Municipal Taxation and Budgets Institute of Municipal Assessors June

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					        Municipal Taxation and
         Institute of Municipal Assessors
                    June 9, 2008
       Speaker: Jim McQueen, MPA, AMCT

               The Agenda
•   Municipal Finance 101
•   The Municipal Environment
•   The Operating Budget
•   The Capital Budget and Forecast
•   Tax Policy
•   Municipal Financial Future

        Municipal Finance 101
•   Accounting prescribed by the Province
•   Fund accounting is a feature
•   Municipal Finance is legislated
•   Accountability is legislated
•   Emphasis on accounting changing

     The Municipal Environment
•   Local government reorganizations
•   Provincial government downloading
•   Regional economic impacts
•   Development impacts
•   Infrastructure impacts
•   An aging workforce
•   More informed and interested public

      What is the Purpose of
• To provide a statement of funding priorities
• To confirm services and service levels
• To represent the collective judgment of the
  elected Council
• To provide a management tool

     Legislation and Budgets
• Sections 289 & 290 of the Municipal Act
• Prepare and adopt a budget annually
• Must cover debt payments and
  requirements of other boards
• Form that the Ministry may require
• Revenues must equal expenditures

       Legislation and Budgets
• Safe Drinking Water Act
- submit an operational plan
- have a financial plan in place to outline
  how costs will be recovered
• Sustainable Water and Sewage Systems
- prepare long term cost recovery plans
- six year projection

           The Budget Cycle
•   Budget planning
•   Budget coordination
•   Budget preparation
•   Budget control

            Budget Planning
• Review current strategic plan
• Review other planning documents –
  master plans, financial impact studies,
  needs studies, development studies
• Review last year’s budgets
• Develop budget preparation guidelines
• Consider anticipated budget impacts and
  set tax impact goals – council approved

            Budget Planning
•   Who does what?
•   Role of elected officials
•   Role of CAO or Administrative Head
•   Role of Treasurer
•   Role of Department Heads
•   Role of Staff

          Budget Preparation
•   Use budget preparation guidelines
•   Need political and public input
•   Timetable is important
•   Consider Human resource impacts
•   Consider user fee impacts
•   Budget consideration and approval by

             Budget Control
• Should have council approved policies
• Monthly reports comparing budget to
  actual for revenue and expenditures
• Policy will set variance levels for reporting
  and recommended actions
• Significant role for every department to
  control their budget
• Great communication tool during the year

What is the Difference Between
  Current and Capital Exp.?
• Current-expenditure incurred for personal
  services or for projects or services that are
• Capital-expenditure is one that results in
  the acquisition of a fixed asset, or extends
  the useful life of an existing asset

             Current Budget
• Content - expenditures and revenues
- usually line by line by account number
- comparative numbers for previous year
- format done by department with sub categories
   by division, program, facility
- usually reference to staffing levels
- some narrative explaining services and service
- maybe some performance indicators

    Current Budget Expenditures
•   General Government – clerk , finance
•   Protection to P and P – fire, police
•   Transportation – roads, bridges
•   Environmental – water, sewer, waste
•   Social & Family Service – welfare, health
•   Rec. & Cultural – parks, arenas, library
•   Planning & Dev – land planning

       Current Budget Revenue -
           Property Taxation
• Largest single source of revenue
• Regions and Counties do not tax directly
• Education does not tax directly
• Billing and collection of taxes regulated
• Tax rates vary by assessment class and
  by local tax policy and service level
• Tax administration very important

     Current Budget Revenue –
         Payments in Lieu
• Government exempt assessment for the
• Federal properties pay equivalent to taxes,
  i.e. – post office
• Provincial properties – may pay full rates
  depending on legislation, i.e. – LCBO
• Municipal Tax Assistance Act – referred to
  as “heads and beds”, i.e. - hospital

  Current Budget Revenue - User
        Fees and Charges
• 2nd most important revenue source
• Sections 390-400 Municipal Act
• Separate statute for Planning fees and
  Building fees
• Costing model should include; direct costs,
  indirect costs and a capital recovery
• New sewer and water legislation – must
  be at full cost recovery

      Current Budget Revenue -
        Licenses and Permits
• Municipal Act, Section 150 to 165
• Regulate and control business
• Fees can be set to recover direct, indirect
  and capital costs related to service
• Some examples would be a taxi license,
  adult entertainment, fire burn permit, dog

