HomeMy WebLinkAboutFCS-12-164 - 2012 August Variance ReportREPORT TO:Finance and Corporate Services Committee
DATE OF MEETING:
October 15, 2012
SUBMITTED BY:
Dan Chapman, Deputy CAO
PREPARED BY:
Debra Fagerdahl,Managerof Financial Planning
WARD(S) INVOLVED:
All
DATE OF REPORT:
September 26, 2012
REPORT NO.:
FCS-12-164
SUBJECT:
2012August Variance Report
RECOMMENDATION:
THAT the 2012 August Variance Report be received for information;and further
THAT capital closeouts be applied to the operating fund for 2012to mitigate the projected
operating deficit.
BACKGROUND:
This is the second report to council regarding the City’s financial performance versus the 2012
budget. The report and attached schedules include information regarding:
tax supported services
rate supported enterprises/utilities, and
supplementary information related to investment income
REPORT:
AugustVariance Report
Results for the tax base as well as the City enterprises up to the end of Augustare summarized
below. More detailed information is provided in the schedules attached tothe report.
Operating Fund – Tax Base (Schedule 1)
Based on results as at the end of August, staff isprojecting a $1,417,100 deficit in tax supported
operations, which is up from the $885,000 deficitprojected in April. This is caused by a combination
of deficits identified as part of the April variance report worsening(e.g. By-law Enforcement and
Planning) as well as some new deficits being projected (e.g. Aquatics and Athletics). The $1.4M
deficit equates to a 0.90% variance from the operating expenditure budget. While actual overall
financial performance of tax supported operationsis very close to budgeted performance, the
projected deficit is still a concern given the available balance in the Tax Stabilization Reserve Fund.
Significant projected variances (over$200,000) are summarized below, while additional details are
providedin Schedule 1 for variances that exceed $50,000and/or 10% of budget.
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Significant Projected Variances (over $200,000)
Community Services Department:
By-law Enforcement - Parking/Noise is projectinga deficit of $340,000 as fine revenues are
failingto meet budgeted levelsand wage costs are higher than budget while new officers are
being trained.The fine shortfall was identified as an issue during the 2012 budget process,
but the budget was not adjusted during final budget deliberations.In addition costs have
increased due to additional enforcement for the new fire ban by-law.
Community Programs & Services - Aquatics and Athletics is projecting a $271,000 deficit
largely due to a change in revenue recognition of registration fees. This change was
necessary due to the implementation of the on-line registration processin CLASS as
approved by Council.This is a one-time adjustment and will not impact future years.
Planning is projecting a deficit of $354,000 largely due to revenue shortfalls. Site plan
revenues are significantly lower compared with budget and previous year results. As such, a
new position that was approved as part of the 2012 budget has not been filledto yield some
offsetting savings. As well, sign revenues are also below budget despite increased
enforcement efforts.
Infrastructure Services Department:
Facilities Management – Building Maintenance is projecting a deficit of $210,000 by the end
of the year even though there is currently a surplus of $46,000. The current surplus is due to
savings in heating costs due to mild temperatures in the winter. The deficit is anticipateddue
to electricity costs which wasidentified as part of the 2012 budget, but was not allocated
additional funding on final budget day.
Operations – Administration is projecting a deficit of $500,000 by year end. This deficit is
caused by a number of factors including additional fleet costs, garbage collection costs, and
lower than budgeted recoveries from the Region of Waterloo due to milder winter.
Operations – RoadMaintenance is projecting adeficit of $385,000as more work is being
completed in this area due to favourable weather conditions early in the year.The projected
deficit in the Battler Yard recovery contributed to the increased year end projected deficit.
Operations – Winter Maintenance is projecting a surplus of $734,000 due to favourable winter
conditions over the first third of the year, and assuming a typical winter at the end of the year.
As there was not a need for staff to be engaged in winter maintenance activities, they were
diverted to other functions within Operations which has caused those areas to be over
budget.
General Expenses:
Gapping – Gapping is expected to exceed budget by $274,000 for the year. This projection
was based on actual known vacancies to date plus projections based on historical year-end
adjustments.
Tax Write-offs& Rebates are projecting a deficit of $237,000 as vacancy rebates, which are
impactedby economic cycles, are higher than normal.
General Revenue:
Investment Income – Higher than anticipated rates and balances are creating a surplus
projected to be $240,000 by year end.
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Options for Funding a Year End Deficit
The City has experienced tax supported operating deficits for each of the past three years(2009-
2011as shown in the chart below), and is projecting a deficit for 2012.
Year200920102011
Surplus/(Deficit) Before Capital Closeouts($3,740,000)($480,000)($238,000)
These deficits have occurred through varyingweather conditions and economic cycles, which leads
staff to conclude that there is a chronic shortfall in funding for the expected service levels delivered by
the City. Previous deficits have been managed through short-termmeasures like capital closeouts
and reserves, but these funding sources have largely been depleted. Instead, budgets need tobe
adjusted to reflect the actual cost of providing services in order to avoid recurring deficits. In
developing the 2013 budget, staff will attempt to correct ongoingcauses of variance to the extent
possiblewithin the target tax levy increase of 2.87% established earlier this year by Council.Staff will
also outline further options to fully address these issues as part of the budget submission.
