Budget Issues: Agency Data Supporting Capital Project Funding	 
Requests Could Be Improved (08-JUN-01, GAO-01-770).		 
								 
During its review of 2001 agency budget justifications, GAO found
a number of capital project funding requests that lacked total	 
project cost information and for which it was not always clear	 
whether requested funding would provide a useful, stand-alone	 
asset. Without this information, Congress cannot consider the	 
full costs of proposed commitments or determine if it is funding 
an asset that will be useful without additional funding. This	 
report provides several examples of agency capital project	 
funding request information that could be improved.		 
-------------------------Indexing Terms------------------------- 
REPORTNUM:   GAO-01-770 					        
    ACCNO:   A01166						        
  TITLE:     Budget Issues: Agency Data Supporting Capital Project    
             Funding Requests Could Be Improved                               
     DATE:   06/08/2001 
  SUBJECT:   Future budget projections				 
	     Reporting requirements				 

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GAO-01-770
     
GAO United States General Accounting Office

Report to the Director, Office of Management and Budget

June 2001 BUDGET ISSUES Agency Data Supporting Capital Project Funding
Requests Could Be Improved

GAO- 01- 770

Page 1 GAO- 01- 770 Agency Capital Project Data

June 8, 2001 The Honorable Mitchell E. Daniels, Jr. Director Office of
Management and Budget

Dear Mr. Daniels: On February 26, 2001, at the request of the Chairman,
Senate Committee on the Budget, we issued a letter on incremental funding of
capital asset acquisitions. 1 During the course of the work for that letter,
we found that the information provided to appropriations committees in
support of agency capital project requests was often incomplete and/ or
unclear. There were instances in which some capital project requests did not
include the projects? total estimated costs and instances in which project
descriptions were vague and/ or very brief, making it difficult to determine
future costs or whether the funding provided would produce usable assets.
Since there is value in providing both executive and legislative
decisionmakers with the best and most complete information possible, we are
providing you a few examples of agency capital project funding request
information that could be improved.

For the incremental funding study, we reviewed fiscal year 2001 budget
justifications and agency documentation for 18 agencies involving
approximately 700 individual projects. We identified and reviewed projects
that had received funding through fiscal year 2000 and were still in
progress. We conducted the incremental funding study from August through
December 2000 in accordance with generally accepted government auditing
standards.

We have previously reported 2 that full funding of capital projects is an
important tool for maintaining governmentwide fiscal control. It helps to
ensure that the Congress considers the full costs of proposed commitments
and makes trade- offs based on the full costs. Failure to

1 Budget Issues: Incremental Funding of Capital Asset Acquisitions (GAO- 01-
432R, February 26, 2001). 2 Accrual Budgeting: Experiences of Other Nations
and Implications for the United States (GAO/ AIMD- 00- 57, February 18,
2000) and Budget Issues: Budgeting for Federal Capital (GAO/ AIMD- 97- 5,
November 12, 1996).

United States General Accounting Office Washington, DC 20548

Page 2 GAO- 01- 770 Agency Capital Project Data

recognize the full costs of proposed commitments when budget decisions are
made could lead to distortions in the allocation of resources. It can also
force future Congresses and administrations to choose between having
unusable assets and continuing project funding for years, even after
priorities may have changed. The Office of Management and Budget (OMB) and
others in the budget community have supported and endorsed this concept. OMB
requires agencies to prepare capital asset plans that are required to
contain full cost estimates for capital projects. OMB also encourages long-
term agency capital plans and suggests that they contain full cost
estimates.

In our February report, we grouped capital projects into three categories
based on the extent of funding they receive for stand- alone or useful
segments: full funding, incremental funding, and high technology. Fully
funded capital projects are those for which budget authority is, or appears
to be, provided for the full estimated cost of a capital project or a
standalone stage if the project can be divided into stages. Fully funded
projects also include the survey and design of a capital project and any
major upgrade or renovation that results in a usable asset. Incrementally
funded capital projects are projects for which budget authority is, or
appears to be, provided for only part of the estimated cost of a capital
acquisition or a part of a usable asset- a part that would not be usable if
no further funding were provided. High technology capital projects are
incrementally funded projects for which budget authority is, or appears to
be, provided for only part of the estimated cost of information technology
acquisitions or projects that are highly dependent on research and
development and for which the outcome is highly uncertain. Space exploration
equipment would be an example of such a project. Incremental funding can be
justified for high technology capital projects because such projects are
often closer in nature to research and development, and funding provided on
an incremental basis can provide useful knowledge even if no additional
funding is provided.

