HomeMy WebLinkAboutCS 38-07
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REPORT TO
EXECUTIVE COMMITTEE
Report Number: CS 38-07
Date: October 9,2007
From:
Gillis A. Paterson
Director, Corporate Services & Treasurer
Subject:
Tangible Capital Assets PSAB 3150 Regulations and City's Sustainable
Infrastructure Asset Management Program
Recommendation:
1. That Report CS 38-07 of the Director, Corporate Services & Treasurer regarding
Tangible Capital Assets PSAB 3150 Regulations and City's Sustainable
Infrastructure Asset Management Program be received for information; and,
2. That Council approve in principle the capital asset definition for vehicles and
equipment - as a tangible asset with a life expectancy of at least two years and the
purchased or donated value must be at least $5,000.
Executive Summary: There is a requirement for municipalities to significantly
change their financial reporting by incorporating tangible capital assets within their
financial statements by 2009. This requirement has been legislated by the Public Sector
Accounting Board (PSAB), the body which sets the standards for reporting for
municipalities. This will require the inventorying, valuation and conditional assessment
of all tangible capital assets owned by the municipality. The reporting changes under
PSAB 3150, are just a beginning, and further PSAB reporting changes are currently in
draft mode. Council will be updated on the impact on Pickering, as these regulations
are finalized.
In addition to the legislated asset accounting requirements, Pickering has started an
asset management program to ensure we are effectively utilizing, replacing and
managing our asset infrastructure. As with all municipalities our infrastructure is aging,
and asset information is required to close the "infrastructure gap", which is defined as
the funding gap required to bring infrastructure to a sustainable condition. The asset
management program will provide staff and Council with information to prioritize the
capital budget, and forecast funding and replacements of assets into the future.
The legislative requirement and the asset management program both require the
collection of field data about every asset Pickering owns. Collecting field infrastructure
asset data is a very significant financial and physical undertaking, and merging the two
initiatives into one will optimize the investment and output value of this mandated
exercise. The intention is that data about each infrastructure asset will be collected once
Report CS 38-07
Date: October 9,2007
Tangible Capital Assets PSAB 3150 Regulations and City's
Sustainable Infrastructure Asset Management Program
Page 2
77
and will serve multiple purposes. The alternative is to execute multiple data collection
campaigns for each asset to serve multiple purposes.
Financial Implications: Not applicable
Sustainability Implications: As the existing capital asset base ages and with an
increased demand for new capital assets, the ability of local government to sustain
these services will become more challenging. Information about the existing capital
asset base such as cost, need for replacement will assist the City in making critical
financial decisions to ensure the sustainability of the City and its asset base.
Background: The Public Sector Accounting Board (PSAB) governs the City's
accounting principles, standards and practices, and is the public sector regulations
section of the Canadian Institute of Chartered Accountants (CICA). All levels of
governments must follow these standards. Failure to comply with PSAB would result in
a qualified audit opinion, which would have negative impact on the City's financial
position and could affect the ability to borrow or issue debt.
Since 2000, there have been significant changes to the financial statements of all public
sector organizations. The City has always been proactive and complied with each of
these changes on or before the deadline. In 2006, PSAB approved regulations, which
will force municipalities to incorporate their tangible capital assets within the annual
financial statements. The inclusion of assets within the financial statements will be
significant, and PSAB 3150 along with other PSAB regulations for 2009 will change the
financial statement presentation. Sections of the Municipal Act will also need to be
revised, as it relates to the balanced budget requirement.
Currently, PSAB requires tangible capital assets purchased or constructed to be
recorded in the year of acquisition or construction. There is currently no requirement to
reflect the value of the assets in the financial statements, or to expense the use of these
assets by depreciating them over their useful life as private sector organizations must
do. PSAB regulation 3150 requires all Canadian municipalities to incorporate their
capital assets into their financial statements by the following deadlines:
. December 2007 - note disclosure
. December 2008 - opening balances of all assets and depreciation schedules (for
comparison purposes)
. January 1, 2009 - capital asset accounting implementation
. December 31,2009 - asset recorded on balance sheet and depreciation expensed
to departments
Report CS 38-07
Date: October 9, 2007
Tangible Capital Assets PSAB 3150 Regulations and City's
Sustainable Infrastructure Asset Management Program
78
Page 3
Capital asset accounting involves the recording, tracking and reporting of the City's
assets, and will bring very significant change for municipalities. PSAB will not only
require adherence to guidelines for reporting capital assets on an ongoing basis, but will
require that assets currently owned also be reflected on the municipality's financial
statement in 2009. The challenge for Pickering and all municipalities will be the
development of an inventory of assets to be capitalized, which includes determining
original costs and calculating the accumulated depreciation from the time of acquisition.
It is important to note that this is not a one-time exercise therefore it will be critical to
develop City wide policies and procedures, and provide the resources (e.g. technology,
staff) to ensure asset information is accurately and consistently recorded on an on-going
basis.
