HomeMy WebLinkAboutFIN-20-062 - COVID Financial Impacts - Request for Phase 2 Safe Restart FundingREPORT TO:Council
DATE OF MEETING:October 26, 2020
SUBMITTED BY:Jonathan Lautenbach, Chief Financial Officer, 519-741-2200x7334
PREPARED BY:Jonathan Lautenbach, Chief Financial Officer, 519-741-2200x7334
WARD (S) INVOLVED:All
DATE OF REPORT:October 21, 2020
REPORT NO.:FIN-20-062
SUBJECT:COVID Financial Impacts -Request for Phase 2 Safe Restart Funding
_________________________________________________________________________________________
RECOMMENDATION:
That the significant financial impactsof the COVID-
position as outlined in report FIN-20-062be acknowledged; and
That the proposed allocation of Phase 1 Safe Restart fundingbe approved; and further
That arequestfor $5.8M in additional Phase 2 Safe Restart funding,to help cover 2020
operating pressures and impacts not fully addressed throughtheinitial funding received,
be supported and submittedto the Provinceas a formal request for funding.
BACKGROUND:
The COVID-19 pandemic is an unprecedented global event. In addition to the immediate
health concerns that it represents for Canada and the world, it has, and will continuetohave
wide-reaching economic impacts. We know that the spread of COVID-19 is
creating financial challenges for many people and businesses in our community,and the City
is also facing its own set of challenges related to this event.
Since the beginning of the pandemic, Council has been provided with monthly updates
outlining the financial operating pressures and impacts that this
COVID-19 webpage(kitchener.ca/COVID19)and provide additional context and background
related to the current financial challenges the City is experiencing. Shortfalls in recreation
revenue, parking revenue, and investment income were all highlighted as significant drivers of
projected operating deficits,along with increased costs to deliver municipal services due to
COVID-19.
Based on th-end projections for 2020, COVID-19 has had the following direct
impacts on municipal operations:
*** This information is available in accessible formats upon request. ***
Please call 519-741-2345 or TTY 1-866-969-9994 for assistance.
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Municipal OperationsDirect Impacts
Tax-SupportedOperations$ 7,172,000
ParkingOperations$ 2,852,000
GolfOperations$ 619,000
Utilities$ 1,119,000
Total$ 11,762,000
These net impacts of $11.7M would have been much greater had the City not taken action to
try and mitigate some of the financial challenges created by COVID-
emergency leave, redeploying staff to support critical services, and putting a freeze on
discretionary spending.
In addition to measures that the City had taken on its own, the Province announced in August
that it would be providing Phase 1 operating funding to municipalities through the Federal Safe
Restart Agreement. This initial funding was welcomed news for municipalities and provided
Kitchener with a funding allocation of $5.9M. Although this funding will be helpful in addressing
some of the operating pressures and impacts experienced as a result of COVID-19, it still
leaves the City with a $5.8M shortfall in funding based on current projections.
There is an opportunity to request additional Safe Restart funding from the Province through a
Phase 2 application-based process. It is hoped that the Province will provide funding to cover
s,as we know that the City will face similar operating pressures in
2021. Without this additional funding, the City would need to fully utilize reserves to offset
these pressuresand doing so wouldonly create greater financial challenges for the City next
year.
REPORT:
The financial challenges that City is experiencing as a result of COVID-19 have been well
documented, with regular updates being shared with Council and the public through monthly
COVID-19 financial impact reports. As we move closer to the end of the year, this formal report
recommends anapproach for allocating Phase 1 Safe Restart funding based on these
impacts, and is intended to satisfy the requirements outlined by the Province related to
requesting additional Safe Restart funding under Phase 2.
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th
On August 12, the Province announced that the $1.39B in Safe Restart funding would be
made available to municipalities to help address operating pressures and impacts experienced
as a result of the pandemic. This funding would be distributed in two phases, with the first
$695M of funding being distributed on a per household basis under P
funding allocation under this initial phase was $5.9M.
