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2016-12-08 Finance Committee Open Session AgendaCity of Saint John Finance Committee - Open Session AGENDA Thursday, December 8, 2016 4:30 pm 8th Floor Boardroom, City Hall Call to Order Pages 1.1 2016 Year End Forecast for the General and Utility Operating Funds 1-40 Po eta Sy: FINANCE COMMITTEE REPORT M&C No. - Report Date December 06, 2016 Meeting Date December 08, 2016 Service Area Finance and Administrative Services Members of the Finance Committee Finance Chair and Members of Council SUBJECT: 2016 Year -End Projections OPEN OR CLOSED SESSION This matter is to be discussed in open session of the Finance Committee. AUTHORIZATION Primary Author Commissioner/Dept. Head City Manager Hilary Nguyen Kevin Fudge Jeff Trail Craig Lavigne Cathy Graham RECOMMENDATION It is recommended that the Finance Committee submit the following report to Common Council for information with a recommendation to establish a General Operating Reserve Fund and to authorize the transfer of $2 Mil dollars from the projected General Operating Fund surpluses to the Reserve Fund in 2016 and to transfer $500,000 from projected surplus of Saint John Water to the Safe Clean Drinking Water Project reserve fund to reduce borrowing. EXECUTIVE SUMMARY The Purpose of this report is to provide the Finance Committee with the City of Saint John 2016 year-end projections as of October 31St, 2016 for the General and Water & Sewerage Utility Operating Funds. PREVIOUS RESOLUTION N/A STRATEGIC ALIGNMENT The report provides an update on the Economic Health of the City of Saint John. 1 -2 - REPORT GENERAL OPERATING FUND Based on the October year to date results and projections reviewed with service areas, the General Operating Fund is presently projected to be in a surplus position at year-end of approximately $2.9 million or 1.91% of the total budget. Based on a General Operating Budget of approximately $151 million, a variance of 1.91% is considered reasonable. It should be understood that the following projections are based on departmental best estimates as at October 31, 2016. While there are no significant events that have come to the attention of staff to require modification of these estimates at this time, actual year-end results may differ depending on weather conditions as well as other unexpected events. Appendix 1 (attached) represents year-end projections by service areas for the General Fund. Overall revenues are trending towards a positive variance of approximately $698K, or 0.46% of budget, which includes: 1. Growth and Community Development service revenues are projected to exceed budget by $239K because of higher than expected building, plumbing and excavation permit revenues as well as extra revenue associated with the Market Square lease agreements. 2. Protective service revenues are tracking a small positive variance of $9K. Fire revenues are estimated to be $200K under budget. This negative variance is offset by a projected surplus in Police revenues of $209K. 3. Transportation and Environment services are anticipating a revenue surplus of $750K mostly due to extra revenues to the General Fund from Saint John Water for doing Utility Cuts in-house and higher than expected parking meter revenue. 4. Finance and administrative service revenues are projected to be under budget by approximately $216K mostly because of lower short term interest revenue, lower general government charges to Saint John Water due to projected surpluses in the General Fund, lower City Market rental revenues mostly due to a closure of a market tenant, as well as lower than expected MasterCard rebates. 5. Corporate service revenues are under budget by $90K primarily due to a reclassification issue as legal costs recovered from Saint John Water were budgeted as a revenue but the recovery was netted against legal expenses (no real impact to the budget). Overall expenses are projected to be in a surplus position of approximately $2.2 Mil or 1.44% of budget by the end of the year: 1. Growth and Community Development Services are projected to be $317K or 3.28% under budget due to fewer demolitions than expected, lower Market Square common area costs K -3 - mostly due to a recovery from the Province for their share of the regional library space and fewer than expected heritage and development incentive grants awarded. 2. Public Safety Services are tracking a surplus of $293K or 0.56% of budget. Fire Rescue & Suppression and Emergency Management Services are projected to be $241K under budget, or 1.09% variance, mostly because of vacancies, lower fuel, oil and gas costs and deferral of expenses in order to meet commitment to offset the revenue shortfall. Police services are projected to be on budget. 3. Transportation and Environment Services are anticipating a negative variance of $104K or 0.25% of budget. Salaries and Benefits are forecasted to be $382K over budget and Asphalt is also over budget by $235K mostly because there have been additional staffing and asphalt costs associated with bringing the Utility Cut program in-house. Transit Commission is anticipating a deficit of $232K due to higher maintenance costs and additional salary and benefit expenses not budgeted for in 2016 budget. However, these negative variances are partly offset by savings from Fuel, oil and gas of $484K because of lower fuel price and consumption, lower heavy equipment rental cost of $115K and lower Local 18 overtime cost of $44K. These positive variances are related to favorable weather conditions that the City has experienced in 2016. The service area is also anticipating other small positive variances with respect to property taxes, building maintenance, advertising, insurance, etc. 4. Finance & Administrative services are projecting a positive variance of $812K or 6% of budget. The majority of the variance ($580K) is related to savings from fleet parts as fewer repairs are anticipated due to good weather and strategic replacement of fleet. This large variance is irregular considering the fact that the fleet part 2016 year-end forecast of $1.4 Mil is significantly below the 5 year average of $1.8 Mil. Other positive budget variances include City Hall building costs ($100K) due to lower energy and common area costs, travel, conference and courses ($62K), carpentry ($32K) and other small variances. 5. Corporate Services are tracking a surplus of $281K or 4.98% of budget. Salaries & benefits are forecasted to be $59K under budget due to vacancies. Legal expenses related to P3 charged to Saint John Water result in a positive variance of $100K. Other positive variances totaling $122K include lower than anticipated travel, translation, training, legal costs, etc. 6. Other charges are projected to have a positive variance of $590K or 2% of budget due to a favorable variance in fiscal charges because of borrowing less than expected due to timing and lower interest and discount rates as well as a favorable variance in pension costs because the remaining balance of the deferred pension was fully expensed in 2015. The above budget projections are based on staff's best estimates as of October results. The majority of the surpluses are unsustainable as they are related to good weather conditions, favorable interest rate environment and lower fuel price. In the future, the City may be exposed to significant risks associated with weather volatility, stagnant growth, interest rate increases, growing debt and infrastructure deficit as well as increased reliance on unconditional K3 -4 - grant; therefore, Staff recommends that Council establish a General Operating Reserve Fund and that $2 Mil from the projected surpluses be contributed to the Operating Reserve Fund in 2016. SAINT JOHN WATER Based on the October year to date results and projections reviewed with the service areas, Saint John Water is presently projected to be in a surplus position at year-end of $808,615 or 1.84% of the annual budget. Appendix 2 (attached) represents year-end projections by service areas for Saint John Water. Saint John Water revenues are trending towards a positive variance of approximately $34K or less than 0.08% of budget which includes: 1. Flat rate residential is forecasted to be approximately ($191K) under budget. Variances are a result of less billing accounts than budget due to factors such as: building closures, water shut offs and vacant and/or demolished properties. 2. Meter revenues based on information year-to-date are projected to be over budget by $143K. Industrial accounts are trending higher consumption than budget and it is anticipated this trend will continue for the last billing period for 2016. 3. Fire Protection is anticipated to be under budget by ($50K) and Storm Sewer levy is anticipated to be over budget by $75K. 4. Other revenues are anticipated to be over budget by $57K due to interest & rebate revenues. Overall expenses are projected to be in a surplus position of approximately $775K or 1.76% of budget by the end of the year: 1. Drinking water is anticipated to be in a positive variance of $415K due to several factors. The key drivers are staff vacancies, the cost to repair utility cuts on roads is forecast to be $227k less than what was in budget, fuel costs and fuel consumption are lower than anticipated in budget and due to a milder winter there has been less electricity consumed. 