Incorporating Asset Valuation into Transportation Asset

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Contents

1. Introduction and Overview ........................... 1

The Potential Role for Asset Valuation

and Depreciation

................................ 2

2. Asset Valuation Deﬁned ............................ 3

The Beneﬁts of Asset Valuation

................... 4

U.S. Valuation Process ............................ 11

Utah and Ohio Replacement Cost Examples ........15

“Unocial’ Use of Asset Valuation .................17

Asset Valuation as an Investment Consideration .....18

Depreciated Replacement Cost: Balancing Value

and Depreciation ............................... 22

Asset Valuation as a Component of Financial

Management ................................... 28

Complications of Transitioning to Depreciated

Replacement Costs ............................. 33

Reporting Under GASB 34 ....................... 36

Potential Uses of Valuation ...................... 38

Asset Valuation and Depreciation Performance

Measures ...................................... 42

Steps to Update Asset Valuation ................. 45

3. Summary and Conclusion .......................... 49

4. Endnotes .........................................51

ii Financial Planning for Transportation Asset Management

Figures

Figure 1. Utah DOT asset replacement values. ...........16

Figure 2. The City of Melbourne, Australia’s, Asset

Management Strategy 2015-25 ....................... 39

Tables

Table 1. GASB 34 valuation example. ...................14

Table 2. Depreciated Replacement Cost Calculation. .... 25

Table 3. Historic Cost Calculation ..................... 26

Report 5 1

1. Introduction and Overview

Transportation agencies face the challenging task to main-

tain, preserve and improve infrastructure assets for current

and future generations while grappling with limited funding.

Because assets such as pavements and bridges have long

useful lives, sound asset management requires a long-term

approach. Experiences from U.S. and international agencies

with mature asset management processes show that sustain-

ing the condition of assets is helped by long-term ﬁnancial

plans that are linked to long-term asset management strate-

gies. Comprehensive transportation asset management plans

(TAMP) can demonstrate expected and desired projections

of asset performance and condition for ten or more years

into the future. A TAMP can address the amount of invest-

ment required each year for the rehabilitation, preservation,

and maintenance of assets during the plan period. The

associated ﬁnancial plan can be linked to the targeted

performance and conditions

of the assets to document

any projected funding gaps.

The ﬁnancial plan can illus-

trate the ﬁnancial state of

the agency and express the

ﬁnancial needs for the plan

period. The strategies in the

ﬁnancial plan can succinctly

highlight the actions that

need to be taken over the

long term to maintain the

health, performance, and

condition of the assets.

The ﬁnancial plan also can address ﬁnancial risks. It could

enable the agency to monitor and compare the funding

available to the funding projected throughout the life of the

plan, document tradeos, and note corrective actions to

Experiences from U.S. and

international agencies with

mature asset management

processes show that

sustaining the condition

of assets is helped by

long-term ﬁnancial plans

that are linked to long-

term asset management

strategies.

accomplish the agency’s asset management objectives.

By acknowledging these risks, the ﬁnancial plan brings

credibility to an asset management plan.

Well-developed ﬁnancial plans allow agencies to accomplish

several important goals. These include:

 communicating with the public and stakeholders the

value of transportation assets;

 present the current, projected, and desired condition

of assets;

 document the funding required to support those

conditions;

 explain the ﬁnancial risks, and accompanying revenue

forecasts.

The Potential Role for Asset Valuation

and Depreciation

This ﬁfth and last report in the ﬁnancial plan series

addresses asset valuation and depreciation.

Asset valuation translates infrastructure conditions into

monetary terms as public wealth or equity. Its corollary

is depreciation. Depreciation captures the cost to public

wealth or equity as assets age or deteriorate through use or

neglect. Valuation and depreciation help portray infrastruc-

ture as part of the public’s “portfolio of wealth” that merits

sound management, investment, and preservation.

Asset valuation plays a much larger role in asset manage-

ment in England and Australia than it does in the United

States. This report compares and contrasts U.S. practice to

2 Financial Planning for Transportation Asset Management

Report 5 3

that in other countries and it explores the potential for asset

valuation to play a larger role in U.S. asset-management

eorts. It also explores challenges to expanded use of

asset valuation and depreciation.

2. Asset Valuation Deﬁned

This report deﬁnes asset valuation as the assignment of

monetary value to infrastructure based upon its size, age,

condition, replacement cost, or original cost to construct.

Asset valuation is ambiguous because it means dierent

things to dierent disciplines. To an economist, the value

of infrastructure consists of its contribution to economic

activity. In the economist’s view, the value of roads, bridges,

or buses can be determined by their generation of travel

time savings, accident reductions, or economic activity. To a

businessperson, income-generating potential or the market

price of comparable assets determines their value. Business-

valuation experts estimate an asset’s value by how much

revenue it can generate, or what a willing seller would pay

for it in an “arm’s length” transaction.

[1]

This report focuses upon the transportation asset manager’s

perspective on asset valuation. In this report, the value of

assets is based upon their physical nature, size, age, condi-

tion, components, or some derivative of their cost to con-

struct. In the international transportation asset management

frameworks discussed in this report, asset valuation generally

relates to these physical characteristics inherent within the

assets. They do value some assets such as income-generating

toll road service plazas based upon their potential sale price.

However, international agencies generally value most assets

based upon their cost, age, and condition. By focusing asset

valuation upon the age or condition of the asset it supports

the sound long-term maintenance of it.

4 Financial Planning for Transportation Asset Management

The Beneﬁts of Asset Valuation

Asset valuation plays a large role in several international

asset management frameworks because it emphasizes that

transportation assets represent government’s largest capital

investment. Roads and bridges are public capital and com-

prise one of the largest sources of public wealth. The record-

ing of infrastructure as capital reﬂects a business-sector

accounting perspective that emphasizes that an entity’s

“wealth” is not limited to cash, stocks, or bonds. Its land,

building, factories—and in the case of transportation agen-

cies—its infrastructure comprise a large component of its

wealth. Just as government must be a responsible steward

of cash or bonds, it also should be a responsible steward of

all capital assets, the largest of which is the transportation

network. As one British guidance document states, “Putting

a monetary value on the assets is important because it

emphasizes the substantial value that is tied up in them

and hence the need to invest in maintaining their value.”

[2]

The relatively large size of

this investment is captured in

states’ comprehensive annual

ﬁnancial reports, or their

CAFRs. The 2014 Washington

State CAFR reports $35.4

billion in capital assets, or

physical assets as opposed to

cash or pension-fund invest-

ments. Of that $35.4 billion,

$21.7 billion are transportation infrastructure.

[3]

The 2014

State of Utah CAFR reports $17.1 billion in capital assets with

$13.4 billion consisting of infrastructure.

[4]

The 2014 Florida

State CAFR reports $62.8 billion in capital assets with $37.6

billion of that being infrastructure. In Ohio, the 2014 CAFR

reports $25.8 billion in capital assets with $19.9 billion

comprising state-owned roads and bridges.

[5]

As will be

“Putting a monetary value

on the assets is important

because it emphasizes the

substantial value that is

tied up in them and hence

the need to invest in

maintaining their value.”

Report 5 5

discussed below, these values are understated substantially

at least in comparison to valuation practices of other

countries. Although these values represent the relative

magnitude of infrastructure value compared to a state’s

total capital assets, the nominal values stated are much

less than actual values because of U.S. accounting

standards that will be discussed below.

Australian and British transportation agencies emphasize

valuation as a signiﬁcant component of transportation asset

management. In those countries, transportation engineers

and planners collaborated with accountants to move toward

a common reporting approach. The intent is to have the

disciplines “speak a common language” so that the ﬁnance

and engineering sta are preserving physical capital with

diligence comparable to the managing of ﬁnancial capital.

In Great Britain, the Chartered Institute of Public Finance

and Accounting (CIPFA) collaborated with the UK Roads

Liaison Group (UKRLG) that is an association of national

and local governments. The accounting body developed a

Code of Practice on Transport Infrastructure Assets that

provides guidelines on assigning monetary value to physical

assets. The accountants coordinated with the Roads Liaison

Group that produced asset management guidelines. The

two coordinated the ﬁnancial management and valuation

guidelines with a pavement management system and draft

bridge management system. The intent is to generate

common values for asset management and ﬁnancial

management decision making.

[6]

CIPFA says the ﬁnancial reporting code and its emphasis on

asset valuation supports long-term ﬁnancial planning and

budgeting, good evidence-based asset management, and

transparent information on agencies’ management of high-

way assets. Its guidelines say that the local highway net-

works and other transportation infrastructure represent by

6 Financial Planning for Transportation Asset Management

far the largest capital asset that the UK public sector holds.

However, few local governments know what their infrastruc-

ture is worth, and detailed inventory and condition informa-

tion are not uniformly available. Although there is a percep-

tion that transportation assets are underfunded, the amount

of investment to sustain them is unclear.

The British guidelines advance the concept that physical

assets have ﬁnancial value by stating that good ﬁnancial

planning and good engineering overlap with transportation

asset management. An example lies with asset inventories. In

U.S. practice, asset inventories are thought of as a planning,

engineering, or maintenance support tool. The British guide-

lines cite asset inventories also as ﬁnancial tools that allow

for the identiﬁcation and valuation of the agency’s physical

capital. Similarly, pavement and bridge management systems

serve the needs of engineers, planners, programmers and

CORPORATE REPORTING

In the corporate world, asset valuation is a basic

component of ﬁnancial reporting to investors and

shareholders. The Union Paciﬁc railroad’s 2014 annual

report says that total capital investment to maintain

and improve its railways and rolling stock increased

from $3.176 billion in 2011 to $3.496 billion in 2013.

This investment more than oset reported deprecia-

tion of $1.77 billion. This increase in capital investment

contributed to a total growth in assets from $45.1

billion in 2011 to $49.7 billion in 2013. The eect of this

growth is each shareholder owned part of a company

with a “book value” of $49.7 billion in 2013, up nearly

10 percent in two years. If UP’s depreciation outpaced

its capital investment in infrastructure, shareholder

value would have declined instead of grown.

