Municipal Asset Management & Financial Planning

JULY 2012 Municipal Asset Management & Financial Planning IN SMALLER MUNICIPALITIES A Comprehensive Research Paper & Case Study - Showcasing the Corporation of the Township of Scugog Includes: A framework that facilitates successful, manageable and flexible asset management & financial planning in smaller municipalities By: David A. Stewart

Overview of Document OVERVIEW OF DOCUMENT Purpose & Abstract. Locating the Township of Scugog. About the Author.. iii iv v Executive Summary.... 1 Research Paper & Literature Review... 5 The Infrastructure Investment Gap. 6 Overview of Asset Management. 6 Objectives of Asset Management... 9 Challenges of Asset Management.. 9 An Asset Management & Financial Planning Framework for Smaller Municipalities 11 Pillar # 1 Record & Report on Tangible Capital Assets.. 12 1.1 Public Sector Accounting Board 3150... 12 1.2 Asset Inventory Itemize & Record Tangible Capital Assets.. 13 1.3 Utilize Tangible Capital Asset Information to Add Value... 15 Pillar # 2 Preliminary Plan 16 2.1 Establish Sound Corporate Management Structure... 16 2.2 Support Capacity Building.. 16 2.3 Asset Management Plan Integrated into Corporate Plan.. 16 2.4 Financial Condition Assessment 17 Pillar # 3 Construct the Plan. 19 3.1 Identify & Implement Asset Management Process Protocols 19 3.2 Answer Critical Infrastructure Questions.. 20 3.3 Time of Need Schedule(s).. 21 3.4 Estimate Treatment Costs of Tangible Capital Assets... 22 3.5 Asset Assessment Bar Asset Condition Assessment.. 24 By: David A. Stewart i

Overview of Document 3.6 Establish Priority Optimization for Treatment of Tangible Capital Assets 25 3.7 Prepare Financial Forecasts 25 Pillar # 4 Execute and Monitor the Plan. 27 4.1 Asset Management Plan linked to Capital Budget (Investment Strategies) 27 4.2 Maintain Council & Staff Commitment.. 32 4.3 Optimize Investment 32 4.4 Measure Results.. 32 Concluding Statement.. 33 The Corporation of the Township of Scugog Profile.. 34 The Corporation of the Township of Scugog Case Study Prelude.... 36 The Corporation of the Township of Scugog Case Study. 37 Case Study Reflection & Analysis 80 Staff Responsibility. 85 Acknowledgements. 86 Appendices 87 Appendix A An Asset Management & Financial Planning Framework for Smaller Municipalities... 87 Appendix B A Sample Asset Condition Assessment Bar 88 Appendix C A Sample Infrastructure Report Card... 89 Works Cited.. 90 By: David A. Stewart ii

Purpose & Abstract PURPOSE The purpose of this comprehensive research paper and case study is to provide smaller municipalities with an asset management and financial planning framework; including a tool kit of activities that will challenge the status quo and encourage municipal Councils and staff to initiate asset management and financial planning activities in their municipality. The Corporation of the Township of Scugog case study will showcase how the created framework and tool kit of activities can be implemented in small municipal government. This document is a deliverable for the Municipal Finance Officers Association of Ontario Finance Internship Program. The program is in partnership with the Ontario Ministry of Municipal Affairs and Housing. ABSTRACT Municipal decision makers in smaller municipalities have discussed the need for information on how to plan, manage and implement asset management plans and financial plans. More importantly, there seems to be a demand for information and case studies on how smaller municipalities can identify their infrastructure investment gap and devise a plan of action to better manage and address their individual infrastructure needs. The research paper is intended to educate readers on the topics of asset management and financial planning in municipal government. The paper will dive into the challenges municipal decision makers are presently facing as they relate to the topics of asset management and financial planning. Based on municipal sector research, a theoretical framework that facilitates successful, manageable and flexible asset management and financial planning has been created to help smaller municipalities implement asset management and financial plans with staff and elected officials. After reviewing cases and speaking to municipal decision makers from leading municipalities who have successfully implemented asset management plans, common trends were identified and are discussed in detail within the framework. The case study includes a detailed description of the Township of Scugog s journey towards manageable asset management, a financial condition assessment of the corporation as well as financial models that capture the municipality s present long term infrastructure needs based on the most accurate, up to date information collected and compiled during the given 12 month time period. It will also provide a reflection and analysis into the challenges and learning experiences the municipality faced as a result of the project. This timely and meaningful study is intended to serve as a valuable reference tool for decision makers in municipal finance. By: David A. Stewart iii

Locating the Township of Scugog LOCATING THE TOWNSHIP OF SCUGOG The Corporation of the Township of Scugog Lower-tier municipality Land Area: 475 Square Km Population: 21,569 (2011 Statistics Canada) 1% tax levy increase is approximately $98,000 By: David A. Stewart iv

About the Author ABOUT THE AUTHOR David A. Stewart David Stewart is a municipal project implementation specialist who has a proven track record of making impactful contributions in the municipal government sector. He has played a leadership role in many projects throughout his career and has progressive experience managing and improving operations for multi-million dollar corporations. The majority of his career has been spent in the municipal government sector. His areas of specialization include finance, marketing and economic development. David has experience delivering presentations to Municipal Councils, the Ontario Public Service and to Municipal Associations across Ontario related to emerging topics in municipal finance and economic development. He holds an Honours Bachelor of Commerce Degree and is presently pursuing his Certified Management Accountant designation. David continues to be active in the community. Presently, he is serving on the Board of Directors for a non-profit agency in the Greater Toronto Area. Outside of working and volunteering in the community, he enjoys spending time with family, preparing for long distance runs and playing golf. By: David A. Stewart v

Executive Summary EXECUTIVE SUMMARY Introduction In an effort to transform the way capital assets are managed, capital investment is planned and the way infrastructure needs are communicated, the Township of Scugog Council made it a priority to develop, implement and manage a long term asset management and financial plan for the corporation. Staff was given a timeline of 12 months to make an impact with this project. To this point legislation provides little direction with respect to long term asset management and financial planning for municipalities in Ontario, even though these topics are critical to the health, welfare and economic vitality to the nation overall. Smaller municipalities similar to the Township of Scugog are facing increased financial uncertainty and more needs to be done to keep infrastructure in good condition. Long term asset management and financial plans will be an important and timely turning point for smaller municipalities in Ontario as they look towards a sustainable future. Over the years, Ontario municipalities have invested billions of dollars in tangible capital assets. These assets play an essential role in a community s ability to improve the quality of life, diversify and cope with population growth and improve environmental conditions. Municipalities have traditionally focused on meeting infrastructure needs through investment in infrastructure creation, without planning for the long term lifecycle costs associated with the ongoing operation, maintenance and renewal of their networks. This type of inefficient management of municipal infrastructure has placed a major burden on public finances that is continuing to grow. In the past few years, there has been growing anecdotal evidence that the backlogs of maintenance, renewal and replacement of aging infrastructure is causing financial stress on local government and is jeopardizing the sustainability and affordability of services. This may be an indicator that municipal decision makers have not received sufficient information to understand the condition of existing capital assets and the cost of using them in service provision. As the existing capital asset stock ages and population grows, increased demand for new capital assets will place pressure on the ability of municipalities to sustain service levels. Information about the existing stock, the cost of its use and the needs for its replacement must be at the forefront of decision making. Comprehensive Research Paper The purpose of the research paper is to educate readers on the topics of asset management and financial planning. The paper will dive into the challenges municipal decision makers are presently facing, as well as discuss emerging trends as they relate to the topics of asset management and financial planning. By: David A. Stewart 1

Executive Summary Asset management is an important and timely turning point as municipalities aim to create future ready sustainable communities. Many smaller municipalities have not adequately planned for the recommended levels of investment required for infrastructure maintenance. The majority of smaller municipalities presently have no tools or techniques in place to optimize and prioritize asset maintenance and capital investment programs, which is why the Township of Scugog elected to be a catalyst for change and created a framework that facilitates successful, manageable and flexible asset management and financial planning in smaller municipalities. An Asset Management & Financial Planning Framework for Smaller Municipalities Refer to Appendix A - Page 87 During the information research process, many municipal decision makers working for smaller municipalities discussed the increasing demand for information on how to plan, manage and successfully implement an asset management and financial plan. The end goal is for smaller municipalities to have the ability to better identify, manage and address their present and future infrastructure needs. The framework has been created to help municipal decision makers develop meaningful asset management and financial plans to meet real business needs. It was developed based on the Township of Scugog s experiences as well as through extensive research and through collaboration and consultation with practitioners in the municipal sector. Much of the framework is focused on targeting smaller municipalities with a population of 25,000 or less. It is premised on multi-objective decision making and recognizes that each municipality is unique and will proceed at different speeds. The objectives taken into consideration were maximizing performance, minimizing life cycle costs and minimizing risk. The planning pillars of the framework include: Pillar #1 Record & Report on Tangible Capital Assets Pillar #2 Preliminary Plan Pillar #3 Construct the Plan Pillar #4 Execute & Monitor the Plan The Corporation of the Township of Scugog Case Study The Township of Scugog case study on asset management and financial planning was prepared to provide municipalities with a real example of how the framework can be implemented in a smaller municipality. The case study includes a detailed description of the Township of Scugog s journey towards manageable asset management, a financial condition assessment of the corporation as well as financial models that capture the municipality s long term infrastructure needs based on the most accurate, up to date information collected and compiled during the given 12 month time period. Based on Councils direction, a forty (40) year corporate needs model and fifty (50) year road network needs model has been selected for use in the study. The corporate needs By: David A. Stewart 2

Executive Summary model represents 89 percent of the Township of Scugog s tangible capital assets; land was excluded. The road network needs model represents 54 percent of the Township of Scugog s tangible capital assets. Multiple spending scenarios are presented for each of the two models and are explained in detail in the case study, accompanied by detailed graphs. In an attempt to better serve professionals in the municipal sector, the case study has been created in a Microsoft PowerPoint presentation format - Refer to Page 36. The case study aims to accommodate different learning styles, while delivering value to all readers. Key Findings The Township of Scugog s journey revealed that municipal asset management plans and financial plans must be built on principles that include; (i) (ii) (iii) (iv) (v) (vi) respect for the taxpayers money clear and well defined objectives ability and willingness to take on intellectual challenges evidence based decisions relentless reviews and conformity mechanisms to measure productivity Based on Scugog s experience planning, managing and implementing an asset management and financial planning framework, three factors emerged that were critical to this initiatives success. They include: 1. Corporate culture and working: A municipality with a culture that supports effective corporate working and a willingness to embrace and implement change will see fewer challenges when implementing and managing an asset management plan and financial plan. 2. Buy-in at a senior officer and elected member level: The commitment, enthusiasm and skills of officers in all municipal service areas are important. However, unless there is a buy-in to the implementation of a more corporate and strategic approach to asset management and financial planning amongst both senior officers and elected officials progress is likely to be limited. Any future direction on asset management and financial planning needs to target these senior players. 3. Leadership: Effective leadership at all levels in the municipality must be present in order to implement the required changes. In particular, strong leadership from Council, the Chief Administrative Officer along with other members of senior management is vital if the required momentum of change in relation to asset management and financial planning is to be achieved and maintained. By: David A. Stewart 3

