Summary: GAO reviewed state practices for budgeting and financing capital projects, focusing on the: (1) criteria states used to define capital assets; (2) methods states used to finance capital assets; and (3) extent to which states linked borrowing maturities to the useful life of capital assets.
GAO found that: (1) most of the nine states reviewed had developed strict criteria for determining what constituted capital assets; (2) the states which strictly defined capital assets required that assets have specific value and life expectancy; (3) most states had specific procedures for budgeting for capital assets, but their practices varied; (4) most states, including the nine reviewed, used current revenues and long-term debt financing to finance capital assets; (5) the nine states did not link the financing method and borrowing maturity to capital assets or their useful lives; and (6) most states linked financing methods and borrowing maturity to such direct factors as prevailing market conditions, states' desires to achieve the best economic results, the need to maintain a high quality bond rating, legislative debt limits, and the political environment.
