Manual for Capital Investment Planning by Co-PLAN

MANUAL FOR CAPITAL INVESTMENT PLANNING

Co-PLAN, Institute for Habitat Development Address: Rr. Dervish Hima, Kulla Ada, Apt. 11 P.O. Box 2995, Tiranë. Web: www.co-plan.org

Authors:

Anila Gjika (Co-PLAN) Altin Mihali (Co-PLAN)

Editor(s):

Dritan Shutina (Co-PLAN)

Contributors:

Jorida Cila (Co-PLAN) Fatos Hodaj (AAM) Jani Fuli (Municipality of Fier) Ardian Çela (Municipality of Durrës) Arjan Barbullushi (Municipality of Lezhë)

Graphic design: CreoStudio Printing House: Afrojdit

CAPITAL INVESTMENT PLANNING FOR LOCAL GOVERNMENT UNITS

The Manual of Capital Investment Planning for Local Government Units was prepared in the framework of the “Enabling Good Governance through Improving Municipal Management Practices” Project, under the NOSA Program 2008, and the “Enabling Good Urban Governance-extension” Program, which Co-Plan, Institute for Habitat Development has implemented in the municipalities of Fier, Durrës and Lezhë, in partnership with the Albanian Association of Municipalities.

Funded by SOROS-Albania and the Dutch Government via the Royal Netherlands Embassy in Tiranë.

The Royal Netherlands Embassy

The Manual for Capital Investment Planning was prepared by the experts who were engaged in the “Enabling Good Governance through Improving Municipal Management Practices” Project, under the NOSA Program 2008, and the “Enabling Good Urban Governance-extension” Program. Special thanks for the formulation of this manual go to the Mayors of the: City of Fier, Mr. Baftjar Zeqaj; City of Durrës, Mr. Vangjush Dako; City of Lezhë, Mr. Viktor Tusha; whose leadership guaranteed the coordination of the design processes of Capital Investment Plans in the respective municipalities. The information used to prepare this material is a contribution from all the specialists engaged in the CIP facilitation groups that were set up in the municipalities involved in this project, especially the following: At the Municipality of Fier: Mrs. Eriselda Çobo, Deputy Mayor, Mrs. Antoneta Dhima, Head of Finance Department, Mr. Flamur Mato, Head of Strategy Coordination, Mr. Fadil Tare, Head of the Tax and Tariffs Department, Mrs. Elida Qyrana, Head of Service Department, Mr. Shaqir Kurti, Department of Strategy Coordination. At the Municipality of Durrës: Mr. Besnik Kërtusha, Head of Service Department, Mrs. Drita Alikaj, Head of Finance Department, Mrs. Ardiana Kacerja, Head of Tax and Tariffs Department; At the Municipality of Lezhë: Mrs. Eris Bejo, Head of Urban Planning Office, Mr. Prek Miraj, Head of Finance Office, Mr. Bib Gjoni, Head of Tax and Tariffs Office; and all specialists involved in this process.

Albanian Association of Municipalities

Municipality of Lezhë

Municipality of Durrës

Municipality of Fier

Table of Contents INTRODUCTION .....................................................................................................................................7 1.1 1.2 1.3

TO WHOM MAY THIS MANUAL BE OF USE? ................................................................................8 HOW MUCH TIME DOES IT TAKE TO DESIGN A CIP? ..................................................................8 WHAT FINANCIAL RESOURCES ARE NEEDED TO UTILIZE THIS MANUAL?..................................9

CO-PLANâ&#x20AC;&#x2122;S APPROACH TO THE DESIGN OF CIP ......................................................................10 2.1

HOW CAN WE USE THIS MANUAL?...........................................................................................10

CHAPTER I: OVERVIEW OF CIP .....................................................................................................12 1.1 1.2 1.3 1.4

WHAT IS THE CAPITAL INVESTMENT PLAN (CIP)?.................................................................12 WHY DESIGNING A CAPITAL INVESTMENT PLAN?..................................................................12 WHAT ARE THE ADVANTAGES OF THE CIP? ...........................................................................13 WHAT ARE THE STEPS TO DESIGN THE CIP? ...........................................................................14

CHAPTER II: DEVELOPING THE CIP METHODOLOGY AND POLICIES............................17 2.1 2.2

THE OUTLINE OF THE CIP DESIGN PROCESS ............................................................................17 DEVELOPING THE CIP POLICIES ..............................................................................................18

CHAPTER III: THE IDENTIFICATION OF CIP PROJECTS.......................................................21 3.1 LEVEL

THE STEPS FOR THE IDENTIFICATION OF CAPITAL PROJECTS AT THE LOCAL GOVERNMENT 21

CHAPTER IV: ASSESSING LOCAL GOVERNMENT CAPABILITY TO FINANCE THE CIP ....................................................................................................................................................................24 4.1 4.2 4.3 4.4

POSSIBILITIES OF FINANCING CAPITAL INVESTMENTS ...........................................................24 ANALYSIS OF POSSIBILITIES AND MEANS OF FINANCING ........................................................24 ANALYSIS OF LOCAL GOVERNMENT FINANCIAL RECORD .......................................................26 ANALYTICAL ESTIMATION OF LOCAL GOVERNMENT REVENUES ..........................................28

CHAPTER V: CAPITAL INVESTMENTS AND THEIR PRIORITARISATION CRITERIA ..31 5.1 5.2

THE METHODOLOGY OF PRIORITARIZATION OF CAPITAL PROJECTS........................................31 SELECTION CRITERIA FOR CIP PRIORITY PROJECTS ................................................................32

CHAPTER VI: PREPARING THE CIP DOCUMENT .....................................................................35 6.1 6.2

PREPARING THE CIP DOCUMENT ............................................................................................35 THE OUTLINE OF CIP DOCUMENT AND ITS APPROVAL ............................................................35

CHAPTER VII: MONITORING OF THE CIP ..................................................................................38 CHAPTER VIII: THE ACTION PLAN AND CALENDAR FOR THE CIP DESIGN .................40 ANNEXES.................................................................................................................................................42 REFERENCES.........................................................................................................................................59

Introduction Local governments are presently confronted with sharp challenges to improve the management systems and local capacities with regard to financial and administrative aspects. There is a need for improvement stemming from a series of initiatives undertaken by the central government, such as the decentralization of competencies in the provision of public services, legalization of informal areas and the needs for the creation and management of information databases. On the other hand, in view of the local government demands to assume greater responsibilities and competencies, there is an emerging need for participatory processes that involve the civil society as well as for transparency and social accountability. In this framework, municipal financial management issues remain essential to all local authorities, particularly in major cities, administratively speaking, where a continuous need for better and more efficient management of revenues and expenditures has been witnessed. For three years, Co-PLAN has been engaged with the municipalities of Fier and Elbasan in the implementation of the Enabling Good Urban Governance Program (EGUG-II), therein developing and implementing City Development Strategies, City Regulatory Plans, Local Economic Development Plans, and platforms for Managing Information Systems, thus accumulating a good experience in the field of urban governance and capacity building at local level. The above-mentioned program has opened new ways for further developments in the field of urban governance in Albania. The models achieved through this program have served as the basis on which to build new projects, this time funded not only by the Royal Netherlands Embassy but also by the SOROS Foundation in Albania and LGI in Budapest. The aim of these projects is at enabling good local governance through improving the practices in the field of municipal financial management. The projects funded by SOROS–Albania and LGI-Budapest focus on the municipalities that have been beneficiaries of the DELTA Program. During the first year, its beneficiaries were the Municipalities of Durrës and Lezhë. The project funded by the Dutch Government via the Royal Netherlands Embassy, on the other hand, was focused on the municipalities of Fier and Elbasan. In the framework of the EGUG-Extension Program, one of the main objectives to be accomplished in the aforementioned municipalities was to design a Capital Investment Plan (CIP). As an important instrument to the local government, the CIP enables the translation of the City Local Economic Development Strategy in financial and timeframe terms. The multi-year Capital Investment Plan, greatly discussed recently, serves as a “key” strategy to enhance the efficiency and the stability of local governments. Capital Investment Plans enable a better control over the prioritarization of investments, while ensuring a more transparent relationship with the local community. Co-PLAN, via the “Enabling Good Governance through Improving Municipal Management Practices” Project and the “Enabling Good Urban Governanceextension” Program, has been engaged in the operationalisation of Local Economic Development Strategies of the cities of Fier, Durrës and Lezhë into Capital Investment Plans.

