© AECOM Consult, Inc. – October 2003

Daniel L. Dornan, P.E.

Managing Infrastructure Assets:Managing Infrastructure Assets:

Implications for New Accounting GuidelinesImplications for New Accounting Guidelines

Presentation to UCLA Symposium on Linking Transportation and Land Use through Finance

October 19, 2003

GASB 34GASB 34

2 © AECOM Consult, Inc. – October 2003

Transportation Infrastructure Funding Sources Have Not Kept Up With Needs

Lack of accountability for transportation facilities – which are written off opening year and treated as a sunk cost

Deferred maintenance of existing infrastructure – premature obsolescence

Increased auto ownership, trip making, and fuel consumption - congestion

Overlap of replacement/expansion needs – double the impacts

Alternative fuels, hybrid vehicles, emerging technology, and clean air requirements - diminish revenue potential of gas taxes

Unwillingness of elected officials to increase gas taxes

3 © AECOM Consult, Inc. – October 2003

Current Approach Passes Higher Costs toFuture Generations

Federal funding focus on capital projects

Overbuilding of transportation infrastructure

Infrastructure expensed in the year of opening

No on-going financial reporting

Deferred maintenance

Premature obsolescence

Higher frequency of replacement

High life-cycle costs passed to future generations

4 © AECOM Consult, Inc. – October 2003

Differing Perspectives on Funding Shortage

For state and local transportation agencies:

For regional toll authorities:

Who moved my cheese?

Who wants my cheese?

5 © AECOM Consult, Inc. – October 2003

The Solution Seems Simple …

Raise more revenue for transportation infrastructure programs from existing or new sources

and/or

Lower the costs of transportation infrastructure

6 © AECOM Consult, Inc. – October 2003

Ways to Lower the Costs …

Program Development Streamlining

Performance-based versus prescriptive specifications

Value engineering

Constructability reviews

Maintainability reviews

Innovative Procurement

Design-Build

Design-Build-Operate-Maintain

Asset Management

Life-cycle development and preservation

Performance-based management

7 © AECOM Consult, Inc. – October 2003

Ways to Raise the Revenues …

Direct user fees Tolls

Vehicle-distance fees (GPS)

Public taxes/assessments Property tax increment financing

Special assessment districts

Private sector funding Bond financing

Land contributions by adjacent land owners

Air rights and other related commercial land development

Public-private partnerships

Third-party equity financing

8 © AECOM Consult, Inc. – October 2003

Consequences of Private Sector Funding

Greater leverage of available public sector funding for transportation infrastructure

Greater accountability for project/facility delivery and management (cost, quality, timeliness)

Risk management and value capture by private sector participants

Stronger and more transparent economic relationship between transportation and land use Link beneficiaries to funding responsibilities

“Show me the money”

“Follow the money”

9 © AECOM Consult, Inc. – October 2003

But Its Not that Simple - What is the Missing Link?

Focus on capital development – not life-cycle stewardship

Lack of financial reporting by public sector owners

Lack of accountability by public sector owners

Lack of financial discipline by public sector owners

Inadequate dedicated funding sources for public use transportation infrastructure

Unwillingness of public sector owners to provide adequate value capture opportunities to private sector partners

10 © AECOM Consult, Inc. – October 2003

Governmental Accounting Standards Board (GASB) develops accounting and financial reporting standards for US state and local governments

GASB Statement No. 34 requires inclusion of infrastructure assets on balance sheets of annual financial statements Impacts 84,000 state & local governments

Allows depreciation or preservation-based reporting

Provides major impetus to apply asset management principles to infrastructure assets

• Prospective reporting – began 2001

• Retroactive reporting to 1980 – begins 2005

Part of the Answer - GASB Statement No. 34

11 © AECOM Consult, Inc. – October 2003

Definitions of Infrastructure and Asset Management

Infrastructure: Significant stationary capital assets whose service lives are expected to last several generations.

Asset Management: A systematic and integrated approach to the development and preservation of infrastructure assets that provides optimal service performance at minimum life-cycle costs.

