Capital Budgeting for the Federal Government
While it is difficult to define the concept of "capital expenditures" as opposed to "operating budgets," there are some general rules of thumb as to what constitutes capital budgeting. Generally, a capital item is something that has a life of more than one year. The United States Bureau of Census has defined capital outlay to mean "a direct expenditure for contract or force account construction, for purchase of equipment, of land, and existing structures. Includes amounts for additions, replacements, and major alterations to fixed works and structures. However, expenditures for repairs to such works and structures is classified as current operation expenditure" (Axelrod, 1995, p. 101).
Almost all 50 state governments have a special capital budget separate from the operating budget. Only 20 of the 50 states eventually combine their capital and operating budgets to arrive at unified budget totals. Nearly all local governments also have special capital budgets, especially in large cities and counties. Unlike state and local governments, however, the federal government does not have a special capital budget separate from the overall operating budget. It relies on a unified budget that treats the acquisition of capital assets just like any current operating expenditures. The United States government is the largest government in the world without a special capital budget.
Critics of a special capital budget for the federal government pose several arguments in their favor. First, unlike state and local governments, the federal government is not bound to balance its budget. In fact, the federal government frequently wants to stimulate the economy by borrowing to cover current outlays and to deliberately incur deficits. The federal government uses the budget to manipulate the economy, and the economy is affected by total government spending, not just operating expenditures or capital expendit...
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