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HA Resolution 2018-003 RESOLUTION NO. HA 2018 - 003 A RESOLUTION OF THE LA QUINTA HOUSING AUTHORITY ADOPTING A CAPITAL ASSET POLICY WHEREAS, the Capital Asset Policy sets forth procedural guidelines that will ensure good stewardship over Authority resources through a uniform method of accountability and inventory of the assets of the Authority, and WHEREAS, the Authority’s independent auditor recommends that the Authority establish a capital asset policy to provide transparency and consistency, and WHEREAS, capital asset policies safeguard Authority assets and facilitate Generally Accepted Accounting Principles (GAAP) compliant financial reporting. NOW, THEREFORE, BE IT RESOLVED by the La Quinta Housing Authority as follows: SECTION 1. The capital policy attached hereto as “Exhibit A” and incorporated herein by reference shall govern the procedural requirements associated with fixed asset acquisition. SECTION 2. This policy, as applicable, shall constitute the procedures and rules governing the Authority’s assets pursuant to City of La Quinta Charter and Sections 37209 and 40805.5 of the Government Code of the State of California. SECTION 3. Severability. If any provision of this Resolution or the application thereof to any person or circumstance is held invalid, such invalidity shall not affect other provisions or applications of this Resolution which can be given effect without the invalid provision or application, and to this end the provisions of this Resolution are severable. The La Quinta Housing Authority hereby declares that it would have adopted this Resolution irrespective of the invalidity of any particular portion thereof. SECTION 4. This Resolution shall become effective upon adoption. The Capital Asset Policy adopted by this Resolution shall go into effect immediately. PASSED, APPROVED, and ADOPTED at a regular meeting of the La Quinta Housing Authority held on this 7th day of August, 2018, by the following vote: AYES: Authority Members Evans, Fitzpatrick, Peña, Radi, Chairperson Sanchez NOES: None ABSENT: None 1 of 4 CAPITAL ASSET POLICY 1. PURPOSE: This Capital Asset Policy (the “Policy”) is established to provide guidelines to ensure adequate stewardship over City resources through control and accountability of capital assets, and to collect and maintain complete and accurate capital asset information required for preparation of financial statements in accordance with Generally Accepted Accounting Principles (GAAP). 2. SCOPE: This Policy covers all capital assets for all Funds under the direct authority of the City Council including the Successor Agency to the La Quinta Redevelopment Agency, the Housing Authority, and Finance Authority. Consideration is given to federal, state, and local laws, and ordinances or resolutions that may restrict their use and disposal. 3. GENERAL POLICY: Objectives: The City has established this Policy to: a) Safeguard the significant investment in capital assets and establish a capitalization policy whereby dollar values assigned to capital assets are permanently recorded. b) Identify all capital assets in order to provide a management tool for the replacement of re-occurring items avoiding duplication and inefficient use of capital assets. c) Comply with state laws and regulations concerning governmental accounting, auditing, and reporting requirements, and thereby providing information for the preparation of financial statements in accordance with GAAP. d) Work in conjunction with the City’s risk management program to ensure that capital assets are adequately insured to cover losses. 4. CAPITALIZATION THRESHOLDS In determining whether assets should be capitalized, the following items should be considered: a) The Actual cost, the acquisition value, or the market value. b) Assets other than land or infrastructure will be capitalized if the individual asset has: i. useful life of three (3) years or greater; and ii. a value over $5,000. c) Land assets will always be capitalized without regard to cost; and will not be depreciated. d) Infrastructure will be capitalized if it has a life expectancy of ten (10) years or greater. EXHIBIT A RESOLUTION NO. HA 2018-003 2 of 4 5. GOVERNING AUTHORITY AND RESPONSIBILITY Pursuant to the provisions of the City of La Quinta Charter and sections 37209 and 40805.5 of the Government Code of the State of California, the Finance Director shall be responsible for all of the financial affairs of the City. This Policy grants the Finance Director the authority to safeguard the City’s fixed assets and ensure proper financial classification and reporting. It is the responsibility of the departments and City Directors to adhere to proper budgeting and purchasing guidelines and ensure that capital assets are adequately controlled and used for appropriate City purposes. It is the responsibility of the individual City Department to ensure capital assets are properly accounted for by Fund and asset category by entering a purchase order requisition as a capital asset under the commodity code. 6. USEFUL LIFE AND TYPES OF ASSETS The capital asset useful life is the determining factor for the number of accounting periods over which the asset shall be depreciated. Fixed assets which meet the appropriate cost and useful life criteria are grouped in the following classes: A. Building and improvements A building is a structure permanently attached to land, has a roof, and is partially or completely enclosed by walls. Building improvements are capital events that materially extend the useful life of a building, increase the value of the building, or both. Permanently attached fixtures or machinery that cannot be removed without impairing the use of the building is to be included in the value of the building. Buildings are valued at the historical cost. B. Equipment and furniture Equipment and furniture