Local officials are responsible for providing and maintaining capital assets and infrastructure within their jurisdiction. In order to fulfill this responsibility, local officials should develop a long-term capital plan to manage their capital assets adequately and efficiently. The plan should be linked to periodic needs assessment (what do we need) and the budgetary process (what can we afford).
Capital assets are generally defined as those assets used in operations which have expected useful lives (i.e., the period during which the asset is reasonably expected to be used) of more than a year. These include buildings and other facilities, water and sewer infrastructure, streets and highways, equipment, vehicles and machinery. Like any portfolio, these assets need to be actively managed to ensure that the most value is received from this considerable investment.
Acquiring capital assets or financing capital improvements often requires significant cash outlays. Capital assets such as machinery and equipment eventually break down and need replacement, and roads and buildings need repair and renovation. If adequate attention is not given to asset replacement and maintenance needs, what typically happens is that the local government operates in a crisis or emergency environment. This is not the most efficient or economical approach to replacing or repairing capital assets. Multi-year capital planning can help avoid this situation.
A capital plan provides many benefits, including:
Working through the following questions will provide a basis for developing a long-range capital plan:
After answering these and other questions, the governing body should create a multiyear capital plan, which is a long-term plan that details when and how capital purchases will be made and paid for. The plan should include:
A typical plan will list each capital asset along with its replacement cost, ideally adjusted for inflation, and expected lifetime. The effective annual cost of an asset can be found by dividing its replacement cost by the number of years it is expected to be in service. Adding the annualized costs for all assets will then determine the amount that needs to be considered for asset replacement during each year of the capital plan.
After the plan details are in order, the governing body should seek public input and formally adopt the capital plan. The board should revisit the plan annually as a part of its budget process and make necessary adjustments, and monitor plan results over time to determine how well goals and objectives are being achieved.
Funding for capital projects can come from any combination of State or federal sources, local funds or the proceeds of debt. State and federal funding sources include grants, low interest loans, or direct provision of equipment, labor or services. Local funding sources include fund balances, reserve funds, annual budget appropriations, proceeds from sales of existing assets, payments under intermunicipal cooperation agreements with other local governments, and private sources such as gifts and donations.
For projects funded through borrowing, principal and interest payments must be budgeted each year to retire debt. Similarly, lease payments must be budgeted each year to pay for leased equipment.
Consider the annual budgetary impact of capital acquisitions, some of which will require extra expenses such as wages, supplies, maintenance and insurance. Others may result in cost savings, such as lower maintenance or energy costs for replacement equipment, or revenue generation from user fees.
General Municipal Law
Local Finance Law
The following Local Government Management Guides from the Office of the State Comptroller's Division of Local Government and School Accountability, available at www.osc.state.ny.us/localgov/pubs/listacctg.htm#lgmg, contain further information regarding capital assets and planning: