Report for Audit Committee March 16, 2006 Meeting

Report for Audit Committee March 16, 2006 Meeting

December 31, 2005 Year-end Operating and Capital Results

Recommendation:
That Audit Committee recommend to City Council:
  1. That the February 22, 2006, Corporate Services Department report 2006COF004 be received for information.
  2. That $0.9 million be approved from the Financial Stabilization Reserve to cover 2005 amounts required to be carried forward to 2006,as outlined in Attachment 3 of the February 22, 2006, Corporate Services Department report 2006COF004.
  3. That the surplus from the 2005 World Masters Games, estimated to be $0.6 million,be approved to fund a future legacy contributionfrom the Financial Stabilization Reserve, as outlined in Attachment 4 of the February 22, 2006, Corporate Services Department report 2006COF004.
  4. That $2.0 million be approved from the Financial Stabilization Reserve to cover 2006 approved unfunded projects and an increase to the 2006 Council Contingency Fund, as outlined in Attachment 3 of the February 22, 2006, Corporate Services Department report 2006COF004.
  5. That Administration bring forward options for any unallocated excess balance in the Financial Stabilization Reserve (based upon the audited year end results)to the May 26, 2006, Special City Council meeting, on 2007 capital budget planning.

Report Summary

This report outlines the preliminary December 31, 2005, year-end operating and capital results. These financial results are subject to audit by the City’s external auditor; final audited results will be available in early April.

Report

Tax Levy Operations – Attachments 12

At December 31, 2005, there is a net favourable year-end variance of $30.2 million for tax levy operations.

  • The continued strength in revenues contributed $28.7million as follows:
  • $21.2million in additional corporate revenues largely in net investment earnings; the opportunity to swap certain investments being the major factor. Higher gas franchise fees and excess Police Traffic Safety Act revenues also contributed to the positive revenue variance.
  • $4.6 million realty and business tax growth since the mill rate bylaws were approved.
  • $2.9 million net increase in development and compliance revenues, particularly in residential development.
  • $3.0 million net contribution from Edmonton Police Service resulting from the carryforward of 2004 Provincial Grant funding. Council has approved a carryforward of certain unexpended funds. The carryforward amounts will not impact the 2005 surplus as reserve funds have been appropriated for this purpose.
  • $5.3 million tax expenditure savings resulting from tax appeal costs and bad debt expenses less than budget.
  • ($5.3) million higher adjustments for accrued vacation and income replacement plan liabilities.
  • ($2.8) million for liability claims higher than budget in Risk Management.
  • $1.3million net other variances.

Attachments 1 and 2 provide further detailed information on the operating results for tax levy operations by program,as provided by program managers.

The following significant transactions included in the year-end results are also of note:

  • Transfers to the Waste Management Stabilization Reserve were made in 2005 for $2.9 million.
  • MES debt funding for DATS vehicle capital purchases of $2.9 million was fully repaid in 2005 by Transit.

Pension and Benefit Adjustments

Firefighter’s pension and group life benefit adjustments in 2005 were $1.5 million. The adjustment to pension is based on actuarial results as at December 31, 2005. This change does not impact tax-supported operating results but rather is made directly to the pension and benefit operating fund balance.

Financial Stabilization Reserve

The city policy for Reserve and Operating Equity Accounts directs that 100% of the tax-supported operating fund surplus flows to the Financial Stabilization Reserve (FSR), available to address emergent funding issues. The target balance of the reserve is set as 7% of the current general government operating expenditures, as derived from the annual audited financial statements. Any balance in excess of the target is applied to the subsequent three years’ operating budgets. This approach is meant to support the City’s long-term planning process and prioritization of expenditures.

Attachment 3 shows the estimated target balance of the FSR as $77.6 million. The updated target based on the 2005 financial statements will be confirmed in April 2006. The current overall unappropriated balance in the reserve is $75.1 million prior to the transfer in of 2005 surplus. Based upon the balance in the reserve and the preliminary surplus, it is expected that approximately $8.9 million will be available in each of the years 2006, 2007 and 2008. Prior Council approved commitments would be applied against the $8.9 million as shown in Attachment 3.

Funding Commitments – Attachment 3

Expenditures of $0.9 million have been identified for carryforward from 2005 to 2006, including 2005 Council Contingency Fund projects. Council’s approval is required to carryforward this funding to 2006.

