1998 Operating Budget

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

Purpose:

To recommend the 1998 operating budget that represents a zero percent budget increase from 1997.

Financial Implications:

The adoption of a 1998 operating budget will provide funds for the delivery of City programs and services.

Recommendation:

It is recommended that the 1998 operating budget representing a zero percent budget increase be approved as presented in Appendices A and B, and that the 1998 gross expenditures of $5.6 billion, gross revenues of $3.0 billion and net expenditures of $2.6 billion contained therein be adopted for each specified department, board, agency and commission.

Discussion:

This 1998 operating budget was prepared with the basic principle of maintaining service levels at 1997 levels and with achieving a zero budget increase. The creation of the new City on January 1, 1998 did not allow for time to identify and assess each and every program and service and the level of service that would be appropriate for the new City. This has had tremendous impact on the City=s ability to effect significant change in this year=s budget process not only from a service perspective but also on the restructuring initiative. Work on restructuring has been initiated. However, service level rationalization is an exercise that needs to be done in 1998 in time for the 1999 operating budget.

Over the past several months, the Budget Committee has met to review in detail all the operating budgets of each department, agency, board and commission. The amalgamation of the seven former municipalities has posed major challenges like no other year in putting this 1998 operating budget together. This first budget for the City has come together as a result of a tremendous effort on the part of all Members of Council and staff.

There will be much work done over the next few months to improve the process and budget presentation for 1999. The Chief Administrative Officer and the Chief Financial Officer and Treasurer are committed to conducting various debriefing sessions to hear input on improving the process for 1999 and future years that will include Members of Council and staff.

The Budget Committee began the 1998 budget process by requesting that each program area prepare a detailed list of potential reductions that accumulated to a 15 percent total reduction. The Chief Administrative Officer was then requested to review the prepared lists and recommend a preliminary 1998 operating budget. The Budget Committee then began a detailed review of each and every reduction recommended by the Chief Administrative Officer. The Budget Committee accepted certain reductions, rejected others and made recommendations on additional items.

As noted in previous reports and presentations, the City originally faced $306 million in budget pressures. These pressures stemmed from two sources. In addition to the City pressures of $142 million; on December 12, 1998, the Province downloaded an additional $164 million in budget pressures for a total pressure of $306 million.

As a result of the Budget Committee reviews, $176 million was identified and applied against the total budget pressures leaving a net pressure of $119.0 million prior to consideration of the provincial offer of assistance. Budget Committee has addressed this remaining net pressure by using the provincial offer of assistance. The $50 million grant to cover specific transportation projects has been used to reduce temporarily the 1998 capital from current contribution. The $100 million interest-free loan has been flowed into the Employee Benefit Reserve Fund.. $69.0 million has been transferred into the operating budget from this reserve. This leaves $31.0 million of the $100 million loan which will be transferred to the Transition Project Reserve Fund to assist in funding the $85.5 million gross envelope of transition projects also recommended for approval by the Budget Committee.

The operating savings are identified in Appendix A. Appendix B summarizes gross expenditure revenues and net expenditures. It should be noted that the savings recommended by the Budget Committee in 1998 will result in additional savings of $33 million that will carryover to 1999. Appendix C identifies the proposed restructuring savings while Appendix D quantifies the savings that will carryover into 1999.

1999 and Beyond:

Because of the late start of amalgamation, much of the savings from restructuring could not be achieved beginning on January 1, 1998. As a result, in recommending the 1998 operating budget, the Budget Committee has created savings that will be available against the budget pressures of future years. The 1998 net pressure of $119 million is reduced by $33 million worth of savings that represent the 1999 impact of restructuring of the administration. These actions will be available in 1999 and effectively reduces the pressures to $86 million.

There will continue to be budget pressures that will have a significant impact on the 1999 operating budget. Wage pressures, continued assessment decline, costs of capital maintenance for City facilities, social housing are among the already identified potential costs. Balancing against this is the continued restructuring of the organization which is estimated to be $75 million. The City will continue to be in financial stress and continued decision making on service levels leading up to the 1999 operating budget which will likely require consideration of the City applying for the second $100 million loan in order to stabilize the tax rates of the City in 1999.

Contact Name:

W. A. Liczyk, Chief Financial Officer and Treasurer, 392-8773 .

(A copy of the City of Toronto 1998 Current Budget Summary of Net Expenditures, which was attached to the foregoing report is on file with the City Clerk.)