Report to/Rapport au :

Council / et au Conseil

08 December 2009 / le 8 decembre 2009

Submitted by/Soumis par : Marian Simulik, City Treasurer/Trésorière municipale

Contact Person/ Personne ressource : Mona Monkman, Deputy City Treasurer, Corporate Finance/ Trésorière municipale adjointe – Finances municipales

Finance Department/ Département de finance

(613) 580-2424 ext. / poste 41723, Mona.Monkman@ottawa.ca

City Wide/à l'échelle de la Ville

Ref N°: ACS2009-CMR-FIN-0059

SUBJECT:	2010 Draft Operating and Capital Budgets - Tax Supported Programs

OBJET :	bUDGETS PRÉLIMINAIRES de fonctionnement et d’immobilisations de 2010 – programmes financés par les taxes

REPORT RECOMMENDATION

That City Council receive and table the Draft 2010 Operating and Capital Budgets, for subsequent consideration by Council in Committee of the Whole to be held January 25 to 29, 2010, as required.

RECOMMANDATION DU RAPPORT

Que le Conseil municipal prenne connaissance des budgets préliminaires de fonctionnement et d’immobilisations de 2010 et les dépose afin qu’ils soient examinés subséquemment par le Conseil lorsqu’il siègera à titre de Comité plénier le 25 janvier 2010, tel que requis.

BACKGROUND

On November 27, 2009, Audit, Budget and Finance Committee (ABFC) reviewed the Draft Budget Estimates from Council’s Standing Committees and made recommendations on the budget that will go forward to City Council for final review and approval. ABFC directed the City Treasurer to use the Estimates resulting from their review as the basis for the 2010 Draft Budget to be tabled with City Council at its meeting of December 9, 2009.

This report brings forward the 2010 Draft Operating and Capital Budgets, as recommended by the Audit, Budget and Finance Committee.

The Draft Budgets being tabled are only for those programs supported by property taxation. In order to illustrate the total tax supported budget requirements for 2010, this report also includes the draft budget estimates, as recommended by ABFC, for the City’s boards and commissions who will be tabling their budget estimates directly with Council on December 9. These are the Ottawa Public Library Board, the Ottawa Police Services Board, Crime Prevention Ottawa and the Committee of Adjustment. The budgets for the Water and Sewer programs, which are fully funded from revenues raised on the water bill, are not included in this report as they will be reviewed separately in early 2010.

DISCUSSION

2010 Budget Review and Decision Process

On June 10, 2009, City Council approved a new budget process whereby each standing committee would receive the draft operating and capital estimates for areas within that Committee’s Terms of Reference. Each standing committee would also review and challenge the capital projects being proposed for each service area.

The June 10 report indicated that there was no new Budget Directions document this year. Staff were to develop the budgets, for Committee and Council consideration, by taking into account the existing Fiscal Framework and term of Council priorities.

The City’s Fiscal Framework, Strategic Plan and the 2006-2010 Term of Council priorities formed the basis of the direction used to develop the budget estimates. Each Standing Committee challenged the budget assumptions in their respective operating and capital budget estimates; reviewed program policies and service standards; heard public delegations; and recommended a budget to the ABF Committee.

The ABF Committee reviewed and challenged the recommended Standing Committee budgets to develop an overall recommended draft budget. This report brings forward that recommended draft budget.

Throughout the Standing Committee process, the public were invited to express their opinions on proposed budget estimates. The public will also have the opportunity to voice their opinions again at ward-led public consultations throughout December and January and at the Committee of the Whole starting on January 25, 2010.

2010 Operating Budget – City Departments

Total budgeted tax supported operating expenses for 2010 are $2.3 billion. Operating expenditures are funded through property taxes (52%); Payments in Lieu of Property Taxes (8%), federal and provincial grants (18%), fees and service charges (18%) and other miscellaneous revenue sources (4%).

The following chart shows the total pressures on the budget and the non-taxation offsets to those pressures. The result is a $33 million net additional taxation requirement for City departments, requiring a 2.9% taxation increase.

Pressures:

There are $95 million in new budget pressures in 2010.

2009 base budget adjustments

Adjustments to the 2009 base budgets are made after reviewing the forecasted year-end actual expenditures and revenues. A $9 million increase in compensation costs is required as 2009 budgets were not reflective of the actual costs of contract settlements. Settlements averaged 2.5% and budgets had been established at 1.5%.

