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1. What is the Capital Improvements Plan?

The Capital Improvements Plan (CIP) is a planning document. It lists many projects that the city desires to accomplish, generally over a 5-year period. The CIP includes new construction or renovations to existing school buildings and other city structures, major street, bridge, and sewer repair projects, and upgrades to existing park facilities, or new park structures.

The CIP is a dynamic instrument that may change from year to year as infrastructure needs in the city are identified. Basically, the preparation, approval and financing process for the CIP are:

1. Development of a CIP by the City Manager and staff
2. City Council approval of a CIP after public hearings
3. City Council approval of a CIP funding source, which is usually a Bond Authorization (after a public hearing)
4. An appropriation of funds to the project
5. Award of a construction contract for the project to be built.

First, the city prepares the multi-year planning document based on all known information about particular projects. Project categories are developed for buildings, school facilities, sewers, streets, etc.

The next step is to request City Council adoption of a resolution approving the CIP. This is an important step that indicates that the city has identified certain infrastructure needs. It does not mean that all projects will be accomplished within the time frames shown in the planning document. Project timing may change for a variety of reasons such as alternative ways to get the project accomplished, need for the project and cost. The City Council has total flexibility to accept, reject or modify projects in the plan.

Capital Improvements Plan (CIP) changes require a different procedure. Upon the recommendation of the city Manager, the City Council may amend the Capital Improvements Plan by a majority of affirmative vote. The CIP is not a formal budget. Appropriations are made on a project-by-project basis only. Only the first year of the plan is approved by City Council on an annual basis. This provides the City Council with flexibility in executing the plan and the ability to add to the CIP with unprogrammed projects as necessary.

If you have any questions, please email Budget and Evaluation.

2. How are Capital Improvements Plan projects paid for?

Before a project can be started, an approved funding source must be identified. If enough uncommitted funds are available, the city may pay cash to have the project done. Most projects however, must be financed over a long time period since rarely do city governments have the money readily available to pay for high-cost capital projects.

Financing projects is similar to a homeowner’s mortgage. The city borrows a large sum of cash to pay for projects and then repays it with interest over a long period of time, generally 20 years. The amount repaid each year is called debt service. The general purpose behind the use of long-term debt for financing capital projects is that these facilities will last for many years so that current taxpayers will not have to absorb the full cost of their construction. Borrowing also serves to smooth the cost impact of large expensive structures (such as a school or fire station) over more than the facility’s shorter construction period.

Before the city can borrow the funds or even commit to begin a project, State law requires that several steps be complied with.

The State requires that a public hearing be conducted on a bond authorization by the City Council. A bond authorization indicates an amount of funds that the city intends to borrow (at some time in the future) to pay for capital projects. A notice (advertisement) that the public hearing will be held by the City Council must be advertised in the newspaper twice during the 2-week time period before the public hearing is actually held. The advertisement lists the amount of funds that the city intends to borrow (at some time in the future) and provides an estimate of the amount of money by category that it intends to spend on capital projects. The public hearing gives citizens an opportunity to express their views about the city’s intention to incur additional debt for capital projects.

If the bond authorization is not approved, capital projects can only be done when the city has saved enough money to pay cash for the project.

If the bond authorization is approved by the City Council, it signifies that the city will use bonds as the fund source to pay for projects up to the amount of the bond authorization. It does not mean that the city intends to sell bonds immediately or even in the very near future. Generally, the city only sells bonds when the cash is needed and when market conditions are the most favorable (lowest interest rates) for the city to borrow the money.

If you have any questions, please email Budget and Evaluation.

3. What does the Bond Authorization permit the city government to do?

The bond authorization gives the City Manager authority to bring individual requests for funding for capital projects to the City Council for their action (that is, approval or disapproval of funding). Projects often may be financed in stages - to accomplish the architectural/engineering element, to land purchase when necessary, or to perform studies as required by regulatory agencies.

Approval of funding is called an “appropriation.” When an appropriation of funds is made, construction or whatever work the project calls for may start. Once the work begins, the city is generally committed to doing the project and eventually selling bonds. If you have any questions, please email Budget and Evaluation.

4. How can the city proceed with projects if it has not sold bonds to get the cash needed to pay for them?

The city receives most of its revenue on a seasonal basis. Property taxes are collected in November - January and again in May - July. This money must last the city for the entire year. Usually, the city will have enough cash on hand to be able to meet its regular monthly bills and still have enough cash to front-fund some capital projects. When bonds are eventually sold, the cash that was used to front-fund projects is reimbursed to the city from the bond proceeds.

This procedure is in the best interest of the city as it maximizes the use of the city’s available cash. Bond sales are timed to market conditions (interest rates) and actual cash needs. Actual cash needs are determined by the amount of funds that have been expended on individual capital projects.

If the CIP is approved, the financing process can be summarized as:

• A funding mechanism is approved which generally is bonds (the bond authorization)
• Projects receive funding (an appropriation) on an individual basis
• Project costs are paid for from existing city cash (front-funded)
• Bonds are sold to re-pay any city funds that were used and for the remaining costs of the projects
• The funds borrowed are paid off usually over 20 years (debt service payments)

If you have any questions, please email Budget and Evaluation.

5. How much can be borrowed?

State law sets the city’s debt limit at 10% of the assessed value of real property located in the city. The city’s adopted policy is that the General Fund’s annual debt service will not exceed 9.5% of the combined city and School revenue for that year. If you have any questions, please email Budget and Evaluation.