Background Federal trust funds are an accounting mechanism used to link dedicated collections with their expenditure for a specific purpose or program (see textbox). Earmarked or Dedicated Collections Our budget glossary (GAO-05-734SP) includes two definitions of earmarking: 1. Dedicating collections by law for a specific amount for particular purposes by means of legislative language. Our 2001 report on trust funds (GAO-01-199SP) used the term “earmarked receipts” in accordance with the first definition. We use the term “dedicated collections” instead to avoid confusion between the two definitions. One of the earliest trust funds established was the Civil Service Retirement and Disability Fund, set up in 1920. In the federal budget, the meaning of the term “trust fund” differs significantly from its private sector usage. In the case of federal trust funds, the federal government owns the assets of federal trust funds, does not have a fiduciary responsibility to trust beneficiaries, and can raise or lower future trust fund collections and payments or change the purposes for which the collections are used by changing existing laws. Designation as a trust fund does not in and of itself impose a greater commitment on the government to carry out program activities than it has to carry out other government activities. It can, however, indicate the government’s intent to restrict the use of those funds to the specified purpose and—especially for a program funded in whole or in part by its beneficiaries—may influence debates about program changes. OMB and Treasury determine budgetary designation as a trust fund when a law both dedicates collections to a program and identifies the account as a “trust fund.” Trust funds, however, are not the only way dedicated collections are accounted for in the federal budget. Special funds and public enterprise funds also link dedicated collections with their expenditure for a specific purpose or program and are analogous to non- revolving and revolving trust funds, respectively (see figure 1). For the purpose of this report, we examine budget accounts designated as “trust funds” by OMB and Treasury and those that link dedicated collections with their expenditure. There are two other fund types in the federal budget that we did not include: general fund accounts, which hold all federal money not allocated by law to any other fund account, and intragovernmental fund accounts, which facilitate financing transactions primarily within and between federal agencies. The four fund types included in our definition of trust funds and other dedicated funds are: Non-revolving Trust Fund. An account designated as a “trust fund” by law that is credited with dedicated collections, which can often, but not always, be used without further appropriation action. For example, the Federal Hospital Insurance (HI) Trust Fund, also known as Part A of Medicare, is financed primarily through payroll taxes levied on workers and their employers and finances health care services related to stays in hospitals, skilled nursing facilities, and hospices for eligible beneficiaries. Special Fund. Analogous to a non-revolving trust fund but not classified as a trust fund in name. For example, the Universal Service Fund subsidizes telecommunication carriers that provide telecommunications services to all consumers, including low-income consumers, schools and libraries, and those who live in rural or high- cost areas. Revolving Trust Fund. An account designated as a “trust fund” by law that is credited with collections that are generally available for obligation without further appropriation action to carry out a cycle of businesslike operations in accordance with statute. For example, the Employees Health Benefits Fund collects health insurance premiums from federal employees, annuitants, and their employing agencies and disburses payments to private insurers who participate in the Federal Employees Health Benefits program. Public Enterprise Fund. Analogous to a revolving trust fund but not classified as a trust fund in name. A public enterprise fund is a type of revolving fund that carries out a cycle of businesslike operations, mainly with the public, in which it charges for the sale of products or services and uses the proceeds to finance its spending, usually without requirement for annual appropriations. The Postal Service Fund of the United States Postal Service is an example of this type of fund. Fund Balances Trust funds and dedicated funds have their own dedicated collections and the ability to retain accumulated balances. From the perspective of the trust fund or other dedicated fund, the accumulated balances represent the value of past taxes, fees, and the other income received by the fund in excess of past spending by the fund. The accumulated balances are not cash. Most money collected and disbursed by the federal government is held in the General Fund of the U.S. Government (General Fund). The dedicated taxes and fees collected from the public are deposited in the General Fund and the General Fund disburses the fund’s benefit and other payments to the public. When the General Fund receives the cash, the trust fund or other dedicated fund records an asset for these collections and the General Fund records a liability to the fund, which essentially means the trust fund has “lent” money to the General Fund. As cash is disbursed, these asset and liability accounts are reduced. From the government-wide perspective, the trust fund or dedicated fund asset and General Fund liability accounts eliminate with each other in consolidation. Some trust funds and other dedicated funds have the legal authority to invest their balances, most of which are held in U.S. Treasury securities. The value of the securities held is recorded as “debt held by government accounts” and represents debt owed by one part of