Special Council

Good evening and uh welcome to the special council meeting for Tuesday, February 7th.

Um though we're open for some periods for uh public comments, this first special meeting is advanced of the normal council meeting.

Um and this council meeting is uh concerned primarily with a briefing uh for our financial planning orientation.

So I'd like to call the meeting to order.

Um and uh if you uh are calling in by phone and want to ask a question during the question period or participate in the public participation period, uh the phone number is 778 402 9227 and use conference ID number uh 495 798 803#.

You may provide written comments, which many of you have done already.

And if you have any questions at a call, you can contact the administration.

I'm going to forego the territorial acknowledgement only because we have a very special person coming, um, Chief Thomas of the Esquimalt Nation for our second meeting to provide us with a territorial acknowledgement.

Um, the public participation portions are limited to 30 minutes unless council degrees to extend.

And um if you're wanting to call in and make contact on the phone at the appropriate time in the agenda, uh, I will indicate it and uh announce the last four digits of your phone number.

Ask you to mute the live webcast to avoid feedback, ask you to not use speaker phone to ensure sound quality, and ask you to unmute yourself by pressing star six.

To begin, please indicate your name and address for the record.

Speakers will have five minutes each during the public participation period and two minutes if you're asking a question.

During the question period, you will be timed.

And if you're speaking in the room, you will see lights flashing of green is good, yellow is uh getting close to the time, and red means you're over time.

Um, with that, can I get a motion to approve the agenda for the uh special meeting?

Some of John.

All in favor.

Motion carries, unopposed.

Uh and public participation period.

If somebody wishes just for the special meeting, there'll be opportunity for the council meeting following at seven o'clock.

But if anybody wanted either on phone or in the room to address council on the items, which is financial planning orientation, you are most welcome to.

Anybody in the room?

Anybody online?

Mayor Tobias, we have no callers at this time.

I thought we would be in competition with the last season of The Last of Us, so maybe they'll dial in at seven.

So reports.

We do have a staff report.

Don, uh, thank you for taking the time to do this financial planning orientation.

There are several new members of council, including myself.

So thank you very much.

And the floor is yours.

Thank you very much.

Mayor Tobias and members of council.

It is a pleasure to be here this evening.

Uh this evening is uh the start of our official budget season, although staff have been working on budget for months, literally.

So the purpose of this evening is to really just orient council to the package itself.

Some of you um are newer than others, and it uh for those of you who are not new, it still has been a year or so since we've been through this, so it's always a good to do a little bit of a of a refresher.

I am gonna go through rather quickly as we have uh TikTok happening at seven.

I'm gonna the time is gonna be moving by, and so I want to make sure that um we are uh as as complete as possible through this uh before seven o'clock.

Um the thing that before I get started, uh I just want to make sure that we all are on the same page and understanding that tonight we are not actually talking about the budget itself, we're talking about the material, how it's organized, what we mean by specific terms, just so that we all have a basic understanding and know how to get ourselves through the budget package, how to find what we're looking for and the things that we're most interested in.

That's what we're talking about tonight.

Next week we're talking about the budget.

All right?

Fair enough.

So legislation.

The provincial legislation community charter does indicate that we as a municipality must have a financial plan, must be adopted annually by bylaw.

It must be adopted annually by bylaw before the tax rates bylaw because the one leads to the other.

It must cover five years.

It must be balanced.

If any actual expenditures in this in the ensuing year where expenses exceed revenues, which would result in a deficit, that deficit must be covered by the next year financial plan.

Okay.

And especially in the context of financial the financial the financial realm so when I looked it up and and wanted to get some words I found this definition a couple of definitions but the one that kind of resonated with me was meeting the needs of the present without compromising the ability of future generations to meet their own needs so this means that we're gonna have to look beyond the current year in fact we're gonna have to look past the current electoral term we're gonna have to think a little bit longer term and we're going to try to match our our our our financial sustainability will rely on us being able to match the underlying nature of the sources of funding with the expenses that they are meant to fund, and we're gonna talk about that.

So provincial legislation requires again a balanced budget, means that's just math, right?

Revenues equals expenditures, expenditures equal revenue.

But financial sustainability is going to require structural balance.