Report 5 7

accountants who make project and program decisions.

For accountants, the deterioration curves and forecasting

scenarios support estimates of long-term investment needs

that the accountants and ﬁnancial sta should anticipate.

Good unit cost data not only helps the planner and estimator

but they allow the ﬁnance sta to improve forecasting of

investment needs. The overlap of engineering and ﬁnance

resulted in the code’s development to serve the needs of

both. The code attempts to identify standards that will

generate data to allow both the transportation asset

managers and the agency ﬁnancial sta to do their jobs.

“Eective implementation will require highway engineers and

ﬁnance sta to work closely together to ensure that ﬁnancial

information is timely, consistent and of high quality to meet

the needs of both.”

[7]

In the British guidelines, further overlap between asset

management and ﬁnancial management is encouraged by

using asset-inspection protocols to help estimate asset

values. One of the ﬁrst steps in valuing assets is to identify

their components. For example, the underlying rights-of-

way and earthworks seldom depreciate. However, pavement

layers and drainage components do. For valuation purposes,

the inventory is broken down into components and each

component valued and depreciated separately. This “com-

ponentization” is recommended to be coordinated with the

inspection protocols. If bridge components are inspected as

individual items of the structure, those same component

classiﬁcations are used to determine the value of dierent

bridge elements. In this way, the value of a bridge deck

could be dierentiated from the value of the superstructure,

just as the condition of the deck can be dierentiated from

the condition of the superstructure. Similarly, if pavement

surfaces are inspected, those inspection reports feed the

estimate of pavement age and condition that determine

the pavement layer’s value.

8 Financial Planning for Transportation Asset Management

NUMBERS: ESTIMATES VERSUS ABSOLUTES

To fully understand ﬁnancial statements, one must

appreciate that their numbers often represent

approximations. Although a checking account may be

balanced to the penny, such precision is not possible

when making revenue forecasts, or when assigning

costs for depreciation. A checking account is a short-

term “cash” account. It can be absolutely balanced.

However, forecasts of future revenues and the allocation

of long-term depreciation are “accrual” estimates.

They are my nature approximations.

Basic concepts in accounting are “accrual,” “allocation,”

and “recognition.” These mean that revenue, expenses,

and proﬁts are often estimated and spread across many

months, years, or even decades. If a widget-making

company purchases a $1 million widget-making

machine it will spread the purchase price across years

or decades on the ﬁnancial statements. This reﬂects the

basic accounting concepts of “accrual” and “allocation.”

The cost of purchasing the widget-making equipment

is allocated or spread across the company’s widget-

making functions. The company’s cost of widget

production reﬂects the accrued or allocated cost of

the $1 million equipment. If the equipment helps

produce a product for 10 years, its purchase price is

spread, or accrued, across the cost of production for

10 years. These practices lead to numbers on ﬁnancial

reports that do not correlate to any actual income or

outlay. The $1 million price of the equipment may never

appear on the ﬁnancial reports as a $1 million outlay.

Instead one-tenth of its cost may appear in 10-year

increments if it is depreciated over 10 years. Also

complicating the issue is there are many dierent ways

Report 5 9

to depreciate the equipment, each of which generates

a dierent annual depreciation cost.

Accounting logic says when the company bought the

$1 million machine it exchanged $1 million in cash for

$1 million in equipment. Its assets remain balanced.

The costs are recognized as the machine is depreci-

ated, or a bit of its economic value is consumed each

year. Analogous in the public sector, if a transportation

agency buys from a contractor a $1 million bridge,

the agency still has $1 million in value. The value is in

infrastructure, not cash. The loss in the agency’s value

occurs over time as the bridge depreciates, which

reﬂects its “consumption.” Estimating the annual

depreciation is an estimate, not an absolute.

“The fact is, accounting and ﬁnance… really are as

much art as they are science,” says Financial Intelli-

gence, A Manager’s Guide to Knowing What Numbers

Really Mean. “We think that if a number shows up on

the ﬁnancial statements or the ﬁnance department

reports to management, it must accurately represent

reality. …The art of accounting and ﬁnance is the art of

using limited data to come as close as possible to an

accurate description of how well a company is perform-

ing. Accounting and ﬁnance are not reality, they are a

reﬂection of reality.”

[8]

This need to approximate and estimate holds true for

valuing transportation assets. Agencies’ valuations

always will be estimates. The key is for an agency to

use a consistent valuation process comparable over

many years.

10 Financial Planning for Transportation Asset Management

The British code also emphasizes that assets with the highest

costs merit the highest focus. As such, pavements and

bridges that comprise more than 90 percent of a typical

agency’s assets merit the most sophisticated management

while less complex assets such as signs merit less complexity.

A key dierence in U.S. asset valuation guidelines and those

in Great Britain or Australia is in the use of what is known as

“historical costs” versus “depreciated replacement costs.”

COMMON LANGUAGE FOR OPEN BOOKS

U.S. and Australian ﬁnancial-reporting frameworks

emphasize the use of common language so that a

“reasonably knowledgeable” person could understand

the agency’s ﬁnancial status.

[9,10]

GASB 34 requires a

manager’s discussion and analysis (MD&A) that should

give “an objective and readable analysis.” Detracting

from the asset management utility, the GASB 34

analysis is only required to relate to the past year.

The Australian guidelines emphasize an accrual

accounting approach that summarizes the agency’s

long-term ﬁnancial sustainability. It describes ﬁnancial

sustainability as “able to manage ﬁnancial risks and

ﬁnancial shocks in future periods without having to

introduce signiﬁcant and economically destabilizing

expenditure or revenue adjustments in those future

periods…Eectively, a ﬁnancial sustainability assessment

involves a comparison of an agency’s long-term ﬁnancial

capacity with its long-term ﬁnancial requirements.”

Despite their dierent timeframes, both sets of

guidance emphasize common, understandable

language to support public decision making.

Report 5 11

The U.S. valuation process divorces asset condition from

its value which is illogical to an engineer or planner. The

British and Australian practices more closely relate asset

value to condition resulting in much higher stated values.

The U.S. valuation practice diminishes the utility of asset

valuation as an asset management tool. First, the U.S.

process of asset valuation will be described. Then, it will

be contrasted to practices in other industrialized English-

speaking nations.

U.S. Valuation Process

For the typical U.S. planner or engineer the valuation of an

asset plays little role in deciding how to manage it. They

instead focus upon asset condition.

State and local agencies annually report on asset valuation

under the Governmental Accounting Standards Board

Statement 34 (GASB 34) requirement. Transportation

agencies generally produce internal estimates of their

agency’s infrastructure value that then are included

as footnotes or tables in the statewide CAFR. The CAFRs

tend not to be widely read and the asset valuation tables

even less so. Generally, the agency’s asset valuation

estimates are a few lines of the CAFR table of capital assets

along with other state capital assets such as parks, build-

ings, universities, and museums. A few paragraphs of

explanation are included.

[11]

Most U.S. transportation ocials report receiving little

interest in the GASB 34 valuation estimates.

[12]

This lack

of interest is in part because they are published only in the

relatively obscure CAFRs but also because the logic used to

value assets is dierent from the logic used by engineers

and planners to invest in assets. This is despite GASB 34’s

original intent to spur public review of the adequacy of

infrastructure investment.

12 Financial Planning for Transportation Asset Management

GASB 34 was adopted in 1999 at the same time that

accounting bodies around the world increased their

emphasis upon public-sector capital accounting. From the

U.S. and Canada, across Europe and to Australia and New

Zealand, accounting and ﬁnancial professionals recognized

that much of the public’s “capital” was not reported in

agency budgets and ﬁnancial statements. Agency budgets

reported upon current ac-

count balances and expendi-

tures for a one or two-year

period. However, physical

capital was de-emphasized.

An analogy would be to a

homeowner balancing her

checkbook and savings

account but ignoring depre-

ciation of her home, car, and

retirement account. Her home

and car may represent her largest assets but they were not

reported in her checkbook as capital assets whose value

may increase or decrease. Similarly, agency ﬁnancial state-

ments ignored declines in highway and bridge conditions

that represent loss of value in public assets.

Another analogy is between pension funds and transporta-

tion agencies. Pension funds hold many long-lived assets

for many decades. They invest pension contributions in

stocks, bonds, real estate and other investments to grow

their portfolio for the beneﬁt of the pension recipients

who contributed to the system. The accounting reforms

of the 1990s intended to put all government agencies on

a somewhat similar footing to pension fund managers.

The roads, bridges, buildings, and transit facilities owned

by the transportation agencies reﬂected large investments

as did the pension fund contributions. If transportation

agency ocials were managing a large infrastructure port-

folio, they should report upon changes in its value. They also

GASB 34 was adopted in

1999 at the same time that

accounting bodies around

the world increased their

emphasis upon public-

sector capital accounting.

Report 5 13

should disclose their strategies and investments to grow, or

at least to sustain, their portfolio.

In 1999, GASB 34 required for the ﬁrst time that agency

ﬁnancial ocials provide a “management discussion and

analysis” summarizing the changes in the agency’s ﬁnancial

position regarding its physical capital or infrastructure. It also

was to report on all costs, including costs such as the loss of

infrastructure value through depreciation. Again, the analogy

to a portfolio manager is relevant. If the stocks held by a

pension manager decline in value, the pension fund would

record the decline as a loss of portfolio value. Similarly, if an

agency’s infrastructure portfolio declined in value through

a lack of maintenance, that loss of capital value was to be

recorded.

[13]

GASB 34 summarized the intent as, “In short, the

new annual reports should give government ocials a new

more comprehensive way to demonstrate their stewardship

in the long term in addition to the way they currently

demonstrate their stewardship in the short term through

the budgetary process.”

[14]

The GASB 34 guidelines, however, speciﬁed asset valuation

calculations that reduce their relevance to transportation

asset management. GASB 34 requires agencies to value

assets only based upon their original construction cost,

known as their historic costs.

