Budget Issues:

Budgeting for Federal Capital

AIMD-97-5: Published: Nov 12, 1996. Publicly Released: Nov 12, 1996.

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Pursuant to a congressional request, GAO reviewed how the Army Corps of Engineers, the Coast Guard, the General Services Administration's Interagency Fleet Management System and Public Building Service, and the U.S. Geological Survey plan and budget for fixed assets, focusing on: (1) these agencies' perception of how the budget process affects their capital acquisitions; (2) whether there are funding mechanisms that might be helpful in planning and budgeting for fixed assets; and (3) the responses to the Office of Management and Budget's (OMB) Bulletin 94-08 on planning and budgeting for the acquisition of fixed assets.

GAO found that: (1) the up-front funding requirement for the full cost of acquisitions allows Congress to control capital spending at the time a commitment is made and to better understand the future economic impact of its decisions; (2) officials at most of the agencies reviewed see up-front funding as problematic, since it requires the full cost of an asset to be absorbed in an agency's or program's annual budget, despite the fact that benefits may accrue over many years; (3) when combined with discretionary spending caps on agency and program budgets, the up-front funding requirement can make capital acquisitions seem prohibitively expensive; (4) a full-scale capital budget would raise major budget control issues and may not be necessary to address agency-identified impediments to capital spending; (5) several strategies can reduce the impact of the full funding requirement on agency budgets and help agencies accommodate the consistent application of up-front funding within the existing budget structure; (6) these strategies include budgeting for stand-alone stages of capital acquisitions, and using a revolving fund or an investment component in a working capital fund; (7) Congress has authorized agencies to accumulate budget authority for capital purchases over time; (8) some agencies have sought accounts dedicated to capital acquisitions, while others have sought additional authority to retain proceeds from capital asset sales; (9) some of these same problems and strategies surfaced as a result of an OMB effort to improve agencies' planning and budgeting for fixed assets; (10) the OMB review identified the full extent to which capital projects were not fully funded up front and led to OMB requesting $1.4 billion in fiscal year (FY) 1997 to fully fund some of these capital projects; and (11) new budget preparation instructions for FY 1998 require agencies to request full up-front funding for stand-alone stages of all ongoing and new fixed-asset acquisitions.

Matter for Congressional Consideration

  1. Status: Closed - Not Implemented

    Comments: In its actions on agencies' FY 1998 budgets, Congress took action consistent with this recommendation. In addition, since providing upfront funding would require more resources under the discretionary caps and no relevant cap adjustment was made in the 1997 amendments to the Budget Enforcement Act, further action on this front is unlikely.

    Matter: Congress should consider enabling agencies to use more flexible budgeting mechanisms that accommodate up-front funding over the longer term while providing appropriate oversight and control. For agencies having proven financial management and capital planning capabilities and relatively small and ongoing capital needs, these techniques could include revolving funds and investment components.

Recommendations for Executive Action

  1. Status: Closed - Implemented

    Comments: During an April 1997 GAO briefing to the OMB Federal Financial Management Controller and other OMB officials on capital planning, these officials informed GAO that OMB was continuing its top-level focus on federal capital issues and was preparing a federal capital planning guide for federal agencies that should address this recommendation. OMB stated in the fiscal year 1998 President's budget that it will work with the Congress to increase the number of projects that are fully funded with regular or advance appropriations and proposed $14.4 billion in regular and advance appropriations to fully fund capital acquisitions. In July 1997, OMB issued its Capital Programming Guide, which requires agencies to focus on fixed asset acquisitions.

    Recommendation: The Director, OMB, should continue the OMB top-level focus on fixed asset acquisitions to include working with agencies and Congress to promote flexible budgetary mechanisms that help agencies accommodate the consistent application of up-front funding requirements while maintaining opportunities for appropriate congressional oversight and control.

    Agency Affected: Executive Office of the President: Office of Management and Budget

  2. Status: Closed - Implemented

    Comments: OMB's Capital Programming Guide issued in July 1997 requires agencies to link capital plans with their strategic plans required by the Government Performance and Results Act (GPRA). In the President's fiscal year 1998 budget, OMB stated that it wants capital acquisition goals incorporated into the annual performance plan called for by GPRA.

    Recommendation: As OMB continues to integrate Government Performance and Results Act requirements into the budget process, the Director, OMB, should ensure that agencies' capital plans flow from and are based upon their strategic and annual performance plans.

    Agency Affected: Executive Office of the President: Office of Management and Budget

  3. Status: Closed - Implemented

    Comments: For the fiscal year 1998 budget, OMB Circular A-11 required agencies to submit information to OMB on their progress in meeting cost, schedule, and performance goals as required by the Federal Acquisition Streamlining Act (FASA). In the fiscal year 1998 budget, OMB stated that it plans to 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. In July 1997, OMB issued its Capital Programming Guide containing guidance to ensure the implementation of FASA.

    Recommendation: OMB should continue its efforts to ensure that cost, schedule, and performance goals are monitored as required by the Federal Acquisition Streamlining Act.

    Agency Affected: Executive Office of the President: Office of Management and Budget


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