Agenda Index City of Vancouver

ADMINISTRATIVE REPORT

TO: Standing Committee on City Services and Budgets
FROM: Director of Finance
SUBJECT: 1999 Operating Budget - Final Estimates
 

RECOMMENDATION

CITY MANAGER'S COMMENTS

COUNCIL POLICY

The Vancouver Charter requires the Director of Finance to present the estimates of revenues and expenditures to Council not later than April 30 each year and for Council to adopt a resolution approving the budget and a rating bylaw establishing general purpose tax rates as soon thereafter as possible. 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 16 and subsequent action on the estimates was taken on March 11, 1999.
… 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. The Final Report is accompanied by a resolution in which Council adopts the estimates for the year.

It has been Council policy that general purpose tax increases associated with development of the Operating Budget be held within the range of local inflation.

In approving the annual budget, Council has adopted a practice of passing tax increases related to requisitions from outside agencies, including the Greater Vancouver Sewerage and Drainage District, through to taxpayers rather than forcing offsetting reductions in City programs and services to meet Council’s taxation objectives.

It is Council policy that changes in service levels, either expansions or reductions are approved by Council. This includes the creation and deletion of regular positions and the allocation of funding from revenues or taxation.

PURPOSE

The purpose of this report is to review the 1999 Operating Budget as revised since Council considered the Preliminary Report on February 16 and March 11, 1999. The report also recommends a funding level for the 1999 Park Board Global Budget.

BACKGROUND

On October 6, 1998 and October 23, 1998, Council considered a report from the Director of Finance outlining the projections for the 1999 Operating Budget. The budget position in the projections would have required a property tax increase of 3.1% in order to bring the budget into balance. However, recognizing that this position exceeded Council’s taxation policies, the Director of Finance and the Corporate Management Team proposed two recommendations, approval of which were intended to establish an acceptable envelope within which the 1999 Operating Budget would be developed.

A. THAT Council instruct staff to develop the 1999 Operating Budget by working to amaximum increase in property taxes of 1.9%, reflecting a 1% increase related to increases in City expenditures and 0.9% related to growth in the requisition from the Greater Vancouver Sewerage and Drainage District.

B. THAT Council approve the revenue and expenditure adjustments to the 1999 Operating Budget proposed by the Corporate Management Team and outlined in this report and summarized in Appendix 2.

Recommendation B referenced new revenues totaling $200,000 and a series of adjustments to the City’s expenditure program totaling $3.5 million.

On October 23, 1998, Council also considered a proposal put forward by the City Manager and the Chief Constable which provided police resources and funding as a first step to deal with the growing problems in the Downtown Eastside. Council approved the following recommendation:

In December 1999, based on representations from the Police Board related to the opportunity to deploy sworn staff to the Downtown Eastside Beat Team, Council amended its participation in the program to a maximum of $3.2 million over the three-year term of the agreement.

The effect of these three recommendations was that Council established an overall target for the 1999 Operating Budget reflecting a 2.9% property tax increase. This tax increase was comprised of the following components:

… growth in the City’s base budget1.0%
… Downtown Eastside Police Team1.0%
… increase in Regional Sewerage costs0.9%

Council considered the 1999 Operating Budget Preliminary Report on February 16, 1999. That report highlighted several significant changes that had impacted on the estimates, including:

… elimination of the Provincial Equalization Grant Program
… a potential delay in the major road network maintenance recovery from GVTA
… increases in the public safety estimate, including the costs associated with E-Comm
… revised estimates for development and building fee revenues
… deferral of the City's debenture program

The net impact of these changes would have been an increase in the general purposes property tax increase from the 2.9% approved by Council in October, to 4.4%. Council deferred consideration of further expenditure program changes submitted by the Corporate Management Team and established a revised general purposes tax increase target of 3.4%. Council also approved a recommendation calling for a major review of the City's core services to be conducted as part of the 2000 budget process.

On March 11, 1999, the Director of Finance reported back to City Services and Budgets Committee with proposed adjustments to the preliminary estimates designed to achieve Council's taxation target without additional expenditure program changes. These initiatives, including, inclusion of the major road network maintenance recovery in the estimates ($1.8 million), and funding of the Downtown Police Beat Team over two years ($1.6 million), were approved by Council.

DISCUSSION

Staff has now completed the administrative review of the revenue and expenditure estimates according to the instruction provided by Council on February 16 and March 11. That review involved discussions between Budget Office and departmental staff to ensure that individual department budgets included only sufficient 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, the 1999 Operating Budget has been brought into a balanced position.

