Condition Based Infrastructure Asset Valuation Policy Framework-Part I

ACCOUNTING FOR INFRASTRUCTURE ASSETS IN THE PUBLIC SECTOR

by Silbert Barrett, BAA

Affiliated Member of the American Society of Civil Engineers (ASCE)

http://brittenwoods.com/index.html

Background

In 2002 the Canadian Institute of Chartered Accountants (CICA) published a research report titled “Accounting for Infrastructure in the Public Sector”; a public sector accounting handbook. It outlines a detailed analysis of the significance and possible impact of infrastructure deficit on the ability of government to maintain infrastructure service levels to ensure public health and safety. This report provided the framework for the on-going debate in Canada regarding the need to report infrastructure assets in public sector financial statements and form the basis for developing current accounting standards as outlined the Public Sector Accounting Board’s (PSAB) associate and exposure drafts 3150; Tangible Capital Asset Accounting. The introduction of Tangible Capital Asset Accounting underscores Provincial policies and guidelines focusing on preservation and stewardship of infrastructure assets, and also marks the beginning of improved financial management of the City’s infrastructure to foster future growth and ensure continued economic prosperity.

Public Sector Accounting Board (PSAB) is part of the Canadian Institute of Chartered Accountants, which introduces and proposes new accounting rules and guidelines affecting how municipalities in Canada prepare their annual financial reports.

Policy Framework

Provincial Legislation and Policy Interests

Accounting of Infrastructure Assets under PSAB 3150 must be conducted within the framework of recent policy initiatives. Recent developments in Ontario’s municipal financing, initiated under the then Mike Harris government with the introduction the Capital Investment Plan Act (RSO 1993), started the “corporatization” of key provincial agencies responsible for the delivery of provincial infrastructure services. “The Government of Ontario has announced a capital investment plan for Ontario under which the Government, municipalities and other public bodies and the private sector will work together  to make significant investments in the province’s infrastructure.[1]”

Under Municipal Act, 2001 section 294 & section 231 of the City of Toronto Act, 2006, which require municipalities to prepare annual financial statements in accordance with generally accepted accounting principles for local governments as directed by the Public Sector Accounting Board of the Canadian Institute of Chartered Accountants.

Changes in PSAB guidelines therefore affect municipal financial accounting and reporting requirements.  

In 2004 the current Ontario Government announced a new Infrastructure, Financing and Procurement Framework, under the jurisdiction of the Minister of Public Infrastructure Renewal. A new crown corporation was created; Infrastructure Ontario to engage Private-Public Partnership in infrastructure financing and development through an innovative approach called Alternative Financing and Procurement (AFP) and is mandated to manage the implementation of AFP projects. The existing policy framework for the implementation of the AFP model included the “Building a Better Tomorrow” and the “The Places to Grow” legislation and growth plans for the “Greater Golden Horseshoe”.

Recognizing the growing infrastructure deficit and its implications, the Ontario Government has taken some important steps in infrastructure investment[2]:

• Established framework for planning, financing and procuring public Infrastructure.  

• Enacted the Places to Grow Act (Bill 136) for long-term growth planning and infrastructure renewal across      the province.  

• Released a five year infrastructure investment plan which set priority and targeted more than $30 billion for infrastructure investments by 2010. 

• Selected Alternative Finance and Procurement models to finance and implement many large infrastructure      projects. 

• Created a new provincial agency, Ontario Infrastructure Project Corporation (Infrastructure Ontario), to manage the implementation of AFP projects. 

• Committed a total of $5,318 million for infrastructure expenditures in the 2006 Budget.

Building a Better Tomorrow Framework; is an infrastructure planning, financing and procurement policy framework. This represents the first comprehensive framework in Ontario’s history to guide the province, municipalities, and broader public sector partners in choosing the best options for planning, financing and procuring public infrastructure assets and establishes clear guidelines to achieve its objectives based on these principles:

•  Protection of the public interest;
• Value for money;
• Appropriate public control/ownership structure;
• Accountability ; and
•  Transparency.

These guidelines will ensure that infrastructure investments are consistent with growth planning to accommodated additional four to five million people estimated to settle in Ontario over the next 25 years will do so in a planned environment to ensure desirable places to live, work and learn, and have convenient access to health care and educational facilities, public transit, and a clean and healthy environment.

To achieve these goals the government passed legislation in 2005, the Places to Grow Act (Bill 136), with the intent to provide a better way of planning for growth across the province. This meant that municipalities will be better able to curb urban sprawl, strengthen communities and protect the natural environment and at the same time enable the government to get maximum benefit from its infrastructure investments.

Also in 2005, the government released a five year strategic infrastructure investment plan, ReNew Ontario Initiative, aimed at coordinating contributions from all levels of government, the private sector and public sector agencies (Hospital and Universities) to invest more that 30 billion in public infrastructure by 2010. “After extensive consultations with stakeholders and communities across the province, the first growth plan, the Growth Plan for the Greater Golden Horseshoe, where most of the expected growth over the next 25 years will occur, was released in June 2006”.

In recent years, the Province of Ontario has enacted various pieces of legislation, such as the new Municipal Act and Bill 175 that require municipal service fees to be established based on the “cost” of delivering those services.

---

[1] Capital Investment Plan Act RSO (1993)

[2] RCCAO,  The Infrastructure Funding Deficit: Time to Act, June 2006

Thomas E. Vermeer, Terry K. Patton,Alan K. Styles (2011) Reporting of General Infrastructure Assets under GASB Statement No. 34. Accounting Horizons: June 2011, Vol. 25, No. 2, pp. 381-407. '.

—Silbert Barrett
These are the author’s personal opinions and do not reflect those of his employer. Nor is the author making inferences about how infrastructure assets are managed. The author bases his opinions on his involvement in the pilot implementation of capital asset accounting as a project manager for the City of Vancouver, City of Hamilton and the Ontario Benchmarking Initiatives (OMBI). Research Analyst II (Operational Planning), City of Toronto Transportation Services Division.