Additional funding needs totalling $4.5 million have been approved in the 2006 budget to use 2005 surplus. No further approval is required to fund these items from the Financial Stabilization Reserve.

Funding needs totalling $2.0 million have been identified against the 2005 surplus. This includes Council approved 2006 unfunded projects and an increase to the 2006 Council Contingency Fund, to fund expenditures approved which have depleted the fund to approximately $0.1 million. An additional $0.3 million is also being recommended to provide Council with greater flexibility in addressing a number of small upcoming funding needs. Council’s approval is required to make these 2006 operating budget adjustments.

Administration will bring forward a report on all outstanding opportunities and options relating to the 2006 Budget to the April 11th City Council Meeting. At that time, the Property Tax Bylaw will also be considered which will confirm the final assessment growth for 2006 Budget purposes.

Options for any residual excess balance in the Financial Stabilization Reserve will be brought forward to a special City Council meeting to be held in late May, 2006 on 2007 budget planning.

Attachment 3 identifies the carryforwards and additional funding requirements.

2005 World Masters Games – Attachment 4

The 2005 World Masters Games results are being finalized. Attachment 4 provides a letter from the Games Executive Director outlining the financial position and the amount requested to be appropriated as a future legacy contribution.

Enterprise and Utility Operations – Attachment 5

Mobile Equipment Services has a favourable variance of $3.3 million. Recoveries are $1.7 million higher due to recovery from transit ($2.9) millionfor DATS vehicles offset by lower usage of winter road maintenance vehicles. Revenues are $2.3 million higher resulting from increased vehicle and equipment usage by EPCOR. Disposal revenues are slightly less than budget ($0.1) million. An unfavourable expenditure variance of ($0.6) million resultsfrom increased fuel prices for portions of the year.

Land Enterprise has a $6.9 million favourable variance. Revenues are $13.7 million higher from sales anticipated to be completed in 2004 closing in 2005, and from increased industrial land sales. Related cost of land from the increased volume is ($3.5) million over budget. Transfers were made to the Community Services reserve of ($3.3) million for net proceeds from the sale of reserve lands.

Drainage Services has a favourable variance of $7.1 million. Domestic utility revenues are $6.2 million higher from increased consumption and greater than planned customer growth. Expenditures are $0.9 million favourable due to higher short-term interest earnings.

Enterprise and Utility operations are expected to earn a return which remains within the operation to support future rates and address upcoming capital requirements.

2006 budgeted dividends to City operations will be $2.8 million from Land Enterprise and $5.5 million from Drainage Services.

Attachment 5outlines the year-end resultsatDecember 31, 2005, for enterprise and utility operations.

Capital Results – Attachments 67

The actual capital expenditures atDecember 31, 2005, are $400.2 million against a budget of $692.6 million, a variance of $292.4 million (42.2 percent).

Significant factors contributing to the variance are:

  • $296.6 million in project delays due to:

$67.3 million for timing of approvals and agreement with internal and external partners.

$57.9 million awaitingreview or changes to customer and project requirements.

$45.6 million for tendering or land negotiation issues.

$33.6 million in outstanding external commitments (contract and purchase order delays).

$32.0 million as the items have been ordered, but were not received before year-end.

$31.3 million due tounavailability of internal and external resources.

$16.9 million due to timing being affected by delays in other projects.

$9.6 million due to technology changes and design issues.

$2.4 million resulting from weather and ground conditions.

  • $10.4 million savings due to reduced project scope or costs, and reduced demand for local improvements.
  • ($16.6) million as project costs or project scope has increased.
  • $2.0million net other variances.

Administration will be completing a due diligence review and budget adjustments for projects requiring carryforward in March/April 2006. Administration acknowledges the need to improve the ability of achieving capital plans as projected. This will be dealt with through the capital process review currently underway.

Capital reporting by program and financing source are provided in Attachment 5. Further details on the capital variances are outlined within Attachment 6.

