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HomeMy WebLinkAbout2016-11-14 - Operating Budget FINANCE AND CORPORATE SERVICES COMMITTEE NOVEMBER 14, 2016 CITY OF KITCHENER The Finance and Corporate Services Committee met this date commencing at 9:09 a.m. Present: Councillor S. Davey - Chair Mayor B. Vrbanovic and Councillors F. Etherington, Y. Fernandes, K. Galloway- Sealock, J. Gazzola, B. Ioannidis, Z. Janecki, S. Marsh, D. Schnider and P. Singh. Staff: J. Willmer, Chief Administrative Officer D. Chapman, Deputy CAO, Finance & Corporate Services M. May, Deputy CAO, Community Services C. Fletcher, Interim Executive Director, Infrastructure Services J. Readman, Interim Executive Director, Infrastructure Services J. Miller, Executive Director, Office of the CAO R. Hagey, Director, Financial Planning H. Gross, Director, Engineering K. Kugler, Director, Enterprise M. Goldrup, Director, Human Resources D. Murray, Director, Technology Innovation and Services D. McGoldrick, Director, Operations Environmental Services J. Edmondson, Interim Director, Utilities D. Fagerdahl, Manager, Financial Planning T. Benedict, Manager, Building P. McCormick, Manager, Parking Enterprise K. Feere, Manager, Kitchener Market S. Di Donato, Manager, Arts and Culture B. Bennett, Manager, Business Development T. Brubacher, Committee Administrator C. Goodeve, Committee Administrator D. Saunderson, Committee Administrator 1.FCS-16-167 - 2017 OPERATING BUDGET The Committee considered Finance and Corporate Services Department report FCS-16-167, dated October 25, 2016, concerning the City’s 2017 Operating Budget proposing a tax levy increase of 1.75%, together with three Operating Budget Issue Papers. In addition, the Committee was in receipt this date of a memo entitled “INS-16-080 - Implementing Plan Funding - Integrated Stormwater Management (ISWM) Master Plan” dated November 10, 2016 clarifying some of the concern raised at the November 7, 2016 Community and Infrastructure Services Committee meeting related to the implementation of the ISWM Master Plan. Councillor J. Gazzola brought forward a motion to require the Committee to vote on all of the Issue Papers as outlined in Report FCS-16-167, which was voted on and LOST on a recorded vote, with Councillors J. Gazzola, Y. Fernandes and Z. Janecki voting in favour; and, Mayor B. Vrbanovic and Councillors B. Ioannidis, D. Schnider, P. Singh, S. Davey, S. Marsh, K. Galloway-Sealock and F. Etherington voting in opposition. GENERAL OVERVIEW Mr. D. Chapman presented a general overview of the Operating Budget, advising the budget seeks to balance affordability and sustainability, two themes within the City’s Strategic Plan. He indicated there are five key notes to the 2017 Operating budget, which are as follows: the majority of any increased costs to the homeowner is controlled by other levels of government; the proposed tax supported budget holds most City Services status quo; the budget includes growth funding for the expanded Doon Pioneer Park Community Centre, which is no longer required and can be repurposed; the increasing costs related to the Workplace Safety Insurance Board (WSIB); and, increased investments in utility infrastructure. Mr. Chapman advised Kitchener has one of the lowest tax burdens of large cities and has the lowest total tax burden in the Region of Waterloo. He indicated staff are anticipating other municipalities to be proposing property tax rate increases in the range of 2%-4%, which would put Kitchener’s tax rate increase of 1.75% at the lowest end of increases being considered for 2017. He stated while Kitchener has been fairing very well in terms of affordability, the City has also made some headway in the area of sustainability. He stated in previous years the City FINANCE AND CORPORATE SERVICES COMMITTEE NOVEMBER 14, 2016 - 50 - CITY OF KITCHENER 1.FCS-16-167 - 2017 OPERATING BUDGET CONT’D has experienced a decade of year-end operating deficits, which ended in 2015, which means in a “normal” year, staff are not expecting any significant deficits or surpluses in any program or service. He further advised at the end of 2016 there will be a modest balance in the Tax Stabilization Reserve Fund (TSRF), which is intended to be the funding source for the Centre in the Square (CITS) transitional costs in 2017. Mr. Chapman provided a summary of the lessons learned noting, surpluses and deficits are volatile and therefore should not be built into the base operating budget through transfers from the TSRF. He added a balance in that Reserve fund is a defence against the extraordinary and unforeseen circumstance. Questions were raised regarding the increased costs related to claims for the WSIB, noting a newspaper