A Matrix of Capital Budgeting

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A Matrix of Capital Budgeting Problems and Options

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Staff Paper Prepared for the President's Commission to Study Capital Budgeting

Categories of Investment

	Problem	Federal Assets (defense & nondefense)		Infrastructure (transportation)		Other Investment (tangible and intangible)
1	There is little long-term planning for capital in life-cycle context outside of the Department of Defense.	o	Require 10-year capital plan linked to budget.	o	Require 10-year planning by grant recipients.	o	Favor grant recipients that do long-term pl anning.
		o	Set capital plan in context of agency GPRA plans.	o	Reward jurisdictions doing high quality planning.		Favor grant recipients that do long-term pl anning.
		o	Enforce rules in Capital Programming Guide.
		o	Plan for full asset life-cycle.
2	No one is fully responsible for capital planning.	o	Hold agency heads primarily responsible.	o	Improved accountability needed here too?	o	Improved accountability needed here too?
3	Information about physical, financial characteristics of assets is inadequate.	o	Require agency system for property, financial accountability.	o	Require inventory of use and condition.
4	Accounting standards do not include current cost or imputed interest.	o	Ask FASAB to consider current cost, imputed interest.
5	Pork barrel projects are often chosen over projects with higher returns.	o	Require benefit/cost studies to be submitted, published on internet.	o	Require grantees to publish benefit-cost by project.	o	Require grantees to publish benefit-cost by program. Summarize them in Analytical Perspectives.
5		o	Ask CBO, GAO to provide timely studies to Congress.	o	Summarize them in Analytical Perspectives.	o
6	Dedicated revenues are not fully used to finance designated investment.			o	Consider a separate cap for infrastructure funded by earmarked revenues.
7	There are no goals or targets for any category of investment.			o	Consider alternative ways to set investment targets.	o	Consider alternative ways to set investment targets.
8	Funding is not always assured to complete projects efficiently.	o	Require regular or advance appropriations for full cost of usable segments.	o	Use long-range plans to manage funding.	o	Use long-range plans to manage funding.
9	Projects often take more than one year to complete.	o	Require multiyear appropriations for projects that will take years to complete.
10	Spikes in necessary funding sometimes deter justified investment.	o	Aggregate capital in CAFs; cover remaining spikes w/central funding if justified.	o	Use long-range plans to manage funding.
11	Programs are not charged uniformly and fully for their use of capital.	o	CAFs would charge all uniformly for capital use.
12	Programs are not charged uniformly for their use of labor, support services.	o	Charge for retiree benefits, and support services.
13	Inappropriate choices are made to lease vs. buy.	o	Improve incentives to make economic choices.
14	Cost over-runs, delays, and poor quality plague many acquisitions.	o	Use performance-based management system to acquire assets.
15	Government often buys hi-tech, custom projects that come a cropper.	o	Require off-the-shelf or prototype; Raines rules.
16	Capital is often poorly maintained.	o	Plan maintenance and monitor actual.	o	Require grantees to meet maintenance criteria.
16	Capital is often poorly maintained.	o	Consider advance funding.	o	Require grantees to meet maintenance criteria.
17	Capital is often poorly utilized.	o	Charge for cost of capital; share revenue from property disposition.

President's Commission to Study Capital Budgeting

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