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HomeMy WebLinkAbout2011-01-20 SFINANCE AND CORPORATE SERVICES COMMITTEE JANUARY 20, 2011 CITY OF KITCHENER The Finance and Corporate Services Committee met this date commencing at 9:02 a.m. Present: Councillor J. Gazzola - Chair Mayor C. Zehr and Councillors S. Davey, B. Vrbanovic, Y. Fernandes, K. Galloway, P. Singh, B. Ioannidis, Z. Janecki, F. Etherington and D. Glenn-Graham. Staff: C. Ladd, Chief Administrative Officer D. Chapman, Deputy CAO & City Treasurer, Finance & Corporate Services J. Willmer, Deputy CAO, Community Services P. Houston, Deputy CAO, Infrastructure Services J. Evans, Director of Revenue C. Smith, Director of Financial Planning B. Johnson, Director of Accounting R. Regier, Executive Director, Economic Development H. Gross, Director, Project Administration & Economic Investment R. Gosse, Director, Legislated Services & City Clerk L. MacDonald, Director, Legal Services & City Solicitor J. Witmer, Director of Operations M. May, Interim Director, Human Resources S. Turner, Director, By-law Enforcement M. Hildebrand, Director, Community Programs & Services C. Fletcher, Director of Facilities Management L. Gordon, Director of Supply Services M. Seiling, Director of Building G. Murphy, Director of Engineering W. Malcolm, Director of Utilities A. Pinard, Director of Planning K. Baulk, Director of Enterprise J. McBride, Director of Transportation Planning T. Beckett, Fire Chief R. Hagey, Manager of Financial Planning R. LeBrun, Manager of Accounting G. Hummel, Manager, Park Planning, Development & Operations C. Bluhm, Manager, Downtown Community Development J. Billett, Committee Administrator C. Goodeve, Committee Administrator FCS-11-005 - 2011 OPERATING BUDGET 1. The Committee was in receipt of Finance and Corporate Services Department report FCS-11- 005, dated January 6, 2011 concerning the City’s 2011 Operating Budget, together with a consolidated budget summary by Department / Object and Budget Issue Papers for specific items. In addition, the Committee was in receipt this date of additional issue papers and changes to the original Operating Budget package. Ms. C. Ladd provided a high-level overview of the 2011 Operating Budget. She advised that a 1.94% property tax increase is being proposed for 2011, which equates to an additional $18 a year, or $1.50 a month impact on the average homeowner in Kitchener. She stated that a 2009 Environics survey indicated that residents value high services over low taxes by a ratio of more than 2:1. She added that BMA Management Consultants Inc. has identified that Kitchener residents enjoy a relatively low tax burden and Kitchener has the sixth lowest property taxes in Ontario for municipalities with populations greater than 100,000. She stated that this budget submission is the culmination of over 10 months of work by staff to provide a balanced approach to preserve the financial well-being of the City. Councillor J. Gazzola suggested that when the Storm Water Management (SWM) fee is taken into consideration, the proposed 2011 tax levy increase is greater than 8%. He estimated that approximately $1.9M would need to be cut from the Operating Budget to avoid having to increase the property tax levy for the coming year. He commented that in his opinion finding these reductions should be the goal of this Committee and encouraged members to put forward ideas as to how this might be accomplished. FINANCE AND CORPORATE SERVICES COMMITTEE JANUARY 20, 2011 - 8 - CITY OF KITCHENER FCS-11-005 - 2011 OPERATING BUDGET (CONT’D) 1. Councillor Z. Janecki spoke in support of the comments made by Councillor Gazzola. He suggested that the Committee should go even farther and attempt to have a negative impact on the tax levy. Mayor C. Zehr offered that the Committee should be cautious of pursuing short-term gains, which may result in long-term pain. He noted that it is incumbent upon the Committee to provide definitive direction to staff specifically indicating the areas where potential cost savings could be achieved. BUDGET OVERVIEW Mr. D. Chapman presented the Operating Budget submission, advising that it has been developed in accordance with Council’s 2011 Budget guidelines. He stated that unless items were covered by a contract or were non-discretionary in nature, such as hydro rate increases, direction was given to staff to either hold the line, or implement a 3% reduction. In addition, it was made clear that no requests for additional tax supported Full Time Employees (FTEs) would be considered through this budget process; unless they are related to the creation of new facilities, or could reduce overall costs within the budget. He commented that the proposed Operating Budget supports current service levels but does not enhance them with two exceptions, one being the new Storm Water Utility. He noted that when that business case was approved in 2010, costs were shifted from the Operating Budget and the service level was increased to fund the advanced capital program. The other exception was for new facilities, such as the new community centres coming on stream in 2011, which represent a new service level to the community. Mr. Chapman advised that two factors have significantly influenced the 2011 Operating Budget, the first being that the City enjoys a relatively low tax burden. Whether rate increases are examined over the past 5-10 years or an evaluation is made with other municipalities in the province, the City is shown as having a comparatively low tax burden. He added that there is also a shift from the tax base to the rate base this year for the Storm Water Utility. He stated that those two factors combined provide an opportunity to address sustainability issues within the budget. He indicated that the first is to eliminate the City’s reliance on the Tax Stabilization Reserve Fund. Over the past several years, that Fund has become depleted as it has been used to support and mitigate property tax increases; however, there is no balance from which the City can draw continually going forward to maintain a lower property tax increase. He noted that this proposal accounts for approximately 1.5% of the levy change in 2011. Another item related to long-term sustainability, is