22. TRUST FUNDS AND FEDERAL FUNDS
The budget consists of two major groups of funds:
Federal funds and trust funds. This section presents
summary information about the transactions of each
of these two fund groups. Information is provided about
the income and outgo of the major trust funds and
a number of Federal funds that are financed by earmarked
collections in a manner similar to trust funds.
The estimates in this chapter do not reflect the impact
of social security reform.
Federal Funds Group
The Federal funds group comprises the larger part
of the budget. It includes all transactions not classified
by law as being in trust funds.
The main financing component of the Federal funds
group is the general fund, which is used to carry out
the general purposes of Government rather than being
restricted by law to a specific program. It consists of
all collections not earmarked by law to finance other
funds, including virtually all income taxes and many
excise taxes, and all expenditures financed by these
collections and by Treasury borrowing.
Table 22–1. RECEIPTS, OUTLAYS, AND SURPLUS OR DEFICIT BY FUND GROUP
(In billions of dollars)
2004
actual
Estimate
2005 2006 2007 2008 2009 2010
Receipts:
Federal funds cash income:
From the public ..................................................................................... 1,152.6 1,271.9 1,347.2 1,470.9 1,595.5 1,695.3 1,797.6
From trust funds ................................................................................... 1.3 3.3 5.0 2.6 3.1 3.1 3.2
Total, Federal funds cash income ....................................................... 1,153.9 1,275.2 1,352.2 1,473.5 1,598.6 1,698.4 1,800.7
Trust funds cash income:
From the public ..................................................................................... 828.8 879.4 944.2 1,001.3 1,052.3 1,106.0 1,170.3
From Federal funds:
Interest .............................................................................................. 155.7 165.2 173.4 185.2 199.0 214.6 230.8
Other ................................................................................................. 210.8 238.9 313.4 327.3 345.2 363.3 383.5
Total, trust funds cash income .................................................... 1,195.2 1,283.4 1,431.1 1,513.7 1,596.5 1,683.9 1,784.5
Offsetting receipts ..................................................................................... –469.1 –505.8 –605.7 –643.0 –688.0 –732.4 –764.4
Total, unified budget receipts ............................................................... 1,880.1 2,052.8 2,177.6 2,344.2 2,507.0 2,650.0 2,820.9
Outlays:
Federal funds cash outgo ......................................................................... 1,758.7 1,928.2 2,009.2 2,057.0 2,136.0 2,229.1 2,327.1
Trust funds cash outgo ............................................................................. 1,002.6 1,056.9 1,164.1 1,242.3 1,309.9 1,386.2 1,465.5
Offsetting receipts ..................................................................................... –469.1 –505.8 –605.7 –643.0 –688.0 –732.4 –764.4
Total, unified budget outlays ................................................................ 2,292.2 2,479.4 2,567.6 2,656.3 2,757.8 2,882.9 3,028.2
Surplus or deficit (–):
Federal funds ............................................................................................ –604.8 –653.0 –657.0 –583.5 –537.4 –530.7 –526.4
Trust funds ................................................................................................ 192.6 226.5 267.0 271.4 286.6 297.8 319.1
Total, unified surplus/deficit (–) ............................................................ –412.1 –426.6 –390.1 –312.1 –250.8 –232.9 –207.3
Note: Receipts include governmental, interfund, and proprietary receipts. They exclude intrafund receipts, which are offset against intrafund payments so that cash income and
cash outgo of the fund group are not overstated.
The Federal funds group also includes special funds
and revolving funds, which earmark collections for
spending on specific purposes. Where the law requires
that Federal fund collections from a specified source
be earmarked to finance a particular program, such
as a portion of the Outer Continental Shelf mineral
leasing receipts deposited into the Land and Water
Conservation Fund, the collections and associated disbursements
are recorded in special fund receipt and
expenditure accounts. The majority of special fund collections
are derived from the Government’s power to
impose taxes, fines, and other compulsory payments.
They must be appropriated before they can be obligated
and spent. However, significant amounts of collections
372 ANALYTICAL PERSPECTIVES
1 Another example is the Violent Crime Reduction Trust Fund, established pursuant to
the Violent Crime Control and Law Enforcement Act of 1994. Because the Fund is substantively
a means of accounting for general fund appropriations, and does not have any
dedicated receipts, it is classified as a Federal fund rather than a trust fund, notwithstanding
the presence of the words ‘‘Trust Fund’’ in its official name.
