Both the Congress and the administration are considering budgeting alternatives to decrease the annual federal deficit while increasing long-term federal investment intended to enhance private sector growth. Objectives, Scope, and Methodology

The objectives of this review were to determine (1) whether federal agencies are depreciating transportation infrastructure, R&D, and human capital for accounting and budgeting purposes, and if so, the methods they use, (2) whether any state, local, or foreign governments are depreciating these investments, and (3) whether depreciation of these investments could be useful in budgeting. Depreciation of assets in federal accounting is often not done because it is difficult to do and often provides little relevant information. Depreciation in accounting can be a complex and technical subject and involves significant subjectivity concerning such key factors as the asset’s value, its useful life, and its salvage value. First, it is often difficult, and in some cases impossible, to link federal grant money to the value of a specific infrastructure asset. Depreciation for National Economic Wealth Estimates

Although federal investments in transportation infrastructure, R&D, and human capital are not depreciated for budgeting or accounting purposes, OMB and BEA depreciate infrastructure and R&D investments to make rough estimates of national wealth for analytical purposes. In these economywide analyses, the problems of determining ownership or control of assets are not relevant. Private businesses use depreciation primarily for two purposes: (1) to match revenues with expenses in a given period for the purposes of reporting profit or loss in financial statements and (2) for tax purposes.
Why GAO Did This Study

GAO reviewed whether: (1) federal agencies are depreciating transportation infrastructure, research and development (R&D), and human capital investments for accounting and budgeting purposes; and (2) depreciation of these investments could be useful in federal budgeting.

What GAO Found

GAO found that: (1) the federal government generally does not depreciate transportation infrastructure, R&D, and human capital investments for accounting or budgeting purposes; (2) Congress and the Administration are considering budgeting alternatives to decrease the annual federal deficit and increase long-term federal investments; (3) budget and accounting experts do not support depreciating these investments for budgeting purposes, since it is difficult to determine the value and useful life of such investments; (4) depreciation in accounting is complex and involves such key factors as the asset's value, its useful life, and its salvage value; (5) federal agencies do not depreciate assets they do not own because it is difficult to link federal grant money to the value of a specific asset; (6) although economists depreciate infrastructure and R&D investments to generate national economic wealth estimates, the problems of determining ownership or control of assets are not relevant in these analyses; and (7) private businesses use depreciation primarily to match revenues with expenses for a given period and for tax purposes.