the government to another (i.e., intragovernmental debt). In many ways, the special U.S. Treasury securities held by government accounts are indistinguishable from the marketable government debt sold to the public. A maturity date is set, interest is accrued at established market rates, and the securities count as part of the total federal debt. Generally, these securities are not traded in the financial markets and are able to be redeemed on demand by the government account. The interest they earn is credited to the fund accounts in the form of additional Treasury securities or is used to pay current expenses or benefits. Interest earned by government accounts on their Treasury securities is an internal transaction, made between two accounts within the federal government, and constitutes an expense for Treasury. Treasury must pay back the debt held by government accounts when these accounts need to redeem their securities to be able to make their expenditures. When this happens, Treasury must obtain cash to finance the government’s spending either through increasing taxes, cutting spending, or increasing borrowing from the public. Types of Budget Authority Entitlement authority is another way to classify budget authority, but OMB’s budget data do not include that classification. Discretionary spending refers to budget authority that is provided in and controlled by appropriations acts. Mandatory spending, also known as direct spending, refers to budget authority provided in laws other than appropriations acts and the outlays that result from such budget authority. Entitlement authority is the authority to make payments to any person or government if, under the provisions of the law, the U.S. government is legally required to make the payments to persons or governments that meet the requirements. Generally, entitlement authority is a type of mandatory spending. Applicability of Budget Control Mechanisms The classification of the budget authority within a trust fund or other dedicated fund as mandatory or discretionary determines how budget control mechanisms apply. By itself, designation as a trust fund does not determine whether spending is controlled through the annual appropriations process or what limitations apply. Trust funds and dedicated funds are subject to various enforcement mechanisms intended to control revenues, spending, and deficits. The Balanced Budget and Emergency Deficit Control Act of 1985 (BBEDCA) first established sequestration, which is the cancellation of budgetary resources under a presidential order. The act set deficit reduction targets for the federal government and established sequestration procedures to enforce those targets. The Budget Control Act of 2011 amended BBEDCA and revived this budgetary enforcement mechanism by reinstating budget limits (also known as “caps”) to encourage agreement on deficit reduction legislation or, in the event that such agreement was not reached, to automatically reduce spending so that an equivalent budgetary goal would be achieved. Appropriations from trust funds and other dedicated funds designated as discretionary count toward these limits. The Statutory Pay-As-You-Go Act of 2010 (PAYGO) specifies a second type of sequestration triggered under certain conditions. The act establishes a permanent budget enforcement mechanism intended to prevent enactment of mandatory spending and revenue legislation that would increase the federal deficit. The act requires OMB to track costs and savings associated with enacted legislation and to determine at the end of each congressional session if net total costs exceed net total savings. If the costs exceed the savings, a separate sequestration will be triggered. Consequently, the same mandatory accounts that are subject to sequestration under BBEDCA could incur further reductions if a secondary PAYGO sequestration is triggered. PAYGO does not control the growth in spending that results from previously enacted laws, nor does it control discretionary spending. Federal Trust Funds and Other Dedicated Funds Were a Large and Growing Part of the Budget from Fiscal Year 2014 to 2018 Every Major Department Has At Least Two Trust Funds or Other Dedicated Funds Hundreds of programs across the federal government are supported in whole or in part by a trust fund or other dedicated fund. Our analysis of OMB’s budget data shows 398 active federal trust funds and other dedicated funds in fiscal year 2018. Non-revolving trust funds and special funds make up the greatest number of these types of accounts and also hold the greatest total balances. See table 2. Our analysis of another government-wide source, Treasury’s Combined Statement, records 647 trust and other dedicated fund accounts in fiscal year 2018. This count is higher because Treasury includes accounts with smaller balances and does not combine groups of related accounts. Of the accounts in Treasury’s Combined Statement, 150 have balances that are below $500,000 and would fall below OMB’s rounding threshold of $1 million. The trust funds and other dedicated funds in Treasury’s Combined Statement are spread across all 29 major departments that are reported separately in the statement (see figure 2). Each department has at least two such accounts. The distribution of the number of trust fund or other dedicated fund accounts across federal agencies does not correspond with the balances held by these accounts. For example, the Social Security Administration has only four such accounts, but those four funds together held $2.9 trillion—more than double the balances of any other agency at the end of fiscal year 2018 (see figure 3). In contrast, the Department of the Interior had the greatest number of trust funds and other dedicated funds, but these 118 funds together held $14.9 billion, which is less than 1 percent of the total balances held in these types of