Fee Design Affects the Balance between Congressional Control and Agency Flexibility and Has Implications for Program Management

		Congress Delegates or Retains Varying Degrees of Decision-Making Authority Depending on How It Designs Key Aspects of User Fees

When designing fees, Congress is presented with a number of decisions  regarding how a fee will be set, collected, used, and reviewed. In the aggregate, these decisions enable  Congress to design a fee that strikes its desired balance between agency  flexibility and Congressional control. Congress’s fee design decisions have implications for fee program  management beyond striking the desired balance between agency  flexibility and Congressional control. The frequency of fee review and adjustment, and the ability to keep fees  and costs aligned, have a number of potential implications for agencies. We  have previously reported that the failure to review fees regularly can  result in large fee increases when the fees are eventually updated, which  creates costly challenges. For example, the U.S. As of  March 2013, OMB had not taken action on this recommendation. Agencies Manage Unobligated Balances Differently Depending on Whether They Represent Operating Reserves or Reflect the Timing of Collections and Outlays

Identifying and understanding unobligated balances in fee-based  accounts is challenging. There is no single list of all federal user fees. In general,  budget accounts are not labeled in a way that indicates whether the  account contains fee collections. This also makes it challenging to identify  which unobligated balances in an account are related to fee collections. Further, as discussed below, some fee designs include dedicated  reserves that appear as unobligated balances. The three fee-funded agencies took different approaches to managing  their unobligated balances. This amount remains available until    With respect to USF contributions, FCC officials reported  expended.that the approximately $3 billion in unobligated balances from USAC’s  USF amounts was largely the result of the timing of collections and  obligations for the four programs funded by USF contributions: (1) the  Connect America Fund (also known as the High Cost program) for rural  areas, (2) the Lifeline program (for low-income consumers), (3) the  Schools and Libraries (or E-rate) program, and (4) the Rural Health Care  program.collections and the funding commitment. Considering Key Questions About Costs and Collections Can Enable Congress and Agencies to Identify and Manage Revenue Instability

The more a program or agency depends on fees to fund its activities, the  more vulnerable it is to revenue instability: that is, the extent to which fee  collections cover the intended share of costs over time. In order to identify and manage revenue instability, decision makers need  regular information and analysis to understand potential vulnerabilities in  the context of the specific fee design. The appropriate analysis can help an agency obtain a thorough  understanding of factors such as cost drivers and elements that influence  collections. Are there limitations to the available data (such as preliminary  estimates) that could add uncertainty to collection estimates? There may be indirect influences as well. What Factors Can Affect Costs in Fee-funded Programs? If revenue instability is a function of a fee’s design, the most  sustainable solutions will be found by realigning costs and collections. Maintaining a reserve can help address sudden or temporary fluctuations  in collections and/or costs, and can minimize the effect of revenue  instability on operations. In light of the nation’s current fiscal  condition, it is essential that every funding source and spending decision  be carefully considered and applied to its best and most efficient use. In light of this, it is critical for Congress and  agencies to understand the implications of the key design decisions— each choice in isolation and also in the aggregate—to achieve a  deliberate design that minimizes unintended consequences. Appendix II: Key Questions about Costs and Collections to Enable Congress and Agencies to Identify and Manage Revenue Instability

Appendix II: Key Questions about Costs and  Collections to Enable Congress and Agencies  to Identify and Manage Revenue Instability What Data and Analysis Are Needed to Identify and Manage  Revenue Instability? What is the risk that fee revenue instability will affect this program? What is the timing and pattern of spending? Can the agency quickly respond to changing costs? Related GAO Products

Agricultural Quarantine Inspection Fees: Major Changes Needed to Align  Fee Revenues with Program Costs.
Why GAO Did This Study

In 2012, the President's Budget reported nearly $300 billion collected in user fees from the public. Given the nation's fiscal condition it is critical that every funding source and spending decision be carefully considered and applied to its best use. GAO was asked to review oversight opportunities for fees. GAO examined (1) key Congressional design decisions and related implications for achieving the desired balance between agency flexibility and congressional control, (2) issues related to identifying and managing unobligated balances in selected fee-funded agencies, and (3) key questions to identify potential sources of fee revenue instability and to manage any consequences. To do so, GAO analyzed laws, agency documents and guidance, literature, and prior GAO work. In addition, GAO interviewed officials at three fully feefunded agencies, which were selected to illustrate implications of key design options, unobligated fee balances, and approaches for managing revenue instability. GAO also validated certain findings with budget subject matter specialists.

What GAO Found

GAO identified six key fee design decisions related to how fees are set, used, and reviewed that, in the aggregate, enable Congress to design fees that strike the desired balance between agency flexibility and congressional control. For example, narrowly limiting the activities for which fees may be used heightens congressional control over the funds; however, doing so can also reduce an agency's flexibility to reallocate resources as needs change and may increase administrative costs. Design decisions also have program management implications. For example, the frequency of fee reviews and adjustments affects the alignment between collections and costs. Failing to review fees regularly has sometimes resulted in large increases when fees are eventually updated, creating costly challenges. Understanding the implications of fee design is important to avoid such unintended consequences.
Identifying and understanding unobligated balances--the portion of obligational authority that has not yet been obligated--in fee-based accounts is challenging. There is no single list of all federal user fees, and in general, budget accounts are not labeled in a way that indicates whether an account contains fee collections. This makes it challenging to identify whether (or which) unobligated balances in an account are fee-related. Further, some fee designs include dedicated reserves that appear as unobligated balances. Despite these challenges, funding a program or agency through fees does not eliminate the need for careful monitoring and managing of unobligated balances.
Considering key questions about costs and collections can enable Congress and agencies to identify and manage potential fluctuations in fee collections-known as revenue instability-as well as potential consequences. Importantly, decision makers need to understand potential vulnerabilities in the context of a fee's design. Examples of such questions include: what is the risk that fee revenue instability will affect a program? What analysis is needed to understand factors such as cost drivers and elements that influence collections? Are there data limitations that could add uncertainty to collection estimates? Can the agency quickly respond to changing costs? What factors affect the timing and pattern of collections and spending? If revenue instability is a function of a fee's design, the most sustainable solutions are often found by realigning costs and collections. In other cases, maintaining a reserve can help address sudden or temporary fluctuations in collections and/or costs and can minimize the effect of revenue instability on operations.

What GAO Recommends

GAO is not making any new recommendations in this report. GAO previously recommended that the Office of Management and Budget (OMB) review fee-funded programs and identify opportunities to improve their design and better align fee collections with program costs. OMB has not yet taken action on this recommendation. Two of the three selected fully fee-funded agencies provided technical comments which were incorporated as appropriate.