CIP can avoid tax spikes by evaluating purchases over time
My last column introduced the county's capital improvement plan. This CIP is a schedule of major purchases that the county plans to make over the next five years. An important purpose of the CIP is to make budgeting more predictable. By planning ahead, we can space out major purchases, minimizing the need to borrow and avoiding spikes in the tax levy.
In theory, when our CIP is complete, we will have identified all major purchases five years in advance. In each year that follows, we evaluate whether we still need the item and, if so, we re-estimate the cost of the project and it moves one year closer to being funded. When the fifth year approaches, the board appropriates money and the truck is purchased or the road is built.
Our public works fleet illustrates how the plan works. When the board adopted our 2014 budget last November, it also approved the county's 2014-'18 CIP. Among other purchases planned for 2018, the CIP calls for replacing a tri-axle dump truck at the cost of $181,202. If 2018 looks like a particularly bad year, we might recommend that the truck purchase be moved up a year or that a lower priority capital project be removed from the plan. Deferring the truck purchase is also a possibility; however, I am often reluctant to do so because of the slippery slope it creates. When equipment is operated well beyond its useful life, breakdowns and increased maintenance costs are often the result.
There is, all too often, a disparity between the CIP, in theory, and the plan that actually is implemented. Projects don't always enjoy a five-year run on our CIP; there are two basic reasons why this happens:
• Deletions. Occasionally, a project may be removed from the plan before it is funded. New technology may have made an item unnecessary or a department may have re-evaluated its need for the purchase. In most cases, I don't sweat it when an item comes off the list. Unless it is replaced by a more expensive alternative or doesn't represent the kind of deferred maintenance that I mentioned earlier, taxpayers often come out ahead when a purchase is eliminated. One of the most notable deletions from our CIP, in recent years, was a proposed jail addition. As our jail was reaching capacity in 2009, I included a $9.6 million expansion as part of my proposed 2010-'14 CIP. The board approved the additional jail space, which was to be constructed in 2012, but set out to look for alternatives. Supervisors spent the next year studying different options, ranging from increased use of electronic monitoring to supporting treatment courts. Fortunately, at the same time, major stakeholders in the county's criminal justice system, including the sheriff and the courts, were on a parallel track. Between the board and these stakeholders, significant progress was being made, but not to the point where I felt confident that a complete solution was at hand. The 2011-'15 CIP re-estimated the cost of the expansion at $11.5 million but deferred construction until 2014. Over the course of the next year, a number of important initiatives were implemented at a fraction of the cost of adding new jail beds. The jail expansion project was then removed from the CIP.
• Additions. It is when a major expense lands on the CIP with relatively short notice, as in we need to replace the roof on some building next year, the red flags go up. I always ask, because I know our board will ask, why we didn't have more advance notice of the expense. If we are truly being proactive, surprise purchases, those made with less than five years' advance notice, should be kept to a minimum.
There can be good reasons to make exceptions. This year, we will be adding a chiller to the air conditioning system at our nursing home at a cost of $215,000. The new chiller first appeared on our CIP in the fall of 2013, only months before we intend to purchase it. This very late addition was the result of the failure of one of the two chillers serving the building, during the hottest week of last summer. We learned from our experience that one chiller can keep the building safe for occupancy; however, the result is far from comfortable. In this case, the addition of a chiller will provide redundancy and lessen the impact on residents and staff when the existing chillers need to be maintained or replaced. We could have put the new chiller in the CIP as a 2018 purchase; my logic for expediting the purchase was that buying it early will provide insurance against what happened last summer.
We have made progress, but we still need to do a better job on our long-term planning. A five-year lead time is often the exception, rather than the rule, in our CIP planning. On the other hand, the board needs to be cautious never to blindly follow to a five-year schedule. I would hate to buy something we may not need simply for the sake of adhering to the plan. The goal of our CIP should, ultimately, be to serve taxpayers.
Dave Bretl is the Walworth County administrator. Contact him at (262) 741-4357 or visit www.co.walworth.wi.us.