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Resolution No. 22-18RESOLUTION NO. 22-18 A RESOLUTION OF THE CITY OF ATLANTIC BEACH, FLORIDA ADOPTING A CAPITAL ASSET POLICY AND PROVIDING AN EFFECTIVE DATE WHEREAS, the City of Atlantic Beach would like to formally adopt written financial policies; and WHEREAS, the City of Atlantic Beach wishes to adopt a capital asset policy to provide control and accountability over the City's capital assets. NOW, THEREFORE, BE IT RESOLVED by the City Commission of the City of Atlantic Beach as follows, that 1. The capital asset policy attached hereto is hereby adopted. 2. This Resolution shall take effect immediately upon its passage and adoption by the City Commission of the City of Atlantic Beach, Florida. PASSED by the City Commission of the City of Atlantic Beach, Florida this 28`" day of February 2022. Approved as to form and correctness . �w /d�,— B en M. Iiur&n City Attorney ATTEST: Donna L. Bartle City Clerk �l Ellen Glasser Mayor/Presiding Officer CITY OF ATLANTIC BEACH Capital Asset Policy I. Obiective The purpose of the capital asset policy is: 1) to provide control and accountability over capital assets, and 2) to gather and maintain information for the preparation of the Annual Comprehensive Financial Report in conformity with Generally Accepted Accounting Principles (GAAP) and Governmental Accounting Standards Board Statements (GASB) No. 34 — Basic Financial Statements and Management's Discussion and Analysis for State and Local Governments and GASB No. 51 — Accounting and Financial Reporting for Intangible Capital Assets. This guide will help determine whether an item qualifies as a capital assets, how to account for its acquisition, how to monitor its activity, and its final disposition. The following guidelines and procedures will document a capital asset system designed to reflect the statutory requirements from Section 274 Florida Statutes and Chapter 69I-73 of the Florida Administrative Code provided by the Department of Financial Services of the State of Florida, and thereby increase control over those assets for which the city has stewardship responsibility. II. Definition GASB Statement No. 34 notes that the term "capital assets" are assets that 1) are used in operations and 2) have an initial useful life in excess of one year. This term encompasses both tangible assets (land, land improvements, buildings, building improvements, vehicles, machinery, equipment, works of art, historical treasures, infrastructure) and intangible assets (easements, software, water rights). Capital Assets Types: • Land • Buildings • Infrastructure • Improvements Other Than Buildings • Equipment and Vehicles • Construction in Progress • Intangible Assets - Easements, right of way • Intangible Assets — Software, patents, trademarks Capital Asset Accounts with Definitions and Examples: Land Land is defined as the surface or crust of the earth, which may be used to support structures or grow crops, grass, shrubs, and trees. Land is characterized as having an inexhaustible life. All expenditures made to acquire land and ready it for its intended use should be considered as part of the land cost. Examples: • Purchase price or, if donated, the fair market value, or a reasonable and equitable estimate of such value on the date of acquisition • Professional fees (title search, real estate commissions, legal, escrow, appraisal, and surveying services, environmental assessments, etc.) • Permanent work to the land, such as land clearing, excavation, fill, grading, drainage, etc. • Removal, relocation, or reconstruction of property of others on the land so that the land may be used differently • Accrued and unpaid taxes at date of purchase If the land and a structure are acquired as a single purchase, the value of the land should be determined separately from the structure. This is important as land is not depreciable, while the structure and improvements are depreciable. Buildings A building is defined as a structure that is permanently attached to the land, has a roof, is partially or completely enclosed by walls, and is not intended to be mobile. Building improvements are defined as capital improvements if they add value to the existing capital asset by extending the useful life or increasing the capital asset's ability to provide service. Examples: Purchased Buildings: • Original purchase price • Expenses for the initial remodeling, reconditioning or altering a purchased building to make it ready to use for the purpose of which it was acquired (this does not include an interior only remodeling performed at a later date) • Environmental compliance (i.e. asbestos abatement) • Professional fees (appraisal, engineering, architectural etc.) • Payment of unpaid or accrued taxes on the building only at the date of purchase, if applicable • Cancellation or buyout of existing leases on the building Constructed Buildings: • Completed project costs • Interest accrued during construction for enterprise type activities • Cost of excavation, grading or filling of existing land necessary for a specific building • Expenses incurred for the preparation of plans, specifications, blueprints, etc. • Cost of building permits • Professional fees (architect, engineer, legal, etc.) 2 Building Improvements: • Structures attached to the building during the project (enclosed patios, sunrooms, garages, carports, enclosed stairwells, etc. that actually increase the square footage of the building) • Upgrades that will