New accounting creates “distorted” county surplus

A change to the way municipalities report the value of their capital assets is leaving Ponoka County councillors shaking their heads and wondering how they’ll explain an $8.8-million “surplus” to their ratepayers.

  • Mar. 16, 2010 3:00 p.m.

By George Brown

A change to the way municipalities report the value of their capital assets is leaving Ponoka County councillors shaking their heads and wondering how they’ll explain an $8.8-million “surplus” to their ratepayers.

That surplus doesn’t really exist; it’s a “distortion” of the true year-end financial picture created by the switch to the implementation of the capitalization of tangible capital assets policy, explained accountant Tim Rowland.

The county ended 2009 with a real surplus of $1.3 million.

“Boy have we got changes this year,” Rowland told council recently.

Capital assets such as land, buildings, heavy equipment and roads are posted as assets on the balance sheet of municipalities and depreciated.

At the insistence of the provincial government, municipalities no longer deduct the full cost of a road project in the current year when the money is spent. Rowland said municipalities now must amortize the deduction as an expense annually over the expected useful life of a new road.

Engineered structures such as roads, bridges and water systems are amortized over 40 or 50 years, vehicles five to 10 years, buildings, 25 to 50 years. “It really stretches out the length of the write-off,” Rowland said, creating an “artificial surplus.” The money’s been spent to build a new road, for example, but it’s still showing on the books for the next 50 years.

The value of Ponoka County’s tangible capital assets is nearly $52 million.

CAO Charlie Cutforth told council a “tangible capital asset” should be considered something that is marketable, saleable. “You want to buy the road that runs in front of my place, that we don’t own?

Roads belong to the Crown, even though municipalities build and maintain them. Ponoka County roads are valued at $40 million.

“Maybe we should advertise them and sell them off,” joked deputy reeve Gawney Hinkley. “How do you tell a taxpayer you don’t have $40 million when it is shown there on the books — but it’s in the road that runs past his place? They’re not going to buy that.”

Coun. Paul McLauchlin said the policy change “adds a layer of complexity” to the county’s financial statements that could be misleading to taxpayers. He wondered if the change is driven by the provincial government as a way to inflate the value of Alberta’s assets when it needs to borrow on the world market.

Rowland explained even though the county has total assts valued at $53.8 million, council couldn’t borrow against the value of its roads and bridges. Its borrowing limit is $26.7 million, with an annual debt servicing limit of $4.5 million.

Councillors agreed to transfer the $1.3-million surplus into reserve, or what is called a restricted surplus. The county has about $7.5 million is designated reserves for future projects and aims to build up those reserves to equal one year’s tax levy.

Property owners were levied just over $16 million in municipal taxes last year.

“My biggest concern is we’re not misleading the public by showing a deficit in order to have any reserves,” said Cutforth. “That doesn’t make any sense.”

County ratepayers paid their five councillors a total of $157,854 in 2009. Salaries, wages and benefits for all county staff totaled $3.5 million, up from $3.2 million in 2008.