Office of Planning, Environment, & Realty (HEP)
This report examined the concept of a suite of proposed performance measures centered on an Asset Sustainability Index. The metrics are intended to be forward looking, predictive and comprehensive. They are intended to provide an important, bottom-line answer to a basic question - will highway assets be in better or worse condition in the future based upon the investments and programs of today?
The concept of sustainability metrics is not original having been used since at least 2009 in Australia. The Australia precedents reflect the growing interest in the financial sustainability of programs so they do not impose undue costs upon future users. The European debt crisis rocked international financial markets because of concerns that some European government expenditures were financially unsustainable. In the United States, concerns over the national debt and the long-term solvency of entitlement programs override all other policy debates. In the private sector, the long-term solvency of the mortgage bond market led to a financial downturn that reverberates throughout the economy.
All of these issues involve analysts concluding that the current path of spending and investment is unsustainable and creates long-term deficits that will be passed on to future generations. A growing perspective is that responsible governance includes an obligation to create sustainable programs that do not impose undue costs upon future taxpayers. As noted in a Queensland, Australia, sustainability act, "A local government is financially sustainable if the local government is able to maintain its financial capital and infrastructure capital over the long term."
To date, there have been few widely published metrics with which to illustrate whether a highway-infrastructure deficit looms, be it at the national, State, regional or local level. The GASB34 reports provide some insight but they are not frequently read and they are backward-looking without future forecasts. The ASI is a mirror-image GASB. It looks forward to whether current investments will increase, or at least sustain, infrastructure conditions.
Transportation sustainability metrics could allow transportation professionals to illustrate whether the trajectory of infrastructure investment will be adequate to sustain critical highway conditions for the long term. In recent decades, national infrastructure condition trends have been positive. Bridge and pavement conditions on the National Highway System have improved significantly. However, the past performance guarantees little for the future. The past 5 years have seen highway agencies hit by rising prices, lower fuel tax receipts, deferred maintenance, and the steady aging of key assets such as the bridges and pavements built during the Interstate Highway era. Although some major highway metrics are trending positively, they are lagging metrics that provide only inference, and not certainty, about the future direction. Therefore, the gains of past years may not be a certainty for the future.
However, powerful modern asset management systems routinely produce scenarios of likely future conditions based upon expected levels of expenditures. These management systems allow transportation agencies to report whether current investment levels are adequate to offset the likely depreciation of asset values and deterioration of asset conditions. Such forecasts can allow new understanding of whether transportation agencies are incurring "infrastructure deficits" that will manifest in the future as lower conditions and substantially higher costs for future taxpayers.
As used in Australia, the sustainability metrics complement, not replace, existing metrics such as pavement roughness and bridge structural conditions. The sustainability metrics provide additional insight into whether long-term investment deficits are developing, the magnitude of those deficits and the long-term cost to close those deficits.
Future "infrastructure deficits" don't typically show up on the balance sheets of transportation agencies so they have not received the same attention as have the deficits for the Federal budget, Medicare, Medicaid or Social Security. Although it doesn't appear on balance sheets, under-investment in infrastructure does create future financial obligations that are, in many cases, undocumented to the public.
Sustainability measures complement four important focus areas of transportation policy - asset management, performance management, accountability and sustainability. Asset management is a proven strategy for rationally managing transportation assets for the lowest cost over their complex lifecycle. Performance management sets clear targets and measures progress toward those targets. Accountability often flows from both asset management and performance management because the two disciplines provide documentation of the agency's focus and its accomplishments. Sustainability addresses whether the agency is meeting not only short-term needs but also leaves future users adequate resources to meet their needs. Asset sustainability metrics inherently incorporate all four areas of concern: asset management, performance, accountability and sustainability.
The transportation community has struggled to identify a handful of measures that accurately reflect the performance of the highway system overall. Using only a handful of metrics regarding current bridge and pavement conditions doesn't provide much insight into whether long-term performance will be assured. As highway agency officials realize, the long-term performance of highway infrastructure is strongly influenced by long-term decisions. The performance of an asset is influenced by how it was designed, constructed, inspected, maintained, repaired, rehabilitated and eventually replaced. A typical highway agency juggles thousands of bridges and tens of thousands of lane miles of pavements, all of whose performance is influenced by various factors such as different traffic loadings, soil conditions, past condition, treatment histories, climate and hydrology. To intelligently manage such heterogeneous networks requires sophisticated asset management processes. These processes require accurate asset inventories, realistic deterioration curves, credible estimates of the effect of various treatments, and predictable asset service lives.
