Given the scope and variety of federal activities, the federal budget is inevitably complex. This is particularly seen in the federal budgetary treatment of receipts. The 1967 President’s Commission on Budget Concepts recommended a dual system of accounting for federal receipts. The Commission recommended that receipts from activities which were essentially governmental in nature, including regulation and general taxation, be reported as receipts, and that receipts from business-type activities “offset to the expenditures to which they relate.” The Commission recommended this system so that budget totals could present a clear picture of the extent of governmental activity. In practice, however, the distinction was never sharp as evidenced by the fact that revenue from business-type transactions, termed “offsetting collections,” are not made available to agencies in the same way. Collections credited to appropriation or fund accounts go directly to expenditure accounts. Here, legislation requires that collections be credited to an appropriation or fund account and offset spending in the account without further legislative action. Collections are typically credited to revolving funds when they are the main source of financing and are permanently appropriated to fund business-like activities, such as the Postal Service. However, offsetting collections to appropriation or fund accounts are not limited to business-like or self-supporting activities. Offsetting receipts are required by law to be deposited into receipt accounts. Additional congressional action is necessary to move these into, most often, special or trust fund expenditure accounts. Offsetting receipts offset budget authority and outlays, but at a level other than at the expenditure account. The U.S. Fish and Wildlife Service’s (USFWS) migratory bird conservation activities are funded through appropriated offsetting receipts. Whatever the budget accounting, the Congress grants agencies authority to spend offsetting collections either through permanent or current appropriations. For example, the Congress permits some agencies to obligate fees credited directly to appropriation or fund accounts without further congressional action. In this report, we refer to this type of permanent authority as spending authority. In other cases, the Congress requires some agencies to obtain budget authority through current appropriations before spending offsetting receipts. In this report, we refer to this budget authority as an appropriation. To better understand differences in how offsetting collections for business-type activities are treated in the budget process and how they have fared recently, we created a universe of 27 agencies to review that rely on fees as a source of funds. We defined fee-reliant agencies using the following criteria (1) fees from the public must be used to support the agency that generated the fee, (2) services, goods, or benefits must be provided in exchange for fees and the exchange should be closely linked in time, and (3) new fees from the public must represent 20 percent or more of the agency’s gross outlays less offsetting collections from federal sources averaged over fiscal years 1991 through 1996. To identify changes in agency reliance on user fees since the passage of BEA, we used OMB actual year data to construct a series of analyses that described trends in budget authority and collections for fee-reliant agencies. Data used in this report cover fiscal years 1991 through 1996. OMB codes also allowed us to track changes in discretionary versus mandatory classifications of agency funding and shifts from current to permanent budget or spending authority. To review the classification and treatment of fees in budget accounts, we used OMB codes created for the Administration’s annual budget request. These codes allowed us to identify (1) fees from the public and their classification as an offsetting receipt or an offsetting collection credited to an appropriation or fund account, (2) the type of expenditure account the fee is credited to, and (3) the fee’s availability for obligation in a given fiscal year. To identify issues for consideration in the future design and management of such fees, we conducted interviews with budget officials at CBO, OMB and 6 of the 27 agencies we identified as fee-reliant. This report discusses user fees in a budget context and not from a financial management perspective. Issues related to reporting of fees in financial statements or compliance with standards, such as OMB Circular A-25, User Charges and the Statements of Federal Financial Accounting Concepts and Standards No. 4, Managerial Cost Accounting Standards, are not addressed in this report. Details of our scope and methodology are contained in appendix I and related GAO products are listed at the end of the report. Our work was performed in Washington, D.C. between September 1996 and September 1997 in accordance with generally accepted government auditing standards. We requested comments on a draft of this report from the Director of the Office of Management and Budget or his designee. On December 12, 1997, the Deputy Associate Director for Budget Analysis and Systems in the Budget Review Division provided us with comments, which are discussed in the “Agency Comments and Our