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2017-11-29 Finance Committee Agenda Packet - Open Session
City of Saint John Finance Committee Meeting Wednesday, October 29, 2017 Committee of the Whole 1. Call to Order Si vous avez besoin des services en français pour une réunion de Conseil communal, veuillez contacter le bureau du greffier communal au 658-2862. Each of the following items, either in whole or in part, is able to be discussed in private pursuant to the provisions of subsection 10.(2)(4) of the Municipalities Act and Council / Committee will make a decision(s) in that respect in Open Session: th 4:30 p.m., 8 Floor Boardroom, City Hall 1.1 Approval of Minutes 10.2(4) 1.2 Financial Matter 10.2(4)(c) Finance Committee Meeting Open Session September 27, 2017 MINUTES - OPEN SESSION FINANCE COMMITTEE MEETING SEPTEMBER 27, 2017 AT 4:30 PM th 8 FLOOR BOARDROOM, CITY HALL Present: Mayor D. Darling Councillor D. Merrithew Councillor D. Reardon Councillor G. Sullivan Councillor S. Casey Councillor G. Norton Also Present: City Manager J. Trail Deputy City Manager N. Jacobsen Commissioner of Finance and Treasurer K. Fudge Senior Manager Financial Planning H. Nguyen Deputy Commissioner Finance and Administrative Services I. Fogan Comptroller C. Graham Commissioner Saint John Water B. McGovern Commissioner of Transportation & Environment Services M. Hugenholtz Assistant Comptroller Finance C. Lavigne Commissioner Growth and Community Development J. Hamilton Common Clerk J. Taylor Deputy Fire Chief J. Armstrong Senior Financial & Economic Analyst B. Zirobwa A/Director Corporate Performance/Chief Information Officer S. Rackley-Roach Continuous Improvement Officer S. Ranson Administrative Assistant K. Tibbits 1. Meeting Called To Order Councillor Merrithew called the Finance Committee open session meeting to order. 1.1 Approval of Minutes September 7, 2017 Moved by Councillor Reardon, seconded by Councillor Sullivan: RESOLVED that the minutes of September 7, 2017, be approved. MOTION CARRIED. 1.2 2018 Utility Fund Operating Budget Referring to the submitted report, Mr. McGovern reviewed the Saint John Water Fund Operating Budget. The 2018 budget includes completion of the largest municipal infrastructure project in the history of New Brunswick, the safe clean drinking water project. A Water and Wastewater rate study, universal metering evaluation and industrial rate study is scheduled to be completed in 2018. Continuous improvement and revenue generation opportunities continue to remain a focus. The proposed increase in the flat rate for 2018 remains at $72. Finance Committee Meeting Open Session September 27, 2017 Moved by Mayor Darling, seconded by Councillor Reardon: RESOLVED that the Finance Committee approve the 2018 Utility Fund Operating Budget and submit to Common Council for receive and file. Councillor Sullivan expressed concern with the proposed increase in water rates for 2018 and questioned if the original analysis remains relevant. MOTION CARRIED with Councillor Sullivan voting nay. (Mr. Lavigne withdrew from the meeting) 1.3 Fundy Regional Services Commission 2018 Draft Budget Ms. Zirobwa commented on the budget submission from the Fundy Regional Services Commission, noting that there is a $10,000 increase in the budget submission. (Councillor Norton entered the meeting) Moved by Councillor Sullivan, seconded by Councillor Reardon: RESOLVED that the Fundy Regional Services Commission 2018 Draft Budget submission, be received for information. MOTION CARRIED. 1.4 Operations Savings Discussion (Deputy Mayor McAlary) Councillor Merrithew noted that item 1.4 Operations Savings Discussion, was referred by Council to the Finance Committee and added that there is a budget exercise in closed session. Adjournment Moved by Councillor Reardon, seconded by Councillor Sullivan: RESOLVED that the Finance Committee open session meeting held on Wednesday, September 27th, 2017 be adjourned. MOTION CARRIED. The Finance Committee meeting held on September 27, 2017 was adjourned at 5:25 p.m. Finance Committee Meeting Open Session October 26, 2017 MINUTES OPEN SESSION FINANCE COMMITTEE MEETING OCTOBER 26, 2017 AT 4:30 PM th 8 FLOOR BOARDROOM, CITY HALL Present: Mayor D. Darling Councillor D. Merrithew Councillor G. Sullivan Councillor S. Casey Councillor G. Norton Regrets: Councillor Reardon Also Present: City Manager J. Trail Deputy City Manager N. Jacobsen Commissioner of Finance and Treasurer K. Fudge Senior Manager Financial Planning H. Nguyen Deputy Commissioner Finance and Administrative Services I. Fogan Comptroller C. Graham Commissioner of Transportation & Environment Services M. Hugenholtz Commissioner Growth and Community Development J. Hamilton Fire Chief K. Clifford Deputy Fire Chief J. Armstrong A/Director Corporate Performance/Chief Information Officer S. Rackley-Roach Deputy Police Chief G. McCloskey Director HR and Finance Police Department M. Corscadden Deputy Commissioner Building and Inspection Services A. Poffenroth Common Clerk J. Taylor Councillor Merrithew called the Finance Committee session meeting to order. Moved by Mayor Darling, seconded by Councillor Norton: RESOLVED that the 2018 budget meeting schedule be added to the agenda. MOTION CARRIED. 1.1 Budget Meeting Schedule Moved by Mayor Darling, seconded by Councillor Norton: RESOLVED that the following budget meeting dates be approved: November 1, 2017 Closed session Finance Committee Meeting Open Session October 26, 2017 November 8, 2017 Closed session November 15, 2017 Open session December 6, 2017 - Open session MOTION CARRIED. Moved by Mayor Darling, seconded by Councillor Sullivan: RESOLVED that the Finance Committee move into closed session for discussion of the following matters: 1.1 Approval of Minutes 10.2(4); 1.2 Financial Matter 10.2(4)(c); 1.3 Financial Matter 10.2(4)(c); 1.4 Financial Matter 10.2(4)(c); 1.5 Financial Matter 10.2(4)(c); 1.6 Financial Matter 10.2(4)(c); and 1.7 Financial Matter 10.2(4)(c). MOTION CARRIED Record Pursuant to Section 10.2(4) The meeting of the Finance Committee held on October 26, 2017 was closed to the public pursuant to Section 10.2(4) of the Municipalities Act during the Committee's discussion of the following matters: 1.1 Approval of Minutes 10.2(4); 1.2 Financial Matter 10.2(4)(c); 1.3 Financial Matter 10.2(4)(c); 1.4 Financial Matter 10.2(4)(c); 1.5 Financial Matter 10.2(4)(c); 1.6 Financial Matter 10.2(4)(c); and 1.7 Financial Matter 10.2(4)(c). Adjournment The Finance Committee open session meeting held on October 26, 2017 was adjourned at 4:35 p.m. The City of Saint John 2017Audit service plan For the year ended December 31, 2017 Presented to the finance committee November 22, 2017 00 November 1, 2017 To the finance committeeof The City of Saint John 2017Audit service plan Dear the finance committee: We are pleased to provide you with our audit service plan for The City of Saint Johnthe CityDecember 31, 2017. This document describes the key features of our plan including our audit scope and approach, our planned communicationswith you, our team and an estimate of our fees. Our commitment to you is straightforward: we will provide you with outstanding professional services delivered by an experienced and dedicated team of specialists. Our professionals will continue providing you with best practices and insights to face the increasingly complex array of issues and challenges encountered by municipalitieslike the City. At Deloitte, we are committed to helping the Citygrow and successfully achieve its business objectives in-changing economy. We look forward to discussing our audit service plan with you and answering any questions you mayhave. Yours truly, Deloitte LLP Chartered Professional Accountants The City of Saint John | Table of contents Table of contents Our audit explained 1 Significant audit risks 3 Group audit 5 Appendix 1 Auditapproach6 Appendix 2 Communication requirements 9 Appendix 3 Audit team 11 Appendix 4 2017 Summary audit timeline 12 Appendix 5 New and revised Auditor Reporting Standards 14 i © Deloitte LLP and affiliated entities The City of Saint John | Our audit explained Our audit explained Audit scope and terms of engagement We have been asked to perform an audit of the Cityconsolidated financial statements consolidated financial statementsas well as the City in accordance with Canadian as at and for the year ending December 31, 2017.Our audit will be The terms and conditions of our engagement, including our responsibilities for any additional audit-related services you have asked us to provide, are described in the Master Service Agreement, which has been included in a separate document to the Commissionner of Finance and Administration. The Commissioner of Finance and Administration Services will sign this Master Service Agreement on behalf of the Finance Committee of the City of Saint John. Scope and terms of engagementMaterialitySignificant audit risks Materiality Significant audit risks We are responsible for providing reasonable Through our preliminary risk assessment process, we assurance that your consolidated financial statements have identified the significant audit risks. These risks of and Trust statements as a whole are free from material misstatement and related audit responses are material misstatement. discussed in the Significant audit risks section of this report. Materiality for the consolidated financial statements is determined on the basis of total prior year budgeted revenues. Our preliminary estimate of materiality for the year ending December 31, 2017 has been set at $6,500,000 (2016 - $6,500,000). The materiality basis for the Trust is total equity and our preliminary estimate is $23,800 (2016 $23800). We will inform the Finance Committee of all uncorrected misstatements greater than a clearly trivial amount of 5% of materiality and any misstatements that are, in our judgment, qualitatively material. In accordance with Canadian GAAS, we will ask that any misstatements be corrected. Prior to the commencement of year-end fieldwork, we will update materiality levels to reflect actual results. Final materialities will be communicated to the Finance Committee in the audit results document presented by Deloitte at the end of the audit. 1 © Deloitte LLP and affiliated entities The City of Saint John | Our audit explained Fraud risk Audit reporting We will develop our audit strategy to address the assessed risks of Under Canadian GAAS, we are required material misstatement due to fraud. Determining this strategy will to communicate certain matters to the involve: Finance Committee. The primary reports and formal communications through 1. Asking people involved in the financial reporting process about which we will address these matters inappropriate or unusual activity. are: 2. Testing a sample of journal entries throughout the period as This Audit Service Plan well as adjustments made at the end of the reporting period. Year End Communication, and 3. Identifying and obtaining an understanding of the business rationale for significant or unusual transactions that are outside the normal course of business. consolidated financial statements. 