City of Edmonton
Service & Budget Review 2009 – Opportunities & Strategies for 2009
DRAFT - 04/14/2009 10:26 AM
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Service & Budget Review 2009 – Opportunities & Strategies for 2009
Table of Contents
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1. Introduction......
2. Executive Decision Criteria......
2.1. SMT Executive Policy Directions......
3. SMT Approaches to Address 2009 Budget Shortfall......
3.1. SMT Approach for 2009......
3.1.1. Changes in Cost Structure......
3.1.2. Revenue Opportunities......
4. Potential Opportunities for 2010......
Appendices
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Appendix A.Corporate Priorities
Appendix B.Executive Decision Criteria – Services Spectrum
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Service & Budget Review 2009 – Opportunities & Strategies for 2009
1. Introduction
The recent economic downturn has impacted many organizations. In many circumstances, the previously used assumptions to forecast revenues and assess expenditures are no longer valid. The City of Edmonton has already initiated several cost-containment measures for 2009 including the training budget reduction, hiring control and various department initiatives.
Recent budget reviews revealed that while the costs for 2009 are on target, the Corporation is faced with a revenue issue due to lower investment earnings and building permit revenue. As a result, there is a need to address approximately $30 million shortfall in 2009, as reported to the Executive Committee in March, and prepare for similar situations in 2010 and 2011.
The City Manager has engaged Sierra Systems to assist in reviewing the Corporation’s services and budget in order to identify opportunities for improving the cost structure and to prioritize services according to Council priorities and the Corporate Strategic Plan.
The following City Departments are within the scope of the Service & Budget Review for 2009, 2010 and 2011:
- City Manager Office
- Deputy City Manager Office
- Finance & Treasury
- Community Services
- Corporate Services
- Asset Management & Public Works
- Planning & Development
- Transportation
- Capital Construction.
Each of these Departments was asked to identify any potential cost savings or revenue enhancements opportunities for 2009. While the primary intent of this exercise was to identify opportunities that will result in long-term and permanent improvements in the cost structure and create additional efficiencies across the Corporation, Departments were also encouraged to identify one-time opportunities just for 2009.
The purpose of this report is to:
- Provide an overview of all identified opportunities that directly impacted the current year’s budget expenditure and revenue assumptions.
- Summarize Senior Management Team (SMT) decisions as to which identified opportunities could be practically implemented in 2009.
- Identify an SMT strategy to address the $30 million shortfall in 2009 and begin to address the pressures in the future budget years.
2. Executive Decision Criteria
The goal of the Service & Budget Review for 2009 was to identify cost savings and revenue opportunities totaling approximately $30 million in annual tax levy savings from a tax levy budget base of approximately $1.082billion.
To guide the Service and Budget Review process, SMT decided to use three evaluation/decision filters:
- Corporate Priorities (10 Year Strategic Goals and 3 Year Priority Goals – see Appendix A),
- A Core Services Spectrum (see Appendix B for details), and
- SMT Executive Policy Directions (see below).
2.1. SMT Executive Policy Directions
To provide focus and guide Branch Management in identifying 2009 opportunities for SMT review and consideration, SMT developed a set of directional policy statements. Thesedirectives are broadly captured in two categories – opportunities to improve the cost structure and opportunities to improve the revenue position of the City.
The table below summarizes SMT Executive Policy Directions.
Directives to Improve Cost Structure / Directives to Improve Revenue PositionCS1–Defer Filling Existing Positions
- For projects and/or services that have to continue, look at deferral of growth or slowing down the rate of growth compared to original plans.
- Identify internal services and/or competencies (e.g. design and construction) that we can market, both internally and externally.
CS2 - Reduce Operational Impacts of Capital Construction
- Review capital projects with emphasis on those that do not have increased operating impacts.
- Review and decide if the operational impacts of new facilities can be deferred.
- Be specific about funding sources i.e. when possible capital funding should be used instead of operational funds.
- Identify opportunities that may result in increase of revenues (e.g. user fees).
- Identify opportunities that may result in demand creation (e.g. user volumes)
- Enhance cost recovery models for user fees.
CS3 - Changes to Business Conditions and/or Service Levels
- Identify strategies to decrease service demand.
- Identify service areas that require new operating models due to a change in economic and business conditions.
- Identify opportunities to adjust service levels. There are a number of services that the City currently provides which could be subject to a “lower” level of service provision. What level of service can be provided that still meets citizens’ needs and protects City assets and infrastructure; but can be done at a reduced level.
- Consider reduction in hours of operations of any service.
- If there are staff impacts due to decreased (or deferred/eliminated) service levels, seasonal/discretionary staff should be considered first.
- Reallocation of Invested Capital:
Identify capital that currently has potential for long-term financing.
- Identify opportunities for funding from provincial and/or federal governments:
Investigate opportunities to acquire a certain level of federal funding for transportation projects such as LRT.
CS4 - Identify Duplicated Services/Service Efficiency
- In a number of cases, specialized services have been incubated over the past few years to ensure they get appropriate attention and necessary investment. These should be reviewed to ensure there is no duplication of services between corporate and line departments in the provision of these services.
- Review policy decisions that have caused significant operational impacts.
- Maximize existing investment in technology to realize additional cost savings and improve efficiency in the City operations.
CS5 - Review Special Initiatives Funded by the City
- There are a number of special initiatives, including some that have been initiated by the Council. Revisit and evaluate the desired outcomes and benefits to be achieved by carrying out or supporting these initiatives e.g. Expo, Homelessness, or Safe Communities.
CS6 - Closure of Facilities/Discontinuation of Service
- Identify facilities that can be closed or services that can be discontinued.
- Identify facilities that are at the end of their life cycle and their closure can be rationalized by substituting with a new facility.
Each Department/Branch within the scope of the Service & Budget Review was provided with a standard template to fill in information about the identified cost savings and/or revenue opportunities. When completing the template, all Department/Branches were also asked to describe how identified opportunities support and align with the Corporate Priorities (10 Year Goals and 3 Year Priority Goals). Once completed, these templates were submitted to Sierra Systems for review, validation and compilation of all data and information.
The following sections of this report summarize opportunities submitted by all Departments/Branches based on the SMT Executive Policy Directions listed in the table above.
3. SMT Approaches to Address 2009 Budget Shortfall
Overall, 75 opportunities for cost savings and revenue enhancement were put forward by the Departments and Branches totaling in net cost savings of $26.4 million. All of these opportunities were reviewed by Sierra Systems to eliminate duplication and to verify viability of all opportunities. It was also ensured that none of submitted opportunities was previously considered and included as part of the Corporate Strategies developed by the Finance & Treasury Department.
The table below provides summary of all 2009 opportunities submitted by each Department in comparison to the 2009 Approved Budget.
1A large portion of the Capital Construction Budget is charged back to capital and not included. Cost Savings opportunity refers to no hiring of additional staff in 2009.
Please note that $26.4 million does not include one-time large opportunities that were captured in the Corporate Strategies e.g. GoldBar dividend and EMS transfer to the Province.
Of $26.4 million, $12.7 million has been identified as the most sound solutions from the executive perspective and the most practically implementable within the 2009 calendar year. This $12.7 million in net cost savings for 2009 will be discussed in detail in the subsequent sections of this report.
Staff lay-offs will not be required to achieve the identified $12.7 million in net savings.
The majority of submitted opportunities were in the cost savings categories with the highest number of opportunities being categorized as CS3 opportunities - “Changes to Business Conditions and/or Service Level”. Overall, opportunities for cost savings categories accounted for $20.8 million while opportunities for revenue opportunities accounted for close to $5.6 million. For detail breakdown by the SMT Executive Policy categories, please refer to the table on the following page.
3.1. SMT Approach for 2009
SMT reviewed and discussed all submitted opportunities. By applying previously agreed on three evaluation/decision filters (Corporate Priorities, Services Spectrum and SMT Policy Directions), SMT determined that 40 opportunities, totaling $12.7 million in net cost savings, were the most sound solutions from the executive perspective and the most practically implementable within the 2009 calendar year.
The remaining $13.7 million of identified opportunities were recognized as potential opportunities for the future years and will be looked at and considered for 2010.
Among $12.7 million of accepted opportunities for 2009, $9.7 million are opportunities to improve the cost structure and $3 million are opportunities to enhance revenues.
These opportunities have been classified based on the SMT Executive Policy Directions outlined earlier in this report.
3.1.1. Changes in Cost Structure
This category includes the following groups of opportunities:
- Defer Filling Existing Positions - $1.91 million (Section 3.1.1.1)
- Changes to Business Conditions and/or Service Levels - $6.56 million (Section 3.1.1.2)
- Special Initiatives Funded by the City - $240,000 (Section 3.1.1.3)
- Discontinuation of Services and/or Closure of Facilities - $960,000 million (Section 3.1.1.4)
3.1.1.1.Defer Filling Existing Positions
Opportunities identified in this category include cost savings associated with temporary deferral of filling existing positions.
In terms of cost savings, the opportunities in this category are estimated to result in net cost savings of $1.91 million and include:
2009 One Time Cost Saving / 2009 Ongoing Cost Saving / Department Budget- It is proposed that four positions remain vacant for the balance of 2009 and that the need to retain and fill these positions be reviewed in 2010. These positions are primarily within the Land Development group. Given the current level of land development activity, it is expected that these positions can remain vacant for the balance of 2009 with a limited impact on service levels.
- Staffing decisions for vacant positions in several Departments
- Due to changed market demand, there is an opportunity to defer hiring of current and emergent vacancies. Reduced service levels to support planning and building applications.
In light of the current budget shortfall, differing the above mentioned positions supports the City’s Strategic Plan in the area of conditions of success – “sound management practices and processes”. While it temporary impacts the organizational capacity, SMT determined that it will not significantly impact the Corporation’s business and ability to deliver core services.
3.1.1.2.Changes to Business Conditions and Service Levels
Opportunities in this category are estimated to result in net cost savings of $6.56 million. This is the largest opportunity group among all cost savings categories and includes:
- Changes to internal business conditions/internal efficiencies - $393,000
- Changes to service levels - $1.95 million,
- Changes/reductions in contract funding/grant funding - $1.16 million,
- Transit/MES operational efficiencies - $3.07 million.
This group of opportunities is aligned with the City’s Strategic Plan in the area of conditions of success – “sound management practices and processes”. It also supports 3 Year Priority Goal of “Improve, continuously, the capacity and capability of the organization in the delivery of services to business and citizens”.
Changes to Internal Business Conditions
This group of opportunities includes opportunities that lead to changes in internal business conditions often resulting in greater internal efficiencies. The total net cost savings of this group of opportunities is estimated at $393,000 and includes:
2009 One Time Cost Saving / 2009 Ongoing Cost Saving / Department Budget- Non-labour expenditure reduction in DCMO including materials, hosting and travel.
- Reduce the Employment Outreach Budget by $100,000. The change in labour markets and the anticipated drop in recruitment activity allows for the HR Branch to cut the Employment Outreach Budget by $100,000.
- Reduce the Corporate Occupational Health and Safety Steering Committee funding for 2009. This funding must be restored in 2010 to fund the external third party Safety Audit.
- Through operational efficiencies, Fire Rescue has an opportunity to reduce overtime hours for uniformed personnel.
Changes to Service levels
This group of opportunities includes opportunities that lead to changes in service levels. The total net cost savings of this group of opportunities is estimated at $1.95 million and includes:
2009 One Time Cost Saving / 2009 Ongoing Cost Saving / Department Budget- The EcoVision Annual Report to Citizens is produced annually and mailed to citizens. There is an opportunity to reduce the City’s environmental impact (i.e. paper consumption) and save dollars by eliminating this community-wide distribution. The report will be produced electronically and placed on the City of Edmonton website, where it can be accessed by all citizens.
- The City reduces public hours as of July 2009 at Leisure Centres by 5%. To minimize lost revenue, one facility per quadrant of the city would be identified to maintain operations at current level of hours. A reduction at each of the other seven Leisure Centres would result in a decrease of approximately 9 hours per week.
- Eliminate grader retainer. The retainer was for ensuring that resources were available for snow clearing as required.
Changes/Reductions in contract funding/grant funding
This group of opportunities includes opportunities that lead to changes or reductions in contract funding or grant funding. The total net cost savings of this group of opportunities is estimated at $1.16 million and includes:
2009 One Time Cost Saving / 2009 Ongoing Cost Saving / Department Budget- Use FCSS Grant Funding to replace city tax levy for the administration of the FCSS Program. The City of Edmonton provides FCSS funding to community agencies/organizations to provide preventive social services as per the Family and Community Support Services legislation.
- Contract funds for consulting services will be deferred to 2010. Some of the work will be accommodated by respective Department staff and some projects will be completed in 2010
Finance and Treasury
transit/mes operational efficiencies
This group of opportunities includes opportunities that lead to operational efficiencies in Transit and MES. The total net cost savings of this group of opportunities is estimated at $3.07 million and includes:
2009 One Time Cost Saving / 2009 Ongoing Cost Saving / Department Budget- Transit has an opportunity to opt out of the Sheckter Operating Lease at the price of a penalty fee which will save the lease costs from May 2009 – September 2010. There will also be additional costs to relocate the stored buses to the MES Heavy Duty garage located in Ellerslie.
- Edmonton Transit operational efficiencies will be realized through lower overtime, material and contracted services.
- BUS and DATS Operational Efficiencies. Operational efficiencies will be realized through lower overtime, material and contracted services.
- Reduce material costs to the transit fleet maintenance operation through streamlining of the supply chain and through strategic sourcing.Reducing material costs will reduce the amount billed to Edmonton Transit in 2009.
- Trolley buses are scheduled to be retired in April 2010. By retiring the trolley fleet in April 2009 cost savings can be realized.Trolley overhead wires will continue to require maintenance until the Trolley lines and poles can be removed in 2011. By moving that timing up, we could realize overhead maintenance savings sooner.
- By retiring trolley buses in April 2009, several cost savings can be realized in 2009 and 2010. Trolley buses require more servicing support than diesel buses, such as replacement of trolley current collector shoes in frost conditions and on-road replacement of trolleys when electric traction power is disrupted or trolley routes are blocked.
3.1.1.3.Special Initiatives Funded by the City
Opportunities identified in this category include potential cost savings associated with one time elimination/deferral of special initiatives funded by the City that were to be implemented in 2009.