Coordinating Economic Development and Capital Planning

Type: 
Best Practice
Background: 

Economic development strategies provide the context for policies, programs and capital investments that governments undertake to attract and retain business and residents, increase employment, promote private investment and influence the type and location of development within a community.  Development potentially increases demands on existing transportation and utility infrastructure as well as on schools, parks and public safety facilities and services. Therefore, successful economic development strategies require coordinated long-term capital planning to ensure that the necessary infrastructure is in place to support development.

Recommendation: 

GFOA recommends that economic development strategies and capital improvement planning should be coordinated and integrated within and among governments.

Specifically, governments should do the following:

  1. Align the Organization-wide Goals and Objectives: Both the Capital Improvement Plan (CIP) and economic development strategies should be consistent with the organization’s overall goals and objectives and the community’s priorities.  
  2. Evaluate Potential Impacts and Benefits: The finance officer should be involved in the formation of capital planning and economic development policies and the attendant decision-making process from the outset, well before commitments are made.  Proposed investments should be evaluated using tools such as cost/benefit and debt affordability analysis. These analyses should be incorporated into capital plan development, and updated on a regular basis.
  3. Coordinate Economic Development Strategies with other Initiatives and Government Entities: Economic development and capital planning strategies should be integrated into the organization’s master plan, comprehensive plan, and long term financial plan to ensure consistency with other efforts. It should also include significant collaboration between departments and/or governing boards/commissions within the jurisdiction and between other jurisdictions in the region.
  4. Optimize the Time Element of Capital Planning:  Governments should coordinate the timing of economic development initiatives with related capital infrastructure projects. Whenever possible, the capital plan should cover a period of time long enough to include the infrastructure necessary to support economic development plans, recognizing that most capital plans span a five to ten-year period.
  5. Recognize the Value of Public Infrastructure as an Economic Development Strategy: Capital improvements may promote economic development, such as investments in utility and transportation capacity, physical improvements to a downtown, or new cultural and recreational facilities. However, these investments should not be made at the expense of maintaining existing infrastructure and facilities. Furthermore, finance officials should be on-guard against ad-hoc, unplanned development and land acquisition “opportunities” that inevitably emerge, especially when such initiatives supplant important priorities that were identified as part of the normal capital planning process.  
  6. Estimate the Impact of Development on Existing Assets and Ongoing Maintenance: New development will put additional burden on existing assets and will cause those assets to deteriorate faster. Hence, local governments should estimate the impact on these assets as part of a development proposal and build them into their capital planning and on-going maintenance spending. Governments should also consider these costs as part of the cost/benefit analysis of the development proposal.
  7. Estimate Full Lifecycle Costs of New Capital Assets: This should include not only the initial capital cost but also the annual cost of maintaining new assets throughout their economic lifecycle.  Policies that reinforce up-front consideration of lifecycle maintenance costs, and sufficient annual funding of such, have long term fiscal benefits. The impact of operating costs for any new facilities that might be included as part of the initiative should also be considered in the analysis.
  8. Identify Appropriate Opportunities for Developers to Fund Capital Assets: In some cases, governments may be able to work with private developers to fund or providepublic and/or private infrastructure such as roadways, storm water, water or sewer, or other improvements, as part of an economic development project/agreement. Mechanisms should be put in place to monitor and ensure that developer obligations are addressed and consistent with the overall development plan.
Approved by GFOA's Executive Board: 
September 2018