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Capital repair/replacement fund promotes good budgeting The roof needs to be replaced next year . . . our current cost estimate/or replacement is $100,000. Sound familiar? Maybe it's not a roof, but one of your most important trucks, or a parking lot that has deteriorated or the pool needs major work. Regardless of what needs repair or replacement, we have all faced the question . . . where will the money come from to make these major repairs or replacements as they occur? How can we anticipate what will be next? How can we plan for the future repair or replacement of the major assets of the district? By Judith L. Zopp During the 1960s and 1970s, park districts underwent rapid expansion and facility growth. Referendums were generally approved. User fees and taxes were adequate to fund most programs or facilities, and the general quality and availability of recreational facilities improved. But during the late 70s and '80s, fewer tax increase propositions have been approved. The facilities and equipment which were once new are aging and the cost of maintenance and repairs is continuing to increase. Park commissioners and administrators are all concerned with skyrocketing repair and replacement costs, but little has been available as a guideline to address the problem adequately. Our district confronted this issue during the Board's discussion regarding a needed bond issue. Several major repairs, such as two large roofs and an old swimming pool, became areas of concern. The following methodology was used to establish a capital repair/replacement fund — a fund which is currently part of our annual budget: • Develop a policy with appropriate guidelines for the establishment of a capital repair/ replacement fund. • Determine specific asset categories which will be funded. • Inventory all assets into these categories. • Determine guidelines for the useful life of each asset. • Determine current replacement or repair costs for each asset category. • Apply the useful life and unit costs to each asset to develop a series of annual costs. • Place the cost of each asset into a 10-year schedule by category and facility. • Summarize the use of funds by category and facility to determine annual requirements. • Determine options available for funding sources and methods. • Balance income with annual cost requirements. • "Smooth out" the schedule over 10 years. • Review, rearrange, and upgrade costs on an annual basis. At first glance, this may seem like an ominous task. However, there are several long-term advantages of following this step-by-step procedure: • a very complete inventory of the major assets in the district; • cost guidelines which can be used from year to year in the budget development process; • an educated assessment of when future major repairs will be required; • the ability to schedule new capital equipment or additions into years in which repair or replacement costs are lowest; and • the ability to determine long-range income requirements from fees and taxes rather than merely meeting anticipated inflationary trends with operating expenses.
Illinois Parks and Recreation 20 July/August 1984
The first step, and perhaps the greatest hurdle to leap, is to develop a policy which can be adopted by the Board and which commits the district to the concept of establishing a regular budgetary method to provide for the costs of capital replacement and repair. The purpose of such a fund is to provide reserves for the systematic replacement or renovation of capital assets of the district having a useful life of more than two years and a repair or replacement cost of more than $4,000. The useful life and cost minimum can be varied at the discretion of any district. Other issues which should be addressed in the policy development are:
• Categories of assets
Once the general issues are established in the policy, the Board can review these guidelines with the overall purpose of making a commitment to the need for such a fund. The second step is to determine which categories of assets should be incorporated into the fund. The Glenview Park District considered five major categories:
• Vehicles and Machinery - All on-road vehicles, mowers, landscaping equipment and other major equipment such as the Zamboni, hoist and word processors. • Carpeting • Paved Surfaces/Tennis Courts - All parking and driveway areas for seal coating and resurfacing as well as tennis court color coating and resurfacing. • Mechanical Systems - Furnaces, air conditioning units, hot water heaters and equipment at the pools and ice center. • Roofs - All roofs except those in fieldhouses. After a list of categories has been established, the next step consists of developing a complete inventory (including the original date of purchase or last date of repair) for all of the assets listed under each category. This is perhaps the most time consuming step. Much will depend on the accuracy and accessibility of the district's records. Much of the information gathered during the inventory stage will be needed to apply guidelines for the next replacement year as well as unit cost information. Step four, developing guidelines for the useful life of each asset category, probably requires the most judgement in the process. Much of the determination can be based on past experience, the experience of other districts, or judgments by salesmen or contractors. General guidelines for various industries (such as roofing) and the expertise of various architects are also available. Acquiring current repair or replacement costs for each category (and subcategory) is the next step. These unit costs can be developed inhouse or with the help of trusted consultants or contractors used in the past. The sixth step is to take each listed asset and apply the required unit cost and useful life. At this point your inventory chart will resemble Figure 1. Steps seven and eight are really combined into one process. Take each asset and put it into an annual schedule with the categories at the top and the facility on left. Then total the annual requirements and summarize them on a ten year (or longer) schedule. At this phase the potential income sources can be addressed in detail since costs have been summarized on an annual basis. Each district will have to determine its own available funding sources. Some of the sources which were considered by the Glenview Park District's Capital Replacement Fund were taxes, interest income, the revenue facilities budget, fund reserves and contract installment. The Glenview Park District developed three major guidelines: • Maintain Minimum Cash Surpluses - Use a method which will avoid excessive "cash reserve" surpluses being accumulated to be spent in future years. • Maintain Level Income Sources -Develop a method which would provide for even annual contributions and income sources to be more readily budgeted. • Base Income Sources on the Ten-Year Expenditures by Fund - Annual contributions toward the level funding income from various divisions were based on the percentage of use. The final steps — updating unit costs and recalculating repair and replacement costs — are now repeated on an annual basis. It is also necessary to visually assess the assets scheduled to be repaired or replaced during the next two years. Both inflationary cost factors as well as changes in the amount of funding requirements will need to be addressed each year during the annual budgetary review. Illinois Parks and Recreation 21 July/August 1984
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