HomeMy WebLinkAboutFIN 04-21Report to Council
Report Number: FIN 04-21
Date: March 22, 2021
From: Stan Karwowski
Director, Finance & Treasurer
Subject: 2021 Current Budget and Financial Statements
Excluded Expenses Reporting as Required by Ontario Regulation 284/09
-File: A-2000-001
Recommendation:
It is recommended that Report FIN 04-21 of the Director, Finance & Treasurer regarding the
exclusion of certain expenses from the 2021 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 20 21 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 2021 Audited Financial Statements.
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 2021 Budget for the
following:
amortization expenses
post-employment benefit expenses
Since 2009, changes by the Public Sector Accounting Board (PSAB) require municipalities to
report Tangible Capital Assets (TCA) and record TCA in the statement of financial position,
and amortize the asset over its useful life in the statement of operations. The new accounting
standards, however, do not require budgets to be prepared on the same basis. The City o f
Pickering, like most municipalities, continues to prepare budgets on the traditional cash basis,
which provides a clear and concise understanding of critical budget information.
FIN 04-21 March 22, 2021
Subject: 2021 Current Budget and Financial Statements Page 2
Excluded Expenses Reporting as Required by Ontario Regulation 284/09
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”, which mainly consists of:
any operating fund surpluses
equity in Tangible Capital Assets
reserves and reserve funds
equity in Elexicon Corporation
capital funds
The City's accumulated surplus, which is largely comprised of equity in tangible capital assets,
as at December 31, 2019 was $424.8 million.
A.Amortization Expenses
Amortization expense (frequently referred to as depreciation) is defined as the annual expense
or use of an asset over its estimated useful life. The expense is calculated by allocating the
cost of the asset over its estimated useful life. For 2021, the estimated amortization expense is
$ 11.7 million, based upon net assets of $273.1 million, which will reduce the City's
accumulated surplus. However, offsetting amortization is $7.7 million in estimated additions to
tangible capital assets for 2021. The net impact of tangible capital asset adjustments will result
in a decrease of approximately $4.0 million to the City's accumulated surplus.
B.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. 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 is estimated to reduce the City's accumulated surplus by
approximately $820,056 for 2021.
FIN 04-21 March 22, 2021
Subject: 2021 Current Budget and Financial Statements Page 3
Excluded Expenses Reporting as Required by Ontario Regulation 284/09
C.Transfers To/From Reserves and Reserve Funds
The Current Budget, prepared using the cash method, includes transfers to/from reserves and
reserve funds and is not considered an expense under the accrual method accounting. In
2021, the net transfers to/from reserves and reserve funds is $8.4 million, which will increase
the City’s accumulated surplus by the same amount.
D.Debt Principal Repayment
The Current Budget also 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 internal loans
and external debentured debt held at the Region of Durham . The estimated debt principal
repayment in 2021 is $3.9 million, which will increase the City's accumulated surplus by the
same amount.
E.Financial Summary
The estimated change in the accumulated surplus of the City for 2021 resulting from the net
exclusion of these expenses from the budget is summarized below.
PSAB Additions to 2021 Budget (Reduces Surplus)
Amortization ($11,721,800)
Post-Employment Benefits (820,056)
Total PSAB Additions ($12, 541,856)
PSAB Reduction to 2021 Budget (Increases Surplus)
Tangible Capital Asset Acquisition $7,680,502
Net Transfers To/From Reserves and Reserve 8,352,234
Funds
Debt Principal Payments 3,887,114
Total PSAB Reductions $19,919,850
Net Increase in Accumulated Surplus $7,377,994
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.
FIN 04-21 March 22, 2021
Subject: 2021 Current Budget and Financial Statements Page 4
Excluded Expenses Reporting as Required by Ontario Regulation 284/09
Prepared By: Approved/Endorsed By:
Original Signed By: Original Signed By:
James Halsall Stan Karwowski
Manager, Budgets & Internal Audit Director, Finance & Treasurer
Recommended for the consideration
of Pickering City Council
Marisa Carpino, M.A.
Chief Administrative Officer
Original Signed By: