Dollars & Sense P e r s p e c ti v e
Issue #109 • DECEMBER 2019
Strategic Education Alliance Financing Reconciliation Asset Retirement Obligations
p r es i d e nt ’ s m es s ag e in this issue President’s Message 2 Executive Director’s Message 4 Member Profile 6 2020 Events & Programming 8 MFA’s Corner 7 What’s Happening 8 2020 Events + Programming 9 Membership Renewal 10 MPI: A Way to Get Whatever Revenue You Want? 12 BC Budgeting Best Practices 13 Asset Retirement Obligations: New Year’s Resolutions 14 Financing Reconciliation: The Journey from Declaration to Implementation 16 Routine Maintenance Reality Check 18 What Do Cash Reserve Policies Do for You? 19 Is Your Finance Department Prepared for these 5 Colossal Changes? 20 Building Stronger Accountability 22 Economic Outlook Q4 23 Collectors’ Corner 24 Quarterly Question 25 Book Review 26
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Hello Everyone, I’m sitting here writing the President’s update as I wait to go into Council to present the 2020 Provisional Budget. Yes, you read that correctly…2020 is at our doorstep! As we enter a new decade it’s a good time to reflect on the many changes Local Governments have experienced over the last 10 years and with this in mind, realize that we will be required to embrace many new changes over the next 10 years, some of which we can’t even imagine. We started the decade with the implementation of TCA – seems like a long time ago now. Who knew that cannabis would become legal and that we would be regulating store fronts? Ten years ago, I would not have believed that our level of government would be so involved in the complex social issues of our communities, never mind the extent to which it can polarize a community, councils and boards. Technology has advanced in leaps and bounds and no sooner are we learning to master a tool – Pivot tables to PowerBuilder BI for example when something new comes along that is faster and easier to use. The use of data analytics has changed our world and we see this
in the now popular buzzword “data driven evidence”. In the last couple of years, the buzzword was “Strategic” where if you didn’t have it in your job title, you were wondering if your job was going the way of the Dodo! Don’t forget to include some wording around “data driven evidence” in our financial reporting, at least for the next few years. Finally, a team of staff presented a “Model City” to me where through data analytics and asset management tools they have been able to determine the net cost of servicing our City, by specific area, from a taxation and infrastructure perspective. Knowing intuitively that the return on investment is higher in denser and urban areas is good, but having data driven evidence to support it, brings it to a whole new level. As you head into this new decade and financial services busiest time of year, with the 2020 budget planning, and 2019 year-end processing and preparation of financial statements, know that you are not alone. We are all doing the same dance. The key is to keep this workload, or should I say overwork-load, in perspective, and remember that our peers are only a phone call away. Again, I encourage you to reach out and have
a conversation, share a challenge, or share a good laugh. It always feels better to know that we are not alone and have the support of our GFOABC colleagues. Finally, I would like to put a shout out to our Board members, Board Committees and our GFOABC staff, Executive Director, Kala Harris, and, Operations Manager, Kisha Pellerin, for their commitment and attention to moving our strategic plan forward. Great work Team! Seasons Greetings and all the best to you and yours in 2020. Genelle Davidson President Board of Directors President Genelle Davidson Vice President Trevor Thompson Secretary-Treasurer Lorraine Coughlin Past President Rick Danyluk Directors at Large Nyla Attiana Jim Bauer Jeannie Bradburne Shelley Hahn Lenora Lee Talitha Soldera Sheila Thiessen Kala Harris, Executive Director Kisha Pellerin, Manager, Operations and Member Services Gerilee McBride, Graphic Design DECEMBER 2019 • DOLLARS & SENSE PERSPECTIVE | 3
e x e c uti v e d i r e c t o r ’ s m es s ag e The Municipal Finance Association and GFOABC have enjoyed a unique and longstanding relationship over the past thirty years. This relationship is grounded by a shared local government membership-base and a common mandate to support this base through finance-related education. As one of two founding members, MFA was instrumental in the creation of GFOABC in 1989 and since that time has held a permanent place in its governance structure as a member of the Board of Directors, playing an important role in shaping the vision, mission and mandate of the Association. Beyond the boardroom. MFA has been equally instrumental in supporting and leveraging GFOABC’s education and professional development programming. Over the past year, with the injection of some new monies from MFA, the two organizations agreed that the opportunity existed to more formally acknowledge our relationship with a new partnership agreement called the Strategic Education Alliance (SEA). The Strategic Education Alliance is underpinned by the significant amount of direct and indirect support provided by MFA in the development and delivery of GFOABC programming, including most notably, Boot Camp. It was the
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the strategic education alliance: a partnership supporting local government financial excellence efforts of folks from GFOABC, MFA, and the Ministry of Municipal Affairs & Housing that brought GFOABC’s flagship program to life in 2007. Developed with the sole purpose of providing a comprehensive overview of local government finance to new and not-so-new municipal and regional district finance officers, the overarching goal was, and continues to be, to ensure that finance officers understand the many aspects of local government finance. Almost four hundred local government finance professionals have attended Boot Camp since its inception. Many of these people have gone on to lead, or are currently leading, their respective finance departments and some have served or are currently serving on the GFOABC Board and Committees. A select few
“Through the Strategic Education Alliance, the MFA has increased its financial contribution to GFOABC by 200% in the last 5 years. This increased funding demonstrates our commitment to support our sector, where BC Local government financial wellbeing is our ONLY business” Renata Hale, Director of Technology & Strategy, MFA
have returned to Boot Camp to share their experience with future alumni. This program exemplifies the value of our relationship and the power of this new partnership to leverage the collaborative nature of local government and the associations that support them. This year support provided through the Strategic Education Alliance enabled us to develop and deliver Regional District Day, Boot Camp, Long-term Financial Planning, Development Cost Charges, Budgeting Best Practices, and Financial Reporting, in addition to the Quarterly Investors’ Forum Webinar. Regional districts were a focal point for this year’s program improvements.
