2010 Operating Budget Guideline
2010 Operating Budget Guideline
Recommendation:1. That the proposed 2010 Operating Budget, for Civic Programs and Boards and Authorities, be prepared on the basis of a 3% tax rate increase for operating and a 2% tax rate increase for Neighbourhood Renewal.
2. That investment earnings, Ed Tel dividends, and the EPCOR Goldbar transfer fees/dividends be moved to the Capital Budget to replace General Financing (tax levy), which will be moved to the Operating Budget.
Report Summary
This report provides Administration’s recommendation on the guidelines for the preparation of the 2010 Operating Budget.
Previous Council/Committee Action
· See Attachment 4 for the text of the motion passed at the March 26, 2009, City Council meeting.
Report
· Current economic conditions have made long-term forecasting and annual budget planning for the City of Edmonton difficult.
· Council and Administration have had several planning and budget meetings since February with the goal of improving the budget process and reviewing potential strategies to address the City’s budget issues in 2010 and 2011.
· The 10-year strategic goals and three-year priority goals identified in The Way Ahead served as guideposts in the development of the 2010 Operating Budget Guideline. Achieving these goals means balancing competing priorities – between the needs of Edmontonians and the limits of our resources, between opportunities and fiscal realities.
· The 2010 Operating Budget Guideline aligns with the 10-year goal to “Ensure Edmonton’s Financial Sustainability”.
· Administration conducted a Service and Budget Review as a strategy to address the 2010 forecast budget shortfall. The Service and Budget Review involved scrutinizing all programs and service budgets and results in budget reductions of
$32.4 million in 2010. See Attachment 3
· Alignment with the 10-year goals and three-year priorities guided Administration’s decision to preserve the programs and services related to LRT expansion, customer contact centre/311, fire services, housing, planning and policy, and assessment and taxation.
· The focus of the Service and Budget Review was to look for programs or services that could be deferred, done differently or eliminated. However, it became apparent in the early stages of the review that some service level reductions would be required in order to achieve the cost reduction target.
· Finally, Administration is reviewing opportunities that will lead to organizational changes, including, evaluating the current branch structure and management layers in the organization and investigating efficiencies and leveraging of organizational processes (i.e., enforcement, community planning activities, regional activities).
· Attachment 1 shows the preliminary 2010 forecast tax increase less the recommended corporate strategies and service and budget review strategies.
· Attachment 2 shows the 2010 preliminary forecast for Boards and Authorities and the corresponding reduction required to achieve a 3% tax levy increase.
· Waste Management and Drainage Services are not included in the 2010 Operating Budget Guideline as they are not tax-supported services.
Economic Scan
· Overall, Edmonton is weathering the economic downturn better than other parts of Canada.
· According to Alberta Finance, a modest recovery in economic growth is expected in 2010 with a full recovery anticipated in 2011. Employment growth is expected to pick up from 2010 to 2013 as business and consumer confidence rebounds and investment recovers. Inflation is expected to average 1.7% in 2010, returning to its long-run expected rate of 2% in 2011.
· Based on the April 1, 2009, Civic Census, Edmonton’s population is 782,439. This is an increase of 30,027 from the 2008 Civic Census and an increase of 52,067 since the 2006 Federal census. Edmonton’s steady population growth continues to put pressure on the City’s programs and services.
Operating Budget Guideline
2010 Budget Principles
· The budget principles approved by Council on March 26, 2009, will be used to develop the detailed 2010 departmental budgets.
New Services
· New services are typically funded from growth in assessment revenues. Growth in assessment revenues have been impacted by the economic downturn and are forecast at $12.0 million in 2010.
· Due to lower growth in assessment revenue the funding for new services in 2010 is limited to operating costs of completed capital projects and contributed assets estimated at $17.3 million.
Prior Year Decisions
· Prior year decisions impacting 2010 and included in the forecast are as follows:
a. Annualization of service packages approved in 2009 for Edmonton Police Services and civic programs -
$8.1 million
b. Debt servicing costs for new debt - $26.2 million. The new debt relates to the South LRT, EPCOR Tunnel, Quesnell Bridge, Southwest Recreation Centre, North Central Recreation Centre and Great Neighbourhoods program.
