[Analytical Perspectives, Budget of the United States Government,
Fiscal Year 1998][Page 99-141]
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SPECIAL ANALYSES AND PRESENTATIONS
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6. FEDERAL INVESTMENT SPENDING AND CAPITAL BUDGETING
Investment spending is spending that yields long-term benefits. Its
purpose may be to improve the efficiency of internal Federal agency
operations or to increase the Nation's overall stock of capital for
economic growth. The spending can be direct Federal spending or grants
to State and local governments. It can be for physical capital, which
yields a stream of services over a period of years, or for research and
development or education and training, which are intangible but also
increase income in the future or provide other long-term benefits.
Most presentations in the Federal budget combine investment spending
with spending for current use. This chapter focuses solely on Federal
and federally financed investment. These investments are discussed in
the following sections:
<bullet> description of the size and composition of Federal
investment spending;
<bullet> a discussion of capital assets used to provide Federal
services and efforts to improve planning and budgeting for
these assets. An Appendix to Part II presents the ``Principles
of Budgeting for Capital Asset Acquisitions,'' which are being
used to guide the analysis of agency requests for spending for
capital assets. These principles include a proposed new Budget
Enforcement Act scorekeeping rule to enforce full funding of
capital projects;
<bullet> a presentation of trends in the stock of federally financed
physical capital, research and development, and education;
<bullet> alternative capital budget and capital expenditure
presentations; and
<bullet> projections of Federal physical capital outlays and recent
assessments of public civilian capital needs, as required by
the Federal Capital Investment Program Information Act of
1984.
Part I: DESCRIPTION OF FEDERAL INVESTMENT
For more than forty years, a chapter in the budget has shown Federal
investment outlays--defined as those outlays that yield long-term
benefits--separately from outlays for current use. This year, for the
third consecutive year, the discussion of the composition of investment
includes estimates of budget authority as well as outlays. For the first
time, these estimates extend four years beyond the budget year to 2002.
The classification of spending into investment and current outlays is
a matter of judgment. The budget has historically employed a relatively
broad classification, including physical investment, research,
development, education, and training. But presentations for particular
purposes could adopt different definitions of investment:
<bullet> To suit the purposes of a traditional balance sheet,
investment might include only those physical assets owned by
the Federal Government, excluding capital financed through
grants and intangible assets such as research, education, and
training.
<bullet> Focusing on the role of investment in improving national
productivity and enhancing economic growth would exclude items
such as national defense assets, the benefits of which are
enhanced national security rather than economic growth.
<bullet> Concern with the efficiency of Federal operations would lead
to a focus solely on investments to reduce costs or improve
the effectiveness of internal Federal agency operations, such
as computer systems.
<bullet> A ``social investment'' perspective might broaden the
coverage of investment beyond what is included in this chapter
to encompass programs such as childhood immunization, maternal
health, certain nutrition programs, and substance abuse
treatment, which are designed in part to prevent more costly
health problems in future years.
The relatively broad definition of investment used in this section
provides consistency over time: historical figures on investment outlays
back to 1940 can be found in the separate Historical Tables volume. The
detailed tables at the end of this section allow disaggregation of the
data to focus on those investment outlays that best suit a particular
purpose.
In addition to this basic issue of definition, there are two technical
problems in the classification of investment data, involving the
treatment of grants to State and local governments and the
classification of spending that could be shown in more than one
category.
First, for some grants to State and local governments it is the
recipient jurisdiction, not the Federal Government, that ultimately
determines whether the money is used to finance investment or current
purposes. This analysis classifies all of the outlays in the category
where the recipient jurisdictions are expected to spend most of the
money. Hence, the community development block grant is classified as
physical investment, although some may be spent for current purposes.
General purpose fiscal assistance is classified as current spending,
although some may be spent by recipient jurisdictions on physical
investment.
Second, some spending could be classified in more than one category of
investment. For example, grants
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for construction of research facilities
finance the acquisition of physical assets, but they also contribute to
research and development. To avoid double counting, the outlays are
classified in the category that is most commonly recognized as
investment. Consequently outlays for the conduct of research and
development do not include outlays for research facilities, because
these outlays are included in the category for physical investment.
Similarly, physical investment and research and development related to
education and training are included in the categories of physical assets
and the conduct of research and development.
When direct loans and loan guarantees are used to fund investment, the
subsidy value is included as investment. The subsidies are classified
according to their program purpose, such as construction, education and
training, or non-investment outlays. For more information about the
treatment of Federal credit programs,, refer to Chapter 8,
``Underwriting Federal Credit and Insurance.''
This section presents spending for gross investment, without adjusting
for depreciation. A subsequent section discusses depreciation and shows
investment and capital stocks both gross and net of depreciation.
Composition of Federal Investment Outlays
Major Federal Investment
The composition of major Federal investment outlays is summarized in
Table 6-1. They include major public physical investment, the conduct of
research and development, and the conduct of education and training.
Defense and nondefense investment outlays were $227.9 billion in 1996.
Because of reductions in defense spending they are estimated to decline
to $225.7 billion in 1997 and to $218.7 billion in 1998. Major Federal
investment will comprise an estimated 13.0 percent of total Federal
outlays in 1998 and 2.7 percent of the Nation's gross domestic product
(GDP). Greater detail on Federal investment is available in tables 6-2
and 6-3 at the end of this section. Those tables include both budget
authority and outlays.
Physical investment.--Outlays for major public physical capital
investment (hereafter referred to as physical investment outlays) are
estimated to be $102.8 billion in 1998. Physical investment outlays are
for construction and rehabilitation, the purchase of major equipment,
and the purchase or sale of land and structures. Slightly more than
three-fifths of these outlays are for direct physical investment by the
Federal Government, with the remaining being grants to State and local
governments for physical investment.
Direct physical investment outlays by the Federal Government are
primarily for national defense. Defense outlays for physical investment
were $55.0 billion in 1996 and are estimated to decline to $47.8 billion
in 1998. Almost all of these outlays, or $43.2 billion, are for the
procurement of weapons and other military equipment, and the remainder
is primarily for construction of military bases, family housing for
military personnel, and Department of Energy defense facilities.
Table 6-1. COMPOSITION OF FEDERAL INVESTMENT OUTLAYS
(In billions of dollars)
------------------------------------------------------------------------
Estimate
1996 -------------------
actual 1997 1998
------------------------------------------------------------------------
Major Federal Investment Outlays
Major public physical capital investment:
Direct Federal:
National defense...................... 55.0 50.6 47.8
Nondefense............................ 20.6 21.2 15.1
-----------------------------
Subtotal, direct major public
physical capital investment........ 75.5 71.8 62.9
Grants to State and local governments... 40.4 41.1 39.9
-----------------------------
Subtotal, major public physical
capital investment................. 115.9 113.0 102.8
Conduct of research and development:
National defense........................ 39.4 38.9 37.4
Nondefense.............................. 29.0 31.4 32.8
-----------------------------
Subtotal, conduct of research and
development.......................... 68.4 70.3 70.2
Conduct of education and training:
Grants to State and local governments... 24.7 26.1 27.1
Direct Federal.......................... 18.9 16.3 18.5
-----------------------------
Subtotal, conduct of education and
training............................. 43.6 42.5 45.6
-----------------------------
Total, major Federal investment outlays... 227.9 225.7 218.7
MEMORANDUM
Major Federal investment outlays:
National defense........................ 94.4 89.6 85.3
Nondefense.............................. 133.4 136.1 133.4
-----------------------------
Total, major Federal investment
outlays.............................. 227.9 225.7 218.7
Miscellaneous physical investments:
Commodity inventories................... -1.0 -0.7 -0.8
Other physical investment (direct)...... 4.1 3.9 3.7
-----------------------------
Total, miscellaneous physical
investment........................... 3.1 3.1 2.9
-----------------------------
Total, Federal investment outlays,
including miscellaneous physical
investment............................... 230.9 228.9 221.5
------------------------------------------------------------------------
Outlays for direct physical investment for nondefense purposes are
estimated to be $15.1 billion in 1998. These outlays include $12.2
billion for construction and rehabilitation. This amount funds water,
power, and natural resources projects of the Army Corps of Engineers,
the Bureau of Reclamation within the Department of the Interior, the
Tennessee Valley Authority, and the power administrations in the
Department of Energy; construction and rehabilitation of veterans
hospitals and Postal Service facilities; and facilities for space and
science programs. Outlays for the acquisition of major equipment are
estimated to be $6.8 billion in 1998. The largest amounts are for the
air traffic control system and the Postal Service. For the purchase or
sale of land and structures, collections are expected to exceed
disbursements by $3.9 billion in 1998, largely due to the planned sale
of the United States Enrichment Corporation and the privatization of Elk
Hills. These sales explain most of the decline in outlays from 1996 to
1998.
Grants to State and local governments for physical investment are
estimated to be $39.9 billion in 1998. More than three fifths of these
outlays, or $24.5 billion, are to assist States and localities with
transportation infrastructure. Other major grants for physical
investment fund sewage treatment plants, community development, and
public housing.
Conduct of research and development.--Outlays for the conduct of
research and development are estimated to be $70.2 billion in 1998.
These outlays are devoted to increasing basic scientific knowledge and
promoting related research and development. They increase the Nation's
security, improve the productivity of capital and labor for both public
and private purposes, and enhance the quality of life. Slightly more
than half of these outlays, an estimated $37.4 billion in 1998, are for
national defense. Physical investment for research and development
facilities and equipment is included in the physical investment
category.
Nondefense outlays for the conduct of research and development are
estimated to be $32.8 billion in 1998. This is almost entirely direct
spending by the Federal Government, and is largely for the space
programs, the National Science Foundation, the National Institutes of
Health, and research for nuclear and non-nuclear energy programs.
Conduct of education and training.--Outlays for the conduct of
education and training are estimated to be $45.6 billion in 1998. These
outlays add to the stock of human capital by developing a more skilled
and productive labor force. Grants to State and local governments for
this category are estimated to be $27.1 billion in 1998, more than half
of the total. They include education programs for the disadvantaged and
the handicapped, vocational and adult education programs, training
programs in the Department of Labor, and Head Start. Direct education
and training outlays by the Federal Government are estimated to be $18.5
billion in 1998. Programs in this category are primarily aid for higher
education through student financial assistance,
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loan subsidies, the veterans GI bill, and health training programs.
This category does not include outlays for education and training of
Federal civilian and military employees. Outlays for education and
training that are for physical investment and for research and
development are in the categories for physical investment and the
conduct of research and development.
Miscellaneous Investment Outlays
In addition to the categories of major Federal investment, several
miscellaneous categories of investment outlays are shown at the bottom
of Table 6-1. These items, all for physical investment, are generally
unrelated to improving Government operations or enhancing economic
activity. Outlays for commodity inventories are for the purchase or sale
of agricultural products pursuant to farm price support programs and the
purchase and sale of other commodities such as oil and gas. Sales are
estimated to exceed purchases by $0.8 billion in 1998.
Outlays for other miscellaneous physical investment are estimated to
be $3.7 billion in 1998. This category includes primarily conservation
programs. These outlays are entirely for direct Federal spending.
Detailed Tables on Investment Spending
This section provides data on budget authority as well as outlays for
major Federal investment. For the first time these estimates extend four
years beyond the budget year to 2002. Table 6-2 displays budget
authority (BA) and outlays (O) by major programs according to defense
and nondefense categories. The greatest level of detail appears in Table
6-3, which shows budget authority and outlays divided according to
grants to State and local governments and direct Federal spending.
Miscellaneous investment is not included in these tables because it is
generally unrelated to improving Government operations or enhancing
economic activity.
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Table 6-2. FEDERAL INVESTMENT BUDGET AUTHORITY AND OUTLAYS: DEFENSE AND NONDEFENSE PROGRAMS
(In millions of dollars)
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Estimate
Description 1996 -----------------------------------------------------------------------
Actual 1997 1998 1999 2000 2001 2002
--------------------------------------------------------------------------------------------------------------------------------------------------------
NATIONAL DEFENSE
Major public physical investment:
Construction and rehabilitation......... BA 4,670 5,008 5,555 4,516 3,767 3,540 3,155
O 5,409 4,816 4,526 4,613 3,617 3,223 2,804
Acquisition of major equipment.......... BA 42,975 44,435 42,923 50,833 57,219 60,871 68,552
O 49,645 45,924 43,408 44,841 47,877 51,932 55,688
Purchase or sale of land and structures. BA -77 -86 -87 -54 -26 -26 -26
O -77 -86 -87 -54 -26 -26 -26
-----------------------------------------------------------------------------------
Subtotal, major public physical BA 47,568 49,357 48,391 55,295 60,960 64,385 71,681
investment.
O 54,977 50,654 47,847 49,400 51,468 55,129 58,466
-----------------------------------------------------------------------------------
Conduct of research and development....... BA 37,810 39,491 38,744 37,872 35,834 35,328 36,640
O 39,428 38,916 37,416 37,917 36,326 35,492 35,882
Conduct of education and training BA 8 5 2 8 15 15 15
(civilian).
O 9 6 3 6 12 15 15
-----------------------------------------------------------------------------------
Subtotal, national defense investment... BA 85,386 88,853 87,137 93,175 96,809 99,728 108,336
O 94,414 89,576 85,266 87,323 87,806 90,636 94,363
NONDEFENSE
Major public physical investment:
Construction and rehabilitation:
Highways.............................. BA 17,884 21,973 22,304 22,168 22,072 22,043 22,034
O 19,653 19,645 19,653 19,392 19,191 18,915 18,763
Mass transportation................... BA 3,517 4,828 4,971 4,971 4,971 4,971 4,971
O 3,698 3,900 3,568 3,717 3,922 4,101 4,255
Rail transportation................... BA 119 244 434 434 434 434 434
O 282 211 379 511 435 437 436
Air transportation.................... BA 1,606 2,284 2,395 1,049 1,050 1,051 1,052
O 1,675 1,575 1,446 1,235 1,123 1,076 1,068
Water transportation.................. BA 129 137 120 121 122 122 122
O 125 117 116 120 115 119 121
Community development block grants.... BA 4,650 4,600 4,600 4,600 4,100 4,100 4,100
O 4,545 4,837 4,641 4,845 4,633 4,438 4,216
Other community and regional BA 1,351 1,379 1,408 1,338 1,156 1,171 1,165
development.
O 1,530 1,805 1,495 1,325 1,339 1,259 1,219
Pollution control and abatement....... BA 3,637 3,797 4,564 4,556 3,885 3,853 3,872
O 3,668 3,499 3,752 4,044 4,133 4,098 3,938
Water resources....................... BA 1,878 2,068 2,312 2,012 2,045 1,927 1,943
O 2,318 2,334 1,869 1,991 2,087 1,958 1,904
Housing assistance.................... BA 5,664 4,655 5,052 4,827 4,726 4,761 4,797
O 6,757 7,216 6,963 6,915 6,652 6,149 5,880
Energy................................ BA 1,827 1,292 1,183 1,112 1,130 1,119 1,133
O 1,918 1,378 1,147 1,141 1,163 1,150 1,160
Veterans hospitals and other health... BA 1,113 1,230 1,358 1,341 1,357 1,373 1,388
O 1,404 1,316 1,465 1,429 1,395 1,375 1,375
Postal Service........................ BA 1,132 1,870 1,376 964 721 783 1,996
O 1,138 1,063 1,251 1,195 986 870 2,205
GSA real property activities.......... BA .......... .......... .......... .......... .......... .......... ..........
O 1,478 1,418 1,175 1,028 965 916 941
Other programs........................ BA 1,776 1,785 1,640 1,418 1,311 1,312 1,312
O 2,293 2,179 1,971 2,152 1,937 1,711 1,590
-----------------------------------------------------------------------------------
Subtotal, construction and BA 46,283 52,142 53,717 50,911 49,080 49,020 50,319
rehabilitation.
O 52,482 52,493 50,891 51,040 50,076 48,572 49,071
-----------------------------------------------------------------------------------
Acquisition of major equipment:
Air transportation.................... BA 1,903 1,969 1,924 2,073 2,029 2,090 2,152
O 2,490 1,948 1,903 1,905 1,927 1,956 2,078
Postal Service........................ BA 1,890 3,545 1,075 586 180 221 665
O 987 2,478 1,378 1,793 236 210 505
Other................................. BA 3,915 3,131 3,465 3,494 2,851 2,782 2,707
O 3,835 3,965 3,545 4,307 4,177 3,530 3,480
-----------------------------------------------------------------------------------
Subtotal, acquisition of major BA 7,708 8,645 6,464 6,153 5,060 5,093 5,524
equipment.
O 7,312 8,391 6,826 8,005 6,340 5,696 6,063
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Purchase or sale of land and structures. BA 183 194 -4,040 229 241 243 -295
O 410 441 -3,875 432 435 428 -126
Other physical assets (grants).......... BA 926 911 1,063 1,120 1,118 1,127 1,066
O 692 994 1,137 1,068 1,110 1,111 1,085
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Subtotal, major public physical BA 55,100 61,892 57,204 58,413 55,499 55,483 56,614
investment.
O 60,896 62,319 54,979 60,545 57,961 55,807 56,093
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Conduct of research and development:
General science, space, and technology.. BA 10,719 10,779 11,115 11,205 11,202 11,317 11,354
O 9,745 10,424 10,707 10,872 10,838 10,854 10,960
Energy.................................. BA 2,548 2,312 2,542 2,650 2,464 2,396 2,354
O 2,938 2,577 2,796 2,771 2,753 2,658 2,552
Transportation.......................... BA 1,794 1,960 2,005 1,910 1,893 1,919 1,938
O 1,654 1,810 2,135 2,090 2,132 2,153 2,180
Health.................................. BA 11,820 12,647 12,951 12,984 13,026 13,068 13,112
O 10,267 12,059 12,655 12,925 12,998 13,023 13,060
Natural resources and environment....... BA 1,781 1,841 1,901 1,865 1,891 1,906 1,939
O 1,593 1,620 1,673 1,652 1,668 1,668 1,698
All other research and development...... BA 2,693 2,687 2,840 3,046 3,097 3,171 3,256
O 2,797 2,879 2,824 3,015 3,062 3,117 3,183
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Subtotal, conduct of research and BA 31,355 32,226 33,354 33,660 33,573 33,777 33,953
development.
O 28,994 31,369 32,790 33,325 33,451 33,473 33,633
-----------------------------------------------------------------------------------
Conduct of education and training:
Education, training, employment and
social services:
Elementary, secondary, and vocational BA 13,660 16,899 18,241 18,703 19,129 19,451 19,628
education.
O 14,739 16,111 16,387 18,451 18,722 19,072 19,400
Higher education...................... BA 12,713 9,452 13,212 14,578 14,700 14,998 14,418
O 12,172 9,141 11,348 13,390 13,678 13,825 13,179
Research and general education aids... BA 1,762 1,993 2,000 1,834 1,940 1,977 1,994
O 1,906 1,914 2,035 1,817 1,926 1,959 1,994
Training and employment............... BA 5,068 5,675 5,987 6,286 6,594 5,417 5,549
O 5,175 4,910 5,402 6,044 6,252 5,742 5,444
Social services....................... BA 6,072 6,539 6,942 7,202 7,467 7,757 8,059
O 5,940 6,447 6,637 6,820 7,029 7,285 7,569
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Subtotal, education, training, and BA 39,275 40,558 46,382 48,603 49,830 49,600 49,648
social services.
O 39,932 38,523 41,809 46,522 47,607 47,883 47,586
-----------------------------------------------------------------------------------
Veterans education, training, and BA 1,274 1,526 1,503 1,598 1,603 1,653 1,671
rehabilitation.
O 1,373 1,558 1,580 1,617 1,619 1,661 1,679
Health.................................. BA 793 882 728 720 718 715 712
O 760 864 804 728 719 708 704
Other education and training............ BA 1,519 1,510 1,453 1,461 1,485 1,458 1,481
O 1,485 1,505 1,434 1,466 1,476 1,460 1,470
-----------------------------------------------------------------------------------
Subtotal, conduct of education and BA 42,861 44,476 50,066 52,382 53,636 53,426 53,512
training.
O 43,550 42,450 45,627 50,333 51,421 51,712 51,439
-----------------------------------------------------------------------------------
Subtotal, nondefense investment......... BA 129,316 138,594 140,624 144,455 142,708 142,686 144,079
O 133,440 136,138 133,396 144,203 142,833 140,992 141,165
===================================================================================
Total, major Federal investment........... BA 214,702 227,447 227,761 237,630 239,517 242,414 252,415
O 227,854 225,714 218,662 231,526 230,639 231,628 235,528
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Table 6-3. FEDERAL INVESTMENT BUDGET AUTHORITY AND OUTLAYS: GRANT AND DIRECT FEDERAL PROGRAMS
(in millions of dollars)
--------------------------------------------------------------------------------------------------------------------------------------------------------
Estimate
Description 1996 -----------------------------------------------------------------------
Actual 1997 1998 1999 2000 2001 2002
--------------------------------------------------------------------------------------------------------------------------------------------------------
GRANTS TO STATE AND LOCAL GOVERNMENTS
Major public physical investments:
Construction and rehabilitation:
Highways.............................. BA 17,879 21,972 22,302 22,166 22,070 22,041 22,032
O 19,644 19,588 19,475 19,333 19,172 18,902 18,751
Mass transportation................... BA 3,517 4,828 4,971 4,971 4,971 4,971 4,971
O 3,698 3,900 3,568 3,717 3,922 4,101 4,255
Rail transportation................... BA 1 69 10 10 10 10 10
O 16 33 48 36 10 10 10
Air transportation.................... BA 1,550 2,230 2,347 1,000 1,000 1,000 1,000
O 1,655 1,519 1,395 1,185 1,075 1,028 1,018
Pollution control and abatement....... BA 2,314 2,417 2,474 2,211 2,190 2,207 2,225
O 2,368 2,127 2,119 2,032 2,155 2,279 2,188
Other natural resources and BA 174 161 44 44 44 44 44
environment.
