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“Or is running a local government like s business killing it?”

I had an interesting conversation at a conference recently.  The people I was talking to were advanced in their careers and the discussion moved toward the outlook on management in public settings. Once upon a time, most public works and utility managers were civil engineers, but often they were criticized because they were focused on the engineering aspects as opposed to the people aspects of the community.  Their focus was public health and making sure things operated correctly.  Most did whatever was needed to accomplish that.

This led to schools of public administration, which actually started educating some of those same engineers about management of large public organizations, organizational theory, human resource, accounting and planning  I did all that myself at UNC-Chapel Hill.  The goal was to understand finances, people, community outreach, the need to engage citizens and as well as public service.  The outcomes were providing good service.  That however tends to cost a little more than operations although there are opportunities to be a bit entrepreneurial.

So back to the people in the conversation.  They noted that sometime in the 1980s or early 1990s the MPAs were being replaced by MBAs as politicians were focusing on operating “like a business.”  Looking at the MBAs out there, the comment was that business schools do not focus on service, but profits to shareholders, and the training is to cut unproductive pieces that detract from the bottom line.   Hence investments do not get made if the payback is not immediate.  Service is not a priority unless it helps the bottom line.  In a monopoly (like a local government), there are no other option, so service becomes a lessor priority.

So it brought up an interesting, but unanswerable question for now: has the move to more business trained people in government created some of the ills we see?  The discussion included the following questions/observations (summarized here):

  1. Many water and sewer utilities are putting a lot of time and effort into customer service and outreach now after years of criticism for failing to communicate with customers. That appears symptomatic of the monopoly business model.
  2. Our investments in infrastructure decreased significantly after 1980, and many business people focus on payback – so if the investment does not payback quickly, they do not pursue them. How does that impact infrastructure investments which rarely pay back quickly (Note that I have heard this argument from several utility directors with business backgrounds in very recent years, so the comments are not unfounded).  It does beg the questions of whether the business focus compounds our current infrastructure problems.
  3. Likewise maintenance often gets cut as budgets are matched to revenues as opposed to revenues matched to costs, another business principle. Run to failure is a business model, not a public sector model. Utilities can increase rates and we note that phones, cable television, and computer access have all increased in costs at a far faster rate that water and sewer utilities.

Interestingly though was the one business piece that was missing:  Marketing the value of the product (which is different than customer service).  Marketing water seems foreign to the business manager in the public sector.  The question arising there is whether that is a political pressure as opposed to a forgotten part of the education.

I would love to hear some thoughts…

 

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An asset management program should be developed accordingly to the client’s goals and objectives. It consists of determining the selected area of study, type of system and the quality of data used for evaluation. Before a condition assessment can be determined, an inventory of assets needs to be established – maps, etc. are helpful.  So now you have a map of your water and sewer system and you want to develop a useful system for asset management.  Depending on the accuracy wanted, the data can be gathered in many ways ranging from onsite field investigation which could take a lot of time, to using existing maps, using maps while verifying the structures using aerial photography and video, or field investigations. But most local governments still lack data.  You cannot dig up pipe, or do a lot of destructive testing on buried infrastructure.  So what to do?

The reality is that you have a lot more data than one thinks.  For one thing, most utilities have a pretty good idea about the pipe materials.  Worker memory can be very useful, even if not completely accurate.  In most cases the depth of pipe is fairly similar – the deviations may be known. Soil conditions may be useful – there is an indication that that aggressive soil causes more corrosion in ductile iron pipe, and most soil information is readily available.  Likewise tree roots will wrap around water and sewer pipes, so their presence is detrimental.  Trees are easily noted from aerials.  Likewise road with truck traffic create more vibrations on roads, causing rocks to move toward the pipe and joints to flex.  So with a little research there are at least 5 variables known.  If the break history or sewer pipe condition is known, the impact of these factors can be developed via a linear regression program.  That can then be used as a predictive tool to help identify assets that are mostly likely to become a problem.   We are working on such an example now, but suspect that it will be slightly different for each utility.  Also, in smaller communities, many variables (ductile iron pipe, pvc pipe, soil condition…) may be so similar that differentiating would be unproductive.  That also remains to be seen, which brings up another possible variable- the field perception – what do the field crews recall about breaks?  Are there work orders?  If so do they contain the data needed to piece together missing variables that would be useful to add to the puzzle?

After all we want to avoid this before it happens….

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Asset management plays a vital role to help minimize unnecessary or misplaced spending while meeting the health and environmental needs of a community. The goal is to provide strategic continuous maintenance to the infrastructure before total failure occurs.  Costs should be well distributed over the life of the asset to help avoid emergency repairs. Emergency repairs can cost up to multiple times the cost of a planned repair. Therefore the ultimate goal of asset management is to provide quality, economical infrastructure by identifying the system’s needs and addressing the needs appropriately.  At some point repairs cost more than replacement, or technology may make repairs obsolete.

An asset management program should be developed accordingly to the client’s goals and objectives. It consists of determining the selected area of study, type of system and the quality of data used for evaluation (see Figure 1).  Before a condition assessment can be determined, an inventory of assets needs to be established. Depending on the accuracy wanted, the data can be gathered in many ways ranging from onsite field investigation which could take a lot of time, to using existing maps, using maps while verifying the structures using aerial photography and video, or field investigations. Not doing destructive testing is important to reduce costs.  The question is how you do it.  One project we did was the downtown area of Dania Beach.  You can see the areas that are a problem.

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Figure 1

Asset Dania

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Public infrastructure has been poorly rated by the American Society of Civil Engineers and most public officials acknowledge the deterioration of the infrastructure we rely on daily.  However, many jurisdictions have limited information about their systems, and little data to use to justify spending.  The resistance to impose fees or taxes to upgrade infrastructure also remains high.  Hence the infrastructure tends to deteriorate further each year.  At present the United States spends about 1.6% of its GNP of infrastructure, as compared to 3.1 % prior to 1980.  Half as much money, and a large portion of that was for growth as opposed to repair and replacement.  Hence the need for better tools for asset management.

Utilities that utilize asset management programs experience prolonged asset life by aiding in rehabilitation and repair decisions while meeting customer demands, service expectation and regulatory requirements. The general framework of asset management programs involves collecting and organizing the physical components of a system and evaluating the condition of these components. The importance and the potential consequences associated with the failure of the individual assets are determined by this evaluation. Managers and operators can then prioritize which infrastructure are most critical to the operation of the system and furthermore which infrastructure to consider for repair, rehabilitation or replacement. It is a continuously reviewed and revised strategy that implements the acquisition, use and disposal of assets to optimize service and minimize costs over the life of the assets. An asset management plan (AMP) considers financial, economic and engineering goals in an effort to balance risk and benefits as they relate to potential improvement to the overall operation of the system.

Over the last 2 years, we have been working to develop a means to quickly, effectively and in a cost efficient manner to collect data and assess public infrastructure using simple, readily available means, without the need for significant training and expertise.  The idea was to use student efforts to coalesce a common evaluation without the need for destructive testing.  There are three successive projects used to improve the collection of data for ultimate use in an asset management program.   Students were provided with Leica and Trimble units to gather data.  For the first project, an app was created by FAU students that included photographic tools and entries to document the asset condition and location and permit offsite QA/QC from the cloud.  This app was initially developed for stormwater, but was updated to include all public assets for the second community. Data retrieval was created to be able to log data directly onto a smart phone or tablet in the field to save time and the information is instantly downloaded to the internet for quality assurance. The collection system also was programmed with a condition index to help with organization A session was held in the field with student groups to normalize the assessment process.  The approach began with an inventory and location of each asset. The assets were field inspected and assessed for condition.  A numbering system and photographic tools was used to document the asset condition.  This was accomplished by physically locating each asset in the field and marking it with a global position system (GPS) coordinate which allowed the data to be populated in a geographic information system (GIS) and organized with the other assets of the system

The results include this senior design project by our geomatics students. It is a 3-dimensional map of all infrastructure from the ground down on FAU’s Boca Raton campus. 800 acres and over 5000 points, many of which must be stitched together.  They also created building extrusions for a future project.  Very cool and useful from a tablet.  So the question is – do you have a 3D map of your utility?

Geomatics Engineering Senior Design Project 2016 (2)


I was at a recent AWWA technical and Education Council meeting in Denver. One of the major discussions was the issues with lead service lines as highlighted by the current problem in Flint, and how many utilities are now fielding questions about and dealing with lead in their services lines, research that will come for lead, and regulatory requirements for upgrades. One issue that remains unanswered is what happens on the customer’s side of the meter, which may also be lead piping. So removing the utility’s lead service would not solve the lead issue completely, but it will help. But why has lead not been an issue in 25 years? Did it suddenly arise?
While the lead has arisen again as a public health topic, the lead and copper rule has been in effect for nearly 30 years and much of the lead and copper testing was conducted in the early 1990s. Most utilities made water treatment upgrades based the findings from the testing, and utilities have been required to continue to monitor their system ever since. Normally lead levels, even when present, were not a health issue because the zinc orthophosphates and other treatment methods kept the pipe
encapsulated. Others like Cincinnati, Lansing, Madison, Boston and others had ongoing programs to replace lead pipes. 30 years ago in North Carolina we changed out lead goosenecks and galvanized lines rather than replace them – it was just easier.
Most of the folks in the room agreed most utilities have or have such programs and that the number of lead service lines and lead goosenecks on the utility side is
limited. So I suggested that maybe the lesson we should learn from Flint is not about lead service lines, but instead the risks we incur with decision-makers who only look at money when making decisions. Flint’s decision to change water sources was driven by money, not public health.
In fact the report just published indicates that public health was not a real consideration at all. But decisions based on money impacted not only Flint, but Alamosa, CO in 2008, where disinfection was not practiced, and Walkerton,
ONT in 2001 where a Flint like set of decisions cascaded into contamination that killed people. There are utiity systems who contract operations and their contract operator makes decisions based on money, and now there is a distribution system problem. This is a repetitive pattern that has less to do with personnel operating these systems, than decision-makers, who tend to look more at the business case or money as opposed to public health. The lesson we need to learn is that money cannot be the
deciding factor when operating public water and sewer system. And to reduce the chance it happens in the future, perhaps there should be penalties if it does.

