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HomeMy WebLinkAboutFND-018-07 REPORT /I 5 Cl~iJ1.gron REPORT FINANCE DEPARTMENT Meeting: COUNCIL Date: September 24, 2007 Resolution #: Report #: FND-018-07 File#: By-law #: Subject: 2008 Preliminary Budget Overview Recommendations: It is respectfully recommended to Council the following: 1. THAT Report FND-018-07 be received for information. SUbmitte1Ld: ~. );y;tJrl'A Nancy Taylor, B.B.A., C.A., Director of Finance/Treasurer I~ ~~LsLc Reviewed byU ~ Franklin Wu, Chief Administrative Officer. NT /hjl REPORT NO.: FND-018-07 PAGE 2 Background: 1.0 At the Council meeting of June 25,2007, Council tabled until September 4,2007 consideration of a cap on the 2008 budget not to exceed 2% plus assessment growth. At the September 4, 2007 General Purpose and Administration Committee meeting, Council requested that the Director of Financeffreasurer provide a report for the September 24, 2007 Council meeting to outline the high level issues affecting the 2008 Budget. That is the purpose of this report. 1.1 The timing of the 2008 budget has been advanced by Council by two months. Staff from every department are diligently undertaking detailed budget preparation. It is still premature at this point to provide detailed analysis of the 2008 budget. It is anticipated that specific 2008 budget information will be available in late November, 2007 in order to comply with the final 2008 budget date established by Council for Monday, January 28, 2008. 1.2 At this time, high level information is available for major issues that will be impacting the Municipality for the 2008 budget. The information is very preliminary and is. subject to change as detailed budgets are compiled and submitted from all the departments. 2.0 Overview 2.1 In the following sections, both increases to revenue or cost savings will be highlighted as well as cost increases. Finally, an overall summary of service levels that could be considered by Council in order to accomplish a 2% budget increase for 2008. 3.0 Potential Additional Revenues Sources 3.1 Property Tax Revenue For 2008 budget purposes, each 1 % incremental budgetary increase for local purposes equates to approximately $300,000. Therefore a 2% increase would result in additional property tax revenue of $600,000. 3.2 Assessment Growth (a) Assessment growth provides additional revenue to the municipality in the same proportion as the budgetary increase mentioned above. That is a 1 % growth in assessment translates to approximately $300,000 in additional revenue to the municipality. (b) It is extremely premature to predict the growth for 2008. As Council is aware, the returned roll for the following tax year is provided to municipalities by MPAC in early to mid December of the year prior. This is, the 2008 returned roll will be available in December 2007. Assessment REPORT NO.: FND-018-07 PAGE 3 growth for budget purposes can be determined at that time. In order to finalize the assessment roll for the December time frame, MPAC must have cutoff dates prior to this time. The regular notice extract date is around October 19th and the amended extract date is around November 14th. As a result, a property must be occupied and assessed by this time frame with notices provided to the taxpayer on these dates in order to be included on the returned roll for 2008. (c) Very preliminary growth reports only indicate growth at less than 2% for 2008. This number is premature though and may increase slightly by the mid October cut-off date. Residential building permits are marginally lower than last year at the present time. It is not known at this time whether that assessment growth will reach 3%. (d) Information on specific larger properties is again preliminary. The Home Depot under construction in the west end of Bowmanville will not be open until December 2008. As a result, it will not be included in the returned roll for budget purposes for 2008. It will show up on a supplementary or omitted assessment roll at some point in 2008. It is anticipated that the valuation will approximate $12 million and will ultimately provide approximately $72,000 in annual revenue for the local level. It will be on the returned roll for 2009. (e) The Courtice Water Pollution Control Plant is anticipated to be in operation in early October 2007. This is very close to the cut-off deadline for the 2008 returned roll. It is therefore not guaranteed that it will make it on the roll for 2008 but every effort is being made to accomplish this. The Clarington portion of the tax revenue for the Courtice Water Pollution Control Plant cannot be reliably estimated as yet but may be in the vicinity of $650,000. The timing for this will have a significant bearing on the 2008 budget. (f) The Dry Fuel Storage facility at Darlington is the other significant specialized property. It is also scheduled for occupancy sometime in October 2007. Again, the hope is to have it included on the returned roll but that is not assured as yet. It is important to note that for both this and the water pollution control plant, construction cost has no bearing on the valuation for assessment purposes. The assessment is a small fraction of the value because only the structure is valued, not the specialized components and machinery and equipment that comprise a significant amount of the construction value. However, because these two facilities are payment-in-Iieu properties, the municipality retains the education portion of the property taxes. The Dry Fuel Storage Facility will generate approximately $45,000 in tax revenue for the Municipality. REPORT NO.: FND-018-07 PAGE 4 3.3 Other Revenues (a) Other sources of potential increased revenue for the municipality include Provincial Offences Act fines. Based on 2007 activity, it is likely that this revenue will increase by $40,000 for 2008. Veridian dividends will also be reviewed based on amounts received in the last two years to see if there is potential to increase this budget item by approximately $100,000. (b) Council has approved user fee increases already impacting the 2008 year, but the increases were modest to keep them in line with external forces so the impact would not be significant with the exception of planning fees where additional revenues of $200,000 are anticipated. 