(1) approve the 2012 Operating Plan as amended and detailed in the attached Appendix A to give the CEO spending authority for 2012; and

Transcription

1 2012 Operating Plan Item 2 June 22, 2012 BOARD OF DIRECTORS To: Board of Directors Report: TCHC: R From: Corporate Affairs and Audit Committee Date: May 29, 2012 Revised: June 19, 2012 Page 1 of 3 PURPOSE: To seek approval for the 2012 Operating Plan. RECOMMENDATIONS: It is recommended that the Board of Directors: (1) approve the 2012 Operating Plan as amended and detailed in the attached Appendix A to give the CEO spending authority for 2012; and (2) authorize the appropriate Toronto Community Housing officials to take the necessary action to give effect to the recommendations. CORPORATE AFFAIRS AND AUDIT COMMITTEE COMMENTS: At its May 29, 2012 meeting, the Corporate Affairs and Audit Committee passed two motions as follows: (1) The funds obtained from the Sparkle sale and sale of Jarvis be allocated to the State of Good Repair reserve fund. (2) The Committee adopted the 2012 Operating Plan report and requested it be forwarded to the Board for approval, subject to the following amendments: Revenues associated with the sale of real estate (houses) be taken out of the operating statements. Additional schedule to be provided quarterly on the State of Good Repair reserve fund, including an opening balance position at the

2 2012 Operating Plan Report: TCHC: of 3 beginning of the quarter and a closing balance position at the end of the quarter Operating Plan be updated to show all sales in 2012 and reflect the above mentioned motion of reallocating sale of Sparkle and Jarvis. REASONS FOR RECOMMENDATIONS: The Toronto Community Housing 2012 Operating Plan (Appendix A) has been prepared based on the financial targets and the priority initiatives set in the business plan Community Management Plan (CMP). At the December 2011 meeting, the Board of Directors approved an interim 2012 Operating Plan ( Plan ) that set out, at a high level, the revenue and cost envelopes for 2012, pending confirmation of funding level from the Service Manager (City of Toronto). Toronto Community Housing s subsidy is based on the funding formula in the Operating Agreement as follows: Rent Supplements based on agreements for the number of units in these programs; and Property tax subsidy based on actual for buildings under the Housing Services Act (excludes rent supplement program units). Property tax exemptions approved by the city (estimated as $86 million) reduce the funded tax subsidy equal to the reduced tax expense. The provincial educational tax portion of $9 million which the city will save is added to the subsidy. This additional subsidy is earmarked for capital repairs and is put into the state of good repair reserve; and Mortgage subsidy based on actual for buildings under the Housing Services Act (excludes rent supplement program units); and Residual funding based on the previous year s amount with inflation adjustment (excludes rent supplement program units). The residual base has been reduced by an additional $6 million in 2012, and the $2.4 million reduction in 2011 has been continued. The Service Manager has confirmed these 2012 subsidies. The attached 2012 Operating Plan is based on budgets developed by division unit managers that build the total spending envelope for Toronto Community Housing including the Buildings and Capital Investment Plan. The Investment Plan highlights the priority areas of resource allocation for 2012 including remaining funding from the SHRRP and Renewable Energy Initiative grants. The Plan also includes the financial impact of the 2012 Community Management Plan (CMP) priority initiatives.

3 2012 Operating Plan Report: TCHC: of 3 IMPLICATIONS AND RISKS: The 2012 Operating Budget approval will allow for the continual implementation of the CMP approved by the Board. The impacts of implementation of this budget will be communicated to staff, tenants and other stakeholders. Project specific communication plans are developed as initiatives are implemented. Eugene Jones Jr. Eugene Jones Jr. President and Chief Executive Officer Attachment: A: 2012 Operating Plan - REVISED Staff Contact: Bora Zekavica Director, Budget & Financial Services bora.zekavica@ torontohousing.ca

4 APPENDIX A 2012 OPERATING PLAN June 11, 2012 I. Operating Plan Overview II. Table A Operation Cash Flow Table B Investment Plan

