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HomeMy WebLinkAboutFIN 16-18cty.F PICKERING Report to Executive Committee Report Number: FIN 16-18 Date: June 18, 2018 From: Stan Karwowski Director, Finance & Treasurer Subject: Strategic Asset Management Policy Recommendation: 1. That Report FIN 16-18 of the Director, Finance & Treasurer regarding the Strategic Asset Management Policy be received; 2. That the Strategic Asset Management Policy, attached to this report, be approved; 3. That the Chief Administrative Officer and the Director, Finance & Treasurer be authorized to make any interpretations of the Policy, make rulings that will allow the conduct of business to proceed, and to take any actions necessary to this effect; and, 4. That the appropriate officials of the City of Pickering be authorized to take the necessary actions as indicated in this Policy. Executive Summary: The City is required to have a Strategic Asset Management Policy as per the new Ontario Regulation 588/17 under the Infrastructure for Jobs and Prosperity Act, 2015, which defines regulations for Asset Management Planning for Municipal Infrastructure. Asset management is defined as: the coordinated activity of an organization to realize value from assets. It considers all asset types, and includes all activities involved in the asset's life cycle from planning and acquisition/creation; to operational and maintenance activities, rehabilitation, and renewal; to replacement or disposal and any remaining liabilities. Asset management is comprehensive and normally involves balancing costs, risks, opportunities and performance benefits to achieve the total lowest lifecycle cost for each asset. Financial Implications: While there are no immediate identifiable financial implications associated with the adoption of this report and the attached policy, in the long-term it will impact the City's business practices regarding the development and implementation of the City's asset management program. This will eventually lead to changes in the annual budgeting process. This is a major change for all Ontario municipalities. Discussion: Asset management builds on the Public Sector Account Board (PSAB) standard PS 3150, which required municipal government to account and report on their Tangible Capital Assets (TCA), effective with fiscal years starting January 1, 2009. The City, through its annual financial statements, reports on its TCA on Note 10. FIN 1E-18 June 18, 2018 Subject: Strategic Asset Management Policy Page 2 The objective of this policy is to provide leadership and commitment to the development and implementation of the City's asset management program. It is intended to guide the consistent use of asset management across the organization, to facilitate logical and evidence -based decision-making for the management of municipal infrastructure assets and to support the delivery of sustainable community services now and in the future. By using sound asset management practices, the City will try to ensure that all municipal infrastructure assets meet performance levels and continue to provide desired service levels in the most efficient and effective manner. This policy demonstrates an organization -wide commitment to the good stewardship of municipal infrastructure assets, and to improved accountability and transparency to the community through the adoption of best practices regarding asset management planning. The policy, in its draft form, was shared with the Directors and Finance, and their comments have been considered in the final policy. The policy will be posted on the City's Internet and intranet. Attachments: 1. City Policy - Strategic Asset Management Policy 2. Infrastructure for Jobs and Prosperity Act, 2015, Ontario Regulation 588/17 3. FIN 050 Accounting for Tangible Assets Policy Prepared By: (14A, S i4r Julie S. Robertson Senior Financial Analyst Approved/Endorsed By: Stan Karwowski Director, Finance & Treasurer Recommended for the consideration of Pickering City Council Tony Prevedel, P.Eng. Chief Administrative Officer Cdy DICKERING ATTACHMENT # TO REPORT# N Il Policy Procedure Title: Strategic Asset Management Policy Policy Number FIN ### Reference Date Originated (m/d/y) Date Revised (mIdly) Pages Infrastructure for Jobs and Prosperity Act, 2015, Ontario June 25, 2018 • 7 Regulation 588/17 FIN 050 Accounting for Tangible Assets Policy Resolution #/18 (June Council Meeting) Approval: Chief Administrative Officer Point of Contact Senior Financial Analyst, Finance Policy Objective The objective of this policy is to provide leadership and commitment to the development and implementation of the City of Pickering's asset management program. It is intended to guide the consistent use of asset management across the organization, to facilitate logical and evidence -based decision-making for the management of municipal infrastructure assets and to support the delivery of sustainable community services now and in the future. By using sound asset management practices, the City will endeavor to ensure that all municipal infrastructure assets meet, through best efforts, performance levels and continue to provide desired service levels in the most efficient and effective manner. This policy demonstrates an organization -wide commitment to the good stewardship of municipal infrastructure assets, and to improved accountability and transparency to the community through the adoption of best practices regarding asset management planning. Index 01 Definitions 02 Background 03 Procedures 04 Roles and Responsibilities 05 Authority 06 Scope 07 Principles 08 Alignment with the City's Strategic Direction 01 Definitions 01.01 Asset Management (AM) - the coordinated activity of an organization to realize value from assets. It considers all asset types, and includes all activities involved in the asset's lifecycle from planning and acquisition/creation; to operational and maintenance activities, rehabilitation, and renewal; to replacement or disposal and any remaining liabilities. Asset Management is holistic and normally involves balancing costs, risks, opportunities and performance benefits to achieve the total lowest lifecycle cost for each asset. 01.02 Asset Management Information System a combination of processes, data, software, and hardware applied to provide the essential outputs for effective Asset Management such as reduced risk and optimum infrastructure investment. 01.03 Asset Management Plan (AMP) - documented information that specifies the activities, resources, and timescales required for an individual asset, or a grouping of assets, to achieve the organization's Asset Management objectives. 01.04 Capitalization Threshold - the value of a municipal infrastructure asset at or above which a municipality will capitalize the value of it. If below, the municipality will expense the value of it. 01.05 Level of Service - parameters, or combination of parameters, which reflect social, political, environmental and economic outcomes that the organization delivers. Parameters can include, but are not necessarily limited to, safety, customer satisfaction, quality, quantity, capacity, reliability, responsiveness, environmental acceptability, cost, and availability. 01.06 `' Lifecycle Activities - activities undertaken with respect to a municipal infrastructure asset over its service life, including constructing, maintaining, renewing, operating and decommissioning, and all engineering and design work associated with those activities. 01.07 Municipal Infrastructure Asset (MIA) - an infrastructure asset directly owned by a municipality or included on the consolidated financial statements of a municipality, but does not include an infrastructure asset that is managed by a joint municipal water board. 02 Background 02.01 Asset Management (AM) has been an ongoing practice at the City since the development of Section 3150 of the Public Sector Accounting Board (PSAB) Handbook in 2009. At the City, Finance staff, with the assistance of other Policy Title: Strategic Asset Management Policy Page 2 of 7 Policy Number: FIN ### department staff, have worked continuously towards the development and maintenance of a comprehensive and accurate inventory of all MIAs that serves as a strong foundation for Tong -term financial planning and budgeting. This policy will ensure that all of the work that has been put into the development of the City's MIA inventory is leveraged to optimize investment and the sustainability of municipal infrastructure. 02.02 The City is responsible for providing a range of services to the community, including transportation networks, stormwater management, parks and facilities. To deliver these services, it owns and manages a diverse MIA portfolio of roads, bridges, culverts, parks and facilities. As the social, economic, and environmental wellbeing of the community depends on the reliable performance of these MIAs, it is critical to implement a systemic, sustainable approach to their management. 