For Bootcamp, the funding allowed us to not only revise program materials to better integrate regional district content, it made it possible for us to ensure that we had a municipal and regional district finance professional co-facilitating three out of five days of the program. We are excited by what the Strategic Education Alliance has helped us achieve and look forward to next year with Treasury & Cash Management, Asset Retirement Obligations, Small Communities Forum, and Financing Infrastructure on the horizon. All of which is made possible in part by this partnership in supporting local government financial excellence. On behalf of GFOABC Board and staff, we would like to take this opportunity to thank MFA for their ongoing support. Kala Harris Executive Director
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MEMBER PROFILE Lorraine Coughlin interviews adam Langenmaier Adam is the CFO at the City of Powell River and if you were at the 2019 conference, you may recognize him as one of the presenters of the “Tale of Two Cities”. In that session, he described the challenges of funding the replacement of key wastewater infrastructure in the community. After the conference, Adam and I chatted about his experiences working in local government. From a young age, Adam thought it would be interesting to work for a city as a “city worker makes the city work”. In his 20’s he was exposed to local government through his time spent as an auditor. It was through that work that he realized that there was a need for his skill set and the work he would be doing would have a direct impact on the community. He decided to make the leap officially in 2015 to what he calls the “booming metropolis of the Village of Pouce Coupe”! Many of you who work in small municipalities can relate to the “wearing of many hats” but how about this for getting tossed into the deep end of the pool…. As the youngest CAO in the province for a time being (beating out the CAO of Tumbler ridge by a small margin) he had to contend with: the unionization of village employees and the creation of a new collective agreement; a by-election for mayor; a flood that washed the Village’s park and campground away - replacing it with a pile of debris and river bank; and implementation of curbside recycling. And after all that, he still had time to build an award-winning parade float! His next adventure took him to the City of Dawson Creek where he learned the importance of consistent processes and how valuable well trained and experienced
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staff members are. He is now with the City of Powell River and is working on a liquid waste treatment plant project that has been 20 years in the making. As part of the process, Adam has been working closely with MFABC and says that he is “very thankful that BC has the MFA as it provides an incredible service to all BC residents. These large infrastructure projects would be even more expensive if the MFA did not exist and function the way it does.” His advice for someone who is interested in moving into a CFO position? “Go work in a small municipality (less than 1000 population) as this will expose you to all sorts of things you would never see if you worked in a larger center. A CFO must be able to understand many different roles to be the most effective. Given that everything boils down to money at one point, understanding the background to the overall operation is very important. Also, if you have a chance to talk to Doug Stein about property taxes - do it and listen well!” •
Lorraine Coughlin, CPA, CGA, is the Manager of Financial Services for the Town of Gibsons and has worked in local government for 10 years. She started her career in the financial services industry and moved to the School District system before joining local government. Since 2016, Lorraine has been pleased to serve on the GFOABC Board of Directors and its various committees.
M fa ’ s c o r n e r The Rise and Fall of Actuarials As announced in September, the MFA will be reducing our actuarial rate for new long-term loans, from 3.0% to 2.5%, beginning with the Spring 2020 debt issuance. What do we mean when we talk about actuarials? Why do they change? And what does this change mean to you? The MFA generally funds new loans, by selling ten-year bonds to investors (loans with terms longer than ten years will be refinanced, at the start of year eleven). Six months after loan proceeds are received, interest payments start being collected semi-annually and forwarded to investors. One year after proceeds are received, the MFA begins collecting annual principal payments. As no principal is due to investors until the bond matures, the funds are deposited in a sinking fund. The actuarial is the anticipated earnings on these principal payments and is first recognized one year after the first principal payment and recognized annually until loan expiry. These earnings reduce the outstanding loan obligation and as such borrowers may write down the balance of their loan annually by this amount. Over the life of the loan, the sum of principal payments and actuarial amounts equal the gross amount of the loan. The MFA reviews the accuracy of the actuarial rates for each long-term debt issue annually, to determine if adjustments are required. Given prevailing low yields and current market conditions (ten-year benchmark Canada bond yields have averaged 2.50% for the last five years), we are no longer consistently earning 3.0% on our sinking funds, making this adjustment necessary to maintain budgeted projections. The actuarials for existing issues will not be affected by this change and will be evaluated individually. If they require prospective adjustment, participants in those issues will be notified individually. Please note that the MFA reserves the right to adjust actuarials at any time, but in practice, we try to limit changes to refinancing dates. As the actuarial is reduced, the reduction in loan balance is decreased; therefor annual principal payments must rise accordingly. However, it is 10 Year Term $1,000,000 Date
Interest Rate
Actuarial Rate
Annual Principal
Annual Interest
Annual Servicing Cost
Spring 2020
2.5%*
2.50%
89,259
25,000
114,259
Fall 2009
4.13%
4.00%
83,291
41,300
124,591
*estimate only, baed on current indicative rate
important to note that this does not mean that overall debt servicing costs will be higher. Remember that we are only reducing the actuarial because interest rates are not sufficient to hit our targets, meaning that borrowers are receiving the benefit of very low interest rates, on new loans. For example, ten years ago it cost approximately $125,000 per year, to service a $1 million loan, with a ten-year term. Based on today’s indicative tenyear interest rate and the revised 2.5% actuarial, the same loan would currently cost approximately $115,000 per year. Although borrowers in 2009 benefited from a higher actuarial (meaning their annual principal payments were lower), higher interest rates made the loans more expensive to repay. Please note that the long-term debt amortization schedules on our website have been updated to reflect the 2.5% actuarial. We recommend that you discard old versions of the schedules you have saved and that you use the revised schedules to estimate debt servicing costs, going forward. • Lauren Kerr is the Credit & Compliance Officer at MFABC. She joined MFABC in 2017, following eight years with the Ministry of Municipal Affairs and Housing.
