June 8, 2017 – OpenGov
While Capital Improvement Plans (CIPs) can often fall victim to revenue shortfalls and attempts to stave off painful cuts to operations, a healthy, sustainable CIP is a critical component of a municipality’s long-term financial health. Elected officials and department heads function better absent unwelcome capital surprises, and bond-rating agencies view appropriate investment in infrastructure and associated strategy favorably.
Charlie Francis, Sausalito, CA’s former Finance Director and current member of OpenGov’s Government Finance Solutions team, previously penned a 3-part series on capital improvement planning best practices. He examined the layers of capital budgeting phases, including defining capital versus maintenance expenses, planning processes, budget development and execution, financing, and asset management.
Here are 10 takeaways you can use to strengthen your government’s capital improvement plan.
At a high level, a capital improvement plan includes both the upcoming year’s spending plan, as well as the capital program five to ten years out. Specifically, CIPs include:
- A listing of capital projects, equipment, and major studies.
- A priority ranking of projects.
- A financing plan.
- Timetables for construction or completion of projects.
- Project justifications.
- Classification, itemization, and explanations for project expenditures.
Designate a lead department (typically the Finance or Public Works department) and create a detailed CIP development process with forms, project criteria, and comprehensive schedules. Build in opportunities for citizen and stakeholder engagement and input. GFOA’s “Capital Planning Policies” offers tips for creating planning policies that provide a framework for an organization’s approach to its capital plan and subsequent management.
Conduct a formal inventory of all properties and assets, complete with deferred maintenance, condition assessments, and documentation of any needs for all physical assets. Francis notes that your insurance carrier’s list of insured assets is a good starting point for an inventory. GFOA offers an inventory checklist and practical asset evaluation tips.
A clearly spelled-out definition of what constitutes a capital project is important, as routine maintenance can be included in the operating budget and should be funded by designated sources. As Francis notes, “This lets you emphasize the importance of preserving existing facilities and relieves some competition between maintenance needs and new capital projects.” It also clearly identifies the requirements of capital projects, such as minimum expenditure thresholds, minimum useful life, and non-recurring project nature. See GFOA best practices in “Establishing Capitalization Thresholds for Capital Assets.”
Your CIP should institutionalize collaboration among departments and enable links between annual budgets and long-term infrastructure plans. Maintaining centralized oversight of capital projects, clearly stating all organizational responsibilities, and adhering to an internal communications plan will go a long way towards the CIP’s strength and success. GFOA also recommends adopting and presenting a formal capital budget as part of the annual budgeting process.
“Modern visualization technology helps when presenting a complex, three-dimensional capital improvement plan with all of its individual capital projects, studies, and equipment purchases in an understandable and user-friendly manner,” Francis explains. As city officials and staff conduct hearings and workshops on the plan, leveraging innovative technology can facilitate effective stakeholder feedback. Web-based transparency visualizations can also clarify the existence and impact of capital projects not included in the CIP, such as projects from a government enterprise fund. Additionally, geocoding a capital project database enables online mapping.
Governments do not just propose capital budget plans; ultimately, they also adopt and implement them. Approved project management systems and performance indicators are critical components of smooth implementation. GFOA recommends establishing specific processes for project monitoring and management, including legal and fiduciary requirements as well as stakeholder information needs.
Consider the level of urgency and current availability of funds when determining how to finance projects. Financing options include debt issuance, pay-as-you-go, and public-private partnerships. Francis includes the pros and cons of various options in his piece, "Capital Financing 101."
Make sure your financial policies include a comprehensive debt management policy. According to GFOA, “A debt management policy should improve the quality of decisions, articulate policy goals, provide guidelines for the structure of debt issuance, and demonstrate a commitment to long-term capital and financial planning.” Review GFOA’s best practices and consider your organization’s debt limits and your ability to meet operating needs.
Your CIP is a community planning and fiscal management tool that coordinates the location, timing, and financing of capital improvements over a multi-year period. However, it is also a working document that your government's leadership team should review and update to reflect your community’s changing needs, priorities, and funding opportunities.
A community’s infrastructure is critical to maintaining operations and achieving long-term strategic goals. From capital planning to analyzing capital debt, evolutions in technology are transforming the way governments undertake and implement their capital improvement plans.
Download our free eBook, The Digital Transformation of Public Administration, to learn how to improve strategic planning and budgeting with the right technology.