Executive Summary Conclusion Ontario s fiscal problems mean that it will become increasingly challenging to finance new infrastructure investment, leaving smaller municipalities in a position where they must search for more creative, innovative and ingenious solutions to address their infrastructure needs. Ontario s long term infrastructure plan (LTIP) commits to requiring municipalities receiving significant capital funding to publish a detailed asset management plan to increase transparency and accountability. This is a real business opportunity as municipal leaders need the tools to create more resilient, more future ready cities or towns by building tomorrow s requirements into today s infrastructure projects. The Corporation of the Township of Scugog has taken great strides to initiate the asset management and financial planning process by including these important projects in their Corporate Plan. Staff has been working hard to document and communicate the corporation s journey to successful, manageable and flexible asset management and financial planning in order to share their results and learning experiences with the sector. Based on the results presented in the case study presentation, it can be concluded that this project has been meaningful and valuable for the Township of Scugog. By: David A. Stewart 4

Research Paper & Literature Review RESEARCH PAPER & LITERATURE REVIEW PRELUDE Recent research from various associations in Canada shows that there is a growing infrastructure investment deficit occurring in many sectors. This results in deteriorating infrastructure and escalating costs since the longer roads and buildings remain in a state of disrepair, the higher the cost to refurbish or replace 1. There has been a significant shift in the ownership and management of public infrastructure since 1961 towards the municipal sector. More specifically in 1961, during the initial phase of heavy investment in Canada s infrastructure, federal, provincial/territorial and municipal governments each controlled 23.9, 45.2 and 30.9 percent of the national capital stock, respectively. By 2002, the federal governments share has decreased from 23.9 percent to 6.8 percent and the municipal share had grown from 30.9 to 52.4 percent of all infrastructure 2. It is estimated that municipal governments now own 67% of public infrastructure in Ontario 3. Public infrastructure is one of the areas in which the three orders of government in Canada together serve the public interest by promoting economic growth, protecting individuals, acting as stewards and providing other social goods. With three orders of government involved, tension is inevitable. Municipal interests mainly focus on the municipality s residents, while provincial and federal governments have much broader populations to consider 4. A study by the Conference Board of Canada suggests that every dollar invested recently in Ontario s public infrastructure generated $1.11 in economic output 5. Leveraged properly, infrastructure investment is a key enabler of economic growth. Leading Canadian municipalities are presently taking great strides to invest in sustainable infrastructure by retrofitting the past, regenerating the present, planning for the future and preparing for the unexpected. However, infrastructure is also costly, especially for smaller municipalities with limited growth opportunities, which is why proper plans must be in place to finance investments to achieve optimal results for these communities. Municipal asset management plans are vitally important to identifying and addressing the municipal infrastructure investment gap and accounting for life cycle costs. Municipalities recognize the need to increase their investment in municipal infrastructure, in partnership with the provincial and federal governments and agree that they need to develop and share best practices with respect to asset management. The costs of designing and 1 http://www.pppcouncil.ca/resources/issues/infrastructure-investment.html: Retrieved December 9, 2011 2 Danger Ahead The Coming Collapse of Canada s Municipal Infrastructure, Saheed Mirza, A Report for FCM, November 2007, P.6. 3 Municipal Finance Officers Association. Capital Program on Steroids Presentation. April, 2012 4 Ontario Ministry of Infrastructure. Provincial-Municipal Fiscal and Service Delivery Review. June 2008 5 P. Antunes, K. Beckman and J. Johnston, The Economic Impact of Public Infrastructure in Ontario, 2010, Conference Board of Canada. By: David A. Stewart 5

Research Paper & Literature Review developing asset management plans are repaid by the savings realized through timely decision-making. THE INFRASTRUCTURE INVESTMENT GAP Public infrastructure is critical to economic competitiveness and the quality of life every person enjoys. Well functioning infrastructure boosts productivity and supports economic growth through lowering business costs. However, since the 1980s, Ontario s infrastructure has been under stress. Since the significant shift in ownership and management of public infrastructure to the municipal sector, municipalities still find themselves searching for the proper tools to manage their infrastructure; such as debt, reserves, property taxes, user fees and development charges. Municipalities have underinvested and are seeing their infrastructure nearing the end of its useful service life, which has contributed to the growing infrastructure needs. The present infrastructure challenge is in part the result of the aging of the massive stock of infrastructure built through the 1950s and 1960s. Infrastructure built must not only meet the needs of today, but also the needs of tomorrow. According to Engineers Canada Regular infrastructure maintenance enhances Canada s productivity, growth and competitiveness and decreases the costs of repair over the longer term. Better management techniques not only increase the lifespan of infrastructure, but also support the commercial value and export potential of Canadian innovation. Municipalities will need to commit to smart, strategic, systematic stewardship of infrastructure in order to provide satisfactory levels of service to the public in a sustainable and environmentally responsible manner. It is evident that a valued approach to addressing the infrastructure investment gap will focus on asset management and financial planning for municipalities. OVERVIEW OF ASSET MANAGEMENT Asset management is a strategic, proactive, long term comprehensive plan for managing existing and new infrastructure on a life cycle basis that includes: objectives within time lines; an inventory/registry of current assets; asset condition data collected on a regular basis; a maintenance program (adequate treatment options); a risk management analysis; and a financial plan/investment strategy Asset management seeks to determine the optimum mix of treatment options and timing for minimizing costs while maximizing the life of the asset. By: David A. Stewart 6

Research Paper & Literature Review Municipalities have a wide range of physical assets to manage, all of which age at different rates, have differing impacts on the organization and the community and have varied levels of visibility to the public, Council and staff. The list below provides examples of the diversity of assets owned and operated that will eventually require proper treatment by the municipality 6 : surface assets: roads, trails, parking lots and storm water management ponds, above ground assets: building structures and major components, park improvements, outdoor lighting, outdoor furniture and fixtures, bridges overpasses and other crossing structures, below ground assets: water and sewer mains, lift stations, road beds, foundations, parking structures, tunnels and subways, library resources: books and other materials, specialized equipment, technology assets: servers, networks and hubs, cabling, power supplies, back-up generators, workstations, software, peripherals and smart phones, fleet and equipment: licensed and unlicensed cars, trucks, trailers, specialized equipment vehicles, mowers and maintenance equipment, mechanical tools, emergency services: gear, equipment, weapons, special apparatus and vehicles, marine items: wharves, docks, piers, pilings, vessels, navigations aids and indoor office furniture and fixtures Many municipalities have not adequately planned for the recommended levels of investment required for infrastructure maintenance. In a 2004 study conducted by Vanier and Rahman, respondents (Canadian municipalities), had no tools or techniques to determine asset condition, predict remaining useful life, prioritize maintenance or determine capital renewal schedules. Smaller municipalities seem unaware of where the responsibility lies when it comes to managing and implementing an asset management plan. According to recent discussions with industry professionals, responsibility lies with the engineers or works department and the financing responsibility lies with Council. Municipal asset management is not an event but rather an evolution towards a different way of addressing the emerging issues that municipalities face. Municipalities find it difficult to specify what they want over the long term as Councils are typically concerned about their term rather than the long term needs of a municipality. Adding to their difficulties is the fact that long term public sector plans are susceptible to changes in policy. For example, many municipalities in Ontario are investing in waste water management programs and facilities for treating household waste; however, a change in government policy with respect to something like biodegradable packaging has the potential to change the overall demand for individual types of treatment facilities overnight 7. 6 Enhancing Strategic Influence in the Treasurer s Office, MFOA. 2009, P.19. 7 http://www.oracle.com/us/products/middleware/bus-int/064067.pdf: Retrieved July 19, 2011 By: David A. Stewart 7

Research Paper & Literature Review Municipal asset management plans must be flexible enough to adapt to change in order to achieve desired results. Often the trick for municipalities comes in ensuring that each discrete section of the asset management plan is a tightly integrated piece of the whole, so that changes in one area are simultaneously reflected in all other areas. In other words, when one planning assumption changes, all the rest of the assumptions must take into account the consequences of that change. A business intelligence consultant for Deloitte Consulting was quoted as saying Largescale capital asset planning should not only be viewed as a partnership between the finance function and the business; it should also involve as many stakeholders as possible to validate the underlying assumptions 8. What is the right approach to asset management? Unfortunately, there is not one right answer as this question depends on many factors. The first factor looks at a municipality s current situation. Smaller municipalities are still in the development process as they take aim at consolidating and integrating asset data. The second factor looks at the funding scenario; now vs. the future. Presently, the forecasts tell us that Ontario s current fiscal position will mean alternative solutions must be sought to finance infrastructure needs. The third factor takes into account political considerations. Often individual municipal Councils are considered to be the deciding factor in terms of their visions and objectives as it pertains to the construction and implementation of asset management and financial plans. Research has classified asset management plans into two types; a basic asset management plan and an advanced asset management plan. A basic asset management plan is a plan that is undertaken to meet organizational requirements for planning and reporting. It provides basic outputs such as; forward replacement programs and associated cash flow projections. The first version of a basic asset management plan may be brief and simple, addressing each component of the plan only to the extent possible, given the data, systems and processes immediately available to the municipality. For those municipalities that are unsure whether or not to initiate the process, research has proven that there is merit in quickly developing a basic asset management plan. Although the level of confidence in the outputs (valuations, quantification, long term budgets) may be restricted, an immediate focus for cost effectiveness and asset management will be created. Once the initial basic asset management plan has evolved and proper organizational and commitment established, the sophistication of the plan should improve incrementally to an optimum level, appropriate enough to meet the needs of a particular municipality. An advanced asset management plan employs asset deterioration (predictive) modeling, risk management and optimized decision making techniques in order to evaluate options and identify the optimum long term asset management and financial projections to deliver a particular level of service. 8 http://www.oracle.com/us/products/middleware/bus-int/064067.pdf: Retrieved July 19, 2011 By: David A. Stewart 8

