[Analytical Perspectives]
[Crosscutting Programs]
[6. Federal Investment]
[From the U.S. Government Printing Office, www.gpo.gov]
[[Page 55]]
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 $430.4 billion in 2006.
They are estimated to increase to $434.9 billion in 2007 and are
projected to decline to $430.1 billion in 2008. Major Federal investment
outlays will comprise an estimated 15 percent of total Federal outlays
in 2008 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 $221.1 billion in 2008. Physical investment outlays are
for construction and rehabilitation, the purchase of major equipment,
and the purchase or sale of land and structures. Approximately two-
thirds 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 $117.6 billion in 2008. Almost all of these outlays,
or an estimated $107.8 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
2006 -------------------
Actual 2007 2008
----------------------------------------------------------------------------------------------------------------
Major public physical capital investment:
Direct Federal:
National defense.............................................................. 97.3 113.3 117.6
Nondefense.................................................................... 29.0 32.5 31.6
-----------------------------
Subtotal, direct major public physical capital investment................... 126.3 145.8 149.2
Grants to State and local governments........................................... 64.1 69.2 71.8
-----------------------------
Subtotal, major public physical capital investment............................ 190.4 215.0 221.1
Conduct of research and development:
National defense................................................................ 73.0 75.5 72.9
Nondefense...................................................................... 49.8 52.7 54.1
-----------------------------
Subtotal, conduct of research and development................................. 122.8 128.1 127.0
Conduct of education and training:
Grants to State and local governments........................................... 56.2 57.3 53.6
Direct Federal.................................................................. 61.0 34.5 28.5
-----------------------------
Subtotal, conduct of education and training................................... 117.2 91.8 82.1
-----------------------------
Total, major Federal investment outlays..................................... 430.4 434.9 430.1
MEMORANDUM
Major Federal investment outlays:
National defense................................................................ 170.3 188.7 190.6
Nondefense...................................................................... 260.1 246.2 239.5
-----------------------------
Total, major Federal investment outlays....................................... 430.4 434.9 430.1
Miscellaneous physical investment:
Commodity inventories........................................................... -1.0 -0.2 0.2
Other physical investment (direct).............................................. 3.1 3.2 3.4
-----------------------------
Total, miscellaneous physical investment...................................... 2.1 3.0 3.6
-----------------------------
Total, Federal investment outlays, including miscellaneous physical investment.... 432.5 437.9 433.7
----------------------------------------------------------------------------------------------------------------
Outlays for direct physical investment for nondefense purposes are
estimated to be $31.6 billion in 2008. These outlays include $18.3
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; construction for the administration of justice programs
(largely in the Department of Homeland Security), construction of office
buildings by the General Services Administration, and construction for
embassy security. Outlays for the acquisition of major equipment are
estimated to be $13.4 billion in 2008. The largest amounts are for the
air traffic control system; law enforcement activities, largely in the
Department of Homeland Security and the Federal Bureau of Investigation;
and information systems in the Department of Veterans Affairs.
Grants to State and local governments for physical investment are
estimated to be $71.8 billion in 2008. More than two-thirds of these
outlays, or $51.6 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 $127.0 billion in 2008.
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 $72.9 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 $54.1 billion in 2008. 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 $82.1 billion in 2008. 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 $53.6 billion in 2008, 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 $28.5
billion in 2008. Programs in this category are primarily aid for higher
education through student financial assistance, loan subsidies, the
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veterans GI bill, and health training programs. The decline in spending
from 2006 to 2007 reflects a significant decrease in estimates of
Federal subsidies due to reduced student loan consolidation activity.
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
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.
Purchases are estimated to exceed sales by $0.2 billion in 2008.
Outlays for other miscellaneous physical investment are estimated to
be $3.4 billion in 2008. 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 2006 2007 2008 2006 2007 2008
Actual Estimate Estimate Actual Estimate Estimate
----------------------------------------------------------------------------------------------------------------
GRANTS TO STATE AND LOCAL
GOVERNMENTS
Major public physical
investments:
Construction and
rehabilitation:
Transportation:
Highways................ 36,357 37,555 39,943 33,975 34,914 37,621
Mass transportation..... 9,768 8,738 9,273 8,430 10,048 10,276
Air transportation...... 3,070 4,267 2,750 3,841 3,821 3,711
---------------------------------------------------------------------------------
Subtotal, 49,195 50,560 51,966 46,246 48,783 51,608
transportation.......