the dividend from the Golf Enterprise. Mr. Chapman advised that since its inception, the Golf Enterprise has paid a dividend to the City, with a policy that sets a minimum level for the dividend and it has increased beyond that over time. He stated that the Golf Enterprise is no longer able to support that higher level of dividend, and accordingly a proposal is being put forward to reduce the dividend back to the original level provided for under the policy. He noted that if this occurs it would support programming changes to make that Enterprise sustainable. Mr. Chapman stated that the last significant adjustment in this budget is a reduction to gapping. He advised that the City has a vacancy management program that requires the gapping of positions for a certain period of time; thereby representing a savings in the budget. He added that when considering historic turnover rates in a 12-week gapping period, which is the target, the current budget level is not sustainable. Accordingly, there is an $800,000. reduction proposed to address this in 2011. Questions were raised regarding the unemployment statistics included in the presentation and staff was requested to provide information on the number of City employees that were laid-off or became unemployed last year. In addition, information was also requested on the kind of jobs created in Kitchener (manufacturing / commercial), as well as, bankruptcy and foreclosure rates. Further information was requested on statistics identifying how seniors and persons with fixed incomes cope with tax increases. In terms of inflation, the annual change in Consumer Price Index (CPI) was 3% as of November 2010, with December results to be released on January 25, 2011. The more recent figures will be provided as part of future presentations on the 2011 Budget. FINANCE AND CORPORATE SERVICES COMMITTEE JANUARY 20, 2011 - 9 - CITY OF KITCHENER FCS-11-005 - 2011 OPERATING BUDGET (CONT’D) 1. Mr. Chapman reviewed the proposed tax rate increase, including and excluding the Economic Development Investment Fund (EDIF), relative to the consumer and municipal price indices over the past ten years. He stated that reasonable annual tax increases, combined with the ongoing budget efficiencies and reductions, has enabled the City to keep property tax increases in line with the rate of inflation. In addition, tax increases, both including and excluding EDIF, have remained below the cumulative Municipal Price Index (MPI). In response to questions, he clarified that what this shows is that EDIF has accounted for a significant portion of the tax increases. He added that if this trend line were to be forecasted out further it would show the EDIF projection as decreasing, as at this time, there is no commitment to make EDIF permanent. Therefore, as debt service costs decline over time the two projections would align with each other. The Committee next reviewed a comparison of municipal costs for an average household between Kitchener and the Cities of Waterloo and Cambridge, showing that Kitchener is in the middle range. Mr. Chapman pointed out that the total taxes for Kitchener of $2,810. includes City, Regional and School Board taxes, with the City tax potion of that being $922. He agreed to report back with the group average for final Budget Day. In reviewing the utilities costs paid by the average homeowner in each of the three cities, he noted that the major difference is the costs for natural gas. He explained that for 2010 the cost of gas in Kitchener was approximately $460 higher than the other two cities. He stated that this is a temporary difference and relates to purchasing strategy and a credit given by Union Gas to their customers. It was suggested that for future comparisons, it be shown what a Kitchener resident would have paid for gas over a ten-year period compared to a resident of Cambridge or Waterloo. Assessment growth was reviewed, showing fluctuations over the past ten years with a projection of 2.08% for 2011. This is a modest improvement over the last few years, with the Regional average being 2.5%. Supplementary taxes were reviewed and Mr. Chapman noted that the proposed budget for 2011 is $1M, which is a $200,000. increase from 2010. He commented that supplementary taxes for 2010 were much higher than the historic trend and what was forecasted. This is resultant to new multi-residential constructions coming on late in the year, which are not expected for 2011. He cautioned against an increase beyond the recommended $200,000., as budgets for volatile items such as this are set based on historic averages. He added that the likely outcome would be a deficit in this area, noting that there is no capacity within the Tax Stabilization Reserve Fund to account for such an occurrence. The Committee reviewed the City’s investment yields and were advised that as of November 2010, the average short-term yield had dropped by over 45 basis points compared to the 2009 average of 1.4% to 0.94% as of November 2010. Mr. Chapman noted that the Bank of Canada’s targeted overnight rate is expected to remain at 1% into mid-2011, at which time a gradual rate increase is projected but not anticipated to be any higher than 2% by year-end. Questions were raised regarding the City’s investment process and staff agreed to report back with information comparing how the City’s investments performed versus “The ONE Fund” (The Public Sector Group of Funds). Mr. Chapman advised that the projected 2011 levy increase of 1.94% is net to the transfer of Storm Water Management costs to a rate based enterprise. Water and Sanitary Sewer rates are forecasted to increase by 6.9%, which is primarily driven by the increase in the Region of Waterloo’s costs for wholesale water and wholesale wastewater treatment. He noted that a modest decrease to the Natural Gas rate of -2.4% is forecasted for the end of the winter heating season, being April 2011; and is dependant upon how much inventory flows through the Gas Utility. He advised that the impact of the overall rate increase on the average homeowner would be $169. per year. In response to questions regarding cross subsidization of Water and Sanitary Sewer Utilities, Mr. Chapman confirmed that legislatively it is mandated that those enterprises are to be isolated and cannot be used to subsidize the rate base. He added that municipalities are to have a capital plan to fund requirements for water and wastewater and currently the City is not fully funding its requirements; and therefore, there is no capacity for a dividend to the tax base. FINANCE AND CORPORATE SERVICES COMMITTEE JANUARY 20, 2011 - 10 - CITY OF KITCHENER FCS-11-005 - 2011 OPERATING BUDGET (CONT’D) 1. Questions were raised as to how much of the 2010 rate would have gone toward Storm Water Management and Mr. Chapman advised that the shift is 6%, which equates to approximately $60. He pointed out that much of that charge relates to the approved increased level of service. It was noted that if Storm Water Utility was not implemented then funding for the increased services, from $7M to $13M, would have come from the residential tax base. Mr. J. Willmer noted that under the old system, an unfair portion of the City’s Storm Water Management costs were assessed to the residential sector, where the new system provides a more equitable allotment of a majority of costs to the industrial sector. Accordingly, the typical homeowner would have over paid under the old system for this increased level of service. The Storm Water Management Credit System was discussed. Mr. G. Murphy advised that the Credit System is anticipated to be presented for Council’s consideration in the fall of 2011; with the expectation that it would be retroactive to the beginning of this year. He added that information regarding the amount of the average credit would be brought forward as part of the Credit System presentation. TAX SUPPORTED OPERATING Mr. Chapman then reviewed the proposed Tax Levy Change Summary and the detailed listing of items included in the change. He explained that proposed changes from the 2010 budget including shifting the Storm Water Management component out of the tax base, amounts to an increase of 0.78%. When added with the Economic Development Investment Fund (EDIF) of 1.16%, the proposed tax levy increase for 2011 is 1.94%. Mr. Chapman then reviewed some of the items impacting the tax levy change and the associated Issue Papers. Issue Paper #53 - Storm Water Management (SWM) Mr. Chapman advised that in creating the SWM utility and shifting expenditures out of the tax base, this will have a positive impact on the tax levy change of -6.43%. Issue Paper #2 - Tax Stabilization Reserve Fund (TSRF) Mr. Chapman advised that historically the TSRF has been used as a budgeted funding source to reduce the need for tax rate increases. This has resulted in depletion of the reserve to the point where it is approximately 0.3% of the net tax levy; whereas, it is recommended that the reserve should be maintained at 5 - 15% of the levy. Mr. Chapman advised it is being recommended that the budgeted transfer from the TSRF be eliminated allowing the reserve to build with year-end surpluses and to be used to fund only year-end operating deficits. This will add 1.55% to the tax levy. Councillor B. Vrbanovic suggested that perhaps the annual dividend from Kitchener-Wilmot Hydro could be transferred to the TSRF. Mr. Chapman advised that this will impact the capital th budget which will be discussed in detail on February 4. Issue Paper #6 - Gapping Revenue Mr. Chapman advised that gapping is an approved process whereby unused salary and fringe benefit dollars during a staff vacancy are transferred from the departmental operating budgets to the gapping budget. From 2008 to 2010, the budgeted targets have not been met creating a growing deficit of $1.3M. He advised that it is being recommended to reduce the budgeted amount to $800,000. which if accepted, will impact the tax levy negatively by 0.82%. Councillor J. Gazzola requested more detail on the gapping budget over the past 3 years and the actual impact of reducing this budget. Issue Paper #5 - Pay Grid Collapse Mr. Chapman explained that in 2008 Council approved a phased-in adjustment to City pay structure which included the collapse of the pay grids from 25 bands to 14. 2011 is the final year of the phase-in and represents an impact to the budget of 1.12%. Council requested information on salary increases over the past 5 years compared to the rate of inflation and the impact of the collapsed pay grid post-2011. FINANCE AND CORPORATE SERVICES COMMITTEE JANUARY 20, 2011 - 11 - CITY OF KITCHENER FCS-11-005 - 2011 OPERATING BUDGET (CONT’D) 1. Issue Paper #4 - Ontario Municipal Employee Retirement System (OMERS) & Fringe Benefits Mr. Chapman advised that OMERS will be increasing the employer/employee contributions by 1% over the next 3 years. This will impact the budget negatively by 0.63%. Staff provided information on the fringe benefits components and the percentages of each component. The Committee requested detailed information on fringe benefits and a comparison between what is provided to City staff and private industry. In addition, it was requested that information be provided on the connection of management salary increases with CUPE Local 791 increases and how this could be changed. It was pointed out that in the past, there was an OMERS contribution ‘holiday’ when the City did not pay into the fund and the savings during those years was transferred to the TSRF. The Committee requested more information on the funding transfer. Issue Paper #52 - Parking Enterprise The Committee was advised that the creation of a Parking Enterprise will result in a net impact on the budget of 0.51%. Issue Papers #30 & 33 - Bridgeport & Kingsdale Community Centres Staff advised the Committee that the new Kingsdale Community Centre is planned to open in March 2011 and therefore, there is a need to budget additional funds for increased facility and staffing costs. The renovated Bridgeport Community Centre is expected to re-open in the spring of 2011 and there will be increased costs for additional staffing. This will impact the 2011 tax levy by 0.23% and 0.18% respectively. The Committee requested more details on the increased costs for 2011 and future years, as well as, options to mitigate and/or defer costs beyond 2011. Issue Paper #35 - McLennan Park Mr. G. Hummel advised that with infrastructure funding, the City was able