Research Paper & Literature Review OBJECTIVES OF ASSET MANAGEMENT Main objectives of municipal asset management plans include, but are not limited to the following: to provide better long term planning of capital investment; to provide a fair, open and transparent management of capital assets; to encourage fiscal responsibility which is supported by appropriate due diligence; and to ensure risks are managed effectively and economically with public interest being protected CHALLENGES OF ASSET MANAGEMENT Smaller municipalities in Ontario are beginning to identify that a high proportion of assets are reaching a stage where they will need to be reviewed, replaced or rehabilitated. Municipal decision makers are finding it challenging to move forward with the planning and implementation of asset management plans. Based on discussions conducted with practitioners in the sector, the following list of challenges was identified: 1. Non-specialized municipal staff on the topic of asset management 2. Minimal resources and guidance available on the topic 3. Inability to identify and collect key internal data required to develop and implement asset management plans (poor document management systems in smaller municipalities is questioning the integrity of data) 4. Inadequate financial software systems in place to support integration of asset information 5. Councils that are uninformed with respect to the planning process and implementation timelines 6. A lack of political will directly related to Councils being uniformed on the topic 7. The short term political cycle 8. Disconnects between departments 9. Managing amalgamation, revenue shortfalls, budget demands, public expectations and limited growth 10. The need for increased capital spending More specific challenges for smaller municipalities have been identified through secondary research, they consist of: 11. Manual Controls and Spreadsheets Asset management is a complicated process involving cross-disciplinary terms and a high degree of risk and uncertainty. Current asset planning and forecasting practices in smaller municipalities rely heavily on manual controls and spreadsheets. However, spreadsheets can present a serious risk of human error. Unnoticed flaws in logic and inadvertently over written formulae are just two of many conditions that can give rise to serious adverse By: David A. Stewart 9

Research Paper & Literature Review consequences. An even more important limitation of spreadsheets specifically is their limited support for asset planning and approval cycles. With different aspects of asset planning carried out in functional silos (so that, for example, technical and engineering costs and assumptions are performed separately from the financial plan and projected balance sheet), changes in one area are not automatically reflected in the other. The result is a lack of visibility and collaboration that jeopardizes the integrity of the plans and introduces unwelcome delays into the planning process. Implementing proper technologies and programs to assist smaller municipalities with the asset management planning process can be a way to avoid errors or communication errors associated with manual controls and spreadsheets. 12. Maintaining Integrity of Data Maintaining integrity in the data contained within an asset management plan can be a challenge. For example, the useful remaining service life of current capital assets is an engineering empirical and statistical estimation. 13. Change Management Change management is also a common challenge faced by smaller municipalities. This refers to getting municipal staff on board and demonstrating the benefits of an asset management plan. Newly developed processes threaten the way that municipal employees traditionally managed their business and assets 9, which is creating a stronger resistance to change. Organizations today are faced with the challenge of capitalizing on a multi-generational workforce in order to create high-performing, results driven teams. However, with four distinct generations in the workplace Traditionalists, Baby Boomers, Gen X and Gen Y there are four different approaches to work, which impact business performance. Each generation possesses unique attitudes, values, characteristics and skills based on their experiences of life-defining events 10. Understanding and managing the generational divide is important to maintaining project creativity, innovation and teamwork on projects such as municipal asset management plans. The decision whether to use internal or external resources will depend on the skills of internal staff and the internal resources available. The full value of asset management planning is usually realized if asset management plans are prepared in-house. This is especially the case where the objective is to produce a basic, first version plan on current knowledge of assets and customer service requirements. In-house preparation of plans will result in a high level of staff buy in to the plans and associated processes are much more likely to be integrated successfully into the day-to-day management of assets 11. 9 http://www.fin.gov.bc.ca/tbs/camf.htm: Retrieved July 26, 2011 10 The Road to Performance Success: Understanding and Managing the Generational Divide, n-gen People Performance Inc. 2003, P.3. 11 International Infrastructure Manual, Australia/New Zealand Edition, 2002, P.2.22. By: David A. Stewart 10

An Asset Management & Financial Planning Framework for Smaller Municipalities AN ASSET MANAGEMENT & FINANCIAL PLANNING FRAMEWORK FOR SMALLER MUNICIPALITIES For an Overview of the Framework Refer to Appendix A - Page 87 The framework is designed to help municipal decision makers develop meaningful asset management and financial plans to meet real business needs. Included amongst the four planning pillars of the framework is a tool kit of approaches that can be used to undertake asset management and financial planning activities. It was developed through extensive research and through collaboration and consultation with practitioners in the municipal sector. Much of the framework is focused on targeting smaller municipalities with a population of 25,000 or less. During the research process, many municipal decision makers in smaller municipalities discussed the need for information on how to plan, manage and implement an asset management plan. More importantly, there seems to be a demand for information on how municipalities can identify their infrastructure investment gap and devise a plan of action to manage and address their infrastructure needs. Much of the existing information is not targeted to smaller municipalities who typically have smaller budgets, limited resources and limited capacity. This framework describes in detail the components of how to plan, manage and implement successful, manageable and flexible asset management plans in smaller municipalities. The framework is premised on multi-objective decision making. That is, a number of objectives come into play when deciding upon which alternatives are the best in the short term and/or long term for the municipality. The objectives taken into consideration include; maximizing performance, minimizing life cycle costs and minimizing risk. The framework takes into consideration the unique factor. This factor recognizes that each municipality is unique and will proceed at different speeds and with various levels of complexity and detail depending upon its population and population projections, land area, density, geographic location, service portfolio, age of infrastructure, demographics and socio-economic profile. Therefore, it can be concluded that municipalities are neither created equally nor have they evolved uniformly, which is why there is no common road map or template for municipalities to follow when it comes to asset management and financial planning. Based on sector research, there are rarely municipalities that align in all of the above noted factors 12. Research conducted on municipalities show that the main focus of an asset management plan is to: 12 Association of Municipal Clerks and Treasurers of Ontario. Sustainable Financial Planning Presentation. BMA Management Consulting May, 2012 By: David A. Stewart 11

An Asset Management & Financial Planning Framework for Smaller Municipalities (i) (ii) (iii) (iv) Address critical infrastructure requirements; Identify asset management priorities; Summarize current and planned infrastructure investments; and Build a strategy to move the municipality towards a sustainable level of infrastructure investment Instead of doing business as usual, municipalities are encouraged to explore a full range of options for meeting service delivery needs. Municipalities must always consider the following 13 : is there another way to meet our service delivery needs that could avoid new capital spending? is there a way to better manage or use existing assets that could reduce the need for additional expenditures? and is there a way to share the cost and risk of capital acquisition with, for example, a private sector partner or another public sector agency? Implementing the Framework The goal is for smaller municipalities to work through the four planning pillars of the framework. The amount of time it takes to work through the framework will be unique for every municipality. Some municipalities may argue that they require additional process components to satisfy their own internal and external requirements. The relationship between the process components within each process pillar can be sequential, or not. The implementation schedule really depends on the size of the municipality and how many staff resources are involved. The implementation of this framework can vary with respect to the extent of data available and collected, quality of the data and its degree of accuracy. For example, some process components and even an entire process can be completed by the same individual in some select municipalities, while other municipalities may have the components and process being implemented by teams and individuals. PILLAR #1 Record & Report on Tangible Capital Assets 1.1 - Public Sector Accounting Board 3150 The Public Sector Accounting Board (PSAB) comprises senior government executives and experts in government financial reporting. PSAB serves the public interest by setting standards and providing guidance for financial and other performance information reported by the public sector. 13 http://www.fin.gov.bc.ca/tbs/camf.htm: Retrieved July 26, 2011 By: David A. Stewart 12

An Asset Management & Financial Planning Framework for Smaller Municipalities In 2002, a Canadian Institute of Chartered Accountants (CICA) research report titled Accounting for Infrastructure in the Public Sector concluded that a major factor in determining a local government s financial ability to maintain its existing service levels is access to financial information about the stock and use of its capital assets. However, the majority of municipalities did not have available financial information about the complete stock, use and condition of their tangible capital assets. In 2006, that situation changed by PSAB approving section 3150, which required all municipalities across Canada to report tangible capital assets on their statement of financial position effective January 1, 2009. Tangible capital assets, by definition are non-financial assets having physical substance that 14 : are held for use in the production or supply of goods and services, for rental to others, for administrative purposes or for the development, construction, maintenance or repair of other capital assets; have useful economic lives extending beyond an accounting period; are to be used on a continuing basis; and are not for sale in the ordinary course of operations The accounting for all tangible capital assets, including infrastructure and general assets facilitates better management of assets, development of appropriate maintenance and replacement policies, identification and disposal of surplus assets, and better management of risk 15. Decision makers are able to better understand the impact of using capital assets when the assets themselves have been identified and amortized. Prior to the advent of the Public Sector Accounting Board s requirements for municipalities to value and record their tangible capital assets, these assets simply passed through the budgets and financial records in the same manner as common expense items. The practices used and disciplines applied to managing assets were widely varied, from nonexistent to highly detailed and complex. The requirement to account for tangible capital assets is moving municipalities into a new landscape of managing, documenting and reporting upon their capital assets. Municipalities have completed this task, which means they have a new source of information pertaining to their infrastructure that can be utilized for future planning. 1.2 - Asset Inventory - Itemize and Record Tangible Capital Assets An asset inventory is a complete and accurate list of the assets a municipality owns that should be regularly updated and validated. This component physically enumerates the items in the asset class inventories according to the protocols identified in the corporation s asset management process and/or methodology. The process protocols selected will depend on the size of the municipality and the types of assets in the portfolio. Once collected, the data should be further reviewed and categorized. Many municipalities may 14 http://www.ombi.ca/docs/db2file.asp?fileid=183: Retrieved July 28, 2011 15 http://www.mah.gov.on.ca/page6677.aspx: Retrieved July 21, 2011 By: David A. Stewart 13

An Asset Management & Financial Planning Framework for Smaller Municipalities want to further classify assets and make them conform to the corporate structure of the organization. Recommendation(s): Create an Asset Inventory Database An asset inventory is not a temporary requirement of PSAB; rather it is an ongoing discipline of maintaining the data and using it to produce forecasts. This is considered to be the foundation of asset management for municipalities. Municipal decision makers have referred to their asset inventory as an information vault that can be used to extract and massage to meet corporate initiatives. By implementing an asset inventory, municipalities will have access to a comprehensive inventory of their general and infrastructure assets, including asset name, asset class, the department to which the asset belongs, a description of the asset, assets in service year, asset acquisition/historic cost as well as the assets estimated useful life. This type of information is critical to developing and sustaining a basic plan for asset management. Utilize Technology Advancements to Integrate Data Technology advancements are important to the future and evolution of manageable and sustainable municipal asset management plans. After conducting several hours of primary research with industry professionals, it was easy to conclude that technology and its advancements will form the future backbone of asset management in municipalities. The future of asset management lies within an independent municipality s willingness and ability to integrate and consolidate asset information. For example, CityWide Tangible Assets is an industry leading tangible capital asset compliance and asset management module. This application provides municipalities with a complete asset registry for all asset types. Key asset management features include: asset-level amortization with roll-up, replacement cost and lifecycle planning, condition assessment and age based condition calculator, geographic information system integration, and customizable reports 16. Microsoft Excel is another common cost effective solution for smaller municipalities to consolidate and manage asset information. Municipalities who have utilized technology advancements to further develop their asset management plans have shown exceptional signs of planning progress. Utilizing technology advancements to ingrate data allows for flexibility and adaptability and ensures that each discrete section of the capital asset plan is a tightly integrated piece of the whole. If changes are made in one area they are in turn reflected in all other areas. 16 http://www.citywidesolutions.com/ta.php: Retrieved December 14, 2011 By: David A. Stewart 14

