Insights-Planning Archives

Infrastructure Asset Management: Business Principles to Maximize Government Revenue Returns

This post is an excerpt from an article we published in the June 2017 issue of Borough News magazine entitled “Strategic Asset Management: Optimizing Your Borough’s Dollars.”

We hear a lot these days about the virtues of running government like a business, but what does that mean?

Any profitable business owner can tell you that success doesn’t happen by accident. Managers spend a good bit of time and money studying the environment in which they operate, identifying opportunities and threats, and planning the best ways to maximize growth while minimizing risk.

Though these efforts cost money, prudent managers know it is an investment in the company that will pay higher dividends over the long-term.

Part of a businessman’s overall strategic planning effort involves cataloguing his assets and maximizing their value. Assets can be wide-ranging: from people to trucks to buildings. The goal of asset management is to optimize the way you spend your budget dollars in order to make sure they are providing the biggest return: reducing the life cycle costs while maximizing the service each asset provides.

Who needs to optimize the way they spend their budget dollars more than cash-strapped municipalities under pressure to keep taxes low while obligations increase?

Most municipalities are grappling with aging infrastructure. Take water systems, for example: The American Society of Civil Engineers estimates that the cost to keep our water and wastewater system functioning over the long term is more than $1 trillion. While there is plenty of work to be done, there is simply not enough funding for communities to do it all at once. Therefore, ASCE recommends assessing the condition of every pipe and valve to determine the risks of failure and properly allocate funds where they are needed most. Asset management and capital improvement planning can help you target your limited budget dollars most effectively in all types of infrastructure: roadways, bridges, stormwater management systems and more.

For example, new technology is making it possible for municipalities to extend the life of their roadways through roadway management systems. Cameras and laser-scanning technology can be mounted to trucks that record the conditions of a municipality’s entire roadway system: noting cracks, pot holes, wheel rutting, and more. Doing this work manually would’ve been too labor-intensive and cost-prohibitive for communities in the past, but now, thanks to technological advancements, municipalities can collect better data at a lower cost without road closures or detours!

Once the data is collected, the municipality can work with an engineer to analyze it and prioritize a list of maintenance, repairs and reconstruction needs. A roadway management program like this emphasizes cost-effective, preventative maintenance activities to prolong the life of a roadway in good condition. By making well-timed, proactive investments, the municipality can enjoy better service from the roadway at a lower lifetime cost.

Silver Spring Township Roadway Management Program

HRG has designed a roadway management program for Silver Spring Township that is helping them save money and better position themselves for grant funding. Learn more

The same asset management and capital improvement principles can be applied to bridges, as well. Typically, this is done at the county level since they own more bridges than municipalities, but the process is similar. When Dauphin County first embarked on its bridge management program, 1/3 of its bridges were structurally deficient. They carefully catalogued the condition of each bridge and prioritized repairs and replacement contracts. Today, they have successfully eliminated all load-posted, structurally-deficient bridges in the county. The program has been so successful it’s generated a surplus of liquid fuels funding, and the county has been able to funnel that into a subsidized loan program for its municipalities to address their own infrastructure needs.

Duke Street Ribbon Cutting

Thanks to careful planning and a wise use of funds, Dauphin County recently completed the replacement of its last load-posted, structurally deficient bridge. Now they can use their Liquid Fuels money for an innovative infrastructure bank that is helping municipalities and the private sector improve local communities. Learn more

Asset management programs can be very important to municipalities looking to meet their MS4 stormwater obligations, as well – particularly if they are considering the implementation of a stormwater fee. Aging infrastructure and growing MS4 permit obligations are compelling municipalities to upgrade their stormwater systems. Though legislation allows them to charge a stormwater fee, they must be able to justify it, which means they must conduct a thorough inventory of their facilities and document the work that must be done to keep it functioning (along with cost estimates for that work). These are crucial facets of an asset management system.

Mobile GIS Development for MS4 Inspections

Municipalities will need a thorough inventory of their stormwater facilities and their condition in order to keep up with the increasing burden of MS4 permitting. Learn about a GIS application HRG created for Hampden Township to help them meet MS4 inspection and reporting requirements.

 

What is asset management?

