HomeMy WebLinkAboutFIN 04-16 Report to
Council
PICKERING
Report Number: FIN 04-16
Date: March 29, 2016
From: Paul Bigioni
Director, Corporate Services & City Solicitor
Subject: 2016 Current Budget and Financial Statements
Excluded Expenses Reporting as Required by Ontario Regulation 284/09
Recommendation:
It is recommended that Report FIN 04-16 of the Director, Corporate Services & City
Solicitor regarding the exclusion of certain expenses from the 2016 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 expenses, post-employment benefits and other
expenses are included in their annual Current Budget. This Regulation allows a
municipality to exclude estimated expenses for these items from the 2016 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 and Capital Budgets and the 2016 Audited Financial Statements.
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Discussion: Ontario Regulation 284/09 under the Municipal Act, 2001, S.O. 2001,
C. 25 as amended, allows a municipality to exclude expenses from the 2016 Budget for
the following:
• Amortization expenses
• Post-employment benefit expenses
FIN 04-16 March 29, 2016
Subject: 2016 Current Budget and Financial Statements Page 2
Excluded Expenses Reporting as Required by Ontario Regulation 284/09
In 2009, public sectior accounting standards and reporting requirements changed
dramatically, with the most significant change being 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 a 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 of 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.
Ontario Regulation 284/09 requires municipalities to prepare a report regarding the
excluded expenses and adopt the report by resolution prior to the approval of the
annual budget. The report must contain the impact of the excluded expenses on the
City's accumulated surplus. The equity of a municipality is defined as "accumulated
surplus". The accumulated surplus consists mainly of:
• Any operating fund surpluses
• Equity in Tangible Capital Assets
• Reserves and Reserve Funds
• Equity in Veridian Corporation
• Capital Funds
The City's accumulated surplus, which is largely comprised of equity in tangible capital
assets, as at December 31, 2014 was $323.3 million.
Amortization Expenses
Amortization expense (frequently referred to as depreciation) 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 2016, the estimated amortization expense is $9.8
million, based upon net assets of$214.4 million, which will reduce the City's
accumulated surplus. However, offsetting amortization is $10.6 million in estimated
additions to tangible capital assets for 2016. The net impact of tangible capital asset
adjustments will result in an increase of approximately $800,000 to the City's
accumulated surplus.
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 for the purpose of workplace injury claims, it
also represents the accrued liability for Workplace Safety and Insurance Act Benefits.
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FIN 04-16 March 29, 2016
Subject: 2016 Current Budget and Financial Statements Page 3
Excluded Expenses Reporting as Required by Ontario Regulation 284/09:
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PSAB standards do not require liabilities associated with these benefits to be fully
funded, however, actuarial reviews are conducted to estimate these unfunded liabilities.
The projected.increase in the post-employment benefits liability for 2016 is estimated to
reduce the City's accumulated surplus by approximately $328,700 for 2016.
Debt Principal Repayment
The current budget,'prepared using the cash method, includes a provision for the
annual repayment of debt including both interest and principal. Under the accrual
method, debt principal repayments are a repayment of a long-term liability and not an
expense. The debt principal repayments are for external debentured debt held at the
Region of Durham. The estimated debt principal repayment in 2016 is $3.0 million,
which will increase the City's accumulated surplus by the same amount.
Financial Summary •
The estimated change in the accumulated surplus of the City for 2016 resulting from the
exclusion of these expenses from the budget is summarized below.
PSAB Additions to 2016 Budget (Reduces Surplus)
Amortization ($9,813,357)
Post-Employment Benefits (328,700)
Total PSAB Additions $(10,142,057)
PSAB Reduction to 2016 Budget (Increases Surplus)
Tangible Capital Asset Acquisition $10,607,721
Debt Principal Payments 3,046,755
p Y
Total PSAB Reductions $13,654,476
Net Increase in Accumulated Surplus $3,512A19
The changes to accounting and reporting requirements under PSAB are a financial
accounting treatment only and do not affect operating surpluses. This difference is one
of financial statement presentation only.
Attachments: Not Applicable
FIN 04-16 March 29, 2016
Subject: 2016 Current Budget and Financial Statements Page 4
Excluded Expenses Reporting as Required by Ontario Regulation 284/09
Prepared By: Approved/Endorsed By:
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James Halsall Stan Karwowski
Manager, Budgets & Internal Audit Division Head, Finance & Treasurer
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Paul Bigio
Director, Iorp+ra - Services & City Solicitor
Recommended for the consideration
of Pickering C-it Council
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Tony Prevedel, P.Eng.
Chief Administrative Officer
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