Report to/Rapport au :
Submitted by/Soumis par : Marian Simulik, City
Treasurer, Trésorier municipal
Contact
Person/Personne ressource : Tom Fedec, A/Manager, Financial Planning
Financial
Services/Services financiers
(613) 580-2424 x
21316, Tom.Fedec@ottawa.ca
SUBJECT:
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and recommended adjustments |
OBJET :
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BUDGET DE FONCTIONNEMENT DE 2008 - MISE À JOUR SUR LES PROGRAMMES
FINANCÉS À PARTIR DES RECETTES FISCALES ET AJUSTEMENTS RECOMMANDÉS |
REPORT
RECOMMENDATION
That Council approves the following
adjustments to the 2008 Operating Budget for Tax Supported Programs:
1. That a special, one-time levy of $23
million be included on the 2008 tax bill to address the forecasted deficit in
the 2008 snow removal budget;
2. That the 2008 budget for fuel be
increased by $2.4 million to reflect an increase from $0.86 per litre to $0.92
per litre; and
3. That the City Clerk seek immediate confirmation from Hydro Ottawa that the sale of its Telecom business (for a net gain of $20 million) will provide an additional dividend to the City in the amount of $12 million in accordance with the dividend policy for Hydro Ottawa and that upon receipt of such confirmation and the declaration of the dividend, that these funds be contributed to the Tax Stabilization Reserve Fund.
RECOMMANDATION DU RAPPORT
Que le Conseil approuve les
ajustements suivants au budget de fonctionnement de 2008 visant les programmes
financés par les taxes :
1. Qu’un
prélèvement unique de 23 millions de dollars soit ajouté à la facture de taxes
de 2008 afin de tenir compte du déficit prévu au budget de déneigement de 2008;
2. Que le budget de carburant de 2008
soit haussé de 2,4 millions de dollars afin de refléter la hausse de
0,86 $ à 0,92 $ le litre;
3.
Que le
greffier de la Ville confirme immédiatement auprès d’Hydro Ottawa que la vente
de son entreprise de télécom (pour un gain net de 20 millions de dollars)
procurera à la Ville une ristourne supplémentaire d’un montant de 12 millions
de dollars conformément à la politique sur les ristournes relative à Hydro
Ottawa et que, sur réception de ladite confirmation et de la déclaration de la
ristourne, ces fonds soient versés au
fonds de réserve de stabilisation du taux d’imposition.
BACKGROUND
In December 2007, Council sitting as Committee of the Whole reviewed the 2008 operating and capital budgets for tax supported programs along with a number of expenditure and revenue options. The decisions recommended by the Committee were subsequently considered by Council resulting in an approved budget requiring a 4.9% tax increase to fund City and Police services.
Included in the recommendations was a direction to have the Long Range Financial Plan Sub-Committee (LRFP) conduct a thorough review of the administrative branches within the City to determine whether additional savings could be found prior to finalizing the 2008 tax rates. Three meetings were held by the Sub-Committee, with the recommendations from the first two meetings already submitted to Council. The recommendations from the third meeting are to be considered by Council on March 26, at which time all three sets of recommendations will be considered and approved.
In February, Council also approved a motion to revisit a number of options related to on-street parking hours and areas that were approved by Council in December, 2007. As directed by Council, the Deputy City Manager for Public Works has conducted meetings with the Business Improvement Areas (BIAs) to find alternative parking funding opportunities. The results and recommendations of these consultations are being submitted to Council for consideration on March 26 under separate cover.
Council also directed that staff review the cost and benefits of the parking Pay & Display option. A report will be submitted to the Transportation Committee on April 16, 2008 by the Deputy City Manager for Public Works and will then proceed to Council on April 23, 2008. The impact of this deferral will affect the range of parking revenue options that Council has available for consideration with respect to the 2008 Budget.
Finally, since the December 2007 approval of the 2008 Budget, new information has been received regarding the costs of winter operations, diesel fuel prices and the sale of Telecom Ottawa. In keeping with Council’s adopted Fiscal Framework principle to maintain and enhance the City’s financial condition, staff recommends Council deal with these issues prior to finalizing the 2008 budget, consistent with Section 290 of the Municipal Act, 2001. These issues and options for their disposition are provided in greater detail under the Discussion section of this report. A financial summary of all of the items that Council will address before the 2008 Budget is adopted and their impact on the property tax rate is provided as Appendix 1.
