Appendix I GAO's Capital Budget Proposal We propose restructuring the current unified budget to include an operating and a capital budget within the unified budget. As table I.1 shows, the operating component of the restructured unified budget would report all operating revenues and expenses for programs and activities that are not classified as capital investments as well as the "operating surplus/deficit." The capital component of the restructured unified budget, as illustrated in table I.2, would report the revenues, investments, and "capital financing requirements" for federal capital investment activities. Under our proposal, amounts received from the public, or nonfederal We have recommended against netting such amounts against gross outlays on the grounds that the resultant outlay totals understate the true level of federal outlays.1 Under our proposal, these amounts would not be netted against gross disbursements for purposes of calculating operating expenses and capital investments. Rather, they would be reported as budget receipts. This results in expense and investment figures in the capital budget (see table 3) which are larger than the outlays reported in the current unified budget (see table 2). Throughout this report, our restructured budget amounts reflect this new approach. Such an approach does not, however, change the "bottom line," that is, the unified budget financing requirements. 1Federal Budget Outlay Estimates: A Growing Problem (GAO/PAD-79-20, February 9, 1979) and Federal Budget Totals Are Understated Because of Current Practices (GAO/PAD-81-22, December 31, 1980). We should note that because of our approach and the quality of existing data on capital expenditures and asset consumption charges (depreciation), we had to make several assumptions in developing the numbers. GAO's Capital Budget Proposal Therefore, we would emphasize that the numbers in all the tables in this report are approximations for illustrative purposes only. Appendix VI discusses the methodology that we used in developing our budget numbers. Operating Component of Restructured Budget The operating component of the restructured budget, as illustrated in table I.1, would report all operating revenues and expenses for programs and activities that are not classified as capital investments. The revenues would include general taxes; payroll and other earmarked taxes; and fees, royalties, and other earnings. As for expenses, they would include the costs of civil functions, the defense function, and the interest on the national debt. In addition to the above expenses, we would add two costs not currently recognized in the budget. The first cost would be an "asset consumption charge" which represents the consumption of the federal government's physical assets. Because the current budget does not include an asset consumption charge, it misstates the true cost of operating the government. Adding this cost to the operating budget would eliminate this omission and, therefore, improve cost comparisons between operating and capital programs. This asset consumption amount would be appropriated in the operating budget and credited to the capital budget. The second cost would be the estimated subsidy costs associated with the budget year's new direct loans and loan guarantees. For direct loans, this would be the government's expected net loss on new loans, considering defaults and interest rate costs. On the latter cost, the government often earns lower interest on the loans it extends than the interest it must pay on the funds it borrows to finance those loans. Focusing on such costs rather than gross loan disbursements would put direct loan programs on a comparable basis with grant programs. For loan guarantees, the subsidy costs would be the estimated pay- GAO's Capital Budget Proposal As with the asset consumption charge, there would be an appropriation each year in the operating budget for the credit subsidy costs of direct loans and loan guarantees. The appropriated amounts would be transferred to the capital budget, where they would be dispersed when needed. There are other operating costs not currently reported in the budget that should be, namely the annual accrued liabilities for pension programs. These amounts, however, would not involve transactions between the operating and capital budgets, and, as such, we did not shown them in table I.1. In our forthcoming summary report on budget restructuring, we discuss accrued costs for pension programs in greater detail. In sum, the operating component of our restructured budget would Capital Component of The capital component of the restructured budget, as illustrated in table I.2, would report both capital revenues and capital investments; these amounts would represent cash revenues and disbursements. Capital revenues would include user fees, excise taxes, and similar amounts which are earmarked by law to finance physical and financial capital investments. Capital revenues would also include most loan principal repayments and interest paid by the Treasury on securities held by the capital trust funds. Capital investments would include disbursements for physical assets |