oversight

Budget Issues: Earmarking in the Federal Government

Published by the Government Accountability Office on 1990-01-19.

Below is a raw (and likely hideous) rendition of the original report. (PDF)

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              United   States   General   Accounting   Office
              Fact Sheet for the Chairman of the                    -
              Committee on Budget, U.S. Senate



January1990
              BUDGET ISSUES
              Earmarking in the
              Federal .Government
      I.nited States
GAO   General Accounting Offke
      Washington, DC 20548

      Accounting and Financial
      .Management Division


      B-227245

      January   19, 1990

      The Honorable  Jim Sasser
      Chairman,  Committee on Budget
      United States Senate
      Dear Mr. Chairman:
      This fact sheet responds to the request       of the former
      chairman of the Senate Budget Committee that we study the
      practice    of earmarking   federal revenues.     Revenues are
      earmarked when they are designated       for particular    uses by
      authorizing    legislation.
      RESULTS IN BRIEF
      Our study showed that the percentage                    of budget revenues
      that were earmarked grew from fiscal                    years 1974 through
      1988.      Almost half of that growth resulted                   from increases
      in earmarked Social         Security      payroll       tax revenues.
      Earmarking      practices    vary.       Earmarking        provides    a
      relatively      predictable      financing         procedure     that can help to
      achieve budget policy          or programmatic            goals.     However, it
      also lessens congressional             flexibility         to adjust     program
      funding     levels    and priorities.
      BACKGROUND
      Most governmental         taxes,  fees, and other revenues are
      deposited      in the general     fund of the U.S. Treasury      to be
      allocated      by appropriation      actions  to various   uses.
      Certain     revenues,     however, are set aside by authorizing
      legislation        for designated    uses.   Such actions   in effect
      restrict     the scope of appropriations        control   over
      allocating       revenue.
      The practice         of earmarking    is not new.     In 1919, for
      example,      legislation      earmarked revenues to establish       a
      life    insurance       fund for veterans.     Legislation    in the
      1930s significantly          extended the scope of earmarking        by
      establishing        the Social     Security program and several      other
B-227245


--   Ten programs received     83 percent   of all earmarked
     revenues.    The three largest    programs--Social    Security,
     Medicare,   and the Postal Service--accounted      for 66
     percent   of the earmarked   revenues.
--   Six agencies    received  84 percent of the earmarked
     revenues.     The Department  of Health and Human Services
     accounted   for about 60 percent    of the earmarked
     revenues.
Appendix II provides           additional       information       on earmarking
trends and features.
EXAMPLES OF VARYING EARMARKING PRACTICES
Federal earmarking        practices       vary from program to program
in two key respects.          First,      because of differing             statutory
provisions,      some program participants'                payments are
earmarked back to the programs,                 while others are deposited
in Treasury's      general    fund for unspecified               future    use.      For
example, the Postal         Service's       legislation        permits     it to
keep the business-type          revenues generated             from the sale of
postage stamps and postal             services.         In fiscal      year 1988,
its revenues were about $34 billion.                      On the other hand,
the revenues the Securities              and Exchange Commission (SEC)
collects    from businesses         for securities          registration        and
other fees--     about   $250   million       in   fiscal    year     1988--were
returned    to Treasury's       general       fund, where they became
available     for purposes to be later               decided by law.          The
SEC, in turn,      received     its funding          from the Congress during
the annual appropriation           process.
Second, there are differences            in the sources of the
earmarked revenues.         In most cases, the amounts earmarked
to a program come from the program itself,                 mainly cost-
sharing    amounts paid by program participants,               as in the
case of the Postal       Service.     In other cases         the earmarked
amounts come from unrelated          activities     outside     the program.
For example, the General Service Administration's                   surplus
property     sales amounts--$37      million     in fiscal     year 1988--
were earmarked for certain          conservation      programs in the
Department      of the Interior.      In fiscal     year 1988, about
$3.8 billion      in revenues from customs duties            were dedicated
to the Child Nutrition         Program to provide        meal subsidies.
B-227245


