Report
to/Rapport au:
Health,
Recreation and Social Services Committee/
Comité de la santé, des loisirs et des services
sociaux
and Council/ et au Conseil
13 June 2001/ le 13 Juin 2001
Submitted by/Soumis par : Dick Stewart
General Manager/Directeur général
People Services Department/Services aux citoyens
Contact/Personne-ressource : Joyce Potter, Director of Housing/Directrice
du Logement
748-4357, ext. 4162,
joyce.potter@city.ottawa.on.ca
Ref.
No.: ACS2001-PEO-HOU-0008
SUBJECT : OTTAWA HOUSING/CITY LIVING : STRATEGIC DIRECTIONS STUDY
OBJET : LOGEMENT
OTTAWA/HABITATION URBAINE : ÉTUDE SUR LES DIRECTIVES STRATÉGIQUES
REPORT RECOMMENDATIONS
That the Health, Recreation and Social Services Committee recommend
Council:
- Receive for
information purposes the Executive Summary of the consultant’s report
entitled “Ottawa Housing/City Living: Strategic Directions Study”,
attached as Annex 1;
- Support
maintaining separate corporate structures for both City Living and Ottawa
Housing at this time;
- Direct staff
to report back to Council on the implications of program funding reforms,
once completed, as well as an assessment of whether to proceed with a
formal business case to fully investigate the cost and benefits of a
merger between City Living and Ottawa Housing.
RECOMMANDATION(S)
DU RAPPORT
Que le Comité de la santé, des loisirs et des
services sociaux recommande au Conseil municipal :
- de
prendre connaissance du sommaire exécutif du rapport du consultant
intitulé « Logement Ottawa/Habitation urbaine : Étude sur les
directives stratégiques » ci-joint en Annexe 1;
- d’appuyer
le maintien, présentement, de structures organisationnelles séparées pour
Logement Ottawa et Habitation urbaine;
- d’enjoindre
le personnel de présenter au Conseil un rapport sur la portée de la
réforme du financement des programmes, une fois ce dernier achevé, ainsi
qu’une évaluation déterminant s’il convient de procéder à une analyse de
cas formelle afin d’examiner les coûts et les avantages d’une fusion de
Logement Ottawa et d’Habitation urbaine.
BACKGROUND
In December of 2000, the Province enacted legislation to bring into
effect the devolution of social housing to local municipalities. As a result of this legislation,
municipalities, in their role as Service Managers, were required to develop a
Joint Local Transfer Plan to outline how the transfer of social housing would
be completed for their area. Council
has approved such a Plan for Ottawa and is awaiting final approval from the Ministry
of Housing and Municipal Affairs.
One of the key elements identified in the Transfer Plan is the need to
consider the future of both City Living and Ottawa Housing, the two largest
social housing providers in the city.
Together, these organizations manage over 14,600 housing units, roughly
60% of the entire social housing stock in the city. The balance of the social housing portfolio (about 9,000 units)
is managed by 78 other providers in the private, coop and supportive housing
sectors, each of which is governed by their own Board of Directors. City Living and Ottawa Housing are also
separate legal entities and are governed by Boards of Directors, although these
directors are duly appointed by the shareholder. In this instance, the City is the sole shareholder of each
corporation and has Council representatives who sit as directors on each of the
respective Boards.
Given that there is commonality in the clients these organizations
serve, there is similarity in the governance structure of each corporation and
there is a 100% City shareholder interest in each, there are questions as to
whether these organizations should continue as separate entities in their
current format or whether other more appropriate organizational option should
be considered for their future. A
strategic study has been completed by an external consulting team to test such
options and the findings of that study are the subject of this report.
DISCUSSION/ANALYSIS
To assess the future roles of both City Living and Ottawa Housing, staff
in the Social Housing Branch at the former Region identified the need to
consider potential ‘go-forward’ options for both organizations late in
2000. It was acknowledged at that time
that this study would need to be strategic in nature, given the many unknown
factors revolving around the devolution of social housing. In fact, the legislation governing
devolution had not even been proclaimed at that point in time. However, there was a desire to consider early
in the transfer planning process whether there were compelling reasons to consider
alterative organizational options. This
would enable an opportunity to adjust the Service Delivery model where there
was compelling rationale to do so.
Staff developed an RFP late in 2000 to retain an external consultant
that would undertake a strategic review of the organizations and test various
organizational scenarios. As part of
the work program, a preferred option was to be recommended and roles for moving
forward were to be clarified. Through a
rigorous evaluation process, the team of Johnston Smith International and Focus
Consulting was selected to undertake the study, which commenced in January
2001. The ensuing process would see
review, analysis, consultation with key stakeholders and active dialogue with
staff of the respective organizations, resulting in a final report dated May 9th,
2001.
Context
To better understand the recommendations of the report, it is important
to understand the context in which the study was conducted. At roughly the same time as the study was
commencing, public housing was formally transferred from the Province to the
City under Stage One transfer provision of the Social Housing Reform Act. Despite the fact that this enabling
legislation had only been proclaimed in December, this meant an immediate shift
in business operations for Ottawa Housing as of January 1st,
2001. Rather than being a provincial
agency, Ottawa Housing was now a separate legal entity with the City as sole
shareholder. Even though this transfer
has occurred, there are many subsequent operating issues with this new status
that have not been resolved, as one might expect with any new organization.
Under legislation, the City was required to complete a Joint Local
Transfer Plan (JLTP) by mid-May 2001 despite the fact that many of the
regulations supporting the legislation were not available. Likewise, guidelines and information to make
informed business decisions about social housing were not, and still are not
yet available. As the context for the
JLTP was primarily focused on preparing for Stage Two of devolution (expected
for April 1st, 2002), the issues were geared mainly to non-profit
housing providers like City Living.
Under Stage Two, there would be a significant component of program
reform, especially in the subsidy funding model. This reform could have a significant impact on housing provider
budgets and therefore, affect Service Manager costs. In the absence of regulations, many questions remain about the
impacts of these reforms and also the benefit of applying them to public
housing, where it is possible to do so.
In February of this year, Council endorsed the findings of a previous
study completed on behalf of the Ottawa Transition Board. In effect, it was determined that municipal
non-profit providers
from the former local municipalities should not be merged but
that they be permitted to convert to private non-profit housing corporations,
excluding City Living. Analysis
supporting this proposition determined that only modest savings might be
realized (although these were not guaranteed) and that maintaining the autonomy
of these smaller providers was important, especially in their context with
their local communities. Since that
time, these smaller non-profit corporations have initiated the process of
conversion. Given the size of City
Living and its unique shareholder status in comparison to these other former
municipal providers, it was acknowledged that a more logical consideration
might be the merging or sharing of services with Ottawa Housing.
Study Process
In terms of process, the strategic study of Ottawa Housing and City
Living commenced in January of this year.
Recognizing the desire to have examined options in a preliminary way
prior to the finalization of the transfer plan, an early April completion was
targeted. A study review team,
comprised of staff from Ottawa Housing, City Living and the City, was struck to
provide feedback to the consulting team throughout the study. This team met regularly with the consulting
team, providing background material, reviewing drafts and commenting on project
deliverables. The Executive Summary of
the consultants’ report is found as Annex 1.
The consultant’s approach was to complete the study in three phases
covering visioning, design and implementation.
In practice, this translated into the following steps:
§
Assess existing
conditions for both organizations
§
Establish
plausible ‘go-forward’ organizational options
§
Assess the
relative merits of each scenario based on a range of assessment criteria
§
Shortlist those
options that are most plausible
§
Assess the
short-listed options in more detail across similar assessment criteria
§
Recommend a
preferred ‘go-forward’ option for the two organizations
§
Suggest
implementation steps to carry forward the preferred option
In an important first step, the consultant undertook a review of the
organizations and their operational framework.
As outlined in the report, there are similarities in the organizations
with relation to governance, portfolio size, range of unit types, ratio of staff
per unit and service to tenants.
However, there are some distinguishing differences worth noting:
·
Ottawa Housing
primarily administers units developed under public housing programs or operated
under the rent supplement program, whereas City Living administers units
developed under 10 different provincial / federal non-profit housing programs
and 2 in-house programs, each with varying requirements.
