Tangible Capital Assets Where Are We At? What Next?

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

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

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

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

5. T angible – can be touched Definition C apital – lasts over time A sset – has measurable value 5

6. Global View Canada & Provinces 2000-2003 USA 2006 Australia 1998 New Zealand 1990 Canadian Municipalities 2009 6

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

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

9. Toolkit www.MEnet.ab.ca 9

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

11. Toolkit Overview Section 3 Policies & Guidelines 11

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

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

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

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

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

17. Suggested Rural Thresholds 17

18. Guideline #5 – Networks, Segments & Components 18

19. Networks 19

20. Network 20

21. Segments 21

22. Components 22

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

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

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

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

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

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

29. Capital Asset Policy • Purpose & Scope • Asset Definitions & Classification • Asset Recording & Valuation • Amortization Methods and Rates • Review & Write-downs • Maintaining Records • Asset Disposal • Systems • Reporting & Budgeting 29

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

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

32. Valuation Tools • Linear • Roads • Drainage • Water & Wastewater • Bridges 32

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

34. Project Overview • 18 months and still more to do! • Supportive Council • Provided necessary resources • Supports finance staff • Funding provided for • Computer hardware/software • Staff time 34

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

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

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

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

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

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

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

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

43. PS 3150 • 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 43

44. Impact of Recording TCA’s 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 44

45. Legislative Impact Municipalities will not be required to fund amortization 45

46. Future Changes PS Handbook 1200 Changes to Financial Reporting 46

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

48. Questions? 48