Justification of Recommendation

  1. The main purpose of this report is to provide preliminary information on the 2005 financial results.
  2. Approved commitments in 2005 will require carryforward to 2006 (Attachment 3) for completion. City Council may appropriate up to $0.9 million from the Financial Stabilization Reserve to accommodate these funding needs in 2006.
  3. Approval of a legacy contribution for an estimated $0.6 million from the 2005 World Masters Games will provide financial support for future competitions. Designation of any surplus in this manner is consistent with funding agreements with other orders of government.
  4. Approval of an allocation to fund Council approved unfunded projects and an increase in the 2006 Council Contingency will provide flexibility for future funding decisions. City Council may appropriate up to $2.0 million from the Financial Stabilization Reserve to accommodate these funding needs in 2006.
  5. A report summarizing 2005 surplus allocation options will provide City Council with strategic alternatives to effectively manage surplus funds. Allocation options can be considered at a special Council meeting for 2007 Budget planning.

Background Information Attached

  1. December 31, 2005, Year-end Operating Results – Tax Supported Operations
  2. Detailed Operating Results by Program
  3. City Council Commitments
  4. 2005 World Masters Games
  5. December 31, 2005, Year-end Operating Results – Enterprise and Utility Operations
  6. December 31, 2005, Year-end Capital Results
  7. Detailed Capital Results by Program

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December 31, 2005 Year-end Operating and Capital Results

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Attachment 2

Detailed Operating Results by Program

Land & Buildings
Year-end Variance ($0.8) (2.9%)
  • ($0.8) increased expenditures from additional building and facilitymaintenance demand including emergent maintenance repairs (Century Place building envelope repair and boilerreplacement at Commonwealth Stadium).

Waste Management
Year-end Variance $0.2 1.2%
  • $3.0 increased processing and disposal operational revenues due to growth in customer base.
  • $0.1 net expenditure savings.
  • ($2.9) increased transfer to Waste Management Stabilization Reserve for rate requirements, operational contingencies, and future planned capital projects.

Emergency Response
Year-end Variance ($1.1) (1.1%)
  • ($0.5) Emergency Medical expenditures relating to bad debt expense on ambulance invoices partially offset by increased revenues from ambulance service calls.
  • ($0.6) Fire Rescue costs for MES fixed and variable rate charges along with increased fuel and repair costs.

Parks, RiverValley & Natural Areas
Year-end Variance ($0.1) (0.4%)
  • $0.8 expenditure reductions from reduced tree pruning, recruitment and other activity delays.
  • $0.3 from unbudgeted government transfers for West Nile Virus monitoring, June flood damage recoveries andrevenues from increased sports field rentals, inspection fees and reserve transfers.
  • ($1.2) increased costs due to drought mitigation efforts, increased snow and ice control early in the year, and June flood damage costs.

Recreation and Cultural Facilities
Year-end Variance ($0.8) (4.7%)
  • $1.3 increased revenues from unbudgeted events, donations and sponsorships.
  • ($2.1) increased expenditures due to increased demand on services for Cemeteries, Selkirk Agreement, major events and other utility and personnel costs.

Social, Recreation and Cultural Services
Year-end Variance $1.4 4.6%
  • $1.2 increased grants and revenues due to additional demands on service (i.e. Community Partnership Enhancement Fund, Safer Cities Initiatives, registered programs).
  • $1.6reduced expenditures for personnel costs, Out of School Care subsidies, and social housing debt repayments.
  • ($1.4) increased expenditures related to additional demand for program levels, facilitation training, and branch reorganization.

Corporate Services
Year-end Variance $1.6 2.5%
  • $1.2 additional revenue from surplus sales, external Hired Equipment revenue, and increased volumes of payments processed for EPCOR.
  • $1.1 personnel cost savings due to vacancies and delays in hiring, along with higher than expected Partners Injury Reduction rebates.
  • ($0.7) additional material, contract, and equipment costs in the Finance, Strategic Services and Law Branches.

Mayor and Council/City Auditor
Year-end Variance $0.3 7.3%
  • $0.2 expenditure savings in the Mayor and Councillor Offices related to delays in promotional, research, and other initiatives.
  • $0.1 savings in the Office of the City Auditor as material and equipment purchases were less than anticipated.

Office of the City Manager
Year-end Variance $0.5 6.2%
  • $0.1 savings for the Office of the City Clerk related to costs for the Census and hiring delays.
  • $0.4 savings for the Office of the City Manager for training, contracts and personnel costs due to hiring delays.

Planning and Development
Year-end Variance $2.9 20.3%
  • $4.9 development and compliance revenues from increased activity, particularly in residential development.
  • ($2.0) additional temporary staffing, overtime, advertising, and credit card service charges resulting from the increased activity.

Police Service
Year-end Variance $3.0 1.9%
  • $3.2 unspent 2004 Provincial grant funding.
  • $2.1 higher recoveries and volumes from program user fees.
  • ($1.1) higher than estimated costs for furniture, vehicles and renovations.
  • ($1.2) increased overtime partially offset by hiring delays.

Roads
Year-end Variance $-
  • $1.3 net additional utility cut revenue in Roadway Operations.
  • $0.5 net additional permit and parking meter revenue.
  • $0.4 net additional revenue from subdivision development work.
  • $0.2 net additional planning revenues due to higher demand for Right of Way Services.
  • ($2.4) for the winter road maintenance program. Costs for the first part of the year were higher than budget as the actual snowfall to the end of March was 74.5 cm which is 30 percent more than the ten year average for this period of 57.1 cm. The heavy snowfall, along with three freezing rain occurrences necessitated major plowing utilizing graders, critical residential spot plowing to deal with ice and snow ruts, and more street sand. With the amount of sand distributed, cleanup costs were greater than normal.

Transit
Year-end Variance ($0.8) (0.7%)
  • $3.2 in revenues from higher ridership levels and special events.
  • ($1.3) in Bus Fleet and Facilities due to higher diesel fuel prices, plant maintenance costs, and MES maintenance charges.
  • ($2.9) variance for instalment payments for new DATS vans.
  • $0.2 net other variances.

Capital Project Financing
Year-end Variance ($0.5) (0.6%)
  • ($0.5) increase in transfer to the Tax-Supported Debt reserve as the 1% from taxes for capital (debt charges) was larger than anticipated.

Corporate Expenditures
Year-end Variance ($7.8) (53.2)
  • $2.7 Financial Strategies budget amounts not required.
  • ($5.3) higher than estimated adjustments for accrued vacation and income replacement plan liabilities.
  • ($2.8) for Risk Management resulting from liability claims that were greater than budget.
  • ($1.4) part of the $3.0 million 2005 budget reduction approved by Council; specific savings not identified.
  • ($0.7) additional post-employment benefit obligations.
  • ($0.2) additional expenditures for the screen and stage in Churchill Square for the Royal Visit.
  • ($0.1) net other variances.

Corporate Revenues
Year-end Variance $21.2 8.1%
  • $18.8 from increased investment earnings due to bond, equity, and money market yields all higher than budgeted; the opportunity to swap certain investments being the major factor.
  • $3.9additional gas franchise fees as a result of growth and EUB approved increases to eligible costs on which the franchise fee is based.
  • $1.5 excess Police TSA revenues transferred to Corporate Revenues as per Council approval.
  • $0.6 increased tax penalty revenue.
  • ($3.6) transfer from reserves less than budget due to carryforward of projects to 2006.

Taxation Expenditures
Year-end Variance $5.3 74.9%
  • $3.0 tax appeal costs less than budget.
  • $1.4 bad debt expense less than budget.
  • $0.6 higher than estimated realty tax supplementary.
  • $0.3 net other variances.

Taxation Revenues
Year-end Variance $4.6 0.8%
  • $4.6 net increases in Realty and Business Taxes since the bylaws were approved.

2005 World Masters
Year-end Variance $0.9 372%
  • Financial results relating to the 2005 World Masters Games are being finalized; any residual is not expected to be available for general reallocation.

Attachment 2 - Page 1 of 5

Attachment 3

City Council Commitments

This attachment provides further detail on what is funded with each of recommendations 2 through 4 of the report. It then projects the financial stabilization reserve balance and the amounts to be available in each of 2006 through 2008, based upon Council’s approval of the recommendations.Amounts are provided in millions of dollars. The 2005 tax levy surplus, the reserve target balance and the resulting amounts available to future years remain subject to audit at this time.

Recommendation 2:That $0.9 million be approved from the Financial Stabilization Reserve to cover2005 amounts required to be carried forward to 2006.

Planning and Development – Leasehold Improvements0.7

Brownfield Study Project0.1

2005 Council Contingency Items Outstanding:

2006 City Manager’s Budget – Council Compensation Committee0.05

Joint Program Development – NAIT North Central Recreation Centre0.03

Long-term Strategy for SeniorCentresBuilding Operating Costs0.03

JohnHumphreyCentre- Peace and Human Rights Conference 20060.02

Next Generation Task Force0.010.01