Franklin D. Raines, Director, Office of Management and Budget
(appearance on April 24, 1998)

Testimony: Director Raines addressed many issues in his testimony.

He suggested that for purposes of capital budgeting, capital should be defined in terms of physical capital and not investment in human resources.

He supported up-front funding, because it forces the decision-making process to focus on the total cost. He talked about the Corps of Engineers' budget where billions of dollars of projects are authorized every year, but no additional funding is provided, thereby delaying and stretching the projects further. He suggested advanced appropriations as an alternative.

He said States and local governments borrow exclusively for capital because they are generally prohibited from borrowing for operating purposes. Corporations and the Federal government don't segregate borrowing for capital. Each of them treats borrowing as part of the management of their acquisition of resources and borrows typically on the general credit of the organization, whether a corporation or the Federal government.

He said the question of whether capital spending should be on or off budget is irrelevant, because the unified budget is used for analytical purposes anyway. He believes the Commission should not concern itself with how to dress up the budget bottom line.

He supported user fees for targeted funding. He believes a specification by Congress to set aside funding for certain uses is a concept we should embrace, particularly for capital investments. He cited a number of cases where this is used, including highway spending and the FAA's air traffic control operation.

Questions from the Commissioners: Questions focused on the Director's definition of capital, specifics on user fees for targeted funding, and a separate budgetary cap for capital spending.

Q.    How could the Commission add most value?
A.    The Commission should address three issues: 1) whether there is a problem with the level of our capital investments; 2) arguments for and against capital budgets and their implications; and 3) specific suggestions, even if they may be partial solutions.

Q.    Do you borrow to finance capital projects, or pay for them at the time you construct?
A.    I would not say we should go through and parse out portions of the unified budget and say, this is going to be borrowed because it has a longer life, and this is going to be paid for through current taxation. I think that would be an error.

President's Commission to Study Capital Budgeting