UBCM Best Practices Award City of Richmond Long Term Financial Management Strategy & Reporting

Transcription

1 UBCM Best Practices Award City of Richmond Long Term Financial Management Strategy & Reporting Summary The Long Term Financial Management Strategy (LTFMS) was previously adopted to act as a guide for sound financial management in an era of ageing infrastructure with limited funding sources. Specifically, the strategy was prepared to enhance the City s economic well being for present and future generations without sacrificing the City s attractiveness, liveability and overall quality of life. More recently, the City of Richmond adopted a new and improved reporting mechanism as part of the LTFMS improving the effectiveness of the strategy through systematic measurement and reporting. The production of the report and presentation at public meetings also helps increase the public accountability and awareness of local government. Overall, we are extremely proud of the financial turnaround which is a direct result of the LTFMS and hope it can be shared with other Cities for similar benefit. Introduction The City of Richmond has adopted a new and improved reporting mechanism as part of the Long Term Financial Management Strategy (LTFMS). This reporting method (the report ) shows the continued commitment to responsible financial management. The report improves the overall effectiveness of the LTFMS, improves public accountability and is transferable to other local governments. The new reporting method was originally adopted in October 2006 and has subsequently been presented at another public meeting in July The LTFMS was adopted as a guide to ensure sound financial management. One aspect of the LTFMS is to provide direction on increasing the reserve levels through a methodology that limits the tax impact on residents. This was achieved through cost containment, creating new alternative revenue sources, economic development and limiting the tax increase. Historically, the LTFMS has been used internally through the budget preparation process to ensure that the financial targets were addressed and if applicable incorporated into the Five Year Financial Plan. Analysis The newly implemented report clearly demonstrates the financial targets and actual results from the LTFMS. One integral aspect of the reporting tool is the report card format. This is a systematic tracking device that addresses each of the strategy s ten policies on an individual basis and discusses what accomplishments have been made towards the attainment of the goals. This results in the clear portrayal of the financial objectives and accomplishments of the LTFMS. The report card also identifies the areas that have not attained the required level of adherence to the policies

2 The report card format effectively demonstrates the actual results of the LTFMS in a clear and concise manner. Any policies that have not been met are identified in as Needs Improvement and pertinent data is included in the analysis column. This enables the stakeholders to quickly and easily assess the value of the model and its policies. For reference, the ten policies of the LTFMS have been provided below: 1. Tax Revenue - Tax increases will be at Vancouver s CPI rate (to maintain current programs and maintain existing infrastructure at the same level of service) plus 1.0 % towards infrastructure replacement needs. 2. Gaming Revenue - Gaming revenues will go directly to the capital reserves, the grants program and a community legacy project reserve. 3. Alternative Revenues & Economic Development - Any increases in alternative revenues and economic development beyond all the financial strategy targets can be utilized for increased levels of service or to reduce the tax rate. 4. Changes to Senior Government Service Delivery - Any additional costs imposed on the City as a result of mandatory senior government policy changes should be identified and added to that particular year s taxes above and beyond the CPI and infrastructure percentage contribution. 5. Capital Plan - Ensure that long term capital funding for infrastructure (e.g. parks, trails, facilities, roads etc.) is in place in order to maintain community liveability and generate economic development. 6. Cost Containment - Staff increases should be achieved administratively through existing departmental budgets, and no pre-approvals for additional programs or staff beyond existing budgets should be given, and that a continuous review be undertaken of the relevancy of the existing operating and capital costs to ensure that the services, programs and projects delivered continue to be the most effective means of achieving the desired outcomes of the City s vision. 7. Efficiencies & Service Level Reductions - Savings due to efficiencies or service level reductions identified in the strategy targets should be transferred to the capital reserves. Any savings due to efficiencies beyond the overall strategy targets can be utilized to reduce the tax rate or for increased levels of service. 8. Land Management - Sufficient proceeds from the sales of City land assets will be used to replenish or re-finance the City s land inventory. Any funds in excess of such proceeds may be used as directed by Council. 9. Administrative - As part of the annual budget process the following shall be undertaken: - all user fees will be automatically increased by CPI; - the financial model will be used and updated with current information, and - the budget will be presented in a manner that will highlight the financial strategy targets and indicate how the budget meets or exceed them. 10. Debt Management - Utilize a pay as you go approach rather than borrowing for financing infrastructure replacement. The report card provides an analysis of the actions taken towards the prescribed policies. It also shows the standing of either or Needs Improvement in relation to the actions taken to date. The following table is an excerpt from the LTFMS report that was presented at a public meeting in July 2007:

