May 14, 1998

 To:Budget Committee

 From:Chief Financial Officer and Treasurer

President, Toronto Parking Authority

 Subject:Income Sharing Arrangement with the Toronto Parking Authority

  Purpose:

 This report sets out a new income sharing arrangement between the City of Toronto and the Toronto Parking Authority (TPA) for net operating income generated in off-street and on-street operations.

  Funding Sources, Financial Implications and Impact Statement:

 Once the operation of on-street metered parking is assumed by the Toronto Parking Authority and following a 6-8 month period of equipment upgrades and rate adjustments, annual contributions are expected to be approximately $14-$15 million for combined off-street and on-street operations. This amount is projected to increase to $25 million per year over the next 3-4 years once the Authority=s on-street meter program is fully implemented.

 For 1998, an increase in revenue of $5.6 million is projected over the approved budget of $8.8 million if the rate adjustment, equipment upgrade and projected business activity materializes by year end.

 Recommendations:

 It is recommended that:

 1)The greater of $2,000,000 or 50 percent of net operating income earned from off-street parking facilities be paid over to the City of Toronto each year;

 2)The greater of $6,000,000 or 100 percent of net operating income from on-street meter operations be paid over to the City of Toronto each year;

 3)The new income sharing arrangement take effect as of January 1, 1998 for a three year period ending December 31, 2000;

4)Net operating income be defined as gross parking revenue less direct operating expenses and less administrative expenses. Net operating income therefore excludes sundry revenue and expenses not directly attributed to carpark or meter operations;

 5)Payments be made on a monthly progress payment basis, based on the annual budget for the year;

 6)A final payment/settlement occur once the audited actual amount for the year is confirmed; and

 7)In the event that a need for funding arises from time to time and sufficient funding is not available from the reserves of the Toronto Parking Authority, Council will consider approving debenture funding provided that a viable business plan for the use of the funds is presented.

 Background:

 The City of Toronto has adopted a by-law establishing the Toronto Parking Authority which will be responsible for the operation of off-street parking facilities and on-street metered parking, as well as commercial boulevard parking in the former City of North York. Prior to amalgamation, each municipality had various arrangements/practices in place for the sharing and use of proceeds from their respective parking operations. The chart in Appendix 1 provides a brief summary of the practices respecting net parking proceeds for each former municipality.

 With the amalgamation to the new City of Toronto and the transfer of responsibility for on-street metered parking to the new Toronto Parking Authority, there is a need to review and to formalize the income sharing arrangements between the new City and the new Authority.

 This report examines the impact on the City=s share of income by applying alternative income sharing options against the new Toronto Parking Authority=s 1998 Operating Budget (which reflects the consolidated annualized expenditures and revenues for off-street and on-street meter operations) as a basis for comparison.

  Discussion:

 The consideration of a new income sharing arrangement with the Toronto Parking Authority should be based on the following criteria:

 $represents rental payment for property leased from the City

$should be based on net income generated, but also need to establish minimum payment to avoid significant fluctuations in revenue available to apply against the City=s operating budget

$should not constrain the TPA=s ability to self-fund its capital works program, meet normal working capital needs, or to take advantage of business opportunities, as they arise.

 Appendix 2 contains five scenarios which are compared against the base case, ie. the 1998 Operating Budget for the new Toronto Parking Authority which contemplates assuming responsibility for all off-street facilities and on-street meter operations in the former municipalities.

 In accordance with past practice, the base case retains an annual contribution amount of $4.7 million (to cover City Works allocated costs in the former City of Toronto) as a charge against the on-street metered parking revenue. In the future these funds would be derived from the City=s share of net income from on-street meter operations received from the Toronto Parking Authority.

 The table below summarizes the impact on income sharing from the alternative scenarios as indicated in Appendix 2.

 Table 1

Summary of Impact on Income Sharing from Alternative Scenarios

(Refer to Appendix 2)

 * Annualized consolidated estimates for new City.

 The TPA=s 1998 expenditure projection for off-street facilities was adjusted to include an estimated annual property tax increase of $437,500 (total increase of $3.5 million phased-in over 8 year period) per CVA. However, given the recent Provincial announcement (which may provide for a separate property tax class for parking facilities), this impact may be further reduced.

 Scenario 1, which provides for the return of 50% of net income from off-street and 100% of net income from on-street meter operations, is recommended because on-street meter capital expenditures are not significant and can be met out of normal operating income (excepting $3.8 million approved in 1998 Capital Budget and $3.2 million projected in 1999 for new electronic parking equipment to convert mechanical meters and new installations). Over the next 3 years, the most significant increase in net income for the Authority will be in the on-street meter program and 100% of this net income will be returned to the City of Toronto. The payment of 50% of off-street net income has proved, in the past, to be an amount which allows the Authority to meet the more significant carpark investment capital and working capital requirements of off-street operations without incurring debt. For 1998, this scenario is projected to increase the approved budgeted revenue by $5.6 million.

 Scenario 5 which is a return of 30% of Gross Income and while administratively easy to calculate, is not recommended as it does not take into account the fixed nature of many expenses and could expose the Authority to potential funding problems. Should gross parking revenues decline as they did during the 1992-1995 period, expenses cannot always be immediately reduced in response to dropping revenues.

 Scenarios 2 and 3 are not recommended as these would adversely impact on the Authority=s ability to self-finance projected investment capital and working capital requirements. Scenario 4 is not recommended as the Authority has planned to finance its capital expenditures over the 1998-2002 period from continuing to retain 50% of off-street net income.

 Conclusion:

 The recommendations are in keeping with prior arrangements between the former City of Toronto and the former Parking Authority of Toronto which former entities accounted for approximately 65% of on-street meter revenue and 93% of off-street carpark revenue, respectively.

 The adoption of the recommendations ensures that the City receives all funds generated by the new Toronto Parking Authority which are not required to meet its immediate working capital needs and longer term investment capital requirements. In the event that sufficient funds are not available to satisfy a parking shortfall, then City Council will consider approving debenture funding for any such rare cases, provided a viable business plan for the use of the funds is presented at that time.

 This report has been reviewed by the Commissioner of Works and Emergency Services and he concurs with its recommendations.

  Contact Names:

 Carmine BrunoGerard Daigle

Budget Analyst, Finance DepartmentDirector, Finance and Administration, TPA

Telephone: (416) 397-4218Telephone: (416) 393-7295

W.A. Liczyk,Maurice J. Anderson,

Chief Financial Officer and TreasurerPresident, Toronto Parking Authority

 Attach.

Appendix 1

Summary of Disposition of Net Income from Parking Operations

(former municipalities)