ADMINISTRATIVE REPORT

Date: October 20, 1997

CC File: 1605

TO: Standing Committee on City Services and Budgets

FROM: Director of Finance

SUBJECT: 1997 Operating Budget - September Review

RECOMMENDATIONS

A. THAT the proposed adjustments to the 1997 Operating Budget revenue and expenditure appropriations as outlined in this report be approved.

B. THAT any budget surplus as a result of the 1997 labour disruption be held in the Current Surplus on Revenue Account.

C. THAT any shortfall in the 1997 Operating Budget at the end of the year, including any deficiencies in the Park Board revenue programs as contemplated in the Global Budget agreement, be funded, first, from the net savings from the 1997 labour dispute and, then, from the Capital Reserve.

GENERAL MANAGER COMMENT

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

COUNCIL 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 annualsurpluses 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 1997 Operating Budget at September 30, 1997, including the impacts of the 1997 labour disruption, 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. For 1997, this review looks separately at the impacts of a normal review and at the impacts of the labour disruption that occurred during August and September.

1. THE NORMAL REVIEW

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. Council will note there are several adjustments recommended to revenue appropriations.

(i) Adjustments to Revenue Appropriations

Revenue Program

Increase/ (Decrease)

Receipts-in-lieu of taxes$108,400

There are three adjustments recommended in this area. Higher than expected grants-in-lieu of taxes have been received from BC Gas ($150,000) and BCHMC ($25,000). These are offset by the requirement to remit an additional $66,600 to the provincial government for school purposes from grants-in-lieu of taxes.

Council has previously been advised of claims by the Vancouver Port Corporation and the CBC regarding the amount due the City for payments-in-lieu of taxes. Staff at the Port Corporation, City and Assessment Authority have begun discussion with a view to clarifying by year-end the differences between what has been paid to the City and what the corporation now believes is due. With respect to the CBC, a proposal for a revised assessment has been made by BCAA with a view to settling this disagreement, however, we are awaiting a decision from the CBC on whether that proposal is acceptable. Adjustments were made to the 1997 operating budget to deal with both of these disputes, and staff will report back any additional adjustments that are necessary when final settlements are reached.

Provincial Grant$(180,400)

When the Province eliminated its municipal funding programs for 1997, the grant to the City was reduced to $6.019 million, the amount included in the budget. Following approval of the City estimates, the Director of Finance was advised that the actual amount of the grant would be further reduced to $5.838 million. This reduction is related to a decision by the government to delay the transfer of responsibility for arterial highway maintenance to local government. Although the City is not directly impacted by downloading of these costs, the province funded the delay by reducing the overall equalization grant program resulting in the City having its grant reduced.

Licence Revenues$(200,000)

Lower activity levels in the business licence area than anticipated at the beginning of the year, likely coupled with the impacts of the recent labour dispute, have left revenues below expectations.

On-Street Parking Program$565,000

There have been several impacts on this program since the initial budget estimates were developed early in the year. Extended hours for parking meters has generated significantly more revenue ($915,000) than originally anticipated. On the other hand, estimates related to parking permits ($100,000), coin collection ($150,000) and bylaw fines revenue ($100,000) were overstated. A net adjustment to this program of $565,000 is recommended.

Musqueam Service Agreement$272,000

Council recently renewed the service agreement with the Musqueam Indian Band. That agreement provides for payments to the City based on assessed values for Musqueam properties and City tax rates. An increase in the assessment on the Band Lands has increased the amount due from this agreement by $272,000 above the original budget.

Rental Revenues$100,000

Final billings of rents-in-lieu of property tax on City-owned properties has resulted in an increase of $100,000 in revenue from this source.

Rezoning Fees$(190,000)

The original estimate for rezoning fees was based on an expectation that two major rezonings would be submitted in 1997. However, one of these applications was more limited than anticipated and a downward adjustment in the revenue expectations for the year is appropriate.

Net Increase to Revenue Program Accounts $ 475,000

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

The review of expenditure estimates indicates that, with the following exceptions, departmental expenditures are tracking close to budget appropriations.

