Report
to/Rapport au :
Corporate Services and Economic Development
Committee
Comité des services organisationnels et du développement économique
and Council / et au Conseil
30 March 2009 / le 30 mars 2009
Submitted by/Soumis par : Marian Simulik,
City Treasurer/Trésorière municipale
Contact
Person/Personne ressource : Glen Ford, Deputy Treasurer/Controller;
Trésorier adjoint de la
ville/Contrôleur
Financial Services/Services
financiers
(613)
580-2424 x21305, glen.ford@ottawa.ca
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Ref N°: ACS2009-CMR-FIN-0015
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SUBJECT:
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DISPOSITION OF 2008 OPERATING
DEFICIT
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OBJET :
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Règlement du déficit de fonctionnement de
2008
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REPORT RECOMMENDATIONs
That the Corporate Services and Economic Development
Committee recommend Council approve the following transfers from reserve funds:
1.
That the deficit of $15.4 million, after adjustments
made under delegated authority, in the tax supported operations be funded by:
a)
a transfer from the Transit Capital Reserve Fund of
$7.7 million being the transit portion of the tax supported deficit and;
b)
a transfer from the City Wide Capital Reserve Fund of $7.7
million; and
2.
That
the deficit of $3.7 million, after adjustments made under delegated authority,
in the rate supported operations be funded by a transfer from the Wastewater
Capital Reserve Fund.
RECOMMANDATIONS DU RAPPORT
Que le
Comité des services organisationnels et du développement économique recommande
au Conseil d'approuver les transferts suivants des fonds de réserve :
1.
que
le solde déficitaire de 15 400 000 $ des opérations soutenues
par les recettes fiscales, après rajustements en vertu des pouvoirs délégués,
soit financé par:
a)
un
transfert de 7 700 000 $ du fonds de réserve pour
immobilisations du transport en commun, ce montant représentant la part du
déficit attribuable au transport en commun;
b)
un
transfert de 7 700 000 $ du fonds général de réserve pour
immobilisations; et
2.
que
le solde déficitaire de 3 700 000 $ des opérations soutenues par
les redevances soit financé par un transfert du fonds de réserve pour
immobilisations des eaux usées.
BACKGROUND
As part of the finalization of 2008 operations, and in
conjunction with the preparation of the financial statements it is necessary to
obtain Council approval of the funding of any operating deficit from the
capital reserve funds. This report provides
an analysis of the final results of the 2008 operations and the disposition of
surpluses or deficits, including those transfers to/from reserves made in
accordance with various reserve fund by-laws as well as those made under
delegated authority or Council direction.
DISCUSSION
Disposition of Deficit
The City ended the year with an
overall deficit of $26.0 million, which is detailed in Document 1. This deficit is a result of
- A deficit of $22.7 million in Tax Supported Programs
- A deficit of $3.3 million in Rate Supported Programs
In accordance
with the various reserve funds by-laws, under delegated authority or Council
direction:
- program
surpluses of $3.9 million are to be transferred to various reserve funds,
and,
- program deficits
of $10.8 million are to be funded by transfers from various reserve funds.
The details of these transfers
are described in the following table.
The deficit, after the above
adjustments are made is $19.1 million.
It is recommended that transfers from the Transit, City Wide and
Wastewater Capital Reserve Funds fund this deficit. These transfers require
Council approval.
The
following table summarizes the deficit and its’ disposition.
Update to the 2008 Third Quarter Forecast
The Operating Status Report
(ACS2008-CMR-FIN-0039) provided a 2008 forecast to Council. This report will provide an update of
significant changes to that forecast.
The Variance Analysis – 2008 Operating Results attached as Document 2
provides a more detailed variance analysis between the Budget and Actual
expenditures and revenues. Significant
change is defined as a variance of 5% from the budget or $500,000, whichever is
greater.
