Crossville Chronicle, Crossville, TN

April 2, 2013

City council to study alternate depreciation method for assets

By Heather Mullinix
Assistant editor

CROSSVILLE — The city of Crossville is beginning its budget development with two work sessions scheduled this week.

The council will meet today at 3 p.m. and Thursday at 2 p.m. at Crossville City Hall, 392 N. Main St.

Department heads for the city have prepared a "bare bones" budget, explained City Manager Bruce Wyatt. The council will need to make decisions regarding capital projects and purchases, salary increases and support of outside agencies, such as the Cumberland County Playhouse.

The council will also have to make a decision regarding a move to a modified approach for reporting infrastructure assets.

Fred Houston, finance director, explained depreciation was a significant expense, especially in the water and sewer budgets. Depreciation coupled with no projects involving grant funds in those projects could lead to the budget reflecting a loss, even with an increase in water and sewer rates.

"This year, our grants may be zero," Houston explained. "We're going to be looking at a loss on this if we continue to operate like we are. After three years of these losses, the state of Tennessee has created a utility management review board who just handles water rates and, whenever they see we've had a loss for three years, they get excited. They pulled Catoosa in one time and told them they had to increase their water rates 25 percent to get them out of a deficit situation. We don't want that situation."

Houston said depreciation costs for this year would be about $3 million.

"We've got a situation here where we can alleviate some of that depreciation and bring that bottom line back down to where we can afford to pay for it and not be in a situation where we're going to show a big loss," Houston said.

Houston estimates a modified approach to depreciation could save the city $1.4 million in depreciation costs using 25 to 30 pieces of equipment and assets that are within 10 years old. Those assets include items such as the dams at Meadow Park Lake and Holiday Hills, main water lines, water tanks and roads.

"The dam, you would depreciate that over 60 years, but it may last another 160 years. That's the type of asset I've chosen," he said.

In addition to approval by the council to make the accounting change, the city would be required to provide an inventory of all eligible infrastructure assets that includes historical cost, location, acquisition date and description and must document those assets are being preserved at or above a condition level established and disclosed by the government. A condition assessment would be needed to measure the condition of the assets and must be done by trained individuals every three years.

The city must also provide an estimate for the annual amount necessary to maintain the infrastructure assets at the condition level established by the city. Failure to maintain assets at the condition level established would invalidate the modified approach.

Additions and improvements to the assets would be capitalized as they increase the capacity or efficiency of the asset, rather than preserving the useful life of the asset.

Councilman Danny Wyatt said, "It sounds like a no-brainer."

Mayor J.H. Graham III said, "I've got a problem depreciating a dam that we built in 1938 and here it is 2013 and we've spent $4 or $5 million and it's liable to last another 100 years. These long-term projects that we've had all are in our long-term planning projects. We've planned for them for many, many years and now that we've brought them to fruition over the last 10 or 15 years, we've got a tremendous amount of depreciation and I'm not real sure that Fred can look me in the eye and tell me what the useful life of these things are, or any other accountant in this country."