Report to/Rapport au :

Corporate Services and Economic Development Committee

Comité des services organisationnels et du développement économique

and Council / et au Conseil

19 May 2009 / le 19 mai 2009

Submitted by/Soumis par : Marian Simulik, City Treasurer/Trésorière municipale

Contact Person/Personne ressource: Marian Simulik, City Treasurer/Trésorière municipale

Finance Department/Département de finance

(613) 580-2424 x14159, Marian.Simulik@ottawa.ca

City Wide/à l'échelle de la Ville

Ref N°: ACS2009-CMR-FIN-0024

SUBJECT:	2010 Proposed Budget Timetable and Process

OBJET :	Processus et calendrier budgétaires proposés pour 2010

REPORT RECOMMENDATIONS

1. That the Corporate Services and Economic Development Committee table this report at its 19 May 2009 meeting, for consideration at its 2 June 2009 meeting and then forwarded to Council for its consideration and approval on 10 June 2009; and

2. That the process and timetable for developing and approving the 2010 draft tax-supported budget be adopted as detailed in this report, subject to the creation of a new Standing Committee to deal with Audit and Finance issues as part of the upcoming governance review.

RECOMMANDATIONS DU RAPPORT

1. Que le Comité des services organisationnels et du développement économique dépose le présent rapport à sa réunion du 19 mai 2009, pour considération à sa réunion du 2 juin 2009 avant d’être soumis au Conseil municipal pour examen et approbation le 10 juin 2009; et

2. Que le processus et le calendrier en vue d'élaborer et d'approuver le budget préliminaire financé par les taxes de 2010 soient adoptés tels qu'ils sont détaillés dans le présent rapport, sous réserve de la création d'un nouveau comité permanent qui traitera des questions de vérification et de finances dans le cadre de l'examen de la gouvernance à venir.

BACKGROUND

The City of Ottawa’s budget process has been evolving ever since amalgamation in an attempt to increase transparency and citizen engagement. Last year’s developments included a budget challenge by elected representatives prior to tabling and a more consolidated format for the budget document. The proposed process for 2010 continues this evolution and reflects the following two motions.

June 28, 2008 Council - MOTION NO. 39/9

WHEREAS the current budget process leads to an atmosphere of near crisis management when the program changes of every City department come before Council at the same time;

AND WHEREAS many of these changes deserve specific attention and public review;

THEREFORE BE IT RESOLVED THAT the City work towards a process where proposals for significant service changes, program additions or reductions should first be presented to the relevant Standing Committee and Council for approval, subject to confirmation during the budget process.

August 28, 2008 Council - MOTION NO. 41/31

WHEREAS the timetable approved by Council for the development, tabling and approval of the 2009 budget will be completed in 2008; and

WHEREAS the 2009 budgetary requirements will be based on the projected 2008 actuals and not the final actual results of 2008; and

WHEREAS the review of actual results during the course of the year on a regularly scheduled basis is fundamental to the development of future City budgets on a sound financial basis;

BE IT RESOLVED that the 2010 budget and all future budgets be tabled with Council early in December, with consultations in January of the budget year in question in order to allow the budget to be approved early in the first quarter based on the previous years' actual results.

In addition to these specific motions, discussions on governance held by Council in April resulted in a consensus that the budget should move from being a staff document to a Council document. Further, there was general agreement that a new Standing Committee, called the Finance and Audit Committee for the purposes of this report, should be established to provide direction and oversight on areas that have an impact on the City’s longer-term financial sustainability. There was some discussion about the need for the operational Standing Committees and the potential Finance and Audit Committee to have a role in budget development, as well as the advantages of having public input during the development of the budget in addition to the feedback received once the draft budget has been tabled.

This report incorporates these objectives and provides options for a significantly changed process from previous years.

DISCUSSION

Since amalgamation, the City’s process for developing the budget included having staff develop a draft budget document in strict secrecy to reflect a fixed taxation objective set by Council months in advance, with the resulting tabled document being viewed as staff’s recommended budget. Public consultation on the draft budget often focused on options to reduce or eliminate municipal programs that staff presented as a potential means to achieve a specific tax target. There have been on-going criticisms that this approach has been unnecessarily divisive for Council, staff and the community. The proposed 2010 budget process as described below moves away from the current process by having elected representatives take ownership of the entire budget and by including consultation throughout the budget development phase, so that the tabled document better reflects the community it serves while remaining consistent with the principles in Council’s Fiscal Framework.

