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.
GFOA Best Practices
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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Other Links and Resources
GFOA Distinguished Budget Presentation Award winners (see “special recognition” column, filter for “capital”)