[Analytical Perspectives]
[Crosscutting Programs]
[6. Federal Investment]
[From the U.S. Government Printing Office, www.gpo.gov]
[[Page 63]]
6. FEDERAL INVESTMENT
Investment spending is spending that yields long-term benefits. Its
purpose may be to improve the efficiency of internal Federal agency
operations or to increase the Nation's overall stock of capital for
economic growth. The spending can be direct Federal spending or grants
to State and local governments. It can be for physical capital, which
yields a stream of services over a period of years, or for research and
development or education and training, which are intangible but also
increase income in the future or provide other long-term benefits.
Most presentations in the Federal budget combine investment spending
with spending for current use. This chapter focuses solely on Federal
and federally financed investment.
In this chapter, investment is discussed in the following sections:
a description of the size and composition of Federal
investment spending;
a discussion of the performance of selected Federal
investment programs; and
a presentation of trends in the stock of federally financed
physical capital, research and development, and education.
Two sections that appeared in this chapter last year, ``Alternative
Capital Budget and Capital Expenditure Presentations'' and
``Supplemental Physical Capital Information'', are not included this
year, primarily because the information in these sections changes little
from year to year, and the reader may refer to earlier budgets for this
information or analysis.
PART I. DESCRIPTION OF FEDERAL INVESTMENT
For more than fifty years, the Federal budget has included a chapter
on Federal investment--defined as those outlays that yield long-term
benefits--separately from outlays for current use. In recent years the
discussion of the composition of investment has displayed estimates of
budget authority as well as outlays.
The classification of spending between investment and current outlays
is a matter of judgment. The budget has historically employed a
relatively broad classification, encompassing physical investment,
research, development, education, and training. The budget further
classifies investments into those that are grants to State and local
governments, such as grants for highways or education, and all other
investments, called ``direct Federal programs,'' in this analysis. This
``direct Federal'' category consists primarily of spending for assets
owned by the Federal Government, such as defense weapons systems and
general purpose office buildings, but also includes grants to private
organizations and individuals for investment, such as capital grants to
Amtrak or higher education loans directly to individuals.
Presentations for particular purposes could adopt different
definitions of investment:
To suit the purposes of a traditional balance sheet,
investment might include only those physical assets owned by
the Federal Government, excluding capital financed through
grants and intangible assets such as research and education.
Focusing on the role of investment in improving national
productivity and enhancing economic growth would exclude items
such as national defense assets, the direct benefits of which
enhance national security rather than economic growth.
Concern with the efficiency of Federal operations would
confine the coverage to investments that reduce costs or
improve the effectiveness of internal Federal agency
operations, such as computer systems.
A ``social investment'' perspective might broaden the
coverage of investment beyond what is included in this chapter
to include programs such as childhood immunization, maternal
health, certain nutrition programs, and substance abuse
treatment, which are designed in part to prevent more costly
health problems in future years.
The relatively broad definition of investment used in this section
provides consistency over time--historical figures on investment outlays
back to 1940 can be found in the separate Historical Tables volume.
Table 6-2 at the end of this section allows disaggregation of the data
to focus on those investment outlays that best suit a particular
purpose.
In addition to this basic issue of definition, there are two technical
problems in the classification of investment data involving the
treatment of grants to State and local governments and the
classification of spending that could be shown in more than one
category.
First, for some grants to State and local governments it is the
recipient jurisdiction, not the Federal Government, that ultimately
determines whether the money is used to finance investment or current
purposes. This analysis classifies all of the outlays in the category
where the recipient jurisdictions are expected to spend most of the
money. Hence, the community development block grants are classified as
physical investment, although some may be spent for current purposes.
Gen
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eral purpose fiscal assistance is classified as current spending,
although some may be spent by recipient jurisdictions on physical
investment.
Second, some spending could be classified in more than one category of
investment. For example, outlays for construction of research facilities
finance the acquisition of physical assets, but they also contribute to
research and development. To avoid double counting, the outlays are
classified in the category that is most commonly recognized as
investment. Consequently outlays for the conduct of research and
development do not include outlays for research facilities, because
these outlays are included in the category for physical investment.
Similarly, physical investment and research and development related to
education and training are included in the categories of physical assets
and the conduct of research and development.
When direct loans and loan guarantees are used to fund investment, the
subsidy value is included as investment. The subsidies are classified
according to their program purpose, such as construction or education
and training. For more information about the treatment of Federal credit
programs, refer to Chapter 25, ``The Budget System and Concepts,'' in
this volume.
This section presents spending for gross investment, without adjusting
for depreciation.
Composition of Federal Investment Outlays
Major Federal Investment
The composition of major Federal investment outlays is summarized in
Table 6-1. They include major public physical investment, the conduct of
research and development, and the conduct of education and training.
Defense and nondefense investment outlays were $345.2 billion in 2003.
They are estimated to increase to $376.7 billion in 2004 and are
projected to increase further to $390.0 billion in 2005. Major Federal
investment outlays will comprise an estimated 16 percent of total
Federal outlays in 2005 and 3.2 percent of the Nation's gross domestic
product (GDP). Greater detail on Federal investment is available in
Table 6-2 at the end of this section. That table includes both budget
authority and outlays.
Physical investment. Outlays for major public physical capital
investment (hereafter referred to as physical investment outlays) are
estimated to be $179.8 billion in 2005. Physical investment outlays are
for construction and rehabilitation, the purchase of major equipment,
and the purchase or sale of land and structures. More than three-fifths
of these outlays are for direct physical investment by the Federal
Government, with the remainder being grants to State and local
governments for physical investment.
