HomeMy WebLinkAboutFIN-09-091 - 2010 Budget Guidelines
REPORT
Report To:Councillor B. Vrbanovic, Chair, and Members of the Finance
and Corporate Services Committee
Date of Meeting:
August 10, 2009
Submitted By:
Karen Eskens, Deputy City Treasurer
Prepared By:
Karen Eskens (x2394)
Ward(s) Involved:
All
Date of Report: July 7, 2009
Report No.:
FIN-09-091
Subject:2010 BUDGET GUIDELINES
RECOMMENDATION:
THAT, consistent with the projection found in Appendix “A” to staff report FIN-09-091, staff be
directed to submit a 2010 tax based operating budget for consideration inclusive of:
a general property tax levy increase not to exceed a rate of 2.54%, which incorporates a
2% ($1.8M) budget cut across all City departmental and local boards based on the 2009
net operating budget; and
a further levy increase of 1.20% for the seventh year of the EDIF program in
accordance with the approved ten-year funding model
THAT staff and local boards be directed to prepare a tax based operating budget for 2010 that:
excludes any increases to discretionary expenditures
excludes any requests for additional staff unless previously approved and budgeted or
required by legislation
excludes program expansion requests unless previously approved and budgeted
removes the notional provision for 0.5% for strategic initiatives
includes across the board increases to user fees of 5.20% while providing additional
funding of $20,000 for leisure access card subsidies representing the third year of a
three-year phase in
strives to identify cuts to budgets to achieve a 2% ($1.8M) 2009 base budget reduction
while not compromising the long-term financial stability of the municipality
THAT the 2010 budget meeting timetable outlined in staff report FIN-09-091 be approved,
subject to the potential adjustment of the timing of final budget day to conform to the 2010
meeting calendar
AND FURTHER THAT the $9,525,000 20-year debenture issue approved for 2009 for the
Charles/Benton Parking Structure be deferred until substantially completion of the project in 2010
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BACKGROUND:
Over the last few years the City of Kitchener has experienced a period of rapid growth and
strong financial performance resulting in operating surplus. However, with the recent cyclical
downturn in the economy, the City has faced slowing growth which has placed pressure on
many budget lines, resulting in operating deficits. In light of this trend and current economic
conditions, the 2010 budget should focus on maintaining financial stability while minimizing a
property tax levy increase through the identification of cuts to all 2009 base budgets.
During the 2009 budget process, the 2010 levy increase was projected to be 6.83%. In order to
meet the Strategic Directions for Financial Management which strive for competitive, rational
and affordable taxation levels, the 2010 budget guidelines are geared towards decreasing the
2009 base budget through cuts of 2% ($1.8M), rigorously limiting discretionary increases and
not permitting program expansion or staff additions unless previously approved or budgeted or
required by legislation. In light of public expectations and current economic conditions, this will
clearly be a difficult budget year for the City of Kitchener. Base budget reductions will not be
achieved without affecting service levels to at least some extent.
This report has been submitted to obtain Council direction with respect to the key elements of
the 2010 budget plan, including the approach, timetable and financial guidelines.
REPORT:
Projected Budget Increases
Appendix “A” provides a projection of property tax increases over a ten-year time horizon in
addition to the 2010 projection. Some significant components of near-term projected levy
increases relate to the City’s commitment to EDIF, the operating expenses of a new/expanded
library in 2011 and market-based pay structure adjustments which are being phased in over
several years.
To achieve the recommended levy position, the 2010 budget guidelines would decrease the
2009 net tax-supported base operating budget through cuts of 2% ($1.8M), freeze discretionary
spending increases for the fourth year in a row and not permit program expansion or staff
additions that were not planned and budgeted for previously or required by legislation.
These increases assume assessment growth revenue at the rate of 1% in 2010 and 2%
annually thereafter. Assessment growth in 2009 was 1.27%. There is a risk that assessment
growth could decline below forecasted levels, in which case, there would be a further levy
increase requirement above and beyond that already projected.
The following table provides a summary of the components of the projected levy increase:
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$ (000's)
%
2009 Net Base Budget91,800$
Inflationary Increase2,456$ 2.65%
Budget Reductions(1,836)$ -1.98%
Growth43$ 0.05%
Budget Corrections1,093$ 1.18%
Other593$ 0.64%
Sub-Total2,349$ 2.54%
EDIF1,113$ 1.2%
Total3,461$ 3.74%
At this projected increase, the 2010 impact for an average household assessed at $214,000
would be $36.05 per year or $3.00 monthly.
Budget Target
The City’s Strategic Directions For Financial Management indicates that the City will “strive for
competitive, rational and affordable taxation levels” taking into consideration the following four
factors when setting budget targets:
Consumer price index
– The Bank of Canada forecasts that all-items and core inflation
rates will gravitate to the 2% target in 2010. Current forecasts anticipate an Ontario CPI
around 1.9%. The June 2009 year over year Consumer Price Index for Ontario was 0%.
This was mainly due to the fact that in June 2008 gasoline prices were extremely volatile
and were increasing to peak in July 2008. Gasoline prices have declined since last
summer. If gasoline is removed from the CPI then Ontario increased 1.5% in June 2009
over June 2008. Kitchener property taxes have increased at approximately the rate of
inflation over the past ten years, as shown in the following graph. Excluding the impact
of the Economic Development Investment Fund, the increase is well below the CPI rate.
CPI and MPI vs Tax Rate Increase
45.0%
40.0%
35.0%
30.0%
25.0%
20.0%
15.0%
10.0%
5.0%
0.0%
-5.0%
Budget Year
Tax Increase (incl. EDIF)Tax Increase (excl. EDIF)
MPICPI
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Inflationary increases unique to municipalities
– Staff has calculated a mun
icipal
price index of 2.6% for the City of Kitchener based on the consumer price index
weighted against the City’s 2009 budget. The difference between this rate and the Bank
of Canada’s long-term total inflation target of 2% is primarily attributed to differences in
the City’s “basket of goods” which have been increasing at a rate faster than other
components of the household CPI. Despite this inflationary projection, in order to
no increase has been allocated
maintain base increases at as low a level as possible,
to administrative, supply, contract service, rental, promotional or repair cost
objects for the fourth consecutive year
. This will necessitate efficiency gains,
revenue increases or reductions in discretionary spending, in order to offset any
associated cost increases. The proposed 2% 2009 base budget cut target is above and
beyond the reductions necessitated by not funding inflationary increases. Appendix “B”
shows how the City’s base increase was calculated for 2010.
Comparison to other municipalities
– In light of public expectations and current
economic conditions other area municipalities are currently projecting increases in the
2% to 4% range.
Balance levels of service provided with taxpayers’ willingness and ability to pay
–
The “Who Are You Kitchener?” process (2006) asked respondents how the City should
pay for new initiatives and priorities. The results suggested a balanced approach, with
31% suggesting more revenue generation, 31% suggesting spending reductions and
25% suggesting increased taxes. In addition, the budget focus groups held in 2007
indicated that residents were willing to support modest increases in user fees and
property taxes (in excess of the rate of inflation) to maintain the quality of life they
currently enjoy. When specifically asked, residents found it difficult to identify areas for
potential budget reductions.
In summary, these factors show that inflation is projected to be in the range of 1.9% to 2.6% in
2010, depending on the measure used. The increase being projected for the City of Kitchener
(before EDIF) is 2.54% which is within this range and towards the low end of the budget
increases that other area municipalities are currently projecting for 2010.
In addition, Kitchener already enjoys competitive property tax levels in comparison to other
Ontario municipalities. Kitchener has consistently been below the Ontario average. Despite this
trend, citizens have demonstrated a willingness to pay more to preserve and enhance the
quality of life in Kitchener. According to the Annual Municipal Competitiveness Study prepared
nd
by BMA Consultants, for the 2 year in a row, the City of Kitchener had the fourth lowest
average residential property taxes of 26 of Ontario's largest municipalities (based on a specific
house and lot size) in 2008.
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2008 Taxes
$5,000
$4,500
$4,000
$3,500
$3,000
$2,500
$2,000
$1,500
$1,000
$500
$0
Adjustments
Included in Appendix “A” are the following adjustments which form part of the proposed 2010
budget guideline, which has reduced the 2010 preliminary property tax increase projection from
6.83% to 3.74% (including 1.20% for EDIF):
Kingsdale Community Centre
– The operating budget for the Kingsdale Community
Centre is not required until July 2010. Therefore, the annualized operating costs can be
phased in over a two year period alleviating some financial pressure in 2010.
New Main Library
– Funding from the Investing in Ontario Act was allocated to the
Consolidated Maintenance Facility in the amount of $1,801,171 which resulted in this
amount being freed up from C/C in 2010. In accordance with Council’s direction related
to this matter, the C/C funds can be allocated to the New Main Library Project which
results in the $817,000 previously forecast in 2010 to be shifted back to 2012. It should
be noted that the $817,000 of projected increased operating costs for the new main
library (which equates to approximately a 0.9% property tax levy increase in 2011) have
not been approved and are preliminary projections. It will be challenging to fund this
request in light of the projected levy increase in 2011, and therefore a detailed review of
the projected budget should be undertaken.