The manual presented in this document is a synthesis of its work in the abovementioned municipalities, in an effort to generalize and standardize the steps that LGUs can follow throughout the process of designing the Capital Investment Plan. This document can be used as a reference to design the CIP process in the local government context, prepare the final CIP document for approval, and further throughout its implementation and monitoring phases.

1.1

To whom may this manual be of use?

The Capital Investment Plan helps coordinate and harmonize the investment programs of local government units with those initiated by the central government authorities, thus allowing for a more efficient use of financial resources. Using this instrument also enables and ensures the cooperation between residents, businesses and various donors. Capital Investment Plans are considered as legitimate management instruments, since they are designed and approved by the citizens; therefore, they serve to attract foreign donors and potential investors. Additionally, this manual embodies an effort to address the needs that LGUs are facing for a more efficient management of the funds earmarked for investments. LGUs are under the obligation to prepare medium-term budgets, which they submit to the central government. Oftentimes, these budgets are made within the finance departments and do not represent the real needs of the local government. Therefore, the Capital Investment Plan presents an instrument that is in compliance with and a substitute for this central government requirement. Within this framework, during 2008 Co-PLAN has assisted the municipalities of Fier, DurrĂŤs and LezhĂŤ in designing Capital Investment Plans for the period 2009-2012. In each of the municipalities, the CIP design followed the same methodology, explained in this document. 1.2

How much time does it take to design a CIP?

The design of the Capital Investment Plan for a 4-year period, as further discussed in the document, is based on an action plan. The time needed to prepare the first Plan of Investments varies from one local government unit to the next. The influencing factors in the process are the size of the LGU, the working group engaged in the process, institutional structure, LGUâ&#x20AC;&#x2122;s experience with regard to formulating local development strategies, existence or absence of strategic documents, capital projects, etc. The experience of Co-PLAN in the abovementioned municipalities has shown that the time needed for the whole CIP process varies from seven to ten months, within a year. Each step of the process needs a specific amount of time during the CIP formulation. Furthermore, since CIP is a multi-year plan, its accompanying documents need to be

revised and adjusted to meet new demands, which is carried out throughout each budgetary year. 1.3

What financial resources are needed to utilize this manual?

Each time when dealing with planning processes, the main necessary resources are human and time resources. Co-PLANâ&#x20AC;&#x2122;s experience in the municipalities of Fier, DurrĂŤs and LezhĂŤ shows that a successful approach is a process that is led by a multidisciplinary group covering specific issues of the local government, including the budget, design of projects and preparation of bills of quantity for investments, urban and strategic planning, local taxes and their collection, local assets, donor programs or projects, etc. nevertheless, it is the local government itself that should decide on the size and composition of the working group and the time available for the CIP design.

Co-PLANâ&#x20AC;&#x2122;s approach to the design of CIP While the decentralization process is being further consolidated and local governments are assuming increasingly more competencies, the chief challenge remains to meet the investment needs through their limited revenues. Recently, local governance in Albania has made significant progress in the areas of local economic development and strategic planning; yet the problem of â&#x20AC;&#x153;unfunded projectsâ&#x20AC;? remains the main concern in the implementation of strategies. For this reason, the need has arisen for clear policies for financing and implementing local economic development strategies, as an important instrument of development and good governance. In addition, there are efforts by all stakeholders to fill the gaps and improve the reform on fiscal decentralization. The latest development on this issue is related to the drafting of legal provisions on local borrowing. In this regard, the CIP is a substantial mechanism to improve the municipal financial management and turn strategic plans into action plans, thus making an impact on local capacities and at the same time ensuring increased local revenues. The CIP has an impact on effective governance, enhances transparency with regard to municipal finance and the image of decisionmaking. Meanwhile, it serves as the starting point for the monitoring and implementation of strategic documents. 2.1

How can we use this manual?

This document provides a set of basic instruments and techniques, which respond to the needs of local governments in the whole country. For all those local government units that have to design a capital investment plan for the first time, it provides a stepby-step guideline to design, implement and oversee a capital investment plan; meanwhile, local governments that have already prepared such a plan and would like to further improve the process can find in this manual techniques and examples from the process, which they may find useful. The document describes the steps designed to cover all of the activities that might be undertaken during the CIP design process. Smaller local government units may adjust the process and opt for only those steps of it which prove efficient in a particular context. Other major units lacking approved development strategies might opt to add more steps to the process or adjust time frames for specific stages. In any case, in spite of the adjustments that can be made to the process, the final outcome will be a plan which appropriately addresses the capital investment needs and ensures the support of all of the concerned parties - local government, citizens, businesses, etc.

Chapter I: Overview of CIP 1.1

What is the Capital Investment Plan (CIP)?

The Capital Investment Plan (CIP) is a multi-year plan, usually spanning 4-5 years. It is designed by the local government and identifies the capital projects to be financed during its planning period. The CIP identifies all local public assets to be rehabilitated, renovated or reconstructed; in addition, the starting year, the value of outlays (in lekë) anticipated for each project along with the proposed way of financing these expenditures. In most cases, such information is summarized in a table showing the capital expenditures for each year, broken down by program, sector, or way of financing. Despite of being designed for a period of 4-5 years, the capital investment plan is subject to revision each year. It is recommended that approval by Municipal Council be taken on an annual basis. The capital investment plan should be distinguished from the budget for capital investments. The latter corresponds to the first year of the capital investment plan. The Capital Budget authorizes the specific projects to be implemented during the CIP’s first year, explaining the allocation of funds for these projects. It is adjusted to the local government unit’s operating budget and offers the possibility to operate with specific projects. The projects and the financial resources listed in the CIP for the subsequent years, after the first year, are not authorized until the annual budget for these years is elaborated.

1.2

Why designing a Capital Investment Plan?

