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HomeMy WebLinkAboutStaff Report 3.C 01/22/2007Agenda Title: Resolution Approving the CITY OF PETALUMA, CALIFORNIA January AGENDA BILL Meeting Date: Amendment to the City of Petaluma January 22, 2007 3.C 22 2007 I Capital Asset Policy Meeting Time: ~3:00PM D 7:00PM Category (check one): ~ Consent Calendar D Public Hearing ~ New Business D Unfinished Business D Presentation DeJ!artment: Director: Contact Person: Phone Number: Administrative Services Steven Carmichael Cinde Rubaloff 778-4357 -S-<::::__ Cost of ProJ!osal: Not Applicable Account Number: N/A Amount Budgeted: Not applicable Name of Fund: N/A Attachments to Agenda Packet Item: I. Resolution Approving the City of Petaluma Capital Asset Policy EXHIBIT A TO RESOLUTION-THE CITY OF PETALUMA CAPITAL ASSET POLICY Summary Statement: The current City of Petaluma Capital Asset Policy has capitalization limits of $5,000 for all assets, regardless of type. It has been determined that this limit is excessively low for certain types of City assets. The amendment to the Capital Asset Policy raises the capitalization limits from $5,000 to $50,000 for the following types of assets: land/easements, land improvements, right of way, buildings, building improvements, infrastructure. The policy continues to ensure that the City's accounting and financial reporting objectives are met and strengthens internal controls over the safeguarding of City assets. Recommended Citv Council Action/Suggested Motion: Adopt the resolution approving the amendment to the City of Petaluma Capital Asset Policy Reviewed by Admin Services Reviewed by City Attorney: Anorov.Cd.bv Citv Mana!!er: Director: Date: ~ Date: /( ~GAA. Dai! OJ Today's Date: Revision # and Date Revised: File Code: January 2, 2007 # CITY OF PETALUMA, CALIFORNIA JANUARY 22, 2007 AGENDA REPORT FOR RESOLUTION APPROVING THE AMENDMENT TO THE CITY OF PETALUMA CAPITAL ASSET POLICY 1. EXECUTIVE SUMMARY: The current City of Petaluma Capital Asset Policy has capitalization limits of $5,000 for all assets, regardless of type. It has been determined tbat this limit is excessively low for certain types of City assets. The amendment to the Capital Asset Policy raises tbe capitalization limits from $5,000 to $50,000 for tbe certain categories of City assets 2. BACKGROUND: The City's Capital Asset Policy was initially approved by Council January, 2006. In that policy, the capitalization limit for all City assets, regardless of type, is $5,000. It has subsequently been determined that this limit is excessively low for certain types of assets. Thus the amendment to the Capital Asset Policy increases the limit from $5,000 to $50,000 for the following types of assets: land/easements, land improvements, right of way, buildings, building improvements, infrastructure. The policy continues to ensure tbat the City's accounting and financial reporting objectives are met and strengthens internal controls over the safeguarding of City 3. ALTERNATIVES: Don't amend the capitalization limit for certain types of City assets. 4. FINANCIAL IMPACTS: Developing the amendment to tbe City of Petaluma Capital Asset Policy took approximately 1 hours of staff time. 5. CONCLUSION: Adoption oftbe amendment to the City of Petaluma Capital Asset Policy will enhance the efficiency of reporting and tracking capital assets, by recognizing the inherent differences in value between classifications of capital assets, and allowing different capitalization limits for different categories of City asset. 6. OUTCOMES OR PERFORMANCE MEASUREMENTS THAT WILL IDENTIFY SUCCESS OR COMPLETION: The approval oftbe proposed resolution will adopt tbe amendment to the City of Petaluma Capital Asset Policy. 7. RECOMMENDATION: Adopt the resolution approving the amendment to tbe City of Petaluma Capital Asset Policy. 2 RESOLUTION OF THE CITY COUNCIL OF THE CITY OF PETALUMA APPROVING THE CITY OF PETALUMA CAPITAL ASSET POLICY WHEREAS, the City Administrative Services Department has determined the need for an amendment to the capitalization limits included in the City Capital Asset Policy, and; WHEREAS, the City Administrative Services Department has the responsibility for, and has established, systems and procedures through which the objectives of accurate accounting and financial reporting of assets, and safeguarding of assets can be enhanced, and; WHEREAS, the City Administrative Services Department has determine it would be more efficient to recognize different categories of City assets with different capitalization limits, while still continuing to ensure that the City's accounting and financial reporting objectives are met and strengthens internal controls over the safeguarding of City NOW, THEREFORE BE IT RESOLVED that the City Council approves the amendment to the City of Petaluma Capital Asset Policy as shown in Exhibit A attached. 3 CITY OF PETALUMA, CA January 1, 2007 FIXED ASSET CAPITALIZATION AND INVENTORY CONTROL POLICY Objectives The objectives of the City of Petaluma's fixed asset policy are as follows: Accounting and Financial Reporting Objective-To accurately account for, and report, fixed assets in financial reports issued to external reporting agencies, granting agencies and the public. Safeguarding of Assets Objective-To establish systems and procedures to protect assets from loss or theft. The Fixed Asset Capitalization and Inventory Control Policy provides specific guidance in determining which fixed assets are subject to capitalization (separate accounting and reporting), and which are subject to the inventory control (safeguarding) policies. The Administrative Services Department is responsible for, and has established, systems and procedures through which both objectives are met. These systems and procedures are used to identify, process, control, track, and report the City's fixed assets. Capitalization Policy Fixed assets will be divided into two categories. The first will include items such as equipment, vehicles, office furniture, items with an inherently lower