[Analytical Perspectives]
[Crosscutting Programs]
[6. Federal Investment]
[From the U.S. Government Printing Office, www.gpo.gov]
[[Page 53]]
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.
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.
General 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 acqui
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sition 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, spending for physical
investment and research and development related to education and
training is 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 7, ``Credit and Insurance,'' 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 $392.3 billion in 2005.
They are estimated to increase to $425.0 billion in 2006 and are
projected to decline to $415.5 billion in 2007. Major Federal investment
outlays will comprise an estimated 15 percent of total Federal outlays
in 2007 and 3.0 percent of the Nation's gross domestic product. 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 $199.3 billion in 2007. 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 $99.2 billion in 2007. Almost all of these outlays,
or an estimated $90.2 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
2005 -------------------
Actual 2006 2007
----------------------------------------------------------------------------------------------------------------
Major public physical capital investment:
Direct Federal:
National defense.............................................................. 89.5 97.3 99.2
Nondefense.................................................................... 27.3 30.2 30.3
-----------------------------
Subtotal, direct major public physical capital investment................... 116.8 127.5 129.5
Grants to State and local governments........................................... 60.8 65.9 69.9
-----------------------------
Subtotal, major public physical capital investment............................ 177.7 193.4 199.3
Conduct of research and development:
National defense................................................................ 70.6 75.6 76.8
Nondefense...................................................................... 49.2 51.8 53.9
-----------------------------
Subtotal, conduct of research and development................................. 119.8 127.4 130.7
Conduct of education and training:
Grants to State and local governments........................................... 51.6 53.7 52.6
Direct Federal.................................................................. 43.2 50.5 32.9
-----------------------------
Subtotal, conduct of education and training................................... 94.7 104.2 85.5
-----------------------------
Total, major Federal investment outlays..................................... 392.3 425.0 415.5
MEMORANDUM
Major Federal investment outlays:
National defense................................................................ 160.1 172.9 176.0
Nondefense...................................................................... 232.1 252.1 239.5
-----------------------------
Total, major Federal investment outlays....................................... 392.3 425.0 415.5
Miscellaneous physical investment:
Commodity inventories........................................................... -0.7 -0.8 -0.2
Other physical investment (direct).............................................. 2.8 3.2 3.3
-----------------------------
Total, miscellaneous physical investment...................................... 2.1 2.4 3.1
-----------------------------
Total, Federal investment outlays, including miscellaneous physical investment.... 394.4 427.4 418.6
----------------------------------------------------------------------------------------------------------------
Outlays for direct physical investment for nondefense purposes are
estimated to be $30.3 billion in 2007. These outlays include $17.3
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 Indian Health Service hospitals
and clinics; facilities for space and science programs; Postal Service
facilities; and construction for embassy security. Outlays for the
acquisition of major equipment are estimated to be $12.6 billion in
2007. The largest amounts are for the air traffic control system.
Grants to State and local governments for physical investment are
estimated to be $69.9 billion in 2007. More than two-thirds of these
outlays, or $50.7 billion, are to assist States and localities with
transportation infrastructure, primarily highways. Other major grants
for physical investment fund sewage treatment plants, community and
regional development, and public housing.
Conduct of research and development. Outlays for the conduct of
research and development are estimated to be $130.7 billion in 2007.
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 $76.8 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 $53.9 billion in 2007. 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 $85.5 billion in 2007. 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 $52.6 billion in 2007, more than
three-fifths of the total. They include education programs for the
disadvantaged and individuals with disabilities, other education
programs, training programs in the Department of Labor, and Head Start.
Direct Federal education and training outlays are estimated to be $32.9
billion in 2007. Programs in this category are primarily aid for higher
education through student financial assistance, loan subsidies, the
veterans GI bill, and health training programs. The decline from 2006 to
2007 results in part from upward reestimates of $11.4 billion in 2006 in
loan subsidies for loans made in earlier years.
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
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the categories for physical investment and the conduct of research and
development.
Miscellaneous Physical Investment
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 $0.2 billion in 2007.
