ADMINISTRATIVE REPORT

Date: March 28, 2002
Author/Local: Ken Bayne /7223

RTS No. 02540

CC File No. 1605
Council Date: April 9, 2002

TO:	Vancouver City Council
FROM:	General Manager of Corporate Services / Director of Finance In Consultation with the Corporate Management Team
SUBJECT:	2002 Operating Budget - Interim Report

RECOMMENDATIONS

A. THAT Council approve the Park Board Global Budget of $46,952,800, including $466,000 for added basic costs, this amount excluding any reductions approved by Council to balance the 2002 Operating Budget.

B(i) THAT Council approve the 2002 Operating Budget - Interim Estimates as outlined in this report and detailed in Appendix 1 and instruct the Director of Finance to bring the budget into balance with a 4.35% general purposes tax increase, reflecting an increase of approximately:

· 3.50% related to growth in City costs,
· 0.30% related to the growth in regional sewer costs,
· 0.28% related to the increase in E-Comm costs, and
· 0.28% related to additional costs as a result of provincial program changes

OR

B(ii). THAT Council consider the budget adjustments put forward by the Corporate Management Team to reduce the general purposes tax increase to as low as 3.9%, reducing the City share of the anticipated tax increase to approximately 3.0%;

OR

B(iii) THAT Council instruct the Corporate Management Team to report back to City Services and Budget Committee on April 25, 2002 with program and service adjustments that will further reduce the general purposes tax increase below 3.9%.

C. THAT Council approve the creation of the following positions at a net cost of $110,000 in 2002 ($220,000 ongoing):

· Corporate Services 1.0fte Systems Analyst III
· Corporate Services 2.0fte Business Analyst
· Corporate Services 1.0fte Programmer
· Human Resources 1.0fte Human Resources Consultant
· Human Resources 1.0fte Clerk Typist III

subject to classification by the General Manager of Human Resources. These positions are supported by the Corporate Management Team and funding has been included in the current budget position.

D. THAT Council defer consideration of the two reports related to the Anti-Graffiti Strategy to City Services and Budgets Committee on April 25, 2002, recognizing that the costs of any program approval will have to be accommodated within the existing budget position.

CONSIDERATION

E. THAT Council approve an increase in the sworn staffing of the Police Department from 1096 to 1126 (30 positions) at an additional cost of approximately $2.3 million annually by 2007 (no cost in 2002, $2.1 million in 2003).

F. THAT Council approve an increase of 15 civilian position in the Police Department at an ongoing annual cost of $410,000 (after reallocation of existing funding) with funding of $265,000 to be provided in the 2002 Operating Budget from Contingency Reserve.

Details of these positions is included in the accompanying report from the Chief Constable.

COMMENTS OF THE CITY MANAGER

The City Manager notes that this has been a particularly difficult year for developing the Operating Budget. The increase in City costs as a result of collective agreements, new program costs, requisitions from the GVS&DD and E-Comm, the impact of changes in provincial programs and the capital program are all running ahead of local inflation. Moreover, the City's non-taxation revenue has not shown sufficient growth to offset these cost increases. This has led to a budget position that is impossible to correct without a tax increase above inflation or significant reductions to the services the City provides.

In response, the Corporate Management Team has proposed two phases of adjustment to the operating budget. The first phase takes advantage of efficiencies in departmental operations, is recommended by the management team and is included in the budget position presented in the report. Corporate Management Team believe these can be accomplished without significant impacts on service levels. The second phase of adjustment is designed to allow Council to move beyond this budget position. These adjustments include a reduction to the capital program, reductions in service levels throughout the organization and the loss of some staff positions. This phase has been put forward for Council consideration, however, these reductions are only recommended should Council need to further improve the budget position. If reductions beyond these two phases are required, it will require a report back.

It is noted that the City has canvassed the views of the public in relation to the current budget position. The results of that process indicate that the public values City services, believes they have seen the quality of services maintained or improved over the years and believes they get good value for the property taxes they pay. In fact, 65% of the respondents to the survey indicate a willingness to accept a tax increase of 6.0% in order to avoid service reductions, increasing to 75% at a 4.0% increase. Moreover, there is strong support for a public safety agenda among the public: Police, Fire and related services are high priorities and the public is least likely to support service reductions in these areas should Council determine it necessary to reduce service to balance the budget.

Public safety is a significant driver in the 2002 Operating Budget. Additional funding equivalent to a tax increase of 2.6% is included in the budget position outlined in this report to provide new funding in the Police Department - including funding for 50 additional officers approved in 2001 - and Fire Department and to purchase enhanced emergency radio and dispatch services from E-Comm. These increased costs, already approved by Council, represent almost 50% of the growth in the entire departmental expenditure budget. Police, Fire and E-Comm costs now represent 31% of the expenditure budget. In addition, Council has approved funding for other public safety initiatives, including the community rehabilitation initiatives on the downtown eastside, the emergency program, regulation of development and building and licencing. As part of this budget package, there is a request from the Police Department for 30 additional sworn positions and several civilian positions that will improve the operational effectiveness of existing swornstaff. Should Council support these requests, it would appear that taxpayers are prepared to accept the increased costs in their taxes.

The City Manager RECOMMENDS approval of A, B(i), C and D but puts the choice of B(ii) or B(iii) to Council should there be a desire to reduce the tax increase. Should Council choose B(iii), Corporate Management Team will report back on April 25 with proposals to further reduce the budget.

The City Manager is also supportive of E and F, requests from the Police Department for 30 sworn positions and 15 civilian positions, however, because they have significant ongoing budget implications, they are put for CONSIDERATION. If Council approves these positions, funding in 2002 can be allocated from Contingency Reserve, thereby shifting the tax impact to the 2003 Operating Budget.

Also included in this budget package is a report back on an Anti-Graffiti Strategy for the City. This proposed program comes with a significant cost, exceeding $1.25 million when fully implemented in 2003. Should Council wish to proceed with this program in 2002, funding of $625,000 will have to be provided. This can most easily be accomplished by increasing the proposed tax increase by 0.2%, bringing the current budget position to a tax increase of 4.5%. As an alternative, Council could proceed with the program in 2002 by utilizing existing Contingency Reserve funding. This will limit the discretionary funding in the 2002 Operating Budget and defer the tax impact of this program to 2003.

