The impact of state capital budget and management programs on state capital budget decisions and economic performance

The normative public capital budgeting literature, including textbooks and public finance and budgeting associations, advocates a systematic capital management process in which four main components: long-range capital planning, long-range capital budgeting, project management, and maintenance should be included. Based on the principles of these components, the process is characterized as centralized, strategic, and knowledge-based. While the normative literature recommends such strategic approaches, the benefits of the process are rarely empirically examined. If the strategic capital management approach leads to better infrastructure investment, it should enhance economic performance since public infrastructure is an input in production processes. This dissertation investigates the impact of strategic capital management programs on economic performance through public capital spending levels. The second purpose is to understand how strategic practices affect a capital budget decision process. The final purpose is to understand why some components are not fully adopted. The empirical study utilizes the state economic growth model and is estimated using data from fifty states from 1997 to 2004. Like previous studies of state economic growth, the model controls for individual state characteristics, time trends, and serial correlations. Unlike previous studies, this study includes measures of state management practices. The estimation results indicate that the highly strategic management programs have indirect and positive impacts on state economic growth through state capital spending levels. The effects of the strategic capital management programs are important, given that public infrastructure provision is a responsibility of state governments. This finding extends state economic development literature by showing that government management is another explanatory variable for state economic growth in addition to capital spending levels. The Illinois capital budget process was also analyzed. The case study data included interviews and public documents. The results indicate that Illinois budgeters' perceptions are that the adopted strategic practices encouraged efficient and effective investment policies, while promoting the state's fiscal discipline. Interview data suggested that statewide long-range capital planning is not adopted because the state budgeters view that (1) the state government should allow local governments the discretion regarding investment choices and (2) elected officials' investment choices should not be constrained by long-range planning.