HomeMy WebLinkAboutFCS-11-051 - December 2010 Internal Financial StatementsREPORT TO:Finance and Corporate Services Committee
DATE OF MEETING:
March 21, 2011
SUBMITTED BY: Dan Chapman, DCAO, Finance and Corporate Services
PREPARED BY:
Sheri Brisbane, Supervisor of Financial Reporting and
Ryan Hagey, Manager of Financial Planning
WARD(S) INVOLVED:
ALL
DATE OF REPORT:
March 9, 2011
REPORT NO.:
FCS-11-051
SUBJECT:
DECEMBER 2010 INTERNAL FINANCIAL STATEMENTS
RECOMMENDATION:
That the internal financial report for the year ended December 31, 2010 be received for
information.
BACKGROUND:
This year end financial report is 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
final report for 2010.
REPORT:
Early in the year, staff identified the potential for the City to generate a tax-supported operating
deficit of approximately $2,500,000 as a result of current economic conditions. The anticipated
variances were largely due to anticipated shortfalls in investment income and gapping. 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 decision to close out existing capital fund
balances to operating rather than capital 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).
Operating Fund – Tax-Base (Schedule 1)
The City ended the year with a tax-supported operating surplus of approximately $875,000 which
equates to 0.63% of the operating expenditure budget. The surplus has been transferred to the Tax
Stabilization Reserve Fund in accordance with City policy.
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Some of the unfavorable variances experienced within the year include:
Gapping was $1,449,000 below budget which is consistent with the three-year downward
trend in this area.
Investment income –With current market conditions, investment income only reached 83% of
last year’s balance. This gave rise to a negative variance to budget of $512,000.
Infrastructure Services/Facilities Management – overages on arena and pool maintenance
,
adjustments to salaries and wages as a result of the job evaluation processand shortfalls on
project management fees due to the large number of ISF projects have resulted in a shortfall
of approximately $498,000.
Finance & Corporate Services/Legal – increased outside legal fees and adjustments to
salaries and wages as a result of the job evaluation processhave resulted in an
overexpenditure of approximately $250,000.
The above variances were offset by the following areas where actual results significantly exceeded
budget:
Actual supplementary taxes were much higher than budgeted resulting in a surplus of
$1,895,000.
Other general expenses provided for a surplus of $543,000 for the year as a result of capital
closeouts which were partially offset by year end adjustments for fringe liabilities (WSIB and
vacation)
Community Services/Planning – Experienced higher than budgeted revenues in the areas of
signs, site plan, part lot control and other revenues, in addition to reducing costs through the
deficit mitigation plan resulting in a positive variance to budget of $446,000.
Throughout the budget process council was told that the operations division required more funding to
meet expected service levels. Typically this would lead to a year-end deficit. In 2010, the operations
division posted a small surplus of $130,000. Deficits in a number of areas were offset by two
significant surpluses.
a) mild winter conditions compared to the five-year average $885,000; and
b) a multiple year recovery of $355,000. This sizable adjustment will not occur going forward.
Building Enterprise (Schedule 2)
For the twelve months ended December 31, 2010 the net revenue in the enterprise was $1,454,000.
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 there not being the slowdown in residential activity that was expected after the
introduction of the HST. A significant portion of the increase in permit revenue is derived from large
institutional projects.
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Golf Courses (Schedule 3)
Doon Valley and Rockway Golf Courses fell short of their budget targets for 2010 on a consolidated
basis by approximately $814,000, 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. Actions are underway to address the issues under
our control.
Gas Utility (Schedule 4)
Gas Delivery and Other Programs posted a positive variance of approximately $2,500,000. Delivery
had higher rates relative to budget, which was partially offset by lower than expected consumption.
This is the portion of the gas utility which provides a transfer to operations. Other Programs have
performed better than expected, specifically rental water heaters.
The Supply Program posted a favorable variance of approximately $1,462,000. This is due to having
higher than budgeted revenue rates, partially offset by lower than expected consumption. The cost
of gas purchases was also lower than budget as a result of lower market prices. The supply program
has now moved back into an accumulated surplus position as predicted. The supply program
operates on a break-even basis. Rates have been set to return the program to this position over
time.
Water Utility and Sanitary Sewer Utility (Schedules 5 and 6)
Prior to the consideration of capital closeouts, the Water Utility fell short of the budgeted surplus of
$14,000 by approximately $801,000. Water volume sold was lower than budget and miscellaneous
revenues were lower as well due to less external billings for work performed in the transmission and
distribution area. After capital closeouts, the water utility ended up in a surplus position of
approximately $885,000.
The operating surplus in the Sanitary Sewer Utility, prior to the consideration of capital closeouts was
$2,060,000 lower than the budgeted surplus of $4,127,000 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 $2,618,000
which has reduced the accumulated deficit to approximately $865,000.
Investment Report (Schedule 7)
During 2010, $988,000 of interest income was earned for the operating fund. Despite average short
term investment balances being higher, interest rates were on average 29% lower than they were in
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the previous year, causing the interest earned in the year to be even less than that earned in 2009.
The City is compliant with the requirements of the Investment Policy for both the short-term and long-
term portfolios.
ALIGNMENT WITH CITY OF KITCHENER STRATEGIC PLAN:
This reporting falls within the Efficient and Effective Government plan foundation area of the
Strategic Plan.
It helps support the financial goal of ensuring openness and transparency of city finances.
FINANCIAL IMPLICATIONS:
Financial implications are discussed above and detailed in the attached schedules.
COMMUNITY ENGAGEMENT:
N/A
ACKNOWLEDGED BY: Dan Chapman, DCAO, Finance and Corporate Services
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