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Nov 2017 | The November Issue

COVERING YOUR ASSETS: THE EMERGENCE OF ASSET MANAGEMENT REQUIREMENTS IN THE US
KARIM SABAYON, PSD RESEARCH

D+. Released earlier this year, the 2017 Infrastructure Report Card (IRC) revealed that the United States’ infrastructure is in poor or at-risk condition.[i] Compared to the 2013 IRC grade of D+, the US has made no significant improvement across its overall infrastructure systems.[ii] However, it has slowly been laying the foundations to begin planning in a more feasible and sustainable way at both the Federal and State levels through asset management planning.

Asset management planning has become an increasingly important activity which municipalities complete to more accurately forecast costs and plan infrastructure maintenance activities. Asset Management Plans (AMPs) identify what assets the municipality currently owns, what the condition of those assets is, what maintenance activities have been conducted, when the assets should be repaired or replaced, and the projected lifecycle costs of maintaining and replacing those assets. Good AMPs also go one step further in that they provide a framework to extend an asset’s useful life, allowing decision makers to plan maintenance and rehabilitation activities so that there is less overlap in work done on or around a specific asset, thereby minimizing costs. AMP implementation helps municipalities cut costs and realize operational efficiencies through proper planning and communication.

In 2015, Jarmo Hukka and Tapio Katko selected several countries for their study on “Resilient asset management and governance for deteriorating water services infrastructure.” The authors found that the US had the largest infrastructure funding gap at approximately $556.8 billion.[iii] This funding gap is the consequence of past asset management strategies that centered on building new infrastructure and ignoring existing assets until their useful lives had come to an end. As asset management practices evolved, new data showed that not only could the useful life of an asset be prolonged with scheduled maintenance, but governments could also reduce overall infrastructure costs. Consequently, countries began to shift focus to asset management planning.

Hukka and Katko examined the state of asset management in Australia, England and Wales, and Canada, among other OECD countries. A key observation in the study found that Australia, Canada, and England had regulatory requirements in place or in development which required the creation of an AMP.[iv] The US was in a unique position where most fixed assets were publicly owned with minimal AMP requirements by the Federal government. The authors concluded that to adequately address aging infrastructure and maintenance needs, strategic asset management and regulatory practices are required.

That is not to say that the US does not have any requirements on reporting fixed assets through financial reporting. The Government Accounting Standards Board issued Statement 34 (GASB 34) in June 1999. This statement is viewed as one of the most significant changes to accounting standards in US history as it introduced infrastructure capital assets into state and local financial reporting requirements for the first time.[v] This change helped citizens better understand how well government had been using funds to maintain necessary infrastructure in their communities. It brought government financial reporting more in line with the private sector, effectively bridging the information gap and helping citizens become more involved in government spending.[vi]

GASB 34 asks governments to create an inventory of their assets, assess their condition, define levels of service, and estimate maintenance costs.[vii] These four elements are also present in many AMP requirements across the U.S. Asset management planning is a natural progression stemming from a series of actions taken across the country to report on infrastructure funding and the state of infrastructure.

Where infrastructure ownership varies, access to data can become siloed and can result in redundant maintenance activities (such as digging up a recently paved road to replace underground infrastructure). Data sharing between asset owners helps reduce maintenance costs by combining efforts and resources. If road maintenance is scheduled, then it would be wise to conduct other necessary maintenance activities within that section of road to reduce cost and delays. This way, the road will only be dug up once, but maintenance on multiple utilities has occurred. As such, it may be prudent for owners in the US to share information with other stakeholders to reduce cost and increase efficiency.[viii] There is consensus that the level of investment in infrastructure is not increasing in line with infrastructure maintenance requirements, leading to deterioration in the state of infrastructure assets and widening the infrastructure funding gap.[ix]

 

“As asset management practices evolved and new data showed that not only could the useful life of an asset be prolonged with scheduled maintenance, but governments could also reduce overall infrastructure costs, countries began to shift focus to asset management planning.”

 

In recent years, US leaders have taken significant steps to further address infrastructure needs across the country. In July 2013, President Obama signed the Moving Ahead for Progress in the 21st Century Act (MAP-21) into law. MAP-21 expanded multi-year transportation authorization which allocated over $105 billion in funds for surface transportation programs in fiscal years 2013 and 2014.[x] The act also focuses on several national performance goals and objectives. These goals range from safety and infrastructure condition to environmental sustainability and reducing project delivery delays.[xi]

In January 2014, the International Organization for Standardization launched the ISO 55000 series of asset management standards.[xii] As is stated on the ISO Technical Committee for Asset Management Systems webpage, adoption of these standards can result in performance improvements, cost improvements, management of risk, assurance of business growth and improvement, reliable decision making, and enhanced stakeholder confidence through compliance and improved reputation.[xiii]

In December of 2015, President Obama signed the Fixing America’s Surface Infrastructure (FAST) Act into law.[xiv] This law expands upon MAP-21 and provides long-term funding certainty for states and municipalities to move ahead with critical transportation projects. The law also streamlines new transportation project approval processes. The FAST Act provides $280 billion in funding from the Highway Trust Fund to be spent on surface transportation programs over a five-year period from fiscal years 2016-2020.[xv]

The FAST Act seeks to improve the mobility of American highways, create jobs while spurring economic growth, and to enhance project delivery and generate innovation.

