HomeMy WebLinkAboutFIN-08-050 - Winter Control Deficit Mitigation OptionsREPORT
Report To: Councillor Berry Vrbanovic, Chair, and Members of the
Finance and Corporate Services Committee
Date of Meeting: May 12, 2008
Submitted By: Dan Chapman, General Manager of Financial Services
Prepared By: Dan Chapman (x2347}
Wards}Involved: All
Date of Report: May 2, 2008
Report No.: FIN-08-050
Subject: WINTER CONTROL DEFICIT MITIGATION OPTIONS
RECOMMENDATION:
THAT the projected 2008 winter control deficit of $1.2 million be mitigated in part by the
temporary net expense reductions outlined in Appendix B to report FIN-08-050, amounting to
$1.0 million; and further
THAT the May Interim Financial Statement report (June 16, 2008) include a recommendation
with respect how to any remaining projected City-wide deficit should be mitigated.
BACKGROUND:
On March 17, Council directed staff to come forward at the first Committee meeting in May with
a report on spending to date for winter control activities. In addition, Council requested a
projection of the year-end variances for this activity and potential strategies to mitigate any
shortfall.
Operations staff has prepared a separate report to provide information on spending to date
along with a projected year-end variance. That report indicates that a deficit of $1.2 million will
likely be realized in this area for 2008. This report provides a discussion of potential deficit
mitigation strategies, including:
• Fund through tax stabilization reserve fund;
• A one-time property tax levy increase; or
• Net expense reductions.
This report addresses mitigation options for the winter control variance only. Staff will be
preparing an operating variance report (Schedule 1 to the Interim Financial Statements) as of
the end of May. Depending on the overall projected variance, more or less action may be
required to mitigate the deficit projected for all tax-supported operations.
1
REPORT:
Operations staff has projected a deficit to the year end of $1.2 million for winter control activities.
This situation is not unique to Kitchener as most other local municipalities in this area have
exhausted their 2008 budgets for these services and are projecting significant over-
expenditures at year end. Normally, a deficit related to extraordinary winter events would flow
through to the tax stabilization reserve fund, which exists to provide for unforeseen
expenditures. However, the balance in the tax stabilization reserve fund is projected to be well
below the target minimum amount. Allowing a significant deficit to flow unabated into the
reserve fund would jeopardize the sustainability of the fund over the next several years.
It should be noted that significant work was done in 2007 to mitigate the projected deficit for that
year. This included limiting discretionary spending and cancelling the secondment program.
While staff rose to the challenge of finding savings within the budget, the changes were not
sufficient to eliminate the deficit, were not sustainable and had an impact on morale. Staff notes
that discretionary budget lines have been held without increase for several years.
The following options are put forward for Council's consideration as potential approaches to
mitigate the operating budget shortfall associated with winter control activities.
Option 1-Fund through tax stabilization reserve fund
In the absence of other actions, a deficit at year end would be funded out of the tax stabilization
reserve fund in accordance with Council policy. Council should consider this option if it feels
that it is premature to take any corrective action, or if all other options are unpalatable.
However, as indicated in Appendix A, the tax stabilization projection is projected to be well
below the target minimum balance. Additional draws on the reserve fund may necessitate levy
increases above and beyond the 0.5% amounts already projected over the next several years,
which are required to phase out the current level of annual reliance on the fund. This situation
highlights the importance of building the balance in the tax stabilization reserve fund to
the target range of $6 million to $12 million.
Option 2 -One-time property tax levy increase
The projected winter control deficit of $1.2 million equates to approximately 1.4% of total
property taxes. Council could consider amending the budget and tax rate by-law to levy for the
additional budget requirement. This approach has been considered by other municipalities in
the Province and would add approximately $12 to the average household assessed at $203,000
in Kitchener in 2008.
This option is deemed to be infeasible as the tax rate by-law was passed on May 5 so that the
City might provide the tax rates to OPTA for "capping" calculations by the deadline of May 19
and bill with a first due date of July 2. Failing to bill with this due date would result in lost
interest and penalty income. As a result, if this option were to be implemented, the tax rate by-
lawwould need to be amended at a special Council meeting prior to May 19.
Option 3 -Net expense reductions
Council could also consider approving temporary net expense reductions in an effort to
generate savings to offset the projected shortfall. The Corporate Management Team and
2
Departmental Management Teams have met on several occasions to develop and analyze
potential options for reductions, as outlined in Appendix B. This course of action is
recommended to address most of the projected deficit. Staff will assess the need for further
action as part of the May Interim Financial Statement report, which will provide a projection of
the surplus or deficit for all City services, not just winter control. As outlined in Appendix B, this
option will result in some service impacts to staff and citizens.
FINANCIAL IMPLICATIONS:
As outlined above
CONCLUSION:
The extraordinary level of winter control activity in 2008 has resulted in a significant negative
financial impact to the City. In effort to mitigate the projected budget shortfall, three options are
presented for Council's consideration, including funding through the tax stabilization reserve
fund, a direct levy impact, and net expense reductions. This report recommends approval of
several net expense reductions.
ATTACHMENTS:
Appendix A -Tax Stabilization Reserve Fund Projection
Appendx B -Potential Net Expense Reductions
Dan Chapman, CA MPA
General Manager of Financial Services
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