March 18, 1999

To:Budget Committee

From:Chief Administrative Officer

Chief Financial Officer & Treasurer

Subject:Service Harmonization - Financial Impact Analysis

Purpose:

This report provides a summary of the financial impact, by former municipality, of the various service harmonization proposals outlined in the Chief Administrative Officer's report of February 19, 1999 to the Budget Committee, as well as other options described in various reports that have been presented to Standing Committees.

The report also presents the financial impacts, by former municipality, arising from the proposed water and approved hydro rate harmonization initiatives, tax rate harmonization, Current Value Assessment (CVA) and the net financial and fixed assets brought into the amalgamated City by each former municipality, as requested by the Budget Committee, Works and Utilities Committee and Urban Environment and Development Committee.

Financial Implications:

The service level harmonization proposals in the Chief Administrative Officer's report of February 19, 1999 result in savings to the City for the 1999, 2000 and 2001 Operating Budgets in the amount of $4.8 million, $11.4 million and $1.8 million, respectively. The recommended water rate harmonization proposal is revenue neutral to the City as a whole. The hydro rate harmonization, as adopted by the Toronto Hydro-Electric Commission, will result in approximately $4.0 million in less revenue to be collected city-wide. The financial impact from the harmonization of water, hydro and tax rates on individual customers is dependent on the former municipality in which they reside. The impact of CVA on each of the former municipalities is also presented so as to provide as complete a financial impact analysis as possible.

Recommendations:

It is recommended that this report be received for information.

Background:

At its meeting of February 22, 1999, Budget Committee received a corporate report from the Chief Administrative Officer that proposed various service harmonization initiatives in 1999 that would have financial savings in the 1999, 2000 and 2001 Operating Budgets. Various other options for service level harmonization were included in reports by program managers to Standing Committees.

At the meetings of Standing Committees and as recently as the joint meeting of the Works and Utilities and Urban Planning and Development Committees, information was requested on the financial impact of the various proposed harmonization programs by former municipality. The Budget Committee had also previously considered a report from the Chief Financial Officer & Treasurer concerning water rate harmonization. It was the decision of that committee to consider the issue of water rate harmonization in the context of all user fee and other service harmonization issues.

Discussion:

The attached Appendices have been compiled to present to Budget Committee and Council the various financial impacts once harmonization is fully implemented on a former municipal/geographic basis. Hydro harmonization has been included in this analysis. The Toronto Hydro-Electric Commission approved its harmonized rate structure at its Commission meeting of December 1998. The hydro impacts presented in this report have been confirmed by Hydro staff. A brief explanation of the information contained in the appendices is attached as a guide.

Amalgamation impacts every property owner in the City differently. The attached appendices illustrate total dollar shifts by class of property by former municipality arising from each of the harmonization initiatives. For greater clarity, various illustrative properties have been used to demonstrate the financial impact. These illustrative properties include a single family residential home assessed at $220,000 consuming 300 cubic metres of water and 8600 KwH of hydro annually; a 3,000 sq.ft. stand alone restaurant; a 2,500 sq.ft. small business with a residential unit above; a 10,000 sq. ft. office building, and a 40,000 sq.ft. large industrial property.

It should be clearly stated from the outset that prior to amalgamation, all six of the former local municipalities had different tax, water and hydro rates. When harmonization or amalgamation across a consolidated base occurs in the new City, those former municipalities with relatively higher tax rates (Toronto, York, and East York) experience reductions; those former municipalities with relatively higher water rates (Toronto, York and East York) experience reductions; and those former municipalities with relatively higher hydro rates (Toronto) see reductions while those former municipalities with rates lower than the average harmonized rate experience increases.

There has been much discussion over the financial assets brought into the amalgamated City from each of the former municipalities. Again as with the rate structure for taxes, water and hydro, each of the former municipalities had varying levels of financial assets. These are assets that have now been pooled for the benefit of the City as a whole and include reserves, reserve funds and surpluses brought into the new City. A review of the financial assets is not complete without an assessment of the financial liabilities, the most significant of which include unfunded employee liabilities, deficient vehicle reserve funds, and unfunded environmental liabilities.

The analysis in the Appendices reflects the financial assets of each of the former six local (excluding those of the former Metro Toronto government) municipalities net of the value of unfunded employee liabilities. A valuation report has recently been received that will be the subject of a report to Committee on funding options in late April. There has also been considerable discussion on the value of fixed assets brought into the amalgamation by each of the municipalities. These fixed assets, excluding that of the former Metro Toronto level of government, are stated in the attached appendices on the basis of insured value. However, it is important to recognize that a very significant piece of work related to determining the state of good repair of those fixed assets remains outstanding. The unfunded capital maintenance amount has an impact on the City's capital budget and therefore operating costs for the future.

Conclusions:

Amalgamation of the seven former municipalities into the City of Toronto on January 1, 1998 has brought to issue the state of differing service levels. This report quantifies the financial impacts by former local municipality of the service harmonization proposals embodied in the Chief Administrative Officers report to the Budget Committee on February 22, 1999. The report also quantifies the impact of tax, water and hydro rate harmonization and the impact of CVA on each of the former municipalities.

Contact Name:

Lorne Turner

397-0533

Joe Farag

392-8108

Adir Gupta

392-8071

M. GarrettW.A. Liczyk

Chief Administrative Officer Chief Financial Officer & Treasurer

Guide to Appendices

The following appendices have been provided to summarize the impacts of amalgamation:

Appendix A - Summary of Harmonization Impacts

Summarizes, by former local municipality, the impacts of harmonization on the residential, commercial and industrial sectors, drawing information from the other supporting appendices

Provides illustrations of the impact (total impact and impact by year) of harmonizing programs, fees, water rates, hydro rates and tax rates on sample residential, commercial and industrial properties

A box has been placed around the harmonization components of the summaries

Figures for the net financial assets, fixed assets and impact of current value assessment on the former municipalities, have also been provided

Provides the total impact of the harmonization options once fully implemented as well as the 1999 impact where applicable

Appendix B - Summary of Additional Costs or Savings Associated with Service Level or User Fee Harmonization

Summarizes all of the harmonization options for a number of programs that have been included in various reports submitted by the CAO or by departments to standing Committees

A box has been placed around those options that have been recommended by the CAO or Standing Committees

Public Health programs have been impacted by the combined affects of amalgamation, downloading, and new mandatory provincial public health standards that are more detailed and prescriptive. The CAO has recommended that a review of all Public Health programs be conducted on a priority basis with specific reference to the City's role and mandate, service level standards, mandatory and non-mandatory programs, provincial standards and requirements and the protection of public health. Until the review is complete it is recommended that the prioritization of programs, including the harmonization options on pages 22 to 24 of appendix B, be done within the existing funding envelope for Public Health programs.

Further analysis is required of the options for harmonizing boulevard and permit parking fees on pages 20 to 21 of Appendix B, before a recommendation can be made.

Appendix C - Water Rate Harmonization

Summarizes the impact of water rate harmonization on both the residential and commercial classes as well as providing the impact of harmonization on sample properties

Appendix D - Hydro Rate Harmonization

Summarizes the impact of hydro rate harmonization on both the residential and commercial classes as well as providing the impact of harmonization on sample properties.

These summaries include the annualized impact of the 1999 rate as well as the estimated impact in 2001 once the phasing of increases or decreases for the general service class is completed.

Appendix E - Tax Shift by Municipality and Property Class

Summarizes the impact of A) harmonizing the differing local mill rates that existed in the former local municipalities and B) the implementation of current value assessment. Also included is the impact of these two elements on sample properties.

Although the implementation of CVA is not related to amalgamation the impact of it has been provided for information purposes

With respect to commercial/industrial properties, the analysis illustrates the impact of A) full CVA with full reduction in commercial/industrial education taxes and B) the impact with capping to the year 2000

Appendix F- Assets of Former Municipalities

Summarizes the net financial and fixed assets that were attributable to the former local municipalities on December 31, 1997.

The financial assets have been reduced by unfunded liabilities and outstanding debt.

The unfunded liabilities relate primarily to unfunded employee liabilities and do not include any unfunded vehicle or environmental liabilities.

The fixed asset values are based on the insured value of buildings and major equipment but does not take into account the state of good repair or depreciated value of those assets.

The assets, unfunded liabilities and outstanding debt of the former Metropolitan level of government have not been included in these summaries