increase useful life of the building (i.e. reinforcement of floors and walls to add 25% to useful life of the building) • The following are examples of `Building Maintenance Expense' and should be paid from operating expense object codes — not capital expense object codes: Building Maintenance Expense: • Adding, removing and/or moving walls that are not increasing the actual square footage of the building • Replacing an existing HVAC unit • Plumbing or electrical repairs • Any periodic maintenance (cleaning, pest control, etc.) • Interior decoration (draperies, blinds, curtain rods, etc.) • Exterior decoration (detachable awnings, uncovered porches, decorative fences, etc.) • Maintenance -type interior/exterior renovations (repainting, replacement of tile or carpet, fixture refinishing, replacement of deteriorated siding, roof, or masonry section, etc.) • Replacement of a part or component of a building with a new part of the same type and performance capabilities (i.e. water heater) Infrastructure Infrastructure assets are long-lived capital assets that are normally stationary in nature and can normally be preserved for a significantly greater number of years than most capital assets. Examples: • Highways and rest areas • Roads, streets, sidewalks etc. (does not include pavers) • Bridges, railroads, tunnels • Canals, waterways, etc. • Dams, drainage systems • Street lighting systems • Paved parking areas • Signage • Easements (permanent right authorizing the city to use or cross the land or a portion thereof, which is owned by someone else, for a specified purpose) • Land use rights • Right -of -Ways (permanent right to build, use and make improvements on land or a portion thereof, which is owned by someone else, for a specific purpose, such as a roadway) 3 When distinguishing between Capital Improvements and Maintenance of existing capital assets consider the following: Capital Improvements- Add additional value to the asset. Such added value is achieved either by: 1. Lengthening the useful life of an existing capital asset or 2. Increasing the capital asset's ability to provide service (i.e., greater effectiveness or efficiency). Examples of Capital Improvements: • Clay pipes with a useful life of 30 years, after 25 years the City re -lines them with material that has 50 years of useful life • Widening a road from two lanes to four lanes Maintenance - retains the value of a capital asset rather than providing additional value. Maintenance is considered non -capital, operating expenses that are incurred to keep capital assets in normal operating condition, to help maintain the original intended use of the capital asset, and do not extend the life of the capital asset beyond the expected useful life at acquisition. Examples of Maintenance: • Resurfacing a road every 10 years to meet its life expectancy of 50 years • Replacing a roof on a building every 20 years to meet its life expectancy of 80 years • Installing a new transformer to provide customers with service in an established development to meet its life expectancy of 30 years • Replacing HVAC unit in a building every 10 years to meet its life expectancy of 80 years. Improvements other than buildings This asset class is used for permanent (i.e. non -moveable) capital improvements, other than buildings, that add value to land, but do not have an indefinite useful life. Examples: • Water and sewer systems, both new and extensions to previous non -customers • Capital work order imports • Retaining walls • Permanent landscaping, including pavers • Recreation areas & athletic fields • Golf courses • Paths and trails • Tennis courts, swimming pools, etc. In regards to City of Atlantic Beach Utilities, removal and replacement of minor items will be considered maintenance except: 4 1. If the minor items are replaced as part of a larger project exceeding $5,000, then they are capitalized 2. If the minor item itself exceeds $5,000 in value such as replacing a substation breaker and it increases the life of the capital asset or results in a betterment Equipment & Vehicles Equipment is defined as a capital or movable tangible capital asset to be used for operations and meets all of the following criteria: • It retains its original shape, appearance, and character with use • It does not lose its identity through fabrication or integration into a different or more complex unit or substance • It is nonexpendable (if the item is damaged or some of its parts are lost or worn out, it is more feasible to repair the item than to replace it) • Under normal condition of use, it can be expected to serve its principal purpose for at least two years Examples: • Construction equipment • Vehicles • Public Safety Vehicles • IT and office equipment (servers, copiers, scanners, etc.) • Playground equipment • Safety equipment • Movable sheds/utility buildings Examples of expenditures to be capitalized as part of equipment acquisition: • Original contract or invoice price • Freight charges • Taxes, if imposed on the acquisition • Installation charges • Additional vehicle items which are purchased and installed when item is originally placed into service, which are not usable without the vehicle which include": o Light bars on police vehicles o Cages in police vehicles o Lift buckets on fire trucks Exclude: o Electronics which can be moved to other vehicles, laptops, radios etc. o Small equipment which can be used independently or on another vehicle, axes, fire hoses etc. • Charges for initial