·
Under program
funding reforms, City Living has a portion of stock which will have mandatory
modifications whereas Ottawa Housing’s stock could be subject to reforms at the
discretion of the Service Manager
·
As a requirement
of the programs they administer, City Living has capital reserve funds with
annual allocations (as well as some unallocated reserves) whereas Ottawa
Housing has no reserves but does have a sizable annual capital budget
allocation.
·
Under program
structure, debt service for Ottawa Housing is lower based on portfolio age and
long-term debentures as opposed to City Living where debt service is higher,
given the relative youth of the stock and private mortgage structure.
·
Tenant relations
practices are different in that City Living promotes a more inclusive tenant
involvement approach where Ottawa Housing promotes a client service approach.
·
The organizational
cultures of each organization have different roots which are reflected in their
existing structures; City Living as an autonomous municipal corporation, Ottawa
Housing as a provincial agency.
Based on the existing conditions as well as goals and objectives of each
organization, basic organizational design principles were developed by the
consultant to help frame ‘go-forward’ options.
These included maintaining or enhancing resident service levels, respecting
the visions of each organization, building on existing strengths and best
practices, and providing accountability to taxpayers through the provision of
efficient services.
In the initial assessment stages, six options were developed by the consultant:
|
Option 1 - Status Quo Existing organizational structures for City Living and Ottawa Housing would remain essentially unchanged, except for a clarified accountability relationship between the City and the two housing providers. |
|
Option 2 - City-established Shared Services The City would lead the establishment of an arms-length tri-party shared services unit (City/City Living/Ottawa Housing Corporation) designed to take advantage of potential economies of scale. |
|
Option 3 - Provider Shared Services City Living and Ottawa Housing Corporation would establish an arms-length shared services unit (without the City) designed to take advantages of potential economies of scale. |
|
Option 4 - Merged Housing Corporation City Living and Ottawa Housing Corporation would merge to form a single housing provider corporation. |
|
Option 5 – City Department City Living and Ottawa Housing Corporation would be replaced by a City department that assumes responsibility for direct delivery of property management and other housing provider services. |
|
Option 6 – Private Non-Profit City Living and/or Ottawa Housing Corporation would be converted into a private non-profit housing provider with the City no longer having a shareholder interest in the corporations. |
Each option was then evaluated across a set of assessment criteria which included:
· Governance and accountability – clarity in roles and accountability, minimized duplication and ability to make day-to-day decisions without external influence
· Resident services – maintaining or enhancing service levels, promoting excellence in service to residents
· New housing and partnerships – ability to develop new housing supply, encouraging partnerships to achieve mutually beneficial supports
· Asset management – effective management of assets, delivery of property management services and sound capital planning
· Organizational Flexibility – ability to effectively deliver a diverse range of programs and capacity to accommodate program reform
· Efficiency – encouraging operational efficiencies and financial accountability
· Human Resources – respectful of existing collective agreements, compensation differentials and staff development
· City’s interests – respectful of the shareholder and service manager relationships, recognizing broader housing policy objectives of the City
· Best Practices – builds on existing best practices to provide good quality affordable housing
· Transition – minimizes financial and non-financial impacts associated with organizational change
The relative comparison of options across these criteria is detailed in the consultant report and summarized in a matrix format. Based on the matrix, the consultant identified those options for which further assessment was considered warranted. A key finding in this process was the clear desire for an arm’s length approach to the organizations, effectively eliminating Option 2 – City-established Shared Services and Option 5 – City Department. While these options promote more accountability, they also involve the City in the day-to-day operations of each organization and in this capacity, would offset the benefits that an arm’s length corporation can bring to bear in areas like mortgage financing, capital reserve funding and development capacity. Option 6 – Private Non-Profit was also discounted at this stage as it scored lower in the analysis and did not retain a shareholder interest for the City, despite the public interest in maintaining this role. In this instance, both organizations would enjoy maximum autonomy as housing providers but would not have shareholder accountability with the City.
As a result of the initial screening analysis, three options were shortlisted for further consideration. Each option was refined and re-assessed in greater detail against the same assessment criteria, again considering the relative benefits/constraints of going forward.
