Annual report

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Annual Report

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The global pandemic has touched all Kelowna residents in some way, shape or form. We are forced to confront our present challenges, adjust to an ever-changing 'new normal' and question the future in ways we never have before.  The 2019 Annual Report is a look back, pre-COVID-19, and highlights the ways we have adopted the Imagine Kelowna community vision principles and invested in being a City that is agile, resilient and unafraid to do things differently based on four principles: connected, collaborative, responsible and smarter.

Achievements include the launch of Council Priorities 2019-2022. It is our strategic direction with commitments by Council and the organization of the results we want to see in the next four years. It is through these priorities and our adaptability that we will navigate the unchartered waters that come with a global pandemic and ensure that we continue to listen and act in the best interests of our community.  

On Monday, August 24, City Council reviewed and approved the 2019 Annual Report. (news release)

While we know that the coming year - and years - will bring new and significant change, reflecting on the work and decisions made in the last year, I see a solid foundation and plans that will lift Kelowna above current challenges and seize the opportunities ahead of us — shaping Kelowna for the future,” says Kelowna Mayor Colin Basran. 

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2019 City of Kelowna financial health indicators

These Financial Health Indicators show the overall financial health of the City of Kelowna for the year ended 2019. The ratios provide a way to measure how decisions made during the year have affected the sustainability, flexibility and vulnerability of the City. They also link the financial results to the overall economic and fiscal environment that the City operates in.

We compare our performance to other municipalities, including those in the Okanagan region.  The following comparative figures are taken from provincially provided Local Government Data Entry (LGDE) reports. The ratio analysis focuses on the 10 BC municipalities with a population of greater than 100,000 (Abbotsford, Burnaby, Coquitlam, Delta, Langley, North Vancouver, Richmond, Saanich, Surrey and Vancouver) and those in the Okanagan Region (Kamloops, Penticton, Vernon and West Kelowna). 

This information was presented to the City of Kelowna Audit Committee on July 14, 2020. 

Financial Health Indicators:

Sustainability Ratios (indicators 1 - 6) measure the degree to which a municipality can maintain its existing financial obligations without increasing the debt or tax burden relative to the economy in which it operates.

Flexibility Ratios (indicators 7 - 10) measure the degree to which a municipality can change its debt or tax burden on the economy in which it operates to meet its existing financial obligations.

Vulnerability Ratio (indicator 11) measures the degree to which a municipality is dependent on sources of funding outside its control or influence or is exposed to risks that could affect its ability to meet existing financial obligations.

Indicator 1: Total Assets to Liabilities

This ratio measures the extent to which a government finances its operations and capital purchases through issuing debt, development cost charges and collecting deferred revenue. A higher total assets to liabilities ratio indicates the City is using financing options in a responsible and sustainable manner. The City’s ratio remains steady in 2019 as both assets and liabilities increased at a comparable rate from 2018. The slight increase over prior year is driven by the pay down of long-term debt with no new major borrowing, combined with an increase in investment values over prior year.

Total assets to liabilities

Indicator 2: Financial Assets to Liabilities

Measures liquidity and the City’s ability to meet financial obligations. A ratio > 1.0 indicates the City is well positioned to meet its financial obligations without the need to fund past expenditures with future revenues. This ratio has remained fairly constant over the past number of years, with increase over the prior year due to an increase in financial assets ($46.7M) that was greater than the increase in liabilities ($12.4M), again driven mostly by the increase in investment value.

Indicator 3: Net Financial Assets (Financial Assets-Liabilities) to Total Revenue

This ratio provides a measure of revenue that can be used to fund current and future expenditures. The City’s positive and increasing ratio indicates stability and that the City is well positioned to meet its financial obligations now and in the future. The graph indicates that 67 per cent of revenues can be used for future transactions in 2018 and 76 per cent in 2019. The increase from 2018 to 2019 is due to an increase in net financial assets of $34.3M over prior year, combined with slight decrease in revenues ($4.8M) due mostly to a decrease in other capital contributions.

Indicator 4: Net Financial Assets (Financial Assets-Liabilities) to Tax Assessment

Measures the amount of available operating assets to cover future obligations relative to the change in the economy measured through the tax assessment. The relative stability in the graph from 2014-2017 shows that the City’s net financial assets increased at rate comparatble to that of the economy (as approximated by the change in the tax assessment amount).  In 2018 and 2019 the graph shows that growth in the City’s Net Financial Assets increased at a greater rate than that of the economy due to a combination of an increase in investments, and a reduction in long term debt. It also shows that as of December 31, 2018 the City has more net financial assets per tax assessment dollars than the other municipalities.

