Asset Prioritization in an Economic Downturn
Asset Prioritization During an Economic Downturn
Asset management is the starting point for subsequent discussions of pay-as-you-go (PAYGO), reserve set asides, and debt issuance. This week’s focus on asset prioritization is discussed by Ashley Lucht, Director of Capital Planning at the Bond Bank. Ashley helped numerous water systems engage in asset prioritization efforts while working with the Department of Environmental Conservation. At the Bond Bank, she is continuing this effort by linking debt management and infrastructure investment.
Reductions in property, local option, and rooms and meals tax revenue during economic downturns make for difficult financial decisions. For government, public opinion and financial realities during these times often lead to a fair amount of ‘belt tightening’. Governments are forced to assess which projects and programs need to be reduced or cut, but an argument should be made that investments in public assets, especially those that enhance and protect public health, should be the last to be cut.
Plan.
As those entrusted to protect public health and the public’s investment, it is imperative that governing bodies and municipal management continue with routine maintenance and investment in critical infrastructure. Delays in asset maintenance can result in their failing prematurely and, ultimately, costing more to replace in the future. Delays in asset replacement can result in increased spending on routine maintenance, further straining budgets. And it is possible that the planned replacement of aging infrastructure could improve the municipality’s bottom line by reducing O&M; those dollars unnecessarily spent on increased routine maintenance could be put toward long-term financing of the asset’s replacement.
Plan.
Economic downturns often lead to enhanced market conditions for borrowing and bidding. Contractors may be eager for work as long-term impacts are felt. Markets are eager to fund traditionally safe municipal bonds. And it would be foolish not to mention that, to boost the economy, the federal government may introduce stimulus activities. Historically, communities that continued to plan infrastructure projects were well placed to take advantage of quick moving funding opportunities.
Plan.
While it is difficult to decide which programs to fund, staff to keep, and projects to construct, using Asset Management principals is a proven way to prioritize investments in infrastructure. Asset Management employs principals of creating asset inventories, analyzing life-cycle costs, assessing risk, setting priorities though identifying level of service goals, and developing a financial plan to accomplish it all. Implementing an asset management program can be time consuming and involves many government departments but if done right, can focus competitive revenues strategically, in a transparent and defendable manner.
Plan.
Bond Bank can provide the technical and financial resources to undertake asset resource management, in good times and in bad.
And don’t forget, keep planning.
Questions?
Email Ashley Lucht at ashley@vtbondagency.org or call 802.861.0074