As identified previously, infrastructure fixed assets differ from general fixed assets in two ways: 1) they are normally immovable; and 2) they are valuable only to the governmental unit.
Since infrastructure reporting and accounting is considered an optional treatment, why would an entity invest the time and money necessary to initiate and maintain such a system?
The main reasons for an infrastructure fixed asset subsystem are:
- To maintain a comprehensive fixed asset accounting and management system.
- To analyze asset condition and then begin a preventive maintenance schedule.
- To develop more accurate capital and operating budgets.
- To develop debt management guidelines and then, if applicable, to develop an inclusive financing program.
In considering the first reason for an infrastructure system, begin by considering the alternative. If all fixed assets are not recorded, the financial statements would not reflect a significant use of financial resources. Also, present and future management is weakened because of an incomplete asset list. Comprehensive fixed asset accounting and management subsystems – with infrastructure included – are necessary so that citizens feel confident that their government managers, leaders, or administrators know what assets they have, the condition of those assets, the remaining lives of those assets, and the maintenance and repair schedules of those assets, so that the appropriating of funds for and the budgeting of projects necessary to replace those assets, and the financing of replacements for assets at the lowest cost, may take place.
In the past, only under rare circumstances did the public consider the fate of its public assets. Street lighting systems, sewer systems, and flood control systems are usually out of sight and out of mind. When infrastructures fail – bridges break or streets collapse – they become worthy of consideration.
An explanation for infrastructure failure may be found in the Labor-Management Group publication Rebuilding America's Vital Public Facilities. They found that the majority of infrastructure fixed assets were constructed between 1880 and 1930, which means they are near the end of their useful lives. Comprehensive fixed asset accounting and management subsystems are or will be necessary to deal with the expiration of these antiquated systems.
The second reason for an infrastructure fixed asset system is to enable an up-to-date asset condition analysis and preventive maintenance schedule to be maintained. The analysis may include asset cost, replacement value, expected life, a comparison of the asset to legal, safety, or health standards, possible future maintenance or services, estimated time of such maintenance or service, and estimated cost of such service. The preventive maintenance schedule may include the manufacturer's suggested service schedule and requirements or an estimated schedule of internal and/or external maintenance work. Many variables be considered in forming the preventive maintenance schedule. It is first necessary to determine the amount and sources of funding available for any project. Next, maintenance and repair projects would have to be prioritized by considering such questions as: Which assets receive the most use? Which projects involve public health or safety (entity liability)? Which assets are in greatest disrepair: And, what would be the difference in costs of repairing the asset immediately compared to repairing the asset in the future? These are only a few of the questions that need to be asked in order to prioritize the maintenance schedule.
Another benefit of a maintenance schedule is that upon retirement of the schedule, it will become part of the maintenance historical records which can be used to make more accurate estimates as to the cost of a repair, the life of an asset, or the amount of use an asset will receive.
The maintenance schedule then becomes one of the main tools used to determine capital and operating budgets, which is the third reason for an infrastructure fixed asset system. At this point, the relationship between and among the reports, schedules, and budgets become clear. The asset's condition is analyzed and compared to standards. The analysis determines whether it is more cost efficient to replace or repair the asset. The relationship between the annual capital budget and the annual operating budget is also very structured. A long-term capital budget (along the lines of a "wish-list") could be prepared encompassing infrastructure projects five, ten or more years in the future. Once annual financing is known, this long-term budget can be used to prepare the annual capital budget. The expansion or purchase of infrastructure fixed assets in the annual capital budget must then be carried into the operating budget to cover the costs of repairing or maintaining the new assets. A long-term operating budget may also be prepared using the asset analysis. The long-term operating budget gives the financial manager a view of future funding needs and allows the manager to plan for necessary special assessments or to apply for applicable grant funding.
The fourth reason for an infrastructure fixed asset system is to develop debt management guidelines and then, if applicable, to develop an inclusive financing program. Financing guidelines and programs begin with a thorough knowledge of financing possibilities, the local and state laws that pertain to those possibilities, and the entity's goals and objectives.
Infrastructure debt management should include:
- A detailed capital improvement program, including project phase costs and schedules.
- A financial plan (long-term and short-term) to determine how much money is needed, when it is needed and possible sources of funding.
- Evaluation policies for evaluating sources of funding for capital improvement projects.
- Monitoring guidelines to keep abreast of current financial conditions and, if applicable, to obtain refinancing at a lower interest rate.
The capital improvement program must not be analyzed to determine if the projects can be divided into phases, each with cost and schedule information. With such an analysis, it is easy to form a long-term and short-term financial plan to determine whether long-term financing is necessary or if short-term financing (with normally lower interest rates) is possible.
To develop an infrastructure fixed asset system, an initial inventory is taken and a condition analysis is done at that time. The initial inventory is taken using the policies and procedures established by the entity for other fixed assets. Although under unusual circumstances it may be necessary to obtain the services of an engineer or use some of the new infrastructure analysis techniques and instruments such as void detectors, ground probing radar, or sonar systems, most of the time the entity can identify the assets and attach a value to them.
Also, by using historical records such as invoices for parts and materials, by reviewing past infrastructure construction and repair projects, and by examining scheduled construction and maintenance projects it is possible to evaluate current infrastructure condition. With the condition analysis, it is possible to prioritize maintenance, repair and replacement projects. The prioritized schedule of projects is then used to develop capital and operating budgets. The budgets are then used in determining the best possible financing techniques.