Learn what a capital improvement plan should do and include.
A capital improvement plan (CIP) is a tool to help organizations make good budgeting decisions for large projects and purchases, based on goals and resources. (Note that these plans are most commonly found in local governments, so many of the explanations and examples in this article will focus on the public sector.)
The CIP exists as a supplement to the organization’s larger strategic plan and must always be aligned with its goals and strategy. In essence, a CIP outlines large capital projects and equipment purchases, and their associated project timelines and funding options. A CIP usually spans the same length of time as the organization’s strategic plan, about three to five years, and is separate from the annual budget. A capital improvement plan wouldn’t include smaller, operational expenses that normally appear in an annual budget, but is aligned with the annual budget.
What qualifies as a large versus small expense? This varies greatly by municipality, but the Government Finance Officers Association (GFOA) lists the capitalization threshold at $5,000. Projects with expenses exceeding that amount would be included in the capital improvement plan, whereas maintenance or recurring operational costs falling below that amount would be confined to the annual budget.
The definition of a capital improvement plan has some flexibility, as does the format of the plan itself. Larger local governments typically use some type of software system to create and manage their CIPs, while smaller municipalities use spreadsheets, software, or a combination of both. The capital improvement plan presentation to the public (citizens) usually takes the form of a PDF or web page.
CIPs aren’t budgetary busy work—they’re important because they can greatly improve these three areas for municipalities:
The quality of life for citizens is directly tied to the quality of a city’s public infrastructure and services. Citizens can see their taxpayer dollars at work with improvements in things like parks, schools, and roads, and the robust infrastructure and quality of life then helps attract more residents and businesses. When a city makes smart decisions about how to use limited public funds on capital projects, it can be a differentiating factor in its long-term success and competitiveness.
CIP projects have long-lasting positive effects on the community and can spur urban growth. Investing public funds on the right capital improvement projects can revitalize geographic areas and increase their utility to citizens, which serves to attract private sector investments. CIPs improve urban planning and shape the development of cities by making the most of limited resources.
Some projects require loans or long-term borrowing solutions, as well as incur additional operational expenses. CIPs ensure that local governments stay fiscally healthy when doing capital improvements because cities are preparing in advance for large expenses, rather than simply reacting to them. Advanced planning helps municipalities get the necessary resources in place without taking on too much debt and keeps budgets balanced. In many ways, a capital improvement plan bridges the gap between the planning and budgeting process.
There is no hard-and-fast rule as to the components of a CIP. The plan for a private company will look very different than for public organizations, such as local governments. Each city or state may have specific requirements, and some municipalities may also need to obtain citizen approval (via ballot votes) on parts of their CIP.
That being said, if we were to outline a generic capital improvement plan example, it would likely include these elements:
The capital improvement plan process takes effort that you certainly don’t want to go to waste. Make the most of your CIP and keep it a living, essential document within your municipality by following these best practices:
ClearPoint can help you create, manage, and report on your CIP as it relates to your overall strategy. See how with a live demo.