ADMINISTRATIVE REPORT
Date: April 2, 1997
CC File No. 1605-1
TO: Vancouver City Council
FROM: Director of Finance
SUBJECT: 1997 Operating Budget: Interim Report
RECOMMENDATION
A. THAT Council approve the interim estimates of the 1997
Operating Budget as reviewed in this report and presented in
Appendix 1. The interim estimates represent a balanced budget
position, including the provision for a 4.5% general purposes
tax increase as approved by Council.
B. THAT Council approve the provision of $1,837,600 in transition
funding to annualize new revenues within the 1997 estimates,
source of funding to be $1,531,600 through a reduction in the
provision for Capital from Revenue and $306,000 from the
elimination of the balance in the Demolition Fee Reserve.
C. THAT Council instruct the Director of Finance to submit the
final report on the 1997 Operating Budget to City Services and
Budgets Committee on April 24, 1997 for in principle
approval. Final budget approval and presentation of the
appropriate rating bylaws is anticipated to be before
Committee on May 15, 1997.
D. THAT Council approve the Park Board Global Budget of
$37,184,200, including $258,400 for added basic costs.
E. THAT Council approve the purchase of the following vehicles
from the Plant Account:
Engineering - Sewers 1 Service Van $38,000
Property Management 2 - 3/4ton Vans $45,000
F. THAT the City Debenture issue, Bylaw# 5257, be redeemed in
June 1997, and that the unfunded principle repayments due at
that time be funded from the Debt Charges Equalization Reserve
($746,000) and the Water Rates Stabilization Reserve
($746,000).
GENERAL MANAGER'S COMMENTS
The General Manager of Corporate Services, with the concurrence of
the Corporate Management Team, RECOMMENDS approval of A to F.
COUNCIL POLICY
The Vancouver Charter requires that the operating estimates of the City
be reported to Council by April 30 each year. 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 requests 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 4 and
subsequent action on the estimates was taken on February 6 and 20.
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.
PURPOSE
The purpose of this report is to review the 1997 Operating Budget as
revised since Council considered the Preliminary Report on February 4
and to seek Council approval of the measures necessary to finalize the
estimates. The report also reviews the Park Board Global Budget
arrangement and recommends a funding level for parks and recreation
programs for 1997.
BACKGROUND
On December 10, 1996, the Director of Finance presented the projections
for the 1997 Operating Budget to Council. Those projections, including
the reduction of $17.2 million in transfer payments from the Provincial
Government, indicated that the City faced a potential general purposes
property tax increase of 8.2% for 1997.
Council authorized a comprehensive public consultation process called
City Choices that included an information flyer delivered to Vancouver
residents, an Angus Reid Group survey of public opinion and the Mayor s
Forum, involving meetings with community groups and individuals.
On February 4, 1997, Council received the 1997 Operating Budget -
Preliminary Report and approved a series of recommendations dealing with
new revenues and expenditure reductions aimed at addressing the budget
difficulties. In addition, Council approved a 4.5% general purposes tax
increase to bring the budget into balance.
Following from the approvals, Council approved further adjustments to
the Operating Budget estimates on February 6 and 20, 1997. These
included elimination of the 50% municipal assist component of Regional
DCCs, reduction in contract services with Tourism Vancouver and specific
adjustments to departmental budgets.
Following these actions, the Operating Budget was referred to the Budget
Office and departments for more detailed review to ensure that the
estimates included only sufficient funding to provide for approved
programs and staffing, with adjustments to accommodate normal workload
changes or for items that addressed safety concerns or that demonstrated
economic benefit. During Budget Review, staff also reviewed the new
revenues approved by Council and identified the necessary transition
funding to annualize the estimates in the 1997 Operating Budget.
DISCUSSION
Staff have now completed a detailed administrative review of the revenue
and expenditure estimates according to the instruction provided by
Council on February 4. That review involved meetings between Budget
Office and departmental staff to ensure that individual department
budgets included only enough funding to maintain programs, services and
staffing at current levels and that additional funding requests could be
justified on the basis of Council approvals, health and safety concerns
or increased workload. Using the overall budget envelope established
by Council and defined by a combination of new revenues, expenditure
reductions and a 4.5% general purposes tax increase, the 1997 Operating
Budget has been brought into a balanced position.
