Capital budgeting and project management in public finance

CAPITAL BUDGETING & MANAGING PUBLIC FUNDS

Capital Budgeting & Public Funds

Capital Budgeting

Capital budgeting can be a minefield of a proposition in some instances. As mentioned in Chapter 6, reasons for these challenges include the difficulty in specifying and/or measuring the benefit of government programs, the difficulty in being able to prove and lay out the expected project costs while accounting for known positive and negative externalities, discounting future costs or benefits back to present dollars due to accounting for inflation or otherwise different cost structures, dealing with the complexity of multiple objectives and deciding which decision criteria to use.

A good nationally-known example of a public endeavor that had a litany of such situations and problems was the reconstruction or the World Trade Center after the 9/11 attacks toppled them to the ground. Cost is not really the issue with that project as most people clearly suggested that the towers should be rebuilt but the amount of externalities were/are off the chart due to the passions involved, how the initial towers fell, what people think about how the towers should be rebuilt and the bureaucracy that has occurred in accounting for and other dealing with all of the above.

The amount of different objectives are also very high because of the priorities of the stakeholders and opinion-wielders involved are disparately different. The costs of the project as a whole are going to be rather high for a number of reasons. First, it has been nearly 12 years since the attacks, so the amount of expenditure for the planning and toiling over the project is going to be substantial. Also, the amount of security to handle possible domestic and international/terrorism threats would have to be factored in as well. As noted above, the externalities in play are substantial, numerous and off the chart in terms of their depth and breadth.

Public Funds Management

Whenever a public official, whether it be a sheriff or someone else, goes off on a spending spree of any sort, there is always more than one party to blame even if it's easy and/or convenient (for the city/county in particular) to blame just the person who misappropriated the money. The problem is that the sheriff was able to nearly or entirely unilaterally make the decisions that were made that led to the problem and that is a unquestionable breakdown in internal controls and city management discipline.

For example, no single payroll/accounting department person (even if it's a controller) should not have total command and control over the creation and disbursement of funds. At least one other person, preferably someone at the same level or above the person that is doing the rest of the work, is double-checking to make sure that no malfeasance is occurring and this includes all recording of transactions as well as money movement in general. Reports should be retained well beyond the statutory minimums and in a secure fashion so that reconciliations can occur at any time. Not keeping meticulous and complete records is foolish on a number of levels and legal compliance is far from being the only example of why.