Capital Improvements Program For Yachats, Oregon December 2004 * * * * Draft Document – November 29, 2004 * * * *
What is a Capital Improvement Program? The Capital Improvement Program (CIP) is a plan for the financing of construction, major rehabilitation and other capital projects. The plan includes provision for planning and design, development of new facilities, rehabilitation or restoration of existing facilities, acquisition of land for specific development purposes, and the replacement of motor vehicles and major equipment. The projects included in this program have been determined to be essential, as well as beneficial, to the community. Capital Improvement Plans often improve a municipality's bond ratings and lower interest costs due to prudent fiscal management. Often times, this is a benchmark of the overall fiscal health of a local government. At its essence, the CIP is a long-range financial planning tool to address the community needs in the long-term future for improving streets, drainage, parks, public facilities, utilities and other city functions. Through this process, the city schedules the improvements over time and in so doing, is able to afford them. A capital improvements program is composed of two parts -- a capital budget and a capital program. The capital budget is the upcoming year's spending plan for capital items (tangible assets or projects that cost at least $5,000 and have a useful life of at least five years). The CIP is a plan for capital expenditures that extends five years beyond the capital budget. Development of a CIP that will insure sound fiscal and capital planning requires effective leadership and the involvement and cooperation of all municipal departments. For that reason, this process places responsibility for overseeing the CIP process with the City council, which appoints a CIP Sub-committee. The Sub-committee begins the CIP process by forwarding its recommended capital budget and program to the city council. The council reviews the proposal, holds public hearings and adopts the capital spending plan. The first year of capital expenditures are then incorporated in the proposed budget for the next fiscal year by the City Recorder. The CIP plan represents the best efforts to allocate available resources toward projects that provide the most benefit for the citizens of Yachats. The CIP will be reviewed each year to reflect changing priorities and provide a framework for identifying capital requirements and the impact of capital projects on operating budgets, scheduling, and coordinating related projects. A CIP has the following benefits:
Implementing a Capital Improvement Program Step One Adopt a CIP Ordnance and Appoint a CIP Sub-committee In order to establish a formal CIP process, the city should consider adopting an ordnance to create and empower a CIP Sub-committee. The City Council may also want to consider adopting formal policies to guide the city's capital improvement process and debt management. While it is not necessary to adopt a CIP bylaw or formal debt and CIP policies to establish a sound CIP process, such formal guidelines can provide valuable direction. The CIP Sub-committee should prepare a timetable for completing the CIP process. This schedule should be given to all local officials involved in the CIP process. The sample CIP schedule on the following page outlines each of the steps required to complete the annual CIP process. This schedule is based on an April 15 CIP completion date so the results can be included in the proposed budget for next year.
Capital Improvement Planning Schedule
Step Two Prepare an Inventory of Existing Facilities The initial task for the CIP Sub-committee is to prepare a complete inventory of all city properties and assets. At a minimum, the inventory should include all buildings and equipment; it is desirable for the inventory to include utilities, water production facilities and distribution systems, roads and wastewater treatment facilities and collection systems as well. The inventory should include documentation on the need for renewal, replacement, expansion or retirement of all physical assets. The inventory should also include 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. Determine the Status of Previously Approved Projects The next step is to identify projects underway, determine whether additional funds are required, and determine the amount of unspent funds available from completed and discontinued projects. The benefit of this update is that officials involved in the budget process will be kept informed of the progress of projects approved in prior years. The results of this analysis should be reduced to a written report which should be included with presentation of the capital budget and program by the Sub-committee. It should be completed before department heads submit their requests for new projects (Step Five). Step Four Assess the City’s Financial Capacity With the assistance of the people knowledgeable about the city’s finances, the Sub-committee should analyze the city's ability to afford major expenditures. This analysis should examine recent and anticipated trends in revenues, expenditures, debt and unfunded liabilities such as pension costs. The analysis should be included with the Sub-committee's presentation of the capital budget and program to the City Council (Step Eight). This financial analysis will permit the scheduling of funding sources to:
