HomeMy WebLinkAboutAgenda Item - 2025-04-15 - Number 06.2 - Resolution 25-17, Updating the City's Financial Policies 6.2
E s4_ COUNCIL REPORT
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Subject: Resolution 25-17, Adjusting Financial Policies
Meeting Date: April 15, 2025 Staff Member: Shawn Cross, Finance Director
Report Date: March 17, 2025 Department: Finance
Action Required Advisory Board/Commission Recommendation
El Motion ❑ Approval
❑ Public Hearing ❑ Denial
El Ordinance ❑ None Forwarded
❑X Resolution ❑X Not Applicable
❑ Information Only Comments:
El Council Direction
❑ Consent Agenda
Staff Recommendation: Adopt Resolution 25-17 as submitted modifying the debt and capital
asset financial policies.
Recommended Language for Motion: Move to adopt Resolution 25-17.
Project/ Issue Relates To: The new wastewater treatment facility.
Issue before Council (Highlight Policy Question):
❑X Council Goals/Priorities ❑Adopted Master Plan(s) ❑Not Applicable
BACKGROUND
The wastewater treatment facility located in Foothills needs an upgrade. The current
treatment plant is owned and operated by the City of Portland and the City is one of their
customers. For the past few years the City has been working on a plan to flip this relationship
and build a much-needed modern treatment facility. To accomplish this the City will need to
adjust the maximum limit on Full Faith and Credit (FF&C) debt in the financial policies. While
reviewing the debt policy the Finance department reviewed the other policies as well and
noticed the capital asset policy could use an adjustment to its capitalization threshold.
Respect. Excellence. Trust. Service
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Page 2
DISCUSSION
The City last updated its debt policy in 2014. The policy underwent a substantial revision
focusing on all the City's debt. The previous version was focused on the state statutory limits
placed on general obligation (GO) bonds. The largest change was to the maximum limit placed
on all debt other than the GO bonds. The policy placed a $250 million limit on all other debt.
The City had about $177 million of this kind of debt outstanding at that time.
Since then the City has issued new FF&C debt and paid down older debt and has an outstanding
principle balance of$172 million. The new wastewater treatment plant has an estimated
construction cost of$200 million. None of this is to come from GO bonds. This will exceed our
current policies maximum limit for all the FF&C debt.
Staff recommends increasing this limit to $400 million. This would allow for all the debt
required for the project. It would also include a small amount of cushion for other needed
borrowings the City has already planned in the near future. For example, the Water Fund has
forecasted in the near future the need to sell FF&C bonds to accomplish projects listed the
water master plan which are programmed into the current Water rates forecast. This is the only
change staff is currently recommending to the debt policy. The rest of the policy is still
relevant.
Staff also looked at the other financial policies for other needed adjustments since the
adjustment to the debt policy was coming before Council. It was noted that the capitalization
threshold in the capital asset policy hasn't been updated for inflation since 2001. This is the
City's materiality threshold for which any asset under would be expensed immediately instead
of being tracked and depreciated over time. Capitalization thresholds help to effectively track
fixed assets that will be used over the long run and expense smaller inconsequential purchases
making asset management more organized and efficient. The current threshold adopted back
in 2001 is $10,000. Staff is recommending moving this to $25,000. This is basically taking
inflation into account for the past twenty plus years.
At the same time staff updated the policy to remove implementation of Government
Accounting Standards Board (GASB) pronouncement 34. This was implemented back in 2003
and the implementation plan is no longer relevant to the policy.
RECOMMENDATION
Move to adopt Resolution 25-17 modifying the debt and capital asset financial policies.
ATTACHMENTS
1. Resolution 25-17, with Exhibits A and B
Respect. Excellence. Trust. Service
503-635-0215 380 A AVENUE PO BOX 369 LAKE OSWEGO, OR 97034 WWW.LAKEOSWEGO.CITY
ATTACHMENT 1
RESOLUTION 25-17
A RESOLUTION OF THE CITY COUNCIL OF THE CITY OF LAKE OSWEGO UPDATING THE CITY'S
FINANCIAL POLICIES SECTIONS 6 AND 7 AS SHOWN IN EXHIBITS A AND B.
