Toronto Harbour Commissioners

- 1999 Operating Budget

The Strategic Policies and Priorities Committee recommends the adoption of the Recommendation of the Budget Committee embodied in the following communication (April30, 1999) from the City Clerk:

Recommendations:

The Budget Committee on April 30, 1999, recommended to the Strategic Policies and Priorities Committee, and Council:

(1)that Recommendations Nos. (4) and (5) embodied in the report (April 27, 1999) from the Chief Administrative Officer respecting the Toronto Harbour Commissioners 1999Operating Budget be adopted;

(2)that Recommendations Nos. (2) and (3) embodied in report (April 27, 1999) from the Chief Administrative Officer be forwarded to the Mayor's Committee on the Port Lands; and

(3)that Recommendation No. (1) embodied in the report (April 27, 1999) from the Chief Administrative Officer respecting the Toronto Harbour Commissioners 1999 Operating Budget, be received.

The Budget Committee reports, for the information of the Strategic, Policies and Priorities Committee, having requested that:

(1)the Chief Financial Officer and Treasurer, the City Solicitor and the Commissioner of Urban Planning and Development report to a joint meeting of the Mayor's Committee on the Port Lands and the Budget Committee on:

(a)the financial implications of any revised subsidy agreement on the following:

(i)TEDCO's subsidy to the Toronto Harbour Commissioners; and

(ii)the Toronto Harbour Commissioners 1999 Operating Budget;

(b)why consideration is being given to increasing staff;

(c)what is included under the heading "other"; and

(d)the significant increase in expenditures from 1998 to present; and

(2)the Chief Financial Officer and Treasurer, in consultation with the Toronto Harbour Commissioners, be requested to report back to Budget Committee for its meeting of May 25, 1999, on how the Capital Budget of the Toronto Harbour Commissioners has been re-prioritized due to the addition of two new items.

The Budget Committee also reports having received the following communications:

(a)(April 23, 1999) from Mr. Allan J. Paul, Controller and Chief Financial Officer, The Toronto Harbour Commissioners, respecting a request to revise the 1999 Capital budget; and

(b) (April 30, 1999) from Councillor Gordon Chong, Chairman, Mayor's Committee on the Port Lands.

Background:

The Budget Committee had before it a report (April 27, 1999) from the Chief Administrative Officer, forwarding the 1999 Recommended Operating Budget for the Toronto Harbour Commissioners; and providing a summary of budget highlights, outstanding issues, and recommendations.

The Budget Committee also had before it a report (April 23, 1999) from the Controller and Chief Financial Officer, Toronto Harbour Commissioners, advising that the Board of the Toronto Harbour Commissioners at its special meeting on April 22, 1999, approved revising the proposed 1999 Operating Budget by moving three projects to the 1999 Capital Budget; and further approved the following amendments:

(1)the three projects, totalling $1.025 million be moved from the proposed 1999 Operating Budget to the 1999 Capital Budget;

(2)the Toronto Harbour Commissioners be given flexibility to reprioritize projects within the approved 1999 Capital Budget to allow for these items; and

(3)the Toronto Harbour Commissioners 1999 Capital Budget will remain at the approved gross and net expenditure levels.

The Budget Committee also had before it a communication (April 30, 1999) from Councillor Gordon Chong, Chairman, Mayor's Committee on the Port Lands, advising that it is important that any reporting on the Subsidy Agreement be vetted through the Mayor's Committee on the Port Lands; and requesting that Recommendations Nos. (2) and (3) of the April 27, 1999 report from the Chief Financial Officer and Treasurer be amended to clarify that any reporting from the Chief Financial Officer and Treasurer, on Subsidy Agreement issues occur through both the Budget Committee and the Mayor's Committee on the Port Lands.

The following persons appeared before the Budget Committee in connection with the foregoing matter:

-Mr. Alan J. Paul, Controller and Chief Financial Officer, The Toronto Harbour Commissioners;

-Mr. Gary F. Reid, General Manager, The Toronto Harbour Commissioners; and

-Mr. John Morand, Director of Airport Operations, The Toronto Harbour Commissioners.

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(Report dated April 27, 1999, addressed to the

Budget Committee from the Chief Administrative Officer)

Purpose:

This report presents the 1999 Recommended Operating Budget for the Toronto Harbour Commissioners. A summary of budget highlights, outstanding issues, and recommendations is also provided.

Funding Sources, Financial Implications and Impact Statement:

The 1999 Recommended Operating Budget for the Toronto Harbour Commissioners Program reflects gross expenditures of $14.266 million and revenues of $11.491 million, resulting in a net budget of $2.775 million. This compares to a 1998 gross and net budget of $13.004 million and $2.775 million respectively. The 1999 gross Recommended Operating Budget is $1.262 million or 17.4 percent above the gross 1998 budget. This increase is partially offset by THC's own source revenues, resulting in a net budget that is at the level of the 1998 budget.

The THC's net budget is financed by a subsidy from TEDCO, and rent recovery from the City. As such, there is no mill rate impact resulting from the THC's 1999 Recommended Operating Budget.

For the year 2000, the business operations of the THC are expected to remain stable. The outlook for Port Operations reflects stability, with tonnage levels based on 1998. The THC expects growth at the Airport, provided the Fixed Link project continues to advance. The financial implications of these expectations have not been quantified. However, the THC does not anticipate that there will be material changes in the year 2000 from the business operations, as reflected in the 1999 budget.

Recommendations:

It is recommended that:

(1)The 1999 Recommended Operating Budget of $14.266 million gross and $2.775 million net, comprised of the following programs, be approved:

(2)With respect to the review of the management of the lands in the Port Area:

(i)the Chief Financial Officer and Treasurer review and report to the Budget Committee on the financial implications of a revised subsidy agreement; and

(Ii)the Chief Financial Officer and Treasurer report to the Budget Committee on the adjustments necessary to the approved 1999 Operating Budget, to reflect the financial implications of a revised subsidy agreement.

(3)With respect to the report from the City Solicitor (scheduled for the Budget Committee meeting of May 25, 1999) on the most appropriate process for the disposition of grants/subsidies in TEDCO's portfolio of grants/subsidies to third parties:

(i)the Chief Financial Officer and Treasurer report to the Budget Committee on the financial implications of the said report on TEDCO's subsidy to the THC;

(ii)the Chief Financial Officer and Treasurer report to the Budget Committee on the adjustments necessary to the THC's approved 1999 Operating Budget, to reflect the financial implications of the said report.

(4)With respect to the need for the THC to pursue and react to emerging business opportunities and operational issues that are not reflected in the approved budget:

(i)the THC promptly inform the City of the financial implications of material business decisions taken during the year that are not reflected in the approved operating and capital budgets, in addition to its obligation to report variances under the City's regular operating and capital budget variance reporting process;

(ii)the THC ensure that unbudgeted expenditures resulting from decisions in (i) above are fully financed from additional revenues and/or reprioritization of spending; and

(iii)the THC promptly inform the City where additional revenues are not available to fully finance unbudgeted over expenditures, in order that measures can be taken in time to minimize the impact of such over expenditures.

(5)City Council reaffirms its directive that the THC adheres to the City's financial reporting timelines in future, in accordance with the subsidy agreement between the City and the THC.

The Toronto Harbour Commissioners has the general responsibility for managing, developing and regulating the waterfront of the City of Toronto. Its mandate is to maintain and operate the commercial port, the harbour and the City Centre Airport, and to facilitate the commercial operation of four modes of transportation, with a strong emphasis on customer service.

In order to achieve its mandate and objectives, the THC is structured into three broad divisions (Programs):

(a)Port Operations;

(b)Airport Operations; and

(c)Corporate Division.

The THC has three main streams of revenue, coinciding with the divisional (program) structure, as follows:

(1)revenue from Port Operations - includes cargo tariffs, berthage, terminal-handling charges, services to ships, rentals and marina activities;

(2)revenue from Airport Operations - includes passenger user fees, landing fees, ferry charges, parking, rentals, advertising and services to aircraft; and

(3)Corporate Revenue - includes income from property, land activities and financial activities.

Discussion:

1998 Experience:

The Program's 1998 budget is over spent by approximately $2.2 million gross (16.9 percent), and $180,000.00 net (6.5 percent). This is mainly attributable to the increased costs incurred for environmental assessment relating to the fixed link to the airport, and increased consulting costs for both the fixed link and the Port Authority legislation. It should be noted, however, that revenues (excluding the subsidy) increased by approximately $2.0 million gross (15.5 percent). This is mainly attributable to:

(1)increased Port business (actual tonnage increased from the budgeted level of 1.806 million to 2.012 million i.e., a 10.2 percent increase in business, resulting an increase of $1.8 million in revenues; and

(2)higher than expected return on investments, producing higher investment income (increase of $223,000.00).

The THC board applied the additional revenues as follows, in an effort to minimize the over expenditure in 1998:

(a)to cover the cost of accommodating the additional business at the Port;

(b)address emerging issues such as additional environmental assessment work and the Port Authority legislation mentioned above; and

(c)absorb the impact of reduced passenger levels at the Toronto City Centre Airport (budgeted passengers of 167,905, compared to actual of 128,449; a reduction of 39,456 or 23.5percent compared to the 1998 budget); this resulted in a revenue loss of approximately $423,000.00 (based on a restated budget).

The combination of reduced passenger levels in 1998, together with lower concessions and building rentals (due to delay in the start-up of airlines and the temporary cut-back in service by one airline) resulted in revenue loss at the airport of approximately $423,000.00 as mentioned above, compared to the 1998 budget. However, airport expenses were under budget by approximately $116,000.00, resulting in a net increase of approximately $300,000.00 in the deficit in airport operations (actual deficit $924,000.00, budgeted deficit $624,000.00).

In order for the City to be fully aware of the emerging issues that need to be addressed by the THC (as described above), and the financial implications of the THC's decisions in this regard, the THC should promptly inform the City when key decisions are taken by its Board. This is especially so where unbudgeted expenditures will be incurred, or unbudgeted revenues are generated. This course of action is reflected in Recommendation No. (4) of this report.

As shown in the Operating Budget Summary table above, the 1999 Recommended Operating Budget subsidy of $2.775 million net is at the same level as the 1998 budget. A concerted effort was made by the Board to reprioritize its spending projections as indicated in the draft budget that was presented to the Strategic Policies and Priorities Committee on April 16, 1999. This resulted in the subsidy request being revised to $2.775 million (the 1998 level), from an initial request of $4.285million. In order to accomplish this, it was necessary for the THC to review some of the maintenance work included in the draft budget submission, and determine whether this could be more appropriately accommodated in the 1999 Capital Budget. This issue is addressed in a communication from the THC, dated April 23, 1999, for the Budget Committee's consideration.

A summary of the Program by expenditure is in Appendix "A".

Staffing:

No additional restructuring target was assigned to the THC for 1999. The 1999 Recommended Operating Budget provides for an additional six FTE's, as follows:

(i)two Port staff ;

(ii)one replacement for retiring airport manager;

(iii)one permanent Network Administrator);

(iv)one Health and Safety Officer; and

(v)one FTE parking attendant.

Staff costs will increase by $580,800.00 over the 1998 budget (8.9 percent), and $352,000.00 over the 1998 actual (5.2 percent). Approximately half of the increase is attributable to the six new hires shown above; the balance relates to merit increases.

The THC's staffing trend is shown in the graph below, with the above planned new staff hires reflected in 1999.

Service Overview:

The THC is organized to reflect its business operations, and has created of business units in the following Programs:

(a)Port Operations;

(b)Airport Operations; and

(c)Corporate Division.

The gross 1999 Recommended Operating Budget, reflecting the above structure, is presented in Figure 1 below. Figure 2 below shows the THC's 1999 gross Recommended budget by major category of expenditures, while Figure 3 shows its revenue budget from its main business units, and the 1999 subsidy.

The Port and Airport are the primary drivers of business for the THC, while the Corporate division provides support and general administration to the organization.

The Port has a variety of customers, including shipping lines, shipping agents, freight forwarders, trucking lines, brokers, cargo recipients and based customers.

The Airport customers are commercial airlines, flying schools, based tenants, general aviation pilots and passengers.

The Corporate Division administers property tenants, Harbour license holders, and inquiries from the general public related to waterfront, Port and the City.

Service Adjustments:

Service Expansion/Enhancements:

The 1999 Recommended Operating Budget reflects $312,000.00 of new revenues, resulting from the Board's decision to capitalize on the additional parking business generated by the opening of the Air Canada Centre building in February, 1999. There are no other significant service expansion or enhancements reflected in the 1999 Recommended Budget. However, it is likely that the THC will need to address further emerging issues pertaining to the Port Authority legislation, and a fixed link to the airport. Both of these could have a significant impact on the THC's business.

Provincial Downloading:

Whilst Provincial downloading is not applicable to this program, it should be noted that the THC has continued to experience reductions in Federal subsidy, from $620,000.00 in 1995 to $248,000.00 in 1998. The 1999 subsidy is projected at $124,000.00, and expected to be zero in the year 2000. In presenting a 1999 budget at the 1998 level, the THC has identified the further decrease in Federal subsidy as an added pressure on its 1999 budget.

Service Delivery Adjustments Options:

Service Delivery Adjustment options were not requested from this Program.

Other Issues:

Review of Subsidy Agreement:

A committee of Council is currently reviewing options for managing the lands in the Port Area, in connection with the subsidy agreement with the THC. It is recommended that the Chief Financial Officer and Treasurer review the financial implications of any new arrangements, and report to the Budget Committee on any necessary adjustments to the 1999 approved budgets, resulting therefrom.

Due Date - Budget Submission:

During the review process, the delay in the submission of the 1999 Operating Budget was discussed at a meeting of the Board on April 22, 1999. While there may have been extraneous circumstances surrounding this, the Board recorded its apologies to the City for the delay. It is expected that the THC will adhere to the reporting and other timelines regarding the Operating and Capital budgets and other financial issues in future.

Conclusions:

The Toronto Harbour Commissioners Program's 1999 Recommended Operating Budget reflects gross expenditures of $14.266 million, revenues of $11.491 million, resulting in a net budget of $2.775 million. The net budget represents the THC's subsidy request from the City, as follows:

TEDCO$2.390 million

City$0.385 million

$2.775 million

The amounts are included in the City's 1999 approved budget, in the respective Programs.