article was printed comparing the City with the City of Waterloo and the City of Cambridge and there were significant differences in the figures related to claims. Mr. Chapman advised he has followed up on the published differences in reporting, indicating the article is not a true comparison. He stated the numbers published for Kitchener were an evaluation of liability based on current claims reported by WSIB where Waterloo and Cambridge reported actuarial evaluation in their financial statements. In response to further questions, Mr. Chapman agreed to provide an Issue Paper for Final Budget day with additional information on the comparisons with Waterloo and Cambridge related to the changes in claims for WSIB. Following further discussion, Mr. Chapman agreed to include in the Issue Paper what advocacy the City is currently doing, and plans on doing, with respect to the change in legislation and the adverse financial impacts related to those changes. Councillor S. March noted the proposed rate increases for Water, Sanitary and Storm Water, indicating that although the rates are beyond the rate of inflation it was her understanding in comparison to other parts of the world, such as Europe, the rates in Waterloo Region are significantly lower. She requested staff, to provide, if possible, comparisons of some of those rates. Mr. Chapman acknowledged the request and agreed to follow up with that information. BOARDS Centre in the Square (CITS) Messrs. Bruce Gordon and Rob Sonoda and Ms. Deb Daub, Centre in the Square (CITS), were in attendance and responded to questions. Mr. Gordon advised the CITS anticipates needing additional transitional funding in the amount of $218,500. from the City in 2017, noting Issue Paper OP-1 (Continuing Transitional Funding for Centre in the Square) outlines further an explanation of that request. Kitchener Public Library (KPL) Ms. Mary Chevreau and Ms. Sabina Franzen, Kitchener Public Library (KPL), were in attendance to respond to questions from the Committee. Ms. Chevreau agreed to provide year-end budget projections for Final Budget day. The Committee recessed at 11:16 a.m. and reconvened at 11:28 a.m. chaired by Councillor S. Davey with all members present. TAX SUPPORTED OPERATING BUDGET Mr. R. Hagey provided an overview of the net expenditures by department. He noted Infrastructure Services, Community Services, and the other remaining services are each allocated approximately one third of the tax-supported operating budget. He explained the base tax levy, including the assessment growth, is just over $112M and that a levy increase or decrease of 1% amounts to nearly $1.1M in the City budget. Mr. Hagey advised the budget has been based on an assumption of 1.25% for assessment growth. However, the Municipal Property Assessment Corporation (MPAC) has indicated the final figure could be as high as 1.65%; which would represent over $400,000 in additional revenue. FINANCE AND CORPORATE SERVICES COMMITTEE NOVEMBER 14, 2016 - 51 - CITY OF KITCHENER 1.FCS-16-167 - 2017 OPERATING BUDGET CONT’D In response to questions, Mr. Chapman stated the 2016 restatements are changes staff made to the budget in response to directions from Council throughout the year. He agreed to provide Council with more detailed information on the restatements as outlined on the Summary of Budget Changes by Division Chart. Responding to questions, Mr. Hagey explained the year-end projections are based on the August 2016 variances and will be updated for Final Budget day. He agreed to provide more information on why the August 2016 variance report listed a departmental surplus for Community Services Department of $627,000, which is now projected to be year-end surplus of $125,000; and on how the $350,000 for Operations Service growth was determined. Mr. Hagey advised that the 2017 budget contains $109,000 for operations of the Doon Pioneer Park Community Centre expansion that will not be required in 2017 because the expansion will not be complete until 2018. He outlined three options for those funds: leaving them in the Doon Pioneer Park Community Centre budget; reallocating them to another area; or, removing the funds from the budget to reduce the net tax levy by 0.1%. He noted staff are recommending that those funds be reallocated to the WSIB reserve fund. Councillor Y. Fernandes gave notice that she intends to bring forward a motion on Final Budget day for the $109,000 from the Doon Pioneer Park Community Centre to be applied to the capital expansion of the Doon Pioneer Park Community Centre in 2017. She also requested staff prepare an issue paper for Final Budget day on the impacts of this proposal including information on the financial pressures related to the