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HomeMy WebLinkAboutCS 05-02 C¿Ú¡ o~ REPORT TO COUNCIL FROM: Gillis A. Paterson Director, Corporate Services & Treasurer DATE: March 18,2002 Thomas J, Quinn, Chief Administrative Officer REPORT NUMBER: CS 05-02 SUBJECT: 2002 Current and Capital Budgets RECOMMENDATION: 1. a) 2. a) That the 2002 Gross Current (Operating) Budget of $47,115,816, including capital expenditures from current revenues in the amount of $1,307,018, with estimated revenues of $20,969,206, Special Capital Levies of $369,000 and a net levy of $26,515,610 resulting in an increase of7,66 per cent over 2001 be adopted as amended; and b) That the Director, Corporate Services & Treasurer present the 2002 Property Tax Rates for adoption by Council when further information from the Region of Durham and the Province of Ontario is available; and c) That the two year Current (Operating) Budget Forecast (2003 - 2004) be received as preliminary estimates for financial planning purposes, That the 2002 Capital Budget with a Gross Expenditure of $12,296,959 be adopted as presented; and b) That the following capital financing sources be received as presented in the 2002 Capital Budget: Transfer from Current Fund to Capital Fund $ 1,307,018 Transfers from Reserves: - Capital Equipment - Contingency (Assessment Appeals) 965,541 75,000 Transfers from Reserve Funds - Community Facilities - Development Charges - Parkland Development - Public Works Services City Share Development Projects Charges 35,540 723,460 682,600 82,800 753,400 Debt Lease Donations Superbuild Other 5,012,000 45,000 1,345,600 1,174,000 95,000 $12.296,959 Report to Council CS 05-02 March 18, 2002 Subject: 2002 Current & Capital Budgets Page 2 c) That the Two-Year Capital Budget Forecast (2003-2004) be received for financial planning purposes and that it be reviewed by all parties with a view towards reducing the level of projected debt in these years; and d) That total debt financing of $5,012,000 for the projects identified in the 2002 Capital Budget in the amount of $100,000 for a period not to exceed 5 years; $3,574,000 for a period not to exceed 10 years and, $1,338,000 for a period not to exceed 20 years be approved; and e) That projects identified in the 2002 Capital Budget as being financed through the issuance of debt be subject to additional, specific approval by Council of the expenditure and the financing before proceeding; 3, That the 2002 Current & Capital Budgets for the Ajax Pickering Transit Authority (APTA) be supported in principal as follows: a) Current Capital $2,697,502 1.209.500 $3.907,002 The "Transit Tax Levy" to be transferred from the Region of Durham in the amount of $1,621,000 be applied towards: Capital expenditures in the amount of $1,209,500; the Transitional Core Current (Operating) Budget in the amount of$124,401 and, the balance of $287,099 be transferred to the Transit Reserve to be established by the Treasurer. b) That any grant funding received by the City of Pickering or APT A go towards the applicable capital or current expenditure with any resultant surplus City of Pickering budget funding being transferred to the Transit Reserve to assist in funding future year's APT A Budgets. c) That the Director, Corporate Services & Treasurer is authorized to establish a Reserve to be known as the "Transit Reserve" and this reserve shall consist of funds raised for transit purposes and not immediately required and such other funds as Council may approve from time to time. 4. That future tax increases be recommended at a minimum of the annual increase in the Consumer Price Index; and 5. That the Director, Corporate Services &Treasurer be authorized to make any changes or undertake any actions necessary, in order to ensure the budget, the increase in taxes and the tax billing process is proper and complete; and 6. That any surplus current operating funds at year end 2002, in excess of $110,000 be transferred equally to the Rate Stabilization Reserve and the Community Facilities Reserve Fund; and 7, That the appropriate staff of the City of Pickering be given authority to give effect thereto, ORIGIN: Director, Corporate Services & Treasurer Chief Administrative Officer AUTHORITY: Municipal Act, R.S.O. 1990, as amended, Section 247(1). Report to Council CS 05-02 March 18, 2002 Subject: 2002 Current & Capital Budgets Page 3 FINANCIAL IMPLICATIONS: The 2002 Current (Operating) & Capital Budgets, if adopted as presented, will result in a 8.68 per cent increase in the average property tax bill. This equates in the City's portion of. the average property tax bills. This