Vancouver City Council

CITY OF VANCOUVER

ADMINISTRATIVE REPORT

	Date:	October 31, 2003
	Author:	Annette Klein
	Phone No.:	873-7789
	RTS No.:	3608
	CC File No.:	1605
	Meeting Date:	November 18, 2003

TO:	City Council
FROM:	General Manager of Corporate Services/Director of Finance in Consultation with the Corporate Management Team
SUBJECT:	2004 Operating Budget: Preliminary Estimates

RECOMMENDATION

A. THAT Council receive for information the preliminary estimates for the 2004 operating budget as outlined in this report and summarized in Appendix 1.

B. THAT the Director of Finance, in consultation with the Corporate Management Team, report the interim estimates to Council by February 2004 along with options to achieve a property tax increase below 5.3% and no lower than inflationary levels.

C. THAT Council receive a list of Departmental initiatives for information as outlined in Appendix 2 and defer any decisions on these initiatives until the Interim Budget Report.

D. THAT Council instruct the Director of Finance to proceed with a public consultation process by choosing one or more of the following options, source of funding to be the 2004 Operating Budget without offset:

i) a public opinion poll on the 2004 Operating Budget issues at an estimated cost of $20,000;
ii) a "City Choice" flyer outlining the budget issues faced by Council at a cost of approximately $35,000;
iii) a "Mayor's Forum" approach to seeking public input on the 2004 Operating Budget issues, at a cost of approximately $12,500 per forum and that Council instruct Staff on the number of forums;
iv) a public meeting on the 2004 Operating Budget to be held prior to the Interim Report on the 2004 Budget.

COMMENTS OF THE CITY MANAGER

The Preliminary Report on the 2004 Operating Budget is the first opportunity that Council has had to review the budget position and to begin the process of bringing the estimates into balance. As noted in this report, the 2004 estimates show a funding shortfall of $21.9 million, equivalent to a property tax increase of 5.3%. This increase is based on providing adequate funding to maintain base program levels, to accommodate new/expanded programs approved by Council in 2003, to pass through increases other agencies impose on our budget that do not have direct Council control, and certain known 2004 Council priority initiatives.

Staff are not requesting Council to make specific funding decisions at this stage of the budget process. However, in order to move the process forward, staff look to Council to provide direction, in Recommendation B, to the Corporate Management Team to report back on options for adjusting the revenue and expenditure estimates that will reduce the tax increase to below 5.3% and no lower than the level of inflation. Some of these adjustments will arise from the detailed budget review currently being undertaken by staff, however, achieving a tax increase at inflation will entail options that involve changes in service levels.

It should be noted that a 5.3% tax increase will not provide sufficient funding to deal with several new initiatives that will be brought forward over the coming year. Council will have the opportunity to discuss these initiatives during departmental budget presentations to be held in December. Recommendation from the City Manager and CMT on these initiatives will be brought forward in the Interim Budget Report.

If there are major new initiatives that Council wishes to be included in the 2004 Operating Budget, it would be appropriate to identify them between now and the Interim Budget to ensure that adequate funding is available.

Moving forward from this report, staff will work to achieve Council's priorities and to meet Council's taxation targets. Council will be meeting with each of the service groups to discuss issues, challenges, opportunities within their budgets as well as the initiatives presented in this report.

Options for a public information and input process are listed in this report should Council wish to seek public input on the challenges we face in balancing the budget. The results of the chosen public participation process will be reported in the Interim Report to Council, at which time Council will be asked to make the decisions necessary to bring the budget into balance.

PURPOSE

The purpose of this report is to:

bring forward the preliminary revenue and expenditure estimates of the 2004 Operating Budget;

to seek Council direction on a public participation process; and
provide a list of initiatives, developed by the Service Groups and prioritized by the Corporate Management Team, that impact the 2004 and subsequent budgets.

BACKGROUND

The Preliminary estimates for the 2004 Operating Budget indicate a potential tax rate increase in excess of local inflation. Major factors contributing to this increase are:

Salary and inflationary increases
Costs associated with new and expanded services approved in 2003
Cost of outside agencies
Costs associated with the Capital Program
Cost of known priority initiatives

Staff began preparing the 2004 Operating Budget estimates during the summer of 2003 based on approved levels of service. The next steps will be to have Finance staff complete the administrative review of the revenue and expenditure estimates. This review includes discussions with service groups to ensure that departmental budgets meet target expenditure levels that provide 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.

DISCUSSION

The Budget Challenge

Balancing the 2004 Operating Budget with a tax increase in the range of local inflation, as has been Council's past practice, without impacting City programs and services presents a challenge.

The City relies on a small number of non-taxation revenue sources and, where possible, revenues are increased annually to reflect service costs. However, many of these revenues do not relate to the activities they support, and as such, cannot grow at the same rate as their associated expenditure budgets. Further, many of these revenues are subject to significant external influences such as decisions driven by outside organizations, the economy or the weather.

