Federal Capital Budgeting: A Collection of Haphazard Practices

Highlights

The federal government has enormous amounts of capital assets and helps fund state and local projects. Much of these federally owned and financed items are deteriorating, and the government is faced with the prospect of either repairing or rehabilitating them or risking a staggering replacement burden in the future. Industry, most states, and municipalities follow a capital budgeting procedure, but the federal government does not. A study was conducted of capital investment data and the planning and budgeting experiences of numerous public and private organizations.

Recommendations

Matter for Congressional Consideration

Matter	Status	Comments
The congressional oversight committees should require executive reports to focus on broad policy decisions, timed to congressional cycles, before Congress authorizes and funds individual projects. Reports should inform Congress of: (1) long-term needs; (2) status of projects already approved; (3) long-term plans for meeting needs; and (4) budget year plans addressing long-term needs.	Closed – Implemented	P.L. 98-501 was enacted on October 19, 1984. The Office of Management and Budget (OMB) prepared supplements to special analysis D identifying long-term needs, long-term plans, and budget year plans for meeting long-term needs.
The congressional oversight committees should consider capital investment programs in a way that will not penalize the programs because they are fully funded in the first year they are begun. So that valid program comparisons can be made, Congress and the executive agencies should regularly use longer-term costs for the other programs in the budget.	Closed – Implemented	P.L. 98-501 did not specifically address this issue. The council established by the law may consider this.
The congressional oversight committees should set realistic goals and information requirements for policies, programs, and projects so the public is aware of the condition of the nation's infrastructure and what is going to be done. The committees should grant the administrators of federal agencies the authority and resources to render congressional goals and expectations plausible. Requisite authority and resources should be set out in legislation and in committee and federal agency reports to minimize the gap between expectations and what is feasible. When resources are limited, this would involve explicitly reducing goals to match resource levels.	Closed – Implemented	P.L. 98-501 established a council to study and report on a number of issues, including this one. OMB addressed some of these issues in its supplement to special analysis D.
The congressional oversight committees should consider the financial ability of state and local governments to operate and maintain capital facilities built mainly with federal funds. If the financial ability of the state or local government is questionable, the committees should consider: (1) requiring the states or localities to prove financial ability; (2) financing part of the operations and maintenance costs, as in the case of mass transit grants; or (3) not implementing the projects. The views of state and local governments and federal agencies on these alternatives should be explained in agency budget justifications and in agency comments on proposed legislation.	Closed – Implemented	P.L. 98-501 did not specifically address this issue. The council established by the law may consider this.
Both Congress and the executive branch should specify the information and analytical support they need from federal managers. Congress should give a Senate and a House committee the policy-level oversight responsibility for federal capital investment and for assessing infrastructure needs and conditions. A component of the Executive Office of the President should be designated as a focal point for executive policy directions.	Closed – Implemented	P.L. 98-501 essentially accomplishes this recommendation.
Congress should require, under existing authority or by new legislation, the President's Domestic Policy staff, or a newly established group within the Executive Office of the President, to devise and propose to Congress a strategy and establish an overall policy for the nation's infrastructure needs and physical capital development. Such a strategy should take into account: (1) maintenance of facilities not outdated to minimize future costs; (2) planned obsolescence, abandonment, demolition, or salvage of specific facilities; and (3) construction or renovation to meet technological and program needs.	Closed – Implemented	P.L. 98-501 established an independent council to carry out this recommendation.
Congress should require, under existing authority or by new legislation, the President's Domestic Policy staff, or a newly established group within the Executive Office of the President, to work with lead federal agencies and OMB to ensure that consistent management practices and policies are adopted by all federal agencies and priorities are set for the nation's capital investment projects.	Closed – Implemented	P.L. 98-501 established an independent council to look at this issue.
