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HomeMy WebLinkAboutMINUTES - 02122002 - C99 e# '96t To» BOARD of suPERvISORS , r 61"11"i ,. , FROM: JOHN ,SWEETEN, County Administrator Costa BATE: February 12, 2002 County SUBJECT: CAPITALIZATION THRESHOLD FOR FIXED ASSETS RELATED TO BUILDINGS AND BUILDING IMPROVEMENTS SPECIFIC REQUEST(S)OR RECOMMENDATION(S)&BACKGROUND AND JUSTIFICATION RECOMMENDATION: APPROVE the recommendation of the Auditor-Controller to raise the threshold for the capitalization of fixed assets related to buildings and building improvements from $5,000 to $100,000. BACKGROUND: The CAO has been sent a request by the Auditor-Controller's Office to approve their recommendation to modify the "Fixed Asset Threshold for Buildings and Building Improvements." The threshold for the definition of a capitalized "fixed asset" with respect to buildings and building improvements is currently set at $5,000 for permanent structures and $5,000 for additions, structural betterments, and ground improvements. (See Administrative Bulletin 200.6, Section II.) The recommended change is a threshold of$100,000. As defined by the State "Accounting Standards and Procedures for Counties," a building improvement materially adds to the value of property or appreciably extends its life. Therefore, before a building project can be capitalized, it must meet both the threshold (currently $5,000), and it must also extend the life and/or improve the value of the building. General Services and Public Works make the decision to capitalize a building improvement based on engineering and physical analysis. If a building project (such as painting, carpeting, landscape partitions, etc.) does not constitute a fixed asset, it is not capitalized--regardless of cost. Many building projects costing less than $100,000 are currently classified as maintenance, do not add to the value of the building, and are expensed in the department's budget. The project is not capitalized-and depreciation is not required. However, if a building project is determined to be a fixed asset, the department is required to make an appropriation adjustment, and the budget for the project is transferred to budget unit 0111 - Plant Acquisition. CONTINUED ON ATTACHMENT: YES SIGNATURE: - '' RECOMMENDATION OF COUNTY ADMINISTRATOR RECOMMENDATION OF BOARD COMMITTEE APPROVE OTHER r SIGNATURE(S): ACTION OF BOA N y - , V tr O�--�PPROVED AS RECOMMENDED OTHER RECD TO 2126/02 T} APPROVE RWymm TION OF THE AUI)ITCp_C M L M TD RAISE THE THRM= FOR CAPITALIZATION OF FIM) ASSETS RELATED TO WII.DING.4 AND NJ"LLDIUNG MOVMM FROM $5,000 to $10,000. VOTE OF SUPERVISORS I HEREBY CERTIFY THAT THIS IS A TRUE AND CORRECT COPY OF AN ACTION TAKEN AND ENTERED ON MINUTES OF THE BOARD OF SUPERVISORS ON THE DATE SHOWN. UNANIMOUS(ABSENT AYES: NOES: ABSENT: ABSTAIN: Contact. Tony Enea 5-1094 Cc: Auditor-Controller ATTESTED, e'- yv_u6 ,, General Services County Administrator JOHN SWEETEN, RK 9 BOARD FSUPERVISORS f BY: � w - �;� � ,DEPUTY r +P By raising the capitalization threshold to $100,000, building projects costing less than $100,000 would not have to be analyzed or evaluated as fixed assets. Projects costing less than $100,000, even if considered "fixed assets" that either extend the useful life or improve property, would not be capitalized, just as "fixed assets" costing less than $5,000 are not currently capitalized. The result would be that smaller projects (under$100,000) would not require separate budgets, cost accounting, and depreciation. The State "Accounting Standards and Procedures for Counties" gives the following reasons to account for fixed assets: 1) safeguard investment 2) fix responsibility for custody of equipment 3) assist in the formulation of acquisition and retirement policies through accumulation of prices, sources of supply and useful life. 4) provide data for financial reporting 5) provide support for reimbursements of depreciation under grants and proprietary service programs 6) provide information to insurance companies Raising the County threshold on buildings does not impact 1) or 2) as they are both equipment related. Regarding number 3), acquisition and retirement policies, these should not be materially impacted by this policy change. With regard to 4), the threshold could be raised as high as $150,000 for financial statement purposes. 5) is grant specific, but state standards for Counties are in compliance for many programs. However, certain grants may require separate tracking; under current policy, separate tracking is already being done for some programs. Finally, with respect to 6), the fixed asset ledger is a convenient means to provide fixed asset information; however, any building project, whether capitalized or not, can be identified in the expenditure detail reports. Currently, only the buildings and building improvements of the Enterprise Funds (Hospital and Airport) are depreciated for financial statements. The vast majority of County buildings and building improvements are not depreciated. However, due to GASB 34, depreciation requirements will change dramatically, as all County buildings and building improvements will require individual depreciation schedules. The time and cost of depreciation tracking will increase; the calculations are made in the Auditor's office. Eliminating small capital projects would be helpful in this regard. In summary, raising the fixed asset threshold on building improvements will reduce the time and expense of tracking expenditures to project worksheets, subsidiary ledgers, and depreciation schedules. Existing fixed asset building improvements costing less than $100,000 would be written- off. However, using $100,000 as the threshold would mean that 80% of County assets would continue to be captured as capital, which is in line with the recommendations of the Government Finance Officers Association. As a point of reference, Santa Barbara has a threshold of$75,000. Orange County's threshold is $150,000. The CAO has reviewed the proposed change and concurs with the recommendation of the Auditor- Controller to increase the threshold to $100,000.