The finance officer's role in capital projects.

• Author: Casey, Joseph P.
• Position: Cover story

Finance officers' responsibilities for capital projects in most mid-size jurisdictions have traditionally focused on their base of strength: budgeting, fiscal management, debt management, and accounting. These skills are critical to ensure that budgets are formulated, funding sources secured, and that the project is properly monitored through the financial and budgetary reports. However, these basic tasks by themselves do not provide the opportunity for the finance officer to contribute in determining the appropriateness, scope, and priority of capital projects. The chief administrative officer or city manager and department managers generating the capital project request primarily assume these roles.

The finance officer's role in capital project planning has great potential to expand into a leadership role. In assuming a greater responsibility for project leadership, the finance officer can help position the local government to consistently make decisions aligned with overall goals and objectives. Centralized oversight can decrease the competition for funds between departments and help ensure that long-term plans are followed to achieve the best outcomes for the jurisdiction and its citizens. The finance officer can also expand the capital improvement program formulation so it is not just a project-funding exercise, but rather a strategic plan that aligns projects to overall jurisdictional goals and strategies and works to complete projects that encompass the right scope at the right time.

HOW FINANCE OFFICERS CONTRIBUTE

Typically, department managers develop a brief description of a project, along with preliminary cost figures. This limited information is given to the finance officer, forming the basis for budgeting, funding, prioritization, and incorporation into the capital improvement program. Within this restricted role, the finance officer is relegated to serving as merely a bookkeeper for capital projects, simply compiling the requests of the many department managers and performing an affordability and political exercise to determine which projects get funded, depending on funding constraints or applicable debt capacity limits.

In some government jurisdictions, project requests are limited by available funds and are reduced in scope to fit a budget constraint, often without proper analysis into whether or not the reduced project can still effectively provide the desired service-level outcome. Occasionally, it may be possible to defer projects to later years, when they might better serve citizens and staff. If finance officers are to be involved with these decisions, they need a much greater understanding of proposed capital projects than they typically have.

Exhibit 1 illustrates the typical level of involvement for department managers, the chief administrative officer, and the finance officer for a mid-sized jurisdiction during common phases of capital projects. Relative to the department manager and chief administrative officer, the finance officer has little involvement early in the process, when criteria are developed for evaluating projects, needs assessments are conducted, alternatives are generated and considered, and cost estimates are prepared. While the finance officer may be aware that the capital project process has begun, his or her limited participation at this stage can result in later challenges. When the finance officer finally gets involved, a knowledge gap exists that presents problems with project prioritization, funding source allocation, budget formulation, and project oversight or cost control. In some situations, governments may not have a process that encourages careful analysis early in the project to define service levels, develop criteria for potential projects, properly conduct a needs assessment, and evaluate all viable alternatives, and information that would normally be supplied to the finance officer does not exist.

WHAT FINANCE OFFICERS NEED TO KNOW ABOUT THE PROJECTS THEY EVALUATE

While preparing the operating budget, the finance officer will often accumulate a tremendous amount of supporting documentation to back up departmental requests, but...