At the present time, capital items in the federal budget are treated for planning and accounting purposes as if they were disposible items such as paper and copier fluid. This misrepresents federal deficits by ignoring the value of the government's assets. There is no mechanism for determining how much capital stock the government actually owns or how fast it is depreciating or appreciating.

In addition, in reviewing agency budget requests one frequently sees capital outlay requests justified with the explanation that the funds are needed to replace obsolete equipment which is difficult to repair. Seldom in these requests is there information on the useful lives or anticipated maintenance and repair costs of existing or proposed investments. If such data were prepared and included in a capital budget, the government could conduct long-range planning to avoid emergency fluctuations in capital requests and smooth out the budget process.

Thus, a capital budget could help to prevent the very kind of fiscal bind we find ourselves in now, where a rising tide of "uncontrollables" is coming face to face with long neglected (but easily foreseen, given proper planning) capital needs.

Capital budgeting techniques such as cost-benefit and financing package analyses, would provide policymakers with the information necessary to make informed decisions about allocating scarce funds among competing projects. At the present time there is usually insufficient information for the Congress to use in selecting among proposed capital projects. A capital budget would focus attention on the investment nature of capital outlays, in which costs benefits are seen in a longer time frame.

and

A final important advantage of the capital budget is that it would place federal borrowing in better perspective than at present. As the description of project-specific financing indicates, borrowing to finance a productive capital outlay usually enhances a corporate or governmental balance sheet. (One sign that a corporation is headed for trouble is when it must borrow large sums to meet current expenses.)

Currently, there is no formal system of determining whether federal borrowing has been made to cover current or capital expenditures. A capital budget would aggre-ate investments on which the government could expect a return, and would establish a direct relationship between the funding for such programs and user fees or other returns on

investment.

This would provide a clear explanation for the

public of the logical matching of self-liquidating financing programs with specific capital projects.

Financing Packages

Extending federal agencies the authority to use

financing packages for specific capital investment projects allows these agencies the flexibility of a line of credit. Because any borrowing so authorized is designed to be repaid from the proceeds of user charges, the financing package also forces the agency to make its evaluation procedures as accurate as possible, so that its income will accord with the estimates implied in the financing package.

The fact of an agency borrowing from the Treasury is neither unique nor of recent origin. In 1791, Congress established the First Bank of the United States and capitalized it through the Treasury. Today, forty pieces of legislation authorize various government agencies and programs to issue notes to the Treasury, which in turn finances the transaction by issuing bonds to the public.9

Federal policy, however, is inconsistent, and this impairs the flexibility of many agencies to plan their

capital needs. A number of agencies which are authorized to

impose user fees, for example, do not have the borrowing authority which would logically follow from their financial status as an entrepreneurial entity. These agencies include the Alaska, Southeastern, Southwestern, and Western Area Power Administrations, and the Washington Metropolitan Airports.

In conjunction with strict requirements for cost-benefit justifications for all federal capital investments, Congress should extend borrowing authority to any agency or program which collects user fees or is otherwise engaged in an entrepreneurial activity. The authority need not be unbridled.

It could be limited by

would place government entrepreneurial activities on a

firmer financial basis, and establish the principle that federal borrowing is a preferred method of finance in instances where the debt can generate additional revenues.

User Charges

The federal government collects in excess of $100 billion from the sale of goods and services each year. These range from military scrap metal sales ($2 million in FY 1981) to the estimated $6.9 billion in gasoline taxes

which are considered a user fee for federal highways.

The system of federal user fees has grown over time into a patchwork of inconsistent and sometimes inequitable charges. The users of highways, for example, pay gasoline, diesel and other taxes which have provided a major part of the funds for constructing the interstate highway system. Users of ports, on the other hand, pay nothing for the navigation and dredging services provided them by the government.

From a business standpoint, user charges are a critical link in financing capital outlays. If a firm does not believe it can get a price for a product sufficient in the long run to pay operating costs plus yield an adequate rate of return on capital investment, then the investment does not take place. In the commercial setting, the price is generally set by market forces, whereas in the government setting "price" is usually defined by statute or regulation. Often the government's "price" is determined by the political influence of special interest groups, not through a careful analysis of cost benefit studies or the good of the country at large.