Salt Lake City CIP Best Practices by yhp11362

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									                        IX. BEST PRACTICES SURVEY


A. INTRODUCTION AND METHODOLOGY

        In conducting our best practices survey, we contacted cities, counties and states
across the country for various aspects of their capital infrastructure program and budget
process. Our list included:

 Dayton, OH                                       Portland, OR

 Phoenix, AZ                                      Colorado Springs, CO

 Montgomery County, MD                            Las Vegas, NV

 State of Minnesota                               Des Moines, IA

 State of Washington                              Tempe, AZ

 Sacramento, CA                                   Minneapolis, MN

 Albuquerque, NM                                  Mecklenburg County, NC

 Denver, CO                                       Milwaukee,WI

        With the exception of Mecklenburg County, Minneapolis, MN, and Tempe, AZ,
all of the surveys were conducted by telephone. The exceptions were in the middle of
their budget process, and could only participate by providing written responses. The
surveys were conducted between November 1998 and January 1999.

        In contacting each city, we tried to speak with the budget officer in charge of the
capital program. On a few occasions, we spoke with one of their deputies, but in nearly
every case we were able to conduct the survey with the director of the CIP budget. Given
the breadth of the questions and the depth of answers we were looking for, we almost
always had to also speak with representatives from at least one of the following
departments: Public Works, Engineering, Parks, and Streets.

        Our survey focused on various aspects of the capital budget and process.
Questions 1 through 9 outlined in broad brush strokes how many years the city’s capital
budget projects out, and the degree to which this budget is a product of guidelines
established by the city council. Questions 10 through 14 helped us understand how cities
collect and update information about the condition of the cities capital assets. Questions
15, 16, 17, 22, 30 and 32 detail what techniques and procedures the city uses to review
capital project requests, and how they track approved capital projects. Questions 18, 19,
23, 24 and 25 asked the cities to describe the financial tools they use or could use in
financing their CIP. They also helped us understand how cities use their operating budget


                                           IX-1
to pay for capital projects. Questions 20 and 21 asked cities to describe how they involve
citizens in the capital improvement process. Questions 26 through 29 asked cities to
describe their maintenance program. A copy of the survey guide is presented at the
conclusion of this Section in Exhibit IX-1.

        In conducting this survey, Citygate did not necessarily repeat the questions as
printed. Instead, the phrasing of many questions was tailored to the flow of the
conversation. In addition, Citygate often asked follow-up questions to clarify or expand
on unique or intriguing aspects of a city’s program. After reviewing the completed
surveys, we found that some of this tailoring left gaps in data, which we have filled with
further follow- up calls.

B. SUMMARY OF RESULTS

       Appendix N presents the answers to our questions in summary form. For
questions 4, 15, 26 and 28, we have not attempted to summarize the survey results: these
answers are meaningful only in their raw form. In the remainder of this section, we will
provide a brief summary of the findings to each of the questions.

1. How do you define a capital project? Do you include equipment?

Most definitions specified either a minimum time for which the asset would be useful, a
minimum cost for the project, or some combination of the two. Dayton, OH and Phoenix,
AZ provided very interesting definitions. Dayton has a handbook that defines all terms
used in their CIP. Phoenix tied the cost and useful life of the asset together rather
elegantly: a capital project has a useful life longer than the term of the bond. Naturally,
that presumes that debt financing is used to pay for the asset, but because that is the most
common form of paying for capital projects, it seems appropriate.

2. Does the city have a multi-year capital program? How many years does it
   project?

Only 3 cities planned their capital program less than 5 years in advance. The other 13
projected 5 to 10 years out. For some assets like roads, buildings and bridges, some cities
are trying to project out 20 years or more. However, a number of budget directors noted
that abnormal, but nevertheless natural weather changes, for example, can make these
projections completely obsolete. Thus, these projections are most valuable for the coming
2 to 5 years. As will be discussed below, the states of Minnesota and Washington are
using sophisticated technology to make predictions about their street assets more
accurate.

3. Is the capital program adopted by the city council?

Again, the vast majority of the cities surveyed (13) have capital programs adopted by the
city council. Dayton is in the process of revamping their CIP process, thus city council
has not yet adopted it. The other cities that do not have the city council adopt the CIP
program are Milwaukee and Denver.



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5. Do you have a package of forms and instructions to assist departments in
   assembling their capital requests?

All 16 cities have these forms. Phoenix seems to have a technologically superior system:
all of their budget requests are submitted via computer. They are transitioning between
computer systems at present, so everything is not yet firmly established. Nonetheless,
they were the only city to use technology in this way.

6. Who is responsible for coordinating the capital programming/budgeting
   process?

In every case, the department of finance or the budget office coordinates the capital
programming/budgeting process.

7. Is the capital program/budget submitted to city council at the same time as the
   operating budget?

Minnesota considers operating and capital budgets in alternating years. Montgomery
County submits their operating budget 2 months after their capital budget.

8. Has the city established written capital and debt policies? Did the city council
   adopt them?

There is more dispersion in this question than most other questions. Twelve cities have
debt and capital policies, 3 do not. Of the 12 who have debt policies, 10 cities have them
adopted by their city council. In the other 2 cities, the policies exist either de facto or are
imposed de facto by the budget office.

Milwaukee’s debt and capital policies deserve special mention. They have been
converting their CIP from debt financing to pay-as-you-go for nearly 15 years. This
“infrastructure cash conversion plan” has survived a new mayor in 1989 and tremendous
turnover in the city council (only 5 of 21 members remain since the plan was first
adopted in 1985). This durability is even more remarkable considering that the city
council has formally adopted only one capital/debt policy. The rest are internal strategies
practiced in the budget office.

9. Does the city prepare multi-year revenue and expenditure forecasts for the
   capital program?

As with Question 2, most of the cities (9) forecast between 5 and 10 years. Denver
forecasts out for three years. Milwaukee is also interesting because their revenues never
appear in their capital program. Washington forecasts out 10 years; Portland forecasts out
5 or 10 years, sometimes as far as 25 years. However, such long term forecasts are often
significantly revised. Four cities do not forecast at all.




                                            IX-3
10. Is inventory and condition information available for streets, facilities, parking,
    sidewalks, etc.?

Nine cities have an inventory of their capital assets available—5 do not. Eight cities have
information about the condition of the capital assets available, 6 do not. Even those cities
that try to maintain these numbers have had a great deal of trouble. In most cases, none of
this information is collected or assembled at a central location. Instead, individual
departments track the inventory and condition of a particular asset. For example, streets
generally collects detailed information about the condition of the city’s streets. However,
sewer and water lines will be tracked by the department of public works.

Phoenix, AZ is an important exception to the above generalities. Their streets, and water
and sewer lines are all on a schedule of maintenance and upkeep. All roofs are on a cycle
of periodic inspection. They have put every asset owned by the city on a schedule to
either maintain or replace it. Milwaukee, WI also has a very innovative approach. They
assign every asset a grade between 1 (poor) and 10 (pristine). The city council has
established a policy of maintaining every asset at a particular grade (5.6). While their
schedule system is designed for, and therefore best used with streets, it applies to every
asset. Their schedules are so well-coordinated that they claim not to have any “deferred
maintenance”.

11. Have maintenance and replacement schedules been prepared for streets,
    facilities, sidewalks, parks, etc.?

Ten cities maintain such schedules, 6 others do not. Again, Phoenix and Milwaukee are
notable. In most cases, cities do a better job maintaining these records for their streets
than for any other categories or assets.

12 How many years are covered by the city’s replacement schedules?

Of the 10 cities who do keep maintenance and replacement schedules, two of the cities
project out less than 5 years. Five cities project out between 5 and 10 years.1
Montgomery County has 20-year cyclical repair and replacement schedules for some
types of buildings. In practice, some of these buildings are renovated or replaced every 45
years.

13. Is repair and complaint information collected by type of capital facility?

Seven of the cities collect repair and complaint information by type of capital facility in a
central location; 8 others do not.

14. Does the city have a computerized pavement management system?


1
  The sum of the number of cities who project out less than 5 years and the number of cities who project out
between 5 and 10 years is greater than the number of cities who maintain schedules in question 11. Denver
is the odd man out—they maintain different schedules for different assets.


