PSAB 3150 p Local governments in Canada moved from a modified accrual to a full accrual accounting approach. p The primary change for local governments was the accounting treatment for tangible capital assets n A full inventory of assets is required 1
PSAB 3150 p Tangible Capital Assets* (TCA s): n Non-financial assets having physical substance that: p Are held for use in production/supply of goods and services (includes assets for rent, admin, construction, maintenance, etc.) p Have a useful economic life beyond one accounting period p Are to be used on a continuing basis p Are not for sale in the ordinary course of operations *Definition from PSAB s.3150 n Use of historical cost valuation n Reported annually on audited financial statements 2
PSAB 3150 vs. Asset Management Past Historical Costs Future Costs PSAB 3150 Asset Management 3
PSAB 3150 vs. Asset Management Area PSAB 3150 Asset Management Asset Use Approach & Valuation Tangible Capital Asset Listing Past (Historical) Transactions Long-term Forecast Future Costs (Maintenance, Rehab, Replacement, Expansion) Philosophy Reporting Policies & Procedures Amortize Assets Based on Useful Life Audited Financial Statements Inventory & Accounting Based Move to a Sustainable Position, Funding Approach Asset Management Plan, Budgets Inventory & Asset Management Based 4
Asset Management p A tool to assist in asset related decision making processes: n Operating & Maintaining n Replacement n Rehabilitation n Disposal n Growth / Expansion p Taking into account: n Asset Attributes, Level of Service, Risk, Priorities, Funding, etc. p Goal: Move towards sustainability 5
Asset Management Lifecycle New Assets Financing Methods Replacement Assets Purchase Install Commission Development Charges (Growth) Reserves/Reserve Funds Debentures Taxation User Fees Grants Other Purchase Install Commission Operate Maintain Monitor (Throughout Life of Assets) (To End of Useful Life) Tax Supported Operating Budget User Fees Operating Budget Operate Maintain Monitor (Throughout Life of Assets) (To End of Useful Life) Removal / Decommission Disposal Proceeds on Disposal Funding of Disposal / Decommissioning Costs Removal / Decommission Disposal 6
Building Together Guide p Guide documents the components, information and analysis that are required to be included in a municipality s asset management plan 1. Executive Summary 2. Introduction 3. State of Local Infrastructure 4. Expected Levels of Service 5. Asset Management Strategy 6. Financing Strategy 7
8% 3% 1% Discussion Topics 21% 41% Transportation Assets Environmental Assets (Storm) Facilities Land Improvements Vehicles Equipment 1. Current Asset Policies: n May be more focused on PSAB 3150: p Valuation / Funding p Asset Components / Segments p Inclusions / Exclusions n Appropriate for Asset Management? n Use one asset listing for all needs? 2. Asset Useful Life, Condition and Risk n How useful life should be determined n How condition affects remaining service life (RSL) n Assessing risk and priorities. 8 26%
Valuation / Funding PSAB 3150 vs. Asset Management 9
Inventory with PSAB 3150 Calculations - Example Watermain Inventory Entity ID Int Diameter Length (m) Material From To Construction Date 1 2 3 4 5 6 = 3 x 5 7 = 6 / 1 Years of Life (average) Replacement Date 2007 Value $ Index at Construction Year PSAB 3150 Calculations Deflation Rate Factor for Acquisition Year Historical Cost Annual Depreciation 580865 350 362.8 AC N1-303 N1-298 1900 80 2012 353,730 2.06 1.94% 6,864-581465 150 276.1 CI N2-145 N2-144 1954 80 2034 158,758 8.52 8.05% 12,779 160 582343 200 94.4 CI N3-146 N3-147 1960 80 2040 61,360 10.22 9.65% 5,921 74 580404 350 381 AC N3-16 N3-19 1965 80 2045 371,475 11.81 11.15% 41,421 518 581834 300 24.7 DI N2-425 N2-408 1970 80 2050 21,242 16.07 15.18% 3,224 40 580517 350 9 DI N1-95 