Report to: General Committee – Finance & Admin. Date of
Meeting: Feb. 22, 2010
SUBJECT: 2009 Year End Review of Operations
PREPARED BY: Veronica Siu, Acting Manager Financial Planning
RECOMMENDATION:
1) THAT the report dated February 22, 2010 entitled
“2009 Year End Review of Operations” be
received.
2)
AND THAT the final 2009 operating variances for
the Town of Markham
(“Town”), Planning and Design, Engineering, Building Standards and Waterworks
departments, be transferred in 2010 to the Town’s respective reserves in
accordance with the Town’s reserve policy.
EXECUTIVE SUMMARY:
Town
At the end of December 31, 2009, the
operating budget results (excluding Planning & Design, Engineering,
Building Services and Waterworks) reflects a favourable variance of $4.986M. The $4.986 favourable variance is comprised
of a $4.441M favourable variance in Revenues and a $0.545M favourable variance
in Expenditures, as shown below:
It has been the Town’s practice to include year end accounting
adjustments in the results of operations.
In 2009, these accounting adjustments totaled $2.998M, resulting in a
net operating surplus of $1.988M.
Further details of all variances are available in the Discussion
Section of this report.
Planning & Design
Planning &
Design ended the year with a net unfavourable variance compared to budget of
($0.703M). The 2009 budget projected a
deficit of ($1.309M), and the department ended the year with a deficit of ($2.012M). This resulted in an additional draw of
($0.703M) from reserve in order to achieve a balanced budget.
The unfavourable
variance of ($0.703M) was due to lower revenues of ($1.311M) resulting from fewer development
application activities, offset by favourable variances of $0.588M in personnel
costs, and $0.020M in non-personnel costs (see Appendix 2).
Engineering
Engineering ended
the year with a net favourable variance compared to budget of $0.663M. The 2009 budget projected a deficit of
($2.505M), and the department ended the year with a deficit of ($1.842M). This resulted in less of a draw from reserve
of $0.663M.
This was due to
favourable variance of $0.306M in Engineering fees, favourable variance of $0.319M
in personnel costs and $0.038M in non-personnel costs (see Appendix 3).
The deficits in Planning & Design ($2.012M)
and Engineering ($1.842M) resulted in a total draw of $3.854M from the reserve
in order to achieve balanced budgets.
This will bring the combined reserve to a negative balance of ($5.632M) (see
Appendix 5).
Building Services
Building Services
ended the year with a net unfavourable variance compared to the budget of
($1.440M). The 2009 budget projected a
deficit of ($0.375M), and the department ended the year with a deficit of ($1.815M). This resulted in an additional draw of $1.440
M from the reserve to achieve a balanced budget. The variance was due to lower building permit
revenues of ($1.575M), offset by favourable variances of $0.163M in personnel
costs (see Appendix 4).
The additional
draw of $1.440M from the reserve will bring the reserve balance to $0.540M (see
Appendix 5).
Waterworks
Waterworks ended 2009
with a net favourable variance compared to budget of $0.992M. The 2009 budget projected a surplus of
$9.962M, and the department ended the year with a surplus of $10.954M. This resulted in an additional transfer to
the reserve in the amount of $0.992M.
The results from
Waterworks operations yielded favourable variances of $0.992M, this is due to
favourable variance $0.286M in personnel costs, $1.501M in non-personnel costs,
and $0.275M in other revenues; offset by unfavourable variance of ($1.070M) in
the net sales and purchases of water which resulted from a significant amount
of rainfall.
PURPOSE:
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) supports 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.
In October 2009, staff reported the September 2009
year-to-date review of operations and year end projections for each of the 5
operation budgets.
Each quarter, departments provided details of
significant financial variances (actual to budget) in their areas. The variances were reviewed, substantiated
and summarized by the Financial Planning department. Minor variances were reviewed by staff, but
not discussed in detail in this report.
OPTIONS/ DISCUSSION
YEAR END OPERATING BUDGET VARIANCES:
Town
At the end of twelve months, the 2009 operating budget (excluding Planning
& Design, Engineering, Building Services and Waterworks) results reflected
an overall $4.986M favourable variance.