WHEREAS, the City's Financial Policy No. 7 on Debt was last revised in 2014 with a limit on the
maximum amount of non-general obligation debt the City is allowed to issue. The City is looking
at a new wastewater treatment facility and the financing needs will exceed the current limit. The
limit needs to be increased; and
WHEREAS, the City's Financial Policy No. 6 on Capital Asset Management was last revised in 2001
and in need of updating the capitalization threshold limit.
NOW, THEREFORE, BE IT RESOLVED by the City Council of the City of Lake Oswego that the
revisions to the City's Financial Policies, section 6 and 7, as shown in Exhibit A and B, are hereby
adopted by the City of Lake Oswego.
Section 1. Effective Date. This Resolution shall take effect upon passage.
Considered and enacted at the regular meeting of the City Council of the City of Lake Oswego on
the 15th day of April, 2025.
AYES:
NOES:
EXCUSED:
ABSTAIN:
Joseph M. Buck, Mayor
ATTEST:
Kari Linder, City Recorder
APPROVED AS TO FORM:
Ellen Osoinach, City Attorney
Resolution 25-17
Page 1 of 1
EXHIBIT A
VII. - DEBT POLICIES
Purpose
The City of Lake Oswego will pursue both a prudent and conservative debt policy and manage its debt so that
it can obtain debt financings under favorable terms for infrastructure and other long-lived capital assets
necessary for essential public services.
Scope
This policy applies to all City funds, Urban Renewal Agency, or debt of any other City-controlled entity.
Planning and Budgeting
1. Short-term or long-term borrowings will not be used to fund ongoing operating expenditures.
2. To the extent possible, operating equipment replacements and major building repairs will be
funded on a pay-as-you-go basis.
3. Long term capital assets should be financed with long-term debt, where the term of the debt does
not exceed the estimated life-expectancy of the financed capital asset. Spreading the cost over
the useful life of the asset means that those who benefit from the asset also pay for it.
4. Debt will be kept to a level that will allow the City to retain its favorable bond rating, recognizing
that many factors besides debt influence the decisions of rating agencies.To this end, see Debt
Limits below.
5. Debt service for bonds for utility capital assets will be paid by the relevant enterprise funds.
6. Voter-approved general obligation bonds will be targeted to long-lived assets and facilities that
provide a direct benefit to the general public such as, but not limited to, Parks and Recreation land
and facilities, Libraries, and Community Centers.
7. Voter-approved general obligation bonds will not be used for self-supporting enterprise funds or
urban renewal.
8. Per state law, urban renewal projects are debt-funded. Proceeds of urban renewal bonds may be
used only for expenses related to the construction of capital improvements, not for ongoing
maintenance and operations.
9. The City will follow a policy of full and complete disclosure on every financial report, ballot,voter
pamphlet, and bond prospectus.
Debt Limits
ORS 287A.050 limits General Obligation (G.O.) debt to a maximum of 3% of the City's real market value
(RMV). It is considered to be a minimum requirement and no other limitations have been established by
Oregon Law. This policy establishes an overall debt ceiling on debt other than General Obligation bonds.
Statutory
Type of Debt Limitations Policy Limitations Revenue Source
A.General Obligation 3.0%R 1.0%of Real Market Value Specific and
designated
Outstanding principal balance not to
B.All Other Debt in the exceed$2-50-400 Million,except in
Aggregate(see below),and Other No limit the case of funding for a project that
than General Obligation Bonds protects the health and welfare of the
Citizens of Lake Oswego.
FF&Cfor general government Subject to the limitation in B.above
No limit and policy debt coverage ratio General
purposes
requirements
FF&C for Utilities, Urban
Renewal or other self- No limit Subject to the limitation in B.above Specific and
supporting purposes designated
Subject to the limitation in B.above
Specific and
Revenue No limit and debt service coverage ratio designated
requirements
Local Improvement District No limit Subject to the limitation in B.above Specific and
and subject to"kill petition" designated
Debt limit as
Urban Renewal adopted for Subject to the limitation in B.above Specific and
each district
and subject to"kill petition" designated
e of Real Market Value(RMV)
Debt Management
The Oregon Revised Statutes, Chapter 287A authorizes the City to issue general obligation bonds, revenue
bonds, and refunding bonds and to borrow funds for municipal purposes. This includes full faith and credit
debt, loans, and lines of credit. Under the City Charter,the City Council authorizes the issuance of bonds and
notes of indebtedness and the City Manager is responsible for seeing that the terms of all contracts and
agreements are fulfilled.
