The city is cash poor but asset rich, according to the latest financial audit, and has dipped into a financial debt position.
Rossland recorded a deficit position after the tale of the tape was in for 2012, according to the latest financial audit by Berg, Naqvi, Lehman chartered accountants in Nelson.
However, the deficit was not due to mismanaged city operations, but the multi-million dollar cost of the Columbia Avenue/Washington Street project.
The timing of the funding for the project eroded the city's cash position, meaning it had to draw down its reserves to pay for the project when the bills came due, said Rossland chief financial officer Cecile Arnott.
A municipality is not allowed to pass a deficit budget according to the Community Charter, but it is allowed to come in at a deficit at the end of the year. However, under the Charter, the city now has some work to do.
“You have to clearly address that in your next plan as to how you are going to deal with that deficit,” she said.
As a result, there will be a $4 million borrowing undertaken this year by the city to offset the existing deficit—and the current alternative approval process is underway to gain the community's blessing, and to set the terms of the borrowing.
Currently, cash for the city coffers compared to last year at this time is down nearly $6 million. And, although the city has reserve fund balances of $4.3 million, it is actually in a deficit of $3.7 million because it has used the money to fund the project without having the borrowing in place.
Financial assets dropped to $3.89 million from $7.1 million due to a drop in cash and short-term investments. The Columbia/Washington project was funded from cash reserves.
Grants and accounts receivable rose from $440,150 to $2.9 million, after the city received cash from the provincial Ministry of Transportation for the Columbia/Washington project, as well as the money the city receives back from the HST (around $600,000).
Liabilities remained largely the same at $6.7, down slightly from $6.9 million.
Those figures gave the city a net financial debt of $2.85 million, as opposed to a a net financial asset of $259,981.
“We are really in a financial debt position,” Arnott said.
While the city sits in an accumulated surplus of over $40 million, nearly all of that is tied up in tangible capital assets—assets that have a physical form. Tangible assets include both fixed assets, such as machinery, city buildings and land, and current assets, such as inventory.
The city has reserve funds of $4.258 million but it is in an operating and capital fund deficit of $3.7 million. This is where the anomaly exists. The city says it has reserve funds of over $4 million, yet it does not have the cash to cover the reserves.
“So, substantially, the city has unfunded reserves,” said auditor Andrea Kramer.
“And when we put the $4 million back that we will borrow we will have that cash back,” said Arnott.
That is why the city went from a cash basis of $6.38 million down to $468,000.
Capital revenues and operating revenues less your operating expenditures—excluding capital expenditures—gives the city a annual surplus of over $1 million.
On operating expenditures the city was “fairly well in line” with what they anticipated from the budget.
Net debt went from $259,000 positive to minus $2.8 million.
Expenditures in 2012 rose to $6.9 million from $6.1 million in 2011. However, revenue rose by $1.1 million to $8.2 million in 2012, largely on the strength of a $650,000 increase in grants.
The city's annual surplus for 2012 was expected to be $1.34 million, up from just over $1 million in 2011, but the city fell short of its expectation.
However, the end-of-the-year accumulated surplus was $40.5 million.
But the surplus is not something that can be spent, said Arnott, meaning it is tied up in tangible capital assets, or the net book value of the city's buildings, equipment and operations.
Construction and other contingencies
The contractor of the Ophir Creek Reservoir project has submitted claims relating to the construction of the project.
The city is conducting a review of these claims and as at the year end, no estimate can be made of the likely outcome and no accrual has been made for these potential claims.
In the normal course of a year, the city may be faced with claims for damages of a diverse nature. An estimate of the contingent costs cannot be made, and no accrual has been recorded for these contingent liabilities in the financial statements.
Source: City of Rossland