2. Industrial Water is currently projected to be over budget by ($110K). The dry weather this year has resulted in pumping water from East Musquash Watershed to Spruce Lake for 6 months of the year as opposed to the 4 months that were in the budget. 3. Wastewater is forecast to exceed budget by ($207K). This main cause were the unexpected expenditures at some lift stations requiring major repair work and pump replacement resulting in increased professional services, building costs and repairs and maintenance expenses. CI -5- 4. Engineering is trending to be slightly over budget by ($25K). The variance is primarily the result of under budgeting wages and fleet costs. S. Fiscal and other charges are projecting to be under budget by $702K. The City secured unexpected lower interest rates and debenture costs resulting in a savings of $254K. The 2016 short term interest expense paid to the General Fund is approximately $350K less than budget due to the Utility seeing positive cash flow from its collection efforts and funding received for the Safe Clean Drinking Water project. There was also an unexpected recovery of accounts that were considered bad debt resulting in a favorable adjustment of $115K. SERVICE AND FINANCIAL OUTCOMES N/A INPUT FROM OTHER SERVICE AREAS AND STAKEHOLDERS Input has been received from all Service Areas Attachments: Appendix 1 Appendix 2 61 1 N 00 w w O w r -I O Ln ct 00 Itt •u m wItt O n w r -I Ln Ln O 00 Ln w ri I- 00 Itt 00 O rn m r -I lD N lD Lli Lli Lli lD Lli N I� N Ln O Itt Ql Ql r -I O N -tt 00 Itt Ln M W Ln r -I N N r -I 00 Ln to N 7 rr-I Ql Q i r4 7 N fC .N GJ Ql Rt Rt O w r -I O Ln ct Ln Itt fC a O N � n� 00 O CY) � � •i I M -:e N O L6 eL6 N G1 N Q r -I Ql O r -I 00 r -I O N -tt 00 R o M N ri 00 N N N r -I r -I Ln _7 N � Q to r -I r -I N Q W •(n• •(/)• V 00 r -I Ql 00 O r -I a Ln r -I ct Ql 00 r -I fa .y 6Gl O e -:F n N N n N Lr) i r -I 7 r -I O GJ N Q _O N N > N � O O N L > >, v E + Ln Ln +, 06 � N U N N E N O >� 4' O 4-+ -0 Q N N N bA O 4- Co a) 4-J 06 � (0 E b.0 v t N O L = U L N _0 c c0 + v '- Q N Q O H L m O � io N N by 0 N co C7 a H E O U iL N a 4- 0 0 NO o 1 N O O O O O O O O O O O O O O O O O O O O O O N O 00 w N ei ei 0. co I- o o M O O 3 ++ Lo N M '9T O LO Ef} C f- TT C Q W � Ef} 60- « ' :ti M N K W cc a� 0 N wU)+ N O U > O O m O N U = �O O n O , N N N E N N N U M ON O > O N O E Q U � O °6 U N N m U (B L N J Z) Z) 06 07 L . 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Ln 4-J 0 buO MN • ._ O a) U E Ln ._ DC c,/1 15 Appendix 1 The City of Saint John Budget to Projected Variance Report For the Year Ended December 31, 2016 City of Saint John 2016 Budget REVENUES Property taxes PI LT Adjustment Equalization & Unconditional Grant Surplus 2nd previous year Growth & Community Development Services Public Safety Services Transportation & Environment Services Finance & Administrative Services Corporate Services 2015 2016 2016 Approved Annual Year-end Budget Budget Projection Variance 118,325,922 120,141,178 120,141,178 120,729 41,244 41,244 9,647,828 20, 935, 308 19, 923, 206 19, 923, 206 52,307,664 567,702 - - Transportation & Environment Services 2,361,400 2,056,300 2,295,889 239,589 2,293,862 2,231,368 2,240,780 9,412 2,727,027 2,894,027 3,644,219 750,192 3,746,404 4,164,861 3,948,381 (216,480) 65,000 90,000 5,100 (84,900) TOTAL REVENUES 151,143,354 151,542,184 152,239,997 697,813 EXPENDITURES Growth & Community Development Services 9,716,396 9,647,828 9,330,819 317,009 Public Safety Services 52,307,664 52,075,100 51,781,826 293,274 Transportation & Environment Services 41,627,316 41,534,638 41,638,682 (104,044) Finance &Administrative Services 13,554,309 13,521,532 12,709,352 812,180 Corporate Services 6,106,990 5,633,998 5,353,222 280,776 Other Charges 27,830,679 29,129,088 28,538,788 590,300 TOTAL EXPENDITURES 151,143,354 151,542,184 149,352,689 2,189,495 General Fund Surplus (Deficit) 2,887,308 2,887,308 1 Wel Appendix 2 Saint John Water 2016 Projected Results Revenues 2016 Approved Budget 2016 Year End Projection Variance Flat Rate Residential 19,759,000 19,567,694 -191,306 Metered Accounts 19,213,000 19,356,267 143,267 Fire Protection 2,400,000 2,350,000 -50,000 Storm Sewer 995,000 1,070,000 75,000 Previous Years Surplus 1,014,000 1,014,000 0 Other 566,000 623,025 57,025 Total Revenues 43,947,000 43,980,986 33,986 Expenditures Drinking Water 9,690,000 9,274,861 415,139 Industrial Water 1,634,000 1,743,835 -109,835 Wastewater 10,132,000 10,339,211 -207,211 Infrastructure Management 1,278,000 1,303,361 -25,361 Other Charges 21,213,000 20,511,103 701,897 Total Expenditures 43,947,000 43,172,371 774,629 Saint John Water Surplus (Deficit) - 808,615 808,615