ASSET MANAGEMENT FINANCIAL REPORT SERIES 

REPORT 1 

Financial Planning 

for Transportation 

Asset Management: 

An Overview 

FEBRU A R Y 20 15

Notice 

This document is disseminated under the sponsorship of the U.S. 

Department of Transportation in the interest of information 

exchange. The U.S. Government assumes no liability for the use 

of the information contained in this document. 

The U.S. Government does not endorse products or -

manufacturers. Trademarks or manufacturers’ names appear 

in this report only because they are considered essential to 

the objective of the document. 

Quality Assurance Statement 

The Federal Highway Administration (FHWA) provides highquality information to serve Government, industry, and the public 

in a manner that promotes public understanding. Standards and 

policies are used to ensure and maximize the quality, objectivity, 

utility, and integrity of its information. FHWA periodically reviews 

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continuous quality improvement. 
Table of Contents 

1. Introduction and Overview ........................... 1


2. Why Develop A Financial Plan? ...................... 2


3. The Importance of Financial Sustainability ............ 7


Public Recognition of the Need for Financial


Sustainability .................................... 10


Exposure to International Practices ................. 11


U.S. Examples of Long Term Plans .................. 14


The Case for Long-Term Financial Planning .......... 15


4. Transparency and Credibility ........................ 17


Clearly Stating Assumptions ....................... 18


5. Elements of a Financial Plan ......................... 21


Revenue Sources ................................. 21


Forecasting Future Revenue ...................... 25


Forecasting Expenditures ........................ 27


6. Examples of Recent Financial Plans ................. 32


New York State DOT Financial Plan ................ 32


Minnesota DOT Financial Plan..................... 36


Colorado DOT Approach ......................... 42


7. Asset Valuation	 ................................... 49


Asset Valuation is Routine in the Private Sector ...... 51


Asset Valuation Helps Communicate the Prudence


of Long Term Asset Management.................. 53


End of Useful Life ............................... 55


MAP-21 and Implications of Asset Valuation......... 55


How to Value Assets ............................. 57


DOT Approach to Depreciation ................... 59


Australia: Approach to Valuation ................... 61


Future Economic Value........................... 62

ii Financial Planning for Transportation Asset Management 

8. Financial Risks .................................... 63


Funding Uncertainty ............................. 64


Changes in Economic Conditions .................. 68


Political Influences............................... 70


Risks from Natural Events ......................... 71


Long-Term Policy................................ 72


9. Metrics........................................... 74


Asset Sustainability Gap.......................... 75


10. Conclusions...................................... 76


11. References ....................................... 79


Figures 

Figure 1. Forecasted Pavement Conditions for


Michigan DOT ........................................ 9


Figure 2. Average Statewide Cost ($ per lane-mile) for


Pavement Treatments ................................. 9


Figure 3. Projected operations and maintenance


expenditure for a 10-year period from 2011-2020


for Paradise Council, Australia.......................... 12


Figure 4. Projected and planned (budgeted) renewal


expenditure for the 10-year period from 2011-2020 for


Paradise Council, Australia ............................. 13


Figure 5. Age Distribution of UDOT Bridges ............. 14


Figure 6. Available, required funds and budget deficit—


Utah DOT............................................ 18


Figure 7. Highway Trust Fund balances and projected


shortfalls ........................................... 24


Figure 8. Construction inflation 2003 to 2014 ........... 29


Figure 9. MnDOT’s Anticipated Inflation-adjusted Annual


Construction Revenues for the 20-year Plan Period ...... 37

Financial Planning for Transportation Asset Management iii 

Figure 10. Impact of funding on bridge performance..... 44


Figure 11. CDOT Pavement Performance versus 


Funding ............................................ 45


Figure 12. CDOT’s Historical Budget levels for Asset


Management by Asset Class .......................... 47


Figure 13. CDOT Projected Funding for Asset


Management ........................................ 48


Figure 14. Benefit of preventive maintenance on


pavement condition.................................. 54


Figure 15. Pavement Life-Cycle Cost ................... 65


Figure 16. The impact of inflation eroding purchasing


power .............................................. 69


Figure 17. The inflation trend and construction .......... 70


Tables 

Table 1. RI DOT projections for increase in revenue from 

2016 through 2025 and utilization ..................... 20


Table 2. Theoretical agency’s trend of income for the


past decade by source ............................... 22


Table 3. Example of forecasted expenditure needs


and gaps ............................................ 31


Table 4. MnDOT Asset Replacement Costs.............. 39


Table 5. Utah DOT Valuation of Assets .................. 51


Table 6. Illustration of Asset Sustainability Gap .......... 76


Financial Planning for Transportation Asset Management 1 

1.Introduction and Overview 

Transportation agencies have the responsibility and 

the challenging task to maintain, preserve and improve 

infrastructure assets (assets) for current and future generations. While maintaining existing assets is an overriding 

concern for transportation agency officials, most agencies 

are grappling with funding issues. Considering the fact that 

assets such as pavements and bridges have long useful lives, 

a sound asset management practice will necessitate the 

development of long-term asset management plans. Practices and experiences from other countries with mature asset 

management processes and also from transportation agencies within the U.S. show that implementing and sustaining 

the performance and condition of assets requires long-term 

financial plans that support and are linked to long-term asset 

management strategies. Comprehensive transportation asset 

management plans (TAMP) could show the expected and 

desired projections of asset performance and condition for 

ten or more years in to the future. A pragmatic TAMP would 

address the amount of investment required each year for the 

rehabilitation, preservation and maintenance of assets during 

their useful life. The associated financial plan can be linked to 

the targeted performance and conditions of the assets 

identified in the TAMP. 

The financial plan can show the expected and desired funding projected for the future, often for ten or more years. To 

be useful to decision-makers, the financial plan can establish 

how the agency will address the resources needed to achieve 

and sustain the long-term asset management objectives. It 

could clearly illustrate the financial state of the agency and 

express the financial needs for the plan period, shedding light 

on the gaps, and the funds needed to bridge the gaps 

between the current conditions and those established in 

the asset management plan to sustain and cost effectively 
2 Financial Planning for Transportation Asset Management 

extend the useful life of the assets. The elements of the 

financial plan can succinctly highlight the actions that need 

to be taken over the long-term to maintain the health, performance and condition of the assets. The financial plan also can 

address financial risks. It could enable the agency to monitor 

and compare the funding available to the expected funding 

projections throughout the life of the plan, make tradeoffs, 

and take corrective actions to accomplish the agency’s asset 

management objectives. The financial plan is thus critical to 

the successful implementation of the agency’s TAMP. Finally, 

well developed financial plans would allow agencies to 

communicate with the public and the stakeholders the value 

of transportation assets, the current, projected and desired 

performance and condition of assets, the funding required to 

support the projected and desired performance and condition targets, the financial risks and the level of performance 

and condition that stakeholders can expect. It also can 

summarize any changes in strategy that may be required 

to address changing financial realities. 

2.Why Develop A Financial Plan? 

An asset management plan, whether it projects modest or 

ambitious goals and condition targets, will not mean much 

unless the financial plan that is tied to it conveys and validates the agency’s financial strength and ability to deliver 

those goals and targets. The financial plan will broadly 

enable agencies to do the following: 

1.	 The financial plan will allow agencies to clearly identify 

how much revenue they need in order to sustain the 

conditions set out in the plan and how these needs 

compare to forecasted revenues. Currently for most 

agencies, the forecasted revenues will not be sufficient 

to sustain and maintain existing assets. The financial 

plan will provide a clear picture of the state of funds. 
Financial Planning for Transportation Asset Management 3 

2. The financial plan will enable an agency to make more 

sophisticated projections to forecast the funding needs 

and the associated timing for the most cost-effective 

treatments it will have to implement to provide the level 

of service projected in the TAMP. These projections, 

which will be based on an assessment of the historical 

condition and performance of an agency’s assets, will 

include funding needs for maintenance, preservation, 

rehabilitation and replacement. A long-term financial plan 

that helps decision-makers get a summary view of the 

agency’s asset management strategy should present the 

funds required annually for treatments in each budget 

category for the projected period of the plan. The plan 

will thus serve as a powerful tool to illustrate to the 

public, legislators, commissions, interest groups and 

other stakeholders, the investment needed in the different budgeted categories to maintain, improve and 

sustain the system. 

3. Highlights the difference between the funds needed to 

sustain the assets for the long-term and the funding that 

is projected to be available and will provide an indication 

of the financial sustainability gap. This financial sustainability gap puts into perspective the funding deficit and 

the investment needed. It can be used to show clearly the 

current system conditions as well as where the system 

will be in the future if the funding gap is not addressed. 

The financial picture can thus be used effectively to 

articulate the gap in the funding required to sustain 

asset conditions. 

4. The financial plan can serve as the central theme to 

communicate realistic levels of service that can be 

achieved with the expected funding available to the 

agency. Where insufficient, it can be used to show the 

additional revenue required to provide those services 

and help agencies communicate and manage the public’s 
4 Financial Planning for Transportation Asset Management 

expectations on the conditions and service levels that 

they can expect. The funding needs, projected revenues, 

and gaps in the financial sustainability and funding 

availability as detailed in the financial plan can be tools 

for shaping the discussion of future transportation programming, project selection and delivery decisions. 

5. A well-developed financial plan will inform the public and

stakeholders clearly about the reduced level of services

they should expect to receive, the continuing deterioration

of conditions, and the increased resources that will be

required as a result of delaying or postponing treatments.

It will also show the reduction in asset value for future

generations and the significantly higher costs that will

be required to bring these assets back to a state of good

repair. The financial plan is used to present multiple funding scenarios reflecting what can be achieved with different levels of increased investment. It can prepare the

public for the consequences of insufficient investments

and arm them with the information necessary to make

decisions on supporting options for revenue increases.

6. For a given set of assumptions, the financial plan will

predict if an agency is likely to accrue looming future

infrastructure deficits that will require significant

funding outlays.

7. The plan will also serve as an excellent vehicle to describe

and communicate the financial risks that an agency faces

in its efforts to achieve the new, more sophisticated, and

long-term condition targets. Presenting these risks brings

to the forefront, the reality and implications of failure to

achieve the condition targets. The financial risks that the

agencies face include:

a. Declining fuel tax revenues
Financial Planning for Transportation Asset Management 5 

b. Uncertain federal funding caused by declining 


Highway Trust Fund revenues and national lack 


of consensus on new revenue


c. Uncertain future economic conditions including 


inflation rates


d. Having the right balance between “over-programing” 

and “under-programming” and the cost of delaying 

projects due to lack of funds 

e. Uncertain future conditions and performance caused 

by factors such as, 

i. Rising sea levels, climatic and storm events’ 

ii. Localized impacts such as from fracking, timbering, 

mining trucks, 

iii. Uncertain performance of key assets, such as aging 

bridges, tunnels and pavements 

8. The risks detailed in the financial plan will also provide 

agencies an opportunity for discussing these risks with 

stakeholders. It can display recognition of these uncertainties and agencies’ strategies for managing them for 

the public benefit. 

9. The plan will provide an excellent opportunity for agencies to demonstrate how responsibly they are managing 

the transportation system in the public’s interest with 

the resources available to them. The financial benefits of 

preservation, preventive maintenance, and other timely 

treatments can be illustrated to highlight how much 

greater investment would be needed if only a worst-first 

strategy were pursued. 
6 Financial Planning for Transportation Asset Management 

10.	 By incorporating discussions about asset valuation, 

agencies can illustrate the massive investment already 

made in their infrastructure and the need to preserve 

that investment. Asset valuation states in financial terms 

the value of the infrastructure. For most states, the 

transportation infrastructure will be far and away the 

largest state investment in physical assets. By casting 

the transportation network in economic terms, it accentuates the need to preserve this irreplaceable asset and 

to preserve its value for future users. 

These features are well illustrated in several of the TAMPs 

and associated financial plans that have already been 

developed by several states. A good example relates to 

the Colorado DOT (CDOT) TAMP dated December 9, 2013. 

Summarizing the results of a public survey conducted by 

CDOT regarding the public’s perception of CDOT priorities, 

the CDOT TAMP states the following: “According to the 

recent survey, there is a high correlation of the need for asset 

management with the public’s priorities. Maintaining the 

State’s highways and bridges is the public’s number one 

priority for CDOT[i].” 

Discussing the agency’s program distribution for asset 

management the CDOT TAMP states that the agency does 

revenue forecasting for 20 years and shares this information 

along with the realistic baseline, high and low scenarios for 

planning purposes to the local planning organizations for 

input into their plans that have to be fiscally constrained by 

state statute[ii]. The agency notes that to develop a 10-year 

fiscally constrained funding for asset management, the 

agency had to make several assumptions and it has listed 

these assumption in the Financial Plan section of the TAMP. 

In summary, the financial plan will illustrate and enable 

agencies to plan the level of investment required to achieve 
Financial Planning for Transportation Asset Management 7 

and sustain their asset condition objectives. The financial 

plan can illustrate the extent of shortfall and the implications of tradeoffs between treating existing assets and 

adding new assets, as well as the impact of tradeoffs across 

asset categories and related treatments. It will enable an 

agency to present a fiscally balanced asset management 

plan that addresses the performance and condition targets 

that the agency states in the TAMP. It will engage the public 

and other stakeholders in getting involved and in supporting 

the need for adequate investment in infrastructure. A fiscally 

balanced, long-term financial plan will provide transportation officials the tools needed to influence project selection, 

programming, project delivery, and support of increased 

funding. It will create a better understanding of the implications of reduced investment and the high cost of postponing action. It will encourage preservation and maintenance 

activities and create better appreciation of the immense 

value that exists in the nation’s infrastructure assets. 

3.The Importance of Financial 

Sustainability 

In Australia, the life of bridges is expected to be about 

100 years. In the United States, the lives of pavements and 

bridges vary from 10 to 50 or more years depending on 

type, location, and other factors. Nonetheless, they have 

long life spans. Short-term budget cycles focus on short 

term perspectives and treatments. Short-term budgets, 

such as biennial budgets, viewed in isolation fail to capture 

the accruing long-term needs of such infrastructure assets. 

