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Staff Summary of Testimony to the PCSCB: Chambers, Chambers Associates Inc.

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Letitia Chambers, President, Chambers Associates Incorporated
(September 19, 1998)
Testimony: Dr. Chambers noted that the current budget structure focuses primarily on the pending fiscal year. This has led to an under-investment in areas that could stimulate economic growth. For this reason, she proposes that the unified budget be divided into three discrete budgets:
     (1) a Capital Investment Budget which reflects investments for the future and includes expenditures for programs and activities which have multiple-year life and raise future productivity.
    (2) a Pension, Income Replacement Budget which reflects the nation's commitments made to workers and their employers and investments to fund those commitments, and includes Social Security, Federal Employee Retirement Programs, Worker's Compensation Programs, and the Unemployment Insurance System.
    (3) an Operating Budget which contains all other programs and activities and reflects current consumption by the federal government.
Dr. Chambers said that capital investment programs are defined to be those programs and activities that have multiple year life and raise future productivity. This category includes spending on physical capital, research and development, and could include such human capital as education and training. The physical capital category does not include defense procurement of weapons because, like other consumer durables, expenditures for such purposes do not have the potential for raising future productivity. An Advisory Committee that included the Comptroller General and the Congressional Budget Office could be created to advise on recommendations for inclusion of new programs in the Capital Investment Budget. This budget should be accompanied by a presidential directive to develop meaningful rate-of-return estimates.

Her testimony noted that the total integration of accrual accounting, including depreciation, could weaken control. For that reason, such information should be part of the budget presentation, but not the basis for federal accounting.

Questions from the Commissioners: Questions focused largely on Dr. Chambers' proposed three budgets within the unified budget.

Q.    Do you think leaving out defense procurement from capital is a big issue?
A.    I don't think so. Including it would mask the current lack of spending for investment.

Q.    Why didn't you put depreciation in the operating budget and include liabilities for pensions on an accrual basis? Is showing a surplus in the pension budget misleading?
A.    If we had full accrual accounting across government, we might have some unintended results. The budget presentation I have proposed is a cash not accrual budget. Showing that the current cash surplus in the unified budget is attributable to pension programs with long-term future liabilities is an important element in making the budget more understandable.

President's Commission to Study Capital Budgeting

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