The following table summarizes the current position of the operating
estimates:
Revenue
Taxation Revenue $358,257,400
General Revenue 164,701,800
Transfers from Reserves 15,309,300 $538,268,500
Expenditures
Departmental Expenditures $449,892,800
Debt Charges 69,092,300
Regional Sewerage Charges 21,901,900
Transfers to Reserves 14,206,800 555,093,800
Net Budget Position ($ 16,825,300)
Revenue Transition Funding (Recommendation B) 1,837,600
Tax Increase @ 4.5% 14,987,700
Interim Budget Position $ 0
Additional information on the revenue and expenditure estimates is
provided in the Appendices. Appendix 1 summarizes the adjustments made
to the preliminary estimates during budget review and which are
reflected in the interim estimates. Appendix 2 summarizes the
recommended estimates, along with comparison information from the 1996
Operating Budget. The accompanying booklet entitled, 1997 Operating
Budget, Interim Report (limited distribution) provides additional detail
of the 1997 interim estimates.
1. Revenue Estimates
The 1997 interim estimates include a revenue budget of $553,562,200,
including provisions for the general purposes tax increase approved by
Council and for the transition funding necessary to annualize the new
revenues approved by Council. This represents an increase of 1.9% or
$10.3 million over the 1996 final budget level.
a) Taxation Revenue
Overall, taxation revenue at $373,245,100 has increased by $19. 4
million from the 1996 budget. The most significant component of that
increase is almost $15.0 million in additional revenue associated with
the 4.5% increase in general purposes taxes. The balance of the
increase is accounted for by:
- new construction value added to the 1997 Assessment Roll which
converts to $4.8 million in new tax revenue. This compares with
new construction taxes of $6.7 million in 1996 and reflects both a
slowing of development in the City and a shift to residential (from
commercial) development, which is taxed at a lower rate;
- a reduction in the revenues anticipated from interest on arrears
taxes. Lower arrears at the end of 1996 is directly responsible
for this $300,000 decrease; and
- payments in lieu of taxes from senior governments and other exempt
properties are expected to remain flat in 1997, the result of
overpayments made by BC Gas in 1995 and 1996, as well as changes in
the inventory and value of grantable properties held by other
levels of government.
The 1997 estimates include a provision of $2.0 million for taxes
write-offs related to assessment appeals. This provision is identical
to the 1996 level and reflects a continuing concern about the number and
value of assessments under appeal. Currently, the City has limited
specific reserves for funding reductions associated with successful
assessment appeals and staff continue to monitor activity at the
Assessment Appeal Board.
b) General Revenue
Non-taxation revenues originate from a variety of sources including fees
and charges, utility fees, rental income associated with city-owned
property, short term interest earnings and funding from the Provincial
Government. Overall, the 1997 estimates reflect a reduction in these
revenues totalling approximately 4.8% or $8.4 million. The primary
components of this reduction are:
- Council is aware of the significant reduction in funding from the
Provincial Government in 1997. In November, 1996, the government
announced elimination of a series of programs through which funding
was provided to the City, leading to a $17.2 million shortfall in
the 1997 budget. The most significant reduction was in the Local
Government Grants program where a reduction of $14.5 million has
been accommodated in the budget.
- Police Cost Sharing from the Provincial Government has also been
eliminated at a cost of $794,000.
- Short term interest earnings are expected to suffer a significant
reduction in 1997, totalling 30% or $4.1 million. This follows
from a combination of lower capital fund cash balances and
significantly reduced yields on the City s short term investments.
- Miscellaneous Fees and Receipts decline by $0.7 million primarily
because the City will no longer receive recoveries for services
provided to the Vancouver Health Board. Where possible, offsetting
expenditure reductions have been taken from the departmental
expenditure estimates.
- Sundry Property Rental revenues will declined by $535,300 as a
result of Council s decision to divert net income from the Mole
Hill neighbourhood to upgrading of the buildings. There has also
been changes changes in the inventory and valuation of city-owned
sites which impacts on rents-in-lieu of taxes.