COUNCIL POLICY

The Vancouver Charter requires the Director of Finance to present the estimates of revenues and expenditures to Council not later than April 30 each year and for Council to adopt a resolution approving the budget and a rating bylaw establishing general purpose tax rates as soon thereafter as possible. There are generally three reports to Council in the budget building process.

· The Preliminary Budget Report provides Council with the first indication of the budget request from Departments and Boards and seeks Council guidance on the policies that will govern the administrative review of the estimates. This report was considered by Council on December 11, 2001.
· The Interim Report summarizes the results of the detailed administrative review of the budget and seeks Council approval to finalize the estimates, bringing the budget into balance.
· The Final Report on the Operating Budget presents the finalized revenue and expenditure estimates including any final adjustments approved by Council at the interim report stage. The Final Report is accompanied by a resolution in which Council adopts the estimates for the year.

It has been Council policy that general purpose tax increases associated with development of the Operating Budget be held within the range of local inflation. However, in approving the annual budget, Council has also adopted a practice of passing tax increases related to requisitions from outside agencies, including the Greater Vancouver Sewerage and Drainage District and E-Comm, through to taxpayers rather than forcing offsetting reductions in City programs and services to meet Council's taxation objectives.

It is Council policy that changes in service levels, either expansions or reductions are approved by Council. This includes the creation and deletion of regular positions and the allocation of funding from revenues or taxation.

PURPOSE

The purpose of this report is to:

· review the 2002 Operating Budget as revised since Council was presented with the preliminary estimates on December 11, 2001,
· seek Council consideration of initiatives that will bringing the budget into balance,
· recommend a funding level for the Park Board Global Budget,
· outline two requests for additional funding from the Police and Engineering Departments that have not been included in the 2002 budget position.

BACKGROUND

In April 2001, when Council approved the 2001 Operating Budget, the Director of Finance warned of potential property tax increases in 2002 that could exceed the rate of local inflation. That report indicated a number of factors, including:

· the salary and benefit costs flowing from current collective agreements
· "added basic" costs for new programs and services
· increased capital expenditure program costs
· costs imposed on the City from outside organizations, and
· the approval of additional staffing in the Police department,

could lead to a tax increase in the range of 4.0% in 2002.

On December 11, 2001, the Director of Finance brought the preliminary estimates of the 2002 Operating Budget to Council for information. That report indicated that, prior to a detailed review of the estimates, a property tax increase of 6.8% would be required to bring the budget into balance. The report confirmed that the driving factors impacting on the 2002 Operating Budget were those identified in April 2001. In addition, the report noted that anticipated changes in programs delivered by the Province might have an impact on the City's budget.

Staff indicated that the normal process of reviewing revenues, departmental expenditure requests and other aspects of the budget would proceed based on standing instructions to provide only for approved levels of service and for increases necessary to deal with workload and health and safety issues. The report anticipated that this review was likely to improve the budget position, reducing the revenue or expenditure program adjustments or tax increase that would be required to balance the budget. Following from the report, Council approved the following recommendations:

A. THAT Council receive the preliminary report on the 2002 Operating Budget for information and instruct the Director of Finance to meet with departments and boards to review the underlying estimates with a view to ensuring that:

· the budget includes funding only for service and program levels approved by Council; and
· all requests for additional or new services are removed from the estimates and referred to Council for approval.

B. THAT the Director of Finance, in consultation with the Corporate Management Team, report the interim estimates to Council in March, 2002 along with options to achieve a property tax increase that reflects inflationary levels.

C. THAT Council reiterate its policy that all requests from departments and boards for service level or program funding increases be accompanied by related offsetting revenue increases or expenditure reductions, such that there be no net increase in Operating Budget funding requirements, and

THAT all requests requiring additional funding in the 2002 or 2003 Operating Budget be deferred for consideration as part of the interim budget report.

D. THAT Council instruct the City Manager to implement a public consultation initiative related to the service level and taxation choices required to balance the 2002 Operating Budget.

On February 19, 2002, the Provincial Government tabled its 2002/2003 budget in the Legislature. This budget confirmed a number of changes to provincial programs that impact on the City's operating budget, including an increase in Medical Service Plan premiums, an increase in fuel taxes and an increase in Provincial Sales Tax. The direct impacts of these changes on the 2002 Operating Budget are reviewed in this report. Additional information about other potential impacts are included in an accompanying report entitled Provincial Budget Impacts on the City of Vancouver.

DISCUSSION

Since Council considered the preliminary estimates, Finance staff have completed the administrative review of the revenue and expenditure estimates, including discussions with departmental staff to ensure that departmental budgets meet target expenditure levels, providing sufficient funding to maintain programs, services and staffing at approved levels and that requests for additional funding beyond these targets could be justified on the basis of Council approvals, health and safety concerns or short-term workload issues.

In addition, the Corporate Management Team has reviewed a number of new initiatives being developed for Council consideration in 2002. As a result of this review, several items have been referred back to departments to identify funding sources that do not impact on the budget. Two initiatives - the Anti-Graffiti Strategy and the outstanding request from the Police Department for additional sworn and civilian staff - are dealt with as part of this report.

The Budget Challenge

Balancing the 2002 Operating Budget with a reasonable tax increase and without significant program reductions presents a challenge. The factors identified above have resulted in increases in the expenditure budget that can't easily be offset by revenue increases. This is because the City relies on relatively few revenues that are directly related to program costs and that do not lend themselves to increases that match increases in the expenditure budget.

In cases where revenues can be increased to reflect changes in costs (utility fees, park and theatre fees and charges), these adjustments have been made. However, in other areas, increased fees are only one factor influencing the amount of revenue that can be expected. In these cases, external influences such as decisions driven by outside organizations, the economy or the weather can have a large impact on the revenue actually earned. Finally, many revenue sources are solely influenced by external factors (investment income) or are fixed, irrespective of the way costs change.

The impact of this situation and the fact that so much of the expenditure budget is funded from property taxes (65%) is that when expenditures rise, the pressure is on property taxes to increase to offset the increases. This is the situation in 2002:

· Prior to an increase in property tax, the revenue budget is increasing by 1.9% . . .
· While expenditures are increasing by 4.5% . . .
· With all other revenues already adjusted in the budget, the property tax levy must cover a shortfall of $16.4 million which translates to a 4.35% tax increase.

