PUBLIC ASSET MANAGEMENT: EMPIRICAL EVIDENCE FROM THE STATE GOVERNMENTS IN THE UNITED STATES by Yaotai Lu A Dissertation to the Faculty of The College for Design and Social Inquiry in Partial Fulfillment of the Requirements for the Degree of Doctor of Philosophy Florida Atlantic University Boca Raton, Florida May 2011 Copyright by Yaotai Lu 2011 ii PUBLIC ASSET MANAGEMENT: EMPIRICAL EVIDENCE FROM TIIE STATE GOVERNMENTS IN THE UNITED STATES by YaotaiLu This dissertation was prepared under the direction of the candidate's dissertation advisor, Dr. Khi V. Thai, School ofPublic Administration, and has been approved by the members of his supervisory committee. It was submitted to the faculty of the College for Design and Social Inquiry and was accepted in partial fulfillment for the requirement for the degree ofDoctor ofPhilosophy. SUPERVISORY C?~E: ~ V·V"-tG( Khi v. Thai, Ph.D., DiS~ Clifford P. McCue, Ph.D. Donald~. Khi V. Thai, Ph.D. Director 001 of blic Administration - Ro arter, Ph.D. Dean, College ofDesign and Social Inquiry ~~r~~ iii ACKNOWLEDGEMENTS I wish to express my sincere thanks to Dr. Khi V. Thai for his constant assistance and encouragement during my doctoral program and dissertation research. With his guidance, I selected my dissertation topic and developed the intellectual framework of a public asset management system, which is a central part of my dissertation. With Dr. Thai‘s assistance in contacting potential respondents, I obtained many responses to my survey. I am grateful to Dr. Clifford P. McCue especially for his helping hand with my survey questionnaire. His expertise and efforts ensured that I collected pertinent data for my research through the survey. I must thank Dr. Donald R. Cooper who instructed me in searching for appropriate research methods. He provided me with more than helpful guidance and comments when I designed the survey questionnaire and analyzed data. I am also thankful to Dr. Istvan Vanyolos who helped me identify research questions and Steven Chapman who tested my survey questionnaire and provided comments. iv ABSTRACT Author: Yaotai Lu Title: Public Asset Management: Empirical Evidence from the State Governments in the United States Institution: Florida Atlantic University Dissertation Advisor: Dr. Khi V. Thai Degree: Doctor of Philosophy Year: 2011 Public asset management is a critical component of the financial integrity of government. However, in practice, problems exist in the field of public asset management at different levels of government in the United States. This research explores the management of public fixed assets owned, controlled and used by state governments in America. It attempts to answer two major questions: (1) What are the characteristics of a modern public asset management system based on the available literature? and (2) How do public asset management practices at the U.S. state government compare to the system standard described in the first question? Based on systems theory and current research on public asset management and public procurement systems, this research develops an intellectual framework of a public fixed asset management system. This system is composed of six interdependent cornerstones, including legal and regulatory requirements, organization structure, v management process throughout the life cycle of assets, human capital strategies, information and technology resources, and monitoring, integrity, and transparency. Each cornerstone consists of a number of components that reveal the underlying working principles of the relevant cornerstone and together determine the standards of fixed asset management in the relevant area. Survey results demonstrate that state governments fundamentally satisfy the standards identified in the fixed asset management system. However, certain problems obviously exist in the area of each cornerstone. In addition, survey results reveal that the six cornerstones of fixed asset management system are interrelated with one another. In most states, when a management element in the area of one cornerstone is widely implemented, the relevant management elements in areas of other cornerstones are employed and vice versa. A major contribution of this research is the development of a fixed asset management system. State and federal governments may compare their fixed asset management to the standards identified in this system. Local governments may find appropriate management components to adapt to their characteristics from this system. vi DEDICATION This manuscript is dedicated to my wife Wenzhi and my son George. Wenzhi has shown her constant concern about the progress of my dissertation. Her concern and the care she took of our family had been a loving push for me to exert every effort in my dissertation. George has piously prayed that I could have wisdom and finish my dissertation as expected. This manuscript is also dedicated to my late father whose great desire was that his son would obtain a doctoral degree. PUBLIC ASSET MANAGEMENT: EMPIRICAL EVIDENCE FROM THE STATE GOVERNMENTS IN THE UNITED STATES LIST OF TABLES ........................................................................................................xi LIST OF FIGURES .……………………………..………………………………….xiii CHAPTER 1. INTRODUCTION .................................................................................. 1 The Current Situation of Public Asset Management in the United States ................. 3 Federal Government ............................................................................................... 4 Local Government .................................................................................................. 7 State Government ................................................................................................... 9 Purposes of Research ............................................................................................... 11 Research Methods .................................................................................................... 15 Organization of the Dissertation .............................................................................. 17 PART I. LITERATURE REVIEW AND CONCEPTUAL FRAMEWORK ............... 20 CHAPTER 2. LITERATURE REVIEW...................................................................... 20 Definition and Classification of Public Assets ......................................................... 20 Public Assets Management ...................................................................................... 25 Objectives and Goals of Asset Management............................................................ 28 Driving Forces for Efficient and Effective Public Asset Management .................... 32 Issues Affecting Achievement of Public Asset Management Goals ........................ 37 CHAPTER 3. PUBLIC ASSET MANAGEMENT SYSTEM..................................... 42 CHAPTER 4. LEGAL AND REGULATORY REQUIREMENTS ............................. 54 Laws and Regulations .............................................................................................. 55 Policies Concerning Public Asset Management....................................................... 60 Norms and Guidance ................................................................................................ 63 Procedures of Fixed Asset Management .................................................................. 65 CHAPTER 5. ORGANIZATION STRUCTURE ........................................................ 68 Fixed Asset Management Organization Structure ................................................... 68 vii Fixed Asset Management Decision-Making Structure ............................................ 76 Capacity Building of Fixed Asset Management ...................................................... 83 CHAPTER 6. THE FIXED ASSET MANAGEMENT THROUGHOUT THE LIFE CYCLE OF ASSETS .......................................................... 89 Fixed Asset Planning ................................................................................................ 89 Fixed Asset Acquisition ........................................................................................... 96 Purchases .............................................................................................................. 97 Construction........................................................................................................ 102 Leasing................................................................................................................ 107 Donations ............................................................................................................ 110 Acquisition through Tax Foreclosure ................................................................. 111 Eminent Domain ................................................................................................. 111 Trades ................................................................................................................. 112 Transfer ............................................................................................................... 113 Fixed Asset Operation and Maintenance ............................................................... 114 Premises of Sound Fixed Asset Operation and Maintenance ............................. 114 Portfolio Management ........................................................................................ 115 Fixed Asset Disposition ........................................................................................