02.03 AM is such an approach, and refers to the set of policies, practices and procedures that allow an organization to realize maximum value from its MIAs. An AM approach allows organizations to make informed decisions regarding the planning, building, operating, maintaining, renewing, replacing and disposing of MIAs through a wide range of lifecycle activities. Furthermore, it is an organization -wide process that involves the coordination of activities across multiple departments and service areas. As such, it is useful to adopt a structured and coordinated approach to outlining the activities, roles and responsibilities required of corporate staff, as well as the key principles that should guide all AM decision-making. 02.04 A comprehensive and holistic AM approach will support cost efficient and cost effective delivery of expected levels of service and ensure that due regard and process are applied to the Tong -term management and stewardship of all MIAs. In addition, it will align the City with provincial standards and regulations such as the Infrastructure for Jobs and Prosperity Act, 2015, Ontario Regulation 588/17, or other current provincial legislation, enabling the organization to take full advantage of available grant funding opportunities. 02.05 The development, support and maintenance of an AM program requires the ongoing use of an organization -wide suite of software modules. This Asset Management Information System should include at a minimum a digital asset register, a geographic information system, and a financial management system. 02.06 The approval of this policy is an important step towards integrating the City's priorities with its AM program, and ensuring that critical MIAs and vital services are maintained and provided to the community in a safe, reliable, sustainable manner. 03 Procedures 03.01 The City will implement an AM program throughout all departments. The program will promote lifecycle and risk management of all MIAs, with the goal of Policy Title: Strategic Asset Management Policy Policy Number: FIN ### Page 3 of 7 achieving the lowest total cost of ownership while meeting desired levels of service. 03.02 The City will implement best practices regarding AM planning, including: a) Complete and Accurate Asset Data b) Condition Assessment Protocols c) Risk and Criticality Models d) Lifecycle Strategy Development e) Financial Strategy Development f) Level of Service Framework 03.03 The City, through best efforts, will maintain an asset inventory of all MIAs which includes unique ID, description, location information, value (both historical and replacement), performance characteristics and/or condition, estimated remaining life and estimated repair, rehabilitation or replacement date; and estimated repair, rehabilitation or replacement costs, wherever possible. Reliable, consistent, and current asset condition data and costing is fundamental to a comprehensive and sustainable AMP. 03.04 The City will develop an AMP, that incorporates all infrastructure categories and MIAs that meet the capitalization thresholds outlined in the organization's Accounting for Tangible Capital Assets Policy, as updated. 03.05 The AMP will be updated at least every five years in accordance with O. Reg. 588/17 requirements, or current provincial legislation, to promote, document and communicate continuous improvement of the AM program. 03.06 The City, through best efforts, will integrate AMPs and practices with its long- term financial planning and budgeting strategies. 03.07 The City will explore innovative funding and service delivery opportunities, including but not Limited to grant programs, Public -Private Partnerships (P3), Alternative Financing and Procurement (AFP) approaches, and shared provision of services, as appropriate. 03.08 The City, through best efforts, will develop meaningful performance metrics and reporting tools. 03.09 The City, through best efforts, will consider the risks and vulnerabilities of MIAs to climate change and the actions that may be required including, but not limited to, anticipated costs that could arise from these impacts, adaptation opportunities, mitigation approaches, disaster planning and contingency funding. Impacts may include matters relating to operations, levels of service and lifecycle management. Policy Title: Strategic Asset Management Policy Policy Number: FIN ### Page 4of7 03.10 The City will align all AM planning with the Province of Ontario's land -use planning framework, including any relevant policy statements issued under section 3(1) of the Planning Act; shall conform with the provincial plans that are in effect on that date; and, shall be consistent with all municipal official plans. 03.11 The City will coordinate planning for interrelated MIAs with separate ownership structures by pursuing collaborative opportunities with neighbouring municipalities and jointly -owned municipal bodies wherever viable and beneficial. 03.12 The City will develop processes and provide opportunities for residents, stakeholders, and other interested parties to offer input into AM planning through the annual budget process. 04 Roles and Responsibilities 04.01 Council: a) Approve and support this policy; b) Maintain adequate organizational capacity to support the core practices of the AM program; and c) Prioritize effective stewardship of assets in adoption and ongoing review of policy and budgets. 04.02 Director, Finance & Treasurer: a) Development of policy, and updates as required; b) Provide corporate oversight to goals and directions and ensure the AM program aligns with the City's strategic priorities; and c) Ensure that adequate resources are available to implement and maintain core AM practices. 04.03 Senior Management Team: a) Provide departmental staff coordination; b) Establish and monitor levels of service; and c) Track, analyze and report on AM program progress and results. 04.04 Senior Financial Analyst: a) Development of policy, and updates as required; b) Provide organization -wide leadership in AM practices and concepts; Policy Title: Strategic Asset Management Policy Policy Number: FIN ### Page 5 of 7 c) Provide departmental staff coordination; d) Establish and monitor levels of service; and e) Coordinate and track AM program implementation and progress. 04.05 Departmental Staff: a) Utilize any business processes and technology tools for the AM program; b) Participate in implementation task teams to carry -out AM activities; and c) Establish and monitor levels of service. 05 Authority This policy shall be administered by the Finance Department, and the Treasurer shall have the authority to interpret any provisions in this policy necessary for the good and efficient conduct and business of the City. Any changes shall be approved by Council. 06 Scope This policy applies to all operations of the City including any Agencies, Boards and Commissions. It applies to the Pickering Public Library to the extent that it does not conflict with the role of the Board or Chief Executive Officer under the Public Libraries Act. 07 Principles 07.01 The City shall consider the following principles as outlined in section 3 of the Infrastructure for Jobs and Prosperity Act, 2015, when making decisions regarding AM: a) Infrastructure planning and investment should take a long-term view; b), Infrastructure planning and investment should take into account any applicable budgets, fiscal restraints and fiscal plans; c) Infrastructure priorities should be clearly identified in order to better inform investment decisions respecting infrastructure; d) Infrastructure planning and investment should ensure the continued provision of core public services; e) Infrastructure planning and investment should promote economic competitiveness and productivity; Policy Title: Strategic Asset Management Policy Page 6 of 7 Policy Number: FIN ### f) Infrastructure planning and investment should ensure that the health and safety of workers involved in the construction and maintenance of infrastructure assets is protected; g) Infrastructure planning and investment should foster innovation by creating opportunities to make use of innovative technologies, services and practices; h) Infrastructure planning and investment should be evidence based and transparent, and, subject to any restrictions or prohibitions under an Act or otherwise by law on the collection, use or disclosure of information; i) Information with implications for infrastructure planning should be shared between the City and broader public sector entities, and should factor into investment decisions respecting infrastructure; j) Where provincial or municipal plans or strategies have been established in Ontario, under an Act or otherwise, but do not bind or apply to the City, as the case may be, the City should nevertheless be mindful of those plans and strategies and make investment decisions respecting infrastructure that support them, to the extent that they are relevant.; k) Infrastructure planning and investment should promote accessibility for persons with disabilities; I) Infrastructure planning and investment should consider the impact of infrastructure on the environment; m) Infrastructure planning and investment should endeavor to make use of acceptable recycled aggregates, and Infrastructure planning and investment should promote community benefits, being the supplementary social and economic benefits arising from an infrastructure project that are intended to improve the well-being of a community affected by the project. 