2010-2015 CIP Goes to the BOF
Wednesday, September 23, 2009 at 2:02PM The Town's process for preparing the annual Capital Improvement Plan (CIP) calls for two initial lists of projects to be developed: one by the Board of Education (BOE) for all school related projects, and another by the Board of Selectmen (BOS) for the rest of the Town's departments. Once prepared, the process calls for the two lists to be submitted to the Board of Finance (BOF). The BOF is then responsible for merging the lists, resolving priorities between the two, and then recommending a final capital budget to the Legislative Council.
While some have suggested that the BOF does not make “political” decisions but is simply reviewing the financial quality of the project plans and capital funding (bonding) situation of the town, the reality is that the current process implicitly gives them two significant duties: making the quality (political) decisions on the relative merit the BOE and BOS projects, and establishing what the overall total capital expenditures of the town should be. Although the Legislative Council can overrule the BOF it rarely does so.
Currently we are at the stage of the process where the two lists have been submitted to the Board of Finance. The BOE and BOS lists are available separately; however, to make it easier to review I have combined them into a single list available here. The list itemizes the projects by year of planned expenditure and department.
The combined plan is for $106 million of bonding, a 60% increase over last year's CIP. Although the total plan is for $123 million, the bonding portion is the most significant as it creates a legacy for the town. The remainder of the funding is from state grants ($8.1 million) and from the expense budget ($8.7 million). The breakdown of the proposed spending by department is shown in this pie chart:
Two things stand out on this chart: the large size of the Fairfield Hills request and the relatively small size of the Board of Education request. The Fairfield Hills request is for over $30 million in entirely new requests, not included in previous capital plans. The BOE is by far the largest enterprise of the Town's government, consuming 60-65% of the Town's expense budget; however, its portion of the proposed capital budget is about half what you might expect from the expense ratio. If the Fairfield Hills requests were eliminated the BOE portion would still be a low 43%.
So what accounts for the 60% increase in the overall plan? With the capital plan covering a 5 year horizon, you would not expect to see a significant change in the plan from year to year. Normally changes would be due to new projects being added to the farthest out year in the plan. In this year’s plan, however, the increases occur in the “middle years” of the plan, years that should have been forecasted in last year’s plan. The "middle years" in this year's plan are 2010-11 to 2013-14. The changes by department are shown below:
The biggest change in the middle years is Fairfield Hills; $24 million of its proposed projects occur in years that should have been forecast in previous budgets. The second largest increase is Parks and Rec, mostly for the community center to be built at Fairfield Hills.
The BOE budget actually declined slightly ($265K) in the middle years, not because any projects were eliminated but, rather, because of better cost estimates. Some people might accuse me of "cooking" my analysis in favor of the BOE by limiting the changes to the "middle years", because the 5th year of the plan includes a proposal for a significant new project, $14 million of bonding for an expansion of the Middle School. I would counter that by saying the 5th year is the appropriate place to introduce major new projects, and if the analysis was to look at all 5 years of the plan, then the BOE portion would actually drop $11.7 million (including the Middle School project) because the High School Expansion appears on last year's plan.
The detailed plan includes a number of projects that are spread over several years. To make it easier to see the impact of these multi-year projects the chart below shows the total spending over the entire 5 years by project:
This long list of projects highlights a key shortcoming of the Town's capital approval process. Only the very largest projects receive signficant attention from the voters. The Town's charter requires that all projects over $10 million go to a townwide referendum. Smaller projects, after approval by the BOF and the LC go to a "special town meeting". These are lightly attendend affairs, often by only a couple of dozen people. These small capital projects create a legacy for future expense budgets, adding debt service which must be paid each year. The combined effect of all capital projects is almost 10% of the expense budget, and the small projects account for over half of that amount. A great deal of attention is usually given by the community to the annual expense budget election, but not to these small capital projects, creating what I think is a somewhat false sense of security.
It's also common for large projects to be broken into pieces each of which is under the referendum threshold. For example, in the list above the Fairfield Hills building demolition consists of a number a projects, each under $10 million. Breaking a large project into small pieces so that it can pass through the rather opaque special meeting system is not in the best interest of the Town or the democratic process.
For Fairfield Hills, the separation of projects into "Utility Infrastructure" and "Sidewalk, Roadway and Storm Installation" is also pretty artificial. They are all infrastructure related work and all interrelated. It's a classic case of you can't be a little bit pregnant. If the projects are approved incrementally the town may well find itself committed to finishing all of them. The appropriate way to manage Fairfield Hills is to combine all the projects into a single CIP item that can be placed before the town. That should also include the Community Center since it is part of the overall justification for Fairfield Hills. If the town simply needs a Community Center, it would make sense to look at all alternatives to see if there is a better value than spending $9 million at Fairfield Hills.
The CIP process will continue with the Board of Finance modifying the current list, and a final approval by the Legislative Council. I'll continue updating this blog (article) as the process progresses.