(ii) Adjustments to Expenditure Appropriations

Expenditure

Increase/ (Decrease)

General Government - Legal Expenses$400,000

The costs associated with a case before the Human Rights Commission brought by civilian Communications Operators in the Police Department Communications Centre are expected to reach approximately $400,000 in 1997 and are not otherwise provided for in the Operating Budget

Regional DCCs - Municipal Assist$95,000

In September 1996, Council agreed to fund 50% of the regional development cost charges being levied on new development in the City. Although that decision was reversed in February 1997, the City processed payments from developers totalling $180,000 prior to the reversal and the City’s share requires funding.

Net Increase in Expenditure Accounts$ 495,000

TOTAL REQUIRED FUNDING$ 20,000

The recommended adjustments leave the 1997 Operating Budget in a deficit position. The Director of Finance recommends that funding be provided from Contingency Reserve to offset that shortfall and return the budget to a balanced position.

Park Board Global Budget

Review of the Park Board Global Budget, projected to year end, indicates another difficult year for the Board’s revenue programs. Although most areas of the Park Board budget appear to be within approved funding levels, two areas of the revenue program--Concessions and Golf Courses--are projected to end the year in a shortfall position compared to the budget, currently estimated at $293,000. Board staff indicate the primary reasons for this shortfall are a wet spring which impacted golf course and concession revenues; and, a reduction in Stanley Park concession revenues as a result of the withdrawal of Zoo attractions and the opening of food services within the Vancouver Aquarium. Park Board staff are identifying areas where adjustments can be made in the budget to offset this shortfall by year-end.

As Recommendation C deals with the source for any necessary funding in 1997, no adjustment to the Global Budget is recommended at this time.

2. 1997 LABOUR DISRUPTION IMPACTS

On August 6, 1997, CUPE 1004 members exercised their right to strike following rejection of the City’s offer of a new contract. Within two days, the work stoppage had spread to include closure of all of the City’s works yards, the Park Board’s Evans Works Yard and City Hall. While the strike was characterized as a "garbage strike" it affected significantly more than Sanitation operations. In addition to a suspension of residential and commercial garbage collection and recycling services, the work stoppage affected water, sewer, streets, transportation and electrical operations and maintenance programs in both the Operating and Capital Budget. In addition, because of picketing, 800 CUPE 15 employees were unable to report to work resulting in curtailment of most of the functions performed at City Hall.

The strike did result in savings, however, there were also costs incurred to ensure that services to the public were maintained and that City assets were properly protected. Although the objective was to control the costs of returning City operations to normal, there have been some recovery costs which must also be accounted for.

In determining the savings of the disruption, distinction was made between:

those areas where real savings were achieved because work was not done and need not be "made up". These include street cleaning costs and most of the savings associated with the lost time of CUPE 15 members who were "picketted out."

those areas where real cost saving were achieved but where revenues or recoveries were also lost. These would include the operation at the Landfill and the commercial container service.

those areas where work was not done during the strike but can and should be done before the end of the year. For example, some street maintenance work not done during the strike has been rescheduled after the strike and it would be unwise to delay that maintenance if it can be achieved in this budget year.

In determining the extent to which budgets might be reduced because of the strike, consideration was given to the ability of the department to actually complete the work they fund within the budget cycle. For example, there is some work funded in the operating budget than can be completed before year-end in spite of the strike, and funding for that work was not identified as strike savings. Likewise, for capital expenditures funded from the Capital Plan, the appropriate budget cycle is the three year plan and there is the expectation that this work will be completed within that period. As much of the CUPE 1004 workforce is involved in this work, leaving this funding in place tends to reduce the savings that might otherwise be expected from the work stoppage.

The following table summarizes the costs and savings related to the strike. Detail and notes concerning the various categories of savings and costs are attached in Appendix A.

