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The Typical Municipal Budgeting Process Is Rigged Against Infrastructure Investments

By Mike Pagano
Meeting the challenge of maintaining our nation’s infrastructure is daunting at best. The American Society of Civil Engineers has published an annual report card on the nation’s infrastructure deficit estimates our infrastructure deficit at $2.2 trillion. A key component of this is budgeting not only for the building of the infrastructure but for the maintenance as well.

The price budgeted for public infrastructure typically includes the cost only up to the time of the ribbon-cutting ceremony and does not address budgeting for anything at any time thereafter. Cities should manage public infrastructure the way one manages a large personal asset - by setting aside in a monthly budget a reasonable sum of money for basic repairs, maintenance, replacement, a new paint job.

Right now, cities (and other local governments and all state governments) separate their annual (or biennial) budgeting processes into two piles: one for the basic operations of the city; the other for the capital investment activities of the city, which cannot be used for basic maintenance and repair.

By separating the two budgetary processes, there is never enough funds for basic repairs, maintenance, replacement, a new paint job for the new or expanded capital asset that appears in the capital budget because the operating budget is already crowded with too many commitments from previous years’ basic repairs, maintenance, replacement activities, not to mention all the other service responsibilities, such as public safety.

Cities should adopt the “Utah model” of setting aside 1.1 percent of the value of an asset for the express and only purpose of maintaining and repairing capital assets. Utah’s approach to adequately maintain fixed assets by following a life-cycle for repair and maintenance is contained in legislation that assures funding for maintenance activities for the state’s public buildings. State law requires that before new capital projects can be approved, the legislature must allocate 1.1 percent of the state buildings’ replacement value to capital improvement projects which, by definition, do not add square footage to the state’s building inventory. This statute binds the budgetary authority of future legislatures because it requires a set-aside in current operating budgets that is determined by previous legislatures’ capital investment decisions. (Although the law only applies to public buildings, I raise this policy action as a tool that ought to be extended to other capital assets of cities and states.)

By linking current capital investment policy to future sequestration of the operating budget to assure a pool of resources is available for maintenance and repair, this policy ensures, or at least makes highly probable, an adequate resource base to maintain an asset throughout its useful life. It also has the added benefit of constraining overbuilding on the part of the government because the more building, the more future resources are set aside for capital maintenance and unavailable for other basic operating concerns. Cities need to ensure that they are weighing the full, long-term costs associated with today’s decisions to ensure smart, affordable infrastructure decisions are being made.