ADMINISTRATIVE REPORT

Date: October 29, 1998
Author/Local: J. Beresford 7789

RTS No. 00295

CC File No.

TO:	Standing Committee on City Services and Budgets
FROM:	Director of Finance
SUBJECT:	1998 Operating Budget - September Review

RECOMMENDATION

A. THAT the proposed adjustments to the 1998 Operating Budget revenue and expenditure appropriations as outlined in this report be approved.

B. THAT the provision for debt charges related to the 1998 debenture program, in the amount of $1.157 million, be transferred to the Debt Repayment Reserve.

C. THAT any shortfall in the 1998 Operating Budget at the end of the year be funded first from the Capital Reserve, including any deficiencies in the Park Board revenue programs as contemplated in the Global Budget agreement.

GENERAL MANAGER COMMENTS

The General manager of Corporate Services RECOMMENDS approval of A, B and C.

POLICY

Council's standing instructions require that the Director of Finance report on the status of the Operating Budget as of June 30 and September 30 each year, along with recommendations for any appropriate adjustments.

Council must approve transfers to and from reserve accounts.

Under provisions of the Park Board global budget, Council has authorized the Director of Finance to maintain a notional Revenue Stabilization Account to balance the annual surpluses or deficits that result from seasonal or weather-related factors affecting the revenue programs.

PURPOSE

In accordance with Council's standing instructions, this report reviews the status of the revenue and expenditure appropriations in the 1998 Operating Budget at September 30, 1998, and seeks Council approval to make adjustments that reflect our revised expectations.

DISCUSSION

September Budget Review includes detailed reviews of both the revenue and expenditure appropriations in the Operating Budget as of September 30.

1. Adjustments to Revenue Appropriations

The review of revenue appropriations seeks to identify areas of significant variance that have arisen as a result of experience or new information since the budget was approved in April. The Director of Finance is recommending several adjustments to the revenue appropriations.

Revenue Program
Increase/ (Decrease)

Receipts in Lieu of Taxes $150,000

Grant-in-lieu of tax estimates for senior government property established using provisional tax rates, have been recalculated using final tax rates. As a result, it is recommended these estimates be increased by $150,000.

Development and Construction Related Revenues $(1,074,000)

Areas of the 1998 Operating Budget which are sensitive to the development and construction sector revenues were reduced in anticipation of a slowdown in activity. However, the decline in revenues has proven to be more significant than anticipated when the estimates were approved in April. The shortfall of revenues from development and building permits is anticipated to be $300,000 and $200,000 respectively, and shortfalls in related service and inspection fees total $274,000. In addition it is recommended that the appropriation for Anchor Rod Fees be reduced by $300,000. Anchor Rod Fees generated from underground street shoring of largescale construction projects are directly affected by the reduction in development activity, and have also been adversely affected.

On-Street Parking Program

The full impact of extended parking hours put into effect in 1997, coupled with productivity improvements in parking enforcement and collections have resulted in continued revenue growth from the On Street Parking Program. Two adjustments are recommended to the current appropriations:

Parking Meter Revenues $300,000
Bylaw Fine Revenues $340,000

Interest on Temporary Investments $866,700

Increases in short term interest rates have had a positive impact on returns to the temporary investments portfolio. Although financial markets continue to be volatile, the average interest rate has been higher than anticipated when the initial budget estimates were prepared, providing additional revenue for the Operating fund.

Net Increase to Revenue Accounts $582,700

2. Adjustments to Expenditure Appropriations

Under normal circumstances, departments are expected to operate within the expenditure appropriations approved by Council in April each year. Where problems are identified, departments are required to realign priorities or reallocate resources within existing budgets. This is an ongoing process in which finance staff work with departments to identify and minimize these problems. The focus of the September review of expenditures is generally restricted to those areas where departments have been impacted by factors which cannot otherwise be accommodated.

Fire Department Settlement Costs $650,000

The City has been ordered by the Employment Standards Branch of the Ministry of Labour to provide back-pay to Fire Department recruits involved in the Justice Institute's Fire Academy training. As recruitment practices have since been modified to avoid these expenses, this is a one time payment that should not impact on future budgets.