                                                   IX-4
Twelve of the cities have computerized pavement management systems; 3 cities,
Montgomery county, Des Moines and Sacramento, do not. Phoenix’s software allows
engineers to change the value of different variables to see how different configurations of
maintenance will respond. Washington and Minnesota both have very sophisticated
pavement management systems. They collect very specific data and have the resources to
analyze it in minute detail. While Portland does not have data collection techniques as
sophisticated as Washington and Minnesota, their programs do seem remarkably similar.
Sacramento is also noteworthy: they have rated approximately 2500 lane miles of the
city’s road system.

16. Has a review checklist been developed?

These checklists describe the kinds of questions analysts should ask when receiving
capital project requests. Eight of the cities have developed these checklists, and 8 others
have not developed them. Some cities like Montgomery county have criteria that vary
significantly between project area. For example, transportation related capital projects
will be considered by a different committee than facilities related capital projects. Each of
these committees has different criteria that are included on their checklists. On the other
hand, the state of Minnesota and Milwaukee have uniform guidelines that all departments
follow, regardless of facility type. Every city in our survey would like to have such a
form, but some like Albuquerque have struggled to keep them in place. In many cases,
the project’s budget request form serves as a proxy.

17. How do you prioritize capital project requests?

Nine of the cities surveyed have pre-defined criteria to prioritize project requests, and 6
cities do not have such criteria. The most creative prioritization processes appear to be in
Dayton and Phoenix. Both cities have several subcommittees which supervise different
types of capital programs (e.g., transportation, facilities, non-transportation, etc.). In
Dayton, these committees have criteria which are reviewed annually, but have remained
essentially unchanged over time. In Phoenix, the citizen committees work closely with
each department to fit the requested projects within the available bond capacity. Their
criteria will change from cycle to cycle, as the bond capacity varies over time. Other
cities with more sophisticated prioritization methods include Albuquerque, Portland and
Colorado Springs.

18. Has information been developed to evaluate alternative methods of financing
    capital projects?

Five cities have examined alternatives to the financing options they currently use. The
other 11 are either content with the methods currently in use, or unaware of further
options they might exploit. Portland has examined opportunities to partner with private
and non-profit organizations to pay for CIP programs. Minnesota has recently shifted
much of their CIP funding from debt financing to pay-as-you-go, although they view this
trend as temporary. The change seems to stem from an economic boom, which can never
be counted on to last very long. Sacramento is considering assessing new commercial and
residential developments for maintenance of capital assets like parks or fire stations.


                                            IX-5
19. What financing methods are used by the city?

Cities displayed a remarkable degree of uniformity in financing methods currently in use.
Eleven of the cities use general obligation bonds, and 10 use cash in some form. Five
cities use special tax districts to pay for at least some of their CIP projects. Certificates of
participation and revenue bonds are also common sources of funding. Most cities try to
leverage state and federal grants to improve their capital infrastructure as well.

20. How are citizens involved in the capital process?

Eleven of the cities involve citizens in the capital process prior to the final consideration
of the capital budget. Of those 12, 10 cities have a formal process for collecting citizen
opinion on the capital program or specific capital projects, two have only informal
processes. Four cities have no mechanism to collect citizen opinion on the capital
program prior to final consideration of the capital budget.

Phoenix seems to be the vanguard of citizen involvement in the capital program. Phoenix
has successfully sold 98% of their bond issues to the public precisely because a citizen
committee of 250 creates the capital program. This committee has several subcommittees
that work closely with various departments. The departments make requests for different
projects, and the citizen committees prioritize these projects based on available bonding
capacity. Once the CIP program is set, this citizen committee is the point for “selling” the
bond issue to the voters.

Other cities that use citizen committees are Dayton, Montgomery county, Albuquerque,
Colorado Springs, Mecklenburg county, and Des Moines.

21. Are citizen surveys used?

While some cities (Dayton, for example) have used citizen surveys in the past, they are
somewhat rare. The preferred means of involving citizens in the CIP process today seems
to be forming volunteer citizen committees to work directly with city departments in
defining the CIP program and budget. The only cities that have used citizen surveys for
their capital program recently (within last 5 years) are Dayton and Portland. Other cities
like Albuquerque and Des Moines have used some citizen surveys, but these have been
administered by city departments. They have been designed, for example, to better
understand where a new library should be located, or whether a new recreation center is
wanted in the area.

22. Who is responsible for monitoring capital projects?

Nine of the cities monitor approved capital projects in the budget office, while 6 cities
monitor them at the individual department level.2 Most of the monitoring is not done very
formally. While every budget manager would like to formalize the process with some


2
 Because some cities have both the budget office and individual departments monitor capital projects, this
sum of these two numbers will be greater than 14.


                                                  IX-6
form, most cities have had difficulty tracking all of the projects. They have been most
successful with financial tracking; tracking the program side of a project has proven more
difficult.

Two entities seem to work better than most: the state of Washington and Albuquerque.
Washington automates the financial monitoring process. After appropriations are made
for a project, the project must get an allotment request and schedule. If actual
disbursements diverge significantly from the projected schedule, the Finance office will
ask more questions to understand if there are any problems.

Albuquerque assigns each project a number identifying its appropriation, expense,
revenue and encumbrance accounts. This allows individual departments to track for their
project as soon as appropriations are approved. Each month, the city’s accounting
division reports on how each project’s accounts have changed.

23. What percentage of the operating budget is earmarked for capital requests?

In nearly every case, the answers to this question were based more on historical data than
guidelines used by the city council to set aside some percentage for this function. Two
cities could not answer this question, as they do not pay for their capital programs with
any operating budget funds (this includes debt service).

Six cities indicated that they spend between 0% and 5% of their operating budget on
capital projects. One city, Des Moines, spends between 5% and 10%. Another city,
Montgomery county, spends between 10% and 15%, and 3 cities (Phoenix, Portland and
Sacramento) spend more than 15% of their operating budget on capital programs.

24. What percentage of the operating budget is earmarked for maintenance?

Only 3 of the entities, Dayton, Colorado Springs and Mecklenburg county, believed they
could estimate these numbers. The other 10 cities do not structure their budget in a way
to collect this information without extensive research of each department’s budget and
spending patterns.

25. What percentage of capital financing is pay-as-you-go versus debt?

Citygate divided the answers two ways. We grouped cities who financed 0% to 10% of
their capital projects via pay-as-you-go mechanisms, 10% to 25%, and more than 25%.
Among those who used more than 25%, we asked whether they viewed this as a
temporary or a permanent arrangement.

Six cities used pay-as-you-go to finance up to 10% of their CIP. Two cities used pay-as-
you-go for 10% to 25%, and 4 cities used pay-as-you-go for more than 25% of their CIP.
Of the 4 cities who use pay-as-you-go for more than 25% of their CIP, only Milwaukee
regards this as a permanent arrangement. The other two cities, Minnesota and Colorado
Springs, don’t expect this to last. Colorado Springs is pressing to pass a large bond
measure this spring, and the robust economy has blessed Minnesota with unexpected
surpluses which they are using in the CIP.


                                          IX-7
27. What criteria determine whether or not to defer maintenance?

With such an open-ended question, we were not surprised to find a broad range of
answers. However, two answers seem particularly important; the first because it was
mentioned so often, the second because it embodies the first rule of government: “First
do no harm.” Twelve cities cited financial constraints as very prominent in this decision.
Some indicated that finances are the foremost consideration. The second most popular
answer, curiously given only by 3 cities, was public health and safety. Other criteria
included obsolescence of facility and aesthetics.

29. Have deferred maintenance costs been estimated?

Only 3 cities, Montgomery county, Minneapolis and Minnesota, have tried to centrally
estimate deferred maintenance costs. Minnesota estimates that they have approximately
$1.5 billion in deferred maintenance costs (including higher education). Minnesota is
working on developing a formula that would describe when state agency facilities will
need repair and replacement. Among the cities we contacted, this appears to be a unique
project. Dayton began collecting this data centrally this year, and does not have reliable
numbers yet. Other cities either do not collect it at all, or rely on individual departments
for these estimates.

30. What is the procedure for determining the operating impact of capital projects?

Ten of the cities have a procedure in place, where the budget office collects this
information. None of the cities that have a procedure in place rely on departments to
initiate this information. In 5 cities, they have only a loose procedure, or no procedure at
all. Among cities with a program in place, most require the department to estimate these
costs as part of the application process. Finance/budget or accounting will then check
these numbers for realism, accuracy, etc.

31. What are the components of operating costs?

The three most common answers here were personnel, equipment and fuel.3 Fourteen
cities mentioned personnel, 10 mentioned equipment and 7 mentioned fuel.

32. Has a form been designed to collect impact costs?

Seven cities have a form to collect impact costs, 9 cities do not.




3
    We included utilities in the fuel category.


                                                  IX-8
                                                                   EXHIBIT IX-1
                                  Best Practice Survey


1. What is your definition of a capital project?

      Is equipment included?

2. Does the city have a multi-year capital program?

      How many years?

3. Is the program adopted by City Council?

      Request a copy

4. Request a copy of capital budget.

5. Request a copy of capital program/budget forms and instructions including project
   request forms.

6. Who is responsible for coordinating the capital programming/budgeting process?

7. Is the capital program/budget submitted to City Council at the same time as the
   operating budget? If not, when is it submitted?

8. Has the city established written capital and debt policies? Did City Council adopt
   them?

      Request a copy of policies.

      For example, debt policies might specify life of bonds, maximum value of debt
       per property value (as a percentage), or that debt not be used for operating
       purposes (that is usually a legal mandate from state law).

      Capital policies might require a 5-year capital improvement program, cap debt
       service at some percentage of the total operating budget, or require a statement
       describing the impact of a proposed capital project on the operating budget




                                           IX-9
                                                                      Exhibit IX-1 (Cont.)

9. Does the city prepare multi-year revenue and expenditure forecasts for the capital
   program?

      How many years are forecast?

      Request a copy.

10. Is inventory and condition information available for streets, facilities, parking,
    sidewalks, etc.?

      Request a copy.

11. Have maintenance and replacement schedules been prepared for streets, facilities,
    sidewalks, parks, etc.?

12. How many years are covered by the plans?

13. Is repair and complaint information collected by type of capital facility?

14. Does the city have a computerized pavement management system?

      Request a copy of reports

      Pavement management systems provide information on street conditions, types of
       repair services required, cost of repairs/maintenance, when repairs/maintenance
       are scheduled, etc.

      Get printouts from cities/counties/states of the different kinds of reports provided
       by their software—one page per format is sufficient

      (SL has no link between list of present needs and their long-term projections)

15. Who reviews capital project requests?

16. Has a review checklist been developed?

      Request a copy.




                                            IX-10
                                                                    Exhibit IX-1 (Cont.)




      This checklist would define what (kinds of) questions should be made when a
       capital request is made.

17. What priority setting method is used to prioritize projects?     Have criteria been
    developed?

          Request copies of forms and criteria and instructions.

18. Has information been developed evaluating alternative methods of financing capital
    projects?

      Request a copy

19. What financing methods does the City use?

20. How are citizens involved in the capital process?

21. Are citizen surveys used? How often?

      Request a copy of survey form.

22. Who is responsible for monitoring capital projects? Have monitoring guidelines been
    developed?

      Request a copy

      Request copies of monitoring (progress) reports.

23. What percentage of the operating budget is earmarked for capital projects?

24. What percentage of the operating budget is earmarked for maintenance?

25. What percentage of capital financing is pay-as-you-go versus debt?

26. How is deferred maintenance defined?

27. What criteria determine whether or not to defer maintenance?


                                          IX-11
                                                                    Exhibit IV-1 (Cont.)




28. How do you define maintenance?

29. Have deferred maintenance costs been estimated? How much?

30. What is the procedure for determining the operating impact of capital projects?

31. What are components of operating costs?

32. Has a form been designed to collect impact costs?


      Request a copy of form/procedure.




                                          IX-12

								
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