Report to: General
Committee – Finance &
Administrative Date of Meeting: 2007-Apr-16
SUBJECT: 2006 Review of
Operations
PREPARED BY: Fuwing Wong, Manager Financial Planning
RECOMMENDATION:
THAT the
report dated March 26, 2007
entitled “2006 Review of Operations” be received;
AND THAT
the final 2006 Operating Surplus for the Town of Markham (“Town”) and the Waterworks
Department be transferred in 2007 to the Town’s respective reserves in
accordance with the Town’s reserve policy.
EXECUTIVE SUMMARY:
For the year
ended December 31, 2006
the operating budget results (excluding Waterworks and Building Standards)
reflect a net favourable variance of $2.137M.
The $2.137M favourable variance is comprised of $0.423M favourable
variance in Revenues and $1.714M favourable variance in Expenditures (Appendix
1), as shown below:
Further details
of all variances are available in the Discussion section of this report.
Waterworks ended the
year with a $1.475M net favourable variance.
This variance was mainly due to a favourable variance of $0.735M for the
sale and purchase of water, $0.352M in personnel costs and $0.359M for
purchased services (Appendix 2).
Also, at the end of the year, Building Standards had an operating
deficit and $2.378M had to be transferred from Building Fee reserve to fund the
shortfall. This was mainly due to lower than expected building permit revenue
resulting in an unfavourable variance of $3.049M in revenue which was partially
offset by a favourable variance of $0.655M in personnel expenses and other
non-personnel favourable variances $0.016M (Appendix 3). Building Standards and Finance staff are
consulting with housing analysts and other municipalities and mining historical
data to help refine the revenue projections for 2007. A joint report is being prepared.
FINANCIAL CONSIDERATIONS:
The
financial results are unaudited and the audited statements are expected to be
available by mid April, 2007.
The final 2006 operating surplus for the Town and the Waterworks
Department will be transferred to the Corporate Rate Stabilization Reserve and
Waterworks Reserve respectively in 2007 in accordance with the Town’s reserve
policy.
PURPOSE:
YEAR-END
OPERATING BUDGET VARIANCES:
At the end of the year (twelve months), the 2006
operating budget (excluding Waterworks and Building Services) results reflect an
overall $2.137M favourable variance. The
$2.137M favourable variance is comprised of favourable variances in three main
areas of the Town’s operating budget:
$0.423M
favourable variance in Revenues (Section 1 of the report)
$0.188M
favourable variance in Personnel Expenditures (Section 2)
$1.526M
favourable variance in Non-Personnel Expenditures (Section 3)
$2.137M (Appendix
1)
The remainder of the report provides more details of the variances
above, and provides details of the Waterworks and Building Services year-end
variance.
SECTION 1 – REVENUES
At the end of the year, revenues were favourable
by $0.423M due to the following:
Taxation Revenues
The favourable variance of $0.317M was mainly due to supplementary tax
revenues, from additional supplemental billings made in 2006 based on the
assessment rolls received from the Municipal Property Assessment Corporation
(MPAC).
General Revenues
The favourable variance of $0.428M was mainly due to parking fines
($0.369M) and investment income ($0.077M). Increased
productivity from more fieldwork and training and higher interest rate were the
drivers of the favourable variances reported by departments for parking fines
and investment income, respectively.
User Fees and Service Charges
The $0.193M favourable variance was
mainly due to the following:
a)
$0.486M
favourable variance in Design & Planning fees due to timing as applications
were submitted in December 2005 to avoid the fee increase in 2006, and the
revenue was not recognized until the application requirements were fulfilled in 2006.
b)
$0.257M
favourable variance in User Fees and Service Charges in Engineering which was
due to the associated applications processed by Design & Planning as
described above and higher than anticipated Ministry of Environment approval
fees.
As previously reported in the third quarter (“Q3”) report (November 20, 2006), both the Design
and Engineering departments were projecting a slow down in development which
reduced their combined favourable user fee variances from $1.158M at the end of
Q3 to $0.743M ($0.800M was projected).
c)
($0.367M)
unfavourable variance in User Fees and Service Charges and Rentals in
Recreation due mainly to Centennial Pool which was closed for four months (June
to September) for construction. This has been partially offset by lower
operating expenses related to Centennial Pool.
d)
($0.177M)
unfavourable variance in User Fees and Service Charges and Rentals in Theatre mainly
due to reduced revenue in the professional entertainment series. This resulted
from a reduction in the number of shows and lower than expected ticket sales
for the shows and a reduction in the corporate sponsorship revenue. This has
been partially offset by a reduction in the professional entertainers’ fees
expense.
Other Income
The $0.566M unfavourable variance
was mainly due to unrealized Revenue Strategy of $1.685M. Revenue Strategy will be revisited in the
2007 Operating Budget discussions and revised strategies will be presented to
Council in 2007. This has been partially offset by the following:
a)
$0.677M
favourable adjustment for prior period mainly due to the recognition of
building permit fees of $0.521M collected prior to 2005.
b)
$0.202M
favourable variance in recovery for snow ploughing and administration fees from
developers in unassumed subdivisions.
c)
$0.148M
favourable variance in sundry revenue made up of $0.097M for non compliance of
site plan agreement and $0.051M for recovery of 2001 to 2003 Canada Pension Plan
premiums.
SECTION 2 – PERSONNEL
EXPENDITURES
The year-end personnel expenditure variance was $0.188M
favourable:
The $1.538M favourable variance in full time staffing
costs was a result of vacant positions due to full-time staffing vacancies
(e.g. budgeted positions currently in the recruitment process, and staff away
on Long-Term Disability, Parental Leave). This favourable variance was partially
offset by a $0.801M unfavourable variance in part time & contract salaries,
overtime and other personnel allowances related to departments backfilling
vacancies and leaves.