They fail to show the long-term consequences of reduced 

funding of maintenance and preservation activities within 

the biennium. The financial plan provides a long-term view 

of the implication of funding such treatments and shows the 
8 Financial Planning for Transportation Asset Management 

decline in asset condition over the long-term that results 

from reduced funding. 

The asset management plan and the related financial 

plan clearly illustrate the “cause and effect” of short-term 

reduced maintenance and preservation funding on longterm asset conditions. 

A financial plan along with the included financial scenarios 

will demonstrate that a long term plan that takes a strategic 

approach to the management of assets represents responsible financial management. It will show that timely preservation and maintenance are cost effective strategies that are 

also financially responsible actions. With financial constraints 

that agencies are facing, delaying preservation and maintenance will cost the agency more in the long-term. 

Figure 1 shows the Michigan DOT forecast indicating that 

without the influx of funds, the pavement conditions will 

rapidly decline. The forecast makes the case for the need 

for long-term investment in pavements. 

Figure 2 shows the WSDOT analysis on the cost of delaying 

treatments. It shows that the cost per lane mile of treating 

asphalt pavements in “fair to very good” condition ranges 

to a maximum of approximately $250,000, whereas that 

of treating pavements in “very poor to poor” condition is 

between $800,000 to $1M. It also shows that the cost of chip 

sealing pavements in “very good to fair” condition ranges to 

a maximum of approximately $45,000 and those in “very 

poor to poor” condition ranges from $150,000 to $250,000. 

The figure demonstrates that the cost of pavement treatment is dependent on its condition. The cost of rehabilitating 

roads in good to fair condition is the lowest and is significantly lower than rehabilitating roads in poor condition. The 

chart also conveys that it is cost effective to preserve and 
Financial Planning for Transportation Asset Management 9

maintain roads in good and fair condition so that they do not 

fall into a poor condition.

Trunk Line Pavement Condition Forecast

Figure 1. Forecasted Pavement Conditions for Michigan DOT

SOURCE: MICHIGAN DOT

Figure 2. Average Statewide Cost ($/lane-mile) for Pavement Treatments

SOURCE: WS DOT

Applying the information from Figure 2, it is clear that 

treating pavements after their condition has deteriorated 
10 Financial Planning for Transportation Asset Management 

will cost the DOT many times more than if they are treated 

before the decline occurs. This logic can be well reflected in 

the financial plan. The plan can thus show that strategic 

asset management is prudent and it is pragmatic to invest 

monies in timely preservation and maintenance. Such asset 

management strategies involving timely treatments will 

result in reduced costs that will in turn reflect in a smaller 

gap between the funds needed and the funds available 

over the useful life of assets. The agency will thus be in 

a better position to financially sustain the condition and 

performance, and extend the useful life of its assets at 

a lower cost. 

Public Recognition of the Need for Financial 

Sustainability 

The financial failures of companies such as WorldCom and 

Enron led to their collapse. Barings Bank, a prestigious bank 

in the United Kingdom failed because of risky investments 

by a young trader. Similar examples can also be seen in the 

public sector. In 1998, Orange County in California went 

bankrupt when a county investment manager invested 

pension fund proceeds in an investment that lost value 

when interest rates rose. Similarly, unfunded pension 

liabilities contributed to Detroit’s bankruptcy. 

These and other financial issues led to Congress enacting the 

Sarbanes-Oxley Act (SOX) in 2002. Known as the Internal 

Control over Financial Reporting Requirements Act, SOX is 

a broad legislation of hundreds of pages that has been 

summarized by one author as basically aimed at more 

thorough and objective auditing of financial statements[iii]. 

However, the impact of the more thorough auditing extends 

to important reforms so that investors or stakeholders have 

more confidence in the integrity and completeness of the 

financial liabilities facing a company. SOX brought more 

disclosure to financial statements and, in part, strengthened 
Financial Planning for Transportation Asset Management 11 

them as documents providing greater insights into the 

financial viability of a company. 

These and other such financial failures have resulted in a 

gradual increase in the public’s recognition of the importance 

of long-term financial plans discussing the financial needs 

and financial sustainability of companies. This recognition 

can be seen in public budgeters and regulators requiring 

public agencies to formally acknowledge the extent of 

unmet financial liabilities. Examples of long-term pension 

liabilities in California, Rhode Island and Detroit represent 

such acknowledgement. 

Exposure to International Practices 

An international scan team of agency experts from the 

United States was exposed in 2011 to the long term horizons 

of asset management and financial planning in the United 

Kingdom, Australia and other countries. The examples 

evaluated by the scan team had ten-year or more planning 

horizons. These longer-term plans provide a clear picture of 

the assets’ needs and communicate any funding shortfalls 

that exist in meeting the projected infrastructure conditions. 

Figure 3 (see page 12) is an example from Paradise Council’s 

(a local agency in Southern Australia) Asset Management 

Plan. It shows the projected expenditure for operations and 

maintenance activities for the 10-year period from 2011 to 

2020 in 2010 dollars. 

The Paradise Council’s Asset Management Plan has budgets 

tied to the annual level of service planned for the next ten 

years. The plan is based on “sustainable service delivery and 

long term financial planning and reporting”. 

The chart in Figure 4 (see page 13) shows the Council’s 

projected versus planned (available) funding for renewal 
12 Financial Planning for Transportation Asset Management 

activities for a 10-year period. Renewal expenditure as 

defined by the Council “is major work which does not 

increase the asset’s design capacity but restores, rehabilitates, replaces or renews an existing asset to its original 

service potential.” Figure 4 shows that the Council estimated the available funding to be approximately $8,000,000 

for the 10 year period which is approximately 29% of the 

estimated renewal cost. The Council’s asset management 

plan also states that over the 10-year plan period, the total 

available funding for operations, maintenance, renewal and 

upgrade is approximately 42% of what it would cost the 

Council to provide the service. This information in the plan 

communicates the challenge that the Council faces. It also 

brings the issue up front for discussion and resolution. 

Paradise Council—Projected Operations and Maintenance 

Expenditure (Transport Areg) 

Figure 3. Projected operations and maintenance expenditure for a 

10-year period from 2011-2020 for Paradise Council, Australia 

SOURCE: PARADISE COUNCIL REPORT [IV] 
Financial Planning for Transportation Asset Management 13 

Such charts, showing the long term projections and financial 

analysis, are extremely valuable to decision-makers and help 

to communicate with the public and other stakeholders, the 

financial state and health of the organization. 

Paradise Council—Projected and Budget Renewal


Expenditure (Transport Areg)


Figure 4. Projected and planned (budgeted) renewal expenditure for 

the 10-year period from 2011-2020 for Paradise Council, Australia 

SOURCE: PARADISE COUNCIL REPORT [V] 

A long-term financial plan as in the example from Paradise 

Council’s Asset Management Plan clearly shows for the ten 

year period from 2011 through 2020, 

1.	 the funds needed for operation and maintenance for a

ten-year period,

2. the projected funding required versus the planned funding

for renewal,
14 Financial Planning for Transportation Asset Management 

3. the budgeted expenses and projected shortfall,

4. the yearly and cumulative shortfall in funding investment

required, and

5. the level of service that can be expected with the available

funding.

U.S. Examples of Long Term Plans 

Mature long-term asset management approaches used in 

countries such as Australia provide detailed financial information for ten to twenty years. Similar examples exist in U.S. 

transportation agencies presenting the importance of financial sustainability to address the long-term needs of existing 

infrastructure. 

The chart in Figure 5 from Utah DOT[vi] shows an increase 

in number of old bridges reaching the end of design life. 

Figure 5. Age Distribution of UDOT Bridges 

SOURCE: UTAH DOT 
Financial Planning for Transportation Asset Management 15 

The chart shows that over the next 20 years, without 

replacement, over 50 percent of Utah DOTs bridges will 

exceed their design life. 

The agency’s asset management plan looks at various 

factors including asset conditions, age, type and average 

daily traffic, and makes long- term projections on maintenance, preservation, rehabilitation and replacement needs. 

The associated financial plan then provides a quick view 

of the long-term investments needed. 

Utah DOT communicates through its 2014 strategic direction 

document [vii] that over the next 20 years, the DOT will have to 

replace 29 bridges per year to maintain current conditions. In 

addition, the agency will have to do preservation or rehabilitation of 65 bridges per year with each treatment lasting over 

20 years in order to maintain the bridge inventory in current 

conditions. This information allows the agency to communicate its funding needs for bridges. 

The Case for Long-Term Financial Planning 

A significant portion of the national transportation infrastructure investment is in longer lasting assets such as bridges, 

pavements, culverts and other roadside assets. An annual or 

biennial approach to investing in these long-lasting assets 

does not provide the necessary planning and funding horizon to address the life cycle cost or the systematic application of treatments necessary over the longer time horizon. 

The Moving Ahead for Progress in the 21st Century Act 

(MAP-21) requirement for risk and performance based asset 

management plans provides a great opportunity to look at 

the asset management and financial plans from a longer 

term perspective versus short term, annual or biennial budgets. This longer view will enable agencies to forecast the 

conditions and present a realistic impact of treatments and 
16 Financial Planning for Transportation Asset Management 

investments for a duration of ten or more years. It will allow 

agencies to look at the lowest possible life cycle costs to 

most effectively apply timely treatment and extend the 

useful life of assets. 

A later section of this report discusses examples of US 

TAMPs from Colorado, New York and Minnesota that have ten 

year financial plans. These examples show that the information presented by a fiscally balanced financial plan that 

supports the long-term asset management strategy of 

agencies will, 

1. incentivize long-term

financial planning so that

agencies can forecast

needs and plan for future

needed investments,

2. incentivize agencies to

redirect resources towards

timely maintenance and

preservation, addressing

critical life cycle management of assets, and

presenting the resulting

long-term cost savings, 

and

3. direct the political and

public discussion to focus

on the critical need for

infrastructure investments.

It will also present the

need to maintain and

preserve existing assets

versus adding new

infrastructure assets.

The Government Financial 

Officers Association (GFOA): 

Best Practices 2014 document: 

Long-term financial planning is 

the process of aligning financial 

capacity with long-term service 

objectives works best as part of 

an overall strategic plan 

Financial sustainability has 

come to signify practices such 

as directing one-time revenues 

away from recurring sources of 

expenditure and taking into 

account long-term maintenance 

and operating costs when 

planning and evaluating capital 

projects. 

The GFOA recommends that all 

governments engage in longterm financial planning. It 

recommends the time frame for 

the plan to be at least five to ten 

years into the future. 
Financial Planning for Transportation Asset Management 17 

The financial plan provides a clear picture of the long-term financial 

state of the agency. It provides transparency and lends credibility of 

the agency’s decisions. 

A long-term financial plan extends to ten or more years and is based 

on projections. These projections are based on informed assumptions. Clearly stating all the assumptions improves the confidence in 

the plan and helps decision makers to better understand the unfilled 

resource needs and gaps and its impact to the long-term condition 

of infrastructure assets. 

The credibility and transparency of the data presented in the plan 

also makes it easier to engage and get buy-in from the public in the 

discussion about the long-term asset needs and the importance of 

increasing investment in infrastructure. 

Excerpts from the 2014 Government Financial Association 

on Best Practices document summarized above further 

reinforce this fact. 

4.Transparency and Credibility

The examples from Australia and various State DOTs 

discussed in this report including New York, Utah, and 

Colorado present a clear quantitative picture of the need 

for long-term financial planning linked to yearly investment. 

Presentation of such quantitative information supported by 

justifiable assumptions provides the transparency needed 

and establishes credibility of the plan. 

The chart from Utah DOT (Figure 6, see page 18) shows 

the available funds, the required funds and the budget 

deficit to meet the optimal overall condition index (OCI) 

through 2030. The chart also shows the projected and 

target Asset Sustainability Index (ASI). The ASI is the 
18 Financial Planning for Transportation Asset Management 

Asset Sustainability Index and Budgets 

Figure 6. Available, required funds and budget deficit—Utah DOT 

SOURCE: FHWA–2012 [VIII] 

ratio of the funds available to the funds required to sustain 

the asset. 

These examples are used here to illustrate the importance 

and value of presenting and providing such detailed 

information in the financial plan. 

Clearly Stating Assumptions 

Long term financial plans consist of projections based on 

various assumptions. The level of detail and reasonableness of 

the assumptions will serve to establish credibility of the financial plan. For transparency, budget, performance and condition 
Financial Planning for Transportation Asset Management 19 

assumptions made in the development of the long-term asset 

management and financial plans should be clearly stated in 

the plans. The assumptions will need to address: 

 Expected revenue from taxes and fees 

 Future appropriations decisions 

 Rate of asset deterioration considered in the long-term 

projections of asset conditions 

 Projected decrease in dollar value due to inflation 

 Other assumptions as necessary to address risks associated with timely delivery of the identified treatments 

Each state will need to address different performance and 

asset condition needs that are specific to their situation. 

For example, some states will consider the impact of natural 

events such as storms, floods, snow and fires on the projections of asset performance and conditions, and on the 

funding projections. Some of these situations can be outside 

the agency’s control. For the plan to be credible, it is important to acknowledge these assumptions and uncertainties. 

The Rhode Island DOT (RI DOT) asset management plan 

assumes the receipt of an additional $551 million over the 

10-year period from 2016 through 2025 as shown in Table 1 

(see page 20). Based on this assumption, the agency is projecting to invest these additional funds into the bridge, pavement, maintenance and drainage programs. Clearly stating 

the assumption of expected increase in funding from 2016 will 

help the DOT to explain any changes that the agency will have 

to make if such funds do not become available in the future. 

