    [Analytical Perspectives]
    [Crosscutting Programs]
    [6. Federal Investment]
    [From the U.S. Government Printing Office, www.gpo.gov]

    [[Page 57]]

                             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 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

    [[Page 58]]

    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 $429.8 billion in 2007.
    They are estimated to increase to $482.1 billion in 2008 and $494.2
    billion in 2009. Major Federal investment outlays will comprise an
    estimated 16 percent of total Federal outlays in 2009 and 3.3 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 $266.1 billion in 2009. 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 $155.0 billion in 2009. Almost all of these outlays,
    or an estimated $143.2 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
                                   Federal Investment                                     2007   -------------------
                                                                                         Actual     2008      2009
    ----------------------------------------------------------------------------------------------------------------
    Major public physical capital investment:
      Direct Federal:
        National defense..............................................................     107.8     141.0     155.0
        Nondefense....................................................................      30.8      37.4      35.6
                                                                                       -----------------------------
          Subtotal, direct major public physical capital investment...................     138.7     178.4     190.6

      Grants to State and local governments...........................................      70.8      76.1      75.5
                                                                                       -----------------------------
        Subtotal, major public physical capital investment............................     209.4     254.5     266.1

    Conduct of research and development:
      National defense................................................................      77.1      78.7      82.7
      Nondefense......................................................................      52.6      55.9      57.3
                                                                                       -----------------------------
        Subtotal, conduct of research and development.................................     129.7     134.6     139.9

    Conduct of education and training:
      Grants to State and local governments...........................................      53.7      55.5      53.8
      Direct Federal..................................................................      37.0      37.5      34.4
                                                                                       -----------------------------
        Subtotal, conduct of education and training...................................      90.7      93.0      88.2
                                                                                       -----------------------------

          Total, major Federal investment outlays.....................................     429.8     482.1     494.2

                                        MEMORANDUM

    Major Federal investment outlays:
      National defense................................................................     184.9     219.7     237.7
      Nondefense......................................................................     244.9     262.5     256.5
                                                                                       -----------------------------
        Total, major Federal investment outlays.......................................     429.8     482.1     494.2

    Miscellaneous physical investment:
      Commodity inventories...........................................................      -0.3        -*        -*
      Other physical investment (direct)..............................................       3.0       3.3       2.9
                                                                                       -----------------------------
        Total, miscellaneous physical investment......................................       2.7       3.3       2.9
                                                                                       -----------------------------

    Total, Federal investment outlays, including miscellaneous physical investment....     432.5     485.4     497.1
    ----------------------------------------------------------------------------------------------------------------
    * less than $50 million.

      Outlays for direct physical investment for nondefense purposes are
    estimated to be $35.6 billion in 2009. These outlays include $20.7
    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 $14.4 billion in 2009. The largest amounts are for the
    air traffic control system; weather and climate monitoring in the
    National Oceanic and Atmospheric Administration; 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 $75.5 billion in 2009. Nearly three-quarters of these
    outlays, or $55.0 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 $139.9 billion in 2009.
    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 $82.7 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 $57.3 billion in 2009. 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 can be found 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 $88.2 billion in 2009. 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 $53.8 billion in 2009, approximately
    three-fifths of the total. They include education programs for the
    disadvantaged and individuals with disabilities, training programs in
    the Department of Labor, Head Start, and other education programs.
    Direct Federal education and training outlays are estimated to be $34.4
    billion in 2009. Programs in this category primarily consist of aid for
    higher education through student financial assistance, loan sub

    [[Page 59]]

    sidies, the veterans GI bill, and health training programs.
      This category does not include outlays for education and training of
    Federal civilian and military employees. Outlays for education and
    training that are for physical investment and for research and
    development are in the categories for physical investment and the
    conduct of research and development.

    Miscellaneous Physical Investment

      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 for the purchase or sale of
    agricultural products pursuant to farm price support programs and other
    commodities. Sales are estimated to exceed purchases by $29 million in
    2009.
      Outlays for other miscellaneous physical investment are estimated to
    be $2.9 billion in 2009. This category consists entirely of direct
    Federal outlays and includes primarily conservation programs.