And what we mean by that is that recurring revenues are equal to recurring expenses or expenditures.

We're going to talk about that.

So what what do what kind of revenues are recurring?

So I've listed several of them here, and you know, we can get through the first ones fairly easily and say, oh, those are clearly recurring revenues.

Taxes, property taxes, nothing is more sure than death and taxes every year, right?

User fees, sale of services, penalties, these are the kinds of things that are in our budget every year to one extent or another.

Building permit fees and development permit fees, those are in our budget.

Except stop and think for just a minute in a given year where there is a very large development project that results in big contributions from developers for DCCs or community amenity contributions or those types of things.

And that large development doesn't come along every year.

What do we do about those?

So that is I would consider not recurring revenue.

We need to treat those things differently to enhance our financial sustainability, if we understand that principle.

Grants, some are recurring, some are not.

Investment income, well, how predictable or reliable might investment income be in some of the latest times, right?

Casino revenue, do you consider that recurring or non recurring?

It was not so much recurring a couple of years ago, was it, when the casino shut down.

To what extent can we rely on casino revenue?

That is a question.

And to the extent that we're able to answer that question, we will enhance our financial sustainability.

What about surplus?

Surplus being the definitive definition of surplus being revenues exceed expenses in any given fiscal period.

That's a surplus.

Is that recurring?

Well, technically it shouldn't be if we have always have a balanced budget, and if things turn out exactly as we predicted they would, it wouldn't be recurring.

But when it does happen, I would argue it is not recurring.

If we sell assets, not recurring, right?

Because that is not the business that we're in.

What about expenses?

What kind of expenses are recurring that we're going to match and fund with our recurring revenues?

Certainly labor or ongoing contracts, you know, waste management contract, all of those different things that we contract out for.

Some professional services, utilities, supplies, right?

All of those things are things that are recurring and indeed somewhat predictable.

Insurance and legal costs, are those predictable?

Are they recurring?

Some of them may be.

Some of them may not be, right?

And for that purpose, we do have a small contingency that will help smooth out some of those unpredictable spikes.

Debt service, I would argue, is recurring for the term of the debt at least, right?

But it is a term, it's a turn, you know, that it's there's a term to that.

It it starts or stops depending on the on the agreements and arrangements.

When we change levels of service, okay, so we have a level of service that says it's going to cost about this much, and it might go up from year to year.

But if we say no, we want to start mowing our parks three times a week instead of two times a week or whatever it is, all of a sudden we have a spike, and then after that it's going to be recurring because it's going to continue as long as that level of service is supported.

So we have to think about how predictable these expenses are and whether they occur regularly or just occasionally, one time, infrequently.

Okay, so really some principles that we can get from this is that if an expense is recurring, we should fund it from recurring revenue.

This is going to support financial sustainability.

If an expense is a one-time thing or is infrequent, it's okay to fund it from non-recurring revenue.

Windfalls, so excess money that we weren't expecting, maybe from sale of assets or the province giving us money that we weren't expecting.

Really, those should be set aside for a rainy day as a non recurring revenue that we can't ever count on that happening again.

When we receive non-recurring revenue, is we put it aside into a savings account.

I'm sure you do this already with your with your household expenses, right?

When you know there's a big spike in expenses coming up in the future, you you know that it's coming, it's unavoidable, you're going to start putting some money aside.

We have several different reserves, different categories of reserves, reserves for different purposes.

And depending on where the non-recurring revenue is coming from, we will put it into an appropriate reserve accordingly.

So, for example, contributions from developers are going to go to either a statutory reserve or a multi-purpose reserve, like the community amenity contribution, a community amenity, a contribution from developer.

If we sell assets, um legislation requires that we set that money aside and so on.

And we're going to get into you know looking at some of those reserves more closely, especially as we progress through the budget process.

So, what happens when we use surplus to reduce taxes?

I hope you'll forgive me going through a rather elementary and simple example to try to demonstrate on a very small scale the principle of what happens on a bigger scale.

So, in my little example here, we're going to have a cost of service that's going to be a thousand dollars.

This is year one of this municipality.

Of course, we have no surplus at this point in time, so we're going to have to charge a thousand dollars worth of taxes to cover those that the cost of that service.