This dependence on relatively few revenue sources, on revenue sources that are subject to external influences or that do not automatically adjust to reflect cost increases makes it very difficult to hold property tax increases to local inflation without affecting the delivery of programs and services. As a result, the current budget position reflects a tax increase above local inflation and moving below this level will require real reductions in the expenditure program.

In response to this shortfall in the budget position, Corporate Management Team developed a number of initiatives that could reduce the anticipated property tax increase. In addition, the team reviewed a number of budget pressures being experienced within the organization that could justify additional funding. The following adjustments have been made to the budget by the Corporate Management Team, are reflected in the budget position outlined in this report and are recommended as part of the budget approval process.

The following proposals for new funding in the budget are fully supported by the Corporate Management Team in order to ensure adequate levels of internal service in key areas:

	Proposal	Department	Budget Impact
New Program Funding	Create four information technology support positions: · 2.0 Business Analysts · 1.0 Programmer · 1.0 Systems Analyst Conversion of existing funding is part of this initiative.	Corporate Services Service provided to support corporate information technology initiatives	$ 88,000 50% required in 2002
	Create two new positions: · Human Resoursce Consultant · Clerical Support	Human Resources Service provided to support corporate requirements	$132,000 50% required in 2002
Total New Program Funding			$110,000 in 2002 $220,000 ongoing

The following proposals to reduce funding in departmental budgets by $2.2 million are recommended by the Corporate Management Team and can be achieved without direct impact on services:

	Proposal	Department	Budget Impact
Proposed Program Changes	Corporate funding · reduce Strategic Initiatives Fund · Increase staff turnover	General Government	$300,000 $500,000
	· Eliminate currently vacant position and reorganize property management responsibilities · increase tax search fees from $25 to $35	Corporate Services	$66,500 $45,000 ongoing $90,000
	· Defer part of the Community Visions Program to eliminate annual funding variations · Increase fees for GrowBusters Program · Increase revenues in Business Licence program by increasing enforcement	Community Services	$200,000 20,000 90,000
	Efficiency savings in departmental programs	Fire Department City Clerk Legal Services	$160,000 25,000 30,000
	Efficiency savings in board budgets	Park Board Library	$100,000 $100,000
	Reduce administrative and custodial costs	Britannia Centre	$50,000
	· Program efficiencies in street maintenance, parking, administration and departmental services · minor fee increases to telecommunications companies using City property	Engineering Services	$530,900 $20,000
	Miscellaneous revenue increases	Civic Theatres	$ 50,000
Total Program Changes			$2,287,400

Council will note that no adjustments are recommended in the Police Department budget. As the department is seeking additional funding to meet workload demands, it was determined that the management team would recommend increases in taxes to offset reductions that might be put forward in the Police budget rather than identify reductions that would prove difficult to achieve.

The Current Budget Position

The following table summarizes the current position of the estimates following the administrative reviews described above. This position is presented prior to consideration of a property tax increase.

Revenues
	Taxation Revenue	$416,612
	General Revenue	116,197
	Utility Fees	106,557
	Transfers	12,098	$651,464
Expenditures
	Departmental Expenditures	$466,337
	Utility Expenditures	136,508
	General Debt Charges	59,877
	Transfers	5,153	$667,875
Net Budget Position			($16,411)
Indicated Property Tax Increase			4.35%

Additional detail of these estimates is provided in Appendix 1, along with comparative information from the 2001 Operating Budget.

Expressed in terms of a property tax increase, the current budget position can be summarized as follows:

Budget Component	Change from 2001	Indicated Tax Increase
Departmental Expenditures	$19,484	5.20%
Contingency Reserve	4,457	1.19%
Capital Program	4,555	1.22 %
Transfers To Reserves/Funds	311	0.08 %
New Construction Taxes	(2,811)	(0.75)%
Other Revenues	(9,586)	(2.59)%
	$16,411	4.35%

The following summarizes the major expenditure and revenue areas in the budget.

1. The Expenditure Estimates

As noted, the expenditure side of the budget is comprised of four components: Departmental Expenditures, Utility Expenditures; the Capital Program and Transfers to other Funds/Reserves. The interim estimates include expenditures of approximately $667.8 million in 2002, up 4.5% from the 2001 final budget. If approved at this level, expenditures of $561.3 million would be supported by property taxes and general revenues and $106.5 million would be supported by utility user fees.

Departmental Expenditures

Departmental expenditures are those related to the programs and services provided by the City. As noted above, the increase in program costs totals $19.5 million . Although a portion of this increase is offset by increased revenues, a property tax increase of 5.2% would be required to accommodate this increase. There are a number of factors driving the changes projected in departmental expenditures:

i) Salary and Benefit Costs

Collective agreements for most employee groups run through 2002 and represent the single most important driver in the 2002 budget. Over $13.0 million in employment costs have been added to the budget over the 2001 funding levels to fund increased salary and benefit costs (including additional MSP premiums), equivalent to a property tax increase in excess of 3.0%

.
ii) Inflation in Non-Salary Costs

While salary costs account for the major component of departmental expenditures (as much as 90% in some departments), there are a variety of material, equipment and other input costs also associated with the programs offered by the City that also face inflationary pressures. The budget provided a general allowance of 1.75% in departmental budgets to account for these increases. This general inflation adjustment adds about $1,000,000 to the budget.

In addition, there are specific areas where costs have increased much faster than normal inflation and extraordinary adjustments have been necessary. The recent decline in energy costs have provided the opportunity to reduce funding levels for natural gas, however, the additional fuel tax imposed by the Province for Translink has required funding of approximately $150,000 to be added to the costs of operating the City's vehicles and equipment.

iii) New Programs and Services

There are a number of new or increased expenditures related to programs and services approved by Council or arising because of specific circumstances within departmental programs:

· in April, 2001, Council approved the addition of 50 sworn officers to the Police department. As a result of the timing of recruiting for these positions, much of the cost was deferred until 2002. The additional cost of these officers in the Operating Budget is estimated at $2.5 million.
· several other funding adjustments have been necessary in the Police Department budget. These include funding related to public inquiry and legal costs and for special investigation costs and additional fringe benefit costs.
· the upgrading of Park Board facilities and services funded in the Capital Budget brings new operating costs to the budget each year. Funding of $466,000 has been added to the Park Board budget in 2002 to pay for the cost of maintaining new street trees, operating expanded recreation facilities and maintaining a number of enhancements in City parks.

iv) Charges from Outside Agencies

The current budget position has also been impacted by the following cost increases imposed by outside organizations:

· GVS&DD costs have increased by $1.5 million (4.8%) over 2001.
· the requisition from E-Comm for emergency service radio and dispatch services has increased by $1.1 million (9.6%) over 2001. The services provided by E-Comm are nearly all in place and, although these costs have increased over 2001, they remain in line with the original projections developed in 1997.
· in an accompanying report, the impact of changes in Provincial programs are documented. The budget reflects the following direct impacts:

· increase in Medical Service Plan premiums has increased fringe benefit costs by $783,000 this year with further increases of $400,000 expected in 2003.
· increase in fuel taxes has increased the cost of operating City vehicles and equipment by approximately $150,000.
· the increase in Provincial Sales Tax is anticipated to cost approximately $500,000 in the Operating Budget on an annual basis. No additional funding has been added to the budget for these higher PST costs: departments have been asked to absorb them within existing funding levels, effectively resulting in a budget reduction.

