1998 Preliminary Transition Project Requests

 The Strategic Policies and Priorities Committee submits, without recommendation, the following transmittal letter (April 23, 1998) from the Budget Committee:

 Recommendations:

 The Budget Committee on April 20, 1998, recommended to the Strategic Policies and Priorities Committee, and Council, that:

 (1)funding in the amount of $85.5 million be approved based on the transition projects listed in Attachment 'A' appended to the supplementary report (April 20, 1998) from the Chief Financial Officer and Treasurer and the supplementary listing of projects for Community and Neighbourhood Services distributed at the meeting; and

 (2)funding for all transition projects be referred to the Chief Administrative Officer for review on a project by project basis and that the Chief Administrative Officer submit a report to the appropriate Standing Committee outlining the source of funding and identifying the related savings and budget reductions, prior to consideration by the Budget Committee.

 The Budget Committee reports having requested the Chief Administrative Officer:

 (a)to provide a report to the Budget Committee in July regarding the central computerized call-taking/dispatch system for fire services; and

 (b)to review the matter of the recent exits of key personnel and provide a report to the Corporate Services Committee, in camera, on the procedure being followed with respect to the exit packages being offered to employees.

 Background:

 The Budget Committee on April 20, 1998, had before it the following:

 (a)Report (April 3, 1998) from the Chief Financial Officer and Treasurer presenting the projected 1998 Transition project estimates and outlining a potential funding strategy;

 (b)Letter of Transmittal (March 27, 1998) from the Emergency and Protective Services Committee regarding transition funding for a radio communications system;

 (c)Report (April 2, 1998) from the Fire Chief regarding transition funding for self-contained breathing apparatus;

 (d)Report (April 6, 1998) from the Fire Chief regarding 1998 training transition investment costs for Toronto Fire Services;

 (e)Joint report (April 16, 1998) from the Commissioner of Corporate Services and the City Clerk regarding transitional investments for the City Clerk's Department;

 (f)Report (April 17, 1998) from the Chief Financial Officer and Treasurer regarding financing strategy for transition projects;

 (g)Supplementary report (April 20, 1998) from the Chief Financial Officer and Treasurer regarding 1998 transition projects, funding and savings estimates; and

 (h)Report (April 20, 1998) from the Fire Chief regarding a central computerized call-taking/dispatch system for fire services.

 (Supplementary Report dated April 20, 1998, addressed to the

Budget Committee from the

Chief Financial Officer and Treasurer)

 Purpose:

 To provide a list of 1998 Transition Projects and to tentatively identify the funding sources and the estimated savings for each.

 Recommendation:

 It is recommended that the Budget Committee review this report in conjunction with the previous report (Agenda item 3e).

 Council Reference:

 Supplemental information requested by Budget Committee.

 Discussion:

 At the direction of Budget Committee the request for Transition Funding list has been revised as follows;

 (a)to show only 1998 project requirements which are ready to proceed;

 (b)to specify funding sources; and

 (c)to identity related savings and 1998 budget reductions already taken (where possible).

 The new listing is attached (Attachment 'A'). It must be noted that, due to the nature of the transitional/amalgamation process itself, additional projects will come forward. As such the process recommended in the original report (Agenda item # 3e) remains a priority.

 The funding framework and strategy outlined in that report also remains a priority. A formalized mechanism for capturing appropriate revenues and utilizing them through the proposed Transition Project Reserve Fund remains a key requirement to track transitional costs and reduce future debt charges.

 The revised listing shows:

1998

$

Program Requests30,848,000

Staff Exit Cost45,000,000

Total Gross Costs75,848,000

 Potential Reserve-Existing Sources(6,356,000)

 Approved use of Reserve Funds (re staff exit)(10,000,000)

(re staff exit)

Total Potential Offset/Reserve(16,356,000)

 Projected Net Requirements59,492,000*

(From Transition Project Reserve Fund/Debt)

 *Represents 1998 proposed cashflow only. Cashflows associated with some of these projects may increase the commitment and the associated debt charges.

 Projected Debt Charges:

 Projected debt charges for 1999 would be in the range of $9 million (assuming all projects completed) and the debt issued late in 1998 or early in 1999.

 Conclusions:

 The attached listing shows potential projects as submitted and their potential funding sources and savings. Detailed justification and appropriate cost-benefit information will be contained in individual reports.

 Contact Name:

 Ross Cuthbert, 297-4214.

