In this case study, a metropolitan transportation agency, labeled the “Metropolitan TA,” calculated asset value for its pavements using a condition-based depreciation approach to calculate value. The agency was able to use calculated asset value to help justify on-going pavement maintenance investments.
Background
The Metropolitan TA’s primary driver for calculating and reporting asset value is to demonstrate the value of a targeted pavement investment program. The calculated asset value also is consistent with the Federal Highway Administration’s (FHWA) requirement for State DOTs to include a 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)). The Metropolitan TA is interested in similar methodologies for its own TAMP.
In the Metropolitan TA’s previous TAMPs, asset value was calculated using a replacement cost approach that did not consider age or condition of the assets, and thus did not reflect depreciation of the assets. Also, the calculation did not yield a meaningful estimate of the cost to maintain asset value, since the cost to maintain replacement value was $0. The Metropolitan TA decided to improve its calculation methodology by testing a condition-based depreciation approach for calculating remaining asset value and the cost to maintain asset value.
Methodology
Data
The Metropolitan TA used a pavement condition index (PCI) based on pavement distress observations to categorize the condition of, and to manage its pavements, collected for each management section on the network. Pavement asset value was calculated for the pavement both on and off the NHS and then aggregated. Data was collected for 2017, 2019, 2021, and 2023 to support value trend analysis.
Condition-Based Value Approach
Asset value was assumed to depreciate relative to an estimated perfect condition value computed from cost to replace estimates specific to on- and off-NHS treatment requirements. This baseline value was computed for all pavements inclusive of bike lanes and parking areas. The PCI captured in the Metropolitan TA’s pavement inventory system was then used to depreciate the value to a condition-based value. This exercise was repeated for each year of the analysis to assess trends in valuation. Then a cost to improve to full value was estimated to compare the valuation trend to the condition-based valuation.
The Metropolitan TA used valuation estimates to assess the impact of its pavement condition investment program. In addition, the agency calculated a cost to improve value across the whole of the network. The calculations were performed in a spreadsheet tool where the agency could adjust parameters (e.g. cost to improve and maintain) to see the impact on the results.
Results
Table 9-14 details the calculation of the current condition-based asset value for the Metropolitan TA’s pavements. The table shows replacement value and remaining asset value based on the PCI estimate as well as the cost to maintain based on PCI-specific treatment costs for on- and off-NHS pavements. The results are summarized by pavement location relative to the National Highway System (On NHS, Off NHS).
Table 9-14. Asset Value Results
| NHS | Replacement Value ($M) | Remaining Asset Value by PCI Method ($M) | Cost to Maintain ($M) |
|---|---|---|---|
| On | $707.3 | $624.4 | $26.2 |
| Off | $2,536.9 | $1,951.3 | $219.6 |
| Total | $3,244.2 | $2,575.8 | $245.8 |
Lessons Learned
Lessons learned from the Metropolitan TA’s experience in developing a condition-based depreciation approach to pavement asset valuation include:
- Using condition-based depreciation approach is useful for justifying an investment in condition improvement and for assessing valuation over time.
- The valuation approach sets alternatives for asset maintenance on a common valuation system and is useful for communicating the scale of both value and potential loss when determining an investment strategy.
- A time-based comparison of valuations mixes deterioration and improvement in a way that can be challenging to communicate unless carefully delineated.
- The cost-to-maintain parameter has a significant impact on the results. Costs change over time and retrospective analysis should consider the impact of both practice and inflation over time. Future valuation should be adjusted as needed.
- Future enhancements could include comparisons of the change in asset valuations to the investments in the pavement program, while considering the yearly deterioration in pavement condition.