Capital Planning

Glenn Barnes Environmental Finance Center Network 919-962-2789 glennbarnes@sog.unc.edu

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4/9/13    

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Uh oh! How Do You Pay for This?

Emergency  repair  

vs.  

Preventa7ve  rehab./  

replacement  (capital  planning)  

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Session Objectives •  Capital Planning Process •  Prioritizing Your Needs •  How to Estimate Your Future Costs

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In the Old Days... •  Water systems took advantage of the

federal government’s ambitious construction grants program of the 1970s and 1980s

•  Everybody loved their “free” money

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Capital Finance Today •  The money never really was “free”—it

came from tax dollars

•  Today, the financial burden has been shifted away from federal and state tax dollars to funds raised by the water system itself. For example...

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EPA Wastewater Spending (1970-2000)�In Billons of Dollars Per Year

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Capital Finance Today •  In other words, you pay (no sense in

sugar-coating this)

•  The harsh reality is that water and wastewater infrastructure is expensive, regardless of the size of your system. Smaller or poorer systems will likely have a hard time paying for capital improvements

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Infrastructure Gap

Source:  Steve  Allbee,  USEPA  

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2009 ASCE Grades

Aviation D Bridges C Dams D

Drinking Water D- Energy D+

Hazardous Waste D Inland Waterways D-

Levees D- Public Parks & Recreation C-

Rail C- Roads D- School D

Solid Waste C+ Transit D

Wastewater D-

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Drinking Water    D- •  America's drinking water systems face an

annual shortfall of at least $11 billion to replace aging facilities that are near the end of their useful life and to comply with existing and future federal water regulations. This does not account for growth in the demand for drinking water over the next 20 years. Leaking pipes lose an estimated seven billion gallons of clean drinking water a day (ASCE)

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Wastewater    D- •  Aging systems discharge billions of

gallons of untreated wastewater into U.S. surface waters each year. The Environmental Protection Agency estimates that the nation must invest $390 billion over the next 20 years to update or replace existing systems and build new ones to meet increasing demand (ASCE)

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Two Related Concepts: Asset Management & Capital

Planning

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hDp://www.epa.gov/safewater/smallsystems/pdfs/guide_smallsystems_asset_mgmnt.pdf    

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5 Things to Track for Each Asset in an AM Inventory (EPA)

1.  Name/Description/location 2.  Age 3.  Condition (and service history) 4.  Criticality 5.  Expected useful life remaining

Source:  EPA’s  “Asset  Management:  A  Handbook  for  Small  Systems”  

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4/9/13     Create an Asset Inventory

Source:  EPA’s  “Asset  Management:  A  Handbook  for  Small  Systems”  

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hDp://www.epa.gov/safewater/smallsystems/pdfs/final_asset_inventory_for_small_systems.pdf    

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Some Rules of Thumb – �Expected Life

•  Pipelines, valves: 40-50 years •  Mechanical equipment: 15 years •  Wells and springs: 25-35 years •  Storage tanks: 30-60 years •  Meters: 10-15 years •  Concrete will need refurbishing within 30 years

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4/9/13    Create an Asset Inventory

Source:  EPA’s  “Asset  Management:  A  Handbook  for  Small  Systems”  

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Establishing Asset Condition

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Risk/Likelihoo

d  

Consequence  Low  

High  

Immediate  Work  

Sample    Monitoring  

Aggressive  Monitoring    Program  

Schedule  for  Rehab/  Replace  

High  

A  

B  

C  

D  

Failure risk/consequence �should drive the work program

Source:  Steve  Allbee,  USEPA  

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4/9/13    Prioritize Asset Rehab. / Replacement

Source:  EPA’s  “Asset  Management:  A  Handbook  for  Small  Systems”  

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Long Term Capital Planning •  This is strongly related to asset

management

•  An official multi-year document that identifies and prioritizes capital projects, identifies funding sources, and sets timelines

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Capital Improvement Program

•  Identify regulatory deficiencies (discuss with regulatory agencies, look at proposed regulations, talk to consultants), in a 10-20 year window

•  Identify growth needs, expansion

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Capital Improvement Program

•  Identify deferred maintenance problems or where current service is inadequate

•  Prioritize based on need realizing that “hidden” infrastructure tends to be ignored

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4/9/13    Capital Improvement Program - Timelines

•  Use Asset Management Plan to plan for capital expenses in the long term (~20 years)

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4/9/13    Capital Improvement Program - Timelines

•  Create a Capital Improvement Plan with a narrower timeline (~5 years) in more detail. Specify the projects and accurate estimates of cost. Plan where money will come from.

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4/9/13    Capital Improvement Program - Timelines

•  Create a Capital Improvement Budget with an even narrower timeline (1 – 2 years) committing funds for the planned capital projects. Get it approved/adopted.

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Example Capital Improvement Plan (CIP)

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4/9/13    Estimate Required Capital Reserves

Source:  EPA’s  “Asset  Management:  A  Handbook  for  Small  Systems”  

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Where Can You Find the Prices?

•  Call a vendor. Actually, call a few. •  Ask other systems •  Look at past expenses but adjust for

increases in costs

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Drive Down the CIP Cost •  Is it possible to

– Eliminate projects? – Defer projects? – Repair or refurbish instead of replace? – Find a non-asset solution?

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4/9/13    

Resource Webpage for �Capital Planning

www.efc.unc.edu/projects/capitalplanning.html

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EFC C.I.P. Tool hDp://www.efc.unc.edu/tools.htm#CIPTool          

Free,  simplified  CIP  tool  using  only  MS  Excel  (EFC  @  UNC)      

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CAPFinance™ is a user-friendly

Program designed for Windows PCs

hDp://efc.boisestate.edu/efc/Tools/tabid/58/Default.aspx    

Software: CAPFinance (EFC @ Boise State)

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hDp://www.epa.gov/cupss/    

Software: CUPSS (EPA)

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Last Concept: Life Cycle Costing

•  Purchase Price ≠ Total Price

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4/9/13    Capital Investments are Just the Tip of the Iceberg…

Source:  Steve  Allbee,  USEPA  

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4/9/13    

What’s Next •  How do we pay for all of this?

•  Before we move on, any questions????