5 I. Operating Plan Overview The 2012 Operating Plan ( Plan ) was developed based on the 2011 operating results and adjusted for the city mandated subsidy reduction of $6 million, the expected property tax exemption and provincial educational tax savings, and inflation factors including required increased OMERS pension plan benefit contributions, and added operations of new buildings. The Buildings and Capital Investment Plan incorporates all the resources required to implement the Community Management Plan initiatives. Operating Budget Revenue: Rent-Geared-to-Income (RGI) is based on 2011 actuals plus a quarter of one percent increase for estimated tenant income growth. Completion of 42 Hubbard refurbishments and acquisition of 11 Randolph are expected to add $290,000 to these revenues. The rent budgets are the gross revenue before vacancy losses. The overall RGI rent increases by 1.4% ($3.0 million) over the 2011 budget. Market rent gross revenue is based on 2011 actuals plus an average increase of 3.1%, which is the 2012 rent increase guideline. The additional months of operation on new buildings at Broadview, Hubbard, and Randolph and the start of the Railway Lands add $1,450,000 of market/affordable housing rent. The overall Market rent increases by 6.7% ($3.8 million) over the 2011 budget. The 2012 budget vacancy losses for RGI & market units are targeted to improve by 16% from the 2011 levels, based on the current trend of improvement. The 2012 budget for non-rental revenue of $30.6 million includes revenue from tenant services (parking, laundry, cable fees), and commercial operations of leases, parking, and sundry. The budgeted increase is mainly from higher revenue from antennas, retail leases, and commercial parking. Interest/investment income shows an increase in 2012 as the interest paid on funds loaned to DPDC & PGDC joint ventures will be reported as gross revenue rather than net of the interest expense paid on these funds as was done in 2011 and prior years. The change is made to be consistent with the policy in audited year-end financial statements. Otherwise, the investment income is expected to decrease by $0.4 million on lower investment returns. 2

6 Bad debt allowance is an estimate based on probabilities of collecting the aged receivables. This estimate at $2.75 million is based on 2011 actual bad debts. The subsidy is based on the funding formula agreement with the City s Social Housing Unit (acting as HSA Service Manager). This provides for funding on the basis of two separate programs: first, non-rent supplement units are based on Mortgages and Property Taxes at their actual cost, plus a residual per unit base subsidy, which is increased at the annual cost of living (reported by Statistics Canada at May 2011 as 4.0%). The additional recent agreement to allow tax exemption of most of our properties affects this by reducing the subsidy equal to the $86million of property tax savings (which has zero impact), but the provincial educational tax portion of $9 million, which the city will save, is added to the subsidy. This additional subsidy is earmarked for capital repairs and is put into the state of good repair reserve. second, rent supplement program units are funded for their actual supplements (market rent less tenant RGI rent). CMHC mortgages (50 year term) on 3 buildings will expire in By agreement with the City s Social Housing Unit these will switch from the funding under the subsidy formula in the Operating Agreement into the rent supplement program. There is a small gain in funding on the transfer of these 3 buildings to the rent supplement program. Additional subsidies include funding for the city waste pickup charges of $5.5 million, which would fully cover the expected costs in 2012 but does not cover the capital investments for the upgraded compactors that have led to the reduced waste pickup charges. A special one-time subsidy to cover the HSC insurance premium increase of $738k was also received. The Access Housing Connections (AHC) subsidies are mainly for payments to external commercial landlords for rent supplements, and the administration of this and the wait list. This subsidy is reduced due to a reduction in the number of units in this program. The total revenue for housing operation is about $511.0 million. The subsidy that flows through to Access Housing Connections is another $34.5 million for a total Toronto Community Housing revenue budget of about $545.5 million. 3

7 Expenditures Manageable costs are estimated to have inflationary increases of 2.4% ($4.1 million) including an increase for benefit contributions for OMERS pension plans by 1% of salaries & wages which will add $750,000 to manageable costs (and $92,000 to other costs in AHC, commercial operations, and capital administration). Added costs for new buildings are $363,000. Offsetting this are reductions of $1.3 million on staff vacancies that will not be filled. Utilities rate increases average 4.5% above the 2011 levels with hydro estimated to increase 3%, gas 1%, and water announced to increase by 9%. The reduction of hydro, gas and water consumption resulting from energy management investments (appliance replacements, energy retrofit program and building renewal program) is estimated to result in savings of $3,497,000. These savings are partly offset by the financing charges for the capital investments, which are included in the utilities budget (funded by the savings generated). The overall 2012 budget including financing charges decreases by 0.2% due to greater energy reductions compared to rate increases, and the expiring of some appliance lease payments. Waste pickup fees were $1,292,000 less than budget in 2011 due to the measures taken to reduce these charges (upgrading compactors, and monitoring bin fullness for fewer bin pickups). The continued savings is expected to grow and more than offset the March 2011 price increase of 3.6% that will apply for the extra 3 months. However, if the city continues to fund waste pickup at the actual cost without the cost of equipment upgrades, further improvements may not be undertaken as we would not recover these capital costs from the city. The Operating Agreement provides for flow-through of mortgages covered under HSA for the non-rent supplement buildings. Most of the reduction in mortgages is therefore offset by equal subsidy reductions. But about 13% of mortgages are for rent supplement buildings not covered by the operating agreement. The lower mortgage budget reflects lower interest rates at renewal and the expired mortgages, which are partly offset by the additional mortgage at Randolph. CMHC Mortgages (50 year term) on 3 buildings will expire in By agreement with the City s Social Housing Unit these will switch from the funding under the subsidy formula in the Operating Agreement to the rent supplement program. There will be a small increase in overall net subsidies for these buildings. Toronto Community Housing will be able to continue to operate these buildings as Rent-Geared-to-Income units. Corporate Debt Service increases by $6.1 million partly due to completion of additional Regent Park and Rivertowne buildings, which makes their financing 4