4. Evaluating whether your accounting policies may be indicative Business Insights We will provide you with insights into effort to manage earnings. the condition of your business and offer 5. Evaluating whether the judgements and decisions related to meaningful suggestions for management estimates indicate a possible bias. improvement. 6. Incorporating an element of unpredictability in selecting our audit procedures. We will also ask the Finance Committee for their views about the risk of fraud, whether they know of any actual or suspected fraud affecting the City antifraud programs. If we suspect fraud involving management, we will immediately inform the Finance Committee of our suspicions and discuss the nature, timing, and extent of audit procedures necessary to complete the audit. Year-end communication with Conclusion, findings Fraud riskAudit feesOur audit report \[Those charged with andinsights governance\] Audit fees We proposeaudit fees of $71,190 (2016 - $68,900) for the audit of the City of Saint John consolidated financial statements which includes the audit and disclosures relating to the accounting of the shared risk pension plan and $1,650 (2016 $1,620) for the . All of fee assumptions are outlined in the master service agreement. Fees for Parking Commission, Harbour Station Commission and Saint John Trade and Convention Center will be communicated in separate master service agreement for the respective entities. 2 © Deloitte LLP and affiliated entities The City of Saint John | Significant audit risks Significant audit risks During our risk assessment, we identified some significant audit risks that will require special audit consideration. These risks, together with our planned responses, are described below. The following tables set out the significant audit risks that we identified during our preliminary planning activities, including our proposed response to each risk. Our planned audit response is based on our determination of materiality and our prior knowledge of the City. Significant risk dashboard Audit risk Fraud riskPlanned Planned testing Planned Planned use assessment of of the substantive of experts the design and operating testing implementation effectiveness of of internal internal controls for risk controls assessment purposes Management override of controls Complex and non-routine consolidation entries for controlled entities Will be addressed during the audit Not applicable Management override of controls Audit risk Our proposed audit response Under Canadian Auditing Standards, it is the We will discuss fraud with management. responsibility of management, with the oversight of We will test the appropriateness of journal entries those charged with governance to place a strong recorded in the general ledger and other emphasis on fraud prevention and detection. Oversight adjustments made in the preparation of the by those charged with governance includes considering financial statements. the potential for override of controls or other We will evaluate the business rationale for any inappropriate influence over the financial reporting significant unusual transactions. process. We will determine whether the judgments and Management override of controls is present in all decisions related to management estimates entities. It is a risk of material mistatement resulting indicate a possible bias, which will include from fraud and therefore is considered as a significant performing retrospective analysis of significant risk. accounting estimates. 3 © Deloitte LLP and affiliated entities The City of Saint John|Significant audit risks Complex and non-routine consolidation entries for controlled entities Risk identifiedOur proposed audit response Accounting for controlled entities is a requirement of We will test the design and implementation of PSAS and there is a risk that the consolidation is not controls specific to this risk. completeand that disclosures are inaccurate. We will review manage controlled entities and method of consolidation under PSAS. We will test the complex and non-routine consolidation entries, including elimination entries. This testing will be performed and reviewed by senior members of the engagement team who have experience auditing consolidations. The City of Saint John is considered a Group Audit under Canadian Auditing Standards due to the existence of controlled entities. As the Group Auditor, we will gain an understanding of the complexity and nature of the operations of controlled entities audited by other accounting firms and will obtain the audited financial complete and accurate. As we perform our audit procedures, we will inform you of any significant changes to the significant risks discussed above and the reasons for those changes. The following financial statement risks, while not classified as significant, are very important to the audit: Employee future benefits Accounting for the shared risk pension plan and its related disclosure present an important financial statement risk. o We will test the design and implementation of controls specific to this risk.As well as involve internal actuaries where and if necessary. o We will send confirmation of the actuarial valuation completed by the external actuaries and independently audit the assumptions used in the valuation. o We will independently confirm that the actuaries are in good standing with the Canadian Institute of Actuaries. o We will corroborate participant data used in the calcualtions and challenge their assumptions. Tangible capital assets Accounting for and recording tangible capital assets o We will test the design and implementation of controls specific to this risk. o We willtest additionsand disposalsof tangible capital assets to CityWide. o We will also perform a recalculation of depreciation expense and validate that depreciation has commenced when the asset is available for use. 4© Deloitte LLP and affiliated entities The City of Saint John | Group audit Group audit The audit of the City is considered to be a group audit, in which portions of the audit, are conducted by another auditor. Because of this, we are also required to determine the scope of work required for each component. The table below lists the independent public accounting firms (i.e., other auditors) that will perform audit procedures in the current period audit: Component Work on component Controlled component significance performed by The City of Saint John General Significant Deloitte Operating Fund (includes Saint John Police Commission) The City of Saint John Capital and Loan Significant Deloitte Fund The City of Saint John Water and Significant Deloitte Sewerage Utility Operating Fund The City of Saint John Water and Significant Deloitte Sewerage Capital and Loan Fund Saint John Parking Commission Significant Deloitte Harbour Station Commission Significant Deloitte Saint John Transit Commission Significant Teed Saunders Doyle Saint John Development Corporation Significant Ernst & Young Power Commission of Saint John Significant KPMG Saint John Trade and Convention CentreNon SignificantDeloitte Saint John Industrial Parks Inc. Non Significant Teed Sounders Doyle Lord Beaverbrook Rink Non Significant Frank Ashe Saint John Aquatic Centre Commission Non Significant Cumming & Associates Saint John Jeux Canada Games Non Significant Teed Saunders Doyle Foundation Inc. Saint John Free Public Library Non Significant Ernst & Young As described above, significant parts of the audit will be performed by other auditors. We have determined that it is appropriate for us to serve as the Citythe City consolidated financial statements. Based on our analysis, we have determined the scope of work needed to provide an appropriate basis for our audit opinion on the financial statements. The components above that have been identified as significant will have a full scope financial statement audit performed. In instances where Deloitte is not the auditor of the component, an audit will be performed by other auditors and comprehensive referral instructions will be sent by Deloitte. Note that audits done on components deemed to be significant will be components that have been identified as non-significant, analytical review procedures will be performed. 5 © Deloitte LLP and affiliated entities The City of Saint John | Appendix Audit approach Appendix 1 Audit approach Daudit approach is a systematic methodology that enables us to tailor our audit scope and plan to address the unique issues facing the City. The following steps are not necessarily sequential nor are they mutually exclusive. For example, once we have developed our audit plan and the audit is being performed, we may become aware of a risk that was not identified during the planning phase. Based on that new information, we would reassess our planning activities and adjust the audit plan accordingly. 1. Initial planning The Deloitte audit approach begins with an extensive planning process that includes: Assessing your current business and operating conditions Understanding the composition and structure of your business and organization Understanding your accounting processes and internal controls Understanding your information technology systems Identifying potential engagement risks Planning the scope and timing of internal control and substantive testing that take into account the specific identified engagement risks 2. Assessing and responding to engagement risk Our Audit approach combines an ongoing identification of risks with the flexibility to adjust our approach when additional risks are identified. Since these risks may impact our audit objectives, we consider materiality in our planning to focus on those risks that could be significant to your financial reporting. Consideration of the risk of fraud When we identify a misstatement or control deficiency, we consider whether it may be indicative of fraud and what the implications of fraud and significant error are in relation to other aspects of the audit, particularly the reliability of management representations. In determining our audit strategy to address the assessed risks of material misstatement due to fraud, we will: Assign and supervise personnel, taking into account the knowledge, skill and ability of individuals with significant engagement responsibilities and our assessment of the risks of material misstatement due to fraud for the engagement. Evaluate whether the Cityed to subjective measurements and complex transactions, may be indicative of fraudulent financial reporting Incorporate an element of unpredictability when selecting the nature, timing and extent of our audit procedures. We will inquire directly of the Finance Committee regarding: Its views about the risk of fraud Whether it has knowledge of any actual or suspected fraud affecting the City, and 6 © Deloitte LLP and affiliated entities The City of Saint John | Appendix Audit approach The role it exercises in the oversight of fraud risk assessment and the establishment of mitigating controls. We will also inquire if the Finance Committee is aware of tips or complaints regarding the City reporting and, if so, the Finance Committeewhether it is aware of matters relevant to the audit, including, but not limited to, violations or possible violations of laws or regulations. If we suspect fraud involving management, we will communicate these suspicions to the the Finance Committee and discuss the nature, timing, and extent of audit procedures necessary to complete the audit. Information technology An important part of our audit planning process involves gaining an understanding of: 1. The importance of the computer environment relative to the risks to financial reporting 2. The way in which that environment supports the control procedures we intend to rely on when conducting our audit\], and 3. The computer-based information that supports our substantive procedures. The objective of our review of computer controls is to identify potential areas of risk and assess the relevance, reliability, accuracy and completeness of the data produced by the systems. We also assess the operating effectiveness of the computer environment and determine the reliability of the financial information used to generate the consolidatedand trust financial statements. To accomplish this, we gain an up-to-date understanding s computer processing environment and our understanding of the relevant general computer controls. We then conduct tests to support our conclusion on the operating effectiveness of controls considered relevant to the audit. 