Capital acquisition funds (CAFs) might be useful in addressing the following issues:
For many programs, the cost of capital is not uniformly and appropriately charged to the program, so that resources can be compared with the results achieved. The acquisition cost of the capital may be paid by the program up front in one year, so that the program has very large capital costs in some years and little or no cost in other years. Alternatively, the rental cost of using capital -- or the acquisition cost of the capital -- may be paid by a central account, so that the program pays nothing. The financial cost of holding capital (interest) is seldom charged to any program.
Another problem is the scattering of capital asset acquisitions throughout agency budget accounts. The result may be spikes in budget authority (BA) and outlays for specific accounts that make it more difficult for the agency to obtain funding within budget constraints, even if the agency's total acquisition costs are at more regular levels. In some cases, the capital costs are combined with operating costs. This makes the total cost of the program less meaningful for analytical purposes, and spikes in capital costs may squeeze out operating costs.
CAFs are a possible solution. There would be at least one such fund in each department and major agency, more if necessary. They would only finance the acquisition of capital assets and would get appropriations of BA on a full funding basis. The BA would be in the form of authority to borrow from Treasury. The CAFs would purchase the assets, using borrowed funds, and rent the assets to one or more program accounts, charging a rate sufficient to cover repayments of principal and interest on borrowing from Treasury. The program account would outlay the rent out of funds appropriated for operating expenses and the CAF would receive the rent as an offsetting collection. (Thus, total budget authority and outlays -- and the surplus or deficit -- would be unaffected.) Rental collections could only be used by the CAF to repay funds borrowed from Treasury and to pay interest to Treasury. They could not be used to finance new assets.
Current cost vs. historical cost.--The approach described above uses historical cost as the basis for charging rent -- the rental payments equal the amount needed to repay the debt incurred to finance the purchase of the asset. There are practical advantages to this approach, not the least of which is that it makes sense to people.
On the other hand, there is strong theoretical support for setting rent at current market cost. It is the right measure for comparing the cost of using resources for Federal vs. private purposes. It provides a level playing field for selecting asset providers among the CAF, GSA (which charges current market rent), and the private sector. A disadvantage is that it creates a mismatch between the CAF's rental collections and its repayments to Treasury. This could create balances and the temptation to use them for other purposes.
Degree of consolidation.--CAFs would be useful for appropriately budgeting capital costs even if there were one for every program. However, if the capital costs of an agency were consolidated into fewer CAFs, they would become more useful in ameliorating spikes in budget authority and outlays. Some agencies could consolidate capital costs into one CAF. Those with substantial capital for diverse missions reporting to different appropriations committees may need more than one.
Experience with GSA's Federal Buildings Fund and the Information Technology
Fund shows that consolidation above the agency level can create management
and decisionmaking problems. For example, GSA's failure to anticipate the
full impact of Federal downsizing in FY 1996 and 1997 contributed to a
major shortfall in rent. Agency heads are better able and have more incentive
to determine their agencies' needs and priorities.
|What is a capital acquisition?||For this purpose, the term means the purchase or construction
of physical assets--land, buildings, land, and major equipment--directly
by the Federal government for its own use. It excludes grants to others
for acquiring physical assets, and it excludes Federal expenditures for
the conduct of R&D and education and training.
|How are capital acquisitions currently distributed in Interior?||Capital acquisitions occur in eight bureaus and nineteen budget accounts.
During fiscal years 1997-99 (as shown in the FY 1999 Budget), budget authority
for capital acquisitions ranges from less than $1 million for some accounts
to more than $500 million for one account. Attachment
A shows capital expenditures (budget authority and outlays) by bureau
and account in each of these fiscal years.
|How would CAFs change this distribution?||Capital acquisitions could be consolidated into one fund for all of
Interior. However, this would combine acquisitions funded by two subcommittees
of the Appropriations Committee in both the House and Senate: the Energy
and Water Development Subcommittee, which is responsible for Bureau of
Reclamation programs; and the Interior and Related Agencies Subcommittee,
which is responsible for all other Interior programs. Because crossing
subcommittee jurisdictions would create many problems, Interior would probably
need two funds. Also, this example is hypothetical; Interior officials
might identify other reasons for not combining all capital acquisitions
into only two funds.
The CAF for the Bureau of Reclamation would consolidate acquisitions in five of the bureau's accounts. Budget authority would be $418 million in FY 1997, $372 million in FY 1998, and $357 millions in FY 1999.
A CAF for the balance of Interior would consolidate acquisitions in
seven bureaus and fourteen accounts. Budget authority would be $776 million
in FY 1997, $1,191 million in FY 1998, and $658 millions in FY 1999.
|Would this redistribution change program management and operating responsibilities?||No. The CAFs would be accounting devices, not new organizational units.
The same officials would make decisions about capital acquisitions at whatever
level they do this now. The same staff would take the actions necessary
to acquire the assets, arrange for maintenance, etc.
|Would CAFs change Congressional responsibilities?||No. Currently, the budget authority for most capital acquisitions is
provided in annual appropriations acts and amounts are specified by account.
