Appendix 1 - Policy Recommendations

Appendix 1 - Policy Recommendations Contained in the First Long Range Financial Plan

1. Growth must pay its own way. Accordingly, development charges should be increased to the highest feasible level.

Status: The Development Charges study that was presented in July to Council saw DC rates increase. The effect is that in this LRFP, DC’s are paying 68% of the net capital costs of growth compared to 54% in LRFP1.

2. The City's tax rate should be split into two new rates: one for operating expenditures, and another for capital expenditures. This split establishes a direct link to the capital program through the tax bill and ensures that increases in property assessment are shared by operating and capital budgets.

Status: This has not been implemented and should be revisited given the limited effect the recommendations in this LRFP have on taxation. Staff will come forward with a review of this recommendation.

3. The City's capital planning process should identify the true lifecycle cost of City assets. Further, over time, additional funding should be provided to increase pay-as-you-go financing for lifecycle projects.

Status: The Capital Asset Management Plans identify the true lifecycle costs of City assets. LRFP2 sees lifecycle funding increasing to 100% over the ten-year period.

4. A study of capital standards in other municipalities should be undertaken to determine if savings can be found through appropriate standard adjustments.

Status: A capital standards review was presented to committee in October, 2004.

5. A new program review process should be established to provide a cyclical review of all departments, with one department being reviewed in detail each year.

Status: All programs were reviewed as part of the UPR in 2003. A strategy to continue this process needs to be developed.

6. A policy should be developed to identify the minimum closing annual balance for Reserve Funds to allow for reasonable financial flexibility.

Status: Council has adopted a $50 million target for the closing balances of the tax supported reserves.

7. To provide assistance to Council in its determination of capital priorities, future capital budgets should list projects by function and type using the following categories: growth, lifecycle, existing approved programs, and new initiatives. The City's capital program should be aligned with available funding on an annual basis. To identify possible reductions, a new step in the budget process needs to be put in place that will allow Council to determine overall funding priorities. Prioritization by Council should occur early in the budget process with priorities identified both by functional area and type. Capital projects identified between budget cycles should only be funded by substitution for another project within the same funding envelope.

Status: Capital projects are identified in three categories: renewal of assets, growth and strategic initiatives. This LRFP proposes a broad funding priority strategy.

8. Future operating costs for capital projects should be considered as part of the capital budget. Since these costs will carry over to future operating budgets, they must be clearly itemized to determine whether they will be covered by new money, or from within the existing tax base.

Status: This LRFP identifies the operating impacts from capital and proposes they be covered from new tax revenues.

9. Projects that create additional infrastructure should also generate an added pay-as-you-go contribution. This added pay-as-you-go contribution should also be incorporated for all assets built by others but whose ongoing costs are assumed by the City. These costs should be summarized clearly, with detailed tax and utility rate implications part of the budget documentation.

Status: The PAYG contributions are being proposed to increase at basically the rate of inflation. Any funding shortages resulting from new assets can be addressed in the next update, which is scheduled to happen every three years.

10. The urban or rural transit levy should be earmarked for operating and capital requirements of the transit service (such as buses, garages and other services that directly support the operation) within either the urban or rural areas. As a result, all residents would contribute to future transit extensions in the same manner as they contribute to roads.

Status: The review of the transit levy areas is still pending.

11. Long-term debt financing should be restricted to specific project types. Debt funding for lifecycle projects should be reduced and ultimately eliminated. Instead, debt financing should be employed on projects related to capacity expansion or growth, projects financed by development charges, future new non-traditional infrastructure projects, and projects tied to third party matching funding. These restrictions may have to be phased in to meet short-term budget challenges.

Status: This LRFP sees new debt being used as a funding mechanism exclusively for growth projects and strategic initiatives that meet specific criteria. This debt is to be paid for with new revenues.

12. Public-private partnership opportunities should be identified and investigated in both the City's capital and operating budgets. Investigation of these opportunities should include a review of the City's capital plan to bundle capital works into packages that present design-build-finance opportunities to the private sector. Any costs or savings of these public-private partnerships should be identified in future budget documents.

Status: The City has adopted a P3 policy and has several P3 projects approved and in process of development.