Direct physical investment outlays by the Federal Government are
primarily for national defense. Defense outlays for physical investment
are estimated to be $85.6 billion 2005. Almost all of these outlays, or
an estimated $78.4 billion, are for the procurement of weapons and other
defense equipment, and the remainder is primarily for construction on
military bases, family housing for military personnel, and Department of
Energy defense facilities.
Table 6-1. COMPOSITION OF FEDERAL INVESTMENT OUTLAYS
(In billions of dollars)
----------------------------------------------------------------------------------------------------------------
Estimate
2003 -------------------
Actual 2004 2005
----------------------------------------------------------------------------------------------------------------
Federal Investment
Major public physical capital investment:
Direct Federal:
National defense.............................................................. 74.7 85.2 85.6
Nondefense.................................................................... 29.5 31.0 31.1
-----------------------------
Subtotal, direct major public physical capital investment................... 104.2 116.3 116.7
Grants to State and local governments........................................... 59.8 61.3 63.1
-----------------------------
Subtotal, major public physical capital investment............................ 164.1 177.6 179.8
Conduct of research and development:
National defense................................................................ 57.3 65.8 71.4
Nondefense...................................................................... 44.1 49.2 52.6
-----------------------------
Subtotal, conduct of research and development................................. 101.4 115.0 124.0
Conduct of education and training:
Grants to State and local governments........................................... 45.2 50.6 51.4
Direct Federal.................................................................. 34.5 33.6 34.8
-----------------------------
Subtotal, conduct of education and training................................... 79.7 84.2 86.2
-----------------------------
Total, major Federal investment outlays..................................... 345.2 376.7 390.0
MEMORANDUM
Major Federal investment outlays:
National defense................................................................ 132.0 151.0 157.0
Nondefense...................................................................... 213.1 225.7 233.0
-----------------------------
Total, major Federal investment outlays....................................... 345.2 376.7 390.0
Miscellaneous physical investment:
Commodity inventories........................................................... -0.6 -1.1 -0.4
Other physical investment (direct).............................................. 5.7 4.2 3.7
-----------------------------
Total, miscellaneous physical investment........................................ 5.1 3.1 3.3
-----------------------------
Total, Federal investment outlays, including
miscellaneous physical investment............................................... 350.3 379.8 393.3
----------------------------------------------------------------------------------------------------------------
Outlays for direct physical investment for nondefense purposes are
estimated to be $31.1 billion in 2005. These outlays include $16.4
billion for construction and rehabilitation. This amount includes funds
for water, power, and natural resources projects of the Corps of
Engineers, the Bureau of Reclamation within the Department of the
Interior, and the Tennessee Valley Authority; construction and
rehabilitation of veterans hospitals and Postal Service facilities;
facilities for space and science programs, and Indian Health Service
hospitals and clinics. Outlays for the acquisition of major equipment
are estimated to be $14.1 billion in 2005. The largest amounts are for
the air traffic control system. For the purchase or sale of land and
structures, disbursements are estimated to exceed collections by $0.6
billion in 2005. These purchases are largely for buildings and land for
parks and other recreation purposes.
Grants to State and local governments for physical investment are
estimated to be $63.1 billion in 2005. More than two-thirds of these
outlays, or $43.8 billion, are to assist States and localities with
transportation infrastructure, primarily highways. Other major grants
for physical investment fund sewage treatment plants, community
development, and public housing.
Conduct of research and development. Outlays for the conduct of
research and development are estimated to be $124.0 billion in 2005.
These outlays are devoted to increasing basic scientific knowledge and
promoting research and development. They increase the Nation's security,
improve the productivity of capital and labor for both public and
private purposes, and enhance the quality of life. More than half of
these outlays, an estimated $71.4 billion, are for national defense.
Physical investment for research and development facilities and
equipment is included in the physical investment category.
Nondefense outlays for the conduct of research and development are
estimated to be $52.6 billion in 2005. These are largely for the
National Aeronautics and Space Administration, the National Science
Foundation, the National Institutes of Health, and research for nuclear
and non-nuclear energy programs.
A more complete and detailed discussion of research and development
funding appears in Chapter 5, ``Research and Development'' in this
volume.
Conduct of education and training. Outlays for the conduct of
education and training are estimated to be $86.2 billion in 2005. These
outlays add to the stock of human capital by developing a more skilled
and productive labor force. Grants to State and local governments for
this category are estimated to be $51.4 billion in 2005, three-fifths of
the total. They include education programs for the disadvantaged and the
disabled, vocational and adult education programs, training programs in
the Department of Labor, and Head Start. Direct Federal education and
training outlays are estimated
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to be $34.8 billion in 2005. Programs in this category are primarily aid
for higher education through student financial assistance, loan
subsidies, the veterans GI bill, and health training programs.
This category does not include outlays for education and training of
Federal civilian and military employees. Outlays for education and
training that are for physical investment and for research and
development are in the categories for physical investment and the
conduct of research and development.
Miscellaneous Physical Investment Outlays
In addition to the categories of major Federal investment, several
miscellaneous categories of investment outlays are shown at the bottom
of Table 6-1. These items, all for physical investment, are generally
unrelated to improving Government operations or enhancing economic
activity.
Outlays for commodity inventories are primarily for the purchase or
sale of agricultural products pursuant to farm price support programs.
Sales are estimated to exceed purchases by $0.4 billion in 2005.
