Reform 8.1: Infrastructure Deficit

Begin Proper Accounting of and Budgeting for Infrastructure Deficit.

Other Information:

The city’s backlog of infrastructure needs has been estimated at over $1 billion, but this calculation is misleading as it excludes assets such as sidewalks. (The city excludes items such as sidewalks in order to avoid the legal responsibility of addressing the problems immediately.1) Furthermore, the city has yet to address deferred maintenance from a comprehensive financial liability perspective. Assuming that asset deterioration impacts maintenance cost, foregoing maintenance (much like underfunding payments to pension systems) causes an increase in costs or the need to replace assets earlier than the end of expected lifespan (borrowing money to do so). The end result is an overall more expensive strategy for taxpayers.2, 3 Perhaps more importantly, the city has yet to identify the quantitative year-over-year trend of this liability. Given that asset deterioration (and the associated cost) functions much like interest from a budgetary perspective, the growth rate of this liability must be identified in order to ensure a sufficient budgetary allocation to at least keep the liability from growing year over year 4. It is important to note that the City Council has already expressed its desire to approach the deferred maintenance backlog from this perspective. On February 22, 2010, the City Council adopted eleven guiding principles to “guide the development of a comprehensive plan over the next several months to eliminate the City’s structural budget deficit.” Principle #11 states that the City should: “Develop a plan to fund deferred capital infrastructure and maintenance needs to reduce the current backlog, identify the level of funding necessary to prevent the problem from growing larger, and reduce the potential of increasing costs…” We believe that the when the City applies a strategic and data-driven approach toward the level of funding allocated for regular and deferred maintenance, long-term maintenance costs will be minimized due to the maximization of asset lifecycles through proper upkeep, providing taxpayers with the best possible value. In order to accomplish this goal, however, the required level of funding and the impact of inadequately funding ongoing and “catch-up” costs must first be understood.

Indicator(s):

Indicator:1

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