MEMORANDUM

Kenai Peninsula Borough

Finance Department

TO: Pete Sprague, Assembly President

Members of the Kenai Peninsula Borough Assembly

THRU: Dale Bagley, Borough Mayor

FROM: Scott Holt, Finance Director

DATE: August 5, 2004

SUBJECT: Ordinance 2004-19-07 Authorizing a Supplemental Appropriation of $28,000 to purchase a vehicle for use by the Planning Department.

The borough currently operates an Equipment Replacement Internal Service Fund to provide capital for the timely purchase and replacement of borough vehicles and equipment on behalf of general government departments. 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 allows users to eliminate budgetary spikes caused by governmental accounting standards that require capital expenditures to be recorded in the year the equipment is acquired rather than amortized over the equipment's useful life. By using the fund, departments can avoid this requirement and effectively spread the purchase price out over the life of the equipment in the form of rent payments.

The Planning Department currently owns and operates a 1991 Chevrolet Pickup, which is well beyond its expected useful life. The estimated cost to replace the 1991 Chevrolet Pickup with another vehicle is $28,000. Because of the budgetary limitations described above, the Planning Department would benefit if it could acquire a replacement vehicle through the Equipment Replacement Fund and spread the budgetary impact of the purchase over the vehicle's expected useful life of seven (7) years or $4,000 annually.

If approved, the attached ordinance would appropriate supplemental funding of $28,000 for the Equipment Replacement Fund for the purchase a new replacement vehicle. Sufficient fund balance is available within the Equipment Replacement Fund to support this action. The borough administration recommends approval of the attached ordinance.