It was also announced that an additional $695M would be allocated as part of a second phase
based on need. Municipalities would be required to demonstrate that 2020 COVID-19
operating costs and pressures exceed their Phase 1 per household allocation in order to
receive funding. Municipalities applying for Phase 2 funding must provide the Province with the
following information before October 30, 2020
A year-end forecast of COVID-19 operating costs and pressures;
Actual COVID-related impacts as of the end of Q3 of the municipal fiscal year
(September 30, 2020);
Explanation of how the municipality applied or plans to spend Phase 1 funding towards
COVID-19 operating costs and pressures;
Information about measures the municipality has undertaken to reduce financial
pressures (e.g. use of reserves, cost saving measures);
additional funding
The balance of the report is structured based on the information that the Province has
requested be provided to demonstrate that additional funding is needed for Kitchener.
2020 Operating Variance Projections
Operating variance reports are normally provided to Council three times per year. The
financial challenges created by the COVID-19 pandemic haverequired staff to provide more
regular reporting through the monthly updates. For consistency, the format and information
included in this report reflects the monthly report format that has been used since the
pandemic began.
COVID-
parking and golf enterprise. Utilities have also experienced smaller impacts with account write-
offs being the largest impacts felt so far. The City of Kitchener has always demonstrated fiscal
responsibility in the delivery of programs and services for the community as evidenced by
multiple years of achieving favourable year-endresults. The following graph highlights the
significant impact that thepandemic has had on municipal operationsthis year.
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A summary of the impacts on City operations is shown below:
Tax-Supported Operations
A deficit of $7.1M is projected for Tax-Supported Operations
The cancellation of programs and events and the closure of facilities early on in the pandemic
was a necessary step in order to keep the staff and community safe. Although these measures
were successful in helping to stop the spread of COVID-19 during the first wave, they also
represented a significant financial impact for municipalities. Outside of property taxes,
recreation-related user fees are the next largest source of revenue supporting tax-supported
operations. During 2020, the loss of recreation related revenue is projected to be$7.9M and is
,with further detailed explanations outlined in
Appendix A of this report.
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DivisionBudget LineVariance
Mitigation Efforts$6,022,000
Projected Deficit($7,172,000)
Parking Operations
A deficit of $2.852M is projected for Parking Operations
operations were directly impacted by the pandemic, experiencing a
significant drop in revenue due to the temporary closure of businesses and necessary social
distancing measures, which limited travel across the City. The parking enterprise has returned
to normal operations but is still experiencing reduced parking demand that is expected to
continue in 2021.
Golf Operations
A deficit of $619K is projected for Golf Operations.
At the start of the pandemic, the provincial government put in place many operating restrictions
for organizations and businesses. Golf courses were not able to operate until the end of May,
which resulted in an entire month of revenue not being realized. Once courses could open,
additional restrictions such as staggered tee off times,modifications to golf carts, and
additional cleaning measuresresulted in additional revenue loss and increased operating costs
for the City.
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Other Enterprises and Utilities
Other enterprises have not been as significantlyimpacted as a result of COVID-19 and in
somecases are projecting surplusesdue to other non-COVID related factorswithin their
respective areas(e.g. Building)
use these surpluses to offset any losses experienced in other municipal operations. For utilities
specifically (Water, Sanitary, Storm, Gas), write-offs and other pandemic related costs are
included in currentforecasts. These net COVID impactstotal $1.1Mcombinedand will be
included in our request for additionalfunding.
Additional Detail
Part of the provincial requirementsfor Phase 2 funding is for municipalitiesto provide 2020
year-end operating projections and report on Q3 (September) actuals. Appendix A providesa
more detailedexplanation of COVID related variances. Appendix B provides variances in a
format more similar to whatCouncil normally receives during the year with Q3 results included.
Allocation of Phase 1 Safe Restart Funding
The financial impacts of COVID-19 have been felt across municipal operations. As the
Province is considering all impacts that municipalities have experienced as a result of COVID-
19, it is recommended that Phase 1 Safe Restart funding be allocated proportionately based
on the variance experienced in the three most impacted areas (Tax-Supported, Parking, Golf).
