Why All the Fuss About Capital Assets?


Spurred by the National Performance Review, the Office of Management and Budget began taking a closer look at capital assets in 1994, with a bulletin (94-08) designed to help agencies improve the way they buy big items. The budget office recognized that pressure to downsize and restructure was tempting agencies to put off buying and neglect maintenance of fixed assets even though some assets, such as information technology (IT), could help agencies do more with fewer resources. OMB asked agencies to prepare and justify five-year spending plans for asset purchases and to explain the methods they use to fund big-ticket buys.

In a subsequent governmentwide review, OMB found "research equipment was acquired with inadequate funding for its operation. New medical facilities were built without funds for maintenance and operation. New information technology sometimes was acquired without planning for associated changes in agency operation," according to the Analytical Perspectives section of the Clinton administration's 1998 budget request.

In 1995, OMB issued a bulletin (95-03) requiring agencies to report on the progress of asset acquisitions larger than $20 million. The budget office wanted the acquisition progress data to comply with the 1994 Federal Acquisition Streamlining Act requirement that it report on how well agencies were meeting their own acquisition cost, schedule and performance goals.

Last June, OMB replaced its previous bulletins with a rewrite of Part 3 of Circular A-11 directing agencies how to make their annual budget submissions. Part 3 adds to the five-year planning and up-front budgeting mandates a requirement for richly detailed fixed asset reviews designed to streamline reporting required by FASA, the 1993 Government Performance and Results Act, and the 1996 Clinger-Cohen Act, which reformed IT management. Part 3 charges agency heads with:

  • Setting cost, schedule and performance goals for major acquisitions,
  • Monitoring programs to ensure they achieve 90 percent of cost and schedule goals and 100 percent of performance goals, and
  • Taking corrective action, including termination, when programs fail to meet those goals.

Clinton's 1998 budget request, which seeks $60 billion in capital asset outlays, includes a section, "Principles of Budgeting for Capital Asset Acquisitions," stressing the need to improve planning, cost-benefit analysis, financing and risk management for capital assets. The "Capital Programming Guide," produced by inter-agency working groups of more than 80 employees from 14 agencies and due this month, will offer practical advice on enacting the principles.

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