The Finance Director is responsible for analyzing debt requirements, requesting City Council authorization to
issue debt, coordinating and ensuring cost-effectiveness of the debt issuance. This includes type and timing
of debt, method of sale, calculation of outstanding debt and debt coverage ratios, debt limitations and
compliance, impact on future debt burdens, adequacy of reserves and revenues, effect on service fees, and
availability of unrestricted fund balances.
Depending on the specific circumstances, the City may use the following types of short-term (two years or
less) and long-term (more than two years) financing instruments:
A. Long Term Debt:
Long-term Debt is always preferred, as a best practice, to fund long-term assets. It reduces the exposure to
interest rate risk and demonstrates sound financial management. Long-term debt types include:
1. General Obligation Bonds (GOs): Bonds that are secured by a commitment to levy ad
valorem real property taxes outside the limits imposed by Ballot Measure 5 and Ballot
Measure 50. General obligation bonds must be first approved by vote of the electors of the
City. They are not to be used for self-supporting enterprise funds or the Urban Renewal
Agency. They may be used for capital equipment that is unusually costly and has a long
service life, such as for fire trucks.
2. Full Faith and Credit Obligation (FF&C): Bonds or promissory notes that covenant the full
faith and credit of the City's General Fund to budget and appropriate all legally available
funds to pay debt service for those bonds. Full Faith and Credit Obligations may be issued
without voter approval. These obligations may be issued for utilities, and other enterprise
or special revenue funds, as long as the benefitting fund can demonstrate its ability to make
100% of the debt service payments at the time of issuance. The benefitting fund
demonstrates this ability through the commitment to service fees that generate revenues
sufficient to make timely debt service payments with a minimum debt service coverage ratio.
The minimum required debt service coverage ratio for utilities, other enterprise funds and
Special Revenue Funds is 1.1. The minimum required debt service coverage ratio for urban
renewal districts is 1.25.
3. Certificates of Participation (COPs): This financing technique provides long-term financing
through a lease or lease-purchase agreement. It is not subject to other statutory
requirements applicable to bonds, including the requirement of a vote of citizens. The
Finance Director or his/her delegate is to conduct a financial lease/buy cost analysis to
determine if this option is cost effective under the total life-cycle approach.
4. Revenue Bonds: Bonds secured by a specific revenue stream other than ad valorem real
property taxes. The City will make every effort to secure revenues in advance that are
sufficient to make debt service payments, and fulfill any other requirements, such as
prescribed debt service coverage ratios and reserves.
5. Master Lease agreements(Public/Private Lease-Purchase Agreements): A lease agreement
with a provider or bank to lease equipment or buildings. The terms of the lease should
coincide with the life of the equipment to be leased and a tax-exempt rate shall be sought.
The Finance Director or his/her delegate is to conduct a financial lease/buy cost analysis to
determine if this option is cost effective under the total life-cycle approach.
6. Pooled Financing: The pooling of debt with other governmental entities and the use of low-
interest loans from state agencies or other organizations on either a long-term or short-term
basis. This financing vehicle is most attractive for entities with low credit ratings,a low ability
to obtain financing otherwise, or where the loan amount is small. The Finance Director or
his/her delegate is to conduct an in-depth analysis of all costs and risks, including any
subsequent rebates, reporting or compliance requirements,and possibility of repeal. Pooled
Financing will be considered if it is financially or strategically beneficial to the City.
7. Assessment Bonds: Bonds backed by assessments on real property for public improvements
authorized by the property owners or developer that specially benefit the assessed
properties. Assessment Bonds are also referred to as "Bancroft Bonds."
B. Short Term Debt and Interim Obligations:
Short-term obligations (two years or less) may be issued in anticipation of particular revenues such
as taxes already approved by voters or grants already awarded, where such revenue is pledged for
repayment of the debt. Interim debt may also be issued to finance projects or portions of projects
for which the City ultimately commits to issue long-term debt. The Finance Director may also
recommend an interim financing under certain circumstances, such as when time is of the essence.
Some interim financings can be placed within a shorter time than long-term financings. Alternatively,
interest or spending uncertainty may warrant a delay in long-term financings, while an immediate
cash need exists.
Short-term debt types and interim obligations include:
1. Line of Credit: A credit source extended to a business by a bank or financial institution. The line
of credit creates an account that can readily be tapped into if the need arises or not touched at
all and saved for emergencies. Interest is only paid on the money actually taken out. Draws shall
be made on the line of credit when the need for financing is so urgent that time does not permit
the issuance of long-term debt or the need for financing is so small that the total cost of issuance
of long-term debt would be prohibitive.
2. Pooled Financing: (see section A.6. above)
3. Internal Financing: (see section C. below)
4. Inter-Governmental Financing: (see section C. below)
5. Initial cash funding and subsequent reimbursement from bond proceeds: Should the City desire
to issue bonds for large capital projects in a fund,the City can, upon passage of an intent-to-issue
resolution, use non-restricted reserve funds of same fund as interim funding to pay a portion of
project costs that will be repaid with bond proceeds. This type of advance funding with
subsequent debt funding will be reviewed by Bond Counsel to ensure the City is in compliance
with applicable federal tax rules.
6. Other types: The city may consider the use of Bond Anticipation Notes, Revenue Anticipation
Notes,Commercial Paper or other such structured borrowings if it is in the best financial interest
of the City to do so. Tax Anticipation Notes in the General Fund are to be avoided. Instead,the
General Fund's required minimum reserves should be used to bridge short-term cash needs as
long as they can be replenished within twelve months.
C. Internal and Inter-governmental Financing:
Internal Financing: The City Charter prohibits loans from and among the Enterprise Funds. The City's
General Fund is not an Enterprise Fund and may meet capital financing needs internally with
unrestricted revenues if the City Council determines it is in the City's best financial interest to do so.
This includes internal financings for the Urban Renewal Agency. The terms shall be documented in
a legally valid intergovernmental agreement.
Consideration will be given to:
• Length of the borrowing term: The maximum term for such a capital loan is limited to ten
years (see ORS 294.468[2]).
• Cost-benefit analysis: The rate of interest and borrowing costs from external sources must
be weighed against the current and anticipated interest earnings for internal funds.
• The borrowing fund's ability to repay the loan.
• Budget authority.
1. Internal financing of less than one year in term shall bear a variable interest rate in an
amount equal to 0.5% above the Oregon State Treasurer Local Government investment
Pool's(LGIP) posted monthly rate. The initial rate shall be based on LGIP posted monthly
rate as of the first draw date, and shall be recalculated monthly, based on the prior
month's posted LGIP rate.
2. Internal financing of one to ten years in term shall bear an annually adjusted interest
rate of 0.5%above the City's combined portfolio rate. The initial rate shall be based on
the City's combined portfolio rate as of the first draw date and shall be recalculated at
the beginning of each fiscal year, based on the prior fiscal year's combined portfolio rate.
Investment of Bond Proceeds
Investment of bond proceeds will be consistent with those authorized by Oregon law and by the City's
investment policy and applicable bond covenants. Bond proceeds shall be invested and tracked separately
from other investments. The city may contract with a bond trustee to invest and track the bond proceeds in
accordance with bond covenants.
Arbitrage
Arbitrage is the profit made by issuing bonds bearing interest at tax-exempt rates,and investing the proceeds
at materially higher taxable yields. The Internal Revenue Code limits the opportunity for borrowers to use
moneys associated with tax-exempt bonds to acquire materially higher yielding taxable investments. If a
profit is made which does not meet the allowable exception rules,the excess profit must be"rebated"to the
Internal Revenue Service. Because of the complexity of arbitrage rebate regulations and the severity of non-
compliance penalties,qualified arbitrage professionals will perform arbitrage calculations in strict adherence
to applicable laws and regulations. These calculations will be done in accordance with required Internal
Revenue Service reporting dates, which are five years after the delivery date of each issue, and each fifth
year thereafter, until the bonds have matured, or been redeemed early or retired.
