Report to/Rapport au :
Council / et au Conseil
14 December 2006 / le 14 décembre 2006
Submitted by/Soumis par : Greg Geddes, Chief Corporate Services Officer/
Contact Person/Personne
ressource : Marian Simulik, Director, Financial Services and City Treasurer/
Directrice des services financiers et tresoriere municipale
Financial Services/Services financiers
(613) 580-2424 x 14159, Marian.Simulik
SUBJECT: |
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OBJET : |
REPORT RECOMMENDATIONS
That the 2007 Budget Directions
report be received and tabled at the Council meeting of 14 December 2006 for subsequent
consideration by Council as Committee of the Whole on 10 and 11 January 2007;
and that Councillors submit to the City Clerk by 05 January 2007 for
Council consideration, any motions which provide additional direction to staff
for the development of the 2007 Draft Budget.
1.
That
Council approve the development of a Draft Operating Budget for 2007 for all
tax-supported services (excluding Ottawa Police Services), that includes:
a.
The
cost of maintaining current programs at current service levels;
b.
The
cost of providing provincially mandated and cost-shared programs;
c.
The
costs associated with growth in population or infrastructure that is operated
and maintained by the City;
d.
The
costs of enhanced services as directed by Council through reports and directions
received throughout the year;
e.
An
increase equivalent to 1% of taxation for the contribution to capital used to
fund the strategic initiatives category of capital;
f.
An
increase to user fees at either the percentage increase in the cost of
providing the program or service, or as directed through Council-approved
policy;
g.
A
reasonable estimate of assessment growth from new properties added to the tax
base;
h.
Deferring
a 2007 increase to the corporate efficiency target to 2008; and
i.
No
increase in taxation.
2.
That
the difference between the expenditures and revenues added to the 2007 Draft
Operating Budget identified in Recommendation 1, be eliminated through the use
of the following strategies:
a.
Deferral
of service enhancements that have not yet been implemented;
b.
Use
provincial gas tax revenues to the extent possible to offset increases in the
cost of transit;
c.
Use
debt where possible, instead of contributions to capital, to fund the capital
program;
d.
Incorporate
and pursue the cost-sharing shortfall with the provincial government;
e.
Identify
and incorporate any other one-time sources of funding;
f.
Increase
user fees and charges by more than that identified in Direction 1f; and
g.
Identify
program reductions.
3.
That
the Police Services Board be directed to table a Draft 2007 Operating Budget
that is consistent with the directions identified above.
4.
That
the 2007 tax-supported Draft Capital Budget:
a.
Be
developed as identified in the Long Range Financial Plan III;
b.
Incorporate
the budget directions on contributions to capital and debt as identified in the
recommendations above; and
c.
Identify
projects in the strategic initiatives category as prioritized by the
administration, and provide a list of all other projects for information.
5.
That
the operating and capital budgets supported by the water/sewer rate be
developed in accordance with the strategies identified in the Long Range
Financial Plan III which includes:
a.
A
combined water/sewer rate increase of 9% in 2007
b.
An
increase in the amount of debt authority applied to the capital program;
c.
The
deferral of projects within the strategic initiatives category of capital; and
d.
Allowing
the reserve balance to fall below $20 million during the year.
6.
Approve that the City continue to fund one-time
2007 operating requirements from a one-time transfer from reserves.
RECOMMANDATIONS DU RAPPORT
Que le rapport sur les orientations
budgétaires de 2007 soit déposé à la réunion du 14 décembre 2006 du Conseil en
vue de son examen ultérieur par le Conseil siégeant en comité plénier les 10 et
11 janvier 2007 et que les conseillers fassent parvenir au greffier de la
Ville, au plus tard le 5 janvier, le texte des motions à soumettre à l'examen
du Conseil qui donneraient une orientation supplémentaire au personnel dans la préparation des prévisions budgétaires
de 2007.
1.
Que
le Conseil approuve la préparation de prévisions préliminaires du budget de
fonctionnement de 2007 pour tous les services financés à même les recettes
fiscales, à l'exclusion des services policiers, comprenant :
a.
le
coût du maintien des programmes existants à leur niveau de service actuel;
b.
le
coût de la prestation des programmes prescrits par la Province et des
programmes à frais partagés;
c.
les
coûts liés à la croissance de la population ou des infrastructures utilisées et
entretenues par la Ville;
d.
le
coût des améliorations des services demandées par le Conseil par le truchement
de rapports et de directives tout au long de l'année;
e.
une
hausse équivalente à 1 % des taxes de l'apport en capital exigé pour la
catégorie des initiatives stratégiques d'immobilisation;
f.
une
hausse des frais d'utilisation, soit par augmentation procentuelle du coût de
prestation du programme ou du service, soit en application d'une politique
approuvée par le Conseil;
g.
une
estimation raisonnable de la croissance de l'assiette fiscale que représente la
valeur foncière ajoutée des nouvelles propriétés;
h.
le
report de 2007 à 2008 de l'augmentation de l'objectif d'efficacité
organisationnelle;
i.
aucune
augmentation de taxes.
