____ TY OF Los· ANGELE.
KAREN E. KALFAYAN Executive Officer
When making inquiries relative to this matter refer to File No.
01-1289
Office of the Mayor City Administrative Officer Chief Legislative Analyst Controller, Room 300 Accounting Division, F&A Disbursement Division
Board of Public Works
Room 395, City Hall Los Angeles, CA 90012
Council File Information· (213) 978-1044 General Information - (213) 978-1133
Fax: (213) 978-1040
RE: CHANGING THE DEPARTMENT OF PUBLIC WORKS' GOVERNMENTAL ACCOUNTING STANDARDS BOARD STATEMENT NO. 34 INFRASTRUCTURE REPORTING METHODOLOGY
At the meeting of the Council held MARCH 8 1 2006, the following action was taken:
Attached report adopted ....................................... ·--~X=---- Attached motion (-) adopted .................................... _____ _ Attached resolution adopted ................................... . ------- FORTHWITH ...................................................... ------ Mayor concurred ............................................... ______ _ To the Mayor FORTHWITH ....................................... ·-----~ Motion adopted to approve communication recommendation(s) ...... ______ _ Motion adopted to approve committee report recommendation(s) .. . ------- Ordinance adopted .............................................. ______ _ Ordinance number ............................................... ______ _
City Clerk ff kw
• TO THE COUNCIL OF THE CITY OF LOS ANGELES
Your
Yes No Public Comments: XX
PUBLIC WORKS COMMITTEE REPORT relative to changing the Department of Public Works' (DWP) Governmental Accounting Standards Board Statement No. 34 (GASS 34) infrastructure reporting methodology.
Recommendation for Council action:
CONCUR with Joint Report No. 1 as adopted by the Board of Public Works (Board) on August 22, 2005 and APPROVE the Board's change the DPW's infrastructure reporting methodology from the Modified Approach to the Depreciation Method for the Stormwater and Street Systems to comply with the DPW's GASS 34. ,
Fiscal lmpa'ct Statement: The Board reports that there is no impact to the General Fund. However, it should be noted that the DPW's successful implementation of GASS 34 is vital in disclosing infrastructure information in the City's financial statements.
SUMMARY
At its meeting on March 1, 2006, your Committee considered an September 30, 2005 Board report relative to changing the DPW's infrastructure reporting methodology from the Modified Approach to the Depreciation Method for the Stormwater and Street Systems to comply with GASS 34. According to the DPW, the Governmental Accounting Standards Board (GASS) of the Financial Accounting Foundation is responsible for developing the governmental accounting and financial reporting standards of state and local governments that will result in the creation of information for users of financial reports. In June 1999, the GASS issued Statement No. 34, "Basic Financial Statements and Management's Discussion and Analysis for State and Local Governments." Subsequently, on June 4, 2002, Council approved and concurred with the Board's action to establish new methods of financial reporting pursuant to GASS 34.
GASS 34 established new financial reporting requirements for state and local governments and as such, it reflects the-importance of public infrastructure (e.g., highways, bridges, roads, sidewalks, street lights) as a component of government service delivery. Under the new model, governments will be required to report infrastructure assets at their historical cost. As required by GASS 34, all capital assets shall be recorded and reported in the City's financial statements, including the City's Comprehensive Annual Financial Report (CAFR). For GASS 34 reporting purposes, capital assets include land, improvements to land, easements, buildings, building improvements, vehicles, machinery, equipment, works or art and historical treasures,. infrastructure, and all other tangible and intangible assets that are used in operations and have initial useful lives beyond a single reporting period. GASS 34 requires the City to being prospective reporting of the value of all infrastructure assets acquired or having major additions or improvements in the Fiscal Year (FY) ending June 30, 2002. The DPW then stated that it has complied with the GASS requirements for
• its infrastructure assets. Finally, the City is also required to being retroactively reporting infrastructure asset values in the FY beginning after June 15, 2005 and the City may choose to report the value of infrastructure assets using either the Modified Approach or the Depreciation Method.
The DPW then gave an overview of both the Modified Approach and Depreciation Methods for reporting as required by GASB 34. Specifically, the Depreciation Method is the systematic allocation to accounting periods the cost of depreciable assets. The City's general policy is that the straight-line depreciation method will be used for all depreciable assets as further described in Memorandum 01-027 promulgated by Rick Tuttle, City Controller on June 20, 2001. Using this traditional accounting approach, expenses associated with routine maintenance and depreciation are reported in the Statement of Activities of the City's CAFR. The Modified Approach recognizes that the City may preserve some assets perpetually through a continual process of maintenance and renewal, subject to the City meeting a number of requirements as detailed in the September 30, 2005 Board report. Currently, the Street Lighting and Wastewater Systems are the only DPW infrastructure assets reporting under the Depreciation Method. The DPW infrastructure assets currently reporting under the Modified Approach are the Bridges, Stormwater and Street Systems.
Since the establishment of GASB 34 infrastructure reporting requirements, the DPW has been collaborating closely with the Office of the Controller (Controller) and its external auditor to develop and implement the required Departmental infrastructure reporting for the DPW ·infrastructure systems. To accomplish this goal, the DPW established a GASB 34 Working Group which has researched the avenues of GASB 34 implementation within the City and serves as a liaison between the DPW and the Controller, and develops and implements Departmental GASB 34 reporting policies and procedures.
Finally, the DPW stated that at this time, it is being recommended that the Reporting Methodology for the Stormwater and Street Systems be changed from the Modified Approach to the Depreciation Method. In particular, both the DPW, Controller and the City's external auditor have a number of concerns using the Modified Approach reporting methodology for the Stormwater System since reporting this approach mus adhere to the following requirements:
a. A complete and replicable condition assessment must be performed in a consistent manner every three yeas.
b. The results fo the complete condition assessment should provide reasonable assurance that the assets are being weserved at or above the condition level established.
While the DPW has inspected 5% of the Stormwater System, this is not a large enough sampling to meet the minimum standard confidence for the Modified Approach reporting requirements because the extrapolated data cannot ·provide reasonable assurance that the assets are being preserved at a certain condition level. Additionally, the DPW does not have enough time or funding available to obtain an acceptably large sample to meet the minimum standard of confidence for the Modified Approach reporting requirements.
Furthermore, for the Street System, the DPW stated that each system reporting under the Modified Approach requires an estimate each year of the annual amount to maintain and. preserve the infrastructure assets at the condition level established and disclosed by the government. The estimate then becomes a funding plan. The City's Street System receives funding from sources that
Page 2 of 3
• are severely impacted by factors not within the City's control and may fluctuate widely.
After further consideration and having provided an opportunity for public comment, the Committee moved to recommend that Council concur and approve the Board's August 22, 2005 change to the DPW's infrastructure reporting methodology from the Modified Approach to the Depreciation Method for the Stormwater and Street Systems to comply with GASB 34.
This matter is now submitted to Council for its consideration.
