Follow Us:

Opinion

  • Article
  • Comments

Opinion: Capital Planning and Budgeting Do Not Exist in New Jersey

New Jersey does capital planning in a fragmented manner — there is no prioritization of projects and no overall plan to finance needed infrastructure investments.

Richard F. Keevey
Credit: Amanda Brown
Richard F. Keevey

Overview

With bonded debt in New Jersey in excess of $46 billion — the fourth highest per capita in the nation — one would think that capital planning and budgeting are a necessity. Unfortunately, they do not exist in any meaningful way. Bonds are approved and issued absent long-range planning and without careful consideration of options and future-year costs.

Consider, for example, the recent approval of $300 million for State House renovations and another $375 million for various government buildings. Further, lawmakers want another $1 billion for vocational and community colleges and to improve school security, without any definition of need or formal review process. Other folks want $500 million for water projects, and still others want more money for transportation. And yet another cohort argues for wastewater projects and open-space acquisition. Such decision making is now done on an ad hoc basis — absent long-range planning and priority setting.

There is actually a Commission on Capital Budgeting and Planning charged with doing this. The commission was established in 1975 — and at one point actually functioned as intended. But it no longer performs this function and has not done so for many years. Some background is useful.

Commission on Capital Budgeting and Planning

The commission was established in Gov. Brendan Byrne’s administration because a series of bond proposals had been defeated at the ballot box. Presumably, the voters thought the projects unworthy, most certainly because of a lack of planning and explanation. The governor’s solution was to establish a bipartisan commission to review and prioritize capital projects and inform the public of the need for their support.

The commission was established under the provisions of Chapter 208, P.L. 1975. It consisted of 12 members: four from the executive branch, including the state treasurer; two from the general assembly; two from the Senate; and four public members appointed by the governor on a bipartisan basis with the advice and consent of the Senate. To demonstrate the seriousness of his intent, Byrne convinced former Gov. William Cahill to be the first chairman.

A full-time executive director was appointed: Bruce Coe had extensive Wall Street and public finance experience. To ensure proper coordination with the formation of the annual state budget and provide professional staff to the commission, the law established a bureau of capital planning and budgeting in what is now the Office of Management and Budget.

The law required the commission to prepare a capital Improvement plan containing proposals for capital projects and the means to finance them. The projects were to be consistent with the goals of the State Development and Redevelopment Plan and prepared in consultation with the Council of Economic Advisors.

The capital plan was also to provide:

  • detailed lists of all capital projects to be undertaken in the next three years, including the impact on the operating budget; the prioritization of such projects; and means of financing;

  • forecasts of projects for the following four years and a schedule for construction;

  • schedules for the next fiscal year of recommended appropriations from bonds previously authorized;

  • review and analysis of capital projects that were recently implemented;

  • recommendations for maintenance of physical properties and equipment;

  • report on the state’s overall debt situation, including debt service for the next five years. The unfunded actuarial liability for state-administered retirement systems and for post-retirement medical benefits were also to be disclosed;

  • assessment of the state’s ability to increase its overall debt and a recommendation on the amount of any such increases.

The law also required the commission to review any bill that made appropriations for capital projects and for the authorization of any bonds of the state government — or of any state agency containing a moral pledge or any other dedicated support by the state. The commission was required to study the necessity, desirability, and relative priority of such appropriation or indebtedness.

For many years, approval of bonds and the development of a capital plan were ongoing functions of the commission. Bonds proposals were routinely approved by the public, and state agencies and the Legislature recognized the need to bring capital projects to the commission before capital funds or bond authorizations were approved.

Capital planning and budgeting today

Somewhere along a timeline beginning in the mid-1990s, the commission ceased to exercise fully its statutory requirements. True, each year the commission issues an annual capital improvement plan for the next seven years — but it only includes “pay-as-you-go” annual appropriations — for fiscal year 2018 only $265 million is recommended. There is no mention of the total capital needs of the state past or future bond proposals.

True, one can read annually a “Debt Report” for the state, but it is prepared by the public finance division of the Treasury department, and it has no planning elements or recommendations for any future capital projects needed to address the state’s capital needs. Instead, it simply reports on what has happened — total past debt and future debt-service projections for existing bonds.

Perhaps if the state had a meaningful capital-planning process with a viable commission, bonds to finance pension needs would not have been approved, and the construction of the train tunnel to New York City would now be completed. Certainly, there would have been better prioritization of projects and better identification of future needs, rather than ad hoc decision making to finance the “cause” of the day.

Recommendation

The current seven-year New Jersey Capital Improvement Plan has no listing of needed projects for wastewater, ports, public buildings, drinking water, dams, hazardous waste, parks, solid waste, water, energy, transit, and roads. What would one conclude — especially since New Jersey has a D+ rating from the American Society of Engineers regarding the status of its infrastructure?

One certainly would not conclude all is well regarding the proper identification of state capital needs. Individual departments might have some data, but there is no overall comprehensive capital budget.

The State Budget Crisis Task Force, co-chaired by Paul Volcker, the former chairman of the Federal Reserve Bank, issued a report on New Jersey finances in 2012 and among other elements identified the projected 10-year costs for infrastructure were in excess of $140 billion. And those numbers did not include the recent bond sales for government buildings or the pending thinking related to county colleges and K-12 school security. It was further argued that it was critical for the state to strengthen its capital planning and budgeting process and develop an overall strategy to fund critical infrastructure.

The governor and the Legislature must reinvigorate a viable capital budgeting and planning process sooner than later — and use the existing bipartisan Commission on Capital Budgeting and Planning as the vehicle to orchestrate a meaningful process. Not to do this is bad public policy, severely limits the state’s competitiveness, and fails to undertake needed and thoughtful capital investments.

Richard F. Keevey is the former budget director and comptroller for New Jersey — appointed by two governors from each political party. He held two presidential appointments as the CFO at HUD and deputy undersecretary for finance at DOD. He is currently a senior policy fellow at the Bloustein School of Planning and Policy at Rutgers University and a lecturer at the Woodrow Wilson School, at Princeton University.

Read more in Opinion
Sponsors
Corporate Supporters
Most Popular Stories
«
»