Agenda Index City of Vancouver

ADMINISTRATIVE REPORT

TO: Vancouver City Council
FROM: General Manager of Corporate Services / Director of Finance
SUBJECT: 2000 Operating Budget - Interim Report
 

RECOMMENDATION

A. THAT Council approve the Park Board Global Budget of $40,744,900, including the addition of $1,353,400 for added basic costs, this amount excluding any reductions approved by Council to balance the 2000 Operating Budget.

B. THAT Council approve the 2000 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 3.2% general purposes tax increase, reflecting an increase of approximately 3.0% related to growth in City costs and approximately 0.2% related to the growth in regional sewer costs.

C. THAT Council choose among the proposals put forward by the Corporate Management Team and detailed in Appendix 2, to bring the budget into balance with a general purposes tax increase below 3.2%.

D. THAT Council approve adjustments to parking meter rates as outlined in this report and detailed in Appendix 3 (on file in City Clerk's Office) and instruct the Director of Legal Services to bring forward the necessary bylaw amendments.

CITY MANAGER COMMENTS

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 February 15, 2000.
… 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 adopted a practice of passing tax increases related to requisitions from outside agencies, including the Greater Vancouver Sewerage and Drainage District, 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 2000 Operating Budget as revised since Councilconsidered the Preliminary Report on February 15, 2000, and to seek Council direction on bringing the budget into balance. The report also recommends a funding level for the Park Board Global Budget.

BACKGROUND

On February 15, 2000, Council considered a report from the Director of Finance outlining the preliminary estimates for the 2000 Operating Budget. The budget position identified in that report indicated a shortfall, prior to a detailed review, that would have required a property tax increase of 5.25% to eliminate. It was noted in the report that this increase was driven primarily by inflationary growth in the City's core operating programs as well as by the cost of new programs and services approved by Council, including the City's involvement in E-Comm, high priority transportation planning initiatives, the Downtown Eastside Revitalization Program and the cost of new facilities and amenities, built with City capital or developer funding.

Recognizing that the preliminary estimates were the starting point of the budget process for the year, Council referred the budget to the Corporate Management Team and the Budget Office for a detailed review to ensure that the 2000 estimates reflected only the appropriate departmental target levels for providing 1999 service levels at 2000 costs. Staff were also instructed to identify supplemental requests reflecting increases in service levels or new programs or staffing.

During debate on the estimates, Council expressed concern that the tax increase indicated in the preliminary estimates was considerably above the inflationary level that had been Council policy. As a result, Council approved the following recommendation:

On February 24 and March 9, 2000, Council considered the Meekinson report on gaming in the province and approved the execution of Host City Agreements giving the City access to revenues from gaming in the City. Council approved the following recommendation related to the utilization of these funds:

DISCUSSION

Staff have now completed the administrative review of the revenue and expenditure estimates according to the instruction provided by Council on February 15. The process involved review and updating of estimates of revenues, debt charges and regional sewer costs from the preliminary estimates to ensure they reflected the most recent information. The estimates were also adjusted to reflect the recent Council approval of direct charging for BOD/TSS costs. In addition, the Budget Office has worked with departments to ensure that individual departmental budgets include only sufficient funding to maintain programs, services and staffing at approved levels and that additional funding requests could be justified on the basis of Council approvals, health and safety concerns or increased workload.

This work has led to many changes in the budget position considered by Council in February and suggests that there are still difficult decisions to be made if the 2000 tax increase is to be held to the level of local inflation. In order to achieve a 2% tax increase, an additional $11.8 million in adjustments would be required.

It should be noted that throughout the year, in the course of regular program management, departments have sought to review operations with the view to identifying revenue generating opportunities and reducing the cost of providing programs and basic civic services. These measures, while implemented independent of the budget process, are reflected in the interim estimates and have been instrumental in bringing the budget to its current position.

The following table summarizes the current position of the operating estimates:

Additional detail of these estimates is provided in Appendix 1 along with comparative information from the 1999 Final Operating Budget. The following summarizes the major revenue and expenditure drivers in the budget.

1. Revenue Estimates

a) 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 establishes these revenues at $404.9 million.

… The general purposes tax levy has been set at $370.2 million prior to consideration of a tax increase. This includes $4.9 million in tax revenue from new construction, up slightly from the 1999 level, and up marginally from the $4.5 million reported to Council in the preliminary budget estimates.
… The provision for tax adjustments has been adjusted to $6.0 million. The City's reserve for this purpose was depleted in 1998 to settle the cost of assessment appeals related to Pacific Centre for 1993/1994. It is anticipated that appeals for 1995 - 1998 will be concluded in 2000 at a cost in the range of $4.0 million. It is prudent to allocate funding to offset this expenditure, in addition to the normal provision of $2.0 million..
… Receipts in lieu of taxes has been increased to reflect a detailed review of grantable property carried on the 2000 Assessment Roll.

b) General Revenues

Several adjustments have been made to estimates of general revenue based on updated information and additional revenues identified by departments. The more significant issues are as follows:

… Although the Provincial Government has made no announcements, the budget continues to anticipate the receipt of $3.5 million in traffic fine revenue sharing that was announced in 1999. Elimination of this funding would require adjustments to the budget equivalent to a 0.9% tax increase.
… On Street Parking Revenue has been increased by $218,000 to better reflect 1999 earnings and the proposed increases in parking meter rates proposed by the City Engineer. These increases are the subject of Recommendation D and are detailed in Appendix 3.
… Miscellaneous Revenue has been increased to reflect the additional payments expected from Translink and from telecommunications companies utilizing City rights-of-way. This latter issue is before the CRTC and a favourable ruling could increase these revenues in the future.

Overall, non-taxation revenues are anticipated to increase by 0.6% over the 1999 budget level.

c) Transfers from Reserves

The transfer from other funds and reserves include:

… the annual surplus on the City's sinking fund, which assists with debt charges on debenture debt;
… the annual dividend from the Property Endowment Fund; and
… the transfer from the Art Gallery Reserve which assists with the Art Gallery operating grant.

These transfers are held at preliminary estimate levels.

2. Expenditure Estimates

The interim budget expenditure estimates are $536.2 million representing an increase of $17.9 million (3.5%) from 1999. Much of this increase had been anticipated at the preliminary estimates stage. The following summarizes the major expenditure areas in the interim estimates.

a) Departmental Expenditures

Almost 80% of the expenditure budget supports the departmental programs and services. The 2000 interim estimates includes $421.1 million to support public safety, public works, community services and recreation and the grant program. This represents an increase of $16.1 million (4.0%) over the 1999 level. These costs represent both the costs of inflation in base program costs and the addition of funding for new programs and services approved by Council (added basic) or arising from the capital program.

Holding base program expenditure estimates to departmental target levels was the primary objective of budget review. In meeting these targets, departments have often had to make choices among competing demands for resources and, in some cases, reallocation of funding has taken place to accommodate those demands that were of a higher priority. Budget review has not identified any significant changes in base programs that are funded in the budget and no changes in staffing except those approved by Council.

In inflating the base program budget, staff have used conservative estimates of general inflation (1.0%) but were forced to make specific adjustments for several areas where that provision was insufficient.

… fringe benefit costs related to salaries and wages have increased as a result of changes in several statutory programs. The most significant of these is the growth in WCB premiums which is estimated to cost the City an additional $1.6 million in 2000. Overall, changes in fringe benefit costs are estimated to add the equivalent of a 0.8% tax increase to the budget.
… projected increases in fuel costs, non-liability insurance premiums and natural gas costs exceed the 1% provision in the budget and have forced increases above this level in order for departments to be adequately funded.

Added Basic is the cost of new programs and services approved by Council. These costs arise from one-time or ongoing programs or projects in the Operating Budget or from the costs of operating and maintaining new facilities included in the Capital Plan.

The most significant component of added basic is the costs associated with E-Comm, the Emergency Operations and Communications Centre opened in 1999. E-Comm represents a significant improvement in the public safety service levels, including improvements in E-911 service and in the operations of the Fire and Police departments. The 1999 budget included $5.3 million in costs for a partial year of operations. The 2000 estimates include $11.0 million, an increase in funding over 1999 of $5.7 million. Offsetting savings of approximately $3.5 million have been achieved in the Police Department budget and with the move of Fire Dispatch to the new facility in 2000, additional savings will be available to offset these new costs. Appendix 1 indicates E-Comm costs separately from Fire and Police estimates, however, these will be built into those budgets in future. This increase in funding represents a general purpose tax increase of 1.5%.

Part of the service improvements built into the E-Comm facility is a new Emergency Operations Centre for the City. The City has prepaid the lease for this space but will incur annual operating costs for facility and support systems. The interim estimates include new funding of $340,000 for this purpose.

Council has embarked on a major initiative to rehabilitate the downtown eastside. The 2000 estimates include $300,000 intended to provide for City costs associated with administering the Vancouver Agreement and the federal crime prevention funding. This additional cost is in addition to the three year program for increased policing in the downtown eastside that was approved by Council as part of the 1999 Operating Budget.

There are a number of other areas where added basic costs have been provided for in the interim estimates:

… the Fire Department has begun to take possession of the 14 replacement fire trucks added to the fleet in an equipment restructuring approved by Council. The additionalcost of rental rates for the new equipment is $700,000 per year.
… the Corporate Services estimates include funding for two additional positions in Information Technology approved by Council in 1999, in addition to approximately $650,000 to provide for SAP licencing and maintenance costs.
… a number of one-time program expenditures have been funded based on Council approvals, including: two transportation planning studies, the Gastown Heritage Management Program, the Downtown and West End Liquor Licencing Reviews, the and the Building Bylaw Enforcement Review.
… Added Basic costs of the Park Board operations of $1.4 million are included and detailed in the Park Board Global Budget section below. Annualizing these costs in 2001 will add approximately $300,000 to the budget.

Taken together, the added basic costs in the 2000 budget approach $10 million and are equivalent to a tax increase in excess of 2.5%.

b) Debt Charges

Debt Charges provide for the principle and interest costs arising from the City's debenture borrowing program. The 2000 estimates make provision for net additional costs of $1.9 million, reflecting the impact of debenture maturities and the costs associated with two debenture issues undertaken in 1999. The timing of the City's debenture issues in 1999 resulted in unspent funding of $1.1 million at year-end and it is recommended that this funding be brought into the 2000 Operating Budget to partially offset this increase. This transfer was contemplated in the 1999 September Budget Review report considered by Council in November.

c) Regional Sewer Costs

The requisition from the Greater Vancouver Sewerage and Drainage District has been a driver in the operating budget for several years. These costs have increased by 6.0% in 2000 as the region passes along additional operating and debt costs associated with mandated environmental improvements. Part of this increase will be offset by direct charging of BOD/TSS costs to users, however, the net increase is equivalent to a 0.2 % tax increase. Council has flowed these increases through to taxpayers rather than reducing City services.

d) Transfers to Other Funds

The interim estimates include the following transfers from the Operating Budget:

… the transfer to the Capital Program of $12.0 million is consistent with the 2000 - 2002 Capital Plan. A proposal to defer a portion of this transfer is discussed later in this report.
… the City carries coverage for major liability claims but is self insured for claims under $1.0 million. The annual premium of $675,000 is transferred from the Operating Budget to the Liability Insurance Reserve.
… the City provides for the costs of the triennial civic election by reserving one third of the costs on an annual basis.
… In 1996, Council approved an ongoing allocation from the Operating Budget to the Information Technology Long Term Financing Plan which is being used to finance the upgrading and replacement of the City's technology infrastructure and systems. The 2000 transfer is funded at $4.2 million.

3. Indicated Tax Incease

As noted, the budget position reflected above will require a tax increase of 5.2% in order to bring the budget into balance. This is comprised of an increase of approximately 5.0% for City costs and an additional 0.2% for regional sewer costs. For the average residential property (valued at $370,000), this implies a tax increase of about $55. For commercial properties, the increase would be approximately $0.77 per thousand dollars of assessed value, or $380 on a $500,000 property.

PARK BOARD GLOBAL BUDGET

The interim estimates make full provision for the Park Board Global Budget of $40,744,900, including added basic funding of $1,353,400. This represents an increase of 4.1% from the 1999 budget. The provision has been calculated by the City and Board staff according to the agreed upon principles.

The change in the Park Board basic estimates in 2000 reflects a variety of adjustments arising from the global budget arrangement. These require the Board to increase revenues at least at the level of inflation in order to qualify for adjustments on the expenditure side equivalent to those available to other departments. The base budget has increased by 1% over the 1999 level, in keeping with the general inflation guidelines provided to all departments for the preparation of the 2000 operating budget. A further provision for specific expenditure increases such as fuel and insurance that exceed these inflation guidelines, as well as the annualized impact of added basic approved by Council in 1999 have also been included in these estimates.