Outlays for other miscellaneous physical investment are estimated to
be $3.7 billion in 2005. This category includes primarily conservation
programs. These are entirely direct Federal outlays.
Detailed Table on Investment Spending
The following table provides data on budget authority as well as
outlays for major Federal investment divided according to grants to
State and local governments and direct Federal spending. Miscellaneous
investment is not included because it is generally unrelated to
improving Government operations or enhancing economic activity.
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Table 6-2. FEDERAL INVESTMENT BUDGET AUTHORITY AND OUTLAYS: GRANT AND DIRECT FEDERAL PROGRAMS
(in millions of dollars)
----------------------------------------------------------------------------------------------------------------
Budget Authority Outlays
---------------------------------------------------------------------------------
Description 2003 2004 2005 2003 2004 2005
Actual Estimate Estimate Actual Estimate Estimate
----------------------------------------------------------------------------------------------------------------
GRANTS TO STATE AND LOCAL
GOVERNMENTS
Major public physical
investments:
Construction and
rehabilitation:
Transportation:
Highways................ 29,518 33,763 33,517 30,379 31,089 32,710
Mass transportation..... 10,629 6,939 7,017 7,336 8,228 7,666
Air transportation...... 3,379 3,381 3,501 2,681 3,395 3,471
---------------------------------------------------------------------------------
Subtotal, 43,526 44,083 44,035 40,396 42,712 43,847
transportation.......
---------------------------------------------------------------------------------
Other construction and
rehabilitation:
Pollution control and 2,499 2,511 2,348 2,883 1,037 2,359
abatement..............
Community development 4,905 4,934 4,618 5,569 5,990 5,586
block grants...........
Other community and 1,481 1,203 901 1,379 1,532 1,456
regional development...
Housing assistance...... 7,250 6,845 6,711 7,827 8,133 8,384
Other construction...... 255 402 139 715 704 204
---------------------------------------------------------------------------------
Subtotal, other 16,390 15,895 14,717 18,373 17,396 17,989
construction and
rehabilitation.......
---------------------------------------------------------------------------------
Subtotal, construction 59,916 59,978 58,752 58,769 60,108 61,836
and rehabilitation.....
---------------------------------------------------------------------------------
Other physical assets....... 1,247 1,265 1,189 1,074 1,195 1,290
---------------------------------------------------------------------------------
Subtotal, major public 61,163 61,243 59,941 59,843 61,303 63,126
physical capital.........
---------------------------------------------------------------------------------
Conduct of research and
development:
Agriculture................. 254 264 283 251 260 261
Other....................... 553 574 830 319 495 870
---------------------------------------------------------------------------------
Subtotal, conduct of 807 838 1,113 570 755 1,131
research and development.
---------------------------------------------------------------------------------
Conduct of education and
training:
Elementary, secondary, and 34,392 36,527 37,971 29,004 34,903 35,967
vocational education.......
Higher education............ 458 461 395 487 594 487
Research and general 696 742 693 782 819 683
education aids.............
Training and employment..... 3,531 3,350 4,337 4,603 3,837 3,625
Social services............. 9,775 9,929 10,145 9,607 9,726 9,946
Agriculture................. 455 439 420 423 436 421
Other....................... 911 269 249 282 236 267
---------------------------------------------------------------------------------
Subtotal, conduct of 50,218 51,717 54,210 45,188 50,551 51,396
education and training...
---------------------------------------------------------------------------------
Subtotal, grants for 112,188 113,798 115,264 105,601 112,609 115,653
investment.................
=================================================================================
DIRECT FEDERAL PROGRAMS
Major public physical
investment:
Construction and
rehabilitation:
National defense:
Military construction 7,283 6,357 6,416 5,917 6,560 6,451
and family housing.....
Atomic energy defense 835 883 489 795 834 714
activities and other...
---------------------------------------------------------------------------------
Subtotal, national 8,118 7,240 6,905 6,712 7,394 7,165
defense..............
---------------------------------------------------------------------------------
Nondefense:
International affairs... 1,101 1,098 1,100 656 1,000 987
General science, space, 2,318 2,065 2,418 2,436 2,137 2,287
and technology.........
Water resources projects 3,035 2,906 2,330 3,104 2,583 2,654
Other natural resources 1,728 2,106 1,756 1,905 1,662 2,030
and environment........
Energy.................. 1,685 1,598 1,586 1,685 1,600 1,580
Postal Service.......... 442 637 714 307 409 530
Transportation.......... 345 426 546 342 389 564
Veterans hospitals and 2,542 1,646 1,791 2,187 1,675 1,581
other health facilities
Federal Prison System... 263 178 ............ 533 275 390
GSA real property 1,720 1,748 1,636 1,298 1,926 1,872
activities.............
Other construction...... 3,297 2,349 1,765 2,919 2,582 1,905
---------------------------------------------------------------------------------
Subtotal, nondefense.. 18,476 16,757 15,642 17,372 16,238 16,380
---------------------------------------------------------------------------------
Subtotal, construction 26,594 23,997 22,547 24,084 23,632 23,545
and rehabilitation.....
---------------------------------------------------------------------------------
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Acquisition of major
equipment:
National defense:
Department of Defense... 78,484 80,918 74,986 67,890 77,705 78,246
Atomic energy defense 128 202 142 128 157 182
activities.............
---------------------------------------------------------------------------------
Subtotal, national 78,612 81,120 75,128 68,018 77,862 78,428
defense..............
---------------------------------------------------------------------------------
Nondefense:
General science and 545 562 608 463 601 568
basic research.........