- at the preliminary estimate stage of the Operating Budget, Council
approved new and increased fees and charges in several areas that
are reflected in the Interim Estimates. These revenues are
reported at levels anticipated from partial year implementation
with transition funding provided elsewhere in the budget to
annualize them. These increased revenues can be seen in Licence
Fees, On-Street Parking, Bylaw Fines and Development & Building
Regulation.
- Waterworks revenue has increased by 13.4% reflecting the increased
expenditures in the Water Utility. Council approved 1997 Water
Rates in December, 1996.
c) Transfers from Reserves/Funds
The 1997 interim estimates contain funding totalling $15.6 million from
several sources outside the Operating Budget:
- a transfer of $87,500 from Revenue Surplus for CityPlan
representing the final transfer from the original funding approvals
by Council. This transfer was documented in the report to Council
in October 1996. Ongoing funding for neighbourhood visioning
projects is provided in the Planning Department budget beginning in
1997.
- the surplus on the City s Sinking Fund, at $7.2 million.
- the annual funding from the Property Endowment Fund is continued at
$7.0 million.
- transfer of $765,000 from the Hastings Park Reserve to fund the
City s building maintenance obligations at Hastings Park until the
lease with the PNE Board expires.
- transfer of the balance in the Demolition Fee Reserve of $306,000.
This transfer follows from Council s earlier decision to divert
revenue from the Residential Demolition Fee to the Operating Budget
and to close the Reserve. This one-time transfer is part of the
revenue initiative transition funding that is discussed later in
this report and is included as Recommendation B.
- transfer of the interest earnings of the Art Gallery Reserve to
partially offset the City s operating grant to the Vancouver Art
Gallery.
2. Expenditure Estimates
The interim budget expenditure estimates are also recommended at
$553,512,200, reflecting a balanced budget position. This represents an
increase of $10.3 million or 1.9% over the final 1996 expenditure
estimates.
a) Departmental Expenditures
Departmental expenditures have increased $11.15 million to $449.9
million, an increase of or 2.5% over the 1996 final budget.
In developing the 1996 estimates, departments were guided by the
individual targets that were developed by the Budget Office and formed
part of the preliminary estimates. These targets gave consideration to
increased salary, wage and benefit increases (although not a general
wage increase) as well as increases in general and specific expenditure
inflation. Where appropriate, funding was also provided for added
basic which is the cost of new or expanded programs and services
approved by Council over the last two years and added to the budget in
1997.
In meeting their budget targets, departments were forced to make choices
among competing demands for resources and, in some cases, reallocations
of funding has taken place to accommodate those demands that were of a
high priority. One of the objectives of the budget review process was
to ensure that, where reallocations were made, departments could provide
adequate justification. The results of that review have identified no
significant changes in the on-going programs that are funded in the
budget and no changes in staffing except those approved by Council.
The expenditure estimates also reflect the full impact of expenditure
reductions approved by Council on February 6 and February 20, 1997.
These reductions total $3.8 million are spread throughout the estimates.
The following summarizes some of the more significant changes in
departmental estimates using the 1996 final budget as the comparison:
- General Administrative includes most of the internal service
departments, including the City Manager, Corporate Services, Human
Resources, Legal Services and the City Clerk. There are many
components to the recommended reduction in the funding dedicated to
this area, however, the most significant are:
- funding for the November 1996 election has been removed from the
budget representing a reduction of approximately $900,000. As
Council directed when establishing the 1996 Operating Budget, the
1997 estimates include funding for 1/3 of the 1999 municipal
election which will be reserved, thereby eliminating the triennial
impact on the budget.
- the final installment ($325,000) in the build-up of the Staff
Training and Development Program funding approved by Council in
1994.
- Other General Government includes those estimates that are
inter-departmental or corporate in nature and tend to vary
significantly from year-to-year. In addition to the annual
expenditure and recovery items included in this area of the budget
on an ongoing basis, there are three more significant components:
- $1.28 million to allow continuation the Better City Government
Program.
