The Impact of Capital Spending on Municipal Operating Budgets

What is the impact of capital spending for buildings, equipment, and other facilities on future operating expenditures of municipal governments? Because capital spending decisions are made independent of operating decisions in many larger municipalities, managers make long-term capital commitments without fully understanding the repercussions for operations. This implies the need for research that examines more closely the linkages between these budget cycles. This article develops a theory of the relationship between capital and operating expenditures, then uses data from the fortyeight largest U.S. cities to estimate both the magnitude of capital's impact and the time it takes for operating budgets to adjust. The study finds that five of six commonly provided municipal services were affected to varying degrees by past years' capital expenditures. Especially notable is the finding that the operating budgets of labor-intensive services, such as police and fire protection, are most sensitive to capital spending. For public managers, the findings point to the need for closer coordination between the capital and operating budget cycles, especially in those cases where capital outlays have clear, unambiguous positive implications for future operations.     

Federal Aid to Local Governments in the West: An Irony of the Reagan Revolution

Despite the fact that the Reagan election was viewed as a power shift toward the West, the decade of the 1980s produced cruel disappointment. The region was generally left out of the economic recmery of the nation because of the bust in the agricultural and mineral industries. These state and local gmernments which sufferfrom high costs and low resources were particularly dependent on the national gmernment at the very time when the Reagan Administration was cutting federal aid and transferring power to the states. Unlike Nixon's New Federalism which helped the state and local governments of the West, Reagan's policies caused their relative position in federal aid flows to deteriorate. Although the Reagan revolution in cutting domestic programs was viewed as the embodiment of western rugged individualism, the region lost in terms of federal aid to small rural local governments.     

The Variety of State Capital Budgets: A Survey

In 1986 the staff of the U.S. Office of Management and Budget reviewed issues concerning the possible development of a federal capital budget. As part of this study, a survey of all 50 states was conducted concerning state capital budgets. This paper summarizes the results of the survey. According to the survey responses, 42 states have capital budgets. Of these 42, 37 generally borrow to finance some public capital and 5 generally do not. Of the 8 states that said they do not have a capital budget, 4 generally borrow to finance some public capital and 4 generally do not. The survey also found that the form of a governor's capital budget, the way legislatures enact capital spending, the coverage of the capital budget, and the method of financing capital vary widely among states, making it virtually impossible to define a state capital budget in a precise way. Large amounts of state capital spending, especially for transportation, are generally not included in state capital budgets.     

The Role of Federal Budget and Trust Fund Institutions in Measuring the Effect of Federal Highway Grants on State and Local Government Highway Expenditure

Federal highway financing institutions affect the response of state and local government spending to federal highway aid. Most previous studies of the spending effects of federal highway grants consider federal highway expenditure as the highway grant variable, disregarding the reimbursement nature of this expenditure and the multiyear availability of highway aid. This article argues that obligations of federal highway aid to states rather than actual federal expenditure should be used in models assessing the spending effects of federal highway grants. Considering federal obligations rather than expenditure results in a greater effect of highway grants on spending than reported in previous studies.     

Targeting Federal Grants: The Community Development Experience, 1950-1986

This article examines the degree to which federal communityand economic development programs target federal assistanceto the nation's neediest communities. Grant allocations to citieswith populations of 50,000 or more were examined for six majorfederal urban programs during 1950–1986. Federal programsthat include both needs-based eligibility and allocational featureswere found to achieve the highest levels of targeting. The analysisfurther shows that while urban conditions in the nation's mostdistressed cities continued to deteriorate during the 1980sin both relative and absolute terms, grant allocations underthe major federal urban program, Community Development BlockGrants, have not responded to the changing incidence of urbanhardship.     

Political Economy of Grant Allocations: The Case of Federal Highway Demonstration Grants

This article examines the political economy of U.S. federalhighway demonstration grant allocations. Demonstration grantsare a rapidly growing segment of federal highway grants directlyearmarked for a congressional district by Congress, unlike themajority of highway grants where Congress determines a formulaand allocates funds accordingly to states. Our empirical analysis,considering the period 1983–2003, suggests that a state'sability to attract demonstration project grants is positivelyinfluenced by its contributions to the highway trust fund andpolitical variables, and it is not affected by the formula highwayaid and vehicle miles traveled in a state.     

Federal and Local Interests in the Nation's Capital: Congress and District of Columbia Appropriations

Canadian political scientist Donald C. Rowat posits the thesis that there is a "conflict of interest" in all federal capital cities between the national government and the local residents. Federal and local interests in the nation's capital have been so intertwined that it is difficult to define or separate them. Congress has used the appropriations process to intervene in local policy matters even when the federal interest is not involved.     

The Fables and Foibles of Federal Capital Budgeting

This article critically evaluates the notions behind proposals to institute capital budgeting at the federal level. Four critical assumptions are found to be behind the contention that capital budgeting will improve federal investment policies: (1) an agreed-upon and accepted definition of a capital budget exists; (2) a capital budget "adds value" by improving the quality of information; (3) better information leads to better decisions; (4) better decisions lead to better actions. Each of these assumptions is evaluated using examples drawn from various levels of government and from the private sector. The general finding is that if these assumptions hold, then it is reasonable to expect that capital budgeting will lead to better programmatic decisions. Unfortunately, one or more of these assumptions usually does not hold and for this reason the case for federal capital budgeting is not very strong     

Jesse Burkhead and the Multiple Uses of Federal Budgets: A Contemporary Perspective

The work of Jesse Burkhead continues to have great relevance today. Its germaneness could be taken as an indictment of how little progress has been made in federal budgeting in the past half century, but it also says a great deal about Burkhead's insights and the lasting legacy of his work. This article discusses some of Burkhead's ideas on the use of the federal budget and their pertinence to the budget issues of today, including the role of the federal government in the economy, budgetary relations between presidents and Congresses, and the role of performance information in budgeting.     

Incentive Effects of Expanding Federal Mass Transit Formula Grants

Public subsidies to industries firms incentives to alter their behavior. When calculating the effects of such programs, previous assessments of transit subsidies have not included the effects of these incentives on the firms' output. This article reports the responses of mass transit firms to the federal transit subsidy program and changes the Transportation Equity Act for the 21st Century (TEA 21) made to that program, as predicted by a structural model of output choice. TEA 21 increases bus service in medium‐sized cities by 6‐8 percent, butincreases service in large cities by only 1‐2 percent. The formula's incentive tier is weak, and the size of the subsidy depends little on whether that output results in increased ridership. The formula could be redesigned to provide stronger incentives to lower cost and increase ridership, thus encouraging a more efficient response from transit firms. © 2001 by the Association for Public Policy Analysis and Management.     

Federal Grants, Earmarked Revenues, and Budget Crowd-Out: State Highway Funding

This paper examines the potential for budget crowd-out in state highway financing. Highway projects are funded primarily through state earmarked tax revenues and federal highway grants. Theoretically, these two sources of revenues could crowd-out state general funds, freeing up these funds for other uses. Previous studies of highway funding show little evidence of significant crowd-out, providing support for the "flypaper effect." The empirical model of this paper better controls for the endogeneity of federal highway grants and state earmarked highway revenues than previous studies and results suggest little to no crowd-out. Also, our study concludes that state budgeting decisions in the post-Intermodal Surface and Transporation Efficiency Act era still support the "flypaper effect."     

Goal Conflict and Fund Diversion in Federal Grants to the States

Researchers using fiscal choice models have had limited success predicting fund diversion in federal grant programs. The application of a principal-agent framework to questions of fiscal federalism offered a potentially valuable alternative approach, but the traditional model employed by Chubb (1985) neglected potential variability in the degree of goal conflict between principals and agents. This article proposes an expanded framework, which incorporates the possibility of variation in goal conflict between participants in intergovernmental aid programs. The theory suggests that the level of policy congruence between recipient jurisdictions and the national government will determine the amount of grant funding diverted away from targeted policy areas. Findings from analyses of grant programs in two distinct policy areas support the hypothesis that grant effectiveness is partially a function of goal congruence. The relationship between intergovernmental partners is interactive, with the degree of policy agreement determining fund diversion in subnational jurisdictions, as well as the effectiveness of federal oversight activities. The findings have important theoretical implications for understanding both fiscal federalism and principal-agent relationships more generally.