expansion. Responding to questions regarding Issue Paper Op-03 (Enhancing Integrity Commissioner Services), Mr. Chapman explained if the services are expanded, Council will need to set an annual limit for usage of the Integrity Commissioner services and budget based on the anticipated usage. The Committee requested that staff provide an Issue Paper detailing the impacts of either attaching, or not attaching a budget, but still having a limit per Councillor, on funding the enhanced Integrity Commissioner services. The Committee requested this Issue Paper also include the number of conflicts that have been declared by Council Members in the last five to ten years. The Committee recessed at 12:48 p.m., and reconvened at 1:35 p.m., chaired by Councillor S. Davey with all members present except for Councillors J. Gazzola, S. Marsh, and Y. Fernandes. Mr. Hagey provided an overview of the ten year tax rate projection and noted the projected rate increases over the next ten years range between 1.5% and 2.5%. Councillors J. Gazzola and Y. Fernandes re-entered the meeting at this time. Ms. J. Miller and Mr. D. Murray provided an overview of Issue Paper Op-04 (Implementing Customer Relationship Management (CRM)). She advised when the CRM software was initially approved by Council, two staff members were hired on a two year contract with the anticipation that the positions would become permanent once the software was implemented to ensure ongoing support and maintenance. Councillor S. Marsh re-entered the meeting at this time. The Committee requested that staff provide a report, outside of the budget process, covering the benefits achieved by implementing the new CRM system. Ms. K. Feere responded to questions regarding Issue Paper Op-05 (Implementing the Kitchener Market Strategic Plan). She noted that measurable goals related to the Market’s Strategic Plan will be included in the future presentation of the Market’s Business Plan. FINANCE AND CORPORATE SERVICES COMMITTEE NOVEMBER 14, 2016 - 52 - CITY OF KITCHENER 1.FCS-16-167 - 2017 OPERATING BUDGET CONT’D Mr. B. Bennet responded to questions regarding Issue Paper Op-06 (Funding for Physician and Specialist Recruitment Programs), explaining other communities have similar programs with varied funding sources. He agreed to request a financial report from the Chamber of Commerce on how the funds for this program have been utilized. Ms. S. Di Donato responded to questions regarding Issue Paper Op-07 (Reallocating Creative Enterprise Initiative (CEI) Funding to Tier 2 Grants). She advised that the Tier 2 grant program is designed for small and emerging organizations. The Committee requested that staff investigate whether a final financial report was prepared by CEI and circulate it to Council. Ms. Di Donato agreed to circulate Council's direction regarding transferring Arts Sustainability funding for small and emerging entities to Tier 2 Grants in 2016. ENTERPRISE OPERATING BUDGETS Mr. Hagey gave an overview of the financial positions of the City’s enterprises, advising six of the seven enterprises are projected to be in a deficit position at the end of 2016. He added three City enterprises are allowed to, and do, pay a dividend to the City, being Gas, Golf and Parking. He noted all three enterprises are in a deficit, and subsequently continue to pay a dividend to the property tax base even though they have an accumulated loss. He acknowledged that while the dividends continue, it is recommended they not be increased. Golf Mr. Hagey provided an overview of the Golf enterprise, noting it does pay a dividend to the City. He indicated Golf continues to see steady financial results in 2016 and is projecting the same over the next 5 years. He advised the dividend amount represents property and income tax payments as outlined in the Level Playing Field agreement with the Golf industry. He stated Golf is expected to remain in deficit through the forecast, and will begin making progress once a portion of the existing debt is paid off in 2020. Ms. K. Kugler was in attendance and responded to questions from the Committee. Building Mr. Hagey provided an overview of the Building enterprise, noting revenues for 2016 are better than anticipated. He indicated as a result of exceeding expectations, the Building stabilization reserve is projected to be above the maximum target, so permit fees have been reduced by 5% for 2017. Mr. T. Benedict was in attendance and responded to questions from the Committee. Parking Mr. Hagey provided an overview of the Parking enterprise, indicating the enterprise is projecting a positive result at the end of the year, but not as positive as was budgeted. He stated one-time revenues from a land sale did