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HomeMy WebLinkAbout6. draft 2021 CIP policy SUBJECT: CAPITAL IMPROVEMENT PLANNING PROCESS & POLICY General: The intent of the capital improvement planning process and policy is to insure that the City of Oshkosh has set in place a long-term plan regarding improvements and replacement of buildings, equipment, parks, and public infrastructure, including its utilities. It is prudent that management have a process where these items are reviewed and scheduled to be replaced outside of and prior to the annual budget process. A formally adopted policy will provide a decision making process based on evaluation, selection, and multi-year scheduling of capital projects. Policy Management: • The City Council must approve a five-year capital improvement plan that is updated annually. • The five (5) year capital improvement plan will include consideration of major equipment replacement needs as well as any other projects or future capital expenditures. • The City Council will hold at least one Capital planning workshop that is considered an open meeting, thus being open for public input. • The Capital Improvement Planning process will begin at a staff level in March and the Capital Planning workshop(s) should be expected to occur in June. • The first year of the five-year capital improvement plan with consideration of any changes will be rolled into the current year capital improvement budget during the annual operating budget process. Strategic Plan The City of Oshkosh adopts a new Strategic Plan every two years that provides a "roadmap"for the City's future. Depending on internal and external circumstances, the Strategic Plan contains several priority goals for the City to undertake. Each goal is intended to support the larger vision for the City and to point the way of progress toward that vision. The goals of the Strategic Plan are incorporated in the annual Capital Improvement Program development process, providing City staff the framework in which to allocate resources to meet the goals. Definitions Capital Outlay—Individual items with minimum value of at least$5,000 and life greater than one year(Included in operations budget). Capital Project—Individual items with minimum value of at least$10,000 and has expected life of at least ten years. (Not included in operations budget). Capital Improvement Plan(CIP)—A comprehensive schedule of approved capital improvement projects. The program shall be for a five-year period. The plan shall be annually revised and shall meet borrowing guidelines provided by the Common Council for the first two years of the program. The remaining three years will provide an estimate of the financial resources needed to complete the program. Capital Improvement Budget—The first year or current planned expenditures of the five-year CIP which will;be funded as part of the operating budget for the City for capital outlays. Useful Life Policy All City assets will be assigned a useful life as a means to plan for capital project expenditures, as well as meet Governmental Accounting Standards Board's (GASB) Statement 34 which requires State and Local governments to depreciate their exhaustible capital assets, including infrastructure. The term "useful life"will be determined by either accepted standards & practices and/or best estimate based on industry or prior experience(s). Recommended estimates for"useful life" are as follows: Buildings and Building Improvements Parking Lots 25 years Buildings Found/Frame/Structure 40 years Paths and Trails 25 years Building Improvements 20 years Retaining Walls 20 years Tennis & Basketball Courts 20 years Infrastructure Roads & Highways (includes curb &gutter) Machinery and Equipment Sealcoats 3 years Business/Office Equipment 8 years Asphalt (Cold-Mixed) 5 years Custodial Equipment 5 years Asphalt (Hot-Mixed) 12 years Fire Department Equipment 7 years Concrete Pavement 25 years Furniture 15 years Sewer Mains, Lift Stations 50 years Grounds Equipment—Mowers 7 years Sanitary Mains 50 years Kitchen Equipment—Appliances 10 years Storm Mains 40 years Mounted Equip w/Truck Chassis 8 years Sidewalks 20 years Outdoor Equipment—Playgrounds 20 years Street Lights 30 years Plazas and Pavilions 40 years Water Mains 75 years Radio Communications 7 years Water System 40 years Water Meters 20 years Wells & Pump Houses 30 years Vehicles Land/Land Improvements Squad Cars Land No Depreciation 4 years Athletic Fields, Bleachers 15 years Transit Buses Benches, Tables, Grills 5 years 10 years Fencing, Gates 20 years Cars, Light Trucks &Vans 10 years Landscaping, Ball Park 25 years Heavy trucks (more than 13,OOOlbs) 10 years Outdoor Equipment 20 years Fire Trucks 15 years Outdoor Lighting 20 years Heavy Equipment-Loaders, Graders 10 years Funding Plan: Delaying capital maintenance and replacement of equipment results in higher future costs and decreased resident service and quality of life. The City recognizes that large increases to property taxes are not desirable and thus a funding plan has been put in place. • As part of the annual capital improvement plan process, the Finance Director will develop for consideration by the City Council a target for changes in the property tax levy necessary for debt service in subsequent budget years. Such target will be used to develop guidelines for the level of borrowing to be used in supporting the annual capital improvement budget. The target will be based on a combination of factors including, but not limited to,expected growth in tax base, inflation rates, or similar factors. The borrowing target may be exceeded with the approval of a 2/3 majority of the City Council. • The City desires to purchase non-debt purchase requests through annual operating revenues such as tax levy and interest income. o The City designed a ten-year funding plan, which shows how the desire above can be reached. o The plan uses a combination of reserves on hand, incremental tax levy increases of 3% and debt service tax levy that will become available in future years to fund annually recurring purchase requests. o The ten-year plan calls for these funds to be relied on over the next several years, then builds the reserve balance back up slightly. The use of these reserves will allow the City to gradually increase the tax levy to fund these purchases rather than including large one-time jumps. • In order to complete the ten-year plan the City plans to borrow annually for those projects that meet the debt requirements. The plan assumes that debt financed projects would average approximately $500,000 per year after 2015 and continue with a bi-annual debt issue until the fund is self-sustaining. Procedures: 1. The City begins the capital planning process by summarizing all existing capital assets including equipment, buildings, and infrastructure assets purchased with an individual value more than $5,000. This inventory listing includes the year the asset was purchased, estimated life, and estimated replacement year. 2. Any changes to the CIP policy and the Analysis of available and acceptable funding levels for projects in the CIP will be conducted in January and February prior to the distribution of the Budget Preparation Calendar. 3. Department heads then complete a capital needs assessment. One part of that assessment is to review their existing asset inventory and ensure that assets needing replacement during the next five years are requested. Departments are also provided with a listing of capital assets for their review and updates. 4. The Budget Preparation Calendar will be prepared by the Finance Department and Distributed to the City Manager, City Council, and Department Directors in March of each year. 5. Submission of project requests covering a five-year period are delivered to the Finance Director by the middle of May. The Finance Department will assemble the requests for internal meeting by the end of May. The preliminary or Draft CIP is created. 6. Once all capital purchase requests are received by the Finance Director, they are split into five groups. Non-Debt Financed Purchase Requests: Non-debt financed purchase requests can be thought of as falling into one of three categories annually recurring, smaller dollar purchases or shorter-lived assets. The City desires to finance those purchases, which recur annually through annual revenues rather than borrowed funds. This method allows for tax rate stabilization and lower debt service payments due to fewer borrowings. The City also desires not to borrow for lower cost assets as the cost of financing can become too high in comparison to the asset's overall value. In some cases, it is the combination of dollar amount and asset life that result in the asset being shown within this category. Debt Financed Purchase Requests: Debt financed purchase requests are higher cost, more infrequent purchase requests. Due to the infrequency of purchase, paying for these assets with annual operating funds would lead to a tax rate, which fluctuated significantly from one year to the next. In order to maintain tax levy stability, the City plans to finance these purchases with long-term debt. Stormwater, Sanitary Sewer, and Water Utility Purchase Requests: These requests are primarily for infrastructure improvement that relate to one of the City's utilities. The costs of these assets may be financed through user fees and funds on hand or the issuance of long-term debt. If debt financing is used the debt will be repaid through user fees of that utility, rather than through the general tax levy. 7. The Finance Director and City Manager will meet with the Department Directors to review project requests to verify that they are in line with the City's overall goals and prioritize or rank the projects to meet the City goals and Strategic Plan. These meeting will occur during the month of June 8. The Finance Director and City Manager then present a draft five year Capital Improvement Plan to the City Council for their consideration at a Capital Planning workshop held at the end of June or early July. 9. The five-year Capital Improvement Plan will be presented to the Plan Commission in August to ensure that the plan aligns with the City's Comprehensive Plan. 10. City Council will approve the Capital Improvement Plan at the second meeting in August. 