Report to/Rapport au :

 

Council/Conseil municipal

 

7 February 2007/le 7 février 2007

 

Submitted by/Soumis par : Greg Geddes, Chief Corporate Services Officer/

chef des Services généraux

 

Contact Person/Personne-ressource : Marian Simulik, City Treasurer, Financial Services/trésorière municipale, Services financiers

613-580-2424, x/poste 14159, marian.simulik@ottawa.ca

 

 

Ref N°/No de réf. : ACS2007-CRS-FIN-0006

 

 

SUBJECT:

2007 OPERATING AND CAPITAL BUDGETS

 

 

OBJET :

BUDGETS PRÉLIMINAIRES DE FONCTIONNEMENT ET DES IMMOBILISATIONS DE 2007

 

 

REPORT RECOMMENDATION

 

1.      That the Draft 2007 Operating and Capital Budget Estimates be received and tabled at the Council meeting of 7 February 2007 for subsequent consideration by Council as Committee of the Whole during the 2007 Budget consideration (delegations and deliberations) to be held February 19 to 28 as required, and

 

2.      That any Council approvals impacting the 2007 Operating and Capital Budgets that are made subsequent to the January 24 Council meeting be forwarded to the Committee of the Whole at the same time as the Draft 2007 Operating Budget is deliberated.

 

 

RECOMMANDATION DU RAPPORT

 

  1. Que les budgets préliminaires de fonctionnement et des immobilisations de 2007 soient déposés à la réunion du Conseil municipal du 7 février 2007 pour être ensuite étudiés par le comité plénier (Conseil) dans le cadre du processus d’examen du budget de 2007 (audition de délégations et délibérations), qui s’échelonnera du 19 au 28 février (selon les besoins);

 

  1. Que toute décision prise par le Conseil après sa réunion du 24 janvier et ayant une incidence sur les budgets de fonctionnement et des immobilisations de 2007 soit transmise au comité plénier au moment où celui-ci examinera le budget préliminaire de fonctionnement de 2007.

 

 

EXECUTIVE SUMMARY

 

City Council directed staff to develop two scenarios for an operating budget in 2007.  The first is a scenario with no tax increase and the second is with an inflationary tax increase.  Both scenarios are to use only sustainable sources as solutions to offset the cost increases facing the City in 2007.

 

In order to provide context around the options being presented to achieve Council’s direction, this document provides an overview of several major components of the City budget.  These include information relating to compensation, energy costs, provincially cost-shared programs, transit fares and ridership, growth, user fees, utility services and solid waste.  More detailed fact sheets have also been provided for these areas.

 

Primarily as a result of announcements from the Province around funding for paramedics and an increase to Ontario Municipal Partnership Fund grants, the City is facing reduced net budget pressures of $82.03 million.  The police budget will be dealt with under separate cover to deal with the net $10.472 million in budget pressures related to the provision of police services.  This leaves a target of $71.6 million to be eliminated from the 2007 budget in order to achieve a 0% tax increase or $57.9 million to achieve a 1.7% tax increase (twelve-month CPI average for Ottawa).

 

The options for Council’s consideration have been categorized as either sustainable budget reductions, budget reduction targets or program/service reductions.  The list of options for sustainable budget reductions focuses on reducing compensation and energy costs, deferring or eliminating some enhancements, using Provincial Gas Tax revenues for operating costs, authorizing $9.5 million in debt for capital works projects. In total, these options would reduce the 2007 budget pressure by $29.75 million.

 

The second set of options is a series of budget reduction targets that are aggressive and will challenge the administration and will need to be monitored throughout the year.  Staff will report on the progress towards these targets in the quarterly financial status reports.  These include deeper decreases to compensation, requesting the Province to provide its total share of revenue for cost-shared programs as per agreed-upon funding levels, deeper increases to transit fares, accepting additional industrial, commercial and institutional (ICI) garbage tonnage at the Trail Road Landfill and setting a specific efficiency target for the Surface Operations branch.  These options total $25.968 million.

 

With the adoption of the first two categories, a further reduction of $15.84 million of program/service reductions would still be required in order to achieve a 0% tax increase.  Before considering cutting existing services, Council has the option to reconsider $10.616 million in service enhancements included in the 2007 budget.  In the absence of any direction from Council with respect to areas of focus for service reductions, Council has the option to review the list of service reductions identified as part of the 2004 Universal Program Review.  This list has been included for consideration as Appendix 5.

 

A tax-supported capital program of $528.8 million is being recommended for 2007.  Transit Services, the area with the largest amount of capital works projects ($208.7 million), is being recommended.  Included in the capital recommendations are $43.5 million of capital strategic initiatives.  In total $9.03 million was added to the strategic initiative category and projects were selected based on eligiblity for this additional debt funding.

 

The garbage collection fee is projected to increase by 6% in 2007 to respond to increased costs.  In order to keep the increase at an inflationary level, two budget reduction options are proposed for Council consideration.  These include leaving the garbage collection fee on the tax bill and diverting residential garbage to the Moose Creek Landfill and accepting an equivalent amount of ICI garbage at the Trail Road Landfill. Adopting these options would result in an increase of $1.25 per year to the curbside pickup charge.

 

The water and sewer rate-supported budgets are being presented as recommended in LRFP III with a combined 9% increase to the rate.  This represents approximately $63 per year for a household that uses a cubic meter of water a day.  A combined capital program of $108.2 million is being recommended to ensure that capital works projects required for this service area are not deferred.

 

Budget forecasts for 2008 - 2010 have also been included and have been adjusted to remove the impact of North/South Light Rail Transit project on the operating budget.  These forecasts are without the benefit of term-of-Council priority setting.