Outlays for other miscellaneous physical investment are estimated to
be $3.3 billion in 2007. 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 2005 2006 2007 2005 2006 2007
Actual Estimate Estimate Actual Estimate Estimate
----------------------------------------------------------------------------------------------------------------
GRANTS TO STATE AND LOCAL
GOVERNMENTS
Major public physical
investments:
Construction and
rehabilitation:
Transportation:
Highways................ 38,184 37,806 41,370 31,433 33,868 38,027
Mass transportation..... 8,039 8,482 8,729 7,826 8,338 8,932
Air transportation...... 3,696 3,070 2,725 3,530 3,800 3,705
---------------------------------------------------------------------------------
Subtotal, 49,919 49,358 52,824 42,789 46,006 50,664
transportation.......
---------------------------------------------------------------------------------
Other construction and
rehabilitation:
Pollution control and 2,233 1,880 1,759 2,021 1,755 1,706
abatement..............
Community and regional 6,115 16,779 3,624 6,399 8,251 8,157
development............
Housing assistance...... 6,505 6,203 5,593 7,687 7,776 7,435
Other construction...... 496 491 291 458 621 416
---------------------------------------------------------------------------------
Subtotal, other 15,349 25,353 11,267 16,565 18,403 17,714
construction and
rehabilitation.......
---------------------------------------------------------------------------------
Subtotal, construction 65,268 74,711 64,091 59,354 64,409 68,378
and rehabilitation.....
---------------------------------------------------------------------------------
Other physical assets....... 1,567 1,422 1,369 1,494 1,502 1,504
---------------------------------------------------------------------------------
Subtotal, major public 66,835 76,133 65,460 60,848 65,911 69,882
physical capital.........
---------------------------------------------------------------------------------
Conduct of research and
development:
Agriculture................. 273 277 245 274 268 270
Other....................... 223 226 203 212 194 178
---------------------------------------------------------------------------------
Subtotal, conduct of 496 503 448 486 462 448
research and development.
---------------------------------------------------------------------------------
Conduct of education and
training:
Elementary, secondary, and 37,169 37,814 36,381 36,393 38,164 37,689
vocational education.......
Higher education............ 506 701 35 522 809 505
Research and general 800 763 691 753 832 694
education aids.............
Training and employment..... 3,509 3,125 3,770 3,378 3,077 3,180
Social services............. 10,145 10,115 9,574 9,861 10,134 9,845
Agriculture................. 451 456 436 441 452 437
Other....................... 249 242 245 226 234 229
---------------------------------------------------------------------------------
Subtotal, conduct of 52,829 53,216 51,132 51,574 53,702 52,579
education and training...
---------------------------------------------------------------------------------
Subtotal, grants for 120,160 129,852 117,040 112,908 120,075 122,909
investment.................
=================================================================================
DIRECT FEDERAL PROGRAMS
Major public physical
investment:
Construction and
rehabilitation:
National defense:
Military construction 8,190 9,172 8,537 6,150 7,431 8,309
and family housing.....
Atomic energy defense 527 634 676 663 585 690
activities and other...
---------------------------------------------------------------------------------
Subtotal, national 8,717 9,806 9,213 6,813 8,016 8,999
defense..............
---------------------------------------------------------------------------------
Nondefense:
International affairs... 1,922 1,330 1,450 1,436 1,276 1,343
General science, space, 1,946 2,066 2,089 1,799 2,161 2,897
and technology.........
Water resources projects 3,318 4,316 2,692 2,749 4,040 3,402
Other natural resources 969 974 810 988 1,021 935
and environment........
Energy.................. 1,309 1,468 1,281 1,307 1,435 1,296
Postal Service.......... 708 1,118 1,698 678 677 1,103
Transportation.......... 122 130 112 93 194 160
Veterans hospitals and 2,133 2,371 1,655 1,618 1,851 1,941
other health facilities
Federal Prison System... 25 49 -116 260 117 123
GSA real property 1,627 1,676 1,556 1,407 1,689 1,882
activities.............