Charles/Benton Parking Garage
– The approved business case for the Charles/Benton
Parking Garage identified a project completion date of November 2009. The current
schedule for the project contemplates substantial completion in August 2010 with
occupancy in September 2010. In approving the business case and 2009 budget,
Council authorized the issuance of $9.525 million of 20-year enterprise debt in 2009 to
finance the City’s portion of the garage. In light of the one-year extension to the
construction schedule, it would be appropriate to delay the debenture issue to 2010 to
coincide with occupancy. This has the effect of deferring the levy impact associated with
the garage’s net operating expenditure until 2011.
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Operations to service growth provision
– In 2010 this amount should be earmarked
to correct the ongoing Winter Control budget deficit of approximately $425,000. Council
will recall from the 2009 operating budget, that the winter control ongoing deficit was
approximately $420,000. During 2009 budget deliberations, Council approved $190,000
for budget correction to winter control. Given the severity of the 2008/2009 winter
season the 5 year winter average has increased, causing the budget gap to increase to
approximately $425,000. The shortfall remaining after this allocation will be
approximately $200,000.
Eliminate strategic initiatives provision
– A notional provision of 0.5% of the levy
(approximately $0.4 million) has been set aside annually in the operating budget
projection for initiatives in support of the City’s strategic directions. In view of the
projected levy increase, it is recommended that this provision be eliminated in 2010 for
the second year in a row. This approach acknowledges that limited new budget dollars
exist, EDIF is a major pre-existing strategic priority/commitment and adjustments to
move pay rates to reasonable market rates are necessary before expanding to new
programs and services. The strategic plan identified potential new initiatives in the
amount of $0.2 million for 2010.
Increase user fees
– The recommendation is to increase user fees by an amount
beyond the base (inflationary) increase for the third consecutive year as a property tax
increase mitigation strategy, in effect increasing the level of cost-recovery for City
programs. Each additional 1% fee increase translates to a 0.2% levy reduction. Despite
this general direction, Staff recommends that recommendations related to fees arising
from the Youth and Seniors strategies be taken into consideration when the fee
schedule is finalized for 2010. The levy impact is net of a provision of $20,000 of
additional funding for leisure access card subsidies, consistent with the three-year
phase-in proposed in 2008. Sufficient funding for the leisure access card is important to
ensure fair access to programs in light of challenging economic circumstances and
increasing user fees.
Budget reduction targets
– Departments and municipal boards are being given a
budget reduction target in 2010 of 2% ($1.8M) of the 2009 net base operating budget in
order for the city to maintain moderate property tax increases and create some funding
room to adjust non-controllable budget lines that are currently giving rise to negative
variances. The budget reduction will be allocated two-thirds (1.32%) to offset the levy
impact and one-third (.66%) to adjust specific budget line items which are giving rise to
operating deficits annually. The main areas that require budget corrections are winter
control, supplementary taxes, and investment income. These budget items are non-
controllable as they are either driven by the economy or weather. To “right-size” these
budgets it would require a levy increase of approximately 2.5% when looking at a four
year average revenue/expenditure compared to budget. Staff is recommending a
modest budget correction as a first step in realigning these budgets. Failure to do so will
inevitably result in continued operating deficits which cannot be perpetually funded
through the Tax Stabilization Reserve Fund. Municipal enterprises will also be subject to
a 2% budget reduction on discretionary expenses. It is important to note that this budget
reduction target is aggressive and will undoubtedly result in service levels
reductions/adjustments. Below are the tax-supported budget reduction targets set by
Department:
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2% Budget
Reduction
173,056
KPL
26,765
CITS
127,348
CAO
482,654
CSD
335,134
CS
639,482
DTS
52,425
FS
1,836,863
Total
Opportunities for Additional Budget Reductions
While this report sets out a preliminary budget guideline, through the detailed budget
development process, staff will attempt to identify other opportunities to minimize the projected
levy increase. This will include a detailed budget to actual review and ongoing monitoring of the
potential for assessment growth to exceed the 1% target.
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, there is a requirement to fund the City’s share of
Recreational Infrastructure Canada Fund projects and the funding sources that comprise the
capital pool are either constrained by Council policy or are projected to be exhausted in the near
term. As a result, there is limited flexibility to incorporate new projects within the ten year period
from 2010-2019, 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 2010-2018
time period within the total value of c/c funding allocated annually to the department in
the 2009-2018 capital forecast for that same time period (i.e., departments shall not
increase their net c/c requirement);
For 2019, departmental targets have been set based on an average annual funding
amount adjusted for major projects like the Consolidated Maintenance Facility, Delta
Project and Economic Development Investment Fund.
