14 November 2007 / le 14 novembre
2007
Submitted
by/Soumis par : Marian Simulik, City Treasurer / trésorière municipale
Contact Person/Personne ressource : Tom Fedec, A/Manager Financial
Planning / Planification financière/
Financial
Services/Services financiers
(613)
580-2424 x 21316, tom.fedec@ottawa.ca
2. Que soient reçues les prévisions budgétaires
pour 2009 et 2010, lesquelles tiennent compte des orientations budgétaires
détaillées données par le Conseil;
3. Que toute décision prise par le Conseil après
sa réunion du 14 novembre et ayant une incidence sur les budgets de fonctionnement
et des immobilisations de 2008 soit transmise au comité plénier au moment où
celui-ci examinera le budget préliminaire de 2008;
4. Que le Conseil déroge en 2008 à la politique
qui consiste à maintenir une réserve minimale de 50 millions de dollars financée
par les taxes foncières pour permettre à la Ville de consacrer des fonds
ponctuels aux rajustements des effectifs pouvant être requis par suite de
l’adoption du budget de 2008.
The draft operating and capital budgets being tabled for Council consideration follow the directions that were approved on September 26, 2007 for 2008 and the high level directions for 2009 and 2010. As directed by Council a list of options for service reductions or revenue increases has been provided which will allow for the achievement of either a 3.4% tax increase, a 1.4% tax increase or no tax increase in 2008, not including any increased tax requirement from Police Services.
As part of the move towards financial
sustainability Council is looking at the budget from a multi-year
perspective. Therefore the list of
options includes items for Council consideration that will allow for a tax
increase at the rate of inflation in the 2009 and 2010 budgets. The resulting multi‑year list of
options totals $83 million.
The 2008 operating budget includes costs to maintain existing services including those cost shared with the Province, expand select services and increase the service levels in other services including an increased contribution to the capital program of $20 million. In total the operating budget incorporates increased costs of $138 million and has offsetting user fees, revenues and management efficiencies of $79 million. A capital budget of $536 million for 2008 is being proposed. Projects to renew existing assets have been increased by $20 million in an effort to reduce the City’s infrastructure funding gap.
The list of Options for Reductions or Revenues was developed with the objective of trying to minimize the overall impact on the residents of the City while still trying to respect Council’s term priorities. With this as an objective, revenue increases were looked at that aligned with the guiding principles for user fees, as approved in the Fiscal Framework. In total $18 million of additional revenue options has been identified. The next area to be reviewed, to identify options for reduction, was the list of expanded programs resulting for either new needs, growth or planned capital items that will require operating funding once they are built. As these services have not yet been implemented they are easier to defer than to take cuts to existing services. In total $32 million in options was identified from deferring these items.
The last area reviewed to identify options was
reductions to existing services. The
filter for identifying options of this nature was to ensure that legislated
requirements could still be met, that the basic functioning of the City
continued, that public safety was not jeopardized and that the most vulnerable
of our society were not put at risk.
Closures to facilities were identified where the City could avoid
significant future life cycle investments, where attendance was declining,
where a facility offering a similar service is in close proximity, or where the
private sector provides the service. In
total $36 million in options that reduce existing services were identified.
In the
spring of 2007, Council embarked on a series of strategic planning sessions to
set its objectives and priorities for the remainder of their three-year term of
office. The results of these sessions were to allow Council to be better
positioned to begin a transformation process that will result in improved
delivery of municipal services, new Council governance, and financial stability
for the City of Ottawa along with setting the groundwork for the creation of
multi-year budgets.
One of Council’s key focal points during these sessions was
financial sustainability. As outlined
the City’s Long Range Financial Plan III document, financial sustainability within the municipal
government context is defined as:
"…a government's ability to
manage its finances so it can meet its spending commitments, both now and in
the future. It ensures future generations of taxpayers do not face an
unmanageable bill for government services provided to the current
generation."
On July 11, Council approved over 40 priorities
for the remaining term of Council. The
priorities identified under the category of sustainable finances included:
·
Fund infrastructure
renewal, including closing the gap in affordable and appropriate housing
supply, in tax (through combination of capital levy, Pay-as-you-go, and debt)
and rate supported funding streams in the 2008 budget
·
Increase
new sources of funding (like gas tax revenue)
·
Make growth
pay for itself
·
Develop a
tax policy that recognizes inflation beginning in 2008
·
Become a
financially sustainable City by 2010, and
·
Following
the principles of Ottawa 20/20, ensure the review of the Official Plan
includes; the impact on the operating and capital budgets and a review of the
effective measures to direct growth.
Council also
directed the Long Range Financial Planning Sub-committee (LRFPSC) to review the
City’s financial policies and provide direction to complete the development of
the 2008, 2009 and 2010 operating and capital budgets. Over the months of July
and August, the LRFPSC held 5 meetings to review existing financial policies
and establish a framework from which to set budget directions for consideration
by the Corporate Services & Economic Development Committee (CSEDC) and
subsequent approval of Council. A
“Fiscal Framework” document was developed and approved by Council on September
26, 2007 (ACS2007-CMR-FIN-0025).
The Fiscal Framework document and the financial policy
directions established the parameters around which the LRFPSC developed
specific budget directions for CSEDC and Council consideration and
approval.
