December 31, 1998, and June 30, 1999,

Operating Budget Variance Report

The Policy and Finance Committee recommends:

(1)the adoption of the report (October 5, 1999) from the Chief Financial Officer and Treasurer; and

(2)that an amount of $10.0 million be transferred from the $16.5 million contained in the Winter Control Stabilization Reserve Fund, to the Transportation Program.

The Policy and Finance Committee reports, for the information of Council, having:

(1)requested the City Auditor to review the $39 million snow budget over-expenditure with a view to determining whether the costs are controlled and/or in similar circumstances whether they can be reduced;

(2)requested the Chief Financial Officer and Treasurer:

(a)and other senior staff to review by December, 1999, the 1999 Budget and Council's 1999 objectives which include Homelessness, Child Care, Social Services - Welfare, Forestry, Street Cleaning, User Fees, Permit Processing, etc., and report on the availability of any funds to address these areas;

(b)to expedite her forthcoming report on the Police and Zoo over-expenditures and report to the Budget Advisory Committee no later than October 30, 1999;

(c)to provide quarterly variance reports to the Policy and Finance Committee;

(d)to provide quarterly expenditure reports, for each Department, to the Policy and Finance Committee to afford the Committee an opportunity to determine the amount that is being spent;

(e)to report to the Policy and Finance Committee on the factors behind the increase in projected 1999 expenditures versus 1998 actual related to Works and Emergency Services ($60.2 million) and Finance ($3.2 million);

(f)to report to the Policy and Finance Committee on the City of Toronto's policy on the allocation, charging and recovery of inter departmental charges;

(g)and the City Auditor to report to the Policy and Finance Committee:

(i)on the basis for expecting an increase of $38.2 million in 1999 over 1998 in Water revenues; and

(ii)on why the prior year surplus is only recovered to the extent of $869,000 by June, 1999, against the estimate of $45.0 million;

(3)requested the Commissioner of Community and Neighbourhood Services to submit a report to the Policy and Finance Committee on the rent increases in City Housing units, reported to be as high as 10 percent and particularly how such a rent increase was possible given that the 1999 budget for the Housing Company did not identify a rent increase in 1999;

(4)directed that the forthcoming report from the City Auditor and the Chief Financial Officer and Treasurer respecting the budget of the Toronto Harbour Commission be submitted to Council, as soon as possible; and

(5)received the report (October 8, 1999) from the Chief Financial Officer and Treasurer.

The Policy and Finance Committee submits the following report (October5, 1999) from the Chief Financial Officer and Treasurer, entitled "December 31, 1998, Operating Budget Variance Report":

Purpose:

The purpose of this report is to provide an overview of the City of Toronto's financial performance for its first year of operation ended December 31, 1998. The report includes an analysis of significant Net Expenditure variances by City departments, and Special Purpose Bodies.

Financial Implications:

The financial results as of December 31, 1998, indicate that the City of Toronto has successfully managed operations within the 1998 Operating Budget approved by Council.

The operating surplus of $43.6 million or 1.7 percent of net budget, has been carried forward into 1999 operations, and was accounted for in the 1999 Operating Budget. City Operations contributed a net operating surplus of $52 million towards this amount. Special Purpose Bodies and higher than budgeted tax revenues, also contributed $2.1 million and $7.6 million respectively towards the surplus. These efficiencies were partially offset by an over expenditure in Corporate Accounts of $18.1 million.

Recommendation:

It is recommended that this report, reflecting the 1998 financial results of the City of Toronto, be adopted.

Comments:

December 31, 1998, Year-end Position - Overview:

The City of Toronto delivers municipal services through six departments and multiple Special Purpose Bodies. Below are the December 31, 1998, year-end variances by department, together with a corporate overview of the significant issues that impacted on each department and Special Purpose Bodies. A more detailed discussion of significant operating variances, by program, is provided further on in this report.

(A)Community and Neighbourhood Services:

The Community and Neighbourhood Services department ended the year with gross and net budgets under-expended by $190.4 million or 8.7 percent and $25.2 million or 4.1 percent respectively, as a result of under-expenditures in all programs, but primarily Social Services. Council approved transfers to reserves totalling $28.4 million during the year, redirecting some of these underexpended funds towards provisions for longer-term stability in the Social Services, Homes for the Aged and Children's Services programs.

