Meeting GASB-34: An Integrated Software Approach

For Highway Departments

Bill Elliott

Introduction

Asset Management is not a new concept. Government agencies, utility companies and facility managers have been performing “Asset Management” for years. A new emphasis on accountability and viability of public infrastructure, however, means that an increasing number of transportation and public works departments will be implementing computerized Asset Management Systems in the future. As part of this movement toward automation, roadway asset location and condition data, collected during field inventories or routine inspections, are being loaded into databases. Geographic Information System (GIS) technology from Esri has spawned spatially enabled asset databases, allowing users to capture and view data on maps. Once the information is recorded, these systems provide powerful capabilities for spatial query, analysis and reporting of highway assets and infrastructure.

However, taking into account the characterization of Asset Management Systems defined by the GASB-34 statement, most asset databases lack integrated software tools for automatically updating asset condition and valuation changes as the result of on-going maintenance activities and capital improvement projects. This article discusses how the GASB-34 Modified Approach presents new opportunities for improved management of public infrastructure through the use of integrated software tools and databases. It highlights commercially available software that both integrates maintenance activities and capital improvements with asset management, and documents infrastructure level-of service attainment needed for compliance with the GASB-34 Modified Approach.

Infrastructure Accountability

Most homeowners can provide a fairly accurate estimate of the current market value of their house and property off the top of their heads. And, if one has no idea, property values are easy enough to research. Most competent realtors provide estimates free of charge, or licensed property appraisers will provide more factual estimates for a small fee.

This is not the case for government managed roadways and roadside furniture (e.g. signs, drainage, lights), however. Infrastructure assets, such as streets, are long-lived assets that are preserved for a significantly greater number of years than most capital assets. These assets are built over different time periods and degrade at different rates based on varying subsurface stability, materials used and usage capacities. Additionally, on-going maintenance activities help to prolong asset life to varying degrees. Due to the difficulty in assigning financial valuations to most roadway assets, infrastructure has traditionally been considered a sunk cost with little consideration given to the tax dollars spent on its upkeep and replacement.

In its Statement 34, the Government Accounting Standards Board (GASB) decided to change how government agencies account for infrastructure under its jurisdiction. The purpose of the statement was to recommend accounting standards that would show how well government is meeting its obligations to constituents through the fiscal decisions it makes regarding infrastructure. An additional purpose of the GASB-34 statement is “to enhance the understandability and usefulness of the general purpose external financial reports of state and local governments to the citizenry, legislative and oversight bodies and investors and creditors.”

Compliance with GASB-34 is intended to provide benefits to government agencies that include improved accountability to the public, smarter utilization of available maintenance and capital improvement funds, more effective work planning, and improved relationships with funding agencies, not to mention extending the useful life of public infrastructure in a more cost-effective manner.

While opening the door for significant changes in government accountability of how well agencies meet their obligations in managing infrastructure under their control, Statement 34 provides two alternative methods for compliance – a Depreciated Approach, and a Modified Approach. Both require infrastructure assets to be included for the first time on Government financial statements under a Statement of Net Assets.

The Depreciated Approach follows a more traditional approach of capital asset valuation, revealing infrastructure replacement needs as assets near the end of their service life. This reduces the recorded value of the asset over time, a concept well understood by accountants. However, the approach does not address operational and preservation realities of long-lived infrastructure. For example, periodic resurfacing of roadways can upgrade its value and useful life for an indefinite period. It is the job of government to maintain and refurbish infrastructure to extend its useful life and operational functionality to meet demands placed on it for the foreseeable future.

Historical cost-based depreciation approaches do not quite fit such sustainable assets. However, the Depreciated Approach to GASB-34 is still under consideration at many agencies for two reasons. First, it represents a minimalist approach advocated by accountants that do not understand asset management and asset preservation activities performed by the operational departments in government. Second, and more importantly, the alternative Modified Approach requires much more information about the condition of assets and expenditures for asset maintenance, information most agencies do not have currently. Lack of the necessary information has been an early inhibitor to using the approach, but points out the need for government to have more information about the assets it is tasked by the public to manage.

