[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

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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 $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

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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.

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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                                   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

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      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
------------------------------------------------------------------------