In this example, a state department of transportation in the Midwest, anonymized as the “Midwestern DOT”, calculated asset value for its pavements by separating the pavement into two components (the pavement base and the pavement surface) and calculating value for each component independently. This approach allowed the agency to develop a more nuanced asset valuation for pavement that accounts for the unique depreciation and lifecycles of both components.
Background
The Midwestern DOT’s primary driver for calculating and reporting asset value is to comply with the Federal Highway Administration’s (FHWA) requirement that State DOTs include a calculation of the value of National Highway System (NHS) pavement and bridge assets in their transportation asset management plans (TAMPs), and that they calculate the cost of maintaining asset value (23 CFR § 515.7(d)(4)).
For previous iterations of its TAMPs, the Midwestern DOT calculated pavement asset value using a replacement cost approach that did not account for age or condition data and therefore failed to reflect depreciation. The calculation also did not include a meaningful estimate of the cost to maintain asset value, since the cost to maintain replacement value remained $0. In addition, the approach did not delineate pavement components or recognize the different rates at which they degrade. To improve the usefulness and accuracy of its asset valuations as well as generate a cost to maintain current value, the Midwestern DOT developed an improved valuation approach that depreciated and valued the base and surface of the agency’s pavement separately.
Methodology
Data
The Midwestern DOT used a state performance measure based on pavement distress data to measure the condition of the pavement surface, and age-based on the year constructed to measure the condition of the pavement base. Existing unit replacement costs were reused from asset valuation calculations to remain consistent with agency practices.
Pavement Layers
The pavement base and surface layers, shown in Figure 9-7, were separated in this asset valuation process because they differ significantly in how they deteriorate and how they are managed. The base has a longer lifespan, is reconstructed infrequently, and is assessed using age, while the surface deteriorates faster, is replaced more frequently, and is evaluated based on distress data collected by the Midwestern DOT. These layers also have distinct costs and treatments, with the agency managing them separately in practice. By treating them as separate components, the valuation more accurately reflects their different roles in pavement performance.
Pavement Base Approach
The approach for valuing the pavement base layer assumed linear depreciation by year, where the end of life for a pavement base was defined as 60 years for Interstate pavements and 90 years for non-Interstate pavements. Pavement base age was defined by the year of initial construction. For a given pavement section, percent remaining value is calculated as the ratio of the current pavement base age to the end of life for that pavement.
Pavement Surface Approach
Valuation of the pavement surface used a condition-based methodology. The Midwestern DOT used existing deterioration models for the pavement surface to establish an effective asset life for each pavement family, as defined by the agency. The effective asset life was determined based on the time taken to deteriorate to the end-of-life threshold, at which point the asset was considered fully depreciated (valued at $0). The Midwestern DOT defined the pavement surface end of useful life as a condition rating of 4 for Interstate and a rating of 3.5 for non-Interstate pavement. The agency also calculated the current effective age of the pavement surface for each section, and used that value to compute the percent remaining value for each pavement section (ratio of the current effective age to the effective asset life).
The Midwestern DOT used the approaches to calculate asset value for each layer and combined the results to get an overall asset value. In addition, the agency calculated a cost to maintain value and asset consumption ratio (ACR) for each approach. The valuations were performed in a spreadsheet tool where the agency could adjust parameters including the pavement base lifespan, the pavement surface condition end-of-life threshold, the rehabilitation cost per centerline mile, and the replacement cost per centerline mile. This tool allowed the Midwestern DOT to explore the impact of these parameters on the results.
Results
Table 9-9 details the calculation of asset value for the Midwestern DOT’s pavements. The table shows replacement value, remaining asset value, ACR, and cost to maintain for the pavement surface, base, and total. The results are summarized by System (Interstate, Non-Interstate NHS, Non-NHS).
Table 9-9. Asset Value Results
| System | Replacement Value by Method ($B) | Remaining Asset Value by Method ($B) | Cost to Maintain by Method ($M) | ACR by Method (%) | ||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|
| Base | Surface | Total | Base | Surface | Total | Base | Surface | Total | Base | Surface | Total | |
| Interstate | 28.8 | 13.0 | 41.7 | 4.6 | 5.9 | 10.6 | 310 | 343 | 653 | 16 | 46 | 25 |
| Non-Interstate NHS | 35.5 | 8.0 | 43.5 | 6.4 | 5.0 | 11.4 | 196 | 320 | 515 | 18 | 62 | 26 |
| Non-NHS | 56.3 | 12.7 | 68.9 | 4.8 | 7.0 | 11.8 | 210 | 546 | 756 | 9 | 56 | 17 |
| Total | 120.6 | 33.5 | 154.1 | 15.9 | 17.9 | 33.8 | 715 | 1,209 | 1,924 | 13 | 53 | 22 |
Lessons Learned
Lessons learned from the Midwestern DOT’s exploration of an asset value approach for pavement base and surface include:
- Dividing an asset into components can yield improved asset valuation results when data are available, particularly when the components have very different useful lives.
- For example, while the value of the pavement base is nearly four times the value of the pavement surface, the cost to maintain value is lower for the pavement base than for the pavement surface. The lower cost to maintain value for the base compared to the pavement surface is to be expected given the pavement base has a useful effective life of 60 or 90 years, while the pavement surface has an effective useful life of 14-42 years.
- Calculating a separate remaining value for each component allows agencies like the Midwestern DOT to account for their unique characteristics, such as:
- Different deterioration rates and behaviors of the components.
- Different data sources available for components. For example, condition data was only available for the pavement surface, while the base layer was limited to the year of construction.
- The wide range of treatment and replacement costs associated with each component. For example, the Midwestern DOT’s replacement cost for pavement bases on non-interstate roads ($12.7M/centerline mile) is more than five times greater than the rehab cost for the pavement surface on equivalent roads ($1.42M/centerline mile).
- Using a mix of age and condition-based deterioration is made possible by converting the surface condition values into effective age.
- Converting surface condition to effective age allows the condition-based depreciation approach for the pavement surface to be integrated into a calculation framework that also uses an age-based approach for the pavement base. Both calculations then rely on an age or effective age relative to a useful life or effective useful life to determine percent remaining value, even though the “age” and “useful life” are derived differently for each component.