MEMBER ROSENDAHL: LABONGE: SMITH:
Mar 8, 2006 10:27:18 AM, #2
Items for which Public Hearings Have Been Held - Items 4- 51 Voting on Item(s): 4-ll,13-19,·21-30,33-44,46,48-50 Roll Call
CARDENAS Yes GREUEL Yes HAHN Absent HUIZAR Yes LABONGE Absent PADILLA Yes PARKS Yes PERRY Yes REYES Yes ROSENDAHL Yes SMITH Yes WEISS Yes , WESSON Yes ZINE Yes *GARCETTI Yes Present: 13, Yes: 13 No: 0
D
D
181
181
181
181
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Petitioner/Communicant -------------------
Office of the Mayor (w/o file)
City Administrative Officer (CAO)
Chief Legislative Analyst (CLA)
City Attorney (w/ Bluesheet) (w/o Bluesheet)
Controller
Bureau of Street Services (855) (Mail Stop 550)
Bureau of Contract Administration (BCA) (Mail Stop 480)
Bureau of Street Lighting (BSL) (Mail Stop 545)
Bureau of Sanitation (BOS)
THE MAYOR
---­NO,V O 2 2005 PUBLIC WORKS
'!,
... ...... ,
\_ '"
CYNTHIA M. RUIZ PRESIDENT
DAVID SICKLER PRESIDENT PRO-TEMPORE
ANTONIO R. VILLARAIGOSA MAYOR
200 NORTH SPRING STREET ROOM 361, CITY HALL
LOS ANGELES, CA 90012
GENERAL INFORMATION Tel: 213-978-0261
#1 BPW /BOE/BOS/BSL/BSS (of 8/22/05)
Mayor Antonio R. Villaraigosa City Hall, Room 303 Los Angeles, California 90012
Attention: June Lagmay
Subject: CHANGING THE DEPARTMENT OF PUBLIC WORKS GOVERNMENTAL ACCOUNTING STANDARDS BOARD STATEMENT NO. 34 INFRASTRUCTURE REPORTING METHODOLOGY FROM THE MODIFIED APPROACH TO THE DEPRECIATION METHOD FOR THE STORMWATER AND STREET SYSTEMS
As recommended in the accompanying report by the Board of Public Works Executive Officer and the Directors of the Bureaus of Engineering, Sanitation, Street Lighting, and Street Services, which this Board has adopted, the Board of Public Works requests approval to change the Department of Public Works (DPW) Governmental Accounting Standards Board (GASB) Statement No. 34 infrastructure reporting methodology from the Modified Approach to the Depreciation Method for the DPW's Stormwater and Street Systems.
The DPW has determined through comprehensive research and analysis that a combination of the Modified Approach and the Depreciation Method Reporting Methodologies which are detailed in this report are best for the various infrastructure systems under the DPW's control and care.
Fiscal Impact:
There is no impact to the General Fund. However, it should be noted that the DPW's successful implementation of GASS 34 is vital in disclosing infrastructure information in the City's financial statements.
Respectfully yours,
' -- '. '•
.DOPTED BY THE BOARD OF PUBLIC WORKS OF-~THE CITY
. of Los Angeles, California
BUREAU OF SANITATION BUREAU OF STREET LIGHTING
' . BUREAU OF STREET SERVICES-
JOINT REPORT NO. 1
~tary
RECOMMEN.DATIONS.
. ,,: . -. . . '
2. That th~. May.or and Council be requested to concur with this change.
TRANSMITTAL ,, '. ~ - ' .
,.:;_. ..
DISCUS,SIDN >
Overview --
----.. . . --
• A .. f ·• GASB 34 defines Jnfrastructure assets as long-lived capital assets that are normally stationary in:nat(Jfe' and may be preserved for a significaritly 'greater'n'i:1mber of years than most capital assets. . ' . '
. r -. The DPW is responsible for reporting the following City infrastructure assets that are· under the DPW's care· and control: · ·
o Bridges, o Stormwater, o Street. a· Street Lighting. and . o Wastewater Systems
. , . -: ' :\,.:
GASS 34 Reporting Methodology
To be in compliance with GASS 34 reporting requirements, the City · may , use _the Depreciation Method . (traditional accounting approach) or the Modified Appro~ch (preserva\jQr;:t/ass..et,na11agernent). . The value of infrastructure assets that were acquired (purchase.cl,, ~~s~l~-; or donated), renovaied, restored, or improved in the FYs -ending after Jun~;~Q;;l~~~ •. ,s~qul,<:J be retroactively reported using either the Depreciation Method:or the Mod1fied.:Approac'1. _Reporting the Value of infrastructure assets acquired prior to this date, so that the value of all infrastructure assets is reported, is. permitted .and encouraged by the Government Acco':'nting Standards Board. It is ~he policy of the DPW that all capital · assets under its responsibility shall be valued either · at . historical·· cost or at· a sound and reasonable estimate of historical cost.
The Depreciation Method · is the systematic allocation ·fo accounting periods of the cost of depreciable c:1ssets. l:he City's general policy is that the straight-line depreciation method will be used for. all depreciable assets (reference: Memorandum 01-027. Rick. Tuttle, .:City Controller, June 20, 2001 ). Using this traditional accounting approach, expenses associated with routine maintenance and depreciation are reported in the Statement of Activities of the_­ City's CAFR.
The Modified Approach recognizes that the City may preserve some assets perpetually · through a continµal process of maintenance and renewal. In order to use the Modified Approi:lchJqe <:;ity m1Jst meet the following requirements: · ·
:,.·;·.··y~ - c
o E~taµli~h: and make public the condition level goals for the infrastructure asset · s~tetn being _reported;
o ~$~irri~t~;the_spending levels required to maintain th~ ·condition level goals; o c;or:111313,re the amount required to maintain the. predetermined condition level to the
.a~\uc1J:'Spending; o Q9~~rnent thc;1t the assets. are being, preserved approximately at or above the
c;qn<:Jitjc>n goal thijt was· predetermined; and . O f?¢{f<:>rn}. a complete and replicable condition assessment in a consistent · manner
. every three years.
..•
The Mod,ified Approach further requires-thatthe City have' ih place a system for inventorying, assessing, and managing infrastructure assets .. GASB 34 also requires that if the City uses -the Modified Approach, it must address a· series of questions regarding current asset condition levels; condition tracking methods,-;and • maintenance· and preservation activities, expenses, and trends. Further, the responses to these questions must be included in the "Required Supplementary Information" section of the City's financial statements.
Both the Depreciation Method and the Modified Approach allow users to make inferences about the City's infrastructure management practices and service levels. It is critical to note that if the City does not meet all the requirements for an infrastructure system reporting under the Modifi~d Approach, this system automatically defaults to the Depreciation Method of reporting. If this occurs, the default will be included in the Management's Discussion and Analysis, required for GASB.·34 compliance, in the City's CAFR. A disclosure of this type would not be desirable for the City.
Currently, the Street_ Lighting System and the Wastewater System are the only DPW infrastructure_ assets reporting under the .Depreciation Method. To date, reporting on the Wastewater System infrastructure assets has been fully implemented both prospectively and retroactively and reporting on the Street Lighting infrastructure has been implemented prospectively with retroactive reporting on schedule. The DPW infrastructure assets currently reporting under the Modified Approach are the Bridges, Stormwater, and Street Systems. To date, reporting on the Bridges infrastructure has been fully jmplemented both prospectively and retroactively, and reporting on the Stormwater and Street Systems has been implemented prospectively.
GASB 34 Modified Approach Concerns
Since the establishment of GASB 34 infrastructure reporting requirements, the DPW has been collaborating closely with the Office of the Controller and its external auditor to develop and implement the required Departmental infrastructure reporting for the DPW infrastructure systems. This has been in recognition of the critical importance of successfully implementing the DPW infrastructure components for GASB 34 due to the related financial implications of non-compliance.
To this end, the DPW established an internal GASB 34 Working Group which has researched the avenues of GASB 34 implementation within the City and in comparable cities, serves as the liaison between the DPW and the Office of the Controller, and develops and implements Departmental GASB 34 · reporting policies and procedures at the direction of the BPW. Implementing GASB 34 reporting for infrastructure assets is a daunting and challenging task because it has never been done before and there are many complex issues that are highly individualistic for each system requiring research and resolution.
At this time, it is being recommended that the. Reporting Methodology for the Stormwater and Street Systems be changed from the Modified Approach to the Depreciation Method. The reasons for recommending adopting this change are detailed below.
Stormwater System
·-
system since reporting under the- Modified ·Approach~must adhere,, to the following· requirements: ·
• A complete and replicable condition assessment must- be performed in a consistent manner every three years; and
• The results of the complete condition assessment should provide reasonable assurance that the assets are being preserved at or above the condition level established.
