ADMINISTRATIVE REPORT
Date: April 9, 1996
TO: Vancouver City Council
FROM: Director of Finance
SUBJECT: 1996 Operating Budget - Interim Report
RECOMMENDATION
A. THAT Council approve the interim estimates of the 1996
Operating Budget as reviewed in this report and presented in
Appendix 1, including the provision for a 0.1% tax increase
reflecting the increase in the Greater Vancouver Regional
Sewerage and Drainage District requisition.
B. THAT the Director of Finance be instructed to submit the
Final Report on the 1996 Operating Budget to City Services
and Budgets Committee on April 25 for "in principle"
approval.
GENERAL MANAGER'S COMMENTS
The General Manager of Corporate Services RECOMMENDS approval of
A and B.
COUNCIL POLICY
On November 7, 1995, when considering the report of the Director of
Finance related to projections for the 1996 Operating Budget, Council
approved the following recommenda-tion:
B. THAT in establishing the 1996 general purposes tax
levy, Council agree to pass through any tax increase
attributable to the Greater Vancouver Sewerage and
Drainage District that exceeds the tax increase
percentage target approved by Council.
On January 16, 1996, when considering the Preliminary Report on the
1996 Operating Budget, Council approved the following recommendations:
A. THAT Council approve the financial strategy for the
1996 Operating Budget, as detailed in the
Administrative Report dated January 11, 1996, which
establishes a target general purposes tax increase not
to exceed 1%.
B. THAT any decreases in funding from the senior
governments be added to the general purposes taxes in
1996 only and THAT the impacts of these reductions in
future years, including any potential program
adjustments, be reviewed with Council in developing the
1997 Operating Budget.
PURPOSE
The purpose of this report is to review the 1996 Operating Budget as
revised since Council considered the Preliminary Report in mid January
and to seek Council approval of the measures necessary to finalize the
estimates.
BACKGROUND
During the last two budget years, the process for developing the
Operating Budget has followed a somewhat different course than had
been past practice. For the 1996 Operating budget this process has
involved the following steps:
- In November 1995, Council considered the projections for the 1996
Operating Budget. These indicated a tax increase in the range of
3.5% would be necessary based on the revenue and expenditure
assumptions in the projections. Council instructed staff to
develop budget scenarios based on general purposes tax increases of
2%, 1% and 0%. These scenarios effectively established a maximum
budget envelope within which all revenue and expenditures must fit.
- On January 17, 1996, during consideration of the Preliminary Report
on the 1996 Operating Budget, Council approved a cap on the general
purposes tax increase for 1996 at 1% on the understanding that
departmental budget targets would be established based on a 0% tax
increase and that staff would work toward that target in reviewing
the funding requests submitted by departments.- U s i n g t h e
budget envelope
defined by a 0% tax
increase as a guide,
departmental
expenditure targets
were established and
departments set
about producing
detailed budget
submissions based on
funding levels
necessary to
maintain existing
programs and which
provide for
increases or
decreases for
Council approved
adjustments. Budget
staff then met with
departments and
boards with a view
to bringing the
estimates to within
the target levels or
to identify problems
that needed to be
addressed.
- Following the detailed review of departmental submissions, the
Corporate Management Team met to consider the budget positions of
the respective departments and to deal with funding problems and
other issues that surfaced during the review process. Adjustments
were recommended which addressed these issues while staying within
the overall budget envelope.
Council has provided two potential exceptions to the 1% cap on the
1996 tax increase. In November, 1995 Council agreed to pass through
to taxpayers any increase in GVS&DD costs that exceeded the percentage
increase finally approved for the City s tax levy. In January,
Council agreed to pass through to taxpayers, in 1996 only, any funding
decreases from senior governments that could not otherwise be
accommodated within Council s taxation objectives. Both of these
issues are specifically addressed in this report.
The interim report on the budget represents completion of the second
step in the budget building process. The final step in the process
will be the Final Report on the Operating Budget which is scheduled to
be considered by City Services and Budgets Committee on April 25.