  Current Budget Revenue - Fines
           and Penalties
• Revenue derived from contravention of
  municipal by-laws
• Fines generally related to parking, traffic,
  and building code offences
• Municipalities now deal with the Provincial
  Offences Act
• Key penalty recovery relates to a charge
  made for overdue property taxes

     Current Budget Revenue -
       Government Grants
• Conditional and Unconditional
• Conditional examples – social assistance,
  child care, public health
• Conditional sometimes by exception -
  policing for example
• Unconditional example – Ontario
  Municipal Partnership Fund

      Current Budget Revenue
        Investment Income
• Interest earned on excess cash
• Need for strong finance policies about the
  collection of revenues
• Need for cash management policies
• Use of technology to move cash important
• Policies on investing

    Current Budget Revenue - Other
•   Rents
•   Sale of property or other assets
•   Sale of services
•   Publication sales
•   Tax certificates

      Current Budget Limitations
•   Treated as a once a year exercise
•   Reflection of historical spending
•   Discretionary spending is limited
•   Incremental approach to spending
•   Timing is restricted by when tax policy is

    Capital Budget vs. Capital
      Program (Forecast)
• Capital Budget covers current year only
• Capital Program may cover several years

      Capital Budget Content
• Usually a structured form for each project
• Narrative detail to describe the job
• Estimated expenditures broken down into
  key cost centres
• Sources of funding reported to finance
  each job
• Narrative justification for the job
• Impact on future current budgets stated

    Deciding on Capital Projects

•   A ranking system
•   Public pressure or political reasons
•   New government grant program
•   Ties in with another level of government
•   Tied to development in the community
•   Policy related to life cycle costing

    Funding Capital Expenditures

• Internal sources – current budget,
  reserves or sale of assets
• External sources – government grants,
  donations, other third party contributions
• Debt – debentures, leases, bank loans,
  internal borrowing

Capital Financing From Current
• A popular method of financing
• Does compete with current operations
• Can reduce reliance on debt and save
  money at the same time
• Can be a user fee contribution as well as
  coming from property taxes

     Capital Financing from
    Reserves/Reserve Funds
• Wide selection of reserves established by
• Life cycle reserves for replacements
• Some reserve funds are obligatory

      Capital Financing from
      Development Charges
• In growth communities this is an important
  source of funding
• There are restrictions on the use of these
  funds as dictated by legislation
• Timing of use determined by service
  standard for the services

   Capital Financing from Debt

• Use of debt subject to debt financing
  policy of municipality
• Debt related projects usually restricted
• Debt repaid from property taxes, user
  fees, development charges
• Can be debentures,leases,or bank loans,
  internal borrowing

        Other Capital Financing
•   Local improvements
•   Section 110 of the Municipal Act
•   Grants,Subsidies
•   Fundraising/Donations
•   Public/Private Partnerships
•   Other municipalities

The Value of the Capital Budget

• Key statement of policies and priorities for
  the year
• Finance-financial planning document
• Planning-translates planning policies and
  objections into a physical state
• Public Works-used to monitor quality
  control of construction projects

    The Value of the Capital Forecast
• A significant financial management
  planning tool
• Provides support for Federal and
  Provincial grant applications
• Provides justification for service levels
• Improves the financing planning for
• A great communications tool

Linkages between the Current and
         Capital Budget
•   Debt Charges
•   Operating cost of capital
•   Minor capital costs of capital
•   Transfers to the capital fund
•   Transfers to reserves for future capital

    Tax Policy –Key Components
•   Education Taxes
•   Farm and Managed Forests
•   Tax Ratios-Weighting of Assessment
•   Tax Ranges
•   Tax Capping

    Tax Policy-Capping Tax Tools
•   Optional property classes
•   Graduated taxation
•   Phase-in program
•   Tax rebates
•   Tax ratios

       Tax Policy – Property Tax
           Calculation Steps
• Determine amount to be raised from
  taxation=net tax levy
• Weight the assessment by the tax ratios for each
  assessment class=total weighted assessment
• Divide the net tax levy by the total weighted
  assessment=residential tax rate
• Multiple the tax ratio for each tax class by the
  residential tax rate=tax rates for all other classes

      Municipal Financial Future
•   Accounting for tangible capital assets
•   Financing the infrastructure deficit
•   Coping with the economy
•   Budgeting becomes a year round process
•   More attention to financial analysis
•   Move toward performance based

    Wrap up



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