FIVE-YEAR CAPITAL IMPROVEMENT PLAN FY 2023-2024 TO FY 2028-2029

Introduction

The City of Royal Oak’s Capital Improvement Program (CIP) is a planning tool, with a goal to identify and schedule capital improvements for fiscal years ending 2024‐2029. The CIP will also be summarized within the City’s upcoming proposed budget document for fiscal year 2023‐2024.

However, the CIP is an opportunity to formulate strategic long‐term policy decisions that extend beyond the 2023‐2024 fiscal year. Each year, the City of Royal Oak invests significant time and resources to design, construct, and maintain the infrastructure and facilities needed to deliver municipal services to residents and businesses. Because of the high costs associated with building and maintaining capital assets, the City must carefully balance the need for such assets with our requirements to sustain a strong financial position.

Royal Oak’s CIP addresses projects that are needed, or will be needed, across a broad spectrum of areas. Annually, a significant amount of effort is expounded to update the CIP to ensure not only critical needs are being met, but also that the cost, scope, and timing of all projects are coordinated throughout the planning horizon. Coordinating the timing of different projects in the same location is particularly important since it helps us to minimize service disruptions.

The CIP allows for responsible and thoughtful planning of future major expenditures that are not necessarily financed or automatically included in the annual budgeting process. That said, the CIP is not always an exhaustive list of all projects that will be completed in any given year.

Specifically, the purpose of the CIP is to:

• Identify and evaluate the needs for public infrastructure and facilities.
• Determine cost estimates for each capital project submitted.
• Determine if there will be future operating costs for such projects.
• Determine potential sources of funding for such projects.
• Adopt policies for implementing capital improvement construction.
• Anticipate and pre‐plan projects with an emphasis on seizing opportunities for partnerships and alternative funding.

The projects identified in the CIP represent the City of Royal Oak’s plan to serve residents and anticipate the needs of an evolving and dynamic community. The following documents were considered in preparation of the CIP:

• Master Plan for Land Use
• Strategic Plan
• Water System Master Plan
• Results of Sewer Televising Studies
• Parks and Recreation 5‐year Master Plan
• Pathway and Sidewalk Prioritization Analysis and Process
• Non‐Motorized Master Plan ∙ Parking Lot Inventory and Maintenance Plan
• ADA Compliance and Transition Plan for City Owned Pathways
• ADA Compliance Transition Plan for City Owned Facilities
• Royal Oak Transportation Improvement Plan—TAMC

Definition of a Capital Improvement

A capital improvement is defined as any new equipment, construction, acquisition or improvement to public lands, buildings, or structures more than $10,000 on an individual basis with a minimum life expectancy of three years. Maintenance‐oriented, operational, or continuous expenditures are not considered to be capital improvements.

Impact of Capital Budget on the Operating Budget

As new policies and programs are approved, both the operating and capital budgets are impacted. For example, an increase in service levels approved as part of the operating budget would have long‐term effects on funding available for the Capital Improvements Program. Similarly, a restrictive change to the use of long‐term debt would likely slow capital programs. Regardless of the difference between the operating and capital budgets, the two are interdependent. Budgetary policy states that all foreseeable operating costs related to capital projects be estimated and provided for as part of the review process associated with the Capital Improvements Program. In addition, departments are requested to estimate costs associated with operating and maintaining capital projects that are proposed for the upcoming year.

Legal Basis of the Capital Improvements Program

The Capital Improvements Program has been authorized by the Michigan Planning Enabling Act (Public Act 33 of 2008). This mandate gives responsibility for recommending a CIP to local Planning Commission bodies, and reads as follows:

125.3865 Capital improvements program of public structures and improvements; preparation; basis.

Section. 65:

“(1) To further the desirable future development of the local unit of government under the master plan, a planning commission, after adoption of a master plan, shall annually prepare a capital improvements program of public structures and improvements, unless the planning commission is exempted from this requirement by charter or otherwise. If the planning commission is exempted, the legislative body either shall prepare and adopt a capital improvements program, separate from or as a part of the annual budget, or shall delegate the preparation of the capital improvements program to the chief elected official or a nonelected administrative official, subject to final approval by the legislative body. The capital improvements program shall show those public structures and improvements, in the general order of their priority that in the commission's judgment will be needed or desirable and can be undertaken within the ensuing 6‐year period. The capital improvements program shall be based upon the requirements of the local unit of government for all types of public structures and improvements. Consequently, each agency or department of the local unit of government with authority for public structures or improvements shall upon request furnish the planning commission with lists, plans, and estimates of time and cost of those public structures and improvements.”

