Agenda Index City of Vancouver

ADMINISTRATIVE REPORT

TO: Standing Committee on City Services and Budgets
FROM: Director of Finance
SUBJECT: 1998 Operating Budget -Year-end Adjustments
 

RECOMMENDATION

GENERAL MANAGER COMMENTS

COUNCIL POLICY

The Vancouver Charter requires the City to maintain a balanced budget.

Council authority is required to draw funds from reserves.

PURPOSE

The purpose of this report is to provide an interim report on the 1998 Revenue Fund operating results at the year end and to seek Council approval to fund the current shortfall position.
BACKGROUND

The potential liabilities associated with property tax appeals and outstanding grants in lieu of taxes have been reported to Council by the BC Assessment Authority and the Director of Finance several times over the last few years. In annual reports to Council, the Area Assessor has commented on the number of outstanding assessment appeals going back several years that had the potential to impact on City revenues. One of the largest single appeals was Pacific Centre, a decision on which came down in the fall of 1998 and has led to a significant refund of property taxes and rents-in-lieu of taxes to Cadillac Fairview.

In reporting on the status of both the 1997 and 1998 operating budgets, the Director of Finance noted that outstanding grants-in-lieu of taxes related to Vancouver Port Corporation (1985 - 1998), the Canadian Broadcasting Corporation (1994 - 1998) and Canada Post Corporation (1995 - 1998) were of particular concern because resolution of the City's claims might result in lost revenue. This caution was also brought forward in the 1998 September Review report that Council considered on December 3, 1998.

The City's Operating Budget is backed by general and specific purpose reserves that can be accessed in the event of unexpected or extra-ordinary events that lead to a shortfall position. These reserves are funded from the annual operating budget when potential liabilities are identified. The difficulty in attempting to making full provision for anticipated impacts is understanding both the timing and extent of those impacts. Throughout this period, the annual budget has made provision for potential revenue losses related to tax write-offs and other issues associated with the budget.

On December 3, 1998, Council approved the following recommendation of the Director of Finance in relation to the City's year-end:

This recommendation was part of the financial plan, including access to reserve funds, that had been developed to handle any adverse financial impacts from the resolution of these potential liabilities.

DISCUSSION

In an unexpected turn of events, several major issues that finance staff had been following were resolved during the last few weeks of the year, albeit with significant negative impact on the year-end financial results. The following table summarizes the results of the 1998 operating budget year, indicating a shortfall or revenues over expenditures of $8.9 million. Additional detail is provided in Appendix 1.

    Budget Actual (Over) / Under
Revenues      
  Taxation Revenue $376,007,700 $371,993,926 $4,013,774
  General Revenue 88,650,200 85,307,739 3,342,461
  Utility Revenues 72,205,100 72,262,574 (57,474)
  Transfers 13,238,700 13,271,528 (32,828)
    $550,101,700 $542,835,767 $7,265,933
Expenditures      
  Departmental Expenditures $486,312,400 $487,955,845 ($1,775,199)
  Debt Charges 43,594,600 43,591,856 2,744
  Transfers 20,194,700 20,263,321 (68,621)
    $550,101,700 $551,811,022 ($1,709,322)
       
Current Budget Position $0 ($8,971,775) $8,971,775

There are a variety of reasons for this deficit position, however, for the most part, this position is the result of the extraordinary items in the budget discussed below rather than the normal operations of City departments.

1. The Revenue Results

There were two significant events late in 1998 that have impacted on the City's revenues. The full impact of these events were unknown even at the time that the September Budget Review was developed:

Assessment Appeals:

Grants-in-Lieu of Taxes Settlements:

The total impact on the budget of these assessment and taxation related issues was $7.15 million.

There were two other noteworthy variances on the revenue side of the Operating Budget:

… Short term interest earnings were below estimates by $696,000 reflecting lower than anticipated cash balances and the deferral of the 1998 debenture issue.
… Trade and Inspection Fees were below estimates by $912,000, reflecting the significant decline in construction activity during the fall of 1998. This shortfall was experienced despite adjustments to the budget side totalling over $1.0 million at September Budget Review. Actual revenues for the year were almost $2.0 million below the original 1998 budget level, reflecting the downward trend in these revenues which quickly accelerated in the fall of 1998.

Overall, after allowing for surpluses in other areas of the revenue budget, the overall shortfall on the revenue side of the budget was $7.1 million.

2. The Expenditure Results

Overall, actual expenditures exceeded the budget by $1.9 million or 0.4%. For the most part, departments remained within the budget targets established in the Operating Budget, with two notable exceptions. The following table summarizes the results by business group:

    Budget Actual Under / (Over)
Mayor & Council   $1,229,000 $1,218,937 $10,063
City Manager   8,458,470 8,493,112 (34,652)
Corporate Services   21,434,300 21,181,218 253,082
Human Resources   2,896,000 2,795,775 100,225
Community Services   31,776,630 31,762,669 13,961
Fire & Rescue Services   59,972,800 60,813,613 (840,813)
Police Services   109,998,800 112,816,871 (2,818,071)
Engineering Services   97,085,800 96,604,722 481,078

Snow Fight

  342,500 1,215,312 (872,812)
Park Board   38,403,700 38,070,867 332,833
Library Board   26,380,700 26,466,009 (85,309)
Miscellaneous   84,924,400 83,461,857 1,462,543
    $482,903,100 $484,900,962 ($1,997,872)
       

0.4%

As noted, most departments remained within the budget targets established during the 1998 budget process. There are two notable exceptions:

… The Police department exceeded its target by $2.8 million. As subsequent review of this result has indicated that about $750,000 of this amount was beyond the control of the department. The balance is comprised of expenditures on special projects such as the home invasion task force and a variety of other projects related to the enforcement mandate of the department and involves mostly overtime expenditures. At the time September Budget Review was undertaken, it was anticipated that the department would contain most of these expenditures, however, the final results proved to be much worse than anticipated.

.

The Fire Department budget was overspent by $840,000. The items that account for this overexpenditure have been identified and, for the most part were beyond the control of the department. These included, under-funding in the salary and benefits areas and unbudgetted expenditures related to staff retirements and double-banking. The department was also required to correct an accounting error that occurred in 1997 ($155,500) and was the victim of an overcharge for fuel as a result of a computer system problem which nets to zero in the overall City accounts.

… Council will also note that approximately $875,000 of snow fight costs were unfunded in the 1998 Operating Budget. Much of this over-expenditure relates to the late December snow falls experienced by the City. It is not the City's practice to budget for fall snowfight costs when developing the annual budget, but to absorb these costs within the existing Contingency Reserve allocation should they occur.

DEALING WITH THE SHORTFALL POSITION

The City does not currently have sufficient operating fund balance in Revenue Fund Surplus to absorb the current shortfall. However, the City does have more than adequate reserves which can be accessed to the shortfall position. The Director of Finance recommends the following transfers from reserves:

Reserve for Tax Write-Offs $2,353,000

Capital Reserve $2,892,344

Debt Charges Equalization Reserve $1,157,000

Reserve for Property Tax Arrears $2,530,666

In summary, the transfers recommended above will leave the 1998 budget year end in the following position:

With the transfers recommended above, the 1998 Revenue Fund operations will be close to a balanced position and the external auditors will be able to complete their audit of the City's financial statements for presentation to City Services and Budgets Committee on April 29, 1999.

CONCLUSION

As a result of several extraordinary items that have left the 1998 budget year-end in a shortfall position, the Director of Finance is recommending the transfer of funds from several of the City's reserves. These transfers will result in the year end results being close to a balanced position.

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cs990415.htm


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