2.
Que
l'écart entre les dépenses et les recettes ajoutées aux prévisions
préliminaires du budget de fonctionnement de 2007, dont il est question dans la
recommandation 1 ci-dessus, soit éliminé par le recours aux stratégies
suivantes :
a.
reporter
les améliorations de service qui n'ont pas été mises en œuvre;
b.
dans
la mesure du possible, utiliser les recettes provenant de la taxe provinciale
sur l'essence pour compenser les augmentations de coût du service de transport
en commun;
c.
recourir,
lorsque cela est possible, aux emprunts plutôt qu'aux apports en capital pour
financer le programme des immobilisations;
d.
incorporer
le manque à recouvrer des programmes à frais partagés et le recouvrer auprès du
gouvernement provincial;
e.
déterminer
et incorporer toutes les autres sources de financement ponctuel;
f.
augmenter
les frais et les redevances d’utilisation d’une hausse supérieure à celle
indiquée à la directive 1f;
g.
déterminer
des compressions de programme.
3.
Qu'il
soit prescrit à la Commission des services policiers de déposer des prévisions
préliminaires du budget de fonctionnement de 2007 conformes aux orientations
définies ci-dessus.
4.
Que
les prévisions préliminaires du budget de 2007 des immobilisations financées à
même les recettes fiscales :
a.
soient
établies en conformité avec le Plan financier à long terme III;
b.
respectent
les orientations budgétaires définies dans les recommandations ci-dessus
relativement aux apports en capital et au financement par emprunt;
c.
déterminent
les projets appartenant à la catégorie des initiatives stratégiques, selon
l'échelle de priorité établie par l'administration, et comprennent la liste de
tous les autres projets à titre d'information.
5.
Que
les budgets de fonctionnement et des immobilisations financés à même les
redevances d'eau et d'égout soient établis en conformité avec les stratégies
définies dans le Plan financier à long terme III, qui prévoit :
a.
une
hausse des redevances d'eau et d'égout combinées de 9 % en 2007;
b.
une
augmentation du montant de l'autorisation d'emprunt applicable au programme des
immobilisations;
c.
le
report des projets appartenant à la catégorie des initiatives stratégiques
d'immobilisation;
d.
une
baisse éventuelle du solde de la réserve sous le seuil de 20 millions de
dollars pendant l'année.
6.
Que
la Ville continue de financer les besoins de fonctionnement ponctuels de 2006 à
partir d'un transfert ponctuel des réserves.
EXECUTIVE
SUMMARY
This
report starts the process of establishing Budget 2007 by providing Council and
citizens with a preliminary examination of projected spending pressures and
potential revenues for next year. The
report outlines potential options for Council to consider when providing staff
with direction to meet the taxation objective. It provides budget direction for
the Police Services Board that is similar to the rest of the City. The report also provides direction on how
the 2007 capital budget is to be established along with budgets for water and
sewer services.
In order
to maintain existing services in 2007, the City requires a projected additional
$72.5 million. This increase is due to
a variety of factors, including inflation on materials, supplies and purchased
services and increases in the cost of compensation. One-time solutions employed in the 2006 budget also need to be
re-addressed as part of the 2007 budget.
The cost
of providing services to new residents or servicing new municipal
infrastructure (the cost of growth) is estimated to be $15.1 million. The cost
of enhanced services, as directed by Council throughout the year, is estimated
to be $10.8 million. The main pressure
in this area is the funding required to improve Ottawa Community Housing
Corporation’s financial sustainability.
Offsetting some of these cost pressures is the additional revenue
generated by new properties and increases in user fees and charges as per
Council policy.
Potential
solutions for Council to consider in reducing the $84.9 million in cost
pressures for all City services, excluding Ottawa Police Services, without
increasing taxation include:
§
Deferring some or all service enhancements
§
Using provincial gas tax for operating needs instead
of for capital
§
Using debt instead of tax-supported increases to the
contribution to capital
§
Request the province adequately fund their share of
cost-shared programs
§
Use any other one-time sources of funds available,
and
§
Identify program reductions.
Ottawa
Police Services are requesting an additional $10.5 million (net after
assessment growth) for 2007, which represents a 6.7% increase in their net
budget requirements. Council is being asked to give Police Services direction
on their budget request. This report recommends that the Police Services be
given the same taxation target that is consistent with that given to the other
tax supported City services.
