2011 Municipal Study - City of Brantford

Municipal Study 2011Operating 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 taxpayers to fully meet the cost of services. Municipalities operating with a deficitover several years should ensure that the long range financial plan provides clear direction to turn thisaround.The presence of an accounting surplus does not necessarily represent financial sustainability. While asurplus is clearly better than a deficit, the accounting surplus may not be large enough for future assetreplacement. Amortization expense is based on historic cost and will not reflect increased cost ofreplacement in the future. Taking into account future replacement costs in determining the appropriatelevel of surplus is a critical step towards financial sustainability. Some level of surplus is bothappropriate and required. Identifying the appropriate level of surplus must be done as a long termforward looking planning process that takes into account future capital investment needs.Operating SurplusThe operating surplus has been calculated on an accrual basis, excluding asset revaluations,developer contributions, capital grants and accounting corrections. The operating surplus does notinclude donated assets, development charge collections and provincial and federal grants. Operatingsurplus (deficit) arises when operating revenue exceeds (is less than) operating expenses. In theabsence of other overriding objectives or directions, municipalities should strive to generate operatingrevenue approximately equal to their expenses.Operating Surplus RatioThe operating surplus ratio is the operating surplus (deficit) expressed as a percentage of Own SourceRevenues. A negative ratio indicates the percentage increase that would be required to achieve abreak-even operating result. A positive ratio indicates the percentage of total revenues to help fundcapital expenditures.The operating surplus ratio is the operating surplus (deficit) expressed as a percentage of own sourcerevenues. A negative ratio indicates the percentage increase in total rates that would be required toachieve a break-even result. Municipalities consistently achieving operating surpluses, having regardto asset management and meeting service level needs, are a good indication of financial sustainability.MunicipalMunicipalFinancialFinancialInformationIndicators51