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Concept of Capital Budgeting Research Paper


The financial obligations of a government entity can be planned through effective capital budgeting (Peterson, 2004, p. 56). Most government entities have adopted capital budgeting as a way of enhancing economic stability and debt planning.

The government has been forced to have multiple roles when it comes to capital budgets because of the ever increasing government spending. Government entities are supposed to manage the resources allocated to them in the best way possible by finding a clear definition of capital and current expenditures (Peterson, 2004, p. 58).

The net worth of government expenditures can be improved by having the right tools of fiscal policy. Government entities have to implement all the debt strategies of the federal government and ensure a successful execution of all programs (Pecorella, 2006, p. 112). The New York State Government is a local authority that has been struggling with debts for a very long time and will be the centre of discussion in paper. The debt capacity of a government entity determines whether it can borrow money or not.

Every government entity has a debt limit that should not be exceeded in any way (Pecorella, 2006, p. 120). Government entities accrue some debt obligations in the course of their operations and their ability to repay debt obligations on time using their own revenues is what referred to as the debt capacity. It is important to note that the debt capacity of a government entity can not be determined if there is any kind of revenue deficit.

The amount of debt obligations should not in any way exceed the total government revenues (Pecorella, 2006, p. 120). Some of the most important factors that analysts use to determine the debt capacity of a government entity include annual revenues, the real property value and outstanding debts.

The three factors are used to measure the ability of an organization to borrow funds. Public administrators have the responsibility of ensuring that the allocated funds are utilized in best way possible for government entities to maintain an optimal debt capacity. A government entity that has high revenues and very small outstanding debts will definitely have a thigh debt capacity (Peterson, 2004, p. 145). The New York State authorities should ensure that public spending does not go beyond the debt capacity of the state.

The New York State Government can only deal with its debt problems by refunding or reorganizing existing debt obligations (Peterson, 2004, 2008, p. 166). The effectiveness of this kind of plan depends on how a government entity handles its debt obligations. The New York State Government should make repayment of debts with the highest interest rates the first priority.

Prioritizing debts with high interest rates is one of the most appropriate ways of reorganizing existing debt obligations (Peterson, 2004, p. 166). Debts with high interest rates can prevent a government entity from undertaking other important financial obligations and hence the reorganization strategy of ensuring that such debts are given the first priority brings continuity.

Government entities incur a lot of expenditures in the course of their operations and therefore reducing their total expenditures is the other strategy of reorganizing their existing debt obligations (Ward, 2006, p. 24). A reduction in total expenditures means that extra funds will be available for the government entity to service its debts.

The New York State Government needs alternative funding options in order to reduce its debts. The high debt obligations that are normally accrued by government entities would be low if there were alternative funding options (Ward, 2006, p. 24). The most practical alternative that the New York State Government can use to fund its debt obligation is requesting for assistance from the federal government.

It is difficult for a government entity to fund its debt obligations without the necessary assistance from the government. The federal government can offer its assistance quarterly or annually. The New York State Government can increase its tax base as a way of maximizing its revenues. It is possible for a state to increase its revenues by expanding its tax base and increasing less sensitive tax rates (Ward, 2006, p. 69). The extra revenue collected can be used by the state to fund its debt obligations. There are other alternative funding options but the two that have been mentioned in this paper are the most appropriate for a state government.

In conclusion, capital budgeting by government entities is a very serious issue that needs a comprehensive evaluation. The determination the debt capacity of a government entity is an assessment process that takes into account total annual revenues, real property value and outstanding debts as the most appropriate measures (Peterson, 2004, p. 65). The reduction of the total debt of a government entity depends on how the entity reorganizes its debt obligations.

Prioritizing debts according to interest rates and the reduction of total expenditure are some of the best strategies of reorganizing existing debt obligations. Government entities should establish alternative funding options as a way of reducing their debts (Ward, 2006, p. 112). Government entities with high debts should seek assistance from the federal government for them to successfully fund their debt obligations.

References

Pecorella, R. (2006). Governing New York State. Albany: State University of New York Press.

Peterson, P. (2004). Capital budgeting: Theory and practice. New York, NY: John Wiley & Sons.

Ward, R. (2006). New York State Government. New York, NY: Rockefeller Institute Press.

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IvyPanda. (2019, August 12). Concept of Capital Budgeting. Retrieved from https://ivypanda.com/essays/capital-budgeting-2/

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"Concept of Capital Budgeting." IvyPanda, 12 Aug. 2019, ivypanda.com/essays/capital-budgeting-2/.

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IvyPanda. "Concept of Capital Budgeting." August 12, 2019. https://ivypanda.com/essays/capital-budgeting-2/.

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IvyPanda. 2019. "Concept of Capital Budgeting." August 12, 2019. https://ivypanda.com/essays/capital-budgeting-2/.

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IvyPanda. (2019) 'Concept of Capital Budgeting'. 12 August.

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