O 255 283 75 48 43 43 43
Community development block grants.... BA 4,650 4,600 4,600 4,600 4,100 4,100 4,100
O 4,545 4,837 4,641 4,845 4,633 4,438 4,216
Other community and regional BA 1,106 1,013 1,152 1,110 926 938 929
development.
O 1,172 1,227 1,170 1,137 1,121 1,032 987
Housing assistance.................... BA 4,554 4,622 4,567 4,342 4,241 4,276 4,312
O 6,007 6,335 5,999 5,845 5,508 5,022 4,767
National defense...................... BA .......... .......... .......... .......... .......... .......... ..........
O 16 9 4 1 .......... .......... ..........
Other construction.................... BA 134 130 119 115 116 116 116
O 222 212 179 159 126 119 118
-----------------------------------------------------------------------------------
Subtotal, construction and BA 35,879 42,042 42,586 40,569 39,668 39,703 39,739
rehabilitation.
O 39,598 40,070 38,673 38,338 37,765 36,974 36,353
-----------------------------------------------------------------------------------
Other physical assets................... BA 978 962 1,120 1,177 1,178 1,187 1,128
O 757 1,075 1,208 1,130 1,169 1,170 1,145
-----------------------------------------------------------------------------------
Subtotal, major public physical BA 36,857 43,004 43,706 41,746 40,846 40,890 40,867
capital.
O 40,355 41,145 39,881 39,468 38,934 38,144 37,498
-----------------------------------------------------------------------------------
Conduct of research and development:
Agriculture............................. BA 223 223 223 223 223 223 223
O 224 234 223 221 215 193 207
Other................................... BA 89 258 126 127 127 129 130
O 79 94 238 180 162 158 159
-----------------------------------------------------------------------------------
Subtotal, conduct of research and BA 312 481 349 350 350 352 353
development.
O 303 328 461 401 377 351 366
-----------------------------------------------------------------------------------
Conduct of education and training:
Elementary, secondary, and vocational BA 12,881 16,111 17,342 17,797 18,212 18,527 18,694
education.
O 13,930 15,288 15,574 17,573 17,828 18,168 18,486
Higher education........................ BA 63 83 39 40 41 42 44
O 108 77 74 38 40 41 42
Research and general education aids..... BA 243 439 311 317 348 356 361
O 288 286 377 334 346 349 356
Training and employment................. BA 3,998 4,513 4,500 4,764 5,035 3,824 3,920
O 4,162 3,783 4,208 4,666 4,751 4,184 3,839
Social services......................... BA 5,828 6,299 6,693 6,945 7,201 7,482 7,775
O 5,702 6,185 6,391 6,573 6,774 7,022 7,297
National defense (civilian)............. BA .......... .......... .......... .......... .......... .......... ..........
O 2 .......... .......... .......... .......... .......... ..........
Agriculture............................. BA 428 426 418 418 418 418 418
O 403 419 420 418 418 418 418
Other................................... BA 94 78 81 72 73 73 74
O 100 82 84 81 76 72 72
-----------------------------------------------------------------------------------
Subtotal, conduct of education and BA 23,535 27,949 29,384 30,353 31,328 30,722 31,286
training.
O 24,695 26,120 27,128 29,683 30,233 30,254 30,510
-----------------------------------------------------------------------------------
Subtotal, grants for investment......... BA 60,704 71,434 73,439 72,449 72,524 71,964 72,506
O 65,353 67,593 67,470 69,552 69,544 68,749 68,374
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DIRECT FEDERAL PROGRAMS
Major public physical investment:
Construction and rehabilitation:
National defense:
Military construction............... BA 2,815 3,220 2,519 2,537 2,565 2,491 1,633
O 3,382 3,102 2,934 2,793 2,132 1,855 1,432
Family housing...................... BA 1,016 1,017 679 722 436 441 433
O 1,078 1,007 916 788 372 376 372
Atomic energy defense activities and BA 839 771 2,357 1,257 766 608 1,089
other.
O 933 698 672 1,031 1,113 992 1,000
-----------------------------------------------------------------------------------
Subtotal, national defense........ BA 4,670 5,008 5,555 4,516 3,767 3,540 3,155
O 5,393 4,807 4,522 4,612 3,617 3,223 2,804
-----------------------------------------------------------------------------------
International affairs................. BA 157 218 200 200 200 200 200
O 279 265 230 219 213 215 215
General science, space, and technology BA 423 349 338 259 252 254 260
O 611 487 423 406 333 327 321
Water resources projects.............. BA 1,728 1,935 2,272 1,972 2,005 1,887 1,903
O 2,090 2,082 1,799 1,946 2,047 1,918 1,864
Other natural resources and BA 1,644 1,637 2,350 2,631 1,967 1,913 1,908
environment.
O 1,672 1,684 1,900 2,279 2,252 2,089 2,016
Energy................................ BA 1,827 1,292 1,183 1,112 1,130 1,119 1,133
O 1,918 1,378 1,147 1,141 1,163 1,150 1,160
Postal Service........................ BA 1,132 1,870 1,376 964 721 783 1,996
O 1,138 1,063 1,251 1,195 986 870 2,205
Transportation........................ BA 307 366 593 595 597 598 599
O 419 407 675 703 606 606 608
Housing assistance.................... BA 1,110 33 485 485 485 485 485
O 750 881 964 1,070 1,144 1,127 1,113
Veterans hospitals and other health BA 1,066 1,183 1,317 1,304 1,320 1,336 1,351
facilities.
O 1,347 1,272 1,418 1,384 1,351 1,336 1,338
Federal Prison System................. BA 245 310 149 97 .......... .......... ..........
O 486 309 393 527 410 253 181
GSA real property activities.......... BA 1 157 .......... .......... .......... .......... ..........
O 1,579 1,757 1,262 1,028 965 916 941
Other construction.................... BA 764 750 868 723 735 742 745
O 611 847 760 805 841 791 756
-----------------------------------------------------------------------------------
Subtotal, construction and BA 15,074 15,108 16,686 14,858 13,179 12,857 13,735
rehabilitation.
O 18,293 17,239 16,744 17,315 15,928 14,821 15,522
-----------------------------------------------------------------------------------
Acquisition of major equipment:
National defense:
Department of Defense--Military BA 42,641 44,179 42,664 50,583 56,969 60,624 68,310
(Procurement).
O 49,252 45,668 43,164 44,601 47,641 51,698 55,457
Atomic energy defense activities.... BA 334 256 259 250 250 247 242
O 393 256 244 240 236 234 231
-----------------------------------------------------------------------------------
Subtotal, national defense........ BA 42,975 44,435 42,923 50,833 57,219 60,871 68,552
O 49,645 45,924 43,408 44,841 47,877 51,932 55,688
-----------------------------------------------------------------------------------
General science and basic research.... BA 252 239 244 250 251 251 251
O 199 262 271 271 263 256 246
Space flight, research, and supporting BA 763 744 575 574 558 540 526
activities.
O 545 698 638 610 595 575 564
Energy................................ BA 218 183 170 194 203 202 215
O 221 195 193 222 231 231 243
Postal Service........................ BA 1,890 3,545 1,075 586 180 221 665
O 987 2,478 1,378 1,793 236 210 505
Air transportation.................... BA 1,903 1,969 1,924 2,073 2,029 2,090 2,152
O 2,490 1,948 1,903 1,905 1,927 1,956 2,078
Water transportation (Coast Guard).... BA 228 245 242 242 242 242 242
O 240 179 196 216 226 239 245
Other transportation (railroads)...... BA 330 362 .......... .......... .......... .......... ..........
O 322 262 159 104 .......... .......... ..........
Social security....................... BA 257 86 63 68 73 78 84
[[Page 108]]
O 164 103 153 164 176 189 203
Hospital and medical care for veterans BA 767 513 483 483 483 483 483
O 614 564 483 489 490 490 490
Department of Justice................. BA 377 444 480 288 296 304 314
O 294 378 293 348 216 146 151
Department of the Treasury............ BA 643 230 628 619 119 119 119
O 616 541 106 551 599 148 98
General supply fund................... BA .......... .......... .......... .......... .......... .......... ..........
O 497 556 673 703 748 655 694
Other................................. BA 28 34 523 719 566 503 411
O 58 146 309 567 574 542 486
-----------------------------------------------------------------------------------
Subtotal, acquisition of major BA 50,631 53,029 49,330 56,929 62,219 65,904 74,014
equipment.
O 56,892 54,234 50,163 52,784 54,158 57,569 61,691
-----------------------------------------------------------------------------------
Purchase or sale of land and structures:
National defense...................... BA -77 -86 -87 -54 -26 -26 -26
O -77 -86 -87 -54 -26 -26 -26
International affairs................. BA 10 10 10 10 10 10 10
O 11 11 10 10 9 9 9
Sale of the United States Enrichment BA .......... .......... -1,800 .......... .......... .......... ..........
Corporation.
O .......... .......... -1,800 .......... .......... .......... ..........
Privatization of Elk Hills............ BA .......... .......... -2,415 .......... .......... .......... ..........
O .......... .......... -2,415 .......... .......... .......... ..........
Other................................. BA 173 184 165 219 231 233 -305
O 399 430 330 422 426 419 -135
-----------------------------------------------------------------------------------
Subtotal, purchase or sale of land BA 106 108 -4,127 175 215 217 -321
and structures.
O 333 355 -3,962 378 409 402 -152
-----------------------------------------------------------------------------------
Subtotal, major public physical BA 65,811 68,245 61,889 71,962 75,613 78,978 87,428
investment.
O 75,518 71,828 62,945 70,477 70,495 72,792 77,061
-----------------------------------------------------------------------------------
Conduct of research and development:
National defense:
Defense military...................... BA 35,402 37,060 36,371 35,544 33,541 33,054 34,403
O 36,936 36,485 35,067 35,626 34,077 33,264 33,682
Atomic energy and other............... BA 2,408 2,431 2,373 2,328 2,293 2,274 2,237
O 2,492 2,431 2,349 2,291 2,249 2,228 2,200
-----------------------------------------------------------------------------------
Subtotal, national defense.......... BA 37,810 39,491 38,744 37,872 35,834 35,328 36,640
O 39,428 38,916 37,416 37,917 36,326 35,492 35,882
-----------------------------------------------------------------------------------
International affairs................... BA 253 191 247 253 257 265 270
O 419 379 339 317 320 327 332
General science, space, and technology:
NASA.................................. BA 7,844 7,797 8,009 8,034 8,025 8,133 8,164
O 6,963 7,524 7,767 7,841 7,734 7,738 7,802
National Science Foundation........... BA 2,204 2,277 2,367 2,373 2,379 2,386 2,392
O 2,077 2,195 2,201 2,272 2,332 2,344 2,386
Other general science................. BA 671 705 739 798 798 798 798
O 705 705 739 759 772 772 772
-----------------------------------------------------------------------------------
Subtotal, general science, space, BA 10,972 10,970 11,362 11,458 11,459 11,582 11,624
and technology.
O 10,164 10,803 11,046 11,189 11,158 11,181 11,292
-----------------------------------------------------------------------------------
Energy.................................. BA 2,548 2,312 2,542 2,650 2,464 2,396 2,354
O 2,938 2,577 2,796 2,771 2,753 2,658 2,552
Transportation:
Department of Transportation.......... BA 508 531 651 629 634 641 647
O 479 489 730 702 699 699 682
NASA.................................. BA 1,222 1,198 1,273 1,200 1,178 1,197 1,210
O 1,120 1,261 1,194 1,234 1,296 1,321 1,366
-----------------------------------------------------------------------------------
Subtotal, transportation............ BA 4,278 4,041 4,466 4,479 4,276 4,234 4,211
O 4,537 4,327 4,720 4,707 4,748 4,678 4,600
-----------------------------------------------------------------------------------
[[Page 109]]
Health:
National Institutes of Health......... BA 11,263 11,996 12,333 12,378 12,428 12,479 12,530
O 9,642 11,469 12,060 12,326 12,414 12,448 12,492
All other health...................... BA 548 642 613 601 593 584 577
O 616 581 590 594 579 570 563
-----------------------------------------------------------------------------------
Subtotal, health.................... BA 11,811 12,638 12,946 12,979 13,021 13,063 13,107
O 10,258 12,050 12,650 12,920 12,993 13,018 13,055
-----------------------------------------------------------------------------------
Agriculture............................. BA 953 963 975 980 991 1,002 1,013
O 944 948 962 974 982 1,027 1,026
Natural resources and environment....... BA 1,778 1,838 1,898 1,862 1,888 1,903 1,936
O 1,587 1,619 1,671 1,650 1,666 1,666 1,696
National Institute of Standards and BA 416 429 480 506 518 564 620
Technology.
O 374 428 440 463 491 514 543
Hospital and medical care for veterans.. BA 256 263 235 235 235 235 235
O 231 261 241 234 233 233 233
All other research and development...... BA 579 603 643 811 835 842 854
O 596 605 599 787 803 805 822
-----------------------------------------------------------------------------------
Subtotal, conduct of research and BA 68,853 71,236 71,749 71,182 69,057 68,753 70,240
development.
O 68,119 69,957 69,745 70,841 69,400 68,614 69,149
-----------------------------------------------------------------------------------
Conduct of education and training:
Elementary, secondary, and vocational BA 779 788 899 906 917 924 934
education.
O 809 823 813 878 894 904 914
Higher education........................ BA 12,650 9,369 13,173 14,538 14,659 14,956 14,374
O 12,064 9,064 11,274 13,352 13,638 13,784 13,137
Research and general education aids..... BA 1,519 1,554 1,689 1,517 1,592 1,621 1,633
O 1,618 1,628 1,658 1,483 1,580 1,610 1,638
Training and employment................. BA 1,070 1,162 1,487 1,522 1,559 1,593 1,629
O 1,013 1,127 1,194 1,378 1,501 1,558 1,605
Health.................................. BA 793 882 728 720 718 715 712
O 760 864 804 728 719 708 704
Veterans education, training, and BA 1,274 1,526 1,503 1,598 1,603 1,653 1,671
rehabilitation.
O 1,373 1,558 1,580 1,617 1,619 1,661 1,679
General science and basic reserach...... BA 502 523 519 518 518 518 518
O 469 502 484 518 516 530 518
National defense........................ BA 8 5 2 8 15 15 15
O 7 6 3 6 12 15 15
International affairs................... BA 236 218 199 199 199 199 199
O 279 233 210 201 199 199 199
Other................................... BA 503 505 485 511 543 525 556
O 472 531 482 495 522 504 535
-----------------------------------------------------------------------------------
Subtotal, conduct of education and BA 19,334 16,532 20,684 22,037 22,323 22,719 22,241
training.
O 18,864 16,336 18,502 20,656 21,200 21,473 20,944
-----------------------------------------------------------------------------------
Subtotal, direct Federal investment..... BA 153,998 156,013 154,322 165,181 166,993 170,450 179,909
O 162,501 158,121 151,192 161,974 161,095 162,879 167,154
===================================================================================
Total, major Federal investment........... BA 214,702 227,447 227,761 237,630 239,517 242,414 252,415
O 227,854 225,714 218,662 231,526 230,639 231,628 235,528
--------------------------------------------------------------------------------------------------------------------------------------------------------
[[Page 110]]
Part II: PLANNING, BUDGETING, AND ACQUISITION OF CAPITAL ASSETS
The previous section discussed Federal investment broadly defined. The
focus of this section is much narrower--the review of planning and
budgeting for capital assets during the past year and the resultant
budget proposals for capital assets owned by the Federal Government and
used to deliver Federal services. Capital assets consist of Federal
buildings, information technology, and other facilities and major
equipment, including weapons systems, federally owned infrastructure,
and space satellites.\1\ With proposed major agency restructuring,
organizational streamlining, and other reforms, good planning may
suggest reduced spending for some assets, such as office buildings, and
increased spending for others, such as information technology, to
increase the productivity of a smaller workforce.
---------------------------------------------------------------------------
\1\ This is almost the same as the definition in Part I of this
chapter for spending for direct Federal construction and rehabilitation,
major equipment, and purchase of land, except that capital assets
excludes grants to private groups for these purposes (e.g., grants for
equipment for research and grants to AMTRAK). A more complete definition
can be found in the glossary to the ``Principles of Budgeting for
Capital Asset Acquisitions,'' which is at the end of this Part.
---------------------------------------------------------------------------
In recent years the Office of Management and Budget (OMB) and the
Congress have reviewed the Federal Government's performance in planning,
budgeting, risk management, and the acquisition of capital assets. The
reviews indicate that the performance is uneven across the Government.
The problems have many causes and as a result, there is no single
solution. Agencies that are strong in this area may be able to provide
best practices that could assist agencies that need improvement. In
meeting the objective of improving the Government's performance, it is
essential that the caliber of government planning and budgeting for
capital assets be improved.
Improving Planning, Budgeting, and Acquisition of Capital Assets
Risk Management.--Recent OMB reviews have found a recurring theme in
many capital asset acquisitions--that risk management should become more
central to the planning, budgeting, and acquisition process. Failure to
analyze and manage the inherent risk in all capital asset acquisitions
may have contributed to cost overruns, schedule shortfalls, and
acquisitions that fail to perform as expected. Failure to adopt capital
asset requirements that are within the capabilities of the market and
budget limitations may also have contributed to these problems. For each
major project a risk analysis that includes how risks will be isolated,
minimized, monitored, and controlled may help prevent these problems.
The proposals in this budget, together with recent legislation enacted
by Congress, are designed to help the Government manage better its
portfolio of capital assets.
Long-Term Planning and Analysis.--Planning and managing capital
assets, especially better management of risk, has historically been a
low priority for some agencies. Attention focuses on coming-year
appropriations, and justifications are often limited to lists of desired
projects. The increased use of long-range planning linked to performance
goals required by the Government Performance and Results Act would
provide a better basis for justifications. It would increase foresight
and improve the odds for cost-effective investments.
A need for better risk management, integrated life-cycle planning, and
operation of capital assets at many agencies was evident in the OMB
reviews. Research equipment was acquired with inadequate funding for its
operation. New medical facilities sometimes were built without funds for
maintenance and operation. New information technology sometimes was
acquired without planning for associated changes in agency operations.
Congressional concern.--Congress has expressed its concern about
planning for capital assets with legislation and other actions that
complement Administration efforts to ensure better performance:
<bullet> The Government Performance and Results Act of 1993 (GPRA) is
designed to help ensure that program objectives are more
clearly defined and resources are focused on meeting these
objectives.
<bullet> The Federal Acquisition Streamlining Act of 1994 (FASA),
Title V, requires agencies to improve the management of large
acquisitions. Title V requires agencies to institute a
performance-based planning, budgeting, and management approach
to the acquisition of capital assets. As a result of improved
planning efforts, agencies are required to establish cost,
schedule, and performance goals that have a high probability
of successful achievement. For projects that are not achieving
90 percent of original goals, agencies are required to discuss
corrective actions taken or planned to bring the project
within goals. If they cannot be brought within goals, agencies
should identify how and why the goals should be revised,
whether the project is still cost beneficial and justified for
continued funding, or whether the project should be canceled.
<bullet> The Information Technology Management Reform Act of 1996
(ITMRA) is designed to ensure that information technology
acquisitions support agency missions developed pursuant to
GPRA. ITMRA also requires a performance-based planning,
budgeting, and management approach to the acquisition of
capital assets.
<bullet> The General Accounting Office recently released a study,
Budget Issues: Budgeting for Federal Capital (November 1996),
written in response to a congressional request, which
recommended that OMB continue its focus on fixed assets.
OMB concern.--Since 1994, OMB has devoted particular attention to
improving the process of planning, budgeting, and acquiring capital
assets.
[[Page 111]]
<bullet> Separate OMB reviews that focused on capital assets have
occurred for the last three budgets.
<bullet> After seeking out and analyzing the problems, which differed
from agency to agency, OMB issued guidance on this issue in
1994. This guidance was repeated in 1995 and reissued in 1996
as OMB Circular A-11: Part 3: ``Planning, Budgeting, and
Acquisition of Fixed Assets'' (July 1996) (hereafter referred
to as Part 3). Part 3 identified other OMB guidance on this
issue.\2\
---------------------------------------------------------------------------
\2\ Other OMB guidance includes: (1) OMB Circular No. A-109, Major
System Acquisitions, which establishes policies for planning major
systems that are generally applicable to fixed asset acquisitions. (2)
OMB Circular No. A-94, Guidelines and Discount Rates for Benefit-Cost
Analysis of Federal Programs, which provides guidance on benefit-cost,
cost-effectiveness, and lease-purchase analysis to be used by agencies
in evaluating Federal activities including fixed asset acquisition. It
includes guidelines on the discount rate to use in evaluating future
benefits and costs, the measurement of benefits and costs, the treatment
of uncertainty, and other issues. This guidance must be followed in all
analyses submitted to OMB in support of legislative and budget programs.
(3) Executive Order No. 12893, ``Principles for Federal Infrastructure
Investments,'' which provides principles for the systematic economic
analysis of infrastructure investments and their management. (4) OMB
Bulletin No. 94-16, Guidance on Executive Order No. 12893, ``Principles
for Federal Infrastructure Investments,'' which provides guidance for
implementing this order and appends the order itself. (5) the revision
of OMB Circular A-130, Management of Federal Information Resources
(February 20, 1996), which provides principles for internal management
and planning practices for information systems and technology (published
in the Federal Register, February 20, 1996, pp. 6433-6434).
---------------------------------------------------------------------------
Agencies were requested to approach planning for capital
assets in the context of strategic plans to carry out their
missions, and to consider alternative methods of meeting their
goals. Systematic analysis of the full life-cycle expected
costs and benefits was required, along with risk analysis and
assessment of alternative means of acquiring assets. The
Administration proposes to make agencies responsible for the
capital assets they use, and to work throughout the coming
year to improve agency risk management, planning, budgeting,
acquisition, and operation of these assets.