[15]

As a result, a 30-year-old

bridge that has been restored to near “as new” condition

would be reported on the agency’s balance sheet only at its

30-year-old original cost. Also, many costs to maintain and

restore assets are recorded as expenses, not as capital. As

a result, a rehabilitation project that restores a bridge or

pavement may not increase its reported value.

These guidelines tend to divorce an asset’s condition from its

reported GASB 34 value. Under GASB 34, costs for electric-

ity to light an oce and the cost to rehabilitate a bridge are

both expenses that don’t increase asset values, even if the

14 Financial Planning for Transportation Asset Management

bridge is restored to nearly “as new” condition. Exceptions

are brand new assets, such as a new bypass on new align-

ment. When complete, it is recorded at its construction cost.

However, its value is not updated in later years when its

components are rehabilitated. Thus, inﬂation erodes its

relative value despite its condition.

Table 1 represents an example from the GASB 34 guidelines,

with the years updated. It illustrates how the reported value

of a serviceable asset would be reduced regardless of its

condition. The original construction year was 2001, and

the estimated cost to replace the asset in 2016 dollars is

$65 million.

Using FHWA construction cost indices, the 2001 construction

costs are estimated to be 69 percent of 2016’s construction

costs. Therefore, the estimated historic cost to build the asset

in 2001 was the current value times 69 percent or $44.8

million. Because the asset is assumed to have a 25-year life,

one-twenty-ﬁfth of its value is depreciated each year. By 2016,

the 15 years of accumulated depreciation is $26.9 million. That

is subtracted from the estimated 2001 construction cost

Table 1. GASB 34 valuation example.

Step Factor or Calculation Value

A Year Asset Constructed 2001

B Current Replacement Cost $65M

C 2001 Construction Index (% of 2016 Costs) .69

D 2016’s Estimate of the 2001 Construction Cost (B x C) $44.9 M

E Annual Depreciation Cost Based on 25-Year Life (D ÷ 25) $1.794M

F 15 Years Accumulated Depreciation (E x 15) $26.9M

G Recorded Asset Value in 2016 (D – F) $17.95

H Years Remaining Until Asset Value = $0 (G ÷ E) 10

Report 5 15

leaving a recorded asset value of $17.94 million on the 2016

ﬁnancial reports. In subsequent years, the annual depreciation

of $1.794 is deducted resulting in the asset having a value of

zero by 2025. Although the asset may have been maintained

and rehabilitated, its value will continue to decline and reach

a value of zero 25 years after its construction.

This use of “historic” costs tends to greatly understate the

intrinsic value of U.S. infrastructure and makes asset valuation

largely irrelevant to U.S. transportation asset management.

From a narrow valuation view point, if an asset has no report-

ed value, what is the imperative to maintain it? On the other

hand, if the asset is reported as a high-value publicly owned

piece of capital, the imperative to sustain its value increases.

Utah and Ohio Replacement Cost Examples

A comparison of GASB 34 asset values with estimated

replacement costs illustrates how much the U.S. valuation

standards reduce the reported value of assets. The Ohio DOT

reports a GASB 34 value of $2.893 billion for its bridges in

2014. Based upon its average square foot cost to replace or

rehabilitate a bridge, it would cost $32.9 billion to replace its

bridge inventory based on 2014 costs. The GASB valuation

equals 9 percent of replacement cost, although the agency

bridges are in relatively good condition. ODOT reports that

only 1.4 percent of its bridge area is in unacceptable condi-

tion. From a performance standpoint, their value is high.

From a GASB 34 standpoint, their value is much less.

The Utah DOT estimates the replacement value for its

roadway assets at $34.6 billion, shown in Figure 1. By com-

parison, its GASB 34 values for pavements, structures and

land are $15.9 billion or 45 percent of the replacement cost.

Despite depreciating replacement values by 55 percent by

using the required GASB 34 valuation, the Utah DOT reports

good asset conditions. It reports 99 percent of all bridges

16 Financial Planning for Transportation Asset Management

and interstate highway pavements are good or fair. For

non-interstate roads with more than 1,000 vehicles per day,

92 percent of pavements are good or fair. For routes with

less than 1,000 vehicles a day 76 percent were good or fair

and 24 percent poor.

The result of the U.S. standards is that the reported value or

“carrying amount” of infrastructure is much less than for

equivalent assets in Great Britain, Australia, or New Zealand.

“There is virtually no beneﬁt to TAM if assets are valued at

historical cost under the GASB 34 depreciation approach,”

says the second asset management guide.

[16]

This is because

of the long-term eects of inﬂation that decrease the

Figure 1. Utah DOT asset replacement values.

Report 5 17

reported value of serviceable assets, according to the guide

published by the American Association of State Highway

and Transportation Ocials (AASHTO.)

Using FHWA construction cost indices, the 2001 construction

costs are estimated to be 69 percent of 2016’s construction

costs. Therefore, the estimated historic cost to build the

asset in 2001 was the current value times 69 percent or

$44.8 million. Because the asset is assumed to have a 25-year

life, one-twenty-ﬁfth of its value is depreciated each year.

By 2016, the 15 years of accumulated depreciation is

$26.9 million. That is subtracted from the estimated 2001

construction cost leaving a recorded asset value of $17.94

million on the 2016 ﬁnancial reports. In subsequent years,

the annual depreciation of $1.794 is deducted resulting in

the asset having a value of zero by 2025. Although the asset

may have been maintained and rehabilitated, its value will

continue to decline and reach a value of zero 25 years after

its construction.

“Unocial” Use of Asset Valuation

Although GASB34 requires the use of historical costs for

valuation of assets in the CAFRs it does not prohibit an

agency’s use of more realistic valuation estimates for plan-

ning, communication, or asset management purposes. The

Utah DOT incorporates its much-higher asset-replacement

costs into its risk-based asset management decision making.

It uses the values from Figure 1 to both illustrate the value of

its assets but to also help set investment priorities.

[20]

UDOT developed a tiered approach to managing its assets

based upon their value and their risks. Tier 1 assets have the

highest combined value combined with the highest negative

risk of ﬁnancial impact if they are poorly managed. These

high-value assets receive the most sophisticated manage-

ment that includes accurate and sophisticated data collection,

18 Financial Planning for Transportation Asset Management

targets that are tracked, and predictive modeling and risk

analysis. Tier 2 assets have a moderate value and risk and

may have data collected less than annually, risks are assessed

for failure only, and management may be by spreadsheet

calculation rather than sophisticated model. Tier 3 assets

have the lowest values and risks. They are generally repaired

or replaced when damaged. Assets valued in Tier 1 or Tier 2

are managed for four categories of risks:

 Financial risks or the analysis of sustainable funding to

achieve performance goals;

 Information risks or the availability and quality of data

needed for long term management;

 Operational risk or the analysis of the probability

and impact of asset failure upon the operation of

the system, and;

 Safety or the analysis of risks to the impact on public

safety of asset failure or poor condition.

Tier 1 assets are pavements, bridges, pipes and culverts.

Tier 2 assets include retaining walls, barrier, signs, signals,

pavement markings, rumble strips, intelligent transportation

system (ITS) devices and curb ramps. The Tiers are broken

down further with pavements stratiﬁed into the Interstates

which are 16 percent of the system, Level 1 sections, or

those with greater than 1,000 ADT and truck volumes above

200 daily. These comprise about 50 percent of its system.

Level 2 pavements have less than 1,000 AADT and comprise

34 percent of the network.

Asset Valuation as an Investment Consideration

As with the Utah DOT, asset valuation plays a prominent

role in asset management decision making abroad. The

Report 5 19

high value of infrastructure assets is cited in British asset

management plans as one of the rationales for eective

asset management. Transport for London’s ﬁrst highway

asset management plan in 2007 started by noting the plan

will help the City of London manage its $5 billion in roadway

GETTING ON THE SAME PAGE

By calculating an agency’s asset values, transportation

ocials can relate to business-oriented citizens and

elected ocials by referring to the agency’s “book

value.” When the total value of an agency’s physical and

ﬁnancial assets is calculated, the total would be what

business analysts call the “book value.” Book value is a

common business term that refers to the estimated

value of a company if all of its assets were sold. It is a

dierent type of valuation than income-generating

valuation, or market value, that bases a company’s

estimated value upon the revenue it could generate in

the future. Book value is calculated by estimating the

value of plant, equipment, inventory, land, cash, and

other assets that could be sold. Understanding a com-

pany’s book value is a key factor for business owners.

With many legislators and governors coming from the

private sector, they would understand book value from

their business experience. By calculating and using book

value as a decision-making tool, transportation agency

ocials can speak in a language that these former

business people readily understand. Another term for

book value is “owner’s equity.” By discussing owner’s

equity and book value, agency ocials can demonstrate

they understand that transportation infrastructure is

owners’ equity, and the owner is the public.

20 Financial Planning for Transportation Asset Management

assets, which are among the most valuable assets owned by

the City.

[21]

The London asset management plan says that

changes in asset values reﬂect changes in asset conditions,

providing the city an important benchmark of its asset

management eectiveness. It also can track its depreciation

expenses against its asset investments to determine if it is

keeping pace with asset deterioration. The London borough

of Croydon’s asset management plan says it uses asset

valuation as one of several measures to track the condition

of assets.

[22]

Knowing the annual change in asset values

helps the city determine

investment levels to build a

business case to ensure the

network remains “ﬁt for

purpose.” It compares its

Gross Replacement Cost, or

its as-new costs, compared

to current, depreciated costs

to determine how much

network value has been lost

to “consumption of the

asset” or depreciation. Its

calculations indicate that current assets represent about

89 percent of “as new” value. This indicates that assets

are in relatively good condition with only 11 percent of the

assets “consumed” or depreciated. Although not stated in

the Croydon asset management plan, this percentage has

sometimes been called an Asset Consumption Ratio. It

measures the percent of “as new” assets that have been

consumed through use or depreciation.