An Asset Management & Financial Planning Framework for Smaller Municipalities Product Sharing As a result of municipalities continuing to manage revenue shortfalls and budget demands, alternative ingenious solutions are being sought out to manage budgets. For example, lower tier municipalities that are unable to afford goods or services are utilizing the upper tier municipalities resources at a nominal fee. This is a common practice used within the sector. Therefore, lower tier municipalities may be able to benefit from upper tier programs and services to assist with asset management practices. 1.3 - Utilize Tangible Capital Asset Information to Add Value Tangible capital asset accounting is an important building block for the development of an asset management plan and long term financial plan. It allows a municipality to better understand: what assets they have what the assets are worth (at a historical cost level) what is their estimated useful life approximately when assets will need to be replaced Three indicators have emerged for smaller municipalities since the implementation of tangible capital asset accounting to help understand: 1. Whether a municipality setting aside sufficient funds annually for the replacement of assets? Operating Surplus/Deficit Ratio 2. The age of the assets Asset Consumption Ratio 3. Whether a municipality has been setting aside sufficient funds in the past to support the timely replacement of assets Capital Reserves as a Percentage of Accumulated Amortization The operating surplus ratio is the operating surplus (deficit) expressed as a percentage of own source revenues. An operating surplus (deficit) arises when operating revenue exceeds (is less than) operating expenses including (historical) amortization. When an operating surplus is achieved, the amount is available for capital expenditure over and above historical amortization expenses. The asset consumption ratio shows the written down value of a municipality s depreciable assets relative to the historic cost (Asset Consumption Ratio = Accumulated Amortization/Historical Cost of Assets). This ratio seeks to highlight the aged condition of a municipality s stock in fixed assets. As the ratio increases over time, there is particular need to ensure that strategies are in place to address future replacement of existing assets and infrastructure. The capital reserves as a percentage of accumulated amortization ratio compares the reserve balances available as a percentage of accumulative amortization. This provides the relative position of the reserves against the amount of the asset that has been depreciated By: David A. Stewart 15

An Asset Management & Financial Planning Framework for Smaller Municipalities (historic costing). It is important to note that accumulated amortization is based on historical costing, therefore municipalities will require more than the historical depreciated amount in reserves to replace the assets as they become due 17. If tangible capital asset accounting is simply viewed as an accounting exercise, a huge opportunity is lost, which attempts to improve transparency, openness and accountability of municipal operations. PILLAR #2 Preliminary Plan For a municipal decision maker, identifying usable best practices that align with the existing corporate culture can be problematic. The following best practice processes are recommended based on research and through discussions with municipal decision makers: 2.1 - Establish Sound Corporate Management Structure It is important for any municipality to operate under a sound corporate management structure, that is having a strong focus on strategic planning, utilizing any and all resources to deliver value and capitalizing on core competencies to maintain competitive advantage. A corporate management structure that provides sounds strategic leadership involves all key stakeholders, provides a culture of change and facilitates cooperation amongst management is what municipalities must possess in order to be a catalyst of change in the topics of asset management and financial planning. 2.2 - Support Capacity Building Capacity building is a conceptual approach to development that focuses on understanding the obstacles that inhibit municipalities from realizing their developmental goals while enhancing the abilities that will allow them to achieve measurable and sustainable results. In terms of asset management and financial planning, municipalities should establish a corporate approach for supporting larger and more complex capital expenditures based on available project management tools. A municipality must be committed to realizing their development goals as they relate to asset management and seek assistance from other municipalities that have faced similar challenges. This will help achieve capacity building success. 2.3 - Asset Management Plan Integrated into Corporate Plan Corporate planning is a systematic approach to clarifying corporate objectives, strategic decision making and checking progress towards objectives, taking into consideration the 17 Association of Municipal Clerks and Treasurers of Ontario. Sustainable Financial Planning Presentation. BMA Management Consulting May, 2012 By: David A. Stewart 16

An Asset Management & Financial Planning Framework for Smaller Municipalities resources of the organization and the environment within which it operates. A corporate plan is a set of instructions to managers of an organization describing what role each department is expected to fulfill in the enhancement of organizations objectives 18. A key challenge facing those initiating asset management plans is establishing their linkage to the municipality s overall strategic direction. Obtaining Council and staff commitment is critical because a task such as this is unlikely to succeed unless there is organizational commitment. Organizational commitment can be achieved by: raising the awareness of elected officials and the senior management team on the benefits of asset management and the associated financial implications imparting an ownership of the process by involving key players such as the Mayor, Members of Council, senior management and staff clearly and consistently communicating asset management objectives to staff complimented with concrete examples where short term results can be achieved Integrating asset management plans into municipal corporate plans is imperative to its success in smaller municipalities. In order to achieve this integration, municipal decision makers may find it necessary to educate Councils on this topic. This will help achieve political support, generate an advanced awareness and establish a long term commitment. It is important to note that this organizational commitment should be initiated at the beginning of a Council term, if possible. 2.4 - Financial Condition Assessment The financial condition assessment is a powerful component of the framework that helps municipalities understand their financial health. It also delivers the appropriate messaging to municipal Councils so they can better understand where the municipality has been and where it is going. The Canadian Institute of Chartered Accountants 2007 research report defines the financial condition of a government as its financial health, looked at in the context of the overall economic and financial environment, as measured by 19 : sustainability the degree to which a municipality can maintain its existing financial obligations without increasing the debt or tax burden flexibility the degree to which a municipality can change its debt or tax burden to meet its existing financial obligations vulnerability the degree to which a municipality is dependent on sources of funding outside its control or influence or is exposed to risks that could impair its ability to meet its existing financial obligations and financial commitments 18 http://www.qfinance.com/dictionary/corporate-planning: Retrieved January 24, 2012 19 Public Sector Accounting Board. Indicators of Government Financial Condition. December 2007 By: David A. Stewart 17

An Asset Management & Financial Planning Framework for Smaller Municipalities A financial condition assessment assesses the municipality s financial environment, helps identify the key financial challenges based on historical trends, identifies hidden or emerging problems and presents an overall objective picture of strengths and weaknesses of the municipality. Municipalities might consider hiring consultants to collect, compile and present this information. The Government Finance Officers Association (GFOA) recommends that at a minimum, 3-5 years of data be used for effective trend analysis and that comparisons to other comparable municipalities is useful for this type of financial analysis. The GFOA emphasizes that items that distort trends such as one time items should also be noted. The types of analysis commonly used in the sector while conducting a financial condition assessment include 20 : horizontal/trend analysis vertical analysis ratio analysis comparative analysis The horizontal/trend analysis focuses on changes from year to year. For example, declining capital program spending for a municipality may have had an impact on the roads resurfacing program. The vertical analysis focuses on various items listed up and down the page of a financial statement or a budget for a given year. This analysis helps answer the question, what portion does each item contribute to the whole. For example, what percentage of the total budget does department A comprise over a 5 year period. The ratio analysis focuses on analyzing recognized benchmarks and indices in order to better assess the municipality s financial independence and financial management. For example, a municipality could choose to use a debt to reserve ratio to better illustrate a spending story. The comparative analysis focuses on comparing key performance indicators in the municipality against other neighbouring or similar municipalities to gain perspective on relative financial health. For example, a municipality could choose to compare capital program spending as a percentage of overall budget spending on an annual basis. Packaging and communicating this information effectively is important for a municipality, whether it be for information purposes, strategic direction purposes or policy development purposes. 20 BMA Management Consulting. Sustainable Financial Planning Presentation. May 2012 By: David A. Stewart 18

An Asset Management & Financial Planning Framework for Smaller Municipalities PILLAR #3 Construct the Plan 3.1 - Identify and Implement Asset Management Process Protocols The first step is to review current municipal asset management practices, processes and methodology and to select which process protocols are appropriate and which process protocols need to be changed. Internal protocols can significantly impact the success of the implementation of municipal asset management plans. The protocols that are identified and implemented by municipalities generally fall into two classes: system protocols or facet protocols 21. System protocols include those related to: those already in existence within the organization A municipality might have an existing policy on capital reserves that may need to be reviewed and appropriate amendments made based on initiating the asset management process. Possible examples include: 1. Capital reserves will be used to fund the replacement/rehabilitation of existing assets 2. Any new assets financed from the capital reserves should be repaid, including interest to ensure that sufficient funds are available for the replacement and rehabilitation of all assets 3. As new assets are acquired, an annual contribution will be made to the capital reserve based on the annual amortization 4. All reserves for asset replacement will be funded through calculated annual contributions from the operating budget based on capital replacement costs. Based on affordability considerations, a phase-in strategy may be required Facet protocols include those related to: inventory select protocols and/or methodology for distinguishing the various asset classes and asset attributes; then select an appropriate inventory system (i.e. Microsoft Excel, Access or an Asset Management Software Program) assets useful service life select protocols for determining the useful life of asset classes life cycle costing select protocols for calculating amortization of assets criticality select protocols for determining criticality of assets; for example, is the criticality based on structural strength or health and safety issues For example, a municipality might choose to review their tangible capital asset policy to ensure assets are managed in a desired manner. In certain cases, an assets estimated 21 http://www.nrc-cnrc.gc.ca/obj/irc/doc/pubs/b5123.7/b5123.7.pdf: Retrieved November 28, 2011 By: David A. Stewart 19

An Asset Management & Financial Planning Framework for Smaller Municipalities useful service life is an empirical and statistical estimation and may need to be reconsidered time and again. Recommendation(s): K.I.S. (Keep It Simple) It is important for smaller municipalities to start small, learn as they go and add complexity and breadth to the plan as required or desired. Keeping the plan simple can reduce challenges and problems and allows for a greater opportunity for collaboration and idea generation amongst individuals involved. The goal for municipalities is to achieve the quick wins that drive motivation. It is important to make the quick wins meaningful to the overall process in order to maintain the willingness to take action. Hire Additional Staff and/or Consultants to work with Staff It is recommended that municipalities either hire an additional staff person(s) on a contract basis, if possible, or hire a consultant to work with staff to design, develop, implement and manage both a long term asset management and financial plan. Working Groups Whether it be initiating or participating in a working group on asset management or financial planning, it is important to hear about what types of work other municipalities are doing in relation to sector initiatives. Different municipalities will typically do different things well, so it s important to facilitate the sharing of ideas and collaboration amongst industry professionals. Most often this type of environment allows professionals to share experiences about what to do and what not to do and provide a rationale for each. Working groups can prove to be invaluable as municipalities are able to access the knowledge and experience of others. Working groups can connect municipalities from all geographic areas. 3.2 - Answer Critical Infrastructure Questions It is important for municipalities to gain proper insights into their infrastructure. The National Guide to Sustainable Infrastructure has identified critical infrastructure questions that municipalities should consider answering. (1) What do you have and where is it? (2) What is it worth? (3) What is the condition? (4) What is the remaining service life? (5) What do we need to do to it? (6) When do we need to do it? (7) How much money do we need and what is an acceptable level of risk? (8) How do we reach sustainable funding? (9) Does it fit into the corporate strategy/plan? By: David A. Stewart 20

