Budget Issues

As federal agencies confront shrinking budgets and increasing demands for better service, the importance of making the most effective fixed-asset acquisitions grows. Fixed assets often require large amounts of resources up front but can yield long-term efficiencies and savings. Prudent capital planning can help agencies make the most of limited resources, while failure to make timely and effective capital acquisitions can result in higher long-term costs. This report reviews how five federal organizations--the Army Corps of Engineers, the Coast Guard, the Interagency Fleet Management System and Public Buildings Service of the General Services Administration, and the U.S. Geological Survey--plan and budget for fixed assets. GAO examines (1) how these organizations believe the current budget process affects their capital acquisitions and (2) whether funding mechanisms exist--used or proposed by the organizations--that might be helpful in planning and budgeting for fixed assets. GAO also examines the response to the Office of Management and Budget's Bulletin 94-08, "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.

Recommendations

Our recommendations from this work are listed below with a Contact for more information. Status will change from "In process" to "Open," "Closed - implemented," or "Closed - not implemented" based on our follow up work.

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