The CIP can serve to several important functions at the local government units, including the following: CIP provides an integral overview of the needs and opportunities: One of the CIP’s main functions is to bring together the staff of the local government unit interested or engaged in investments, including those who directly work on investments and other departments less involved in the process. Together, these departments can choose what to purchase, construct, repair, and the ways of financing these costs. CIP provides an instrument for financial management: One of the main concerns in designing the CIP is the prioritarization of the current and future needs, in accordance with the possibilities and financial limits of the local government unit. The CIP takes in consideration not only what the community needs, but also equally importantly, what the community can afford to finance. Preparing a CIP that is based on a realistic forecast of financing of investments, within possibilities, differs from a “wishlist” that

contains projects that will unlikely be implemented. CIP establishes the local government unit in control of all the investment decisions. CIP serves as a reporting document: The document produced during the CIP design process provides a clear description of the projects anticipated for implementation during the planned period. This document presents to the citizens, businesses and other stakeholders in the city the investment priorities and plans for future projects of the local government unit. In this way, the community is provided with a better overview of the investments plan of the local government unit and thus can make better informed decisions.

Conclusion: CIP â&#x20AC;&#x201C; A multi-year plan (4-5 years) designed by the local government. The CIP identifies: i. Assets to be rehabilitated, reconstructed, renovated; ii. The year/years when it will start/be implemented; iii. The cost needed for implementation; iv. The proposed way of financing the investment The CIP is presented as a summary table, which includes the expenditures of each year broken down by: (i) Overall program; (ii) Main sector; and (iii) Way of financing. The CIP is approved by the Municipal Council. The CIP (i) provides an overview of the needs and possibilities; (ii) provides an instrument for financial management; and (iii) is used as a means for documentation and reporting.

1.3

What are the advantages of the CIP?

The local government unit can benefit from a number of advantages in designing and making use of the Capital Investment Plan, as follows: CIP gives focus to goals, needs and possibilities of the local government: Through the CIP process, the local authorities select priority projects, which should be consistent with the community needs and goals. As part of the process, but also in the framework of the local economic development strategy, the local government re-emphasizes the priorities and needs of its community and local businesses. Also, the CIP permits the analysis of the most appropriate ways of financing an investment, by taking into account the loan affordability of the local government unit and, at the same time, the extent to which some of the projects can recover their costs (generate quick revenues). This process serves as the basis to ensure that infrastructure investments are included in the capital plan and, on the other hand, to balance the community needs by offering the opportunity to finance these projects from all the possible sources of financing. CIP ensures wide-scale public awareness on the needs for designing a local effective planning: One of the key components during the CIP design is the involvement of 13

citizens in the pre-selection, selection and prioritarization of the projects. Community participation helps gather support for capital projects, since the process allows the public to understand in a wide scale the needs of all, along with the possibilities for these needs to be affordable. This way the community supports this process and ensures its legitimacy. Through CIP, communication and cooperation among the local staff involved in the formulation process is improved: The CIP design process helps enhance the cooperation and communication between the technical and financial staff both within the municipality and at the Municipal Council. By working together to coordinate and plan capital investments, their timing, financing and implementation, projects will be prepared in a more complete manner. Obviously, the coordination of activities for the CIP enables it to serve in the best way the interests of the whole community, not only the narrow interests of a group or a local government unit. The CIP helps local government avoid costly mistakes on infrastructure investments: The CIP can serve local government to avoid the costly mistakes on projects that might result in failure due to their not being complemented by or linked with subsequent projects, or the lack of necessary funds. As projects will be considered over a period of years and no longer for one year, the local government will be able to build more sound scenarios for the investment prior to deciding to spending on them. As well, the CIP supports and ensures the project’s extension over time as financial resources are secured in different periods. The CIP helps the local government unit enhance its financial stability and performance: By making a forecast of the financial resources necessary for the capital projects, the CIP can help guarantee the financial stability of the local government. Capital projects prioritized through the CIP and extended over time according to the level of revenues will help local leaders make accurate decisions with respect to local finances issues. Conclusion: The investment plan has the following advantages: It gives focus to the local government goals, needs and its financial possibilities It ensures wide-scale public awareness on the needs to formulate effective local planning It improves cooperation and communication among the local staff involved in the design process It helps the local government avoid errors in estimating infrastructure costs It helps the local government enhance its financial sustainability

1.4

What are the steps to design the CIP?

The design of the Capital Investment Plan includes several important steps, which make possible the implementation of this document. While the steps are similar for all local government units, the CIP design process in itself can vary in accordance with the size of the local government unit, the policies for community involvement, 14

organizational structure, size of the unit (number of staff), fiscal situation, etc. Each local government unit might adopt its own model in accordance with the abovementioned variables, as well as to ensure that it meets the goals and objectives of designing the CIP. Local government prepares this model and, if necessary, submits it for approval to the Municipal Council. In general, the capital investment plan is organized in five steps, which are summarized below. Each step is further detailed in the document. 1) Formulation and elaboration of the CIP methodology and policies 2) Identification of potential CIP projects i) Analysis of the project portfolio of the city development strategy ii) Analysis of the existing and future situation in the city iii) Revision of projects already approved 3) Identification of various sources of financing the investments 4) Categorization and prioritarization of projects i) The prioritarization process ii) Methodology iii) Preparation and adoption of the multi-year CIP 5) The CIP monitoring process

Conclusion: The Capital Investment Plan is organized in five steps, as follows: 1. Formulation and elaboration of the CIP methodology and policies 2. Identification of potential CIP projects i. Analysis of the project portfolio of the city development strategy ii. Analysis of the existing and perspective situation of the city iii. Revision of projects already approved 3. Identification of various sources of financing the investments 4. Categorization and prioritarization of projects i. The prioritarization process ii. Methodology iii. Preparation and adoption of a multi-year CIP 5. The CIP monitoring process

Chapter II: Developing the CIP methodology and policies 2.1

The outline of the CIP design process

Given its importance and strategic role, the design and development of the Capital Investment Plan, as any other process, needs a clear plan of activities and sufficient time to implement it. Local government units should create a structure within their unit to manage the process and the CIP design. The responsibilities for the organization of the CIP process vary in accordance with the needs of the local unit or community; however, what is important is the identification of the responsible structure of the process. Without a clear understanding as to who is in lead of the process, it will likely end up in confusion and be inefficient. One of the main tasks facing the local government unit interested in designing a CIP is to assign a facilitator for the design of CIP. The facilitator might be an individual or a committee/working group established within the municipality to design the CIP. In the case of the municipalities of Fier, Durrës and Lezhë, where the capital investment plan has been designed, the respective municipality appointed a working group, also called the CIP Facilitation Group (or simply CIP group). The facilitator is charged with ensuring that the process of designing the CIP goes according to the formulated plan and procedures set at the outset of the process. Coordination and communication are important elements of the CIP, since its design might involve many actors. For this reason, the facilitator (the CIP working group/committee) gains special importance, becoming the representative figure of the process. The CIP facilitator must be an individual or group of individuals who have cognizance of the CIP design process and will ensure its implementation throughout the foreseen stages until the finalization of the process. The responsibilities of the facilitator of the process (the CIP working group/committee) are as follows:

The CIP facilitator formulates and develops the CIP methodology Prepares the CIP calendar Assists the preparation of the list of projects Assesses step by step the possibility of financing the proposed projects by guaranteeing: > The identification of income sources for capital projects. This might include revenues that are generated once only, e.g. from the sale of a property, etc. > The generation and acquisition of incomes for the replacement of capital equipment

Guides the process of identification and prioritarisation of capital projects to be included in the CIP and the preparation of requirements to be fulfilled by a project in order to qualify as a Capital Investment (the selection criteria) Prepares the CIP form/model of presentation for approval by the Municipal Council and defends it before the Council Monitors step by step the implementation of the process

