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Home My WebLink AboutFIN-10-063 - Internal Financial Statements as of Dec 31 2009REPORT REPORT TO: Councillor B. Vrbanovic, Chair, and Members of the Finance and Corporate Services Committee DATE OF MEETING: April 26, 2010 SUBMITTED BY: Dan Chapman, General Manager of Financial Services and City Treasurer PREPARED BY: Roger LeBrun, Manager of Financial Planning WARD(S) INVOLVED: All DATE OF REPORT: April 15, 2010 REPORT NO.: FIN-10-063 SUBJECT: INTERNAL FINANCIAL STATEMENTS AS AT DECEMBER 31, 2009 RECOMMENDATION: For information BACKGROUND: This year-end financial report is provided to update Council on City spending and revenues compared to the 2009 budget and to explain significant variances. The report includes schedules for Municipal Enterprises and major capital projects as well as supplementary information related to investment income and tax arrears REPORT: Early in 2009, staff identified the potential for the City to generate a tax-supported operating deficit in excess of $4 million as a result of current economic conditions and the weather. The anticipated variances were largely due to anticipated shortfalls in investment income, supplementary taxes and overruns in winter control. In light of this, the City initiated a budget control initiative to attempt to mitigate negative variances in the operating budgets. The approach included a thorough analysis of existing capital fund balances and the implementation of temporary policies to control discretionary spending (i.e., staff training / conferences, meeting / meals, memberships / subscriptions, overtime / on call, advertising / publicity / promotions / printing). Both of these initiatives were very successful in mitigating virtually the entire projected deficit within the tax-based and enterprise operating funds. The approximate cost savings of these efforts amounted to approximately $747,000 ($578,000 for tax-based and $169,000 for enterprise budgets). The total amount of capital closeouts identified was approximately $3.4 million for Capital out of Current (CC). ïï ó ï Operating Fund – City (Schedule 1) The City ended the year with a tax-supported operating deficit of $0.276 million, which equates to 0.2% of the operating expenditure budget. The deficit has been funded by a transfer from the Tax Stabilization Reserve Fund in accordance with City policy. This transfer, along with the budgeted transfer to the operating fund in 2010 will essentially deplete the Tax Stabilization Reserve Fund by the end of 2010 (refer to Appendix A). This has been anticipated and will be a consideration in the 2011 budget process. The 2009 deficit is primarily attributed to the following variances: Investment income was $1.2 million below budget as a result of significantly lower rates and a slightly lower average investment balance; Additional transfer to fund sick leave liability of $0.7 million Gapping was $0.6 million below budget as a result of less staff turnover in 2009; Net supplementary taxes were $0.3 million below budget as a result of higher than anticipated write-offs; Within the Operations division: Road maintenance exceeded budget by $0.8 million as a result of harsh winter o conditions and increasing asphalt costs; Administration costs exceeded budget by $0.6 million as a result of CVOR o training, downtime due to equipment breakdown and additional material acquisition; Sportsfields/Trails/Parks/Winter Maintenance exceeded budget by $0.3 million as o a result of weather conditions and increased vehicle maintenance costs. In addition to the deficit mitigation efforts noted above, the negative variances were offset by the following: The delayed opening of Williamsburg Community Centre, along with additional Community Resource Centre budget savings achieved a budget savings of $0.4 million; Parking revenue exceeded budget by $0.3 million. Building Enterprise (Schedule 2) For the twelve months ended December 31, 2009 the net revenue in the enterprise was $0.3 million. Any net revenue from the operating fund is transferred to the Building Enterprise Reserve Fund which funds Building Enterprise capital projects as well as any potential future deficits in the enterprise resulting from cyclical economic downturns. This year’s net revenue exceeded the budget primarily as a result of high fourth quarter permit activity due to the expected increase in non-residential Development Charges rates effective January 1, 2010 and the delayed hire of additional building inspectors due to the economic downturn. Golf Courses (Schedules 3 and 4) Doon Valley and Rockway Golf Courses fell short of their budget targets for 2009 on a consolidated basis by approximately $257,000, primarily due to poor weather conditions for the golf season. In addition, the economic conditions have negatively affected the number of rounds played. Rockway Golf Course has seen a more drastic reduction in the number of ïï ó î tournaments held as well as the number of junior memberships sold. Both golf courses have seen reduced canteen sales per capita as well. Water Utility and Sanitary Sewer Utility (Schedules 5 and 6) Prior to the consideration of capital closeouts, the Water Utility fell short of budget projections by approximately $358,000, primarily due to significant rainfall experienced in the summer which resulted in lower water sales. After capital closeouts, the water utility ended up in a surplus position of $1.6 million which has now put the utility in an overall accumulated surplus of $606,457. The operating deficit in the Sanitary Sewer Utility, prior to the consideration of closeouts was $2.5 million higher than the amount budgeted and is attributed to the following: The water consumption forecast was not achieved during the year, reducing surcharge revenue in the Sanitary Sewer Utility; and Increased inflow and infiltration due to high precipitation levels led to an increase in the cost of sewage processing from the Region of Waterloo. After capital closeouts were applied, the utility ended the year in a surplus position of $2.2 million which has reduced the accumulated deficit to $3.4 million. Gas Utility (Schedule 7) Gas Delivery and Other Programs posted a positive variance of approximately $324,000. The Supply Program posted a favourable variance of approximately $936,000, primarily due to rates higher than those in the forecast. The supply program is still in an accumulated deficit position but should recover to a break-even position over the next year as the program is mandated to be revenue-neutral. Investment Report (Schedule 8) During 2009, $1.19 million of interest income was earned for the operating fund. This is a significant reduction over the interest earned in 2008 due to interest rates dropping in excess of 200 basis points combined with a modest reduction in the average balance. The City is compliant with the requirements of the Investment Policy for both the short-term and long-term portfolios. Taxes Receivable (Schedule 9) Taxes receivable of $22.6 million at December 31, 2009 was approximately $1.8 million higher than the 2008 year-end balance. The current year arrears made up $1.2 million of the increase and prior years' arrears $0.6 million. The 2009 current year arrears represent 4.5% of total 2009 taxes billed. In 2008, the current year arrears represented 4.3%. The slight increase of current arrears from year to year may be indicative of the current economy but is still well within a reasonable range. Staff monitor the tax arrears on a regular basis to determine if there are any negative trends in collection of taxes. ïï ó í FINANCIAL IMPLICATIONS: Financial implications are discussed above and detailed in the attached schedules. All amounts are unaudited and may be subject to adjustment through the audit process. COMMUNICATIONS: Year-end financial information will be available to citizens through the Annual Financial Report which is posted on the City’s internet page subsequent to the release of the audited financial statements in June. ACKNOWLEDGED BY: Dan Chapman (General Manager of Financial Services and City Treasurer) ïï ó ì Appendix A City of Kitchener Tax Stabilization Reserve Fund Actual 2009201020112012201201 34 Balance, beginning of year3,9381,760302(712)(1,220)(1,256) Interest95539(21)(37)(38) Transfer from Working Capital Reserve Transfer from Capital Surplus Operating surplus (deficit)(276) Transfer to operating (1,997)(1,510)(1,023)(487)00 Fire collective agreement Balance, end of year1,760302(712(1,220(1,256(1,294 )))) Target Minimum 6,2916,108 6,874 7,081 6 ,4806,674 Target Maximum 12,58212,216 12,960 13,349 13,749 14,161 29%5%-11%-18%-18%-18% Balance as % of Target Minimum Notes: Reduction of reliance starting in 2009, over a five year period, at $486,750 per year Target is 5% to 10% of total annual tax-supported operating expenditures ïï ó ë ïï ó ê ïï ó é ïï ó è ïï ó ç ïï ó ïð ïï ó ïï ïï ó ïî ïï ó ïí ïï ó ïì ïï ó ïë ïï ó ïê ïï ó ïé