Annual report

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Annual Report

2020 Annual Report cover thumbnailEvery individual in our community experienced the ups and down of 2020 in different ways and has their own story to tell.  We invite you to read a bit about our story during a uniquely challenging year – how we faced and navigated the obstacles and opportunities that the COVID-19 health crisis brought with it, maintained essential services for our residents, made careful investments in projects that were important to our community and advanced on Council Priorities 2019-2022, demonstrating our commitment to the community to bring their vision of Imagine Kelowna to reality.  

City Council endorsed the 2020 Annual Report on Monday, June 28.

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2020 City of Kelowna financial health indicators

These Financial Health Indicators show the overall financial health of the City of Kelowna for the year ended 2020. 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 for year end 2019. Comparative financial information for 2020 will be available when the Local Government Data Entry (LGDE) statistics are published in the fall. 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 April 29, 2021. 

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 2020 as both assets and liabilities increased at a comparable rate from 2019.

Total assets to liabilities chart

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 been trending upwards in recent years, with financial assets growing at a greater rate ($47.7M) than that of financial liabilities ($7.6M), driven mostly by the increase in cash and short-term investments.

Financial assets to liabilities chart

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*. An increasing ratio normally indicates stability and that the City is well positioned to meet its financial obligations now and in the future.  In this case, the increase from 76 per cent in 2019 to 98 per cent in 2020 was driven mostly by decreasing revenue, rather than an increasing rate of growth in net financial assets. The increase from 2019 to 2020 is due to an increase in net financial assets of $40.0M over prior year, and a decrease in revenue of $44.4M.

Net financial assets to total revenue

*This measure assumes stable or increasing revenue year over year. The increase in this ratio for 2020 was a result of decreasing non-tax revenues, primarily driven by COVID-19. As shown in the chart below, revenues decreased from 2019, while net financial assets continued to increase at a normal rate.

Net financial assets and total revenue by year (thousands) graphic

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 2018-2019 shows that the City’s net financial assets increased at rate comparable to that of the economy (as approximated by the change in the tax assessment amount).  In 2020 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, 2019 the City has more net financial assets per tax assessment dollars than the other Municipalities. The increase from 2019 to 2020 was due to financial assets increasing at a greater rate than tax assessment values.

Net financial assets to tax assess graph

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 2020 this graph shows that the City’s expenses remained relatively constant to 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 2020 due to a 3 per cent decrease in expenses over prior year, while property tax assessment increased by 2 per cent.

Total expense to tax assessment

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. After several years of downward trends, 2020 shows the City’s accumulated surplus growing at a rate slightly faster than the economy. The difference between the City and Municipalities over 100,000 shows that the City’s surplus compared to tax assessment is higher by 2-3 per cent during the time frame.

Accumulated surplus/deficit to tax assessment

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 2019 1.3 per cent of revenues were used to pay for debt service charges and that the amount remained relatively steady in 2020 at 1.2 per cent.  The graph also shows that the City’s borrowing ratio is currently in line with other municipalities.

Debt service to revenues graph

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. In 2020 this ratio decreased to 34 per cent as many sources of non-tax revenue decreased due to COVID-19 public health restrictions and travel advisories resulting in decreases in air travel, public transit, and use of recreational facilities.  

Own source revenue to total revenue graph

The graph below shows the same data, but with airport revenue removed. This measure gives a clearer comparative ratio as most British Columbia municipalities do not have a city-owned airport or the associated airport revenue. While we still see a small decrease from 2019 to 2020, the effect is much less pronounced than that in the chart above. The small decrease below is primarily due to the completion of the Kelowna Integrated Water project and the associated decrease in grant revenue tied to that project.

Own source revenue to total revenue graph

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 2020 this graph shows that the City receives $0.70 from own source revenue per $1 of tax assessment.  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, 2019. The ratio declined slightly in 2020 due to decreases in own source revenue mentioned in the previous indicator.

Own source revenue and property tax revenue to tax assessment graph

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 2020 this graph shows that tangible capital assets have 59.95% of their original cost left to be depreciated, or that the City has used 40.05% of its assets useful life.

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

Net book value to cost of tangible capital assets graph

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. The decrease in this ratio from 2019 to 2020 was the result of funding in 2019 related to the South East Kelowna Irrigation District (SEKID) project that had concluded by 2020.

Government transfers to total revenues graph

Conclusion

The City’s strong overall financial health at the beginning of the year was challenged in some areas by the COVID-19 pandemic. The area to be cognizant of is the City’s ratios in relation to Municipalities of similar 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 however, it warrants investigation if the City shows significant differences.

The sustainability ratios show that the City has remained stable in meeting current financial obligations without increasing the debt or tax burden in a challenging year. 

Decreasing revenues in 2020 challenged the City’s flexibility position, but currently remain at acceptable levels. Should the trend of decreasing revenues continue, or if recovery is slow it may impact the City’s ability to take on additional levels of debt, or respond to future infrastructure replacement demands.  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 regarding 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’s indicators show fluctuation in response to uniquely challenging times, but remain in a good position to continue to build a vibrant community.

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

Previous Annual Reports*

Shaping Kelowna for the Future - 2019 Annual Report
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.