Projected Year-End Financial Results - Third Quarter

8/10/2019 Projected Year-End Financial Results - Third Quarter

1/7


2/7

September 30, 2014 Projected Year-End Financial Results - Third Quarter -Operating

Page 2 of 7

$9.9 million net favourable photo enforcement operations. (Traffic Safety & Automated Enforcement, Transportation Services)

$6.7 million transfer from the recommended Interim Financing reserve. The transferfrom the proposed reserve will be used to offset debt servicing costs to be funded fromfuture revenues. (Capital Project Financing, Corporate Programs)

$6.4 million net reduction in personnel costs across tax-supported programs due tounfilled vacancies. Deceased personnel costs of $9.5 million are partially offset byincrease in contractor costs of $(3.1) million.

$3.6 million Workers Compensation Board surplus distribution. (CorporateRevenues, Corporate Programs)

$3.3 million decrease in uncollectible property taxes. (Taxation Expenses,Corporate Programs)

$3.0 million increased gas franchise fees. (Corporate Revenues, CorporatePrograms)

$2.4 million cost savings due to delay in opening of Metro Line LRT. (EdmontonTransit, Transportation Services)

$3.9 million other net favourable cumulative variances across tax-supporteddepartments.

The above favourable variances are partially offset by the following unfavourablevariances:

$(10.0) million more than expected snow removal costs. (Snow & Ice Control,Transportation Services)

$(6.7) million debt servicing costs proposed to be offset by a transfer from therecommended Interim Financing reserve as described above.

$(3.3) million higher than budgeted fleet fuel costs across tax-supported programs.

$(2.0) million increased road spring clean-up costs. (Transportation Operations,Transportation Services)

$(1.9) million increase in forestry and other greening operations works across tax-supported programs. (Neighbourhood, Parks & Community Recreation, CommunityServices)


3/7


Page 3 of 7

$(1.2) million - Police Services projected net year-end deficit; arising from decreasedTraffic Safety Act fine revenue, partially offset by personnel savings.

Police Services financial projections reflect the information received for the periodending August 31, 2014.

A table of year-to-date results and year-end projected results for tax-supportedoperations is included as Attachment 1. Attachment 2 provides additional details onprojected year-end variances where revenues, expenses, transfers to/from reserves orprogram variances in total exceed $.5 million.

Reserves

Interim Financing Reserve (Recommendation)

Administration is recommending the establishment of an Interim Financing Reserve.The purpose of the Interim Financing Reserve is to accommodate timing differencesbetween project debt servicing and receipt of revenue intended to fund those costs.These timing differences are effectively financed, on an interim basis, by the Citysaccumulated surplus (working capital). Attachment 3 provides more detail on theInterim Financing Reserve.

Financial Stabilization Reserve

The Financial Stabilization Reserve was established in 1997 to provide flexibility inaddressing financial risks associated with revenue instability and unforeseen costs on atransitional basis, and to ensure the orderly provision of services to citizens. Theunappropriated balance in the Financial Stabilization Reserve is $101.8 million. This isabove the minimum level of $88 million and below the target level of $146 million as setin City policy C217B Reserve and Equity Accounts and based on the 2013 auditedfinancial statements.

Current Planning Reserve

The Current Planning Branch implemented a new cost-recovery business model in2010, approved by City Council, with one objective being to ensure that reserves are inplace to maintain and enhance customer service regardless of transient economicconditions. This year it is projected that higher than forecast development activity willresult in greater than budgeted funds being transferred to the Current PlanningReserve. Rather than a budgeted transfer to the reserve fund of $1.5 million, a nettransfer of $2.5 million to the reserve is projected for 2014, creating a projectedyear-end reserve balance of $26.4 million. This is above the minimum level of$18.6 million and below the target of $46.5 million (75% of annual budgetedexpenditures) calculated in accordance with City policy C570 Current Planning


4/7


Page 4 of 7

Reserve . Refer to Attachment 3 for an explanation of the Current Planning businessmodel and a further financial update.

Capital City Downtown Community Revitalization Levy Reserve

On October 31, 2012, (2012 Reserves Review) City Council approved theestablishment of reserves for any future community revitalization levies. The CapitalCity Downtown Community Revitalization Levy Plan (Bylaw 16521) was adopted by CityCouncil on September 17, 2013, and approved by the Province on April 16, 2014. Atthat time the related community revitalization levy reserve was established. Thereserve will accumulate the annual surplus/shortfall for the community revitalization levyover the life of the levy (up to twenty years). Future net annual tax-levy revenues/expenses will be transferred to/funded from this reserve. A transfer from the reserve of$2.8 million is projected in 2014 to offset Downtown Arena debt servicing costs of$2.8 million, creating a deficit reserve balance of $2.8 million. The deficit reservebalance will be repaid from future incremental tax-levy in the community revitalizationlevy area. Further details of this reserve are provided in Attachment 7.

A periodic review of the nature, magnitude and management policies related to thereserve and equity accounts is important in order to ensure prudent financialmanagement and continued alignment with priorities. City Policy C217B Reserve andEquity Accounts provides for a formalized review every three years for reserves and asa minimum every five years for equity accounts. Administration will be conducting areserve and equity account review in 2015. The previous review was completed inOctober 2012.

Investment Earnings

The Capital Project Financing program year-end projections, within CorporatePrograms, reflect additional investment earnings of $16 million. This is as a result ofhigher than expected investment returns and gains on dispositions, as well as higherthan budgeted fund balances.

Administration initiated a strategy within the 2009-2011 capital budget cycle to fund aportion of grant eligible projects with pay-as-you-go funding in order to receive matchinggrant contributions from other orders of government. This effort to maximize grantfunding lead to an over commitment of pay-as-you-go funding. The deficiency is beingaddressed in future capital budgets and by applying greater than budgeted investmentearnings towards the shortfall. This report assumes the additional investment earningsof $16 million will be applied to the pay-as-you-go funding shortfall within the 2012-2014capital budget.

After the application of the additional investment earnings, the shortfall is estimated tobe $13.8 million within the three-year 2012-2014 capital budget. This shortfall does not


5/7


Page 5 of 7

assume any carry forward of unspent funds. The shortfall is being addressed throughthe proposed 2015-2018 capital budget presented to City Council.

Potential Impacts to be Monitored

Tax-supported year-end projected results reflect the best information available to date.Certain items involve a greater degree of uncertainty. Administration will continue tomonitor these matters and update projections if necessary.

All in-scope employee contracts, with exception of the Edmonton Fire Fighters Union,expired by the end of 2013 and are in negotiations.

Snow and ice control expenditures are weather dependent and difficult to predict. Anyfluctuations from current assumptions may further impact the Transportation ServicesSnow and Ice Control program projected expenditures. The current projection is for a$10 million unfavourable expenditure variance. Year-to-date results reflect an$11.8 million unfavourable expenditure variance.

Historically, fluctuating fuel costs may cause a negative impact to tax-supportedoperations, the most significant user being the Edmonton Transit program withinTransportation Services. A hedging strategy covering approximately half of theexpected fuel volume in 2014 mitigates a portion of the risk. Year-end projections for allusers reflect $3.3 million in unfavourable variances due to net increases in fuel costs.

Foreign currency exchange rate fluctuations may cause an overall net cost increasefor vehicle maintenance parts.

Community Revitalization Levy Operations

The City invests in public infrastructure within a Community Revitalization Levy area,which is intended to attract private investment, redevelopment and revitalization withinthe defined Community Revitalization Levy area. The property tax revenue from thenew development, along with any revenue from property sales or property tax attributedto the lift in the value of existing property within the area, is directed to paying the costsof the infrastructure, including financing costs, for up to twenty years. Timing differencesbetween incurring costs and the collection of tax revenues have created deficit balancesin the Community Revitalization Levy reserves. Future Community Revitalization Levytax revenues will offset the existing shortfalls. The current existing CommunityRevitalization Levies are for the Quarters, Belvedere and Capital City Downtownprojects.