An Asset Management & Financial Planning Framework for Smaller Municipalities Recommendation(s): Create an Asset Management Coordinating Committee The goal of this committee is to help municipalities answer the corporation s critical infrastructure questions. It will also help facilitate collaboration amongst capital programming staff from across the spectrums of disciplines within municipalities. More specifically, it provides a forum to interact with all other departments, divisions and sections within the organization, whether they are directly or indirectly involved with infrastructure decision making. Furthermore, the formulation of such a committee allows for written reports to be created that consider current management strategies in relation to infrastructure condition improvement and the issues and challenges that would be faced on the path to sustainability. Below is a sample asset management coordinating committee structure. This structure will be different depending on the municipality s size and structure. 3.3 - Time of Need Schedule(s) A time of need schedule indicates when assets are due to be replaced based on their estimated useful service life. Time of need schedules can be created once the corporation s assets have been itemized and recorded into a database. The intent of the schedule is to produce a yearly inventory of corporate assets that are due to be treated based on its estimated service life. By: David A. Stewart 21

An Asset Management & Financial Planning Framework for Smaller Municipalities The schedule in most cases is either broken out by the corporation as a whole or is segmented by individual departments. The time of need schedule can include information such as: (i) (ii) (iii) (iv) (v) (vi) (vii) (viii) (ix) asset name, asset class, asset description department to which the asset belongs in service year, acquisition/historic cost estimated useful life remaining useful life replacement year asset condition assessment, date of rating treatment cost priority optimization ranking The time of need schedule will produce valuable information that will enable municipal decision makers to: review detailed corporate and/or individual department tangible capital asset inventory; filter through yearly asset replacement schedules that will help link to capital program spending; easily report on corporate capital assets; forecast short term and long term capital needs; and begin to bridge the gap between an asset management plan and the municipal capital program budget 3.4 - Estimate Treatment Costs of Tangible Capital Assets A treatment cost is the cost associated with adequately treating a capital asset, whether it be replacement of the asset or rehabilitation of the asset. From a public sector perspective, many municipal decision makers have indicated that using historical cost is meaningless, particularly given the long-lived nature of infrastructure assets. There are three arguments against using historic cost: First, conventional historical cost accounting does not produce meaningful performance measurements in times of changing prices and money values. Second, because infrastructure needs to be replaced on an ongoing basis, the cost of using infrastructure should reflect its current cost, rather than an allocation based on historic cost. Historic cost may not provide the most relevant information for decision makers. Third, is that engineers would argue that what is meaningful is replacement cost as this is what should be budgeted to replace assets. Municipalities will need to estimate the applicable replacement costs of assets appearing in their database(s). This can be completed by using the following approaches. By: David A. Stewart 22

An Asset Management & Financial Planning Framework for Smaller Municipalities Approach 1: Utilize an accumulated Consumer Price Index (CPI) calculation to obtain an estimated today cost of each asset. The CPI is an indicator of changes in consumer prices experienced by Canadians. It is obtained by comparing, over time, the cost of a fixed basket of goods and services purchased by consumers. Since the basket contains goods and services of unchanging or equivalent quantity and quality, the index reflects only pure price change 22. In this calculation municipal decision makers would estimate the replacement cost the year is it due to be replaced based on its estimated useful life. An example of a sample calculation is shown below. In Service Year Useful Life Historic Cost Replacement Year Accumulated Inflation (Assume 2%/Yr) Replacement Cost (Est.) 2002 10 $200,000 2012 20% $240,000 *Consumer Price Index Obtained Through Statistics Canada Approach 2: Utilize the Non-residential Building Construction Price Index (NRBCPI) to obtain an estimated today cost of each asset. The NRBCPI is a quarterly series measuring the changes in contractors' selling prices of non-residential building construction (i.e. commercial, industrial and institutional). The indexes relate to both general and trade contractors' work and exclude the cost of land, land assembly, design, development and real estate fees. The NRBCPI series are useful in many ways. They aid in the interpretation of current economic conditions and are of particular interest to government agencies undertaking economic analyses and users concerned about the impact of price changes on capital expenditures 23. In this calculation municipal decision makers would estimate the replacement cost the year is it due to be replaced based on its estimated useful life. An example of a sample calculation is shown below. In Service Year Useful Life Historic Cost 2002 10 $200,000 2012 *Construction Price Index Obtained Through Statistics Canada Replacement Year Construction Price Index Calculation *2011 Index/ *2002 Index X Historical Cost Replacement Cost (Est.) $294,000 The drivers of these calculations include; the assets in service year, its estimated useful life and historical cost. Based on the above sample calculations, most municipal decision makers will choose to utilize the NRBCPI calculation as it is the most accurate calculation and most widely used across the sector for financial forecasting and modeling. 22 http://www23.statcan.gc.ca:81/imdb/p2sv.pl?function=getsurvey&sdds=2301&lang=en&db=imdb&adm=8&dis =2: Retrieved June 6, 2012 23 http://www23.statcan.gc.ca:81/imdb/p2sv.pl?function=getsurvey&sdds=2317&lang=en&db=imdb&adm=8&dis =2: Retrieved June 6,2012 By: David A. Stewart 23

An Asset Management & Financial Planning Framework for Smaller Municipalities The NRBCPI approach will provide a municipality with valuable costs that can be utilized to better understand its infrastructure investment gap, whether it be in the short term or the long term. More specifically, a municipality can use this information to build a cost forecast. The cost forecast can be build using a planning horizon that is suitable and will illustrate the capital investments needed to maintain the service capacity of the assets at today s costs. 3.5 - Asset Assessment Bar - Asset Condition Assessment Refer to Appendix B - Page 88 Central to an asset replacement plan is the ability to evaluate and know the condition and performance characteristics of all inventoried corporate tangible capital assets. This section of the framework focuses on inspection and condition assessment of assets. While inspection may vary from the most cursory consideration to very detailed invasive and costly investigations, the meaning is relatively clear. The same cannot be said for condition. The word generically implies some measure compared to new, perfect, or optimal but the measures of condition vary not only in the level of detail, but also in kind 24. Condition can be defined in terms of financial, safety, operational, functional, deterioration or combinations of metrics. Condition can mean different things to different people and can be a subjective opinion. Condition assessment can only meet the need if the metric used meets the objective of the user. A single condition assessment procedure, no matter how robust, cannot meet all the needs of all users. For simplicity purposes, smaller municipalities should consider adopting a more rounded approach that includes other considerations besides condition as it should lead to better decisions. The more rounded approach would consider: (1) asset condition (2) asset performance (3) risk assessment should the asset not be treated appropriately The benefits to knowing the current condition and performance level of an asset are: ability to plan for and manage the delivery of the required level of service avoidance of premature asset failure, leaving open the option of cost effective treatment risk management associated with asset failures accurate prediction of future capital investment requirements The challenge is developing index ratings that consider and assign respective weights to asset condition, asset performance and the risk assessment should an asset not be treated. 24 http://passthrough.fw-notify.net/download/864742/http://www.cecer.army.mil/techreports/erdc-cerl_sr-08-1/erdc-cerl_sr-08-1.pdf: Retrieved January 24, 2012 By: David A. Stewart 24

An Asset Management & Financial Planning Framework for Smaller Municipalities 3.6 - Establish Corporate Priority Optimization for Treatment of Tangible Capital Assets Priority optimization is a critical method of maximizing public money for the use of infrastructure spending. It is recommended that municipalities use something similar to the asset assessment bar found in Appendix B - Page 88 to asses the condition of their assets. For the purpose of this paper we will continue as though we are using the asset assessment bar as presented in Appendix B - Page 88. Therefore municipal decision makers must look at appropriately treating assets that receive a rating of 4 or less and analyze whether or not a treatment is recommended for assets receiving a rating between 5 and 6. Research studies have proven that appropriately treating assets with fair ratings (between 5 and 6) could better optimize the dollars being invested. For example, consider roads infrastructure. Those roads assessed in fair condition may receive priority over roads that have failed the condition assessment. The reason for this is because if the fair condition roads are not addressed in the short term costs could escalate significantly (300% to 600%) in comparison to the roads that failed the assessment. The costs to treat these roads will typically only increase with the rate of inflation. Optimization techniques involve examining the effects of various treatment strategies on each asset. The traditional approach to priority ranking would list the worst first and this has proven to be an ineffective use of public funds. The priority optimization rankings coupled with the proper treatment cost estimates help bridge the gap between the asset management plan and the capital budget. Having this valuable information leads to more prudent financial decisions. 3.7 - Prepare Financial Forecasts The objective of preparing financial forecasts is to outline the municipality s future financial requirements and map a course of direction based on all information collected during the process relating to asset condition, adequate treatment costs, priority optimization and financial condition assessment. Financial forecasts are one of the key outputs of an asset management plan, and should be forecasting for a significant period (10 years minimum, recommended 20 years +) in order to account for all possible events and independent asset classes service life expectancies. This provides a good balance between the accuracy of short cycles with the longer term impacts of future capital program spending. Financial planning ensures that there are adequate funds available for replacement and maintenance of assets. It is equally important that these forecasts be reviewed and updated regularly. When generating the financial forecast, it is important to develop an audit trail so that key assumptions made in the preparation of forecasts are noted. It is useful to comment on the By: David A. Stewart 25

