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HomeMy WebLinkAboutFIN-09-155 - Interim Financial Statements as of September 2009REPORT REPORT TO: Councillor B. Vrbanovic, Chair, and Members of the Finance and Corporate Services Committee DATE OF MEETING: November 16, 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: November 10, 2009 REPORT NO.: FIN-09-155 SUBJECT: INTERIM FINANCIAL STATEMENTS AS OF SEPTEMBER 30, 2009 RECOMMENDATION: For information BACKGROUND: These interim financial statements for the nine months ended September 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. 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 would exceed the deficit experienced in 2008 if unmitigated. Many areas of the City’s operating departments have been impacted in some way as a result of the economic downturn in the economy in 2009. Estimates of the impact are $3.5 million to the tax-based operating section and $1 million to the various enterprises. Some of the specific areas that have experienced reduced revenues to date include: Engineering fees ê ó ï Building permits Investment income Supplementary taxes Fees for plans of subdivisions Cemetery pre-sales Special events sponsorships Food and beverage sales at the golf courses In order to mitigate the effects of this potential deficit, 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. The projected cost savings of these efforts to date amount to approximately $733,000 ($578,000 for tax-based and $155,000 for enterprise budgets). In addition, a review of existing capital projects was undertaken to identify the potential to close out unexpended capital balances. The total amount of capital closeouts identified to date is $3,615,420 for Capital out of Current (CC). 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 nine months ended September 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 $385,000 which equates to a negative variance of 0.3% on a $127,000,000 annual operating budget. The deficit would be approximately $4,578,000 before taking into account the deficit mitigation initiatives implemented in the first nine 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 $612,000. The primary causes pertain to winter maintenance which has a negative projected variance of $552,000. 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 $309,000. 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 $174,000. ê ó î 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 combined impact is an estimated negative variance of $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 $400,000. This figure is difficult to predict due to the variable nature of staff changes. The projected deficit of $385,000 will continue to 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. Building Enterprise (Schedule 2) For the nine months ended September 30, 2009 the net deficit in the Building enterprise was $488,000. A significant contributing factor to this deficit is that building permit revenues are 27% lower than the level experienced in 2008 YTD. Ongoing deficit mitigation efforts within the Building Enterprise have helped to minimize some of the effects of the lower building permit revenue. 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 $168,000 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 junior memberships sold. Both golf courses have seen reduced canteen sales per capita as well. 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 $262,000, primarily due to significant rainfall experienced in the summer and reduced industrial consumption which resulted in lower water sales. The water utility identified ê ó í $1.1M in capital closeouts which has resulted in a favourable variance of approximately $856,000. The Sanitary Sewer Utility, prior to consideration of capital closeouts, fell short of budget projections by approximately $2,670,000 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 $1,217,000 as of September 30. Gas Utility (Schedule 7) The Delivery Operations revenues and Other Programs are trending as expected relative to 1 . Expenses in the Contact Centre are higher than budget due to budget as of August 31, 2009 the need for more part time dispatchers than what was considered in the budget. The Supply Company revenues are higher than budget due to an increased retail rate than originally budgeted for in the latter 2 months despite a modest decrease in the consumption. Expenses as a percentage of revenue are higher than budget since gas was used from inventory at a higher value 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 by 60% and an overall average reduction of 12% in the short term investment balances. Rates are expected to remain flat-lined for the remainder of 2009. Taxes Receivable (Schedule 9) Taxes receivable were $69.1 million at September 30, 2009. Taxes due from previous years billings had increased slightly by approximately $1.0 million in comparison to the same point last year, however the arrears continue to decline as collections are made each month. 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 1 one month timing delay necessary to establish accurate actual results ê ó ì ACKNOWLEDGED BY: Dan Chapman (General Manager of Financial Services and City Treasurer) ê ó ë ê ó ê ê ó é ê ó è ê ó ç ê ó ïð ê ó ïï ê ó ïî ê ó ïí ê ó ïì ê ó ïë ê ó ïê ê ó ïé