                      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.

    [[Page 60]]

              Table 6-2. FEDERAL INVESTMENT BUDGET AUTHORITY AND OUTLAYS: GRANT AND DIRECT FEDERAL PROGRAMS
                                                (In millions of dollars)
    ----------------------------------------------------------------------------------------------------------------
                                                      Budget Authority                        Outlays
                                              ----------------------------------------------------------------------
                   Description                                   Estimate                           Estimate
                                                   2007    -------------------     2007    -------------------------
                                                 Actual         2008     2009    Actual         2008         2009
    ----------------------------------------------------------------------------------------------------------------
      GRANTS TO STATE AND LOCAL GOVERNMENTS

    Major public physical investments:
      Construction and rehabilitation:
        Transportation:
          Highways...........................      37,176       38,606   28,4      34,373       38,184       40,023
                                                                         32
          Mass transportation................       9,842        9,308   9,98       8,982       10,618       10,850
                                                                          2
          Rail transportation................  ...........          50   100   ...........          12           20
          Air transportation.................       3,671         -169   2,75       3,874        2,970        4,090
                                                                          0
                                              ----------------------------------------------------------------------
            Subtotal, transportation.........      50,689       47,795   41,2      47,229       51,784       54,983
                                                                         64
                                              ----------------------------------------------------------------------
        Other construction and
         rehabilitation:
          Pollution control and abatement....       2,068        1,677   1,66       1,837        1,441        1,600
                                                                          2
          Community and regional development.       4,978        8,024   3,33      12,110       13,036        9,549
                                                                          1
          Housing assistance.................       6,179        6,147   5,59       7,632        7,657        7,513
                                                                          9
          Other construction.................         340          444   322          492          438          370
                                              ----------------------------------------------------------------------
            Subtotal, other construction and       13,565       16,292   10,9      22,071       22,572       19,032
             rehabilitation..................                            14
                                              ----------------------------------------------------------------------
          Subtotal, construction and               64,254       64,087   52,1      69,300       74,356       74,015
           rehabilitation....................                            78
                                              ----------------------------------------------------------------------
      Other physical assets..................       1,475        1,531   1,26       1,462        1,771        1,470
                                                                          2
                                              ----------------------------------------------------------------------
        Subtotal, major public physical            65,729       65,618   53,4      70,762       76,127       75,485
         capital.............................                            40
                                              ----------------------------------------------------------------------
    Conduct of research and development:
      Agriculture............................         424          293   202          332          318          324
      Other..................................         250          309   253          261          283          246
                                              ----------------------------------------------------------------------
        Subtotal, conduct of research and             674          602   455          593          601          570
         development.........................
                                              ----------------------------------------------------------------------
    Conduct of education and training:
      Elementary, secondary, and vocational        36,710       35,772   36,9      36,910       38,098       37,311
       education.............................                            83
      Higher education.......................         500          475   337          504          558          494
      Research and general education aids....         764          794   595          760          802          524
      Training and employment................       3,320        3,479   3,08       3,223        3,194        3,222
                                                                          6
      Social services........................      10,350       10,416   9,65      10,160       10,390        9,707
                                                                          3
      Agriculture............................         455          458   436          430          475          511
      Other..................................       1,706        1,985   1,99       1,703        1,982        1,997
                                                                          4
                                              ----------------------------------------------------------------------
        Subtotal, conduct of education and         53,805       53,379   53,0      53,690       55,499       53,766
         training............................                            84
                                              ----------------------------------------------------------------------
      Subtotal, grants for investment........     120,208      119,599   106,     125,045      132,227      129,821
                                                                         979
                                              ======================================================================
             DIRECT FEDERAL PROGRAMS