value than the items in category two. The items in category one will have a capitalization limit of $5,000. The items in category two, which includes items such as land/easements, land improvements, buildings, building improvements, and infrastructure will have a capitalization limit of $50,000. This capitalization limit refers to the original cost of the asset. Infrastructure and improvement capitalized costs must substantially increase the life of the asset or significantly increase the value (thus repairs and maintenance costs are not excluded). All costs associated with the purchase or construction are considered, including ancillary costs, such as freight, site preparation, professional fees, installation, and legal claims directly attributable to asset acquisition. The capitalization threshold is applied to individual units of fixed assets. The threshold will generally not be applied to components of an asset, unless large equipment is installed as part of a larger capital project.. Repairs to existing fixed assets will generally not be subject to capitalization, unless they extend the useful life of the asset, and exceed the threshold amount. Generally, improvements to existing fixed assets will be subject to capitalization if they exceed the threshold amount. Capital projects will be capitalized as "construction in progress" until completed. Costs are reclassified from construction in progress to infrastructure, or another relevant description, the date the completion of the project is accepted by the City Council. Direct costs, ancillary costs, and construction period interest are included in the capitalized amount. 1 CITY OF PETALUMA, CA January 1, 2007 FIXED ASSET CAPITALIZATION AND INVENTORY CONTROL POLICY Inventory Control Policy Department heads are responsible for safeguarding fixed assets under their control. However, the Administrative Services Department is responsible for establishing and maintaining systems and procedures that enable the Department Heads to properly safeguard assets. In general, inventory control is applied only to movable fixed assets. The City has implemented a policy to maintain inventory records of computer equipment with a cost between $1,000 and $5,000, and other movable assets with a cost between $2,500 and $5,000. This is in addition to movable assets with a cost greater than $5,000, which are discussed under the Capitalization Policy section of this document. Disposal of Fixed Assets The City Municipal Code, chapter 3.12, outlines the City's policy on asset disposals. The Code states that any City asset, which is no longer required for use by the City, and thus surplus, with a residual value over $500, shall be sold or disposed of as directed, by resolution, by the City Council. Any surplus asset with a residual value under $500 shall be sold or disposed of by the City Manager. Depreciation/Amortization of Fixed Assets Depreciation is tl1e systematic and rational allocation of the estimated or actual historical cost, or fair value at date of donation (of donated assets) over the asset's estimated useful service life. Amortization is the allocation of the cost of intangible assets over their estimated useful life. Estimated useful lives are based upon GASB recommendations Asset Class Years Land/Easement NA CIP in progress NA Site Improvements, Fencing, Landscaping, Paving, Sidewalks 20 Outdoor Equipment, Playground Equipment, Fuel Tanks 20 Buildings 50 Electric, Plumbing 30 Interior Construction, Sprinkler Systems 25 HV AC Systems, Roofing 20 Furniture 20 Carpet 7 Pipelines, Treatment Plants 50 Machinery, Mowers I 5 Radios, Fax I 0 Licensed Vehicles 8 Computers, Copiers 3 2 5 CITY OF PETALUMA, CA January 1, 2007 FIXED ASSET CAPITALIZATION AND INVENTORY CONTROL POLICY Infrastructure Assets The purchase or construction of infrastructure assets is approved by the City Council. In addition, the donation of infrastructure assets is approved by Council. It is the responsibility of the City departments involved in the purchase, construction or acceptance of donated infrastructure assets to identify and inventory them on a regular basis. It is the responsibility of the Administrative Services Department to account for the infrastructure assets by chiss and fund. It is the responsibility of the Department Heads to ensure that proper budgeting and purchasing guidelines are followed, and that infrastructure assets are adequately controlled and used for appropriate City purposes. All costs associated with the purchase or construction of an infrastructure asset will be included in the capitalized cost, including: design, permits, management, overhead, engineers' salary, capitalize interest. Fair value at the date of donation will be capitalized for donated infrastructure assets. The value of infrastructure assets, which are no longer in existence or service, will be estimated annually by the project engineers, and treated as infrastructure disposals. Intangible Assets Land easements will be recorded with land and not depreciated. Right of ways will be recorded separately and depreciated over useful life. Only easements and right of ways with a cost greater than $5,000 will be capitalized. Transfer of Assets Between Funds Assets will be recorded in the fund which currently controls or maintains the assets Transfers of assets between proprietary funds will be recorded as a loss on disposal, in the amount of the net book value, in the transferring fund, and other revenue, in the amount of the net book value, in the recipient fund. Transfers of assets between governmental funds or departments will done on the fixed assets schedule only. No entry will be made to the general ledger. Transfers of assets between proprietary funds and governmental funds will be recorded as contributions to/from City/proprietary funds. Transfers of assets purchased with grant funds will be recorded as a sale between funds, including a transfer of cash. Leased Assets The City policy will be to enter into only operating leases on leased equipment. 3