Indicator 5: Total Expense to Tax Assessment

Measures the ratio of spending relative to the tax base and the efficiency with which the City leverages increasing tax revenues.  For 2019 this graph showed that the City’s expenses remained very close to .75 per cent of the tax assessment and aligned with the change in the economy. It also shows that expenses were higher per assessment for the City than those for other municipalities with populations greater than 100,000. The ratio remains relatively stable with a slight decrease into 2019 due to expenses increasing by four per cent over prior year, while property tax assessment increased by 10 per cent.

Indicator 6: Accumulated Surplus/Deficit to Tax Assessment

Measures the total economic resources available to provide future operations relative to the change in the economy measured through the change in tax assessments. From 2014 through 2016 accumulated surplus changed fairly consistently with the economy.  While 2016 through 2018 shows the accumulated surplus growing more slowly than the economy.  The difference between the City and other municipalities over 100,000 shows that the City’s surplus compared to tax assessment is higher by two to three per cent during the time frame.

Indicator 7: Debt Service to Revenues

This ratio measures the percentage of current revenues required to service debt incurred to fund past expenditures and the capacity for the City to incur additional debt. A smaller debt service to revenue ratio indicates that the City has greater flexibility in future borrowing decisions and more revenue to use for other opportunities. The graph shows that in 2018 2.2 per cent of revenues must be used to pay for debt service charges and that the amount is decreasing in 2019 to 1.3 per cent as debt is repaid over time. The graph also shows that the City’s borrowing ratio is in line with other municipalities.

Indicator 8: Own Source Revenue to Total Revenue

Measures the extent to which own source revenues make up total revenues. This is a gauge for how much flexibility the City has to deal with changing revenue sources. For 2018 and 2019 this graph shows that sale of services revenues consistently made up 38 per cent of total revenues, and that as at December 31, 2018 the City had more own source revenues than other municipalities.

Indicator 9: Own Source Revenue and Property Tax Revenue to Tax Assessment

Measures the extent to which the City is taking income out of the economy either through taxation or user fees. For 2019 this graph shows that the City receives .78 per cent from own source revenue per $1 of tax assessment and that the changes aligned with the rate of change in the economy. It also shows that the City receives more from own source revenues than municipalities of a similar size and less than other municipalities in the region as of December 31, 2018. The ratio declined slightly in 2019.

Indicator 10: Net Book Value to Cost of Tangible Capital Assets

Measures the estimated useful life of the City’s tangible capital assets available to provide products and services. A larger ratio indicates newer tangible capital assets, or a more frequent replacement rate. A smaller ratio indicates older tangible capital assets and may indicate that greater capital expenditures may be required for replacement. For 2019 this graph shows that tangible capital assets have 61.02 per cent of their original cost left to be depreciated, or that the City has used 38.98 per cent of its assets useful life.

Comparative information for this graph is not available as this data is not reported in the LGDE statements.

Indicator 11: Government Transfers to Total Revenues

This ratio measures the dependence of the City on other levels of government for sources of funding. It is important to note that a balance needs to be achieved as a reduced dependence on government transfers may reduce vulnerability but it could also impair sustainability if the City's tax base has to replace the revenues lost from a reduction in transfer payments. The City of Kelowna has a grant strategy in place to create this balance.

Some government transfers are relatively consistent from year to year, however the City occasionally receives one-time funding typically for infrastructure projects which will cause this ratio to fluctuate.

Conclusion

The overall financial health of the City was strong going into the 2020 fiscal year.  In comparing the City's ratios to those of municipalities of the same size, it is important to note and consider when making decisions around this information that we are not comparing apples to apples in services and products. It does however, warrant investigation if the City shows significant differences.

The sustainability ratios show that the City is well positioned to meet its current financial obligations without increasing the debt or tax burden. 

While the City is positioned flexibly and does have the ability to take new opportunities on without increasing the debt or tax burden, the debt servicing costs are higher than municipalities of similar size.  When making determinations on funding the City should take this into consideration along with the financial strategies that are in place.

The City of Kelowna’s vulnerability in regards to its dependence on sources of funding outside of its control is currently being managed through its grant strategy and has shown to be within an acceptable range.

The City of Kelowna is well positioned to continue to build a vibrant community.

Previous Annual Reports*

Thoughtful Collaboration - 2018 Annual Report
Stronger Together - 2017 Annual Report 
Connected - 2016 Annual Report (PDF)

*These documents contain dated information and are for historical reference only.