Council has maintained a practice of passing these expenditure increases through to taxpayers as a tax increase rather than forcing reductions in the City's program to remain within acceptable taxation targets. Together these additional charges represent a property tax increase of about 0.9%

Utility Expenditures

The City has established three utilities that are operated on a user pay basis. The water and solid waste utilities are fully funded from user fees so that increased expenditures are matched by increased user fee revenues with no impact on property taxes. The sewer utility is funded approximately 47% from user fees and 53% from property taxes.

· Water utility costs are driven by increases in the cost of water purchased from the Regional District. In December, 2001, Council approved a 2.0% increase in water rates for 2002, bringing the flat rate water charge to $264. Metered rates were increased by the same percentage.
· Improved revenues from recycling and efficiencies in the solid waste operation allowed Council to approve a reduction in Solid Waste fees for residential properties for 2002, from $149 to $148. This is the second consecutive year these charges have been reduced. Charges for non-residential users of the system remain at the regional disposal rate.
· Council approved a 5.3% increase in sewer rates for 2002 increasing the flat fee from $132 to $139 and reflecting increases in regional treatment costs and a further shift of costs from the property tax levy to user fees.

Overall, the increase in charges to residential properties receiving these three services from the City increased by 1.6% over 2001, from $542 to $551. As noted water and solid waste operations have no impact on taxes while the shift of sewer costs from tax to user fee support has benefitted the budget this year.

Contingency Reserve

Contingency Reserve is provided in the budget as a source of funding for issues that arise during the year. As noted, there are a number of smaller program expenditures that will be proposed to Council during the year that may require Contingency Reserve funding. In addition, there will be unanticipated issues that arise during the year that will require funding. This has led the Corporate Management Team to recommend establishing Contingency Reserve at $4.0 million, equivalent to less than 1.0% of operating expenditures.

Capital Program

The City's capital program is planned over a three year period with financing provided by a combination of debt and pay-as-you-go financing. The costs of this financing plan are carried in the Operating Budget through payments of principal and interest on debt and through a transfer of the current property tax levy.

The capital expenditure program is not intended to be a long term driver in the operating budget, however, because of the timing of the debenture program, in any one year the program can impact on expenditure levels. In 2001, the cost of the capital program was reduced by $2.2 million, a savings that was reflected in the budget. In 2002, these costs will increase for two reasons:

· the timing of recent debenture issues. The City has the resources to manage its debt portfolio to take advantage of market conditions rather than to borrow at fixed dates. While there is an impact of this program on the 2002 budget, overall, borrowing costs are lower because of our ability to time debt issuance to the market.
· in 2000, Council deferred $1.5 million in capital from revenue funding. In addition to the scheduled growth in this funding in the last year of the 2000 - 2002 Capital Plan ($1.5 million), additional funding of $750,000 is provided to complete the program.

Transfers to Reserves/Funds

There are a number of transfers included on the expenditure side of the operating budget:

· funding of $4.1 million for the Information Technology Long Term Financing Plan. This funding provides for the replacement and continued development of the City's core information technology infrastructure and equipment.
· funding of $340,000 for the 2002 election, and
· funding of $665,200 for the Liability Insurance Reserve.

2. The Revenue Estimates

The revenue side of the Operating Budget is comprised of four components: Taxation Revenue, General Revenues, Utility Revenues and Transfers from Reserves / Funds. The interim estimates include revenues of $651.5 million in 2002, up 1.9% from 2001. This revenue position is prior to consideration of a property tax increase.

Taxation Revenue

Taxation revenues are those derived from property taxation sources and include the general purpose tax levy, receipts-in-lieu of taxes paid by properties not subject to property taxation as well as penalty and interest charges for outstanding and arrears taxes. The interim estimates establish these revenues at $416.6 million, up 0.7% from 2001.

· The general purposes tax levy has been set at $374.8 million prior to consideration of a tax increase. This includes $2.8 million in tax revenue from "non-market movement" on the assessment roll.
· The provision for tax adjustments has been held at $1.75 million, reflecting an assessment of the assessment appeals now before the Assessment Review Panel and the City's exposure to subsequent adjustments to the property tax levy.
· Receipts-in-lieu of taxes totalling $33.3 million, reflecting a detailed review of grantable property carried on the 2002 Assessment Roll.

General Revenues

A variety of general revenue sources support the expenditure budget. Overall, general revenues are anticipated to increase to $116.2 million or 3.5% over the 2001 budget level of $112.2 million. These revenues are summarized below:

· Provincial Revenue Sharing is comprised of two components:

· The province has confirmed that the City will receive $2.4 million from traffic fine revenue sharing, down approximately $125,000 from 2001. This reduction reflects the application of the distribution formula to the total revenue available for distribution rather than a change in the program itself.
· $3.7 million in revenue sharing from casino operations in the City. Council has designated approximately $350,000 of this amount to support the Downtown Eastside Street Programming initiative. While the balance of these funds have been included in the interim budget position, it is recognized that ongoing dependence could create difficulties in future years if this funding level is not maintained. Initial budget planning for 2003 will exclude revenue from this source.