While the DPW has inspected 5 percent of the Stormwater System, this is not a large enough sampling to meet the minimum standard of confidence for the Modified Approach reporting requirements per the Office of the Controller and the City's external auditor. This is because the extrapolated data cannot provide reasonable assurance that the assets are being preserved at a certain condition level. Additionally, the DPW does not have enough time or funding available to obtain an acceptably-large sample to meet the minimum standard of confidence for the · Modified Approach reporting · requirements for the mandated implementation at the conclusion of the 2005-06 fiscal year.
All parties involved have strategized to resolve the concerns outlined above with minimal success. However, all parties have agreed that it is appropriate to charige to the Depreciation Method, which does not require a system condition assessment. Therefore, this change is being recommended. '
Street System
Each system reporting under the Modified Approach requires an estimate each year of the annual amount to maintain and preserve the infrastructure assets at the condition level established and disclosed by the government. The estimate then becomes a funding plan. This becomes especially critical when considering which GASS 34 reporting method to use for the Street System. The City's Street System receives funding from sources that are severely impacted by factors not within the City's control and may fluctuate widely. The funding plan must include, by funding source, the funds available for the infrastructure system's maintenance and preservation. Funding shortfalls and recommendations for funding any shortfall must also be incorporated.
Historical under-funding of the DPW's Bureau of Street Services' (BSS') Resurfacing and Street Maintenance Programs has created a street infrastructure of approximately 1,000 miles of failed streets and 3,000 miles of roadways that need resurfacing. Currently, there may not be sufficient City revenue .to fund the Program at a condition level to maintain the Street System at. its current level. Although BSS has implemented programs with funding from outside sources and is utilizing new technologies to supplement the Resurfacing Program, these innovative strategies cannot guarantee the sufficiency of long-term funding which would be required for a condition level established under the Modified Approach
•·" .
....
• For these reasons, the Bureau of Street Services, the Public Works Office of Accounting, ttie­ Office of the Controller and the City's outside auditor, Simpson and Simpson, have agreed .
· that it is appropriate to change to the Depreciation Method. Therefore this change is being recommended.
Summary
As a result of the comprehensive research and analysis of the issues related to reporting infrastructure ass~ts under GASB 34, it has been determined that a combination of the Modified Approach and the Depreciation Method Reporting Methodologies is best for the DPW and the various infrastructure systems under its control and care. Further, the DPW has discussed extensively and in great detail all concerns and benefits to the City with both the Office of the Controller and Simpson and Simpson, who agree that the recommended changes are acceptable. Key factors in selecting these reporting methodologies under GASB 34 are the importance of disclosing infrastructure information to readers of the City's financial statements and the successful implementation of GASB 34.
Under the GASB 34 reporting model, these infrastructure assets will be included in the City's' financial statements to give users a more complete picture of the City's operation and service levels. GASB 34 reporting requirements will also disclose the City's historic . and annual investment in infrastructure. Successful implementation of the DPW's GASB. 34 infrastructure component is critical to the City's continued receipt of an unqualified opinion on its financial statements from the City's independent auditors.. Failure to comply with these GASB 34 requirements would likely have an adverse affect .on the City's bond rating and could significantly increase the City's cost for raising capital.
It is therefore ·recommended that the DPW change to the Depreciation Method for its Stormwater and Street Systems. Further, the DPW has discussed this recommendation with the Office of the Controller, which does not object to the recommended change in GASB 34 reporting methodology for these Systems.
Respectfully submitted,
R£~~ Dir~ctor - Bureau of Sanitation
WILLIAM ROBERTSON, Director Bureau of Street Services
... ' ... , • ., ; .
..
.TY OF LOS ANGEL. r Office of the
FRANK T. MARTINEZ Executive Officer
When making inquiries relative to this matter refer to File No.
01-1289
Room 395, City Hall Los Angeles, CA 90012
Council File Information - (213) 978-1043 General Information - (213) 978-1133
Fax: (213) 978-1040
MAYOR
PLACE IN FILES
JUL - 2 2002
Chief Legislative Analyst Controller: Room 1200
Accounting Division F&A Disbursement Division
RE: A PLAN CONCERNING METHODS OF REPORTING INFRASTRUCTURE ASSETS SUBJECT TO THE CONTROL OF THE BOARD OF PUBLIC WORKS, AS REQUIRED BY GOVERNMENT ACCOUNTING STANDARDS BOARD STATEMENT 34
. At the meeting of the Council held June 4, 2002, the following action was taken:
Attached report adopted ........................................ ______ _ Attached resolution ( - ) adopted .............................. _____ _ Mayor concurred. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6 -13 - 02 FORTHWITH ...................................................... ------ Ordinance adopted .............................................. ______ _ Ordinance number ............................................... ______ _ Effective date ................................................ ·------- Publication date .............................................. ·------- Mayor approved ................................................. ______ _ Mayor vetoed ................................................... ______ _ Mayor failed to act - deemed approved .......................... _____ _ Motion adopted to approve attached report recommendation(s) .. ··------ Motion adopted to approve communication recommendation(s) ... . . . X To the Mayor FORTHWITH ........................................ ·------
City Clerk crm steno\011289
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,···,· Mayor 'f'Et}m&Vftllmp
nEPUTY MAYOR
r·,rr·./ Vi1 I
SUBJECT TO MAYOR'S CONCURRENCE
COUNCIL APPROVAL DATE June 4, 2002
RE: A PLAN CONCERNING METHODS OF REPORTING INFRASTRUCTURE ASSETS SUBJECT TO
THE CONTROL OF THE BOARD OF PUBLIC WORKS, AS REQUIRED BY GOVERNMENT
ACCOUNTING STANDARDS BOARD STATEMENT 34
JUM 11 2002
LAST DAY FOR MAYOR TO ACT (10 Day Charter requirement as per Charter Section 231 (h))
DO NOT WRITE BELOW THIS LINE - FOR MAYOR OFFICE USE ONLY
APPROVE( *DISAPPROVED
*Transmit objections in writing pursuant to Charter Sec. 231 (h)
DATE OF MAYOR APPROVAL OR DISAPPROVAL JUN 1 3 2DOI
steno\011289a /
#67
Yes No Public Comments XX
COMMUNICATION FROM CHAIR, PUBLIC WORKS COMMITTEE relative to a plan concerning methods of reporting Infrastructure assets subject to the Board of Public Works as required by Government Accounting Standards Board (GASB) Statement 34.
Recommendation for Council action, as approved by the Board of Public Works (BPW) Commissioners, SUBJECT TO THE CONCURRENCE OF THE MAYOR:
J
1. CONCUR with the BPW action to establish the following methods of reporting infrastructure assets that are under the care and control of the Department of Public Works (Department).
a. Bridges - Effective the fiscal year ending June 30, 2002, and subject to the approval of the Mayor and City Council, the Department proposes to report prospectively and retroactively using the Modified Approach.
b. Stormwater System - Effective the fiscal year ending June 30, 2004, and subject to the approval of the Mayor and City Council, the Department proposes to report prospectively and retroactively using the Modified Approach.
c. Wastewater System - The Department proposes to continue reporting wastewater system infrastructure assets in the Sewer Construction and Maintenance Fund. The Sewer Construction and Maintenance Fund is an enterprise fund that already uses the depreciation method of recording the values of major infrastructure assets.
d. Streets (Including curb and gutters) - Not later than f i seal year ending June 3 0, 2 0 0 5, and subject to the approval of the Mayor and City Council, the Department proposes to report prospectively and retroactively using the Modified Approach. The costs of reconstruction and repair of curbs and gutters is included within the costs for street repair.
