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HomeMy WebLinkAboutFND-002-09Energizing Ontario REPORT FINANCE DEPARTMENT Meeting: SPECIAL GENERAL PURPOSE AND ADMINISTRATION COMMITTEE Date: Friday January 16~h, 2009 Report #: FND-002-09 File Resolution #: ~ f 1~""~~'~ I By-law Subject: 2010 TO 2013 OPERATING AND CAPITAL FORECASTS Recommendations: It is respectfully recommended that the Special General Purpose and Administration Committee recommend to Council the following: 1. THAT FND-002-09 be received for information. :~ ~; Submitted by: ~~~ ancy T ylor, B .A., C.A., Director of Finance/Treasurer Reviewed b ..~ " "`""- ~~ ranklin Wu, Chief Administrative Officer. NT/hjl REPORT NO.: FND-0021-09 OVERVIEW PAGE 2 1.0 In June, 2008, Council requested that an operating and capital forecast be provided to Council in conjunction with budget deliberations for the 2009 year. The maximum total budget years that are permitted under the Municipal Act is five years. Therefore, the 2009 budget was circulated with a separate report and binder and 2010 to 2013 is presented here with a binder providing specific details. 1.1 Many factors come into play when dealing with multi-year future budgets. There is a great deal of uncertainty, particular when dealing with an overall five year budget window. There are also some rules pertaining to election years when dealing with multi-year budgets. Due to that uncertainty, rather than adopt the future year budgets, it is recommended simply that the forecast be received for information. It is provided to aid Council in decision making and as a general guide to prepare for the next several years. 1.2 As Council is keenly aware, there is significant economic uncertainty for the next 18 months to two years. This has had an impact on the forecast as we have tried to incorporate this into some of the cost drivers and implications on revenues that may be experienced. This is reflected in the assumptions underlying the forecast information provided. ASSUMPTIONS 2.0 A forecast extending out to the end of 2013 cannot be provided without an extensive number of assumptions that are critical to understanding what is driving the end result. 2.1 Many of the significant assumptions pertaining to reserves and reserve funds are as follows: 1. 2010 to 2013 development charges rates are calculated using an estimated annual indexing percentage applied on January 1 sc of each year starting at 3.0% for 2010 due to economic conditions and increasing to 4.5% by 2013 as the economy shifts. It is very important to note that for the purposes of the forecast, no impact of the future results of the existing appeal to the development charges by-law is included as it is not able to be predicted at this time. Any negative outcome would have obvious negative implications on the cash flow into the development charges reserve funds and resulting negative impacts upon the capital budget that is funded from development charges as well as the repayment of development charge related debt. REPORT NO.: FND-002'-09 PAGE 3 3. It is also assumed for purposes of this analysis that there will be no phase in or significant change in the development charges quantum occurs as a result of the total update to the development charges by-law that is required by mid-2010. This may not be the case, but is impossible to predict at this time. 4. The number of residential units in each year that translate into development charges collections is estimated at 545 for 2010, 650 for 2011, 700 for 2012, and 690 for 2013. This may be overly optimistic in the early years and conservative in later years. 5. Interest earned in all reserve funds is calculated on the balances in those reserve funds as of October 2008. This may vary over the forecast time frame, particularly in those reserve funds not being replenished at the same rate they are being drawn upon. 6. The estimated interest rate used for predicting available reserve fund balances for capital financing is estimated at 2% for 2010 and escalates to 3.45% by 2013. This may also vary significantly and will have an impact upon the timing of capital works. 7. Those reserve funds that generate contributions were assumed to continue to do so on a fairly static basis. We are not able to predict at this time any greater level of certainty. 8. Some reserve funds required increased tax levy contributions in order to fund future required capital obligations. 9. It is assumed that the reliance on the rate stabilization reserve fund to stabilize the tax levy will be reduced over the forecast period. 