Other construction...... 2,617 2,541 1,989 2,538 2,551 2,207
---------------------------------------------------------------------------------
Subtotal, nondefense.. 16,696 18,039 15,216 14,873 17,012 17,289
---------------------------------------------------------------------------------
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Subtotal, construction 25,413 27,845 24,429 21,686 25,028 26,288
and rehabilitation.....
---------------------------------------------------------------------------------
Acquisition of major
equipment:
National defense:
Department of Defense... 96,695 86,185 84,328 82,298 88,802 89,769
Atomic energy defense 381 473 473 388 470 456
activities.............
---------------------------------------------------------------------------------
Subtotal, national 97,076 86,658 84,801 82,686 89,272 90,225
defense..............
---------------------------------------------------------------------------------
Nondefense:
General science and 597 583 768 604 591 709
basic research.........
Space flight, research, 1,179 360 426 956 272 405
and supporting
activities.............
Postal Service.......... 881 1,124 762 552 740 851
Air transportation...... 3,183 3,181 2,862 2,644 2,728 2,591
Water transportation 990 1,147 1,124 816 991 1,144
(Coast Guard)..........
Other transportation 1,207 1,293 900 1,221 1,330 900
(railroads)............
Hospital and medical 1,091 886 1,009 776 1,022 130
care for veterans......
Law enforcement 1,717 1,798 1,948 1,684 1,628 1,846
activities.............
Department of the 259 237 216 296 228 227
Treasury (fiscal
operations)............
Department of Commerce 896 923 962 908 773 952
(NOAA).................
GSA general services 826 906 906 791 784 792
funds..................
Other................... 837 2,035 2,071 785 1,775 2,078
---------------------------------------------------------------------------------
Subtotal, nondefense.. 13,663 14,473 13,954 12,033 12,862 12,625
---------------------------------------------------------------------------------
Subtotal, acquisition of 110,739 101,131 98,755 94,719 102,134 102,850
major equipment........
---------------------------------------------------------------------------------
Purchase or sale of land and
structures:
National defense.......... -25 -28 -28 -25 -28 -28
Natural resources and 152 134 80 232 164 123
environment..............
General government........ 161 168 164 158 168 164
Other..................... 76 53 85 53 31 63
---------------------------------------------------------------------------------
Subtotal, purchase or 364 327 301 418 335 322
sale of land and
structures.............
---------------------------------------------------------------------------------
Subtotal, major public 136,516 129,303 123,485 116,823 127,497 129,460
physical investment......
---------------------------------------------------------------------------------
Conduct of research and
development:
National defense:
Defense military.......... 69,608 71,860 74,213 66,467 71,572 72,871
Atomic energy and other... 3,942 3,780 3,787 4,179 4,052 3,967
---------------------------------------------------------------------------------
Subtotal, national 73,550 75,640 78,000 70,646 75,624 76,838
defense................
---------------------------------------------------------------------------------
Nondefense:
International affairs..... 255 255 255 258 258 258
General science, space,
and technology:
NASA.................... 6,883 8,309 9,378 6,880 7,143 8,807
National Science 3,759 3,797 4,066 3,638 3,823 3,833
Foundation.............
Department of Energy.... 2,832 2,890 3,246 2,809 2,900 3,246
---------------------------------------------------------------------------------
Subtotal, general 13,729 15,251 16,945 13,585 14,124 16,144
science, space, and
technology...........
---------------------------------------------------------------------------------
Energy.................... 1,162 1,301 1,438 1,272 1,478 1,337
Transportation:
Department of 507 657 509 444 706 628
Transportation.........
NASA.................... 954 929 721 834 812 802
Other................... 17 17 13 10 12 16
---------------------------------------------------------------------------------
Subtotal, 2,640 2,904 2,681 2,560 3,008 2,783
transportation.......
---------------------------------------------------------------------------------
Health:
National Institutes of 27,445 27,683 27,712 26,039 26,634 27,499
Health.................