The following table summarizes the current position of the operating estimates:

Additional detail of these estimates is provided in Appendix 1 along with comparison information from the 1998 Final Operating Budget. The following summarizes the major revenue and expenditure areas in the budget.

1. Revenue Estimates

a) Taxation Revenues

Taxation revenue includes both the City's general purposes tax levy and other taxation-based revenue from grants in lieu of taxes and penalties on outstanding and arrears taxes.

… Prior to consideration of the 1999 property tax increase, the property tax levy is anticipated to be $354.5 million, up about $4.0 million from the 1998 level. This reflects the net impact of adjustments to the assessment roll and the addition of $4.4 million in tax revenue from new construction.
… For the first time in several years, the City has reasonable certainty around the revenue that can be expected from grants-in-lieu of taxes from senior governments, the result of the settlement of outstanding claims with the Vancouver Port Corporation, CBC and Canada Post.
… Arrears taxes have increased at the end of 1998 as compared to prior years and it is anticipated that higher arrears interest will be earned in 1999.

b) General Revenue and Utility Fees

After taxation, the City earns its revenues from a variety of sources including fees and charges, utility fees, rental income associated with City-owned property, short-term investment earnings and funding from the Provincial government. Overall, the budget estimates indicate a decline in these revenue sources of $3.8 million (4.3%) from the 1998 level. The following summarizes the issues associated with the current estimates:

… Council is aware that the Province eliminated the Equalization Grant Program under which the City had received $5.8 million in 1997 and 1998. The loss of this revenue represents a tax increase of 1.7%. However, at the time the grant was eliminated, the Province announced a new program of revenue sharing for traffic fine revenues. The interim estimates include $3.5 million in funding from this source.
… The budget includes a reduction of $1.2 million in Short Term Investment Income from the 1998 budget level. This reflects the impact of a revised borrowing program and lower rates. Compared to 1998 actual results, the reduction is approximately $600,000.
… On-Street Parking revenue has increased to $22.5 million as a result of active management of on-street parking. Increased rates to ensure that this parking is priced competitively with off-street alternatives and that turnover is encouraged, along with expansion of the program, continues to generate additional revenue for the City. Some of this new revenue offsets increased expenditures for maintenance and enforcement.
… Building and Development revenues have declined sharply during the later part of 1998 and into the first three months of 1999. The 1999 revenue estimates reflect a reduction of $1.4 million from the 1998 budget level. Although concerns continue about this revenue, no further reductions in the estimates are recommended at this time. Community Services have implemented expenditure restraint measures, including strict controls on overtime and replacement staffing and a freeze on hiring for vacant position in the affected areas. These initiatives are anticipated to reduce costs by up to $300,000 in the short term to offset any revenue shortfalls that might occur. Staff will continue to monitor activity levels in the department on an ongoing basis and are developing contingency plans for further expenditure reductions should revenues not rebound to currently budgeted levels during the next three months.
… Utility Fees represent the revenues generated from operation of the Solid Waste and Water Utilities. These revenues are offset by equivalent operating and debt-related expenditures and have no impact on property taxation.

c) Transfers from Reserves

The interim estimates include $13.0 million from several sources outside the operating budget, including:

… the annual funding provided from the Property Endowment Fund ($7.0 million).
… the annual surplus from the City's Sinking Fund ($4.8 million). This transfer continues to decline as a result of lower investment earnings by the fund.
… a transfer from the Hastings Park Reserve to fund the City's building maintenance obligations at Hastings Park ($500,000).
… a transfer to assist with funding for the 1999 civic election ($600,000). These funds had been reserved in 1997 and 1998 for this purpose.
… a transfer of the interest earnings from the Art Gallery Reserve which partially offsets the City's operating grant to the Vancouver Art Gallery ($160,000).

2. Expenditure Estimates

The interim expenditure estimates are $565,621,900, representing an increase of 2.8% over the final 1998 budget. This position represents the net impact of inflation in salary and other costs, the addition of new program expenditures, changes to the expenditure program approved by Council earlier in the budget process and a reduction in debt charges.

a) Program Expenditures

Holding department estimates to target levels was the primary objective of budget review. Targets ensure that program funding is sufficient to provide for increased salary, wage and benefit costs as well as the costs associated with general inflation. Where appropriate, funding is also included for "added basic" which is the cost of new or expended programs and services approved by Council over the last year. In meeting these targets, departments have often had to make choices among competing demands for resources and, in some cases, re-allocation of funding has taken place to accommodate those demands which were of a higher priority. Where re-allocations were made, departments were asked to provide justification for the programmatic changes that would result. Budget Review has not identified any significant changes in on-going programs that are funded in the budget and no changes in staffing except those approved by Council.

