Agenda Index City of Vancouver

ADMINISTRATIVE REPORT

TO: Standing Committee on City Services and Budgets
FROM: General Manager of Corporate Services/Director of Finance
SUBJECT: 2000 Operating Budget - June Review
 

INFORMATION

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.

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 result from seasonal or weather related factors affecting the revenue program.

PURPOSE

In accordance with Council's standing instructions this report reviews the status of the revenue and expenditure appropriations in the 2000 Operating Budget as at June 30, 2000. This report is for information purposes only; there are no appropriation adjustments associated with this report.

DISCUSSION

This is the first of two reviews of the annual Operating Budget. The purpose of the June 30 budget review is to identify areas of significant variance that have arisen as a result of analysis or new information since the budget was approved in April. The September budget review process involves a more extensive review of operations leading to recommendations for budget adjustments where required. Council will be appraised of the September budget review results in early November.

Under normal circumstances departments are expected to operate within the expenditure appropriations approved by Council in April of 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 that these problems can have on the Operating Budget. The focus of the June review of revenues and expenditures is generally centred around areas of corporate budget concern and areas where departments demonstrate difficulty in meeting budget targets.

1. Potential Impacts on the 2000 Operating Budget

Wage Settlements

The majority of employment contracts for the City remain outstanding creating a significant area of uncertainty for the Operating Budget. The City will need to deal with the budgetary impact of any negotiated settlements that are beyond the capacity of the budget to absorb. Further details of the impact of any wage settlements may be available following September budget review.

Fuel Prices

Commodity prices for the major fuel types used by the City have continued to rise since the latter part of 1999. While prices appear to have plateaued there is still a high degree of uncertainty in the market place around the future of fuel prices. In developing the 2000 Operating Budget, increases in fuel prices were factored into certain budgets based on forecast. However, the extent of the increase was not anticipated.

The City utilizes three main fuel types extensively throughout these operations, namely gasoline, diesel and natural gas. Propane is used to a lesser extent and prices for this commodity have not been impacted to the same degree. Gasoline prices have risen up to fifty percent since January 1, 2000 while the increase in natural gas is approaching thirty percent.

High fuel costs have directly affected the cost of City operations in the areas of vehicle and equipment usage in Engineering, Police, Fire and Park Board, production at the City Asphalt plant, as well as in the cost of heating civic facilities. Fortunately some of the larger civic facilities are covered by pre-existing natural gas contracts, so the impact of the fuel price increase is minimized.

Overall the impact on the City budget is significant. At current fuel prices the deficit in city wide fuel accounts is estimated to be in the range of $1 million to $1.3 million (including Police and Park Board budgets referred to later in this report). Departments are working to absorb as much of this deficit as possible. Any shortfall within departmental budgets that cannot be accommodated will need to be dealt with later in the year, and will be reported to Council as part of the September budget review process.

Provision for Tax Adjustments

The 2000 Budget made a $2 million provision for uncollectible taxes and other adjustments. The provision is intended to cover the City portion of property taxes that are uncollectible as well as the amounts unrecoverable from other taxing authorities as a result of assessment appeals. Based on the size of appeal decisions to date, the provision for uncollectible taxes and adjustments may not be sufficient to deal with these costs. The final outcome will be dependent on the final number and size of assessment appeals that arise during the remainder of the year.

2. Revenue Appropriations

There are no areas of significant variation identified with the June review.

3. Department Expenditure Appropriations

There are two areas of concern arising from the June review of departmental expenditures.

Police Department

The Police Department is facing a series of budget issues, which will collectively have a negative impact on operating results. As of the June review issues totalling $1.2 million have been identified. Included in this balance are final costs associated with the transfer of communications operators to E-Comm, outside legal fees, criminal investigation costs and increased fuel costs. While there is still an opportunity for the Police Department to review operations and adjust as necessary to absorb as much of the shortfall as possible prior to year-end, some of these costs are beyond the capacity of the Police Department to control.

Park Board Global Budget

Review of the Park Board Global Budget projected to year-end indicates a possible shortfall from operations of approximately $600,000. Poor weather through the summer months has contributed to a deficit in many revenue dependent programs including outdoor pools, concessions and golf courses. Current estimates of the deficit in these areas indicate a shortfall in revenue in the range of $270,000.

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 appropriation 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. Budget adjustments are not recommended at this point in the year, as there is still an opportunity for the Park Board revenue position to improve.

Increased natural gas and fuel prices impacts on Park Board operations particularly in the areas of fleet operations and recreation facilities. The Park Board is making adjustments in operations to absorb as much of the shortfall as possible. However the magnitude of the fuel price increases may be beyond the capacity of the Park Board to absorb within the 2000 budget. Based on the mid-year estimates, the forecast shortfall for 2000 from Park Board expenditure areas will be approximately $330,000.

The Director of Finance is not recommending any additional allocations to these departments at this time. Departments are required to take the necessary measures to remain within their approved budgets, and are working to ensure that budgets remain on target. Adjustments to the budget are reported annually to Council following the September budget review process.

CONCLUSION

A review of the 2000 Operating Budget as of June 30, 2000 indicates that while most departments are operating within their budget targets, there are some areas that may cause difficulties by year-end. The Director of Finance notes that the 2000 budget remains very tight at this point in the year and the Corporate Management Team has agreed to take particular care to control expenditures to year-end.

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