HomeMy WebLinkAboutFIN-09-105 - Interim Financial Statement as of June 30 2009
REPORT
REPORT TO:
Councillor B. Vrbanovic, Chair, and Members of the Finance
and Corporate Services Committee
DATE OF MEETING:
August 10, 2009
SUBMITTED BY:
Dan Chapman, General Manager of Financial Services and
City Treasurer
PREPARED BY:
Roger LeBrun, Manager of Financial Planning
WARD(S) INVOLVED:
All
DATE OF REPORT:
August 5, 2009
REPORT NO.: FIN-09-105
SUBJECT:
INTERIM FINANCIAL STATEMENTS AS OF JUNE 30, 2009
RECOMMENDATION:
For information
BACKGROUND:
These interim financial statements for the six months ended June 30, 2009 are provided to
update Council on City expenditures and revenues compared to the 2009 budget and to explain
significant variances. The report includes schedules for Municipal Enterprises as well as
supplementary information related to investment income and tax arrears. This is the first of
three such reports for 2009, with the next reports scheduled for September and December
results.
REPORT:
Deficit Mitigation
On May 5, 2009, staff identified the potential financial impact the economic downturn may have
on the Corporation of the City of Kitchener. Some of the components that were anticipated to
negatively impact the City’s financial results in 2009 included reduced investment income,
below-target supplementary tax revenue and higher tax write offs and rebates. In addition, the
City forecast increased winter control costs as a result of significant activity in the first part of
2009. Of these factors, reduced investment income is anticipated to be the single largest
source of negative variance. While the true extent of the deficit for 2009 will not be identified
until year end, it is estimated that it will exceed the deficit experienced in 2008.
In order to mitigate the effects of this potential deficit, immediate action was taken to address
this situation in 2009 as follows:
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The Senior Leadership Team implemented a series of temporary policies 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 including staff training and
conferences, meeting and meal expenses, memberships and subscriptions, overtime
and on-call, advertising, publicity, promotions and printing.
A review of existing capital projects was undertaken to identify the potential to close out
unexpended capital balances. Normally these funds would be transferred to the capital
pool to fund new capital projects through the annual budget cycle.
Staff is commencing the development of a long-term financial plan which will position the
City to respond to the budgetary challenges highlighted by current economic conditions.
The impact of these policies is being monitored on an ongoing basis by the City’s Corporate
Management Team and Senior Leadership Team on a monthly basis to ensure that the
corporation is achieving appropriate savings in these areas.
The projected cost savings to date of these efforts are summarized in the table below and
amount to approximately $644,000 (includes both tax-based and enterprise budgets).
Expense TypeGrand Total
Advertising$45,200
Conferences/Seminars/Training$133,830
Consulting Fees$15,200
Labour/Overtime$290,332
Maintenance$24,555
Meeting Expenses$4,210
Memberships & Subscriptions$3,260
Miscellaneous$4,540
Partnerships$14,232
Research & Marketing$26,000
Service Level Adjustments$10,000
Staff Resources$45,000
Supplies$27,300
Grand Total$643,659
rdth
and 4, 2009, an extensive review of existing Capital account balances for each
On June 3
department was undertaken as part of a budget control initiative. Each department provided
recommendations for closeouts and options to postpone capital projects or fund them
differently. Departments were able to achieve approximately $9.6 M in capital closeouts
through this process, representing 17% of the total unexpended capital balance. Approximately
$3.2M of closeouts was transferred to the tax based operating fund to help mitigate the
operating deficit.
A detailed breakdown of the $9.6 M in closeouts is attached in Appendix A with a summary of
closeouts by funding source shown below:
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TOTAL
FUNDING SOURCECLOSEOUTS
Capital out of Current (CC)3,246,420
Development Charges1,243,736
Water Enterprise1,117,819
3,699,199
Sewer Enterprise
Reserves244,698
Grand Total9,551,871
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 six months
ended June 30, 2009 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 $513,000 which equates to a negative variance of 0.4% on a
$127,000,000 annual operating budget. The deficit would be approximately $4,389,000 before
taking into account the deficit mitigation initiatives implemented in the first six months of the year
(described in the previous section). Some of the key variances projected to the end of the year
are as follows:
Operations - it is estimated that the Operations division will be over budget by $560,000.
The primary causes pertain to winter maintenance, increased CVOR training and
increased fleet charges. The negative variance has been partially offset by a planned
reduction in overtime costs where applicable as part of the deficit mitigation plan.
DTS Planning/Engineering recoveries – The lower number of site plans and subdivision
applications YTD will likely lead to a shortfall in recoveries and site plan fees of
approximately $380,000.