Asset management is a systematic approach to minimizing the cost of owning, operating, and maintaining your infrastructure at acceptable levels of service.

It is not a computer system or GIS, though these are often valuable tools employed in an asset management program for record-keeping and data analysis.

A proper asset management and capital improvement program will help a municipality identify areas where money is not being spent wisely and reallocate those funds where they can be most beneficial.

It will also help you recognize and evaluate options for keeping your assets functioning for a longer period of time, so that you don’t need to invest in expensive upgrades or replacements as frequently.

It is a circular process that never ends.

Circular Nature of Asset Management

Many things change over time: the condition of your assets, regulations and the business climate you operate in, the number of users you serve, etc.  A good asset management and capital improvement program helps you plan for these changes in advance and respond proactively before they become threats to your bottom line.

 

What are the benefits of infrastructure asset management?

As we’ve already stated, an asset management and capital improvement program helps you identify exactly what maintenance and repair work is necessary without guesswork. This approach has multiple benefits:

Minimizing Risk
Knowing which infrastructure is most likely to fail (and correcting deficiencies before it does) can save you major expenses later. Knowing which failures would be the most catastrophic helps you target money toward their prevention as a first priority.

Maximizing Returns
Asset management and capital improvement planning is all about proactively investing in measures to extend the life of your infrastructure.  These small investments can extend the life of an asset by several years.

Optimizing Service and Satisfaction
Proactively maintaining your assets ensures they function at peak performance for a longer period of time and are replaced before they fail. This means your constituents receive top quality service without disruption and are happier for it. In addition, many asset management solutions include optional customer service applications that make it easier for residents and business owners to submit service requests and track them to completion.

Justifying Your Tax Rates or Fees
Rate increases are never popular, but they are easier for people to accept when they are backed up with clear data showing exactly what improvements are needed and why.

Accessing grants and loans
Competition for funding is fierce, and government agencies are under pressure to make sure the money they invest is used wisely. As a result, they’re more likely to award funds to municipalities who have clear documentation of the project need, its benefits, and a plan for getting it built, operating it, and maintaining it at optimum levels over time.

Improving your worth
Many municipalities have been considering the option of leasing or selling their assets as a response to growing financial obligations in the public sector. A comprehensive asset management system provides documentation of the value of your assets, so you can ensure you are in a position to negotiate the best possible deal for you and your constituents.  Potential investors will be more comfortable making a significant investment if they fully understand the value and the risks they’re assuming.

But asset management can benefit your financial picture even if leasing or selling is not on the horizon.

Under GASB standards, governments can either subtract a standard portion of their infrastructure’s value each year to account for depreciation (the traditional approach), or they can regularly assess the condition of the infrastructure, invest in maintenance to keep it in good condition, and then report the amount of money they have invested in maintenance (the modified approach, which is similar in scope to a typical asset management program).  Using the modified approach, the assets don’t have to depreciate in value like they would in the traditional approach.

A recent article in Governing magazine showed how investors appear to prefer trading bonds from governments that use the modified approach:

“Governments that use the modified method trade at much narrower price ranges compared to bonds from governments that depreciate. In other words, when a government uses the modified approach, investors are much more likely to agree on how to price its bonds. For governments, this can ultimately translate into lower bond interest rates.”

(excerpted from “Selling Your Sewer’s Story – Financial statements can make the best case for public works investors”)

 

The truth is, you’re going to have to invest in maintenance and repair anyway. If you invest in an asset management program, you can take a proactive approach to determining what maintenance is needed and then plan and budget for it in advance. This means you can target your maintenance dollars where they’re needed most and make sure you have the funds available to do the work before infrastructure failure brings even greater costs to bear on your budget.

Publicly-traded companies are held accountable to their shareholders. They must demonstrate that they are making good decisions for the future health of the company and maximizing the value of the shareholders’ investments. Taxpayers are coming to demand the same sort of accountability from their government, wanting proof that their tax dollars are providing a good return, as well. Municipal managers that can prove the value of their decisions will enjoy broad support of their constituents while improving the long-term financial stability of their community.


