HomeMy WebLinkAboutCST 02-12
;90r Report To
Council
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PICKERING Report Number: CST 02-12
Date: February 21, 2012
From: Gillis A. Paterson
Director, Corporate Services & Treasurer
Subject: 2012 Current Budget and Financial Statements
Excluded Expenses Reporting as Required by Ontario Regulation 284/09
Recommendation:
1. That Report CST 02-12 of the Director, Corporate Services & Treasurer be
received, and,
2. That Report CST 02-12 of the Director, Corporate Services & Treasurer regarding
the exclusion of certain expenses from the 2012 Budget be adopted in accordance
with the provisions of Ontario Regulation 284/09 of the Municipal Act 2001.
Executive Summary: Under Ontario Regulation 284/09, municipalities are required to
report on whether amortization expense, post-employment benefits and other expenses
are included in the annual current budget. This Regulation allows a municipality to
exclude estimated expenses for these items from the 2012 annual budget, however, the
municipality is required to report on the financial effects. The-required reporting provides
a reconciliation between the budget preparation method (cash flow) and the Public Sector
Accounting Board (PSAB) standards for financial statement reporting purposes. Adoption
of this report by Council fulfills the reporting requirements of the Regulation.
Financial Implications: There is no financial impact from the exclusion of these
expenses as the annual budget is prepared on a cash flow basis. This document
provides an accounting reconciliation between the two reporting methods employed in the
annual Current Budget and the 2012 Audited Financial Statements.
Discussion: Ontario Regulation 284/09 (O. Reg. 284/09) under the Municipal Act,
2001, S.O. 2001, C. 25 as amended, allows a municipality to exclude expenses from the
2012 Budget for the following:
i Amortization expenses
ii Post-employment benefit expenses
Report CST 02-12 February 21, 2012
Subject: Ontario Regulation 284/09 Page 2
49
Starting with the 2009 year end, accounting standards and reporting requirements have
changed dramatically; most significantly with the introduction of tangible capital asset
accounting. The new accounting standards, however, do not require budgets to be
prepared on the same basis. The City of Pickering, like most municipalities, continues to
prepare budgets on the traditional cash basis, which provides for clear and concise
understanding of critical budget information.
The annual budget process is an important municipal exercise that considers plans for the
current and future activities for the City. One of the main outcomes of this process is to
set the tax rate which Council is asked to approve. The tax rate is determined by the cash
basis of accounting and does not include PSAB reporting requirements or accrual
accounting and accounting for non-financial assets and liabilities such as amortization
(depreciation) and post-employment benefits.
Amortization Expenses
By definition, amortization expense, frequently referred to as depreciation, in its simplest
terms, is defined as the annual expense or use of the asset over its estimated useful life.
Amortization expense is a tool used by financial professionals to predict the future annual
financial commitment required for asset replacements. For 2012, the estimated
amortization expense is $9.734 million, based upon net assets 'of $187.7 million.
Post-Employment Benefit Expense
Post-Employment Benefit expense represents the change in the accrued benefit liability
for both post-retirement extended healthcare benefits and accrued sick leave entitlement.
Since the City is self insured, it also represents the accrued liability for Workplace Safety
and Insurance Act Benefits. PSAB standards do not require liabilities associated with
these benefits to be fully funded, however, actuarial reviews are conducted to estimate
these unfunded liabilities which are projected to increase by approximately $634,000 for
2012.
Financial Summary
The estimated change in the accumulated surplus of the City for 2012 resulting from the
exclusion of these expenses from the budget is as follows:
PSAB Additions to 2012 Budget (Reduces Surplus - expenses that were excluded)
Amortization $9,734,000
Post-Employment Benefits 634,000
Total PSAB Additions $10,368,000
Report CST 02-12 February 21, 2012
Subject: Ontario Regulation 284/09 Page 3
so
PSAB Reduction to 2012 Budget (Increases Surplus)
Tangible Capital Asset Acquisition $(14,003,781)
Debt Principal Payments (3,939,766)
Total PSAB Reductions x(17,943,547)
Net (Increase) Decrease in Accumulated Surplus $(7,575,547)
Attachments: Not applicable
Prepared By: Approved / Endorsed By:
Stan Karwowski Gillis A. Paterson
Manager, Finance & Taxation Director, Corporate Services & Treasurer
Copy: Chief Administrative Officer
Recommended for the consideration of
Pickering Ci Counc'
i5~ ZoIZ
Tony Prevedel, P.Eng.
Chief Administrative Officer