8 an operating cost rather than a capitalized development cost. The amount of internal financing instead of mortgage financing is $8.1 million. The noted policy change to report interest on loans to DPDC and PGDC joint ventures as gross interest income and expense rather than net results in $2.5 million of this increase. Contributions to a Sinking Fund ($10 million) to repay bond loans. As Regent Park phase 1 building is completed, the prior contributions to the reserve for these building costs are replaced with contributions to a fund to retire the (Bonds) loans. Commercial operations costs are increased at the inflation factor of 1.9% for maintenance and labour increases. Insurance decreases by $1.1 million due to reduced provision for the Wellesley fire ($2.6 million), which is partly offset by higher insurance premiums, and insurance claims. The increased insurance premium is mostly offset by the added special subsidy. The Operating budget for Access Housing Connections is as negotiated with the City. The bulk of the expenditure represents payments to private sector landlords under the various rent supplement programs as well as the City s Housing Allowance program. As noted above and in Table A, the total 2012 expenditure from housing operations including Access Housing Connections is about $476.6 million. Net Operating Cash Flow With revenue of $545.5 million and expenditure of $476.6 million, the net operating cash flow is $68.9 million. This is about $0.7 million higher than the 2011 budget due mainly to the additional $9million provincial educational tax savings subsidy, lower waste pickup costs, lower insurance, which are largely offset by the $10 million sinking fund contribution and by inflation increases on costs, and higher debt charges. Buildings and Communities Investment Plan The Investment section in Table B shows the $150.9 million of investment in buildings and communities as follows: 5

9 The Building Capital Plan is the CMP commitment to maintain buildings in good repair. The detail of the 2012 Plan totaling $108.8 million has the following major components: Planned Building Capital Repairs Program ($26.7 million) - includes major component repairs to building roofs and structures, mechanical and electrical systems, structures, as well as common area s accessibility and commercial space. Recurring Building Program ($30.7 million) includes replacement of major components of mechanical systems (rather than total asset replacement), waste management enclosures and compactor upgrades, local and unplanned repairs. Regular Energy Programs ($23.8 million) focus on programs with short payback period of less than 5 years - includes energy retrofits, water conservation, and energy information/monitoring systems. Non-regular Energy Programs ($27.6 million) are programs that have longer payback but are funded by government grants - include renewable energy initiatives, Tower Renewal program, Building Energy Retrofit program, and Renewable Energy initiatives. Other Investments Corporate Other Investments ($7.8 million) includes self-funded insurance reserve ($2.0 million), information technology ($3.8 million), provision for human resources ($1.4 million), and other departmental capital provisions ($0.6 million) for items such as community safety vehicles, etc. Development Strategy Support ($3.7 million) includes $2.3 million for the operation of the Development division for the implementation of CMP City Building initiatives, and the other development support costs for tenant relocations ($0.6 million), community consultations on revitalization ($0.5 million), and legal and financial administration costs ($0.3 million). Capital Reserve ($9.4 million) are for mandated reserve contributions for the current non-profit portfolio plus contributions for new buildings. To ensure redeveloped buildings will have adequate funding for future capital repair needs, all redeveloped buildings will contribute to capital reserves at $800 per unit per year. Contribution to Regent Park Community Energy System ($2 million) towards the build-out of the Regent Park s Community Energy Plant. 6

