Financial analysis of COVID-19 impact on Barrie foresees possible year-end deficit, offset by reserves

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An earlier impact update from Barrie CAO Michael Prowse indicted a potential revenue loss of $65 million by the end of the year

As Barrie and other municipalities follow the province’s lead on emerging from the COVID-19 lockdown, the full impact of the pandemic remains uncertain, according to a financial update, implications and projections report to general committee.
“The duration of the disruption to the economy, and the length of time required for a full recovery, remains unknown at this time. The financial impacts are difficult to forecast and like most municipalities, the City has limited funding capacity to address these unprecedented events,” writes Jennifer Cowles, senior manager corporate finance and investments, in the report.
“As noted in the memorandum to council on May 25, the forecasting exercise completed indicates substantial lost service fee revenues have been offset by reductions in costs. However, as we begin to slowly ramp up, we expect these additional costs will have a negative effect and possibly result in a year-end deficit in 2020. The range of a potential deficit is difficult to predicate but we believe our stabilization reserves should be adequate to cover any year-end shortfalls.”
The Province doesn’t allow municipalities to budget for an operating deficit, and any such deficit needs to be covered from reserves and the following year’s budget.
The City, she continues, reacted swiftly at the beginning of the crisis to contain the impact of the virus by closing facilities, providing free transit, not enforcing parking offences, and waiving interest and penalty charges on taxes and water/wastewater bills until June 30.
“As well, residents and property owners could suspend or opt out of monthly pre-authorized payment plans for tax and water/wastewater bills. Council also approved a water/wastewater fixed rate credit program for those residents in need.”
That helped residents comply with social distancing protocols and also freed up cash for people who experienced a sudden loss of income, but it came at cost to the municipality that relies on property taxes and water/wastewater rates for most of its operating budget.
“It is difficult to forecast the impact of the pandemic on the ability of residents and businesses to pay their tax and water/wastewater bills on time, and how much of the population will defer payment,” reads the report. Here’s a look at the state of pandemic-driven receivables:
• As at April 30, the total taxes receivable balance has increased by $15.4 million or 57 per cent over the same date, 2019
• Residential receivables witnessed an increase of $4.6 million, and industrial/commercial/institutional (ICI) saw an increase of $10.8 million
“This deferral of payment is likely a combination of those who could pay but chose to take advantage of the interest and penalty holiday, and those in real need who are facing financial hardship.”
The City is also looking at an estimated loss of $18.6 million resulting from loss of fees, service charges, parking fines and other such revenue items. However, the report indicates a net savings of $18.8 million is expected from staff reductions, contract terminations, and other measures.
“To mitigate some of the initial financial impacts to the City’s operating budget, the City issued temporary layoff notices, primarily to staff impacted by the closure of facilities. Restrictions have been placed on new hiring, and contracts have been terminated. Other expenditures have been reviewed by staff and either eliminated or reduced, where feasible, to further cut costs.”
Staff, reads the report, completed the financial analysis “to quantify the potential impact of COVID-19, mainly its impact on the 2020 budget and its effect on cash flow. This was achieved by identifying lost revenues, deferred revenues, along with increased, decreased and deferred costs. Progress on the capital plan was also captured, as this creates pressure on the City’s cash flow.”
The analysis assumed that physical distancing restrictions would be lifted and services reopened Sept. 1. However, the measures are being eased sooner than expected, with phase 2 of the reopening beginning this Friday.
“In the time since this analysis was completed, the (Province) has entered Phase 1 of the recovery plan. As well, the City will begin charging for transit effective July 2. With the anticipated re-opening of some outdoor spaces earlier than contemplated in the scenario, the City will also need to incur further expenditures that do not generate offsetting revenues. The scenario indicates a complete offsetting of the lost revenues, but as this is a forecasting exercise based on a specific set of assumptions, there are many moving parts that may contribute to an actual year-end deficit.”
The City’s capital plan, continues the report, is heavily dependent on development charges. Staff reviewed the 2020 capital budget to understand the impact of the crisis on projects. Some have been stopped or slowed, while others continued as they were considered essential. At the beginning of the year, the City had $408 million in approved budget to spend. This year’s budget had $137 million of that amount included in it, “and the forecasting exercise did not show a significant decline in spend by year end, with 2020 capital spending forecast at $117 million.”
“As part of the exercise, staff captured project status details including whether the project had gone to tender. This information is being used to forecast cash flow in case there is a need to recommend delaying or deferring any approved capital spending. As of the date of the exercise, more than half of the planned spend for 2020 had not been tendered.”
The City’s financial health will also be impacted by flow of federal gas tax funding earlier than expected. Normally the funds, used for infrastructure projects, are delivered in two payments annually. However, in reaction to the pandemic, the feds announced full funding for 2020/21 will come this month. It’s anticipated the City will receive $17.55 million, $8.58 million for this year and $8.97 for 2021.
The report also contained details about the City’s reserve balances. Reserves are set aside to cope with an unexpected crisis, such as COVID-19, addressing any potential deficits. Current reserve balances are:
• Tax rate stabilization reserve: $6,534,581
• Wastewater rate stabilization reserve: $2,011,234
• Water rate stabilization reserve: $2,677,355
“These reserves also provide council with the flexibility to stabilize the impact of economic volatility on City programs. Although these reserves fall well short of their minimum expected level, these funds are available to fund an operational deficit.”