not materialize, but monthly parking revenues have been better than budgeted. He advised the Parking stabilization reserve is currently in a substantial deficit position, and is forecasted to remain negative for the foreseeable future unless: the dividend paid to the tax base is reduced; the sale proceeds of the next downtown surface lot are provided to Parking; or, the cost of Cycling and/or Transportation Demand Management (TDM) are permanently funded from the tax-supported capital budget. He further advised projected revenues and expenses for Parking are fairly consistent across the 5 year forecast, and result in small surpluses. He stated the modest surpluses are not enough to get the stabilization reserve out of the negative, and that additional action as previously outlined would be required. In response to questions, Mr. P. McCormick advised the budget associated with Cycling and TDM is $540,000. It was noted transferring that amount to the tax-supported capital budgetwould equate to 0.5% increase to the tax levy. FINANCE AND CORPORATE SERVICES COMMITTEE NOVEMBER 14, 2016 - 53 - CITY OF KITCHENER 1.FCS-16-167 - 2017 OPERATING BUDGET CONT’D The Committee recessed at 3:31 p.m. and reconvened at 3:34 p.m., Chaired by Councillor S. Davey with all members present. Gas Works Utility Mr. Hagey advised Gas Delivery is performing worse than expected in 2016, as revenues were unfavourably impacted by warmer than normal weather. Accordingly, this has led to a deficit in 2016 as well as resulting in a negative stabilization balance for this year. He stated Gas Delivery does pay a dividend to the City, which is the maximum allowed under the rate model set by the Ontario Energy Board (OEB). He indicated the Gas Supply and Transportation rates are set based on a pass-through basis which aligns with the OEB rate-making principles. In response to questions regarding revenue projections in relation to gas consumption volumes, Mr. Chapman advised while the City’s population continues to grow, natural gas use has been declining over the past ten years. He indicated the volume of gas consumed in the 3 City has declined by approximately 37,741,000 m since 2005. He added this can be attributed to improved efficiency, reduction in large industrial use, conservation, and weather. Questions were raised regarding the amount of capital closeouts projected for the Gas, Water, Sanitary and Storm Water utilities. Ms. C. Fletcher advised that with respect to the Gas and Water utilities, both the ION construction and Highway 7 construction have resulted in some work within Kitchener Utilities, which normally would have been undertaken in 2016 being held over to future years. She noted this work still needs to be undertaken. Mr. Hagey agreed to provide additional information detailing the reasoning for the amount of capital closeouts projected for the Gas, Water, Sanitary and Storm Water utilities. Responding to questions regarding the Gas rate, Ms. Fletcher clarified that the whole fee for Gas Delivery is not variable; it contains both a fixed portion as well as a volumetric portion. She agreed to provide information as to the current Supply and Transportation market rates. Mr. Chapman advised staff would also report back on the portion of the portfolio that is fixed. He noted the majority of the portfolio is a known quantity as the pricing has been locked in and the balance is based on the market rates. In response to questions concerning the Ontario Cap and Trade program, Mr. Chapman confirmed that a report would be provided in January 2017 providing further details on the new carbon commodity market prior to purchasing any Ontario Cap and Trade credits. Responding to questions regarding Issue Paper Op-08 (Complying with Natural Gas Legislation), Ms. Fletcher advised an audit was conducted by the Technical Standards and Safety Authority (TSSA) and it was identified that Kitchener Utilities required improvements to its handling of non-compliance with homeowners, builders and contractors. She stated an examination was undertaken to determine if staff could be realigned to manage these responsibilities and it was found that a dedicated administrator was required to ensure compliance. Mr. J. Edmonson agreed to provide additional information outlining the number of TSSA infractions per year. Additionally, Mr. Chapman confirmed that at the December 12, 2016 Audit Committee meeting consideration could be given to adding Kitchener Utilities to the Internal Auditor’s Work Plan. Water, Sanitary and Stormwater Utilities The Committee considered Issue Papers Op-09 (Delivering Increased Full Road Reconstruction), Op-10 (Increasing Water Maintenance Programs), Op-11 (Increasing Sanitary Maintenance