Responding to the F sponding to the Fiscal Challeng scal Challenge: e: 2016-19 Budg 2016-19 Budget Guidelines et Guidelines Budg Budget T et Task F sk Force May 26, 2015 Financial Sustainability: Always a Key Priority 1
Ag Agenda enda • Purpose and Mandate of the Task Force • The Fiscal Challenge • Implications for 2016-19 Budget Guidelines • Next Steps 2
Th The T Task F Force • Council has limited tax rate increases to 3% or less for the remainder of the Term of Council • This means budget reduction targets of approximately $15 M in 2016, $14 M in 2017, and $17 M in 2018. • The mandate of the Task Force is to study the options available to achieve this budget reduction plan. 3
Alignment with the Budg Alignment with the Budget Cy et Cycle Budget Cycle Task Force Develop Guidelines (May 2015) May 2015 - Confirm work plan and discuss principles to guide reductions Issue Instructions (June 2015) June 2015 – Review staff reports on fee reviews, leases, and P3s Department Budget Submissions July/August 2015 – to be determined Due (August 2015) through confirmation of work plan Staff/SMT/City Manager Review September 2015 – develop report to (September/October 2015) FAA Draft Budget Presentation to FAA October/November 2015 – potential (November 2015) incorporation of recommendations into Draft Budget 4
Fiscal Challeng scal Challenge: Ga e: Gap of p of ~ $15M/yr ~ $15M/yr $M 2015 2016 2017 2018 Budget Recognized Plan 258.7 273.0 281.3 290.4 Gross Operating Expenses -87.7 -84.8 -84.8 -85.1 Less: Non-Tax Revenue -3.2 -3.4 -3.8 -4.0 Assessment Growth 167.9 184.8 192.7 201.4 Levy Requirement -14.6 -13.9 -16.9 Budget Reduction Target 167.9 173.3 178.7 184.4 Net Levy Requirement 4.4 5.1 5.4 5.7 Incremental Levy 2.70% 9.87% 4.12% 4.24% Tax Rate Increase -6.87% -1.12% -1.24% Budget Reduction Target Required Tax Rate Increase 2.70% 3.00% 3.00% 3.00% $34 $39 $41 $42 Tax Bill Change for the Average Home 5 Note: Some numbers may not add due to rounding
Budg Budget F et Frame amewor ork • Additional resource requests for new initiatives New • Impact of growth and previous decisions Growth • Less - growth in tax revenue from assessment growth • Non-discretionary, including Status Quo contingency and corporate adjustments 6
Wha What mak t makes up s up the Ga the Gap? p? 11% 9.87% New 10% Growth 9% Staus Quo 8% 7% 6% 4.12% 4.24% 5% 2.7% 4% Council 3% Target 3% 2% 1% 0% 2015 2016 2017 2018 7
Key components of y components of the Ga the Gap: 2016 p: 2016 • Status Quo Pressures – $4.8M in salary and progressions and known economic adjustments – $2.9M in corporate contingency, primarily for economic adjustments – $1.7M reduction in expected Power Stream dividends – $0.9M net impact of phasing out reliance on reserves (over 5 years) – $0.6M related to 2015 phase-in of increased insurance costs • New ARRs • Growth-related ARRs – $1.1M deferred from 2015 – $2.6M phased-in from 2015 – $0.9M requested for 2016 – $1.3M deferred from 2015 – $3.1M requested for 2016 8 Note: Some numbers may not add due to rounding
La Labour bour: ~ 60% of : ~ 60% of Oper Operating Budg ting Budget et • Constraining labour cost growth is critical – challenging to do so while minimizing impact on service delivery Potential Action Considerations Reduce or eliminate economic Dependent on collective bargaining process – May result in adjustments not attracting the best talent – We are competing with other Shorter-term Longer-term GTA municipalities for talent. Reduce employee benefit costs Dependent on collective bargaining process - May result in not attracting the best talent – We are competing with other GTA municipalities for talent. Invest in workforce planning Upfront effort for analysis and benchmarking could identify opportunities to reallocate resources and/or slow down the addition of new resources to service growth Transformational Initiatives Could enable reduction or reallocation of resources to service growth e.g. Implement ICI recommendations. Invest in technology that transforms the workforce from transactional to analytical. Temporary hiring freeze with Could have operational impacts; difficult to manage in the increased gapping absence of workforce planning capability. 9
Rev Revenue • Additional revenue could make a significant difference in the amount of expenditure constraint required • Alternative revenue generating options are possible – research has been underway to quantify the opportunities and assess the policy implications • Awaiting outcomes of four fee reviews – Planning – Recreation and Culture – Engineering – By-law and Compliance • Some existing fees not yet at cost recovery target set by Council 10 10
Comparison to Cost R Comparison to Cost Reco covery T ry Targets ets $4.6M $10.5M Revenue $19.1M $1.2M $0.5M $0.5M 100% 100% 90% 80% 77% 73% 70% 60% 50% 44% 40% 38% 34% 30% 20% 10% 0% Recreation Licensing Planning COA Building Standards Building Standards (OBC) (Non-OBC) Department Costs Full Cost Recovery Percentage of Full Cost Recovered Note: excludes By-law & Compliance and Animal Services as they do not currently have a cost-recovery target Potential incremental revenue of over $28M 11 11
Gr Growth R owth Rela lated Pr ted Pressur essures 2016 2017 2018 $M $M $M Implementation of Previous Decisions: New infrastructure operating (ARRs) 4.2 3.6 1.7 Debt service - Roads Program 0.4 -1.9 2.7 Infrastructure reserve contributions (reduced by 50%) 0.8 2.1 1.1 Subtotal 5.5 3.7 5.5 Maintain/Growth: Contract and utility volume increases 0.2 0.2 0.3 Program and service volume (ARRs) 2.6 1.3 0.3 User fee and service charge volume -0.5 -0.9 -0.2 Subtotal 2.3 0.7 0.4 Assessment growth: -3.4 -3.6 -3.7 Growth-Related Incremental Costs: 4.4 0.8 2.1 2.57% 0.44% 1.03% Notes: Presented on an incremental basis Some numbers may not add due to rounding 12 12
Additional Measur Additional Measures es • Even if the City successfully adds non-tax revenue and constrains wage growth, a large gap will remain – Previous budgets have utilized various sources of one-time or reserve funding and continued deferral of ARRs with limited focus on managing base costs • Imposition of base savings targets could provide flexibility to invest in innovation • Growth-related costs could be limited to available assessment growth • Three possible models to achieve across the board or targeted reductions 13 13
Constr Constraint Models aint Models • Option 1 is to derecognize all ARRS and require base departmental expenditure reductions of about 2% – Departments could resubmit ARRs only if they were fully offset • Option 2 would be to increase the departmental expenditure reductions to about 5% to be able to fund some ARRs • Option 3 would increase the departmental expenditure reduction targets to about 6% to fund most of the currently recognized ARRs 14 14
Ideas g Ideas gener nerated thr ted through 2015 Pr ough 2015 Process ocess • Revenue tools: sponsorships and new/increased fees – May include revisiting cost recovery targets • Examining innovative service delivery models – Alternative service delivery, innovative contracting, organizational realignments • Reducing program and service costs – This is about becoming more efficient • Deferring growth-related capital investments to delay operational impacts Budget guidelines could provide direction on where to focus our efforts 15 15
Pr Proposed Budg oposed Budget Guidelines et Guidelines Before Proposed Focus on rules for adding to base Cost increases must be absorbed department costs through offsets or efficiencies Undifferentiated ARR evaluation Separate evaluation processes for process growth-related and new ARRs Unsuccessful ARRs deferred to Unsuccessful ARRs not deferred following year but may be re-submitted in subsequent budget cycles No limit on amount of ARRs that ARRs must be offset (savings, could be submitted fees, assessment growth) Guidance on increasing fees by at Business case and timelines on least the rate of inflation achievement of cost recovery targets required New! Guidelines for savings proposals that minimize impact on services 16 16
Ne Next Ste xt Steps • Confirm work plan (today) • SMT to select preferred constraint model (Wednesday) • Guidelines to FAA (due June 4, 2015) • Next Task Force Meeting Dates: – June 3, 2015 1-3 pm – June 9, 2015 10-12 pm – June 22, 2015 9:30-11:30 am – September 21, 2015 9:30-11:30 am – September 22, 2015 following Committee of the Whole (Working Session) 17 17
Financial Sustainability: Always a Key Priority 18 18 Appendix Appendix
Key Components of y Components of the Ga the Gap 2016 2017 2018 $M % $M % $M % Status Quo Pressures 10.1 5.92 6.2 3.21 6.1 3.01 Growth Pressures 4.4 0.8 2.1 2.57 0.44 1.03 New Initiative Pressures 2.4 0.9 0.4 1.38 0.47 0.21 Incremental Levy 16.9 9.87 7.9 4.12 8.6 4.24 Requirement Budget Reduction Target 11.8 6.87 2.1 1.12 2.5 1.25 Incremental Levy Target 5.1 5.8 6.1 3.00 3.00 3.00 Notes: Presented on an incremental basis Some numbers may not add due to rounding 19 19
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