This will reduce the deficits/impacts for these areas as follows:
Municipal OperationsCOVID ImpactsSafe Restart FundingRemaining Impacts
Tax-Supported Operations$ (7,172,000)$ 4,002,452 $ (3,169,548)
Parking Operations$ (2,852,000)$ 1,591,605$ (1,260,395)
Golf Operations$ (619,000)$ 345,443$ (273,557)
Utilities$ (1,119,000)$ 0$ (1,119,000)
Total$ (11,762,000)$ 5,939,500$ (5,822,500)
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Mitigation Measures Taken to Reduce Impacts
To mitigate the impact that the COVID-
the City took a number of steps to reduce overall impacts and address expected
shortfalls/deficits at the end of the year. These measures included:
Placing approximately 900 temp and casual part-time staff (43% of workforce) on
declared emergency leave
Implementing a freeze on discretionary spending,resulting in over $1.1M in savings
Reducing overtime where possible and redeploying staff to support critical services
Deferring approximately $21M in 2020 capital spending to address cash flow concerns
Requiring staff to fully use vacation balances to avoid additional staffingrelated
measures
In addition to these measures the City has established a number stabilization reserves that are
intended to mitigate budget fluctuations. Prior to receiving safe restart funding the following
reserves were projected to be fully drawn toa negative position as shown below:
ReservesPre-COVID BalanceInitial Projected Balance
Tax Stabilization Reserve($1,688,102)
Parking Stabilization Reserve
Golf Stabilization Reserve
The allocation of Phase 1 Safe Restart funding against current year operating pressures and
impacts will reduce the need to utilize reserves as initially projected, but it will not return
reserve balances to anywhere close to pre-COVID levels.
In an effort to increase balances in reserves to address operating pressures and impacts being
experienced as a result of COVID-19, $1.3M was transferred from Capital to the Tax
Stabilization Reserve. It is expected that this funding will be fully utilized in order to address
operating impacts and highlights the lengths to which the municipality has attempted to
address COVID related impacts this year.
ALIGNMENT WITH CITY OF KITCHENER STRATEGIC PLAN:
The recommendationof this report supports the achievement of the city's strategic vision through
the delivery of core service.
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FINANCIAL IMPLICATIONS:
There are significantfinancial impacts that the City has experienced as a result of COVID-19.
Phase 1 Safe Restart funding was welcomed news and will address some but not all of these
impacts. It is hoped that the City will be successful in receiving Phase 2 Safe Restart funding
to offset the remaining impacts of $5.8M.If the City is not successful in receiving Phase 2 Safe
Restart funding, then it is anticipated that stabilization reserves will be drawn down fully,
leaving the City with very little financial flexibility to address the ongoing pandemic related
impactsthat are expectedin 2021.
The Province has indicated that requests for Phase 2 Safe Restart funding is not a claims-based
process. The information provided will be used by the Province to determine how the remaining
Phase 2 funding should be allocatedwitha commitment to notify municipalities regarding funding
allocationsbefore the end of the year.
COMMUNITY ENGAGEMENT:
INFORM
council / committee meeting.
ACKNOWLEDGED BY: Dan Chapman, Chief AdministrativeOfficer
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Appendix A
Explanations of Major COVID Variances
BylawBylaw Fines-$700,000
Bylaw enforcement wasreduced earlier this year due to the COVID-19 pandemic. As of mid-
September, Bylaw is back to itsregular enforcement routine, including enforcement of all
parking regulations. The projected shortfall reflects actual shortfalls already experienced in
2020 by Bylawas well as reducedrevenuefor the remainder of the yearbased on previous
monthly results.
Financial ImpactLowMediumHigh
NP&S and SportRecreation Revenues-$7,900,000
All City cultural and recreational facilities were closed to the public on March 16. The
projected shortfall reflects actual shortfalls already experienced in 2020 by Neighbourhood
Programs & Services and Sport as well as reduced/limited programming for the remainder of
the year.
Financial ImpactLowMediumHigh
Economic DevelopmentSpecial Events & Market-$304,000
All City cultural and recreational facilities were closed to the public on March 16, and all
public events were cancelled. The projected shortfall reflects actual shortfalls already
experienced and projects revenue/cost reductions for the remainder of the year.
Financial ImpactLowMediumHigh
Facilities ManagementUtilities Savings+$1,229,000
All City cultural and recreational facilities were closed to the public on March 16. Further
closure of all City facilities (e.g. City Hall) to the public followed quickly thereafter on March
18. The projected surplus reflects actual surpluses already experienced in 2020 as well as
reduced/limited programming for the remainder of the year. Forecasted surpluses are based
on the following assumptions:
Community Centres: Water: 90%, Hydro: 20%, Gas: 10%
Arenas: Water: 90%, Hydro: 70%, Gas: 30%
Pools: Water: 70%, Hydro: 20%, Gas: 30%
City Hall: Water: 50%, Hydro: 20%, Gas: 10%
Kitchener Operations Facility: Water: 10%, Hydro: 10%, Gas: 5%
Financial ImpactLowMediumHigh
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Appendix A
Explanations of Major COVID Variances
General ExpenseCOVID Tracked Costs-$1,470,000
A number of corporate costs related to COVID-19 have been tracked separately for reporting
purposes. Examples of the costs include:
Purchases of personal protective equipment and other health & safety supplies
Additional Citrix licenses for a higher number of staff working from home
-19 response
Additional cleaning and minor retrofits of City facilities
Financial ImpactLowMediumHigh
General ExpenseDiscretionary Items+$1,145,000
With a large deficit projected for 2020, the EOCMT (Emergency Operations Centre
Management Team) approved limits on spending to a number of discretionary budget lines
where staff have some control over the spending. The reduction targets are noted below*:
50% for training, seminars, and conferences
50% for mileage & parking
50% for meeting expenses
50% for miscellaneous
33% for discretionary supplies
*Financial Planning staff (with some divisional consultation) reviewed the proposed
reductions at the cost centre level and excluded/modified the expected reduction amounts
where applicable
Financial ImpactLowMediumHigh
General ExpenseStaff Savings+$3,650,000
Effective April 13, a number oftemporary, casual part-time, and 9000 series City employees
were placed on a Declared Emergency Leave (DEL). On a normal day these staff would be
found in arenas, pools and community centres, at the Kitchener Market or crosswalks across
the city, delivering incredibly valued service to the community. With facility closures and
program cancellations, these staff were unable to perform their regular duties, and were
placed on DEL. The estimated savings of placing these staff of DEL is $2.5M
($250,000/weekx 10 weeks, mid-April until the end of June).
In addition, savings of $1.15M are estimated for part time employees supporting recreational
programs that will be running at reduced capacity in the last half of 2020.
Financial ImpactLowMediumHigh
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Appendix A
Explanations of Major COVID Variances
General ExpenseSupplementary Taxes/Write Offs-$720,000
Current information received from the Municipal Provincial Assessment Corporation (MPAC)
shows assessment growth is trending lower than expected due to the impact of the
pandemic. It is expected this will result in lower than expected supplementary property tax
revenue. Further, property tax adjustments are expected to be higher than budgeted as the
Assessment Review Board is looking to resolve many legacy appeals by the end of 2020. It
is also expected that property tax write-offs related toSection 357 of the Municipal Act will be
higher than budgeted.
Financial ImpactLowMediumHigh
General RevenueInvestment Income-$1,000,000
The Canadian financial market impacts of COVID-19 are more abrupt than anything ever felt
before. Amidst significant economic uncertainty, the Bank of Canada quickly reduced its key
interest rate to historically low levels, with indications from the Bank of Canada Chief that
reductions were announced. This included shifting and locking in approximately $75M at
higher rates before banks lowered the rates that they were offering. For example, on March
month it was (and continues to be 0.90%).
A 1% reduction to rates for a full year represents a $1.6M reduction to investment income
compared to 2019. Based on decisions made to date by Council regarding economic
recovery supports (and assuming that there are no additional rate reductions on the horizon)
the City is projecting a $1M negative variance related to investment income for 2020. The
City currently has $1.7M in the investment rate stabilization reserve that will be needed to
offset some of these impacts.
