AgdaPkt 2017-01-23 Closed and Joint

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-32- control, accountability or other purposes. Revenues are fully accrued to include unbilled services at fiscal year end. The City uses the accrual basis of accounting for its “proprietary funds,” including the City’s water enterprise fund. Revenues are recognized when earned and expenses are recognized when the related liabilities are incurred. All assets and liabilities for these funds are included on the balance sheet with this measurement focus. Fund equity (i.e., net total assets) is segregated into restricted, unrestricted and net investment in capital assets. See APPENDIX B—COMPREHENSIVE ANNUAL FINANCIAL REPORT OF THE CITY FOR THE FISCAL YEAR ENDED JUNE 30, 2016 for a more complete summary of the City’s accounting policies. Outstanding Enterprise Obligations Following issuance of the Bonds and the redemption of the 2007 Bonds, the obligations of the City secured by Net Revenues will be the 2017 Installment Purchase Contract, the 2015 Installment Purchase Contract and the 2013 Installment Purchase Contract. Capitalization Policy Generally, capital assets are major assets that have initial useful lives extending beyond a single reporting fiscal period. The cost criterion used to determine whether a given asset should be capitalized and included in the balance sheet is known as the “capitalization threshold.” If the cost of the asset equals or exceeds this threshold, then that amount is included in the balance sheet, or capitalized. The City's current threshold for each individual general capital asset is $5,000 for equipment with an initial useful life of 2 years or greater and $100,000 for all other general capital assets with an initial useful life of 20 years or greater. The threshold for infrastructure is $100,000 for assets with a useful life of 20 years or greater. Costs are capitalized only if they are directly identifiable with a specific asset. Thus, the cost of a study undertaken to determine water system improvements for a specific area would not be capitalized. Neither would the cost of training employees on new capital assets. Improvements to capital assets that provide additional value, such as lengthening a capital asset's estimated useful life, or increasing a capital asset's ability to provide service, such as greater effectiveness or efficiency or increasing water pumping capacity, would be capitalized, but only if the cost of the improvement met or exceeded the capitalization threshold. Repairs and maintenance costs, which are costs incurred to retain the value of a capital asset, rather than provide additional value, are not capitalized. Repairs and maintenance costs are generally recognized as those expenses necessary to keep an asset in its intended operational condition and which do not materially provide additional value to the asset. The City accounts for annual water enterprise expenses in the separate funds into which expenses were appropriated, which include a bond-funded projects fund, a capital project fund (funded from operations) and an operating fund. Capital additions and replacements are appropriated to the capital project fund, as are certain other expenses not strictly necessary for the operation of the enterprise. Capital expenses in each fund that do not meet the capitalization threshold, as well as all water conservation program expenses, capital planning expenses and meter replacement expenses, are treated as operating expenses and are shown as maintenance and operating expenses in the City’s Comprehensive Annual Financial Report (“CAFR”). It had been the City’s policy to subtract discretionary non-capitalized capital fund expenses, along with depreciation and amortization, from its CAFR-reported maintenance and operating expenses when calculating the debt service coverage ratio of the water enterprise 8.C. - Page 57