capital investment planning is known as a). working capital b). capital budgeting c). financial planning d). forecasting
Answers
Explanation:
A capital plan provides a link between the municipality’s strategic vision, its urban land use plan, and its annual budget. One recognized best practice in municipal fiscal management is for a city to undergo a typically annual exercise of preparing a multiyear capital improvement plan. This type of plan would identify anticipated public infrastructure and investment projects, as well as a financing approach. A capital investment plan would describe the city’s policies and financial abilities to manage the investment needs associated with its spatial development and built environment. Key financial policies might include goals or guidelines for critical fiscal management metrics, such as the percentage of the annual budget to be committed to capital improvements, metrics to limit the size of annual debt service, and limits on total outstanding debt.
A capital plan would identify specific public projects as well as a general schedule. The first year of a capital plan would reflect the city’s budget for that fiscal year, and remaining years of the capital plan would represent an estimate of future capital needs to be funded through projected revenue estimates. The timeframe of a city’s capital plan is a local decision. For example, some cities prepare four-year plans (coterminous with a mayor’s term, for example) whereas others prepare six-year or longer-term plans.
A municipal capital investment plan would likely include a fiscal capacity assessment, in which the city estimates future revenues, future operating expenditures, and the amount of funds available to transfer to capital reserves. Sources of funds for a city’s capital plan might include own-source revenues (or “pay as you go” capital reserves); grants or transfers from other levels of government; grants from external sources; and long-term debt (for example, general obligation bonds backed by the full faith and credit of the issuing government). Capital investment plans should be reviewed annually and adjusted to take into account fiscal impacts of capital investments. For example, the construction of an upgraded transit hub increased the value of surrounding commercial uses and stimulated additional private sector construction, thereby increasing municipal property tax revenues.
Comprehensive, multiyear capital plans provide many benefits. They (a) promote the effective management of public capital assets; (b) encourage a municipality to consider funding requirements and the likely timing of major required investments, as well as future costs and timing of major upgrades; and (c) also bundle anticipated projects together, enabling a city to pursue outside funding sources to make up for any possible shortfalls. This can involve borrowing from the capital markets or applying for transfers or external funding sources. In short, capital plans can help cities operate more efficiently and help lower transaction costs.
Most cities lack the resources to fund an entire urban regeneration project from the existing municipal capital budget. It is common for a city to prepare a separate capital investment plan specific to an urban regeneration initiative. This type of plan might include an allocation from a city’s overall capital budget, project-specific grant funds from an external source, project-specific proceeds from accessing capital markets for bond-based finance, and other sources. Larger-scale initiatives may be expected to be phased in over a 10–20 year period. As such, not all funds need to be accessed up front. Therefore, a capital plan would need to address the likely timing of when funds would actually be required.