On September 26, 2007 Council approved the following
motion:
THEREFORE BE IT RESOLVED that the 2008 Draft Budget Directions and
High Level Fiscal Directions for 2009 and 2010 report be developed in
accordance with the recommendations of the Long Range Financial Planning
Sub-Committee as outlined in the report with an amendment to the last bullet to
include options for a 0% tax increase, a 1.4% tax increase and a 3.4% tax
increase for City operational purposes, and that the Police Services Board be requested to
table options to respond to a 1.4% to 0% tax increase.
This report contains a summary of the financial impact of the implementation of the various budget directions recommended by the LRFPSC and approved by Council for 2008 and provides a description of the process used to identify options for reduction to achieve the tax targets identified by Council. The complete list of options for reduction is appended to this report.
While the Motion approved by Council on
September 26, 2007 gave direction to the Police, their budget is presented
separately and is not incorporated into this report. In addition, the budgets for the Water and Sewer divisions, which
are fully funded from revenues raised on the water bill, are not included in
this report as they will be presented under separate cover in 2008 as directed
by Council.
DISCUSSION
2008 Operating
Budget
This section highlights each of the various
directions approved by Council for building the 2008 tax-supported operating
budget and provides a high-level breakdown of the various costs or revenues
that result from implementing those directions. Offsetting
some of the changes to the 2008 budget are adjustments being made to the base
2007 budget.
Adjustments to the 2007 base budgets are made after
reviewing the forecasted year-end actual expenditures and revenues. If the budget for an expenditure or revenue
is known to be permanently lower or higher it is adjusted as part of the budget
setting exercise. For example if 2007
revenues are forecast to exceed the budget, and the cause of the surplus is not
a one-time event, the budget will be adjusted upward in 2008. In previous budgets these adjustments were
netted off against the costs to maintain services and not identified
separately. In order to be more transparent
these costs will now be identified in a separate column in the budget book. In
total adjustments which reduce the City’s costs by $5.75 million are being
recommended as result of 2007 operations.
1. That all the costs to
maintain existing services be included in the 2008 draft budget
The cost of maintaining existing services
is estimated to increase by $47 million in 2008 as a result of:
·
projected
contract settlements for City employees ($23 million);
·
inflation
on various goods and services such as energy, vehicle parts and external
contracts ($22 million);
·
base
adjustments to reflect:
·
the
transfer, from an external contract to an internal City service, of the
provision of Para-Transpo services ($6.0
million net)
·
the
transfer of the costs of operating the Red Light camera program, which had
previously been funded from a capital project, to the operating budget ($1.0
million)
·
the
increased revenues in Solid Waste as a result of the diversion of residential
and Industrial / Commercial / Institutional tonnage from Waste Management’s
Carp Road facility to the City’s Trail Road landfill site and the resulting
increased contribution to the capital reserve fund (net revenue increase of
$3.9 million);
·
the yearly
review of cost of services provided to support the water and sewer functions
identified a cost increase of $1.1 million which will be recovered from the
Water and Sewer Branch.
Certain items have not been included in
the 2008 items as their status is still unknown. The most significant of these items include:
·
the
potential loss of Payments in Lieu of Taxation revenues as a result of the sale
of federal government buildings to the private sector ($4 million)
·
the
transfer of management of the Ray Friel recreation centre to the City
·
a change in
the dividend from Ottawa Hydro as a result of a change in their business plan.
Should any of these items be resolved
prior to the finalization of the 2008 budget Council will be advised of the
revised budget requirements.
2.
That the costs of
maintaining legislated and cost shared programs be included in the 2008 draft
budget and as the Province uploads the cost of any of these
services, the vacated tax room be used in the following order
a. to address unsustainable revenues built into
the budget,
b. to fund an increased contribution to capital,
and
c. to reduce the impact of inflation on the city
budget
The legislated/cost shared services include social
assistance, social housing, childcare, public health, long-term care, paramedic
services and the Municipal Property Assessment Corporation (MPAC) costs. The
City’s share of these services are projected to increase by $10 million as a
result of:
·
projected
contract settlements for City employees in these specific programs ($4.5
million);
·
rate increase for Ontario Works and Ontario
Disability Support Program recipients, Ontario Disability Support Program
caseload increase, additional requirements for Housing operations and rent
supplement programs ($6.3 million net)
·
projected
decrease in the Ontario Works and Ontario Disability Support Program caseload
along with associated staffing (decrease of $3.2 million)
·
increased
requirements in public health programs $1.3 million
·
projected
increase in MPAC costs ($515,000)
·
minor
budget requirements in several departments as a result of legislation or
regulations, which totals $355,000
In the 2007 budget the provincial revenues for the
various cost shared programs was increased to correspond to the funding
agreements that are in place. This
adjustment will result in a deficit, as the Province has not yet agreed to pay
the City the adjusted amount. These revenue
budgets are not being recommended for decrease in 2008 as the City still
intends to pursue payment.
The Province has announced that it plans to upload
the costs of the Ontario Disability Support Program over a four period
beginning in 2008 with the prescribed drug program. Specific program components are to be uploaded each year. Based on the 2008 budget, the net tax
requirement of $60 million required to fund the Ontario Disability Support
Program is to be transferred to the Province for funding as follows:
2008 - $12 million
2009 - $7 million
2010 - $21 million
2011 - $20 million
In the 2007 adopted budget, $31 million in one-time
revenues were included. By definition, one-time revenues are not sustainable
sources of revenue to fund permanent City services. Per the
approved Council direction to use vacated tax room to first address
unsustainable revenues, the $12 million reduction in the City’s tax requirement
resulting from this transfer in funding to the Province will be used to partially
reduce the one-time revenue in the budget.
