This perhaps naive proposal was published at the Cafe on April 5th 2006. This is, of course, what the Woodstock Fire Department is doing with their capital improvement fund; and this makes sense to Ron, me, and in some other parts of the world. In a comment below, ‘JEB’ says that this is standard practice for private companies; but this practice is not limited to private for-profit companies. It’s also practiced by every college and university in the United States that receives Federal funding. The Feds not only fund the direct costs for research; within the same grants they fund “indirect costs” calculated by certain standards. A major fraction of indirect costs is based on depreciation of fixed assets (like buses, furnaces, and Donald Kennedy’s sailboat (while he was Chancellor at Stanford Univ.).
In examining the budget (in 2006) I saw no method of accounting for the depreciation of fixed assets in either the Town or Education Budgets. Nevertheless, there were many line items that cover the cost of significant fixed assets. I am not an accountant, but I am familiar with non-profit budgeting on a similar scale to the Woodstock K-8 school system. In my experience, depreciation of fixed assets is an annual part and line item in developing the budget. In non-profit institutions like colleges and universities, income is needed, annually collected, and stored in dedicated funds to ultimately replace fixed assets after they become obsolete.
Take the salt facility which needed to be replaced, for which there were apparently no funds in the Town treasury (this clearly was the reason why no Selectman would deal with it until the town had no choice). After this facility was built, its value should have been depreciated according to standard guidelines and taxes should have been collected annually (for something like a 20-30 year lifespan) to account for its diminished value. Then, at the end of the lifetime of the salt facility, money in the ‘salt facility fund’ would have been available to replace this facility.
The costs of all fixed assets, such as property and equipment, should be recognized through depreciation over the life of the asset and taxes should be collected to cover the dollar amount of depreciation each year. The proportion of taxes collected specifically for depreciation of each type of fixed asset should be placed in a fund dedicated to each specific asset. These funds should be invested, monitored, and reported monthly at Board meetings (BOS, BOE, and BOF) in order to provide for the proper vigilance and transparency on behalf of the taxpayers. Read the rest of this entry »