The Capital Asset Renewal and Replacement Reserves Policy (the Policy) is designed to support proactive financial management for City-owned capital assets.  The City continuously faces multiple challenges dealing with limited resources and growing needs to preserve existing capital assets.  The Policy sets financial commitment and promotes responsible long-term planning to protect the public investment and achieve the assets’ intended useful life.

The Policy categorizes the City’s capital assets into six broad categories, and funding strategies are outlined for each category.

•  Roads (Arterial and Local) – funding sources for the repairs and replacement of the City’s Roads system include Measure M2, Gas Tax, Road Maintenance and Accountability Act fund, Traffic Mitigation fees, Community Development Block Grant, and the General Fund.  The City also established a Pavement Management Acceleration Program in Fiscal Year 201-22, to address the funding deficiencies accumulated in the past decade.  This program shall be reviewed annually during the budget process to evaluate and adjust funding level.

• Storm Drainage Facilities – funding sources for the repairs and replacement of the City’s Storm Drainage system include Gas Tax, Road Maintenance and Accountability Act fund, Drainage impact fees, Community Development Block Grant, and the General Fund.  Repairs and replacement projects are to be identified during the biennial budget process and included in the City’s five-year capital improvement program.

•  Buildings and Structures – currently there is no established funding mechanism for the repairs and replacement of building and facility related capital assets. The City’s Public Work’s Departments submits an estimate for each year’s repair needs for all building facilities as part of the department’s operating budget. This approach does not allow proper planning for preventative maintenance or scheduled replacements, and often times result in deferred maintenance and costly repairs.  The Policy creates a Building and Structures Rehabilitation Fund, an internal service fund which provides for the accumulation and distribution of funds for building and structure repairs and rehabilitation projects. Internal service charges will be determined during the budget process, based on funding needs, asset condition, and affordability.

•  Parks and Medians - funding sources for the repairs and replacement of the City’s Parks system include grants, development impact fees, Quimby fees, Community Development Block Grant, and the General Fund.

• Equipment and Vehicles - funding for the repairs and replacement of the City’s equipment and vehicles are collected through internal service charges to citywide department users. Amount of the charge is determined during the budget process, based on the allocation of vehicle expenses and replacement schedules.

•  Technology – the City’s Information System Fund (ISF), an internal service fund, is used to collect and pay for replacement and ongoing maintenance and operations of City-owned technology assets.

The application of funding sources for all asset categories shall be restricted first, such as development impact fees and grants, and unrestricted such as the General Fund last.

The Policy also discusses new infrastructure assets. Prior to acquiring or constructing a new capital asset, an estimate of the full cost to operate, maintain, and replace the asset through its life cycle is to be developed.

Additionally, the Policy outlines the allowable uses of the reserves, and calls out for periodic review and assessment of funding levels for each reserve.

Responsibilities to carry out the Policy are defined in the Policy, from the City Council to the City staff. Collaboration among all City departments is necessary to ensure the successful implementation of the Policy.

There is no financial impact to adopt the proposed Capital Asset Renewal and Replacement Reserves Policy.  The Policy calls out several action items to be implemented during the budget process which will require funding.  Staff will bring those items to the City Council and request for corresponding funding at that time.

It is recommended that the City Council:

• Adopt the attached resolution establishing the City of Garden Grove Capital Asset Renewal and Replacement Reserves Policy.