Pros and Cons of a Separate Capital Budget for the Federal Government

Pursuant to a congressional request, GAO examined: (1) the advantages and disadvantages of the use of a unified capital budget by the Federal Government; and (2) the information needed to formulate national policy for investing in capital assets.

GAO stated that, in contrast to businesses and State and local governments, the Federal Government uses the unified budget, in which the acquisition of capital assets is treated like any current operating expense. The Government's involvement in national economic stability requires it to focus on its total spending in relation to its total revenues, and the unified budget is designed with this in mind. In a prior report, GAO examined problems caused by current capital budgeting practices, including the deterioration of the Nation's infrastructure and the short-term approaches taken to long-term problems. GAO found that there is no consistent basis within the budgeting process for setting priorities among projects and programs, and there is no framework for identifying projects with similar objectives or projects that are at cross purposes. GAO believes that the complexity of establishing a separate Federal budget and its potential for weakening aggregate spending controls suggest that a simpler solution be considered first. Separating capital investment budgeting items into a dual budget would detract from the overall policy perspective that has been achieved. A resectioned unified budget would provide information on capital investments during the formulation of the President's budget proposals and the congressional debate on and creation of the Federal budget. This resectioned budget would identify Federal capital investment outlays and clearly distinguish them from current expenditures.