Table of contents
  1. Story
  2. Slides
    1. Slide 1 Dashboard: Section 2. Economic Assumptions and Interactions with the Budget
    2. Slide 2 GDP: Historic
    3. Slide 3 Health Programs: Historic
    4. Slide 4 Long Term Budget Outlook: Historic
    5. Slide 5 Federal Employees: Historic
    6. Slide 6 Federal Statistical Agencies
    7. Slide 7 Federal IT
    8. Slide 8 Knowledge Bases
  3. Spotfire Dashboard
  4. Research Notes
    1. Brand Niemann
    2. Patrick Wagstrom
    3. Natalie
    4. Brand Niemann
  5. The Budget Documents
    1. Automated Sources of Information
    2. General Notes
  6. List of Charts and Tables
    1. Charts
    2. Tables
  7. Introduction
    1. 1. Introduction
      1. Overview of the Chapters
        1. Economic and Budget Analyses
        2. Performance and Management
        3. Budget Concepts and Budget Process
        4. Federal Receipts
        5. Special Topics
        6. Technical Budget Analyses
        7. Detailed Functional Table
  8. Economic and Budget Analyses
    1. 2. Economic Assumptions and Interactions with the Budget
      1. Recent Economic Performance
        1. Chart 2-1. Private Job Gains and Losses During Recent Recoveries
      2. Economic Projections
        1. Table 2–1.  Economic Assumptions 1
        2. Chart 2-2. Real GDP Growth Following a Recession: 7-Year Average
        3. Box 2–1. Supply-Side Analysis of Long-Term Growth
          1. Table 2–2. Components of Actual and Potential Real GDP Growth, 1952–2023
      3. Comparison with Other Forecasts
        1. Table 2–3. Comparison of Economic Assumptions
        2. Table 2–4. Comparison of Economic Assumptions in the 2013 and 2014 Budgets
      4. Sensitivity of the Budget to Economic Assumptions
      5. Forecast Errors for Growth, Inflation, and Interest Rates
        1. Table 2–5. Sensitivity of the Budget to Economic Assumptions
        2. Table 2–6. Forecast Errors, January 1982–Present
      6. Alternative Scenarios
        1. Chart 2‐3. Real GDP: Alternative Projections
        2. Table 2–7. Budget Effects of Alternative Scenarios
      7. Uncertainty and the Deficit Projections
        1. Chart 2-4. Range of Uncertainty for the Budget Deficit
      8. Structural and Cyclical Deficits
        1. Table 2–8. The Structural Balance
      9. Footnotes
        1. 1
        2. 2
        3. 3
        4. 4
        5. 5
    2. 3. Financial Stabilization Efforts and their Budgetary Effects
      1. Footnotes
        1. 1
        2. 2
        3. 3
        4. 4
        5. 5
        6. 6
        7. 7
        8. 8
        9. 9
        10. 10
        11. 11
        12. 12
        13. 13
        14. 14
        15. 15
        16. 16
        17. 17
        18. 18
        19. 19
        20. 20
        21. 21
        22. 22
        23. 23
        24. 24
        25. 25
    3. 4. Long Term Budget Outlook
      1. The Long-Run Budget Projections
        1. Chart 4-1. Publicly Held Debt Under 2014 Budget Policy Extended
        2. Table 4–2. 75-Year Fiscal Gap (–)/Surplus (+) Under Alternative Budget Scenarios
        3. Chart 4-2. Alternative Base Assumptions
        4. Table 4–1. Long-Run Budget Projections
      2. Key Drivers of Program Growth: Health Costs and Demographic Changes
      3. The Fiscal Gap
      4. Alternative Policy, Economic, and Technical Assumptions
        1. Chart 4-3. Alternative Health Care Costs
        2. Chart 4-4. Alternative Discretionary Projections
        3. Chart 4-5. Alternative Revenue Projections
        4. Chart 4-6. Alternative Productivity Assumptions
        5. Chart 4-7. Alternative Fertility Assumptions
        6. Chart 4-8. Alternative Immigration Assumptions
        7. Chart 4-9. Alternative Mortality Assumptions
      5. Actuarial Projections for Social Security and Medicare
        1. Table 4–3. Intermediate Actuarial Projections for OASDI and Hi Federal Borrowing and Debt
      6. Technical Note: Sources of Data and Methods of Estimating
      7. Footnotes
        1. 1
        2. 2
        3. 3
        4. 4
    4. 5. Federal Borrowing and Debt
      1. Footnotes
        1. 1
        2. 2
        3. 3
        4. 4
        5. 5
        6. 6
        7. 7
        8. 8
        9. 9
        10. 10
        11. 11
        12. 12
        13. 13
        14. 14
        15. 15
        16. 16
        17. 17
        18. 18
        19. 19
        20. 20
        21. 21
        22. 22
        23. 23
        24. 24
  9. Performance and Management
    1. 6. Social Indicators
      1. Footnotes
        1. 1
        2. 2
    2. 7. Delivering a High-Performance Government
    3. 8. Program Evaluation and Data Analysis
    4. 9. Benefit-Cost Analysis
      1. Footnotes
        1. 1
        2. 2
        3. 3
        4. 4
        5. 5
    5. 10. Improving the Federal Workforce
      1. Trends in Federal Workforce Size
        1. Table 10–2. Federal Civilian Employment in the Executive Branch 
        2. Chart 10-1. Federal Civilian Workforce as Share of U.S. Population
      2. Federal Pay Trends
        1. Chart 10-2. Pay Raises for Federal vs. Private Workforce
      3. Composition of the Federal Workforce and Factors Affecting Pay
        1. Table 10–1. Occupations of Federal and Private Sector Workforces
        2. Chart 10-3. Education Level Distribution in Federal vs. Private Workforce
        3. Chart 10-4. Federal Age Distribution in 2001 and 2011 and Federal vs. Private Age Distribution in 2011
      4. Challenges
        1. Outdated Personnel System
        2. Aging Workforce
        3. Developing and Engaging Personnel to Improve Performance
      5. Addressing the Challenges
        1. Mission Focused and Data Driven Personnel Management
        2. Closing Critical Skills Gaps
        3. Recruiting and Developing an Agile Workforce
        4. A Diverse and Inclusive Workforce
        5. Government-wide SES Appraisal Model
        6. Strengthening Labor-Management Relations
        7. Goals-Engagement-Accountability-Results (GEAR)
        8. Table 10–3. Total Federal Employment
        9. Table 10–4. Personnel Compensation and Benefits
  10. Budget Concepts and Budget Process
    1. 11. Budget Concepts
        1. Chart 11-1. Relationship of Budget Authority to Outlays for 2014
      1. Footnotes
        1. 1
        2. 2
        3. 3
    2. 12. Coverage of the Budget
      1. Footnotes
        1. 1
        2. 2
        3. 3
        4. 4
        5. 5
        6. 6
        7. 7
        8. 8
        9. 9
        10. 10
        11. 11
        12. 12
        13. 13
        14. 14
        15. 15
        16. 16
        17. 17
        18. 18
        19. 19
        20. 20
    3. 13. Budget Process
      1. Footnotes
        1. 1
        2. 2
        3. 3
        4. 4
        5. 5
        6. 6
        7. 7
        8. 8
        9. 9
        10. 10
  11. Federal Receipts
    1. 14. Governmental Receipts
      1. Footnotes
        1. 1
        2. 2
    2. 15. Offsetting Collections and Offsetting Receipts
      1. Footnotes
        1. 1
        2. 2
        3. 3
        4. 4
        5. 5
        6. 6
        7. 7
    3. 16. Tax Expenditures
      1. Footnotes
        1. 1
        2. 2
        3. 3
        4. 4
  12. Special Topics
    1. 17. Aid to State and Local Governments
      1. Footnotes
        1. 1
        2. 2
        3. 3
        4. 4
        5. 5
        6. 6
        7. 7
        8. 8
        9. 9
        10. 10
        11. 11
        12. 12
        13. 13
        14. 14
        15. 15
    2. 18. Strengthening Federal Statistics
      1. Highlights of 2014 Program Budget Proposals
        1. Bureau of Economic Analysis (BEA), Department of Commerce
        2. Bureau of Justice Statistics (BJS), Department of Justice
        3. Bureau of Labor Statistics (BLS), Department of Labor
        4. Bureau of Transportation Statistics (BTS), Department of Transportation
        5. Census Bureau, Department of Commerce
        6. Economic Research Service (ERS), Department of Agriculture
        7. Energy Information Administration (EIA), Department of Energy
        8. National Agricultural Statistics Service (NASS), Department of Agriculture
        9. National Center for Education Statistics (NCES), Department of Education
        10. National Center for Health Statistics (NCHS), Department of Health and Human Services
        11. National Center for Science and Engineering Statistics (NCSES), National Science Foundation
        12. Office of Research, Evaluation, and Statistics (ORES), Social Security Administration
        13. Statistics of Income Division (SOI), Department of the Treasury
          1. Table 18–1. 2012–2014 Budget Authority for Principal Statistical Agencies 1
    3. 19. Information Technology
      1. The Federal Information Technology (IT) Portfolio
        1. Table 19–1. Federal IT Spending, President's Budget, FY 2014
        2. Chart 19-1. Trends in Federal IT Spending
      2. Delivering Maximum Return On Investment (ROI) For IT
        1. Chart 19–2. Results of Portfolio Stats in 2012 PortfolioStat Commodity IT Reduction Targets
      3. The Innovation Agenda-Government in the Information Age
      4. Protecting Data and Assets-Cybersecurity and Privacy
      5. Conclusion
      6. Footnotes
        1. 1
        2. 2
        3. 3
        4. 4
        5. 5
        6. 6
        7. 7
        8. 8
        9. 9
        10. 10
        11. 11
        12. 12
        13. 13
        14. 14
        15. 15
        16. 16
        17. 17
        18. 18
        19. 19
        20. 20
        21. 21
        22. 22
        23. 23
        24. 24
        25. 25
        26. 26
        27. 27
        28. 28
        29. 29
    4. 20. Federal Investment
    5. 21. Research and Development
      1. Footnotes
        1. 1
    6. 22. Credit and Insurance
        1. Chart 22-1. Face Value of Federal Credit Outstanding
      1. Footnotes
        1. 1
        2. 2
        3. 3
    7. 23. Homeland Security Funding Analysis
      1. Footnotes
        1. 1
        2. 2
        3. 3
        4. 4
        5. 5
        6. 6
        7. 7
        8. 8
        9. 9
    8. 24. Federal Drug Control Funding
    9. 25. California Bay-Delta Federal Budget Crosscut
  13. Technical Budget Analyses
    1. 26. Current Services Estimates
      1. Footnotes
        1. 1
        2. 2
        3. 3
        4. 4
    2. 27. Trust Funds and Federal Funds
      1. Footnotes
        1. 1
        2. 2
        3. 3
        4. 4
        5. 5
        6. 6
        7. 7
        8. 8
        9. 9
        10. 10
        11. 11
        12. 12
    3. 28. National Income and Product Accounts
      1. Footnotes
        1. 1
        2. 2
        3. 3
        4. 4
    4. 29. Comparison of Actual to Estimated Totals
      1. Footnotes
        1. 1
        2. 2
        3. 3
        4. 4
    5. 30. Budget and Financial Reporting
      1. Footnotes
        1. 1
        2. 2
        3. 3
        4. 4
        5. 5
        6. 6
        7. 7
        8. 8
        9. 9
        10. 10
        11. 11
        12. 12
        13. 13
        14. 14
        15. 15
        16. 16
        17. 17
        18. 18
        19. 19
        20. 20
        21. 21
        22. 22
        23. 23
        24. 24
        25. 25
        26. 26
  14. Detailed Functional Tables*
  15. Federal Programs by Agency and Account*

Analytical Perspectives

Last modified
Table of contents
  1. Story
  2. Slides
    1. Slide 1 Dashboard: Section 2. Economic Assumptions and Interactions with the Budget
    2. Slide 2 GDP: Historic
    3. Slide 3 Health Programs: Historic
    4. Slide 4 Long Term Budget Outlook: Historic
    5. Slide 5 Federal Employees: Historic
    6. Slide 6 Federal Statistical Agencies
    7. Slide 7 Federal IT
    8. Slide 8 Knowledge Bases
  3. Spotfire Dashboard
  4. Research Notes
    1. Brand Niemann
    2. Patrick Wagstrom
    3. Natalie
    4. Brand Niemann
  5. The Budget Documents
    1. Automated Sources of Information
    2. General Notes
  6. List of Charts and Tables
    1. Charts
    2. Tables
  7. Introduction
    1. 1. Introduction
      1. Overview of the Chapters
        1. Economic and Budget Analyses
        2. Performance and Management
        3. Budget Concepts and Budget Process
        4. Federal Receipts
        5. Special Topics
        6. Technical Budget Analyses
        7. Detailed Functional Table
  8. Economic and Budget Analyses
    1. 2. Economic Assumptions and Interactions with the Budget
      1. Recent Economic Performance
        1. Chart 2-1. Private Job Gains and Losses During Recent Recoveries
      2. Economic Projections
        1. Table 2–1.  Economic Assumptions 1
        2. Chart 2-2. Real GDP Growth Following a Recession: 7-Year Average
        3. Box 2–1. Supply-Side Analysis of Long-Term Growth
          1. Table 2–2. Components of Actual and Potential Real GDP Growth, 1952–2023
      3. Comparison with Other Forecasts
        1. Table 2–3. Comparison of Economic Assumptions
        2. Table 2–4. Comparison of Economic Assumptions in the 2013 and 2014 Budgets
      4. Sensitivity of the Budget to Economic Assumptions
      5. Forecast Errors for Growth, Inflation, and Interest Rates
        1. Table 2–5. Sensitivity of the Budget to Economic Assumptions
        2. Table 2–6. Forecast Errors, January 1982–Present
      6. Alternative Scenarios
        1. Chart 2‐3. Real GDP: Alternative Projections
        2. Table 2–7. Budget Effects of Alternative Scenarios
      7. Uncertainty and the Deficit Projections
        1. Chart 2-4. Range of Uncertainty for the Budget Deficit
      8. Structural and Cyclical Deficits
        1. Table 2–8. The Structural Balance
      9. Footnotes
        1. 1
        2. 2
        3. 3
        4. 4
        5. 5
    2. 3. Financial Stabilization Efforts and their Budgetary Effects
      1. Footnotes
        1. 1
        2. 2
        3. 3
        4. 4
        5. 5
        6. 6
        7. 7
        8. 8
        9. 9
        10. 10
        11. 11
        12. 12
        13. 13
        14. 14
        15. 15
        16. 16
        17. 17
        18. 18
        19. 19
        20. 20
        21. 21
        22. 22
        23. 23
        24. 24
        25. 25
    3. 4. Long Term Budget Outlook
      1. The Long-Run Budget Projections
        1. Chart 4-1. Publicly Held Debt Under 2014 Budget Policy Extended
        2. Table 4–2. 75-Year Fiscal Gap (–)/Surplus (+) Under Alternative Budget Scenarios
        3. Chart 4-2. Alternative Base Assumptions
        4. Table 4–1. Long-Run Budget Projections
      2. Key Drivers of Program Growth: Health Costs and Demographic Changes
      3. The Fiscal Gap
      4. Alternative Policy, Economic, and Technical Assumptions
        1. Chart 4-3. Alternative Health Care Costs
        2. Chart 4-4. Alternative Discretionary Projections
        3. Chart 4-5. Alternative Revenue Projections
        4. Chart 4-6. Alternative Productivity Assumptions
        5. Chart 4-7. Alternative Fertility Assumptions
        6. Chart 4-8. Alternative Immigration Assumptions
        7. Chart 4-9. Alternative Mortality Assumptions
      5. Actuarial Projections for Social Security and Medicare
        1. Table 4–3. Intermediate Actuarial Projections for OASDI and Hi Federal Borrowing and Debt
      6. Technical Note: Sources of Data and Methods of Estimating
      7. Footnotes
        1. 1
        2. 2
        3. 3
        4. 4
    4. 5. Federal Borrowing and Debt
      1. Footnotes
        1. 1
        2. 2
        3. 3
        4. 4
        5. 5
        6. 6
        7. 7
        8. 8
        9. 9
        10. 10
        11. 11
        12. 12
        13. 13
        14. 14
        15. 15
        16. 16
        17. 17
        18. 18
        19. 19
        20. 20
        21. 21
        22. 22
        23. 23
        24. 24
  9. Performance and Management
    1. 6. Social Indicators
      1. Footnotes
        1. 1
        2. 2
    2. 7. Delivering a High-Performance Government
    3. 8. Program Evaluation and Data Analysis
    4. 9. Benefit-Cost Analysis
      1. Footnotes
        1. 1
        2. 2
        3. 3
        4. 4
        5. 5
    5. 10. Improving the Federal Workforce
      1. Trends in Federal Workforce Size
        1. Table 10–2. Federal Civilian Employment in the Executive Branch 
        2. Chart 10-1. Federal Civilian Workforce as Share of U.S. Population
      2. Federal Pay Trends
        1. Chart 10-2. Pay Raises for Federal vs. Private Workforce
      3. Composition of the Federal Workforce and Factors Affecting Pay
        1. Table 10–1. Occupations of Federal and Private Sector Workforces
        2. Chart 10-3. Education Level Distribution in Federal vs. Private Workforce
        3. Chart 10-4. Federal Age Distribution in 2001 and 2011 and Federal vs. Private Age Distribution in 2011
      4. Challenges
        1. Outdated Personnel System
        2. Aging Workforce
        3. Developing and Engaging Personnel to Improve Performance
      5. Addressing the Challenges
        1. Mission Focused and Data Driven Personnel Management
        2. Closing Critical Skills Gaps
        3. Recruiting and Developing an Agile Workforce
        4. A Diverse and Inclusive Workforce
        5. Government-wide SES Appraisal Model
        6. Strengthening Labor-Management Relations
        7. Goals-Engagement-Accountability-Results (GEAR)
        8. Table 10–3. Total Federal Employment
        9. Table 10–4. Personnel Compensation and Benefits
  10. Budget Concepts and Budget Process
    1. 11. Budget Concepts
        1. Chart 11-1. Relationship of Budget Authority to Outlays for 2014
      1. Footnotes
        1. 1
        2. 2
        3. 3
    2. 12. Coverage of the Budget
      1. Footnotes
        1. 1
        2. 2
        3. 3
        4. 4
        5. 5
        6. 6
        7. 7
        8. 8
        9. 9
        10. 10
        11. 11
        12. 12
        13. 13
        14. 14
        15. 15
        16. 16
        17. 17
        18. 18
        19. 19
        20. 20
    3. 13. Budget Process
      1. Footnotes
        1. 1
        2. 2
        3. 3
        4. 4
        5. 5
        6. 6
        7. 7
        8. 8
        9. 9
        10. 10
  11. Federal Receipts
    1. 14. Governmental Receipts
      1. Footnotes
        1. 1
        2. 2
    2. 15. Offsetting Collections and Offsetting Receipts
      1. Footnotes
        1. 1
        2. 2
        3. 3
        4. 4
        5. 5
        6. 6
        7. 7
    3. 16. Tax Expenditures
      1. Footnotes
        1. 1
        2. 2
        3. 3
        4. 4
  12. Special Topics
    1. 17. Aid to State and Local Governments
      1. Footnotes
        1. 1
        2. 2
        3. 3
        4. 4
        5. 5
        6. 6
        7. 7
        8. 8
        9. 9
        10. 10
        11. 11
        12. 12
        13. 13
        14. 14
        15. 15
    2. 18. Strengthening Federal Statistics
      1. Highlights of 2014 Program Budget Proposals
        1. Bureau of Economic Analysis (BEA), Department of Commerce
        2. Bureau of Justice Statistics (BJS), Department of Justice
        3. Bureau of Labor Statistics (BLS), Department of Labor
        4. Bureau of Transportation Statistics (BTS), Department of Transportation
        5. Census Bureau, Department of Commerce
        6. Economic Research Service (ERS), Department of Agriculture
        7. Energy Information Administration (EIA), Department of Energy
        8. National Agricultural Statistics Service (NASS), Department of Agriculture
        9. National Center for Education Statistics (NCES), Department of Education
        10. National Center for Health Statistics (NCHS), Department of Health and Human Services
        11. National Center for Science and Engineering Statistics (NCSES), National Science Foundation
        12. Office of Research, Evaluation, and Statistics (ORES), Social Security Administration
        13. Statistics of Income Division (SOI), Department of the Treasury
          1. Table 18–1. 2012–2014 Budget Authority for Principal Statistical Agencies 1
    3. 19. Information Technology
      1. The Federal Information Technology (IT) Portfolio
        1. Table 19–1. Federal IT Spending, President's Budget, FY 2014
        2. Chart 19-1. Trends in Federal IT Spending
      2. Delivering Maximum Return On Investment (ROI) For IT
        1. Chart 19–2. Results of Portfolio Stats in 2012 PortfolioStat Commodity IT Reduction Targets
      3. The Innovation Agenda-Government in the Information Age
      4. Protecting Data and Assets-Cybersecurity and Privacy
      5. Conclusion
      6. Footnotes
        1. 1
        2. 2
        3. 3
        4. 4
        5. 5
        6. 6
        7. 7
        8. 8
        9. 9
        10. 10
        11. 11
        12. 12
        13. 13
        14. 14
        15. 15
        16. 16
        17. 17
        18. 18
        19. 19
        20. 20
        21. 21
        22. 22
        23. 23
        24. 24
        25. 25
        26. 26
        27. 27
        28. 28
        29. 29
    4. 20. Federal Investment
    5. 21. Research and Development
      1. Footnotes
        1. 1
    6. 22. Credit and Insurance
        1. Chart 22-1. Face Value of Federal Credit Outstanding
      1. Footnotes
        1. 1
        2. 2
        3. 3
    7. 23. Homeland Security Funding Analysis
      1. Footnotes
        1. 1
        2. 2
        3. 3
        4. 4
        5. 5
        6. 6
        7. 7
        8. 8
        9. 9
    8. 24. Federal Drug Control Funding
    9. 25. California Bay-Delta Federal Budget Crosscut
  13. Technical Budget Analyses
    1. 26. Current Services Estimates
      1. Footnotes
        1. 1
        2. 2
        3. 3
        4. 4
    2. 27. Trust Funds and Federal Funds
      1. Footnotes
        1. 1
        2. 2
        3. 3
        4. 4
        5. 5
        6. 6
        7. 7
        8. 8
        9. 9
        10. 10
        11. 11
        12. 12
    3. 28. National Income and Product Accounts
      1. Footnotes
        1. 1
        2. 2
        3. 3
        4. 4
    4. 29. Comparison of Actual to Estimated Totals
      1. Footnotes
        1. 1
        2. 2
        3. 3
        4. 4
    5. 30. Budget and Financial Reporting
      1. Footnotes
        1. 1
        2. 2
        3. 3
        4. 4
        5. 5
        6. 6
        7. 7
        8. 8
        9. 9
        10. 10
        11. 11
        12. 12
        13. 13
        14. 14
        15. 15
        16. 16
        17. 17
        18. 18
        19. 19
        20. 20
        21. 21
        22. 22
        23. 23
        24. 24
        25. 25
        26. 26
  14. Detailed Functional Tables*
  15. Federal Programs by Agency and Account*

  1. Story
  2. Slides
    1. Slide 1 Dashboard: Section 2. Economic Assumptions and Interactions with the Budget
    2. Slide 2 GDP: Historic
    3. Slide 3 Health Programs: Historic
    4. Slide 4 Long Term Budget Outlook: Historic
    5. Slide 5 Federal Employees: Historic
    6. Slide 6 Federal Statistical Agencies
    7. Slide 7 Federal IT
    8. Slide 8 Knowledge Bases
  3. Spotfire Dashboard
  4. Research Notes
    1. Brand Niemann
    2. Patrick Wagstrom
    3. Natalie
    4. Brand Niemann
  5. The Budget Documents
    1. Automated Sources of Information
    2. General Notes
  6. List of Charts and Tables
    1. Charts
    2. Tables
  7. Introduction
    1. 1. Introduction
      1. Overview of the Chapters
        1. Economic and Budget Analyses
        2. Performance and Management
        3. Budget Concepts and Budget Process
        4. Federal Receipts
        5. Special Topics
        6. Technical Budget Analyses
        7. Detailed Functional Table
  8. Economic and Budget Analyses
    1. 2. Economic Assumptions and Interactions with the Budget
      1. Recent Economic Performance
        1. Chart 2-1. Private Job Gains and Losses During Recent Recoveries
      2. Economic Projections
        1. Table 2–1.  Economic Assumptions 1
        2. Chart 2-2. Real GDP Growth Following a Recession: 7-Year Average
        3. Box 2–1. Supply-Side Analysis of Long-Term Growth
          1. Table 2–2. Components of Actual and Potential Real GDP Growth, 1952–2023
      3. Comparison with Other Forecasts
        1. Table 2–3. Comparison of Economic Assumptions
        2. Table 2–4. Comparison of Economic Assumptions in the 2013 and 2014 Budgets
      4. Sensitivity of the Budget to Economic Assumptions
      5. Forecast Errors for Growth, Inflation, and Interest Rates
        1. Table 2–5. Sensitivity of the Budget to Economic Assumptions
        2. Table 2–6. Forecast Errors, January 1982–Present
      6. Alternative Scenarios
        1. Chart 2‐3. Real GDP: Alternative Projections
        2. Table 2–7. Budget Effects of Alternative Scenarios
      7. Uncertainty and the Deficit Projections
        1. Chart 2-4. Range of Uncertainty for the Budget Deficit
      8. Structural and Cyclical Deficits
        1. Table 2–8. The Structural Balance
      9. Footnotes
        1. 1
        2. 2
        3. 3
        4. 4
        5. 5
    2. 3. Financial Stabilization Efforts and their Budgetary Effects
      1. Footnotes
        1. 1
        2. 2
        3. 3
        4. 4
        5. 5
        6. 6
        7. 7
        8. 8
        9. 9
        10. 10
        11. 11
        12. 12
        13. 13
        14. 14
        15. 15
        16. 16
        17. 17
        18. 18
        19. 19
        20. 20
        21. 21
        22. 22
        23. 23
        24. 24
        25. 25
    3. 4. Long Term Budget Outlook
      1. The Long-Run Budget Projections
        1. Chart 4-1. Publicly Held Debt Under 2014 Budget Policy Extended
        2. Table 4–2. 75-Year Fiscal Gap (–)/Surplus (+) Under Alternative Budget Scenarios
        3. Chart 4-2. Alternative Base Assumptions
        4. Table 4–1. Long-Run Budget Projections
      2. Key Drivers of Program Growth: Health Costs and Demographic Changes
      3. The Fiscal Gap
      4. Alternative Policy, Economic, and Technical Assumptions
        1. Chart 4-3. Alternative Health Care Costs
        2. Chart 4-4. Alternative Discretionary Projections
        3. Chart 4-5. Alternative Revenue Projections
        4. Chart 4-6. Alternative Productivity Assumptions
        5. Chart 4-7. Alternative Fertility Assumptions
        6. Chart 4-8. Alternative Immigration Assumptions
        7. Chart 4-9. Alternative Mortality Assumptions
      5. Actuarial Projections for Social Security and Medicare
        1. Table 4–3. Intermediate Actuarial Projections for OASDI and Hi Federal Borrowing and Debt
      6. Technical Note: Sources of Data and Methods of Estimating
      7. Footnotes
        1. 1
        2. 2
        3. 3
        4. 4
    4. 5. Federal Borrowing and Debt
      1. Footnotes
        1. 1
        2. 2
        3. 3
        4. 4
        5. 5
        6. 6
        7. 7
        8. 8
        9. 9
        10. 10
        11. 11
        12. 12
        13. 13
        14. 14
        15. 15
        16. 16
        17. 17
        18. 18
        19. 19
        20. 20
        21. 21
        22. 22
        23. 23
        24. 24
  9. Performance and Management
    1. 6. Social Indicators
      1. Footnotes
        1. 1
        2. 2
    2. 7. Delivering a High-Performance Government
    3. 8. Program Evaluation and Data Analysis
    4. 9. Benefit-Cost Analysis
      1. Footnotes
        1. 1
        2. 2
        3. 3
        4. 4
        5. 5
    5. 10. Improving the Federal Workforce
      1. Trends in Federal Workforce Size
        1. Table 10–2. Federal Civilian Employment in the Executive Branch 
        2. Chart 10-1. Federal Civilian Workforce as Share of U.S. Population
      2. Federal Pay Trends
        1. Chart 10-2. Pay Raises for Federal vs. Private Workforce
      3. Composition of the Federal Workforce and Factors Affecting Pay
        1. Table 10–1. Occupations of Federal and Private Sector Workforces
        2. Chart 10-3. Education Level Distribution in Federal vs. Private Workforce
        3. Chart 10-4. Federal Age Distribution in 2001 and 2011 and Federal vs. Private Age Distribution in 2011
      4. Challenges
        1. Outdated Personnel System
        2. Aging Workforce
        3. Developing and Engaging Personnel to Improve Performance
      5. Addressing the Challenges
        1. Mission Focused and Data Driven Personnel Management
        2. Closing Critical Skills Gaps
        3. Recruiting and Developing an Agile Workforce
        4. A Diverse and Inclusive Workforce
        5. Government-wide SES Appraisal Model
        6. Strengthening Labor-Management Relations
        7. Goals-Engagement-Accountability-Results (GEAR)
        8. Table 10–3. Total Federal Employment
        9. Table 10–4. Personnel Compensation and Benefits
  10. Budget Concepts and Budget Process
    1. 11. Budget Concepts
        1. Chart 11-1. Relationship of Budget Authority to Outlays for 2014
      1. Footnotes
        1. 1
        2. 2
        3. 3
    2. 12. Coverage of the Budget
      1. Footnotes
        1. 1
        2. 2
        3. 3
        4. 4
        5. 5
        6. 6
        7. 7
        8. 8
        9. 9
        10. 10
        11. 11
        12. 12
        13. 13
        14. 14
        15. 15
        16. 16
        17. 17
        18. 18
        19. 19
        20. 20
    3. 13. Budget Process
      1. Footnotes
        1. 1
        2. 2
        3. 3
        4. 4
        5. 5
        6. 6
        7. 7
        8. 8
        9. 9
        10. 10
  11. Federal Receipts
    1. 14. Governmental Receipts
      1. Footnotes
        1. 1
        2. 2
    2. 15. Offsetting Collections and Offsetting Receipts
      1. Footnotes
        1. 1
        2. 2
        3. 3
        4. 4
        5. 5
        6. 6
        7. 7
    3. 16. Tax Expenditures
      1. Footnotes
        1. 1
        2. 2
        3. 3
        4. 4
  12. Special Topics
    1. 17. Aid to State and Local Governments
      1. Footnotes
        1. 1
        2. 2
        3. 3
        4. 4
        5. 5
        6. 6
        7. 7
        8. 8
        9. 9
        10. 10
        11. 11
        12. 12
        13. 13
        14. 14
        15. 15
    2. 18. Strengthening Federal Statistics
      1. Highlights of 2014 Program Budget Proposals
        1. Bureau of Economic Analysis (BEA), Department of Commerce
        2. Bureau of Justice Statistics (BJS), Department of Justice
        3. Bureau of Labor Statistics (BLS), Department of Labor
        4. Bureau of Transportation Statistics (BTS), Department of Transportation
        5. Census Bureau, Department of Commerce
        6. Economic Research Service (ERS), Department of Agriculture
        7. Energy Information Administration (EIA), Department of Energy
        8. National Agricultural Statistics Service (NASS), Department of Agriculture
        9. National Center for Education Statistics (NCES), Department of Education
        10. National Center for Health Statistics (NCHS), Department of Health and Human Services
        11. National Center for Science and Engineering Statistics (NCSES), National Science Foundation
        12. Office of Research, Evaluation, and Statistics (ORES), Social Security Administration
        13. Statistics of Income Division (SOI), Department of the Treasury
          1. Table 18–1. 2012–2014 Budget Authority for Principal Statistical Agencies 1
    3. 19. Information Technology
      1. The Federal Information Technology (IT) Portfolio
        1. Table 19–1. Federal IT Spending, President's Budget, FY 2014
        2. Chart 19-1. Trends in Federal IT Spending
      2. Delivering Maximum Return On Investment (ROI) For IT
        1. Chart 19–2. Results of Portfolio Stats in 2012 PortfolioStat Commodity IT Reduction Targets
      3. The Innovation Agenda-Government in the Information Age
      4. Protecting Data and Assets-Cybersecurity and Privacy
      5. Conclusion
      6. Footnotes
        1. 1
        2. 2
        3. 3
        4. 4
        5. 5
        6. 6
        7. 7
        8. 8
        9. 9
        10. 10
        11. 11
        12. 12
        13. 13
        14. 14
        15. 15
        16. 16
        17. 17
        18. 18
        19. 19
        20. 20
        21. 21
        22. 22
        23. 23
        24. 24
        25. 25
        26. 26
        27. 27
        28. 28
        29. 29
    4. 20. Federal Investment
    5. 21. Research and Development
      1. Footnotes
        1. 1
    6. 22. Credit and Insurance
        1. Chart 22-1. Face Value of Federal Credit Outstanding
      1. Footnotes
        1. 1
        2. 2
        3. 3
    7. 23. Homeland Security Funding Analysis
      1. Footnotes
        1. 1
        2. 2
        3. 3
        4. 4
        5. 5
        6. 6
        7. 7
        8. 8
        9. 9
    8. 24. Federal Drug Control Funding
    9. 25. California Bay-Delta Federal Budget Crosscut
  13. Technical Budget Analyses
    1. 26. Current Services Estimates
      1. Footnotes
        1. 1
        2. 2
        3. 3
        4. 4
    2. 27. Trust Funds and Federal Funds
      1. Footnotes
        1. 1
        2. 2
        3. 3
        4. 4
        5. 5
        6. 6
        7. 7
        8. 8
        9. 9
        10. 10
        11. 11
        12. 12
    3. 28. National Income and Product Accounts
      1. Footnotes
        1. 1
        2. 2
        3. 3
        4. 4
    4. 29. Comparison of Actual to Estimated Totals
      1. Footnotes
        1. 1
        2. 2
        3. 3
        4. 4
    5. 30. Budget and Financial Reporting
      1. Footnotes
        1. 1
        2. 2
        3. 3
        4. 4
        5. 5
        6. 6
        7. 7
        8. 8
        9. 9
        10. 10
        11. 11
        12. 12
        13. 13
        14. 14
        15. 15
        16. 16
        17. 17
        18. 18
        19. 19
        20. 20
        21. 21
        22. 22
        23. 23
        24. 24
        25. 25
        26. 26
  14. Detailed Functional Tables*
  15. Federal Programs by Agency and Account*

Story

AnalyticsCoverPage.png

The Digital Government Strategy Should Begin with the Budget Analytics 2014

Slides (see below)

Making these documents Digital Government Strategy Compliant is very challenging as follows:

Copy PDF to MindTouch add structure and edit line lengths

Add References links: 26 Open data is now a key principle guiding Federal IT -- that is, the principle that the Government’s data should be provided in a manner that facilitates the use of this data by everyone.

Fix the flow of the document so the Charts and Tables appear where they are mentioned in the text

Convert PDF to Word to recover tables, but they still need some editing and may not copy properly to Excel

The goal is to make this a living dynamically connected document to the data and the analytics in Spotfire so it can be readily shared with others, reused, and updated frequently.

I found for Section 2.  that the tables and charts do matchup, e.g. the tables do not contain the data for the charts, so I had to screen scrape the charts to create a data set to visulaize the data in Spotfire.

I am wondering if there are Excel files on the CD-ROM that are not at: http://www.whitehouse.gov/omb/budget

I also wonder if OMB does not want to release those data sets associated with the graphics because they would have to explain where they came from to data scientists and statisticians like myself :)

So I m going to continue to do the reports sections that have tables and charts and summarize the mismatch and suggest this be improved in the 2015 Budget Analytics Perspective. See Spreadsheet for work in progress.