In order to highlight the differences between the current and proposed process each step in the existing process will be described and contrasted to the proposed process.

Budget Directions

The process used in previous years saw Council adopt a tax target when it approved the Budget Directions report. Typically the Budget Directions report would be approved six months in advance of the draft budget being released and would include the budget pressures known at that time and a list of general strategies that could be used to reduce the taxation impact. This report often provided the first opportunity for Council to be advised of the budget pressures the City would be facing. Any changes required to the list of budget pressures or the specifics around the reduction strategies would not be identified until the budget was tabled in the last quarter of the year.

In the last three years the budget document has been modified to include the two subsequent years with the current year. This provides Council and the public with an indication of the magnitude of the pressures and any planned solutions on a continual basis. In addition, reports to Council that have a future year budget implication are identified as such and a running total of these impacts included in each quarterly status report.

The City has adopted a Fiscal Framework which includes budget principles and targets to be achieved in order to become more financially sustainable over the long term. Included in the Fiscal Framework is a target of limiting tax increases to the rate of inflation (Document 1). In addition to the Fiscal Framework, Council has set term of Council priorities which informs staff when developing work plans and operating and capital budgets.

With the adoption of these guiding documents, Council has adopted on-going budget directions for the 2006-2010 Term of Council. Therefore the recommended 2010 budget process does not include a separate Budget Directions document. Staff will use the already approved documents to guide them in developing the capital and operating budgets.

Budget Development and Challenge - Standing Committees’ Lead

In previous years, staff developed the budget and any recommended or proposed options for budget reductions without the involvement of the elected officials or the public. The general guiding principles or criteria listed below were used to develop the options, with the underlying principle being to minimize the overall impact on residents:

Identification of new revenue opportunities
Deferral of new needs not yet implemented
Deferral of capital projects with operating impacts
Reduction to growth pressures to maintain existing service levels; and
Reductions to existing programs and services

Last year, City Council adopted a process whereby the proposed operating budget adjustments (both increases and decreases) were reviewed and challenged by a sub-set of Councillors from each Standing Committee. This process was successful in reducing the value of the budget increases primarily through a more stringent review of actual performance in the current year. While any member of a committee could attend the Budget Challenge workshops, these were informal meetings held outside the formal Committee process, and the public did not attend. Further, these discussions did not include a review of options that were being developed to achieve the directed taxation target.

For 2010, the process being recommended would see each of the General Managers or Directors present to their respective Standing Committees the budget adjustments that are being proposed for the areas within that Committee’s Terms of Reference. The Standing Committee would question and challenge the budget assumptions and debate any policy implications around the budget such as revenue recovery ratios for various programs, etc. In accordance with the Fiscal Framework, staff would identify service reductions or eliminations for committee consideration and prioritization. The Standing Committee would also review and challenge the capital projects being proposed for each service area.

As with all Standing Committees, the public would be able to speak at these meetings to express opinions on service levels and the proposed changes to the budget. This allows the committee members to ensure the Committees’ budget is built reflecting community priorities. At the conclusion of the review, the Standing Committee would recommend the budget for their service areas, including any reduction options, to the Finance and Audit Committee.

Budget Consolidation and Tabling - Finance and Audit Committee Lead

In previous years, staff would prepare all of the budget documents and present the draft budget at a Council meeting. As stated before, this would be the first time Council and the public would be informed on any proposed or recommended service reduction options.

This proposed process would see the Finance and Audit Committee consolidating the work of all of the Standing Committees, reviewing the proposed budgets against the City’s Fiscal Framework and any new information relating to current and projected influencing economic factors, and present a recommended budget to Council. It will be important to ensure that each Standing Committee is represented on the Finance and Audit Committee to provide the appropriate context around the decisions that were made by the Standing Committee.

In addition, also in keeping with the anticipated changes to governance, the Standing Committee Chairs (or their designates) could present their recommended budgets to the Finance and Audit Committee. The Finance and Audit Committee would review the overall consolidation and the overall property tax impacts on City residents. At the conclusion of their deliberations, the Finance and Audit Committee would recommend the draft Budget to Council. The Chair of the Committee would present and table the recommended budget to Council.

As public delegations will be heard at each Standing Committee and again by City Council sitting as Committee of the Whole once the draft budget has been tabled, it is recommended that the Finance and Audit Committee not receive delegations during the consolidation exercise.