If new projects are required, or existing projects are to be advanced, the department
shall make adjustments to defer or remove lower-priority projects to maintain the same
level of funding over the ten year period;
The following projects were identified to be re-budgeted through the 2009 capital
closeout process and will be incorporated into the Department capital targets;
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Capital projects funded through Development Charges will be adjusted to be consistent
with the Development Charges By-law that was approved by Council on June 22, 2009.
Proposals for new projects or budgets increased greater than $50,000 will be reviewed by the
Finance and Corporate Services Committee prior to being included in the capital forecast. Each
department will prepare a single report for capital project referrals, submitted and presented by
the GM, for the Finance and Corporate Services Committee on October 26, 2009. It is
anticipated that the number of new projects will be very small in 2010.
Timelines
The following Finance and Corporate Services Committee meeting dates are proposed for the
budget process:
Budget Component Meeting Date Comments
Fees and Charges October 26, 2009 Permits implementation of
(Regular FCSC) new rates on January 1, 2010
Referral of Projects to Capital Forecast October 26, 2009 Permits inclusion of projects
(Regular FCSC) before issuing package
Capital Budget and Forecast November 23, 2009
(Council Day)
Operating BudgetDecember 14, 2009
(Council Day)
Final Budget Day January 11, 2010* Includes utility rates
(Council Day) implemented March 1, 2010
*subject to finalization of the 2010 meeting schedule later this year
These timelines are consistent with the prior year. They will be a challenge to meet but staff is
confident they can be achieved.
FINANCIAL IMPLICATIONS:
None at this time
COMMUNICATIONS:
In order to ensure that the general public remains informed and involved in the budget process,
staff will establish a budget web page and advertise public meetings for consideration of user
fees and the 2010 budget prior to final passage.
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ATTACHMENTS:
Appendix A – Ten-Year Tax Rate Projection
Appendix B – Base Inflation Projection
Appendix C – EDIF Projection
Appendix D – Tax Stabilization Reserve Fund Projection
ACKNOWLEDGED BY:
Dan Chapman, General Manager of Financial Services and City
Treasurer
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APPENDIX B
City of Kitchener
2010 Tax-Supported Operating Budget
Base Inflation Projection
2009 Approved
ProgramNet BudgetInflation (%)Inflation ($)Note
Object of Expenditure:
Salaries58,508,1993.0%1,755,2461
Wages22,701,8673.0%681,0561
Progressions - Salaries & Wages0.6%487,2601a
Administrative Expenses4,856,5940.0%02
Equipment Reserve Charges6,440,9840.0%03
Boards9,991,0292.6%259,7674
Debt Expense4,623,7100.0%05
Materials and Supplies5,028,6790.0%02
Professional & Contract Services4,015,9400.0%02
Rentals & Leases1,411,2250.0%02
Grants Paid2,680,3072.6%69,6886
Promotional Costs1,238,4040.0%02
Repairs & Maintenance796,6440.0%02
Utilities & Taxes5,296,6400.0%07
Transfers to Other Funds13,031,3232.6%338,8148
Internal Charges3,484,2632.6%90,5919
Internal Recoveries(11,153,741)2.6%(289,997)9
Total Expenditures132,952,0673,392,425
Revenue:
General Levy(91,800,062)0.0%010
Other Taxation(4,302,139)0.0%011
User Fees(18,192,731)2.6%(473,111)9
Grants Received(605,508)0.0%011
Received from Other Municipalities(217,825)0.0%011
Transfers from Other Funds(9,312,932)2.6%(242,136)9
Sundry Income(8,520,870)2.6%(221,543)9
Total Revenue
(132,952,067)(936,790)
Total02,455,635
INCREASE / (DECREASE) OVER 2009 LEVY2.65%
Assumptions
1 Salary and wage increases provided for in labour contracts
1a Step increases within approved pay ranges
2 No increases included for discretionary expenditures - will necessitate efficiency gains
3 Equipment reserve charges fund costs of equipment acquisition, repair and maintenance, increase
is 0% due to decreased fuel costs
4 Board allocation set at level of projected overall base increase
5 Debt expense increase limited to rate of assessment growth - 1% included in growth provision
6 Grant allocation set at level of projected overall base increase
7 0% increase due to decreasing natural gas costs offset with increased water and electricity costs
8 2.6% increase provided for capital transfers, excludes EDIF
9 2.6% is standard annual increase for these budget lines
10 Levy increase required calculated on bottom line
11 No assurance of increased revenue from these sources
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