The primary focus of this report is on the capital planning and budgeting experiences of five case study organizations represented by four agencies: the Army Corps of Engineers, the Coast Guard, the General Services Administration’s (GSA) Interagency Fleet Management System (IFMS) and the Public Buildings Service (PBS), and the U.S. Geological Survey (USGS). Instead, agencies must budget for the full cost of contracts up-front. Objectives, Scope, and Methodology

The objectives of this study were to examine (1) how case study organizations perceive the budget process and structure affects their ability to acquire capital assets, (2) whether there are financing mechanisms currently used or proposed by our case studies that could be helpful in improving budgeting for capital assets within the current unified budget structure, and (3) the results of OMB’s Bulletin 94-08 on “Planning and Budgeting for the Acquisition of Fixed Assets.”
To identify aspects of the budget process that affected case studies’ capital spending decisions and the financing mechanisms they used and proposed, we interviewed officials from our case studies as well as OMB and congressional staff responsible for reviewing the budgets of these organizations. The up-front funding requirement advances both. In the fiscal year 1997 President’s budget, OMB requested $1.4 billion in budget authority to fully fund selected ongoing projects in DOE and NASA that otherwise would have been incrementally funded. Several of these approaches to financing capital may be worthwhile for other agencies to consider to help accommodate the up-front funding requirement. The review found that some agencies lacked an integrated planning and budgeting process for fixed assets. Although most agencies were requesting full funding for capital projects, the review identified some large capital projects that were not fully funded and prompted OMB officials to encourage full up-front funding when discussing budget requests with agencies. In addition, it requires agencies to request full up-front funding for stand-alone stages of all ongoing and new fixed-asset acquisitions and outlines broad principles for planning and monitoring such acquisitions. Some have recommended that the government adopt a full-scale capital budget, but this raises major budget control issues and may not be necessary to address agency-identified impediments to capital spending. In addition to using revolving funds or an investment component, some case studies budget for stand-alone stages of capital acquisitions and use reprogramming authority. Recommendations to the Office of Management and Budget

GAO recommends that the Director of the Office of Management and Budget continue OMB’s top-level focus on fixed-asset acquisitions to include working with agencies and the 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. Matter for Congressional Consideration

Although requiring that budget authority for the full cost of acquisitions be provided before an acquisition is made allows the Congress to control capital spending at the time a commitment is made, it also presents challenges. Because the entire cost for these relatively expensive acquisitions must be absorbed in the annual budget of an agency or program, fixed assets may seem prohibitively expensive despite their long-term benefits.
Why GAO Did This Study

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.

What GAO Found

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.