ADMINISTRATIVE REPORT

Date: November 15, 1999
Author/Local: J. Beresford 7789

RTS# 01151

CC File No. 1605

CS&B: December 2, 1999

TO:	Standing Committee on City Services and Budgets
FROM:	General Manager of Corporate Services / Director of Finance
SUBJECT:	1999 Operating Budget - September Review

RECOMMENDATION

A. THAT Council approve the proposed adjustments to the 1999 Operating Budget revenue and expenditure appropriations as outlined in this report and detailed in Appendix A.

B. THAT any shortfall in the 1999 Operating Budget at the end of the year, including any deficiencies in the Park Board revenue programs as contemplated in the Global Budgets arrangement, be funded from the Revenue Surplus.

COUNCIL POLICY

Council's standing instructions require that the Director of Finance report on the status of the Operating Budget as of June 30 and September 30 each year, along with recommendations for any appropriate adjustments.

Council must approve transfers to and from reserve accounts.

Under provisions of the Park Board global budget, Council has authorized the Director of Finance to maintain a notional Revenue Stabilization Account to balance the annual surpluses or deficits that results from seasonal or weather-related factors affecting the revenue programs.

PURPOSE

In accordance with Council's standing instructions, this report reviews the status of the revenue and expenditure appropriations in the 1999 Operating Budget at September 30, 1999, and seeks Council approval to make adjustments that reflects our revised expectations.

DISCUSSION

This is the second of two reviews of the annual Operating Budget. The purpose of this review is to identify areas of significant variance that have arisen as a result of experience or new information since the budget was last reviewed at June 30. Due to the timing of the SAP system conversion, the June 30 review was conducted internally and was focussed at a very summarized level. Accordingly, this increased the importance of conducting an in-depth September Budget Review both for departments and the organization as a whole.

1. Revenue Appropriations

There are several adjustments to the revenue appropriations that are recommended based on experience since the budget was approved in April:

Revenue Program
Increase/ (Decrease)

Sundry Licences $430,000

Revenues from business and other licences are expected to exceed the current budget allocation by approximately $430,000. This arises from an increase in Business Licence compliance combined with an unexpected increase in new licences. Revenues from other miscellaneous licences are lower than expected.

Development Fees $135,000

Development fees include revenues from development, rezoning and subdivision permits. Overall, the expectation for development fee revenue is slightly higher than initial estimates.

Trade Permit fees $200,000

Trade permit fees include revenues from a variety of permits related to construction activity, including Building, Electrical and Plumbing permits, Street occupancy fees, Energy Utilization fees and the Residential Demolition fees. Collectively, these revenues are projected to produce an additional $200,000 in revenue above the current budget level.

Engineering Fees and Charges ($635,000)

Engineering fees and charges include a variety of revenues related to programs administered by the Engineering Department. The following adjustments are recommended:

· Anchor Rod Fees generated from underground street shoring of large scale construction projects are directly affected by development activity. With activity down to a much greater extent than anticipated in the original budget a reduction of $235,000 is recommended.
· The contract for Bus Stop Bench fees was cancelled after the budget was developed in 1999 resulting in lost of $125,000.
· Street Usage fees for utility companies were introduced in 1999 to ensure that these companies were paying their share of maintenance costs for City streets. Complexities in negotiating arrangement with the companies have delayed the ability to charge street usage fees in 1999 with an anticipated shortfall of revenue to this year's budget in the range of $200,000.
· Other Engineering fees and charges include a variety of programs administered by the Engineering department, including vehicle permit fees and street rental fees. A shortfall of $75,000 is anticipated collective from these other areas.

Municipal Bylaw Fines & Parking Enforcement ($200,000)

Municipal Bylaw Fines activity was expected to increase in 1999 as a result of additional parking enforcement resources being added to the program in 1998 however, an increase in the time spent on non-revenue producing activities such as court time has resulted in the growth of revenues not reaching expected levels. The impact is reduced bylaw fines revenue of $900,000.

The enhanced on-street parking enforcement has resulted in greater compliance at meters than anticipated and, coupled with new revenue from expanded parking meter areas, has contributed to increased Parking Meter revenues of $700,000.

Interest on Temporary Investments $430,000

The 1999 appropriation for short term interest was based on anticipated average cash balances and short term market yields and was influenced by the timing of debenture issues during the year. Slightly higher average rates of return on the investment portfolio and a change in the timing of the debenture issues have led to additional income in the range of $430,000.

Net Increase to Revenue Appropriations $360,000

2. Departmental Expenditure Appropriations

Under normal circumstances, departments are expected to operate within the expenditure appropriations approved by Council in April each year. Where funding problems are identified during the year, departments are required to realign priorities or reallocate resources within existing budgets. This is an ongoing process in which Budget Office staff work with departments to identify and minimize the impact these problems can have on the Operating Budget. The focus of the September review of expenditures is generally restricted to those areas where departments have been impacted by factors which cannot otherwise be accommodated.

There are three areas of concern arising from the review of departmental expenditures:

Police Department

The Police department is facing a series of budget issues, which collectively have a negative impact on operating results in the region of $1.4 million. These include outside legal fees, overtime costs and extraordinary closure costs for the Communications Centre (moved to EComm) and the jail (transferred to the Province). At this point in the year there is very little flexibility within the Police budget to mitigate the impact of these extra costs, however the department is adjusting operations as necessary to absorb as much of the shortfall as possible prior to year-end.

Civic Theatres

Rental revenue from theatre bookings has continued to suffer despite the closure of the Ford Theatre, indicating a projected deficit for the year of approximately $437,000 (approximately $330,000 greater than the original budget shortfall). While the bookings by resident performing arts companies are comparatively very stable, ashortage of commercial product suitable for West Coast audiences, combined with a lack of new productions to stimulate the market are being identified as the primary reasons for the decline. Civic Theatres suggests that this is not merely a local phenomenon, but reflects a North America wide trend, mirroring the experiences of comparable theatre operations. Civic Theatres is actively exploring ways to restructure its operation to reduce costs and mitigate the losses from reduced rental bookings.

Park Board Global Budget

Review of the Park Board Global Budget, projected to year end, indicates a possible shortfall from operations of approximately $500,000. Loss of revenue from an extraordinarily inclement spring and early summer has contributed to a deficit in many weather dependant revenue programs, including concessions and golf courses. On the expenditure side, additional general administrative and operating costs have added to the operating shortfall. The Park Board is making adjustments in operations to absorb as much of the shortfall as possible, however, based on the current assessment, the net result will be an operating shortfall of approximately $500,000.

The Park Board global budget arrangement provides the Director of Finance with the authority to provide for shortfalls in the Park Board revenue programs through a notional revenue stabilization fund appropriated from Revenue Surplus. This fund is intended to balance the surplus / deficit cycle that can result from weather related impacts on the Board's revenue programs. Recommendation B seeks Council validation of that source for any shortfalls in 1999. The Board remains responsible for dealing with shortfalls in other areas of its budget.

The Director of Finance is not recommending any additional allocations to these departments at this time. As noted, each is working to curtail expenditures to bring their budgets in on target. Providing funding at this point in the year would only remove the pressure to make the necessary adjustments, and is therefore not recommended.

3. 1999 Debenture Program

When the 1999 Operating Budget was developed, an allocation for Debt Charges associated with the anticipated 1999 debenture issue was provided, totalling $1.65 million. However as the timing of that issue was delayed until the second half of the year no debt servicing costs related to that issue will be incurred this year and this funding will be surplus to the City's needs in 1999. The 2000 Operating Budget will make accommodation for these new costs.

4. Other Potential Impacts on the 1999 Operating Budget

The review of the status of the 1999 Operating Budget has identified one further item that could have the potential to adversely impact on the budget before year-end.

