Transcript LOCAL GOVT. FINANCE: An Introduction to CAPITAL PLANNING

LOCAL GOVT. FINANCE:
An Introduction to
CAPITAL PLANNING
Alan Probst, Local Government Specialist
Local Government Center
University of Wisconsin – Extension
Rob Burke, Community Development Educator
Door County UW-Extension (920)746-2260
[email protected]
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.
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
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
Major Elements
An inventory of present physical assets
A maintenance and replacement
schedule
A time-table and estimate of future
needs
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
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
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
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
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”
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
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)
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.
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
Guiding Principles
Borrowing for operating expenditures
is generally considered financially
unsound
Borrowing for capital projects is
considered essential financial decisionmaking
Borrowing for capital projects requires
effective debt management
Guiding Principles
The key is managing debt so you
borrow for the right projects at predetermined borrowing points that
maximize the government’s
borrowing efficiency
Guiding Principles
Effective debt management can
minimize interest cost and even
stabilize local government financial
positions
Periodic review of debt and refinancing when conditions are
favorable are essential to effective debt
management and capital planning
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
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.
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
Step Seven
Staff input
Verify condition of existing
infrastructure and equipment
Develop a list of needs and suggested
projects
Submit to “Coordinator” for
consolidation
Step Eight
Evaluate Staff Recommendations
Compare staff recommendations
with established priorities
Compare with available revenues
Make adjustments for a draft plan
Step Nine
Public Input
Comply with Wisconsin Open Meetings
Law
Informal involvement or public hearing
Public hearing will be required at time
of adoption
Step Ten
Finalize Plan and Adopt
Make Final Adjustments
Can adopt as part of annual
budget process
Adopt by resolution
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”
Steps
1.
2.
3.
4.
5.
6.
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9.
10.
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
Information Source
www.uwex.edu/lgc/