11. Once the Capital Planning workshop(s) have been completed, the necessary changes are made and the first year of the Capital Improvement Plan will be rolled into the Capital Improvement Budget and with will go through further review during the annual operating budget process. CIP Ranking Process Thirteen evaluation criteria have been developed to assist with prioritizing initial project requests. Each project included in the CIP will be evaluated against this criterion. This ensures the most objective process possible and leads to consistent decision making. The scoring which is derived from the tools below will assist the City Manager in prioritizing and preparing the final CIP plan. Every project is evaluated against each criterion and assigned points on a scale of 15, 10, 5, or 0. The project review criterion consists of the following categories: • Conformity to Approved City Strategic Plan 0 Percentage of Population Served or Department Plan(s) 0 Project/Item Life • Financial Commitments and Leverage of Estimated Frequency of Use (Ave Per Year) Outside Funding • Service Level • Mandates • Linkages to Other CIP Projects or Other • Public Health and Safety Organization Projects • Implementation Feasibility 0 Infrastructure Investment/ Protection • Operating Budget Impact 0 Encouragement of Economic Development The City Manager also reserves the right to assess an extra 5 points per project. SUBJECT: CAPITAL IMPROVEMENT BUDGET POLICY General: The City of Oshkosh has a substantial investment in buildings, equipment, parks and public infrastructure, including its utilities. Prudent management of these investments is the responsibility of City government. In order to fulfill this responsibility but remain within fiscally prudent parameters, the City has enacted this policy for development of the capital improvement budget. This policy applies to all capital budgets of the City, including general City functions (tax-funded debt) and utility funds. Procedures: A. Budget Considerations 1. The City will enact an annual Capital Improvement Budget based upon a five-year Capital Improvement Plan. 2. The City will coordinate development of the annual Capital Improvement Budget with the development of the operating budget. Future operating costs associated with new capital improvements or major equipment purchases will be projected and included in the operating budget. Approval of the annual Capital Improvement Budget shall take place at the same time as approval of the annual operating budget. 3. As part of the annual capital improvement plan process, the Finance Director will develop for consideration by the City Council a target for changes in the property tax levy necessary for debt service in subsequent budget years. Such target will be used to develop guidelines for the level of borrowing to be used in supporting the annual Capital Improvement Budget. The target will be based on a combination of factors including, but not limited to, expected growth in tax base, inflation rates, or similar factors. The borrowing target may be exceeded with the approval of a 2/3 majority of the City Council. 4. Utility projects not funded via special assessments, grants, or similar funding sources other than utility rates will be analyzed for future rate impacts as part of the annual capital improvement plan process. Utility projects will be coordinated with City projects to minimize costs and inconvenience to the residents. 5. Development-related projects for which tax incremental financing might be considered will be considered outside of the borrowing targets noted above due to the dedicated revenue stream (tax increments or other sources) used to pay the debt. 6. Each Department Head will develop the annual capital improvement plan for his or her respective department. The projects approved for the current year in the Five Year Capital Improvement Plan will be rolled into the Capital Improvement Budget. 7. To meet the targets established by the City Council, projects, particularly those to be funded via borrowing,will be reviewed and prioritized by the City Manager,and coordinated by the Finance Director prior to being presented to the City Council for approval. 8. Capital improvement expenditures shall include any amounts expended for equipment or other assets with a useful life of five years or more and/or which involve amounts more than $5,000. Expenditures not meeting these criteria, or which have a useful life of less than the payback period of the funds to be borrowed, shall be included in the City's annual operating budget as applicable. 9. Facility improvement projects are subject to the dollar and useful life thresholds indicated above. In addition, facility projects to be included in the capital improvement budget should involve major renovations that change the floor plan, wall locations, modifications to the structure, or modifications to building mechanical systems. Items that do not meet these criteria should be included in department operating budgets. 10. The City will make all capital improvements in accordance with the approved annual Capital Improvement Budget. Any variance from the approved budget that would require a supplemental appropriation, or to add, delete or substitute projects, requires review and recommendation from the Finance/Public Works Committee and approval by the City Council. B. Financing Considerations 1. The City will utilize the least costly advantageous financing method for all new projects. 2. Each department will identify the estimated costs and potential alternate funding sources for each capital improvement project proposal. 3. The City will utilize available grant funds and other intergovernmental assistance to finance only those capital improvements that are consistent with the Five Year Capital Improvement Plan and the City's priorities. C. Other Considerations 1. The City will maintain all of its assets at a level adequate to protect the City's capital investment and to minimize future maintenance or replacement costs. 2. The City will maintain adequate equipment utilization and maintenance records to support its Five-Year Capital Improvement Plan and to assure proper maintenance of equipment.