08 Alignment with the City's Strategic Direction AM planning should endeavour to align with the strategic business objectives of the City and should be reviewed regularly to ensure that it aligns with the changing and emerging strategic goals and priorities of the organization. Please refer to all associated Policies, Procedures and Standard Operating Procedures, if applicable, for detailed processes regarding this Policy. Policy Title: Strategic Asset Management Policy Policy Number: FIN ### Page 7of7 Francais ATTACHMENT# TO REPORT# t IL -1r ONTARIO REGULATION 588/17 made under the INFRASTRUCTURE FOR JOBS AND PROSPERITY ACT, 2015 Made: December 13, 2017 Filed: December 27, 2017 Published on e -Laws: December 27, 2017 Printed in The Ontario Gazette: January 13, 2018 ASSET MANAGEMENT PLANNING FOR MUNICIPAL INFRASTRUCTURE CONTENTS INTERPRETATION AND APPLICATION 1. Definitions 2. Application STRATEGIC ASSET MANAGEMENT POLICIES 3. Strategic asset management policy 4. Update of asset management policy ASSET MANAGEMENT PLANS 5. Asset management plans, current levels of service 6. Asset management plans, proposed levels of service 7. Update of asset management plans 8. Endorsement and approval required 9. Annual review of asset management planning progress 10. Public availability Table 1 Water assets Table 2 Wastewater assets Table 3 Stormwater management assets Table 4 Roads Table 5 Bridges and culverts 11. Commencement COMMENCEMENT INTERPRETATION AND APPLICATION Definitions 1. (1) In this Regulation, "asset category" means a category of municipal infrastructure assets that is, (a) an aggregate of assets described in each of clauses (a) to (e) of the definition of core municipal infrastructure asset, or (b) composed of any other aggregate of municipal infrastructure assets that provide the same type of service; ("categorie de biens") "core municipal infrastructure asset" means any municipal infrastructure asset that is a, (a) water asset that relates to the collection, production, treatment, storage, supply or distribution of water, (b) wastewater asset that relates to the collection, transmission, treatment or disposal of wastewater, including any wastewater asset that from time to time manages stormwater, (c) stormwater management asset that relates to the collection, transmission, treatment, retention, infiltration, control or disposal of stormwater, (d) road, or (e) bridge or culvert; ("bien d'infrastructure municipale essentiel") "ecological functions" has the same meaning as in Ontario Regulation 140/02 (Oak Ridges Moraine Conservation Plan) made under the Oak Ridges Moraine Conservation Act, 2001; ("fonctions ecologiques") "green infrastructure asset" means an infrastructure asset consisting of natural or human -made elements that provide ecological and hydrological functions and processes and includes natural heritage features and systems, parklands, stormwater management systems, street trees, urban forests, natural channels, permeable surfaces and green roofs; ("bien d'infrastructure verte") "hydrological functions" has the same meaning as in Ontario Regulation 140/02; ("fonctions hydrologiques") "joint municipal water board" means a joint board established in accordance with a transfer order made under the Municipal Water and Sewage Transfer Act, 1997; ("conseil mixte de gestion municipale des eaux") "lifecycle activities" means activities undertaken with respect to a municipal infrastructure asset over its service life, including constructing, maintaining, renewing, operating and decommissioning, and all engineering and design work associated with those activities; ("activites relatives au cycle de vie") "municipal infrastructure asset" means an infrastructure asset, including a green infrastructure asset, directly owned by a municipality or included on the consolidated financial statements of a municipality, but does not include an infrastructure asset that is managed by a joint municipal water board; ("bien d'infrastructure municipale") "municipality" has the same meaning as in the Municipal Act, 2001; ("municipalite") "operating costs" means the aggregate of costs, including energy costs, of operating a municipal infrastructure asset over its service life; ("frais d'exploitation") "service life" means the total period during which a municipal infrastructure asset is in use or is available to be used; ("duree de vie") "significant operating costs" means, where the operating costs with respect to all municipal infrastructure assets within an asset category are in excess of a threshold amount set by the municipality, the total amount of those operating costs. ("frais d'exploitation importants") (2) In Tables 1 and 2, "connection -days" means the number of properties connected to a municipal system that are affected by a service issue, multiplied by the number of days on which those properties are affected by the service issue. ("jours-branchements") (3) In Table 4, "arterial roads" means Class 1 and Class 2 highways as determined under the Table to section 1 of Ontario Regulation 239/02 (Minimum Maintenance Standards for Municipal Highways) made under the Municipal Act, 2001; ("arteres") "collector roads" means Class 3 and Class 4 highways as determined under the Table to section 1 of Ontario Regulation. 239/02; ("routes collectrices") "lane -kilometre" means a kilometre -long segment of roadway that is a single lane in width; ("kilometre de voie") "local roads" means Class 5 and Class 6 highways as determined under the Table to section 1 of Ontario Regulation 239/02. ("routes locales") (4) In Table 5, "Ontario Structure Inspection Manual" means the Ontario Structure Inspection Manual (OSIM), published by the Ministry of Transportation and dated October 2000 (revised November 2003 and April 2008) and available on a Government of Ontario website; ("manuel d' inspection des structures de 1'Ontario") "structural culvert" has the meaning set out for "culvert (structural)" in the Ontario Structure Inspection Manual. ("ponceau structurel") Application 2. For the purposes of section 6 of the Act, every municipality is prescribed as a broader public sector entity to which that section applies. STRATEGIC ASSET MANAGEMENT POLICIES Strategic asset management policy 3. (1) Every municipality shall prepare a strategic asset management policy that includes the following: 1. Any of the municipality's goals, policies or plans that are supported by its asset management plan. 2. The process by which the asset management plan is to be considered in the development of the municipality's budget or of any long-term financial plans of the municipality that take into account municipal infrastructure assets. 3. The municipality's approach to continuous improvement and adoption of appropriate practices regarding asset management planning. 4. The principles to be followed by the municipality in its asset management planning, which must include the principles set out in section 3 of the Act. 3 5. The municipality's commitment to consider, as part of its asset management planning, i. the actions that may be required to address the vulnerabilities that may be caused by climate change to the municipality's infrastructure assets, in respect of such matters as, A. operations, such as increased maintenance schedules, B. levels of service, and C. lifecycle management, ii. the anticipated costs that could arise from the vulnerabilities described in subparagraph i, iii. adaptation opportunities that may be undertaken to manage the vulnerabilities described in subparagraph i, iv. mitigation approaches to climate change, such as greenhouse gas emission reduction goals and targets, and v. disaster planning and contingency funding. 6. A process to ensure that the municipality's asset management planning is aligned with any of the following financial plans: i. Financial plans related to the municipality's water assets including any financial plans prepared under the Safe Drinking Water Act, 2002. ii. Financial plans related to the municipality's wastewater assets. 7. A process to ensure that the municipality's asset management planning is aligned with Ontario's land -use planning framework, including any relevant policy statements issued under subsection 3 (1) of the Planning Act, any provincial plans as defined in the Planning Act and the municipality's official plan. 8. An explanation of the capitalization thresholds used to determine which assets are to be included in the municipality's asset management plan and how the thresholds compare to those in the municipality's tangible capital asset policy, if it has one. 9. The municipality's commitment to coordinate planning for asset management, where municipal infrastructure assets connect or are interrelated with those of its upper -tier municipality, neighbouring municipalities or jointly -owned municipal bodies. 