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HomeMy WebLinkAboutFin & Corp Svcs - 2009-12-07 SSPECIAL FINANCE AND CORPORATE SERVICES COMMITTEE The Finance and Corporate Services Committee met in special session this date commencing at 11:15 a. m. Present: Councillor B. Vrbanovic, Chair Mayor C. Zehr and Councillors J. Smola, G. Lorentz, J. Gazzola, K. Galloway and C. Weylie. Staff: C. Ladd, Chief Administrative Officer D. Chapman, General Manager, Financial Services & City Treasurer T. Speck, General Manager, Corporate Services P. Houston, General Manager, Community Services J. Willmer, Interim General Manager, Development & Technical Services T. Beckett, Fire Chief R. Regier, Executive-Director, Economic Development T. Hare-Connell, Executive Director of People Services & Organizational Development S. Turner, Director of Enforcement D. Miller, Director of Fleet J. Witmer, Director of Operations R. Gosse, Director of Legislated Services & City Clerk K. Kugler, Director of Enterprise G. Murphy, Director of Engineering C. Fletcher, Director, Facilities Management M. May, Director of Communications & Marketing M. Hildebrand, Director, Community Programs A. Pinard, Interim Director of Planning J. Evans, Director of Revenue M. Selling, Director of Building R. LeBrun, Director, Financial Planning & Reporting W. Malcolm, Director of Utilities M. Grummett, Director, Information Services & Technology D. Keelan, Manager, Aquatics & Athletics G. Hummel, Manager, Park Planning, Development & Operations G. McTaggart, Manager, Infrastructure Asset Planning L. Bansen, Manager, Human Resources L. Palubeski, Manager, Program & Resource Services D. Ritz, Supervisor, Design & Development S. Saleh, Senior Financial Analyst J. Billett, Committee Administrator C. Goodeve, Committee Administrator FIN-09-171 - 2010 OPERATING BUDGET The Committee was in receipt of Financial Services Department report FIN-09-171, dated November 27, 2009 concerning the City's 2010 Operating Budget, together with a consolidated budget summary by Department /Object and Budget Issue Papers for specific items. Mr. D. Chapman presented the operating budget submission, advising that it has been developed in accordance with Council's 2010 Budget guidelines. Information on national and local trends as a result of the current economic crisis was included together with the potential impact of the economic downturn on the Corporation. He stated that given the difficult economic circumstances, the proposed 2010 Operating Budget strikes a balance between a reasonable and sustainable levy increase, limited impacts on core public services and careful management of organizational impacts. The budget includes proposals to realize $2.4M in base budget cuts primarily achieved through modest service level reductions, staffing reductions mainly through attrition or voluntary leave /retirement incentive plan, vacancy management and cost cutting across the Corporation. Mr. Chapman advised that given the present economic uncertainty, a decline in assessment growth and supplementary taxes is anticipated over the next few years. He stated that this trend has been observed for the past three years, as assessment growth has declined from a peak of over 4% to the current level of 1.3%. He noted that the high assessment growth in the past is one reason why in recent years levy increases have been achievable below the rate of inflation. He reviewed the net supplementary taxes since 1996, stating that the current budget FINANCE AND CORPORATE SERVICES COMMITTEE DECEMBER 7. 2009 - 182 - 1. FIN-09-171 - 2010 OPERATING BUDGET (CONT'D has been set at $1.5M, which equates to the average amount received from 2004 through 2006. He outlined that supplementary taxes are correlated to assessment growth which is projected to continue to show minimal gains over the next few years. Accordingly, staff are proposing a reduction to this budget, but have not gone as far as to reduce it to the historic average. Councillor J. Gazzola inquired into the level of supplementary taxes received by the City this year. Ms. J. Evans advised that through 2009 the City has seen growth of 1.27% through supplementary taxes. She stated that while supplementary taxes typically relate to changes made during the year, some are still being collected dating back three years. She added that as of mid-November, all supplementary taxes have been billed for 2009. Mr. Chapman advised that the most recent projection for supplementary taxes show the City achieving a break even position where the write-offs will offset the supplementary taxes for the year. The Committee reviewed the City's investment yields and were advised that as of October 2009, the average short-term yield had dropped by over 200 basis points compared to the 2008 average of 3.46% to 1.44%. Mr. Chapman noted that the Bank of Canada's targeted overnight rate is expected to remain at 0.25% well into 2010, which will put continued pressure on investment income potential earnings. Councillor Gazzola inquired into the avenues available to the City for short-term investments and the return anticipated for 2010. Mr. R. LeBrun advised that the City's short-term investments are restricted to the institutions identified by the Municipal Act. He stated that there has been a decline in the average balance available to the City for investments, which is in addition to the rate decrease. Accordingly, it is estimated that on average the City will likely see a return of less than 1 % for 2010. Mr. Chapman added that this is only with respect to the short-term portfolio, noting that the long-term portfolio is expected to see higher yields. Mr. Chapman reviewed the proposed tax rate increase, including and excluding the Economic Development Investment Fund (EDIF), relative to the consumer and municipal price indices over the past ten years. He stated that reasonable annual tax increases, combined with the ongoing budget efficiencies and reductions, has enabled the City to keep property tax increases in line with the rate of inflation. In addition, tax increases, both including and excluding EDIF, have remained below the cumulative Municipal Price Index (MPI). He advised that it will be a challenge to keep property tax rates below the rate of inflation in the future. In the past, increases to things such as tax stabilization transfers, gapping, investment income, etc... were relied upon to reduce the levy increase, but there is little capacity left within these budget lines. A chart entitled "Typical Residential Property Taxes" was provided which offers a comparison of 2009 property taxes among municipalities with populations greater than 100,000. It was noted that Kitchener is the sixth lowest in respect to property taxes. A comparison of municipal costs for an average household between Kitchener and the Cities of Waterloo and Cambridge was provided, showing that Kitchener is in the middle range. The Committee next reviewed the net expenditure by Department and at the request of Councillor Gazzola, staff agreed to provide financial reports outlining the 2010 budget by cost object and divisional 2008 budget-actual, 2009 budget-actual, 2010 budget. Mr. Chapman advised that the 2010 projected levy increase before EDIF is 2.88%; with EDIF included the projected levy increase is 4.05%. In order to meet Council's Budget target of 2.99%, additional reductions of $985,688. will be required. He noted that Budget Issue Papers circulated with Report FIN-09-171 outline strategies that Council may wish to employ to reach its target levy increase. The 10 Year Tax Rate Impact Projection for the years 2011 to 2020 was reviewed, which range from 6.35% in 2011 to 1.28% in 2020. Mr. Chapman advised that in 2011, there are several significant pressures coming from new capital facilities, including: Kingsdale Community Centre; the operating components of the Infrastructure Stimulus Funding projects, namely Bridgeport Community Centre and McLennan Park; the increase in the size of Council; along with the operating impacts of the Charles / Benton parking structure. FINANCE AND CORPORATE SERVICES COMMITTEE DECEMBER 7. 