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W H AT ’ S H A P P E N I N G AT G F O A B C December 17 | 9:30am Quarterly Investors’ Forum Webinar REGISTER NOW
January 15 | 2:00pm Special Collectors’ Forum Webinar: Property Tax Deferment Project Update REGISTER NOW January 22 | 9:00am Quarterly Collectors’ Forum Webinar REGISTER NOW
February 5 | 9:00am Quarterly Accounting & Auditing Forum Webinar REGISTER NOW
February 1 – 28, 2020 Annual Membership Survey OPENS FEBRUARY 1
CLICK HERE for more information on What’s Happening at GFOABC 8 | GFOABC.CA
2020 e v e n t s
+
programming
Quarterly Collectors’ Forum January webinar
free to members
Quarterly Accounting Forum february webinar
free to members
12-Month Taxation & Assessment Webinar February 19 webinar Quarterly Investors’ Forum March webinar
spring pd
free to members
Property Tax 101 april 3 nanaimo Property Tax 101 april 17 richmond Property Tax 101 april 24 kamloops Property Tax 101 april 27 terrace Property Tax 101 april 7, 14, 21 webinar
Quarterly Collectors’ Forum April webinar Quarterly Accounting Forum may webinar
annual conference & agm
Quarterly Investors’ Forum june webinar
free to members free to members free to members
treasury + cash management pre-con june 1 kamloops Development Cost Charges pre-con june 1 kamloops property tax policy + tax rate setting pre-con june 2 kamloops Regional District Day pre-con june 2 kamloops asset retirement obligations pre-con june 2 kamloops Annual Conference & AGM june 3 – 5 kamloops Quarterly Collectors’ Forum July webinar
free to members
Quarterly Accounting Forum august webinar
free to members
Boot Camp August 9 – 13 Victoria 12-Month Taxation & Assessment Webinar August 19 webinar
Quarterly Investors’ Forum September webinar
free to members
Quarterly Collectors’ Forum October 23 webinar
free to members
Annual Municipal Tax Sale September 1, 15, 29 webinar
fall pd
property tax policy + tax rate setting November 16 Vancouver asset retirement obligations November 16 Vancouver Financing infrastructure November 16 – 17 Vancouver Ethics and Leadership November 17 Vancouver Quarterly Investors’ Forum December webinar
free to members
DECEMBER 2019 • DOLLARS & SENSE PERSPECTIVE | 9
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Member
FAQs
What are the benefits of being a GFOABC member?
What is a voting member?
• Member discounts on training, the annual conference, job postings and advertisements.
A voting member is an employee of a member local government entitled to vote on member related issues such as the annual election for the Board of Directors, approval of financial statements, bylaws, etc.
• Access to the secure online FORUM. • Members only website access to MemberLINK. • Monthly updates & quarterly newsletters. • Earn continuing professional development hours by participating in GFOABC activities, such as committees, working groups, facilitating a workshop and much more. • Complimentary registration to all GFOABC webinar forums – NEW! • Access to our Temporary Support Program for short-term staffing solutions – NEW!
What are the types of membership available? Organizational Membership Municipal, Regional District and Improvement or other District GFOABC members are employed in a financial capacity in municipal, regional district or related government organizations. From accounting clerks to Chief Financial Officers, their roles include a combination of administration and financial management. Organizational memberships are purchased by a local government and the fee is based on the size of the municipality’s population or the amount of the annual budget for regional district and improvement or other district. These memberships allow for an unlimited number of members to participate from your finance team. These members are divided into two categories: voting and non-voting members. Each organization can designate up to a certain number of voting members while having an unlimited number of non-voting members Affiliate GFOABC also has an affiliate classification that is comprised from sectors closely involved with local government finance, including auditors, bankers, lawyers, consultants, software suppliers and related sectors. Affiliate memberships can be purchased on an individual basis.
What is a non-voting member? A non-voting member is an employee of a member local government who is entitled to all membership privileges except for electing the Board of Directors and voting at the Annual Meeting. Membership privileges include access to the members’ only portion of the website, including the forum and resource section, member pricing for events, complimentary webinars and regular updates.
How do I find out if I am a voting member? Consult the primary contact in your organization or contact us at office@gfoabc.ca.
Who is a primary contact and what is their role? The primary contact is often the most senior finance officer at a member local government. It is the primary contact’s duty to renew the membership, designate voting members and to keep GFOABC up to date regarding current voting and non-voting members.
is my membership up to date? This can be verified by logging into your MyAccount or contacting the office.
The primary contact no longer works here? If the primary contact has changed, please contact the office at office@gfoabc.ca or 250.382.6871.
What is MyAccount? MyAccount is a personal online profile that must be created by both members and non-members to register for events. A member must log in to their MyAccount to access member privileges such as the Forum and MemberLINK. Please contact GFOABC with all your membership inquiries at office@gfoabc.ca or 250.382.6871.
DECEMBER 2019 • DOLLARS & SENSE PERSPECTIVE | 11
MPI: A Way to Get Whatever Revenue You Want? “Isn’t MPI just a way to get whatever revenue you want?” That audience question has bounced around since presenting on the use of a Municipal Price Index (MPI) tool at the City of Abbotsford at the GFOA conference this past May. MPI is calculated by the finance team to quantify the anticipated inflationary impact on our five-year and longterm financial plans. There are many ways to assess the financial impact of inflation on a budget, but the MPI is unique in the technical model used. It is built to consider various inflationary pressures and how they impact the city’s specific expense categories, which then drives one inflation factor to communicate complex operational cost impacts to our stakeholders. The benefits of this approach are the specificity, repeatability, consistency and data-driven characteristics that are built into the model. MPI and the Consumer Price Index (CPI) are built using the same theory, with the key difference being the ‘basket of goods’ considered by each index. The CPI is based upon the goods purchased by a typical Canadian household – education, food, clothing, fuel, housing, etc. The MPI is a basket of goods based on the City of Abbotsford’s categories of expense, and the baseline weighting of those budgeted items to keep consistency over time. City expense 12 | GFOABC.CA
categories include labour, consulting and contracting, insurance, electricity, natural gas, and other fuel purchases – very different from household consumption. Abbotsford has used the MPI as a communication tool with our internal and external stakeholders since 2015. Two main challenges can arise using MPI; first there is the complexity of the model and required understanding of how it functions to produce a factor for inflation, and second is communication of the MPI, especially given it can be higher than CPI because of the differences in the basket of goods. Facing these challenges requires an ability to be transparent and clear about how inflation impacts budget, which requires consistency in both communication and MPI methodology. Some of the key considerations in the model are use of reliable third party data, known internal contractual commitments, industry data and finally CPI for some smaller, general expense categories such as supplies and training. A high level review of the process: Budget prep begins, including calculation of MPI, which happens alongside review and calculation of internal labour, machinery and equipment rates, benefits review and other baseline items. Inside the MPI model, expense categories are reviewed, anomalies in prior year budget and actuals are adjusted,
third party data is sourced and analyzed, and inputs are confirmed. Previous year actuals are also reconciled to the MPI forecasts to assess the validity of the work done. MPI forms a part of the budget package as it moves through review and approval processes. So, MPI is not about creating a number that gives anyone what they want; rather the point is to simplify the overall inflationary impact of multiple pressures by having a trusted model that expresses a single consistent factor for communication. Anyone interested in more information is welcome to reach out! • Emily Lewis is a Chartered Professional Accountant, Certified Management Accountant and has worked in finance and accounting for almost 17 years, ranging from her current role at the City of Abbotsford to the real estate industry, the provincial Ministry of Finance and a brief stint with the federal government. As the Manager of Financial Planning & Accounting at the City of Abbotsford, Emily oversees a team responsible for the planning, management and reporting of a quarter billion dollar annual budget, and always has a couple of interesting projects on the go – from IT to Solid Waste to Fleet Services and policy development. Emily is committed to collaborative and continuous improvement, transparency and accountability.
BC Budgeting Best Practices – New Course Offering is Collaborative, Engaging and Inspiring For BC local governments, the budget (“five-year financial plan”) is one of the most important, if not the most significant, task performed. The budget is vital because it defines what money is to be spent and why the funds are needed. Critically, the budget identifies the amount of funds that will be collected to pay for the costs of services. Translating a local government’s strategic plan into the budget has been a major focus, with good reason, because it has been a challenge for many governments across BC. This topic was a fundamental theme of the Budgeting Best Practices for BC Local Governments session at the GFOABC Fall PD Program presented by PSD. The new GFOABC course was developed with extensive research and incorporated GFOA international best practices and approaches in the context of BC local governments. Lyle Smith, CFO (Peace River RD) and fellow facilitator said, “It was excellent having finance leaders from both RDs and municipalities attend. Discussing the differences between municipalities and RDs was interesting, but more significant was learning about the budgets being interrelated and how RDs and
Municipalities can collaborate.” The focus of the day was to challenge the status quo of the budget process and to consider other ways of preparing and presenting the financial plan. It is agreed the budget process overall for local governments in BC can be stressful and tedious, and this may also be exacerbated by the availability of limited resources and reporting lag. Finance officers can get caught up in the accuracy of the specific information and compliance with predefined templates or other matters. However, it is helpful to consider the overall process used to prepare the budget document. The financial plan should be prepared in a manner that aligns with the strategic goals and it should reference the stakeholders it represents. Sheila Thiessen, Director of Finance and IT (City of Merritt) and GFOABC Board Member commented: “Local governments have finance professionals with a wide range of experience preparing their budgets. Due to constraints on time and resources, the budget process is often static. This course was good for all participants, as it challenged us all to think about our processes and how we may be able to do it and make the process more transparent for our Councils and taxpayers.”
Currently, the City of Merritt is moving towards year-round budgeting. This course and accompanying handbook are great resources to help the City with this process. “This new Budget course is tremendously worthwhile because the workshop incorporates a significant amount of peer discussion, and hearing perspectives from peers about budgeting experiences across BC local governments is invaluable. The importance of the dynamic discussions between finance officers is so worthwhile that I will attend this course again.” - Lyle Smith, CFO, PRRD This collaborative learning and the concepts and components of this new Budget course is exemplary of the GFOABC approach to support continuous improvement for its members in the journey to make a difference in the communities across BC. •
Matthew V. Hartney, MBA, CPA, CMA is the General Manager of Financial Consulting Services for PSD. In this role he oversees the services provided to the finance function of government & public sector (GPS), which includes working with councils/boards, CFOs/Directors and their respective finance departments.
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Asset Retirement Obligations – New Year’s Resolutions With 2020 around the corner, there are only two short years until PS 3280 Asset Retirement Obligations becomes effective for BC local governments’ fiscal 2022 year. We learned from the November Local Government Accounting and Auditing Workshop pre-seminar survey that over 75% of respondents either did not have an ARO implementation plan or were unsure if their organization had a plan. The panel discussion certainly validated this point! Given the current status, what resolutions should your local government consider heading into the new year? Identify the Champion It is essential to have the right individual as the champion to take ownership of the implementation project. This person does not need to be a technical ARO expert. This individual influences and motivates people across the relevant departments and levels of the local government to get buy-in and support and to be involved, as appropriate. Identify Stakeholders How many people are involved, and to what extent, will depend on the size and complexity of the local government. Below are key individual(s) 14 | GFOABC.CA
to include in the project team early on in the process. • Council and the Chief Administrative Officer will need to be informed about the scope of the standard and the implementation project. Determining the frequency and level of detail on project briefings will depend on their particular needs and will help to ensure continued leadership support, including for incremental budget requests, if any. • Public Works and Facilities are typically most familiar with the assets and their condition. An effective project will require appropriate consultation and relevant information on the use and condition of assets from them. • Legal will provide the necessary interpretation of laws, regulations, bylaws, and contracts/agreements to help identify the in-scope obligations that may exist. • Your External Auditors should be involved throughout the process to mitigate the risk of potential surprises, whether it be material adjustments or additional work effort late in the process. Become Familiar with the Standard Although there are numerous resources and presentations that are available through conferences, workshops, or online, these should not replace familiarization with
the details contained within the PS 3280 standard. It is not a long read and will help with your understanding of what the actual standard and requirements state. Identify Assets in Scope This is one of the most critical steps in the implementation process. Ensuring completeness of potential in-scope asset retirements will not be as straight forward as simply using your tangible capital asset register. Having a comprehensive, documented, and auditable process is key. Both assets in productive use and not in productive use are in scope. In addition to assessing existing inventories of tangible capital assets, retirement obligations relating to landfill sites and unrecognized assets are also in-scope. Unrecognized assets include assets received but expensed at purchase, or assets recorded at zero or nominal value on the financial statements, such as certain heritage assets. Understanding the applicable legal obligations, whether it be legislation and regulations, contracts and agreements, or promissory estoppel, drives the determination of in-scope assets. Part of the process will likely include engaging with other local governments to ensure consistency of application relating to common legal requirements.