(B)Works and Emergency Services:

Under-expenditures in Fire Services and Ambulance Services combined with higher than anticipated revenues in Solid Waste Management and Transportation Services enabled Works and Emergency Services to end the year favourably on a net basis at $18.0 million or 3.5 percent under budget.

(C)Economic Development, Culture and Tourism:

The Economic Development, Culture and Tourism department ended the year over budget by $3.1 million or 1.9 percent on a net basis as a direct result of revenue shortfalls in Parks and Recreation, and Arts, Culture and Heritage programs.

(D)Urban Planning and Development Services:

Higher than projected development related revenues placed the department in a net underspent position of $8.3 million.

(E)Corporate Services:

Corporate Services ended the year within budget, with over-expenditures in Facilities and Real Estate and Information Technology being offset by under-expenditures in Audit, Clerks, Human Resources, Corporate Communications, Legal, and the Service Integration and Support office.

(F)Finance:

On a net basis, Finance is marginally above budget at year-end by $100,000.00.

(G)Special Purpose Bodies:

Revenue shortfalls in the Toronto Zoo, extraordinary expenses in Theatres and Galleries and a significant over-expenditure in Exhibition Place resulted in a net over-spent position of $3.4 million at year-end.

Net under-expenditures, totalling $5.5 million, in the operation of the Library Board, Public Health, Toronto Police Service, Toronto Transit Commission, Conservation Authority and Arena Boards, have placed the Special Purpose Bodies in a favourable net expenditure position of $2.1 million or 0.2 percent by year-end.

(H)Corporate Accounts:

Corporate Accounts include consolidated grants, capital and corporate financing, non-program expenditures and non-program revenues.

Consolidated grants and capital and corporate financing were underspent at year-end $6.6 million or 2.9 percent.

Non-program expenditures exceeded budget by $47.7 million or 16.4 percent largely as a result of higher tax deficiencies (over by $31.7 million), and year-end charges to other corporate expenditures (over by $37.2 million). This is in part offset by underutilized budget allocations for Corporate Contingency (under by $23.6 million) and Temporary Borrowing (under by $7.8 million).

Non-Program Revenues were $22.9 million or 5.6 percent higher than budget. Payments in lieu of taxes were significantly higher than budget. Lower than projected investment income and lower than projected Supplementary Taxes partially offset these higher revenues.

More detailed discussion of these variances can be found in the section on Corporate Accounts further on in the body of this report.

(I)Other:

This category includes the CAO's Office, Mayor's Office and Council. The CAO's Office, the Mayor's Office and Council were all within budget at year-end.

(J)Assessment Gain:

Actual 1998 tax revenues were slightly higher than budget reflecting a small increase in assessment that was realized upon billing.

The attached Schedules A, B and C reflects gross expenditures, gross revenues, and net variances by program. It should be noted that the 1998 budget numbers were adjusted to account for re-alignments related to changes in organizational structures. Council adopted these adjustments as part of the 1999 Operating budget process.

Schedule D summarizes expenditures on salaries and benefits by department and program providing a comparison with the 1998 approved budget for these expenditures. Salaries and benefits for the Corporation as at year-end are underspent by $26.6 million or 1.1 percent for tax supported operations.

Schedule E presents the staff reductions accomplished by amalgamating programs and departments as compared with the targets assigned to each program for 1998. On the whole, programs were able to meet their 1998 target reductions.

Departmental Net Expenditure Variances: Year-end Actual Vs September Projection:

The table below summarizes the changes in 1998 projected year-end net position from the September Variance report as compared to the actual December year-end summarized by department. With the single exception of Corporate Accounts, where year-end adjustments resulted in significant charges to non-program expenditures, departments and Special Purpose Bodies ended the year within their year-end projection from September.

Year-end Gross and Net expenditure variance explanations, comparing actual to budget by program within each department are provided below.

(A)Community and Neighborhood Services:

The gross and net budget variances of Community and Neighborhood Services are comprised of the following:

Children's Services:

The Children's Services program's gross operating budget is under-spent by $32.9 million or 14.4 percent. This favourable variance is primarily due to a delay in transferring the management responsibility of purchased services such as Special Needs Resourcing, Resource Centres and Wage Subsidies from the Province.

