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Main introduction page THE GOVERNMENT PERFORMANCE PROJECT
Introduction: 50-State Average Grade: B-
If good capital management is something of a thankless job, the avoidance of disastrous capital management is all but essential. This year, the results were something of a mixed bag; with 20 states seeing their grades go up, 21 coming down and nine staying the same. The grades have been influenced somewhat by the fact that this year, for the first time, we considered transportation as part of the evaluation mix; in the past, the focus was almost entirely on facilities.
Over the last few years, with budgets growing more comfortable, many states have finally begun to address gargantuan repair backlogs that were allowed to accumulate in less flush times. Projects requiring reconstruction of buildings and roads — the result of too little routine maintenance 10 years ago — have been among the most popular. Illinois recently kicked off a five-year program that includes billions for repairs. “Maintenance needs had been neglected,” admits Marcia Armstrong, division chief of capital programs within the Bureau of the Budget.
States also have gotten creative in handing out the funds. Some allocate maintenance money centrally — to avoid the agencies’ tendency to use the dollars for pet purposes. Wisconsin’s State Building Commission, for example, controls funds for large maintenance projects. For projects costing less than $100,000, the state’s Small Projects Program delivers funding within about 72 hours of a project’s identification. The old bureaucratic approval process has been streamlined, and problems are addressed before they become crises.
Although many states rely on agency rent to generate a pool of maintenance funds, some have established other dedicated streams of funding. Utah is the leader in this group, with a state law requiring that 0.9 percent of the replacement cost of its facilities be set aside for maintenance. Indiana has developed replacement fund reserves for new buildings, and Virginia keeps a statewide maintenance reserve fund.
States are also realizing that they need better information to make sound funding decisions. One piece of this information, missing in many places, is an estimate of deferred maintenance. Some states don’t bother to attempt such an effort out of fear that they’ll never have the funds to bring the balance to zero. “The number gets so horrendous that it scares everybody,” says William Watts, chief of the Kansas Department of Transportation’s Office of Management and Budget.
Minnesota is one state that has forged ahead in its attempt to calculate the maintenance backlog, even though it knows there is an ugly monster behind the door. It’s already identified $1.5 billion in deferred maintenance, and readily admits that figure may be just the tip of the “iceberg.”
Planning, while emphasized for new projects, is equally important for maintenance, although it’s in much shorter supply. The first step toward that effort is the creation of accurate inventories laden with comparative data. Oregon’s agencies conducted condition assessments, for example, but they couldn’t be compared statewide. So the state is creating a comprehensive inventory that should result in better ability to plan for and prioritize its repairs in the future. A recent Connecticut auditor’s report declared that the state’s lack of a comprehensive inventory system was costing more than would be required to implement such a tool.
A nationwide push is on the horizon: The Governmental Accounting Standards Board recently issued its Statement No. 34, which will require states to account for their capital assets and long-term liabilities, including buildings, roads, bridges and general obligation debt. A number of states complained vigorously that this was an overly expensive process and that the GASB board members had gone off the deep end in passing this ruling. But it is forcing some, for the first time, to really begin to understand their assets. The first states will begin reporting these facts in FY2002, and the last will come on board in FY2004. Massachusetts, Hawaii and Tennessee are among the states that acknowledge the change GASB 34 will cause.
To be sure, the drive toward better maintenance isn’t universal. Some states, such as Alaska and Hawaii, simply haven’t benefited from booming economies and thus haven’t had the same opportunity to pump extra funds into repairs and reconstruction. Hawaii estimates a $640 million backlog in school repairs alone. Other states still either lack the information to do maintenance properly, or the desire to fund what they know should be done. This is even more troublesome in good economic times than bad ones. Among the states that fall into this group, to some extent, are Kansas, Mississippi and Oklahoma.
In some states, the legislature is at fault. In Florida, special maintenance funding recommended by the governor was turned down by the legislature. New Mexico has a Public Building Repair Fund, designed to collect agency rents and provide a designated stream of maintenance money. But the legislature has never funded it according to its original formula. Instead, the fund competes with new construction projects for budget monies.
The economic boom has had twin effects on construction. On the one hand, it’s led to more of it. But with architects, engineers and contractors stretched thin, demand is driving up costs and schedules are slipping. Particularly active construction zones cause problems for their neighbors, with Massachusetts’ Big Dig project pulling workers from other New England states and Las Vegas’ glitzy boom attracting workers from across the West.
This means that smart management is more important than ever. Project delivery methods other than the traditional “design, bid, build” were just creeping onto the horizon two years ago, but they’re being used widely today. Many states have passed laws allowing design-build, which allows the builder to start construction before the design phase is completed and thus speeds the process. A $1.6 billion highway project in Utah is expected to save more than five years’ construction time by using design-build. Washington State uses “infrastructure accounts” to encourage agencies to finish projects under budget. Money left in the project account after completion can be used to fund infrastructure improvements — other than new construction — that the agency identifies as priority needs.
Even as project management grows in importance, more states now recognize the benefit of long-term statewide planning. Two years ago, Texas decided to begin writing a two-year statewide capital plan, a significant improvement over not having one at all. But when the state started the process, it realized two years was too short a period and decided to write a five-year plan instead.
Meanwhile, policy toward roads, bridges and other transportation-related assets — covered for the first time in this GPP report — follows some of the same trends as with general facilities. Maintenance has been emphasized over expansion, and many transportation departments were forerunners of design-build methodology.
But transportation works under a different set of rules, which sets its capital programs apart. State funds are usually derived from gas taxes, making transportation budgets at least generally predictable. Federal Highway Administration funding comprises a large chunk of the money for road and bridge projects. With those funds come federal requirements. Each state transportation agency must write a Transportation Improvement Program, comprised of the plans from smaller regional planning organizations.
Public involvement, crucial for all capital projects, is required by the feds for transportation. Most states do a good job here, and some have even found room for innovation. Arizona surveys its state’s drivers, and Missouri officials conduct focus groups while driving the highways. Considering that transportation projects often account for the bulk of a state’s capital program, making sure the public is on board is a good idea.
Of course, the current good times aren’t going to roll on forever. And as any capital manager will tell you, this province is often the first one cut when the economy turns south. Road maintenance can be ignored for years before Volkswagens start falling into potholes. And then the expense is many times what it would have been if the work had been done in a timely way. Will the states that have made progress in this area continue to see the wisdom of their current ways — even when it hurts more to come up with the necessary cash?
Stay tuned.
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Roads, bridges and building construction are one field of government in which states don’t get a whole lot of attention unless they’ve done something wrong. When was the last time you heard a governor praised because his state finished a prison-building project on time? Or heard the director of DOT lauded for properly maintaining a bridge? On the other hand, if the prison is delayed and the result is overcrowding, headlines follow. And if a bridge collapses, that, too, will make quite a splash, in the newspapers and otherwise.