Capital Improvement Plans are a vital piece of the public service puzzle, enabling counties to deliver quality services and facilities for local residents in a fiscally responsible way. They require long-term planning and extensive collaboration across agencies to make communities throughout Maryland viable for years to come.
For county governments, maintaining local infrastructure and public resources for residents is a crucial responsibility. The collaboration of local elected officials, county professionals, and the public is vital to ensure infrastructure projects get into the pipeline and then make it over the finish line. This process gets particularly complicated because these types of projects necessitate multi-year planning and budgeting which come together in a Capital Improvement Plan, sometimes referred to as a Capital Improvement Program, or CIP for short. This plan usually consists of simultaneous projects ranging from large-scale new construction of government utilities, general maintenance on things like roads and parks, modernization and expansion of schools, and so on. This policy deep dive will delve into how this process works locally, what primary funding sources are available as well as highlight project trends in current capital improvement plans.
Capital Improvement Plans Are Driven By Local Priorities
Every county has what is called a Capital Improvement Plan (CIP). These goals and projects are tied to the capital budget that counties approve every year as apart of the annual budget process. These yearly updates provide an opportunity to account for variances in project costs and timelines in the event that they shift. The scope of these budgets and plans can vary greatly depending on factors such as the size of the county, its population, revenue sources, and specific regional needs.
In larger counties, the process often involves more complex assessments, with detailed planning commissions, multiple departments, and extensive public input to address a wide range of infrastructure and service demands. Smaller counties, on the other hand, may have more streamlined processes with fewer resources and a more centralized decision-making structure. Additionally, counties with varying economic bases or regional priorities may prioritize different capital projects—rural areas might focus on road and utility infrastructure, while urban counties may emphasize public transit, parks, or public safety facilities. In essence, the size of the CIP is relative.
Comprehensive Plans are the Guideposts of a CIP
Community-based needs frequently necessitates counties work on a number of projects simultaneously. This is where a county’s comprehensive plan comes in. A comprehensive plan is the framework that spans, often, decades or longer and serves as a strategic blueprint that guides the growth, development, and management of the community. It serves as a guide for decision-making, zoning, land use, infrastructure, housing, transportation, and other essential aspects of community development. These plans make it possible to layer projects geographically and financially over multiple decades so that community priorities across a number of categories can move forward concurrently rather than consecutively. This helps bring new projects online for residents sooner.
The Howard County comprehensive plan is an impressive example of this type of large-scale, multi-decade planning. HoCo By Design, as it’s called, recently received national recognition from the National Association of Counties. It was praised as a model for mature suburban communities grappling with issues of housing affordability, public school capacity, equity, and limited land supply. Remarks from the award ceremony:
HoCo By Design presents an innovative approach to missing middle housing, public school facilities, equity through land use, the redevelopment of mixed-use activity centers.
The phasing in of projects through a comprehensive plan is also necessary because local governments often have more capital needs than available resources. For this reason, it is important for capital improvement funds to be allocated over time and match the government’s capacity to pay for them. By spreading the capital budget over several years, governments can phase in projects based on urgency and available funding.
How Do Counties Pay for All This?
Local capital improvement projects are typically funded through a combination of sources that can include money from local, state, and federal government sources as well as private industry and philanthropic agencies. These funding sources help counties pay for long-term infrastructure investments like road maintenance and construction, public buildings, water and sewer systems, schools, and other public facilities. The funding mix depends on the project type, the resources available, and the specific needs of the county. County CIP plans outline these revenue sources and illustrate that bringing a project to fruition typically relies on weaving together funds from multiple sources over the long-term.
Local Funding Options
The first and easiest financing strategy is if local funding is available and can cover the cost of a particular project. Local funding for major projects primarily comes from taxes, fees, and longer-term bonds that leverage the same local revenue sources.
The locally-levied property and income tax are the primary generators of local government revenue. The state sets a cap on how much a local government can assess via these mechanisms so this avenue has a threshold, but is considered relatively stable.
Second, counties can tap into enterprise funds that typically consist of fees collected for certain services i.e. water, permits, citations, etc. These funds, however, are typically restricted to a certain use related to the manner of collection. As an example, under state law speed camera fines must be used for public safety projects. Most counties that operate water and sewer systems do so through an “enterprise fund” where sources and uses of funding (typically ratepayer usage payments) are confined to those purposes.
Counties can also issue bonds– long term debt obligations that yield short term cash for projects, but amortize the “cost” of the project over time. General obligation (GO) bonds can be used to fund capital improvement projects and are backed by the county’s “full faith and credit,” meaning the county pledges to make good on its repayment of both capital and interest payments, though tax revenues or other sources available. Counties may also issue more specific revenue bonds for specific projects and, in this instance, pledge that the revenue generated by those connected services would be used to pay back the debt.