Adrienne M. VicariAdrienne Vicari, P.E., is the financial services practice area leader at Herbert, Rowland & Grubic, Inc., a civil engineering firm that serves local governments and authorities in Pennsylvania, Ohio, and West Virginia. Ms. Vicari has assisted numerous municipalities and water and sewer authorities with the creation of asset management programs that have created increased value and lowered costs for her clients.

 

Carlisle Borough Uses Infiltration/Inflow Data to Devise Long-Term Plan for Infrastructure Repair and Replacement

Like many municipalities, Carlisle Borough is grappling with the challenge of aging infrastructure. Its sewer system features infrastructure that is more than 100 years old.  Since replacing it all at once is not possible from a financial perspective, borough officials needed to a way to narrow down exactly where investment should occur.  Which projects would provide the most value to Carlisle residents and business owners?  Infiltration and inflow data provided the answer.

Why infiltration and inflow data?

In the words of Carlisle Borough staff, “Inflow and infiltration is really just a symptom of failing infrastructure.” By figuring out where extraneous flow is entering the system, we get a hint as to where cracks or defects in the infrastructure may be located.

Josh Fox recently authored an article in the April/May/June issue of Keystone Water Quality Manager magazine on this project with the borough’s director of public works Mark Malarich, P.E.

The article discusses how HRG’s engineers evaluated infiltration and inflow data to determine what infrastructure needed repairs or replacement the most. First, the borough implemented a 16-week metering program to identify dry weather flow for comparison to wet weather data for the borough’s 21 sewer basins.

We then used the data to calculate peaking factor and total infiltration volume for each of the basins and ranked the basins accordingly. After analyzing the data, we determined that some basins had high peaking factors but infiltration dropped off quickly once the wet weather dissipated (like Area 1C in the figure below).  Other basins saw high infiltration volumes for several days after a wet weather event (like area 4 in the figure below).  This suggested that a high groundwater table was contributing a sustained flow via defects in the manholes, sewer mains and sewer laterals.  Therefore, total infiltration volume provided the best data for assessing the overall condition of the infrastructure.

 

Infiltration-Inflow-Data-from-Two-Basins

Taking our analysis one step further, we prioritized the basins with the highest total infiltration volume for further investigation and compared the total volume of infiltration/inflow in a basin to its size. By calculating the total infiltration per foot of pipe, we were able to more accurately estimate the severity of damage in each basin.  (For instance, two basins may have had similarly high total infiltration volumes, but one was significantly smaller than the other.  This suggests a higher severity of defects in the smaller basin for that much water to infiltrate in a smaller space, during the same time period, after the same wet weather event.)

Prioritized Basins by each factor

Using this data as a guide, HRG worked with the borough to devise a 20-year capital improvement plan for addressing the highest priority needs in the system.  HRG also helped the borough create a financial strategy for addressing these needs.

Rehabilitation of the highest priority basin is being completed in the spring of 2017 and is expected to come in almost $1 million under budget.

Read more about this project in the April/May/June 2017 issue of Keystone Water Quality Manager magazine.

HRG has written a great deal of advice on asset management and long-term infrastructure planning for water and wastewater systems. Read similar articles below:

 

 


Josh Fox, P.E.Josh Fox, is the regional manager of water and wastewater system services in HRG’s Harrisburg office.  He has extensive experience in the planning and design of wastewater collection and conveyance facilities, water supply and distribution systems, and stormwater facilities.

 

Form-Based Zoning Can Bring Municipalities and Developers Together on the Walkable Communities Buyers Want

Photo by North Charleston.  Published here under a Creative Commons license.Walkable Community

The National Association of Realtors (NAR) recently released the results of a nationwide poll showing millennials increasingly prefer walkable communities over the spread-out developments in many present-day suburbs. Other studies have confirmed similar preferences for walkable neighborhoods and mixed-use development; however, traditional zoning approaches, which emphasize low-density development and a separation of land uses, makes it difficult for residential developers to obtain approval for these communities. This article explores the rise in popularity of the walkable community and discusses how residential developers and municipal planners can use form-based zoning to create a community that meets the needs of everyone.

The Case for Walkable Communities

In 2013, NAR’s Community Preference Survey found that 60% of respondents preferred a neighborhood that mixes housing with stores and businesses within walking distance, and 55% would give up a home with a bigger yard in order to get one within walking distance of schools, stores and restaurants.

