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cliff DO .. Report To
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PICKERING Report Number: FIN 04-14
Date: February 24, 2014
From: Paul Bigioni
Director, Corporate Services & City Solicitor
Subject: 2014 Current Budget and Financial Statements
Excluded Expenses Reporting as Required by Ontario Regulation 284/09
Recommendation:
1. That Report FIN 04-14 of the Director, Corporate Services & City Solicitor be
received; and,
2. That Report FIN 04-14 of the Director, Corporate Services & City Solicitor
regarding the exclusion of certain expenses from the 2014 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 2014 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 2014 Audited Financial Statements.
Discussion: Ontario Regulation 284/09 (0. Reg. 284/09) under the Municipal Act,
2001, S.O. 2001, C. 25 as amended, allows a municipality to exclude expenses from
the-2014 Budget 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
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Report FIN 04-13 Date: February 24, 2014
Subject: 2014 Current Budget and Financial Statements Page 2
Excluded Expenses Reporting as Required by Ontario
Regulation 284/09
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.
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 2014, the estimated
amortization expense is $9.999 million, based upon net assets of$192.6 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 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
which are projected to increase by approximately $539,400 for 2014.
Financial Summary
The estimated change in the accumulated surplus of the City for 2014 resulting from the
exclusion of these expenses from the budget is as follows:
PSAB Additions to 2014 Budget (Reduces Surplus — expenses that were
excluded)
Amortization $9,999,154
Post-Employment Benefits 539,400
Total PSAB Additions • $10,538,554
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Report FIN 04-13 Date: February 24, 2014
Subject: 2014 Current Budget and Financial Statements Page 3
Excluded Expenses Reporting as Required by Ontario
Regulation 284/09
PSAB Reduction to 2014 Budget(Increases Surplus)
Tangible.Capital Asset Acquisition $(13,808,828)
Debt Principal Payments (3,645,880)
Total PSAB Reductions $(17,454,708)
Net (Increase) Decrease in Accumulated Surplus $(6,916,154)
Attachments: Not applicable
•
Prepared By: Approved / Endorsed By:
James Halsall Stan Karwowski
Manager, Budgets & Internal Audit Division lid, Finance &Treasurer
- L
Paul Bigio
Director, Corpora - Services & City Solictor
Recommended for the consideration of
Pickering City Council .
24 zot4
1
Tony Prevedel, P.Eng.
Chief Administrative Officer
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