10 Things to Think About Regarding Asset Management
Posted on Sunday May 27, 2018 at 11:27AM
People living in small populations need to give some serious thought to the sustainability of their communities. I believe sustainability starts with good asset management, meaning in 10 years your community can still provide the same or better quality of life as it does right now.
1. Infrastructure, like water and sewer, was put into these communities with the understanding the communities would maintain them. There is no office you can call that will replace these things for communities whose infrastructure is failing. Communities are expected, at the very least, to be able to cost share the expense.
2. It costs a lot more to replace these assets than it did to put them in the first place. Think millions more. Legislation changed too, so most work has to be engineered and professionally done, which makes it impossible to depend on volunteer labor for much of the work.
3. Many communities follow a reactive model for their annual budgets...meaning in order to keep taxes low, they only fix what is broken. Preventative maintenance is not a thing in most small communities, and when it occurs it is too little, and much too late. That is true not only for community infrastructure, but also town owned buildings such as rinks and town halls, and equipment like fire trucks, and street cleaners.
4. Many communities do not charge sufficient dollars for their utilities to maintain or upgrade critical assets like water and sewer, and so as it ages, these are breaking more and more often. The cost of maintaining them can eventually deplete a community's entire operational budget, particularly when instead of fixing and maintaining, the community now has to replace the asset. Current owners in effect then, pay for the tax savings of the generations before them. Sooner or later, the price needs to get paid in order to continue to provide service at an existing level as assets reach the end of their life cycles. The other option is to lose that asset, and even then, you have the cost of disposal.
5. Many communities raise funds for more assets, like swimming pools, rec centers, etc. with no understanding of the full life cycle costs, such as the cost of borrowing, operations and maintenance, renewal and renovation, and finally disposal. That leaves one more asset for the taxpayers, in a system that has no financial plan to sustain it.
6. Council is not trained for asset management, grant writing, community development or any of these things. Training is becoming more common, but the availability of it is sporadic, and largely inaccessible. Community needs are changing. Council needs to be aware of these changes and take an active part in learning to manage this change. The rest of the community depends on Council to make sound financial decisions based on a working business model.
7. Asset management is often not part of community budgets at all, and if it is, is often only for water and sewer and paving. Recreational buildings are seldom considered at all, even though those amenities contribute so much to quality of life, they can make the difference in whether or not your population remains large enough to pay your basic costs.
8. Administrators are not trained in asset management, community economic development , or sustainability as part of their certification, even at the advanced level. It is not fair to expect community administrators to find the information to keep the community sustainable, and to be able to apply it. Even when they do, and there are exceptional administrators who are brilliant and ambitious, but who are shut down by Councils who are resistant to change or who do not see the value in return for the dollars they would have to spend to provide adequate training and supports.
9. Grants become available sporadically, and are highly competitive. Even it a community gets one, they have to put up at least 25% of the required money. That means in small populations getting a grant for critical infrastructure can mean there is no money for anything else, sometimes for several years.
10. Just like community sees Council as responsible for protecting our interests, Council sees the province as responsible, and the province sees Canada as responsible. Conversely, Canada gives money to the province, who gives money to the communities, who provides services to us-- based on a budget that doesn't consider the basics before it goes off willy nilly spending money on things we cannot afford. Having an asset management plan is now legislated for communities. We have to do them. We might just as well do our asset management plan in a way that we can implement it. It is our best shot at sustainability in the long term.
We need to clean up our financial houses. Communities do fail. They do run out of money, leaving present day Councils on the hook to figure out ways to replace all the things the community built, depend on and cherish: This is true particularly, when you understand that in some communities there was never the capacity to sustain the amenities from the time they were built. Our tax bases are simply not big enough to pay for all that is demanded from them.
So what is the solution? I think we look to basic principles of money management and community development.
1. Increase community revenue.
2. Reduce community expenses.
3. Live within your means.
4. If you have debt pay it off.
5. Do a business plan to determine feasibility before you build something.
6. Involve the community in your planning in order to set priorities.
7. Set some money aside for a rainy day.
8. Do an asset management plan and incorporate it into your community budget.
If you have any ideas or suggestions, I would love to hear them.
Author: Solomon Matthewson Consulting
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