Space flight, research, 485 670 681 411 544 667
and supporting
activities.............
Postal Service.......... 803 1,267 730 470 602 927
Air transportation...... 3,654 2,879 3,536 2,763 3,970 3,725
Water transportation 433 557 571 436 433 483
(Coast Guard)..........
Other transportation 1,043 1,218 900 1,001 1,334 900
(railroads)............
Hospital and medical 1,034 1,019 1,020 1,949 1,936 1,936
care for veterans......
Law enforcement 1,488 1,890 1,829 1,187 1,832 1,876
activities.............
Department of the 492 591 498 547 577 576
Treasury (fiscal
operations)............
Department of Commerce 779 773 852 681 645 768
(NOAA).................
GSA general supply fund. 676 750 724 626 750 724
Other................... 856 749 930 935 936 998
---------------------------------------------------------------------------------
Subtotal, nondefense.. 12,288 12,925 12,879 11,469 14,160 14,148
---------------------------------------------------------------------------------
Subtotal, acquisition of 90,900 94,045 88,007 79,487 92,022 92,576
major equipment........
---------------------------------------------------------------------------------
Purchase or sale of land and
structures:
National defense.......... -23 -33 -33 -23 -33 -33
Natural resources and 434 296 223 458 343 296
environment..............
General government........ 179 170 161 200 265 214
Other..................... 28 42 117 16 32 89
---------------------------------------------------------------------------------
Subtotal, purchase or 618 475 468 651 607 566
sale of land and
structures.............
---------------------------------------------------------------------------------
Subtotal, major public 118,112 118,517 111,022 104,222 116,261 116,687
physical investment......
---------------------------------------------------------------------------------
Conduct of research and
development:
National defense:
Defense military.......... 58,793 65,432 69,791 53,778 61,347 67,041
Atomic energy and other... 3,836 3,968 4,315 3,550 4,449 4,363
---------------------------------------------------------------------------------
Subtotal, national 62,629 69,400 74,106 57,328 65,796 71,404
defense................
---------------------------------------------------------------------------------
Nondefense:
International affairs..... 269 269 255 229 260 258
General science, space and
technology
NASA.................... 7,369 7,596 7,774 6,002 7,148 7,921
National Science 3,640 3,762 3,862 3,235 3,473 3,727
Foundation.............
Department of Energy.... 2,509 2,712 2,624 2,480 2,718 2,624
---------------------------------------------------------------------------------
Subtotal, general 13,787 14,339 14,515 11,946 13,599 14,530
science, space and
technology...........
---------------------------------------------------------------------------------
Energy.................... 1,275 1,435 1,468 1,325 1,504 1,621
Transportation:
Department of 547 531 566 483 546 599
Transportation.........
NASA.................... 999 1,034 919 1,663 1,026 1,000
Other................... 181 181 229 49 293 228
---------------------------------------------------------------------------------
Subtotal, 3,002 3,181 3,182 3,520 3,369 3,448
transportation.......
---------------------------------------------------------------------------------
Health:
National Institutes of 25,178 27,021 27,681 21,835 24,559 26,698
Health.................
All other health........ 725 652 719 927 652 688
---------------------------------------------------------------------------------
Subtotal, health...... 25,903 27,673 28,400 22,762 25,211 27,386
---------------------------------------------------------------------------------
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Agriculture............... 1,432 1,538 1,216 1,377 1,391 1,306
Natural resources and 2,018 2,049 2,040 1,839 1,791 1,953
environment..............
National Institute of 421 410 326 433 449 488
Standards and Technology.
Hospital and medical care 817 822 770 783 812 770
for veterans.............
All other research and 1,097 1,346 1,329 882 1,833 1,575
development..............
---------------------------------------------------------------------------------
Subtotal, nondefense.... 48,477 51,358 51,778 43,542 48,455 51,456
---------------------------------------------------------------------------------
Subtotal, conduct of 111,106 120,758 125,884 100,870 114,251 122,860
research and development.
---------------------------------------------------------------------------------
Conduct of education and
training:
Elementary, secondary, and 1,902 1,648 1,341 1,858 2,063 1,754
vocational education.......
Higher education............ 23,872 22,105 23,260 23,875 21,642 23,118
Research and general 1,789 1,856 1,882 1,699 1,838 1,887
education aids.............
Training and employment..... 1,563 1,576 1,661 1,514 1,528 1,611
Health...................... 1,634 1,575 1,297 1,500 1,704 1,568
Veterans education, 2,227 2,479 2,502 2,295 2,633 2,795
training, and
rehabilitation.............
General science and basic 935 930 864 775 953 901
research...................
National defense............ 8 8 8 9 8 8
International affairs....... 405 349 376 393 352 373
Other....................... 619 763 643 567 886 774
---------------------------------------------------------------------------------
Subtotal, conduct of 34,954 33,289 33,834 34,485 33,607 34,789
education and training...
---------------------------------------------------------------------------------
Subtotal, direct Federal 264,172 272,564 270,740 239,577 264,119 274,336
investment.................
=================================================================================
Total, Federal investment..... 376,360 386,362 386,004 345,178 376,728 389,989
----------------------------------------------------------------------------------------------------------------
PART II: PERFORMANCE OF FEDERAL INVESTMENT
Introduction. In recent years there has been increased emphasis on the
performance of Government programs. The Congress mandated in the
Government Performance and Results Act of 1993 that performance plans be
developed and that the agencies report annual progress against these
plans.