<bullet> In the FY 1997 Budget a year ago, the Administration
proposed a separate allowance of $1.4 billion for full funding
of selected capital assets in the Department of Energy, NASA,
and the Department of the Interior. Congress responded
favorably by enacting a portion of this allowance for the
Department of Energy.
<bullet> OMB memorandum 97-02, Funding Information Systems
Investments (October 25, 1996) was issued to establish clear
and concise decision criteria regarding investments in major
information technology investments.
<bullet> As part of this Budget, OMB is:
--requesting full funding in regular or advance appropriations for
new capital projects and for many capital projects formerly
funded incrementally. These requests are shown in Table 6-5 and
discussed in the accompanying text.
--issuing the ``Principles of Budgeting for Capital Asset
Acquisitions,'' which appear at the end of this Part and are
also available as a separate publication. These principles
offer guidelines to agencies to help carry out better planning,
analysis, risk management, and budgeting for capital asset
acquisitions. The principles include a proposed new Budget
Enforcement Act scorekeeping rule to enforce full funding of
capital projects.
--Later this year OMB plans to publish a ``Capital Programming
Guide.'' This Guide is being developed by an interagency task
force that includes participation from the General Accounting
Office. A draft of the Guide is currently in circulation for
comment. Its purpose is to provide professionals in the Federal
Government a basic reference on capital assets management
principles to assist them in planning, budgeting, acquiring,
and managing the asset once in use. The draft Guide emphasizes
risk management and the importance of analyzing capital assets
as a portfolio.
From Planning to Budgeting.--Long-range agency plans should channel
fully justified budget-year and out-year capital acquisition proposals
into the budget process. Agencies were asked to submit projections of
both budget authority and outlays for high-priority capital asset
proposals not only for the budget year but for the four subsequent years
through 2002 as well. In addition, OMB held a separate review on capital
assets again as part of the 1998 budget review process. This provided an
overview of requests, flagged issues, and considered cross-cutting
recommendations. Agency-specific capital asset issues were highlighted
in the agency reviews.
Attention was given to whether the ``lumpiness'' of some capital
assets--large one-year temporary increases in funding--disadvantaged
them in the budget review process. In some cases, agencies aggregate
capital asset acquisitions into budget accounts containing only such
acquisitions; such accounts tend to smooth out year-to-year changes in
budget authority and outlays and avoid crowding other expenditures. In
other cases, agencies or program managers do not hesitate to request
``spikes'' in spending for asset acquisitions, and the review process
accommodates them. But some agencies go out of their way to avoid such
spikes, and some agencies have trouble accommodating them. Part 3
encouraged agencies to accommodate justified spikes in their own
internal reviews, and the OMB review in some cases made special
allowance for these one-time increases.
Full Funding of Capital Assets.--Good budgeting requires that
appropriations for the full costs of asset acquisition be provided up
front to help ensure that all costs and benefits are fully taken into
account when decisions are made about providing resources. Full funding
was endorsed by the General Accounting Office in its recent report,
Budgeting for Federal Capital (November 1996). This rule is followed for
most Department of Defense procurement and construction programs and for
General Services Administration buildings. In other areas too often it
is not. When it is not followed and capital assets are funded in
increments, without certainty if or when future funding will be
available, it can and occasionally does result in poor risk management,
weak planning, acquisition of assets
[[Page 112]]
not fully justified, higher acquisition costs, cancellation of major projects, the loss of sunk costs, and inadequate funding to maintain and operate the assets. Full funding is also an important element in managing large acquisitions effectively and holding management responsible for achieving goals.
This budget requests full funding with regular or advance
appropriations for new capital projects and for many capital projects
funded incrementally in the past. Projects that might have been funded
in increments in past years and are fully funded in this budget are
identified below in Table 6-5 and discussed in the accompanying text.
Next year additional effort will be made to include full funding for all
new capital projects, or at least economically and programmatically
viable segments (or modules) of new projects.
Other Budgeting Issues.--Other budgeting decisions can also aid in
acquiring capital assets. Availability of funds for one year often may
not be enough time to complete the acquisition process. Most agencies
request that funds be available for more than one year to complete
acquisitions efficiently, and Part 3 encouraged this. As noted, many
agencies aggregate asset acquisition in budget accounts to avoid
lumpiness. In some cases, these are revolving funds that ``rent'' the
assets to the agency's programs.
To promote better program performance, agencies are also being
encouraged by OMB to examine their budget account structures to align
them better with program outputs and outcomes and to charge the
appropriate account with significant costs used to achieve these
results. The asset acquisition rental accounts, mentioned above, would
contribute to this. Budgeting this way would provide information and
incentives for better resource allocation among programs and a continual
search for better ways to deliver services. It would also provide
incentives for efficient capital asset acquisition and management.
Acquisition of Capital Assets.--Improved planning, budgeting, and
acquisition strategies are necessary to increase the ability of agencies
to acquire capital assets within, or close to, the original estimates of
cost, schedule, and performance used to justify project budgets and to
maintain budget discipline. The OMB initiative along with enactment of
FASA (Title V) and ITMRA require agencies to institute a performance-
based planning, budgeting, and management approach to the acquisition of
capital assets.
OMB, working with the agencies over the last year, began separate but
related efforts to develop an integrated management approach that
employs performance based acquisition management as part of a
disciplined capital programming process. OMB also wants the capital
asset acquisition goals incorporated into the annual performance plan
called for by GPRA so that a unified picture of agency management
activities is presented and acquisition performance goals are linked to
the achievement of program and policy goals. This integrated approach
will not only eliminate duplication in reporting agency actions but,
most importantly, will foster more effective implementation of
performance-base acquisition management.
The first effort was the issuance of OMB Circular A-11, Part 3,
Planning, Budgeting and Acquisition of Fixed Assets, in July 1996. Part
3 presents unified guidance to agencies on planning, budgeting, and
acquisition management of fixed assets. It also presents unified
guidance designed to coordinate the collection of agency information for
OMB reports to the Congress required by FASA Title V and ITMRA. Part 3
for this budget limited reporting to high-priority acquisitions with
expansion to all acquisitions planned for the 1999 Budget. Part 3
required agencies to provide information to OMB on the extent of
planning and risk mitigation efforts accomplished for new projects to
ensure a high probability that the cost, schedule and performance goals
established will be successfully achieved. For ongoing projects agencies
are to provide information on the achievement of, or deviation from,
goals. For projects that are not achieving 90 percent of original goals,
agencies are required to discuss corrective actions taken, or
contemplated, to bring the project within goals or, if not, how and why
the goals should be revised and whether the project is still cost
beneficial and justified for continued funding or should be canceled.
Acquisition goals submitted with the 1998 Budget, if approved by OMB,
are the baseline goals for all future monitoring of project progress for
both management purposes and reporting to Congress as required by FASA
Title V and ITMRA.
As the second effort, on October 25, 1996, OMB memorandum 97-02,
Funding Information Systems Investments, was issued to establish clear
and concise decision criteria regarding investments in major information
technology investments. As a general presumption, OMB will recommend new
or continued funding only for those major system investments that
satisfy these criteria and expands coverage to all capital investments.
At the Appendix to this Part are the Principles of Budgeting for
Capital Asset Acquisitions, which incorporate the above criteria and
expand coverage to all capital investments. OMB recognizes that many
agencies are in the middle of ongoing projects initiated prior to
enactment of ITMRA and FASA Title V, and may not be able to satisfy the
criteria immediately. For those systems that do not satisfy the
criteria, OMB considered requests to use 1997 and 1998 funds to support
reevaluation and replanning of the project as necessary to achieve
compliance with the criteria or to determine that the project would not
meet the criteria and should be canceled.
As a result of these two initiatives, capital asset acquisitions are
to have baseline cost, schedule, and performance goals for future
tracking purposes or they are to be either reevaluated and changed or
canceled if no longer cost beneficial.
Outlook.--The effort to improve planning and budgeting for capital
assets will continue in 1997.
[[Page 113]]
<bullet> The Administration will work with the Congress to increase
the number of projects that are fully funded with regular or
advance appropriations.
<bullet> OMB will be working with congressional committees, the
President's Management Council, the Chief Financial Officers
Council, and the Chief Information Officers Council to help
agencies with their responsibility for capital assets through
the alignment of budgetary resources with program results. OMB
will also work with these groups to implement the ``Principles
of Budgeting for Capital Asset Acquisitions,'' which are shown
as an Appendix to this Part.
<bullet> In the OMB review process, proposals for the acquisition of
capital assets and related issues of lumpiness or ``spikes''
will continue to receive special attention. Agencies will be
encouraged to give the same special attention to future asset
acquisition proposals.
<bullet> To ensure that the full costs and benefits of all budget
proposals are fully taken into account in allocating
resources, agencies will be required to propose full funding
for acquisitions in their budget requests.
<bullet> OMB will finalize the guidance to implement the requirements
of FASA Title V within the civilian agencies and develop
materials for OMB use in reviewing agency planning for new
acquisitions and performance information on acquisitions in
process.
<bullet> As noted earlier, OMB plans to issue a ``Capital Programming
Guide'' that will assist professionals in the Federal
Government in risk management, planning, budgeting, acquiring,
and operating efficiently capital asset acquisitions.
Major Acquisition Proposals
For the definition of major capital assets described above this budget
requests $61.8 billion of budget authority for 1998. This includes $45.8
billion for the Department of Defense and $16.0 billion for other
agencies. The major requests are shown in the accompanying Table 6-4:
``Capital Asset Acquisitions,'' which distributes the funds generally
according to the categories for buildings, information technology, and
other acquisitions.
Buildings
This category includes both general purpose office buildings and
special purpose buildings, such as hospitals, prisons, and courthouses.
This budget includes $10.9 billion of budget authority for 1998 for the
major building acquisitions.
Department of Defense.--The budget includes $3.7 billion for 1998 for
general construction on military bases and family housing. This funding
will be used to:
<bullet> support the fielding of new systems;
<bullet> enhance operational readiness, including deployment and
support of military forces;
<bullet> provide housing for military personnel and their families;
<bullet> implement base closure and realignment actions; and
<bullet> correct safety deficiencies and environmental problems.
General Services Administration.--The 1998 budget requests $1.7
billion in obligations for GSA for the construction or renovation of
buildings. These funds will allow for new construction for U.S. Courts
and the acquisition of general purpose office space in locations where
long-term needs show that ownership is preferable to leasing.
Department of Energy.--This budget requests $1.5 billion for 1998 for
assets in this category. The largest item is a request for $0.9 billion
for the National Ignition Facility, which will be used to perform
experiments, including inertial confinement fusion experiments, at high
pressures and temperatures. These investments are also discussed in the
text that accompanies Table 6-5.
Department of Veterans Affairs.--The 1998 budget requests $0.5 billion
in budget authority for new construction and rehabilitation of veterans
hospitals, clinics, nursing homes, and other health care facilities; for
construction of a new national cemetery and expansion of two existing
national cemeteries; and for improvements to regional benefits offices.
Department of Health and Human Services.--This budget requests $0.5
billion for the Department of Health and Human Services for buildings.
This includes capital projects for the National Institutes of Health
Clinical Research Center and improved facilities for the Indian Health
Service. Both are discussed with Table 6-5 and the request for advance
appropriations.
Other agencies.--The largest item in this category is for the Postal
Service ($1.4 billion in 1998). Other building acquisitions include the
Research Triangle Park consolidated facility in North Carolina for the
Environmental Protection Agency; the Department of State for buildings
abroad; the Department of Justice for new prison construction and
related capital projects, and a National Laboratory Center and fire
research facility for the Bureau of Alcohol, Tobacco, and Firearms.
Funds are also requested in the Commerce Department for new construction
of a fisheries laboratory in Santa Cruz, California, to support NOAA's
environmental stewardship mission and a new facility at the Goddard
Space Flight Center in Maryland.
Information Technology
This category covers capital purchases for information technology and
includes computer hardware, major software, and renovations required for
this equipment. This budget includes $3.3 billion in budget authority
for 1998 for major information technology.
[[Page 114]]
Table 6-4. CAPITAL ASSET ACQUISITIONS
(Budget authority in billions of dollars)
------------------------------------------------------------------------
1996 1997 1998
actual proposed proposed
------------------------------------------------------------------------
MAJOR ACQUISITIONS
Buildings:
Department of Defense.................... 4.6 4.9 3.7
General Services Administration \1\...... 1.3 1.5 1.7
Department of Energy..................... 0.2 0.2 1.5
Department of Veterans Affairs........... 0.5 0.6 0.5
Department of Health and Human Services.. 0.4 0.5 0.5
Other agencies........................... 2.3 3.0 3.0
----------------------------
Subtotal, buildings...................... 9.3 10.7 10.9
Information technology:
Department of Defense.................... 1.3 1.5 1.4
Internal Revenue Service................. 0.6 0.2 0.6
Other agencies........................... 1.1 0.9 1.3
----------------------------
Subtotal, information technology......... 3.0 2.6 3.3
Other acquisitions:
Department of Defense.................... 40.5 42.0 40.7
Department of Transportation............. 2.2 2.3 2.2
Department of Energy..................... 1.9 1.8 2.0
Army Corps of Engineers.................. 1.2 1.5 1.8
Other agencies........................... 5.9 6.8 4.5
----------------------------
Subtotal, other acquisitions............. 51.7 54.4 51.2
============================
Total, major acquisitions \2\.............. 64.1 67.7 65.5
Sale of major assets....................... ....... ........ -4.2
Acquisitions in smaller accounts........... 0.7 0.7 0.5
----------------------------
Total, capital asset acquisitions \3\...... 64.7 68.4 61.8
------------------------------------------------------------------------
* indicates $50 million or less.
\1\ Obligations.
\2\ Includes accounts with acquisitions of $50 million or more in one
year.
\3\ This total is derived from the direct Federal major public physical
investment budget authority on Table 6-3 ($61.9 billion for 1998).
Table 6-4 excludes an estimate of spending for assets not owned by the
Federal Government ($2.5 billion for 1998), and includes obligations
for the General Services Administration ($2.5 billion in 1998).
Department of Defense.--The budget requests $1.4 billion for 1998 for
the Department of Defense for information technology capital purchases.
These funds will be used to purchase hardware and software to support
worldwide communications to bases and deployed forces, improve
information security for critical computer systems, replace obsolete
equipment, and improve the information processing capabilities for the
department. Virtually every function within the Department, including
logistics, communications, command and control, intelligence,
acquisition management, finance, personnel, health, and environmental
security will be supported by these information technology investments.
Internal Revenue Service (IRS) Information Technology Investments.--
The budget requests $0.6 billion in budget authority for 1998 for
information technology investments in 1999. These efforts and proposed
advance appropriations for 1999 will ensure that future capital
investments by the IRS will improve customer service by providing
alternative means of filing returns and paying taxes, improve telephone
service for taxpayers; and give employees immediate access to complete
information and modern tools to do their jobs. These investments are
also discussed in the text that accompanies Table 6-5, which displays
advance appropriations for capital acquisitions.
Other agencies.--Other major information technology purchases include
funds to support science and space activities for NASA; to support law
enforcement activities in the Department of Justice; to support the
delivery of veterans health care services and improve the processing of
veterans benefits claims, and for the General Services Administration.
Also included are funds to support modernization of the National Weather
Service in the Department of Commerce. This is discussed in the text
accompanying Table 6-5.
Other Acquisitions
This category includes facilities and major equipment not included
above. The budget requests $51.2 billion for 1998 for the acquisitions
included in this capital assets category. Most of this is for defense
procurement of weapons.
Department of Defense.--The budget requests $40.7 billion for 1998 to
procure or modify weapons systems and related support equipment. This
includes tactical fighter aircraft, airlift aircraft, naval vessels,
tanks, helicopters, missiles, and vehicles.
Department of Transportation.--The budget requests $2.2 billion for
the Department of Transportation, which includes funds to modernize the
air traffic control system and funds for the Coast Guard to acquire
vessels and modernize shore facilities. Requests for advance
appropriations for the air traffic control system in the Federal
Aviation Administration are discussed with Table 6-5.
Department of Energy.--This budget includes $2.0 billion for major
facilities and equipment. These are largely for general science and
research activities, environmental restoration, weapons activities,
nuclear and non-nuclear energy activities, and the Bonneville Power
Administration. This budget requests full upfront funding for many of
these projects. These data are shown in Table 6-5 and described in the
accompanying text.
Army Corps of Engineers.--The budget requests $1.8 billion for 1998
for capital assets for the Army Corps of Engineers. These funds finance
construction, rehabilitation, and related activity for water resources
development projects that provide navigation, flood control, water
supply, hydroelectric, and other benefits. Table 6-5 identifies the
amounts of upfront funding and advance appropriations requested for
these programs and the accompanying text discusses these activities.
Other agencies.--The largest item in this category is equipment for
the Postal Service ($1.1 billion in 1998). Other major acquisitions in
this category are for the Tennessee Valley Authority for dams, locks,
and other facilities; the purchase of vehicles by the General Services
Administration, and medical equipment to support the delivery of
veterans health care.
Full Funding of Major Projects
This budget proposes full funding for new capital projects and for
many projects formerly funded incrementally.
[[Page 115]]
The importance of full funding was discussed earlier in this Part and
is also explained in the ``Principles of Budgeting for Capital Asset
Acquisitions,'' which appears as an Appendix to this Part. This budget
proposes to use this principle more consistently than in past years.
Table 6-5 shows spending for capital projects proposed for full funding
in this budget that might have been funded in increments in the past.
This budget requests $7.7 billion in budget authority for 1998 and $14.4
billion in advance appropriations for 1999-2003, for a total request of
$22.1 billion for these projects for these years.
Army Corps of Engineers
This budget requests $380 million in 1998 to fully fund upfront new
projects and $228 million for 1998 and $575 million for 1999-2002 to
fully fund ongoing projects that can be completed in 2002 or earlier.
These funds finance construction, rehabilitation, and related activity
for water resources development projects that provide navigation, flood
control, water supply, hydroelectric, and other benefits.
Department of Commerce
This budget requests $503 million for 1998 and $2,332 million in
advance appropriations for 1999-2003 for capital asset acquisitions in
the National Oceanic and Atmospheric Administration (NOAA). These
acquisitions support the largest modernization in the history of the
National Weather Service. The modernization is well underway and
demonstrating improvements in weather forecasts and warnings that lead
to lives and property saved. The budget supports this multi-year effort
to develop and deploy advanced technology, including advanced radar
equipment, other ground observing systems, and geostationary and polar-
orbiting satellites that will greatly improve the timeliness and
accuracy of severe weather and flood warnings while reducing staffing
requirements. The total request of $3,989 million in budget authority
for 1998-2010 will complete the systems acquisition related to the
modernization of the National Weather Service, procure the current and
follow-on geostationary satellite series, the current polar orbiting
satellite system, and several construction projects including
construction of a new fisheries laboratory and science center.
Table 6-5. PROPOSED SPENDING TO FULLY FUND SELECTED CAPITAL ASSET ACQUISITIONS
(Budget authority in millions of dollars)
----------------------------------------------------------------------------------------------------------------
Advance appropriations
Regular -----------------------------------------------------
appropriations Sum
1998 1999 2000 2001 2002 2003 1999-
2003
----------------------------------------------------------------------------------------------------------------
ARMY CORPS OF ENGINEERS
Construction:
Projects with full upfront funding \1\.. 380 ....... ....... ....... ....... ....... .......
Projects with advance appropriations \2\ 228 277 177 89 32 ....... 575
---------------------------------------------------------------------
Subtotal, Army Corps of Engineers....... 608 277 177 89 32 ....... 575
DEPARTMENT OF COMMERCE
National Oceanic and Atmospheric
Administration: Capital Assets
Acquisition: \3\
Projects with advance appropriations \2\ 503 724 551 480 375 202 2,332
DEPARTMENT OF ENERGY
National Defense Assets Acquisition:
Projects with full upfront funding \1\... 2,166 ....... ....... ....... ....... ....... .......
Science Assets Acquisition: Projects with
full upfront funding \1\................. 127 ....... ....... ....... ....... ....... .......
Energy Assets Acquisition: Projects with
full upfront funding \1\................. 42 ....... ....... ....... ....... ....... .......
---------------------------------------------------------------------
Subtotal, Department of Energy.......... 2,335 ....... ....... ....... ....... ....... .......
DEPARTMENT OF HEALTH AND HUMAN SERVICES
National Institutes of Health: Projects
with advance appropriations \2\.......... 90 90 40 ....... ....... ....... 130
Indian Health Service: Projects with
advance appropriations \2\............... 39 39 31 ....... ....... ....... 70
---------------------------------------------------------------------
Subtotal, Department of Health and Human
Services............................... 129 129 71 ....... ....... ....... 200
DEPARTMENT OF THE INTERIOR
Bureau of Reclamation: Water and Related
Resources:
Projects with full upfront funding \1\.. 17 ....... ....... ....... ....... ....... .......
