June 16, 1998

  To:Budget Committee

 From:M.A. Garrett

Chief Administrative Officer

 Subject:Transition Projects

 Purpose:

 To review and recommend approval for transition projects related to amalgamation or downloading.

 Funding Sources, Financial Implications and Impact Statement:

 Funding for the 1998 project costs is to come from:

 (a)dedicated reserve fund sources totaling $9.9 million as outlined in Appendix B; and,

 (b)the transition reserve fund totaling $31 million, with the balance of $10.4 million from 1998 debt financing, for a total of $41.4 million. This has an estimated impact of $0.3 million for 1998 debt charges and $1.5 million for 1999 debt charges.

 Total three year transition project costs are estimated to be $132.6 million with annualized savings of $42.8 million, with a three-year payback.

 Funding requirements for multi-year transition projects (see Appendix D) is $30.3 million in 1999 and $17.0 million in 2000 If no funding sources are identified for these projects, debenture financing would be used and would have an estimated impact of $1.0 million for 1999 debt charges, $5.1 million for 2000 debt charges and $7.3 million for 2001 debt charges.

 The Province will make available an additional $100 million loan in 1999 which could be used for transition projects.

  Recommendations:

 (1)That 1998 funding for all transition projects identified in Appendix A be approved and funded by the dedicated sources identified or by the transition reserve fund. The balance of funding for 1998 transition project costs totaling $10.4 million be financed through debentures;

 (2)That the transition projects with multiple phases as identified in Appendix D that will commit the City to expenditures in 1999 and 2000 of $30.3 million and $17.0 million respectively be approved and funding sources be identified by the Senior Management Team in the fall of 1998;

 (3)That all multi-year transition projects which commence in 1999 or 2000 and Phase II of 1998 transition projects that have a financial impact in 1999 be reviewed by the Senior Management Team, with a report to Budget Committee in the fall of 1998; and,

 (4)That the transition projects classified as Business Applications be planned and implemented in conjunction with Corporate Services (Information Technology Division).

 Council Reference/Background/History:

 At its meeting of April 3, 1998, the Budget Committee reviewed a list of transition projects totaling $250 million, including $90 million for employee exit packages. At its meeting of April 20, 1998, the Budget Committee approved $85.8 million in transition costs for 1998, comprised of $45 million in employee exit costs and $40.5 million in transition projects. The Chief Administrative Officer was requested to review these projects and identify sources of funding, savings and budget reductions and forward reports, if necessary, to the appropriate Standing Committee.

 Discussion:

 Review Process

 A corporate approach was taken in the review of all transition projects. To justify each project, all departments submitted detailed business cases (see Appendix E) which outlined the multi-year costs, benefits, annualized savings and timing. Based on the information in the business cases, each transition project was evaluated relative to the following criteria;

 (i)Reductions in the operating budget contingent upon the project proceeding

(ii)The project=s potential to enhance service

(iii)The level of risk if the project did not proceed

(iv)The timing of the discounted payback of the project

   (v)The impact if the project is deferred

(vi)The availability of unique funding sources for the project

(vii)If lower cost alternatives are not feasible

(viii)The criteria were assigned different weights and points were allocated based on the project meeting or not meeting the evaluation criteria. Senior representatives from each department then reviewed the corporate prioritization of each project. Based on this review, several projects were eliminated from the list and other projects were re-prioritized. The projects were then submitted to the Senior Management Team for review.

 The Senior Management Team conducted a corporate review of the proposed transition projects and prioritized them under the following categories;

 (i)Business Applications

(ii)Facility Rationalization

(iii)Downloading

(iv)Projects requiring study in 1998, with implementation in 1999

(v)Other projects

 Funding approval for the transition projects is recommended to be split into two types of categories:

 (i)Projects requiring only 1998 funding approval.

(ii)Projects with multiple phases which will commit the City to future years expenditures in 1999 and 2000. These are projects which are already underway or require completion in future years if 1998 funding is approved (see Appendix D).

 Appendix A summarizes the recommended transition projects, identifying the total 1998 costs and projected expenditures for 1999 and 2000. Projected multi-year savings for each project are also highlighted. Further analysis must be performed to verify the future year costs and savings.

 More than 50 per cent of total 1998 costs relate to transition projects categorized as Business Applications and require $22.6 million in transition reserve funding for 1998. Business cases for these projects were reviewed to ensure that all technology components have been included. Departments will be coordinating the implementation of these projects with Corporate Services (Information Technology Division) to ensure a consistent approach is taken.

 Financial Summary

 The following is a financial summary of the transitional projects listed in Appendix A:

($000's)

 * Projected annualized savings to realized by the year 2000.

 As indicated, $41.4 million is required from the transition reserve fund for 1998. Presently, the fund has a balance of $31 million available. Unless other sources of revenue are found this year, the approval of the 1998 funding requirements will result $10.4 million in debt financing which will result in a debt charge impact of $0.3 million in 1998 and $1.5 million impact in 1999.

 Funding requirements for multi-year transition projects (see Appendix D) is $30.3 million in 1999 and $17.0 million in 2000. If no funding sources are identified for these projects, debenture financing would be used and will have an impact of $1.0 million on 1999 debt charges, a $5.1 million impact on 2000 debt charges and a $7.3 million impact on 2001 debt charges. The Senior Management Team will review these multi-year projects in the fall of 1998 to determine possible funding sources.

 Dedicated funding of $9.9 million (see Appendix B) is available from other sources (e.g. Employee Benefits Reserve Fund, Equipment Reserve Fund, Parking Authority Retained Earnings) to cover specific projects.

 During the prioritization process, the Senior Management Team identified some projects that were corporate initiatives. For example, the Visual Police Identification project, should be considered in the context of the corporate visual identity initiative and will have to be dealt with along with the need to address similar requirements for Works & Emergency Services, Fire, Parks & Recreation, Licensing Enforcement etc.

 There are three projects in the Works and Emergency Services which do not impact 1998 funding requirements. The future year costs for the following projects will be identified during 1998:

 (a)unified mobile radio communication

(b)rationalization of yards

(c)records integration

 Conclusions:

 Further analysis will be required to verify the projected future year savings and payback period. These projects must commence soon to ensure that the savings identified in the 1998 Budget can materialize. Long-term efficiencies and service rationalization are contingent upon many of these projects being implemented.

  Contact Name:

 W. A. Liczyk

Chief Financial Officer and Treasurer

3972-8773

 M. A. Garrett

Chief Administrative Officer