to complete all four phases of McLennan Park in 2010 and with the park now fully operational, additional funding is required for increased utilities and park maintenance. Mr. Hummel added that up to now the park has been running a deficit. Mr. Chapman advised that staff will prepare an additional Issue Paper with more information on costs and a comparison between 2010 and 2011. Issue Paper #32 - Increased Size of Council Mr. Chapman advised that the proposed increase of 0.31% in the budget under this item reflects additional costs of increasing the size of Council from 7 to 11. He pointed out that the proposed costs include an FTE which is currently vacant. Ms. C. Ladd advised that the staffing position has not been filled to allow enough time to pass to see if it is actually required. She suggested that the FTE should remain in the budget until this is determined. Issue Paper #31 - Capital Policy Growth Mr. Chapman advised that it has been the policy of Council to ensure that any increases in debt charges from one year to the next do not exceed assessment growth. As well, overall contributions from the tax base and debt charges will not increase more than assessment growth plus inflation. To ensure this remains, it is recommended that the budget include additional capital funding of $100,000. being an increase of approximately 0.1%. Councillor J. Gazzola asked if this could be reduced. Mr. Chapman advised any reduction will have an effect on the 10 Year Capital Forecast. Councillor Glenn-Graham requested information on the impact of a reduction with respect to the policy. Issue Paper #8 - Operations to Service Growth Mr. J. Witmer advised that analysis of the past 7 years has shown the Operations Division has been under-budgeted by approximately $1.3M. In order to address this shortfall and provide a more realistic budget, an increase of $700,000. is recommended, together with elimination of gapping contributions. The Committee requested further information on staffing issues FINANCE AND CORPORATE SERVICES COMMITTEE JANUARY 20, 2011 - 12 - CITY OF KITCHENER FCS-11-005 - 2011 OPERATING BUDGET (CONT’D) 1. including the 9 unbudgeted FTE positions, changes in job classifications and if using more part time staff and/or utilizing private contractors would have a benefit. Councillor Z. Janecki inquired as to the impact on the budget related to the legislation requiring sidewalk repairs. Mr. Witmer advised the legislation requires annual inspection of all sidewalks, and repairs to be made within 14 days. In regard to repairs, he explained that temporary repairs are made by using asphalt and permanent repairs are made by replacement, grinding or mud-jacking. The Committee requested more information on costs of the various repair options and claims made against the City with respect to sidewalk trip hazards. Mr. Chapman advised that the net impact of the items discussed increases the tax levy by 0.78% and when added to EDIF, the total increase being proposed is 1.94%. BOARDS Centre In The Square (CITS) and Issue Paper #10 Mr. J. Grant, General Manager, CITS, advised that for the first time the Centre is requesting an additional grant over and above the target budget set by the City. The additional funding will increase the budget by 6.54% bringing the total requested budget increase up to 9.04%. Mr. Grant explained that 2010 was a difficult year, in that, ticket sales decreased 30% from 2009 and it is expected this trend will continue over the next 2 years. He added that steps have been taken to reduce expenditures including staff layoffs, no salary increases for non-union staff and reduction in use of contractors. In answer to questions raised by the Committee, Mr. Grant explained that in the past, year-end surpluses or deficits is divided equally between the City and CITS; however, the 2010 year-end figures are not ready and therefore, it is unknown at this time if there will be a surplus or deficit. Councillor J. Gazzola suggested that should the additional grant not be given, the City will end up splitting any deficit at year end. Kitchener Public Library (KPL) and Issue Paper #34 Ms. S. Lewis, CEO - KPL, advised that the Library is requesting an additional $37,000. over and above the target budget which will increase the 2011 budget from 2.50% to 2.93%. Ms. Lewis explained the additional funds are required to complete the phase-in of the Radio Frequency Identification (RFID) program. Ms. Lewis added that Provincial grants to libraries have been fixed since the 1990’s and the RFID program was implemented not to reduce staff but to eliminate the need for additional staff to handle the increased circulation of materials. If the required funds are not granted, the library will have to reduce in other areas such as acquiring books and other resources. The Committee then recessed at 12:45 p.m. and reconvened at 1:20 p.m. with all members present. ENTERPRISES Storm Water Utility Mr. D. Chapman advised that the Utility is new to Kitchener effective January 1, 2011 to provide dedicated funds for the storm water component of capital improvement projects. Cost reductions in the tax base, as well as in the water, sanitary and gas budgets, have been made to provide for the shift to a storm water utility model. It was pointed out that capital transfers from the Utility will be an important consideration on February 4 during capital budget deliberations. It was further noted that a new Storm Stabilization / Capital Reserve is being established and transfers to the reserve are not anticipated until 2013. Concerning transfers to the storm water stabilization / capital reserve, it was noted that the reserve will serve to provide funding for rehabilitation / retrofit of storm water ponds or additional storm water in roads development, details of which will be provided in review of the capital budget. Mr. Chapman provided clarification of the projected deficit in 2011, advising that the deficit has no relation to the tax base, as it is self-contained within the Utility and is anticipated to be recovered over 2011-2012 through payment of interest charges to the Utility. Questions were raised concerning certain operating activities to benefit from storm water utility FINANCE AND CORPORATE SERVICES