The THC's net 1999 Recommended Operating Budget is at the level of the 1998 approved Operating Budget.

It should be noted that the THC operates in a highly competitive marketplace, and its in-year business decisions must, of necessity, reflect the dynamism of its business environment. In this regard, the THC needs the flexibility to pursue and react to emerging business opportunities and operational issues that are not reflected in the approved budget. The THC must, however, inform the City of the financial implications of the Board's decisions and strategies to address these eventualities, and make every effort to minimize any over expenditures that may result therefrom.

For the year 2000, the business operations of the THC are expected to remain stable. The outlook for Port Operations reflects stability, with tonnage levels based on 1998. The THC has indicated that growth is expected for the Airport, provided the fixed link project continues to advance.

Contact Names:

Nizam Bacchus - 397-4217; Josie LaVita - 397-4229; Shekhar Prasad - 392-8095; Wanda Liczyk - 392-8773.

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(Report dated April 23, 1999, addressed to the

Budget Services Division from the

Controller and Chief Financial Officer,

The Toronto Harbour Commissioners)

Please accept this as the formal request of The Toronto Harbour Commissioners to revise its 1999 Capital Budget, moving three projects from the proposed 1999 Operating Budget to Capital. The amount budgeted for these three projects totals $1.025 million. This request is being made due to budget pressures on the City Operating budget and because these items are high priority to The Port of Toronto.

The approved 1999 Capital Budget of The Toronto Harbour Commissioners is a gross expenditure of $5.829 million with a net expenditure after recovery of $5.549 million.

The first project, East Gap Dredging, budgeted at $800,000.00 classifies as Navigational (ProjectNo.800). This project involves dredging approximately 50,000 cubic metres of sediment from the Eastern waterway entrance to the Inner Harbour in order to maintain seaway depth through the Main Harbour Channel. The last maintenance dredging of this channel was in 1983. This project is crucial to the ability of the Port to operate effectively and to provide a safe Harbour. Therefore, it is requested that this expenditure be moved from Operating to Capital in 1999.

The second project is also Navigational (Project No. 800). This project consists of Ship Channel Bridge Abutment Rehabilitation on both the north and south abutments including a span study, budgeted at $125,000.00. The abutments are the structural beams and slabs under the bridge, above the water line. The issue is that there is significant corrosion of these support beams, girders and reinforced concrete slabs at both ends of the bridge which will lead to load capacity restrictions or closure. If this bridge is restricted or closed, these will be no way for trucks to access the Port. Therefore, it is requested that this expenditure be moved from Operating to Capital in 1999.

The third project is a dockwall project budgeted at $100,000.00. This project involves replacing the anchorage on 100 feet of wall at Berth 512 in the Port. The anchorage or anchor rods hold the main wall to another wall 50 to 60 feet behind the facing of the main wall. These rods are failing, which threatens the wall structure. Therefore, it is requested that this expenditure be moved from operating to Capital in 1999.

The Board of the Toronto Harbour Commissioners approved revising the proposed 1999 Operating Budget, moving these projects to the 1999 Capital Budget at its special meeting of April 22, 1999. To summarize, the following amendments were approved that:

(1)the three projects, totalling $1.025 million be moved from the proposed 1999 Operating Budget to the 1999 Capital Budget;

(2)The Toronto Harbour Commissioners be given flexibility to reprioritize projects within the approved 1999 Capital Budget to allow for these items; and

(3)the Toronto Harbour Commissioners 1999 Capital Budget will remain at the approved gross and net expenditure levels.

If there are any questions, please call me at (416) 863-2082.

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(Communication dated April 30, 1999, addressed to the

Budget Committee from Councillor Gordon Chong, Don Parkway)

As you are aware, City Council on April 13, 14 and 15, 1999, adopted Clause No. 2 of Report No.7 of The Strategic Policies and Priorities Committee, recommending amongst other things that a Committee be established to review options for managing the lands in the Port Area in connection with the elimination of the Subsidy Agreement.

It is important that any reporting on the Subsidy Agreement be vetted through the Mayor's Committee on the Port Lands. Accordingly, I am requesting that Recommendations Nos. (2) and (3) of the April 27, 1999 report of the Chief Administrative Officer be amended to clarify that any reporting from the Chief Financial Officer and Treasurer on Subsidy Agreement issues occur through both the Budget Committee and Mayor's Committee on the Port Lands.

(Copies of Appendices "A" and "B" referred to in the foregoing report; and the Toronto Harbour Commissioners Revised 1999 Operating Budget, were forwarded to all Member of Council with the May 4, 1999, agenda of the Strategic Policies and Priorities Committee; and copies thereof are also on file in the office of the City Clerk.)