The current estimates also reflect the full impact of expenditure program adjustments approved by Council in October 1998.

The following summarizes some of the more significant changes in departmental estimates using the 1998 final budget as the comparison:

General Administrative includes many of the internal service departments, including the City Manager, City Clerk, Human Resources and Legal Services. The 1999 civic election, budgeted at approximately $1.0 million in the City Clerk's department, is the reason for the increase in these estimates. This increase is partially offset by funds reserved for this purpose in the 1997 and 1998 budgets.

Community Services is the business group in which Planning, Permits & Licences, Social Planning, the City's Housing Program as well as Carnegie Centre and the Downtown South Gathering Place are managed. In order to streamline operations in these departments, a reorganization of administrative functions is underway resulting in shifts of activities and staffing that are reflected in the 1999 Estimates. A review of overall estimates for Community Services indicates that the group is within its budget target. As noted above, Community Services has developed a plan to hold expenditure levels below the current funding levels should activity in the building and development industry lead to further erosion in trade permit revenues.

Public Safety expenditures are expected to increase beyond normal inflationary levels in1999 as a result of the transfer of E-911 and fire and police dispatch services from these departments to E-Comm and initialization of the associated regional radio network. This will result in a net increase in expenditures in the budget estimated at $3.8 million. In addition, Council has agreed to raise $1.6 million in each of 1999 and 2000 to fund the Downtown Eastside Enforcement Initiative.

The Public Works section of the budget reflects several changes in program expenditures. Street maintenance estimates include the anticipated major road network maintenance recovery from the Greater Vancouver Transportation Authority (TransLink). In addition, increases in expenditures in the On Street Parking program reflect new costs associated with maintenance and enforcement activities and are more than offset by new revenues.

Utilities include expenditures on Water, Sewer and Solid Waste activities. Both Water and Solid Waste costs are fully offset by user fees, while Sewer expenditures are supported by the general purposes tax levy. Notable are the increases in costs for water purchases from the Greater Vancouver Water District and sewerage costs from the Greater Vancouver Sewerage and Drainage District which are growing more quickly than corresponding system operating and debt charges incurred by the City.

There are no unusual changes among the departments that make up the Recreation and Community Services expenditure estimates. The Parks and Recreation global budget is discussed later in this report.

Reduction in the Civic Grant Program does not reflect a reduction in the commitment to support for community service, cultural or major exhibiting organizations from the 1998 level. Two grant programs - the Arts Stabilization Fund and the Vancouver Museum Supplementary Grant - that have been funded over the past several years, are now completed.

b) Debt Charges

The deferral of the 1998 debenture issue, reported to Council with the Preliminary Estimates, has resulted in a reduction in debt charges in 1999. General, water and sewer debt charges have declined by up to 6% from 1998 levels. While this decline has assisted with balancing the 1999 Operating Budget, the deferral is not permanent and debt charges will increase in future years as the capital expenditure program is completed.

c) Transfers

Transfers to Reserves includes two components. In considering final adjustments in the 1999 budget to meet Council's taxation targets, the Corporate Management Team agreed to recommend a reduction in Capital from Revenue from the levels anticipated in the CapitalPlan. This reduction of $525,000 can be accommodated by deferring lower priority projects to the next Capital Plan and will leave the transfer at $11.725 million. This provision includes the final $1.0 million installment in extra Community Centre funding approved by the voters in 1996.

The balance of the transfers provide for the cost of the 1999 civic election and funding for the Information Systems Long Range Financing Plan.

d) Contingency Reserve

Contingency Reserve is intended to provide funding for issues that arise during the year or for which there is some contingent liability that cannot be accurately quantified at the time the budget is set. The interim estimates include a Contingency Reserve provision of $1.8 million, representing just 0.3% of the expenditure budget and providing minimal backup funding for the City's operations.

Contingency Reserve has also been looked upon as a source for the current year costs of any new programs or services approved by Council during the year. Staff has identified a partial list of program/service reports that are expected to be dealt with by Council over the next few weeks, some by Council request, others arising from ongoing activities in departments. These initiatives include:

… City Plan Neighbourhood Visioning program ($420,000 to in 1999 / $2.25 to $2.9 million total)
… Transportation Plan Monitoring ($80,000 annually)
… Downtown Transportation Plan ($237,000 in 1999 / $400,000 in 2000)
… SAP Sustainment ($100,000 in each of 1999 and 2000)
… Information Technology Staffing ($100,000 in 1999 / $200,000 ongoing)
… Human Resources Staffing ($75,000 in 1999 / $125,000 ongoing)
… Policing costs related to Grey Cup ($125,000 one time)
… City's Millennium Project ($150,000 one time)

In addition, the 1999 preliminary estimates make no provision for City costs associated with administering the revitalization plan for the Downtown Eastside, beyond the funding provided to the Police Department. The federal government has now committed $5.0 million in funding to this initiative and the City costs associated with administering the program can be expected to be in the range of $250,000 in 1999.