N3-5 1970 80 2050 8,775 16.07 15.18% 1,332 17 582057 200 129.5 AC N2-21 N2-20 1972 80 2052 84,175 18.82 17.77% 14,956 187 581947 150 118.5 AC N2-512 N2-510 1974 80 2054 68,138 24.64 23.27% 15,853 198 580558 200 103.4 DIH N1-117 N1-116 1985 80 2065 67,210 46.36 43.78% 29,422 368 582301 150 330 PVC 1991 80 2071 189,750 61.61 58.18% 110,399 1,380 712365 200 90 DR18 N3-246 N3-64 2001 80 2081 58,500 79.72 75.28% 44,039 550 755782 200 219 DR18 2004 80 2084 142,350 89.68 84.68% 120,543 1,507 764590 150 278 DR18 2005 80 2085 159,850 94.42 89.16% 142,517 1,781 767249 150 154.6 PVC 2006 80 2086 88,895 100.00 94.43% 83,942 1,049 582713 200 122 PVC N1-833 N1-834 2006 80 2086 79,300 100.00 94.43% 74,882 936 1,913,507 708,094 8,765 * * Fully depreciated 10
Financial Impact: PSAB 3150 vs. Replacement Funding p PSAB 3150 (TCA Accounting): n Historical (original construction) cost: $68,700 n Annual amortization (assuming straight line method): $860 p Asset Management approach: n Assess how much you need to start saving in reserves to for replacement (assuming inflation and investment rate) n $55,000 annually 11
Valuation Example 12
Example: Funding an Asset $120,000 asset, 10 year life On Dec. 31 of the 10 th year, balance in the reserve fund is exactly equal to the asset's replacement cost. $ 1 2 3 4 5 6 7 8 9 10 Year Replacement Cost on Dec. 31 Beginning of Year Balance Annual Contribution Annual Interest Earned 13
Financing Strategy 80 70 60 50 40 30 20 10 Cost Savings Funding Increase Decreasing Funding Gap 0 0-5 5-10 10-15 15-20 20-25 Required Funding Current Funding 14
Financing Strategy $7,000,000 $6,000,000 $5,000,000 $4,000,000 $3,000,000 $2,000,000 $1,000,000 Annual Infrastructure Funding Gap Analysis (Inflated) $0 2014 2015 2016 2017 2018 2019 2020 2021 2022 2023 Current Capital with Inflation Recommended Funding Increase Optimal Funding 15
Components / Segments PSAB 3150 vs. Asset Management 16
Asset Segments ------------------------------PSAB 3150---------------------------------- ---ASSET MANAGEMENT--- Local Roads Road A Segment A Rural Roads Municipal Roads Collector Roads Road B Segment B Urban Roads Arterial Roads Road C Segment C 17
Asset Components More Detailed Whole Asset Component / Segment Component / Segment SUBSTRUCTURE CONVEYING SHELL PLUMBING INTERIORS HVAC BUILDING A SERVICES FIRE PROTECTION EQUIP & FURN. ELECTRICAL SPECIAL CONST. SITE WORK LOCAL ROAD A ROAD SURFACE CURB COLLECTOR ROAD B ROAD BASE GUTTER ARTERIAL ROAD C OTHER SIDEWALKS STREET LIGHTS TRAFFIC LIGHTS SIGNS BRIDGE DECK SURFACE BRIDGE A BRIDGE STRUCTURE RAILS OTHER 18
Level of Detail Cost/Benefit ROAD EXAMPLE SINGLE ASSET APPROACH COMPONENT APPROACH Road broken down into Entire road segment recorded as multiple assets (surface, base, Level of Detail one asset etc.) Usefulness Unable to track components Ability to track components Accuracy Less accurate useful life & amortization More accurate useful life & amortization Maintaining Data Less assets to maintain More asset to maintain Impact on Budgets Component replacements recorded as "maintenance" in the operating budget. Component replacements recorded as an asset replacement in the asset listing. 19
Asset Inclusions / Exclusions PSAB 3150 vs. Asset Management 20
Capitalization Thresholds p Used for PSAB 3150 purposes p A set dollar value (usually by asset type) p All purchases that fall below the threshold are expensed, regardless of if they qualify to be capitalized. Asset Category A B C D Land Capitalize only Capitalize only $5,000 Capitalize only Land Improvements $5,000 $5,000 $5,000 $5,000 Buildings & Improvements $10,000 $10,000 $5,000 $15,000 Leasehold Improvements $10,000 $10,000 $5,000 $15,000 Vehicles $5,000 $5,000 $5,000 $5,000 Equipment $5,000 $5,000 $5,000 $5,000 Infrastructure (e.g., Water, $25,000 $25,000 $5,000 $25,000 Wastewater, Roads) Pooled Assets All asset types Sum to $50,000 All asset types 3 x single threshold All asset types 3 x single threshold All asset types Sum to $50,000 21
Capitalization Thresholds p High thresholds vs. Low thresholds? p Cost Benefit Analysis: n Number (and value) of assets to maintain n Time and effort of staff n Impact on budgeting format n Accuracy of PSAB 3150 calculations n Accuracy of Asset Management Plan 22
Asset Pooling p Grouping similar assets together as one asset. n Reduces size of asset inventory and effort to maintain. p Impact on Asset Management Planning: n Include or exclude asset pools from the asset management plan? p Pooled assets usually make up a very small proportion of total capital asset value n Create a detailed list of assets included in the pool, OR- discontinue the use of pools? p Results in a more accurate calculation of replacement needs p Cost/Benefit? 23
Other Inclusions/Exclusions p Assets that will not be replaced n Building Structures? p Changes in Level of Service: n Assets that will be enhanced/expanded n Replaced with more efficient products n Decreases in level of service 24
Useful Life / Condition / Risk PSAB 3150 vs. Asset Management 25
Useful Life Policy p Part of PSAB 3150 Policies: Type Useful Life Range Roads Water / Wastewater Mains Buildings Vehicles & Equipment Land Improvements Land 50 to 80 years 50 to 80 years 20 to 80 years 7 to 30 years 15 to 60 years N/A p Primarily used to calculate amortization 26
Assets Beyond Useful Life p Are your assets exceeding identified Useful Life? n How does this match your Level of Service? n Do you need a new asset grouping? n What is the real remaining life? p With or without a capital improvement? n What about your pooled assets? p Are they still in service even though they have been fully amortized? 27
Useful Life, Condition & Risk p Useful Life: n Estimates can change due to actual replacement practice, maintenance approaches, rehab programs, and expected level of service? p Condition Assessments: n What are the asset s maintenance, rehab and replacement needs based on an actual physical assessment? 28
Remaining Service Life (RSL) Excellent RSL = 90% Performance / Condition Index RSL = 50% RSL = 10% Poor Decreasing Time Failure Increasing RSL = 0 29
Example: Initial RSL 70,000,000 Figure E- 1 Tax Supported Assets Scenario 1 - Based on PSAB 3150 Asset Data Future Replacement Cost (Inflated) 60,000,000 50,000,000 40,000,000 30,000,000 20,000,000 Assets with RSL = 0 Storm Sewers Fleet Equipment Buildings Land Improvements Other Infrastructure Streetlights Traffic Signals Sidewalks Bridges Road Surface Road Base 10,000,000 - Immediate Needs 2014 2015 2016 2017 2018 2019 2020 2021 2022 2023 2024 2025 2026 2027 2028 2029 2030 2031 2032 2033 Year of Replacement 30
Example: Revised RSL 20,000,000 Figure E- 2 Tax Supported Assets Scenario 2 - Based on Adjusted PSAB 3150 Asset Data Future Replacement Cost (Inlfated) 18,000,000 16,000,000 14,000,000 12,000,000 10,000,000 8,000,000 6,000,000 4,000,000 2,000,000 Storm Sewers Fleet Equipment Buildings Land Improvements Other Infrastructure Streetlights Traffic Signals Sidewalks Bridges Road Surface Road Base 0 Immediate Needs 2014 2015 2016 2017 2018 2019 2020 2021 2022 2023 2024 2025 2026 2027 2028 2029 2030 2031 2032 2033 Year of Replacement 31
Useful Life, Condition & Risk p Risk Assessments: n Probability of Failure X Consequence of Failure n Determines priorities and helps with capital timing needs Probability of Failure Consequence of Failure Insignificant Minor Moderate Major Catastrophic Rare L L M M H Unlikely L M M M H Possible L M M H E Likely M M H H E Almost Certain M H H E E 32
Questions? Dan Wilson, Director Watson & Associates Economists Ltd. Phone: 905-272-3600 x233 E-mail: wilson@watson-econ.ca www.watson-econ.ca 33