The impact of this mismatch between expenditure and non-taxation revenue growth and the fact that property tax revenues provide almost two-thirds of the funding in the operating budget means that, when expenditures rise, the pressure is on property tax increases to maintain service levels.

Changes in the City's budget do not track with changes in the Consumer Price Index, which is based on a basket of consumer goods and services. City costs, rather than being driven by consumer goods, are mainly driven by employment costs, external agency costs, and annualized costs of new programs approved during the 2003 budget year. However, as CPI is understood by the public, it is often used as a benchmark for increases in property taxes.

The challenge in balancing the Operating Budget is that, as costs increase, it is 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. Moving below this level will require adjustments in the estimates, either on the revenue or expenditure side of the budget or a combination thereof.

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

Revenues			$000
	Taxation Revenue	$459,268
	General Revenue	127,330
	Utility Fees	116,009
	Transfers	8,460	$711,067
Expenditures
	Departmental Expenditures	$514,451
	Utility Expenditures	148,894
	Capital Program	64,358
	Transfers	5,290	$732,993
Net Budget Position			($21,926)
Indicated Property Tax Increase			5.3%

Additional detail of these estimates is provided in Appendix 1, along with comparative information from the 2003 Operating Budget.

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

1. The Expenditure Estimates
As noted above, the expenditure side of the budget comprises four components: Departmental Expenditures, Utility Expenditures; the Capital Program and Transfers to other Funds/Reserves. The preliminary estimates include expenditures of approximately $733.0 million in 2004, up 4.2% from the 2003 final budget. If approved at this level, expenditures of $617.0 million would be supported by property taxes, general revenues, and transfers and $116.0 million would be supported by utility user fees.

Departmental Expenditures
Departmental expenditures are those related to the programs and services provided by the City. The increases in program costs totals $29.8 million and are driven by the following factors.

i) Salary and Benefit Costs

Collective agreements for most employee groups expired at the end of 2002. The wage provision is a significant driver, as employment costs make up over 60% of the City operating expenditures.

ii) Inflation in Non-Salary Costs

Besides the costs associated with salaries and benefits, a variety of material, equipment and other input costs associated with the programs offered by the City also face inflationary pressures. The budget provided a general allowance of 2.0% in departmental budgets to account for these increases. This general inflation adjustment adds approximately $1.3 million to the budget, equivalent to a 0.3% tax increase.

Some specific non-salary items worth noting that have increased beyond the rate of inflation are:

Energy costs for natural gas and hydro has increased by $0.80 million due to market conditions in these sector. The City attempts to minimize the impact of variability in natural gas prices by purchasing up to 50% of its consumption on longer term contracts.
Equipment costs have increased by $1.3 million, equivalent to a 0.3% tax increase. The increase is related to increases in fuel, insurance, and equipment rental rates which combines capital and maintenance costs.

Insurance budgets have increased by $0.39 million or 17% due to insurance market conditions.

iii) New Programs and Services
There are a number of new or increased expenditures related to programs and services approved by Council:

Park Board "Added Basic"
The upgrading of Park Board facilities and services funded in the Capital Budget brings new operating costs to the budget each year. Funding of $0.71 million has been added to the Park Board budget in 2004 to pay for the cost of maintaining new street trees, operating expanded recreation facilities and maintaining a number of enhancements in City parks.

Anti Graffiti-Program
In July 2003 Council approved the extension of the Graffiti Management Program introduced in 2002 to reduce the level of graffiti in the City. The extension resulted in additional funding of $0.60 million, $0.52 million to Engineering and $0.08 to the Park Board, bringing the total cost of the program to $1.1 million annually.

Youth Initiatives
In June and July 2003, Council endorsed a new model and implementation plan for a Civic Youth Strategy and re-established the Child and Youth Advocate position within the City. These two youth initiatives have added $0.33 million to the 2004 Operating Budget. Along with these initiatives, the 2004 opening budget includes a further $0.20 million for the Park Board and the Office of Cultural Affairs Youth Legacy Action Plan to be presented to Council at a later date

Housing Initiatives
In September 2003, Council approved the resources for implementing Regulations of Single Room Accommodations and a Downtown Eastside Low-Income Housing Plan adding $0.25 million to the Operating Budget.

Downtown Transportation Plan
In June 2003, Council approved a three year implementation strategy for the Downtown Transportation Plan (DTP) adopted by Council in 2002 at $0.38 million per year for 2004 and 2005. The DTP is intended to improve downtown accessibility and livability by creating a balanced transportation system that includes adjusting the road network, enhancing public transit, promoting a walkable downtown, creating a network of bikelanes, maintaining efficient goods movement, managing parking supply and implementing intelligent transportation systems.