 

RÉSUMÉ

 

Le Conseil a demandé au personnel municipal de préparer deux scénarios pour le budget de fonctionnement de 2007. Le premier prévoit un gel de l’impôt foncier et le deuxième, une augmentation des taxes équivalente au taux d’inflation. Les deux scénarios doivent se fonder uniquement sur des solutions de financement durables pour compenser les hausses de coûts auxquelles la Ville doit faire face en 2007.

 

Le présent document offre un contexte expliquant les solutions proposées pour répondre à la directive du Conseil et donne un aperçu de plusieurs composantes importantes du budget de la Ville. Les données portent notamment sur les coûts de rémunération et de l’énergie, les programmes à frais partagés avec la Province, les tarifs et le nombre d’usagers du transport en commun, la croissance, les frais d’utilisation, les services publics et les déchets solides. Des fiches contenant des renseignements plus détaillés sur ces sujets ont également été préparées.

 

Principalement en raison des annonces faites par la Province relativement au financement alloué aux services paramédics et à un accroissement des subventions du Fonds de partenariat avec les municipalités de l'Ontario, la Ville se trouve devant des pressions budgétaires nettes réduites de 81,976 millions de dollars. Le budget du Service de police, qui est traité séparément du budget de la Ville, prévoit des pressions nettes de 10,472 millions associées à la prestation des services policiers. Il reste donc 71,5 millions de dollars à éliminer du budget de 2007 pour arriver à geler l’impôt foncier, ou 57,9 millions de dollars pour augmenter les taxes de 1,7 p. 100 (taux calculé selon la moyenne de l’indice des prix à la consommation établie pour Ottawa sur une période de 12 mois).

 

Pour ce faire, le Conseil doit examiner trois catégories de solutions : opter pour des compressions budgétaires durables, adopter des objectifs de diminution des dépenses ou réduire les programmes ou les services. Parmi les options de la première catégorie, il est proposé de réduire les coûts de rémunération et de l’énergie, de reporter ou d’éliminer certaines améliorations, d’utiliser les recettes provenant de la taxe provinciale sur l'essence pour financer les coûts d’exploitationainsi que, d’autoriser un emprunt de 9,5 millions de dollars pour réaliser des projets d’immobilisations. Ces solutions réduiraient de 29,75 millions de dollars les pressions budgétaires de 2007.

 

La seconde série de solutions propose des objectifs de réduction des dépenses qui sont audacieux, représenteront un défi pour l’administration et devront faire l’objet d’une surveillance pendant toute l’année. Le personnel fera un compte rendu des progrès réalisés à cet égard dans les rapports trimestriels sur les états financiers de la Ville. Ces objectifs comprennent notamment : d’autres réductions au chapitre de la rémunération, des pressions auprès de la Province afin qu’elle verse à la Ville sa part intégrale du financement des programmes à frais partagés, conformément aux accords conclus sur les niveaux de financement, une hausse accrue des tarifs de transport en commun, l’acheminement à la décharge contrôlée du chemin Trail d’un volume plus élevé de déchets industriels, commerciaux et institutionnels (ICI) et l’établissement d’un objectif d’efficience précis pour la Direction des opérations de surface. Ces solutions constituent des économies de 25,968 millions de dollars.

 

Même si elle adopte les deux premières solutions pour éviter toute augmentation des taxes foncières, la Ville devrait quand même réduire ses programmes et services de 15,84 millions de dollars. Avant de réduire les services actuels, le Conseil peut décider de reconsidérer les améliorations de services de 9,981 millions de dollars prévues au budget de 2007. S’il ne dispose d’aucune directive en ce qui touche les secteurs d’activité qui devraient faire l’objet de réductions, le Conseil peut examiner la liste des réductions de services figurant dans l’Examen général des programmes municipaux réalisé en 2004, laquelle est jointe au présent document (annexe 5).

 

En 2007, un programme d’immobilisations de 528,8 millions de dollars est recommandé, qui sera financé à même les taxes foncières. Le secteur dans lequel le plus grand nombre de projets d’immobilisations sont prévus est celui du transport en commun (208,7 millions de dollars). Le programme comprend également des initiatives stratégiques en immobilisations représentant 43,5 millions de dollars. En tout, 9,03 millions de dollars ont été ajoutés à la catégorie des initiatives stratégiques et certains projets ont été retenus en fonction de leur admissibilité au financement par emprunt supplémentaire.

 

La redevance pour la collecte des déchets devrait augmenter de 6 p. 100 en 2007 pour compenser la hausse des coûts de collecte des ordures. Afin de maintenir l’augmentation au niveau de l’inflation, deux possibilités de compressions budgétaires sont proposées au Conseil : conserver la redevance de collecte des déchets sur la facture de taxes et réorienter une partie des ordures résidentielles vers le site d’enfouissement de Moose Creek pour que la décharge contrôlée du chemin Trail puisse accepter en échange un volume de déchets ICI équivalent. Si elles sont mises en œuvre, ces solutions donneraient lieu à une hausse annuelle de 1,25 $ des frais de collecte des ordures en bordure de rue.

 

Conformément au Plan financier à long terme III, le budget prévoit une hausse combinée de 9 p. 100 des redevances d’eau et d’égout, ce qui représente environ 63 $ par an pour un ménage qui utilise un mètre cube d’eau quotidiennement. Un programme d’immobilisations combiné de 108,2 millions de dollars est recommandé pour s’assurer que les projets d’immobilisations prévus dans ce secteur d’activité ne sont pas reportés.

