Performance Measures for Financial Sustainability of Highway Assets

Event ID: 2154348
Event Started: 5/28/2013 12:45:02 PM ET
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Welcome to the webinar on performance measures for financial sustainability of highway assets. At this time all participants are in a listen only mode. Later we will conduct a question and answer session. Later we will conduct a question and answer session. If you should require assistance on the call press star zero at any time. As a reminder, this call may be recorded. I would now like to turn the call over to your host Ian Smith.

Thank you for joining me transportation planning exchange webinar today. The webinar is performance measures for financial sustainability of access. Without further ado I know we have 5 min. late so I will apologize for that. [ Indiscernible ] federal Highway administration office and planning. Mr. James T done.

Thank you for joining us today. This webinar will highlight the assets sustainability Index project which is a joint effort between the office of planning and asset management [ Background Noise ].

Concept of asset sustainability metrics. Review asset management data from a selected state to illustrate that long-term sustainability metrics could be produced using available United States asset management data. We have a couple of webinars to let you know some upcoming things next week or two. Security and the project planning and development process will be June 5 and that webinar will bust myths about cost about security planning. For more information visit our planning capacity building website. The other item advanced travel modeling at the Metropolitan transportation division will be on June 6. That will discuss MTC experience in applying the travel models. For more information visit FHWA website which is on The planning notes rule-making just to bring you up to speed -- and the performance management proposed move making are under development. We expect those to be published in the Federal Register for public comment somewhere this fall. Hopefully early fall in the third quarter. Lookout for that. They are now going to the review process. The spring version of the planning update newsletter will be out in July. We are accepting articles currently from FHWA, FPA staff until May 31. Speaking of newsletters the April edition of performance based planning is also available currently on our website. FHWA and FPA National Hwy., Institute and national transit Institute are working together to update many of the course offerings to ensure they reflect changes as a result from the passage of MAP-21. Some courses will be easier to update and some won't but within a year we will have other courses updated and they will reflect the current regulations under MAP-21. With that introduction I want to welcome you again and thank you speakers for being available to present the information. I will now turn it back to Ian Smith.

Thank you Jim. We have three speakers today. Gordon Proctor and Shobna Varma. Quality development, change management, communications and asset management. Shelba has over three decades of professional experience including 15 years experience working at the [ Indiscernible ] at state DOC. [ Indiscernible ] sustainability Index proposed measure for long-term performance for federal Highway administration officer planning environment and Realty. And the opposite asset management. [ Indiscernible ] is included in the chat pod. The report summarizes the [ Indiscernible ] concept and data from several U.S. transportation departments to illustrate how assets and sustainability measures could be produced from existing asset management data. They were frequently with Highway administration office and state DOT on assets and performance management issues. Today Gordon will present on the policymaking and communication potential of using financial sustainability measures in a U.S. context. Shop that will present on the potential to develop financial sustainability metrics readily available from U.S. transportation agencies. [ Indiscernible ] is the center and he has over three decades of experience in local government and 15 years in association management. He took up the position of national Chief Executive Officer of the Institute of Public Works engineering Australia in the year 2000. This Institute is recognized internationally as leaders in the implementation of sustainable approaches infrastructure asset management and financial planning. For the 12 years prior to this he was director of [ Indiscernible ] services in Western Sydney. His formal history and qualifications in an engineering and Internet marketing. In 2009 he was awarded the James prize of the Institute of civil engineers in London. He is class president of the international Federation of municipal engineers. A position he held from 2006 to 2009. He is a regular inclusion in engineers Australia list of top 100 most influential engineers in Australia having appeared since its inception in 2004. He is also a member of the transportation asset management task group. He's here with us today and meeting with that task were. Chris will discuss the use of long-term financial plans and financial sustainability metrics and Australia. He will give us the practice of what they are doing and Australia. Alternative Richard Gordon to begin his presentation.