Various associations have done significant work, and the municipal sector across
Canada has been working to review the legislation collectively. The Ontario Municipal
Benchmarking Initiative (OMSI) has undertaken a pilot study with six municipalities of
various sizes, to try and adapt the legislative requirements to their financial systems,
reporting, and procedures. The provincial government assisted with the funding of
these test sites. OMS I will be issuing a guide to assist all municipalities based on the
results of the pilots. The Municipal Finance Officers Association (MFOA) and the
Association of Clerk/Treasures of Ontario (AMCTO) have merged to form one
committee to provide educational information and guidance to municipalities. Pickering
and the City's external auditors Deloitte and Touche are both members of this
committee.
Pickeriml's Assets
Assets that fall under PSAS 3150 are defined as assets which have useful lives that
extend beyond 1 year, and are used in the supply of services on a continuing basis.
This is a very broad definition, and the City will break our assets into the following
classes:
Tanqible Capital Assets - must be valuated and depreciated
. Buildings/Facilities, Equipment and Rolling Stock, Storm Water Drainage networks,
Roads networks, Information Technology Software and Hardware,' Furniture &
Fixtu res.
Capitalized Assets - assets which must be valuated but are not depreciated
. Land, Historical Artifacts & Cultural Artworks. (Land is never depreciated and its
value is recorded on a historical basis.)
Not included in PSAS 3150
. City's natural assets such as trees and woodlots.
Report CS 38-07
Date: October 9,2007
Tangible Capital Assets PSAB 3150 Regulations and City's
Sustainable Infrastructure Asset Management Program
Page 4
79
Preliminary Definition of a Capital Asset
The development of centralized database of asset information will require substantial
investment of time and resources. In addition, one of the key issues to be undertaken is
- what is a capital asset and to determining its dollar threshold or value.
The stapler used by staff in theory could be, by definition a tangible capital asset. It has
a useful life of greater than one year but would the City want to go to all of the effort and
expense of tracking and documenting and financial reporting on an item that has a small
value. From a practical business perspective, recording and tracking of a stapler's
value does not make business sense. Therefore, the issue becomes - what dollar
value or threshold value should be used to determine what is or isn't a capital asset.
As mentioned earlier, a pilot study was undertaken by six municipalities (OMBI) of
various sizes to try to implement the accounting rule changes. One of the issues they
addressed was the asset threshold values. For the municipalities that were relatively
Pickering's size they adopted the following dollar thresholds:
Vehicles $5,000
Equipment $5,000
Recommendation two, and the adoption of a capital asset definition for vehicles and
equipment are based on the experience and findings of the OMBI study.
2008 Budgetary Impact
If Council adopts Recommendation two, the 2008 current and capital budgets would
reflect the new capital asset definition. In other words, only those items that have a
dollar value over $5,000, individually or collectively, would now be reflected in the capital
budget and would be budgeted in the capital budget. For example: buying five
computers with a unit cost of $1,000 each and therefore, this purchase of $5,000 would
be in the capital budget.
By adopting recommendation two, lower dollar valued items previously budgeted under
capital would now be budgeted in the departments operating or current budgets under
the "Misc. Equip & Tools" account. The advantage of this change is that smaller capital
purchases would no longer "cloud the capital budget. It should be clearly noted that
adopting this asset dollar value change, will not translate into additional costs to the
taxpayers.
Currently, the City does not have a centralized database of asset information. There is
a disparate architecture of asset systems and spreadsheet information. Each division
within the City has some type of asset record keeping system, some more complete and
sophisticated than others. Consistency of data and the extent to which the data meets
with the PSAB 3150 requirements is still to be determined. In order to comply with the
Report CS 38-07
Date: October 9,2007
Tangible Capital Assets PSAB 3150 Regulations and City's
S~s~inable Infrastructure Asset Management Program
Page 5
regulations a complete inventory of all assets must be collected, valuated and
incorporated into a corporate asset register.
It is possible for municipalities to take a very narrow approach to asset management by
collecting the information required for PSAB 3150 only. The collection of the historical
cost, accumulated depreciation and integrating that information into the financial
statements will meet the requirements of PSAB 3150 but will not provide information
that can be utilized to make financial decisions regarding the City's overall state of
assets and will be cumbersome to maintain on an ongoing basis. The City's approach is
to utilize PSAB 3150 as a driver to meet other asset infrastructure informational needs
and converge the operational need for improved infrastructure asset management with
the requirement to comply with PSAB 3150 into an integrated program. This will ensure
consistency between the City's strategic service provisioning goals and objectives and
the tactical and operational management of the City's infrastructure assets.