The current level of funding in Contingency Reserve will not provide adequate funding for all of these initiatives. If Council is inclined to undertake this work using Contingency Reserve as the source of funding, additional funding is recommended in Contingency to at least offset the approvals. As an option, Council could enforce its long-standing policy thatrequires offsetting expenditure reductions or additional revenues when new programs are brought forward.

PARK BOARD GLOBAL BUDGET

The interim estimates make full provision for the Park Board Global Budget of $39,112,600, including added basic funding of $418,900 and an allocation of new and non-recurring funding of $700,000. Excluding the NNR allocation, this represents virtually no change from the 1998 funding level.

The 1999 global budget has been calculated by the City and Board staff according to the principles of the global budget arrangement and makes provision for increases in salary and benefit costs and general inflation as well as for budget management changes approved by Council in October 1998.

Added Basic is the ongoing operating costs that arise from the Park Board capital programs. Under the global budget arrangement, Council has agreed to add these costs to the Park Board budget. The 1999 allocation includes funding for maintenance and support of systems and building infrastructure, as well as the costs of maintaining new and upgraded park sites at Collingwood North, Tisdall, Oxford, Alice Townley, WC Shelly, Cultural Harmony Grove and Seaforth. These new costs have been set at $418,900 in the 1999 Operating Budget.

COMPLETING THE BUDGET PROCESS

Approval of the recommendations in this report and of the attached Budget Resolution will complete the 1999 Budget Process. The following reports to be presented over the next three weeks will put in place the necessary rating bylaws and complete the Capital Budget process as well:

… On May 6, 1999, City Services and Budgets Committee will receive a report from the Director of Finance outlining property tax options for 1999, including the impacts of shifting the property tax burden among the property classes and of blending tax rates for the Light Industrial (Class 5) and Commercial/Other (Class 6) classes.

… On May 6, 1999, City Services and Budgets Committee will also receive a report on the 1999 Basic Capital Budget including recommendations for allocating Capital from Revenue funds included in the 1999 Operating Budget to individual capital projects. Allocation of Supplementary Capital funding will be reported to the Committee on May 20, 1999.

… On May 18, 1999, Council will receive a report from the Director of Finance presenting a series of resolutions giving effect to the land averaging programapproved by Council earlier this year as well as Rating Bylaws for the City's general purpose tax levy and the requisition from the GVRD. This report will reflect the final impact of decisions made regarding taxation policy measures. Action on these items will finalize the budget process.

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Appendix 2

RESOLUTION

MOVED BY COUNCILLOR:

SECONDED BY COUNCILLOR:

THAT WHEREAS, the Vancouver Charter, Section 219 requires that the Director of Finance submit to Council each year the detailed estimates of revenue and expenditure of the City for the year;

AND WHEREAS the Vancouver Charter, Section 372 requires that Council adopt the estimates of revenues and expenditure for the City as soon thereafter as possible;

AND WHEREAS in decisions made on February 16, 1999, Council established guidelines within which the 1999 Operating Budget should be reviewed by the Director of Finance;

AND WHEREAS Council has reviewed the development of the estimates in reports submitted by the Director of Finance on October 6, 1998 and February 16, 1999 and approved measures to bring the estimates into balance, including approval of a 3.4% general purposes property tax increase;

AND WHEREAS the total estimated expenditures of the City to pay all debts and obligations of the City falling due in the year 1999, exclusive of the amounts required for school, Greater Vancouver Regional District, Greater Vancouver Transportation Authority, British Columbia Assessment Authority and Municipal Finance Authority purposes and not otherwise provide for, as amended by Council, amount to $565,621,900

AND WHEREAS the total estimated expenditures as aforesaid is the sum of the appropriation requests of all departments and board properly supported by detailed analysis of those expenditures and listings of the salaried staff;

AND WHEREAS the total estimated revenue of the City for 1999 from sources other thanreal property taxes, as amended by Council, amounts to $199,045,400;

AND WHEREAS the amount of the General Purposes Tax Levy so required is $366,576,500;

THEREFORE be is resolved that the said estimates, both as to totals and individual items pertaining thereto, of the Director of Finance as so amended by Council be and the same are hereby adopted by Council.

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cs990429.htm

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