--   Earmarking     decreases     the Congress'    ability  to annually
     adjust   program priorities.          Because earmarking    makes it
     more difficult      to shift     funds between programs,      it may
     take longer to allocate          revenues to new high-priority
     programs.
--   Earmarking    reduces the Congress'         ability    to quickly
     adjust   an individual      program's    funding    level.    If an
     earmarked program's       funding     needs decrease,      the program
     may continue     to receive     more funds than it actually
     needs.
--   Earmarked accounts may receive      less frequent
     congressional     reviews than accounts   for programs funded
     through    annual appropriations,   whose funding   levels must
     be reviewed     and acted upon each year.
--   Earmarking    presumes     a minimum level of spending for
     earmarked    programs.      This could impair budget deficit
     reduction    efforts.
The decision    to earmark funds is, of course,          a matter for
congressional     determination.       We believe   that considering
the advantages      and disadvantages      of earmarking   can help the
Congress evaluate       the appropriateness      of this means of
funding    for particular     programs.
We are sending copies of this report      to the Director,
Office   of Management and Budqet; the Director,
Congressional    Budget Office: and other interested       parties.
Copies will   also be available  to others upon request.
Please contact   me at (202) 275-9573 if you or your staff
have any questions    concerning the fact sheet.    Other major
contributors   to this fact sheet are listed    in appendix IV.
Sincerely     yours,



James L. Kirkman
          Budget       Issues




5
APPENDIX I                                                                 APPENDIX I

experts,      and organizations       such as the National        Conference   of
State Legislatures,          the Administrative       Conference     on User Fees,
and the Tax Foundation.            We also reviewed OMB, Treasury,           and GAO
studies     and documents.       To obtain      the views of governmental       budget
experts     on the pros and cons of earmarking,              we interviewed
officials      at OMB, CBO, the National           Conference   of State
Legislatures,       the Administrative        Conference     on User Fees, and the
President's      Council     on Integrity     and Efficiency.




                                          9
APPENDIX II                                                                   APPENDIX II

      To provide    information    to a variety      of users, we analyzed
earmarking   trends    from several    perspectives--source,       fund type,             and
the programs and agencies       receiving    the largest     amounts of
earmarked revenues.
SOURCE OF EARMARKED REVENUES
        Of the approximately          $520 billion        in fiscal     year 1988
earmarked revenues,         about $361 billion            (69 percent)      came from tax
and regulatory       fee revenues.          They include        items such as Social
Security     payroll    taxes,     customs duties,          excise taxes,      and fees
levied     on regulated     activities.         These are sometimes referred             to as
"sovereign     powers" revenues to distinguish                  them from revenues of
the government's        business-type         operations,       which constituted      the
remaining     $159 billion       (31 percent)        of fiscal      year 1988 earmarked
revenues.      Revenues from business-type                operations     include
collections      from rents,       royalties,      and the sale of products,
services,     and property.          The stamp sales revenue earned by the
Postal Service       is an example of business-type                 revenue.
         From fiscal    years 1974 through       1988, these two sources of
earmarked revenues experienced           similar    rates of growth.     As
illustrated       in figure    11.2, revenues from taxes and regulatory
operations      grew from about $85 billion         to $361 billion,   a
325-percent      growth rate.       The revenues from business-type
operations      grew from approximately        $38 billion   to $159 billion,
about a 318-percent         growth rate.




                                            11
APPENDIX II                                                                  APPENDIX II

agency "general   fund" account,      as being designed            for programs
financed  by nonearmarked     revenues.     (Some general            fund accounts,
however,  receive   earmarked    revenues.)
        The remaining       five types of accounts are designed                 for programs
financed     by earmarked        revenues.        Nonrevolving       and revolving     trust
funds are in this category.                  Nonrevolving      trust   fund accounts
record the appropriated             amount of revenues collected             for a specific
purpose or program under a trust                  agreement or statute.           This would
include    the payroll        taxes collected         for the Social       Security
program.      Revolving       trust    fund accounts         receive   revenues generated
in business-type        operations         in accordance        with a trust    agreement or
status.      An example of this type of account is the Federal Deposit
Insurance     Corporation,         which receives         insurance    premiums paid by
the financial      institutions          it insures.
       Special   fund accounts are established       to record appropriated
amounts of revenues which are (1) collected             from a specific      source,
 (2) earmarked by law for a specific        purpose or program,          and (3) not
termed a trust      fund account in the authorizing         legislation.      This
would include      accounts  such as the National       Park Service's      (NPS)
Operation    and Maintenance    of Quarters    account,     into which certain
rental    payments NPS receives    are deposited.
       Public  enterprise        revolving      fund accounts are the fourth         type
of earmarked account.            They   receive     amounts     generated   in a
continuing    cycle of business-type              operations.      Examples include     the
Postal Service and the Export Import Bank, which are both
governmental     corporations        originally       established     to be
substantially      self-financed        through     the sale of their       goods or
services.
       Finally,     intragovernmental      fund accounts are specifically
authorized      by law to facilitate        financing    transactions  within     and
between federal         agencies.     An example is the Forest Service's
Working Capital         Fund, whose primary       purpose is to provide     service
to national      forests     and research     experiment    stations.  This
account,     however, also receives         revenues from the public      for the
rental    of equipment       and aircraft     services   and the sale of nursery
and supply services.
      As seen in table   11.1, nonrevolving      trust   fund revenues from
taxes and regulatory   operations     comprised    the largest    portion     of
earmarked revenues.    In fiscal     year 1988, about $374 billion
 (72 percent)  of all earmarked revenues went to nonrevolving              trust
fund accounts.    Most of these amounts ($354 billion)          were in the
form of taxes and regulatory      revenues.     Public enterprise       revolving


                                            13
APPENDIX II                                                                              APPENDIX II

Table      11.2:       Earmarked Revenues       by Fund Type for             Fiscal      years
                       1974 and 1988
                                                        Fiscal      year
                                            1974                                  1988
   Fund type                     Amount            Percent            Amount             Percent
                                 ----------(Dollar-              in billions)---------

Nonrevolving           trust     $ 88.2                72             $374.0                 72
Public      enterprise              25.7               21              104.3                20
Special                               2.5               2                12.0                    2
Intergovernmental                     3.0               2                   9.7                  2
Trust      revolving                  1.7               1                   9.2                  2
General                               2.3               2                  10.3                  2
        Total                    $123.4               100             $519.5               100

TEN LARGEST EARMARKED PROGRAMS
        To show how earmarked funds are used, we identified           the
largest    programs financed     by these revenues.     In fiscal    year 1988,
31 programs received       at least $1 billion   each in earmarked
revenues.      The ten which received     about $432 billion      (83 percent)
of all earmarked      revenues are identified     in table   11.3.




                                               15
APPENDIX II                                                                              APPENDIX II

EARMARKING IN THE AGENCIES
       We also identified          the agencies    receiving      the most earmarked
revenues in fiscal          years 1974 and 1988.          The Department    of Health
and Human Services          (HHS) accounted     for over half of all earmarked
revenues.      In fiscal       year 1988, HHS received         about $313 billion
(60 percent)       of the approximately        $520 billion       in earmarked
revenues,    mostly     in the form of payroll          taxes earmarked for the
Social    Security    trust     funds.   The following       table    ranks the six
agencies    receiving       the most earmarked       revenues and shows the total
received    by all other agencies.
Table      11.4:      Earmarked Revenues Received            by Federal       Agencies           in
                      Fiscal  Years 1974 and 1988
                                                               Fiscal      year
                                                      1974                                1988
           Agency                        Dollars             Percent        Dollars              Percent
                                         --------(Dollars               in billions)--------
Department of Health
  and Human Services                     $ 66.8                  54         $313.2                     60
Postal      Service                            8.6                7               34.0                  7
Department         of Agriculture              7.5                6               35.8                  7
Department         of Labor                    6.8                6               25.6                  5
Department         of Transportation           7.2                6            18.1                     3
Department         of the   Treasury           1.6                1               10.9                  2
Other      agencies                          24.8               20             81.9                    16
        Total                            WiiU                  100          $519.5                    100

    The Department     of the Treasury     is the only agency whose earmarked
revenues are almost equally       split   between taxes and regulatory
revenues and business-type       revenues.       In each of the other five
agencies,    at least 80 percent     of the earmarked revenues were either
taxes and regulatory      revenues or business-type        revenues.    The
Department     of Labor, the Department      of Transportation,      and HHS
received    mainly taxes and regulatory        revenues,   while the Department
of Agriculture     and the Postal    Service    received   mainly business-type
revenues.

