HomeMy WebLinkAboutFCS-11-125 - April 2011 Interim Internal Financial StatementsREPORT TO:Finance and Corporate Services Committee
DATE OF MEETING:
June 20, 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:
June 7, 2011
REPORT NO.:
FCS-11-125
SUBJECT:
APRIL 2011 INTERIM INTERNAL FINANCIAL
STATEMENTS
RECOMMENDATION:
For information
BACKGROUND:
These interim financial statements for the four months ended April 30, 2011 are provided to update
Council on City expenditures and revenues compared to the 2011 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 first of three such reports for 2011, with the next
reports scheduled for August and December results.
REPORT:
Operating Fund – Tax-Base (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 four months ended April 30, 2011
have not been adjusted for timing differences, such as unrecorded liabilities, and therefore should be
viewed with that in mind.
The projected year-end deficit is $2.86 million which equates to a negative variance of 1.9% on a
$148 million annual operating budget. Some of the key variances projected to the end of the year
are as follows:
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Infrastructure Services/Operations - it is estimated that the Operations division will be over
budget by $1.68 million. The primary causes pertain to a harsh winter experienced to date in
2011. There were unexpected forestry maintenance costs as a result of some of the major
storms. The harsh winter is also requiring increased forecasted road maintenance. The area
is also experiencing higher supervisor costs than budgeted due to the move to the Kitchener
Operations Facility.
Community Services/Bylaw – parking fine revenue is expected to fall short of budget by
$175,000. Staff costs are up to fill increased vacation time as well as to coordinate seasonal
initiatives due to the harsh winter conditions.
Infrastructure Services/Engineering – the expected deficit of $110,000 relates to higher than
budgeted electricity costs for street lighting.
General Expenses - higher than budgeted fuel costs have resulted in a $0.5 million dollar
projected deficit in fleet
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 budget of $1.0 million,
much of the supplementary billings and rebates/refunds/reductions occur very late in the year
once information has been processed by MPAC. No surplus or deficit is currently projected
in this area, however 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. No surplus or deficit is currently projected
in this area, but given rates could change within the year, there is no guarantee of meeting
the expected budget.
Gapping – the annual budget for gapping was reduced to $2.0 million for the current year.
Despite this, the current projection is a negative variance of $200,000. This figure is difficult
to predict due to the variable nature of staff changes.
Deficit Mitigation
Reserves are a means for a municipality to protect against events that cannot be predicted or to
help minimize the impacts of costs that can vary significantly in any given year. Normally an
operating deficit would be funded from the tax stabilization reserve. On final budget day 2011, it
was decided that $750,000 would be transferred from this reserve to the tax base operating fund,
resulting in a small balance left available to fund any future projected deficits. It is crucial that the
City maintain a well-funded tax stabilization reserve to fund unforeseen, unbudgeted events
such as a harsh winter.
As a result of the projected deficit, along with the fact that the Tax Stabilization Reserve Fund is not in
a position to fund a large deficit, management is taking action in the following areas to attempt to
mitigate the amount of the projected deficit at year end:
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Corporate Leadership Team will continue the corporate cost mitigation policies kept in place
since the start of the year, similar to those implemented in the past two years which are
intended as guidelines for decision-making in day-to-day work with the goal of reducing
expenses. They cover areas of controllable spending with a specific focus on staff
training/conferences and overtime/on-call wages.
As part of the budget process, staff will review existing capital for the potential to transfer
funds into the operating fund. Normally any unexpended capital funds would be transferred
to the capital pool to fund new capital projects through the annual budget cycle. A thorough
review of these balances has been done in each of the last two years as the economic
downturn also required specific efforts to avoid year end deficits. The close outs in 2010
were not nearly as significant as those in 2009 and it is predicted that the potential for
recoveries in this area will be even less in 2011.
Keeping in mind that many of the City’s reserves are currently underfunded, as was
presented during the Financial Condition Assessment in January 2011, management will
undergo a review of reserve balances to see if there is the potential to transfer any amount to
operating.
The projected deficit of $2.86 million will be closely monitored for the remainder of the year. As more
refined projections are developed, staff will be able to assess the need for further action and
mitigation efforts and will update Council as part of the next interim report.
Building Enterprise (Schedule 2)
Building permit activity is up slightly compared to budget. There are also two positions being
backfilled while replacements are found which is resulting in staff savings. The enterprise is currently
in a surplus position of $174,000. Any net surplus or deficit from the operating fund will be
transferred to the Building Enterprise Reserve Fund.
Golf Courses (Schedule 3)
The Golf Courses are $32,000 below budgeted net revenue year to date, primarily due to poor
weather conditions and the fact that the courses opened two weeks later than in 2010. After the
2011 budget was set, a decision was made to contract out Canteen operations. This will result in
significant differences between actual and budget for the remainder of the year.
Parking Enterprise (Schedule 4)
Both revenues and expenses are lower than budget in the Parking Enterprise due to the late opening
of Charles & Benton Parking Garage. The decrease in expenses from the Charles & Benton delayed
opening are partially offset by allocations that are being made to the new enterprise for costs that
were not previously broken out (eg. a portion of the salary of the Director of Transportation Planning
and some additional administration charges). Snow removal costs were also higher than budget due
to the harsh winter in early 2011.
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Water Utility and Sanitary Sewer Utility (Schedules 5 and 6)
Consumption in the Water Utility and Sanitary Sewer Utilities are both very comparable to the YTD
budget targets. The Water Utility is experiencing profits as a result of water purchases being lower
than budget. The Region is investigating why all municipalities in the Region are noting that their
water purchases are trending lower than expected compared to consumption. Therefore this trend
may not continue. Miscellaneous revenue is higher than budget as there is a one-time refund from
the Region for Breslau water main leak, otherwise miscellaneous revenues would be down due to
less external recoveries for work performed. Water transmission & distribution costs are up due to an
increase in the number and complexity of main breaks due to the harsh winter. Overall the Water
Utility is $361,000 ahead of plan.
Year to date, the Sanitary Sewer Utility fell short of budget by $524,000. Sewer surcharge revenues
are down as a result of slightly lower water billings, however the cost of sewage processing exceeds
target due to high inflow and infiltration based on the wet spring. Sewer maintenance expenditures
are slightly higher than budget due to an early thaw which allowed repairs and maintenance to start
earlier than planned.
Storm Sewer Utility (Schedule 7)
The Storm Sewer Utility is ahead of plan by $91,000. Other revenue is higher than budget, due to
external recoveries mainly from street sweeping.
Gas Utility (Schedule 8)
Gas Delivery is currently experiencing an increase in gross profit as a result of higher than expected
consumption and lower than expected transportation costs. The transportation costs are below
budget as during the first three months, there were no purchases of gas, no injections into storage
and less inventory in storage than previous years,
Other Programs have performed better than expected, specifically rental water heaters. The
pressure standards were changed on the rental units, which is resulting in fewer breakdowns and
less repairs required.
The Supply Company revenues and expenses are higher than budget as a result of increased
consumption. The increase in revenue was partially offset by the fact that the rate charged to
customers was lower than the budgeted rate, partially offsetting the impact of the large consumption
increase. Given the low market rates for gas, the cost of gas purchases is not moving in proportion
to the increased consumption. The supply program operates on a break-even basis. Rates are set
in an effort to return the program to this position over time.
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Investment Report (Schedule 9)
Higher average short term investment balances in April 2011 versus 2010 have lead to investment
income being ahead of budget. This trend is not projected to continue as historical trends show cash
balances start to decrease in the second half of the year. It is expected that income for the year will
be in line with budget.
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
Report FCS-11-051 5
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