- $1.0 million in computer replacement funding, part of the ongoing
program begun in 1996 to update computer equipment in the City to
accommodate the Information Technology Strategy of the Better City
Government Program.
- $2.0 million for new and non-recurring items which will be
allocated to departmental budgets to provide for normal replacement
of furniture and equipment and for one-time items that provide a
payback or are health and safety related. The departmental
allocation will be reflected in the final estimates.
- The Property Management area of Corporate Service has expanded the
building services it provides to city buildings and buildings it
manages on behalf of the Vancouver Health Board and Provincial
Government (Non Revenue Housing). The group currently leases two
service vans which should be replaced with purchase vehicles to
reduce costs. It is recommended that these vans be funded by the
Plant Account.
- The increase in the Community Services Administration estimates
represents a shift of funding rather than a real increase in costs
as the business group including Planning, Permits & Licences,
Social Planning, Carnegie Centre and Downtown South Gathering Place
reorganizes its administrative functions to a more centralized
model.
- The estimates for the Planning department include a variety of new
revenue supported programs in the zoning and development control
area as well as the addition of $580,000 of funding for the next
phase of CityPlan and $187,000 to support the Interim RS Zoning
Program.
- The reduction in the Police Department estimates arises from the
impacts of the budget reductions and new revenues approved by
Council earlier in the budget process, from increased revenues and
recoveries in the department and from revised projections on
manning costs at the department.
- There are a variety of adjustments that have impacted on the
expenditure estimates in Permits and Licences, however, in every
case, they have been offset by increased revenues reported
elsewhere. The adjustments include: Salary adjustments
($190,000); Structural Review consultants ($400,000); Regional DCC
Administration ($120,000); Document Imaging and Business Licence
Systems ($400,000); Problem Premises support ($200,000); and,
Address Change administration ($190,000).
- There have been many changes in the Public Works section of the
expenditure estimates, however, most reflect the impact of
inflationary adjustments and removal of one-time funding added in
1996 as well as a continuing reorganization of the department s
activities, rather than significant changes in programs. The
variances to 1996 also reflect the impact of new revenue and
expenditure reduction initiatives undertaken as part of the budget
process.
- The most significant area of increased expenditures is in
Sanitation as a result of continuing cost increases at the
Vancouver Landfill and Vancouver South Transfer Station
related to meeting the conditions of the City s operating
permits.
- Parking Program revenues and expenditures have increased as a
result of the approval of the extended on-street parking
program and the resident parking permit program. Estimates in
this area have also been adjusted to remove one-time funding
in 1996 for replacement of parking meters. It is anticipated
that a second phase of this program will be reported to
Council in the near future.
- During budget review, the City Engineer identified the need to
increase funding for maintenance of sewer pump stations That
funding was from within the overall budget target for the
department by reallocating funding from lower priority
programs. That higher level of maintenance will require the
acquisition of an additional service van for Sewers
operations. It is recommended that funding for the van be
provided from the Plant Account.
- the elimination of local government funding programs by the
Provincial Government has impacted the expenditure estimates in a
variety areas, including Social Planning, Carnegie Centre, the
Grant Programs, Park Board and Housing Programs. These reductions
total approximately $1.9 million compared to 1996.
- following discussions with the Britannia Community Services Centre
during budget review, agreement was reached to achieve budget
reductions totalling approximately $35,000. These reductions are
consistent in application and scale with those imposed on the Park
Board. The Master Agreement governing the operation of Britannia
has been in place for over 20 years and both sides agree that a
review of the agreement is appropriate. Staff will begin
discussions with the Britannia Community Servces Soceity during
1997 with a report back to Council on issues that require
resolution.
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 1996 to the 1997 interim estimate stage is $3.2 million or
4.9%, bringing debt charges to $69.1 million.
In June 1997, the City has the opportunity to exercise an early
redemption feature in one of its outstanding debentures. Bylaw 5257 is
a $10 million, 10 3/8%, 20-year issue due to mature in June 1999.
