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How CBO Determines Whether to Classify an Activity as Governmental When Estimating Its Budgetary Effects 1 (June 2017)

handle is hein.congrec/cbo3571 and id is 1 raw text is: JUNE 2017 How CBO Determines Whether to Classify an Activity as Governmental When Estimating Its Budgetary Effects When the Congress considers legislation that would establish a new program or mandate a new activity, the Congressional Budget Office must decide whether to treat the associated cash flows as federal transactions in its estimates of the bill's budgetary effects. For most legislation, that determination is straightforward because federal agencies would perform any functions required by the bills. In such cases, the cash flows would be classified as federal. In some instances, however, that determination is more complicated because the legislative proposals would authorize nonfederal entities to carry out certain activities that might or might not be consid- ered governmental, and the cash flows related to those activities might or might not involve the U.S. Treasury.' In preparing its estimates, CBO generally treats the transactions of nonfederal entities as federal if those entities would use the sovereign power of the federal government, would work to achieve a governmental purpose, or would be subject to a significant degree of federal control.2 To make such determinations, CBO follows guidelines from the 1967 Report of the Presidents Commission on Budget Concepts, which includes the following recommendation: The federal budget should, as a general rule, be comprehensive of the full range of federal activities. Borderline entities and transactions should be included in the budget 1. A nonfederal entity is one that is not a component or subordinate element of one of the three branches of the federal government or that is created by legislation specifying that the entity should not be considered part of the federal government. 2. The Office of Management and Budget in the executive branch is responsible for recording cash flows related to enacted legislation in the federal budget. Its budgetary treatment of activities may differ from the treatment CBO uses in its cost estimates. unless there are exceptionally persuasive reasons for exclusion.3 Although the federal budget is primarily a tool for track- ing the government's cash flows, it also serves as a measure of the scope of federal activities and their effects on the economy. Treating the activities of some nonfederal enti- ties as part of the federal budget, even if those transactions would not flow through the Treasury, helps to accomplish that objective. This report reviews numerous examples of circumstances in which CBO has addressed the question of whether to classify an activity and its associated cash flows as federal when preparing its cost estimates. Criteria for Identifying Governmental Activities Certain activities, such as defending U.S. territory, repre- senting the nation's interests in foreign affairs, collecting federal tax revenues, or regulating interstate commerce, involve powers of the federal government that are enumerated in the Constitution. Such inherently governmental functions are executed by or under the direct control of federal agencies. However, the federal government also carries out other activities-safety inspections of the commercial supply of meat, poultry, and egg products, for instance-that conceivably could be privatized or performed by a nonfederal entity but which are classified as governmental simply because the federal government conducts them.4 In its estimates, CBO shows 3. See Report of the President) Commission on Budget Concepts (October 1967), p. 25. 4. For example, the federal government owned and operated the Naval Petroleum Reserve No. 1 in Elk Hills, California, and recorded the operating costs and proceeds from the sale of oil as federal outlays and receipts. The government sold the asset in 1997, and the cash flows associated with the oil field no longer appear in the federal budget.

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