Added basic is the ongoing operating costs that arise from the Park Board capital programs.Under the global budget arrangement, Council has agreed to add these costs to the Park Board budget. The 2000 allocation includes $1,353,400 of additional funding for maintenance and support of systems infrastructure, buildings and parks infrastructure, as well as the operating costs of the new Coal Harbour community centre and of the expanded Killarney community centre. Details of these two operations along with the proposed additional staffing component will be reported separately to Council.

Should Council approve additional budget reductions to achieve its taxation targets in 2000, adjustments will be required to the Park Board Global Budget for changes impacting on the Board. Two specific adjustments are presented for Council consideration later in this report, including a $200,000 adjustment to fees and charges and from reductions related to efficiencies achieved in the delivery of services and programs; and a $7,000 apportioned share of the proposed reduction in overtime funding.

ACHIEVING A TAX INCREASE BELOW 5.2%

In order to meet Council's instruction to report back on the steps necessary to reduce the tax increase to as low as 2.0%, the Director of Finance and Corporate Management Team have developed a series of proposals for consideration. The first two proposals are recommended as being preferable to reductions in service to the public.

1. Utilize Casino Revenue Sharing Funds

On February 24, 2000, Council agreed to enter into Host City Agreements with the Provincial government providing access to a share of revenue from gambling in the City. In 2000, the City anticipates receiving $6.0 million ($4.0 million ongoing) from this source. The Director of Finance recommends that these funds be brought into the 2000 Operating Budget. However, in determining the use to which these funds should be put, staff have taken the position that, for the most part, these revenues should be utilized to offset limited-term expenditures. This will ensure that Council has the option of utilizing these revenues to assist with the 2000 budget without making long term commitments as to their use. As such, the budget does not become dependent on these revenues and face the possibility of negative impacts if the revenue declines. The following recommended uses of this funding in 2000 are included in the current budget position:

… $2.0 million to assist with the one-time cost of the pending Pacific Centre assessment appeal detailed earlier in this report.
… $2.0 million to offset costs related to the revitalization of the downtown eastside, including the final year of funding for the Downtown Eastside Police Beat Team, the City administration costs related to the downtown eastside initiatives and the cost of the Economic Capacity Study recently approved by Council
… $675,000 for other one-time expenditures, including the Downtown Transportation Plan, the Downtown and West End Liquor Licencing Review and the Building Bylaw Enforcement Review.

These are all one-time, or at least limited-term, commitments leaving Council free to consider the ongoing use of these funds after 2000.

It is also recommended that the balance of the funding anticipated in 2000 be allocated to replace over $2.0 million in provincial funding lost in 1997 and 1999. Specifically, these funds would be seen as support for the operation of Carnegie Centre and Evelyne Saller Centre and the City's ongoing commitment to grant funding for community service groups.

Council concurrence with this proposal would reduce the indicated tax increase to approximately 3.6%, including 3.4% for City costs and 0.2% for regional sewer costs.

2. Defer the Capital Program

The 2000 - 2002 Capital Plan anticipates funding from the Operating Budget of $38.0 million over three year term, including $12.0 million in 2000. Timing of that allocation from the Operating Budget is flexible and it is possible to defer a portion of the 2000 funding until later in the Capital Plan. The Director of Finance recommends that Council defer $1.5 million of Capital from Revenue funding in 2000.

This deferral need not impact on the overall capital program. The Public Works and Park Board programs would be "front-ended" with debenture funding and the balance of the 2000 capital program could proceed as planned. However, in order to complete the entire capital program by 2002, the deferred funding would have to be replaced during the last two years of the plan. This can be achieved in two ways: by increasing the provision for Capital from Revenue in the last two years of the plan, potentially impacting on property taxes; or by utilizing a portion of the casino revenues in 2001 and 2002 to replace the funding. If additional funding were not provided, the program or project funding totalling $1.5 million would have to be eliminated from the Capital Plan.

Council concurrence with this recommendation would reduce the indicated tax increase by an additional 0.4%.

If these two proposals are approved, the indicated tax increase would be reduced to approximately 3.2%, including 3.0% for City costs and 0.2% for regional sewer costs. Recommendation B of this report reflects approval of these proposals.

3. Achieving Further Reductions

Achieving a tax increase below 3.2% will require funding reductions in the budget. The Corporate Management Team has developed a series of proposals that would allow Council to achieve a tax increase as low as 2.0%. In putting these proposals forward, the Corporate Management Team notes that generally, there are few opportunities for new revenues, especially in the short term, and few "invisible" reductions in program expenditures that can be made without impacting on departments and their ability to deliver services, either internally or to the public. In addition, many internal efficiencies that are available have been committed to the Information Systems Long Term Financing Plan and are not available to assist with the 2000 Operating Budget without jeopardizing that plan.