testing and preparation for use • Parts associated with the construction of equipment "The costs of extended warranties and vehicle title fees should not be included in the capitalization calculation. Construction In Progress Most capital projects will be paid from this classification. This major class of capital assets is used for costs incurred to construct or develop a tangible or intangible capital project before it is substantially ready to be placed into service (at which time Finance will reclass the capital asset(s) into the appropriate major classification). If there is any possibility that a project may cross fiscal years, it must be placed into the above construction in progress object code in order to track and report the expenditures of the project by the appropriate fiscal years. Intangible Assets GASB Statement No. 51 identifies an intangible asset as having the following three required characteristics: • It lacks physical substance—in other words, you cannot touch it, except in cases where the intangible is carried on a tangible item (for example, software on a DVD). • It is nonfinancial in nature—that is, it has value, but is not in a monetary form like cash or securities, nor is it a claim or right to assets in a monetary form like receivables, nor a prepayment for goods or services. • Its initial useful life extends beyond a single fiscal reporting period. Examples: ■ Software, capitalization threshold will be applied on a per license basis ■ Patents ■ Trademarks Small and Attractive Assets Small and attractive assets are those assets that are particularly at risk or vulnerable to loss and cost less than $5,000. Departments have discretion in defining small and attractive assets in many instances; however, departments must include, at a minimum, the following assets of $1,000 or more as small and attractive. i. Communications equipment; both audio and video ii. Cameras and photographic projection equipment iii. Computer systems, laptops, notebook, and tablet computers iv. Other data processing accessory equipment and components (scanners, etc.) v. Stereos, radios, televisions, audio recorders and players, video recorders and players. vi. Small hand-held tools (saws, trimmers, drills, etc.) The small and attractive assets that do not fall within the capitalization threshold will be expensed. The assets will be tracked and recorded by each department in control of those assets. Computer systems, laptops, notebook, tablet computers and phones will be tracked by IT department. Tracking should include serial number, description, and location. This information should be forwarded to the Finance Department when items are transferred to another department or disposed 2 utilizing the Disposal of Small and Attractive Items and/or Transfer of Small and Attractive Items form(s). III. Policy It is the City's policy to maintain accountability over all capital assets having a life of more than one year AND costing $5,000 or more. Assets such as roads, sidewalks, drainage are considered infrastructure and are capitalized when their initial costs exceed $25,000 and estimated useful lives of more than five years. Please see the table below for a quick reference guide: CAPITAL ASSET TYPE THRESHOLD Land Capitalize All* Buildings $25,000 Infrastructure (Easements, ROW, Roads) $5,000 Improvements Other Than Buildings $25,000 Equipment and Vehicles $5,000 Construction in Progress Not Applicable Intangible Assets (Software) $5,000 *Please note that all land, easements and right-of-ways must be recorded in the City's capital asset system for financial reporting purposes, even if the item has been donated to the City and funds were not expensed in the acquisition of the item. The City utilizes a Capital Improvement Program (CIP) as a multi-year prioritizing and budgetary tool. The CIP is scheduled over ten years and is concerned with proposed capital improvement projects and capital equipment acquisitions. It forecasts projects that will require the dedication of substantial resources and aids in the development of financial strategies to accomplish them. Only those projects scheduled during the first year are funded and adopted as part of the City's annual budget. IV. Roles & Responsibilities The Finance Department is responsible for the record keeping of the City's capital assets. The objectives of the Finance Department include the oversight of all capital asset additions, related depreciation, asset transfers and disposals. Departments maintain physical custody of the assets and are accountable for their safekeeping. Employees are responsible for exercising reasonable care in the operation and maintenance of City property. a. Departments are responsible for approving the purchase invoice indicating that the item has been received in good condition and that the serial number (or other identification number), description and cost match the item received and the price agreed upon. b. Departments maintain physical inventories and report changes in status to the Finance Department utilizing the Disposals of Capital Assets and/or Transfers of Capital Assets form(s) (see section on asset disposal). A complete physical inventory must be completed annually. 