Campbell River mayor misinterprets city surplus

Does not represent available cash to lower property taxes, according to city auditors

Mayor Walter Jakeway misinterpreted a surplus in last year’s budget prompting him to say council needlessly increased taxes last year.

A city surplus revealed by auditors at last week’s council meeting does not represent available cash to lower property taxes, according to city auditors.

Brad Piercy, an accountant with Meyers Norris Penny (MNP), told council that, in 2012, the city’s expenses were down by about $5 million, and the city has more assets than debt. He praised council for lowering its debt to $6.08 million – the lowest he had ever seen – and acknowledged that the city had a surplus of $3.69 million.

“The auditors noted significant improvement in both the audit process and the city’s financial management, but unfortunately, an item called ‘annual surplus’ has been misinterpreted by some people – including the mayor,” said Coun. Andy Adams, council’s finance liaison. “It needs to be clarified that what’s called a ‘surplus’ does not represent real dollars available to be spent on general city operations.”

The confusion began last week, when Jakeway approached local media about the surplus and his comments were reported elsewhere.

“Tuesday night at council, the external auditor officially confirmed that in 2012 the city had a surplus of $3.69 million,” Jakeway told the Mirror. “The problem is, the city raised taxes 13.6 per cent on residential properties in 2012 which is equal to $2 million. In other words, there was no reason to raise taxes at all. The surplus is far bigger than the tax increase.”

Jakeway said his call for a tax revolt last spring to protest such a large tax hike, was validated by the surplus.

But Piercy said the surplus is money already spoken for.

“The calculation of annual surplus is complicated, and in this case does not represent excess tax money or cash available for the city to spend without looking at capital projects first,” Piercy said.

The surplus is money to be carried forward into the 2013 budget to complete capital projects.

“Some projects were underway, but not completed in 2012, and, in accounting terms, when we calculate funding set aside to finish these, it’s included in what we called a surplus,” Adams said. “Council voted to dedicate money for capital projects to improve local infrastructure, and once contracts are awarded, the funds can only be used for that work.”

Adams explained that because some projects were delayed, less money was spent in 2012 than anticipated but regulations stipulate that the leftover water and sewer funding is not eligible to be used for general expenses, and can only go towards operations and projects related to sewer and water.

But on Tuesday morning, Jakeway said he stood by his original comments.

“I expected others to react to my comments, that is why I stated ‘yes, there are reasons/excuses for the large surplus, but the statements by the mayor calling for a zero per cent tax increase (in 2012) were unconditional.’ When taxpayers pay their annual taxes or service fees each July they don’t care whether the taxes are used for capital, operations or whatever,” Jakeway said. “The tax money is not segregated, based on its due end.

“The taxpayers expect the budget and the annual spending activities to be juggled efficiently to minimize the need for tax increases. I do not believe that has occurred in 2012 or 2013. A surplus is a surplus.

“If the 2012 annual budget had shown a $3.7 million surplus alongside a 13.6 per cent residential tax increase, do you think the budget would have been approved?” Jakeway added.

Meanwhile, City Manager Andy Laidlaw has been fielding calls from citizens led to believe that taxes did not need to be raised because of the surplus, which Adams compared to an income tax refund.

“To put it in a more simple context, if you are a home owner and you receive an income tax refund in May, your bank account shows a ‘surplus’ for a few months, but in July you receive your property tax bill, so the so-called surplus was never really there as there were known expenses that needed to be covered,” Adams said. “The same situation applies here for the city, only on a larger scale, in that council, as a whole, already has endorsed and approved expenses for projects that have yet to be completed.”