taxation strategies 2021 financial plan development

Taxation strategies2021 Financial Plan development

March 23, 2021

2021 -2025 Financial Plan

Agenda

1. Introduction 2. Recap from prior presentations3. Information from Capital budget session4. Funding Shortfall and potential sources to reduce5. Strategies6. Tax increase recommendation7. Next steps

Managers Review departmentsCouncil Introductory session: cost driversOperating budget Capital & one time projects – March 18 Review & propose tax increase – March 23Public input on proposed budget Consideration of public input and introduction of bylaw for 5 year financial plan – April 8Adoption of 5 year financial planAdoption of tax rate bylaw – before May 15

Financial Plan Process 2021

Propose tax rate increase and other changes to the preliminary budget

Last year’s increase 0% - not sustainable

Preliminary tax rate increase may be adjusted after public input and final financial plan bylaw prepared for review

Purpose of this session?

General Overview of Information to DateOperating Budget

Capital BudgetCurrent Shortfall

Recognition that surplus account was in a deficit

Implementation of financing strategy including borrowing

Reorganization of reserves for efficiency and greater transparency

Shortfall in balancing operating budget in prior years

Focus required on fundamentals – long standing issue of operating with a out of date policies and procedures, financial errors, late reporting – all leading to inefficiency and increased costs.

November presentations

Operating Budget

Shortfall in RevenuesReserves used to balance budget in prior years

Taxation not keeping up with increased costs Not sustainable as reserves/surplus not unlimited Shortfall of revenue or too many expenses? Compounding effect: past practise affecting NOW

Operating Budget

Rising costs of contractual expenditures

Insurance – significantly increased in 2020 WorkSafe & Employee Benefit premiums Labour (≈45% of budget) RCMP contract IT Licensing costs

Decreased revenue from investments Debt servicing increase from new short term debt

($630,00)

Operating Budget

In depth review and work on financial processes & systems over past 6 months. Identified significant areas of concerns.

Missing or outdated policies and procedures. Late or lack of reporting.

Long standing issues – eg systems not correctly set up causing significant errors/omissions. Spinning wheels.

Internal processes

Capital Budget

Overall Capital Program reduced to focus on completing projects and allowing reserves to rebuild.

2 significant infrastructure grant projects – Annex Park Dike upgrades & Fernie Valley Pathway may increase capital program significantly if approved.

Contributions to reserves decreased as agreed per short term borrowing financing strategy.

Total projected reserves end of 2021 = $11,125,618.

Projects rated for risk, safety and completion of those in progress.

Summary

Follow up Capital Budget mtg Regulated by Cemetery and Funerals Act Care Fund (Reserve) to be used for “the sole purpose

of the upkeep and maintenance of the property licensed and the Cemetery of which it form part”.

Interest only to be used on contributions to reserve

Cemetery Operations

$22,800 – installation of three gates (1-Annex Park, 2 James White)

Could be funded through Capital Reserve Capacity to undertake project (external contract)

Park Gates &No camping

signage

Correction made in Operating budget upon review $15,000 increase recommended in total patching ($75,000) Total cost centre decreased by $20,000 with error

adjustment.

Paving Patching in Operating

budget

Request to review options for 2021 funding For discussion in shortfall funding options discussion

Community Organizations

Starting Point March 23th

$546,755 SHORTFALL

(was $ 682,803)

Adjustments made as new information received Internal allocations reconciled

Reduction to Financial Stabilization fund (currently budgeted at $400,000)

This reserve may be developed over a number of years and does not require all funds at this time.

If the Accumulated Surplus fund grows increases over the next while (results from a year end operating surplus), this fund will not be as critical as it is now.

Highly recommend a transfer of at least $215,000 in 2021 (ie. Maximum reduction = $185,000).

Potential Funding Sources #1

Community organizations: partial reduction of funding in 2021 and further review in 2022

Over $500,000 in operating funding for community organizations in 2021 (not including facility R&M, utility cost and insurance paid by City or other costs)

Council may consider reducing funding to all or some of these organizations in 2021.


Recommend to use difference in expense as transfer to Financial Stability reserve for future police costs

RCMP currently not operating at full complement.

Recommend reducing expenditure by $50,000


Reduce RCMP 2021 expense to project actual (vs full contract)

Consistent with financing strategy to reduce contributions to reserve while addressing short term financing repayment for facility

Projected 2021 reserve balance = $843,576 (with proposed $500,000 contribution.

Decrease of $40,000 ending balance $803,576

2018 Asset Management Infrastructure Plan (AMIP) recommended $938,000/yrLarge reduction to transfer should be considered carefully as rehabilitation required in number facilities for safety and general R&M.


Reduce Transfer to Facility Renovation Reserve

Fund paving/patching expense with Reserve (eg Gas Tax)


Increased patching/paving in operating budget due to the absence of a capital street project in 2021.

Impact on shortfall: reduce by $75,000

Not a long term solution for ongoing projects; would be a step in the process

Taxation increase


No increase in 2020 compounded effect on 2021; not sustainable

1% increase = approximately $70,000 Recognition of impact on COVID-19 on residential

property owners balanced with need to provide core services

What is an appropriate amount of tax increase given the multi-year shortfall facing the City of Fernie?

OPTIONS (STRATEGIES) TO FUND SHORTFALL

Options for addressing shortfall (as introduced March 18)

Funding the entire shortfall through a tax increase would require approximately 8% overall increase

Given that the context of 2021 budget discussions include “recognizing the financial impact of COVID-19 on local property owners”, such a large tax increase in 2021 may be unrealistic although it would address ongoing shortfall in operating budget.

Tax rateincreasefor full

amount

Some of the issues facing the City have been occurring over multiple years and will take in depth review to address.

More work would be required to accurately assess the financial impact of decisions made affecting service levels therefore a blended approach for budget 2021 may be an approach to consider

Blended approach

Difficult to generate accurate assessment of costs that would be saved by reducing City services without thorough examination of costs/benefits.

Reduction in Service

Levels

Council may identify other areas to examine for cost savings or revenue increases.

Others as identified by council

Scenario 1

2021 - 25% Funding cut to Community Org (add back Museum @75%)

2% tax increase

3% tax increase

4% tax increase

Starting shortfall: 546,755 546,755 546,755

Less Proceeds from taxation (140,000) (210,000) (280,000)

Reduce Transfer to Financial Stability Reserve (185,000) (185,000) (185,000)

75% Funding to Community groups/add Museum @ 75% (#8) 11,788 11,788 11,788

Reduce Police expense YTD 2021 (50,000) (50,000) (50,000)

Reduce transfer to Facility Renovation reserve (40,000) (40,000) .

Fund Patching/paving contracts with Gas Tax funds (75,000) (75,000) (45,000)

Other amendments:

Remaining Shortfall (Surplus in brackets) 68,543 0 0

2021 - 40% funding cut to Community OOrganizations (add back 60% Museum)

2% tax increase

3% tax increase

4% tax increase




60% Funding to Community groups / add Museum 1@ 60% (#11) (13,425) (13,425) (13,425)

Reduce Police expense YTD 2021 to actual (50,000) (50,000) (50,000)

Reduce transfer to Facility Renovation reserve (40,000) (40,000) 0


Other amendments:


Scenario 2

2021 - No Funding cut to Community organizations 2% tax increase

3% tax increase

4% tax increase



Reduce Transfer to Financial Stability Reserve (185,000) (185,000) (185,000)100% funding to all Community Organizations +

bMuseum 53,808 53,808 53,808

Reduce Police expense YTD 2021 (50,000) (50,000) (50,000)

Reduce transfer to Facility Renovation reserve (40,000) (40,000) (15,000)


Other amendments:

Remaining Shortfall (surplus in brackets) 110,563 40,563 0

Scenario 3

2021 - Fund shortfall with mainly tax increase only) 8.25% tax increase

8.4% tax increase

5.8% tax increases



Add Museum into funding stream @.70 37,666 37,666

Reduce Transfer to Stabilization (185,000)

Remaining Shortfall (surplus in brackets) 0 0 0

Scenario 4

Discussion of scenarios

Council introduction of additional scenarios

Other scenarios

Sample tax increase scenario2% tax increase = approx. $60.00 annual increase in tax (municipal portion) & fees

2%(municipal portion of

taxes)

2020 2021 Annual Increase 2021 over 2020

Municipal Portion of Tax (2%) $ 1,768 $ 1,805 $ 36

Water User Fees (2%) $ 328 $ 335 $ 7

Sewer User Fees (4%) $ 339 $ 353 $ 14

Garbage User Fees (2%) $ 161 $ 164 $ 3

Total $ 2,596 $ 2,656 $ 60

Important notes: 1. Figures used for 2021 taxation example based on 2020 rates and assessment; 2021

revised roll and rates from other taxing authorities not yet available.2. Illustration on a representative residential home in 2020.3. The actual percentage of change is dependant upon percentage change of assessment

of each property.