 

Ce document présente également les prévisions budgétaires pour la période s’étendant de 2008 à 2010, qui ont été rajustées pour en éliminer les répercussions sur le budget de fonctionnement du projet de couloir nord-sud du train léger sur rail. Ces prévisions n’ont cependant pas été établies en fonction des priorités du Conseil actuel.

 

BACKGROUND

 

This report provides an overview of the 2007 Draft Operating and Capital Budgets. 

 

The Budget Directions tabled on December 14, 2006, were approved as amended by Council on January 11, 2007.  The most significant amendment to the budget directions in terms of overall presentation was the following:

 

  1. That Council approve the development of a Draft Operating budget for 2007 for all tax-supported services (excluding Ottawa Police Services), that includes:

i.         a)   A 0% tax increase, derived solely from sustainable sources that upholds the Long Range Financial Plan principles and that does not adversely impact the City’s credit rating;

b)   An inflationary tax increase based on the same above principles.

 

The result of this direction and other various service-specific direction amendments have been incorporated into the 2007 Draft Operating Budget and are described in this document and in the 2007 Draft Operating Budget book.

 

At that same meeting, Council requested that the Police Services Board table a 2007 Draft Operating Budget that is consistent with the above directions.  The Police Board budget submission is being tabled under separate cover.  The Library Board budget submission has been included in the City’s 2007 Draft Operating and Capital Budgets.

 

DISCUSSION

 

Major Categories in the 2007 Draft City Budget

 

To better understand opportunities and limitations that exist in the City budget, there are major categories of expenditures and revenue that require some explanation.  This section of the report provides a very high-level overview of these issues.  A separate appendix is attached with a more detailed discussion.

 

Compensation Budget

 

Compensation costs represent the single largest component of the City’s operating budget.  Managing compensation costs is one of the most challenging issues for Ottawa and other large Canadian municipalities for a number of reasons.

 

The total 2006 compensation budget is slightly over $1 billion, and includes compensation for the police, building services and elected officials.  Therefore, the amount that is associated with Council controlled programs and services provided to residents and businesses in Ottawa is much less.  City Council has limited control over the police budget as it is recommended by the Ottawa Police Services Board.  The budget for the Building Services branch is self-funded through building permit fees according to provincial legislation and therefore is not funded by property tax.  The Mayor and the other members of Council set the budgets for their offices separately from the rest of City Services, and as such is not normally attributed with the cost of providing City services.

 

Further, employees providing rate-supported programs are funded through the utility bill for water and sewer accounts, rather than through taxes. Rate-supported compensation totals approximately $41.1 million.

 

Finally, Provincially mandated programs are cost-shared between the Province and the City and account for just over $173.5 million.  While there is a contribution by the City to these programs, the provision of these services and the service levels are mandated by the Province, and the City is obliged to contribute its portion of the cost of these services.

 

When all other funding sources are removed, there remains $611.9 million in the compensation budget for programs and services that are fully funded by property tax – or about 61% of the compensation budget.  Further revenue from user fees (such as transit fares, recreation fees) reduce this to about 52% of the overall compensation budget.

 

Energy

 

Natural gas

The City of Ottawa buys about 18.5 million m3 of natural gas per year. The 2007 budget is just under $7 million. Through effective planning and timely purchases of natural gas, the City has saved over $700,000 in 2006.

 

Electricity

The City of Ottawa purchased 295 million kWh of electricity in 2006 at a cost of $29.8 million.   One-third (1/3) of the cost of electricity is at delivery. Rates are set by the Ontario Energy Board.  The City is in the process of developing long-term strategies to purchase electricity.

 

Diesel Fuel and Gasoline

The City of Ottawa uses roughly 40 million litres of diesel fuel per year to run the bus fleet and another 10 million litres of fuel (gasoline, diesel and propane) to run the municipal fleet.  In 2006, fleet fuel budgets totaled over $41 million.

 

In the past two years, the price of diesel and gasoline has fluctuated wildly in the market in response to world conditions, with price hikes of over 20% in a one-month period.  The City has entered into a series of fixed-price future contracts for the purchase of diesel fuel.  This strategy of trying to lock-in diesel prices at the budgeted amount saved the City millions of dollars in 2006.

 

Provincially Cost-Shared Programs

 

Ontario is the only province in Canada that funds social programs like housing and public health from property taxes. While the Province mandates the standards and overall costs of these programs, they are funded from a combination of property taxes and provincial subsidy. This means that Council has limited authority to alter costs and must fund the remainder of the costs of these services from property taxes.

 

In Ottawa, the projected cost associated with the delivery of these social programs over the next four (4) years is a property tax increase of approximately 0.7% annually, or an additional $6 to $8 million increase per year.

 

If the Province were to fund all of its mandated cost-shared programs, the average urban residential household in Ottawa would pay $670 less in property taxes per year.

 

Ottawa continues to argue that there are significant funding gaps in many provincially legislated cost-shared programs.  This year, the difference between what the Province has agreed to pay for mandated, cost-shared programs and the anticipated amount to be received from the Province, will result in a $13 million shortfall or funding gap for the City of Ottawa.  The funding gap is most acute in programs such as childcare, public health and long-term care.

 

Appendix 3 identifies the list of City services that are cost-shared by the Province as well as identifying gaps in program funding.

 

Costs Associated with Growth

 

Population projections

Council adopted current population projections in 2001 as part of the development of the new City of Ottawa’s first Official Plan. The projections detail a 2021 population of 1.2 million, an increase of 50% over 2001 population levels.

 

Population projections will be adjusted in 2007 following the release of 2006 Census data.  The updated projections will be used to inform the new Official Plan in 2008, as well as the 2009 Development Charges By-law.

 

Growth and the Operating Budget

Growth is built into the operating budget as follows:

 

It is important to note that the growth identified in the operating budget is not related to population projections.  Population projections have more of a direct impact on the capital budget through the collection of development charges.

 

The capital budget is adjusted annually based on availability of development charges revenues, infrastructure funding requirements, and the priorities and needs of new communities.

 

User Fees

 

The City also receives annual revenues from user fees.  In Ottawa, user fees primarily consist of transit fares, water rates, sewer surcharges, and registration and entry fees for recreation programs and facilities. These fees are directly used to pay part of the cost of providing the service. Currently, user fees are well below the City’s costs for delivery of these services.

 

Transit Fares and Ridership

 

Ottawa has the second highest transit ridership levels in the province. In 2006, system-wide ridership increased by 2.6% to an all-time high of 91.8 million customer trips.  City staff is working to achieving a further 3% ridership increase in 2007.  This would bring annual ridership to 94.5 million customer trips and improve Ottawa’s transit modal split.

 

The City currently has a transit modal split of about 17%.  Modal split is the percentage of motorized trips people make during peak hours by using transit. A higher modal split is better for the environment, and reduces congestion on roads.  

 

In 2005, 49.9% of the City’s transit operating costs were recovered from passenger fares and advertising revenues, with the remainder funded by property taxes, and gas tax funds from the provincial government.

 

In 2005, Council adopted a policy to move towards 55% of direct transit expenditures being recovered from users and advertising revenue; thus bringing Ottawa closer to the provincial average.

 

Included in the 2007 Capital Budget is a 7.5% fare increase to begin July 2007 and a route reduction plan of $360,000.  However, these changes result in a 49.9% revenue-cost ratio, well below Council’s goal of 55%.

 

Achieving the City’s target ridership goals is a balance between ensuring service levels, controlling operating costs and fare increases. Finding the best balance to achieve Council’s target is an important factor in transit budget planning.

 

The 2007 Draft Budget proposes an option of utilizing approximately $9 million in provincial gas tax revenues to offset transit-operating costs.

 

Solid Waste

 

The City of Ottawa manages solid waste from residential households and some small non-residential establishments through a combination of public and public/private partnerships. In 2005, there was approximately 1.02 million tonnes of commercial and household waste generated in Ottawa.  The City is working to meet the provincial target of 60% solid waste diversion from landfills by 2008.

 

The Draft 2007 Budget provides the option of diverting 30,000 tonnes of residential waste to Moose Creek Landfill, at a tipping fee of $42 per tonne plus an additional hauling cost provision.  This will create an opportunity at the Trail Road Landfill to accept the equivalent amount of Ottawa’s industrial, commercial and institutional waste (ICI).  Trail Road Landfill is proposing a $75 tipping fee for 2007.  By diverting residential waste to the Moose Creek Landfill and replacing it with ICI, the City could  generate net revenue of $850,000 per year.

 

Water and Sewer

 

The City of Ottawa provides safe, reliable clean water and sewer services that citizens rely upon every day.

 

Water and sewer operations are funded through a utility bill paid only by residents and businesses that use this City service and is not part of the property tax bill. 

 

The water and sewer rate has been developed to cover the full cost of drinking water and wastewater treatment service delivery.  Development charges are intended to cover the cost of expanding the system into new areas.  The current water and wastewater rate, however, is insufficient to fund operating and capital requirements over the next decade.

 

The City of Ottawa is proposing a water rate increase of approximately $63 per household in 2007 to cover the cost of rehabilitating and replacing aging infrastructure to ensure safe, clean drinking water, and to keep pace with higher inflation on chemical and power costs. It would also fund modifications to the City's water treatment and distribution systems in accordance with new provincial water regulations and City Council directions.

 

Recreational Services

 

User fees for recreational services totaled $35 million in 2005, representing 35% of total expenditures for the service. Property taxes cover 65% of the existing cost of recreational services.

 

New User Fees and Charges

 

On August 14, 2006, Ontario introduced the Provincial-Municipal Fiscal and Service Delivery Review to improve how provincially mandated services are funded. The City of Ottawa will be working alongside other Ontario municipalities to improve the delivery and funding of services for Ontarians. This review is expected to be released in the spring 2008 and could provide new powers and more flexibility to municipalities when the Municipal Statute Law Amendment Act is passed.

 

Changes in Budget Presentation from 2006

 

In accordance with the recommendations in the “It’s About Accountability” report, the City proposes establishment of multi-year budgets. Municipal Act amendments approved in December 2006 now allow for Councils to pass budgets that cover more than one year.  The next step in the move towards multi-year budgeting is for Council to establish its term priorities so that these can be reflected in the budget and direction given with respect to balancing the budgets.  Municipal Act legislation requires municipal budgets to balance.  Council will establish its priorities in the second quarter of 2007; therefore, the 2007 Draft Operating Budget does not contain detailed 2008 - 2010 budgets.  As in past years, the operating budget forecast for the next three years is at a macro level. 

 

In previous budget debates, Council asked that budgets be presented in such a way that the total cost of providing a service be identified in the same area.  With the Centres of Expertise concept, or a centralized services approach, approved during amalgamation, many costs associated with providing a public service are contained in the Corporate Services Departmental budget.  In moving towards complying with Council’s request in the 2007 budget, utility and maintenance costs of single-purpose buildings that were previously shown in the Real Property Asset Management budget are now also shown in the direct service area budgets.  This gives citizens and Council a better appreciation of the total cost of providing a service.  Future budgets will continue advancing this Council direction.

 

During the Budget Directions deliberations, a number of motions were put forward with respect to the presentation of the operating and capital budgets.  These included:

 

 

In response to these directions, the order within the operating budget document has been revised.  Following the first two sections dealing with the budgetary requirements for Elected Officials and the City Manager’s Office, the City departments are presented in order of budget size – Community and Protective Services; Public Works; Planning, Transit and Environment; and Corporate Services.  The Deputy City Manager’s Office budget in each department is presented first followed by their respective branches in order of budget size.

 

In order to assist Council, businesses and citizens in understanding how much the City is spending by function, the capital budget is no longer being presented by organizational structure within the three broad categories of capital (renewal of assets, growth, and strategic initiatives).  The capital budget is now divided into thirteen functional areas, with capital projects grouped by category within each function.  For example, Transit Services is one area and contains all projects relating to transit growth, renewal and strategic initiatives regardless of the branch that is responsible for the project.  Therefore, included within the transit area are projects delivered by Real Property Asset Management, Information Technology Services, Financial Services, Fleet and Planning.

 

Detailed operating and capital requirements for the Ottawa Police Services are not contained in the City’s budget documents.  These requirements will be presented in a separate document prepared by Police Services and tabled with the Ottawa Police Services Board on February 7, 2007.

 

Also during the budget direction deliberations the following recommendation was made:

 

·        THEREFORE BE IT RESOLVED, that historical data (averaged over multiple years) comparing City of Ottawa expenditures per household per function to other Ontario municipalities be made available along with the draft 2007 budget.

 

In response to this recommendation, the per household comparison of actual expenditures by functional area for the Cities of Ottawa, Toronto and an average of seven other comparable Ontario Municipalities (Peel, York, Halton, Niagara, and Durham Regions with their lower tier municipalities, plus Hamilton and London) for the 2003 – 2005 timeframe is  provided in Appendix 1.

 

Tabled 2007 Draft Operating Budget Estimates

 

Direction 1

 

The Budget Directions report identified additional net costs of $95.4 million that were required in 2007 to pay for City programs and services.  Of this amount, the the Ottawa Police Services net budget requirements was $10.5 million, leaving the remaining City budget pressure of $84.9 million.  Since those estimates were developed, a number of announcements or changes have taken place, which has resulted in the City budget requirement (not including police) being reduced to $71.6 million.  Major announcements that have reduced the requirement include:

 

a.       Increased provincial funding for the Ontario Municipal Partnership for all municipalities - Ottawa’s share increased by $4.1 million per year;

b.      Increased provincial paramedic funding would be $1.55 million;

c.       Cancellation of the Light Rail Transit project reduced budget pressures by $1.2 million;

d.      The City has locked in diesel fuel prices for the first quarter of 2007 at 82 cents per litre which reduced the 2007 cost estimate by $500,000; and

e.       Revised Fleet expenditure requirements for 2007 to maintain existing service levels along with reduced growth requirements from City operations has reduced the cost increases by $2.9 million.

 

In addition to these changes, City staff reduced cost estimates to better align with the 2007 forecasted inflation rate.

 

The 2007 Draft Operating Budget also includes the impact of the direction Council provided with respect to the following specific function:

 

·        THEREFORE BE IT RESOLVED that the 2007 budget for the Planning Approvals branch include a provision to post planning applications and supporting documentation on the City’s web site.

 

The additional cost to implement this direction, estimated at $250,000, has been incorporated into the draft operating requirements of the Planning Approvals branch.

 

Direction 1 i) was amended to provide for either a 0% tax increase, or an increase at the rate of inflation.  The average increase in the Consumer Price Index for Ottawa-Gatineau for the last 12 months (Jan – Dec  2006) is reported at 1.7%.  A 1.7% tax increase on the City portion of tax levy (excluding Police) would generate $13.7 million in taxation.  This represents $48 per average household.  Budget impacts identified as per Council Direction 1 are summarized in the following table.

 

 

Direction 1 That Council approve the development of a Draft Operating Budget for 2007 for all tax-supported services that includes:

Cost

$ millions

a) The cost of maintaining current programs at current service levels

63.1

b) The cost of providing provincially mandated and cost-shared programs

2.4

c) The costs associated with growth in population or City infrastructure

12.6

d) The cost of enhanced services as directed by Council

12.3

e) An increase equivalent to a 1% tax increase for the contribution to capital used to fund the strategic initiatives category of capital

9.5

f) An increase to user fees at either the percentage increase in the cost of providing the program or service, or as directed by Council

(12.3)

g) A reasonable estimate of assessment growth from new properties

(16.0)

Solutions Required for a 0% tax increase

71.6

i) Tax increase at the rate of inflation

(13.7)

Solutions Required for an inflationary tax increase

57.9

 

Details of all of changes to the 2007 budget are provided in the Draft Operating Budget document.

 

Direction 2

 

Options developed for Council consideration to achieve either an inflationary or 0% tax increase have been categorized as follows:

 

 

Options were developed around major components of the budget such as compensation, as these would have the largest dollar value.  In addition, the budget directions provided by Council were taken into consideration and, to the extent possible, followed.  These directions included:

 

·        THEREFORE BE IT RESOLVED that the budget request for $6.3 million for Ottawa Community Housing Corporation (OCHC) be excluded from Recommendation 2(a) (defer enhancements).

·        THEREFORE BE IT RESOLVED that the items listed above (all enhancements except additional resources for Committee Chairs) be excluded from Recommendation 2(a) (defer enhancements).

·        THEREFORE BE IT RESOLVED that the 2007 budget for the Community and Protective Services Department be based on no funding reductions to community and cultural agencies.

 

A brief description of the reduction categories and the options provided within each is provided below.  A more detailed list of options has been provided in the budget book and in Appendix 2 of this document.

 

Sustainable Budget Reductions

 

The first category of budget reductions are those the administration think are achievable in 2007; and therefore, are not likely to result in a budget pressure in 2008. 

 

Option

$

Compensation: Increase gapping or reduce compensation budgets where positions have been vacant for a length of time

8,000,000

Energy:  Set a target to lock in diesel fuel prices at 80 cents per litre

2,000,000

Capital Contributions:  Use Provincial Gas Tax for transit operating costs and use debt instead of cash to fund the Strategic Initiative category

18,500,000

Enhancements:  Do not proceed with recommendations stemming from the Auditor General that require additional resources or provide additional funding for the Committee Chairs

600,000

Grants/Contributions:  Eliminate the grant to the Ottawa Tourism and Convention Authority

500,000

General Revenue:  Advance the final tax due date by one week

150,000

TOTAL

29,750,000

 

Adoption of these options leaves the remaining balance of solutions at either $41.8 million for a 0% tax increase or $ 28.1 million for an inflationary tax increase.

 

Budget Reduction Targets with Risk of Achievement

 

The second category of options includes budget reduction targets that will carry some risk with respect to achievement.  If these options were adopted, progress would need to be reported to Council throughout the year.  Not achieving these targets would result in a budget pressure in 2008.  

 

Option

$

Compensation:  An additional increase to the gapping provision.

5,000,000

Cost-Shared Programs:  Adjust the provincial revenue for cost-shared programs to match cost-sharing agreements. (Details provided in Appendix 1)

13,000,000

Transit Fares:  Increase the amount to be recovered from the fare box to 52% that are above Council’s policy on ridership

5,400,000

Utilities/Solid Waste*: 

Divert 13,500 tonnes to Moose Creek Landfill

Accept additional ICI tonnage in order to offset all tax-supported pressures.  (Details provided in Appendix 4)

 

382,000

1,186,000

Surface Operations:  Introduce an efficiency target for the Surface Operations branch from its Strategic Alignment Initiative

1,000,000

Total

25,968,000

 

Program/Service Reductions

 

If all of the reductions listed above are adopted in order to achieve a  0% or inflationary tax increase, the following reductions would still require identification.  As all the non-service related reductions have been identified above, any further reductions need to focus on program and service delivery reductions

 

 

 0% Tax

1.7% Tax

Solutions Required

71,558,000

57,858,000

Sustainable Reductions

29,750,000

29,750,000

Budget Reduction Targets with Risk of Achievement

25,968,000

25,968,000

Program/Service Reductions Remaining

15,840,000

2,140,000

 

Council has not gone through the process of establishing its term-of-Council priorities nor was staff provided with specific directions as to which program and services to review.  In the absence of such direction, any determination by staff of program and service areas to be reduced may not be in line with Council’s priorities. 

 

Given the difficulty in identifying program and service reductions, two options are being presented for Council consideration.  The first option would be to reconsider the enhancements being incorporated into the 2007 budget.  From a public perception, the deferral or elimination of a service enhancement that has not yet been implemented may be more acceptable than reducing services already being provided.  Council, at budget directions, requested that $10.616 million in program/service enhancements be incorporated into the budget.  Council may wish to review this list in more detail as it progresses through the budget review to determine if any can be deferred.

 

The second option is to refer to the 2004 Universal Program Review (UPR) and look at program and service reductions as suggested at that time, but not adopted.  This would serve as a reference document to facilitate program/service reductions.  The entire list of UPR options is included in Appendix 5 and is broken down into the $34.3 million of options that Council accepted, the $9.3 million of options that Council accepted and then reinstated at a later date, and the $28.4 million of options that were not accepted.  If Council wishes to review the “not accepted” list, it will need to be updated to capture current costs and to eliminate items that are no longer applicable. 

 

 

Reduction Options

$

Enhancements: defer the service enhancements incorporated in the budget

10,616,000

Program/Service Reductions: review the list of UPR reductions not taken as part of the 2004 budget

5,224,000

TOTAL

15,840,000

 

Adoption of these options will result in a  0% tax increase.

 

Direction 4 - Tax-Supported Capital Budget

 

The Long Range Financial Plan III identified that the City’s tax-supported capital program has a funding gap of approximately $200 million per year.  The directions approved by Council for the 2007 tax-supported Draft Capital Budget included the following: 

 

a.       That the capital budget be developed with the funding identified in the Long Range Financial Plan III;

b.      Incorporate the budget directions to increase the strategic initiative category by a 1% increase in taxation, but use debt as the financing instrument;

c.        Identify projects in the strategic initiatives category as prioritized by the administration, and provide a list of all other projects for information.

 

In building the capital budget in accordance with the funding identified in LRFP III, the shortfall in the renewal and strategic initiative categories of capital are reflected.  In total, 64% of the current year’s requirement for renewal projects and 42% of the strategic initiatives requests are proposed for funding in the 2007 Draft Budget.  If Transit projects are removed from the renewal calculation, approximately 58% of identified renewal needs are proposed to be funded.  In summary, the capital plan has the following gross authorities proposed for each functional area are indicted below. The Corporate General and Planning function contains building renewal projects and municipal fleet replacement for the Corporation.  In 2008, these projects will be divided and assigned to their appropriate functional areas. 

 

 

These projects are funded from the following sources:

 

Strategic Initiatives Category

 

In compliance with the third direction, the list of capital strategic initiative projects has been reviewed by the administration and those projects being recommended for approval are listed below.  This list also includes all the other strategic initiative projects that can be funded from a dedicated source, such as the Library Reserve or the Cash-in-lieu of Parkland Reserve. 

 

 

Direction 2 recommended that the increased funding of $9.5 million for strategic initiative projects be funded from debt.  Therefore, the projects being recommended are all eligible for debt-financing. The debt funding limitation resulted in only $9.0 million of the $9.5 million being allocated.  Council had provided direction with respect to inclusion of certain strategic projects, such as the Tree Planting project and the Air Quality and Climate Change Management Plan Implementation.  As these projects are not eligible for debt financing and do not have a dedicated source of funding, they could not be accommodated.  The entire list of capital strategic initiative projects requested for 2007 has been included in the capital budget book. 

 

 

Direction 5 - Rate-Supported Operating and Capital Budgets

 

Solid Waste (User Fee Supported Program)

 

The solid waste budget is funded from a combination of user fees and taxation.  The garbage collection and disposal portion of the Solid Waste accounts is funded from a flat fee charged to residential and multi-residential units.  As indicated in the 2007 Budget Directions report, the funding requirements for garbage collection and disposal will require a user fee increase in order to offset projected cost pressures of $1.3 million. Of this amount, $360,000 is to address landfill closure liability and $500,000 is for the increased cost of moving the collection and disposal fee from the tax bill to the utility bill.  The budget book provides details on all of the cost increases in the solid waste area.

 

In the absence of any options to address the projected $1.3 million in cost pressures, the user fee for garbage collection would need to increase in 2007.  This would translate into a $5 per year increase (6.3%) to the current curbside pickup fee and a $1 per year increase on the bin pickup fee.  The following two options are being presented to reduce the projected 2007 user fee increase. 

 

Option

$

Continue to utilize the property tax bill as the invoicing method to bill the garbage collection fee.

500,000

 Divert 16,500 tonnes of residential waste to Moose Creek Landfill and accept equivalent Industrial, Commercial and Institutional (ICI) tonnage at Trail Road Landfill.

470,000

TOTAL

970,000

 

The above options would reduce the user fee increase to 1.6% for curbside pick-up or $1.25 per year and $0.50 per year for bin pick-up.

 

Solid Waste (Tax Supported Program)

 

The waste diversion and recycling programs of the City are funded from all property owners through the property tax rate.  Cost and revenue pressures are projected to require a tax increase of $1.6 million in 2007.  Increased contract costs for recycling, leaf/yard programs, reduced funding from the provincial government through the Waste Diversion Ontario program and additional resources to support waste diversion activities in the Industrial, Commercial and Institutional sector account for the increased requirements. 

 

Included in the list of budget reduction targets under Direction 2 are options to offset the increases in the tax-supported program for solid waste.

 

Water and Sewer Rate Budgets

Budget directions approved for water and sewer programs required the operating and capital budgets to be developed in accordance with strategies identified in the LRFP III.  These strategies included:

 

·        A combined water/sewer rate increase of 9% in 2007 representing a $63.00 increase to the average homeowner;

·         An increase in the amount of debt authority applied to the capital program;

·         The deferral of projects within the strategic initiatives category of capital; and

·         Allowing the combined water/sewer reserve balance to fall below $20 million during the year.

 

Water and Sewer Operating Budgets

 

The 9% combined increase to the water/sewer rate represents a 12% increase to the water rate and a 4.6% decrease to the sewer surcharge.  This increase will generate approximately $12.2 million in revenue, of which $3.6 million will be used to offset increases in operations and the remaining $8.6 million will be contributed to the capital program in order to fund the replacement and repair of the existing system.

 

As directed by Council, the following has been incorporated into the sewer services operating budget

 

 

For the past several years, BMA Management Consulting have conducted a survey of Ontario municipalities comparing the annual cost to a homeowner for water and sewer services.  Their survey found that the cost of these services average $756 per year, but go as high as $1,351 per year.  Ottawa is below the provincial average, at a cost of $703 per year for these services.  Municipalities across Ontario have been increasing water and sewer rates to ensure there is adequate funding for this infrastructure-laden service.

 

Water and Sewer Capital Budget

The recommended 2007 capital budget for sewer and water works totals $108.2 million with another $44.7 million as part of the Integrated Road, Sewer and Water renewal program, which was included in the Tax-Supported Capital Program.  The stand-alone water and sewer capital projects are funded as follows:

 


 

 

 


The following direction has been incorporated into the capital budget.

 

 

Impact of Not Increasing the Rate

The final direction given to staff with respect to the rate-supported budget was that:

 

 

Staff has conducted an analysis to determine the changes that would be required in order to eliminate the combined water/sewer rate increase of 9% in 2007, along with identifying any implications or issues regarding health and safety to the public.  The City views operational requirements to provide the service to be paramount. If there is insufficient funding for both operations and capital works projects, the capital program is reduced. 

 

The increase to the water/sewer rate is expected to generate $12.2 million more than in 2006 (after adjusting for the decrease in consumption levels).  Approximately $3.6 million is required for the operating budget (including $551,000 enhancement for the New Drainage on Private Property Program).  The remaining $8.6 million is required for contribution to the capital works projects.  If the rate increase was eliminated and the operating budget increases approved, the contribution to capital would decrease by $12.2 million. 

 

The following capital projects planned for 2007 are presented along with an indication of the impact on the public should the project not proceed in 2007:

 

Project

$M

Project description / Impact on Public if deferred

Sewer Lateral repairs

6.2

The proposed program will enable the City to regain control of the service lateral maintenance and rehabilitation. The first part of the program requires sufficient resources to stop the growth of the backlog, and maintain it at its current level of 2200 service laterals.  The second part of the program aims at eliminating the backlog over a period of 5 years.

Each lateral on the backlog was the source of a sewer backup. Deferring the project increases the risk for owners to experience another sewer backup.

Sandy Hill Flood Relief

19.0

This project is to provide stormwater and wastewater storage facilities for the Sandy Hill area to reduce the probability of flooding.  Deferral will result in continued high probability of basement flooding in the community.  This would delay the commitment made to the community.

Regulator Update and Real Time Control

12.8

Ministry of the Environment Procedure F-5.5 defines the criteria that must be met for the capture of wet weather flows.  To comply with this requirement, modifications are required to the existing combined sewer system.  The planned improvements will bring the operation of the combined sewer system in compliance with the most significant requirement of Procedure F-5.5.  Deferral will result in extending the period before the City becomes compliant.  This would delay the commitment made to the Ministry and could result in the Ministry taking action against the City.

Lemieux Island High Pressure Transmission Main

18.7

The existing Lemieux Transmission Mains connecting the Lemieux Island Water Purification Plant to the distribution system are the backbone of the water distribution system, supplying water to approximately 400,000 residents, as well as core area businesses.  The mains are among the oldest in the system and they have reached the end of their service life.  The project includes the construction of the high pressure line and associated appurtenances.  Deferral will delay the implementation of this critical infrastructure and put the integrity of the water system at risk.

Renewal programs that focus on reducing basement flooding occurrences

22.4

In November 2005, Council approved a number of projects aimed at reducing basement flooding occurrences.  Reduction or deferral will delay the implementation of some of these projects and the affected residents will continue to be at a higher risk of a reoccurrence.

Renewal programs for water and sewer infrastructure

47.1

The renewal programs address rehabilitation requirements for water and sewer systems to preserve and extend the life of the infrastructure, provide continued service and prevent failures requiring more extensive reconstruction.  Reduction or deferral will delay the implementation of these projects that will lead to further deterioration of the water and sewer system.

 

Detailed descriptions of these projects are included in the 2007 capital budget submission.

 

Direction 6 - One-Time Items Included in the Operating Budget

 

The City has approved one-time requirements, for the last three years in the operating budget. These requirements are primarily funded from capital project closures.  For 2007 the list of one-time items includes:

 

 

 

$000

City Manager

Auditor General Recommendation - Implement enterprise risk management framework

      215

Corporate Services

Enterprise Content Management

      190

Corporate Services

Implement new provincial accessibility standards

      100

Corporate Services

SAP process consultant to enable the production module in SAP to control material rebuild and manufacturing in transit

      150

Corporate Services

Legal settlement

      130

Corporate Services

External legal costs with respect to litigation

      250

Corporate Services

Creation of Biodiversity Task Force

          5

Corporate Services

Temporary staff to support the SAP system and ensure audit compliance until the automation of time/leave forms

      235

Planning, Transit & Environment

Official Plan, Demographic and Economic Analysis and TRANS Model Development

      450

Public Works Services

Cleaning fuel tanks replacing filters to incorporate use of bio-diesel

      100

Total

 

   1,825

 

Impact on the Business Community

 

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, which 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 two options being presented to Council are for a zero (0) and an inflationary tax increase.  If the inflationary tax increase of 1.7% is accepted the tax increase in the commercial class will be 1.19% and 1.87% in the non-commercial classes.

 

Without a reassessment to implement in the 2007 and 2008 taxation years, the movement towards full CVA taxation will be uninterrupted and the amount of claw-back required should reduce significantly.

 

Other impacts on the business community contained within the budget include:

 

 

 

2008 – 2010 Operating Budget Forecast

 

The following forecast was provided as part of the LRFP III and has not been amended to reflect Council’s priorities for the term, nor do they include any direction from Council with respect to balancing the budget.  The forecast has been amended to remove additional operating pressures projected for the North-South Light Rail Project.

 

 

2008
($000)

2009
($000)

2010
($000)

Maintain existing services and levels

55,000

58,000

61,000

Provincial/legislated services

6,000

7,000

8,000

Costs of growth

15,000

12,300

7,800

User fees

(10,000)

(10,000)

(10,000)

Assessment growth

(20,000)

(20,000)

(20,000)

Efficiencies target

(5,000)

-

-

TOTAL

41,000

47,300

46,800

 

 

 

 

Enhancements – Capital

10,000

10,500

11,000

Enhancements – Operating budget

21,200

17,500

11,000

 

72,200

75,300

68,800

 

 

 

 

Ottawa Police Service

15,000

16,800

15,800

Estimated taxation increase

87,200

92,100

84,600

 

8.2%

7.8%

6.6%

The forecast tax increases listed above were based upon the following assumptions:

 

CONSULTATION

 

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

 

Financial implications are identified within the report.

 

SUPPORTING DOCUMENTATION

 

Appendix 1 – FIR comparison

Appendix 2 – Options for Council Consideration

Appendix 3 – Provincial Cost-shared programs – funding shortfall

Appendix 4 – Solid Waste Options

Appendix 5 – 2004 Universal Program Review (UPR);

 Options Approved / Reinstated / Not Approved

Appendix 6 – Detailed Discussion on Major Categories of City Budget

 

DISPOSITION

 

The respective branches to implement Council's directions with respect to the management of overtime, should such directions be given during the 2007 budget deliberations.

 

 

 

APPENDIX 1

 


 

 

 


7 City Average includes: