2011 Municipal Study - City of Brantford

Municipal Study 2011Water and Wastewater Operating Surplus and Operating Surplus RatioAn operating surplus (deficit) arises when operating revenue exceeds (is less than) operatingexpenses including amortization . When an operating surplus is achieved, the amount is available forcapital expenditure over and above amortization expenses. Long term financial sustainability isdependent upon ensuring that on average, over time, expenses are less than revenues. In essence,this requires current ratepayers to fully meet the cost of water and wastewater services.Municipalities operating with a deficit over several years should ensure that the long range financialplan provide clear direction to turn this around.The presence of an accounting surplus does not necessarily represent financial sustainability. Whilea surplus is clearly better than a deficit, the accounting surplus may not be large enough for futureasset replacement. Amortization expense is based on historic cost and will not reflect increased costof replacement in the future. Taking into account future replacement costs in determining theappropriate level of surplus is a critical step towards financial sustainability. Some level of surplus isboth appropriate and required. Identifying the appropriate level of surplus must be done as a longterm forward looking planning process that takes into account future capital investment needs.The operating surplus has been calculated on an accrual basis, excluding asset revaluations,developer contributions, capital grants and accounting corrections.The operating surplus ratio is the operating surplus (deficit) expressed as a percentage of user rates.A negative ratio indicates the percentage increase in total rates that would be required to achieve abreak-even result. Municipalities consistently achieving operating surpluses, having regard to assetmanagement and meeting service level needs, are a good indication of financial sustainability.Water/Wastewater305