In 2004,
Council endorsed a net 9% increase to the water bill for 2007, in order to
fully fund the requirements of the water and sewer programs. This rate increase
is still required to support the on-going operating and capital requirements of
the program therefore Council is being asked to approve the rate increase for
2007.
RÉSUMÉ
Le présent
rapport donne le coup d'envoi au processus d'élaboration du budget de 2007 en
fournissant au Conseil municipal et aux résidents un aperçu des facteurs de
dépenses prévus et des recettes attendues pour l'année qui vient. Le rapport
expose les options que le Conseil peut examiner au moment de donner des
indications au personnel de la Ville en vue de la réalisation de l’objectif
concernant les taxes foncières. Il comprend les orientations budgétaires de la
Commission de services policiers, qui sont semblables à celles du reste de la
Ville. Il fournit également des directives sur l’élaboration du budget des
immobilisations de 2007 ainsi que des budgets alloués aux services d'eau et
d'égout.
Afin de
maintenir les services actuels en 2007, la Ville a besoin d’environ
72,5 millions de dollars supplémentaires. Cette augmentation s’explique
par divers facteurs, y compris l'augmentation du coût des matériaux, des
fournitures et des services achetés, ainsi que la hausse des salaires. Comme en
2006, la Ville devra envisager de verser des crédits ponctuels à certains
postes budgétaires en 2007.
Les coûts
associés à la prestation des services aux nouveaux résidents ou à l’entretien
des nouvelles infrastructures municipales (coût de la croissance) s’élèvent à
environ 15,1 millions de dollars. Les coûts liés aux services améliorés,
conformément aux directives données par le Conseil tout au long de l’année,
sont évalués à 10,8 millions de dollars. Dans ce domaine, les principales
pressions viennent du financement nécessaire pour accroître la viabilité
financière de la Société de logement communautaire d’Ottawa. La Ville pourra
réduire cette tension sur les coûts grâce à des recettes supplémentaires
provenant des nouveaux biens-fonds et à l’augmentation des frais et des droits,
conformément à la politique du Conseil à ce chapitre.
Le Conseil
pourrait envisager diverses solutions afin de réduire les pressions de
84,9 millions de dollars sur les coûts pour l’ensemble des services
municipaux, à l’exception du Service de police d’Ottawa, sans augmenter l’impôt
foncier. Mentionnons notamment les suivantes :
§
reporter toutes les améliorations de services;
§
contribuer aux réserves d’immobilisations au moyen
de la dette plutôt que de recourir à une hausse des taxes;
§
reporter l’accroissement des services;
§
demander à la Province d’affecter suffisamment de
fonds aux programmes dont elle partage les coûts avec la Ville;
§
utiliser d’autres sources de recettes ponctuelles
disponibles;
§
cerner les programmes qui peuvent faire l’objet de
réductions.
Le Service
de police d’Ottawa demande des fonds additionnels de 10,5 millions de
dollars (nets après évaluation de la croissance) en 2007, ce qui représente une
augmentation budgétaire nette de 6,7 p. 100. On demande au Conseil de
donner au Service de police une directive à respecter pour son budget. Le
présent rapport recommande donc de maintenir le budget du Service de police à
son niveau de financement de 2006.
En 2004,
le Conseil a approuvé une augmentation nette de 9 p. 100 de la
tarification des services d'eau et d'égout, afin de récupérer la totalité des
coûts d'exploitation de ces programmes. Cette hausse des tarifs est toujours
nécessaire pour répondre aux besoins courants en immobilisations et en fonctionnement
de la Ville; c’est pourquoi on demande au Conseil d’approuver une hausse des
frais d’utilisation pour 2007.
BACKGROUND
A Budget Directions report provides Council and citizens with an indication of projected spending pressures and potential revenue for the following year. Once Council has considered all the factors presented in this Report, it can provide staff with directions on how to build the Draft Budget for consultation with citizens. The purpose of this report is to start the public debate on the priorities for City services and to determine appropriate funding mechanisms.
This report will, in accordance with the approved timelines, be debated in Committee of the Whole on January 11, 2007 following a day reserved for public delegations. As in previous years, in order to facilitate debate it is recommended that any motions Councillors wish to make with respect to the budget directions be submitted to the City Clerk by 05 January 2007.
Linkages to Other Plans
The Operating and Capital Budgets
are the yearly spending plans for the City and as such are linked to a number
of other new plans including the Corporate Plan, Departmental Business Plans
and the Human Resources Plan. The
Corporate Plan and Departmental Business Plans identify Council’s priorities,
as initially defined in the Ottawa 20/20 exercise, and how the City will work
towards advancing those priorities.