During our review of agency budget justifications, we found a number of
capital project funding requests that lacked total project cost information
and for which it was not always clear whether requested funding would
provide a useful, stand- alone asset. Without this information, the Congress
cannot consider the full costs of proposed commitments or determine if it is
funding an asset that will be useful without additional funding. The
examples illustrating these problems are ones that lent themselves to
relatively easy description. Other agencies and examples could have been
included, but these illustrated the problems most clearly. We are Results in
Brief

Page 3 GAO- 01- 770 Agency Capital Project Data

recommending that you direct certain improvements in agency budget
justifications. In commenting on the report, OMB officials agreed with the
report?s conclusion and said they would take action to implement the
recommendation.

We found a significant number of ongoing capital projects for which total
estimated project costs were not provided and could not be computed
accurately because future funding requirements data also were not provided.
For example, the Federal Aviation Administration?s fiscal year 2001 budget
justifications included many capital projects that had received funding
through fiscal year 2000 and for which current funding was being requested.
However, for 15 of those projects, the only information on any future
funding required was the statement ?future requirements are under review.?
One project, titled ?Air Traffic Management,? had received a total of $490.1
million prior to the fiscal year 2001 request of $25.9 million. Another
project, titled ?Airport Movement Area Safety System,? had received a total
of $92.4 million prior to the 2001 request of an additional $20.7 million. A
third project, titled ?Operational Data Management System,? had received a
total of $26.9 million prior to the 2001 request of an additional $1
million. Although project descriptions for all three projects implied a
definite need for additional funding beyond the fiscal year 2001 budget
request, the descriptions did not provide an estimate of funding necessary
to complete the projects. We judged all three projects to be incrementally
funded.

The U. S. Coast Guard?s fiscal year 2001 budget justifications had ?To Be
Determined? under the Estimated Future Cost Requirement caption for several
ongoing capital projects. One of these projects, titled ?Alex Haley
Conversion Project- Phase II,? had received $20 million through fiscal year
2000, and an additional $3.2 million was requested for 2001. This project
received its initial funding in fiscal year 1998, and the project
description suggests that the Coast Guard is planning to request additional
funding for fiscal years 2002 through 2005. However, no estimate of the
dollar amounts was provided. Another Coast Guard project, titled ?Deepwater

Capability Replacement Project,? received a total of $73.9 million during
fiscal years 1998 through 2000. Additional funding of $42.3 million was
requested for fiscal year 2001. The Coast Guard plans to request additional
funding of about $500 million annually (in 1998 dollars) for the next 20 to
Lack of Total Project

Cost Information

Page 4 GAO- 01- 770 Agency Capital Project Data

30 years to complete this project. 3 We judged both the Alex Haley and
Deepwater projects to be incrementally funded.

During our review we also found that some agency budget justifications
lacked sufficient information to determine whether funding provided in a
given year would result in usable assets. The State Department?s fiscal year
2001 budget justifications included a number of funding requests for embassy
facility rehabilitation and replacement of support systems. However, the
information provided was not always sufficient to determine exactly what the
fiscal year 2001 requested funding would provide in terms of usable assets.

For example, the department requested $2.75 million in fiscal year 2001 to
initiate construction of the Brasilia, Brazil chancery rehabilitation- a
project that is estimated to cost a total of $9. 2 million and has an
estimated construction cycle of 3 years. Funding of $875 thousand for the
project?s design was provided in fiscal year 2000. The project description
and scope describe what facility structures and systems will be renovated
over the course of the entire project. However, there is no sense, either
from the project description or schedule of project phases, of exactly what
the fiscal year 2001 funding will provide and, particularly, whether it
would result in a useful asset absent further funding. The description
includes statements such as ?increased capacity is needed in the two- story
sections of the building? and ?the electrical system will be upgraded.? What
the description does not provide is information such as whether the initial
construction funding will completely finance an expansion of one building
section with the next year?s funding request providing for expansion of a
second section. The description could also mean that the fiscal year 2001
funding would upgrade the electrical system only, with the building
expansion to commence in future years. We judged this capital project to be
incrementally funded primarily because of the 3- year construction cycle and
the project funding schedule, which showed that future funding of $5.6
million would be needed to complete this project. However, it is possible
that fiscal year 2001 and subsequent annual appropriation requests have been
structured to provide funding sufficient to produce a

3 Coast Guard: Progress Being Made on Deepwater Project, but Risks Remain
(GAO- 01- 564, May 2, 2001). Incomplete and

Unclear Project Data

Page 5 GAO- 01- 770 Agency Capital Project Data

usable asset each year without further funding. This could not be determined
from the available information. 4

The State Department was not the only agency providing insufficient detail
to determine if requested funding would result in a usable asset. For
example, the National Aeronautics and Space Administration?s fiscal year
2001 budget justifications discusses a $4 million request to begin the third
of five phases of a major repair of the central steam distribution system at
the Goddard Space Flight Center. The scope of the project includes replacing
system headers and other related piping and insulation. This project is
estimated to cost a total of $18.2 million-$ 7. 2 million of which had been
provided prior to fiscal year 2001. The project justification data described
the serious effect of delaying this project, stating that the original
system installed in the early 1960s was ?at the end of its useful life? and
?a major failure could occur.? The justification data also included a list
of subsystems that will be replaced during this phase of the project.
However, the information gives no indication of whether the replacement of
these subsystems would make the overall system functional for its intended
purpose and/ or improve its operational efficiency- even if the remaining
project phases were to be postponed. The justification data would have been
more useful had they included the operational status and functionality of
the overall system at each phase of the project- clearly describing what
each level of funding would provide. We judged this capital project to be
incrementally funded primarily because the work is being conducted in phases
and the project justification for the fiscal year 2001 funding request did
not discuss how the previous funding was used and whether each phase
provided stand- alone improvements.

To make well- informed decisions, decisionmakers must have complete,
comprehensive, and clear information for all proposed capital projects
whether fully or incrementally funded. Data on total project costs are
critical for incrementally funded projects. When the Congress is being asked
to support only a portion of a project, it should have information on

4 The Senate Appropriations Committee has expressed concern about the State
Department?s unfunded construction requirements. In its September 2000
report, the committee expressed concerns that the department was
accumulating large, unfunded construction requirements and recommended that
the Congress limit the number of new construction starts, and, where
possible, only fully fund ongoing projects to prevent the unfunded
requirements from growing. See S. Rep. No. 106- 404 at, 145- 147 (2000). See
also Embassy Construction: Better Long- Term Planning Will Enhance Program
Decision- making (GAO- 01- 11, January 22, 2001). Conclusion

Page 6 GAO- 01- 770 Agency Capital Project Data

the total cost; the period when completion can be expected; and whether the
segment being funded will be a useful, stand- alone project.

Capital asset plans, which are required by OMB for major capital
acquisitions, and long- term agency capital plans could be useful in
reviewing capital project requests but are not routinely provided to the
Congress. Budget justifications are meant to provide the relevant
information to the Congress but often do not include the data and
information needed to determine if full funding is being requested.

We recommend that you ensure that agencies are directed to improve the
information the Congress receives for making funding decisions. The budget
justifications provided by agencies each fiscal year should contain the
following for each capital project: a total project cost estimate (except
when not possible for high technology projects), details of all prior
funding, a description of how the funding was used and is planned to be used
for each fiscal year, and the estimated time frame for completion. The
description of how requested funding will be used should be in sufficient
detail so that it is clear whether full funding for stand- alone assets is
being requested. Capital asset plans, which are required by OMB for major
acquisitions, and long- term agency capital plans, which are encouraged by
OMB, could also be required as supplemental information to the agency budget
justifications.

We obtained comments from OMB officials. They agreed with the report?s
conclusion and recommendation. They further stated that OMB plans to include
language in OMB Circular A- 11, Preparing and Submitting Budget Estimates,
encouraging agencies to provide the Congress the information it needs for
its review of capital projects that are included in the President?s Budget.

We are sending copies of this report to the Chairmen and Ranking Minority
Members of the Senate and House Committees on the Budget and on
Appropriations and the Senate Committee on Governmental Affairs and the
House Committee on Government Reform. Copies will be made available to
others on request. If you or your staff have any questions regarding this
report, please contact me at (202) 512- 9573 or Christine Bonham, Assistant
Director, at (202) 512- 9576. Key contributors to the Recommendation

Agency Comments

Page 7 GAO- 01- 770 Agency Capital Project Data

incremental funding study were Trina Lewis, Jennifer Eichberger, and David
Best.

Sincerely yours, Paul L. Posner Managing Director, Federal Budget Strategic
Issues

(450030)

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