It is the City's policy to minimize the cost of arbitrage rebate and yield restriction while strictly complying
with the applicable laws. The City Manager will be responsible for identifying the amount of unspent debt
proceeds including interest which is on hand, and, to the maximum extent feasible, shall ensure the oldest
proceeds on hand are spent first.
Arbitrage rebate costs shall be charged as negative interest revenue to the funds in which the related
obligation proceeds were originally deposited.
Refinancing of Outstanding Debt
Refundings: A procedure whereby outstanding bonds are refinanced by the proceeds of a new bond issue.
Typically a refunding is performed to take advantage of interest rates that are significantly lower than those
associated with the original bond issue or to remove restrictive legal covenants associated with outstanding
bonds. The City may issue Advance Refunding Bonds or Current Refunding Bonds (as defined for federal tax
law purposes) when advantageous, legally permissible, prudent and a net present value savings of at least
three percent is provided. Exceptions to the requirement may be made only upon the recommendation of
the City Manager.
Ongoing Disclosure
The Finance Director shall be responsible for providing annual disclosure information to the Municipal
Securities Rulemaking Board's Electronic Municipal Market Access(EMMA)system,or successor entities,and
shall be responsible for maintaining compliance with disclosure requirements as required by state and
national regulatory bodies, and by the continuing disclosure document associated with each debt issuance.
Securities&Exchange Commission disclosure shall occur by the date designated in each continuing disclosure
document, which is currently March 31 of each year. Disclosure shall take the form of the Comprehensive
Annual Financial Report (CAFR) unless information is required by a particular bond issue that is not
reasonably contained within the CAFR. Additionally, disclosure of material events is also required.
Methods of Sale
There are three ways the City may sell bonds:competitive sale,negotiated sale and private/direct placement.
A) Competitive Sale: When determined appropriate by the City Council, the City may sell debt
obligations in a manner in which any interested underwriter is invited to submit a proposal to
purchase an issue of bonds. The debt obligation is awarded to the underwriter presenting the best
bid, as determined by the lowest True Interest Cost (TIC). The City shall issue debt obligations by
competitive sale, unless City Council determines that such a method would not produce the best
results for the City.
B) Negotiated Sale: When determined appropriate by the City Council, bonds may be sold through an
exclusive arrangement between the City and an underwriter. At the end of successful negotiations,
the issue will be awarded to the underwriter.
Negotiated Sales offer flexibility that may be advantageous for the City in certain situations. In a
negotiated sale, the underwriter is selected through the Request for Proposal process. The criteria
used to select an underwriter in a negotiated sale should include, but not be limited to the following:
overall experience, marketing philosophy,capability, underwriter's discount,and expenses. The City
Manager may waive the requirement for a Request for Proposals, if necessary to meet emergency
financing needs.
C) Private/Direct Placement: When determined appropriate by the City Council, the City may elect to
sell its debt obligations through a private/direct placement or limited public offering. If the City
anticipates several private placement financings, the City may elect to complete a Request for
Proposal process in order to establish a Financing Entity of Record. The services of a municipal
advisor or placement agent may be obtained to assist in the Request for Proposal process.
Assembling a Financing Team
A Financing Team will be assembled to provide professional services that are required to develop and
implement the City's debt program with the goal of continuity, quality service and competitive prices.
Bond Counsel: The City Manager, with input from the City Attorney and Finance Director, shall select bond
counsel. The bond counsel's role is to prepare or review and advise the issuer regarding authorizing
resolutions or ordinances,trust indentures,official statements,validation proceedings and litigation. All debt
issued by the City will include a written opinion by bond counsel affirming that the City is authorized to issue
the proposed debt. The opinion shall include confirmation that the City has met all city and state
constitutional and statutory requirements necessary for issuance, a determination of the proposed debt's
federal income tax status and any other components necessary for the proposed debt.
Underwriters: The Finance Director shall solicit proposals for underwriting services for all debt issued in a
negotiated sale. The Underwriter is responsible for purchasing negotiated debt and reselling the debt to
investors.
Municipal Advisor: The Finance Director shall solicit proposals for municipal advisors and make the selection.
The municipal advisor shall provide services for all debt issued in a negotiated, competitive or private
placement sale,and is to be selected on the basis of professional qualifications,knowledge of the community,
and expertise in municipal financings.
City Staff: The Finance Director and any other City staff members deemed appropriate to coordinate the
efforts of the hired consultants. The City Attorney will review all required documents.
Credit Objectives
The City will maintain good communication with bond rating agencies about its financial condition. This
effort will include providing periodic updates on the City's general financial condition,coordinating meetings,
and presentations in conjunction with a new issuance.
In determining a city's credit worthiness, bond rating agencies review the following general factors:
• Local Economy—the strength of the local economy and its influence on the ability to repay the debt.
• Outstanding Debt —the amount and structure of a city's overall debt is considered relative to the
community's ability to pay.
• Financial Environment — revenue and expenditure trends and the status of reserves and fund
balances for the city.
• Strength of Management Practices and Strategies—established policies and practices of the city that
promote strategic and financial planning.
The City's goal is to maintain its high bond ratings. To that end, prudent financial and management policies
will be established and adhered to in all areas. Full disclosure of operations will be made to the bond rating
agencies. The City will strive to achieve a General Obligation rating in the triple "A" range from one or more
of the major rating agencies.
EXHIBIT B
VI.-CAPITAL ASSET POLICY GUIDELINES FOR ALL FUNDS Formatted:Left
PURPOSE OF THE CAPITAL ASSET POLICY
The purpose of the Capital Asset Policy is to:
1. Control the City's capital assets by assigning accountability and responsibility to specific
departments.
2. Provide documentation of equipment loss to the City's insurance company in the event of losses
due to fire or theft.
3. Provide necessary information like depreciation and obsolescence for rate setting of the City's
enterprise activities(i.e.street,water,surface water,sewer,and maintenance&motor pool).
4. Provide budget information for capital replacements and additions.
5. Promote the best use of the City's funds by informing management of all city assets and thereby
avoiding unnecessary duplication of assets.
6. Assure that capital assets are properly insured by providing a list of all capital assets and their
fair market values.
7. Maintain compliance with Generally Accepted Accounting Principles(GAAP)and ensuring proper
internal controls in accordance with Generally Accepted Auditing Standards(GAAS).
DEFINITION OF CAPITAL or"FIXED"ASSETS
In general,capital assets are those assets that are long-term in nature(i.e.will yield benefits in future
years)and not held for resale. Tangible personal property and real property are the most common
types of capital assets--examples include land,buildings,and large equipment.
Improvements to an existing capital asset may also qualify. To evaluate whether or not an expenditure
is an improvement versus periodic maintenance or repair,good judgement is used in determining
whether or not the expenditure increases the future service potential of the asset(in which case it is
capitalized),or does it merely maintain the existing level of service(in which case it is expensed).
There is also a materiality threshold that must be considered. The City's previous policy approved in
1981 2001 capitalized expenditures for assets costing$ 10,000 or more. Over the years,this was
increased to$500 for r al property and$200 for tangible personal property(i.e.equipment).
Effective July 1,2000,the threshold shall be incr ased to$2,000 per item for all types of property to be ' {Formatted:Normal
capitalized(i.e.real,tangible,and intangible).
Effective My-April 200-2025,the threshold shall be increased to$10-00025,000 per item for all
types of property to be capitalized(i.e.real,tangible,and intangible).
[Formatted:Left
MANAGING CAPITAL ASSETS
The capital assets of the City of Lake Oswego are property owned in-common by the citizens of our
community.
• These community assets will not be degraded,given away,or allowed to deteriorate except by
action of the Council.
• Funding new long-term capital assets of the city will be the responsibility of the community as a
whole and should be funded through general obligation bonds,SDC's proportionate equity asset
shares,grants and gifts,or volunteer contributions when appropriate.
• New private development in the city that requires increased capacity or places increased demand on
the community assets must purchase an equity asset share. This share is based on the new
development's proportionate share of the current replacement value of the existing assets required
by the development including capacity expansion required to serve the new development.
• To the extent allowed by law,system development charges will be designed to recapture from new
private development the full cost of community assets in place at the time of the development and
the necessary expansion of those systems caused by increased demand on those assets.
• System development charges or proportionate equity shares will be used for infrastructure capacity
improvements or to repay on capital assets.
ACCOUNTING FOR CAPITAL ASSETS
Pre Implementation of GASB 34 — Formatted:Left
In accordance with Generally Accepted Accounting Principles(GAAP),capital assets are accounted for in
the General Fixed Assets Account Group(GFAAG)at cost,which includes capitalized labor,interest,and
certain overhead costs for internally constructed assets or estimated historical cost when original cost is
not available. Donated fixed assets are recorded at their estimated fair market value as of the date
donated. Capital assets arc charged to expenditures in the governmental fund types as purchased and
capitalized in the GFAAG. Maintenance and repairs are expensed when incurredof capital assets arc
charged to expenditures in the governmental fund types as incurred and not capitalized. Upon disposal
of a capital asset,the cost or estimated historical cost is removed from the GFAAG and proceeds from
any sales arc recorded as revenue in the General Fund. Depreciation is not computed on the straight-
line method over the estimated useful lives of the relatedse capital assets. Expenditures for
infrastructure,including road,bridge,sidewalk construction,and drainage systems,which arc
immovable and only of value to the City as a governmental unit arc not capitalized.
Capital assets in the Proprietary Fund Types arc stated at cost,which includes capitalized labor,interest
and certain overhead costs for internally constructed assets or estimated historical cost when original
cost is not available,or the estimated fair market value at the time received in the case of gifts or
projects constructed by others and accepted for ownership and maintenance by the City. Maintenance
and repairs arc expensed as incurred. Replacements that improve or extend the lives of property arc
capitalized. Depreciation is computed on the straight line
method over the estimated useful lives of the related assets. Upon disposal of such assets,the accounts
are relieved of the related costs and accumulated depreciation and resulting gains or losses are reflected
in net income. Depreciation taken on contributed fixed assets is recorded as an expense of operations
and charged to the contributed capital account through a transfer from retained arnings.
The estimated useful lives of capital assets in the Proprietary Fund Types are as follows:
❑ Buildings and improvements—20 to 50 years-
❑ Infrastructure—30 years
❑ Vehicles—5 to 15 years
❑ Sewer systems—25 to 50 years-
❑ Water systems—25 to 450 years
• Machinery and equipment—5 to 10 years-
❑ Lake Interceptor—75 years
❑ Intangibles—1 to 50 years
Specific capital asset categories:
• Land(original cost,filling,grading,drainage,and legal costs).
• Buildings(original cost,plus additions,less deletions).
• Improvements other than buildings(streets,sidewalks,lighting systems,drainage systems,parking
lots,bridges,tunnels).
• Equipment(cost plus freight and installation).
• Construction work in progress(end of year entry only).
Assets not considered capital assets:
• Warehouse stock inventory.
• Cash and securities.
• Merchandise held for resale.
• Materials to be consumed in operations and maintenance,such as chemicals,automotive parts,
police uniforms,lumber,etc.
• Expenditures for items costing less than the materiality threshold,currently$25,000.
PROCEDURES FOR ADDITIONS,DELETIONS,and ADJUSTMENTS {Formatted:Body Text
Additions:During the fiscal year,capital asset additions will be recorded by the Finance Department
when fixed asset invoices are paid. Work orders for capital improvements will be added as projects are
completed and work in progress will be recorded only at fiscal year end,June 30. Current additions will
constantly update the additions printout during the fiscal year.
The Finance Dcpartmcnt will complete the appropriate Acquisition Form(scc attached),
assigned the next available property tag number,record the asset in the fixed asset
system,and ensure that the corresponding property tag number is attached to the asset.
Deletions:During the fiscal year,capital assets which are sold,traded-in,or junked will be recorded after
the appropriate Disposition Form(see attached)is received by the Finance Department from the
appropriate department. Current deletions will constantly update the deletions printout during the
fiscal year.
Adjustments:
1. Transfers. This type of adjustment records intra-department transfers of capital assets,as well as
changes of information relating to the assets. Surplus assets will remain in storage until it is
determined that:(a)the asset is to be transferred to another department,(b)the asset is sold,or(c)
the asset is otherwise disposed of. The appropriate Surplus and/or Transfer Forms(see attached)
must be completed by the department and submitted to the Finance Department.
2. Other adjustments. All other adjustments to capital assets,like transfer adjustments discussed
above,will also be recorded by the Finance Department as they occur throughout the fiscal year.
PROCEDURES FOR RECEIVING OR TRANSFERRING SURPLUS
The following procedures is to be followed by departments in disposing of surplus capital assets:
1. If existing asset is being replaced by new equipment,it should be traded in on the new equipment.
The only exceptions for not trading in the old equipment are:
a. It is of more value to another City department and will be used by that department.
b. It can be sold for substantially more money than offered by the trade-in.
c. It won't be accepted by a vendor because it is either of no value or the City is buying on a state
contract that does not allow for trade-ins.
2. If the surplus asset is not traded in:
a. The responsible department should complete the Availability of Surplus form(see attached)and
forward it to the Finance Department.
b. The Finance Department will then offer the asset to the other City departments and ask that
they inform Finance within two weeks if they are interested in the item.
c. The Finance Department will advise the responsible department of the transfer or storage
procedure to complete the transaction.
d. The Finance Department will make the appropriate bookkeeping entries in the Capital Asset
records. All transfers of capital assets between departments must be processed through the
Finance Department.
PROCEDURES FOR THE ANNUAL PHYSICAL COUNT/INSPECTION
The annual physical verification of the City's Capital Assets is very important. It is required by the
auditors in preparing the City's annual audit report,the insurance brokers in determining the adequacy
of the City's insurance program,and the City administration in administering accountability and control
of City property.
The procedures for taking the physical inventory is as follows:
1. The Finance Department will send to each department,in duplicate,the listing of the departmental
capital assets on record as of fiscal year end,June 30.
2. An assigned person,segregated from the fixed asset process,shall be responsible for
supervising/taking the inventory of these assets for each department. This independent person may
in turn delegate some of the actual physical count/inspection duties,but will assure its completion
by the due date.
3. The physical count/inspection should be taken over a short period of time. If it is taken over a
longer period of time,assets may be moved from one place to another and thereby either escape
being counted or possibly counted twice.
4. The capital asset listing includes building,room number,and vehicle number,if applicable.
Therefore,the person taking the physical count/inspection should start with one room and follow
every item in the room to the listing. If capital asset items are found in a room that is not on the list,
the new location should be marked/noted on the list,next to the item.
5. The information on the listing of each asset should be reviewed. Incorrect information should be
deleted and replaced with correct information. Additional information relevant to identification
should also be added.
Verify taq numbers and serial numbers. Verify the"SC"column. This column refers to City equipment
that for insurance purposes is designated as contractor's equipment and requires additional insurance.
This is equipment that is used off the premises in which it is normally kept. Examples arc maintenance
plant equipment,park equipment,fire and police equipment taken from the stations when responding to
calls,survey equipment,etc. This equipment must be marked with a"C"in the"SC"column,as it has to
be listed separately for insurance purposes.
6. The condition of each item should be noted in pencil,to the right of the budget number. The
condition noted should be"good","fair",or"poor".
7. The department head must sign the inventory listing returned to the Finance Department. This
certifies that the inventory was taken and the listing is accurate and complete.
APPENDIX A
A. - Forms:
1.Acquisition of Equipment
2.Acquisition of Real Property
3.Availability of Surplus
4. Intra-department Transfer
5. Disposition
ppEN DIV Q
B. Previous Capital Asset Policy,Procedure No.5
(Effective date: October 28,1981)
APPENDIX C
C. GASB 33 INFORMATION:
Governmental Accounting Standards Board
Summary of Statement No.33
Accounting and Financial Reporting for Nonexchangc Transactions
n r1r]ENDIX D
D GASB 34 INFORMATION:
Governmental Accounting Standards Board
Overview of Statement No.31
Basic Financial Statements and Management's Discussion and
Analysis for State and Local Governments
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