accounts at the end of fiscal year 2018. Total Trust Fund and Other Dedicated Fund Balances Grew 13 Percent from Fiscal Year 2014 to Fiscal Year 2018 The total balance in federal trust funds and other dedicated funds grew about 13 percent in nominal terms from fiscal year 2014 to fiscal year 2018. The five accounts that contributed the most to this overall growth are listed in table 3. Fund balances are affected by complex interactions of various economic, demographic, and programmatic factors, but these changes are reflective of some overarching trends. For example, the balances of civilian and military pension and benefit programs increased, in part reflecting agency and employee contributions to fund the ongoing accrual of benefits by civilian and military personnel. Treasury has also contributed to these accounts to help fund some of the benefits accrued in the past. Some of the other increases were a result of economic changes experienced during this time period such as declines in the unemployment rate, among other things. For example, both Social Security’s Federal Old-Age and Survivors Insurance Trust Fund (OASI) and the Unemployment Trust Fund are funded primarily by payroll taxes, which tend to gather more revenue during periods when employment goes up and wage growth increases. While the net change in total trust fund and other dedicated fund balances was positive from fiscal year 2014 to 2018, not all trust fund and other dedicated fund balances grew over the time period. The five accounts that experienced the largest balance decreases are listed in table 4. From fiscal year 2014 to 2018, the average trust fund and other dedicated fund balance decrease was less than the average balance increase, and a greater number of accounts increased than decreased over the period. About 28 percent of the 398 accounts in our scope had individual balances that changed less than $5 million over the time period (see table 5). The higher total balance in trust funds and other dedicated funds indicates an overall surplus—income exceeding outgo—from fiscal year 2014 to 2018, which could suggest that the federal government intends to dedicate more resources to these specified purposes. Neither the increased total balance nor an individual fund’s balance increase is a signal that any individual fund is on sound financial footing. Similarly, a decreasing balance does not necessarily signal that any individual fund is not on sound financial footing. Assessing the future outlook for some of these funds and programs requires actuarial or other projections and can be subject to various degrees of inherent uncertainty. Not All Federal Trust Funds and Other Dedicated Funds Are Fully Supported by Dedicated Collections Dedicated Collections Are Not the Sole Source of Income for Trust Funds and Dedicated Funds Of our 13 case study accounts, 11 received income from general revenues in addition to their dedicated collections, either through a permanent appropriation or in an annual appropriation. The form, size, and purpose of income from general revenues that our case study accounts received varied greatly based on the design of the program. These accounts fall in to three basic types: those that received regular income from general revenues as a part of their program design, those that received intermittent general revenue income, and those that received income solely from their own dedicated collections. See appendix II for more detailed information about the income, outgo, investments, and current issues for each of these accounts. Regular Income from General Revenues as a Part of Program Design Eight of the case study accounts we examined regularly receive income from general revenues in addition to their dedicated collections. These general revenues are often for specific purposes that have been deemed public goods and are provided annually as a part of the program’s design. The Medicare Supplementary Medical Insurance trust fund sets medical insurance premium rates for Medicare Part B to cover 25 percent of expected costs for the year. The roughly 75 percent remaining expected program cost is funded through general revenue. The Medicare HI Trust Fund also regularly receives general revenues to reimburse the fund for the cost for certain uninsured beneficiaries, program management activities, and other miscellaneous activities. In fiscal year 2018, $1.6 billion in general revenue was transferred into the trust fund. Both the Civil Service Retirement and Disability Fund (CSRDF) program and the Federal Employees Health Benefits Fund receive contributions from both current employees and their employing agencies as their primary sources of income, but these accounts also receive some general revenue in addition to these dedicated collections. Treasury is required by law to transfer an amount annually to the CSRDF from the General Fund to subsidize in part the under- funding of the Civil Service Retirement System. The Civil Service Retirement System is closed to new participants but covers most federal employees who first entered a covered position prior to 1984. According to OPM officials, the Federal Employees Health Benefits program is funded about 30 percent by contributions from participants and about 70 percent by contributions from their employing agencies. OPM contributes the employer share of the premiums for most annuitants via an appropriation from general revenues. The U.S. Postal Service (USPS) receives annual appropriations from general revenues to fund mail for the blind and overseas absentee voting. These appropriations account for less than 0.1 percent of the total cash outlays of the Postal Service Fund. USPS received $58 million in appropriations for these activities in fiscal year 2018, when total outlays were $69 billion. The Social Security Trust Funds, both OASI and DI, receive reimbursements