The result is that the one-time revenue provision has been reduced from
$31 million to $20 million in the 2008 draft budget. The remaining $20 million
in one-time revenues will require a transfer from the City’s Tax Stabilization
Reserve Fund. There are sufficient
funds in this reserve as a result of Council’s decision to allocate funds,
announced by the Province in the budget speech of March 22, 2007, to the reserve.
3. That the costs of growth be included in the 2008
draft budget and that the revenue from new assessment included in the 2008
budget be used as an offset to the direct costs generated from growth
The cost of growth to City services included in the
2008 budget totals $15 million, and is categorized as follows:
·
The full
year costs of programs that were expanded in 2007 but were only budgeted for on
a part year basis in the 2007 budget ($4.0 million),
·
The costs
associated with new capital infrastructure either built or transferred to the
City in 2007 ($5.4 million),
·
The costs
associated with programs that must increase to reflect the increase in
population ($ 5.1 million)
·
The
resulting increases in City operations that support the programs identified in
the previous two bullets ($0.4 million).
For 2008 the amount of taxes raised from new
properties added to the City’s tax roll is projected to increase by 2%. As the Police Services have their own tax
rate, they share in these new tax revenues.
A 2% increase in assessment will generate additional taxation revenues
of approximately $16.3 million (net of the Police’s share of $3.2
million). The 2008 tax roll will be
received in mid-December from MPAC, at which time the actual growth can be
calculated and if required adjusted before the final budget is set.
4. That $13.5
million in recommended new operating needs be included in the 2008 draft
budget.
Attached as Appendix F is a list of new operating
needs (previously referred to as
enhancements) that have been included in the 2008 draft budget. These new needs can be categorized as
follows:
·
specifically approved by Council in a prior
report, through a motion when setting budget directions or as submitted by the
Library Board ($10.3 million)
·
stemming from recommendations by the Auditor General
(net $0.2 million),
·
required to implement organizational
transformation initiatives and achieve greater efficiencies ($3 million).
5. That one-time operating expenditures continue to be
funded from the closure of capital works-in-progress in the year, as per
existing policy.
Non-reoccurring or “one time” operating expenditures
are identified in the 2008 draft operating budget with the offset funding
created from the closure of capital projects.
Capital projects that are more than 3 years old, or where there has been
no financial activity within the last year, are reviewed for closure every year
and the funds returned to source. Funds
returning to the City-wide reserve are used to fund one-time operating
requirements.
As the amount to be returned to the reserve from
capital closings is unknown at this time, these items are not allowed to
proceed until the funding is secured.
If sufficient funds are not identified, Executive Committee will
identify those that can proceed and report to Council through the quarterly
operating status reports.
In the 2008 budget approximately $4.1 million of
one-time expenditures is planned. These
include the following:
·
Increased
subsidy for the Bell Sensplex as approved by Council
·
Shenkman
Arts Centre funding for public programming
·
Business
Transformation office set-up costs
·
Temporary
staffing positions within Employee Services to support payroll applications.
6. That the non-Transit user fees be adjusted to
maintain the existing revenue to cost ratios as per the existing policies.
The impact of incorporating this policy is that user
fees will generate an additional $1.0 million in revenues in 2008. There is no increase to the garbage collection fees for 2008.
In the case of recreation programs, special subsidy
programs are available to ensure that all residents are able to participate in
City programs no matter their income level. The subsidy amounts in
conjunction with resident usage are reviewed annually and are
adjusted as required to ensure that sufficient funding is available in the
special subsidy program budget.
7. That the revenue-cost ratio for transit fares
be raised to 50% by 2010 and that transit
user fees be increased by 5% in 2008, 2009, and 2010
The recommended increase to transit user fares by an
average of 5% will generate approximately $3.7 million in additional revenues
with a July 1 implementation date.
8. That a management efficiency savings targets of $20
million in 2008, $32 million in 2009 and $48 million in 2010 be included in the
budgets, to be raised through productivity improvements, technology
investments, asset rationalization and savings from procurement
As presented to the LRFPSC by the City
Manager, savings from the implementation of a management efficiency target is
anticipated from the following areas:
·
Productivity
– savings would be achieved through continuous process improvement initiatives
to administration and service delivery operations.
·
Technology
– savings from the investment in technology will require the completion of
business case analysis and funding will be provided as part of the strategic
initiatives category of capital.
·
Assets –
savings from the rationalization and consolidation of City assets (buildings,
land, vehicles, equipment) will require an initial investment in some
instances. These initiatives would be brought before Council for consideration
prior to implementation.
·
Procurement
– potential savings from the way the City procures it’s goods and services will
be investigated through a consultant facilitated analysis of overall City
spending and associated procurement strategies.
The targets built into the 2008, 2009 and 2010 budgets under each
category are identified below.
|
|
2008 |
2009 |
2010 |
Total |
|
Source: |
$ million |
$ million |
$ million |
$ million |
Productivity
|
8 |
12 |
15 |
35 |
|
Technology
Investment |
- |
5 |
10 |
15 |
|
Asset
Rationalization |
2 |
5 |
8 |
15 |
|
Procurement |
10 |
10 |
15 |
35 |
|
Target
Total |
20 |
32 |
48 |
100 |
The productivity targets have been allocated to every
branch across the Corporation for the next three years and the remaining three
savings targets are included in the “Non-Departmental” section of the City
budget. Progress against these savings
targets will be reported to Council through the quarterly operating status
reports and through the presentation of business cases for asset
rationalization and reporting on amendments to the purchasing by-law, required
to implement changes to procurement practices.
