Talking Stick - September/October 2013 - 25

Capital Funding Matrix Example
Description
Repairs

Minor (less than $50K)

Funding source

Repair & maintenance

Operating budget

Major ($50K or greater)
Maintenance

Routine (less than $50K)

Capital budget/capital reserves
Repair & maintenance

Major ($50K or greater)
Improvements

now sees the value of budgeting for
preventive maintenance repairs and
setting aside money to replace a roof
once it has served its lifetime.
Maintenance, improvements, and
construction of facilities are managed
and implemented in a variety of ways.
The terms most often utilized to
differentiate the management of capital
expenditures include repairs (major
and routine), maintenance (major and
routine), replacement, modification
or alteration, renovation, and new
construction. Motivations for these
capital activities include, but are not
limited to, obsolescence, breakdown,
stewardship, code compliance, program
change, and repurposing.
The funding matrix in the table
illustrates the different kinds of
projects and potential funding sources
that may be part of a capital planning
process. In his article “The Value of
Comprehensive Capital Planning,”
Harvey Kaiser encourages the creative
use of all possible funding sources
to form a ”financial responsibility
matrix,” which can serve as the basis
for a funding strategy to support an
institution’s capital and master plans.
How expenditures associated
with capital assets are defined should
reflect an institution’s internal capital
management strategies and should
support the clarity and efficiency of

Operating budget
Capital budget/capital reserves/
endowment income

Capital renovations/
enhancements/program
modification

operations for physical plant, facilities,
project planning, project and financial
management, and other departments
responsible for maintenance and
construction planning and spending.
The key is to develop a funding plan
that supports the capital plan and
is integrated with the institution’s
financial and strategic plans.
Operating and capital budgets
must include provisions to support
all planned capital expenditures. Debt
service budgets should be created
to account for any capital borrowing
costs, including capital and interest.
Operating budgets should incorporate
the costs of minor repairs and routine
maintenance, and funds should be
allocated in the budget and/or from
retained equity or reserves to fund
capital improvements, renovations,
and new construction. Occasionally
one-time sources, such as major
gifts or grants, may provide capital
funding, but these are generally
non-recurring, so maintenance or
replacement funding must eventually
be incorporated in operating budgets or
drawn from equity or reserves.
Deferred maintenance, a backlog
of maintenance projects that have
not been performed, generally due
to funding constraints, has been a
motivating factor for institutions to
develop an ongoing program to refresh

Operating budget/capital budget/
capital reserves/endowment income
or gifts

and renew capital assets. Over time,
deferred maintenance often results
in deterioration of the physical plant,
requiring more extensive repairs and
less predictable draws on financial
resources.
Funding for capital improvements,
which are modifications or alterations
to existing facilities or equipment
to accommodate changing program
or modernization needs, is often
overlooked. Improvements are
often funded from serendipitous
funding sources, such as year-end
operating budget surpluses or gifts
from benefactors. Since capital
improvements are a normal occurrence
in the life cycle of an asset, a steady
and reliable funding source should be
identified. A combination of funding
from the operating budget and retained
equity or reserves can be a viable
solution.
Regardless of how an institution
differentiates the capital expenditures
and investments required to support
capital resources, the engine that
makes everything run is the availability
of financial resources. The key element
of a successful capital management
strategy is a viable and sustainable
funding source for both maintaining
and constructing capital assets over the
long term. A comprehensive capital
planning and management process
SEPTEMBER + OCTOBER 2013

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Talking Stick - September/October 2013

Table of Contents for the Digital Edition of Talking Stick - September/October 2013
