SUPPORTS ITEM NO. 5 CS&B COMMITTEE AGENDA APRIL 25, 1996 ADMINISTRATIVE REPORT Date: April 14, 1996 TO: Standing Committee on City Services and Budgets FROM: Director of Finance SUBJECT: 1996 Park Board Global Budget RECOMMENDATION A. THAT Council approve the Park Board global budget base of $35,330,700 for 1996; source of funds to be the 1996 Operating Budget. B. THAT Council approve Added Basic funding of $441,000 to be added to the Park Board base budget recom-mended in A above; source of funds to be the 1996 Operating Budget. CONSIDERATION C. THAT Council approve transition funding of $356,000 to give full affect in 1996 to the global budget adjustments proposed by the Park Board; source of funds to be the 1996 Operating Budget. GENERAL MANAGER'S COMMENTS The General Manager of Corporate Service RECOMMENDS approval of A and B and submits C for CONSIDERATION, noting that, if the transition funding is not provided, Park Board will have difficulty achieving its global budget for 1996. COUNCIL POLICY In March 1992, Council established the Park Board global budget arrangement in which funding for Park Board parks and recreation programs are provided as a global amount with the Board taking full responsibility for the decisions affecting program delivery. Council approves annual adjustments to the global budget, including the addition of added basic funding reflecting the cost of new program expenditures arising from the Park Board capital program. PURPOSE The purpose of this report is to request Council approval for the 1996 Park Board Global Budget and to submit a request from the Park Board for transition funding as requested by the Board. BACKGROUND On March 24, 1992, Council adopted the principles of a global budget for the Park Board and approved the funding base for the first year. This base took into consideration the basic operating revenues and expenditures that supported the program-ming and services offered by the Park Board. Within that global amount, the Board has full control over its operating budget, including the ability to reallocate funding to deal with emerging priorities and to add or delete programs and staff based on its needs. Where Board decisions have budget implications, it is intended that necessary adjustments within the global amount will be made to fund the cost of these decisions without cost to the City. Each year the global budget is adjusted to reflect the same inflationary growth in expenditures as is provided to City departments. The global budget is also adjusted each year for items over which the Board has no direct control, including additional costs arising from collective agreement and fringe benefit costs. In addition, the park Board is required, as a minimum, to increase revenues at the same rate as costs increase; in other words, to maintain the traditional operating margins on its revenue programs. In cases where the Board increases fees or charges beyond the level of local inflation, the City shares in the increase on a 1/3 City - 2/3 Park Board basis. Funding for capital purposes is provided outside of the global budget process. However, new operating costs arising from these capital programs -- referred to as added basic -- are provided for in the annual adjustment of the global budget. The global budget recognizes that many of the Park Board revenue programs are seasonal or weather sensitive. The primary responsibility for dealing with these problems lies with Board; when revenues decline, it is intended that the Board will to react by reducing expenditures where possible to maintain operating margins. In order to insulate the global budget from uncontrollable factors such as weather, a Revenue Stabilization Fund was established. This fund is a notional allocation from the City's revenue surplus account which is intended to smooth the peaks and valleys inherent in the operation of rinks, pools, outdoor concessions and golf courses. In years where there is a surplus in these programs, the Revenue Stabilization fund increases; in years when short-falls occur, the account provides funds so that other Park Board programs are not jeopardized. If the global budget is appropriately set, in the longer term, the ups and downs in the Revenue Stabilization Fund should balance. THE GLOBAL BASE BUDGET The interim estimates that Council considered on April 16, 1996, include a provision for the 1996 Park Board global budget. This provision has been calculated by City and Board staff according to the agreed upon principles. Based on these adjustments, the 1996 global budget is recommended as follows (with 1995 comparable figures): 1996 1995 % change Gross Revenue $23,589,700 $21,720,300 8.6% Gross Expenditures 58,920,200 56,302,600 4.6% 1996 Net Budget $35,330,500 $34,598,300 2.1% There are variety of changes in the estimates that comprise the adjustments included in the proposed base budget. Salary and wage costs have increased as a result of funding provided for the 1995 and 1996 wage settlement (compounded to 3.02%) and, in addition, $220,000 of salary, wage and fringe benefit costs have been added as a result of specific reclassifications and one-time costs associated with staff retirements. Inflationary adjustments in other expenditure areas have averaged approxi-mately 2.0%. Finally, the budget has also provided for the annualization of costs associated with added basic approved for a partial year in 1995. This global base amount was approved by Park Board on April 1, 1996. BASE BUDGET ADJUSTMENTS When the global budget was first established, there was concern that some of the revenue estimates in the base would prove to be too high to be achieved and that adjustments might have to be made in subsequent years to bring the global budget to a level where it could be obtainable. In addition, there has been several structural and operational changes in Board programs that have affected its ability to stay within the global budget. One of the more significant of these has occurred in Stanley Park where the phase-out of the Zoo and the introduction of pay parking appear have reduced visits to the park and a reduction in revenue generated from concessions and the zoo operation. While the Board exercised some control over in these changes, there are others that