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/

Chef des Services généraux

 

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

 

City Wide

Ref N°: ACS2006-CRS-CSO-0008

 

 

SUBJECT:

2007 Budget Directions Report

 

 

OBJET :

RAPPORT SUR LES ORIENTATIONS BUDGÉTAIRES DE 2007

 

 

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:

 

Direction 1

 

Direction 1a)   Include the cost of maintaining current programs at current service levels

 

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

7.5

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.

 

Direction 2

 

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

630

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.