Congress should require OMB, under existing authority or by new legislation, to build linkages between oversight and audit, evaluation, and planning functions by requiring federal agencies to conduct periodic post-audits of capital assets to assess: (1) the condition of the infrastructure of interest to the agency; (2) the projected requirements for the infrastructures within the agency's area of responsibility; (3) the effectiveness of maintenance standards; and (4) the plans for infrastructure development within the agency's area of responsibility.	Closed – Not Implemented	P.L. 98-501 did not address this issue and it is unlikely OMB will act on it in the near future.
Congress should require, under existing authority or by new legislation, the President's Domestic Policy staff, or a newly established group with the Executive Office of the President, to work with federal agencies and state and local organizations to ensure that federally financed physical capital is adequately maintained.	Closed – Implemented	P.L. 98-501 established an independent council that has the authority to study this and report to the President and Congress.
Congress should require, under existing authority or by new legislation, the President's Domestic Policy staff, or a newly established group within the Executive Office of the President, to take an active part in reviewing federal agencies' budgets as they pertain to capital investment and work with OMB to ensure that stated capital investment policies and strategies are fully considered.	Closed – Not Implemented	P.L. 98-501 did not address this issue. OMB may implement this in the future, but it is uncertain.
Congress should require, under existing authority or by new legislation, the President's Domestic Policy staff, or a newly established group within the Executive Office of the President, to work with lead federal agencies to review and streamline the guidance on analyses used to justify capital projects. The streamlined guidance should ensure that all agencies, before requesting project approval, conduct analyses of life-cycle costs for all capital projects and analyses of alternatives for meeting capital needs.	Closed – Implemented	P.L. 98-501 directed the National Council on Public Works Improvement to evaluate alternative means of meeting capital needs.
Congress should require, under existing authority or by new legislation, the President's Domestic Policy staff, or a newly established group within the Executive Office of the President, in January of each even-numbered year, to submit to Congress a 4-year outlook report summarizing the plans for at least 4 future years of federal capital investment programs and their expected contributions to the nation's infrastructure.	Closed – Implemented	P.L. 98-501 requires estimates of investments for the next 10 years in current dollars and over a period of 5 years in constant dollars. OMB provided its first report as a supplement to special analysis D with the 1986 budget.
Congress should require, under existing authority or by new legislation, the President's Domestic Policy staff, or a newly established group within the Executive Office of the President, to work through state and local organizations to develop periodic assessments of the condition of federally financed physical capital that is owned by state and local governments.	Closed – Implemented	P.L. 98-501 requires the National Council on Public Works Improvements to develop and recommend, to Congress and the President, guidelines for uniform reporting.
Congress should require OMB, under existing authority or by new legislation, to direct federal agencies that acquire or finance physical capital to explain in their annual budget to Congress the relationships of their proposals to the long-range capital needs and investment plan and to the priorities contained in the 4-year outlook.	Closed – Implemented	P.L. 98-501 required OMB to provide overall data only in the budget.
Congress should require OMB to build linkages between oversight and audit, evaluation, and planning functions by requiring federal agencies to analyze completed capital projects to verify that the project is accomplishing its intended purposes.	Closed – Not Implemented	P.L. 98-501 did not address this issue. There is no indication that OMB will implement this recommendation.
Congress should require, under existing authority or by new legislation, the President's Domestic Policy staff, or a newly established group within the Executive Office of the President, to provide leadership and guidance to federal agencies to tailor their report information to meet the specific needs of the President and Congress for decisions on capital investment policy, legislation, and budget analysis. Leadership and guidance should take the form of: (1) requiring the federal agencies to develop, use, and submit, timed to the budget cycle, capital investment information focusing on identification of long-term needs, long-term plans for meeting needs, budget-year plan addressing long-term needs, and status of projects previously approved; and (2) summarizing information on federal capital investment activities and submitting it to Congress with the President's budget.	Closed – Implemented	P.L. 98-501 required only overall data in a number of specific capital investment categories. OMB provided this data in a supplement to special analysis D beginning with the 1986 budget.

See All 16 Recommendations

Full Report

Full Report (158 pages)

Office of Public Affairs

Chuck Young

Managing Director

youngc1@gao.gov

(202) 512-4800

Topics

Budget and Spending

BudgetingBuildingsCapitalFederal aid to localitiesFederal aid to statesInvestment planningPublic worksRehabilitation programsRepairsRoad construction