Cost of Labor and Support Services
Staff Paper Prepared for the President's Commission to Study Capital Budgeting

June 19, 1998
Can a process be established to correct problems such as not charging programs the full cost of capital, labor, and other resources that they use?

This paper asks whether labor and support service costs can be charged uniformly and appropriately to programs so that:

This paper is a companion to the one on Capital Acquisition Funds, which explains that the use of capital is not uniformly and appropriately charged to programs and suggests a way to accomplish that goal.


Federal programs are not uniformly and appropriately charged for all of the resources they use so that their full cost can be compared with the results achieved. In most cases, this is because some of the cost is paid at the Bureau or Departmental level, or by a central agency such as the Department of the Treasury. These costs, although they are included in the budget, are paid from accounts that are not associated with the program. The kinds and amounts of resources that are provided centrally vary idiosyncratically from one program to another.

Because these labor and support costs -- as well as capital costs -- are not uniformly and appropriately charged to programs, it is hard to monitor program efficiency and effectiveness or to allocate resources to the programs that are producing the best results. Because the central "subsidies" are idiosyncratic, some programs have an incentive to use more labor than is efficient, others have an incentive to use excessive amounts of capital, and some may have incentives to use excessive amounts of both. Because program managers are operating in an environment which encourages them to "cadge" free or subsidized resources -- and which sometimes does not leave them free to acquire support competitively -- they cannot focus on getting the best results for the total amount of resources they use. When they are given the ability to make such choices, the effect is marked. For example, as agencies have increasingly charged for support services in recent years and brought those charges closer to full cost, programs have found ways to economize on such services and/or to acquire them at a better price.

This issue paper and the one on Capital Acquisition Funds, taken together, sketch out the Budgeting for Results Initiative, proposed on page 44 of the FY 1999 Budget. The Initiative would allocate funding to program budget accounts to cover charges for the full amount of resources used. Program managers would then be accountable for using these resources efficiently to achieve results.

For labor and support services costs, the following changes would be made. Salaries and expenses would be charged to the budget accounts of operating programs, or in the case of grant and transfer programs, identified in separate program-and-activity lines of a departmental salaries and expenses budget account. Legislation would be developed to charge agencies/programs for the full accruing cost of CSRS and small retiree pension systems, and for the accruing cost of retiree health benefits (which is not now accrued in the budget, although the accrued cost is required in financial statements). Veterans disability benefits might also be accrued in parallel with workers' compensation. Support services would be required to be financed via revolving funds, as many now are. An objective would be to make such funds increasingly self-supporting and competitive -- with each other and with the private sector. Appropriations to the agency head or Chief Financial Officer would finance support for Departmental oversight and perhaps core systems.


Cons: Options:

Definition of Self-sufficiency

Self-sufficiency for support services is a general goal of the Initiative, but the criteria for achieving it can be more or less stringent.

1. They include personnel services; safety and health services; security; legal services; financial management services; information technology, automated data processing, and communications services; mail and messenger services; public affairs; publications, reproduction, graphics, and video services; library services; scientific facilities; research and analytical services; office and commissary supplies; office and grounds maintenance; procurement and contracting services; services to acquire, maintain, rent, and operate plant and equipment; and more.

[Budget of the United States Government, Fiscal Year 1999]
[Page 44] 
[DOCID: f:1999_bud.budiv.wais]
From the Budget of the U.S., FY 1999 Online via GPO Access

Budgeting for Results:  In preparing the budget, the Administration
had, for the first time, agency strategic plans, annual performance
plans, and performance measures to help decide how to allocate
resources. In general, however, the budget structure and charging
practices do not make it easy to match costs with a specific program.
First, the budget does not charge all of a program's resources to that
program; instead, the budget subsidizes programs by paying for certain
activities centrally. Second, not all budget accounts are as well-
aligned as they might be with the programs they finance. As a result, in
some cases, the quality of budgeting, management, and resource
acquisition all suffer.
    Good budgeting is predicated on the ability to compare costs and
benefits, at least roughly, across all programs every year. In some
cases, current practices distort such comparisons. Good management
requires that managers focus on, and are held accountable for, getting
the best results for the resources they have. Managers should be free to
allocate resources as they see fit, and to obtain competitive,
performance-oriented procurement.
    To better integrate budgeting with performance planning and reporting,
as GPRA envisions, OMB will work with agencies to review their budget
account structures and, in consultation with the Budget Officers
Advisory Council and the CFO Council, develop legislation to enable
agencies to charge programs' accounts uniformly and comprehensively for
the resources they use. As these proposals take shape, OMB will consult
with the Congressional Budget Office, the General Accounting Office, and
congressional committees on next steps.

President's Commission to Study Capital Budgeting

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