Why Do Capital Planning?

1. LOCAL GOVT. FINANCE:An Introduction toCAPITAL PLANNINGAlan Probst, Local Government SpecialistLocal Government CenterUniversity of Wisconsin – ExtensionRob Burke, Community Development EducatorDoor County UW-Extension (920)746-2260 robert.burke@ces.uwex.edu

2. Why Do Capital Planning? Failure to plan virtually assures that scarce resources will be consumed in reacting to crises and that critical facilities, infrastructure, and equipment will continue to deteriorate.

3. Why Do Capital Planning? • Helps local officials think through complex economic development and financial decisions • May avert some of the expensive mistakes that frequently result from crisis management • Lenders and bond raters expect it

4. Capital Improvement Plan (CIP) • Most capital planning is done as part of a Capital Improvement Plan (CIP) • Capital Improvement Plans commonly cover a five year period starting with the next budget year and are updated annually

5. Major Elements • An inventory of present physical assets • A maintenance and replacement schedule • A time-table and estimate of future needs

6. Considerations • A complete financial analysis of historical revenues and expenditures is strongly recommended • Correlates to pre-approved documents and ordinances, i.e. doesn’t conflict with approved Comprehensive Plan

7. Where to Start? Step One: Establish a process • Local officials need to establish the process by which they will do their capital planning • May plan with officials and internal staff • May appoint a Planning Advisory Committee

8. Step Two Ensure someone is appointed to coordinate the effort • If there is a County Administrator, Administrative Coordinator, City Manager, Village Administrator appointed, that person is the logical choice • If none available, a professional planner is a good alternative

9. Step Three Identify what is and is not a capital project or purpose • This can differ based on the type of local government, population, budget size, or other unique factors

10. Criteria • Capital expenditures are relatively expensive • They have a useful life expectancy of more than one year • May want to set a minimum life expectancy to be considered “capital”

11. Criteria • Governments commonly set a number, such as $10,000, for a threshold as to what constitutes a capital purchase or project • Some purchases, such as IT equipment, may not reach the dollar threshold but are still commonly managed under capital projects for ease of tracking

12. Common Capital Assets • Infrastructure (roads, bridges, sewers, storm sewers, curb and gutter, street lights) • Buildings (administration buildings, libraries, museums, treatment plants, jails, pools) • Equipment (fire trucks, police cruisers, generators, snow plows, IT equipment) • Land (parks, gardens, tree nurseries, waterfronts, industrial park land)

13. Step Four Identify the revenue sources to be used to support capital projects. • Capital projects may be funded through general revenue, grants, designated revenue funds, special taxes or fees, or some form of debt.

14. Common Revenue Sources • General Fund/General Revenue • Grants (remember matching requirements) • General Obligation (GO) Bonds • Local borrowing • Revenue Bonds • Special Assessments • Impact Fees & User Fees • State or Federal “Pass Through Financing” • Partnerships & donations • Tax Incremental Financing

15. Guiding Principles • Borrowing for operating expenditures is generally considered financially unsound • Borrowing for capital projects is considered essential financial decision-making • Borrowing for capital projects requires effective debt management

16. Guiding Principles The key is managing debt so you borrow for the right projects at pre-determined borrowing points that maximize the government’s borrowing efficiency

17. Guiding Principles • Effective debt management can minimize interest cost and even stabilize local government financial positions • Periodic review of debt and re-financing when conditions are favorable are essential to effective debt management and capital planning

18. Step Five Inventory current capital assets • Most such base information should be readily available through the government’s insurance carrier • Needed for accountability and usage tracking

19. Relation to GASB 34 GASB 34 is an inventory of all public works related assets • Values of bridges, roads, facilities • Based on life-cycle costing • Relates directly to asset inventory needed for capital planning.

20. Step Six Prioritize • It is unlikely in local government that there will ever be enough funds, resources, or staff time available to pursue every capital project which can be justified • Local leaders must prioritize to ensure the right projects are kept when the resources run out

21. Step Seven Staff input • Verify condition of existing infrastructure and equipment • Develop a list of needs and suggested projects • Submit to “Coordinator” for consolidation

22. Step Eight Evaluate Staff Recommendations • Compare staff recommendations with established priorities • Compare with available revenues • Make adjustments for a draft plan

23. Step Nine Public Input • Comply with Wisconsin Open Meetings Law • Informal involvement or public hearing • Public hearing will be required at time of adoption

24. Step Ten Finalize Plan and Adopt • Make Final Adjustments • Can adopt as part of annual budget process • Adopt by resolution

25. Points to Remember • The capital plan is a flexible document • Can be changed when the situation requires • As a “Plan” it is not “cast in stone”

26. Steps • Establish a process • Appoint a coordinator • Identify what is and isn’t a Capital Project • Identify supporting revenue sources • Inventory current assets • Prioritize • Collect staff input • Evaluate and make adjustments • Public input/Public Hearing • Finalize and adopt by Resolution

27. Information Source www.uwex.edu/lgc/