Other Council Approvals
There were a number of administrative approvals by Council throughout the 2003 budget year that have added a further $0.44 million to the 2004 Operating Budget.

Known Council Initiatives
Council has supported three major initiatives and they have been included in the opening budget position. These include support costs for the 2010 Olympics as well as the Olympic Youth Legacy ($0.60 million), joint engineering and planning support for the Richmond/Airport - Vancouver Rapid Transit (RAV) ($0.60 million), and the second phase of funding for the Electoral Reform process ($0.20 million). These initiatives will be reported to Council for specific Council approval.

iv) Charges from Outside Agencies

The City's Operating Budget must also fund costs imposed by outside organizations over which Council has little or no direct control. The following organizations have increased or are anticipated to increase their requisitions to the City in 2004:

GVS&DD levies the City for its share of regional sewerage costs. In 2004, these costs are estimated to increase by 2%. These costs are recovered 48% from user fees and 52% from property taxes. The impact on the tax supported operating budget of this increase is $0.4 million over 2003.

The requisition from E-Comm for radio and dispatch services is estimated to increase by $1.2 million (8.5%) over 2003. The services originally intended to be provided by E-Comm are now all in place and, although these costs have increased over 2003, they are in line with the original projections developed in 1997 in current dollars.

It has been Council practice to pass 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 total $1.6 million and represent a property tax increase of about 0.4%

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 48% from user fees and 52% from property taxes. The budgets and rates for these utilities will be presented to Council in early December 2003, for their approval.

Water utility costs are driven by increases in the cost of water purchased from the Regional District and debt charges. The Regional cost of water is estimated to increase 13.5% in anticipation of future capital expenditures related to water filtration projects at Seymour and Capilano Reservoirs has resulted in an overall increase $4.6 million or 18.7%. Due to anticipated issuance of debt in 2003, the City's utility debt is estimated to increase by $1.3 million or 5.1%. Even with these increases, Water Utility rates are currently estimated to increase only 5.5% by providing a $0.67 million contribution from the Waterworks stabilization reserve.

The Solid Waste utility is not anticipating significant changes as recycling revenues largely offset inflationary increases to collection, recycling, and disposal expenditures.

Sewer utility costs are also driven by increases in the Regional District costs for sewage treatment and debt charges which are currently estimated to increase by $0.80 million and $0.30 million respectively. The anticipated rate increase for the sewer levy is 2.5%.
As noted, water and solid waste operations have no impact on taxes while the increases to the sewer costs is partially impacting the general tax levy.

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 funding. The costs of this financing plan are carried in the Operating Budget through payments of principal and interest on debt and funded by the property tax levy.

In 2004, these costs will increase for three reasons:

i) On October 23, 2003, Council authorized the Director of Finance to issue a $100 million debenture in 2003. The total cost of this debenture offset by maturities in 2004 will increase debt costs by $1.2 million in 2004.

ii) The 2003-2005 Capital Plan includes an increase over the last plan in both borrowing and capital from revenue, translating to an increase of $2.7 million in 2004.

iii) To balance the 2003 Operating Budget, Council approved a deferral of $2 million of Capital from Revenue. To facilitate the completion of the Capital Plan, $ 1 million of the deferred funding has been included in the 2004 Operating Budget.

Transfers to Reserves/Funds
There are a number of transfers included on the expenditure side of the operating budget:

i) $4.14 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.
ii) $400,000 for the 2005 election, and
iii) $752,000 for the Liability Insurance Reserve.

2. The Revenue Estimates

The revenue side of the Operating Budget comprises four components: Taxation Revenue, General Revenues, Transfers from Reserves/Funds, and Utility Revenues (as they relate to the utility expenditures detailed above). The preliminary estimates include revenues of $711.1 million in 2004, up 1.1% from 2003. This revenue position is prior to consideration of a property tax increase.

Taxation Revenue
Taxation revenues are those derived from property taxation sources including the general purpose tax levy, receipts-in-lieu of taxes (revenues from properties not subject to property taxation) as well as penalty and interest charges for outstanding and arrears taxes. The preliminary estimates establish these revenues at $459.3 million, up 0.2% from 2003.

i) The general purposes tax levy has been set at $416.5 million prior to consideration of a tax increase. This includes $2.5 million in tax revenue from "non-market movement" on the property assessment roll as well as a $0.8 million loss of base taxes due to property tax exemption of Vancouver Port berth corridors by the Provincial government.
ii) The provision for tax adjustments has been set at $2.0 million, reflecting the number of assessment appeals now before the Assessment Review Panel and the City's exposure to subsequent adjustments to the property tax levy.
iii) Receipts-in-lieu of taxes totals $34.8 million (a decrease of $0.8 million), reflecting anticipated loss of revenue from rents in lieu of taxes.

