Author: Financial Management Resource Bureau
The Importance of a Capital Improvement Plan
A capital improvement program (CIP) provides a blueprint for planning a community's capital expenditures and is one of the most important responsibilities of local government officials. It is a strategic tool that outlines the municipality’s long-term infrastructure needs and its financial capacity to achieve them. A well-developed CIP will ensure sound fiscal and capital planning and is critical for several reasons:
1. Prioritization and Efficiency: A CIP helps prioritize projects based on urgency, impact, and available resources. This prioritization ensures that the most critical needs are addressed first, promoting efficient use of public funds.
2. Cost Savings: By planning capital expenditures over the long term, municipalities can avoid the higher costs associated with emergency repairs. This proactive approach often leads to significant cost savings. Additionally, investment in capital can yield on-going savings in the operating budget (e.g., energy efficiency projects, technology enhancements).
3. Sustainable Development: A well-thought-out CIP supports sustainable development by aligning infrastructure projects with the community’s long-term goals. This alignment helps in creating resilient and future-ready public services.
Communities should adopt a formal capital planning process to define the annual CIP development. The Division of Local Services (DLS) recommends the codification of this process though bylaw or charter. Doing so ensures year-to-year consistency in capital planning, regardless of turnover of internal staffing or appointed or elected officials. While this process can vary by community, a formalized process should clearly outline the following areas of capital planning:
- Definition of capital item or project
- Roles and responsibilities of municipal officials, boards, and committees
- Annual capital budget calendar
- Reporting requirements
DLS further recommends cities and towns adopt a capital planning policy as part of their general financial policies. A capital policy can provide guidance on funding sources and determine targeted annual revenue allocation for capital investment. Similar to process codification, policy adoption strengthens the capital process by providing parameters for funding and expenditure decisions, which will support consistent financial management over the long-term. Officials can view sample financial policies from the DLS Financial Management Resource Bureau here.
A comprehensive CIP is fundamental to developing the annual capital budget, the first-year component of the CIP that needs to go to the legislative body for funding approval. This process runs in tandem to the annual operating budget development and is a core element of strong financial management and long-term fiscal health. DLS offers a capital planning manual that is available for communities to use as a guideline to a strong capital planning framework. This manual also includes sample documents such as a project request form, capital planning calendar, and capital financing and budget tools.
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Editor: Dan Bertrand
Editorial Board: Tracy Callahan, Sean Cronin, Janie Dretler, Emily Izzo, Christopher Ketchen, Paula King, Jen McAllister, Jessica Sizer and Tony Rassias
| Date published: | November 21, 2024 |
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