All other health........ 691 710 691 707 705 686
---------------------------------------------------------------------------------
Subtotal, health...... 28,136 28,393 28,403 26,746 27,339 28,185
---------------------------------------------------------------------------------
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Agriculture............... 1,533 1,577 1,353 1,484 1,494 1,311
Natural resources and 2,104 2,089 1,972 1,854 2,069 1,898
environment..............
National Institute of 394 354 361 418 368 421
Standards and Technology.
Hospital and medical care 742 765 765 714 738 744
for veterans.............
All other research and 1,625 1,950 1,903 1,353 2,177 1,932
development..............
---------------------------------------------------------------------------------
Subtotal, nondefense.... 50,903 53,283 54,383 48,714 51,317 53,418
---------------------------------------------------------------------------------
Subtotal, conduct of 124,453 128,923 132,383 119,360 126,941 130,256
research and development.
---------------------------------------------------------------------------------
Conduct of education and
training:
Elementary, secondary, and 1,605 1,314 1,153 1,706 1,851 1,389
vocational education.......
Higher education............ 31,756 45,512 22,359 31,482 39,332 21,477
Research and general 1,880 1,900 1,962 1,954 1,988 1,942
education aids.............
Training and employment..... 1,626 328 1,366 1,652 458 1,346
Health...................... 1,555 1,365 1,030 1,465 1,401 1,253
Veterans education, 2,833 3,339 3,292 2,970 3,292 3,443
training, and
rehabilitation.............
General science and basic 904 898 920 919 936 924
research...................
National defense............ 8 ............ ............ 9 ............ ............
International affairs....... 406 455 503 423 421 475
Other....................... 616 644 569 584 830 649
---------------------------------------------------------------------------------
Subtotal, conduct of 43,189 55,755 33,154 43,164 50,509 32,898
education and training...
---------------------------------------------------------------------------------
Subtotal, direct Federal 304,158 313,981 289,022 279,347 304,947 292,614
investment.................
=================================================================================
Total, Federal investment..... 424,318 443,833 406,062 392,255 425,022 415,523
----------------------------------------------------------------------------------------------------------------
PART II: PERFORMANCE OF FEDERAL INVESTMENT
Introduction. In recent years there has been increased emphasis on
improving the performance of Government programs. This emphasis began
with the Government Performance and Results Act of 1993, which requires
agencies to prepare strategic plans and annual performance plans, and
then report on their actual performance annually.
This Administration set out to ensure that agencies worked to improve
their performance, not just report on it. Beginning in the 2004 Budget,
the Administration began to assess every Federal program by a method
known as the Program Assessment Rating Tool, or PART. The Administration
set a target of assessing all Federal programs over five years. With
this budget, the fourth year of using the PART, the Administration has
assessed almost 800 programs, about four-fifths of the Federal budget.
The PART assesses each program in 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 84 percent, Adequate if the score is 50 to 69 percent, and
Inadequate if the score is 49 percent or lower. The program may receive
a rating ``Results Not Demonstrated'' if it does not have a good long-
term and annual performance measure or does not have data to report on
its measures. 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 and training. 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 summarizes 209 programs:
Programs for capital assets are essentially those identified
in the PART system as ``capital assets and service
acquisition'' (79 programs);
Programs for research and development are essentially those
identified in the PART system as ``research and development''
(102 programs); and
Programs for education and training (28 programs) are
primarily programs in the Department of Education that are not
grants to State and local governments (e.g., Federal Pell
Grants). This cat
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egory also includes programs in other agencies, such as the
Montgomery GI Bill in the Department of Veterans Affairs, the
Health Professions program in the Department of Health and
Human Services, and the Job Corps program in the Department of
Labor.
Information on these and other programs assessed by PART is at
www.ExpectMore.gov.
Summary of ratings. Table 6-3 shows that the average rating for the
209 investment programs that have been rated by PART was ``Adequate''.