Sufficient progress in 2020 will help local governments move towards the ‘measurement’ phase of the implementation during 2021. Although the large majority of organizations currently have not started their ARO
implementation projects, I expect that 2020 will be a critical year for making progress on the implementation of the ARO standard. Asifa Hirji presented on Asset Retirment Obligations before
moderating the Local Government Accounting and Auditing Workshop’s ARO panel this past November. •
ASSET RETIREMENT OBLIGATIONS PANEL
ASIFA HIRJI (KPMG) - MODERATOR Asifa Hirji is a Senior Manager in KPMG’s Vancouver audit practice. She has more than 10 years of audit experience with various public sector and not-for-profit organizations. She leads a number of local government audits in BC and develops and delivers training throughout the Province on both local government accounting and audit matters. She leads KPMG’s audit quality focus in Vancouver, ensuring audits are delivered in accordance with professional standards and provide value to our clients. Asifa provides accounting advice to Ministries and provincial governments both in BC and the Yukon, particularly in the areas of change. Asifa and is actively involved in GFOABC through conferences and delivering technical PSAB updates at the annual conference.
BRIAN SZABO (BDO) – AUDITOR PANELIST As an Assurance Partner, Brian provides assurance and accounting and business advisory services to numerous not-for-profit and public sector organizations, including local government, education, health authorities, crown and provincially controlled entities. Brian also has extensive experience providing audit and business advisory services to clients in the real estate, entertainment and hospitality sectors. Brian is a Lifetime Member and a frequent presenter at conferences and professional development sessions of the Government Finance Officers Association of British Columbia. He is an active member of the Vancouver business community and is the Chair of the Board of Directors of the North Vancouver Chamber of Commerce.
LOCAL GOVERNMENT FINANCE PANELISTS
CATHERINE NOLAN Corporate Controller for the City of Maple Ridge.
EMILY LEWIS Manager, Financial Planning and Accounting for the City of Abbotsford.
TINA PERREAULT General Manager of Corporate Services & Chief Financial Officer at the Sunshine Coast Regional District.
DECEMBER 2019 • DOLLARS & SENSE PERSPECTIVE | 15
Financing Reconciliation: The Journey from Declaration to Implementation With the recent assent of the Declaration of the Rights of Indigenous Peoples Act, British Columbia’s legislature has committed to preparing and implementing an action plan to achieve the objectives of the United Nations Declaration on the Rights of Indigenous Peoples. It is unclear how Canada’s fiscal federalism will align to support implementation of the objectives under the new Declaration Act and what role the federal government will play in financing commitments. A primary purpose of the Declaration Act is to support the affirmation of, and develop relationships with, indigenous governing bodies. While many local governments have been furthering this purpose for the last decade or more, the fact remains that local government finance officers currently have limited options to offer their political leaders in financing reconciliation in local communities. Moreover, the smaller the local government the greater the financial challenges in navigating a path forward. Local property taxes are an inequitable and inadequate means to finance reconciliation, particularly given the wide disparity in property tax bases, often most evident among
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rural and unincorporated communities. While conditional grant funding is sometimes available, these restrictive revenue sources result in treating reconciliation as an end rather than a process and so do not provide continuity, nor do they always align with local truth and reconciliation needs. Municipal service agreements are currently employed to specif-
resulting in service disruption and unexpected costs. The honour of the Crown is borne by the federal and provincial governments. It would be contrary to the spirit of the Act and the goals of UNDRIP to address the current fiscal gap hindering reconciliation from First Nations themselves. That is to say, new sources of revenue are needed to finance implementation
“Local property taxes are an inequitable and inadequate means to finance reconciliation” ically resource individual shared services between indigenous and local governments. However, they are invariably cumbersome and expensive for all parties to negotiate and maintain and tend to operate on a ‘fee for service’ basis which is contrary to the inclusive governance objectives inherent to the new Declaration Act. Furthermore, municipal service agreements are prone to break down due to a lack of resources to maintain them,
of the Act that in no way affect First Nations’ existing our future finances. There is potential for new solutions. While UBCM’s Strong Fiscal Futures outlines options for financing local government beyond the mainstay of ad valorem property taxes, another as of yet unexplored option is a new ‘reconciliation’ federal transfer. Section 36 (Equalization and Regional Disparities) of Canada’s Constitution Act, 1982 has been traditionally
applied in the public sector to address fiscal capacity at the provincial level. Employing federal transfer payments, the principle operates to help standardize public service access and experience throughout Canada. The federal government will transfer $78.7 billion to provinces and territories during the 2019/20 fiscal year, of which British Columbia will receive $7.415 billion. Unconditional, stable federal
transfers could serve as a vehicle to address the fiscal gap challenging reconciliation in local communities. Achieving consensus on a workable way forward will be essential to move the Declaration Act from discussion to implementation. Given collective experience navigating current challenges, our local government finance officers have a vital contribution to offer in the solutions dialogue to come. •
Courtney E. Kirk, B.Sc., J.D., L.L.M., serves the Central Coast Regional District as CAO/CFO in the portion of Nuxalk Ancestral Territories now commonly known as Bella Coola. Courtney is grateful to Douglas Holmes, CAO of Alberni Clayoquot Regional District with whom she partnered in developing CCRD/ACRD’s Financing Reconciliation advocacy materials informing the bulk of this work.
REGISTRATION COMING JANUARY 2020
DECEMBER 2019 • DOLLARS & SENSE PERSPECTIVE | 17
Routine Maintenance Reality Check Everyone has a role to play in managing community assets so that citizens can receive the services they want in a way that is both reliable and cost-effective. Regular and proactive maintenance is key to maximizing the life of assets and minimizing disruption to service delivery. When local governments under-resource proactive maintenance, it can have significant unintended financial consequences. Since the fatal ammonia release in Fernie two years ago, local governments throughout B.C. have taken a closer look at the equipment in their rinks and arenas. Many communities are dealing with aging equipment, coupled with the reality of rising maintenance costs. At the same time, local governments are having to do more with less money. In this context, it can be difficult to make the business case for prioritizing and budgeting for preventative maintenance. However, what financial consequences might arise if routine maintenance is deferred? Let’s take a closer look at the costs a local government might experience if maintenance is not prioritized, by examining the possible outcomes of the failure of an ammonia chiller in a community rink. If the failure of the ammonia chiller results in an ammonia release, 18 | GFOABC.CA
this could trigger the evacuation of residents and the activation of a local Emergency Operations Centre. Staff resources would be affected as personnel from a variety of departments are deployed to assist with the situation. Consultants would need to be retained to monitor the ammonia levels during the immediate threat, and throughout the clean-up period. Monitoring costs often run into the hundreds of thousands of dollars. Local governments could also find themselves in the unfortunate position of receiving penalties or fine in relation to the release. Additional specialists may be hired to assist with post-incident investigations by external bodies; regulatory compliance issues; or to help manage communications with the public about the unfolding event. There is likely to be a WorksafeBC investigation and possible worker compensation claims, not to mention the impact on service delivery if key employees are off work. Of course, there is also the immediate costs to repair or replace the failed equipment, and the impact to revenue while the equipment is out of commission. There may also be third party liability claims from local citizens physically affected by the ammonia release or claims from local businesses for contamination of property or loss of profits during the evacuation period.