2007 Capital Asset Reporting Initiatives
Included in the 2007 capital budget was funding for the purchase of a "fleet
management system." This new system will provide electronic record keeping of fleet
preventative maintenance services, repairs and will also maintain asset record
information such as purchase cost and depreciation. (Prior to purchase of this software,
the City's fleet maintenance records was based on a paper system.) This new system
will also link electronically to the fuel management system to provide a complete record
of the vehicle's total cost by year based on preventative maintenance, repairs and fuel
consumption. When fully implemented, information provided by this system will be used
as part of the capital budgeting process. The City's IT section is currently working on
modifying its inventory database to allow capital asset information such as cost and
various depr~ciation rates to be used.
Aaing Infrastructures
The City is no different than all other levels of government in Canada as it reaches the
point where infrastructure is aging, and funds are required to renew or replace assets.
The total amount needed to re-establish infrastructure to a sustainable condition is
known as the "infrastructure gap". This is the difference between the required renewals
and replacements needed versus the current funds which are actually being spent. In
order to report on the City's "infrastructure gap", it is critical to collect additional data on
each asset, such as replacement value, asset condition etc.
The City's capital budget is the primary decision making tool currently used by Council
to determine priorities and spending. For the last seven years the City's capital budget
has been prepared on a short term basis - one to three years. It is recognized that a
long term plan is required. The City took its first step towards the development of the
long term financial plan during the 2007 budget process. Staff presented to Council a
multi-year financial plan outlining projected levy increases for the years' 2008 to 2014.
Report CS 38-07
Date: October 9,2007
Tangible Capital Assets PSAB 3150 Regulations and City's
Sustainable Infrastructure Asset Management Program
Page 6
81
The capital asset database will generate financial reports that will quantify the dollar
value of the "infrastructure gap." This information will be used to update the City's
financial model and will assist Council to develop financial policies that will address the
infrastructure gap which in-turn will support a sustainable City infrastructure. .
The City currently does not recognize the cost of using existing capital assets in the
operating budget, as their use is strictly on a "non-cash" basis. In other words, when
road's staff use the snow plow truck to clear City roads, no cost is recorded for using the
truck. Rather, funds are budgeted for repayment of debt related to the original
purchase, and transfers to reserves are made for future replacement of some assets. In
2009, the City will be required to expense the "use" of the asset or recognize
"depreciation". The charge for depreciation will now be reported in financial statements.
How this depreciation expense relates to our current provisions for debt and reserve
transfers is not known at this time. Furthermore, the effects on our annual budgets and
financial reporting are also unknown at this time.
Go-forward Approach:
Inte~ratin~ PSAB 3150 with Asset Mana~ement
Integral to the City achieving PSAB compliance and overall improvement of asset
management is the definition and development of a universal list of data attributes for
each asset group and assets within a group that will meet all regulatory and non-
regulatory requirements. The universal data attribute record will support the single
effort-multiple purpose data collection strategy and enable the City's management to
meet the legislative accounting requirements as well as provide sound information for
analysis, prioritization and determination of the existing infrastructure gap.
In order to develop the capital asset database, policies and consistent procedures for
documenting, managing and reporting information about the City's capital assets will be
required. To meet the time constraints regarding PSAB 3150 compliance, additional
staffing resources will be required. Pickering's neighbouring municipalities have
addressed the staffing resource issue by two ways: increasing their full time
complement or using contract staff. Regardless of the staffing method used - the
bottom-line is that all of the municipalities have had to increase their staffing
complement. The 2007 budget included some staffing dollars to implement PSAB
3150 reporting requirements. The 2008 budget (submitted to Council) will request
additional staffing resources and computer software systems.
Canada-Ontario Municipal Infrastructure Fund (COMRIF)
On December 6, 2006, the Federal and Ontario governments announced an Asset
Management Program (AMP), a component of COMRIF program. They have dedicated
$5.96 million to assist eligible municipalities to move forward with asset management
programs. The funding can be used for the five principal stages of asset management:
Report CS 38-07
Date: October 9, 2007
Tangible Capital Assets PSAB 3150 Regulations and City's
Sustainable Infrastructure Asset Management Program
82
Page 7
diagnostic, inspection, valuation, sustainability planning, and financial modeling. AMP
will help eligible municipalities improve and increase their capacity to manage their
infrastructure needs, and this funding would be used to partially offset the significant
costs of implementing an asset management program.
Municipalities with populations less than 250,000 are eligible for the grant. Pickering's
asset management program has been designed to move through similar five stages of
the asset management continuum. Report to Council CS 32-07 entitled "COMRIF Asset
Management Program Funding" outlined Pickering's application to this funding
program. As indicated in this report, the City is to receive $32,440 to assist in the
implementation of the AMP.
Attachments:
Not applicable
Prepared By:
Approved I Endorsed By:
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Gillis A. Paterson
Director, Corporate Services & Treasurer
Stan Karwowski
Manager, Finance & Taxation
GAP:vw
Copy: Chief Administrative Officer
Recommended for the consideration of
Pickering City Council
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