Strike Savings					(6,139,800)
Lost Revenues					1,738,700
Strike Costs					3,272,300
Net Strike Savings					$ (1,128,800)

Strike Savings: The most significant single area of cost savings was from salaries saved as a result of CUPE 15 being "picketted out" of City Hall. Adjustments to salary, benefit and temporary help accounts put these savings at approximately $3.175 million. Savings were also achieved in some Engineering programs including Solid Waste and Recycling, Streets, Sewers, Transportation and Electrical maintenance program. There were also savings in the Park Board because of the limited, short term closure of Evans Yards.

Lost Revenues: The strike does not appear to have had a significant impact on the City’s revenues, with the exception of those revenues related to Solid Waste Operations, where over $2.0 million was lost in tipping fees and containerized collection revenues. It is estimated that about $50,000 in Property Tax Search fees were lost because this service could not be maintained by excluded staff. There was some expectation that the closure would impact on Zoning and Development revenues, however, a review of our experience with the 1994 work stoppage and of the post-strike activities in Community Services suggests that most of this "lost" revenue will be realized as development work that was delayed by the strike comes forward.

Costs Related to the Strike: The most significant of the costs related to the strike were those associated with maintaining City services within City Hall and ensuring that City assets were appropriately protected. During the six week closure, exempt staff worked an estimated 22,000 overtime hours at a cost of $1.3 million and an additional 3,800 hours taken as compensating time. Legal and other miscellaneous costs total approximately $210,000.

As a result of the settlement, the City paid a return to work bonus to those employees who had been on strike ($743,000) and offered those employees who were "picketted out" the opportunity to buy-out up to two weeks of accumulated vacation time ($330,000). Costs of this latter offer are open to employees until October 31, 1997.

At the conclusion of the strike, there were some extraordinary costs incurred in resuming normal operations. Most of these recovery efforts were concentrated in Sanitation, where additional manpower was enlisted from other operational areas to assist in the clean-up. Lesser costs have been incurred in the Community Service Group to return the zoning and building areas to normal operating levels.

The table indicates that the net savings associated with the work stoppage are currently estimated at $1.1 million. However, there are still recovery costs being incurred in some areas of the City, such as Payroll and Community Service. As these costs take some time to be reported to the financial system, a full accounting will not be available until closer to year-end. These additional costs will reduce the savings identified above.

In addition to these strike impacts it should also be noted that the strike has a negative impact on the Solid Waste Capital Reserve. Because of the adjustments in commercial tipping fees the SWCR will fund an additional $403,000 to support recycling programs in the Operating Budget. These costs are not accounted for in the table above.

In seeking to identify the savings from the labour dispute, staff concentrated on those areas where savings were easily calculated. For example, payroll savings can be easily identified in the budget while savings in supplies and other accounts that may have been affected by the strike are more difficult to identify. In order to ensure that the budget does benefit, the Corporate Management Team has undertaken to ensure these other savings, which have not been included here, are achieved in their operating budgets at year-end.

The Director of Finance notes that there has been speculation in the media about the extent of strike savings. Most of that speculation has focused on the fact that salaries and wages were not paid to employees on strike or "picketted out" for the duration of the strike. A review of payrolls before, during and after the strike suggests that these savings are in the range of $10.5 million. However, this calculation ignores the fact that some of the work which is funded in the Operating Budget and not undertaken during the strike, will still be done within the current budget cycle. Likewise, construction work funded in the Capital Budget is simply deferred rather than saved as it will still be scheduled during the term of the Capital Plan. In making the adjustments identified above, staff have made no adjustment to budgets for capital works nor to operating budget programs where work will be completed before year-end despite the strike. The actual savings from the strike are more accurately reflected in the analysis presented in this report.

The Director of Finance recommends that the net financial impact of the strike be kept separate from the other adjustments that form part of September Budget Review and recommends that they be transferred to the Current Surplus on Revenue.

OTHER POTENTIAL IMPACTS ON THE 1997 OPERATING BUDGET

The review of the status of the 1997 Operating Budget has identified several items that have the potential to adversely impact on the budget before year-end.