Regarding the projected variance in 2012, department heads have met with their management teams
to review ways to mitigate the projected year end variance.Should a year end deficit occur at the
end of 2012, the following funding options would be available:
Capital closeouts – funding returned to the operating budget from closing out capital projects.
This could be in the form of a project that was completed and ended in a surplus, or could
result in a reduction of scope or complete elimination of an active project.
Reserve – the City hasa Tax Stabilization Reserve Fund which is maintained specifically to
address surpluses and deficits in tax supported operations. The year-end balance is
projected to be $1.7M, which would be sufficient to offset the projected deficit for 2012. The
2013 budget assumes a transfer of $955,000 from this reservefund, so if there was not
adequate funding in the reservefund, this would cause an increase to the 2013 tax levy.
It is recommended that any capital closeouts identified in 2012 be applied to the operating fund to
reduce the draw from the Tax Stabilization Reserve Fund. So far through the administrative review
process, approximately $430,000of tax-supported capital closeouts have been identified.
Building Enterprise (Schedule 2)
The Building Enterprise is tracking $634,000 worse than budget as at the end of August, largely due
to decreased revenues.Building revenues are down $765,000 compared to budget and correlates
with decreased building permit activityin 2012.Expenses are also less than budgeted, by $131,000,
with the single largest reduction being a position within the division that has been vacant for 2012.
There is sufficient funding within the Building Enterprise Stabilization Reserve Fund to absorb this
variance.
Golf Courses (Schedule 3)
Overall results at the golf courses for the first eight months of the year are on target. Revenue is
tracking slightly better than budget and direct expenses are tracking slightly less than budgeted. The
good weather has led to increased revenues and expenses in Golf Operations, and a net result
which is slightly higher than budgeted expectations ($683,000 actual versus $650,000 budget). Total
revenues over expenses are $473,000 at the end of August,while the budgeted expectation for the
same timeframe was a surplusof $469,000.
Parking Enterprise (Schedule 4)
The Parking Enterprise has a surplusof $309,000, which fell short of the budgeted surplus of
$595,000 by $286,000. Revenues fell short of budget by $598,000,largely due to delayed opening
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at the Civic District garage and lower than budgeted use atthe Charles & Benton garage. The
revenue shortfall was somewhat offset by savings in expenses related to the two garages and lower
than budgetedcosts for snow clearing due to a mild winter.
Water Utility and Sanitary Sewer Utility (Schedules 5 and 6)
The Water Utilityhad a surplus of $1,503,000 to the end of August, which was $1,440,000 better than
the budgeted surplus of $63,000.Sale of water revenues were up compared to budget, by $200,000
due to increased water usage, but expenses for water supply purchases from the Region were down
by $642,000. This trend is consistent with 2011, where the City’s unaccounted for water (unbilled
water)percentage was lower than budgeted. The Region has indicated a similar trend in Cambridge
and Waterloo. The Region has concluded their investigation into this trend, but was not able to
determine the cause for the reduction. This reduction in the cost of water purchases will bereflected
in the 2013 budget.Expenses are also lower in administration due to vacancies in the first part of the
year and in transmission & distribution due to fewer water main breaks so far this year.
The Sanitary Sewer Utility experienced a surplus of $1,576,000, which exceeded the budgeted
surplus of $1,533,000 by $43,000. Sewer surcharge revenues were better thanbudget by $248,000
due to increased water usage, but was offset by sewer rebate expenses and sewer maintenance
costs being over budgetby a combined $228,000.
Storm Sewer Utility (Schedule 7)
The Storm Sewer Utility exceeded budgeted expectations by $537,000 by posting a net surplus of
$1,056,000 instead of the budgeted amount of $519,000. The main factor leading to the surplus is a
reduction in the transfer to the capital fund of $490,000 due to capital closeouts of existing projects
being returned to the utility. In addition, revenueswere up by $175,000based largely on growth,
whileexpenses were higher by $142,000 mainly due to extra maintenance work completed in the
spring because of the mild winter.
Gas Utility (Schedule 8)
Gas Delivery’s revenue over expenses to the end of July was $11.5M which was $2.4M better than
the budget of $9.1M. Gas consumption overall was lower than budgeted due to mild weather, but
revenues were higher than budgeted because the mix of gas sold in the tiered rate groups differed
from budget to the utility’s benefit, and the benchmark transportation rate to date has exceeded
budget. Expenses for Gas Delivery are higher than budget due to an increase in the cost of delivery
partially offset by a reduction in volume.
Gas Supply posted results that were $553,000 betterthan the budgeted net revenue of $1.4M.
Overall volumes in Gas Supply were less than budgeted, but profitability was slightly better than
budget.
Investment Report (Schedule 9)
All investments made were in accordance with the City’s investment policy.Short term investment
yields todate have averaged 1.58%, and average short term investment balances have been higher
than the balances for the same time period in 2011. Together these two factors suggest a surplus in
investment revenues for 2012, assuming similar rates and balances for the other remaining four
months of the year.
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.
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FINANCIAL IMPLICATIONS:
Financial implications are discussed above and detailed in the attached schedules.
COMMUNITY ENGAGEMENT:
Not applicable
ACKNOWLEDGED BY:
Dan Chapman, Deputy CAO (Finance and Corporate Services)
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