I have recently suggested this to the Data Science DC Meetup: See Research Notes

MORE TO FOLLOW

Slides

Slide 1 Dashboard: Section 2. Economic Assumptions and Interactions with the Budget

Budget2014-Analytics-Spotfire-Slide1.png

Slide 2 GDP: Historic

Budget2014-Analytics-Spotfire-Slide2.png

Slide 3 Health Programs: Historic

Budget2014-Analytics-Spotfire-Slide3.png

Slide 4 Long Term Budget Outlook: Historic

Budget2014-Analytics-Spotfire-Slide4.png

Slide 5 Federal Employees: Historic

Budget2014-Analytics-Spotfire-Slide5.png

Slide 6 Federal Statistical Agencies

Budget2014-Analytics-Spotfire-Slide6.png

Slide 7 Federal IT

Budget2014-Analytics-Spotfire-Slide7.png

Slide 8 Knowledge Bases

Budget2014-Analytics-Spotfire-Slide8.png

Spotfire Dashboard

For Internet Explorer Users and Those Wanting Full Screen Display Use: Web Player Get Spotfire for iPad App

Research Notes

Source: http://www.meetup.com/Data-Science-DC/events/124794492/?_af_eid=124794492&a=uc1_vm&_af=event

How Was the July 30 Data Science DC Meetup?

  • Brand Niemann

    Very good, but I suggested the presenters make their data sets and results available for others to use and no one did that so far as I can tell, so here is an example of what I have been working on that does that:

    The President’s Fiscal Year 2014 Budget as Big Data 
    http://semanticommunity.info/Da...

    The Digital Government Strategy Should Begin with the Budget Analytics 2014 
    http://semanticommunity.info/Da...

    I think that auditing/verifying/reproducing what others do is an important part of data science practice.

    Like · Reply · 5h ago · Mute

     
    • Patrick Wagstrom
      Patrick Wagstrom

      Brand - nice catch that I didn't mention the data format. The README.md file has been updated to state that it is a neo4j graph database.

      1 · Unlike · 1h ago

       
    • Natalie
      Natalie

      Hi Brand, I understand your concern. However, I cannot legally distribute client data. It's their property and not mine, and would be an enormous breach of confidentiality.

      Like · 23m ago

       
    • Brand Niemann
      Brand Niemann

      Hi Natalie, Understand enormous breach of confidentiality concerns (ala NSA and Snowden) so that is why I am suggesting public domain data sets that we could all work with to show our tools and methods in these meetups. Open data is now a key principle guiding Federal IT -- that is, the principle that the Government’s data should be provided in a manner that facilitates the use of this data by everyone.

      Like · just now

The Budget Documents

Source: http://www.whitehouse.gov/sites/defa...ssets/spec.pdf (PDF) My Note: Converted to Word

Budget of the United States Government, Fiscal Year 2014 contains the Budget Message of the President, information on the President’s priorities, budget overviews organized by agency, and summary tables.

Analytical Perspectives, Budget of the United States Government, Fiscal Year 2014 contains analyses that are designed to highlight specified subject areas or provide other significant presentations of budget data that place the budget in perspective. This volume includes economic and accounting analyses; information on Federal receipts and collections; analyses of Federal spending; information on Federal borrowing and debt; baseline or current services estimates; and other technical presentations.

 
The Analytical Perspectives volume also contains supplemental material with several detailed tables, including tables showing the budget by agency and account and by function, subfunction, and program, that is available on the Internet and as a CD-ROM in the printed document.
 
Historical Tables, Budget of the United States Government, Fiscal Year 2014 provides data on budget receipts, outlays, surpluses or deficits, Federal debt, and Federal employment over an extended time period, generally from 1940 or earlier to 2014 or 2018.
 
To the extent feasible, the data have been adjusted to provide consistency with the 2014 Budget and to provide comparability over time.
 
Appendix, Budget of the United States Government, Fiscal Year 2014 contains detailed information on the various appropriations and funds that constitute the budget and is designed primarily for the use of the Appropriations Committees. The Appendix contains more detailed financial information on individual programs and appropriation accounts than any of the other budget documents. It includes for each agency: the proposed text of appropriations language; budget schedules for each account; legislative proposals; explanations of the work to be performed and the funds needed; and proposed general provisions applicable to the appropriations of entire agencies or group of agencies. Information is also provided on certain activities whose transactions are not part of the budget totals.

Automated Sources of Information

The information contained in these documents is available in electronic format from the following sources:
 
Internet. All budget documents, including documents that are released at a future date, spreadsheets of many of the budget tables, and a public use budget database are available for downloading in several formats from the Internet at http://www.budget.gov/budget. Links to documents
and materials from budgets of prior years are also provided.
 
Budget CD-ROM. The CD-ROM contains all of the budget documents in fully indexed PDF format along with the software required for viewing the documents. The CD-ROM has many of the budget tables in spreadsheet format and also contains the materials that are included on the separate Analytical Perspectives CD-ROM.
 
For more information on access to electronic versions of the budget documents (except CD-ROMs), call (202) 512-1530 in the D.C. area or toll-free (888) 293-6498. To purchase the budget CD-ROM or printed documents call (202) 512-1800.

General Notes

1. All years referenced for budget data are fiscal years unless otherwise noted. All years referenced for economic data are calendar years unless otherwise noted.
 
2. Detail in this document may not add to the totals due to rounding.
 
3. At the time the President’s 2014 Budget request was developed, none of the full-year appropriations bills for 2013 was enacted; therefore, the programs and activities normally provided for in the full-year appropriations bills were operating under a continuing resolution (Public Law 112–175). For those programs and activities, full-year appropriations data included in the current year column (2013) in the budget Appendix, and in tables that show details on discretionary spending amounts in the Analytical Perspectives volume, reflect the annualized level provided by the continuing resolution. In the main Budget volume and the Historical Tables volume, current year totals by agency and for the total Government will match the President’s 2013 Budget request.

List of Charts and Tables

Charts

See Spreadsheet

Tables

See Spreadsheet

Introduction

1. Introduction

The Analytical Perspectives volume presents analyses that highlight specific subject areas or provide other significant data that place the Budget in context and assist the public, policymakers, the media, and researchers in better understanding the budget’s effects on the Nation. This volume complements the main Budget volume, which presents the President’s budget policies and priorities by agency, and the Budget Appendix volume, which provides appropriations language, schedules for budget expenditure accounts, and schedules for selected receipt accounts.
 
Presidential budgets have included separate analytical presentations of this kind for many years. The 1947 Budget and subsequent budgets included a separate section entitled “Special Analyses and Tables” that covered four and sometimes more topics. For the 1952 Budget, the section was expanded to 10 analyses, including many subjects still covered today, such as receipts, investment, credit programs, and aid to State and local governments. With the 1967 Budget this material became a separate volume entitled “Special Analyses,” and included 13 chapters. The material has remained a separate volume since then, with the exception of the Budgets for 1991–1994, when all of the budget material was included in one large volume. Beginning with the 1995 Budget, the volume has been named Analytical Perspectives.
 
As in previous years, several large supplemental tables are available at http://www.budget.gov/budget/Analytical_Perspectives and on the Budget CD-ROM. A list of these items is in the Table of Contents.

Overview of the Chapters

Economic and Budget Analyses
Economic Assumptions and Interactions Between the Economy and the Budget. This chapter reviews recent economic developments; presents the Administration’s assessment of the economic situation and outlook, including the effects of macroeconomic policies; compares the economic assumptions on which the Budget is based with the assumptions for last year’s Budget and those of other forecasters; illustrates how different economic paths would produce different budget results even if current law remained unchanged; and provides sensitivity estimates for the effects on the Budget of changes in specified economic assumptions. It also provides estimates of the cyclical and structural components of the budget deficit. Past errors in economic projections are reviewed.
 
Financial Stabilization Efforts and Their Budgetary Effects. This chapter focuses on Federal efforts to stabilize the economy and promote financial recovery in the wake of the deep recession of 2008, including the Troubled Asset Relief Program (TARP), reform of financial regulation, and other measures. The chapter also includes special analyses of the TARP as described in Section 203(a) of the Emergency Economic Stabilization Act of 2008.
 
Long-Term Budget Outlook. This chapter assesses the long-term budget outlook and the sustainability of current budget policy by focusing on 75-year projections of the Federal budget and showing how alternative longterm budget assumptions would produce different results. The chapter presents information on the size of the fiscal gap, and the budgetary effects of growing health costs.
 
Federal Borrowing and Debt. This chapter analyzes Federal borrowing and debt and explains the budget estimates. It includes sections on special topics such as the trends in debt, agency debt, investment by Government accounts, and the statutory debt limit.
Performance and Management
Social Indicators. This chapter presents a selection of statistics that offer a numerical picture of the United States. Included are economic, demographic, socioeconomic and health statistics. There are also indicators of safety and security, and environment and energy.
 
Delivering a High-Performance Government. This chapter describes this Administration’s approach to performance management—the Federal Government’s use of performance goals, measurement, regular data-driven reviews, and information dissemination to improve outcomes that matter to the American people and deliver returns on the taxpayer’s investment. It explains why this approach was chosen, progress made, and future plans. It also discusses implementation of the GPRA Modernization Act.
 
Program Evaluation and Data Analytics. This chapter underscores this Administration’s commitment to using taxpayer dollars effectively and efficiently. It highlights the role of performance measurement and program evaluation, discusses several of the Administration’s efforts to use evidence and evaluation in decision-making and program design, and highlights the Administration’s commitment to use more and better empirical evidence.
 
Benefit-Cost Analysis. This chapter discusses the use of benefit-cost analysis to design programs and policies to ensure that they achieve the maximal benefit to society and do not impose unjustified or excessive costs.
 
Improving the Federal Workforce. Strengthening the Federal workforce is essential to building a high-performing Government. This chapter presents summary data on Federal employment and compensation; examines the challenges posed by an aging Federal workforce; presents opportunities for strengthening the personnel system to achieve critical agency missions; and discusses progress in improving employee performance and human capital management.
Budget Concepts and Budget Process
Budget Concepts. This chapter includes a basic description of the budget process, concepts, laws, and terminology, and includes a glossary of budget terms.
 
Coverage of the Budget. This chapter describes those activities that are included in budget receipts and outlays (and are therefore classified as “budgetary”), as distinguished from those activities that are not included in the budget (and are therefore classified as “non-budgetary”). The chapter also defines the terms “on-budget” and “offbudget.”
 
Budget Process. This chapter discusses proposals to improve budgeting and fiscal sustainability within individual programs as well as across Government, describes the system of scoring mandatory and revenue legislation for purposes of the Statutory Pay-As-You-Go Act of 2010, and presents proposals to revise the budget baseline and improve budget presentation.
Federal Receipts
Governmental Receipts. This chapter presents information on estimates of governmental receipts, which consist of taxes and other compulsory collections. It includes detailed descriptions of tax legislation enacted in the last year and the receipts proposals in the Budget.
 
Offsetting Collections and Offsetting Receipts. This chapter presents information on collections that offset outlays, including collections from transactions with the public and intragovernmental transactions. In addition, this chapter presents information on “user fees,” charges associated with market-oriented activities and regulatory fees. The user fee information includes a description of each of the user fee proposals in the Budget.
 
Tax Expenditures. This chapter describes and presents estimates of tax expenditures, which are defined as revenue losses from special exemptions, credits, or other preferences in the tax code.
Special Topics
Aid to State and Local Governments. This chapter presents crosscutting information on Federal grants to State and local governments, including highlights of Administration proposals, a table displaying budget authority and outlays for all grant programs, and information on historical trends and data. An appendix to this chapter includes State-by-State spending estimates of major grant programs.
 
Strengthening Federal Statistics. This chapter discusses 2014 Budget proposals for the Government’s principal statistical programs.
 
Information Technology. This chapter gives an overview of Federal spending on information technology, and the major initiatives through which the Administration is seeking to improve Federal information technology to deliver better value to taxpayers through improved program performance, greater efficiency and cost savings, and extending the transparency of Government and participation of citizens. The chapter also discusses the Administration’s plans to extend its accomplishments in Federal information technology from its first four years while continuing to provide strong information security and protection of privacy.
 
Federal Investment. This chapter discusses federally financed spending that yields long-term benefits. It presents information on annual spending on physical capital, research and development, and education and training, and on the cumulative capital stocks resulting from that spending.
 
Research and Development. This chapter presents a crosscutting review of research and development funding in the Budget, including discussions about priorities and coordination across agencies.
 
Credit and Insurance. This chapter provides crosscutting analyses of the roles, risks, and performance of Federal credit and insurance programs and Governmentsponsored enterprises (GSEs). The general portion of the chapter covers the categories of Federal credit (housing, education, small business and farming, energy and infrastructure, and international) and insurance programs (deposit insurance, pension guarantees, disaster insurance, and insurance against terrorism-related risks). It also offers occasional discussions of special issues. This year, the chapter includes discussion of issues relating to “fair value” cost estimates for Federal credit programs. Two detailed tables, “Table 22–11, Direct Loan Transactions of the Federal Government” and “Table 22–12, Guaranteed Loan Transactions of the Federal Government,” are available at the Internet address cited above and on the Budget CD-ROM.
 
Homeland Security Funding Analysis. This chapter discusses homeland security funding and provides information on homeland security program requirements, performance, and priorities. Additional detailed information is available at the Internet address cited above and on the Budget CD-ROM.
 
Federal Drug Control Funding. This chapter displays enacted and proposed drug control funding for Federal departments and agencies.
 
California Bay-Delta Federal Budget Crosscut. This chapter presents information on Federal funding for the environmental restoration of California’s Bay-Delta, one of the Administration’s priority ecosystems. Additional detailed tables on Bay-Delta funding and project descriptions are available at the Internet address cited above and on the Budget CD-ROM.
Technical Budget Analyses
Current Services Estimates. This chapter presents estimates of what receipts, outlays, and the deficit would be if current policies remained in effect, using modified versions of baseline rules in the Balanced Budget Emergency Deficit Control Act (BBEDCA), as amended by the Budget Control Act of 2011. A detailed table, “Table 26–13, Current Services Budget Authority and Outlays by Function, Category, and Program” is available at the Internet address cited above and on the Budget CD-ROM.
 
Trust Funds and Federal Funds. This chapter provides summary information about the two fund groups in the budget—Federal funds and trust funds. In addition, for the major trust funds and several Federal fund programs, the chapter provides detailed information about income, outgo,
and balances.
 
National Income and Product Accounts. This chapter discusses how Federal receipts and outlays fit into the framework of the National Income and Product Accounts (NIPAs) prepared by the Department of Commerce. The NIPA measures are the basis for reporting Federal transactions in the gross domestic product (GDP) and for analyzing the effect of the Budget on aggregate economic activity.
 
Comparison of Actual to Estimated Totals. This chapter compares the actual receipts, outlays, and deficit for 2012 with the estimates for that year published in the 2012 Budget. It also includes a historical comparison of the differences between receipts, outlays, and the deficit as originally proposed with final outcomes.
 
Budget and Financial Reporting. This chapter summarizes information about the Government’s financial performance that is provided by three complementary sources—the Budget, the financial statements, and the integrated macroeconomic accounts. The following materials are available at the Internet address cited above and on the Budget CD-ROM:
Detailed Functional Table
Detailed Functional Table. Table 31–1, “Budget Authority and Outlays by Function, Category, and Program,” displays budget authority and outlays for major Federal program categories, organized by budget function (such as health care, transportation, or national defense), category, and program.
 
Federal Programs by Agency and Account Federal Programs by Agency and Account. Table 32–1, “Federal Programs by Agency and Account,” displays budget authority and outlays for each account, organized by agency, bureau, fund type, and account.

Economic and Budget Analyses

2. Economic Assumptions and Interactions with the Budget

This chapter presents the economic forecast on which the 2014 Budget projections are based. 1 When the President took office in January 2009, the economy was in the midst of an historic economic crisis. The first order of business for the new Administration was to arrest the rapid decline in economic activity that threatened to plunge the country into a second Great Depression. The President and the Congress took unprecedented actions to restore demand, stabilize financial markets, and put people back to work. These steps included passage of the American Recovery and Reinvestment Act (ARRA), signed by the President just 28 days after taking office. They also included the Financial Stability Plan, announced in February 2009, which encompassed wide-ranging measures to strengthen the banking system, increase consumer and business lending, and stem foreclosures and support the housing market. These and a host of other actions walked the economy back from the brink. The economy bottomed out in June 2009 and gradually started to recover in late 2009. 2 Further measures to aid the recovery were taken in December 2010, such as cutting payroll taxes and extending unemployment insurance. Over the past 14 quarters, through the fourth quarter of 2012, real Gross Domestic Product (GDP) has grown at an average annual rate of 2.1 percent, and since February 2010, 6.4 million jobs have been added in the private sector. Meanwhile, the unemployment rate has fallen from its October 2009 peak of 10.0 percent to 7.7 percent (as of February 2013).
 
At the start of this year, the American Taxpayer Relief Act of 2012 (ATRA) prevented income tax increases on the vast majority of taxpayers in 2013 and provided greater certainty for the years ahead. With this legislation, the recovery is projected to gain momentum in 2013 and to strengthen further in 2014. However, even with healthy economic growth, unemployment is expected to be higher than is consistent with full employment for several more years. The Administration is projecting unemployment to continue to decline over the next five years, stabilizing at 5.4 percent by 2018.
 
This chapter contains several sections:
 
• The first section of this chapter reviews recent economic performance.
• The second section discusses the Administration’s economic projections.
• The third section compares the Administration’s to other forecasts and to the Administration’s projection in last year’s Budget.
• The fourth section describes how changes in economic variables result in changes in receipts, outlays, and the deficit.
• The fifth section presents information on forecast errors for growth, inflation, and interest rates and how these forecast errors compare to those in forecasts made by the Congressional Budget Office (CBO) and the private-sector Blue Chip Consensus forecast.
• The sixth section presents alternatives to the current Administration forecast—based on both more optimistic and less optimistic assumptions with respect to real economic growth and unemployment—and describes the resulting effects on the deficit.
• The seventh section shows a probabilistic range of budget outcomes based on past errors in projecting the deficit.
• The last section discusses the relationship between structural and cyclical deficits, showing how much of the actual deficit is related to the economic cycle (e.g., the recent recession) and how much would persist even if the economy were at full employment.

Recent Economic Performance

The accumulated stresses from a contracting housing market and the resulting strains on financial markets brought the 2001-2007 expansion to an end in December 2007. In its early stages, the 2008-2009 recession was relatively mild, but financial conditions worsened sharply in the fall of 2008, and from that point forward the recession became much more severe. Before it ended, real GDP had fallen further and the downturn had lasted longer than any previous post-World War II recession. Looking ahead, the likely strength of the recovery is one of the key issues for the forecast, and the aftermath of the housing and financial crises has an important bearing on the expected strength of the recovery.
 
Housing Markets Begin to Show Strength.—The housing market has shown clear signs of recovery, after its collapse in 2007 and 2008 which was a major cause of the financial crisis and recession. In 2006-2007, housing prices peaked, and from 2007 through 2008, housing prices fell sharply according to all available measures. 3
 
During the downturn, as house prices fell, investment in housing plummeted, reducing the annualized rate of real GDP growth by an average of 1 percentage point per quarter. Housing prices started to rise again in 2012, with a modest gain of 4 percent over the year. Residential investment began to increase steadily in the second quarter of 2011, and rose by more than 14 percent during 2012.
 
In April 2009, housing starts fell to an annual rate of just 478,000 units, the lowest level ever recorded for this series, which dates from 1959. Housing starts rose modestly over the next two years, but increased 37 percent to over 950,000 units over the 12 months through December 2012. Typically, at least 1.5 million starts a year are needed to accommodate the needs of an expanding population and to replace older units, indicating potential for a substantial housing rebound. Although a large overhang of vacant homes must be reduced before a robust housing recovery can become firmly established, there are indications that this is gradually happening with reduced vacancies and fewer foreclosures. The Administration forecast assumes a continued recovery in housing activity that adds moderately to real GDP growth over the forecast horizon.
 
The Risk of an International Slowdown.—While the U.S. economy has returned to moderate growth, worldwide recovery is uneven. Europe continues to confront financial uncertainty stemming from the troubled financial condition of several countries in the Euro zone. After the Euro was established as the common currency for 17 European countries in 1999, interest rates in those countries moved close together as their inflation rates tended to converge. However, recent events have led markets to reassess the long-run solvency of some of the countries using the Euro, and the result has been a striking divergence in the interest rates charged on sovereign debt of the various countries. High interest rates on their debt make it difficult for the most threatened of these countries to address the pressing fiscal issues that have put some countries’ long-run solvency at risk.
 
At the beginning of 2012, many private forecasters were expecting the recovery to accelerate over the course of the year. Instead, 2012 saw subpar growth due to unexpected headwinds. A persistent source of sluggishness has been the sovereign debt crisis in Europe, which has curbed global equity markets and will likely continue to weigh on confidence and the global recovery going forward. The European Union and European Central Bank have acted to confront these issues, and the affected governments have attempted to cut their budget deficits. Despite these actions, however, the European recovery remains at risk because of on-going structural adjustments and because the necessary austerity measures taken to address the fiscal crisis have in some cases limited demand and wages, resulting in social unrest. Several European countries have had slowing or negative growth in recent quarters, and there also has been a slowdown in growth in many emerging market economies.
 
Deleveraging has Slowed Consumption Growth.— Between the third quarter of 2007 and the first quarter of 2009, the real net worth of American households declined by $16 trillion (24 percent) – the equivalent of more than one year’s GDP. A precipitous decline in the stock market, along with falling house prices over this period, were the main reasons for the drop in household wealth. Since then, real household wealth, including financial assets, has risen substantially to near its previous peak, although total net worth remains below the prior peak level because housing prices have only recently started to recover. 4
 
Americans reacted to this massive loss of wealth by saving more. The personal saving rate had been declining since the 1980s, and it reached a low point of 1.3 percent in the third quarter of 2005. It remained low, averaging only 2.2 percent through the end of 2007, but since then, as wealth has declined, the saving rate has increased to an average of 4.4 percent over the past three years. A sudden increase in the desire to save implies a corresponding reduction in consumer demand, and a fall-off in consumption had a negative effect on the economy during the recession of 2008 and early 2009. During that period, real consumer spending fell at an annual rate of 2.3 percent. Since then, real consumer spending has recovered and now exceeds its previous peak level, although it has increased only 1.9 percent over the past four quarters. Continued growth in consumption is essential to a healthy recovery, and, as income also grows, increased consumption is compatible with
a higher but stable saving rate.
 
Rebound in Business Investment.—Business fixed investment fell sharply during the 2008-2009 contraction. It rose rapidly in 2010 through 2012, but even after the substantial increases in business spending for structures, equipment and software over the past 10 quarters, real investment remains well below its pre-recession levels implying room for further growth. The cost of capital is low and American corporations at the end of 2012 held substantial levels of cash reserves, which could provide funding for future investments as the economy continues to recover. The main constraint on business investment is poor sales expectations, which have been dampened by the slow pace of recovery However, if consumption picks up, businesses are in a good position to expand investment. Nevertheless, the pace of future growth could prove to be uneven, as investment tends to be volatile.
 
Steady Progress in the Labor Market.—The unemployment rate peaked in 2009. It has declined since then, but it remains well above its historical average of under 6 percent, and the rate of long-term unemployment (those out of work for more than 6 months) remains high. The high rate of unemployment has had devastating effects on American families, and the recovery will not be real for most Americans until the job market strengthens further. Historically, when the economy grows, so does employment, and there are signs that this pattern is repeating itself in the current recovery, albeit slowly. Private employment has grown for 36 straight months, although at a relatively modest rate. The positive job growth has far exceeded the job gains in the recovery following the 2001 recession, and is only slightly less than equivalent in comparison to the 1990s expansion (see Chart 2-1).
Chart 2-1. Private Job Gains and Losses During Recent Recoveries

Chart2-1.png

Economic Projections

The economic projections underlying the 2014 Budget estimates are summarized in Table 2–1. The assumptions are based on information available as of mid-November 2012. This section discusses the Administration’s projections, and the next section compares these projections with those of the Federal Reserve’s Open Market Committee (FOMC), the CBO, and the Blue Chip Consensus of private forecasters.
Table 2–1.  Economic Assumptions 1

My Note: There are some problems with the conversion of this table from PDF to Word

(Calendar years; dollar amounts in billions)

 

Actual

Projections

2011

2012

2013

2014

2015

2016

2017

2018

2019

2020

2021

2022

2023

Gross Domestic product (GDp):

Levels, dollar amounts in billions:

Current dollars ................................................

Real, chained (2005) dollars ...........................

Chained price index (2005 = 100), annual average ......................................................

Percent change, fourth quarter over fourth quarter:

Current dollars ................................................

Real, chained (2005) dollars ........................... Chained price index (2005 = 100) ..................

Percent change, year over year:

Current dollars ................................................

Real, chained (2005) dollars ........................... Chained price index (2005 = 100) ..................

incomes, billions of current dollars:

Domestic Corporate Profits ............................

Employee Compensation ................................

Wages and salaries ........................................

Other taxable income 2 ....................................

 

consumer price index (all urban): 3

Level (1982–84 = 100), annual average .........

Percent change, fourth quarter over fourth quarter .......................................................

Percent change, year over year ......................

 

unemployment rate, civilian, percent:

Fourth quarter level .........................................

Annual average ...............................................

 

Federal pay raises, January, percent:

Military 4 ..........................................................

Civilian 5 ..........................................................

 

interest rates, percent:

91-day Treasury bills 6 .....................................

10-year Treasury notes ...................................

 

 

 

15,076

13,299

 

113.4

 

 

4.0

2.0

2.0

 

4.0

1.8

2.1

 

 

1,388

8,295

6,661

3,252

 

 

224.9

 

3.3

3.1

 

 

8.7

8.9

 

 

1.4

0.0

 

 

0.1

2.8

 

 

 

15,705

13,600

 

115.5

 

 

4.1

2.0

2.1

 

4.2

2.3

1.9

 

 

1,511

8,591

6,902

3,387

 

 

229.6

 

1.9

2.1

 

 

7.9

8.1

 

 

1.6

0.0

 

 

0.1

1.8

 

 

 

16,384

13,907

 

117.8

 

 

4.5

2.6

1.9

 

4.3

2.3

2.0

 

 

1,566

8,903

7,182

3,519

 

 

234.5

 

2.2

2.1

 

 

7.5

7.7

 

 

1.7

0.5

 

 

0.1

2.0

 

 

 

17,235

14,358

 

120.1

 

 

5.4

3.4

1.9

 

5.2

3.2

1.9

 

 

1,743

9,353

7,549

3,643

 

 

239.7

 

2.2

2.2

 

 

7.0

7.2

 

 

1.0

1.0

 

 

0.2

2.6

 

 

 

18,181

14,864

 

122.4

 

 

5.6

3.6

1.9

 

5.5

3.5

1.9

 

 

1,833

9,891

7,970

3,828

 

 

244.9

 

2.2

2.2

 

 

6.5

6.7

 

 

NA NA

 

0.4

3.1

 

 

 

19,192

15,399

 

124.7

 

 

5.6

3.6

1.9

 

5.6

3.6

1.9

 

 

1,939

10,460

8,438

4,032

 

 

250.3

 

2.2

2.2

 

 

6.0

6.2

 

 

NA NA

 

1.3

3.7

 

 

 

20,247

15,943

 

127.0

 

 

5.5

3.5

1.9

 

5.5

3.5

1.9

 

 

1,950

11,070

8,945

4,300

 

 

255.8

 

2.2

2.2

 

 

5.6

5.7

 

 

NA NA

 

2.3

4.1

 

 

 

21,275

16,441

 

129.4

 

 

4.9

2.9

1.9

 

5.1

3.1

1.9

 

 

1,855

11,671

9,435

4,585

 

 

261.5

 

2.2

2.2

 

 

5.4

5.5

 

 

NA NA

 

3.2

4.4

 

 

 

22,247

16,873

 

131.9

 

 

4.4

2.4

1.9

 

4.6

2.6

1.9

 

 

1,742

12,253

9,911

4,832

 

 

267.2

 

2.2

2.2

 

 

5.4

5.4

 

 

NA NA

 

3.6

4.6

 

 

 

23,219

17,283

 

134.4

 

 

4.4

2.4

1.9

 

4.4

2.4

1.9

 

 

1,658

12,841

10,387

5,054

 

 

273.1

 

2.2

2.2

 

 

5.4

5.4

 

 

NA NA

 

3.7

4.8

 

 

 

24,216

17,692

 

136.9

 

 

4.3

2.3

1.9

 

4.3

2.4

1.9

 

 

1,504

13,456

10,879

5,257

 

 

279.1

 

2.2

2.2

 

 

5.4

5.4

 

 

NA NA

 

3.7

5.0

 

 

 

25,253

18,104

 

139.5

 

 

4.3

2.3

1.9

 

4.3

2.3

1.9

 

 

1,422

14,065

11,364

5,455

 

 

285.2

 

2.2

2.2

 

 

5.4

5.4

 

 

NA NA

 

3.7

5.0

 

 

 

26,331

18,526

 

142.2

 

 

4.3

2.3

1.9

 

4.3

2.3

1.9

 

 

1,328

14,708

11,885

5,666

 

 

291.5

 

2.2

2.2

 

 

5.4

5.4

 

 

NA NA

 

3.7

5.0

N/A = Not Available

1 Based on information available as of mid-November 2012.

2 Rent, interest, dividend, and proprietors’ income components of personal income.

3 Seasonally adjusted CPI for all urban consumers.

4 Percentages apply to basic pay only; percentages to be proposed for years after 2014 have not yet been determined.

5 Overall average increase, including locality pay adjustments. Percentages to be proposed for years after 2014 have not yet been determined.

6 Average rate, secondary market (bank discount basis).

 

Real GDP.—The Administration projects the economic recovery that began in mid-2009 will continue with real GDP growing at an average annual rate of 2.9 percent over the next 10 years. At the beginning of 2013, the enactment of the American Taxpayer Relief Act removed much of the uncertainty about tax changes that existed when the Administration finalized its economic assumptions in November. However, the projected growth rate in November was based on policy assumptions that were similar to ATRA in regard to tax extensions. The middle class tax cuts were made permanent, tax rates on regular income were raised for the wealthiest taxpayers; and rates were also raised on dividends and capital gains (relative to 2012 tax law). The temporary two percentage point payroll tax cut of 2011-12 expired. The effective increase in the payroll tax rate is expected to produce some fiscal drag during 2013, and as a result the Administration projects 2.6 percent GDP growth over the four quarters of the year, accelerating to 3.4 percent growth in 2014 when increased private demand is expected to play a larger role in supporting continued recovery. This economic forecast, as always, is based on the assumption that the Administration’s budget proposals are enacted in full, including a proposal for infrastructure spending to boost the economy and lay a foundation for long-term growth, and that the sequester that took effect on March 1st of this year is avoided and the harmful, across-the-board cuts are reversed. The economy is expected to continue to grow at a pace of about 3.5 percent over the following three years. Real GDP growth is projected to return to its “potential” growth rate of 2.4 percent by 2019, and to grow at a steady 2.3 percent rate for the remaining four years of the forecast. The slight drop off in the last few years is due to demographic factors that lower the labor force participation rate as the baby boom generation retires.
 
As shown in Chart 2-2, the Administration’s projections for real GDP growth over the first seven years of the expected recovery imply an average growth rate below the average for historical recoveries. Recent recoveries have been somewhat weaker than average, but the last two expansions were preceded by mild recessions with relatively little pent-up demand when conditions improved. Because of the depth of the recent recession, there is much more room for a rebound in spending and production than was true either in 1991 or 2001. On the other hand, lingering effects from the credit crisis and other special factors have limited the pace of the recovery until now.
Chart 2-2. Real GDP Growth Following a Recession: 7-Year Average

Chart2-2.png

 
Long-Term Growth.—The Administration’s forecast does not attempt to project cyclical developments beyond the next few years. The long-run projection for real economic growth and unemployment assumes that they will maintain trend values in the years following the return to full employment. Real GDP, reflecting the slower growth in productivity outside the nonfarm business sector, grows at a rate of 2.3 percent in the final years of the projection. That is markedly slower than the average growth rate of real GDP since 1947 of 3.2 percent per year. In the 21st Century, real GDP growth in the United States is likely to be permanently slower than it was in earlier eras because of a slowdown in labor force growth initially due to the retirement of the post-World War II baby boom generation, and later due to a decline in the growth of the workingage population.
 
Box 2-1 describes the components of long-term growth rates and how they relate to the Administration’s forecast in more detail.
Box 2–1. Supply-Side Analysis of Long-Term Growth
The growth rate of the economy over the long run is determined by the growth of its supply-side components, demographics, and technological change. The growth rate that characterizes the long-run trend in real U.S. GDP—or potential GDP—plays an important role in guiding the Administration’s long-run forecast. Through 2020, potential real GDP is projected to grow at a 2.4 percent annual rate, before slowing to 2.3 percent during the three years 2021–23, reflecting the increasing size of the retiring baby-boom cohorts.
 
Table 2-2 shows the Administration’s forecast for the contribution of each supply-side factor to the growth in potential real GDP: the working-age population, the rate of labor force participation, the employed share of the labor force, the ratio of nonfarm business employment to household employment, the length of the workweek, labor productivity, and the ratio of real GDP to nonfarm output. Each column in Table 2-2 shows the average annual growth rate for each factor over a specific period of time. The first column shows the long-run average growth rates between the business-cycle peak of 1953 and the business-cycle peak of 2007, with business-cycle peaks chosen as end points to remove the substantial fluctuations within cycles so as to reveal long-run trends. The second column shows average growth rates between the fourth quarter of 2007 and the third quarter of 2012, a period that includes the 2007–09 recession and the recovery so far. The third column shows the Administration’s projection for the entire 11-year forecast period, from the third quarter of 2012 to the fourth quarter of 2023. And the fourth column shows average projected growth rates between the fourth quarter of 2020 and the fourth quarter of 2023, that is, the last three years of the forecast interval when the economy is assumed to settle into steady-state growth.
 
Summing the growth rates of these components, real GDP is projected to rise at an average 2.8 percent a year over the projection period (line 8, column 3), somewhat faster than the 2.4 percent annual growth rate for potential real GDP (line 9, column 3). Actual GDP can and is expected to grow faster than potential GDP primarily because of the projected rise in the employment rate (line 3, column 3) as millions of currently unemployed workers find jobs. Real potential GDP (line 9, columns 3 and 4) is projected to grow more slowly than the long-term historical growth rate of 3.2 percent a year (line 9, column 1). The projected slowdown in real potential GDP growth primarily reflects the lower projected growth rate of the working-age population and the retirement of the baby-boom cohort.
Table 2–2. Components of Actual and Potential Real GDP Growth, 1952–2023

My Note: The conversion of this table from PDF to Word worked better.

 

 

 

 

Component

Average Annual Growth ratea

History, peak- to-peak

Recent history, since peak

 

Forecast

Out-year forecast

1953:Q2 to

2007:Q4b

2007:Q4 to

2012:Q3

2012:Q3 to

2023:Q4

2020:Q4 to

2023:Q4

1

 

2

3

4

 

5

 

6

 

7

 

8

9

Civilian noninstitutional population aged 16+ .....................................................

Labor force participation rate .................. Employed share of the labor force .........

Ratio of nonfarmbusiness employment to household employment ..................

Average weekly hours (nonfarm business) ...........................................

Output per hour (productivity, nonfarm business) ...........................................

Ratio of real GDP to nonfarmbusiness output .................................................

Sum: Actual real GDP .............................

Memo: Potential real GDP .....................