The 1997 Operating Budget does not include funding for salary or benefit increases for any of the City’s bargaining units. To date, most employee groups have concluded agreements calling for no salary increase in 1997. However, to achieve these agreements, some benefit improvements have been provided all effective in 1997. Staff have not had the opportunity to adequately assess the impact these changes will have on the 1997 budget and while they are not expected to be significant, they could result in variances in fringe benefit accounts that may have to be adjusted at year-end.

The Vancouver Police Board and Vancouver Police Union are currently in binding arbitration on a new contract. In addition, a contract has not been reached with the Firefighters Union for 1997, making it the last major employee group without a contract. At the time the Operating Budget was approved, the CMT made a commitment to fund any increases in costs as a result of contract settlements through further service level reductions. Should the resolution of these contracts result in any additional costs in 1997, staff will report back to Council to identify a source of funding.

Finally, the Asia-Pacific Economic Conference will be held in Vancouver in November. The 1997 Operating Budget currently has provision for $630,000 in costs associated with this conference, funded in part by Tourism Vancouver ($350,000) and in part by the City ($280,000). On November 4, 1997, Council will hear a report reference related to this event and the associated costs. Any costs which exceed the current appropriation will have to be provided for within the Operating Budget.

Under normal circumstances, it would be expected that Contingency Reserve would be the source of funding for emerging issues such as these. Contingency Reserve currently has a balance of $1.1 million.

DEALING WITH THE YEAR-END

Normally, year-end surpluses and deficits in the Operating Budget are transferred to or taken from Revenue Surplus. Our review of the Operating Budget at September 30, has indicated areas where additional funding may be required before year end. For example, the budget contains only a minimal amount of funding to deal with a heavy snowfall before year-end and, in this event, our current balanced budget could be quickly forced into a deficit position.

The Director of Finance notes that the balance in Revenue Surplus continues at an historically low level ($4.0 million) and does not believe that any further reduction is appropriate. Accordingly, it is a recommendation of this report that any negative variances realized at the year-end be funded first from savings associated with the 1997 labour dispute and then from the balance in the Capital Reserve. This latter funding ($1.3 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 1997 Operating Budget as of September 30, 1997 indicates that several adjustments are appropriate since the budget was approved in April. In summary the changes are as follows:

Revenue increases$ 475,000

Expenditure increases 495,000

Total funding requirements(20,000)

Transfer from Contingency Reserve 20,000

Net Budget Position 0

The six week labour disruption experienced by the City in August and September 1997, has led to net savings in the budget currently estimated at $1.1 million. It is recommended that Council set these funds aside in the Current Surplus on Revenue account and that this be the first source of funding utilized should the budget be in a deficit position at year-end.

With these recommended adjustments, the 1997 Operating Budget will remain in balance. However, even with the balanced position, the Director of Finance notes that some uncertainty remains in the 1997 budget and departments are being asked to take particular care to control discretionary expenditures to year-end.

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Appendix 1

1997 Labour Dispute Costs and Savings

This table details areas of cost savings, strike related costs and recovery costs associated with the 1997 labour dispute.

				Details	Total		Comments
Strike Savings					(6,139,800)
	Salary/Support & Equipment Costs			(3,611,000)		-	savings are reported net of specific recovery
	Program Savings						.
		Engineering Maintenance		(730,000)		-	In Streets, Sewers, Electrical and
		Street Cleaning		(466,200)
		Solid Waste Disposal		(660,300)
		Residential Collection		(520,400)
		Container Service		(151,900)
		Residential Recycling		(196,400)		-	Savings from recycling programs accrues
				196,400			to the Solid Waste Capital Reserve
		WaterWorks		(451,300)		-	Savings from Waterworks accrue to the
				451,300			Water Rate Stabilization Reserve
Lost Revenues					1,738,700
	Solid Waste			1,688,700		-	Lost revenues from Landfill tipping fees
	Zoning & Building Fees			0
	Property Tax Search Fees			50,000
Strike Costs					3,272,300
	Reduction in Transfer to Capital			193,600		-	Professional staff time normally charged to
	Program Maintenance Costs			1,327,500		-	excludes allowance for compensating time
	Legal Costs			145,000
	Other Costs			64,300
	Settlement Costs
		CUPE 1004 Signing Bonus		743,400
		CUPE 15 Vacation Buy-out		329,500		-	this offer open until October 31, 1997
	Recovery Costs			469,000		-	additional costs expected
Net Impact of Strike					(1,128,800)

Notes to the Table

1. Strike Savings

Salary/Support and Equipment Costs savings include salary and benefit savings for union staff who were unable to work during the strike (primarily CUPE 15), temporary help and other support costs savings related to the shut down, as well as equipment cost savings. These savings are spread throughout the Operating Budget and involve all staff savings excluding those directly involved in the programs listed below.