2 The relationship between Treasury securities held by trust funds (and by other Government
accounts), debt held the public, and gross Federal debt is discussed in Chapter 16,
‘‘Federal Borrowing and Debt.’’
credited to special funds are derived from businesslike
activity, such as the receipts from Outer Continental
Shelf mineral leasing.
Revolving funds conduct continuing cycles of business-
like activity. They charge for the sale of products
or services and use the proceeds to finance their spending.
Instead of being deposited in receipt accounts, their
proceeds are recorded in the revolving funds, which
are expenditure accounts. These collections generally
are available automatically for obligation and making
payments. Outlays for revolving funds are reported net
of offsetting collections. There are two classes of revolving
funds. Public enterprise funds, such as the Postal
Service Fund, conduct business-like operations mainly
with the public. Intragovernmental funds, such as the
Federal Buildings Fund, conduct business-like operations
mainly within and between Government agencies.
Trust Funds Group
The trust funds group consists of funds that are designated
by law as trust funds. Like special funds and
revolving funds, they earmark collections for spending
on specific purposes. Many of the larger trust funds
finance social insurance payments for individuals, such
as Social Security, Medicare, and unemployment compensation.
Other major trust funds finance military and
Federal civilian employees’ retirement, highway and
transit construction, and airport and airway development.
There are a few trust revolving funds that are
credited with collections earmarked by law to carry out
a cycle of business-type operations. Trust funds also
include a few small funds established to carry out the
terms of a conditional gift or bequest.
There is no substantive difference between trust
funds and special funds or between revolving funds and
trust revolving funds. Whether a particular fund is designated
in law as a trust fund is, in many cases, arbitrary.
For example, the National Service Life Insurance
Fund is a trust fund, but the Servicemen’s Group Life
Insurance Fund is a Federal fund, even though both
are financed by earmarked fees paid by veterans and
both provide life insurance payments to veterans’ beneficiaries.
1
The Federal budget meaning of the term ‘‘trust’’ differs
significantly from the private sector usage. The
beneficiary of a private trust owns the trust’s income
and often its assets. A custodian manages the assets
on behalf of the beneficiary according to the stipulations
of the trust, which he or she cannot change unilaterally.
In contrast, the Federal Government owns the assets
and earnings of most Federal trust funds, and it can
unilaterally raise or lower future trust fund collections
and payments, or change the purpose for which the
collections are used, by changing existing law. Only
a few small Federal trust funds are managed pursuant
to a trust agreement where the Government is the
trustee, and the Government generally owns them and
has some ability to determine the amount deposited
into or paid out of these funds. Other amounts are
held in deposit funds by the Government as a custodian
on behalf of some entity outside the Government. The
Government makes no decisions about the amount of
these deposits or how they are spent. Therefore, these
funds are considered to be non-budgetary instead of
Federal trust funds and are excluded from the Federal
budget.
A trust fund must use its income for the purposes
designated by law. Some, such as the Federal Employees
Health Benefits fund, spend their income almost
as quickly as it is collected. Others, such as the Social
Security and the Federal civilian employees retirement
trust funds, currently spend considerably less than they
collect each year. A surplus of income over outgo adds
to the trust fund’s balance, which is available to finance
future expenditures. The balances are generally invested,
by law, in Treasury securities. 2
A trust fund normally consists of one or more receipt
accounts (to record income) and an expenditure account
(to record outgo). However, a few trust funds, such as
the Veterans Special Life Insurance fund, are established
by law as revolving funds. These funds are similar
to revolving funds in the Federal funds group. They
conduct a cycle of business-type operations, offsetting
collections are credited to the funds (which are expenditure
accounts), and their outlays are displayed net of
the offsetting collections.
Income and Outgo by Fund Group
Table 22–1 shows income, outgo, and surplus or deficit
by fund group and adds them together (and removes
double-counting) to derive the total unified budget receipts,
outlays, and surplus or deficit. The estimates
assume enactment of the President’s budget proposals.
Income consists mostly of receipts (derived from governmental
activity—primarily income, payroll, and excise
taxes—and gifts). It also consists of offsetting receipts,
which include proprietary receipts (derived from business-
like transactions with the public) and interfund
collections receipts by one fund of payments from a
fund in the other fund group that are deposited in
receipt accounts. Outgo consists of payments made to
the public or to a fund in the other fund group.
373 22. TRUST FUNDS AND FEDERAL FUNDS
3 For example, the railroad retirement trust funds pay the equivalent of social security
benefits to railroad retirees, in addition to the regular railroad pension. These benefits
are financed by a payment from the Federal Old-Age and Survivors Insurance trust fund
to the railroad retirement trust funds. The payment and collection are both deducted so
that total trust fund income and outgo measure disbursements to the public and to Federal
funds.
4 For example, postage stamp fees are deposited as offsetting collections in the Postal
Service fund. As a result, the Fund’s outgo is disbursements net of collections.
5 For example, the Bonneville Power Administration Fund, a revolving fund in the Department
of Energy, is authorized to borrow from the general fund, and the Black Lung Disability
Trust Fund in the Department of Labor is authorized to receive appropriations
of repayable advances from the general fund (a form of borrowing).
Table 22–2. INCOME, OUTGO, AND BALANCES OF TRUST FUNDS GROUP
(In billions of dollars)
2004
actual
Estimate
2005 2006 2007 2008 2009 2010
Total Trust Funds
Balance, start of year ................................................................................................................ 2,719.5 2,910.2 3,134.4 3,396.1 3,667.5 3,954.0 4,251.8
Income:
Governmental receipts .......................................................................................................... 780.5 827.4 874.8 923.6 970.5 1,019.3 1,078.0
Proprietary receipts ............................................................................................................... 59.7 65.2 83.6 92.5 97.5 103.4 110.0
Receipts from Federal funds:
Interest ............................................................................................................................... 155.7 165.2 173.4 185.2 199.0 214.6 230.8
Other ................................................................................................................................. 242.7 273.9 350.6 366.2 386.5 407.0 429.8
Subtotal, income ........................................................................................................... 1,238.5 1,331.7 1,482.4 1,567.5 1,653.5 1,744.3 1,848.6
Outgo:
To the public ......................................................................................................................... 1,044.6 1,101.9 1,210.5 1,293.5 1,363.9 1,443.4 1,526.4
Payments to Federal funds ................................................................................................... 1.3 3.3 5.0 2.6 3.1 3.1 3.2
Subtotal, outgo ............................................................................................................. 1,045.9 1,105.2 1,215.5 1,296.1 1,367.0 1,446.5 1,529.5
Change in fund balance:
Surplus or deficit (–):
Excluding interest .............................................................................................................. 37.0 61.3 93.5 86.2 87.6 83.1 88.3
Interest ............................................................................................................................... 155.7 165.2 173.4 185.2 199.0 214.6 230.8
Subtotal, surplus or deficit (–) ...................................................................................... 192.6 226.5 267.0 271.4 286.6 297.8 319.1
Adjustments:
Transfers/lapses (net) ........................................................................................................... –* –0.1 * ................ ................ ................ ................
Other adjustments ................................................................................................................. –1.9 –2.2 –5.3 ................ ................ ................ ................
Total, change in fund balance ......................................................................................... 190.7 224.2 261.7 271.4 286.6 297.8 319.1
Balance, end of year ................................................................................................................. 2,910.2 3,134.4 3,396.1 3,667.5 3,954.0 4,251.8 4,570.9
* $50 million or less.
Two types of transactions are treated specially in the
table. First, income and outgo for a fund group exclude
transactions between funds within the same fund
group. 3 These intrafund transactions constitute outgo
and income for the individual funds that make and
collect the payments. However, because the totals for
each fund group measure its transactions with the public
and the other fund group, intrafund transactions
must be subtracted from the sum of the income and
outgo of all individual funds within the fund group
to calculate the consolidated income and outgo for that
fund group as a whole. Second, income excludes the
offsetting collections, which are offset against outgo in
revolving fund expenditure accounts instead of being
deposited in receipt accounts.4 It would be conceptually
appropriate to classify these collections as income, but
at present the data are not tabulated centrally for both
fund groups. Consequently, they are offset against
outgo in Table 22–1 and are not shown separately.
