The Sound Financial Plan

Changes to the Public Service Accounting Board (PSAB) standards, which took effect January 1, 2009, provide for consistent financial reporting across all Canadian municipalities. Full depreciation accounting will require local governments to account for capital assets, such as roads, bridges, sewage treatment facilities and buildings. Traditionally, local government financial statements have focused on annual surplus or deficit, whereas the new reporting standards provide for key indicators, such as net debt, operation costs and the sources and uses of its cash resource.

The PSAB requirements will provide a fuller and more accurate picture of the fiscal health of local governments.  While fully accounting for all assets and depreciating them at the acquisition cost will not meet replacement costs, this information is a baseline for capital asset management. Knowing what assets you have, expected service life and the replacement cost should enable local governments to balance short-term financial planning  with long-term fiscal goals.  

Adequate capital funding envelopes, not only for replacement, but maintenance and repair, are necessary to ensure the full life cycle of an asset is achieved. Much like any household budget, a local government should review its full range of expenditures - new and immediate needs through to long-term capital asset expenditures in comparison to its revenues.  This will lead to a balanced and sound financial plan.