Home Asset Management Striving towards a financially sustainable outcome for community infrastructure

Striving towards a financially sustainable outcome for community infrastructure

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By: David Jenkins

Infrastructure assets such as roads, bridges, playgrounds and community centres provide the foundation for local, rural, regional, and metropolitan communities, and are critical in fostering economic activity and community wellbeing.

Yet there is a widening gap in Australia between the building of this public infrastructure and the planning process which is undermining the optimal service delivery of these assets over the long-term.

In pure dollar terms, the 2021 National State of the Assets report estimates the replacement cost of infrastructure assets managed by Australia’s Local Government sector is in the order of $533 billion, with $51 billion considered to be in poor condition.

Funds are always limited, and good planning can maintain and extend the life of community assets and deliver optimal return on investment to communities. The alternative is wasted public money, degraded assets and potentially unpopular increases in rates.

In community terms, the poor management of assets means diminished amenity and potential health and safety issues for users.

To respond to this, asset managers need to take a whole of life approach to managing assets which combines financial planning and budgeting with an understanding of lifecycle costs to deliver the required service.

It could even be called a new discipline – ‘accountaneering’ – because the best outcome will flow from linking good financial discipline with the asset management skills of engineers in a holistic way

The Institute of Public Works Engineering Australasia is addressing this need with its Professional Certificate in Infrastructure Financial Management (ProCert IFM), where professionals can learn more about a rigorous approach to the sustainable management of public assets.

Local Governments are managers of the most long-lived public assets in Australia, but there are always issues and challenges in making sure these assets are performing and delivering services to level their communities expect.

Questions arise regularly on council’s capacity to deliver service levels. Is the council going to be able to sustainably provide the same level of service into the future, given that assets are ageing and will need repair and replacement? Have funds been earmarked for this, and at what point will proactive maintenance be undertaken, or the assets be replaced when they fall due?

Many councils continue to operate assets over long periods of time and then discover that they don’t have enough funds to replace them when they need to, so they are faced with the prospect of increasing charges or borrowing money. Many councils are averse to borrowing funds for infrastructure projects because it is often perceived as a last resort, but it has proven to be an effective and prudent solution to address short, medium and long-term financing shortfalls provided it has been sensibly planned for.

Consider the example of a small grandstand for spectators at a suburban oval, an asset which might have a 50-year life span. Some money will need to be spent on keeping the roof watertight and the ablutions block functioning, and at some point the owner, the Council in this instance, will have to make a decision if it is going to continue to repair the grandstand, or build a new one.

A gold-plated approach in building a new grandstand might be hugely impressive and win an architectural award, but what is the opportunity cost of doing that in terms of delivering other assets and services? Will other community members, who don’t actually use the grandstand, lose out because the Council has spent too much money on the shiny new asset and their needs are not met?

All of these issues come into the area of financial sustainability and are addressed in the IPWEA ProCert IFM course, which is a powerful professional development tool for engineers and accountants working in Local Government, and those in State Government responsible for the Local Government sector.

For several decades now Local Government has applied accrual accounting techniques, which spreads costs over time and doesn’t simply account for assets as one-off cash investment.

Some councils in the sector have been slow to embrace accrual accounting principles to their full extent, but as an approach it is best suited and aligns well to the sustainable management of the long-lived assets which councils are the custodians of.

Understanding the costs over time and the interventions which need to be made over the asset lifecycle is not only prudent financial management but is a sustainable approach which gets the best out of both financial resources and the assets themselves.

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