Capital Planning Best Practices Planning...Budget Document (2008) Roll of the Finance Director in...

Presenters:

Date:

CAPITAL PLANNING BEST PRACTICES

• Laura Allen, Town Administrator, Berlin, MD• Tom Kelly, Finance Director, White Bear Township, MN• Karen Rhodes‐Whitley, Director Of Budget & Research, City

Of Plano, TX• Gary Donaldson, Revenue Chief, City Of Atlanta, GA

May 19, 2014

GOVERNMENT FINANCE OFFICERS ASSOCIATION

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Logistics

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This session is 100 minutes long. There will be time for Q/A at the end. Please use the microphones for Q/A

This session is worth 2 CPE credits Self-scan for credits or see a GFOA staff person

Please complete the session evaluation


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Our Speakers

Tom Kelly, Finance Director, White Bear Township, MN

Karen Rhodes-Whitley, Director Of Budget & Research, City Of Plano, TX

Gary Donaldson, Revenue Chief, City Of Atlanta, GA


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Roadmap for the Session

1. Understand effective capital planning and improvement programs

2. Learn how to better organize, manage, and implement effective capital improvement programs

3. Understand some of the issues of capital planning and improvement programs

4. Learn techniques through GFOA’s best practices

CAPITAL PLANNING BEST PRACTICES

Minneapolis, MinnesotaMay 19, 2014

Tom KellyFinance OfficerWhite Bear Township, [email protected]


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White Bear Township Founded in 1858 Located in northern Ramsey County Approximately 9.3 miles or 6,000 acres Population of about 10,900 Largest Township in Minnesota 5 non-contagious parts Governed by a three-member town board Town Hall was designed by Cass Gilbert designed MN State Capital, U.S. Supreme Court Bldg.,

and NY’s first skyscraper, the Woolworth Bldg. Voters approve tax levy


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Location of White Bear Township


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Advantages of Capital Planning

Focuses attention on organization’s goals, needs, and financial capability

Builds public consensus for projects and improves community awareness

Improve internal and external cooperation and communications

Avoids waste of resources Ensure financial stability


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Capital Planning Best PracticesDevelopment of Capital Planning Policy (2011)Multi-Year Capital Planning (2006)Communicating Capital Improvement Strategies

(2013)Capital Asset Assessment, Maintenance, and

Replacement Policy (2007 & 2010) Building Resiliency into Capital Planning Incorporating a Capital Project Budget in the Budget

Process (2007) Incorporating Environmentally Responsible Practices

in the Capital Improvement Program (2010)


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Capital Planning Best Practices

Linking Economic Development and Capital Planning Strategies (2011)

Presentation of the Capital Budget in Operating Budget Document (2008)

Roll of the Finance Director in Capital Asset Management (2011)

Roll of Master Plans in Capital Improvement Planning (2008)

Use of Technology in Capital Planning and Management (2011)


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Development of Capital Planning Policies (2011)

Background Assure the sustainability of a governments

infrastructure Can strengthen borrowing position Establish a framework in which stakeholders

understand their roles, responsibilities, and expectations for the process and end result


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Recommendation Description of how an organization will approach

capital planning Define what constitutes a capital improvement

project Establishment of a CIP review committee Description of the roll of others Identification of how decisions will be made in the

CIP process Require an assessment of the fiscal capacity


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Recommendation Procedure for accumulating necessary capital

reserves Policy for linking funding strategies with useful life of

the asset Require that a multi-year CIP be developed Process for funding Require the plan include significant maintenance

projects Provisions for monitoring and oversight of the CIP


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Preparing and Adopting Multi-Year Capital Planning (2006)

Background Capital assets are the foundation for providing

services The procurement, construction, and maintenance are

critical activity of the government and require careful planning

An important component of an entities economic development program and strategic plan

Essential to the future financial health if an organization


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Recommendation That governments prepare and adopt a

comprehensive multi-year capital plan The plan identifies and prioritizes expected needs

based on a strategic plan Should cover at least three years, preferable five or

more


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Recommendation CIP should include:Identify needsDetermine costsPrioritize capital requestsDevelop financing strategies


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Incorporating a Capital Project Budget in the Budget Process (2007) Background Once a multi-year CIP has been adopted, the next

step is to incorporate the CIP into the budget Recommendation The first year of multi-year capital plan should be

adopted by governing body Estimated cost, funding sources and operating

impact included in the operating budget Distinguished Budget Presentation Award

CAPITAL PRIORITIZATION AND FINANCING PLANS

Minneapolis, MinnesotaMay 19, 2014

Gary Donaldson, Revenue ChiefCity of Atlanta, [email protected]

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The American Society of Civil Engineers (ASCE) estimates that the U.S. has a $2.2 trillion infrastructure backlog and 1 in 9 of the nation's bridges are rated as structurally

deficient.