from general revenue for several distinct purposes, such as employee union expenses and the payroll tax holiday, among other things. The total appropriations for these two activities were about $23 million in fiscal year 2018. While the Airport and Airway Trust Fund primarily receives dedicated collections, it has received some appropriations from general revenue in recent years, and some of the programs it funds also receive regular appropriations from general revenue. The most prominent example is the operations and management account within the Federal Aviation Administration. While this account is funded mostly by transfers from the Airport and Airway Trust Fund, it also typically receives an annual appropriation from general revenues. In fiscal year 2018, the appropriation to the operations account was $1.36 billion, which was about 13 percent of the total budget authority in the account. Intermittent General Revenue Income Three of the case study accounts we examined were supported in part by general revenue income on an intermittent basis in recent years. These general revenues helped temporarily restore solvency to programs that were not designed to be fiscally sustainable. The Highway Trust Fund has received appropriations from general revenues as a part of its reauthorization process in recent years. The most recent reauthorization, provided $70 billion in general revenue to the Highway Trust Fund from fiscal year 2016 through fiscal year 2020. The appropriations have allowed outlays to exceed dedicated collections in most years without exhausting assets in the fund. The National Flood Insurance Fund had $16 billion of its debt canceled by the Additional Supplemental Appropriations for Disaster Relief Requirements Act, 2017. This cancellation converted a $16 billion liability of the fund to a cost borne by general revenues. However, the National Flood Insurance Program (NFIP) still owes $20.5 billion to Treasury. As we recently reported, NFIP likely will not generate sufficient revenues to cover its expenses and repay its outstanding debt because its premium rates do not reflect the full risk of loss. The Flood Insurance Reserve Fund did not directly benefit from the debt cancellation, but it did receive an indirect benefit since it was established as a reserve fund to help meet expected future obligations and repay debt. Income Solely from Dedicated Collections Two of our case study accounts did not receive income from general revenue in recent years. For both of these accounts, the agencies have some authority to adjust their dedicated collections to cover their projected costs. The flexibility to adjust income levels based on projections can help contribute to the sustainability of the funds. Although the Tennessee Valley Authority (TVA) was originally funded primarily by appropriations from Congress when it was established in 1933, TVA fulfilled its requirement to repay this investment in 2014 and currently collects enough revenue to cover its operating expenses. The TVA Board has the authority to determine rates for its electric power and the Tennessee Valley Authority Act of 1933 mandates that TVA keep rates as low as feasible while still collecting sufficient revenue. The Universal Service Fund (USF) does not receive income from general revenue. The Federal Communications Commission (FCC) has some flexibility to set the contribution factor, which determines the payments telecommunications carriers are required to make into the fund. FCC officials told us that they must set the rates at levels so that they collect enough in dedicated collections to cover the projected demand for the programs they have adopted. FCC sets the contribution factor quarterly to cover the projected cost of the USF programs for the upcoming quarter, up to the authorized level of spending for each program. Even funds that rely primarily on their dedicated collections may not be fiscally sustainable. For example, the Social Security OASI and DI, and Medicare HI trust funds do not receive income from general revenues to support benefit payments. However, projections show that their dedicated collections are expected to be insufficient to fully cover scheduled outlays in the next 7 to 33 years. Conversely, some accounts supported by the Airport and Airway Trust Fund received appropriations from general revenue in recent years. However, the Airport and Airway Trust Fund has received more in dedicated collections than are made available to outlay through appropriations. As such, the fund carries a balance that is unavailable without further appropriations action. At the end of fiscal year 2018, the total cash balance in the Airport and Airway Trust Fund was about $17 billion. CBO projects this balance to grow more than threefold over the next 10 years. Total Trust Fund and Special Fund Balances Are Projected to Start Decreasing in Fiscal Year 2022 Although overall federal trust and other dedicated fund balances grew over the past 5 fiscal years, this trend is not projected to continue. In CBO’s most recent trust fund projections, overall federal trust fund and special fund balances are projected to start declining in fiscal year 2022. CBO does not estimate projected balances for public enterprise funds. As shown in figure 4, the projected decline is largely explained by declines in the Social Security and Medicare fund balances. We have previously reported that demographic factors, such as an aging population and slower labor force growth, are contributing to a gap between Social Security program costs and revenues. According to the most recent Social Security Trustees Report, Social Security’s costs, on a combined OASI and DI basis, have exceeded its non-interest income since 2010 and are projected to exceed total income, including interest, starting in 2020. The Medicare and Social Security Trustees and CBO projections show that several major trust funds will deplete their assets in the next 3 to 33 years (see figure 5). If no action is taken, these trust funds are projected to be unable to fully support paying their projected obligations. Projected trust fund balances can provide a vital signaling function for policymakers about underlying fiscal imbalances in covered programs. However, program sustainability is ultimately determined by whether the government as a whole has the economic capacity to finance the claims on the trust funds at the cost of other competing priorities. The economic flexibility of the federal government may be limited as debt held by the public grows as a percentage of gross domestic product (GDP). Debt held by the public was $15.8 trillion—or 78 percent of GDP—at the end of fiscal year 2018. It is projected to surpass its historical high of 106 percent of GDP within 13 to 20 years, and climb to between about 250 to 500 percent by 2092. Further, neither the long-term projections of federal debt nor CBO’s trust fund balance projections include certain fiscal risks that could affect the federal government’s financial condition in the future. Fiscal risks, or fiscal exposures, are responsibilities, programs, and activities that may legally commit or create expectations for future federal spending. Many of the largest trust funds and other dedicated funds face fiscal risks that are highlighted in our High-Risk List due to the financial uncertainty they face. For example, USPS—USPS financial viability continues to be high-risk because USPS cannot fund its current level of services and financial obligations from its revenues. Pension Benefit Guaranty Corporation (PBGC)—PBGC’s liabilities exceeded its assets by about $51 billion as of the end of fiscal year 2018. PBGC’s financial future remains uncertain, due in part to a long- term decline in the number of traditional defined benefit plans and the collective financial risk of the many underfunded pension plans PBGC insures. NFIP—Emphasizing affordability has led to premium rates that in many cases do not reflect the full risk of loss and produce insufficient premiums to pay for claims. Highway Trust Fund (HTF)—The nation’s surface transportation system is under growing strain and the cost to repair and upgrade the system to meet current and future demand is estimated in the hundreds of billions of dollars. A sustainable solution would balance revenues to and spending from the HTF. Ultimately, major changes in transportation spending or in revenues, or in both, will be needed to bring the two into balance. The Medicare Program—Medicare continues to challenge the federal government because of its outsized impact on the federal budget and the health care sector as a whole, the large number of beneficiaries it serves, and the complexity of its administration. Federal spending for Medicare programs is expected to significantly increase in the coming years. As overall trust and special fund balances are projected to decrease, our projections and those from the Fiscal Year 2018 Financial Report of the United States Government, and CBO show that the federal government will have to borrow more from the public to offset the decrease in intragovernmental debt. We have reported that existing federal debt held by the public is already large by historical norms, and CBO has noted that large and growing amounts of federal debt held by the public would have negative long-term consequences for the economy and constrain future budget policy. To change the long-term fiscal path, policymakers will likely need to consider policy changes to the entire range of federal activities, both revenue and spending. Most Large Trust Funds and Other Dedicated Funds Have Mandatory Budget Authority and Support Entitlement Programs Nearly All Outgo from Trust Funds and Other Dedicated Funds Was Mandatory, Thus Available to Be Spent without Further Appropriation During fiscal year 2018, almost 98 percent of outgo (i.e., outlays and transfers to another government account) from trust funds and other dedicated funds was mandatory budget authority. This is greater than the proportion of total federal spending that is mandatory. According to OMB, during fiscal year 2018, mandatory spending made up 69.3 percent of all federal outlays while discretionary spending accounted for the remaining 30.7 percent. Seventy-six percent of trust funds and other dedicated funds had some mandatory budget authority (see table 6). Some funds have a mix of mandatory and discretionary budget authority. In general, the collections and balances of accounts with mandatory spending authority are available for obligation. Mandatory authority provides some flexibility for agencies because they do not have to await congressional action to incur obligations and make payments. For example, the Social Security Trust Funds have mandatory budget authority, which authorizes the program to continue to make payments to beneficiaries during lapses in appropriations. Although programs with mandatory authority need not go through the annual appropriations process, they are still subject to congressional oversight. In some cases Congress has set obligation limits in annual appropriations acts. For example, although the Crime Victims Fund has mandatory budget authority to obligate funds from its available balances, limits in annual appropriations acts have often capped the amount that may be obligated in each fiscal year. As a result, annual income has exceeded outgo and the balance of the fund had grown to $16.6 billion at the end of fiscal year 2018. Designation as mandatory or discretionary budget authority determines how budget control mechanisms are applied to the funds. Sequestration applies annually to mandatory spending, but certain budget authority is exempt or subject to special rules. Of the 13 case