Thank you Egan. -- Ian. Good afternoon everyone who is with us today. As Ian said a report is on the asset sustainability Index and that report recently has been published and on the website at this web address. Report describes financial sustainability metrics as they are used in the corporate world as they are used in Australia and as Ian said how they could be generated in the United States. The intent of the report and the sustainability metrics is to provide an additional set of tools that will allow us to communicate with policymakers and the public particularly in terms of the magnitude of needed investment and the course that we are on and where that course will lead our infrastructure into the future. The asset sustainability indices in the financial plans that go with them also allow us to summarize asset management data into one consistent index that can be tracked over time. Right now we have -- we're developing a variety of performance measures that may or not be clear to the public and one thing the financial sustainability metrics can do is produce some simple indices over time as to whether the adequacy of investment is there to sustain our infrastructure at an acceptable condition. We are interested in developing a leading indicator as opposed to a lagging indicator. Something like PS I wore IRI or bridge structural efficiencies. They are a rearview indicator that tell us where our network and where our assets and then as opposed to where they are going. We are looking for indices that might illustrate the path of what happens if we continue on the current path that were on. And one of the things we picked up from both the British and Australian examples is are we leaving a legacy or a liability for our children or future generations in terms of infrastructure assets. Right now much of our national discourse is really constrained by the deficits that occur in Social Security and Medicare and Medicaid and the Highway trust fund of the overall federal budget and the deficits are quite large and expected to remain so over the next few decades. But at the same time those of us who work in transportation no that we are also developing an infrastructure deficit. We don't have a good way of quantifying and illustrating and forecasting what that infrastructure investment deficit is. So the a as I folks run a funny sustainability metrics. We are trying to forecast whether the amount of investment we have today and into the future will be adequate to create a sustainable transportation network. We are trying to illustrate what happens if we stay on our current course. One of the things we found the Australians and the British were doing perhaps better than we were was capturing the benefits of asset valuation or putting an economic value to the worth of our infrastructure. And they -- it appears they tend to think of themselves more as portfolio managers whose job it is to release and retainer.grow the value of the public equity in which they are managing so if you are managing a pension fund this would be your primary concern. For those of us in transportation fields are also managing portfolios and we often don't express it that way. With the asset sustainability indices we can indicate to the public and to policymakers whether the public assets are increasing or decreasing in values. Good portfolio managers so intent to 20 years really behind us a improved and more robust portfolio or will we leave behind a degraded and devalued portfolio based upon the investment practices of today. The underlying concept of the sustainability Index is really quite simple. It's difficult in practice but simple in concept. The basically take a variety of asset classes -- your pavements and in the case of our report we took pavement, bridge and roadside maintenance pertinence is and looked at what is the needed budget. We divide that by the amount of need that there. Create a series of ratios and world those ratios up into one overall index. Now divided developing what is needed is quite complex and Chris will go into that in more detail than we did. It should be based upon a rational level of needed investment to sustain a rational level of service into the future. While that is very simple I guess we would point out that simple ratios are used to round -- around the world quite effectively. Benefit cost ratios, capacity ratios, we've use those for a number of years. In the corporate world things like PD ratio or price per earnings ratio or earnings-per-share and return on equity -- this would be measures you would find used on Wall Street all the time and they get the industry a shorthand common way to look at a variety of different equities or companies on a common thing. We're trying to provide something similar to what -- on the transportation side. We know we can do this because we already forecast revenue. We forecast asset condition needs. We can forecast our asset values although we don't do it very much. And then we can forecast our future trends based upon current investments. If we do these things we can put together the types of ratios that Chris will be talking about. I think what you'll see from the Australia example is that those metrics and indices can give polish she -- policymakers insight as to whether they are budgeting and investing adequately to be responsible stewards of the transportation system. One thing at our report dives into his what we think is perhaps a missed opportunity gas the 34. GASB. That was enacted back in 1999 that was intended for us in transportation agencies to document the value of our assets and whether we are investing sufficiently to sustain the value of them. These GASB reports are not used much. They often only capture a biennium or so. We found the British and Australians are at tracking asset values much more closely and using them to forecast where will the value of their portfolio or their network be in a few years. I think they are looking at it much more like an investment fund manager which is a responsible way to look at it. And they are trying to decide do we leave another generational legacy or liability for those who will be picking up after our term is done in the next 10 or 15 years. Our report focuses on what our sustainability metrics and what are the values of them and I think which you'll hear next from Chris is how they are done and how they are actually used in practice in Australia. Alternate back over to Egan to introduce Chris.

Thank you Gordon and with that I'd like to welcome Chris Champion.

Good afternoon. It's Chris Champion and it's a pleasure to be in Washington. I gather it's possibly good morning on the West Coast but back home it is 3 AM in the morning. It's great to be here. I'm from the Institute of Public Works engineering is like in the United States the American public works Association. Just to give you an idea or overview of my presentation, I'm going to be more today talking about the context of where we are working rather than the specific indicators. Which Gordon has talked about. All the talking about asset management in the broader context of sustainable communities. Asset management and how we should -- do in Australia will account for infrastructure in our financial segments. And financial indicators in the context of long-term financial planning. To put it into context you can see on the map Australia is the same geographical area roughly as the United States but rather small -- sparsely populated. The population of the United States is 315 million and Australia it's 23 million. Most of our population is around the Eastern coast. Another on a completely different front lower government which is where our mainly come from and work and has recognized as being -- having quite a bit of tolerance for increasing debt. Low government in Australia has a low debt level and we are encouraging responsible debt and borrowing and it's probably an extra two in our palate that we can use. Personally I'm from Sydney in Australia and if you are down our way I welcome you to get in touch with me. So I can get a bit of interaction and understand where you are all from if you are near a keyboard you might type in the name of your city and state and I can have a look at that at the end of the presentation. What I really want to talk about is the sustainability of services. It should be a clear objective of every agency. In Australia sustainability -- there have been a number of sustainability studies of local government. It's been a great value to us that the main recommendations out of those or conclusions is that its infrastructure which is the very foundation of our community. We should be aware that it's about the same -- same ability as services and not the sustainability of asset.

As you all know [ Indiscernible ] is the foundation of our community. It's important for economic development, recreational needs, public health and safety, and infrastructure is independent. You can't have a road system without a network a bridge. This places a high level of importance on us as stewards in maintaining our infrastructure into the future. I, from a municipal background where low government is asset rich and revenue poor. Local government manages more assets relative to income than any other level of government. In Australia might see us as the bottom of that triangle with the peer amid. And lower government relative to its income probably has responsibility for three times the infrastructure then state governments which would have three times the infrastructure level relative to income of the federal government. So you can see why and low government in Australia it's been critical importance why we develop our skills and infrastructure asset management.

We have a responsibility for current and future generations. You cannot manage long-lived infrastructure from year-to-year. You need to have a long-term sustainable plan for your network and community. This diagram is one of the most important to understand how we should be sustainably managing our network. If you take the family on the left as representing our community. They need services such as road train in outback Australia. The services we need to have an asset management plan to define the services required and how will we provide them and what funds are required to maintain and renew them into the future. The information from asset management plan isn't input into our long-term financial plan for the organization and how the services will be funded in competition with the other services today that an agency provides. It gets down to the sustainability issue of the balance between the dollars that might be available and the services that our community needs. So the sustainability issue for infrastructure is a balance or trade-off between levels of service at the dollars available. And sustainability is not just about maintaining financial capital but also infrastructure capital.

A number of years ago when we started out at big study way focused on asset management planning and I want to give you our inside that it's not just about asset management. We see three key elements for sustainable communities. That the role is elected members or stew Richards managing existing as -- new asset managing and making it an essential part of business long-term financial planning. First focusing on stewardship. FHWA has developed programs and resources and training to cover each of these three elements. We need to convey the message to our elected members that the decaying infrastructure leaves or liability for future generations. There is a need to understand or comprehend the whole of life cost of our infrastructure. You can see that yellow cheese there. The 20%. That's the initial capital cost which we want to get into our budget. But perhaps with little regard for the five times that cost that we are committing future generations and budgets to when you take into account the maintenance upgrade in cost and disposal costs of the infrastructure. We need to know what are the risks and priorities and funds required to sustainably manage our infrastructure. So we can have informed decision-making.

We need to make the link between levels of service and price. We can readily see this at the gas station but [ Indiscernible ] or accepted in management of infrastructure. Perhaps more immediate example is when city engineer back in low government -- where the Council elected members would reduce maintenance for parks each year. At the same time we're in a growth area and getting more parks and of course a reduced budget for parks maintenance means there's going to be a reduced level of service. It didn't stop the elected members at the Council meetings complaining when the grass was around her knees and they haven't made the connection between levels of service and price. Another important slide is we need to manage the gap. It's not just about finding the gap. We need to understand and direct our resources to managing big gap. This could be understanding the impact of new asset, improving the quality of asset information, timely maintenance, improving work work practices, disposing of assets, looking at alternative service delivery, accepting lower levels of service which is going to be a big one for the future, or looking towards innovative solutions. There is only so much dollars in the economy so we will need to make trade-offs for sustainable position at trade-offs between levels of service and funds available. We need to move from annual budgeting to long-term financial planning. In fact this is been a fallacy -- policy of our Institute and now half of the states in Australia are legislating to require lower governments to have tenured financial plans on their asset management plan. With all the other states also looking towards legislating. We also have the ordered taking more and more interest in infrastructure at the performance of our infrastructure the performance of organizations. Government agencies or lower governments in maintaining and renewing the infrastructure.

Moving from stewardship to managing existing as well as the new. Asset management planning. I'd like to introduce the idea that we need to account for infrastructure. When I say account for infrastructure I mean in our financial statement. Engineers don't understand accounts and accounts often don't understand engineers or asset managers. Our accounts look at past investments. They are looking at the consumption of our assets and how to account for that in our financial statements. Whereas asset managers are looking at future investments and asset renewal and how we will fund the cash flow projections we require to maintain and sustain our infrastructure into the future. What we have done in Australia and doesn't Institute is we are keen for engineers and accounts to be talking the same language. What we've done is published Australian infrastructure financial management guidelines. This is about accounting for infrastructure and this is important concept that accounts accounting for infrastructure in the financial segments can actually reflect the way we as asset managers manage our assets in the field. In Australia we have a crew of accounting for the past 15 or so years. We started off at historical cost [ Indiscernible ] GASB that for many years had accrual of accounting where we need to report the fair value of our infrastructure in our financial statements. This is a resulting in large deficits appearing in our financial statements which quickly gets the attention of finance managers and CEOs and elected members. We can use this approach and use our asset management plans a long-term financial planning process to improve our asset registers both for our finance managers and for our asset managers. And improve the quality of information in our financial statements. We can account for infrastructure the way we manage our infrastructure. You can see in this photo perhaps local road where it was first constructed down the center strip and then later [ Indiscernible ] that was constructed to the side. The graph shows how we might represent the consumption of that asset or condition of that asset overtime. You can see where it loses condition and there might be some renewal and some upgrade. So this represents that graph how we might see as an asset manager how we might present our infrastructure. If we break down our assets at a component level we can have it said that the engineers and a counselor talking about the same thing. And this graph at the bottom right foot we do is componentized our infrastructure into in this case roads which might have an incident life. Our road pavement perhaps a life of 100 years. Road pavement or road service sorry. If we break up our infrastructure into the components which all have different useful lives it is easier to value and appreciate infrastructure using straight-line depreciation. You can see how would we renew that infrastructure that can be accounted for by the finance managers or even if we add [ Indiscernible ] to the road and do upgrades again we can add more pavement and more seal and appreciate that extra component. We can also segment out our infrastructure to block the intersection so that again the way we account for our infrastructure in our financial statements can be also how we can manage our asset as asset managers. We also apply to value our infrastructure and this can reflect the way we manage our assets.