Projects with advance appropriations \2\ 6 11 9 ....... 1 ....... 21
---------------------------------------------------------------------
Subtotal, Bureau of Reclamation....... 23 11 9 ....... 1 ....... 21
National Park Service: Projects with
advance appropriations: \2\
Construction............................ 52 48 35 20 31 26 160
Everglades Restoration Fund............. 100 100 100 100 ....... ....... 300
---------------------------------------------------------------------
Subtotal, National Park Service....... 152 148 135 120 31 26 460
---------------------------------------------------------------------
Subtotal, Department of the Interior.... 175 159 144 120 32 26 481
DEPARTMENT OF JUSTICE
Federal Bureau of Investigation: Salaries
and expenses: Projects with advance
appropriations \2\....................... 84 48 ....... ....... ....... ....... 48
DEPARTMENT OF TRANSPORTATION
Federal Aviation Administration:
Facilities and Equipment: \3\
Projects with advance appropriations \2\ 679 675 724 424 206 118 2,147
DEPARTMENT OF THE TREASURY
Internal Revenue Service: Information
Technology Investments: Projects with
advance appropriations \2\............... 500 500 ....... ....... ....... ....... 500
NATIONAL AERONAUTICS AND SPACE
ADMINISTRATION
Human Space Flight: Projects with advance
appropriations: \2\ International Space
Station.................................. 2,121 2,109 1,915 1,597 1,147 ....... 6,768
Science, Aeronautics, and Technology:
Projects with advance appropriations: \2\
Space Infrared Telescope Facility
(SIRTF)................................ 81 135 130 117 26 ....... 408
Stratospheric Observatory for Infrared
Astronomy (SOFIA)...................... 46 57 49 32 ....... ....... 138
X-33 Experimental Launch Vehicle........ 330 314 75 ....... ....... ....... 389
---------------------------------------------------------------------
Subtotal, science, aeronautics, and
technology........................... 457 505 254 150 26 ....... 934
Mission Support: Projects with advance
appropriations: \2\ Tracking and Data
Relay Satellite (TDRS)--H, I, J.......... 158 120 58 70 98 53 399
---------------------------------------------------------------------
Subtotal, NASA.......................... 2,736 2,735 2,226 1,817 1,271 53 8,101
=====================================================================
Total..................................... 7,749 5,247 3,893 2,930 1,916 399 14,384
----------------------------------------------------------------------------------------------------------------
\1\ Budget authority to complete the project is requested in the budget year.
\2\ Budget authority to complete the project is requested partly in the budget year and partly in future years
in advance appropriations.
\3\ This budget requests advance appropriations for years beyond 2003 for these programs.
Department of Energy
This budget proposes full upfront funding of $2.3 billion in budget
authority for 1998 for major asset acquisitions for defense, science,
and energy activities in the Department of Energy.
Defense.--This budget requests $2.2 billion to complete useful
segments of all new and ongoing construction projects supporting
national security programs in the Department of Energy.
Weapons activities.--Funds are requested for twenty two projects
that support the nuclear weapons activities mission. The largest
project is the National Ignition Facility (NIF), which will be used
to perform experiments, including inertial confinement fusion
experiments, at high pressures and temperatures. The budget requests
$876 million to complete NIF, which will be located at the Lawrence
Livermore National Laboratory. Other major projects include the Dual
Axis Radiographic Hydrodynamic Facility at the Los Alamos National
Laboratory, the Contained Firing Facility Addition at the Lawrence
Livermore National Laboratory, the Chemical and Materials Laboratory
Upgrade at Los Alamos National Laboratory and infrastructure
improvement projects at several facilities.
Environmental management.--Funds are requested for twenty-five
projects that support the defense environmental management mission.
Waste management projects include improvements to hazardous/
radioactive tank farm systems at the Savannah River and Hanford
sites, landfill construction at Oak Ridge, construction of the
initial tank retrieval system for high level waste at the Hanford
site, a new hazardous waste treatment and processing facility at the
Pantex Plant and a decontamination and waste treatment facility at
Lawrence Livermore National Laboratory. In the nuclear material and
facility stabilization program, projects include spent nuclear fuel
dry storage at Idaho National Engineering Laboratory, a plutonium
stabilization system for the Hanford Site, an actinide packaging and
storage facility at Savannah River, a spent nuclear fuel canister
storage and stabilization facility at Hanford, and utility system
upgrades at Idaho.
Naval reactors development.--Funds are requested for four small
projects to upgrade infrastructure at the Department of Energy's
Bettis and Knolls laboratories in support of naval reactors
development.
Science Assets Acquisition (High-Energy and Nuclear Physics).--This
budget requests $127 million for five projects that support the general
science mission. Completion of two new accelerator facilities, the
Relativistic Heavy Ion Collider at Brookhaven National Laboratory and
the Main Injector at Fermi National Laboratory (Fermilab), will provide
significant new capabilities for exploring the physics of nuclear and
sub-nuclear matter. Two small projects provide for engineering and
prototyping neutrino and colliding beam experiments at Fermilab. The
final project will replace 30-year old switching gear at the Stanford
Linear Accelerator Center's master substation.
Energy Assets Acquisition.--This budget requests $42 million in 1998
for seventeen research and infrastructure projects that support the
energy mission. Eleven projects rectify environment, safety, and health
hazards or renovate or replace inefficient general purpose facilities at
Oak Ridge, Argonne, Lawrence, Berkeley, and Brookhaven National
Laboratories. Three projects add energy research capabilities at the
Combustion Research Facility (Sandia National Laboratories, Livermore),
National Renewable Energy Laboratory, and Los
[[Page 117]]
Alamos National
Laboratory. In addition, three waste-related projects are included: a
low-level waste handling project at Oak Ridge National Laboratory, a
spent nuclear fuels project at Idaho National Engineering Laboratory,
and a facility for depleted uranium storage at K-25 in Oak Ridge.
Department of Health and Human Services
This budget requests advance appropriations for three construction
projects in the Department of Health and Human Services. The first
project, the Clinical Research Center of the National Institutes of
Health (NIH), is an advanced clinical research facility that will house
laboratories and hospital beds under one roof. This will allow the
continuation of the best possible clinical research at NIH. Congress
enacted an initial $90 million for the Clinical Research Center in 1997,
and this budget requests budget authority of $90 million for 1998 and
advance appropriations for the remaining $130 million for 1999 and 2000.
This budget also requests $39 million in appropriations for 1998 and
$70 million in advance appropriations over the two years 1999-2000 for
construction of two Indian Health Service facilities, both of which will
replace antiquated hospitals currently in use. The funds will finance a
proposed new hospital to serve the Fort Defiance area of the Navajo
reservation in Arizona and a new ambulatory care center to serve the
Hopi reservation, also in Arizona.
Department of the Interior
This budget requests $175 million in 1998 budget authority and $481
million in advance appropriations for 1999-2003 to fully fund projects
in the Bureau of Reclamation and the National Park Service.
Bureau of Reclamation.--This budget requests $23 million in regular
appropriations for 1998 for the Bureau of Reclamation and $21 million
over the years 1999-2001 in advance appropriations to fully fund five
water resources projects. These funds will finance the modification of
an existing dam to meet current safety criteria, river front and levee
work to reduce flood damages, and drainwater reuse facilities to improve
aquifer water quality.
National Park Service.--The National Park Service needs to build or
restore its buildings and other structures over the next few years.
Funding stability is particularly needed for the National Park Service
(NPS) to restore the Elwha River in Olympic National Park, Washington,
by acquiring and removing two dams. Before NPS can acquire the dams, the
Secretary of the Interior must determine that funds to complete
restoration are available. In addition to $8 million already
appropriated and $25 million requested in regular appropriations for
1998, advance appropriations of $78 million after 1998 would fully fund
the $111 million project and provide the funding stability needed for
the Secretary to determine that funds are available. Advance
appropriations are also requested for seven other parks that have an
ongoing project requiring outyear funding: Sequoia National Park ($16
million); Independence National Historical Park ($11 million); Lincoln
and Jefferson Memorials ($9 million); Washington Monument ($2 million);
Riis Park in Gateway National Recreation Area ($5.5 million); Minuteman
National Historical Park ($1.2 million); and Everglades National Park
($31.5 million starting in 2002). For 1998 the budget requests $27
million in regular appropriations for these projects.
This budget proposes a specific fund to provide a steady source of
funding for land acquisition and related activities furthering
Everglades restoration, including a critical water management project to
modify the flow of water into Everglades National Park. This budget
requests regular appropriations of $100 million for 1998 and advance
appropriations of $100 million annually through 2001, of which $59.2
million would be used for the Everglades Modified Water Delivery
project. An additional $16 million in 2002 and $15.5 million in 2003 in
advance appropriations are included in the National Park Service
construction account to complete funding for the $91 million project.
Department of Justice
This budget requests $84 million in budget authority for 1998 and $48
million in advance appropriations for 1999 to complete automation of the
FBI fingerprint system.
Department of Transportation
Federal Aviation Administration.--This Budget requests $679 million in
1998 and an additional $2.1 billion for 1999-2003, with additional
requests through 2005, for 13 multi-year capital projects to improve and
modernize the FAA's air traffic control, communications, and aviation
weather information systems. These projects are: Aviation Weather
Services Improvements, Terminal Digital Radar, Terminal Automation
(STARS), Wide Area Augmentation System for GPS, Display System
Replacement, Weather and Radar Processor, Voice Switching and Control
System, Tower Automation Program, Oceanic Automation System,
Aeronautical Data Link, Operational and Supportability Implementation
System (OASIS), Northern California TRACON, and Alaskan NAS
Interfacility Communications System.
Department of the Treasury
Internal Revenue Service.--This budget requests $500 million in budget
authority for 1998 and $500 million in advance appropriations for 1999
to finance information technology investments beginning in 1999. During
1997 and 1998, the IRS and the Treasury Department are significantly
modifying the business plans for modernizing the IRS tax administration
and systems by focusing on reengineering work processes and exploring
private sector technology opportunities. These efforts will ensure that
future capital investments by the IRS will improve customer service by
providing alternative means of filing returns and paying taxes, improve
telephone service for taxpayers; and give employees imme-
[[Page 118]]
diate access to
complete information and modern tools to do their jobs.
National Aeronautics and Space Administration (NASA)
This budget requests $2.7 billion in budget authority for 1998 and
$8.1 billion in advance appropriations over the years 1999-2003 to fully
fund capital asset acquisitions and related project costs in NASA.
Human Space Flight (International Space Station).--This budget
requests $2.1 billion in 1998 and $6.8 billion in advance appropriations
over the years 1999-2002 to fully fund the remaining costs of the
International Space Station. This will be an international laboratory in
low earth orbit on which American, Russian, Canadian, European, and
Japanese astronauts will conduct unique scientific and technological
investigations in a microgravity environment. During 1993 the program
underwent a major redesign to reduce program costs. The first launch to
begin construction of the Station is scheduled for late 1997 and final
assembly by 2002. Advance appropriations will enable NASA to complete
the program as promised, on schedule, and within the $2.1 billion annual
and $17.4 billion total program constraints. Congress has already
appropriated $8.5 billion through 1997.
Science, Aeronautics, and Technology.--This budget requests $457
million in budget authority for 1998 and $934 million in advance
appropriations over the years 1999-2002 to fully fund its activities.
Space Infrared Telescope Facility (SIRTF).--SIRTF is the last of
four major space observatories being built by NASA. It has been the
highest priority new mission in astrophysics for many years and will
conduct infrared astronomy from space. The project will provide
major improvements in sensitivity over previous infrared missions
and will enable observations of previously hidden portions of the
universe. SIRTF is presently planning for launch in 2002, and is
expected to have a 2.5-year lifetime. The Administration is
requesting $489 million from 1998 through 2002 to build and launch
the telescope.
Stratospheric Observatory for Infrared Astronomy (SOFIA).--SOFIA
will fly in the Earth's stratosphere, between 41,000 and 45,000
feet, carrying a 98-inch (2.5 meter) telescope to view objects in
the universe in the infrared region of the electromagnetic spectrum.
At this altitude, in the clear, dry environment on the very edge of
space, SOFIA will enable scientists to study radiant heat patterns
from stars, planets and other celestial sources. With up to 160
flights annually and operational lifetime in excess of 20 years,
SOFIA will be able to conduct a wide array of scientific
investigations and provide hands-on, real-world educational
opportunities for an anticipated 500 teachers and students. Total
development cost will be $235 million, with $51 million already
appropriated and the remaining $184 million being sought for 1998
through 2001. The first flight is expected in 2001.
X-33 Experimental Launch Vehicle.--The X-33 is a half-scale
experimental launch vehicle that is intended to pave the way for a
full scale reusable launch vehicle after the turn of the century.
Such a vehicle could dramatically reduce the cost of putting
payloads into space. The X-33 is scheduled to make as many as
fifteen flights during a 10-month period, beginning in March 1999.
It will fly up to 15 times the speed of sound at altitudes
approaching 50 miles. Total project cost for development and flight
tests is $1,076 million. Congress appropriated $357 million through
1997 and the Administration is requesting $719 million for the
remaining funds for 1998 through 2000.
Mission Support.--The Tracking and Data Relay Satellite (TDRS) (H, I,
J). system is a constellation of geosynchronous satellites that
primarily provides NASA's communications needs between its spacecrafts
in low-earth orbit and associated ground controllers. TDRS satellites H,
I and J will replace satellites currently in orbit starting in 1999.
Total cost for the development of the three spacecrafts and the
associated launch services is $937 million. Congress has appropriated
$380 million through 1997 and the Administration is requesting the
remaining $557 million from 1998 through 2003 in regular and advance
appropriations.
[[Page 119]]
Appendix to Part II: PRINCIPLES OF BUDGETING FOR CAPITAL ASSET
ACQUISITIONS
Introduction and Summary
The Administration plans to use the following principles in budgeting
for capital asset acquisitions. These principles address planning, costs
and benefits, financing, and risk management requirements that should be
satisfied before a proposal for the acquisition of capital assets can be
included in the Administration's budget. A Glossary describes key terms.
A ``Capital Programming Guide'' is being developed that will provide
detailed information on future planning and acquisition of capital
assets.
The principles are organized in the following four sections:
A. Planning. This section focuses on the need to ensure that capital
assets support core/priority missions of the agency; the assets have
demonstrated a projected return on investment that is clearly equal to
or better than alternative uses of available public resources; the risk
associated with the assets is understood and managed at all stages; and
the acquisition is implemented in phased, successive segments, unless it
can be demonstrated there are significant economies of scale at
acceptable risk from funding more than one segment or there are multiple
units that need to be acquired at the same time.
B. Costs and Benefits. This section emphasizes that the asset should
be justified primarily by benefit-cost analysis, including life-cycle
costs; that all costs are understood in advance; and that cost,
schedule, and performance goals are identified that can be measured
using an earned value management system or similar system.
C. Principles of Financing. This section stresses that useful segments
are to be fully funded with regular or advance appropriations or both,
enforced by a proposed new Budget Enforcement Act scorekeeping rule;
that as a general rule, planning segments should be financed separately
from procurement of the asset; and that agencies are encouraged to
aggregate assets in capital acquisition accounts and take other steps to
accommodate lumpiness or ``spikes'' in funding for justified
acquisitions.
D. Risk Management. This section is to help ensure that risk is
analyzed and managed carefully in the acquisition of the asset.
Strategies can include separate accounts for capital asset acquisitions,
the use of apportionment to encourage sound management, and the
selection of efficient types of contracts and pricing mechanisms in
order to allocate risk appropriately between the contractor and the
Government. In addition cost, schedule, and performance goals are to be
controlled and monitored by using an earned value management system or a
similar system; and if progress toward these goals is not met there is a
formal review process to evaluate whether the acquisition should
continue or be terminated.
A Glossary defines key terms, including capital assets. As defined
here, capital assets are land, structures, equipment, and intellectual
property (including software) that are used by the Federal Government,
including weapon systems. Not included are grants to States or others
for their acquisition of capital assets.
A. Planning
Investments in major capital assets proposed for funding in the
Administration's budget should:
1... support core/priority mission functions that need to be performed
by the Federal Government;
2... be undertaken by the requesting agency because no alternative
private sector or governmental source can support the function
more efficiently;
3... support work processes that have been simplified or otherwise
redesigned to reduce costs, improve effectiveness, and make
maximum use of commercial, off-the-shelf technology;
4... demonstrate a projected return on the investment that is clearly
equal to or better than alternative uses of available public
resources. Return may include: improved mission performance in
accordance with measures developed pursuant to the Government
Performance and Results Act; reduced cost; increased quality,
speed, or flexibility; and increased customer and employee
satisfaction. Return should be adjusted for such risk factors as
the project's technical complexity, the agency's management
capacity, the likelihood of cost overruns, and the consequences
of under- or non-performance.
5.... for information technology investments, be consistent with
Federal, agency, and bureau information architectures which:
integrate agency work processes and information flows with
technology to achieve the agency's strategic goals; reflect the
agency's technology vision and year 2000 compliance plan; and
specify standards that enable information exchange and resource
sharing, while retaining flexibility in the choice of suppliers
and in the design of local work processes;
6... reduce risk by: avoiding or isolating custom-designed components
to minimize the potential adverse consequences on the overall
project; using fully tested pilots, simulations, or prototype
implementations when necessary before going to production;
establishing clear measures and accountability for project
progress; and, securing substantial involvement and buy-in
throughout the project from the program officials who will use
the system;
[[Page 120]]
7.... be implemented in phased, successive segments as narrow in scope
and brief in duration as practicable, each of which solves a
specific part of an overall mission problem and delivers a
measurable net benefit independent of future segments, unless it
can be demonstrated that there are significant economies of
scale at acceptable risk from funding more than one segment or
there are multiple units that need to be acquired at the same
time; and
8.... employ an acquisition strategy that appropriately allocates risk
between the Government and the contractor, effectively uses
competition, ties contract payments to accomplishments, and
takes maximum advantage of commercial technology.
Prototypes require the same justification as other capital assets.
As a general presumption, OMB will recommend new or continued funding
only for those capital asset investments that satisfy these criteria.
Funding for those projects will be recommended on a phased basis by
segment, unless it can be demonstrated that there are significant
economies of scale at acceptable risk from funding more than one segment
or there are multiple units that need to be acquired at the same time.
(For more information, see the discussion of ``economically and
programmatically separable segments,'' in OMB Circular A-11, Part 3,
``Planning, Budgeting and Acquisition of Fixed Assets,'' July 1996, and
the Glossary entry, ``capital project and useful segments of a capital
project.'')
OMB recognizes that many agencies are in the middle of ongoing
projects, and they may not be able immediately to satisfy the criteria.
For those projects that do not satisfy the criteria, OMB will consider
requests to use 1997 and 1998 funds to finance additional planning, as
necessary, to support the establishment of realistic cost, schedule, and
performance goals for the completion of the project. This planning could
include: the redesign of work processes, the evaluation of alternative
solutions, the development of information system architectures, and, if
necessary, the purchase and evaluation of prototypes. Realistic goals
are necessary for agency portfolio analysis to determine the viability
of the project, to provide the basis for fully funding the project to
completion, and setting the baseline for management accountability to
deliver the project within goals.
Because OMB considers this information essential to agencies' long-
term success, OMB will use this information both in preparing the
Administration's budget and, in conjunction with cost, schedule, and
performance data, as apportionments are made. Agencies are encouraged to
work with their OMB representative to arrive at a mutually satisfactory
process, format, and timetable for providing the requested information.
B. Costs and Benefits
The justification of the project should evaluate and discuss the
extent to which the project meets the above criteria and should also
include:
1.... an analysis of the project's total life-cycle costs and benefits,
including the total budget authority required for the asset,
consistent with policies described in OMB Circular A-94:
``Guidelines and Discount Rates for Benefit-Cost Analysis of
Federal Programs'' (October 1992);
2.... an analysis of the risk of the project including how risks will
be isolated, minimized, monitored, and controlled, and, for
major programs, an evaluation and estimate by the Chief
Financial Officer of the probability of achieving the proposed
goals;
3.... if, after the planning phase, the procurement is proposed for
funding in segments, an analysis showing that the proposed
segment is economically and programmatically justified--that is,
it is programmatically useful if no further investments are
funded, and in this application its benefits exceed its costs;
and
4... show cost, schedule, and performance goals for the project (or
the useful segment being proposed) that can be measured
throughout the acquisition process using an earned value
management system or similar system. Earned value is described
in OMB Circular A-11, Part 3, ``Planning, Budgeting and
Acquisition of Fixed Assets,'' (July 1996), Appendix 300C.
C. Principles of Financing
Principle 1: Full Funding
Budget authority sufficient to complete a useful segment of a capital
project (or the entire capital project, if it is not divisible into
useful segments) must be appropriated before any obligations for the
useful segment (or project) may be incurred.
Enforcement: This budget proposes a new Budget Enforcement Act
scorekeeping rule to enforce this principle. The proposed rule is the
following:
``An appropriations act that provides only partial funding for a
useful segment of a capital project will be scored for the estimated
total budget authority for the useful segment in the fiscal year in
which the partial funding is provided, unless the appropriation language
clearly prohibits obligations from being incurred until complete funding
for the useful segment is provided.
``A useful segment of a capital project is defined as a component of a
capital project that provides either:
<bullet> information that allows the agency to plan the capital
project, develop the design, and assess the benefits, costs,
and risks before proceeding to full
[[Page 121]]
acquisition of the useful
asset (or canceling the acquisition). This information comes
from activities, or planning segments, that include but are
not limited to market research of available solutions,
architectural drawings, geological studies, engineering and
design studies, and prototypes. Because of uncertainty
regarding the identification of separate planning segments for
research and development activities, the application of full
funding concepts to research and development planning will
need more study pending preparation of the 1999 budget; or
<bullet> a useful asset for which the benefits exceed the costs even
if no further funding is appropriated.''
Explanation: Good budgeting requires that appropriations for the full
costs of asset acquisition be enacted in advance to help ensure that all
costs and benefits are fully taken into account at the time decisions
are made to provide resources. Full funding with regular appropriations
in the budget year also leads to tradeoffs within the budget year with
spending for other capital assets and with spending for purposes other
than capital assets. Full funding increases the opportunity to use
performance-based fixed price contracts, allows for more efficient work
planning and management of the capital project, and increases the
accountability for the achievement of the baseline goals.
When full funding is not followed and capital projects or useful
segments are funded in increments, without certainty if or when future
funding will be available, the result is sometimes poor planning,
acquisition of assets not fully justified, higher acquisition costs,
cancellation of major projects, the loss of sunk costs, or inadequate
funding to maintain and operate the assets.
Principle 2: Regular and Advance Appropriations
Regular appropriations for the full funding of a capital project or a
useful segment of a capital project in the budget year are preferred. If
this results in spikes that, in the judgment of OMB, cannot be
accommodated by the agency or the Congress, a combination of regular and
advance appropriations that together provide full funding for a capital
project or a useful segment should be proposed in the budget.