These refined options were:
|
Option 1 – Maintain separate organizational structure Move forward with existing structures but seek clarification of roles,
define accountability, establish best practices and pursue shared services to
achieve cost savings. (re-named here to more accurately reflect the option) |
|
Option 3 – Provider Shared Services Move forward with a mandate to establish a shared services unit
between the staff of each existing organization, in order to seek cost
savings where practical. Structural variations on this model were considered
and discussed. Some transition costs
would be anticipated. |
|
Option 4 - Merged Housing Corporation Move forward with an integrated organization, arranged in either a
vertical or horizontal fashion, eliminating duplicate staff and branch
offices, especially at the senior level.
Substantive transition costs would be incurred. |
As a result of this shortlist analysis, the consultant determined that Option 3 – Provider Shared Services was less feasible, given the difficulty inherent in finding common ground on service approaches where service delivery models differ by organization. This could limit potential savings under this option - savings that may be offset by implementation costs in any event.
Consultant Recommendations
On the basis of their two-step analysis, the consultant determined that a merged organization (Option 4) provided the most advantages when compared to the other options, but cautioned that the timing may not be right for a merger. The fundamental basis for the recommendation was:
§
Increased clarity
in role and mandate by eliminating overlap of service districts and focusing
only on one municipal housing provider while maintaining an arm’s length
relationship with the City
§
Projected
end-state cost savings on an annual basis of between $600,000 and $1.9M,
predominantly based on salary savings through workforce reduction of between
15-30 positions. It was noted however,
that this represents a small component of the combined overall operating
budgets of the organizations (0.5% to 1.7%) and that changes in non-manageable
costs (i.e. utilities and debt service) could have a significantly larger
impact on operating budgets. Transition
costs would also have to be factored in.
§
Some new
efficiencies could be realized as a result of increased scale, including
reduced risk, increased portfolio diversity and greater flexibility in making
capital decisions (although limited by program constraints)
The consultant also identified potential concerns with this option
related to having a larger more expensive bureaucracy, migrating to
standardized service levels which are inflexible to local needs, and creating
an inequality with other housing providers by becoming the dominating entity
within the Service Manager’s portfolio.
While these are bona fide issues with the merge option, the consultant
felt that they were concerns that could be managed and that potential savings
could more than compensate for these risks.
In moving to a merged organizational model, there would obviously be
associated transition costs and these were projected by the consultant to be in
the order of $1.1M to $1.6M. While this
is only an estimate, it is clear that it would take significant initial funding
and 2 to 3 years before the full potential of any projected cost savings could
start to be realized (assuming reforms have been implemented). Were the transition process to linger on due
to unforeseen complications or delays, it would take longer to realize
projected savings.
While the consultants supported the merge option, they also noted that
in the current environment of program reform and devolution, a merger would
create additional complications for the two organizations. Under legislation, City Living will face
mandatory funding reform on a significant portion of its portfolio. Ottawa Housing may be subject to similar
reforms for its entire portfolio but these are at the discretion of the Service
Manager. In both instances, an impact
assessment by the Service Manager would be prudent to establish the financial
implications of these reforms. Apart
from the cost implications associated with reform, the capacity of these
organizations to operate, reform and merge at the same time is highly
questionable.
The consultant also acknowledged that where support for a merger and a
shared organizational vision could not be achieved, success of the merge option
could be compromised. In this regard,
the consultant recommended that Option 1 - Status Quo would be a reasonable
alternative, as both organizations have a high level of tenant satisfaction and
operate within acceptable current benchmarks as compared to their respective
peers. This would have the added
benefit of avoiding the cost and disruption inherent under a merged option.
Stakeholder Comments
Upon completion of the study, copies of the final report were circulated
to both organizations and key stakeholder agencies in the community seeking
comments. The following formal comments
were received as of report date.
Ottawa Housing: Full
support for the merge option to maximize savings, reduce bureaucracy and
implement an improved service standard for shareholder’s clients. Also recommend using savings from the
merger to fund development of new affordable/social housing and have desire to
initiate the process immediately.
