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HomeMy WebLinkAboutFCS-17-170 - 2017 August Variance Report REPORT TO: Committee of the Whole DATE OF MEETING: October 16, 2017 SUBMITTED BY: Ryan Hagey, Director of Financial Planning 519-741-2200 Ext 7353 PREPARED BY: Debra Fagerdahl, Manager of Financial Planning 519-741-2200 Ext 7114 WARD(S) INVOLVED: All DATE OF REPORT: September 29, 2017 REPORT NO.: FCS-17-170 SUBJECT: 2017 August Variance Report ______________________________________________________________________ RECOMMENDATION: For Information BACKGROUND: Staff prepares a variance report three times per year reflecting results as at the end of April, August and December. This is the second report to Council regarding the City’s financial performance versus the 2017 budget as at the end of August. This variance report would typically be included in the Finance and Corporate Services Committee agenda, but this meeting was very early in the month (October 2) and projected results were not available. Instead, the August variance report is being included in the October 16, Committee of the Whole agenda. The report and attached schedules include information regarding: ·tax supported services ·rate supported enterprises/utilities, and ·supplementary information related to investment income Variances in an organization’s in-year financial results are normal as operations rarely exactly reflect budgeted expectations. Because of this, the City maintains stabilization reserves which have minimum/maximum targets based on the variability of the associated activities. * ** This information is available in accessible formats upon request. *** Please call 519-741-2345 or TTY 1-866-969-9994 for assistance. 5.- 1 REPORT: Operating Fund – Tax Base (Schedule 1) Staff is currently projecting a small deficit of $490,000 in tax supported operations in 2017. The deficit equates to a .3% variance on an operating budget of $180M. Significant projected tax supported variances (over $200,000) are summarized below. Additional details are provided in Schedule 1 for variances that exceed $50,000 and/or 10% of budget. Significant Projected Variances (over $200,000) Infrastructure Services: · Engineering Administration is projecting a surplus of $300,000 largely resulting from increased engineering revenues due to subdivision application review fees. Revenue received fluctuates from year to year based on applications. · Facilities Management is projecting a surplus of $260,000 largely resulting from savings realized because of lower utilities costs due to the cool/wet summer and the temporary closure of some recreational city facilities. This surplus was partially offset by higher maintenance and material costs that continue to impact operating costs at City facilities. · Operations - Environmental Services- Parks, Opens Spaces and Forestry is projecting a deficit of $495,000 resulting from unbudgeted equipment costs and flood clean up. · Operations - Roads & Traffic - Right of Way Maintenance is projecting a deficit of $300,000 resulting from unbudgeted equipment costs and additional garbage pickup costs caused by the change in the Region of Waterloo’s garbage pick-up schedule. General Expense: · Gapping is projecting a deficit of $750,000 due to staffing and benefit costs being close to budget. · Contract Services is projecting a deficit of $200,000 due to the forgiveness of the Kitchener Waterloo Humane Society’s outstanding contractual obligation ($209,335) - Ref: Report # CSD-17-079 General Revenue: · Supplementary Taxes/Write-Offs is projecting a deficit of $350,000 due to minutes of settlement for large commercial appeals. · Tax Payment in Lieu (PIL) is projecting a surplus of $225,000 resulting from new property assessments (Regional Landfill, Corrections Centre and Courthouse). · Investment income is projecting a surplus of $425,000 due to the recent rate increase not assumed in budget. 5. - 2 Enterprises – (Schedules 2 to 8) For the period of January to August, Enterprise results as a whole were $1.6M worse than budget. Variances within the Enterprises range from a positive variance of $2.3M (Gas Supply) to a negative variance of $1.3M (Gas Delivery). Details of each Enterprise are noted below. Building Enterprise (Schedule 2) Net Results Variance ($000's) Actual Budget Favourable/ (Unfavourable) The Building Enterprise has a deficit of $1.1M which is $1.2M worse than the budgeted surplus. This is largely due to lower revenues from permits in single detached and row houses. The increased activity in the last quarter of 2016 led to the shortfall in the first quarter of 2017. Golf Courses (Schedule 3) Net Results Variance ($000's) Actual Budget Favourable/ (Unfavourable) The Golf Enterprise has a surplus of $447,000 which is $261,000 worse than the budgeted surplus. This is due to the wetter than average season and flooding. Parking Enterprise (Schedule 4) Net Results Variance ($000's) Actual Budget Favourable/ (Unfavourable) The Parking Enterprise has a surplus of $720,000 which is $435,000 better than the budgeted surplus. This is due to higher demand at City parking facilities. Also contributing to the surplus is lower expenses due to lower than expected property taxes and lower utility and wage costs. 