The reality is that deferred maintenance always costs more down the line. The actual costs of a chiller failure will go well beyond simply fixing or replacing the chiller. True, there may be insurance to help defray some of those costs, but there are deductibles and limits to consider, as well as potential premium increases. More importantly, there are consequences beyond the financial costs as these types of events can affect the reputation of a local government. Investing in preventative maintenance of assets is an investment in optimal service delivery. Ultimately, a community with well-maintained infrastructure is a community people want to live, work, invest in and see grow. •
Nicole Purves is the Deputy Director of Insurance at the MIABC. Nicole has worked in the insurance industry for 20 years, primarily involved in claims handling, specializing in casualty claims. She has been with the MIABC since 2008. She has also received her designation as a Chartered Insurance Professional.
What Do Cash Reserve Policies Do for You? Cash reserves are important because they serve to meet a local government’s need to financially manage and maintain a certain level of assets. Reserves help with cash flow issues, mitigate against multiple contingencies, and even help with saving up for large expenses. A fiscally sound approach is to establish specific reserve funds for specific purposes. Let’s break this down a little further and look at the three main purposes cash reserves serve: Cash Flow Management All organizations need some working capital, a “float” meant as a buffer against cash flow issues that arise over the weeks or months of a year when payables are due but new income has not yet been received. Although this is more of a chequing account than a reserve fund, a working capital policy will establish a minimum reserve level that is to be maintained from year to year. Establishing this minimum reserve level has much to do with the timing of your revenue stream in relation to expenditures, which is typically already well known. For a water utility that sends out bills quarterly, for example, maintaining 90-120 days of cash would be a reasonable policy.
Risk Management Unforeseen events happen and as prudent stewards of our communities, our local governments maintain reserve funds so they can respond to the unexpected expenses that result. You’ll need to identify the types of contingencies that might occur, then quantify the potential financial impact of each. Remember that the range of uncertainty that we really face is almost always greater than we assess it to be. Are you exposed to a possible revenue shortfall due to an economic downturn? What natural disasters are possible and what kind of damage could arise? Is there potential for a sudden infrastructure failure? Saving Up There are times when large infrastructure projects should be financed partially or wholly using cash. To do this, you’ll need to save up. Setting up a cash reserve fund for a specific infrastructure project, say a new water treatment plant that needs to be built in 10 years, is a way of ensuring that those funds are not used for other purposes in the meantime. Developing a rationale for saving up for a large, future capital expenditure can be challenging since it requires you to take a position on the use of
cash versus debt, as well as on intergenerational equity and whether those who currently benefit from existing infrastructure should contribute to its eventual replacement. These are questions only you, your staff, and your elected representatives can answer. But if you’re working so hard to make ends meet today that future considerations are being delayed, prioritizing healthy cash reserves will help put you on the path toward financial sustainability. •
For more than 15 years, JP Joly has worked side-by-side with water suppliers, building models and providing expertise to help local governments with asset management, longterm financial planning and utility-rate setting. JP also has enormous experience in water conservation planning, drought management planning, and emergency management planning. JP holds an Honours degree in Computer Engineering from the University of Waterloo.
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Is Your Finance Department Prepared for these 5 Colossal Changes? You may not realize it yet, but your organization is in the early stages of being hit by massive, interconnected and occasionally opposing global changes. These changes are likely not going to reach full strength for 10 or 20 years. None the less, it will take time, planning, and some hard work to get prepared. If these changes turn out to be as big as predicted, being ready may mean the difference between an organization that prospers and one that perishes. In our blog series “Finance Evolved”, we consider major trends & forces and how they may affect the finance department to aid in your planning & preparation. Here are the big 5 looming trends: 1) Demographics The population of North America is aging in a way not seen before. This will cause havoc for businesses, governments and the economy generally.
As the pace of change increases, the successful individual finance professional and the successful finance department will need perpetual skills development.
2) Skills Recent surveys reveal gaps between the finance skills required by organizations and those possessed by entry-level management accounting and finance professionals.
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3) Productivity Despite technological improvements, the pace of growth in productivity has been slowing globally since the 90s. This has already impacted wages and may contribute to income/ wealth inequalities and job insecurity in the future.
Be ready for the future • Train & mentor staff - The difficulty you have today finding qualified, appropriately skilled staff is going to become much worse. Your best bet is to retain and develop your current team. 4) Budgets We see increasing levels of pressure for finance to accomplish more, faster with stagnant or decreasing budgets. Given the other big forces in this list, there is every reason to believe that this pressure will intensify. 5) Technology To say we are living in a time of rapid, continuous technological change is a cliche. There are signs that while the current rate of technological improvement may be slowing, the effects may well be poised to more dramatically affect the finance department than ever before.
• Streamline & automate Organizations of all types will be under growing pressure to increase productivity. Software and automated systems are your best tool to do more with less.
• Document & standardize - Expect the loss of a significant percentage of your most experienced, knowledgeable workforce in the next 2 decades. Without excellent organizational supports, this will come with a consequent decline in organizational productivity.
• Upgrade your skills - The requirement for greater productivity will mean that your value will be increasingly tied to your ability to lead, to streamline, to automate and to improve. Conversely, if your skills are primarily data entry/bookkeeping, you are likely to be automated into the unemployment line.
• Plan ahead - Governments at all levels will see reduced revenue growth and increased expenses, further straining budgets. You can expect reduced governmental services and/or increased taxation.
• Do you have the skills to leverage technology to help you address the dramatic staffing, efficiency, and budget challenges we will see in the next 10 to 20 years? •
Jamie Black is President of F.H. Black & Company Incorporated. For the last 20 years, he has consulted and trained finance officers, auditors & accountants in government, higher education, and corporations throughout Canada and the U.S. His work focuses on increasing finance department efficiency & effectiveness through the implementation of technology & best practices.
DECEMBER 2019 • DOLLARS & SENSE PERSPECTIVE | 21
Building Stronger Accountability If you are familiar with the work of the Auditor General for Local Government, you know that we produce our performance audits and leading practice guides to help local governments make information-driven decisions that support effective and accountable service delivery. Soon, we’ll be able to refer local governments to even more resources on accountability, thanks to the Canadian Audit and Accountability Foundation (CAAF). For almost 40 years, CAAF has provided training and tools to help elected officials at the federal, provincial, territorial and international levels be more accountable and better serve the public. Over the last year, CAAF has been developing a program that would extend this support to local government elected officials (or their audit committee, if one exists). This program will support local governments (and their elected officials) discover new tools and tips to fully understand performance audits and effectively oversee the implementation of audit recommendations. The project is currently being developed with input from those in the municipal sector, including auditor generals, city auditors and elected officials, as well as the Chartered
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Professional Accountants of Canada and the Institute of Internal Auditors. “We are looking forward to launching this program which is designed to tailor to the specific needs of local governments and was created in response to requests of CAAF members from the municipal audit community,” explained Lesley Burns, Director of Oversight at CAAF. “The aim of the project is to provide relevant, tailored and accessible guidance, tools and training materials for Canadian municipal elected officials to assist them in exercising effective oversight of audits and audit functions.” CAAF recently led a successful pilot program in the Halifax Regional Municipality. The workshop gathered members of the then newly formed audit committee to review the purpose and importance of oversight. Participants reviewed good practices and considered how they could be applied in their day-to-day activities. The program received positive feedback and is currently being finetuned based on comments received. Additional workshops will roll out over the next year in other local governments across Canada. While the program is primarily designed for communities with a population of 100,000 or more (which typically have audit
committees), many of the practices will be relevant to smaller local governments—as good governance is required no matter the size of your community. For information on the program, please watch this space www.caaffcar.ca for the program roll out in 2020. In the meantime, visit the CAAF website for practical oversight tips and research highlights. CAAF is looking forward to working together with local governments in the future. •
Gordon Ruth was previously the Executive Vice President of Certification and Operations for the Chartered Professional Accountants of BC. Mr. Ruth was also the Chief Executive Officer for the Certified General Accountants of BC for almost five years. He has held several positions in the public sector, ranging from the federal government to BC Hydro. He spent 15 years with the Greater Vancouver Regional District (now Metro Vancouver) where he became the Chief Financial Officer and helped steward the financial affairs of this regional federation of municipalities.
e c o n o m i c o ut lo o k q 4 Canadian GDP Growth - Something’s Better than Nothing After beating the Bank of Canada’s estimates for Q2, the Canadian economy has seen growth decelerate in each subsequent month, with a fairly flat reading for July and slight rebound in August. This drag was led by the maintenance at a major offshore oil production facility in Newfoundland and Labrador as well as a further scale back on Alberta’s mandated restraint on oil production. This caused the mining, oil and gas sectors to shave almost 0.2% off their growth. In July, the oil and gas industry as a whole was down 3%. What saved the economy from contracting in July was the wholesaling, retailing, utilities, and real estate sectors. A stronger housing market in August also provided a nice lift to the economy. This is following the rebound of average home prices from its 3-year low in February.
S ource : CIBC W orld M arkets
After two strong job gains with on-target inflation, the Bank of Canada stood pat on interest rates in September and October - contrary to the Fed’s cumulative 50bp cut. We have not had to make any major changes to our interest rate forecast as the economic backdrop looks about where it did a month or two ago. However, there’s plenty of room for downside shocks, particularly through Canada’s ties to a slowing global economy. Despite the announcement of a Phase 1 trade deal, there are still uncertainties surrounding the U.S.-China trade war and frictions between Canada and China could also deepen. Overseas, the ECB could fail to deploy fiscal stimulus in the false hope that negative interest rates will finally start working. For those reasons, we are forecasting a 25bp rate cut to 1.50% by the end of Q1 2020, 2019 GDP at 1.6%, and 2020 GDP of 1.4%. •
Read the full CIBC Economic Outlook Q4 2019 British Columbia – Feeling the Effects of a Global Slowdown Geopolitical Unrest Sources: Bloomberg, Statistics Canada, Bank of Canada Alberta Treasury Board of Finance, CMHC, CREA CIBC World Markets Inc. James Hobson, CFA, PM, Investment Advisor at 403-260-0574 Charet Chahal, CIM, Investment Advisor at 403-260-0440
DECEMBER 2019 • DOLLARS & SENSE PERSPECTIVE | 23
c o l le c t o r s ’ c o r n e r Local Area Service – What’s the Process? The December 2017 GFOA Newsletter Collectors’ Corner featured the article “Parcel Tax vs Local Area Tax – What’s the Difference?” What is the process to establish a local area service (LAS) that culminates in a local service tax? A local service tax is used by local governments to recover all or part of the cost to provide a specific service (LAS) in the community. A local service tax can be levied as a property value tax or a parcel tax. A parcel tax may be imposed on the basis of a single amount for each parcel, the taxable area of each parcel or the taxable frontage of each parcel. What’s the process that culminates in a local service tax being added to a property? 1. Either taxpayers or Council can initiate a LAS. If taxpayers initiate it, then the owners of the properties which will benefit from the LAS must present a petition to Council for the service. If Council initiates a LAS, then the benefitting property owners have the option to present a counter-petition in opposition to the LAS. 2. After the petition or Council initiative has been approved, the Engineering Department plans and costs out the project. 3. Next, a Local Area Service
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Establishment Bylaw must be adopted. 4. If borrowing on behalf of the petitioners is required, then a loan authorization section must be included in the bylaw, and a Loan Authorization Bylaw would be required. 5. After the Local Area Service Establishment Bylaw is adopted, the work is done by municipal crews or contracted out depending on the municipal resources available or the complexity of the project. 6. After the project is completed, depending on the cost recovery method set out in the establishing bylaw, either a. a line item property value tax is added to the benefitting property’s tax account, or b. a Parcel Tax Bylaw is prepared which states the service for which the tax is imposed, the years for which the tax is imposed, authorization to prepare a parcel tax roll of the benefitting properties, the basis on which the tax is to be imposed (e.g. parcel tax) and the amount of the tax. 7. After the Parcel Tax Bylaw is adopted, the owners are notified and a Parcel Tax Roll Review Panel is scheduled and held to hear complaints respecting the Parcel Tax Roll and to authenticate the Roll.
8. After the Parcel Tax Roll is authenticated the owners of the benefitting properties are notified and the parcel tax is added to each of the benefitting property’s property tax account for the required number of years as stated in the Parcel Tax Bylaw. This is a summary of the process. However, if the cost recovery details (e.g. parcel tax amount, term, etc) are known at the time of preparing the LAS Establishment Bylaw, then this bylaw and the Parcel Tax Bylaw may be combined as one bylaw. As a reminder, a parcel tax runs with the property for the term of the bylaw, not the owner. Also, a parcel tax is eligible for the Property Tax Deferment program along with the regular taxes. •
DOUG STEIN has worked in municipal finance for over 30 years. In 2011 he retired from his position as Manager of Revenue Services for the District of Saanich. Doug has been very involved with the Collectors’ Forum, is a GFOABC Life Member and a CPA, CMA.
q u a rte r ly q u estio n
CIVICINFOBC CIVICINFOBC
NSF Fees…What’s the Standard? We received responses from nearly 50% of all local governments of varying populations from across the province. Most variation in the responses can be attributed to volume of transactions, i.e., more transactions increased the incidence of receiving an NSF cheque. Charging for NSF transactions is the norm, however just under 10% reported not charging any fee at all. The amount local governments charge for an NSF cheque is fairly consistent. Mean
$25.09
Median
$25.00
Mean when “$0.00” responses removed
$27.00
Highest fee reported
$45.00
Standard deviation
$9.90
Credit Cards…Did you know? The survey found that 13% of reporting local governments accept credit cards as a form of payment for property taxes. The local governments reporting this payment method range in size from 280 to 250,000. These communities cover the processing fees with a convenience fee of around 1.75%. Online Services Most local governments offer online payment options for a variety of services. 83% of respondents report provision of an online payment portal for some or all services. If you would like to learn more about this free service, contact CivicInfoBC at info@civicinfo.bc.ca
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quarterly question
march’s Quarterly Question: Mortgage Listings and Refunds… How do we Recoup the Cost?” ACOMPLETE SURVEY The survey should only take about 3 minutes to complete. The responses to this question will be profiled in the next GFOABC Newsletter. If you have a topic for a future quarterly question, please contact the office at office@gfoabc.ca or 250-382-6871.
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b o o k r ev i e w katie ludwig reviews Financial Foundations for Thriving Communities
GFOA recently released its newest book, Financial Foundations for Thriving Communities, written by Shayne Kavanagh, GFOA’s Senior Manager of Research, and Vincent Reitano, Assistant Professor of Public Administration at the School of Public Affairs and Administration at Western Michigan University. The book outlines different strategies you can use to address the people side of public finance. Getting the numbers right (i.e., balancing the budget, paying the bills, tracking the receivables) is usually not the hardest part of a finance officer’s job. Instead, what’s hardest is dealing with the people side of things—keeping stakeholders satisfied, knowing who you 26 | GFOABC.CA
can trust, convincing people that they can trust you. You’ve got the technical skills; this book shows you how to apply those technical skills in a way that gets everyone moving forward together to build a thriving community. Kavanagh and Reitano provide countless examples from cities, towns, counties, and school districts that have implemented some part of the Financial Foundations Framework and show how doing so has put them on a path to better financial outcomes and, in many cases, has also led to other positive outcomes, such as increased employee engagement, increased citizen trust, and improved program results. Each chapter concludes with a list of questions and conversation starters that you can use to begin thinking through how you
might move forward. The point is: this stuff works. It might take you a bit outside of your comfort zone. It might take some extra time and effort. It might take some convincing to get executives and staff on board with this new approach. But, your efforts will pay off, slowly but surely. Read this book if you are looking for new ways to approach long-standing, tough financial problems facing your local government. It doesn’t offer an easy formula for how to fix your pension problem. It doesn’t contain a secret spell that will provide funding for infrastructure maintenance. It does give you the tools you need as a finance officer to get everyone to play an active role in helping you develop creative ways to address these kinds of problems.
“This book shows you how to apply those technical skills in a way that gets everyone moving forward together to build a thriving community.”
KATIE LUDWIG, SENIOR MANAGER, GFOA Katie Ludwig joined GFOA in 2018. Her work is focused on helping local governments develop policies and procedures and implement systems to improve their efficiency and effectiveness and promote financial sustainability. Prior to joining GFOA, Katie worked for four years at the Chicago Housing Authority, where she was responsible for the management and operations of the Housing Choice Voucher program. She also worked for the City of Chicago for more than 13 years, serving in a variety of roles in the Office of Budget and Management, the Department of Housing, and the Chicago Public Library. In all of these roles, Katie worked on projects to develop new programs, policies, and procedures. EDUCATION B.A., Political Science and English, DePaul University M.P.P., University of Chicago Harris School of Public Policy
I’d love to hear what our members think about the book, so starting in February 2020, I’ll be hosting a series of virtual book club meetings to discuss it. The plan is to discuss four chapters per meeting. Whether you loved it, hated it, or aren’t sure how you feel about it, join me to talk it out. Book club meetings will be held at 1 p.m. Central Time on the dates listed below. Meetings will last approximately one hour. Friday, February 28 Chapters 1-4
Friday, March 27 Chapters 5-8
Friday, April 24 Chapters 9-12
The last meeting to discuss Chapters 13-16 will be held during GFOA’s 2020 Annual Conference in New Orleans at a to-be-determined date and time. Email me at kludwig@gfoa.org to RSVP for any of the meetings. I look forward to hearing from you. •
DECEMBER 2019 • DOLLARS & SENSE PERSPECTIVE | 27
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