How States Make Infrastructure Budgets

State budget officers want to bring more attention to the process of crafting state infrastructure budgets.

Governors and lawmakers are taking a fresh look at state capital budgets, because of the threatened loss of federal funding, says Scott Pattison, executive director of the National Association of State Budget Officers (NASBO). 

State budgets are also starting to stabilize after the Great Recession, meaning lawmakers can pay more attention to long-term budget issues instead of scrambling just to make sure their budgets stay in the black, Pattison says. 

The renewed interest prompted NASBO to ask all 50 states how they handled their capital budgets, which are normally crafted separately from state operating budgets. 

The capital budgets usually cover construction or major renovations for the state’s physical assets, which can take several years. The group found that,

• There is not a uniform definition for what qualifies as a capital project and what can be included in the capital budget. For example, 29 states include information technology projects in their capital plans.
• 19 states do not include transportation projects in their capital plans, mainly because those projects are funded separately using dedicated revenues from sources such as the gas tax.
• Last fiscal year, 53 percent of state spending on transportation came from dedicated revenue streams, such as the gas tax. The second largest source of transportation money for states was federal money, which accounted for 33 percent of the spending.
• More than half of states (26) use general funds to help pay for capital projects for higher education.
• 33 states use a centralized agency to manage capital projects. Agency tasks often include estimating costs, scheduling projects and writing budget requests.
• 37 states include inflation when calculating the cost of capital projects.
• State constitutions, laws and other policies limit the amount of general obligation debt states can issue in 38 states. But states vary considerably on how much they rely on debt. Alaska, Iowa, Missouri, Nebraska and North Dakota rely especially heavily on using cash on hand to pay for their capital projects.

Budget officers and other state officials could benefit from learning how other states handle their long-term infrastructure budgets, Pattison says.

“Nobody does everything great, but everybody does at least something great,” Pattison says. “That’s why a report like this is so helpful.”