This week Chuck tackels a complicated topic -- special assessments -- and explains why they are likely to become used less and less in the coming years.
Assessments (67 MB)
Strong Towns Network
Small as well as large towns are now being taken over by corporations. Just like Roseville, MN has been. They had to hire a city manager who knows little about our town to subdue the residents of Roseville into accepting the fact that we now have few rights and will have to give into the controlling interest who are now taking our town over. If we do not join together, they will take all or rights away from us and put greed over the rights of all our people.
As an accountant, I found this podcast fascinating. I think the confusion about your analysis comes from what is a maintenance expenditure and what is a capital expenditure.
A capital expenditure is expensed over time and reduces the book value of an asset. For a house, this would mean the value would decrease over the life-cycle of a road or sewer project. This does not typically (or ever) happen.
A maintenance project is expensed immediately. It does not increase the value of an asset, only keeps it in working order. According to GAAP (General Accepted Accounting Principals), maintenance projects can increase the book value of an asset, if it increases its useful life. However, this can only happen if the asset value is depreciated (like a capital expenditure). If it does not depreciate, the asset would increase in book value without accounting for wear and tear. In other words, after three sewer replacement projects, you would have three sewer assets on the books (instead on one).
So here is the problem: Communities account for these projects as both a maintenance and capital expenditure. A local government operates as though a project is a capital expenditure. In other words, it argues the project increases the value of a home. This does not happen. The local assessor doesn’t depreciate the book value of the building or the land to correspond with deteriorating infrastructure.
In reality, the market considers it a maintenance expenditure, since it does not account for the expense of the asset over its life.