Planning and Benefits of the Capital Improvements Program

The CIP is first and foremost, a planning tool. It can be quite useful as a primary guide in implementing the Master Plan for Land Use. With thoughtful foresight and review resulting from a CIP, the many outstanding capital projects that communities are faced with implementing every year, can be viewed as one package, rather than as small, fragmented groups or lists, with no unified sense of focus and direction. When capital improvements begin with careful planning and study, the City of Royal Oak’s

chances for receiving State and Federal grants are greatly enhanced. Some grants require the inclusion of a CIP with their application. Formulation of a CIP assists those involved to look at alternative funding mechanisms that might not have been considered before. Instead of relying on local revenue sources alone, the CIP allows the City to think more creatively to fulfill Master Plan for Land Use goals and policies. The CIP often avoids reactive planning, and instead replaces it with balanced growth initiatives.

CIP Development Process

Capital improvement planning is a year‐round process, with City departments continually re‐evaluating and prioritizing their capital needs. However, the process is most involved from July through February. It is during this period that City staff implement approved construction activities, identify and prioritize projects, estimate and bid out project costs, determine available resources, and balance project requests within the available resources.

Collaboration between the City Manager’s office and all of the City departments is critical to the successful creation of the CIP. Capital projects originate in the operating departments where subject matter experts identify needs based on master planning documents and other technical criteria. While most project recommendations originate from the Engineering Division and Departments of Public Services, Information Technology, and Public Safety, every city department participates in the process.

The Finance Department compiles and coordinates the annual update of the CIP as part of the annual budget process. Finance Department staff also forecast revenues for the various funds used to finance capital projects and set the financial parameters for the development of the CIP. Once compiled, all requests are submitted, along with a preliminary evaluation of the established financial parameters, for a public hearing and plan review by the Planning Commission. The City’s Planning Commission approves the recommended CIP prior to it being included in the City Manager’s annual budget which is ultimately presented and considered by the City Commission.

The following timeline is an overview of the CIP development process:

July – November: Operating departments identify projects, define project scopes, prepare cost estimates, and prioritize projects based on direction received from the City Manager. Capital project requests are submitted to the Planning and/or Engineering Divisions, Public Services Department or other coordinating departments for review and feedback. Department Directors review project requests before final submittal.

December: Capital project requests are submitted to and reviewed by the Finance Department and compiled into the CIP documents.

January: The CIP is presented to the City Manager’s office for evaluation and consideration, making necessary adjustments, as needed.

February: A public hearing takes place during a Planning Commission meeting. Following the public hearing, the Commission approves the Recommended Capital Improvement Program. City Administration finalizes the recommended CIP for the consideration of the City Commission during the financial budget process.

March/April: The CIP is incorporated into the City Manager’s proposed budget which is presented to the City Commission.

How Capital Affects the Current and Future Operating Budget

The Capital Improvement Program has direct and sometimes significant impacts on Royal Oak’s operating budget. Upon their completion, most capital projects require ongoing costs for operation and maintenance. For example, new buildings require electricity, water/sewer service, and maintenance. New roads require regular sweeping as well as periodic crack filling and sealing, patching, milling, minor resurfacing, and replacement of stripes and markings. New parks and landscaped rights‐of‐way (such as medians and streets shoulders) require irrigation, fertilizing, mowing, and trimming. Some projects could also require additional employees for staffing programs, operation, and maintenance.

Departments submitting capital projects are requested to estimate the operations and maintenance costs of each project based on cost guidelines that are updated each year. The departments also consider any additional revenues or savings the City can reasonably expect to recognize upon completion of the project. For example, membership fees from a new recreation center would help to offset the operating costs. The net operating costs are included not only in the project request, but also

in the long‐range forecasts of the respective funds to ensure that we properly account for operating budget impacts of all capital projects.

