollars)

1981 estimate 1982 estimate

900 INTEREST

9O1 Interest on the publ ic debt

Existing law . . . ,

Subtotal Interest on the public debt

9O2 Other interest

Interest on refunds of tax collections

Interest on loans to Federal Financing

Other

Subtotal Other interest

Total budget authority

-P9OO INTEREST

9O1 Interest on the publ ic debt

Existingla w

Subtotal, Interest on the public debt

902 Other interest

Interest on refunds of tax collections.

Interest on loans to Federal Financing

Other

Subtotal Other interest

Total outlays

i»ou

Actual

74 781

74 78 1

5O2

Bank. . -5,915

-4 860

-10,273

64 508

OUTLAYS BY FUNCTION

(In mil l ions of

Actual

74,781

74,781

5O2

Bank. . -5,915

-4,865

-10,278

64,504

January

94 , 10O

94, 100

708

-8,899

-5,509

-13. 700

80,400

Revised Change

90,600 -3,500

9O.60O -3,500

708

-8,492 407

-5,572 -63

-13,356 344

77,244 -3,156

January

1O6,5OO

' 106,500

60O

-12,073

-5,081

-16.554

89,946

AND PROGRAM

dol lars)

1981 estimate

January

94, 100

94. 1OO

708

-8,899

-5,504

-13.695

80,405

Revised Change

9O.6OO -3,500

90,600 -3,500

7O8

-8,492 4O7

-5,566 -63

-13,350 344

77,250 -3,156

January

106.5OO

1 06 . 5OO

600

-12,073

-5,081

-16.554

89,946

Revised .

98, 1OO

98, 100

600

-1O, 639

-5.533

-15,572

82,528

1982 estimate

Revi sed

98, 100

98, 1OO

6OO

-10,639

-5,533

-15,572

82,528

Change

-8,400

-8,4OO

1 ,433

-452

982

-7,418

Change

-8,4OO

-8,400

1,433

-452

982

-7,418
BUDGET AUTHORITY BY FUNCTION AND PROGRAM

(In million s of dollars)

198O

Actual

1981 estimate

January Revised Change

1982 estimate

January Revised Change

920 ALLOWANCES

921 Civilia n agency pay raises

927

928

E x i s t i ng 1 aw .

Subtotal Civi l ian agency pay raises

Contingencies for relatively uncontrollable prog

rams . . ... .

Contingencies for other requirements

Ex i st i ng 1 aw

Subtotal Contingencies for other requirements

Total budget authority

958

958

2 , 000

2 OOO

2 958

799

799

1 ,5OO

1 5OO

2 299

-159

-159

-5OO

-5OO

-659

OUTLAYS BY FUNCTION AND PROGRAM

(In million s of dollars)

1980

Actual

1981 estimate

January Revised Change

1982 estimate

January Revisred Change

92O ALLOWANCES

921 Civilia n agency pay raises

E xi st ing 1 aw

Subtotal, Civilia n agency pay raises.

920

92O

771

771

927 Contingencies for relatively uncontrollable prog

rams

928 Contingencies for other requirements

Existing law

Subtotal, Contingencies for other requirements.

1,OOO 1,COO

1.OOO 1,OOO

Total outlays 1,920 1,771

-149

-149

-149
BUDGET AUTHORITY BY FUNCTION AND PROGRAM

(In million s of dollars)

1981 estimate 1982 estimate

950 U

951

952

953

iyou -- - -

Actual January Revised

NDISTRIBUTED OFFSETTING RECEIPTS

Employer share employee retirement -5,787 -6,561 -6,553

Interest received by trust funds

Existing law -12,045 -13.429 -13,146

Proposed legislation . . -6 -7

Subtotal Interest received by trust funds -12,O45 -13.435 -13, 153

Rents and royalties on the Outer Continental She

If . -4,1O1 -7,800 -9,6OO

Total budaet authority -21,933 -27,796 -29.305

Change January Revised

8 -6.798 -6,717

283 -14,714 -14.O91

-1 -451 -233

282 -15,165 -14,325

-1.80O -9,90O -11,OOO

-1 ,51O ' -31 ,863 -32,042

Change

80

622

218

84O

-1, 100

-18O

OUTLAYS BY FUNCTION AND PROGRAM

(In millions of dollars)

1981 estimate 1982 estimate

950 U

951

952

953

Actual January Revised

NDISTRIBUTED OFFSETTING RECEIPTS

Employer share, employee retirement -5,787 -6,561 -6 553

Interest received by trust funds

Existing law -12 045 -13 429 -13 146

Proposed legislation .... . - 6 - 7

Subtotal, Interest received by trust funds -12,045 -13,435 -13,153

Rents and royalties on the Outer Continental She

If -4 101 -7 800 -9 6OO

Total outlays -21.933 -27.796 -29.3O5

Change January Revised

8 -6,798 -6,717

283 -14,714 -14.O91

-1 -451 -233

282 -15, 165 -14,325

-1.8OO -9.90O -11.OOO

-1.51O -31.863 -32 042

Change

80

622

218

840

-1, 1OO

-1RO
BUDGET AUTHORITY BY FUNCTION AND PROGRAM

(In million s of dollars)

1980

Actual

1981 estimate

January Revised Change

1982 estimate

January Revised Change

Total budget authority 658,790 726,474 710,147 -16,327 809,829 772,360 -37,469

OUTLAYS BY FUNCTION AND PROGRAM

(In million s of dollars)

198O

Actual

1981 estimate

January Revised Change

1982 estimate

January Revised Cha,nge

Total outlays 579,613 662,740 655,173 -7,567 739,296 695,297 -43,999