Additionally, a study by Gary Pivo at the University of Arizona’s Urban Planning Program and Jeffrey Fisher at Indiana University’s Kelly School of Business found that – other factors being equal – enhanced walkability increased the value of both residential and commercial properties.  Using data from the National Council of Real Estate Investment Fiduciaries and Walk Score, they compared more than 4,000 office, apartment, retail and industrial properties and determined that a 10% increase in walkability increased property value by up to 9% for all but the industrial properties.  (There was no discernible impact on industrial properties with a higher walkability score.)

This is in line with other studies of traditional neighborhood developments (TND) published in Real Estate Economics and the Journal of Urban Economics, which found that buyers were willing to pay between 12-15% more for pedestrian-friendly homes in the studied neighborhoods, compared to similar homes in neighboring low-density communities.

Increased property values benefit the developer selling the home, but they also benefit the local municipality as they increase property tax revenues. In addition, high density, walkable communities reduce the amount of infrastructure (such as roadways, traffic signals, water and sewer line extensions) needed to connect spread-out developments, which can save the  municipality money that would’ve been needed to maintain that infrastructure.

The most important reason for municipalities to consider making their zoning friendlier to walkable communities, however, might be their desire to stay competitive as a place people want to live.

Millennials represent a demographic of 80 million people, and they are the generation that will be buying homes and putting down roots in the years to come. Michael Myers, a managing director at The Rockefeller Foundation, is quoted in an article on The Atlantic’s CityLab website, saying, “As we move from a car-centric model of mobility to a nation that embraces more sustainable transportation options, millennials are leading the way…Cities that don’t invest in [these options] stand to lose out in the long run.” 

Bridging the Municipal-Developer Gap with Form-Based Zoning

If municipalities and developers agree that walkable communities can be beneficial, why aren’t more of them being built?

Over the past few years, these communities have become more and more popular with both developers and municipalities, but acceptance still is not widespread. Traditional zoning ordinances could be one of the reasons why.

Traditional zoning ordinances separate land uses into distinct zones: Commercial is separate from residential. Single family homes are separate from apartments and townhomes, etc.  This prevents the construction of developments that combine commercial and residential uses of different types in one space like modern walkable communities do. In addition, traditional zoning has emphasized a low-density approach because communities associate higher density with a loss of open space and community character and fear higher density developments will drain community resources.  However, developers require a higher density approach in order to make the many amenities (such as recreational facilities and civic and commercial spaces) affordable in a typical walkable community plan.

But form-based zoning could be the bridge that closes the gap between a community’s concerns and a developer’s needs.

Rather than fixating on density values and strict land use definitions, municipalities using a form-based zoning approach create a vision for the type of community they’d like to have and set standards to realize that vision.  If they want a community that encourages walking and social interaction in public spaces, they can set standards that will promote these activities.  For example,  Public Space standards can specify the types of pedestrian amenities, greenspaces and recreation requirements that make a place feel safe, comfortable and walkable.  They can also set the size of a standard block and govern how roadways and pedestrian amenities interconnect.  (Keeping the size of blocks small will make them more manageable for walkers, and interconnecting streets will provide shorter routes and more evenly distribute car traffic throughout the roadway network.  This will, in turn, have the added benefit of reducing congestion that comes from concentrating cars on just a few heavily travelled corridors, as is common in many traditionally zoned communities today.)

By using a form-based approach, municipalities can focus more on the form and feel of a community, instead of limiting development to strictly separated zones with a one-size-fits-all regulation of lot sizes.

In turn, residents enjoy the quality of life they seek, and municipalities can continue to attract growth, maintain a healthy tax base, and reduce the expenses associated with sprawling infrastructure. Meanwhile developers are able to meet a market demand profitably without navigating an unnecessarily lengthy entitlements process.

This type of approach allows communities to remain relevant and competitive in the decades to come as millennials age, take their resources and preferences to market, have kids and nurture the next generation. Municipalities and developers that dismiss these trends as merely a fad may be taking a big risk. Is it worth it?  We will know in 20 years.


HRG excels at bringing developers and municipalities together to meet the needs of a community in a way that benefits all parties. To discuss how walkable communities could benefit you, please contact us