Capital Budgeting and Planning

Capital budgeting is the process by which entities acquire facilities, infrastructure, and many other costly items needed for their activities. State and local governments use a variety of processes to identify and select capital items; they also finance these acquisitions in a number of ways, but primarily with debt in the form of municipal bonds. Regardless of the specific manner in which an entity produces its capital budget, capital items are generally defined as those things that produce benefits beyond the current year. Unlike operating expenditures, such as personal services and office supplies that provide benefits only in the year they are purchased, capital items typically provide benefits for much longer periods. The Golden Gate Bridge, for example, has been in use since 1937. Though it has been in use for nearly 70 years it is being consumed as surely as any office supply item. With proper maintenance it will last for many more decades. Without proper maintenance it would deteriorate very rapidly. Capital budgeting, then, consists not only of acquiring the infrastructure needed to provide services but also maintaining those items in order to achieve their longest possible use.