· Investment Income is dependent on the cash balances the City has to invest and on interest rates. This income has been reduced from 2001 by $1.8 million (16%) to reflect significantly lower short term interest rates compared to 2001. This revenue adjustment is equivalent to a 0.5% tax increase.
· On-Street Parking Revenue has been increased to reflect 2001 earnings and program and rate changes being implemented in 2002.
· Service and Inspection Fees reflect increasing activity in this sector of the economy and the increased fees approved by Council.
· Park Board and Civic Theatres revenues have been set to reflect adjustment to fees and charges approved by Council (Civic Theatres) and the Park Board.
· Miscellaneous Revenue has been increased from 2001 to reflect the restoration of approximately $750,000 in funding from Translink supporting maintenance of the Major Road Network.

Transfers from Reserves

The transfer from other funds and reserves includes:

· $3.6 million, reflecting the annual surplus on the City's sinking fund. This transfer is 9.4% higher than in 2001 and helps offsets debt charges on outstanding debt.
· the annual dividend from the Property Endowment Fund is held at $7.0 million.
· Miscellaneous transfers include:

· $1.0 million from the civic election reserve to fund the 2002 election. The budget provides annual installments to fund the triennial election.
· $160,000 transfer from the Art Gallery Reserve to partially offset the Art Gallery operating grant.
· $300,000 from the Hasting Park Reserve for the City's obligation to the PNE for maintenance of Hastings Park.

3. Indicated Property Tax Increase

As noted, closing the budget shortfall reflected above is $16.4 million and would require a 4.35% tax increase to eliminate. This is comprised of increases of approximately:

· 3.5% for City costs
· 0.3% for GVS&DD costs that are supported by taxation
· 0.28% related to services contracted from E-Comm
· 0.28% related to additional costs as a result of provincial program changes

For the average residential property (valued at $375,000), a 4.35% tax increase would increase general purpose taxes by about $51. For commercial properties, the increase would be approximately $0.64 per thousand dollars of assessed value, or $320 on a $500,000 property.

4. Park Board Global Budget

The interim estimates make full provision for the Park Board Global Budget of $46,952,800, including added basic funding of $466,000. This represents an increase of 4.0% from the 2001 final budget. The global budget has been calculated by the City and Board staff according to the principles agreed upon in the arrangement with Council. In short, these principles require the Park Board to increase its fees and charges based on the increase in City costs in order to receive adjustments on the expenditure side (employment costs, inflation and added basic) of the its budget on the same basis as other departments. The base budget has been adjusted to reflect changes in salary and benefit costs arising from collective agreements and non-salary costs have been increased by the same 1.75% provided to all departments.

Added basic is the ongoing operating cost that arises from the Park Board capital program. Under the global budget arrangement, Council has agreed to add these costs to the Park Board budget. The 2002 allocation includes $466,000 of additional funding for maintenance and support of buildings and parks infrastructure, as well as the operating costs of the expanded programs and new parks.

Should Council approve additional budget reductions to achieve its taxation targets in 2002, adjustments will be required to the Park Board Global Budget for changes impacting on the Board.

REDUCING THE TAX INCREASE BELOW 4.35%

Anticipating that a tax increase of 4.35% would exceed Council's target for 2002, the Corporate Management Team developed a series of proposals to further reduce the budget. Targets were developed for each department on a pro-rata basis and staff used these as a guide to identify areas of the budget where adjustments might be made in order to reduce the tax increase below 4.35%. While each department made proposals, several considerations went into determining the items put forward for Council consideration:

· several smaller departments were omitted from the process either because reductions to their program budgets would jeopardize the entire program or because the reductions provided marginal benefit.
· those departments that accepted a larger share of the reductions in the earlier phase were not allocated additional reductions in this phase.
· One of the challenges faced was to identify reductions in the Police Department budget at a time when that budget is increasing as a result of changes in staffing and when requests for additional sworn and civilian staffing are before Council. Moreover, the public continue to identify public safety in general and police services specifically, as high priority and the last services that Council should consider reducing. As a result, corporate management is not putting forward reduction proposals for the Police department on the assumption that any budget adjustments that would otherwise be allocated to Police would be covered by a tax increase so as to at least maintain service levels.
· no reductions are proposed in the Grant Budget because reductions could jeopardize the ability of Council to deal with anticipated pressures as a result of changes in provincial funding levels.

In putting these proposals forward, the Corporate Management Team notes that it is increasingly difficult to make changes in the budget without impacting on the delivery of service, both internally and to the public.

Proposal		ftes	Department	Budget Impact
Revenue Enhancements
	Increase No Stopping / No Parking fines from $35 to $40. · This fine is lower than the fines charged for this type of offence in a number of other cities. Parking Meter overtime offences would remain at $25.		Corporate Revenue	$300,000 in 2002 $600,000 ongoing
Expenditure Program Changes
	Reduction in Capital from Revenue · This allocation is $14.9 million in the 2002 budget, an increase of $2.3 million from 2001. Should Council agree to this reduction, necessary changes to the capital program would be identified in the Capital Budget to be before Committee on May 16.		Capital Program	$1,000,000
	Selective reductions to building janitorial services at City Hall · reductions to janitorial services in the City Hall campus	2.5	Corporate Services	$50,000 in 2002 $100,000 ongoing
	Service reduction in recreation, park and administrative operations · Park Board would determine adjustments to revenue or expenditure budgets	to be determined	Park Board	$200,000
	Eliminate 1.0fte at the Cemetery · This may impact on the progress of redevelopment plans at the Cemetery but is achievable without seriously affecting service levels	1.0	Community Services	$58,200
	Eliminate 1.0fte Housing Officer · This reduction in the Housing Centre reflects the expectation that reduced funding by the Province will reduce housing projects	1.0	Community Services	$52,600
	Eliminate 1.0fte in Clerical Support · Elimination of one clerical position	1.0	Community Services	$24,800
	Service reduction in Library services · Library Board would determine adjustments to revenue or expenditure budgets	to be determined	Library	75,000
Total				$1,760,600

Park Board and Library Board staff have been working with the Corporate Management Team on initiatives to limit the tax increase, however, the Boards have not approved specific reductions for consideration. As a result, the proposal above is that Council approve general reductions in the Board budgets. Based on this approval, the Boards will determine the specific adjustments that would be necessary.

The impact of these adjustments on the current budget position would be to reduce the budget shortfall to $14.65 million, equivalent to a property tax increase of 3.9%.

Moving beyond this level would involve much more significant program reductions that would have impacts on the programs and services provided by the City and will impact on City staff. These proposals could result in:

· increased costs for access to many public services
· reduced maintenance & cleaning in City buildings
· delay in completing Community Visions and other planning programs

· reduced ability to complete policy and planning work or respond to emerging issues in a number of departments
· reduced ability to respond to medical emergencies and alarms
· reduced Library hours or reduced access to branch system
· reduced staffing and services in the enforcement activities in public safety
· reduced street maintenance and cleaning
· reduced internal support provided by Human Resources, Corporate Services and Community Services,
· reduced grant funding to social, cultural and daycare organizations,
· reduced services to the public and hours of operation in the Park & Recreation system

If Council wishes to consider additional proposals, it is recommended that Council approve Recommendation B(iii), thereby deferring consideration of the final budget position until the meeting of City Services and Budgets Committee on April 25, 2002. Prior to that meeting, staff would develop a more detailed listing of the proposals and provide them to the affected unions and other stakeholder groups to ensure that they have an opportunity to bring their comments and concerns forward.

DEALING WITH NEW REQUESTS

The Corporate Management Team has identified two requests for new funding that should be factored into the 2002 Operating Budget decision process.

1. Police Sworn and Civilian Staffing Request

Sworn Staffing

At the time Council dealt with the 2001 Operating Budget, the Police Department brought forward a report on police workload and a request for an extension of 20 temporary officers and for an additional 123 sworn positions. Council approved 50 positions and deferred the balance until 2002. In an accompanying report, the Chief Constable has brought forward a request for an additional 30 sworn positions as the second installment of this larger request. If approved, the cost of 30 sworn positions totals $2.3 million annually, phased in over four years beginning in 2003. In addition, one-time costs of $600,000 are requested to outfit the new positions.

City staff acknowledge that the workload in the Police department has increased significantly over the past decade, without offsetting increases in staff. This has arisen, in part, because of process changes imposed by the legislative and judicial branches of government. With the approval in 2001, the current request will address only 50% of the overall request submitted by the department. If Council accepts that additional sworn staffing is warranted in the department, this approval can be made without impacting the 2002 budget. While thedepartment requests approval for these positions now in order to begin recruitment planning, this staff would not require funding until 2003. The table below summarizes the cost and property tax impact of this request.

Civilian Staffing

The Police Department has also requested approval of 46 civilian positions. This request is also documented in the accompanying report from the Chief Constable. If approved in total, these positions would require additional funding of approximately $1.7 million annually to be phased in over 2002 and 2003 and one-time costs of $350,000 for outfitting.

The City Manager and Finance staff reviewed the request for civilian staff with the department and are prepared to support approval of 15 positions, including eight positions that have funding offsets in the existing Police department budget. Additional detail of these positions is included in a memo from the City Manager attached to the report from the Chief Constable. In coming to this position, it was agreed that the priorities would be:

· positions that would result in additional officer time "on the street", including civilianization of functions now performed by sworn staff,
· positions that provide direct support to operational areas of the department and will improve operational effectiveness, and
· positions that address internal security issues identified by the department.

The net annual cost of these 15 positions, if approved, would be $410,000 plus $125,000 for outfitting costs. The 2002 cost is estimated at $265,000.

The balance of the civilian request will be reviewed further by staff in the coming months and may result in additional reports to Council before year-end. Funding requirements for any additional staffing that Council might support will be minor in 2002 and can be provided from Contingency Reserve.

The following table summarizes the request of the department and the budget impacts should Council approve additional staffing.

Request	2002 Funding Required	Ongoing Cost
30 Sworn Officers	no cost in 2002	· $1.5 million in 2003 plus $597,000 one time · increasing to $2.3 million annually by 2007
15 Civilian Positions	$140,000 in 2002, plus $125,000 one-time	$758,000 annually beginning in 2003
Total Cost	$265,000	$3.1 million annually
Property Tax Impact	0.07%	0.8%

The Police staffing request, if approved, will have only a small impact on the 2002 Operating Budget. However, approval of the full request for 30 sworn positions and 15 civilian positions will add approximately $3.1 million to the 2003 Operating Budget, bringing pressure for an additional tax increase or offsetting reductions in other program expenditures.

2. Anti-Graffiti Strategy

In 2001, Council initiated a program to address the problem of graffiti on public and private property, including a process to solicit public input on an ongoing program. In an accompanying report, the City Engineer, General Manager of Community Services, General Manager of Corporate Services, Chief Constable and General Manager of the Park Board report back with a comprehensive anti-graffiti strategy for Vancouver. As this proposal has a significant cost that is not provided for in the budget position presented in this report, it is desirable for Council to consider how the funding for the program will be provided in 2002 and future years.

The anti-graffiti strategy identified in the report indicates that the full program will have a cost of $1.2 million annually, including $887,900 in new funding to be added in 2002 and 2003 as follows:

Existing Funding	$327,800
Incremental Funding in 2002	624,300
Incremental Funding in 2003	263,600
Total Program Cost	$1,215,700
Indicated Tax Impact	0.25%

In addition to these costs for the anti-graffiti initiative, additional funding of $53,000 is being requested by the Police department in 2002 to enable them to participate in the program.

There are two reports in the package of budget reports related to the graffiti program: Anti Graffiti Strategy for Vancouver and Anti-Graffiti Strategy for the Vancouver Police Department. These are included for Council's information because the recommendations affect the 2002 budget. A presentation on the components and costs of the initiative, and the opportunity for delegations to speak on the proposal, is scheduled for the City Services and Budgets Committee on April 25, 2002. This will allow the decisions on this program to be reflected in the final estimates of the Operating Budget.

Like the Police request above, this new program, if approved, will have an impact on the 2002 and 2003 Operating Budgets by bringing pressure for additional tax increases or reductions in program expenditures elsewhere. Should Council wish to proceed with the program, the most appropriate way to provide funding would be to increase property taxes by an additional 0.15% in 2002 bringing the tax increase to 4.5% based on the budget position presented in this report. The alternative would be to utilize the existing Contingency Reserve allocation, however, this would limit the discretionary funding in the 2002 budget and shift the tax impact of the program to 2003.