Some funds in the Federal funds group and some
trust funds are authorized to borrow from the general
fund of the Treasury. 5 Borrowed funds are not recorded
as receipts of the fund or included in the income of
the fund. The borrowed funds finance outlays by the
fund in excess of available receipts. Subsequently, fund
receipts are transferred from the fund to the general
fund in repayment of the borrowing. The repayment
is not recorded as an outlay of the fund or included
in fund outgo.
Some income in both Federal funds and trust funds
consists of offsetting receipts. In contrast, for most
budget purposes, offsetting receipts are excluded from
receipts figures and subtracted from gross outlays.
There are two reasons for the normal treatment:
• Business-like or market-oriented activities with the
public: The collections from such activities are deducted
from gross outlays, rather than added to
receipts, in order to produce budget totals for receipts
and outlays that represent governmental
rather than market activity.
• Intragovernmental transactions: Collections by one
Government account from another are deducted
from gross outlays, rather than added to receipts,
374 ANALYTICAL PERSPECTIVES
so that the budget totals measure the transactions
of the Government with the public.
Because the income for Federal funds and for trust
funds recorded in Table 22–1 includes offsetting receipts,
those offsetting receipts must be deducted from
the two fund groups’ combined gross income in order
to reconcile to total (net) unified budget receipts. Similarly,
because the outgo for Federal funds and for trust
funds in Table 22–1 consists of outlays gross of offsetting
receipts, the amount of the offsetting receipts must
be deducted from the sum of the Federal funds’ and
the trust funds’ gross outgo in order to reconcile to
total (net) unified budget outlays. Table 22–3 reconciles,
for fiscal year 2004, the gross total of all trust fund
and Federal fund receipts with the net total of the
Federal fund group’s and the trust fund group’s cash
income (as shown in Table 22–1), and with the unified
budget’s receipt total.
Table 22–3. RELATIONSHIP OF TOTAL FEDERAL FUND AND TRUST FUND
RECEIPTS TO UNIFIED BUDGET RECEIPTS, FISCAL YEAR 2004
(In billions of dollars)
Gross trust fund receipts .......................................................................................................................... 1,201.2
Gross Federal fund receipts ..................................................................................................................... 1,183.5
Total of trust fund receipts and Federal fund receipts ........................................................................... 2,384.7
Deduct intrafund receipts (from funds within the same fund group):
Trust intrafund receipts .................................................................................................................... –6.0
Federal intrafund receipts ................................................................................................................ –29.6
Subtotal, intrafund receipts .......................................................................................................... –35.6
Total of trust funds cash income and Federal funds cash income ........................................................ 2,349.2
Deduct offsetting receipts: 1
Trust fund receipts from Federal funds:
Interest in receipt accounts ......................................................................................................... –154.0
General fund payment to Medicare Parts B and D ................................................................... –94.7
Employing agencies’ payments for pensions, Social Security, and Medicare .......................... –45.3
General fund payments for unfunded liabilities of Federal employees retirement funds ......... –44.4
Transfer of taxation of Social Security and RRB benefits to OASDI, HI, and RRB ................ –24.0
Other receipts from Federal funds .............................................................................................. –4.1
Subtotal, trust fund receipts from Federal funds ................................................................... –366.5
Federal fund receipts from trust funds ............................................................................................ –1.3
Proprietary receipts .......................................................................................................................... –101.3
Subtotal, offsetting receipts ......................................................................................................... –469.1
Unified budget receipts ............................................................................................................................. 1,880.1
1 Offsetting receipts are included in cash income for each fund group, but in the unified budget totals are excluded
from the receipts total and instead deducted from outlays.
Income, Outgo, and Balances of Trust Funds
Table 22–2 shows, for the trust funds group as a
whole, the funds’ balance at the start of each year,
income and outgo during the year, and the end of year
balance. Income and outgo are divided between transactions
with the public and transactions with Federal
funds. Receipts from Federal funds are divided between
interest and other interfund receipts.
The definition of income and outgo in this table differs
from those in Table 22–1 in one important way.
Trust fund collections that are offset against outgo (as
offsetting collections) within expenditure accounts instead
of being deposited in separate receipt accounts
are classified as income in this table but not in Table
22–1. This classification is consistent with the definitions
of income and outgo for trust funds used elsewhere
in the budget. It has the effect of increasing
both income and outgo by the amount of the offsetting
collections. The difference was approximately $43 billion
in 2004. Table 22–2, therefore, provides a more
complete summary of trust fund income and outgo.