This is an a guide -- a guide. We can take into account replace the policies in the way we value our assets. If we are replacing curb and gutter with a road pavement it would be cheaper than replacing it in isolation. So that is a simple replacement policy that we might account for. And we account for the different values of replacing infrastructure depending on our replace the policy into our accounts. Another example is how we can value our assets to affect how we manage. Accountants use residual value and this has meaning in the field. For example a pipeline lining where we can use the existing hall or conduit in the ground has a value and is better than if it didn't exist. Or if we are doing roadway pavement recycling there is again a residual value in that existing pavement. You can see how the accountants and the asset managers can be talking the same language.

The useful life also is not -- is not a lookup table. When we introduce accounting for infrastructure the lookup table in 100 years with the loss of infrastructure. Or for a road were pavement. But now what we are doing is being able to better improve the quality of our information. As assets age and we look at and inspect our older assets it is a lot easier and more accurate to estimate the remaining life of the infrastructure and knowing it's age the two together we can predict more accurately the useful life. So we do this over a total network and again improve the information or the quality of the data we have.

We can Related accumulated depreciation fair value and annual depreciation expense. These are things we do in Australia to account for our infrastructure. Another example of accounting term. Impairment. You may have heard accounts talk about this. So they need to test for impairment and calculate lost. At first this might be a strange concept to the asset manager that you can see what impairment means with this bridge after a fire. We can sum the components and document and document and substantiate our -- and justify for audits. We can use the data that are being going through for asset renewal planning. So if you look at these two graphs you can see if we were to add -- at a point in time where smart now and we know that say five years time for all these different components were segments we need to spend so much money. Sometimes account for residual value. If we add that up for our total infrastructure network we can start to project the capital renewal requirements for infrastructure going forward. So we get back to sustaining and managing our network. And how and long-term planning account for infrastructure and the importance of trade ups of how we can embed reality in our forward projections. Moving onto the third component, as sustainable communities is the essential part of business. Making it an essential part of business. In Australia with public -- published the Australian infrastructure financial management guidelines which have led also to a long-term financial planning practice note and you can see that web address their at our website and you can see that web address you/practice note or you can download a PDF on long-term financial planning.

The practice note provides more detail that I've picked up three steps to ensuring sustainable service levels. This probably focuses and puts more emphasis on that it's not just measuring an indicator but putting it into the context of our organization and our strategies. We need to develop our long-term financial plans, frame the long-term financial plan but then a strategy, and the target indicators within that strategy. So step one developing a tenured long-term financial plan. In Australia we have all -- we also need to use accounting the core principles which include depreciation. Our asset management plan projections or outputs are for minimizing the whole life cost of our infrastructure is input to our long-term financial planning. Our long-term financial plans have a strategic practice and a fairly simple -- we keep them simple and provide a narrative overview of the plan. Not go into too much detail. And talk about the iterative process of getting the performance indicators to align with our performance targets. We need to document our assumptions for our long-term financial plan. The right-of-way for declining any community and how that will impact going forward on operating revenue and expenditure. Relative variations over time using trend estimates or costs. For example, the rapid increase of oil in the [ Indiscernible ] and price of asphalt. We need to frame that plan within a clear financial strategy. It's not good enough to just measure our indicators that we need to frame that within the strategy. It's important of how we account for our infrastructure. In lower government because they also raise their own revenue some of the important indicators just monitoring the operating results which may not be as applicable in a federal agency. We need a target and lower government and small underlying operating services on average over time.

