DETERMINING SERVICE LEVELS

Transcription

1 Toronto s Municipal Service Review DETERMINING SERVICE LEVELS BY JOSEPH PENNACHETTI AND CAM WELDON

2 In today s environment of permanent reductions to the resources available to local governments, public officials and the community need to reconsider what services their government provides and how it provides them. In many cases, public officials look to the budget process as the vehicle for accomplishing this kind of reform. However, managers and elected officials are often too preoccupied with putting numbers together to comprehensively consider fundamental changes in how services are delivered. A service review approach can be used as a separate planning process for considering the service delivery role of local government, away from the immediate pressure of building a budget. A service review is a planning method used to examine the following questions: n What services should a government provide? n What level and quality of service does the community require? n Is the service provided efficiently? n How should these services be funded? Planning in Toronto The City of Toronto, Ontario, received the GFOA Award for Excellence in Government Finance in 2006 for its long-term financial plan. The financial plan was an important driver for the city s service review program because it highlighted the financial imperative for reforming the city s service offerings. These kinds of questions were pressing to the City of Toronto, Ontario. City staff had considered budgeting methods such as zero base budgeting (ZBB), but staff didn t think ZBB would adequately tell the story of what the city was spending, and how. (See Zero-Base Budgeting: Modern Experiences and Current Perspectives in this issue of Government Finance Review for more information on ZBB, including useful alternatives.) This article describes how Toronto used a municipal service review to address the four fundamental questions listed about the services the city provides. REVIEWING PROGRAMS AND SERVICES In early 2011, the city was facing a projected shortfall of $774 million for 2012, the result of successive budgets using one-time revenues to offset an operating funding pressure. This shortfall could not be addressed by trimming around the margins, and raising taxes beyond inflation was not an option Toronto wasn t legally prohibited from raising taxes, but the political environment made doing so a practical impossibility. The city was considering its options. It reviewed the potential for selling underused assets and using the proceeds to fund higher-value capital investments, thereby reducing debt borrowing and debt servicing costs. It also initiated a voluntary separation program in early 2011 to help divisions reduce the size of the city workforce, supporting the budgeting processes for 2012 and beyond. Where appropriate, third-party consultants provided expert advice and analysis to help the city manager and staff make decisions on an aggressive time table. Fundamental changes were needed, requiring the city to examine the programs and services it delivered. Toronto undertook a service review program to help address its financial challenges and to lay the foundation for multi-year planning and service delivery that would allow the city to meet its objectives in 2012 and beyond. The city s service review comprised three major components: n Core Service Review. The review set the foundation for what services the city delivers and at what level, as well as providing advice about where constrained funding dollars should be spent. n Service Efficiency Study Program. In-depth studies in select program areas identified opportunities for delivering services more efficiently. n Comprehensive User Fee Policy. The city established a user fee policy and framework to assess all city services and determine the extent to which services should be funded directly by users, property taxes, or some combination of the two, based on who derived the direct service benefits: the user, the community, or both. CORE SERVICE REVIEW The phrase core services is often used during times of budgetary distress to denote the services that should be spared from deep cuts. However, this term is often so poorly April 2012 Government Finance Review 17

3 defined that it doesn t clarify what makes a core service different from others. Toronto retained a third-party consultant to undertake a core services review, working with city staff to develop a four-part core continuum of priority program and service delivery areas, defining them as: service data, along with comparisons to similar municipal jurisdictions, the consultant concluded that 15 percent of city services were delivered above standard. Finally, the consultant also reviewed the city s service delivery role (for instance, providing funds, setting regulations). n Mandatory: Mandated by legislation from the federal or provincial government. n Essential: Critical to the operation of the city. Without the service, the city would stop functioning. n Traditional: A service provided by nearly all large municipalities for many years. n Other: A service provided in response to particular community needs, based on a positive business case or other specialized purpose. Through a financial planning and reporting system project, the city has established an inventory of service data, including service purposes, service standards and current service levels, performance metrics, and customer groups. This information is used as the basis for Toronto s multi-year, service-based planning and budgeting. Using the service map structure and profiles developed by the financial planning and reporting system project, each city service was classified along the core continuum. Based on this data, the consultant ranked 90 percent of services as core required by legislation or essential to the effective functioning of Toronto s government. Another 8 percent of services were considered traditional contributing to the quality of life and health of the economy and 1 percent of services were discretionary. In addition to defining city services along the core continuum, the city compared the level of service provided to a standard informed by a range of sources: legislation, industry leading practices, business case justification, and/or other municipal benchmarks. The financial planning and reporting system data provided the consultant with established service standards and current service levels, as well as the basis for: legislation or an external agreement, industry best practice, council policy, or management discretion. Using this Toronto undertook a service review program to help address its financial challenges and to lay the foundation for multi-year planning and service delivery that would allow the city to meet its objectives. A significant percentage of city services were classified as mandatory or essential on the core continuum, providing limited opportunity for significant change in many program areas. Despite these limitations, a number of opportunities were identified for generating cost savings and potential efficiencies. Adjustments were recommended in areas where service levels were above standards and/or the service was discretionary. The consultant also identified a range of opportunities for increasing efficiency and saving money, including: n Gaining economies of scale by consolidating similar services that were operating independently; this would allow the city to spread fixed costs over a larger user base. For example, some permitting services are currently provided by district, and delivering these services on a citywide basis could create savings. n Re-examining the mix of services delivered in-house and through third-party contracts with the private and nonprofit sectors, and potentially changing sourcing strategies. n Reviewing long-term planning goals that might serve a specific policy objective but are costly to achieve, revealing areas where money could be saved. For example, Toronto has an ambitious long-term goal for the rate of waste diversion from landfills to recycling. However, upon examination, the cost per ton to use the landfill was less expensive than further improving the recycling rate, and this cost differential would be exacerbated as the city tried to recycle more challenging types of materials to increase its total diversion rate. The consultant identified more than 100 opportunities for eliminating, divesting, reducing, or otherwise modifying services, for a total estimated 18 Government Finance Review April 2012