In any case, especially when the CIP facilitator is a committee/working group within the municipality, it is necessary that in this group the highest authorities and specialists who have all the necessary information from the following departments are included:

Finance Department Public Services Department (including also the enterprise/office responsible for the Water and Sewerage Provision) Tax and Tariffs Department Urban Planning Department Department of Strategy Coordination (Dept. of Coordination/Development)

It is important for the highest authorities of the local government unit to guide this working group in order to ensure the best approach to all local needs (municipality/city). 2.2

Developing the CIP policies

Initially, the CIP facilitation group should: (i) determine the sort of capital projects to be included in the CIP; (ii) determine the period CIP will cover; (iii) prepare a calendar identifying the main activities and their time frames; and (iv) formulate a strategy of community involvement in the process. This information must be described in a document that is distributed to all LGU’s departments, including its highest authorities. The reason for this is that, in designing and implementing the CIP, it is recommended that certain specific policies be pursued which are accepted by all the actors involved in the process. It is very important for the local government administration to create a clear understanding regarding the classification or non-classification of any capital investment. This is because, in spite of some flexibility, there is often a lack of clear understanding as to which project/investment should and which should not be included in the capital investment plan. Having said the above, what are some of the policies that local government might pursue to facilitate this process? The defined policies are specific and differ according to each local government unit. Nevertheless, the following few cases help create a better idea on them: Example: One policy might the setting of some basic criteria in the allocation of revenue sources (revenues plus unconditional grant) in the framework of the CIP implementation. For instance, forty percent of the revenues in the budget will go for

capital investments, in order to ensure the realization of a capital investment according to the forecast, within a 4-year period. Example: The municipality has as priority the provision of 24 hours/day water supply to the citizens. It follows that, based on the anticipated revenues for investments generated in the current year (estimated by the municipality) and their forecast for a 5year period, for example, as well as the policies adopted by the Municipal Council (if the latter has set a threshold of revenues allotted for capital investments, e.g. 30-40 percent), the municipality will be able to provide water supply to the city after five years. Capital Investment Planning implies the period of years over which capital investments are forecasted, that is, over how many years the capital investment plan will extend. Generally, the projects foreseen for implementation during the first or second year can be easily evaluated in terms of their goals, costs, expenditures and available fund. Forecasting the costs and the sources of financing beyond this period becomes difficult. If the capital investment plan would only include projects anticipated for implementation in the subsequent 1-2 years, consequently it would exclude those projects that have a longer period of implementation. Thus, the long-term focus obliges the parties involved in the process to pay attention not only to the urgent but also to the future needs. Local government units should seriously consider the longterm investment planning if they want to have access to market loans to meet their infrastructures needs. Lenders prefer to see a long-term focus; therefore, this becomes one of the principal factors in determining the borrowing capacity of the local government units for different purposes. In most CIP design processes, a period of planning 4-5 years has proven to be the most favorable. Its first year serves as the capital budget of the local government, while the remaining three to four years represent the planned years. In order to keep to the period planned by the CIP, its updating should be made on an annual basis, by adding another year at the end of the program, along with the list of projects anticipated to start in that year. Preparing the CIP calendar: From the outset of the process, the CIP facilitation group should prepare the CIP calendar, in order to coordinate different tasks and responsibilities. The calendar is an instrument which identifies â&#x20AC;&#x153;who does what and whenâ&#x20AC;? throughout the CIP design process. It also serves to guide all of the actors involved in the process, allowing them to be informed on its time frames and approval. Citizen involvement in the process of designing the CIP: Designing the Capital Investment Plan offers the local government yet another opportunity to engage citizens in the planning and prioritarization of capital projects. Citizen involvement in this process becomes even more important in case the local government has not yet formulated a strategic development plan nor compiled a list of the strategic projects that it will implement.

Chapter III: The identification of CIP projects From the beginning, it is important to specify on which basis the classification of projects as appropriate for inclusion in the CIP will be made, as well as what the criteria further employed to prioritize them over multiple years are. During the preparation of projects to be included in the CIP, both new and existing projects whose implementation is likely to continue throughout the period of CIP implementation are considered. Projects might result from the revaluation of projects foreseen by the City Development Strategy, discussion with the Mayors of Districts1, internal needs raised by different departments of the local government unit, discussion processes and the citizen participation and so on. After that, however, they will be selected and assessed by the working group/facilitator of the CIP design, which is followed by their prioritarization according to the criteria explained below. 3.1

The steps for the identification of capital projects at the local government level

Revaluation of the projects foreseen in the City Development Strategy: The majority of local government units in Albania have designed local economic development strategies or city development strategies with assistance from foreign donors. As the basic instrument for implementing these strategies, the capital investment plan, in one of its most important steps of identifying capital projects, enables the revaluation of the projects foreseen in the strategy. At this stage, all projects foreseen as strategic investments are analyzed, revaluating them according to the CIP policies and criteria. The worthiness of these projects and their implementation time frames are reviewed and further their prioritarisation is made based on the criteria discussed further in the document. Evaluation of the existing conditions of city infrastructure and future service needs. As a second step in identifying capital projects, the local staff led by the CIP group must evaluate the infrastructures conditions according to respective responsibilities. To best perform this task, they need to know the age, conditions, maintenance records and their cost of replacement; therefore, it would be most appropriate for each department to start record the state and quality of the respective physical infrastructure. Interventions for reconstructions of physical infrastructure are recorded on the capital inventory, which can further be a useful and valuable instrument. This information will serve to determine the effectiveness of the interventions in a timely manner. Assessing other capital investment needs, e.g. urban or development projects: Creation of green areas, social housing, creation of new parking lots, etc. Reviewing the projects approved earlier. In some cases, projects approved earlier will unlikely be included in the CIP, because of them being dropped or shifted from the list of priorities, physical conditions at the time of their approval have changed, etc.

1 Subdivision of a municipality (city)

Summary of proposed projects. During the process of identifying capital projects, the CIP group may demand the making of project proposals according to a standard form. This form should include: (i) the project title; (ii) project description and goal; (iii) justification of investment; (iv) schedule of activities and milestones; (v) cost of intervention and cost of maintenance, etc. In addition to that, the working group may ask for more information on projects approved earlier. The tables synthesize the information the CIP group needs for the subsequent stages of the CIP design. The CIP group should distribute detailed guidelines on how to complete the forms, in order to ensure that the information is accurate and clear.

Conclusion: The steps for identifying capital projects in the local government units: Revaluation of the projects foreseen in the city development strategy Evaluation of the existing conditions of city infrastructure and future service needs Assessment of other needs for capital investments, e.g. urban or development projects Revisiting projects approved earlier Summary of proposed projects

Chapter IV: Assessing local government capability to finance the CIP 4.1

Possibilities of Financing Capital Investments

This chapter presents the potential sources to finance capital investments and further elaborates how to conduct an analysis and allocation of funds for capital projects in the framework of CIP. The capital investment funds available to local government unit result from:

4.2

Local capital revenues: These include revenues generated only once, e.g. from selling a property that is owned by the municipality and not needed for public use. Also, included here are incomes generated from renting of own properties or assets for use to public interest. Planned operating surplus (balance): This is the net operating surplus calculated as the balance (difference) between municipality operating revenues and operating expenditures. Using the capital reserve fund: Although Albanian local governments have not yet started to set up a capital reserve fund for the replacement of capital equipment or capital investments, this represents one of the potential possibilities in the future. Using borrowing: Recently a law on local borrowing has been adopted, giving local government units the possibility and making the necessary legal room for them to borrow and use the loan, be it short term (in case of liquidity shortage) or long term (for capital investments). In this case, it should be borne in mind that the annual loan repayment constitutes the municipality's highest priority in using the operating surplus prior to allocating the funds for other capital investments or the reserve fund. Central government transfers: This foresees the transfer from central government coming either in the form of conditional grant for investments or unconditional grant, which can be used for capital investments. Donor grants: This comprises all incomes for which the municipality is assured they will be raised from donors, by clearly identifying the donor, fund, their requests and the year.

Analysis of possibilities and means of financing

Beginning of each budgetary year, the municipality should make the CIP guiding policies for that year and the annual capital budget. These policies must be consulted with the municipality departments and offices and its subordinate companies, which prepare their own requests for capital investments, such as education (preschool system), public services, maintenance of roads and sidewalks, water and sewerage, etc. Some policies for consideration are as follows:

> Adopting (approval of) a specific share from own resources and revenues from the unconditional grant for capital investments. In this case, revenues (capital revenues) should at least be forecasted for the same number of years as foreseen by the CIP. > Ongoing review of the project evaluation criteria to reflect changes in accordance with the current conditions and priorities (reviewing projects each year). As it has been mentioned, the criteria are likely to change from year to year in accordance with unitâ&#x20AC;&#x2122;s specific conditions or even its financial situations. Further, the process carries on with the analysis of the options affecting the financing of the CIP. First, the possibility of financed and implemented projects to generate revenues from different tariffs set for the services for which these projects were intended should be considered. For example, a project that will supply drinkable water to an area will generate revenues as result of the collection of the water tariff once it has been implemented. Some projects might be fully self-financing, implying that the expenditures for them are covered shortly after the completion of the project. Others can be partially self-financing, implying that even after the project has been implemented and made operational its costs will be partially recovered. In preparing a project financial analysis, it is important to consider, among others, the following elements:

a. It is important to make sure that the project cost estimates and at the same time, estimates of the cost incurred after the use and maintenance upon the completion of the project have been accurately made. In case there is more than one technical proposal, e.g. capital repair versus replacement, both options should be carefully considered with regard to the financial feasibility of the project. In addition, within the technical possibilities, it should be determined whether the size of the project is consistent with the needs and demands. An oversized project will likely be unfeasible, but it might become feasible if it is revised according to the real needs. b. A careful analysis of potential revenues to be raised from tariffs/taxes of the service provided by the project after it has been implemented and made operational should be made. Here, attention should be paid to not to anticipate fees established a priori simply guaranteeing the return of investment value. The potential impact of investment on higher tariffs and user charges for citizens should be considered, while keeping in mind that not all of them will be able or willing to pay in due time. c. The possibility of saving from the operating or maintenance costs of the local government units should be considered. That portion of expenditures not spent might be used to at least cover the costs of designing the capital projects. Once we have determined the projects which are likely to be partially or fully financed, through self-financing, central government or donor programs, the next step is linked with the identification of the local fund available for capital investments. In this case, the possibility of borrowing should be considered. In preparing the analysis of the borrowing capacity, the following should be considered:

a. In its simplest form, the local government borrowing capacity can be defined as the amount of funds local government can set aside from its revenues each year, for the subsequent years, in order to finance the annual loan/credit payments. This payment can be financed from revenues collected from local taxes and the unconditional budget. The law on local borrowing lately enacted by the Parliament provides the details regarding this aspect. b. The loan/credit repayment capacity is influenced by the willingness and the capability of the local government to limit the direct services towards the community, in order to finance capital investments and the loans to finance these investments. It should be borne in mind that payments planned for the annual debt are calculated from revenues, which too are used for the services provided to the community, including maintenance of roads, schools, green areas, etc. Again, these revenues are used to cover the administrative costs, such as the salaries of the local government unit's employees. c. The loan repayment capacity is also influenced by the willingness and capability of the local government to take the costs and the risks related to the loan/credit. d. There exists no simple mathematical formula to calculate the loan repayment capacity of a local government unit. There are quantitative methods that can assist in this process. However, local government must make difficult decisions, which would rather be based on its discretion than the mathematical formulae.

4.3

Analysis of local government financial record

This analysis proves especially necessary under conditions when the local government is in process of designing for the first time a Capital Investment Plan. For this reason, the unit should make a clear forecast of its revenues and possibilities to finance the investments. To help make this forecast as accurate as possible, the analysis of local government financial record is made. Essentially, this analysis is a reflection on local government revenues and expenditures over the past 3-5 years. Based on this, a synthesis and generalization of the observed trends in the local government operating surplus are made. This trend will constitute one of the main factors, which, coupled with the country's economic growth, influence the forecast of local government revenues and expenditures. The financial analysis also makes possible to identify the necessary municipalityâ&#x20AC;&#x2122;s financial resources available for the financing of capital investments over a period of years. These resources are estimated once the operating revenues and expenditures have been identified. Yet, this is only one of the sources, since the funds available for capital investments are also raised from the local capital revenues, e.g. sale of an asset/property, that is, revenues generated once only and not recurring from year to year as the other recurring municipality revenues. The other sources are from central government in the form of grants, donors, and another source is loan borrowing. It is recommended that this analysis be conducted at the beginning of the budgetary year, so that the local government has sufficient time at its disposal to revise the budget, demands, needs, re-allocation of financial resources, and make

allowance for any unexpected circumstances that might arise in a given budgetary year. Figure 1 below shows in a summarized manner the scheme of financing of capital investments.

Figure 1: The scheme of financing capital investments OPERATING REVENUES

OPERATING EXPENDITURES

LOCAL TAXES

SALARIES

LOCAL TARIFFS

SOCIAL INSURANCES

UNCONDITIONAL GRANT

OPERATING & MAINTENANCE EXPENDITURES

SHARED TAXES

NET OPERATING SURPLUS

CAPITAL REVENUES

CAPITAL EXPENDITURES

NET OPERATING SURPLUS

REPAIRS

LOCAL CAPITAL REVENUES

REPLACEMENTS

CENTRAL GOVERNMENT GRANT

NEW EQUIPMENT

LOAN

NEW CONSTRUCTIONS

4.4

Analytical Estimation of Local Government Revenues

The following explains how the revenue sources anticipated by local government will be made available from the local taxes and tariffs, but also from the share of national revenues that by law are assigned to LGU yearly and are reliable and recurrent revenues, can be estimated. Forecasting the operating surplus for investments: The forecast table of the operating surplus for investments is divided into three sections: a. Section A b. Section B c. Section C

Operating revenues Operating expenditures Planned operating surplus

The CIP renders possible to have both planning and the way of realization/financing of capital investments made over multiple years. For this reason, it is necessary to forecast operating surplus for a period of years (2009-2012). This is possible if only the municipality would clearly identify the operating revenues and expenditures for the subsequent years. Estimating the â&#x20AC;&#x153;operating surplus (balance) for investmentsâ&#x20AC;? over multiple years ensures both continuity and the monitoring of CIP results and LGU's economic and financial situation, in order to back the CIP with the required financial resources. Knowing the project value or cost and the unitâ&#x20AC;&#x2122;s operating surplus for the subsequent years also makes it easier to plan the way of financing capital investments both for the period of years and separately for each year, identifying the anticipated capital investment, its cost and the financing period for each planned investment.

