[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
----------------------------------------------------------------------
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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
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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
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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
------------------------------------------------------------------------