DISCUSSION
A - 2008 Budget – New Information
1. Winter Maintenance Costs
The Director of Surface Operations Branch has advised the Transportation Committee that the costs to provide winter maintenance services are projected to exceed the 2008 budget by $23 million due to the near record levels of snowfall that the City has received to date along with the recent substantial increase in the cost of salt. The winter maintenance budget is developed annually based on providing sufficient funding to deal with an average Ottawa winter that anticipates 230 cm of snowfall. As of March 18, 2008, 416 cm of snowfall has been received.
In 2001, the City established a
Winter Maintenance Reserve in order to deal with winters that are above the
average. The Reserve is to be funded
from any surpluses that are generated in a below average winter. The history of the Reserve since
amalgamation and the actual year-end position of the winter maintenance
operating accounts are provided in the table below:
Options to deal with the projected deficit:
1) Increase the taxation requirement for 2008 by $23 million as a one-time measure to cover the projected shortfall, and if not all required, use the remainder to replenish the Winter Maintenance Reserve Fund in anticipation of 2009. This option provides the most financial flexibility for Council, as it does not impact on other Council priorities. Raising an additional $23 million will result in a one-time tax increase of 2.3% and would be approximately $58 for the average residential home. The one-time levy would apply to all properties and would be identified with a separate line on the tax bill. In 2009, this levy would be eliminated from the tax bill.
2) Deal with the projected deficit at year end. Given the magnitude of the projected deficit, offsetting any significant portion of this shortfall with surpluses from other areas of the existing 2008 operating budget is highly unlikely, particularly given the other risks already built into the budget. When deficits cannot be covered from other surpluses the practice of the City is to use the Tax Stabilization Reserve Fund and then the tax-supported capital reserves as a funding source.
While the City’s 2007 financial statements will show cash and short term investments of approximately $388 million, when all of the restricted funds are removed (gas tax revenues, development charges, building code revenues, etc.) the only sources of funds Council has available to deal with a deficit are the tax supported operating and capital reserve funds. Appendix 2 shows the forecasted 2008 year-end balances of the tax supported operating and capital reserves. Since the budget was considered in December, these balances have been adjusted to reflect the impact of the 2007 operating deficit ($5.3 million) and adjustments made when setting the 2008 budget ($10.9 million).
As can be seen in Appendix 2, there are no funds available in either the Winter Maintenance or the Tax Stabilization Reserve Funds. Therefore, the only source to fund the deficit is the capital reserves. Assuming there are no other deficits to cover, funding the full $23 million projected deficit for winter maintenance from the remaining capital reserves would leave an ending balance of $19 million. As the City has a policy to maintain a $50 million balance in the tax-supported capital reserves, this would result in the 2009 capital program being reduced by $31 million. The additional lifecycle renewal projects the City was planning to undertake to reduce the infrastructure funding gap would be deferred. This moves Council away from their stated priority within the Fiscal Framework to eliminate the asset maintenance gap.
3) Re-open the 2008 budget to reconsider those options that were presented but not taken during budget deliberations, or revisit deferring approved capital works funded from taxation. The tabled budget included an extensive list of options for expenditure reductions or revenue increases that Council did not adopt. These options can be revisited. As three months of the year has already passed, the full value of the option may no longer be available or would cost the City in order to stop the work. Capital works approved can also be revisited and works funded from taxation can be deferred and the taxation used to offset the projected winter maintenance deficit. Similar to the options on the operating budget, staff will likely have already contracted some of this work and the City would incur legal fees or penalties in order to withdraw from such agreements.
2. Diesel Fuel
At the February 5, 2008 CSEDC meeting, the City Treasurer provided an
update on the City’s ability to lock-in fuel prices and at that time advised
that if any adjustments were necessary they would be provided at the March 26,
2008 Council meeting. The 2008 budget
for diesel fuel was developed assuming an average price of $0.86 per
litre. To date, the average price that
the City has paid for diesel has been closer to $0.96 Currently the floating price for diesel is $0.97 while the
6-month lock-in price is $1.07 per litre.