Extensive comments were made in the OHC staff report supporting the merge option, summarized as
follows:
·
Governance/accountability
– expect streamlined management and single Board, no duplication of functions
·
Resident services
– suggest quality of service would improve under merged option, continue to use
tenant association approach
·
Community
partnerships/housing development – support for partnerships under one entity, desire
expanded role in meeting homelessness needs with resources
·
Asset management
– ability to provide expertise ‘under one roof’, need to accommodate different
reserve structures
·
Organizational
flexibility – expect merge to eliminate perceived differences in existing
organizations, able to manage organizational differences in merger through
cooperation
·
Efficiency –
savings would be significant and could reduce costs to taxpayer, lower costs
can be achieved by making additional salary cuts without jeopardizing tenant
services (saving $3.1M rather than $1.9M), manageable costs would improve under
a merger, savings could be used to address homelessness issues
·
Human Resources –
elimination of 31 position could save $2M, address through elimination of
contract positions but delays may force the need to make these positions
permanent
·
City Interests –
opportunity to build more efficient entity with a higher standard of service,
need to use taxpayer dollars efficiently
·
Best Practices –
scale economies would be larger, financial benefits would still be significant
despite other possible cost drivers (utilities, mortgage rates), opportunities
to pursue other savings also exist, other LHC’s are pursuing merger
·
Transition Issues
– suggests transition costs would only be $845,000, not the $1.1M-$1.6M
suggested by consultant, addressing reform issues is a manageable challenge
during merger, a wait-and-see attitude will only delay putting savings to work
immediately for homelessness.
In approving the staff recommendations, the Board of Ottawa Housing also
suggested the immediate engagement of a consultant to pursue the merge option.
City Living: Overall, they strongly support their
organization moving to private non-profit status and as a result, support
maintaining two separate corporations and a continued arm’s length relationship
with the City. Extensive comments in
support of this approach were made in three areas:
·
Arm’s length
relationship – Support the principle of arm’s length organization as a
continuation of process initiated in 1994.
Are less supportive of City setting policy directions, as suggested in
study, and would prefer a collaborative approach instead. Have some concerns about clarity of the
roles the City has as both shareholder and Service Manager. Specifically noted
that:
o
moving away from
the former City structure has been positive
o
powers of
shareholder are quite limited
o
limit in
shareholder role is necessary for clarity/autonomy
·
Merger vs. Status
Quo – Do not support merger, either in principle or on basis of study
findings. Principle reasons include:
o
Savings under
merger are not adequately substantiated and are more probable in the order of
the consultant’s low estimate ($600,000), therefore do savings really warrant a
merger?
o
The staff savings
implied under the proposed merge suggest an organizational structure which
could compromise service
o
Reductions would
most impact on manageable costs, despite the cost reduction and constraints
that have been endured over the last few years.
o
Concerns about timing/change
overload, especially where a transition process will impede new development
which is planned/currently underway
o
Feel that a
large, single organization would be less flexible and less responsive, while
providing less choice to tenants/applicants.
o
Retaining two
organizations supports a quality-based approach to social housing and
encourages collaboration, innovation and best practices.
o
Partnerships are
fostered more effectively with smaller-scale, community-based organizations –
not larger organizations.
o
Shared purchasing
opportunities continue to exist where separate organizations are retained and
could be available to all providers, not just City Living and Ottawa Housing.
·
Corporate Status
– Interest of tenants and applicants best served by City Living moving to
private non-profit status with no shareholder role. Best way to ensure clarity in shareholder role and would not
preclude continued collaboration with City.
Same approach could apply for Ottawa Housing if OHC Board wished to
pursue, subject to any legislative restrictions. More specifically, private non-profit status would:
o
Eliminate
confusion of mandates, support a logical continuation of moving City Living
away from former City
o
Reduce possible
conflicts between Service Manager role and shareholder role that currently
exists
o
Still entail a
community-based Board which would protect assets, act as one of the many
service delivery agents in the community
o
Encourage
diversity in housing providers and partnerships
City Living noted that if a merge option is pursued despite their
objections, the implementation process should be led by those in the community
who are arm’s length and would be responsible for operating the management of a
new merged corporation (not the City).
Neither a delayed decision on a merger nor delayed implementation of a
decision is seen as desirable.
Social Housing Providers Network (SHPN): They
prefaced their comments by noting that both Ottawa Housing and City Living are
members of the Network, making consensus on supporting any one option
difficult. They also noted their
historical support as a network for the autonomy of housing providers and are
on record as supporting conversion of municipal non-profit’s to private non-profits. A number of key issues were highlighted by
the network:
- Operational
savings - Skeptical of cost savings, especially in context of other cost
drivers like utilities and interest rates. Concern that service levels would be impacted negatively. Need to ensure clear business case
(minimum) as well as maintaining service levels.
- Arm’s
length relationship – Fully support arm’s length role for City
Living. Possible conflict in role
of City as owner of largest provider and Service Manager (policy
developer). Equitable treatment of
providers is essential and this is at risk where the City owns and
administrates programs for the majority of the stock in Ottawa.
- New
housing development and partnerships – Contest the notion that the merge
option improves partnership potential.
Innovative providers in the community have already made significant
in-roads here. As the
administrator of new supply funding, there is potential for conflict
between a merged City entity and other providers in the community.
- Timing
– Concerns about change overload but also desire to remove uncertainty
about future options. Do not
support a delay-then-merge approach, as inferred by consultant.
- Provider
demonstrating leadership – Strong community track record of leadership in
the social housing field, recognized in the province. Do not agree with consultant assertion
that mergers in other areas of the province represent ‘best practices’
- Consumer choice
– Support continued ability to enhance provider choice, this was not
adequately addressed in consultant report.
On the basis of these comments, the Network is certainly less favourable
to a merge option and more supportive of an autonomous provider approach.
Cooperative Housing Association of Eastern Ontario (CHASEO): They do
not support a merge option, especially given the differing positions of the two
Boards. They do however, support the
principle of continuing with a corporation that is at least arm’s length from
the City. They would in fact prefer an
option where corporate ties are severed with the City, which in their mind
would put both organizations on an equal footing with other providers.
Assessment of Study Findings
Staff have reviewed the final report from the consultant and have
considered the comments submitted by key stakeholders regarding the proposed strategic
directions for these organizations. On
that basis, staff concur with the consultant that a merge option could possibly
have advantages over the other options tested but that the timing may not be
right for a merger. Further, staff
recognize that a clear business case supporting a merger would need to be
completed before moving forward with organizational change. Critical to this business case would be a
full evaluation of the financial and non-financial costs, including an
assessment of the financial impact of program funding reform on both
organizations, as well as transition costs, service impacts and potential
payback period. Staff rationale for
this assessment is as follows:
Timing: Program
and organizational reforms have yet to be completed
The devolution process has a clear impact on both City Living and Ottawa Housing. As they move through program and organizational reform imposed through legislation, each is faced with many operational challenges. For Ottawa Housing, the process of assuming a new corporate framework and role that is now autonomous from the Province but accountable to the Service Manager, is well underway but not yet completed. For City Living, the bulk of the devolution process lies ahead over the next year or two. Both organizations will be impacted to a greater or lesser extent by the funding reform model. However, the regulations supporting this model have not yet been issued and the impact of implementing this model has not been assessed. Benchmarks, critical to this assessment, are also not yet available from the Ministry.
Over the next year, reforms will be rolled out and implemented as administrative responsibility for providers is formally transferred to Service Managers. In Ottawa, the transfer date has been set at April 1, 2002 and after that date, the new funding model will start to be applied to affected providers, as legislated. For City Living, implementation of the model will be mandatory for part of their portfolio; for Ottawa Housing, the model may be implemented is it proves appropriate to do so.
The new funding reform model could have significant budget implications for providers, based on allowable benchmarks. In turn, this would have cost implications for the City as Service Manager, since subsidy flows are directly impacted by provider’s costs and revenues. To ensure that reform cost implications are adequately considered in the merge assessment, the City – as Service Manager – should complete an impact assessment prior to endorsing any wholesale organizational change. Only once the regulations and benchmarks are available, could such an assessment be undertaken. Where the Service Manager has the discretion to apply the new model (i.e. Ottawa Housing), it will be useful to first gauge the effect of the new subsidy model before determining whether to apply the model more broadly.
Proposed cost
savings are strategic estimates and may not be achievable
Estimated end-state savings are simply that – estimates with a notable range. The consultant’s figures assume that the bulk of any savings will be achieved through staffing reductions, depending on deployment, attrition and elimination of contract positions. Without a clear end-state organizational model however, it is not possible to accurately estimate the true savings achievable through staff reductions and workforce adjustment. Likewise, without a formal organizational structure and assessment of options to achieve the desired structure, the costs associated with the transition process (i.e., how to get from here to there) are speculative. In the interim, staffing costs will likely be subject to upward pressures, given the existing differentials that exist between the two organizations.