Budget Deliberations

In previous years the budget deliberations began with staff presentations and questioning by Council in Committee of the Whole. At the conclusion of the presentations, Council would begin a page by page review of each operating branch and capital program. As options for reduction were not included in the branch budgets, motions were required to be moved at the appropriate time as each Branch budget was approved individually.

As in previous years, the proposed process would continue to have Council sit as Committee of the Whole in order to consider the proposed draft budget as recommended by the Finance and Audit Committee, along with receiving public delegations. However, it is envisioned that the Committee of the Whole would consider and debate the recommendations from the Finance and Audit Committee as opposed to undertaking a page-by-page review of the budget documents as the scrutiny over the estimates and any proposed adjustments has already been conducted by the Standing Committees and the Finance and Audit Committee. The amended draft budget would then rise to Council for approval.

Budget Consultation

As stated above, previous draft budgets have been developed by staff without Council or public input during the development stage. Instead, staff has organized multi-ward budget consultation meetings following the tabling of the draft Budget, which have been attended primarily by citizens speaking against proposed budget cuts developed by City staff. A large number of these citizens and stakeholder groups would also then present to Council as Committee of the Whole to ensure their voices are heard.

Because this proposed budget process will be led by Council, the budget consultation process is recommended to change as well.

Specifically, as citizen and stakeholder input is going to be incorporated throughout the budget development process in the Standing Committee review and again in Committee of the Whole prior to the finalization of the budget, it is recommended that there be no staff-led meetings following the tabling of the draft Budget by the Finance and Audit Committee. It is expected that some Councillors may wish to hold their own ward consultations, which will continue to be supported by staff as they have in the past.

Budget Timetable

The proposed timetable has been developed in order to allow the current year’s actual financial performance to be incorporated into the document, in accordance with Motion 41/31.

Proposed Process	Timing
Budget development by staff using the Fiscal Framework and Term of Council Priorities as a guide	June to Sept
Review and challenge of the budget adjustments proposed including any changes in services levels by Standing Committee (as per Council motion 39/9)	Oct 1 – Nov 6
Consolidation of the budgets recommended by the Standing Committees and development of an overall budget strategy by the Finance and Audit Committee	Nov 16 - 27
Tabling of the draft budget by Finance and Audit Committee	Dec 9
Optional ward based public consultations	Dec 10 – Jan 29
Committee of the Whole –public delegations	Feb 1 - 3
Budget deliberations by City Council	Feb 4 - 5

Rate Supported - Water/Sewer Budgets

The taxation and rate budgets have been developed as two separate documents in the past few years, as they are not dependant on each other. On September 24, 2008 Council delegated the authority to the Planning and Environment Committee to establish the timetable for adopting the water and sewer budgets.

As changes to the water/sewer rate can be put into effect almost immediately, whereas changes to the tax rate are not implemented until the final tax due date in June, having both budgets proceed at the same time will result in lost water rate revenues. For this reason, it is likely that the water/sewer rate budget be accelerated and approved before the end of 2009. The water and sewer rate budget could be tabled in November and approved in December by Council. As the Planning and Environment Committee will be holding meetings to receive public input on the rate supported programs along with reviewing the operating budget assumptions, program policy issues, service reductions or eliminations along with the proposed capital program, it is proposed that the draft rate-supported budget as recommended by the Committee be forwarded directly to Council for consideration and approval.

Budget Format

The budget format underwent a significant consolidation for the 2009 budget. Given the amount of work that went into the new document it is recommended that the same format be used for the 2010 budget.

CONSULTATION

Public consultation through City Councillors will commence with the May 19 tabling of this document at the Corporate Services and Economic Development Committee. Public delegations on these documents will be held at the Corporate Services and Economic Development Committee on June 2 with Council consideration and adoption on June 10.

LEGAL/RISK MANAGEMENT IMPLICATIONS:

There are no Legal/Risk Management impediments to implementing the recommendation in this report.

FINANCIAL IMPLICATIONS

There will be an additional cost to hearing public delegations at Standing Committees as well as during Committee of the Whole. It is expected that these additional costs will not exceed $30,000, and can be absorbed within existing budgets.

SUPPORTING DOCUMENTATION

Document 1 – “Budgeting” - Fiscal Framework – City of Ottawa

DISPOSITION

Upon approval of this report, the City will commence development of the 2010 draft operating and capital budgets for consideration by standing committees in the Fall of 2009.

The required changes to the Procedure By-law will be formalized as part of the Mid-Term Governance Review report.