10 Contribution to Reserves for State of Good Repairs ($13.6 million) the $9 million added subsidy due to property tax exemption s provincial education tax savings will be put into reserve for capital repairs. Sales of houses (Maclean, Crawford St, and Jarvis commercial property) will also be placed into a similar reserve. CMP Investments ($2.4 million) - directed to the three strategic focus areas strengthening people, strengthening places, and strengthening foundation. Strengthening People Successful Tenancies $668,000 Social Investment Funds 2011 carry over $415,000 Strengthening Places $255,000 Well-Maintained Buildings Enhanced Community Safety Housing Replacement Strengthening Foundation Improved Business Operations $280,000 Enterprise Risk Management $500,000 Effective and Strategic Communications $275,000 Total CMP Investments $2,393,000 Strengthening People Successful Tenancies this strategy links and aligns 3 strategies from mental health, eviction prevention and integrated pest management - and incorporates the LeSage Report recommendations. The integration of strategies and teams is intended to equip staff with the tools, resources, community connections and innovations to support successful tenancies. Resources are being directed to the development of tools, resources and an internal review pilot. Strengthening Places Well-maintained buildings This strategy launches a certified rental building program for Toronto Community Housing including implementation of 38 standards for well-maintained properties. Resources are required to train staff and cover inspection by 3 rd party assessor. Enhanced Community Safety this strategy promotes community based preventative strategies for creating safer communities. Resources are being directed to training and staffing. 7

11 Housing Replacement - this strategy intends to raise capital for the State of Good Repair Fund. The strategy will also reduce the capital repair costs and operating costs related to the stand-alone units portfolio by divesting these properties. Resources from sale proceeds will be directed to staff managing the process and relocation efforts. Strengthening Our Foundation Improving Business Operations this strategy targets select rental challenges in order to improve our Annual Net Operating Income. Resources are required to staff the rental vacancy task force. Enterprise Risk Management this strategy incorporates two elements of risk on an enterprise scale; compliance and mitigation. The deliverables include full implementation of the procurement management infrastructure, inventory system and training and risk awareness training for all staff. Funds are required for systems development and training resources. Effective and Strategic Communications this strategy links and aligns the 2011 plans developed for improving communication with tenants, staff and key publics. Funds are required for web enhancement, stakeholder relations forums, and renewal of key tenant materials. The above planned 2012 investment is $147.8 million as shown in Table B. This decrease in investment from 2011 reflects the reduction in capital grants funding from governments and the change of the Regent Park reserve contribution to a sinking fund contribution. Funding of the Investment Plan The sources of funding for this plan are shown in the Funding of Investment section of Table B and summarized as follows: Cash flow from operations of $68.9 million. Other (Extraordinary) Revenue ($4.6 million) includes any irregular proceeds such as from the sale of houses. The sales of the newly city approved 56 houses are not expected to be closed in The 2012 revenues include the January sale of 44 Maclean, Crawford St, and expected sale of Jarvis. The proceeds from sales of houses go into the State of Good Repair reserve, so do not impact the net cash flow Capital Grants of $16.9 million from SHRRP Stimulus and Renewable Energy Initiatives funding. 8

12 Withdrawn from reserves for nonprofit programs ($10.9 million) are from the $8 million non-profit capital reserves for their 2012 capital and $2.9 million of carry over of capital from Withdrawn from the State of Good Repair reserve ($10.5 million) the $9.0 million reserve contributions from tax exemption and $1.5 million from house sales, Financing of $34.1 million is planned to fund the energy conservation programs supported by savings when fully implemented. Debt services for the programs are incorporated into the utilities lines in Table A. The above totals $148.0 million against $147.8 million of investment for a net cash flow of $0.2 million. 9

