May 19, 2020

Creative Thinking Amid COVID-19: Distilling Value From Community Infrastructure Assets

Despite a decade of economic growth, many communities had modest general fund balances and high levels of debt even before the COVID-19 pandemic arrived. Now, their situation is significantly worse. While additional federal aid may be on its way, federal support will likely not adequately address the difficult challenges ahead.

Such times call for creative thinking concerning a community’s assets and how they can be used more effectively. Many local governments have underperforming infrastructure assets. These assets have value embedded “inside” that could be better used “outside” to address other community needs — to fund new programs, positions or infrastructure projects. Infrastructure examples include water and sewer utilities, parking garages and parking lots, golf courses and other recreational assets, office buildings and, potentially, airports.

These assets are important to the local community and its residents, and they must be handled with care. Different communities have different perspectives on how the assets could be best utilized. However, the range of options is so broad that almost any community in America can find ways to get more value from its assets. And, importantly, communities can do so in a way that is consistent with community values, retains important policy controls, protects employees, addresses access and equity issues, controls rates, and ensures quality.

For example, communities with a water or wastewater system have a broad range of options to capture value from their asset that can oftentimes be applied to other local priorities. Those options include:

  • Incentivizing employees to improve service efficiency and effectiveness through a gain sharing program in which agreed-upon changes to operations and maintenance benefit the community and the individual employees.
  • Contracting with a private firm to provide operation and maintenance services that offer cost savings while maintaining or even improving environmental quality standards.
  • Reviewing and improving billing operations and related administrative functions in order to ensure that the community is receiving the full amount of revenue due for services.
  • Exploring whether consolidation strategies could lower costs and improve service.
  • Establishing or renegotiating existing water or sewer service agreements with other communities to generate more income and/or spread costs more broadly.
  • Capturing operational cost savings through “quick wins” like telecommunications and utility billing audits, energy conservation strategies, renegotiation of major service contracts, and outsourcing ancillary services (such as custodial).
  • Using data analytics to improve the efficiency of the use of labor, supplies and capital.
  • Renegotiating and improving existing environmental consent decrees with state or federal governments.
  • Investigating the value of a long-term concession lease or asset sale to release trapped value from the community’s asset.

And, while these approaches generate new value, several of them can also help communities address other related challenges like environmental violations or a lack of technical talent due to employee retirements.

There is no “one size fits all” response to the economic challenges that localities now face. However, the communities that inventory their assets and act to improve the utilization of those assets will likely weather the storm better and prepare for a brighter future than those that maintain the status quo.

Faegre Drinker’s Coronavirus Resource Center is available to help you understand and assess the legal, regulatory and commercial implications of COVID-19.

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