Anyone who is following the infrastructure file ””beyond counting the number of times their car hits a pothole on the way to bringing the kids to sports practice ”” has heard of the infrastructure gap (defined as the difference between investment needs and past/current expenditures ”” the infrastructure debt). Since the early 1980s, many have attempted to quantify it. It all started with Pat Choate and Susan Walter’s book America in Ruins: the Decaying Infrastructure, which took the United States by storm in 1983. Shortly afterward, in 1985, the Federation of Canadian Municipalities produced its own study on the investment needed to bring Canada’s munic- ipal infrastructure to ”œacceptable” levels.
For more than two decades, various groups have pro- duced estimates on how big the infrastructure pothole is, based on surveys, extrapolations, economic models and any other available information. Others have spent time analyzing and criticizing these estimates. Meanwhile, Canada’s lifelines ”” roads, bridges, potable water and wastewater systems ”” have continued to deteriorate. Once in a while this infrastructure gap debate is interrupted for a few days or weeks when one of these lifelines ceases to pro- vide the expected services and affects the quality of life all Canadians cherish. Reactions to these ”œfailures” can be swift: studies are conducted, regulators act upon the recom- mendations from commissions, systems are upgraded, and after a while, the debate about the depth of the infrastructure pothole resurfaces.
To most Canadians, the number of zeros associated with estimates of the infrastructure gap is beyond compre- hension: the number $123,000,000,000 (one of these esti- mates) does not fit into most people’s eight-digit calculators! However, most Canadians are extremely sensitive to the automobile repairs they will have to pay for as a result of driving year after year on poorly maintained roads, to hav- ing to boil water because of potential health hazards, to being obliged to deal with time lost as a result of traffic con- gestion, or to having to clean up after sewer backups due to heavier-than-anticipated rain.
In this article I examine the opportunity decision- makers and public infrastructure owners and operators will have to use the upcoming requirements under the Public Services Accounting Board (PSAB) to report the value of their tangible assets in order to develop asset management plans that will allow them to manage their infrastructure deficit.
Physical infrastructure (which is traditionally defined as roads, bridges, sidewalks, potable water systems and storm and wastewater systems but today includes recre- ational and cultural facilities, institutional buildings and so on) is the tool, the mechanism by which a service is provid- ed to the user of the service, who pays for it through means such as user fees, direct or indirect taxes and direct billing. The custodians of the infra- structure differ according to the type of service. Some is entirely run by public agencies, some by the private sector. In some cases companies com- pete for customers (for instance, in telecommunications and energy); in others the customer has no choice in the service supplier (for example, most public services such as roads, sewers and water ”” although some might argue there is competition among water services: that is, between those providing tap water and those selling bottled water).
Ultimately, customer satisfaction drives the process. However, for pub- lic services, because the user pays through different mechanisms (such as subsidies or full-recovery user fees in the case of metered water and pub- lic transit, and property taxes in the case of municipal roads), there is a tendency for the customer to have high expectations in terms of the level of service. Many agencies use comparisons between the costs of pri- vately provided services (television cable, telephone and so on) and the cost of essential services (potable water, for example) to educate the public and justify measures such as resource conservation or rate increas- es (figure 1).
The debate over the infrastruc- ture gap (deficit, debt) can, there- fore, be (very simplistically) boiled down to one question: Do we have the necessary quantity and quality of infrastructure to provide the level of service Canadians are willing to pay for?
Service levels for a number of infra- structure services change constant- ly. Water conservation rules imposed by many municipalities restrict, for example, the use of water for washing cars or watering lawns. Solid waste col- lection may be restricted to a certain number of bags every week to increase the longevity of the landfill. Electricity may be rationed in parts of the coun- try during peak demand periods (usu- ally very hot summer days), resulting in scheduled brownouts or blackouts. Travellers adjust their schedules to account for lost time due to traffic congestion. In some municipalities com- munity swimming pools close at times for health reasons, resulting in fewer opening hours. The list could go on.
Meanwhile, as the debate contin- ues over the levels of service, how much investment is needed and who should be paying for what service, the infra- structure continues to age and deterio- rate. Managers and operators of infrastructure have no choice but to continue providing the basic services ”” albeit at reduced quality in some cases ”” and they have to find the resources to maintain and operate these assets.
The trend in forward- looking municipalities is no longer to try to fill their infrastructure gap: The idea is to stop digging so that the hole doesn’t become deeper. Then, the time will come to start filling the hole. The new paradigm is therefore to manage the gap.
To manage the gap, municipalities have to manage their assets. Asset management is not a new concept. Financial institutions manage their clients’ financial portfolios. The principle is simple: Given an initial investment, the goal is to manage the asset so that it grows at a greater pace than inflation to provide a good return on the investment.
In terms of physical assets, the best example is that of car owner- ship. At the time of purchase, the owner is given a maintenance sched- ule in order to ensure the longevity of the asset. Changing the oil every 5,000 kilometres, maintaining the tire pressure, replacing the air filter and so on are all part of the asset management procedures the car owner is required to fulfill under the warranty conditions.