13 II. Tables A & B 10

14 Table A 2012 TCHC Operations Revenue and Expenditures Statement REVENUE - Housing Operations 2011 Budget 2011 Actual Interim 2012 Budget Final 2012 Budget RGI Rent Revenue 218,596, ,950, ,560, ,560,000 Market Rental Revenue 57,319,000 58,295,620 60,713,000 61,132,000 Vacancy Loss (6,161,000) (8,238,232) (7,582,000) (6,887,000) Non-Rental Revenue 29,734,000 29,859,229 29,986,000 30,613,000 Interest / Investment Income 9,928,000 10,887,349 11,002,000 11,002,000 Bad Debt Allowance (2,700,000) (2,751,541) (2,700,000) (2,752,000) Total Housing Operations 306,716, ,003, ,979, ,668,000 Housing Program Subsidies 268,855, ,492, ,456, ,196,000 W aste charge subsidy 5,698,000 5,680,000 5,480,000 5,480,000 Tax Exemption subsidy 9,000,000 9,000,000 Insurance increase subsidy 738,000 Affordable Housing Program Subsidies 1,375, , , ,000 Total Housing Operations Revenue 582,644, ,090, ,830, ,997,000 Access Housing Connections Subsidies 35,072,000 37,185,324 34,434,000 34,494,000 TOTAL REVENUES 617,716, ,275, ,264, ,491,000 EXPENDITURES - Housing Operations Manageable Cost Building Operations & Maintenance 94,623,000 97,884,526 97,220,000 98,822,000 Tenancy Management 27,354,000 26,429,026 28,146,000 27,594,000 Community Support Services 8,625,000 7,051,363 8,823,000 7,444,000 Community Safety Services 11,893,000 11,921,546 11,943,000 12,465,000 Corporate Services 23,555,000 20,798,731 23,086,000 24,055,000 Total Manageable Cost 166,050, ,085, ,218, ,380,000 Other Cost Utilities 120,941, ,256, ,686, ,686,000 Waste pickup 7,122,000 5,829,129 5,480,000 4,508,000 Property Taxes 104,935, ,378,352 16,306,000 16,111,000 Mortgage & Lease payments 90,968,000 90,791,304 90,051,000 90,878,000 Corporate Debt Service 12,511,000 14,233,059 18,602,000 18,602,000 Sinking Fund 10,000,000 10,000,000 Commercial Operations 3,687,000 3,572,672 3,755,000 3,843,000 Insurance 8,171,000 5,856,815 6,965,000 7,068,000 Total Other Housing Operations Cost 348,335, ,917, ,845, ,696,000 Total Housing Operations Cost 514,385, ,002, ,063, ,076,000 Access Housing Connections (AHCI) W ait List Management & Administration 5,434,000 5,205,301 5,885,000 5,945,000 Landlord Payments 29,638,000 31,538,879 28,549,000 28,549,000 Total Access Housing Connections 35,072,000 36,744,180 34,434,000 34,494,000 TOTAL OPERATING EXPENDITURES 549,457, ,747, ,497, ,570,000 NET OPERATING CASHFLOW 68,259,000 79,528,615 67,767,000 68,921,000 11

15 INVESTMENT Building Capital Table B 2012 TCHC Operations Sources & Application of Funds 2011 Budget 2011 Actual Interim 2012 Budget 2012 Budget Planned Building Repair Total 33,841,000 32,681,637 25,725,000 26,731,000 Recurring Building programs 35,871,000 34,372,567 31,700,000 30,694,000 Regular Energy Programs 12,810,000 8,160,654 23,775,000 23,775,000 Non-Regular Energy Programs 37,791,000 21,599,436 27,625,000 27,625,000 Total Building Capital Plan 120,313,000 96,814, ,825, ,825,000 Corporate Other (Insurance self covered) 2,000,000 2,578,232 2,000,000 2,000,000 Corporate Other (Information Technology) 2,893,000 2,107,763 3,500,000 3,842,000 Corporate Other (Severance/VEO) 1,400,000 1,242,403 1,400,000 1,400,000 Corporate Other (non-building capital) 1,245, ,506 1,197, ,000 Development Strategy Support 4,955,000 3,952,775 3,518,000 3,730,000 Reserve Contributions (NP Capital) 9,192,000 9,237,472 9,422,000 9,422,000 Reserve Contributions (CES) 12,000,000 12,000,000 2,000,000 2,000,000 Reserve (State of Good Repair) - Sparkle 4,552,505 Reserve (State of Good Repair) - Houses sales 2,826,121 4,592,000 Reserve (Good Repair) - Property Tax Exemption 9,000,000 9,000,000 CMP Initiatives: Strengthening People 2,070,000 1,009, ,000 1,083,000 Strengthening Places 619, , , ,000 Strengthening Foundation 1,636, ,615 1,340,000 1,055,000 TOTAL INVESTMENT 158,323, ,158, ,125, ,803,000 FUNDING OF INVESTMENT Cashflow from Operations 68,259,000 79,528,615 67,767,000 68,921,000 Other (Extraordinary) Revenue 8,500,000 7,468,929 4,592,000 Grants (Provincial/ City/ Stimulus) 60,952,000 39,882,593 19,684,000 16,869,000 Energy Program Incentives 1,141,000 1,954,603 2,123,000 2,123,000 Reserves Withdrawn (programs capital) 10,444,000 7,983,803 20,432,000 10,880,000 Reserves Withdrawn (State of Good Repair) 10,500,000 3rd Party Financing: Capital & Energy Programs 14,519,000 7,050,554 29,593,000 34,113,000 TOTAL SOURCES OF FUNDS 163,815, ,869, ,599, ,998,000 NET CASHFLOW 5,492,000 5,710,278 (3,526,000) 195,000 12