Municipalities are legislated to have a balanced budget. In other words, the revenue the City gets (taxes, user fees, grants, etc.) must equal its expenses, including debt servicing costs, plus transfers between funds (e.g. transfer of funds to capital reserves) and the City balances that equation to zero every year as required.
When the City prepares its financial statements, municipalities are also governed by accounting standards set out by the Public Sector Accounting Board (PSAB). These standards create a consistent format for every municipality in the country to follow so that everyone is reporting their financials the same way and has been in place since 2012. We have a note in our financial statements (Note 14 provides full transparency on this) that states how the budget is adjusted to conform with the presentation required in financial statements.
The major difference between the presentation of the City’s budget and the presentation of the financial statements is the representation of capital assets, including how they are valued and how they are funded. These adjustments include removing the purchase of tangible capital assets, debt principal costs and deferred revenue; and the addition of amortization costs. For example, we don’t budget directly for amortization, but we budget for contributions to capital reserves that reinvest into our infrastructure that has a replacement value in excess of $5 billion. The surplus listed in the City’s financial statements has those very large dollar figure adjustments to comply with those PSAB standards and is mostly non-cash and largely represents the City’s investment into our capital assets for the year. The City would have to liquidate those assets to see any kind of cash value. Surplus also includes reserves balances that the City uses to fund future infrastructure projects to keep them working properly and delivering the service needed for residents. Maintaining those reserve funds is an important and responsible duty of municipalities.
Read more about local government finances on the B.C. Government website.