3. Developing and executing the audit plan The performance of an audit includes evaluating the design and determining the implementation of internal controls relevant to the audit and performing substantive audit procedures. Audit procedures The timing of our audit procedures is dependent upon a number of factors including the need to coordinate with management for the provision of supporting analysis and other documentation. Generally, we perform our audit procedures to allow us sufficient time to identify significant issues early, thereby allowing more time for analysis andresolution. Tests of controls As part of our audit, we will review and evaluate certain aspects of the systems of internal control over financial reporting to the extent we consider necessary in accordance with Canadian GAAS. The main objective of our review is to enable us to determine the nature, extent and timing of our audit tests and establish the degree of reliance that we can place on selected controls. An audit of the consolidated financial statements purposes or to provide assurance on the design or operational effectiveness of internal control over financial reporting. The extent to which deficiencies in internal control may be identified through an audit of consolidated financial statements is influenced by a variety of factors including our assessment of materiality, our preliminary assessment of the risks of material misstatement, our audit approach, and the nature, timing and extent of the auditing procedures that we conduct. Accordingly, we gain only a limited understanding of controls as a result of the procedures that we conduct during an audit of consolidated financial statements. 7 © Deloitte LLP and affiliated entities The City of Saint John | Appendix Audit approach We will inform the the Finance Committee and management of any significant deficiencies that are identified in the course of conducting the audit. Substantive audit procedures Our substantive audit procedures consist of a tailored combination of analytical procedures and detailed tests of transactions and balances. These procedures take into account the results of our controls tests and are designed to enable us to obtain reasonable assurance that the consolidated financial statements are free from material misstatements. To obtain this assurance, misstatements that we identify while performing substantive auditing procedures will be considered in relation to the consolidated financial statements as a whole. Any misstatements that we identify, other than those that are clearly trivial (the clearly trivial threshold has been set at 5% of materiality), will be reported to management and the the Finance Committee. In accordance with Canadian GAAS, we will request that misstatements be corrected. 4. Reporting and assessing performance Perform post-engagement activities We will analyze the results of the audit procedures performed throughout the year and, prior to rendering our report, we will conclude whether: The scope of the audit was sufficient to support our opinion, and The misstatements identified during the audit do not result in the consolidated financial statements being materially misstated. Independence We have developed important safeguards and procedures to protect our independence and objectivity. If, during the year, we identify a breach of independence, we will communicate it to you in writing. Our communication will describe the significance of the breach, including its nature and duration, the action taken or proposed to be taken, and our conclusion as to whether or not the action will satisfactorily address the consequences of the breach and have any impact on our ability to serve as independent auditor to the City. We are independent of the City and we will reconfirm our independence in our final report to the the finance committee. 8 © Deloitte LLP and affiliated entities The City of Saint John | Appendix Communication requirements Appendix 2 Communication requirements Required communication Reference Audit Service Plan 1 1. Our responsibilities under Canadian GAAS, including forming and expressing CAS 260.14 an opinion on the financial statements 2. An overview of the overall audit strategy, addressing: CAS 260.15 a. Timing of the audit b. Significant risks, including fraud risks c. Nature and extent of specialized skill or knowledge needed to perform the planned audit procedures related to significant risk d. Names, locations, and planned responsibilities of other independent public accounting firms or others that perform audit procedures in the audit 3. Significant transactions outside of the normal course of business, including CAS 260 App. 2, CAS 550.27 related party transactions Enquiries of those charged with governance 4. Any known suspected or alleged fraud affecting the City CAS 240.21 5. Whether the City is in compliance with laws and regulations CAS 250.14 Year-end communication 6. Fraud or possible fraud identified through the audit process CAS 240.40-.42 7. Significant accounting policies, practices, unusual transactions, and our related CAS 260.16 a. conclusions 8. Alternative treatments for accounting policies and practices that have been CAS 260.16 a. discussed with management during the current audit period 9. Matters related to going concernCAS 570.23 10. Management judgments and accounting estimates CAS 260.16 a. 11. Significant difficulties, if any, encountered during the audit CAS 260.16 b. 12. Material written communications between management and us, including CAS 260.16 c. management representation letters 13. Other matters that are significant to the oversight of the financial reporting CAS 260.16d. process 14. Modifications to our opinion(s) CAS 260.A18 15. Our views of significant accounting or auditing matters for which management CAS 260.A19 consulted with other accountants and about which we have concerns 16. Significant matters discussed with management CAS 260.A.19 1 CAS: Canadian Auditing Standards CAS are issued by the Auditing and Assurance Standards Board of CPA Canada 9 © Deloitte LLP and affiliated entities The City of Saint John | Appendix Communication requirements Required communication Reference 17. Matters involving non-compliance with laws and regulations that come to our CAS 250.23 attention 18. Significant deficiencies in internal control, if any, identified by us in the CAS 265 conduct of the audit of the consolidated financial statements 19. Uncorrected misstatements and disclosure items CAS 450.12-13 20. Any significant matters arising during the audit in connection with the CityCAS 550.27 related parties 10 © Deloitte LLP and affiliated entities The City of Saint John | Appendix Audit team Appendix 3 Audit team We are led by Geoffrey Cochrane, lead client service partner. As a team we are committed to delivering on make and meet our commitments to our clients understand s and what is important to them provide value and build the City through technical competence and consistent results demonstrate professionalism through effective interaction and communications, and provide a no surprises experience. The team will assist Geoffrey in delivering on these commitments. The team consists of industry professionals with diverse skills from a number of disciplines to meet the City Engagement Role Phone # E-mail address team member Geoffrey Cochrane Lead Client Service and Audit 1(506) 663-6696 gcochrane@deloitte.ca Partner Barb Leaman Partner Risk Advisory 1(506) 663-6693 baleaman@deloitte.ca Jeremy Mallais Manager - Audit 1(506) 663-6740 jmallais@deloitte.ca Stephen Zed Senior -Audit 1(506) 663-6725 szed@deloitte.ca 11 © Deloitte LLP and affiliated entities The City of Saint John | Appendix 2017 Summary audit timeline Appendix 4 2017 Summary audit timeline This estimated timetable indicates our various procedures and release of our communications as planned throughout the year: OctoberNovemberDecemberJanuaryFebruaryMarchAprilMayJuneJuly AugustSeptember Planning Update our understanding of the business, control environment (including computer controls) and accounting processes. Determine materiality Perform preliminary analytical review procedures Asses risk at account and potential error level Plan the audit procedures including tests of control and substantive tests Meeting with management, Finance Committee and Common Council to present the Audit Service Plan, including documentation required from City staff. Key client deliverables beginning Engagement Letter Audit Service Plan Listing of schedules to be completed by city staff (client assistance package) 12 © Deloitte LLP and affiliated entities The City of Saint John | Appendix 2017 Summary audit timeline OctoberNovemberDecemberJanuaryFebruaryMarchAprilMayJuneJuly AugustSeptember Year end Perform substantive analytical procedures Perform test of details Perform consolidation audit procedures Review draft financial statements Conclude and report Review all final financial audit reports and financial statements Perform subsequent events review Obtain management representations, sign audit reports Meeting with management to discuss audit results and obtain to management letter points raised Meeting with Finance Committee and Common Council to discuss audit results and present management letter Key client deliverables Audited statements to Finance Committee Audit results communication Audit opinions Management letter 13 © Deloitte LLP and affiliated entities The City of Saint John | Appendix New and revised Auditor Reporting Standards Appendix 5 New and revised Auditor Reporting Standards On April 11, 2017, the Canadian Auditing and Assurance Standards Board (AASB) approved new and revised Canadian Auditing Standards (CASs) on auditor reporting which will be effective for audits of financial statements for periods ending on or after December 15, 2018 with earlier application permitted. While a number of CASs were impacted, the most significant changes made relate to the following four standards: Revised CAS 700, Forming an Opinion and Reporting on Financial Statements Revised CAS 570, Going Concern These CASs are based on the International Auditing and revised International Standards on Auditing (ISAs) that were effective