General Financing strategy
· Administration recommends changing the Capital Budget funding source for general financing from tax levy to investment earnings, the Ed Tel dividends and the EPCOR Goldbar transfer fee/dividends. This will result in $82 million of general financing (tax levy) being moved from the Capital Budget into the Operating Budget; and $64 million of investment earnings, Ed Tel dividends and the EPCOR Goldbar transfer fee/dividends from the Operating Budget into the Capital Budget.
· This strategy shifts the impact of the volatility of these revenue sources from the operating budget to the capital budget. It is easier to deal with cyclical ups and downs by accelerating or deferring one-time capital projects than it is to reduce ongoing programs and services.
Service and Budget Review
· The Service and Budget Review strategies are grouped into three categories:
1. Service and revenue adjustments - $17.9 million
This category includes changes to current service levels or standards, substitution or deferral of services, as well as not filling currently vacant positions. These changes may involve proposed service level reductions in a number of program areas. The service level changes will be described in the detailed 2010 budget presentation.
2. Moving operating costs linked to capital projects to the capital budget - $1.6 million
This category relates to certain expenditures that are currently funded by tax levy, but support capital programs. An analysis was done to see which ones are eligible for capital grant funding.
3. Organizational and operational changes - $12.9 million
This category includes changes to internal business conditions, operational efficiencies and changes to business models.
Next Steps
· In the coming months Administration will continue to assess and implement strategies for increasing revenue (e.g., franchise fees, fines and parking revenues), seek other operating efficiencies and manage the demands of a growing population for City services.
· Administration will prepare the detailed 2010 budget for release on November 10, 2009.
Justification of Recommendation1. Council’s Budget Guidelines provide the framework upon which Administration will prepare the 2010 detailed department budgets.
2. Moving investment earnings, Ed Tel dividends and the EPCOR Goldbar transfer fees/dividends to the Capital Budget to replace general financing (tax levy) shifts the impact of the volatility of these revenues. It is easier to adjust the Capital Budget for an economic downturn than it is to reduce ongoing programs and services.
Attachments
- Summary of Preliminary 2010 Operating Budget based on the Guideline
- Preliminary 2010 Forecast and Scenario for Boards & Authorities
- Service and Budget Review 2010
- Previous Council/Committee Action - March 26, 2009
Others Reviewing this Report
· Senior Management Team
Page 3 of 4
Attachment 1
Summary of Preliminary 2010 Operating Budget based on the Guideline ($000)
Page 1 of 1 Report: 2009FTB004 Attachment 1
Attachment 2
Preliminary 2010 Forecast and Scenario for Boards & Authorities ($000)
Page 1 of 1 Report: 2009FTB004 Attachment 2
Attachment 3
Service and Budget Review
1. Introduction
The city administration is committed to progressing Council’s six 10-year goals and twenty-six 3-year goals.
However, faced with the financial impacts of the economic downturn, the City of Edmonton recently completed a Service and Budget Review 2009 to address a shortfall in 2009 budget. This information was presented to City Council in April as part of the 2009 Budget Update.
Forecasting a significant budget shortfall for 2010, the City’s Senior Management Team (SMT) decided to prepare a set of cost reductions and revenue enhancement strategies that will proactively address the forecasted 2010 budget gap and sustain a tax rate increase target of 5% (3% tax increase for services and an additional 2% tax increase for Neighbourhood Renewal).
Sierra Systems led the City Administration through a process to identify, analyze and prioritize strategies to improve the Corporation’s cost structure according to Council’s goals and the Corporate Strategic Plan. The 2010 Service and Budget Review is aligned with and strongly supports the 10 Year strategic goal of “Ensure Edmonton Financial Sustainability” and the 3 Year Priority Goal of “Increase revenue sources and reduce reliance on residential property tax to meet strategic infrastructure and service needs”.
The intent throughout this service and budget review was to preserve program and service levels that continue to be important to Edmontonians and to meet the required levels for legislative services. To arrive at the set of specific cost savings and revenue strategies, SMT initiated a process by identifying the target for 2010 Service and Budget Review and defining decision criteria. The net savings[1] recommended in this report were identified through a structured analysis process, making tradeoffs and tough decisions, as needed, in the context that we are required to contribute to a $32.4 million target.
This report provides an overview of the process applied to identify cost reductions and revenue enhancement strategies totaling $32.4 million net savings target to address the 2010 budget shortfall.
2. 2010 Process and Executive Decision Criteria
The 2010 Service & Budget Review encompasses the City’s Departments reporting to the City Manager and excludes Boards and Authorities.
Following the presentation of recommendations to address the 2009 budget shortfall, SMT discussed Council’s feedback and direction and made a decision to adjust the process for the 2010 Budget & Service Review to strengthen alignment with the Council’s Strategic Goals and Corporate Outcomes.
In the context of the Council Strategic Goals, consideration for the legislative/mandatory services, and with an understanding that given the current pressures we cannot do without an impact on service levels and standards, SMT identified potential cost reductions and revenues strategies.
During the prioritization process, SMT was faced with difficult decisions and several tradeoffs. These tradeoffs ranged from deferring or continuing support and commitment to various programs, changing service levels of various programs provided to citizens or internal stakeholders within the Corporation, to considerations for the City’s image, reputation and long-term strategic aspirations and goals.
Overall, SMT made a number of decisions that will continue to support and advance Council’s 10 year and 3 year Strategic Goals. These decisions translated into commitment to programs and internal services such as:
· LRT Expansion, Design and Construction
· Transit service
· Customer Contact Centre/311
· Fire Services
· Housing
· Planning & Policy
· Assessment & Taxation
· HR Services
· Corporate Properties
At the same time, to achieve financial balance, SMT had to make tough management decisions that may defer progress in relation to some of the Council’s Strategic Goals. There will be impacts to the 3 year goals such as: "Refocusing spending on renewing existing infrastructure", "Reduce and prevent crime in our transit, downtown, and communities", "Improvement in air, water and soil quality in City operations", "Preserve, celebrate and support Edmonton's heritage, arts, and culture" and "Reducing barriers to participation in recreation activities and programs".
This process also provided SMT with an opportunity to further its discussion on:
· “What can we do differently?”; and
· “What changes should we consider in our organizational and management structure to achieve greater efficiency and promote greater integration/consolidation of services between departments?”
3. Strategies to Address 2010 Budget Shortfall
Overall, SMT recommends $32.4 million in net savings strategies identified through the prioritization process. On average, these net savings are within the 3% to 7% range for each Department, preserving existing core programs and services while looking for adjustments that would not significantly impact these programs and services.
These strategies have been classified by SMT in the following three categories:
· service and revenue adjustments;
· moving operating costs linked to capital projects to the capital budget; and
· organizational and operational changes.
In addition, throughout the Service and Budget review, several cross-functional opportunities were submitted to the Office of the City Manager or identified by SMT for further investigation and assessment. These opportunities are discussed under the fourth category of opportunities in Section 3.4 of this report.
The overview of these four categories of recommended opportunities is provided in the subsequent sections of this report.
3.1 Services & Revenue Adjustments - $17.9 million
Strategies in this category are associated with changes to current service levels or standards, substitution or deferral of services, as well as not filling currently vacant positions. The strategies in this category are estimated to result in net savings of $17.9 million and will impact up to 74 FTEs. This is the largest opportunity category and includes strategies such as (in the order of magnitude):
· $1 million and greater:
- Reduction in outside contract work and improvement of vendor management for materials and parts in Mobile Equipment Services.
- Elimination of grader retainer.
- Reduction in Parks maintenance services, including turf maintenance, tree pruning, horticulture maintenance and caretaking and sanitation at major parks.
- Funding of some internal operating expenses through FCSS funding from the increase in provincial funding.
- Combination of revenue, efficiencies and changes to service levels strategies in ETS.