capital planning and asset...
TRANSCRIPT
Capital Planning and Asset
Management
Shadi Eskaf
Environmental Finance Center at the University of North Carolina, Chapel Hill (School of Government)
Environmental Finance Center Network
919.962.2785
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Uh oh! How Do You Pay for
This?
Emergency repair
vs.
Preventative
rehab./ replacement
(capital planning)
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Session Objectives
• Capital Planning Process
• Prioritizing Your Needs
• How to Estimate Your Future Costs
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In the Old Days...
• Water systems took advantage of the
federal government’s ambitious
construction grants program of the 1970s
and 1980s
• Everybody loved their “free” money
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Capital Finance Today
• The money never really was “free”—it
came from tax dollars
• Today, the financial burden has been
shifted away from federal and state tax
dollars (grants) to funds raised by the
water system itself (customer sales and
loans). For example...
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Capital Finance Today
• In other words, you pay (no sense in sugar-coating this)
• The harsh reality is that water and wastewater infrastructure is expensive, regardless of the size of your system. Smaller or poorer systems will likely have a hard time paying for capital improvements
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Capital Finance: Ways to Pay
• Pay as you go (current receipts)
• Save in advance and pay (fund balance,
capital reserve fund)
• Pay later (someone loans you money)
• Grants (let someone else pay)
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Two Related Concepts: Asset
Management & Capital
Planning
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http://www.epa.gov/safewater/smallsystems/pdfs/guide_smallsystems_asset_mgmnt.pdf
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5 Things to Track for Each Asset
in an AM Inventory (EPA)
1. Name/Description/location
2. Age
3. Condition (and service history)
4. Criticality
5. Expected useful life remaining
Source: EPA’s “Asset Management: A Handbook for Small Systems”
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Create an Asset Inventory
Source: EPA’s “Asset Management: A Handbook for Small Systems”
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http://www.epa.gov/safewater/smallsystems/pdfs/final_asset_inventory_for_small_systems.pdf
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Some Rules of Thumb –
Expected Life
• Pipelines, valves: 40-50 years
• Mechanical equipment: 15 years
• Wells and springs: 25-35 years
• Storage tanks: 30-60 years
• Meters: 5-15 years
• Concrete will need refurbishing within 30 years
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Create an Asset Inventory
Source: EPA’s “Asset Management: A Handbook for Small Systems”
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Establishing Asset Condition
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Like
liho
od
of
Failu
re
Consequence of Failure Low
High
Immediate Work
Sample Monitoring
Aggressive Monitoring
Program
Schedule for Rehab/ Replace
High
A
B
C
D
Risk of failure should
drive the work program
Source: Steve Allbee, USEPA
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Prioritize Asset Rehab. / Replacement
Source: EPA’s “Asset Management: A Handbook for Small Systems”
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Long Term Capital Planning
• This is strongly related to asset
management
• An official multi-year document that
identifies and prioritizes capital projects,
identifies funding sources, and sets
timelines
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Capital Improvement Program
• Identify regulatory deficiencies (discuss with regulatory agencies, look at proposed regulations, talk to consultants), in a 10-20 year window
• Identify growth needs, expansion
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Capital Improvement Program
• Identify deferred maintenance problems or where current service is inadequate
• Prioritize based on need realizing that “hidden” infrastructure tends to be ignored
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Capital Improvement Program
- Timelines • Use Asset Management Plan to plan for
capital expenses in the long term (~20 years)
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Capital Improvement Program
- Timelines • Create a Capital Improvement Plan with a
narrower timeline (~5 years) in more detail.
Specify the projects and accurate estimates of
cost. Plan where money will come from.
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Capital Improvement Program
- Timelines • Create a Capital Improvement Budget with
an even narrower timeline (1 – 2 years)
committing funds for the planned capital
projects. Get it approved/adopted.
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Example Capital Improvement Plan
(CIP)
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Estimate Required Capital Reserves
Source: EPA’s “Asset Management: A Handbook for Small Systems”
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Where Can You Find the Prices?
• Call a vendor. Actually, call a few.
• Ask other systems
• Look at past expenses but adjust for
increases in costs
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How Quickly are Costs Related
to Capital Rising?
• Instead of
looking at
Consumer Price
Index, look at
Construction
Cost Index
(CCI).
• ~3%/year.
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%/y
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Annual Changes to CPI-U ("Inflation") and Construction Cost Index: 1984 - 2012
Inflation (Annual Change in the CPI-U)
Annual Change in the Construction Cost Index
Data Sources: Bureau of Labor Statistics, Engineering News-Record ENR.com, InflationData.com, USDA Natural Resources Conservation Services
http://efc.web.unc.edu/2012/09/26/using-an-index- to-help-project-capital-costs-into-the-future/
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Drive Down the CIP Cost
• Is it possible to – Eliminate projects?
– Defer projects?
– Repair or refurbish instead of replace?
– Find a non-asset solution?
– Find collaboration/partnerships alternatives with neighboring systems?
– Improve balance of cash vs. debt-financed?
• Re-evaluate water demands of your customers. Many systems are now noticing that total demand is decreasing over time.
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Last Concept: Life Cycle Costing
• Purchase Price ≠ Total Price
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Capital Investments are Just the Tip of
the Iceberg…
Source: Steve Allbee, USEPA
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Resource Webpage for
Capital Planning
www.efc.unc.edu/projects/capitalplanning.html
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EFC C.I.P. Tool http://efc.sog.unc.edu/ Find it in Resources / Tools
Free, simplified CIP tool using only MS Excel (EFC @ UNC)
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http://www.epa.gov/cupss/
Software: CUPSS (EPA)