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EXECUTIVE SUMMARY

Capital improvement programming is the multiyear scheduling of capital improvements based on available fiscal resources and a community's desire for specific improvements. The capital improvement program or plan (CIP) is the result of completing the process of capital improvement programming. A CIP consists of a capital program and a capital budget. A capital program is a planning and fiscal management tool that provides a schedule for the cost and funding of all capital projects that are programmed for the next 5 to 10 years. The first year of a CIP becomes the recommended capital budget for the next fiscal year. The recommended capital budget is typically submitted to the local government's governing body for its review and adoption in conjunction with the operating budget.

A CIP has the following objectives:

• Implement the goals of a jurisdiction's comprehensive plan.
• Ensure timely construction or renovation of infrastructure to provide the level of services identified in the comprehensive plan.
• Identify funding sources for each capital improvement.
• Provide a baseline (recommended capital budget) for the annual budget.
• Coordinate capital and operating budgets.
• Create transparency around the process of selecting and funding capital projects.
• Inform the public about future needs for capital improvements.
• Coordinate a locality's priority transportation projects with those reflected in metropolitan transportation plans and transportation improvement programs. This helps to ensure that the locality's priority projects are eligible for Federal and State transportation funds when the projects are needed.

A CIP can be used as a planning tool to implement comprehensive transportation plans. Moreover, it can be used as a fiscal management tool to identify capital needs in advance, allowing time to secure State and Federal funds and to monitor ongoing projects in terms of schedule, costs, and financial status. Finally, a CIP can serve as a budgeting tool for recommending a capital budget, computing the impact of capital improvements on the operating budget, and maintaining a balanced budget (as is required in some States).

There is a set of common local and regional guiding documents that can inform the process of developing a CIP. The consideration of these documents can ensure that the CIP includes projects aligned with adopted plans and that funding sources and constraints are properly identified. These guiding documents are presented in Table 1.

Table 1: CIP Guiding Documents

Time Horizon	Local Jurisdiction Level	Regional/Metropolitan Jurisdiction Level
20–30 years	Comprehensive plan	Statewide long range transportation plan
20+ years	Transportation plans	Metropolitan transportation plan
4–10 years	CIP	Transportation improvement program
1–2 years	Annual budget	Unified planning work program

The process of developing a CIP can be divided into nine sequential steps:

1. Adopt a CIP ordinance, appoint a CIP coordinator, and set a schedule.

2. Prepare an inventory of existing capital assets.

3. Determine the status of previously approved projects.

4. Assess fiscal and financial resources.

5. Solicit and compile project requests.

6. Evaluate, prioritize, and select projects.

7. Develop a CIP financing plan.

8. Prepare a program draft.

9. Review and adopt the CIP.

Once these steps are completed, the governing body prepares the capital budget using the capital expenditures identified in the CIP as a baseline. Next, the governing body adopts the capital budget. Once the fiscal year begins, local government departments are authorized to begin implementing projects included in the CIP. However, they will likely need to coordinate the purchase of equipment or services in advance with the department of finance or budget to confirm that the funds are available at that time.

The execution of transportation capital improvements requires a set of actions that can be grouped in the following categories: planning and community engagement, environmental, right-of-way, design, and construction. Each of these actions has an inherent level of uncertainty and should be closely monitored.

It is important to update a CIP every year, although some communities do it every 2 years. Certain local governments may review the CIP only when major capital improvements are needed. However, this practice may significantly reduce the usefulness of the CIP as a tool for fiscal planning or budgeting.

CIP legal frameworks are generally found in State laws dealing with planning and budgeting by local governments. The requirement to adopt a CIP varies from not requiring one to explicitly or implicitly requiring it under certain circumstances. The States of Texas and Oregon require local governments to adopt a CIP when they intend to assess impact fees (Texas) or system development charges (Oregon) to pay for capital improvements or facility expansions. Similarly, the State of Washington requires local governments with a population above certain levels to implement a comprehensive land use and development plan, which in turn requires a 6-year capital facilities plan.

Implementing a CIP allows a community to apply an orderly and systematic planning approach for the acquisition, financing, and use of capital improvements. This approach affords communities with opportunities to ensure that the program reflects their needs and priorities, and enjoys support not only from elected leaders but also from the public at large. In addition to opportunities, there also are challenges associated with implementing a CIP, particularly for communities that do it for the first time. Table 2 summarizes some of the most significant opportunities and challenges associated with implementing a CIP in three implementation areas: public and political acceptance, equity, and cost and administration.

Table 2: Opportunities and Challenges of a CIP¹

Implementation Area	Opportunities	Challenges
Public and Political Acceptance	CIPs include multiple opportunities to inform the public about capital improvements and gather inputs. CIPs also inform business owners, developers, and bond investors regarding the vitality of the community, the cost of services, and the sustainability of its tax burden. CIPs provide transparency and a rational approach to prioritize capital improvements, reducing public pressure on elected officials. CIPs can help maintain steady payments and tax rates over time.	Some officials may be uncomfortable with sharing control of the process with the public. Other officials may not support the adoption of a CIP.
Equity	CIPs provide a mechanism to help ensure that capital investment decisions are made considering fairness to all stakeholders in a community in terms of who incurs the costs and consequences of those decisions.
Cost and Administration	CIPs can afford community financial benefits, such as earning a good credit rating, promoting economic development, spotting the hidden costs or avoiding unexpected expenditures, and successfully competing for State or Federal funds. Over time, the process of updating an existing CIP (or developing a new one) becomes more familiar and less demanding.	The cost challenge that communities may face in implementing a CIP is that it requires a multidisciplinary team skilled in financial management, project management, and public participation. Managing, maintaining, and monitoring a CIP also poses some administrative challenges. Implementing a CIP, particularly for the first time, requires a considerable amount of effort from local government officials and staff.

State and Federal transportation funds and grants have traditionally been used to fund transportation improvements. The growth in local transportation needs has outpaced the availability of traditional State and Federal funding sources, creating a funding gap. Value capture techniques have the potential to help communities reduce this funding gap, making possible the delivery of critically needed projects. Table 3 presents the value capture techniques most commonly included in CIPs.

Table 3: Common Value Capture Techniques Included in a CIP

Technique	Definition
Impact Fees	Fees imposed on developers to help fund the additional public services, infrastructure, or transportation facilities required due to the new development.
Transportation Utility Fees	Fees paid by property owners or building occupants to a municipality based on estimated use of the transportation system.
Special Assessments	Fees charged to property owners within a designated district whose properties are the primary beneficiaries of an infrastructure improvement.
Tax Increment Finance	Charges that capture incremental property tax value increases from an investment in a designated district to fund or finance the investment.

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