Achieving the Benefits
of Accruals in a Cash
Environment
Justine Kilpatrick
U.S. Office of Management and Budget
6th Annual OECD Public Sector
Accrual Symposium
Separation of Powers
 The United States is characterized by
separation of powers between the
Legislature and Executive. Power has
also been divided by party for most of
the 1970s through 1990s.
 Congress does not vote on the budget
as a whole, but on authorizing laws
and 13 Appropriations, which they
may modify in substance and detail.
 “No money shall be drawn from the
Treasury, but in Consequence of
Appropriations made by Law.”
Controlled, Yet Flexible
 Each section of an Appropriations Act
that provides an amount of funding
available for a specified time and for a
specified purpose is tracked in a
separate Treasury account.
 The budget is not simply cash outlays.
Budget authority may be enacted for
single or multiple years. While
obligations must be in those years,
outlays may occur whenever the
obligations are liquidated.
The Principle: Cost Up Front
 The budget is a financial plan for
allocating resources within the
government and between government
and the rest of the economy. Cost up
front helps to control execution of the
intended allocation.
 Requiring budget authority for full cost
up front provides the appropriate
information and incentives when
comparing the cost of a program
against its benefits, the cost/benefit
of one program with another, and the
cost of alternative means of achieving
a specified goal.
Pulling Up Financial Transactions
 For exchange financial transactions,
the net present value of cash flows
pulls cost up front.
 This approach is used to budget for
direct loans and loan guarantees under
credit reform.
 Net present value is appropriate for
insurance programs also. Skill at
estimating insurance program costs is
improving, but not yet used for
budgeting.
 NPV is used to pull up front the full BA
for capital leases. Operating leases
budget for annual plus close-out costs.
Budgeting for Capital Up Front
 A task force under President Reagan and a
public Commission under President Clinton
assessed whether cost up front was the best
way to budget for capital. Both concluded that
cost up front was right.
 The Reagan Task Force developed the concept
of a useful segment -- a component of an
investment project with benefits exceeding cost
even if there were no future budget authority.
 The Clinton Commission set capital in the
context of strategic planning. They suggested
trying out the use of capital acquisition funds.
Contentious Issues
 Does everybody have a “capital budget”?
Do they all “budget” for depreciation?
 Is there a problem of underinvestment?
Of misallocation of investment?
 Is there a bias for or against capital?
 Should capital be financed by borrowing?
How does that relate to growth? Equity?
 What is the best framework for making
investment decisions? Is it the same for
Federal capital as for national capital?
Continuing Reforms
 Invest in “usable segments” so that
benefits exceed cost without more BA.
 Follow the Capital Programming Guide
for planning, budgeting, procurement,
and management in use.
 Set investment in the context of longterm strategic and program planning.
Budget to achieve goals effectively.
 Oversee budget justification and asset
management throughout government.
Seeking Results
 The United States is shifting focus to
budgeting and managing for outcomes.
 The fourth revision of strategic plans is
underway (1997, 2000, 2003, & 2006).
 The Program Assessment Rating Tool
has been applied to 800 programs, and
made transparent on ExpectMore.gov.
 Annual Performance and Accountability
Reports show agency performance and
financial results.
Budgeting for Results
 Agencies are justifying budgets around
strategic goals and supporting programs.
 Funds for each PART have been
identified by Treasury and budget
accounts.
 Overviews and some whole justifications
are posted on the Web. Congressional
interest in posting all is sprouting.
 Web transparency and development of a
government-wide electronic budgeting
system could encourage performance
budgeting.
Matching Cost with Programs
 Align one or two budget accounts or
sub-accounts with each program. Data
is available to assess how close this is.
 Appropriate BA for the full resources
used by that program to those accounts.
There may be resistance to doing this.
 For most inputs, the budgetary and
accrual measures are relatively close.
 Where that is not the case, make
payments from the program to a
support account.
Key Accrual Timing Differences
Support Account
Accrual Before Budget
Retiree Benefits
Hazardous Substance
Budget Before Accrual
Inventory Acquisition
Capital Acquisition
Retirement Fund
Cleanup Fund
Supply, Working
Capital Fund
CAF - Capital
Acquisition Fund
Two Perspectives of Capital
Retaining the value of cost up front
Require budget authority for the full cost
of a useful segment with benefits greater
than cost without future budget
authority.
Gaining value: matching cost to programs
Get the BA as borrowing authority from
Treasury, and require each program to
pay its share of the “mortgage” during
the asset’s useful life.
A Capital Acquisition Fund
Agency
CAF
Purchase $10 million park
facility in year 1 (BA/OL)
Borrow
Repay principal +
$10 million interest: $800
in year 1
thousand each
year for 30 years
Collect rent for park facility:
$800 thousand each year for
30 years (-BA/-OL)
Pay rent for park facility:
$800 thousand each year
for 30 years (BA/OL)
Treasury
Private
Contractor
BA Budget Authority
OL Outlays
CAF Capital Acquisition Fund
Operation
of Program
Issues in Implementation
Historical vs Current Cost
 Historical cost permits borrowing and
repayment, which seems logical.
 Current cost is theoretically better, but
requires “sweeping” any gains.
Dealing with Perceptions
 There is no double counting.
 Program cost is not really higher.
Including Existing Assets
… or else full cost is far in the future
The Budget Drives Decisions
Matching cost and results in the budget
puts information on both at the point of
decision-making and provides incentives
to maximize effectiveness and efficiency.
 The budget drives and provides context
for policy development and legislation.
 The budget allocates resources among
purposes and programs.
 Appropriations establish the structure
for budget execution and program
management.