Distinguishing Capital Projects from Maintenance Needs

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.

Related: Top Planning Mistakes Made By Local Government

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.

Next week, we will delve into tips for organizing the Capital Improvement Planning process.

What’s Next?

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