Cost Accounting in Local Government

Don’t forget about your Infrastructure

A recent report by the California Statewide Needs Assessment Project, a coalition of local government groups, identified more than $82 billion in repairs and reconstruction needs on California’s local streets.

This, of course, is not news for those that follow such things.  But as local government starts to emerge from the crater that was the Great Recession, it is important to keep the needs of your local infrastructure in mind.

For most local agencies, the CIP budget was one of the first areas that was cut, and then was left at that level, or cut even more, in following years.  But that means you may have a ticking time bomb at ground level and underneath the ground waiting for the next big storm to expose it.

But what can be done?  The first step is to identify the scope of the problem in your agency.  While the GASB asset reporting requirements were a step in the right direction when they first came out, they are inadequate in determining the real scope of the problem due to the use of historical numbers.  What good is it to know how much it cost to put in a street 30 or 40 years ago?  You need to identify what your funding needs for infrastructure are today and into the future, not 30 or 40 years ago.

But you can get better information.  One option is to compile a Master Facilities Plan, which identifies your current infrastructure, the condition of that infrastructure, and, most importantly, identifies the projects and costs to keep that infrastructure at a level that maximizes the life of the asset.

Another option is to identify how much infrastructure currently exists, and using current unit replacement costs (e.g. cost per square foot for street replacement) calculate the total cost of your infrastructure.  Then divide that by the expected life of each asset to calculate the annual replacement cost.  This is the current replacement depreciation number.  Or put another way, this is the amount you should be spending, on average over time, on an annual basis to keep your infrastructure in its current condition.  If you are spending less then your infrastructure is deteriorating.  This option is less detailed, and therefore less accurate than the first option, but it at least identifies what ballpark you are in with regards to funding needs.

This is crucial to do because for every year that you try to stretch out a piece of infrastructure, the more that it will cost to replace it when it finally breaks.  It’s like with your car; if you properly maintain it then it will last longer.  If not, you will find yourself buying a new car a lot earlier than you thought you would.

Once you have identified that number for your streets, street lights, traffic signals, sidewalks, curbs, gutters, storm drains, water and sewer systems, and all of the other things that make your city function, then you can start to talk to the decision makers about why these needs are so important.

Ultimately this is similar to the unfunded liabilities with retirement benefits.  You don’t have to pay for the entire liability all at once, but funding to cover the entire liability should be identified.

Before long tax revenues will start to inch up and there will be a hue and cry to restore staffing levels that were cut in the last few years.  By identifying the scope of the infrastructure backlog in your agency now, you will be able to make sure that infrastructure’s voice is heard before any decisions about staffing levels are made.

Comments are currently closed.