Provision was made in the initial debenture issue for an earlier
redemption, and the City can save interest costs by retiring this
debenture in June 1997. At the call date, there will be an outstanding
principal balance of approximately $1.5 million which can be paid from
the Debt Payment Equalization Reserve ($746,000) and the Water Rates
Stabilization Reserve ($746,000). Interest savings in 1997 will be
$510,000 accruing to the Operating Budget (Sewers) and the Water
Utility. Over the two year period to normal maturity, the City will
save approximately $2.075 million in interest costs. The interim
estimates include provision for this early retirement and is recommended
in this report.
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 the current market levels. In 1996,
rebates totalling $2.0 million were approved reducing the effective
borrowing costs to 8.0%. The 1997 budget projections and the
preliminary estimates included an additional rebate provision reducing
interest costs on these debentures to 6.5% and these rebate amounts are
continued in the interim estimates.
The 1997 interim estimates do not include a provision for borrowing
costs associated with a 1997 debenture issue. At present, it is
anticipated that any borrowing in 1997 will be deferred until the fall
so that no current year interest or principle repayment costs will be
incurred until 1998.
c) Greater Vancouver Sewer and Drainage District
The final requisition from the GVS&DD for sewer purposes has been
received by the City and reflects an increase of $86,900 over the
preliminary estimates. Regional sewerage costs have increased by 6.5%
over the 1996 level and this increase has been accommodated within the
budget envelope established by Council in February.
In addition, Council eliminated the 50% municipal assist portion of
the new regional development cost charges when dealing with the
preliminary estimates and funding for that program has been removed from
the budget.
d) Transfers to Reserves and Funds
Transfers to reserves and funds have declined by $5.3 million from the
1996 final budget and are recommended at $12.7 million. The most
significant changes are:
- a reduction of $1.8 million in the provision for Capital from
Revenue to provide transition funding for new revenues approved by
Council. This change is discussed more completely below.
- the costs associated with the operation of the Vancouver Landfill
and the City s recycling programs have resulted in the transfer to
the Solid Waste Capital Reserve becoming a draw from the reserve.
This has resulted in an effective reduction in this expenditure
estimate of $2.4 million.
- elimination of the Demolition Fee Reserve, $600,000. These
revenues are now retained in the Operating Budget.
- reduction in the City s obligations related to maintenance of
Hastings Park , $735,000
- provision for the 1999 Municipal election, $300,000.
e) Contingency Reserve
The interim estimates include a contingency reserve provision of $2.3
million. Of this amount approximately $750,000 is required to fund
fringe benefit cost increases in departmental budgets. This allocation
will be completed by the final estimate stage. In addition there are
several budget items for which discussion continues prior to funding
being allocated to individual budgets. It is anticipated that the
general provision available for Council to deal with emergent issues
during the balance of the year will be in the range of $1.5 million,
comparable to actual expenditure levels in recent years.
The Director of Finance notes that there are several items that may
impact on the 1997 Operating Budget before the year is out which are not
specifically provided for in the interim estimates. There is no
provision for negotiated increases in salary and wage costs for City
employees. The Corporate Management Team has indicated that any such
costs in 1997 would be funded with further expenditure reductions. The
budget includes provision for APEC costs at the level approved by
Council ($350,000 City cost) although the potential to exceed that level
is apparent based on discussions with the Police Department. It is also
noted that there is no funding provided for maintenance of Hastings Park
once the PNE lease expires in September, although the anticipation is
that the Hastings Park Reserve would be the source of any necessary
funding. The ongoing concern about the level of outstanding assessment
appeals was noted earlier in this report. Our conclusion is that, while
the 1997 interim estimates reflect a balanced position, there is very
little room within these estimates for new or unexpected expenditures.
TRANSITION FUNDING FOR NEW REVENUES
When Council dealt with the preliminary estimates on February 4, 1997,
the following recommendation was approved:
K. THAT funds designated as Capital from Revenue on the
lower priority list supplied by the Corporate Management
Team dated January 31, 1997 to include items such as the
Library Outreach Program, the upgrade of the Orpheum
washrooms, etc., be considered for annualizing and
transitioning revenue increases and service reductions
and be provided on a one-time basis with specifics
reported back to Council at an appropriate time.
