Staff Report: 2020-2024 Financial Plan Considerations
Report analyzing the impact of COVID-19 and the casino closure on the Town's 5-year financial plan.
TOWN OF VIEW ROYAL COUNCIL REPORT
TO: Council
FROM: D. Christenson, Director of Finance
DATE: May 13, 2020
MEETING DATE: May 19, 2020
2020-2024 Financial Plan Considerations
RECOMMENDATION:
THAT Council confirm the reprioritization of Casino-funded projects to include consideration of the relative benefit of each project to the local or regional economy as additional criteria.
CHIEF ADMINISTRATIVE OFFICER’S COMMENTS:
I concur with the recommendation.
PURPOSE OF REPORT:
To identify the impact of the COVID-19 pandemic on the 2020-2024 Financial Plan as it relates to Casino revenue funded projects.
BACKGROUND
The Casino was forced to close its doors in March and it is not yet known when it will reopen or what the “new normal” level of activity will be. View Royal’s share of Casino revenue for the first quarter of 2020 was $394,000 (2019 Q1 - $505,000).
DISCUSSION:
The following table describes the Casino reserve account balance, contributions and uses as approved in the 2020-2024 Financial Plan, with the yellow-shaded rows highlighting the differences between this plan and the following scenarios.
Table 1 Approved 5-year plan
| Casino Revenue | 2020 | 2021 | 2022 | 2023 | 2024 |
|---|---|---|---|---|---|
| Opening balance | $3,667,322 | $2,516,898 | $1,361,309 | $1,687,370 | $2,057,706 |
| Gaming revenue | 2,050,000 | 2,050,000 | 2,050,000 | 2,050,000 | 2,050,000 |
| Non-core requests | (442,738) | (225,000) | (265,000) | (72,000) | (15,000) |
| Grants in aid | (102,500) | (102,500) | (102,500) | (102,500) | (102,500) |
| West Shore Parks and Recreation | (753,874) | (770,300) | (786,175) | (802,530) | (819,300) |
| Debt servicing | (201,569) | (201,569) | (201,569) | (201,569) | (201,569) |
| Core operating | - | - | - | (15,000) | - |
| Capital projects | (1,699,743) | (1,906,220) | (368,695) | (486,065) | (246,845) |
| Contribution to reserve | - | - | - | - | - |
| Casino Revenue Total | $2,516,898 | $1,361,309 | $1,687,370 | $2,057,706 | $2,722,492 |
If we were to imagine a very conservative scenario in which the Casino does not reopen fully until 2022 and future gaming revenue is impaired by 50% for 2022 and 25% for both 2023 and 2024, Table 1 would look like this:
Table 2 Scenario A 5-year forecast – Casino reopens in 2022 with recovery to normal after 2024
| Casino Revenue | 2020 | 2021 | 2022 | 2023 | 2024 |
|---|---|---|---|---|---|
| Opening balance | $3,667,322 | $860,898 | $(2,344,691) | $(3,043,630) | $(3,185,794) |
| Gaming revenue | 394,000 | 0 | 1,025,000 | 1,537,500 | 1,537,500 |
| Non-core requests | (442,738) | (225,000) | (265,000) | (72,000) | (15,000) |
| Grants in aid | (102,500) | (102,500) | (102,500) | (102,500) | (102,500) |
| West Shore Parks and Recreation | (753,874) | (770,300) | (786,175) | (802,530) | (819,300) |
| Debt servicing | (201,569) | (201,569) | (201,569) | (201,569) | (201,569) |
| Core operating | - | - | - | (15,000) | - |
| Capital projects | (1,699,743) | (1,906,220) | (368,695) | (486,065) | (246,845) |
| Contribution to reserve | - | - | - | - | - |
| Casino Revenue Total | $860,898 | $(2,344,691) | $(3,043,630) | $(3,185,794) | $(3,033,508) |
If Casino revenue is reduced over the next five years as shown in Table 2 Scenario A, spending on non-core and capital projects would need to be reduced from $5.7 million to $2.7 million, a reduction of $3 million. With this reduction, the Casino reserve would be fully depleted at the end of the five-year term.
A less pessimistic scenario might predict a Casino reopening in late 2020 and recovery to normal activity and revenue by 2022, as follows:
Table 3 Scenario B 5-year forecast – Casino reopens in late 2020 with recovery to normal by 2022
| Casino Revenue | 2020 | 2021 | 2022 | 2023 | 2024 |
|---|---|---|---|---|---|
| Opening balance | $3,667,322 | $1,466,898 | $(238,691) | $37,370 | $357,706 |
| Gaming revenue | 1,000,000 | 1,500,000 | 2,000,000 | 2,000,000 | 2,000,000 |
| Non-core requests | (442,738) | (225,000) | (265,000) | (72,000) | (15,000) |
| Grants in aid | (102,500) | (102,500) | (102,500) | (102,500) | (102,500) |
| West Shore Parks and Recreation | (753,874) | (770,300) | (786,175) | (802,530) | (819,300) |
| Debt servicing | (201,569) | (201,569) | (201,569) | (201,569) | (201,569) |
| Core operating | - | - | - | (15,000) | - |
| Capital projects | (1,699,743) | (1,906,220) | (368,695) | (486,065) | (246,845) |
| Contribution to reserve | - | - | - | - | - |
| Casino Revenue Total | $1,466,898 | $(238,691) | $37,370 | $357,706 | $972,492 |
If Casino revenue is reduced over the next five years as shown in Table 3 Scenario B, spending in 2021 on non-core and capital projects totaling at least $240,000 would need to be cancelled or delayed by at least two years. If delayed projects were completed within the five-year term, the Casino reserve would have a balance of just over $700,000 at the end of 2024.
In summary, these two scenarios estimate the pressure to reduce or delay spending Casino revenue between $240,000 and $3 million, with a resulting $2 - $3 million reduction of the Casino reserve balance by the end of 2024.
| Table 1 Approved 5-year plan | Table 2 Scenario A 5-year forecast | Table 3 Scenario B 5-year forecast | |
|---|---|---|---|
| Spending reduction or delay required | - | $3,033,508 | $238,691 |
| Projected Casino reserve balance Dec 31, 2024 | $2,722,492 | $0 | $733,801 |
These scenarios highlight the need to identify priority projects to be funded from Casino revenue for each of the five years of the financial plan such that expected uses do not exceed projected revenue. Note that in both projected scenarios, there is enough Casino revenue to fund the planned 2020 projects, however the future outlook strongly suggests that we examine all Casino-funded projects to determine spending priorities.
A prioritized list of Casino-funded non-core and capital projects is attached to this report for information. The priority designation currently assigned to each project was done pre-pandemic and did not take other benefits into consideration, such as how the planned delivery of the project might impact the local economy through job creation or retention, support for local businesses and other economic effects.
At this time, staff is recommending that Council include consideration of the relative benefit of each project to the local or regional economy as additional criteria. With a reprioritized list – one that considers the economic benefits lens – non-core and capital projects can be reviewed and alternatives to keep the Casino reserve solvent considered. Alternatives to reduce or delay spending include:
- Cancelling projects or delaying to an indeterminate future date
- Delaying projects to a specified future year, including beyond 2024
- Identifying an alternate source of funding
- Identifying debt as an appropriate source of funding (capital projects only)
RECOMMENDATION:
THAT Council confirm the reprioritization of Casino-funded projects to include consideration of the relative benefit of each project to the local or regional economy as additional criteria.
SUBMITTED BY:
D. Christenson, Director of Finance
REVIEWED BY:
K. Anema, Chief Administrative Officer
Document Images
(4)
