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HomeMy WebLinkAboutFIN-20-046 - 2020 Capital Project Deferrals and ClosuresREPORT TO:Council DATE OF MEETING:June 22, 2020 SUBMITTED BY:Ryan Hagey, Director of Financial Planning, 519-741-2200 x 7353 PREPARED BY:Ryan Hagey, Director of Financial Planning, 519-741-2200 x 7353 WARD (S) INVOLVED:All DATE OF REPORT:June9, 2020 REPORT NO.:FIN-20-046 SUBJECT:2020Capital Project Deferrals & Closures ___________________________________________________________________________ RECOMMENDATION: Thatspending on the capital projects in the amounts outlined in Appendix A,column D to report FIN-20-46 be deferred until 2021in order to improve the position; and further That the balances in the capital projects outlined in Appendix A, column E to report FIN- 20-46 be closed out to the Tax Stabilization reserve fund in order to provide additional funding to mitigate projected tax-supported operating deficits in 2020 and beyond. BACKGROUND: COVID-19 is a global pandemic that has already had significant impacts on individuals and organizations. The City of Kitchener is not immune to these impacts and has seen the cancellation of programs, closure of facilities, and changes in the way staff work. These 1.Cash Flow The City is projecting to run very low on cash at different points throughout the year, meaning it may need to borrow funds to pay bills when they come due 2.Projected Deficits The City is projecting to fall short of the 2020 budget and will need to draw funds from reserves at the end of the year to balance its books. Cash Flow As noted in a previous report to Council (report DSD-20-067), the City has projectedlower than normalcash balances across all of 2020, with some approaching orbelowits typical comfort level of $20M.The concern is that if cash balances become negative, the City will need to borrow to pay bills as they come due throughout the year. Projected Deficits The most recent variance projection for the City shows a $5.6M deficit for tax supported services, with additional deficits in City enterprises likeBuilding, Golf, Parking, Storm Sewer, and Natural Gas Delivery. If these deficits materialize at the end of the year, reserves (funds saved up in prior years) will need to be used to pay off the deficit. In manycases the appropriate reserves have large enough balances to fund the projected deficits, but it removes *** This information is available in accessible formats upon request. *** Please call 519-741-2345 or TTY 1-866-969-9994 for assistance. 9 - 1 the City currently has and puts the City at higher risk of tax/user rate increases in future years, or decreases in service levels. To help alleviate these issues, the City has taken measures to curb spending within the operating budget that covers day-to-day costs. This report recommends deferrals of some 2020 capital report also recommends cancellations of other 2020 tax supported capital projects with the intention of moving these tax supported funds to the Tax Stabilization reserve fund in order to fund any deficit realized in 2020. REPORT: Due tothe financial pressures associated withCOVID-19, staff undertook a review of 2020 capital projects with the goal of deferring or cancelling projects where possible. Many large dollar projects(e.g. full road reconstructions, City Hall Outdoor Spaces)for 2020 were already underwayand were not able to be considered. After careful review, staff were able to find $21M of project deferrals and $1.3M of project closeouts. The projects are detailed in Appendix A to this report and are broken down between large projects (over $200,000) and small projects (under $200,000). In addition to the financial considerations associated with deferring or cancelling some 2020 capital projects, staff also considered the ability to effectively deliver on these projects in 2020 and beyond based on available staffing resources. Given the redeployment of staff to support critical services, the capacity to deliver on capital projects based on original timelines has been impacted. Based on the resources available to deliver projects, divisions assessed whether it made sense to defer projects to 2021, or close out projects and reconsider them against other priority projects in the capital forecast. Even if the projects outlined in appendix A were not identified to be deferred, it is unlikely based on current staff resource constraints that theycould be accomplished this year, further supporting their deferral until 2021. ALIGNMENT WITH CITY OF KITCHENER STRATEGIC PLAN: The recommendation of this report supports the achievement of the city's strategic vision through the delivery of core service. FINANCIAL IMPLICATIONS: Cash Flow and Project Deferrals By deferring projects, $21M in spending would be put position and easing the 2020 concern about cash flow. It also means that the funding for these financial situation atthat time. The cash flow projection in the graph below (yellow line) shows somewhat low balances of $30M expected in both June and August, with a concerning balance of only $10M expected in December. Deferring capital projects as recommended in this report, regardless of funding 9 - 2 source, would improve the cash flow projection by $21M. In other words, the yellow line would go up by $21M by December. Projected Deficits and Project Cancelations The most recent financial impact report provided to Councilat the beginning of June highlighted that the City is projecting a deficit of $5.6M in 2020 for tax-supported operations. The impact of this projected deficit on applicable stabilization reserve funds is shown below. It is anticipated that without financial support from other levels of government, the tax stabilization reserve will be exceeded based on the current projection. ReservesCurrent BalanceProjected Balance Tax Stabilization Reserve$4,483,898($171,102) Investment Stabilization Reserve$1,766,423$766,423 Cancelled capital projects would normally have their funding closed out to the appropriate capital reserve.Because of the sizeable operating deficit projected for 2020, staff are seeking approval to instead close out the funding to the Tax Stabilization reserve, which would be used to fund the operating deficit at the end of the year. The recommended closeouts of $1.3M would provide sufficient funding to cover the current projected Tax Stabilization reserve shortfall, leaving a balance of $1.1M to addressadditional impacts if the projected deficit increases. Having a positive balance in the Tax Stabilization reserve at the end of the year would also be beneficial as it is expected that there will be additional financial pressures that the City will be facing as part of the 2021 budget process. COMMUNITY ENGAGEMENT: INFORM council / committee meeting. ACKNOWLEDGED BY: Jonathan Lautenbach, Chief Financial Officer, Financial Services 9 - 3 9 - 4 9 - 5