On a net basis, the expenditure is $2.8 million or 8.7 percent below budget, which is due to increased user fees as a result of a more favourable client mix.

As approved by Council on July 30, 1998, $1.9 million of the net savings of $2.8 million was transferred to the Child Care Capital Reserve Fund.

Social Services:

For the year, the Social Services program has a favourable gross variance of $191.4 million or 16.6 percent, which is primarily attributable to the following:

(1)$102.9 million resulting from the change in budget assumptions relating to the number of transferred cases from provincially downloaded programs, as well as the delay in the transfer of these cases to the City of Toronto;

(2)$27.6 million relates to the Ontario Works program, due to a revised provincially approved Ontario Works Business Plan and an under-utilization of the Employment Support budget resulting from the maximum funding levels imposed by the Province; and

(3)$55.5 million attributable to a lower than budgeted monthly average caseload, in addition to savings from the National Child Benefit Savings (NCBS). The actual average monthly caseload was 80,837 versus the budgeted caseload of 88,000.

Insert Table/Map No. 1

mthly welfare caseload/'98 mthly welf

On a net basis, the program had a favourable variance of $28.5 million or 10.3 percent which is the result of the aforementioned favourable gross expenditures and also due to a change in the funding from the Ontario Works Program delivery from a 50/50 distribution to 80/20 one.

Of the $28.5 million net savings, a total of $20.0 million has been transferred to the Social Services Reserve Fund, comprised of $17.5 million for the Ontario Works Program and Administration and the Employment Placement Savings, and $2.5 million for the National Child Benefit Savings.

The Social Services Reserve Fund was established by City Council during the 1998 Budget approval process. The intent of this reserve is to protect the City against future caseload increases, to provide interim funding for a potential addition of 2,000 childcare spaces for clients leaving assistance, and to fund programs and services to support children of low-income families as per Provincial government directives.

Homes for the Aged:

Homes for the Aged reports favourable variances of $3.3 million or 2.6 percent gross, and $13.4 million or 57.7 percent net for the year. The gross expenditures variance is mainly attributable to savings of $2.0 million in salaries and benefits in the Homes program and $1.0 million savings from the Supportive Housing program which was the result of program restructuring as per the directive of the Ministry of Health. The remainder of the favourable variance is due to savings from the Homemakers and Nurses program and Central Services.

The under-expenditure on a net basis was due to a one-time Transition Subsidy funding that was made available by the Provincial Ministry of Health and higher user fee revenues.

Of the $13.4 million net savings, $6.5 million has been transferred to a Reserve Fund for capital expenditures as approved by Council on October 1, 1998.

Other:

This includes Hostels, Housing, and Social Development. The gross overexpenditure of $8.9 million was primarily due to greater than budgeted expenditure of $8.8 million in Housing, $5.3 million in Housing Support and $1.3 million in Hostels being partially offset by a $6.5 million below budget provincial download cost.

The favourable net expenditure of $8.9 million is caused by $9.5 million greater than budgeted revenues and interdepartmental recoveries in Toronto Housing, $0.8 million in Hostels, $0.8 million in Social Development, and $5.4 million in Housing Support.

(B)Works and Emergency Services (tax supported operations):

The gross and net budget variances of the Works and Emergency Services, excluding Water and Waste Water and Police, are comprised of the following:

Fire Program:

The program reports a gross and net under-expenditure of $2.8 million or 1.3 percent and $1.8 million or 0.8 percent, respectively for the year. The favourable gross variance is primarily attributable to a lower than budgeted actual fringe benefit rate, deferral of expenditures and reduced contributions to reserves. The under-expenditures are partially offset by lower than anticipated false alarm revenues.

Solid Waste Management:

For the year, the Solid Waste Management program reports a gross over-expenditure of $20.4 million or 16.2 percent and a net under-expenditure of $9.1 million or 12.3 percent.