The Human Resources Plan will be tabled with the Draft Budget on 07 February, 2007. The Human Resources Plan will provide information on the Full Time Equivalents (FTEs) in the various services along with an itemization of the new FTEs identified in the 2007 Draft Budget. The purpose of the report is to provide Council with additional detail on the staff complement.
DISCUSSION
What
makes up the City Budget?
The City’s 2006 Operating Budget had a gross
spending plan of $2.113 billion. This
spending plan includes items funded from the water bill, the tax bill, user
fees and charges and other levels of government. These funds are used for the following broad program areas.
Provincially mandated and cost shared services, include employment and financial
assistance, public health, long term care, childcare, social housing, paramedic
services and the cost of funding the Municipal Property Assessment Corporation
(MPAC), represented 29% ($609 million) of total 2006 City spending. These costs are funded from other levels of
government, user fees and the tax bill.
Police Services Board
includes the cost of providing police services and made up 9% of City gross
spending ($197 million). These costs
are primarily funded through taxation.
Debt repayments, includes
the annual cost of principle and interest payments for debt that has already
been issued. These costs are fixed at
the time of issue and represented 4% of total spending or $90 million in 2006.
Costs which are completely under Council’s control include:
Contributions to capital from current, which provides for the cash portion of capital works and, in 2006, was
valued at $127 million. These
contributions are raised from the tax bill and the water and sewer bill.
Rate-supported programs, include
expenditures for the water and sewer service exclusive of the contribution to
capital. These programs were
approximately $121 million of total spending in 2006.
All other tax-supported City services, the remaining 46% of the budget ($969 million), is spent on all other
City services and programs including:
·
Transit
services
·
Fire services
·
Parks,
recreation and cultural services
·
Planning and
building services
·
Roads and
sidewalk maintenance and snow clearing
·
Traffic and
parking operations
·
Engineering
services
·
Garbage
collection and recycling
·
Central
administration and governance
The sources of funding for these programs and services include user
fees and charges, other levels of government and property taxes.
The discussion that follows deals with all areas of the City’s 2007 spending plan and incorporates both known and estimated cost and revenue increases. As the 2007 Draft Budget is to be tabled in February, some pressures and solutions may change as more information becomes available and as Council makes decisions around the Light Rail Project, but in general most estimates will not change.
It should also be noted that there may be reports coming forward to Council before the Draft Budget is tabled that may impact the final pressures and solutions presented in the Draft Budget. As the outcome of these reports is unknown at this time, they are not included in this Report.
The balance beam – how budgets
are set
In presenting the 2005 Budget, the concept of a
financial balance beam was introduced to explain how municipal budgets are
built. The main premise behind the
balance beam is that revenues have to equal expenditures, as municipalities are
not allowed under the Municipal Act to
approve budgets with deficits.
On one side of the balance beam are all the
City service cost increases including those coming from:
·
increases
to operating costs required to maintain existing services,
·
changes
to the cost of providing provincially mandated programs or increased costs
resulting from implementation of provincial legislation,
·
new
City infrastructure that must be programmed and/or maintained and increases to
the population that require services, and
·
enhancements
to existing services as directed by Council.
On the other side of the balance beam are tools that Council can use to
make the beam balance. These include:
A discussion on
proposed directions for categories on each side of the 2007 balance beam is
provided below:
The cost of maintaining current City services,
excluding police, is estimated to require an additional $72.5 million in
2007. Included in adjustments to
expenditures and revenues are the following;
i.
The
increased cost of compensation resulting from contract settlements, increments,
job evaluation settlements, and the resulting increase in benefit costs ($25.2
million).
ii.
Elimination
of one-time funding solutions identified as part of the 2006 Budget ($23.5
million). It should be noted that the
one-time sale of land was also included in the 2006 Budget, but as the sales
have not yet materialized the revenue account will carry forward into the 2007
Budget.
iii.
An
increase to the contribution to capital as per policy, and the reinstatement of
the contribution to capital reductions taken as part of the 2006 Budget ($10.1
million)
iv.
Inflation
on materials and supplies, or on services provided either by contract or
through our community partners ($9 million)
v.
The
increased cost of energy, primarily diesel fuel and electricity ($6.3 million).
vi.
Programs
and services reinstated by Council and funded by one-time sources of revenue in
2006 ($3.2 million)
vii.
Transit
operating changes due to Light Rail Transit construction such as the
discontinuance of the O-Train and its replacement with buses ($2.0 million)
viii.
Adjustments
to existing program budgets that are not adequate to meet current service
standards ($2.1 million)
ix.
Reduction
in provincial Waste Diversion Ontario funding ($1.0 million)
x.
