Capital Improvement Program (CIP)
The County's Capital Improvement Program (CIP) is a five-year plan that prioritizes and provides a funding mechanism for large-scale capital infrastructure improvements in the County. These improvements include significant upgrades to existing infrastructure and facilities and/or the addition of new infrastructure and facilities. In order to qualify as a capital improvement, a project must have a useful life of five years or more and cost at least $50,000. Montgomery County's CIP is an integral part of the County's overall budget.Financing of capital projects
There are two primary methods of financing the construction costs for capital improvements. The first method of financing is debt financing, which is the sale of bonds. The type of bonds sold can be General Obligation Bonds or Revenue Bonds. The second method of financing is cash-to-capital financing, which is direct cash contributions for capital projects. Cash-to-capital contributions are one-time funds that are used directly for construction.
In addition to construction costs, the County must also pay for the operating costs of new capital projects. Operating costs include debt service costs, facility maintenance costs and program costs. Operating costs vary depending on the type of facility and/or infrastructure constructed. These costs are included in the County's operating budget.
Decisions concerning the type of financing are made based on the costs of the project, current and future debt obligations, yearly operating costs and the County's General Fund Balance. Below is a list of the County's Capital Improvement and Debt Policies.Budget policies
The County will consider all capital improvements and develop a five-year plan for capital improvements. An annual budget based on a five-year capital improvement plan will be enacted. Future capital expenditures necessitated by changes in population, changes in real estate development, or changes in economic base will be calculated and included in these capital budget projections.
The County will also coordinate the development of the capital improvement budget with the development of the County's operating budget. Future operating costs associated with new capital improvements will be projected and included in operating budget forecasts.
Intergovernmental assistance will be used to finance only those capital improvements that are consistent with the capital improvement plan and County priorities, and whose operating and maintenance costs have been included in operating budget forecasts. The County will maintain all its assets at a level adequate to protect the County's capital investment and to minimize future maintenance and replacement costs.
Equipment replacement and maintenance needs will be projected and updated for the next several years. From this projection, a maintenance and replacement schedule will be developed and followed. The County will identify the estimated costs and potential funding sources for each capital project proposal before it is submitted for approval.Debt policies
The County will confine long-term borrowing to capital improvements or projects that cannot be financed from current revenues except where approved justification is provided. When the County finances capital improvements or other projects by issuing bonds or entering into capital leases, it will repay the debt within a period not to exceed the expected useful life of the project. Target debt ratios will be annually calculated and included in the review of financing trends.
- Net debt per capita should remain under $2,000. Net debt is defined as any and all debt that is tax supported.
- Net debt as a percentage of estimated market value of taxable property should target 3%, but not exceed 4%.
- The ratio of debt service expenditures as a percentage of governmental fund expenditures should target 10%, but not exceed 12%.
- The ratio of net debt per capita as a percentage of income should target 7.5%, but not exceed 10%.
- The County recognizes the importance of underlying and overlapping debt in analyzing financial condition.
- The County will explore the usage of special assessment, revenue or other self-supporting bonds instead of general obligation bonds.
- The County will retire tax anticipation debt, if any, annually and will retire bond anticipation debt within six months after completion of the project.
- On all General Fund supported, debt-financed projects, the County will attempt to make a down payments of at least 5% of total project costs in the aggregate from current resources.