3 1 Policy Analysis Standing Tax Revenue Base Increase Additional Level Reserves Total Increase % 0.45% 1.00% 4.35% % 0.76% 0.47% 3.74% 2 Gaming Revenue 3 Alternative Revenues & Economic Development 4 Changes to Senior Government Service Delivery 5 Capital Plan 6 Cost Containment 7 Efficiencies & Service Level Reductions % 0.73% 0.00% 1.98% % 0.97% 1.00% 3.98% % 1.18% 0.82% 3.65% - The implementation of the LTFMS was in 2003 and the tax increases from that point in time are keeping within the budgeted CPI increase - The increase to reserves was fully met in 2003 and 2006, no increase in 2005 and a partial increase in 2004 and Gaming Revenue is currently used to fund capital reserves and the community grants program. - The Economic Development section is addressing this policy and is currently in the process of developing the filming and sponsorship programs. - Changes to Senior Government Service Delivery, such as the change in account regulations PSAB 3150 which result in increased costs are highlighted in the additional level process. - The RCMP and ECOMM contracts have increased at rates greater than the LTFMS policy of CPI. Consideration should be made on whether these are Senior Government items. RCMP increases are highlighted within the annual budget presentations. - The Five Year Capital Plan is created on a yearly basis and projects the anticipated capital program costs and funding availability. - This ensures availability of funds to finance future approved projects. - Annually, department budgets are put through a rigorous review process to keep costs under control. - This is an ongoing process, for example, recently the Water Utility has identified efficiencies resulting in a savings of $361,200 which is to be transferred to reserves. 8 Land - The proceeds from land sales are returned to land related accounts to fund future land Management acquisitions. 9 Administrative - This is the second annual update on the LTFMS using actual results and the most current five year financial plan. - Currently where possible user fees are automatically increased by CPI on January 1st of each year. - The financial model and strategies are considered when decisions are made. Reports are reviewed with the LTFMS in mind and copies are attached to the Business and Financial Services report concurrences. 10 Debt Management - Every year, the Five Year Plan is prepared and addresses the tax increase, distribution of gaming revenue, isolation of additional levels of service and capital plan funding sources. - Since the inception of the LTFMS no capital project has utilized external borrowing as a funding source. This form of efficiency allows for the savings from interest payments that would otherwise be payable. As shown above, the report card format of the LTFMS report identifies areas that require improvement. These areas for improvement are benchmarked at the time of the update and Needs Improvement Needs Improvement Needs Improvement

4 actions taken to address the issues are reported in future LTFMS updates. This ensures that staff are accountable and proceed to take steps to rectify outstanding issues. Another integral aspect of the new reporting method is a graph that maps the original anticipated trend of reserves against the required levels and actual results. This demonstrates the direct effect the LTFMS has had on the reserve levels. It is succinct and results orientated. It details the progress made towards the goal and also the amount left remaining to be attained. The following chart has been extracted from the LTFMS report that was presented at a public meeting in July 2007: Total Reserves Balances vs. Required Reserves Levels (prepared mid 2007) Dollar Value (in millions) $250 $200 $150 $100 $50 $0 Actual Trend * Original Trend of Reserve Balances Legacy Reserve - Oval Land Sale Actual Reserve Balances Required Reserve Levels (est.) * Estimates based on 2007 Five Year Plan LTFMS Both the report card table and reserve graph contain information that show the results of the LTFMS in a manner that identifies steps made towards reaching the goals. These both report on the status toward attaining the goals and identify any shortfalls. These gaps are clearly identified and influence change in financial management where required. The reporting method that the City of Richmond has implemented is both applicable and easily transferred to other local governments. The City of Richmond is only one of many cities that had or has insufficient reserve levels for infrastructure replacement. In an era of financial sustainability, other local governments must ensure that adequate funding is available for the future through sustainable fiscal practices. The LTFMS has been improved to include public updates that detail adherence to the policies thereby improving accountability and awareness of local government. Reporting in this manner

5 allows for improved effectiveness of the LTFMS model through demonstrating the financial results in relation to specified targets. The tracking, recording and reporting of the LTFMS at public meetings ensures transparency and accountability in our ongoing management excellence of public funds. The report details the funding gaps and actions taken to address any shortfalls. This notifies the public of funding requirements and benchmarks the steps taken to address the issues. The public record of the adoption of the LTFMS and now also the update reports facilitate a broader awareness of the City of Richmond s financial policies and strategies. The LTFMS is referenced in reports that are brought forward from other internal departments and also in the annual financial report. The new reporting method now allows for the public to have an avenue where they are able to locate information on the LFTMS that is referenced and to evaluate the financial management performance. Conclusion The City of Richmond is committed to promote sustainable fiscal practices. The new method of reporting has resulted in improving the effectiveness of the program and accountability to the public. The details within the report and its presentation in the public arena ensure responsible financial management processes

6 UBCM Best Practices Award Long Term Financial Management Strategy & Reporting Appendix The following discussion is extracted from the LTFMS. This data shows the original targets and acts as a benchmark to enable comparison of the expected targets to the actual results contained in the LTFMS update reports. Measures of Success Tax Increases at CPI Tax increases are kept close to CPI and a 1% increase for the transfer to reserves. Thus, a long term taxation plan is in place which diminishes the need for tax increases beyond CPI. Closing the Operating Gap As is indicated in the Cash In vs Cash Out chart, revenues are maintained above operating costs before transfers to reserves. Diversified Tax Base (alternative revenue & economic development) New alternative revenue growth and economic development result in a diversified funding base. Adequate Reserves and Capital Funding The reserves chart shows a trend in reserve balance growth that meets the target balance slightly beyond the 20 year horizon. High Quality Facilities and Services There are no service level reductions. Efficiencies Realistic efficiencies are included

7 LTFMS Strategy Tax Increase Economic Development New Alternative Revenue Total Casino Revenue Fire and Police Efficiencies Operating Efficiencies Service Level Reduction Capital Program Reduction CPI + 1.0% per year in the future to be transferred to the reserves. 1.5% per year $1 Mil per year by the 5 th year $10 Mil per year by the 2 nd year -0.2% per year starting in 3 rd year -0.2% per year starting in 3 rd year No reduction No reduction $ Mil '03 '04 '05 '06 '07 '08 '09 '10 '11 '12 '13 '14 '15 '16 '17 '18 '19 '20 '21 '22 Cash In vs. Cash Out Revenue Operating Cost $Mil '03 '04 '05 '06 '07 '08 '09 '10 '11 '12 '13 '14 '15 '16 '17 '18 '19 '20 '21 '22 Reserves Reserve Balance Req'd Reserve Bal