State Capital Improvement Programs and Institutional Arrangements for Capital Budgeting: The Case of Illinois

Article excerpt

ABSTRACT. This study describes the Illinois State capital budget process and explains why traditional capital planning has not been adopted in Illinois. The state uses non-accounting techniques and multi-attribute judgment criteria, including political and social values, to make decisions. The case suggests that regardless of their sophistication, accounting methods are, relatively, not useful in ranking capital projects across functions. The methods compare "apples" and "oranges." A comparison of capital projects across functions may be impossible with any set of methods. Intelligent sub-optimization within given functions may be the best academics and practitioners can hope for in rationalizing project choice and maintenance, particularly in large cities or state governments. Public capital-budgeting educators might shift their focus in training prospective public budgeters, from accounting methods to critical thinking, through multi-attribute analysis methods.

INTRODUCTION

Capital budgeting varies from state to state (Advisory Committee on Intergovernmental Relations-ACIR, 1987, Hillhouse & Howard, 1963) due to two institutional characteristics: statutory requirements (e.g., debt restriction rules, budget processes, and bond acts) and local management practices (Vogt, 2004). In order to complement the existing literature on practical capital budgets, this study describes the capital budget process in a single state, Illinois. The Illinois capital budget process was chosen as a unit of analysis because of its institutional uniqueness and convenience of data collection. The Illinois State government is described by Freedman (1994) and Peirce and Hagstrom (1984) as being the "most political machine state" relative to its neighboring Great Lakes states.1 In Illinois, public policy decisions, including fiscal policies (taxes and expenditures), are strongly influenced by the value of jobs in a public personnel system that includes patronage (Freedman, 1994). On the expenditure side, collusion between the two parties, known as the Illinois State government's legacy (Anton, 1966), has long been practiced in order to arrive at a compromise among the various interests of different groups (Anton 1966; Freedman, 1994; Peirce & Hagstrom, 1984).2 In this context, it is of interest to describe the Illinois capital budgeting process in practice.

Data were collected from in-depth interviews conducted during the spring and summer of 2006. A case analysis method was used to describe the capital spending process found at the agency and state levels. The interviewing notes and comments were reviewed and analyzed. The following section presents the study propositions. Section three describes the research design and section four presents the study results. The last two sections discuss the results and offer conclusions.

THE CASE PROPOSITIONS

A set of institutional theories was used to understand the practical budgeting processes. Institutional arrangements influence the decision-making process which yields collective choice for policy options (Gordon, 1976). According to this model, an institutional arrangement is a result of the interactions between internal and external environments.3 In the capital budgeting context, these environments can be classified into five aspects. First, a state's capital budgeting practices are defined by the state's constitution and political environment, which designates legislative procedures, power distribution, and policy crafting direction (Rubin, 1988). If the state budgeting process is highly fragmented due to an intensive check and balance system, coupled with a bottom-up policy crafting direction, the capital budgeting process tends to be relatively less focused on centralized infrastructure policy (Rubin, 2006). That is, the department heads are relatively independent in setting capital spending agendas by receiving minimum instructions and requirements from to the central budget office. …