CAPITAL PLANNING BEST PRACTICES Presenters: 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 Date: May 19, 2014
Logistics Scan the QR code to download the presentation 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 2
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 3
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 4
CAPITAL PLANNING BEST PRACTICES Minneapolis, Minnesota May 19, 2014 Tom Kelly Finance Officer White Bear Township, MN tom.kelly@ci.white-bear-township.mn.us
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 6
Location of White Bear Township 7
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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 9
Capital Planning Best Practices Development 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) 10
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) 11
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 12
Development of Capital Planning Policies (2011) 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 13
Development of Capital Planning Policies (2011) 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 14
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 15
Preparing and Adopting Multi-Year Capital Planning (2006) 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 16
Preparing and Adopting Multi-Year Capital Planning (2006) Recommendation CIP should include: Identify needs Determine costs Prioritize capital requests Develop financing strategies 17
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 18
CAPITAL PRIORITIZATION AND FINANCING PLANS Minneapolis, Minnesota May 19, 2014 Gary Donaldson, Revenue Chief City of Atlanta, GA gdonaldson@atlantaga.gov
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. 20
Public school enrollment is gradually increasing yet national spending on school construction declined to $10 billion in 2012. 21
ASCE report indicates that pavement deficiencies affect 38% of vehicle miles traveled on interstates and 30% vehicle miles traveled on non-interstate arterials. 22
Austin, Texas Prioritization Criteria 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) 23
Template of a CIP Criteria Scale Criteria Description Rating Scale (1-9) Required Project Strategic Alignment Value to Citizens Is the project required to meet legal, compliance, or regulatory mandates? To what extent is the project aligned with our government s overall strategies? How much value will the outcome of this project bring to our citizens? 1=not required/mandated 5=pending requirement 9= required or mandated 1=no alignment with strategies 5=partial alignment with strategies 9=full alignment with strategies 1=minimal value 5=partial value 9=high value 24
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 25
Project Name: Priority Ranking: Project Type: Useful Life: Responsible Dept.: White Bear Township, Minnesota Capital Improvement Plan 2014-2018 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 Priority Criteria Factor Factor Score Public Health & Safety 1.50 0.00 Employee Health & Safety 1.25 0.00 Regulatory Mandate 1.50 0.00 Frequent Problems 1.25 0.00 Ability to Finance 1.00 0.00 Cost of Project 1.00 0.00 Generates Revenue 1.20 0.00 Generates Cost Savings 1.20 0.00 Ongoing Operation Costs 1.00 0.00 Age or Condition of Existing 1.00 0.00 Public Benefit 1.10 0.00 Public Demand 1.25 0.00 Synergy with Other Projects 1.10 0.00 Strategic Goal 1.05 0.00 Comprehensive Plan Component 1.05 0.00 Total Score 0.00 26
Austin, Texas Prioritization Criteria 27
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 2 Filters Tier 1 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 28
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 29
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 30
CIP Committee Process Overview 31
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 32
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 33
MANAGEMENT TEAM FY 2014-15 BUDGET KICK-OFF MEETING March 25, Director 2014of Budget & Research Karen Rhodes-Whitley, RTA/C, CPM Karen Rhodes-Whitley, RTA/C, CPM Director of Budget & Research Capital Planning Best Practices Presented By: Budget & Research Department
About the City of Plano 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 35
Bond Referendum History Date Referendum Amount Approved May, 2013 $ 98,313,000 $ 98,313,000 May, 2009 $128,622,500 $128,622,500 May, 2005 $144,802,000 $144,802,000 May, 2001 $ 128,051,000 $ 112,415,000 May, 1998 $ 80,351,000 $ 80,351,000 May, 1995 $ 59,045,000 $ 58,045,000 Aug, 1991 W&S $ 36,800,000 $ 0 Jan, 1991 $125,000,000 $ 64,860,000 Dec, 1985 W&S $ 38,065,000 $ 38,065,000 Nov, 1984 $172,770,000 $172,770,000 36
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 37
Key Bond Program Questions Can I Afford 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 your existing facilities? operating 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 Do I Need It? 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? 38
TO BE DISCUSSED BY CITY COUNCIL - MONDAY, OCTOBER 22, 2012 10/17/2012 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 39
TO BE DISCUSSED BY CITY COUNCIL - MONDAY, OCTOBER 22, 2012 10/17/2012 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 40
2013 BOND PROGRAM $153,762,000 NEW AUTHORITY POTENTIAL 2013 REFERENDUM TAX RATE IMPACT ISSUANCE 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 for the City of Plano (20%) 41
Important Points to Remember 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 10 th and no later than March 1 st Remember to notify citizens regarding the operating cost coming online Can t open a Fire Station without firemen State law says you must produce information in English and Spanish 42
Important Points to Remember 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 43
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 44
Capital Reserve Fund 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 45
Capital Reserve Fund 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 46
Capital Reserve Fund Transfer as a % of Depreciation FY 13 FY 12 FY 11 FY 10 FY 09 FY 08 FY 07 FY 06 FY 05 FY 04 FY 03 FY 02 FY 01 FY 00 0% 10% 20% 30% 40% 50% 60% 70% 80% 47
Capital Reserve Fund Contributions FY 13 FY 14 FY 15 FY 16 FY 17 FY 18 General Fund $12,875,000 $15,000,000 $17,200,000 $19,500,000 $22,000,000 $24,500,000 Water & Sewer $3,000,000 $3,000,000 $3,000,000 $3,000,000 $3,000,000 $3,000,000 Other Revenue $2,200,000 $2,200,000 $2,200,000 $2,200,000 $2,200,000 $2,200,000 Total $18,075,000 $20,200,000 $22,400,000 $24,700,000 $27,200,000 $29,700,000 Transfer as % of Depreciation 51% 55% 60% 65% 70% 75% 48
Capital Reserve Fund 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 49
Capital Reserve Fund Prioritization Process A. Safety and security B. High maintenance costs C. Excessive down time D. Difficulty or inability to obtain repair parts/materials E. Energy efficiencies F. Space limitations and overcrowding G. Technological innovations H. Aesthetics and general appearance I. Sustainability 50
Questions? 51