10. The persons responsible for the municipality's asset management planning, including the executive lead. 11. An explanation of the municipal council's involvement in the municipality's asset management planning 12. The municipality's commitment to provide opportunities for municipal residents and other interested parties to provide input into the municipality's asset management planning. (2) For the purposes of this section, "capitalization threshold" is the value of a municipal infrastructure asset at or above which a municipality will capitalize the value of it and below which it will expense the value of it. ("seuil de capitalisation") Update of asset management policy 4. Every municipality shall prepare its first strategic asset management policy by July 1, 2019 and shall review and, if necessary, update it at least every five years. ASSET MANAGEMENT PLANS Asset management plans, current levels of service 5. (1) Every municipality shall prepare an asset management plan in respect of its core municipal infrastructure assets by July 1, 2021, and in respect of all of its other municipal infrastructure assets by July 1, 2023. (2) A municipality's asset management plan must include the following: 1. For each asset category, the current levels of service being provided, determined in accordance with the following qualitative descriptions and technical metrics and based on data from at most the two calendar years prior to the year in which all information required under this section is included in the asset management plan: i, With respect to core municipal infrastructure assets, the qualitative descriptions set out in Column 2 and the technical metrics set out in Column 3 of Table 1, 2, 3, 4 or 5, as the case may be. ii. With respect to all other municipal infrastructure assets, the qualitative descriptions and technical metrics established by the municipality. 2. The current performance of each asset category, determined in accordance with the performance measures established by the municipality, such as those that would measure energy usage and operating efficiency, and based on data from 4 at most two calendar years prior to the year in which all information required under this section is included in the asset management plan. 3. For each asset category, i. a summary of the assets in the category, ii. the replacement cost of the assets in the category, iii. the average age of the assets in the category, determined by assessing the average age of the components of the assets, iv. the information available on the condition of the assets in the category, and v. a description of the municipality's approach to assessing the condition of the assets in the category, based on recognized and generally accepted good engineering practices where appropriate. 4. For each asset category, the lifecycle activities that would need to be undertaken to maintain the current levels of service as described in paragraph 1 for each of the 10 years following the year for which the current levels of service under paragraph 1 are determined and the costs of providing those activities based on an assessment of the following: i. The full lifecycle of the assets. ii. The options for which lifecycle activities could potentially be undertaken to maintain the current levels of service. iii. The risks associated with the options referred to in subparagraph ii. iv. The lifecycle activities referred to in subparagraph ii that can be undertaken for the lowest cost to maintain the current levels of service. 5. For municipalities with a population of less than 25,000, as reported by Statistics Canada in the most recent official census, the following: i. A description of assumptions regarding future changes in population or economic activity. ii. How the assumptions referred to in subparagraph i relate to the information required by paragraph 4. 6. For municipalities with a population of 25,000 or more, as reported by Statistics Canada in the most recent official census, the following: i. With respect to municipalities in the Greater Golden Horseshoe growth plan area, if the population and employment forecasts for the municipality are set out in Schedule 3 or 7 to the 2017 Growth Plan, those forecasts. ii. With respect to lower -tier municipalities in the Greater Golden Horseshoe growth plan area, if the population and employment forecasts for the municipality are not set out in Schedule 7 to the 2017 Growth Plan, the portion of the forecasts allocated to the lower -tier municipality in the official plan of the upper -tier municipality of which it is a part. iii. With respect to upper -tier municipalities or single -tier municipalities outside of the Greater Golden Horseshoe growth plan area, the population and employment forecasts for the municipality that are set out in its official plan. iv. With respect to lower -tier municipalities outside of the Greater Golden Horseshoe growth plan area, the population and employment forecasts for the lower -tier municipality that are set out in the official plan of the upper -tier municipality of which it is a part. v. If, with respect to any municipality referred to in subparagraph iii or iv, the population and employment forecasts for the municipality cannot be determined as set out in those subparagraphs, a description of assumptions regarding future changes in population or economic activity. vi. For each of the 10 years following the year for which the current levels of service under paragraph 1 are determined, the estimated capital expenditures and significant operating costs related to the lifecycle activities required to maintain the current levels of service in order to accommodate projected increases in demand caused by growth, including estimated capital expenditures and significant operating costs related to new construction or to upgrading of existing municipal infrastructure assets. (3) Every asset management plan must indicate how all background information and reports upon which the information required by paragraph 3 of subsection (2) is based will be made available to the public. (4) In this section, "2017 Growth Plan" means the Growth Plan for the Greater Golden Horseshoe, 2017 that was approved under subsection 7 (6) of the Places to Grow Act, 2005 on May 16, 2017 and came into effect on July 1, 2017; ("Plan de croissance de 2017") 5 "Greater Golden Horseshoe growth plan area" means the area designated by section 2 of Ontario Regulation 416/05 (Growth Plan Areas) made under the Places to Grow Act, 2005. ("zone de croissance planifiee de la region elargie du Golden Horseshoe") Asset management plans, proposed levels of service 6. (1) Subject to subsection (2), by July 1, 2024, every asset management plan prepared under section 5 must include the following additional information: 1. For each asset category, the levels of service that the municipality proposes to provide for each of the 10 years following the year in which all information required under section 5 and this section is included in the asset management plan, determined in accordance with the following qualitative descriptions and technical metrics: i. With respect to core municipal infrastructure assets, the qualitative descriptions set out in Column 2 and .the technical metrics set out in Column 3 of Table 1, 2, 3, 4 or 5, as the case may be. ii. With respect to all other municipal infrastructure assets, the qualitative descriptions and technical metrics established by the municipality. 2. An explanation of why the proposed levels of service under paragraph 1 are appropriate for the municipality, based on an assessment of the following: i. The options for the proposed levels of service and the risks associated with those options to the long term sustainability of the municipality. ii. How the proposed levels of service differ from the current subsection 5 (2). iii. Whether the proposed levels of service are achievable. iv. The municipality's ability to afford the proposed levels of service. 3. The proposed performance of each asset category for each year of the 10 -year period referred to in paragraph 1, determined in accordance with the performance measures established by the municipality, such as those that would measure energy usage and operating efficiency. 