Discussions with industry experts along with economic outlook
projections suggest that achieving an average price of $0.86 for 2008 is very
optimistic. To mitigate some of the
potential downside in the diesel fuel budget, it is recommended that an
additional $2.4 million be added to the 2008 Budget, bringing the average price
to approximately $0.92 per litre. This
increase is not expected to eliminate the deficit in the fuel budget, but will
reduce it. If Council decides not to
adjust the fuel budget, any deficit that is incurred would either be covered
off at year-end from surpluses in other areas or be addressed by a transfer
from the capital reserves.
B - Parking
options
The options approved by Council in December
relating to on-street paid parking consisted of the following:
·
Extending
on-street paid parking times:
· Weekday evenings to 9:00 pm in
commercial areas;
· Saturday from 8:00 am to 9:00 pm in
commercial areas; and;
· Sunday from 8:00 am to 5:30 pm in
commercial areas
·
Introduction
of Pay & Display technology to replace parking meters
·
Increasing
the on-street meter rate from $2.50 to $3.00 per hour city-wide
·
Expansion
of on-street paid parking into new areas
In total, the above options generated a net
revenue benefit to the City of $4.240 million (in 2008) and were included in
the City’s 2008 Budget and in the projected 4.9% tax increase.
Council has subsequently revisited the above
options and directed staff to conduct meetings with the BIAs to discuss and
identify alternative parking funding opportunities. The results of these meetings are the subject of the a memo from
the Deputy City Manager of Public Works, which will be distributed to the Mayor
and Councillors in advance of the March 26th meeting.
The only option that Council has implemented
since revisiting the parking options is the increase from $2.50 to $3.00 per
hour, effective March 1, 2008. The
revenues from this increase are projected to be $0.595 million in 2008. The Budget Update schedule provided as
Appendix 1 reflects only the revenues associated with this rate increase. The removal of the other parking options
would result in a property tax pressure of $3.645 million, which represents the
difference between the original options of $4.240 million and the $0.595
million in meter rate increase. It should
also be noted that the projected revenues from all the options were based on an
early 2008 implementation of the $3.00 meter rate. With the delay to a March 1 date, approximately $0.120m would not
be achievable.
The parking options related to the expansion of
on-street parking to new areas of the City were developed on the basis that
these areas would be utilizing Pay & Display technology. This new technology was also to be
implemented in the current on-street parking areas of the City to generate
additional revenues. Staff will be
presenting a report to the Transportation Committee on April 16, 2008 that will
discuss the Pay & Display options available to Council. This report will be available to Members of
Council and the public when the Transportation Committee Agenda is released on
Wednesday, April 9, 2008. Based on the
staff review of the options and the recommended strategy for implementing Pay
& Display in Ottawa, additional revenues will likely not be realizable
until late 2009.
The additional revenues in the original option
from utilizing Pay & Display technology associated with expanding on–street
parking to new areas of the City was projected to be $520,000, while the
additional revenue from replacing meters with Pay & Display machines in
existing on-street parking areas was estimated to be $755,000. On the basis of the report recommendations
and implementation strategy, no additional revenues are projected for 2008.
The remaining options consist of extending on-street parking meter hours in existing areas of the City. The additional revenues from expanding the parking hours would be as follows:
·
Weekday
evenings to 9:00 pm in commercial areas -
$1.515 million
·
Saturday
from 8:00 am to 9:00 pm in commercial areas -
$355,000
·
Sunday
from 8:00 am to 5:30 pm in commercial areas - $380,000
A memo from the City Manager on February 11,
2008 identified three means of partially offsetting the revenue shortfall
should Council change what was approved in December 2007. These included a reduction in the number of
staff required by Parking Operations, an increase in the off-street parking
rate and increases in the fines for various parking violations;
- The
reduction in staffing will only be achievable with the introduction of Pay
& Display, which is recommended to be deferred.
