Federal Trust Funds and the Budget (CRS Report for Congress)
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| Release Date |
Revised Feb. 27, 2014 |
| Report Number |
R41328 |
| Report Type |
Report |
| Authors |
Thomas L. Hungerford, Specialist in Public Finance |
| Source Agency |
Congressional Research Service |
| Older Revisions |
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Summary:
The federal budget consists of four basic fund groups—the general fund, special funds, revolving
funds, and trust funds. The first three are often referred to as the federal funds group. Trust funds
are an accounting mechanism that records revenues, offsetting receipts, or collections earmarked
for the purpose of the specific fund. Trust funds generally share three common features: (1) they
are established for programs serving long-term purposes, (2) monies are used for a single
purpose, and (3) users are charged to finance the trust fund. About 40% of all federal outlays were
through trust funds and about 37% of all federal receipts came to trust funds in fiscal year (FY)
2012.
A federal trust fund often represents a long-term commitment to use specific funds for a certain
purpose. It has been argued that the creation of a trust fund is one way for Congress to “commit”
future Congresses to fund a specific program or “to make long-term promises stick.” Dedicated
revenues are used to fund the program and the revenues usually come from the beneficiaries of
the program.
The Office of Management and Budget tracks approximately 120 trust funds and trust fund
aggregates. The 13 largest trust funds account for nearly all (over 99%) of the income to, outgo
from, and balances of all trust funds.
Trust fund receipts come from a variety of sources. Almost all trust funds receive monies from
current or future beneficiaries. Most trust funds receive general revenues in terms of direct
payments or interest payments. In addition, some trust funds receive payments from other trust
funds. Most trust fund programs have permanent budget authority and all monies in the trust fund
are available for obligation. The outgo of a trust fund is comprised of payments made to the
public or to another trust fund.
Cumulatively, trust fund surpluses (i.e., revenues in excess of outgo) in FY2012 amounted to
$89.9 billion. This surplus is mostly invested in government obligations and transferred to the
general fund to pay for other spending. By law, all trust funds except the Railroad Retirement
fund must invest balances in government obligations. The Railroad Retirement fund is allowed to
invest its balance in equities. The government securities held by trust funds are part of federal
debt that is subject to the statutory federal debt limit. At the end of FY2012, the trust funds held
$4,388.5 billion in government securities. The federal funds deficit for FY2012 was $1,176.8
billion, but because of the trust fund surplus, the unified federal budget deficit (what is widely
reported in the press) was $1,087.0 billion.
Some observers have argued that trust fund programs increase the federal deficit and reduce
national saving. There is evidence, however, to support the claim that trust fund surpluses reduce
the federal government deficit and increase public saving. This becomes important when a trust
fund’s revenues are less than its outgo and the Treasury securities held by the trust fund need to
be redeemed to cover outgo. The Treasury securities in the trust fund are claims on the
government and the government will need to find real resources (by raising revenue, decreasing
spending, or issuing more debt) to cover these claims when the obligations are redeemed.