Explanation: Principle 1 (Full Funding) is met as long as a
combination of regular and advance appropriations provide budget
authority sufficient to complete the capital project or useful segment.
Full funding in the budget year with regular appropriations alone is
preferred because it leads to tradeoffs within the budget year with
spending for other capital assets and with spending for purposes other
than capital assets. In contrast, full funding for a capital project
over several years with regular appropriations for the first year and
advance appropriations for subsequent years may bias tradeoffs in the
budget year in favor of the proposed asset because with advance
appropriations the full cost of the asset is not included in the budget
year. Advance appropriations, because they are scored in the year they
become available for obligation, may constrain the budget authority and
outlays available for regular appropriations of that year.
If, however, the lumpiness caused by regular appropriations cannot be
accommodated within an agency or Appropriations Subcommittee, advance
appropriations can ameliorate that problem while still providing that
all of the budget authority is enacted in advance for the capital
project or useful segment. The latter helps ensure that agencies develop
appropriate plans and budgets and that all costs and benefits are
identified prior to providing resources. In addition, amounts of advance
appropriations can be matched to funding requirements for completing
natural components of the useful segment. Advance appropriations have
the same benefits as regular appropriations for improved planning,
management, and accountability of the project.
Principle 3: Separate Funding of Planning Segments
As a general rule, planning segments of a capital project should be
financed separately from the procurement of a useful asset.
Explanation: The agency must have information that allows it to plan
the capital project, develop the design, and assess the benefits, costs,
and risks before proceeding to procurement of the useful asset. This is
especially important for high risk acquisitions. This information comes
from activities, or planning segments, that include but are not limited
to market research of available solutions, architectural drawings,
geological studies, engineering and design studies, and prototypes. The
construction of a prototype that is a capital asset, because of its cost
and risk, should be justified and planned as carefully as the project
itself. The process of gathering information for a capital project may
consist of one or more planning segments, depending on the nature of the
asset. Funding these segments separately will help ensure that the
necessary information is available to establish cost, schedule, and
performance goals before proceeding to procurement.
If budget authority for planning segments and procurement of the
useful asset are enacted together, OMB may wish to apportion budget
authority for one or several planning segments separately from
procurement of the useful asset.
Principle 4: Accommodation of Lumpiness or ``Spikes'' and Separate
Capital Acquisition Accounts
To accommodate lumpiness or ``spikes'' in funding justified capital
acquisitions, agencies, working with OMB, are encouraged to aggregate
financing for capital asset acquisitions in one or several separate
capital acquisition budget accounts within the agency, to the extent
possible within the agency's total budget request.
Explanation: Large, temporary, year-to-year increases in budget
authority, sometimes called lumps or spikes, may create a bias against
the acquisition
[[Page 122]]
of justified capital assets. Agencies, working with OMB,
should seek ways to avoid this bias and accommodate such spikes for
justified acquisitions. Aggregation of capital acquisitions in separate
accounts may:
<bullet> reduce spikes within an agency or bureau by providing
roughly the same level of spending for acquisitions each year;
<bullet> help to identify the source of spikes and to explain them.
Capital acquisitions are more lumpy than operating expenses;
and with a capital acquisition account, it can be seen that an
increase in operating expenses is not being hidden and
attributed to one-time asset purchases;
<bullet> reduce the pressure for capital spikes to crowd out
operating expenses; and
<bullet> improve justification and make proposals easier to evaluate,
since capital acquisitions are generally analyzed in a
different manner than operating expenses (e.g., capital
acquisitions have a longer time horizon of benefits and life-
cycle costs).
D. Risk Management
Risk management should be central to the planning, budgeting, and
acquisition process. Failure to analyze and manage the inherent risk in
all capital asset acquisitions may contribute to cost overruns, schedule
shortfalls, and acquisitions that fail to perform as expected. For each
major capital project a risk analysis that includes how risks will be
isolated, minimized, monitored, and controlled may help prevent these
problems.
The project cost, schedule and performance goals established through
the planning phase of the project are the basis for approval to procure
the asset and the basis for assessing risk. During the procurement phase
performance-based management systems (earned value or similar system)
must be used to provide contractor and Government management visibility
on the achievement of, or deviation from, goals until the asset is
accepted and operational. If goals are not being met, performance-based
management systems allow for early identification of problems, potential
corrective actions, and changes to the original goals needed to complete
the project and necessary for agency portfolio analysis decisions. These
systems also allow for Administration decisions to recommend meaningful
modifications for increased funding to the Congress, or termination of
the project, based on its revised expected return on investment in
comparison to alternative uses of the funds. Agencies must ensure that
the necessary acquisition strategies are implemented to reduce the risk
of cost escalation and the risk of failure to achieve schedule and
performance goals. These strategies may include:
1.... having budget authority appropriated in separate capital asset
acquisition accounts;
2... apportioning budget authority for a useful segment;
3... establishing thresholds for cost, schedule, and performance goals
of the acquisition, including return on investment, which if not
met may result in cancellation of the acquisition;
4... selecting types of contracts and pricing mechanisms that are
efficient and that provide incentives to contractors in order to
allocate risk appropriately between the contractor and the
Government;
5... monitoring cost, schedule, and performance goals for the project
(or the useful segment being proposed) using an earned value
management system or similar system. Earned value is described
in OMB Circular A-11, Part 3, ``Planning, Budgeting and
Acquisition of Fixed Assets'' (July 1996), Appendix 300C; and
6... if progress is not within 90 percent of goals, or if new
information is available that would indicate a greater return on
investment from alternative uses of funds, institute senior
management review of the project through portfolio analysis to
determine the continued viability of the project with
modifications, or the termination of the project, and the start
of exploration for alternative solutions if it is necessary to
fill a gap in agency strategic goals and objectives.
E. Glossary
Appropriations
An appropriation provides budget authority that permits Government
officials to incur obligations that result in immediate or future
outlays of Government funds.
Regular annual appropriations: These appropriations are:
<bullet> enacted normally in the current year;
<bullet> scored entirely in the budget year; and
<bullet> available for obligation in the budget year and subsequent
years if specified in the language. (See ``Availability,''
below.)
Advance appropriations: Advance appropriations may be accompanied by
regular annual appropriations to provide funds available for obligation
in the budget year as well as subsequent years. Advance appropriations
are:
<bullet> enacted normally in the current year;
<bullet> scored after the budget year (e.g., in each of one, two, or
more later years, depending on the language); and
<bullet> available for obligation in the year scored and subsequent
years if specified in the language. (See ``Availability,''
below.)
Availability: Appropriations made in appropriations acts are available
for obligation only in the budget year unless the language specifies
that an appropriation is available for a longer period. If the language
specifies that the funds are to remain available until the end
[[Page 123]]
of a certain year beyond the budget year, the availability is said to be
``multi-year.'' If the language specifies that the funds are to remain
available until expended, the availability is said to be ``no-year.''
Appropriations for major procurements and construction projects are
typically made available for multiple years or until expended.
Capital Assets
Capital assets are land, structures, equipment, and intellectual
property (including software) that are used by the Federal Government
and have an estimated useful life of two years or more. Capital assets
exclude items acquired for resale in the ordinary course of operations
or held for the purpose of physical consumption such as operating
materials and supplies. The cost of a capital asset includes both its
purchase price and all other costs incurred to bring it to a form and
location suitable for its intended use.
Capital assets may be acquired in different ways: through purchase,
construction, or manufacture; through a lease-purchase or other capital
lease, regardless of whether title has passed to the Federal Government;
through an operating lease for an asset with an estimated useful life of
two years or more; or through exchange. Capital assets include leasehold
improvements and land rights; assets owned by the Federal Government but
located in a foreign country or held by others (such as Federal
contractors, state and local governments, or colleges and universities);
and assets whose ownership is shared by the Federal Government with
other entities. Capital assets include not only the assets as initially
acquired but also additions; improvements; replacements; rearrangements
and reinstallations; and major repairs but not ordinary repairs and
maintenance.
Examples of capital assets include the following, but are not limited
to them:
<bullet> office buildings, hospitals, laboratories, schools, and
prisons;
<bullet> dams, power plants, and water resources projects;
<bullet> furniture, elevators, and printing presses;
<bullet> motor vehicles, airplanes, and ships;
<bullet> satellites and space exploration equipment;
<bullet> information technology hardware and software; and
<bullet> Department of Defense weapons systems.
Capital assets may or may not be capitalized (i.e., recorded in an
entity's balance sheet) under Federal accounting standards. Examples of
capital assets not capitalized are Department of Defense weapons
systems, heritage assets, stewardship land, and some software.
Capital assets do not include grants for acquiring capital assets made
to state and local governments or other entities (such as National
Science Foundation grants to universities or Department of
Transportation grants to AMTRAK). Capital assets also do not include
intangible assets such as the knowledge resulting from research and
development or the human capital resulting from education and training,
although capital assets do include land, structures, equipment, and
intellectual property (including software) that the Federal Government
uses in research and development and education and training.
Capital Project and Useful Segments of a Capital Project
The total capital project, or acquisition of a capital asset, includes
useful segments that are either planning segments or useful assets.
Planning segments: A planning segment of a capital project provides
information that allows the agency to develop the design; assess the
benefits, costs, and risks; and establish realistic baseline cost,
schedule, and performance goals before proceeding to full acquisition of
the useful asset (or canceling the acquisition). This information comes
from activities, or planning segments, that include but are not limited
to market research of available solutions, architectural drawings,
geological studies, engineering and design studies, and prototypes. The
process of gathering information for a capital project may consist of
one or more planning segments, depending on the nature of the asset. If
the project includes a prototype that is a capital asset, the prototype
may itself be one segment or may be divisible into more than one
segment. Because of uncertainty regarding the identification of separate
planning segments for research and development activities, the
application of full funding concepts to research and development
planning will need more study pending preparation of the 1999 budget.
Useful asset: A useful asset is an economically and programmatically
separate segment of the asset procurement stage of the capital project
that provides an asset for which the benefits exceed the costs, even if
no further funding is appropriated. The total capital asset procurement
may include one or more useful assets, although it may not be possible
to divide all procurements in this way. Illustrations follow:
Illustration 1: If the construction of a building meets the
justification criteria and has benefits greater than its costs without
further investment, then the construction of that building is a ``useful
segment.'' Excavation is not a useful segment because no useful asset
results from the excavation alone if no further funding becomes
available. For a campus of several buildings, a useful segment is one
complete building if that building has programmatic benefits that exceed
its costs regardless of whether the other buildings are constructed,
even though that building may not be at its maximum use.
Illustration 2: If the full acquisition is for several items (e.g.,
aircraft), the useful segment would be the number of complete aircraft
required to achieve benefits that exceed costs even if no further
funding becomes available. In contrast, some portion of several aircraft
(e.g., engines for five aircraft) would not be a useful segment if no
further funding is available, nor would one aircraft be a useful segment
if two or more are required for benefits to exceed costs.
[[Page 124]]
Illustration 3: For information technology, a module (the information
technology equivalent of ``useful segment'') is separable if it is
useful in itself without subsequent modules. The module should be
designed so that it can be enhanced or integrated with subsequent
modules if future funding becomes available.
Earned Value
Earned value refers to a performance-based management system for
establishing baseline cost, schedule, and performance goals for a
capital project and measuring progress against the goals. Earned value
is described in OMB Circular A-11, Part 3, ``Planning, Budgeting and
Acquisition of Fixed Assets'' (July 1996), Appendix 300C.
Funding
Full funding: Full funding means that appropriations--regular
appropriations or advance appropriations--are enacted that are
sufficient in total to complete a useful segment of a capital project
before any obligations may be incurred for that segment. Full funding
for an entire capital project is required if the project cannot be
divided into more than one useful segment. If the asset can be divided
into more than one useful segment, full funding for a project may be
desirable, but is not required to constitute full funding.
Incremental (partial) funding: Incremental (partial) funding means that
appropriations--regular appropriations or advance appropriations--are
enacted for just part of a useful segment of a capital project, if the
project has useful segments, or for part of the capital project as a
whole, if it is not divisible into useful segments. Under incremental
funding for a capital asset, which is not permitted under these
principles, the funds could be obligated to start the segment (or
project) despite the fact that they are insufficient to complete a
useful segment or project.
Risk Management
Risk management is an organized method of identifying and measuring
risk and developing, selecting, and managing options for handling these
risks. Before beginning any procurement, managers should review and
revise as needed the acquisition plan to ensure that risk management
techniques considered in the planning phase are still appropriate.
There are three key principles for managing risk when procuring
capital assets: (1) avoiding or limiting the amount of development work;
(2) making effective use of competition and financial incentives; and
(3) establishing a performance-based acquisition management system that
provides for accountability for program successes and failures, such as
an earned value system or similar system.
There are several types of risk an agency should consider as part of
risk management. The types of risk include:
<bullet> schedule risk;
<bullet> cost risk;
<bullet> technical feasibility;
<bullet> risk of technical obsolescence;
<bullet> dependencies between a new project and other projects or
systems (e.g., closed architectures); and
<bullet> risk of creating a monopoly for future procurement.
[[Page 125]]
Part III: FEDERALLY FINANCED CAPITAL STOCKS
Federal investment spending creates a ``stock'' of capital that is
available in the future for productive use. Each year, Federal
investment outlays add to the stock of capital. At the same time,
however, wear and tear and obsolescence reduce it. This section presents
very rough measures over time of three different kinds of capital stocks
financed by the Federal Government: public physical capital, research
and development (R&D), and education.
Federal spending for physical assets adds to the Nation's capital
stock of tangible assets, such as roads, buildings, and aircraft
carriers. These assets deliver a flow of services over their lifetime.
The capital depreciates as the asset is used, wears out, or becomes
obsolete.
Federal spending for the conduct of research, development, and
education adds to an ``intangible'' asset, the Nation's stock of
knowledge. Although financed by the Federal Government, the research and
development or education can be performed by Federal or State government
laboratories, universities and other nonprofit organizations, or private
industry. Research and development covers a wide range of activities,
from the investigation of subatomic particles to the exploration of
outer space; it can be ``basic'' research without particular
applications in mind, or it can have a highly specific practical use.
Similarly, education includes a wide variety of programs, assisting
people of all ages beginning with pre-school education and extending
through graduate studies and adult education. Like physical assets, the
capital stocks of R&D and education provide services over a number of
years and depreciate as they become outdated.
For this analysis, physical and R&D capital stocks are estimated using
the perpetual inventory method. In this method, the estimates are based
on the sum of net investment in prior years. Each year's Federal outlays
are treated as gross investment, adding to the capital stock;
depreciation and discards reduce the capital stock. Gross investment
less depreciation and discards is net investment. A limitation of the
perpetual inventory method is that investment spending is not
necessarily an accurate measure of the value of the asset created.
However, alternative methods for measuring asset value, such as direct
surveys of current market worth or indirect estimation based on an
expected rate of return, are difficult to apply to assets that do not
have a private market, such as highways or weapons systems.
In contrast to physical and R&D stocks, the estimate of the education
stock is based on the replacement cost method. Data on the total years
of education of the U.S. population are combined with data on the cost
of education and the Federal share of education spending to yield the
cost of replacing the Federal share of the Nation's stock of education.
Additional detail about the methods used to estimate capital stocks
appears in a methodological note at the end of this section. It should
be stressed that these estimates are rough approximations, and provide a
basis only for making broad generalizations. Errors may arise from
uncertainty about the useful lives and depreciation rates of different
types of assets, incomplete data for historical outlays, and imprecision
in the deflators used to express costs in constant dollars.
The Stock of Physical Capital
This section presents data on stocks of physical capital assets and
estimates of the depreciation on these assets.
Trends.--Table 6-6 shows the value of the net federally financed
physical capital stock since 1960, in constant fiscal year 1992 dollars.
\3\ After rising in the 1960s, the total stock held constant through the
1970s and began rising again in the early 1980s. The stock reached a
high of $1,497 billion in 1995 and is estimated to decline slightly to
$1,454 billion by 1998. In 1996, the national defense capital stock
accounted for $672 billion, or 45 percent of the total, and nondefense
stocks for $819 billion, or 55 percent of the total.
---------------------------------------------------------------------------
\3\ Constant dollar stock estimates are expressed in chained 1992
dollars, consistent with the revisions to the National Income and
Product Accounts (NIPAs) released in January 1996.
Table 6-6. NET STOCK OF FEDERALLY FINANCED PHYSICAL CAPITAL
(In billions of 1992 dollars)
------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
Nondefense
----------------------------------------------------------------------------------------------
Direct Federal Capital Capital Financed by Federal Grants
Fiscal Year Total National ----------------------------------------------------------------------------------
Defense Total Water Community
Nondefense Total and Other Total Transportation and Natural Other
Power Regional Resources
------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
Five year intervals:
1960........................................................................ 785 581 205 101 62 39 104 68 16 12 8
1965........................................................................ 864 583 281 119 71 47 162 123 19 11 10
1970........................................................................ 963 597 366 131 80 52 235 178 28 12 16
1975........................................................................ 959 513 446 143 89 54 303 212 49 23 19
1980........................................................................ 1,007 440 567 165 105 60 402 249 83 52 18
1985........................................................................ 1,155 513 642 183 111 72 459 278 99 66 16
Annual data:
1990........................................................................ 1,405 691 714 211 114 97 503 311 104 73 16
1991........................................................................ 1,443 715 728 217 114 102 511 316 103 74 17
1992........................................................................ 1,473 728 745 227 116 110 518 322 103 75 18
1993........................................................................ 1,491 729 761 235 116 118 527 329 103 75 21
1994........................................................................ 1,496 718 778 240 116 124 538 336 103 75 24
1995........................................................................ 1,497 698 799 247 116 131 552 344 104 76 29
1996........................................................................ 1,491 672 819 254 115 139 565 351 105 75 34
1997 est.................................................................... 1,479 641 838 261 114 147 577 358 106 74 40
1998 est.................................................................... 1,454 607 847 261 112 149 586 363 106 73 45
------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
Real stocks of defense and nondefense capital show very different
trends. Nondefense stocks have grown consistently since 1970, increasing
from $366 billion in 1970 to $819 billion in 1996. With the investments
proposed in the budget, nondefense stocks are estimated to grow to $847
billion in 1998. During the 1970s, the nondefense capital stock grew at
an average annual rate of 4.5 percent. In the 1980s, however, the growth
rate slowed to just over half that rate, or 2.3 percent annually, with
growth continuing at about that rate since then.
Real national defense stocks began in 1970 at a relatively high level,
and declined steadily throughout the decade, as depreciation from the
Vietnam era exceeded new investment in military construction and weapons
procurement. Starting in the early 1980s, however, a large defense
buildup began to increase the stock of defense capital. By 1988, the
defense stock had exceeded its size at the height of the Vietnam War. In
the last few years, depreciation on this increased stock and a slower
pace of defense investment have begun to reduce the stock somewhat from
its recent levels. The stock is estimated to fall from $672 billion in
1996 to $607 billion in 1998.
Another trend in the Federal physical capital stocks is the shift from
direct Federal assets to grant-financed assets. In 1960, 49 percent of
federally financed nondefense capital was owned by the Federal
Government, and 51 percent was owned by State and local governments but
financed by Federal grants. Expansion in Federal grants for highways and
other state and local capital, coupled with relatively slow growth in
direct
[[Page 126]]
Federal investments by agencies such as the Bureau of Reclamation
and Corps of Engineers, shifted the composition of the stock
substantially. In 1996, 31 percent of the nondefense stock was owned by
the Federal Government and 69 percent by State and local governments.
The growth in the stock of physical capital financed by grants has
come in several areas. The growth in the stock for transportation is
largely grants for highways, including the Interstate Highway System.
The growth in community and regional development stocks occurred largely
with the enactment of the community development block grant in the early
1970s. The value of this capital stock has been unchanged in the past
few years. The growth in the natural resources area occurred primarily
because of construction grants for sewage treatment facilities. The
value of this federally financed stock has also been relatively stable
since the mid-1980s.
Table 6-7 shows nondefense physical capital outlays both gross and net
of depreciation since 1960. Total nondefense net investment has been
consistently positive over the period covered by the table, indicating
that new investment has exceeded depreciation on the existing stock. The
reduced amount of net investment in 1998 reflects the sale of the United
States Enrichment Corporation and the privatization of the Elk Hills gas
and oil field. For some categories in the table, such as water and power
programs, net investment has been negative in some years, indicating
that new investment has not been sufficient to offset estimated
depreciation. The net investment in this table is the change in the net
nondefense physical capital stock displayed in Table 6-6.
