City assets have depreciated by $91 million

Bruce Walkinshaw - Penticton Western News Published: May 25, 2010 6:00 PM

And the Chartered Accountants Association of Canada wants you to know that in Penticton as of Dec. 31, 2009 the steady hand of time has decayed the city’s assets by roughly $91 million. Would you like to pay for that now or later? The answer is probably closer to some of it now but most of it later, according to Penticton’s treasurer Doug Leahy. The $91 million figure, he said, calculated by independent auditors, is really just the estimated overall cost of the depreciation of all of the assets the city owns: everything from facilities, vehicles and equipment to road, water, sewer and power infrastructure. Basically, if all the city’s assets were a really big car (we’ll let council speculate on which brand) that cost taxpayers $379 million then $91 million is the amount of money the car has lost in value since the city drove it off the lot. In years to come, the auditors estimate, the car (or city assets) will depreciate about $10 million in value annually.

Despite spending money on new rims or a paint job, you can’t magically make a car return to being brand new. So, what most people do is spend some money servicing their car to get the most useful life out of it and then when it is time to get another car, they buy one either by using money they have saved up or by borrowing money. Currently, Leahy said, the city utilizes both kinds of purchasing strategies when it comes to replacing assets it can’t afford to buy outright. “That is what our equipment replacement fund is for,” he said. “It is really a depreciation fund.” If staff determined that a item is going to last 12 years, Leahy explained, then the city divides the cost of replacing the item by 12 years, making sure to put that amount of money into the replacement fund every year. The city, he said, does not do this for large items, like facilities, because it would cost lots of money. Take the community centre, for instance. Government, of all levels, is currently spending over $23 million to renovate the building, which should have a useful life of about 20 to 30 years. That means that if Penticton wants to keep the new centre from adding to the $91 million depreciation figure, council would have to sock away about another $1 million a year, beyond what it will spend on capital and operating costs. Basically, today’s taxpayer would have to pay for the building twice.

The good news, however, is that the issue isn’t really an issue at all, said Leahy, because council can decide to recognize and then essentially ignore its annual depreciation estimates, as long as it simply reports them. The only reason the city’s auditors had to calculate the depreciation estimate is because provincial government made them after the accountants association pointed out that private-sector companies were doing it while municipalities were not. But private-companies were only doing it because they could save money on their income taxes by writing off the depreciation. And municipalities do not pay income taxes.