---------------------------------------------------------------------------------
Other construction and
rehabilitation:
Pollution control and 1,878 1,961 1,748 1,740 1,685 1,546
abatement..............
Community and regional 22,054 5,173 3,535 6,310 9,147 9,231
development............
Housing assistance...... 6,169 6,127 5,525 7,750 7,566 7,563
Other construction...... 579 311 289 553 533 379
---------------------------------------------------------------------------------
Subtotal, other 30,680 13,572 11,097 16,353 18,931 18,719
construction and
rehabilitation.......
---------------------------------------------------------------------------------
Subtotal, construction 79,875 64,132 63,063 62,599 67,714 70,327
and rehabilitation.....
---------------------------------------------------------------------------------
Other physical assets....... 1,423 1,372 1,299 1,515 1,494 1,507
---------------------------------------------------------------------------------
Subtotal, major public 81,298 65,504 64,362 64,114 69,208 71,834
physical capital.........
---------------------------------------------------------------------------------
Conduct of research and
development:
Agriculture................. 266 275 229 270 284 276
Other....................... 169 165 164 171 130 130
---------------------------------------------------------------------------------
Subtotal, conduct of 435 440 393 441 414 406
research and development.
---------------------------------------------------------------------------------
Conduct of education and
training:
Elementary, secondary, and 38,295 36,230 36,936 37,984 38,258 35,467
vocational education.......
Higher education............ 501 500 337 540 582 510
Research and general 764 784 694 727 813 710
education aids.............
Training and employment..... 4,965 5,157 4,803 4,801 4,749 4,543
Social services............. 10,109 10,239 9,567 10,015 10,255 9,873
Agriculture................. 456 456 436 423 443 496
Other....................... 1,700 2,216 1,997 1,682 2,189 1,979
---------------------------------------------------------------------------------
Subtotal, conduct of 56,790 55,582 54,770 56,172 57,289 53,578
education and training...
---------------------------------------------------------------------------------
Subtotal, grants for 138,523 121,526 119,525 120,727 126,911 125,818
investment.................
=================================================================================
DIRECT FEDERAL PROGRAMS
Major public physical
investment:
Construction and
rehabilitation:
National defense:
Military construction 9,500 9,407 11,527 6,439 8,870 9,426
and family housing.....
Atomic energy defense 668 628 489 654 577 504
activities and other...
---------------------------------------------------------------------------------
Subtotal, national 10,168 10,035 12,016 7,093 9,447 9,930
defense..............
---------------------------------------------------------------------------------
Nondefense:
International affairs... 1,357 924 1,492 1,585 1,542 1,228
General science, space, 2,114 1,941 2,285 2,183 2,879 3,261
and technology.........
Water resources projects 4,815 2,823 2,746 3,161 4,289 3,000
Other natural resources 1,144 860 884 982 990 956
and environment........
Energy.................. 1,387 1,245 1,275 1,354 1,215 1,352
Postal Service.......... 950 1,288 1,214 737 793 1,122
Transportation.......... 130 136 64 91 218 123
Veterans hospitals and 2,867 1,343 2,006 1,946 1,844 1,937
other health facilities
Administration of 821 1,658 1,518 467 1,397 1,799
justice................
GSA real property 1,911 949 1,420 1,484 1,476 1,839
activities.............
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Other construction...... 1,938 1,776 1,342 1,991 1,966 1,680
---------------------------------------------------------------------------------
Subtotal, nondefense.. 19,434 14,943 16,246 15,981 18,609 18,297
---------------------------------------------------------------------------------
Subtotal, construction 29,602 24,978 28,262 23,074 28,056 28,227
and rehabilitation.....
---------------------------------------------------------------------------------
Acquisition of major
equipment:
National defense:
Department of Defense... 105,370 126,244 137,220 89,796 103,508 107,398
Atomic energy defense 510 490 383 444 344 354
activities.............
---------------------------------------------------------------------------------
Subtotal, national 105,880 126,734 137,603 90,240 103,852 107,752
defense..............
---------------------------------------------------------------------------------
Nondefense:
General science and 604 637 926 578 608 890
basic research.........
Space flight, research, 360 290 492 291 543 405
and supporting
activities.............