Defining the programs and services to be provided by the City is best done within a broader context than can be realized in the annual operating budget process. It is for that reason that Council has instructed staff to report back on a process for a broad review of City services -the Core Services Review. This process will provide Council with information about what services the City provides, what they cost and what they produce in terms of service outputs. This information should provide the context within which Council can make decisions about what services the City should be providing and the means of doing so. It has not been possible to begin this program during the budget process, however, it is intended to bring a proposal to Council once the budget is completed and begin to undertake this review before the end of the year.

In putting together the budget reduction proposals, the Corporate Management Team has attempted to concentrate on areas where staffing and public service are not directly impacted. However, it is worth noting that the interim estimates already recognize the impact of a number of revenue increases or expenditure reductions brought about through departmental initiatives. These are often undertaken outside the budget process and are not generally reported to Council. These adjustments are nevertheless a significant factor in restraining the growth of budget expenditures and limit the ability of the departments to offer operational savings as part of any budget management program.

As will be clear from the list below, there is limited ability to achieve reductions in the short term sufficient to achieve a 2% tax increase without directly impacting public service. The first set of proposals below are presented in priority order, along with their impact on the property tax levy and comments from the Corporate Management Team.

i) Strategic Initiatives Fund $(300,000)

ii) General Reduction to Overtime Funding $(500,000)

iii) New and Non-Recurring Funding (phase 1) $(300,000)

Council concurrence with these three proposals would reduce the indicated tax increase to approximately 2.9%, including 2.7% for City costs and 0.2% for regional sewer costs.

The second set of proposals begin to impact more significantly on programs and staffing. CMT have not placed priorities on these proposals but submit them for Council consideration in moving toward a 2% tax increase. Details on the impact of service or revenue proposals are documented in Appendix 2.

If Council was to approve all of these reductions, the 2000 Operating Budget could be balanced with a general purposes property tax increase of approximately 2.0% including 1.8% for City costs and 0.2% for regional sewer costs.

IMPACT OF THE PROPOSED SEWER UTILITY

At present, Council is considering a proposal to introduce user fees for a portion of the City's sewer costs. If approved, approximately $12.0 million of sewer costs will be removed from the property tax levy and direct charged to system users on the basis of consumption. Based on the proposal before Council, this change will result in a reduction of residential property taxes by approximately 5.0% and of non residential properties by approximately 2.0%. Similar impacts would occur in 2001 when the proposed user fees are fully implemented.

BRINGING THE OPERATING BUDGET INTO BALANCE

With the decisions made as part of this report, the Operating Budget can be brought into balance. The following reports to Council will complete the budget process

… On April 18, Council will consider the final estimates representing a balanced budget. If the decision has been made on implementation of sewer user fees, this decision will be reflected in the final estimates and Council will be asked to approve a resolution adopting the budget. If the decision on the sewer proposal has not been made, the budget resolution will be put forward in early May.
… On May 4, City Services and Budgets Committee will consider a report from the Director of Finance presenting options of the distribution of the property tax levy and putting forward the general purpose property tax rates for 2000. Following the decisions on this report, the 2000 General Purposes Rating Bylaw will be brought forward for approval.
… On May 4, City Services and Budget Committee will consider the Basic and Supplementary Capital Budgets.

CONCLUSION

The interim estimates of the 2000 Operating Budget indicate that a property tax increase of5.2% 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 increase is essentially the same as the 5.25% increase indicated in the preliminary estimates.

The Director of Finance and City Manager are recommending two adjustments to the interim estimates to assist with the meeting budget targets. It is proposed that the revenue from gaming be brought into the budget and allocated primarily to limited-time expenditures. The second proposal is that a portion of the capital program be deferred to 2001 and 2002. This proposal represents a "re-timing" and can be implemented without impacting on the overall Capital Plan. These proposal will reduce the indicated tax increase to 3.2%.

The report also presents a series of revenue and expenditure proposals that will allow Council to move the indicated tax increase below the 3.2% level. In developing the proposals, staff attempted to identify budget reductions that did not impact on staffing or public service, although it is clear that achieving a tax increase as low as 2% will require consideration of service level proposals.

The final stage in completing the 2000 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 18, 2000.

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