2009 - 183 - 1. FIN-09-171 - 2010 OPERATING BUDGET (CONT'D Councillor K. Galloway questioned if it was possible to adjust the timing of the levy increases related to EDIF. Mr. Chapman advised that EDIF is projected to be in a deficit by 2012, noting that the City is almost levying in arrears for some of its major projects, such as the central library. He suggested that an issue paper could be brought forward for final budget day outlining EDIF funding and options for levy reduction. The Committee reviewed the Water and Sewer Infrastructure Program. Mr. Chapman advised that only 4.06 km of the targeted 8.67 km per year replacement rate was achieved; due in part to rising construction costs and an increase in the complexity of projects resulting from changes to environmental regulations. He added that the Water and Sanitary Utility projections include an unfunded infrastructure line to increase the kilometres completed such that the full amount, as originally envisioned, would be completed by end of 2032. He stated that, as discussed during the Capital Budget presentation on November 23, 2009, the current Capital Forecast assumes a replacement rate of 5.3 km per year, with a 0.57 km reduction starting in 2011, and ramping back up to 5.3 km by 2020. He noted that at the height of the additional ramp up, it is anticipated that 11.3 km will be achieved annually. Mayor C. Zehr asked if a risk analysis has been undertaken to identify potential failures in the water and sewer infrastructure between now and 2020. Mr. G. Murphy stated that staff anticipates completing the Sewer Capacity Study by June 2010, which will help to pin point priority areas for infrastructure improvements. Mr. Chapman reviewed the combined Water /Sanitary rate increase of 8.5% required for 2010, which is lower then what was originally forecasted in last year's budget presentation. He added that this equates to approximately $5.30 for the average household. He noted that the proposed increase is partly impacted by the rate increase enacted by the Region of Waterloo resulting from newly imposed regulatory changes. BOARDS The Committee then considered the proposed base budget reductions for the Centre in the Square (CITS) and the Kitchener Public Library (KPL) to assist in achieving the 2.75% base budget cut target, as outlined in 2010 Budget Issue Paper #10. Centre in the Square Mr. D. Chapman presented the proposed operating budget for CITS, which projects a 2.6% increase over 2009. He advised that the proposed increase meets the inflationary increase proposed in the 2010 budget call. He noted that CITS is proposing to meet their budget reduction target by increasing their sponsorship and fundraising targets in 2010. Mr. Jamie Grant, General Manager, CITS, was in attendance in support of CITS's proposed budget. Councillor C. Weylie inquired into the financial burden now faced by CITS as a result of one of their tenants move out. Mr. Grant estimated that this has produced a $32,000. reduction in office rental revenue and a studio rental reduction of $17,000. Accordingly, CITS are examining alternative means of recouping these funds. On motion by Councillor G. Lorentz - itwas resolved: "That the 2010 Operating Budget for the Centre in the Square (CITS) be approved, subject to final budget approval." Kitchener Public Library Board (KPL) The Committee reviewed the approved 2009 budget for KPL along with their proposed budget for 2010. KPL's base submission, which includes their inflationary budget increases, takes into account reductions of 2.75% and their Radio Frequency Identification Technology allocation FINANCE AND CORPORATE SERVICES COMMITTEE DECEMBER 7. 2009 - 184 - CITY OF KITCHENER 1. FIN-09-171 - 2010 OPERATING BUDGET (CONT'D) allowed for in pro forma. Mr. Chapman advised that KPL have met the budget call target for an overall increase of 0.24% over their 2009 base budget. Ms. Sonia Lewis, CEO, KPL, was in attendance to support KPL's proposed operating budget. Mayor C. Zehr inquired as to how KPL was able to meet its reduction target and the impact this may have on their collections. Ms. Lewis advised that KPL lowered the cost of living increase allowed for under Council's Budget guidelines to only 1%. In addition, the resources budget was reduced by $136,000., which equates to a reduction of approximately 4,500 books. She noted that KPL is currently investigating means to mitigate the impact of this reduction by partnering with other libraries across the province to increase their buying power; thereby lessoning the actual impact of the projected 11% reduction in their resources budget. On motion by Councillor K. Galloway - itwas resolved: "That the 2010 Operating Budget for the Kitchener Public Library (KPL) be approved, subject to final budget approval." ENTERPRISES Golf Courses The Committee reviewed the operating budgets for the Doon and Rockway Golf Courses and were advised that overall the golf courses were below budgeted net revenues. Mr. Chapman stated that this was primarily due to poor weather conditions, as well as being impacted by the current economic downturn, resulting in a decrease in the number of golf rounds played and junior memberships sold. He added that the debt charges shown for the Doon Golf Course are associated with temporary construction financing for course expansion in 2009, after which the costs will be financed through long-term debt. Although not shown in the projection included with the budget package, Doon Golf Course is forecasted to return to a surplus position by 2015. Mr. Chapman noted that the Rockway Golf Course was hit harder by economic factors than Doon, but is projecting to return to a surplus position by 2013. Councillor Gazzola questioned the opening surplus balance for the Doon Golf Course and Mr. Chapman agreed to review those figures and provide a corrected balance in the final budget day presentation. In response to questions, Ms. K. Kugler advised that the projected increase in administrative expenses at the Doon Golf Course relate partly to the expansion, as well as some of the wage settlements that have impacted some of the salaries. She added that it is anticipated that the additional 9-hole course will be playable by June 2010 and that the new skills area will open by September 2010. She stated that on average the general rate increase for both courses is 5.2% The 2010 Operating Budgets for the Doon and Rockway Golf Courses were accepted, subject to final budget approval. Building Mr. Chapman reviewed the 2009 projections and the 2010 budget for the Building Enterprise. He stated that it is expected that the 2009 building permit revenues will be 98% of the budget; however, interest revenues are expected to be below budget due to lower short-term interest yields. Any net deficit from the operating fund will be funded by the Building Enterprise Reserve Fund. For 2010, the budget for the Building Enterprise projects increased revenue as construction activity is expected to pick-up through projects such as the provincial courthouse. In addition, the fees were increased by 5.2%., as approved by Council. Councillor Gazzola questioned if the funds in the Building Enterprise Reserve could be invested at a rate higher than the short-term investments. Mr. LeBrun advised that the Reserve Fund has a blended rate and a portion of the Fund is taken in aggregate and invested FINANCE AND CORPORATE SERVICES COMMITTEE DECEMBER 7. 2009 - 185 - CITY OF KITCHENER 1. FIN-09-171 - 2010 OPERATING BUDGET (CONT'D) long-term; which allows the Reserve to have a blended yield higher then the 1% for a short- term investments. He estimated that the Reserve Fund would have a return rate closer to 3% or 4%. Mayor Zehr requested clarification regarding the targeted balances projected in the Building Enterprise Reserve Fund. Mr. M. Selling advised that those figures are being shown for information purposes and confirmed that there are no specific regulatory conditions attached to this Fund. The 2010 Operating Budget for the Building Enterprise was accepted, subject to final budget approval. The Committee then recessed at 12:36 p. m. and reconvened at 1:45 p. m. with all members present. Gas Works Utilit Mr. Chapman advised that the gross profit margin for gas delivery will exceed 2009 budget projections while gas supply and other programs will be basically on target. Profitability of the delivery is impacted by the transportation benefit and delivery currently has a favourable benefit. He pointed out, however, that with lower current rates, margins will gradually decline over time as the price charged converges with the cost. Mr. Chapman advised that the margin projections are based on detailed analysis as supplied by ECNG. In respect to other programs, the 2013 forecast margin increases in that year due to an anticipated increase in water heater rental rates. Water heater rental rates are not increased annually but rather larger increases are implemented periodically, with the next to be in 2013. He advised that the supply is currently in a deficit position but is projected to be reduced in 2010 and eliminated by 2011. He reminded the Committee that supply is to be revenue neutral over a period of time and cautioned that delivery and supply inventory calculations are yet to be finalized for 2009 which may result in changes to the projected actual. Councillor J. Gazzola questioned the accuracy of the 2010 figures, suggesting they are too conservative. Mr. Chapman suggested that they are not conservative given they are based on detailed analysis and projections