studies we reviewed, nine are exempt from cancellation under budget enforcement sequestration procedures and four—Medicare Supplementary Medical Insurance, Medicare Hospital Insurance, the HTF, and the Airport and Airway Trust Fund—are partially sequestrable (i.e., certain budgetary resources specified by law within the accounts are not subject to cancellation under budget enforcement sequestration procedures). For example, Social Security, Medicaid, and veterans’ compensation are completely exempt, and Medicare reductions are limited to 2 percent. Exemptions and special rules lead sequestration to affect some areas of the federal government more than others. For example, programs without exempt status, such as the Commodity Credit Corporation Fund, bear a greater reduction than they would if cuts were applied evenly to all programs. Outgo from those trust funds and other dedicated funds that do not have mandatory budget authority are controlled in the annual appropriations process and count toward the annual discretionary spending limits laid out in the Budget Control Act of 2011 (BCA). For example, outlays from the Airport and Airway Trust Fund are discretionary. This means that the outlays for capital improvements and operations of the nation’s airport and airway system, except for airport grants, count toward government- wide discretionary spending limits. Some trust funds and other dedicated funds have a combination of budget authorities, which can affect balances. For example, the Harbor Maintenance Trust Fund (HMTF), which is supported through collections of the harbor maintenance fee, has mandatory income and discretionary outlays. Historically, HMTF income has exceeded outgo and by the end of fiscal year 2018, the balance in the fund had grown to $9.3 billion. Any proposed legislation to lower the fee revenues would require an offset so as not to increase the deficit. Conversely, since the spending is subject to the discretionary caps, any increase in spending to align with program revenues would count toward the discretionary spending limits. Most spending from trust funds and other dedicated funds is mandatory and not controlled by the annual appropriations process. We have previously reported that the increase in mandatory spending has long- term implications for the nation’s fiscal outlook overall, including the growing federal debt. The federal government has previously enacted fiscal rules in the form of laws that constrain fiscal policy decisions, including BCA and PAYGO. These fiscal rules apply the same way regardless of status as a trust fund or other dedicated fund. However, in practice, fiscal rules that apply to mandatory budget authority are more relevant to these types of accounts, because mandatory budget authority is more concentrated in trust funds and other dedicated funds than it is in the federal budget as a whole. The Majority of the Largest Trust Funds and Other Dedicated Funds Are Entitlements—Legal Commitments Of the 23 largest trust funds and other dedicated funds we reviewed, 13 have entitlement authority, which legally requires payments to individuals or governments that meet the requirements of the programs (see table 7). For example, OASI beneficiaries are legally entitled to benefits based on a formula that takes into account the time they spent working and their earnings, among other factors. Some trust funds have mandatory budget authority, but not entitlement authority. For example, the USF, the National Flood Insurance Reserve Fund, and the Tennessee Valley Authority Fund all have mandatory budget authority, but have no entitlement authority. These programs have the most flexibility because their income is available without further appropriations action and their outgo is not driven by legal requirements to individuals or governments. For example, Federal Communication Commission officials told us that they manage the size of each program funded by the USF, to stay within an approved budget. Although entitlements represent a current legal commitment and trust funds and other dedicated funds demonstrate the government’s intent to restrict the use of those funds to a specific purpose, the government can change the terms of entitlement programs, including those financed through trust funds or other dedicated funds, by changing the substantive law. Congress and the President can raise or lower future trust fund collections or payments or change the purposes for which the collections can be used. For example, in 1983 a number of changes were made to the Social Security program, including an increase in the full retirement age and a new tax on a portion of Social Security benefits, which increased collections and lowered future outgo. Agency Comments and Our Evaluation We provided a draft of this report and the online dataset to the Director of OMB and the Secretary of the Treasury for review and comment. We also provided a draft of this report and the online dataset to our case study agencies: the Centers for Medicare & Medicaid Services, the Federal Communications Commission, the Federal Emergency Management Agency, the Department of Transportation (for the Federal Aviation Administration and the Federal Highway Administration), the Office of Personnel Management, the Social Security Administration, the Tennessee Valley Authority, and the U.S. Postal Service for review and comment. The Social Security Administration and the U.S. Postal Service provided written responses thanking us for providing the opportunity to review the report, which are published in appendixes III and IV. The Centers for Medicare & Medicaid Services, the Federal Communications Commission, the Department of Transportation, the Office of Personnel Management, the Tennessee Valley Authority, and the U.S. Postal Service provided technical comments, which we incorporated as appropriate. OMB, Treasury, and