Increased
revenues in accordance with the 2006 Budget announcement from the Province:
o Ontario Municipal Partnership
funding increase ($4.6 million)
o Paramedic funding increase ($5.3
million)
Direction 1b) Includes the cost of providing provincially
mandated and cost-shared programs
Each year the increase in costs for employment
and financial assistance, childcare, long term care, social housing, public
health, paramedics and the Municipal Property Assessment Corporation (MPAC) add
pressure on property taxes. These programs are all either provincially
mandated, but City funded or cost-shared with the Province. The cost of providing provincially mandated
and cost-shared services is estimated to increase by $4.6 million in 2007. This includes:
i.
Increased
compensation costs for staff that provide these services ($4.4 million)
ii.
Increased
cost of prescribed drugs under the Ontario Disability Support program ($2.1 million)
iii.
Increased
cost of the Ontario Disability Support Program to reflect increased case load
and rate increases ($3.3 million)
iv.
Rate
increase of 2% for the Ontario Works Program offset by caseload savings for a
total net saving ($2.1 million).
v.
Increased
cost of providing housing program services ($1.9 million)
vi.
Increased
cost for low sulfur fuel in OC Transpo bus fleet ($1 million)
vii.
Increased
cost for MPAC services ($0.5 million)
viii.
Increased
provincial subsidies for Ontario Works, public health, paramedics and long term
care programs ($6.8 million)
Direction 1c) Includes the costs associated with growth in
population or infrastructure that is operated and maintained by the City
The cost of providing additional service, or
running and maintaining additional infrastructure, is estimated to be $15.1 million in 2007. These costs include:
i.
OC
Transpo / ParaTranspo service increases, as per Council policy, along with
security and operational increases ($4.5 million)
ii.
Costs
of growth from the capital program, including new facilities, roads and parks
($ 4.7 million)
iii.
Growth
pressures to address additional programming requirements in operational and
support areas ($5.9 million)
Direction 1d) Includes the costs of enhanced services as
directed by Council through reports and direction received throughout the year
The cost of enhanced services in 2007 is
estimated to be $10.8 million and includes:
i.
Council
direction to include the costs of Ottawa Community Housing Corporation (OCHC)
financial sustainability. OCHC has
identified $6.25 million as the requirement for their Safer Communities program
and for the adjustments they require for their Capital and Operating Budgets in
order to make them sustainable.
ii.
In
early 2006 the Auditor General released a number of reports that had
recommendations with budget implications.
The 2007 cost of implementing these recommendations is $515,000.
iii.
During
the year a number of reports have come forward to Council identifying
initiatives for funding. Council has
directed that the cost of these initiatives come forward as part of the 2007
Budget. In total, these initiatives
require an additional $4 million in funding.
Items included in this category are:
|
$000 |
Expansion of Minisis
application to Community Museums (as per Museum Sustainability Plan) |
55 |
Administrative support for
Agriculture & Rural Affairs Committee |
100 |
Additional resources for
Committee Chairs |
350 |
Accept postmark as date received
for taxes (lost revenue) |
100 |
Francophone subsidized childcare
spaces |
765 |
Museum Sustainability Plan |
740 |
Community Funding Sustainability |
500 |
Funding for Legion Remembrance
Day Services |
11 |
Tulip Festival Shuttle Service |
20 |
Continuation of Ontario
Disability Pass Discount |
600 |
Para Transpo Taxi Script Pilot
Project |
170 |
Transit operating impact of
bio-diesel fuel |
300 |
Snow Windrow Clearing Assistance
program for seniors |
120 |
Land stewardship and wetlands
program |
160 |
|
$3,991 |
Direction 1e) An increase equivalent to 1% of taxation for
the contribution to capital used for the strategic initiatives category of
capital.
The strategic
initiatives category of capital is the third capital funding priority and as a
result has only 18% of the total needs funded.
In order to advance projects in this category of capital an increase
equivalent to a 1% tax increase was proposed in 2006 and is again proposed for
2007 representing a $9.5 million tax requirement.
Direction 1f) An increase to user fees at either the
percentage increase in the cost of providing the program or service, or as
directed through Council-approved policy.
Council has directed
user fee policies in the area of garbage collection and disposal, and transit
fares. For all other user fees, Council
adopted a principle whereby user fees are to increase by the same percentage as
the cost of providing the program or service.
In 2007, the cost of user fee increases is expected to generate a
full-year effect of $11.65 million. In
areas where the full-year effect will not be achieved in 2007, the difference
would be bridged from a contribution from the reserves.
The increased costs of garbage
collection and disposal can be partially offset by the additional revenue the
user fee is already collecting, leaving a total increase of $1.6 million. This results in a $5 increase to the fee for
those receiving curbside collection and $1 for those receiving bin
collection. Included in these costs are
post-closure landfill liability costs as per Council direction in 2005.
