Capital Improvement Plans 101

Originally published September 10, 2019. Updated with new information.

What is a capital improvement plan (CIP) ? What should a CIP include? Why is a capital improvement plan important? Read on to get the answers to these questions and more. 

Capital Improvement Planning FAQs

The capital improvement plan (CIP) is a planning and management tool used by local government officials to create a 5-year plan for capital improvements… Read More.

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… Read More.

While each city or state will likely have its own specific requirements, and some municipalities may also need to obtain citizen approval on parts of their CIP, a capital improvement plan (CIP) will generally include the following elements:

  • Estimated Overall Cost Of Each Project
  • Estimated Operational & Maintenance Cost For Each Project
  • Estimated Project Timelines
  • Total Revenues From Each Project
  • Funding Sources
  • Project Prioritization

 Read More.

Step 1: Budget Development

Step 2: Citizen Engagement

Step 3: Budget Approval

Step 4: Budget Communication

Read More.

The CIP provides an active blueprint for sustaining and improving a community’s infrastructures. It coordinates strategic planning, financial capacity, and physical development. The CIP is at the epicenter of a government’s Planning, Public Works, and Finance departments… Read More.

When it comes to a CIP, there are at least four or five best practices for each of the following phases of capital budgeting:
  • Identification of capital and maintenance expenditures
  • Capital planning
  • Capital budgeting development and execution
  • Capital financing
  • Asset management

This post is the first in our Capital Improvement Planning (CIP) series, with each post highlighting the best practices in each stage of the CIP process.

This inaugural post will focus on answering the following questions:

  • What is a Capital Improvement Plan?
  • What are the benefits of developing a Capital Improvement Plan?
  • What are the features of a Capital Improvement Plan?
  • What is the process of developing a Capital Improvement Plan?

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

What is a Capital Improvement Plan?

A Capital Improvement Plan (CIP) contains all the individual capital projects, equipment purchases, and major studies for a local government; in conjunction with construction and completion schedules, and in consort with financing plans. The plan 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 epicenter of a government’s Planning, Public Works, and Finance departments.

The CIP 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.

A CIP has two parts – a capital budget and a capital program. The capital budget is the upcoming year’s spending plan for capital items.

The capital program is a plan for capital expenditures that extends typically five to ten years beyond the capital budget.

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.

What belongs in a capital improvement 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) will include the following elements:

  • Estimated Overall Cost Of Each Project
  • Estimated Operational & 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 Improvement 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 are Capital Improvement Plans Developed?

Governments typically follow these steps when developing a CIP:

Step 1. Organizing the Capital Improvement Plan

CIP Governance

The process begins with deciding to prepare a CIP and Capital budget, and designating a lead department.

Although the budget or finance office typically begins the 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 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 process to involve citizens and important stakeholders (other capital facilities providers in the area).

Step 2. Identify Projects and Funding Options

We 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 them 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 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 insure 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).

Why Is The CIP Important?

The capital improvement plan (CIP) is a planning and management tool used by local government officials to create a 5-year plan for capital improvements. It is critically important and one of the major responsibilities for a government entity.

So, why is it important?

  • The CIP helps a community anticipate needs rather than just reacting to problems in the moment.
  • Planning ahead provides time for leaders to to get the necessary resources in place gradually, as opposed to all at once.
  • A CIP 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 CIP puts the community in position to quickly take advantage of federal or state grant programs and opportunities.

Related: 3 Ways Communities Use Capital Improvement Planning and OpenGov’s Cloud Software

The CIP 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.

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.

What's Next?

Check out the next entries from our Capital Improvement Planning series!

To learn more about Capital Planning, best practices, and how digital tools can make CIP easier, more collaborative, and transparent, download our eBook “Capital Planning in the Digital Era.”

Category: Capital Projects

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