• • C.F. 01-1289 Page 2 of 3
e. Sidewalks - In recent years, the City of Los Angeles has appropriated funds to make certain sidewalk repairs to correct deficient conditions and to make sidewalk modifications in compliance with the Americans with Disabilities Act. However, the City does not own all of the sidewalks in the City of Los Angeles, nor does the City have the sole responsibility for the maintenance of all sidewalks in the City. Consequently, sidewalks do not meet the defined requirement of infrastructure assets that would prescribe reporting under GASB 34 guidelines. The Department therefore elects not to prepare a financial status report on sidewalks for financial statement purposes.
f. Allevs - Not later than fiscal year ending June 30, 2005, and subject to the approval of the Mayor and City Council, the Department proposes to report prospectively and retroactively using the Modified Approach.
g. Trees - Effective the fiscal year ending June 30, 2002, and subject to the approval of the Mayor and _City Council, the Department proposes to report prospectively and retroactively using the Depreciation Method.
h. Street Lighting System - Effective the fiscal year ending June 30, 2002, and subject to the approval of the Mayor and City Council, the Department proposes to report prospectively and retroactively using the Depreciation Method.
2. REQUEST the BPW to direct the Bureau of Street Services (BSS) to submit its final condition assessment of the City's streets and alleys to the Mayor and City Council by July 2004.
Fiscal Impact Statement: The BPW reports that there are no immediate fiscal impacts in making these determinations.
SUMMARY
On May 22, 2002, the Chair of the Public Works Committee considered Board of Public Works and Controller reports relative to a plan concerning methods of reporting Infrastructure assets subject to the Board of Public Works as required by Government Accounting Standards Board (GASB) Statement 34.
The Department reported that its report was seeking concurrence from the Mayor and City Council with the Board's determination as
• • C.F. 01-1289 Page 3 of 3
to how the Department will comply with reporting requirements under GASB 34, which will utilize the Modified Asset Management and Depreciation approach in the Department's annual consolidated financial reports for all the infrastructure assets under the control of the BPW.
The Controller reported that it concurred with the Board's recommendations, with one exception. It recommended that the Bureau of Street Services submit a final condition assessment of the City's streets and alleys to the Mayor and City Council by February 2003, so as to provide the City with sufficient time to review the information. This date was then verbally amended in Committee to July 2004 after cons~ltation with the Bureau of Street Services.
The Department indicated it was in agreement with the Controller's amending recommendation, inasmuch as it does not affect resources significantly.
The Chair of the Public Works Committee concurred with the Board of Public Works report, as amended to modify the reporting timeframe for the final condition assessments of the City's streets and highways, and forwarded the matter to Council for its consideration.
CAL 5/31/02 #011289
JUN O 4 2002
LOS ANGELES CITY COUNCIL
Jun 4, 2002 10:29:09 AM, #4
Items for Which Public Hearings Have Not Been Held - Items 28-34 Voting on Item(s): 28-33 Roll Call
\ .. ,'
" .. I
Council File No. {2_/--V&5._
[]Council .
Member(s)
DBureau .
DBureau of Contract Administration (Mail Stop 480) ' t
DBureau of Engineering (Mail Stop 901) I,and De:1z:e J opmeD t G:r:ollp . DBureau of Sanitation (Mail Stop 520)
DBureau of Street Lighting (Mail Stop 545) '
DFire Department l
Dcit~y Clerk ' '. I
DDOT, Liability Claims Management & Citywide Investigation Section (Mail Stop 725)
D D
J. MICHAEL CAREY City Clerk
FRANK T. MARTINEZ Executive Officer
When making inquiries relative to this matter refer to File No.
01-1289
JAMES K. HAHN MAYOR
Council and Public Services Room 395, City Hall
Los Angeles, CA 90012 Council File Information - (213) 978-1043
General Information - (213) 978-1133 Fax: (213) 978-1040
HELEN GINSBURG Chief, Council and Public Services Division
In accordance with Cou;1-cil Rules, communica,tion from the Board of (. '. ·./r,-'if"
Public Works relative to methods of reporting infrastructure assets
under GASB 34 that are under the care and control of the Department
of Public Works, was referred on March 5, 2002, to the PUBLIC WORKS
COMMITTEE.
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TO
FROM
DATE COUNCIL FILE No.
THE COUNCIL FEB 2 s 2002 0/- I.') J' 'J COUNCIL DISTRICT THE MAYOR
TRANSMITTED FOR YOUR CONSIDERATION. PLEASE SEE ATTACHED.
~ PUBLIC WORKS JAMES K. HAHN MAYOR
MAR 5 2002
MEMBERS
' Attn: June Lagmay
200 NORTH SPRING STREET ROOM 361, CITY HALL
LOS ANGELES, CA 90012
JAMES A. GIBSON SECRETARY
#1 FMP/CE/SAN/SL/ST
Subject: PLAN FOR INFRASTRUCTURE REPORTING UNDER GASB 34
As recommended in the accompanying report of the Directors of the Bureaus of Financial Management and Personnel Services, Engineering, Sanitation, Street Lighting, and Street Services, which this Board has adopted, the Board of Public Works recommends approval and forwarding to the City Council for approval of the methods of reporting infrastructure assets that are u~der the care and· control of the Depa~t:ment of -Public Works, as described in the attached report, for the reasons set forth in the report.
JAG:mp t?ames
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• • BUREAU OF FINANCIAL MANAGEMENT AND PERSONNEL SERVICES BUREAU OF ENGINEERING BUREAU OF SANITATION BUREAU OF STREET LIGHTING BUREAU OF STREET SERVICES
JOINT REPORT NO. 1
ADOPTED BY THE BOARD OF PUBLIC WORKS OF THE CITY
'_)f Los Angeles. California
FebrU<LryJ>,_ 2_0_02_. __
ISSUE
The City is required by' Government Accounting Standards Board Statement No. 34 (GASB 34) to begin prospective reporting of the value of all infrastructure assets newly constructed or acquired, or on which major additions or improvements are completed, beginning in the fiscal year ending June 30, 2002. The City is also required to begin - retroactively reporting infrastructure asset values after the f_iscal year beginning after June 15, 2006. The City may choose to report the value of infrastructure assets, either prospectively or retroactively, using either the Depreciation Method or the Modified Approach.
RECOMMENDATIONS
1. Establish the following methods of reporting infrastructure assets that are under the care and control of the Department of Public Works.
• Bridges Effective-me fiscal year ending June 30, 2002, and subj~ct to the approval of the Mayor.and the City Council, the Department proposes to report prospectively and retroactively using the Modified Approach.
• Stormwater System Effective the fiscal year ending June 30, 2004, and subject to the approval of the Mayor and the City Council, the Department proposes to report prospectively and retroactively using the Modified Approach. ,
• Wastewater System . The Department proposes to continue reporting wastewater system infrastructure assets·· in the Sewer · Construction and Maintenance Fund. The Sewer Construction and Maintenance Fund is an enterprise fund that already uses the depreci~tio.n method of recording the values o~ ~ajor i_nfrastructure assets.
' ' • Streets (Including curb and gutters)
Not later than the fiscal year ending June 30, 2005, and subject to the approval of the Mayor and the City Council, the Departme_nt proposes to report prospectively and- retroactively using the Modified Ap'proach. The· costs of
• • Joint Report No. 1 Page 2
•
reconstruction and repair of curbs and gutters is included within the costs for street repair.
Sidewalks In recent years, the City of Los Angeles has appropriated funds to make certain sidewalk repairs to correct deficient conditions and to make sidewalk modifications in compliance with the Americans with Disabilities Act. However, the City does not own all of the sidewalks in the City of Los Angeles, nor does the City have the sole responsibility for the maintenance of all sidewalks in the City. Consequently, sidewalks do not meet the definitional requirements of infrastructure assets that would prescribe reporting under GASB 34 guidelines. The Department therefore elects not to prepare a financial status report on sidewalks for financial statement purposes.
• Alleys
•
•
Not later than the fiscal year ending June 30, 2005, and subject to the approval of the Mayor and the City Council, the Department proposes to report prospectively and retroactively using the Modified Approach.
