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Mar 26

[ARCHIVED] How Does a Library Get Built?

The original item was published from March 26, 2018 4:49 PM to March 26, 2018 4:57 PM

Ever wonder how a library – or for that matter a fire station, a bridge, or a park – gets built?  How are decisions made?  Who makes them? How are projects funded?  This blog post, my second on the annual budget development process, focuses on capital projects: what they are, how they are selected, how they are funded, and what all this means to you.  Over the past 100 years, the City has developed $1 billion in assets and it’s critical to protect this significant investment by replacing or rehabilitating assets when necessary.

What exactly is a capital purchase?

A capital purchase is generally an asset with a long life expectancy, such as a building or a bridge, that may take more than one budget year to design and build. These purchases are quite often financed over a period of years aligned with the asset’s expected life.  Capital purchases stand in contrast to the operating expenses, items like police and fire services, that I mentioned in my last blog post.  Most often capital items are purchased with funds secured by the issuance of debt.  An easy way to understand this is to think of your own household where groceries, utilities, and clothes are purchased regularly and most often with cash – these are your operating expenses.  By contrast, your auto and home are purchased much less regularly and are most often paid for by funds borrowed from a bank via a loan. These are your capital purchases.

How are capital projects selected?

As you can imagine a city of Roanoke’s size and population has many capital needs ranging from pieces of equipment, such as sanitation trucks and fire trucks, to buildings and bridges.  So how does the City choose which of these projects are selected, and in what order?  The City Council and City staff guide this prioritization process via a few related documents.  The first set of documents that guide this process includes Master Plans or documents that assess the need and prioritization of investments.  These plans include the Parks and Recreation Master Plan, the Library Master Plan, etc.  The second set of documents is the Capital Improvements Program, or CIP.  The CIP identifies projects and project cost estimates by year for each of the next five years.  These products are reviewed and approved by the City Council at a public meeting.  The CIP is further discussed annually as a part of the budget process, representing the allocation of that year’s expenditures on capital items.  In the FY18 budget, this amount equated to $59,855,347.

How are Capital Projects Funded?

Remember that “$2900 Per Person Annually” discussed in my previous post?  Well, a portion of that is used to pay the annual debt obligations of the City – the annual debt service.  For the budget currently being developed for FY19, this is projected to equate to $13,200,110 (General Fund) and $14,969,743 (General Fund and Civic Facilities Fund).  In most instances, this debt is a general obligation of the City and is backed by the taxes collected annually.  Most bonds are repaid over a long period, generally 20 years.  Occasionally, the debt is for a shorter period based upon life expectancy of the purchase.  For example, debt used to purchase a piece of equipment or a vehicle might be paid back in as short a time frame as seven or 10 years.  Additionally, in some instances debt is repaid based on fees or charges for specific services.  These enterprise operations function like a business with revenue earned paying for the annual debt service.  In Roanoke, capital for stormwater management is an example of this approach. 

This approach to planning for, prioritizing, and funding capital purchases has been relied upon since the City’s inception.  This is how Fire Station #1 was constructed in 2007, how Memorial Bridge was built in 1926 and how the Municipal Building was completed in 1970.

So, there you have it, $2900 per person per year buys what is needed to run a city the size of Roanoke, including its daily operations and long-term investments in major facilities and equipment. 

If you are interested in learning more about funding local government, you are encouraged to visit the City’s budgeting section of the website or you may want to read this article published by Governing Magazine that provides greater insight into the process. Of course, you can always send me an email with any questions or comment on this blog as well.

- Bob Cowell