In some cases, the budget authority for an account funds both capital acquisitions
The subcommittees responsible for each CAF would provide the same total amount of budget authority to the CAF for capital investment as they provide now to separate accounts. They could continue to earmark amounts for specific programs or acquisitions, either in the appropriations language or in report language.
For a few capital acquisitions, the budget authority is permanently
appropriated in standing authorizing legislation. This would not change
under the CAF concept. Although the two CAFs would be aligned with the
two appropriations subcommittees (because they would be responsible for
most of the budget authority), the appropriations subcommittees would continue
to be responsible only for the budget authority subject to annual appropriations.
The appropriate authorizing committees would continue to be responsible
for the budget authority that is permanently appropriated.
|Would there be any change in appropriations for capital acquisitions?||Yes. Although the amounts of budget authority and outlays appropriated
for capital acquisitions would not change, the type of budget authority
would. Regular budget authority, which allows program managers to incur
obligations and make outlays with no additional steps, is provided for
most capital acquisitions now. The CAFs would receive budget authority
in the form of borrowing authority.
CAFs would incur obligations for capital acquisitions using borrowing
authority, just like they do with regular budget authority, but they would
have to borrow the cash necessary to make outlays. They would borrow from
the general fund of the Treasury in amounts sufficient to cover the cost
of an acquisition (or class of acquisitions) for lengths of maturity that
would equal the estimated economic life of the asset (or class of assets).
Treasury would determine the interest rate based on the average interest
rate on marketable Treasury securities of comparable maturity. The CAFs
would have to repay the principal with interest.
|How would the CAFs generate the income to repay the principal and interest?||The CAFs would use the borrowed funds to acquire capital assets and
rent them to program operating accounts in the bureaus. For example, the
CAF might finance the construction of a park facility and rent it to the
National Park Service. The rent for a period would equal the amount of
the principal payment and interest owed to Treasury in that period for
that asset. The principal would be amortized over the life of the loan
like a regular mortgage.
|Would the CAFs be set up as revolving funds--that is, allow them to accumulate rents and use them to replace existing assets or acquire new ones, instead of repaying Treasury?||No. Rental collections could only be used by the CAF to repay funds
borrowed from Treasury and to pay interest to Treasury. They could not
be used to finance new assets. Revolving funds revolve because their collections
are permanently appropriated to finance the fund's outlays. In effect,
this is a decision in advance to fund replacement assets or new ones without
subjecting them to the rigors of the budget and appropriation process in
the budget year. Revolving fund acquisitions using accumulated collections
don't have to compete with discretionary funds for other resource demands.
This is appropriate for some public enterprise funds, which conduct a cycle
of business-type activities and where customer demand regulates their expenditures.
But, for taxpayer financed acquisitions, it is important to justify asset
acquisitions in light of current priorities.
|How would the operating account pay the rent?||The operating account would budget for the rent, along with its other
operating expenses, and would use part of the budget authority it receives
each year to pay the rent to the CAF. This would be a new requirement for
many programs--those that now finance their capital acquisitions directly.
However, many programs already rent capital from a working capital fund,
GSA, or the public. The CAF approach would facilitate comparison of the
cost of programs fairly with each other and with performance goals and
|If both the CAFs and the operating accounts get budget authority, wouldn't that be double counting?||No. It is true that, on a gross basis, budget authority for acquisitions
would be appropriated twice--once as the budget authority for the CAF for
the acquisition itself and incrementally over time for the program operating
account as rent. However, in any fiscal year, the budget authority and
outlays for the rental payment in the operating account would be offset
by a collection of the same amount in the CAF. The two transactions would
net to zero in the totals for Interior, for scoring discretionary spending
under the Budget Enforcement Act (BEA), and in the totals for the budget
as a whole.
Though not a double-count, the finance charges (the CAF must pay interest on borrowing from Treasury), which are not charged now on most capital acquisitions, would increase Interior's total budget authority and outlays. The interest would be treated as mandatory spending, under the BEA. However, interest is not scored and would not require Interior or the appropriations subcommittees to make tradeoffs. Requiring the CAF to pay finance charges and including them in the rent paid by the operating account is a means of imputing this element of the acquisition cost to the Government to the agency accounts. In the budget totals, the interest payment would be offset by a receipt in the general fund of the Treasury.
Attachment B shows what would be scored under the BEA for Interior accounts before and after establishing CAFs.
|What's the advantage of all of this extra accounting?||The main advantage is better allocation of the cost of using capital
assets to the programs. For example, for FY 1998, Congress appropriated
$1,246 million of budget authority to the National Park Service's operating
account. This amount did not include $198 million of budget authority for
capital acquisitions, which was appropriated to the construction account.
Under the CAF system of accounting, the parks program wouldn't have been
charged with the $198 million in capital acquisitions in FY 1998. Instead,
it would have been charged rent each year until the CAF's borrowing from
Treasury was repaid. The rent would be paid from the operating account
and, therefore, reflected in the cost of park operations.