It's a balanced budget, so we're going to project a zero surplus, a zero deficit.

Okay, and what actually happens that year, we find that we overestimated just a little bit.

The cost of the services was actually only $900.

We had charged $1,000 for taxes.

That resulted in a surplus of $100.

So far, so good, right?

Year two, we're going to budget.

And in year two, we find that there's just a little bit of inflation.

So inflation was 2%.

We're our we expect our cost to be $1,020, but instead of putting taxes up that year, what we're going to do is we're going to reduce the taxes by the amount of surplus that we had last year.

So instead of charging $1,020, we're going to charge $920 for taxes.

So we are planning to have a deficit.

That is what funding from surplus does.

It means that we are planning to have a deficit.

So what we're going to presume in this example that we accurately predicted what the costs were going to be.

We got $920 in taxes, and we actually got a deficit of $100.

And that deficit then depletes the surplus from the prior year.

So you're going to hear terms like surplus.

You're going to hear accumulated surplus.

And accumulated surplus is just the addition of all of the surpluses that have been collected over time.

We used it to reduce taxes in year two.

So now our accumulated surplus is zero.

That's okay.

Taxpayers got a break, and everybody's happy.

Well, they are happy, I would argue, until year three.

When we experienced an inflation of 2% again, so now our same service is going to cost $1,040.

We have no surplus to reduce the taxes, so we're going to have to put taxes up to $1,040 so that we have a balanced budget, a surplus of zero.

We're going to pretend that that's exactly what happened in real life, according to our budget, exactly the same.

And from the taxpayer point of view, who paid $1,000 in year one, and got an 8% decrease in year two.

Are they going to remember that 8% decrease in year three when it's a 13% increase?

I suspect not.

So what we're seeing is that the experience of the taxpayer is not the same as the experience of the actual costs.

So costs were increasing that whole time over three years, but the taxpayer didn't see it because we used the surplus from one year to reduce taxes in the other.

Okay.

So that was my that's my little example of what happens when we uh use surplus to uh supplement taxes.

It is done.

I I have I'll I'll be quite frank, it is done, and we will be talking about this.

Okay, next week.

Stay tuned.

So, what do you have in front of you?

A great big package, 238 pages of a lot of work from staff.

Staff look at our, they start with our current levels of service.

And I see I've got 10 minutes left.

I'm gonna have to whiz right through this.

So they take into they start with what are we doing now and how much is it gonna cost?

They look at all of the strategic plans, the uh master plans, and they develop the budget in front of you today.

Next week, we're going to be spending a lot of time with that booklet in front of you.

And all of this is so that on before May 15, we have a budget adopted and a tax rates adopted.

That is legislated, it's not optional.

So that is why when we progress through, we need to get this done.

This is not a well, we'll get it done sometime.

We need to get this done.

So next week, when we go through the proje through the budget workshops, we're going to be taking the time to answer your questions.

Where there are questions we can't answer, we will make note of them and try to get back to you as quick as we can.

If you do email any one of the directors or the CAO or corporate officer, we're going to make sure we share that information with all of you.

So don't be surprised if your email gets shared with everybody.

What we're looking for is clear direction.

We need decisions so that we can build it into the document and into eventually what turns into a bylaw.

So perhaps in the interest of time, I'm not gonna go through each and every section.

But what you need to understand about the consolidated financial plan, and you're gonna see tabs on your documents on your booklet.

And so right now I'm talking about the tab that's the kind of the top, the first one, the green tab.

The consolidated financial plan is built from everything else that follows, being core, which funds our core services that are just those a lot of those recurring services that we talked about, our non core operational costs of capital, which is exactly what it sounds like.

When you make a decision about capital, there are future costs to those.

And we do our best to signal to council that the future is not free.

You buy a new park, it's going to need some maintenance, inspection, mowing, whatever the case may be, right?

So we we try to inform you of that.

And then there's a section on reserves that can fund both non core and capital, and in some cases operating as well.

I did skip over the introductory section on in the book.

My key message about that introductory section is that you understand that this is a starting point.

This is not this document is is going to be out completely irrelevant after next week because we're going to change all kinds of stuff in it, right?

So please keep that in mind as you go through that section.

