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municipalauthorities.org | 17 your budget but will give some idea of future costs and the revenues required to meet those obligations. It may also provide some insight into this year's rate adjustment. Large future increases might be avoided by a series of smaller increases spread out over the next few years. Asset Management And Capital Planning Annual budgets are useful tools for looking at the next twelve months, but they generally don’t fully reflect the need for major maintenance, extraordinary repairs or equipment replacements. While budgets include current year estimates for routine and preventative maintenance, they don’t reflect large expenditures that cannot be fully funded by current revenues. These costs must be funded by either spreading the project out over several years or paid from accumulated surplus cash. Some authorities will have a segregated “Capital Reserve Fund” with guidelines for use of these funds. For large projects, borrowing is often used. Regardless of the funding method, some advance planning will result in a more efficient and possibly a less costly project. Unless you already have a fully developed asset management plan, knowing where to begin is often a stumbling block. But all plans, even the most sophisticated ones, often start modestly and evolve. It can all start with a simple list, and since you have just finished or are about to finish next year’s budget, you have a starting point. Budget discussions often involve identifying the equipment that needs repairs, replacement parts, or other maintenance in the coming year. It’s not too difficult to think about the following year and maybe even the year after that. You have now begun a multi-year plan that identifies which assets are going to need attention. If you have completed a multi-year budget projection, you can add these costs to the projection to see the financial impact. You are now just a few steps away from developing a basic asset management plan. Ask your auditors if they have a depreciation schedule. Although authorities’ internal reporting is presented on the “cash basis” of accounting, audited financial statements will include “depreciation” expense. Auditors calculate this by recording the year and original cost of major capital assets, land, buildings, equipment and vehicles. This typically is not a detailed description, and each asset may have components that need replaced before the end of the useful life of the asset, but it’s a good start. The age of the asset and your assessment of its condition will provide some idea of when major repairs or maintenance will be needed. Because these assets will have long service lives, you may find that estimating the cost beyond five years will be just a guess, but even a guess is useful because once you have created the plan, it can be updated periodically, maybe annually. There is one other factor that should be considered; what are the consequences of a particular piece of equipment failing. Long lead time or specialty items should receive extra attention if they are critical to the operation of the facility, permit compliance, or public safety. Additional maintenance or regular inspections may be wise. A basic asset management plan has been created. You can expand and refine this initial plan by adding asset details, identifying major components, and considering replacements with newer technology. There are many online resources available that provide a template or outline for developing asset management plans. Regardless of the level of detail, this information will drive your Capital Plan. Another Continued on page 50. benefit is that you may be getting a jump start on any future requirements resulting from legislation that requires these plans. Capital Planning With an asset management plan, it is possible to predict when major capital expenditures will need to be made. This information allows you to better manage the timing of these additions, replacements, or improvements. You may want to create the capital reserve account and begin accumulating cash surpluses, you can split projects into phases and spread the cost over several years or combine projects and apply for grant funding or consider borrowing, especially if there is new technology that reduces operating costs. Included with this article is a partial listing of grant opportunities that are available for water and wastewater projects. There are other sources of financing, including PENNVEST, that provide loan and grant funds. PENNVEST funds a variety of other related project types such as: Drinking Water Infrastructure Wastewater Infrastructure Stormwater Infrastructure Lead Service Line Replacements PFAS/PFOA Remediation Agricultural Best Management Practices Green Infrastructure Estuary Revitalization Acid Mine Remediation Brownfield Redevelopment All these programs have individual application deadlines, and the process may take several months to a year or more to complete the application. The benefit of having a capital plan allows you to begin the process before the asset must be replaced.