Most states were doing pretty well before the 2008 recession hit, but that ended in 2009. Most states had to make extremely difficult cuts or raise taxes, which was politically unacceptable. Of course invested pension systems received a lot of attention as their value dropped and long term sufficiency deteriorated, which was fodder for many changes in pensions, albeit not how they were invested. The good news is a lot of them came back in the ensuing 5 years, but 2015 may be different. A number of states have reported low earnings in 2015 and whether this may be the start of another recession. The U.S. economy has averaged a recession every six years since WWII and it has been almost seven years since the last contraction. With China devaluing their currency, this may upset the economic engine. At present there are analysts on Wall Street who suggest that some stocks may be overvalued, just like in 1999. If so, that does not bode well states like Illinois, Kansas, New Jersey, Louisiana, Alaska and Pennsylvania that are dealing with significant imbalances between their expenses and incomes. Alaska has most of its revenue tied to oil, so when oil prices go down (good for most of us), it is a huge problem for Alaska that gives $2200 to every citizen in the state. An economic downturn portends poorly for the no tax, pro-business experiment in Kansas that has been unsuccessful in attracting the large influx of new businesses, or even expansion of current ones. California and next door Missouri, often chided by Kansas lawmakers as how not to do business, outperform Kansas.

Ultimately the issue that lawmakers must face at the state and as a result the local level is that tax rates may not be high enough to generate the funds needed to operate government and protect the states against economic down turns. There is a “sweet spot” where funds are enough, to deal with short and long term needs, but starving government come back to haunt these same policy makers when the economy dips.   It would be a difficult day for a state to declare bankruptcy because lawmakers refuse to raise taxes and fees.


Interesting that while we all love low gas prices and the low cost of energy is fueling an expansion of our economy, including the first gains in middle income salaries since 2008, the states reliant on oil and gas may be facing real problems financially.  A year ago I read an article that noted the reluctance of North Dakota residents and politicians to invest in roads and other infrastructure despite the influx of oil money.  Keep taxes low was the mantra.  SO they did.  A recent Governing magazine article notes that a dollar drop in oil means $7.5 million decrease in revenues for the State of New Mexico.  Since oil has lost about $30 a barrel in the past year – that is $200 million loss.  Louisiana sees a $12 million cost/dollar drop so they have $171 billion less to work with.  Alaska, perhaps the most oil dependent budget (90 percent) has a $3.4 billion shortfall, but $14.7 billion in revenues.  Texas, North Dakota, Oklahoma and Kansas are other states facing losses.  Fast growing states like North Dakota and Wyoming now have hard decisions to make.  Growth in Texas, Oklahoma, Louisiana and Arkansas may be cut by 2/3 of prior estimates as a result.  A double hit on anticipated revenues.

The comparison is interesting financial straights experienced by the “property value” states like Florida, Nevada and Arizona before and after the economic collapse in 2008.  Florida politicians couldn’t wait to cut taxes and slow spending during boom years, then got caught badly after the 2008 recession when property values dropped in half and state sales tax revenues (tourism) dropped steeply.  They ran out of reserves and refused to raise taxes (after cutting them), so cut things like education and health care to balance the budget.  Not sure how either helped low and middle class Floridians get back on track since Florida has primarily create low wage jobs since that time, not high paying jobs.  We are paying the price still.  I am guessing Nevada and Arizona are similar.

We clearly have not learned the lessons of the many mill towns in the south or the rust belt cities of the Midwest that encountered difficulties when those economies collapsed. Everyone refused to believe the good times would end.  Now Detroit is half of its former self and Akron has the same population as it did on 1910.

The moral of the story is that booms great, but short term.  Diversity in the economy is a key.  Florida will continue to be subject to economic downturns more severe than other states when it relies primarily on tourism and retirees to fuel the economy.  Detroit relied on automobiles, Akron rubber and chemicals, Cleveland steel, etc.  Some day the Silicon Valley will suffer when the next generation of technology occurs that makes the current works obsolete.  It is what happens when you are a “one economy” town.  It is also what happens when you believe the booms are “normal” and fail to financially plan by putting money aside during the boom to soften the subsequent period.

An argument could be made that if the federal government had not enacted tax cuts in 2000 when the budget was finally balanced and surpluses were presumed to loom ahead, we could have banked that money (or bought down our debts), and the amount of borrowing would have been less in 2008.  Buying down debt when times are good is good business.  So is putting money in reserve.  The question is why the politicians do not understand it.  We can run government like a business financially, but takes leadership to do it.  It takes leadership to explain why reserves are good and tax cuts are a future problem.  It takes leadership to make hard decisions like raising taxes, spending more on infrastructure, requiring people to move out of flood plains, not rebuilding in vulnerable areas, and curtaining water use policies when they damage society.  Leadership is making decisions that help the needs of the many, versus the needs of the few.  Oh wait, I see the issue now.  We need Spock to lead us…

 

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