BUDGETING FOR ROAD MAINTENANCE Asif ... - World Bank Group

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TRANSPORTATION, WATER AND URBAN DEVELOPMENT DEPARTMENT THE WORLD BANK June 1991 Transport RD-4

BUDGETING FOR ROAD MAINTENANCE Asif Faiz

A maintenance program and budget must be based on reliable information on road conditions, traffic, and the cost of maintenance operations. As a minimum, the budget should be prepared on the basis of inspection of roads, facilities and equipment; the previous year's expenditure by major maintenance activities; and an assessment of changed conditions such as adjustments in road inventory. The main objective of the budget is to provide a framework for accountability. However, the budget should also be viewed as a contract between the road agency and the government, with the road agency committed to produce a quantum of work outputs for the financial resources it receives from the government. TYPES OF BUDGETARY SYSTEMS Line Item A line item budget lists proposed expenditures by basic items of expense: payroll, supplies and materials, equipment, and to some extent, contracted services. This type of budget can be highly restrictive and offers little flexibility. Furthermore, there is not a direct link between work outputs and line expenditure items. It does offer some advantages. It is easy to prepare, as it is based on historic expenditure patterns, and is easy to administer. Lump Sum Within this type of budget, funds are appropriated in one lump sum for maintenance purposes and appear as a single-line item. Although this budget allows the greatest flexibility, budget preparation must be based on a sound physical program and performance must be closely scrutinized to ensure accountability. Program or Performance Within such a budget, detailed work programs are broken down into activities (e.g., crack sealing, pot-hole patching, surface treatments, overlays), with pre-determined estimates of work for each activity. The program budget defines the amount of work that is planned and expected to be performed and what it will cost. It can also be used to demonstrate what will not be file:///O|/PUBLIC/twu_xweb/transpor/publicat/td-rd4.htm (1 of 4)07/17/2005 10:21:00 AM


accomplished if the budget is significantly reduced. While expenditures may not exceed the allocations for specific activities, the program budget offers considerable flexibility in the use of component resources (labor, equipment, materials), which are not appropriated by each object of expenditure as in a line-item budget. CHOICE OF A BUDGETARY SYSTEM The latter type of budget is to be strongly preferred. A program budget provides a basis for establishing a "contract" between the government and the road agency by providing a linkage between allocation of funds and physical outputs. When using this type of budget it is important to restrict the number of maintenance activities or work items included in the budget to one which is manageable. Otherwise the budget exercise can become complicated, costly, and time-consuming. BUDGET FORMULATION The preparation of the road maintenance budget should start at the smallest accounting unit in the maintenance organization, normally the district or the sub-district level, to ensure that the maintenance budget relates to the physical maintenance requirements, which may be dispersed over a large territorial area. A correspondence between the physical implementation unit and the budgetary accounting unit is essential to ensure accountability. The budget preparation process can be significantly enhanced by establishing a maintenance budget review committee consisting of the chief maintenance engineer, a few district engineers representing field personnel, and one or more representatives of the planning and finance ministries. Proposed expenditures by the road agency must be justified . The consequences of prolonged insufficient maintenance should be explained in terms of the deterioration of the road network, the eventual costs of deferred maintenance, and the higher costs sustained by road users. All major maintenance activities such as periodic resurfacing, strengthening, and rehabilitation should be supported by a quantified economic justification for each project or road link. Routine maintenance operations should be based on a set of standards and levels of service derived from cost-effectiveness analysis. Road maintenance standards and expenditures should be related to traffic volumes, and not to the class of road. The road agency should work with the media and potential interest groups (e.g., professional and trade associations of contractors and transporters) to make the political leadership and the public aware of the effects and high costs of failing to maintain the roads. Opportunities should also be provided to elected officials and the public to provide organized and systematic inputs into the budget process. Maintenance by contract simplifies the use of program budgets, since a direct link is established between maintenance expenditures and physical outputs. The intermediate step of estimating factor inputs (labor, equipment, materials) can be dispensed with except for establishing initial base contract rates and periodic checks on contract bids. Contract maintenance also provides considerable flexibility in adjusting maintenance programs in the face of budget cuts, as there are fewer resources tied up in non-fungible factor components such as permanent labor and equipment, which otherwise tend to drive the scope and frequency of maintenance operations. Contract maintenance, however, requires a multi-year programming and budgeting cycle to ensure a steady flow of work for private contractors and to avoid delays in payment for completed work. Road agencies often overprogram to protect their operations from arbitrary cuts by finance and planning ministries and pay too little attention to priorities, resource constraints, or phasing. Unexpected budgetary shortfalls can make even a wellplanned road maintenance program obsolete, as funding for various categories of maintenance expenditures may fall below the minimum effective level. Such interference often becomes one of management's biggest challenges. For these reasons setting priorities and developing contingency plans should be a part of the budgeting exercise. This can be accomplished in part by formulating a "core" maintenance program consisting of a group of roads and activities that should receive funding under all circumstances (e.g., basic routine maintenance, patching, blading, safety-related maintenance, and high priority resurfacing and rehabilitation works) together with a list of activities to be funded as additional resources become available. The practice of "across-the-board" cuts or partially funding all maintenance activities should be discouraged. TO LEARN MORE file:///O|/PUBLIC/twu_xweb/transpor/publicat/td-rd4.htm (2 of 4)07/17/2005 10:21:00 AM


Harral, C. and A. Faiz. Road Deterioration in Developing Countries -- Policies and Remedies. A World Bank Policy Study. Washington, D.C.: World Bank, 1988. Faiz, A. "Planning, Programming and Budgeting for Road Maintenance" in Road Maintenance Policy Seminar. Sub-Saharan Africa Transport Program. The World Bank and the Economic Commission for Africa, 1989. Kelley, James F. "Formulating and Justifying Highway Maintenance Budgets". NCHRP Synthesis of Highway Practice 80. Washington, D.C.: Transportation Research Board, October 1981. Premchand, A. Government Budgetary and Expenditure Controls - Theory and Practice. Washington, D.C.: International Monetary Fund, 1983. Federal Highway Administration, U.S. Department of Transportation. Roads and Streets Maintenance Management System (MMS). Washington, D.C., 1985.

ANNEX: TYPES OF ROAD BUDGETS PERFORMANCE BUDGET Fiscal Year: 1982 Department: HIGHWAYS MAINTENANCE ACTIVITY No. Description In-House Contract Total 1101 Spot Premix Patching Work 8,050.00 0.00 8,050.00 Units: Sq. Feet Cost 33,407.50 0.00 33,407.50 1103 Recycle Asphalt Ptch Work 2,010.00 500.00 2,510.00 Units: Sq. Feet Cost 10,271.10 2,485.00 12,756.10 1100 Roadway Maintenance Cost 43,678.60 2,485.00 46,163.60 3201 Roadway Mowing Work 873.00 315.00 1,188.00 Units: Swath Mi Cost 3,622.95 1,332.45 4,955.40 3204 Litter Pickup Work 375.00 0.00 375.00 Units: Man Hrs. Cost 5,632.50 0.00 5,632.50 3200 Roadside Services Cost 9,255.45 1,332.45 10,587.90 Activities (1100 + 3200) 52,934.05 3,817.45 56,751.50 Other Activities + Administrative Overhead 35,683.32 2,573.09 38,256.41 Total 88,617.37

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Activity: ROAD WORK AND COST


6,390.54

95,007.91

LINE-ITEM BUDGET Fund: GENERAL MAINTENANCE CLASSIFICATION Personal Services Contractual Services Commodities Other Charges Gross Expenditures Reduction of Costs Net Expenditures LUMP-SUM BUDGET CODE SUBJECT

Department: HIGHWAYS ACTUAL 1982 65,429.18 6,312.18 4,450.02 19,946.15 96,137.53 1,129.62 95,007.91

ACTUAL 1982

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BUDGET 1983 83,198.00 7,000.00 3,540.00 220,000.00 115,738.00 2,500.00 113,238.00

REVISED EST. 1983

Activity: ROAD BUDGET 1984 87,927.00 7,500.00 4,450.00 26,500.00 126,377.00 2,500.00 123,877.00

EST. 1984