                                         17
APPENDIX III                                                                APPENDIX III

inspections      to ensure the public's     well-being     and safety.     For
example,     companies that manufacture      homes must pay inspection         fees to
the Department       of Housing and Urban Development's         (HUD) Manufactured
Home Inspection        and Monitoring  account.      These fees are used to
enforce     compliance    with federal  construction      and safety   standards.
EARMARKED CONTRIBUTED FUNDS
        Contributions        are another      source of earmarked revenues having a
cost-sharing        relationship.        In these cases, individuals         donate funds
to support       a particular       program's     operations.    This type of
relationship        differs     from other cost-sharing       relationships        in that
the person paying the expense may not be the primary                      beneficiary      and
may not have caused the expense.                 This type of account mainly
includes      agency gift       funds.     For example, HUD has a gift          fund which
receives     gifts      and bequests     for the work of the Department.              These
accounts      are usually       small in dollar       value.  In fiscal     year 1988,
HUD's gift       fund received       only $9,000.




                                           19
APPENDIX IV                                                            APPENDIX IV

                       MAJOR CONTRIBUTORS TO THIS REPORT
ACCOUNTING AND FINANCIAL MANAGEMENTDIVISION,               WASHINGTON, D.C.
Roy Jenney, Assistant      Director,    Budget   Issues,    (202)   275-1991
Edith Pyles,    Assistant    Director
Trina Lewis, Evaluator
Sharon Deluzio,     Accountant




(935036)
                                        20
APPENDIX III                                                                 APPENDIX III

             GENERAL KINDS OF EARMARKING BASED ON COST-SHARING
       We have identified      three kinds of earmarking  involving                 a cost-
sharing     relationship   between a program and its participants:
earmarked beneficiary       payments,   regulated entity payments,                 and
contributed        funds. Each of these can be briefly   described                 as
follows.
EARMARKED BENEFICIARY PAYMENTS
        This kind of earmarking          occurs when those persons or
organizations       particularly     benefiting     from a federal      program pay the
program to cover a portion           of its costs.       This can also be called        the
"social     insurance"      concept.     For these funds (1) the recipient
contributes       to the fund from which payments are made and/or performs
some action       or service     to qualify     for the benefit     and (2) the
government       has a statutory     obligation     under current     law to, in
effect,     return    the moneys in the form of statutorily             defined
benefits.        Examples of such programs are the Federal Old-Age and
Survivors      Insurance     Trust Fund, the Civil       Service    Retirement     and
Disability       Fund, and the Tax Court Survivors           Annuity     Fund.   Such
benefit     programs account for a large share of the budget's                  earmarked
funds.
        The user fees that a program's           beneficiaries       pay to the program
are also earmarked beneficiary             payments.      User fees distribute       a
larger      share of a program's       cost to those who most directly           and
immediately       benefit    from the program.       The park visitors'       user fees
collected       by the National      Park Service    (NPS) are an example of these
fees.      They are credited       to an NPS budget account which NPS uses to
manage, operate,          and maintain   the park areas.         As another   example,
legislation       permits    the Environmental      Protection      Agency to be
reimbursed       for computer services        it provides      to the public.
       This type of earmarking           is also at the heart of governmental
enterprises,      whose aim is to run a partially             or completely        self-
financed     operation    by distributing         a portion   of the costs to those
who buy or accept the agencies'               goods, services,      or financial
assistance.       Such enterprises         include    the Postal Service,        the Export-
Import Bank, and the Federal Deposit                Insurance     Corporation.        The
Postal Service,        for example, receives         most of its revenues from its
sale of postage stamps and fees for postal                  services.
EARMARKED REGULATORY PAYMENTS
        When a person's    or an organization's         activities        require     special
federal    regulation   or other actions      giving     rise to federal           costs,
earmarked regulatory       fees help defray       the costs.          This cost-sharing
practice     includes  operations   requirinq       special      licenses,      permits,      or
                                            18
APPENDIX II                                                                                                                                                 APPENDIX II

Table              11.3:              Programs                   Receiving                 Largest Amounts                             of        Earmarked
                                      Revenues                   for Fiscal                 Year 1988
          Proqram                                                    Prima-y      source                             Type     of      account                            Tota I revenue
                                                                                                                                                                          (Dollars          In
                                                                                                                                                                            billions)


Social       Securitya                                   Taxes                                                    Nonrevol      v ing        trust                              $241.5


