Capital Budget Presentation

GFOA has several best practices that should be incorporated into the presentation of the capital budget.  These best practices include

1. capital planning policies,
2. master plans and capital improvement planning,
3. multi-year capital planning,
4. capital asset management,
5. communicating capital improvement strategies, and
6. capital project monitoring and reporting.

In addition, the capital presentation should include a summary/highlights section, project detail on major capital items, and operating impacts. An exceptional capital presentation enhances the transparency and accountability to citizens. It gives a broader context for citizens to understand major components of the  capital budget.

1. Capital planning policies. Capital planning policies should be included as part of the overall financial policy section of the entity. The policies essentially set up the “ground rules” on how the organization will approach capital planning. Capital planning policy items may include such items as a clear definition of capital projects, the role of the various stakeholders in the process, financing policies (debt options versus pay as you go), funding sources, multi-year requirements, legal requirements, and monitoring oversight.
2. Master plans and capital improvement planning. The presentation of the capital section should include a linkage with how CIP decisions relate to master plans. This can be done through diagrams, tables, and/or discussion.
3. Multi-year capital planning. The capital budget should have a direct link to the multi-year capital improvement plan. The multi-year capital plan should identify needs, determine financial impacts, prioritize, and include a comprehensive financial plan. In addition, assumptions for sources and uses need to be identified. This would include contingencies as well.
4. Capital asset management. Major categories under capital asset management include condition ratings and service reliability. Presenting this information can be a good selling point for aspects of the capital program.
5. Communicating capital improvement strategies. The strategy of the capital improvement plan needs to be communicated to stakeholders with corresponding feedback. This can be done through a clear message and the use of various presentation methodologies including signage, press articles, website, social media, interest groups, public meetings, use of media, and a budget document.
6. Capital project monitoring and reporting. When presenting capital planning information, there is a need to decide what data is relevant for both the internal and external stakeholders. Systems need to be in place to make sure that the data presented for projects is accurate for both timing and dollars.
7. Highlights/Summary. The capital presentation should focus on both sources and uses. The government should indicate the total dollar amount of capital expenditures for the budget year and for the multi-year plan. The capital plan sources and uses summary should include all projects (regardless of fund) that fit within the government's definition of capital expenditures. This information can be presented by fund, category, priority, strategic goal, or geographic location. The government should identify the funding sources for the same time period as expenditures. Pie charts are useful for identifying components, while bar charts show specific trends (historical and future). A budget overview or separate budget in brief could be included that presents both operating and capital highlights. Capital projects should be broken out between recurring and non-recurring. Recurring capital projects are those that 1) are included in almost every budget and 2) have a regular replacement cycle. Capital projects could be grouped by category, department, type, function, or funding. Unfunded projects should be summarized.
8. Individual Capital Project Detail. Including individual capital project detail for major projects can be a very effective communication tool. To avoid placing excessive detail in the capital section of the budget document, consideration may be given to placing the additional information on the web or in a separate capital document. Detail for major projects should include:
   1. Description. For significant and/or non-recurring capital expenditures, the document should concisely describe these items (i.e. indicate the project’s purpose and funding sources) and indicate the amount appropriated for the project during the budget year(s).
   2. Timetable. Showing a timetable for different phases of a project is very informative. Capital project schedules can be presented on the individual sheets.
   3. Graphics. Legible graphic illustrations (pictures or maps) can add value to a capital project presentation.
   4. Links to Other Plans. Governments may consider indicating on the individual capital project sheets what specific goals that the capital project is fulfilling.
   5. Revenue and Expenditure Estimates. The individual project dollar estimates should be broken out by revenue type and expenditure component.
9. Operating Impacts. Governments should discuss and quantify the operating impact of capital projects. The impacts should be identified on an individual project basis, but may be summarized.
   1. Policies: A specific policy on operating impacts should be included under the capital section in the financial policies of the government. A rule might be established that the capital improvement program may not be submitted/approved until specific dollar impacts are noted.
   2. Assumptions. Items to consider when making assumptions include:Timeframe to determine when costs, savings or revenue will start. For example, first-year startup costs will likely differ from costs in successive years when savings may be realized.
      1. Various anticipated phases of the project.
      2. In-house or external operations.
      3. Type of work being done.
      4. Whether the costs, savings, or revenues are recurring or non-recurring. For example, replacement and maintenance costs may occur on alternating or periodic years rather than annually over the life of a capital asset. A government should analyze the cycles for such up-keep costs and plan accordingly.
   3. Classification. Operating impacts can be classified into one of three elements or a combination of the three. These include increased revenues, increased expenditures or additional cost savings. When possible, included specific dollar quantification with accompanying discussion of the impact.
      1. Increased revenues may be the result of additional volume, like opening a new train line, a new swimming pool, or a sports facility.
      2. Increased expenditures are often the result of a new facility, like a school building, fire station, etc. This would result in additional headcount and associated expenditures. Expenditures can be broken out by component.
      3. Savings may result from a number of items such as more efficient energy savings, more productive software, and lower maintenance and repair expenditures.