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HomeMy WebLinkAboutFIN-10-155 - Interim Financial Report - SeptemberK R REPORT REPORT TO: Mayor Zehr and Members of Council DATE OF MEETING: November 15, 2010 SUBMITTED BY: Dan Chapman, General Manager of Financial Services and City Treasurer PREPARED BY: Sheri Brisbane, Supervisor of Financial Reporting Ryan Hagey, Manager of Financial Planning WARD(S) INVOLVED: All DATE OF REPORT: November 3, 2010 REPORT NO.: FIN -10 -155 SUBJECT: INTERIM FINANCIAL REPORT FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2010 RECOMMENDATION: That the interim financial report for the nine months ended September 30, 2010 be received for information. BACKGROUND: These interim financial statements for the nine months ended Sept 30, 2010 are provided to update Council on City expenditures and revenues compared to the 2010 budget and to explain significant variances. The report includes schedules for Municipal Enterprises as well as supplementary information related to investment income. This is the second of three reports for 2010, with the next report scheduled to deliver December results. REPORT: Operating Fund — City (Schedule 1) The report includes an asterisk to highlight budget areas with year -to -date variances in excess of 10% and $50,000. Staff has analyzed these variances and, unless noted in the projected year -end column, the year -to -date amount results from timing differences between actual activity and budget calendarization. The actual revenue and expenditures for the nine months ended September 30, 2010 have not been adjusted for timing differences, such as unrecorded liabilities, and therefore should be viewed with that in mind. If it were not for the capital close -outs made to date, the projected year -end deficit would be approximately $1,545,000 which equates to a negative variance of 1.1% on a $138,000,000 annual operating budget. The current projected surplus of $31,000 is in contrast to a projected deficit of $2,500,000 presented at June 30. 6 -1 Some of the key variances projected to the end of the year are as follows: • Community Services /Operations - it is estimated that the Operations division will be over budget by $824,000. The primary causes pertain to increased equipment charges over budget. Road maintenance and litter pickup expenditures were also higher due to a shorter winter season as well as increased downtime as a result of inclement weather and vehicle breakdowns. The negative variance has been partially offset by less work required in downtown maintenance as a result of King Street reconstruction. • Corporate Services /Bylaw — parking fine revenue is expected to fall short of budget by $100,000. • Corporate Services — unbudgeted retroactive pay adjustments in both Facilities Management and the Legal divisions have resulted in a projected overexpenditure of approximately $379,000. • DTS Planning /Engineering recoveries — To date, an increase in permit and sign revenues will have a positive effect of approximately $450,000 relative to budget. Staff attempt to provide the most realistic estimates based on the information that is known at the time of preparing the year -end projection, however there are some areas with significant budgets that are difficult to predict at this time. This uncertainty has the potential to alter the projections significantly and these areas will continue to be monitored closely. These include the following: Supplementary taxes and tax rebates /refunds /reductions — with a net annual budget of $800,000, much of the supplementary billings and rebates /refunds /reductions occur very late in the year once information has been processed by MPAC. Actual supplementary taxes are trending higher than budgeted and thus a surplus of $1,200,000 has been included in the forecast. Due to the potential for future tax write -offs or rebates, this line item has the potential to deviate substantially from the budgeted figure. Investment income — staff has calculated the annual budget for investment income based on a 5 year history on both rate and average balance. In recent years, the rate had contributed to substantial increases in investment income over budget. With recent market corrections and adjustments, investment income is not expected to return the same surplus as in previous years and is only expected at this point to achieve a fraction of last year's returns. These factors give rise to a negative forecast variance of $800,000. Gapping — the annual budget for gapping is $2,300,000 and there is a significant negative variance of $1,300,000 projected. This figure is difficult to predict due to the variable nature of staff changes. Deficit Mitigation The pressures of the economic downtown of 2008 and 2009 have continued to impact the results of 2010 in various areas of the City, with the largest impact stemming from very low interest rates. As a result of the projected deficit presented with June's results, along with the fact that the Tax Stabilization Reserve Fund is not in a position to fund a large deficit, staff is taking action in the following three areas to attempt to mitigate the amount of any resulting deficit: • Corporate Management Team has reinstituted (effective September 1, 2010) a series of temporary policies similar to those implemented in 2009 which are intended as guidelines for decision - making in day -to -day work with the goal of reducing expenses. 