There is a calendar in there that highlights, and the calendar is on our website as well, highlights what's going to happen as we as we approach the consolidated financial plan, all of the subsequent schedules add up to that one plan.

So the consolidated financial plan you'll see in Schedule 1.1 is a one-pager.

Very simple.

When you want to dig down into the details, you turn the page to the next schedule, which is the operating plan, revenues and expenses, and the capital plan.

If you did the math on those plans, they would add up to the consolidated financial plan.

When we get to, I'm just trying to get here we go.

When we get to the non-core projects, so that's the orange tab in your booklet, you will see two schedules.

One, the first one lists all of the projects by functional division.

We've added a new category of priority on the left-hand column, which is in progress.

And that what you should take away from that designation is that it these are things that are already started.

There may be, in fact, there will be implications if you wish to cancel any of those projects.

Otherwise, the other projects are designated with a priority, kind of as you see there.

The second schedule, schedule 2.2 for non core projects, is the same listing of projects, but instead of putting the dollars across time, it tells you how those projects are funded.

So there's a different page.

Each page is for a different year, or the years are listed in order, so that you can understand where the funding is coming from for those projects.

Schedule three, that's the blue tab, is laid out exactly the same way.

So that you've got your listing of projects, and then Schedule 3.2 is how those projects are funded.

Schedule 3.3 is those operational costs of capital.

For those projects that have implications for the future operations, those are in Schedule 3.3.

Now you'll find that your booklet has two orange tabs and two blue tabs, and that will guide you to when you're looking for project summaries relating to the projects that are non-core.

The non-core listing is in the orange tab.

The project summaries that detail everything you needed to know about those non-core projects.

Follow this second orange tab, and that's going to take you to the N section of the project summaries.

You'll see in both of those non-core and capital projects listing, there are cross-reference numbers, not coincidentally.

The non-core projects start with an N, the capital projects start with a C.

Those project summaries are numerically ordered in the latter last half of the booklet.

The red tab is where you'll find the projected reserve balances.

What you'll see in this schedule is a listing of all of our reserves, what we expect to have contributed to those reserves, and if we got those contributions, we could use them in the for these in these timing, and those relate directly to the schedules that you've just looked at in non core and capital, and indeed in the in the in the rest of the budget as well.

And then projects what the closing balances of those reserves would be if everything was approved as you see it in the budget right now.

The schedule five, that's the yellow tab in your booklet, is a greater detail of what you saw in the previous schedules.

What I want to point out a couple of things in that schedule is that for the year 2023, you will see more columns than you do for any of the other years.

What you will see is a column for the core revenue and expense for and a percent change relating to that.

You will see the non-core in a separate column, the operational cost of capital in a separate column, and then the total budget for that year with a change from the prior budget year.

Okay.

So perfect.

I'm just about done.

So what I would say is is caution you is just be careful about percentages.

You know that percentages on a big number look a lot differently than the same amount of change on a small number.

So just keep that in mind when you're looking at percentages.

When we look at the project summary I do encourage you to at least look at the executive summary so that you have a good understanding of the project itself, why we're doing it, what are the risks to it to the project or to not doing the project, where the funding is coming from, when it's going when it's planned to happen and how much it's going to cost and what some of the benefits are.

So all of that detail is in is is provided for you for each one of the projects.

That was as quick as I could go through it.

I apologize if I seemed rushed, but we certainly can take time to answer more questions next week when we start the budget sessions.

Absolutely, Don.

Thank you for the enormous amount of work that obviously went uh into this, both for you and your staff.

This is uh incredibly easy to understand and really well laid out because you're meticulous to detail, and I know what I'm doing this weekend.

Thank you for that.

Yes.

Um, can I get a motion to receive the um uh director of finance uh report titled Financial Planning?

Uh seconder.

Uh Councillor Brown, all in favor.

Any opposed?

Motion carries.

Uh I think that brings us down to question period.

Any questions from the audience?

Any questions online?

Mayor Mayor Tobias, we have no callers at this time.

Thank you, Carl.

Can I get a motion to terminate?

Seconder.

Councillor Kowalewich and uh all in favor.

None opposed.

Uh motion carries.

So we're going to take a brief recess in place until we get set up for our next meeting, which is the normal council meeting that starts at seven o'clock.