The Town of New Market Ontario’s asset management plan

reports that the value of its infrastructure assets is immense

in relation to the town’s operations. It says in recent years the

linking of the management of these assets to ﬁscal sustain-

ability principles has become more prevalent. It prepared

six strategic documents to guide its long-term operations

The London asset

management plan says

that changes in asset values

reﬂect changes in asset

conditions, providing

the city an important

benchmark of its asset

management eectiveness.

Report 5 21

including a capital ﬁnancing sustainability strategy, a roads

needs study, and an asset management plan that covers all

its infrastructure.

[23]

Canadian governments such as New Market must report

historic costs on their ﬁnancial statements, as do U.S.

governments. However, New Market’s asset management

plan says the historic costs have limited value for making

infrastructure investment decisions. Therefore, it also reports

replacement costs which are more meaningful to decision

makers. It notes its town hall was built in 1860 for $60,000

but was recently renovated for $9 million. Its roads and

bridges are on the books for $139 million in historic costs but

are valued at $323 million for replacement costs. “It is the

replacement costs, the costs that will be incurred now or in

the future, that are essential for decision-makers to be aware

of.” It bases its 10-year ﬁnancial plan, which is called a Capital

Financing Sustainability Strategy, upon the costs to renew

and replace assets based upon their replacement costs.

The City of Sydney, Australia’s, Resourcing Strategy provides

a 10-year ﬁnancial plan for the city which includes tracking

of asset valuation and depreciation.

[24]

Although it cautions

that the amount of depreciation does not equate to any

given year’s maintenance needs, it does reﬂect the long-term

reduction in the asset’s estimated useful life. Depreciation of

the value of the city’s assets provides a benchmark against

which its asset-renewal expenditures can be compared. It

reports that its program for asset renewal and replacement

over 10 years will match or exceed the assets’ depreciation.

As with other governments in Australia, the predicted depre-

ciation appears as a line item on the agency’s projected

10-year income statement. Depreciation represents about

20 percent of the city’s expenses from continuing operations

over 10 years. Depreciation averages $124 million annually

over 10 years while the city’s projected capital plan averages

$186 million, outpacing the accumulated depreciation.

22 Financial Planning for Transportation Asset Management

The Australian State of Victoria’s highway agency, known as

VicRoads, reported 2014 asset values of $47.7 billion, which

is more than twice that of Ohio’s although Victoria has half of

Ohio’s population. The higher values result from Australia’s

reliance on what is called “depreciated replacement costs”

rather than the historic costs used in the U.S. Depreciated

replacement cost will be explained below. The VicRoads

annual report reﬂects the private-sector-like accounting used

in Australia. The agency reported a net deﬁcit in 2014-15 in

part because of a recognition of higher depreciation result-

ing from an every-ﬁve-year revaluation of its assets.

[25]

Depreciated Replacement Cost:

Balancing Value and Depreciation

The British and Australian accounting guidelines call for

agencies to report the “fair value” of assets, not the historic

costs. As noted, this leads to higher and probably more

realistic valuations than in the U.S. The Australian Account-

ing Standards Board Standard 13 deﬁnes fair value as the

price that would be received to sell an asset in an orderly

transaction between market participants.

[26]

When estimat-

ing fair value, the organization shall take into account the

characteristics of the asset such as its condition and loca-

tion. Standard 13’s inclusion of condition as a valuation

factor signiﬁcantly dierentiates it from GASB 34 which

focuses on only the original, or historical, construction cost.

Australian Standard 13 also says that in the absence of a

principal market—such as for publicly owned transportation

assets—the fair value measure assumes that the asset could

be sold in the most advantageous market. For non-ﬁnancial

assets such as infrastructure the standard says fair value

should take into account the market participant’s ability to

generate economic beneﬁt by using the asset at its highest

and best use. Again, this provision allows the condition of

assets to be factored into their value because the economic

beneﬁts can include the asset’s remaining years of service.

Report 5 23

For non-market assets, the entity shall consider all “relevant

observable inputs” when valuing assets. This opens the door

for asset conditions to inﬂuence the asset’s value.

Under the Australian account-

ing standards, dierent

valuation approaches could

be applied to dierent assets.

The valuation process would

depend upon how robust

comparable price data are.

The guidelines provide three

dierent levels of valuation

ranked in order of preference.

Level 1 inputs would be used

when there are quoted prices

for comparable assets, such

as if the agency owns excess

rights-of-way whose value

can be equated to compa-

rable land prices. Level 2

inputs would be observable inputs, such as the price of an

asphalt pavement resurface. The agency could not re-sell

an asphalt surface to determine its market value. It could,

however, estimate the cost or value of a pavement surface

based on typical construction costs and the asphalt surface’s

age and condition. Level 3 inputs are not observable in the

open market but can be derived from an entity’s own data,

such as asset-inventory condition data.

The agency also could use dierent valuation techniques

depending upon the use of the asset. A market-based

approach to valuation could be used for items that have

comparable market prices, again, such as excess rights-of-

way that could be sold. The agency could use an income

approach for assets that generate income, such as the

service plaza on a turnpike. The value of the service plaza

The Australian Accounting

Standards Board Standard

13 deﬁnes fair value as

the price that would be

received to sell an asset

in an orderly transaction

between market partici-

pants.

When estimating

fair value, the organization

shall take into account

the characteristics of the

asset such as its condition

and location.

24 Financial Planning for Transportation Asset Management

could be determined by the net present value of its income

over a speciﬁc time period. The income-based approach is

typical when private companies estimate the value of a

business they want to buy or sell.

The third approach would be most typical for transportation

assets and it is the cost approach. The cost approach reﬂects

the amount that would be required currently to replace the

service capacity of the assets, or as the Standard 13, says, the

“current replacement cost.” The replacement cost, however,

is not to an “as new” condition but rather to an “as is” condi-

tion. “From the perspective of the market participant seller,

the price that would be received for the asset is based on the

cost to the market participant buyer to acquire or construct

a substitute asset of comparable utility, adjusted for obsoles-

cence…Obsolescence encompasses physical deterioration,

functional (technological) obsolescence and economic

obsolescence...” For instance, an asset that no longer meets

standard or which is technologically obsolete would have

lower value regardless of its physical condition.

A deﬁnition very similar to current replacement cost is the

depreciated replacement cost, or DRC.

[27]

It is most common-

ly used to value assets in Australia and is recommended

for adoption in Great Britain. Both have similar deﬁnitions

but the depreciated replacement cost may have the more

descriptive and less-ambiguous title. It is deﬁned in AASB

Standard 136 as “the current replacement cost of an asset

less, where applicable, accumulated depreciation calculated

on the basis of such cost to reﬂect the already consumed or

expired future economic beneﬁts of the asset.”

[28]

In other

words, what would it cost to replace the asset as it is?

Depreciated replacement cost addresses some of the short-

comings of GASB 34’s reliance on historic costs. As its name

suggests, it captures both the cost to replace an asset “as is”

and also reﬂects the reduced value caused by age and

Report 5 25

depreciation. Table 2 which is modiﬁed from the Australian

Infrastructure Financial Management Guidelines 29 illustrates

an example of calculating a depreciated replacement cost.

In the example, an agency determines the value of a 55-year-

old bridge. It determines that the cost to replace the bridge

with a modern equivalent will be $3 million. The bridge has

an expected life of 60 years, with ﬁve years remaining.

Therefore, it has 8 percent of its remaining useful life or

5 years/60 years. The replacement value of $3 million is

multiplied by the remaining life, or 8 percent, to produce a

depreciated replacement value of $250,000. The 55-year-old

bridge is thus carried on the books at a depreciated replace-

ment value of $250,000. If a new bridge is built in ﬁve years,

it will be “recognized” on the books at $3 million and the

agency’s asset values will increase by that amount.

Table 3 (see next page) compares the value of the bridge if

historic costs were used. In this scenario, it is estimated that

the historic cost of the bridge was $500,000 55 years ago.

Because it has an estimated life of 60 years, one-sixtieth of

its value is depreciated each year so that by the current time

it has a value of only $41,667, compared to $250,000 in the

depreciated replacement cost valuation. As can be seen, the

major dierence is applying depreciation to the replacement

cost, not the historic cost. The Australian and British guide-

lines contend that the depreciated replacement cost provides

Table 2. Depreciated Replacement Cost Calculation.

Step Factor or Calculation Value

A Cost to Build New Replacement Bridge $3M

B Useful Life 60 years

C Age of Bridge 55 years

D Remaining Life 5 years

E Percent of Remaining Useful Life (D ÷ B) 8.3%

F Depreciated Replacement Cost (A X E) $250,000

26 Financial Planning for Transportation Asset Management

a more realistic estimate of the actual value of the structure.

In this case, the structure will provide 5 years of service,

which in modern cost terms, is valued at $250,000 and

not the $41,667.

The British asset management accounting guidelines also

recommend depreciated replacement cost for valuing assets.

[30]

It says that depreciation is a useful measure of the cost of

the economic beneﬁts of assets that have been consumed

during the accounting period. However, applying deprecia-

tion to the historical cost of assets is not a good basis for

dealing with assets that have long lives. The depreciation

expense applied to the lower historical cost understates the

amount of annual depreciation incurred, which understates

the amount of investment needed to sustain asset values.

It deﬁnes depreciated replacement cost as, “the current cost

of replacing an asset with its modern equivalent asset, less

deductions for all physical deterioration and all relevant

forms of obsolescence and optimization.” The gross replace-

ment cost (GRC) is the cost of constructing a modern, equiv-

alent asset. From the gross replacement cost is subtracted

depreciation to determine the depreciated replacement cost.

The British guidance has two other elements that increase

asset values in comparison to values derived from historic

Table 3. Historic Cost Calculation.

Step Factor or Calculation Value

A Historic Cost to Build Bridge 55 Years Ago $500,000

B Bridge Age 55 years

C Estimate Bridge Life 60 years

D Annual Depreciation (A ÷ C) $8,333

E 55 Years of Depreciation (B x D) $458,333

F Bridge Historic Value (A – E) $41,667

Report 5 27

costs. First, the asset values are indexed upward each year

to reﬂect inﬂation. Agencies should dierentiate or track the

amount of increased asset value caused by inﬂation so that

they can recognize how much the value is increased by

inﬂation and how much by investment.

Secondly, the British guidelines allow more increase in asset

value through investment than does the U.S. standards. This

is called “capitalization.” As investments are made to extend

the life of assets, the asset value is increased more liberally

under the UK guidelines than the U.S. guidelines. In the U.S.,

costs such as painting steel beams or replacing an asphalt

layer are considered expenses that cost the agency but

which do not increase asset

value. In most U.S. agencies,

they only “capitalize” items

that expand the size or

footprint of assets. And they

often have higher capitaliza-

tion limits of $500,000 or

more. The result is that many

U.S. asset renewal projects

don’t increase asset values,

which again is contrary to

engineering logic. In the

British guidelines, the capital-

ization limits are lower and

more types of projects result

in increased asset values.

The CIPFA guidelines say, “Put simply, the intention is to

capture anything that adds to or restores the economic

beneﬁts and service potential of the asset compared to the

condition at the time the expenditure is made.”

[31]

Filling

potholes or cleaning ditches are not capitalized but painting

steel beams or sealing pavement surface layers are.

The result of the British

capitalization guidelines

is to “reward” sound asset

management. As invest-

ments are made to extend

the life of assets, the

agency’s asset values

increase. The agency can

demonstrate to the public

and to policy makers that

it is growing the public’s

equity and acting

sustainably.

28 Financial Planning for Transportation Asset Management

The result of the British capitalization guidelines is to

“reward” sound asset management. As investments are

made to extend the life of assets, the agency’s asset values

increase. The agency can demonstrate to the public and

to policy makers that it is growing the public’s equity and

acting sustainably. It will be leaving for future users higher

asset values and more public “equity” than currently exist.

In eect, they have grown the value of the public’s

transportation portfolio.

Asset Valuation as a Component of

Financial Management

In the Canadian, British, and Australian infrastructure-

management frameworks asset valuations are only part

of a larger process to encourage state, local, and national

governments to focus upon the ﬁnancial sustainability of

infrastructure. Asset values alone do not drive the infra-

structure-management framework but are part of a suite

of ﬁnancial-sustainability metrics and analyses intended

to support the long-term, responsible investment in assets.

A more detailed discussion of Australian and British ﬁnan-

cial infrastructure plans can be found in the FHWA report,

Asset Sustainability Index: A Proposed Measure for Long-

Term Performance, pages 21-31, accessible at https://www.

planning.dot.gov/documents/ASI_report/ASI_July9_FINAL_

web.pdf Here, the ﬁnancial-sustainability frameworks are

summarized and the role of asset values put into the

ﬁnancial-planning context.

In most of the international examples, asset valuation

complements typical asset performance measures and

processes, it does not replace them. Ocials still focus on

pavement and bridge conditions, deterioration rates, and

other asset-condition attributes. But the inclusion of asset

values translates deteriorating infrastructure into deprecia-

tion that appears as lost dollars and cents to taxpayers.

Report 5 29

In Canada, the Public Sector Accounting Group of the

Canadian Institute of Chartered Accountants (CICA) pro-

duced for local governments a Guide to Accounting for

Reporting Tangible Capital Assets.

[32]

It’s opening paragraphs

reﬂect the sentiment seen in similar eorts in Great Britain,

Australia, and New Zealand.

“There is growing evidence that our communities

are facing major challenges ﬁnancing deferred

maintenance, renewal and replacement of aging

capital assets. This may be an indicator that decision

makers have not received sucient information to

understand the ﬁnancial eects of past funding

decisions on the condition of existing capital assets

and the cost of using them in service provision.

As the existing capital asset base ages and popula-

tion grows, increased demands for new capital

assets will place further pressures on the ability of a

local government to sustain those services. Informa-

tion about the existing stock, the cost of its use and

the needs for its replacement must be at the fore-

front of decision making. To be useful, that informa-

tion must be complete, reliable and unbiased and

provided on a local government-wide basis.

This is not to say that local governments have not

been maintaining information about their assets to

properly manage them. Municipal engineers have

developed asset management systems for work

management, customer care and capital budgeting.

But those systems exist largely independently of the

core ﬁnancial systems. They are often specialized in

nature, incomplete and not comparable within a

local government itself, nor with those of other

local governments.”

30 Financial Planning for Transportation Asset Management

The Canadian guide says accounting standards can play a

vital role in bridging the gap between asset management

and ﬁnancial management by bring capital asset information

to the attention of the public and policy makers. It references

“accrual accounting” which is a form of accounting that

captures on ﬁnancial reports the long-term assets and

liabilities of an agency, not only the ones evident in the

current annual or biennial budget. When assets and liabilities

are accrued, future funding gaps and declines in asset values

are highlighted and reported in the ﬁnancial reports. The

Canadian guidelines say that one of the main beneﬁts of

asset valuation, accrual accounting, and long-term ﬁnancial

reporting is to provide better information for management

decision making.

Although not summarized in quite this way, the Canadian

and other guidelines seek to bring to the attention of deci-

sion makers the long-term consequences on “public equity”

of current investment decisions. When considering invest-

ments, decision makers such as local city council members

or transportation agency commissioners could choose

between building new assets or investing in the renewal

of current assets. Investing in the new asset increases the

government’s asset values, at least in the initial years.

However, after a few years, the amount of total depreciation

grows as the government’s asset base expands. Deprecia-

tion of the old assets continues and the newer assets begin

to depreciate as well. Depreciation on the agency’s ﬁnancial

reports increase and leads to more long-term ﬁnancial

liability. If, however, the agency invests in improving the

condition of existing assets, their value rises and total

long-term depreciation costs decrease. The intent of the

ﬁnancial-reporting guidelines is, in part, to increase public

recognition of the cost of depreciation. The capturing of

depreciation puts a number, or a cost, before decision

makers and allows them to compare that cost against

the beneﬁts of alternative investments.

Report 5 31

Two ﬁnancial-reporting practices bring this cost to the

decision-makers’ attention. First, depreciation appears on

the ﬁnancial reports as a negative value that decreases the

agency’s equity or value. Second, is the 10-year timeframe

of the ﬁnancial plan. It captures the increase in depreciation

as assets age. If the agency focuses only upon short-term

accounts, it can balance income and spending without

showing a deﬁcit. When depreciation is included, the decline

in asset condition appears as depreciation that is evident to

readers of the ﬁnancial reports.

The capturing of depreciation

also serves to recognize on

agency ﬁnancial reports that

“savings” don’t exist from defer-

ring maintenance. Short-term

cash outlays may be reduced but

long-term depreciation increases.

The need to capture the full

eect of depreciation requires

a long-term ﬁnancial plan of

10 years because the increased depreciation caused by poor

maintenance is not apparent in the short term.

The Canadian accounting association notes that although

ﬁnancial statements themselves may not drive decision

making, the larger process of integrating ﬁnancial reporting

with asset management planning can improve decision

making. The decision-making process improves because of

the eort needed to develop sound inventories, assess asset

condition, and determine long-term investment needs.

[33]

The Canadian guidelines express sentiments similar to

those of the U.S. Government Finance Ocers Association

published in its report, Long-Term Financial Planning for Local

Government.

[34]

It lists several key roles for ﬁnancial planning

to support strategic, long-term decision making including:

The need to capture the

full eect of depreciation

requires a long-term

ﬁnancial plan of 10 years

because the increased

depreciation caused by

poor maintenance is not

apparent in the short term.

32 Financial Planning for Transportation Asset Management

 Long-term ﬁnancial planning should be central

to governance and management, and not be a

one-time event or sta tool;

 Financial planning supports elected ocials’ eorts

to maintain ﬁnancial discipline despite short-term

political pressures;

 The linkage from the long-term ﬁnancial plan to

the short-term budget is critical;

 Financial planning supports elected ocials’ ability

to “step back” from daily detail and see a strategic

view of budgeting;

 Financial plans support elected ocials’ realistic

understanding of how quickly ﬁnancial stability can

be reached, or long it will last, given the agency’s

ﬁnancial reality, and;

 Financial planning can improve sta performance by

keeping them focused on the agency’s key priorities.

Another Canadian publication advises local agencies that

accounting for assets helps them assess the long-term sustain-

ability of debt loads, the sustainability of their infrastructure,

and their ﬁnancial resilience.

[35]

If their community experiences

high depreciation and debt levels, and low infrastructure

conditions, it is less resilient and less able to respond to disas-

ters or public requests for higher service levels. In eect, the

community’s assets are depleted and its ﬁnancial reserves

limited making it less resilient. The higher the asset value in

relation to “as new” the more robust the community is. If

disaster struck, the agency could forego years of investment

without irreparable harm to its assets. On the other hand, an

agency with poor asset conditions and fully depreciated assets

has less “equity” to draw upon in times of emergency.

Report 5 33

Complications of Transitioning to Depreciated

Replacement Costs

Although valuation methods that rely on depreciated

replacement costs may be attractive to the U.S. engineer

or planner, transitioning away from historical costs faces

challenges. To be ocially accepted on ﬁnancial statements,

the use of depreciated replacement costs would need to

be recognized by the Government Accounting Standards

Board. GASB has not listed a change in capital accounting

standards as an initiative.

Also, many state transportation agency ﬁnancial ocials are

accustomed to the GASB 34 process and have routinized

processes to estimate infrastructure values using historic

costs. Changing to depreciated replacement costs or another

method would present additional sta costs and reporting

eort. It also could require restatement of past ﬁnancial

reports. Perhaps even more complex, state accounting

system processes outside of the transportation agency

may need to be changed. GASB 34 reports are incorporated

into statewide reports for other state-owned assets such as

buildings, universities, and airports. Changing the standards

would not limit the impact to only states. Local governments

would be aected as well.

In addition, many accounting professionals still advocate for

historic costs as a valuation standard for capital reporting.

Although the Canadian Institute of Chartered Accountant’s

Guide to Accounting for and Reporting Tangible Capital

Assets strongly endorsed capital reporting as a sound public

ﬁnance process, it still accepts the use of historic cost as the

valuation basis.

[36]

It acknowledges that arguments are

raised against historic costs including:

 They do not present meaningful performance

measurements in times of changing prices;

34 Financial Planning for Transportation Asset Management

 The cost of using infrastructure should reﬂect

current costs, not past costs, and;

 Replacement costs or depreciated replacement

costs reﬂect the amounts that should be budgeted

to replace assets.

However, the accounting body says because accounting is

“transaction based” the primary measurement for both

assets and liabilities is the value at the time they were

acquired, developed or constructed. Historical cost account-

ing is objective and reliable, not dependent on uncertainties

or estimates.

The Canadian Institute of Chartered Accountants and the

Canadian Public Sector Accounting Handbook

[37]

appear

to provide some opportunity for increasing asset values

based upon maintenance investments.

Although the original value

of the asset is ﬁxed by its

historic cost, the rate at which

it is depreciated could be

aected by the maintenance

investment it receives. So

although the beginning value

of the asset would not be

increased, the useful life of

the asset could be extended

which has the eect of

reducing the annual amount

of depreciation. This practice

could allow a government

agency to demonstrate

ﬁnancially through decreased

depreciation the beneﬁts of

asset management.

Although the ﬁnancial statements

may still rely on historic costs,

those ﬁnancial statement stan-

dards do not prevent an agency

from including dierent valuation

processes in its asset manage-

ment plan, in budget testimony,

or in other communications to the

public and policy makers. Just as

do the Utah DOT and the Ontario

community of New Market,

agencies can calculate total

replacement cost, depreciated

replacement costs or other values

and use them for programming,

project-selection, budgeting, and

communication eorts.

Report 5 35

Although the ﬁnancial statements may still rely on historic

costs, those ﬁnancial statement standards do not prevent

an agency from including dierent valuation processes in its

TRANSLATING PRIVATE SECTOR

DEPRECIATION TO THE PUBLIC SECTOR

The application of generally accepted accounting

practices (GAAP) to public sector capital assets in the

1990s was viewed as a “good government” reform.

[38,39]

It put the issue of asset depreciation and sustainability

clearly into agency ﬁnancial statements.

However, transferring private-sector depreciation

practices to long-lived public infrastructure creates

some challenges. In the private sector, assets are

depreciated for two major reasons. One relates to tax

write os. The government encourages capital invest-

ment by allowing companies to depreciate assets. If a

company depreciates a piece of equipment over 10

years, it deducts a tenth of the cost of the equipment

from its revenue each year, reducing its tax burden.

Also, the depreciation of privately owned assets re-

ﬂects their obsolescence. A company is worth less if its

assets are old or outdated, and modern equipment can

become obsolete in just a few years.

In the public sector, depreciation schedules for tax

write os are meaningless. Also, a bridge or roadway

may be 100 years old but still not be obsolete, such as

the Brooklyn Bridge. The Australian and British use of

Depreciated Replacement Cost is an attempt to ﬁnd a

depreciation process that captures depreciation but

complements transportation asset management.

36 Financial Planning for Transportation Asset Management

asset management plan, in budget testimony, or in other

communications to the public and policy makers. Just as do

the Utah DOT and the Ontario community of New Market,

agencies can calculate total replacement cost, depreciated

replacement costs or other values and use them for pro-

gramming, project-selection, budgeting, and communica-

tion eorts.

Reporting Under GASB 34

Although GASB 34’s requirement to use historic costs may

have diminished the U.S. focus on asset values, GASB 34

did stimulate ongoing reporting of how much agencies

invest in assets and whether those investments are sustain-

ing asset conditions. When the GASB 34 standard was

under discussion in the late 1990s, some government

ocials raised the shortcomings of historic asset values.

The accounting standards board responded by giving

governments two options. Both options require use of

historic costs for valuing assets. However, agencies could

adopt the “modiﬁed” approach that does not require a

reporting of depreciation. Instead, they can use their asset

management systems to document that they are sustaining

asset conditions through annual investments. The alterna-

tive would be to report their annual depreciation and

demonstrate that asset investments are osetting the

depreciation and sustaining asset value.

A survey by AASHTO’s Subcommittee on Financial Manage-

ment and Accounting in 2012

[40]

found that of 22 respond-

ing states, 13 reported using the modiﬁed approach and the

remaining report depreciation in their CAFRs. For states

that report depreciation, their report in the CAFR generally

consists of a few lines of how much depreciation was esti-

mated in the past year compared to the amount spent on

infrastructure.

[41]

Few details are included and the report is

limited to the past year.

Report 5 37

States that use the modiﬁed approach must have an asset

management system that meets the following GASB 34

conditions.

 They have an updated inventory of eligible assets.

 They perform condition assessments and summarize

them on a measurement scale.

 They estimate each year the annual amount to maintain

and preserve the eligible assets at the targeted condi-

tion level.

 They document that the assets are preserved at

approximately the target condition level.

An example of a modiﬁed report is seen in the Florida

CAFR for the Department of Transportation.

[42]

It reports the

department commits to maintaining its assets at the levels

established by the Florida Legislature. The department

maintains an asset inventory and performs periodic condition

assessments to document that condition targets are met. In

addition, it estimates the amount needed to maintain the

assets and budgets accordingly.

In the Utah CAFR three pages summarize the DOT’s highway

infrastructure investment reporting. It notes the department

sets targets for pavements and bridge, which it exceeded

in 2010, 2011, and 2012. Similarly, its estimated spending for

the preceding four years exceeded the amounts needed to

sustain the targets.

Despite the brevity of the asset valuation and asset-investment

discussion in the two CAFRs, both departments provide

extensive asset management information on their web sites

that extensively explain their asset conditions, their expendi-

tures, and their eorts to sustain their assets. The contrast

38 Financial Planning for Transportation Asset Management

between the limited information in the CAFRs and the

extensive information on their asset management websites

demonstrates how in the U.S. the asset valuation process

plays little role in managing assets.

No comprehensive study of the eects of GASB 34 on U.S.

transportation agencies has occurred since 2008.

[43]

That

study found that four years after GASB 34 was fully imple-

mented in 2004 it had devolved to a routine administrative

task. Agencies studied reported little interest in the informa-

tion from outside bodies such as legislators, the investment

community, or the general public. A positive outcome was

that the ﬁnancial information and asset management

information was more integrated than before.

Potential Uses of Valuation

Typically, accounting data are not thought of as material for

communicating with the public. However, an old newspaper

saying is that, “there are no boring topics, only boring

presentations.” There are examples of how asset values

and depreciation have been used to communicate to the

public the need for infrastructure investment.

The City of Melbourne, Australia’s, Asset Management Strat-

egy 2015-25

[44]

is a colorful, 31-page report with minimal text

and ample maps, charts, tables and drawings. A two-page

wide illustration represents a cross section of a typical urban

street lined with community buildings, sidewalks, curbs,

landscaping, street lights, and pavement. The cross-sectional

drawing also illustrates underground assets such as the road

base, drainage structures, and water systems. Associated

with each category of asset is its value. The illustration notes

the community owns $424 million worth of road bases,

$43 million worth of pavement surfaces, $93 million worth

of bridges, $176 million worth of curbs, and $177 million

worth of sidewalks and footpaths. It even estimates the

Report 5 39

value of landscaping, street furniture and irrigation systems.

Accompanying each asset value is a red, yellow, or green

summation of its condition.

The city’s mayor’s introduction to the asset management

plan notes that Melbourne has been named the world’s

most livable city for the ﬁfth year in a row. To preserve its

livability, it needs to strategically preserve its $3.5 billion in

assets in the face of a rapidly growing population, a chang-

ing climate, and rising costs, while constraining tax growth.

The strategy includes not only eorts to maintain assets

but also to improve the asset data to better communicate

with the public.

The asset management plan says that in almost every

case city services are delivered through a physical asset

such as a street, building, or park. Services such as provid-

ing child care or supporting the elderly often depend upon

adequate child-care or senior centers, and sidewalks, curbs,

and parks that meet the needs of everyone, not just the

abled-bodied.

Figure 2. The City of Melbourne, Australia’s, Asset Management

Strategy 2015-25.

SOURCE: CITY OF MELBOURNE

40 Financial Planning for Transportation Asset Management

The asset management strategy emphasizes the value of

the community’s assets and how they provide community

beneﬁts. It notes it costs about $364 million annually to

operate the $3.5 billion in assets, and that over the past

10 years annual depreciation has been about $44 million

annually. The plan uses everyday language to explain that

capital assets are physical objects that provide service to

the public. To maximize the value of these assets for up to

100 years it is necessary to preserve and invest in them.

The strategy refers to the city’s physical assets as a portfolio

with a combined value of $3.5 billion that has grown on

average 5.9 percent for the past decade. A line drawing

illustrates the concept of depreciation and notes that asset

values increase through proper design, materials, construc-

tion and maintenance but depreciate through use, climate,

conditions, and market forces.

The plan calls each asset a “touch point” for providing

service to the community. Because of their importance, each

asset is assessed for its condition, functionality, and capacity.

The plan also emphasizes the future strategies and expendi-

tures needed to sustain these service-providing assets.

The asset management strategy is accompanied by a 10-

year ﬁnancial plan that provides the city with a long-term

sources and uses ﬁnancial statement.

[45]

Included in the

10-year ﬁnancial plan is an annual estimate of asset depre-

ciation. It begins in 2015-16 at $59.7 million and grows to

$89.5 million by 2024-25. This line item approximates the

amount of investment needed to sustain assets at current

values. The ﬁnancial plan was developed with a community

involvement panel called the People’s Panel. The panel

recommended and the city agreed to reduce emphasis upon

building new assets and to increase emphasis upon sustain-

ing current assets. This was adopted after forecasts indicate

that future revenues would grow only moderately but that

annual expenditure growth of 4.6 percent was needed to

Report 5 41

sustain asset conditions. This growth rate was predicated on

2.6 percent annual inﬂation plus a 2 percent real growth rate

for a 4.6 percent annual asset-investment increase.