Med icareb                                               Taxes                                                    Nonrevolving               trust                                68.7


U.S.      Postal         Service                         Business-type            revenues                        Public       enterprise            revolving                    34.0


Unemp I oyment              Trust     Fund               Taxes                                                    Nonrevolving               trust                                24.4


Commodity           Credit
   Corporation                                           Business-type            revenues                        Public       enterprise            revolving                    21.4


Highway          Trust       FundC                       Taxes                                                    Nonrevolving               trust                                 14.1


Foreign          Military           Sales                Bus I ness-type          revenues                        Nonrevolving               trust                                    9.0


Federal          Savings        and Loan
   Insurance             Corporationd                    Business-type            revenues                        Public       enterprise            revolving                        8.1


Federal    Housing
  Administration                    Fund                 Business-type            revenues                        Public       enterprise            revolving                        5.9


Rural       Electrification                  and
   Telephone             Revolving           Fund        Business-type            revenues                        Public       enterprise            revolving                        5.1


         Total                                                                                                                                                                  $44



aFederal           Old      Age and         Survivors           Insurance      Trust       Fund    and Federal        Disabi         I ity      Insurance        Trust   Fund.


bFederaI           Hospital          Insurance          Trust      Fund     and Federal           Supplementary            Medical           Insurance.

CThe Fund consists                    of     13 accounts.


dFSLIC       was dissolved                  and the      insurance          function        was transferred           to     the      Federal        Deposit        Insurance
 Corporation.



       Table II.3     shows that taxes are the primary    source of funding
for 4 of the 10 largest        programs and, in those programs,    are
credited    exclusively    to nonrevolving   trust funds.   They total  about
$349 billion      (67 percent)    of all earmarked revenue.



                                                                                           16
APPENDIX II                                                                                APPENDIX II

funds received  approximately              $104 billion (20 percent) of all
earmarked revenues and all              of these amounts were in the form of
business-type  revenues.
      The remaining     8 percent     of earmarked revenues were divided
among the trust     revolving,      special,   intragovernmental,   and general
fund accounts.      General funds,       which are designed to be financed
from Treasury's     general     fund, received      a small amount of earmarked
revenues,  about    $10 billion      (2 percent)     of the total.

Table   11.1:   Earmarked Revenues by Fund Type and Source for
                Fiscal Year 1988
                              Tax and                    Susiness-                      Total
                             regulatory                    type                       earmarked
  Fundtype                    revenues                   revenues                     revenues
                        -----------------(Dollars             in billions)-----------------

                        Amount      Percent          Amount       Percent         r4nourlt    Percent
Nonrevolving
  trust                 $354.0            98         $ 20.0           13          $374.0          72

Public enterprise
  revolving                  0.0           0          104.3           66           104.3          20

Special.                     6.6           2            5.4             3            12.0          2

Intragovernmental            0.0           0            9.7             6             9.7          2

Trust revolving              0.0           0            9.2             6             9.2          2

General                      0.0        - 0            10.3          - 6             10.3       - 2

                        SW              100          $158.9          loo          $519.5        100

      As table 11.2 shows, each fund type accounted            for almost     the
same percentage   of earmarked revenues in fiscal         years 1974 and
1988.   Over that period,    nonrevolving    trust   funds accounted      for
72 percent of the total,    and public    enterprise     revolving    funds
remained at about 20 percent.        The other fund types remained about
2 percent of the total    earmarked funds.




                                                14
APPENDIX II                                                               APPENDIX II

Figure       11.2:   Growth   of Earmarked        Revenues   by Source




460

400

SW

300

wo

200

160

100

 60

  0

      1914           1077         1080              low          1000
      Fircal yaw




Note : Growth        is  shown at 3-year intervals,           except for the 1986 to
1988 interval.         We used this   2-year interval          because 1988 was the
last year for        which data were available.
FUND TYPES OF EARMARKED REVENUES
       To provide    further   information  on how earmarking      affects    the
budget,    we analyzed     the two sources of earmarked revenues by the
types of budget accounts to which the funds are applied.                 There
are six kinds of accounts--general,         nonrevolving    trust,    revolving
trust,    special,   public   enterprise,  and intragovernmental.          OMB,
Treasury,     and GAO documents1 describe     only one kind of account,          the




lOMBIs Examiner's  Handbook; Treasury's   1987 Annual Report,
  Appendix; and GAO's A Glossary  of Terms Used in the Federal                  Budget
  Process.
                                             12
APPENDIX II                                                                   APPENDIX II