With approval of that report, the budget will be finalized for 1996
and the budget resolu-tion and rating bylaws can proceed to Council
early in May.
CURRENT POSITION OF THE 1996 ESTIMATES
At the time Council dealt with the preliminary budget, staff were
instructed to cap the general purposes tax increase at 1% and to work
toward achievement of a 0% tax increase on City expenditures. During
the last two months the revenue estimates have been refined based on
the most current information. Budget Office staff have met with
departmental staff to ensure that individual department budgets
included no more funding that is necessary to maintain programs,
services and staffing levels at current levels and that additional
funding requests could be justified on the basis of Council approvals,
health and safety concerns or increased workload. The result of that
exercise is that the 1996 Operating Budget has been brought into
balance, with a 0% tax increase.The following table summarizes the
current position of the operating estimates including the increase in
the GVS&DD requisition which Council had agreed to pass through to
taxpayers. As indicated, it is recommended that this shortfall be
offset by an increase in the general purposes tax levy.
Revenues
Taxation Revenue $354,668,500
General Revenue 173,263,900
Transfers from Reserves
16,194,900 $544,127,300
Expenditures
Departmental Expenditure 440,796,300
Debt Charges 66,662,800
Regional Sewerage Charges 21,571,200
Transfers to Reserves 16,466,200 $544,496,500
Net Budget Position $ (369,200)
Indicated Tax Increase (0.1%) 369,200
Final Budget Position $ 0
Additional detail of the revenue and expenditure estimates is provided
in Appendix 1 along with a comparison to the 1995 Operating Budget.
OVERVIEW OF THE ADJUSTED 1996 OPERATING BUDGET
1. Expenditure Estimates
The interim budget expenditures are $544.5 million, an increase of
$2.56 million or 0.9% over the 1995 budget position.
a) Departmental Expenditures
Departmental Expenditures are $440.8 million an increase of $5.25
million or 1.2% from the final 1995 Operating Budget. If the impact
of the move of the Health Department from the budget is factored in,
this change increases to 4.2% or $12.6 million.
In developing the 1996, estimates departments were guided by the
individual targets that arose from the budget envelope. These targets
gave consideration to increased salary, wage and fringe benefit costs,
as well as increases in general expenditure inflation. Where
appropriate, funding was also provided for "added basic" the cost of
new programs and services approved by Council over the past two years.
In meeting their budget targets, departments were forced to make
choices among competing demands for resources and, in some case, minor
reallocation of funding has taken place to accommodate those demands
that were of a high priority. However, in reviewing the estimates
submitted by departments, the Budget Office did not identified any
significant changes in the on-going programs that were funded. In
short, the current budget position has been achieved without
significant change to departmental programs and with no change to
staffing levels beyond those approved as part of the Budget Management
Program.
In reviewing the change in departmental expenditures from 1995 to
1996, it is important to note how the settlement of major employee
group collective agreements is reflected. The 1995 estimates reflect
1994 salary levels while 1996 estimates include two years of increased
funding, creating an extra-ordinary time increase in departmental
salary expenditures of 3.02%. This tends to overstate the actual
change in departmental estimates from 1995 to 1996.
Throughout 1994 and 1995, and in developing the 1996 estimates,
departments have been adjusting allocations to implement the Budget
Management Program changes approved by Council in April, 1994. The
full impact of these adjustments has been included in the 1996
Operating Budget and reflect expenditure reductions in the range of
$13.5 million from the 1993 expenditure level. As a result, the
transition funding required in 1994 and 1995 has been discontinued in
the 1996 budget estimates. Once the Operating and Capital Budget
cycle is completed, the Director of Finance will bring forward a
report to Council summarizing the program.
The following summarizes some of the more significant changes in the
estimates:
- General Administrative includes most of the internal service
departments, including the City Manager s Office, Corporate
Services, Human Resources, Legal Services and the City Clerk.