Financial ImpactLowMediumHigh
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Appendix A
Explanations of Major COVID Variances
General RevenuePenalties & Interest-$1,100,000
As part report DSD-20-064 (Financial & Economic Supports for Residents and Businesses),
Council approved:
That the City provide support to residents and businesses for 60 days by:
a)Waiving penalties and interest on property taxes for the months of April and May 2020;
b)Waiving late payment charges on utility bills and miscellaneous receivable invoices for
the months of April and May 2020;
c)Suspending utility disconnection and collection activities until May 31, 2020; and,
d)Waiving Non Sufficient Fund (NSF) fees charged by the City on customer accounts for
the months of April and May 2020.
The staff report identifies an estimated financial impact of $700,000.
Report DSD-20-067 (Extended Financial and Economic Recovery Supports for Residents &
Businesses) further extended a number of measures until the end of June. The report
identifies a financial impact of $600,000 for the Property Tax Deferral Program and waiving of
Penalties & Interest. Due to lower than estimated uptake in the property tax deferral program,
the projected impact was reduced by $200,000 in August.
Financial ImpactLowMediumHigh
Building$4,225,000
Building revenues are higher than budget due to increased permit applications in the new low
rise residential, apartment and commercial categories.
Financial ImpactLowMediumHigh
Golf-$619,000
Golf revenues have been significantly impacted by COVID-19. Golf courses opened
approximately one month later than previous years, with reduced number of memberships,
reduced cost of membership, and no food & beverage, driving range,or pitch and putt revenue.
Financial ImpactLowMediumHigh
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Appendix A
Explanations of Major COVID Variances
Parking-$2,852,000
As part report DSD-20-064 (Financial & Economic Supports for Residents and Businesses),
Council approved:
That the Director of Transportation Planning be authorized to provide refunds to all
garages and lots, for the period of March 16th
to April 6th;
accounts, without penalty or loss of their parking space, until a time determined by the
ortation Planning;
The report further notes that there will likely be additional impacts to parking revenues and
that Parking staff will monitor and update projections. The projected variance includes:
the monthly refunds for the period of March 16-April 6
estimated hourly impacts for mid-March to the end of May
estimated loss of revenue from suspended monthly permits for April-May
Reduced monthly & hourly Parking revenues have been projected until the end of the year
based on slow uptake of customers requiring parking.
Financial ImpactLowMediumHigh
Water+$2,086,000
Water is projecting a surplus based on increased water consumptionduring a drier than
normal summer, with many public water amenities (e.g. pools and splash pads) being
closed. This led to increased outdoor water use. The surplus is reduced somewhat due to
an expected increase in utility account write offs.
Financial ImpactLowMediumHigh
Sanitary Sewer$3,445,000
Sanitary seweris projecting a surplus based on increased water consumptionduring a drier
than normal summer, with many public water amenities (e.g. pools and splash pads) being
closed. This led to increased outdoor water use. The surplus is reduced somewhat due to
an expected increase in utility account write offs.
Financial ImpactLowMediumHigh
Storm Sewer+$172,000
Storm is projecting a surplus based on savings in maintenance work, which will not be
completed in 2020. Also, there were fewer spills into the stormwater system resulting in
savings. The surplus is reduced somewhat due to an expected increase in utility account
write offs.
Financial ImpactLowMediumHigh
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Appendix A
Explanations of Major COVID Variances
Gas Delivery-$633,000
Gas Delivery is projecting a deficit based on reduced volumes and an expected increase in
utility account write offs.
Financial ImpactLowMediumHigh
Gas Supply+$1,082,000
Gas Supplyis projecting a surplus based on reduced prices for purchasing natural gas.
Financial ImpactLowMediumHigh
Fleet+$546,000
Savings due to reduced fuel prices and consumption.
Financial ImpactLowMediumHigh
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Appendix B
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Appendix B
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Appendix B
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Appendix B
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Appendix B
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Appendix B
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Appendix B
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Appendix B
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Appendix B
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