Trees Effective the fiscal year ending June ·30, 2002, and subject to the approval of the Mayor and the City Council, the Department proposes to report prospectively and retroactively using the Depreciation Method.
Street Lighting System Effective the fiscal year ending June 30, 2002, and subject to the approval of the Mayor and the City Council, the Department proposes to report prospectively and retroactively using the Depreciation Method-.
2. Request the Mayor and City Council to concur in this determination.
3. Notify the City Controller of this determination.
FISCAL IMPACT
There are no immediate fiscal impacts in making these determinations.
BACKGROUND
In June 1999, the GASB established new financial reporting standards for,State and local governments to report their financial results. Among other provisions, GASB Statement No. 34, "Basic Financial Statements - and Management Discussion and Analysis - for State and Local Governments" requires that major infrastructure assets constructed or acquired, or to which major additions or improvements are_ made, in
Joint Report No. 1 Page 3
• • fiscal years beginning after June 15, 1980, be capitalized in financial statements. Infrastructure assets are capital assets. such as roads, bridges and tunnels that can generally be preserved for a significantly longer period of time than most capital assets. To "capitalize" me?ns to record the amount expended to acquire a capital asset. The capitalized amount includes all charges for establishing the subject asset in a condition ana·1oc-ation wherEfiris-available for its~intended'use. - - - - -
To comply with GASS 34 infrastructure asset reporting requirements, governments can use the Depreciation Method (traditional accounting approach) or the Modified Approach (preservation/asset management). Depreciation is a method of accounting for the "using up" of a long-lived asset. Depreciation is not a measure of actual deterioration or condition of an asset. To determine depreciation expense, the net acquisition cost is allocated to each year over the total years of useful life, usually by dividing net acquisition costs by the estimated useful life. Using this traditional accounting approach, expenses associated with routine maintenance and depreciation are reported annually in the government's statement of assets.
The Modified Approach recognizes that governments can preserve some assets perpetually through a continual process of maintenance and renewal. By using the Modified Approach to infrastructure asset reporting, governments will not have to depreciate infrastructure assets as long as certain requirements are met. Governments must:
1. Establish and make public condition level goals for each class of assets on which they are reporting;
2. , Estimate the spending levels required to maintain the condition level goals; 3. Compare the amounts required to maintain the predetermined condition levels to
the actual spending; and 4. Document that the assets are being preserved approximately at or above the
condition goals that have been pre-selected.
The modified reporting approach further requires governments to have in place a system for inventorying, assessing and managing infrastructure assets. GASS 34 requires governments using the Modified Approach to address a series of questions regarding current asset condition levels, condition tracking methods, and maintenance and preservation activities, expenses and trends. These questions are addressed in the "Reqyired Supplementary Information" section of the government's financial statements.
METHODOLOGIES
The Depreciation Method of infrastructure asset reporting may be less costly and easier to implement than the Modified Approach in some cases, but depreciation expenses by themselves do not provide useful information on the value of maintenance and preservation activities or the serviceability and useful life of infrastructure assets. The
Joint Report No. 1 Page4
• • Modified Approach provides the public, policy makers and financial markets with timely information about the condition, maintenance of effort and resources required to preserve the significant public investment in infrastructure assets. The Modified Approach is a reporting framework that encourages preventive maintenance and other asset preservation strategies and discourages deferred maintenance of critical infrastructure assets. The Modified Approach encourages governments to develop constructs for preserving and managing major infrastructure assets. These asset management constructs are systematic approaches to maintaining, upgrading and operating public infrastructure assets. Asset management methodologies include bridge management systems, pavement management systems and life cycle costing. The Board of Public Works Commissioners strongly supports the development and implementation of asset management strategies in the Department of Public Works.
To implement the recommendations made above. The following is required:
Bridges- The City Engineer must submit a report to the Board for adoption and referral to the City Council. This was done on December 14, 2001, and included the following:
1. An inventory of all City owned bridges by type (i.e. pedestrian, railroad, vehicuiar, other);
2. The 'historical cost of each bridge in the bridge system; 3. A current condition assessment for each bridge; · 4·_ A description of the asset management tracking system used to monitor the
bridge system condition; 5. A description of the rating system used to assess the condition of each type of
bridge; 6. A Bureau of Engineering recommendation for the condition level at which each
bridge should be maintained by the City; 7. The annual cost of maintaining the recommended condition level for each type of
bridge for the next five fiscal years; and 8. A funding plan that includes, by funding source, funds available for bridge
maintenance, rehabilitation or replacement over the next five .fiscal years, any funding shortfalls and recommendations for funding any shortfall. ·
Stormwater System- Not later than September 30, 2002, the Director, Bureau· of Sanitation. will submit to the Board of Public Works Commissioners a preliminary condition assessment report for the City's Stormwater System assets. Not later than September 30, 2003, the Director must submit a condition assessment report to the Board for adoption and referral to the City Council. The report shall include at c1 minimum:
Joint Report No. 1 Page 5
• 1. An inventory of all flood control system assets including lateral and main line
reinforced concrete pipe, maintenance holes, catch basins, junction structures, culverts, low flow drains, channels, debris basins and pumping plants;
2. The historical cost of the flood control system; _3. __ ~_c:;urren..t condition asse.ssment of each element of the system;
4. A description of the asset management tracking system used- to monitor the system condition;
·5. A description of the rating system used to assess the condition of each system element;
6. A BOE/BOS recommendation for the condition level that should be maintained by the City for each element of the system;
7. The annual cost of maintaining the recommended condition level for each system element for the next five fiscal years; and
8. A funding plan that includes, by funding source, funds available for flood control system maintenance, rehabilitation, replacement or expansion over the next five fiscal years; any funding shortfalls and recommendations for funding any shortfall.
Streets (including curbs and gutters)- Not later than September 30, 2002, the Director, Bureau of Street Services will submit to the Board of Public Works Commissioners a preliminary condition assessment report for all City streets. Not later than September 30, 2005, the Director must bring a condition assessment report to the Board for adoption and referral to the City Council. The report shall include at a minimum:
1. A complete inventory of all City streets by type (i.e. major/ secondary and local); · 2. The historical cost of the street system; 3. A current condition assessment of all streets by type; 4. A description of the asset management tracking system used to monitor the
street system condition; 5. A description of the rating system used to assess the condition of each street
type; 6. A BOSS recommendation for the condition level that should be maintained by the
City for each street type; 7. The annual cost of maintaining the recommended condition level for each type of
street for the next five fiscal years; and 8. A funding plan that includes, by funding .. source, funds available for street
maintenance, rehabilitation, construction or reconstruction over the next five fiscal years; any funding shortfalls and recommendations for funding any shortfall.
Alleys- Not later than September 30, 2002, the Director, Bureau of Street Services will submit to the Board of Public Works Commissioners a preliminary condition assessment report
• • Joint Report No. 1 Page 6
for all City streets. Not later than $eptember 30, 2005, the Director must submit a condition .assessment report to the Board for adoption and referral to the City Council. The report shall include at a minimum:
1. A complete inventory of all alleys by type (i.e. improved and unimproved); 2. The historical cost of all alleys; 3. A current condition assessment of all alleys by type; 4. A description of the asset management tracking system used to monitor the alley
system condition; 5. A description of the rating system used to ass~ss .the condition of each alley
type; 6. A BOSS recommendation for the condition level that should be maintained by the
City for each alley type; 7. The annual cost of maintaining the recommended condition level for each type of
alley for the next five fiscal years; and 8. A funding plan that includes, by funding source, funds available for alley
maintenance, rehabilitation, construction or reconstruction over the next five fiscal years; any funding shortfalls and recommendations for funding any shortfall
Trees- The Bureau of Street Services must submit a report to the Board by January 30, 2002 for information and referral to the City Controller. The report shall include at a minimum:
1. The Bureau's current inventory of all trees in the City's Urban Forest as of June 30, 2001;
2. The historical cost of all trees inventoried; and 3. The current estimated depreciated value of all trees inventoried.