Managing infrastructure assets is no different, in terms of the approach, than managing a car. Obviously there are additional complexities due to such things as the size and the loca- tion of the infrastructure, but the prin- ciples ”” the whats and the hows, are the same.
The leading Canadian (if not North American) municipalities in terms of infrastructure asset management ”” Edmonton and Hamilton ”” have adopted the asset management frame- work of the InfraGuide best practices.
Briefly, the best practices require responses to seven questions about assets: What do you have and where is it (inventory)? What is it worth (costs/replacement rates)? What is its condition and expected remaining service life (condition and capability analysis)? What is the level of service expectation, and what needs to be done (capital and operating plans)? When do you need to do it (interven- tion plans)? How much will it cost and what is the acceptable level of risk? How do you ensure long-term affordability (short- and long-term financial plans)?
In the context of municipal plan- ning and decision-making, these ques- tions are part of the asset management framework illustrated in figure 2.
This model, applicable to all types of infrastructure, can be used by municipalities of any size. Larger com- munities may have databases, geo- graphical information systems (GIS) and other sophisticated analysis tools, warranted because the infrastructure is critical locally, regionally or even nationally. Smaller communities, which have limited infrastructure to manage but also limited resources (financial and human), can simply use standard tools such as spreadsheets.
The lack of data regarding loca- tion, condition, remaining serv- ice life and replacement costs, and the cost of collecting this information, have traditionally been a deterrent to or an excuse for not implementing infrastructure asset management systems within a community. Practition- ers will, however, point out that the lack of precise data can easily be over- come by using published or otherwise available information (for example, that from other municipalities) or by benchmarking exercises such as the National Water and Wastewater Benchmarking Initiative (NWWBI) or the Ontario Municipal Benchmarking Initiative (OMBI).
Furthermore, municipalities across the country are presently gear- ing up to meet new accounting requirements of the Public Sector Accounting Board (PSAB 3150) for the valuation (and reporting) of tangible assets. Again, forward-looking com- munities are taking advantage of these accounting requirements to develop and implement asset man- agement plans.
The delay in the widespread adop- tion of infrastructure asset manage- ment in Canada may well be an advantage now that two key professions concerned with infrastructure ”” engi- neers and accountants ”” are collaborat- ing on this file. This is not the case in other countries. Across the globe, there has been mixed success in this area.
New Zealand has mandated its councils (municipalities), through revisions to the Municipal Act, to implement asset management plans and develop long-term community plans. In Australia, where the push has come from the technical profes- sions and where the idea has only recently attracted support at the state auditor level, there is still a lack of buy-in at the elected-official level.
In Canada, the ”œpush” from the engineering profession to implement infrastructure asset management systems is now being strengthened by the ”œpull” of the financial and senior administrators of the infrastructure that will implement PSAB 3150, to the benefit of the owner of the infrastructure: the taxpayer.
The PSAB reporting requirements can in a way be likened to the preparations public agencies made for Y2K ”” so let’s call it the Y3150 exercise (a.k.a. the year PSAB 3150 comes into effect). Many will recall how cross-dis- cipline teams within the agencies, under the leadership of senior-level champions and with the full support of management and boards (or city councils), prepared for Y2K. Similarly, Y3150 preparations will require leader- ship and support from across the organization.
Many Canadian operators of pub- lic infrastructure across the country have begun preparing for Y3150. Many have the opportunity to add asset management to the process. Others, having already implemented asset management processes within their organization, are taking advan- tage of the wealth of knowledge now available to refine their decision- making processes.
For example, the City of Edmonton, in collaboration with the University of Alberta, is working on including assessment techniques to evaluate risks associated with its prior- itization procedures. The city, whose infrastructure challenges include tak- ing care of existing systems while it is growing at unprecedented rates, is also looking at long-term sustainabili- ty ”” a 30-year horizon ”” and identi- fying demand/supply issues in order to evaluate impacts and develop options.
Further east, the City of Hamilton recently released its sec- ond State of the Infrastructure (SOTI) report ”” a report card that provides the baseline for future work. The city plans now to work on management frameworks that will lead to policy development and eventually possi- bly an update of the SOTI report, allowing for an evaluation of the progress made.
To conclude, discussions and studies about the accuracy of the 12- digit number that is Canada’s infrastructure debt (deficit) will certainly continue for years to come. A debate about levels of service and ratepayers’ willingness to pay would certainly be valuable. What is not debatable, however, is the fact that the ”œcustodians” of public assets ”” govern- ments of all orders ”” have the responsibility for properly managing the infrastructure that has been entrusted to them.
The necessary mechanisms for local and senior levels of government to support the development and implementation of sound infrastructure asset management plans exist.
The federal and provincial gov- ernments can easily adjust their pol- icy frameworks to include asset management as part of their objec- tives. Furthermore, eligibility condi- tions can include requirements for infrastructure operators to have and use infrastructure management sys- tems. In local government, which may or may not have the internal capacity to manage assets internally, the SMART (simple, measurable, achievable, realistic, timely) way to proceed is to add value to the Y3150 readiness exercise. By adding engi- neering planning and management to the PSAB accounting require- ments, local governments will be in a position to invest in the programs that are critical to the health and wealth of their communities.