2.2 Significant capital fund assumptions are as follows: The reserves and reserve funds will continue to be a significant source of financing for the capital programs and the capital projects are therefore deferred in particular years where shortfalls were occurring until such a time as the costs can be supported by that reserve or reserve fund. 2. It was assumed that no new debt will be undertaken during the forecast period beyond that already identified. REPORT NO.: FND-002-09 PAGE 4 3. Due to the shrinkage in income in the reserve funds due to economic conditions and interest rate implications, the capital fund required additional tax levy support, even with deferral of projects. As a result, it was assumed that a 1% increase in tax levy support for capital was approved annually. If this is not undertaken, the forecast projects that can be accomplished would be significantly impacted. 4. The capital forecast does not include any implications that may arise as a result of the PSAB capital asset exercise and potential provincial requirements that may flow from the PSAB reporting process. 5. The full amount of any federal gas tax funding has been applied to the capital budget. No other capital grants were included as none are predicted at this time. 2.3 Significant operating budget assumptions are as follows: 1. Inflation is assumed at approximately 3% for most general operating expenses. 2. Education retained will decline each year due to the provincial reduction in the education tax rate through until 2014. 3. While the Newcastle Fire Hall will be constructed during the forecast time period, no additional costs have been incorporated beyond staffing due to further analysis that will be required in this area and reported to Council at a later date. There is an estimated reduction in the part-time firefighter budget subsequent to the facility opening. 4. No significant changes in staffing models or service levels have been incorporated. Any changes to the Municipality's operating structure would have an impact upon the future budgets. The status quo was necessary in order to create a base forecast. 5. It is assumed in the forecast that Council have selected the minimal staffing option for new staff changes in 2009 with the balance of the staffing request that was presented at the Nov 21 budget education session deferred to 2010. The staffing forecasts provided by the department heads and reviewed by the CAO were then pushed out by one year. Any decisions made by Council pertaining to staffing will have a direct impact upon each future forecast year. 6. For the existing staff complement, continuing percentage increases have been applied consistent with prior year's experience. This has the potential to vary greatly as contracts come up for renewal over the forecast period. REPORT NO.: FND-002.09 PAGE 5 7. Employee benefit increases are assumed at 10% per annum. Again, this has the potential to vary greatly due to their unpredictable nature. 8. Assessment growth is assumed at 2% for 2010 escalating to 3% by 2013. 9. Revenues are assumed to increase modestly over the forecast period. 2.4 Listed above are the significant assumptions only. Each department would have made a series of assumptions embedded into each of their budget submissions for the forecast period. It is crucial to keep in mind that many of the above. assumptions are very sensitive and therefore have a significant impact upon the end result. It is important to reiterate that the forecast is provided for information purposes only. There is a great deal of information provided throughout the detail pages in the attached binder based upon services provided by each department. OVERALL RESULTS 3.0 Based on the above assumptions, overall tax levy increases are predicted as follows: 2010- 8.40%, 2011- 4.34%, 2012- 2.84%, 2013- 6.36% with an overall average of 5.04%. It is important to note that the forecast does not take the place of the Municipality's annual budget exercise. Each year, the current budget undergoes a great deal of scrutiny by the CAO as well as many iterations within each department. 3.1 It is also important to note that upper levels of government and other outside influences can create a very unpredictable environment for municipalities. As mentioned above, we have assumed the status quo generally throughout the forecasting exercise. In order for Council to assess the trends occurring, staff have transitioned some expenses over time to build in the tax levy impact (ie winter control) but have not otherwise made service cuts etc to achieve any desired outcome. CONCLUSION 4.0 It is the goal of staff that the forecast provided will provide a "big picture" perspective to Council of future cost pressures within each department and assist as a guiding document for decision making purposes. The fulsome annual budget exercise will take place each year whereby annual pressures are reevaluated and resulting decisions made. This will hopefully assist Council in a general way in the coming years in assessing service levels and public demands versus affordability to the taxpayer. 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