4. A lifecycle management and financial strategy that sets out the following information with respect to the assets in each asset category for the 10 -year period referred to in paragraph 1: i. An identification of the lifecycle activities that would need to be undertaken to provide the proposed levels of service described in paragraph 1, based on an assessment of the following: A. The full lifecycle of the assets. B. The options for which lifecycle activities could potentially be undertaken to achieve the proposed levels of service. C. The risks associated with the options referred to in sub -subparagraph B. D. The lifecycle activities referred to in sub -subparagraph B that can be undertaken for the lowest cost to achieve the proposed levels of service. ii. An estimate of the annual costs for each of the 10 years of undertaking the lifecycle subparagraph i, separated into capital expenditures and significant operating costs. iii. An identification of the annual funding projected to be available to undertake lifecycle activities and an explanation of the options examined by the municipality to maximize the funding projected to be available. iv. If, based on the funding projected to be available, the municipality identifies a funding shortfall for the lifecycle activities identified in subparagraph i, A. an identification of the lifecycle activities, whether set out in subparagraph i or otherwise, that the municipality will undertake, and B. if applicable, an explanation of how the municipality will manage the risks associated with not undertaking any of the lifecycle activities identified in subparagraph i. 5. For municipalities with a population of less than 25,000, as reported by Statistics Canada in the most recent official census, a discussion of how the assumptions regarding future changes in population and economic activity, set out in subparagraph 5 i of subsection 5 (2), informed the preparation of the lifecycle management and financial strategy referred to in paragraph 4 of this subsection. 6. For municipalities with a population of 25,000 or more, as reported by Statistics Canada in the most recent official census, levels of service set out under paragraph 1 of activities identified in 6 i. the estimated capital expenditures and significant operating costs to achieve the proposed levels of service as described in paragraph 1 in order to accommodate projected increases in demand caused by population and employment growth, as set out in the forecasts or assumptions referred to in paragraph 6 of subsection 5 (2), including estimated capital expenditures and significant operating costs related to new construction or to upgrading of existing municipal infrastructure assets, ii. the funding projected to be available, by source, as a result of increased population and economic activity, and iii. an overview of the risks associated with implementation of the asset management plan and any actions that would be proposed in response to those risks. 7. An explanation of any other key assumptions underlying the plan that have not previously been explained. (2) With respect to an asset management plan prepared under section 5 on or before July 1, 2021, if the additional information required under this section is not included before July 1, 2023, the municipality shall, before including the additional information, update the culTent levels of service set out under paragraph 1 of subsection 5 (2) and the current performance measures set out under paragraph 2 of subse.ction 5 (2) based on data from the two most recent calendar years. Update of asset management plans 7. (1) Every municipality shall review and update its asset management plan at least five years after the year in which the plan is completed under section 6 and at least every five years thereafter. (2) The updated asset management plan must comply with the requirements set out under paragraphs 1, 2 and 3 and subparagraphs 5 i and 6 i, ii, iii, iv and v of subsection 5 (2), subsection 5 (3) and paragraphs 1 to 7 of subsection 6 (1). Endorsement and approval required 8. Every asset management plan prepared under section 5 or 6, or updated under section 7, must be, (a) endorsed by the executive lead of the municipality; and (b) approved by a resolution passed by the municipal council. Annual review of asset management planning progress 9. (1) Every municipal council shall conduct an annual review of its asset management progress on or before July 1 in each year, starting the year after the municipality's asset management plan is completed under section 6. (2) The annual review must address, (a) the municipality's progress in implementing its asset management plan; (b) any factors impeding the municipality's ability to implement its asset management plan; and (c) a strategy to address the factors described in clause (b). Public availability 10. Every municipality shall post its current strategic asset management policy and asset management plan on a website that is available to the public, and shall provide a copy of the policy and plan to any person who requests it. TABLE 1 WATER ASSETS Column 1 Service attribute Column 2 Community levels of service (qualitative descriptions) Column 3 Technical levels of service (technical metrics) Scope 1. Description, which may include maps, of the user groups 1. Percentage of properties connected to the or areas of the municipality that are connected to the municipal water system. municipal water system. 2. Percentage of properties where fire flow is 2. Description, which may include maps, of the user groups or areas of the municipality that have fire flow. available. Reliability Description of boil water advisories and service 1. The number of connection -days per year where a interruptions. boil water advisory notice is in place compared to the total number of properties connected to the municipal water system. 2. The number of connection -days per year due to water main breaks compared to the total number of properties connected to the municipal water system. TABLE 2 WASTEWATER ASSETS Column 1 Column 2 Column 3 7 Service attribute Community levels of service (qualitative descriptions) Technical levels of service (technical metrics) Scope Description, which may include maps, of the user groups or Percentage of properties connected to the municipal Quality areas of the municipality that are connected to the municipal wastewater system. wastewater system. Reliabi lity 1. Description of how combined sewers in the municipal 1. The number of events per year where combined wastewater system are designed with overflow structures in sewer flow in the municipal wastewater system place which allow overflow during storm events to prevent exceeds system capacity compared to the total backups into homes. number of properties connected to the municipal 2. Description of the frequency and volume of overflows in wastewater system. combined sewers in the municipal wastewater system that 2. The number of connection -days per year due to occur in habitable areas or beaches. wastewater backups compared to the total number of 3. Description of how stormwater can get into sanitary properties connected to the municipal wastewater sewers in the municipal wastewater system, causing sewage system. to overflow into streets or backup into homes. 3. The number of effluent violations per year due to 4. Description of how sanitary sewers in the municipal wastewater discharge compared to the total number wastewater system are designed to be resilient to avoid of properties connected to the municipal wastewater events described in paragraph 3. system. 5. Description of the effluent that is discharged from sewage treatment plants in the municipal wastewater system. TABLE 3 STORMWATER MANAGEMENT ASSETS Column 1 Service attribute Column 2 Community levels of service (qualitative descriptions) Column 3 Technical levels of service (technical metrics) Scope Description, which may include maps, of the user groups or areas of the municipality that are protected from flooding, including the extent of the protection provided by the municipal stormwater management system. 1. Percentage of properties in municipality resilient to a 100 -year storm. 2. Percentage of the municipal stormwater management system resilient to a 5 -year storm. TABLE 4 ROADS Column 1 Service attribute Column 2 Community levels of service (qualitative descriptions) Column 3 Technical levels of service (technical metrics) Scope Description, which may include maps, of the road network in the municipality and its level of connectivity. Number of lane -kilometres of each of arterial roads, collector roads and local roads as a proportion of square kilometres of land area of the municipality. Quality Description or images that illustrate the different levels of road class pavement condition. 1. For paved roads in the municipality, the average pavement condition index value. 2. For unpaved roads in the municipality, the average surface condition (e.g. excellent, good, fair or poor). TABLE 5 BRIDGES AND CULVERTS Column 1 Service attribute Column 2 Community levels of service (qualitative descriptions) Column 3 Technical levels of service (technical metrics) Scope Description of the traffic that is supported by municipal bridges (e.g., heavy transport vehicles, motor vehicles, emergency vehicles, pedestrians, cyclists). Percentage of bridges in the municipality with loading or dimensional restrictions. Quality 1. Description or images of the condition of bridges and how this would affect use of the bridges. 2. Description or images of the condition of culverts and how this would affect use of the culverts. 