General Revenues
A variety of general revenue sources support the expenditure budget. Overall, general revenues are anticipated to increase to $127.3 million or 1.7% over the 2003 budget level of $125.2 million. These revenues are summarized below:

i) Provincial Revenue Sharing is comprised of two components:

· Provincial traffic fine revenue has been budgeted at 2003 levels ($2.4 million) as there has been no indication that the Province will be changing the program, the distribution formula or the total revenue available for distribution in 2004.

· Revenue sharing from casino operations in the City has also been budgeted at 2003 expected actual earnings ($3.9 million) a $0.2 million increase over budgeted levels. While these funds have been included in the preliminary budget position, it is recognized that ongoing dependence could create difficulties in future years if this funding level is not maintained.

ii) Investment Income is dependent on the cash balances the City has to invest and on market interest rates. An overall increase in the cash pool is anticipated, however, given low short term rates, the estimates remain at 2003 levels or $11.6 million.

iii) On-Street Parking Revenue has been increased by $0.4 million to reflect program changes implemented in 2003.

iv) Service and Inspection Fees have been increased by $0.2 million reflecting increasing activity in this sector of the economy and the increased fees approved by Council.

v) Park Board and Civic Theatres revenues have been set based on inflationary guidelines and anticipated event bookings respectively.

vi) Miscellaneous Revenue has been decreased by $0.1 million mainly as a reflection of the elimination of revenues related to Port Policing.

Transfers from Reserves
The transfer from other funds and reserves includes:

i) $1.3 million, reflecting the annual surplus on the City's sinking fund. This transfer is 34% lower than in 2003 due to earnings during the year.

ii) the annual dividend from the Property Endowment Fund is held at $7.0 million.

iii) $160,000 transfer from the Art Gallery Reserve to partially offset the Art Gallery operating grant

iv) $250,000 from the Hasting Park Reserve for the City's obligation to the PNE for maintenance of Hastings Park has been eliminated due to the transfer of ownership of the site to the City. The PNE, including the annual Fair, is to operate on a break even basis and any deficits incurred would need to be covered by the Operating Budget. However, it should be noted that without the Fair, the City would incur $1.5 million in site maintenance costs.

3. Indicated Property Tax Increase
As noted, the budget shortfall reflected above is $21.9 million and would require a 5.3% tax increase to eliminate. This is comprised of increases of approximately:

2.6% City costs - Employment and inflation
1.4% Capital costs
0.8% New programs and services
0.5% Charges from outside agencies - GVS&DD, E-Com, Provincial Tax Exemption

4. Inflation Benchmark

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. The following summarizes recent measures of the consumer price index in Vancouver:

2003 Average (January to September) 2.2%
September 2003/September 2002 1.8%

Council has adopted a practice of passing tax increases related to requisitions from outside agencies, including the Greater Vancouver Sewerage and Drainage District, E-Comm, and the Province through to taxpayers rather than forcing offsetting reductions in City programs and services to meet Council's taxation objectives. As outlined in this report, the impact of these outside agencies on the 2004 Operating Budget is equivalent to a tax increase of approximately 0.5%.

Should Council wish to continue with the practice of setting tax rate increases based on past practice, the total property tax increase would translate to approximately 2.5%. To provide for this level of tax increase, Corporate Management Team would need to identify adjustments to the revenue or expenditure estimates of approximately $11.6 million prior to consideration of any of the new initiatives going forward as part of the 2004 Operating Budget.
5. Park Board Global Budget
The preliminary estimates make full provision for the Park Board Global Budget of $49,166,000, including added basic funding of $709,232. 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 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 2% 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 2004 request includes $709,232 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.

6. New Initiatives for 2004

The budget position described earlier in the report does not include provision for any new initiatives that may come forward during the year, other than the three presented earlier in the report. However, as part of the budget planning process, departments were asked to identify new initiatives that may require funding in 2004. Appendix 2 includes the list of initiatives which total $2.9 million and Vancouver Police Department initiatives which total $1.6 million (please note, further funding would be required for a joint VPD/Engineering fleet request, however, funding requirements have yet to be finalized). Council will have the opportunity to discuss these initiatives with individual departments during departmental presentation workshops in December 2003.

The initiatives have been placed into three categories. Categories A and B initiatives to be considered by Council when balancing the budget at the interim stage. Though not yet built into the estimates, these initiatives will be included in the interim estimates.

Items in category C will be reported to Council after the budget process is complete with funding associated with any approvals being allocated from Contingency Reserve.

Initiative Type A:
Recommended for Inclusion in the Interim Estimates

There is one initiative listed in Appendix 2 recommended to be fund as part of the 2004 Operating Budget. The request is for two Communications positions within City Clerk's that are required to meet base service levels and assist staff to achieve the City's operational objectives. The total funding request for 2004 is $123,000 which is not included in the current estimates and would add a further 0.03% tax increase to the anticipated 5.3% tax increase.

