Miniapple Game—CIP Session

The city is preparing a Capital Improvements Plan (CIP) for the next five years.  The CIP is a schedule for purchasing or replacing the various capital assets which the city owns.  A capital asset is any durable good which has an expected life greater than 3 years.  All roads and other public infrastructure are capital investments (a road usually has to be substantially rebuilt every 30-50 years; sewer pipes can last as much as 75-100 years), as are public buildings (again, every 30 years or so you can expect major renovations—for the roof, if nothing else), but so are most vehicles (like fire trucks and snow plows) and some equipment (like mainframe/minicomputers and communications equipment).  On the other hand, police cars are “expense” items (their expected life is 3 years or so), as are microcomputers (which are obsolescent after 3 years). 

Prudent planning would suggest that whenever a new capital item is purchased or acquired (the city typically buys firetrucks, but new roads are often “dedicated” to the city by the developer of a new subdivision), it should be added to the bottom of the Capital Assets list, so the city has some idea of how much will be needed in impending future just to maintain what the city already has.  In practice, the city only looks down the next five years of the list when doing the Capital Improvements Plan, and ideally the plan should be re-examined annually.  The process of Capital Improvement Planning is one of balancing the need for replacement/improvements against the available resources (and the public’s willingness to pay to provide those resources).  So….

The city has annual tax revenues of $4,359,000.  The city has adopted as policy a conservative debt/revenue ratio of 10% (which means $435,900 is available annually for capital projects).  The current tax debt is $200,000, which is being retired in equal increments over the next 5 years (which means that, besides current tax revenue available for capital projects, there is an additional $200,000 each year coming available for General Obligation Bonds—in other words, loans).  The city has been receiving $100,000 a year from federal revenue sharing, and floats a maximum of $750,000 a year in revenue bonds (these are loans that are repaid from project revenues, rather than the city’s general tax base).  The city maintains a capital reserve fund of $50,000 each year (a special fund for replacing capital equipment).

The city council has met in a work session and developed the relative ranking of various categories of capital improvements:  Health and Safety are the top priorities, with economic development and fiscal efficiency (ratio of benefits to costs) in the middle, and quality of life and improving the housing stock next.

Of the top 15 capital improvement projects, 3 are slated to be funded specifically by revenue-sharing funds:

·        New computers for city hall ($50,000)

·        Renovate the library and convert it to current technology ($150,300)

·        Renovate the civic auditorium ($741,000)

The capital reserve fund will be used for a new road grader for the streets department ($150,000)

Two projects are slated for revenue bonds:

·        A district mosquito spraying project ($100,000)

·        A harbor access project ($1,634,000)

The remaining projects are to be funded by whatever funds are available:

·        Water reservoir repair ($60,000)

·        New sewer rodder ($45,000)

·        Historic neighborhood area improvements ($185,000)

·        Harbor access road ($100,000, with another $3,500,000 due in 5 years)

·        Annual sewer reconstruction ($35,000 each year)

·        Special oil storage buildings ($121,000)

·        Waterline extensions ($45,000)

·        New lights for athletic fields ($35,000)

·        Upgrading facilities at public cemetery ($37,300)


1.      Which projects (all or part) would you fund in the first year?  Which would you hold over to the second year?  Which would wait even longer? 

2.      In making your decisions, how did you balance technical criteria (the weights) against other more qualitative issues?  How did you resolve the problem when weights gave conflicting results?

3.      Compare your selection to that of other classmates.  What did you learn from the comparison?

4.      People often argue at election time as if there were one best solution to every problem.  What does this exercise suggest to you about that position?


© 2003 A.J.Filipovitch
Revised 28 May 07