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Capital-Budgeting Process <ul><li>The process is designed to help policy makers: </li></ul><ul><ul><li>In the selection of...
(1) Capital Asset Inventory <ul><li>An inventory and assessment of the existing capital facilities includes its: </li></ul...
(2) The Capital Improvement Plan <ul><li>A rolling, multi-year inventory of proposed projects and financing resources </li...
CIP Elements <ul><li>Projects are proposed by: </li></ul><ul><ul><li>Agencies, private organizations, citizens </li></ul><...
(3) Long-term Financial Analysis <ul><li>Can the government unit afford the proposed capital budget? </li></ul><ul><li>The...
(4) The Capital Budget <ul><li>The proposed capital budget corresponds to the first year of the CIP </li></ul><ul><ul><li>...
Prioritizing Capital Projects <ul><li>Priorities based on: </li></ul><ul><ul><li>Functional areas </li></ul></ul><ul><ul><...
Putting it all together… <ul><li>The multi-year capital improvement plan, the current capital budget, and the operating bu...
Capital Improvement Programming and Budgeting
Organization of the Total Budget: Dallas--2002-03  Total Budget $1,717,075,871 Operating Budget $1,449,667,579 84.4% Capit...
Problems with Capital Budgeting <ul><li>Capital improvement programs </li></ul><ul><ul><li>Project ranking does not change...
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Capital Budgeting Process

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Transcript of "Capital Budgeting Process"

  1. 1. Capital-Budgeting Process <ul><li>The process is designed to help policy makers: </li></ul><ul><ul><li>In the selection of a few capital projects from many alternatives </li></ul></ul><ul><ul><ul><li>From an inventory of capital projects to a capital budget </li></ul></ul></ul><ul><ul><li>In the timing of the expenditure to be incurred by the projects selected </li></ul></ul><ul><ul><li>In fitting the selected capital projects into the overall financial program of the government unit </li></ul></ul><ul><li>(1) Capital asset inventory  (2) capital improvement plan  (3) long-term financial analysis  (4) capital budget </li></ul>
  2. 2. (1) Capital Asset Inventory <ul><li>An inventory and assessment of the existing capital facilities includes its: </li></ul><ul><ul><li>Age </li></ul></ul><ul><ul><li>Condition </li></ul></ul><ul><ul><li>Degree of use </li></ul></ul><ul><ul><li>Capacity / LOS </li></ul></ul><ul><ul><li>Replacement cost </li></ul></ul><ul><li>The inventory of capital facilities helps to determine whether the existing facilities are to be: </li></ul><ul><ul><li>Renewed, replaced, expanded, or retired </li></ul></ul><ul><li>It also helps to determine repair and maintenance needs and estimated costs </li></ul>
  3. 3. (2) The Capital Improvement Plan <ul><li>A rolling, multi-year inventory of proposed projects and financing resources </li></ul><ul><ul><li>The capital budget is the first year of the CIP </li></ul></ul><ul><ul><li>It provides detailed information on the design, cost, and financing of improvements recommended for the forthcoming year </li></ul></ul><ul><ul><li>The CIP is the foundation of the capital budget process </li></ul></ul><ul><ul><li>The CIP is updated yearly </li></ul></ul><ul><ul><ul><li>Revenue and expenditure estimates are revised </li></ul></ul></ul><ul><ul><ul><li>A “new year” is added to the CIP as part of updating </li></ul></ul></ul>