1. For bridges in the municipality, the average bridge condition index value. 2. For structural culverts in the municipality, the average bridge condition index value. COMMENCEMENT Commencement 11. This Regulation comes into force on the later of January 1, 2018 and the day it is filed. 8 Francais Back to top ATTACHMENT# 3 TO REPORT # CITY POLICY Policy Title: Accounting for Tangible Capital Assets Policy Number: FIN 050 Reference: Public Sector Accounting Board PS 3150 Date Originated: January 2010 Date Revised: Approval: Resol 'on #27/ p Point of Contact: Senior Financial Analyst, Corporate Services G7/ • 1 Policy Objective The purpose of this policy is to prescribe the accounting treatmt for tangible capital assets in accordance with Public Sector Accounting Board (PSAB) PS 3150 in order for the Corporation of the City of Pickering (the "City") to provide financial information about the investment in property, infrastructure, and equipment and the changes in such investment. In addition, this will allow the City to maintain accountability and ensure efficient and effective use of capital assets, as well as make appropriate decisions in planning for capital asset replacement needs. The principle issues in accounting for tangible capital assets are the recognition of the assets, the determination of their carrying costs, amortization charges and the recognition of any related write-downs. Scope This policy applies to all City departments, boards and agencies and other organizations failing within the reporting entity of the City. Index 01 Definitions 02 Categories 03 Opening Balances 04 Capitalization 05 Valuation 06 Single Asset, Pooling, Component or Segment Approach 07 Amortization 08 Betterments 09 Assets Under Construction 10 Disposals 11 Write-down for Impairment 12. Responsibilities 13 Procedures 01 Definitions 01.01 Amortization is the accounting process of allocating the cost less the residual value of a tangible capital asset to the fiscal years as an expense over its useful life in a rational and systematic manner appropriate to its nature and use. Amortization expense is an important part of the cost associated with providing local government services, regardless of how the acquisition of tangible capital assets is funded. Depreciation accounting is another commonly used term to describe the amortization of tangible capital assets. 01.02 Assets Under Construction are assets purchased, constructed or developed and not yet in service. Once completed and in service, these assets will be recorded as an asset in their proper category and will be amortized over their useful life. 01.03 Betterments are subsequent expenditures on tangible capital assets that: • increase previously assessed physical output or service capacity; • lower associated operating costs; • extend the useful life of the asset; or • improve the quality of the output. Policy Title: Accounting for Tangible Capital Assets Page 2 of 15 Policy Number: FIN 050 Amounts are capitalized in accordance with the thresholds provided in Section 04. Any other expenditure would be cbnsidered a repair or maintenance and expensed in the period. 01.04 Capital lease is a lease with contractual terms that transfer substantially all the benefits and risks inherent in ownership of the asset to the City. For substantially all of the benefits and risks of ownership to be transferred to the lessee, one or more of the following conditions must be met: a) there is reasonable assurance that the City will obtain ownership of the leased property by the end of the lease term; b) the lease term is of such duration that the City will receive substantially all of the economic benefits expected to be derived from the use of the leased property over its life span; or c) the lessor would be assured of recovering the investment in the leased property and of earning a return on the investment as a result of the lease agreement. Account for a capital lease as acquiring a capital asset and incurring a liability. Account for a lease as an operating lease when the net present value of the future minimum lease payments or fair value, whichever is less, is less than $10,000. 01.05 Carrying costs are costs directly attributable to an asset's acquisition, construction or development activity where, due to the nature of the asset, preparing the asset for intended use is over an extended period of time. Typical carrying costs could include: • technical and administrative work prior to commencement of and during construction; • overhead charges directly attributable to construction or development; and • interest (see Section 05.04). 01.06 Component is a part of an asset with a cost that is significant in relation to the total cost of that asset. Component accounting recognizes that each part might have a different useful life. This requires separate accounting for each component that has a different useful life than the asset as a whole. Policy Title: Accounting for Tangible Capital Assets Page 3 of 15 Policy Number: FIN 050 01.07 Cost is the gross amount of consideration given up to acquire, construct, develop or better a tangible capital asset, and includes all costs directly attributable to acquisition, construction, development or betterment of the tangible capital asset, including installing the asset at the location and in the condition necessary for its intended use. The cost of a contributed tangible capital asset, including a tangible capital asset in lieu of a developer charge, is considered to be equal to its fair value at the date of contribution. Capital grants are not netted against the cost of tangible capital assets — both purchased and contributed. The cost of a leased tangible capital,asset is determined in accordance with Public Sector Guideline PSG -2, Leased Tangible Capital Assets in the PSAB Handbook. 01.08 Deemed disposition is when the asset is assumed or deemed to have been disposed of in the last year of its estimated useful life. At the deemed disposition date, the full cost of the addition and the related accumulated amortization is removed from the accounting records. Deemed disposition is the method used to remove pooled assets from the accounting system. 01.09 Fair value is the amount of consideration that would be agreed upon in an arm's length transaction between knowledgeable, willing parties who are under no compulsion to act. 01.10 Moveable property is property that may be moved from place to place. Examples of moveable property for purposes of tangible capital assets are Vehicles and Machinery & Equipment. 01.11 Net book value of a tangible capital asset is its cost, less both accumulated amortization and the amount of any write-downs. 01.12 Pooled Assets are assets that are similar or identical in nature and have a unit value below the capitalization threshold but have a material value as a group — normally recorded as a single asset with one combined value. Although recorded in the financial systems as a single asset, each unit may be recorded in the asset sub -ledger for monitoring and control of its use and maintenance. Examples could include personal computers, furniture and fixtures, small moveable equipment, etc. Policy Title: Accounting for Tangible Capital Assets Page 4 of 15 Policy Number: FIN 050 01.13 Replacement cost is the cost to acquire an asset having equivalent service potential to that of the asset being replaced. 01.14 Reproduction cost is the cost of reproducing an asset in substantially identical form and does not take into account changes in technology or construction methods. 01.15 Residual value is the estimated net realizable value of a tangible capital asset at the end of its useful life. 01.16 Service potential is the output or service capacity of a tangible capital asset, and is normally determined by reference to attributes such as physical output capacity, quality of output, associated operating costs, and useful life. 01.17 Straight-line amortization allocates the cost Tess estimated residual value of a capital asset equally over each year of its estimated useful life. 01.18 Tangible capital assets are non-financial assets having physical substance that: (i) are held for use in the production or supply of goods and services, for rental to others, for administrative purposes or for the development, construction, maintenance or repair of other tangible capital assets; (ii) have useful economic lives extending beyond a fiscal year; (iii) are to be used on a continuing basis; and (iv) are not for sale in the ordinary course of operations. Tangible capital assets include assets that are donated, contributed, leased (e.g. capital lease) and construction -in -progress. Tangible capital assets do not include such things as: • intangibles (e.g. Goodwill, copyrights, trademarks); • assets acquired by Right, such as purchased computer software; and • heritage assets. 01.19 Threshold is the minimum value which must be met for the capitalization of a tangible capital asset. 