HomeMy WebLinkAboutCAO 18-12 Citif ail
Report To
Executive Committee
PICKERII\G •
Report Number: CAO 18-12
Date: October 9, 2012
From: Tony Prevedel
Chief Administrative Officer
Subject: 2013 Base Budget Guideline
Recommendation:
1. That Report CAO 18-12 of the Chief Administrative Officer be received;
2. That staff be authorized to prepare for Council's consideration a 2013 base
budget with the increase not to exceed 4.9%;
3. That 2013 user fees be increased, where possible, to the estimated inflation rate
of 2.3% (Ontario CPI); and,
4. That the appropriate officials be authorized to take the necessary actions to give
effect thereto.
Executive Summary: The purpose of this report is to seek Council endorsement of
the proposed budget guidelines for the development of the 2013 base budget. The
recommended guideline provides staff direction that in turn will facilitate the budget
development process. (The base budget being defined as prior year's budget adjusted
for known or anticipated revenue and cost pressures).
A budget increase of 4.9% represents a continuation of 2012 service levels without any
signifcant increase or decrease. The increase of 4.9% represents a refinement and
upating of the increase of 5 — 5.9% estimated by staff in the Spring during the 2012
budget deliberations. New services, programs or cost reduction strategies will be
presented and highlighted to Council as changes to the base budget. Council can then
decide which direction it would like to pursue regarding program enhancement and/or
changes to program scope.
Financial Implications: The proposed 2013 budget guidelines will form the basis of
the 2013 current and capital budget. The City's municipal budget represents the City's
fiscal plan for the upcoming year and lays the foundation for the next few years
regarding capital and financing strategies.
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Report CAO 18-12 October 9, 2012
Subject: 2013 Base Budget Guideline Page 2
Discussion: The CAO and the Senior Management Team initiated the 2013 budget
process early in July of this year. This was done to ensure that enough time is available
throughout the budget process for review and analysis of all departmental budgets.
The first preliminary draft of the 2013 and multi-year capital forecast has been received
from the various departments and reviewed. In addition, other cost and revenue
adjustments have been defined and included in the base budget. In order to provide
services at 2012 levels, staff are projecting a budget base increase of 4.9% in 2013.
The table below provides a summary of the anticipated base budget changes for 2013.
2013 Preliminary Base Budget Changes
% Change
Salary/Wage Compensation:
Settlement/Merit Increases 1.4
OMERS 0.5
Employer Benefits 0.4
Government Benefits 0.1
Sub Total 2.1
Energy (fuel and utilities) 0.4
Buildings & Equipment Repair 0.7
Senior Centre Reserve Inc. 0.2
Other 0.6
Reduction in Rate Stabilization Draw 1.0
Debt Charges 1_1
Total Estimated Cost Pressures 6.3
Less:
Assessment_Growth -1.0
Supplementary Taxes -0.4
Base Budget Guideline 4.9%
Based on the 2012 residential property tax allocation, the 4.9% base budget increase
would translate into a 1.25% increase on the total tax bill.
In spring of this year, Council was provided with a financial forecast that projected the
2013 budget with a levy range of 5.0 to 5.9%. The proposed base budget guideline is
just below the spring forecast.
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Report CAO 18-12 October 9, 2012
Subject: 2013 Base Budget Guideline Page 3
Salary/Wage Compensation
The salary/wage compensation pressures noted above include settled union contracts,
a provision for non-settled contracts and estimated increase for non-union staff. The.
indentified benefits pressures include the latest published rates or estimates for
OMERS, El, CPP and employer benefits.
For 2013, the OMERS,Corporation proposed contribution rate increases is presented
below.
OMERS Rates
2012 to 2013
% Rate
Change
2012 2013
Retirement Age 65 8.3% 9.0% 8.4
Earnings up to CPP Limit 12.8% 14.6% 14.1
Retirement Age 60 (Fire)
Earnings up to CPP Limit 9.4% 9.3% -1.1
Earnings over CPP Limit 13.9% 15.9% 14.4
The above rate changes are effective on January 1, 2013. These rate increases
represent the last phase of the announced three year increase starting in 2010. The
overall impact for the 2013 budget due to OMERS is estimated to be $240,000.
Every year, the Federal Government makes changes to the CPP and El rates resulting
in additional costs to the City. In addition, there has been an increase in the employer-
related benefit costs that reflect the multi-year agreement between the City and its
benefit carrier.
Energy & Utility Pressures (Fuel, Natural Gas, Water & Electricity)
Currently, energy pressures of approximately $200,000 have been identified and
include a projected fuel increase from $1.07 litre to $1.12 litre. (The 2013 fuel price was
provided by the Region.)
•
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Report CAO 18-12 October 9, 2012
Subject: 2013 Base Budget Guideline Page 4
As the graph below indicates, there can be wide swings from year to year regarding fuel
costs resulting in an unpredictable cost pattern.
Fuel and Oil Actuals
$700,000
$600,000 — _
fx
$500,000 — f
$400,000 —
Y k§ r }>
$300,000
r
There are two components to fuel cost: price and consumption. Fuel consumption for
the City can vary mainly due to the level of winter snow clearing activity. In addition, fuel
prices can easily change based on weather related events and the international political
environment. Staff will continue to review its energy cost pressures to provide Council
with the best possible budget estimate.
Building Maintenance & Equipment Repairs
The annual demand for building repair and maintenance is based on a number of
factors including: lifespan of the building and/or equipment; the demand placed on the
building from our users or from the aging; and, the environmental conditions to which
the City's buildings and equipment are exposed. In 2013, many building repair and
maintenance projects will be required to rectify ongoing issues that, if left unattended,
will impact the City's ability to operate efficiently, effectively and safely. Some of the
major work planned for 2013 includes:
1. Civic Complex - Repair and seal foundation ($100,000)
2. Recreation Complex— Repairs to underground storm drains ($75,000)
3. Recreation Complex Arena — Rubber floor replacement ($50,000)
4. Civic Complex - Replace underground parking lighting ($35,000)
5. Fire Station#2 — Front tarmac resurfaced ($20,000)
6. Greenwood Community Centre — exterior wall repair ($20,000)
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Report CAO 18-12 October 9, 2012
Subject: 2013 Base Budget Guideline Page 5
Senior Centre Reserve
Last year, Council approved Resolution #185/11 for the establishment of a new reserve
to be used for a future Senior Centre (location to be determined). The 2012 budget
included a $75,000 contribution to the reserve with a commitment to increase the
contribution by $75,000 each year. The draft 2013 budget includes $150,000 as a
contribution to this reserve.
Reduction in Rate Stabilization Draw
During the current term of Council, the rate stabilization draw for current City operations
has been reduced from $3,317,000 (2010 Budget) to a proposed amount of
$2,082,000 (2013 Budget) — a decrease of $1,235,000. The 2013 base budget plan
includes a reduction of the draw in the amount of $477,000 that is equivalent to a 1%
levy increase. This draw reduction amount is at the discretion of Council. As Council
may recall, there is some flexibility regarding the reduction amount, however it is in the
best interest of the City to continue to reduce its reliance on this reserve.
Debt Charges - 2013 & 2014
In 2012, the City budgeted for $4.04 million in interest and principal payments to service
the City's debt. The preliminary forecast for 2013 is that $4.58 million will be required to
service the City's debt. The preliminary forecast will be "fine tuned" over the next few
months to reflect current and future market interest rate trends, timing of debt issuance
and capital projects. The timing of capital projects has a major impact on the timing of
debt charges. In other words, if a capital project is going to be delayed for a year, then
there will be no requirement for the City to issue debt for the upcoming budget year.
The result would be a deferral of the budgeted debt charges.
Municipalities use financial ratios and measures to determine debt limits and debt
servicing capabilities. Several Ontario municipalities apply a debt service cap level of
15%, meaning that annual debt payments do not exceed 15% of total taxation revenue.
Using this benchmark for the estimated 2013 debt payments, the City would be at
9.76%, and therefore, below the "cap target."
Financing of New Operations Centre and 2014 Financial Impact
In February of this year, the financing plan for the $21.0 million Operations Centre
included $15.0 million from land sales. At present, it does not appear that there will be
sufficient revenue from land sales to meet the current obligations and to provide funding
for the Operations Centre. As a consequence, the revised financing strategy for the
operations centre will be based on the issuance of twenty year debt. 2014 debt
charges for the operations centre are estimated to range from $670,000 to $1,360,000
depending upon the financing strategy employed. This is a conservative estimate, and
may be reduced depending upon future decisions regarding land sales.
s.
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Report CAO 18-12 October 9, 2012
Subject: 2013 Base Budget Guideline Page 6
Assessment Growth (1%)
Preliminary reports from MPAC indicate that a 1% assessment growth estimate is
reasonable. In December, the City will receive from MPAC the 2013 returned roll for
taxation billing purposes, and this data will then allow staff to finalize the assessment
growth figure.
Supplementary Taxation
Starting with the 2013 budget, supplemental taxation revenue will now be included in
the budget. This revenue source was excluded in the previous years mainly due to the
fact that the City's assessment growth was always so low that it was difficult to predict
with any confidence. With the current development of Duffin Heights and other
construction projects, and the resulting increase in taxation revenues, it is prudent to
introduce supplemental taxation revenue into the City base budget.
Budget Estimates
As in previous years, the City budget includes revenue and cost estimates that are
based on the best known information. These estimates will continue to be reviewed and
refined as additional information becomes available.
The 2012 budget plan included $3.7 million in non-shared PIL revenues. The
calculation of the PIL revenues is based on the Provincial education tax rates that are
set by the Province. With the 2013 taxation year being a re-assessment year, and
based on previous years' experience, it is likely that when the 2013 budget is brought
forward for Council approval, the Provincial-education rates and possible taxation policy
changes will not be known. As in previous re-assessment cycles, a best estimate will
be provided for PIL revenues with any adjustments being implemented through the
2013 taxation billing rate report.
Next Steps
Over the next few months, the City's senior management team will continue to review
budgets from the perspective of finding efficiencies and/or operational savings. These
potential savings may be directed towards new programs and/or enhanced services.
These projects will be submitted to Council as part of the regular budget process for
final Council approval.
Optional Recommendation # 3 — User Fees
The 2013 base budget guidelines already include anticipated user fee increases. Staff
are currently exploring new fees in order to maximize revenues that in turn will create
opportunities to either reduce taxes or increase services. Staff are cognizant of the fact
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Report CAO 18-12 October 9, 2012
Subject: 2013 Base Budget Guideline Page 7
that some fees are demand sensitive and, by increasing these fees, the City may have
fewer participants, resulting in lower revenues. In addition, certain City fees have to be
competitive with other municipalities or service providers or the City will lose revenues.
Attachments: None
Prepared By: Approv= : Endo. rsed By:
an Karwowski Paul Bigio-'
(Acting) Division Head, Director, I orporate ervices & City Solicitor
Finance & Treasurer
Approved / Endorsed By: Approved / Endorsed By:
Everet unts Neil Carroll
Director, Community Services Director, Planning & Development
Approved / Endorsed By:
Ton Mely(nuk ., ,
Director, Office of Sustainabilityy,,,
Recommended for the consideration of
Pickering City Council
S�:� 24,Zo(Z,
Tony Prevedel, P.Eng.
Chief Administrative Officer
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