August 28, 1998

TO:Toronto Budget Committee

FROM:Norman Gardner, Chairman

Toronto Police Services Board

SUBJECT:FUNDING SOURCES TO OFFSET THE FINANCIAL

IMPACT OF THE 1998 TORONTO POLICE

ASSOCIATION CONTRACT SETTLEMENT

Recommendation:

It is recommended that the Budget Committee approve the utilization of $3.5 million of the OMERS contribution holiday savings towards offsetting the remainder of the 1998 impact of the Toronto Police Association contract settlement.

Council Reference/Background History:

At its meeting on August 27, 1998, the Toronto Police Services Board was in receipt of the following report AUGUST 7, 1998 from David J. Boothby, Chief of Police:

"SUBJECT:FUNDING SOURCES TO OFFSET THE FINANCIAL

IMPACT OF THE 1998 TORONTO POLICE ASSOCIATION CONTRACT SETTLEMENT

RECOMMENDATION:THAT the Board

(1)approve the utilisation of $4.2 M of the OMERS Type 3 surplus (the portion of the surplus accessible in 1998) towards offsetting a portion of the 1998 impact of the Toronto Police Association contract settlement;

(2)approve the utilisation of $3.5 M of the OMERS 1998 contribution holiday savings towards offsetting the remainder of the 1998 impact of the Toronto Police Association contract settlement; and

(3)forward this report to the City of Toronto Budget Committee.

BACKGROUND:

A negotiated settlement on the 1998 contract settlement between the Board and the Toronto Police Association has been reached. The salary and benefit implications of the settlement result in an impact on the Service's 1998 Operating Budget. Details of these are as follows:

• For all Uniform and Civilian Police Association members:

*a 1% increase as of January 1, 1998,

*a 1% increase as of July 1, 1998,

*a 0.9% increase as of October 1, 1998 and

*benefit adjustments ( i.e. cap on dispensing

fees, dental check-ups every 9 months vs. 6 months)

• In addition, Coach Officers are to receive a rate of 2% over that of a First Class Constable as of September 1, 1998.

Impact on the 1998 Operating Budget

The compounded salary increase amounts to 2.93% over the base rate at December 31, 1997. The estimated net impact on 1998 expenditures is $7.7 M, and this annualises to $12.7M in 1999.

The Service's 1998 Operating Budget does not include any allowances for salary increases (this is consistent with the practise utilised in the past). Normally, funding to offset the impact of a negotiated contract settlement is provided from the City's Contingency Account at the request of the Board. Any current year projected surplus would be used to reduce the amount of the request from the Contingency Account. Given that the Service is projecting a shortfall for 1998, there are no funds available from the Operating Budget to offset the impact of the salary settlement. As a result, funding to offset the total impact of $7.7 M is required for 1998. The sources of funding to offset the 1998 budget impact are as follows.

OMERS Type 3 Surplus

Approximately five years ago, it was identified that there was a significant surplus in the OMERS Type 3 plan. At that time, discussions commenced between the Board and the Police Association on the potential utilisation of the surplus and the ownership of same. These discussions and legal arguments carried on until this year. In June, 1998, the Board and the Police Association reached an agreement to equally share the surplus. This agreement entitled the Board access to approximately $38.5M from OMERS.

Access to these funds from OMERS is only available through the non-remittance of normal employer pension contributions which currently total approximately $1.4M per month. As a result of the OMERS surplus and the subsequent agreement with the Police Association, the Service ( with the acknowledgement of OMERS ) has withheld OMERS monthly employer contributions for the months of May, June and July, 1998. The Service's employer contributions for these three months, totalling about $4.2M, was made utilising the $38.5 M surplus and drawing the Board's share of the surplus down from $38.5 M to $34.3 M. In the meantime, the remaining amount will continue to accumulate interest and will be under the stewardship of OMERS. There are no more contributions to be withheld beyond July, 1998, as OMERS has implemented a one-year contribution holiday (discussed later in this report). Consequently, $4.2M is the total amount of the surplus accessible in 1998.

Given the availability of the $4.2M drawn from the OMERS surplus to the Service, it is recommended that the funds be used to offset a portion of the 1998 impact of the Toronto Police Association Working Agreement. In order for the Service to utilise the remittances withheld, a deferred revenue account would be established. The $4.2M would be credited to this deferred revenue account and invested with the City (where these funds would earn interest), and the funds would be withdrawn at the time of the retroactive payment to staff, to be made in November, 1998.

Should the OMERS contribution holiday not extend beyond July 31, 1999, resultant monthly employer contributions to OMERS would be made from the Type 3 surplus. At that time, a request would be made to establish a Reserve account to capture the monthly contributions that would otherwise be made from the Police Service's operating budget. Use of the funds in the Reserve account would be presented to the Police Services Board for approval.

OMERS Contribution Holiday

As a result of the pension surplus growth in OMERS exceeding their forecast and expectations, OMERS has implemented a contribution holiday for both employees and employers effective August 1, 1998 to July 31, 1999. The Service's 1998 budget includes funds for the full year contributions and therefore savings of $7.5M will be realised for the period of August 1 to December 31, 1998 and $10.7 M for the period of January 1, 1999 to July 31, 1999.

City of Toronto Finance has recommended to the City Budget Committee that funds not remitted to OMERS from the contribution holiday be transferred to the Employee Reserve Fund pending future reports on various City requirements for one time funding.

After discussion with City Finance staff, they have suggested that the Service utilise $3.5M of the $7.5 M 1998 savings from the contribution holiday to offset the remaining impact of the 1998 contract settlement.

The above funding recommendations will have no impact on the City's overall financial status in 1998; however, there will be an annualised impact in 1999 of $5 million for salaries and benefits over and above the $7.7 million 1998 budget adjustment.

SUMMARY

It is recommended that the Board approve the utilisation of $4.2M of the OMERS Type 3 surplus (that portion of the surplus accessible in 1998) towards offsetting a portion of the 1998 impact of the Toronto Police Association contract settlement. It is further recommended that the remaining portion of the 1998 impact of the contract settlement be off-set through the utilisation of a portion ($3.5M) of the savings from the OMERS contribution holiday and that the Board forward this report to the City of Toronto Budget Committee.

Frank Chen, Director of Finance & Administration (8-7877) and Angelo Cristofaro, Manager of Budgeting & Control (8-7113) will be present at the Board meeting to respond to any questions."

Conclusions:

The Board approved the foregoing and the following Motion:

THAT, given that Council directed that funds from the holiday savings be transferred into a city reserve fund, recommendation no. 2 be forwarded to the City of Toronto Budget Committee for approval.

Contact Name and Telephone Number:

Angelo Cristofaro, Manager, Budgeting & Control, 808-7113.

Respectfully submitted,

Norman Gardner

Chairman

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