2010 Budget Workshop

1. 2010 Budget Workshop

2. Learning Objective • Understanding of budgeting in the new environment

3. Discussion Items • Necessity to budget on cash and accrual basis • Budgeting changes • Accrual budget illustration • Reconciliation from accrual to cash • Determining the levy • Frequently asked questions

4. Budgeting – Accrual basis • To provide meaningful budget comparisons on the audited financial statements • Financial statements are prepared on the accrual basis

5. Budgeting – Cash basis • Municipalities Act requires that cash budgets are balanced • Ensures budget can be cash flowed • Part of long-term financial planning process - example - Raising cash in increments to fund large capital projects • Method that was used prior to 2009 • New format necessary to accommodate change in financial statement format

6. Where to Start? • Starting with either cash or accrual is fine • Reconciliation required to the other method • ACCRUAL reconciles to CASH • CASH reconciles to ACCRUAL • Financial statements show budget figures from accrual basis • Starting point method should be method presented in financial reporting to council

7. Budgeting Changes ( Both accrual and cash) • These items apply regardless of which method is the starting point • Revenues must be split by function except for taxes and other unconditional revenues • Conditional grants must be split between capital and operating and by function

8. Accrual Cashinclusion only inclusion only • TCA amortization • TCA gain or loss • Change in prepaid expenses and supplies • TCA expenditures • TCA sale proceeds • Long term debt issued and repaid • Transfers to and from reserves

9. Budgeting Changes - Revenues • Revenues must be split by function except for taxes and other unconditional revenues • Budget Handout - page 1, Lines 11-69 page 2, Line 48 & 52-56 • Most software providers do not have new accounts setup • Setup new accounts as the need arises

10. Budgeting Changes - Grants • Conditional grants must be split between capital and operating and by function • Budget Handout - page 2 Lines 16-29 • Setup new accounts as the need arises

11. Budgeting Changes – TCA Amortization • Amortization expense must be split by function and by asset type • Budget Handout - page 5, Line 64 • Also - page 3, Lines 51-52 • - page 4, Lines 28-29 & 54-57 • - page 5, Lines 16-17 & 39-40 • - page 6, Lines 25-27 & 49-51 & 58-60

12. Budgeting Changes – TCA Gain or Loss • Gains or losses on sold or scrapped assets must be split by function and by asset type • Budget Handout - page 2, Line 54

13. Budgeting Changes – TCA Expenditures • Budgeted capital expenditures are not included in the accrual budget • Budget Handout - page 3, Line 50 • Also - page 4, Line 27 & 53 • - page 5, Lines 66-67 • - page 6, Lines 23-24 & 48

14. Budgeting Changes – Long term debt repaid • Budgeted loan principal payments are not included in the accrual budget • Budget Handout - page 5, Line 65

15. Accrual Cashinclusion only inclusion only • TCA amortization • TCA gain or loss • Change in prepaid expenses and supplies • In the reconciliation pr the accrual items get inclusion only items ar • TCA expenditures • TCA sale proceeds • Long term debt issued and repaid • Transfers to and from reserves ocess from accrual to cash backed out, and the cash e setup.

16. Reconciliation – Accrual to Cash • Accrual surplus or deficit +/- • Cash flow effect of budgeted capital expenditures and capital proceeds +/- • Change in non financial assets - • Long term debt repaid

17. Reconciliation – Accrual to Cash cont’d + • Long term debt issued +/- • Net transfers from (to) reserves +/- • Transfer from Surplus = • Cash surplus or deficit (which must be $0 or positive)

18. Reconciliation – Accrual to Cash Example • Page 7 of Handout • Accrual surplus or deficit - Section A +/- • Cash flow effect of capital transactions - Section B - • Long term debt repaid - Section C - • Transfers to reserves - Section C = • Cash surplus or deficit (which must be $0 or positive)

19. Tax Levy • Page 8 in handout • In the real world the tax levy is the last piece of the puzzle. • Most municipal software provides tax tools that allow for easy computation of the levy under different scenarios

20. TCA completion effect on mill rates • No effect if good long-term planning has been done in the past • If past long term planning does not meet short and long range infrastructure needs it is prudent to taxes

21. Funding a Grader • Page 9 in handout • TCA process brought to light the need to replace a grader 5 years down the road • 2% increase in tax revenue needed • Funds raised and set aside in reserves over the 5 year period to cover the expected cost in 5 years

22. Tax Levy with grader funded • Page 10 in handout • mill rate by .85 mills to fund grader reserve • levy by $24,430 > $24,000 required to fund grader reserve • Alternative methods? • Increase mill rate factors • Increase base tax

23. Funding Amortization • Currently no requirement to do so • Purpose is to use the amortization cost as an estimate of future capital needs • Costs to complete capital projects • Funding will end up in reserves

24. Funding Amortization – cont’d • Similar concept to funding the accrued landfill liability • Long-term financial planning is stiIl important and relevant even if amortization is funded

25. Frequently Asked Questions

26. Change in prepaids and supplies • Budget for something only if: • Prior year prepaid or inventory was unusually low or high • Current yearend is foreseen to be unusually low or high • Example – general insurance was paid annually now it is paid on a monthly basis

27. Limits to the accrual surplus • No limit • Must produce a balanced or positive reconciliation to the cash budget • If borrowing required to balance cash budget, Sask Municipal Board approval will be required for debt amortized for 4 years or more.

28. Budgeting without TCA completion • Use new budget formats • Estimate amortization to be the same as capital expenditures • Risk of bad audit opinion if TCA not done for the 2010 audit

29. Non-compliant budgets that have been approved • Prepare budget amendments and have these approved by council • End result needs to be: • ACCRUAL reconciles to CASH • CASH reconciles to ACCRUAL

30. Drastic budget variances • In 2009 amortization was not budgeted for • No reason why 2010 budget should be non-compliant • All actual budget comparisons on the 2010 financial statements should be meaningful

31. Daily Accrual budget issues • TCA acquisitions do not get recorded as expenses on internal reporting, they are shown as asset additions on the statement of financial position • TCA proceeds are not revenues on internal reporting, they are shown as asset disposals on the statement of financial position with the gain or loss on disposal shown on the statement of operations

32. Budgeting – Cash basis • Budget tool document available at://www.sasktca.ca/resources • Includes reconciliation to accrual basis

33. Daily accounting issues - cash basis • Capital expenditures will have to be cleared to the TCA asset accounts at yearend • Don’t record both amortization and capital expenditures in the same financial information • Clearing accounts required to present the debt transactions

34. QUESTIONS