In addition, this Administration began in the 2004 Budget to assess
every Federal program over a five year period by a method known as the
Program Assessment Rating Tool, or PART. With this budget, the second
year of using the PART, the Administration has assessed about two-fifths
of the programs of the Federal Government The PART system assesses each
program on four components (purpose, planning, management, and results/
accountability) and gives a score for each of the components. The scores
for each component are then weighted--results/accountability carries the
greatest weight--and the program is given an overall score. A program is
rated effective if it receives an overall score of 85 percent or more,
moderately effective if the score is 70 to 85 percent, adequate if the
score is 50 to 70 percent, and inadequate if the score is 49 percent or
lower. The program is given a rating ``Results Not Demonstrated'' if the
program does not have a good performance measure or does not have data
for that measure. Chapter 2 of this volume discusses the PART concepts
in more detail.
This section summarizes the results of the PART for direct investment
programs, defined to include capital assets, research and development,
and education. Because an entire program is assessed, not just the
investment portion of the program, the assessments for some programs may
cover more than just the investment spending. PART assessments of
programs that are grants to State and local governments are not
summarized in this chapter but are summarized in Chapter 8, ``Aid to
State and Local Governments'', in this volume.
This section covers the following 119 programs.
Programs for capital assets are those identified in the PART
system as ``capital assets and service acquisition'' (44
programs);
Programs for research and development are essentially those
identified in the PART system as ``research and development''
(59 programs); and
Programs for education (16 programs) are primarily programs
in the Department of Education that are not grants to State
and local governments (e.g., Federal Pell grants to
individuals). This category also includes a few education
programs in other agencies, such as the Montgomery GI Bill in
the Department of Veterans Affairs and the Health Professions
program in the Department of Health and Human Services.
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Information on these and other programs assessed by PART is on the CD
ROM that accompanies this volume.
Summary of ratings. Table 6-3 shows that the average weighted score
for the 119 investment programs that have been rated by PART was 66
percent, which is a rating of ``adequate''. These programs had total
spending of $132.0 billion in 2003. Of these programs:
39 were rated ``results not demonstrated'' ($42.1 billion);
23 were rated effective ($8.8 billion);
31 were rated moderately effective ($34.6 billion);
19 were rated adequate ($39.4 billion); and
7 were rated ineffective ($7.1 billion).
Table 6-3. SUMMARY OF PART RATINGS AND SCORES FOR DIRECT FEDERAL INVESTMENT PROGRAMS
(excludes grants to State and local governments for investment)
----------------------------------------------------------------------------------------------------------------
Type of Investment
-------------------------------------------------------
Criteria Education
Physical Research and and All investment
capital development training programs
----------------------------------------------------------------------------------------------------------------
Average Scores
Purpose................................................. 80% 91% 76% 85%
Planning................................................ 74% 76% 74% 75%
Management.............................................. 81% 84% 64% 80%
Results/Accountability.................................. 49% 58% 35% 51%
Weighted Average \1\.................................... 64% 71% 53% 66%
Average Rating.......................................... Adequate Moderately Adequate Adequate
effective
Number of Programs
Ratings \2\
Results not demonstrated................................ 19 15 5 39
Effective............................................... 6 16 1 23
Moderately effective.................................... 10 20 1 31
Adequate................................................ 7 6 6 19
Ineffective............................................. 2 2 3 7
-------------------------------------------------------
Total number of investment programs rated............. 44 59 16 119
In millions of dollars (2003)
Results not demonstrated................................ $36,114 $2,842 $3,116 $42,072
Effective............................................... 1,005 7,736 49 8,790
Moderately effective.................................... 29,140 5,337 171 34,648
Adequate................................................ 19,500 570 19,361 39,431
Ineffective............................................. 6,215 89 779 7,083
-------------------------------------------------------
All investment programs that were rated in PART....... $91,974 $16,574 $23,476 $132,024
----------------------------------------------------------------------------------------------------------------
\1\ Weighted as follows: Purpose (20%), Planning (10%), Management (20%), Results/Accountability (50%).
\2\ The rating of effective indicates a score of 85 percent or more; moderately effective, 70-85 percent;
adequate, 50-70 percent; and ineffective, 49 percent or less.
Assessments of individual programs. The ratings of the ten physical
capital and education and training investment programs with the largest
funding are summarized here. Information on research and development is
in Chapter 5, ``Research and Development'' in this volume.
Capital Assets
Department of Defense. Air Combat Program ($15.1 billion in 2003).
Rating: Moderately Effective. This program consists of a number of
individual aircraft and helicopter research, development and procurement
programs that, taken together, comprise DOD's investment in air combat
capabilities. The PART analysis showed that the program purpose is clear
owing to the unique military requirement for these systems.
Department of Defense. Shipbuilding ($9.5 billion). Rating: Adequate.
This program buys new ships and overhauls older ships for the Navy. The
assessment shows that the program has a clear purpose, and the Navy has
specific cost, schedule, and performance goals for each shipbuilding
program. The program has experi
[[Page 70]]
enced cost increases and schedule slips on some ship construction
programs.
Tennessee Valley Authority (TVA) ($7.6 billion in 2003). Rating:
Moderately Effective. TVA is the fifth largest electric utility in the
country, generating power at 48 coal-fired, hydropower, nuclear, and
other power plants that it operates to meet the electricity needs of 8.3
million people (3 percent of the U. S. market). The PART assessment gave
TVA mixed reviews. TVA does an excellent job generating power at its
existing power plants. A decade ago TVA's nuclear power plants posed
serious technical and safety problems but it has overcome these problems
and today its nuclear power plants set industry standards.