equates to an approximate 2 per cent, or $60.00 increase on the total property tax bill for the average residential taxpayer. ' . Adoption of the 2002 Capital Budget includes the use, or draw down, of reserves and reserve funds of approximately $3,318,341 or approximately 50 per cent of the total discretionary balances available at this time. Capital Budget financing also necessitates the use of $5,012,000 in debt that will result in an increase in the 2003 Current (Operating) Budget for 'debt charges' in the amount of $617,000, which is a 2.25 per cent tax impact. EXECUTIVE SUMMARY: The 2002 Current (Operating) & Capital Budget increase is mainly due to normal cost pressures in a corporation like the City of Pickering and due to the lack of sustainable assessment growth in our municipality. In other words, assessment growth translates into taxation revenue that èan be applied towards inflation costs and operating expenditures. The 20.02 Current & Capital Budgets represent the second year of single digit tax increases, necessitated by the need to keep total revenues in line with total expenditures. Otherwise, expenditures are at the bare minimum necessary to sustain the level of operations which in turn are the minimum necessary to provide the level of service to the community. BACKGROUND: The Recommendations put forth are those necessary to adopt the 2002 Current (Operating) and Capital Budgets of the City of Pickering and to set in place the "first steps" of a Financial Transitional Plan until building and development activity resumes AND tax revenues are at a level sufficient to sustain annual expenditures. The Chief Administrative Officer, the Treasurer and the Department Heads have worked diligently to keep current operating expenditures at the absolute minimum level necessary to sustain the current level of service to the ratepayers of Pickering. Many of the challenges facing Pickering are not unique amongst urban municipalities in Ontario and across Canada, in that they are underfunded and under resourced by senior governments. Cities are the centers of life, activity and wealth generation for the country. However, in Ontario we have the uniqueness of the treatment of municipalities by the Provincial Government over many decades escalating to new heights, or depths, in the last 10 years, The only source of real revenue for Ontario Municipalities is property tax and even this has been greatly controlled by the Province, especially since 1998. In regards to the Greater Toronto Area, we feel Pickering is very unique: relatively no real sustainable growth, more or less, in the middle of a booming economy and geographic area. However, Pickering has been in this situation for much of its life, first as a Town then as a City, in that the absence of development of the lands to the north which has made the southern area "landlocked", This situation has arisen as a result of the vast land holdings of the Federal and Provincial governments and by the absence of services. This situation, while worsening, was not really noticeable until the latter part of the 1990s. What used to be normal 5 to 7 per cent assessment growth has first leveled off and then declined to approximately 1 per cent in the last few years. In order to sustain the City financially certain measures have been taken in successive budgets: 1. Operating expenditures, other than contractual increases, have been held or reduced Report to Council CS 05-02 March 18, 2002 Subject: 2002 Current & Capital Budgets Page 4 2. the administration has been reorganized, made more efficient and more cost effective 3. one time revenues have been used to offset ongoing operating costs 4. capital budgets have been reduced 5. contributions to reserves and reserve funds to assist in maintaining the City's infrastructure decreased and then stopped 6. an increasing reliance on withdrawals from reserves and reserve funds 7. the increasing use of debt over the last four years to forestall tax increases 8. a leveling off or decrease in non tax revenues The foregoing have put considerable strains on the City's financial resources. This year's budget attempts to continue the "balancing act" while setting the stage for some degree of withdrawal ftom the situation. Reserves and Reserve Funds The 2002 Budgets contain unprecedented and unsustainable reliance upon draws from reserves and reserve funds. Based upon current balances and what is known at this time, the discretionary balances are forecasted to the reduced to zero in 2004 or 2005. Debt and Debt Charges The current level of debt, and the resultant annual debt charges, is at a relatively high level, especially considering this means of financing was not used before 1998. The 2003-4 Capital Budget Forecast shows expenditures almost triple and then. quadruple the 2001 level. If unchanged the level of debt will be unsustainable especially given the other factors mentioned in this report. The level of debt anticipated in the 2002 Capital Budget is the largest of any recent budget at. $5.1 million, The resultant increase debt charges of approxim-ately $617,000 annually will necessitate a 2.25 per cent of increase in the 2003 Current (Operating) Budget. In 2004 and 2005, the forecasted increases in debt are, in the opinion of the Treasurer, unsustainable. Debt in 2004 is currently projected at $39 million dollars with debt charges of $4.6 million, which by that time, will approximately equal 17 per cent of the City's property tax revenues. Projects will have to be deferred until growth and other sources of revenue materialize and are proven ongoing. We cannot continue to incur debt, and the resultant debt charges, at this level while we are in the current situation. At current levels and projections debt charges will represent 13 per cent of our tax levy in 2004. The Good News There are, in spite of all stated elsewhere, good news items in this years budgets: 1. Current Operating expenditures have been held to an 8.4 per cent increase made up primarily of salaries and inflation 3.2 per cent; fire services 3.7 per cent and 1.5 per cent miscellaneous 2. Special Capital Levies of 1.5 per cent financing for a new Fire Dispatch System and a third ice pad at the Don Beer Arena 3. The annualized of the 2001 operating costs for 8 new firefighters and the opening of the new Petticoat Creek Library and Community Centre has been accommodated in the 2002 Current Operating Budget Report to Council CS 05-02 March 18, 2002 Subject: 2002 Current & Capital Budgets Page 5 4. The Waste Diversion pilot project "Rolling to Reduce" has been continued under the 2002 Current Budget financing 5. The "financial stage" is being set for the new Fire Services Station in 2004. If successful some of the last of the assessment appeal proceeds will go towards the capital cost of this much needed facility 6. The preliminary 2003 forecast is for an approximate 6.86 per cent increase at this time 7. The forecast for 2004 and 2005 is less optimistic however, depending upon the continuing success of our assessment appeals and other possible new revenues in 2003 and beyond, this may decrease The Year in Perspective One must bear in mind that the 2001 Budget analysis included a forecast for a 2002 increase in property taxes of approximately 12 per cent and as late as last fall these projections were still in the preliminary estimates. This winter we were faced with a projected increase in the mid-teens. This was subsequently reduced by the success of some assessment appeals and the transfer of transit tax revenue from the Region to the City. , Finally, it must be noted that the City is actually expanding services with this budget in that the expansion of Don Beer Arena; the acquisition and implementation of the new Fire Dispatch System. Moreover, we must not forget the delivery of the new Fire Services Arial Truck last fall, that must now be paid for, Don Beer Arena A provision of $3,850,000 has been included in the proposed 2002 Capital Budget for the construction of a third ice pad at Don Beer Arena. Ofthis amount $1,174,000 has been applied for as a Superbui1d Grant from the Province of Ontario. We have been advised verbally that this will be approved. The balance of $2,676,000 ($215,000 approved in the 2001 Capital Budget - funded from the account with the ice rental surcharge revenue) is to be shared equally between the City and the hockey association "Partnership". Therefore, the amount of$1,338,000 has been included as the City's share of the cost to be debt financed. The "Partnership" share of $1,338,000 has been included under "Donations". However, this amount will also have to be debt financed by the City, Should the "Partnership" fund raising be extended over 10 years, their contributions will pay the interest however, at the end of the term up to half the principal may still be owing (total cost $1,905,000). The terms, conditions and time period of this loan will be dealt with in a separate report to Council for specific approval of the project, the financing and the tender. Regardless, this amount will form part of the City's debt outstanding and Pickering will be legally responsible for the repayment to be reimbursed by the "Partnership". (Any increase in operating costs in 2003 resulting ftom the expansion has not been taken into consideration in our projections). To date, nothing firm has been received ftom the "Partnership". In conclusion, the final financial details will be reviewed in the forthcoming report to the Finance and Operations Committee. AjaX/Pickering Transit Authority (APTA) The 2002 Current and Capital Budgets for APT A include some projects for which external grant funding has been applied for. As members of Council are aware, the APT A bus fleet is quite old and needs to be replaced. Conventional transit buses costs approximately $450,000 and external grant funding will be used to assist the municipality in paying for the buses. In the past grant, funding for projects would have been determined in advance of the budget process. However, the current situation is different. Recently announced Federal and Provincial Transit Grant Programs are still lacking details as to what will qualify for a grant. Therefore, the Capital Budget includes municipal funding for projects that may qualify for grants from the Federal or Report to Council CS 05-02 March 18, 2002 Subject: 2002 CUlTent & Capital Budgets Page 6 Provincial Govel11ments, In fact, just recently APT A received notice that Provincial funding in the amoUllÌ of $873,126 would be available for certain undeliakings. As a result, the municipal funding necessary and requested for 2002 can be reduced by that amount. However, since the cun-ent levels of expenditures can be accommodated by Pickering within its budgets, any such. reductions should be set aside by the municipality to go towards funding capital projects in future years. In Pickering's case, this means that one half of the $873,126 or $436,563 could be set aside. Additional grant funding in the amount of $1,625,689 has been applied for. Of this amount $968,800 has been requested under three different grant programs. In other words APTA has made three applications to obtain grants to offset mainly capital costs. If one application is successful, the other two applications will be withdrawn. If APT A is successful obtaining all of its grants, Pickering's share would be $1,081,567. These funds would the be transfen-ed to the transit reserve to help offset future capital (fleet replacement) costs. Finally, APTA staff have now decided that the total of $2,800,000 to be received by Ajax and Pickering, from the Region of Durham $814,537 should go to reserves of the respective municipalities. For the 2002 budget, the City of Pickering is transferring $272,099 into the Transit Reserve FUlld. The City may be also transferring an additional $436,563 ~nto the Transit Reserve from the recently announced Provincial grant. The future Transit Reserve Fund is a key component in the City's financial plan, This reserve will be used to help offset capital related costs such as bus purchases, and will reduce the future level of tax increases. The Financial Future Departure from the financial plan put forth in the documents and the 2002 Budgets will most likely have severe negative impacts on future years budgets, perhaps as early as 2003 but certainly no later than 2004/5. Ifwe are able to "stay the course" and find new revenues for 2004 and 2005 the projected lower increases for beyond 2005 stand a chance of materializing. Otherwise, one can be reasonably sure they will not. Any defen-al or postponement Of the positive aspects of the financial plan will only serve to ensure the continuation of high rates of increase and the subsequent defen-al of any retum to lower rates of increase, Analysis Included in the new ftont Section of your budget binder are several schedules summarizing the tax impact for 2002 and providing a preliuùnary forecast for 2003 and 2004. Also is a ~ preliminary forecast of the period 2005 to 2007. We must caution the very tentative nature of these projections at the early stage. Some charts on the decreasing discretionary reserves and reserve fund the rising levels of debt and debt charges, and on building permit activity are included. Also, schedules summanzmg account totals across the Corporation for the 2001 and 2002 Cun-ent Budgets may be found in tIlls section. Report to Council CS 05-02 March 18, 2002 Subject: 2002 Current &Capital Budgets Page 7 ATTACHMENTS: Not applicable Prepared I Approved I Endorsed By: Approved I Endorsed By: ~-~~ ~ '-- .- Gillis A. Paterson, Director, Corporate Services & Treasurer ,. GAP:vw Recommended for the col!sideration of Pickering City Council " ,d Copy: Chief Administrative Officer Director, Operations & Emergency Services Director, Planning & Development