Loading...
HomeMy WebLinkAboutFCS-12-078 - 2013 Budget ProcessREPORT TO:Finance and Corporate Services Committee DATE OF MEETING: May 7, 2012 SUBMITTED BY: Dan Chapman, Deputy CAO PREPARED BY: Ryan Hagey, Director of Financial Planning WARD(S) INVOLVED: All DATE OF REPORT: April 16, 2012 REPORT NO.: FCS-12-078 SUBJECT: 2013 Budget Process RECOMMENDATION: For discussion BACKGROUND: The budget is the City of Kitchener’s annual financial plan and is the primary basis of financial decision making. The budget process allows Council to prioritize the programs and services delivered by the City and sets direction for the work to be completed over the upcoming year as well as future years referenced in the budget forecast. When preparing the budget, the following factors must be considered: The budget is a long-term plan that is revisited each year. As such, it should not be viewed as a single year in isolation, but as a long-range policy document that is reviewed and refined on an annual basis. The budget pressures facing each municipality vary based on factors such as size, services provided, geography, local economic conditions and even previous Council decisions. The budget must be viewed within the context of all the factors impacting that individual municipality. The purpose of this report is to: Set the context within which the 2013 budget will be developed; Summarize the 2013 budget forecast as identified in the 2012 budget; Describe the approach proposed by the Corporate Leadership Team (CLT) to achieve a reasonable final budget submission to Council; Reiterate budget timelines; and Outline the public engagement plan. ïî ó ï REPORT: 2013 Budget Context In each budget cycle there are a number of competing factors that must be considered. The City of Kitchener Strategic Plan provides guidance in this regard as it outlines the considerations which must be taken into account in order to arrive at “competitive, rational and affordable taxation levels”. The Strategic Directions for Financial Management require that the following factors be considered when making decisions with respect to property taxation levels: comparison to other municipalities; inflationary factors, including those unique to municipalities; and balance of service levels vs. affordability Kitchener enjoys competitive property tax rates compared to other large Ontario municipalities. In an independent study of municipal tax burdens conducted by BMA Management Consultants, Kitchener has consistently ranked in the bottom quarter of all Ontario municipalities with a population greater than 100,000 people. Kitchener has been able to maintain its standing as a low-taxation municipality by passing comparatively modest budget adjustments each year. In their 2012 budget, the provincial government projected an inflation rate of 1.7% for Ontario in 2012, while the federal government projected an inflation rate of 2.1% nationally. These may prove to be excessively conservative estimates as the actual CPI inflation rate in Ontario for the first three months of 2012 has averaged 2.5%. For Kitchener, along with general inflationary pressures, we must also honour existing contractual commitments, most notably compensation increases which have been collectively bargained with the City’s various union groups. Affordability and fiscal restraint have come into the public eye in recent months. The Drummond Report, as well as the Provincial and Federal budget, all focused on expenditure reductions in order to balance their respective budgets. It is important to note, however, that there are significant differences between budgets at the federal and provincial level and the budget needs of municipalities. First, unlike the other levels of government, municipalities are not permitted to pass deficit budgets. So while the federal and provincial governments are now cutting expenses to better balance their budgets, municipalities like Kitchener have always had to pass – and will continue to pass - balanced budgets. In essence, the federal and provincial governments are making significant budget adjustments to balance their budget in the near future, while Kitchener has been making incremental adjustments and maintaining a balanced budget all along. Second, the revenue streams for the federal and provincial budgets are much more volatile than that of municipalities, and therefore need to be managed differently. Federal and provincial revenues come from sales taxes and income taxes, which are strongly affected, both positively and negatively, by economic conditions. In a poor economy, these revenues decrease and can lead to expenditure reductions, but in a strong economy these revenues will increase quickly and lead to expenditure increases. Municipal revenues, on the other hand, are derived mainly from property taxes, which are stable. As such, the municipal budget should be managed incrementally, and should not be prone to significant changes, regardless of the economy. In summary, it is important for Kitchener to show fiscal restraint in light of current economic uncertainties while not blindly following the pattern of the Federal and Provincial governments, given their situations are not directly comparable. ïî ó î 2013 Budget Forecast On the 2012 Final Budget Day, staff projected a 2013 tax rate increase of 5.87%, comprised mostly of non-discretionary increases. The projected increase for 2014 was 1.69%, with the remaining forecast years averaging out at an increase of 2.41%. In other words, the ten year forecast indicates that the 2013 tax rate increase is an anomaly compared to the remaining years, and the specific strategies used to reduce the 2013 budget impact should take that significant factor into account. The specific budget components that make up the projected 5.87% tax rate increase for 2013 are outlined below: ComponentDescriptionImpact New Main Library Council approved the expansion of the Main Branch Library, 0.61% which is scheduled to be completed in 2013. The funding allocation in 2013 represents the partial year operating costs for the expanded facility and will require additional funding in 2014. Capital Policy This annual provision ensures that the level of tax-supported 0.10% Growthcapital investment keeps pace with a growing community and is already committed in the 10-year capital forecast. Operations to Annual budget allocation provided to Operations to fund the 0.33% Service Growth maintenance of expanding infrastructure. Assessment Additional tax revenue generated from new properties. The -1.00% Growthforecast of 1% is based on forecasts from the Municipal Property Assessment Corporation (MPAC). Base Inflation The largest component of base inflation relates to employee 2.50% compensation which is determined by collectively bargained union agreements. These increases are non-discretionary, as they have previously been approved by Council and ratified by the respective unions. StrategicFunding allocation set aside to address corporate priorities. 0.50% Initiatives Tax Stabilization Phase out of the transfer from the Tax Stabilization Reserve 0.45% Reserve Fund Fund to the tax base in accordance with policy and in Reductionrecognition of the depleted reserve balance. Parking Dividend Adjusts the dividend to the level which can be sustained by 0.23% ReductionParking as previously approved by Council. OMERS Increase 2013 will be the third and final year of a mandatory pension 0.90% contribution increase mandated by OMERS. PCI Compliance Operating costs required to comply with Payment Card Industry 0.05% standards. EDIFFinal year of the 10-year Economic Development Investment 1.20% Fund levy increase. TOTAL PROJECTION (AS OF JANUARY 2012) 5.87% Proposed Approach to Preparing the 2013 Budget Submission to Council After considering the full context heading into the next budget process, the Corporate Leadership Team (CLT) recognizes the importance of taking aggressive action to reduce the 2013 budget submission to a more affordable level. To approach a more reasonable level of increase it will be necessary to identify reductions amounting to more than 3% of the tax- supported operating budget. Achieving this level of reduction will be a significant challenge given the recent lack of support, both politically and publicly for reductions to services. This is coupled with the absence of any fiscal capacity to make tax rate reductions without an impact ïî ó í on services (e.g., through increased reliance on reserves, increase dividend transfers, etc.). CLT is proposing to use the following tactics to achieve reductions of at least 3% in the budget submission to Council: Non-discretionary budget impacts will be deferred (to the extent possible) to spread the impacts over more than one year. Unlike prior years, this is a viable approach for 2013 given the lower tax rate projections in 2014 and beyond. Efficiency savings will continue to be built into departmental budget targets. For the third consecutive year of this Council term, tax-supported program expansions and staffing increases will not be brought forward in the budget submission. City staff will seek to engage Kitchener Public Library staff in a detailed review of the operating cost estimates for the expanded Central Library. As discussed above, it is CLT’s intention to deliver an affordable budget submission to Council which would not compromise services to citizens or worsen the City’s overall financial position. The following summarizes the updated forecast for 2013 in light of the proposed approach: TOTAL PROJECTION (AS OF JANUARY 2012) 5.87% REDUCTION TARGET More than 3.00% REVISED TOTAL PROJECTION Less than 2.87% INFLATION RATE (YEAR-TO-DATE) 2.50% The revised projection does not establish a firm target, but rather defines an upper limit. Staff will endeavour to maximize the value of sustainable reductions and will continue to monitor progress in developing the budget submission against the year-to-date inflation trend. With respect to Enterprise budgets, CLT’s objective will be to limit controllable costs at inflationary amounts in the submission to Council. Certain portions of the Enterprise budgets are non-controllable (e.g., Regional water and wastewater wholesale charges, gas supply costs, etc.) and these amounts are treated as flow-through costs in rate-setting. Summary Budget Schedule The budget schedule for 2013 is outlined below. The bolded dates are Committee or Council meetings and are included in Council’s approved meeting schedule. Budget Process report to Council May 7 Budget Call distributed to Departments Mid June Operating and Capital Budget preparation June-August Capital Administrative Review End September Operating Administrative Review Mid October Budget Overview Presented to Council November 5 User Fees Presented to Council November 5 Capital Budget Presented to Council November 8 Operating Budget Presented to Council December 6 Public Input Session January Final Budget Approval January ALIGNMENT WITH CITY OF KITCHENER STRATEGIC PLAN: Foundation: Efficient and Effective Government Goal: Financial Management Strategic Direction: Strive for competitive, rational and affordable taxation levels ïî ó ì FINANCIAL IMPLICATIONS: Financial implications are outlined throughout the report. COMMUNITY ENGAGEMENT: In order to ensure that the general public remains informed and involved in the budget process, staff will establish a budget web page and advertise public meetings for consideration of user fees and the 2013 budget prior to final passage. Staff will also be exploring opportunities to enhance the engagement of citizens in the budget process by sharing additional information and providing additional opportunities for input and feedback on the proposed budget. While a detailed plan has not yet been developed, staff anticipate expanding the use of social media to supplement the traditional methods of engagement. ACKNOWLEDGED BY: Dan Chapman, Deputy CAO (Finance and Corporate Services) ïî ó ë