3.4 Cost Reductions (a) This will be primarily addressed in the later section on proposed service levels to be reduced. (b) Funding, subsidies and grants to external agencies is another potential source for cost reduction consideration. A budget cap could be . considered to restrict the budget requests submitted by the external agencies for the 2008 budget. (c) Subject to Council approval of the Newcastle Library tender report included on this agenda, the balance of the operating costs for the Newcastle library operating costs and tax levy support to the shortfall. in the development charges funding would be deferred until the 2009 budget. The operating cost impact of $200,000 would be deferred to 2009. (d) Additional potential cost reductions are highlighted under potential service level items referenced later in the report. 4.0 Major Pending Expenditures 4.1 Salaries and Benefits As Council is aware, the Municipality has several affiliated union contracts as well as non-affiliated staff. The Chief Administrative Officer will be providing a verbal in camera update on the status of negotiations with respect to these contracts, with the Fire Association in particular. The dollar impact of a 1 % increment for overall salary increases for all staff equates to $200,000. This would be multiplied by whatever percentage the ultimate contract settlements would be. There is also the unknown impact of retention pay sought by the Fire Association. In addition, there are increases in the base salary costs due to movements through the grid, pay equity, etc. totaling $350,000. Benefit cost increases will have an impact of approximately $200,000. REPORT NO.: FND-018-07 PAGE 5 4.2 Newcastle and District Recreation Facility - This facility has an anticipated opening in 2008. 50% of the anticipated operating costs were incorporated in the 2007 budget with the remaining estimated amount of $400,000 to be incorporated into the 2008 budget. 4.3 Staffing " In conjunction with growth occurring in the municipality, there is an operational impact to maintain the new facilities and infrastructure. Without staff increments to meet these needs there will be a gradual decline in the overall service level provided by the municipality. Staff will be reviewing the needs in this area in conjunction with the budget preparation. 4.4 Other Costs (a) Other cost impacts include: . Increased utility costs estimated at $90,000; . Adjustments to the insurance budget of $50,000; . New programs such as the Newcastle Community Improvement Program implementation at $25,000; . The need for increased tax support to roads. This includes both tax levy support to capital roads needs as well as additional funds for the rural roads resurfacing program proposed at $200,000 combined; . Growth related operational costs such as increased grass cutting, increased street lighting costs, winter maintenance of sidewalks, etc. approximating $100,000; and . Safety related items needing consideration including fire code retrofits and railway crossing improvements as examples approximating $110,000. (b) There are significant issues in various stages of completion co-ordinated through the planning department that will very likely result in greater Ontario Municipal Board hearings and extended negotiations. The cost is not determinable at this point as it also has an extremely detrimental effect upon the level of service to the development community, intensified by the staff resources required for the Official Plan Review and Zoning By-law update. (c) The need to decrease the reliance on the Rate Stabilization Reserve Fund also should be reviewed. Council will also have updated Master Fire Plan implications to consider in the next couple of months. (d) There are also a couple of reserve funds that need attention or consideration in order to plan for current and future needs. Future economic development initiatives in the Clarington Energy Park and the Clarington Science and Technology Parks will require capital investments. REPORT NO.: FND-018-07 PAGE 6 The Facilities/Parks Maintenance Reserve Fund is having difficulty keeping pace with the needs of the inventory of facilities maintained by the Municipality, simply due to the age of the buildings. (e) The Operations fleet replacement reserve fund is being hit hard by the cost of fuel in the last several years. Each vehicle is essentially set up as a profit centre where by an hourly rate is charged to the various jobs for the use of the equipment and the equipment maintenance costs and fuel costs are charged to the "profit centre". Annually, the net surplus from fleet operations is transferred to the fleet reserve fund to pay for future fleet replacement. The intent is to fund the future replacement of the vehicles during their useful life. However, the cost of fuel over the last couple of years has dramatically reduced the amount of funds transferred annually into the reserve fund by approximately $200,000. 5.0 Reduced Service Level Suggestions and Revenue Generating Opportunities 5.1 In order to provide some input to Council on the implications of opting for a 2% cap for the 2008 budget, all departments provided some information from a very high level perspective on areas thRt WOllin he rllt forwRrn for consideration in adjusting service levels. Please be advised that these are items for consideration only that require much further analysis to determine the actual cost savings that would result from the changes to the service levels in the various areas. Subject to Council's direction for the 2008 budget, Staff would bring forward cost savings figures on these items in order to allow Council to determine which combination of service levels would be adjusted to accomplish this direction. 5.2 It is also important to note that departments, as part of their normal budget process, review their activities to determine whether they are cost effective, could be improved upon, or could be modified to better serve the purpose of the program or service. The base budget proposal is determined based upon maintaining service levels approved by Council through successive budgets. Additions to service levels are separately identified during the budget process for Council consideration. Maintaining service levels, as identified in the areas above, have inflationary cost implications without improving levels. 5.3 It is also important to note that the Consumer Price Index (CPI) is not always an appropriate gauge of where tax increases may be deemed reasonable. Municipalities do not purchase the 'basket' of goods and services upon which the CPI is determined. As an example, construction costs for road maintenance and replacement has dramatically increased due to lack of capacity for vendors with both staffing and supplies. Activity in Alberta has absorbed a great deal of capacity formerly available to municipal governments in Ontario. REPORT NO.: FND-018-07 PAGE 7 5.4 Items that may be put forward for consideration in reductions include the following: · Review of contributions to reserve funds for future needs; . Reduce support to external agencies; . Review winter levels of service; · Assess grass cutting service levels with respect to frequency; . Consider further increases in user fees; . Make modifications or eliminate Senior's snow clearing program; . Reduce sports field maintenance on weekends; . Review 24/7 on call programs in a number of departments; . Review streetlight illumination schedules; . Make amendments to facility operating schedules or potentially facility closures; . Reduce services to the public in facilities; . Reduce number or type of recreation programs or standards for operating programs; . Review of subsidized recreation programs with the view of fee increases; . Eliminate after hours parking enforcement; . Review the use of summer students reduced in several departments; . Reduce volunteer recognition programs; . Eliminate community photocopying services; . Defer of ongoing e-government initiatives; . Reduce or eliminate of employee assistance program; . Furth-er-review-of-a-dvertising options; . Assess community event sponsorships; . Reduce in capital programs in various departments including fire vehicles and equipment, road network, sidewalk replacement, growth related projects that have tax levy component; . Reduce fire response service levels; . Review part-time fire training programmes; . Revie\:'V fire prevention programs such as Family Safety Day, Race against Drugs and Junior Firefighter program; . Reduce or eliminate traffic watch program; . Reduce overtime affecting service levels to Advisory Committees; . Review and modification to Community Improvement Plan funding; . Reduce and consider deferrals in land acquisition program; and . Reduce overall overtime budget in all departments. 5.5 As mentioned previously, the information provided in this report are high level references that require a greater level of analysis to determine what cost savings would actually be achieved and the longer term implications of the reductions. Also, not all of the service levels above would need to be affected, but a combination of them determined by Council once full information was available through the budget process if staff is directed to pursue this magnitude of service level review. REPORT NO.: FND-018-07 PAGE 8 6.0 Conclusion: 6.1 This report is provided for Council information to provide a high level overview of significant items impacting upon the 2008 budget process. Detailed budget information will be forthcoming as staff progress through the budget process. 6.2 It is important to note that there were a significant number of unusual drivers impacting the 2007 budget process as indicated in Schedule A to the 2007 budget report such as new debt repayments coming on-stream, initial PSAB requirements, loss of Provincial Offences Act revenue, the balance of new positions from the prior year, and land acquisition financing needed that have now been built into the base. 6.3 Due to the timing of this report, the most significant uncertainties for 2008 are the salary implications and the timing for the Courtice Water Pollution Control Plant. If the base is not established to accommodate the reasonable outcome of negotiations based on market forces, that will trigger a future year adjustment to catch up the base and lead to an undesirable impact in that year. CORPORATION OF THE MUNICIPALITY OF CLARINGTON 40 TEMPERANCE STREET, BOW MANVILLE, ONTARIO L 1 C 3A6 T (905)623-3379 F (905)623-4169