2010 Budget Workshop

Understanding of budgeting in the new environment

Necessity to budget on cash and accrual basis

Budgeting changes

Accrual budget illustration

Reconciliation from accrual to cash

Determining the levy

Frequently asked questions

To provide meaningful budget comparisons on the audited financial statements

Financial statements are prepared on the accrual 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

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

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

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

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

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

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

Gains or losses on sold or scrapped assets must be split by function and by asset type

Budget Handout - page 2, Line 54

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

Budgeted loan principal payments are not included in the accrual budget

Budget Handout - page 5, Line 65

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.

Accrual surplus or deficit +/-

Cash flow effect of budgeted capital expenditures and capital proceeds +/-

Change in non financial assets -

Long term debt repaid

+Long term debt issued

+/-Net transfers from (to) reserves

+/-Transfer from Surplus

=Cash surplus or deficit (which must

be $0 or positive)

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)

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

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

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

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

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

Similar concept to funding the accrued landfill liability

Long-term financial planning is stiIl important and relevant even if amortization is funded

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

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.

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

Prepare budget amendments and have these approved by council

End result needs to be: ACCRUAL reconciles to CASH CASH reconciles to

ACCRUAL

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

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

Budget tool document available at://www.sasktca.ca/resources

Includes reconciliation to accrual 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