 

1.4

0.2

–0.0

 

0.0

 

–0.3

 

2.1

 

–0.2

3.2

3.2

 

1.2

–0.8

–0.7

 

–0.7

 

–0.0

 

1.6

 

0.0

0.5

2.0

 

1.0

–0.1

0.3

 

–0.0

 

–0.1

 

2.2

 

–0.3

2.8

2.4

 

1.0

–0.4

0.0

 

0.0

 

–0.1

 

2.2

 

–0.4

2.3

2.3

           

a All contributions are in percentage points at an annual rate, forecast finalized in mid-November 2012.

b 1953:Q2 and 2007:Q4 are business-cycle peaks.

Note: Population, labor force, and household employment have been adjusted for discontinuities in the population series. Nonfarmbusiness employment, workweek, and productivity come fromthe Labor Productivity and Costs database maintained by the Bureau of Labor Statistics.

Source: Bureau of Labor Statistics, Current Population Survey, Labor Productivity and Costs; Bureau of Economic Analysis, National Income and Product Accounts; Department of the Treasury; Office of Management and Budget; CEA calculations.

 
The U.S. economy has enormous room for growth, although there are factors that could continue to limit that growth in the years ahead. On the positive side, the unemployment rate has fallen since the recession trough and further progress is expected in 2013-14, particularly if the President’s Budget proposals are adopted. The Federal Reserve’s recent directive states that a “highly accommodative stance of monetary policy will remain appropriate for a considerable time.” However, financial markets here and in Europe have been troubled by weak economic growth and the sustainability of fiscal policy in some European countries. The drag from a European slowdown could hold back the U.S. economy.
 
Unemployment.—In February 2013, the overall unemployment rate was 7.7 percent. In line with the increased growth in the economy projected after 2013, the unemployment rate is expected to ease to 5.4 percent by 2018 and to remain at that level during the period of trend growth during the last few years of the forecast.
 
Inflation.—The Consumer Price Index for all urban consumers (CPI-U) rose by 1.7 percent for the 12 months ending in December 2012. Over the previous 12 months it had risen by 3.0 percent. The decrease in inflation in 2012 was due almost entirely to sharp movements in food and energy prices. The “core” CPI, excluding both food and energy, was up 1.9 percent through the 12 months ending in December, little changed from the 2.2 percent during 2011.
 
Weak demand continues to hold down prices for many goods and services, and continued high unemployment is expected to result in a relatively low inflation rate. As the economy recovers and the unemployment rate declines, the rate of inflation should remain near the Federal Reserve’s target of around 2 percent per year. With the recovery path assumed in the Administration forecast, the risk of outright deflation appears minimal. The Administration assumes that the rate of change in the CPI will average 2.2 percent and that the GDP price index will increase at a 1.9 percent annual rate in the long run.
 
Interest Rates.—Interest rates on Treasury securities fell sharply in late 2008, as both short-term and long-term rates declined to their lowest levels in decades. Since then Treasury rates have fluctuated, but they have not returned to the levels before the financial crisis, and at the end of 2012 long-term rates were especially low. In the first week of January, the yield on 10-year Treasuries was just 1.9 percent. Investors have sought the security of Treasury debt during the heightened financial uncertainty of the last few years, which has kept yields low. At the short end of the yield curve, the Federal Reserve is holding short-term rates near zero as it seeks to foster economic growth and lower unemployment. The Federal Reserve’s policy of purchasing long-term Treasury securities may also be helping to hold down long-term rates. In the Administration projections, interest rates are expected to rise, but only gradually as financial concerns are alleviated and the economy recovers from recession. The 91-day Treasury bill rate is projected to remain near zero into 2015 consistent with the Federal Reserve’s announced intentions, and then to rise to 3.7 percent by 2017. The 10-year rate begins to rise in 2013 and reaches 5.0 percent by 2021. After adjusting for inflation, the projected real interest rates are close to their historical averages.
 
Income Shares.—The share of labor compensation in GDP was extremely low by historical standards in 2012. It is expected to remain low for the next few years falling to a low point of 54.3 percent of GDP in 2013-2014. As the economy grows faster in the middle years of the forecast period, and as employment increases as a result, compensation is projected to rise, reaching 55.9 percent of GDP in 2023. In the expansion that ended in 2007, labor compensation tended to lag behind the growth in productivity, and that has also been true for the surge in productivity growth in 2009-2010. The share of taxable wages, which is strongly affected by changes in health insurance costs, is expected to rise from 43.8 percent of GDP in 2013 to 45.1 percent in 2023. The share of domestic corporate profits is expected to decline from 12.4 percent of GDP in 2012 to 8.2 percent in 2023, which is close to its historical average.

Comparison with Other Forecasts

Table 2–3 compares the economic assumptions for the 2014 Budget with projections by CBO, the Blue Chip Consensus — an average of about 50 private-sector economic forecasts — and, for some variables, the Federal Reserve Open Market Committee. These other forecasts differ from the Administration’s projections, but the forecast differences are relatively small compared with the margin of error in all economic forecasts. Like the Administration, the other forecasts project that real GDP will continue to grow as the economy returns to a normal level of unemployment The forecasts also agree that inflation will be low while outright deflation is avoided, and that interest rates will eventually rise to more normal levels.
Table 2–3. Comparison of Economic Assumptions

(Calendar years)

 

 

2012

2013

2014

2015

2016

2017

2018

2019

2020

2021

2022

2023

nominal GDp:

 

 

15,705

 

 

16,384

 

 

17,235

 

 

18,181

 

 

19,192

 

 

20,247

 

 

21,275

 

 

22,247

 

 

23,219

 

 

24,216

 

 

25,253

 

 

26,331

2014 Budget .............................................................

CBO ..........................................................................

15,692

16,149

16,863

17,913

19,087

20,224

21,178

22,129

23,099

24,093

25,117

26,180

Blue Chip ..................................................................

15,682

16,239

16,993

17,888

18,793

19,725

20,684

21,667

22,676

23,730

24,835

26,002

Real GDp (year-over-year):

 

 

 

 

 

 

 

 

 

 

 

 

2014 Budget .............................................................

2.3

2.3

3.2

3.5

3.6

3.5

3.1

2.6

2.4

2.4

2.3

2.3

CBO ..........................................................................

2.3

1.4

2.6

4.1

4.4

3.8

2.6

2.4

2.3

2.2

2.2

2.2

Blue Chip ..................................................................

2.2

1.8

2.7

3.1

2.9

2.8

2.7

2.6

2.5

2.5

2.5

2.5

Real GDp (fourth-quarter-over-fourth-quarter):

 

 

 

 

 

 

 

 

 

 

 

 

2014 Budget .............................................................

2.0

2.6

3.4

3.6

3.6

3.5

2.9

2.4

2.4

2.3

2.3

2.3

CBO ..........................................................................

1.9

1.4

3.4

4.4

4.3

3.2

2.5

2.4

2.2

2.2

2.2

2.2

Blue Chip ..................................................................

1.6

2.3

2.8

3.2

2.8

2.8

2.6

2.6

2.5

2.5

2.5

2.5

Federal Reserve Central Tendency ..........................

 

2.3 - 2.8

2.9 - 3.4

2.9 - 3.7

 

 

 

 

 

 

 

 

GDp price index:1

 

 

 

 

 

 

 

 

 

 

 

 

2014 Budget .............................................................

1.9

2.0

1.9

1.9

1.9

1.9

1.9

1.9

1.9

1.9

1.9

1.9

CBO ..........................................................................

1.8

1.5

1.8

2.0

2.1

2.1

2.1

2.0

2.1

2.0

2.0

2.0

Blue Chip ..................................................................

1.8

1.7

1.9

2.1

2.1

2.1

2.1

2.1

2.1

2.1

2.1

2.1

consumer price index (cpi-u):1

 

 

 

 

 

 

 

 

 

 

 

 

2014 Budget .............................................................

2.1

2.1

2.2

2.2

2.2

2.2

2.2

2.2

2.2

2.2

2.2

2.2

CBO ..........................................................................

2.1

1.6

1.9

2.1

2.1

2.2

2.3

2.3

2.3

2.3

2.3

2.3

Blue Chip ..................................................................

2.1

1.8

2.1

2.3

2.4

2.4

2.4

2.4

2.3

2.3

2.3

2.3

unemployment Rate:2

 

 

 

 

 

 

 

 

 

 

 

 

2014 Budget .............................................................

8.1

7.7

7.2

6.7

6.2

5.7

5.5

5.4

5.4

5.4

5.4

5.4

CBO ..........................................................................

8.1

7.9

7.8

7.1

6.3

5.6

5.5

5.5

5.4

5.4

5.3

5.3

Blue Chip ..................................................................

8.1

7.7

7.3

6.7

6.3

6.0

5.7

5.6

5.6

5.6

5.6

5.6

Federal Reserve Central Tendency3 .........................

 

7.3 - 7.5

6.7 - 7.0

6.0 - 6.5

 

 

 

 

 

 

 

 

interest Rates:2

 

 

 

 

 

 

 

 

 

 

 

 

91-DayTreasury Bills (discount basis):

 

 

 

 

 

 

 

 

 

 

 

 

2014 Budget .........................................................

0.1

0.1

0.2

0.4

1.3

2.3

3.2

3.6

3.7

3.7

3.7

3.7

CBO ......................................................................

0.1

0.1

0.2

0.2

1.5

3.4

4.0

4.0

4.0

4.0

4.0

4.0

Blue Chip ..............................................................

0.1

0.1

0.2

0.9

2.1

3.0

3.3

3.5

3.6

3.6

3.6

3.6

10-YearTreasury notes:

 

 

 

 

 

 

 

 

 

 

 

 

2014 Budget .........................................................

1.8

2.0

2.6

3.1

3.7

4.1

4.4

4.6

4.8

5.0

5.0

5.0

CBO ......................................................................

1.8

2.1

2.7

3.5

4.3

5.0

5.2

5.2

5.2

5.2

5.2

5.2

Blue Chip ..............................................................

1.8

2.1

2.7

3.4

4.1

4.5

4.7

4.7

4.7

4.7

4.7

4.7

N/A = Not Available

Sources:Administration;CBO, The Budget and Economic Outlook: Fiscal Years 2013 to 2023; March 2013 Blue Chip Economic Indicators, Aspen Publishers, Inc.; Federal Reserve Open Market Committee, March 20, 2013.

1Year-over-year percent change.

2 Annual averages, percent.

3 Average of 4th quarter values.

 
There are some conceptual differences between the Administration forecast and the other economic forecasts. The Administration forecast assumes that the President’s Budget proposals will be enacted, and passage of those proposals will boost growth. The 50 or so private forecasters in the Blue Chip Consensus make differing policy assumptions, and some may not assume that the sequester will be successfully replaced with balanced deficit reduction or that the Congress will enact other polices the Administration has proposed to boost growth. CBO is required to assume that current law will continue in making its projections. As a result, their February projections assumed that the sequester would take place, as well as other fiscal tightening actions that would lower growth in 2013. Specifically, CBO stated that its 1.4 percent projection for real GDP growth this year could be as much as 1-1/2 percentage points higher if the sequester, payroll tax increase, and other actions were not taken.
 
The Administration projections were completed in mid-November. The five-month lag between that date and the Budget release is due in part because the budget process requires lead time to complete the estimates for agency programs that are incorporated in the Budget. Forecasts
made at different dates will differ if economic news between the two dates alters the economic outlook. The Blue Chip Consensus for 2013-2023 in this table was the latest available, from early March. The FOMC members’ central tendency of their forecasts are from March 2013. The CBO forecast is from its February 2013 report.
 
Real GDP Growth.— In 2013, the Administration expects more growth than the other forecasters, mainly because the forecast assumes that all of the Budget proposals will be enacted. Other forecasters make different assumptions. In 2014, the Administration expects growth to increase, while most other forecasters also look for an increase but to a lesser degree. 
 
The Administration projects that real GDP will eventually recover much of the loss from the 2008-2009 recession. This implies a few years of higher-than-normal growth as real GDP makes up the lost ground. The Blue Chip average shows only a very limited recovery in this sense. In the Blue Chip projections, real GDP growth exceeds its longrun average only briefly in the 11-year forecast period, and much of the loss of real GDP experienced during the recession is permanent. CBO anticipates a stronger recovery than Blue Chip that would return real GDP to nearly the same level as in the Administration forecast. In the long run, the real growth rates projected by the forecasters are similar, ranging between 2.3 and 2.5 percent.
 
All economic forecasts are subject to error, and looking back the forecast errors are usually much larger than the forecast differences discussed above. As discussed in a section later in this chapter, past forecast errors among the Administration, CBO, and the Blue Chip have been roughly similar.
 
Unemployment, Inflation, and Interest Rates.—The Administration forecasts unemployment falling steadily over the next few years to a level of 5.4 percent. The Blue Chip and CBO also show a decline in unemployment, but at a slower rate. By the end of the forecast, CBO and the Administration have about the same level of unemployment, while the Blue Chip has it declining to only 6.0 percent. The Administration’s unemployment projection is within the range of the Federal Reserve forecast. Nevertheless, the CBO projection of unemployment is higher than the Administration in 2013-2015, reflecting the different policy assumptions underlying the two forecasts. Over time the Administration projects a return to the average unemployment rate that prevailed in the 1990s and 2000s.
 
The Administration, CBO, and the Blue Chip Consensus anticipate a subdued rate of inflation over the next two years. In the medium term, inflation is projected to return to a rate of around two percent per year, which is consistent with the Federal Reserve’s long-run policy goal for
inflation. All forecasts all have interest rates increasing substantially in the long run to similar levels. However, the path of interest rate adjustment differs substantially, with the Blue Chip showing a rise in rates that begins before the other forecasters.
 
Changes in Economic Assumptions.—The 2014 Budget forecast reflects economic developments over the past year, but some of the forecast values are similar to those of the 2013 Budget, especially in the long run (see Table 2–4). The previous Budget anticipated more rapid growth in 2013-2017 than the current Budget, and assumed a slightly higher rate of potential GDP growth in the long run. The projection for the long-term unemployment rate has remained unchanged, but the forecast starts from a lower level, reflecting the sharper-than-expected decline in 2012. Projected interest rates are lower in the medium term, reflecting the additional actions by the Federal Reserve to keep rates low for an extended period, and they are slightly lower in the long term as well. As in last year’s projections, inflation is also projected to return to its long-run average consistent with Federal Reserve policy, now estimated at 0.1 percentage point higher than last year at 2.2 percent for the CPI-U and 1.9 percent for the GDP price index.
Table 2–4Comparison of Economic Assumptions in the 2013 and 2014 Budgets

(Calendar years; dollar amounts in billions)

 

 

 

2012

 

2013

 

2014

 

2015

 

2016

 

2017

 

2018

 

2019

 

2020

 

2021

 

2022

nominal GDp:

 

 

15,779

 

 

16,522

 

 

17,397

 

 

18,448

 

 

19,533

 

 

20,651

 

 

21,689

 

 

22,666

 

 

23,659

 

 

24,688

 

 

25,760

2013 Budget Assumptions1  ...........................................................

2014 Budget Assumptions ............................................

15,705

16,384

17,235

18,181

19,192

20,247

21,275

22,247

23,219

24,216

25,253

Real GDp (2005 dollars):

 

 

 

 

 

 

 

 

 

 

 

2013 Budget Assumptions1  ...........................................................

13,687

14,097

14,606

15,211

15,821

16,431

16,952

17,403

17,844

18,290

18,748

2014 Budget Assumptions ............................................

13,600

13,907

14,358

14,864

15,399

15,943

16,441

16,873

17,283

17,692

18,104

Real GDp (percent change):2

 

 

 

 

 

 

 

 

 

 

 

2013 Budget Assumptions ............................................

2.7

3.0

3.6

4.1

4.0

3.9

3.2

2.7

2.5

2.5

2.5

2014 Budget Assumptions ............................................

2.3

2.3

3.2

3.5

3.6

3.5

3.1

2.6

2.4

2.4

2.3

GDp price index (percent change):2

 

 

 

 

 

 

 

 

 

 

 

2013 Budget Assumptions ............................................

1.7

1.7

1.6

1.8

1.8

1.8

1.8

1.8

1.8

1.8

1.8

2014 Budget Assumptions ............................................

1.9

2.0

1.9

1.9

1.9

1.9

1.9

1.9

1.9

1.9

1.9

consumer price index (all-urban; percent change):2

 

 

 

 

 

 

 

 

 

 

 

2013 Budget Assumptions ............................................

2.2

1.9

2.0

2.0

2.1

2.1

2.1

2.1

2.1

2.1

2.1

2014 Budget Assumptions ............................................

2.1

2.1

2.2

2.2

2.2

2.2

2.2

2.2

2.2

2.2

2.2

civilian unemployment Rate (percent):3

 

 

 

 

 

 

 

 

 

 

 

2013 Budget Assumptions ............................................

8.9

8.6

8.1

7.3

6.5

5.8

5.5

5.4

5.4

5.4

5.4

2014 Budget Assumptions ............................................

8.1

7.7

7.2

6.7

6.2

5.7

5.5

5.4

5.4

5.4

5.4

91-dayTreasury bill rate (percent):3

 

 

 

 

 

 

 

 

 

 

 

2013 Budget Assumptions ............................................

0.1

0.2

1.4

2.7

3.9

4.1

4.1

4.1

4.1

4.1

4.1

2014 Budget Assumptions ............................................

0.1

0.1

0.2

0.4

1.3

2.3

3.2

3.6

3.7

3.7

3.7

10-yearTreasury note rate (percent):3

 

 

 

 

 

 

 

 

 

 

 

2013 Budget Assumptions ............................................

2.8

3.5

3.9

4.4

4.7

5.0

5.1

5.1

5.1

5.3

5.3

2014 Budget Assumptions ............................................

1.8

2.0

2.6

3.1

3.7

4.1

4.4

4.6

4.8

5.0

5.0

1 Adjusted for July 2012 NIPA revisions.

2 Calendar year over calendar year.

3 Calendar year average.

Sensitivity of the Budget to Economic Assumptions

Both receipts and outlays are affected by changes in economic conditions. Budget receipts vary with individual and corporate incomes, which respond to both real economic growth and inflation. At the same time, outlays for many Federal programs are directly linked to developments in the economy. For example, most retirement and other social insurance benefit payments are tied by law to consumer price indices. Medicare and Medicaid outlays are affected directly by the price of medical services. Interest on the debt is linked to market interest rates and the size of the budget surplus or deficit, both of which in turn are influenced by economic conditions. Outlays for certain benefits such as unemployment compensation and the Supplemental Nutrition Assistance Program vary with the unemployment rate.
 
This sensitivity complicates budget planning because differences in economic assumptions lead to changes in the budget projections. Economic forecasting inherently entails uncertainty. It is therefore useful to examine the implications of possible changes in economic assumptions. Many
of the budgetary effects of such changes are fairly predictable, and a set of general principles or “rules of thumb” embodying these relationships can aid in estimating how changes in the economic assumptions would alter outlays, receipts, and the surplus or deficit. These rules of thumb
should be understood as suggesting orders of magnitude; they do not account for potential secondary effects.
 
The rules of thumb show how the changes in economic variables affect Administration estimates for receipts and outlays, holding other factors constant. They are not a prediction of how receipts or outlays would actually turn out if the economic changes actually materialized. The rules of thumb are based on a fixed budget policy that is not always a good predictor of what might actually happen to the budget should the economic outlook change substantially. For example, unexpected downturns in real economic growth, and attendant job losses, usually give rise to legislative actions to stimulate the economy with additional countercyclical policies. Also, the rules of thumb do not reflect certain “technical” changes that often accompany the economic changes. For example, changes in capital gains realizations often accompany changes in the economic outlook. On the spending side of the budget, the rules of thumb do not capture changes in deposit insurance outlays, even though bank failures are generally associated with weak economic growth and rising unemployment.
 
Economic variables that affect the budget do not always change independently of one another. Output and employment tend to move together in the short run: a high rate of real GDP growth is generally associated with a declining rate of unemployment, while slow or negative growth is usually accompanied by rising unemployment, a relationship known as Okun’s Law. In the long run, however, changes in the average rate of growth of real GDP are mainly due to changes in the rates of growth of productivity and the labor force, and are not necessarily associated with changes in the average rate of unemployment. Expected inflation and interest rates are also closely interrelated: a higher expected rate of inflation increases nominal interest rates, while lower expected inflation reduces them.
 
Changes in real GDP growth or inflation have a much greater cumulative effect on the budget if they are sustained for several years than if they last for only one year. However, even temporary changes can have lasting effects if they permanently raise the level of the tax base or the level of Government spending. Moreover, temporary economic changes that affect the deficit or surplus change the level of the debt, affecting future interest payments. Highlights of the budgetary effects of these rules of thumb are shown in Table 2-5. My Note: See below with Table 2-6.
 
For real growth and employment:
• The first block shows the effect of a temporary reduction in real GDP growth by one percentage point sustained for one year, followed by a recovery of GDP to the base-case level (the Budget assumptions) over the ensuing two years. In this case, the unemployment rate is assumed to rise by one-half percentage point relative to the Budget assumptions by the end of the first year, then return to the base case rate over the
ensuing two years. After real GDP and the unemployment rate have returned to their base case levels, most budget effects vanish except for persistent out-year interest costs associated with larger near-term deficits.
• The second block shows the effect of a reduction in real GDP growth by one percentage point sustained for one year, with no subsequent “catch up,” accompanying a permanent increase in the natural rate of unemployment (and of the actual unemployment rate) of one-half percentage point relative to the Budget assumptions. In this scenario, the level of GDP and taxable incomes are permanently lowered by the reduced growth rate in the first year. For that reason and because unemployment is permanently higher, the budget effects (including growing interest costs associated with larger deficits) continue to grow in each successive year.
• The budgetary effects are much larger if the growth rate of real GDP is permanently reduced by one percentage point even leaving the unemployment rate unchanged, as might result from a shock to productivity growth. These effects are shown in the third block. In this example, the cumulative increase in the budget deficit is many times larger than the effects in the first and second blocks.
 
For inflation and interest rates:
• The fourth block shows the effect of a one percentage point higher rate of inflation and one percentage point higher nominal interest rates maintained for the first year only. In subsequent years, the price level and nominal GDP would both be one percentage point higher than in the base case, but interest rates and future inflation rates are assumed to return to their base case levels. Receipts increase by somewhat more than outlays. This is partly due to the fact that outlays for annually appropriated spending are assumed to remain constant when projected inflation changes. Despite the apparent implication of these estimates, inflation cannot be relied upon to lower the budget deficit, mainly because policy-makers have traditionally prevented inflation from permanently eroding the real value of spending.
• In the fifth block, the rate of inflation and the level of nominal interest rates are higher by one percentage point in all years. As a result, the price level and nominal GDP rise by a cumulatively growing percentage above their base levels. In this case, again the effect on receipts is more than the effect on outlays. As in the previous case, these results assume that annually appropriated spending remains fixed under the discretionary spending limits. Over the time period covered by the budget, leaving the discretionary limits unchanged would significantly erode the real value of this category of spending.
• The effects of a one percentage point increase in interest rates alone are shown in the sixth block. The out lay effect mainly reflects higher interest costs for Federal debt. The receipts portion of this rule-of-thumb is due to the Federal Reserve’s deposit of earnings on its securities portfolio and the effect of interest rate changes on both individuals’ income (and taxes) and financial corporations’ profits (and taxes).
• The seventh block shows that a sustained one percentage point increase in CPI and GDP price index inflation decreases cumulative deficits substantially, due in part to the assumed erosion in the real value of appropriated spending. Note that the separate effects of higher inflation and higher interest rates shown in the sixth and seventh blocks do not sum to the effects for simultaneous changes in both shown in the fifth block. This is because the gains in budget receipts due to higher inflation result in higher debt service savings when interest rates are also assumed to be higher in the fifth block than when interest rates are assumed to be unchanged in the seventh block.
• The last entry in the table shows rules of thumb for the added interest cost associated with changes in the budget deficit, holding interest rates and other economic assumptions constant.
 
The effects of changes in economic assumptions in the opposite direction are approximately symmetric to those shown in the table. The impact of a one percentage point lower rate of inflation or higher real growth would have about the same magnitude as the effects shown in the table, but with the opposite sign.

Forecast Errors for Growth, Inflation, and Interest Rates

As can be seen in Table 2-5, the single most important variable that affects the accuracy of the budget projections is the forecast of the growth rate of real GDP. The rate of inflation and the level of interest rates also have substantial effects on the accuracy of projections. Table 2-6 shows errors in short- and long-term projections in past Administration forecasts, and compares these errors to those of CBO and the Blue Chip Consensus of private forecasts for real GDP, inflation and short-term interest rates. 5
Table 2–5Sensitivity of the Budget to Economic Assumptions

(Fiscal years; in billions of dollars)

 

 

Budget effect

 

 

2013

 

 

2014

 

 

2015

 

 

2016

 

 

2017

 

 

2018

 

 

2019

 

 

2020

 

 

2021

 

 

2022

 

 

2023

Total of Effects, 2013–2023

Real Growth and Employment

 

 

 

 

 

–16.2

 

 

 

 

 

–24.5

 

 

 

 

 

–11.2

 

 

 

 

 

–1.1

 

 

 

 

 

0.4

 

 

 

 

 

0.4

 

 

 

 

 

0.4

 

 

 

 

 

0.4

 

 

 

 

 

0.3

 

 

 

 

 

0.4

 

 

 

 

 

0.3

 

 

 

 

 

–50.5

Budgetary effects of 1 percent lower real GDp growth:

(1) For calendar year 2013 only, with real GDP recovery in

2014–15:

Receipts ................................................................................

Outlays ..................................................................................

4.0

9.4

4.7

0.8

1.2

2.0

2.4

2.6

2.7

2.8

2.9

35.6

Increase in deficit (+) .......................................................

20.2

33.9

15.9

1.9

0.8

1.6

2.0

2.3

2.4

2.5

2.6

86.1

(2) For calendar year 2013 only, with no subsequent recovery:

 

–16.2

 

–32.9

 

–37.8

 

–40.4

 

–43.4

 

–46.2

 

–49.1

 

–51.9

 

–55.0

 

–58.0

 

–61.3

 

–492.3

Receipts ................................................................................

Outlays ..................................................................................

4.0

11.4

13.0

15.3

19.3

24.5

29.5

33.7

37.8

42.1

46.6

277.2

Increase in deficit (+) .......................................................

20.2

44.3

50.8

55.7

62.7

70.7

78.6

85.7

92.8

100.1

107.9

769.5

(3) Sustained during 2013 - 2023, with no change in

 

 

–16.4

 

 

–50.6

 

 

–93.9

 

 

–143.4

 

 

–200.4

 

 

–262.1

 

 

–330.1

 

 

–402.1

 

 

–480.2

 

 

–564.0

 

 

–654.4

 

 

–3,197.6

unemployment:

Receipts ................................................................................

Outlays ..................................................................................

–0.3

–0.7

–0.9

0.1

4.9

14.8

28.0

41.7

57.1

75.6

97.0

317.2

Increase in deficit (+) .......................................................

16.1

49.9

93.0

143.6

205.2

276.9

358.2

443.8

537.3

639.6

751.4

3,514.9

inflation and interest Rates

 

 

 

 

21.3

 

 

 

 

41.5

 

 

 

 

41.6

 

 

 

 

41.1

 

 

 

 

44.5

 

 

 

 

47.8

 

 

 

 

50.9

 

 

 

 

53.9

 

 

 

 

57.1

 

 

 

 

60.3

 

 

 

 

63.4

 

 

 

 

523.4

Budgetary effects of 1 percentage point higher rate of:

(4) Inflation and interest rates during calendar year 2013 only:

Receipts ................................................................................

Outlays ..................................................................................

22.1

39.5

32.0

32.7

32.0

31.9

30.5

30.4

29.0

29.8

29.5

339.4

Decrease in deficit (–) ......................................................

0.8

–2.0

–9.7

–8.4

–12.5

–15.9

–20.5

–23.4

–28.0

–30.5

–33.9

–184.0

(5) Inflation and interest rates, sustained during 2013 - 2023:

 

21.3

 

63.7

 

111.0

 

165.2

 

229.6

 

296.7

 

369.2

 

448.3

 

540.3

 

638.6

 

741.0

 

3,624.8

Receipts ................................................................................

Outlays ..................................................................................

19.8

68.0

111.8

155.3

196.2

236.2

278.4

321.4

363.8

411.8

454.4

2,617.1

Decrease in deficit (–) ......................................................

–1.5

4.3

0.8

–9.9

–33.4

–60.5

–90.8

–126.8

–176.5

–226.8

–286.6

–1,007.6

(6) Interest rates only, sustained during 2013 - 2023:

 

5.0

 

13.8

 

19.2

 

24.9

 

32.5

 

36.6

 

39.3

 

42.7

 

50.1

 

57.2

 

60.6

 

381.8

Receipts ................................................................................

Outlays ..................................................................................

11.0

41.5

64.5

83.3

101.3

119.1

135.2

151.0

164.0

177.3

188.9

1,237.2

Increase in deficit (+) .......................................................

5.9

27.7

45.3

58.5

68.8

82.6

95.9

108.3

114.0

120.2

128.3

855.4

(7) Inflation only, sustained during 2013 - 2023:

 

16.2

 

49.7

 

91.3

 

139.7

 

196.2

 

259.0

 

328.5

 

403.8

 

488.0

 

578.8

 

677.4

 

3,228.5

Receipts ................................................................................

Outlays ..................................................................................

8.8

26.8

48.0

73.3

97.2

120.9

149.0

178.8

211.2

249.7

285.3

1,449.0

Decrease in deficit (–) ........................................................

–7.4

–22.9

–43.4

–66.4

–99.0

–138.1

–179.5

–224.9

–276.9

–329.1

–392.0

–1,779.5

interest cost of higher Federal Borrowing

 

0.1

 

0.2

 

0.3

 

0.9

 

2.0

 

3.2

 

4.0

 

4.4

 

4.6

 

4.8

 

5.0

 

29.5

(8) Outlay effect of $100 billion increase in borrowing in 2013 .....

1 The unemployment rate is assumed to be 0.5 percentage point higher per 1.0 percent shortfall in the level of real GDP.

Table 2–6. Forecast Errors, January 1982–Present

 

REAL GDP ERRRS

2-Year Average Annual Real GDp Growth

 

 

Admin.

 

 

CBO

 

 

Blue Chip

Mean Error .......................................................................................

0.1

–0.1

–0.2

Mean Absolute Error ........................................................................

1.2

1.1

1.1

Root Mean Square Error .................................................................

1.6

1.4

1.5

6-Year Average Annual Real GDp Growth

Mean Error .......................................................................................

0.2

–0.1

–0.1

Mean Absolute Error ........................................................................

0.9

0.8

0.8

Root Mean Square Error .................................................................

1.1

1.1

1.1

inFlATion ERRoRs

 

 

 

2-Year Average Annual change in the GDp price index

Admin.

CBO

Blue Chip

Mean Error .......................................................................................

0.2

0.2

0.4

Mean Absolute Error ........................................................................

0.7

0.7

0.7

Root Mean Square Error .................................................................

0.8

0.9

0.9

6-Year Average Annual change in the GDp price index

Mean Error .......................................................................................

0.3

0.4

0.7

Mean Absolute Error ........................................................................

0.7

0.8

0.9

Root Mean Square Error .................................................................

0.8

0.9

1.1

inTEREsT RATE ERRoRs

 

 

 

2-Year Average 91-DayTreasury Bill Rate

Admin.

CBO

Blue Chip

Mean Error .......................................................................................

0.3

0.4

0.6

Mean Absolute Error ........................................................................

1.0

0.9

1.0

Root Mean Square Error .................................................................

1.3

1.1

1.3

6-Year Average 91-DayTreasury Bill Rate

Mean Error .......................................................................................

0.4

0.9

1.1

Mean Absolute Error ........................................................................

1.0

1.1

1.2

Root Mean Square Error .................................................................

1.2

1.3

1.4

Over both a two-year and six-year horizon, the average annual real GDP growth rate was very slightly overestimated by the Administration and slightly underestimated by the CBO and Blue Chip in the forecasts made since 1982. Overall, the differences between the three forecasters

were minor. The mean absolute error in the annual average growth rate was about 1.5 percentage point per year for all forecasters for two-year projections, and was about one-third smaller for all three for the six-year projections. The greater accuracy in the six-year projections could reflect a tendency of real GDP to revert at least partly to trend, though the overall evidence on whether GDP growth is mean reverting is mixed. Another way to interpret the result is that it is hard to predict GDP around turning points in the business cycle, but somewhat easier to project the six-year growth rate based on assumptions about the labor force, productivity, and other factors that affect GDP.
 
Inflation, as measured by the GDP price index, was overestimated by all forecasters (with Blue Chip having the largest errors) for both the two-year and six-year projections, with larger errors for the six-year projections. This reflects the gradual disinflation over the 1980s and early 1990s, which was greater than most forecasters expected. Average errors for all three sets of forecasts since 1994 were close to zero (not shown).
 
The interest rate on the 91-day Treasury bill was also overestimated by all three forecasters, with errors larger for the six-year time horizon. Again this reflects the secular decline in interest rates over the past 30 years, reflecting lower inflation for most of the period, as well as a decline in real interest rates since 2000 resulting from weakness in the economy and Federal Reserve policy. The errors were somewhat less for the Administration than for CBO and the Blue Chip forecasts.

Alternative Scenarios

The rules of thumb described above can be used in combination to show the effect on the budget of alternative economic scenarios. Considering explicit alternative scenarios can also be useful in gauging some of the risks to the current budget projections. For example, the strength of the recovery over the next few years remains highly uncertain. Those possibilities are explored in the two alternative scenarios presented in this section and shown in Chart 2-3.
Chart 2‐3. Real GDP: Alternative Projections
Chart2-3.png
 
The first alternative scenario assumes that real GDP growth and unemployment beginning in 2012:Q4 follow the projections in the March 2013 Blue Chip forecast through the end of 2023, which includes their semi-annual long-run extension of the Blue Chip forecast. In this case, after 2012, the level of GDP remains lower than the Administration’s forecast throughout the projection period. This alternative includes a smaller real recovery from the loss of output during the 2008-2009 recession. Growth returns to normal, but without a substantial catch-up to make up for previous output losses.
 
The second alternative is the average of the highest 10 real GDP projections of the Blue Chip forecasters, also based on the March forecasts. This forecast is close to the Administration’s forecast through 2017 with the high-10 Blue Chip growth exceeding the Administration’s in the out years.
 
Table 2-7 shows the budget effects of these alternative scenarios compared with the Administration’s economic forecast. Under the first alternative, budget deficits are significantly higher in each year compared to the Administration’s forecast. In the second alternative, the deficit is close to the Administration’s projection in the near term, but results in a lower deficit in the long run and cumulatively over 10 years.
Table 2–7. Budget Effects of Alternative Scenarios

My Note: This table converted well from PDF to Word, but was reformatted for Spotfire.

(Fiscal years; in billions of dollars)

Alternative Budget Deficit Projections:

Administration Economic Assumptions

2013

2014

2015

2016

2017

2018

2019

2020

2021

2022

2023

 

 

 

973

 

 

744

 

 

576

 

 

528

 

 

487

 

 

475

 

 

498

 

 

503

 

 

501

 

 

519

 

 

439

Deficit

Percent of GDP

6.0%

4.4%

3.2%

2.8%

2.4%

2.3%

2.3%

2.2%

2.1%

2.1%

1.7%

Alternative Scenario 1

992

787

640

624

633

663

711

732

742

768

696

Percent of GDP

6.2%

4.7%

3.6%

3.4%

3.3%

3.3%

3.3%

3.3%

3.2%

3.2%

2.8%

Alternative Scenario 2

978

744

567

523

504

501

506

481

443

424

304

Percent of GDP

6.1%

4.4%

3.2%

2.8%

2.5%

2.4%

2.3%

2.1%

1.8%

1.7%

1.1%

My Note: This came from copying the PDF-to-Word Version - Current Population Survey, Labor Productivity and Costs; Bureau of Economic Analysis, National Income and Product Accounts; Department of the Treasury; Office of Management and Budget; CEA calculations.

