THE GOVERNMENT PERFORMANCE PROJECT Capital Management 50-State Average Grade: B- It takes a long time to design and construct prisons, office buildings and hospitals, and it’s an article of faith that planning for them must begin years before the ground is broken. So the vast majority of states have set forth a detailed planning process for capital construction. There are many variations, but they follow a general theme: Agencies develop long-term plans, including specific requests for projects. Those plans are sent to a centralized state authority, which prioritizes the requests and sends them to the governor. He or she, in turn, develops a capital plan, which is amended and approved—or rejected—by the legislature. At least that’s how it looks on paper. Actually, the process can easily be derailed by that old bugaboo of good management—good politics. It’s the rarest of legislatures that doesn’t add some pork to the governor’s capital plan. Even in Utah, which has exemplary capital planning, the governor’s office has had to work hard to make sure its priorities are respected by the legislature. “You still run into the realities of the political process,” says Lynne Koga, director of the Governor’s Office of Planning and Budget. Florida has a more serious version of the same problem. “We have an excellent executive-side capital planning process,” says Robert Bradley, the state’s former budget director, “but does the capital budgeting process really drive the appropriations process? No. It drove the person in charge of it into considerable despair. And it’s a vicious cycle. The more the legislature doesn’t pay attention to the planning, the less attention agencies want to pay to the process.” Arizona adds a relatively unusual wrinkle to this conflict. In that state, the legislature finds it politically expedient to kill projects instead of building them. As one participant says, “Legislators don’t want to be seen as growing government. And capital construction is a very visible sign of growing government.” As a result, the capital planning process in Arizona is something of a joke. The document produced by the state Department of Administration bears little relationship to the list of projects actually approved. About the only exception is for prisons, which have enough political popularity to survive all the legislative tinkering. Of course, Florida and Arizona represent extremes. By and large, the states’ capital planning efforts do carry a good deal of weight, even if the legislature adds a few goodies here and there. In truth, the capital management problem that most bedevils states is insufficient funding for regular maintenance of the structures that are already in place. While major repair projects come out of capital budgets, regular maintenance generally comes from agency operating budgets. And the first thing to go in hard times (or occasionally even in good times) tends to be money for maintenance. The prime example of this may be Colorado. That state is bedeviled by a cap on operational expenditures, but no limit on capital spending. As a result, the temptation is to splurge on new construction while short-changing maintenance needs. Of course, there is a solution: Wait until the walls crumble, and then call it a major capital expenditure. In Louisiana, tight budgets restricted regular maintenance to such an extent that roofs of state buildings from New Orleans to Shreveport developed a tendency to leak. That was an expensive bit of procrastination. “By the time it showed up in the capital outlay budget request, the roof had done damage to the substructure,” says James Purpera, capital outlay coordinator for the state, “and you ended up replacing other things as well.” Now, Louisiana has embarked upon a costly project to fix all its substandard roofs, and more than 80 percent of them have stopped leaking. The state has also learned a valuable lesson, which the director of facility planning imparts to agency managers in the form of an ominous warning: Don’t come asking us to pay for repairs that could have been avoided with routine maintenance. Some states, including Tennessee, Florida and West Virginia, are addressing the maintenance problem by charging agencies rent for the buildings they occupy. Then, a portion of those rentals can either be used by a central authority—or reimbursed to the agencies themselves—to keep facilities in good condition, even in a fiscal crunch. “When the budget gets tight,” says Jerry Adams, deputy commissioner of finance and administration in Tennessee, “other stuff gets squeezed.” The good news here is that more states are beginning to recognize the need for both regular maintenance and large-scale reconstruction projects to keep their facilities up. “There has been a wholesale shift from building new buildings to improving and maintaining the ones we have,” says Sheila Peterson, director of the fiscal management division in North Dakota. “We had been falling behind. We needed to catch up.” What’s more, a growing number of states, including Missouri, Wisconsin and Minnesota, are emphasizing regular facility audits that give them a solid picture of what their needs are. Minnesota, as the result of such audits, now knows that its maintenance and repair backlog is somewhere between $300 million and $600 million. Armed with that kind of information, the state has aggressively pursued asset-preservation projects, and has regularly increased funding for repair and replacement accounts in agency operating budgets. It borrowed $140 million for repair and replacement in a $1 billion 1998 bonding bill. Of course, the states that work hard to uncover these needs are in the minority. Most still have little idea what their total deferred maintenance is, beyond having the sense that it’s a lot. That’s no surprise. It takes a fair amount of courage—for politicians and managers alike—to seek out information that they know is going to be bad news. Main introduction page | Governing home page Copyright © 1999, Congressional Quarterly, Inc. Reproduction in any form without the written permission of the publisher is prohibited. 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