The Australian local government approach to this complex measurement problem has been through the sustainability metrics. Basically, agencies are required to developed credible, long-term asset management plans predicated upon sustaining infrastructure conditions at acceptable levels for the long-term, which is for 10 to 20 years. Those asset management plans must have credible financial plans that are also measured. The key performance metrics derive from the degree to which the asset management plan is financed and accomplished. Also included are many of the traditional metrics such as pavement smoothness, bridge adequacy and the condition of roadway features such as signs, guardrail and pavement markings. These traditional key performance indicators are retained but they are placed in a larger context of whether their targets are met not only in the short term but also for the long term. As a result of the long term focus, key asset management strategies such as preventive maintenance and timely rehabilitation become encouraged because of their contribution to long-term, cost-effective performance. When performance measures are focused only on short-term conditions and expenditures, the benefits of preventive maintenance or rehabilitation are not as strongly emphasized.
The research effort for this report included reviewing selected U.S. asset management data to determine if U.S. agencies could produce such long-term indicators. The U.S. examples indicate that it is possible to "tease out" asset sustainability metrics from asset management systems commonly used in the United States. All the components of an asset sustainability analysis were found in the case study agencies. The NCDOT produces a Maintenance Condition and Assessment (MCAP) Report that included many elements of a sustainability index. UDOT's advanced asset management practices allowed the calibration of investment levels for many asset classes with significant granularity down to the regional level. MnDOT produces a report that could support an ASI by calculating the long-term need for bridge and pavement inventories. The ODOT example illustrated how the department for more than a decade has been calibrating investment levels to keep asset conditions meeting the established target, both for the current program and for up to 10 years in the future.
The U.S. case studies appear to indicate that sustainability metrics are possible with current U.S. asset management practice. They also indicate that the examples provide substantial insight into the trend lines of conditions and the likely expenditure levels that will be required. The precision of the four case study agencies' asset management processes demonstrate that investment could be calibrated to achieve precisely defined condition levels.
Although the index and ratios are considered to be simple in concept, the ASI can be an informative metric useful for long-range plans, short-term State Transportation Improvement Programs or for public budgeting decisions particularly when tracked over time. They boil down complex, long-term infrastructure condition and investment analysis into a suite of easy-to-illustrate metrics. The insight they provide increases with the length of the analysis period.
As described in Chapter 7, the ASI is a composite of indices for bridges, pavements and roadway maintenance items. As a composite, it provides one at-a-glance summation of a large amount of asset management and fiscal information. Also, as a composite, it allows the information within it to be disaggregated for detailed understanding of the adequacy of investment by asset class, or by region.
The ASI is generated, in effect, when a credible Transportation Asset Management Plan is developed coupled with a credible financial plan. The amount spent becomes the numerator and the needed level of investment is the denominator to compute the ASI. Because the TAM Plan includes sufficient detail by asset class, it allows analysis as to adequacy of investment in the various classes of assets.
Tables such as Table 44 illustrate the type of program-level information that can be disaggregated from an ASI.Each program has its own Sustainability Ratio which rolls up into the overall ASI. In this theoretical case, over 10 years the adequacy of overall investment falls from a ratio of .88 down to .75. The degree of underfunding by asset class is apparent, allowing policy makers to set priorities as they make incremental funding decisions.
|Pavement Preventive Mainenance||1.00||0.99||0.98||0.97||0.96||0.95||0.94||0.93||0.92||0.91|
|Sub and Superstructures||0.87||0.86||0.85||0.84||0.84||0.83||0.82||0.81||0.80||0.79|
A table such as Table 44 could add significant insight into a TAM Plan, a STIP, a long-range plan or to agency budget testimony.
Austroads is the association of transportation agencies in Australia and New Zealand. It developed a set of recommended asset sustainability metrics that agencies can use to demonstrate accountability to stakeholders. Austroads notes that "sustainability" has evolved a new meaning in recent years to embrace environmental, social and economic prosperity, or a Triple Bottom Line. The 20-year focus of both asset management plans and infrastructure financial plans is intended to ensure that public agencies today do not consume the benefits necessary to sustain future generations. These benefits extend to the economic benefits or economic value of highway infrastructure. In effect, investing adequately today to protect the needs of future users is the essence of infrastructure sustainability, according to Austroads.
"If the Agency's long-term finances are sustainable, then disruptive tax increases or spending cuts can be avoided, the taxation burden will be fairly shared between current and future taxpayers and the stability or predictability of government taxes and charges will not be at risk," the guidelines notes. 
The examination of Australian and British practices illustrates how the sustainability indices are enhanced further when complemented with "asset valuation" information. "Growing community equity" is viewed as a government responsibility in the Australian and British asset-management frameworks. By tracking over the long-term whether a transportation agency's assets are increasing or declining in value, the effect of investment can be displayed. If asset values decline, society is losing its highway equity and not replenishing that equity for future users. In Australia, Great Britain and in the private sector, Asset Valuation serves as a complementary metric to those such as the ASI. They seek to determine whether current actions increase or decrease "public equity."