- The increase in off-street rates would apply to all parking city-owned lots where the current rate is $1.75 per hour and will result in a new rate of $2.50 per hour. One of the intents of the Parking Program is to keep off-street parking rates below on-street rates so as to encourage people to utilize off-street lots. With the increase in the on-street hourly rate to $3.00, no corresponding adjustment to the off-street rate was proposed. This would result in increased revenue of $170,000 in 2008 and $300,000 annually starting in 2009.
- Since the distribution of the aforementioned memo, it
has been determined that parking fines cannot be increased as a means of
offsetting revenues for other City programs. Any consideration to increase fines through this review
would compromise the integrity of the parking enforcement program as well
as have significant legal and financial consequences.
The financial implications of the above discussion are summarized in Appendix 1
C - Long Range Financial Plan Sub-Committee (LRFP) Reviews
Administrative
Branch Reviews
In accordance with Council direction, the LRFP Sub-Committee conducted three meetings to review the administrative branches of the City. In total $2.885 million of decreases to these branches were recommended by the LRFP Sub-Committee, of which $0.685 million has already been approved by Committee of the Whole. The additional $2.2 million reduction to the Real Property Asset Management budget has been recommended by the LRFP Sub-Committee and will be considered by Committee of the Whole on March 26, 2008.
Risk
Management
During the budget deliberations
in December 2007, Council approved the Motion 26/24, which stated as follows:
THEREFORE BE IT RESOLVED THAT City Council approve
the “one-time” funding for the development of an integrated risk management
policy (p. 759) as amended by the following:
1. That, as soon as possible, the City Solicitor meet with the Director of Risk Management from Hydro Ottawa to discuss how the City of Ottawa should proceed with the new integrated risk management initiative; and
2. That within the schedule for the administrative branch review, staff present the LRFP Committee with a preliminary report on the “next steps” with respect to minimizing the adverse and costly impacts of the City’s various risks with maximizing all avenues regarding cost-recovery; and
3. That the integrated risk management program be targeted with the following savings:
a) $2 million for 2008;
b) $7 million for 2009; and
c) $3 million for 2010.
The savings target of $2 million for 2008 was incorporated into the 2008 Budget to arrive at the projected tax increase of 4.9%.
On March 6, 2008, the LRFP Sub-Committee received a presentation from the City Solicitor, who has the responsibility for the risk management function within the City. The presentation, entitled “Risk Management: Next Steps”, addressed the absence of an integrated risk management policy within the City and the opportunities that exist to achieve efficiencies through better utilization and deployment of resources to areas of highest risk. In addition, the presentation clarified that a move from the City’s current traditional risk management activities to an enterprise risk management system would not “demonstrate immediate quantifiable returns on investment”.
As such, the Sub-Committee passed a motion for Council consideration on March 26 that recommends:
1. Developing a conceptual Enterprise Risk Management (ERM) Framework aligned with Strategic Branch Reviews;
2. Preparing tools to support ERM Framework
3. Provide training to support the ERM Framework and culture change;
4. Undertake Risk Management Reviews of two key clients (2008 and 2009); and
5. Establish a Risk Management Committee to monitor ERM progress and report on Phase 2 for Budget 2010.
A further motion should have been presented to remove the $2 million
savings target for Risk Management from the 2008 Budget. This will need to be
brought forward at the March 26, 2008 Committee of the Whole meeting.
SUMMARY
The above discussions and their impacts on the 2008 operating budget have been summarized in Appendix 1. As can be seen, starting with the original projected tax increase of 4.9% and overlaying the various changes and budgetary pressures as identified in this report, the tax increase is now projected to be 5.4%. If the one-time levy increase for the projected winter maintenance deficit is factored in, there will be a 7.7% tax increase for 2008
CONSULTATION
As this report is administrative in nature, no consultations are required.
FINANCIAL
IMPLICATIONS
The financial implications are as presented in the report and attached appendices.
CITY
STRATEGIC DIRECTIONS
The recommendations as proposed for Council
consideration are in compliance with the City’s Fiscal Framework policy
document.
SUPPORTING DOCUMENTATION
Appendix 1 – 2008 Tax Supported Operating Budget Update
Appendix 2 - Tax Supported Reserve Fund Position
DISPOSITION
Upon approval of the report, the Financial Services Branch will implement the decisions of Council.
Appendix 1
Tax Supported Reserve