An Asset Management & Financial Planning Framework for Smaller Municipalities reliability of the data used as a basis for the forecasting models. If the asset inventory is incomplete or lacks critical information about the age or condition of assets, a lower grade of confidence will be assigned than if accurate, quality data and information are available. A similar grading may be made on the confidence of the assumptions made. A sample confidence grade schedule is below. Confidence Grade A B C D General Meaning Highly Reliable Asset information documented properly with best method of assessment Reliable Asset information documented properly but some minor shortcomings. For example, the data is old Uncertain Asset information is based on sound data, however analysis is incomplete Highly Uncertain Asset information is unconfirmed (verbal reports only) Once the financial forecasts are completed, municipal decision makers will have reliable models that can be utilized to properly plan for long term capital investment. Linking the asset management plan to the financial plan seeks to allow Councils and staff to make more evidence based decisions. Recommendation(s): Develop an Infrastructure Report Card Refer to Appendix C - Page 89 This report card serves as an easy to understand document and communication tool that will assist the public in understanding infrastructure issues, including condition and performance, need versus capacity and funding versus need. A typical infrastructure report card will concisely review and report on all general and infrastructure asset categories as well as all business area assets; including newly acquired assets. This report card helps educate ratepayers and enables staff to better understand where the emphasis and planning needs to be directed to into the future. For example, if the building category receives a high grade, while computer hardware and software receives a low grade, municipal decision makers can review the why s of each separate category rating and plan for the future based on such ratings. Reporting on recommendations based on increased and decreased grades can be of great value. This really helps decision makers establish a common direction for future planning and is an important component to achieving sustainability. The report card can be produced at the discretion of Council and staff. Scenario 1: It can be scored through an outside consulting firm. By: David A. Stewart 26

An Asset Management & Financial Planning Framework for Smaller Municipalities Scenario 2: It can be scored by Members of Council and provide municipal staff with a better understanding of the direction the Council wishes to proceed in with respect to asset planning. PILLAR #4 Execute & Monitor the Plan 4.1 - Asset Management Plan linked to Capital Budget (Investment Strategies) Understanding and making the right decisions about infrastructure investment is challenging and for smaller municipalities involves balancing two questions. (1) What quantity and quality of infrastructure can the municipality afford and maintain? As affordability depends mainly on the current and future revenue base of the community; and (2) What quantity and quality of infrastructure is needed? As need is driven by regulation and public expectations, as well as current and future population and consumption patterns. Smaller municipalities are presently facing an affordability problem as there is an increased demand on capital spending to pay for infrastructure needs. Smaller municipalities with limited growth cannot rely on development charges to pay for infrastructure needs. Presently, there is limited ratepayer affordability in smaller communities as ratepayers become sensitive to property tax increases. As the financial uncertainty in Ontario increases, municipalities are in a position where they will need to potentially increase their borrowing patterns to replace or rehabilitate infrastructure in a timely manner. In most cases this will mean smaller municipalities will need to increase their debt loads to finance capital expenditures. Municipalities will need to be conscious of their debt capacity limits should this be the case. Plans that are not financed or cannot be financed are not viable plans for municipality s to consider. Historically, asset management plans have been the responsibility of engineers and the public works department, while the financing of asset management plans have been the responsibility of Council. On many occasions, municipal decision makers have questioned who should pay for the cost of building municipal infrastructure. This touches on the important issue of intergenerational equity. Given that infrastructure has the potential to last for generations, today s users and ratepayers argue that they should only pay their share and not the entire amount. To achieve this, municipalities must borrow money upfront indirectly accumulating a debt load that would be paid off gradually over the life of the assets. Achievable investment models are critical to success. Proper projections enable Council and staff to make more prudent infrastructure decisions. The following strategies have been derived based on the premise that municipal decision makers in smaller municipalities have articulated the challenges of funding capital to address infrastructure needs on an annual By: David A. Stewart 27

An Asset Management & Financial Planning Framework for Smaller Municipalities basis. The strategies listed below are recommendations based on discussions with practitioners in the sector: 1. Debenture Rollover Strategy 2. Independent Capital Reserve Account Strategy 3. Bucket Allocation Strategy 4. Capital Reserves or Cash to Capital Strategy 5. Cash in Lieu of Future Road Needs 6. Capital-Debt Strategy 7. Debt Strategy 8. Other Tactics *Note* It is the responsibility of individual municipality s to determine what strategy may or may not be affordable and achievable. 1. Debenture Rollover Strategy A debenture is a type of debt instrument that is available to municipalities. It is used to secure capital and is supported by the general credit worthiness and reputation of the issuer. Many municipalities use debentures to finance large capital projects for general and infrastructure assets. This strategy looks at funding capital though continuing a committed debenture payment upon completion. This strategy rolls funds over that were previously committed to debenture funding straight to support capital program spending, which mitigates the risk of increasing property taxes to fund capital. Please refer to the schedule below as an example of a debenture rollover into capital program spending. 2010 2011 2012 Rollover 2013 2014 Debenture $500,000 $500,000 $500,000 N/A N/A Capital Program Addition $0 $0 $0 $500,000 $500,000 This strategy would require the appropriate approvals from Council to allocate the debenture payments amounts to capital program funding for the proceeding year. In the example above, the rollover year is 2013. If this strategy were to be approved, it would be business as usual in 2013 with a capital program addition in the amount of $500,000. Municipal decision makers must ensure the proper mechanisms are in place annually to achieve the debenture amount into the future as directed by Council. 2. Independent Capital Reserve Account Strategy This proactive strategy looks at creating independent capital reserve accounts to manage future capital needs for a municipality. Public works vehicles, for example typically do not have a long useful life, which means vehicles for the departments fleet are being purchased regularly. This can place significant pressure on a municipality s capital program, for By: David A. Stewart 28

An Asset Management & Financial Planning Framework for Smaller Municipalities example, when multiple vehicles are due to be replaced in a single year, and the purchases are not adequately planned. This strategy helps mitigate those types of risks by allocating capital to such specific reserve accounts on an annual basis. In this circumstance a fleet or vehicle replacement reserve account would actively be receiving funds in order to smooth the impact to the tax rate and maintain existing service levels. This strategy can be utilized for many assets. However, proper forecasting methods are encouraged to ensure proper amounts are contained within the specific capital reserve accounts. Capital reserve accounts vary depending on the municipality and the services it is responsible for providing. 3. Bucket Allocation Strategy This strategy works closely with the municipality s asset management plan in terms of yearly capital requirements by department. The yearly cost by department would represent the assets that appear above the priority threshold meaning that they need to be properly treated to maintain existing service levels and mitigate any risks. An example of a possible financial forecast for a smaller municipality for a period of one year is below. Department Estimated Treatment Cost (%) of Total Fire and Emergency Services $2,000,000 20% Public Works and Parks $4,000,000 40% Community Services $3,000,000 30% Corporate Services $1,000,000 10% Total $10,000,000 100% In an ideal world, all of these identified assets would be properly treated. Unfortunately, this is not the case for smaller municipalities. This strategy now takes the allocated capital budget for the corporation and allocates the money based on the percentage of the total asset estimated treatment cost by department. If the capital for the year in our example was $5 million, the departments would receive the following amounts. Department Capital Allocated Fire and Emergency Services $1,000,000 Public Works and parks $2,000,000 Community Services $1,500,000 Corporate Services $500,000 Total $5,000,000 By: David A. Stewart 29

An Asset Management & Financial Planning Framework for Smaller Municipalities Once the capital has been allocated by using the bucket allocation strategy, the individual departments would use their capital to optimize treatments of assets. 4. Capital Reserves or Cash to Capital Strategy In an effort to smooth out the impacts of variable tax rate funding of capital on a year by year basis, select municipalities have strategically adopted a program of allocating a certain amount each year from the operating fund into a capital reserve account. The annual contribution may be set as a percentage of something such as expected tax levy, or it may be a fixed amount. Fixed amounts should also be indexed to maintain its effectiveness over time. Adopting such a strategy smoothes out the fluctuating impacts that capital funding can have on property tax rates. For example, if a municipality s operating budget for a year equals $14 million, the municipality may choose to allocate 5% of the $14 million to fund capital reserves. The amount to be allocated to capital reserves would total $700,000. 5. Cash in Lieu of Future Road Needs This strategy considers charging a fee to developers that purchase land that an existing or future road network attaches to. The fee ideally would be charged on a per meter basis and accounts for the roads future needs; however this would be at the discretion of the municipality. The fee would be a component of the developer s project costs associated with developing in the municipality and would be in addition to any calculated development charges. The construction of the fee formula would require meticulous consideration from the municipality s engineering department; taking into specific cost considerations and how they are allocated for road treatments. Several alternatives would need to be classified to ensure an accurate fee is being charged based on the present conditions of the road network where a new development borders and the projected costs to maintain and repair that specific road network into the future. This strategy increases the revenue collected by the municipality and specifically allocates the money to fund future road network maintenance and rehabilitation. It also helps to strengthen the capital program budget allocated to road network projects. For municipality s with a large network of roads infrastructure this can prove to be a valuable proactive revenue tool. 6. Capital-Debt Strategy This strategy funds as asset management model through a combination of capital and debt. Finding the suitable funding levels for asset management plans is an emerging challenge, especially for smaller municipalities that have minimal capacity. A debt payback plan would accompany this strategy. By: David A. Stewart 30

An Asset Management & Financial Planning Framework for Smaller Municipalities 7. Debt Strategy This strategy provides the municipality with the cash necessary to expand and thrive. A debt outline helps a municipality review all factors affecting the creditworthiness, from how much it owes and how it intends to repay outstanding loans to how much it will need to borrow in the future. Finding the appropriate solutions to these types of questions allows the government to progress towards financial sustainability. It is important to note that select municipal Councils take the position of anti-debt, which means this strategy would not apply. This is common for smaller municipalities with limited growth projections. 8. Other Tactics 8.1 The sale of underutilized assets The sale of underutilized assets is an option available to municipalities when as asset is not being used within the municipalities service delivery models. In most cases these underutilized assets generate a financial burden to the ratepayer while delivering minimal value. For example, municipal owned halls can in some cases be classified as an underutilized asset. 8.2 Public-private partnership model (P3) The public-private partnership model is a cooperative venture between the public and private sectors, built on the expertise of each partner, that best meets clearly defined public needs through the appropriate allocation of resources, risks and rewards 25. P3 s are one tool in the public sectors toolbox for delivering and managing major infrastructure projects. Benefits of the P3 model include 26 : enables the public sector to spread the cost of infrastructure over the lifetime of the asset well designed P3 s help maintain infrastructure by transferring maintenance requirements for a facility to the private partner enables enhancements to community infrastructure without placing a financial burden to the ratepayers P3 s result in contracts that set out fixed payments over the life of the contract that makes it easier for governments to budget their financial plans. These payments factor in lifecycle and maintenance requirements, thereby ensuring appropriate and cost saving investments in the project over the life of the P3 contract Criticisms of the P3 model include: creates a higher cost of capital (risks need to be reflected in public sector costs to ensure full and fair analysis of value to taxpayers) 25 Canadian Council for Public-Private Partnerships 26 Municipal Finance Officers Association. Public-private Partnerships Presentation. May, 2011 By: David A. Stewart 31