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Public school enrollment is gradually increasing yet national spending on school construction declined to $10 billion in 2012.

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ASCE report indicates that pavement deficiencies affect 38% of vehicle miles

traveled on interstates and 30% vehicle miles traveled on non-interstate arterials.

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• Federal or State Mandates: Consent Decree, ADA Requirement, or new regulatory requirements

• Urgent Need: Public health, safety or security threat; Infrastructure failure; degradation of service; legal mandate

• Planning Priorities: Direct implementation of Regional, Comprehensive, Small Area, and Neighborhood Plans

• Policy Priorities: Specific policy direction approved by the City Council

• Business Priorities: Implements department plan/policy; Addresses Business Plan Horizon Issues; tangible improvement to service delivery

• Impact Criteria: Sustainability (Economy, Environment, Society/Equity), Cost (O&M, revenues, leveraging)

Austin, Texas Prioritization Criteria

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Template of a CIP Criteria Scale

Criteria Description Rating Scale (1-9)

Required Project Is the project required to meet legal, compliance, or regulatory mandates?

1=not required/mandated5=pending requirement9= required or mandated

Strategic Alignment To what extent is the projectaligned with our government’s overall strategies?

1=no alignment with strategies5=partial alignment with strategies9=full alignment with strategies

Value to Citizens How much value will the outcome of this project bring to our citizens?

1=minimal value5=partial value9=high value

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Benefits of a Prioritization Matrix

• Structured: Provides a structured approach to achieving consensus position

• Objective: Mitigates the subjectivity in the decision-making process while prioritizing complex and unclear issues

• Transparent: Provides transparency for key stakeholders; citizens, businesses, community groups, elected officials, and legislative body

• Quantitative: Quantifies priorities through a numerical ranking of projects based on multiple criteria

• Multi-dimensional: Importance, Expense, Public Safety and Transportation

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White Bear Township, MinnesotaCapital Improvement Plan 2014-2018

Project Name:Priority Ranking:Project Type:Useful Life:Responsible Dept.:

Project Description & Justification:

Expenditures 2014 2015 2016 2017 2018 Total

Revenues 2014 2015 2016 2017 2018 Total

Operational Impact/Other Comments:

Operating Budget Impact 2014 2015 2016 2017 2018

Priority Ranking Weighting PriorityCriteria Factor Factor ScorePublic Health & Safety 1.50 0.00Employee Health & Safety 1.25 0.00Regulatory Mandate 1.50 0.00Frequent Problems 1.25 0.00Ability to Finance 1.00 0.00Cost of Project 1.00 0.00Generates Revenue 1.20 0.00Generates Cost Savings 1.20 0.00Ongoing Operation Costs 1.00 0.00Age or Condition of Existing 1.00 0.00Public Benefit 1.10 0.00Public Demand 1.25 0.00Synergy with Other Projects 1.10 0.00Strategic Goal 1.05 0.00Comprehensive Plan Component 1.05 0.00

Total Score 0.00

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Austin, Texas Prioritization Criteria

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CIP Committee: Centralized and Interest-Based Approach

• Involve Key Stakeholders:– Leaders, Neighborhood and Citizen Groups– Project Managers and Planners – Finance Experts– For Larger CIP Governments consider two tiers acting as two filter

stages for project evaluation and ranking– .– Tier 1- director level or agency head, legislative and executive branches– Tier 2- below director and agency head level, neighborhood and citizen

groups• Create Collaborative Environment• Focus on Interests and Not Positions:

– Allow for Creative Alternatives– Focus on Big Picture– Set Standing Meetings and Milestones

FiltersTier 2 Tier 1

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Cost Benefit Analysis

• Which costs and benefits? – Initial costs and operation and maintenance costs over

asset life cycle – Debt service costs– Cost of fringe benefits and post-retirement benefits– Cost escalation/inflation– Intangibles

• Cost/Benefit ratio; Investment to generate future cost savings; mitigate penalties or fines

• Analytic Techniques– Return on investment– Net present value– Internal rate of return– Pay back period

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CIP Review and Approval

• CIP Planning and Implementation: Annual schedule, timing of CIP development relative to operating budget development

• Identify and Prioritize New Capital Projects: Key Stakeholders, Community and Citizen Input

• Approval Authority: Use of Centralized approval authority comprised of broad and diverse stakeholders upfront is advisable particularly for referenda initiatives

• Capital Budget: Addition of new capital projects i.e. urgent requests or new mandates may take priority in first year of CIP (capital budget)

• Operating Budget: Capital Projects may have Operating Expenses implications that will need to be factored in the budget process

• Reporting and Monitoring: Important particularly for referenda projects and build trust with citizens

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CIP Committee Process Overview

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Financing Plan Options

• Capital Reserve (Pay-As-You-Go): Develop policy committing to annual appropriation i.e. % of depreciation and/or inflation indexed