    Major public physical investment:
      Construction and rehabilitation:
        National defense:
          Military construction and family          9,629       12,977   12,8       7,253        9,860       11,412
           housing...........................                            25
          Atomic energy defense activities            555          381   394          630          379          384
           and other.........................
                                              ----------------------------------------------------------------------
            Subtotal, national defense.......      10,184       13,358   13,2       7,883       10,239       11,796
                                                                         19
                                              ----------------------------------------------------------------------
        Nondefense:
          International affairs..............         963          937   1,18         425        1,267        1,781
                                                                          6
          General science, space, and               2,139        2,401   1,38       3,125        3,491        2,897
           technology........................                             5
          Water resources projects...........       3,841        3,760   8,26       3,338        4,447        3,867
                                                                          7
          Other natural resources and                 993          927   897          983          975          994
           environment.......................
          Energy.............................       1,413        2,126   2,44       1,311        2,168        2,491
                                                                          0
          Postal Service.....................       1,167        1,332   1,02         838          300          250
                                                                          8
          Transportation.....................         123           93   102          145          147          116
          Veterans hospitals and other health       2,528        3,730   4,80       2,172        3,370        3,232
           facilities........................                             1
          Administration of justice..........       2,043        2,088   1,26         636        1,479        2,117
                                                                          1
          GSA real property activities.......       1,330        1,254   1,32       1,432        1,353        1,604
                                                                          2

    [[Page 61]]

          Other construction.................       1,625        1,552   1,00       1,834        1,712        1,355
                                                                          8
                                              ----------------------------------------------------------------------
            Subtotal, nondefense.............      18,165       20,200   23,6      16,239       20,709       20,704
                                                                         97
                                              ----------------------------------------------------------------------
          Subtotal, construction and               28,349       33,558   36,9      24,122       30,948       32,500
           rehabilitation....................                            16
                                              ----------------------------------------------------------------------
      Acquisition of major equipment:
        National defense:
          Department of Defense..............     133,907      170,711   104,      99,693      130,532      142,933
                                                                         350
          Atomic energy defense activities...         408          329   318          281          299          288
                                              ----------------------------------------------------------------------
            Subtotal, national defense.......     134,315      171,040   104,      99,974      130,831      143,221
                                                                         668
                                              ----------------------------------------------------------------------
        Nondefense:
          General science and basic research.         694          655   958          661          660          999
          Space flight, research, and                 105          131   141          110          110          110
           supporting activities.............
          Postal Service.....................       2,382        1,454   1,49       1,741          354          525
                                                                          6
          Air transportation.................       3,421        3,310   1,43       2,923        3,397        2,630
                                                                          8
          Water transportation (Coast Guard).       1,294          927   1,13       1,084        1,180          969
                                                                          5
          Other transportation (railroads)...       1,293        1,325   800        1,274        1,417          800
          Hospital and medical care for             1,549        2,563   1,43       1,132        2,419        1,176
           veterans..........................                             2
          Law enforcement activities.........       1,815        1,886   2,07       1,330        1,750        1,959
                                                                          9
          Department of the Treasury (fiscal          260          315   274          296          279          283
           operations).......................
          Department of Commerce (NOAA)......         939          851   1,09         899          948        1,027
                                                                          2
          GSA general services funds.........         822          845   876          780          845          876
          Other..............................       1,904        2,785   3,25       1,987        2,715        3,083
                                                                          9
                                              ----------------------------------------------------------------------
            Subtotal, nondefense.............      16,478       17,047   14,9      14,217       16,074       14,437
                                                                         80
                                              ----------------------------------------------------------------------
          Subtotal, acquisition of major          150,793      188,087   119,     114,191      146,905      157,658
           equipment.........................                            648
                                              ----------------------------------------------------------------------
      Purchase or sale of land and
       structures:
        National defense.....................         -17          -33   -16          -31          -80            2
        Natural resources and environment....         176          195   126          214          224          193
        General government...................         164          156   150          159          156          150
        Other................................          13          310   19             6          243           76
                                              ----------------------------------------------------------------------
          Subtotal, purchase or sale of land          336          628   279          348          543          421
           and structures....................
                                              ----------------------------------------------------------------------
        Subtotal, major public physical           179,478      222,273   156,     138,661      178,396      190,579
         investment..........................                            843
                                              ----------------------------------------------------------------------
    Conduct of research and development:
      National defense:
        Defense military.....................      78,269       80,050   80,3      73,716       75,240       79,084
                                                                         37
        Atomic energy and other..............       3,328        3,415   3,56       3,362        3,439        3,590
                                                                          5
                                              ----------------------------------------------------------------------
          Subtotal, national defense.........      81,597       83,465   83,9      77,078       78,679       82,674
                                                                         02
                                              ----------------------------------------------------------------------
      Nondefense:
        International affairs................         246          255   255          248          269          273
        General science, space, and
         technology:
          NASA...............................       9,129        9,472   8,11       8,508        9,408        9,597
                                                                          6
          National Science Foundation........       3,992        4,029   4,75       3,569        4,005        4,156
                                                                          8
          Department of Energy...............       3,108        3,206   3,53       3,114        3,202        3,533
                                                                          3
          Other general science, space, and           843          693   737        1,014          693          735
           technology........................
                                              ----------------------------------------------------------------------
            Subtotal, general science, space,      17,318       17,655   17,3      16,453       17,577       18,294
             and technology..................                            99
                                              ----------------------------------------------------------------------
        Energy...............................       1,405        2,452   2,50       1,249        2,449        2,588
                                                                          3
        Transportation:
          Department of Transportation.......         678          747   815          682          734          729
          NASA...............................         705          604   446          614          608          560
          Other..............................          17           25   16            20           18           17
                                              ----------------------------------------------------------------------
            Subtotal, transportation.........       2,805        3,828   3,78       2,565        3,809        3,894
                                                                          0
                                              ----------------------------------------------------------------------

    [[Page 62]]

        Health:
          National Institutes of Health......      28,165       28,570   28,5      27,058       27,688       28,371
                                                                         55
          All other health...................         686          561   562          846          469          548
                                              ----------------------------------------------------------------------
            Subtotal, health.................      28,851       29,131   29,1      27,904       28,157       28,919
                                                                         17
                                              ----------------------------------------------------------------------
        Agriculture..........................       1,418        1,544   1,41       1,433        1,476        1,424
                                                                          1
        Natural resources and environment....       1,916        1,908   1,96       1,632        1,645        1,714
                                                                          5
        National Institute of Standards and           400          385   418          394          456          453
         Technology..........................
        Hospital and medical care for                 892          960   884          808          924          888
         veterans............................
        All other research and development...       1,078        1,100   1,08         829        1,234        1,114
                                                                          8
                                              ----------------------------------------------------------------------
          Subtotal, nondefense...............      54,678       56,511   56,0      52,018       55,278       56,700
                                                                         62
                                              ----------------------------------------------------------------------
        Subtotal, conduct of research and         136,275      139,976   139,     129,096      133,957      139,374
         development.........................                            964
                                              ----------------------------------------------------------------------
    Conduct of education and training:
      Elementary, secondary, and vocational         1,359        1,412   1,37       1,460        1,605        1,325
       education.............................                             5
      Higher education.......................      26,455       26,029   23,1      24,538       24,572       21,500
                                                                         35
      Research and general education aids....       1,898        2,015   2,25       1,971        1,833        2,008
                                                                          2
      Training and employment................       2,207        1,735   1,93       2,102        1,960        2,200
                                                                          6
      Health.................................       1,410        1,463   959        1,404        1,410        1,256
      Veterans education, training, and             3,266        3,773   3,58       3,456        3,719        3,897
       rehabilitation........................                             2
      General science and basic research.....         917          927   1,00         900        1,026        1,008
                                                                          1
      International affairs..................         513          520   551          477          494          535
      Other..................................         641          671   638          703          925          701
                                              ----------------------------------------------------------------------
        Subtotal, conduct of education and         38,666       38,545   35,4      37,011       37,544       34,430
         training............................                            29
                                              ----------------------------------------------------------------------
      Subtotal, direct Federal investment....     354,419      400,794   332,     304,768      349,897      364,383
                                                                         236
                                              ======================================================================
    Total, Federal investment................     474,627      520,393   439,     429,813      482,124      494,204
                                                                         215
    ----------------------------------------------------------------------------------------------------------------

                   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 results 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 sixth year of using the PART, the Administration has
    assessed more than 1,000 programs, approximately 98 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. The funding
    amounts in this section are estimates from the 2007 spring update of
    PART programs. PART assessments of programs that are grants to State and
    local governments are not summarized in this chapter but are summarized
    in Chapter