An Asset Management & Financial Planning Framework for Smaller Municipalities investment in upfront planning (the considerable upfront planning requires a significant investment of financial resources. This money is well spent because it ensures a high level of discipline around the project that results in sponsors better understanding their functional needs, articulating the needs to the market and achieving innovative solutions that better meet the needs) higher costs to end consumers paying for failures of private sector (private provider cannot take the asset with them when of if it is unable to continue the terms of the contract) 4.2 - Maintain Council & Staff Commitment In order for the organization to achieve optimal results, it is imperative that support be maintained by Council and staff during the implementation process. If support is not maintained the result may be inefficiencies in the plan. 4.3 - Optimize Investment The ultimate goal of the framework is to optimize investment for smaller municipalities. This process is unique as it involves the input from all stakeholders (municipal staff, political officials and the public) in order to develop an asset management plan and financial plan that meets the technical, social and economic requirements of the organization. Important tasks involved in this process include: review and update process protocols for suitability survey ratepayers to determine if current level of service is adequate prepare future projects in readiness for future funding opportunities 4.4 - Measure Results Smaller municipalities will measure results differently based on their individual priorities. Many tools have been presented within the framework of this paper that could be used to measure the results. Municipalities may also choose to utilize the following to measure their results: is the infrastructure gap decreasing are service levels adequate and sustainable are ratepayers becoming more informed of the municipality s needs and reasoning for spending It s important for smaller municipalities to devise an effective means for communicating and obtaining feedback from ratepayers. This could include: open house session(s) community meetings website and newsletters By: David A. Stewart 32

An Asset Management & Financial Planning Framework for Smaller Municipalities CONCLUDING STATEMENT The framework presented will help municipal decision makers in smaller municipalities develop new managerial competencies for the effective transition to ongoing asset management and financial planning activities. This framework seeks to maximize municipal resources and utilize core competencies so that municipalities can better identify, manage and address their individual infrastructure needs, while taking into consideration key asset management and financial planning principles. Asset management promotes the coordination of infrastructure repair and rehabilitation activities, thus allowing municipalities to make informed and cost effective decisions. Economic benefits apply to a diversity of stakeholders including the individual municipalities, their residents and business and industry. Sustainable infrastructure also promotes economic development by creating a place where people want to live, work and do business. By: David A. Stewart 33

The Corporation of the Township of Scugog Profile TOWNSHIP OF SCUGOG PROFILE The Township of Scugog, a scenic Greater Toronto Area community, is located 65 kilometers northeast of Toronto and is situated amongst the Greenbelt, the Oak Ridges Moraine and Lake Scugog. The Township has a land area of 475 square kilometres, a population of 21,569 27 and is Toronto s closest gateway to the Trent-Severn Waterway. This municipality is one of eight municipalities, which make up the Regional Municipality of Durham. Main industries in Scugog include agriculture, tourism and light manufacturing. There is an excellent network of Regional Roads and provincial Highways as well as access to both GO Transit and Durham Region Transit. The Township boasts one of Ontario s fastest growing arts communities, some of the finest and most scenic agricultural land in Southern Ontario and provides businesses with access to domestic and North American markets. The established tourism sector provides visitors and residents access to a wide variety of accommodation, restaurants, fresh farm markets, a revitalized lakefront, a vibrant downtown, annual events and casino. With the population in the Township of Scugog expected to reach approximately 25,390 by 2031, the Township must continue to invest in new infrastructure, while at the same time maintaining, upgrading and replacing aging infrastructure that the residents rely on daily. This requires both technical and financial planning in order to be operationally and financially prepared as infrastructure ages and eventually needs to be replaced. Scugog s mission is to be an open, responsive and fiscally accountable municipal organization, which delivers cost effective municipal services equitable to its residents. The Township of Scugog s departments consist of fire and emergency services, public works and parks, community services, clerks, finance and office of the Chief Administrative Officer. The municipality s main areas of responsibility include; road maintenance/rehabilitation, economic development, street lighting, storm water management, planning, culture and recreation, building, fire and emergency services, parks, facilities, bylaw enforcement, financial services and animal control. The Township of Scugog is a municipality presently facing a growing revenue problem that can be attributed to its limited growth capacity. Development, at this point is challenged due to provincial legislation (Oak Ridges Moraine Conservation Act, 2001, Greenbelt Act, 2005) and restricted municipal sewer capacity. The Township of Scugog has been fortunate to receive annual senior government grants, which has contributed to offset the financial gap created by the farm, managed forest and conservation land tax programs. However, the revenue is simply not growing at the same rate as spending, nor is it growing at the rate of increased spending need. The majority of the Township of Scugog s tax base is farm land and residential with limited industrial. 27 http://www12.statcan.gc.ca/census-recensement/2011/dp-pd/prof/92-591/details/page.cfm?lang=e&geo1=csd&code1=3518020&geo2=pr&code2=35&data=count&searchtext=s cugog&searchtype=begins&searchpr=01&b1=all&custom=: Retrieved August 4, 2011 By: David A. Stewart 34

The Corporation of the Township of Scugog Profile Over the last five years, the percentage of new building permits issued for new residential units in the Township of Scugog in comparison to the eight municipalities in the Regional Municipality of Durham is below one (1) percent. This means a marginally small increase in the residential property tax base. Scugog continues to see minimal growth in its revenues over the last three to four years. On the expenditure side, the cost of operating the municipality and doing business continues to grow, driven by pension costs, gasoline costs, increasing costs of contracts with vendors and inflation. By: David A. Stewart 35

The Corporation of the Township of Scugog Case Study Prelude THE CORPORATION OF THE TOWNSHIP OF SCUGOG CASE STUDY PRELUDE The Corporation of the Township of Scugog case study on asset management and financial planning was prepared to provide municipalities with a real example of how the framework that facilitates successful, management and flexible asset management and financial planning can be implemented in municipal government. More specifically, it targets smaller municipalities with a population of 25,000 or less. Included in the case study: an introductory discussion on asset management including; o why develop an asset management plan o who is responsible o who should be involved o reasons why asset management is important a review of the background and objectives of asset management in smaller municipalities emerging trends and challenges of asset management planning in smaller municipalities an overview of the asset management and financial planning framework developed for use in smaller municipalities a detailed description of the Township of Scugog s journey towards sustainable asset management; including a financial condition assessment of the corporation two financial models that identify the municipality s long term infrastructure needs a forty (40) year corporate needs model and a fifty (50) year road network needs model that include multiple program spending scenarios a review of the case study key findings and key messages This case study will provide maximum value to decision makers in the municipal sector. Please Note: In an attempt to better serve professionals in the municipal sector, the case study has been created in a Microsoft PowerPoint presentation format and is included within this document. The framework case study aims to accommodate different learning styles, while delivering value to all readers. By: David A. Stewart 36

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The Corporation of the Township of Scugog Case Study Reflection & Analysis CASE STUDY REFLECTION & ANALYSIS Planning Horizon This comprehensive research paper and case study was initiated in July of 2011 and was concluded in June of 2012. During the twelve month planning horizon, the Township of Scugog worked diligently to compile and complete the research and analysis required to respond to Councils Corporate Plan initiative on asset management and financial planning. Additionally, in March of 2012, the Township of Scugog was selected to participate in a pilot research study organized by the Association of Municipalities of Ontario (AMO), the Ontario Municipal Administrators Association (OMAA), and the Municipal Finance Officers Association of Ontario (MFOA) focused on asset management and long term financial planning in municipal government. Select municipalities have embarked on a mission to help answer whether or not municipalities are able to maintain their existing capital assets in a condition, which will provide appropriate levels of service at current levels of taxation and user fees. The results of this pilot study, including data and analysis will be available late 2012. A Clear Purpose and Commitment When the project started in July of 2011, the Township of Scugog had asset management and long term financial planning as a top priority in the corporation s Corporate Plan. This demonstrated that elected officials and senior management were committed to the process and had a willingness to dedicate the resources needed in order to accomplish the goals of the corporation. The continuous commitment and support made it easier for staff to devise a plan of action. At times both Council and staff needed to work collaboratively in order to better evaluate the plan; however the clearly defined purpose from the outset made it simple for all parties to be confident and persevere to achieve the desired end result. Failure to assign appropriate resources may result in a plan that is not credible and cannot be maintained over time. Information Consistency Maintaining information consistency was a critical component throughout this project because inaccurate, incomplete or conflicting information often made staff question the integrity of the process. Comparable and reliable data were essential for sound planning, good decision making and accountability. During the data collection process it is always important to remember that a change at any one point requires changes at all other points. This is why having one central database to house corporate asset data is important. Having this central database also makes it easier for staff to manipulate and analyze data when there is consistency within the document. By: David A. Stewart 80

The Corporation of the Township of Scugog Case Study Reflection & Analysis For example, a standard corporate asset condition rating system will allow a municipality to better analyze and better predict future events in terms of costs and capital investment required to maintain existing service levels. Patience Finding and obtaining information during the data collection process of the project proved to be challenging. For example, the Township of Scugog s original asset inventory created was based on its previous corporate structure, which meant that all the capital tangible asset data needed to be reallocated under the new department structure. The unique formatting of data tables and availability of staff made it difficult to find the right information at the right time. Also the internal document management system made it difficult to extract the most accurate and up to date information. For example, some documents had been saved under multiple file names and version numbers and some of the most up to date information pertaining to corporate assets was housed on users home drives. These are the drives that only the registered user could access. Once the new asset database was consolidated with the most accurate and up to date data, it made it easier to manipulate and extrapolate for analysis purposes. It was important to be patient and move on with other project work when challenges in other areas arose. This type of project is new for smaller municipalities and challenges are one of the factors associated with implementing such a complex project that involves information from all departments. Flexibility At times during the project, select events or situations caused the plan to be reviewed. It is important to be prepared and expect the unexpected and have the ability to make any modifications that may be required to continue progress. Always choose the best solution available to you at that point in time, don t sit and wait for the perfect solution. Remember a plan is just a plan, it s important to keep refining it. For example, the Township of Scugog created an asset replacement schedule using Microsoft Excel that utilized separate worksheets to compile yearly asset replacement schedules for each department. Each worksheet calculated an approximated cost based on historical figures. Upon further review, the Township re-evaluated its separate worksheet method and consolidated the assets into one worksheet where the time of need schedules were created using excel formulas and data filtering tools. The result was an easy to use database visible on one excel worksheet. By: David A. Stewart 81

