Capital Investment Planning
I. Capital investments
1. Means fixed big ticket items/ How big is big? Big ticket items are long lived. Concurrency build infrastructure before
2. Possible construction management/quality of life/ Capital investments in south Florida important for growth
3. Build new think of operating budget
4. Possible tie in with property tax and usage fee (toll/tuition/streets)
5. Economic development and infrastructure development—status and correction centers
Debt questions to this with affordability
6. States/cities have bond rates there maybe serious needs
7. Look at political legacy
II. Raw Politics vs. Rational Analysis
Raw Politics
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Legally mandates/emergencies
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Rational analysis
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Federal mandates like judicial deregulation
Unfunded programs like schooling/EPA
Economic rational but policy rational
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Demographics
Community vision
Current trends/Harding of infrastructure action
Funding infrastructure (FIN)
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Crisis with aviation with lack of infrastructure to meet demand
US greatest public transit system with people not willing to pay great user fees
III. Capital budgeting
Typically 5 years stated from FY08 adopt new law/finish in FY2012 at years with rational and political years
State and local have separate capital budget to buy for use
US federal government do not separate items. What the Feds do for operating purpose looks for operating impact quicker to make sure they are able to fly and run so all maintenance is included within cost
Promotion of human development with different class:
1. health care
2. education
Feel that Human develpment should be separate than infrastucture investments
Sate have bond ratings and appropriations for separate items for Toll/turnpike so they are sustaining
IV. CBA vs. cost effectiveness
This is the GO-no-GO decision vs. the select most effective approach
Discounting costs overtime should be “fee” driven and should do cost benefit analysis (CBA)
- lumpy decision making
- running the numbers—survey’s learn return on investment
- discounted cash flow-time value of $$
- make decision now or later
project A vs. project b—always selected the one which pays most money upfront because your money looses value over time
Project A
1,000,000
25000
25000
25000
25000
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Project B
1000,000
33300
33300
33300
33300
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Project B is better when you pay more money upfront
Discounted cash flow
Just looking at discounted cash flow analysis always pick the one where you spend more $ upfront you will get back more later in the future
100/(1.08)10=$50
so in 2008 it will costs 1.5 billion
yet in 2020 it will cost much less….
*$100 at 8% haw much will be the 100 in 10 years? Money is worth less in the future
Time value of money
Argued government use to lower than market interest rates to justify their capital improvement plans. Instead of a 1-5 scale how doe it impact
1. health and human safety
2. economic development
3. atheistic quality of life
4. future lost savings
Especially needed with small project that doesn’t generate income
How to value items?
Payback analysis