    [[Page 63]]

    8, ``Aid to State and Local Governments,'' in this volume.
      This section summarizes 241 programs:
        Programs for capital assets are essentially those identified
              in the PART system as ``capital assets and service
              acquisition'' (93 programs);
        Programs for research and development are essentially those
              identified in the PART system as ``research and development''
              (117 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, for the 241 investment
    programs that have been rated by PART, the average rating was
    ``Moderately Effective''. Of these programs:
        53 were rated Effective;
        82 were rated Moderately Effective;
        62 were rated Adequate;
        7 were rated Ineffective; and
        37 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%          78%             87%
    Planning................................................        81%             83%          72%             80%
    Management..............................................        84%             87%          73%             84%
    Results/Accountability..................................        56%             59%          36%             55%
    Weighted Average \1\....................................        69%             74%          55%             70%
    Average Rating..........................................   Adequate      Moderately     Adequate      Moderately
                                                                              Effective                    Effective

                                                            Number of Programs

                           Ratings \2\
    Effective...............................................         19              32            2              53
    Moderately effective....................................         32              47            3              82
    Adequate................................................         23              23           16              62
    Ineffective.............................................          2               2            3               7
    Results not demonstrated................................         17              13            7              37
                                                             -------------------------------------------------------
    Total number of investment programs rated...............         93             117           31             241
    ----------------------------------------------------------------------------------------------------------------
    \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 (DoD). Air Combat Program ($13.6 billion in
    2007). 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. Navy Shipbuilding ($13.2 billion in 2007).
    Rating: Adequate. This program buys new

    [[Page 64]]

    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 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. Future Combat Systems/Modularity Land Warfare
    ($10.0 billion in 2007). 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 Defense. Missile Defense ($9.4 billion in 2007).
    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.
       Department of Defense. Marine Corps Expeditionary Warfare. ($9.3
    billion in 2007). Rating: Moderately Effective. 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 (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. Rotary Wing Program ($8.8 billion in 2007).
    Rating: Adequate. The purpose of the Department of Defense's (DoD's)
    rotary wing aircraft fleet is to develop and procure an inventory of
    rotary wing aircaft that provides the capabilities needed to satisfy the
    mission requirements of US forces. Each type of rotary wing aircraft
    satisfies specific mission requirements to enable US forces to respond
    effectively to the full spectrum of military operations. Targets and
    timeframes for fielding new rotary wing aircraft have been developed for
    all programs, and are considered ambitious in light of the engineering
    challenges associated with developing and building rotary wing aircraft.
    The heavy use of rotary wing aircraft in the Global War on Terror has
    increased the need to field new and upgraded aircraft as quickly as
    possible to support forces in theaters of operations.
       Tennessee Valley Authority. Tennessee Valley Authority Power ($8.8
    billion in 2007). 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.
       Department of Defense (DoD). Military Construction Programs ($7.5
    billion in 2007). Rating: Moderately Effective. This program funds
    buildings, structures, utilities, and land to meet defense requirements
    on military installations to improve quality of life and enhance
    military capabilities. The military construction program spans 2,965
    domestic sites and 766 overseas sites. At any given time over 1,500
    projects are underway. Projects proposed for funding in the President's
    Budget are selected as a result of a rigorous competitive and selective
    process. Each project undergoes requirement, solutions and costs
    analysis prior to formal programming into the Budget.
      The military construction program is executed by DoD construction
    agents--United States Army Corps of Engineers, Naval Facilities
    Engineering Command, and Air Force Center for Environmental Excellence.
    The program accounts for the full cost of projects, which include
    planning and designing a project, project costs, and supervision,
    inspection, and overhead of the project.
       Department of Defense (DoD). Airlift Program ($6.9 billion in 2007).
    Rating: Moderately Effective. The purpose of this program is to enable
    DoD to move large amounts of personnel and materiel to, and within,
    remote locations in short periods of time by developing and producing a
    variety of airlift aircraft. The program has a long-term goal of
    providing a strategic airlift capacity of 54.5 million ton miles per
    day. DoD is attempting to achieve that goal through the construction of
    airlift aircraft--primarily the Air Force's C-17.
      The airlift investment program is nearing completion of the first
    phase of the C-17 program which has increased airlift capabilities.
    However, the program has

    [[Page 65]]

    still not met its target capacity. Attainment of the inter-theater
    airlift capability is dependent on fielding new C-17s, retiring the
    aging C-141 fleet, and eventual fielding of C-5 Reliability Enhancement
    & Reengining Program (RERP) aircraft. Deliveries of the C-130J will
    increase intra-theater capabilities.

