© AECOM Consult, Inc. – October 2003 Daniel L. Dornan, P.E. Managing Infrastructure Assets: Implications for New Accounting Guidelines Presentation to UCLA Symposium on Linking Transportation and Land Use through Finance October 19, 2003 GASB 34

© AECOM Consult, Inc. – October Transportation Infrastructure Funding Sources Have Not Kept Up With Needs  Lack of accountability for transportation facilities – which are written off opening year and treated as a sunk cost  Deferred maintenance of existing infrastructure – premature obsolescence  Increased auto ownership, trip making, and fuel consumption - congestion  Overlap of replacement/expansion needs – double the impacts  Alternative fuels, hybrid vehicles, emerging technology, and clean air requirements - diminish revenue potential of gas taxes  Unwillingness of elected officials to increase gas taxes

© AECOM Consult, Inc. – October Current Approach Passes Higher Costs to Future Generations  Federal funding focus on capital projects  Overbuilding of transportation infrastructure  Infrastructure expensed in the year of opening  No on-going financial reporting  Deferred maintenance  Premature obsolescence  Higher frequency of replacement  High life-cycle costs passed to future generations

© AECOM Consult, Inc. – October Differing Perspectives on Funding Shortage  For state and local transportation agencies:  For regional toll authorities: Who moved my cheese? Who wants my cheese?

© AECOM Consult, Inc. – October The Solution Seems Simple …  Raise more revenue for transportation infrastructure programs from existing or new sources and/or  Lower the costs of transportation infrastructure

© AECOM Consult, Inc. – October Ways to Lower the Costs …  Program Development Streamlining  Performance-based versus prescriptive specifications  Value engineering  Constructability reviews  Maintainability reviews  Innovative Procurement  Design-Build  Design-Build-Operate-Maintain  Asset Management  Life-cycle development and preservation  Performance-based management

© AECOM Consult, Inc. – October Ways to Raise the Revenues …  Direct user fees  Tolls  Vehicle-distance fees (GPS)  Public taxes/assessments  Property tax increment financing  Special assessment districts  Private sector funding  Bond financing  Land contributions by adjacent land owners  Air rights and other related commercial land development  Public-private partnerships  Third-party equity financing

© AECOM Consult, Inc. – October Consequences of Private Sector Funding  Greater leverage of available public sector funding for transportation infrastructure  Greater accountability for project/facility delivery and management (cost, quality, timeliness)  Risk management and value capture by private sector participants  Stronger and more transparent economic relationship between transportation and land use  Link beneficiaries to funding responsibilities  “Show me the money”  “Follow the money”

© AECOM Consult, Inc. – October But Its Not that Simple - What is the Missing Link?  Focus on capital development – not life-cycle stewardship  Lack of financial reporting by public sector owners  Lack of accountability by public sector owners  Lack of financial discipline by public sector owners  Inadequate dedicated funding sources for public use transportation infrastructure  Unwillingness of public sector owners to provide adequate value capture opportunities to private sector partners

© AECOM Consult, Inc. – October  Governmental Accounting Standards Board (GASB) develops accounting and financial reporting standards for US state and local governments  GASB Statement No. 34 requires inclusion of infrastructure assets on balance sheets of annual financial statements  Impacts 84,000 state & local governments  Allows depreciation or preservation-based reporting  Provides major impetus to apply asset management principles to infrastructure assets Prospective reporting – began 2001 Retroactive reporting to 1980 – begins 2005 Part of the Answer - GASB Statement No. 34

© AECOM Consult, Inc. – October Definitions of Infrastructure and Asset Management  Infrastructure: Significant stationary capital assets whose service lives are expected to last several generations.  Asset Management: A systematic and integrated approach to the development and preservation of infrastructure assets that provides optimal service performance at minimum life-cycle costs.

© AECOM Consult, Inc. – October GASB 34 Reporting Requirements Will Encourage Better Stewardship of Transportation Infrastructure INVENTORY: New & Current Assets VALUATION: New & Current Assets DEPRECIATION REPORTING: Traditional/alternative methods Determines replacement time frame PRESERVATION REPORTING: Standards-based reporting through asset management system Extends asset service life/replacement

© AECOM Consult, Inc. – October Asset Management Links Transportation Infrastructure Performance and Fiscal Accountability Disposal Condition Assessment Valuation Renewal and Replacement Performance Standards Asset Management Components Life-Cycle Development/ Preservation Inventory

© AECOM Consult, Inc. – October Preventive Maintenance Extends Highway Service Life and Reduces Life-Cycle Costs Reactive Maintenance Pavement Deterioration Curve Preventive Maintenance Pavement Deterioration Curve

© AECOM Consult, Inc. – October Potential Consequences of GASB 34 Infrastructure Reporting Requirements  Greater visibility of transportation infrastructure and their lifecycle management  Increased accountability of agencies responsible for transportation infrastructure development and preservation  Higher level of financial discipline among public sector agencies responsible for transportation infrastructure  Improved basis for judging the financial position/risks of government owners of transportation infrastructure  Higher bond rating potential for governments that exercise stewardship of their transportation infrastructure  Greater private sector involvement helps link transportation infrastructure and land use decisions

© AECOM Consult, Inc. – October GASB 34 Will Produce Improved Information …  To judge the relationship between transportation infrastructure and economic development  To make better decisions regarding rezoning for land development and investment in transportation infrastructure  To align funding responsibilities for transportation infrastructure with those most impacted by the facility (whether positive or negative impacts)

© AECOM Consult, Inc. – October Transportation and Land Use Can Be Related Through Financing Transportation Infrastructure Land Use GASB 34 GASB 34 Lights the Way by Making Infrastructure Costs More Transparent

© AECOM Consult, Inc. – October Long-Term Consequences of GASB 34 on Transportation Infrastructure  Transportation infrastructure becomes a valued investment supporting economic development potential and activity - not merely a sunk cost.  Transportation infrastructure is better planned, designed, and constructed to ensure the facility lasts a long time at lowest life-cycle costs.  Transportation infrastructure is preserved over its entire service life - maintenance is no longer deferred - lowering total life-cycle costs by up to 75%!

© AECOM Consult, Inc. – October GASB 34 Makes it Easier to Define Funding Responsibility for Transportation Infrastructure Life-Cycle Costs Funding Availability Benefits and Impacts Funding Responsibility GASB 34

© AECOM Consult, Inc. – October GASB 34 Has Potential to Change How Infrastructure is Planned, Financed, Procured and Managed – because … What gets measured gets done! … Tom Peters

© AECOM Consult, Inc. – October About the Presenter Daniel Dornan, P.E. is a Vice President with AECOM Consult, Inc., a specialized management consulting firm serving transportation agencies. He has more than 27 years of experience in providing resource management advice to state and local infrastructure agencies, including state and local departments of transportation; toll, transit, and port authorities; and local public works departments. Mr. Dornan’s expertise includes strategic planning, innovative finance and contracting, infrastructure management, organizational transformation, business process improvement, performance auditing and measurement, and change management. Telephone No.: (703) No.: AECOM Consult, Inc. is an operating company in AECOM Technology Corporation, a multinational professional services organization based in Los Angeles with year 2002 sales of approximately $1.8 billion. AECOM delivers integrated consulting, engineering, construction, and program management services to both the infrastructure and facilities markets worldwide. With over 15,000 personnel and over 140 offices worldwide, AECOM is the largest engineering consulting firm in the United States serving the transportation industry.