Table 6-7. COMPOSITION OF GROSS AND NET FEDERAL AND FEDERALLY FINANCED NONDEFENSE PUBLIC PHYSICAL INVESTMENT
(In billions of 1992 dollars)
------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
Total nondefense Direct Federal investment Investment financed by Federal grants
investment ----------------------------------------------------------------------------------------------------------------------
---------------------------- Composition Composition of net investment
of net ------------------------------------------------
Fiscal Year investment
Gross Depreciation Net -------------- Gross Depreciation Net Transportation Community Natural
Gross Depreciation Net Water (mainly and resources Other
and Other highways) regional and
power development environment
------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
Five year intervals:
1960....................................... 21.2 7.9 13.3 6.2 3.9 2.3 1.2 1.1 15.0 4.0 11.0 11.2 -0.4 -0.2 0.4
1965....................................... 30.4 10.7 19.6 9.2 4.8 4.4 1.9 2.5 21.2 6.0 15.2 13.5 1.5 -* 0.3
1970....................................... 30.1 14.3 15.9 6.4 5.7 0.7 0.9 -0.2 23.7 8.6 15.1 9.3 4.1 0.4 1.3
1975....................................... 31.5 17.6 13.9 9.3 6.4 2.9 2.5 0.4 22.2 11.2 11.1 4.1 3.1 3.6 0.4
1980....................................... 44.8 20.6 24.2 11.3 6.9 4.4 2.6 1.8 33.5 13.7 19.7 8.3 6.1 5.9 -0.5
1985....................................... 42.7 24.8 17.9 13.3 7.9 5.4 0.9 4.5 29.4 16.9 12.5 8.1 2.7 2.2 -0.5
Annual data:
1990....................................... 43.0 29.7 13.4 15.2 9.6 5.6 0.8 4.8 27.8 20.1 7.7 5.9 0.1 0.8 0.9
1991....................................... 44.5 30.7 13.7 16.1 10.1 6.1 0.2 5.8 28.3 20.7 7.7 5.7 -0.1 0.9 1.1
1992....................................... 49.3 31.9 17.4 20.3 10.6 9.7 1.6 8.0 29.1 21.3 7.7 5.7 -0.1 0.7 1.5
1993....................................... 49.7 33.2 16.6 19.2 11.2 8.0 0.3 7.6 30.6 22.0 8.6 6.6 -0.4 0.3 2.1
1994....................................... 51.3 34.4 16.9 17.1 11.7 5.4 -0.7 6.1 34.2 22.7 11.5 7.2 0.2 0.1 3.9
1995....................................... 56.4 35.7 20.7 19.0 12.2 6.8 0.2 6.6 37.4 23.5 13.9 8.1 0.8 0.5 4.5
1996....................................... 57.2 37.1 20.1 20.0 12.7 7.3 -0.7 8.0 37.2 24.3 12.9 7.4 0.9 -0.6 5.2
1997 est................................... 57.1 38.5 18.7 20.1 13.3 6.8 -1.4 8.1 37.0 25.1 11.9 6.4 0.9 -0.9 5.5
1998 est................................... 48.9 39.6 9.3 14.0 13.8 0.2 -1.9 2.1 35.0 25.8 9.1 4.9 0.4 -1.2 4.9
------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
* $50 million or less.
The Stock of Research and Development Capital
This section presents data on the stock of research and development,
taking into account adjustments for its depreciation.
Trends.--As shown in Table 6-8, the R&D capital stock financed by
Federal outlays is estimated to be $792 billion in 1996 in constant 1992
dollars. About two-fifths is the stock of basic research knowledge;
about three-fifths is the stock of applied research and development.
The total federally financed R&D stock in 1996 was about evenly
divided between defense and nondefense. Although investment in defense
R&D has exceeded that of nondefense R&D in every year since 1979, the
nondefense R&D stock is actually the larger of the two, because of the
different emphasis on basic research and applied research and
development. Defense R&D spending is heavily concentrated in applied
research and development, which depreciates much more quickly than basic
research. The stock of applied research and development is assumed to
depreciate at a ten percent geometric rate, while basic research is
assumed not to depreciate at all.
Table 6-8. NET STOCK OF FEDERALLY FINANCED RESEARCH AND DEVELOPMENT \1\
(In billions of 1992 dollars)
--------------------------------------------------------------------------------------------------------------------------------------------------------
National Defense Nondefense Total Federal
--------------------------------------------------------------------------------------------------------------
Applied Applied Applied
Fiscal Year Basic Research Basic Research Basic Research
Total Research and Total Research and Total Research and
Development Development Development
--------------------------------------------------------------------------------------------------------------------------------------------------------
Five year intervals:
1970................................... 235 14 221 194 61 133 429 75 354
1975................................... 249 19 230 237 88 149 486 107 379
1980................................... 252 22 229 280 119 161 532 141 390
1985................................... 287 27 260 304 157 148 592 184 408
Annual data:
1990................................... 357 32 325 342 205 137 699 237 461
1991................................... 361 33 328 354 216 138 716 249 466
1992................................... 365 34 331 367 227 139 732 262 470
1993................................... 368 36 333 380 239 142 748 274 474
1994................................... 371 37 334 393 250 144 764 287 477
1995................................... 372 38 334 407 260 147 779 298 480
1996................................... 374 39 335 418 271 147 792 310 482
1997 est............................... 375 40 334 431 282 148 805 323 483
1998 est............................... 373 42 332 444 293 150 817 335 482
--------------------------------------------------------------------------------------------------------------------------------------------------------
\1\ Excludes outlays for physical capital for research and development, which are included in Table 6-5.
The defense R&D stock rose slowly during the 1970s, as gross outlays
for R&D trended down in constant dollars and the stock created in the
1960s depreciated. A renewed emphasis on defense R&D spending from 1980
through 1989 led to a more rapid growth of the R&D stock. Since then,
defense R&D outlays have tapered off, depreciation has grown, and, as a
result, the net defense R&D stock has stabilized.
The growth of the nondefense R&D stock slowed from the 1970s to the
late 1980s, from an annual rate of 3.7 percent in the 1970s to a rate of
1.8 percent from 1980 to 1988. Gross investment in real terms fell
during much of the 1980s, and about three-fourths of new
[[Page 127]]
outlays went to replacing depreciated R&D. Since 1988, however, nondefense R&D outlays have been on an upward trend while depreciation has edged down. As a
result, the net nondefense R&D capital stock has grown more rapidly.
The Stock of Education Capital
This section presents estimates of the stock of education capital
financed by the Federal government.
As shown in Table 6-9, the federally financed education stock is
estimated at $803 billion in 1996 in constant 1992 dollars, rising to
$850 billion in 1998. The vast majority of the Nation's education stock
is financed by State and local governments, and by students and their
families themselves. This federally financed portion of the stock
represents about 3 percent of the Nation's total education stock.\4\
Nearly three-quarters is for elementary and secondary education, while
the remaining one quarter is for higher education.
---------------------------------------------------------------------------
\4\ For estimates of the total education stock, see Table 2-4 in
Chapter 2, ``Stewardship: Toward a Federal Balance Sheet.''
Table 6-9. NET STOCK OF FEDERALLY FINANCED EDUCATION CAPITAL
(In billions of 1992 dollars)
------------------------------------------------------------------------
Elementary
Total and Higher
Fiscal Year Education Secondary Education
Stock Education
------------------------------------------------------------------------
Five year intervals:
1960............................... 70 52 18
1965............................... 99 73 26
1970............................... 224 179 46
1975............................... 307 251 57
1980............................... 414 326 88
1985............................... 510 383 126
Annual data:
1990............................... 661 490 171
1991............................... 682 503 179
1992............................... 701 515 186
1993............................... 726 528 198
1994............................... 748 543 205
1995............................... 777 557 221
1996............................... 803 572 232
1997 est........................... 824 585 240
1998 est........................... 850 600 251
------------------------------------------------------------------------
Despite a slowdown in growth during the early 1980s, the stock grew at
an average annual rate of 5.0 percent from 1970 to 1996, and the
expansion of the education stock is projected to continue under this
budget.
[[Page 128]]
Methodological Note
This note provides further technical detail about the estimation of
the capital stock series presented in Tables 6-6 through 6-9.
As stated previously, the capital stock estimates are very rough
approximations. Sources of possible error include:
The historical outlay series.--The historical outlay series for
physical capital was based on budget records since 1940 and was extended
back to 1915 using data from selected sources. There are no consistent
outlay data on physical capital for this earlier period, and the
estimates are approximations. In addition, the historical outlay series
in the budget for physical capital extending back to 1940 may be
incomplete. The historical outlay series for the conduct of research and
development began in the early 1950s and required selected sources to be
extended back to 1940. In addition, separate outlay data for basic
research and applied R&D were not available for any years and had to be
estimated from obligations and budget authority. For education, data for
Federal outlays from the budget were combined with data for non-Federal
spending from the institution or jurisdiction receiving Federal funds,
which may introduce error because of differing fiscal years and
confusion about whether the Federal Government was the original source
of funding.
Price adjustments.--The prices for the components of the Federal stock
of physical, R&D, and education capital have increased through time, but
the rates of increase are not accurately known. Estimates of costs in
fiscal year 1992 prices were made through the application of price
deflators from the National Income and Product Accounts (NIPAs), but
these should be considered only approximations of the costs of these
assets in 1992 prices. Although source data for the NIPA deflators were
revised in January 1996 as part of a comprehensive statistical revision,
the revised data only extended back to 1960. Price measures prior to
1960 were estimated based on pre-revision data.
Depreciation.--The useful lives of physical, R&D, and education
capital, as well as the pattern by which they depreciate, are very
uncertain. This is compounded by using depreciation rates for broad
classes of assets, which do not apply uniformly to all the components of
each group. As a result, the depreciation estimates should also be
considered approximations.
Research continues on the best methods to estimate these capital
stocks. The estimates presented in the text could change as better
information becomes available on the underlying investment data and as
improved methods are developed for estimating the stocks based on those
data.
Physical Capital Stocks
For many years, current and constant-cost data on the stock of most
forms of public and private physical capital--e.g., roads, factories,
and housing--have been estimated annually by the Bureau of Economic
Analysis (BEA) in the Department of Commerce. With the January 1996
comprehensive revision of the NIPAs, government investment has taken
increased prominence. Government investment in physical capital is now
measured separately from consumption expenditures, and government
consumption includes a measure of the consumption of the existing
capital stock. In addition, estimates of depreciation are improved based
on the results of recent empirical research.\5\
---------------------------------------------------------------------------
\5\ The revisions for government investment and depreciation methods
are discussed in ``Preview of the Comprehensive Revision of the National
Income and Product Accounts: Recognition of Government Investment and
Incorporation of a New Methodology for Calculating Depreciation'',
Survey of Current Business, September 1995, pp. 33-41. BEA's most recent
published estimates of capital stocks, prepared before the revisions,
are contained in ``Fixed Reproducible Tangible Wealth in the United
States'', Survey of Current Business, August 1994, pp. 54-62.
---------------------------------------------------------------------------
The BEA data are not directly linked to the Federal budget, do not
extend to the years covered by the budg-
[[Page 129]]
et, and do not classify as Federal the capital financed but not owned by the Federal Government. For budgetary purposes, OMB prepares separate estimates.
Method of estimation.--The estimates were developed from the OMB
historical data base for physical capital outlays and grants to State
and local governments for physical capital. These are the same major
public physical capital outlays presented in Part I. This data base
extends back to 1940 and was supplemented by rough estimates for 1915-
1939.
The deflators used to convert historical outlays to constant 1992
dollars were based on composite NIPA deflators for Federal, State, and
local consumption of durables and gross investment. Data consistent with
the January 1996 NIPA revisions were only available back to fiscal year
1960, so deflators prior to 1960 were extrapolated based on pre-revision
NIPA data extending back to 1930. For 1915 through 1929, deflators were
estimated from Census Bureau historical statistics on constant price
public capital formation.
The resulting series was adjusted for depreciation. The data were
depreciated on a straight-line basis over the following assumed useful
lives: 46 years for water and power projects; 40 years for other direct
Federal construction and capital financed by grants (primarily
highways); and 16 years for defense procurement and major nondefense
equipment.
Research and Development Capital Stocks
Method of estimation.--The estimates were developed from a data base
for the conduct of research and development largely consistent with the
data in the Historical Tables. Although there is no consistent time
series on basic and applied R&D for defense and nondefense outlays back
to 1940, it was possible to estimate the data using obligations and
budget authority. The data are for the conduct of R&D only and exclude
outlays for physical capital for research and development, because those
are included in the estimates of physical capital. Nominal outlays were
deflated by the chained price index for gross domestic product (GDP) in
fiscal year 1992 dollars to obtain estimates of constant dollar R&D
spending.
The appropriate depreciation rate of intangible R&D capital is even
more uncertain than that of physical capital. Empirical evidence is
inconclusive. It was assumed that basic research capital does not
depreciate and that applied research and development capital has a ten
percent geometric depreciation rate. These are the same assumptions used
in a study published by the Bureau of Labor Statistics estimating the
R&D stock financed by private industry.\6\ More recent experimental work
at the Bureau of Economic Analysis, extending estimates of tangible
capital stocks to R&D, used slightly different assumptions. This work
assumed straight-line depreciation for all R&D over a useful life of 18
years, which is roughly equivalent to a geometric depreciation rate of
11 percent. The slightly higher depreciation rate and its extension to
basic research would result in smaller stocks than the method used
here.\7\
---------------------------------------------------------------------------
\6\ See U.S. Department of Labor, Bureau of Labor Statistics, The
Impact of Research and Development on Productivity Growth, Bulletin
2331, September 1989.
\7\ See ``A Satellite Account for Research and Development'', Survey
of Current Business, November 1994, pp. 37-71.
---------------------------------------------------------------------------
Education Capital Stocks
Method of estimation.--The estimates of the federally financed
education capital stock in Table 6-9 were calculated by first estimating
the Nation's total stock of education capital, based on the current
replacement cost of the total years of education of the population. To
derive the Federal share of this total stock, the Federal share of total
educational expenditures was applied to the total amount. The percent in
any year was estimated by averaging the prior years' share of Federal
education outlays in total education costs. For more information, refer
to the technical note in Chapter 2, ``Stewardship: Toward a Federal
Balance Sheet.''
The stock of capital estimated in Table 6-9 is based only on spending
for education. Stocks created by other human capital investment outlays
included in Table 6-1, such as job training and vocational
rehabilitation, were not calculated because of the lack of historical
data prior to 1962 and the absence of estimates of depreciation rates.
[[Page 130]]
Part IV: ALTERNATIVE CAPITAL BUDGET AND CAPITAL EXPENDITURE
PRESENTATIONS
A capital budget would separate Federal expenditures into two
categories: spending for investment and all other spending. In this
sense, Part I of the present chapter provides a capital budget for the
Federal Government, distinguishing outlays that yield long-term benefits
from all others. But alternative capital budget presentations have also
been suggested.
The Federal budget finances investment for two quite different types
of reasons. It invests in capital--such as office buildings, computers,
and weapons systems--that primarily contributes to its ability to
provide governmental services to the public; some of these services, in
turn, are designed to increase economic growth. And it invests in
capital--such as highways, education, and research--that contributes
more directly to the economic growth of the Nation. Most of the capital
in the second category, unlike the first, is not owned or controlled by
the Federal Government. In the discussion that follows, the first is
called ``Federal capital'' and the second is called ``national
capital.'' Table 6-10 compares total Federal investment as defined in
this chapter with investment in Federal capital, which was defined as
``capital assets'' in Part II of this chapter, and with investment in
national capital.
Table 6-10. ALTERNATIVE DEFINITIONS OF INVESTMENT OUTLAYS, 1998
(In millions of dollars)
----------------------------------------------------------------------------------------------------------------
All
Federal Federal National
investment capital capital
----------------------------------------------------------------------------------------------------------------
Construction and rehabilitation:
Grants:
Transportation............................................................ 24,486 ......... 24,486
Natural resources and environment......................................... 2,194 ......... 2,192
Community and regional development........................................ 5,811 ......... 1,087
Housing assistance........................................................ 5,999 ......... .........
Other grants.............................................................. 183 ......... 99
Direct Federal:
National defense.......................................................... 4,522 4,522 .........
General science, space, and technology.................................... 423 335 423
Natural resources and environment......................................... 3,699 2,215 3,476
Energy.................................................................... 1,147 1,147 1,147
Transportation............................................................ 675 344 675
Veterans and other health facilities...................................... 1,418 1,418 1,418
Postal Service............................................................ 1,251 1,251 1,251
GSA real property activities.............................................. 1,262 1,262 .........
Other construction........................................................ 2,347 1,440 599
---------------------------------
Total construction and rehabilitation................................... 55,417 13,934 36,853
Acquisition of major equipment (direct):
National defense............................................................ 43,408 43,408 .........
Postal Service.............................................................. 1,378 1,378 1,378
Air transportation.......................................................... 1,903 1,903 1,903
Other....................................................................... 3,474 3,156 2,139
---------------------------------
Total major equipment...................................................... 50,163 49,845 5,420
Purchase or sale of land and structures....................................... -3,962 -3,962 .........
Other physical assets (grants)................................................ 1,208 ......... .........
---------------------------------
Total physical investment................................................... 102,826 59,817 42,344
Research and development:
Defense..................................................................... 37,416 ......... 1,153
Nondefense.................................................................. 32,790 ......... 32,167
---------------------------------
Total research and development............................................. 70,206 ......... 33,320
Education and training........................................................ 45,630 ......... 45,172
=================================
Total investment outlays...................................................... 218,662 59,817 120,836
----------------------------------------------------------------------------------------------------------------
Capital budgets and other changes in Federal budgeting have been
suggested from time to time for the Government's investment in both
Federal and national capital. These proposals differ widely in coverage,
depending on the rationale for the suggestion. Some would include all
the investment shown in Table 6-1, or more, whereas others would be
narrower in various ways. These proposals also differ in other respects,
such as whether investment would be financed by borrowing and whether
the non-investment budget would necessarily be balanced. Some of these
proposals are discussed below and illustrated by alternative capital
budget and other capital expenditure presentations, although the
discussion does not address matters of implementation such as the effect
on the Budget Enforcement Act. The planning and budgeting process for
capital assets, which is a different subject, is discussed
[[Page 131]]
in Part II of this chapter together with the steps this Administration is taking to improve it.
Investment in Federal Capital
The goal of investment in Federal capital is to deliver Government
services as efficiently and effectively as possible. The Congress
allocates resources to Federal agencies to accomplish a wide variety of
programmatic goals. Because these goals are diverse and most are not
measured in dollars, they are difficult to compare with each other.
Policy judgments must be made as to their relative importance.
Once amounts have been allocated for one of these goals, however,
analysis may be able to assist in choosing the most efficient and
effective means of delivering service. This is the context in which
decisions are made on the amount of investment in Federal capital. For
example, budget proposals for the Department of Justice must consider
whether to increase the number of FBI agents, the amount of justice
assistance grants to State and local governments, or the number of
Federal prisons in order to accomplish the department's objectives. The
optimal amount of investment in Federal capital derives from these
decisions. There is no efficient target for total investment in Federal
capital as such.
The universe of Federal capital encompasses federally owned capital
assets. It excludes Federal grants to States for infrastructure, such as
highways, and it excludes intangible investment, such as education and
research. Investment in Federal capital in 1998 is estimated to be $60
billion, or 27 percent of the total Federal investment outlays shown in
Table 6-1. Of the investment in Federal capital, 80 percent is for
defense and 20 percent for nondefense purposes.
A Capital Budget for Capital Assets
Discussion of a capital budget has often centered on Federal capital,
called ``capital assets'' in Part II of this chapter--buildings, other
construction, and equipment that support the delivery of Federal
services. This includes capital commonly available from the commercial
sector, such as office buildings, computers, military family housing,
veterans hospitals, research and development facilities, and associated
equipment; it also includes special purpose capital such as weapons
systems, military bases, the space station, and dams. This definition
excludes capital that the Federal Government has financed but does not
own.\8\
---------------------------------------------------------------------------
\8\ This definition of ``capital assets'' is broader than the
definition of ``fixed assets'' used in last year's budget. Expenditures
for capital assets in 1998 under this definition are $60 billion, as
shown in Tables 6-10 and 6-11, compared to $18 billion under the
previous definition. Almost the entire difference is due to weapons
systems and other specialized defense investment.
---------------------------------------------------------------------------
Some capital budget proposals would partition the unified budget into
a capital budget, an operating budget, and a total budget. Table 6-11
illustrates such a capital budget for capital assets as defined above.
It is accompanied by an operating budget and a total budget. The
operating budget consists of all expenditures except those included in
the capital budget, plus depreciation on the stock of assets of the type
purchased through the capital budget. The capital budget consists of
expenditures for capital assets and, on the income side of the account,
depreciation. The total budget is the present unified budget, largely
based on cash for its measure of transactions, which records all outlays
and receipts of the Federal Government. It consolidates the operating
and capital budgets by adding them together and netting out depreciation
as an intragovernmental transaction. The operating budget deficit is
higher than the unified budget deficit, reflecting both the relatively
small Federal investment in new fixed assets and the offsetting effect
of depreciation on the existing stock. The figures in Table 6-11 and the
subsequent tables of this section are rough estimates, intended only to
be illustrative and to provide a basis for broad generalizations.
Table 6-11. CAPITAL, OPERATING, AND UNIFIED BUDGETS: FEDERAL CAPITAL,
1998 \1\
(In billions of dollars)
------------------------------------------------------------------------
Operating Budget
Receipts................................................ 1,567
Expenses:
Depreciation.......................................... 99
Other................................................. 1,628
---------------
Subtotal, expenses.................................. 1,727
---------------
Surplus or deficit (-)................................ -160
Capital Budget
Income: depreciation.................................... 99
Capital expenditures.................................... 60
---------------
Surplus or deficit (-)................................ 39
Unified Budget
Receipts................................................ 1,567
Outlays................................................. 1,687
---------------
Surplus or deficit (-)................................ -121
------------------------------------------------------------------------
\1\ Historical data to estimate the capital stocks and calculate
depreciation are not readily available for Federal capital.
Depreciation estimates were based on the assumption that outlays for
Federal capital were a constant percentage of the larger categories in
which such outlays were classified. They are also subject to the
limitations explained in Part III of this chapter. Depreciation is
measured in terms of current cost.
Some proposals for a capital budget would exclude defense capital
(other than military family housing). These exclusions--weapons systems,
military bases, and so forth--would comprise nearly four-fifths of the
expenditures shown in the capital budget of Table 6-11. If they were
excluded, the operating deficit would essentially be the same as the
unified budget deficit: about $1 billion higher than the unified budget
deficit instead of $39 billion higher as shown above for the complete
coverage of Federal capital. Excluding defense makes such a large
difference because of its large relative size and the recent pattern of
capital asset purchases. The large buildup that began in the early 1980s
raised the capital stock and depreciation; the buildup was followed by a
sharp decline in purchases, while the capital stock and depreciation
have declined more slowly. (See the previous section of this chapter.)
[[Page 132]]
Budget Discipline and a Capital Budget
Many proposals for a capital budget, though not all, would effectively
dispense with the unified budget and make expenditure decisions on
capital asset acquisitions in terms of the operating budget instead.
When the Government proposed to purchase a capital asset, the operating
budget would include only the estimated depreciation. For example,
suppose that an agency proposed to buy a $50 million building at the
beginning of the year with an estimated life of 25 years and with
depreciation calculated by the straightline method. Operating expense in
the budget year would increase by $2 million, or only 4 percent of the
asset cost. The same amount of depreciation would be recorded as an
increase in operating expense for each year of the asset's life.\9\
---------------------------------------------------------------------------
\9\ The amount of depreciation recorded as an expense in the budget
year might be overstated by this illustration. First, most assets are
purchased after the beginning of the year, in which case less than a
full year's depreciation would be recorded. Second, assets may be
constructed or built to order, in which case no depreciation would be
recorded until the work was completed and the asset put into service.
This could be several years after the initial expenditure.
---------------------------------------------------------------------------
Recording the annual depreciation in the operating budget each year
would provide little control over the decision about whether to invest
in the first place. Most Federal investments are sunk costs and as a
practical matter cannot be recovered by selling or renting the asset. At
the same time, there is a significant risk that the need for a capital
asset may change over a period of years, because either the need was not
permanent, it was initially misjudged, or other needs become more
important. Since the cost is sunk, however, control cannot be exercised
later on by comparing the annual benefit of the asset services with
depreciation and interest and then selling the asset if its annual
services are not worth this expense. Control can only be exercised up
front when the Government commits itself to the full sunk cost. By
spreading the real cost of the project over time, however, use of the
operating budget for expenditure decisions would make the budgetary cost
of the capital asset appear very cheap when decisions were being made
that compared it to alternative expenditures. As a result, there would
be an incentive to purchase capital assets with little regard for need,
and also with little regard for the least-cost method of acquisition.
A budget is a financial plan for allocating resources--deciding how
much the Federal Government should spend in total, program by program,
and for the parts of each program. The budgetary system provides a
process for proposing policies, making decisions, implementing them, and
reporting the results. The budget needs to measure costs accurately so
that decision makers can compare the cost of a program with its benefit,
the cost of one program with another, and the cost of alternative
methods of reaching a specified goal. These costs need to be fully
included in the budget up front, when the spending decision is made, so
that executive and congressional decision makers have the information
and the incentive to take the total costs into account.
The unified budget does this for investment. By recording investment
on a cash basis, it causes the total cost to be compared up front in a
rough and ready way with the total expected future net benefits. Since
the budget measures only cost, the benefits with which these costs are
compared, based on policy makers' judgment, must be presented in
supplementary materials. Such a comparison of total cost with benefits
is consistent with the formal method of cost-benefit analysis of capital
projects in government, in which the full cost of a capital asset as the
cash is paid out is compared with the full stream of future benefits
(all in terms of present values).\10\ This comparison is also consistent
with common business practice, in which capital budgeting decisions for
the most part are made by comparing cash flows. The cash outflow for the
full purchase price is compared with expected future cash inflows,
either through a relatively sophisticated technique of discounted cash
flows--such as net present value or internal rate of return--or through
cruder methods such as payback periods.\11\ Regardless of the specific
technique adopted, it usually requires comparing future returns with the
entire cost of the asset up front--not spread over time through annual
depreciation.\12\
---------------------------------------------------------------------------
\10\ For example, see Edward M. Gramlich, A Guide to Benefit-Cost
Analysis (2nd ed.; Englewood Cliffs: Prentice Hall, 1990), chap. 6; or
Joseph E. Stiglitz, Economics of the Public Sector (2nd ed.; New York:
Norton, 1988), chap. 10. This theory is applied in formal OMB
instructions to Federal agencies in OMB Circular No. A--94, Guidelines
and Discount Rates for Benefit-Cost Analysis of Federal Programs
(October 29, 1992). General Accounting Office, Discount Rate Policy,
GAO/OCE-17.1.1 (May 1991), discusses the appropriate discount rate for
such analysis but not the foundation of the analysis itself, which is
implicitly assumed.
\11\ For a full textbook analysis of capital budgeting techniques in
business, see Harold Bierman, Jr., and Seymour Smidt, The Capital
Budgeting Decision (7th ed.; New York: Macmillan, 1988). Shorter
analyses may be found, for example, in Charles T. Horngren and George
Foster, Cost Accounting (6th ed.; Englewood Cliffs: Prentice-Hall,
1987), chap. 19 and 20; and in Surendra S. Singhvi, ``The Capital
Budgeting Process'' and ``The Capital Expenditure Evaluation Methods,''
chap. 19 and 20 in Robert Rachlin and H.W. Allen Sweeny, Handbook of
Budgeting (3rd ed.; New York: Wiley, 1993).
\12\ A survey of business practice conducted a few years ago found
that such techniques are predominant. See Glenn H. Petry and James
Sprow, ``The Theory and Practice of Finance in the 1990s,'' The
Quarterly Review of Economics and Finance, vol. 33 (Winter 1993), pp.
359-82. Petry and Sprow also found that such techniques are recommended
by the most widely used textbooks in managerial finance.
---------------------------------------------------------------------------
Practice Outside the Federal Government
The proponents of making investment decisions on the basis of an
operating budget with depreciation have sometimes claimed that this is
the common practice outside the Federal Government. However, while the
practice of others may differ from the Federal budget and the terms
``capital budget'' and ``capital budgeting'' are often used, these terms
do not normally mean that capital asset acquisitions are decided on the
basis of annual depreciation cost. The use of these terms in business
and State government also does not mean that businesses and States
finance all their investment by borrowing. Nor does it mean that under a
capital budget the extent of borrowing by the Federal Government to
finance investment would be limited by the same forces that constrain
business and State borrowing for investment.
Private business firms call their investment decision making process
``capital budgeting,'' and they record the resulting planned
expenditures in a ``capital budget.'' However, decisions are normally
based on up-front comparisons of the cash outflows needed to make
[[Page 133]]
the investment with the resulting cash inflows expected in the future, as
explained above, and the capital budget records the period-by-period
cash outflows proposed for capital projects.\13\ This supports the
business's goal of deciding upon and controlling the use of its
resources.
---------------------------------------------------------------------------
\13\ A business capital budget is depicted in Glenn A. Welsch et al.,
Budgeting: Profit Planning and Control (5th ed.; Englewood Cliffs:
Prentice Hall, 1988), pp. 396-99.
---------------------------------------------------------------------------
The cash-based focus of business budgeting for capital is in contrast
to business financial statements--the income statement and balance
sheet--which use accrual accounting for a different purpose, namely to
record how well the business is meeting its objectives of earning profit
and accumulating wealth for its owners. For this purpose, the income
statement shows the profit in a year from earning revenue net of the
expenses incurred. These expenses include depreciation, which is an
allocation of the cost of capital assets over their estimated useful
life. With similar objectives in mind, the Office of Management and
Budget, the Treasury Department, and the General Accounting Office have
adopted the use of depreciation on general property, plant, and
equipment owned by the Federal Government as a measure of expense in
financial statements and cost accounting for Federal agencies.\14\
---------------------------------------------------------------------------
\14\ Office of Management and Budget, Statement of Federal Financial
Accounting Standards No. 6, Accounting for Property, Plant, and
Equipment (November 30, 1995), pp. 5-14 and 34-35. Depreciation would
not be used as a measure of expense for weapons systems, space
exploration equipment, and other ``Federal mission property'' or for
heritage assets. Depreciation also would not be used as a measure of
expense for physical property financed by the Federal Government but
owned by State and local governments, or for investment that the Federal
Government financed in human capital and research and development.
---------------------------------------------------------------------------
Businesses finance investment from net income as well as borrowing.
When they borrow to finance investment, they are constrained in ways
that Federal borrowing is not. The amount that a business borrows is
limited by its own profit motive and the market's assessment of its
capacity to repay. The greater a business's indebtedness, other things
equal, the more risky is any additional borrowing and the higher is the
cost of funds it must pay. Since the profit motive ensures that a
business will not want to borrow unless the expected return is at least
as high as the cost of funds, the amount of investment that a business
will want to finance is limited; it has an incentive to borrow only for
projects where the expected return is as high or higher than the cost of
funds. Furthermore, if the risk is great enough, a business may not be
able to find a lender.
No such constraint limits the Federal Government--either in the total
amount of its borrowing for investment, or in its choice of which assets
to buy--because of its sovereign power to tax and the wide economic base
that it taxes. It can tax to pay for investment; and, if it borrows, its
power to tax ensures that the credit market will judge U.S. Treasury
securities free from any risk of default even if it borrows
``excessively'' or for projects that do not seem worthwhile.
Most States also have a ``capital budget,'' but the operating budget
is not like the operating budget envisaged by proponents of making
Federal investment decisions on the basis of depreciation. State capital
budgets differ widely in many respects but generally relate some of the
State's purchases of capital assets to borrowing and other earmarked
means of financing. For the debt-financed portion of investment, the
interest and repayment of principal are usually recorded in the
operating budget. For the portion of investment purchased in the capital
budget but financed by Federal grants or by taxes, which may be
substantial, State operating budgets do not record any amount. No State
operating budget is charged for depreciation.\15\
---------------------------------------------------------------------------
\15\ The characteristics of State capital budgets were examined in a
survey of State budget officers for all 50 States in 1986. See Lawrence
W. Hush and Kathleen Peroff, ``The Variety of State Capital Budgets: A
Survey,'' Public Budgeting and Finance (Summer 1988), pp. 67-79. More
detailed results are available in an unpublished OMB document, ``State
Capital Budgets'' (July 7, 1987). Two GAO reports examined State capital
budgets and reached similar conclusions on the issues in question. See
Budget Issues: Capital Budgeting Practices in the States, GAO/AFMD-86-
63FS (July 1986), and Budget Issues: State Practices for Financing
Capital Projects, GAO/AFMD-89-64 (July 1989).
---------------------------------------------------------------------------
States also do not record depreciation expense in the financial
accounting statements for governmental funds. They record depreciation
expense only in their proprietary (commercial-type) funds and in those
trust funds where net income, expense, or capital maintenance is
measured.\16\
---------------------------------------------------------------------------
\16\ Governmental Accounting Standards Board (GASB), Codification of
Governmental Accounting and Financial Reporting Standards as of June 30,
1996, sections 1100.107 and 1400.114-1400.118.
---------------------------------------------------------------------------
State borrowing to finance investment, like business borrowing, is
subject to limitations that do not apply to Federal borrowing. Like
business borrowing, it is constrained by the credit market's assessment
of the State's capacity to repay. Furthermore, it is usually designated
for specified investments, and it is almost always subject to
constitutional limits or referendum requirements.
Other developed nations tend to show a more systematic breakdown
between investment and operating expenditures within their budgets than
does the United States, even while they record capital expenditures on a
cash basis within the same budget totals. For example, the United
Kingdom shows the capital spending within each agency total and displays
the sum of capital spending for the government as a whole. However, a
survey by the Congressional Budget Office in 1993 found that all
developed nations except Chile and New Zealand budget on a cash
basis.\17\ New Zealand, moreover, while budgeting on an accrual basis
that generally includes depreciation, requires the equivalent of
appropriations for the full cost up front before a department can make
net additions to its fixed assets; and it budgets for infrastructure
assets that it owns on the basis of cash expenditure rather than
depreciation.\18\ Some countries--including Sweden, Denmark, and
Finland--formerly had separate capital budgets but abandoned them a
number of years ago.\19\
---------------------------------------------------------------------------
\17\ Robert W. Hartman, Statement before the Subcommittee on Economic
Development, Committee on Public Works and Transportation, U.S. House of
Representatives (May 26, 1993). Hartman stated: ``to our knowledge, only
two developed countries, Chile and New Zealand, recognize depreciation
in their budgets.'' The United Kingdom has announced plans to budget on
an accrual basis, including the depreciation for capital assets,
beginning with its budget for 2001-02.
\18\ New Zealand's use of depreciation in its budget is discussed in
GAO, Budget Issues: The Role of Depreciation in Budgeting for Certain
Federal Investments, GAO/AIMD-95-34 (February 1995), pp. 13 and 16-17.
\19\ The budgets in Sweden, Great Britain, Germany, and France are
described in GAO, Budget Issues: Budgeting Practices in West Germany,
France, Sweden, and Great Britain, GAO/AFMD-87-8FS (November 1986).
Sweden had separate capital and operating budgets from 1937 to 1981,
together with a total consolidated budget from 1956 onwards. The reasons
for abandoning the capital budget are discussed briefly in the GAO
report and more extensively by a government commission established to
recommend changes in the Swedish budget system. One reason was that
borrowing was no longer based on the distinction between current and
capital budgets. See Sweden, Ministry of Finance, Proposal for a Reform
of the Swedish Budget System: A Summary of the Report of the Budget
Commission Published by the Ministry of Finance (Stockholm, 1974),
chapter 10.
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[[Page 134]]
Conclusions
It is for reasons such as these that the General Accounting Office
issued a report in 1993 that criticized budgeting for capital in terms
of depreciation. Although the criticisms were in the context of what is
termed ``national capital'' in this chapter, they apply equally to
``Federal capital.''
``Depreciation is not a practical alternative for the Congress and
the administration to use in making decisions on the appropriate
level of spending intended to enhance the nation's long-term
economic growth for several reasons. Currently, the law requires
agencies to have budget authority before they can obligate or spend
funds. Unless the full amount of budget authority is appropriated up
front, the ability to control decisions when total resources are
committed to a particular use is reduced. Appropriating only annual
depreciation, which is only a fraction of the total cost of an
investment, raises this control issue.'' \20\
---------------------------------------------------------------------------
\20\ GAO, Budget Issues: Incorporating an Investment Component in the
Federal Budget, GAO/AIMD-94-40 (November 1993), p. 11. GAO had made the
same recommendation in earlier reports but with less extensive analysis.
After further study of the role of depreciation in budgeting for
national capital, GAO reiterated that conclusion in another study in
1995.\21\ ``The greatest disadvantage . . . was that depreciation would
result in a loss of budgetary control under an obligation-based
budgeting system.'' \22\ Although that study also focused primarily on
what is termed ``national capital'' in this chapter, its analysis
applies equally to ``Federal capital.'' Last year GAO extended its
conclusions to Federal capital as well. ``If depreciation were recorded
in the federal budget in place of cash requirements for capital
spending, this would undermine Congress' ability to control expenditures
because only a small fraction of an asset's cost would be included in
the year when a decision was made to acquire it.'' \23\
---------------------------------------------------------------------------
\21\ GAO, Budget Issues: The Role of Depreciation in Budgeting for
Certain Federal Investments, GAO/AIMD-95-34 (February 1995), pp. 1 and
19-20.
\22\ Ibid., p. 17. Also see pp. 1-2 and 16-19.
\23\ GAO, Budget Issues: Budgeting for Federal Capital, GAO/AIMD-97-5
(November 1996), p. 28. Also see p. 4.
---------------------------------------------------------------------------
Investment in National Capital
A Target for National Investment
The Federal Government's investment in national capital has a much
broader and more varied form than its investment in Federal capital. The
Government's goal is to support and accelerate sustainable economic
growth for the Nation as a whole and in some instances for specific
regions or groups of people. The Government's investment concerns for
the Nation are two-fold:
<bullet> The effect of its own investment in national capital on the
output and income that the economy can produce. Reducing
expenditure on consumption and increasing expenditure on
investment that supports economic growth is a major priority
for the Administration. It has reordered priorities in its
budgets by proposing increases in selected investments.
<bullet> The effect of Federal taxation, borrowing, and other
policies on private investment. The Administration's deficit
reduction policy has brought about an expansion of private
investment, most notably in producers' durable equipment.
In its 1993 report, Incorporating an Investment Component in the
Federal Budget, the General Accounting Office (GAO) recommended
establishing an investment component within the unified budget--but not
a separate capital budget or the use of depreciation--for this type of
investment.\24\ GAO defined this investment as ``federal spending,
either direct or through grants, that is directly intended to enhance
the private sector's long-term productivity.'' \25\ To increase
investment--both public and private--GAO recommended establishing
targets for the level of Federal investment and for a declining path of
unified budget deficits over time.\26\ Such a target for investment in
national capital would focus attention on policies for growth, encourage
a conscious decision about the overall level of growth-enhancing
investment, and make it easier to set spending priorities in terms of
policy goals for aggregate formation of national capital. GAO reiterated
its recommendation in another report in 1995.\27\
---------------------------------------------------------------------------
\24\ Incorporating an Investment Component in the Federal Budget, pp.
1-2, 9-10, and 15.
\25\ Ibid., pp. 1 and 5.
\26\ Ibid., pp. 2 and 13-16.
\27\ The Role of Depreciation in Budgeting for Certain Investments,
pp. 2 and 19-20.
Table 6-12. UNIFIED BUDGET WITH NATIONAL INVESTMENT COMPONENT, 1998
(In billions of dollars)
------------------------------------------------------------------------
Receipts................................................. 1,567
Outlays:
National investment.................................... 121
Other.................................................. 1,567
--------------
Subtotal, outlays..................................... 1,687
--------------
Surplus or deficit (-)................................. -121
------------------------------------------------------------------------
Table 6-12 illustrates the unified budget reorganized as GAO
recommends to have a separate component for investment in national
capital. This component is roughly estimated to be $121 billion in 1998.
It includes infrastructure outlays financed by Federal grants to State
and local governments, such as highways and sewer projects, as well as
direct Federal purchases of infrastructure, such as electric power
generation equipment. It also includes intangible investment for
nondefense research and development, for basic research financed through
defense, and for education and training. Much of this expenditure
consists of grants and credit assistance to State and local governments,
nonprofit organizations, or individuals. Only 12 percent of national
investment consists of assets to be owned by the Federal Government.
Military investment and some
[[Page 135]]
other ``capital assets'' as defined
previously are excluded, because that investment does not primarily
enhance economic growth.
A Capital Budget for National Investment
Table 6-13 roughly illustrates what a capital budget and operating
budget would look like under this definition of investment--although it
must be emphasized that this is not GAO's recommendation. Some
proponents of a capital budget would make spending decisions within the
framework of such a capital budget and operating budget. But the
limitations that apply to the use of depreciation in deciding on
investment decisions for Federal capital apply even more strongly in
deciding on investment decisions for national capital. Most national
capital is neither owned nor controlled by the Federal Government. Such
investments are sunk costs completely and can be controlled only by
decisions made up front when the Government commits itself to the
expenditure.\28\
---------------------------------------------------------------------------
\28\ GAO's conclusions about the loss of budgetary control that were
quoted at the end of the section on Federal capital came from studies
that predominantly considered ``national capital.''
Table 6-13. CAPITAL, OPERATING, AND UNIFIED BUDGETS: NATIONAL CAPITAL,
1998 \1\
(In billions of dollars)
------------------------------------------------------------------------
Operating Budget
Receipts................................................ 1,536
Expenses:
Depreciation \2\...................................... 77
Other................................................. 1,567
---------------
Subtotal, expenses.................................. 1,644
---------------
Surplus or deficit (-)................................ -108
Capital Budget
Income:
Depreciation \2\...................................... 77
Earmarked tax receipts \3\............................ 31
---------------
Subtotal, income.................................... 108
Capital expenditures.................................... 121
---------------
Surplus or deficit (-)................................ -12
Unified Budget
Receipts................................................ 1,567
Outlays................................................. 1,687
---------------
Surplus or deficit (-).............................. -121
------------------------------------------------------------------------
\1\ For the purpose of this illustrative table only, education and
training outlays are arbitrarily depreciated over 30 years by the
straight-line method. This differs from the treatment of education and
training elsewhere in this chapter and in Chapter 2. All depreciation
estimates are subject to the limitations explained in Part III of this
chapter. Depreciation is measured in terms of current cost.
\2\ Excludes depreciation on capital financed by earmarked tax receipts
allocated to the capital budget.
\3\ Consists of tax receipts of the highway and airport and airways
trust funds, which are user charges earmarked for financing capital
expenditures.
In addition to these basic limitations, the definition of investment
is more malleable for national capital than Federal capital. Many
programs promise long-term intangible benefits to the Nation, and
depreciation rates are much harder to determine for intangible
investment such as research and education than they are for physical
investment such as highways and office buildings. These and other
definitional questions are hard to resolve. The answers could
significantly affect budget decisions, because they would determine
whether the budget would record all or only a small part of the cost of
a decision when policy makers were comparing the budgetary cost of a
project with their judgment of its benefits. The process of reaching an
answer with a capital budget would open the door to manipulation,
because there would be an incentive to make the operating expenses and
deficit look smaller by classifying outlays as investment and using low
depreciation rates. This would ``justify'' more spending by the program
or the Government overall.\29\
---------------------------------------------------------------------------
\29\ These problems are also pointed out in GAO, Incorporating an
Investment Component in the Federal Budget, pp. 11-12. They are
discussed more extensively with respect to highway grants, research and
development, and human capital in GAO, The Role of Depreciation in
Budgeting for Certain Federal Investments, pp. 11-14. GAO found no
government that budgets for the depreciation of infrastructure (whether
or not owned by that government), human capital, or research and
development (except that New Zealand budgets for the depreciation of
research and development if it results in a product that is intended to
be used or marketed).
---------------------------------------------------------------------------
A Capital Budget and the Analysis of Saving and Investment
Data from the Federal budget may be classified in many different ways,
including analyses of the Government's direct effects on saving and
investment. As Parts I and III of this chapter have shown, the unified
budget provides data that can be used to calculate Federal investment
outlays and federally financed capital stocks. However, the budget
totals themselves do not make this distinction. In particular, the
budget surplus or deficit does not measure the Government's contribution
to the nation's net saving (i.e., saving net of depreciation). A capital
budget, it is sometimes contended, is needed for this purpose.
