FOLLOW THE LEADER: How To Develop Your Own Best-in-Class Asset Management Program.

Author:Clark, David A.
Position:Cover story
 
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In recent years, the District of Columbia has become a national leader in asset management and infrastructure renewal planning. In fact, in May 2018, Standard and Poor's released a report titled "Deferred Maintenance: How Can We Measure It?" recommending that other state and local governments follow the District's lead in creating a system to inventory assess, and prioritize assets, and to develop plans for funding deferred maintenance.

However, the District was not always so fortunate. In fact, in 1995, the District's finances had fallen into such trouble that the United States Congress established a five-member "Control Board" to assume direct responsibility for the District's finances, with the power to override decisions made by the Mayor and City Council. The Control Board suspended its activities in September 2001, after four consecutive balanced budgets. It left a chief financial officer in place to provide the District with continuing independent oversight of the District's finances.

Since 2001, the District has improved its financial position in a number of areas, including fully funded pensions, strong reserves, strong credit ratings, and--the topic of this article--best-in-class capital asset management.

CAPITAL ASSET MANAGEMENT IN THE DISTRICT TODAY

The District has many of the responsibilities of a city, state, county, and school district, so its infrastructure needs are substantial.

Given these diverse needs, a comprehensive review of the District's total capital needs is essential, including a ranking of each potential capital project to ensure that the highest-priority projects are funded. The District's assets are tracked in what is known as the "Capital Asset Replacement Scheduling System" (CARSS), which includes information such as the condition of each asset, replacement costs, and major maintenance that has been performed on the asset (which could affect estimated remaining useful life). Over the past few years, the amount of assets inventoried in CARSS has increased from 14 percent to more than 96 percent of all District assets. Condition assessments for all assets captured in CARSS have been either completed or are in progress. This comprehensive and detailed database of asset information is critical to assessing funding needs for maintaining quality infrastructure.

Funding assets is a complex undertaking, requiring governments to determine the most cost-effective ways to maintain an asset over its lifecycle and catch up with deferred maintenance. Further, governments need to balance debt, cash, and grant funding, while remaining mindful of constraints like statutory or self-imposed borrowing limits. To navigate this complexity, the District developed a long-range financial plan to address the District's unmet capital needs in the shortest time possible.

CARSS is used to prioritize, score, and rank all the District's capital projects. Then, given capital budget constraints and the priority ranking assigned to each project, the system determines which projects can be funded in the capital improvement plan each year. The unfunded capital projects are then analyzed in the long-range financial planning model. Given the relative priority of the unfunded projects, along with certain debt and resource assumptions, the District develops plans for an optimal solution to finance the unfunded capital gap over the shortest possible period. To develop this optimal solution, the city has a financial model that that identifies variables for its available debt, pay-as-you-go capacity, capital spending needs, and other relevant factors. These variables are then put together in various combinations showing which combination of debt and pay-as-you-go allows the District to find the earliest date it can meet its unfunded priority capital needs. This information is then used to present a complete long-term capital financing plan for the District over a 15-year period. Exhibit 1 illustrates this process, and Exhibit 2 shows examples of outputs from the District's capital planning finance analysis, where projects are prioritized against available funding.

In 2017, the long-range capital financial plan identified a funding gap of approximately $4.2 billion. As a result, the District Council passed legislation that...

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