The State of Capital Budgeting in Louisiana's Local Governments
Lynch, Thomas D., Lynch, Cynthia E., Omdal, Richard A., Journal of Public Budgeting, Accounting & Financial Management
INTRODUCTION According to Alan Steiss in Local Government Finance, Capital Facilities Planning and Debt Administration, the primary purpose of government is to provide, on a collective basis, that which cannot be achieved through individual action. He further stated that "two fundamental activities of government lay at the foundation of this statement: (1) the regulation of individual actions to ensure that they will not be detrimental to the general public; and (2) the provision of public facilities and services for the mutual benefit of all citizens. Both of these fundamental activities stem from the broad objectives of government to "promote the general health, safety, morals, and public welfare" (Steiss, 1978: 1).
Following the logic established by Steiss and focusing on his second activity, one of the principle functions of government is to procure and maintain public facilities and services for the public good. Local governments account for the largest proportion of public capital expenditures with significant investments in transportation, water supply storage and distribution, waste water collection and treatment, and other facilities (Millar, 1988: 63). Considering only direct capital outlays, about 13 state and local expenditures are for capital purposes while local government's capital outlays are 20 total outlays (Lee & Johnson, 1989: 234). However, the provision of these local government facilities and services is controversial as public officials balance the demands of burgeoning infrastructure needs with the fiscal constraints imposed by hostile taxpayers. This paper examines the use of capital budgets among local city and parish (county) governments in one state, Louisiana, and compares the data compiled with the results obtained by Alex Sekwat in a national survey conducted in 1993. By examining the incidence and use of capital budgeting procedures in Louisiana governments as compared to national statistics, we show what influences a government's decision to adopt or reject capital budgeting practices. Although not a definitive treatise on the subject, this single state study does add to the cumulative knowledge about capital budgeting practices in local governments. It provides a database from which to study changes in capital budgeting policy over time in Louisiana city and parish governments. It also provides a basis for national and cross national comparative studies.
To procure, operate, and maintain government facilities or services, most state and local governments must designate funds through their operating or capital budgeting processes. The decision to use a separate capital budget, unified operating and capital budget, or to not use any form of capital budgeting rests with each individual governmental entity unless state law dictates the procedures to be used.
Using established definitions found in the literature, an operating budget conventionally deals with everyday on-going types of activities. In contrast, capital budgets mainly deal with large expenditures for capital items with long-range returns and on longer useful life spans, such as buildings, roads, sewer systems, etc. (Lynch, 1995). Generally speaking, the terms capital facility or capital improvement refer to projects of large size, fixed nature, or long life. They involve expenditures of a nonrecurring nature, designed to provide new or additional governmental facilities for public service. For example, funds allocated for the construction of a new health clinic would be considered a capital expenditure. In contrast, funds to operate the clinic in terms of salaries, equipment, supplies, or other expenses would be considered operating expenses (Steiss, 1978: 10).
According to Goldsmith, many jurisdictions do not have a capital budget detailing anticipated new or replacement capital expenditures because There is difficulty in evaluating the long-term budgetary impact of capital expenditures; there are inefficiencies in ranking capital expenditure requests; capital spending occurs in a `hit or miss' manner; Federal/state programs applicable to capital expenditures are not coordinated with each other or within the local budget; limits on bonded indebtedness are being reached; meeting debt service on existing bonds is a budgetary problem; local economic development and physical planning strategies are not reflected in the budget document" (Goldsmith, 1980: IX. …