Capital planning and public finance

Learning objectives

• Explain what a capital improvements program is, how it relates to the capital budget, and why it must align with the comprehensive plan.
• Distinguish funding from financing, and compare pay-as-you-go and debt financing, and general obligation and revenue bonds.
• Explain how tax increment financing, special assessments, and business improvement districts work, and calculate a TIF increment and a front-foot assessment.
• Apply the legal requirements for impact fees, and show how a level-of-service standard sets a fee.
• Match a funding source to the people who benefit from a project.
• Account for life-cycle and operating costs and a community's debt capacity when ranking projects.
• Respond sensibly when a funding source changes, and read a CIP table.

Key concepts

The capital improvements program

A capital improvements program (CIP) is a multi-year schedule (typically five or six years) of public capital projects: long-lived, high-cost physical investments such as roads, water and sewer lines, parks, fire stations, and libraries. For each project it lists the cost, timing, and funding sources.

• The first year of the CIP becomes the capital budget, adopted annually alongside the operating budget.
• The CIP is updated every year: completed projects drop off, a new final year is added, and priorities are revisited.
• In many jurisdictions the planning commission reviews the CIP for consistency with the comprehensive plan.

Capital versus operating spending: capital spending buys or builds assets that last many years; operating spending pays for ongoing services (salaries, maintenance, supplies). A new fire station is capital; the firefighters' salaries are operating costs, and every new facility creates ongoing operating costs the CIP should acknowledge.

9 more sections follow in the full lesson.