Police Department - Legal Expenses $560,000

The Police Department is currently involved in a case before the Human Rights Commission brought by civilian operators in the Police Communications Centre. The legal costs associated with this case have reached $560,000 and could reach as much as $1 million by the end of 1998 and are not otherwise provided for in the Operating Budget.

Net Increase in Expenditure Accounts $1,210,000

TOTAL FUNDING REQUIRED $627,300

3. Bringing the Budget Into Balance

The adjustments recommended above leave the 1998 Operating Budget in a deficit position of $627,300. As the City must maintain a balanced budget position, the Director of Finance recommends that funding be provided from Contingency Reserve to offset the shortfall and return the budget to a balanced position. Reallocation of Contingency Reserve Funds will leave a balance of $786,000 to deal with emergent items that arise before or during the 1998 year end.

4. Park Board Global Budget

The global budget arrangements with the Park Board provide a mechanism for stabilizing the revenue programs that are subject to significant variances as a result of economic and weather related impacts. In years where the Board's revenue programs fall short of budget expectations, the Director of Finance has been given the authority to draw from Revenue Surplus as an offset. In years where there are surpluses on these programs, the surplus are applied to any accumulated shortfalls.

A review of the Park Board Global Budget, projected to year end, indicates a modest but positive operating result for the Board's revenue programs. While it is not anticipated that the Director of Finance will be required to exercise this authority, it is normal practice to seek authority to deal with any shortfalls in these programs. This authority is provided in Recommendation C.

5. Funding for the 1998 Debenture Program

The City finances its capital program, in part, by issuing debenture debt. As the budget must make a full annual provision to service that debt, the Operating Budget normally includes a provision for debt charges arising out of an issue during the current year. However, the timing of the 1998 issue, which will be reported to Council in an upcoming report, will not require debt service payments to be made until 1999. As a result, the Director of Finance recommends that the provision in the 1998 Operating Budget, totalling $1,157,000 be transferred to the Debt Repayment Reserve in order to fund these costs in subsequent years.

CURRENT STATUS OF THE BUDGET

The recommended adjustments to the 1998 Operating Budget will leave the budget in a balanced position. However, September Review indicates that the budget is very tight and it will be a challenge to end the year in a surplus position. The forgoing section notes the concerns about service and inspection revenues and, while most departments are operating within their budget targets, there are some areas that may cause difficulties by year-end. Current projections suggest that the shortfall on Civic Theatres operations will be larger than anticipated and that the Police Department is likely to overspend its budget. In addition, assessment appeals, including a major appeal involving Pacific Centre, will require funding from limited reserve funds established for this purpose. A major snowfall would also have a significant impact on the City's ability to avoid an operating deficit. As a result of this concern, departments are being asked to take particular care to control the use of discretionary funds for the balance of the year.

Normally, year-end surpluses and deficits in the Operating Budget are transferred to or taken from Revenue Surplus. However, the Director of Finance notes that the balance in Revenue Surplus continues at an historically low level ($3.6 million) and does not believe that any further reduction is appropriate. Accordingly, it is recommended that any negative variances realized at the year-end be funded from the balance in the Capital Reserve. This funding ($3.8 million) is available because of favourable variances on completed capital projects funded from the Operating Budget. Council utilized this source of funding to keep the Operating Budget from falling into a deficit position at the end of 1996.

CONCLUSION

A review of the 1998 Operating Budget as of September 30, 1998 indicates that several adjustments are appropriate based on changes since the budget was approved in April.

These changes are summarized as follows:

Increase in Revenues	$ 547,700
Increase in Expenditures	(1,210,000)
Total Funding Required	(662,300)
Transfer from Contingency Reserve	662,300
Net Budget Position	$ 0

With these recommended adjustments, the 1998 Operating Budget will be brought back into balance. The Director of Finance notes that the 1998 budget remains very tight at this point in the year and the departments are being instructed to take particular care to control discretionary expenditures to year-end.

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(c) 1998 City of Vancouver