                          EARMARKING TRENDS AND FEATURES
        In recent years,   there has been a trend toward earmarking           a
larger    share of the government's    total   revenues.     Most of the
earmarked amounts are taxes dedicated        to trust    fund accounts,     the
largest    of which is the Social   Security    program,    which consistently
accounted     for more than 40 percent    of the earmarked amounts.         The
Department of Health and Human Services         has been the agency with
the most earmarked revenues.
GROWTHIN EARMARKING
         Our analysis    showed that earmarked revenues grew faster             than
total     revenues between fiscal        years 1974 and 1988.        Figure II.1
illustrates      that during this period earmarked revenues quadrupled,
from about $123 billion           to about $520 billion;      during    the same
time,     total  revenues   tripled,     increasing   from approximately
$312 billion       to more than $1 trillion.        Earmarked revenues grew
from about 40 percent         of total     revenues in fiscal      year 1974 to
about 48 percent       in fiscal     year 1988.
Figure   11.1:    Growth         of Earmarked        and Total   Government   Revenues

                  1100   Dollars In billlons

                  1000

                   900

                   ooo

                   7w




Note : Growth     is  shown at 3-year intervals,                 except for the 1986 to
1988 interval.      We used this 2-year interval                  because 1988 was the
last year for     which data were available.

                                                10
APPENDIX I                                                                            APPENDIX I

                      OBJECTIVES,         SCOPE, AND METHODOLOGY
      The former Chairman of the Senate Budget Committee asked that
we study the practice   of earmarking  federal  revenues.  As agreed
with Committee staff,   the objectives   of our study were to identify
      --   trends    in earmarking        and the      features       of earmarked
           revenues,
      --   varying    earmarking        practices,       and
      --   factors    for the Congress          to consider          when reviewing
           earmarking     proposals.
        To identify      trends    in the use of earmarking,           we examined
annual governmental           revenues at 3-year intervals           from the end of
fiscal     year 1974 through         fiscal     year 1988.      We used 1974 revenues
as the starting        point because that was the earliest               year for which
relevant     data were available            from OMB's budget tapes.         Our use of
3-year intervals         permitted       us to analyze major changes within         the
14-year period and avoid temporary,                  year-to-year    changes due to
fluctuations        in the economy.
     To identify         the features    of earmarked             revenues,      we examined
them from four       different     perspectives:
      --   their  source (taxes or regulatory--"sovereign                         powers"--
           revenues versus revenues from business-type                          operations);
      --   the fund type      (trust,       special,      general,      etc.)     to which     they
           were applied;
      --   the programs     receiving         the    largest      amounts;      and
      --   the agencies     receiving         the    largest      amounts.
      To identify    varying     earmarking   practices,     we (1) identified
accounts where the earmarked amounts were cost-sharing                 payments
from program participants         and others   where the earmarked amounts
came from sources outside         the program (not program participants)
and (2) identified      instances     where the cost-sharing       payments were
earmarked for use by the programs and others where cost-sharing
payments were deposited        in Treasury's      general  fund.    The accounts
having these characteristics          were identified     by cognizant     OMB,
Congressional     Budget Office      (CBO), and GAO officials.
       Concerning     factors   for the Congress               to consider    when
determining     whether to approve earmarking                    proposals,   we reviewed
earmarking    reports      and studies conducted               by economists,    budget
                                                8
                            Contents
                                                                            Page
LETTER                                                                         1
APPENDIXES
        I    OBJECTIVES,   SCOPE, AND METHODOLOGY                              8
   II        EARMARKING TRENDS AND FEATURES                                   10

 III         GENERAL KINDS OF EARMARKING BASED ON
               COST-SHARING                                                   18
   IV        MAJOR CONTRIBUTORS TO THIS REPORT                                20
TABLES
 II.1        Earmarked Revenues by Fund Type and Source
               for Fiscal Year 1988                                           14
 II.2        Earmarked Revenues by Fund Type for          Fiscal
               Years 1974 and 1988                                            15
 II.3        Programs Receiving  Largest Amounts of
               Earmarked Revenues for Fiscal  Year 1988                       16
 II.4        Earmarked Revenues Received by Federal              Agencies
               in Fiscal Years 1974 and 1988                                  17
FIGURES
 II.1        Growth of Earmarked       and Total    Government
               Revenues                                                       10
 II.2        Growth   of Earmarked     Revenues    by Source                  12