Postal Service.......... 1,339 1,782 1,442 1,430 1,017 1,294
Air transportation...... 3,310 3,333 860 2,615 2,737 1,817
Water transportation 1,340 1,264 892 882 1,094 1,115
(Coast Guard)..........
Other transportation 1,293 1,114 900 1,257 1,188 900
(railroads)............
Hospital and medical 1,132 236 770 784 633 604
care for veterans......
Law enforcement 1,802 1,902 2,054 1,448 1,891 1,939
activities.............
Department of the 237 251 331 261 214 278
Treasury (fiscal
operations)............
Department of Commerce 944 935 890 1,000 875 900
(NOAA).................
GSA general services 763 816 833 719 824 865
funds..................
Other................... 2,038 1,767 2,544 1,473 1,952 2,425
---------------------------------------------------------------------------------
Subtotal, nondefense.. 15,162 14,327 12,934 12,738 13,576 13,432
---------------------------------------------------------------------------------
Subtotal, acquisition of 121,042 141,061 150,537 102,978 117,428 121,184
major equipment........
---------------------------------------------------------------------------------
Purchase or sale of land and
structures:
National defense.......... -65 -39 -37 -65 -39 -37
Natural resources and 97 115 -323 145 129 -301
environment..............
General government........ 168 164 156 162 164 156
Other..................... 42 160 25 18 25 2
---------------------------------------------------------------------------------
Subtotal, purchase or 242 400 -179 260 279 -180
sale of land and
structures.............
---------------------------------------------------------------------------------
Subtotal, major public 150,886 166,439 178,620 126,312 145,763 149,231
physical investment......
---------------------------------------------------------------------------------
Conduct of research and
development:
National defense:
Defense military.......... 73,559 77,821 78,243 69,323 71,755 69,856
Atomic energy and other... 3,917 3,608 3,645 3,720 3,726 3,079
---------------------------------------------------------------------------------
Subtotal, national 77,476 81,429 81,888 73,043 75,481 72,935
defense................
---------------------------------------------------------------------------------
Nondefense:
International affairs..... 255 255 255 258 258 258
General science, space,
and technology:
NASA.................... 8,227 9,131 9,330 6,807 8,438 9,445
National Science 3,806 3,780 4,373 3,707 3,943 3,894
Foundation.............
Department of Energy.... 2,914 2,943 3,394 2,966 3,013 3,192
---------------------------------------------------------------------------------
Subtotal, general 15,202 16,109 17,352 13,738 15,652 16,789
science, space, and
technology...........
---------------------------------------------------------------------------------
Energy.................... 1,219 1,364 1,409 1,156 1,241 1,409
Transportation:
Department of 792 729 788 563 576 499
Transportation.........
NASA.................... 893 589 730 722 736 669
Other................... 17 17 18 20 13 13
---------------------------------------------------------------------------------
Subtotal, 2,921 2,699 2,945 2,461 2,566 2,590
transportation.......
---------------------------------------------------------------------------------
Health:
National Institutes of 27,524 27,641 27,956 26,695 26,974 27,580
Health.................
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All other health........ 694 676 671 653 659 670
---------------------------------------------------------------------------------
Subtotal, health...... 28,218 28,317 28,627 27,348 27,633 28,250
---------------------------------------------------------------------------------
Agriculture............... 1,588 1,485 1,397 1,509 1,511 1,458
Natural resources and 2,106 1,922 1,947 1,513 1,613 1,674
environment..............
National Institute of 366 319 398 398 378 409
Standards and Technology.
Hospital and medical care 824 818 822 799 809 799
for veterans.............
All other research and 1,919 1,547 1,728 1,545 2,084 1,701
development..............
---------------------------------------------------------------------------------
Subtotal, nondefense.... 53,144 53,216 55,216 49,311 52,246 53,670
---------------------------------------------------------------------------------
Subtotal, conduct of 130,620 134,645 137,104 122,354 127,727 126,605
research and development.
---------------------------------------------------------------------------------
Conduct of education and
training:
Elementary, secondary, and 1,355 1,326 1,080 1,656 1,634 1,343
vocational education.......
Higher education............ 57,017 24,128 20,691 50,716 23,441 17,841
Research and general 1,993 1,933 2,173 1,902 2,050 2,057
education aids.............
Training and employment..... 359 359 364 469 549 534
Health...................... 1,353 1,351 994 1,334 1,311 1,222
Veterans education, 3,338 2,842 3,332 2,980 3,321 3,316
training, and
rehabilitation.............
