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Local Government and School Accountability

Capital Planning and Budgeting

A Tutorial for Local Government Officials

Module 2 - The Capital Budget
Overview

As with any budget, the main function of the capital budget is to help control expenditures. Spending limits are set by the local government's governing board through the adoption of the capital budget and through the authorization for individual capital projects. Just like an annual operating budget, a multiyear capital budget can require difficult decisions and involves the balancing of limited resources with seemingly unlimited demands. The good news is that all the groundwork will make the decisions easier and not everything has to be accomplished and paid for in a single year. Within fiscal constraints, the nature and importance of individual projects will dictate which ones will be accomplished in year one and which ones will be accomplished in years two, three, four and beyond.

The capital budget is generally adopted at the same time as the local government's annual budget and may either be a section of that budget or attached as a separate document. When the latter occurs, the Government Finance Officers' Association (GFOA) recommends that certain highlights from the capital budget be contained in the operating budget and offers guidelines on this in recommended practices documents it has issued in 2007 and 2008.

The capital budget's financial overview lists the capital projects to be funded in the current year and the funding source, as well as expenditure projections (a sample financial overview can be found here [pdf]). For smaller municipalities, the entire capital budget may be a single page.

A detailed description of each project should be listed in the capital budget, along with a statement of purpose, the method of financing, and a schedule for completion.

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