Programs) and Op-12 (Increasing Stormwater Maintenance Program). Mr. Hagey advised that water, sanitary and stormwater budgets are linked together as a funding source for the Accelerated Infrastructure Replacement Program (AIRP), as per the State of the Infrastructure update that was provided to Council in August 2015. He stated that report indicated that a significant portion of the City’s water and sewer network are beyond their FINANCE AND CORPORATE SERVICES COMMITTEE NOVEMBER 14, 2016 - 54 - CITY OF KITCHENER 1.FCS-16-167 - 2017 OPERATING BUDGET CONT’D useful lives, adding this formed the impetus for the proposed rate increases, being: Water 7.6%; Sanitary 10.8%; and, Stormwater 9.2%. He noted more than a quarter of the proposed rates are driven by the increases imposed by the Region of Waterloo. Responding to questions regarding Issue Paper Op-09, Mr. H. Gross advised the previous target was to complete 9 kilometers of reconstruction projects annually. He stated in 2015, the City completed 6.2 kilometers of AIRP projects. He added the target for 2016 was set at 6 kilometers, and completed 6.8 kilometers, due to the costs related to each individual project. Councillor J. Gazzola requested an Issue Paper to provide an update on the current state of the City’s infrastructure, which should include: what was planned; what has been accomplished; what was not implemented; and what is projected to be undertaken with the proposed rate increases. In response to questions regarding scoping the number of kilometers that could be undertaken if the rates were reduced, Mr. J. Readman indicated it would not be possible to prepare such a document by January 2017; however, it could be facilitated for the next budget cycle. Mr. J. Willmer advised in relation to the general principles of the AIRP, if infrastructure lasts approximately 80 years at least one-eightieth of the City’s infrastructure needs to be replaced every year; however, at that pace the AIRP would not reach fruition. He stated that the City was previously at a 150 year replacement cycle, which indicated that an increased investment over a number of years was needed to reach a sustainable rate of replacement. Accordingly, the City implemented the AIRP. Councillor P. Singh asked that a 10-year projection be provided showing what the utility rates would be in relation to the current AIRP, including what the average household is estimated to pay over the next ten years. Responding to further questions, Mr. Chapman advised that the Municipal Act would preclude the City from budgeting for a deficit. He stated it may be possible to mitigate the impacts of the rate increases through one-time revenues. Councillor P. Singh requested an Issue Paper be provided outlining how an infusion of one- time funding, whether through the sale of an asset or debenture, could impact future rates; and, if the rate impact could be spread out across multiple years. In response to questions regarding Issue Paper Op-13 (Implementing the Stormwater Master Plan), Mr. Gross confirmed the two staff positions outlined in the Issue Paper are intended to implement the Stormwater Master Plan. He added those positions are not being funded through the AIRP. In response to further questions, Mr. Chapman advised the Provincial Government has decided that the stormwater management fee could not be applied to school boards. He added further that staff’s original recommendation was to have the fee applied to places of worship; and, unlike schools, there is nothing that would preclude Council from applying that fee. He agreed to provide an Issue Paper outlining the revenue that could have been received if the Stormwater Utility fee was applied to schools and places of worship. Additionally, information would be included as to the practice of other municipalities as well as if a fee is charged to apply for the stormwater credit rebate program. NEXT STEPS Mr. Hagey advised that Capital Budget deliberations are scheduled to take place on November 28, 2016, adding a public budget consultation session will be held on January 16, 2017. He noted Final Budget day has been scheduled for January 23, 2017. The Committee then undertook a review of the action items arising from this meeting. FINANCE AND CORPORATE SERVICES COMMITTEE NOVEMBER 14, 2016 - 55 - CITY OF KITCHENER 1.FCS-16-167 - 2017 OPERATING BUDGET CONT’D On motion by Councillor Y. Fernandes - it was resolved: “That staff be directed to report and / or take appropriate action on the following matters arising from the November 14, 2016 special Finance and Corporate Services Committee meeting relative to the 2017 Operating Budget, as outlined in the chart below: Division/AreaTopicAction Provide more detail on the restatements as Restatementsoutlined on the Summary of Budget Changes by Division Chart FINANCIAL PLANNING Provide a listing of all capital closeouts, Capital Closeouts including the amount and reason for closeout. Prepare an Issue Paper to explain the difference between the future liability estimate received by WSIB ($15M) and what the actuarial estimates as noted in City of Kitchener's financial statements (2015 FS updated estimate $7,104,900). Workplace Safety Include a comparison to neighbouring HUMAN Insurance Board municipalities, complete with information RESOURCES (WSIB)about when liabilities were last updated and if there are any calculation methodology differences, as well as additional things the City can do to mitigate risk of new claims and what advocacy work is being done by the City and municipal organizations to mitigate WSIB claims increasing. Operations Service Explain how the Operations Service Growth OPERATIONS Growthfigure was determined. Explain why the August 2016 variance COMMUNITYAugust report listed a departmental surplus of SERVICESDepartmental $627,000. which is now projected to be Surplus DEPARTMENT year-end surplus of $125,000. Investigate and provide follow up on Creative Enterprise CAOwhether a financial report was prepared by Initiative (CEI) ADMINISTRATIONCEI following its disbandment and circulate Funding it to Council. Provide an Issue Paper including 2 scenarios on how to fund if a Councillor needed the services of an integrity office Options for and the impacts of each scenario 1) Attach Integritybudget, 2) Do not attach budget - but still LEGISLATED SERVICESCommissioner with have a limit per Councillor. scenarios Include in the Issue Paper the number of times of member of Council has declared a conflict over the last 5 to 10 years. FINANCE AND CORPORATE SERVICES COMMITTEE NOVEMBER 14, 2016 - 56 - CITY OF KITCHENER Request a financial report from the ECONOMICChamber of Chamber of Commerce on how the DEVELOPMENT Commercecontributions to the Physician and Specialist Recruitment programs are used. Circulate Council's direction about ARTS & Tier 2 Grants transferring Arts Sustainability funding for CULTUREFunding 2016 small and emerging entities to Tier 2 Grants in 2016. CustomerProvide a report, outside of the budget CORPORATERelationshipprocess, covering the benefits achieved by CALL CENTRE Managementimplementing the new Customer (CRM) system Relationship Management system KITCHENER Year-endProvide year end projections for Final PUBLIC LIBRARY ProjectionsBudget Day Technical Report back to council the number of Standards & Safety Technical Standards & Safety Authority Authority (TSSA) (TSSA) legislative infractions per year Infractions GAS UTILITY Report back to Council the supply gas Gas Market Supply market rates and what portion of the Rates portfolio is fixed. Prepare further information that includes the lost revenue figures pertaining to the School Boards as well as the amounts that Lost revenues for are rebated to places of worship. STORMWATERthe School Board UTILITYand places of The follow-up should also Include worship. information about the practice of other municipalities and whether there is a fee for applying for the rebate program. Provide an Issue Paper that would investigate the costs of utilities in other Comparison of parts of the world - specifically (Europe) Utility Costs compared to the costs in the Region of Waterloo. Provide an Issue Paper updating the current state of the infrastructure - what State of the was planned/what was accomplished/what Infrastructure was not implemented/ what is projected to WATER/ be done with the proposed increases. SANITARY/ STORMWATER Provide an Issue Paper summarizing a 10 UTILITIES year projection on what Utility rates will be 10 year projection given the current Accelerated Infrastructure for Utility RatesReplacement Program (AIRP) plan - include what the average household will pay over the 10 years. Provide an Issue Paper summarizing how a one-time infusion of funding, whether sale One-Time Transfer of asset or debt could impact future rates and could the rate impact be spread out over multiple years. FINANCE AND CORPORATE SERVICES COMMITTEE NOVEMBER 14, 2016 - 57 - CITY OF KITCHENER Prepare an Issue Paper on transferring the $109,000. not required for DPPCC operations to fund the capital shortfall for COMMUNITYDoon Pioneer Park DPPCC. Community Centre PROGRAMS & SERVICES(DPPCC) The Issue Paper should include information on the financial pressures related to the DPPCC expansion. 2.ADJOURNMENT On motion, this meeting adjourned at 5:36 p.m. C. Goodeve T. Brubacher D. Saunderson Committee Administrator Committee Administrator Committee Administrator