Community Revitalization Levy reporting of year-to-date budget and actuals, budgetsand projections to year-end and cash flows over the term of the CommunityRevitalization Levy is shown in Attachment 7.


6/7


Page 6 of 7

Enterprise and Utility Operations

A table of year-to-date results and the projected year-end position for enterprise andutility operations is displayed in Attachment 5. Attachment 6 provides details onprojected year-end variances where revenues, recoveries, expenses, transfers to/fromreserves or program variances in total exceed $.5 million.

Debt

The Municipal Government Act and related regulations establish limits for municipaldebt levels and annual debt servicing costs.

Attachment 8 provides an update on the Citys compliance with the MunicipalGovernment Act debt and debt servicing limits.

Debt Limits

Total Debt September 2014 - Based on borrowing and repayments toSeptember 30, 2014, the City has $2,701.2 million in total debt (net), 58.5% of theMunicipal Government Act debt limit.

Total Debt December 2014 (projected) - Borrowing and repayments for the remainderof the year would result in the City having projected total debt (net) of $2,921.2 million,63.2% of the Municipal Government Act debt limit.

Debt Servicing Limits

Debt servicing includes annual principal and interest on total outstanding debt.

Based on projected debt as at December 31, 2014, of $2,921.2 million the City expectsto utilize 41% of the maximum debt service limit for 2014 as set out in the MunicipalGovernment Act .

The internal Debt Management Fiscal Policy (C203C) sets more conservative debtservice limits than those established in the Municipal Government Act , with limits for allCity operations and tax-supported operations. For 2014, debt servicing is projected tobe 44% of the debt service limit for all borrowing and 51.2% of the limit for tax-supported operations, as defined under the Citys policy.

Debt servicing will increase significantly in 2015 and 2017 due to the repayment of$60 million of short-term borrowing in each of the years. Short-term borrowing of$120 million has been taken as of September 30, 2014, to finance fast-tracking ofcapital expenditures for projects ultimately approved to be funded through MunicipalSustainability Initiative grants and provincial fuel tax. The short-term borrowing is beingrepaid as funding from these grant sources become available, thereby reducing the


7/7


Page 7 of 7

availability of these grant funds in the next capital budget cycle. Based upon anticipatedexpenditures and flow of grant funding, additional short-term borrowing is not projectedat this time.

Committed debt beyond 2014 includes construction of the Downtown Arena and relateddevelopment, Valley Line LRT, Walterdale Bridge, and the Northwest Police Campus.

Economic Update

An operating economic update for the third quarter of 2014 is provided in Attachment 9.

Policy

Financial Services and Utilities report 2014CR_919 meets the reporting requirementsoutlined in the Municipal Government Act and complies with City policy C217B Reserve and Equity Accounts .

Corporate OutcomesThis report supports the corporate goal of securing Edmontons financial sustainabilityby helping ensure the City has well managed and sustainable assets and services, aresilient financial position and on-going balanced revenue streams.

Justification of Recommendation

The Interim Financing reserve would accommodate timing differences between projectoperating expenses and receipt of funding and will ensure that financial reporting ofCity operations is not impacted by the timing differences. Furthermore, it wouldprovide for monitoring and reporting of the use of accumulated surplus (workingcapital) to interim finance project operating costs.Attachments

1. Tax-Supported Operations - September 30, 2014 Financial Results andProjections

2. Tax-Supported Operations - Year-End Variance Explanations - September 20143. Proposed Interim Financing Reserve - Recommendation4. Current Planning Financial Update - September 20145. Enterprise and Utility Operations - September 30, 2014 Financial Results and

Projections6. Enterprise and Utility Operations - September - Year-End Variance Explanations

- September 20147. Community Revitalization Levy Financial Update - September 20148. Debt Update - September 20149. Economic Update - September 2014

Documents

Projected Year-End Financial Results - Third Quarter