British valuation guidance for local governments emphasizes that asset valuation is about accountability and transparency in support of sound infrastructure policy. It says in part: "A fundamental component of long term planning is to ensure the asset base is preserved and replenished in a sustainable way without imposing an undue financial burden on future generations. The preservation of the asset base can be measured and monitored over time using a robust asset valuation procedure that provides a true and fair value of the assets."
The guidance notes that the mere assigning of monetary value to highway assets casts them as an important public asset worthy of preservation. The long-term reporting of the value of the public's assets is an important mechanism for demonstrating stewardship. Monitoring how the value of highway infrastructure is rising or falling indicates if costs are being unduly passed on to future generations. It also provides compelling arguments for sound asset management and sufficient investment. As such, the asset valuation process can produce important metrics that support Performance Management and other forms of public accountability.
British guidance defines asset valuation as the calculation in terms of monetary value of a government's physical assets. It allows the estimating of the "consumption" of a society's physical assets over time and compares that consumption with the renewal and replacement of assets. It notes that the main drivers for asset valuation are:
By reporting upon changes in asset valuation, overall depreciation and the improvement or impairment of assets over time, the agency can discern if its maintenance practices and investment levels are sufficient to sustain the assets at targeted levels. Analyzing the reasons for assets' decline can lead to improved maintenance practices, improved asset treatments or improved investment levels.
"These programs of work influence the asset value, i.e. the work program may maintain or increase the asset value or, if it is not adequate, then the asset value may decrease. Monitoring asset value over time can, therefore, be used to demonstrate stewardship of assets. This information provides an important input to a business case for investing in the maintenance and upkeep of public assets."
Adequately investing in an organization's physical assets to ensure its long-term viability has long precedence in capital-intensive private sector organizations such as railroads, manufacturers and utilities.Many of these companies are required to publish annual reports to shareholders that include, among other metrics, the degree to which the companies are preserving their physical assets. In 2009, famous investor Warren Buffet of the Berkshire Hathaway holding company made the largest single investment ever for the company when he purchased the outstanding shares of BNSF railroad for $34 billion. In his annual letter to shareholders in 2010, Buffet noted that BNSF will remain profitable and attractive if Berkshire Hathaway continues the substantial infrastructure investment in BNSF that has made the company successful in recent decades. He referred to the "social compact" Berkshire Hathaway has with society to continue sustaining the infrastructure of this important railroad, and other holdings such as its utility companies.
"All of this adds up to a huge responsibility," he wrote in his shareholders letter. "We are a major and essential part of the American economy’s circulatory system, obliged to constantly maintain and improve our 23,000 miles of track along with its ancillary bridges, tunnels, engines and cars. In carrying out this job, we must anticipate society’s needs, not merely react to them. Fulfilling our societal obligation, we will regularly spend far more than our depreciation, with this excess amounting to $2 billion in 2011. I’m confident we will earn appropriate returns on our huge incremental investments. Wise regulation and wise investment are two sides of the same coin."
This report concludes by making these observations.
First, the continuing development of asset sustainability metrics in Australia will provide additional lessons as to the value and challenges of these indicators. Australian practice is relatively new, with the State asset sustainability statutes having gone into effect in 2009. As the Australian state of practice matures among dozens of local governments, many best practices may be found. Particularly important will be Australian efforts to standardize and improve the development of asset management plans. These plans can serve as the standard template for generating the needed level of investment that could sustain the highway networks for a long-term horizon.
Secondly, the U.S. research and asset management community can provide important assistance by illustrating how the modern asset management systems can produce informative long-term forecasts for policy makers. It is clear from the examples in this report that many highway agencies already produce such long-term forecasts that illustrate the future consequences of today's transportation programs. These State practitioners lack the benefit of a common forum in which they can exchange examples, provide peer support and develop common research agendas. Focusing research efforts and conference presentations on best practice in sustainability metrics can advance the developing State of practice.
Third, U.S. asset management practitioners can consider adding the concept of long-term sustainability to the issues they include in major planning documents such as long-range plans and State Transportation Improvement Programs. Sustainability is a concept and framework that has taken root in policy circles. As the U.S. grapples with deficits in major programs such as Social Security or Medicaid, the concept of looking long-term at how to sustain these programs consumes increasing public attention. The momentum that the concept of sustainability has gained can serve as a slipstream into which discussion about U.S. transportation needs can enter. Intuitively, the public understands that aging pavements and bridges eventually will need replacement. The sustainability metrics and the sustainability concept can help to further clarify public understanding. The metrics demonstrate that U.S. transportation officials are able to forecast long term and they can calibrate the degree of investment the U.S. should make to leave a sustainable transportation system for future users. The use of sustainability metrics allow transportation agencies to demonstrate they are accountable not only to today's taxpayers and transportation users but also to tomorrow's.