Initiative Type B:
Recommended for Inclusion in the Interim Estimates with a Report Back to Council

There are three initiatives that Council has placed priority on and therefore funding for the programs are recommended to be added to the Operating Budget. However, given the scope, specific reports for Council approval will have to be completed. The total funding request for 2004 is $894,100 which is not included in the current estimates and would add a further 0.22% tax increase to the anticipated 5.3% tax increase. The initiatives identified are:

False Creek Flats Planning Study $380,000 (one time funding)
Creation of a Disability Management Division $419,900 (annually)
Pesticide Program $94,200 (one time and $15,000
annually)

Initiative Type C:
Provided for Council's Information with Reports Back During 2004

There are $1.84 million of initiatives that will be reported to Council after the budget process is complete. These initiatives range from programs that Council has specifically requested a report back on or have been identified by staff as being a priority for the department. Funding required in 2004 for initiatives that are adopted by Council would be provided from Contingency Reserve with permanent additions having to be fully funded in 2005.

It should be noted that the Vancouver Police Department and Engineering are preparing recommendations on VPD's fleet size, funding, and management requirements. The total funding needs have not yet been determined but would be reported to Council like the other initiatives in this category.

7. Vancouver Police Department Initiatives

The Vancouver Police Department has two initiatives that, due to their magnitude, need to be addressed separately from the budget process. The Vancouver Police Board will meet with Council on November 12, 2003, to provide City Council with information respecting the key challenges of policing in Vancouver and to identify emerging trends and issues that impact organizational resource requirements.

i) Long Term Staffing Needs/Strategic Plan:

The VPD and its Board is preparing a strategic plan that will ultimately result in identification of sworn and civilian staffing needs over the next five years that will also include facilities, and equipment requirements associated with an increase in staffing. The intention is to have VPD, in consultation with City staff, report to Council on the implications of the department's strategic plan in 2004, separate from the budget process. The plan will be sent for public consultation to determine the public's input into policing in the City. Funding is not being sought in 2004 since the VPD cannot recruit sufficient officers to increase their overall strength given the number of retirements in 2003.

ii) Surveillance Team for Sexual High Risk Offenders

The VPD has determined that a Surveillance Team for high risk sexual offenders that would coordinate with other Provincial law enforcement agencies is necessary. The request of 14 officers and $1.65 million needs to be reported to Council separate from the budget process. Should the VPD desire to implement the team in 2004, VPD will submit a report to Council prior to the Interim Budget Report. If approved, funding will need to be added to the Operating Budget given that the magnitude of the request could not be absorbed by the existing budget. VPD is currently reviewing its funding needs in 2004 to see if only partial year funding is required and whether the overall staffing request can be reduced.

8. Public Participation

It is anticipated that the Interim Report on the budget will be reported to Council by February 2004. The interim stage is the point at which it is expected that Council will make the decisions necessary to bring the budget into balance. Between the Preliminary Report and the Interim Report time frame the City could consult the public on the budget issues and provide them an opportunity to make their views known. The following are options that are available and staff seek Council decisions on which option(s) should be pursued.

i) Survey of Public Opinion

The City has used surveys of public opinion in 1997, 1999, 2001, 2002, and 2003. This option involves the use of a professional polling firm to undertake telephone surveys with approximately 600 City residents. The sample would take into consideration a number of demographic characteristics to ensure the results represented the view of a statistically significant sample of the population. The survey would cost approximately $20,000 and take about 14 days to complete. If Council agrees that this is an appropriate tool, the polling would be done immediately after the Preliminary Budget report on November 18, 2003.
The format of the recent and responses to the surveys has generally been consistent, using a set of questions that were developed in 1997. Consistency has allowed us to develop trend information on a number of issues such as:

· the most important issues facing the City;
· perceptions of City services and property taxation;
· reactions to the budget options facing the City;
· acceptance of property tax increases; and
· priorities for City services

Surveying has the advantage of providing statistically reliable input to the issues that are of interest to Council in making budget decisions, and at a relatively low cost. However, surveying does not engage the public in a dialogue of those issues. The total estimated cost of a survey is $20,000.

ii) Newspaper Flyer

The City has also made use of newspaper flyers distributed in the community newspapers and at City facilities. "City Choices" flyers were published in 1997, 2002, and 2003. In addition, we have traditionally used this vehicle to provide the public information about the City's Capital Planning process, including a flyer that was produced for the 2003-2005 Capital Plan. The cost of developing and publishing approximately 145,000 copies of the flyer is estimated at $35,000 plus staff time. Should Council choose this option, the flyer would be published in a community and a Chinese language paper, distributed through Community Centres and Branch Libraries, and posted on the City's website. Given the timing of this preliminary report, this target date may not be achievable and the flyer will most likely be published in the first week of January to avoid publication during the holiday season.

The flyer normally contains background information on the budget process, where the City spends its money and where it comes from and the issues that are facing Council in bringing the budget into balance. In the last few years, and certainly in the two years in which the flyer was produced, these issues tended to be choices between raising taxes to maintain City services at one extreme and cutting City services to keep tax increases down at the other. Given the timing of producing and publishing the flyer, a very similar format would have to be used in 2004.

An integral part of the flyer was the opportunities it offered for providing feedback on the issue identified. Flyers have contained a number of questions similar to those utilized in the public opinion poll. The questionnaire will also be made available on-line on the City's website.

The flyer is an educational vehicle for the public. It is especially valuable in years when there is a considerable budget challenge because it gives Council the opportunity to explain the issues to the public.

The survey is self-selecting, meaning that the results do not necessarily reflect the perceptions of the community as a whole. Response rates have been low - below 700 responses - while considerable time has been provided for response. In short, the flyer is an excellent vehicle when Council wishes to engage the public in a dialogue related to a significant budget issue but has less value in seeking input on more routine matters.

iii) Mayor's Forum

A "Mayor's Forum" was utilized in 2003, using an approach similar to the one for the Olympic question. Two meetings were convened by the Mayor at which a short presentation on the budget issue is presented and the public is invited to respond. The estimated cost of holding a Mayor's Forum is $12,500 per forum which includes the cost of advertising and rental of a hall.

iv) Public Meeting

The City has not used specific public meetings to deal with the budget for many years. This followed from experience in the early 1980s where public meetings were poorly attended. Instead, Council invited the public to make its views known at regular Committee meetings at which the budget was being discussed.
Council could hold a special public meeting to hear input from individuals and groups on the decisions that have to be set. If that is Council's wish, then a meeting date proceeding the Interim Budget report would have to be found. There is little cost to holding a public meeting in the Council Chambers.

Council Direction

The recommendations provided in this report mainly request that Council receive the 2004 preliminary estimates and a list of initiatives.

Direction is being sought on the type of public participation Council wishes for the 2004 budget process to obtain input from the public on the trade-offs between property tax increases and service adjustments.

Based on Council's instruction, the Corporate Management would prepare options for any budget adjustments in time for the Interim Budget Report, for Council to balance the 2004 Operating Budget that would reflect Council's past policies at keeping property tax increases to the rate of inflation.

Next Steps

The next steps to the budget process are the following:

· Administrative Review of Departmental Budgets - November to December 2003
· Joint Council/Union Workshop - November 2003
· Departmental Presentations to Council - Early December 2003
· Utility Rate Reports - Sewer, Water, & Solid Waste - Early December 2003
· Public Consultation Process - November 2003 to January 2004
· CMT develops options to balance the Operating Budget - November 2003 to January 2004
· Interim Budget Report - By February 2004
· Final Budget Report and Resolution - February 2004
· Council Reports on Land Averaging and Tax Shifts - February - March 2003
· Tax Rating Report and Approval of Rating Bylaws - April 2003

CONCLUSION
The preliminary estimates of the 2004 Operating Budget indicate that a property tax increase of 5.3% would be necessary to provide for:

Salary and inflationary increases
Costs associated with new and expanded services approved in 2003
Cost of outside agencies
Costs associated with the Capital Program
Cost of known priority initiatives

In addition, there are number of initiatives being brought forward for consideration for the coming budget year. Should Council wish, a public consultation process will determine what trade-offs the public is willing to make with regards to tax increases, new services, and service adjustments.

- - - -

City of Vancouver				Appendix 1
2004 Operating Budget Projections
		2003	2004	$	%
		budget	projection	change	change
		($000s)	($000s)
SECTION 1: Summary of Revenues
Taxation Revenues
	Base Levy	409,197	414,000	4,803	1.2%
	New Construction	5,588	2,500	(3,088)	(55.3%)
Net Taxation Revenues		414,785	416,500	1,715	0.4%
	Tax Adjustments	(2,020)	(2,020)	0	0.0%
	Local Improvement Taxes	4,251	4,118	(133)	(3.1%)
	Receipts in Lieu of Taxes	35,582	34,821	(761)	(2.1%)
	Penalties and Interest	5,850	5,850	0	0.0%
Total Revenue from Taxation		458,447	459,268	821	0.2%
Other Revenues
	Provincial Revenue Sharing Programs	6,138	6,337	199	3.2%
	Investment Income	11,600	11,600	0	0.0%
	License Fees	12,892	13,012	120	0.9%
	Property Rental Income	1,276	1,349	74	5.8%
	Service and Inspection Fees	21,602	21,805	203	0.9%
	Municipal By-Law Fines	9,454	9,604	150	1.6%
	On Street Parking Revenue	19,490	19,890	400	2.1%
	Civic Theatres Revenue	5,652	5,994	343	6.1%
	Park Board Revenues	31,167	32,428	1,261	4.0%
	Miscellaneous Revenues	5,445	5,310	(135)	(2.5%)
Total Other Revenues		124,715	127,330	2,615	2.1%
Utility Fees
	Waterworks	57,104	62,140	5,036	8.8%
	Solid Waste	22,405	22,284	(121)	(0.5%)
	Sewers	30,560	31,584	1,024	3.4%
Total Utility Fees		110,069	116,008	5,939	5.4%
Total Revenues before Transfers		693,231	702,607	9,375	1.4%
Transfer from Other Funds/Reserves
	Sinking Fund Prior Year Surplus	1,956	1,300	(656)	(33.5%)
	Property Endowment Fund	7,000	7,000	0	0.0%
	Art Gallery Reserve	160	160	0	0.0%
	Revenue Surplus	0	0	0	0.0%
	Other	250	0	(250)	(100.0%)
Total Transfer from Other Funds		9,366	8,460	(906)	(9.7%)
Total Revenues before Tax Increase		702,597	711,067	8,470	1.2%

