Tangible Capital Assets Where Are We At? What Next? AAMDC Spring Convention & Trade Show Edmonton, Alberta March 18, 2008

Christina Parkins Financial Advisory Services Municipal Affairs Harold Johnsrude, CA Harold Johnsrude Consulting Inc. Barb Lyons, CGA Director of Corporate Services Yellowhead County Presenters 2

Provide tools and training Raise awareness Mitigate the cost AMA Project Goals 3

Status Report TCA Toolkit On-site example What’s next Session Overview 4

angible – can be touched Definition 5 apital – lasts over time sset – has measurable value

Global View 6 Australia 1998 New Zealand 1990 USA 2006 Canada & Provinces Canadian Municipalities 2009

Why? 7 Budget and Reporting Requirements Long Term Decisions by Short Term Councils Not New and Exciting Aging Infrastructure Property Tax Rate Sensitivity Awareness Out of Sight / Out of Mind

Outside Contributions 8 Provincial grants Federal grants Developers Constructed assets funded from third parties require replacement

Toolkit 9

Toolkit Overview 10 Section 2 - Implementation PS 3150 Summary of PS 3150 Implementation plan Implementation budget

Toolkit Overview 11 Section 3 Policies & Guidelines

Major Asset Classifications 12 Land Land improvements Buildings Engineered structures Machinery & equipment Vehicles Cultural & historical

Engineered Structures Minor Asset Classifications 13 Roadway system Light rail transit system Water system Wastewater system Storm system Fibre optics Electricity system Gas distribution system

Guideline #2 – Useful Life and Amortization Methods 14 Recommended maximum life Amortization methods

Guideline #3 Capitalization Thresholds 15 The minimum value of an expenditure that meets the criteria of a TCA and that will be recorded as a TCA.

Capitalization Thresholds 16 Factors to consider: Materiality Record keeping Asset management Rate setting

Suggested Rural Thresholds 17 Land$0 Land improvements$5,000 Buildings$50,000 Engineered Structures$50,000 Machinery & Equipment$5,000 Vehicles$5,000

Guideline #5 – Networks, Segments & Components 18

Networks 19

Network 20

Segments 21

Components 22

Simplest form Easier to track Historically – easier to value More difficult to Establish capitalization thresholds Determine the value of components replaced Network Approach 23

Better basis for asset management More accurate information Easier to identify costs of assets replaced More detail requires more recording Segment Approach 24

Better basis for asset management More accurate – useful life and amortization Deals with unique components better More detail requires more recording Component Approach 25

Network by road type Gravel Chip seal Asphalt Townships Intersections Mile Road System Networks 26

Initially, keep it simple! Progressively increase detail. Network Decision 27

Change in municipal entity Dissolution Amalgamation Annexations Guideline #6 – Valuation Date 28

Capital Asset Policy 29 1.Purpose & Scope 2.Asset Definitions & Classification 3.Asset Recording & Valuation 4.Amortization Methods and Rates 5.Review & Write-downs 6.Maintaining Records 7.Asset Disposal 8.Systems 9.Reporting & Budgeting

Toolkit Overview 30 Section 4 – Asset Inventory & Valuation Guidelines to determine asset data Data to record by type of asset Essential Important Optional

Actual Cost Estimated Cost Reproduction (discounted) Replacement (discounted) Appraisal (discounted) Residual Nominal Valuation Approaches 31

Valuation Tools 32 Linear Roads Drainage Water & Wastewater Bridges

Implementation Example 33 Yellowhead County Barb Lyons, CGA Director of Corporate Services

Project Overview months and still more to do! Supportive Council Provided necessary resources Supports finance staff Funding provided for Computer hardware/software Staff time

Project Principle 35 Benefit of having the information must outweigh the cost of collecting it.

Benefits Expected 36 Will provide a picture of assets owned with the age and condition. Will assist in determining future infrastructure requirements resulting in better resource allocation.

Free Resources! 37 Other municipalities Government Finance Officers Association Accounting manuals Workshops AMA toolkit

Capital Policy 38 Formal approval of a TCA policy is crucial!

Technical Side of Project 39 Data Entry Verification of historical cost New software training Interface with GIS Asset valuation Recording amortization

Future Challenges 40 Asset valuation Meeting the January 1, 2009 deadline Budgeting for annual amortization Revised financial statement format Revised Financial Information Return

Important Points to Remember 41 Keep the project in perspective Use good judgment and common sense Take advantage of all the resources available Don’t re-invent the wheel

Impact to Our Municipality 42 Each municipality will be different. Factors include: Age of TCA TCA’s recorded/not recorded Donated assets

TCA’s on Balance Sheet will be: At cost, less amortization and write downs Amortization and write-downs will be a charge against annual income PS

Brings a non-cash dimension to financial reporting and budgeting Full Accrual Accounting This change does not require a change in behavior, but it may cause you to change because there will be more information available Impact of Recording TCA’s 44

Municipalities will not be required to fund amortization Legislative Impact 45

PS Handbook 1200 Changes to Financial Reporting Future Changes 46

Summary 47 Next Steps Replacement cost reassessment Status of reserve fund levels Asset Management Benefits Awareness of problem and magnitude Better internal information for decision makers Significant step towards good asset management Resources Considerable work is required to implement this change Resources and expertise will be required Involve auditors, engineers and facility management personnel early on!

Questions? 48