a. Section A - Operating revenues This section will comprise revenues from local taxes and tariffs, unconditional grant and revenues from shared taxes. With respect to local taxes and tariffs, the recent legislation gives LGUs full authority over their planning and management.

b. Section B - Operating expenditures This section will comprise all municipality expenditures, less the expenditures on capital investments. Such expenditures are salaries, social and health insurances, maintenance and operating expenditures, assistance (benefit) and disability payments, subsidies and other related to these. The operating expenditures will comprise all the expenditures made by the LGU for public services that are its own responsibility, such as waste collection and disposal, greening, lighting, city decoration, funeral, maintenance of roads and sidewalks, also including the reserve fund.

c. Section C - Planned operating surplus The planned operating surplus (balance) is the difference between the operating revenues and operating expenditures. This is the amount of money available to the LGU for capital investments during the budgetary year. Apart from this, the new law on local borrowing grants the municipality the right to borrow money to finance capital investments; for capital investments, long-term loans are used. The planned operating surplus, in any event, should not be estimated prior to the LGU having acquired sufficient funds (financial resources) to finance operating expenditures. In case when the municipality has taken a loan for one or more capital investments, then the loan payments constitute the primary expenditure to be planned. The surplus available will go for other capital investments.

Chapter V: Capital Investments and their Prioritarisation Criteria Chapter III discussed the manner of identifying capital projects. Subsequently, this process continues with their prioritarization based on clearly defined criteria. This part of document explains the methodology that will guide decision-makers at local level in selecting the projects they want to include in the CIP as priorities, within the limited available fund. This implies that in general the available fund is smaller than the capital investment needs identified by the local government unit. Local leaders have to choose among a large number of potential projects, all of them being in need of financing. Capital projects may support different community goals, and within the community, different needs. Local leader have to sort out these projects and choose from them only those they can finance and implement. Meanwhile, they must ensure a balanced distribution in meeting community needs. Therefore, the CIP facilitation group has a very important role and should assume its concrete responsibilities in outlining a number of requirements and defining the criteria which a planned investment must satisfy in order to qualify as a capital investment. 5.1

The methodology of prioritarization of capital projects

The prioritarisation of a capital project can be made according to several elements; however, for an easier understanding of the process by all those involved in it, the following elements can be used: > Criteria-based evaluation > Point-based evaluation Criteria-based evaluation: In order to make such an evaluation, the local government unit must define a list of criteria, which will serve and lead to the selection or not of the capital projects. The projects that meet most of the set criteria are assessed as the most appropriate to be included in the CIP. The ranking of physical assets (property, building, equipment) in the Capital Investment Plan is made based on the criteria the asset meets. Having determined the ranking next is to make a breakdown and/or grouping of investments by respective sector. There is no limit as regards the number of criteria used for the prioritarisation of the CIP projects. In addition, the process remains more flexible and the criteria may be subject to change from year to year, in accordance with the situation and priorities of the local government. Point-based evaluation: To further facilitate the process of prioritarising the CIP projects, a point-based evaluation is made alongside the criteria-based evaluation. According to this form of evaluation, a total of available points is assigned to each proposed criterion, e.g. on a 1-5 scale, the evaluation for the fulfillment of a criterion ranging from very poorly/weakly to very strongly/highly. In conclusion, the evaluation of the proposed project will be the result of the total points scored from both the criteria and point based evaluations. The final ranking of capital projects is made based on the total points a project has scored. At the end of this process, the projects are grouped by sectors.

The annexes of this document provide similar examples of point-based evaluations of projects, given the criteria they meet. One of the examples employs eleven criteria (social, economic, financial, public health, safety, etc) to assess the relative priority of each and every project included in the CIP. A maximum number of points are assigned to each of the eleven factors, which they will get when the project fully meets the criteria under discussion. The number of points distributed to each criterion also constitutes the importance of each of them against the grand total in the project evaluation; some criteria are evaluated from 0-5 points, while some others are evaluated from 0-10 points. At the end of this process, the total results for each project are listed. In the given example, the overall evaluation for a project would be 70 points. This table is indicative, thus it is only an example to show how to work with the prioritarisation of projects. Nevertheless, decision makers at local government units are those who will have to set the criteria, based on which the project evaluation will be made, along with the distribution of points to each of the criteria depending on their importance. 5.2

Selection criteria for CIP priority projects

The following section provides some of the basic criteria for use by local government to classify and prioritize the CIP capital projects. These criteria are not mandatory, in that they can vary according to local governments and their needs. However, setting these criteria facilitates the work of the CIP group and serves as the basis for further implementation of the process. It is important that the following three main elements be considered for all the defined criteria: a. The minimum cost of investment b. The minimum lifespan of the use of investment c. The maintenance costs With regard to and based on the essential above-noted indicators, some criteria can be further elaborated as follows: i.

ii.

iii.

iv.

v. vi.

The project is of an urgent nature (e.g. if the life of citizens of a specific populated area of the city is jeopardized; the reconstruction of the drinkable water distribution network will avoid an epidemic in this area of the city, etc.) Projects whose cost of realization goes over the value determined by the CIP group and the local government. The implementation of the project generates revenues in the local government budget and, within a period of several years, these revenues cover the whole cost of investment The investment lifespan; the longer the lifespan the better, since it needs funds only for maintenance. Thus, the cost of investment is only the maintenance cost. Generates new jobs, thus mitigating social problems in the city The high number and categories of beneficiaries

vii.

viii. ix. x.

The project/investment is planned by central government and/or line ministries (can be in line with central government capital policies, but serving the city too) The project is donor-funded (full or partial financing) The project is ongoing (its implementation has started earlier) The project supports the city economic development strategy

However, there are other ways to make the prioritarization of projects in the Capital Investment Plan, by dividing them into categories and thus making the selection process easier. Although there is no limit to the categorization of the projects of the Capital Investment Plan, the capital investments can be divided into several categories. Some of them are as follows: > Compulsory / urgent / important Included in this category are projects which remedy a hazardous situation for the health and safety of community, etc. > Desirable Included in this category are projects preserving or improving the existing premises, enabling enhanced service standards and reduced maintenance and operating costs. > Acceptable Included in this category are projects that make possible to maintain an equal or have an improved service standard, improve the existing premises, or provide a new service. > Postponed Included in this category are projects that can be postponed, are not urgent, and will likely need further planning and analysis.

Chapter VI: Preparing the CIP document 6.1

Preparing the CIP document

Having explained each step of the process of designing a Capital Investment Plan and pointed out the critical moments of this process, we now have arrived at the design of the final CIP document. During the formulation of the final CIP document, some of the most important elements with which the local government unit and CIP group in particular must be especially prudent are as follows:

6.2

Preparation of the list of projects which are fully or partially self-financing Preparation and gathering of information regarding the revenues from central government grants and donor financing Preparation of a financial plan of capital investments, which can be covered from local government direct revenues, or the loan/credit that can be financed from these revenues.

The outline of CIP document and its approval

At the end of the process, the CIP facilitator (committee/working group) will prepare a document describing the selected projects and submit them in a synthesized manner to the local authority (the Mayor and Municipal Council) and citizens. The document must clearly point out the process through which the CIP preparation has gone and the rationale for selecting the capital projects. A multi-year capital investment plan should at least include:

An opening chapter introducing the local government unit, its vision for the development of the city/village and other supporting data A brief summary of the methodology and main principles that have guided the CIP design process A narrative summary which broadly explains the CIP design process and its prioritarization outcomes A summary of the municipality’s financial record analysis, identifying the main trends of local government revenues and expenditures A summary of financial analysis regarding the local government revenue and expenditure forecast for the CIP years

Â&#x192; Â&#x192; Â&#x192;

An overview of selected projects and their financing mechanisms An descriptive summary for each project Any other relevant information concerning the process

The Mayor of the local government unit (or the CIP facilitator) presents the document of the multi-year Capital Investment Plan for discussion and approval at the Municipal Council. The document must contain all the necessary information for the decision makers, in order to ensure an accurate assessment of the process, projects and decisions, in conformity with the local and central policies.

Chapter VII: Monitoring of the CIP As with other objectives of the local government unit, apart from design, approval and implementation, the capital investment plan requires not only a plan of activities, but also the monitoring of this plan. To guarantee the realization of the CIP, as a process spanning over a period of years, the local government unit and its staff need to ensure a continuous monitoring of this process. During the design of the capital investment plan, we have defined our “strategy of capital investments”, answering a number a questions such as “Where are we?”, “Where do we want to go”, “When do want to get there”, and “How do we get there”. In fact, there is yet another important stage concerning the monitoring of the process, or the question we have to answer is, “How are we getting there”. Concerning this aspect of the CIP, it is important to recall here the criteria that a specific priority must meet to be included in capital investments and the impact the capital investment will have. In this context, the monitoring of the CIP can be performed in a number of ways, some of which are given below: i.

ii.

One way is based on the quantitative elements satisfied in the CIP (the number of buildings/equipment realized within the planned period) Another way is related to the evaluation of the criteria set during the selection of CIP projects. On this basis, it can also assess the impact of the capital investment, or specifically: > To what extent and how has the objective of city development strategy been met as result of the capital investment carried out (e.g. measuring citizen satisfaction with respect to the issue resolved by the capital investment can be an indicator) > How are the revenues generated by this investment? Are they according to the plan made by the local government? > Has local government been able to recover the investment value from the generated revenues within the planned period?

iii.

Another way is to monitor each planned activity or investment time wise and in qualitative terms, according to the division of the investment stages.

In conclusion, the monitoring of the CIP is based on the expected outcomes of capital investments included in it.

Chapter VIII: The Action Plan and Calendar for the CIP Design For the design, approval and implementation of the capital investment plan, the formulation of an Action Plan along with the calendar of activities are also needed, based on which the process will be implemented. The Action Plan should identified the following components: (i) activities; (ii) schedules; (iii) responsible persons, etc. Formulating and monitoring such action plan is necessary, since not only it identifies at what stage of CIP design process we are, but also where do we want to go, how do we get there, what should we do, etc. On the other hand, the action plan makes the capital investment plan measurable, thus giving us the possibility to monitor the process. A likely model of action plan and calendar for designing and carrying out the CIP within a time frame of 12-months is as follows: January: In January, the Mayor of the local government unit and the Council of the unit gather information from the community and businesses through open meetings, advisory commissions, surveys, etc. Based on the information gathered, they define capital policies of the year, which subsequently will guide the CIP design process. In addition, in the beginning of the year, once the CIP facilitation group has been constituted and legitimized, it should start the work to accomplish the following points:

Forecast of available funds for capital projects Identification and analysis of the financing resources of investments Revision of CIP implementation and reporting policies Distribution of guidelines and requirement forms for capital projects to local government departments and its subordinate companies

February/March: Based on the guidelines and requirement forms for capital projects that the CIP working group has distributed in January, LGU departments and its subordinate companies must all prepare and submit their demands to the CIP working group. March/April: During this period, as capital investment forms have been completed and submitted, the CIP working group carries on with the CIP design by implementing the following steps:

Reviewing and reporting on the implementation of the plan of activities for a 3-6 month period, but within six months. Examining projects beforehand

This process will serve as the starting point for gathering of the materials, understanding and assessment of the situation. In it, the following are included: (i) the economic department/office (ii) urban planning department/office; (iii) design department/office; (iv) planning and development department/office; which should make a technical examination of the submitted requests.

April/May: During this period, it is very important for the CIP working group to perform the following activities:

Setting of priorities and the selection of capital projects to be included in the CIP Determining the capital budget available to the local unit Allocation of available funds and programming of the projects Preparing the draft multi-year CIP

June/July: During this period, the Mayor, Municipal Council and the CIP staff conduct open community meetings on the proposed CIP, discuss and finally approve the draft CIP as a document of investment planning. The CIP working group should incorporate CIP’s plan of the first year into the LGU’s budget. (All investments in the budget anticipated for implementation in the first year will be included in the CIP). August/September: The local government unit/council examines and/or approves the CIP projects extending over a period of years. At least the capital projects anticipated in the first year should be taken as an integral part of the unit’s budget, not to mention that in preparing the draft-budget, the LGU should make a forecast for all activities for a period of years (minimum three years). The finalization of the draft-budget and its preliminary approval are anticipated during this period. October/November: The working group makes the CIP revision and the annual capital budget. Based on the latter, the working group also forecasts capital projects to be financed. In this period, the units can already have information concerning both conditional and unconditional transfers that will be delegated by the central government in the subsequent year. All the prepared material is submitted for discussion and approval to all the actors related to this process. December: In this period, the material is presented to the LGU Council, which gives its approval and subsequently the Mayor and the head of the Council sign the budget and the capital investment plan for the successive years.

Annexes

Annex 1

Operating Budget Planning

Annex 2

Capital Budget Forecasting

Annex 3

Analytical Revenue Estimation

Annex 4

Forecast of Municipalityâ&#x20AC;&#x2122;s Potential Funds

Annex 5

Ways of Financing Capital Investments over multiple years

Annex 6

Annual Budget Allocation for Capital Investments

Annex 7

Criteria-based Project Evaluation Methodology

Annex 8

Project Identification Forms

Annex 9

Capital Investments Summary Table

Annex 1. Operating Budget Planning

I A B C D E F I.I G I.II II A B C D E F II.I III IV

OPERATING BUDGET PLANNING Operating Revenues Estimation Inherited from previous year Local Taxes and Fees Local Tariffs Other revenues Shared Taxes and Fees Unconditional Transfer Amount of unconditional revenues Conditional Transfer TOTAL REVENUES OPERATING EXPENDITURES Salaries and salary increases Social and Health Insurances Contribution Operating and Maintenance Expenditures Economic Aid and Disability Subsidies Reserve Fund 3% TOTAL EXPENDITURES OPERATING SURPLUS FORECAST ( I - II ) % of operating surplus/operating revenues (III/I)

000/lekÃ« 2007

2008

2009

2010

2011

2012

Annex 2: Capital Budget Forecast

I 1 2 3 4 5 6 7 II 1 2 3 4 5 6 7

CAPITAL BUDGET FORECAST CAPITAL REVENUES Planned Operating Surplus Revenues from sale of assets Loan Inherited capital reserve Amount of unconditional revenues Conditional transfer for investments Aid or donations TOTAL CAPITAL EXPENDITURES Repairs Replacements New equipments Constructions - assemblages Land Studies/designs Capital reserve TOTAL

