Recommendations of the Grace Commission on Capital Budgeting

Staff Paper Prepared for the President's Commission to Study Capital Budgeting

June 19, 1998

RECOMMENDATIONS OF THE GRACE COMMISSION ON CAPITAL BUDGETING AND PLANNING

The Grace Commission report (or the President's Private Sector Survey on Cost Controls) made recommendations that are related to the work of the President's Commission to Study Capital Budgeting. Its report asked: "How can the planning and budgeting for capital expenditures and assets be improved?" For the purposes of this issue, capital expenditures were defined as long-term financial investments in assets representing large commitments of resources that commonly include land, buildings, facilities, equipment, and vehicles.

The Grace Commission concluded "that implementation of a government-wide capital budgeting process would result in better management and utilization of capital assets and funds, long-term improvements in the nation's physical assets, planned maintenance and repair activities and long-term cost reductions." It made the following specific recommendations for this process.

1. Prepare a comprehensive special capital analysis within the special analysis section of the annual budget.

Discussion:

The special analysis on Federal investment (now chapter 6 of Analytical Perspectives, "Federal Investment Spending and Capital Budgeting"), has been gradually expanded to provide more comprehensive analyses on several aspects of capital investment and capital stocks. The chapter now:

describes the size and composition of Federal investment,
discusses the planning, budgeting, and acquisition of capital assets used to provide Federal services, including an Appendix outlining Principles of Budgeting for Capital Asset Acquisitions,
provides estimates of trends in Federally financed capital stocks,
discusses alternative capital budget and capital expenditure presentations, and provides supplemental projections and needs assessments.

2. Institute a Federal capital budgeting and planning process, separately constituted but integrated with overall resource planning and allocation systems.

Discussion:

No action was taken at the time this recommendation was made. However, to improve planning and budgeting for capital assets, a work team sponsored by OMB and GAO with extensive representation from Federal agencies developed a Capital Programming Guide that was published last year. The Guide provides extensive guidelines on all aspects of capital planning and budgeting, including planning, budgeting, procurement, and management-in-use.

The Guide has been given extensive distribution within the Federal Government. Its principles have been incorporated in OMB Circular A-11, providing guidance to Federal agencies on preparation and submission of budget estimates.

As recommended by the Grace Commission, the Guide and OMB guidelines for budget preparation emphasize the importance of integrating capital planning and budgeting with the overall agency budget request and agency strategic plans and objectives.

The Grace Commission recommended that the Federal Government implement only those elements of capital budgeting that would improve the management and use of capital assets. The report said that it did not recommend separate operating and capital budgets to portray a lower operating deficit, or capital budgeting models that recorded depreciation or bond amortization in an operating budget.

President's Commission to Study Capital Budgeting