The Ontario Securities Commission posted a $4.1 million surplus for fiscal 2005, which ended March 31, according to its annual report released Wednesday. It predicts the coming year will be closer to break-even.

The OSC says revenue exceeded expenditures by $4.1 million, down from a $21.6 million surplus in 2004. The surplus would have been much larger, but for a $14.9 million rebate of fees to market participants. The general operating surplus as of March 31 was $32.8 million (up from $28.7 million in 2004).

Salaries and benefits costs increased by 10.3% in the year to $44.3 million from $40.2 million in 2004 and accounted for 71.9% of the OSC’s total expenditures. Key contributors to this increase were annual salary adjustments ($1.4 million), higher benefits costs ($550,000), increased staffing levels ($700,000) and higher severance costs ($1.2 million). The OSC had 376 permanent employees on board (9.4% of positions were vacant) at the end of the year compared to 352 (10.9% of positions were vacant) at the end of 2004.

Total spending projects of the Canadian Securities Administrators was $1.9 million in 2005 (up from $1.8 million), of which the OSC contributed $755,000 (down from $854,000 in 2004). In 2005, the OSC contributed $175,000 to the cost of the CSA Secretariat and $208,000 to the cost of the systems office.

In 2005, the OSC approved $787,000 in designated settlements arising from enforcement proceedings. Designated settlement funds are allocated for the benefit of third parties such as the Investor Education Fund, which the commission established five years ago. The OSC currently holds $2.5 million in designated settlements. It is currently seeking ministerial approval to transfer these designated settlement balances to third parties.

During the year, the commission also received $5.9 million from the operator of the SEDAR electronic filing system, representing the accumulated surplus from the operations of SEDAR from its inception. These funds are to be held by the commission in accordance with agreements with other regulators. The funds are to be used for development or enhancement of SEDAR, development or enhancement of the System of Electronic Disclosure by Insiders, to permit a reduction in the SEDAR Fee Schedule and for application against a previous year’s shortfall.

The OSC says revenues are expected to be $67.1 million or 17% lower in 2006, for a variety of reasons including the timing of certain fees. It does not anticipate lower market activity.

Net operating expenditures are budgeted to increase 8.7% to $67 million for 2006. The key budget increases are salaries and benefits costs of $4.5 million and professional services of $1.3 million. Salaries and benefits costs are projected to rise 10.2% to $48.8 million. This increase reflects a decision to increase approved staffing from 390 to 408 (including seven additional staff in enforcement and four additional staff in investment funds) and annual performance increments to salaries of current staff.

The 2006 capital budget is $3 million, 46% higher than the $2 million spent in 2005. Additional accommodations for new staff will require spending for leasehold improvements. The remaining capital expenditures are information technology-related.