November 01, 2015 - 11:30 AM
KELOWNA - Finance officials with the city will now use currency forecasts in advance of all big ticket purchases from the United States, hoping to avoid price swings that render budget estimates obsolete.
“It’s certainly affecting us when buying products directly from the U.S. or if we are buying from a Canadian supplier who is buying their goods from the U.S.," director of finance Genelle Davidson says.
Davidson says the problem lies in the time gap between figuring out capital purchases for the budget, getting department heads to agree to the purchases and then putting them in front of council for budget approval.
She points to the recent purchase of a fire engine as an example. Originally priced out at $600,000 CDN in June 2014, the sticker price jumped 21 per cent by March 2015 and another six per cent since then, adding $180,000 to the total purchase price, soley because of the drop in value of the Canadian dollar.
Davidson says staff are preparing the preliminary budget for 2016 and will now be asked to flag the source for capital requests. If it's the U.S., she says staff will turn to forecasts from leading economists about which direction the Canadian dollar may go against its U.S. counterpart.
If the dollar is predicted to go downward, the city may buy U.S. dollars and leave them in an interest bearing account until the purchase is complete, a form of currency hedging.
She could not say how much of the city’s $477-million budget would be affected by the lop-sided exchange rate.
Davidson admits the system is less than perfect.
“Our dollar was supposed to stay flat against the U.S. dollar since March. It did not stay flat. They were wrong. It shows it’s still just a forecast."
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News from © InfoTel News Ltd, 2015