Maintaining existing programs and services

The 2010 labour contract settlements, averaging 2.5%, add $20 million in pressures to the 2010 budget. The City is legally obligated to contribute a special annual payment of $8 million toward a legacy pension fund, that due to changes in the economic environment is in a solvency deficit. Various inflationary pressures in the cost of purchased goods and services (such as fuel) are also required. The City has entered into contracts to provide the new green bin program, therefore the costs of this program are not considered discretionary. The program will be funded from taxation. The net taxation increase for the solid waste program is $12.8 million.

Growth

Changes are required to accommodate the growth as new neighbourhoods and facilities are developed. A new fire station in the City’s west end is being built and staffed, for opening in 2011. In addition, 23 new paramedics are being hired. A new transit maintenance garage is scheduled to become operational during 2010 and a 2% increase in the number of available Para Transpo trips is being provided for in 2010.

Legislated programs and services

Legislated programs and services include child care, public health, social housing, long term care, social services, the costs of the Municipal Property Assessment Corporation and the cost of paramedic services. Changes include approximately $4 million as a result of increases to collective agreements. In addition, a provision is made for bridge funding to maintain stability in the Child Care Program as a result of the provincial funding reductions to the Best Start Program. Growth in the number of social service caseloads are also impacting this budget.

New needs

New needs have been identified to meet Council’s strategic priorities. Costs also include additional funding for seniors services within Parks, Recreation and Cultural Services branch, as well as new debt servicing costs for legacy projects such as the Congress Centre.

One-time funding

In the 2009 budget, $13 million was transferred from the tax stabilization reserve to offset the tax increase. As these funds are no longer available, this creates a budget pressure in 2010.

Offsets:

The 2010 draft budget provides $62 million in revenue and savings to offset the budget pressures. The offsets include:

User fees and Transit Fares

A 7.5% transit fare increase commencing in March 2010 is provided for in this budget. User fees in various programs, including recreation fees, have been adjusted to reflect the cost of providing services.

Growth in Tax Assessment

Assessment growth is projected at 2%. Taxation revenues from new properties, generally offsets the growth pressures in this budget.

Provincial Uploading

In 2010, the 20% municipal share of the Ontario Disability Support Program benefits will be reduced to 10%. In addition, there is a 3% reduction in the City’s share of funding for the Ontario Works program.

Management Efficiencies

The ongoing Corporate Efficiencies savings program will see approximately $28 million in management efficiency savings contributing to reduce budget pressures during 2010. A portion of that amount is identified in the transit, fire and non departmental 2009 budgets.

Operating Budget Requirements of External Boards and Agencies

The 2010 budget requests for the Ottawa Public Library Board, the Ottawa Police Services Board, Crime Prevention Ottawa and the Committee of Adjustment, will be tabled separately at City Council on December 9th. Based on the preliminary estimates from these agencies, and including the direction given by the ABFC at it’s November 27th meeting, we have prepared a summary taxation impact chart that includes the impacts of their 2010 budget requirements.

As previously discussed, the total net additional taxation requirement for City departments is $33 million, equivalent to a 2.9% tax increase.

An estimated $11 million in net tax requirements is needed to fund the City’s external boards and agencies. This additional requirement results in an overall taxation increase for 2010 of $44 million, equivalent to a 3.9% increase in the total tax levy.

The Audit, Budget and Finance Committee requested that the Ottawa Public Library and Police Services Boards reduce their 2010 budget requirements by $1 million each. Our estimates are prepared on the basis that these agencies will be able to accommodate Committee’s request.

Projected Taxation and User Fee Impacts for 2010

The recommended increase in the taxation requirements will result in an approximate 3.9% increase in taxes, equivalent to an estimated $142 per household in the urban areas.

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. These regulations only allow the City to pass a tax increase to the commercial property tax class at half the rate that is set for the residential class.

The estimated tax impact on an average commercial property is a 1.1% tax increases.

These impacts as presented are very preliminary and are based on certain assumptions that will only be confirmed once the final program spending and assessment data are confirmed.

Proposed changes in user fees include the following:

A 7.5% increase in transit fares to be implemented starting in March

Increases in recreation program fees by 1-3% beyond the rate of inflation, as detailed in the draft budget document.

Projected 2011 and 2012 Operating Budget Forecasts and Impact of Capital on Operating

The tabled recommended budget documents present forecasted operating budget revenues and expenditures for the years 2011 and 2012. Document 1 to this report shows forecast net tax requirements by City department. Several items will impact these operating budget forecasts.