Supplemental Government Funding Options – State and Federal
In Maryland, state funding can be provided to local governments for projects in several ways, which are primarily cost sharing, fee distribution, grants, and loans. These programs are often specific to a particular category of project.
For the first type – cost sharing – an example of this mechanism is the Interagency Commission on School Construction (IAC). This is an example of a policy-driven effort to support specific programs – in this instance to support education infrastructure in Maryland. As such, the IAC is an independent agency established in statute to assess and allocate state funding to supplement local appropriations for school construction and renovations.
The second type – fee distribution – finds a good example in highway user revenue. This is funding provided to local governments from a portion of revenue collected by the state from the motor fuel and motor vehicle taxes levied exclusively by the State. State law specifies that these distributions, once shared locally, must be used for road and bridge maintenance and other transportation projects.
The third option from the state is grant funding from a specific agency for corresponding project types – i.e. the Maryland Department of Housing and Community Development would be the primary state agency providing grant funding for local projects to develop new housing. The funds offered in these situations are typically either part of a state budget allocation to that agency or federal funds for a specific project type that is passed through the applicable state agency. For example, projects affecting the natural environment tend to funnel through the U.S. Department of the Interior or the Environmental Protection Agency down to the Maryland Department of Natural Resources or Maryland Department of the Environment. The state can also provide low-interest loans via similar application procedures, but these require repayment.
From a federal perspective, grants and low-interest loans are the primary vessel for providing funding to local governments. Money can come directly to a county government for an identified purpose or it can pass through to the locals via an applicable state agency as a conduit, as described above.
Private Funding
Private funding to counties comes primarily through partnerships with for-profit and non-profit entities. These collaborations can take a couple of different shapes depending on the organization and the goals. Arrangements with these entities fall under a few primary categories including public-private partnerships (PPPs), fee assessments, and donations or grants.
With PPPs, the structure of the financial arrangement can take a number of shapes but improvements are typically funded by the private company fronting capital with their costs recouped at a later date. This model is popular with for-profit companies. These repayments can be covered by revenue sharing from user fees, negotiated payment plans, interest charged on costs of services, and the like. Essentially government funds are allocated or user fees cover the costs depending on the project type.
Impact fees are another way private organizations – often developers of commercial and residential real estate – can fund projects. Usually these types of revenue are used in a manner specific to the affect the development will have on public resources like roads, schools, etc. Tax-related adjustments such as tax increment financing and for non-profits, payments in lieu of taxes are another avenue. Non-profits, in particular, can help local governments pay for projects that have a public benefit and align with both the local government’s and the non-profit’s goals and vision. This can be done through charitable and philanthropic donations, endowments or trusts, and in kind services.
Current Infrastructure Pressure Points for Counties
Public schools are an area where facility improvements and expansions are severely needed. The Built to Learn Act and the Blueprint for Maryland’s Future are both major, legislatively enacted initiatives that are driving the need for large-scale renovations and, in some instances, new construction. As covered previously on Conduit Street, the Executive Director of the IAC, in a recent update, shared that the lists of school projects coming to the state for review and funding are getting longer than they have seen in recent years, noting that the gap between need and resources is the greatest the state has ever seen.
Road and bridge maintenance are also a primary drivers of local improvements in statewide county CIP plans to date, with a number of jurisdictions working on bridge projects. As seen during the budget deliberations during the 2024 legislative session, highway user revenue (HUR) – a primary funding source for these types of projects – is vulnerable to state cuts. And even beyond tough state budget decisions, HUR is not producing enough funding to cover the increased need and demanding a modernized approach to transportation revenue generation. Meanwhile local finance teams are doing what they can to weave funding together to keep the ball moving. Prince George’s currently has eight bridge replacements accounted for in the CIP budget for FY25, with other large and medium size counties like Montgomery and Carroll with 17 and 14 bridges, respectively, that are in the current pipeline and work is underway.
Counties Have to Master Fiscal Agility
Statewide fiscal challenges have been widely reported, including on Conduit Street, following recent updates from the state’s fiscal experts. Some of this is due to state spending outpacing revenue growth by 100 percent, at 6 and 3 percent, respectively, with uniquely stagnant revenue growth over the last couple years. At the same time, costs remain high despite inflation cooling off, which has exacerbated the situation. This strain makes planning for capital improvements even more complicated with looming reductions in state aid.
Deploying available funding effectively is a critical priority for all counties, particularly in times of increased financial pressure. Extreme dexterity with the capital improvement budgets is necessary to keep projects moving forward to meet growing needs. Examples of this can be found in local CIPs statewide. For instance, the Public Works and Transportation portion of Prince George’s CIP budget outlines the weaving together of funding from five different sources over almost a decade of improvements. This type of fiscal agility and prudence will be necessary in the years ahead as costs likely continue to grow from inflation, legislative mandates, and infrastructure demands.