Direction 1g) A reasonable estimate of assessment growth
from new properties added to the tax base.
New properties added to the assessment roll by
the Municipal Property Assessment Corporation are estimated to be 2% in
2007. The new assessment roll will be
delivered in mid -December and at that time an analysis will be performed to
determine the value of the additional taxation generated by these
properties. At this time, a reasonable
estimate of the value of 2% growth is $19 million, of which $16 million will be
for City purposes and $3 million for police purposes.
Direction 1h) Defer a 2007 increase to the efficiency
target to 2008.
In the setting the 2005 Budget Directions, the
City adopted the principle that City Council and citizens should expect yearly
savings from service delivery improvements, efficiencies and innovation. The yearly reduction target and the amount
achieved and carried forward to the next budget year is identified below in
addition to the other reduction targets Council assigned in 2006.
Reduction Targets
|
Draft Budget |
Final Budget |
Achieved
|
Carry Forward or Pressure |
|
$M |
$M |
$M |
$M |
2005 - Efficiency Target |
9.5 |
5.5 |
4.0 |
|
2006 - Efficiency Target |
14.0 |
15.1 |
5.7 |
9.4 |
- Overtime Target |
- |
3.5 |
1.7 |
1.8 |
- Compensation direction |
- |
10.0 |
8.9 |
1.1 |
2007 - Efficiency / Overtime Target |
11.2 |
|
|
|
In addition, $3.9 million in non-compensation
areas to address inflationary cost pressures and $0.3 million in postage and
advertising provisions were also removed.
To address the $10 million compensation
reduction direction, the City Manager identified program areas where funding
could be reduced that would have the least impact on front-line services to the
public. As was pointed out in the
report presented, these reductions have eliminated a substantial degree of
flexibility for departments to manage their day-to-day operations. As a result, program budgets are able to
fund and deliver planned services, with limited capacity to address unforeseen
situations or new opportunities.
The $10 million compensation reduction along
with the other budget decreases has impacted on the City’s ability to address
both the efficiency and the overtime reduction targets. During the 2006 Budget deliberations,
resources were identified to establish the Branch Process Review Program to
assist staff in achieving this efficiency target.
In 2006, pilot projects were identified for the
Real Property Asset Management branch and By-law Services. Some progress was made during the year,
however it is not sufficient to achieve the entire amount. The Operating Status Report – September
30, 2006 (ACS2006-CRS-FIN-0044) forecasted achieving only $1 million
of the target, which will be implemented during 2007. The projected amount that will be carried forward into 2007 along
with the unachieved overtime efficiency target is $11.2 million. Therefore, an
increase to the efficiency target is not recommended for 2007.
The result of the inclusion of the preceding
directions in the 2007 draft budget is summarized in the following table.
|
Estimate of Value $Millions |
Direction 1: |
|
1a - Costs of maintaining existing services |
72.5 |
1b - Costs of provincially mandated/cost-shared programs |
4.6 |
1c - Costs
of growth |
15.1 |
1d -
Program enhancements |
10.8 |
1e -
Increase to the contribution to capital for strategic initiatives |
9.5 |
1f - Increased user fees and
charges |
(11.6) |
1g - New taxation from new taxpayers |
(16.0) |
|
84.9 |
Direction 1i) No increase in taxation.
In previous years, Council provided direction
to staff to develop a Draft Budget that included an inflationary tax
increase. The average increase in the
Consumer Price Index for the past 12 months (ending in October, 2006), as
reported by Statistics Canada is 1.9%.
In the adoption of the revised timetable for
the 2007 budget on December 6, Council passed a motion that made reference to
achieving a 0% tax increase. Based on
this motion, staff have included Direction 1i for Council approval.
Keeping taxation at 2006 levels (plus
assessment growth) will require staff to find additional options for
consideration.
The costs and revenues identified above, to
maintain existing levels of service, address the mandatory program and growth
requirements, and implement various enhancements to current service levels,
require additional tax revenues of $84.9 million.
In order to achieve a zero tax increase,
reductions or non-taxation revenues of this magnitude will be required. The
following strategies are presented for Council consideration to achieve a 0%
tax increase.
Direction 2a) Deferral
of service enhancements that have not been implemented.
The value of the service enhancements that have
not been implemented but have been requested by Council is $10.8 million. These items are identified in Direction
1d. Council could elect to defer or
eliminate some or all of these enhancements in 2007.
Direction 2b) Use
provincial gas tax revenues to the extent possible to offset increases in the
cost of transit service.