The trust funds group is expected to have large and
growing surpluses over the projection period. As a consequence,
trust fund balances are estimated to grow
substantially, as they have over the past two decades.
The size of the anticipated balances is unprecedented,
and it results mainly from relatively recent changes
in the way some trust funds are financed.
Primarily because of these changes, but also because
of the impact of real growth and inflation, trust fund
balances increased tenfold from 1982 to 2000, from
$205 billion to $2.1 trillion. The balances are estimated
to double again by the year 2010, rising to $4.6 trillion.
Almost all of these balances are invested in Treasury
securities and earn interest. Therefore, they represent
the value, in current dollars, of taxes and user fees
375 22. TRUST FUNDS AND FEDERAL FUNDS
that have been paid in advance for future benefits and
services.
Until the 1980s, most trust funds operated on a payas-
you-go basis. Taxes and user fees were set at levels
high enough to finance program expenditures and administrative
expenses, and to maintain prudent reserves,
generally defined as being equal to one year’s
expenditures. As a result, trust fund balances tended
to grow at about the same rate as their annual expenditures.
Pay-as-you-go financing was replaced in the 1980s
by full or partial advance funding for some of the larger
trust funds. In order to partially prefund the social
security benefits of the ‘‘baby-boomers’’, the Social Security
Amendments of 1983 raised payroll taxes above
the levels necessary to finance current expenditures.
In 1984 a new system was set up to finance military
retirement benefits on a full accrual basis. In 1986
full accrual funding of retirement benefits was mandated
for Federal civilian employees hired after December
31, 1983. The latter two changes require Federal
agencies and their employees to make annual payments
to the Federal employees’ retirement trust funds in an
amount equal to the retirement benefits earned by employees.
Since many years will pass between the time
when benefits are earned and when they are paid, the
trust funds will accumulate substantial balances over
time.
These balances are available to finance future benefit
payments and other trust fund expenditures—but only
in a bookkeeping sense. These funds are not set up
to be pension funds, like the funds of private pension
plans. The holdings of the trust funds are not assets
of the Government as a whole that can be drawn down
in the future to fund benefits. Instead, they are claims
on the Treasury. When trust fund holdings are redeemed
to pay benefits, Treasury will have to finance
the expenditure in the same way as any other Federal
expenditure: out of current receipts, by borrowing from
the public, or by reducing benefits or other expenditures.
The existence of large trust fund balances, therefore,
does not, by itself, increase the Government’s ability
to pay benefits.
From an economic standpoint, the Government is able
to prefund benefits only by increasing saving and investment
in the economy as a whole. This can be fully
accomplished only by simultaneously running trust
fund surpluses equal to the actuarial present value of
the accumulating benefits and not allowing the Federal
fund deficit to increase, so that the trust fund surplus
reduces a unified budget deficit or increases a unified
budget surplus. This would reduce Federal borrowing
by the amount of the trust funds surplus and increase
the amount of national saving available to finance investment.
Greater investment would increase future incomes
and wealth, which would provide more real economic
resources to support the benefits.
Table 22–4, on the CD-ROM included with this volume,
shows estimates of income, outgo, and balances
for 2004 through 2010 for the major trust funds. With
the exception of transactions between trust funds, the
data for the individual trust funds are conceptually the
same as the data in Table 22–2 for the trust funds
group. As explained previously, transactions between
trust funds are shown as outgo of the fund that makes
the payment and as income of the fund that collects
it in the data for an individual trust fund, but the
collections are offset against outgo in the data for the
trust fund group. Additional information for these and
other trust funds can be found in the Status of Funds
tables in the Budget Appendix.
Table 22–5 (also on the CD-ROM) shows income,
outgo, and balances of four existing Federal funds—
two revolving funds and two special funds. It also
shows a newly-established special fund of the same general
type: a fund for military retirees’ health benefits.
All these funds are similar to trust funds in that they
are financed by earmarked receipts, the excess of income
over outgo is invested, the interest earnings add
to balances, and the balances remain available to finance
future expenditures. The table is illustrative of
the Federal funds group, which includes many other
revolving funds and special funds in addition to the
ones shown.