000/lekÃ« 2007

2008

2009

2010

2011

2012

2007

2008

2009

2010

2011

2012

Annex 3. Analytical Revenue Estimation

1 1.1 1.2 2 3 4 5 6 7 8 B 1 2 3 4 5 6 7 8 9 C 1 2 3 4 5 6 7 8 D 1 2 3 E F G H 1 2 3 4 5 6

REVENUES LOCAL TAXES Property tax Tax on buildings Tax on agricultural land Small business tax Tax on Outdoor Advertising Motor Vehicle Registration tax Tax on occupation of public space Tax on the impact on infrastructure Property Transfer Tax Tax on hotel accommodation LOCAL TARIFFS Cleaning tariff Greening tariff Lighting tariff Licenses, permits, authorizations, (transport, advertisements, etc) Tariff of livestock butchery Registration tariff Other tariffs adopted by the Local Government Unit Tariff of Amateur Hunting and Fishing Car parking tariff Other Revenues Rent on land Property rent + economic activity Land sale and rent Purchase of land Gifts/various sponsoring Donations Other (interests, penalties) Works guaranty Payments Of parents for kindergartens Of parents for nurseries Of parents for school dormitories Grant + Inherited Revenues Shared Taxes and Tariffs Unconditional Transfer Conditional Transfer Education Health Care Service Social Care Public Order Environmental Protection Civil State

000/lekĂŤ 2007

2008

2009

2010

2011

2012

7 MPâ&#x20AC;&#x2122;s Secretary 8 Subsidies 9 Civil Registry Office Investments from State Budget I Capital Revenues 1 Sale of real estate TOTAL (A+B+C+D+E+F+G+H)

Annex 4: Forecast of own potential funds FORECAST OF OWN POTENTIAL FUNDS in thousand lekĂŤ Periodic own local revenues - unconditional transfer - own local taxes and tariffs Total periodic own revenues of local government Current expenditures (own functions) Municipal Council General Administration Education Culture and Sport Health Social Support Parks and Cemeteries Cleaning and Solid Waste Public Works Public Transport Civil Registry All other expenditures Total current expenditures Balance of local government funds

2004

2005

2006

2007

2008

2009

2010

2011

2012

Annex 5: Financing of Capital Projects Over Multiple Years

No.

Description of the Capital Investment

Project

Investment value

000/lekĂŤ

2008

Allocation of Investment 2009 2010 2011

2012 Comments

1 2 3 4 5 6 7 8 9 Value of Capital Investments / year

Annex 6: Annual Budget Allocation for Capital Projects Year 20XX

Description of the Capital Investment

1 2 3 4 5 6 7 8 9 Total Value

Value of investment

Investment Value in the current year

Source of Revenues Revenues

Unconditional Grant

Conditional Grant

Donor

Loan

Total

Annex 7: Criteria-based Project Evaluation Table

Nr.

Description of Investment

Cost/ No. of Beneficiaries

Economic growth

Linked to priorities

Of an Urgent Nature

FULFILLED CRITERIA Impact on preventing Ongoing Geographical emergencies project distribution

Cost recovery timeframe

Total points

1 2 3 4 5 6 7 8 9 10 11 12

Annex 8: Project Identification Form INVESTMENT PROPOSAL 01. Contact point Budgeted institution CIP facilitation group

Department/Office Contact for the CIP group Contact of the CIP person

Contact person at the CIP group

02. Identification of the Investment Ministry/group/sector (Budgeted Institution)

Group Code

Program Name

Title Code (of the Program)

Project Title

Project Code Identification Number (DMIP) Location New

Project Status

Ongoing

Starting Date

Status of Financing from Donor (if any) Closing date

03. Justification of Investment Need for investment/ Problematique of existing situation Reasons for intervention

Consistency of the project with the City Strategy / Program Goals

04. Project Formulation Name of project Project description Project objectives 53 | Capital Investment Plan Design Manual

Project outcomes/benefits Project indicators xxx square meters road will be repaired, etc

05. Previous project costs Investment cost until the end of 200__ (if any), 000/lekë

Anticipated cost until the end of 200__ (if any), 000/lekë

06. Additional investment costs/ Project Revenues Total Project Cost project 2008 cost 000/lekë 000/lekë

2009 000/lekë

2010 000/lekë

Remaini ng investme nt cost 000/lekë

(a) Investment Cost (230-232) (b) Recurring expenses as result of the investment implementation (c) Total costs (d) Revenues from the project implementation (if any) (e) Financing from donor (if any) (f) Net cost

07. Project management and the initial risks – conditions for the realization of investment Risks and assumptions during the project implementation and realization and planned precautionary measures Summary of project management and implementation organization Project plan elaborated Yes/No Feasibility study conducted Yes/No Project Inception elaborated Yes/No Other economic-financial analyses Yes/No

08. Other assessments Impact assessment of the investment in other areas Environmental impact assessment Yes / No / Unnecessary Social impact assessment of the investment Yes / No / Unnecessary Other (specify) Yes / No 09. Additional information Additional comments

Capital Investment Plan Design Manual 54

10. Authorizers / Levels of assessment / approval of the project Name Signature Date Head of the CIP facilitation group

Purpose of review / Project Status Approval to be further examined Project proposed as a priority

Comments from the head of CIP facilitation group (if any) Head of Finance of Approval of project the Budgeted cost Institution / the representative in Cost assessed by the CIP group Budgeted Institution Comments from the Budget and Finance Office of the Budgeted Institution (if any) Head of the Budgeted Institution

Confirmation on the project priority Approved/Rejected by the Budgeted Institution

Comments from the Head of the Budgeted Institution (if any)

Photograph

55 | Capital Investment Plan Design Manual

Capital Investment Plan Design Manual 56

Annex 9: Summary of Capital Investments

No.

Projects/Description

Estimate in 000/lekĂŤ

Source of Financing

Planning Year for each Stages stage Study Design

Tendering Construction Study Design Tendering Construction Study Design Tendering Construction Study Design Tendering

57 | Capital Investment Plan Design Manual

Construction Study Design Tendering Construction

Objective / Expected outcomes

Capital Investment Plan Design Manual 58

References Conway, F. et al. (1999) “Romania Capital Investment Planning”, A self study guide, USAID, East European Regional Housing Sector Assistance Project. Gues, G. et al. (2004) “CIP and Budgeting Toolkit”, USAID Governance Reform and Sustainable Partnerships Program (GRASP), Rumania. Locsmándi, G. & Péteri, G. and Varga-Ötvös, B. (2000) “Urban Planning and Capital Investment financing in Hungary”. OSI/LGI, Budapest Public Procurement Agency (2006) Manual for Public Procurement Services: Part I. RTI International (2006) “Capital Investment Planning”. Municipal Finance task Force. Swianiewicz, P. et al. (2004) “Local Government Borrowing: Risks and Rewards”, A report on Central and Eastern Europe, OSI/LGI, Budapest The Research Triangle Institute (1999) Handbook on borrowing for city development. USAID Program. World Bank (2008). Local Finance Policy note.

59 | Capital Investment Plan Design Manual