If we are carrying ongoing operating deficit this implies that our infrastructure is being run down. That our charges are left that we are collecting I left for the cost of providing the service. Their current policies and levels of service around sustainable. It's important to note that renewing or replacing aging assets add little to the operating costs. Where of course acquiring new assets will. Investing in renewing replacing of the structure could reduce decrease operating costs. We've covered they need to develop your long-term financial plan, you need to frame your approach within that strategy, and target indicate. We need to monitor our projections against target financial indicators otherwise they are just numbers. We are at the targeted performance is not projected to be achieved in the plan and we need to manage how we are going to sustainably look after our infrastructure. We may need to adopt a lower level of service. We may need to consider trade-offs between levels of service and available funds. What we found in Australia is that it is importantly puts the discussion on the table at an elected level and see our level. Our into structure financial management guidelines recommend you monitor eight financial indicators which I won't go through now but I listed. And also available in the long-term financial plan note which you can download. The three main indicators that we've come to recommend in Australia by the operating service ratio, the net financial liabilities ratio, and the asset sustainability ratio. Which Gordon has introduced in his report. Our definition of asset sustainability ratio is different from the one Gordon is suggesting and ours is about asset replacement expenditure relative to depreciation. What we are measuring is the replacement rate which is the same as proposed in accordance asset sustainability ratio. If we are not meeting our projections we need to look at the variables and even in that asset sustainability ratio being put forward by Gordon and Chad in their report we need to be aware that the number four need is not a fixed number and it needs to be negotiated. We need to -- that number of need would be based on level of service which may -- some people might say the gold plating. But we need to look at all aspects of how we might manage that infrastructure into the future. As I said during the presentation sustainability is about maintaining not only financial capital but also infrastructure capital over the long-term. And in Australia we are fortunate that we need to account for our infrastructure in our financial statements so both financial capital and infrastructure capital are represented in our financial statements. We need to undertake a sensitivity analysis of the assumptions that we've made in coming up with the various aspects of those ratios. And we need to rise and revise our long-term financial plans annually. You can see how looking at it in this way means that we are not so inclined to have our head in the sand and that we need to manage our infrastructure and look at the role of the portfolio available to us to manage the infrastructure gap. And start talking about trade-offs with our elected members of having that discussion with our finance managers as well. We need a long-term plan to sustainably manage long lived infrastructure. It's not just about the assets but about sustainability and services. It's not just about asset management but also about stewardship, the role of elected members, and our long-term financial planning and making these an essential part of our business. We need to develop our long-term financial plans, frame strategies, and target our indicators. To ensure adequate investment in our community infrastructure over the long-term. It's essential and important that we have sustainable infrastructure to support viable community going forward. Some of the resources were a goal of [ Indiscernible ] for IPWEA our resources to assist our members and our industry and our profession to sustain and manage infrastructure and you are welcome to go to our website will get you to our asset management pages. We have broken -- we create a freeware the point where you can join our community of practice and take part in our discussions and forums.

That is the webpage for downloading the PDF of the practice notes.

I hope I've given you an idea of how we are purchasing tangible -- the sustainable management in Australia and New Zealand also. I will be in Darwin later this year in August. We have six streams of papers presented and put the streams are an asset management which goes for three days. We enjoy our relationship with the United States. The American public works and our contact with federal highways here in Washington. We look forward to being part of your discussions and seeing your progress into the future. Thank you.

Thank you Chris for that presentation. This is very informative. Before we move to the next presenter we have a poll question for you.

Thank you. With that let's move to shop now pharma.

Thank you Chris for the elaborate discussion on asset sustainability. I will give you a quick glimpse on some things we have done. It's not as mature some of the things that Chris has shared. When you think back on where is topics and aspects that are shared and you look at the information we have [ Indiscernible ] produce these metrics and the answer is yes. So the reports that we have today -- the report that we have published today has enough information and includes a lot of the elements that can help us to do the sustainability index. Some of the information and data explicit in some other examples there only inherent. Nonetheless the point is that we can tease out that information if we need it to without a great deal of difficulty. And eight generate similar metric to what Chris has shared with us. I am sharing a couple of the examples that we have included in the study. If you look at this particular figure -- this Excel chart it is an example of DOT investment backlog. This may have changed since the report was generated but this is the information at the time of the report. If you look at the [ Indiscernible ] 2010 to 2013 it shows you the backlog or the centerline miles where no work was done. So you can see how over the period of time from 2010 as projected by the DOT and when you get up to 2013 that number of centerline miles across the system has said -- is going up significantly. It gives you the last [ Indiscernible ] and I should you the total centerline miles in backlog. This is the information that is already existing in DOT. The backlog of information and the backlog of work to be done on the interstate and the NHS and non-NHS. The information is categorized. The data is currently available. Let's look at the next figure. What this shows is the UDOT -- if you look at the budget required for obtaining the optimal OCI with the overall conditioning index for the systems we talked about in-state NHS and level to which is a lower tier this is a kind of budget. You can see categorically it showing us that for unexpected target OCI optimal condition index -- what is the kind of budget dollar amount required [ Indiscernible ] and what is the budget required in order to achieve this optimal condition index. Let's look at this chart. This is a chart showing us the projected budget versus the overall condition index. It shows us the amount of budget that is required across the different systems and the previous chart showed us the amount -- the backlog. If you bring that information together what you see in this chart is you have budget required and the budget available and based on that what is the condition rating. If you look at the line and purple at the top it is what Gordon was explaining as the need versus the amount available which is the asset sustainability index. If it meets your needs you have NSI of one. If you look at this chart what it showing you is the graph and yellow which is showing the budget is below what is needed in order to meet the requirements or address the backlog. It's easy to get information of this nature and most of the DOT's.

