April 21, 1998

  To:Strategic Policies and Priorities Committee

 From:City Clerk

 Subject:Recommended 1998 Capital Budget and Financing Authorities

 Recommendations:

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

 1.the adoption of the report (April 16, 1998) from the Chief Financial Officer and Treasurer; and

 2.that the Chief Financial Officer and Treasurer include in any reports on a project by project basis the net effect of such projects in next year's budget.

 Background:

 The Budget Committee on April 20, 1998, had before it a report (April 16, 1998) from the Chief Financial Officer and Treasurer regarding the recommended 1998 Capital Budget and financing authorizations.

    City Clerk

 Barbara Liddiard/rc/cp

Item No. 13

Attachment

 c.Chief Financial Officer and Treasurer

Chief Administrative Officer

Mr. Len Brittain, Finance Department

(Report dated April 16, 1998, addressed to the

Budget Committee from the

Chief Financial Officer and Treasurer)

 Purpose:

 To table for approval the 1998 capital budget as recommended by the Budget Committee and to seek authority for specific gross financing for each capital project.

  Financial Implications:

 The recommendations contained in this report would result in an increase in operating expenditures relating to debt charges of approximately $1 million in 1998. This amount is reflected within the Operating Budget being recommended by the Budget Committee.

 The 1998 gross Capital Budget as recommended by the Budget Committee totals $968 million. Of that amount, there is previously approved financing of $730 million from prior years= approvals and the 1998 Interim Capital Budget approved by Council on February 4, 1998. The recommendations herein would approve the balance of $238 million for 1998, along with an additional $136 million in gross commitments required beyond 1998.

  Recommendations:

 It is recommended that:

 (1)the 1998 gross capital budget for each project contained in Appendix B to this report be approved;

(2)specific gross financing authority as contained in Appendix B be approved;

(3)no new contracts be issued without the approval of the Budget Committee for tax supported capital projects requiring borrowing for which no cash flow has been included in the 1998 gross capital budget contained in Appendix B, irrespective of whether previous financing authority exists; and

(4)the Chief Financial Officer and Treasurer be authorized to transfer individual capital projects between service areas to reflect refinements to organizational responsibilities.

  Council Reference:

 Budget Committee at its meeting of March 31 and April 2 and 3, 1998, recommended capital programs for each service area. This report formalizes the 1998 capital budget and specific project financing based on the recommendations made at that meeting.

   Discussion:

 Appendix A contains a summary and Appendix B the details by project of the 1998 Capital Budget recommended by the Budget Committee. Approval is now formally sought for the gross 1998 expenditures as shown in Appendix B. The recommendations contained herein would result in projected borrowing for property tax supported programs of $123 million, made up of $93 million for the base program and a net of $30 million related to the 1998 portion of Provincial downloading in respect of the TTC. The latter amount is net of a recommended increase in the capital from current of $15 million contained in the recommended 1998 Operating Budget. A further $44 million in borrowing is projected for the Rapid Transit Expansion Program (RTEP), the debt charges for which are funded in 1998 from the RTEP Reserve. The net requirements of the balance of the Capital Budget, for example, the water system, parking, TEDCO, etc., is funded from user fees.

 Also contained in Appendix B, under the heading AFinancing Authorizations@ are the following:

 (1)1998 Previously Authorized - which represents previously approved funding which is available in 1998; and

(2)recommended additional gross financing approvals for each project.

 As a general rule, only financing approval for 1998 requirements has been included, since it is the intent of the Budget Committee to seek Council approval of the 1999-2003 Capital Program before the end of 1998. Exceptions have only been made when a single year approval would cause operational or contractual problems for the City, as illustrated in the following exceptions:

 (1)multi-year contracts require financing authority beyond the end of 1998. As an example, the purchase by the TTC of Orion II vehicles for the Wheel Trans service is planned through a five year schedule on the basis of a single order. A total of $17.4 million in financing authorization is recommended, with a 1998 cash flow component of $2 million. This approval will allow the TTC to take advantage of generally better price-delivery conditions than if the contract was split into one or two year phases.

 (2)full financing approval is recommended for new projects which will be completed within the next two to three years. For example, the Heron Park Recreation Centre has a 1998 gross cash flow of $2.9 million, but financing for the total project cost of $5.5 million is recommended to allow the department to award the construction contract for the full project.

 (3)financing has been recommended for some maintenance projects which extend beyond the end of 1998 but which would normally be part of a single contract. Were the financing authority be rigidly limited to cover 1998 expenditures only, some projects would have to be arbitrarily split into two or more contracts and may end up costing the City more.

  In certain cases, previously authorized funding may not have been fully expended by the end of 1997 and may therefore be available to partly or fully fund 1998 expenditures. The recommended additional financing approval in these situations may therefore be less than the 1998 capital budget. In other cases, previously approved financing may no longer be required and reversals of financing authorities are recommended.

 Financing authorizations have not been recommended in respect of the Best Practices program in the Water budget, pending further study and justification. Financing authority from Council will be sought for this item at a later date.

 As a note, there may be some projects which are currently showing no 1998 budgeted expenditures, even though previous Councils have approved specific financing authority. To ensure that such projects are consistent with the 1998 budget considered by the Budget Committee, and to control borrowing levels to the extent possible, it is recommended that no new contracts be issued without the approval of the Budget Committee for tax supported capital projects requiring borrowing for which no cash flow has been included in the 1998 gross capital budget contained in Appendix B.

 Finally, as responsibilities among the various service areas are clarified, individual projects may have to be reassigned. It is therefore recommended that the Chief Financial Officer and Treasurer be authorized to transfer individual capital projects between service areas to reflect refinements to organizational responsibilities.

  Conclusions:

 The recommendations contained herein will allow Council to formally adopt the 1998 Capital Budget and financing authorizations for each capital project as recommended by the Budget Committee.

  Contact Name:

 Len Brittain, 392-5380; Fax: 392-3649; Internet: len_s._brittain@metrodesk.metrotor.on.ca