As noted above, there are financial impacts associated with implementing
program reforms that have yet to be assessed.
These impacts cannot be measured without a governing framework, a clear
understanding of the reforms and a formal impact assessment. As such, it would not be prudent to proceed
with organizational change until this formal assessment can be made, given that
subsidy impacts could change the complexion of a merge business case analysis.
Due to the strategic nature of this study, it was not within the consultant’s scope to undertake a detailed pro forma analysis of end-state costs. Rather it was intended that the assessment consider comparative differences in ‘go-forward’ scenarios for both organizations. In the report, the consultant acknowledged that under a merge option, a business case analysis would be a necessary prerequisite to accurately assess benefits as offset by financial and non-financial costs incurred through significant organization change. Staff agree that a finer grain of financial analysis is required to determine the magnitude of savings a merger could deliver, once all appropriate costs are factored in.
A forced merger
at this time would have negative service impacts
The consultant was clear in acknowledging a merger that was not
supported and did not forge a shared vision for unified service delivery could
fail to achieve expected benefits. This
is a concern since service to tenants could be compromised during the
transition process. Under existing
structures, it is clear that tenant satisfaction is high for both City Living
and Ottawa Housing. In any merge, the
specter of staff reduction and work force adjustment is likely to impact on
front line staff negatively. Where the
merger is forced, this impact could be further damaging in terms of tenant
relations
If there were
consensus to proceed with merging by staff and Boards at both organizations,
the process to implement this new model could take two to three years to
complete. Given comments from both
organizations, merging the divergent views to achieve a common future vision
could lengthen this time. Where Ottawa
Housing and City Living staff are required to deal with on-going business,
transition, and program reform concurrently over the next year, staff will be
prone to ‘change overload’. Again, changing organizational structures during this period represents
a risk to tenant services.
The Service Manager relationship with other housing providers in the community is also a concern to staff. A merged organization would control over 60% of the social housing stock in the City, precipitating the need for the new entity to establish new relationships with their existing tenants and requiring a reconsideration of their relationship as compared to the 78 other providers with whom the Service Manager deals. This would also precipitate a necessary refinement of the Service Manager’s existing service delivery model, given the imbalance a large single corporation would introduce.
The
City should maintain a shareholder interest
During the study analysis, the option for moving towards private
non-profit status was not selected for further consideration, primarily on the
basis that it moved away from a shareholder accountability role. While Council has endorsed the conversion of
8 former MNPs to private status, these were much smaller in scale and more
geographically disbursed across the City than City Living. Staff did not support endorsing the
conversion of City Living to private status at that time and continue to
support this approach, given the magnitude of the organization and the sizable
community assets it has accumulated.
Staff recognize the broader public interest in maintaining a shareholder
role with both Ottawa Hosuing and City Living and as such, do not support options
which would relinquish this accountability.
As an accountability vehicle for the community assets in these
municipally-owned corporations, this role need not be intrusive but should be
retained by the City. Staff support a
shareholder role, distinct from the Service Manager role, regardless of the
organizational model promoted.
A
Status Quo option should not be misinterpreted as ‘Do Nothing’
While staff are supporting the continuation of separate structures for
both organizations at this time, it should be clear that this is an option for
moving forward. As noted by the
consultant, there are many opportunities for pursuing the sharing of best
practices and finding efficiencies in current service delivery models. The new role that Ottawa Housing is now
assuming and the evolving role that City Living has will continue to present
opportunities for their respective Boards to pursue service improvements and
seek cost efficiencies. During this
time of reform, the sharing of information and resources between these
organizations can provide each with mutual benefits. Staff, in their role as Service Manager, will continue to foster
an environment where this can happen.
Experience in Other Jurisdictions
As a result of the devolution legislation, Service Managers across the province are considering similar issues as those faced by Ottawa in relation to LHCs and MNPs. While the context and circumstances of the affected organizations differs across these areas, it is clear that no one common approach is being endorsed by other SM’s. Options being supported, as shown in the following table, include retaining existing structures, moving staff into City structures and merging organizations. Merge options are being proposed in only two of these areas, and there is a tendency for labour relations to be a core motivator of change (i.e. Toronto).