THE IMPACT OF THE BUDGET ON PROPERTY IN THE CITY

The impact of a 3.9% tax increase on an average residential property, together with the changes in other user charges is summarized below:

Average Residential Property	$375,000		$369,000
Levy	2002		2001	Change
General Taxes	$1,157.3		$1,111.10	$46.20	4.2%
Sewer Fee	139.00		132.00	7.00	5.3%
Solid Waste Fee	148.00		149.00	(1.00)	-0.7%
Water Rates	264.00		261.00	3.00	1.0%
Total City Charges	$1,708.30		$1,653.10	$55.20	3.3%

In addition to these charges, the levies from other taxing authorities may increase. At the time of writing, the City has not been notified of all levies, however, based on information available the following changes can be contemplated:

· The province has announced a 2.0% increase in the Provincial School Levy which comprises approximately 45% of the total residential property tax bill.
· Translink will increase its tax levy on residential properties, the increase anticipated to be $30 on the average property detailed above.

· the GVRD and BC Assessment Authority charges are not anticipated to increase from 2001.

Based on these anticipated increases, the total charges to the average residential property could expect to increase by $108 or 4.4% over 2001.

Based on a 3.9% tax increase, general purpose tax rates for Class 06, Business and Other properties would increase by approximately $0.58 per thousand dollars of assessed value leading to a tax increase of $290 from $7,385 to $7,675, on a property valued at $500,000. This property would also experience increases in school taxes, however, the additional tax from Translink does not apply to non-residential property.

BRINGING THE OPERATING BUDGET INTO BALANCE

With the decisions made as part of this report, the Operating Budget can be brought into balance. The budget process would be completed as follows:

· Should Council choose to hear delegations related to the budget decisions, these would be heard at City Services and Budgets Committee on April 11.
· On April 25, City Services and Budgets Committee will consider the report on the Anti-Graffiti Strategy. Decisions from this meeting will be reflected in the final budget.
· On April 30, Council will consider the final estimates reflecting the decisions made based on this report and the requests for additional funding. Council will be asked to adopt a balanced budget resolution confirming the estimates for 2002.
· On May 02, 2002, the Director of Finance will bring forward a report summarizing the 2002 property tax levy and options of the distribution of the levy. Following the decisions on this report, the 2002 General Purposes Rating Bylaw will be brought forward for approval on May 14.
· On May 16, City Services and Budget Committee will consider the Basic and Supplementary Capital Budgets.

OUTLOOK FOR THE 2003 OPERATING BUDGET

Given that the decisions still to be made regarding the 2002 Operating Budget will impact on 2003, it is difficult to provide an accurate picture of next year. However, a projection based on the 2002 budget position suggests that:

· a tax increase in excess of 2.0% seems likely to maintain the base budget, calculated before consideration of collective agreement costs. This position assumes that Council will agree to a 3.9% tax increase in 2002.
· salary costs are the most significant unknown for 2003. A 1% increase in collective agreements would add costs equivalent to a 0.75% tax increase.
· there are a number of other uncertainties that could impact on this position, including the level of taxes from new construction; the success in maintaining and increasing revenues from telecommunications companies using City rights-of-way; the future of provincial revenue sharing programs (including the casino revenue sharing program); funding from TransLink; the impact of changes in provincial funding levels; and, the impact of new programs and services that will come to Council during the year. These uncertainties are reflected in the projection by increasing the Contingency Reserve provision, however, there may be additional impacts on the projected tax increase.
· if Council agrees to increase the additional staffing in the Police department the impacts on the 2003 budget vary depending on the number of officers added and the timing with which they are recruited. Based on the proposal in this report, those costs could add the equivalent of 0.8% to the 2003 tax increase.
· if Council agrees to implement the Anti-Graffiti Strategy, the impacts on 2003 are equivalent to a 0.25% tax increase.

In summary, there would appear to be continuing challenges to maintaining an inflationary tax increase in 2003. With the completion of the 2002 Operating Budget, staff will begin to address these issues and will report back with updated projections for the 2003 budget in September, allowing Council to provide guidance on the development of next year's operating budget.

CONCLUSION

The interim estimates of the 2002 Operating Budget indicate that a property tax increase of 4.35% would be necessary to provide for the costs of base City programs and the added basic costs associated with new programs approved by Council. This budget position includes the impact of several budget reduction initiatives identified by the Corporate Management Team that will have limited impact on service. A second set of budget adjustments are put forward should Council wish to reduce the tax increase below this level. These include one proposal to increase revenues and several to reduce expenditure levels by reducing program resources. Should Council accept these proposals in full, the indicated tax increase can be brought to 3.9%.

Moving the 2002 property tax increase below 3.9% will require reductions in service levels. Should Council wish to achieve an increase below this level, it is recommended that the Director of Finance and Corporate Management Team report to City Services & Budgets Committee on April 25, 2002 with specific proposals.

There are two requests for significant new funding. The Police Department has brought forward a request for 30 additional sworn staff and 46 civilian positions to meet workload issues. While these have only modest cost in 2002, the impact on future operating budgets is equivalent to a 0.8% tax increase. The second request is for implementation of an Anit-Graffiti Strategy for the City. This program has incremental costs in 2002 of approximately $650,000. The report recommends funding options for these programs should Council wish to proceed with them.

The final stage in completing the 2002 Operating Budget involves bringing a final budget forward for approval. Following the decisions of Council related to the budget, the Director of Finance will make final adjustments to the budget and report back to Council on April 30, 2002.

- - - - -

SECTION 1: Summary of Revenues
Taxation Revenues:
	Base Levy	372,217	372,045	(172)	0.0%	390,767
	New Construction	0	2,811			3,000
Net Taxation Revenues		372,217	374,856	2,639	0.7%	393,767
	Tax Adjustments	(1,750)	(1,750)	0	0.0%	(2,000)
	Receipts in Lieu of Taxes	32,084	33,352	1,268	4.0%	33,352
	Local Improvement Taxes	4,537	4,304	(233)	-5.1%	4,300
	Penalties and Interest	5,200	5,850	650	12.5%	5,850
Total Revenue from Taxation		412,288	416,612	4,323	1.0%	435,269
Other Revenues:
	Provincial - Revenue Sharing Programs	6,060	6,137	77	1.3%	6,137
	Investment Income	11,400	9,600	(1,800)	-15.8%	9,600
	License Fees	11,549	12,290	741	6.4%	12,413
	Property Rentals	1,279	1,295	16	1.2%	1,310
	Municipal By-Law Fines	9,308	9,352	44	0.5%	9,352
	On Street Parking Revenue	14,575	16,990	2,415	16.6%	17,040
	Service and Inspection Fees	18,039	19,409	1,370	7.6%	19,480
	Civic Theatres Revenue	5,353	5,585	231	4.3%	5,473
	Park Board Revenues	29,295	29,240	(54)	-0.2%	29,825
	Miscellaneous Revenues	5,496	6,299	803	14.6%	4,736
Total Other Revenues		112,354	116,197	3,843	3.4%	115,366
Utility Fees
	Waterworks	55,165	56,102	937	1.7%	57,044
	Solid Waste	22,324	22,603	279	1.2%	22,700
	Sewers	26,450	27,852	1,402	5.3%	28,130
Total Utility Fees		103,939	106,557	2,618	2.5%	107,874
Total Revenues before Transfers		628,582	639,366	10,785	1.7%	658,509
Transfer from Other Funds/Reserves:
	Sinking Fund Prior Year Surplus	3,326	3,638	312	9.4%	3,000
	Property Endowment Fund	7,000	7,000	0	0.0%	7,000
	Art Gallery Reserve	160	160	0	0.0%	160
	Other	0	1,300	1,300		0
Total Transfer from Other Funds		10,486	12,098	1,612	15.4%	10,160
Total Revenues before Tax Increase		639,068	651,464	12,397	1.9%	668,669
Indicated Tax Increase			4.4%			1.6%
Incremental Tax Revenue			16,411			6,423
Total Revenues		639,068	667,875	28,808	4.5%	675,091