Sample tax increase scenario3% tax increase = approx. $76.00 total increase in tax (municipal portion) & fees


taxes)



Water User Fees (2%) $ 328 $ 335 $ 7

Sewer User Fees (4%) $ 339 $ 353 $ 14


Total $ 2,596 $ 2,656 $ 76



of each property.

Sample tax increase scenario4% tax increase = approx. $95.00 total increase in tax (municipal portion) & fees


taxes)


Municipal portion of tax (4%) $ 1,768 $ 1,839 $ 71

Water User Fees (2%) $ 328 $ 335 $ 7

Sewer User Fees (4%) $ 339 $ 353 $ 14


Total $ 2,596 $ 2,656 $ 95



of each property.

0 500 1,000 1,500 2,000 2,500 3,000 3,500

Sparwood

Nelson

Kimberley

Invermere

Fernie

Elkford

Creston

Cranbrook

Castlegar

East & Central Kootenay (population > 2,500)

2020 Taxes & Charges on a Representative House

Includes municipal taxes & residential user fees

0 500 1,000 1,500 2,000 2,500 3,000 3,500 4,000 4,500 5,000

Whistler

Rossland

Revelstoke

Osoyoos

Kimberley

Invermere

Golden

Fernie

Resort Municipalities (population > 3,500)


Includes municipal taxes & residential user fees

THAT staff be directed to prepare a draft 2021 General Fund Operating Budget to include a property taxation revenue increase of ___% and proposed reductions in operating expense/transfers to capital reserves to balance the 2021 funding shortfall;AND FURTHER THAT staff present the budget for public comment and prepare the draft budget and financial plan for consideration by Council on April 8, 2021

Recommendation

Next steps

1. Update financial information in budget documents to reflect direction from council.

2. Prepare summary of proposed increase for public review.

3. Create financial plan bylaw4. Presentation of financial plan bylaw and

public comments to council for consideration.

Next steps

• RESOURCE SLIDES

2021 – 50% funding community groups+museum; 1100% Access Guardian, Chamber and Library

2% tax increase

3% tax increase

4% tax increase




50% funding community groups+museum; Access 1Guardian at 100%; Library and Chamber @100% (25,684) (25,684) ( 25,684)

Reduce Police expense YTD 2021 to actual (50,000) (50,000) ( 50,000)

Reduce transfer to Facility Renovation reserve (40,000) ( 2,741) 0

Fund Patching/paving contracts with Gas Tax funds (75,000) (75,000) ( 5,741)

Other amendments:


Additional Scenario

2021 BUDGET

2020 ACTUAL

2020 BUDGET

2019 ACTUAL

NOTES

DISCRETIONARY FUNDS: GRANTS 18,000 18,000 18,000 18,000 CHAMBER OF COMMERCE: GRANTS 112,000 110,480 98,507 108,507 FERNIE HERITAGE LIBRARY: GRANTS 258,000 250,176 257,685 242,892 FERNIE ARTS COUNCIL: GRANTS 46,274 45,372 46,274 44,400 EDUCATIONAL SCHOLARSHIPS: GRANTS 3,000 3,000 3,000 3,000 FERNIE & DIST HISTORICAL SOCIETY:MUSEUM - 53,808 53,852 52,746

BEAR AWARE PROGRAM: GRANTS 7,000 7,000 7,000 7,000

ACCESS GUARDIAN PROGRAM 10,000 8,600 10,000 8,600 SENIORS DROP IN CENTRE 30,000 30,000 30,000 32,000

484,274 526,436 524,318 517,145

Chamber of Commerce - Visitor Information Centre Operating Grant 112,000 110,480 98,507 108,507 Facil ity Operating Expense 35,525 32,746 36,335 32,046 TOTAL 147,525 143,226 134,842 140,553

Senior Citizens Club of Fernie & District Operating Grant 30,000 30,000 30,000 32,000 Facil ity Operating Expense 28,905 24,799 28,691 25,942 Total Senior Citizen Club 58,905 54,799 58,691 57,942