supplied by ECNG. He commented that it would be fair to say there is considerable volatility in the gas delivery and it would be reasonable to expect margins could be different; however, the forecast has been based on the best information available today. Councillor Gazzola asked why revenues are decreasing from $48M to $43M. Mr. W. Malcolm advised that the transportation rate established by the National Energy Board for the TransCanada Pipeline is estimated to increase 38% in 2010 and has been built in. Councillor Gazzola questioned if there is an indication of what will happen with rates in 2010. Mr. Malcolm advised that in respect to transportation rates they are expected to increase, while supply rates will decrease due to lower gas pricing, which is hoped to generate significant savings for customers. Overall rates are unknown at this time pending determination of gas rates and they will also be affected by the rate of consumption. Mayor C. Zehr requested further explanation of the revenue line and in particular the reason for the decline to $37M. Mr. Chapman advised that it is a function of rate and volume, noting that considerable time was spent with ENCG to develop the forecast. He suggested that he provide some of the detailed analysis produced by ECNG that may provide more information on key assumptions used in deriving the forecast. Mayor Zehr questioned the reason for declining gross profit percentages across 2009 to 2014. Mr. Chapman advised that this relates to the 2009 increase in water heater rentals which was upwards of 20% and which will not occur again until 2013. Mayor Zehr expressed the opinion that it would be easier to adjust the water heater rental rates annually. Mr. Chapman stated that from a financial standpoint it would be easier; however, market research indicates users prefer less frequent increases. FINANCE AND CORPORATE SERVICES COMMITTEE DECEMBER 7. 2009 - 186 - 1. FIN-09-171 - 2010 OPERATING BUDGET (CONT'D Councillor J. Gazzola requested clarification of the anticipated reduction in supply rates given the end of year deficit of $3.3M. Mr. Chapman advised that it is expected the deficit will be recovered by March 31, 2010, assuming a return to seasonal weather patterns, following which rates will be reviewed to determine the feasibility of a reduction. Mayor C. Zehr commented that the City's rates are currently higher than Union Gas and will be until further adjustment at the end of March 2010. Mr. Chapman acknowledged that is the case, advising that customers have indicated a preference for stability in gas pricing which means the City purchases gas over a longer timeframe. He noted that gas prices have fallen significantly but the City has purchasing commitments over a longer period at higher cost. Mr. Chapman stated that while the City's purchasing practices have brought stability, it means the City's pricing is not as expedient to changes in market pricing. He added that it is important to note, however, that since 1998 the average supply rate for Union Gas and the City has averaged around 24.1 cents and the City's rates over that time have been more stable than Union Gas. Water Utilitv /Sanitarv Utilitv /Water and Sanitarv Sewer Rates Mr. D. Chapman advised that in respect to the proposed Provincial Harmonized Sales Tax (HST), Water and Sewer Utilities will be exempt as GST was not previously applied; however, GST was applied to the Gas Utility and will likely be subject to the HST. Mr. Chapman advised that the Water Utility budget has a favourable variance, primarily due to the extent of capital close-outs. He added that water consumption is down due to extensive rainfall over the summer months; however, costs have also decreased and the differential is therefore negligible. A rate increase is being recommended to off-set the Regional wholesale rate and to support the City's Accelerated Infrastructure Program. Councillor J. Gazzola requested clarification in respect to the projected increase in revenue for 2010 relative to the rate increase of 8.5%. Mr. Chapman advised that the rate increase for water is actually 6.9%, with the 8.5% representing a blend with the sanitary sewer rates and staff anticipate consumption rates will balance out, assuming more typical weather patterns in 2010. Mr. Chapman advised that the Sanitary Utility is in a surplus position due primarily to the extent of capital close-outs at $3.79M and has been affected by lower sales, higher processing fees and heavier than normal rainfall flowing through the system. A rate increase is being recommended to off-set the Regional wholesale rate and to support the City's Accelerated Infrastructure Program. The percentage of the rate increase, however, is decreasing from 14.9% to 9.9% in keeping with the Region's plan to decrease percentage increases for wholesale rates. Mr. Chapman advised that water rates are proposed to increase to $1.5271 per m3 and sewer rates to $1.7295 per m3, effective March 1, 2010. In addition, staff is requesting consideration of an increase in the flat rate sewer charge for residents not on the City's water system from $87. to $432., effective March 1, 2010. He noted that the current flat rate has remained constant since 1998 and the proposed increase will affect 11 households at various locations throughout the City. The rate increase is based on an average household consumption of 250 m3 at the current sewer rate and if approved, affected households will be notified in advance of the rate change. On motion by Mayor C. Zehr - itwas resolved: "That the flat rate sewer charge for households not currently on the municipal water system be increased from $87. to $432., effective March 1, 2010." The Committee then considered the following Issue Papers related to the Gas Utility FINANCE AND CORPORATE SERVICES COMMITTEE DECEMBER 7. 2009 - 187 - 1. FIN-09-171 - 2010 OPERATING BUDGET (CONT'D Issue Paper #23 -Staff Support for Drinking Water Quality Management System (DWQMS) and Distribution System Integrity Management Program (DSIMP) As a result of Provincial regulatory changes, the Utility has indentified three positions required to ensure compliance with gas and water Quality Management System (QMS) regulations, being: a Quality Management System Specialist; Utilities Engineer; and aQMS /Engineering Administrative Support position. Councillor J. Gazzola questioned if existing administrative staff could handle support for the added Specialist and Engineer positions. Mr. B. Musselman advised that the support position will alleviate the need for Supervisors to undertake the necessary administrative tasks, allowing them to be out in the field on a more regular basis to monitor and address issues of compliance. Councillor Gazzola questioned the impact if Council were to approve only the Specialist and Engineer positions. Mr. Musselman stated that operations would continue; however, suggested that the City would be at risk of not being able to meet regulatory requirements which could result in loss of the City's license to run the Utility. Councillor B. Vrbanovic questioned the feasibility of transitioning Administrative support from another area that would ultimately result in operational savings elsewhere in the Corporation. Ms. C. Ladd suggested that this would be difficult given the number of positions already eliminated in 2009 and with those proposed in 2010; and expressed the opinion that the Corporation is currently deficient in administrative support. Councillor Vrbanovic suggested that the possibility of transitioning Administrative support should be investigated prior to a decision being made. Mayor C. Zehr commented that in previous years, information has been provided outlining changes in the standard of services as impacted by regulatory changes and suggested that this may be helpful prior to making a decision respecting the Utility. Mr. Chapman agreed to provide an outline of legislated changes impacting the standard of services for final budget day. Issue Paper #24 -Corporate Contact Centre - 2010 Operating Budget This Issue Paper provides details of the 2010 Operating Budget for the Corporate Contact Centre, as requested by Council. Councillor G. Lorentz advised that he had also requested a report detailing the results of the first year of operation of the Corporate Contact Centre and raised concerns in considering this issue paper ahead of presentation of that report. Ms. C. Ladd agreed that staff could bring forward some information on call statistics, current operations and potential future changes to the January 11, 2010 Finance and Corporate Services Committee meeting. Councillor J. Gazzola requested that the report include a staffing chart and information as to how recovery of costs is allocated. Councillor Gazzola inquired as to why the City of Waterloo's share of costs is not increasing given operating costs have increased by approximately 1/3. Staff advised that a change cannot be made pending expiration of an existing agreement with the City of Waterloo. Issue Paper #25 -Gas Capital Investment Reserve Fund (GCIRFI The GCIRF funds additional capital requirements and Mr. Chapman stressed the need to maintain a healthy balance to avoid compromising funding for projects in the Capital Forecast and any unforeseen capital costs. It was noted that should the gross margins for gas delivery decrease to the lowest level at 37%, the GCIRF would run into a deficit within the next five years. FINANCE AND CORPORATE SERVICES COMMITTEE DECEMBER 7. 