This purpose, however, is now fulfilled by the Federal sector of the
national income and product accounts (NIPAs). The NIPA Federal sector is
designed to measure the impact of Federal receipts, expenditures, and
deficit on the national economy. It is part of an integrated set of
measures of aggregate U.S. economic activity that is prepared by the
Bureau of Economic Analysis in the Department of Commerce in order to
measure gross domestic product (GDP), the income generated in its
production, and many other variables used in macroeconomic analysis. The
NIPA Federal sector for past periods is published monthly in the Survey
of Current Business with separate releases for historical data.
Estimates for the President's proposed budget through the budget year
are normally published in the budget documents. The NIPA translation of
the budget, rather than the budget itself, is ordinarily used by
economists to analyze the effect of Government fiscal policy on the
aggregate economy.\30\
---------------------------------------------------------------------------
\30\ See chapter 17 of this volume, ``National Income and Product
Accounts,'' for the NIPA current account of the Federal Government based
on the budget estimates for 1997 and 1998, and for a discussion of the
NIPA Federal sector and its relationship to the budget.
---------------------------------------------------------------------------
Until last year the NIPA Federal sector did not divide government
purchases of goods and services between consumption and investment. With
the comprehensive revision of the national income and product accounts
in early 1996, it now makes that distinction.\31\ The
[[Page 136]]
revised NIPA Federal sector is a current account or an operating account for the Federal Government. The current account excludes expenditures for
structures and equipment owned by the Federal Government; it includes
depreciation on the federally owned stock of structures and equipment as
a measure of the cost of using capital assets and thus as part of the
Federal Government's current expenditures. It applies this treatment to
a comprehensive definition of federally owned structures and equipment,
both defense and nondefense, similar to the definition of ``capital
assets'' in this chapter.\32\ The NIPA ``current surplus or deficit'' of
the Federal Government thus measures the Government's direct
contribution to the Nation's net saving (given the definition of
investment that is employed). The 1998 Federal sector deficit is
estimated to be increased $14 billion by including depreciation rather
than gross investment, because depreciation of federally owned
structures and equipment is currently more than gross investment. A
capital budget is not needed to capture this effect.
---------------------------------------------------------------------------
\31\ This distinction is also made in the national income accounts of
most other countries and in the System of National Accounts (SNA), which
is guidance prepared by the United Nations and other international
organizations. Definitions of investment may vary. Other countries and
the SNA do not include the purchase of military equipment as investment.
\32\ The revised NIPA Federal sector is explained in Survey of Current
Business, ``Preview of the Comprehensive Revision of the National Income
and Product Accounts: Recognition of Government Investment and
Incorporation of a New Methodology for Calculating Depreciation''
(September 1995), pp. 33-39. Investment does not include expenditures on
research and development or on education and training. Government
enterprises are treated differently from general government. The NIPA
State and local sector has been revised in the same way and includes
depreciation on structures and equipment owned by State and local
governments that were financed by Federal grants as well as by their own
resources.
---------------------------------------------------------------------------
Borrowing to Finance a Capital Budget
A further issue raised by a capital budget is the financing of capital
expenditures. Some have argued that the Government ought to balance the
operating budget and borrow to finance the capital budget--capital
expenditures less depreciation. The rationale is that if the Government
borrows for net investment and the rate of return exceeds the interest
rate, the additional debt does not add a burden onto future generations.
Instead, the burden of paying interest on the debt and repaying its
principal is spread over the generations that will benefit from the
investment. The additional debt is ``justified'' by the additional
assets.
This argument is at best a justification to borrow to finance net
investment, after depreciation is subtracted from gross outlays, not to
borrow to finance gross investment. To the extent that capital is used
up during the year, there are no additional assets to justify additional
debt. If the Government borrows to finance gross investment, the
additional debt exceeds the additional capital assets. The Government is
thus adding onto the amount of future debt service without providing the
additional capital that would produce the additional income needed to
service that debt.
This justification, furthermore, requires that depreciation be
measured in terms of current cost, not historical cost. When prices
change, historical cost depreciation does not measure the extent to
which the capital stock is used up each year.
As a broad generalization, Tables 6-11 and 6-13 suggest that this
rationale would not currently justify much Federal borrowing, if any at
all, under the two capital budgets roughly illustrated in this chapter.
For Federal capital, Table 6-11 indicates that current cost depreciation
is more than gross investment for Federal capital--the capital budget
surplus is $39 billion (or $1 billion excluding defense capital). The
rationale of borrowing to finance net investment would not justify the
Federal Government borrowing at all to finance its investment in Federal
capital; instead, it would have to repay debt in this amount. Together
with balancing the operating budget, this would approximately require
the Government to eliminate its 1998 borrowing of $121 billion (the
unified budget deficit) and also repay debt of $39 billion--a total
difference of $160 billion. For national capital, table 6-13 indicates
that current cost depreciation (plus the excise taxes earmarked to
finance capital expenditures for highways and airports and airways \33\)
is less than gross investment but almost as large--the capital budget
deficit is $12 billion. The rationale of borrowing to finance net
investment would justify the Federal Government borrowing only this
amount to finance its investment in national capital. Together with
balancing the operating budget, this would approximately require the
Government to reduce its borrowing in 1998 from $121 billion (the
unified budget deficit) to $12 billion.
---------------------------------------------------------------------------
\33\ The capital budget deficit would be about $13 billion larger if
current cost depreciation were used instead of earmarked excise taxes
for highways and airports and airways.
---------------------------------------------------------------------------
Even with depreciation calculated in current cost, the rationale for
borrowing to finance net investment is not persuasive. The Federal
Government, unlike a business or household, is responsible not only for
its own affairs but also for the general welfare of the Nation. To
maintain and accelerate national economic growth and development, the
Government needs to sustain private investment as well as its own
national investment. For more than the last decade, however, net
national saving and investment have been low, both by historical
standards and in comparison to the amounts needed to achieve the
Administration's goals for accelerated growth.
To the extent that the Government finances its own investment in a way
that results in lower private investment, the net increase of total
investment in the economy is less than the increase from the additional
Federal capital outlays alone. The net increase in total investment is
significantly less if the Federal investment is financed by borrowing
than if it is financed by taxation, because borrowing primarily draws
upon the saving available for private (and State and local) investment
whereas much of taxation instead comes out of private consumption.
Therefore, the net effect of Federal investment on economic growth would
be reduced if it were financed by borrowing. This would be the result
even if the rate of return on Federal investment was higher than the
rate of return on private investment. For example, if a Federal
investment that yielded a 15 percent rate of return crowded out
[[Page 137]]
private investment that yielded 10 percent, the net social return would still be positive but it would only be 5 percent.\34\
---------------------------------------------------------------------------
\34\ GAO considered deficit financing of investment but did not
recommend it. See Incorporating an Investment Component in the Federal
Budget, pp. 12-13.
---------------------------------------------------------------------------
The first budget of this Administration was a bold step to increase
the saving available for private investment while also increasing
Federal investment for national capital. The deficit has been cut by
nearly two-thirds during the past four years, and available resources
have been shifted to investment in education and training and in science
and technology. The present budget goes further, proposing budget
balance by 2002 while protecting high priority investments. A capital
budget is not a justification to relax current and proposed budget
constraints. Any easing would undo the gains from the deficit reduction
already achieved and the further gains from balancing the budget by
2002.
[[Page 138]]
Part V: SUPPLEMENTAL PHYSICAL CAPITAL INFORMATION
The Federal Capital Investment Program Information Act of 1984 (Title
II of Public Law 98-501; hereafter referred to as the Act) requires that
the budget include projections of Federal physical capital spending and
information regarding recent assessments of public civilian physical
capital needs. This section is submitted to fulfill that requirement.
This section is organized in two major parts. The first part projects
Federal outlays for public physical capital and the second part presents
information regarding public civilian physical capital needs.
Projections of Federal Outlays For Public Physical Capital
Federal public physical capital spending is defined here to be the
same as the ``major public physical capital investment'' category in
Part I of this chapter. It covers spending for construction and
rehabilitation, acquisition of major equipment, and other physical
assets. This section excludes outlays for human capital, such as the
conduct of education and training, and outlays for the conduct of
research and development.
The projections are done generally on a current services basis, which
means they are based on 1997 enacted appropriations and adjusted for
inflation in later years. The current services concept is discussed in
Chapter 16, ``Current Services Estimates.''
Federal public physical capital spending was $115.9 billion in 1996
and is projected to increase to $126.3 billion by 2007 on a current
services basis. The largest components are for national defense and for
roadways and bridges, which together accounted for more than two-thirds
of Federal public physical capital spending in 1996.
Table 6-14 shows projected current services outlays for Federal
physical capital by the major categories specified in the Act. Total
Federal outlays for transportation-related physical capital were $28.1
billion in 1996, and current services outlays are estimated to increase
to $32.7 billion by 2007. Outlays for nondefense housing and buildings
were $11.7 billion in 1996 and are estimated to be $11.7 billion in 2007
also. Physical capital outlays for other nondefense categories were
$21.1 billion in 1996 and are projected to be $22.8 billion by 2007. For
national defense, this spending was $55.0 billion in 1996 and is
estimated on a current services basis to be $59.1 billion in 2007.
Table 6-14. CURRENT SERVICES OUTLAY PROJECTIONS FOR FEDERAL PHYSICAL CAPITAL SPENDING
(In billions of dollars)
--------------------------------------------------------------------------------------------------------------------------------------------------------
1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007
--------------------------------------------------------------------------------------------------------------------------------------------------------
Nondefense:
Transportation-related categories:
Roadways and bridges................................ 19.7 19.6 19.8 20.0 20.2 20.4 20.7 21.4 21.8 22.3 22.9 23.4
Airports and airway facilities...................... 4.2 3.5 3.5 3.5 3.5 3.6 3.8 3.9 4.0 4.1 4.2 4.4
Mass transportation systems......................... 3.7 3.9 2.9 3.4 3.3 3.7 3.7 3.7 3.8 3.9 4.0 4.1
Railroads........................................... 0.6 0.5 0.6 0.7 0.6 0.6 0.7 0.7 0.7 0.7 0.7 0.8
-----------------------------------------------------------------------------------------------
Subtotal, transportation............................ 28.1 27.5 26.9 27.6 27.7 28.3 28.9 29.7 30.4 31.1 31.9 32.7
Housing and buildings categories:
Federally assisted housing.......................... 6.8 7.2 6.6 6.2 6.1 6.1 6.1 6.3 6.3 6.4 6.5 6.6
Hospitals........................................... 1.8 1.7 1.6 1.6 1.6 1.7 1.7 1.8 1.9 1.9 2.0 2.1
Public buildings \1\................................ 3.1 3.1 3.0 3.1 3.5 3.3 3.1 2.7 2.7 2.8 2.9 3.1
-----------------------------------------------------------------------------------------------
Subtotal, housing and buildings..................... 11.7 12.0 11.1 10.8 11.2 11.1 11.0 10.8 10.9 11.2 11.4 11.7
Other nondefense categories:
Wastewater treatment and related facilities......... 2.8 2.5 2.0 2.3 2.7 3.0 2.9 3.0 3.1 3.1 3.2 1.5
Water resources projects............................ 2.3 2.4 2.1 2.2 2.3 2.3 2.4 2.4 2.5 2.6 2.6 2.7
Space and communications facilities................. 3.1 4.6 3.7 4.1 2.3 2.2 3.9 4.0 4.1 4.2 4.3 4.5
Energy programs..................................... 2.1 1.6 1.5 1.5 1.5 1.5 1.6 1.7 1.6 1.7 1.7 1.7
Community development programs...................... 5.3 5.8 5.4 5.6 5.4 5.5 5.6 5.8 5.9 6.1 6.2 6.4
Other nondefense.................................... 5.4 5.8 1.6 5.9 6.1 6.1 6.3 6.5 6.7 6.9 7.1 6.0
-----------------------------------------------------------------------------------------------
Subtotal, other nondefense.......................... 21.1 22.7 16.3 21.5 20.2 20.6 22.6 23.4 23.9 24.6 25.2 22.8
-----------------------------------------------------------------------------------------------
Subtotal, nondefense.................................. 60.9 62.2 54.3 59.9 59.1 59.9 62.5 63.8 65.2 66.8 68.5 67.2
National defense........................................ 55.0 50.7 48.5 49.9 51.2 52.1 52.7 54.3 54.7 56.1 57.6 59.1
===============================================================================================
Total................................................... 115.9 112.8 102.8 109.8 110.3 112.0 115.2 118.1 119.9 123.0 126.1 126.3
--------------------------------------------------------------------------------------------------------------------------------------------------------
\1\ Excludes outlays for public buildings that are included in other categories in this table.
[[Page 139]]
Table 6-15 shows current services projections on a constant dollar
basis, using fiscal year 1992 as the base year.
For outlay details for most programs, see the items included in major
public physical capital in tables 6-2 and 6-3.
Public Civilian Capital Needs Assessments
The Act requires information regarding the state of major Federal
infrastructure programs, including highways and bridges, airports and
airway facilities, mass transit, railroads, federally assisted housing,
hospitals, water resources projects, and space and communications
investments. Funding levels, long-term projections, policy issues, needs
assessments, and critiques, are required for each category.
Capital needs assessments change little from year to year, in part due
to the long-term nature of the facilities themselves, and in part due to
the consistency of the analytical techniques used to develop the
assessments and the comparatively steady but slow changes in underlying
demographics. As a result, the practice has arisen in reports in
previous years to refer to earlier discussions, where the relevant
information had been carefully presented and changes had been minimal.
The needs assessment material in reports of earlier years is
incorporated this year largely by reference to earlier editions and by
reference to other needs assessments. The needs analyses, their major
components, and their critical evaluations have been fully covered in
past Supplements, such as the 1990 Supplement to Special Analysis D.
It should be noted that the needs assessment data referenced here have
not been determined on the basis of cost-benefit analysis. Rather, the
data reflect the level of investment necessary to meet a predefined
standard (such as maintenance of existing highway conditions). The
estimates do not address whether the benefits of each investment would
actually be greater than its cost or whether there are more cost-
effective alternatives to capital investment, such as initiatives to
reduce demand or use existing assets more efficiently. Before investing
in physical capital, it is necessary to compare the cost of each project
with its estimated benefits, within the overall constraints on Federal
spending.
Table 6-15. CURRENT SERVICES OUTLAY PROJECTIONS FOR FEDERAL PHYSICAL CAPITAL SPENDING
(In billions of constant 1992 dollars)
----------------------------------------------------------------------------------------------------------------
Estimate
1996 -----------------------------------------------
actual 1997 1998 1999 2000 2001 2002
----------------------------------------------------------------------------------------------------------------
Nondefense:
Transportation-related categories:
Roadways and bridges................................ 18.1 17.6 17.4 17.1 16.8 16.5 16.4
Airports and airway facilities...................... 4.0 3.3 3.1 3.1 3.0 3.0 3.1
Mass transportation systems......................... 3.4 3.5 2.6 2.9 2.8 3.0 2.9
Railroads........................................... 0.6 0.5 0.6 0.7 0.5 0.5 0.5
-------------------------------------------------------
Subtotal, transportation............................ 26.1 24.9 23.7 23.7 23.2 23.1 23.0
Housing and buildings categories:
Federally assisted housing.......................... 6.3 6.5 5.8 5.3 5.1 5.0 4.9
Hospitals........................................... 1.8 1.6 1.5 1.4 1.4 1.4 1.5
Public buildings \1\................................ 3.0 3.0 2.7 2.8 3.0 2.8 2.6
-------------------------------------------------------
Subtotal, housing and buildings..................... 11.1 11.1 10.0 9.5 9.5 9.2 8.9
Other nondefense categories:
Wastewater treatment and related facilities......... 2.6 2.3 1.8 2.0 2.2 2.4 2.3
Water resources projects............................ 2.2 2.3 1.9 2.0 2.0 2.0 2.0
Space and communications facilities................. 3.0 4.3 3.4 3.7 2.0 1.9 3.2
Energy programs..................................... 2.1 1.5 1.4 1.3 1.3 1.3 1.3
Community development programs...................... 4.9 5.2 4.7 4.8 4.5 4.5 4.5
Other nondefense.................................... 5.2 5.4 1.4 5.3 5.3 5.2 5.2
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Subtotal, other nondefense.......................... 20.1 21.0 14.6 19.0 17.4 17.2 18.5
=======================================================
Subtotal, nondefense.................................. 57.2 57.0 48.3 52.2 50.1 49.5 50.4
National defense........................................ 50.0 45.0 42.0 42.1 42.1 41.7 41.2
=======================================================
Total................................................... 107.3 101.9 90.3 94.3 92.2 91.3 91.5
----------------------------------------------------------------------------------------------------------------
\1\ Excludes outlays for public buildings that are included in other categories in this table.
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Significant Factors Affecting Infrastructure Needs Assessments
Highways
1. Projected annual growth in travel to the year 2011......... 2.15 percent
2. Annual cost to maintain overall 1993 conditions and
performance on highways eligible for Federal-aid............. $42.8 billion (1993 dollars)
3. Annual cost to maintain overall 1994 conditions on bridges. $5.1 billion (1993 dollars)
Airports and Airway Facilities
1. Airports in the National Plan of Integrated Airport Systems
with scheduled passenger traffic............................. 554
2. Air traffic control towers................................. 476
3. Airport development eligible under airport improvement
program for period 1993-1997................................. $29.7 billion ($9.4 billion for capacity) (1992
dollars)
Mass Transportation Systems
1. Yearly cost to maintain condition and performance of rail
facilities over a period of 20 years......................... $4.2 billion (1993 dollars)
2. Yearly cost to replace and maintain the urban, rural, and
special services bus fleet and facilities.................... $3.7 billion (1993 dollars)
Wastewater Treatment
1. Total remaining needs of sewage treatment facilities....... $127.1 billion (1992 dollars)
2. Total Federal expenditures under the Clean Water Act of $67 billion
1972 through 1996.
3. Percent of population served by centralized treatment
facilities that benefits from at least secondary sewage
treatment systems............................................ 94 percent
4. States and territories served by State Revolving Funds..... 51
Housing
1. Total unsubsidized very low income renter households with
worst case needs (5.3 million*)
A. In severely substandard units............................ 0.4 million
B. With a rent burden greater than 50 percent............... 5.0 million
* The total is less than the sum because some renter families
have both problems.
Indian Health (IHS) Care Facilities
1. IHS hospital occupancy rates (1996)........................ 44.6 percent
2. Average length of stay, IHS hospitals (days) (1996)........ 4.2
3. Hospital admissions (1995)................................. 56,796
4. Outpatient visits (1995)................................... 4,156,146
5. Population (1997).......................................... 1,434,529
Department of Veterans Affairs (VA) Hospitals (1996)
1. Hospitals.................................................. 173
2. Outpatient clinics......................................... 404
3. Domiciliaries.............................................. 39
4. Centers for veterans....................................... 203
5. VA owned nursing home beds................................. 15,712
Water Resources
Water resources projects include navigation (deepwater ports and inland waterways); flood and storm damage
protection; irrigation; hydropower; municipal and industrial water supply; recreation; fish and wildlife
mitigation, enhancement, and restoration; and soil conservation.
Potential water resources investment needs typically consist of the set of projects that pass both a benefit-
cost test for economic feasibility and a test for environmental acceptability. In the case of fish and wildlife
mitigation or restoration projects, the set of eligible projects includes those that pass a cost-effectiveness
test.
Investment Needs Assessment References
General
U.S. Advisory Commission on Intergovernmental Relations (ACIR). High
Performance Public Works: A New Federal Infrastructure Investment
Strategy for America, Washington, D.C., 1993.
U.S. Advisory Commission on Intergovernmental Relations (ACIR). Toward
a Federal Infrastructure Strategy: Issues and Options, A-120,
Washington, D.C., 1992.
U.S. Army Corps of Engineers, Living Within Constraints: An Emerging
Vision for High Performance Public Works. Concluding Report of the
Federal Infrastructure Strategy Programs. Institute for Water Resources,
Alexandria, VA, 1995
U.S. Army Corps of Engineers, A Consolidated Performance Report on the
Nation's Public Works: An Update. Report of the Federal Infrastructure
Strategy Pro-
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gram. Institute for Water Resources, Alexandria, VA, 1995.
Surface Transportaton
Department of Transportation. 1995 Status of the Nation's Surface
Transportation System: Conditions and Performance: Report to Congress.
1995. This report discusses roads, bridges, mass transit, and maritime
transportation.
Airports and Airways Facilities
Federal Aviation Administration. The National Plan of Integrated
Airport Systems Report, April 1995.
Federally Assisted Housing
U.S. Department of Housing and Urban Development, Office of Policy
Planning and Development, Tabulations of 1993 American Housing Survey.
Indian Health Care Facilities
Indian Health Service. Priority System for Health Facility
Construction (Document Number 0820B or 2046T). September 19, 1981.
Indian Health Service. Trends in Indian Health--1995. 1995.
Office of Audit, Office of Inspector General, U.S. Department of
Health and Human Services. Review of Health Facilities Construction
Program. Indian Health Service Proposed Replacement Hospital at
Shiprock, New Mexico (CIN A-09-88-00008). June, 1989.
Office of Audit, Office of Inspector General, U.S. Department of
Health and Human Services. Review of Health Facilities Construction
Program. Indian Health Service Proposed Construction Project for the
Alaska Native Medical Center at Anchorage Alaska (CIN A-09-89-00096).
July, 1989.
Office of Technology Assessment. Indian Health Care (OTA 09H 09290).
April, 1986.
Wastewater Treatment
Environmental Protection Agency, Office of Water. 1992 Needs Survey
Report to Congress. (EPA 832-R-93-002).
Water Resources
National Council on Public Works Improvement. The Nation's Public
Works, Washington, D.C., May, 1987. See ``Defining the Issues--Needs
Studies,'' Chapter II; Report on Water Resources, Shilling et al., and
Report on Water Supply, Miller Associates.
Frederick, Kenneth D., Balancing Water Demands with Supplies: The Role
of Demand Management in a World of Increasing Scarcity, Report for the
International Bank of Reconstruction and Development, Washington, D.C.
1992.