The federal government acquires a wide variety of capital assets for its own use, including land, structures, equipment, vehicles, and information technology. To directly acquire a capital asset, agencies generally are required to have full up-front budget authority for the total cost of the asset. This allows Congress to recognize the full budgetary effect of capital spending at the time a commitment is made. With capital assets, the cost can only be controlled upfront when the acquisition occurs. It also means that the full cost of the asset must be recognized in the annual budget even though benefits may accrue over many years. Outlays are recorded as funds are disbursed, which may occur over a number of years. These cash disbursements increase the cash deficit in the years those outlays are made.
In contrast, the Financial Report recognizes the expense for a capital asset by spreading its cost over its expected useful life. This is known as depreciation expense and increases the accrual deficit each year of the asset's life. Depreciation is not recognized in the cash deficit.
There are also differences in how capital assets are treated when they are sold or destroyed or revalued to reflect the true value of the asset. When an asset is sold, the budget deficit reflects a cash receipt for the full amount of the sale. The accrual deficit, however, recognizes the difference between the amount that is received for the asset upon disposal and the book value of the asset (the amount paid less depreciation already recognized). If an asset is destroyed or revalued to reflect a better estimate of its value, this is recognized in the accrual deficit but not the cash deficit.
Capital Assets (By Fiscal Year, Dollars in Billions)
|Components of accrual deficit not part of the cash deficit|
|Property, plant, and equipment disposals and revaluations||6.5||-9.8||-4.6||9.4||-36.2|
|Components of cash deficit not part of the accrual deficit|
|Outlays for capitalized fixed assets||-112.4||-92.5||-87.7||-70.7||-67.6|
Source: Unaudited Treasury data from the Financial Reports.
What contributes to changes in capitalized assets and depreciation?
Changes in the amount of outlays for capital assets, and subsequently to depreciation, are determined in part by the budget authority provided by Congress each year and agency decisions on how to allocate budget resources to capital. However, too much focus should not be placed on the exact size of the increases or decreases in capitalized assets. As we have reported in the past, the federal government has been unable to satisfactorily determine that capital assets are properly reported in the Financial Report. A majority of capital assets are the responsibility of the Department of Defense and it has not maintained adequate systems or sufficient records to support the reliability of information on these assets.