1. To provide an overview of the September
year-to-date financial results and year-end projection.
2. To outline the requirements of
Ontario Regulation 284/09, in order to provide information to Council as
directed by the Regulation.
1.
September 2010 Year-To-Date Review of Operations and Year-End
Projection
BACKGROUND
There are 5 operating budgets that
are monitored on a monthly basis. The Town’s
primary operating budget (excluding Planning & Design, Engineering,
Building Services and Waterworks) is to support the Town’s day-to-day operations.
The remaining 4 budgets include Planning
& Design, Engineering, Building Services and Waterworks Operating Budgets,
and they are shown separate from the Town’s Operating Budget as they are
primarily user fee funded (e.g. planning and engineering fees, building permit revenue
and revenues based on water consumption, respectively) and separate reserves
have been established for each.
Departments provide details of
significant financial variances (actual to budget) in their areas. The variances are reviewed, substantiated and
summarized by the Financial Planning
department. Minor variances are reviewed by staff, but not discussed in detail
in this report.
OPTIONS/ DISCUSSION
YEAR-TO-DATE OPERATING BUDGET VARIANCES:
Town
At the end of nine months, the 2010 operating budget (excluding Planning
& Design, Engineering, Building Services and Waterworks) results reflected
an overall $3.940M favourable variance.
The $3.940M favourable variance was comprised of variances in three
main areas of the Town’s operating budget:
$1.700M
favourable variance in Non-Personnel Expenditures
$1.164M
favourable variance in Personnel Expenditures
$1.076M favourable variance in Revenues
$3.940M
The next few sections provide details of the variances above, and details
of the Planning & Design, Engineering, Building and Waterworks year-to-date
variances.
NON-PERSONNEL EXPENDITURES
At the end of September, Non-Salary expenditures were $1.700M
favourable.
|
Non-Personnel Items
|
Fav. / (Unfav.)
|
|
Materials & Supplies
|
$0.927 M
|
|
Purchased Services
|
$0.905 M
|
|
Other Expenditures
|
($0.132 M)
|
|
Total Non-Personnel Favourable
Variance
|
$1.700 M
|
Materials & Supplies
The favourable
variance of $0.927M in Materials and Supplies was due to the following
accounts:
- $0.421M favourable variance in operating materials &
supplies driven primarily by timing of library materials purchases;
- $0.310M favourable variance in winter maintenance driven
primarily by less usage of salt;
- $0.148M favourable variance in vehicle fuel due to lower fuel
costs;
- $0.059M favourable variance in office supplies
Purchased Services
The favourable
variance of $0.905M in Purchased Services was due to the following accounts:
- $0.488M favourable variance in winter maintenance driven by
lower requirements for tandem axles and hired loaders due to favourable
weather conditions;
- $0.331M favourable variance in training, travel, promotion
& advertising and professional services due to timing;
- $0.265M favourable variance in other contracted services (i.e.
road maintenance) among various departments due to timing;
- $0.055M favourable variance in utilities offset streetlight
hydro across the Town due to lower consumption
- ($0.151M) unfavourable variance in external legal fees;
- (0.098M) unfavourable variance in maintenance and repair
materials
PERSONNEL EXPENDITURES
The September year-to-date personnel expenditure
variance was $1.164M favourable:
|
Salary Expenditures Items
|
Fav./(Unfav.)
|
|
Full Time Salaries net of vacancy
backfills
|
$2.224
|
M
|
|
Overtime
|
($0.211)
|
M
|
|
Other Personnel Costs
|
($0.394)
|
M
|
|
Favourable Variance before Salary Gapping
|
$1.619
|
M
|
|
Salary Gapping
|
($0.455)
|
M
|
|
Salaries & Benefits Favourable
Variance
|
$1.164
|
M
|
The $2.224M favourable variance in full time salaries
net of vacancy backfills was the result of 33 net vacant positions. The unfavourable variance of ($0.211M) in
overtime was due to the Fire Department, however when compared to the third
quarter of 2009, there was a $0.767M improvement driven by the filling of 15
firefighter vacancies.
The other personnel costs was unfavourable by ($0.394M)
due to ($0.282M) in part-time costs in the Sustainability Office ($0.130) and
Operations – Roads department ($0.053M).