Many other scenarios are possible, of course, but the point is that the most important influences on the budget projections beyond the next year or two are the rate at which GDP and employment recover from the recession.

Uncertainty and the Deficit Projections

The accuracy of budget projections depends not only on the accuracy of economic projections, but also on technical factors and the differences between proposed policy and enacted legislation. Chapter 29 provides detailed information on these factors for the budget year projections
(Table 29-6), and also shows how the deficit projections compared to actual outcomes, on average, over a five-year window using historical data from 1982 to 2012 (Table 29-7). The error measures can be used to show a probabilistic range of uncertainty of what the range of deficit outcomes may be over the next five years relative to the Administration’s deficit projection. Chart 2-4 shows this cone of uncertainty, which is constructed under the assumption that future forecast errors would be governed by the normal distribution with a mean of zero and standard error equal to the root mean squared error, as a percent of GDP, of past forecasts. The deficit is projected to be 2.3 percent of GDP in 2018, but has a 90 percent chance of being within a range of a surplus of 4.8 percent of GDP and a deficit of 9.4 percent of GDP.
Chart 2-4. Range of Uncertainty for the Budget Deficit

Chart2-4.png

Structural and Cyclical Deficits

As shown above, the budget deficit is highly sensitive to the business cycle. When the economy is operating below its potential and the unemployment rate exceeds the level consistent with price stability, receipts are lower, outlays are higher, and the deficit is larger than it would
be otherwise. These features serve as “automatic stabilizers” for the economy by restraining output when the economy threatens to overheat and cushioning economic downturns. They also make it hard to judge the overall stance of fiscal policy simply by looking at the unadjusted budget deficit.
 
An alternative measure of the budget deficit is called the structural deficit. This measure provides a more useful perspective on the stance of fiscal policy than does the unadjusted unified budget deficit. The portion of the deficit traceable to the automatic effects of the business cycle
is called the cyclical component. The remaining portion of the deficit is called the structural deficit. The structural deficit is a better gauge of the underlying stance of fiscal policy than the unadjusted unified deficit because it removes most of the effects of the business cycle. So, for
example, the structural deficit would include fiscal policy changes such as the 2009 Recovery Act, but not the automatic changes in unemployment insurance or reduction in tax receipts that would have occurred without the Act.
 
Estimates of the structural deficit, shown in Table 2-8, are based on the historical relationship between changes in the unemployment rate and real GDP growth, as well as relationships of unemployment and real GDP growth with receipts and outlays. These estimated relationships take account of the major cyclical changes in the economy and their effects on the budget, but they do not reflect all the possible cyclical effects on the budget, because economists have not been able to identify the cyclical factor in some of these other effects. For example, the sharp decline in the stock market in 2008 pulled down capital gains-related receipts and increased the deficit in 2009 and beyond. Some of this decline is cyclical in nature, but economists have not identified the cyclical component of the stock market with any precision, and for that reason,
all of the stock market’s contribution to receipts is counted in the structural deficit.
Table 2–8The Structural Balance

(Fiscal years; in billions of dollars)

 

2007

2008

2009

2010

2011

2012

2013

2014

2015

2016

2017

2018

2019

2020

2021

2022

2023

Unadjusted surplus (–) or deficit ....

161

459

1,413

1,293

1,300

1,087

973

744

576

528

487

475

498

503

501

519

439

Cyclical component ..................

–107

–41

311

437

451

454

522

482

404

291

169

64

10

–3

2

–1

0

Structural surplus (–) or deficit ......

268

499

1,102

857

849

633

450

262

172

237

318

411

488

506

499

520

439

(Fiscal years; percent of Gross Domestic Product)

 

Unadjusted surplus (–) or deficit .... Cyclical component ..................

Structural surplus (–) or deficit ......

1.2%

–0.8%

3.2%

–0.3%

10.1%

2.2%

9.0%

3.0%

8.7%

3.0%

7.0%

2.9%

6.0%

3.2%

4.4%

2.8%

3.2%

2.3%

2.8%

1.5%

2.4%

0.8%

2.3%

0.3%

2.3%

0.0%

2.2%

–0.0%

2.1%

0.0%

2.1%

–0.0%

1.7%

0.0%

1.9%

3.5%

7.9%

6.0%

5.7%

4.1%

2.8%

1.5%

1.0%

1.3%

1.6%

2.0%

2.2%

2.2%

2.1%

2.1%

1.7%

NOTE: The NAIRU is assumed to be 5.4%.

 
Another factor that can affect the deficit and is related to the business cycle is labor force participation. Since the official unemployment rate does not include workers who have left the labor force, the conventional measures of potential GDP, incomes, and Government receipts understate the extent to which potential work hours are under-utilized because of a decline in labor force participation. The key unresolved question here is to what extent changes in labor force participation are cyclical and to what extent they are structural. By convention, in estimating the structural budget deficit, all changes in labor force participation are treated as structural.
 
There are also lags in the collection of tax revenue that can delay the impact of cyclical effects beyond the year in which they occur. The result is that even after the unemployment rate has fallen, receipts may remain cyclically  depressed for some time until these lagged effects have dissipated. The recent recession has added substantially to the estimated cyclical component of the deficit, but for all the reasons stated above, the cyclical component is probably understated. As the economy recovers, the cyclical deficit is projected to decline. After unemployment reaches 5.4 percent, the level assumed to be consistent with stable inflation, the estimated cyclical component vanishes, leaving only the structural deficit, although some lagged cyclical effects would arguably still be present.
 
Despite these limitations, the distinction between cyclical and structural deficits is helpful in understanding the path of fiscal policy. The large increase in the deficit in 2009 and 2010 is due to a combination of both components of the deficit. There is a large increase in the cyclical
component because of the rise in unemployment. That is what would be expected considering the severity of the recent recession. Finally, there is a large increase in the structural deficit because of the policy measures taken to combat the recession. This reflects the Government’s decision to make active use of fiscal policy to lessen the severity of the recession and to hasten economic recovery. Between 2014 and 2018, the cyclical component of the deficit is projected to decline sharply as the economy recovers at an above-trend rate of GDP growth. The structural deficit shrinks during 2012–2014, reflecting the measures of fiscal constraint that have been enacted combined with
the Administration’s policy proposals.

Footnotes

1

In the Budget, economic performance is discussed in terms of calendar years. Budget figures are discussed in terms of fiscal years.

2

The dating of U.S. business cycles is done by the National Bureau of Economic Research, a private institution that has supported economic research on business cycles and other topics for many decades.

3

There are several measures of national housing prices. Two respected measures that attempt to correct for variations in housing quality are the S&P/Case-Shiller Home Price Index and the Federal Housing Finance Agency (FHFA) Purchase-Only House Price Index. The Case-Shiller index peaked in 2006, while the FHFA index peaked in 2007.

4

Real wealth is computed by deflating household net worth from the Flow-of-Funds Accounts by the Chained Price Index for Personal Consumption Expenditures. Data are available through 2012:Q3.

5
Two-year errors for real GDP and the GDP price index are the average annual errors in percentage points for year-over-year growth rates for the current year and budget year. For interest rates, the error is based on the average error for the level of the 91-day Treasury bill rate for the two-year and six-year period. Administration forecasts are from the budgets released starting in February 1982 (1983 Budget) and through February 2010 (2011 Budget), so that the last year included in the projections is 2011. The six-year forecasts are constructed similarly, but the last forecast used is from February 2006 (2007 Budget). CBO forecasts are from “The Budget and Economic Outlook” publications in January each year, and the Blue Chip forecasts are from their January projections.

3. Financial Stabilization Efforts and their Budgetary Effects

 

Footnotes

1

P.L. 111-203.


2

See “OMB Report under the Economic Stabilization Act, Section 202,” August 31, 2012. http://www.whitehouse.gov/sites/defa...ugust_2012.pdf


3

Federal Deposit Insurance Corporation, Quarterly Banking Profile, September 2012. http://www2.fdic.gov/qbp/2012sep/qbp.pdf


4

Spreads for the cost of long-term investment grade borrowing are based upon 10-year Treasury yield and FINRA/Bloomberg Investment Grade U.S. Corporate Bond Index yield.


5

Chrysler, Third Quarter 2012 Financial Results Webcast, October, 30, 2012 http://www.chryslergroupllc.com/Inve...esentation.pdf


6

Note, including proceeds from Treasury’s non-TARP holdings in AIG, the total deficit impact is estimated at $30 billion.


7

The 2014 Budget valuation used the December 31, 2012 share price of $28.83 for Treasury’s GM common stock.


8

Treasury’s investment in AIG common shares consisted of shares acquired in exchange for preferred stock purchased with TARP funds (TARP shares) and shares received from the trust created by the FRBNY for the benefit of Treasury as a result of its loan to AIG (non-TARP shares).


9

Trust Preferred Securities (TruPS) are financial instruments that have the following features: they are taxed like debt; counted as equity by regulators; are generally longer term; have early redemption features; make quarterly fixed interest payments; and mature at face value.


10

Chrysler repayments of $11.1 billion include $560 million in proceeds from the sale of Treasury’s 6 percent fully diluted equity interest in Chrysler to Fiat and Treasury’s interest in an agreement with the UAW retiree trust that were executed on July 21, 2011.


11

For additional information on MHA programs, visit: http://www.makinghomeaffordable.gov/.

12

This program has also been referred to as the FHA Short Refinance Program or Option in other reporting. The FHA Refinance Program is not a Treasury program, but is supported through the TARP with $1 billion to cover a share of any losses on FHA Refinance loans.


13

For additional information on MHA programs, visit: http://www.makinghomeaffordable.gov/.


14

Section 123 of the EESA provides the Administration the authority to record TARP equity purchases pursuant to the FCRA, with required adjustments to the discount rate for market risks. The Making Home Affordable programs and HFA Hardest Hit Fund involve the purchase of financial instruments which have no provision for repayment or other return on investment, and do not constitute direct loans or guarantees under FCRA. Therefore these purchases are recorded on a cash basis Administrative expenses are recorded for all of TARP under the Office of Financial Stability and the Special Inspector General for TARP on a cash basis, consistent with other Federal administrative costs.


15

The analysis does not assume the effects on net TARP costs of a recoupment proposal authorized under Section 134 of EESA.


16

With the exception of the Making Home Affordable and HFA Hardest-Hit Fund programs, all the other TARP investments are reflected on a present value basis pursuant to the FCRA and the EESA.


17

For example, to finance a loan disbursement to a borrower, a direct loan financing account receives the subsidy cost from the program account, and borrows the difference between the face value of the loan and the subsidy cost from the Treasury. As loan and interest payments from the public are received, the value is realized and these amounts are used to repay the financing account’s debt to Treasury.


18

As an extreme example, a direct loan program with 100 percent subsidy cost would require budget authority for the full amount of the loan. The financing account would receive the entire amount of a loan disbursement from the budgetary program account, and would not have to borrow from the Treasury. In this case, the loan would be estimated to have a zero asset value.


19

Reestimates for TARP are calculated using actual data through September 30, 2012, and updated projections of future activity. Thus, the full impacts of TARP reestimates are reflected in the 2013 financing account balances.


20

Transactions that occurred after December 31, 2012 are described for narrative continuity, but are not included in the reestimate of TARP program costs contained in the 2014 Budget.


21

Changes to the FHA program fee structure anticipated to start in 2013 are sufficient to cover anticipated losses. As a result, TARP first-loss coverage is not anticipated on FHA Short Refi loans after the revised fee structure is implemented.


22

As TARP transactions wind down, the final lifetime cost estimates under the requirements of Section 123 of EESA will reflect no adjustment to the discount rate for market risks, as these risks have already been realized in the actual cash flows. Therefore, the final subsidy cost for TARP transactions will equal the cost per FCRA, where the net present value costs are estimated by discounting cashflows using Treasury
rates.


23

For the Making Home Affordable programs and the HFA Hardest Hit Fund, Treasury’s purchase of financial instruments does not result in the acquisition of an asset with potential for future cash flows, and therefore are recorded on a cash basis.


24

United States. Congressional Budget Office. Report on the Troubled Asset Relief Program – October 2012. Washington: CBO, 2012. http://www.cbo.gov/sites/default/fil...P10-2012_0.pdf


25

For example, if there were a 100 percent default expectation on a loan, and losses given default were projected at 100 percent, the market risk adjustment to the discount rate would be zero. This reflects the fact that there are no unexpected losses if losses are expected to be 100 percent of the face value of the loan.

4. Long Term Budget Outlook

The horizon for the detailed estimates of receipts and outlays in the President’s Budget is 10 years. This 10-year horizon balances consideration of the future impacts of budget decisions made today and a practical limit on the construction of detailed budget projections for years in the future.
 
Decisions made today can have important repercussions beyond the 10-year horizon. It is important to anticipate budgetary requirements beyond the 10-year horizon, and the effects of changes in policy on those requirements, despite the uncertainty surrounding the assumptions needed for such estimates. Long-run budget projections can be useful in drawing attention to potential problems that could become unmanageable if allowed to grow.
 
To this end, the budget projections in this chapter extend the 2014 Budget for 75 years through 2088. Because of the uncertainties involved in making long-run projections, results are presented for a base case and for several alternative scenarios.
 
Recent legislation has led to significant improvements in the Nation’s long-term fiscal health. First, the passage of the Affordable Care Act (ACA) in 2010 enacted cost-reduction mechanisms in the health sector that will reduce deficits by more than $1 trillion over the first two decades, according to the Congressional Budget Office (CBO), and have the potential to significantly reduce the trajectory of health spending, and future budget deficits, over the long run. Second, the Budget Control Act of 2011 (BCA) reduced the long-term path of discretionary spending by placing such spending under tight limits through 2021. Most recently, enactment of the American Taxpayer Relief Act of 2012 this past January increased income tax rates on the highest-income taxpayers, increasing tax receipts above prior projections.
 
The 2014 Budget includes further initiatives that would help control future deficits. The projections in this chapter include several methodological changes that highlight the fact that simply extending current laws and the Budget’s policies puts the country on a course to balance the budget, with the publicly held debt falling relative to the economy even sooner. While additional reforms may be required to ensure that programs like Medicare Part A and Social Security, which are financed from dedicated revenue sources, remain self-sustaining, overall budgetary resources would be sufficient to support future spending over the long term if Budget policies and assumptions are carried forward. Nonetheless, there is considerable uncertainty in the Administration’s long-term projections, and future challenges will require policy responses that have yet to be formulated.
 
When the current Administration took office, the budget deficit was rising sharply because of the declining economy and measures taken to revive it. Revenues had fallen, as a share of GDP, to their lowest level since 1950. Spending on countercyclical programs like unemployment insurance had also risen sharply. The measures taken by the Administration to revive economic growth are helping to increase revenues, and the tax increases on high-income taxpayers will boost revenues further. Meanwhile, as noted above, measures like the ACA and the BCA along with the proposals in this Budget will constrain future spending and help narrow the deficit. By the end of the 10-year period, the primary budget—receipts and noninterest spending—is estimated to be in surplus with the debt-to-GDP ratio declining. Beyond the 10-year horizon, however, demographic pressures and continued high costs for health care are likely to begin gradually pushing up the deficit and the ratio of debt to GDP for an additional 15 years before the easing of baby boom retirements, continued control in Government discretionary spending and health costs, and gradually rising revenues due to growing household income turn the country on a course toward reducing the debt-to-GDP ratio and balancing the budget in 2055.
 
The key to long-range fiscal sustainability is balancing the Government’s commitments for major health and retirement programs—Medicare, Medicaid and Social Security—with sufficient tax receipts along with control in discretionary and non-entitlement spending, while allowing for additional entitlement reforms as appropriate.
 
• Medicare’s growth has generally exceeded that of other Federal spending for decades, tracking the rapid growth in overall health care costs. The ACA is curtailing this cost growth, but Medicare spending is still projected to reach higher levels relative to the economy and the rest of the budget than those that prevail today, due both to rising health costs and the aging population.
• Medicaid’s growth has, like Medicare, generally tracked the growth in overall health costs, and therefore historically exceeded that of other Federal spending. Medicaid assistance will expand further beginning in 2014 because of broadened coverage provided by the ACA. However, the ACA’s reforms are also expected to reduce Medicaid per beneficiary spending growth in the long-run projections, as Medicare cost containment spills over into the rest of the health sector.
• Outlays for Social Security benefits will rise as a share of the economy as the population ages, putting pressure on the long-term budget.
• Discretionary spending for both defense and nondefense programs will continue to shrink relative to this form of spending to growth rates lower than inflation. It is unlikely that the growth in discretionary spending will continuously remain lower than inflation over the very long term, so after the end of the 10-year budget window, the projections allow for growth with inflation and population growth to effectively hold discretionary spending constant on a real per capita basis.
• Without any further changes in tax law, revenues will gradually rise as a share of the economy over the 75-year horizon, as individuals’ real incomes rise into higher tax brackets (which are indexed for inflation). Without future legislative action to cut taxes, revenues will continue to gradually rise as a share of the economy.
 
Future budget outcomes depend on a host of unknowns—changing economic conditions, unforeseen international developments, unexpected demographic shifts, the unpredictable forces of technological advance, and evolving political preferences, to name a few reasons that the budget outcomes could change for reasons other than the inevitability of future legislated changes. These uncertainties make even short-run budget forecasting quite difficult, and the uncertainties increase the further into the future projections are extended. A full treatment of all the relevant risks is beyond the scope of this chapter, but the chapter does show how sensitive long-run budget projections are to changes in some of key economic and demographic assumptions.

The Long-Run Budget Projections

The 2014 Budget includes nearly $1.8 trillion in net deficit reduction over the next 10 years. Combined with the more than $2.5 trillion in savings from the discretionary spending limits enacted in the BCA and the revenue increases enacted in ATRA, this would generate more than $4.3 trillion in deficit reduction over the next decade. These savings would bring the Nation to the point where current non-interest expenditures are no longer adding to debt and where debt is decreasing as a share of the economy—a key metric of fiscal sustainability. The base case long-run projections begin with the 10-year estimates of revenues and outlays under 2014 Budget policies, which result in a primary surplus of 1.2 percent of GDP and an overall deficit of 1.7 percent of GDP in 2023. In the decade and a half beyond 2023, the fiscal position gradually deteriorates mainly because of the aging of the population and the high continuing cost of health care driving up outlays for Social Security, Medicare, and Medicaid as a share of GDP. Revenues also increase as a share of GDP, but more gradually, due to economic growth. By 2033, the deficit is projected to peak at 2.8 percent of GDP, but thereafter rising revenues and controlled spending along with stabilized entitlement growth cause the deficit to begin to fall rapidly—falling below 2 percent of GDP in 2045, and below 1 percent of GDP in 2051. The Budget reaches balance in 2055, when revenues and outlays are 21.5 percent of GDP, slightly higher than their levels during the budget surpluses of 1998-2001. The Federal Government is then projected to run surpluses over the remainder of the projection window, with publicly-held debt falling rapidly until it reaches zero in 2074 (see Chart 4–1). The 75-year fiscal gap disappears in the base case, becoming a fiscal surplus of 1.6 percent of GDP.
 
Chart 4-1. Publicly Held Debt Under 2014 Budget Policy Extended

Chart4-1.png

 
These projections are not intended to be a prediction of future legislative action, nor are they intended to reflect explicit policy proposals for the years beyond 2023; rather, they are a mechanical extrapolation of the Budget policies. Relative to last year’s projections, the base case projections make two methodological changes, both of which are intended to provide a baseline forecast under the assumption that there are no future legislative changes in policy.
 
First, the projections allow revenues to rise as a share of GDP, as will occur automatically under current law as real household incomes grow. Allowing revenues to rise is methodologically consistent with the approach for the projections of Social Security, Medicare, and other mandatory spending programs in that it projects the levels of revenues that would result under extrapolation of the Budget policies. Under that approach, revenues would rise as a share of GDP because household income is projected to rise in real terms. Real income growth will push households into higher tax brackets (which are indexed toinflation), resulting in taxes that gradually rise as a shareof the economy.
 
Second, after 2023, the new projections increase discretionary spending to keep pace with inflation and population growth, rather than GDP growth. Growing these programs at the rate of inflation plus population growth reflects the growth rate that would be needed to maintain current services per capita. This growth rate is higher than the growth rate for these programs in the baselines assumed by the Office of Management and Budget (OMB) and the CBO in the absence of discretionary spending limits.
 
As shown in Table 4–2, other assumptions lead to substantially different projections. Under a scenario that instead assumes that future policymakers enact additional tax cuts and spending increases such that income tax revenues remain roughly flat as a share of the economy and discretionary spending grows with GDP, deficits and debt rise quickly throughout the 2020s and 2030s before the pace of increase slows around 2040. Deficits ultimately reach 5.6 percent of GDP and debt continues to rise gradually throughout the projection horizon. Under this alternative scenario, there is an overall fiscal gap of 0.7 percent of GDP over the 75-year projection horizon (see Chart 4–2 and Table 4–2). Importantly, however, this alternative scenario effectively assumes that Congress passes substantial new tax cuts in future years. Equivalently, it assumes that households with a given level of income – adjusted future than they do today. Likewise, that scenario allows for significant increases in discretionary spending beyond what would be needed to support current services in per capita terms. In effect, the additional deficits forecast under this scenario are entirely a reflection of projected future Congressional action to reduce taxes and increase discretionary spending, rather than the result of continuation of current policies.
Table 4–2. 75-Year Fiscal Gap (–)/Surplus (+) Under Alternative Budget Scenarios

My Note: Table scraped into Excel from raw table below. Much better!

 

My Note: Table copied from Word (PDF conversion) and aligned by hand. Not good format and real data!

(percent of GDP)

2014 Base Case......................................................................................     1.6
2014 Budget policies plus assumed future tax cuts and spending increases...  –0.7
Health:
Excess cost growth averages 0% .............................................................     2.9
Excess cost growth averages 1% .............................................................     0.8
Discretionary Outlays:
Grow with inflation ....................................................................................    2.0
Grow with GDP ........................................................................................    0.5
Revenues:
Income tax brackets are regularly increased ...............................................    0.4
Productivity:
Productivity grows by 0.25 percent per year faster than the base case ...... .....  3.5
Productivity grows by 0.25 percent per year slower than the base case .....    ..–0.4
Population:
Fertility:
2.3 births per woman ...............................................................................     2.4
1.7 births per woman ...............................................................................     0.7
Immigration:
1.3 million immigrants per year .................................................................     2.2
0.8 million immigrants per year ..................................................................    1.0
Mortality:
Female life expectancy 83.8; male life expectancy 80.1 ..............................    2.0
Female life expectancy 89.8; male life expectancy 87.3 .............................     1.5

Chart 4-2. Alternative Base Assumptions

Chart4-2.png

 
As noted, the base case is neither a prediction nor a recommendation but is instead a mechanical extrapolation. In particular, it would be unrealistic and undesirable for revenues to continue to increase and discretionary spending to continue to fall as a share of GDP over the long run even as the Federal Government ran large surpluses, paid off its entire debt, and began accumulating assets, as shown in Table 4–1. The purpose of the long-run forecast shown here is simply to provide an extension of budget policies against which to evaluate the nation’s fiscal condition and potential changes in policy. That base forecast shows that under 2014 Budget policies, in the long run the budget does not run deficits or increase the debt. On the other hand, in an alternative scenario, holding down revenue growth and allowing discretionary spending to keep pace with GDP growth, there is a modest long-run fiscal gap, as shown in Table 4–2.
Table 4–1. Long-Run Budget Projections

My Note: Table scraped into Excel from raw table below. Much better!

(Receipts, Outlays, Surplus or Deficit, and Debt as Percent of GDP) 

My Note: Table copied from Word (PDF conversion), but not real data for Excel and not in correct format for Spotfire.

(Receipts, Outlays, Surplus or Deficit, and Debt as Percent of GDP)

 

1980

1990

2000

2010

2020

2030

2040

2050

2060

2070

2080

2085

Receipts ...................................................................

19.0

18.0

20.6

15.1

19.4

20.1

20.5

21.2

21.9

22.7

23.4

23.8

Outlays:

 

 

 

 

 

 

 

 

 

 

 

 

Discretionary ........................................................

10.1

8.7

6.3

9.1

5.5

4.5

4.1

3.5

3.1

2.7

2.4

2.3

Mandatory:

 

 

 

 

 

 

 

 

 

 

 

 

Social Security ................................................

4.3

4.3

4.1

4.9

5.3

6.2

6.4

6.2

6.2

6.1

6.2

6.3

Medicare .........................................................

1.1

1.7

2.0

3.1

3.1

3.8

4.1

4.2

4.3

4.4

4.5

4.5

Medicaid .........................................................

0.5

0.7

1.2

1.9

1.9

2.2

2.6

2.8

2.8

2.9

2.9

2.9

Other ...............................................................

3.7

3.2

2.4

3.7

3.2

3.0

2.7

2.6

2.4

2.3

2.1

2.1

Subtotal, mandatory ...................................

9.6

9.9

9.7

13.6

13.5

15.2

15.8

15.8

15.6

15.7

15.7

15.7

Net interest ..........................................................

1.9

3.2

2.3

1.4

2.7

2.9

3.1

2.8

2.0

0.6

–1.1

–2.2

Total outlays ....................................................

21.7

21.9

18.2

24.1

21.6

22.7

22.9

22.1

20.7

19.1

17.0

15.8

Surplus (+) or deficit (–) ...........................................

–2.7

–3.9

2.4

–9.0

–2.2

–2.6

–2.5

–0.9

1.2

3.6

6.4

8.0

Primary Surplus (+) or deficit (–) .............................

–0.8

–0.6

4.7

–7.6

0.5

0.4

0.6

1.9

3.2

4.2

5.3

5.8

Federal debt (+) or asset (–) held by the public, end

 

26.1

 

42.1

 

34.7

 

62.9

 

74.9

 

72.9

 

76.1

 

68.5

 

47.3

 

13.9

 

–30.6

 

–57.1

of period ..............................................................

Note: The figures shown in this table beyond 2020 are the product of a long-range forecasting model maintained by OMB. This model is separate fromthe models and capabilities that produce detailed programmatic estimates in the Budget. It was designed to produce long-range projections based on additional assumptions regarding growth in the economy, the long- range evolution of specific programs, and the demographic and economic forces affecting those programs. The model, its assumptions, and sensitivity testing of those assumptions are presented in this chapter

Key Drivers of Program Growth: Health Costs and Demographic Changes

Health Costs.—Health care costs have risen faster than inflation for decades. This rising cost trend has contributed to steady increases in the amounts spent on Medicare and Medicaid, while also making it more difficult for people to afford private health insurance. The ACA tackles both problems by extending health insurance coverage to millions of Americans who currently lack insurance, while making reforms that will slow future growth in medical costs. When the law is fully implemented, Medicare spending per beneficiary will rise at rates substantially below those at which spending has grown for four decades. Even with these changes, however, overall health care costs are likely to continue to rise faster than inflation as the population ages.
 
The base case projections assume that the provisions of the ACA are fully implemented, limiting health care costs in the long run compared with prior law. The long-run Medicare assumptions for the years following the 10-year budget window are essentially the same as those in the latest Medicare Trustees’ report (April 2012), except in cases where those projections exceed the target growth rate of 0.5 percentage points above growth in GDP per capita set by the Budget’s proposal to strengthen the Independent Payment Advisory Board (IPAB).1 Generally, this constraint helps to control excess cost growth in the two decades after the budget window, before excess cost growth dips below the proposed threshold. The Trustees’ projections imply that average long-range annual growth in Medicare spending per enrollee is 0.4 percentage points per year faster than the projected growth rate in GDP per capita, but the growth rate is less than 0.3 percentage points with the IPAB constraint imposed This growth rate for Medicare is significantly smaller than previous projections prior to the passage of the ACA—a reduction the Trustees largely attribute to the ACA—but is higher than the projections in the 2013 Budget due to increased cost rates recommended by the Medicare Technical Review Panel and included in the 2012 Trustees’ report.
 
Along with the rules for Medicare, there are a number of reforms in the ACA that experts believe could produce significant savings relative to the historical trend and that would affect medical costs more broadly. One is an excise tax on the highest-cost insurance plans, which will encourage substitution of plans with lower costs, while raising take-home pay. There is also an array of delivery system reforms, including incentives for accountable care organizations and payment reform demonstrations that have the potential to re-orient the medical system toward providing higher quality care, not just more care, and thus reduce cost growth in the future. 2 Because of these broader reforms, Medicaid spending per beneficiary and private health spending per capita are also projected to slow, though not as much as Medicare. 3 
 
Elderly Population.—An aging population also poses a serious long-run budgetary challenge. Because of lower expected fertility and improved longevity, the Social Security actuaries project that under current law in which the normal retirement age rises to 67, the ratio of workers to Social Security beneficiaries will fall from around 2.8 currently to a level of 2.0 by the time most of the baby boomers have retired. From that point forward, the ratio of workers to beneficiaries is expected to continue to decline slowly due to increased longevity of retirees. With fewer workers to pay the taxes needed to support the retired population, budgetary pressures will steadily mount, and without reforms, trust fund exhaustion is projected by the Social Security Trustees to occur in 2033, after which time the Trustees project annual resources will be sufficient to pay about 75 percent of scheduled benefits.
 
Other Programs.—Though smaller in size and facing fewer long-run fiscal challenges, smaller mandatory programs are also included in the projections and contribute to the long-run fiscal picture. Other mandatory programs generally decline relative to the size of the economy. These include Federal pension benefits for Government workers. The shift in the 1980s from the traditional Federal pension benefit of the Civil Service Retirement System (CSRS) to the much smaller defined benefit pension plan of the Federal Employees Retirement System (FERS) is having a marked effect on Federal civilian pensions, which is expected to continue as FERS comes to dominate future pension projections. As a result, spending for Federal retirement is expected to permanently shrink relative to the size of the economy over the next 75 years. Most other entitlement programs are also expected to grow more slowly than GDP due mainly to falling poverty and population growth rates over the very long run.

The Fiscal Gap

The present value fiscal gap is one measure of the size of the adjustment needed to preserve fiscal sustainability in the long run. 4 It is defined as the present value increase in taxes or reduction in non-interest expenditures over a finite time period required to keep the long-run ratio of Government debt-to-GDP at its current level if implemented immediately. The gap can be measured in present value dollars or as a percentage of GDP. Since the fiscal gap is calculated over a finite time period, it may understate the adjustment needed to achieve permanent sustainability. If future publicly-held debt is projected to be lower than current debt, than there is a fiscal surplus rather than a fiscal gap. Table 4–2 shows present value fiscal gap or surplus calculations calculated over a 75-year horizon for the base case as well those under different assumptions.
 
This value can be interpreted as the average level of deficit change needed each year from 2014 to 2088 to maintain the current level of debt held by the public as a percentage of GDP. Since the base case reaches balance, it has a fiscal surplus of 1.6 percent of GDP, which means that deficit reduction is not needed to maintain the current level of debt over 75 years.

Alternative Policy, Economic, and Technical Assumptions

The quantitative results discussed above are sensitive to changes in underlying policy, economic, and technical assumptions. Some of the most important of these assumptions and their effects on the budget outlook are discussed below. It is important to note that these paths are merely illustrative; they are not intended to represent the policy preferences of this Administration or the predicted actions of future Administrations and Congresses.
 
Health Spending.—The base projections for Medicare and Medicaid over the next 75 years assume an extension of current law and the policies in the 2014 Budget. The health cost alternatives illustrated in Chart 4–3 assume that medical costs rise more rapidly or more slowly than in the base case. The first alternative assumes that costs per beneficiary rise at one percentage points per year above GDP per capita in the entire health sector, while the second alternative assumes zero growth above GDP per capita in the health sector. Table 4–2 shows the effect of these alternatives on the 75-year present value fiscal surplus, which falls from 1.6 percent of 75-year present value GDP in the base case to 0.8 percent of GDP in the high health cost growth scenario and rises to 2.9 percent of GDP in the low health cost growth scenario.
Chart 4-3. Alternative Health Care Costs

Chart4-3.png

 
 
Discretionary Spending.— The current base projection for discretionary spending assumes that after 2023, discretionary spending grows with inflation and population (see Chart 4–4). An alternative assumption would be to allow discretionary spending to keep pace with the economy and grow with GDP. Yet another possible assumption is to only allow discretionary spending to grow with inflation. As shown in Table 4–2, the 75-year fiscal surplus falls from 1.6 percent of 75-year present value GDP in the base case to 0.5 percent of GDP in the growth with GDP scenario, and rises to 2.0 percent of GDP in the growth with inflation scenario.
Chart 4-4. Alternative Discretionary Projections

Chart4-4.png

 
 
Alternative Revenue Projections.—In the base projection, tax receipts rise gradually relative to GDP as real incomes rise. Chart 4–5 shows alternative receipts assumptions. Assuming that Congress will act to cut taxes to avoid the revenue increases associated with rising incomes would bring about higher deficits and publicly-held debt throughout the 75-year horizon. The 75-year fiscal surplus falls from 1.6 percent of 75-year present value GDP in the base case to 0.4 percent of GDP in the alternative scenario.
Chart 4-5. Alternative Revenue Projections

Chart4-5.png

 
Productivity.—The rate of future productivity growth has a major effect on the long-run budget outlook (see Chart 4–6). It is also highly uncertain. Over the next few decades, an increase in productivity growth would reduce projected budget deficits. Higher productivity growth adds directly to the growth of the major tax bases, while it has a smaller immediate effect on outlay growth. For much of the last century, output per hour in nonfarm business grew at an average rate of around 2.2 percent per year, despite long periods of sustained output growth at notably higher and lower rates than the long term average.
Chart 4-6. Alternative Productivity Assumptions

Chart4-6.png

 
The base projections assume that output per hour in nonfarm business will increase at an average annual rate of around 2.3 percent per year, close to its long-run average and slightly below its average growth rate since 1995 of 2.5 percent. Overall, real GDP per hour worked will grow at an average annual rate of 1.7 percent per year. The difference is reconciled by the tendency of the sectors of the economy that are counted in GDP outside of the nonfarm business sector to have lower productivity growth than those counted in the nonfarm business sector. The alternative scenarios highlight the effect of raising and lowering the projected productivity growth rate by 1/4 percentage point. The 75-year fiscal surplus rises from 1.6 percent of 75-year present value GDP in the base case to 3.5 percent of GDP in the faster productivity scenario, but falls to a fiscal gap of -0.4 percent of GDP in the slower productivity scenario.
 
Population.—The key assumptions for projecting long-run demographic developments are fertility, immigration, and mortality.
 
• The demographic projections assume that fertility will average about 2.0 total lifetime births per woman in the future, just slightly below the replacement rate needed to maintain a constant population in the absence of immigration (see Chart 4–7). The alternatives are those in the latest Social Security trustees’ report (1.7 and 2.3 births per woman). The 75-year fiscal surplus rises from 1.6 percent of 75-year present value GDP in the base case to 2.4 percent of GDP in the high fertility scenario, but falls to 0.7 percent of GDP in the low fertility scenario.
Chart 4-7. Alternative Fertility Assumptions

Chart4-7.png

 
 
• The rate of net immigration is assumed to average around 1 million immigrants per year in the long run (see Chart 4–8). Higher net immigration relieves some of the downward pressure on population growth from low fertility and allows total population to expand throughout the projection period, although at a much slower rate than has prevailed historically. The alternatives are taken from the Social Security Trustees’ Report (1.3 million total immigrants per year in the high alternative and 0.8 million in the low alternative). The 75-year fiscal surplus rises from 1.6 percent of 75-year present value GDP in the base case to 2.2 percent of GDP in the faster net immigration scenario, but falls to 1.0 percent of GDP in the slower net immigration scenario.
Chart 4-8. Alternative Immigration Assumptions

Chart4-8.png

 
• Mortality is projected to decline as people live longer in the future (see Chart 4–9). These assumptions parallel those in the latest Social Security Trustees’ Report. The average life expectancy at birth for women is projected to rise from 80.6 years in 2012 to 86.7 years in 2088, and the average for men is expected to increase from 76.1 years in 2012 to 83.6 years in 2088. The variations show the high and low alternatives from the latest Trustees’ report, with average female and male life expectancy reaching 83.8 and 80.1 in the shorter life expectancy alternative and 89.8 and 87.3 in the longer life expectancy alternative. The 75-year fiscal surplus rises from 1.6 percent of 75-year present value GDP in the base case to 2.0 percent of GDP in the shorter life expectancy scenario, but falls to 1.5 percent of GDP in the longer life expectancy scenario.
Chart 4-9. Alternative Mortality Assumptions

Chart4-9.png

 
The long-run budget outlook is highly uncertain. With pessimistic assumptions, the fiscal picture can quickly deteriorate back into deficits and rising debt. More optimistic assumptions imply an even earlier return to surpluses and declining debt. These projections highlight the need for policy awareness and potential action to address the main drivers of future budgetary costs.

Actuarial Projections for Social Security and Medicare

The Trustees for the Medicare Federal Hospital Insurance (HI) and Social Security trust funds issue annual reports that include projections of income and outgo for these funds over a 75-year period. These projections are based on different methods and assumptions than the long-run budget projections presented above. Even with these differences, the message is similar: the ACA is projected to curtail the projected growth in per capita health care costs, but even with this reform the retirement of the baby-boom generation and continuing high medical costs will eventually exhaust the trust funds unless further action is taken. The Trustees’ reports feature the actuarial balance of the trust funds as a summary measure of their financial status. For each trust fund, the balance is calculated as the change in receipts or program benefits (expressed as a percentage of taxable payroll) that would be needed to preserve a small positive balance in the trust fund at the end of a specified time period. The estimates cover periods ranging in length from 25 to 75 years. These balance calculations show what it would take to achieve a positive trust fund balance at the end of a specified period of time, not what it would take to maintain a positive balance indefinitely. To maintain a positive balance forever requires a larger adjustment than is needed to maintain a positive balance over 75 years when the annual balance in the program is negative at the end of the 75-year projection period, as it is expected to be for Social Security and Medicare without future reforms.
 
Table 4–3 shows the projected income rate, cost rate, and annual balance for the Medicare HI and combined OASDI Trust Funds at selected dates under the Trustees’ intermediate assumptions. Data from the 2010 and the 2011 reports are shown along with the latest data from the 2012 reports. Even following the passage of the ACA in 2010, there is a continued imbalance in the long-run projections of the HI program due to demographic trends and continued high per-person costs. Additionally, following two years of significant ACA-related improvement, the 2012 Trustees’ Report reflects an increase in the long-run deficit compared to 2011 due to the implementation of recommendations of the Medicare Technical Review Panel on long-term health care cost growth rates. While these projections still assume full implementation of the cost reductions under current law over the entire long-run projection period, the entire long-run cost growth calculation has been modified following the Panel’s findings. In the 2011 Trustees’ report, which was largely unchanged from 2010, Medicare HI trust fund costs as a percentage of Medicare covered payroll were projected to rise from 3.8 percent to 5.0 percent between 2010 and 2080 and the HI trust fund imbalance was projected to be -0.7 percent in 2080. In the 2012 report, costs rise from 3.7 percent of Medicare taxable payroll in 2010 to 6.3 percent in 2080 and the imbalance in the HI trust fund in 2080 is -2.0 percent.
Table 4–3. Intermediate Actuarial Projections for OASDI and Hi Federal Borrowing and Debt

My Note: Table scraped into Excel from raw table below. Much better!

(Percent of Payroll)

 

My Note: Table copied from Word (PDF conversion), but not real data for Excel and not in correct format for Spotfire.

(Percent of Payroll)

 

2012

2020

2030

2050

2080

Percent of Payroll

medicare hospital insurance (hi)

 

 

 

3.2

 

 

 

3.4

 

 

 

3.6

 

 

 

3.9

 

 

 

4.3

Income Rate

2010Trustees’ Report .................................................................................

2011 Trustees’ Report .................................................................................

3.2

3.5

3.6

3.9

4.3

2012 Trustees’ Report .................................................................................

3.2

3.5

3.7

3.9

4.3

Cost Rate

 

 

 

 

 

2010 Trustees’ Report .................................................................................

3.6

3.5

4.3

5.0

4.9

2011 Trustees’ Report .................................................................................

3.8

3.6

4.4

5.1

5.0

2012 Trustees’ Report .................................................................................

3.7

3.6

4.7

5.8

6.3

Annual Balance

 

 

 

 

 

2010Trustees’ Report .................................................................................

-0.4

-0.0

-0.7

-1.1

-0.7

2011 Trustees’ Report .................................................................................

-0.6

-0.2

-0.8

-1.2

-0.7

2012 Trustees’ Report .................................................................................

-0.5

-0.2

-1.0

-1.9

-2.0

Projection Interval: ...............................................................................................

25 years

50 years

75 years

Actuarial Balance: 2010 Trustees’ Report ...................................................

-0.3

-0.6

-0.7

Actuarial Balance: 2011 Trustees’ Report ...................................................

-0.5

-0.8

-0.8

Actuarial Balance: 2012 Trustees’ Report ...................................................

-0.7

-1.2

-1.4

 

Percent of Payroll

old Age survivors and Disability insurance (oAsDi)

 

 

 

12.9

 

 

 

13.1

 

 

 

13.2

 

 

 

13.2

 

 

 

13.3

Income Rate

2010Trustees’ Report .................................................................................

2011 Trustees’ Report .................................................................................

12.9

13.1

13.2

13.2

13.3

2012 Trustees’ Report .................................................................................

12.9

13.1

13.3

13.3

13.3

Cost Rate

 

 

 

 

 

2010 Trustees’ Report .................................................................................

12.8

14.2

16.4

16.3

17.3

2011 Trustees’ Report .................................................................................

13.2

14.2

16.7

16.7

17.4

2012 Trustees’ Report .................................................................................

13.8

14.4

17.0

17.1

17.6

Annual Balance

 

 

 

 

 

2010Trustees’ Report .................................................................................

0.0

-1.1

-3.2

-3.1

-4.0

2011 Trustees’ Report .................................................................................

-0.4

-1.1

-3.5

-3.4

-4.1

2012 Trustees’ Report .................................................................................

-0.9

-1.3

-3.8

-3.8

-4.3

Projection Interval: ...............................................................................................

25 years

50 years

75 years

Actuarial Balance: 2010 Trustees’ Report ...................................................

-0.3

-1.5

-1.9

Actuarial Balance: 2011 Trustees’ Report ...................................................

-0.6

-1.8

-2.2

Actuarial Balance: 2012 Trustees’ Report ...................................................

-1.2

-2.3

-2.7

 
Medicare Funding Warning. Under the Medicare Modernization Act (MMA) of 2003, the Medicare Trustees must issue a “warning” when in two consecutive Trustees’ reports they project that the share of Medicare funded by general revenues will exceed 45 percent in the current year or any of the subsequent six years. Such a warning was included in the 2012 Trustees Report. The MMA requires that the President submit legislation, within 15 days of submitting the Budget, which will reduce general revenue funding to 45 percent of overall Medicare outlays or lower in the immediate seven-fiscal-year window. In accordance with the Recommendations Clause of the Constitution and as the Executive Branch has noted in prior years, the Executive Branch considers this requirement to be advisory and not binding. However, the proposals in this Budget would further strengthen Medicare’s finances and extend its solvency.
 
As a result of reforms legislated in 1983, Social Security had been running a cash surplus with taxes exceeding costs up until 2009. This surplus in the Social Security trust fund helped to hold down the unified budget deficit. The cash surplus ended in 2009. The 2012 Social Security trustees report projects that the trust fund will not return to cash surplus without further reforms. Even so, the program will continue to experience an overall surplus for some years because of the Trust Funds’ interest earnings. Eventually, however, Social Security will begin to draw on its trust fund balances to cover current expenditures. Over time, as the ratio of workers to retirees falls, costs are projected to rise further from 13.8 percent of Social Security covered payroll in 2012 to 14.4 percent of payroll in 2020, 17.0 percent of payroll in 2030 and 17.6 percent of payroll in 2080. Revenues excluding interest are projected to rise only slightly from 12.9 percent of payroll today to 13.3 percent in 2080. Thus the annual balance is projected to decline from -0.9 percent of payroll in 2012 to -1.3 percent of payroll in 2020, -3.8 percent of payroll in 2030, and -4.3 percent of payroll in 2080. On a 75-year basis, the actuarial deficit is projected to be -2.7 percent of payroll. In the process, the Social Security trust fund, which was built up since 1983, would be drawn down and eventually be exhausted in 2033. These projections assume that benefits would continue to be paid in full despite the projected exhaustion of the trust fund to show the long-run implications of current benefit formulas. Under current law, not all scheduled benefits would be paid after the trust funds are exhausted. However, benefits could still be partially funded from current revenues. The 2012 Trustees’ report presents projections on this point. Beginning in 2033, 75 percent of projected Social Security scheduled benefits would be funded. This percentage would eventually decline to 73 percent by 2086.

Technical Note: Sources of Data and Methods of Estimating

The long-range budget projections are based on demographic and economic assumptions. A simplified model of the Federal budget, developed at OMB, is used to compute the budgetary implications of these assumptions.
 
Demographic and Economic Assumptions.—For the years 2013-2023, the assumptions are drawn from the Administration’s economic projections used for the 2014 Budget. These budget assumptions reflect the President’s policy proposals. The economic assumptions are extended beyond this interval by holding inflation, interest rates, and the unemployment rate constant at the levels assumed in the final year of the budget forecast. Population growth and labor force growth are extended using the intermediate assumptions from the 2012 Social Security Trustees’ report. The projected rate of growth for real GDP is built up from the labor force assumptions and an assumed rate of productivity growth. Productivity growth, measured as real GDP per hour, is assumed to equal its average rate of growth in the Budget’s economic assumptions—1.7 percent per year.
 
CPI inflation holds stable at 2.2 percent per year, the unemployment rate is constant at 5.4 percent, the yield on 10-year Treasury notes is steady at 5.0 percent, and the 91-day Treasury bill rate is 3.7 percent. Consistent with the demographic assumptions in the Trustees’ reports, U.S. population growth slows from around 1 percent per year to about two-thirds that rate by 2030, and slower rates of growth beyond that point. By the end of the projection period total population growth is nearly as low as 0.4 percent per year. Real GDP growth is projected to be less than its historical average of around 3.2 percent per year because the slowdown in population growth and the increase in the population over age 65 reduce labor supply growth. In these projections, average real GDP growth averages between 2.3 percent and 2.4 percent per year for the period following the end of the 10-year budget window in 2023.
 
The economic and demographic projections described above are set by assumption and do not automatically change in response to changes in the budget outlook. This is unrealistic, but it simplifies comparisons of alternative policies.
 
Budget Projections.—For the period through 2023, receipts follow the 2014 Budget’s policy projections. After 2023, total tax receipts rise gradually relative to GDP as real incomes also rise. Discretionary spending follows the path in the Budget over the next 10 years and grows at the rate of growth in inflation plus population afterwards. Other spending also aligns with the Budget through the budget horizon. Long-run Social Security spending is projected by the Social Security actuaries using this chapter’s long-range economic and demographic assumptions. Medicare benefits are projected based on a projection of beneficiary growth and excess health care cost growth from the 2012 Medicare Trustees’ report, as adjusted to account for the Budget’s IPAB proposal, and the general inflation assumptions described above. Medicaid outlays are based on the economic and demographic projections in the model. Other entitlement programs are projected based on rules of thumb linking program spending to elements of the economic and demographic projections such as the poverty rate.

Footnotes

1

The ACA established an Independent Payment Advisory Board (IPAB) that is required to propose changes in Medicare should Medicare costs exceed target growth rates specified in law; such IPAB-proposed changes would take effect automatically, unless overridden by the Congress. The Budget includes a proposal that would strengthen IPAB by lowering the target growth rate applicable for 2020 onward from GDP + 1.0 percentage points to GDP + 0.5 percentage points.


2

Groups of providers meeting certain criteria can be recognized as accountable care organizations (ACOs), which allow them to coordinate care and manage chronic disease more easily thereby improving the quality of care for patients. ACOs can then share in any cost savings they achieve for Medicare if they meet quality standards.


3

The projections assume that growth in Medicaid spending per enrollee and private health spending per capita exceeds growth in GDP per capita by 0.7 percentage points.


4

Alan J. Auerbach, “The U.S. Fiscal Problem: Where We Are, How We Got Here, and Where We’re Going,” NBER: Macroeconomics Annual 1994, pp 141 – 175.

5. Federal Borrowing and Debt

 

Footnotes

1

For the purposes of the Budget, “debt held by the public” is defined as debt held by investors outside of the Federal Government, both domestic and foreign, including U.S. State and local governments and foreign governments. It also includes debt held by the Federal Reserve.

2

The term “agency debt’’ is defined more narrowly in the budget than customarily in the securities market, where it includes not only the debt of the Federal agencies listed in Table 5–4, but also the debt of the Government-Sponsored Enterprises listed in Table 22–9 at the end of Chapter 22, “Credit and Insurance,” and certain Governmentguaranteed securities.

3

The Federal subsector of the national income and product accounts provides a measure of “net government saving’’ (based on current expenditures and current receipts) that can be used to analyze the effect of Federal fiscal policy on national saving within the framework of an integrated set of measures of aggregate U.S. economic activity. The Federal subsector and its differences from the budget are discussed in Chapter 28, “National Income and Product Accounts.’’

4

Extensive actuarial analyses of the Social Security and Medicare programs are published in the annual reports of the boards of trustees of these funds. The actuarial estimates for Social Security, Medicare, and the major Federal employee retirement programs are summarized in the Financial Report of the United States Government, prepared annually by the Department of the Treasury in coordination with the Office of Management and Budget.

5

For projections of the debt beyond 2023, see Chapter 4, “Long-Term Budget Outlook.”

6

Treasury debt held by the public is measured as the sales price plus the amortized discount (or less the amortized premium). At the time of sale, the book value equals the sales price. Subsequently, it equals the sales price plus the amount of the discount that has been amortized up to that time. In equivalent terms, the book value of the debt equals the principal amount due at maturity (par or face value) less the unamortized discount. (For a security sold at a premium, the definition is symmetrical.) For inflation-indexed notes and bonds, the book value includes a periodic adjustment for inflation. Agency debt is generally recorded at par.

7

For further explanation of the off-budget Federal entities, see Chapter 12, “Coverage of the Budget.’’

8

The FCRA (sec. 505(b)) requires that the financing accounts be nonbudgetary. As explained in Chapter 12, “Coverage of the Budget,’’ they are non-budgetary in concept because they do not measure cost. For additional discussion of credit programs, see Chapter 22, “Credit and Insurance,” and Chapter 11, “Budget Concepts.’’

9

The budget treatment of this fund is further discussed in Chapter 11, “Budget Concepts.’’

10

For more information on these activities, see Chapter 3, “Financial Stabilization Efforts and Their Budgetary Effects.”

11

Consistent with the presentation in the Monthly Treasury Statement of Receipts and Outlays of the United States Government (Monthly Treasury Statement), Table 5-3 presents the net financial assets associated with direct and guaranteed loans in the financing accounts created under the Federal Credit Reform Act of 1990. Therefore, the figures differ by relatively small amounts from the figures in Chapter 30, “Budget and Financial Reporting,” which reflect all loans made or guaranteed by the Federal Government, including loans originated prior to implementation of the FCRA.

12

Under the State and Local Government Series program, the Treasury offers special low-yield securities to State and local governments and other entities for temporary investment of proceeds of tax-exempt bonds.

13

Noncompetitive bids cannot exceed $5 million.

14

Detail on the marketable and nonmarketable securities issued by Treasury is found in the Monthly Statement of the Public Debt, published on a monthly basis by the Department of the Treasury.

15

This arrangement is at least as governmental as a “lease-purchase without substantial private risk.’’ For further detail on the current budgetary treatment of lease-purchase without substantial private risk, see OMB Circular No. A–11, Appendix B.

16

This budgetary treatment differs from the treatment in the Monthly Treasury Statement Table 6 Schedule C, and the Combined Statement of Receipts, Outlays, and Balances of the United States Government Schedule 3, both published by the Department of the Treasury. These two schedules, which present debt issued by agencies other than Treasury, exclude the TVA alternative financing arrangements. This difference in treatment is one factor causing minor differences between debt figures reported in the Budget and debt figures reported by Treasury. The other factors are adjustments for the timing of the reporting of Federal debt held by the National Railroad Retirement Investment Trust and treatment of the Federal debt held by the Securities Investor Protection Corporation.

17

For further detail on the monetary policy activities of the Federal Reserve and the treatment of the Federal Reserve in the Budget, see Chapter 12, “Coverage of the Budget.”

18

For more information on the financial stabilization activities of the Federal Reserve, see Chapter 3, “Financial Stabilization Efforts and Their Budgetary Effects.”

19

At the end of 2012, there were also $18 million of FHA debentures not subject to limit.

20

The Acts and the statutory limits since 1940 are listed in Historical Tables, Budget of the United States Government, Fiscal Year 2014, Table 7.3.

21

Under the Act, if the constitutional amendment voted on pursuant to Title II of the Act (“Balanced Budget Amendment”) had been submitted to the States for ratification, the increase would have been $1,500 billion. If legislation from the Joint Select Committee on Deficit Reduction had been enacted pursuant to Title IV of the Act, which achieved an amount of deficit reduction greater than $1,200 billion, the increase would have been equal to that amount, but not greater than $1,500 billion.

22

Both the CSRDF and the PSRHBF are administered by the Office of Personnel Management.


23

For further discussion of the trust funds and Federal funds groups, see Chapter 27, “Trust Funds and Federal Funds.’’

24

The debt calculated by the Bureau of Economic Analysis, Department of Commerce, is different, though similar in size, because of a different method of valuing securities.

Performance and Management

6. Social Indicators

 

Footnotes

1

This measure includes charitable giving only among those who claim itemized deductions. It is therefore influenced by changes in tax laws and in the characteristics of those who itemize.


2

Congressional Budget Office. 2013. “The Budget and Economic Outlook: Fiscal Years 2013 to 2023.” Washington, DC: Congressional Budget Office.

7. Delivering a High-Performance Government

8. Program Evaluation and Data Analysis

9. Benefit-Cost Analysis

 

Footnotes

1

FY 2011 is the most recent period for which such a summary is available. These estimates were reported in OMB, 2012 Report to Congress on the Benefits and Costs of Federal Regulations and Unfunded Mandates on State, Local, and Tribal Entities. A detailed description of the assumptions and calculations underlying these estimates is provided in that Report.

2

The estimates of budgetary effects were reported in OMB, 2012 Report to Congress on the Benefits and Costs of Federal Regulations and Unfunded Mandates on State, Local, and Tribal Entities. A detailed description of the assumptions and calculations underlying these estimates is provided in that Report.

3

See Executive Order 13610, May 10, 2012, available at <http://www.whitehouse.gov/the-press-...latory-burdens>

4

Greenstone, Michael. “Toward a Culture of Persistent Regulatory Experimentation and Evaluation.” In New Perspectives on Regulation, David Moss and John Cisternino (Eds.). Cambridge, MA: The Tobin Project, Inc., 2009. P. 113.

10. Improving the Federal Workforce

The United States has overcome great challenges throughout our history because Americans of every generation have stepped forward to aid their Nation through service, both in civilian Government and in the Armed Forces. A high-performing government depends on an engaged, well-prepared, and well-trained workforce with the right set of skills for the missions the government needs to achieve. Today’s Federal public servants come from all walks of life and from every corner of America to carry forward that proud American tradition. Eighty-five percent of Federal employees live and work outside of the Washington, D.C. metropolitan area. Many Federal employees have made remarkable contributions to our society; notably, more than 50 current or former federal employees have received Nobel Prizes. Whether defending our homeland, restoring confidence in our financial system and supporting a historic economic recovery effort, providing health care to our veterans, conducting diplomacy abroad, providing relief to Hurricane Sandy victims, or searching for cures to the most vexing diseases, we are fortunate to be able to rely upon a skilled workforce committed to public service.
 
Today’s Federal workforce confronts tight fiscal resources, rapidly changing problems, and new technologies. This chapter discusses trends in Federal employment, composition, and compensation, and presents the Administration’s plans for achieving the talented Federal workforce needed to serve the American people effectively and efficiently.

Trends in Federal Workforce Size

The size of the Federal civilian workforce relative to the country’s population has declined dramatically over the last several decades, notwithstanding occasional upticks due, for example, to military conflicts and the administration of the Census. In overall terms, today’s workforce remains the size it was under President Reagan.
 
Since the 1950s and 1960s, the U.S. population increased by 77 percent, the private sector workforce increased 137 percent, while the size of the Federal workforce rose just 10 percent, with 92 residents for every Federal worker. Since the 1980s, both the population and private sector workforce has increased 25 percent, but the Federal workforce has not grown at all, and in the 1980s and 1990s there were 119 residents for every Federal worker. Except for employment peaks associated with the decennial census, Federal employment, in absolute terms, increased slightly in the 1980s and then dropped in the 1990s. This overall downward trend began to reverse itself in 2001, following the September 11 attack. Following that tragic event, the Federal workforce expanded to deal with national security and homeland safety issues and to serve our veterans.
 
Between 2001 and 2010, security agency employment grew, while non-security employment declined. For example, civilians working for the Department of Defense grew by more than 92,000; the Department of Veterans Affairs (VA) grew by 78,000 with much of that increase attributable to medical care to provide for our returning service members; Customs and Border Protection also grew more than 30,000 to keep our citizens safe at home.
 
By 2012, the ratio of residents to Federal workers had increased to 148. Relative to the private sector, the Federal workforce is less than half the size it was back in the 1950s and 1960s. Table 10-2 shows actual Federal civilian full-time equivalent (FTE) levels in the Executive Branch by agency for 2011 and 2012, with estimates for 2013 and 2014. Estimated employment levels for 2014 result in an estimated 0.3 percent increase compared to prior year estimates. Most of the growth is in VA to continue strengthening medical care for returning service members. Additional increases are expected at the Department of Justice for enhancements in cybersecurity and increased background checks for firearm purchases, and at the Department of Homeland Security to support the strengthening of border protection and to support immigration reform.
Table 10–2Federal Civilian Employment in the Executive Branch 

(Civilian employment as measured by full-time equivalents (FTE) in thousands, excluding the Postal Service)

 

Agency

 

Actual

 

Estimate

Change: 2013 to 2014

2011

2012

2013 CR

2014

FTE

Percent

Cabinet agencies:

 

95.9

 

91.7

 

92.4

 

90.7

 

-1.7

 

-1.8%

Agriculture .....................................................

Commerce .....................................................

41.3

39.9

42.6

43.0

0.4

0.9%

Defense .........................................................

771.3

765.2

777.2

765.0

-12.2

-1.6%

Education .......................................................

4.4

4.3

4.2

4.3

0.1

2.4%

Energy ...........................................................

16.1

15.7

15.7

15.9

0.2

1.3%

Health and Human Services ..........................

68.8

69.3

71.3

72.6

1.3

1.8%

Homeland Security .......................................

179.5

184.0

190.1

191.0

0.9

0.5%

Housing and Urban Development ..................

9.5

9.3

9.3

9.2

-0.1

-1.1%

Interior ...........................................................

70.5

70.0

69.7

69.8

0.1

0.1%

Justice ...........................................................

116.3

115.1

115.7

117.7

2.0

1.7%

Labor .............................................................

16.9

17.2

17.4

17.5

0.1

0.6%

State ..............................................................

32.4

33.0

33.1

33.2

0.1

0.3%

Transportation ................................................

57.4

56.9

57.3

57.6

0.3

0.5%

Treasury .........................................................

110.7

106.3

107.1

112.7

5.6

5.2%

Veterans Affairs .............................................

295.7

301.4

311.1

319.3

8.2

2.6%

Other agencies—excluding Postal Service:

 

 

 

 

 

 

Broadcasting Board of Governors .................

1.9

1.9

1.9

2.0

0.1

5.3%

Corps of Engineers—Civil Works ..................

23.7

23.1

22.7

22.7

0.0

0.0%

Environmental Protection Agency ..................

17.3

17.0

17.0

16.9

-0.1

-0.6%

Equal Employment Opportunity Comm .........

2.5

2.3

2.2

2.3

0.1

4.5%

Federal Deposit Insurance Corporation .........

8.3

8.1

8.0

7.6

-0.4

-5.0%

General Services Administration ...................

12.7

12.5

12.8

12.5

-0.3

-2.3%

International Assistance Programs ................

5.2

5.6

5.6

5.8

0.2

3.6%

National Aeronautics and Space Admin ........

18.6

18.1

18.2

17.9

-0.3

-1.6%

National Archives and Records

 

 

 

 

 

 

Administration ...........................................

3.3

3.2

3.2

3.2

0.0

0.0%

National Labor Relations Board .....................

1.7

1.6

1.7

1.7

0.0

0.0%

National Science Foundation .........................

1.4

1.4

1.4

1.5

0.1

7.1%

Nuclear Regulatory Commission ...................

4.0

3.8

4.0

3.9

-0.1

-2.5%

Office of Personnel Management ..................

5.4

5.3

5.5

5.7

0.2

3.6%

Railroad Retirement Board ............................

1.0

0.9

0.9

0.9

0.0

0.0%

Securities and Exchange Commission ..........

3.8

3.8

4.2

4.8

0.6

14.3%

Small Business Administration ......................

3.4

3.4

3.4

3.5

0.1

2.9%

Smithsonian Institution ..................................

5.2

5.0

5.2

5.3

0.1

1.9%

Social Security Administration .......................

67.6

64.7

65.1

65.3

0.2

0.3%

TennesseeValley Authority ............................

12.4

12.8

13.6

13.3

-0.3

-2.2%

All other small agencies .................................

16.3

16.9

18.0

18.6

0.6

3.3%

 

Total,ExecutiveBranchcivilianemployment * ...

 

2,102.4

 

2,090.7

 

2,128.8

 

2,134.9

 

6.1

 

0.3%

* Totals may not add due to rounding.

 
Other increases are narrowly focused and frequently supported by congressionally authorized fees, not tax payer dollars. Increased fee receipts support timely commercialization of innovative technologies through faster and higher-quality patent reviews at the Patent and Trade Office of the Department of Commerce, stronger food safety measures at the Food and Drug Administration of the Department of Health and Human Services, and enhancements to create stronger, more stable financial markets consistent with the Wall Street Reform Act. Commitments to activate new Federal prisons already constructed with funding appropriated as early as 2001 and as recently as 2010 result in limited necessary personnel increases at the Department of Justice in 2013 and 2014. And stepping up Internal Revenue Service (Treasury) program integrity efforts to ensure companies and individuals are paying their fair share is an investment that more than pays for itself.
 
In contrast, the workforce decreased in agencies such as the U.S. Department of Agriculture (USDA), US Environmental Protection Agency (EPA) and the National Aeronautics and Space Administration (NASA), to correspond with decreases in funding. The Forest Service and the Natural Resources Conservation Service at the USDA are finding workforce efficiencies to meet budget reductions; decreases at the EPA reflect strong efforts in workforce restructuring to better manage and reduce personnel costs; and NASA will reduce its workforce in response to budget reductions from changes in human space flight missions, including the retirement of the Space Shuttle.
 
Beneath many of the agency totals are programs that pursue aggressive actions to reduce and reallocate staff from lower to higher priority programs. Some agencies have imposed hiring freezes, and many are offering early retirement and separation incentives. For example, the General Services Administration offered more than 2,400 employee buyouts and early retirement packages in order to contain costs and provide the opportunity to better match employee skills with job requirements.
 
Chart 10-1 shows Federal civilian employment (excluding the U.S. Postal Service) as a share of the U.S. resident population from 1958 to 2012. The chart shows overall declines in both security and non-security agencies.
Chart 10-1. Federal Civilian Workforce as Share of U.S. Population

Chart10-1.png

 
 
In recent years, the Executive Branch has had great success hiring veterans. In November 2009, President Obama signed Executive Order 13518, establishing the Veterans Employment Initiative. Through this initiative and the strategies used by the Council on Veterans Employment, the Executive Branch continues to benefit from retaining the dedication, leadership, and skills veterans have honed in the fast-paced, dynamic environments of the Army, Marines, Navy, Air Force, and Coast Guard.
 
In FY 2009, veterans made up 24 percent of the total new hires in the Federal Government. By the end of FY 2012, veterans made up 29 percent of new hires. The total number of veterans employed by the Government also increased. In FY 2009, there were 512,240 veterans in the Federal Government – 26 percent of our workforce. By the end of FY 2012, the number of veterans had grown to 611,784, or 30 percent of the Federal workforce.

Federal Pay Trends

After more than a decade when the percentage increases in annual Federal pay raises did not keep pace with the percentage increase in private sector pay raises, Congress passed the Federal Employees Pay Comparability Act of 1990 (FEPCA) pegging Federal pay raises, as a default, to changes in the Employment Cost Index (ECI). The law gives the President the authority to propose alternative pay adjustments for both base and locality pay. Presidents have regularly supported alternative pay plans.
 
Chart 10-2 shows how the Federal pay scale has compared to the ECI since 1976. Prior to FEPCA the Federal pay scale fell sharply relative to the ECI. The Federal pay scale rose relative to the ECI in the early 1990s, but fell relative to ECI during most of the middle and late 1990s. The Federal pay scale rose quite a bit relative to ECI in the 2000s, but has fallen sharply relative to ECI in the last few years.
Chart 10-2. Pay Raises for Federal vs. Private Workforce

Chart10-2.png

In late 2010, as one of several steps the Administration took to put the Nation on a sustainable fiscal path, the President proposed and Congress enacted a two-year freeze on across-the-board pay adjustments for civilian Federal employees, saving $60 billion over 10 years. The President also issued a memorandum directing agencies to freeze pay schedules and forgo general pay increases for civilian Federal employees in administratively determined pay systems. Additionally, on his first day in office, the President froze salaries for all senior political appointees at the White House, and in 2010, the President eliminated bonuses for all political appointees across the Administration. The Office of Personnel Management (OPM) and the Office of Management and Budget (OMB) directed agencies to limit individual performance awards for almost all employees starting in fiscal years 2011 and 2012.
 
For 2014, the President proposes a one percent pay increase for General Schedule employees, which is below the private sector Employment Cost Index increase of 1.8%. This increase reflects the tight budget constraints we now face while also recognizing the critical role these employees play in our everyday lives. In comparison to the baseline, the 1.0% pay increase saves approximately $18 billion over 10 years and $1 billion in FY 2014 within the BCA caps, which can then be reallocated to programs and services the American people depend on.
 
The 2014 budget also continues last year’s proposal to dedicate an additional 1.2 percent of employees’ pay (phased-in at 0.4 percent over three years) toward their pensions. This proposal would require existing employees, or those rehired with five or more years of creditable service, to contribute 1.2 percentage points more to their pensions. During 2012, the Middle Class Tax Relief and Job Creation Act increased employee contributions to Federal defined benefit retirement plans, including the Federal Employees’ Retirement System, by 2.3 percentage points, effective for individuals joining the Federal work force after December 31, 2012 who have less than five years of creditable civilian service. Neither this proposal nor the 2012 Act would change the amount of each employee’s benefit. This proposal would result in $20 billion in mandatory savings over 10 years.

Composition of the Federal Workforce and Factors Affecting Pay

Federal worker compensation receives a great deal of attention, in particular, in how it compares to that of private sector workers. Comparisons of the pay and benefits of Federal employees and private sector employees, for example, should account for factors affecting pay, such as differences in skill levels, complexity of work, scope of responsibility, size of the organization, location, experience level, and exposure to personal danger.
 
A series of reports done in January 2012 by the Congressional Budget Office (CBO) accounted for some, but not all, of the factors described above. CBO found that Federal pay, on average, was slightly higher (2.0 percent) than comparable private sector pay. However, this study was done before Federal employees began a pay freeze. Overall public sector compensation was, on average, substantially higher, but CBO noted that its findings about comparative compensation relied on far more assumptions and were less definitive than its pay findings. The reports also emphasized that focusing on averages is misleading, because the public/private differentials varies dramatically by education and complexity of job. Compensation for higher educated Federal workers (or those in more complex jobs) is lower than for comparable workers in the private sector, which were not the CBO findings for less educated workers.
 
Some of the factors affecting compensation are:
 
Type of occupation. The last half century has seen significant shifts in the composition of the Federal workforce, with related effects on pay. Fifty years ago, most white-collar Federal employees performed clerical tasks, such as posting Census figures in ledgers and retrieving
taxpayer records from file rooms. Today their jobs are vastly different, requiring advanced skills to serve a knowledge-based economy. Professionals such as doctors, engineers, scientists, statisticians, and lawyers now make up a large portion of the Federal workforce. More
than half (55 percent) of Federal workers work in the nine highest-paying occupation groups as judges, engineers, scientists, nuclear plant inspectors, etc., compared to about a third (33 percent) of private sector workers in those same nine highest paying occupation groups. In
contrast, 45 percent of private sector workers work in the seven lowest-paying occupation groups as cooks, janitors, service workers, clerks, laborers, manufacturing workers, etc. About 26 percent of Federal workers work in those seven lowest-paying occupation groups. Between 1981
and 2011, the proportion of the Federal workforce in clerical occupations fell from 19.4 percent to 5.1 percent of the workforce, and the proportion of blue-collar workers fell from 22.0 percent to 9.7 percent.
 
Today, Federal employees must manage highly sensitive tasks that require great skill, experience, and judgment. They need sophisticated management and negotiation skills to effect change, not just across the Federal Government, but also with other levels of government, not-for-profit providers, and for-profit contractors. Using data from the Current Population Survey 2008-2012 of full-time, full-year workers, Table 10-1 breaks all Federal and private sector jobs into 22 occupation groups and shows that the composition of the Federal and private workforce are very different.
Table 10–1. Occupations of Federal and Private Sector Workforces

(Grouped by Average Private Sector Salary)

 

Occupational Groups

Percent

Federal Workers

Private Sector Workers

highest paid occupations Ranked by private sector salary

 

 

1.8%

 

 

0.6%

Lawyers and judges ...........................................................................................................................

Engineers ..........................................................................................................................................

3.9%

1.9%

Scientists and social scientists ..........................................................................................................

4.8%

0.7%

Managers ...........................................................................................................................................

11.3%

13.3%

Doctors, nurses, psychologists, etc. ..................................................................................................

7.5%

5.4%

Miscellaneous professionals .............................................................................................................

15.5%

8.2%

Administrators, accountants, HR personnel ......................................................................................

7.0%

2.6%

Inspectors ..........................................................................................................................................

1.4%

0.3%

Pilots, conductors, and related mechanics ........................................................................................

2.0%

0.8%

Total percentage ...................................................................................................................................

55.0%

33.8%

mediumpaid occupations Ranked by private sector salary

 

1.2%

 

6.4%

Sales including real estate, insurance agents ...................................................................................

Other miscellaneous occupations ......................................................................................................

3.5%

4.5%

Automobile and other mechanics ......................................................................................................

1.7%

2.9%

Law enforcement and related occupations ........................................................................................

8.9%

0.8%

Office workers ....................................................................................................................................

2.3%

6.3%

Social workers ...................................................................................................................................

1.4%

0.5%

Total percentage ...................................................................................................................................

18.9%

21.4%

lowest paid occupations Ranked by private sector salary

 

0.7%

 

3.3%

Drivers of trucks and taxis .................................................................................................................

Laborers and construction workers ...................................................................................................

4.3%

9.9%

Clerks ................................................................................................................................................

13.7%

11.3%

Manufacturing ....................................................................................................................................

2.5%

7.7%

Other miscellaneous service workers ................................................................................................

2.6%

6.1%

Janitors and housekeepers ................................................................................................................

1.5%

2.4%

Cooks, bartenders, bakers, and wait staff .........................................................................................

0.9%

4.1%

Total percentage ...................................................................................................................................

26.1%

44.9%

Source: 2008-2012 Current Population Survey.

Notes: Federal workers exclude the military and Postal Service, but include all other Federal workers in the Executive, Legislative, and Judicial Branches. However, the vast majority of these employees are civil servants in the Executive Branch. Private sector workers exclude the self-employed. Neither category includes state and local government workers. This analysis is limited to full- time, full-year workers, i.e. those with at least 1,500 annual hours of work.

 
Education level. The size and complexity of much Federal work – whether that work is analyzing security and financial risks, forecasting weather, planning bridges to withstand extreme weather events, conducting research to advance human health and energy efficiency, or advancing science to fuel further economic growth – necessitates a highly educated workforce. Chart 10-3 presents the comparative differences in the education level of the Federal civilian and private sector workforce. About 22 percent of Federal workers have a master’s degree, professional degree, or doctorate versus only 10 percent in the private sector. Only 19 percent of Federal employees have not attended college, compared to 40 percent of workers in the private sector.
Chart 10-3. Education Level Distribution in Federal vs. Private Workforce

Chart10-3.png

 
Size of organization and responsibilities. Another important difference between Federal workers and private sector workers is the average size of the organization in which they work. Federal agencies are large and often face challenges of enormous scale, such as distributing benefit payments to over 60 million Social Security and Supplemental Security Income beneficiaries each year, providing medical care to 8.8 million of the Nation’s veterans, and managing defense contracts costing billions of dollars. Workers from large firms (those with 1,000 or more employees) are paid about 13 percent more than workers from small firms (those with fewer than 100 employees), even after accounting for occupational type, level of education, and other characteristics. It is reasonable to assume that the size of these organizations and the larger salaries associated with their size is also associated with greater complexity of their work.
 
Demographic characteristics. Federal workers tend to have demographic characteristics associated with higher pay in the private sector. They are more experienced, older and live in higher cost metropolitan areas. For example, 21 percent of Federal workers are 55 or older – up from 17 percent 10 years ago and significantly more than the 16 percent in the private sector. Chart 10-4 shows the difference in age distribution between Federal and private sector workers.
Chart 10-4. Federal Age Distribution in 2001 and 2011 and Federal vs. Private Age Distribution in 2011

Chart10-4.png

Challenges

The Federal Government faces specific human capital challenges, including a personnel system that requires further modernization, an aging and retiring workforce, and the need to continuously engage and develop personnel nel to maximize performance. If the Government loses top talent, experience, and institutional memory through retirements, but cannot recruit, retain, and train highly qualified workers, Government performance suffers. The age distribution and potential for a large number of retiring workers poses a challenge, but it also creates an opportunity to streamline the workforce and to infuse it with new – and in some cases lower-cost – workers excited about Government service and equipped with strong technology skills, problem-solving ability, and fresh perspectives to tackle problems that Government must address.
Outdated Personnel System
In the past sixty years, the private sector has innovated towards more flexible personnel management systems, but the Federal personnel system has not kept up and remains inflexible and outdated. While recent hiring reform efforts are showing significant progress in simplifying hiring, additional reforms are needed to update the pay, classification, and benefits systems. The General Schedule (GS) pay system has been in effect since 1949. Enacted in 1951, aspects of the current benefit and leave laws are out of date and do not always provide adequate flexibility for the increasing responsibilities of family caregivers in our workforce. An alternative, cost-effective system needs to be developed that will allow the Government to compete for and reward top talent, while rewarding performance and encouraging adequate flexibility to caregivers.
 
To address issues in the long-term, Federal managers and employees need a modernized personnel system. To that end, the Administration proposed to the Joint Select Committee on Deficit Reduction that the Congress establish a Commission on Federal Public Service Reform comprised of Members of Congress, representatives from the President’s National Council on Federal Labor- Management Relations, members of the private sector, and academic experts. The purpose of a Congressionally chartered Commission would be to develop recommendations on reforms to modernize Federal personnel policies and practices within fiscal constraints, including – but not limited to – compensation, staff development and mobility, and personnel performance and motivation.
Aging Workforce
The Federal workforce of 2012 is older than Federal workforces of past decades and older than the private sector workforce. The number of Federal retirements is on a steady increase, rising from 95,425 in 2009 to 96,133 in 2010 to 98,731 in 2011 and 112,817 in 2012. Increases in retirement are expected to continue. Nearly twentytwo percent of the over 687,000 respondents to the 2012 Federal Employee Viewpoint Survey (EVS) expressed an intent to retire during the next five years. Given these demographics, the Federal Government faces a few immediate challenges: preparing for retirements to maximize knowledge transfer from one generation to the next, succession planning to assure needed leadership and hiring and developing the next generation of the Government workforce to accomplish the varied and challenging missions the Federal Government must deliver.
Developing and Engaging Personnel to Improve Performance
One well-documented challenge in any organization is managing a workforce so it is engaged, innovative, and committed to continuous improvement, while at the same time dealing with poor performers who fail to improve as needed or are ill suited to their current positions. Federal employees are generally positive about the importance of their work and express a high readiness to put in extra effort to accomplish the goals of their agencies. Results from the 2012 Federal Employee Viewpoint Survey (EVS) indicate that nearly 97 percent of respondents answer positively to the statement “When needed I am willing to put in the extra effort to get the job done.” However in contrast, Federal employees have repeatedly identified the inability to deal with poor performers as an area of weakness over the past 10 years. In 2012, only 30 percent of employees who participated in the EVS answered positively that “In my work unit, steps are taken to deal with a poor performer who cannot or will not improve.” In addition, only 39 percent agreed that “creativity and innovation are rewarded”.

Addressing the Challenges

The Administration has made considerable progress improving employee performance and human capital management. Multiple efforts are underway, including: building a workforce with the skills necessary to meet agency missions, developing and using personnel analytics to drive decision making, new programs to infuse talent into agencies, heightened attention to a diverse and inclusive workforce, continued focus on the Senior Executive Service (SES) performance appraisal system, and strengthened labor-management partnerships.
Mission Focused and Data Driven Personnel Management
The Administration is committed to strengthening Federal agencies’ capacity to analyze human resources data to address workplace problems, improve productivity, and cut costs. OPM, in conjunction with OMB, is implementing several key initiatives that will lead to better evaluation and management of Federal employees. These efforts include recasting the EVS as a diagnostic tool to improve an organization rather than a snapshot that simply describes it, more agencies conducting data-driven HRStat review sessions, greater alignment between human capital and mission performance, and quarterly updates of key HR performance indicators on Performance.gov.
 
OPM administers the Government-wide EVS to gather employee perceptions about whether, and to what extent, conditions characterizing successful organizations are present in their agencies. The survey is a valuable management tool that helps agencies identify areas of strength and weakness and informs the implementation of targeted action plans to help improve employee engagement and agency performance. In 2012, for the first time, OPM administered the survey to nearly all civilian Federal employees and received responses from over 687,000 Federal employees. This is the largest number of participants since the survey was first administered in 2002, more than double the number of respondents from any previous EVS survey, making this the most inclusive survey to date. Even more importantly, agencies now have greater ability to drill down to understand employee viewpoints in smaller organizational units; nearly five times the number of office-level components within agencies received office-specific results in 2012 compared to the 1,687 components that received results in 2011. The increased response and reporting granularity enables agencies to identify areas of strength, offering possible models for others, and areas of weakness needing attention. Agencies across Government are using EVS data to develop and implement targeted, mission-driven action plans to address identified challenges.
 
One area in which the EVS has given us new insight is the impact of telework. The 2012 EVS indicates that teleworkers (82 percent) are more likely than non-teleworkers (79 percent) to know what is expected of them on the job, more likely to feel empowered (52 percent versus 45 percent), and more likely (75 percent compared to 68 percent of non-teleworkers) to be satisfied with their jobs. Finally, employees who telework are more likely to want to stay with their agencies (72 percent compared to 68 percent of non-teleworkers) and to recommend their agencies to others (74 percent compared to 66 percent of non-teleworkers). As documented by OPM’s 2012 report on the status of telework, the percentage of eligible Federal employees who participated in routine telework grew to 21 percent as of September 2011, compared to 10 percent during calendar year 2009. However, there is still more work to be done in breaking down barriers to the effective use of telework.
 
Agencies have also begun testing HRStat (Human Resources Statistics) reviews. HRStat reviews are data driven and focus on agency specific human capital performance; key human resources management metrics that drive agency performance and align with mission accomplishment. Agencies have incorporated a range of management metrics into their HR Stat review, including performance management, succession planning, and strategic workforce planning. The HRStat review is intended to enable quick course correction, if needed, to help ensure progress is being made on key human resources issues. In addition, Performance.gov provides agencies and the public a window on key human resources data – including Government-wide and agency specific hiring times, applicant and manager satisfaction, employee engagement and retention, and hiring rates from diverse candidate pools.
Closing Critical Skills Gaps
The demands of the workplace necessitate new and agile skill sets in the Federal workforce. OPM’s mission is to ensure that the Federal Government recruits, retains, and honors the talent agencies require to serve the American people. In 2011, OPM partnered with the Chief Human Capital Officers (CHCO) Council to take on the challenge of closing skills gaps across the Government. This initiative responds to the President’s Cross-Agency Priority Goal to close skills gaps, as well as GAO’s designation of human capital as a Government-wide high risk. The Department of Defense joined OPM in chairing an inter-agency workgroup that designed a sustainable strategic workforce planning method to identify and close skills gaps in mission-critical occupations. Based on rigorous data analysis, the workgroup identified the following mission-critical occupations for gap closure: IT-Cybersecurity Specialists, Acquisition Specialists, Economists, Human Resources Specialists, and Auditors. In addition, the workgroup identified STEM (science, technology, engineering, and mathematics) as a sixth functional area covering multiple occupations, which requires sustained strategic attention across Government.
 
To close skills gaps in these areas, OPM designated sub-goal leaders from agencies whose missions critically depend on these occupations. Together with these subgoal leaders, OPM is developing and executing strategies to close skills gaps in these occupations. The sub-goal leaders meet quarterly with the OPM Director to apprise him of their progress, including by providing updated metrics that will be reported on www.performance.gov.
 
One of the ways OPM is addressing skills gaps among human resources professionals is through HR University. Developed in 2011 by the CHCO Council, HR University provides an excellent foundation for human resources professionals to receive training to help them become more effective. HR University is a source of centralized training that takes courses and resources Federal agencies have already developed and provides a platform for cross-agency sharing.
 
HR University uses an HR Professional Framework, which helps HR professionals identify where they are in relation to the roles outlined in the framework. It also helps them think about their desired career path and provides a mechanism for determining how they need to develop to achieve their goals. This mechanism leads to an Individual Development Plan (IDP) designed specifically for the HR professional to create more targeted development plans. HR University also offers a Managers’ Corner to help supervisors and managers with their human resources management responsibilities. Finally, HR University is working to obtain accreditation as a fullservice university.
 
HR University has more than 19,000 registered users who have completed more than 12,000 online training courses, with a cost savings of over $41.4 million, realized through the sharing of resources and economies of scale. In addition, HR University ensures that courses meet OPM’s high standards by vetting each course through a very rigorous quality review.
 
In partnership with the CHCO Council, OPM will continue to expand HR University’s offerings. This effort may include more partnerships with colleges and universities, development of HR certifications, accreditation of courses, greater use of social media, website enhancements, and more courses on key topics that will close identified skill and competency gaps in the human resources field.
 
Individual agencies are also identifying and targeting critical skills gaps as a priority. The State Department and US Agency for International Development (USAID) identified overseas vacancies as an agency Priority Goal to help achieve operations and consular efficiency and effectiveness, transparency and accountability; and secure US presence internationally. This initiative aims to modernize and strengthen State/USAID so that they can meet the most pressing development challenges with a high-quality workforce to move towards the larger goals of these organizations.
Recruiting and Developing an Agile Workforce
To maximize effectiveness and potential, the Federal Government must continue to prepare its talent for challenges on the horizon. New cost-effective programs are being implemented to develop current employees, foster collaboration with innovators from the private sector, promote career pathways into Federal service, and enhance institutional knowledge transfer through a phased retirement program. These efforts are essential for developing a nimble, efficient 21st Century workforce that can help ensure agencies achieve their important missions under a tightening fiscal climate.
 
Leadership Development. In 2011, the President’s Management Council (PMC) and the Chief Human Capital Officers (CHCO) Council launched the PMC Interagency Rotation Program to bolster cross-agency exposure for high-potential GS 13-15s. Through 6-month developmental assignments, this program enables emerging Federal leaders to expand their management skills, broaden their organizational experience, and foster networks they can leverage in the future. Now preparing for its fourth cohort, the program has grown from 10 agencies and 28 participants to 15 agencies, 4 interagency councils, and 45 participants, with likely expansion in the upcoming cycle.
 
Innovation Fellows. The Presidential Innovation Fellows program pairs top innovators from the private sector, non-profits, and academia with top innovators in government to collaborate on solutions to high-impact challenges and deliver significant results in six months. The results of these projects are intended to save taxpayer money, fuel job growth, save lives, and provide tangible benefit to the American people. Each team of innovators is tasked with working on a specific high-impact issue using a focused but agile approach. This unique initiative focuses on tapping into the ingenuity, know-how, and patriotism of Americans from every sectors of our society.
 
Pathways Programs. Under the Administration’s leadership, the Government has taken steps to help students and recent graduates join the Federal service. As part of the Administration’s hiring reform efforts, the President issued Executive Order 13566, which created the Pathways programs to create clear paths to Federal service for students and recent graduates. OPM issued final regulations implementing Pathways last year and has been working closely with agencies to help them transition to the new programs. Pathways consists of three streamlined developmental programs: the Internship Program for students; the Recent Graduates Program for people who graduated within the preceding 2 years; and the Presidential Management Fellows (PMF) Program for people who obtained a graduate or professional degree within the preceding two years. Internship and career opportunities for students and recent graduates provide meaningful training and career development opportunities, promote employment opportunities for a new generation of public servants, and help agencies address recruiting challenges and infuse new skills into the Federal workforce.
 
Provide phased retirement to eligible Federal employees. The Administration proposed and Congress passed a phased retirement law to help facilitate the transfer of valuable knowledge between retiring and nonretiring employees. The phased retirement program will make it easier for the most experienced employees to enter into part-time retirement arrangements, providing expertise while mentoring other employees.
A Diverse and Inclusive Workforce
The American people are best served by a Federal workforce that reflects our rich diversity and encourages collaboration, fairness, and innovation. Under the President’s Executive Order 13583, of August 2011, the first Government-wide Diversity and Inclusion Strategic Plan was issued and provides agencies with the shared goals of workforce diversity, workplace inclusion, and sustainability. Since the issuance of the Executive Order, the percentage of people with disabilities who are Federal employees has increased to 11.86 percent, an all-time government high. The percentage of Hispanic (8.2 percent) and Asian American/Pacific Islander (6.1 percent) employees is steadily increasing with all other groups remaining at the same levels, and the diversity of the SES has improved. Moreover, the FY 2012 EVS reflected that 65 percent of Federal employees answered positively when asked if their supervisor or team leader is committed to a workforce that represents all segments of society.
 
In addition to supporting a diverse and inclusive workforce, the Federal Government has also made progress towards pay equality. Pay differentials by gender, after accounting for education and occupation, tend to be about half as small in the Federal sector as in the private sector. Differentials by race are also smaller in the Federal sector than in the private sector.
Government-wide SES Appraisal Model
Drawing from leading practices in Federal agencies and the private sector, representatives from 29 organizations developed a Government-wide Senior Executive Service (SES) performance appraisal model in 2011. Under this system, agencies can rely upon a more consistent and uniform framework to communicate expectations and evaluate the performance of SES members.
 
Anchored to a set of clearly-defined competencies (OPM’s Executive Core Qualifications) and balancing achievement of results with demonstration of leadership behaviors, this approach enhances clarity, transferability, and equity in performance standards development, feedback delivery, and ratings derivation. Since the introduction of the new SES appraisal model in January 2012, OPM approved implementation in 38 agencies (51% of all SES appraisal systems Government-wide). By FY14, it is anticipated to be 96%.
Strengthening Labor-Management Relations
The Administration continues to fulfill the robust vision laid out in Executive Order 13522, Creating Labor-Management Forums to Improve Delivery of Government Services. This Executive Order created a national Council, which meets regularly to coordinate Government-wide efforts, and nearly 1000 forums around government where agency management and union representatives work collaboratively to improve service delivery to the public.
 
In recent Council meetings representatives from both management and labor have presented on their successful efforts to improve productivity at naval shipyards, in VA appeals, and in Securities Exchange Commission (SEC) enforcement activities. For example, at the Nuclear Regulatory Commission (NRC), they are moving approximately 1400 workers and managers to a new building management involved workers and their unions in the design process. Important points for employees were included in the designs right from the start such as – access to natural light, noise levels, and workstation layouts. These are factors that deeply affect both productivity and morale. By engaging early, the NRC could approach business decisions with a problem-solving attitude.
 
In another case, there was enormous productivity increases at the Naval Sea Systems Command, NAVSEA. These are the employees who build, buy and maintain the Navy’s ships and submarines and their combat systems. NAVSEA leadership asked their unions and workers, through their labor-management forum, to put forward ideas to save an hour of time out of each workday. Workers identified the most wasteful part of their day: waiting in line to get the tools and parts they needed for their projects. Management and labor devised with a solution – a kit, prepared in advance and handed to you on arrival. In the kit, workers receive the tools needed and the exact number of nuts, bolts, and parts for any project that day. With this and other changes, NAVSEA projects to save one hour per day for about 8,000 mechanics and engineers across four shipyards – which translates into enormous savings. It has also helped reduce overtime hours, further increasing cost savings. A next challenge in the labor management partnership is to spread these successes to other agencies and locations around government.
Goals-Engagement-Accountability-Results (GEAR)
Over the years, there have been numerous attempts to reform and improve employee performance management in the Federal sector, with the ultimate goal of improving the performance of the organizations in which the employees work. Drawing from practices in the Federal sector and private sector, representatives from various Federal agencies, labor unions, and management organizations from the National Council on Federal Labor-Management Relations and the CHCO Council developed recommendations to strengthen the existing system of employee performance management. These recommendations are known as the GEAR framework. They are based on the idea that successful organizations must have clear, aligned goals, engaged employees and supervisors, and accountability for every employee at every level.
 
Five agencies are currently implementing the GEAR framework: OPM, the Department of Energy, the Department of Housing and Urban Development, and components of the Department of Veterans Affairs and the U.S. Coast Guard. The CHCO Council is currently reviewing the progress of GEAR and lessons learned in these agencies and identifying other leading practices across the Federal sector and private sector with the goal of broader application of the GEAR framework across the Federal Government. The ultimate goal is to ensure that Federal employees are engaged and enabled to deliver and improve Government services.
Table 10–3. Total Federal Employment

(As measured by Full-Time Equivalents)

 

Description

 

 

2012 Actual

2013

2014

Change: 2013 to 2014

CR

Request

FTE

Percent

Executive Branch Civilian:

 

2,090,679

 

2,128,768

 

2,134,948

 

6,180

 

0.3%

All Agencies, Except Postal Service ..............................................................

Postal Service 1 ..................................................................................................

587,310

569,782

546,203

–23,579

–4.1%

Subtotal, Executive Branch Civilian ...............................................................

2,677,989

2,698,550

2,681,151

–17,399

–0.6%

Executive Branch Uniformed Military:

 

1,501,807

 

3 1,466,664

 

4 1,330,944

 

–135,720

 

–9.3%

Department of Defense 2 ...................................................................................

Department of Homeland Security (USCG) ......................................................

43,027

43,017

42,029

–988

–2.3%

Commissioned Corps (DOC, EPA, HHS) ..........................................................

6,935

7,065

7,062

–3

–0.0%

Subtotal, Uniformed Military .........................................................................

1,551,769

1,516,746

1,380,035

–136,711

–9.0%

Subtotal, Executive Branch ............................................................................

4,229,758

4,215,296

4,061,186

–154,110

–3.7%

Legislative Branch5 .................................................................................................

30,634

34,260

34,402

142

0.4%

Judicial Branch .......................................................................................................

34,523

34,313

34,502

189

0.6%

Grand total ..................................................................................................

4,294,915

4,283,869

4,130,090

–153,779

–3.6%

1 Includes Postal Rate Commission.

2 Includes activated Guard and Reserve members on active duty. Does not include Full-Time Support (Active Guard & Reserve (AGRs)) paid fromReserve Component Appropriations.

3 FY 2013 reflects the FY 2013 President’s Budget request.

4 FY 2014 excludes Overseas Contingency Operations (OCO) funded activated Guard and Reserve members on active duty and OCO funded non-enduring strength of 33,885 for Army and 9,787 for the Marine Corps.

5 FTE data not available for the Senate (positions filled were used).

Table 10–4. Personnel Compensation and Benefits

(In millions of dollars)

 

Description

 

 

2012 Actual

 

 

2013 CR

 

 

2014 Request

Change: 2013 to 2014

Dollars

Percent

Civilian Personnel Costs:

 

 

 

176,133

 

 

 

178,980

 

 

 

185,562

 

 

 

6,582

 

 

 

3.7%

Executive Branch (excluding Postal Service):

Direct compensation ...............................................................

Personnel Benefits ..................................................................

68,117

68,723

71,842

3,119

4.5%

Subtotal ..............................................................................

244,250

247,703

257,404

9,701

3.9%

Postal Service:

 

36,398

 

35,059

 

34,141

 

–918

 

–2.6%

Direct compensation ...............................................................

Personnel benefits ..................................................................

15,128

16,007

8,502

–7,505

–46.9%

Subtotal ..............................................................................

51,526

51,066

42,643

–8,423

–16.5%

Legislative Branch: 1

 

2,053

 

2,098

 

2,153

 

55

 

2.6%

Direct compensation ...............................................................

Personnel benefits ..................................................................

670

654

667

13

2.0%

Subtotal ..............................................................................

2,723

2,752

2,820

68

2.5%

Judicial Branch:

 

3,140

 

3,180

 

3,244

 

64

 

2.0%

Direct compensation ...............................................................

Personnel benefits ..................................................................

1,071

1,147

1,169

22

1.9%

Subtotal ..............................................................................

4,211

4,327

4,413

86

2.0%

Total, Civilian Personnel Costs ...................................................

302,710

305,848

307,280

1,432

0.5%

Military personnel costs:

 

 

 

100,189

 

 

 

101,196

 

 

 

93,393

 

 

 

–7,803

 

 

 

–7.7%

Department of Defense

Direct compensation ...............................................................

Personnel benefits ..................................................................

51,505

52,113

45,350

–6,763

–13.0%

Subtotal ..............................................................................

151,694

153,309

138,743

–14,566

–9.5%

All other executive branch, uniformed personnel:

 

3,234

 

3,235

 

3,181

 

–54

 

–1.7%

Direct compensation ...............................................................

Personnel benefits ..................................................................

809

739

706

–33

–4.5%

Subtotal ..............................................................................

4,043

3,974

3,887

–87

–2.2%

Total, Military Personnel Costs 2 ..................................................

155,737

157,283

142,630

–14,653

–9.3%

Grand total, personnel costs ........................................................

458,447

463,131

449,910

–13,221

–2.9%

Addendum

 

 

 

76,196

 

 

 

82,087

 

 

 

87,534

 

 

 

5,447

 

 

 

6.6%

Former Civilian Personnel:

Retired pay for former personnel .................................................

Government payment for Annuitants:

 

10,683

 

10,698

 

11,163

 

465

 

4.3%

Employee health benefits ...................................................

Employee life insurance .....................................................

47

46

45

–1

–2.2%

Former Military personnel:

 

52,495

 

53,851

 

55,572

 

1,721

 

3.2%

Retired pay for former personnel .................................................

Military annuitants health benefits ...............................................

8,736

9,283

9,499

216

2.3%

1 Excludes members and officers of the Senate.

 

2 Amounts in this table for military compensation reflect direct pay and benefits for all service members, including active duty, guard, and reserve members.

Budget Concepts and Budget Process

11. Budget Concepts

Chart 11-1. Relationship of Budget Authority to Outlays for 2014

Chart11-1.png

Footnotes

1

For a fuller discussion of the congressional budget process, see Bill Heniff Jr., Introduction to the Federal Budget Process (Congressional Research Service Report 98–721), and Robert Keith and Allen Schick, Manual on the Federal Budget Process (Congressional Research Service Report 98–720, archived).


2

OMB’s calculations of the percentage and dollar amount of the required reduction for each non-exempt budget account and an explanation of the calculations can be found in the OMB Report to the Congress on the Joint Committee Sequestration for Fiscal Year 2013.


3

Although the 2013 caps reflect the original security and nonsecurity categories for discretionary enforcement, the 2013 sequestration was calculated using, and applied to, the defense and non-defense categories pursuant to the American Taxpayer Relief Act.

12. Coverage of the Budget

 

Footnotes

1

Subsidy costs are explained in the section below on “Federal credit programs.”

2

Government corporations are Government entities that are defined as corporations under 31 U.S.C. 9101, the Government Corporation Control Act, and four other entities. The four other entities are the African Development Foundation (which is subject to the Act by 22 U.S.C. 290h-6), the Inter-American Foundation (which is subject to the Act by 22 U.S.C. 290f), the Presidio Trust (which was established as a Government corporation by 16 U.S.C. 460bb note), and the Valles Caldera Trust (which is classified as a Government corporation by 16 U.S.C. 698v-4). Many Government corporations engage in a cycle of business activity with the public, selling services to the public at prices that enable the entities to be self-sustaining. Examples of Government corporations include the Commodity Credit Corporation, the Export-Import Bank of  the United States, the Federal Crop Insurance Corporation, the Federal Deposit Insurance Corporation, the Millennium Challenge Corporation, the Overseas Private Investment Corporation, the Pension Benefit Guaranty Corporation, and the Tennessee Valley Authority.

4

See 42 U.S.C. 911 and 39 U.S.C. 2009a. The off-budget Postal Service accounts consist of the Postal Service Fund, which is classified as a mandatory account, and the Office of the Inspector General and the Postal Regulatory Commission, both of which are classified as discretionary accounts. The Postal Service Retiree Health Benefits Fund is an on-budget mandatory account with the Office of Personnel Management. The off-budget Social Security accounts consist of the Federal Old-Age and Survivors Trust Fund and the Federal Disability Insurance Trust Fund, both of which have mandatory and discretionary amounts.

5

The 2013 off-budget surplus reflects a $33.1 billion surplus for Social Security and a $0.4 billion surplus for the Postal Service. The estimated 2014 off-budget surplus reflects a $19.2 billion surplus for Social Security and a $4.8 billion surplus for the Postal Service, and the projected 2015 off-budget surplus reflects a $7.4 billion surplus for Social Security and a $0.3 billion deficit for the Postal Service.

6

Tax expenditures, which are discussed in Chapter 16 of this volume, are an example of Government activities that could be characterized as either budgetary or non-budgetary. Tax expenditures refer to the reduction in tax receipts resulting from the special tax treatment accorded certain private activities. Because tax expenditures reduce tax receipts and receipts are budgetary, tax expenditures clearly have budgetary effects. However, the size and composition of tax expenditures are not explicitly recorded in the budget as outlays or as negative receipts and, for this reason, tax expenditures might be considered a special case of non-budgetary transactions.

7

Under FCRA, there are additional intragovernmental transfers between budgetary accounts and non-budgetary financing accounts where one side of the transaction is treated as budgetary. These include “reestimates,” annual updates of the subsidy cost of outstanding direct and guaranteed loans, as well as intragovernmental interest transactions with Treasury.

8

Both FCRA accounting and the earlier cash accounting of Federal credit programs would ultimately show the same costs for credit transactions. For example, cash accounting for direct loans would show the full disbursement of the loan as an outlay when it was made and then later show the repayments of principal and interest as an offset to outlays. Over the life of the loan, only the net cost of the loan would ultimately be reflected in the budget. FCRA accounting shows that same net cost, but shows that cost at the time the loan is made (adjusting the cash flows for the time-value of money). Under cash accounting, the outlays recorded when a loan was made overstated the lifetime costs of the loan and the outlays recorded when a guarantee was made understated the lifetime cost of the guarantee. Some have proposed amending credit reform to reflect the “fair value” estimate of cost. For more on this, please see Chapter 22 of this volume, “Credit and Insurance.”

9

For more explanation of the budget concepts for direct loans and loan guarantees, see the sections on Federal credit and credit financing accounts in Chapter 11 of this volume, “Budget Concepts.” The structure of credit reform is further explained in Chapter VIII.A of the Budget of the United States Government, Fiscal Year 1992, Part Two, pp. 223–226. The implementation of FCRA through 1995 is reviewed in Chapter 8, “Underwriting Federal Credit and Insurance,” Analytical Perspectives, Budget of the United States Government, Fiscal Year 1997, pp. 142–144. Refinements and simplifications enacted by the Balanced Budget Act of 1997 or provided by later OMB guidance are explained in Chapter 8, “Underwriting Federal Credit and Insurance,” Analytical Perspectives, Budget of the United States Government, Fiscal Year 1999, p. 170.

10

The administrative functions of the Federal Retirement Thrift Investment Board are carried out by Government employees and included in the budget.

11

The Housing and Economic Recovery Act of 2008, enacted on July 30, 2008, created the FHFA as the new regulator for Fannie Mae, Freddie Mac, and the Federal Home Loan Banks. FHFA reflects the merger of the Office of Federal Housing Enterprise Oversight, the Federal Housing Finance Board, and the Department of Housing and Urban Development’s Government-sponsored enterprise mission team.

12

Although most entities created by the Federal Government are budgetary, as discussed in this section, the GSEs and the Federal Reserve System were created by the Federal Government, but are classified as non-budgetary. In addition, Congress and the President have chartered, but not necessarily created, approximately 100 nonprofit entities that are non-budgetary. These include patriotic, charitable, and educational organizations under Title 36 of the U.S. Code and foundations and trusts chartered under other titles of the Code. Title 36 corporations include the American Legion, the American National Red Cross, Big Brothers-Big Sisters of America, Boy Scouts of America, Future Farmers of America, Girl Scouts of the United States of America, the National Academy of Public Administration, the National Academy of Sciences, and Veterans of Foreign Wars of the United States. Virtually all of the nonprofit entities chartered by the Government existed under State law prior to the granting of a Government charter, making the Government charter an honorary rather than governing charter; a major exception to this is the American National Red Cross. Its Government charter requires it to provide disaster relief and to ensure compliance with treaty obligations under the Geneva Convention. Although any Government payments (whether made as direct appropriations or through agency appropriations) to these chartered nonprofits, including the Red Cross, would be budgetary, the nonprofits themselves are classified as non-budgetary. On March 10, 2011, the Subcommittee on Immigration Policy and Enforcement of the Committee on the Judiciary in the U.S. House of Representatives adopted a policy prohibiting Congress from granting new Federal charters to private, non-profit organizations. This policy has been adopted by every subcommittee with jurisdiction over charters since the 101st Congress.

13

The National Science Foundation maintains a list of FFRDCs at http://www.nsf.gov/statistics/ffrdc.

14

Under section 415(b) of the Amtrak Reform Act of 1997, Public Law 105-134, Amtrak is required to redeem all of its outstanding common stock. Once all outstanding common stock is redeemed, Amtrak will be wholly-owned by the Government and, at that point, its non-budgetary status may need to be reassessed.

15

The most recent Regulatory Plan and introduction to the Unified Agenda were issued by the General Services Administration’s Regulatory Information Service Center and were printed in the Federal Register on December 21, 2012. Both the Regulatory Plan and Unified Agenda are available on-line at www.reginfo.gov and at http://www.gpoaccess.gov.

16

See 12 U.S.C. 225a.

17

See 15 U.S.C. 3101 et seq.

18

See section 1011 of Public Law 111-203, enacted on July 21, 2010. The CFPB is an executive agency, led by a director appointed by the President and reliant on Federal funding, that serves the governmental function of regulating Federal consumer financial laws. Accordingly, it is included in the Budget.

19

The following Federal Reserve liquidity facilities that were created during the financial market crisis have been allowed to expire: the Asset-Backed Commercial Paper Money Market Mutual Fund Liquidity Facility, the Commercial Paper Funding Facility, the Money Market Investor Funding Facility, the Primary Dealer Credit Facility, the Term Auction Facility, and the Term Securities Lending Facility. The Federal Reserve Bank of New York continues to lend under the Term Asset-Backed Securities Loan Facility, a program administered jointly with Treasury.

20

Treasury has completed its work on two programs—the Targeted Investment Program and the Community Development Capital Initiative. In addition, Treasury is in the process of selling off the mortgagebacked securities it purchased from the GSEs.

13. Budget Process

 

Footnotes

1

This chapter typically contains a report which fulfills the requirement under section 254 of the Balanced Budget and Emergency Deficit Control Act of 1985 (BBEDCA), as amended, for OMB to issue a sequestration preview report for each fiscal year. The OMB Sequestration Preview Report for FY 2014 will be made available on the OMB website.

2

This ability to “borrow” from a subsequent appropriation is unique to the Pell program. It comes about for two reasons. First, like many education programs, Pell is “forward-funded”—the budget authority enacted in the fall of one year is intended for the subsequent academic year, which begins in the following July. Second, even though the amount of funding is predicated on the expected cost of Pell during one academic year, the money is made legally available for the full 24-month period covering the current fiscal year and the subsequent fiscal year. This means that, if the funding for an academic year proves inadequate, the following year’s appropriation will legally be available to cover the funding shortage for the first academic year. The 2014 appropriation, for instance, will support the 2014-2015 academic year beginning in July 2014 but will become available in October 2013 and can therefore help cover any shortages that may arise in funding for the 2013-2014 academic year.

3

However, the budget records actual remunerations from the IMF and changes in the exchange rate of the dollar relative to Special Drawing Rights (in which the U.S. quota is denominated) as receipts or outlays.

4

In almost every case, “non-entitlement mandatory funding” exists where an agency has the authority to spend the proceeds of fees or other offsetting collections to run the agency. The spending in question is generally indistinguishable from other funding for administering the Government that is typically provided through discretionary appropriations.

5

There is one exception to the packaging rule: when a single appropriations bill includes funding that is in the jurisdiction of more than one appropriations subcommittee such as in an omnibus appropriations bill. In that case, the President may submit up to two packages.

6

Mandatory spending is termed direct spending in the PAYGO Act. The term mandatory encompasses entitlement programs, e.g., Medicare and Medicaid, and any funding not controlled by annual appropriations bills, such as the automatic availability of immigration examination fees to the Department of Homeland Security.

7

Although many programs are exempt from sequestration, those programs are rarely exempt from PAYGO. For example, a bill to increase veterans’ disability benefits or Medicaid benefits must be offset, even though a sequestration, if it is required, will not reduce those benefits.

8

For more information, see OMB’s annual PAYGO reports, available at http://www.whitehouse.gov/omb/reports_default.

9

For a review of the application of Administrative PAYGO, see USDA’s Application of Administrative PAYGO to Its Mandatory Spending Programs, GAO, October 31, 2011, GAO-11-921R.

10

The PAYGO Act originally provided for “current policy adjustments” that exempted the extension of certain tax and mandatory policies from being counted on the PAYGO scorecard. These adjustments applied only for legislation enacted through December 31, 2011, and are no longer in force.

Federal Receipts

14. Governmental Receipts

 

Footnotes

1

In the discussions of enacted legislation, years referred to are calendar years, unless otherwise noted.

2

A more general explanation of the adjusted baseline concept is provided in Chapter 26 of this volume, “Current Services Estimates.”

15. Offsetting Collections and Offsetting Receipts

 

Footnotes

1

Gross outlays to the public are derived by subtracting intragovernmental outlays from gross outlays. For 2012, gross outlays were $5,117 billion. Intragovernmental outlays are payments from one Government account to another Government account. For 2012, intragovernmental outlays totaled $1,090 billion.

