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02. Resolution 4704 - Fixed Asset PolicyCity of Kalispell Post Office Be. 1997 - Kalispell, Montana 59903-1997 - Telephone (406)758-7700 Fax(406)758-7758 D: Mayor Kennedy and City Council Members FROM: SUBJECT: MEETING DATE: Amy Robertson, Finance Director Chris Kukulski, City Manager New Reporting requirement -Fixed asset policy June 3, 2002 BACKGROUND: The Governmental Accounting Standards Board (GASB) has adopted Statement 34, also called GASB 34 for the financial reporting requirements for all state and local governments. The most challenging change to the accounting policies for governments is the requirement to record infrastructure assets. We have good audited records for water, sewer and storms systems. We have not recorded any asset items or values for streets, alleys, sidewalks, lights and other infrastructure that was not an enterprise fund asset. The public works department has a street maintenance program which we hope to use to identify the street assets. Coming up with acceptable (to the auditors) values to record will be the difficult part. We must use historical costs and then depreciate. Since I've been doing the accounting for the City, I have recorded park improvements, new ballfields, ISTEA trails, etc. in our General Fixed Asset Group of Accounts. We are now going into that program and establishing a life for these assets so that we can record deprecation. We have approximately $18,500,000 in historically costed assets on the books. The reason this is being brought to Council is that we previously adopted Resolution 4452 establishing a policy for the capitalization of fixed assets. The policy formally excluded infrastructure assets and so now needs to be changed. Our current policy for fixed assets requires a life of five years and a value above $2,000. GFOA (Government Finance Officers Association) has recommendations which I have incorporated into the Resolution. The most notable change moves the capitalization value to $5,000 which is the federal fixed asset threshold also. FISCAL EFFECTS: Changing the threshold will change classification of some items in the budget for reporting purposes only. On the financial statements, the recording of infrastructure assets will improve the City's value on the new Statement of Net Assets. This statement replaces the Balance Sheet. RECOMMENDATION: Adoption of Resolution ALTERNATIVES: As suggested by Council. Finance Director Chris A. Kukulski City Manager RESOLUTION NO. 4704 A RESOLUTION AMENDING RESOLUTION NO. 4452 BY ESTABLISHING A POLICY FOR THE RECORDING OF INFRASTRUCTURE ASSETS AND CAPITALIZATION OF FIXED ASSETS. WHEREAS, on March 15, 1999, Council passed Resolution No. 4452 which established a policy for the capitalization of fixed assets, and WHEREAS, the Governmental Accounting Standards Board has adopted Statement 34, which now requires capitalization of infrastructure assets. NOW, THEREFORE, BE IT RESOLVED BY THE CITY COUNCIL OF THE CITY OF KALISPELL, MONTANA, AS FOLLOWS: SECTION I. Resolution No. 4452 is hereby amended by adding the following: Fixed Assets shall be capitalized in accordance with the following: All purchased fixed assets are valued at cost where historical records are available and at estimated historical cost where no historical records exist. Donated fixed assets are valued at their estimated fair market value on the date received. The costs of normal maintenance and repairs that do not add to the value of the assets or extend asset lives are not capitalized. Improvements are capitalized and, in the proprietary funds, depreciated over the remaining useful lives of the related assets. General fixed assets are not capitalized in the funds used to acquire or construct them. Instead, capital acquisition and construction are reflected as expenditures in governmental funds, and the related assets are reported in the general fixed assets account group. GASB 34 governmental reporting requirements will blend General Fixed Assets with the governmental funds for reporting purposes. Public domain or infrastructure fixed assets will now be included in the general fixed assets account group following the recommended practices of the Government Finance Officer's Association and GASB 34 reporting requirements. Public domain or infra -structure assets include roads, bridges, curbs and gutters, streets and sidewalks, lighting systems and similar assets that are immovable and of value only to the governmental unit. Fixed assets purchased or acquired by proprietary fund types are recorded in the individual fund making the purchase. Any fixed assets donated specifically for an enterprise fund are also recorded in that individual fund. Depreciation has been provided for the property, plant and equipment of the proprietary funds using the straight line method. The useful lives of these assets follow industry standards. Tangible capital -type items should only be capitalized only if they have an estimated useful life of at least five years following the date of acquisition. Capitalization thresholds are best applied to individual items rather than to groups of similar items (e.g., desks and tables). The capitalization threshold of $5,000 for any individual item is recommended by the GFOA (Government Finance Officer's Association) and is adopted here. $5,000 is the capitalization threshold for federal projects and reimbursements. PASSED AND APPROVED BY THE CITY COUNCIL AND SIGNED BY THE MAYOR OF THE CITY OF KALISPELL, MONTANA, THIS 3RD DAY OF JUNE, 2002. Pamela B. Kennedy Mayor ATTEST: Theresa White City Clerk