However, TVA has a high level of debt compared to many of its
competitors in the electricity industry. It has recently issued a
strategic plan that includes a debt reduction target of $3 billion to $5
billion over the next 10 to 12 years, which is incorporated into the
budget estimates for TVA and will be a basis on which TVA's annual
performance plans are developed.
Department of Defense. Missile Defense ($7.5 billion in 2003). Rating:
Results Not Demonstrated. This program consists of multiple systems and
capabilities developed by the Missile Defense Agency (MDA) or military
services. This program fields active defenses against short, medium, and
long-range missiles in a multi-layered global system.
The assessment found that: a) the Department of Defense continues to
design, engineer, and develop extensive missile defense capabilities,
but has not programmed adequate funds to procure and operate newly
developed capabilities; b) technical progress continues, but there have
been challenges. Some missiles have operated effectively, but also
experienced command and control problems; some tests have failed, but
some were a success.
Department of Energy. Environmental Management ($7.6 billion in 2003).
Rating: Adequate. This program protects human health and the environment
by cleaning up waste and contamination resulting from more than 50 years
of nuclear weapons production and energy research at 114 Department of
Energy sites in the United States and its territories. The assessment
found that managers are implementing reforms that are improving program
performance. The program needs to develop annual cost and schedule
performance measures.
General Services Administration. GSA's Regional IT Solutions Program
($5.8 billion in 2003). Rating: Results Not Demonstrated. This program
provides expert technical, acquisition, and information technology
products and services to Federal clients. This assessment found that the
program is useful to Federal agencies that do not have in-house
expertise to acquire IT products or services. The assessment also found
that the program does not have long-term outcome goals that relate to
other government agencies or the private sector.
Department of Defense. Communications Infrastructure ($5.6 billion in
2003). Rating: Results Not Demonstrated. This program includes all
networks and systems for transmission of voice, data, and video
information for the Department. This assessment revealed that DOD does
not manage its communications infrastructure on an enterprise or
department-wide basis. The assessment also suggested that DOD should
develop common performance measures to be used across the entire
department for this program.
Department of Defense. Airlift Program ($5.3 billion in 2003). Rating:
Moderately Effective. This program consists of a number of individual
Air Force tactical and strategic airlift aircraft research, development
and procurement programs that, taken together, comprise DOD's investment
in airlift capabilities. The analysis showed that this is a coherent
program with a clear and basic long-term goal, namely to be able to move
military forces and their equipment from the U.S. to anywhere in the
world whenever required. DOD must aggressively examine possible trade-
offs within the program that could lower the cost of meeting the airlift
requirement without sacrificing military readiness or combat
capabilities.
Department of Housing and Urban Development. Project-Based Rental
Assistance ($4.8 billion in 2003). Rating: Ineffective. This program
provides funding to landlords who rent a certain number of affordable
apartments to low-income families or individuals. Assistance is tied
directly to the properties--tenants cannot move without losing their
assistance. The program receives low performance scores in part because
there is confusion over program objectives, the program lacks strong
financial accountability, and it produces poor results relative to
alternative forms of housing assistance.
Education
Department of Education. Federal Pell Grants ($11.4 billion in 2003).
Rating: Adequate. This program provides grant aid to nearly five million
needy students to help them pay for an undergraduate education. The
assessment found that the program helps ensure that low-income students
can afford a college education. However, the Department of Education has
only been minimally successful in achieving its long-term and annual
performance goals for its main student aid programs. In addition, Pell
grants, like other student aid, are prone to abuse, where students who
under-report family income receive more aid than they should. The
Department estimates that net overawards in Pell total more than $350
million annually.
[[Page 71]]
PART III: FEDERALLY FINANCED CAPITAL STOCKS
Federal investment spending creates a ``stock'' of capital that is
available in the future for productive use. Each year, Federal
investment outlays add to this stock of capital. At the same time,
however, wear and tear and obsolescence reduce it. This section presents
very rough measures over time of three different kinds of capital stocks
financed by the Federal Government: public physical capital, research
and development (R&D), and education.
Federal spending for physical assets adds to the Nation's capital
stock of tangible assets, such as roads, buildings, and aircraft
carriers. These assets deliver a flow of services over their lifetime.
The capital depreciates as the asset ages, wears out, is accidentally
damaged, or becomes obsolete.
Federal spending for the conduct of research and development adds to
an ``intangible'' asset, the Nation's stock of knowledge. Spending for
education adds to the stock of human capital by providing skills that
help make people more productive. Although financed by the Federal
Government, the research and development or education can be carried out
by Federal or State government laboratories, universities and other
nonprofit organizations, local governments, or private industry.
Research and development covers a wide range of activities, from the
investigation of subatomic particles to the exploration of outer space;
it can be ``basic'' research without particular applications in mind, or
it can have a highly specific practical use. Similarly, education
includes a wide variety of programs, assisting people of all ages
beginning with pre-school education and extending through graduate
studies and adult education. Like physical assets, the capital stocks of
R&D and education provide services over a number of years and depreciate
as they become outdated.
For this analysis, physical and R&D capital stocks are estimated using
the perpetual inventory method. Each year's Federal outlays are treated
as gross investment, adding to the capital stock; depreciation reduces
the capital stock. Gross investment less depreciation is net investment.