There are several reasons for the significant increase in these
estimates:
- the cost of the November civic election ($1.0 million);
- addition of the third of four installments of funding to the
Staff Training and Development Program ($337,500),
- the move of the Occupational Hearing Conservation program
($390,000) from the Health Department to Human Resources; and,
- the rental costs associated with the move of Legal Services to
the VanCity Building ($160,000).
Other General Government includes those estimates that are inter-
departmental or corporate in nature and which tend to vary
significantly from year-to-year. The two most significant
components of this allocation are:
- $1.278 million to continue the Better City Government Program;
and,
- $1.75 million for new and non-recurring items which will be
distributed to departmental budgets to provide for one-time
health and safety issues, items that provide an economic payback
and normal replacement of furniture and equipment.
The allocation of NNR funding to departmental budgets will be
included as part of the final Operating Budget estimates.
- The reduction in the Fire Department estimates arises primarily
from moving vehicle and equipment costs out of the budget ($1.3
million). As reported to Council at the preliminary stage of the
budget, it is recommended that replacement of this equipment be
handled through the Truck and Equipment Plant Account as is the
case for most other City vehicles.
- Expenditures have been reduced in the Permits & Licence department
reflecting the changes to the Secondary Suite Program approved by
Council earlier this year.
- There are many changes in the Public Works section of the
expenditure estimates, however many of them represent the addition
of inflation or one-time expenditures and the reorganization
initiatives within the department, rather than changes in programs.
For example, the Street Cleaning program has been shifted from
Sanitation to Streets in anticipation of the creation of the Solid
Waste Utility. The Sanitation estimates have been reduced by
$450,000 representing the change in residential collection costs
reported to Council earlier this year. Parking Program costs have
increased to reflect the one-time costs of installing new meters
and making changes to meter rates.
There has been only one significant change in program funding. The
radio replacement program, which had provided funding for
replacement and upgrading of the City s mobile radio plant has been
suspended for 1996 pending clarification of the direction
communications will go in the future as a result of the ongoing
review by Teleconsult.
- With the move of the Health Department to the Vancouver Health
Board, the City will no longer be incurring expenditures for Health
care services with the exception of the Occupational Hearing
Conservation and FitCity programs and the Cemetery. The City
continues to provide some administrative services to the Board on a
full cost recovery basis and contracts with the Board for services
of the Environmental Health Branch.
- The increase in Park Board expenditures and revenues arises
primarily from the partial-year re-opening of McCleery Golf Course
in mid 1996 after 22 month of closure for renovation. On a net
basis, the Park Board budget is anticipated to increase by 1.5%. A
report on the 1996 Park Board global budget will be before Council
in the near future.
- The Library Budget has been increased for the balance of operating
costs related to Library Square as well as the recent staffing
approval ($315,000 for 1996, $475,000 ongoing). Offsetting this
growth has been reductions in expenditures from the Budget
Management Program.
- Bookings at the Civic Theatres are predicted to increase over 1995
resulting in an 7.7% increase in revenues. This increase has
exceeded the noted increase in operating expenditures leaving the
theatres in a surplus position of $98,700.
b) Debt Charges
The growth in debt charges reflects continuation of the borrowing
program related to the 1994-1996 Capital Plan. The net increase in
debt charges from 1995 to the 1996 interim estimate stage is $1.5
million or 2.4%, bringing debt charges to $66.67 million. However,
there are a variety of items that have resulted in this growth.
The City retired the last of its remaining US dollar denominated
debentures and the US Premium Exchange Reserve was closed at the end
of 1995. As a result, the 1996 budget makes no provision for US
exchange costs.
The preliminary estimates for the 1996 Operating Budget were built on
the assumption that the 1996 debenture issue would require a coupon
payment in 1996. However, when the issue was placed in the Euro-
Canadian market the requirement for this payment was eliminated. As
the Operating Budget has been brought into balance within Council s
taxation objectives, the Director of Finance is recommending that this
$2.55 million provision in the preliminary estimates be retained and
moved to the Debt Repayment Reserve. This reserve will be available
to offset the increase in debt charges related to this debenture issue
that will have to be accommodated in the 1997 Operating Budget.