Street Lighting System- Not later than September 30, 2002, the Director, Bureau of Street Ligt:,ting will submit to the Board of Public Works Commissioners a preliminary condition assessment of all City street lighting system components in each Street Lighting Assessment District. Not later than December 15, 2005, the Director must submit a report to the Board for adoption and referral to the City Council. The report shall include at a minimum:
fi,
1. A complete inventory of the City street lighting system; 2. The historical cost of the street lighting system; 3. A current condition assessment for the street lighting system; 4. A description of the asset management tracking system us~d to monitor the
street lighting systems condition; 5. A description of the rating system used to assess the condition of each street
lighting component within each assessment district; 6. A BSL recommendation for the condition level that should be maintained in each
assessment district;
Joint Report No. 1 Page 7
• • 7. The annual cost of maintaining the recommended condition level in each district
for the next five fiscal years; and 8. A funding plan that includes, by funding source, funds available for street lighting
district maintenance, rehabilitation, construction or reconstruction over the next _five fiscaLy_ears;_any funding shortfalls and recommendations_ for funding any
shortfalls. ..-:
Wayne Moore, Director Bureau of Financial Management and Personnel Services (213) 978-0207
FINAL GASB34 Board Report
and Personnel Services
~~-u!~ Uudith A. Wilson, Director
Bureau of Sanitation
.. i.~ ~hite, Director Bureau of Street Services
) .r. _.,,..,,
SUBJECT: GASB STATEMENT NO. 34
• ?N 12: 18
(213) 485-5093
During the last six months, I have worked closely with the City's General Managers with responsibility for implementing the infrastructure provisions of Government Accounting Standards Board (GASS) Statement No. 34. That is why I was especially pleased to learn that the Board of Public Works adopted a set of infrastructure policies related to the implementation of GASS Statement No. 34.
I wholeheartedly support the recommendations of the Board of Public Works in this regard. However, I am concerned about the timeline for the completion of the Bureau of Street Services condition assessment of the City's streets and alleys. The infrastructure requirements of GASS 34 do not have to be implemented until the reporting period ending June 30, 2006. However, the City must declare its intent to use either the modified or depreciation approach for the financial statements ending June 30, 2002, and capture the prospective value of those assets.
If the Mayor and the City Council decide to adopt the modified approach, the City may complete the required condition assessments at a later date. If the City is going to identify an appropriate standard for maintenance and funding (i.e., street and alley maintenance), the issue must be analyzed and reported to the Mayor and City Council as soon as possible. •
Therefore, I strongly recommend that the Public Works Committee modify the Board of Public Works recommendation for Street Services by requiring the Director of Street Services to complete a final condition assessment of the City's streets and alleys, and report those results to the Board and City Council by February 2003. This will give the City Council and Mayor ample opportunity to discuss the desired maintenance level (and associated costs) for the City's streets and alleys.
PUBLIC WORKS FEB 2 8 2002
AN EQUAL EMPLOYMENT OPPORTUNITY - AFFIRMATIVE ACTION EMPLOYER
~onorable Members of I Public Works Committee February 25, 2002 Page2
Although I believe the modified.approach best meets the needs of the City and its citizens, the decision to use either the depreciation or modified approach for infrastructure reporting is a policy decision for the Mayor and City Council that must be considered carefully.
If approved by the Mayor and City Council, I will reflect the City's infrastructure reporting decisions in the City's 2002 Comprehensive Annual Financial Report, subject to the
-completion-of-a-preliminary condition assessmentof the City's stceets and alleys by - -
September 2002.
BACKGROUND - GASB 34
In 1999, the Government Accounting Standards Board (GASB) issued Statement No. 34 - Basic Financial Statements and Management's Discussion and Analysis - for Local Governments. The goal of GASB 34 is to create a new financial reporting model that will make it easier for the public, decision makers, investors and creditors to assess
-the-ongoing_condition_and financial position_ofJhe_City.
Current Reporting Model - City Budget and CAFR
The Mayor and City Council set policy and allocate resources through the City's annual budget process. Once established, the budget becomes the City's spending plan and is subject to ongoing monitoring and occasional modification. At the end of each year, the actual receipts and expenditures are reconciled with the City's funds (e.g., General Fund and Reserve Fund), and a set of financial statements are compiled, audited and presented in the City's Comprehensive Annual Financial Report (CAFR).
The focus and audience for the budget and the CAFR are different. The annual budget is the City's short-term spending plan, and it is related to current resource measurement and use (appropriation authority, encumbrances and cash). Subject to external audit, the CAFR contains the City's official record of financial operations for the year ending June 30th. Like the City Budget, the CAFR's measurement focus is also short-term. However, the CAFR does reflect short-term liabilities (i.e., 60-90 days beyond the close of the year).
I GASB 34 - New Model
GASB 34 is more than an exercise in accounting. The preparation of the government­ wide statements (i.e., statement of activities and statement of net assets) on a full accrual basis, will not only enable readers to evaluate the City's short-term financial position as of June 30th. but also the City's long-term financial condition. Moreover, the new statements will give readers additional insights into the City's operation, service levels and asset management practices, and provide a basis for comparison with other jurisdictions.
The following section is a summary of the changes that will result from the successful implementation of GASB Statement No. 34.
Creates Management's Discussion and Analysis (MD&A)
Under GASB 34, the City's Management Team is required to prepare Management's Discussion and Analysis (MD&A) of the City's operating results. The MD&A will provide readers of the City's CAFR an objective and easily readable analysis of the government's results of operations for the year. This analysis will provide the
1
information to help assess whether or not the City's' financial position has improved or deteriorated, as a result of the year's operations.
Creates Additional Fund Requirements
Most funds are established to show restrictions on the planned use of resources or to measure it, in the short term, by matching revenues and expenditures arising from certain activities over an annual period. For example, the City's current Comprehensive
-AnnuaLEinanciaLReport(C~EB)_captures short::-te(m_information for the City's fun,gs _by total fund type, not by major funds.
Under GASB 34, fund statements will continue to measure and report operating results and identify cash on hand, as well as other assets that can be easily converted to cash. In addition, the focus of the new statements has been sharpened under GASB 34 to breakout the activities of the City's major funds (e.g., community development, general, MICLA, etc.), instead of reporting by fund type.
Changes Budgetary Reporting
Statement No. 34 reflects the GASB's concern about budgetary accountability and disclosure for both expenditures and revenue. In the CAFR, the City has always reported budgetary changes and comparisons (i.e., adopted budget and mid-year adjustments are compared to actual expenditures/revenue).
In keeping with the GASB's ongoing concern about budgetary accountability and disclosure, Statement 34 now requires the City to include the "original adopted budg~t" as a point of comparison. For example, the City will now be required to show the following points of comparison: (1) adopted budget, (2) final revised budget with all mid­ year adjustments, and (3) actual revenue/ expenditures.
Creates Government-Wide Reporting
One of the most significant changes under GASB 34 is the requirement that the City create a new set of government-wide financial statements using the economic measurement focus and accrual basis of accounting. Each year, the CAFR reports the City's current financial position as of June 30th_
Under GASB 34, a new measurement focus will be added that will include long-term assets and liabilities (i.e., capital assets including infrastructure and general obligation debt). As a result, the financial statements will not only report the City's short-term financial position, but also its long-term financial condition. Because the statements include all costs (e.g., allocation of debt and asset depreciation}, the reader will gain new insight into the true cost and level of City service provision.
2
Links Capital Assets (Infrastructure) and Service Levels
Under the new model, infrastructure assets were included to give users a complete picture of each government's operation and service levels. Governments of equal size, resources, and identical services may have completely different treatment of the infrastructure required to deliver day-to-day service. For example, a city may chose not to repave its streets on a regular basis, while a neighboring city may have regular replacement and pavement schedules. Each city may manage to offer similar services from year to year, but at some point, the City that does not repave its streets on a regular schedule will offer substandard streets to its citizens.
