Municipal Capital Budgeting: An Examination

The state of capital budgeting theory is going through its growing pains. While traditional literature on capital budgeting is grounded in rational decision-making, Nunn (1990) has suggested that such an approach is too limited to be of significant value. New theories, he argues, need to reflect differences in capital demand and differences in approaches to local policy, thereby reflecting both the economically-rational and other components of capital budgeting. In this study, we examine the rigor of the traditional rational approach and the typology put forth by Nunn. Based on a broad cross-sectional analysis of municipal finance directors, we find that capital budgeting is more complex than usually presented. Yet contrary to the argument by Nunn, we also find that the process is restricted more to internal participants, with limited and targeted participation by the public and other external actors.