The extent to which proposed spending has been deferred in 2010 in order to mitigate the 2010 taxation increase will result in increased spending in future years. These deferred spending plans include:

· spending on maintenance of parks, buildings and grounds, gateway features, tree maintenance;

· transit service enhancements and implementation of the university pass

· paramedic spending to respond to growth

· new satellite sexual health centre

· spending on human resources programs and legal services

· spending requirements for the daily operations of the fire service

· contributions to capital to reflect inflationary pressures

New staffing requirements are budgeted in 2010 based on part year costs. The full year cost adjustment will impact the 2011. Significant annualization costs for 2011 include the full year cost of new paramedics approved in 2010 and the full year cost of the new West Ottawa fire station.

Offsetting some of these future years’ costs will be the continued transfer of Social Services costs to the Province.

Certain capital projects identified for funding in 2010 will result in increased operating costs for the City. These projects are primarily in the growth and strategic initiatives categories of capital. The additional costs result from the requirement to both operate and maintain the capital asset after it has been constructed or purchased. The operating impact of these projects is identified with each project’s description in the supplemental capital budget book.

2010 Draft Capital Budget

The recommended capital spending authority for 2010 is $624 million.

Document 2 to this report shows the recommended 2010 capital budget authority by Standing Committee and department.

Capital Program Funding Summary:

The capital program supports the “Incrementality” requirements of the 2009 Infrastructure Stimulus Fund program. To be eligible for funding projects had to meet the requirements of incrementality, readiness and merit. Incrementality is defined as:

Project Incrementality – All eligible recipients will be required to attest, in conjunction with their project application, that the work to be undertaken is an incremental construction activity that would not otherwise have been constructed by March 31, 2011, were it not for funding from the Infrastructure Stimulus Fund. Federal funding could be used to provide missing funding that allows a project to proceed, or could be used to accelerate a project planned for future years to be built by March 2011.

To the extent possible, the 2010 capital program reflects the works that Council had anticipated would be undertaken based on the forecast 2010 capital program that was presented during the approval of the 2009 budgets. In addition to the 2010 capital program being kept at the forecast levels, spending during the 2010 and 2011 period will increase by the $400 million in Infrastructure Stimulus Fund projects approved in 2009.

The 2010 Capital program includes an additional $20 million allocated to various City departmental programs, in order to reduce the funding gap for the renewal of City assets. The 2010 additional allocation for the funding of the renewal gap is funded from debt and will require an additional $2.5 million per year in debt servicing starting in 2012. A total of $31 million in increased capital funding for infrastructure renewal has been approved in prior years. With the recommendation to fund an additional $20 million in 2010, the estimates will now contain $51 million in increased spending for infrastructure renewal. The Long Range Financial plan had identified an annual funding gap of $100 million that was to be reduced through special annual tax levies. This plan will be updated during 2010 in order to reassess the renewal expenditure requirements and the extent of the remaining funding gap.

In September of 2009, City Council approved the settlement of the Light Rail litigation, with a lump sum payment to the plaintiffs in the amount of $36.7 million, inclusive of $1.7 million in GST. The net City cost of $35 million was funded from reserves, creating a shortfall in tax reserve funds available to fund the 2010 capital program. To maintain the capital program at previously forecast levels, additional debt of $35 million is required to fund the 2010 capital program. In order to remain within Council’s approved debt strategy which seeks to manage the impact on annual budgets for debt servicing costs, future years’ capital spending authorities will be reduced accordingly.

Highlights of the proposed 2010 spending plan include:

· Improvements to roads, sewers, transit, parks and recreation facilities, cycling and multi-purpose pathways

· Better access to recreation facility booking systems

· Improved customer service from the City’s 3-1-1 client service centres and through enhanced e-services

· Create a community-based mobile workforce

· Addition of 37 new replacement buses and purchase 43 buses for growth of service in 2011

· New Ottawa West fire station

Capital Budget Forecasts beyond 2010

The Audit, Budget and Finance Committee made decisions concerning certain options for Capital financing that will impact the financing available for the future years’ capital program. The detailed capital project forecast for the years 2011 through to 2013 are now being finalized and will be available prior to Council’s deliberations. For Transit, the 2011 to 2019 forecast is included with the Transit Committee’s capital budget estimates.

