Funding Sources to Offset the Financial Impact of the

1998 Toronto Police Association Contract Settlement

The Strategic Policies and Priorities Committee recommends the adoption of:

(1)the recommendations of the Budget Committee contained in the transmittal letter (October 13, 1998) from the City Clerk; and

(2)the confidential report (October 13, 1998) from Councillor Jakobek which has been forwarded to members of Council under separate cover, subject to amending the first recommendation to indicate that the consultation process take place within the next two weeks.

The Strategic Policies and Priorities Committee reports, for the information of Council, having received the report (October19,1998) from the City Solicitor for information.

The Strategic Policies and Priorities Committee submits the following transmittal letter (October 13, 1998) from the Budget Committee:

Recommendation:

The Budget Committee on October 13, 1998 recommended to the Strategic Policies and Priorities Committee and Council the adoption of the recommendation contained in the report (August 28, 1998) from the Toronto Police Services Board regarding the subject matter.

The Budget Committee reports having:

(a)requested the City Solicitor to provide a report to the Strategic Policies and Priorities Committee meeting on October 20, 1998 on the authority of OMERS to retain surplus funds; and

(b)forwarded a confidential motion moved by Councillor Jakobek to all Members of Council under separate cover for consideration in conjunction with this item.

Councillor Norm Gardner, Chair, Toronto Police Services Board appeared before the Committee in connection with this matter.

Background:

The Budget Committee on October 13, 1998, had before it a report (August 28, 1998) from the Chairman, Toronto Police Services Board entitled, "Funding Sources to Offset the Financial Impact of the 1998 Toronto Police Association Contract Settlement".

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(Report dated August 28, 1998, addressed to the

Budget Committee from the

Chairman, Toronto Police Services Board)

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:

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:

(1)For all Uniform and Civilian Police Association members:

(i)a 1 percent increase as of January 1, 1998,

(ii)a 1 percent increase as of July 1, 1998,

(iii)a 0.9 percent increase as of October 1, 1998 and

(iv)benefit adjustments (i.e. cap on dispensing fees, dental check-ups every 9 months vs. 6 months)

(2)In addition, Coach Officers are to receive a rate of 2 percent 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 percent 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.

The Strategic Policies and Priorities Committee also submits the following report (October19,1998) from the City Solicitor:

Purpose:

The purpose of this report is to provide legal advice on the issue of the authority of OMERS to retain surplus funds.

Funding Sources, Financial Implications and Impact Statement:

Recommendation:

It is recommended that this report be received for information.

Council Reference/Background/History:

At its meeting held on October 13, 1998, the Budget Committee received a report from the Chairman of the Toronto Police Services Board recommending that the 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.

The Budget Committee recommended to the Strategic Policies and Priorities Committee that it adopt the recommendation contained in the aforementioned report. It also requested the City Solicitor to report to the meeting of that Committee to be held on October 20, 1998, on the authority of OMERS to retain surplus funds.

Comments and/or Discussion and/or Justification:

I am informed by outside counsel, that has advised the Police Services Board on pension matters, that section 17 of the legislation governing OMERS (the "Act") provides that any surplus may be paid from the fund, subject to any conditions set out in the regulations to the Act and in accordance with the Pension Benefits Act (the "PBA").

Neither item of legislation technically precludes withdrawal of a surplus. However, section 29 of the regulations to the Act require any withdrawal to be shared equally by members who are employees and members who are employers.

More significantly, the PBA requires that any withdrawal by an employer must, among other things, be approved by 100 percent of the members of the plan. This requirement effectively precludes a surplus withdrawal in view of the practical difficulties associated with obtaining 100 percent member consent to a withdrawal in favour of the Police Services Board, or any other employer for that matter.

Conclusions:

While OMERS does not appear to have the right to retain any surplus, the legislative requirements for withdrawal of a surplus effectively preclude the possibility of a surplus withdrawal.

Contact Name:

Albert H. Cohen, (392-8041)