9. That the contribution to capital increase by $20
million in order to reduce the funding gap for the renewal of City assets.
The Long Range Financial Plan identified that the
City will have an infrastructure renewal funding gap of approximately $1
billion over the next ten years unless new sources of revenue are found or the
tax supported contribution to capital is increased beyond the rate of
inflation. The proposed additional $20
million in contribution to capital will be raised as a separate levy on the tax
bill. The additional $20 million in
renewal projects have been identified in the capital budget as separate projects
and have been included in Appendix G of this report.
10. That options be presented to allow for a 0% tax
increase, a 1.4% tax increase and a 3.4% tax increase for City operational
purposes
A 1.4% increase to the
taxes raised for all City purposes, excluding Police, will generate $14 million
and a $3.4% increase will generate $34 million.
The
result of incorporating the various budget directions in the development of the
2008 operating budgets, requires the identification of options in the amounts
as presented below.
|
Expenditure or
Revenue Adjustments |
2008 $ Millions |
|
Base
adjustments from 2007 |
(6.0) |
|
Increased
costs to maintain existing services |
47.0 |
|
Increased
costs for legislated/cost shared services |
10.0 |
|
One
Time Funding from 2007 |
32.0 |
|
Decreased
costs from transfer of costs to the Province |
(12.0) |
|
One
Time Funding – transfer from Tax Stabalization Reserve |
(20.0) |
|
Increased
costs resulting from expanded services (growth) |
15.0 |
|
Increased
revenue from new assessment |
(16.0) |
|
Increased
cost from new operational needs |
14.0 |
|
Increased
revenue from transit fare increase |
(4.0) |
|
Increased
revenue from user fees (maintain revenue to cost ratios) |
(1.0) |
|
Decreased
costs from a management efficiency target |
(20.0) |
|
Increased
contribution to capital |
20.0 |
|
TOTAL |
59.0 |
|
|
|
|
Reductions
required to achieve a 0% tax increase |
59.0 |
|
|
|
|
Taxation
from a 1.4% increase |
14.0 |
|
Reductions
required to achieve a 1.4% tax increase |
45.0 |
|
|
|
|
Taxation
from a 3.4% increase |
34.0 |
|
Reductions
required to achieve a 3.4% tax increase |
25.0 |
2009 and 2010
High Level Forecasts
Council approved the following direction with respect to the 2009 and 2010 budgets:
·
That the
2009 and 2010 draft budgets be developed in accordance with the fiscal
framework
·
That the
Capital Tax Levy be continued and increased by an additional 2% ($20 Million)
in 2009 and 2010 and included in the high level directions for developing the
forecasts for both 2009 and 2010.
The fiscal
framework contains various principles and targets that have been incorporated
into the high level forecasts for 2009 and 2010. The more significant of the
principles and targets are as follows:
·
Follow a
financially sustainable budget by 2010
·
Develop a
tax policy that recognizes inflation beginning in 2008
·
One-time
sources of revenue are phased out within the term of Council
·
Recover 50%
of defined costs in transit with fares by 2010
·
Tax
increases not to exceed the rate of inflation in most years
·
Asset
maintenance gap to be gradually eliminated and assets fully sustained
thereafter.
The identification of cost pressures and offsets for the 2009 and 2010 budgets has been reviewed by staff in the various branches and updated from the numbers that were presented to the LRFPSC in the summer of 2007. The review, combined with the directions provided by Council, results in the following forecasts.
|
|
2009 ($ millions) |
2010 ($ millions) |
|
Increased costs to maintain existing services |
45 |
46 |
|
Increased costs of legislated services |
12 |
11 |
|
Increased costs from expansion of service (growth) |
21 |
25 |
|
Increased costs of capital |
20 |
20 |
|
Increased costs from new needs |
23 |
14 |
|
Elimination of previous year’s one-time revenues |
20 |
13 |
|
TOTAL |
141 |
129 |
|
|
|
|
|
Decreased costs from provincial uploads |
(7) |
(21) |
|
User fees and transit fares |
(8) |
(6) |
|
Management efficiencies |
(32) |
(48) |
|
One time revenues for current year |
(13) |
- |
|
Assessment growth |
(17) |
(17) |
|
Capital tax increase (2.0% / 2.0%) |
(20) |
(20) |
|
Citywide tax increase (2% / 1.7%) |
(20) |
(17) |
|
TOTAL |
(117) |
(129) |
|
Reductions required |
24 |
- |
The budget book contains the 2009 and 2010 forecasts at a branch level and identifies the assumptions that were used for their development. While staff have used the best available information, results often differ from an assumption. Some of the more significant results that could negatively affect the forecasts include:
·
The amount
of one-time revenues built into the budget exceeds the amounts identified
·
Assessment
growth does not continue at a 2% level
·
Management
is not able to achieve the efficiency targets it has been assigned
·
Inflation
increases by more than 2% each year and energy costs increase by more than 6%
·
Ontario
Works caseloads increase
·
The
Province does not carry through with the full upload or eliminates the City’s
Ontario Municipal Partnership Grant as a result of the uploading
·
The City is
unable to retain the education portion of taxes from federal buildings that are
sold to the private sector
·
Arbitration
awards are above the compensation increase levels assumed.
In keeping with the direction to present a multi-year budget, the list of options for service reductions or revenue increases was prepared along the same format. The 2008 budget requires options of $59 million in order to achieve a 0% tax increase, and 2008 requires $24 million in reductions to achieve a rate of inflation increase, for a combined total of $83 million. A list of service reduction and revenue options to achieve these tax targets is provided in Appendix A to E. The branch specific options are also presented in the budget book at the beginning of each branch section.
Council approved a target of $100 million in management efficiencies over the next three years. Management efficiencies are cost reductions that do not affect service levels. This sizeable management efficiency target, combined with more than $101 million in efficiency reductions the City has already achieved since amalgamation, requires the City to look for additional revenues and to reduce certain service or program levels in order to meet Council’s direction.
The impact of changing service levels for programs that are provided directly to the public can be readily identified and communicated. However, changing service levels for internal services that provide support to all of the other City branches results in an indirect impact on the public that is difficult to clearly identify and communicate. For example, a reduction in the number of staffing officers in the Employee Services branch would result in longer delays in hiring front-line staff who serve the public directly. Another example might be reductions to staffing levels for the Information Technology branch, which supports the City’s information flow, financial systems and online services, among others. Reductions in these areas may not be immediately visible to citizens, but they reduce the City’s ability to function over time.
In the 2004 budget the reductions that were taken in the internal service branches amounted to $15 million, which equated to a 7.5% reduction. The impact of these reductions is still being felt in the Corporation, and the perception of the clients served by these branches is that the internal service levels are not adequate. The internal service reductions that were identified but not put forward in the 2004 Universal Program Review (UPR) were revisited but were not included in the 2008 Budget service reductions options list, as their adoption would cost the City more than it would save in terms of lost time by staff that provide service directly to the public. For these reasons, specific reductions to internal services have not been identified except where they can be quantified with each of the reduction options for direct service delivery.
In developing a list of Options for Reduction or Revenue for Council consideration, the following methodology was used.
New Revenue Opportunities
New revenues ideas were put forward first, as their adoption has a less detrimental impact than reductions to service. When setting the budget directions, Council provided two directions with respect to user fees and service charges: that Transit fares increase by an average of 5% and that all other user fees increase to maintain the current cost/revenue ratio. These directions have been included in the 2008 draft budget but a number of revenue opportunities have also been identified and included on the Options for Reduction and Revenue list for Council consideration.
The proposed increases in revenue reflect the principles and targets adopted in the Fiscal Framework. These include:
·
Recovery
rates for services to consider:
·
Operating
and capital costs
·
Rates for
commercially available services
·
Extent of
private, commercial and community benefit (community benefit includes
environmental considerations)
·
Service
fees be implemented where individual beneficiaries of the service can be
identified.
·
Services
that provide a private or commercial benefit have a target of 100% recovery.
·
Services
that provide a community or common good to recover between 20% to 80% of
capital and operating costs.
Two new user fees are proposed for services that benefit commercial organizations and where the beneficiaries can be identified. Several increases to current fees are also proposed that move the City’s rates to those charged by commercial organizations providing the same service. Where the City is moving to a market rate, it is proposed to be increased over the next two years. In total $10 million in revenue increases in 2008, and $8 million in 2009 are identified in Appendix A.
Deferring New Needs Not Yet Implemented
Council approves increases to certain program
areas every year in response to concerns raised by the public, items raised by
the Auditor General, and plans and strategies that have been adopted in
previous year to advance certain services. These new needs identified for 2008
increase the budget by $13.5 million. As these increased services have not yet
been provided to the public, they are easier to eliminate than services that
are currently being received. For this reason, the list of new needs was
reviewed and only those items that fell into the following categories were not
put forward as potential reductions:
·
Where the City has no discretion but to proceed (for example, the
Shenkman Arts Centre programming
budget)
·
Where the
items are revenue neutral, meaning they don’t require taxes to pay for them
(for example increased hours for spay neuter clinic that are offset by
revenues, or transit fare enforcement initiatives)
·
Items
required to address audit recommendations
·
Items that
affect the most vulnerable in the City (such as homelessness support services).
The results of this review are that $11.4
million in proposed new needs for 2008 are being put forward for
reconsideration by Council on the Options for Reduction or Revenue list
Appendix B.
Deferral
of Capital Projects with Operating Impacts
The
capital plan impacts the operating budgets over the next three years as the
capital projects will result in capital assets which must be maintained and
operated. The total impact of these
projects is forecast to require $12 million in additional operating costs per
year. In order to reduce this impact
Council can elect to defer capital projects and thereby defer their resulting
impact on the operating budget. The
capital projects and their operating impacts were reviewed and a list of
projects identified that if deferred will allow the multi-year taxation targets
to be met. These deferral options are
identified in Appendix C.
Reductions to Existing Services
Service reductions to existing programs were identified in all
departments and then reviewed to determine what should be included in the list
for Council. Initially, it was intended that three set of criteria were to be
used to prioritize reductions but the amount of reductions required did not
allow for either Council or the public’s priorities, as articulated in the
Council priority setting sessions and the Decima survey to be fully protected.