Insert Table/Map No. 1

1998 requests for transition funding

Insert Table/Map No. 2

1998 requests for transition funding

Insert Table/Map No. 3

1998 requests for transition funding

Insert Table/Map No. 4

1998 requests for transition funding

Insert Table/Map No. 5

1998 requests for transition funding

 (Report dated April 17, 1998, addressed to the

Budget Committee from the

Chief Financial Officer and Treasurer)

 Purpose:

 To receive approval for the process and financing strategy for transition projects.

 Funding Sources, Financial Implications and Impact Statement:

 This report discusses the general funding guidelines and framework for transitional projects and the overall impact. The establishment of, and the funding sources for a Transition Project Reserve Fund is proposed. The report estimates a potential for debt requirements, for Transition related projects, of up to $220 million less whatever funding can be found from Transition related sources. Various scenarios are presented that show the impact on future current budgets - ranging from $16.3 to $26.5 million in 1999, additional costs of between $4.5 million to $7.5 million in 2000 and a further additional cost ranging form $5.7 million to $7.6 million in 2001.

 Recommendations:

 That the Budget Committee approve;

 (1)the Transition project funding framework proposed in the report;

 (2)the establishment of a ATransition Project Reserve Fund@ to be used to fund Transition projects;

 (3) that the following revenues be contributed to the new Transition Project Reserve Fund;

(i) all one-time revenues (unbudgeted or Awindfall@ revenues),

(ii) all revenues from asset/land sales in 1998, 1999 and the year 2000,( not previously committed by Council)

(iii)the residual Provincial loan funds in 1998 (if any),

(iv)additional Provincial Transition support (if any),

(v)surplus reserve or reserve funds as identified (with Council approval)

(vi)existing current budget allocations and rate financing (as appropriate)

(vii)Debt financing (for unfinanced reserve fund balance)

 (4)that existing current budget allocations be used wherever possible to fund expenditures of an operational nature (training, consulting fees, project management etc) and that existing reserve funds and rate financing be utilized where appropriate;

 (5)that a maximum envelope of $250 million (gross) be approved for transitional project spending between 1998 and the year 2000, resulting in a requirement for debenture financing in the range of $150 million to $250 million depending on the City=s success in utilizing existing allocations (rate/current budget/reserves) and in capturing additional funds from the sources identified above.

 (6)that Committee receive for information Attachment A1@, the revised preliminary listing of requests for Transition Funding, and direct that all requests for transitional project approvals, in report form, be submitted for approval following the process outlined in this report

Council Reference/Background/History:

 At its meeting of April 3, 1998, the Budget Committee received the 1998 Preliminary Transition Project Requests Report and directed that staff report back to its meeting of April 20, 1998, identifying the transition projects proposed, the associated 1998 expenditures, and the source of funding proposed.

 Discussion:

 The transition process will extend over a period of years as the City=s infrastructure, service delivery structure and information and communications technology are restructured to meet the service needs of the new City. At this point staff have not identified all of the transition related projects nor confirmed the actual amounts required for each project as complete project justifications are still being prepared. An initial list was presented to Budget Committee in the previous report. A revised listing is attached as Attachment A1@ to this report. A significant number of revisions have been made to the listing which highlights the preliminary nature of the requests. While the actual total has been reduced (from $246 million to $235 million) an unallocated amount has been added to reflect the expected future requests.

 Additional projects could be identified as service restructuring and the preliminary studies in progress which could increase the total amount of transitional projects and funding required. Alternatively, certain projects could be scaled back or eliminated as further analysis is performed. Significant 1998 and future operating savings and service delivery rationalizations are contingent on these projects.

 The attached list identifies those projects which have been submitted by the Departments. The preliminary Departmental submissions supporting the projects which shows the justification, details the expenditures and summarizes the potential savings are bound separately and are available for review.

 A preliminary review indicates that operational-type expenditures (training, consulting etc)

included in these transitional requests. If funds exist for these types of expenditures - within the proposed 1998 Current Budget - then they should be utilized first. The funding strategy proposed does not impact the 1998 Current Budget.

 Funding Framework:

 Specific funding is to be proposed for each project. The funding will, generally, follow the rationale outlined below and be transferred to the >Transition Project Reserve Fund= as applicable.

 Rate Funding :where expenditures directly relate to an activity normally financed through rates ( water, water pollution, parking etc) And,

 where the amount requested will not result in an increase in the rate itself, and,

 where sufficient funds exist in the appropriate rate related reserve fund, and

 where the project will result in demonstrable savings or improvement which will directly benefit future rates, then

 Rate funding is recommended.