Solicit, Compile and Evaluate Projects The CIP Sub-committee should solicit departmental recommendations for CIP projects. Each department submits requests which include a clear statement of the need and justification for the project, its costs, its net effect on the operating budget, and an implementation schedule. The Sub-committee then evaluates each request and meeting with the requesting department head or board member, if necessary. Among the questions the Sub-committee should answer are:
Establish Project Priority In this step the proposed projects are ranked in priority as objectively as possible. This is perhaps the most difficult aspect of the Sub-committee's duties, although the adoption by the City council of Capital Improvement Budget Policies and Debt Policies (such as Exhibits II and III in the Appendix) can provide helpful guidance. In addition to adopted policies, a rating sheet also encourages objectivity. It can assist the Sub-committee in the development of numerical ranking of projects and help in the setting of project priorities. Using a rating guide can provide assistance in evaluating projects according to criteria and translating subjective project information and the Sub-committee’s independent analysis into objective numerical weights. These weights can guide the Sub-committee in establishing project priorities. The CIP Sub-committee should review each project utilizing a consistent set of criteria. The Sub-committee should evaluate each project in relation to other projects and determine their relative importance. This will permit the Sub-committee to establish project priorities based on both the community's goals and objective analysis. Develop a CIP Financing Plan Based upon the adopted debt and CIP policies (Step One) and the assessment of the city's financial capacity (Step Four), the Sub-committee should recommend the method of financing each project. There are a number of ways to finance capital improvement projects. Some of the most common long and short-term financing options are: Long-Term Financing:
Short-Term Financing and other Service Provision options:
Adopt a Capital Improvement Program The CIP Sub-committee's completed report should be presented to the City council for review and adoption. The report should include a summary of the CIP Sub-committee's recommendations for the upcoming year's Capital Budget and the following years' Capital Program. A detailed project description should be prepared by the CIP Sub-committee to reflect its final recommendation on each specific project. It presents all that is known about each project in a manner that is conducive to discussion and decision. A City Project Summary is the final document that is presented to the council as the CIP Sub-committee's recommended Capital Budget and Program covering the next six years. If the City Council would like additional information about requested projects, they may review copies of each project request forms. The City council may hold its own public hearing to present the CIP and solicit further citizen comment. The City council then considers (and may amend) the proposed Capital Budget and Capital Program and forwards them to the Budget Officer. The Budget Officer reviews the capital expenditures for the next fiscal year and incorporates them in the proposed budget during the annual budget process. Since all capital budget items have been subjected to two public hearings and reviewed by both the CIP Sub-committee and the City Council, it would be unusual for the budget committee to make modifications to capital items without the consent of the City Council. This process provides a clear and open planning process for city capital expenditures. It ensures that all capital expenditures are evaluated on an equal basis and should deter special interest attempts to channel capital budget dollars into pet projects.
Step Nine Monitor Approved Projects Once the city has adopted the Capital Budget and the fiscal year begins, departments are authorized to begin project implementation. The city council, through its CIP Sub-committee, should monitor the efforts of the departments. Periodic reports by the CIP Sub-committee to the council should indicate changes in the targeted completion dates, identify serious problems, and document the financial status of each project. Those reports may be based on project updates provided by the responsible departments on a quarterly or other regular basis. These updates should provide the information necessary to complete Step Three, determining the status of approved projects.
Step Ten Update Capital Program Subsequent annual updating of the Capital Program involves repeating Steps Two through Nine to reflect new information, policies and proposed projects. The CIP Sub-committee should review and revise the entire program as necessary to reflect its most recent determination of the need for equipment, maintenance of equipment, the city's social and environmental conditions, the development or revision of financial policies, and the community's financial resources. After the first year has been budgeted, one year is added to the Capital Program and the remainder of the plan updated. This completes the CIP process.
Appendix Exhibit I Bylaw Creating a CIP Sub-committee Exhibit II Capital Improvements Budget Policies Exhibit III Debt Policies
QUESTIONS OR COMMENTS? Last Modified:10121/28/04
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