for periods ending on or after December 15, 2016 however there are two significant differences: 1. Deferral of the effective date for application by one year, and 2. Amending the scope of reporting Key Audit Matters so that such matters are communicated in the The following sets out the enhancements made to the For all audits an explicit statement of the auditor's independence in accordance with relevant ethical independence and requirements and the auditor's fulfillment of other ethical responsibilities ethics Going concern concern and is adequately disclosed in the financial statements Other information pares om reading and considering the other information Roles and Responsibilities ability to continue as a going concern and whether the use of the going concern basis of accounting is appropriate identification of those charged with governance (when applicable) and their responsibility for the oversight of the financial reporting process 14 © Deloitte LLP and affiliated entities The City of Saint John | Appendix New and revised Auditor Reporting Standards appropriateness statements For audits of entities where the auditor decides or law or regulation requires reporting of key audit matters Key audit matters requires the auditor, or the auditor decides, to communicate key audit matters in the of most significance to the audit We will work to provide The City of Saint John and the Finance Committee with guidance on the implications of the new and revised auditor reporting standards. Benefits Transparency into the audit and discussions between the auditor, those charged with governance, and management More robust discussions between auditors and those charged with governance Enhanced communications between all stakeholders including regulators Relevant aud Comparability across industries and audit firms Improved audit and financial reporting quality Highlights of Changes to Performance Requirements with respect to Going Concern Auditors are now auditor concluded that no material uncertainty exists). The following are some considerations for those charged with governance to start discussing with their auditor. Implementation considerations for those charged with governance KAMs: If applicable, this commentary in the audit report will have a significant impact on the timing of: Meetings between the auditor and the finance committee to discuss risks, which will form the basis of KAMs Meetings with the auditor to identify, discuss and challenge KAMs as early as possible, and Going Concern: ss for Other information: Discuss with the auditor which documents will be consistency with financial statements to ensure factually correct and reasonable. 15 © Deloitte LLP and affiliated entities The City of Saint John | Appendix New and revised Auditor Reporting Standards Resources The AASB is currently working with CPA Canada and other groups to drive the effective implementation of the new standards through a broad range of communications, tools and guidance materials for stakeholders. CPA Canada has issued a number of Audit and Assurance alerts in June 2017 discussing key features of the changes and will be releasing a web portal devoted exclusively to the topic of implementing auditor reporting. Webinars and other publications will be issued throughout the remainder of the year, including an evised reporting Reporting Implications of New Auditing and Accounting Standards Keep abreast of the Canadian project at www.cfr.deloitte.ca. Information relating to the new and revised CASs and conforming amendments to other CASs can be found on the AASB website. We encourage you to engage your engagement partner or any other member of the Deloitte Team with any questions or enquiries related to the new and revised auditor reporting standards. 16 © Deloitte LLP and affiliated entities The City of Saint John|Appendix New and revised Auditor Reporting Standards www.deloitte.ca Deloitte, one of Canada's leading professional services firms, provides audit,tax, consulting, and financial advisory services. Deloitte LLP, an Ontario limited liability partnership, is the Canadian member firm of DeloitteTouche Tohmatsu Limited. Deloitte refers to one or more of Deloitte Touche Tohmatsu Limited, a UK private company limited by guarantee, and its network of member firms, each of which is a legally separate and independent entity. Please see www.deloitte.com/about for a detailed description of the legal structure of Deloitte Touche Tohmatsu Limited and its member firms. © Deloitte LLP and affiliated entities. 17© Deloitte LLP and affiliated entities FINANCECOMMITTEEREPORT # found on Sharepoint. M&C No. Report DateNovember 28, 2017 Meeting DateNovember 29, 2017 Service AreaFinance and Administrative Services Members of the Finance Committee SUBJECT: 1. Long Term Financial Plan Schedule 2. Operating and Capital Reserves Policy OPEN OR CLOSED SESSION This matter is to be discussed in open session of Finance Committee. AUTHORIZATION Primary AuthorCommissioner/Dept. HeadCity Manager Beverly ZirobwaKevin FudgeJeff Trail RECOMMENDATION .Ļ źƷ ƩĻƭƚƌǝĻķ ƷŷğƷʹ 1.Finance Committee approve the attached Long Term Financial Plan Schedule; 2.Finance Committee recommend for approval, the attached Operating and Capital ReservesPolicy. 1.LONG TERM FINANCIAL PLAN SCHEDULE To support and sustain the fiscal adjustment strategy the City is currently undergoing, Finance will be implementing tools to strengthen financial governanceand monitor financial performance more proactively. This will enable the City to take a longer rangeviewbeyond the immediate budget cycle, to anticipate and respond to potential financial challenges or opportunities. Key components to be developed in 2017 and 2018 include: Financial policies; Quarterly Financial Health Report; Multi-year financial outlook and annual evaluation of financial position; Definition of service levels for major expenses. - 2 - PREVIOUS RESOLUTION N/A STRATEGIC ALIGNMENT This initiative is aligned with council priorities under the Fiscally Responsible pillar -term sustainable financial plans and budgets that align 2018 WORKPLAN AND DELIVERABLES - - - 3 - SERVICE AND FINANCIAL OUTCOMES Taking a long- Sets the stage for future balanced budgets and managing periods of low or no growth; avoiding temporary unsustainable solutions; Provides the taxpayers a clearer link between financial resources and services that can be delivered over the long term; and Creates consensus among budget participants on which priorities the budget should fund by building momentum around common service and financial goals. 2. OPERATING AND CAPITAL RESERVES POLICY As part of the Long Term Financial work plan described above, Finance is bringing forward an Operating and Capital Reserves Policy for Finance Committees review and recommendation for Council Approval. Best practices established by the GFOA, recommend that Municipalities establish reserves and reserve funds for the following purposes: 1. Planned future capital expenditures as part of an asset management and debt management strategy (Capital Reserve); 2. Unexpected or unpredicted events (Operating Reserve); 3. Extraordinary expenditures which would otherwise cause fluctuations in the operating or capital budgets (Operating or Capital Reserve). The purpose of this policy is to address the longer term funding strategies for the City and to ensure good financial and cash management for the ongoing financial stability of the City. Reserves minimize risk and financial uncertainty for taxpayers by allowing Cities to cover expenses without making large annual increases to taxes, make large debt issues or spike user fees. It is best practice that communities, at a minimum, set up reserves for emergency expenses and a capital reserve for future infrastructure replacement. ATTACHMENTS 1. Long Term Financial Plan Schedule 2. Operating and Capital Reserves Policy 3. Operating and Capital Reserves Policy Statement Click here to enter text. Service implications related to economic, social or environmental impacts in the community. - 4 - Click here to enter text. ATTACHMENTS List attachments related to report. Long Term Financial Plan Schedule 28.11.2017 Background To support and sustain the fiscal adjustment strategy the City is currently going through, finance will be implementing tools to strengthen financial governance and monitor financial performance more proactively. The tools will help the city to take a longer range beyond the immediate budget cycle, to anticipate and respond to potential financial challenges or opportunities. The key components to be developed in 2017 and 2018 include: Financial policies Multi-year financial outlook and annual evaluation of financial position Definition of service levels for major expenditure categories as well as operational performance measures 2 Financial Planning Action Items ϔ 5ĻƌźǝĻƩğĬƌĻ źƒźƓŭ 1 Draft General Reserve & Reserve Fund Management Policy Q4 2017 2 Draft Capital Budget Policy Q2 2018 3 Draft Revenue and Expenditure Policies Q2 2018 4 Draft Operating Budget Policy Financial Principles to guide budget decisions Q2 2018 5 Draft Debt Management Policy Q4 2018 6 Quarterly Financial Health Measures Report to Council (Sustainability, Flexibility, Vulnerability) Q2 2018 7 10 Year Financial Forecast (Municast) to Senior Leadership and Finance Committee Q2 2018 Service Level Definitions for key service areas (high cost, high utilization areas only) Limited to the areas of largest expenditure; 8 Set service level objectives & update performance measures; Q3 2018 Service based budget to be used as a starting point to avoid duplication of effort; Work with one service area at a time to minimize impact on operations. 2019 Budget with Ў ǤĻğƩ outlook (2019-2021) 9 Budget with an Annual Financial Position Evaluation (Sustainability, Flexibility, Vulnerability) and Q4 2018 financial outlook for the next 5 years. 2020 Budget with ЊЉ ǤĻğƩ outlook (2020-2024) 10 Budget with an Annual Financial Position Evaluation (Sustainability, Flexibility, Vulnerability) and Q4 2019 financial outlook for the next 10 years. 3 Title: Operating and Capital Reserves Subject: Operating and Capital Reserves Category: Finance and Administrative Services Policy No.:FAS-003 M&C Report No.: Effective Date:01 January 2018 Next Review Date: 01 January 2019 Area(s) this policy applies to: Cross Corporate Office Responsible for review of this Policy: Finance and Administrative Services Related Instruments:Policy Sponsors: FAS-001 Asset Management Policy Commissioner of Finance and Administrative Services FAS-002 Investment Policy Document Pages: This document consists of 6pages. Revision History: Common Clerk's Annotation for Official Record Date of Passage of Current Framework:_________________________ I certify that this Policy was adopted by Common Council as indicated above. ______________________________________________ Common ClerkDate Date Created:Common Council Approval Date:Contact: 28.11.2017Finance and Administrative Services TABLE OF CONTENTS 1. POLICY STATEMENT ..................................................................................................... . 2 2. DEFINITION OF RESERVES ............................................................................................. 