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Local Government and School Accountability

Capital Planning and Budgeting

A Tutorial for Local Government Officials

Module 1 - The Capital Improvement Plan

Benefits of Capital Planning

Long-term planning for capital assets can provide local officials with benefits beyond the assured continuance of municipal services. Multiyear capital planning allows a local government to coordinate projects and acquisitions, and schedule orderly replacement or rehabilitation of existing assets. Failure to develop a plan is likely to result in resources being “allocated by crisis,” while essential buildings, equipment and infrastructure are neglected and deteriorate.

Capital planning can improve a local government’s bottom line. Planning ahead for these costly purchases can allow managers time to increase the down payment, thereby lessening the amount to be borrowed and reducing the associated costs. It also gives managers time to obtain the best purchase price and seek alternative financing sources (e.g., State and federal aid). Long-term capital plans can also allow managers to spread the acquisition costs over a number of years so that no one budget year is overburdened with several capital purchases. Similarly, the planned replacement of aging assets can prevent costly emergency purchases from inflicting havoc on operations, budgets and tax rates. A good plan can also help a municipality improve its bond rating, thereby lowering borrowing costs.

In addition, a documented plan helps guide management in decision making, helping them to establish priorities and determine needs. Capital planning assists in determining the cost effectiveness of maintaining existing assets versus acquiring new ones. Local officials are able to identify which assets need attention in any given year. It is also an opportunity to keep the public informed and to solicit public input.

By linking a multiyear capital plan to a concurrent strategic plan, managers can effectively plan for the acquisition of those assets that will help achieve their government's strategic goals. Multiyear capital planning can also augment a municipality’s economic development policies. Plans can be made for infrastructure improvements and other amenities that would make the local government more attractive to businesses, homeowners and/or tourists. Such long-range plans would signify a pledge to invest in the community.

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