		2003	2004	$	%
		budget	projection	change	change
		($000s)	($000s)
SECTION 2: Summary of Expenditures
General Government
	Mayor and Councillors	1,590	1,616	26	1.6%
	City Manager / EEO	1,008	1,015	7	0.7%
	City Clerk	2,462	2,518	56	2.3%
	Legal Services	3,459	3,447	(12)	(0.3%)
	Corporate Services	27,406	27,860	454	1.7%
	Human Resources	5,857	5,932	75	1.3%
	Other General Government	7,631	6,076	(1,555)	(20.4%)
	Community Services Administration	5,422	6,251	829	15.3%
	City-Wide and Community Planning	5,300	5,478	178	3.4%
Total General Government		60,134	60,190	57	0.1%
Protection to Persons and Property
	Police Services	133,230	136,827	3,596	2.7%
	Fire and Rescue Services	67,732	67,893	161	0.2%
	E-COMM Services	14,094	15,298	1,204	8.5%
	Permits and Licences	18,918	18,682	(236)	(1.2%)
	Animal Control	997	997	(0)	(0.0%)
	Vancouver Emergency Program	658	696	38	5.8%
Total Protection to Persons and Property		235,630	240,393	4,763	2.0%
Public Works
	Administration and General	7,422	7,668	246	3.3%
	On Street Parking Program	7,230	7,875	645	8.9%
	Traffic Planning and Control	7,077	7,194	117	1.6%
	Street Lighting and Communications	4,527	4,746	220	4.9%
	Street Cleaning	6,520	6,915	395	6.1%
	Streets, Bridges and Walkways	14,957	16,163	1,206	8.1%
Total Public Works		47,732	50,561	2,828	5.9%
Utilities - Waterworks
	Operating Costs	7,419	7,928	508	6.9%
	Water Purchase	24,425	28,985	4,560	18.7%
	City Debt Charges	24,644	25,897	1,253	5.1%
	Transfer to/(from) Reserve	615	(670)	(1,285)	(209.0%)
Total Utilities - Waterworks		57,104	62,140	5,036	8.8%
Utilities - Solid Waste
	Operating Costs	21,513	21,314	(199)	(0.9%)
	Transfer to/(from) Reserve	892	970	78	8.7%
Total Utilities - Solid Waste		22,405	22,284	(121)	(0.5%)

		2003	2004	$	%
		budget	projection	change	change
		($000s)	($000s)
Utilities - Sewer
	City Operating Costs	5,311	4,962	(349)	(6.6%)
	City Debt Charges	20,604	22,594	1,990	9.7%
	Regional Sewerage Levy	36,090	36,846	756	2.1%
	Transfer to/(from) Reserve	23	68	45	196.7%
Total Utilities - Sewer		62,028	64,470	2,442	3.9%
Recreation and Community Services
	Parks and Recreation	78,685	81,594	2,909	3.7%
	Britannia Service Centre	2,430	2,431	1	0.0%
	Social Planning	1,417	1,583	166	11.7%
	Housing Programs	1,289	1,307	18	1.4%
	Office of Cultural Affairs	612	772	160	26.1%
	Carnegie Centre	2,767	2,405	(362)	(13.1%)
	Dowtown South Gathering Place	1,750	1,779	29	1.7%
	Vancouver Public Library	30,661	30,914	252	0.8%
	Civic Theatres	5,913	6,325	412	7.0%
	Archives	882	889	7	0.8%
	Cemetery	729	722	(7)	(1.0%)
Total Recreation and Community Services		127,134	130,719	3,585	2.8%
Civic Grant Program		10,855	11,004	149	1.4%
Contingency Reserve		14,696	21,584	6,888	46.9%
Total before Capital Program and Transfers		637,717	663,345	25,628	4.0%
Capital Program
	General Debt Charges	42,739	43,940	1,201	2.8%
	Capital From Revenue	12,600	16,300	3,700	29.4%
	Local Improvements	4,251	4,118	(133)	(3.1%)
Total Capital Program		59,590	64,358	4,768	8.0%
Transfers to Reserves/Funds
	Other Transfers	5,290	5,290	0	0.0%
Total Transfers to Reserves/Funds		5,290	5,290	0	0.0%
Total Expenditures		702,597	732,993	30,396	4.3%
Tax Increase Used to Balance Budget			5.3%