The City ended the year with a $22.7 million deficit
within the tax supported programs. This
was $8.8 million less than the forecasted deficit of $31.5 million. The primarily contributor to the decrease
was additional supplementary assessment revenues received as a result of a
Municipal Property Assessment Corporate (MPAC) update received late in 2008. This update resulted in an additional $6.9
million in supplementary assessment revenues beyond that estimated in the Third
Quarter forecast. The secondary
contributor to the decrease was actual program spending, across all
departments, which was $1.9 million less than forecasted.
CONSULTATION
The purpose of this report
is administrative in nature and therefore no public consultation is
required. All Departments were consulted
in the preparation of this report.
LEGAL/RISK MANAGEMENT IMPLICATIONS
The transfers outlined in the recommendations require
Council approval. There are no legal or
risk management impediments to implementing the recommendation in this Report.
FINANCIAL IMPLICATIONS
The disposition of the 2008 deficit made under delegated
authority and as recommended in this report will result in a $26.0 million
reduction in the year-end balances of the City’s reserves and reserve
funds. An updated forecast of the
reserves and reserve funds with be provided as part of in the 2009 Capital Adjustments and Closing Report
SUPPORTING DOCUMENTATION
Document 1 - 2008 Operating Results Summary
Document 2 – Variance Analysis – 2008 Operating Results
DISPOSITION
The Financial Services Branch will make the necessary
accounting adjustments.
Responding to questions from Councillor Deans
with respect to efficiency targets, Ms. Simulik explained the 2008 target was
$14.5M from asset rationalization and procurement plus $13M carried forward
from 2007. In addition, there was a
target of approximately $12M in productivity savings assigned to the
departments which were, for the most part, achieved. In terms of asset rationalization, the idea was to look at all
the City’s assets and recommend to Council areas where facilities could
potentially be closed. When staff
brought forward the concept, Council directed that staff not bring forward a
list until public consultation had been conducted on same. Ms. Simulik indicated this had delayed the
process and moved it into 2009.
With respect to the procurement savings
target, it was spread evenly over the three years. Staff engaged Mr. Howard Grant to do an analysis of all the
City’s spending and to make recommendations of where he felt savings could be
achieved. Staff then reported back to
Council in late spring and embarked on the plan after that. Unfortunately by that time, a window of
opportunity had been missed because, at the City, most of the spending happens
in the second quarter. Ms. Simulik
stated staff would be reporting on this again in 2009 and she was confident
that the savings could be achieved.
However, she suggested the savings may not all be tax related, which
posed a subsequent issue because she could not take rate-supported savings and
credit them to a tax account.
Speaking to the 2009 efficiency target and
the $12M being carried into 2009 from 2008, Ms. Simulik explained that the
latter had been spread over two years with this year’s amount being $6M. Adding to this, Mr. Kirkpatrick advised that
at the Committee’s 2nd meeting in June, staff would be bringing
forward a status report on the efficiency program.
Councillor Deans
referenced recommendation 1 of the report and its impact on the reserve fund
balances. Ms. Simulik pointed her to
Document 7, found at page 68 of the agenda package, in which staff forecasted
the closing balances of the various reserve funds. She explained that the City-Wide
reserve fund was projected to have a small deficit of $2.3M because staff had
incorporated into that amount a commitment of $2.8M to reimburse the hospitals
for their building permit fees as per a previous Committee and Council
decision. However, she advised that as
a result of closing capital projects, funds would be transferred over to cover
the deficit.
Councillor Deans raised the issue of payments-in-lieu of
taxes (PILTs), the fact that federal government buildings were being sold into
private-sector ownership and the impact this would have on the City’s overall
financial position. She then referenced
a newspaper article in which a spokesperson was quoted as saying that the
Provincial government would not address the City’s issue because it would set a
precedent. She wondered how many other
national capitals in the Province of Ontario faced a similar situation. She argued it was because Ottawa was the
national capital that it was home to so many federal buildings, putting the
City in this unique position. She
recalled that a year ago, the City had asked for some consideration from the
Province because of the unique situation and almost a year later, Council was
receiving a response through a local newspaper. She wondered if the City had ever received a formal written
response from the Province. Mr. Kent
Kirkpatrick, City Manager, confirmed that to date, the City had not received a
formal written response.