CIP Funding

There are multiple methods available to local governments for financing capital improvement projects. Since capital improvements require large outlays of capital for any given project, it is often necessary to pursue multiple creative solutions for financing projects.

General Obligation (G.O.) Bonds

These types of bonds are especially useful for financing large municipal projects such as infrastructure improvements. They require voter approval and usually are used for projects that will benefit the residents of the entire community. When the City sells G.O. Bonds, the purchaser is basically lending money to the city. The amount of the bond, plus interest is repaid through property taxes that the City, as the issuing authority, has the power to levy at the level necessary and within State guidelines to retire

the debt. A variation of the G.O. Bonds is the G.O. Limited Tax Bonds which can be repaid through tax millage. The interest rate for this type of issue is slightly higher than for the G.O. Bonds, and though voter approval is not required, a referendum period is afforded to the citizenry to challenge the proposed bond resolution.

Revenue Bonds

These bonds are generally sold as a means for constructing revenue‐producing facilities such as water and sewer systems, and other such facilities that produce tolls, fees, rental charges, etc. (i.e., parking structures). Security for and payment of revenue bonds are typically based upon the revenue‐producing facility or activity rather than the economic or taxpaying base.

Federal Grants

Funding is made available to cities through Federal grants and programs. Grants are usually subject-specific and require application by the local government for consideration. Amounts of grants vary and are determined by the grantor through criteria‐based processes. The availability of grants is usually a competitive process, so creative and effective grant writing is crucial to receiving funding for capital improvement projects.

Enterprise Funds

Enterprise funds are typically established for services such as Water, Sewer, Recreation, Auto Parking, Farmers’ Market, Ice Arena, and special events. Revenues are generated primarily through user charges and connection fees from those who benefit from the improvements.

Developer Contributions

Developers, as part of site planning requirements or development agreements, may provide infrastructure, open space, and recreational facilities. Developers may contribute a share of funds to the government entity, or install the facilities themselves as local need arises, and/or during the construction process. Once completed, the local government entity may agree to maintain the facilities.

Special Assessments

Special assessment financing allows local government to collect special taxes from owners of property directly benefiting from capital improvements. These types of improvements often include streets and sidewalks, sanitary sewer, storm drainage, and water distribution systems.

Gas and Weight Tax

The City of Royal Oak receives a formula‐rated share of motor fuel and highway usage taxes from the State of Michigan to be utilized for transportation and maintenance‐related projects.

Millage

Property taxes are based upon the local millage rate. Revenue received from property taxes may be used for capital improvements as part of the General Fund, but such improvements are usually smaller scale and less expensive.

General Fund

The General Fund for the City of Royal Oak may be used for capital improvements; however, it is not the intent of the CIP to earmark these funds for projects. Instead, smaller scale, less expensive capital projects with a high priority could be funded as line‐items.

State Shared Revenue

In addition to the Gas and Weight Taxes above which are shared revenue, the City receives its share of various taxes and fees from programs and requirements by the State of Michigan.

Public/Private Partnership (“P3”)

This type of financing has become increasingly popular in areas where creative financing is fostered. In many communities the local revenue share may not support some types of public improvements. In contrast, private developers may avoid taking on a project where the infrastructure cost far exceeds profitability. This method of funding brings both the public sector and private contributor together to share in the costs of a project, or a part of a project, which inevitably lessens the overall financial burden

falling onto a single source.

Miscellaneous Funding

There are additional methods that are suitable for funding capital improvements. Examples of alternative funding methods are Tax Increment Financing (TIF), impact fees, facility user fees, etc. Current State legislation does not permit some of these funding methods, which have been used successfully in other states. Changes in legislation could see these and other innovative methods permitted in the future.

CIP Expenditures by Category

The following is a table that summarizes the City’s anticipated expenditures/expenses for all CIP projects by CIP category. This table does not include “Projects Under Review”. The CIP categories mentioned in this table are defined on the following pages and include graphs to help illustrate the total dollar amount budgeted within each category over the next six years.

While the strategic goals of “vibrant local economy” and “long‐term fiscal health” were not listed as the primary goal of any of the projects included in the CIP, these projects will most certainly contribute to the successful progress toward these goals.