As a result the main strategy used to select options for reductions was based
on the approach used for the 2004 Universal Program Review (UPR). The UPR
approach categorized services into seven different groups, with the first group
having the highest priority to preserve and the priority of each subsequent
group diminishing in order. These groupings are shown as a set of questions to
explain the process used to identify the options within each service group.
1. Does
this reduction impact a legislated requirement?
As the City is required by
legislation to provide a variety of services with prescribed service levels,
any reduction in the actual provision of these services is not permitted. For
example, the City is not able to reduce the prescribed amounts for social
service recipients, or for rent subsidies, childcare subsidies, long-term care
service standards and a number of other prescribed standards. Reductions to the
administration used to provide these programs without affecting service levels
is considered a productivity saving and would contribute towards Council’s
productivity target assigned in each of these areas. The service reductions
that can be considered in the legislated programs are where the City has a
service standard that is above the prescribed level, where City participation
in a program is not mandatory, or where the City is contributing more than it’s
mandated cost share. Reduction options of this nature have been identified and
included on the list.
2. Does this reduction impact
basic services and standards necessary to support a sustainable community?
The City provides a variety
of services that are used by all or a majority of residents on a daily or
weekly basis and which are necessary in order to make the city function.
Examples include clearing the roads of snow, picking up garbage, ensuring
traffic signals are working, providing transit services during peak hours, etc.
As there is typically a range within which the service levels can be set,
options to reduce the service levels in these areas have been identified. Most
of these reductions will not seriously impact the functioning of the city nor do
they compromise general public safety, but may impact the aesthetics or the
ease of mobility in certain areas or for certain groups.
3. Does this reduction impact
public safety?
The City provides a number
of services that are required for public safety including fire, paramedics,
building inspections and public health. Service reductions that compromise
public safety have not been put forward, but options for reduction have been
put forward for programs that promote safety or are preventative in nature.
4. Does this reduction impact
the City’s ability to attract people and care for the community?
The City provides a number
of programs and services aimed at making the City a more enjoyable place to
live and ensuring that society’s most vulnerable are not put at risk. Examples
of such services include cultural services, parks and recreation services,
childcare, shelter programs, etc.
Reductions in this area focused primarily on programs that make the city
a more enjoyable place to live. Reductions are being proposed equally to
programs that the City provides and to those agencies with which the City
partners to provide services. Any
options presented that affect the City’s most vulnerable were developed so as
to try and minimize the overall impact.
Various facilities are
being proposed for closure. These facilities were selected using the following
criteria:
·
the City
will avoid significant future lifecycle costs if they are closed,
·
the
facility is in close proximity to another facility that provides the same
service,
·
usage of
the facility has been declining,
·
there is an
ability for the private or non-profit sector to take over the running of the
facility.
5. Does
this reduction impact an enhanced service?
As previously identified, the new needs being added to the 2008 budget were reviewed first and where possible were identified for elimination or deferral.
6.
Does this reduction impact on-going economic development?
The
City provides a number of programs that support economic development. While
most cities provide such programs, they are not a mandatory service and
therefore options for reduction have been put forward in this area.
7. Does this
reduction impact the expansion of City services and programs?
The City expands its service to accommodate the increase in the population, the amount of infrastructure the City is responsible to program and maintain, and the corresponding increase in the size of the Corporation. All of the expansions of service in 2008 were reviewed to determine if they could be put on the option list by reducing the service levels their inclusion was intended to maintain. In total, $10.7 million in expanded services as a result of growth have been identified on the Options for Reduction or Revenue list. This list is provided as Appendix D.
The list of options to reduce existing services is provided in Appendix E and totals $34.2 million.
The total list of options for council considerations is summarized as follows.
|
|
2008 $ ‘000 |
2009 $ ‘000 |
TOTAL $ ‘000 |
FTE’s
|
|
9,995 |
7,850 |
17,845 |
(8) |
|
|
B - Defer New Operating Needs |
11,395 |
3,310 |
14,705 |
32.30 |
|
C - Defer Capital Projects |
1,190 |
5,995 |
7,185 |
74 |
|
D - Service Reductions - Growth |
7,810 |
2,885 |
10,695 |
98.15 |
|
E - Service Reductions - Existing |
24,890 |
9,310 |
34,200 |
305.35 |
|
TOTAL |
55,280 |
29,350 |
84,630 |
501.8 |
Costs of Workforce Adjustments
The reduction options , if all adopted, will result in 501.8 FTE’s being eliminated from the 2008 budget. Only the 305 FTE’s identified in Appendix E are existing positions that would be staffed. As in previous years, the City will try and accommodate the staff affected by these reductions with placement into vacant positions. This has proven to be effective in previous years, but as the City is unionized there is a potential for severance payouts. In order to provide an order of magnitude of the possible cost if all of the options are adopted and there were no ability to place affected staff in other positions, the range of severance costs was calculated. The calculations below are based on an average severance payment for all various union groups with 5 years of service and with the years of service to trigger the maximum severance.
|
Number of Positions |
With 5 years of Service |
With maximum severance |
|
305 |
$4.5 million |
$22.9 million |
In order to fund the cost of any severance payments required as a result of Council’s budget deliberations, it is being recommended that the funds be taken from the Capital Reserves. This will require the combined tax-supported Reserve balance to go below the prescribed $50 million minimum, which would ultimately reduce the 2009 capital program. The cost of any severances would be reported to Council in the quarterly operating status report.
At the Council meeting of Sept. 26 the following motion was adopted.