• Capital Funds: Fund balance assignments targeted for capital and investment income on unrestricted cash

• Private sector and other contributions: Special Tax Improvement Districts, Developer Impact Fees and Utility Connection Fees

• Federal and State Grants: Community Development Block Grants, Transportation, Education, and Public Safety

• Debt, Double-Barreled General Obligation Pledge (Ad Valorem Tax and Other Revenues): Coordinate Voter-Referendum and include Other Revenues i.e. Sales Tax Authorization for Capital Projects, Security Pledge

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Municipal Option Sales Tax for Capital Projects

• Municipal Option Sales Tax (MOST): House Bill 709 passed on April 23, 2004 and allowed the City of Atlanta, Georgia voters to approve one cent sales tax for water and sewer capital projects

• MOST Use of Proceeds: Permissible uses include roads, streets, bridges, water, sewer, storm water, drainage, green space projects, and the issuance of General Obligation Debt

• Sunset Provisions: City Authorized Three Separate 4-Year Authorization Terms each subject to and received Voter Approval/Renewal

• Exportable Revenue: Jurisdictions with a strong tourist and convention base and increased day-time population allow sales tax to mitigate the local rate-payer burden

• Enhance Credit Quality: Pay-As-You-Go financing of MOST provides a substantial funding source for CIP without increasing the user or tax rate burden; provides ability to leverage MOST through a double-barreled G.O. bond pledge if needed which lowers interest rates through full faith and credit language

Presented By:Budget & Research Department

MANAGEMENT TEAMFY 2014-15 BUDGET KICK-OFF MEETING

March 25, 2014Karen Rhodes-Whitley, RTA/C, CPMDirector of Budget & Research

Karen Rhodes-Whitley, RTA/C, CPMDirector of Budget & Research

Capital Planning Best Practices


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Located 20 miles north of Dallas Population of 269,000 Explosive growth since 1980’s Started transition to a mature City Still have plenty of land for commercial development Recently announced Toyota Headquarter will be

relocating to Plano Combined budget of $500M - $100M CIP Approximately 2,200 employees Heavy reliance on property tax and sale tax

About the City of Plano


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Date Referendum Amount ApprovedMay, 2013 $ 98,313,000 $ 98,313,000May, 2009 $128,622,500 $128,622,500May, 2005 $144,802,000 $144,802,000May, 2001 $ 128,051,000 $ 112,415,000 May, 1998 $ 80,351,000 $ 80,351,000May, 1995 $ 59,045,000 $ 58,045,000Aug, 1991 – W&S $ 36,800,000 $ 0Jan, 1991 $125,000,000 $ 64,860,000Dec, 1985 – W&S $ 38,065,000 $ 38,065,000Nov, 1984 $172,770,000 $172,770,000

Bond Referendum History


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The Road to Victory – A Capital Bond Program Plan

City’s infrastructure• Streets• Major Water and

Sewer Projects• Flood Protection

(Drainage)• Traffic Signals

City facilities • Police & Fire

stations• Libraries• Convention

centers• Park and

Recreation facilities

• Cultural facilities

Acquisition of specialized equipment and property• Vehicles• Computer

hardware and software

• Open space

Economic development initiatives• Investments in

infrastructure for economic development

• Financing• Matching funds


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Key Bond Program Questions

Can I Afford It? Do I Need It? How much is the project really

going to cost? How much of your tax rate is

committed to debt service? Can you afford to issue existing

authorized bonds? Do I have a sufficient tax base Can you afford the cost of operating

your existing facilities? Can you afford the operating

cost of new facilities Are construction prices up or

down What are the interest rates and

where are they going

Does the project make sense strategically?

What is the driving force behind the project?

What is the desired outcome of the project?

Is the proposed project the best way to achieve the desired outcome?


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TO BE DISCUSSED BY CITY COUNCIL - MONDAY, OCTOBER 22, 201210/17/2012

Project 2013-14 2014-15 2015-16 2016-17 Total

Recreation Center

Jack Carter Pool Renovations 700,000 6,800,000 - - 7,500,000

O&M - - 106,955 106,955 213,910

High Point Tennis Center Renovation - 300,000 2,200,000 - 2,500,000

O&M - - 10,000 10,000 20,000

Liberty Recreation Center Expansion & Renovation 300,000 2,200,000 2,500,000

O&M - - - 170,000 170,000

Total Recreation Center Authority Needed 700,000 7,100,000 2,500,000 2,200,000 12,500,000

Total O&M - - 116,955 286,955 403,910


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TO BE DISCUSSED BY CITY COUNCIL - MONDAY, OCTOBER 22, 201210/17/2012