The estimates of the capital stock are equal to the sum of net
investment in the current and prior years. A limitation of the perpetual
inventory method is that the original investment spending may not
accurately measure the current value of the asset created, even after
adjusting for inflation, because the value of existing capital changes
over time due to changing market conditions. However, alternative
methods for measuring asset value, such as direct surveys of current
market worth or indirect estimation based on an expected rate of return,
are especially difficult to apply to assets that do not have a private
market, such as highways or weapons systems.
In contrast to physical and R&D stocks, the estimate of the education
stock is based on the replacement cost method. Data on the total years
of education of the U.S. population are combined with data on the
current cost of education and the Federal share of education spending to
yield the cost of replacing the Federal share of the Nation's stock of
education.
It should be stressed that these estimates are rough approximations,
and provide a basis only for making broad generalizations. Errors may
arise from uncertainty about the useful lives and depreciation rates of
different types of assets, incomplete data for historical outlays, and
imprecision in the deflators used to express costs in constant dollars.
The methods used to estimate capital stocks are discussed further in the
technical note at the end of Chapter 12, ``Stewardship,'' in this
volume. Additional detail about these methods appeared in a
methodological note in the Chapter 7, ``Federal Investment Spending and
Capital Budgeting,'' in the Analytical Perspectives volume of the 2004
Budget.
The Stock of Physical Capital
This section presents data on stocks of physical capital assets and
estimates of the depreciation of these assets.
Trends.--Table 6-4 shows the value of the net federally financed
physical capital stock since 1960, in constant fiscal year 2000 dollars.
\1\ The total stock grew at a 2.2 percent average annual rate from 1960
to 2003, with periods of faster growth during the late 1960s and the
1980s. The stock amounted to $2,137 billion in 2003 and is estimated to
increase to $2,266 billion by 2005. In 2003, the national defense
capital stock accounted for $646 billion, or 30 percent of the total,
and nondefense stocks for $1,491 billion, or 70 percent of the total.
---------------------------------------------------------------------------
\1\ Constant dollar stock estimates are expressed in chained 2000
dollars, consistent with the December 2003 revisions to the National
Income and Product Accounts. The shift to a more recent base year
changes the reported level of real stocks, but leaves the year-to-year
trends largely the same.
[[Page 72]]
Table 6-4. NET STOCK OF FEDERALLY FINANCED PHYSICAL CAPITAL
(In billions of 2000 dollars)
------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
Nondefense
----------------------------------------------------------------------------------------------
Direct Federal Capital Capital Financed by Federal Grants
Fiscal Year Total National ----------------------------------------------------------------------------------
Defense Total Water Community
Nondefense Total and Other Total Transportation and Natural Other
Power Regional Resources
------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
Five year intervals:
1960........................................................................ 849 608 242 95 59 36 146 89 27 21 10
1965........................................................................ 937 589 348 123 74 49 225 158 32 22 13
1970........................................................................ 1,101 630 470 146 88 58 324 230 47 26 21
1975........................................................................ 1,137 545 592 166 102 64 426 282 76 42 25
1980........................................................................ 1,258 494 763 195 123 72 568 342 121 79 27
1985........................................................................ 1,462 572 890 222 136 86 668 397 146 100 26
1990........................................................................ 1,740 722 1,018 256 147 109 762 462 158 113 28
1995........................................................................ 1,882 714 1,168 297 157 141 871 534 168 123 46
Annual data:
2000........................................................................ 1,979 635 1,345 337 160 178 1,007 618 183 131 75
2001........................................................................ 2,022 631 1,391 351 163 188 1,040 640 186 132 81
2002........................................................................ 2,078 636 1,442 366 165 201 1,076 666 189 134 87
2003........................................................................ 2,137 646 1,491 379 166 213 1,112 690 193 135 94
2004 est.................................................................... 2,204 663 1,541 393 167 226 1,148 716 196 135 100
2005 est.................................................................... 2,266 677 1,588 405 168 237 1,183 741 199 136 106
------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
Real stocks of defense and nondefense capital show very different
trends. Nondefense stocks have grown consistently since 1970, increasing
from $470 billion in 1970 to $1,491 billion in 2003. With the
investments proposed in the budget, nondefense stocks are estimated to
grow to $1,588 billion in 2005. During the 1970s, the nondefense capital
stock grew at an average annual rate of 5.0 percent. In the 1980s,
however, the growth rate slowed to 2.9 percent annually, with growth
continuing at about that rate since then.
Real national defense stocks began in 1970 at a relatively high level,
and declined steadily throughout the decade as depreciation from
investment in the Vietnam era exceeded new investment in military
construction and weapons procurement. Starting in the early 1980s, a
large defense buildup began to increase the stock of defense capital. By
1987, the defense stock exceeded its earlier Vietnam-era peak. In the
early 1990s, however, depreciation on the increased stocks and a slower
pace of defense physical capital investment began to reduce the stock
from its previous levels. The increased defense investment in the last
few years has reversed this decline, increasing the stock from an
estimated $646 billion in 2003 to $677 billion in 2005.
Another trend in the Federal physical capital stocks is the shift from
direct Federal assets to grant-financed assets. In 1960, 39 percent of
federally financed nondefense capital was owned by the Federal
Government, and 61 percent was owned by State and local governments but
financed by Federal grants. Expansion in Federal grants for highways and
other State and local capital, coupled with slower growth in direct
Federal investment for water resources, for example, shifted the
composition of the stock substantially. In 2003, 25 percent of the
nondefense stock was owned by the Federal Government and 75 percent by
State and local governments.