That the 2008 Budget include an analysis of the reasons for higher
costs in some OMBI measures and recommend, where higher costs are not the
result of specific situations in Ottawa such as higher snowfall, measures to
bring those program costs that exceed the OMBI median in line with the OMBI median.
The areas identified in the 2005 OMBI report to Council where the City of Ottawa was above the OMBI average included:
An explanation of why the City of Ottawa is above the OMBI average is included in Appendix H. Each of these areas have identified reasons why there are specific situations that result in a higher Ottawa cost, however, only those measures that are done on a per capita basis are within Council’s ability to directly control. All other areas require a change in service levels in order to reduce the OMBI measurement. Changes in service levels for some of these areas, have been included in the list of Options for Reduction or Revenue for Council consideration. Additionally, each of the Branches that provide these services has been assigned a productivity target. The OMBI results will improve if the productivity savings are foundin these areas.
The 2008 to 2010
tax-supported capital budgets were built applying the directions approved by
Council. A description of each direction and its impact on the capital budget
follows.
1. That the capital envelope for renewing City
assets be increased by $20 million in 2008, and by an additional $20 million in
2009 and 2010 in order to reduce the projected funding gap. The
Long Range Financial Plan III identified that the funding gap for renewing City
assets over the next ten years is approximately $1 Billion. In order to reduce
this gap, an additional $20 million is to be added to the renewal category each
year for the next three years. The
additional funds are assigned to projects that would prevent the asset from
moving from requiring renewal to requiring replacement. The additional projects
resulting from this direction are highlighted within the details of the budget
and included as a list in Appendix G.
2. That the current
Development Charge funding principles be used to determine when growth projects
can proceed. By definition, projects that
support the city’s growth are required to be partially funded by development
charges. The funding principles determine when a project can proceed based on
when a project is required in the overall development cycle and on the amount
of development charges that have been collected. The projects included in the
2008 to 2010 capital budget are based on a forecast of development charges that
will be received in the next three years and the application of the funding
principles. As there will be a new
Development Charge By-law required in 2009, the forecast budget for 2010 may be
affected if there are significant changes in the by-law.
3.
That a funding envelope for
undertaking capital strategic initiatives over the next 3 years be
established. As part of the budget directions report, staff presented a
recommended list of strategic initiative projects (excluding Transit projects
and projects with dedicated sources of funding) that required $62 million in spending
over the next 3 years. Council added another $3.5 million in projects to the
recommended list when setting budget directions. These projects have been
included in the 2008 to 2010 capital budgets.
The
list of strategic initiatives for the next three years that is not recommended
for funding has been included in the supplementary budget document and totals
$405 million. In addition to these projects, a number of new strategic capital
initiatives, or increases to the costs required for recommended projects, have
been identified. Council needs to take
these projects into consideration when setting the 3-year envelope, therefore
these new budget requirements have been itemized separately for Council’s
consideration and are included in the supplementary budget document.
4. That the City create
a separate Capital Tax Levy which is to be increased by an equivalent two per
cent tax increase ($20 million) in 2008 and by an additional two per cent ($20 million) in
2009 and 2010. The City will create a separate tax rate in
2008 for the City-wide contributions to capital and the costs of debt
servicing. The levy will be increased
by $20 million in 2008. As a result,
the city-wide contribution to capital will be increased accordingly. These funds will be used to support the
additional work Council has authorized in both the renewal and strategic
initiative categories of capital.
5. Increase the amount
of debt based on an assessment of need.
The amount of debt the City typically authorizes is approximately $40 million
per year, which corresponds to the amount of existing debt that retires in the
year. The Fiscal Framework established a debt servicing (yearly
principal and interest payments) target for both tax and rate-supported to not
exceed 7.5 per cent of the City’s own source revenues. The City is currently at
a ratio of 5.16%. In addition, the Fiscal Framework targeted the
increase in debt servicing for non-legacy projects in any year to no greater
than one-quarter of one per cent of property taxes or $2.5 million in 2007.
This year the additional debt beyond the base of $40 million for non-legacy
projects is $23 million which will require estimated debt servicing of $2.9
million in 2010 (10 year debt at 5% interest).
Factoring in growth, it is expected than an increase of $2.9 million in
2010 will be less than one-quarter of one per cent of taxation in the year. As
the Archives can be considered a legacy project, $2 million in additional
authorized debt will be taken in 2008, which will require debt servicing of
$260,000 in 2010.
The results of the preceding directions is a 2008 tax supported capital
program of $536 million, a capital program of $608 million in 2009 and a 2010
capital program of $758 million. The actual 2008 capital budget totals $592
million with the difference being the rated supported portion of the Integrated
Road/Water/Sewer program. The rate
supported portions of these projects has been included to show the total value
of the projects, but the rate supported component will not be approved until
the entire water and wastewater budgets are approved in early 2008.