Project 2013-14 2014-15 2015-16 2016-17 Total

Street Improvements

*18th Street ‐ G Ave to West of K Ave - 200,000 1,013,000 - 1,213,000

*18th Street ‐ Jupiter to Dale Drive - 120,000 1,000,000 - 1,120,000

*Alley Recon ‐ Prairie Creek & Cloisters 241,000 - - - 241,000

*Alley Reconstruction 340,000 340,000 340,000 340,000 1,360,000

*Barrier Free Ramps & Sidewalks 100,000 100,000 100,000 100,000 400,000

Brand Road ‐ S of 544 to City Limits - - - 60,000 60,000

*Brennan, Knollwood & Casa Grande 150,000 1,200,000 - - 1,350,000

*Bridge Inspection/Repair 1,060,000 - - - 1,060,000

Chaparral Bridge (south half) @ Cottonwood Creek - - 200,000 1,000,000 1,200,000

*Computerized Signal System 250,000 250,000 250,000 250,000 1,000,000


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2013 BOND PROGRAM$153,762,000 NEW AUTHORITY

POTENTIAL 2013 REFERENDUM TAX RATE IMPACTISSUANCE OVER FOUR (4) YEARS

NEW DEBT ONLY

Cumulative Year Maximum (4-Year)New Issue Add'l O&M Total Dollar Impact*

$153,762,000 New Authority 4.61 0.45 5.06 $98.41

INCLUDING EXISTING DEBT

Cumulative Year Maximum (4-Year)New Issue Add'l O&M Existing Debt Total Dollar Impact*

$153,762,000 New Authority 4.61 0.45 -2.47 2.59 $50.37

* Average Home Value $243,118: Using 2012 Rates, this Assumes that the General Homestead Exemptions were taken forthe City of Plano (20%)


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Decide early on in the process if you are going to involve citizens in the process

Importance of relationship with Bond Council Process proposition ordinance Set the language – do not limit – make broad statements

• Example – “The Issuance of $11,338,000 general Obligation Bonds for Public Safety Improvements”

Assist with Bond Pamphlet and Video Language Ordering a Bond Election

State of Texas Election Laws City of Plano has to be no earlier than February 10th and no later than March 1st

Remember to notify citizens regarding the operating cost coming on-line Can’t open a Fire Station without firemen

State law says you must produce information in English and Spanish

Important Points to Remember


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Timing of the Election Election year of City Council Members

Promotion of the Bond Referendum Cannot be “for” or “against” Present facts only

Social Media and the part they play Mass Marketing – Pamphlets Budget Video

Important Points to Remember


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Capital Reserve Fund

Philosophy Fund established in 1985-86 $1M transfer from the General Fund Fund maintenance related projects Maintain and preserve infrastructure Considered a Government Finance Officers’

Association “Best Practice”


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Historical Analysis $925 million in infrastructure in FY 00 $1.6 billion in infrastructure in FY 12 $1.8 billion in infrastructure by FY 18-est. Methodology uses a 20 year life cycle for buildings

and 45 year life cycle for improvements other than buildings

Since 2000, depreciation value increased an average of 6% annually


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Funding Strive to maintain an annual contribution equal to

75% of the annual depreciation of the total assets of the City

Contributions from General Fund, Water & Sewer, rollback taxes, developer revenue and reimbursement from Collin County

Revenue transfer % of depreciation = 51% in FY 13 Projected revenue transfer % of depreciation = 75%

by FY 18


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0% 10% 20% 30% 40% 50% 60% 70% 80%

FY 00

FY 01

FY 02

FY 03

FY 04

FY 05

FY 06

FY 07

FY 08

FY 09

FY 10

FY 11

FY 12

FY 13

Transfer as a % of Depreciation


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Contributions FY 13 FY 14 FY 15 FY 16 FY 17 FY 18General Fund $12,875,000 $15,000,000 $17,200,000 $19,500,000 $22,000,000 $24,500,000Water & Sewer $3,000,000 $3,000,000 $3,000,000 $3,000,000 $3,000,000 $3,000,000Other Revenue $2,200,000 $2,200,000 $2,200,000 $2,200,000 $2,200,000 $2,200,000Total $18,075,000 $20,200,000 $22,400,000 $24,700,000 $27,200,000 $29,700,000Transfer as % of Depreciation 51% 55% 60% 65% 70% 75%


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Use of Resources Major renovations, restorations or repairs with an

expected useful life of ten (10) years Replacement cost exceeds ten percent (10%) of the

prorated replacement costs of an asset No project shall exceed forty five percent (45%) of

the prorated replacement costs of an asset Streets, Parks, Water & Sewer, Facilities


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Prioritization ProcessA. Safety and securityB. High maintenance costsC. Excessive down timeD. Difficulty or inability to obtain repair parts/materialsE. Energy efficienciesF. Space limitations and overcrowdingG. Technological innovationsH. Aesthetics and general appearanceI. Sustainability


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