Have you run into situations where replacement cost cannot be supported by current use? What do you recommend when the cost structure points towards discontinuation of service in a particular area?
Is there a formula or is research being done to assist utilities balancing aging infrastructure with the possibility that the customer base will decline? The population in our area is declining. If we plan to replace existing infrastructure, we may be overbuilding. Getting this balance correct seems very difficult.
These were the questions/concerns that webinar participants presented to Ross and Heather.
I’ll jump in on that one Heather. That is, that problem that’s being described there is the hardest problem to manage in infrastructure asset management.
Growth, while it causes you headaches there’s lots of money floating around. So you know, people are coming into an area, money’s getting spent on real estate, capital values are holding or going up, there’s more taxes getting paid. And so there’s money to invest on infrastructure.
When you have a declining or shrinking population and it’s never uniform. It’s not like one suburb all of a sudden says, “Oh we’re abandoning the suburb,” you know. It’s a house here and a house there and it’s spread right across the municipality or the county. That question is very, very relevant.
And essentially, if you look at Detroit, that’s the problem and they make the headlines quite regularly but that’s the problem they have. They had a population of one and a half million people in the mid-1970s and then down to 700 thousand now. So their population is halved in 40 odd years.
And they don’t have the tax base that they used to have. They still have all the infrastructure that’s relating to a city of one and a half million and they don’t have the money to pay for. Hence, the problem.
In a lot smaller scale, I’m dealing with several we’ve exactly the same dynamic happening here in New Zealand. And in fact, that’s right across the western world. If you type “shrinking towns” into Google or “shrinking cities”, you’ll pick up several million pages.
Same issue I understand, the mid-west of the US, certainly in the UK, certainly through Europe, starting to hit us here in New Zealand and also in Australia. So it’s a problem that we can be dealing with over the next five decades in reality.
What do you do?
So the first thing is you’d need to get some pretty good numbers around what the trends are and how likely they are to continue and what the impact’s going to be.
NOTE: The transcription here corresponds to the recording at 37:34 – 40:32 minutes of the “Ask the Expert Asset Management Webinar” recording.
PHOTO CREDIT: Johnstown, Pennsylvania by Jon Dawson via Creative Commons