6-2 They cover areas of controllable spending including staff training and conferences, meeting and meal expenses, memberships and subscriptions, overtime and on -call, advertising, publicity, promotions and printing. These costs are being monitored monthly at CMT. A review of existing capital projects was undertaken to identify unexpended capital balances that could be closed out. To date approximately 1,546,000 has been closed out. Normally these funds would be transferred to the capital pool to fund new capital projects through the annual budget cycle. Staff is accelerating a review of the gapping policy and guidelines in order to determine if additional amendments to the policy will be required for the remainder of 2010 in order to reduce the projected negative variance in this area. Building Enterprise (Schedule 2) Building permit activity increased significantly in the first six months of 2010 with an increase of over 100% compared to the same time last year. In addition, the residential activity did not experience the predicted slowdown after the HST implementation. This has resulted in a YTD surplus position of $1.4 M. Any net surplus or deficit from the operating fund will be transferred to the Building Enterprise Reserve Fund. Golf Courses (Schedules 3 and 4) Doon Valley and Rockway Golf Courses are $664,000 below budgeted net revenue year to date, primarily due to the economic conditions negatively affecting the number of rounds played and number of memberships sold, as well as the opening of Doon Valley's expansion being delayed 10 weeks. In addition, poor weather conditions and extreme humidity early in the season also impacted revenues negatively. The new practice range opened on August 21st and the 9 -hole Pitch and Putt opened September 7th which is well ahead of the planned opening date of Spring 2012. Both of these openings should have a positive impact on the operating revenues going forward. An extensive internal review of both golf course operations is ongoing, including a review of fees, in order to better position both courses in a long -term sustainable manner. Water Utility and Sanitary Sewer Utility (Schedules 5 and 6) The Water Utility and Sanitary Sewer Utilities have both achieved 94% of their respective YTD revenue budget. The Water Utility fell short of budget net revenue projections by approximately $619,000 overall. Water volume sold is lower than budget and miscellaneous revenues are lower as well due to less external billings for work performed in the transmission and distribution area. The Sanitary Sewer Utility fell short of net revenue budget projections by $1,392,000. Sewer surcharge revenues are down as a result of slightly lower water billings, however the cost of sewage processing is consistent with budget as a result of increased precipitation in June, July and September. Sewer maintenance expenditures are slightly higher than budget due to a mild winter which allowed repairs and maintenance to start earlier than in previous years. Capital closeouts in water and sanitary will offset the YTD shortfalls in these operations. 6 -3 Gas Utilitv (Schedule 7 The Delivery company gross profit amount is below budget slightly as of August 31, 2010 due to a decrease in consumption. Other programs are performing positively compared to budget, especially the Rental Water Heater program. The Supply Company revenues and expenses are also lower than budget as a result of lower than expected consumption. The decrease in revenue was partially offset by the fact that the rate charged to customers was higher than the budgeted rate. The average price of gas in the last few months was also lower than the budgeted price resulting in an even further reduction in expenses beyond just the decreased volume of gas sold. Investment Report (Schedule 8 Investment income is expected to have a negative variance for 2010 of approximately $800,000 due to market rates remaining low. Although the interest rate for the CIBC bank account was increased from 0.25% (where it has been for the past year) to 1.03% in August, 2010, we do not expect much in the way of interest rate increases for the remainder of 2010. FINANCIAL IMPLICATIONS: Financial implications are discussed above and detailed in the attached schedules. 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