The preservation-based Modified Approach allows government to examine the long-term costs of deferring maintenance versus decisions about when and how preventive maintenance measures are applied to various assets. AASHTO and most other members of the infrastructure community advocate the Modified Approach. No depreciation is required if the government can demonstrate that an asset has been preserved. Financial people who choose the Depreciated Approach by and large do not understand the value of the asset and maintenance management processes encouraged in the Modified Approach as providing more value to citizenry and the government. In order to appreciate the benefits of using the Modified Approach, the financial community needs to be enlightened to the value of asset management, and the impact of maintenance decisions on asset preservation

Modified Approach as Management Tool

In describing the GASB-34 Modified Approach for asset valuation and preservation statement, the Government Accounting Standards Board specifies that state and local government agencies responsible for the stewardship of public infrastructure:

• Maintain an up-to-date inventory of assets
• Establish a basis for asset condition measurement
• Perform condition assessments every three years
• Establish asset preservation service levels
• Sufficiency document asset maintenance activities to substantiate meeting published service levels.

In short, the Modified Approach is much more than an asset valuation technique – It is a clear-cut Asset Management philosophy and methodology.

The Modified Approach recognizes the important role of asset maintenance and preservation in infrastructure valuation. The approach elevates the attention that needs to be given to these functions, which traditionally are low-level priority during the budgeting process. Perhaps, the most significant byproduct of adopting the Modified Approach is the fostering of closer cooperation between finance/accounting and engineering/maintenance departments within an agency through the common objective of GASB-34 compliance.

The GASB-34 Modified Approach offers numerous benefits to government agencies responsible for public infrastructure, as follows:

• Better accountability to the public and government
• Better utilization of available asset maintenance and replenishment funds
• Improved work planning, scheduling, & management
• Improved relationships with funding agencies
• Extension of asset life cycles more cost-effectively

There is no doubt that once key decision makers in government understand the profound differences between the preservation-oriented Modified Approach and the classic accounting flavor of the Depreciated Approach, they will adopt the Modified Approach as the best approach for GASB-34 compliance and management of infrastructure assets under their control.

The Million Dollar Highway

Keeping track of infrastructure location and condition is a difficult task without the use of advanced information systems and data collection technology. Tracking maintenance activities performed on specific physical assets in order to document service levels can stretch staff resources when paper-based records are used. Computer technology can mitigate the resources required to operate asset management systems. However, an optimal structure of the asset and maintenance database is essential to providing the query, reporting and reporting functions desired from an asset management system.

Transportation and public works departments typically organize and catalog roadway and roadside infrastructure in relation to their physical locations along the road network. This is only natural, since field crews find assets by driving down a road. In fact, many agencies have developed intricate measurement methods from reference points along roadways to precisely locate assets. These methods are frequently standardized within a jurisdiction to define a linear referencing system (LRS). An LRS provides the common element that links and relates asset inventory, condition, and installation costs to various maintenance and refurbishment activities performed on those assets. Location on a linear referencing system provides the link that relates infrastructure, and the activities and events related to infrastructure, together.

LRS functionality built into the core software and database technology of an asset management system allows transportation, highway and public works organizations to manage roadway infrastructure, maintenance activities and network-related events in a unified fashion. An LRS becomes the integrator by which many different classes of assets can be reviewed and compared. LRS also provides an excellent framework for asset valuation using the GASB-34 modified approach, allowing agencies to group different asset types based on physical proximity to determine valuations and desired service levels for specific sections of roadway. In this fashion, asset management data can be integrated with Geographic Information Systems (GIS) for the direct spatial query and map display of assets, activities and/or events based upon road network topology.

Commercial Software Solutions

Highways by Exor, developed by Exor Corporation, is an integrated suite of application software modules built around a centralized relational database that manages both asset data and maintenance data. It represents the first commercial-off-the-shelf (COTS) solution that supports ‘asset-based’ maintenance tracking. Highways by Exor provides integrated software tools for updating asset condition and valuation changes as the result of on-going maintenance activities and completed refurbishment projects. Highways by Exor software also provides maintenance planning tools that calculate maintenance funding requirements based on pre-designated service levels.

Using Exor’s Network Manager module, assets and maintenance activities are linked to multiple linear reference systems, providing a framework for asset valuation based on geographic location within a jurisdiction’s road network. In essence, the Highways by Exor software suite provides an integrated set of application functionality that supports compliance with the GASB-34 Modified Approach for asset valuation and preservation of public infrastructure. Figure 1 depicts the individual software modules of Highways by Exor:

Figure 1 – Highways by Exor Software Modules

Built upon Oracle database technology, Exor’s integrated Asset Manager and Network Manager software modules provide an asset inventory database that is geographically referenced to the highway network for storing asset installation costs, and condition ratings needed for GASB-34. The Planning Manager application allows users to develop proposed maintenance plans based on budget requirements as a function of defined service levels. Maintenance requests, work order scheduling, work progress tracking and actual maintenance costs are administered using Exor’s Maintenance Manager product with closed work orders updating the status of maintained asset in the Asset Manager database. To complete the information loop,

Exor’s integrated MapCapture field data collection software is used to conduct asset field inventories, to perform condition assessment inspections and to report maintenance work progress. All data needed for GASB-34 compliance is updated and available in the Exor database as a result of using the software for routine agency tasks.

Exor software modules support various aspects of the GASB-34 Modified Approach as shown in Figure 2.

Figure 2 – Exor’s Software Modules in Support of GASB-34

Exor modules are integrated with each other and access the same database. This integration of software functions, asset data and maintenance activities is a key aspect of complying with the Modified Approach. Figure 3 matches the GASB-34 Modified Approach requirements with Highways by Exor compliance functionality.

GASB-34 Modified Approach StatementHighways by Exor Software Functionality

Figure 3 – Exor’s GASB-34 Functionality

Transportation Departments Move Toward Compliance

The GASB-34 Statement requires the largest state and local governmental organizations to meet compliance goals first, so it is no surprise that state Departments of Transportation (DOTs) appear to be at the forefront of wrestling with GASB-34 issues in their respective organizations. Two State DOTs – Virginia and Kansas, are moving toward compliance through the implementation of Highways by Exor software modules. Each is taking a somewhat different approach to addressing the compliance issues.

At the Virginia Department of Transportation (VDOT), Highways by Exor modules are critical software components of the Department’s Integrated Condition Assessment System (ICAS) project. ICAS is a very large, multi-year project designed to merge several redundant databases, provide a map-based inventory system and allow data to be shared across the entire state via the web. Initial applications are currently live in one county with two others in the process of being brought on-line. Once VDOT’s asset databases are integrated and georeferenced to the highway network, the linking of maintenance activities against assets can begin. Software tools will then be developed to extract data needed for GASB-34 compliance.

Kansas Department of Transportation (KDOT) implemented Exor’s Network Manager as their core linear referencing system and central database for the Department’s asset and maintenance applications. KDOT is integrating Exor software with their Intergraph Geographic Information System (GIS) to support map displays, spatial query and network-based reporting. The Exor relational database will be the information source for KDOT’s GASB-34 compliance.

Transitioning to Proactive Maintenance

Acquiring accurate asset inventories, transitioning to asset-based maintenance systems, measuring infrastructure service levels, and reengineering business processes to comply with the GASB-34 statement is a major organizational endeavor that requires continued commitment and focus. Once an asset management system is in place that fully supports and complies with the GASB-34 Modified Approach statement, a new level of more cost-effective asset preservation will be within reach.

Others have described this new level of infrastructure management as “proactive maintenance.” Proactive maintenance is based on the premise that one dollar spent on preventive maintenance at the appropriate time in the life cycle of an asset may save up to four dollars in future rehabilitation costs. A published study documented this savings ratio for pavement assets.

The key element of this approach is to know the optimum moment to perform maintenance on a particular asset for maximum cost/benefit. The approach requires two key elements – an effective asset management system as defined by GASB-34 that reflects the current state of the asset, and good “prediction models” that can calculate optimum maintenance times and treatments. Prediction models are usually more effective when based on empirical data that can be extracted from robust asset management databases.

Theory says that a proactive maintenance approach can lower overall maintenance costs while extending the life of assets. In this age where infrastructure needs increasingly outpace available funds, a proactive maintenance approach may be the solution. It soon becomes apparent that an asset management system is a crucial prerequisite for transitioning to a proactive maintenance program.

Another aspect of infrastructure maintenance on a restricted budget is the financial trade-offs that need to be made among asset groups. Preserving different assets to meet defined service levels require different levels of maintenance funding. Performing the financial trade-offs is not an easy task. Having an accurate asset management database containing asset installation costs, condition, age, useful life, maintenance activity budget estimates and treatment options, can provide much of the data needed to make intelligent maintenance investment trade-off decisions.

The GASB-34 Modified Approach represents a significant opportunity and organizational catalyst for implementing robust asset management systems that support infrastructure preservation. It is hoped that state and local government agencies will look at GASB-34 not as an additional accounting burden, but as an opportunity to implement asset management systems that will help stewards of public infrastructure to more effectively allocate the financial resources provided by the citizenry toward preserving and improving the vital infrastructure used by the public.

Bill Elliott

Sales and Marketing Executive

Exor Corporation