In 2006, the
Province altered the rules regarding provincial gas tax use. Previously, only
operating or capital costs that increased ridership could be funded through the
Provincial Gas Tax. This has been
changed so that all operating costs can be funded from Provincial Gas Tax. In the past, City Council had authorized the
increased cost of transit system expansion to be partially funded from gas tax
revenues. The remaining gas tax
revenues were used to fund capital projects to increase ridership.
The City has at the
time of this report, authorized $207.7 million in debt to be funded from the
Provincial Gas Tax, requiring debt servicing of approximately $18 million per
year. The City will receive $36 million
in 2007, which after debt servicing charges and the current contribution to
operations, leaves a potential $11 million that could be directed towards the
operating budget. This $11 million has
already been incorporated in the transit capital program therefore if it is
used for operating expenses, the capital budget will have to be reduced or
amended accordingly.
Direction 2c) Use
debt where possible, instead of contributions to capital, to fund the capital
program.
The City has a policy of maintaining the current
level of tax-supported debt servicing costs (principal and interest repayments)
by limiting the amount of new debt authority approved to finance capital
projects, to approximately $40 million per year (excluding Ottawa Police
Services). This debt is primarily
applied to growth-related capital projects but is still funding a portion of
the renewal of assets category of capital in the absence of any increases to
the contribution to capital.
Increasing the amount
of debt used in the capital program would allow for a corresponding decrease in
the current year’s contribution to capital.
For example a $9.5 million increase in the debt limit would allow the
contribution to capital to be reduced by
$8.3 million, assuming that $1.2 million for the eventual debt servicing
costs would be retained in order to prevent a future pressure. As not all capital properties are eligible
for debt financing, this strategy would be limited, and therefore unlikely to
impact the City’s credit rating. The
actual savings that could be achieved from this strategy have not yet been
determined pending Council direction.
The proposed $9.5
million to address the funding gap in the strategic initiatives capital
category, would be an acceptable category to use debt financing instead of an
increase in the contribution to capital.
This approach would allow for projects in this category to advance while
minimizing the initial impact on property taxes. Council can elected to either use debt or an increase to the
contribution to capital to fund some of these projects, or to not fund any of
these projects in 2007.
Direction 2d) Incorporate
and pursue the cost-sharing shortfall with the Provincial Government.
In LRFP III, the difference between the
provincial share of the existing cost-sharing arrangements and the actual
amount the City receives, was identified as $16 million. These funds should be pursued through
discussions with the Province and could be added as a source of revenue in
2007. In the event that these revenues
do not materialize in 2007, the deficit in the budget would need to be dealt
with at year-end, and would be funded from the Tax Stabilization reserve and if
there were insufficient funds from the City-wide Reserve. Using City-wide reserves funds would reduce
the tax supported reserve balances below $50 million which would reduce 2008
capital funding.
Direction 2e) Identify and incorporate any other one-time sources of funding.
The City used one-time funds from
the Tax Stabilization Reserve in the 2006 Operating Budget. The remaining funds in the Tax Stabilization
Reserve were initially identified as required to cover a projected 2006
year-end deficit. The most recent
Operating Status Report projected a small 2006 surplus, thereby leaving funds
available in the Tax Stabilization Reserve to cover either pressures in 2007 or
to cover any resulting deficit from the 2007 budget. The forecasted 2006 year-end balance in the Tax Stabilization
Reserve is approximately $9 million. Council could elect to use all or none of
these funds.
Direction 2f) Increase user fees and charges by
more than that identified in Direction 1f.
Council has approved a principle wherein the increased costs of providing a service are to be funded equally between the user fee and taxation. If the user fee was increased by more this would reduce the portion to be funded from taxation. As the Municipal Act limits user fees to cost recovery, fees can not be increased above that threshold.
Council has also approved increasing transit
fares to 55% of direct transit expenditures by 2008. Council could elect to accelerate the achievement of this target
to 2007. The value of the additional
revenue that could be achieved from implementing this direction has not yet
been determined pending Council direction.
Direction 2g) Identify program reductions.
The final strategy is to reduce program spending. In 2004, the City undertook a “Universal
Program Review” which identified all the programs and services that the City
delivers along with providing an indication as to how these programs would be
impacted by a 5% / 10% / 15% reduction in funding. The report is available on the City’s web site. As a complete update to this report is not
possible within the timelines set for the 2007 Budget, staff will need Council
direction in determining which areas to focus upon in the formulation of
program and service reduction strategies.
Any program reductions identified would need to be
taken from the programs and services that are included in the Council
controlled tax-supported portion of the budget. Also available for reduction
would be the portion of Provincially mandated services that are not transfers
of funds to individuals or organizations (housing subsidy, welfare payments,
etc) or that are 100% funded from the Province. Based on the 2006 budget expenditures, the City share of these
programs added to the programs in the Council controlled tax-supported area
total $1.3 billion. It is proposed that
any program and service reductions be found in these areas.