12 © AECOM Consult, Inc. – October 2003

GASB 34 Reporting Requirements Will Encourage Better Stewardship of Transportation Infrastructure

INVENTORY: New & Current Assets

VALUATION: New & Current Assets

DEPRECIATION REPORTING:

• Traditional/alternative methods

• Determines replacement time frame

PRESERVATION REPORTING:

• Standards-based reporting through asset management system

• Extends asset service life/replacement

13 © AECOM Consult, Inc. – October 2003

Asset Management Links Transportation Infrastructure Performance and Fiscal Accountability

DisposalCondition

Assessment

ValuationRenewal and Replacement

Performance Standards

Asset Management Components

Life-Cycle Development/ Preservation

Inventory

14 © AECOM Consult, Inc. – October 2003

Preventive Maintenance Extends Highway Service Life and Reduces Life-Cycle Costs

Reactive Maintenance Pavement

Deterioration Curve

Preventive Maintenance Pavement

Deterioration Curve

15 © AECOM Consult, Inc. – October 2003

Potential Consequences of GASB 34 Infrastructure Reporting Requirements

Greater visibility of transportation infrastructure and their lifecycle management

Increased accountability of agencies responsible for transportation infrastructure development and preservation

Higher level of financial discipline among public sector agencies responsible for transportation infrastructure

Improved basis for judging the financial position/risks of government owners of transportation infrastructure

Higher bond rating potential for governments that exercise stewardship of their transportation infrastructure

Greater private sector involvement helps link transportation infrastructure and land use decisions

16 © AECOM Consult, Inc. – October 2003

GASB 34 Will Produce Improved Information …

To judge the relationship between transportation infrastructure and economic development

To make better decisions regarding rezoning for land development and investment in transportation infrastructure

To align funding responsibilities for transportation infrastructure with those most impacted by the facility (whether positive or negative impacts)

17 © AECOM Consult, Inc. – October 2003

Transportation and Land Use Can Be RelatedThrough Financing

Transportation

Infrastructure

Land

Use

GASB 34

GASB 34 Lights the Way by Making Infrastructure Costs More Transparent

18 © AECOM Consult, Inc. – October 2003

Long-Term Consequences of GASB 34 on Transportation Infrastructure

Transportation infrastructure becomes a valued investment supporting economic development potential and activity - not merely a sunk cost.

Transportation infrastructure is better planned, designed, and constructed to ensure the facility lasts a long time at lowest life-cycle costs.

Transportation infrastructure is preserved over its entire service life - maintenance is no longer deferred - lowering total life-cycle costs by up to 75%!

19 © AECOM Consult, Inc. – October 2003

GASB 34 Makes it Easier to Define Funding Responsibility for Transportation Infrastructure

Life-Cycle Costs

Funding Availability

Benefits and Impacts

FundingResponsibility

GASB 34

20 © AECOM Consult, Inc. – October 2003

GASB 34 Has Potential to Change How Infrastructure is Planned, Financed, Procured and Managed –

because …

What gets measured gets done!… Tom Peters

21 © AECOM Consult, Inc. – October 2003

About the Presenter

Daniel Dornan, P.E. is a Vice President with AECOM Consult, Inc., a specialized management consulting firm serving transportation agencies. He has more than 27 years of experience in providing resource management advice to state and local infrastructure agencies, including state and local departments of transportation; toll, transit, and port authorities; and local public works departments. Mr. Dornan’s expertise includes strategic planning, innovative finance and contracting, infrastructure management, organizational transformation, business process improvement, performance auditing and measurement, and change management.

Telephone No.: (703) 645-6830 E-Mail No.: daniel.dornan@aecomconsult.com

AECOM Consult, Inc. is an operating company in AECOM Technology Corporation, a multinational professional services organization based in Los Angeles with year 2002 sales of approximately $1.8 billion. AECOM delivers integrated consulting, engineering, construction, and program management services to both the infrastructure and facilities markets worldwide. With over 15,000 personnel and over 140 offices worldwide, AECOM is the largest engineering consulting firm in the United States serving the transportation industry.