In 1998, the Assessment Appeal Board issued a decision related to the assessed value of Pacific Centre for the years 1993 and 1994. That decision resulted in the City refunding property taxes and rent-in-lieu of taxes totalling $5.8 million to the complex owners, Cadillac Fairview. The City has now been advised that a conclusion on the outstanding appeals for the years 1995 through 1998 may be reached before the year-end. While the details have not been concluded, based on the best information available, the cost to the City could exceed an additional $4.0 million. Funding for this settlement, either in the form of a payment to Cadillac Fairview or the provision of reserve funds in anticipation of that settlement, will have to be provided for in the Operating Budget. Staff will report back to Council early in the new year should the Operating Budget not be in a position to absorb this cost.

DEALING WITH THE YEAR-END

September Review indicates that the budget is very tight and it will be a challenge to end the year in a surplus position. The review indicates that while most departments are operating within their budget targets, there are some areas that may cause difficulties by year-end. In addition, a major snowfall would have a significant impact on the City's ability to avoid an operating deficit and we are faced with the potential of a significant assessment appeal. As a result of these concerns, departments are being asked to take particular care to control the use of discretionary funds for the balance of the year.

As a result of these concerns, the Director of Finance recommends that the available funding identified from September Review be reallocated as follows:

Additional Revenues $360,000 to Contingency Reserve
Surplus Debt Charge funding:

General and Sewer $1,100,000 to Current Surplus on Revenue
Water $550,000 to WaterRates Stabilization Reserve

The transfer of surplus revenue to Contingency Reserve will bring the current uncommitted balance to $1,095,000. These funds will assist in dealing with any over-expenditures in departmental budgets at year end. Transfer of general and sewer debt charges to Current Surplus on Revenue will make them available to offset any unanticipated problems in the budget, including the costs of dealing with a heavy snowfall or providing for the Pacific Centre Appeal. If these funds are not required, they will form part of Revenue Surplus atyear-end and will likely be brought forward to assist in funding the 2000 Operating Budget. Finally, the surplus debt charges funding in the water utility was provided from water rates rather than taxes and its transfer to the Water Rates Stabilization Reserve and eventual use in establishing the 2000 Waterworks Budget is anticipated in the 2000 Water Rates report that will be before Council in the near future.

With these adjustments the Operating Budget will remain in balance and will provide additional contingency reserve funding. Should 1999 end with an operating deficit, the normal funding source would be Revenue Surplus. The Director of Finance notes that the balance in Revenue Surplus continues at an historically low level $4.35 million. However this is the appropriate source of funding to deal with any negative variances in the Operating Budget at year-end. Accordingly, it is a recommendation of this report that any negative variances realized at the year-end be funded from Revenue Surplus.

CONCLUSION

A review of the 1999 Operating Budget as of September 30, 1999 indicates that several adjustments are appropriate to provide additional contingency funding for year-end. With these adjustments, the 1999 Operating Budget will remain in balance, and additional contingency reserve funding will be provided in anticipation of budget shortfalls that have been identified. Any remaining shortfall will be funded by a transfer from Revenue Surplus. The Director of Finance notes that the 1999 budget remains very tight at this point in the year and the Corporate Management Team have agreed to take particular care to control discretionary expenditures to year-end.

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APPENDIX "A"

SCHEDULE OF PROPOSED REVENUE AND EXPENDITURE APPROPRIATION ADJUSTMENTS

Recommended

Revenue Appropriations Adjustment

Sundry Licences $ 430,000
Development Fees 135,000
Trade Permit Fees 200,000
Municipal Bylaw Fines

& Parking Enforcement (200,000)

Engineering Fees and Charges (635,000)
Interest on Temporary Investments 430,000

Net Increase to Revenue Appropriations $360,000
Transfer to Contingency Reserve $(360,000)

Expenditure Appropriations

Debt Charges

General and Sewer 1100,000
Water 550,000

Net Expenditure Adjustments $1,650,000

Transfer to Current Surplus on Revenue (1,100,000)
Transfer to Water Rates Stabilization Reserve (550,000)

Net Change to Operating Budget $0

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(c) 1998 City of Vancouver