Transcript Slide 1

Accumulated Operating Fund Surplus
January 14, 2013
Recommendations

THAT Council confirm its existing policy to
retain Accumulated Surplus (up to 4% of
operating expenditures).

THAT Council authorize the annual transfer
of accumulated surplus exceeding Council’s
policy to the Capital Works Reserve to help
address future projected capital shortfalls.
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Background

Accumulated Surplus:
 Consists of Annual Surpluses, accumulated over
the years.
 Is reported in the Audited Financial Statements
annually:
Accumulated Surplus

2010
$4.369 M
2011
$4.893 M
2012
$4.752 M
For 2013, a modest Annual Surplus is
expected, increasing Accumulated Surplus
marginally.
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Current Council Policy

In 2001, Council confirmed their policy pertaining
to Accumulated Surplus:
“A minimum General Revenue Fund surplus retention of 4.0% of total
annual expenditures based on the average of the last three years
actual expenses is established….”



Current Accumulated Surplus balance $4.746
million
Preliminary estimates on minimum required
balance for 2014 is $3.895 million
Identifies $851,000 excess recommended for
Capital Works Reserve
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Rationale for Current Council
Policy

There are 4 reasons why the 4% retention policy
can be considered a sound, sustainable financial
practice:
1.
2.
3.
4.
Provides cash flow
Sets aside funds for anticipated future expenditures
Maintains a ‘rainy day’ fund for unanticipated
emergency expenditures
Provides a reserve for budget miscalculations or
unforeseen drops in revenues
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Cash Flow





Tax and User Fee collections occur in July of
each year
Total levy is approximately $34 Million
Require $17 Million “in the bank” to cover
operating expenses from Jan-Jul each year
Current reserve levels are projected to shrink
below $17M over the course of the 5-year
plan
Retention of Accumulated Surplus critical to
eliminate need for short-term borrowing to
sustain operations.
6
Anticipated Future Expenditures




$8 Million annual amortization on Tangible
Capital Assets
This amortization expense is currently
unfunded
Tangible Capital Assets continue to age with
little provision currently being made to
address future capital shortfall
Recommendation to place any excess
Accumulated Surplus above the 4% retention
into the Capital Works Reserve to address this
shortfall
7
Emergency & “Rainy Day” Funds

Emergency situations are unplanned but can
have major financial implications
 Unusual weather events
 Earthquake
 Police incidents


Accumulated Surplus acts as a contingency for
such unplanned expenditures
“Rainy day” funds can be used for emergent
strategic priorities
 Downtown Revitalization
 Emergent land acquisitions
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Budget Miscalculations


Budget consists of many assumptions & estimates
Sometimes errors occur
 2013 Yard Waste budget error
 This error was corrected through use of Annual
Surplus (due to other department underages) and
not Accumulated Surplus


Staff do not use Accumulated Surplus to balance
or offset unbudgeted costs without Council
approval
Accumulated Surplus provides a cushion to offset
any such errors should they be beyond the
amount that can be absorbed within any Annual
Surplus (budget amendment would be required)
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Use of Accumulated Surplus for
One-Time Tax Relief

Any transfers from Accumulated Surplus for
ongoing items (including lowering taxes)
must continue every year thereafter to
prevent a larger tax increase in each year
2013
Operating Budget
25,000,000
Current Yr. Increase
Total Op. Budget
25,000,000
2014
Increase
2015
Increase
25,000,000
25,417,000
417,000
417,000
25,417,000
2.25%
25,834,000
4.5%
Use of Acc. Surplus
(417,000)
(2.25%)
0
0%
Required Tax Levy
25,000,000
0.00%
25,834,000
4.5%
1
Legislation



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No governing legislation specific to
Accumulated Surplus
City’s revenues and expenditures must be
balanced
Debt may be incurred only under specific
circumstances
City must comply with PSAB reporting
principles
 TCA & Amortization
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Other Municipalities


District of Mission Reserve and Surplus policy recognized by
GFOABC as “Best Practices”
Mission’s Accumulated Surplus retention policy is based on
minimum & optimum thresholds:
 Accumulated Surplus - 1 to 2 month operating expenditures
 Financial Stabilization – 1 to 2.5% operating revenues

Using Mission’s policy, City’s Accumulated Surplus is above
minimum but below optimum levels
Op
Expenses
(2013)
Accumulated
Surplus
Stabilization
Reserve
Total
Op
Revenues
(2013)
$33,229,000
$19,958,000
Minimum
Optimum
$2,769,000
$5,538,000
$200,000
$499,000
$2,969,000
$6,037,000
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Accumulated Surplus Use in Past
Three Years

Activity per Appendix A of Council Report:
 Annual Surplus of each fiscal year accumulates
 Budget Carryforward items
 Reserve transfers


Accumulated Surplus not used to balance budget
without Council approval
Unbudgeted items require budget amendment
unless absorbed by current year Annual Surplus
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Questions?
14