It is important to note that GASB 34 and the ISO 55000 series are accounting best practices and not federal requirements. Additionally, MAP-21 and the FAST Act primarily offer funding for surface infrastructure projects with specific goals and objectives in mind. However, regulatory bodies are using MAP-21 and the FAST Act to create new asset management reporting requirements.

Under MAP-21 legislation, the Federal Transit Administration (FTA) requires any recipients or subrecipients of chapter 53 funds to develop a transportation asset management plan (TAMP).[xvi] Additionally, the US Environmental Protection Agency (EPA) requires that all states produce a roadway asset management plan (RAMP) for the National Highway System (NHS).[xvii] To assist State governments in developing these asset management plans, the United States Department of Transportation (USDOT) lists international AMPs as a point of reference, specifically examining AMPs from New Zealand and the UK.[xviii]

 

“In response to the increasing importance of asset management in the US, regulatory bodies have begun introducing AMP requirements into existing legislation.”

 

Individual states have also looked to countries like Australia and Canada as leaders in asset management. In 2015, the Province of Ontario in Canada passed the Infrastructure for Jobs and Prosperity Act which requires the submission of a comprehensive AMP by all municipalities within Ontario.[xix] Various forms of funding have been made available to municipalities across Canada to encourage and help facilitate the development of AMPs, whether internally or through a third party. Further, Canada’s Federal Gas Tax Fund agreements with individual provinces and territories have set specific targets for municipalities to build asset management capacity over time to remain eligible to receive gas tax transfers.[xx]

In response to the increasing importance of asset management in the US, regulatory bodies have begun introducing AMP requirements into existing legislation. At their discretion, the US EPA can require AMPs for a National Pollutant Discharge Elimination System (NPDES) permit under 40 CFR 122.41(e) of the Code of Federal Regulations.[xxi] Accordingly, Michigan municipalities applying for a wastewater NPDES permit must submit a wastewater AMP as part of the NPDES permitting process.[xxii]

Some states have started regulating asset management themselves. Michigan’s Department of Environmental Quality (MDEQ) requires AMP submission for its drinking water, wastewater, and stormwater systems. Under the Michigan Safe Drinking Water Act 399 Rule 1606, drinking water service providers servicing communities of 1,000+ people are required to submit a drinking water AMP by January 1, 2018.[xxiii] The MDEQ has also set up a Stormwater, Asset Management, and Wastewater (SAW) grant which offered funding to Michigan municipalities to develop their stormwater and wastewater AMPs.[xxiv]

To consolidate information and get a better picture of the state and condition of Michigan’s assets, Michigan Governor Rick Snyder, through a recommendation from his 21st Century Infrastructure Commission, initiated a pilot project in West and Southeast Michigan. This pilot project also aims to create a reporting structure for infrastructure asset management across Michigan. The project will set the benchmark for data standards as well as identify criteria for a database which tracks asset inventory, condition, lifecycle, maintenance activities, and any other pertinent information.[xxv]

To apply for an NPDES, Michigan municipalities must complete a wastewater AMP

Further, the State of Ohio also introduced requirements of its own. Ohio’s Senate Bill 2, enacted June 2017, has set an October 1st, 2018 deadline for public drinking water AMPs.[xxvi]

Simply developing an AMP will not solve a municipality’s infrastructure problems. It is important to note that AMP development and AMP implementation are two different things and completing one without the other provides little in the form of asset management. Administrative support for an AMP is integral in the adoption and acceptance of the information and recommendations it provides. An asset management policy can help align a municipality’s strategic objectives with its asset management strategies/objectives. Asset management communications plans can help streamline and disseminate information to stakeholders about the benefits of an AMP and how it will be implemented. AMP implementation takes time and it will take time for municipalities to realize the financial benefits of proper asset management planning.

The US should begin realizing benefits in the years to come, assuming the AMPs developed are successfully implemented and supported. Consequently, with the emergence of asset management as a priority in the US, it should see its IRC grade gradually increase from its current grade of D+.

 

KARIM SABAYON is a Business Development Specialist at Public Sector Digest. In his role, Karim is responsible for building relationships with current clients, outreach to municipalities throughout Canada and the United States, as well as conducting supplementary research relating to asset management. Karim received his Bachelor of Management and Organizational Studies specializing in Human Resource Management at the University of Western Ontario. Karim can be reached at ksabayon [at] publicsectordigest [dot] com

 
 

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