Mr. John D. Porter
Director, Tax and Economic Policy
Financial Executives Institute
1615 L Street, NW Suite 1320
Washington DC 20036-5610
2. The CAF would be a Federal fund and not a trust fund. The fund would repay the Treasury as funds are received from agency debtors and would not be revolving. There would be established a CAF receipt account which would receive agency repayments and record them as offsetting receipts.
3. The CAF would be provided in authorization and/or appropriations acts authority to borrow them from the Treasury in the amount necessary to completely fund new capital investments. This authority would include all out-year requirements for multi-year investment programs. CAF borrowing from the Treasury and outlays from the CAF would be based on a requirements schedule contained in a specific program's annual budget.
4. Concurrently with providing the CAF authority to borrow, the benefitting agency would received a permanent appropriation to its operating budget to cover the principal and interest payments over the full term of the debt. For purposes of this proposal, any spending that is not for a capital asset is considered to be in the operating budget.
5. The debt principal repayment schedule would approximate as closely as possible the physical and useful life of the underlying asset. The schedule would be straight line or accelerated as determined by the life characteristics of the asset.
6. The budget authority for the full cost of capital assets would be scored up front and outlays would be scored as they are made for asset acquisition. This is generally the current practice. Also, budget authority and outlays for principal and interest payments (separately identified) would be scored over time to the agency's operating budget as it repays its debt. As specified in item 4, such budget authority is a permanent appropriation (mandatory) and may be used only to repay principal plus interest to the CAF. The payments would be scored as offsetting receipts to the CAF receipt account (to avoid doublecounting) and used to repay Treasury.
7. To provide a link to agency financial statements, in such statements the principal repayment would be characterized as depreciation for assets that are depreciated for accounting purposes. It would be applied to a reserve account to reduce the carrying value of the associated asset on the balance sheet.
8. Annually, the mission associated with the asset and its ability to support that mission would be reviewed. To the degree the mission is lost or diminished, or the usefulness of the asset is impaired, the carrying value of the asset on the balance sheet would be adjusted or written off. This would be accompanied by an immediate recording of budget authority (from the permanent appropriation) and outlays in the agency's operating budget, corresponding offsetting receipts in the CAF's receipt account, and repayment of part or all of the CAF's debt to the Treasury.
9. The unified budget would contain three categories: (1) total budget authority and expenditures for capital assets for the year in the CAF account, (2) the operating budget for the year (the total of all agency operating budgets), and (3) the CAF receipt account as an offset account. Thus, the unified budget totals for budget authority and outlays for the year would be the sum of the three categories and should be the same as under the current system.
10. While separating the capital and operating budgets to assist decisionmakers, the total cash obligation of the current unified budget would be retained. There would be no distortion of the actual cash budget deficit and its impact on federal borrowing.
11. The capital budgeting process as proposed would retain the features of the current process of full program budget authority and outlays for capital assets being appropriated and scored up front.
12. Over time, the CAF would increasingly be representative
of the federal debt obligation associated with capital assets and the accompanying
interest costs. It would also be a measure of the book value of such assets.