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Report To
Executive Committee
PICKERING Report Number: CS 09-11
Date: January 10, 2011
190
From: Gillis A. Paterson
Director, Corporate Services & Treasurer
Subject: 2010 Financial Statements and Current Budget
Excluded Expenses Reporting as Required by Ontario Regulation 284/09
Recommendation:
1. That Report CS 09-11 of the Director, Corporate Services & Treasurer be received;
and,
2. That Report CS 09-11 of the Director, Corporate Services & Treasurer regarding
the exclusion of certain expenses from the 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, the 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 2010 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 2010 Audited Financial Statements.
Report CS 09-11 January 10, 2011
Subject: 2010 Financial Statements and Current Budget Page 2
191 Excluded Expenses as Required by Ontario Regulation 284/09
Background: Ontario Regulation 284/09 (O. Reg. 284/09) is a relatively new regulation
under the Municipal Act, 2001, S.O. 2001, C. 25 as amended (Municipal Act). This
Regulation allows a municipality to exclude expenses from the 2010 Budget, expenses for
the following:
i Amortization expenses
ii Post-employment benefit expenses
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 2010, amortization expenses
are expected to exceed $9.7 million. For 2009, the net assets reported were $186 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 estimated to increase by approximately $473,000 for
2010.
Report CS 09-11 January 10, 2011
Subject: 2010 Financial Statements and Current Budget Page 3
Excluded Expenses as Required by Ontario Regulation 284/09 192
Financial Summary
The estimated change in the accumulated.surplus of the City for 2010 resulting from the
exclusion of these expenses from the budget is as follows:
PSAB Additions to 2010 Budget (Reduces Surplus - expenses that were excluded)
Amortization $9,725,000
Post-Employment Benefits 472,500
Total PSAB Additions $10,197,500
PSAB Reduction to 2010 Budget (Increases Surplus)
Tangible Capital Asset Acquisition $(11,299,795)
Debt Principal Payments (3,243,676)
Total PSAB Reductions $(14,543,471)
Net (Increase) Decrease in Accumulated Surplus $(4,345,971)
2011 Budget
For the 2011 budget and future years, it is anticipated Regulation 284/09 will be met by
reporting in conjunction with the adoption of the annual budget.
Attachments: Not applicable
Prepared By: Approved / Endorsed By:
St n Karwowski Gillis A. Paterson
Manager, Finance & Taxation Director, Corporate Services & Treasurer
Copy: Chief Administrative Officer
Recommended for the consideration of
Pickerin City Council
i~ ~-off 20/Q
Tony Prevedel, P.Eng.
Chief Administrative Officer