After last month’s introduction to state budgets, it seems fitting to follow up with a more in-depth look at the elements of a state budget, starting with state capital budgets.
What is a capital budget?
There is no single definition or template that is uniformly applied across the states for a capital budget. However, a state capital budget generally includes funding for major construction projects and renovations, high-dollar equipment purchases (often including IT equipment), and land acquisition and development funding. These are often projects with a long-term impact for the state, whether in terms of construction time or useful life cycle. Some states include more projects than these categories, while others include fewer. In many cases, a capital budget is distinct from the state budget document, while in other cases, detailed capital line items will be included in the actual state budget document.
Why should I care about a capital budget?
Vendors of all types should absolutely use the capital budget as a document for leads. As mentioned above, there is generally an array of projects included in the capital budget that attracts interest from across vendor communities. Like the state budget, the proposed capital budget can provide great insight into the priorities of an administration. For capital projects that did not win legislative approval, it is reasonable to assume that the need for that equipment or construction did not go away because the legislature was unwilling to pay for it. Indeed, it is highly likely that the project will be seen in future capital budgets, which can be a vendor’s window into future government investment.
Unsurprisingly, an approved capital budget provides even greater insight into a state’s spending priorities. In many cases, projects funded through the capital budget will be competitively bid after funding is allocated. Having information from both proposed and passed capital budgets can provide a competitive advantage for a vendor and/or allow more strategic planning for future investments.
State snapshot: Connecticut Capital Budget, 2016 – 2017
Like many states, Connecticut includes its capital budget as an appendix to the state operating budget. Connecticut defines capital projects as any construction, improvements or projects related to state-owned facilities or equipment. Also like many states, Connecticut puts a minimum value of projects that can be included in the budget ($1,000 or more), and a useful time frame (not less than five years).
As promised in last month’s introduction to state budgets, the collection of data related to capital budgets is underway. The chart below represents some of that preliminary data from Connecticut – the top five verticals by funding in the FY 2016-2017 proposed capital budget. The major takeaway from Connecticut is that the capital budget does not mirror the state operating budget in terms of priorities. In the state’s proposed capital budget, capital projects from state transportation agencies account for more than 38 percent of state capital spending in FY 2016. While in the overall state operating budget, transportation spending is just more than 2 percent of the total. Conversely, verticals that account for large portions of state spending, like human services, do not even appear in the top five verticals in the capital budget.
Also noteworthy from the top five verticals is spending from agencies classified as general government. This funding represents mostly IT projects in the state’s IT agency. So, while most of the capital budget funding goes to AEC-related projects, there is still a lot of opportunity for IT vendors in state capital budgets.
Vendors should become familiar with capital budgets and integrate this information into strategic discussions of where to invest resources. In some ways, the capital budget can be a more valuable asset to a vendor than the state’s operating budget since it often includes in-depth project details rather than simply listing funding amounts to an agency. Early knowledge of these project proposals and the recommended funding level can allow vendors to adequately position themselves to win a contract or complete a project.
Vendors should also watch for Deltek’s detailed compilation of state budget data including IT line items and more in-depth Deltek analysis. In addition, vendors in the architecture, engineering and construction (AEC) space should keep an eye out for more budget data specific to state investment in AEC as outlined in state capital budgets.