The interim estimates include the 1997 impact of the revenue increase
and expenditure reduction initiatives approved by Council at its
meetings of February 4, February 6 and February 20, 1997. No transition
funding is necessary for the expenditure reduction proposals as
departments were able to make the necessary adjustments to accommodate
the annual savings. Staff have reviewed the estimates of new revenues
and are recommending transition funding to annualize the following
revenues:
Development and Trade Fees $ 600,000
On-Street Parking Program 600,000
Bylaw Fines 561,600
Police Revenues 50,000
Property Tax Search Fees. 26,000
Total $ 1,837,600
Consistent with Council s recommendation, this transition funding has
been provided in the interim estimates by reducing the provision for
Capital from Revenue. The impact of this allocation is that projects or
programs of this value and currently included in the Capital Plan and
funded from revenue will have to be eliminated. Council need not make
the decision on which projects or programs are to be reduced at this
time. The 1997 Capital Budget will be before Council on May 8, 1997, at
which time allocation of funding from the Operating Budget, including
reductions sufficient to offset this transition funding, will be made.
PARK BOARD GLOBAL BUDGET
The 1997 interim estimates make full provision for the Park Board Global
Budget of $36,148,200, including added basic funding of $258,700. The
provision has been calculated by City and Board staff according to the
agreed upon principles. The revenue and expenditure estimates for 1997,
with comparable figures for 1996 are:
Gross Revenue 21,552,700 23,203,100
Gross Expenditure 58,700,900 60,166,800
1997 Net Budget 37,148,200 36,963,700 0 0.4%
The change in revenue and expenditure estimates in 1997 reflect the
impact of a variety of adjustments. The most significant, and visible,
of these is the revenue and expenditure reduction resulting from the
closure of Fraserview Golf Course for renovation in 1997. One of the
conditions of the financing plan for this project is that closure of the
golf courses will have no impact on the level of operating funding
provided by the City under the global budget and the recommended funding
levels are consistent with that condition. The Park Board estimates
have also been adjusted for $754,000 in net reductions directed by
Council as part of the preliminary estimates, including $54,000
representing the City s 1/3 share of new revenues generated by the
Board. Finally, the global budget includes $979,000 in funding for the
new Roundhouse Community Centre scheduled to open in 1997.
The recommended global budget also includes $258,700 in added basic
costs associated with new operating costs arising, primarily, from the
Board s capital program. These new expenditures are summarized as
follows:
Systems Infrastructure $ 54,300 operation and maintenance of the new
Community Centre computer system.
Building Maintenance 17,000 maintenance costs associated with
building renovation and upgrading.
Park Infrastructure
Maintenance 64,000 maintenance of park furniture and
facilities.
Street Trees 80,000 maintenance of 2,700 new street
trees.
Playfield Maintenance 24,100 maintenance of upgraded play fields.
Park Maintenance 19,300 maintenance of new parks.
Total 258,700
The recommended global budget should provide for the City portion of
parks and recreation expenditures for 1997.
CONCLUSION
This report presents the interim results of the 1997 Operating Budget
building process. It presents a balanced budget position for Council s
consideration which includes a 4.5% general purposes tax increase as
approved by Council on February 20, 1997.
SUBSEQUENT PROCEDURES
On Thursday April 24, 1997, City Services and Budgets Committee will
receive a report summarizing the final adjustments to the 1997 Operating
Budget for approval in principle. This report will satisfy the
Vancouver Charter requirements for the estimates to be presented to
Council by April 30 each year. Also before Committee on April 24 will
be a report from the Director of Finance outlining property tax options
for 1997, including the impacts of a differential tax increase across
the property classes and a tax capping program for Class 6 Business and
Other properties.
On May 8, 1997, City Services and Budgets Committee will receive a
report on the 1997 Capital Budget including recommendations for
allocating Capital from Revenue funds to individual capital projects.
On May 15, 1997, City Services and Budgets Committee will receive a
report from the Director of Finance presenting the final Operating
Budget Resolution and Rating Bylaws for consideration. This report will
reflect the final impact of decisions made regarding taxation policy
measures, including a 1997 tax capping program. Action on these items
will finalize the budget process.
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