COMMITTEE JANUARY 20, 2011 - 13 - CITY OF KITCHENER FCS-11-005 - 2011 OPERATING BUDGET (CONT’D) 1. funds, including street sweeping and leaf collection. Mr. G. Murphy advised that a variety of services and activities were reviewed as part of the feasibility study in respect to the handling of quantity and/or quality of water stemming from community properties. The activities referred to generate either sediments and/or debris flowing from properties into the water course or storm water ponds, that results in legitimate activities directly related to storm water maintenance. Staff agreed to provide more detailed information concerning the activities included in the Operating Expense account for the Utility. Ms. Mary Ann Wasilka, resident, voiced concerns related to potential increases in rental rates as a result of landlords being charged a storm water fee and the impact same would have on the ability of low income renters to afford higher rates. She requested that consideration be given to add the category of multi-residential to those that will be eligible to apply under a credit program and that credits for multi-residential also be retroactive to January 1, 2011. Mr. G. Murphy clarified that staff was given Council direction to develop a credit policy which will come forward for consideration at a future date and which will include provision for multi- residential within the classifications of the residential category. It was also noted that grants have been approved for places of worship and/or charitable organizations whose storm water rates will be 100% subsidized through the tax levy. Mr. Murphy agreed to provide the Committee with copies of previous reports on the Storm Water Utility for purposes of background information. TAX SUPPORTED OPERATING The base inflation rate was reviewed in conjunction with Issue Paper #15 (Response to Council Questions) and Mr. Chapman advised that the single largest contributing factor is salary and wages. He also pointed out that a detailed itemization of “Other Expenditures” totalling $273,000 was provided in Item 10 of Issue Paper #15. It was noted that 2011 salaries and wages is based on 2010 actuals plus a 2.5% estimated inflationary increase, the latter of which is to be finally determined through contract negotiations. Staff agreed to provide additional details concerning recent awards resulting from municipal contract negotiations and the impact of freezing management position salaries within the Corporation. Mr. M. May advised that rough estimates pertaining to freezing of management position salaries would equate to approximately $170,000; however, he pointed out that these positions have already experienced a decrease of 1% in 2010 through reduction in the inflationary increase from 3 to 2%. Questions were raised concerning user fees and Mr. Chapman advised that the budget guideline provides a rate increase of 2.5% in 2011, with some fees projected at higher or lower than the guideline for specified reasons. It was noted that user fees would normally be approved in the fall of the previous year, becoming effective on January 1 of the new year; however, in an election year the process is delayed. Accordingly, the budget impact reflects a 2 month loss of inflationary increases for user fees in 2011 as new fees / charges will not be in place until March 1. The 10 Year Tax Rate Impact Projection for the years 2012 to 2021 was reviewed, ranging from 4.15% in 2012 to 1.21% in 2021. Mr. Chapman advised that pressures impacting projections in the first few years of the forecast can be attributed to the impact of the OMERS employer / employee pension rate increases over the next three years; as well as, funding commitments to capital projects including expansion of the main Library and the Centre Block development. Mr. Chapman advised that decreased projections beyond 2013 relate to retirement of EDIF in 2014 and associated reductions each year thereafter as the debt levy is no longer required. FINANCE AND CORPORATE SERVICES COMMITTEE JANUARY 20, 2011 - 14 - CITY OF KITCHENER FCS-11-005 - 2011 OPERATING BUDGET (CONT’D) 1. Issue Paper #7 - Art Sustainability Fund An annual contribution of $225,000. to the Arts and Culture Sustainability Fund, currently unfunded in the budget, is recommended in 2011 at an impact of 0.23% to the levy increase. Ms. C. Ladd provided a brief overview of the origins of the Fund and agreed to circulate the position paper created by the Prosperity Council Task Force on Creative Enterprise which dealt with the whole issue surrounding the proposal to provide sustainable funding for the community’s key arts organizations. The impact of not allocating these dollars in 2011 was questioned and Ms. Ladd advised that in such instance the program benefactors would not receive allocations this year, suggesting that this may jeopardize the entire Regional initiative of advancing the community platform through creation of an enabling body. It was further noted that the Region of Waterloo has made budgetary provisions in 2011 of $500,000 and the City of Waterloo $75,000; while the City of Cambridge has committed to funding in 2012. Ms. Ladd added that this initiative is also to be used to attract industry talent to the community to remain competitive and ensure potential economic growth is identified by laying a key foundation to attract new business. Historical contributions per capita from area municipalities to the arts and culture sector was requested. Mayor C. Zehr commented that the per capita contributions are significantly different, with Kitchener’s contributions higher than other area municipalities due in part to the Centre In The Square. Mayor Zehr stated that over time, Councils must work to achieve a more equitable approach and in the interim, the sustainability fund provides time to pursue a solution. He asked that patience be exercised to allow development of this initiative to go forward and that consideration be given to the long term benefit. Issue Paper #13 - Turf Operations Annual operating funds in the amount of $179,720. for Turf Operations, currently unfunded in the budget, was recommended in 2011 at an impact of 0.18% to the levy increase, to support two additional trim crews to meet turf