5 Tips for Investing Effectively in Capital Infrastructure

Every Budgeteer (and I suspect, every elected official) knows the feeling of being dragged around by the loudest or last-voiced community priority. The larger and more diverse the city or community, the more variation in how individuals prioritize public goods. That’s normal, and good! Inclusion of these many voices is a community strength. Still, no one enjoys pitting education and childcare against outdoor spaces or bridges and roads. And no one wants to defer maintenance on administrative buildings until they become a legal liability. And yet – the fundamental spirit of any budget process is to face these choices and facilitate exactly this tough decision making.

1. Ground your prioritization methodology in data

The best defense against a contentious capital budget process, or one driven by ill-vetted pork, is a rigorous, documented review and assessment process for both new and existing capital assets. Data from regular facility condition assessments, vehicle histories, and demographic projections is foundational to developing a robust, multi-year capital plan. But this information is also powerful protection against chaos in the planning process, cost over-runs, service interruptions, and delays. The more expert advice, structure, and thoughtful analysis you use to inform your capital plan, the more resilient it will be in a tough and sometimes emotional political environment. And the better prepared you’ll be to get ahead of maintenance and operational crises down the road.

2. Establish a “State of Good Repair” standard and stand by it

Frame your maintenance and replacement cycles around a universal State of Good Repair, and build consensus around prioritizing it. Establish and document a standard definition for that status, and use your data (see #1!) to develop a real plan for reaching it by a goal year.  Generally speaking, most decision-makers can support the logic of maintaining existing assets – and the constituencies that have come to rely on them. State of Good Repair is your bulwark against the pillaging of the old in support of the new and shiny.

3. Seek high utility investments

Imagine two potential capital projects. One is a popular community center, with rooms booked most nights of the week, a much-used gym, senior programming, and an in-demand childcare center. The community center’s HVAC system is at the end of its useful life, and it can certainly get uncomfortable in there on hot or cold days. The second project would make critical ADA improvements (ramps, elevators, and accessible stalls) at a historic public administration building. The administration building is primarily used by city employees, but the general public does access it to vote, pay fees and fines, attend hearings, and do business with the city. In sheer numbers, there are a lot more people who are experiencing discomfort thanks to the failing HVAC system than are affected by the ADA incompliance. But for those who are affected by accessibility limitations, their ability to interact with their government in the most basic, essential ways is severely curtailed by the existing building configuration. To put it in an economist’s terms:

HVAC Project Utility = Small Per-Person Utility x Big Number of People

ADA Project Utility = Large Per-Person Utility x Small Number of People.

So which one should you pick? Trick question! Both projects are extremely high utility, though their relative cost may differ. These are the exact type of projects that any prioritization framework should elevate due to their high impact potential – and they’re a good way to check if your process design makes sense.

4. Consider maintenance costs and fiscal sustainability

Let’s say you have a new proposal to open a new aquatic center – and maybe the project is even being funded in part by a private donor or grant. What a great deal, right? Well, maybe. It’s important to remember that the sticker price of your capital project (even at 50% off) is only part of its true lifetime cost. Whether the extra costs are staffing, maintenance, equipment, or programming, integration between the capital budget and its future operating budget implications is essential to conduct a functional vetting and prioritization process. Further, there may be important choices in capital construction that affect future operating costs – think low-maintenance materials or security-informed design. These choices may have a higher up-front cost, but their value becomes clear in a long-term financial model for the project. And every project (particularly those that are intended to last for 10, 20, 50, even 100 years) should be subject to this kind of review and analysis.

5. Budget your capital in a multi-year financial plan

A multi-year capital and operating budget can help address some of these longer-term decision points and prevent the emergence of funding cliffs. Furthermore, a multi-year financial plan also helps set community expectations, hold space for consensus-building, and ensure that assessments and other planning efforts have adequate lead time. It also makes room in the operating budget for debt and capital investment as a strategic priority rather than as an ad-hoc availability.