Engineering Maintenance Programs include savings from sewers, streets, electrical and transportation maintenance programs that cannot be rescheduled in the current budget year.

Street Cleaning operations were suspended for the six week duration of the strike.

Vancouver Landfill was closed for the six week duration of the strike. However, the savings from this closure are more than offset by the loss of revenue from residential and commercial tipping fees. The net result of the closure is that the cost per tonne of waste processed at the landfill in 1997 will be higher than currently provided for in the Operating Budget, reducing the surplus earned on tipping fees. This reduction in the commercial tipping fee surplus will result in an increase in the transfer from the Solid Waste Capital Reserve of $403,000 to suppport recycling programs in the Operating Budget, a cost that is not accounted for above..

Residential Garbage Collection was suspended for the six week duration of the strike. Based on the costing done for the Solid Waste Utility, the gross savings per dwelling unit are approximately $11.90. With recovery costs factored in, the savings decline by about $2.00 per dwelling unit.

Sanitation Container Service was suspended for the six week duration of the strike. This savings is offset by revenue loss estimated at $292,800.

Residential Recycling service was suspended for the six week duration of the strike, however, as these costs are paid by the Solid Waste Capital Reserve, there is no savings to the Operating Budget.

Waterworks operations were suspended for the six week duration of the strike. As the City continued to deliver water to its customers, there was no loss in revenue. Savings as a result of the strike will accrue to the Water Rates Stabilization Fund.

2. Strike Costs

Reduction in Transfer to Capital represents the cost of Engineering staff that would normally have been transferred to the Capital Budget because of their contribution to design and administration. During the strike, this staff was diverted from their normal duties to the Capital Budget and were reassigned to program maintenance and security activities. Transferring these costs to the Capital Budget now would be an effective reduction in the funding available to complete the associated projects when they proceed.

Program Maintenance Costs include the costs associated with maintaining City services and ensuring that City assets were adequately protected. For the most part, these costs are cash overtime costs for exempt staff who worked an estimated extra 22,000 hours beyond their normal shifts. In addition to these costs, staff accumulated approximately 3700 hours of compensating time that must be liquidated or paid out in 1998.

Legal Costs include the costs of outside legal assistance during the strike.

Other Costs include a wide range of costs that were directly attributed to the strike, including communications costs, security costs and payments to City contractors who were adversely impacted by the strike.

3. Settlement Costs

There are two primary areas of cost associated with the CUPE 1004 settlement:

CUPE 1004 Bonus is a $700 per employee payment made upon return to work. The payment to totalled $743,400 to 1,060 union members.

CUPE 15 Vacation Buy-Out was an option given to members of the inside union who were "picketted out" during the strike. It provided the opportunity to buy-out for cash any accumulated time (vacation, compensating or gratuity) up to a maximum of two weeks. To date approximately 200 members have taken advantage of this offer at a cost of $330,000. Additional applications are expected prior to the expiry of the offer on October 31, 1997. While this cost is incurred in 1997, there are potential savings available in the 1998 budget for vacation relief.

4. Recovery Costs

Strike recovery costs are primarily related to the additional work necessary to clean up solid waste. Two-man crews on residential garbage collection beats were augmented in the two weeks following the strike and extra time was worked to expedite the clean up. The Sanitation Branch also "borrowed" staff from other Engineering Branches to assist with the clean-up. Finally, Park Board staff were required to work extra shifts to remove garbage in City parks and at community centres during the strike period.

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(c) 1997 City of Vancouver