Community Programs & Services – the delayed opening of the Williamsburg Community
Centre will provide a savings of approximately $85,000. An additional savings of
$115,000 should materialize as a result of deficit mitigation initiatives as well as reduced
staffing costs where appropriate.
Fleet parts – an increase in the cost and use of parts within the Fleet budget has
exceeded budget by approximately $175,000.
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 $1.5M,
much of the supplementary billings and rebates/refunds/reductions occur very late in the
year once information has been processed by MPAC. It is estimated that
rebates/refunds/reductions will increase this year due to the recent reassessment and
current economic conditions, and supplementary taxes will be lower than budget. The
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combined impact is an estimated negative variance of at least $1,500,000. In 2008,
there was a negative variance of $1,203,000 for this budget line.
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 of over 220 basis points, investment income is not
expected to return the same surplus as in previous years and is only expected at this
point achieve 34% of last year’s returns. These factors give rise to a negative variance
of over $1,300,000.
Gapping – the annual budget for gapping is $2,300,000 and there is a year to date
negative variance of $217,000. This figure is difficult to predict due to the variable
nature of staff changes.
The projected deficit of $513,000 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)
For the six months ended June 30, 2009 the net deficit in the Building enterprise was $0.4 M. A
significant contributing factor to this deficit is that building permit revenues are 32% lower than
the level experienced in 2008 YTD. Any net deficit from the operating fund will be funded by the
Building Enterprise Reserve Fund.
Golf Courses (Schedules 3 and 4)
Doon Valley and Rockway Golf Courses are $82,000 below budgeted net revenue year to date,
primarily due to poor weather conditions for the golf season year to date. In addition, the
economic conditions have negatively affected the number of rounds played as well as the
number of memberships sold.
A question was asked at Audit Committee on June 29, 2009 regarding the issues that gave rise
to the opening accumulated deficit at Rockway Golf Club. In 1996, there was an upgrade made
to the clubhouse along with other capital expenditures for approximately $900,000. This
expense was financed through a 10-year debenture which was budgeted for in the Rockway
operating budget projections. During that time period, the National Golf Course Owners
Association approached the City of Kitchener regarding a “level playing field” with the golf
course dividends that were being paid to the City. The conclusion of that process was that the
dividend payment to the City would be increased to be the equivalent to municipal taxes and
income taxes for the golf course operation which took place as of 2002. This increased financial
pressure had a negative impact on Rockway due to the debenture payments that were being
incurred on their operation and resulted in an accumulated deficit. Projections for the golf
course on budget day indicated that Rockway would be in a surplus position by 2011.
Water Utility and Sanitary Sewer Utility (Schedules 5 and 6)
The Water Utility, prior to consideration of capital closeouts, fell short of budget projections by
approximately $243,000, primarily due to significant rainfall experienced in the summer which
resulted in lower water sales. The water utility identified $1.1M in capital closeouts which has
resulted in a favourable variance of approximately $857,000.
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The Sanitary Sewer Utility, prior to consideration of capital closeouts, fell short of budget
projections by approximately $1,840,000 and is attributed to the following:
The water consumption forecast was not achieved during the year YTD, which reduced
surcharge revenue in the Sanitary Sewer Utility; and
Increased inflow and infiltration due to high precipitation levels which led to an increase
in the cost of sewage processing from the Region of Waterloo.
The Sanitary Sewer utility received $3.7M in closeouts. The impact of these transfers has
resulted in sewer realizing a YTD surplus of approximately $994,000 as of June 30.
Gas Utility (Schedule 7)
The Delivery Operations and Other Programs are trending as expected relative to budget as of
1
May 31, 2009. Expenses in the Contact Centre are higher than budget due to the need for
more part time dispatchers than what was considered in the budget.
The Supply Company revenues are higher than budget due to increased consumption in
combination with an increased retail rate than originally budgeted for in the latter 2 months.
Expenses as a percentage of revenue are higher than budget since gas from inventory at a
higher value was used to supply the increase in consumption.
Investment Report (Schedule 8)
Investment income is expected to have a negative variance for 2009 of approximately
$1,300,000 due to market rates having fallen significantly as well as a lower overall short term
investment balances. Rates are expected to remain flat-lined for the remainder of 2009.
Taxes Receivable (Schedule 9)
Taxes receivable of $98.6 M at June 30, 2009 was $2.9 M higher than at the same time in 2008.
Taxes due from previous years billings increased by $1.25 M.
FINANCIAL IMPLICATIONS:
Financial implications are discussed above and detailed in the attached schedules. All amounts
are unaudited and may be subject to adjustment through the audit process.
COMMUNICATIONS:
N/A
ACKNOWLEDGED BY:
Dan Chapman (General Manager of Financial Services and City
Treasurer)
1
one month timing delay necessary to establish accurate actual results
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