The Councillor
re-iterated Ottawa’s unique situation and asked the City Manager to speak to
the issue. Mr. Kirkpatrick confirmed
that on 16 June 2008, the Mayor wrote to the Premier identifying this issue,
which had come up during budget discussions.
He reported on a meeting with the Minister of Finance during last
summer’s annual conference of the Association of Municipalities of Ontario
(AMO). He indicated this was one of the
issues brought to the Minister’s attention; that the Minister had been
supportive of this as being an issue needing consideration and resolution and
had directed that municipal staff work with provincial staff, which had
occurred over the past several months.
Mr. Kirkpatrick stated he had discussed the issue with the Deputy
Minister of Finance, Mr. Peter Wallace, the previous week, at which time Mr.
Wallace had given some indication that the Province’s response would be along
the lines of what had been reported in the newspaper. He explained that the municipality had identified this as a
funding issue and made a suggestion about a technical change to the property
tax system, the use of a property identifier, to keep the City whole. As had been reported, the Province did not
want to change the property tax system, which could be debated because, he
submitted that the precedent already existed for a treatment such as municipal
staff had proposed. However, Mr.
Kirkpatrick maintained that the bigger issue was the principle and he suggested
that if the Province did not want to make adjustments to the property tax
system, then it could move to make the City whole through a grant. The City Manager reported having told the
Deputy Minister of Finance that the City had made its request in writing and
would expect a response in writing, which he would then be able to bring
forward to Committee and Council with recommendations for keeping the City
whole on the loss of revenue. In
closing, he proposed that Committee direct him to continue to wait for a
written response from the Province and then pursue other options for keeping
the City whole.
Councillor Deans
indicated she would be prepared to move such a direction. She felt the City needed to be aggressive in
following-up on this issue because it had significant implications for local
taxpayers.
Mayor O’Brien
did not feel a motion was needed because Committee could simply give direction
to the City Manager, who had been moving down that path and had been very
active in the matter.
Responding to questions
from Councillor Brooks, Ms. Simulik explained that the City commonly used the
practice of looking at capital closures and adjustments to cover operating deficits. When asked how she felt about this practice,
the City Treasurer said that in her opinion, there was only one taxpayer and
she did not believe that taxpayers cared whether funds were capital or
operating. She stated she did not like
the practice because the City went forward at taxation time and said it was
raising additional dollars for capital works and then taking almost the same
amount out of the capital works in progress to cover the operating
deficit. She referenced an earlier
comment from the Councillor with respect to phantom money and she expressed
hope that this had been fixed in the 2009 budget so it should not happen again.
However, she noted that there were other risks in this year’s budget so the
City could end up in the same situation again.
Councillor Brooks felt the City should not be taking
money from its capital budget to cover operating shortfalls. He maintained the municipality was so far
behind in its capital works that this practice would only create more problems
in the future.
In reply to a
question from Councillor Bloess with respect to transit efficiencies, Ms.
Simulik indicated they had a very aggressive target in 2008. Approximately $2M got carried into 2009 and
added to a very large 2009 target. They
were somewhere around $12M, which was adjusted when staff came forward with the
revised 2009 Transit budget because there was no way the Branch was going to be
able to achieve it this year.
Therefore, $6M of the target got deferred to 2010.
Councillor
Bloess referenced the reserve by-law and the practice of transferring funds
between the various accounts. He
wondered if this was a good practice and whether staff would have some advice
for Council in this regard. Ms. Simulik
indicated a report would be coming forward in the fall with recommendations on
the various reserves. She suggested
staff would consider the Councillor’s comments and come forward with what they
believed would be an optimal reserve by-law or selection of reserves for City
purposes.
Responding to a
final question from the Councillor with respect to the LRT project management
office, Ms. Simulik indicated staff had carved out $1M from the account in
order to start the new project management office. She advised that the rest of the remain in the account as she
believed there were legal fees to be covered.