The $4.986M favourable variance was comprised of variances in three
main areas of the Town’s operating budget:
$4.441M favourable
variance in Revenues
$1.034M favourable
variance in Personnel Expenditures
($0.489M)
unfavourable variance in Non-Personnel
Expenditures
$4.986M
The remainder of the report provides more details on the variances
above, and details of the Planning & Design, Engineering, Building and
Waterworks year end variances.
REVENUES
At the end of December 2009, revenues were
favourable by $4.441M due to the followings:
General Revenues
The favourable variance of $3.451M was due to the following accounts:
·
investment income of $1.778M of
which $1.181 was due to capital gains, $0.319M due to higher interest rates and
$0.278M is portfolio balance driven. The
December 1, 2009 report
“Town of Markham Investment Interest Allocation
policy”, authorized the establishment of a Capital Gains Reserve and the authority
to transfer investment income surpluses into this Reserve. As a result, $1.278M of surplus investment
income will be transferred to the Capital Gains Reserve.
·
tax interest and penalties was $1.381M
favourable due to higher numbers of residential and commercial overdue property
tax accounts resulting from the economic downturn. Markham’s collection rate of property taxes
for 2009 was 93% a decrease from 96% in 2008. This decrease in collections is,
in part, a reflection of the economic climate experienced in 2009 and is
similar to surrounding GTA municipalities that have also seen a decrease in
their collection rates by 2 – 3% and an increase in their receivables.
Taxation Revenues
The favourable variance of $1.428M was due to higher than budgeted
supplemental property taxes. The
majority of the supplementary assessment was included on the final roll in
November following the assessment of properties by MPAC based, in large part,
on Town staff providing regular building permit data and analysis throughout
2009 to MPAC.
Grant & Subsidy Revenues
The favourable variance of $0.305M was due to a one-time grant of
$0.128M in excess of the budget from Waste Diversion Ontario, and one time
grants in Recreation, Economic Development and Theatre totaling to $0.177M.
User Fees and Service Charges
The unfavourable variance of ($0.371M)
was primarily due to lower theatre ticket sales in the professional
entertainment series of ($0.167M), fire inspection fees ($0.133M), and legal
revenue ($0.085M).
Other Income
The unfavourable variance of ($0.374M) was primarily due to lower
financial services administration fees of ($0.475M) tied to slower growth and
less subdivision / siteplan agreements and lower Fire revenues of ($0.105M) for
vehicle accidental fees, second suite inspection fees and flashover simulator,
offset by one-time unclaimed refundable deposits for developer front ending
agreements of $0.256M.
PERSONNEL EXPENDITURES
The December year end personnel expenditure variance
was $1.034M favourable:
|
Salary Expenditures Items
|
Fav./(Unfav.)
|
|
Full Time Salaries net of vacancy
backfills
|
$3.553
|
M
|
|
Overtime
|
($1.377)
|
M
|
|
Other Personnel Costs
|
($0.687)
|
M
|
|
Favourable Variance before Salary Gapping
|
$1.489
|
M
|
|
Salary Gapping
|
($0.455)
|
M
|
|
Salaries & Benefits Favourable
Variance
|
$1.034
|
M
|
The $3.553M favourable variance in full time salaries
net of vacancy backfills was the result of 45 average net vacant positions
throughout the year; offset by an unfavourable variance of ($1.395M) in Fire
and Operations overtime due to an average of 11 vacancies in Fire and
Operations requirements for winter maintenance due to a higher number of
snowfalls in January, February and March.
The unfavourable variance of ($0.687M) in other
personnel costs was due to part-time salaries in Recreation ($0.238M), Sustainability
Office and other departments.
Further, the 2009
budget included $0.455M of annual salary gapping savings which has been fully
allocated to the individual business units.
NON-SALARY EXPENDITURES
At the end of December, Non-Salary expenditures were $0.690M
favourable:
|
Non-Salary Items
|
Fav. / (Unfav.)
|
|
Materials & Supplies
|
$0.566
M
|
|
Purchased Services
|
$0.341
M
|
|
Other
Expenditures
|
($1.396) M
|
|
Total Non-Salary Favourable Variance
|
$0.489 M
|
Materials & Supplies
The Material & Supplies variance
of $0.566M was due to lower fuel costs (mainly price driven) by $0.418M and
lower office supplies $0.050M.