Further, the 2010 budget included $0.455M of annual salary
gapping savings which has been fully allocated to the individual business
units.
REVENUES
At the end of September 2010, revenues were
favourable by $1.076M due to the followings:
|
Revenue Items
|
Fav./(Unfav.)
|
|
Taxation Revenue
|
$0.443
M
|
|
User Fees and Service Charges
|
$0.218 M
|
|
Grant & Subsidy Revenues
|
$0.190
M
|
|
General Revenues
|
$0.001
M
|
|
Other Income
|
$0.224
M
|
|
Net Favourable Variance
|
$1.076
M
|
Taxation Revenue
Taxation revenue is favourable by $0.443M due to assessment tax
revenue resulting from 2010 actual assessment of 2.45% compared to the budget
of 2.00%.
User Fees and Service Charges
The favourable variance of $0.218M was due to the
following accounts:
·
$0.146M
favourable variance in Recreation revenue resulting from program revenue
$0.065M, ice rental $0.060M, aquatics $0.033M and gym rental $20k; offset by
camp revenue ($0.063M)
·
$0.124M
favourable variance in Library revenue due to fundraising and program
registration revenue
·
$0.078M
favourable variance in legal revenue from accelerated developer agreements as a
result of the Region of York Development Charges rate increase
·
($0.060M)
unfavourable variance in Fire dispatch fees due to the cancellation of the
Whitchurch-Stouffville contract and lower accident attendance revenue
Grant & Subsidy Revenues
The favourable variance of $0.190M
was mainly due the Waste Diversion Ontario grant $0.121M.
Other Revenues
The favourable variance of $0.224M
was mainly due the Financial Services Administrative Fees from accelerated subdivision
agreements as a result of the Region of York Development Charges rate increase.
Further details on the Town’s
Operating results are provided in Appendix 1.
PLANNING &
DESIGN
Planning & Design reported the September year-to-date result
favourable by $1.940M (see Appendix 2). This was due to a favourable variance
of $1.985 in revenues, offset by a total unfavourable variance of ($0.045M) in part-time personnel and
non-personnel costs.
ENGINEERING
Engineering reported a year-to-date favourable variance of $3.804M (see
Appendix 3). The favourable revenue
variance of $3.652M is due to higher user fees resulting from higher
development application activity, and a favourable variance of $0.152M in
personnel due to vacancies and non-personnel expenditures.
BUILDING SERVICES
Building Services reported a favorable
variance of $1.237M at the end of nine months (refer to Appendix 4). The favourable variance was due to $0.284M in
personnel and non-personnel costs, and $0.953M from higher building permit
revenues.
WATERWORKS
Waterworks reported a year-to-date favourable
variance of $0.678M at the end of September (see Appendix 5).
The favourable variance
was due to favourable variances in non-personnel costs of $0.807M due to water
and wastewater construction activity, user fees and other charges $1.065M, and personnel
costs of $0.222M as a result of 4 YTD net average vacancies; offset by an unfavourable
variance of ($1.416M) from net sales and purchases. The department is working with the Region of
York to analyze the high purchases and is withholding $1.2M of water invoices. Should the discussion/analysis conclude these
invoices need not be paid, the additional $1.2M would be added to the year-end
surplus.
ECONOMIC KEY INDICATORS
In 2009, Staff identified 15 key economic indicators to be monitored
due to the economic downturn. These
indicators are as follows:
1.
Building Revenues
2.
Planning Revenues
3.
Engineering Revenues
4.
Building Reserve Balance
5.
Planning & Engineering
Reserve Balance
6.
DC Revenues
7.
Winter Maintenance
8.
Financial Services Administration
Fees
9.
Legal Fees
10.
Recreation Revenues
11.
Theatre Revenues
12.
Art Gallery Revenues
13.
Museum Revenues
14.
Investment Income
15.
Streetlight Maintenance
Additional details are provided on the first seven indicators
below. The other indicators are either
trending favourably or on budget.
Development Related
Revenues
The development related revenues include planning, engineering and
building fees. These revenues have shown
significant growth in the first nine months in 2010 compared to the same period
in 2009, due to accelerated development activities in order to avoid a Region
of York Development Charges (DC) rate increase through an update to the DC
bylaw update. This is evident in the chart below which outlines the declining trends
in the years 2006-2009, followed by a rebound in 2010.
YTD September Actual Development Related Revenues
Development Charges
(DC) Revenues
The DC Revenues in the first nine months of
2010 are higher compared to the same period in 2009 due to an increase in new
subdivision agreements. DC Revenues
peaked in 2007 as a result of increased development activity prior to the
Region of York’s development charges by-law update, which also contributed to
lower 2008 DC revenues. In addition, the economic downturn had negatively
impacted development activity and DC revenues in 2008 and 2009. Another
update to the Region of York’s development charges by-law has contributed to an
increase in new subdivision agreements in 2010. As a result of the increase in
new subdivisions, DC Revenues in the first nine months of 2010 are higher when
compared to the same period in 2009.
YTD September Actual DC Revenues
Expenditures
Staff also continued to monitor the spending on winter maintenance. The
winter maintenance costs were lower in the first nine months of 2010 compared
to the same period in 2009 due to the milder winter. The
winter maintenance expenses peaked at 2009 due to the severe winter conditions.
YTD September Expenditures
YEAR-END PROJECTION
Town
Based on the September year-to-date results, it is anticipated that
the year-end projection will range from on budget to $1.000M favourable including
funding for the year-end accounting accruals of $2.100M.
It is expected that the year-end revenue variance will range from
being on budget to $0.500M favourable resulting from higher Provincial Offenses
Act Revenue (one time revenue), Supplement Tax Revenue, Assessment Tax Revenue (2.45%
actual assessment growth versus 2.00% budgeted growth) , Financial Services
Administration Fee and Legal Revenue (due to higher development charges
received from accelerated subdivision agreements as a result of the Region DC
rate increase), Library and Recreation Revenues and Waste Diversion Ontario grant,
offset by lower revenues from Museum rental and sponsorship revenue, Fire
revenue due to lower inspection fees and vehicle accident fees, and sales of
blue boxes and green bins.
The year-end
expenditure variance will range from being on budget to $0.500M
favourable. This variance is due to
favourable personnel expenditures resulting from vacancies and lower than
budgeted fuel cost, offset by an unfavourable variance in external legal fees.
Planning & Design
and Engineering
Planning & Design is projecting a year-end surplus of $2.065M compared to a budgeted
surplus of $0.157M. This will result in
an additional transfer to reserves of $1.908M compared to budget.
Engineering is projecting a year-end surplus of $2.398M compared to a budgeted
deficit of ($1.570M) compared to budget.
Building Services
The budget anticipated a draw from reserves of ($1.190M) in order to
achieve a balanced budget. The improved projected
year end deficit will result in a draw of ($1.190M) from reserves, which is a
lower draw of $1.534M.
Waterworks
Based on the September
year-to-date results, Waterworks is projected to be in the range of unfavourable
by ($0.900M) to being on budget by year end.
The unfavourable variance from net sales and purchases from higher
unmetered usage, will be offset by the favourable variance from personnel
resulting from vacancies, non-personnel expenditures and higher other revenues. The department is working with the Region of
York to analyze the high purchases and is withholding $1.2M of water
invoices. Should the discussion/analysis
conclude these invoices need not be paid, the additional $1.2M would be added
to the year-end surplus.
2.
Additional Financial Disclosure
Requirements Pursuant to Ontario
Regulation 284/09
BACKGROUND:
The Public Sector
Accounting Board (PSAB) has issued several new requirements for financial
reporting that all municipalities must comply with, commencing with the 2009
reporting period. The Town’s 2009
financial statements, specifically the Accumulated Surplus, now include the
impact of Tangible Capital Asset (TCA) amortization, and the full accrual
method of accounting.
Ontario
Regulation 284/09 states that municipalities may exclude from budget, all or a
portion of the estimated cost of certain expenses. Exclusion of these expenses allows for
preparation & presentation of a traditionally balanced budget. Expenses eligible for exclusion from budget
are:
1.
Amortization,
2.
Post-employment benefits, and
3.
Solid waste landfill closure
and post closure expenses.
