The Crisis in the Federal Governments Infrastructure Additional Approaches to the Current Federal Budgetary Scoring Regime

Abstract

On September 25, 2008, the Privatization, Outsourcing, and Financing Transactions Committee (the Committee) published a white paper regarding the effect of the federal budget scoring rules "under Office of Management and Budget (OMB) Circular A-11, Appendices A and B (OMB A-11) "on the ongoing infrastructure crisis. Through that white paper, prepared with input from the public and private sectors, the Committee explain[ed] the federal budgetary scorekeeping rules, provide[d] the public and private sectors view of these rules, and discusse [d] potential legislative and regulatory alternatives that may enhance the Federal Government's ability to efficiently and cost-effectively fund important infrastructure and other capital-intensive projects. The ultimate purpose of the white paper was to facilitate a public discussion about these matters. In this update to the 2008 white paper, the Committee identifies two additional, alternative scoring approaches that may more accurately reflect the government's obligations in connection with long term capital and real property projects, including those undertaken through Public-Private Partnerships (P3s). Importantly, neither proposed option requires the government to surrender the transparency benefits provided by the current rules. In addition, neither option requires Congressional action, as each could be undertaken by Executive action. First Alternative Approach: OMB would adopt a modified-version of the budget scoring rules currently used for federal credit programs under the Federal Credit Reform Act of 1990 (FCRA). Under this method, OMB would score the net present value of project costs, as adjusted for the amount of project risk taken by the government. For a project to move forward, an agency would require sufficient budgetary authority in the first year to obligate the risk-adjusted cost of the project. Such an approach could provide more opportunities for agencies to consider beneficial projects in which the majority of risk is carried by the private partner while allowing the government to track and account for the full cost of the project. Second Alternative Approach: OMB would recognize new safe harbors, akin to those currently in place for Energy Savings Performance Contracts (ESPC) and Utility Energy Service Contracts (ESC), which would allow certain projects to be scored on an annual basis, thereby avoiding upfront capital investment scores that might prevent agencies from moving forward with transactions. Like the ESPC/UESC safe harbors currently in place, new safe harbors could be implemented to cover projects where the government's contracting partner would carry most or substantially all of the project risk and cost savings would be achieved over time.