These programs had total spending of $227.5 billion in 2005. Of these
programs:
47 were rated effective ($45.0 billion);
67 were rated moderately effective ($69.0 billion);
46 were rated adequate ($72.4 billion);
9 were rated ineffective ($6.7 billion); and
40 were rated ``results not demonstrated'' ($34.3 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
----------------------------------------------------------------------------------------------------------------
Type of Investment
Purpose................................................. 83% 92% 79% 87%
Planning................................................ 79% 83% 73% 80%
Management.............................................. 82% 87% 67% 83%
Results/Accountability.................................. 55% 60% 34% 55%
Average Rating \1\...................................... Adequate Moderately Adequate Adequate
effective
Number of Programs
Ratings \1\
Effective............................................... 16 29 2 47
Moderately Effective.................................... 24 41 2 67
Adequate................................................ 18 17 11 46
Ineffective............................................. 2 3 4 9
Results Not Demonstrated................................ 19 12 9 40
-------------------------------------------------------
Total number of investment programs rated............. 79 102 28 209
In millions of dollars (2005)
Effective............................................... $4,658 $39,839 $479 44,976
Moderately Effective.................................... 50,825 16,516 1,707 69,048
Adequate................................................ 45,064 1,737 25,602 72,403
Ineffective............................................. 5,323 166 1,249 6,738
Results Not Demonstrated................................ 27,237 2,149 4,930 34,316
-------------------------------------------------------
All investment programs that were rated in PART......... $133,107 $60,407 $33,967 $227,481
----------------------------------------------------------------------------------------------------------------
\1\ Ratings are determined by weighting the section scores a follows: Purpose (20 percent), Planning (10
percent), Management (20 percent), Results/Accountability (50 percent). The resulting weighted average is
translated into a rating: Effective indicates a score of 85 percent or more; Moderately Effective, 70-84
percent; Adequate, 50-69 percent; and Ineffective, 49 percent or less. Regardless of the weighted average, a
rating of Results Not Demonstrated may be given if the program does not have performance goals or has not
collected data on its performance goals.
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. Navy Shipbuilding ($13.4 billion in 2005).
Rating: Adequate.
This program buys new ships and overhauls existing ships. New ships
are built at six privately-owned shipyards. Overhauls of existing ships
are performed at both privately-owned and publicly-owned shipyards. The
Navy currently has 280 ships in the fleet. The Navy conducts periodic
reviews of programs at major
[[Page 60]]
milestones of development and uses a structured reporting regime to help
monitor the status of ship cost, schedule, and performance.
The Navy has experienced cost increases and schedule slips on some
ship construction programs, although overall performance is adequate.
For example, the first Virginia Class submarine was only 89 percent
complete in 2003 when the target was 92 percent. In addition, the cost
of the first Virginia class submarine increased by 24 percent in 2002.
Department of Defense (DoD). Air Combat Program ($13.4 billion in
2005). Rating: Moderately Effective. The purpose of this program is to
enable DoD to successfully wage war in the air by developing and
producing a variety of tactical fighter and strike aircraft. DoD's
individual programs within the overall air combat program are delivering
aircraft at targeted rates, but in several cases, such as the F/A-22, at
greater cost than projected.
DoD is moving towards an assessment of the overall capabilities
provided by its programs, rather than its traditional assessment of
individual acquisition programs. However, until the air combat program
is managed as a single program (consisting of several systems) with
clear long-term goals, it will be difficult to perform such a
``capabilities based'' assessment.
Department of Defense. Marine Corps/Expeditionary Warfare. ($11.9
billion in 2005). Rating: Results Not Demonstrated. Expeditionary
warfare is the temporary use of Marine Corps force in foreign countries.
The expeditionary warfare program consists of specific investment
programs for aviation assets, amphibious ships, weapons systems,
equipment, vehicles, ammunition, and research and development.
The Department of Defense has not set long-term performance measures
to guide program management and budgeting for expeditionary warfare. It
does not have program measures that assess the most important aspects of
expeditionary warfare and its strategic goals.
Department of Defense. Missile Defense ($8.8 billion in 2005).
Rating: Adequate. The mission of the Missile Defense Agency (MDA) is to
defend the United States, deployed forces, and allies from ballistic
missile attack. MDA is researching, developing and fielding a global,
integrated and multi-layered Ballistic Missile Defense System (BMDS),
comprising multiple sensors, interceptors and battle management
capabilities.
MDA's strategic planning, resource allocation and management oversight
activities are properly aligned to accomplish stated mission objectives.
MDA budget requests and human resource management activities are
explicitly tied to appropriate performance goals. MDA leaders regularly
review and evaluate a wide array of performance data to inform and guide
their decisionmaking.
Tennessee Valley Authority. Tennessee Valley Authority Power ($7.8
billion in 2005). Rating: Moderately Effective. TVA is the Nation's
largest public power company. Through 158 locally owned distributors,
TVA provides power to nearly 8.5 million residents of the Tennessee
Valley. Some of TVA's former performance measures such as cents/KWH are
no longer tracked. It is unclear how some of the new efficiency measures
tracked by TVA relate to program performance. In its strategic plan, the
Tennessee Valley Authority committed to a debt reduction plan that will
reduce its total debt by $3-$5 billion over a ten-year to twelve-year
period. TVA has since increased that debt reduction total to $7.8
billion by 2016.
Department of Defense. Future Combat Systems/Modularity Land Warfare
($7.4 billion in 2005). Rating: Moderately Effective. The Army's
complementary transformation initiatives, Modularity and the Future
Combat Systems, are designed to provide regional combatant commanders
and soldiers with a lighter, faster, more survivable and rapidly
deployable force with which to fight and win the United States' current
and future land conflicts.
Although the Future Combat Systems program is currently on schedule
and on cost, the program's long schedule, significant cost, and
technological complexity put Future Combat Systems at substantial risk
of cost and schedule overruns as the program moves from research and
development to acquisition.
Department of Energy. Environmental Management ($7.3 billion in
2005). Rating: Adequate. This program protects human health and the
environment by cleaning up millions of gallons of radioactive waste,
thousands of tons of spent nuclear fuel and special nuclear material,
along with huge quantities of contaminated soil and water.
Managers are implementing reforms that are improving program
performance, which will significantly reduce environmental, safety, and
health risks. For example, at the Hanford (State of Washington) site,
the program continues to expedite retrieval of radioactive waste from
leak-prone, single-shell tanks and transfer the waste to double-shell
tanks for safer storage until treated and disposed. The program recently
completed the physical cleanup of the Rocky Flats (Colorado) site more
than a year ahead of schedule and below estimated costs. Most of the
site will transfer to the Department of the Interior to manage as a
national wildlife refuge after the Environmental Protection Agency, with
concurrence by the Colorado Department of Public Health and Environment,
certifies that the cleanup meets human health standards.
General Services Administration. National Information Technology
Solutions ($6.3 billion in 2005). Rating: Results Not Demonstrated. This
program provides expert technical, acquisition, and information
technology products and services to Federal clients. GSA is reviewing
the organization of both the National and Regional IT Solutions programs
for possible consolidation.
The assessment found that the program is useful to Federal agencies
that do not have in-house expertise to acquire information technology
(IT) products or services. However, the program must better demonstrate
the value it provides to customer agencies. The program must develop
long-term outcome goals and efficiency
[[Page 61]]
measures which are comparable to other Federal agencies or the private
sector. While the program does have annual goals, it must develop annual
goals which measure the savings and quality improvement that agencies
achieve through use of this program.
Education
Department of Education. Federal Pell Grants ($12.4 billion in 2005).
Rating: Adequate. This program helps ensure access to postsecondary
education for undergraduate students by providing need-based grants
that, in combination with other sources of student aid, help meet
education costs. The program also promotes lifelong learning by
encouraging low-income adults to return to school.
The program has meaningful performance measures and outcome data on
these measures such as the degree to which Pell Grants are targeted to
low-income students. New measures such as enrollment and graduation
rates among low-income and minority students have also been added. The
program has met its current long-term performance goals and new measures
will help track other key program goals.
Department of Education. Federal Family Education Loan Program ($11.1
billion (subsidy cost) in 2005). Rating: Adequate. This program provides
default insurance and interest subsidies to encourage private lenders to
make postsecondary education loans to undergraduate and graduate
students. The program also provides interest subsidies for eligible low-
income students to cover interest accrued while in school.
Overall, the assessment concluded that both this program and the
William D. Ford Direct Student Loan program fulfill their purpose of
ensuring that low and middle income students can afford the costs of
postsecondary education. The two programs combined provide over $70
billion a year in new loans to students. While the PART found that these
programs had meaningful performance measures and outcome data, it also
found that both programs could be more cost efficient.
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 13, ``Stewardship,'' in this
volume. Additional detail about these methods appeared in a
methodological note in Chapter 7, ``Federal Investment Spending and
Capital Budgeting,'' in the Analytical Perspectives volume of the 2004
Budget.
[[Page 62]]
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.
The total stock grew at a 2.2 percent average annual rate from 1960 to
2005, with periods of faster growth during the late 1960s and the 1980s.
The stock amounted to $2,257 billion in 2005 and is estimated to
increase to $2,381 billion by 2007. In 2005, the national defense
capital stock accounted for $680 billion, or 30 percent of the total,
and nondefense stocks for $1,577 billion, or 70 percent of the total.
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........................................................................ 2,023 631 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........................................................................ 2,138 646 1,492 380 166 213 1,112 690 193 135 94
2004........................................................................ 2,199 662 1,536 391 168 223 1,146 714 196 136 100
2005........................................................................ 2,257 680 1,577 400 168 231 1,178 737 198 138 105
2006 estimate............................................................... 2,321 700 1,621 410 170 240 1,211 761 202 138 110
2007 estimate............................................................... 2,381 717 1,664 420 171 249 1,244 786 205 139 114
------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
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 $1,577 billion in 2005. With the
investments proposed in the budget, nondefense stocks are estimated to
grow to $1,664 billion in 2007. 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 a low of
$631 billion in 2001 to $717 billion in 2007.
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 2005, 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
[[Page 63]]
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 40 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 $1,106 billion in 2005 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 2005. 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 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 recent years has begun to increase the
stock, and it is projected to increase to $462 billion in 2007.
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................................... 423 43 380 461 294 167 884 336 547
Annual data:
2000................................... 423 48 375 543 368 175 966 416 549
2001................................... 421 50 371 563 386 177 984 436 548
2002................................... 420 52 368 587 406 181 1,007 458 549
2003................................... 423 53 370 613 428 186 1,036 481 555
2004................................... 430 54 375 640 450 190 1,070 505 565
2005................................... 439 56 383 666 473 194 1,106 529 577
2006 estimate.......................... 451 57 394 692 495 197 1,143 553 591
2007 estimate.......................... 462 59 403 718 518 201 1,180 577 603
--------------------------------------------------------------------------------------------------------------------------------------------------------
\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 $1,394 billion in 2005 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.\1\ Nearly three-quarters is for
elementary and secondary education, while the remainder is for higher
education.
---------------------------------------------------------------------------
\1\ For estimates of the total education stock, see table 13-4 in
Chapter 13, ``Stewardship.''
---------------------------------------------------------------------------
[[Page 64]]
The federally financed education stock has grown steadily in the last
few decades, with an average annual growth rate of 5.2 percent from 1970
to 2005. The expansion of the education stock is projected to continue
under this budget, with the stock rising to $1,519 billion in 2007.
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............................. 71 51 20
1965............................. 102 74 28
1970............................. 233 184 50
1975............................. 347 282 65
1980............................. 479 379 101
1985............................. 575 434 141
1990............................. 730 544 186
1995............................. 874 639 235
Annual data:
2000............................. 1,136 825 311
2001............................. 1,186 859 327
2002............................. 1,228 891 338
2003............................. 1,277 932 346
2004............................. 1,341 968 373
2005............................. 1,394 1,001 393
2006 estimate.................... 1,462 1,045 417
2007 estimate.................... 1,519 1,086 433
------------------------------------------------------------------------