5. - 3 Water Utility (Schedule 5) Net Results Variance ($000's) Actual Budget Favourable/ (Unfavourable) The Water Utility has a surplus of $2.5M, which is $610,000 better than the budgeted surplus. This is mainly due to watermain break expenses being less than expected and the recovery from the Region of Waterloo for prior period shared maintenance and water main break repairs. Sanitary Sewer Utility (Schedule 6) Net Results Variance ($000's) Actual Budget Favourable/ (Unfavourable) The Sanitary Sewer Utility has a deficit of $617,000 which is $892,000 worse than the budgeted surplus. This is due to higher than expected sewage processing costs caused by the wetter than average spring and summer. This was offset by lower than expected staffing costs as resources were reallocated to the Storm Sewer Utility based on work demands. Storm Sewer Utility (Schedule 7) Net Results Variance ($000's) Actual Budget Favourable/ (Unfavourable) The Storm Sewer Utility has a surplus of $1.1M which is largely on budget. Higher than expected maintenance costs due to spill response and increased work on manhole casting and pipe repairs spill were offset by higher than budgeted revenues due to growth and external recoveries. 5. - 4 Gas Utility (Schedule 8) Variance Net Results Actual Budget Favourable/ ($000's) (Unfavourable) Gas Utility - Overall the Gas Utility has a deficit of $3.9M which is $267,000 worse than the budgeted deficit. Revenues in all gas companies were under budget due to less than anticipated consumption as a result of a milder than average winter. The milder winter has been documented in the Monthly Financial Indicator for Heating Degree Days shown below. Heating Degree Days for the first eight months of 2017 were 91% of the 5-year benchmark, which means the weather was milder than average. Milder weather translates into less need for natural gas heating, and therefore lower sales revenue for the City’s gas utility. Lower than expected gas commodity prices in Gas Supply more than offset the impact of lower revenues for that part of the natural gas utility. Heating Degree Days 800 700 600 500 400 300 200 100 - JanFebMarAprMayJunJulAugSepOctNovDec Benchmark 73771855138013645142399256447551 Actual 65253859828321446-35 Benchmark year-to-date heating degree days 2,604 Actual year-to-date heating degree days 2,366 5. - 5 Gas Delivery has a deficit of $1.1M which is $1.3M worse than budgeted surplus. The milder winter was a major contributing factor leading to lower than budgeted consumption as well as increased costs under the Union Gas T3 contract. This increase was to cover the expansion and renewal of capital infrastructure on Union Gas’s transmission system and other transmission related costs. The impact of the T3 contract was highlighted in Report # INS-17-21(March 20, 2017). Gas Supply has a deficit of $2.9M which is $2.3M better than the budgeted deficit. Decreased revenues from lower than expected gas sales were more than offset by the lower than expected price of the gas commodity. Gas Transportation has a surplus of $233,000 which is $1.2M worse than the budgeted surplus. This is mainly due to decreased revenues from lower than expected gas sales and higher than expected transportation prices. Gas Carbon has a deficit of $105,000 which is $89,000 worse than the budgeted deficit. This is mainly due to decreased revenues and expenses from lower than expected gas sales. Based on the current rates, surpluses and deficits, there is an expectation that any excess or shortfall of stabilization reserve requirements will be addressed during the next rate change (November 2017). Investment Report (Schedule 9) All investments made were in accordance with the City’s investment policy. Short term investment yields to date have averaged 1.41%, and average short term investment balances remain high. ALIGNMENT WITH CITY OF KITCHENER STRATEGIC PLAN: The recommendation of this report supports the achievement of the city's strategic vision through the delivery of core service. FINANCIAL IMPLICATIONS: Financial implications are discussed above and detailed in the attached schedules. COMMUNITY ENGAGEMENT: Inform - This report has been posted publicly as part of the agenda to inform the public. ACKNOWLEDGED BY: Michael Goldrup, Acting Deputy CAO (Finance and Corporate Services) 5. - 6 7 - 5. 8 - 5. 9 - 5. 10 - 5. 11 - 5. 12 - 5. 13 - 5. 14 - 5. 15 - 5. 16 - 5. 17 - 5. 18 - 5. 19 - 5. Schedule 9 Page 1 * includes average balance in the overnight bank account This graph compares the yields for:1)City investments2)Interest rate for City bank account with CIBC 20 - 5. Schedule 9 Page 2 Average Interest Rate 2017 = 1.41%Average Interest Rate 2016 = 1.47%