The Capital financing decisions that impact the 2010 program, as well as future years’ capital spending include:

· ABFC’s recommendation to reduce the contributions to the capital program through adjustments to inflation factors ($3 M) and reduced funding of strategic initiatives capital projects ($2 M )

· financing the 2010 increase in capital spending for rehabilitation of $20 million by issuing debt, resulting in a one time increase of capital spending instead of through a permanent increase in funds available for capital from a taxation increase

· Light Rail Transit legal settlement ($34.9m) funded from reserves in 2009, resulting in reduced future year funding available for capital project spending

· funding any 2009 City Wide operating deficit by borrowing from reserves

· debt advanced to 2009 to support the Infrastructure Stimulus program

· additional debt in 2010 to meet the “incrementality” requirements of the Infrastructure Stimulus Program

These decisions impact both reserve fund levels and future year capital spending.

In 2009, the City received approval to proceed with $400 million in Federal Infrastructure Stimulus program capital spending. That $400 million program included $85 million in Renewal projects, $268 million in Growth projects and $48 million in Strategic Initiative type projects. The City’s funding share of the program is $133 million.

While for 2010 the capital program is maintained at previously forecast levels, the effect of the above decisions and advancement of spending to 2009, means that the capital program spending authority forecast for the years 2011 to 2013 will be constrained to reflect the advancement of spending authority to 2009. For the 5 year period between 2009 and 2013, average spending will be maintained at normal levels, with the majority of spending occurring in 2009 to 2011. The following table shows projected spending authority for this five year period and the average over the 5 years.

	2009 Budget*	2010 Draft	2011-13 Forecast	5 Year Average
	$M	$M	$M	$M
Renewal	256.1	182.9	363.5	160.5
Growth	272.0	133.3	267.3	134.5
Strategic	98.9	37.2	126.0	52.4
	627.0	353.4	756.7	347.4

*Includes Infrastructure Stimulus Program

Debt and Reserves

The City funds its capital program through a combination of tax funds from reserves, debt and grants from senior levels of government.

The City has historically maintained balances in its various reserves in order to maintain some flexibility in adjusting spending plans when emergencies or unusual spending requirements occur.

Over the past few years, reserve balances have been depleted to help mitigate the annual tax increase requirement, as well as to fund operating budget deficits. In addition, the City paid an unusual one time expenditure of $35 million in 2009 from reserves. With the decisions included in this tabled budget, the tax supported reserves are forecast to be $21 million at the end of 2010. The need to build more flexibility in reacting to contingencies will have to be addressed in future years’ spending plans and reserve strategies. For 2010, it is recommended that a new $2.8 Corporate Contingency Account be funded from one time sources. In the long term, the City will wish to revisit the need for a tax stabilization reserve, funded from a permanent allocation from tax resources.

Existing fiscal framework guidelines regarding debt are as follows:

· The increase in debt servicing for non-legacy projects will not be greater than one-quarter of 1% of taxes from property;

· Additional debt is permitted for legacy projects;

· Principle and interest for tax and rate supported debt is not to exceed 7.5% of own source revenues.

The recommended 2010 draft operating and capital budgets allow the City to continue to respect these principles.

Budget Book Documents

Two separate budget documents are on file with the City Clerk and available electronically on the City’s web site. Copies are available at Public Library branches.

The 2010 Draft Operating & Capital Budget book presents the draft recommended budgets that reflect the final decisions of the Audit, Budget and Finance Committee. This document also includes the following information:

· details of all decisions made by each Standing Committee, as well as the decisions made by the Audit, Budget and Finance Committee, in order to allow Council and the public the ability to see what changes have been made during the budget review process to date and are reflected in the draft budget

· Corporate Summaries showing high level summaries of operating revenues and expenditures for the previous year, the 2010 budget and forecast, and the forecast for the next 2 years;

· Standing Committee budgets in alphabetical order showing revenues, expenditures, budget changes, Standing Committee and ABFC recommendations; and recommended user fees at a detailed department/branch level

· 2010 Capital project listings

The Supplemental Draft Capital Budget Book which reflects ABFC decisions includes:

· Capital Project details including descriptions and funding sources by Standing Committee

· Reserve Fund Continuity Schedules; debt schedules; previously approved Capital Works in Progress

RURAL IMPLCIATIONS

The Agriculture and Rural Affairs Committee and Audit, Budget and Finance Committee have reviewed their 2010 Draft Operating and Capital Budget Estimates for rural programs. There are no significant changes in resources directed to support rural programs. The impact on the rural taxpayer is identified in the section dealing with general tax and user fee impacts.

CONSULTATION

The consultation on the Draft Operating and Capital budgets will be conducted through the ward meetings being held by Councillors and the public delegation sessions to be held by Committee of the Whole.