the Federal Emergency Management Agency reviewed our draft report and had no comments. As agreed with your offices, unless you publicly announce the contents of this report earlier, we plan no further distribution until 7 days from the report date. At that time, we will send copies to interested congressional committees, the Director of the Office of Management and Budget, the secretaries and agency heads of the departments and agencies in our review, and other interested parties. In addition, the report is available at no charge on GAO’s website at http://www.gao.gov. If you or your staff have any questions about this report, please contact Tranchau (Kris) T. Nguyen at (202) 512-6806 or nguyentt@gao.gov. Contact points for our Offices of Congressional Relations and Public Affairs may be found on the last page of this report. GAO staff who made key contributions to this report are listed in appendix V. Appendix I: Objectives, Scope, and Methodology This report examines: (1) how the size and scope of federal trust funds and other dedicated funds in the federal budget have changed over time, (2) the extent to which federal trust funds and other dedicated funds are supported by their dedicated collections, and (3) the extent to which federal trust funds and other dedicated funds support mandatory programs, including major entitlement programs. To examine trends in the size and scope of federal trust funds and other dedicated funds, we used Office of Management and Budget (OMB) budget data to identify the income, outgo (i.e., outlays and transfers to another government account), and end of year balances for all revolving trust funds, special funds, non-revolving trust funds, and public enterprise funds reported in OMB’s budget database, OMB MAX, for fiscal years 2014 to 2018 in nominal terms. We excluded financing and credit accounts because they are non-budgetary. For the majority of these data we used the amounts reported in OMB MAX schedule J, which is used to produce the Status of Funds tables in the President’s Budget Appendix. While the list of accounts that report Status of Funds tables publicly in the budget is limited to 21 accounts, a schedule J is created in OMB MAX for all non-revolving trust funds and special funds and, for the years in our review, for all revolving trust funds. Schedule J data are not available for public enterprise funds, so we used guidance from OMB Circular No. A- 11 to approximate similar income, outgo, and balance data using data fields that are reported in the Program and Financing table. The public enterprise fund data are slightly different than the other fund types because borrowing authority as it is reported in OMB MAX only includes information on repayable advances and excludes information on outstanding debt and borrowing. We asked OMB staff to review our methodology to calculate these numbers and they agreed our approach was methodologically sound. To assess the reliability of OMB MAX data related to the income, outgo, and balances of trust fund and other dedicated fund accounts, we reviewed related documentation, interviewed knowledgeable OMB staff, and conducted electronic data testing. We found these data reliable for our purposes. OMB budget data are rounded to the nearest million and do not show funds with amounts less than $500,000. Accordingly, OMB instructs agencies to consolidate small trust fund accounts with larger general fund accounts so the total government-wide amounts will be complete. In addition, OMB sometimes reports trust fund groups under a single account rather than each individual trust fund account. Groups may include two or more trust funds with similar purposes. The Department of the Treasury (Treasury), on the other hand, tracks monies for each discrete account to the penny in order to fulfill its government wide accounting and cash management responsibilities. As such, we used data from the Treasury Fiscal Year 2018 Combined Statement of Receipts, Outlays, and Balances of the United States Government to provide a complete count of these funds, including accounts with small balances and accounts that are a part of groups. We interviewed Treasury officials, reviewed relevant documentation, and conducted electronic and manual testing to ensure the data were reliable for our purposes and concluded that they were. To examine the extent to which federal trust funds and other dedicated funds are supported by their dedicated collections, in addition to the data described above, we examined thirteen case study accounts in nine agencies. We selected a set of accounts to include the largest of each of the four types of trust funds and other dedicated funds and a variety of program designs (see table 8). We used gross outlays from fiscal year 2017 to identify the largest accounts, since that was the most recently available data at the time of the account selection. Overall, our selected accounts covered 88 percent of the total gross outlays among these types of accounts in fiscal year 2017. We also ensured that our set of case study accounts included: at least one account from each of the four fund types in our scope, a range of programs from different goals (e.g., infrastructure, insurance, federal employee benefits), and budget authority with different characteristics. The budget authority included in our case study selection represented examples of both mandatory and discretionary budget authority. We also ensured that budget authority from appropriations, borrowing authority, contract authority, and offsetting collections were represented in at least one case study. While the case studies were selected to capture the largest funds and a diversity of programs and funding characteristics, findings from the case studies cannot be generalized to all trust funds and other dedicated funds. We also reviewed agency financial, budget, and performance reports, Congressional Budget Office trust fund projections, the 2019 Annual Report of the Board of Trustees of the Federal Old-Age and Survivors Insurance and Federal Disability Insurance Trust Funds (Social Security Trustees), the 2019 Annual Report of the Board of Trustees of the Federal Hospital Insurance and Federal Supplementary Medical Insurance Trust Funds (Medicare Trustees), and our prior reports, and interviewed officials from each of the case study agencies. To examine the extent to which federal trust funds and other dedicated funds support mandatory programs, including major entitlement programs, we used OMB budget data to calculate the prevalence of discretionary budget authority, which is controlled through appropriations acts, and mandatory budget authority, which generally refers to budget authority provided through laws other than appropriations acts, in federal trust funds and other dedicated funds. OMB budget data do not systematically identify entitlement authority. To determine which of the largest trust funds and other dedicated funds have entitlement authority, we analyzed the authorizing statutes for our case study accounts and 10 additional accounts with the next largest gross outlays. While the entitlement analysis was designed to cover nearly all of the total outlays from these types of accounts, the findings from this analysis are not representative of all trust funds and other dedicated funds and cannot be generalized to the other 375 accounts in our scope. We also reviewed budget enforcement mechanisms, such as sequestration, that apply to these types of budget authority through review of relevant laws, our prior work, and OMB documents. We conducted this performance audit from October 2018 to January 2020 in accordance with generally accepted government auditing standards. Those standards require that we plan and perform the audit to obtain sufficient, appropriate evidence to provide a reasonable basis for our findings and conclusions based on our audit objectives. We believe that the evidence obtained provides a reasonable basis for our findings and conclusions based on our audit objectives. Appendix II: Selected Case Study Profiles To illustrate the variety of federal trust funds and other dedicated funds, and examine the extent to which they are supported by their dedicated collections, we examined 13 case study accounts in nine agencies. We selected accounts listed in table 9 to include the largest of each of the four types of trust funds and other dedicated funds and a variety of program designs. Each case study profile in this appendix includes income, outgo, investments, and current issues related to the account, as well as the following account information: Fund types. OMB and Treasury designate budget accounts as “trust funds” and other fund types that link dedicated collections with their expenditure based on legislation. The fund types in this appendix include: Non-revolving trust fund. An account designated as a “trust fund” by law that is credited with dedicated collections, which can often, but not always, be used without further appropriation action. Special fund. Analogous to a non-revolving trust fund but not classified as a trust fund in name. Revolving trust fund. An account designated as a “trust fund” by law that is credited with collections that are generally available for obligation without further appropriation action, to carry out a cycle of businesslike operations in accordance with statute. Public enterprise fund. Analogous to a revolving trust fund but not classified as a trust fund in name. A public enterprise fund is a type of revolving fund that carries out a cycle of businesslike operations, mainly with the public, in which it charges for the sale of products or services and uses the proceeds to finance its spending, usually without requirement for annual appropriations. Entitlement authority. Whether or not outgo from the fund is controlled by an entitlement authority, which is the authority to make payments to any person or government if the U.S. government is legally required to make the payments to persons or governments that meet the requirements established by law. The Budget Enforcement Act category. OMB’s designation as to whether the funds in the account are classified as discretionary or mandatory depending on the nature of the substantive legislation creating the fund. Discretionary. Budget authority provided in and controlled through appropriations acts. Mandatory. Budget authority provided through laws other than appropriations acts, and the outlays that result from such budget authority. Sequestration status. OMB’s designation of the authority for purposes of sequestration, which is the cancellation of budgetary resources under a presidential order. We defined the status categories as follows: Exempt. Accounts for which budgetary resources are exempt from cancellation under budget enforcement sequestration procedures. Sequestrable. Accounts for which budgetary resources are subject to cancellation under budget enforcement sequestration procedures. Partially Sequestrable. Accounts for which certain budgetary resources specified by law within the account are not subject to cancellation under budget enforcement sequestration procedures. Staff Acknowledgments In addition to the contact named above, Susan E. Murphy (Assistant Director), Katherine D. Morris (Analyst in Charge), Alicia Cackley, Janice Ceperich, Jacqueline Chapin, Steven Cohen, Michael Collins, James Cosgrove, Robert Dacey, Karin Fangman, Paul Foderaro, Carol Henn, James A. Howard, Susan J. Irving, Charles Jeszeck, Kenneth John, Heather Krause, Natalie Logan, Scott McNulty, John Mingus, Sally Moino, Tracie Sanchez, Lori Rectanus, Frank Rusco, Dawn Simpson, Frank Todisco, Peter Verchinski, and Alicia White made key contributions to this report.