The gross over-expenditure of $20.4 million is primarily due to:

(1)a total of $10.8 million, comprising higher interdepartmental charges than anticipated offset by higher interdepartmental revenues;

(2)$5.3 million for fleet and equipment purchases which were offset by transfers from fleet equipment reserves. The restated 1998 budget removed the gross budget and revenues for these costs and centralized these in Fleet Management Services;

(3)increases in disposal revenues triggered increases in operating costs by $2.7 million to cover royalties to the Region of York, as well as transfer and haulage costs; and

(4)other contributing factors for this over-expenditure included higher than budgeted costs related to price escalation for collection contracts, $0.2M; higher costs related to delay in the implementation of one-man packers in the former City of North York, $0.4M; higher costs related to rehabilitation assignments and retirement/sick pay bank disbursements, $0.8M; and; higher cost related to purchase of route design software system, $0.2M.

On a net basis, the favourable variance is attributable to higher revenues relating to the paid disposal tonnage, the sale of recyclable materials and to the rental of steel containers in the Toronto Community Council Area.

A graph of the budgeted and actual tonnage levels for the years 1996 to 1998 follows.

Insert Table/Map No. 1

waste mngmt pd tonnage/'98 pd waste tonnage rev

Transportation:

The Transportation program reports a net under-expenditure of $6.9 million or 4.1 percent.

Salaries are overspent by $4.4 million. Part of this overage is directly attributable to higher inter-departmental charges offset by inter-departmental revenues. Non-recurring revenues have also been credited to the program's 1998 results. The non-salary expenses are below budget for 1998.

(C)Economic Development, Culture and Tourism:

The gross and net budget variances of the Economic Development, Culture and Tourism department are primarily comprised of the following:

	Expenditures Over/(Under) Budget
	($ millions)

Arts, Culture and Heritage:

The program reports a favourable gross variance for the year of $0.4 million. Lower salaries and benefit costs as a result of unfilled vacant positions have resulted in this favourable gross expenditure variance.

The $0.3 million net unfavourable variances is caused by shortfalls in revenue due to lower than budgeted attendance rates at various programs and facilities.

Economic and Tourism Development:

The program reports a favourable gross and net variance for the year of $0.4 and $0.3 million, respectively. Factors contributing to the under-expenditure were lower salaries and benefits expenditures due to unfilled vacant positions, and lower non-salary expenditures caused by the delay in implementing program initiatives. This is offset by reduced revenues resulting from the delay in the creation of a Business Directory.

Parks and Recreation:

The program reports an unfavourable gross expenditure variance of $0.3 million or 0.1 percent for the year. Higher salary and benefit costs due to the delay in implementing the downsizing program are offset by lower non-salary expenditures.

On a net basis, the program reports an unfavourable variance for the year of $3.2 million or 2.2 percent. Revenue deficiencies were experienced in the following areas:

(1)$1.0 million in parking fees, unrealized brochures and facility advertising revenues, and the Council directive to provide no charge public swimming across the City, and the extension of the swimming season;

(2)$0.7 million in decreased participation in certain programs;

(3)$0.7 million in unanticipated delays and program reductions and cancellations; and

(4)$0.4 million in unrealized recoveries.

Special Events:

The unfavourable gross variance of $0.2 million or 5.6 percent for the year is mainly attributable to higher than anticipated expenditures for various events. Additional revenues from the Street Festival have caused a net under-expenditure of $0.1 million or 5.0 percent.

(D)Urban Planning and Development Services:

The gross and net budget variances of the Urban Planning and Development Services department are comprised of the following:

	Expenditures Over/(Under) Budget
	($ millions)

Toronto Licensing:

Year-end under-expenditures, on a gross and net basis of $1.6 million and $1.8 million respectively, are mostly attributable to salaries and benefits savings resulting from unfilled vacancies. This is partially offset by an increase in establishment strength linked to accessing the provincial icon system. Lower than anticipated costs for Police reports, mechanical inspections and deferred postal mailings contributed to the under-expenditure as well.

Urban Planning and Development:

The program reports an unfavourable gross variance of $2.0 million or 3.4 percent for the year. This is the result of the salaries and benefits budget being exceeded by $2.4 million due to the delay in the implementation of employee reductions and not achieving the gapping targets. The unfavourable variance is partially offset by a favourable variance in non-salary expenditures of $0.4 million.

On a net basis, the favourable variance of $6.5 million or 28.3 percent is attributable to higher revenues relating to the implementation of a harmonized fee structure.

(E)Corporate Services:

The gross and net budget variances of the Corporate Services department are primarily comprised of the following: