Best Practices to Streamline Capital Budgeting for Long-Term Planning

Public works and utilities often look at their capital projects from a different perspective than the finance department, both of which may have different objectives than the elected leaders who will ultimately approve the projects. When it comes to budget time, this can add to confusion surrounding the needs of the utilities, from identifying if a community needs to sell a bond to determining whether rate adjustments are required. Having the information readily available and in a format that everyone understands will streamline the process.

Here are some best practices for your capital budgeting process:

  1. Number your projects. While not every community has multiple projects each year, having a numbering system can help keep track of projects as they may span several years, involve multiple ongoing loans, or have project segments that impact a number of different funds. Bonus – These numbers can often be added to your accounting system’s depreciation schedule to help reference items later.
  2. Determine which departments or funds will be affected. As you evaluate and identify funding for the project, it’s important to clearly identify which department will be tasked with carrying the initial cost of the project. A watermain project may coincide with road reconstruction; clearly identifying upfront how much of the project will be paid for from the water utility versus the road/transportation fund is important.
  3. Identify the funding source. The project funding source doesn’t stop at the department level. Revenue can be generated from a number of funding sources within a department. From utility rates to impact fees or sales tax, knowing where the money will ultimately be coming from helps ensure you can plan to cover expenses as they are incurred. Bonus – having a standard dollar amount for when to consider bonding as part of your project funding policies can help make those decisions easier.
  4. Consider project cash flow. In public works we often look at the total cost of the project and overlook that we may need that money over a span of two or three years. While it’s important to know the total so those who approve the project know the magnitude of what they’re approving, understanding if the amount is spread over a number of years will affect rates and the overall project funding plan. 

While these are some basics, having a clear understanding of these items going into budget season for each of your projects will make for a more streamlined process to evaluate options and identify the right solution. Consider adopting these items as part of your standard capital budgeting procedures. If you’d like to discuss further items to help, please contact AE2S Nexus Financial Services Coordinator Ryan Graf.