Managing capital assets: a new emphasis on a traditional role.

• Author: Kavanagh, Shayne

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Capital asset management has become a topic of increasing interest for local governments, given high-profile infrastructure failures, (1) a focus in the popular media on infrastructure deficiencies, (2) and the promulgation of new accounting standards. (3) Of course, asset management has been a traditional role of local governments, but many public officials and managers are revisiting the way this role is carried out.

This article looks at the key policies and best practices related to managing capital assets and presents examples of policies and practice from the City of Edmonton, Alberta, and the City of Hamilton, Ontario--both municipal leaders in asset management.

KEY POLICIES FOR ASSET MANAGEMENT

The budget for capital asset management competes with other potential uses for funds--many of which have a higher public profile and bring more visible, immediate (if perhaps also more temporary) benefit to the public. The organization's governing board can adopt a policy that establishes a strategic intent to commit to asset maintenance and a shared understanding of how the local government creates value for the public through capital asset management. The GFOA best practice, Capital Asset Assessment, Maintenance and Replacement Policy, (4) outlines the major elements of a policy:

* Require a complete inventory and periodic measurement of the physical condition of the organization's capital assets.

* Establish condition and functional standards by asset class.

* Evaluate infrastructure and other assets, and then set priorities.

* Develop financing policies to maintain a condition assessment system and promote sufficient funding for capital repair and maintenance.

* Monitor and communicate progress.

* Prepare plain language status reports on the condition of the organization's capital assets.

Define Needs. The City of Edmonton, Alberta, established strategic intent by adopting a series of three policy goals and related goals. The first goal was to define needs by evaluating and reporting on the state of infrastructure assets. This involved maintaining an asset inventory, valuations, and a condition rating system for infrastructure. The city's policy goals directed the use of tools such as life-cycle costing, risk assessment, and return on investment to evaluate its asset portfolio fully. It is also important to determine the current and projected use of infrastructure assets and related costs. Doing so allows Edmonton to understand which infrastructure will be subject to the greatest level of demand and, therefore, what level of service and funding the city needs to provide in response. The city's policy goals also recognized the need for helping the public understand the scope, value, and importance of investment in infrastructure and how infrastructure assets meet the city's broader social, environmental, and economic objectives.

Develop Solutions. The second major policy goal Edmonton pursued was to develop solutions by implementing sustainable infrastructure asset management practices. This includes developing and applying evaluation tools that reward sustainable approaches to service delivery, such as taking the total lifecycle costs of an asset into account, as opposed to just acquisition costs or other short-term perspectives. These evaluation tools must also...