What Is a CIP: A Guide to Capital Improvement Plans, Capital Projects, and Capital Budgets

Table of Contents

What is a CIP? And why is the CIP process important?

Also, what are capital improvement projects and how do they relate to capital improvement plans?

This guide provides an in-depth explanation of what a capital improvement plan is, what a capital budget is, CIP meaning, and includes examples of capital improvement projects.

Note: You may already know this information, but sharing this post with others in your organization can spread awareness about capital project budgeting.

Capital Improvement Plans

Capital Improvement Definitions

Before we go any further, let’s define our terms.

CIP Definition

CIP stands for capital improvement plan—also called a capital plan—lays out the financing, location, and timing for capital improvement projects over several years. 

A capital improvement plan typically consists of one or more capital improvement projects, which are financed through a capital budget. CIPs are important tools for local governments, allowing them to plan strategically for community growth and transformation.

Capital Project Definition

A capital improvement project—also called a capital project—is typically a permanent structural change to a property or asset to prolong its life, increase its value, or enhance its capabilities. 

For local governments, capital projects can include asset upgrades or large scale maintenance work. Some examples of capital projects include building a new library, replacing lead water service lines with pex or another safe material, or repaving streets.

Capital Budget Definition

The capital improvement budget—also called the capital budget—contains the funds allocated for all capital projects in a given fiscal year.

CIP Meaning

In the context of this article, CIP stands for Capital Improvement Plan. However, for the purposes of disambiguation, it’s important to note that CIP can also mean:

  • Continuous Improvement Program (in business)
  • Carriage and Insurance Paid to (in shipping)
  • Customer Identification Program (in finance)
  • Critical Infrastructure Protection (in urban planning)
  • Clean-In-Place (in industrial maintenance)

What Is a CIP?

A Capital Improvement Plan (CIP)—also called a capital plan—contains:

  • All individual capital improvement projects
  • Equipment purchases
  • Major studies for a local government

In the capital plan, these elements all exist in conjunction with construction and completion schedules, and with financing plans. 

A CIP has two parts: 

  • A capital budget. The capital budget is the upcoming year’s spending plan for capital items.
  • A capital program. The capital program is a plan for capital expenditures that extends typically five to ten years beyond the capital budget.

The CIP provides a working blueprint for sustaining and improving the community’s infrastructures. It coordinates strategic planning, financial capacity, and physical development. A CIP stands at the center of a government’s Planning, Public Works, and Finance departments.

The capital plan is a working document and should be reviewed and updated annually to reflect changing community needs, priorities, and funding opportunities to ensure that the infrastructure exists to advance the community’s strategic and long-term goals and objectives.

Who uses the CIP?

Capital improvement planning is primarily used by local government officials to create a long-term plan for capital improvement projects. It is critically important and one of the major responsibilities for a government entity.

Capital improvement planning helps bridge the gap between the planning process and the budget process. It helps community leaders make good planning choices for the future based on their specific goals and resources.

Why is a capital plan important?

A capital plan is critically important and one of the major responsibilities for a government entity because:.

  • The capital plan helps a community anticipate needs rather than just reacting to problems in the moment.
  • Capital planning ahead provides time for leaders to to get the necessary resources in place gradually, as opposed to all at once.
  • A capital plan provides the proper preparation necessary to determine the most economical means of financing a project.
  • When prepared collectively, the CIP helps increase “buy-in” among officials and employees, and helps voters understand its importance.
  • The capital plan puts the community in position to quickly take advantage of federal or state grant programs and opportunities.

The capital plan is a working document and should be reviewed and updated annually to reflect changing community needs, priorities, and funding opportunities to ensure that the infrastructure exists to advance the community’s strategic and long-term goals and objectives.


Top view of engineer, architect, contractor and foreman meeting at the construction building site with floor plan for real estate development project industry and housing timeline usage

Key Parts of a Capital Plan

Capital improvement plans differ between private companies and public organizations, and each local government will have its own unique needs it should detail in its CIP. 

Each city or state may have specific requirements, and some municipalities may also need to obtain citizen approval (via ballot votes) on parts of their CIP.

In general, a capital improvement plan (CIP) includes:

  • Estimated overall cost of each capital project
  • Estimated operational and maintenance cost for each project
  • Estimated project timelines
  • Total revenues from each project
  • Funding sources
  • Project prioritization

What are the benefits of developing a Capital Plan?

A complete, properly developed CIP delivers the following benefits:

  • Synchronizes capital and operating budgets
  • Systematically evaluates competing demands for resources based on a prioritization matrix reflecting the entity’s long-term goals and objectives
  • Identifies, prioritizes, and optimizes the financing of capital projects
  • Pay-Go
  • Federal and State grants
  • Debt financing
  • Links strategic and comprehensive plans with fiscal capacity
  • Informs the public about the government’s investment in infrastructure

What are the features of a Capital Improvement Plan?