The amount to be spent in each functional area in 2008 is broken out by
the three categories of capital (renewal, growth and strategic initiative) and
is summarized below. Included in the
Roads and Structures area is the tax-supported portion of projects within the
Integrated Road/Water/Sewer Program.
|
Functional Area |
Asset
Renewal $
Millions |
Growth $
Millions |
Strategic
Initiatives $
Millions |
TOTAL $
Millions |
|
|
Transit Services |
242 |
9 |
15 |
266 |
|
|
Roads and Structures |
87 |
63 |
- |
150 |
|
|
Parks and Recreation |
16 |
23 |
- |
39 |
|
|
General Government |
17 |
1- |
10 |
28 |
|
|
Fire/Paramedics/Emergency Measures |
15 |
5 |
3 |
23 |
|
|
Solid Waste Services |
2 |
- |
8 |
10 |
|
|
Library Services |
3 |
2 |
1 |
6 |
|
|
Environment |
1- |
0 |
4 |
5 |
|
|
Cultural Services |
2 |
- |
3 |
5 |
|
|
Child Care |
- |
- |
2 |
2 |
|
|
Long Term Care/Public Health |
1 |
- |
- |
1 |
|
|
By-law Services |
- |
- |
1 |
1 |
|
|
TOTAL |
386 |
103 |
47 |
536 |
|
These projects are
funded from the following sources.
|
Source |
Asset
Renewal |
Growth |
Strategic
Initiatives |
Total |
|
|
$ millions |
$ millions |
$ millions |
$
millions |
|
Revenue from the province or others |
86 |
10 |
4- |
100 |
|
Contribution from Capital Reserves |
133 |
4 |
32 |
169 |
|
Tax supported Debt |
56 |
7 |
2 |
65 |
|
Federal/Provincial Gas Tax |
38 |
5 |
7 |
50 |
|
Federal/Provincial Gas Tax Debt |
48 |
- |
2 |
50 |
|
Development Charges/DC Debt |
25 |
77 |
- |
102 |
|
TOTAL |
386 |
103 |
47 |
536 |
Certain capital projects identified for funding from 2008 to 2010 will result in increased
operating costs for the City. These projects are primarily in the growth and
strategic initiatives categories of capital.
The additional costs result from the requirement to both operate and
maintain the capital asset after it has been constructed or purchased. The
operating impact of the projects included in the 2008 to 2010 capital budget is
identified with each project. The total
operating impact is summarized below.
|
Year in Which the Operating Budget is
Affected |
Forecasted Operating Impact of Capital
Projects |
|
2008 |
$12,679,000 |
|
2009 |
13,072,500 |
|
2010 |
12,527,500 |
2011 to 2017 Capital
Forecasts
Included in the supplementary budget book is an identification of
capital projects for the years 2011 to 2017. As there has been no direction
provided for developing these budget years, the list of projects:
As such, this list of projects can be considered indicative of projects
the City may undertake, but not as definite projects the City will undertake.
The 2008 budget and high-level
2009 and 2010 budgets have some significant changes in presentation from previous
years. The most significant is that the capital and operating budgets have been
incorporated into one budget book instead of being presented separately. This
allows the public and Council to see the complete picture in terms of the
City’s investment and resource requirements for each service area such as
transit, paramedics, parks and recreation, etc.
The full presentation of the
budget by functional or service area is not yet complete, as the operating
budget is still presented on an organizational basis. As the City’s structure
is primarily organized along functional lines, with the exception of the
centralized administrative units, a significant portion of the budget is
presented in a functional format. The plan is to complete the full functional
presentation of City services for the 2009 budget. This will result in the support services provided by the various
centralized functions being included in the budgets of the service areas they
support.
As mentioned previously, only the
City’s tax supported programs and services are presented in the budget
book. The draft budgetary requirements
for the Police services have been tabled with the Ottawa Police Services Board
and are presented in a separate book.
The budget requirements for the City’s water and sewer divisions which
are funded from water and sewer user rates, are not included in the budget book
but will be tabled in early 2008 as per Council direction.
Another change to the 2008 budget presentation is
the inclusion of user fee schedules with each respective branch section. In previous budget books, all user fees
schedules were compiled and presented in a separate section.
Additional budgetary information on branch programs was previously provided at the end of the budget book. These pages are now included within each branch section. A Supplementary Budget Information booklet, which contains high-level summary information of the draft operating and capital budgets, has also been developed.
The impacts of this budget on the
business community are provided throughout the document and the Draft Budget,
and are also summarized in this section of the report.
Provincial tax policy requires
that budgetary tax increases can only be passed on to tax classes that have a
tax ratio below the provincially determined level. The Province has already
provided regulations that will allow the City to pass a tax increase to the
commercial property class in Ottawa at half the rate that is set for the
residential class. The three options being presented to Council are for a zero
(0) tax increase, an inflationary tax increase of 1.4%, and a 3.4% tax
increase. If the inflationary tax increase is adopted, the resulting tax
increase in the commercial class will be 1 % and 1.5 % in the residential
class.
With no reassessment to implement
in the 2008 taxation years, the movement towards full Current Value Assessment
(CVA) taxation will be uninterrupted and the amount of claw-back required
should reduce significantly.
There are a number of options for service reduction or revenue increases that will impact the business community. The most significant include:
The consultation on the Draft Operating and Capital budgets will be
conducted through the ward meetings being held by Councillors and the public
delegations sessions to be held by Committee of the Whole.
Financial implications are identified within the report.
Appendix A - Revenue Options
Appendix B – Reduced New Operating Needs
Appendix C – Options to deferred Capital Projects
Appendix D – Program/Service Reduction – Resulting from Growth
Appendix E – Existing Program/Service Reduction
Appendix F – 2008 New Operating Needs
Appendix G – Additional 2008 Capital Renewal Projects
Appendix H – 2005 OMBI Results
Budgets will be amended as per Council deliberation and adoption.