Town faces looming challenge to fund depreciation of assets

The Town of Olds will be grappling with how to fund depreciation of the town's assets in future years.

The item was highlighted during a policies and priorities committee meeting on Nov. 21 in which Terryl Allen, the town's director of corporate services, presented councillors with a first look at the 2012 budget.

Allen estimates that to fully fund the depreciation of town assets, it would cost in the range of $2 million for 2012, including $722,000 for utility assets and $1.2 million for all other town-owned assets. To fully fund depreciation of utility assets, Allen calculated the base rates on each of the 3,365 accounts would need to increase by $8.44 per month to $17.98 for water and wastewater while the billed amount would need to increase by $.35 per cubic metre to $2.66 per cubic metre for water and $1.83 per cubic metre for wastewater, or some combination of base rate and use.

Depreciation of non-utility assets would be funded through municipal taxes. Allen calculated that to fully fund non-utility depreciating assets, municipal taxes would need to increase 18.25 per cent in 2012.

Administration isn't proposing to fund depreciation for 2012, meaning there wouldn't be a tax increase.

“We have presented to (councillors) some challenges in the fact that depreciation has not been funded yet. …It is something significant that we've got to start building it into the budget. By budgeting it, we are starting to recognize the fact that we have to put away reserves for future replacement,” Allen said.

Mayor Judy Dahl said the town is working on the issue and will begin to fund depreciation at some level in the not-too-distant future.

“We're proactive and working on this before we get clamped on by auditors and the provincial and federal governments,” she said, noting that administration has not requested funding it to 100 per cent at this point.

As of 2009 the town was mandated through the Public Sector Accounting Board, which regulates how governments report financial information, to show depreciation in its financial statements. While it has done that, council has yet to address how to fund depreciation each year, which would allow the town to build reserves to replace assets.