Purchased Services
The favourable
variance of $0.341M in Purchased Services was due to the following accounts:
- $0.763M favourable variance in training, travel, promotion
& advertising, rental/lease and professional services;
- $0.713M favourable variance in utilities across the Town due to
lower consumption volume;
Offset by the
following unfavourable variances:
- ($0.617M) unfavourable variance in winter maintenance due to
higher snowfall in January to March 2009 ; In 2008, the winter maintenance
expenditures were ($3.824M) unfavourable compared to budget;
- ($0.266M) unfavourable variance in external legal fees;
- ($0.183M) unfavourable variance in waste collection;
- ($0.123M) unfavourable variance in recruitment advertising
Other
Expenditures
The unfavourable variance
of ($1.396M) is due to the investment income transfer to reserve of ($1.278M),
authorized through the Investment Interest Allocation Policy approved by
Council in December 2009.
Further details on the Town’s Operating results are provided in
Appendix 1.
FINANCIAL CONSIDERATIONS:
The financial results are unaudited and the audited statements are
expected to be available by mid April, 2010.
In accordance to the Town’s reserve policy, any year-end operating
surpluses will be used first to top-up the Corporate Rate Stabilization Reserve
to a level equivalent to 15% of local tax revenues and secondly to replenish
the expenditures in the Environmental Land Acquisition Reserve Fund, and
finally transferred to the Life Cycle Replacement and Capital Reserve Fund. As a result the Town’s 2009 Operating surplus
of $1.988M will be transferred as follows.
$0.319M of the Town’s 2009 operating surplus will be transferred to
the Corporate Rate Stabilization reserve to attain a reserve balance of $16.080M
or 15.0% of the local tax levy.
$0.596M will be transferred to the Environmental Land Acquisition
Reserve Fund to replenish the 2009 expenditure.
The remaining surplus of $1.073M will be transferred to the Life Cycle
reserve.
The unfavourable variances in Planning & Design, Engineering and
Building Standards will require draws from the respective reserves in order to
fund the shortfalls. Also, the
favourable variance in Waterworks will be transferred to the Waterworks reserve.
ECONOMIC KEY INDICATORS
Staff identified 15 economic key indicators early in this year to
assess the impact of the current economic situation on Town operations. As communicated in the previous quarters, these
indicators are monitored on a monthly basis to assist the Town in taking the
appropriate measures and to respond to the economic changes in a proactive
manner.
Development Related
Revenues
The current economic downturn has had a negative impact to the development
related revenues. These include
planning, engineering, building, legal revenues (from developer’s agreements)
and financial service administration fees.
The 2009 year end revenues are significantly reduced from prior years
due to slower development activities. This
is evident by the chart below which outlines the declining trend for the years 2007-2009.
2009 Actual Development Related Revenues
Development Charges
Revenues
The 2009 year end Development Charges (DC) revenue is trending
slightly higher than that in 2008. This
is mainly due to adjustments to account for the increase in Town Wide Soft Revenue
following the passage of the by-law in June 2009. Higher DC Revenues in 2007 were due to
increased development activity prior to the Region of York’s development charges
by-law update.
2009 Actual DC Revenues
Recreation &
Culture Revenues
The Recreation revenue increased steadily from
2006 to 2009. 2009 ended the year with $13.9M due to higher
fitness memberships, camp registrations and an increase in user fees which are
tied to the consumer price index.
The Culture revenues which composed of revenues
from Theatre, Museum and Art
Gallery, have been
relatively stable at around $2 million.
2009 Actual Recreation & Culture
Revenues
Expenditures
Winter maintenance costs increased steadily
from 2006 to 2008, peaking at $8.6 M in 2008.
2009 expense decreased to $6.7M, due to the favourable November and
December snowfall.
Streetlight maintenance expenses have been
relatively stable in the area of $1 million.
2009 Expenditures
RECOMMENDED
BY: ________________________ ________________________
Joel Lustig,
Treasurer Andy
Taylor, Commissioner
Corporate Services