cutting targets. Mr. G. Hummel responded to questions, advising that numerous options to address cutting targets in house have been explored, including reallocation of staffing, shift work and use of overtime. He stated that more equipment is needed now to handle a growing volume of turf and at this point in time, it makes more sense in the long term to add more crews. He added that naturalization methods have been explored including partnering with property owners to maintain naturalized cul-de-sacs, as well as, a pilot project to provide natural plantings along walkways. He pointed out that naturalization equates to a 5 year program, as it takes at least that length of time from initial installation for the plantings to reach maturity and comes with associated maintenance issues that in part can be attributed to legislated bans on use of pesticide/herbicides. The potential to contract out turf cutting was questioned. Mr. Hummel advised that contracting out has to be negotiated as this service operates within a unionized environment, adding that the issue of how to achieve contracting of cul-de-sac cutting is under continual discussion with unionized staff. The potential to make do with one additional crew was questioned and Mr. Hummel advised that while it could be done, it would be difficult to maintain cutting targets given the volume of turf to be cut. Issue Paper #9 - Park Sanitation It is proposed to purchase a park garbage truck and convert two temporary positions to full time positions to achieve a higher level service for park and road side debris pick up. The cost of the truck and new FTE positions will be off-set through elimination of the current contract service, with a net savings of $28,554. projected. Mr. Hummel commented on potential to partner with the Region of Waterloo for park garbage collection, noting that discussions have been held based on curbside pick-up which would be at additional cost to the City. Mr. Hummel advised that nothing to date has come of these discussions due to inability to find a reasonable solution to the issue of how to get park garbage containers to curbside on a regular basis. Concerns from businesses in the downtown FINANCE AND CORPORATE SERVICES COMMITTEE JANUARY 20, 2011 - 15 - CITY OF KITCHENER FCS-11-005 - 2011 OPERATING BUDGET (CONT’D) 1. with respect to use of the Molok containers was raised. Mr. Hummel agreed to ensure extra keys to the units are made available to downtown businesses and pointed out that the proposed changes will also provide for collection from the Molok containers to now be done by City staff. Issue Paper #12 - Program Assistant for Portable Signs One new FTE, a Program Assistant dedicated to portable sign applications, is proposed to create opportunity for enhanced enforcement related to permanent signs. The new position is to be funded through revenue generated as a result of inspection and enforcement of permits for permanent signs. A net savings of approximately $197,000 is projected as a result of increased revenues. Mr. J. Willmer advised that staff is finding many permanent signs are being installed without a permit being obtained. The ability to be proactive in inspections will aid in achieving compliance within the sign industry and generate increased revenues in the interim as permit fees are higher for those who comply after the fact of installation. It was also noted that the new position will provide front counter coverage and assist with administrative duties in the Planning section. ENTERPRISES Golf Courses and Issue Paper #50 (Golf Budget Review) Mr. Chapman stated that Rockway and Doon Valley Golf Courses have generally performed well, returning significant dividends in past years; however, over the past 3 years there has been a significant decline in revenues resulting in accumulated deficits. Staff has taken a number of aggressive actions to achieve a balanced budget for 2011, as detailed in Issue Paper #50. In particular, staff is recommending a new rate structure to increase volume of play and align more with the strategic directions of the unit. Mr. K. Baulk responded to questions, advising that youth programming is being considered as part of strategic development plans. Imposing a fee for winter activities, such as cross country skiing, was explored in the past and found not economically viable; citizens are, however, still encouraged to make use golf course lands during the winter season for such activities. Mr. Baulk pointed out that staff is also exploring branding and other marketing initiatives that will provide opportunity for the public to make use of both golf courses and he agreed that exploring partnerships with other area municipalities may also be of benefit. Mr. D. Chapman provided further explanation of annual profit and loss associated with the accumulated deficit and the policy governing dividend contributions to the City’s operating budget based on a funding formula of the equivalent to income and property taxes. It was noted that the only way to eliminate the accumulated deficit is to align the dividend with the budgeted surpluses. Concerns were raised with respect to the decline in revenues and Councillor J. Gazzola questioned if the City should continue with its golf enterprise. Mr. K. Baulk advised that as part of the strategic development plans, staff will be looking at options such as outsourcing and/or sale of one or both enterprises. Councillor Gazzola stated that the City should be receiving more of a return on its investment and it may be an appropriate time to look at selling. Mayor C. Zehr cautioned that Council should be careful in considering sale of City assets that contribute to the quality of life in the community for short term monetary gain. Councillor B. Vrbanovic stated that he would have great difficulty in considering the sale of green space, the golf courses of which are two of the most highly valued green spaces in the community. Councillor Z. Janecki agreed the two golf courses are valuable assets in Kitchener from an ecological perspective. He commented that with respect to Doon Valley Golf Course, the majority of it is located within a flood plain and has little to no land value from a development perspective. FINANCE AND CORPORATE