Some agencies have adopted a long-term approach by using 

life-cycle cost management strategies to cost effectively 
20 Financial Planning for Transportation Asset Management 

extend the useful life of assets. However, historically there 

has not been an overt emphasis on maintenance and 

preservation of assets. 

As agencies develop their TAMPs, they are putting greater 

emphasis on long-term asset management needs. The emphasis on streamlining and performance-based programs and on 

achieving and sustaining a desired state of good repair over 

the lifecycle of assets at minimum practicable costs is 

becoming the backdrop to financial planning. 

States such as Vermont, Colorado and others are putting the 

emphasis on strategically managing and sustaining assets 

by managing life-cycle costs with a focus on timely maintenance and preservation. This requires agencies to develop 

a financial plan that will clearly show the gaps in funding 

required to achieve the desired performance targets and 

enable them to develop mechanisms to mitigate these gaps. 

The clear communication of these assumptions and the 

implications thereof in a financial plan establishes transparRevenue

Sources

FY 

2016 

FY 

2017 

FY 

2018 

FY 

2019 

FY 

2020 

FY 

2021 

FY 

2022 

FY 

2023 

FY 

2024 

FY 

2025 

Increase in 

Funding $5 $30 $53 $52 $64 $57 $65 $66 $78 $81 

Inflation and 

Gas Tax 

Yield Loss 

-$2 -$4 -$5 -$7 -$9 -$11 -$13 -$15 -$17 

Drainage $5 $5 $5 $5 $5 $5 $5 $5 $5 $5 

Better Bridge $9 $18 $17 $21 $17 $20 $19 $23 $24 

Reliable 

Roads $9 $18 $17 $21 $17 $20 $19 $23 $24 

Enhanced 

Maintenance $5 $8 $8 $10 $9 $9 $10 $11 $12 

Table 1. RI DOT projections for increase in revenue from 2016 through 

2025 and utilization 

SOURCE: RIDOT 
Financial Planning for Transportation Asset Management 21 

ency in communication for a transportation agency and 

lends credibility to its program of responsibly managing 

its assets. 

5.Elements of a Financial Plan

Fundamentally, a financial plan must look at sources of 

revenue, both current and projected, and expenditure 

needs, both operational (operation and maintenance) and 

capital (additions, improvements, rehabilitation, etc.), to 

satisfy the state’s asset sustainability needs and to meet 

projected demand. The narrative in the financial plan will 

need to describe the assumptions relating to demand 

growth, the need for capital for new investments to meet 

the projected demand, operational and maintenance needs 

to sustain the existing assets and have them performing 

adequately, capital improvement and renovation/rehabilitation needs, where applicable, to sustain the state’s critical 

transportation assets and enable these assets to meet the 

state’s level-of-service needs, all with a long-term view. 

Necessary assumptions relating to inflation, long-term 

economic and demographic trends, and other such related 

factors will also need to be considered and described. 

Revenue Sources 

An agency’s financial plan will need to identify and discuss all 

the sources of revenue available to an agency. For most state 

transportation departments, the sources tend to include: 

State motor fuel tax receipts 

Federal-aid highway and transit funds 

Various state fees, such as drivers’ license and 

vehicle-registration fees 
22 Financial Planning for Transportation Asset Management 

Bond income 

Special fees such as development-impact fees 

General revenue transfers, although these usually are rare 

Other sources such as on-time appropriations or income 

sources unique to the state 

Income Sources 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 

State Motor 

Fuel Tax $477 $482 $487 $477 $472 $467 $465 $459 $464 $466 

License, 

Vehicle Fees $40 $41 $42 $39 $39 $38 $38 $39 $40 $40 

Other $22 $21 $23 $21 $22 $22 $21 $22 $22 $22 

State Bonds $150 $150 $150 $100 $50 $50 $0 $0 $0 $0 

Federal-Aid $650 $657 $663 $656 $643 $650 $630 $618 $624 $605 

Annual 

Redistribution $11 $12 $14 $12 $8 $9 $11 $12 $13 $12 

ARRA $45 $37 $42 $11 $0 

Federal 

Bonds $100 $120 $80 $80 

Total 

Revenue $1,350 $1,462 $1,498 $1,385 $1,314 $1,281 $1,202 $1,191 $1,173 $1,145 

Table 2. Theoretical agency’s trend of income for the past decade 

by source 

Information such as that presented in Table 2—for a theoretical agency—would be advisable to illustrate the types, 

magnitudes and trend lines of income for the past decade. 

In keeping with the intent to illustrate long-term trends 

for long-lived infrastructure, it is recommended that past 

streams of income be illustrated for at least the past decade 

to capture significant trends. Some typical trends that are 

affecting states include: 
Financial Planning for Transportation Asset Management 23 

State fuel tax revenue that increased up to about 2008 

and has declined since then because of a weakened 

economy, increasing fuel economy standards, and 

increasing use of transit or personal transportation; 

The impact of the addition or removal of critical sources, 

such as fee increases or repeals; 

The magnitude of income dependent upon bonding, 

which may or may not be sustainable. Many states relied 

on bonding for a few years to increase revenue, only to 

have to reduce their bond indebtedness over time with 

the result of a significant decline in income; 

The one-time impact of the American Recovery and 

Reinvestment Act (ARRA) funds which are unlikely 

to be repeated; 

Changes in the availability of Federal-aid funds which 

are very important to the agency’s overall budget. 

The trends shown in Table 2 are illustrative of trends in a 

theoretical transportation agency. The trend of the past 

decade is for an overall decrease in revenue attributable to 

declining state fuel receipts, the end of unsustainable bonding, and the end of the infusion of ARRA funds. Estimates 

for future revenues will need to build from this declining 

baseline. 

As agencies estimate future revenues, they will need to 

articulate their perspectives and interpretation of issues 

affecting revenues, such as, why motor fuel tax receipts 

have been declining, or what the ARRA and Annual 

Redistribution funds are. A key point is the variability of 

revenue the agency faced over a decade as State and 

Federal revenues evolved. 
24 Financial Planning for Transportation Asset Management 

A discussion of the Federal Highway Trust Fund would be 

appropriate in this section of the financial plan. As can be 

seen from the illustrative example in Table 2, Federal-Aid 

funds are critical to the overall size of the theoretical State’s 

program. Yet in recent years, the Federal Highway Trust 

Fund balances have been in decline and Congress has made 

several last-minute transfers into the fund from general fund 

receipts to sustain apportionments to the states. 

Figure 7[ix] provides an illustrative depiction of the amount 

of “deficit” that theoretically could develop in the Highway 

Trust Fund if outlays and income trends continue as they are 

now. Because the Trust Fund cannot deficit spend, appropriations would need to be curtailed or additional revenues 

provided before the deficit seen in Figure 7 would occur. 

Receipts, Outlays, and Balances of the Highway Account 

Figure 7. Highway Trust Fund balances and projected shortfalls 

SOURCE: CONGRESSIONAL BUDGET OFFICE 
Financial Planning for Transportation Asset Management 25 

The point of Figure 7 is to illustrate the serious structural 

deficit in the Federal-aid program. An illustration similar 

to Figure 7 combined with a description of the history of 

multiple short-term extensions and lack of predictability in 

Federal-aid funds serves to emphasize the significant uncertainty that an agency would face as it forecast its revenues 

for the next 10 years. 

A point the agency could emphasize is the importance of 

monitoring the risks of future Federal appropriations during 

the life of the financial plan. The accuracy of the financial 

plan will depend in large part upon the accuracy of assumptions regarding federal revenues. In early asset management 

plans, several states assumed a best-case of stable or continuing Federal appropriations at the level prevalent in recent 

years. Obviously, increases or decreases above recent levels 

will impact the overall financial plan. The size of future 

Federal appropriations is likely to be a major risk and this 

uncertainty will need to be documented in the risk registers 

of the overall asset management plan. 

Forecasting Future Revenue 

A discussion of the agency’s best estimates of future 

revenue, by income source, for the next decade provides 

the future plan and helps to set the challenges and address 

expectations. An important observation to be made at this 

point could be to emphasize the critical assumptions that 

the agency is forced to make. Each assumption illustrates 

a major risk that will have to be monitored during the life 

of the asset management plan. Some of the risks, such as 

the amounts to be borrowed, may be within the control of 

the agency. Many others will not. The agency can use this 

section of the financial plan to explain its assumptions and 

discuss how much uncertainty it faces as it tries to prepare 

its long-term revenue forecast, say 10 years into the future. 

The 10-year period would represent five biennial state 
26 Financial Planning for Transportation Asset Management 

budget cycles and probably two reauthorizations of Federal 

highway programs. As such, the forecast is dependent upon 

many assumptions and will probably need to be revisited 

frequently. 

To provide perspective, it is important to discuss the 

agency’s assumptions for future state revenues. The agency 

can provide its best-case estimate of the rate at which state 

motor fuel taxes are likely to increase or decrease. A rapidly 

growing Sunbelt or western state with a strong economy and 

dispersed population may expect to see its state motor fuel 

tax receipts increase, particularly if the fuel tax rate has been 

increased recently. More urbanized states with slowly growing economies and a population with more available transit 

options may forecast a continuing decline in motor fuel tax 

receipts. Any additional expertise such as consultation with 

economists and state treasury officials to develop a consensus forecast of state motor fuel tax forecasts would add to 

the plan. 

Future State and Federal bonding level forecasts will be 

unique to each State. States with high levels of indebtedness 

and stagnating revenues may not be able to borrow to a 

great extent. States with a stronger revenue outlook and 

lower levels of indebtedness may decide to increase borrowing, particularly for large capital items such as major bridges 

or extensive pavement rehabilitation programs. The longlived benefits of those programs may well justify the interest 

costs from 10-year or even 20-year bonds. The amount of 

bonding, however, will vary from state to state. 

The same variation by state will be seen for the income 

sources of fees and other unique sources. Depending upon 

the income sources, past trends, and expected future legislative action, each agency will need to make its own unique 

forecast for fees and other sources. 
Financial Planning for Transportation Asset Management 27 

Future Federal funding levels represent one of the largest 

assumptions and greatest risks facing the financial plan. 

In the early years of the plans, states may want to consider 

different scenarios. They could develop financial plans 

under at least three scenarios including: 

Federal appropriations at approximately the same level 

as the average of the past five years,

 An assumed marginal decrease of 10 or 20 percent, and

An assumed marginal increase of 10 or 20 percent. 

These scenarios would complement other sections of 

the asset management plan where the sensitivity to 

system condition levels are illustrated based upon different 

expenditure levels. Many asset management plans are 

likely to include scenarios in which bridge and pavement 

budgets are shown at different levels with commensurate 

forecasts showing the increase or decrease in asset conditions based upon those expenditure levels. Owing to the 

significant uncertainty regarding the Highway Trust Fund 

and the size of future Federal appropriations, scenarios 

could be used to illustrate the uncertainty faced in the 

financial plan and the significant impact that different 

budget levels could have. 

Forecasting Expenditures 

The forecasting of expenses is as important as forecasting 

the revenues. The expenditure part of a financial plan draws 

from the investment analysis section of the asset management plan. It reports upon desired and forecasted levels of 

expenditures by program areas. Importantly, it shows the 

gaps, if any, between the desired and forecasted levels of 

expenditures. 
28 Financial Planning for Transportation Asset Management 

The investment analysis chapters are likely to include 

forecasts from models showing how much expenditure 

would be needed to achieve condition and performance 

targets. Forecasts from pavement and bridge management 

systems are likely to be produced for those major asset 

classes. State agencies will use a variety of means to forecast 

needs for other assets such as traffic control devices, guardrails, pavement markings, sidewalks and bike paths, lighting, 

and so forth. In some cases, they will not report on these 

assets and only report upon the required pavements and 

bridges. In other cases, states with mature maintenance 

management systems may use those to forecast needed 

investment levels. In yet other cases, states could extrapolate 

from past expenditures to produce forecasts of expenditures 

needed to sustain condition levels for non-pavement-andbridge assets. 

Agencies face competing demands upon the available state 

and federal funds. Showing the forecasted expenditure for all 

categories and not just pavements and bridges will help to 

better illustrate these competing demands. 

It is also important to discuss the State’s inflation assumptions. The rate of construction inflation can have a major 

effect upon purchasing power when compounded over 10 

years. Figure 8 illustrates the significant volatility in national 

construction prices reported by FHWA between 2003 and 

2014. Although prices have stabilized in recent years, the 

inflation growth rate assumed by the state could have a 

significant bearing upon the purchasing power of the plan. 

Showing the impact of inflation on the states buying power 

and the impact on project costs will have a bearing on the 

funds available to meet the asset needs and the ability to 

implement timely treatment on assets. These in turn will 

have long-term implication on the performance and 

condition of assets. 
Financial Planning for Transportation Asset Management 29 

It is possible for many states that only a minority of their total 

funds will be available to sustain asset conditions. Other funds 

may “come off the top” for bond debt, salaries, operating 

costs, passes through funds to local government or dedicated 

programs such as safety. Although state transportation budgets can be large compared to the budgets of other state 

agencies, transportation agencies face many expenses that 

shrink the residual funds they can dedicate to preserving their 

asset conditions. Illustrating these factors can be illuminating 

for legislators and others when they are faced with forecasted 

shortfalls in funding to sustain asset conditions. 

The program categories reported by states are likely to vary 

significantly. Some states have budget categories for bridges, pavement, safety, roadside maintenance items, as well as 

new-capacity programs and local programs. Some use the 

term “maintenance program” to refer to such activities as 

snow and ice control, mowing and basic roadway repairs. 

Figure 8. Construction inflation 2003 to 2014 

SOURCE: FHWA 
30 Financial Planning for Transportation Asset Management 

Others consider “maintenance” broadly and they include 

large expenditure programs for significant repairs to existing 

pavements and bridges. These differences can clearly be 

illustrated in the financial plan. 

Additional explanation can be provided to explain the program categories to provide clarity on the specific approach 

made by the state. Some examples of program categories 

include pavement preservation, bridge preservation, bridge 

maintenance, pavement maintenance, local bridges, roadway 

asset maintenance, new construction, safety and other local 

programs. Report 2 in this series will discuss in more details 

program categories.

The portrayal of expenditures is not intended to be as detailed as a state budget. State budgets exist for many reasons including the control of expenditures within narrow 

categories to comply with statutory or legislative controls. 

The financial plan is not intended to be a budgeting document as much as a strategic programming document that 

illustrates the long-term trends and program amounts affecting infrastructure condition. This more general function of 

the financial plan allows the State to consolidate expenditure 

categories and avoid a large number of detailed expenditure 

categories not relevant to the overall trends related to asset 

investment. 

An illustrative example of expenditure levels for the various 

budget categories are summarized in Table 3. It is assumed 

that detailed explanations for how those “need” levels were 

determined are not necessary in the financial plan chapter 

because they have been developed in the Investment chapters of the TAMP. To the extent needed for clarity in this 

chapter, the analyses that led to the “need” levels can be 

summarized here with the reader referenced to the other 

chapters for more detail. 
Financial Planning for Transportation Asset Management 31 Category 2013 2014 2015 2016 2017 2018 2019 2020 2021 2022 2023 2024 State Bond Payments $100 $100 $80 $60 $60 $60 $40 $40 $40 $40 $40 $40 Federal Bond Payments $50 $50 $50 $50 $50 $50 $40 $30 $30 $30 $30 $30 Operating $108 $111 $114 $118 $121 $125 $129 $132 $136 $140 $145 $149 Salaries $152 $155 $158 $162 $165 $168 $172 $175 $178 $182 $186 $189 Equipment $41 $42 $43 $44 $44 $45 $46 $47 $48 $49 $50 $51 Pavement $228 $228 $249 $259 $250 $240 $259 $257 $245 $240 $240 $240 Pavement Need $235 $247 $259 $272 $285 $300 $315 $330 $347 $364 $383 $402 Pavement Gap -$7 -$19 -$10 -$13 -$35 -$60 -$56 -$73 -$102 -$124 -$143 -$162 Pavement Preservation $25 $26 $26 $27 $28 $28 $29 $29 $30 $30 $31 $32 Pavement Preservation Need $30 $32 $33 $35 $37 $38 $40 $42 $44 $47 49 $51 Pavement Preservation Gap -$5 -$6 -$7 -$8 -$9 -$10 -$12 -$13 -$15 -$16 -$18 -$20 Bridge $110 $110 $110 $110 $110 $110 $110 $112 $113 $107 $96 $85 Bridge Need $103 $106 $109 $113 $116 $119 $123 $127 $130 $134 $138 $143 Bridge Gap $7 $4 $1 -$2 -$6 -$9 -$13 -$15 -$17 -$27 -$42 -$58 Bridge Preservation $20 $20 $20 $20 $20 $20 $20 $20 $20 $20 $20 $20 Bridge Preservation Need $22 $23 $23 $24 $25 $25 $26 $27 $28 $29 $29 $30 Bridge Preservation Gap -$2 -$3 -$3 -$4 -$5 -$5 -$6 -$7 -$8 -$9 -$9 -$10 Maintenance $44 $44 $40 $40 $40 $40 $40 $40 $40 $40 $40 $40 Maintenance Need $44 $46 $47 $48 $50 $51 $53 $55 $56 $58 $60 $61 Maintenance Gap 0 -$2 -$7 -$8 -$10 -$11 -$13 -$15 -$16 -$18 -$20 -$21 Local Projects $45 $42 $35 $35 $35 $35 $35 $35 $35 $35 $35 $35 Safety $40 $40 $40 $40 $40 $40 $40 $40 $40 $40 $40 $40 New Construction $14 $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 TOTAL $978 $968 $966 $965 $963 $961 $959 $958 $956 $954 $952 $951 Table 3. Example of forecasted expenditure needs and gaps 
32 Financial Planning for Transportation Asset Management 

Table 3 shows expenditure by example program categories. 

Juxtaposing the needs and the projected available funding 

by various program categories for the period of the plan 

enables an agency to highlight the gap or shortfalls clearly. 

Irrespective of the specific format chosen, providing an “at-a 

glance” view of the financial picture including a summary 

view of needs and gaps helps to communicate a lot of information about the long-term financial health of an organization that can be valuable to decision-makers. It helps focus 

the discussion on the big picture needs and the need for 

long-term investment. 

6.Examples of Recent Financial

Plans

States vary in the approach to addressing the financial 

planning component of the TAMP. The following summaries 

examine several of the financial analyses included in the 

first-generation asset management plans produced in 

the U.S. 

New York State DOT Financial Plan 

The New York State Department of Transportation (NYSDOT) May, 2014, Draft Transportation Asset Management 

Plan does not include a separate financial plan but integrates 

throughout several TAMP sections, a clear depiction of the 

agency’s severe financial constraints. The plan does not rely 

on tables of sources and uses of funds, but it clearly emphasizes in a more general narrative, the serious gap in funding 

for the preservation of the State’s bridge and pavement 

assets. Those two assets are the focus of the NYSDOT 

asset management plan. 
Financial Planning for Transportation Asset Management 33 

On the first page of its executive summary the plan says 

that the agency’s “preservation first” approach will produce 

higher conditions than if the agency relied on a “worst-first” 

approach. However, even with a preservation first approach, 

the resources will fall well short of what is needed to prevent 

asset conditions from deteriorating further. The current 

investment strategy will not result in a state of good repair 

for pavements or bridges and the preservation first approach 

only slows, and does not prevent, the continuing decline. The 

plan says that the agency would need to spend $1.7 billion 

annually for each of the next 10 years to achieve and sustain 

a state of good repair. However, current forecasts indicate 

the agency only will have $750 million annually for pavements and bridges. 

The plan spends considerable effort effectively communicating through the document to enable stakeholders to understand the financial context of the State’s efforts to preserve 

its pavements and bridges. It notes that although the state 

five-year capital plan allocates $17.93 billion to NYSDOT, the 

large majority of those funds are allocated for purposes 

other than preserving the core highway network. It includes 

a large table showing what allocations “come off the top“. 

Those include nearly $8 billion over five years for engineering, maintenance and rights-of-way. Another $2.9 billion 

goes to “off system” for local routes. Another $3.3 billion 

goes to safety, congestion-relief and other assets. Remaining 

for pavements and bridges for five years out of the $17.93 

billion is $3.75 billion. 

NYSDOT officials said the asset management numbers were 

very useful in communicating with local and MPO officials 

about the reality of the agency’s resources. Many officials 

see the larger $17.9 billion figure and believe the DOT should 

be able to devote more resources to other needs, such as 

additional funding for local assets or more funding for 

capacity relief. The fiscal analysis in the TAMP helps to 
34 Financial Planning for Transportation Asset Management 

educate stakeholders of the many demands upon DOT 

resources and illustrates that the agency is left unable to 

meet one of its core missions, which is to sustain its critical 

infrastructure. A common reaction was that $3.75 billion 

“doesn’t go as far as we thought”. 

Agency officials said the Asset Sustainability computations 

were very useful in communicating to MPOs and to State 

budget officials. The officials said the projected budget only 

meets 19 percent of the State’s bridge needs and 36 percent 

of the state’s pavements needs. The plan notes that with 

such a low percentages, no matter how sophisticated the 

treatment strategy, the overall asset conditions will continue 

to deteriorate. Sustainability gap is the gap between the 

projected funds needed and the projected funds available 

to address asset needs. 

The agency officials said the long-term planning horizon 

for the financial analysis and the composite nature of the 

forecast and the 10-year sustainability gap computations 

were very valuable. These they said provided a long-term 

context for where the State’s assets are heading, and provided a general estimate of the amount of additional investment that is needed in future years. They said the sustainability gap computations have already proven catalytic in 

discussions with local stakeholders and with State budgeters. As state officials consider the next biennial budget 

update, they already are mindful of the long-term investment needs illustrated by the financial plan and the funds 

needed to bridge the sustainability gap. 

The financial planning exercise and the sustainability gaps 

calculation caused NYSDOT to crystalize the articulation 

of some strategies that they had not fully expressed before. 

In the computation of the funding “need” they included the 

assets which they expect to be preserved, repaired, rehabilitated or replaced at the appropriate points in their lifecycles. 
Financial Planning for Transportation Asset Management 35 

Agency officials said that some assets are so large and so 

expensive that they are treated with a “super maintenance” 

philosophy. That means they may never be completed 

rehabilitated or replaced because of their cost and the 

extraordinary maintenance of traffic impacts it would create. 

The Cross Bronx Expressway is one example. It is repeatedly 

resurfaced but the agency has no plans to ever reconstruct 

its pavements. As such, the “need” for a complete reconstruction is removed from the computation of the asset 

funds “needs” calculation. They said it would have represented an unrealistic result to include such a cost in the 

“need” calculation. The sustainability computation and the 

long term financial planning exercise caused the agency to 

more fully articulate the “super maintenance” strategy that 

it is pursuing. 

Closely related to the financial planning in the NYSDOT asset 

management plan was the risk analysis. It noted that the 

greatest risk to achieving the objectives of the plan was 

the uncertain forecast of Federal-aid. Federal-aid provides 

40 percent of the DOT’s capital program and approximately 

70 percent of the off-system construction. The 10-year plan 

will need to be updated if Federal-aid forecasts change. 

Currently, the plan assumes no growth in Federal-aid 

amounts. With the Highway Trust Fund depleted, even 

level funding may not occur. 

The asset management plan’s financial analysis served to 

clarify many financial and policy issues surrounding the 

DOT’s approach to managing its assets. The acute financial 

shortfall combined with the state’s commitment to preservation helped to clarify why the state is de-emphasizing capacity additions and is unable to provide more resources to 

needed local projects. The plan also provided a vehicle for 

the agency to explain to local stakeholders, the MAP-21 

emphasis upon the NHS and why so much of the Federal-aid 

the State receives will be devoted to preserving the NHS, and 
36 Financial Planning for Transportation Asset Management 

is not available for other local needs. The new Federal-aid 

categories de-emphasized some of the funding categories 

that used to be available to locals and rolled them into larger 

programs that emphasize preservation of the NHS. 

The significant underfunding that is expressed as a result of 

the 10-year financial needs analysis led to the plan noting 

that there are “profound and practical challenges ahead for 

New York State.” It notes that left unabated, the amount of 

“poor” pavements in New York State will triple in the next 

ten years with the backlog of needed work nearly doubling 

from $4.7 billion to $7.6 billion. Bridge conditions will become approximately 10 percent worse. The cost to restore 

those assets once they deteriorate will be substantially 

greater than the cost of maintaining them today. 

Minnesota DOT Financial Plan 

The Minnesota Department of Transportation (MnDOT) 

abbreviated the financial analysis in its July, 2014 draft asset 

management plan because the agency had recently completed an extensive 20-Year State Highway Investment Plan 

(MnSHIP). The MnDOT expanded the assets in its TAMP 

beyond bridges and pavements to include Highway Culverts, 

Deep Storm Tunnels, Overhead Signs, High-mast Lights. 

The most noticeable enhancements are the 20-year financial 

planning horizon and the illustration of how the DOT’s 

preferred preservation treatment strategies would save 

billions of dollars over the decades compared to a worstfirst approach. 

MnDOT estimates in its investment plan that it will have about 

$18 billion in Federal and State revenues for capital highway 

improvements for the 20 years between 2014 and 2033. 

However, the investment plan also notes a $12 billion funding 

gap over the 20-year period. For the first decade, the DOT is 
Financial Planning for Transportation Asset Management 37 

forecasting the ability to sustain most of its asset condition 

targets and still invest in key safety and capacity projects. By 

the second decade, stagnant revenues and rising construction 

costs will cause asset conditions to decline and capacity 

projects to be halted, if revenue forecasts come to pass. The 

DOT forecasts 2 percent average increases in revenue but a 

5 percent annual construction inflation rate. That will reduce 

buying power of the forecasted revenue by 60 percent by 

2033. An additional $4 billion would be needed just to 

maintain today’s buying power (see Figure 9). 

The 20-year plan indicates that $30.19 billion is needed over 

18 years to meet the need of 10 program categories including 

pavements, bridges, roadside assets, safety, mobility, local 

projects, engineering and small program categories. This 

compares to the $18 billion expected to be available. 

Figure 9. MnDOT’s Anticipated Inflation-adjusted Annual Construction 

Revenues for the 20-year Plan Period 
38 Financial Planning for Transportation Asset Management 

The DOT notes that the constrained resources prompted a 

change in strategy compared to past 20-year capital plans. 

It applies two different strategies to the two decades of the 

plan. In the first decade, capacity and other mobility projects 

are included but they are dropped in the second decade. 

That is because all available funds will be needed for asset 

preservation. Even with the dropping of the capacity program, asset conditions are expected to deteriorate. 

For pavements for the first decade, the department projects 

to spend $2.89 billion. With that investment, only 2 percent 

of interstate highways and 4 percent of other NHS routes will 

be in poor condition. However, poor pavements associated 

with non-NHS roads will increase from 7-8 percent today to 

11-12 percent. For the following decade, pavement expenditures are projected to rise to $5.41 billion, yet conditions 

will continue to worsen. While Interstates will stay at only 

2 percent poor, the other NHS and non-NHS routes with poor 

pavement conditions are projected to increase by two to 

three times. For the two decades, the DOT projects to spend 

$8.3 Billion for pavements compared to a need of $10.76 

billion. The $10.76 billion would be needed to achieve the 

aspirational goals of: 

Interstate pavement at only 2 percent poor condition 

and 70 percent good,

 Other NHS at 2 percent poor and 70 percent good, and

Non-NHS 3 percent poor and 65 percent good. 

To meet aspirational bridge condition targets over 20 years 

would require $5.11 billion compared to the $3.42 billion 

available over 20 years. Roadside infrastructure such as 

overhead signs, culverts and rest areas would need $1.71 

billion to meet targets compared to $1.49 billion available. 

The percentage of the department’s capital program that 
Financial Planning for Transportation Asset Management 39 

will be devoted to asset management rises from 67 percent 

in the first decade to 89 percent in the second. 

The department also forecasts significantly increased risks in 

the second decade. It indicates that as risks increase, it will 

not meet its pavement and bridge targets set for its Government Accounting Standards Board 34 reports. That could 

reduce its credit worthiness and increase its borrowing costs. 

It also may fail to meet the MAP-21 performance targets, face 

higher maintenance costs and the conditions will not meet 

public expectations. 

The department emphasizes the large size of the State’s 

investment in its transportation system. It notes that 

74 percent of the State’s entire infrastructure by value 

(Replacement Cost) is contained in its 14,000 mile state 

highway system. Table 4 shows the value based on the 

replacement cost of MnDOT’s assets. 

The department used its pavement and bridge management 

systems to forecast costs and performance for three scenarios: a current scenario with a mix of timely preservation 

treatments, an optimized treatment timing scenario and a 

worst-first scenario. The analyses showed a dramatic savings 

Asset Class Replacement Cost 

Pavements $29.5 billion 

Bridges $6.6 billion 

Hydraulic infrastructure: 

Highway culverts $1.7 billion 

Deep storm water tunnels $300 million 

Overhead signs $200 million 

High Mast Light Towers $19 million 

Table 4. MnDOT Asset Replacement Costs 

SOURCE: MNDOT 
40 Financial Planning for Transportation Asset Management 

with the current treatment mix compared to adopting only a 

worst-first scenario. Over a 70-year analysis period for pavements, the department saves $17 billion or $570,000 per lane 

mile. For bridges, the department’s preservation strategy 

extends bridge life from about 50 years to 80 years with a 

37 percent lifecycle cost savings. That equates to an average 

savings of $415,000 per bridge or $581 million for the entire 

NHS over a 200 year analysis period. 

The department also calculated the lifecycle costs of assets as 

a percentage of their initial investment. This analysis illustrates 

the long-term costs of assets, in addition to their initial construction costs. It estimates that the lifecycle costs compared 

to initial construction costs for the following assets are: 

Pavements: 142 percent of initial investment,

Bridges: 142 percent,

Large culverts: 139 percent,

Culverts: 443 percent,

Deep storm water tunnels: 252 percent, and,

• Overhead signs: 129 percent. 

The Department used this data to illustrate the average 

annualized cost per asset per year. That resulted in the 

following conclusions: 

Pavements cost on an annual, average basis $12,000 per 

lane mile to build and maintain,

 Large bridges cost $16,000 per bridge,

 Large culverts over 10 feet cost $1,300 per year,
Financial Planning for Transportation Asset Management 41 

Small culverts $150 per year,

Deep storm water tunnels cost $30,000 per mile of tunnel,

Overhead sign structures cost $900 per year, and:,

High mast light structures cost $400 per year. 

Officials at MnDOT said the investment plan and the asset 

management plan are having an important impact on their 

agency’s planning and programming decisions. Driven both by 

the investment plan and the MAP-21 focus upon NHS performance, the agency has its funding categories changed significantly to direct more resources and to put a higher priority 

upon the NHS conditions. Some district autonomy for investment decisions needed to be reduced and more centralized 

project-selection processes were needed to ensure the focus 

on the NHS conditions. 

Agency officials said that they are also seeing significant 

references to the investment plan and the asset management 

plan in MPO decisions. From those references they believe 

that the plan and the related financial information and 

analysis are increasing the understanding of asset management needs. 

They recommend that the asset management and financial 

plan not be viewed in isolation but be considered as part of 

the existing, overall planning process. While asset conditions 

are important to the public, for many stakeholders, asset 

conditions are just one of many key decisions that need to 

be balanced. Needs for capacity, safety, community development and environmental conditions need to be considered 

along with the condition of assets. 

The agency advises other states to consider the need 

for public and stakeholder involvement in the asset 
42 Financial Planning for Transportation Asset Management 

management and financial plan. They said that without 

buy-in from the public and from key stakeholders, the 

value of the plan could be reduced. Because assets 

consume such a large percentage of the total capital 

program, it is important to have credibility in the plan. 

Their investment plan included substantial public engagement including public comment upon three different 

investment scenarios. That inclusion led to greater 

understanding of the plan and why the department 

reached the conclusions that it did. 

Colorado DOT Approach 

Colorado DOT is responsible for the maintenance and 

upkeep of over 9,100 miles of highways, 3,400 bridges 

and a large fleet of over 3,300 vehicles. Policy Directive 14 

(PD14) defines the framework for transportation planning 

in the state including the agency’s goals and objectives 

which guide the allocation of resources within 

the agency. 

The CDOT TAMP finalized in December 2013 is a fiscally 

balanced plan for maintaining, preserving and improving 

the asset conditions over a ten-year planning horizon 

(July 2014-2024.) 

With increasing public demand for services and diminishing 

funds, CDOT has approached the transportation asset 

management effort as one that would provide a framework 

incorporating risk-based and data-driven approaches to 

making funding decisions based on asset performance. It 

also looks at transportation asset management as a way to 

develop more efficient strategies that can be applied statewide to direct funds to critical needs, develop trade-off 

tools, and focus on the use of engineering treatments at 

the lowest life cycle cost. 
Financial Planning for Transportation Asset Management 43 

Areas of emphasis in the 

CDOT TAMP include: 

Long-term 10-year planning 

horizon 

Integrating risk analysis into 

the planning and programming 

processes 

Incorporating Financial 

Planning into the TAM process 

Analyzing budget trade-offs 

across asset programs 

Incorporating specific 

investment strategies to 

preserve and maintain the 

transportation system at the 

lowest life-cycle cost 

Establishing Asset Management Performance Measures 

and Targets 

Providing value to the 

State’s citizens 

Conducting an Asset 

Management Gap Assessment 

Establishing a process for 

future improvements 

As part of the process used to establish its first TAMP, CDOT 

conducted a survey of its citizens to identify priorities for 

the agency. Survey results indicated a clear mandate for 

the agency to prioritize the preservation and maintenance 

of its assets. 

The asset management 

framework for CDOT incorporates addressing risks in 

decisions. The CDOT assets 

considered in the TAMP 

include structures, pavements, bridges, maintenance 

and traffic assets, buildings, 

Intelligent Transportation 

System equipment, fleet, 

tunnels, culverts, and rock 

fall mitigation sites. 

CDOT is in the process of 

developing a 20-year performance versus funding curve 

for each asset class. CDOT 

has a very strategic approach 

to long-term funding of 

assets to achieve the expected level of service (LOS). This 

information will be a vital part 

of projecting the funding 

needs for long-term maintenance and preservation of 

assets and to provide the 

LOS expected by the public. 

The CDOT TAMP prioritized 

and identified forecasts of its 
44 Financial Planning for Transportation Asset Management 

long-term asset condition and performance requirements. 

The plan accounted for both fiscally constrained and aspirational goals. 

The agency generated multiple scenarios to understand the 

impact of different levels of funding on the performance of 

bridges and pavements. Figure 10 shows five such scenarios 

of funding and the impact of these different levels on bridge 

performance. The $168 million shown in black in Figure 10 is 

the performance projection based on the DOT’s FY2015 

budget. It shows the percentage of structurally deficient 

deck area on bridges increasing from about 6% to nearly 

10% over a 20-year period. Because there is not enough 

funding to address the Bridges that are in ”poor” condition, 

or moving towards “poor” condition, the DOT uses a bridge 

prioritization system to address highest priority bridges 

first. A combination of quantitative and qualitative factors is 

used in this ranking process. 

Bridge Performance Versus Funding 

Figure 10. Impact of funding on bridge performance 

SOURCE: CDOT 
Financial Planning for Transportation Asset Management 45 

Figure 11 shows impact of similar analysis of different levels 

of funding on the long term performance of pavements. 

The agency said that because over 50% of the pavements 

are in “Moderate” category, without additional funding, these 

segments would fall into the “low” category. The TAMP notes 

that the extent of reduction in performance in the early years 

is directly proportional to the level of funding available. 

CDOT uses annual Delphi workshops as a formalized process to obtain recommendations from its staff consisting 

of asset managers, budget staff, senior management and 

region staff. Final budget recommendations from the Delphi 

workshops are provided to the Colorado Transportation 

Commission, which makes the fiduciary decisions and 

establishes the annual budget for that year. CDOT staff and 

asset managers evaluated the agency’s needs and developed scenarios to make funding trade-offs across asset 

classes at a FY 2015 Delphi Workshop. 

Pavement Performance Versus Funding 

Figure 11. CDOT Pavement Performance versus Funding 

SOURCE: CDOT 
46 Financial Planning for Transportation Asset Management 

CDOT has adopted financially and strategically prudent 

long-term strategies and these are reflected in the agency’s 

TAMP. The agency has adopted the strategy that timely 

preventive maintenance and rehabilitation can slow the 

deterioration and cost effectively extends the useful life of 

an asset. Extending the useful life and delaying the need for 

replacement drives down the overall cost of ownership. 

The information and analysis about suggested treatments 

from the pavement management software and Life-Cycle 

Cost analysis (LCC) plays a big role in the agency’s project 

and treatment selections. In its project selection process 

for bridges, the agency takes into account structure type, 

lowest first cost, corridor requirements or National 

Environmental Policy Act requirements. The agency’s 

activities relating to extending the service life of bridges 

inherently takes LCC into consideration. Analyzing the 

needs across all asset categories, the agency has provided 

the highest priority to preventive maintenance and asset 

preservation. 

Other initiatives such as the Responsible Acceleration of 

Maintenance and Partnership (RAMP) program and the 

Funding Advancement for Surface Transportation and 

Economic Recovery (FASTER) have significantly influenced 

the financial planning and budgeting processes associated 

with CDOT’s TAM process. 

Developing projections of the long-term asset performance 

and condition and projecting the funds required to achieve 

these goals for the ten-year period has enabled the DOT to 

present a realistic picture to the legislature and to the public. 

This also resulted in the dialog of stakeholders that led to the 

FASTER and the RAMP initiatives. 

Focus on Bridges, Pavements and Maintenance 

CDOT’s focus on maintenance and preservation of assets is 

reflected in the way it has allocated funds. The allocation of 
Financial Planning for Transportation Asset Management 47 

funds in the agency’s annual budget reflects this philosophy. 

The DOT’s annual budget varied from $800 million to 

$1.6 billion from 2008 to 2014 of which $450 to $600 

million has gone towards asset management activities. 

The amount assigned to maintenance activities has been 

between $200 and $230 million. For the seven-year period 

approximately 80% of the funds have gone to pavements, 

bridges and maintenance activities. The remaining funds 

have been utilized on other asset categories. 

Figures 12 and 13 (see page 48) summarize the historical and 

projected budget levels by asset class for CDOT’s asset 

management activities. These figures show that the budget 

Historic Budget Levels by Asset Class 

Figure 12. CDOT’s Historical Budget levels for Asset Management 

by Asset Class 

SOURCE: CDOT 
48 Financial Planning for Transportation Asset Management 

levels decreased in 2010 and showed a slow but steady 

increase thereafter through 2012. The projected figures show 

a relatively flat budget for the 5-year period thereafter 

(through 2017) before seeing a step jump in 2018 and remaining flat once again thereafter. This step jump is a result 

of the retirement of CDOT’s Transportation Revenue Anticipation Notes (TRANS) bond debt service, thereby freeing up 

$167 million for use elsewhere, which have been allocated for 

asset management programs. However, as a result of CDOT’s 

RAMP program, additional funding availability is projected 

for 2014 and 2015. 

This kind of detailed long-term funding analysis helps 

the DOT and state decision makers take actions that will 

help sustain the asset performance and condition into 

the future. 

Projected Funding Available for Asset 

Management Including RAMP 

Figure 13. CDOT Projected Funding for Asset Management 

SOURCE: CDOT 
Financial Planning for Transportation Asset Management 49 

7.Asset Valuation 

The value of an asset is a very important factor in the planning of strategies for its long-term preservation, maintenance, 

rehabilitation and replacement. An organization may consider 

it more cost effective to replace an asset that has a very low 

value if replacing the asset is more cost effective and if 

disposal costs do not make such a strategy expensive. However for high value assets such as bridges and pavements, 

timely maintenance and preservation are critical to cost 

effectively extending the useful life. 

Asset valuation is the process of assigning monetary value 

to an asset. For private assets and publicly traded assets, 

asset valuation is the factor that determines how much an 

investor is willing to pay to buy an asset. It is also the information that helps investors decide if they should invest in a 

given portfolio. Valuation is at the heart of decision making 

when investments and acquisitions are evaluated in the 

corporate world. It is a guide to the worth of an investment 

portfolio or of an asset. 

The Australian infrastructure financial management 

guidelines [x] explains asset valuation as being an important 

tool in assisting asset managers assign monetary value to 

assets in order to plan for their long-term financial management. It also discusses the importance of asset valuation in 

effectively communicating the value of assets to the public 

and other stakeholders. Australian accounting standards 

(AAS 27 and AAS 29) require annual valuation of infrastructure assets. This approach enables the understanding of 

the value of the infrastructure assets managed or owned

 by a state, local agency or nation as a whole. Without 

such an appreciation for the value of infrastructure assets, 

the public will be unable to appreciate their importance 

and the need for their long-term management and 

related funding. 
50 Financial Planning for Transportation Asset Management 

The Concept of Asset Valuation 

In the simplest terms, the value of an 

asset determines the cost of selling 

or purchasing it. With the exception 

of toll roads, infrastructure assets 

are not likely to be bought or sold 

but the same concept can be 

applied to it. 

Asset valuation shows the cost of 

building or procuring the asset in an 

as-is condition. It enables public 

officials responsible for the management and maintenance of these very 

important and critical assets to communicate their worth. This aspect is 

often forgotten when valuation is 

not part of the discussion. Asset 

valuation provides the quantitative 

framework and highlights the 

investment in monetary terms. 

The monetary value casts the light 

on the importance of this portfolio 

of public investment and the need 

to preserve its value. Doing so 

makes it easier to communicate the 

need to manage it and minimize its 

deterioration. The need for preserving, maintaining, and ensuring that 

these important assets do not 

deteriorate and become expensive 

to replace, becomes sound and 

responsible public policy decisions. 

It logically emphasizes and encourages the need for sustainable 

long-term asset management 

practices. 

By computing the value and 

effectively communicating it, 

asset managers enhance the 

ability for decision makers 

to convey the importance of 

maintenance, preservation 

and rehabilitation of existing 

infrastructure assets. When 

resource balancing is required, valuation also helps 

prioritize the funding needs 

amongst the various categories of assets. 

An example can be seen in 

the Utah DOT’s valuation of 

assets and in the priority 

ranking indicated by the 

DOT. Table 5 shows the 

valuation of assets by 

Utah DOT and displays the 

assets in descending order 

of value. The valuation 

shows that the agency’s 

pavements are valued at 

$24 billion and bridges are 

valued at $5 billion. Together, these two assets constitute about 84% of the total 

value of the agency’s assets. 

This valuation of assets was 

used by the agency as input 

to conduct a risk analysis. 

The agency created 3 tiers 

of assets based on the value 

of the asset, risks of nega­
—

Financial Planning for Transportation Asset Management 51 

Priority Feature Value

1 Pavement (yd2) $24,000,000,000 

2 Bridge (ft2) $5,000,000,000 

3 Walls (ft2) $3,400,000,000 

4 Culverts (ea) $1,000,000,000 

5 Barrier (ft) $438,000,000 

6 Signs (ea) $264,000,000 

7 Fences (miles) $70,000,000 

8 Signal Cab (ea) $353,000,000 

9 Pavement Marking Paint (miles) $33,000,000 

10 Cattle Guards (each) $20,000,000 

11 Paint Messages (ea) $8,800,000 

12 Rumble Strips (miles) $6,000,000 

13 Power Ped (ea) $3,000,000 

Table 5. Utah DOT Valuation of Assets 

SOURCE: UTAH DOT 

tive financial impact for poor management, importance to 

the agency’s performance, operational risks, whether or 

not the asset had a separate and stable funding source to 

preserve condition, and other data and informational risks. 

Strategies for managing assets in each tier were then developed with asset valuation and risk considerations being 

major factors in the management strategies. Such valuation 

highlights the importance of the assets and allows the 

agency to assign resources appropriately to address assets 

and mitigate risks based on the value of assets. 

Asset Valuation is Routine in the Private Sector 

Asset valuation is routine in the private sector. The value of 

assets is one of five main elements of financial statements 
52 Financial Planning for Transportation Asset Management 

(income, expenses, assets, liabilities and equity). Global stock 

markets track these five elements to gauge the health of 

publicly traded companies. Investors study and monitor these 

factors, including the value of the assets, while making their 

investment decisions. The value of assets for manufacturing, 

construction, services, 

and financial investment 

companies differ. They 

also differ based on the 

products of the company. Accounting for 

depreciation of assets 

such as equipment, and

appreciation of assets 

such as real estate and 

goodwill, make a big 

difference on the worth 

of a company. 

The strategies to manage assets also depend 

on the products and 

services of a company. It 

would be irresponsible 

for a railroad to not invest in routine maintenance and 

preservation of its tracks and trains, and to allow its assets 

to deteriorate. Similarly, a financial investment company 

would have to routinely manage the value of its investments, study the long-term management strategies of its 

portfolio companies and proactively move out of investments that show significant downward valuation trends. 

Reporting on asset valuation is part of routine market 

updates provided by the private sector. Providing market 

updates and clearly indicating all assumptions in the 

financial disclosures submittals, is mandatory for publicly 

traded companies. 

Preservation and Maintenance are critical to cost 

effectively extending the 

useful life of assets. It 

seems irresponsible to have 

to pay high cost for reconstruction and rehabilitation 

when significantly smaller 

amounts on maintenance 

and preservation can reap 

more benefits, cost less and 

leave our assets in good if 

not better condition for the 

use of future generations. 
Financial Planning for Transportation Asset Management 53 

Asset Valuation Helps Communicate the 

Prudence of Long Term Asset Management 

Presenting the value of the assets owned and/or maintained 

by a public agency such as a transportation agency makes it 

easier to provide context to the funding needs of the agency. 

It makes it easier to communicate the financial requirements 

and budgets needed to preserve and maintain the assets. As 

assets deteriorate, the asset value falls and the cost of fixing 

and rehabilitation or replacing the asset increase. Asset 

valuation thus also provides the framework to communicate 

to the public and explain the additional cost of rehabilitation 

and loss of asset value that will result without long-term 

preservation and maintenance of these assets. 

This concept is illustrated for a pavement structure in Figure 14 

(see page 54), which shows that early maintenance will be 

less costly than a rehabilitation that is performed after the 

structure has deteriorated (O’Brien [XII], 1989). Washington DOT 

adopts this model to time maintenance activities to extend 

the useful life of assets at the lowest life cycle cost. 

An agency can use the cost of applying different treatments 

to rehabilitate pavements along with various scenarios to 

explain cost effective strategies it plans to use to retain the 

value of the assets, and also to explain the loss of value of 

important assets. 

In Australia, the practice of assigning monetary value to 

highway assets is a key component of the asset management 

and financial plans. Assigning monetary value to assets and 

tracking the change in that value over time has led to recognition that highway infrastructure is an important community 

asset that needs to be preserved and enhanced for future 

users. The emphasis upon preserving asset values further 

supports a sustainable approach to preserving assets so they 

are available to serve current and future users. 
54 Financial Planning for Transportation Asset Management 

There are many ways to show the value of assets. The 

approach used to compute it impacts the final asset value 

presented. Asset valuation is also a good tool to realistically 

capture and present how assets depreciate. In the case of 

infrastructure assets, applying timely maintenance and preservation treatments slows the rate of deterioration and extends 

the remaining useful life. Preservation and maintenance thus 

improves the value of the asset. On the flip side, delayed 

preservation and maintenance accelerates the deterioration 

and reduces the value of the asset. 

Asset valuation can help an organization highlight the 

importance of its assets. It can help communicate their 

value and the need for preservation and maintenance, 

and for not allowing the value of these important assets 

0 5 10 15 20 

Figure 14. Benefit of preventive maintenance on pavement condition 

SOURCE: O’BRIEN[XI], 1989 
Financial Planning for Transportation Asset Management 55 

to depreciate rapidly. It can also help to communicate the 

responsibility of transportation agency officials in the 

long term management of these assets. 

End of Useful Life 

The financial valuation of assets can also help to convey 

the need to replace an asset when the end of its physical 

or useful life is reached. 

Infrastructure assets have tremendous value not just because 

of the asset valuation but also because of the impact they 

have on commerce, the daily life of users, and the life of the 

community. Most consumers 

take these impacts for 

The useful life of an asset is granted. Transportation 

the period over the life of infrastructure directly 

the asset when it is expect- enables movements to 

ed to be available for use. and from communities and 

commerce centers within 

the state, to and from other 

states, and nationally. The 

importance of this factor alone is sufficient to emphasize the 

need to preserve and maintain these assets, maximize and

extend their useful life cost effectively, and replace them 

when they reach their end of life. Proactively managing the 

end of useful life of assets enables the planned replacement 

that is required for continuation of services to the

community. 

MAP-21 and Implications of Asset Valuation 

MAP-21 has refocused the attention of legislatures and the 

public on the state of the nation’s critical and most valuable 

assets. It has also drawn attention to the age and condition 

of the assets by requiring agencies to identify their system 

condition and develop a plan to improve it to specified 
56 Financial Planning for Transportation Asset Management 

standards. This translates to identifying, (a) the critical 

funding needed to improve, preserve and maintain the good 

assets, and (b) the funding needed to rehabilitate and replace 

those that are aging and in poor condition. By necessitating 

such funding needs, the emphasis on preservation and 

maintenance is highlighted. MAP-21 has thus brought to 

the forefront, the discussion on the state of the system. 

Asset valuation and financial plans incorporating these 

aspects will show that it is sensible and responsible to focus 

on long-term asset management involving preservation 

and maintenance of existing assets and help agencies reap 

long-term benefits more cost effectively. It will also show 

the negative implications of taking short-term management 

measures such as worst first treatment approaches. A longterm strategic approach to managing assets by doing routine 

maintenance and timely preservation treatments costs less 

and extends the remaining useful life of assets that have not 

progressed too far in the deterioration curve. 

Asset valuation provides the information to explain where 

preservation and maintenance will work and where rehabilitation and reconstruction is necessary. 

Some transportation structures are critical and cannot be 

easily valued. An asset valuation exercise can illustrate the 

very high cost of replacing such assets and help communicate the importance of preserving and maintaining them. In 

such cases, DOTs may adopt a special strategy to keep the 

asset in good condition. To illustrate, the Brooklyn Bridge is 

an asset where the DOT spends about $20 million a year in 

accelerated maintenance to keep the bridge in good condition. Valuation results for examples such as this will help 

agencies communicate the tiered approach of addressing 

preservation and maintenance. This may involve maintaining 

the condition of the “fair” and “good” assets, improving the 

condition of the “fair” assets, or in some case letting the 
Financial Planning for Transportation Asset Management 57 

“poor” assets drop till they can be replaced—thus making 

the most effective use of the taxpayer monies. 

How to Value Assets 

There are many methods used to value an asset. Private 

companies and public agencies differ in how assets are valued. 

The intent of valuation is different for these organizations. 

At the simplest level the value of an asset is based on its fair 

value. The computation of current value or book value of an 

asset takes into consideration the value of the asset at the 

time of purchase or construction, and applies depreciation 

to it, where depreciation is that part of the cost of the asset 

that has already been consumed. This method of valuing 

assets is more common for public transportation agencies. 

A few of methods to value assets are as follows, with the 

differences being attributable to how the “consumption” 

or “depreciation” is applied: 

1. Straight line depreciation—This method assumes the 

consumption of the asset to be constant over the useful 

life of the asset. 

2. Declining balance method—This method assumes the 

consumption to be higher in the early stages and to be 

less towards the later years of the asset’s life. 

3. Increasing Consumption—This method assumes the 

consumption to be less in the early stages and increase 

towards the later years as the asset reaches the end of 

its useful life. 

4. Unit of Production—This method assumes that the 

consumption is based on the output, on units of 

product output or service provided. 
58 Financial Planning for Transportation Asset Management 

Note that these methodologies do not account for the value 

of the intangible benefits of the asset or the effects of cost 

increases due to inflation. A roadway asset may provide 

numerous intangible benefits to a community, other than 

simply providing a means of access, and the community may 

be willing to pay a price for such intangible benefits. A fair 

value computation of a public asset would thus need to 

account for the monetary value of such intangible benefits. 

This concept is very well accounted for when a private 

company values its assets. Consider for example, a company 

that has constructed and operates a toll road which receives 

revenues from toll collection. Such a company may use 

several methods to compute 

the fair value of its toll road 

Fair value is what a asset. An objective approach 

knowledgeable buyer to valuation would typically 

would be willing to pay involve the use of a discountfor the asset and is ed cash flow methodology. 

routinely followed in the This methodology will take 

private sector. into account the net annual 

cash flows projected to be 

available to the company for 

the useful life of the asset, after accounting for expenses 

related to operations, routine maintenance, major maintenance, debt service (if applicable), capital improvements, etc., 

discounted appropriately to compute the net present value. 

The rate at which the cash flows are discounted may typically 

account for a long-term bond rate which would be representative of a risk-free rate plus some premium to account for 

perceived or assessed risks to achieving these projected cash 

flows. The asset value so computed principally represents the 

net present value of the net monetary benefits from the 

asset, and for a profitable toll road, would be higher than the 

book value of the asset (construction cost less accumulated 

depreciation). This value would represent what a buyer might 

be willing to pay to acquire such an asset (fair value). 
Financial Planning for Transportation Asset Management 59 

The two commonly used methodologies for depreciating 

transportation assets in the U.S. are the straight line 

depreciation and the declining balance methods. 

When one considers the replacement value of an asset at 

any given stage of its useful life, it would be pertinent to also 

consider the effects of inflation in the construction costs. 

Assets may be revalued from time to time. In Australia, it is 

mandatory for companies to revalue their assets from time 

to time and arrive at the fair value. Impairment of assets, 

major market shifts, inflation, and significant increases or 

decreases in cost of components and construction materials 

are factors that would logically indicate the need for revaluing an asset. 

DOT Approach to Depreciation 

As seen from the description above, application of depreciation is key to how a public agency would value its assets. 

The concerns over financial sustainability and transparency 

in reporting on long-term government obligations that arose 

internationally also were embodied in the U.S. Governmental 

Accounting Standards Board statement 34 (GASB 34) that 

was enacted in 1999[xiii]. GASB 34 was intended to demonstrate the extent to which governments were accruing longterm, unmet financial liabilities that eventually would reduce 

the government’s ability to meet its service obligations. 

One of the two major changes to government financial 

reporting required by GASB 34 involved the accruing of 

depreciation of assets to be reported on the agency’s 

financial statements. This requirement was intended to be 

much more than a technical accounting change. 

GASB 34 generated many comments from agencies who 

took issue with only capturing depreciation and using 
60 Financial Planning for Transportation Asset Management 

depreciation as a means to estimate needed investment. 

GASB 34 rules were expanded to allow agencies to use a 

“modified” accounting approach. 

The modified approach allows agencies with sufficient asset 

management systems to rely on those systems to document 

that the agency was adequately maintaining its assets and 

not accruing significant future financial liabilities to reduce 

backlogs of unmet maintenance needs. 

The criteria to be able to use the modified approach are to 

have an up-to-date asset inventory, perform condition 

assessments of those assets, and estimate each year the 

annual amount needed to maintain and preserve the assets 

at a determined condition level. Agencies using the modified approach are to document that asset conditions are 

updated at least every three years and show that for three 

updates the assessments documented that assets are being 

preserved approximately at the desired condition level. 

An NCHRP 2008 [xiv] report stated that most of the agency 

officials who participated in a workshop reported that the 

GASB 34 reports had become “just one more administrative 

task.” The agencies reported receiving very little interest in the 

GABS 34 reports from outside 

entities, legislative bodies or 

NCHRP 2008 Report on	 the investment community. The 

GASB 34—Issues identified	 report’s conclusions say that 

for GASB 34 to play a substan- An asset replaced, is to be	 tial role in supporting sound listed with the same value as 

asset management, substantial the old asset if the new asset 

provided a comparable level of changes in its rules would be 

needed. Weaknesses with service. This results in a new 

bridge having the book value capitalizing replacement assets 

that is the same as an old also divorced GASB 34 valuadepreciated bridge that it tions from the on-the-road 

replaced. realities of what agencies were 
Financial Planning for Transportation Asset Management 61 

actually investing in assets. Therefore GASB 34 in its current 

implementation does not accurately reflect the value of a 

state’s transportation assets. The values of these assets per 

GASB 34 are significantly lower than the actual value of these 

assets. If the valuation from GASB 34 would be used to compute the value of replacing the infrastructure assets, nationally 

they would reflect the value of assets as only a fraction of 

the actual value and the cost to replace aging assets would 

incorrectly reflect the need for a very small investment. 

DOTs such as Utah DOT are moving towards doing asset 

valuations that will be a closer reflection of the asset value 

and also reflect the cost of timely preservation and maintenance versus delaying such action. 

Irrespective of the method used for valuation it should 

reasonably reflect the consumption and the cost of replacing 

the asset. 

Australia: Approach to Valuation 

The Australian Infrastructure Financial Management Guidelines Quick Guide Version 1.3 considers the value of an asset 

as the cost of an acquisition or construction of a physical 

asset. This can include the cost and other directly attributable costs such as the cost of bringing the asset to the 

location and setting it up ready for operations. Other costs 

that are directly attributable to the construction or acquisition of assets can be included. All delivery and testing costs 

are also considered direct costs and are included in the 

valuation of the asset. These costs add up to be the fair 

value of the asset at the time of purchase or installation. 

As the asset is consumed, the future economic value of 

the asset is considered to decline. The rate of this decline 

is computed using one of the methods of depreciation 

addressed earlier. An asset can be impaired and decline to 
62 Financial Planning for Transportation Asset Management 

a value below what is indicated by depreciation. Factors 

such as floods and fires are examples of what can cause 

impairment beyond the normal depreciation and cause 

the asset to lose value. 

Future Economic Value 

The future economic value of an asset is the benefit from the 

ability to provide to the public, the service required from the 

investment. The intent in managing transportation assets is 

that the benefits from the investment should exceed the cost 

of the investment. Though 

not a requirement, agencies 

Risk is the positive or such as Colorado DOT have 

negative effects of successfully used the future 

uncertainty or variability 

upon agency objectives. 

economic value of transportation assets to convey the need 

for investment in infrastructure assets. The DOT’s TAMP 

states that “Colorado households and businesses indicate the 

value of transportation in Colorado through the $54.8 billion 

they are willing to pay for the transport of people and goods 

each year.” 

Preservation and maintenance activities support the future 

economic benefits and help to convey the importance of 

leaving the assets in better, if not as good condition as they 

are today. More important is the objective of not burdening 

future generations with the costs needed to fix critically 

failing infrastructure. 

Financial planning provides an excellent way to capture the 

future economic value of an agency’s assets. It is an effective 

tool to illustrate the magnitude of investment and show the 

enormous public value of the infrastructure assets. It therefore emphasizes the need for preservation and routine 

maintenance, so as to enable the handing over of the assets 
Financial Planning for Transportation Asset Management 63 

to future generations in good condition. By providing the 

tools to communicate the depreciation of the assets, it is 

possible to further emphasize the need to preserve them 

and improve asset conditions systematically to extend 

their useful life. 

In conclusion, if the consumption of the asset is such that 

the future cost of investment exceeds the benefit of an 

asset, it is a bad investment. Preservation and maintenance 

activities reduce the rate of consumption of the asset, 

reduce the impact of use (wear and tear) and increase 

the future economic benefit. 

8.Financial Risks 

All organizations, private and public have to make assumptions in developing their financial plans. Corporations use 

them to plan growth and maintain existing assets. It would 

be irresponsible for a corporation to ignore the care and 

maintenance of existing assets and let them deteriorate while 

investing in new assets, unless the intent was to write-off the 

existing assets. 

Strategic asset management plans should first establish how 

the long-term needs of preserving and maintaining existing 

assets will be addressed. A financial plan that focuses on 

adding capacity without addressing the preservation and 

maintenance needs of existing infrastructure is an indicator 

of risks to existing assets. 

The majority of transportation agency assets are expensive 

to build, replace and rehabilitate. Additionally, activities such 

as replacing or rehabilitating a bridge or a road can cause 

considerable inconvenience to road users. Extending the 

useful life of infrastructure assets in a fiscally balanced way 

is an important responsibility that transportation agency 
64 Financial Planning for Transportation Asset Management 

leaders take very seriously. The financial plan distils the 

agency’s funding responsibilities and establishes the way 

it intends to implement and fund its activities. 

The financial plan is a forecast of the funding for the 

long-term. Agencies vary in the number of years they 

address in the financial plans. The Colorado DOT and 

New York DOT have a ten year analysis in their financial 

plans. These are projections for future years and are based 

on many assumptions and scenarios. The uncertainties 

associated with these assumptions are risks that have to 

be monitored and managed. In situations where these 

risks cannot be properly managed, the asset management 

plan will need to be refined to incorporate the related 

financial implications. 

The asset management plan communicates the long term 

strategy of an agency to responsibly maintain and preserve 

infrastructure assets within its charge. The financial plan 

conveys the agency’s intent and how it plans to achieve the 

asset management objectives. The inflows of funds are 

often limited and are based on many external factors. Each 

of these factors pose risks that need to be identified and 

clearly documented in the plan, along with details of how 

they will be mitigated. 

Funding Uncertainty 

A transportation agency’s asset management plan and 

activities for each year are dependent on its revenue inflows. 

One of the big risks to revenue inflows relates to the uncertainty associated with appropriations of federal and state 

funds. If an agency cannot be certain about the amount of 

funds they will receive each year, they cannot reliably plan 

their program of projects for the short term, let alone the 

long-term. The reliable delivery of the asset management 
Financial Planning for Transportation Asset Management 65 

plan is therefore closely tied to the funding required to 

deliver the necessary program of projects. 

When short term extensions in budget appropriations occur 

and the related uncertainty in funding availability clouds an 

agency’s ability to deliver projects in the program for the 

short-term, its long term asset management plan also gets 

jeopardized. These uncertainties from year to year can result 

in funds getting redirected to short-term actions (“worstfirst” approach) that may be necessary, but may not be the 

most prudent action. 

A simplified example illustrating the implications of taking 

such a short-term approach due to funding uncertainties 

can be seen from the Minnesota DOT’s example shown in 

Figure 15. The DOT’s asset management plan emphasizes 

the risks of reverting to a worst-first strategy by comparing 

the costs of a worst-first approach to a more lifecycle-costbased approach. It illustrates the difference in costs for 

Figure 15. Pavement Life-Cycle Cost 

SOURCE: MNDOT 
66 Financial Planning for Transportation Asset Management 

many of its major assets including pavements, bridges, large 

culverts, small culverts and deep storm water tunnels. Its 

asset management plan includes extensive discussion of 

how its proposed lifecycle-based approach will save the 

State’s taxpayers hundreds of millions of dollars over the 

next 20 years. The analysis emphasizes the financial risk the 

State will face if it does not pursue the asset-managementbased approach to treating assets appropriately during 

their lifecycle. 

In its discussion of a lifecycle approach for pavements, 

the department notes that the typical preservation and 

rehabilitation treatments it uses for asphalt pavements 

includes crack sealing, thin surface treatments, full-depth 

reclamation and overlays. For concrete pavements the 

agency has various preservation and rehabilitation strategies. Its treatments and their timing seek to use the 

lowest cost appropriate treatment to avoid further, 

more expensive deterioration. 

MnDOT strategy compared to its future desired strategy 

and a worst-first approach. This chart illustrates that over 

a 70 year period it would cost the State $980,000 per lane 

mile of pavement if the department used only a worst-first 

approach. The department’s current lifecycle approach 

shown in blue costs $410,000 per lane mile over the 70 year 

period, or less than half as much. The green cost of $390,000 

over the 70 years reflects the department’s estimate that it 

could lower the lifecycle cost further by adopting even more 

optimized treatment strategies. 

MnDOT illustrates similar savings through an asset management approach for its bridges. It reports that its lifecyclebased bridge maintenance and preservation approach extends the life of its bridges from 50 years under a worst-first 

approach to about 80 years. MnDOT’s current policy saves 

about 37 percent of the future lifecycle costs, a savings of 
Financial Planning for Transportation Asset Management 67 

$415,000 per bridge or $581 million for the entire NHS 

inventory over the 200 year analysis period. It uses a very 

long 200-year analysis period to capture the full lifecycle 

costs of having to more frequently replace bridges that are 

not adequately maintained. Among the largest cost savings 

is the need to less frequently replace bridges when they 

are adequately maintained. 

These examples illustrate the need for certainty on longerterm revenues and funding that prepares an agency to plan 

strategically for the right mix of treatments. With long term 

funding certainty, transportation agencies can plan investment needs to (a) retain the assets that are in “good” condition, (b) invest funds to improve assets in “fair” condition to 

“good”, (c) invest funds to improve assets in “poor” condition 

to “good”, and (d) invest the needed funds to continue to 

maintain all assets in “good” condition. If a worst-first approach is used then available funds are utilized first to improve the “worst” or “poor” assets, with the spillover funds 

used next to improve the “fair” assets and finally to preserve 

and maintain the “good” assets in “good” condition. 

A planned approach, on the other hand, will utilize funds to 

maintain the “good” assets in “good” condition, with spillover funds used to improve the next worse categories. The 

idea is when an agency has certainty in funding they can 

have a strategy where the “poor” will be held together so 

that funds can be used to ensure that there is no downward 

slide of the other categories. 

Assets that are not improved will continue to deteriorate, 

with some additional assets being re-classified every year 

into the next worse category with an additional cost implication for improvement over what was previously estimated. 

The MnDOT example clearly demonstrates that it costs less 

to retain assets in the “good” condition as compared to a 

“worst-first” approach. 
68 Financial Planning for Transportation Asset Management 

Recognizing such risks and planning for them through 

alternative scenarios can help an agency manage the 

implementation of its financing plan and still continue to 

take prudent actions that optimize the utilization of funds. 

Changes in Economic Conditions 

Changes in economic conditions, both at a macro-level and at 

a local level, can have an impact on financial planning within a 

transportation agency. If there is a significant downward trend 

in economic activity in the nation, such as a slowing of the 

GDP growth, or in more extreme cases, a recession, it can have 

an impact on the revenues available to a transportation agency. Uncertainties associated with economic conditions in the 

future are hard to predict and can impose significant constraints. Periods of downward economic trends are typically 

followed by periods of recovery. An agency can evaluate 

historical trends and can plan for eventualities should they 

occur. However, as was seen in the aftermath of the 2008 

recession, economic recovery has been slow and long-drawn. 

This has imposed severe funding constraints on most state 

transportation agencies in the country. Recognition of such 

risks can allow an agency to establish a strategy to deal with 

such occurrences in its financial planning. 

Similarly, inflationary trends involving increases in construction prices that affect the inputs to construction, preservation and maintenance activities can have a significant impact 

on the agency’s ability to deliver the planned program of 

projects. For example, the increase in construction prices in 

2005 (Figure 8) had a major impact on the number of 

projects that agencies could deliver. 

Inflation or reduction in revenue receipts can materially 

impact the number and type of projects that an agency may 

be planning to deliver. A well thought out long-term asset 

management plan will need to make assumptions in its 
Financial Planning for Transportation Asset Management 69 

projected budgets relating to such possibilities and plan the 

projects that will be delivered within the projected budget. 

Not doing so can pose many additional risks to an agency 

including political risks and the risk of losing credibility with 

the public. With the nation’s aging infrastructure and dire 

funding situations, the long-term support of the legislature 

and the public is vital to any agency for raising critically 

needed revenue for infrastructure needs. Agencies would be 

well-served to avoid such consequential risks, by having 

strategies to address the risk of inflation in their financial 

plans component of the TAMP. 

The example described below illustrates the Washington DOT 

experience in dealing with economic changes. Washington 

DOT, received a substantial funding increase in the early 

2000s for a major program of new projects. Then, beginning in 

2005, construction prices rose sharply as seen in Figure 16 and 

seriously eroded the number of promised projects they could 

deliver. This resulted in public questioning and concerns. 

Figure 16. Historical changes in Construction Cost Index reported 

by FHWA

SOURCE: WSDOT 

FHWA CCI 1965-2006 
70 Financial Planning for Transportation Asset Management 

The agency had to explain that they had not anticipated the 

risk of future price increases. Learning from this experience, 

the agency now makes sure to indicate its assumptions on 

price increases in its plans and closely monitors such risks. 

Figure 17 shows how Washington State DOT illustrates the 

impact of inflation on purchasing power. The DOT tracked the 

variation of the 8 cent fuel tax revenue it received between 

2001 and 2014. The figure clearly shows that the nominal 

revenue stayed nearly constant during this 14-year period, 

whereas the real revenue (after adjusting for inflation) 

declined by 46% during this period.