The Corporation of the Township of Scugog Case Study Reflection & Analysis Consensus This project required that all departments be involved and maintain consensus during the planning and implementation process. It was important that all comments and questions posed by any staff member be considered and addressed before completing individual process components of the framework. This was a great way to support staff and increase moral in the group as well. Open Communication Consistent education and training workshops were offered to both Council and staff during the planning and implementation process so that everyone was on the same page in terms of where we were at in the process and what we had accomplished to date. If anyone had questions or comments on the process this was where it was discussed. Transparency in the process was an important component of its success. Clearly Define Assumptions and Limitations Transparency is the best policy when preparing longer term financial forecasts or time of needs schedules for assets. It is equally important to recognize that assumptions will change over time based on new available information. The Township of Scugog utilized different forecast scenarios to better accommodate and manage uncertainty in critical variables. This approach proved to be beneficial when delivering presentations. Financial Condition Assessment Conducting a financial condition assessment of the municipality helps Council and staff better understand the overall financial health of the municipality. This assessment provides valuable information that can be utilized to enhance decision making. The data also enables a municipality to easily quantify and track changes over time. Alternative plans of action may be tabled and various performance measures may result from this type of financial analysis. Assigning Asset Identification Codes An asset identification code is used as a means of identifying corporate tangible capital assets within a database. The Township of Scugog has over 1,500 tangible assets coded to date. Based on their recent experiences, The Township has identified that there is a need to assign separate asset identification codes for classifying road network assets. More specifically, separate codes need to be used when classifying road beds and road surfaces. Assigning separate identification codes to the road beds and road surfaces will help those municipalities who are using or plan to use Microsoft Excel. By: David A. Stewart 82

The Corporation of the Township of Scugog Case Study Reflection & Analysis An asset identification code that includes both a road bed and a road surface increases the level of difficultly in terms of accurately projecting the future monetary needs associated with the identification code. The example below is an illustration where an asset identification code includes a road bed and a road surface. ID Description In Service Year Replacement Year 1 st 2 nd 3 rd th Life 4 Expect. Replacement Cost 101 Perry Street 1985 2025 2065 2105 2145 40 $1,500,000 The chart above showcases the scheduled replacement years with the accompanied replacement costs, however, what this chart doesn t separate is the assets road bed needs and road surface needs. The estimated life expectancy of a road bed and a road surface differs significantly. In this case Perry Street s life expectancy is based on its road surface at 40 years. In reality, its road surface will need to be treated before this time (typically at approximately 20 years), which is why there is a need to account for the road bed and road surface needs separately. Those municipalities presently using or planning to use Excel to forecast infrastructure needs, including roads will find it easier if the road bed and road surface needs are separated. The example below is an illustration of a road bed and road surface being assigned separate asset identification codes. ID Description In Service Year Replacement Year 1 st 2 nd 3 rd th Life 4 Expect. Replacement Cost 101 Perry Street Bed 1985 2025 2065 2105 2145 40 $800,000 201 Perry Street Surface 1985 2005 2025 2045 2065 20 $200,000 The chart above shows the resurface approximate 1 st replacement year as 2005 and the road bed approximate 1 st replacement year as 2025, which allows for a more accurate long term forecast. The Township of Scugog presently has one asset identification code assigned that includes both road bed and road surface. This has resulted in forecasting challenges. At this point, the Township has identified a need for a more detailed software program that better integrates their asset data the way is presently stands. By: David A. Stewart 83

The Corporation of the Township of Scugog Case Study Reflection & Analysis Conclusion As a result of the implementation of tangible capital asset accounting, smaller municipalities continue to transform the ways in which assets are managed over their life cycle. These municipalities are beginning to look not only at acquisition and construction costs, but also account for maintenance, rehabilitation and future replacement costs. Based on the Township of Scugog s recent experience with the one time infrastructure development funds released by senior government, it was concluded that future senior level infrastructure funding needs to consider future capital maintenance and life cycle costs related to the development or redevelopment of municipal assets. In the Township of Scugog s case, they increased debt and decreased capital reserves to adhere to specific funding conditions and are now in the process of finding ways to account for future capital maintenance and the life cycle costs associated with the newly created infrastructure. For example, if an asset costs $500,000 and has an estimated useful life of ten years, then annual amortization of the asset using the common straight line method would be $50,000. At a minimum, the senior government funding should ensist that a portion of the funding amount be set aside in a capital reserves account to pay for at a minimum a portion of the annual lifecycle cost and annual maintenance costs associated with the asset. This approach should be considered in the delivery of future programs. By: David A. Stewart 84

The Corporation of the Township of Scugog Case Study Reflection & Analysis STAFF RESPONSIBILITY The Township of Scugog staff was directly responsible for designing, developing, implementing and managing the long term asset management and financial planning framework for the municipality. More specifically: Responsible for researching best practices and identifying emerging trends in the sector as it relates to asset management and financial planning Responsible for creating an implementation schedule and action plan for the project, so that targeted deliverables could be met by staff throughout the project; this included coordinating meetings and tasks Responsible for liaising with consultants to ensure project work was consistent with the project objectives Responsible for gathering the data needed to develop an asset management plan and financial plan Responsible for completing a financial condition assessment of the corporation Responsible for working with the hired consultant to complete the asset management plan and financial planning models Responsible for providing formal education and training presentations to the Mayor, Members of Council and staff on the topics of asset management and financial planning By: David A. Stewart 85

Acknowledgements ACKNOWLEDGEMENTS The Township of Scugog would like to thank the Municipal Finance Officers Association of Ontario and the Ontario Ministry of Municipal Affairs and Housing for their support of this initiative. The Township of Scugog would also like to specifically thank the following individuals for their contributions: Beverly Hendry, Dan Cowin, Emily Harris, Gene Chartier, Ian Roger, Michael Went and Trena DeBruijn By: David A. Stewart 86

Appendices APPENDICES Appendix A By: David A. Stewart 87

Appendices Appendix B A SAMPLE ASSET CONDITION ASSESSMENT BAR By: David A. Stewart 88

Appendices Appendix C A SAMPLE INFRASTRUCTURE REPORT CARD ASSET CATEGORY % OF TOTAL TANGIBLE ASSETS SPENDING PRIORITY 2012 RATING COMMENTS (major factors impacting scores) COMPARATIVE 2011 RATING LAND 11% 8 B B LAND IMPROVEMENTS 5% 4 B B BUILDINGS 15% 2 C+ select buildings are in need of repairs C+ VEHICLES & ROLLING EQUIPMENT 4% 5 B B+ FURNITURE, FIXTURES & SOFTWARE <1% 7 B B COMPUTER HARDWARE & SOFTWARE <1% 6 C new financial software is required to manage operations B- ROAD NETWORK 54% 1 D municipal roads require crack sealing, gravel resurfacing, hot mix resurfacing and reconstruction D+ STORM WATER NETWORK 10% 3 B B By: David A. Stewart 89

Works Cited WORKS CITED Anderson, Dave, Asset Management Specialist Infrastructure Management & Pavement Engineering. Interview. April 20, 2012. Stantec Consulting Andres, Reg. Fiscal Leadership Capital Asset management. Paper presented at the Ministry of Municipal Affairs and Housing Southwestern Regional Conference, November 19, 2004. Association of Municipalities of Ontario. Federal Gas Tax Funds. Retrieved November 18, 2011.http://www.amo.on.ca/Content/NavigationMenu/SustainableMunicipalities/Federal GasTax/default.htm British Columbia Ministry of Finance. Capital Asset Management Framework. Retrieved July 20, 2011. http://www.fin.gov.bc.ca/tbs/camf_overview.pdf Canadian Institute of Chartered Accountants. Accounting for Infrastructure in the Public Sector. Toronto, 2002: Commissioned by the Canadian Institute of Chartered Accountants. Canadian Network of Asset Managers. Asset Management Defined. Retrieved April 18, 2011. http://www.cnam.ca/about-cnam/asset-management-defined City Wide Software Solutions. City Wide Tangible Assets. Retrieved December 14, 2011. http://www.citywidesolutions.com/ta.php DeBruijn, Trena, Director of Finance/Treasurer. Interview. November 28, 2011. The Corporation of the Township of Scugog E-Laws, Service Ontario. Greenbelt Act, 2005, 2005 S.O. 2005, Chapter 1. Retrieved November 23, 2011 http://www.elaws.gov.on.ca/html/statutes/english/elaws_statutes_05g01_e.htm E-Laws, Service Ontario. Oak Ridges Moraine Conservation Act, 2001, S.O. 2001, Chapter 13. Retrieved November 23, 2011 http://www.elaws.gov.on.ca/html/statutes/english/elaws_statutes_01o31_e.htm Federation of Canadian Municipalities. Infraguide. Retrieved July 29, 2011. http://fcm.ca/home/programs/past-programs/infraguide.htm Government of Ontario. Ontario Shares Gas Tax Dollars With Municipal Transit. Retrieved November 18, 2011. http://news.ontario.ca/mto/en/2009/03/ontario-sharesgas-tax-dollars-with-municipal-transit.html Government of Ontario. Provincial-Municipal Fiscal and Service Delivery Review. (2006). P.18-21. By: David A. Stewart 90

Works Cited Hendry, Bev, Chief Administrative Officer. Interview. December 6, 2011. The Corporation of the Township of Scugog International Infrastructure Manual. Australia/New Zealand Edition (2002): P.2.22. Mirza, Saheed. The Coming Collapse of Canada s Municipal Infrastructure. FCM (2007):P.6 Municipal Finance Officers Association of Ontario. Asset Management Planning: A Monograph for Ontario Municipalities. Retrieved July 20, 2011. http://www.mfoa.on.ca Municipal Finance Officers Association of Ontario. Enhancing Strategic Influence in the Treasurer s Office. MFOA (2009): P.19. National Research Council of Canada. A Framework for Municipal Infrastructure Management for Canadian Municipalities. Retrieved November 28, 2011. http://www.nrc-cnrc.gc.ca/obj/irc/doc/pubs/b5123.7/b5123.7.pdf N-Gen People Performance Inc. The Road to Performance Success: Understanding and Managing the Generational Divide. N-Gen (2003): P.3. Ontario Ministry of Finance. Ontario Municipal Partnership Fund. Retrieved March 21, 2012. http://www.fin.gov.on.ca/en/budget/ompf/2012/ Ontario Ministry of Finance. Ontario s Long-Term Report on the Economy. (2007): P.83-89. Ontario Ministry of Infrastructure. Provincial-Municipal Fiscal and Service Delivery Review. MEI (2008): P.1-41. Ontario Ministry of Municipal Affairs and Housing. Greenbelt Protection. Retrieved November 23, 2011. http://www.mah.gov.on.ca/page187.aspx Ontario Ministry of Municipal Affairs and Housing. Local Government Tangible Capital Assets. Retrieved July 17, 2011. http://www.mah.gov.on.ca/page6677.aspx Ontario Ministry of Municipal Affairs and Housing. Oak Ridges Moraine Conservation Plan. Retrieved November 23, 2011. http://www.mah.gov.on.ca/page1707.aspx Ontario Municipal CAO s Benchmarking Initiative. Tangible Capital Assets Defined. Retrieved July 28, 2011. http://www.ombi.ca/docs/db2file.asp?fileid=183 Ontario s Greenbelt. Facts and Figures. Retrieved November 23, 2011 http://www.greenbelt.ca/about-greenbelt/facts-figures By: David A. Stewart 91

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