In response to
questions from Councillor Cullen with respect to decreased authority for
life-cycle projects, Ms. Simulik explained that when staff came forward with
the status report for August of last year, a deficit was forecasted and staff
indicated they would look to reduce projects or close projects to cover said
deficit. She advised that the funds
would be transferred into the current year’s program and, as a result the
life-cycle work would be advanced. She
confirmed that in the long run, this would add to the life-cycle pressure, but
in the short-term it did not because the programs had been augmented as a
result of Council’s decision to increase the capital contribution towards
life-cycle renewal.
Councillor
Cullen referenced page 4 of Document 1 of the report titled Capital Adjustments and Closing of Projects –
Tax Supported (ACS2009-CMR-FIN-0016):
$3M for the bus replacement program, $1.5M for the revenue bus
replacement program and $4.6M
for park and ride facilities, and he inquired as to the impacts of these budget
adjustments. Mr. Claudio Colaiacovo
indicated the department had identified these as surplus funds in the
referenced accounts and therefore eligible to be returned to help fund the
deficit in Transit.
Speaking
specifically to the $4.6M for park and ride facilities, Ms. Simulik explained
that it was not actually being returned.
This project was included in the budget, to be funded from another level
of government, which had not materialized.
The department was removing it to allow them to spend the rest of the
funds in that budget. She believed it
was about a $20M account so the department would be moving forward and spending
the other $15M to $16M to do more park and ride facilities
With respect to
the $4.5M for bus replacements, Mr. Colaiacovo reminded Committee that during
the transit capital budget discussions, the General Manager of Transit Services
had indicated there were some savings identified as a result of the fluctuation
in dollar, which would augment some the savings in the account.
Councillor
Cullen expressed concerns with respect to two other items: $123,000 for area traffic management and
$700,000 for red light cameras. He
submitted that if there were surpluses in these accounts, more work could be
done in these areas.
The Councillor
referenced Document 7, which indicated there were over $51M in transfers to
operating and he wondered if the City was developing a habit of counting on the
2% capital tax levy to balance the budget.
Mr. Kirkpatrick stated he would not characterize it as a habit. He reminded Committee that Council had taken
steps in the 2009 budget to eliminate one-time revenues that had been built
into the budget, though there still were risks in the 2009 budget. He re-iterated that there was only one
taxpayer, one tax source. He noted that
Council had made some decisions in its fiscal policy framework and then in the
budgets approved to implement that framework.
To the extent that some of those plans did not come to fruition, he did
not see a problem with the notion of using capital funds, on a one-time basis,
to fund operating deficits. Further, he
remarked that when there were operating surpluses, the money was transferred
into capital reserve funds over and above what Council had budgeted as a
contribution to those reserve funds.
Ms. Simulik added the other large item captured in the
figure was $15M for Transit and she reminded Committee that when staff restated
the transit budget, there was a significant short-fall in revenue and funds
were transferred from the reserve.
Therefore, the $15M was a one-time item and then there was the gas tax
and the debt Council had approved to be funded from the gas tax, which had to
be brought into the operating budget.
That the Corporate Services and
Economic Development Committee recommend Council approve the following
transfers from reserve funds:
1.
That the deficit of $15.4 million, after
adjustments made under delegated authority, in the tax supported operations be
funded by:
a)
a transfer from the
Transit Capital Reserve Fund of $7.7 million being the transit portion of the
tax supported deficit and;
b)
a transfer from the
City Wide Capital Reserve Fund of $7.7 million; and
2. That the deficit of $3.7 million, after
adjustments made under delegated authority, in the rate supported operations be
funded by a transfer from the Wastewater Capital Reserve Fund.
CARRIED
That the City
Manager continue to wait for a formal response from the Province on the issue
of lost Payment-in-lieu of Tax (PILT) revenues and, following receipt of said
response, pursue options with the Province for keeping the City whole in this
regard.