    Education

       Department of Education. Federal Pell Grants ($13.7 billion in 2007).
    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.

                   PART III: FEDERALLY FINANCED CAPITAL STOCKS

      Federal investment spending creates a ``stock'' of capital that is
    available for future 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 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. Conversely, the year-to-year
    change in the capital stock estimates is annual net investment. 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
    2007, with periods of faster growth during the late 1960s and the 1980s.
    The stock amounted to $2,385 billion in 2007 and is estimated to
    increase to $2,483 billion by 2009. In 2007, the national defense
    capital stock accounted for $727 billion, or 30 percent of the total,
    and nondefense stocks for $1,658 billion, or 70 percent of the total.

    [[Page 66]]

                                                                      Table 6-4.  NET STOCK OF FEDERALLY FINANCED PHYSICAL CAPITAL
                                                                                      (In billions of 2000 dollars)
    ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
                                                                                                                     Direct Federal Capital             Capital Financed by Federal Grants
                                                                                                                  ----------------------------------------------------------------------------------
                                    Fiscal Year                                      Total   National     Total              Water                                     Community
                                                                                              Defense  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       390      168      223    1,146          714          196        136       100
      2005........................................................................    2,256       680      1,575       400      168      232    1,176          736          198        137       105
      2006........................................................................    2,316       701      1,614       410      169      240    1,205          758          199        138       109
      2007........................................................................    2,385       727      1,658       422      171      252    1,236          779          205        139       113
      2008 est....................................................................    2,413       753      1,660       422      173      250    1,238          780          206        138       113
      2009 est....................................................................    2,483       785      1,698       432      173      259    1,266          802          209        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 $1,658 billion in 2007. With the
    investments proposed in the budget, nondefense stocks are estimated to
    grow to $1,698 billion in 2009. 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 $785 billion in 2009.
      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 2007, 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 $1,166 billion in 2007 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 2007. 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

    [[Page 67]]

    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 $483 billion in 2009.
      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          366         383         228          154         785         264          521
      1995...................................         423          43          380         461         293          168         883         336          548
    Annual data:
      2000...................................         423          48          375         542         367          175         965         416          550
      2001...................................         421          50          370         563         386          177         984         436          548
      2002...................................         420          52          368         587         406          181       1,006         458          549
      2003...................................         423          53          370         613         427          186       1,036         480          555
      2004...................................         428          54          374         639         449          190       1,067         503          564
      2005...................................         442          56          386         660         469          191       1,102         525          577
      2006...................................         454          57          397         681         489          192       1,136         546          590
      2007...................................         464          58          406         702         509          193       1,166         567          599
      2008 est...............................         473          59          414         723         530          193       1,196         589          607
      2009 est...............................         483          61          422         745         551          194       1,228         612          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 $1,473 billion in 2007 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.''
    ---------------------------------------------------------------------------
      The federally financed education stock has grown steadily in the last
    few decades, with an average annual growth rate of 5.1 percent from 1970
    to 2007. The expansion of the education stock is projected to continue
    under this budget, with the stock rising to $1,662 billion in 2009.

    [[Page 68]]

          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.............................         733           546        188
      1995.............................         878           641        237
    Annual data:
      2000.............................       1,135           827        308
      2001.............................       1,189           864        325
      2002.............................       1,236           899        337
      2003.............................       1,279           932        347
      2004.............................       1,327           959        368
      2005.............................       1,364           993        371
      2006.............................       1,414         1,016        399
      2007.............................       1,473         1,063        410
      2008 est.........................       1,565         1,140        425
      2009 est.........................       1,662         1,226        436
    ------------------------------------------------------------------------