2

Showing collections from business-type transactions as offsets on the spending side of the budget follows the concept recommended by the Report of the President’s Commission on Budget Concepts in 1967 and is discussed in Chapter 11 of this volume, “Budget Concepts.’’

3

Offsetting governmental receipts, which are a subset of offsetting receipts and were $8.6 billion in 2012, result from the Government’s exercise of its sovereign power to tax, but by law are required to be subtracted from outlays rather than added to governmental receipts. Some argue that regulatory or licensing fees should be viewed as payments for a particular service or for the right to engage in a particular type of business. However, these fees are conceptually much more similar to taxes because they are compulsory, and they fund activities that are intended to provide broadly dispersed benefits, such as protecting the health of the public. Reclassifying these fees as governmental receipts could require a change in law, and because of traditional conventions for scoring appropriations bills, would make it impossible for fees that are controlled through annual appropriations acts to be scored as offsets to discretionary spending.

4

In this chapter, the term “user charge” is generally used and has the same meaning as the term “user fee.” The term “user charge” is the one used in OMB Circular No. A–11, “Preparation, Submission, and Execution of the Budget;” OMB Circular No. A–25, “User Charges;” and Chapter 11 of this volume, “Budget Concepts.” In common usage, the terms “user charge” and “user fee” are often used interchangeably; and in A Glossary of Terms Used in the Federal Budget Process, GAO provides the same definition for both terms.

5

Beneficiary- and liability-based taxes are terms taken from the Congressional Budget Office, The Growth of Federal User Charges, August 1993, and updated in October 1995. Gasoline taxes are an example of beneficiary-based taxes. An example of a liability-based tax is the excise tax that formerly helped fund the hazardous substance superfund in the Environmental Protection Agency. This tax was paid by industry groups to finance environmental cleanup activities related to the industry activity but not necessarily caused by the payer of the fee.

6

Policies for setting user charges are promulgated in OMB Circular No. A–25: “User Charges’’ (July 8, 1993).

7

By law, duck stamp proceeds are available for use without further action by Congress, and, in this way, are similar to offsetting collections.

16. Tax Expenditures

 

Footnotes

1

These baseline concepts are thoroughly discussed in Special Analysis G of the 1985 Budget, where the former is referred to as the pre-1983 method and the latter the post-1982 method.

2

Gross income does, however, include transfer payments associated with past employment, such as Social Security benefits.

3

In the case of individuals who hold “passive’’ equity interests in businesses, the pro-rata shares of sales and expense deductions reportable in a year are limited. A passive business activity is defined generally to be one in which the holder of the interest, usually a partnership interest, does not actively perform managerial or other participatory functions. The taxpayer may generally report no larger deductions for a year than will reduce taxable income from such activities to zero. Deductions in excess of the limitation may be taken in subsequent years, or when the interest is liquidated. In addition, costs of earning income may be limited under the Alternative Minimum Tax.

4

Although this chapter focuses upon tax expenditures under the income tax, tax expenditures also arise under the unified transfer, payroll, and excise tax systems. Such provisions can be useful when they relate to the base of those taxes, such as excise tax exemption for certain types of consumption deemed meritorious.

Special Topics

17. Aid to State and Local Governments

 

Footnotes

1

United States Government Accountability Office. “Grants to State and Local Governments, An Overview of Federal Funding Levels and Selected Challenges.” September 2012.

2

Keegan, Natalie. “Federal Grants-in-Aid Administration: A Primer.” Congressional Research Service. October 3, 2012.

3

According to the Fall 2012 edition of The Fiscal Survey of States, published by the National Governors Association and the National Association of State Budget Officers, “forty-six states begin their fiscal years in July and end them in June. The exceptions are Alabama and Michigan, with October to September fiscal years; New York, with an April to March fiscal year; and Texas, with a September to August fiscal year” (page vi).

4

“General fund spending represents the primary component of discretionary expenditures of revenue derived from general sources which have not been earmarked for specific items.” “Fiscal Survey of States.” The National Governors Association and the National Association of State Budget Officers. Fall 2012. p. 1.

5

Hoene, Christopher W., McFarland, Christina, and Pagano, Michael.“City Fiscal Conditions in 2012.” National League of Cities. September 2012.

6

Ibid. p. 3.

7

Ibid.

8

U.S. Department of Commerce, Bureau of Economic Analysis (BEA), National Income and Product Accounts, Table 3.20, State Government Current Receipts and Expenditures. BEA reports annual data on a calendar year basis. Calendar year 2011 is the most recent year for which annual data are available.

9

“The Fiscal Survey of States.” The National Governors Association and the National Association of State Budget Officers. Fall 2012. p. 59.

10

See Table 12.2 in the Historical Tables volume of the Budget.

11

See Table 12.1 in the Historical Tables volume of the Budget

12

Canada, Ben. February 19, 2003. Federal Grants to State and Local Governments: A Brief History. Congressional Re-search Service, The Library of Congress.

13

Ibid.

14

Table 17–2 displays trends in Federal grants to State and local governments since 1960. Section A shows Federal grants by function Functions with a substantial amount of grant funding are broken out on separate lines. Grants for national defense, energy, social security, and veterans benefits and services functions are combined on the “Other’’line.

15

For more information on these categories, see Chapter 12, “Budget Concepts,’’ in this volume.

18. Strengthening Federal Statistics

Federal statistical programs produce key information to illuminate public and private decisions on a range of topics, including the economy, the population, the environment, agriculture, crime, education, energy, health, science, and transportation. The share of budget resources spent on supporting Federal statistics is relatively modest—about 0.04 percent of GDP in non-decennial census years and roughly double that in decennial census years—but that funding is leveraged to inform crucial decisions in a wide variety of spheres. The ability of governments, businesses, and the general public to make appropriate decisions about budgets, employment, investments, taxes, and a host of other important matters depends critically on the ready and equitable availability of objective, relevant, accurate, and timely Federal statistics.
 
The Federal statistical community is attentive to opportunities to improve these measures of our Nation’s performance, which is critical to fostering long-term global competitiveness. For example, during 2012, Federal statistical agencies:
 
• initiated data collection for the 2012 Economic Census from over 29 million business establishments covering 84 percent of economic activity in the Gross Domestic Product (Census Bureau);
• released reports updating information about how U.S. students compared to their counterparts in other nations in terms of math, reading, and science skills (National Center for Education Statistics);
• released new measures of household expenditures on health care classified by disease that facilitate the assessment of benefits and costs of treatment and provide a better understanding of factors driving growth in health care spending (Bureau of Economic Analysis);
• developed statistical techniques and processes to improve the accuracy and coverage of the Census of Agriculture (National Agricultural Statistics Service);
• provided timely information and analysis on the impacts of one of the most severe and extensive U.S. droughts in 25 years in order to assess its potential effects on food prices and consumers, farms, and the crop and livestock sectors (Economic Research Service);
• reviewed and strengthened methods used to prevent disclosure of taxpayer information in tabulated data disseminated over the Internet in order to preserve taxpayer confidentiality (Statistics of Income Division, IRS);
• published, on an experimental basis, a new aggregation structure that includes Producer Price Indexes (PPI) for intermediate and final demand that measure inflation for U.S. services as well as goods, thereby greatly expanding PPI coverage of the United States economy (Bureau of Labor Statistics);
• improved public access to 1.4 million data points of annual time-series data summarizing energy production, consumption, prices, and expenditures back to 1960 (Energy Information Administration);
• expanded use of administrative records for statistical purposes by entering into two new agreements to link administrative data to survey data in other agencies, thus avoiding investments in more costly surveys (Office of Research, Evaluation, and Statistics, SSA);
• provided current national and State-specific (for the largest States) data to track health insurance coverage, including coverage under both traditional and consumer-directed insurance arrangements (National Center for Health Statistics);
• launched a new tool providing a direct and userfriendly way to work with 19 years of data about victims of crime (Bureau of Justice Statistics);
• provided Commodity Flow Survey respondents, for the first time, with the option to report electronically via the Internet, resulting in reduced costs and overall improvement of data quality (Bureau of Transportation Statistics);
• improved the timeliness, quality and efficiency of its Scientists and Engineers Statistical Data System by increasing the sample size of the National Survey of College Graduates for young graduates, thereby improving understanding of the transition to employment of science and engineering graduates (National Center for Science and Engineering Statistics); and
• significantly increased the data quality of the American Community Survey by expanding its sample size to 3.5 million households (Census Bureau).
 
For Federal statistical programs to be useful to their wide range of users, the underlying data systems must be credible. To foster this credibility, Federal statistical programs seek to adhere to high-quality standards and to maintain integrity, transparency, and efficiency in the production of data. As the collectors and providers of these basic statistics, the responsible agencies act as data stewards—balancing public information demands and decision-makers’ needs for information with legal and ethical obligations to minimize reporting burden, respect respondents’ privacy, and protect the confidentiality of the data provided to the Government. The Administration remains committed to unlocking the power of Government data to improve the quality of information available to the American people while maximizing the cost-effective use of resources for the collection of Federal statistics within a constrained fiscal environment. This chapter presents highlights of principal statistical agencies’ 2014 budget proposals.

Highlights of 2014 Program Budget Proposals

The programs that provide essential statistical information for use by governments, businesses, researchers, and the public are carried out by agencies spread across every department and several independent agencies. Excluding cyclical funding for the decennial census, approximately 40 percent of the total budget for these programs provides resources for 13 agencies or units that have statistical activities as their principal mission (see Table 18–1). The remaining funding supports work in approximately 90 agencies or units that carry out statistical activities in conjunction with other missions such as providing services, conducting research, or implementing regulations. More comprehensive budget and program information about the Federal statistical system, including its core programs, will be available in OMB’s annual report, Statistical Programs of the United States Government, Fiscal Year 2014, when it is published later this year. The following highlights the Administration’s proposals for the programs of the principal Federal statistical agencies, giving particular attention to new initiatives and to other program changes, including terminations or reductions.
 
Bureau of Economic Analysis (BEA), Department of Commerce
Funding is requested to provide support for ongoing BEA programs and to better capture and measure the impacts of foreign direct investment (FDI) in the U.S. economy. BEA will improve overall coverage and measurement of FDI by implementing a new survey that will identify and quantify new investment in the U.S. by foreign investors. In addition, BEA plans to: (1) continue to implement a critical modernization of the Bureau’s information technology system that will lead to an increase in operational efficiency and security of BEA’s statistical production and analysis and (2) continue to develop new measures of Gross Domestic Product (GDP) by industry on a quarterly basis to provide real-time information on the health and stability of sectors within the U.S. economy. BEA will replace its “Advance” GDP by industry measures, which are currently available only on an annual basis, with the new quarterly measures of GDP by industry.
Bureau of Justice Statistics (BJS), Department of Justice
Funding is requested to provide support for ongoing BJS programs and to: (1) improve BJS’ criminal victimization statistics derived from the National Crime Victimization Survey with special emphasis on exploring the feasibility of generating sub-national estimates and enhancing data on the crimes of rape and sexual assault; (2) continue exploration of the use of administrative records data in police and correctional agencies to provide new statistics in these areas, including recidivism information, arrests, and offenses known to the police; (3) expand the surveys of inmates of prisons and jails to inform the process of re-entry; (4) improve the availability of justice statistics for Indian country; and (5) continue to support the enhancement of criminal justice statistics available through State statistical analysis centers.
Bureau of Labor Statistics (BLS), Department of Labor
Funding is requested to provide support for ongoing BLS programs and to: (1) add an annual supplement to the Current Population Survey to capture data on contingent work and alternative work arrangements in even years, and on other topics in odd years; and (2) modify the Consumer Expenditure Survey to support the Census Bureau in its development of a supplemental statistical poverty measure. In order to preserve funding for core statistical programs, the funding request also includes four reductions that would produce savings: (1) eliminate the Green Jobs initiative; (2) eliminate the Mass Layoff Statistics program; (3) eliminate the International Labor Comparisons program; and (4) consolidate BLS IT help desk services.
Bureau of Transportation Statistics (BTS), Department of Transportation
Funding is requested to provide support for ongoing BTS programs and to: (1) continue product dissemination for the 2012 Commodity Flow Survey; (2) expand work on performance measures as required by MAP-21 (Moving Ahead for Progress in the 21st Century Act); (3) identify opportunities to integrate and improve safety data across transportation modes; (4) support collection of data on passenger travel; and (5) develop estimates of the value of transportation infrastructure and facilities to inform DOT investment strategies.
Census Bureau, Department of Commerce
Funding is requested to provide support for ongoing Census Bureau programs and to: (1) continue critical research and testing for the 2020 Census program to support fundamental changes to program, business, operational, and technical processes; (2) complete data collection and the review and publication of industry reports for the five-year benchmarking Economic Census; (3) complete data processing and development of data products for the Census of Governments; (4) deepen and broaden an existing Statistical Community of Practice and Engagement test bed to identify effective automated methods to improve the interoperability of cross-agency statistical and administrative data; and (5) pilot increased collaboration between Census and other Federal agencies, where Census would provide a secure mechanism for restricted access to those agencies’ confidential data through its research data centers and possibly establish additional data linkage and disclosure procedures.
Economic Research Service (ERS), Department of Agriculture
Funding is requested to provide support for ongoing ERS programs, including research that: (1) explores how investments in rural people, businesses, and communities affect the capacity of rural economies to prosper in the new and changing global marketplace; (2) improves agricultural competitiveness and economic growth related to natural resource policies and programs that respond to the challenges of climate change and environmental protection; (3) analyzes the U.S. food and agriculture sector’s performance in the context of increasingly globalized markets; (4) evaluates the Nation’s nutrition assistance programs to study the relationship among the many factors that influence food choices and health outcomes including obesity; and (5) values societal benefits associated with reducing food safety risks. In addition, funding is requested for the Research Innovations for Improving Policy Effectiveness initiative, which will strengthen ERS’ ability to conduct research through the use of behavioral economics and the statistical use of administrative data in order to address critical information gaps that hinder policy effectiveness.
Energy Information Administration (EIA), Department of Energy
Funding is requested to provide support for ongoing EIA programs and to: (1) complete the 2012 Commercial Buildings Energy Consumption Survey, including release of data that provide U.S. benchmarks used to inform investments in new technologies, performance labeling, and energy management practices; (2) launch the 2014 Residential Energy Consumption Survey, which collects information from a nationally representative sample of housing units, including data on energy characteristics of homes, usage patterns, and household demographics; (3) resume modernizing and streamlining data collection processes across energy supply surveys to yield significant efficiencies in the agency’s largest operational area; (4) enhance EIA’s ability to monitor, forecast, and report on international energy developments; (5) resume upgrades to EIA’s forecasting capabilities through the modernization of the National Energy Modeling System; and (6) improve and expand customer internet access to EIA data and information.
National Agricultural Statistics Service (NASS), Department of Agriculture
Funding is requested to provide support for ongoing NASS programs and to: (1) publish Census of Agriculture products by congressional district, watershed, zip code, and Indian reservation; (2) conduct a Farm and Ranch Irrigation Survey to provide one of the most complete and detailed profiles of irrigation in the United States; (3) field a Census of Aquaculture to provide a comprehensive picture of the aquaculture sector at the State and national levels; and (4) produce four of the Current Industrial Reports, previously issued by the Census Bureau.
National Center for Education Statistics (NCES), Department of Education
Funding is requested to provide support for ongoing NCES programs and to: (1) pilot a State-representative sample of the Program of International Student Assessment of 15 year-olds in reading, mathematics, and science for a limited number of participating States; (2) collect student-level institutional administrative data on a 2-year cycle to supplement the National Postsecondary Student Aid Study 4-year student survey data with more frequent information on educational costs, financial aid, enrollment, and progress; and (3) conduct the National Adult Training and Education Pilot Study, in partnership with the Census Bureau, Bureau of Labor Statistics, and Council of Economic Advisers, to develop a methodology for collecting information on all postsecondary certificates and training, not just on those provided by institutions of higher education.
National Center for Health Statistics (NCHS), Department of Health and Human Services
Funding is requested to provide support for ongoing NCHS programs and to: (1) expand information from NCHS’ family of provider surveys in order to monitor health care utilization more closely; and (2) support expansion within base resources of automated National Vital Statistics that are collected by the States and compiled by NCHS in order to fully implement electronic birth records in the two remaining jurisdictions and gradually phase in electronic death records in the 21 remaining jurisdictions over four years. The vital statistics information will be used to improve tracking of priority health initiatives related to births to unmarried women, teenage pregnancy, and causes of death.
National Center for Science and Engineering Statistics (NCSES), National Science Foundation
Funding is requested to provide support for ongoing NCSES programs and to: (1) conduct an R&D survey of nonprofit institutions; (2) conduct the State level R&D survey more frequently; (3) develop and test successful data collection strategies for the Microbusiness Innovation Science and Technology Survey; (4) expand the use of administrative records sources to augment existing survey information on the relationship of Federal grants to Science, Technology, Engineering, and Mathematics (STEM) education and outcomes, innovation, and other R&D information; (5) expand measures on the Survey of Doctorate Recipients to understand the role of, and better target funding of, Federal research support for graduate education and outcomes; and (6) plan and design program modifications to support the development of new science and technology indicators.
Office of Research, Evaluation, and Statistics (ORES), Social Security Administration
Funding is requested to provide support for ongoing ORES programs and to continue to: (1) support outside surveys and linkage of SSA administrative data to surveys; (2) field a topical module for the redesign of the Survey of Income and Program Participation to address Social Security’s data needs for microsimulation models, program evaluation, and analysis; (3) strengthen microsimulation models that estimate the distributional effects of proposed changes in Social Security programs; (4) provide enhanced statistical and analytical support for initiatives to improve Social Security and other government agency programs; (5) fund retirement-related research through a Retirement Research Consortium; and (6) fund two Disability Research Centers to conduct disability-related research, focusing on collaborative efforts with other government agencies and interagency groups.
Statistics of Income Division (SOI), Department of the Treasury
Funding is requested to provide support for ongoing SOI programs and to: (1) further modernize tax data collection systems by efficiently assimilating data captured from the electronic filing of tax and information returns to the SOI program; (2) integrate population and information return data with SOI-edited data to provide rich longitudinal and/or cross-sector data that can be used to better understand the complex interaction between taxes and economic behavior; (3) develop improved statistical techniques for identifying and correcting outliers and data anomalies in Internal Revenue Service administrative population files; (4) partner with tax policy experts within and outside government to produce top quality research on important tax administration issues; and (5) enhance the design, quality and number of SOI’s products and resources.
Table 18–1. 2012–2014 Budget Authority for Principal Statistical Agencies 1
(in millions of dollars)
Agency and Program 2012 Actual Estimate
2013 CR 2014
Bureau of Economic Analysis  92 93 100
Bureau of Justice Statistics 2 52 56 64
Bureau of Labor Statistics 609 613 610
Bureau of Transportation Statistics 26 26 26
Census Bureau 3 972 940 1013
  Salaries and Expenses 3  283 285 286
   Periodic Censuses and Programs 689 655 727
Economic Research Service 78 78 79
Energy Information Administration 105 106 117
National Agricultural Statistics Service 4 159 160 160
National Center for Education Statistics 5 264 265 273
   Statistics 5  125 126 140
   Assessment 130 130 125
   National Assessment Governing Board 9 9 8
National Center for Health Statistics 6 159 159 181
National Center for Science and Engineering Statistics , NSF 7 43 43 49
Office of Research, Evaluation, and Statistics, SSA 29 26 30
Statistics of Income Division, IRS 39 37 37

 

1 Reflects any rescissions.
2 Includes reimbursable funding to BJS ($3.7 million) and funds for management and administrative costs ($7.2 million) totaling $10.9, $10.9, and $10.9 million in 2012, 2013, 2014, respectively, that were previously displayed separately.
3 Salaries and Expenses funds include discretionary and mandatory funds.
4 Includes funds for the periodic Census of Agriculture of $42, $42, and $42 million in 2012, 2013, and 2014, respectively. The 2014 Census of Agriculture request will be used for publishing the 2012 Census data and conducting follow-on surveys.
5 Includes funds for salaries and expenses of $17, $17, and $17 million in 2012, 2013, and 2014, respectively, that are displayed in the Budget Appendix under the Institute of Education Sciences (IES). In addition, NCES manages the IES grant program for the State Longitudinal Data System which is funded at $38 million, $38 million, and $85 million in 2012, 2013, and 2014, respectively.
6 All funds from the Public Health Service Evaluation Fund. The estimates do not include resources from the Prevention and Public Health Fund. The estimates appear larger than previously reported because the FY 2012–2014 levels are comparably adjusted for FY 12 and 13 to reflect business support services formerly shown separately but now included in the FY 2014 budget estimates.
7 Includes funds for salaries and expenses of approximately $7 million each year.

19. Information Technology

The Administration is committed to building a 21st century Government that is more efficient and effective for the American people. The strategic use of information technology (IT) is critical to the Administration’s success in achieving that goal. The Federal Government for 2014 plans to invest over $82 billion a year in IT. To ensure that this investment in IT is optimized, the Federal Chief Information Officer (CIO) is focused on policy and oversight activities in three key areas: maximizing the return on investment in Federal IT; driving innovation to meet customer needs; and securing and protecting the Government’s data. All Federal agencies will be tasked to:
 
Deliver by Maximizing the Return on Investment of Federal IT – In order to innovate with less, the Government must better manage and integrate IT services. This means consolidating redundant applications, systems, and services and using enterprisewide solutions. It also means establishing common testing platforms to foster interoperability and portability, streamlining the creation of new IT infrastructure, and shifting from an asset-ownership to a service-orientation model via cloud computing. Initiatives such as the IT Dashboard, TechStat, PortfolioStat, 1 the Federal Data Center Consolidation Initiative (FDCCI), and cloud computing efforts support this objective.
Innovate to Better Serve Customers – The interconnectedness of our digital world dictates that the Government buy, build and manage IT in a new way. Rapidly adopting innovative technologies, improving the efficiency and effectiveness of the Federal workforce through technology, and fostering a more participatory and citizen-centric Government are critical to providing the services that citizens expect from a 21st Century Government. Initiatives such as the Digital Government Strategy 2 support this objective.
Protect Federal IT Assets and Data Through Improved Cybersecurity – The President has identified the Cybersecurity threat as one of the most serious national security, public safety, and economic challenges we face as a nation. Ultimately, the Cybersecurity challenge in Federal government is not just a technology issue. It is also an organizational, people, and performance issue requiring creative solutions to address emerging and increasingly sophisticated threats, and new vulnerabilities introduced by rapidly changing technology. To overcome this challenge, Federal agencies must improve cybersecurity capabilities to provide safe, secure, and effective mission execution and services, with a focus on accountability. Specifically, agencies must continue to implement initiatives such as the Cybersecurity Cross-Agency Priority (CAP) Goal, which is part of the Administration’s broader performance management improvement initiative (encompassing Trusted Internet Connections, continuous monitoring and strong authentication), the Federal Information Security Management Act (FISMA), and the Federal Risk Authorization and Management Program (FedRAMP), and continuously measure agency progress in improving information security performance through CyberStat reviews.
 
This chapter describes details on the Federal IT budget and on the Administration’s Federal IT initiatives.

The Federal Information Technology (IT) Portfolio

Federal Spending on IT—To innovate in an era of flat or declining budgets, it is critical for agencies to view IT as a strategic asset, and as a driver to deliver better customer service to taxpayers. When properly managed and applied, IT frees up resources from costly and inefficient business processes and enables the funding of new, innovative IT solutions. To encourage these efforts, in 2014 agencies have been directed in OMB Memorandum M-12-13 to implement a cut and reinvest strategy-- cutting duplicative commodity, business and enterprise IT investments and underperforming projects to fund more strategic investments. 3 Strategic reinvestments will focus on systems that demonstrably improve citizen services or administrative efficiencies, increase the adoption of shared services, improve the Government’s cybersecurity posture, reduce Federal IT’s energy consumption, and enhance analytical capabilities.
 
Total planned spending on IT in 2014 estimated for agencies represented on the IT Dashboard 4 is $82.0 billion, 2.1 percent above the 2012 estimated level of $80.3 billion, as shown in Table 19-1. Spending estimates in Chart 19-1 depict how growth in IT spending of 7.1 percent per year over 2001-2009 has been slowed to 0.78 percent per year for 2009-2014.
Table 19–1. Federal IT Spending, President's Budget, FY 2014
(Spending in millions of dollars)
Category 2012 2013 CR 2014
IT Spending, Department of Defense 1 39,588 38,810 39,599
IT Spending, non-Defense 2 40,690 41,766 42,397
Total IT Investment Spending 80,278 80,576 81,996

1 Spending levels on information technology investments shown here for DoD include estimates for IT investments for which details are classified.

Totals shown here for DoD are higher than totals reflected on the IT Dashboard, which cannot reflect classified details.
2 Non-Defense agencies for which IT investment information is displayed on the IT Dashboard are: Department of Agriculture, Department of Commerce, Department of Education, Department of Energy, Department of Health and Human Services, Department of Homeland Security, Department of Housing and Urban Development, Department of the Interior, Department of Justice, Department of Labor, Department of State, Department of Transportation, Department of the Treasury, Department of Veterans Affairs, Environmental Protection Agency, General Services Administration, National Aeronautics and Space Administration, National Archives and Records Administration, National Science Foundation, Nuclear Regulatory Commission, Office of Personnel Management, Small Business Administration, Smithsonian Institution, Social Security Administration, U.S. Agency for International Development, and U.S. Army Corps of Engineers.
Chart 19-1. Trends in Federal IT Spending
Chart19-1.png

Delivering Maximum Return On Investment (ROI) For IT

Focusing IT Oversight on Comprehensive IT Portfolio Reviews and Planning—In 2013-2014, the Administration will continue to broaden its approach to managing IT by encouraging a more rigorous application of its PortfolioStat model.
 
In the initial PortfolioStat assessments in 2012, agencies collected and analyzed baseline data on 13 common types of commodity IT investments, spanning infrastructure, business systems, and enterprise IT. There are significant opportunities for reducing spending in these areas through consolidation and shared services. OMB worked with agencies to review their data and compare their spending with other agencies and private-sector benchmarks to assess the agency’s current posture and develop a list of opportunities to reduce inefficiency, duplication, and unnecessary spending. Based on this analysis, agencies drafted PortfolioStat plans, which were then reviewed in Deputy Secretary-led PortfolioStat sessions with the Federal CIO. Incorporating OMB feedback from the sessions, agencies’ final plans identified 98 opportunities to consolidate or eliminate commodity IT areas, ranging from the consolidation of multiple email systems across an agency to the reduction of duplicative mobile or desktop contracts. 5

PortfolioStat efforts resulted in ambitious, forwardlooking plans with the potential to save the Government $2.5 billion over the next three years by consolidating duplicative systems, buying in bulk, and ending or streamlining off-track projects. In these initial agency assessments of planned savings, agencies focused on key categories of commodity IT spending, specifically purchases of IT assets or services that have become commonplace and that are not highly-customized for specific program support. Potential savings identified in the 2012 PortfolioStat process are illustrated in Chart 19-2 below.

Chart 19–2. Results of Portfolio Stats in 2012 PortfolioStat Commodity IT Reduction Targets
Chart19-2.png
 
Consolidating and Optimizing Commodity IT— PortfolioStat has played a pivotal role in accelerating agency adoption of shared services. Under the Shared First initiative agencies were tasked with identifying opportunities to shift to intra-agency commodity, support, and mission IT shared services, maximizing the use of strategic sourcing, and increasing the number of shared services that they provide or use. Following direction from the Federal CIO in May 2012, agencies completed the migration of at least two IT service areas to a shared delivery model, and agencies will work in 2013 toward more comprehensive shared services plans.
 
One other particularly large component of commodity IT spending is represented by the infrastructure investments in agency data centers. In 2012, agencies expanded their efforts under the FDCCI to include data centers of all sizes. Since agencies began executing their data center consolidation plans in 2011, they have closed over 400 data centers. During 2013, OMB will continue working with agencies to categorize the Federal data center inventory and refine plans and metrics to continue consolidation of the remaining data centers, while implementing measures to optimize the data centers that remain open. Looking ahead to 2014, agencies will incorporate their data center consolidation efforts into a broader enterprise-wide approach to address commodity IT in an integrated, comprehensive manner. The FDCCI will play a significant role in supporting and achieving the goals of PortfolioStat. As these efforts converge, agencies will continue to focus on optimizing those data centers that are pivotal to delivering critical services, while closing duplicative and inefficient data centers.
 
Strengthening CIO Authorities – One finding from 2012 PortfolioStat sessions was that agencies with empowered CIOs tended to have less fragmented IT portfolios and better visibility into how IT was being spent. The role of agency CIOs will continue to strengthen as agencies implement OMB’s 2011 Memorandum M-11-29 aimed at enhancing their authority to better manage Federal IT investments. 6 Already, fundamental changes to the role of the CIO have occurred at some agencies. At the General Services Administration (GSA), for example, the need to improve information technology services and ease access to agency data resulted in the consolidation of all information technology personnel, budgets, and systems under the Chief Information Officer. The result will be a new technology office that has the ability to provide the IT services and support needed. CIO authorities have been further reinforced by the broader OMB Memorandum M-11-31, on delivering a more efficient and accountable Government, 7 the implementation of PortfolioStat, and also the May 2012 release of guidance to agencies on Shared Services IT Strategy with milestones for 2012 and 2013. 8
 
Cloud Computing—Under the Federal Cloud Computing Initiative, cloud computing has now become an accepted and integral part of the Federal IT environment. Agencies no longer question the utility and feasibility of cloud computing; but instead are seeking out opportunities to use cloud computing to reshape their IT portfolios to drive innovation, maximize ROI, and improve cybersecurity. In 2011-2012, implementing the 25 Point Implementation Plan to Reform Federal IT Management, 9 agencies successfully migrated nearly 70 services to the cloud, supporting Government-wide efforts to expand access to open data, drive a more transparent and participatory Government, and move toward more environmentally sustainable platforms. With the ability to expand capacity at a moment’s notice without having to procure new servers, add new data centers, and hire new staff, the cloud is essential to the Federal Government’s ability to be flexible as demands change.
 
In order to accelerate the safe and secure adoption of cloud solutions, GSA is making tools available so that agencies can migrate high value solutions to the cloud. Last year, GSA awarded blanket purchase agreements for 17 vendors to provide Federal, State, local and tribal governments with the ability to buy cloud-based email, office automation, electronic records management, migration, and integration services. GSA is also working to provide agencies tools under existing contracts to purchase cloud data center services and cloud migration services, to help agencies ready legacy environments to migrate to the cloud. The latter will be especially important for smaller and independent Federal entities, which may not have the resources to grow or redeploy their staff to manage the migration to the cloud. Looking ahead to 2014, GSA will continue to explore whether a cloud brokerage concept, similar to that provided in the financial services industry, would help to increase cloud adoption.
 
Improved IT Dashboard—The IT Dashboard was initially launched in June of 2009, to facilitate realtime monitoring of agency IT investment performance by Federal officials, Congress, and the American people. As experience with the IT Dashboard has grown, OMB (in collaboration with agencies and with input from the Government Accountability Office) has worked to improve the quality and focus of data collection for this flagship transparency site. The IT Dashboard continues to set an example for a more open, accessible approach to the evolution of Federal Government systems, through its open source policy. IT Dashboard application code has been available since March 31, 2011 at the Sourceforge site, 10 a site dedicated to the sharing of open source code, where open discussion forums were later added.
 
In 2012, the IT Dashboard was updated with new data structures and historical trend data, building on the recommendations of an interagency working group and providing even greater transparency into the Federal IT investment portfolio. More targeted and detailed data on major IT development activities will allow closer oversight, and assist agencies to deliver key functionality needed by Federal programs on time and within budget.
 
OMB continues to require that CIOs rate all major IT investments in the IT Dashboard, assessing how well the risks for major development efforts are being addressed. Based on preliminary analysis of these ratings for FY 2012, there is little evident trend up or down overall in major IT investment ratings by CIOs. Across this period, CIOs have rated almost ¾ of major investments as “Low Risk” or “Moderately Low Risk” (“green” in the IT Dashboard). But in looking at specifics by agency, some have experienced larger than average increases and decreases in ratings. For example, the U.S. Department of Agriculture CIO “green” ratings over this period dropped from 37 to 21. Over the same time interval, the Department of Transportation’s “green” CIO ratings increased from 28 to 36. These ratings are one factor used to inform PortfolioStat and TechStat processes.
 
IT Investment Oversight (TechStats)—In 2010, OMB launched TechStat accountability sessions for major Federal IT investments, which helped improve oversight of major IT investments. A TechStat is a face-to-face, evidence- based accountability review of an IT investment. It enables the Federal Government to intervene, and turn around, halt, or terminate IT projects that are failing to deliver results for key requirements on schedule. By accelerating intervention in troubled IT projects, TechStat reviews helped avoid significant costs, particularly in cases where projects were halted or terminated. Since January 2010, OMB has led over 60 TechStat sessions, including 38 high-priority reviews between August and December 2010. These reviews resulted in remediation actions with cost implications for investments reviewed. The TechStats also resulted in an average acceleration of deliverables from over 24 months to 8 months for the investments reviewed.
 
When the Congress in December, 2011 enacted the appropriation for the Integrated, Efficient and Effective Uses of IT (IEEUIT) Fund 11 in the Executive Office of the President, to assist in supporting IT reform, OMB began reporting quarterly to the Congress on the savings from IT reform. In its Jan. 31, 2013 report, OMB estimated $489.1 million in cost savings and cost avoidance for the period since the IEEUIT appropriation was enacted, stemming principally from commodity IT acquisition efficiencies and consolidations, cloud migrations, and the results of the agency-led TechStat sessions which were initiated in 2011. In agency-led TechStats, agency CIOs lead their own TechStats at the agency level, reporting the results to OMB. To date, including the period before quarterly IEEUIT reporting began, CIOs across the Government have held over 300 agency-led TechStats.
 
Information Technology Acquisition—OMB will focus on the work of the Strategic Sourcing Leadership Council (SSLC) to drive greater efficiency in commodity IT acquisition and use of shared services. Through the PortfolioStat process, OMB achieves better insight into the acquisition and execution of commodity IT at the agency and sub-agency level. OMB will work through Federal CIO Council channels to identify opportunities to procure commodity IT at lower cost and more efficiently, while creating new opportunities for small businesses.

The Innovation Agenda-Government in the Information Age

Changes in technology—such as the large increase in the number of mobile devices, the greater availability of data, the growth of cloud computing, and the evolution of social media and collaboration tools—are driving rapid changes in the way we consume information. This presents both opportunities and challenges, as growing expectations require the Federal Government to be ready to deliver and receive digital information and services anytime, anywhere and on any device. It must also do so safely, securely, and with fewer resources. To build for the future despite constrained budgets, the Federal Government needs to innovate with less and enable entrepreneurs and others in the public to better leverage Government data, simultaneously improving the quality of services to the American people.
 
The Administration’s innovation agenda will build on the following initiatives:
 
Digital Government Strategy—On May 23, 2012, the President issued a directive entitled “Building a 21st Century Digital Government.” It launched a comprehensive Digital Government Strategy aimed at delivering better digital services to the American people. The strategy has three main objectives: (1) enabling the American people and an increasingly mobile workforce to access high-quality, digital Government information and services anywhere, anytime, on any device; (2) ensuring that as the Government adjusts to this new digital world, we seize the opportunity to procure and manage devices, applications, and data in smart, secure and affordable ways; and (3) unlocking the power of Government data to spur innovation across our Nation and improve the quality of services for Federal employees and the American people. Presidential Innovation Fellows—The Presidential Innovation Fellows program 12 pairs entrepreneurs from the private sector, non-profits, and academia with top innovators in Government to collaborate on solutions to high-impact challenges and deliver significant results in six months. The results of these projects are intended to save taxpayer money, fuel job growth, bring private sector best practices to Government, and provide tangible benefits to the American people. Each team of innovators is tasked with working on a specific high-impact issue using a focused, agile approach. In a time of constrained budgets, we need to find innovative ways to do more with less. What makes this initiative unique is its focus on tapping into the ingenuity, know-how, and patriotism of Americans from every sector of our society.
 