Since 1993, Council has approved rebates of interest on City
debentures held in the Capital Financing Fund sufficient to reduce the
effective interest rate earned by the fund to current market levels.
In 1996, the Director of Finance is recommending that these rebates be
continued and that they be extended to two additional debenture issues
held by the Property Endowment Fund. The value of these rebates is
estimated at $1.5 million and go directly to reducing debt charges
supported by the Operating Budget ($1.5 million) and water rates ($.5
million).
c) Greater Vancouver Sewer and Drainage District
The final requisition from the GVS&DD for sewer purposes has increased
by $369,200 above the 1995 level, an increase of 1.8%. The Vancouver
Sewerage Area budget reflects a recovery from UBC of $1.4 million for
their share of sewer system costs.
In November 1995, Council approved the recommendation of the Director
of Finance that any increase in regional charges beyond the percentage
increase in the City s general purpose tax levy should be passed
through to taxpayers. As the tax increase based on growth in City
expenditures has been held at 0% for 1996, the increase in GVS&DD
costs will result in an effective tax increase of $369,200 or 0.1%.
d) Transfers to Reserves and Funds
Transfers to reserves and other funds have declined by $2.1 million to
$16.4 million. The most significant of these transfers is the
provision for capital from revenue, which is set at $14.2 million.
Other transfers include: $600,000 to the Residential Demolition
Reserve, reflecting the fee for demolition of residential units in the
City; and the transfer of $1.66 million to the Solid Waste Capital
Reserve, being the surplus earned on commercial solid waste disposal
services provided by the City.
e) Contingency Reserve
The interim estimates include a contingency reserve provision of $3.37
million. Of this amount, approximately $800,000 is reserved to
provide for salary and wage adjustments for those employee groups who
have yet to settle contract with the City for periods extending back
to 1994. In addition, there are several budget items for which
discussion continues prior to funding being allocated to individual
budgets. It is anticipated that these items will be resolved prior to
the budget being finalized. It is the intention that the general
provision available for Council to deal with emergent issues during
the balance of the year will be in the range of $1.75 million,
comparable to expenditure levels in 1994 and 1995.
2. Revenue Estimates
The 1996 interim estimates include a revenue budget of $544.0 million,
an increase of 0.9% or $4.6 million over the 1995 level. This change
results from growth in taxation, general and utility revenue and a
reduction in transfers from reserves.
a) Taxation Revenue
The interim estimates include three changes to the General Purpose Tax
Levy from the 1995 position:
- Supplementary roll adjustments affecting the base tax levy which
have increased the base levy by $90,700.
- new construction values added to the 1996 Assessment Roll which
converts to new taxes of $6.6 million.
- an increase in the provision for taxes written off as a result of
assessment appeals from $1.0 million to $2.0 million reflecting the
increased number and value of appeals outstanding.
Overall, these adjustments represent a net increase in tax revenues of
$5.7 million over the 1995 level.
Increases in payments-in-lieu of property taxes have also contributed
to increased taxation revenues. These changes, totalling $1.3 million
are primarily the result of the changing mix and valuation of federal
and provincial properties subject to payments-in-lieu of taxes.
b) Non-Taxation Revenues
Non-taxation revenues originate from a variety of sources including
fees and charges, rental income, short term interest earnings,
Provincial Revenue Sharing and utility revenues. While changes in
individual revenue sources are more varied, overall, the these
revenues are expected to increase by $2.8 million from the 1995 level
to $173.3 million. However, it is noted that all of this increase is
concentrated in Waterworks revenue and that, excluding this utility
revenue, non-taxation revenues have actually declined by $800,000 or
0.6%.
- Provincial Revenue Sharing has been held at the 1995 level with the
exception of an small downward adjustment reflecting changes
anticipated as a result of application of the provincial revenue
sharing formula. It is anticipated that the City will receive
information from the Provincial Government shortly on the level of
funding to be received in 1996.
It is also noted that the Provincial funding for the 70/30 cost
sharing program for preventative health services has been
discontinued with the move of these responsibilities to the new
Vancouver Health Board.
- Short Term Interest Earnings have been increased over the 1995
level reflecting, in part, the City s larger cash reserves
following from the 1996 debenture issue. This revenue is sensitive
to short term interest rates which continue to fluctuate.
- Rental revenues have been increased from the 1995 level because of
changes in the mix of City-owned properties out on lease and in
their value for purposes of calculating rents-in-lieu of taxes.
- The decline in service and inspection fees reflects revised
expectation that development activity in the City will be below the
1995 levels. The estimates also include the impact of increased
development and trade permit fees in place or soon to be before
Council for approval.
- During 1995, the City s parking meter program experienced vandalism
problems which impacted on revenues from meters and from parking
enforcement. With the actions taken to deter these problems, these
revenues are anticipated to return to prior year levels. In
addition new metered areas and revised parking meter fees will
impact on meter revenue and the impact of the new two-tier
voluntary payment system will improve parking enforcement revenue.
- Park Board revenue is also expected to increase for 1996 over 1995
levels. City Services and Budget Committee will consider a report
on the 1996 Park Board global budget at its April 18 meeting.
- Waterworks revenues have increased by 9.5%, consistent with the
increase approved by Council in December 1995. Water revenues
offset the costs of system operation and maintenance (up 7.7% over
1995), water purchase costs (12.8%) and water debt charges (11.6%).
c) Transfers from Reserves and Funds
The 1995 interim estimates contain funding from four areas outside the
Operating Budget:
- the surplus on the City s Sinking Fund, at $7.5 million.
- the annual transfer from the Property Endowment Fund, continued at
$7.0 million.
- a transfer from the Hasting Park Capital Reserve to fulfill the
City s commitment to provide operating funding to the PNE for the
duration of its lease.
- a transfer from the Art Gallery Reserve to partially offset the
City s operating grant to the Vancouver Art Gallery.
Transfers from other reserves utilized in the 1995 and 1994 Operating
Budgets have been discontinued, resulting in a reduction of 24.8% or
$5.3 million. Transfers from Revenue Surplus have been utilized
during 1994 and 1995 to provide transition funding while expenditure
reductions arising from the Budget Management Program were put in
place. These reductions have been achieved in full in the 1996
Operating Budget eliminating the need for this transfer to continue.
As noted above, with the retirement of US denominated debentures, no
transfer from the US Premium Exchange Reserve is required.
CONCLUSION
This report presents the interim results of the 1996 Operating Budget
building process. It presents a balanced budget position for
Council s consideration which includes a 0% tax increase for
expenditures that are controlled by Council. A nominal increase of
0.1% is recommended to provide for the increase in the requisition
from the Greater Vancouver Regional Sewerage and Drainage District.
SUBSEQUENT PROCEDURES
On Thursday April 18, City Services and Budgets Committee will
consider the 1996 Park Board global budget and the Board s request for
added basic funding. The decisions following from that
consideration may impact on these budget estimates.
On Thursday, April 23, City Services and Budgets Committee will
receive a report summarizing the final adjustments to the 1996
Operating Budget for approval in principle. This report will be
accompanied by a book on Budget position embodied in this report,
along with appropriate overview notes and commentary on the detail of
the revenues and expenditures. On May 9, the committee will consider
a report from the Director of Finance dealing with additional taxation
policy items for 1996, including the taxation limitation program (tax
capping) and consideration of a further shift of tax burden among the
property classes. On May 14, Council will formally adopt the 1996
Operating Budget along with the averaging resolutions and rating
bylaws which give effect to Council decisions on May 9. These final
actions will complete the budget cycle.
* * * * *