7 c. Departments are responsible for ensuring proper budgeting and purchasing guidelines are followed in the procurement of capital assets. d. Finance Department has the following additional responsibilities: Pays the invoice, assigns a unique City Identification number (asset tag) to the asset. The assigned asset tag number will follow the property throughout its life in the City's capital asset system. The information on the newly purchased capital asset is inputted into the City's capital asset software system. V. Tauina Assets a. In order to accurately identify and maintain capital assets, whenever feasible, each piece of property will be tagged with the City Identification number (ID) in a visible place. Such markings will be removed or obliterated only with the item is sold, scrapped, or otherwise disposed of. Should the ID number be removed or defaced, the item shall be marked again with the original number (obtained from the inventory listing). b. Property tags are not affixed to sidewalks, streets, infrastructure, capital projects, and like assets that are not separately identifiable. Capital assets that are not physically tagged will still be assigned an asset tag number which will be recorded in the capital asset system. c. If the asset is purchased with grant funds, this will be reflected in the capital asset system as means of acquisition, and noted the grant guidelines for the selling or surplusing such assets. VI. Inventory a. On or before July 1st of each year, the Finance Department will supply the Department Directors a current listing of assets related to their respective departments. Department Directors shall assign a department representative to conduct a physical inventory of all assets that will be reviewed by the supervisor to test its validity All items listed on the Asset Inventory List must be verified and accounted for as to description, serial number, model number, and location. The Department Director or their designee will approve the Asset Inventory List indicating that all assets are verified and accounted for and return to the Finance Department within the designated time frame. b. Missing items must be properly explained and noted as "missing", etc. on the inventory listing. c. After the Asset Inventory List sheets are received by the Finance Department, a representative from the Finance Department will conduct a random test samplings of assets found on the Department's list. 8 d. At the time of transfer or disposal (which may occur at any time during the year), any items to be disposed or transferred must have the Disposals of Capital Assets and/or Transfers of Capital Assets form(s) completed, signed by the Department Director and submitted to the Finance Director for processing. e. At the completion of the annual inventory process, the inventory results will be forwarded to the City Manager for review. VII. Capital Asset Acquisition Capital assets are acquired by the City in several different ways: a. By the direct purchase of the asset b. By donation from private individuals, state, or other governmental agencies c. By the direct purchase of an asset using grant, state or federal funds d. By lease -purchase agreements e. By purchase through construction contracts f. By in-house fabrication g. Acquired through foreclosure on liens, or through the forfeiture and seizure process i. An acquisition by donation is recorded at estimated fair value at the time of acquisition. Fair value in the case of vehicles is determined by blue book prices. In the case of equipment, use of market prices of identical or similar equipment of the same age or condition will determine the fair market value. Land or buildings should be appraised in order to determine fair market value. ii. Purchase of capital assets using state or federal grant funds shall be accounted for in the same manner as capital assets acquired with City funds. Department Directors are responsible to ensure any special requirements or conditions required by the grant are followed. iii. Equipment that is constructed by combining or assembling modular components and/or materials into one identifiable unit is referred to as fabricated equipment. When completed, each component loses its individual identity and the end product becomes an identifiable single unit. In order to be capitalized, the finished product must have a unit cost of $5,000 or more and a life expectancy greater than one year. If a piece of equipment is to be fabricated, the cost of its components plus all materials, supplies, and services from outside vendors will be aggregated to value the capital asset. Internal labor costs will not be taken into consideration and will be expensed at the time incurred. At the conclusion of the project, the Department Director will notify the Finance Director that there will be no further purchases and that the project has been completed. Z iv. Assets acquired through foreclosure on liens or through the forfeiture and seizure process should be recorded at the lower of (a) the cost (original lien amount, interest and penalties, and the cost of sale foregone), or (b) the fair market value of the asset. VIII. Capital Asset Disposal The purpose of this section is to establish procedures for the transfer and disposal of excess and surplus property consistent with the requirements set forth in Florida Statutes Chapter 274. It is also the purpose to maximize returns on excess and surplus property by transferring the property or disposing of it through public auction, trade-in, or donation. All efforts will be made to recover as much taxpayer money as possible. When a City department or division determines that City -owned property should be classified as surplus property, an e-mail should be immediately sent to the