It is important to note that any reductions in the
programs that are cost-shared with the Province would only net the City funded
portion as property tax savings. Of the
$1.3 billion in expenditures identified above, the amount funded from property
taxation is approximately $570 million.
In the absence of criteria defined by Council to be used
to identify programs for reduction, staff would develop a set of criteria. An example of a criterion that could be used
would be to identify services for reduction that are being provided above the
established harmonized standard, or above the provincial standard. These reductions would be itemized in the
draft budget.
Direction 3
That the Police Services Board be direct to
table a Draft 2007 Operating Budget that is consistent with the directions
identified above.
Ottawa Police Services identified additional
requirements of $13.5 million in 2007.
This is offset by their $3 million share of assessment growth revenues,
leaving a net tax requirement of $10.5 million. This represents a 6.7% increase in the net police budget and
would result in a 1.1% tax increase.
If Council does not want a tax increase in
2007, the Police Services Board should be instructed to identify $10.5 million
in reductions in expenditures or increases in revenue that will offset this
requirement.
Direction 4
Direction 4a) That the 2007 tax-supported Draft Capital
Budget be developed as identified in the Long Range Financial Plan III and as
modified by recommendation 1e, 2b and 2c.
The
Long Range Financial Plan III identified the capital needs and funding
available for the next 10 years. While
the funding was not sufficient to meet all needs, because of increased funding
for the transit program, the needs in this service area were fully met. Without any change to the funding available,
other than the increase identified in direction 1e for strategic initiatives,
the following table provides a preliminary indication of the capital budgets
that will be tabled for the 2007 to 2010 time period.
|
2007 $M |
2008 $M |
2009 $M |
2010 $M |
Renewal |
159 |
173 |
158 |
123 |
Growth |
249 |
147 |
180 |
327 |
Strategic
Initiatives |
52 |
32 |
25 |
18 |
|
460 |
352 |
363 |
468 |
Direction 4b) That
the 2007 tax-supported Draft Capital Budget identify projects in the strategic
initiatives category as prioritized by the administration and include the list
of all other projects for information.
As the new Council has not had time to set term
priorities, the list of strategic initiative projects will be sorted and
presented under each of the 11 Corporate Plan agendas adopted by the previous
Council. The Executive Management Team
will provide funding recommendations for Council consideration, focusing on
projects that align with previous Council-identified priorities. The list of projects not recommended for
funding will also be provided for Council’s information.
Direction 5
That the Operating and Capital
Budgets supported by the water and sewer rate be developed in accordance with
the strategies identified in the Long Range Financial Plan III which includes:
a.
A
combined water and sewer rate increase of 9% in 2007
b.
An
increase in the amount of debt authority applied to the capital program;
c.
The
deferral of the projects within the strategic initiatives category of capital;
d.
Allowing
the reserve balance to fall below $20 million in the year.
The Long Range
Financial Plan III identified a funding gap for the water and sewer program
areas that will be most significant in the next few years. In order to limit the increase to the water
and sewer rates required in the short-term, a number of strategies were
identified to proceed with the capital works required in the growth and renewal
categories of capital. These strategies
include increasing the amount of debt authorized, deferring strategic
initiative categories of capital and allowing the water and sewer reserve
balances to drop below the $20 million limit set by policy.
Direction 6
Approve that the City continue to fund one-time 2007 operating
requirements from a one-time transfer from reserves.
Every year the City has a number of pressures
that are one-time in nature. As the
City does not have an unforeseen or contingency account, these items must be
funded from transfers from reserves. As
in previous years, capital closings that return funds to reserves will be
identified to offset this transfer from the reserves.
|
000s |
2007 One-time costs include
the following: |
|
Additional legal
settlements |
|
Implementation
of new provincial accessibility standards |
100 |
Job evaluation
studies |
100 |
Risk management
framework |
215 |
Library
technical services review |
50 |
SAP work related
to the control of material rebuild and manufacturing |
150 |
Printing/translation
costs for Learning & Literacy agenda |
20 |
1,265 |
CONSULTATION
All departments, including Ottawa Police
Services, were consulted in the development of this Report. Public consultation through the Councillors
will commence with the release of this Report.
Public delegations on this Report will be held on January 10, 2007 in
Committee of the Whole prior to deliberations on January 11, 2007.
FINANCIAL IMPLICATIONS
The financial implications are detailed within
the Report.
DISPOSITION
Upon approval of this Report, the City will
commence development of the Draft 2007 Operating and Capital Budgets for
tabling on 7 February 2007.