4 savings of between $200 million and selected to conduct the studies and $300 million. The phrase core services is often provide the city manager with advice used during times of budgetary and recommendations, considering The City of Toronto also undertook an extensive public consultation process that provided useful insight into should be spared from deep cuts. distress to denote the services that the following strategies within the scope of the study: business process and work methods streamlining; organizational restructuring; outsourcing; which services are important to constituents. Approximately 13,000 indi- However, this term is often so viduals provided input via a webbased form, and many other residents what makes a core service different poorly defined that it doesn t clarify automation; shared services; service innovation; and service adjustments. participated in public roundtable discussions held around the city. Among identified in specific program areas, from others. Additional areas of focus were also many interesting results, the city found based on city staff s knowledge of that transparent and accountable where opportunities might lie. To illustrate, the Toronto Public Library also government was the top policy issue priority (90 of 100 points), while fair and affordable taxes suggested reviewing opportunities to rationalize services, was the lowest (67 of 100 points). The consultation also such as reconsidering library locations, days and hours of revealed that public transit, fire services, and water treatment operations, and use of space, in light of demand from constituents. It also recommended looking at means by which and distribution were the three most vital services, while the zoo, theaters, and courts were the least. As a result, the city the library might use technology to deliver content electronically and opportunities for streamlining work processes for moved forward with divestment of the zoo and theaters. The city s executive management and elected officials borrowing and returning physical media (since these are reviewed the opportunities identified by the consultant, time and resource intensive), including pilot projects using also considering the results of the public consultation process, the estimated financial benefit and risk associated technology to automate elements of these processes. with the opportunities, and larger service priorities. Some opportunities were adopted for immediate implementation, while others required further study or a longer lead time, and some recommendations were not approved. Toronto included approximately $42 million in net savings that had been identified through the core service review process in the 2012 recommended operating budget. Further savings are expected to be identified in future budgets as implementation proceeds. SERVICE EFFICIENCY STUDIES The service efficiency study program entailed a detailed look at specific program areas, 15 of which were selected for review in 2011 and continuing into So far, service efficiency studies have been completed in three major agencies (Toronto Police Services, Toronto Transit Commission, Toronto Public Library) and in several city divisions (including Solid Waste Management, Transportation Services, and Shelter Housing and Support). 1 Third-party consultants were April 2012 Government Finance Review 19