Fernie Heritage Library Operating Grant 258,000 250,176 257,685 242,892 Facil ity Operating expense 42,075 38,721 42,527 39,276 Total Heritage Library 300,075 288,897 300,212 282,168

Fernie and District Arts Council - Arts Station Operating Grant 45,372 45,372 46,274 44,400 Facil ity Operating expense 39,505 39,505 45,662 39,316 Total Arts Council/Arts Station 84,877 84,877 91,936 83,716

Fernie & District Historical Society: Museum Operating Grant - 53,808 53,852 52,746 Facil ity Operating expense 15,790 15,790 4,278 9,869 Total Museum 15,790 69,598 58,130 62,615

Total of above 607,172$ 641,397$ 643,811$ 626,994$

PARTNERSHIP AGREEMENTS / PARTNERED SERVICES

Operating funding and Facility expense

2020 funding Operating Grants + Facility operating

expenses = approx. 9% tax increase

Reference #: 1 2 3 4 5 6 7 8 9 10 11 1210% REDUCTION CURRENT BUDGET 25% REDUCTION CURRENT BUDGET 40% REDUCTION CURRENT BUDGET 50%

Current 2021

Proposed Budget

2020 Actual Museum -no funding

Museum added back

@ 50%

Adding back museum

@70% Adding back

museum at 90%

Museum -no funding

Museum added back

@ 50%

Adding back museum

@70% Adding back museum at

75%

No funding (Museum)

Adding back Museum at

50% Adding back museum at

60%

50% community

groups+ museum&

100% Library, Chamber,

Access Guardian

Funding to Community OrganizationsDISCRETIONARY FUNDS 18,000 18,000

16,200 16,200 16,200 16,200 13,500 13,500 13,500 13,500 10,800 10,800 10,800 9,000.0 FERNIE ARTS COUNCIL: GRANTS 46,274 45,372

41,647 41,647 41,647 41,647 34,706 34,706 34,706 34,706 27,764 27,764 27,764 22,686.0 EDUCATIONAL SCHOLARSHIPS 3,000 3,000 2,700 2,700 2,700 2,700 2,250 2,250 2,250 2,250 1,800 1,800 1,800 1,500.0 BEAR AWARE PROGRAM: GRANTS 7,000 7,000

6,300 6,300 6,300 6,300 5,250 5,250 5,250 5,250 4,200 4,200 4,200 3,500.0 ACCESS GUARDIAN PROGRAM 10,000 8,600

9,000 9,000 9,000 9,000 7,500 7,500 7,500 7,500 6,000 6,000 6,000 10000SENIORS DROP IN CENTRE 30,000 30,000

27,000 27,000 27,000 27,000 22,500 22,500 22,500 22,500 18,000 18,000 18,000 15,000.0

114,274 111,972 102,847 102,847 102,847 102,847 85,706 85,706 85,706 85,706 68,564 68,564 68,564 61,686

Agreement currently pending:FERNIE & DIST HISTORICAL SOCIETY

- 53,808 - 26,904 37,666 48,427 - 26,904 37,666 40,356 - 26,904 32,285 26,904.0

Committed Funds (contractual)

Chamber of Commerce 112,000 110,480 112,000 112,000 112,000 112,000 112,000 112,000 112,000 112,000 112,000 112,000 112,000 112,000 FERNIE HERITAGE LIBRARY 258,000 250,176 258,000 258,000 258,000 258,000 258,000 258,000 258,000 258,000 258,000 258,000 258,000 258,000

TOTAL 484,274 526,436 472,847 499,751 510,512 521,274 455,706 482,610 493,371 496,062 438,564 465,468 470,849 458,590

IMPACT ON CURRENT BUDGET: COST INCREASE OR (REDUCTION) (11,427) 15,477 26,238 37,000 (28,569) (1,665) 9,097 11,788 (45,710) (18,806) (13,425) (25,684)

Community organizations funding

RESERVES (AS BUDGETED) Opening Balance 2021

PLUScontributions toreserves (fromtaxation/rates)

LESS NON CAPITAL EXPENDITURES

FROM RESERVES

LESS Summary of Funding for Capital

Expenditures

Projected Endingbalance 2021

(Budget)

Surplus (Reserve Accounts)

