Received December 3, 1998
President's Commission to Study Capital Budgeting
Old Executive Office Building, Room 258
Washington, DC 20503
Dear Mr. Emery:
On behalf of the Construction Industry Round Table (CIRT), I want to
take this opportunity to officially submit my organization's views with
respect to the concepts and need for a federal capital infrastructure budget(1),
as the Commission finalizes its report.
The CIRT was first organized in 1987 to be "a force for positive change
in the construction industry" and is composed of 100 CEOs of the leading
firms in the architecture, engineering, and construction industry. The
member firms account for nearly half of the total design/construction work
in the country, which runs at approximately 8-10 percent of the national
GNP. Included in these activities are thousands of federal capital infrastructure
projects(2) worth billions
While the concept of a federal capital budget presents challenges in
a number of areas such as "scoring" and depreciation (i.e., when to begin
the approach and whether or not to "reach back" to older capital projects),
etc., it does represent an approach that has merit and potential value.
For this reason, we urge the Commission not to state in its final report
that it does not endorse or support "capital budgeting," instead that it
recommends aspects of the capital budgeting approach that would improve
current budget practices. [CIRT does not see this distinction as a
matter of semantics, but one of critical political momentum for any type
of change that the Commission may recommend].
CIRT does not subscribe to the "simplistic" version of capital
budgeting that requires all capital or investment expenditures to
be financed by borrowing, but rather an approach that permits or allows
for borrowing. However, we believe a capital budgeting approach has great
potential merit because it:
The report dramatically describes the lack of adequate funding for capital
infrastructure projects in the United States, for example:
Resolves Overstatement of Capital Project Costs: Currently, the
consolidated federal budget overstates the cost of an individual capital
infrastructure project for a given budget year by requiring the entire
expense of a project, which typically has decades long life span of utility,
to be taken or "scored" in a single year (particularly for the construction
Diminishes Uncertainly: The current consolidated federal budget
approach to capital infrastructure projects increases uncertainty in the
system from feasibility planning to construction. Given the overstated
nature of the expense any single federal budget year must assume to move
to construction, many projects that are ready to proceed are limited, withdrawn,
or delayed in order to await adequate funding appropriations.
Enhances the Ability to Meet Capital Project Needs: The present
approach to capital infrastructure funding is critically short of the levels
necessary to both maintain and expand to meet basic infrastructure needs
in the United States. CIRT strongly agrees with the proposed draft report's
summary statement that "the current process shortchanges the maintenance
of existing assets." Numerous studies have been conducted to establish
the shortfall in infrastructure investment vs. the maintenance and development
needs of the country. One of the more recent compilations illustrating
the needs was undertaken by the American Society of Civil Engineers (ASCE)
this fall. (See, Attached materials).
(a) roads & bridges: it will cost $263
billion to eliminate the backlog of needs and maintain repair levels; another
$94 billion is needed for modest improvements--a total of $357 billion;
(b) mass transit: it would require $72 billion
to improve conditions;
(c) aviation/airports: estimates range from
$40-60 billion in the next five years to meet design needs and expand capacity
to meet demand;
(d) schools: it will cost about $112 billion
to repair, renovate, and modernize U.S. schools;
(e) drinking water: total need is set at about
$138 billion, more than $76 billion of that is required right now to protect
(f) wastewater: America needs to invest about
$140 billion over the next 20 years;
(g) hazardous waste: the price tag related
to clean-up programs is estimated at $750 billion over the next 30 years.
(See, ASCE's 1998 Report Card for America's Infrastructure).
Proceeding with a "business as usual" approach to America's infrastructure
needs will not succeed. A federal capital infrastructure budget approach
is one possible means to address long-term needs within the financial constraints
that face the country. Long-term investments in infrastructure have long-term
use and value, the federal budget should recognize this fundamental truth.
As Luther Graef, P.E. recently stated "A crumbling infrastructure can't
support a healthy economy. If we want budget surpluses in future years,
we must invest in infrastructure renewal to make that possible."
At a minimum, we respectfully urge the Commission to strongly endorse
a two (2) year approach to developing budget needs (with establishment
of a Capital Acquisition Fund), within the framework of a five (5) year
strategy to reach stated and measurable objectives. (This change to
the current budget process would be the beginnings of capital budgeting).
It is axiomatic, unless the United States is willing to investment in
more infrastructure projects economic development and creation of jobs
will be jeopardized to those nations and economies that do make the necessary
investments. Movement towards a federal capital infrastructure budget type
approach, in our opinion, would be an important first step in ensuring
proper funding levels for the infrastructure needs facing the nation.
We would be happy to discuss this matter further with the Commission,
if you so desire. (You can contact me directly at 303/771-0952 or CIRT's
President Mark A. Casso at 202/661-9262).
Ralph R. Peterson
Construction Industry Round Table
1. We would define
"Capital Budget" as: an accounting technique that separates capital long-term
infrastructure investments (such as roads and bridges to water treatment
plants) from operating expenses. The cost of capital infrastructure investment
is spread out over the expected life of the asset.
2. We would generally
define "Infrastructure projects" as: the complex network of public works
and facilities with long-term life spans such as: roads and bridges, mass
transit, airports, schools, buildings, water projects, wastewater, dams,
waste disposal, hazardous waste, and environmental projects as well as
other like projects.
President's Commission to Study
President and First Lady | Vice President and Mrs. Gore
Record of Progress | The Briefing Room
Gateway to Government | Contacting the White House
White House for Kids | White House History
White House Tours | Help | Text Only