This is an example of the pavement asset valuation of the pavement sustainability ratio. If you look at 2010 for 19 years it show use the value of the assets. That is about 3500 -- this is an example. If you look at -- over the course of the year of 2019 you will see that the asset value has almost fallen to half and if you look at the asset sustainability ratio you'll see when we started off the asset ratio was close to one and over the course of the years it has dropped 2.8 which goes to show that with -- starting with a small amount of funds that were not met and available to meet the needs over the course of time the asset value has fallen significantly. We started off with an asset -- a shortage but over the course of time they are not providing the appropriate amount of funds the pavement sustainability ratio has dropped 2.80. If you look at the asset valuation is almost gone to half. What this is showing us is that when we have -- taking the asset valuation and using depreciation with a small decrease in funding over time this can result in rapid decrease which is dramatically decreasing asset valuation. That is what this is showing. Shortage on the funding and cumulatively over the course of time can drop the value of that asset. These are easy for us to generate from the existing data in a DOT. The next slide is showing -- is so we had in the previous slide talked about pavement. If we extend that similar logic and tried to compute what are the funds needed and what are the available funds you can compute the asset sustainability index for various programs and for various assets under each of the programs. This shows under pavements and bridges and maintenance for different assets with the asset sustainability ratio is. You can see starting from 2000 for example in pavements if you look at the cumulative payment asset sustainability ratio is .883 in 2011 and then over the course of time you can see how it is dropping to .76. For the split -- look at the impact on the major routes and on the arterials and the collectors and on various activities such as the placement and maintenance. Same -- if you look at the next category or program you can see we start off in the green at .9 and in 2011 and as you go again you'll see over 2020 this is going into the red. So very easily with basically saying data -- with the existing data you can compute the sustainability ratio. Would you pull this information into a graphic like this and you show using a heat map and when you look at it the first thing that strikes you is there is a lot of areas going into bread and so by pulling this information into something as simple as an asset sustainability index by program we were able to communicate effectively or simplistically the challenges that we're going to phase in the context of the condition of our assets in the course of time. So asset sustainability indexes shown in here is trying to -- is like a leading indicator versus a lagging indicator. It tells us that if we do not put in funds on different categories based on our needs are asset conditions over the course of time is going to degrade significantly and many of our assets are going to go into the red zone. It's a very powerful tool to convey the information about the challenges that we face and the long-term if we are not able to apply the appropriate funds needed to monitor an asset. So that is what this particular graphic is trying to show us. The idea behind all of this is to say that yes, can we compute the asset sustainability ratio. Yes. We have information to do that as we have shown in our example. And by showing something as simple as that chart with all of those graphics in it and showing the heat map we are able to communicate effectively and simplistically and start a public discourse on the need for additional funding or on the consequences of the current lack of funding. We can illustrate this size and impact of our investment. Looking also illustrating the liability that we leave behind. It is also a great tool in communicating the trade-offs that we have to make. And putting the discussion on the table as to where we are in the context of sustaining our assets in the low lands. If you look at this chart this is showing us across the board we compute -- this is for pavements and the same applies for different assets. We use different language in communicating how our systems are doing. That's a good thing that we all have different ways of communicating it. However if we put the same information we have and presented differently just like we showed in the chart where we showed the heat map now we have taken the composition when we are having a discourse at the public level where the legislator or in an open forum to emphasize the impact. Using a common denominator. That is the idea of using something like an office sustainability index. It's something simple. It's a leading indicator versus a lagging indicator. It's able to simply present something in a fashion like we've shown in this chart with lots of red and green and maybe [ Indiscernible ] if the condition and a stage it shows the asset sustainability asset can be well sustained. The idea behind this conversation and measure that we are presenting is to say this is one of many mechanisms that as DOT we can pull together the information and present it using a common denominator. That will conclude. Now you can have a discussion. And take advantage of Chris's availability. I want to conclude by saying the things we have done in the information that we presented in the report in the asset sustainability index is from existing data. And so by pulling that information this is a simple mechanism by which we can ask for public discourse and talk about some of the condition of our systems that might be in the future. From today into the future what could be the condition of our system and how we can get a conversation going and talk about what we leave behind for the next generation is the way they communicate in Australia on the condition of the systems. We can illustrate the consequences of our action. With that I am going to pass this back to Egan. Thank you.

Thank you. That was another great presentation and I'm sure you will agree that these presenters wrap the subject what -- together nicely. One housekeeping item. The recording of today's webinar will be available. We will send an e-mail to registrants when it's available on the transportation capacity building website. We have some time so what we will do now is have a few questions. You can type your question into the chat pod for the presenters.

We also will open up the lines for people to call when as well.

