When the North Carolina House of Representatives approved its state budget plan a few days ago, the proposed pay raises for public employees, tax relief, and policy changes found within the budget bill commanded the lion’s share of public attention.
No surprise there. Still, please allow me to offer at least a kitty cat’s share of attention to another item in the House version of the budget: a transfer of $4.2 billion over the next two years from the state’s General Fund to the State Capital and Infrastructure Fund. This represents a wise investment in North Carolina’s growth and quality of life.
Yes, I know capital budgeting is unlikely to produce big headlines or fuel passionate arguments on social media. But it’s important. Bear with me and I’ll do my best to explain why.
To a large extent, state agencies, regional authorities, and local governments are in the property-management business. They own and administer a vast array of buildings, facilities, public lands, and other infrastructure. Managed well, these assets provide ongoing returns to taxpayers in the form of revenue, population inflows, and services rendered. Managed poorly, such properties become distractions and money pits.
The temptation to defer routine maintenance and costly repairs is universal. I’ve done it. I bet you have, too. We delay getting our vehicle’s oil changed or tires replaced. We keep putting off that dirty job or expensive retrofit, telling ourselves it can wait until it’s more convenient or we have more money in the bank, only to regret it after a catastrophic failure.
For public decisionmakers, the temptation can be much stronger. At least I must confront the reality that if I let problems fester on property I own, I must foot the bill for the resulting catastrophe. Government assets are owned by everybody — which means, in a practical sense, by nobody. There’s less incentive to plan ahead and economize. Today’s managers won’t necessarily be around to have to deal with tomorrow’s catastrophic failure. And because future costs are spread across a large base of taxpayers, there isn’t much of an incentive for an individual to worry about them.
This is a classic collective-action problem requiring an institutional remedy. In some cases, the right answer might be to sell public assets to private owners who will then face stronger financial incentives to manage them more efficiently. For such properties as school buildings, university classrooms, maintenance facilities, and critical infrastructure, however, a more palatable and practical remedy is to require governments to set aside dedicated funds for repair and replacement.
That’s one of the reasons the North Carolina General Assembly voted several years ago to create the State Capital and Infrastructure Fund (SCIF). By statute, it automatically receives a portion of state revenues and unspent money from a previous year’s budget. That comes to $1.4 billion for FY 2023-24 and $1.5 billion for 2024-25. The House has voted to transfer an additional $1.3 billion into the SCIF over the next two years.
Now, just to be clear, SCIF funds go to more than repairs and renovations. They’ve been used to pay down North Carolina’s bonded debt by hundreds of millions of dollars as well as construct new public buildings and facilities. While it makes sense to finance some long-lived assets with borrowing — especially during periods when construction costs are surging — paying cash has benefits, too. It minimizes future interest payments and forces policymakers to be more disciplined about which capital investments to make, and when.
That having been said, the repairs and renovations financed by SCIF represent prudent government at its best. I know why North Carolinians might just prefer to pocket state budget surpluses as personal income, either as pay raises for public employees or higher take-home pay for taxpayers. But by ensuring the proper upkeep of state assets — and constructing new ones with cash instead of debt — we’ll keep long-term capital costs lower while delivering better-quality services.
To that, I offer a loud meow.