Political Influences 

When political priorities influence project selection, they 

can create risks for the delivery of the program of projects 

required for the long-term management of infrastructure 

assets. Unplanned capital projects resulting in the redirecting 

Nominal 8 cent fuel tax revenue grew 0.8% 

between 2001 and 2014 

Figure 17. The impact of inflation (shown in orange) eroding 

purchasing power

SOURCE: WSDOT
Financial Planning for Transportation Asset Management 71 

of agency funds to new projects can impact the ability of an 

agency to deliver its planned program. Besides reducing the 

availability of funds for programmed projects, they also add 

new responsibilities and risks associated with the addition of 

new assets that also need to be preserved and maintained. 

Since most budgets do not address the long-term maintenance of new and unplanned assets, addition of such new 

assets can result in the diversion of funds from maintenance 

and preservation of existing assets, thus incorporating new 

unfunded requirements and liabilities. 

In Australia, when a new and unplanned asset is added to an 

agency’s program or budget, the organization (county, city) 

has to plan for funding for the long-term preservation and 

maintenance needs to such assets. 

Risks from Natural Events 

Another risk that can impose a significant financial burden 

on transportation agencies is the risk of occurrence of 

natural calamities or events that can materially impact 

an agency’s ability to implement its planned program of 

projects. Earthquakes, floods, hurricanes, tornadoes and 

other similar events, including those resulting from climate 

change can have a significant effect on a state’s infrastructure assets. Due to the high degree of unpredictability of 

natural disasters, transportation agencies have historically 

not been setting aside amounts necessary to address such 

events. Occurrences of such events can result in agencies 

having to redirect funds that have been set aside for strategic needs. Redirecting large amounts of monies can take 

a toll on even well-planned long-term asset management 

strategies. By stating the assumptions in the financial and 

asset management plans and by updating the plans to 

reflect such risks based on periodically available data, 

agencies can communicate better with the public, legislature and other stakeholders on the need for additional 
72 Financial Planning for Transportation Asset Management 

funding, or alternatively, on the need to make revisions to 

the program of projects they can deliver. 

For example, the New York DOT has identified climate 

change issues as one of the risks to its ability to preserve 

and maintain its assets. The agency lists the consequences 

of storm events and future climate change events as a risk 

that will mean further redirecting funds from asset management activities. 

New York DOT expects there to be more frequent storms 

and severe flooding events occurring in the future as a 

result of climate change. They fear that storm-damaged 

assets will not fulfill useful life and the asset deterioration 

will be at an accelerated pace. They also have concerns that 

such events in the future will draw down funds from core 

programs and affect the agency’s ability to do preservation 

and maintenance of those assets. These climate change 

events also complicate planning for asset renewals. 

A similar need to redirect funds to address earthquakes and 

fires for agencies in the west-coast region draw away from 

funds planned for other core assets and put their long-term 

management at risk. 

Addressing these risks and identifying these as potential 

causes for redirecting future funds in the financial plan will 

help to convey a realistic view of the financial health of the 

agency. This also proactively conveys to the stakeholders 

the possibilities and prepares them for situations when such 

redirection of funds occurs. 

Long-Term Policy 

Long-term policies help align agency objectives and reduces 

redirection of funds from planned actions that detailed in the 

TAMP. If an agency has policies that are linked to a long-term 
Financial Planning for Transportation Asset Management 73 

strategic plan it can ensure that agency activities are better 

aligned to delivering the plan. Agency projects and operations can ensure that the right treatments are applied to the 

assets at the right time. The policy can provide the clarity 

and the commitment to strategic preservation and maintenance activities. 

Without clarity, there is a higher chance of occurrence of 

short-term actions that redirect funds from strategic initiatives and may not be the most cost effective treatment for 

the agency. For example, if any agency decides to switch 

from a long-term plan to a “worst-first” approach, the 

objective of strategic asset management will get derailed. 

With a long-term policy in place there is clarity that some 

“poor” assets will be held together for a period of time 

while other assets are being effectively managed. These 

“poor” performing assets would have been addressed in the 

strategic plan and there will be a timeline for what action 

will be taken and when treatments will be applied to them. 

Without such a plan and no long-term strategy, there is 

higher likelihood of moving towards an approach that 

addresses “worst-first”. This can jeopardize the ability to 

cost effectively sustain the agency assets over the longperiod and extend the useful life of assets. 

Vermont DOT has an asset management policy document 

that states that the agency will focus on a “preservation first” 

and not a “worst-first” approach and will implement this 

practice through regular maintenance activities, and planned 

rehabilitation and replacement projects. 

All of these factors that create risks and uncertainty should 

be explained in the financial plan for it to be credible. Any of 

these risks can affect the viability of the plan. The agency’s 

assumptions relating to each risk and how the agency plans 

to address them, including the necessary monitoring and 
74 Financial Planning for Transportation Asset Management 

mitigating actions will have a substantial influence on the 

achievement of the plan. 

Addressing these risks in its asset management and related 

financial plan, can enable the agency to effectively communicate both internally to agency personnel and externally to 

the public, about how it plans to manage the available funds 

and responsibly manage the states infrastructure assets that 

are under its charge. 

9.Metrics 

Metrics are extremely important to understanding the 

financial health and ability of an organization to deliver 

its strategic plans. 

For infrastructure assets, measuring and monitoring the risks 

and financial sustainability is critical to an organization’s 

ability to maintain, preserve and enhance its assets and 

asset portfolio. 

Financial metrics create a shorthand summary of the large 

amount of information included in the financial plan and 

boil it down to a few ratios that show the bottom line of 

the consequences of the plan. A few examples include, 

asset sustainability ratio, asset consumption ratio, and 

asset renewal funding ratio. These ratios have been used 

extensively in asset management plans in Australia. 

The asset sustainability ratio is an indicator of whether assets 

are being replaced or renewed at the same rate as they are 

depreciating. The asset consumption ratio is defined as the 

ratio of the depreciated replacement cost to current replacement cost for the same assets and indicates the aged condition of the physical assets. The asset renewal funding ratio 

indicates an agency’s ability to fund its asset renewal needs. 
Financial Planning for Transportation Asset Management 75 

As can be seen, each of these ratios digests summary 

information from an agency’s asset and financial plans. 

Asset Sustainability Gap 

The gap in asset sustainability is another simple measure that 

can be used to illustrate long-term financial health. It is a way 

to show the gap between the needs and the available funding. 

The example shown in Table 6 (see page 76) uses data from 

a typical DOT for illustrative purposes and presents a computation of this sustainability gap at a glance. It shows the 

need for funds and the available funds. It also shows the gap 

in funds needed to meet the different pavement and bridge 

Australian Financial Sustainability Indicators 

Operating Surplus Ratio: This is the operating results expressed as a 

percentage of total operating income. 

Net Financial Liability Ratio: This is the net amount owed by an organization 

compared to its operating income for that period. 

Asset Sustainability Ratio: This is the ratio of asset replacement expenditures to depreciation for a given period. 

Asset Renewal Funding Ratio: This is the net present value of asset renewal 

value and replacement funding accommodated over 10 year period in a 

long-term financial plan relative to the net present value of projected capital 

renewal and replacement expenditures identified in an asset management 

plan for the same period. It assesses the entity’s financial capacity to find 

asset renewal and replacement in an optimal way. 

U.S. FHWA Asset Sustainability Index 

Asset Sustainability Index (FHWA): An Asset Sustainability Index is a 

composite metric computed by dividing the amount budgeted on infrastructure maintenance and preservation over time by the amount needed to 

achieve a specific infrastructure condition target. 
76 Financial Planning for Transportation Asset Management 

Budget Versus Need 2014 2015 2016 2017 2018 2019 2020 2021 2022 2023 

Maintenace Need $74 $75 $76 $78 $79 $79 $79 $79 $79 $79 

Safety Need $15 $15 $15 $15 $15 $15 $15 $15 $15 $15 

Town Aid $55 $55 $55 $55 $55 $55 $55 $55 $55 $55 

Pavement Need $237 $237 $237 $237 $237 $249 $261 $274 $288 $302 

Bridge Need $152 $152 $152 $152 $152 $160 $168 $176 $185 $194 

Signals, ITS Need $20 $20 $21 $21 $22 $22 $23 $23 $23 $24 

Total Need $553 $554 $556 $558 $560 $580 $600 $622 $645 $669 

Pavement Budget $190 $190 $190 $190 $180 $171 $163 $154 $147 $139 

Bridge Budget $122 $122 $122 $122 $122 $116 $110 $104 $99 $94 

Unmet Pavement 

Need $47 $47 $47 $47 $57 $78 $99 $120 $141 $163 

Unmet Bridge Need $30 $30 $30 $30 $30 $44 $58 $72 $86 $100 

Asset Sustainability 

Gap for Bridges and 

Pavements 

$78 $78 $78 $78 $87 $122 $157 $192 $227 $263 

Table 6. Illustration of Asset Sustainability Gap 

needs. The “bottom-line” is captured in the “Asset Sustainability Gap for Bridges and Pavements”. 

By presenting the gap in asset sustainability for each major 

category of assets and also cumulatively for all assets, an 

agency can summarize at glance, the extent of the difference 

between funding availability and needs. 

10. Conclusions

Sustaining and responsibly managing the nation’s most 

valuable and critical assets requires long-term planning for 

maintenance, preservation, rehabilitation and replacement. 

The activities detailed in the long-term asset management 

plan need to be funded each year at the least for a ten years 

period. Ideally, a long-term asset management plan should 

have a long-term financial plan that addresses the funding 

needs of the asset from the time it is constructed to the end 

of life when it is retired from services. Such an approach has 

been effectively implemented in Australia. 
Financial Planning for Transportation Asset Management 77 

In the U.S., funding of new infrastructure assets has 

historically not included the cost to maintain it until end of 

its useful life and subsequent disposal. However, MAP-21 has 

set in motion the focus on a fiscally balanced, long-term 

asset management plan. 

As state DOTs are developing their plans, the focus has 

moved away from “worst-first” approach to implementing 

timely treatments to preserve, maintain and extend the 

useful life of infrastructure assets. 

The long-term asset management plan provides a strategic 

view of the investment that is required to manage infrastructure assets. Without a financial plan that is aligned to 

the asset management plan, an agency will be unable to 

ensure that the projects and activities detailed in the asset 

management plan can actually be implemented. The financial plan will highlight the funding gaps that may exist in the 

implementation of the asset management plan. It will show 

the long-term investment required to meet the projected 

asset conditions. The gaps in funding will trigger the discussions necessary to either increase the funds or show the 

reduction in condition and/or service that will result from 

the reduced investment. 

It also makes it possible to communicate the cost of delaying 

timely preservation and maintenance actions as well as the 

cost of delayed action to stakeholders. 

The plan also helps communicate the long term state 

of infrastructure asset health to legislators, stakeholders 

and the public along with the implications of adding new 

assets at the cost of preserving and maintaining existing 

assets. It can set the background for creating better 

understanding about the need to sustain these important 

assets and should get the public engaged in the long-term 
78 Financial Planning for Transportation Asset Management 

sustainability of assets and the support of the funding 

needed for such action. 

The plan also creates transparency by clearly summarizing 

the adequacy of investments and activities to sustain the 

assets for future users. 
Financial Planning for Transportation Asset Management 79 

11.References

[i] CDOT’s Risk Based Asset Management Plan, Final Plan, 

Dec 9, 2013, Page 2-1 

[ii] CDOT’s Risk Based Asset Management Plan, Final Plan, 

Dec 9, 2013, Page 5-7 

[iii] The Goals and Promise of the Sarbanes-Oxley Act, Journal 

of Economic Perspectives—Volume 21, Number 1, Winter 2007 

pages 91-116. Coates, J. 

[iv] Australia, Paradise Council Transport Services Asset 

Management Plan, March 2011, IPWEA 

[v] Australia, Paradise Council Transport Services Asset 

Management Plan, March 2011, IPWEA 

[vi] 2014 Strategic Direction & Performance Measures, Utah DOT 

[vii] 2014 Strategic Direction & Performance Measures, Utah DOT 

[viii] Asset Sustainability Index, a proposed measure for long 

term performance, FHWA, July 2012 

[ix] Natural and Physical Resources Cost Estimates Unit, 

Testimony on the Status of the Highway Trust Fund, July 23, 2013, 

Source: Congressional Budget Office, Cawley, Kim P. Chief 

[x] Australian Infrastructure Financial Management Guidelines 

by Institute of Public Works Engineering Australia, Version 1.3, 2012 

[xi] Evolution and Benefits of Preventive Maintenance Strategies, 

NCHRP Synthesis 153, O’Brien, L.G. (1989) 

[xii] Evolution and Benefits of Preventive Maintenance Strategies, 

NCHRP Synthesis 153, O’Brien, L.G. (1989) 

[xiii] Governmental Accounting Standards Board Statement 

No. 34, Basic Financial Statements—and Management’s Discussion 

and Analysis—for State and Local Governments, June 1999 

[xiv] 2008 GASB 34—Methods for Condition Assessment and 

Preservation, NCHRP Report 608 
Nastaran Saadatmand


Asset Management Program Manager


Office of Asset Management, Pavements, and Construction


Federal Highway Administration

1200 New Jersey Avenue, SE


Washington, DC 20590


(202) 366-1337 

nastaran.saadatmand@dot.gov 

Stephen Gaj 

Leader, System Management & Monitoring Team

Office of Asset Management, Pavements, and Construction

Federal Highway Administration

1200 New Jersey Avenue, SE

Washington, DC 20590 

(202) 366-1336 

stephen.gaj@dot.gov 

Prepared by: 

Shobna Varma 

Starisis Corporation

and


Gordon Proctor

Gordon Proctor & Associates, Inc.

ASSET MANAGEMENT FINANCIAL REPORT SERIES


Office of Asset Management, Pavements and Construction


Federal Highway Administration


1200 New Jersey Avenue, SE • Washington, DC 20590


FHWA-HIF-15-008