SECTION 2: Summary of Expenditures
General Government:
	Mayor & Councillors	1,369	1,405	36	2.6%	1,411
	City Manager / EEO	867	938	70	8.1%	942
	City Clerk	2,469	2,507	39	1.6%	2,519
	Legal Services	3,303	3,345	41	1.2%	3,345
	Financial Services	10,251	10,260	9	0.1%	10,306
	Information Technology	9,245	9,782	537	5.8%	9,826
	Real Estate and Property Management	5,861	6,382	522	8.9%	6,411
	Human Resourses	4,582	5,769	1,187	25.9%	5,792
	Other General Government	3,191	3,378	187	5.9%	2,802
	Community Services Administration	4,802	5,097	295	6.1%	5,321
	City Wide & Community Planning	5,255	5,203	(52)	-1.0%	5,186
Total General Government		51,195	54,065	2,870	5.6%	53,861
Protection to Persons & Property:
	Police Services	121,150	127,805	6,655	5.5%	127,882
	Fire & Rescue Services	65,616	67,278	1,661	2.5%	66,796
	E-COMM Services	11,025	12,086	1,061	9.6%	12,640
	Development Services	6,242	6,005	(238)	-3.8%	6,032
	Licencing & Enforcement	11,833	12,550	717	6.1%	12,606
	Animal Control	986	908	(78)	-7.9%	953
	Vancouver Emergency Program	973	978	5	0.5%	982
Total Protection to Persons & Property		217,825	227,608	9,783	4.5%	227,890
Public Works
	Administration & General	7,272	7,140	(132)	-1.8%	6,692
	On Street Parking Program	6,569	6,929	360	5.5%	6,960
	Traffic Planning and Control	6,544	7,094	550	8.4%	7,126
	Street Lighting & Communications	4,359	4,409	50	1.1%	4,429
	Street Cleaning	5,856	6,334	478	8.2%	6,363
	Streets, Bridges & Walkways	13,599	14,460	861	6.3%	14,525
Total Public Works		44,200	46,367	2,167	4.9%	46,096
Utilities - Waterworks
	Operating Costs	7,254	7,020	(234)	-3.2%	7,052
	Water Purchase	22,943	23,860	917	4.0%	24,903
	City Debt Charges	22,003	22,981	978	4.4%	25,089
	Transfer to/(from) Reserve	2,965	2,241	(724)	-24.4%	0
		55,165	56,102	937	1.7%	57,044
Utilities - Solid Waste
	Operating Costs	21,553	22,103	549	2.5%	22,200
	Transfer to/(from) Reserve	771	500	(271)	-35.1%	500
		22,324	22,603	279	1.2%	22,700
Utilities - Sewer
	City Operating Costs	4,834	4,920	85	1.8%	4,942
	City Debt Charges	20,362	19,826	(536)	-2.6%	20,894
	Regional Sewerage Levy	31,545	33,057	1,512	4.8%	36,163
	Transfer to/(from) Reserve	1,174	0	(1,174)	-100.0%	0
		57,915	57,803	(112)	-0.2%	61,999
Recreation & Community Services:
	Parks & Recreation	74,434	76,193	1,759	2.4%	77,036
	Britannia Service Centre	2,440	2,542	102	4.2%	2,554
	Social Planning	1,451	1,769	318	21.9%	1,774
	Housing Programs	1,331	1,328	(3)	-0.2%	1,334
	Office of Cultural Affairs	335	599	264	78.9%	602
	Carnegie Centre	2,372	2,347	(24)	-1.0%	2,358
	Dowtown South Gathering Place	1,759	1,737	(23)	-1.3%	1,744
	Vancouver Public Library	28,706	29,863	1,157	4.0%	29,997
	Civic Theatres	5,663	5,747	85	1.5%	5,773
	Archives	653	661	8	1.2%	664
	Cemetery	771	764	(8)	-1.0%	767
Total Recreation & Community Services		119,915	123,550	3,635	3.0%	124,603
Civic Grant Program		10,822	10,748	(74)	-0.7%	10,834
Contingency Reserve		(457)	4,000	4,457		6,000
Total Before Debt Charges & Transfers		578,904	602,845	23,941	4.1%	611,026
Capital Program
	General Debt Charges	38,185	40,673	2,488	6.5%	42,270
	Capital From Revenue	12,600	14,900	2,300	18.3%	14,300
	Local Improvements	4,537	4,304	(233)	-5.1%	4,300
Total Capital Program		55,322	59,877	4,555	8.2%	60,870
Transfers to Reserves/Funds
	Other Transfers	4,842	5,153	311	6.4%	4,954
Total Transfers to Reserves/Funds		4,842	5,153	311	6.4%	4,954
Total Expenditures		639,068	667,875	28,807	4.5%	676,850
Estimated Revenue Surplus		0	0			1,759
Total Expenditures & Revenue Surplus		639,068	667,875	28,807	4.5%	678,609
	Percent Change in Expenditures		4.51%			1.3%
Tax Increase Required to Balance Budget		3.0%	4.4%			1.6%

* * * * *

(c) 1998 City of Vancouver