3 3. PERMITTED USE OF RESERVES ....................................................................................... 3 4. AUTHORITY ..................................................................................................................... 4 5. ADEQUACY OF RESERVES ............................................................................................... 4 6. FUNDING RESERVES ....................................................................................................... 4 7. INVESTMENT OF RESERVE FUNDS ................................................................................. 5 8. TEMPORARY BORROWING FROM RESERVES ................................................................. 5 9. ANNUAL REPORTING ..................................................................................................... 5 10. . 6 City of Saint John Operating and Capital Reserves 1. POLICY STATEMENT 1.1 This policy sets out consistent standards and guidelines for the establishment, management, and accounting of reserve and reserve funds in accordance with agreed upon policy guidelines and applicable regulations under the New Brunswick Municipalities Act. 1.2 The City of Saint John (City) establishes this policy to address longer term funding strategies and to ensure good financial and cash management for the ongoing financial stability of the City. In conjunction with the Asset Management, Investment and Debt Management Policies, this policy will inform decisions relating to long term operating and capital expenditures in order to minimize debt servicing costs, address the infrastructure deficit, and mitigate the effect of unanticipated events. 1.3 The City must comply with the New Brunswick Municipalities Act Reserve Fund Regulation in relation to the establishment and use of Reserves. Under the Act, reserves are permitted to be established for Operating and Capital purposes. 1.4 All reserves will be managed in accordance with the New Brunswick Municipalities Act Reserve Fund Regulation as follows: 1 General Operating Reserve Fund A municipality may, by resolution, establish, manage and contribute to a general operating reserve fund for the payment of operating expenses. The amount held in a general operating reserve shall not exceed five percent of the total expenditure that was budgeted for the municipality for the previous fiscal year. Money held in a general operating reserve fund shall be used for no purpose other than the payment of operating expenses. Every resolution respecting a contribution made to or a withdrawal from a general operating reserve fund in respect of a calendar year shall be made by December 31 of that calendar year and shall specify the dollar amount contributed to the general operating reserve fund. 1 Reserve Fund Regulation NBReg 97-145 Section 3.1 to 3.4 New Brunswick Municipalities Act (O.C. 97-1036) 2 City of Saint John Operating and Capital Reserves 2 General Capital Reserve Fund A municipality may by resolution establish, manage, and contribute to a general capital reserve fund for the payment of capital expenses. Money held in a general capital reserve fund shall be used for no purpose other than the payment of capital expenses. Every resolution respecting a contribution made to or withdrawal from a general capital reserve in respect of a calendar year shall be made by December 31 of that calendar year and shall specify the dollar amount contributed to the general capital reserve fund. 2. DEFINITION OF RESERVES 2.1 Reserves; 2.2 means an operating reserve restricted for operating purposes; 2.3 Capital Reserve means a capital reserve restricted for capital purposes. 3. PERMITTED USE OF RESERVES 3.1 The City of Saint John will set aside and maintain adequate reserves to provide for: 3.1.1 Major unanticipated/unforeseen events; 3.1.2 Major Capital renewal; 3.1.3 Future Liabilities; 3.1.4 One time operating expenses which are greater than $100,000 and are not part of the recurring operating budget; 3.1.5 Infrastructure deficit; and 3.1.6 Investment in growth opportunities. 2 Reserve Fund Regulation NBReg 97-145 Section 4.1 to 4.3 New Brunswick Municipalities Act (O.C. 97-1036) 3 City of Saint John Operating and Capital Reserves 4. AUTHORITY 4.1 A resolution of Council will be required to establish a reserve. 3 4.2 No transfer of money from an operating reserve fund or a capital reserve fund shall be made except: 4.2.1 By resolution of Council; and 4.2.2 Within the fiscal year to which the expenditure relates. 4 4.3 A resolution of Council will be required to close a reserve. 5. ADEQUACY OF RESERVES 5.1 The adequacy of individual reserves shall be determined, on a case by case basis, and aligned with the Long Term Financial Plan, Asset Management Plan, and the Debt Management Plan. 6. FUNDING RESERVES 6.1 Reserve funds will generally come from: 6.1.1 The excess of revenues over expenditures and one time revenues; and 6.1.2 Planned/budgeted amounts for reserves. 7. INVESTMENT OF RESERVE FUNDS 5 7.1 Any money, including interest, within an operating reserve fund or a capital reserve fund shall be invested in accordance with the Trustees Act. 7.2 Any investment of reserve funds shall comply with the Trustees Investment Policy. 3 Reserve Fund Regulation NBReg 97-145 Section 7.1 to 7.2 New Brunswick Municipalities Act (O.C. 97-1036) 4 Reserve Fund Regulation NBReg 97-145 Section 10 New Brunswick Municipalities Act (O.C. 97-1036) 5 Reserve Fund Regulation NBReg 97-145 Section 8 New Brunswick Municipalities Act (O.C. 97-1036) 4 City of Saint John Operating and Capital Reserves 8. TEMPORARY BORROWING FROM RESERVES 8.1 Temporary borrowing from reserves for short term cash flow management and internal financing is permitted, however the following conditions must be met: 8.1.1 Borrowing must not adversely affect the intended purpose of the reserve; 8.1.2 Borrowing must not be for purposes contrary to the Long Term Financial Plan; 8.1.3 A plan to repay the reserve within a reasonable timeframe is required and must be documented; and 8.1.4 Borrowing must be approved by council. 9. ANNUAL REPORTING 9.1 The annual reporting of the Operating and Capital Reserve Funds shall be in accordance with the Municipalities Act Reserve Fund Regulation. 10. RESPONSIBILITIES 10.1 Council shall: 10.1.1 Approve the Reserve Policy; and 10.1.2 Approve transactions to and from reserves by specific resolution. 10.2 The City Manager Shall: 10.2.1 Ensure compliance with the principles and mandatory requirements contained in this policy. 10.3 The Finance Commissioner Shall: 10.3.1 Develop and update this policy as necessary and present changes to Council; 10.3.2 Ensure that the principles and requirements contained in this policy are applied consistently across all Service Areas; 10.3.3 Perform the transfers to and from reserves and reserve funds as authorized by Council; 10.3.4 Recommend strategies for the adequacy of reserve levels; and 10.3.5 Report to Council, the reserve balances and forecast as part of the annual budget approval process. 5 Appendix A Operating and Capital Reserves CITY OF SAINT JOHN POLICY STATEMENT POLICY SECTION: FINANCE AND ADMINISTRATIVE SERVICES POLICY STATEMENT This policy sets out consistent standards and guidelines for the establishment, management, and accounting of reserve and reserve funds in accordance with agreed upon policy guidelines and applicable regulations under the Reserve Fund Regulation - New Brunswick Municipalities Act. The City of Saint John (City) establishes this policy to address longer term funding strategies and to ensure good financial and cash management for the ongoing financial stability of the City. In conjunction with the Asset Management, Investment and Debt Management Policies, this policy will inform decisions relating to long term operating and capital expenditures in order to minimize debt servicing costs, address the infrastructure deficit, and mitigate the effect of unanticipated events. Reserves are created when funds are set aside (designated) for a future purpose. The City of Saint John will set aside and maintain adequate reserves to provide for: Major unanticipated/unforeseen events Major Capital renewal; Future Liabilities; One time operating expenses which are greater than $100,000 and are not part of the recurring operating budget; Infrastructure deficit; and Investment in growth opportunities. The Citys Asset Management Plan, Long Term Financial Plan and Debt Management Plan will be considered and integrated in the establishment and managment of Operating and Capital Reserves. FINANCECOMMITTEEREPORT Report DateNovember 13, 2017 Meeting DateNovember 29, 2017 Chairman CouncillorMerrithewandMembers of Finance Committee SUBJECT: Reserve for Capital Costs of City Hall Fit Up OPEN OR CLOSED SESSION This matter is to be discussed in open session of Finance Committee. AUTHORIZATION Primary AuthorCommissioner/Dept. HeadCity Manager Cathy GrahamKevin FudgeJeff Trail RECOMMENDATION It is recommended that the Finance Committee submit the following report to Common Council with a recommendation to establish a General CapitalReserve Fund for the capital costs associated with the City Hall fit up costsutilizing the $1,205,732unbudgeted property taxes received for LNG facility. EXECUTIVE SUMMARY The City has approved a new lease agreement with the current landlord that will see a restack of space that produces annual savings estimated between $650K- 700K per year. The owner will bear the risk of the renovation cost while the City will be responsible for interior fit up and upgrades. The business case for City Hall includes estimated fit up of over$3 million dollars. The 2018 approved capital budget did not include any funding for the City Hall project given a decision on location had not been made. As been advised in recent years, isto keep new borrowing toa level of $12 millionor lower; the City has the highest long term debt in theProvince. The additional net property tax funds received for the LNG property for the year 2017 was unbudgetedrevenue. The 2017 LNG revenue presents an opportunity for Council to allocate funding to a Capital reserve to reduce the amount of new borrowing required with the City Hall Fit up costs given the same LNG revenue is not guaranteed for the year 2018. - 2 - PREVIOUS RESOLUTION N/A STRATEGIC ALIGNMENT The recommendation aligns with Councils priority of fiscal responsibility. REPORT Negotiations for a new City Hall are now complete. The City is estimated to save between $650K-$700k per year. The owner will bear the risk of the renovation cost while the City will be responsible for interior fit up and upgrades estimated at over $3 million dollars. The 2018 approved capital budget did not include any funding for the City Hall project given a decision on location had not been made. Finance Committee has been provided advice on the need to keep new capital borrowing to $12 million or lower . Recently the City received additional net revenue of approximately $1.2 for 2017 associated with the LNG property. This was unbudgeted revenue. This revenue is not guaranteed to be received in 2018 and should not be relied upon to fund general operations. Staff are recommending placing these funds in a reserve to be used for the capital costs of the City Hall fit up. The incremental property tax for the LNG property is not part of the property tax revenue budgeted in 2018 due to the LNG legislation that transfers the risk of assessment to the City of Saint John. The Province will provide the City with st annual notification on April 1 of any adjustment and the net amount to be received. LNG funding is best suited to be placed into a reserve fund until such time there is certainty that the City can annually rely on the revenue. The City currently does not have any Capital Reserves for the General Fund. Capital Reserves minimize risk and financial uncertainty for taxpayers by allowing Cities to plan for replacement costs without making large annual increases to taxes or make large debt issues. This is especially relevant to the City of Saint John given of $434M Infrastructure Deficit for Saint John. As an illustrative example with respect to City owned buildings, the table below presents a few of the municipal buildings and the accumulated amortization. Approximately $30 million of useful life has been amortized on these buildings (based on historical cost) with no capital reserve in place for required further replacement costs. This means as these building ages, significant capital repairs will need to be debt financed. These facilities require capital investments to provide the service to the citizens and to operate efficiently and properly. - 3 - 2016 Municipal Buildings BuildingCostAcc AmortizationClosing NBV CGAC Commission5,849,584.123,931,380.831,918,203.29 Parking Commission - Building20,293,003.292,253,111.2118,039,892.08 Transit Building23,238,394.007,218,050.8616,020,343.14 Harbour Station Commission13,766,324.0010,537,812.313,228,511.69 Peel Plaza-Police Headquarters$32,351,739.65$5,774,312.76$26,577,426.89 Staff recommends that the Finance Committee continue to advocate for allocating short term revenue and surpluses to Reserves Funds and to ensure only reoccurring revenues support reoccurring expenses financial health and avoid future structural deficits. SERVICE AND FINANCIAL OUTCOMES The additional funds will reduce the need for increased borrowing and therefore reduce expenses from incurring interest expense on this borrowing for the next 15 years. INPUT FROM OTHER SERVICE AREAS AND STAKEHOLDERS Discussions with Finance, Members of the Continuous Improvement team for the City Hall project and members of the Asset Management team were consulted for this report. ATTACHMENTS N/A FINANCE COMMITTEEREPORT M&C No.- Report DateNovember 29, 2017 Meeting DateNovember 29, 2017 Service AreaFinance and Administrative Services Members of the Finance Committee Finance Chair and Members of Council SUBJECT: 2017Year-End Projections OPEN OR CLOSED SESSION This matter is to be discussed in opensession of the Finance Committee. AUTHORIZATION Primary AuthorCommissioner/Dept. HeadCity Manager IanMacKinnonIan MacKinnonJeff Trail Kevin Fudge RECOMMENDATION Its recommended the Finance Committee submit the following report to Common Council for information with a recommendationto establish a Transit BuildingReserve Fund andto authorize the transfer of$250,000to the Building Reserve Fund as a result of a2017 year end operating surplus. EXECUTIVE SUMMARY The purpose of this report is to provide the Finance Committeewith the City Transit2017year- st end projections as of October 31, 2017and subsequent recommendation. PREVIOUS RESOLUTION N/A STRATEGIC ALIGNMENT st The report provides an update on the 2017 financial operating resultsas of October 31, 2017of the Saint John Transit Commission. - 2 - REPORT TRANSIT 2017 OPERATING It should be noted the following projections are based on best estimates as at October 31, 2017. While there are no significant events that have come to the attention of the Transit management team to require modification of these estimates, actual year-end results may differ depending on ridership revenue as well as other unexpected events. Based on the October year to date results and projections, the Transit operating position is presently projected to be in a surplus position at year-end of approximately $250,000. The overall cost of operations is trending toward a surplus of approximately $250,000 which includes: Transportation, Maintenance, Building, Administration and Revenue. Our recommendation for this projected surplus is largely based on the August 24th, RV Anderson Asset Management, State of the Infrastructure Report. This report indicated as a part of Transportation and Environment services, Transit Assets having a replacement value of $49,911,349 with an LƓŅƩğƭƷƩǒĭƷǒƩĻ 5ĻŅźĭźƷ ƚŅ υЌͲБВЌͲЋБЏ. While the total Infrastructure deficit is not all Transit building, there is at least a portion that is. This being said, the Transit building is close to 10 years of age. There are currently no major projects pending or identified, however, an investment will be required in the near term. Its for these reasons we are recommending that a year end 2017 operating surplus for Transit be allocated to a Transit Building reserve account to be invested in maintaining or enhancing the asset or Transit Building. Its recommended the Finance Committee submit the following report to Common Council for information with a recommendation to establish a Transit Building Reserve Fund and to authorize the transfer of 2017 Transit operating surplus to this fund. SERVICE AND FINANCIAL OUTCOMES N/A INPUT FROM OTHER SERVICE AREAS AND STAKEHOLDERS Input has been received from all relevant Service Areas List attachments related to report. hĭƷƚĬĻƩ ЋЉЊА ĻğƩΏ9Ɠķ CƚƩĻĭğƭƷ /źƷǤ ƚŅ {ğźƓƷ WƚŷƓ October 2017 Year-End Forecast: Projected Surplus of 0.72% of Budget 2017 Budget2017 Year End Forecast 156,500,000 Projected Surplus: $1.1 Mil or 0.72% of Budget 155,953,534 156,000,000 155,500,000 Revenues Exceed Budget 155,000,000 154,836,535 $1.9 Mil Expenses Exceed 154,500,000 Budget $815K 154,021,467154,021,467 154,000,000 153,500,000 153,000,000 REVENUESEXPENSES 2 2017 Revenues projected to exceed budget by $1.9 Mil or 1.2% Major Revenue Variances: REVENUES 157,000,000 Additional Property Tax Revenue Revenues from LNG: $2.1 Mil 155,953,534 Exceed 156,000,000 Budget $1.9 Mil Reduction in Unconditional 155,000,000 Grant: -$897K 154,021,467 154,000,000 Increased Permit Revenue: 153,000,000 $489K 152,000,000 Funding for Neighborhood Plan: $100K 151,000,000 Additional Rent from Dept. of 150,000,000 2017 Budget2017 Year End Forecast Fisheries due to contract extension: $197K 3 2017 Expenses expected to exceed budget by $815K or 0.5% Major Expense Variances: EXPENSES 156,000,000 Expenses Exceed Savings: Budget $815K 154,836,535 155,000,000 Fiscal Charges: $150K 154,021,467 Parts for Fleet: $305K 154,000,000 Local 18 Overtime: $110K 153,000,000 Additional Expenses: 152,000,000 Additional Revenue from LNG to be transferred to a Capital Reserve 151,000,000 (Council Approval Required): -$1.2 Mil 150,000,000 2017 Budget2017 Year End Accruals for Outstanding Forecast Commitments from Development Incentive Agreements: -$143K 4 Changes in Year-End Forecasts from June to October 2017 REVENUESJUNE Y/E FORECASTOCTOBER Y/E FORECASTCHANGES Property Taxes120,853,074122,979,4502,126,376 Unconditional Grant20,225,93219,328,372-897,560 Surplus 2nd Previous year416,472416,4720 Growth & Community Development Services3,369,5953,620,622251,027 Police & PSCC1,645,3391,723,29277,953 Fire & EMO357,000363,4626,462 Transportation & Environment Services3,908,4934,003,41894,925 Finance & Administrative Services3,608,1883,436,895-171,293 Corporate Services90,00081,551-8,449 TOTAL REVENUE154,474,093155,953,5341,479,441 EXPENSESJUNE Y/E FORECASTOCTOBER Y/E FORECASTCHANGES Growth & Community Development Services10,456,86510,725,292-268,427 Police & PSCC27,452,03827,502,926-50,888 Fire & EMO21,857,95321,905,161-47,208 Other Public Safety Services3,250,0003,260,000-10,000 Transportation & Environment Services43,090,99542,705,399385,596 Finance & Administrative Services9,643,8869,647,617-3,731 Corporate Services8,562,8728,614,733-51,861 Other Charges29,397,17530,475,407-1,078,232 TOTAL EXPENSES153,711,784154,836,535-1,124,751 SURPLUS762,3091,116,999354,690 5 Growth & Community Development Revenues 2017 2017 Projecting positive variance of RevenuesBudgetYE ForecastVariance $805,472 due to increased Permits1,388,1501,877,380489,230 permit revenue and leveraged Planning Fees104,00085,200-18,750 external funding 2,000,000 Dangerous 1,800,000 1,600,000 Building183,000363,992180,992 1,400,000 1,200,000 External 1,000,000 Funding100,000100,000 800,000 600,000 400,000 Market Square1,140,0001,194,00054,000 2017 Budget 200,000 0 2017 YE Forecast Total2,815,1503,620,622805,472 6 Growth & Community Development Expenditures 2017 YE Expenditure Variance Expenses2017 BudgetForecastVariance 50,000 Salaries & Benefits3,283,3503,274,9738,377 0 Salaries &GeneralGrantsGrowthMarketABCs General expenses979,3191,162,742-183,423 BenefitsexpensesReserveSquare -50,000 Grants310,000408,021-98,021 Growth Reserve450,000450,0000 -100,000 -98,021 Market Square2,278,5462,278,5460 -150,000 ABCs3,151,0103,151,0100 -183,423 -200,000 Total10,452,22510,725,292-273,067 Projecting a deficit as a result of accruals for incentives, growth reserve and the accelerated dangerous building program; offset by revenues with an overall net positive variance of $532,405 7 POLICE REVENUE AnnualYear-End BudgetProjectionVariance Lodge Prisoners $125,000$125,000$0 Accident Reports $15,000$20,000$5,000 Secondments $360,000$200,000-$160,000 Taxi Licences $50,000$35,000-$15,000 Criminal Record $50,000$80,000$30,000 Checks Extra-Duty/Misc. Rev $50,000$200,000$150,000 PNB Agreement - $50,521$50,521 Cells Insurance Proceeds $44,313$44,313 AuctionProceeds $5,934$5,934 $650,000$760,768$110,768 POLICE EXPENSES Year End Projection AnnualYear-End q BudgetProjectionVariance Wages and $21,634,920$21,673,668-$38,748 Benefits Goods and $3,134,839$3,469,006-$334,167 Services Total$24,769,759$25,142,674-$372,915 Rev Surplus Add:$110,768 Net Expenses -$262,147 KeyFactors -$174,044 Vehicle Maintenance -$38,624 Vehicle Fuel -$212,668 PSCC REVENUE AnnualYear-EndVariance BudgetProjection Emergency $953,405$962,524$9,119 Dispatch PSCC EXPENSES Year End Projection AnnualYear-End BudgetProjectionVariance Wages and $2,168,844$2,165,128$3,716 Benefits Goods and $202,700$195,124$7,576 Services Total$2,371,544$2,360,252$11,292 Fire Department Revenues FIRE SERVICE REVENUE REVENUES2017 BUDGET2017 YE FORECASTVARIANCE TRAININIG 237,000 168,206-68,794 PARTNERSHIP 169,200 182,64213,442 OTHER MISCELLANEOUS REVENUES 4,000 12,6148,614 TOTAL REVENUES 410,200 363,462-46,738 2017 BUDGET2017 YE FORECAST 237,000 250,000 200,000 182,642 169,200 168,206 150,000 100,000 50,000 12,614 4,000 - TRAININGPARTNERSHIPOTHER MISCELLANEOUS REVENUES 12 Fire Department Expenditures SALARIES & BENEFITS19,996,13219,858,054138,078 FUEL111,834108,2483,586 GENERAL SERVICES918,392666,751251,641 APPAREL/HATS/HELMETS84,00088,147-4,147 OPERATING & SAFETY SUPPLIES170,140186,139-15,999 ASSET PURCHASES65,57765,5770 OTHER EXPENSES912,095932,245-20,150 TOTAL EXPENSES22,258,17021,905,161353,009 EXPENDITURE VARIANCE 300,000 251,641 250,000 200,000 138,078 150,000 100,000 50,000 3,586 0 0 (50,000) (4,147) (20,150) (15,999) 13 Transportation & Environment Service Revenues REVENUES2017 BUDGET2017 YE FORECASTVARIANCE RENTAL & FEES 988,956 942,700-46,256 METER VIOLATIONS & SUMMONSES 391,000 357,000-34,000 PARKING METERS 1,035,000 1,105,90070,900 TRAFFIC BY-LAW 471,500 361,000-110,500 FINES 23,000 16,000-7,000 UTILITY CUTS 700,000 842,036142,036 CONTRIBUTION FROM OTHERS 248,882 248,8820 OTHER REVENUES 25,850 129,900104,050 TOTAL REVENUES 3,884,188 4,003,418119,230 2017 BUDGET2017 YE FORECAST 1,105,900 988,956 1,200,000 1,035,000 942,700 842,036 1,000,000 700,000 800,000 600,000 471,500 391,000 361,000 357,000 248,882 400,000 248,882 129,900 200,000 25,850 16,000 23,000 - 14 Transportation & Environment Service Expenditures EXPENSES2017 BUDGET2017 YE FORECASTEXPENDITURE VAR SALARIES & BENEFITS16,157,89115,942,720215,171 FUEL1,157,686939,563218,123 ASPHALT915,0001,203,950-288,950 FLEET COSTS5,007,4934,854,754152,739 ROAD SALT897,732845,00652,726 VEHICLES/HEAVY EQ753,940680,56373,377 OTHER GOODS/SERV.18,515,96818,238,841277,127 TOTAL EXPENSES43,405,71042,705,397700,313 EXPENDITURE VARIANCE 277,127 400,000 300,000 218,123 215,171 200,000 152,739 73,377 100,000 52,726 0 SALARIES &FUELASPHALTFLEET COSTSROAD SALTVEHICLES/HEAVYOTHER (100,000) BENEFITSEQGOODS/SERV. (200,000) (300,000) (288,950) (400,000) 15 Finance & Administrative Services -Revenue REVENUES2017 BUDGET2017 YE FORECASTVARIANCE RENTALS & FEES 818,516 969,380150,864 INTER-FUND CHARGES 1,885,000 1,760,000-125,000 INTEREST INCOME 300,000 375,00075,000 INTERNAL SERVICES 265,530 235,530-30,000 OTHER MISCELLANEOUS REVENUES 409,000 96,985-312,015 TOTAL REVENUES 3,678,046 3,436,895-241,151 2017 BUDGET2017 YE FORECAST 1,885,000 2,000,000 1,760,000 1,800,000 1,600,000 1,400,000 1,200,000 969,380 818,516 1,000,000 800,000 600,000 409,000 375,000 300,000 265,530 400,000 235,530 96,985 200,000 - RENTALS & FEESINTER-FUNDINTEREST INCOMEINTERNAL SERVICESOTHER CHARGESMISCELLANEOUS REVENUES 16 Finance & Administrative Services -Expenditures EXPENSES2017 BUDGET2017 YE FORECASTVariance SALARIES & BENEFITS7,741,1337,479,663261,470 GENERAL SERVICES-6,479,460-5,760,400-719,060 OTHER EXPENSES6,758,2566,525,354232,902 PARTS1,708,0001,403,000305,000 TOTAL EXPENSES9,727,9299,647,61780,312 Variance 400,000 305,000 261,470 232,902 200,000 0 SALARIES & BENEFITSGENERAL SERVICESOTHER EXPENSESPARTS (200,000) (400,000) (600,000) (800,000) (719,060) 17 Corporate Services (Q3 2017) REVENUES2017 BUDGET2017 YE FORECASTVARIANCE IT / GIS / NEB WG110,00081,551-28,449 New Revenue Projects25,0000-25,000 TOTAL REVENUES135,00081,551-53,449 YEAR END PROJECTIONS2017 BUDGET2017 YE FORECASTVARIANCE SALARIES & BENEFITS5,649,3865,703,159-53,773 GOODS & SERVICES2,298,7232,295,7103,013 GRANTS163,000163,0000 ABCs (Services / Facilities)456,864452,8644,000 TOTAL EXPENSES8,567,9738,614,733-46,760 Percentage Variance-0.55% 18 Corporate Services (Q3 2017) YTD Financial Highlights: hǒƩ ǤĻğƩΏĻƓķ ƩĻǝĻƓǒĻ ŅƚƩĻĭğƭƷ źƭ ƩǒƓƓźƓŭ ǒƓķĻƩ ĬǒķŭĻƷ ĬǤ ğƦƦƩƚǣ͵ υЎЌͲЎЉЉ ķǒĻ Ʒƚ ƩĻķǒĭĻķ ƷĻĭŷƓƚƌƚŭǤ ĻǣƦĻƓķźƷǒƩĻƭ Λź͵Ļ͵Ͳ .Ļƌƌ ƌƚǤğƌƷǤ ƦğǤƒĻƓƷƭΜ ğƓķ ƷŷĻ ƩĻźƒĬǒƩƭĻƒĻƓƷ ŅƚƩ ğ ƦƚƩƷźƚƓ ƚŅ ƚǒƩ b9. ƩĻŭǒƌğƷƚƩǤ ĭƚƭƷƭΜ͵ hǒƩ ƚǝĻƩğƌƌ /ƚƩƦƚƩğƷĻ {ĻƩǝźĭĻƭ ǤĻğƩΏĻƓķ ĻǣƦĻƓķźƷǒƩĻ ŅƚƩĻĭğƭƷ źƭ ĭǒƩƩĻƓƷƌǤ ƩǒƓƓźƓŭ ƭƌźŭŷƷƌǤ ƚǝĻƩ ĬǒķŭĻƷ ΛЉ͵ЎЎіΜͲ ǞźƷŷ ƭğƌğƩźĻƭ ğƓķ ĬĻƓĻŅźƷƭ ƚǝĻƩ ĬǒķŭĻƷ ĬǤ ğƦƦƩƚǣźƒğƷĻƌǤ υЎЍͲЉЉЉͲ ğƓķ ŭƚƚķƭ ğƓķ ƭĻƩǝźĭĻƭ ƩǒƓƓźƓŭ ƭƌźŭŷƷƌǤ ǒƓķĻƩ ĬǒķŭĻƷ ΛğƦƦƩƚǣźƒğƷĻƌǤ υЌͲЉЉЉΜ͵ ЋЉЊА ƭğƌğƩǤ ğƓķ ĬĻƓĻŅźƷ ĭƚƭƷ ƚǝĻƩğŭĻƭ ğƩĻ ƌğƩŭĻƌǤ ğ ƩĻƭǒƌƷ ƚŅ ǒƓƦƌğƓƓĻķ vЌ ĻƒƦƌƚǤĻĻ ƭĻǝĻƩğƓĭĻ ƦğĭƉğŭĻƭ͵ hǒƩ ŭƚğƌ ƩĻƒğźƓƭ Ʒƚ ƷƩǤ ğƓķ ŅǒƩƷŷĻƩ ƩĻķǒĭĻ ŭƚƚķƭ ğƓķ ƭĻƩǝźĭĻ ĻǣƦĻƓķźƷǒƩĻƭ ĬǤ ǤĻğƩΏĻƓķ Ʒƚ ŷĻƌƦ ƚŅŅƭĻƷ ƌƚǞĻƩ ƷŷğƓ ĬǒķŭĻƷĻķ ƩĻǝĻƓǒĻƭ ğƓķ ƭƌźŭŷƷƌǤ ŷźŭŷĻƩ ƷŷğƓ ĬǒķŭĻƷĻķ ƭğƌğƩǤ ğƓķ ĬĻƓĻŅźƷ ĭƚƭƷƭ͵ 19 Recommendation Finance Committee recommend that Common Council approve the following reserve allocations with respect to the projected 2017 Year End Surplus: 1.Allocate $500,000 to a General Capital Reserve Fund from the 2017 Operating surplus to reduce future debt; 2.Common Council approve $400,000 to a General Operating Reserve Fund from the 2017 Operating Surplus for the one time cost of Phase 3 of the Transportation Plan and a Storm Sewer model. 20 Q & A 21 FINANCECOMMITTEEREPORT Report DateNovember 23, 2017 Meeting DateNovember 29, 2017 Chairman CouncillorMerrithewandMembers of Finance Committee SUBJECT: Saint John Water Year End Projection OPEN OR CLOSED SESSION This matter is to be discussed in open session of Finance Committee. AUTHORIZATION Primary AuthorCommissioner/Dept. HeadCity Manager Craig LavigneBrent McGovernJeff Trail RECOMMENDATION It is recommended that the Finance Committee submit the following report to Common Council for information and to transfer $850,000from the projected surplus of the 2017 Saint John Water operating budget to the Safe Clean Drinking Water Project reserve fund to reduce borrowing or to address any unbudgeted costs associated with the project. EXECUTIVE SUMMARY Saint John Water has prepared a year end forecastbased on actual results as of October 31, 2017, estimated revenuesto be earned and estimated expenditures to occur.Saint John Wateris estimating a year end surplus of $1,160,985 or 2.57% of the budget. PREVIOUS RESOLUTION N/A STRATEGIC ALIGNMENT The recommendation aligns with Councils priority of fiscal responsibility. - 2 - REPORT Saint John Water has prepared a year end projection based on actual results at October 31, 2017 and estimated revenue and expenditures for the remaining two months. The Utility is currently estimating a surplus of $1,160,985 (2.57%) for the year. There are still several risks that could change this number, particularly on revenue side. There is one remaining commercial and industrial meter billing left in the year which could vary significantly over previous billings. Operationally, there is always the risk of watermain breaks, major equipment failure and delays in projects being completed due to the pressure on staff from the demands associated with the Safe Clean Drinking Water Project (SCDWP). Revenues - estimating a favorable variance of $1,555,871 largely due to meter revenue and interest revenue. Meter revenue is a large driver of the positive variance and is due to the trend of higher consumption for both commercial and industrial users. One particular customer is seeing a significant consumption increase over last year that will result in an estimated additional $700k in revenue for the utility. Interest revenue is the other major driver of the estimated surplus. There are two major items that occurred in 2017 that was unknown in the fall of 2016 when the budget was approved. First, funding for the SCDWP was transferred to the City much earlier than anticipated resulting in a large sum of cash on hand that is earning interest. Second, there were two interest rate hikes by the Bank of Canada in 2017, which resulted in a higher rate of interest being earned on the cash on hand. Expenditures estimated an unfavorable variance of ($394,886). The main areas causing the variance are Salaries and Benefits, General Services, Fiscal charges and Internal Charges. Salaries and Benefits - $226,578 surplus is largely due to 5 key contributors; Operations Manager and Superintendent positions not being filled until mid 2017, elimination of a Design Engineer position, elimination of an outside worker position and the result of vacancies and the time it takes to backfill positions as a result of promotions, retirements, transfers, etc. General Services ($434,545) deficit is largely due to repairs to lift stations and mechanical work completed at lift station # 4, purchase of supplemental water from Musquash and the cleaning of sewers and wet wells along with the disposal of contaminated waste. Fiscal Charges ($408,942) deficit can be attributed to the cost of borrowing the $45 million substantial completion payment for the SCDWP that was not part of - 3 - the 2017 budget. The variance is due to the cost of issuing the debenture and interest for 2017. As the Finance Committee will recall, this was a decision made by the Committee on September 7, 2017 in an attempt to mitigate the risk of interest rate increases. Internal Charges - $299,154 surplus is due to a couple of factors. The new fleet model and much lower fuel costs have resulted in savings of a $163,000. The other major factor is the cost transferred between the General fund and the Utility is lower by $125,000 than was budgeted. SERVICE AND FINANCIAL OUTCOMES The additional funds put into the Safe Clean Drinking Water Reserve will mitigate the risk around completion of the project and cost of borrowing additional funds related to any potential additional costs that may be incurred during the construction of the project. INPUT FROM OTHER SERVICE AREAS AND STAKEHOLDERS N/A ATTACHMENTS N/A {ğźƓƷ WƚŷƓ ğƷĻƩ ĻğƩ 9Ɠķ CƚƩĻĭğƭƷ Saint John Water Year End Forecast, November 29th, 2017 Finance Committee 1 {ğźƓƷ WƚŷƓ ğƷĻƩ ĻğƩ 9Ɠķ CƚƩĻĭğƭƷ Year End Projections June October Projected Projected BudgetSurplusSurplusVariance 45,250,000976,7971,160,985184,188 Major items impacting variance Commercial and Industrial meter revenue continues to have more consumption than budget Earned interest revenue increase due to Bank of Canada interest rate hikes Fiscal charges are an additional expense due to early borrowing of $45M SCDWP substantial completion payment General Services additional costs due to: Repairs to sewage lift stations Purchase of more supplemental water from Musquash Cleaning of sewers and wet wells and disposal of contaminated waste 2 {ğźƓƷ WƚŷƓ ğƷĻƩ ĻğƩ 9Ɠķ CƚƩĻĭğƭƷ Year End Projections Risks Major items that could impact estimated surplus Meter consumption 1 billing for commercial and industrial customers left for 2017, consumption can change considerably from one billing to the next Major water main breaks are always a risk particularly during winter Equipment failure Inability to complete projects due to SCDWP resource demands 3 {ğźƓƷ WƚŷƓ ğƷĻƩ wĻǝĻƓǒĻƭ REVENUES 2017 BUDGET2017 YE FORECASTVARIANCE Flat Rate Residential 20,687,000 20,602,063-84,937 Metered Accounts 19,463,000 20,487,4831,024,483 Fire Protection 2,300,000 2,300,0000 Storm Sewer 965,000 1,070,000105,000 Previous Years Surplus 1,164,000 1,164,0000 Other 671,000 1,182,325511,325 TOTAL REVENUES 45,250,000 46,805,8711,555,871 2017 BUDGET2017 YE FORECAST 25,000,000 20,687,000 20,487,483 20,602,063 19,463,000 20,000,000 15,000,000 10,000,000 5,000,000 2,300,000 2,300,000 1,164,000 1,182,325 1,164,000 965,000 1,070,000 671,000 - Flat Rate ResidentialMetered AccountsFire ProtectionStorm SewerPrevious YearsOther Surplus 4 {ğźƓƷ WƚŷƓ ğƷĻƩ 9ǣƦĻƓķźƷǒƩĻƭ EXPENSES2017 BUDGET2017 YE FORECASTEXPENDITURE VAR SALARIES & BENEFITS10,570,96010,344,382226,578 GENERAL SERVICES1,940,9192,375,464-434,545 OTHER GOODS 5,194,7375,222,920-28,183 FISCAL CHARGES21,575,00021,983,942-408,942 INTERNAL CHARGES4,316,2544,017,100299,154 OTHER 1,652,1301,701,078-48,948 TOTAL EXPENSES45,250,00045,644,886-394,886 EXPENDITURE VAR 400,000 299,154 300,000 226,578 200,000 100,000 0 SALARIES &GENERAL SERVICESOTHER GOODSFISCAL CHARGESINTERNAL CHARGESOTHER -100,000 BENEFITS -28,183 -48,948 -200,000 -300,000 -400,000 -408,942 -434,545 -500,000 5 {ğŅĻ /ƌĻğƓ 5ƩźƓƉźƓŭ ğƷĻƩ wĻƭĻƩǝĻ Year End Projected Surplus - $1,160,985 Large portion of the surplus has been related to the higher volume of water sold to industry than budgeted and the additional interest earned on funds received early for the SCDWP. There is still risk on the final cost of the project. For example; contaminated soil removal and disposal as well as approximately 40% of the project construction remaining are risks that can add to the final project cost. Staff are recommending an additional $850,000 of the estimated 2017 surplus be moved to the SCDWP Reserve for year ending 2017. 6 FINANCECOMMITTEEREPORT Report DateNovember 23, 2017 Meeting DateNovember 29, 2017 Chairman CouncillorMerrithewandMembers of Finance Committee SUBJECT: Convenience Fees for Credit Cards OPEN OR CLOSED SESSION This matter is to be discussed in open session of Finance Committee. AUTHORIZATION Primary AuthorCommissioner/Dept. HeadCity Manager Craig LavigneKevin FudgeJeff Trail RECOMMENDATION Itisrecommended that Finance Committeeendorse recommendation of charging a convenience fee of no more than 1.75% foruse of creditcards for both online and telephone paymentsfor parking tickets and water and sewerage bills. EXECUTIVE SUMMARY The City is currently upgrading its onlinepayment system (Clic2Gov) for parking tickets and water and seweragepayments. As part of the upgrade staff hasbeen investigating implementing a conveniencefee for the use of credit cards for onlineand telephone payments. The cost of merchant fees for all credit card fees in 2016 was approximately $159,000. PREVIOUS RESOLUTION N/A STRATEGIC ALIGNMENT The recommendation aligns with Councils priority of fiscal responsibility and continuousimprovement. - 2 - REPORT The City of Saint John is currently upgrading its online parking ticket payment processing software known as Clic2Gov. The upgrade will also allow the City to add online and telephone water and sewer payments which are currently being done through Service NB. The upgraded Clic2Gov and its payment processesor, Paymentus, will allow additional functionality for customers such as receiving balances owing on water and sewerage accounts when paying online. Customers will also be able to receive their current water and sewerage balance when paying by telephone which is not available today. The new functionality will also allow a convenience fee to be charged to users paying with a credit card cost for allowing customers to use credit cards such as; Visa, MasterCard and Amex. The average cost per transaction ranges from 1.2% to 1.8% of the transaction. s merchant fees paid in 2016 for all payments with credit cards paid in person, telephone and online were approximately $159,000. These payments are for parking tickets, building permits and deposits, water and sewerage payments, recreation rentals, police back ground checks, as well as other services. The annual merchant fees for accepting credit cards for online and telephone transactions are approximately $75,000. The majority of these fees are related to water and sewerage payments ($70K Water, $5K General Fund). These costs for water and sewerage payments by credit card online and telephone are born by all ratepayers; therefor ratepayers who are not paying with credit cards are subsidizing the ratepayers who are paying with credit cards. The Visa rules (Appendix 1) on charging a convenience fee for the use of credit cards differ significantly between card present transactions and card absent transactions. Under the card absent transactions (online & telephone), the City can opt to charge a service of no more than 1.75% of the transaction. Current rules do not allow merchants to charge a convience fee to customers in person. Staff undertook an analysis of other Municipalities, Universities and Utilities that would fall under the same guidelines for charging a convenience fee and results are listed below. - 3 - Credit Service fee Credit cards cards for online accepted accepted credit card online in personpayments Saint John EnergyYYY NB PowerNYY NS Power (Emera)YYY Service NB (Property Tax Only)NN Halifax Regional Municipality YYY Town of Truro NYY University of NB - FrederictonNYY University of NB - Saint JohnNYY Dalhousie University (Tuition only)NN Mount Allison UniversityNN As the chart points out, there are several different institutions that have a variety of options. It is clear that the cost of accepting credit cards should not be absorbed by all rate payers, tax payers or university students. There are a variety of other payment methods that do not have a significant cost. Therefor customers choosing to use credit cards should pay for this service. NB Power recently started allowing payments online with credit cards, however it is done through a third party to ensure the cost of merchant fees are not paid by all rate payers. Therefor, NB Power is able to offer another convenient payment option, however the user of the service absorbs the fee. The City of Moncton and Fredericton were also contacted and currently are not charging a convenience fee for credit cards. Staff is recommending the implementation of a convenience fee for all online credit card transaction and telephone payments. This fee will reduce merchant fees associated with taking credit cards online or by phone for the City by an estimated $75,000 annually. It is also very important to note that the City offers a variety of payment options that have no costs, such as paying online through a bank, payment by cheque or paying in person by debit card or cash. SERVICE AND FINANCIAL OUTCOMES The convenience fee will reduce merchant fee expenses for the City an estimated $75,000 annually. - 4 - INPUT FROM OTHER SERVICE AREAS AND STAKEHOLDERS Staff has investigated several other Municipalities, Universities, and Utilities. provider Chase Payment were also engaged. ATTACHMENTS Appendix 1. Visa Service Fee Program in Canada The Visa Service Fee Program in Canada A program for select merchant categories The Visa Service Fee Program in Canada ) covers card-absent transactions (online, mail order and telephone order) for select merchant categories and allows the merchant or third party agent to assess a limited service fee on those transactions to the cardholder. The Program is designed to help encourage card acceptance for merchant categories where Visa acceptance has traditionally been low. The key participants in this Program are the merchant, acquirer, and third party agents. Program Eligibility Visa has established a clear set of eligibility requirements for the Program as outlined below. In order to participate in the Program and charge a limited service fee to the cardholder, merchants are required to accept Visa in all card-absent environments where payments are accepted. The following conditions also apply: The Program only applies to the following merchant category codes (MCCs) and applicable transaction thresholds: 4900 (Utilities) 6513 (Property Management / Rent) 8220 (Universities and College) for transactions greater than CAD $1,000 8211 (Private Elementary & Secondary Schools) for transactions greater than CAD $1,000 8351 (Childcare) for transactions greater than CAD $1,000 9222 (Fines) 9311 (Taxes) © 2015 Visa. All Rights Reserved The service fee is available for transactions in card-absent environments only, and is limited to up to 0.75 percent for eligible domestic debit card transactions and up to 1.75 percent for eligible credit, prepaid and international card transactions on the final transaction amount. The service fee: May not be greater than the service fee charged on a similar transaction using a similar form of payment through any other network at the same merchant. Must be the same for all similar card products regardless of the issuer. Must be clearly disclosed to the cardholder before the transaction is completed and the cardholder must be able to cancel the transaction without penalty. Should only be assessed on the final transaction amount, after all discounts and rebates have been applied. May be assessed by the merchant or third party, with the assessor of the service fee clearly disclosed to the cardholder. Must be recorded separately on the transaction receipt, regardless of the assessor. May be recorded and processed as a separate transaction by the acquirer, if it is assessed by a third party. May be applied on recurring transactions. A Program That Benefits Everyone The Service Fee Program has the benefit of expanding Visa acceptance and usage and enabling Visa to be Participant Program Benefit It offers an additional secure and trusted method for consumers to For Merchants pay for certain goods accepted brand for those merchants that already accept Visa credit card payments Provides new Visa payment acceptance options for merchant For Acquirers and categories where Visa acceptance has traditionally been low Processors It is designed to create more places for cardholders to use their For Issuers and Visa cards and take advantage of the benefits of Visa Cardholders For More Information Contact your Visa Account Executive or call 416-860-8600 to speak with a Visa subject matter expert. Third party agents should contact their issuer or acquirer. © 2015 Visa. All Rights Reserved Convenience Fees for Credit Cards Finance Committee November 29, 2017 1 Convenience Fees for Credit Cards City of Saint John incurred approximately υЊЎВͲЉЉЉ in merchant fees for all credit card transactions in 2016. Merchant fees is the cost Visa/MasterCard/Amex charges the City for allowing customers to pay with credit card and the average fee is between 1.2%-1.8% Fees were associated with: Water bill payments Parking Tickets Building permits/deposits Recreation rentals Other services 2 Convenience Fees for Credit Cards Annual cost of accepting credit cars for online payments and by telephone was υАЎͲЉЉЉ in 2016. Staff investigated the option of charging a convenience fee for the use of credit card charges. Visa rules were changed to allow certain merchants the option to charge convenience fees no more that 1.75% of transaction for online transactions or over the phone. (/ğƩķ ƓƚƷ ƦƩĻƭĻƓƷ) The current upgrade to online payment provider (Clic2Gov) will enable the option to charge users of the service a convenience fee. 3 Convenience Fees for Credit Cards hƷŷĻƩ aĻƩĭŷğƓƷ DƩƚǒƦƭ ƭźƒźƌğƩ Ʒƚ /źƷǤ ƚŅ {ğźƓƷ WƚŷƓ /ƩĻķźƷ {ĻƩǝźĭĻ ŅĻĻ /ƩĻķźƷ ĭğƩķƭ ĭğƩķƭ ŅƚƩ ƚƓƌźƓĻ ğĭĭĻƦƷĻķ ğĭĭĻƦƷĻķ ĭƩĻķźƷ ĭğƩķ ƚƓƌźƓĻ źƓ ƦĻƩƭƚƓƦğǤƒĻƓƷƭ Saint John EnergyYYY NB PowerNYY NS Power (Emera)YYY Service NB (Property Tax Only)NN Halifax Regional Municipality YYY Town of Truro NYY University of NB - FrederictonNYY University of NB - Saint JohnNYY 4 Convenience Fees for Credit Cards Customers using the service, should pay for the service. Several other options with no cost Pay online through bank (water bills only) Pay in person Pay with cheque Annual reduction of merchant fees approximately $75,000 split approximately 93.5% Utility/6.5% General fund. 5 Convenience Fees for Credit Cards wĻĭƚƒƒĻƓķğƷźƚƓ Charge a convenience fee of no more than 1.75% for use of credit cards for both online and telephone payments for parking tickets and water and sewerage bills. 6 Convenience Fees for Credit Cards bĻǣƷ {ƷĻƦƭ Amendment to agreement with Paymentusto be sent to next meeting of Common Council for approval Staff to develop Credit Card Policy to bring back to Finance Committee Investigate Self Serve Options at Payment Centre for Customers Paying with Credit Cards Communication plan if Finance Committee accepts staff recommendation for a convenience fee 7 Convenience Fees for Credit Cards vǒĻƭƷźƚƓƭͪ 8