Requires Modified or Depreciation Approach for Infrastructure Reporting
In .reporting infrastructure assets, the City has the option to adopt the depreciation or the modified reporting approach. While the depreciation approach amortizes the historical cost of an asset over its estimated useful life, the modified approach reports the current condition assessments of infrastructure assets and allows the Mayor and Council to establish a desired (target) condition level for ongoing maintenance and funding.
Identifies Condition of Existing Infrastructure (Establishes Prospective Level)
Each method addresses asset replacement and related service levels. However, the modified approach is more meaningful for government operations. Under the modified approach, managers would determine the current condition of their infrastructure and then recommend a standard for ongoing maintenance and service.
For example, a condition assessment could determine that 75 percent of the City's streets are at a level acceptable to the California Department of Transportation for state funding. Street maintenance could then recommend this standard as the desired condition level for the City's street system. Street maintenance would then recommend the amount of funding required for maintaining this condition level.
The decision to use either the depreciation or modified approach is a key one for the Mayor and City Council. The modified approach more closely links asset replacement to service level than does the depreciation approach, but it also requires a multi-year funding commitment. If the maintenance standards are not met, or the Mayor and City Council receive the condition assessments and decide that they do not wish to implement the modified approach, the Citywill be required to revert to the depreciation method. Such a change would likely be viewed as the City not being willing or able to maintain or fund a planned level of maintenance.
3
PUBLIC WORKS RECOMMENDATIONS - Infrastructure Reporting
On February 6, 2002, the Board of Public Works established the following policies, subject to the approval of the Mayor and City Council, regarding the reporting of the City's infrastructure under GASB Statement No.34.
•-Bridge,s---Effective-fiscaLyear_ending_June_3Q,_2002, and subject to the approval of the Mayor and City Council, the Board recommends reporting the City's bridges infrastructure prospectively and retroactively using the Modified Approach. The City Engineer has completed a condition assessment of the City's bridges and referred that assessment to the City Council for consideration.
• Stormwater System - Effective the fiscal year ending June 30, 2004, and subject to the approval of the Mayor and City Council, the Board recommends reporting the City's stormwater infrastructure prospectively and retroactively using the Modified Approach. The Board has required the Stormwater Director to submit a condition assessment, not later than September 2003, to the Board for adoption and referral to the City Council.
• Wastewater System - The Board recommends the continued reporting of wastewater system infrastructure assets in the Sewer Construction and Maintenance Fund. The Sewer Construction and Maintenance Fund is an enterprise fund that already uses the depreciation method of recording the values of major infrastructure assets.
• Streets (Including Curbs and Gutters) - Not later than fiscal year ending June 30, 2005, and subject to the approval ofthe Mayor and the City Council, the Board recommends reporting the City street infrastructure prospectively and retroactively using the Modified Approach. The Board also instructed the Director of Street Services to submit a preliminary condition assessment report for all streets'to the Board - no later than September 30, 2002. The Director must bring a condition assessment to the Board for adoption and referral to the City Council no later than September 30, 2005.
• Alleys - Not later than fiscal year ending June 30, 2005, and subject to the approval of the Mayor and the City Council, the Board recommends reporting the City's streets (alleys) prospectively and retroactively using the depreciation method. The Board also instructed the Director of Street Services to submit a preliminary condition assessment report for all City's streets (alleys) to the Board - no later than September 30, 2002. The Director must bring a condition assessment to the Board for adoption and referral to the City Council no later than September 30, 2005.
4
• Trees - Effective the fiscal year ending June 30, 2002, and subject to the approval of the Mayor and the City Council, the Board recommends reporting the City's "urban forest" prospectively and retrospectively using the depreciation method.
• Street Lighting System - Effective the fiscal year ending June 30, 2002, and subject to the approval of the Mayor and City Council, the Board recommends reporting the City's street lighting system prospectively and retrospectively using the depreciation method. However, the Board also instructed the Director to submit a
______ pceliminacy_condition_assessmentotalLCity_ street. lighting. system. components in ______ _ each Street Lighting Assessment District to the Board by September 30, 2002. Not later than December 15, 2005, the Director must also submit a condition assessment report to the Board for adoption and referral to the City Council.
CITY CONTROLLER RECOMMENDATIONS - Infrastructure Reporting
Large cities like Los Angeles must declare their intention to use either the modified or the depreciation approach for the reporting period ending June 30, 2002. The City is allowed to defer its retrospective reporting of those assets until the period ending June 30, 2006. For example, as currently recommended by the Board of Public Works, the City Controller could report the City's intention to adopt the modified approach for reporting some of the City's infrastructure in the City's 2002 CAFR.
The Controller would then report the additional streets added to the City's street system during fiscal year 2001-2002, but would not identify the current condition of the street system, desired service or maintenance level, or funding commitment as required under the modified approach. These issues would be reported once condition assessments were completed and submitted to the Mayor and City Council for approval before June 2006.
Ideally, the various City departments should complete their condition assessments (and cost analyses) prior to the Mayor and Council making a commitment to adopt the modified approach. However, it is possible to adopt the modified approach with the understanding that a condition assessment will be completed and submitted to the Mayor and City Council for future consideration. This is the approach recommended by the Public Works Board - which I support.
Once the condition assessments for the City's streets and alleys have been submitted, the Mayor and City Council will have enough information to revisit the decision to adopt the modified approach. However, if this approach is adopted, condition assessments must be completed well in advance of the City's required GASS 34 reporting compliance date (June 30, 2006). The City Council and Mayor must be given enough time to assess the condition of the City's infrastructure, adopt a prospective standard and evaluate the related funding requirement.
5
• In addition, the City's External Auditors (Macias, Gini and Company) have expressed concern that the City adopts a basic "reasonableness" standard when striving to implement the modified approach for infrastructure reporting. As long as there is a reasonable likelihood that the Mayor and City Council will adopt and fund a pre­ determined standard of maintenance for the City's streets and alleys, it is appropriate to proceed with the Public Works I City Controller recommendation, subject to the submission of a preliminary condition assessment for Street Services in September 2002.
However, as soon as it becomes clear that the City is unfikely to createtnetequire_d_ condition assessment, or the Mayor and City Council are unlikely to adopt the findings, the City's Auditors recommend that the City Controller report infrastructure assets using the depreciation method. I concur with their recommendation.
Therefore, I recommend that the Bureau Street Services submit a final condition assessment of the City's streets and alleys to the Mayor and City Council by February 2003. This will give the Mayor and City Council ample opportunity to discuss the, condition standards and funding commitment recommended by Street Services and the Board of Public Works, before the City is required to comply with GASS 34's June 2006 reporting deadline.
6
J. MICHAEL CAREY City Clerk
FRANK T. MARTINEZ Executive Officer
When making inquiries relative to this matter refer to File No.
01-1289
JAMES K. HAHN MAYOR
Council and Public Services
Council File Information - (213) 978-1043 General Information - (213) 978-1133
Fax: (213) 978-1040
August 29, 2001 - - ~·n=iL 3
cl··. ·-' .••.
