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Article Release Date: May 2011
Article/Resources Word Count: 1,508

Road Map to the Future: Capital Improvements Planning for Small Water Systems
By Jean Holloway, Sustainable Infrastructure Circuit Rider, Delaware Rural Water Association

What is your system's future (as you see it today) and how do you plan to arrive at that future? To answer those questions requires asking several others:

1.            Do you a have capital improvement plan (CIP)?
2.            Is it really a plan or a list of projects for the next several years?
3.            How often is it updated?
4.            Do you have a concrete strategy for financing each project?
5.            Does your CIP mesh with your long-range, comprehensive, land-use or other plan(s)?

These are just some of the questions to ask in reviewing the adequacy (or inadequacy) of a capital improvement plan.

Capital improvements planning is the multiyear scheduling of improvements accompanied by the intended funding sources and strategies for those improvements. These improvements may be system upgrades or expansions, or they can simply be for replacement or restoration of existing apparatus. Anything that adds value to the system or its service can be a capital improvement. A capital improvements plan is a road map to the future: where you want to go and how you plan to get there. It is, perhaps, the single biggest step in moving a small system from a reactive, crisis management mode, into a planned for, "I meant to do that" mode. A simple list of projects is just that: a wish list, and not a plan for attainment and completion.

There are a number of misconceptions that may come up during a first CIP process attempt. Here are some common questions:

If I develop and adopt a CIP, won't I be locked into doing all the things it lists?
Because a CIP document must be flexible and reviewed each year to reassess needs and goals, it is not a rigid document that commits the system to the projects it contains. It should be reviewed and adapted as needs change to make it a usable tool.

If I develop and adopt a CIP, won't I be burdened with debt to accomplish the projects?
The CIP process incorporates an analysis of affordability and debt service capability and, thus, helps to avoid imprudent debt obligations. Analyzing affordability means figuring out what customers can pay for and what the system can afford. Besides, debt is but one of the ways to pay for capital improvements and replacement. With proper advance planning and sound financial management, even a small system can do some CIP projects without incurring any debt. Pay-as-you-go funding largely depends on adequate monetary reserves accumulated over time by recognizing equipment wear and depreciation as a real cost of operation and funding it annually. This practice also helps accumulate the local match usually required by funding programs.

Is there a regulation or rule that says I have to have a CIP?
There is no rule in federal regulations that says a system must have a CIP. However, if a system applies for funding from any program that examines financial management practices as a condition of funding, a CIP will be one of the first things they examine. Having a CIP is both a practice and a measure of sound financial and managerial capacity regardless of regulation. Financial and managerial capacities are cornerstones of a system's sustainability.

If I don't have to have a CIP, why should I go to the trouble to develop one?
A CIP provides a formal framework for the decision-making process and a clear link to long range or master plans. It helps to focus a community‚Äôs attention on goals, needs, and financial capability while helping to avoid the waste of public resources. It serves as a guide for system operations for the planned years, provides a formal vision for the system's future and its value to the community, and helps to sustain the system while providing some stability to the rate structure over time. Small systems often need to do more with less and get the optimum "bang for their buck." That means planning for expenses rather than simply covering them as they arise. One of the best ways to do that is to have a CIP. 

Getting Started
The first step in doing a CIP is to establish the framework for the process itself. This means determining the participants, timetable, procedures, and policies that will direct the planning process. Establishing clear and defensible standards for judging and prioritizing proposed projects can be crucial to the plan's success. A written set of standards that governs the prioritizing decisions can go a long way toward satisfying potential questions and criticisms. Other policies may address borrowing versus self-funding, citizen input procedures, or something as pedestrian as the format for the written CIP document. Looking at other jurisdictions' CIP documents may help identify a format and presentation that works for your community.

The second step is to inventory the system and all its assets, fixtures, and equipment, and itemize and evaluate the conditions found. From this inventory, the planning body can derive a list of needed projects and prioritize them to address the most urgent needs, such as:

1.      Is there a legal mandate or order requiring a particular improvement?
2.      Will the project eliminate an existing or potential threat to the public health?
3.      Will the project benefit all the population or only a segment?
4.      Will the project provide better safety for system employees?
5.      Will the project improve efficiency, save money and time, or enhance service quality?
6.      Will a project modernize an outdated facility or piece of equipment that has outlived its expected usefulness?

The priority of a project may be changed to accommodate funding availability, timing, or factors
outside of the objective considerations attached to prioritizing needs, such as coinciding with a street paving.
The third step in the CIP process is to analyze the financial capacity of the system and its customers. The utility may look at things like trends and growth potential along with past financial performance. Examining the impact of planned expenditures and debt on customers means considering how much of the average customer's income goes to pay for user charges.  Affordability is doubly important because if the utility can't afford to pay the debt service, it will have to raise rates to pay for a project. However, if the rates go up higher than the average residential customer can afford to pay, utility cash flow and bottom line revenue will suffer.

From this financial analysis, the planning body can go identify specific funding options and programs for the various projects. Potential sources will likely include the traditional (grants, loans, and bonds), as well as the less traditional (impact fees, depreciation reserves, cash reserve funds, and the like). It's important not to spend general fund and tax dollars to keep utility enterprise funds afloat.

The final step in the planning process is to put the plan together, making sure to include all the pertinent information for each project proposed. The plan should contain an individual project description and purpose, alternatives considered, cost estimates, proposed funding sources, and the intended schedule of improvements. Be especially attentive to funding program requirements and whether or not your specific activities or projects are eligible. Also make sure that you can meet the funding program's application and advertising deadlines. Allow enough lead-time to advertise and meet any public hearing or notice requirements.

After internal reviews and approvals and adoption by the governing body, it is critical that the CIP is not treated as just another study or exercise in planning that gathers dust on a shelf. A road map is only helpful if it is consulted before the driver gets lost. Likewise, a CIP is only helpful if it is referred to and reviewed regularly as the community moves forward.

References and Resources
Asset Management: A Handbook for Small Water Systems, One of the Simple Tools for Effective Performance (STEP) Guide Series (2003). U.S. Environmental Protection Agency (EPA). Step-by-step guidebook with worksheets and examples for implementing an asset management plan.

Check Up Program for Small Systems (CUPSS). U.S. EPA. Asset management software for small drinking water and wastewater systems.

Financial Management Guide (working title) (to be released in 2011). Rural Community Assistance Partnership. An overview of financial management, from developing and balancing an expense budget to estimating and collecting revenue.

Minimum Standards for Water System Management & Planning Documents (2009). New Mexico Environmental Finance Center. Identifies management and planning tools used by water systems and the resources available to help systems develop their own plans.

Self-Evaluation Toolkit for Drinking Water Systems. Maryland Center for Environmental Training. Website that offers a handbook, video, and water self-evaluation questionnaire designed to assist small local government administrators and small public water systems learn about their water systems and respond more effectively to challenges.

Small Utility Board Training CD ROM (2007). Montana Water Center. Three-hour self-paced course designed for water board members and elected officials. Covers public water system regulation, operation, planning, budgeting, and communication.

Jean Holloway is a former town manager and town administrator for a number of small towns on Maryland’s Eastern Shore. She currently works as a sustainable infrastructure circuit rider for the Delaware Rural Water Association, and is a licensed water supply operator in the Delaware.


About the Rural Community Assistance Partnership (RCAP) and the National Environmental Services Center (NESC)
RCAP ( and its programs across the country offer water and wastewater training and assistance to small and rural communities, tribes, and water utilities. NESC (; (304) 293-4191) offers information, technical assistance via telephone, educational resources, and magazines and newsletters addressing water and wastewater issues for these same audiences.