The City of Sydney council reports $8.5 billion worth of

physical assets. It’s ﬁnancial plan and its asset management

plan

[46]

includes 10-year strategies and investment levels for

major asset classes such as the road network, storm water

assets, parks and open space, and property. For each,

10-year-trend lines of investment levels compared to

investment needs are forecast.

Canadian guidance for

municipal asset management

also recommends that com-

munities value their assets

and emphasize the need to

sustain them as valuable

community assets. A British

Columbia local government

asset management framework

says the reporting of asset values is important to asset

management planning, ﬁnancial planning, and public commu-

nication.

[47]

It includes calculation of depreciated replacement

costs as one of the core elements for decision making. It also

advises that annual budget deliberations be informed by

asset renewal alternative options. It also argues against using

historical costs and says assets should be depreciated using

replacement costs. Those costs should become an integral

part of the community’s ﬁnancial planning. One anecdote

included in the guidance says that the City of Prince George

became more aware of the need for asset management when

it calculated the replacement cost of its assets and realized

their “if new” value was $2.3 billion compared to the $810

million it had been reporting as their historic costs. The size

of the investment and the recognition of signiﬁcant mainte-

nance backlogs spurred increased asset management eorts.

Guidance for municipalities

in Ontario, Canada, says

municipalities need to face

the replacement value of

assets as a consideration

in annual budgeting.

42 Financial Planning for Transportation Asset Management

Guidance for municipalities in Ontario, Canada, says

municipalities need to face the replacement value of assets

as a consideration in annual budgeting.

[48]

An accrual ap-

proach based upon replacement costs puts into the annual

budget framework the need to invest annually to oset the

depreciation in the replacement costs of its assets. When

a community understands the magnitude of its asset replace-

ment costs and realizes those costs are not in the inﬁnite

future but impact incrementally each year, it spurs adequate,

annual infrastructure investment levels. Asset management

ﬁnancial planning emphasizes a forward-looking approach

to the community’s ﬁnancial sustainability.

Asset Valuation and Depreciation

Performance Measures

Among governments that emphasize asset valuations,

performance measures exist for incorporating them into

performance management systems. Several state govern-

ments in Australia require local governments to report their

ﬁnancial sustainability metrics, and to forecast them 10 years

into the future. They provide additional insight into the

sustainability of the governments, and the governments’

assets. Deﬁnitions for these measures vary around the world

with some agencies using the same name for a measure but

calculating it dierently.

The Austroads Guide to Asset Management Part 8 includes

as ﬁnancial sustainability performance measures the Asset

Sustainability Ratio, the Asset Consumption Ratio, and

the Future Renewal Funding Ratio.

[49]

Austroads is the

association of state transportation agencies in Australia

and New Zealand.

Its Asset Sustainability Ratio diers from the U.S. version.

The Austroads sustainability ratio is a ratio of current asset

replacement expenditure relative to depreciation for a

Report 5 43

period. It would be calculated by dividing the amount spent

on asset renewal and replacement for a given period by the

amount of asset depreciation. The Austroads sustainability

ratio calculation is dependent upon having sound asset

valuations and credible depreciation. The depreciation

provides the denominator which divides into the renewal

and replacement budget to calculate the ratio.

Also relying on asset valua-

tions is the Asset Consump-

tion Ratio. Austroads calcu-

lates it by using the Current

Replacement Cost as a

denominator and dividing its

value into the Depreciated

Replacement Cost. This

divides the “as is” value by

the “as new” value. If the

depreciated “as is” values

are substantially less than

the “as new” cost to recreate the assets, the ratio will be

low. Austroads says that an indicative target level could be

between 40 percent and 80 percent. In other words, an

agency would forecast asset renewal and replacement

investments so that its assets remain for the next decade at

a given percentage of their “as new” value of somewhere

between 40 percent and 80 percent. Trying to keep them

above 80 percent “as new” value could lead to over invest-

ment. Values below 40 percent of replacement costs could

indicate under-investment. Judgment is needed for an

agency to determine the optimal consumption ratio.

The Austroads Future Renewal Funding Ratio is nearly the

same as the FHWA Asset Sustainability Ratio. Both divide

the amount budgeted for asset renewal and replacement

for 10 years by the amount called for in the agency’s asset

management plan. Assuming the asset management plan

The Austroads Future

Renewal Funding Ratio is

nearly the same as the

FHWA Asset Sustainability

Ratio. Both divide the

amount budgeted for asset

renewal and replacement for

10 years by the amount

called for in the agency’s

asset management plan.

44 Financial Planning for Transportation Asset Management

identiﬁes a credible amount of investment to sustain asset

conditions, that amount of “need” is divided into the amount

budgeted. If the budgeted amount is less than what is need-

ed to sustain conditions, the ratio will be below 1.0 indicating

a gap in investment levels.

Most of the Australian states have relied on these types of

measures for the past decade. From one of many Australian

examples, the City of Sydney forecasts a related series of

ﬁnancial metrics in its 10-year asset management and ﬁnancial

plans. It calculates and reports on a Building and Infrastructure

Asset Renewal Ratio which is the annual renewal expenditure

divided by the amount of depreciation.

[50]

This makes it similar

to the Austroads Asset Consumption Ratio. The city projects a

10-year trend for this ratio that indicates in 2013/2014 the ratio

is about 1.30, indicating more than adequate investment to

oset depreciation. The ratio slips before 1.0 by 2016/2017

before rising above 1.0 again in 2021/2022 through 2024/2025.

The dip occurs in years in which the city has an aggressive

capital-expansion program. The forecasting of depreciation

and the forecasting of asset renewal levels allows the city to

illustrate that it plans for adequate long-term investment to

oset depreciation and sustain its asset values.

Although not dependent on valuations, Sydney also reports

two related metrics. It forecasts for 10 years its Infrastructure

Backlog Ratio which is the amount estimated to restore

assets to satisfactory condition divided by the total value of

the infrastructure. It forecasts ratios of less than 3 percent

through 2024/2025. It also reports on an Asset Maintenance

Ratio that compares the maintenance need by the planned

maintenance expenditure. All are leading measures that

forecast future performance and are not lagging measures

that look at past performance.

Monitoring the measures such as these allowed the State of

New South Wales to determine that a substantial number of

Report 5 45

its predominately smaller local governments were not operat-

ing in a ﬁnancially sustainable manner.

[51]

A report included

an assessment of the degree to which local governments are

operating in a fashion that will sustain their infrastructure, and

other essential services. It deﬁned sustainability as, “A local

government will be ﬁnancially sustainable over the long term

when it is able to generate sucient funds to provide the

levels of service and infrastructure agreed with its commu-

nity.” By reviewing the local government’s asset management

and ﬁnancial plans, the report determined that 74 percent of

the local governments were in a moderate or better position,

but 26 percent are weak or very weak. Among the principal

weaknesses were ﬁrst-generation asset management and

ﬁnancial plans that fail to adequately provide the needed

investment levels to sustain their physical assets.

Despite the substantial problems found in a large minority

of local governments, the New South Wales report found

that the state’s ﬁnancial planning and asset valuation re-

quirements had a positive eect overall on local govern-

ments. It says the local governments are more cognizant of

long-term needs and not only focus on the next 12-month

budget period. It also said the asset management plans

require the local governments to consider whole-life costs

of their assets, and have highlighted the underspending on

maintenance. The New South Wales report categorized all

the local governments and assessed them by 10 ﬁnancial

sustainability metrics.

[52]

Four of those metrics relate to

infrastructure investment. From the analysis, the state

government could assess how sustainably the local

governments are.

Steps to Update Asset Valuation

If U.S. transportation agencies were to collaborate to update

the asset valuation processes the experience of their coun-

terparts in Great Britain and Australia provide a precedent.

46 Financial Planning for Transportation Asset Management

In both nations, associations of accounting professionals and

transportation professionals collaborated to develop ﬁnancial

reporting guidelines that both support and build from trans-

portation asset management practices.

In Australia and New Zealand, the Institute of Public Works

Engineering Australasia is the association that supports local

government infrastructure managers, similar to the function

of the American Public Works Association. Austroads is

similar to AASHTO by representing state transportation

ocials in Australia and the national transportation agency

in New Zealand. The accounting and transportation ocials

in Australia collaborated to ﬁrst produce asset management

manuals. The one for local governments is known as the

“double I double M” or the International Infrastructure Man-

agement Manual (IIMM.) Austroads produced for state gov-

ernments the Guide to Asset Management. Included in the

Austroads guide is a chapter on asset valuation and audit.

The IIMM ﬁnancial management guide represents about

three years of collaborative eort between Australian

engineers and accountants. The IIMM ﬁnancial guidelines

exceed 300 pages, and sections of them are quite detailed.

This reﬂects the dierent audit and review requirements in

Australia, and the complex asset ownership practices. In

several Australia states the requirement that local govern-

ment asset management and ﬁnancial management plans

be audited leads to a need for more detailed accounting

and asset valuation standards. Also, the Australian stan-

dards apply to all physical assets owned by local govern-

ments including water systems, hospitals, parks, and

buildings, as well as highways.

The British local government asset valuation standards for

highways are less complex. They reﬂect a ﬁrst-generation

eort that recognizes many local governments will not have

sophisticated asset management systems. It advises that

Report 5 47

DIFFERING DEFINITIONS OF VALUE

When discussing asset valuations, agency ocials may

want to clarify how they deﬁne value because many

other disciplines use the term “value” dierently.

For instance, the U.S. Bureau of Economic Analysis

estimated the value of U.S. streets and roads in 2011 at

$3.132 trillion dollars.

[53]

BEA does not, however, base

this estimate upon inventories of roads and bridges.

Instead, it bases its estimate upon a “perpetual inven-

tory” method.