If you was to ash a question press star one at this time. You will hear a tone indicating you been placed in the queue and a voice prompt on your phone will indicate when your line is been open.

I have a question. In terms of your charts what -- [ Indiscernible ] availability. When looking for [ Indiscernible ] on your chart there is some them oh funding requirements to maintain that threshold for periods 2011 and Chris from your point of view is there a memo funding needs to report -- it to support your index?

I think the importance is that our approach has been it's raised as a discussion and not just amongst the asset managers but more broadly be finance managers, the CEOs and elective members of how we are going to fund or manage that infrastructure. In many cases the asset management plans and infrastructure reports has been out of use to justify an increase in copyright for federal government. To fund that infrastructure. Or part of doing the long-term financial plan is addressing what our actual strategy is going to be. So it could be increasing property taxes. It could be increasing our debt and borrowing or it may be accepting a lower level of service. So it's always been sort of now really I think gotten us to the interesting stage in asset management in Australia where we're having these discussions rather than just putting our hands out for more funds.

An answer to your question what is the [ Indiscernible ] -- what is the amount of money and what do we take from our examples is the funding shortage if I understood your question correctly. It varies. And as you probably are aware DOT's have different strategies on how they address asset sustainability. And in some cases you will find as in the case of you talk they are willing to take a lower condition rating because that is the option they have on their non-and lower-level systems in order to make sure that they keep the higher-level systems in a better condition. So the states have different strategies on how to ensure the long-term sustainability of assets. Therefore the kind of funding that each state requires differs but the mechanism of competition can be applied to any state. And the chart which I showed you -- the idea was to show if you want to show graphically what the trade-offs are and what part of your system or what kind of programs may have to take a hit it would be a simple chart to pull all the information and use heat maps to show the gravity of the situation when you are having public discourse.

We have a question. Do we know how many state DOT's are indicating some form of asset management with performance measures.

I think -- I cannot give precisely what the number of states are that are using performance measures but as moving forward with MAP-21 more states are getting into more specifics. Historically for the longest time each state has had some level of some type of performance measure. They've all had dashboards of the [ Indiscernible ] performance. So my response would be safety and the type of measure they use but historically they have had some form of performance measures to measure how the system is doing so therefore I think the data exists [ Indiscernible ] to generate in an asset sustainability asset. Gordon?

Likewise I couldn't say how many states are actually using asset management performance measures. My sense would be the majority are and they will be as they develop their asset management plans. I think it's becoming more common. Because -- part of the reason we were trying to illustrate some of these metrics that are far looking and forward leading indicators such as Chris's using so that we are not just trapped with a handful of measures that only look backwards and don't encourage or incident long-term performance. What we have metrics that are forward-looking statements it increases the likelihood will use good preservation treatments and putting focus upon the one pie chart that Chris showed which is what is long-term cost of managing new assets and as we develop new assets we need to take that into account and good performance measure would be where will our conditions be in 10 or 20 years and not just where our conditions today. The metrics Chris's is using shift the focus of decision-makers to where they're going to be in the future and not only where are they today with their assets.

[ Indiscernible ] Australia doing something similar in terms of having measures with your asset management program?

I think the difference which I'm picking up is the power of the way we're doing it in Australia is it is actually not an indicator managed by our asset managers. Our indicators are embedded into our financial statements. When you bring -- what is the dollar that drives our budgets and our economy so that by us having our indicators in the value of our assets in representing our financial statements it's actually not off-line as an indicator that an asset manager is produced. It's actually embedded in our financial statement so the asset manager and financial manager and elected members of the whole stakeholders -- there has more interest in it. The asset sustainability Index has presented is a good way to go but the aim should be to get your infrastructure accounted for and -- in your financial statements and then everyone is responsible.

Does anyone have experience as an MPOs state level or local level in terms of having performance measures that are different from the state DOT performance measure and if so how successful were you and get the state DOT to change the funding programs to match the local desires. We can open it up to people on the line as well.

Any thoughts?

We did not -- categorically work with any of the [ Indiscernible ] and the local governments in this effort. So I cannot say with certainty that [ Indiscernible ] in the local government against the DOT's. It would seem logical that a lot of the things that are experience has the things that DOT trickle down at a local government that I cannot categorically state that as a fact.

It sounds to me like something that will be getting more into the [ Indiscernible ] of MAP-21. We will be researching this forward. Are there any other questions operator?

I don't have any questions on the phone line.

Speakers, do you have any questions for us to each other?

This is Gordon. I would like to elaborate on that last point of Chris if possible. I'm not sure that we fully have gotten the point across here that here in the United States that most of us are familiar with operating budgets that last a year or two and we think our budget is balanced if our counter balance at the end of that one-year or two-year period. Under policymakers really can look at the budget and then be very responsible by enacting a one-year or two-year budget. I think what Chris is talking about is taking the long-term liabilities of infrastructure and putting them into the current biennial budget so they show up. And that it really makes the policymakers by any [ Indiscernible ] when they enacted budget to acknowledge publicly that there is a long-term deficit accruing and that at some point that deficit is going to have to be addressed. That's one of the reasons we were interested in the sustainability metrics when we saw them. As we said at the beginning of the program the national deficit dominates a lot of discussion but the infrastructure deficit does not. What Chris and the asset sustainability metrics do is put onto the balance sheet of every government that that deficit Israel and occurring and has value to it and there's going to have to be an accounting of it in a balancing of it at some point. I really think they can put into current cents -- discussion what the long-term impacts our of recurring decisions and that is something that this clarified quite well and that we hope can be of value in the United States.