General science and basic 889 886 945 902 909 992
research...................
National defense............ ........... ............ ............ 5 ............ ............
International affairs....... 485 474 515 448 462 499
Other....................... 655 555 611 595 826 672
---------------------------------------------------------------------------------
Subtotal, conduct of 67,444 33,854 30,705 61,007 34,503 28,476
education and training...
---------------------------------------------------------------------------------
Subtotal, direct Federal 348,950 334,938 346,429 309,673 307,993 304,312
investment.................
=================================================================================
Total, Federal investment..... 487,473 456,464 465,954 430,400 434,904 430,130
----------------------------------------------------------------------------------------------------------------
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 fifth year of using the PART, the Administration has
assessed nearly 1,000 programs, approximately 96 percent 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 244 programs:
Programs for capital assets are essentially those identified
in the PART system as ``capital assets and service
acquisition'' (92 programs);
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Programs for research and development are essentially those
identified in the PART system as ``research and development''
(121 programs); and
Programs for education and training (31 programs) are
primarily programs in the Department of Education (e.g.,
Federal Pell Grants) that are not grants to State and local
governments. This category 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
244 investment programs that have been rated by PART was ``Moderately
Effective''. Of these programs:
57 were rated Effective;
83 were rated Moderately Effective;
55 were rated Adequate;
8 were rated Ineffective; and
41 were rated ``Results Not Demonstrated''.
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................................................. 84% 92% 80% 88%
Planning................................................ 80% 83% 74% 81%
Management.............................................. 83% 87% 72% 84%
Results/Accountability.................................. 56% 60% 35% 55%
Weighted Average \1\.................................... 69% 74% 55% 70%
Average Rating.......................................... Adequate Moderately Adequate Moderately
effective effective
Number of Programs
Ratings \2\
Effective............................................... 20 35 2 57
Moderately effective.................................... 31 49 3 83
Adequate................................................ 20 21 14 55
Ineffective............................................. 2 3 3 8
Results not demonstrated................................ 19 13 9 41
-------------------------------------------------------
Total number of investment programs rated............... 92 121 31 244
----------------------------------------------------------------------------------------------------------------
\1\ Weighted as follows: Purpose (20 percent), Planning (10 percent), Management (20 percent), Results/
Accountability (50 percent).
\2\ The rating of Effective indicates a score of 85 percent or more; Moderately Effective, 70-84 percent;
Adequate, 50-69 percent; and Ineffective, 49 percent or less.
Assessments of individual programs. The ratings of ten of the largest
physical capital and education and training investment programs are
summarized here. Information on research and development is in Chapter
5, ``Research and Development'' in this volume.
Capital Assets
Department of Defense. Air Force Acquisition Systems. ($31.8 billion
in 2006). Rating: Moderately Effective. This program acquires the
equipment and other materiel needed by the Air Force to enable it to
fulfill its mission of defeating enemy forces and protecting American
troops.
The Air Force acquisition system delivers equipment that generally
meets its required performance goals and fulfills the warfighters'
needs. The acquisition system does not include control mechanisms to
effectively limit factors which contribute to cost and schedule
overruns. While the acquisition system already includes a limited number
of specific performance measures, additional measures would help to
better determine how well the acquisition system is performing.
Department of Defense. Marine Corps/Expeditionary Warfare. ($14.0
billion in 2006). Rating: Moderately Effective. Expeditionary warfare is
the temporary use of Marine Corps force in foreign countries. The
expeditionary warfare program consists of specific investment
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programs for aviation assets, amphibious ships, weapons systems,
equipment, vehicles, ammunition, and research and development.
The Department of Defense (DoD) has articulated a limited number of
long-term performance measures for the expeditionary warfare program in
response to an earlier assessment. DoD has identified goals related to
Joint and Coalition Proficiency, Operational Reach, Force Projection,
Sustainability, and Operational and Organizational Adaptability for the
expeditionary warfare capability.
Department of Defense. Navy Shipbuilding ($13.4 billion in 2006).
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 281 ships in the fleet.
The Navy has specific cost, schedule, and performance goals for each
shipbuilding program. The Navy conducts periodic reviews of programs at
major 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.
Department of Defense (DoD). Air Combat Program ($13.4 billion in
2006). 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 management of the overall air combat program is currently based
on the extensive system of regulations governing how individual
acquisition programs are managed. Through these regulations DoD tracks
the progress of individual programs and can hold managers accountable
for their programs. 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.