[54]

This calculates the estimated amount

of cumulative investment made. It estimates the

amount of investment made in the past year and adds

it to the cumulative estimates of past years, minus

depreciation. The perpetual inventory method used by

BEA is very dierent from the depreciated replace-

ment cost method described here. However, the

perpetual inventory method does attempt to capture

the value of past investments and only partially relies

on historic values.

Economists also can deﬁne infrastructure value as a

measure of the dierence infrastructure makes to

businesses, consumers, and the nation.

[55]

The value is

based on the net contributions to society and eco-

nomic activity. Under economic theory, some transpor-

tation facilities could have negative values. The exter-

nalities of noise, pollution, community separation or

reduced property values would be deducted from

transportation value.

[56]

Although these methods are

valid for economic analysis, they do not lend them-

selves to transportation asset management and hence

are not captured in the British or Australian asset

valuation processes.

48 Financial Planning for Transportation Asset Management

local governments begin reporting asset values based upon

their asset inventories, even if their asset management

systems are incomplete. It recommends “beginning with

what you have” and iteratively improving the asset-valuation

data as the asset management systems improve.

It recommends a tiered approach to valuing an agency’s

assets based upon the completeness and complexity of its

asset inventories. It recommends dividing assets into three

levels. Level 1 is quite general and includes only the broad

categories of roadways, sidewalks and paths, structures,

lighting, roadway “furniture” or roadside assets, trac

management systems, and land. Within each level would be

more details, such as for pavements they could be broken

down further into square meters of area, ﬂexible pavements,

rigid pavements and composite pavements. Units costs could

be estimated for each based upon general estimates, if that

is the only data the agency has.

However, if the agency has more detailed data it can use

them to develop more reﬁned asset values. For pavements,

the additional detail could consist of inventory data such as

pavement layers, surface condition, earthworks, embank-

ments, medians, curbs, drainage structures or barrier. If the

agency has this more detailed data, it can develop more

reﬁned unit costs for each component. For instance, the

miles of barrier could be multiplied by the barrier unit cost to

determine total barrier values. The unit costs would be based

upon the cost to replace such assets. Their depreciated

replacement cost would be calculated by multiplying the

number or size of the assets times their replacement cost

minus their depreciation.

The British valuation guidance takes a step toward basing

asset values upon their condition, at least for pavements.

[57]

It notes that many agencies will not have the historic costs of

pavements. They were built over many years and the records

Report 5 49

for what each costs may

not exist. For pavement

surfaces, it produces a

conversion calculation

that converts the asphalt

surface condition into an

age equivalent. From the age, the amount of depreciation

from an “as new” condition can be estimated.

The Canadian experience provides some analogies for the

use of depreciated replacement cost in the U.S. Like with

GASB 34, the Canadian accounting rules require use of

historic costs. That, however, has not stopped agencies

from estimating their replacement costs and depreciated

replacement costs and using those estimates for communi-

cating to decision makers. The New Market, Ontario, asset

management analysis is similar to the Utah DOTs in that

both emphasize outside of their ﬁnancial statements the

high value of their assets and their need to sustain them.

Although GASB 34 requires historic costs, it also requires

a management discussion and analysis that could bring

in depreciated replacement costs for comparison. Also,

depreciated replacement costs could be cited in budget

testimony, asset management plans, and other key

communication documents.

3. Summary and Conclusion

Transportation agency ocials are acutely aware of the

public’s and legislators’ insistence that agencies conserve

public resources. However, most times this insistence relates

to preserving tax receipts, or employees’ labor costs, or

agency equipment. By emphasizing asset valuation and

depreciation, agency ocials can demonstrate that depre-

ciation and impairment consume public resources as well.

The British valuation guidance

takes a step toward basing asset

values upon their condition, at

least for pavements.

50 Financial Planning for Transportation Asset Management

“Doing nothing” costs money. The declining value of the

infrastructure through depreciation and impairment reduces

the public’s “owner’s equity.” Unless depreciation is captured

and reported, this loss of equity is hidden, or is “o the

books.” Documenting depreciation, and demonstrating that

asset renewal and replacement osets it, allows an agency

to demonstrate it is increasing the state’s owner’s equity.

Sound asset management allows an agency to document

that it is lowering depreciation rates and conserving the

public’s equity. A vigorous bridge or pavement preservation

program can extend asset life which decreases the amount

of depreciation that an asset experiences. By discussing the

role of sound asset management in extending asset life and

decreasing depreciation, an agency can demonstrate that it

is not only providing a higher level of service but also helping

to preserve the public’s massive investment.

Discussing asset conditions in terms of asset values may not

resonate with every member of the public. Some may be

reached more eectively by discussing the number of

potholes that will occur under a given investment level, or

how more bridges may be load-limited. However, for mem-

bers of the public with some accounting or business back-

grounds discussing book value, owner’s equity, or fair value

will resonate. To them, it can communicate that the agency

understands that it needs to manage not only its short-term

cash assets but also its long-term tangible capital assets.

Growing the owner’s equity is a primary objective for the

corporate CEO. Discussing infrastructure in terms of book

value allows the transportation agency executive to demon-

strate “they get it” and know that they too are tasked with

growing the public’s wealth.

However, it takes money to save money. To preserve asset

values requires timely investment in asset renewal and

replacement to oset depreciation and impairment.

Report 5 51

Capturing depreciation allows an agency to demonstrate

that savings may not occur when maintenance budgets

are cut. Cash may be saved but owner’s equity is lost.

Discussing asset replacement costs or depreciated replace-

ment costs also allows an agency to demonstrate that the

state’s infrastructure is its largest capital investment. The

value of the state’s infrastructure probably rivals the value of

its pension funds. Because pension funds report their valua-

tion, their appreciation, and their depreciation, regulators

can monitor the increase or decrease in critical pension-fund

balances. From those balances they can forecast if assets

will be sucient to meet future pension needs.

Similarly, by translating infrastructure depreciation into

ﬁnancial terms, agencies can forecast if current investments

will be sucient to sustain future conditions, and future value.

4. Endnotes

[1]

Berman, K., J. Knight, J. Case, Financial Intelligence,

A Manager’s Guide to Knowing What the Numbers Really Mean,

Harvard Business Review Press, 2006, pages 15-17

[2]

The Chartered Institute of Public Finance and Accounting,

Code of Practice on Transportation Infrastructure Assets, 2013

edition, page 51

[3]

Washington State 2014 Comprehensive Annual Financial

Statement, Note 6 Capital Assets, page 110

[4]

State of Utah Comprehensive Annual Financial State Note 8,

Capital Assets, page 97

[5]

State of Ohio CAFR, Note 8, capital assets page 2013

[6]

Chartered Institute, page 11

[7]

Chartered Institute, page 5

52 Financial Planning for Transportation Asset Management

[8]

Berman, K. and J. Knight with J. Case, “Financial Intelligence,

A Manager’s Guide to Knowing What the Numbers Really

Mean,” Harvard Business Review Press, 2006 pages 4, 5

[9]

Austroads Guide to Asset Management Part 8: Asset Valuation

and Audit, page 4

[10]

Government Accounting Standards Board Statement 34 1999,

preface, page ii

[11]

Florida 2014 CAFR pages 18, 158-159

[12]

Chait, Edward P. “Report 608 GASB Methods for Condition

Assessment and Preservation”, National Cooperative Highway

Research Program, page 1

[13]

Governmental Accounting Standards Board Statement 34, 1999,

preface, page 2

[14]

GASB 34, preface

[15]

GASB 34, page 10

[16]

American Association of State Highway and Transportation

Ocials (AASHTO) Asset Management Guide, A Focus on

Implementation, 2011, pages 7-29

[17]

The Pew Charitable Trust, State Pensions Funding Gap:

Challenges Persist, July 14, 2015

[18]

Utah Retirement System 2014 Summary Report to Members,

accessed at https://www.urs.org/mango/pdf/urs/SummaryRe-

port/2014/summaryReport.pdf

[19]

Ohio Public Employee Retirement System, OPERS History and

Background accessed at https://www.opers.org/about/history/

index.shtml

[20]

Utah Department of Transportation asset management process

accessed at https://www.udot.utah.gov/public/ucon/uconown-

er.gf?n=18090611976967933 Jan. 8, 2016

[21]

Transport for London Highway Asset Management Plan, 2007,

executive summary, pages 57-58

[22]

Croydon Highway Asset Management Plan, London Borough of

Croydon, May 2015, version 2.1

Report 5 53

[23]

Town of New Market, Asset Management Plan, December, 2014

[24]

City of Sydney, Resourcing Strategy 2018, page 28

[25]

VicRoads Annual Report 2014/15 page 24, and pages 51-52

[26]

Australian Accounting Standards Board, Standard 13, October

2013

[27]

Australian Accounting Standards Board Sta Issue Paper, AASB

3-4 September, 2014, agenda paper 16.3 (M140)

[28]

AASB Standard 136, page 22

[29]

Institute of Public Works Engineer Australasia, Australian

Infrastructure Financial Management Guidelines, Version 1.3,

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Nastaran Saadatmand

Asset Management Program Manager

Oce of Asset Management, Pavements, and Construction

Federal Highway Administration

1200 New Jersey Avenue, SE

Washington, DC, 20590

(202) 366-1337

nastar[email protected]

Stephen Gaj

Leader, System Management & Monitoring Team

Oce of Asset Management, Pavements, and Construction

Federal Highway Administration

1200 New Jersey Avenue, SE

Washington, DC 20590

(202) 366-1336

st[email protected]v

Prepared by:

Gordon Proctor

Gordon Proctor & Associates, Inc.

and

Shobna Varma

StarIsis Corporation

Administrative and Contract Support by:

Greenman Pedersen Inc.

Oce of Asset Management, Pavements and Construction

Federal Highway Administration

1200 New Jersey Avenue, SE • Washington, DC 20590

FHWA-HIF-16-009

ASSET MANAGEMENT FINANCIAL REPORT SERIES