Unallocated Surplus - General 115,026 - 115,026

Unallocated Surplus-Water 221,121 - 221,121

Unallocated Surplus-Sewer 69,814 69,000 814

Coal Miner's Walk 36,319 - - - 36,319

Stormwater Reserve 325,538 150,000 25,000 450,538

Self Insurance 10,043 - 10,043

Subtotal: Surplus (Reserve Accounts) 777,861 150,000 - 94,000 833,861

Statutory Reserve Funds

General Capital 1,367,666 212,826 214,979 1,365,512

Land Development 15,116 - 15,116

Mobile Equipment 1,157,043 1,085,395 924,524 1,317,914

Gas Tax Funds 1,156,886 307,139 279,783 1,184,242

Transportation Infrastructure 550,560 700,000 540,458 710,102

Courthouse 337,578 25,000 - 362,578

Parkland Dedication 325,103 - 325,103

Facility Renovation 570,076 500,000 226,500 843,576

Financial Stability Operating Reserve 400,000 400,000

Water reserve 483,258 650,000 375,627 757,631

Sewer reserve 453,195 500,000 452,861 500,334

Subtotal: Reserve Funds 6,416,481 4,380,359 - 3,014,732 7,782,109

Externally Controlled Funds:

Cemetery Funds 276,995 2,500 279,495

Resort Municipality Initiative (RMI) 449,451 381,676 498,856 332,271

Subtotal: Externally Controlled Funds: 726,446 384,176 - 498,856 611,766

Development Cost Charges

DCC Roads 1,163,649 1,163,649

DCC Sanitary 191,335 191,335

DCC Drainage 152,933 152,933

DCC Water 376,161 376,161

DCC Parkland 68,845 55,041 13,804

Subtotal: DCCs 1,952,923 55,041 1,897,882

TOTAL RESERVES 9,873,711 4,914,535 3,662,629 11,125,618

Capital Reserve

Projected balance at end

of 2021

(currently proposed transfers) 2021 Budget 2020 ActualTo Streets Reserve 700,000 1,224,000 To Facilities Reserve 500,000 938,000 To Mobile Equipment Replacement Reserve 1,085,395 843,000 To Courthouse Maintenance Reserve 25,000 25,000 To General Capital Reserve 350,000 302,000 To Cemetery Care Trust Reserve 2,500 2,960 To Parkland Dedication Reserve - 17,500 To Financial Stability Operational Reserve 400,000 To Stormwater Reserve 150,000 285,000

Reallocation to Surplus (re: 2020 deficit) 75,561To Capital Reserve (grant matching) - 800,568

Transfers to Reserves

Note: Net contribution to Capital Reserve ($350,000-137,174 one time operating expenses)=$212,826

Sample tax increase scenario

8% tax increase = approx. $165.00 total increase in tax (municipal portion) & fees


taxes)



Water User Fees (2%) $ 328 $ 335 $ 7

Sewer User Fees (4%) $ 339 $ 353 $ 14


Total $ 2,596 $ 2,761 $ 165



of each property.

$1,400 $1,800 $2,200 $2,600 $3,000 $3,400

Sparwood

Nelson

Kimberley

Invermere

Fernie

Elkford

Creston

Cranbrook

Castlegar


2017 2018 2019 2020

Taxes & Charges on a Representative House

Includes municipal taxes & Residential User Fees

$0 $1,000 $2,000 $3,000 $4,000 $5,000

Sparwood

Nelson

Kimberley

Invermere

Fernie

Elkford

Creston

Cranbrook

Castlegar


User Fees Only Taxes Only Taxes & User Fees


Total Residential Property Taxes and Residential User Fees(including Regional District and other taxing jurisdictions)

Blended Approach

More work would be required to accurately assess the financial impact of decisions made affecting service levels therefore a blended approach for budget 2021 may be an approach to consider:

Moderate 2021 tax increase of 2% - 4% ($140,000-$280,000)Reduce some “transfers to reserve” by $300,000-$400,000 Request that

staff further review the operating budget to identify any additional costs that may be reduced while maintaining service.

Fund all external service providers under the condition that notice be provided to all groups that council intends to review funding provided to external service providers during 2021 and that some adjustments may occur beginning in 2022.

Working with the CAO, implement a plan to ensure that the items identified for review are scheduled for council discussions within the coming year.

taxation strategies 2021 financial plan development

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