Alternatively, a common theme in retaining existing structures is the need to assess the impacts of reform, given the potential cost implications associated with untested subsidy models. When considering the issue of size as a proportion to the overall social housing portfolio, if LHC and MNP corporations in these areas were to merge, none would comprise as dominant a proportion as here in Ottawa (62%). With the exception of Toronto, most other large urban areas with sizable portfolios would have less than half of their portfolio in a single provider.
CONSULTATION
During the study process, the consultant undertook consultations with
various key stakeholders. These
included:
§
Briefing sessions
with the Board of Directors for each organization
§
Focus group
sessions with Senior Management teams for each organization
§
Group sessions
with staff for each organization
§
Tenant
representatives from associations for each organization
§
Group session
with the Steering Committee of The Social Housing Providers Network – a cross
section of providers, sector representatives and housing advocacy agencies
§
On-going
communications with City staff from the Housing Branch
As a result, extensive feedback was provided through the process by
those most impacted by the options and by those who would be less directly
affected by changes in either of the existing organizational structures. This broad consultation enabled the
consultant to capture the range of issues related to all levels of each
organization as well as tenant representatives.
The study also included a tenant satisfaction survey, conducted by
telephone across both organizations.
Roughly 400 households were contacted in each organization to assess
their general satisfaction with the services they were receiving from the
respective organizations. The key
finding of the survey was that both organizations have a high level of overall
resident satisfaction, despite their operational differences. Results were statistically significant and
are summarized in tabular form in the Appendix B to the Consultant study.
Upon completion of the study by the consultant, copies were circulated
to both organizations as well as key stakeholders in the community for their
comment. The comments received through
this process were highlighted earlier in this report.
FINANCIAL IMPLICATIONS
The primary recommendation in the consultant’s study was a merged
corporation, on the strength of cost savings that could be achieved under an
end-state structure. As noted, the
range of these estimated savings is sizable and prone to a number of
assumptions. As a result, suggested
savings are speculative and could be difficult to realize. In addition, a merged option would incur
significant up-front costs to cover transition expenses, albeit on a one time
basis. These would relate to such
things as consultant fees, work force adjustments, IT systems harmonization and
a new identity program. Where the
process of transition is delayed, additional costs may also be incurred as old
and new organizational structures merge.
This would push back the horizon for realizing proposed savings and
diminish the proposed benefits that this option would offer.
It is very important to consider the context in which cost savings are
projected. Together, the 2001 annual
operating budgets of these organizations is $107M. Based on the consultant estimate of end-state savings (from
$600,000 to $1.9M), a 0.5% to 1.7% savings in these budgets might be realized
under this scenario. This represents a
fraction of the annual operating costs of the organizations and does not
diminish non-manageable expenses in any meaningful way. The manageable cost components of these
budgets, where each organization has some discretion, are quite modest and have
been subject to constraints for some time.
A number of cost drivers could impact on the overall budgets of these
organizations, regardless of their future structure. The magnitude of these impacts is quite significant when considered
on an annualized basis. For instance,
changes in utility costs over this calendar year could impact the two
organizations. A 20% increase in
utility costs for both organizations could translate into a $3M increase in
subsidy requirements. Alternately,
changes in interest rates of only 0.5% in a given year could translate into
additional debt service costs in the order of $600,000. By contrast, the potential end-state savings
that may be achieved under a merge scenario are relatively modest.
In summary, compelling financial evidence is not available at this time
to make an informed and conclusive decision about changing the current status
of Ottawa Housing and City Living. In
fact, there are very real risks in proceeding with substantive change in this
environment of uncertainty. While each
organization must work through program or organizational reforms over the
coming year or so, it will take additional time to ascertain the operational
and fiscal impacts of these reforms before any decision should be imposed under
a change model. A more detailed and
comparative business case analysis would need to demonstrate a clear advantage
for change, once reforms have been implemented and impacts have been duly considered.
ATTACHMENTS
Annex 1 – Executive Summary - “Ottawa Housing/City Living: Strategic Directions Study”
(Note: Copies of the full study report are
available from the Committee Coordinator)
DISPOSITION
Secretariat staff should send a copy of the Council resolution to the
Boards of both City Living and Ottawa Housing Corporation.