5 Consultants, working with city staff, examined baseline information for each service. This included the results of the core service review, financial and budget data, organizational charts, staffing information, relevant policies and council directions, and business process data. Consultants assigned to each program area under study were guided in their analysis by broadly similar scopes of work, which helped provide for some consistency in the approaches without being overly prescriptive about the form the studies would take. Consultants were engaged to lead the studies (including developing a more specific approach to the study), and they worked closely with staff to develop final recommendations. For example, consultants interviewed key staff members, conducted staff focus groups, and worked with executive management to formulate recommendations. Each study resulted in a final report to the city manager that proposed cost-saving measures. The recommendations encompassed a variety of approaches to reducing costs, including improvements to business processes, investing in technology, outsourcing, consolidating resources, and sharing services among departments. Some of the recommendations built on measures staff were already advocating and/or pursuing, while others were new. Going back to the library example, the consultant s report in this area expanded on staff s view that more content should be delivered to library users electronically, but also challenged staff to be more discerning about the value of some of its programs to the public. In total, the study identified approximately $10.5 million in potential capital and operating savings. This included $52.1 million from the Toronto Police Service, based on adjusting how incoming calls are handled, changing shift schedules, turning certain duties over to civilians, and consolidating dispatch desks. Another $10.9 million was identified from Toronto Solid Waste Management, primarily based on changing how routes are designed and staffed, but also by making other minor efficiency improvements and changes to the waste collection fee structure. The city compared the level of service provided to a standard informed by a range of sources: legislation, industry leading practices, business case justification, and/or other municipal benchmarks. Altogether, the service efficiency review studies identified potential savings estimated at $167 million to $249 million that could be realized in 2012 and future years, including one-time and ongoing financial benefits. The city hasn t finished going through all of the recommendations to establish which ones appear most viable. USER FEE POLICY To solidify the city s financial position, it needed to do more than just cut costs. It also needed to enhance revenue. User fees are a natural, and often preferable, alternative to taxes because the user of the service bears cost of the service. A user fee policy clarifies a government s intent for how fees will be used, thereby making it possible for fees to be used more widely and consistently. Such a policy is particularly valuable if it clarifies features of fees that are potentially controversial, including how indirect costs such as administrative overhead and use of capital assets will be reflected, annual escalation of fees (so the fee structure doesn t become obsolete), and situations where less than 100 percent cost recovery is acceptable (i.e., subsidization). The Toronto City Council adopted a user fee policy to provide unambiguous direction on how fees would figure into the city s revenue portfolio. Some key principles of the policy include the following: n A fee will be charged to recover the full cost of a service that provides direct benefits to identifiable groups or business. n The full cost of providing a service, including overhead and capital costs, will be the starting point for setting any user fee. n Subsidies are permissible in certain situations. For example, services that provide benefits to the general public (in addition to the benefit provided to the customer) are candidates for a subsidy, the level of which would be approved by the city council. n Explicit criteria for waivers and rebates for groups of individuals or businesses should be established and based on considerations such as ability to pay and equitable access. 20 Government Finance Review April 2012

6 n Fees will be automatically adjusted for annual inflation at the beginning of each year. n Each fee will be reviewed in depth at least once every four years to ensure its compliance with the policy. Less intensive reviews will be done every year as part of the budget process. With the policy in place, the city was able to identify opportunities leading to $20.1 million in incremental revenues from the introduction of new user fees and changes to existing user fees. For example, a 10-cent fare increase will generate an additional $30 million for the Toronto Transit Commission. SELLING UNDERUTILIZED ASSETS Municipal governments often own underutilized assets, especially in the form of vacant land and possibly even including underperforming government enterprises. In some cases, these assets are more valuable to private concerns, and the resources from the sale can be used to pay down pressing liabilities. In Toronto s case, the city s general debt load had been growing to the point that debt servicing costs were approaching the city s self-imposed limit of 15 percent development corporation called Build Toronto that can of property taxes. Hence, the city explored the possibility help in increasing the value of available parcels. of selling two municipally owned power companies and a municipal parking operation. As might be expected, the prospect of selling municipal assets raised some objections among elected officials. To help alleviate these concerns, city staff proposed selling partial shares in one of the utilities in a way that would allow the city to keep a controlling interest, while bringing in additional funds. Currently, the city is proceeding with the sale process for one power company, with the final sale contingent on finding a buyer that is willing to offer sufficient compensation, among other things. The sale of the other might be considered later. The prospect of translating vacant VOLUNTARY SEPARATION PROGRAM Personnel make up the biggest part of the cost structure for most municipal governments. Hence, reducing costs would require reducing the number of municipal employees. Toronto wanted to take a humane approach to reducing the size of its labor force, so it developed a voluntary separation program. This program offered a one-time payment of an amount equal to three or four weeks of salary for every year served for non-management and management staff, respectively (not to exceed 26 weeks). land into revenue was complicated The program generated great interest and resulted in approximately A user fee policy clarifies a by the fact that the land was of widely government s intent for how varying potential value to the city and 1,100 applications, of which approximately 200 were approved; the rest to private parties. The city planned fees will be used, thereby making to use the core service review to find it possible for fees to be used of the positions were deemed too any instances where a service might important to eliminate. A one-time more widely and consistently. have more real estate assets than they cost of $41 million resulted in an required for providing services. The city also operates a local economic annual budget reduction of $58.9 million. Management had a high degree April 2012 Government Finance Review 21

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