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Home My WebLink AboutFIN-08-079 - 2009 Budget ProcessREPORT Report To: Councillor B. Vrbanovic, Chair, and Members of the Finance and Corporate Services Committee Date of Meeting: June 9, 2008 Submitted By: Dan Chapman, General Manager of Financial Services Prepared By: Dan Chapman (x2347} Wards}Involved: All Date of Report: May 22, 2008 Report No.: FIN-08-079 Subject: 2009 BUDGET PROCESS RECOMMENDATION: THAT staff be directed to prepare an operating budget for 2009 which is focused on strengthening the financial base for existing City programs by holding discretionary expenditure increases at 0% for the third consecutive year and not permitting program expansions; THAT a general guideline of 6% be maintained for user fee increases in 2009, subject to the following: • THAT, notwithstanding this general direction, recommendations related to fees arising from the Youth and Older Adult strategies be taken into consideration when the fee schedule is finalized for 2009; and • THAT that the staff budget submission include $20,000 of additional funding for leisure access card subsidies, consistent with the three-year phase-in proposed in 2008 AND FURTHER THAT the 2009 budget meeting timetable outlined in staff report FIN-08-079 be approved, subject to the potential adjustment of the timing of final budget day to conform to the 2009 meeting calendar BACKGROUND: City staff has commenced development of the 2009 budget. This report highlights several significant issues for Council's information and also seeks direction with respect to certain elements of the 2009 budget process including the general approach, a guideline for user fee increases, and the timelines for Council meetings. REPORT: General Approach to Bud_.eq t Preparation for 2009 A Plan for a Healthy Kitchener, approved by Council in the summer of 2006, identified community priorities over a twenty year time horizon. In response to the strategic directions of the plan, the 2007 and 2008 budget processes were modified to support the development of multi-year business plans which emphasize the link between strategic planning, budgeting and performance measurement. In January of 2008, the first business plans were provided to Council for consideration. While these changes improved the strategic focus of the budget, the 2007 and 2008 budget processes were not without their challenges. For example, the City projected a net levy requirement of approximately 6% through all phases of the 2008 budget process. On final budget day, several adjustments reduced the levy increase to 3.71 %, including elimination of the Working Capital Reserve Fund and increased transfers from the Tax Stabilization Reserve Fund to the operating budget. These adjustments are not sustainable over the long-term. In view of known pressures such as EDIF X1.23% levy increase} and the impact of the arbitration of the Fire collective agreement (1.04% levy increase), the City will find it difficult to invest in new initiatives while at the same time maintaining existing services at a reasonable rate of property tax increase. In addition, recent analysis indicates that some adjustments to the City's pay structure are required to bring Kitchener rates of pay in line with market averages. In view of these challenges, staff recommends that the 2009 budget hold the line on discretionary budget increases for the third consecutive year and not include program expansions, instead focusing on strengthening the financial footing upon which the City may move forward. Council has traditionally not settled upon levy increase targets this early in the annual budget process; as such targets can be arbitrary and are not based upon detailed analysis such as is developed through the budget cycle. Recognizing this, staff proposes to continue developing a rigorous budget submission that includes options for Council to consider in making potential budget adjustments, all for deliberation later in 2008. Capital Forecast The City's approved ten-year capital forecast shows that the capital funding pool is fully allocated until the year 2014. In addition, the funding sources that comprise the capital pool are either constrained by Council policy or are projected to be fully committed in the near term. As a result, there is not flexibility to incorporate new projects within the five year period from 2009- 2013, unless other projects are deferred or eliminated to create funding room. In light of these conditions, the following approach is recommended for projects funded out of the capital pool: • Departments shall accommodate all capital pool (c/c} funded projects in the 2009-2013 time period within the total value of c/c funding allocated annually to the department in the 2008-2017 capital forecast for that same time period ~i.e., departments shall not increase their net c/c requirement}; • If new projects are required, or existing projects are to be advanced, the department shall recommend adjustments to defer or remove lower-priority projects to maintain the same level of funding over the next five-year period; and • For projects introduced into the 2014-2018 time period, departments must determine the relative priority of new projects to facilitate review and prioritization of new initiatives. 2 Proposals for new projects or budgets increased greater than $50,000 will be reviewed by the Finance and Corporate Services Committee prior to being included in the capital forecast. Each department will prepare a report for capital project referrals, submitted and presented by the GM, for the Finance and Corporate Services Committee on October 20, 2008. An exception to this general guideline applies to Kitchener Public Library, in that Library and City Staff have been directed to examine the potential to fund a library expansion under a variety of scenarios, including from within the existing capital funding envelope. This review process has commenced and a report will come forward to Council in the fall outside the normal schedule of budget meetings. User Fee Increase Guideline User fees were increased across the board at a rate of 6% in 2008 as a property tax increase mitigation strategy. This had the effect of increasing the level of operating cost recovery for City programs. In anticipation of significant budget pressures for 2009, it is recommended that this user fee increase guideline be extended for 2009. Each additional 1 % fee increase translates to a 0.2% levy reduction. Despite this general direction, Staff suggest that recommendations related to fees arising from the Youth and Older Adult strategies be taken into consideration when the fee schedule is finalized for 2009 and that the budget submission include $20,000 of additional funding for leisure access card subsidies, consistent with the three-year phase-in proposed in 2008. This additional funding will help to ensure that programs remain affordable for low-income participants despite the proposed fee increase. TimPlinP~ The following Finance and Corporate Services Committee meeting dates are proposed for the budget process: Budget Component Meeting Date Comments Fees and Charges October 20, 2008 Permits implementation of (Re ular FCSC) new rates on Januar 1, 2009 Referral of Projects to Capital Forecast October 20, 2008 Permits inclusion of projects Re ular FCSC before issuin acka e Capital Budget and Forecast November 24, 2008 (Council Da ) Public Input Session December 1, 2008 Evening meeting Re ular FCSC Operating Budget December 8, 2008 (Council Da ) Final Budget Day January 12, 2009* Includes utility rates Council Da im lemented March 1, 2009 subject to finalization of the 2009 meeting schedule later this year These timelines are advanced by approximately 2 to 4 weeks when compared to the prior year. This moves the City closer towards adoption of a budget prior to the commencement of the fiscal year, which has a number of process and financial benefits to the City. This timing is 3 made possible because of efficiencies in the budget process and the earlier issuance of the budget call to staff. No provision has been made fora "Grants Day" as part of the 2009 budget process. Phase 2 of the Community Investment Strategy will recommend a process with respect to approval of grants for 2009. FINANCIAL IMPLICATIONS: None at this time COMMUNICATIONS: 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 2009 budget prior to final passage. Dan Chapman, CA MPA General Manager of Financial Services 4