13. The City should establish a revenue policy that sets standards for fees and rates of programs and services. This policy would identify which costs are recovered from fees. Currently, most fees simply cover direct operating costs. They do not recover any capital or operating costs of facilities. The City's funding gap can be reduced somewhat if City policy changes to recover some or all capital and operating costs. Regardless, the proposed revenue policy must be applied on a consistent basis for new programs.

Status: As part of the 2004 budget, Council adopted a broad policy that user fees should increase as costs increase. An overall policy still needs to be developed.

14. A new federal/provincial/municipal funding formula and revenue-sharing agreement is required for Ontario's cities. Without a new revenue-sharing agreement, it may not be possible to support the current growth forecast. Support is required from upper levels of government to maintain the quality of municipal services. The City urgently requires a wider range of revenue-sharing options, rather than the regressive property tax it relies on now. These options include a share of gasoline taxes, a hotel occupancy tax, a portion of income taxes, exemption from federal and provincial sales taxes, a share of funds generated through vehicle licensing, and transferral of the provincial requirement to cost-share health and social service programs.

Status: The gas tax sharing and GST exemption are in place. Work needs to continue on social housing and other revenue initiatives.

15. If new revenues are not forthcoming from the federal and provincial governments, a funding gap will remain. Council will have to look at a range of potential solutions to address the gap, including: cutbacks in programs, changes in standards, adjustments in service levels, application of new revenues, continued deferral of infrastructure, and limiting growth. If these solutions are not sufficient, tax and rate increases will be required.

Recommendations from the Long Range Financial Plan committee October 2002

General

1. Move to maximized pay-as-you-go.
   In order to expand upon the existing pay-as-you-go practice, movement to maximized pay-as-you-go needs to start now but also must recognize the taxpayers’ ability to bear sizeable tax increases.
   
   
2. Prioritize capital envelopes.
   A new step in the budget process needs to be put in place, which allows Council to determine the overall multi-year funding priorities within the overall available funding. This prioritization would occur early in the process and the priorities would be identified both by functional area and by type (life cycle, growth etc.).
   
   
3. Growth pays for growth.
   Development charges need to be increased to the full level allowed by legislation. Front-ending agreements, funded by development proponents, for growth area infrastructure should be encouraged. Growth must fully pay its own way or consideration be given to restricting future growth if sufficient revenues cannot be generated,
   
   
4. Spending must be reduced.
   Until such time as sufficient funding is available to meet the capital program, the program must be reduced annually. To assist in identifying where the reductions should occur a review of standards including comparison to other similar municipalities, should be undertaken.
   
   
5. Pursue the concept of public-private partnerships and/or the pooling of large projects so that significant design/build proposals can be sought from the private sector with the goal of reducing overall costs.
   
   
6. Accelerate the existing program of rationalization and disposal of city buildings. Review alternate development proposals on surplus city properties in addition to the straight sale of properties by adding value to the property and increasing the financial return to the City.
   
   
7. In instances where large capital works are constructed which may require an increase in rates or taxes for a period of time, consider establishing a separately identified surcharge for this purpose for the specified time period.
   
   
8. The City’s tax rate should be split into two components: one for operating expenses, and another for capital expenses. This split establishes a direct link to the capital program through the tax bill and ensures that increases in property assessment are shared by operating and capital budgets through increased contributions to pay-as-you-go.
   
   
9. The capital reserve funds should not be allowed to be fully depleted at any time. It is recommended that the goal for each budget year be that a minimum balance be maintained in both the tax supported and water and sewer supported capital reserve funds and that staff be directed to recommend an appropriate level.
   
   

Debt Financing

10. A long-term goal should be to eliminate any debt funding for life cycle projects and new initiatives and move to a maximized pay-as-you-go funding model overall.
    
    
11. It is recommended that in the future debt financing be restricted to specific project types. Debt financing should be restricted to projects related to capacity expansion or growth and those that leverage funding from others. Projects that would be eligible for debt financing would include those to be financed from development charges, future new non-traditional infrastructure projects, such as new transit programs, or projects that are to tied to third party matching funding. It is also recognized that these restrictions may have to be phased in to meet the short-term budget issues.

Funding from other governments

12. Given that the city’s property tax base is required to share costs that other provinces do not impose on municipalities such as social welfare and health, additional tax sources need to be made available by or shared with the provincial and federal governments. The recommendations of the City’s Task Force on Property Assessment and Property Tax Issues in this regard should be re-endorsed.

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