2009 - 188 - CITY OF KITCHENER 1. FIN-09-171 - 2010 OPERATING BUDGET (CONT'D) Councillor K. Galloway inquired as to the feasibility of increasing the contribution from the gas delivery into the GCIRF. Mr. Chapman advised that this is not possible under the current policy and until such time as the policy is reviewed and a new benchmark is established, it would be necessary to remain at the current level. Issue Paper #26 -Hydro Capital Investment Reserve Fund (HCIRF) The HCIRF comprises Hydro dividends to the City and Mr. Chapman advised that it is important to maintain a positive balance in the event of a reduced dividend; reduced interest income due to lower interest rates on long term debt; and need to compensate for a shortfall in the Tax Stabilization Reserve Fund. Notwithstanding, based on the 2010-2019 Capital Forecast, there is capacity to increase the transfer to Operating to a maximum of $250,000. per year. Issue Paper #27 - Transfer to Gas Capital Investment Reserve Fund (GCIRFI This issue paper outlines the mechanics of the formula used to calculate the transfer to the GCIRF. The annual transfer from Gasworks operating account to the GCIRF is based on the Delivery Operation maintaining an accumulated net revenue of 50% of the prior year's net revenue. It was noted that due to the complexity of the transfer calculation and volatility in the Utility, a review of the method of transfer calculation will be undertaken in 2010 and a report presented to outline an alternative approach. Councillor B. Vrbanovic then advised that a representative from the Kitchener Youth Action Council (KYAC) was in attendance to speak to Issue Paper #18. Issue Paper #18 -Youth Drop-In Proarams This Issue Paper proposes to eliminate three of ten summer youth drop-in programs offered at various community centres. Programs currently operating out of the Downtown Community Centre; Country Hills Community Centre; and Kingsdale Community Centre are proposed to be discontinued primarily based on low participation rates. Ms. Andrea Savu, KYAC, advised that KYAC is committed to advocating in the interests of all youth and strongly believes the youth drop-in programs proposed for elimination should be continued. She noted that this programming provides a safe place for youth in which to socialize, have positive learning experiences and develop positive values. Ms. Savu added that a decision to eliminate these programs will also result in the loss of summer employment for a number of youth. Ms. Savu encouraged the Committee to find alternatives as it was KYAC's opinion the value of this programming is immeasurable and too great to sacrifice. Councillor J. Gazzola questioned if the students could run the programs themselves without need of City staff. Ms. Palubeski advised that the programs are designed for youth to take the lead on programming and staff is involved to ensure a safe environment is maintained. Councillor K. Galloway requested clarification as to why this proposal has been brought forward. Ms. Palubeski advised that the proposal is in response to direction given to investigate potential budget reductions for 2010. She added that previous budget reductions have left no more room to reduce operating expenses without consideration of eliminating programming. Councillor B. Vrbanovic suggested that elimination of the drop-in centre at the Downtown Community Centre goes against the City's work in addressing youth issues and perceptions of safety in the Downtown. Ms. Palubeski advised that attendance has been low and there is opportunity to explore alternate programming with others, noting recent success in youth programming at the Kitchener Collegiate Institute. Councillor K. Galloway questioned if staff have investigated opportunity for sponsorships or other funding sources to off-set the cost of summer student employment. Ms. Palubeski advised that while some grant funding has been received, the amount of available grant funding has declined due in part to the current economic climate. FINANCE AND CORPORATE SERVICES COMMITTEE DECEMBER 7. 2009 - 189 - 1. FIN-09-171 - 2010 OPERATING BUDGET (CONT'D At the request of Councillor B. Vrbanovic, Ms. Palubeski agreed to provide additional information for budget day in respect to the number of grant applications made and the amount of funding either received or not received. Councillor Vrbanovic then advised the delegation that further consideration of this matter would be set aside until later in the meeting to be considered with other potential budget reduction items. TAX SUPPORTED OPERATING BUDGET Mr. D. Chapman advised that currently the projected increase to the tax levy sits at 4.05%. In respect to Council's direction that the increase be below 3%, he advised that to achieve 2.99% an additional reduction of $985,688. is required. Mr. Chapman advised that base increases as adjusted equate to 0.94% of the projected tax levy. Assessment Growth equates to $1.2M and as off-set by growth related items is reduced to a projected $562,000. (-0.60%). Sustainable reductions of $2.3M represent 2.55% and consist of: Operations to Service Growth (Issue Paper #21); reduction of reliance on the Tax Stabilization Reserve Fund; investment income (Issue Paper #7); and supplementary income (Issue Paper #8). The projected tax levy also includes an Economic Development Investment Fund (EDIF) increase of 1.17%. Mr. Chapman advised that overall these items make up the projected 4.05% increase, which is $1.6M over the target established by Council and will require significant corrections to this budget. Base inflationary increases of $2.694M were reviewed. Mr. Chapman advised that these are primarily driven by staff wages and allocations to the Centre In The Square (CITS) and Kitchener Public Library (KPL) Boards. He added that staff have undertaken a number of mitigating measures, such as discontinuing discretionary spending. Councillor J. Gazzola inquired if wages were frozen if this would eliminate the $2.3M figure from the base inflationary increases and Mr. Chapman concurred. Councillor Gazzola requested clarification of promotional costs. Mr. Chapman advised that this relates to an overall reduction in the City's advertising and publicity costs. Councillor Gazzola also requested clarification of sundry income and Mr. Chapman advised that this represents all other income not currently covered under the City's fees and charges. List of Potential Budget Reductions to the 2010 Operating Budget Options to reduce the tax levy by $2.5M were then provided, including: Corporate base budget adjustments; employer paid parking; 2010 M-Grid adjustment; 2010 - 9000 Series wage adjustment; voluntary Early Retirement Plan; CITS and KPL base budget adjustments; Customer Service Manager; Food Service in City Hall Cafeteria; transfer of Site Plan staff to Parks and Trails; Kitchener in Bloom Program; Athletics Awards Reception; Pools -Hours of Operation; Pools - Idlewood Opening; Youth Drop-In Programs; Leisure Access Card; Mayor and Council Staffing; and Confidential items, which includes a proposal for closing of the Rockway Seniors Centre, as discussed at the Community Services Committee meeting held earlier this date. Mr. Chapman advised that the proposed closing of the Rockway Seniors Centre represents a savings of $254,957. and is one of three confidential items proposed. He advised that the two remaining items will remain in confidence at this time, in accordance with Municipal Act regulations and a decision in respect to closing of the Rockway Seniors Centre has been deferred to March 2010. Mr. Chapman stated that staff has attempted to define a balance between the proposed budget reductions and limiting the impact to services that are valued by the community. Issue Paper #1 -Corporate Base Budget Adjustments Council's direction to establish a tax supported budget increase below 3% in 2010 included a base budget reduction target of 2.75%. An additional $504,808. in base reductions has been identified to assist in achieving the 2.75% target in areas which include: wages ($25,330); FINANCE AND CORPORATE SERVICES COMMITTEE DECEMBER 7. 2009 - 190 - 1. FIN-09-171 - 2010 OPERATING BUDGET (CONT'D training ($126,150); Materials and Supplies ($151,623); revenue adjustments ($141,705); and energy ($60,000). Issue Paper #2 - Employer Paid Parking The issue of whether to continue with employer paid and/or partially subsidized parking has been ongoing for a number of years, revolving around concerns raised by staff of an unfair and inequitable process and the City's desire to encourage a more environmentally friendly approach to transportation to and from work. The City also was recently advised by the Canada Revenue Agency that employer paid and/or partially subsidized parking is a taxable benefit and this has direct financial impact to those staff who receive this benefit. In considering all of these issues, senior management concluded that it is appropriate to discontinue this practice. Employer paid and partially subsidized parking is to be discontinued as of December 31, 2009 for a savings of $300,000. annually to the Operating budget. Those employees who require their vehicle for business purposes will be reimbursed for parking costs in direct relation to the frequency of travel and parking use. Councillor K. Galloway inquired if this will result in more parking spaces becoming available in the City Hall parking garage and therefore, more revenue. Mr. D. Chapman responded that it may create capacity as staff opt to find parking at lower cost elsewhere and/or use alternate modes of transportation. He pointed out, however, that it will not result in additional revenue as the budget has historically assumed full capacity. Councillor C. Weylie requested clarification of the impact to employees who receive paid parking through contract arrangements. Ms. C. Ladd advised that this is a matter to be discussed in-camera in keeping with Municipal Act regulations. Issue Paper #3 - M-Grid Adjustment Proposal A review was undertaken of 2010 salary increases for M-Grid positions (M1 - M4), consisting of all Directors, most Managers and some non-union staff positions. To assist in achieving budget targets for 2010, it is proposed to reduce the April 1, 2010, 3% economic increase to 2% for non-union /management positions in the M-Grid. The resulting savings is $102,784., annualized to $137,046. with fringe. Issue Paper #4 - 9000 Series Wage Adjustment in 2010 A review was undertaken of 2010 wages for the 9000 Series, consisting of all positions that are not associated with a Collective Agreement (typically summer or part-time employment). To assist in achieving budget targets for 2010, it is proposed to reduce the March 31, 2010 3% wage increase to 1%, with adjustments to the two lowest bands to ensure compliance with minimum wage legislation. The resulting savings is approximately $94,500., annualized to $126,000. with fringe. Issue Paper #5 -Staff Voluntary Leaving Early Retirement Plan To assist in achieving budget targets for 2010 a voluntary early leaving /retirement incentive plan was introduced on October 14, 2009. Applications were accepted based on a pre- determined criteria and an incentive of 6 months wage equivalent was made available to those who qualified. Three applications were approved and ongoing annualized savings of $316,480. (including fringe) will be realized. A one time cost of the 6 month incentive payment is equal to $144,906. and has been accrued in 2009. Councillor J. Gazzola inquired if the fringe benefits cease at time of the incentive pay-out. Ms. B. Wagner advised that for those who opted for a lump sum pay-out in 2009 there would be no fringe costs in 2010. Councillor Gazzola inquired as to the rate of fringe benefits. Ms. Wagner advised that for salaried employees the rate is 28% and for hourly, 49%. Councillor Gazzola inquired why the savings does not equate to the 28% for the salaried positions taking advantage of the early retirement incentive plan. Mr. D. Chapman responded that the projected savings is a combined amount of both the salaried wage and the fringe benefits. He added that FINANCE AND CORPORATE SERVICES COMMITTEE DECEMBER 7. 2009 - 191 - 1. FIN-09-171 - 2010 OPERATING BUDGET (CONT'D the total amount is less due to one time payments for those who opted to take a lump sum pay-out. Issue Paper #6 -Mileage Rate A review of the rate per kilometre (km) paid to employees for use of their vehicle for business purposes was undertaken. It is proposed that the City's rate per km remain at $0.44 for the first 5,000 km and $0.39 for each additional km. Issue Paper #7 -Investment Income An update on projected investment income for 2010 was provided. Interest rates have been very volatile in 2009 due to the current economic climate and have continually fallen since 2007. The short term rates fell from 2.40% at the beginning of 2009 to 0.75% and the Bank of Canada is expecting overnight interest rates to be at 0.25% for the first 6 months of 2010. The City's blended yield earned is anticipated to continue to decline and is estimated at approximately 0.50%. Due to the continual fluctuations, it is proposed that the budget for investment income be reduced to a more sustainable level of $1.5M. Councillor J. Gazzola inquired as to the rate the $1.5M is based on. Mr. S. Saleh advised that the rate is estimated at 0.9%. Mr. R. LeBrun added that due to a continual decline it is difficult to determine if 0.9% is a reasonable expectation and will likely result in the City having to invest over a longer period of time than desired to achieve that result. Councillor Gazzola inquired if the City has explored utilizing other agencies, such as the Association of Municipalities of Ontario, who invest on behalf of municipalities. Mr. LeBrun advised that staff track against the yield of "The ONE Fund, The Public Sector Group of Funds", who manage investments on behalf of smaller municipalities, and have found that to have more volatility and not to be as good as what the City has achieved on its own. Issue Paper #8 -Supplementary Taxes In 2007 the City commenced a mechanism to budget for net supplementary taxes at $1.5M through transfer from the Tax Stabilization Reserve Fund. Since that time the City has experienced reduced levels of assessment growth, together with increased tax write-offs. As a result significant shortfalls in the budget target were realized. Staff propose that in the current economic climate it is appropriate to reduce the budget for net supplementary taxes to amore sustainable level at $700,000. Issue Paper #9 -Reduction of Reliance on Tax Stabilization Transfer The annual budgeted transfer from the Tax Stabilization Reserve Fund (TSRF) to the operating budget in 2009 was $1.9M and each year, a targeted decrease of approximately $487,000. (0.52% on the tax levy), is applied so as to achieve complete elimination of reliance on the transfer by 2013. It is proposed that the 2010 budget for the TSRF transfer be set at $1.5M. Mayor C. Zehr commented that it will be challenging to find some operating surplus or transfer of funds to achieve the reduction in reliance on the TSRF and questioned the legality of the proposed transfers in 2010 to 2012. Mr. Chapman advised that it is not a matter of legality. He suggested that the greatest risk is further depletion of the City's reserves which this reserve fund balance emphasizes and the projected deficit is of concern. Mr. Chapman advised that strategies to address this issue include running an operating surplus, accelerating the reduction of reliance on the TSRF and/or augmenting with transfer of funding. Issue Paper #10 - KPL and CITS Base Budget Adjustments This Issue Paper was dealt with previously in consideration of the Boards' 2010 operating budgets. FINANCE AND CORPORATE SERVICES COMMITTEE FIN-09-171 - 2010 OPERATING BUDGET (CONT'D) Issue Paper #11 -Customer Service Manager (Vacant) This position was created in 2005 to support the new Customer Service Strategy and has been filled on a seconded basis. Since recent retirement of the Supervisor of Kitchener Utilities Call Centre /Corporate Contact Centre, the CSM has assumed responsibility for this work. On review of the Centre, it has been determined that a single Manager can oversee the operation of the Centre, as well as develop and implement the Customer Service Strategy. A single Manager position is being recommended with a savings of approximately $80,000. from the original budget for the CSM, which can be used to reduce operating costs and the impact on the tax levy. Issue Paper #12 -Food Service in City Hall Cafeteria Operation of the City Hall Cafeteria has never achieved a break-even position despite measures taken to mitigate operating deficits. It is proposed to close operation of the cafeteria for a savings of $47,000. annually. Councillor J. Gazzola requested clarification of the impact of this closure. Ms. K. Kugler advised that it is intended to transition cafeteria staff to food services at the Golf Courses and patrons of the City Hall cafeteria will be encouraged to utilize businesses in the downtown sector. Councillor Gazzola questioned if City staff have been consulted in respect to this proposal. Ms. P. Houston advised that consultation with staff was undertaken one year ago in respect to changes in pricing and operation of the cafeteria and in respect to this proposal, an e-mail was sent to all staff in the week prior to this meeting pertaining to the draft operating budget. Ms. Houston advised that she had not received any feedback from staff regarding the proposed closing of the cafeteria. Ms. Houston added that while the operating budget for the cafeteria is $47,000. the running deficit is higher, resulting in a greater annual savings of approximately $70,000. if the cafeteria is closed. Issue Paper #13 -Transfer of Site Plan Staff to Parks & Trails In consideration of addressing the backlog in development of parks and trails which has been identified as a top priority in the Parks Master Plan, it is proposed to transfer the incumbent Supervisor of Site Development (Planning Division), who has experience in parks and trail development, to the Community Services -Operations, Parks Design and Development. This transfer results in a net reduction of $114,410. in the operating budget and an equivalent provision has been made in the Capital Forecast under Parks and Trails Development for this position. Mr. J. Willmer circulated this date the following revised recommendation: "That staff resources equivalent to one FTE from Development and Technical Services - Planning be shared with Community Services - Operations, Parks Design and Development to provide design and project management capacity for overcoming the backlog in park and trail development." Mr. Willmer advised that on further review, it was determined that rather than transferring 100% of one FTE, a better approach would be to utilize 25% of each of four FTE's in Site Planning to provide Community Services Operations with access to a more advanced technical skill set, particularly in CADD and project management. This approach would also be less disruptive to the Site Planning team, particularly in light of re-assignments of staff due to a pending early retirement. Councillor J. Gazzola requested clarification of the intent of staff re-assignments. Mr. Willmer advised that the incumbent Supervisor of Site Development will assume added supervisory responsibilities as a result of declaring the early retirement position redundant. Councillor Gazzola requested clarification of the projected savings amount. Mr. Willmer advised that the $114,410. derives the salary and fringe benefits of one FTE, which is now proposed to be derived from '/4 of each of the four FTE's in Site Planning through re-assignment of a portion of their work time to parks and trail development. FINANCE AND CORPORATE SERVICES COMMITTEE DECEMBER 7. 2009 - 193 - 1. FIN-09-171 - 2010 OPERATING BUDGET (CONT'D Mayor C. Zehr questioned if the proposal will achieve the desired result of catching up with the backlog in parks and trail development. Ms. P. Houston commented that this will help in 2010; however, a review of the 2011-2020 Capital Forecast is needed to determine priorities and how to address funding of parks and trails in the long term. She advised that this is an interim approach and a further report will come forward in 2011. Issue Paper #14 -Kitchener in Bloom Program The Kitchener in Bloom Program encourages and celebrates residents and businesses to take pride in their City and beautify our community. Awards are presented to those selected from among nominations submitted for review by the Kitchener In Bloom Committee. Monies spent on this event have continually decreased, due primarily to reductions in marketing and promotions, with approximately $6,500. expended in 2009. Two options are proposed which include elimination of the program capital budget for a savings of $14,000. and reduction of the capital out of current transfer to achieve levy reduction in 2010; or, reduction of the program capital budget by $8,000. and continued support of the program at the current level. It is recommended that the program be eliminated. Councillor J. Gazzola questioned the feasibility of using other available grant funding, such as the Community Environmental Improvement Grants, to fund the Kitchener in Bloom program. Mr. M. Hildebrand agreed to investigate this option. Councillor G. Lorentz raised concerns with eliminating this program as it has been well received in the community and asked that time be given to further consult on this proposal prior to making a final decision on budget day. Councillor B. Vrbanovic inquired if sponsorships have been explored for this program. Ms. P. Houston responded that sponsorships have not been pursued for this program but there is potential in respect to the Athletics Award Reception. She stated that staff hope to have more information in respect to the latter by budget day. Mr. Hildebrand also agreed to look at potential sponsorships for the Kitchener in Bloom program. Mayor C. Zehr suggested that staff investigate if there is an existing Association for garden nurseries, that may have a local chapter who could be contacted to determine any interest in sponsoring this program. Issue Paper #15 -Athletics Award Reception In past years a full banquet and award reception has been held to recognize athletes and coaches who achieve Provincial, National and International top placement in their respective sport. $10,480. of the $12,361. budget was expended to host this event in 2009. If the program is to continue, it is proposed to change the venue to a reception style format to reduce costs yet maintain benefits of the event and the proposed budget for 2010 is $7,000. It is recommended, however, that this event be eliminated in its entirety to off-set duplication with Minor Sports group recognition events and remove inequity and confusion for athletes in that Kitchener recognizes athletes from both Kitchener and Waterloo, whereas, the City of Waterloo does not. Councillor K. Galloway requested clarification of the projected savings of $7,000. as it relates to the recommendation to eliminate this program in its entirety. Ms. P. Houston advised that funding to host the new format has been included in the base budget, pending a decision today as to whether or not to continue with this event. She pointed out that if the event is discontinued $7,000. will be removed, for a total savings of approximately $12,000. to the operating budget. Councillor J. Gazzola requested clarification of the budgeted amount in 2009 as it relates to expenditures. Mr. M. Hildebrand advised that while expenditures were less than the budgeted amount, they do fluctuate in any given year dependent on the cost of awards purchased, the cost of catering and the numbers attending the event. FINANCE AND CORPORATE SERVICES COMMITTEE DECEMBER 7. 2009 - 194 - 1. FIN-09-171 - 2010 OPERATING BUDGET (CONT'D Issue Paper #16 -Pools -Hours of Operation The City's four indoor pools currently offer adrop-in lane swim on Monday and Wednesday evenings. To reduce operating costs it is proposed to eliminate one of the lane swims per evening to facilitate an earlier closing of the associated facility. Approximately $19,000. in savings will be achieved if implemented. Issue Paper #17 -Pools -Idlewood Pool Opening Consideration was given to delaying the opening of all 4 outdoor pools by 4 weeks but was not pursued as it would have adverse impact to the sale of the summer season pass. It was determined, however, that delay in opening one facility would have minimal impact given there is still option of 3 facilities to use. It is proposed to delay opening of the Idlewood Outdoor Pool from June 1 to June 25, 2010, as it is considered to have the least service impact. If implemented, a savings of $6,500. will be achieved. Councillor B. Vrbanovic requested clarification of the rationale to delay opening of the Idlewood pool. Ms. D. Keelan advised that the decision was based on a review of staffing costs and swimmer statistics for the month of June relative to all 4 outdoor pools. At the request of Councillor B. Vrbanovic, Ms. Keelan agreed to provide attendance statistics for the month of June in 2008 and 2009. Issue Paper #18 -Youth Drop-In Proarams A motion by Councillor K. Galloway was brought forward for consideration to add $27,207. to the 2010 Operating Budget to provide for the continued operation of summer Youth Drop-In Programs at the Downtown Community Centre, Country Hills Community Centre and Kingsdale Community Centre. Mayor C. Zehr suggested that this matter not be dealt with until the additional information concerning grant funding and sponsorships is received. Councillor Vrbanovic expressed the opinion that it is unlikely additional grant funding or sponsorships will be forthcoming and for purposes of knowing its impact to the budget, suggested that this matter should be dealt with now. Councillor K. Galloway spoke in support of continuing this programming, noting that staff have indicated a willingness to investigate other revenue streams and the Committee has heard of the importance of this programming from youth representatives. Councillor B. Vrbanovic noted that if the programming is to be continued and in order to reach a tax levy increase of below 3%, it will be necessary to find an alternative reduction. Councillor J. Gazzola suggested that a wage freeze should be considered for City staff, suggesting that the public sector has not contributed their fair share in the current economic climate. He proposed that Council request the Province to introduce legislation that would allow Council to address this issue, rather than reducing services and/or continuing to increase fees and charges. Mayor C. Zehr commented that it would be necessary to understand the implications of such a measure from a legal standpoint and would be a matter to be discussed in-camera. He added that this has been attempted unsuccessfully in other municipalities and while the Premier of Ontario has made some comment in regard to public sector wage measures there is no indication as yet of any move in this direction. Mayor Zehr further noted that there has already been some adjustment to the 2010 operating budget in respect to M-grid salaries and 9000 wage series, as well as other items that have impact on staffing. Councillor B. Vrbanovic requested Ms. L. Bansen to explain the City's position as it relates to labour agreements. Ms. Bansen advised that contract settlement is a legal process and any FINANCE AND CORPORATE SERVICES COMMITTEE DECEMBER 7. 2009 - 195 - CITY OF KITCHENER 1. FIN-09-171 - 2010 OPERATING BUDGET (CONT'D) change must be negotiated. She stated that all Collective Agreements abide by set terms and conditions and the City cannot arbitrarily change the terms. Councillor G. Lorentz commented that the City's Collective Agreements have been negotiated in good faith and Council only has ability to force a wage freeze on non-union staff. He suggested that the City is not in a position to make demand of the Province and would do better to expend its efforts in sending a strong message that encourages citizens to buy locally as a means to re-invest in their community. On motion by Councillor K. Galloway - itwas resolved: "That $27,207. be added to the 2010 tax supported operating budget to provide for the continued operation of summer Youth Drop-In Programs at the Downtown Community Centre, Country Hills Community Centre and Kingsdale Community Centre (report FIN- 09-171 -Issue Paper #18)." Issue Paper #19 -Leisure Access Card -Third Year Phase-In to Fee Subsid In 2008, a $60,000. increase to the fee subsidy base budget was approved, to be phased in over a three year period, commencing with $20,000. in 2008 and ending in 2010. The increase is to address the gap between the fixed fee subsidy budget and the annual inflationary rate increase to program user fees. The Leisure Access Card program experienced a significant increase in the number of subsidies issued, at 20% over 2008, due to the current economic climate and a 6% increase to program fees. The 2009 allocated budget is $85,000. and as of November 2009 subsidies granted total $105,600. The difference has been off-set by secured funding from the Canadian Tire Jump Start Foundation. It is proposed that the third and final year increase now be phased-in over two years, with $10,000. in 2010 and the remainder in 2011. Staff point out, however, that with a 5.2% increase in fees in 2010 it is anticipated that demand will continue to strain this budget. If external funding cannot be secured to help support this program, staff will then seek further direction from Council. Councillor K. Galloway raised concerns in respect to not fully funding the third year increase given the demand for this service. Ms. L. Palubeski responded that the City has applied to the Canadian Tire Jump Start Foundation for 2010 grant funding, although no commitment has yet been made and advised that if funding is not forthcoming staff would return mid-year for further direction. Councillor Galloway requested that notwithstanding receipt of grant funding, a mid- year report be provided. At the request of Councillor J. Gazzola, Ms. Palubeski agreed to provide a report for budget day as to how the Leisure Card Access budget was utilized. Councillor B. Vrbanovic also questioned the rationale for not fully funding the third year increase given program fees are increasing to a higher rate. Ms. P. Houston advised that the program is budgeted based on average usage, as opposed to peak demand and suggested that the question becomes whether or not to budget for peak demand on a permanent basis. Councillor Vrbanovic asked that the report provide information on the types of programs subsidized and user demographics of this service. Issue Paper #20 -Winter Control Mr. J. Witmer advised that historically the Operations Division has had insufficient funds allocated toward winter maintenance. He added that given the uncertainty of the winter weather this shortfall can become significant when winter conditions are above the norm. He stated that based on a five year rolling historical average it was determined that there has been an annual funding shortfall of $420,000. associated with winter maintenance. However, during the 2009 budget process not all of the $420,000. could be provided and Council decided to included only the contract services and materials in the amount of $190,000. Mr. FINANCE AND CORPORATE SERVICES COMMITTEE DECEMBER 7. 2009 - 196 - 1. FIN-09-171 - 2010 OPERATING BUDGET (CONT'D Witmer advised that adjusted for inflation, $235,000. is required to bring the annual operating budget closer to the actual historic expenditures experienced when addressing winter maintenance. At the request of Mayor Zehr, Mr. Chapman agreed to provide a summary of winter control costs for past five years by final budget day. Issue Paper #21 -Operations to Service Growth During the 2009 budget deliberations staff identified funding shortfalls, requesting $420,000. in winter maintenance required to bring the winter maintenance budget in line with actual expenditures; and $135,000. in turf maintenance to adequately address significant increases in new turf parcels. An allocation of $190,000. was applied in 2009 to winter maintenance and $50,000. to turf maintenance, resulting in a continued deficit in winter maintenance and a decline in turf response times due to an $85,000. deficiency. To meet 2010 budget targets, $235,000. previously earmarked for growth has been re-allocated to winter maintenance to bring that budget in line with the 5 year rolling historical average cost. Accordingly, there is no allocation available in 2010 to service growth related areas, which will result in continued decline in the level of service for turf maintenance (4 week turnaround cycle instead of 3 weeks), and an over-expenditure or reduced maintenance for McLennan Park. Mayor C. Zehr questioned why the turf maintenance is not handled in the same manner as winter maintenance, wherein, the work is completed as needed regardless of the budget and any shortfall is dealt with at year-end. Mr. Witmer advised that winter maintenance is a legislated service to address issues of safety; whereas, turf maintenance is not and relates more to the issue of aesthetics. Mayor Zehr commented that turf maintenance is one of the most visible services desired by the public and should be treated in the same manner as winter maintenance. Ms. P. Houston requested clarification in respect to the impact to the Corporate budget, questioning how the Committee envisioned funding an over-expenditure if the desired standard of service is maintained. Mayor Zehr suggested that a similar process to winter control should be established to bring the turf maintenance budget in line with actual expenditures based on a historical period of average cost. He acknowledged that this could not be done in 2010 but suggested that it be pursued in 2011 and beyond. Councillor K. Galloway requested clarification of the $25,000. deficiency for new labour for McLennan Park maintenance. Mr. Witmer advised that this pertains to supervision and maintenance of the bike park which was not included in 2008 and which will require additional staffing on an annual basis. Issue Paper #22 -Mayor and Council Staffing A review of Council administrative support was undertaken relative to the increased size of Council from 6 Councillors to 10 Councillors, effective for the 2010 municipal election. Initially it was thought that an additional staff resource would be required. On review, however, it was determined that with some refinement of business practices and processes, together with introduction of new technology, existing support staff could manage the needs of the new Council. Eliminating the proposed additional support staff position will result in a savings of $17,500. to the 2010 operating budget. Ms. C. Ladd advised that staffing in the Mayor and Council Office will be monitored during the first full year of office and assessed prior to consideration of the 2012 operating budget. She added that should workload become an issue in 2011, staff resources from elsewhere in the Corporation will be utilized to help support operations of the Mayor and Council offices. Ms. Ladd also clarified that the $17,500. savings equates only to partial salary of the position being eliminated as it was not envisioned to be filled until the latter part of 2010 and the full salary adjustment will be made in 2011. FINANCE AND CORPORATE SERVICES COMMITTEE DECEMBER 7. 2009 - 197 - 1. FIN-09-171 - 2010 OPERATING BUDGET (CONT'D Growth Items Mr. D. Chapman reviewed growth items having impact to the budget, including: Fire Station #7 progressions; Kingsdale Community Centre; increased size of Council; 2% capital policy growth; City growth items; KPL RFID; and Assessment growth. Mayor C. Zehr then referred to the proposal to close the Rockway Seniors Centre, a decision on which is to be made in March 2010. At his request, Ms. Houston agreed to provide further information for budget day to provide clarity in respect to the financial arrangements pertaining to the closing of the Centre and how it would be dealt with from a budgetary standpoint. RESERVE FUND PROJECTIONS Mr. D. Chapman advised that the City's reserve fund balances are declining well below benchmark averages and is of serious concern. He noted that at the end of 2008 the City's reserves and discretionary reserve funds per household was at $390. compared to the median of $999. The decline in reserves is of serious concern to staff and Mr. Chapman pointed out that if the forecast is correct the City's median in 2010 will be $48. per household which is 5% of the median average and is a very low level for reserves. Mr. Chapman noted that the Business Park Reserve Fund (BPRF) and the Development Charge Reserve Fund (DCRF) have projected deficits in 2010. He advised that the BPRF is impacted by lands being held for future sale in conjunction with the Consolidated Maintenance Facility project and once sold, the monies will be refunded. The DCRF has the largest deficit at $8.8M deficit. The forecast is based on the growth forecast in the DC background study and should growth fall off to 50% of the forecast level, the deficit could reach as high as $16.3M. This in turn could drive overall reserves into a deficit position which Mr. Chapman stressed is of serious concern. Mayor C. Zehr noted a deficit projected in 2009 for the Asset Management Reserve. Mr. Chapman advised that significant land sales pending in the River /Ottawa area and closure of a portion of Plains Road, is anticipated to return this account to a positive position in 2010. Mayor Zehr noted also that the Equipment Reserve has a significant projection above that budgeted. Mr. Chapman advised that this reflects capital project deferrals from 2009 into 2010. Councillor B. Vrbanovic raised concerns with the projected deficit in the Development Charges Reserve, and asked that staff give consideration to the potential for additional deferral of capital projects. He added that such consideration should be undertaken in consultation with the K-W Home Builders Association. Mr. D. Chapman advised that deferral of capital projects would have impact on the Capital Forecast and a number of project deferrals have already been made. He suggested that it will be challenging to find more but considered it a worthwhile exercise to pursue. Mayor Zehr commented that careful consideration will have to be given so as not to jeopardize the City's Development Charge By-law and/or the appeal process. Mayor Zehr noted that the WSIB Reserve also has a significant deficit projection. Mr. Chapman advised that it is his understanding this does not necessarily equate to an increase in claims but rather the costs per claim are escalating at an alarming rate. He added that of concern is that the City may be under funding this reserve and is something staff is taking a close look at. Mr. Chapman reiterated that there is significant decline in the City's reserves in 2010, noting that in 2008 reserve balances were at $41 M, which is 1/3 of the median, and are falling off in 2010 to $5M. He suggested that as part of the long term financial planning, a review of the reserve fund policy will be a high priority in 2010. Tax Stabilization Reserve Fund Protection Mr. Chapman advised that while 2009 figures are not final, the most recent interim statement projects an operating deficit of $385,000. He stated that the balance of the reserve has depleted and a deficit is forecast. Going forward, strategies to avoid a deficit will be FINANCE AND CORPORATE SERVICES COMMITTEE DECEMBER 7. 2009 - 198 - CITY OF KITCHENER 1. FIN-09-171 - 2010 OPERATING BUDGET (CONT'D) investigated for 2010 and 2011 and Mr. Chapman advised that it will be important to maintain the City's policy in reducing reliance on this reserve. Gas Capital Investment Reserve Fund Proiection Mr. Chapman stated that the best recommendation of staff would be to maintain as much balance as possible in this reserve. He commented that volatility in gas margins could conceivably lead to depletion of the balance in this fund in 2014 and also Council initiatives such as wireless meter reading will have impact. Councillor K. Galloway requested confirmation that this is an area where staff has indicated there is sufficient capacity to increase the transfer to the Capital Pool by up to approximately $750,000. Mr. Chapman advised that the reduction would equate to a reduction across all years, which in 5 years time would equate to approximately $4M out of the fund. He reiterated that reserves are under funded across the board and maintained the best recommendation would be to maintain funds in this reserve notwithstanding there is some capacity for an additional transfer. A motion by Councillor K. Galloway was brought forward for consideration to increase the transfer from the Gas Capital Investment Reserve Fund to the Capital Pool by an additional $750,000. over the 2009 level. Mayor Zehr expressed support for the motion, but questioned how this impacts the formula used for capital. Mr. Chapman advised that basically the base would be re-set by the amount of the additional dollars. On motion by Councillor K. Galloway - itwas resolved: "That subject to final budget deliberations, the transfer from the Gas Capital Investment Reserve Fund to the Capital Pool be increased by an additional $750,000. over the 2009 level." Hydro Capital Investment Reserve Fund Protection Mr. Chapman advised that this reserve has been fairly stable and the projected dividend appears to be close to the actual and sustainable across the forecast years. He commented that there is a sense that there will be a modest increase in long term interest rates but it is too early to assume a revision to the forecast in this respect. Mr. Chapman recommended that the projected transfer be maintained despite moderate capacity for an increase in the transfer. On motion by Mayor C. Zehr - Itwas resolved: "That the transfer from the Hydro Capital Investment Reserve Fund to the tax supported operating budget be increased by an additional $250,000. over the 2009 level, subject to final budget deliberations and receipt of additional information from the Hydro One Power Corporation." Mr. Chapman advised that as a result of the decisions made this date the tax levy increase has been reduced from 4.05% to 3% and to achieve the targeted 2.99% an additional $13,000. must still be identified. Councillor J. Smola asked that staff investigate the feasibility of reducing allocations for capital projects over $100,000. by 1% throughout the Capital Forecast and the impact such measure would have to the tax levy. Mr. Chapman agreed to pursue this suggestion but cautioned that it is more difficult in respect to general provision projects because ultimately to achieve a permanent reduction staff would want to apply the reduction in perpetuity across the 10 Year Capital Forecast. FINANCE AND CORPORATE SERVICES COMMITTEE FIN-09-171 - 2010 OPERATING BUDGET (CONT'D) Councillor Vrbanovic requested that any other suggestions the Committee may have to further reduce the proposed tax increase be forwarded to staff for investigation prior to final budget deliberations. ADJOURNMENT On motion, this meeting adjourned at 4:40 p. m. J. Billett C. Goodeve Committee Administrator Committee Administrator