01.20 Useful life is the estimate of either the period over which the City expects to use a tangible capital asset, or the service potential of the tangible Policy Title: Accounting for Tangible Capital Assets Page 5 of 15 Policy Number: FIN 050 capital asset. The life of a tangible capital asset may extend beyond its useful life. The life of a tangible capital asset, other than land, is finite, and is normally the shortest of the physical, technological, commercial or legal life. 02 Categories A category of assets is a grouping of assets of similar nature or function in the City's operations. The following list of categories shall be used: A Land B Buildings C Machinery & Equipment D Vehicles E Infrastructure - Roads F Infrastructure — Storm Sewers G Infrastructure — Sidewalks H Information Technology Hardware Infrastructure — Parks J Library Collection Materials K Furniture & Fixtures L Assets Under Construction 03 Opening Balances Capitalization for opening balances as of December 31, 2007 is set at a threshold of $5,000 for individual assets and pooled assets. No threshold was used on the opening balances for Land, Buildings and Roads and these categories therefore include 100% of assets identified. Pooled assets in the opening balances include Streetlights, Computer Equipment, Park Infrastructure, Library Materials and Furniture & Fixtures. The majority of Furniture& Fixtures were purchased at the time of facility construction and would be completely depreciated based on their useful life. Therefore, the majority were deemed to have been disposed of and have been excluded from the opening balances. Although PS3150 requires tangible capital assets to be recorded at historical cost, the transitional provisions allow for the fact that historical cost accounting records may not exist for all assets. PS3150 indicates that a government entity should apply a consistent method of estimating the cost of tangible capital assets for which it does not have historical records; it does not provide guidance on what other measurement bases should be used. Policy Title: Accounting for Tangible Capital Assets Page 6of 15 Policy Number: FIN 050 Where the City did not have historical accounting records, the following methods were used: Current Reproduction/Replacement: Determining current reproduction/replacement cost and deflating it back to the date of the asset's acquisition using an appropriate deflation index. Appraisal: Wherever necessary, the City contracted the services of an accredited appraisal company to provided current market values discounted back to the date of acquisition using an appropriate deflation index. To account for taxes properly, the cost for each asset had the estimated applicable PST and/or GST added to determine the final opening balance. 04 Capitalization Tangible capital assets and any betterments should be capitalized and amortized according to the following thresholds and useful lives: Asset Category Threshold Useful Life — Years* Land . Always Capitalize Indefinite Buildings , $100,000 15 — 45 Machinery & Equipment $5,000 various Vehicles $15,000 5 — 15 Infrastructure — Roads $100,000 . 10 — 50 Infrastructure - Storm Sewers $50,000 25 — 100 Infrastructure - Sidewalks $50,000 20 — 40 Information Technology Hardware $5,000 or pooled — see threshold below . 4 — 8 Infrastructure — Parks $5,000 or pooled —see threshold below 10 — 40 Library Collection Materials Pooled — see threshold below 4 — 7 Furniture & Fixtures $5,000 or pooled — see threshold below various Assets Under Construction Always Capitalize n/a . Pooled Assets $20,000 n/a Policy Title: Accounting for Tangible Capital Assets Policy Number: FIN 050 Page 7 of 15 *Specific useful lives are provided in separate Tangible Capital Assets City Procedure. 05 Valuation Tangible capital assets should be recorded at cost plus all related charges necessary to place the asset in its intended location and condition for use. These direct costs will be added as part of the original cost of the asset and will be amortized over the useful life of the associated asset. 05.01 Purchased Assets Cost is the gross amount of consideration paid to acquire the asset. It includes all non-refundable taxes and duties, freight and delivery charges, installation and site preparation costs and other directly related costs. The cost is net of any discounts or rebates. The cost excludes the value of any asset traded in. Cost of land includes purchase price plus legal fees, land registration fees, transfer taxes, survey soil tests and any other directly related costs. Costs would include any costs to make the land suitable for intended use, such as pollution mitigation, demolition and site improvements that become part of the land. When two or more assets are acquired for a single purchase price, it is necessary to allocate the purchase price to the various assets acquired. Allocation should be based on the fair value of each asset at the time of acquisition or some other reasonable basis if fair value is not readily determinable. 05.02 Acquired, Constructed or Developed Assets Cost includes all costs directly attributable (e.g., construction, architectural and other professional fees) to the acquisition, construction or development of the asset. Carrying costs such as internal design, inspection, administrative and other similar costs may be capitalized. Capitalization of general administrative overheads such as rent, utilities, and insurance are not allowed. Capitalization of carrying costs ceases when no construction or development is taking place or when the tangible capital asset is ready for use. 05.03 Donated or Contributed Assets The.cost of donated or contributed assets that meet the criteria for recognition is equal to the fair value at the date of construction or Policy Title: Accounting for Tangible Capital Assets Page 8 of 15 Policy Number: FIN 050 contribution. Fair value may be determined using market or appraisal values. Cost may be determined by an estimate of replacement cost. Any related costs should also be capitalized. 05.04 Capitalization of Interest. Costs Borrowing costs incurred when the acquisition, construction or production of an asset takes a substantial period of time to get ready for its intended use may be capitalized as part of the cost of that asset. Capitalization of interest costs should commence when expenditures are being incurred, borrowing costs are being incurred and activities that are necessary to prepare the asset for its intended use are in progress. Capitalization should be suspended during periods in which active development is interrupted. Capitalization should cease when substantially all (90%) of the activities necessary to prepare the asset for its intended use are complete. If only minor modifications are outstanding, this indicates that substantially all of the activities are complete. 06 Single Asset, Pooling, Component or Segment Approach Tangible capital assets may be accounted for using the single asset, pooling, component and/or segment approaches. The approach used will be determined by the usefulness of the information versus the cost of collecting and maintaining information at that level. The approach taken does not have to be consistent across all categories of assets. Different approaches may be taken for each category. 06.01 Single Asset Approach The single asset approach is used when it is not possible to break down the assets into component parts and the value of the asset meets the threshold minimums outlined in Section 04. If a single asset approach is used, the replacement of individual parts will not increase the service potential of the asset as a whole and are recorded as an expense. 06.02 Pooling Approach Assets that are similar or identical in nature and have an individual value below the capitalization threshold but have a material value as a group may be recorded as a single asset with one combined value. Examples of pooled assets are computers and library materials. The capitalization threshold for pooled assets is $20,000. Thus, any grouping of assets must exceed this level to be considered an asset for PS 3150 purposes. Policy Title: Accounting for Tangible Capital Assets Page 9 of 15 Policy Number: FIN 050 06.03 Component Approach Factors to consider when determining whether to use a component approach include: a) major components have significantly different useful lives and consumption patterns in relation to the tangible capital asset as a whole; and b) value of components in relation to the value of the tangible capital asset as a whole. City infrastructure should use the component approach, where appropriate. Major components can be comprised of assets that have similar characteristics and estimated useful lives or consumption rates. 06.04 Segment Approach Linear assets (complex network systems such as roads, sidewalks and stormwater systems) are usually defined in terms of details such as length, unit of measure and geographic reference (e.g., start and end points). For linear assets, it may be appropriate to break down assets into corresponding segments. For example, when work is performed at a specific point in a linear asset — such as replacing a portion of a roadway — the cost and work involved is attributed to that portion of the asset rather than the entire asset. 