The Improvement of Capital Budgeting at the State Level in the USA

By Ermasova, Natalia | Public Administration Research, November 2013 | Go to article overview

The Improvement of Capital Budgeting at the State Level in the USA


Ermasova, Natalia, Public Administration Research


Abstract

This study examines capital budgeting processes at the state level in the USA. This research examines the effects of economic decline on changes in capital budgeting practices. The secondary sources of information were analyzed, including data from state web-sites, Bureau of Economic Analysis (BEA) data, and National Association of State Budget Officers (NASBO) reports. Based on these analytical materials, the author choose capital budgeting practices of following states as the examples of the successful use of analytics, data, and performance information: California, Delaware, Georgia, Indiana, Maryland, Massachusetts, Montana, New York, Oregon, and Vermont. The result of this research will improve the knowledge about best practice in capital planning and budgeting and, finally, will contribute to greater efficiency in capital spending within state and without states. This research will expand knowledge of successful use of analytics, data, and performance information in capital budgeting processes across boundaries for practicing planners, developers, budget analytics, debt managers, and policy makers in the areas of regional collaboration, capital planning, and capital budgeting. This study expands knowledge of capital budgeting "best practices" for practicing planners, developers, budget analytics, debt managers, and policy makers in the areas of capital planning, financing, and budgeting.

Keywords: USA, capital budgeting, state government, public infrastructure, capital financing

1. Introduction

The availability and quality of services provided by public infrastructure - water, sewers, solid waste facilities, public transit and transportation systems, communication systems, cultural and recreational facilities - are critical factors in improving economic growth. According to the Department of the Treasury and the Council of Economic Advisers (2010, p.1), "well designed infrastructure investments can raise economic growth, productivity, and land values, while also providing significant positive spillovers to areas such as economic development, energy efficiency, public health and manufacturing." The Department of the Treasury and the Council of Economic Advisers (2010, p.6) emphasized that "public infrastructure is an essential part of the U.S. economy. Businesses depend on a well-functioning infrastructure system to obtain their supplies, manage their inventories, and deliver their goods and services to market. A modern transportation infrastructure network is necessary for our economy to function, and is a prerequisite for future growth." Srithongrung (2008, p.91) pointed out that "capital management processes based on systematic and strategic practices should result in an effective infrastructure system that can attract private investment and new residents."

This paper examines states' capital budgeting processes through which planning, financing, and coordination process are shaped, either by the initial regional context and economic conditions. This research advances theory with a more sophisticated analysis of complex interactions among these factors, and examines the effects of economic decline on changes in capital budgeting practices. Given the importance of capital expenditures, the condition of capital infrastructure at the state level and the scope of capital financing exploration of capital budgeting at the state level are significant. This study provides insights that will be of interest to both public finance researchers and to policy makers. The findings will allow state officials to compare the various techniques and methods of capital budget preparation.

According to Premchand (1993, p. 54), "greater attention was paid to dealing with uncertainty and to formulating contingent management strategies if the situation improved or deteriorated." The effect of recessions on state fiscal capacity over time has been increasingly negative, indicating that in the modern era, state revenue systems remain vulnerable and less flexible under fiscal stress (Mikesell, 2007). …

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