Accountant or the Finance Director. The e-mail should include all relevant information necessary to identify the property. The item(s) need to be secured in a temporary storage area, until final disposition has been authorized. Prior to disposition, the Finance Director will provide the City Commission with a list of capitalized property that management has determined is no longer viable for use in City operations. The City Commission will be asked to formally declare the items surplus property, so the City may dispose of it according to the guidelines set forth in this policy. The value of capitalized property represents the cost of the item on the acquisition date and in no way reflects the current value. Depreciated value (straight-line depreciation over the items estimated useful life) diminishes the item's value significantly and therefore, the actual loss is reduced. Methods of Disposition Determination of the disposal method that is in the best interest of the City will be made by the applicable department head and evaluated and approved by the Finance Director. Possible disposal options in order of preference to the City are: a. transferred to another City department for their use; or, b. cannibalize the property for spare parts utilization and any unusable remains will be recycled, sold or deposited in an appropriate waste disposal site, e.g., hazardous waste disposal site for those items deemed hazardous; or, c. destroy the property if it is without commercial value and is determined to be unfit for sale and of no usable value to the City, in an appropriate waste disposal site, or, d. trade the property in as a credit towards the purchase of a new item, or, e. sell or donate the property to any private nonprofit agency; or, f. sell or donate the property to another governmental agency; or,sell or cooperatively sell the property by public auction to the general public, or, g. sell the property by competitive award or thru a sealed bid process. Required Information 10 A Property Disposal Sheet will be forwarded to the Accountant within two business days of disposition (see example attached). The Property Disposal Sheet shall include the following information: a. Date of disposition. b. Authority for disposition: 1) capitalized items - action by the City Commission properly recorded in the minutes as required by Section 274.07, Florida Statutes; and, 2) non - capitalized items — written approval by the City Manager. A copy of applicable documentation should be attached. c. Manner of disposition (transferred, cannibalized, scrapped, destroyed, traded, donated, or sold). d. Identity of the employee(s) witnessing the disposition, if cannibalized, scrapped, or destroyed. Item(s) to be destroyed cannot be left in an unattended City dumpster. To prevent inappropriate access to these items, the designated employee must witness removal of the item(s) by the City's waste contractor. e. The dollar amount received, if by outright sale by the governmental unit. A copy of applicable documentation should be attached. f. For items disposed of as a result of casualty loss (destroyed, damaged beyond repair, etc.), the value of insurance proceeds. A copy of applicable documentation should be attached. Transfer of Property Records Upon receipt of the Property Disposal Sheet, the Accountant will remove the individual property record for each capitalized item disposed from the City's property records. The provisions of Chapter 119, Florida Statutes, shall govern destruction of such records. Remainder of page intentionally left blank 11 IX. Capital Asset Depreciation Method The City utilizes the straight-line depreciation method using a full -month convention for all capital assets. Under this method, the basis of the capital asset is written off evenly over the useful life of the capital asset. See useful life table at the end of this section. A construction in process asset (CIP) reflects the cost of construction work undertaken, but not yet completed. For construction in process assets, no depreciation is recorded until the asset is placed in service. Upon substantial completion, the asset will be reclassified to the appropriate general ledger asset account and should be capitalized and depreciated. Capital Asset Group Depreciable Life Land Improvements (Landscaping) 10 Buildings 40 Office Furniture 20 Camera Equipment 5 Police Vehicles 5 Pick Up Trucks 10 Police Radio Equipment 5 Non -Police Sedans 10 Tractors 15 Front End Loaders 15 Backhoes 15 Trailers 15 Riding Lawnmowers 5 Public Works Maintenance Equipment 20 Infrastructure: Paved Streets 50 Sidewalks 30 Sidewalks/Bikepaths 30 Bike Lanes 50 Open ditches 25 Storm Sewers 50 Street Signs 15 Water Lines 50 Sewer Lines 50 Park Equipment 10 X. Review and Update 12 This policy shall be reviewed and updated, if necessary, by the Finance Director of the City on an annual basis. 13 City of Atlantic Beach Captial Asset Disposal Request Form Date of Request: Serial No. Asset Tag #: Department: tion of Item tncivaina iusancation Tor a Reason for Disposal Request: Not Working & Beyond Repair tJot Working - Needs Repair Workin -Obsolete Vv`orkin -Good Vvorki -Fa€r Finance Department Use Only: Date Sent to Commission Approved: Current Book Value Amound Sold ForlTrade In Date Entered into System: Denied: Vehicle VIN No. Location: Form Completed By: Disposition Method: On.ine Auction/Sold Date: Cannibalised Date: Donated Date: Destro ed Date: Traded In Date: Transferred 1 Date: Entered By: l4