  4. 4. CIP Elements <ul><li>Projects are proposed by: </li></ul><ul><ul><li>Agencies, private organizations, citizens </li></ul></ul><ul><ul><li>The projects are screened by a planning department </li></ul></ul><ul><ul><ul><li>a preliminary list is drafted </li></ul></ul></ul><ul><ul><ul><ul><li>includes project costs </li></ul></ul></ul></ul><ul><ul><ul><ul><li>Relationship to master plan (or long-term plan) </li></ul></ul></ul></ul><ul><ul><ul><ul><li>initial priority is established </li></ul></ul></ul></ul><ul><ul><ul><ul><li>Scheduling and coordination </li></ul></ul></ul></ul><ul><ul><ul><ul><ul><li>Build sewers before streets are resurfaced </li></ul></ul></ul></ul></ul><ul><ul><li>Final list is included in the CIP </li></ul></ul><ul><ul><ul><li>Includes time schedule and estimated costs </li></ul></ul></ul><ul><ul><ul><ul><li>Sewers in Year 19X8; streets in Year 19X9; … </li></ul></ul></ul></ul><ul><ul><li>The CIP is revised annually </li></ul></ul>
  5. 5. (3) Long-term Financial Analysis <ul><li>Can the government unit afford the proposed capital budget? </li></ul><ul><li>The analysis should include: </li></ul><ul><ul><li>any recurring expenditures resulting from the building of new capital facilities </li></ul></ul><ul><ul><li>The present and anticipated revenue-and-expenditure profile </li></ul></ul><ul><ul><ul><li>Existing debt issues </li></ul></ul></ul><ul><ul><ul><ul><li>When are issues due? </li></ul></ul></ul></ul><ul><ul><ul><ul><li>Capacity to meet debt service </li></ul></ul></ul></ul><ul><ul><ul><li>Estimated growth profile of the tax base </li></ul></ul></ul><ul><ul><ul><li>Potential for new revenue sources </li></ul></ul></ul><ul><li>The financial analysis is related to the multi-year CIP </li></ul><ul><li>Financing options are considered </li></ul><ul><ul><li>Borrowing? </li></ul></ul><ul><ul><li>Capital reserve funds? </li></ul></ul><ul><ul><li>Current sources? </li></ul></ul>
  6. 6. (4) The Capital Budget <ul><li>The proposed capital budget corresponds to the first year of the CIP </li></ul><ul><ul><li>Greater financial detail and precision of project cost estimates </li></ul></ul><ul><ul><li>Justifications </li></ul></ul><ul><ul><li>The financial analysis is used to determine financing structure of the various projects </li></ul></ul><ul><ul><li>A final priority ranking is proposed </li></ul></ul>
  7. 7. Prioritizing Capital Projects <ul><li>Priorities based on: </li></ul><ul><ul><li>Functional areas </li></ul></ul><ul><ul><ul><li>Higher education, transportation, etc. </li></ul></ul></ul><ul><ul><li>Problem severity </li></ul></ul><ul><ul><ul><li>Health and safety of the population; critically needed maintenance work; etc. </li></ul></ul></ul><ul><ul><li>Status of political support </li></ul></ul><ul><ul><ul><li>Governor’s priorities, agency priorities, legal or federal mandates, etc. </li></ul></ul></ul><ul><ul><li>Formal scoring system according to ranked criteria </li></ul></ul><ul><li>In addition to prioritizing, deciding on some projects could benefit from cost-benefit analysis </li></ul><ul><ul><li>Important when evaluating a project against an alternative action </li></ul></ul>
  8. 8. Putting it all together… <ul><li>The multi-year capital improvement plan, the current capital budget, and the operating budget are linked into a comprehensive expenditure program for the government unit </li></ul>
  9. 9. Capital Improvement Programming and Budgeting
  10. 10. Organization of the Total Budget: Dallas--2002-03 Total Budget $1,717,075,871 Operating Budget $1,449,667,579 84.4% Capital Budget $267,408,292 $15.6% General Fund $814,625,514 56.2% Debt Service 130,221,006 9.0% Enterprise Fund 504,821,059 34.8% General Purpose 51,359,913 19.2% Enterprise Fund $216,048,379 80.8%
  11. 11. Problems with Capital Budgeting <ul><li>Capital improvement programs </li></ul><ul><ul><li>Project ranking does not change despite real world changes </li></ul></ul><ul><ul><li>The longer a project has been on the CIP, the higher the ranking </li></ul></ul><ul><li>Capital project designation not always clear </li></ul><ul><li>Earmarked funds skew the rankings </li></ul><ul><li>Encourages unnecessary borrowing </li></ul><ul><li>Decision-making tools used to get projects into the capital budget are not fully rational </li></ul><ul><ul><li>Cost-benefit analysis </li></ul></ul>
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