Maintaining high-quality infrastructure is essential to the economic vitality and quality of life of communities. A good capital planning and budgeting process helps communities make smart investments in infrastructure and, thereby, investments in the future. A capital planning and budgeting process has three basic steps:
- Define scope of the capital improvement plan (CIP). A government must decide what constitutes a “capital project” and how far into the future it will plan. Processes such as needs assessment can help define the scope.
- Determine participants and select projects. A government must decide who will be involved in creating the CIP and then select projects to include in the CIP.
- Balance the CIP and connect to the budget. The capital investment choices must be financially sustainable, both in terms of the initial capital outlay and long-term operating and maintenance. Replacement costs and ongoing debt service should be part of a long-term financial plan.
- Manage the project. Capital projects must be carefully managed in order to come in on time, on budget, and within specifications.
Best Practices & Advisories
GFOA identified the following best practices related to capital planning and budgeting.
- Multi-Year Capital Planning - GFOA recommends that state and local governments prepare and adopt comprehensive multi-year capital plans to ensure effective management of capital assets.
- Capital Planning Policies - GFOA recommends that governments develop and adopt capital planning policies
- The Role of Master Plans in Capital Improvement Planning - GFOA recognizes the role of Master Plans as one of the CIPs important elements and recommends that governments link the CIP to master plans.
- Environmentally Responsible Practices in Capital Planning - GFOA recommends that finance officers evaluate both the financial and non-financial impacts of a project including environmentally-responsible measures
- Communicating Capital Improvement Strategies - GFOA recommends that organizations develop a communications plan for public participation focused on explaining capital needs, options, and strategies and facilitating feedback in advance of any major capital program.
- The Impact of Capital Projects on the Operating Budget - GFOA recommends that governments discuss and quantify the operating impact of capital projects in the budget document.
- Technology in Capital Planning and Management - GFOA recommends that finance officers take an organizational-wide approach to using technology for capital program management.
- Capital Project Monitoring and Reporting - GFOA recommends that jurisdictions establish policies and processes for capital project monitoring and reporting.
- Long-Term Financial Planning - GFOA recommends that all governments regularly engage in long-term financial planning.
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