How Can We Do Capital Budgeting Better in Ohio?

Late last month, the Ohio Senate sent a $4.2 billion capital expenditures budget to the Governor’s office.

Ohio’s capital budget is a budget of long-term investments in projects and infrastructure across the state mostly financed by debt. This year’s version of the capital budget includes $3 billion in new debt taken on by the state to finance these projects.

The capital budget is usually a fairly noncontroversial bill passed every two years. This might be strange for a bill that allocates billions of dollars. But this is because every legislator that votes for this bill can build projects across the state without having to allocate dollars today.

Nonetheless, the capital expenditures budget is not costless. Over time, taxpayers will pay for the capital expenditures budget. Even in the short-term, the state has a constitutionally-mandated cap on debt it can take on. So projects we fund crowd out funding for other projects. There is an opportunity cost to the projects funded by the capital expenditures budget.

So how can we choose the best projects to fund with the capital expenditures budget? Surely there is someone in charge of assessing these projects and seeing which ones will have the largest returns to the residents of the state.

Unfortunately, that is not the case. Capital expenditures are largely a function of the judgements of legislators, uninformed by objective analysis of the economic, equity, or other impacts of these projects.

What would a better system look like?

Ideally, projects selected for a large spending bill like this would have some sort of analysis conducted so policymakers would be informed about the impact of the projects on the public. Having Office of Budget and Management or Legislative Service Commission staff in charge of scoring proposals for fiscal, economic, and equity impact would bring valuable information to the table for policymakers making decisions on these projects.

This would mean a policymaker would be able to assess the economic impact, fiscal impact, equity impact, and other impacts of a potential project and the tradeoffs of one against one another when making a funding decision.

These sorts of decisions could have substantial impacts on the state economy. $4.2 billion is a lot of money. Just a 1% increase in efficiency of these allocations could mean an additional $42 million in state GDP. If this created jobs at the value of the median household income in the state, that would mean an additional 640 jobs created statewide by more efficient allocation of these resources.

More equitable allocation of these dollars could have an even larger impact as dollars could be targeted toward projects that would help people in poverty or who live in struggling parts of the state.

The state government is a powerful economic force. Whenever decisions are made blind, we lose the opportunity to grow our state economy, reduce poverty and inequality, and improve lives for residents of Ohio. More intentional allocation of state resources could have a substantial impact on Ohio’s economy, people in poverty, and the well-being of residents across the state. Understanding what these impacts could be is the first step.

This commentary was originally published by the Ohio Capital Journal and republished here with permission.