1.5 Examples of asset classification frameworks

BOX 1.5

Examples of asset classification frameworks

Denver, Colorado, United States • Mandatory: needed for the functions that are the responsibility of the local government by law (for example, police and fire stations) • Discretionary: needed for the functions that the local government voluntarily supports and performs for social, political, or other reasons (for example, parks and social housing) • Surplus or income-generating properties: properties not needed for any of the first two groups (for example, small cutoff land parcels or commercial rentals)

Sources: Utter 1989; Cape Town 2013. Cape Town, South Africa More than 100 types of uses, clustered in eight main portfolios:

• Municipal use • Infrastructure • Social and community • Investment: profit and land banking • Economic development • Housing • Environmental • Surplus

land management or water system management), or the material form or function of the assets (Kaganova and Kopanyi 2014). The most common classifications consider the role of an asset in service delivery and other functions of local government. Examples of classifications used in Denver (Colorado, United States) and Cape Town (South Africa) are shown in box 1.5.

It is important to emphasize that the type of classification, recorded and/or declared often in AM policy or strategy is a result of a strategic approach to AM and not its prerequisite. It is advisable that the AM departments or teams in county governments consider introducing a relevant classification for AM purposes as one of its explicit AM tasks. However, developing such a classification can be left for later in the process of AM, given that a good classification would require contributions from the personnel involved in managing various assets, such as land, buildings, or infrastructure systems at floor level in service sectors and units. For instance, a large plot of land may host various water facilities for historic reasons; floor managers of water companies should be aware of and could help segregate such surplus land that can be made suitable for divestiture.

Focusing efforts on strategically important fixed assets—land, buildings, and infrastructure—and on strategic issues

Initial efforts in establishing an AM system, framework, and procedures should not focus on narrow accounting tasks, a common mistake in developing countries; just the opposite, the right approach should be based on all three dimensions and functions of AM explained in the preceding sections. All classifications used in AM need to recognize land and buildings explicitly, given that they often are the most valuable fixed assets. Inventory and verification of all sorts and forms of fixed assets are important tasks to complete, and the information will populate asset registers eventually, but the initial focus should be on the most valuable assets: land, buildings, infrastructure, vehicles, and high-value equipment.

Similarly, any prioritization needs to identify land and buildings, along with infrastructure facilities and networks, as the portfolios of the highest priority for AM throughout the county government. Finally, technical tasks, such as asset inventorying and related actions for asset recording such as verification and valuation, need to start with immovable property (for example, land, buildings, infrastructure networks), and not with small and costless movable property, as sometimes happens.

Adopting policy—establishing simple but binding principles of asset management

County governments would benefit from adopting a simple initial local document that creates rules for AM. This can be an initial asset management policy and strategy, adopted by the County Assembly and legally binding for the county government entities (appendixes A and B offer examples). An initial AM policy can cover issues such as the institutional setting and responsibilities for AM; the main principles of inventorying and auditing; transparency of rules, procedures, and mandates for assets; reporting rules; rules for disposition and allocation of assets for public and private uses; baseline principles of asset valuation; and overall priorities.

Setting up principles of asset valuation

County Assemblies should adopt the objectives and principles of asset valuation. The objectives and principles should include distinctions between historic values for accounting purposes and market values for decision-making and business purposes. These principles also should provide guidance about classification of assets that need to be valued (such as land, buildings, or other marketable assets) and asset clusters that have limited marketability, thus making precise market valuation difficult, impossible, or unnecessary (for example, roads, drainage, or school buildings). In such cases, simple value estimates may be allowed using the replacement cost and possibly comparable value estimates in a mass valuation modality (Detter and Fölster 2018).

A key rule (preferably defined in an initial asset management policy) should be that the current valuation is initial and approximate, serving for initial registering and accounting of assets, but it should not serve as valuation for acquisition or disposition. Therefore, no disposition of land or buildings can be approved and conducted without a specific target market valuation. Finally, given that valuation is an expensive and time-consuming process, priorities for initial valuation should be established. A good practice would be to start with initial valuation of the most valuable and marketable properties, such as land and buildings.

Establishing a robust organizational framework of intersectoral collaboration for introduction of comprehensive county asset management Organizational settings can vary. However, a framework that proved to work well internationally in many cities includes (1) establishing a special AM department, directorate, or team; (2) appointing dedicated asset managers at specialized sectoral departments (land), enterprises (water, solid waste), or service units (stadium, community hall); and (3) creating a temporary or permanent AM taskforce or committee (for example, the AM and disposal committee in NCC).