The
favourable variance in employee benefits of $0.105M was mainly due to the
utilization of a one-time surplus of OMERS Type III Supplemental funds ($0.828M)
to offset fire staff benefit costs and $0.576M favourable variance that mainly
relates to benefits budgeted for positions that were vacant during the year. This was partially offset by yearend
accounting accruals not included in the operating budget. Specifically, $0.533M
in vested sick leave pay provision for the firefighters and $0.766M provision
for post retirement benefits (based on actuarial valuations) were booked in
2006.
Further, the 2006
budget includes $0.654M of annual salary gapping savings which were fully
allocated to the individual business units.
SECTION 3 - NON-SALARY
EXPENDITURES
At the end of the year, Non-Salary expenditures had a
favourable variance of $1.526M with a favourable variance of $0.839M in Winter
Maintenance expenditures mainly responsible.
The variances in the non-salary accounts are outlined below:
Materials & Supplies
The unfavourable variance of $0.199M was mainly
due to unfavourable variances in vehicle parts/fuel ($0.200M unfavourable) and
other supplies ($0.336M unfavourable), partially offset by favourable variances
in the salt and sand winter maintenance accounts ($0.337M favourable). In 2006 winter maintenance costs were favourable
for the winter months, January to April and November to December.
Purchased Services
The $0.455M
favourable variance in Purchased Services was due to $1.236M favourable
variances in the following accounts:
·
$0.502M favourable variance in
the winter maintenance accounts related to winter maintenance (e.g. snow
clearing) services.
·
$0.121M favourable variance in
training accounts across the Town.
·
$0.314M favourable variance in
streetlight energy recoveries related to unassumed subdivisions.
·
$0.205M favourable variance in
professional services.
·
$0.094M in favourable variances
in other accounts.
This was offset
by a $0.450M unfavourable variance in the Town’s insurance expenditures and
$0.331M unfavourable variance in the waste expenditures. Waste department
reported that the increase in the volume of yard waste and organics plus the
expansion of the recycling program to the 51 apartment/condominium buildings in
October were mainly responsible for the unfavourable variance in waste. As
discussed during the 2006 operating budget process, the budget for higher
insurance costs for 2006 is to be phased-in over 4 years. Accordingly, an unfavourable variance due to
insurance was projected for 2006.
Transfer
to/from Reserves
The favourable
variance of $0.889M was mainly due to the $0.781M transfer from Election Expenses
reserve to fund the election costs and $0.087M transfer from the Corporate Rate
Stabilization reserve to fund the Seneca @ Markham Capital Appeal.
As approved by
Council, the Town sets aside funds in an Election Reserve each year and the
reserve is drawn upon to pay for election related expenses. The funds drawn
from the reserve were fully offset by the election related expenses.
Other
Expenditures
The favourable
variance of $0.473M was mainly due to $.278M in favourable variance for other
miscellaneous corporate expenses and $0.195M favourable adjustment for prior
period expenses.
SECTION 4 - WATERWORKS
Waterworks reported a year-end favourable
variance of $1.475M (see Appendix 2).
The year-end
variance was mainly due to favourable variances in the sale and purchase of
water ($0.735M), in Personnel expenditures ($0.352M), Purchased Services ($0.359M),
Other revenues ($0.097M). In addition there was a bad debt write off of $0.071M
(financial expense on Appendix 2) for the period 2004 to 2005 for accounts that
were uncollectible. In the previous agreement with Markham Hydro who provided
the billing/collecting services for water, the bad debt was absorbed by the
utility but under the Affiliate Relationship Code prescribed by the Ontario
Energy Board; this has to be absorbed by the Town of Markham. The current agreement is being
negotiated with PowerStream.
Waterworks
department reported that delays and cancellation of projects were the main
reasons for the $0.359M favourable variance in purchased services.
SECTION 5 – BUILDING
SERVICES
The Building Services Department will be
preparing a presentation on Markham
Building
activity/trends. Building Services
reported $2.378M operating deficit at the end of the year which resulted in a
transfer of $2.378M from Building Fee reserve, refer to Appendix 3).
This operating deficit was due to an unfavourable revenue variance
of $3.049M caused mainly by the lower than projected building permit revenue ($3.009M
unfavourable) arising from lower than expected construction activity. The above table shows that the building
permit revenue had been lower than projected for every quarter and the fourth
quarter (Q4) unfavourable variance of $1.189M was the highest for a quarter in
2006.
The $3.049M unfavourable revenues were partially offset by
favourable salary and benefit variances, in the amount of $0.655M, due to
vacancies and $0.016M of other non-personnel favourable variances in
expenditures resulting in an overall unfavourable variance of $2.378M. As shown on Appendix 3, a draw from the
Building Reserve, in the amount of $2.378M was required to offset the net
unfavourable operating variance in the Building department for 2006.
In the third quarter of 2006, General Committee received a report
outlining the results of Operations in which the Building department had a
September year-to-date unfavourable revenue variance of $1.820M (overall
Building department variance at the end of September was $1.321M unfavourable). At the time, it was reported that the
Building permit activity was not expected to recover by the end of 2006.
The reporting of Building Services separate from the Town’s
operating results is new in 2006 due to the implementation of Bill 124 - Building
Code Statute Law Amendment Act in mid-2005.
As reported to Council in June of 2005, with the implementation of Bill
124, the Building Services department became “self-funding” (e.g. full-cost
recovery) through Building fees. A
separate reserve was established for Building fees to stabilize development fee
rates and to fund actual shortfalls in the Building department in future years. The Building Fee reserve balance at year-end is
$2.218M.