06.05 Approach Summary The component and segment approaches can make the accounting and reporting of assets easier. It allows more accurate tracking of an asset by age, type, use and other attributes used in estimating an asset's useful life. It also allows for more accurate tracking of betterments and maintenance. For example, if a segment of sidewalk is replaced, or a component of a building is replaced, the costs of the replacement can be capitalized and amortized over its useful life and the old segment/component written off. Policy Title: Accounting for Tangible Capital Assets Page 10 of 15 Policy Number: FIN 050 Asset classes will be evaluated using the following approaches: Asset Class Approach Components Land• Segment Buildings Component All buildings over 5000sq ft: Structure Electrical & Mechanical Roof Cover Interior Finishes Land Improvements Machinery & Equipment Single Asset Vehicles Single Asset Infrastructure — Roads Segment/ Component/ Pooled Roads — Base/Surface Bridges — Deck/Structure IPS and Traffic Signals — Controller/Infrastructure Infrastructure — Storm Sewers Segment Infrastructure — Sidewalks Segment Information Technology Hardware . Single Asset /Pooled Infrastructure - Parks Single Asset /Pooled Library Collection Materials Pooled Furniture &. Fixtures Single Asset /Pooled• Policy Title: Accounting for Tangible Capital Assets Page 11 of 15 Policy Number: FIN 050 07 Amortization The cost, less any residual value, of a tangible capital asset with a limited life should be amortized over its useful life in a rational and systematic manner appropriate to its nature and use: The amortization method and estimate of useful life of the remaining unamortized portion should be reviewed on a regular basis and revised when the appropriateness of a change can be clearly demonstrated. Residual Value will be deemed to be nil for all assets for purposes of amortization. Useful life is normally the shortest of the asset's physical, technological, commercial or legal life. The City uses a straight-line method for calculating the annual amortization. A summary view of the estimated useful lives of assets is included in attached in Section 04. Please note that wherever a category contains many different types of assets with many different useful lives, in which no clear sub -categories stand out, the estimated useful life has been listed as 'various' to reflect the vast pool of assets and their useful lives. City departments, boards and agencies and other organizations are responsible for establishing and utilizing an appropriate estimated useful life for assets acquired. The 'half year rule' will apply to the City. Under the half year rule, six months of amortization is recorded for tangible capital assets acquired during a fiscal year and in the year of disposal. 08 Betterments When valuing the assets, the City must also consider if there have been any betterments since the asset was originally acquired or constructed. Costs of betterments are considered to be part of the cost .of a tangible capital asset and would be added to the cost of the related asset. A betterment is a cost incurred to enhance the service potential of a tangible capital asset. In general, service potential may be enhanced when there is an increase in the previously assessed physical output or service capacity, where associated operating costs are lowered, where the useful life of the property is extended, or the quality of the output is improved. For example, expenditures incurred to resurface a road which increases the useful life would be accounted for as a betterment. However, asphalt patching which is a temporary fix and does not increase the overall useful life of the road would be accounted for as repairs and maintenance. Policy Title: Accounting for Tangible Capital Assets Page 12 of 15 Policy Number: FIN 050 When recording a betterment, the cost of the betterment should not simply be added to the original cost of the asset. In some cases, a partial disposalof the existing asset that was improved occurs. For example, if the exterior of a building is replaced that results in increasing the useful life of the building, the cost of the replaced exterior should be removed from the cost of the building and the new exterior should be added to the cost. The accumulated depreciation related to the old exterior should also be removed. Betterments that meet the thresholds in Section 04 will be capitalized by the City. 09 Assets Under Construction Tangible capital assets purchased, constructed or developed by the City are charged to Assets Under Construction until they are put into use. The cost of a constructed asset includes direct construction or development costs (such as materials and labour), and overhead costs directly attributable to the construction or development activity. Assets under construction also include those assets that have been acquired but require additional work to get the assets ready for use. Capitalization of costs cease when a tangible capital asset is ready for use. Determining when a tangible capital asset, or a portion thereof, is ready for productive use requires consideration of the circumstances in which it is to be operated. Normally it would be predetermined by reference to factors such as productive capacity, occupancy level, or the passage of time. 10 Disposals Disposals of tangible capital assets that are moveable property are the responsibility of the Manager, Supply & Services as per the Purchasing. Policy. Directors should notify the Manager when assets become surplus to operations. When other constructed tangible capital assets are taken out of service, destroyed or replaced due to obsolescence, scrapping or dismantling, the Director must notify Corporate Services of the asset and effective date of disposal. An asset that has been disposed of will be removed from the asset inventory records on disposal or when the asset is permanently withdrawn from use and no future economic benefit or service potential is expected from the asset. The gain or loss arising from the retirement or disposal of an asset should be recognized. The gainor loss is determined as the difference between the actual or estimated net disposal proceeds and the net book value of the asset. The Policy Title: Accounting for Tangible Capital Assets Page 13 of 15 Policy Number: FIN 050 resulting gain or loss will be accounted for as revenue or expense in the Statement of Operations. 11 Write-down for Impairment A write-down is required when an asset has become impaired (that is, the value of future economic value of the asset is less than the book value). When this occurs, the costs should be reduced to reflect the decline in the asset value. A write-down is used to reflect a partial impairment in the value of the asset. A write-off is used to reflect 100% impairment of the value of an asset. Capital assets are written -off in instances where they are destroyed, stolen, lost or obsolete. The write-off of a tangible capital asset requires the approval of the Director, Corporate Services & Treasurer. Any abandoned or indefinitely postponed projects must be written -down to their net realizable value and charged to the period in which the abandonment or indefinite postponement occurs. When the reduction in the value of the asset can be objectively estimated and it is expected to be permanent, the tangible capital asset must be written -down. An asset write-down cannot be reversed. An asset is never written -up except on initial capitalization or as the result of a betterment. Conditions that may indicate a need to revise remaining estimated useful life and/or write-down of the value of a tangible capital asset include: • • A change in manner or extent to which the tangible capital asset is used; • Removal of the tangible capital asset from service for an extended period of time; • Physical damage; • Significant technological developments; • A change in the demand for the services provided through use of the tangible capital asset; and • A change in the law or environment affecting the period of time over which the tangible capital asset can be used. 12 Responsibilities The Treasurer or designate, in conjunction with the Senior Financial Analyst (PSAB) and senior Finance management staff are responsible for the application, implementation and interpretation of this policy. Policy Title: Accounting for Tangible Capital Assets Page 14 of 15 Policy Number: FIN 050 Each Director,, Division Head or other staff person shall provide the information and assistance required to maintain a proper asset inventory that in turn meets reporting requirements. 13 Procedures See separate City Procedure for detailed procedures considering Tangible Capital Assets. Policy Title: Accounting for Tangible Capital Assets Page 15 of 15 Policy Number: FIN 050