Town of Southwick, MA Capital and Debt Policies

Several separate but related policies are included herein: the Capital Budget Policy, the Debt Management Policy, and the Capital Asset Policy. These polities, when adopted, will be added to the Southwick Town Code but do not amend the Town's existing bylaws. The policies set forth herein will be utilized by the Town's existing boards and commissions, and will not cause to be created any new board, commission, or committee of the Town of Southwick.

(1)

The Capital Budget Policy establishes the methodology for including a program or project in the five-year Capital Plan.

(2)

The Debt Management Policy establishes the strategy for financing the Capital Plan.

(3)

The Capital Asset Policy establishes a guideline for capitalizing assets and estimating useful lives of those assets.

The Capital Policy serves as the comprehensive capital financing plan as a matter of Southwick Town Code and incorporates the approved Capital Plan. The Capital Policy establishes the general financing goals and the specific elements that comprise a long-range financing strategy.

The Chief Administrative Officer, Finance Committee, and Board of Selectmen, on a regular basis, shall conduct a review of the Capital Financing Policy and make necessary revisions contingent upon changes in external factors such as interest rates and legislation, and changes in internal factors including the level and mix of financing required over five years for capital expenditure appropriations.

§ 210-2 Policy goals.

The policy goals are to:

(1)

Establish written Town policies for capital financing.

(2)

Minimize the reliance on long-term debt.

(3)

Retain the Town's credit rating of Al and endeavor to pursue an upgrade with Moody's Investor's Service.

(4)

Continue to take advantage of permissible exclusion from federal restrictions on the issuance of tax-exempt debt.

(5)

Maintain flexibility in the mix of financing sources.

(6)

Maintain stability in the planning and execution of the Capital Plan.

(7)

Make Capital Plan program decisions consistent with identified financing sources.

Investment objectives should reflect the long-term nature of capital project financing.

§ 210-3 Capital Budget Policy.

The Town will develop and maintain a five-year Capital Plan for capital improvements which will be adopted annually by the Southwick Capital Expenditures Committee "CapCom" and recommended annually to the finance Committee and Board of Selectmen as the Capital Budget pursuant to Chapter 13 of the Southwick Town Code.

The Town will make all capital improvements in accordance with the Town's annually approved Capital Plan.

The Town will coordinate the development of the Capital Plan with the development of the annual operating budget. Future operating costs associated with new capital projects will be projected and included in operating budget forecasts.

The Town will maintain its assets at a level adequate to protect the Town's capital investment and minimize future maintenance and replacement costs.

The Town will identify the estimated cost and potential funding source for each capital project proposal before it is submitted to the appropriate body for approval.

The Chief Administrative Officer, Board of Selectmen, and Finance Committee, with input front the appropriate Board(s), Department(s), or Commission(s), will identify the potential financing method for each capital project.

The Chief Administrative Officer, Town Accountant, and the Treasurer/Collector will identify the optimum mix and financing sources for all capital projects, in conjunction with the adopted debt policy.

The Chief Administrative Officer, Board of Selectmen, and Finance Committee, with input from the appropriate Board(s), Department(s), or Commission(s) will monitor and manage capital project expenditures with all department managers for each project in the annual Capital Budget.

All capital projects should conform to the Town's Capital Planning Guidelines, as described herein.

§ 210-4 Debt Policy.

The Town will confine long-term borrowing to capital improvements or projects that cannot be financed with current revenues or from state or federal funds.

The Town will not fund current operations from the proceeds of borrowed funds.

Any capital project financed through the issuance of general obligation bonds shall be financed for a period commensurate with the useful life of the asset. Moreover, whenever possible, projects with an estimated cost of less than $100,000 shall not be financed with long-term debt.

The Town may use short-term financing in the form of Bond Anticipation Notes ("BANs") to provide temporary financing for capital projects. BANs will be retired either through cash reserves or through the issuance of long-term bonds as soon as market conditions permit.

The Town will adhere to the requirements of Rule 15c2-12(b)(5), promulgated by the Securities and Exchange Commission when issuing Bonds and will provide to any nationally recognized municipal securities repository, or "NRMSIR," annual financial information and operating data and timely notices of material events with respect to the bonds.

The Town will maintain an annual debt service appropriation equal to the level in the preceding year unless new large construction or mandated emergency projects are introduced within the five-year Capital Plan.

The Town will comply with and keep current with all federal regulations for tax-exempt bonds.

To qualify under IRS arbitrage rebate exemption provisions, the Town will not issue more than $10 million in debt in any calendar year of which not more than $5 million of the issue may be for non-school construction expenditures and will comply with the two-year expenditure schedules.

The Town will comply with federal reimbursement regulations for tax-exempt bond proceeds used to reimburse capital expenditures by:

(1)

Declaring reasonable intent in authorizing ordinances;

(2)

Issuing bonds within one year after the expenditure was paid or project was put into service; and

(3)

By qualifying expenditures as capital expenditures under general income tat principles.

The Town will endeavor to comply with the median debt ratios used by investors (underwriters) and credit analysts when reviewing the Town's creditworthiness. The matrix below contains ratios that the Town will endeavor to adhere to:

Fiscal Indicators	Guideline	FY 2002 Actuals
Debt service as a percentage of budget	10.0%	9.57%
Percent of debt retired in 10 years	50.0%	47.6%
Debt as a percentage of equalized value	1.5%	0.2%

The Town will plan and schedule bond sales to obtain a true interest cost (TIC) at or below the published bond yield averages for debt of similar credit quality (Moody's A1 ratings).

§ 210-5 Capital Planning guidelines.

Objective: The objective of these guidelines shall be to develop a set of guidelines to be used by the Capital Expenditures Committee in evaluating and proposing projects for inclusion in the Town's capital budget.

Definition of capital projects:

(1)

Any project, to be included in the Town's Capital Plan, should fall into one of the following three program categories:

(a)

Any new or expanded physical facility, including preliminary design and related professional services.

(b)

Land or property/equipment acquisition.

(c)

Items of a non-recurring nature where the benefits are realized over a long period of time.

(2)

A project should also exhibit the following characteristics to be included in the Capital Plan:

(a)

Life expectancy: The project's outcome, non-recurring in nature, should have a useful life of greater than three years.

(b)

Cost: Cost should be a relatively high, non-operative expenditure for the Town; in excess of $25,000 for equipment or plant facility improvements.

Quantifying and ranking of capital projects:

(1)

The Capital Expenditures Committee shall review all capital project submittals and weight them accordingly based on the criteria listed below.

	Criteria	Weighted Points
	The project is mandated by state or federal statute or approved through a referendum.	0 to 20
	The project ensures code compliance and/or improves public health and safety in Town.	0 to 20
	The project meets a critical infrastructure need identified by the Chief Elected Official and Finance Committee.	0 to 20
	The project can be definitively shown by an appropriate Town official to improve program effectiveness and efficiency.	0 to 15
	The project can be definitively shown by an appropriate Town official to reduce operating and maintenance costs.	0 to 15
	If implemented, the project will enhance community values and improve the Town's quality of life.	0 to 10
	Maximum Possible Score	100 Points

(2)

Department heads submitting capital projects for funding consideration are encouraged to rank these projects based on the above weighting schedules. This will demonstrate to the Capital Expenditures Committee that some background work was undertaken to substantiate the validity of the project request.

Disqualified projects: The Capital Expenditures Committee will disqualify capital project submittals that do not conform to the above-stated criteria. Examples of ineligible projects include, but are not limited to, the following:

(1)

Maintenance projects such as painting, mechanical repairs, building repairs, and other peripheral projects that are neither long-term in their nature nor non-recurring. (Examples: painting projects, grounds maintenance, furniture repairs, etc.)

(2)

Non-Tangible Projects, including special consulting studies which, as an end-product, may recommend the development and implementation of certain capital projects, but in themselves are not capital projects. (Examples: space utilization reports, planning studies, engineering services, etc.)

§ 210-6 Capital asset policy.

The purpose of the Capital Asset Policy is to comply with GASB #34 statement requirements which provide for capitalizing assets and estimating useful lives of those assets. The statement requires that the Town disclose major classes of assets, beginning and end of year balances, asset acquisitions, sales and dispositions of assets, and current depreciation expense.

Capital assets are defined as:

Land.

Land improvements.

Easements.

Buildings.

Building improvements.

(6)

Vehicles.

(7)

Machinery and equipment.

(8)

Works of art.

(9)

Infrastructure.

(10)

All other tangible and intangible assets.

For financial reporting purposes, a capital asset item must be at or above the capitalization threshold and therefore have an historical cost of $5,000 or more and have a useful life of greater than one year. A total purchase for an amount greater than the threshold, which consists of multiple items, each below the threshold, will not be capitalized. Improvements and additions must be significant in terms of increased capacity of efficiency. The capitalization threshold for building improvements and additions must be in an amount equal to or greater than $25,000. Infrastructure improvements and additions shall have a threshold greater than $50,000, except for storm drains and water lines, which should be greater than $25,000.

Capital assets must be reported using historical costs including capitalized interest and ancillary charges (freight and transportation charges, site preparation, and professional fees) necessary to place the asset into its intended location and condition for use. Donated assets should be reported at estimated fair value at the time of acquisition.

Infrastructure assets are long-lived capital assets that are stationary in nature and normally preserved for a significantly greater number of years than most capital assets. Examples of infrastructure assets include:

Roads.

Bridges.

Dams.

Drainage systems.

Water and sewer systems.

Resurfacing a road is considered to be road maintenance. In order to be capitalized, an improvement must expand capacity. An example would be changing a one-lane road to a two-lane road or adding a turning lane.

Depreciable lives should be based on actual expected use by the Town, and not by tax lives. An attempt should be made to set depreciable lives to coincide with the Town's capital replacement program. Capital assets have estimated useful lives extending beyond one year and are depreciated using the straight-line method. Depreciable lives for different classes of vehicles and equipment shall be based on recommendations by appropriate department heads.

Standard useful lives include:

	Asset	Standard Useful Life (years)
	Land	Nondepreciable
	Land Improvements	20 to 30
	Roads	30 to 50
	Sewer lines and water lines	50
	Bridges/large culverts	30 to 50
	Dams	50
	Buildings	50 to 75
	Fire equipment	20 to 25
	Ambulances	5
	Vehicles (autos/light trucks/heavy trucks)	7 to 15
	Machinery and equipment	3 to 10
	Construction equipment	15 to 30
	Computer equipment	5

The Chief Administrative Officer and Town Accountant will ensure that the capital asset report will be updated annually to reflect improvements, additions, retirements, and transfers, and to reflect new, annual capital asset balances for financial reporting purposes.

Day-to-day stewardship of personal property above the capitalization thresholds is the expressed responsibility of the operating department utilizing the property.

Regarding maintenance of the capital asset accounting report, the operating departments have the responsibility to report improvements, additions, retirements, and transfers in detail to the Town Accountant. This detail is to be captured on the Fixed Asset Addition/Deletion data entry forms attached to this policy.[1]

[1]

Editor's Note: The Fixed Asset Addition Data Entry Form and the Fixed Asset Deletion Data Entry Form are included at the end of this chapter.

Assets below the capitalization thresholds, but considered sensitive, may include radios, personal computers, lap-top computers, printers, fax machines, and small power tools. These items shall be inventoried and controlled at the department level.