Capital Improvements Program (CIP)
The Capital Improvements Program (CIP) is one component of the District’s Five Year Business Plan and Budget (Plan) that serves as a comprehensive road map to achieve operational performance, capital replacements and preventive maintenance for the benefit of District customers over the next five years. The Plan identifies the work to be performed and the related rates to produce necessary revenues to achieve the Plan’s goals. The development of the Plan and the separate but inter-related annual CIP update are integral to sound financial planning. Staff is then tasked with the challenge to “live within the household budget” even though spending patterns and priorities within each year will remain flexible. Annually the business plan is reviewed and an updated spending plan is presented to the Board of Directors with an analysis of any changed priorities.
The Capital Improvements Program (CIP) is the foundation of the District’s long-range capital investments and financial planning intended to provide a comprehensive view of the new capital facilities and improvements to existing capital facilities required to successfully carry out the District’s mission: to provide quality water, recycled water, park and recreational facilities, and wastewater management in the most cost effective manner possible. This comprehensive approach provides an opportunity for District staff and the Board of Directors to:
- Prioritize capital asset investments;
- Project the rate and revenue requirements of each investment;
- Establish rates and charges that provide sufficient revenues.
Overall objectives of the CIP include:
- Appropriate replacement of aging and at-capacity sewer and water facilities including condition assessment;
- Ensuring safe and reliable water and sewer facilities;
- Compliance with regulatory mandates.
Furthermore, in response to the devastating Cedar Fire of 2003, the District adopted the following additional strategic objectives to ensure safety and reliability to its customers:
- Construction of a redundant transmission system through the Eastern Service Area including pipelines, reservoirs and pump stations;
- Backup emergency generators at all pump stations;
- Two reservoirs for every pressure zone to ensure storage reliability throughout the District;
- Pump stations sized to supply fire flow.
Additional priorities include condition assessment of all facilities, replacement of outdated hardware and software systems, and ongoing capitalized operations projects.
Almost every District CIP project is funded from either the Capital Replacement Fund (CRF) or the Capital Expansion Fund (CEF) or a combination of the two. The CRF is funded by rates charged to existing customers and by a portion of capacity fees paid by developers. CRF funds must only be used to benefit existing customers. The CEF is funded by the remaining portion of developer-paid capacity fees and can only be used to fund projects required by growth. Even when projects are funded with debt, the debt service is paid out of one or these two funds. Park projects are paid for out of Park funds.
It is important to understand that even though projects are typically funded by a combination of CRF and CEF; both funds are essentially restricted and cannot be used to supplement shortages in either fund balance. Great care is taken to assure that rate payers are not funding developer projects, and vice versa.
Annual CIP Budget Update
The CIP budget is updated annually. Board adoption of the CIP budget establishes the scope and budgetary costs of various capital projects designed to meet the long-term needs of the District. Typically, the Board adopts the CIP budget, along with the adoption of the operating budget. Board approval is required in various phases of implementation of each individual project. The Board has the opportunity to review projects and to approve different aspects of a project during planning, design and construction.