 Reserve financing:Where the project relates to expenditures normally financed through reserve or reserve funds and,

 where, in the opinion of the Chief Financial Officer and Treasurer, sufficient funds exist in the reserve fund,

 where a specific payback is available which is suited to internal funding,

 or where surplus Reserve funds have been identified by the Chief Financial Officer and Treasurer, then

 Reserve funding is recommended

 Departmental

Current Budgets:Where the expenditures are of a type which normally would be financed through the normal current budget (consulting, training, furniture, signage etc) or

 where the amount requested is small ($100,000 or less), then

 The Departments be directed to absorb the cost within their approved 1998 Current Budget allocation or to include in future years budgets.

 Special Transition

financing / debt:Expenditures which will result in the acquisition of a long term asset, or

 where no other alternative financing exists

 Will be funded through the Transitional fund established for this purpose. Where approved transitional expenditures exceed available funds in the Transition Project Reserve Fund debt financing is recommended.

 The Transition Project Reserve Fund:

 The Transition Project Reserve Fund will be funded by the following means - all of which directly reduce the City=s borrowing needs:

 (a)the residual Provincial Loan available after 1998 Current Budget requirements

 (b)all proceeds from land sales in 1998 - 2000 (unless the proceeds have been previously committed)

 (c)all Corporate Aone-time@ revenues in 1998 (not already recognized in the 1998 Budget)

 (d)Funds from existing reserve funds no longer required for their original purpose which may be identified (subject to Council approval )

 (e)any additional Provincial funding which may be secured to cover transition costs associated with downloaded responsibilities.

 (f)existing current budget allocations and rate financing (as appropriate)

 (g)Debt financing (for unfinanced reserve fund balance)

 The Transition Project Reserve Fund will accumulate funds from these sources and will be used to fund project expenditures as required. When insufficient funds are available in this Fund debt financing will be required.

The use of debt financing is appropriate due to the fact that the use of debt will allow the Corporation to spread the impact of these one-time costs over many years and properly match the benefits (savings) with the costs (debt charges).

 Staff Exit Costs:

 Staff Exit Costs have been shown separately. Council has approved the initial use of $10 million from existing Reserve Funds.

 Financial support ($50 million) from the Province has been requested in accordance with Council=s direction. A further report on the amount required for staff exits will be brought forward in September. The total estimate of $90 million is expected to be the upside limit at this time.

 The Process:

 All transition projects should be supported by separate reports which will flow as soon as the appropriate information is available. In addition to complete description of the projects and a full justification, the report will detail the expenditures and the identified savings. As well, the reports will specify the timing and the specific source of funding within the approved framework.

 Financial Impact:

 At this point the total cost for transition related projects identified to date, excluding the staff exit costs, is estimated at $144.7 million (gross). In addition, an estimated $90 million is shown for staff exit costs. It is also reasonable to expect additional projects to be identified as the transition / amalgamation process proceeds. It is therefore believed that additional projects will be added bringing the total potential expenditures to the $250 million range.

 At this time, potential funding from existing sources (rate/Reserve fund/current budget) of approximately $50 million has been identified over this three year period. In addition it is estimated that over this period the Transition Project Reserve Fund could receive some $50 to $100 million from the sources identified.

Attachment #2 shows the potential net requirements by year and estimates the potential debt charges under three scenarios. The first scenario assumes 100 percent debt financing will be required. The second assumes $50 million in revenues from existing sources. The third assumes that the City will generate $50 million in new one-time funding over this period.

 Scenario #1 (attachment #2a), shows cumulative debt costs of $0.0 in 1998, $26.5 million in 1999, $36.4 million in 2000, and $37.6 million for 2001 and beyond.

 Scenario #2 (attachment #2b) shows potential cumulative debt charges of $0.0 in 1998, $20.9 million in 1999, $29.9 million in 2000 and $30.0 million beyond that year.

Scenario #3 (attachment #2c), shows potential cumulative debt costs of $0.0 in 1998, $16.3 million in 1999, $22.4 million in 2000, and $22.5 million for 2001 and beyond.

 These estimated debt charges are directly impacted by the our financial strategies and our success in raising new one-time revenues as outlined above.

 Conclusions:

 To capture the savings identified in the 1998 current budget reductions, and to begin the process of restructuring the City=s infrastructure, service delivery structure and information and communications systems, there are transition projects required that must be initiated.

 It is appropriate to fund these one-time transition costs from one-time revenue sources associated with the amalgamation such as land sales, provincial loan funds, and other unexpected or windfall revenues. In the event these are not sufficient, the authority to issue debt for these projects is also requested.

 The issuance of debt is appropriate due to the nature of the costs (one-time restructuring) and due to the use of debt to allow the City to match the benefits of amalgamation (savings) with the costs.

 No review of the requests listed on Appendix A1@ is recommended at this time as all will be the subject of separate reporting.

 Contact Name:

 Ross Cuthbert; 397-4214.

 (Report dated April 3, 1998, addressed to the

Budget Committee from the

Chief Financial Officer and Treasurer)

 Purpose:

 To present the projected 1998 Transition project estimates and to outline a potential funding strategy.

 Funding Sources, Financial Implications and Impact Statement:

 In total, the funding requests identified to date for the period from 1998 to the year 2000 are $246.3 million. The 1998 requests submitted total $134.5 million with approximately 8 percent, or 11.2 million, of this representing operational type expenditures, which should be funded from current funds if available. A further 29 percent, or $39.4 million, represents expenditures for which reserve fund or rate financing has been potentially identified. The remaining 62 percent - or $83.8 million - are identified as capital expenditures for which debt issuance would be appropriate.

 Recommendations:

 (1)That this preliminary transition project request listing be received for information; and

 (2)that a detailed status report on all transition project requests by program area be presented with full details and justification to the next meeting of the Budget Committee.

 Council Reference/Background/History:

 Budget Committee recommendation January 26, 1998, Clause 3(e) as adopted by Council February 5, 1998, directed that a report on transitional projects and potential funding sources for transitional costs required to support the amalgamation process be prepared.

 Comments and/or Discussion and/or Justification:

 Background:

 The transition process will extend over a period of several years as the process of changing the City=s infrastructure and processes are made to capture the efficiencies and opportunities of amalgamation. The costs of transition will range from relatively small and straight forward costs - the changing of signage and uniforms, for example, which can be dealt with over a reasonable time frame using normal replacement processes in the operating budget, to large and complex projects, such as wiring up all customer service points to ensure seamless and consistent service across the City.

 Special reviews of all Information Technology and radio system related projects, by the Corporate I.T. staff, will be required to ensure that Corporate standards are maintained, connectivity is maintained and that acquisitions are cost effective.

 Preliminary transition projects have been identified and preliminary potential funding sources have been identified. Appendix >A= summarizes these requests by program and Appendix >B= details the projects.

 Program areas were required to prepare project justifications including the projected costs, anticipated savings and offsets/revenues. In some program areas, these project justifications are not fully complete and require further staff work and reports to justify the request.

 Funding Options:

 The funding for transition projects should generally match against the nature of the project.

 Operating Budgets (existing and future):

 Equipment, supplies, uniforms, badges, furniture, computer upgrades, licences and software etc. are all normally funded annually in the current budget. These should be used to fund similar transitional costs. As well, certain new costs can be offset against expenditures currently in each budget. For example, new software licences can be (partially) offset by the termination of old licences and staff training budgets should be allocated to training on new systems and processes.

 Debt Financing:

 Expenditures which result in a long term asset, or whose benefits are long term should be considered for debenture funding.

 Reserve Funds:

 Reserve Funds could appropriately represent a potential source of transitional funding. For example, Workers= Compensation reserve funds have been recommended to cover one time Worker=s Compensation costs relating to the amalgamation and Employee Benefit reserve funds could be used to help fund workforce reduction and reorganization projects.

 Rate, Fees and Charges:

 Certain type of projects, in areas normally covered by rates, fees and/or charges may be funded directly from this source.

 Provincial Funding:

 The Province has announced several funding programs and has recently announced that it is willing to finance certain severance costs for the School Boards. All opportunities should be taken to secure Provincial assistance to help cover these transition costs.

 One-time costs which do not increase operational efficiency should ideally be spread over time and funded from existing budget sources. These would include signage, vehicles, uniforms, operational supplies etc.

 Current Budget allocations exist that should be used (re-prioritized) to fund transitional costs. For example corporate training budgets, including an allocation of $750,000.00 in the former City of Toronto=s estimates, should be used to fund transitional training requirements.

 Expenditures which will increase operational efficiency are reasonably funded from other sources given the expectation that the Areturn@ on the investment will allow the investment to be repaid or generate savings which will benefit the corporate financial position.

 Conclusions:

 The submissions, many of which are still preliminary in nature and therefore have not estimated direct cost savings, budget offsets, productivity, efficiency or consolidation savings or revenue potential, suggest that over $35 million in annual savings are achievable. This number will be higher when all submissions are finalized. These savings have been included in the 1998 Budget submissions.

 Contact Name:

 Len Brittain 392-8350, Ross Cuthbert 397-4214.

(Copies of the reports referred to in the transmittal letter dated April 23, 1998, from the Budget Committee, have been forwarded to all Members of Council with the agenda of the Strategic Policies and Priorities Committee for its meeting on April 28, 1998, and copies thereof are also on file in the office of the City Clerk.)