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CAPITAL IMPROVEMENT PROGRAM 1 The purpose of this policy paper is to develop an understanding of the importance of capital improvements programming and provide the City with a framework for making best use of scarce financial resources in highly uncertain times. WHAT IS CAPITAL IMPROVEMENT PROGRAMMING? It is a multi-year scheduling of public physical improvements based on studies of available fiscal resources and the need for specific improvements to be constructed in the future. Although a long-term program does not necessarily have legal significance and does not necessarily commit the City to a particular expenditure in a particular year, it provides an identifiable framework for informed decision-making. WHAT IS THE IMPORTANCE OF CAPITAL IMPROVEMENT PROGRAMMING? Many aspects of the capital improvement program can have profound impacts on the development of the City and the fiscal integrity of the government. Programs expanding or improving public services can influence the timing and location of new development while fostering preferred long-term growth patterns. In addition, the capital improvement program represents the community's approach to implementation of the comprehensive plan. WHAT IS A CAPITAL IMPROVEMENT? A common definition of a capital improvement includes new or expanded physical facilities that are relatively large, expensive, and permanent. An extremely important fiscal planning principle underlying this definition is that capital improvements should include only those expenditures for physical facilities with relatively long-term usefulness and permanence. Accordingly, those expenditures are normally financed on a long-term basis or through grants acquired from other governmental agencies. Capital improvements should not include expenditures for equipment or services that prudent management defines as operating budget items and which ought to be finances out of current revenue resources. BENEFITS OF A CAPITAL IMPROVEMENT PROGRAM An effective capital improvement programming process can: 1. ensure that plans for community facilities are carried out. 2. allow improvement proposals to be tested against community's policies and objectives. 3. better schedule public improvements that require more than one year to construct. 4. provide an opportunity, assuming funds are available, to purchase facilities for future municipal use. 5. provide an opportunity for long-range financial planning and management. 6. help stabilize tax rates through intelligent debt management. 7. offer an opportunity for citizens and public interest groups to participate in decision making. 8. contribute to a better management of City affairs. 9. permit a thorough technical evaluation of the justification for each improvement. 10. enhance the orderly growth of the revenue base. 11. provide basis for desired urban growth patterns. FISCAL POLICIES Careful fiscal analysis and the adoption of specific fiscal policies must be the foundation of the Capital Improvement Program. Long-range financial studies and forecasts must be made. At a ---PAGE BREAK--- CAPITAL IMPROVEMENT PROGRAM 2 minimum such analysis should include the preparation of tables showing the amortization of all outstanding debt. These forecasts focus on the local general economic situation and the extent to which it may affect long-term local government revenues. Anticipated revenues must then be compared with anticipated expenditures for capital improvements, personnel services, and other costs must be projected to determine whether projected revenues and expenditures are in balance or whether surpluses or deficits are forecast. Fiscal policies should address such issues as: 1. the maximum amount of debt the local government is willing to assume. 2. the type of revenue devices that will or will not be used. 3. the annual amount of debt service that the operating budget can absorb. 4. the specific types of projects or facilities that must be self-sufficient through user fees or other charges. 5. the degree to which the City will seek state or federal grant-in-aid. Fiscal policies may be related to strategic community objectives such as: 1. expenditures targeted in support of economic development objectives that are most likely to maintain or attract an industrial or commercial base, create new jobs or generate private investments in neighborhood revitalization. CHOICE-PRIORITIES The setting of priorities continues to be a vexing problem. Choosing what project will be built is the most crucial step in the Capital Improvement Program process. Projects should be evaluated with regard to their effectiveness in achieving community goals. The evaluation should consider factors such as: 1. extent proposal will encourage capital investment, improve the City's tax base, improve job opportunities, attract consumers to the City, or produce public or private revenues. 2. extent proposal may be cost-effective in terms of capital and probable operating costs. 3. extent proposal cost is justified in terms of number of persons to be benefitted. 4. extent proposal eliminates conditions detrimental to health, safety, and general welfare of the community. 5. extent proposal improves the City-wide distribution of related services. 6. extent proposal meets a community obligation to serve a special need of a segment of the City's population. 7. extent proposal would offer opportunities for improving the quality of life for citizens in terms of personal enrichment and living conditions. 8. extent proposal may improve environmental quality of the City and its neighborhoods. 9. extent proposal appears to be coordinated with other public or private projects or facilities. 10. extent proposal appears to leverage private, state, or federal resources. 11. extent proposal represents the best alternative to achieving a community goal. 12. extent proposal complements the comprehensive plan and desired long-term urban growth patterns. 13. extent proposal realistically addresses operating and maintenance costs of a capital improvement project. SUMMARY High interest rates, ever escalating energy-related costs, inflation, and general economic uncertainty will have a major impact on the City's capital improvements programming financed through the issuance of short-term notes and long-term bonds. ---PAGE BREAK--- CAPITAL IMPROVEMENT PROGRAM 3 In this period of double digit inflation, it is increasingly important for the City to maintain its excellent rating on outstanding notes and bonds. This will require exemplary management practices and financial administration on the part of City officials. Current indicators do not reflect significant improvement in economic conditions in the foreseeable future. This will require fiscal constraint on capital improvement expenditures. A strong discipline must be adopted to prevent any negative impact on the City's operating budget and preserve the fiscal integrity which has taken years to achieve.