                             ABBREVIATIONS

CBO          Congressional    Budget Office
GAO          General Accounting      Office
HHS          Department    of Health and Human Services
HUD          Department    of Housing and Urban Development
NPS          National    Park Service
OMB          Office    of Management and Budget
SEC          Securities    and Exchange Commission

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CONSEQUENCESOF EARMARKING
The practice    of earmarking     funds can produce both positive
and negative    consequences.       Earmarking    establishes       a
relatively   predictable    financing     procedure       that may help to
achieve budget policy      or programmatic      goals.        Our review
identified   the following     four positive      results      of
earmarking.
--   Earmarking      increases     the visibility         of cost-sharing
     arrangements.         When cost-sharing         collections       are
     deposited     in a program's        account rather         than Treasury's
     general    fund, the collections            become a source of funding
     for the program.          This can be very useful             if the
     Congress wants to establish,               monitor,     or adjust      the
     dependence of the program upon cost-sharing                      collections.
     Appendix III       provides     additional       information      regarding
     cost-sharing       arrangements.
--   Earmarking      may make the enactment of new or increased
     taxes or fees more acceptable         to the public.    The
     public    may sometimes    be more receptive    to payment
     increases     if they know specifically      how the funds will
     be used.

--   Earmarking   can be used as a management incentive          for
     increased  collection     efforts.   Program administrators
     may have a greater    incentive    to seek full   and timely
     cost reimbursements     from the public    if they can retain
     some or all of the collected       amounts for future     program
     uses.

--   Earmarking   can be used to provide      a relatively      assured
     minimum level of funding     to a program.        Program
     proponents   may seek an earmarked      source of financing        if
     they believe    that the appropriations      process can not be
     counted on to provide    a minimum or stable         level  of
     funding.
Our review also identified      some negative      consequences        of
earmarking.     Most earmarking   provisions     are established          by
authorizing   legislation    and may only be changed through              the
legislative   process.    This can be a time-consuming             and
complex process that decreases       congressional      flexibility.
We identified    four negative   consequences      of earmarking.



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activities     on a completely    or partially      self-financing
basis.      For example, the Social     Security     program was
established     as a payroll   tax collected      from participants
and deposited     in the program's    trust    fund.
OBJECTIVES,    SCOPE, AND METHODOLOGY
As agreed with the former Chairman's         office, the objectives
of our study were to identify       (1) the trends    in and
features   of earmarked revenues,      (2) examples of varying
earmarking   practices,   and (3) factors     for the Congress to
consider   when reviewing   earmarking    proposals.
In performing     our work, we used Office       of Management and
Budget (OMB) budget tapes and program descriptions               to
identify   the sources of earmarked revenues as well as the
accounts,    programs,    and agencies    to which the revenues were
applied.     We relied    upon our prior     work on earmarking     and
studies   published    by budget experts       economists      and public
interest   groups to identify       earmarkIng    features'and
practices    as well as factors      for the Congress to consider
when evaluating      earmarking   proposals.     Appendix I contains
more details     on our objectives,      scope, and methodology.
TRENDS IN AND FEATURES OF EARMARKING
Earmarked federal      revenues grew from fiscal          years 1974
through    1988.    In fiscal    year 1974, the $123 billion          in
earmarked revenues represented          almost 40 percent of total
revenues,     whereas the $520 billion       in earmarked revenues in
fiscal    year 1988 represented       about 48 percent.        Social
Security    accounted for a large portion         of the earmarked
revenues and about 47 percent          of the growth in the
earmarked revenues.         Excluding   Social   Security,     earmarked
revenues grew from about $69 billion           to $278 billion.
Features    of earmarked    revenues    in fiscal    year   1988 included
the following:
--   About 69 percent were taxes        and regulatory      revenues,     the
     balance being business-type        revenues.
--   About 92 percent    were in nonrevolving       trust    and public
     enterprise  revolving   funds.




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