The growth in the stock of physical capital financed by grants has
come in several areas. The growth in the stock for transportation is
largely grants for highways, including the Interstate Highway System.
The growth in community and regional development stocks occurred largely
following the enactment of the community development block grant in the
early 1970s. The value of this capital stock has grown only slowly in
the past few years. The growth in the natural resources area occurred
primarily because of construction grants for sewage treatment
facilities. The value of this federally financed stock has increased
about 35 percent since the mid-1980s.
The Stock of Research and Development Capital
This section presents data on the stock of research and development
capital, taking into account adjustments for its depreciation.
Trends.--As shown in Table 6-5, the R&D capital stock financed by
Federal outlays is estimated to be $1,054 billion in 2003 in constant
2000 dollars. Roughly half is the stock of basic research knowledge; the
remainder is the stock of applied research and development.
The nondefense stock accounted for about three-fifths of the total
federally financed R&D stock in 2003. Although investment in defense R&D
has exceeded that of nondefense R&D in nearly every year since 1981, the
nondefense R&D stock is actually the larger of the two, because of the
different emphasis on basic research and applied research and
development. Defense R&D spending is heavily concentrated in applied
research and development, which depreciates much more quickly than basic
research. The stock of applied research and
[[Page 73]]
development is assumed to depreciate at a ten percent geometric rate,
while basic research is assumed not to depreciate at all.
The defense R&D stock rose slowly during the 1970s, as gross outlays
for R&D trended down in constant dollars and the stock created in the
1960s depreciated. Increased defense R&D spending from 1980 through 1990
led to a more rapid growth of the R&D stock. Subsequently, real defense
R&D outlays tapered off, depreciation grew, and, as a result, the real
net defense R&D stock stabilized at around $420 billion. Renewed
spending for defense R&D in this budget is projected to increase the
stock to $513 billion in 2005.
The growth of the nondefense R&D stock slowed from the 1970s to the
1980s, from an annual rate of 3.8 percent in the 1970s to a rate of 2.1
percent in the 1980s. Gross investment in real terms fell during much of
the 1980s, and about three-fourths of new outlays went to replacing
depreciated R&D. Since 1988, however, nondefense R&D outlays have been
on an upward trend while depreciation has edged down. As a result, the
net nondefense R&D capital stock has grown more rapidly.
Table 6-5. NET STOCK OF FEDERALLY FINANCED RESEARCH AND DEVELOPMENT \1\
(In billions of 2000 dollars)
--------------------------------------------------------------------------------------------------------------------------------------------------------
National Defense Nondefense Total Federal
--------------------------------------------------------------------------------------------------------------
Applied Applied Applied
Fiscal Year Basic Research Basic Research Basic Research
Total Research and Total Research and Total Research and
Development Development Development
--------------------------------------------------------------------------------------------------------------------------------------------------------
Five year intervals:
1970................................... 261 16 245 215 67 148 475 82 393
1975................................... 276 21 256 262 97 165 538 118 421
1980................................... 279 25 255 311 131 179 590 156 434
1985................................... 321 30 291 339 174 165 659 204 455
1990................................... 403 36 367 382 229 154 785 265 520
1995................................... 418 40 378 428 268 161 846 308 539
Annual data:
2000................................... 423 48 375 543 368 175 966 416 549
2001................................... 421 50 371 563 386 177 984 436 548
2002................................... 435 52 383 579 405 175 1,014 457 557
2003................................... 456 54 402 598 424 174 1,054 478 577
2004 est............................... 483 55 428 621 445 176 1,104 501 604
2005 est............................... 513 57 456 646 467 178 1,159 524 634
--------------------------------------------------------------------------------------------------------------------------------------------------------
\1\ Excludes stock of physical capital for research and development, which is included in Table 6-4.
The Stock of Education Capital
This section presents estimates of the stock of education capital
financed by the Federal Government.
As shown in Table 6-6, the federally financed education stock is
estimated at $1,292 billion in 2003 in constant 2000 dollars. The vast
majority of the Nation's education stock is financed by State and local
governments, and by students and their families themselves. This
federally financed portion of the stock represents about 3 percent of
the Nation's total education stock. \2\ Nearly three-quarters is for
elementary and secondary education, while the remaining one quarter is
for higher education.
---------------------------------------------------------------------------
\2\ For estimates of the total education stock, see table 12-4 in
Chapter 12, ``Stewardship.''
---------------------------------------------------------------------------
The federally financed education stock has grown steadily in the last
few decades, with an average annual growth rate of 5.4 percent from 1970
to 2003. The expansion of the education stock is projected to continue
under this budget, with the stock rising to $1,465 billion in 2005.
[[Page 74]]
Table 6-6. NET STOCK OF FEDERALLY FINANCED EDUCATION CAPITAL
(In billions of 2000 dollars)
------------------------------------------------------------------------
Elementary
Total and Higher
Fiscal Year Education Secondary Education
Stock Education
------------------------------------------------------------------------
Five year intervals:
1960............................. 70 51 20
1965............................. 98 71 27
1970............................. 225 176 49
1975............................. 324 260 64
1980............................. 458 356 102
1985............................. 565 421 144
1990............................. 745 550 195
1995............................. 853 619 234
Annual data:
2000............................. 1,121 819 302
2001............................. 1,174 847 327
2002............................. 1,221 879 342
2003............................. 1,292 932 360
2004 est......................... 1,378 1,004 374
2005 est......................... 1,465 1,073 391
------------------------------------------------------------------------