This would be a better method of measuring the full cost of program
outputs and outcomes. It would encourage program managers to improve their
use of resources. Currently, there is little incentive for managers to
do anything about underutilized assets; the cost is sunk. If the program
had to pay rent, however, managers would be encouraged to increase the
utilization of an asset--occupy it with other activities, rent it to someone
else, or request the CAF to sell it.
|Will CAFs help with "spikes" in budget authority and outlays?||They will help. For example, some accounts in the Bureau of Land Management,
US Geological Survey, and Bureau of Indian Affairs showed significant budget
authority increases (ranging from 33 to 100 percent). The CAF containing
these accounts would have shown a decline in budget authority requested
of 45 percent. (See Attachment
|Aren't CAFs similar to GSA's Federal Building Fund? Would CAFs replace GSA's fund?||GSA's Federal Buildings Fund was created to acquire, manage, and share
use of common office space. It does not acquire other, specialized assets,
such as park facilities. The amounts for capital acquisition shown in this
Interior example are all for specialized assets that Interior is purchasing
currently, not for office space. CAFs would acquire the assets that agencies
now acquire, and GSA's responsibilities would not change. However, GSA
can and does delegate its authority to agencies to acquire their own office
space under some circumstances. In such cases, an agency would acquire
its office space through its CAF. Greater use of this delegation authority
would be appropriate if agencies could demonstrate that capital asset management
improved under their increased control.
of Capital Investments in the Department of the Interior
(in millions of dollars)
|Capital Investments*||Account Total|
|FY 1997||FY 1998||FY 1999||FY 1997||FY 1998||FY 1999|
|BUREAU AND ACCOUNT||BA||OL||BA||OL||BA||OL||BA||OL||BA||OL||BA||OL|
|Bureau of Land Management|
|Minerals Management Service|
|Oil spill research.............................||4||4||6||6||6||6||6||6||6||4||6||5|
|Bureau of Reclamation|
|Water and related resources........||321||281||328||436||325||332||606||519||618||806||614||612|
|Lower Colorado River development||57||55||8||(4)||43||37||57||55||8||(4)||43||38|
|Upper Colorado River....................||24||(25)||21||72||3||9||24||(25)||21||72||3||9|
|Working capital fund.....................||0||(2)||0||(26)||(26)||(1)||0||(2)||0||(26)||(26)||(1)|
|Reclamation trust funds................||16||35||15||22||12||13||16||35||15||22||12||13|
|United States Geological Survey|
|Surveys, investigations, and research||5||5||1||1||2||2||138||139||145||143||158||158|
|US Fish and Wildlife Service|
|Migratory bird conservation account||42||41||40||40||40||40||42||41||40||40||40||40|
|National Park Service|
|Land acquisition and State assistance||54||38||143||94||138||107||54||58||143||114||138||116|
|Concessions improvement accounts||22||22||24||24||24||24|
|Park concessions franchise fee...||0||0||0||0||25||9||0||0||0||0||25||9|
|Construction trust fund................||0||2||0||8||0||5||0||2||0||8||0||5|
|Bureau of Indian Affairs|
|Priority Federal land acquisitions and exchanges...............................||0||0||532||228||0||114||0||0||532||228||0||114|
|Total Capital Investment|
|Bureaus = 8|
|Accounts = 19|
|Energy&Water Dev. Cmte. (BuRec)||418||344||372||500||357||390|
|Bureaus = 1|
|Accounts = 5|
|Interior Cmte. (balance of Dept.)||776||595||1,191||920||658||785|
|Bureaus = 7|
|Accounts = 14|
|* Direct expenditures (not grants) for physical assets--in this case, buildings, land, and major equipment.|
|BUDGET ENFORCEMENT ACT SCORING
BEFORE AND AFTER ESTABLISHING CAFs
(dollars in thousands)
|Before CAFs||After CAFs|
|Discretionary budget authority:|
|Rent paid by operating account 1/...............||0||644||0||644|
|Rent received by CAF 2/................................||0||0||-644||-644|
|Total discretionary budget authority........................||10,000||644||9,356||10,000|
|Mandatory budget authority:|
|Authority to spend offsetting collections...||0||0||644||644|
|Less portion applied to debt principal 3/.....||0||0||-148||-148|
|Total mandatory budget authority........................||0||0||496||496|
|Total budget authority......||10,000||644||9,852||10,496|
|-- The outlay rate for all expenditures is assumed to be 100% and, since the amounts would be the same as for budget authority, they are not shown. The outlay rate for rent and interest should always be 100%. Outlays for asset acquistions might occur over more than one year, especially if the asset is constructed, rather than purchased. In any event, the outlays for acquisitions in any year after the asset is put in place would be offset by $644 thousand in rent received.|
|-- This example assumes the asset is acquired at the beginning of the fiscal year and rented for the entire year.|
|1/ $644 thousand equals the mortgage payment assuming a $10 million loan for 30 years at 5% with monthly repayments.|
|2/ The offset for rent received is discretionary because it cannot occur without the appropriation to the program account.|
|3/ The budget does not record budget authority or outlays for debt repayment (nor does it record receipts for borrowing). When collections are used for debt repayment, they are unavailable for new oblgations and, therefore, are not budget authority.|
|4/ The interest payment will decline, and the principal payment increase, in each subsequent year. The interest payment will be credited to an intragovernmental receipt account in Treasury. It is not scored for BEA purposes.|