1. Capital Improvement Planning July 18, 2016

2. Welcome! Stephanie Davis Program Director – Graduate Certificate in Local Government Management Assistant Professor of Practice Doctoral Candidate – PhD in Public Policy Former Finance Director 2

3. Goals of Today’s Session Understand the Capital Improvement Process Understand Revenues and Expenditures Understand Financing of the CIP 3

4. Legislative Guidance § 15.2-2239. Local planning commissions to prepare and submit annually capital improvement programs to governing body or official charged with preparation of budget. 4

5. What is a CIP? Capital Improvement Plan Typically a multi-year plan; five years Identifies capital project, cost of project, sources of financing, and impact on operating budget Provides for new construction, replacement, renovation or repairs for capital assets Coordinates proper financing Furthers economic and community development Maintains and Improves Bond Rating 5

6. GFOA Best Practice (2007) “A properly prepared and adopted capital budget is essential to ensure proper planning, funding and implementation of major projects.” “Represent a very large financial obligation that may span two or more fiscal years.” “Governments prepare and adopt a formal capital budget as part of their annual budget process.” 6

7. THE ENVIRONMENT 7

8. Conflicting Values At any given time, public officials (elected or not elected) struggle with conflicting core values Representation Efficiency/Professionalism Social Equity Individual Rights (Nalbandian, 2015) 8

9. The environment CIP balances what is political acceptable versus administratively sustainable. Elected officials – “This is what I want to do based on my values” Local Government officials – “This is what you can do based on efficiency, sustainability and affordability” Inherent conflict 9

10. Collaborative Approach External Stakeholders -Citizen Groups, Neighborhood Groups, Parents, Recreational Groups Internal Stakeholders - City or County Manager, Department Heads, Staff, Municipal Financial Advisors, Bond Counsel, Attorney Elected Officials - City Council members or County Supervisors, Planning Commission Members, Constitutional Officers 10

11. Key Internal Stakeholders Engineers – expertise in determining construction challenges or site issues Planners – capital projects may be subject to zoning regulations or other land-use restrictions- Comprehensive Plan Goals Building Inspectors – final construction plan approvals IT staff – networking infrastructure Facility Managers – efficiency and sustainability Procurement – timing of bids, contract review 11

12. Discussion Does your Planning Commission approve/recommend/review the CIP prior to submission to the governing body? Does the school board approve/recommend the school CIP prior to submission to the governing body? Does your locality have a CIP committee? 12

13. THE CIP PROCESS 13

14. Capital Improvement Process Identify and Prioritize Capital Needs Develop Projects and Estimate Costs Develop Financing Strategies Approval by Governing Body Execute and Monitor Capital Projects 14

15. Identify Capital Needs Understand the Capital Needs of the Community All departments at the table Understand Planning Commission goals and objectives Understand Governing Body goals and objectives Know current capital projects 15

16. Prioritize Requests Is it required to meet legal mandate or statutory compliance? Is it a life safety issue? Does it align with strategic goals of the community and local government? Value to citizens? 16

17. 17 Courtesy of Fairfax County

18. Develop Projects and Estimate Costs Scope of project, costs, sources of funding, and timeline Land Acquisition? Design and Engineering Costs? Construction Costs? Operating Budget Impacts? Life Cycle Costs? 18

19. What is a Capital Expenditure? §15.2-2108.2. Definitions. "Capital costs" means all costs of providing a service that are capitalized in accordance with generally accepted accounting principles. Typically a significant cost to acquire or build property with a useful life of greater than one year. Expensive, non-recurring operating expenditures may appear in CIP Fire Trucks School Buses 19

20. Example CIP Courtesy of Goochland County 20

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22. FINANCING THE CIP 22

23. Develop Financing Strategies Capital Reserve (Pay-As-You-Go) Capital Fund Balance Assignment Cash Proffers Private Sector and Other Contributions Special Tax Districts, Cash Proffers, Utility Connection Fees Federal and State Grants Transportation, CDBG Funds, Education Debt General Obligation, VPSA, VRA, Bonds, Lease Revenue Financings, VACO/VML Financing Program 23

24. Revenue Example – Courtesy of Goochland County 24

25. Financing the CIP Paying Cash for Capital Projects Capital Reserve (Pay-As-You-Go) Capital Fund Balance Assignment Cash Proffers § 15.2-2303.2. Proffered cash payments and expenditures. 25

26. Financing the CIP Grants and Donations Debt Financing – does it require voter approval? General Obligation Debt Lease Revenue Bonds Pool Financing Programs 26

27. Code of Virginia § 15.2-2638. Powers of counties generally; approval of voters required. A. Except as provided in subsection B of this section, no county has the power to contract any debt or to issue its bonds unless a majority of the voters of the county voting on the question at an election held in accordance with §§ 15.2- 2610 and 15.2-2611 approve contracting the debt, borrowing the money and issuing the bonds. B. Voter approval is not required for a county (i) to contract debt or to issue bonds described in Article VII, Section 10(a)(1) and (3) of the Constitution of Virginia, (ii) to issue refunding bonds, or (iii) to issue bonds, with the consent of the school board and the governing body of the county, for capital projects for school purposes which are sold to the Literary Fund, the Virginia Retirement System, or other state agency prescribed by law. 27

28. Credit Ratings The Credit Score How much will it cost to borrow? Rating is based on tax base of community, financial management, overall organizational management, current and expected debt obligations, pension liability Financial Condition Analysis 28

29. How much can we afford? Financial Policies guide CIP Project approvals Indicators used Debt Service Long-term Debt Revenues Per Capita General Fund Balance Capital Reserve 29

30. Example Debt Policies – courtesy of Goochland County DEBT POLICIES The County will utilize a balanced approach to capital funding utilizing debt financing, draws on capital reserves and/or fund balances in excess of policy targets, and “pay- as-you-go” (pay-go) appropriations. Pay-as-you-go appropriations will be adopted as part of the operating budget. When the County finances capital improvements or other projects by issuing bonds or entering into capital leases, it will repay the debt within a period not to exceed the expected useful life of the project. Target debt ratios will be annually calculated and included in the review of financial trends. Net debt as a percentage of estimated market value of taxable property should not exceed 2.5%. Net debt is to include general obligation, capital leases, and revenue bonds. The ratio of debt service expenditures as a percent of total general fund expenditures (including transfers to other funds) should not exceed 12%. While 12% is the ceiling, the capital improvement plan is prepared using a target of no more than 10% of debt service to expenditures. Limiting debt service expenditures in this way provides flexibility for other expenses in the budget. 30

31. Approval Planning Commission In Accordance with the Comprehensive Plan Does it make sense? Is it consistent with the goals of the Comprehensive Plan Governing Body Can we afford it? Is it consistent with goals of the local government and community? 31

32. Execute and Monitor Issue Debt Build the building, pay for capital project, etc. Monitor budget to actuals Monitor change orders Plan and fund operating impacts in operating budget, complete project, start paying debt service 32

33. SUMMARY 33

34. Summary The Capital Improvement Process Identify and Prioritize Capital Needs Develop Projects and Estimate Costs Develop Financing Strategies Approval by Governing Body Execute and Monitor Capital Projects 34

35. Summary Understand the Capital Improvement Process Understand Revenues and Expenditures Understand the Connection with Comprehensive Plan 35

36. Summary Questions? Thank you! Stephanie Davis, Program Director and Assistant Professor of Practice sddavis@vt.edu 36