Managing capital assets is vital for small water districts. All the programs and interactions involved in providing services for their customers depend on public assets. The EPA has estimated that the total 20-year infrastructure need for approximately 40,000 small community water systems is just over $100 billion between 2021 and 2040 [1]. This includes projects in the categories of distribution/transmission, treatment, storage, source, and other. EPA estimates also suggest that the infrastructure need has increased 32% over the previous estimate from 2018. Therefore, it is necessary for small water systems to have a management plan in place for capital assets.
The factors that influence managing capital assets for small water systems include [2]:
- Level of Service
- Current Condition & Remaining Useful Life of Assets
- Asset Inventory / Asset Mapping
- Prioritization of Rehabilitation or Replacement
- Capital Improvement Planning & Budgeting
- Financial Capacity / Long-Term Financing
- Regulatory Requirements / Compliance
- Material, Construction, and Replacement Costs
- Unexpected or Deferred Maintenance Needs
- Risk & Criticality
- Environmental / External Factors
Small water systems face multiple challenges in addressing these factors. These challenges include[3]:
- Determining the best (or optimal) time to rehabilitate/repair/replace aging assets.
- Increasing demand for services.
- Overcoming resistance to rate increases.
- Diminishing resources.
- Rising service expectations of customers.
- Increasingly stringent regulatory requirements.
- Responding to emergencies as a result of asset failures.
- Protecting assets
However, the benefits of managing assets include [4]:
- Prolonging asset life and aiding in rehabilitate/repair/replacement decisions through efficient and focused operations and maintenance.
- Meeting consumer demands with a focus on system sustainability.
- Setting rates based on sound operational and financial planning.
- Budgeting focused on activities critical to sustained performance.
- Meeting service expectations and regulatory requirements.
- Improving response to emergencies.
- Improving security and safety of assets.
In order to manage capital assets, the EPA provides a core framework of five core questions, which address [5]:
- Current State of Assets
- Level of Service
- Critical Assets
- Minimum Life Cycle Cost
- Long-term Funding Plan
To answer these questions, your organization may choose to do a capital asset review, or a lifecycle assessment, for acquiring new assets or for replacing assets that are nearing the end of their useful life. Entities should consider their ability to manage a major capital asset before acquiring it.
The lifecycle assessment begins with defining the purpose, goals, and objectives of the capital asset. This review should include determining the level of service provided and your objectives for the asset. The evaluation should include determining if the asset provides a necessary, valued, and/or desired product or service to your customers. This review should consider the priority of the asset to the community. You should also evaluate the possibility of using existing assets to provide the desired product or service and should consider repurposing underutilized assets to provide new services.
You can use scenario planning to evaluate different lifecycle scenarios, which enable asset owners to communicate their story to their customers and to justify/raise investment funding for a new facility. This evaluation should include a lifecycle cost analysis to consider the entire cost of owning the asset over its useful life, including sustaining the asset in a condition necessary to provide expected service levels. Entities should consider undertaking a whole of lifecycle cost analysis over the life of the asset to determine if the asset’s future costs can be funded through fees or rates and charges (including a test of affordability). New assets should include an asset management plan with an analysis of the cost of annual maintenance and the cost of ongoing renewal and replacement to ensure that the intended asset life is obtained and to ensure that service levels never fall below acceptable minimum standards.
You can use scenario planning to undertake an evidence-based decision making process about the ongoing viability of an asset – which provides significant community benefit. Lifecycle asset plans such as this can also help with credit rating for investment bond reliability where needed.
You may use whole of life planning to determine consequences of changing fees or rates over a ten-year period. The evaluation should also include the additional demand placed on support and administrative staff within the organization, and it should determine if governments have the expertise and staff capacity to properly oversee and account for the asset.
This blog is adapted from the GFOA article, “Managing Capital Assets,” as well as guidance on asset management from the EPA.
Resources to Explore:
- Managing Capital Assets
- Drinking Water Infrastructure Needs Survey and Assessment (7th Report to Congress)
- Asset Management: A Handbook for Small Water Systems
- Asset Management: A Best Practices Guide
Featured Image Source: Environmental Protection Agency. 2023. Seventh drinking water infrastructure needs survey and assessment: 7th report to Congress, EPA 810-R-23-001, p. 1. September. https://www.epa.gov/system/files/documents/2023-09/Seventh%20DWINSA_September2023_Final.pdf
[1] U.S. Environmental Protection Agency, Seventh Drinking Water Infrastructure Needs Survey and Assessment: 7th Report to Congress, EPA 810-R-23-001 (Washington, DC: Office of Water, September 2023), https://www.epa.gov/system/files/documents/2023-09/Seventh%20DWINSA_September2023_Final.pdf
[2] U.S. Environmental Protection Agency, Asset Management: A Handbook for Small Water Systems (STEP Guide Series), EPA-816-R-03-016 (Washington, DC: Office of Water, September 2003), https://www.epa.gov/system/files/documents/2022-06/FINAL%20AM%20Handbook%20for%20Small%20Water%20Systems%20STEP%20Guide_508.pdf
[3] U.S. Environmental Protection Agency, Asset Management: A Best Practices Guide, EPA 816-F-08-014 (Washington, DC: Office of Water, April 2008), https://nepis.epa.gov/Exe/ZyPDF.cgi/P1000LP0.PDF?Dockey=P1000LP0.PDF
[4] U.S. Environmental Protection Agency, Asset Management: A Best Practices
[5] U.S. Environmental Protection Agency, Asset Management: A Best Practices