The CIP typically includes the following information:

  • A listing of the capital projects, equipment, and major studies
  • A ranking of projects
  • A financing plan
  • A timetable for the construction or completion of the project
  • A project justification
  • A classification, itemization, and explanation for the project expenditures

How It’s Made: The CIP Process


The CIP process for governments typically follows these steps:

Step 1. Organizing the capital improvement plan

CIP Governance

The CIP process begins with the decision to prepare a CIP and capital budget, and designating a lead department.

Although the budget or finance office typically begins the CIP process, sometimes the public works department takes the lead because they have excellent multi-year programs that strategically examine capital projects.

As a minimum, the committee usually includes the major departments with capital facilities— e.g., public works for capital facilities, and police and fire for rolling stock.

Develop CIP Process, Forms, Criteria, and a Schedule

The next step in preparing the CIP is to develop:

  • A CIP budget calendar detailing milestones and dates for the CIP process
  • Specific forms detailing project proposals
  • A prioritization and decision-making matrix for evaluating and selecting capital projects

Citizen and Stakeholder Involvement

The CIP budget calendar typically includes the CIP process to involve citizens and important stakeholders (i.e., other capital facilities providers in the area).

Step 2. Identify projects and funding options

Governments often identify projects from the individual infrastructure systems’ “capital needs studies.” However, in many jurisdictions, neither capital needs studies nor comprehensive infrastructure inventories and condition assessments exist.

Nevertheless, it is still possible to put together an effective CIP without these resources through effective development of the project request forms.

The project request forms should designate the funding source(s) available for the project.

Selecting the Projects 

After the project proposals have been submitted, the CIP committee evaluates and prioritizes each project, without regard to the funds available.

Then, finance staff forecast the amount of un-earmarked money available. Projects competing for general funds (that is, un-earmarked money) are re-prioritized based upon the available funds.

The projects are next divided into priority groups—i.e., those which are urgent and for which efforts should be made to find funding, those which should be completed as funds become available, and so on.

Projects with existing funding, from enterprise funds, should also be evaluated. The next step is to actually decide on what will be funded.

Step 3. Prepare and recommend a capital plan and capital budget

The selected projects, plans, timelines, and financing summaries are then compiled and presented for approval to the elected officials.

Modern visualization technology helps when presenting this complex, three dimensional capital improvement plan, with all of its individual capital projects, studies and equipment purchases, in an understandable and user-friendly manner.

The governing body conducts hearings, workshops, and other outreach efforts to ensure all stakeholders and interested parties can provide feedback.

Performance indicators and project development milestones should be developed for the recommended capital plan for subsequent reporting purposes.

Project management and performance indicator systems are important capital budget implementation tools.

Step 4. Adoption of the capital budget

The CIP’s first year becomes the Capital Budget. There are three ways that the projects in the capital budget can be approved:

  • Adopt an annual capital budget: This method funds projects only a year at a time with the funds needed for the project for that year.
  • Adopt the capital budget with the entire amount for every project approved in that fiscal year, regardless of whether it will be spent that year: In addition, carryover funds for capital projects from one year are usually put into the next year’s budget and approved again by the elected officials.
  • Approve a bond financing and authorizing the project(s).

What Are Capital Improvement Projects

A capital project is a multi-year, large-budget effort that aims to improve existing infrastructure, create new infrastructure, or make some other large change or improvement to public land, property, or equipment.

From road improvements to new libraries to even the creation of a new public golf course, from stormwater management to parking garages, both residents and elected officials alike take pride in and closely watch the impact of capital projects on their communities. 



Capital Improvement Project Examples

Some examples of capital projects for local government include:

  • Improvements to community gardens, parks, public playgrounds, or other public spaces, like resurfacing a community tennis court.
  • Street and sidewalk repairs.
  • Work on public buildings, including renovations and additions.
  • Installing or improving assets like streetlights, benches, or accessibility ramps on public property.
  • Work on public infrastructure like subways, service water lines, or waste management systems.

How are capital projects different from regular maintenance?

Here are four tips to help you distinguish between a capital project to be included in the CIP and ordinary maintenance to be included in the operating budget.

We’ll also help identify differences between capital and maintenance expenditures.

Tip 1. Define a capital project in writing 

Each city has its own definition of a capital project. Typically, the definitions were broad in scope, and included a range of items such as land acquisition, construction, equipment purchases, technology infrastructure and major systems (such as an ERP), major renovations, and special studies such as new Infrastructure Master Plans. Frequently there are additional criteria such as minimum expenditure thresholds, minimum useful life (in years), non-recurring nature or other requirements.

It is very important that definitions of the capital projects included in the CIP are clearly and specifically spelled out. Depending on what is best suited for your entity, include this definition in the municipal code, in adopted financial policies, or in the CIP instruction manual.

Tip 2. Define maintenance expenditures and designate maintenance funding sources 

It is critical to define major infrastructure maintenance expenditures and establish policies designating the funding sources for maintenance expenditures. This lets you emphasize the importance of preserving existing facilities and relieve some competition between maintenance needs and new capital projects.

If the definition developed in Tip 1 includes major maintenance and asset preservation projects, then these maintenance expenditures are considered, funded, and included in the capital budget process. Otherwise, maintenance expenditures should be included in the operating budget.

Tip 3. Identify capital projects not included in the CIP

The CIP often does not include projects from the government’s enterprise fund. This can be confusing to elected officials and citizens when assessing infrastructure investments’ overall impacts. Accordingly, governments should prepare an annual capital budget document, or use web-based transparency visualizations to share the entity’s capital projects.

Tip 4. Develop a comprehensive inventory and infrastructure rating system

This tends to be the most commonly left out item in Capital Improvement Planning. However, a formal inventory of all properties and assets, complete with deferred maintenance needs across the entity and a condition assessment to help decision-makers develop priorities, is essential for elected officials and appointed executives.

The inventory should include documentation on the need for renewal, replacement, expansion, or retirement of all physical assets. The inventory should also have information on the year the facility was built or acquired, the date of last improvement, its condition, the extent of use, and the scheduled date for rebuilding or expansion.

Hint: Your government’s insurance carrier has a list of insured assets that can serve as a basis for the inventory.

Capital Budgeting: How to Overcome the Difficulties of Capital Improvement Budgeting

As you can see, capital projects are one of the most visible and important functions that our local and state governments own. 

Governments are tasked with carefully managing the funding and expenses for these projects, like leveraging Federal or State Aid or issuing Bonds, all while making sure debt stays within mandated limits and accounting for any ongoing Operating Budget Impacts that could affect the Government’s General Fund for years to come. 



How outdated systems hinder capital budgeting

 Much is at stake here. The wrong decision can result in lower bond ratings, thus paying higher interest rates, or having a project go sideways, which could cost elected officials the trust they have built with their residents.

With all this pressure, Capital Budget planning and management, commonly referred to as a Capital Improvements Plan (CIP), is still primarily managed by our Governments through a technologically outdated combination of Excel Spreadsheets, Word Documents and PDFs. These tools can be successfully utilized to aid in a successful capital project, but they lack many capabilities like collaboration, unbreakable formulas, and version control that allow for a more efficient and effective project. 

Adding to this challenge is the fact that there are many stakeholders functioning in a multitude of roles responsible for managing these projects, including engineers, project managers, fiscal policy specialists and budget analysts. These people typically have to plan the project funding and expenditures over a multi-year period, while also tracking progress across the different phases (also referred to as cost elements) of a project’s life cycle, such as planning, design and construction.

Without having a central platform to manage capital projects, versioning gets out of control, aggregation of the entire CIP for a macro-level view becomes tedious and time consuming, and seeing a clear picture of where funding can be moved to handle project slippage and acceleration is arduous. 

In addition to budget and financial tracking, there is also a need to capture and record a lot of descriptive information about a project, including status, description, justification, location, responsible department, start/end date, and much more. With this in mind, it is easy to see how difficult it is for Governments to stitch together all of the information that makes up a single Capital Project, let alone trying to tie everything together at a macro level to provide executives and elected officials a clear picture of what they have to work with. 

Governments often realize that what started out as a simple plan has turned into a multi-faceted, enormous initiative that will cost lots of money, time, and resources to execute. 

Simply put, the more systems and spreadsheets you involve in this process, the more dysfunctional it becomes.

Communicating Your capital budget and plan to residents

Additionally, one important element to consider for capital planning is the ability to communicate the plan to the public. Resident engagement may already be an issue in your community, and not having the ability to accurately let residents know where their hard-earned taxpayer dollars are going is a huge problem. 

As stated before, most capital budgeting initiatives are highly visible to the public. An initiative to improve a local park would naturally attract the attention of the citizens of the affected community. Since citizens have a vested interest in knowing how their tax money is being handled, the ability to report on how community projects are funded is a crucial part to any kind of capital planning. 

Without the tools and systems in place to easily access how a capital initiative is being funded and what the critical elements of the project are, the public will most likely lose trust and support of the government you are representing.

How Does Capital Improvement Planning Software Fit In?

First, What Is Capital Improvement Planning Software?

Capital improvement planning software augments all the benefits provided by CIPs. It helps with collecting capital requests and creating multi-year multi-scenario budget versions. 

What Does Capital Improvement Planning Software Do? What Does It Enable Teams to Do?

Specifically, OpenGov’s budgeting & planning solution helps both budget creation and budget communication to residents and stakeholders.

Where capital improvement planning typically falls short is that Word, Excel or paper processes often result in an error-prone process of reentering data in multiple places. 

OpenGov’s capital improvement planning software is a cloud-based government budgeting platform that automates the process and centralizes projects in one place. Keep your projects on time and on budget with our capital improvement plan software.

In Summary:

  • Align best practices and centralize workflows across each project.
  • Stay connected to the actionable insights you need to make smart management decisions.
  • Connect all your people, software, and data on one platform so everyone has access to the information they need.
  • Every capital improvement project is different, but customers using our platform are seeing real results.