Evaluation” section. The agencies we reviewed increased the overall amount of fees they collected and these fees constituted a larger proportion of their budgets in fiscal year 1996 than in fiscal year 1991. Fee collections among the 27 agencies we surveyed totaled $74.9 billion in fiscal year 1996. As noted earlier, federal user fees provided the United States government with $196.4 billion in revenues in fiscal year 1996. Of this total, Congress has earmarked $154.3 billion to the agencies that generated the fees, while $42.1 billion was not earmarked to specific agencies but was credited to the general fund of the Treasury. Fees collected by the 27 agencies in our review represented 49 percent of the $154.3 billion in earmarked user fees from the public in fiscal year 1996. In fiscal year 1991, these 27 agencies collected $58 billion from the public in user fees to support their activities. By fiscal year 1996, this amount had grown to $74.9 billion. Although these figures are dominated by the Postal Service, which accounted for $13 billion of the $17 billion increase, collections increased 27 percent in real terms between these years.Between 1991 and 1996, all agencies we studied either increased or roughly maintained the percent of their budgets funded though user fees. During this time period, the Congress substantially increased the fee-reliance of some regulatory agencies, such as the Federal Trade Commission, the Federal Communications Commission, and the Securities and Exchange Commission. Additional user fee collections appear to have replaced appropriated funds or to have reduced the size of decreases in appropriated funds. Replacement of general fund appropriations can also be seen in that most increases in user fees enacted between fiscal years 1991 and 1996 were designated as discretionary spending for BEA purposes. The classification of these fees and increased use of fee collections to offset discretionary spending has lessened the impact of BEA spending limits on agencies that collect fees. As shown in table 1, 8 out of 27 agencies in our survey showed increased reliance on user fees from fiscal year 1991 to fiscal year 1996. Of the 27 agencies in our review, 15 were fully funded, or nearly so, by fees from the public in fiscal year 1991 and remained so through fiscal year 1996 according to budgetary data. Of the remaining 12 agencies, 6 substantially increased their reliance on fees from fiscal years 1991 to 1996. Congress increased fee reliance of two additional agencies, though not to the extent of the agencies noted above. Four agencies saw the percentage of their budgets funded through user fees remain stable between fiscal year 1991 and 1996. Many of the 15 agencies were fully funded, or nearly so, by fees from the public from fiscal years 1991 to 1996. The Congress authorized substantial fee increases for two of these agencies, the Patent and Trademark Office (PTO) and the Nuclear Regulatory Commission (NRC), in the Omnibus Budget and Reconciliation Act of 1990 (OBRA 90). While many of these 15 agencies are primarily regulatory in nature, they also include service agencies, such as the Department of Commerce’s National Technical Information Service (NTIS) and the Postal Service. Several of these 15 agencies are involved in banking or credit regulation, such as the Office of Thrift Supervision and the National Credit Union Administration, among others. These banking and credit regulatory agencies are usually supported through examination or assessment fees on their members. Six agencies in our survey substantially increased their reliance on fees from fiscal years 1991 to 1996. Again, these agencies are primarily regulatory. The increased reliance on user charges among these agencies resulted mainly from legislative changes requiring increased collections for activities such as licenses, filings, and applications. In fiscal year 1991, FCC received less than 1 percent of its new budget authority from user fees. However, the Omnibus Budget and Reconciliation Act of 1993 (OBRA 93) increased the fees that FCC charges to cover the cost of the application and licensing of radio stations, telecommunications equipment, and radio operators, so that by fiscal year 1996 user fees made up 71 percent of the agency’s new budget authority. The fiscal year 1993 Commerce, Justice, State and the Judiciary Appropriation Act increased filing fees charged jointly by the Department of Justice and the Federal Trade Commission (FTC) to review proposed mergers. These fees had originally gone into effect in fiscal year 1990 and covered all costs associated with reviewing proposed mergers that might reduce competition. In fiscal year 1991, FTC received 18 percent of its new budget authority from user charges. With the 1993 fee increases, this grew to 69 percent by fiscal year 1996. In fiscal year 1991, the Securities and Exchange Commission (SEC) received 19 percent of its new budget authority from user charges. Beginning that year, user fees became an increasingly important component of SEC appropriations so that by fiscal year 1996 these fees made up 70 percent of the agency’s new budget authority. The U.S. Customs Service doubled its reliance on fees, as new budget authority from fees grew from 41 percent in fiscal year 1991 to 71 percent in fiscal year 1996.