SERVICES COMMITTEE JANUARY 20, 2011 - 16 - CITY OF KITCHENER FCS-11-005 - 2011 OPERATING BUDGET (CONT’D) 1. Mr. Willmer advised that the issue here relates to the dividend. He stated that staff intend to report back with a full analysis of the golf course business and will address the issues raised here this date. Mr. K. Baulk confirmed that a meeting is scheduled for the near future to determine a marketing plan. Mr. M. May added that the Communications Division will be engaging all of the City’s enterprise units with respect to marketing. He commented that the marketing strategy will be more comprehensive than anything that has been implemented in the past and is confident in their ability to market all of the enterprise units. Building Mr. D. Chapman advised that early predictions for 2011 indicate building permit activity will slow down in terms of size of projects as compared to 2010, but remain positive with a small contribution to the Reserve Fund at year-end. He noted that the purpose of the Reserve Fund is to off-set reduced permit activity and capital expenditures. He stated that the target has been set at 100% of annual expenses and in 2011, it is anticipated that the target level will be reached for the Building Reserve. He noted that this is a conservative target level for the Reserve, given that other municipalities have set target levels at 200-300% of annual expenses. In response to questions regarding a potential dividend from the Building Enterprise to the tax base, Mr. Chapman advised that in accordance with provincial legislation, revenue could only be used for the administration and enforcement of the Building Code Act. He added that staff has been as creative as possible to maximize the benefit of the Building Enterprise and noted that the line item under expenses entitled “indirect”, serves to fund any corporate overhead that could reasonably be attached / recovered from the Enterprise. This includes such items as rent, heat/hydro, and legal costs. Questions were raised regarding the discrepancy between what was budgeted for 2010 and the projected actual. Mr. M. Seiling advised that initially there was an anticipated loss of $164,000. for the 2010 budget; however, residential activity did not experience the predicted slow down after HST and Regional Development Charge implementation. In addition, there were a significant number of stimulus projects and an increase in permits from institutional projects, all of which contributed to a net gain of $1.37M in 2010. He noted that this is revenue which is not anticipated to occur again next year, adding that the Canadian Mortgage and Housing Corporation (CMHC) have predicted a decline in growth for this area in 2011. In response to questions regarding the proposed increase in the Enterprises’ expenses, Mr. Seiling advised that given the uncertainties related to the economic downturn two maternity leaves were not backfilled in 2010. He added that as part of the ongoing effort to maximize the benefit of the Building Enterprise, five salaries that were not previously funded by the Enterprise will be as of 2011. Mr. Chapman noted that there is no change in overall headcount and this is simply a move from indirect to direct cost. Staff was requested to report back with further information on the changes in staffing and indirect costs, as well as some historical revenue figures that show the volatility of revenues within the Building Enterprise. Gas Works Utility and Issue Paper #51 (Regulatory Analyst) Mr. Chapman advised that while margins in the gas industry fluctuate the City has consistently maintained a policy of price stability on behalf of its customers. In addition, water heater rental rates are not increased annually based on customer feedback which indicates a desire for larger increases at periodic intervals. The next rental increase will be implemented in 2013. Mr. W. Malcolm advised that the proposed position of Regulatory Analyst, detailed in Issue Paper #51, will provide opportunity for Kitchener to have representation in matters concerning regulatory changes in the Ontario Energy Board’s Codes and Rules that will have impact on Kitchener Utilities. This position is to be funded through restructuring and will have no impact to the tax base. FINANCE AND CORPORATE SERVICES COMMITTEE JANUARY 20, 2011 - 17 - CITY OF KITCHENER FCS-11-005 - 2011 OPERATING BUDGET (CONT’D) 1. Concerns were raised regarding the policy for transfers from the Gas Utility and in particular, the complexity of the funding formula used. Mr. Chapman advised that the City’s Financial Condition report presented January 17 to the Finance and Corporate Services Committee represents the first phase of review and additional information will come forward at a later date in regard to funding policies, including the Gas Utility funding formula. The difference between the 2010 projected revenue at $39M to the actual revenue of $37M was attributed to pricing and a decline in consumption levels within the industrial sector. Water Utility / Sanitary Utility / Water and Sanitary Sewer Rates Mr. D. Chapman provided an overview of the City’s Accelerated Infrastructure Program which has a goal of replacing aging infrastructure by 8.67 km per year; whereas, the City is achieving only 48% of the program target at 4.14 km annually. Significant, unforeseen, increases in construction prices is in part attributed to the slower progress; as well, as increased complexity of projects due to changes in environmental regulations. 