Department of Defense. Future Combat Systems/Modularity Land Warfare
($9.7 billion in 2006). 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.
Tennessee Valley Authority. Tennessee Valley Authority Power ($9.3
billion in 2006). Rating: Moderately Effective. The Tennessee Valley
Authority (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. The Tennessee Valley Authority committed to a debt
reduction plan that will reduce its total debt $3 billion - $5 billion
over a ten to twelve year period. TVA has since increased that debt
reduction total to $7.8 billion by 2016.
Department of Energy. Environmental Management ($7.9 billion in 2006).
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. For example, the program is renegotiating cleanup contracts
to include performance incentives. The program is also reorganizing
operations to focus on risk reduction. The program needs to develop
annual cost and schedule performance measures. The Department of Energy
Inspector General and the Government Accountability Office have
identified better performance measures as critical to assessing program
achievements.
Department of Defense. Missile Defense ($7.7 billion in 2006). 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.
Education
Department of Education. Federal Pell Grants ($17.3 billion in 2006).
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
[[Page 63]]
long-term performance goals and new measures will help track other key
program goals.
Department of Education. Federal Family Education Loan Program ($17.3
billion (subsidy cost) in 2006). 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 the
program had meaningful performance measures and outcome data, it also
found that it 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 reduces 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 R&D 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 R&D or
education can be carried out by Federal or State government
laboratories, universities and other nonprofit organizations, local
governments, or private industry. R&D 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.
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
2006, with periods of faster growth during the late 1960s and the 1980s.
The stock amounted to $2,315 billion in 2006 and is estimated to
increase to $2,454 billion by 2008. In 2006, the national defense
capital stock accounted for $700 billion, or 30 percent of the total,
and nondefense stocks for $1,615 billion, or 70 percent of the total.
[[Page 64]]
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........................................................................ 2,198 662 1,536 391 168 223 1,146 714 196 136 100
2005........................................................................ 2,256 680 1,576 400 168 232 1,176 736 198 137 105
2006........................................................................ 2,315 700 1,615 410 169 240 1,205 758 200 138 109
2007 estimate............................................................... 2,387 729 1,658 421 171 250 1,236 781 203 139 114
2008 estimate............................................................... 2,454 756 1,697 431 172 259 1,267 804 207 139 117
------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
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 $1,615 billion in 2006. With the
investments proposed in the budget, nondefense stocks are estimated to
grow to $1,697 billion in 2008. 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 $756 billion in 2008.
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 2006, 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 40 percent since the mid-1980s.
The Stock of Research and Development Capital
This section presents data on the stock of research and development
(R&D) 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 $1,142 billion in 2006 in constant
2000 dollars. Roughly half is the stock of basic research knowledge; the
remainder is the stock of applied research and development.
[[Page 65]]
The nondefense stock accounted for about three-fifths of the total
federally financed R&D stock in 2006. 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 $468 billion in 2008.
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 21 255 262 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 48 375 542 368 175 966 416 549
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................................... 431 54 376 639 449 190 1,070 504 566
2005................................... 442 56 386 665 471 194 1,107 527 580
2006................................... 452 57 395 690 493 197 1,142 549 593
2007 estimate.......................... 462 58 404 716 513 203 1,178 572 606
2008 estimate.......................... 468 59 409 742 535 207 1,210 594 616
--------------------------------------------------------------------------------------------------------------------------------------------------------
\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 $1,451 billion in 2006 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 13-5 in
Chapter 13, ``Stewardship.''
---------------------------------------------------------------------------
[[Page 66]]
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 2006. The expansion of the education stock is projected to continue
under this budget, with the stock rising to $1,557 billion in 2008.
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............................. 234 184 50
1975............................. 349 282 67
1980............................. 482 379 103
1985............................. 577 434 143
1990............................. 736 549 188
1995............................. 880 643 237
Annual data:
2000............................. 1,133 825 308
2001............................. 1,184 859 325
2002............................. 1,227 890 336
2003............................. 1,267 924 343
2004............................. 1,328 961 367
2005............................. 1,383 1,013 370
2006............................. 1,451 1,057 394
2007 estimate.................... 1,505 1,099 406
2008 estimate.................... 1,557 1,141 415
------------------------------------------------------------------------