Chapter 4 Capital Improvement Planning, Programming, and Budgeting

1. Chapter 4 Capital Improvement Planning, Programming, and Budgeting

2. Capital improvement planning, programming, and budgeting Introduction The capital improvement program is a shared activity in organizations. It requires inputs from the planning, engineering, finance sections, and involves other units of the organization. The CIP might be managed by different offices, but close coordination is required among them.

3. Capital improvement planning, programming, and budgeting Introduction

4. Capital improvement planning, programming, and budgeting Planning process In a water, wastewater, or storm water utility, planning precedes (come before) design by studying facility needs. Although it should be continuous, planning may not occur until a specific event requires it, such as growth, regulatory controls, or a failure. Priority then goes up and the governing board asks staff to prepare plans for a particular problem.

5. Capital improvement planning, programming, and budgeting Planning process As shown in Figure, the process includes rational problem-solving steps and a political process in which the wishes of stakeholders are considered. (Nile river)

6. Capital improvement planning, programming, and budgeting Planning process These steps usually involve different stages of planning, from early to more advanced planning. In rational problem solving, the standard overall process is to recognize the problem (definition), set goals, find options, evaluate them, choose a course of action, and implement it. These steps involve data collection, studies, approvals, presentations, and many other tasks

7. Capital improvement planning, programming, and budgeting Planning process The political process enters at each step and raises questions such as: • Whose problem is it? • Who are the stakeholders? • What is their stake and influence? • What are the seen and unseen obstacles? • How do we navigate the minefield of public opinion to win approval? • What coalitions (mergers) can be gathered to increase chances?

8. Capital improvement planning, programming, and budgeting Planning process Recognizing (understanding) the problem and determining the need for water, sewer, and storm water systems means determining the need for changes in capital facilities due to: • growth, • obsolescence (age), • condition, regulatory controls, • or increasing reliability or service.

9. Capital improvement planning, programming, and budgeting Planning process Setting goals requires the balancing of supply and demand for the systems, while considering realistic scenarios for fund availability, growth, regulations, and other system parameters.

10. Capital improvement planning, programming, and budgeting Planning process Finding options is a creative process requiring information, knowledge, and experience with the systems. Finding options may also involve regional stakeholders who will partner with your system. Evaluating options requires the assessment of feasibility from technical, financial, social, political, legal, environmental, and managerial points of view.

11. Capital improvement planning, programming, and budgeting Planning process Evaluation is the stage at which analytical tools such as models, benefit–cost analysis, public participation, sensitivity analysis, and other such tools are used. Project options must be screened systematically, and the procedure used to eliminate options must be documented.

12. Capital improvement planning, programming, and budgeting Planning process To do this, the objectives of the project must be clearly identified, and measurable criteria to compare the options must be formulated. Multi-criteria decision analysis tools are useful for this process. It is not necessary to have a detailed analysis for each criterion, as long as the procedure uses the same level of accuracy for all options. For example, the estimated construction cost of project options should lead to a smaller set of options to be considered in greater detail.

13. Capital improvement planning, programming, and budgeting Planning process Implementing the plan may involve steps that go beyond the early stages of planning. New obstacles and possibilities sometimes occur in implementation. This opening the way for applying “adaptive management”— adapting to the new situation or information.

14. Capital improvement planning, programming, and budgeting From integrated plans to capital improvement programs Infrastructure systems require valid plans that flow from general integrated plans to more specific capital plans. Thus, an important part of the CIP process is the link between a capital project and the integrated plan, whether the systems involved are water, sewer, and storm water or other categories of infrastructure..

15. Capital improvement planning, programming, and budgeting From integrated plans to capital improvement programs An integrated plan considers links of infrastructure with planning objectives such as urban development and land use. Integrated plans are called “policy plans,” and are also known by names such as “Designing Tomorrow Today” Generally, they outline goals and strategies, and assess what must be done to achieve them. One might call these “framework” or “scoping” plans.

16. Capital improvement planning, programming, and budgeting From integrated plans to capital improvement programs Facilities or infrastructure plans must be translated into specific plans and programs. This requires a shift from the planning world to the engineering and financial worlds. In other words, integrated plans often do not carry any commitments, but once inside the engineering and financial worlds, the probability of implementation rises.

17. Capital improvement planning, programming, and budgeting Capital improvement programs Shifting from planning to programming involves an increase in commitment. There can be many plans before a commitment is made. Some refer to plans as “shelf art” because there can be so many of them on the shelf.

18. Capital improvement planning, programming, and budgeting Capital improvement programs Once a project is listed in a “program,” however, it implies that a commitment has been made to move ahead with it, including financing. Thus the capital improvement program is normally only published once definite decisions have been made to undertake projects in future years. These decisions may include a vote by a governing board or city council.

19. Capital improvement planning, programming, and budgeting Capital improvement programs Getting a planned facility onto a capital improvement program is actually only one step in the bureaucratic struggle over budget politics. In the budget process, if one gets a project on an official or approved list, there may be a better chance of being funded than if it is not on the list. Thus, departments strive (try hard) to get their projects on the “approved” capital programs list of an organization.

20. Capital improvement planning, programming, and budgeting Capital improvement programs A capital improvement program is a list of projects that an entity (some one) aims to implement under favorable circumstances. The uncertainty is about the intent (objective) and the ultimate capability to follow through with the intent.

21. Capital improvement planning, programming, and budgeting Water supply capital planning Water system plans include facilities for purposes such as these: • Growth — providing water supply to new areas • Obsolescence — replacing old, undersized pipes • Condition — renewing areas where pipes have deteriorated • Regulatory controls — upgrading to meet stricter water supply rules • Increase in reliability or service

22. Capital improvement planning, programming, and budgeting Water supply capital planning Planning for water supply is driven by: • demand, • flow rates, • location of demands, and • required quality of supplies. Estimates used to plan systems are normally based on • per-capita consumption, • peak demands, and • fire flows.

23. Capital improvement planning, programming, and budgeting Water supply capital planning AWWA Research Foundation offer a 20-step process to overcome budget constraints, environmental issues, multiple laws and agency authorities, limited resources, and special interests. The 20 steps include the following: identify stakeholders, review stakeholder issues, identify supply issues, assess water quality and quantity issues, develop alternatives, analyze alternatives, compare alternatives, rank alternatives, select preferred alternatives, implement, and, if necessary, modify alternatives.

24. Capital improvement planning, programming, and budgeting Water supply capital planning

25. Capital improvement planning, programming, and budgeting Wastewater system planning Examples of wastewater facilities planning include the following: • Growth — extension of gravity service to new areas • Obsolescence — replacement of outdated pipes or equipment • Condition — correcting an infiltration or inflow problem • Regulatory controls — upgrading a combined sewer overflow facility • Increase in reliability or service — solving backup or capacity problems

26. Capital improvement planning, programming, and budgeting Wastewater system planning Wastewater system planning for collection, treatment, and disposal starts where water supply leaves off and is driven by service demands and regulatory controls. Collection systems are planned to handle inputs to the system, treatment is planned to meet regulations, and disposal systems are planned to discharge liquid effluents and dispose of sludge residuals.

27. Capital improvement planning, programming, and budgeting Wastewater system planning Whereas water supply can deal with positive aesthetics, wastewater planning deals with external effects that include negatives such as odor and image problems. Additionally, wastewater treatment and disposal systems are downstream of cities rather than upstream.

28. Capital improvement planning, programming, and budgeting Storm water system planning Capital facilities for storm water have increased in importance with urbanization, flood problems, and non-point pollution. Examples of planning for storm water include the following: • Growth — provision of storm water to newly developed areas • Obsolescence — replacement of older, undersized systems • Condition — replacement of deteriorated storm water systems • Regulatory controls — expenditures to meet new state mandates • Increase in reliability or service — upgrading systems for bigger storms

29. Capital improvement planning, programming, and budgeting Storm water system planning Storm water systems are closely related to land use, and may involve multidisciplinary teams more than water supply or wastewater systems do. For example, in a new development, the storm water system may involve underground piping to drain streets, green strips as parkways and recreation areas, ponds to detain runoff and improve water quality, and other aesthetic enhancements. Thus, planning for storm water takes on a somewhat different character from that of water or sewer.

30. Capital improvement planning, programming, and budgeting Evaluation techniques and priority-setting In choosing water, sewer, and storm water investments, multiple criteria must be applied because the problem requires multi-criteria decision analysis (MCDA). The types of criteria to apply are the following:

31. Capital improvement planning, programming, and budgeting Evaluation techniques and priority-setting • Technological — does the plan promise to meet goals effectively? • Legal — is the plan legal and does it pass a test of legal feasibility? • Political — is the plan politically feasible? • Institutional — can the owner implement the plan in the long term? • Financial — does the plan have an acceptable rate of return? • Risk— does the plan bring unacceptable risk? • Social — to what extent are people impacted negatively? • Environmental — does the plan introduce negative environmental consequences? • Economic — does it pass a benefit–cost test?

32. Capital improvement planning, programming, and budgeting Evaluation techniques and priority-setting These criteria may seem difficult, but they are all applicable and a good plan will consider all of them. Notice that the criteria involve both quantitative measures and non-quantitative measures. It would be convenient if plans could be reduced to just numbers, but public decisions involve many issues that are not amenable to numerical comparisons.