Managing Information—Open Data—The information maintained by the Federal Government is a national asset with tremendous potential value to the public, entrepreneurs, and to our own Government programs. The innovation agenda includes multiple initiatives that will open Government data to enhance information exchanges, interoperability, and public release (subject to valid restrictions). As a model, decades ago, the National Oceanic and Atmospheric Administration (NOAA) began making weather data available for free electronic download by anyone. Entrepreneurs utilized this data to create weather newscasts, websites, mobile applications, insurance, and much more, resulting in a multi-billion dollar industry. Similarly, the Government’s decision to make the Global Positioning System (GPS) freely available resulted in private sector innovations ranging from navigation systems to precision crop farming, creating massive public benefits and contributing significantly to economic growth. To harness the value of Government open data to the fullest extent possible, OMB and the Office of Science and Technology Policy (OSTP), in conjunction with the Presidential Innovation Fellows Program, have launched six open data initiatives affecting diverse sectors including: health, energy, education, public safety, and global development. These efforts aim to make Government data available to entrepreneurs who will use this data to create tools, such as those that help Americans find the right health care providers, identify colleges that provide the best value for tuition costs, save money on electricity bills through smarter shopping for the right rate plan, and keep their families safe by knowing which products have been recalled.
 
Accelerating Federal Use of Mobile Devices—The Federal Government currently spends approximately $1.2 billion annually for mobile and wireless services and devices, maintaining an inventory of approximately 1.5 million active accounts. These figures will only increase as agencies accelerate their adoption of new mobile technologies, and as the public increasingly expects Government services to be made available anywhere, anytime, on any device. The Digital Government Strategy established a set of discrete actions to ensure that the Federal Government capitalizes on mobile solutions in smart, secure, and affordable ways. Actions included the release of bring-your-own-device (BYOD ) guidance based on lessons learned from successful pilots at Federal agencies 13; a requirement that agencies develop an enterprise-wide inventory of mobile devices and wireless service contracts 14the establishment of a Government-wide contract vehicle for mobile devices and wireless services 15; a gap analysis and mobile security report to be generated by the Chief Information Officers Council 16; and the development of a Government-wide mobile and wireless security baseline and reference architectures. 17
 
Future-Ready Architecture—Agencies continue to face the challenge of having to provide new or updated business and technology services with limited resources. In May 2012, OMB released “The Common Approach to Federal Enterprise Architecture,” providing guidance to help agencies promote more agile and standardized architecture methods. 18 This common architecture approach included an emphasis on modular development and contracting practices, and the utilization of cloud-based services to speed the delivery of value and lower the risk of failure in IT projects. In promulgating the common approach, OMB also required agencies to develop and submit an enterprise roadmap by August 31, 2012. The roadmap included an IT asset inventory, commodity IT consolidation plan (tied to PortfolioStat reviews), and plans for improving the quality and uptake of Government-wide Line of Business services. 19 In the future, Federal IT architects will also be called upon to address further methodology improvements supporting better analytical capabilities across all Federal IT assets.
 
Transition to Internet Protocol Version 6 (IPv6)—In September 2010, OMB issued a memorandum 20 requiring Executive branch agencies to deploy native Internet Protocol Version 6 (IPv6) for public Internet servers and internal applications that communicate with public servers. This directive builds upon an August 2005 memorandum, 21 “Transition Planning for Internet Protocol Version 6 (IPv6),” which led to the key early step of IPv6 being deployed in all Federal Government agency networks in 2008. In July 2012, the Federal Government released a roadmap for transitioning to the next-generation Internet networking technology. This Roadmap, “The Planning Guide/Roadmap Toward IPv6 Adoption within the U.S. Government” 22 was jointly developed with industry and provides best practices on how to successfully implement the next version of IPv6. Agency status regarding the transition to IPv6-enabling public Internet servers is available on the National Institute of Standards and Technology (NIST) IPv6 Deployment Monitor web site. 23
 
Modular Software Development—While OMB requires agencies to implement shared-first strategies, some unique mission capabilities must still be developed which may require custom software development. One of the key lessons learned during TechStat reviews, however, is that investments that spend long periods of time defining requirements and designing components before realizing value are at significantly increased risk of failure. To help align the acquisition team and the IT team in reducing this risk, OMB published Contracting Guidance to Support Modular Development. 24 OMB will use the IT Dashboard to identify investments in which “time-tovalue” measures are inconsistent with policy. Agencies
should also be identifying these risky investments through the implementation of their internal TechStat processes and they should undertake corrective actions to deploy capabilities to the production environment in months instead of years. OMB will continue to monitor agency performance in this area.
 
BusinessUSA—On January 13, 2012, the Administration articulated a strategy to break down the stovepipes that have prevented the Government from delivering a comprehensive suite of services and capabilities to American businesses. Based on the President’s premise of “…one website, one phone number, one mission,” BusinessUSA, was launched on February 17, 2012. 25 For American entrepreneurs, interacting with the Federal Government should feel like they are working with one organization that puts them and their needs first, and does not force them to understand a complex Federal bureaucracy. BusinessUSA will continue to grow and evolve, becoming the single entry point for businesses to connect with Government programs to help them launch new endeavors and grow. Services offered through BusinessUSA are not limited to the Federal sector; the site includes links to State and local programs and services, so that businesses can connect with resources they need to
start up, grow, and export their goods and services. In 2014, all Federal agencies with business-facing capabilities will be participating in integrating and expanding BusinessUSA’s capabilities.
 
Geospatial Data—Consistent with the Digital Government Strategy, the guidance on Modular Development, and in support of the principle of open data, 26 agencies will continue to review their geospatial data and make it available to other agencies and the public. The progress of geospatial data being opened will be reflected on the Geospatial Platform – a Federal internetbased platform providing shared, trusted geospatial data, services and applications at http://www.geoplatform.gov.
 
Health Information Technology (Health IT)—The technologies collectively known as health IT enable the secure collection and exchange of vast amounts of health data about individuals. Health IT includes electronic health records (EHRs), personal health records, telehealth devices, remote monitoring technologies, and mobile health applications.
 
The Federal Government’s health IT vision is a health system that uses information to empower individuals and to improve the health of the population. To improve the Federal Government’s overall effectiveness, all investments in health IT share the following common policy and technology principles:
 
Putting individuals and their interests firstIn order to enhance the health and well-being of all Americans, the Government must meet the needs and protect the rights of each individual.
Being a worthy steward of the country’s money and trust. The Government seeks to use its resources judiciously. This means relying, to the extent possible, on private markets to accomplish important societal objectives, and acting to correct market failures when necessary. It also means developing Governmental policies through open and transparent processes.
Supporting health IT benefits for all. All Americans should have equal access to quality health care. This includes the benefits conferred by health IT. The Government will endeavor to ensure that underserved and at-risk individuals enjoy these benefits to the same extent as all other citizens.
Focusing on outcomes. Federal health IT policy will constantly focus on improving the outcomes of care, so as to advance the health of Americans and the performance of their health care system.
Building boldly on what works. The Government will set ambitious goals and then work methodically to achieve them, monitoring health IT successes, and looking for ways to expand upon programs that work. It will seek to be nimble and action-oriented: evaluating existing Government activities, learning from experience, and changing course if necessary.
Encouraging innovation. The Government is working to create an environment of testing, learning, and improving, thereby fostering breakthroughs that quickly and radically transform health care. The Government will support innovation in health IT.
 
With the Office of the National Coordinator for Health IT charged with the coordination of nationwide efforts to implement and use the most advanced health information technology, agencies such as the Department of Agriculture, Department of Commerce, Department of Defense, Department of Health and Human Services, Department of Veterans Affairs, Social Security Administration, and Office of Personnel Management are working together to maximize the benefits health IT has to offer providers and patients by accelerating Electronic Health Record (EHR) adoption and secure electronic exchange of health information.

Protecting Data and Assets-Cybersecurity and Privacy

America depends on Federal agencies for essential services, ranging from disaster assistance to Social Security to national defense. These services, in turn, rely on a safe, secure, and resilient Government information and communications infrastructure. Threats to this infrastructure—whether from domestic or international criminal elements or nation-states— continue to grow in number and sophistication, creating the potential that essential services could be degraded or interrupted, and confidential information stolen or compromised, with serious effects. To combat these threats, the Administration will act on many fronts, while protecting individual privacy and civil liberties.
 
Secure Federal Networks—The Administration’s cybersecurity team will continue its vigorous and extensive build-out of technical and policy protection capabilities for Government systems, expand its partnerships with the private sector, and work with Congress to clarify roles and authorities. The Administration will assist and strengthen the abilities of Federal agencies to protect their infrastructure and data.
Improve Federal Cybersecurity Defenses. The Department of Homeland Security (DHS) will assess the state of operational readiness and cybersecurity risk of unclassified Federal networks and systems. DHS proactively engages with agencies to improve their cybersecurity posture by assessing capabilities, identifying vulnerabilities, evaluating risks and providing prioritized guidance that optimizes the remediation activities needed to close capability gaps, limit exposure, reduce exploitation, and increase the speed and effectiveness of cyber-attack responses.
Implement Cybersecurity Cross-Agency Priority (CAP) Goal. The Administration selected cybersecurity as one of its 14 CAP goals required under the Government Performance and Results Act Modernization Act (GPRAMA) of 2010. The goal is to achieve 95% use of the Administration’s priority cybersecurity capabilities on Federal executive branch information systems by the end of FY 2014. In order to achieve this goal, Federal spending will focus on two-factor authentication in accordance with Homeland Security Presidential Directive 12 (HSPD-12), Federal Trusted Internet Connections (TICs), and Continuous Monitoring policies.
Conduct CyberStat Sessions. DHS will continue to work with agencies to identify and correct weaknesses in cybersecurity programs and ensure agencies are on track to meet the Cyber CAP goal through Cyberstat reviews. The reviews provide the opportunity for agencies to identify the cybersecurity capability areas where they may be facing implementation maturity roadblocks (e.g. technology, organizational culture, internal process, or human capital/financial resource challenges). CyberStat reviews will continue to focus on identifying prospects and strategies to improve cybersecurity performance.
Enhance Cybersecurity Program Monitoring, Management, and Reporting Under the Federal Information Security Management Act (FISMA)27
 The Federal cybersecurity defensive posture 
is a constantly evolving environment because of the relentless and dynamic threat environment, emerging technologies, and new vulnerabilities. Many threats can be mitigated by following established cybersecurity best practices, but attackers often search for organizations with poor cybersecurity practices and target associated vulnerabilities. DHS will continue to improve FISMA metrics to focus on outcome-oriented measures that are quantitative, specific, automated when possible, and focused on reduction of risk. The FISMA metrics focus agency efforts on what data and information is entering and exiting their networks, what components are on their information networks, when security status changes, and who is on their systems. The Administration will focus agency efforts on improving the security of their networks by implementing the Cross-Agency Priority Goals for cybersecurity (i.e. Continuous Monitoring, Trusted Internet Connections, and HSPD-12).
Enhance the Cybersecurity Workforce. The Administration will maintain a strong cadre of cybersecurity professionals to design, operate, and research cyber technologies, enabling success against current and future threats. As part of this effort, the National Initiative for Cybersecurity Education (NICE) developed the National Cybersecurity Workforce Framework to define the cybersecurity workforce and provide a common taxonomy and lexicon by which to classify and categorize the workforce. The Framework was developed as a direct result of the Administration’s need to identify, quantify, and develop an effective cybersecurity workforce to develop our Nation’s critical cyber infrastructure. In addition, the Administration will work to provide cybersecurity professionals with tools, tips, education, training, awareness, and other resources appropriate to their positions.
Implement Continuous Monitoring. The Administration will work to design, build, and operate information and communication technology to specifically reduce the risk of exploitable weaknesses and enable technology to sense, react to, and communicate changes in its security or its surroundings in a way that preserves or enhances its security posture. Continuous monitoring is an integral part of an enterprise-wide risk management process that allows agencies to establish the context of their risk management programs, and subsequently assess risk, respond to risk, and monitor risk on an ongoing basis.
 
Continuous monitoring programs are most effective when combined with other department and agency initiatives to strengthen the underlying information technology infrastructure by integrating security requirements into organizational processes (e.g., enterprise architecture, acquisition/procurement, systems engineering, and the system development life cycle). An example is the DHS Continuous Diagnostics and Mitigation (CDM) program, which will provide tested continuous monitoring, diagnosis, and mitigation activities designed to increase visibility into the security status of Federal information systems and environments of operation. The program can also enhance DHS’s ability to assess agency security control effectiveness, and assist organizational personnel in identifying and responding to intrusions in their operational environments.
 
Under this program, DHS will centrally oversee the procurement, operations, and maintenance of diagnostic sensors (tools) and dashboards deployed to each agency. Using input from the sensors and agency-level dashboards, officials at each agency will be able to quickly identify which problems to fix first, and empower technical managers to prioritize and mitigate risks. In addition, DHS will maintain a dashboard to provide situational awareness at the Federal level.
Improve Incident Reporting and ResponseThe 2012 National Level Exercise (NLE) simulated what would happen if a series of significant cyber incidents occurred within the United States. The NLE demonstrated the need for the Federal Government to improve preparedness for Significant Cyber Incidents. The growing numbers of cyber attacks on our Federal networks are sophisticated, aggressive and dynamic. During FY 2012, the United States Computer Emergency Readiness Team (US-CERT) processed 157,850 incidents including cyber exploits that injected viruses, stole information or disrupted Federal network operations. The Administration will work to unify efforts to collaboratively respond to and rapidly recover from significant cyber incidents that threaten public health or safety, undermine public confidence, have a debilitating effect on the national economy, or diminish the security posture of the Nation.
Ensure Information Sharing and SafeguardingThis continuing initiative ensures coordinated interagency development and reliable implementation of structural reforms to ensure responsible sharing and safeguarding of classified information on computer networks that shall be consistent with appropriate protections for privacy and civil liberties, pursuant to Presidential Executive Order 13587.
Improve Identity Management. Version 2.0 of the “Federal Identity, Credential and Access Management (FICAM) Roadmap and Implementation Guidance” was issued by the Federal CIO Council in December 2011. 28 This guidance helps steer agency efforts as they plan and upgrade their architectures, aiming to leverage existing investments and promoting efficiency in designing, deploying, and operating IT systems. As of September 1, 2012, more than 5.2 million Personal Identity Verification (PIV) credentials (96 percent of those needed) were issued to the Federal workforce, and over 5 million background investigations (91 percent of those needed) were completed, in accordance with Homeland Security Presidential Directive 12 (HSPD-12). Agencies are expected in 2013 to accelerate the use of PIV credentials in securing Federal facilities and IT systems. Charged with revising the HSPD-12 standard (FIPS 201), NIST is also moving to address the integration of PIV credentials with mobile devices and related advances in technology. The Administration also released the National Strategy for Trusted Identities in Cyberspace (NSTIC) in April 2011, 29 to promote public-private collaboration on an online identity environment to facilitate secure, efficient, easy-touse, and interoperable identity solutions to access online services.
Federal Risk Authorization Management Program (FedRAMP). To support the Federal Cloud Computing Initiative, FedRAMP was launched during 2012. FedRAMP is changing the way cloud is bought within the Federal Government through a standardized approach for agencies to assess and authorize the security of cloud systems. This standardized approach strengthens security practices associated with cloud computing solutions, and in turn, builds greater trust between cloud providers and consumers. As a result, agencies can quickly deploy cloud solutions in support of delivering taxpayers services at a significantly reduced cost. As part of reaching its initial operating capability, FedRAMP published a baseline set of security controls, developed a comprehensive concept of operations, and a conformity assessment process to independently verify that providers are meeting the Government’s security needs. In 2013-2014, FedRAMP will integrate lessons learned from initial efforts to achieve full operating capability, thereby accelerating the adoption of secure cloud solutions in Government through the reuse of assessments and authorizations.
Protect Privacy and Confidentiality—The Administration will ensure that protecting individual privacy and confidentiality remains a top priority. The importance of protecting privacy has become even greater as new technologies emerge. Federal agencies must take steps to analyze and address privacy and confidentiality issues at the earliest stages of the planning process, and they must continue to manage information responsibly throughout the life cycle of the information. In addition, Federal agencies are expected to demonstrate continued progress in all aspects of privacy and confidentiality protection and to ensure compliance with all privacy and confidentiality requirements in law, regulation, and policy. Agencies must review their information systems to ensure that they eliminate unnecessary holdings of personally identifiable information, such as unnecessary collection and use of Social Security numbers. Moreover, agencies will continue to develop and implement policies that outline rules of behavior, detail training requirements for personnel, and identify consequences and corrective actions to address non-compliance.

Conclusion

The Administration is committed to continuously improving how its services are provided to the public. This will be accomplished by implementing a Federal IT strategy that focuses on delivering maximum return on IT investments, driving an innovation agenda, and promoting cybersecurity and privacy policies to protect data and assets across all Federal agencies.

Footnotes

1

OMB Memorandum M-12-10, “Implementing PortfolioStat.” (March 30, 2012)—

2
Presidential Directive “Building a 21st Century Digital Government” (May 23, 2012)—
http://www.whitehouse.gov/sites/defa...al_mem_rel.pdf
3
OMB guidance to agencies regarding the FY 2014 Budget, in OMB Memorandum M-12-13, “Fiscal Year 2014 Budget Guidance”—
4
The IT Dashboard, first launched in June, 2009, is a Federal website designed to provide real-time information on the status of Federal agencies’ IT spending. It is located at: http://itdashboard.gov.
5
While some opportunities for commodity IT savings must be addressed over several years, FY 2013 IT operating plans and the FY 2014 Budget include many efficiency improvements that were identified in the PortfolioStat process. Examples of potential savings which may be realized relatively soon include as much as $200 million in gross savings in some agencies. In the Department of Homeland Security, consolidations of infrastructure, including in mobile technology and other telecommunications, may range this high. Other savings achieved may be smaller -- such as potentially $10-15 million in gross savings for e-mail system consolidations at the Department of Transportation. Note that there may be costs associated with achieving efficiencies resulting in net savings which are significantly less than gross savings. Examples cited here are taken from agency-identified initiatives which could commence in FY 2013.
6
OMB memorandum M-11-29, “Chief Information Officer Authorities” (August 8, 2011)—
http://www.whitehouse.gov/sites/defa...011/m11-29.pdf
7
OMB Memorandum M-11-31, “Delivering and Efficient, Effective and Accountable Government” (August 17, 2011)—
8
“Federal Information Technology Shared Services Strategy” (May 2, 2012)
11
P.L. 112-74, Div. C, Title II appropriated funds to advance IT efficiency: “For necessary expenses for the furtherance of integrated, efficient and effective uses of information technology in the Federal Government, $5,000,000, to remain available until expended: Provided, That the Director of the Office of Management and Budget may transfer these funds to one or more other agencies to carry out projects to meet these purposes: Provided further, That the Director of the Office of Management and Budget shall submit quarterly reports to the Committees on Appropriations of the House and the Senate identifying the savings achieved by the Office of Management and Budget’s Government-wide information technology reform efforts: Provided further, That such report shall include savings identified by fiscal year, agency and appropriation.
12
13
Item 3.3 in the Digital Government Strategy, http://www.whitehouse.gov/sites/defa...overnment.html
14
Ibid. Items 5.2 and 5.3 respectively.
15
Ibid. Item 5.1.
16
Ibid. Items 10.2 and 10.3 respectively.
17
Ibid. Item 9.1.
19
Line of Business initiatives, most of which continue from previous Administration efforts, represent established inter-agency shared services with a lead agency and numerous partner agencies participating in governance.
20
OMB Memorandum “Transition to Internet Protocol Version 6 (IPv6)” (Sept. 28, 2011)—
21
OMB Memorandum “Transition Planning for Internet Protocol Version 6 (IPv6)” (Aug. 5, 2005)—see: http://www.whitehouse.gov/sites/default/files/omb/assets/omb/memoranda/fy2005/m05-22.pdf.
24
See OMB guidance “Contracting Guidance to Support Modular Development,” page 2—at: http://www.whitehouse.gov/sites/default/files/omb/procurement/guidance/modular-approaches-for-information-technology.pdf.
26
Open data is now a key principle guiding Federal IT -- that is, the principle that the Government’s data should be provided in a manner that facilitates the use of this data by everyone.
27
Title III of the E-Government Act of 2002 (P.L. 107-347, enacted Dec. 17, 2002) is known as the “Federal Information Security Management Act of 2002” (FISMA).
28
Federal Identity, Credential, and Access Management (FICAM) Roadmap and Implementation Guidance Version 2.0, December 2,
2011— http://www.idmanagement.gov/document...0_20111202.pdf
29
Document released April 15, 2011. Title: National Strategy for Trusted Identities in Cyberspace. See:
http://www.whitehouse.gov/sites/defa...egy_041511.pdf.

20. Federal Investment

21. Research and Development

 

Footnotes

1

Note that some numbers in the text include non-R&D activities and thus will be different from the R&D numbers reflected in Table 21-1.

22. Credit and Insurance

Chart 22-1. Face Value of Federal Credit Outstanding

Chart22-1.png

Footnotes

1

Pages 393-398 of the Analytical Perspectives volume of the 2013 Budget include more discussion of the issues raised in this section and the following section on Implementation.

2

Excludes the Troubled Asset Relief Program and the International Monetary Fund increases provided in the 2009 Supplemental Appropriations Act, where reestimates reflect the return of a market risk adjustment premium. Also excludes reestimates from the Small Business Lending Fund, an equity program presented on a FCRA basis pursuant to legislation.

3

See discussion on uncertainty premium on pages 397-398 of the Analytical Perspectives volume of the 2013 Budget.

23. Homeland Security Funding Analysis

 

Footnotes

1

OMB does not collect detailed homeland security expenditure data from State, local, or private entities directly.

2

Source: National Association of Counties, “Homeland Security Funding—2003 State Homeland Security Grants Programs I and II.’’

3

The National Association of Counties conducted a survey through its various state associations (48), responses were received from 471 counties in 26 states.

4

Source: Matt A. Mayer, “An Analysis of Federal, State, and Local Homeland Security Budgets,” A Report of the Heritage Center for Data Analysis, CDA09-01, March 9, 2009, at http://www.heritage.org/Research/Hom.../CDA_09_01.pdf. Figures cited in this report have not been independently verified by the Office of Management and Budget.

5

The Heritage Foundation report’s methodology in selecting the states, cities, and counties to include in the report is as follows: the state had to possess a designated UASI jurisdiction and the city and county had to belong to a designated UASI jurisdiction that had received at least $15 million from 2003 to 2007 from the DHS.

6

The Heritage Foundation report’s budget data for homeland security included primary law enforcement agencies, fire departments, homeland security offices, and emergency management agencies. In some cases, state and local emergency management agency budget data was embedded in the fire department budget data and was not separately noted in its own category.

7

Source: Thomas E. Cavanagh and Meredith Whiting, “2003 Corporate Security Management: Organization and Spending Since 9/11,” The Conference Board. R-1333-03-RR. July 2003. This report references sample size of 199 corporate security directors, of which 96 were in “critical industries”, while the remaining 103 were in “non-critical industries.” In the report, the Conference Board states that it followed the DHS usage of critical industries, “defined as the following: transportation; energy and utilities; financial services; media and telecommunications; information technology; and healthcare.”

8

The Conference Board survey cites the sample size for this statistic was 192 corporate security directors.

9

The Conference Board survey cites the sample size for this statistic was 199 corporate security directors.

24. Federal Drug Control Funding

25. California Bay-Delta Federal Budget Crosscut

Technical Budget Analyses

26. Current Services Estimates

 

Footnotes

1

When current year appropriations have not been enacted, as was the case when this Budget was prepared, the BBEDCA requires the baseline estimates for discretionary spending and collections for the current year to be based on the levels provided in the full-year continuing resolution or the annualized level of the part-year continuing resolution.

2

The Administration’s baseline uses the same inflation rates for discretionary spending as required by the BBEDCA, despite the fact that this allows for an overcompensation for Federal pay inherent in the BBEDCA definition. At the time the BEA was enacted, it failed to account for the nearly contemporaneous enactment of the Federal Employees Compensation Act of 1991 that shifted the effective date of Federal employee pay raises from October to January. This oversight was not corrected when the baseline definition was reinstated by the BCA amendments to BBEDCA. Correcting for this error would have only a small effect on the discretionary baseline.

3

The BBEDCA caps also allow for adjustments for program integrity activities and Overseas Contingency Operations (OCO). The adjusted baseline reflects enacted funding for these cap adjustments inflated at the specified inflation rates in the BBEDCA baseline.

4

Although these adjustments are applied at the account level, they have no effect in the aggregate because baseline levels are constrained to the BBEDCA caps.

27. Trust Funds and Federal Funds

 

Footnotes

1

There are two types of budget accounts: expenditure (or appropriation) accounts and receipt accounts. Expenditure accounts are used to record outlays and receipt accounts are used to record governmental receipts and offsetting receipts.

2

See Chapter 15 in this volume for more information on offsetting collections and offsetting receipts.

3

Another example is the Violent Crime Reduction Trust Fund, which expired in 2000. Despite the presence of the words “Trust Fund” in its official name, the Fund was classified as a Federal fund because it was not required by law to be classified as a trust fund. In addition, the Fund was substantively a means of accounting for general fund appropriations and did not contain any dedicated receipts. Programs formerly funded through the Fund are now funded through general appropriations.

4

Deposit funds are discussed briefly in Chapter 12 of this volume, “Coverage of the Budget.”

5

Securities held by trust funds (and by other Government accounts), debt held by the public, and gross Federal debt are discussed in Chapter 5 of this volume, “Federal Borrowing and Debt.”

6

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 not included in Table 27–1 so that the total trust fund income and outgo shown in the table reflect disbursements to the public and to Federal funds.

7

Collections from non-Federal sources are shown as income and spending that is financed by those collections is shown as outgo. For example, postage stamp fees are deposited as offsetting collections in the Postal Service Fund. As a result, the Fund’s income reported in Table 27–1 includes Postage stamp fees and the Fund’s outgo is gross disbursements, including disbursements financed by those fees.

8

For example, the Unemployment trust fund borrowed $22 billion from the general fund in 2011 for unemployment benefits; 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, a trust fund in the Department of Labor, is authorized to receive appropriations of repayable advances from the general fund, which constitutes a form of borrowing.

9

Borrowing and debt repayment are discussed in Chapter 5 of this volume, “Federal Borrowing and Debt,” and Chapter 11 of this volume, “Budget Concepts.”

10

Interest on borrowed funds is an example of an intragovernmental offsetting receipt and Medicare Part B’s premiums are an example of offsetting receipts from the public.

11

The Budget’s proposal to move to chained CPI will likely affect trust funds, but those effects are not reflected in tables in this chapter.

12

Because of the economic downturn, Social Security trust fund collections from the public (payroll taxes) fell well below Social Security benefit payments in 2010, 2011, and 2012; however, because of interest earnings on trust fund investments, Social Security trust fund balances continued to grow in these years.

28. National Income and Product Accounts

 

Footnotes

1

The NIPA government sector consists of the Federal subsector and a State and local subsector that is a single set of transactions for all U.S. State and local units of government, treated as a consolidated entity.

2

Over the period 1994–2012, NIPA current expenditures averaged 3.8 percent higher than budget outlays, while NIPA current receipts averaged 3.9 percent higher than budget receipts. Including capital transfers and net investment, NIPA total expenditures averaged 6.7 percent higher than budget outlays, while NIPA total receipts averaged 5.0 percent higher than budget receipts.

3

The range of the Government’s financial stabilization efforts is discussed further in Chapter 3 of this volume, “Financial Stabilization Efforts and their Budgetary Effects.” Many of the Treasury’s financial stabilization programs, including TARP equity purchases, are recorded in the budget on a credit basis, in which the budget recognizes the estimated subsidy value of direct loans, loan guarantees, and equity purchases at the time the loan or purchase is made. This credit treatment extends to equity purchases under TARP, as well as loans. The NIPAs normally exclude the principal disbursements and repayments of credit transactions as exchanges of assets with no current production involved; the interest and dividend receipts, however, are included in NIPA current receipts as receipts on assets. For certain transactions, the NIPAs recognize the subsidy conveyed by these transactions by recording capital transfers, calculated as the difference between the actual price paid for the financial asset and an estimate of its market value. Purchase of Government Sponsored Enterprise (GSE) preferred stock is recorded in the budget on a cash basis, but is excluded from the NIPA current accounts; GSE preferred stock purchases, however, are shown as capital transfers.

4

The budget excludes interest transactions between the public and the nonbudgetary financing accounts, but includes interest transactions between Treasury and the financing accounts.

29. Comparison of Actual to Estimated Totals

 

Footnotes

1

The current services concept is discussed in Chapter 26, “Current Services Estimates.’’ For mandatory programs and receipts, the February 2011 current services estimate was based on laws then in place, adjusted to reflect extension of certain expiring tax provisions. For discretionary programs the current services estimate was based on the current year enacted appropriations, adjusted to reflect full-year funding of Overseas Contingency Operations and increased for inflation. The current services estimates published in the 2012 Budget re-classified a large number of surface transportation programs as mandatory. The estimate for nondefense discretionary spending was $608 billion and $2,115 billion for mandatory outlays in the published Budget. This proposal was not subsequently enacted, so the applicable costs are shown as discretionary in this chapter for comparability. For a detailed explanation of the 2012 estimate, see “Current Services Estimates,” Chapter 27 in Analytical Perspectives, Budget of the United States Government, Fiscal Year 2012.

2

Discretionary programs are controlled by annual appropriations, while mandatory programs are generally controlled by authorizing legislation. Mandatory programs are primarily formula benefit or entitlement programs with permanent spending authority that depends on eligibility criteria, benefit levels, and other factors.

3

For more information on TARP costs, please see Chapter 3 of this volume, “Financial Stabilization Efforts and their Budgetary Effects.”

4

See footnote 1 for an explanation of the current services concept.

30. Budget and Financial Reporting

 

Footnotes

1

As used in this chapter, “Financial Report” refers to the Financial Report of the United States Government, which is the consolidated financial report for the Executive Branch and some Legislative and Judicial Branch entities, and “financial reports” refer to both the Financial Report and the Agency Financial Reports or Performance and Accountability Reports issued by Executive Branch agencies. The Financial Report is issued by the Department of the Treasury in coordination with the Office of Management and Budget.

2

The integrated accounts follow the guidelines of the System of National Accounts 1993 and are prepared jointly by the Bureau of Economic Analysis and the staff of the Board of Governors of the Federal Reserve.

3

The national income and product accounts show production, income, and expenditures for each sector of the economy and how these measures relate to wealth. Flow of funds accounts show financial flows (in the form of borrowing, lending, and investment) through the various sectors of the economy.

4

In this chapter, “dedicated” funds or collections refer to those Government collections that are designated for a particular purpose; the collections may be voluntary or compulsory and include collections in trust, special, and revolving funds.

5

As used in this chapter, “social insurance” refers to Social Security, Medicare, Unemployment Insurance, Railroad Retirement, and the Black Lung Programs.

6

The term “receipts” is used in this chapter to refer to governmental receipts. It does not refer to other collections such as offsetting receipts or offsetting collections, nor does it refer to the repayment of loans. See Chapter 11 of this volume, “Budget Concepts,” for an explanation of the difference between governmental receipts, offsetting receipts, and offsetting collections.

7

Budget authority and obligations for loans and loan guarantees, or credit programs, are measured on a net present value basis. The present value of the cash outflows and inflows associated with the loan or loan guarantee is recorded as budget authority and obligations when the loan or guarantee is made. A present value represents the value today of some future amount and, thus, reflects the time value of money. A present value can be used as an accrual measure. In addition to being used for Federal credit programs, present values are used in budgetary accounting for Federal employee defined-benefit pension plans.

8

In contrast to most Government outlays, which are measured on a cash basis, outlays for interest on debt held by the public are measured on an accrual basis. Budget authority and obligations for interest on debt held by the public are measured on an accrual basis, which is generally consistent with budget authority and obligations measures for most other programs. Outlays for credit programs are measured on a net present value basis with the present value of the cash outflows and inflows recorded as an outlay when the loan or guarantee is made. From an agency perspective, budget authority, obligations, and outlays for Federal employee defined-benefit pension plans are recorded on an accrual basis (with the actuarially accruing defined-benefit costs estimated by using present values). From a government-wide perspective, however, budget authority, obligations, and outlays for Federal employee defined benefit pensions are recorded on a cash basis. This is because agency payments to a Government defined-benefit pension plan–such as Military Retirement or Civil Service Retirement–are recorded as collections by the plan trust funds and net to zero within the unified budget. As a consequence of this netting, only the defined-benefit payments to current retirees constitute budget authority, obligations, and outlays in the budget, and only these payments are reflected in the deficit.

9

For inflation-indexed securities, debt is measured as the par value plus a periodic adjustment for inflation.

10

The deficit and debt, as well as other measures, are presented as a percent of gross domestic product because these measures are best compared over time by looking at them in relation to the size of the economy as a whole, as measured by GDP.

11

The term “measures” is used in this chapter to refer to both budget and financial measures; however, the Statements of Federal Financial Accounting Concepts and Standards refer to the financial measures as “elements.”

12

Federal financial reporting is conducted in accordance with generally accepted accounting principles (GAAP).

13

See footnote 6 for a definition of social insurance.

14

Only agencies with social insurance programs are required to prepare the two social insurance statements.

15

Only agencies with custodial accounts are required to prepare the Statement of Custodial Activity.

16

Earned revenue may be received before goods or services are provided, in which case it is referred to as “deferred” revenue. Examples include Department of Energy collections from utility companies for the future cost of disposing of nuclear waste, Federal Communications Commission collections from its competitive bidding system for the recovered analog spectrum for licenses that have not been granted, and Postal Service collections for prepaid postage, outstanding money orders, and prepaid P.O. box rentals. The budget recognizes these amounts when they are received.

17

Undelivered orders are treated as obligations, but are not recognized as expenses. Once an undelivered order is delivered, it is recognized as an expense.

18

Some items that are reflected in budget outlays on an accrual basis were noted in footnote 8 above.

19

Audits are conducted for more than 100 Executive Branch agencies, including the 24 agencies covered by the Chief Financial Officers Act of 1990 and an additional 11 significant Executive Branch entities. Audits are not conducted for some of the smaller entities that are included in the Financial Report.

20

The other five sectors are households and nonprofit institutions serving households, nonfinancial noncorporate business, nonfinancial corporate business, financial business, and State and local governments.

22

The other three accounts are the other changes in volume account, the revaluation account, and the changes in balance sheet account.

23

The NIPA data can be found at http://www.bea.gov/iTable/iTable.cfm?ReqID=9&step=1 and the flow of funds data can be found at http://www.federalreserve.gov/apps/fof/FOFTables.aspx.

24

Individual income taxes are reported in the integrated accounts when they are received by the Government, which is the same as in the budget and financial reports. By contrast, corporate income taxes are reported in the integrated accounts when they are accrued, whereas the budget and financial reports show these taxes when they are received by the Government.

25

Estate and gift taxes are excluded from the current account because they are not taxes on current production or current income, but are instead taxes on the transfer of wealth. As capital transfers from the household sector to the government, these taxes are reflected in the capital account.

26

Differences between the NIPAs and the budget are shown in Table 28-2 of this volume and shown in more detail at the NIPA website cited in footnote 23.

Detailed Functional Tables*

*Available on the Internet at http://www.whitehouse.gov/omb/budget..._Perspectives/ and on the Budget CD-ROM

Federal Programs by Agency and Account*

*Available on the Internet at http://www.whitehouse.gov/omb/budget..._Perspectives/ and on the Budget CD-ROM

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