Further, the
Regulation states that if any of these expenses are excluded from the 2010
budget, the impact of the exclusions must be reported to Council within 60 days
of Council receiving the Town’s audited financial statements for 2009. For 2011 and subsequent budget years, the
report must be presented to Council prior to adopting the budget.
The Regulation
requires that the report contain the following information:
1.
An estimate of the change in
the accumulated surplus of the Town to the end of the year resulting from the
exclusion of any expenses, and
2.
An analysis of the estimated
impact of the exclusion of any expenses, on the future TCA funding requirements
of the Town.
DISCUSSION:
The Town of
Markham adopted the traditionally balanced 2010 budget on November 10, 2009,
which excluded the following expenses:
1.
The budget did not include an expense
for the amortization of its tangible capital assets in the sum of $52.9M, however,
the budget did include reserve contributions of $32.1M to the Life Cycle
Replacement & Capital and Waterworks reserve funds.
The
Life Cycle Replacement Reserve and the Waterworks Reserve were established in
2005 & 2007 to address the funding requirements for on-going capital
replacements and preventative maintenance of the Town’s capital assets over its
useful life. The Town does annual
reserve studies to ensure there is adequate funding in these reserve funds for
the next 25 years. The last update was
presented to Council in June 2009 which concluded that based on the 2009
updated reserve study, there is sufficient funds for the major replacement and
rehabilitation of existing assets with known work programs for the next 25
years (2010 to 2034) save and except for some work related to flood control
allowance, town-wide stream erosion control, watercourse management and
stormwater asset management. These excluded programs are currently reviewed as
part of a stormwater rate study. The
2010 update is completed and will be presented in January 2011 to the Budget
Sub-Committee.
2.
The budget did not contain the
current year’s post employment benefit expenses totaling $0.7M for employees. However, the Town has fully funded the post
employment benefit obligations through favourable year-end surpluses.
3.
All expenses related to the
former Sabiston landfill site are included in the budget and are therefore not
further mentioned in this report.
The 2010 budget,
re-stated in accordance with the full accrual method of accounting and Ontario
Regulation 284/09, is detailed in exhibit 1.
As reported in
the Audited Financial Statements, the Town’s Accumulated Surplus at the end of
2009 was $3,453.3M. Re-stating the
budget in PSAB & Ontario Regulation 284/09 format, nets an additional
budget surplus for 2010, in the amount of $0.7M. Therefore, the projected Accumulated Surplus
for the year ending December 31, 2010 is $3,454.0M ($3,453.3M + $0.7M =
$3,454.0M).
According to the
full accrual method of accounting, the $52.9M TCA amortization (item A) and
$0.7M Post employment Benefits (item B) would be budgeted as expenses and would
decrease the projected year end surplus.
Also, an estimated $12.4M for expenditures, included in the Capital
budget, that are not considered Tangible Capital Assets (item C), would be
added to the operating expenses, further decreasing the annual surplus. The budget would, at this point, show a
deficit projection of $66.0M ($52.9 + $0.7 + $12.4).
The impact would
be mitigated by changes to how reserve and reserve fund transfers are accounted
for under the full accrual method of accounting. Operating budget transfers to reserve funds
and transfers from obligatory reserve funds (such as Development Charges
Reserve Funds) to fund capital, are now reflected in the statement of
operations as revenues only. This change
made to the 2010 budget would add estimated net revenues of $66.7M to the
projected year end surplus ($38.4M additional revenue (item D) plus $3.3M of
MEC dividend to the Town (item E) plus $25.0M reduction to expenses (item F)).
The final,
re-stated budget for 2010 projects a surplus of $0.7M (item G). Accordingly, the Accumulated Surplus would be
projected to increase from $3,453.3M at the end of 2009, to $3,454.0M at the
end of 2010.
In future years,
this schedule will be included as part of the budget approval process.
FINANCIAL CONSIDERATIONS:
While there are
no direct financial implications associated with this report, information
contained herein will be reflected in the 2010, and all future annual audited
financial statements.
ALIGNMENT WITH STRATEGIC PRIORITIES:
Not applicable
DEPARTMENTS CONSULTED AND AFFECTED:
Not applicable
RECOMMENDED BY:
