Overview of Finance and Budgeting February 9, 2006

1. Overview of Finance and Budgeting February 9, 2006

2. Community Charter – Financial Officer Responsibilities(SS149): • Receive all monies paid • Keeping of all funds and securities • Investing municipal funds • Expending funds authorized by council • Records retention • Exercise control and supervision

3. Total Income Reserves Financial Model DCC & Development Contributions Taxes Other sources of revenue Utilities Operating Costs Capital Program

5. $1.00 PST GST Federal / Provincial Government Vendor PST GST Income / Profit Salaries Suppliers Income Tax Business / Income Tax Business / Income Tax Federal / Provincial Government

6. Residential Utilities 4. Major Industry 5. Light Industry Business and Other Managed Forest Land Recreational property / Non-profit organization 9. Farm Taxation Assessment Classes

7. Calculation Of Property Tax Rates A x B = C Assessment Value / 1000 Tax Revenue Tax ‘Mill Rate’ = X ‘Constant’ ‘Variable’ ‘Constant’

8. Calculation Of Property Tax Rates (Cont.) B = C / A Tax ‘Mill Rate’ Tax Revenue Assessment Value / 1000 = / ‘Unknown’ ‘Known’ ‘Known’

9. Example 2004: (293,000 / 1000) x 3.4653= $1,015 2005 (at 2004 Mill Rates): (338,000/ 1000) x 3.4653=$1,171 2005 (new Mill Rate,Tax Revenue required): (338,000 / 1000) x3.0625 = $1,035

11. Development Cost Charges (DCC) DCCs are fees from new development to help pay for cost of infrastructure services needed to accommodate growth, specifically for: • Parks Acquisition & Parks Development • Roads • Sanitary Sewer • Storm Sewer • Water

12. Community Charter–Reserves Funds (SS188) • Council may, by bylaw, establish a reserve fund for a specified purpose • Money and interest must be used only for the purpose of which the funds was established • Examples: • Affordable Housing • Capital Building & Infrastructure • Child Care Development • Drainage Improvement • Leisure Facilities • Local Improvements • Neighbourhood Improvement • Sanitary Sewer • Watermain Replacement

13. ALLOCATION OF COST BY DEPT. – 2005

14. Tax Revenue Gaming Revenue Alternative Revenues & Economic Development Changes to Senior Government Service Delivery Capital Plan Cost Containment Efficiencies & Service Level Reductions Land Management Administrative Debt Management Long Term Financial Management Strategy 10 Principals are:

15. BUDGETING

16. INPUT Budget Process OUTPUT PROCESS City Council Direction Establish Service Levels / Budget Guidelines Business Planning & Systems Set Up Prepare & Review Annual Budget Prepare & Review 5 YFP Public Consultation Annual Budget Document Public Feedback Community Charter City Council Review & Approves 5YFP Document Prior Year’s Base Budget Actual Trend Analysis Utility Rates & Property Tax Rates City Corporate Plan (LTFMS) External & Internal Factors

17. Feb – Apr Year End Financials & Audit Budget Cycle May* Establish Service Levels Apr* Set Tax Rates Jun – Jul Business Planning & System Set-Up Planning Aug – Sep Prepare Budgets By Organization (Business Unit) Feb – Mar* Finalize 5YFP Approval Preparation YEAR – ROUND Control & Monitor Budgets Jan – Feb* 5YFP Presentation & Public Consultation Sep - Oct Review Budgets (Incl. Additional Levels) Review & Presentation Dec –Jan Prepare & Review 5YFP Oct – Nov* Budget Presentation Nov – Dec* Finalize Annual Budget & Set Utility Rates Council Involvement *

18. Why Prepare A 5 Year Financial Plan (5YFP)? • Provides city staff with the authority to pay for services • Ensures city staff are accountable to Council and Citizens • Meets the requirements of the Community Charter • Allows for measurement of costs for each service level / program provided • Allows for the calculation of the tax levy required

19. Community Charter • SS 165(1)-adoption of financial plan by bylaw before property tax bylaw is adopted • SS 165(3)-fin. plan is for a period of 5 years • SS 165(4)-fin. plan must set out proposed expenditures transfers and funding sources • SS 165(5)-fin. plan must be balanced

20. Community Charter • SS 166-public consultation required before fin. plan adopted • Div 3, SS 197(1)-ppty tax bylaw before May 15.

21. Budgets • Led by Council • About delivering services • Ensuring accountability

22. Budgets • The budget, is a projection of future revenues and expenditures • The budget should also be used as a management and planning tool to guide the operations of the municipality • The budget provides an opportunity to review the appropriateness of local tax policies in the context of the capacity of the local assessment base.

23. Uses of the Budget Council • Monitor and control departments/programs • Establishing priorities for present and future work plans • Communicating plans to constituents • Resolve conflict (allocate scarce resources)

24. Uses of the Budget Management Team • Control expenditures • Incentive performance planning of departments and personnel • Planning for goal setting • Communicating needs for additional resources

25. Uses of the Budget Public • Source of data for analysis and debate • Scorecard • Information of Council’s goals and priorities

26. Other Financial Controls • Purchasing-spending limits • Trend analysis/history • HR-Personnel limits and pay scale • PSAB-Public Sector Accounting Board-rules of accounting

27. Steps in the Budget Process Finance Role • Involve all departments • Provide economic data & assumptions • Review, analyze and provide feedback • Review and approval from Mgmt & Committee • Approval from Council (base for 5 YFP)

28. Steps in the Budget Process • Additional Level Requests-represents new items such as new programs or program enhancements from the previous year’s budget • Eg. Staffing, new programs • Review and approval from Mgmt & Committee • Approval from Council (base for 5 YFP)

29. Issues and Conflict • Finance role of guardian vs employee • Special needs vs communal needs • Present vs Future • Financial vs Social

30. Popular Budgeting Methods • Zero Base Budgeting • Incremental Budgeting

31. Zero Based • Zero-based budgeting (1977 President Jimmy Carter) federal budget • each programme is examined in order to justify its existence, and is compared to alternative programmes. • Priorities are established and each cost centre is challenged to prove its necessity • Drawbacks-time and costs, effect on behavior and morale

32. Incremental • The organisation's historical costs are the base from which budget planning starts. The focus of the budgeting process is on the changes anticipated in last year's figures. • In comparison, there are dangers in using last year's figures as in incremental budgeting. There is a risk of 'creeping' costs year on year. • Less time consuming and threatening to employees

33. Operating & Capital • Operating expenditures (e.g., salary or power charges) are incurred to maintain and help the capital expenditure (e.g., building or machine) earn revenue (income).

34. Operating- funding is usually primarily by tax revenues, fees, grants. Expenditures are primarily period expenditures Operating impact from capital Capital-funding is usually primarily by reserves, surplus, DCC’s, grants or donations. Expenditures have an enduring benefit Fruit vs Tree Operating vs Capital

35. Operating Budget

36. Capital Budget

37. Operating Budgets • Attention should be focused on policy issues such as tax policy, funding priorities and macro issues instead of detailed reviews • Monitor the budget to avoid surprises at year end • Maintain adequate fund balances in the event of contingencies • Look at long term goals and plans

38. Capital Planning • Plan should involve conducting analysis of infrastructure needs • Transparent process for selecting projects • An effective process for monitoring design and construction • An effective process to maintain infrastructure in accordance to generally recognized engineering practices - Lifecycle

39. Capital Criteria • Level of demand-(essential, established, potential) • Consistent with Council’s strategic plans • Technically feasible • Financial cost-benefit and risk • Societal/Environmental cost-benefit and risk • Funding availability and source

40. Capital funding • Pay as you go (reserves, grants, partnering, special levies) • Debt (LT debt, capital lease) • Inter-government funding • Restricted and private donations

41. Tax Rates • Measurement • CPI basket relevant to Municipalities? (food, shelter, clothing, footwear, alcoholic beverages and tobacco products) • Municipalities- compensation for a unionized workforce, non-finished goods such as asphalt, salt, steel, diesel fuel and electricity.

42. Tax Rates

43. Questions?