Honorable James Hahn, Mayor Councilmernber Zine Councilmernber Galanter All City Departments
RE: IMPLEMENTATION OF THE GOVERNMENTAL ACCOUNTING STANDARDS BOARD'S (GSAB) STATEMENT NO. 34 "BASIC FINANCIAL STATEMENTS AND MANAGEMENT'S DISCUSSION AND ANALYSIS - FOR STATE AND LOCAL GOVERNMENTS"
At the meeting of the Council held June 26, 2001, the following action was taken:
Attached report adopted ....................................... _____ _ Attached motion (Chick - Galanter) adopted ..................... ___ X~-- Attached resolution ( - ) adopted .............................. _____ _ Mayor concurred ................................................ _....;:8:;...-_2=-=4_-_;:0:_:1=--- FORTHWITH ..................................................... ·------ Ordinance adopted .............................................. ______ _ Ordinance number .............................................. . ------- Effective date ................................................. ______ _ Publication date ............................................... ______ _ Mayor approved ................................................. ______ _ Mayor vetoed ................................................... ______ _ Motion adopted to approve attached report recommendation(s) .... ______ _ Motion adopted to approve communication recommendation(s) ...... ______ _
City Clerk aff steno\011289
AN EQUAL EMPLOYMENT OPPORTUNITY - AFFIRMATIVE ACTION EMPLOYER
• Mayor's Time Stamp
CITY CLERK BY--.---,,.-..-~
BEPUTY MAYnF<
COUNCIL FILE NO. 01-1289 COUNCIL DISTRICT NO.
COUNCIL APPROVAL DATE ---','-JUN--=-==E'--=2~6~,--=2~0~0~1'---- '
RE: IMPLEMENTATION OF THE GOVERNMENTAL ACCOUNTING STANDARDS BOARD'S (GASB)
STATEMENT NO. 34 "BASIC FINANCIAL STATEMENTS AND MANAGEMENT'S
DISCUSSION AND ANALYSIS - FOR STATE AND LOCAL GOVERNMENTS"
AUG 2 4 20011 LAST DAY FOR MAYOR TO ACT (10 Day Charter requirement as per Charter Section 341)
DO NOT WRITE BELOW THIS LINE - FOR MAYOR OFFICE USE ONLY
*DISAPPROVED
r
Office of the
Room 615, City Hall Los Angeles, CA 90012
When making inquiries relative to this matter refer to File No.
Council File Information - (213) 485-5703 General Information - (213) 485-5705
Fax: (213) 847-0636
Honorable James Hahn, Mayor Councilmember Zine Councilmember Galanter All City Departments
RICHARD J. RIORDAN MAYOR
Of-.:PUTV
RE: IMPLEMENTATION OF THE GOVERNMENTAL ACCOUNTING STANDARDS BOARD'S (GASB) STATEMENT NO. 34 "BASIC FINANCIAL STATEMENTS AND MANAGEMENT'S DISCUSSION AND ANALYSIS - FOR STATE AND LOCAL GOVERNMENTS"
At the meeting of the Council held JUNE 26, 2001, the following action was taken:
Attached report adopted .................... . Attached motion (Chick - Galanter)adopted .. . Attached resolution ( - ) adopted ........... . Mayor concurred ............................. . FORTHWITH ................................... . Ordinance adopted .... . Ordinance number ..... . Effective date ....... . Publication date ..... . Mayor approved ....... . Mayor vetoed ......... .
City Clerk
AN EQUAL EMPLOYMENT OPPORTUNITY - AFFIRMATIVE ACTION EMPLOYER a.:z. Recyclable ar<J made from recycled waste. lf:J~
• .JUN l _9 Zoot TO CITY CLERK . PLACEMENT ON NEXT REGULAR COUNCIL AGENDA TO BE POSTED #61
MOTn100NN----------_:_:_:_:~~~~=-=j
The Governmental Accounting Standards Board (GASB) of the Financial Accounting Foundation is responsible for developing the governmental accounting and financial reporting standards of state and local governments that will result in the creation of information for users of financial reports.
---------ln-June-of-1·999,the-GASB-issued-Statement-Number-34.~Basic-Einancial ______ _ Statements - and Management's Discussion and Analysis - for State and Local Governments." GASB 34 establishes new financial reporting requirements for state and local governments. Once implemented, the GASB 34 reporting model will put financial managers in a better position to provide an objective and easily readable analysis of local government's financial performance, through the creation of an annual report that includes new government wide financial statements based on accrual accounting.
The new reporting model also reflects the importance of public infrastructure (e.g., highways, bridges, roads, sidewalks, street lights) as a component of government service delivery. Under the new model, governments will be required to report infrastructure assets at their historical cost.
With regard to reporting infrastructure assets, the GASB gives government decision makers the option of using: (1) the depreciation approach which reduces the historical cost of an asset by a specific rate each year, over the life of the asset, or, (2) the modified reporting approach that compares the current assessed condition of an asset (e.g., a road or a bridge) with the condition level previously established by decision makers.
Under the modified approach, decision makers would agree to a desired condition level for an asset, and then agree to provide annual funding to support the condition level. The proponents of GASB 34 argue that the "modified" approach to infrastructure reporting provides the citizenry~with valuable information about government service delivery, but either approach (standard depreciation or modified) is allowed.
Because the decision on how to report infrastructure (depreciation or modified) involves more than mere accounting policy, all of the City's policy makers should be a party to the decision. For example, under the modified approach, the condition assessment of existing infrastructure is tantamount to a service level assessment, and the commitment to maintain the infrastructure at a specific level involves an explicit service level decision. The decision to fund infrastructure (based on a desired condition or service level) represents a multi-year funding commitment. Consequently, the decision on how to report the City's infrastructure (depreciation or modified approach)
~
TO CITY CLERK F(8LACEMENT ON NEXT REGULAR COUNCIL'1eENDA TO BE POSTED #6 I
Charter Section 261 (b) provides that the City Controller shall prescribe the method of keeping all accounts of the offices, departments, boards of employees of the City in accordance with generally accepted accounting principles, except that any change of the system of accounting shall be first be authorized by the Council. In accordance with the City Charter, the Controller is coordinating the citywide effort to implement the new reporting requirements.
' "'
------infrastructure.and-disclose,Jn_its_financiaLstatements,_its_intentionJo_r:epor:t_using_either: _______ 1 the depreciation method or the modified approach. ·
GASS 34 applies to all City Departments including those controlling their own funds. In addition, because the financial statements of all departments ·must be combined into one set of City financial statements, it.is imperative that all City Departments actively work with the Controller to implement GASS 34, and prepare recommendations for the Mayor and Council's consideration.
I THEREFORE MOVE that, subject to the approval of the Mayor, the City Council instruct all non-proprietary City Departments to designate their Chief Accountant or other senior level staff member as the department's "GASS 34 Project Manager" responsible for: (1) identifying, valuing and reporting the department's capital assets including infrastructure, (2) recommending any required accounting policy changes to the City Controller and appropriate Board or Commission, (3) Identifying any required computer or other fixed asset tracking system changes, and (4) representing the department before the soon to be created "Financial Statement Advisory Group."
I FURTHER MOVE that, subject to the approval of the Mayor, the City Council instruct all City Departments to submit the name and contact information of their GASS 34 Project Manager to the Mayor with a copy to the City Controller, the Director of Finance and the Director of OARS no later than July 10, 2001.
I FURTHER MOVE that the City Council request that the City Controller convene .. a Financial Statement Advisory Group by July 24, 2001, for the purpose of reviewing and monitoring the City's progress toward the implementation of GASS 34, and submitting recommendations to the Mayor and City Council for consideration. The Advisory Group will be chaired by the Controller's Office and all City departments should be required to participate.
Presented By c£;1A/l LAURA CHICK Councilmember, 3Ro District
•
COUNCIL VOTE
26--d'un-0-1-1-0-:--35-:-30-AM-, #3-----------------------
Items for Which Public Hearings Have Not Been Held - Items 33-56 1
Voting on Item(s): 33,35-36,38-4le,4lg-4ln,4t'~4i,so-s6 Roll Call 43aJJ a.~
BERNSON Yes CHICK Yes FEUER Yes GARCETTI Yes HERNANDEZ Yes HOLDEN Yes - MISCIKOWSKI Yes PACHECO Yes PADILLA Yes RIDLEY-THOMAS Yes SVORINICH Yes WACHS Absent WALTERS Absent *GALANTER Yes
Absent Present: 12, Yes: 12 No: 0