are outside the Board s control. For example, closure of the Chilco bus loop has had an impact on revenues at the Lost Lagoon concession. Public use of beaches and beach concession stands has diminished in recent years. In addition, after years of being dominant in the public golf course market, the Board has faced increased competition from new golf courses in the lower mainland and Washington state which has resulted in fewer rounds being played on Board courses, and less revenue. The Board has also noted declining trends in attendance at its fitness facilities and indoor pools and an inability to generate the revenues anticipated from it pay parking operations. The impact of these changes, which are compounded by weather related problems on many of its outdoor programs, is that the Board has been unable to achieve the global budget in any year since its establishment. The accumulated shortfalls have grown to $2.87 million (see Appendix A) and represent a draw against the Revenue Stabilization Fund. In effect, this draw is a measure of the amount by which the City's accumulated surplus has been reduced over the four years of the global budget. However, if the Revenue Stabilization fund concept works, in the longer term, this "draw" will be offset by excess revenues generated in peak years. To achieve these peaks, adjustments will have to be made to the global budget, either by the City, the Park Board or both. The City has responded to many of the revenue problems identified in recent global budgets. In the 1993 and 1994 global budgets, additional funding of $200,000 (net) was provided to deal with revenue programs. In 1995, in an attempt to address difficulties that the Board was experiencing in Stanley Park, Council agreed to provided additional funding of $210,000. In developing its 1996 global budget, the Park Board has identified additional adjustments to revenue programs totalling $765,000 that they believe should be funded in the global budget. Details of these adjustments are included an March 20, 1996 Park Board report entitled "Global Budget - Base Adjustment" which is attached as Appendix B. However, rather than requesting further adjustments to the global budget base, the Board has proposed adjustments within the global budget to correct these problems. These adjustments include a combina-tion of new revenues and expenditure reductions that will offset the identified shortfall. The adjustments are reviewed in an April 11, 1996 Board report entitled "Global Budget - Base Adjustment" which is attached as Appendix C. By proposing to make these adjustments, the Board has acknowledged it shares the responsibility for making adjustments to the global budget which arise because of changes to its operations. Council is not requested to take any action on these specific adjustments. The decisions are within the authority of the Board under the global budget arrangement. However, the Board has requested that Council provide transition funding for several of its new initiatives in 1996 to give them time to be fully implemented. The Board has requested transition funding totalling $356,000 as outlined in its April 11 report (Appendix C). Staff concur that the Board has addressed the most pressing problems in the global budget in the adjustments it proposes. Whether these adjustments will bring the global budget to a position where the base is obtainable and the Revenue Stabilization Fund can become workable in the long run can only be proved in time. Staff also concur that the requested transition funding is necessary if the impact of the changes in revenue and expenditure programs approved by the Board are to be neutral in the 1996 budget. Unless the full amount of transition funding is approved, the Board will have to seek other adjustments to the global budget to keep from starting the year in a shortfall position. 1996 ADDED BASIC As noted earlier, the global budget arrangement provides for an annual adjustment to the base budget for new operating costs arising from the Park Board capital program. Following discussions between City Finance and Park Board staff it has been agreed to recommend that Council add $441,800 in added basic to the global budget in 1996. This includes increased funding in the following areas: Fieldhouse and Recreation Facility Renovations $ 25,200 Park Improvements 40,000 David Lam Park Maintenance 8,200 New Playgrounds 13,600 South Granville Slopes Park 14,500 Douglas and Falaise Parks 22,000 Street Tree Maintenance 67,500 Evans Service Yard 32,000 Collingwood West - Phase I 47,300 Other 12,100 Subtotal $ 228,400 Roundhouse Community Centre 159,400 Total $ 441,600 The funding request for the Roundhouse Community Centre is part of a larger request for $1.2 million in added basic funding for this new centre in the Roundhouse district of Concord Pacific s development on the north shore of False Creek. The centre is scheduled to open early in 1997. In addition, the Board is seeking an additional $200,000 in capital funding to complete the outfitting of the new centre. These requests will be the subject of a more comprehensive report to Council in the latter part of May. The 1996 funding will allow the Board to begin the staffing of the new centre and will not prejudice decisions Council may make when considering the overall operating plan and funding for the new complex. CONCLUSION The recommendations in this report will complete the develop-ment of the 1996 Park Board global budget, including provision of funding for new operating costs arising from the Board's capital program. Should Council approve these recommendations, the only remaining adjustment to the global budget will be the addition of new and non-recurring funding, an item to be added before the 1996 Operating Budget is finalized. The Board has approved several adjustments to its revenue and expenditure programs to correct some on-going problems in the global budget and while Council approval is not necessary for these adjustments the Board has requested that Council provide transitional funding for 1996 so that these adjustments can be fully reflected in the global budget. In addition, the Board has requested that Council waive its 1/3 of new revenues being proposed within these adjustments. * * * * *