are defined as tangible assets not permanently affixed to a building, are used for operations, and the benefits extend beyond three years. Improvements or additions to existing furniture or fixtures that meet or exceed the capitalization threshold should be recorded as an addition of value to the asset. C. Vehicles Vehicles include any licensed motor vehicles used by the City in its normal operations. Historical cost includes the purchase price plus registration, taxes, delivery fees, and outfitting costs. The value of any trade-ins, if applicable, should be considered. D. Infrastructure Infrastructure is defined as a long-lived capital asset that is normally stationary in nature and can be preserved for a significantly greater number of years than most capital assets. Land associated with infrastructure is reported as land rather than as part of the cost of Class Useful Life Building and improvements 10-30 years Equipment and furniture 3-20 years Vehicles 5-10 years Infrastructure 10-50 years Software 5-10 years 3 of 4 the related infrastructure asset. Examples of infrastructure assets include roads, bridges, streets, sidewalks, medians, and storm drains. E. Software Software is a non-physical identifiable long-term asset of the City and has the following characteristics: a) Lack of physical substance; b) Nonfinancial nature; and c) Initial useful life extends beyond a single reporting period. F. Construction in Progress (CIP) CIP includes new construction or improvements to land, buildings, or infrastructure that have not been physically completed or have not had all project costs processed by fiscal year-end and the final cost of which is expected to exceed the threshold. G. Improvements vs. Maintenance The Finance department will make the differentiation between improvement and maintenance projects by reviewing the invoices, budget, and interviewing personnel. a) Improvements –Consist of additions or betterments which shall be capitalized. i. An addition refers to a physical extension of an existing asset or the acquisition of an entirely new unit, which does not merely replace one of similar function or value. ii. Betterments exist when a part of an existing asset is replaced by another and the replacement provides a significant increase in the life or value of the asset. b) Maintenance –Costs for repairs or replacements to maintain the asset at its useful life and value. These costs will not be capitalized. 7. CAPITAL LEASES Equipment should be capitalized if the lease agreement is non-cancelable and meets any one of the following criteria: a) Lease transfers ownership of the property by the end of the lease term; b) Lease contains a bargain purchase option; c) Lease term is equal to 75% or more of the estimated economic life of the lease property; or d) Present value of the minimum lease payments is at least 90% of fair market value. 8. ADDITIONS/ DELETIONS Additions and deletions to the fixed asset inventory records shall be made on a periodic basis. Additions are defined as an expenditure that either significantly extends the useful life or productivity of the existing capital asset. When fixed assets are sold or disposed of, the inventory of fixed assets should be relieved of the cost of the asset and the associated accumulated depreciation. The City may dispose of a fixed asset due to: a) Lack of need b) Obsolescence c) Impairment should be considered if: 4 of 4 a. the decline in service utility of the capital asset is large in magnitude and b. the event or change in circumstance is outside the normal life cycle of the capital asset. d) Excess cost of maintenance e) Theft/Loss The disposition of fixed assets shall be in accordance with City of La Quinta Municipal Code 3.12.060 Surplus Supplies and Equipment. Prior to declaring any fixed assets as surplus, staff shall obtain the approval of the City Council. 9. INVENTORY Physical inventory count shall be conducted at least once every year for vehicles, heavy equipment, and materials on hand. In order to ensure objective reporting of inventory items, a physical inventory should be performed by personnel having no direct responsibility (custody and receipt/issue authority) for assets subject to the inventory count. If it is not feasible to use such personnel, then the inventory shall be tested and verified by two or more personnel or a third party professional service provider. The results of the physical inventory shall be reconciled and may be subject to verification by the Finance Department with the City’s fixed asset system. In addition, the Finance Department will track and record all capital assets in the financial system. 10. DEPRECIATION Depreciation is the process of allocating the cost of depreciable capital assets over a period of time rather than incurring the entire cost as an expense in the year of acquisition. This process recognizes an asset’s periodic cost of use and declining usefulness over time. Land, certain land improvements, and certain works of art or historical treasures are inexhaustible and are therefore not depreciated. As a matter of this Policy, the City has elected to adopt the straight-line method of depreciation as follows: (Asset Cost- Residual Value) / Estimated Useful Life in Years = Annual Depreciation Expense Residual value is the amount that can be anticipated to be recovered when the asset is no longer useful for its intended purpose. Useful life should approximate the time an asset will provide service to the City. Capital assets that become fully depreciated and are still in use must remain in the financial capital accounts and identified within the capital asset system until they are disposed of. 11. CAPITAL ASSET POLICY REVIEW The Finance Director shall review this Policy annually to ensure careful and responsible management over City resources and recommend any changes to the City Manager and City Council.