3 Mr. Chapman advised that water rates are proposed to increase to $1.6324 per m and sewer 3 rates to $1.8488 per m, effective April 1, 2011. The combined rate increase is 6.9% in 2011 and 2012, a significant portion of which is attributable to the Region of Waterloo increases; however, Kitchener’s overall rate increase remains lower than the cities of Cambridge and Waterloo. It was noted that beyond 2012, the rate increase is projected to range between 4.3% to 6.4% until 2032. Questions were raised as to the City’s ability to lower the combined water / sewer rate. Mr. Chapman responded that a reduced rate could be entertained; however, he noted that reserves are not in a stable position, raising concerns of the impact of a major event (eg. watermain break). He added that the Accelerated Infrastructure Program would also be impacted by further reducing funding resources required to achieve program targets. Mr. Chapman advised that the Water Utility is in a surplus position, due in part to reduced consumption levels related to watering bans and use of more efficient plumbing technologies. He added that based on the surplus position forecast, it is recommended that the surplus funds be used to create a Water Stabilization / Capital Reserve. Mr. Chapman advised that the Sanitary Utility remains in a favourable position, with transfers from the Utility consistent with those of the prior year. Concerns were raised concerning inflow / infiltration in the sewer system. Mr. G. Murphy advised that a Sanitary Sewer Capacity Study was just completed in December 2010, which is currently being reviewed by staff and which will help in addressing issues related to inflow / infiltration. Mr. Murphy agreed to provide additional information for capital budget deliberations on current programs used for the purpose of reducing inflow / infiltration into the sewer system. Issue Paper #54 - Enterprise Rate Stabilization and Capital Reserve Funds Currently most Enterprises have no reserve / reserve funds specifically created to finance their future expenditures. The budget projections anticipate establishment of reserves in water, sanitary sewer and storm water, with draft reserve policies for these and other enterprises to come forward at a future date. Issue Paper #11 - Sidewalk Minimum Maintenance Standards Funding Mr. J. Witmer advised that due to changes in regulations governing minimum maintenance standards for municipal highways, the City is now required to inspect all sidewalks once per year and where a recorded surface discontinuity exceeds 20 mm in height, the City must treat the area within 14 days. Funding reallocations, between 2011 to 2015 in the amount of $472,000. from various sources, to the Major Sidewalk Repair and Replace account is recommended to ensure compliance with the new minimum standard. Concerns were raised regarding monies proposed to be spent on temporary repairs to buy time until permanent repairs can be made. Mr. Witmer advised that the $200,000. attributed to temporary repairs is an estimate and suggested that it is likely possible to reduce this amount. FINANCE AND CORPORATE SERVICES COMMITTEE JANUARY 20, 2011 - 18 - CITY OF KITCHENER FCS-11-005 - 2011 OPERATING BUDGET (CONT’D) 1. It was noted that other cities are utilizing a combination of edge grinding, asphalt ramping and / or mud-jacking to facilitate compliance with the new standards. Mr. Witmer advised that none of the municipalities participating in discussions which led to the change in regulations had existing inspection programs; whereas, Kitchener could have brought information to the table based on its experience. Mr. Witmer agreed to provide additional information concerning the cost of edge grinding and its lifespan versus use of asphalt ramping as a temporary measure. It was noted that the cost of claims resulting from personal injury due to sidewalk discontinuity is in the range of $15,000 per claim and Mr. Witmer agreed to provide an average of the number of claims received annually. He also agreed to provide additional information on new types of replacement technology, including costing and lifespan expectancy. Mayor Zehr referred to email updates from the Association of Municipalities of Ontario (AMO) on pending issues that may have financial, or otherwise, impact to municipalities. He suggested that a staff person be assigned to review same to determine other issues that may be of interest so that details can be obtained prior to a decision being made. Ms. C. Ladd agreed to follow-up on this matter. Councillor D. Glenn-Graham raised concerns regarding the issue of sidewalk snow removal, questioning the feasibility of the City taking a pro-active approach to this issue through application of a similar inspection model; wherein, the City would hire inspectors to oversee sidewalk snow clearing and issue warnings and/or bill a property owner where warranted. Mr. Witmer advised that By-law Enforcement staff currently perform this function and do issue warnings to property owners who have not cleared snow from the sidewalk in front of their home. Mr. S. Turner added that this practice is primarily done on a complaint basis as each complaint generates significant staff time to administer. He added that warnings generally result in the homeowner complying and it was his opinion therefore, that the cost of a more pro-active program would not be off-set by increased revenue generation. Councillor S. Davey raised concerns that a pro-active program would place higher liability on the City. Mr. Turner advised that existing case law demonstrates that liability cannot be shifted to the homeowner simply by virtue of enacting a sidewalk snow clearing by-law and ultimately the City remains liable if an incident occurs. Group Summaries by Department / Division / Section (Excluding Enterprises) Various points of clarification were made concerning individual operating budgets for Department / Division / Sections and staff agreed to provide additional information, including: a summary of total salaries and administrative costs across all budgets; and details pertaining to the percentage increase in wages for the Facilities Management Division. NEXT STEPS Mr. Chapman advised that the Capital Budget is to be considered on February 4, 2011, followed by consideration of user fees and charges on February 7. A public session on the budget will also be held February 15, 2011 to hear submissions from interested citizens and final budget day deliberation is scheduled for March 1, 2011. Councillor B. Vrbanovic suggested that members of Council who may have suggestions pertaining to the budget and/or potential budgetary reductions, forward same to Mr. Chapman as soon as possible to allow staff to provide a response with the supplementary information to come forward as requested this date. ADJOURNMENT 2. On motion, this meeting adjourned at 5:35 p.m. J. Billett C. Goodeve R. Gosse Committee Administrator Committee Administrator City Clerk