Gordon just to follow on from that when we are balancing our annual budgets it's really just catch accounting and we are balancing our financial capital but ignoring our infrastructure capital because that's not represented in our financial statement. So our budgets and statements might look like they're balanced but out in the field if the infrastructure capital that is declining and that is not represented or accounted for when we are balancing the budget. So that is where the power of what we're doing now is and I'm not saying we're doing it perfectly yet. We're still getting experience in it. But that is the power of accounting point of structure. It's quite possible for agencies or low governments to have a second loss of accounts there that your financial statements for financial accounting standards reasons might be still catch accounting. But you might start to look at doing or incorporating the value of your infrastructure into a second line or column of accounts to see how you can also balance the infrastructure capital.

One of the things we do get into into reporting is in the corporate world how that is sort of accounting is required. The stock could be a good investment if the infrastructure of the companies such as a railroad is in a rapid decline and if the railroad is not investing adequately in its capital that that needs to be reported to investors and shareholders so they can make a rational decision as to if the railroad is an investment. We don't have anything comparable to that of the United States and the public sector and the GASB reports play a bit of that role.. But because the GASB reports are back for -- back working and not forward-looking they don't serve the same benefit as the asset sustainability and financial plans do that Chris is talking about.

I want to add that when you talk about dashboards now we are doing a good job of showing how we per -- are performing currently. But if you look at the chart that we shared which shows for instant Utah showing its investment backlog into the future that puts a different turn onto yes we are doing well now and how we would be doing if he didn't get additional funding is a great reflection of things to come. I think sometimes a conversation tends to get focus on today and not at the agency level but at the public conversation and policy level. This kind of information showing the backlog and asset valuation falling into the future without adequate funding triggers a discussion and brings a discussion to a completely different level. I think Australia is doing it well and we had the opportunity to do something like that and all of us can communicate. There is a common denominator with what we currently have. We don't have to generate new data by just use that information that we have and present it in a fashion that public can -- and policies can get a sense of what is it for us in the future.

[ Indiscernible ] resistance to adopting the management system you speak up. For example some fear it will make a particular government look bad and if so how was the resistance overcome.

Because it's in our financial segment which is -- all step back. Our accounting standards based on international financial standards which require accounting structure -- it's the state governments which have been required low government to have long-term financial plans but with level government actually initiated and commissioned independent sustainability studies and financial sustainability studies of their lower governments in each state. It was the power of the sustainability studies which got everyone on board that we needed to do something. Infrastructure is not something that was on the agenda say 10 years ago but it's definitely on the agenda now and it's resulted in some of our state governments losing [ Indiscernible ] because they haven't been taking that into account. We are starting to realize that this is something will sneak up on you if you don't address it. And it's more accepted by the [ Indiscernible ]. The resistance may, for the clarification may come in closer looking at the quality of their data and that is where we are now getting interest from our orders general where they are looking at not just the financial statements but looking at the performance of organizations and how they are planning for the infrastructure going forward. That is putting more increased emphasis on making all this work rather than any resistance to the [ Indiscernible ].

We see that Wade is typing something. I wanted to showcase this from today's discussion. This is definitely something that but my attention through the presentation in terms of Chris explaining the difference between infrastructure and future generations. That was something that we should all be considering as we move forward with their plan as well as maintaining our assets. We will wait for Wade. If the question for Chris is it you have a long-range planning in Australia and what is the timeframe.

If local government where I'm coming from and more lower government which is leading the way in the infrastructure management area. Lower government is required to have a 10 year long-term financial plans based on 20 year asset management plans. What we are now finding is in Australia we have an agency called infrastructure Australia which is looking at prioritizing the big infrastructure projects for Australia and for the projects that get put forward by state governments. And they are encouraging state agencies and federal agencies to have a look at the way lower governments are doing this and learn from that experience. The reason local government is so important is that relative to its income levels it has a large responsibility for infrastructure and that has put increased emphasis on making sure it is sustainable. It's a moving piece and Australia. We are learning and I get the impression we got it all down pat. I think we can see the way forward and it's a journey for us and gradually we are improving the way we can sustain and manage our infrastructure going forward.

Operator, can you open the lines one more time?

Star one if you have a question.

We have no questions on the phone.

Would like to thank you for participating in today's webinar and thank our speakers for leading the questions. We look forward to hearing more about the topic.

That does conclude our conference. Thank you for your participation and for using AT&T teleconference service. You may now disconnect.

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