MEMORANDUM

To: Pete Sprague, Assembly President

Members, Kenai Borough Assembly

Thru: Dale Bagley, Mayor

From: Scott Holt, Finance Director

Date: April 8, 2004

Subject: Ordinance 2003-19-46, Appropriating $175,000 to Purchase a New Point of Sale System for the Kenai Peninsula Borough School District

The school district currently owns and operates a point of sale system, which is a combination of software and hardware used to record the daily participation of students in the KPBSD National School Lunch and Breakfast Programs. The point of sale system is used each school day by over 3,000 KPBSD students proceeding through school meal lines where the United States Department of Agriculture requires numerous activities relating to school lunches be recorded. This system is no longer being supported by either the software or hardware suppliers, and it is estimated a replacement system will cost approximately $175,000. Because of the budgetary limitations currently facing the school district, and the limitations of governmental accounting described below, the district would benefit if it could acquire a replacement point of sale system through the Equipment Replacement Internal Service Fund and spread the budgetary impact of the purchase over the expected useful life of five years of the system.

The borough currently operates an Equipment Replacement Internal Service Fund which provides capital for the timely purchase and replacement of borough vehicles and equipment. Ownership of all equipment purchased is retained by the fund, and the user departments pay an annual rental fee typically equal to the original cost of the equipment divided by the expected useful life. The fund provides its users the major benefit of eliminating budgetary spikes caused by governmental accounting standards requiring capital expenditures be recorded in the year the equipment is acquired rather than amortized over the equipment's useful life. Departments utilizing the fund can avoid this requirement and effectively spread the purchase price over the life of the equipment in the form of rent payments. This ability is especially helpful to organizations experiencing budgetary and or cash limitations.

The Assembly amended the Borough's Equipment Fund Replacement Policy by enacting Ordinance 2001-19-31 on March 12, 2002, allowing for school district participation in the fund. It was concluded the fund was capable of supporting limited participation of the school district without additional capitalization, and such participation would benefit the district.

The School Board at its April 5, 2004 meeting approved its FY2005 budget including funds to cover the annual payment for this request. The district has estimated the amount necessary to purchase the system at $175,000.

The attached ordinance, if approved, would appropriate supplemental funding of $175,000 to the Equipment Replacement Fund for the purchase of a replacement point of sale system. The borough administration recommends approval of the attached ordinance with the understanding the fund is currently capable of supporting continued limited participation by the school district.