Appendix 2 - Department Initiatives

			Funding Required
Department	Description	FTE	2004 $Amount	2005 $Amount	2006 $Amount	Description
Type A: Recommended to Include in the Opening Budget Position
Clerks	Communications Resources	2.00	123,000	123,000	123,000	To address the demand for communications services from the organization, additional resources are recommended for the Communications Department.
Total Type A Initiatives		2.00	$123,00	$123,000	$123,000
Type B: Recommended to Include in Opening Budget Position and Report Separately to Council
Community Services Group & Engineering (Joint Project)	False Creek Flats Planning Study	3.0	380,000	0	0	The False Creek Flats Plan will provide land use and transportation directions to address the impacts of competing demands from high-tech jobs, medical services, universities, port support, downtown support services and transportation.
Human Resources	Creation of a Disability Management Division	4.0	419,900	366,800	366,800	Creation of Disability Management Division to manage and reduce sick leave usage at the City.
Parks	Pesticide Program		94,200	15,000	15,000	Educational program to reduce residential pesticide use.
Total Type B Initiatives		7.0	$894,100	$381,800	$381,800

			Funding Required
Department	Description	FTE	2004 $Amount	2005 $Amount	2006 $Amount	Description

Type C: For Information - Reported Later for Council Approval-Funded from Contingency Reserve
Corporate Initiative	Corporate Climate Change Action Plan	2.0	220,000	170,000	170,000	Proposal to develop an action plan to reduce green house gases. The proposal includes some potential recoveries to offset costs.
Corporate Initiative	Creating a Sustainable City	2.0	117,000	117,000	117,000	Resources to facilitate City sustainability initiatives.
Community Services Group	Animal Control Services Review	3.0	275,000	250,000	225,000	Implement Animal Control Strategic Plan that will address issues around vicious dogs, shared use of parks, animal welfare, facilities, and improved licensing. Business Plan will see revenue offsets in future years.
Community Services Group	Carnegie & Gathering Place -additional auxiliary staff	0.0	150,900	154,700	158,600	Carnegie staff provide programs in Oppenheimer Park and the surrounding area which have a very active drug and social problems. Additional staff are needed to deal with increased activity and public disorder, the demands of welfare week and internal Carnegie Security. Opening Sundays will better serve the Gathering Place patrons including local street youth in the area
Library	Open Libraries an Additional 11 Sundays		155,000	155,000	155,000	Proposal to open Library system on an additional 11 Sundays.
Engineering	Increase litter receptacles, placement & servicing	2.8	350,000	350,000	350,000	Engineering will be reporting back as part the original Street Furniture program on the additional 400 litter containers
Engineering	Transit Area Planning Study	2.0	215,000	215,000	215,000	In conjunction with TransLink, a planning study of the City's transit network that will, in consultation with the public, a revised form the basis of transit improvements in the City over the next 5 years.

			Funding Required
Department	Description	FTE	2004 $Amount		2005 $Amount		2006 $Amount		Description
Human Resources	Employee Relations	4.0	317,400		264,200		264,200		Employee relations resources are required to allow for strategic partnership with client groups and employees to realize all of the demands for service and strategic initiatives necessary to become an "Employer of Choice"
Corporate Services	Accounts Payable Clerk	1.0	36,000		36,000		36,000		Addition of Accounts Payable Clerk to improve Corporate Accounts Payable functions.
VPD	Fleet Review Recommendations	Funding not yet determined							The Department and City are reviewing VPD fleet requirements. A joint proposal on funding and management of the fleet will be reported to Council in 2004
Total C Initiatives		16.8	$1,836,300		$1,711,900		$1,690,800
TOTAL CMT INITIATIVES		25.8		$2,853,400		$2,216,700		$2,195,600
Vancouver Police Initiatives - To be Reported Separately to Council
VPD	Long-Term Staffing Needs	141.0	0		10,809,600		9,867,500		The Vancouver Police Department will be presenting a long term strategic plan that will include sworn staffing, equipment, and civilian support over the next five years. The proposal will be reviewed by staff and, once reported to Council, will include a public consultation process to allow public input into the plan.
VPD	Surveillance Team for Sexual High Risk Offenders	14.0	1,647,700		1,400,700		1,400,700		The VPD would like to establish a Surveillance Team for high risk sexual offenders that would work with other Provincial law enforcement agencies.
Total VPD Initiatives		155.0	$1,647,700		$12,210,300		$11,268,200

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