SUBMITTED BY: Ryan Hagey, Director of Financial Planning, x 7353

Transcription

1 REPORT TO: Finance and Corporate Services Committee DATE OF MEETING: January 18, 2016 SUBMITTED BY: Ryan Hagey, Director of Financial Planning, x 7353 PREPARED BY: Ryan Hagey, Director of Financial Planning, x 7353 WARD(S) INVOLVED: All DATE OF REPORT: December 7, 2015 REPORT NO.: FCS SUBJECT: 2016 Final Budget RECOMMENDATION: For Discussion BACKGROUND: Detailed reports and presentations on the Operating and Capital budgets were considered by Committee in November This final budget day package supplements the information provided previously and is primarily meant to: Provide updates on the Operating and Capital Budgets Provide information required by the Municipal Act REPORT: Tax Supported Operating Budget The proposed tax rate increase for 2016 is 1.50%. There are no proposals to be considered by Council on final budget day that would have a major impact on the tax rate increase. There are a few minor items (i.e. the impact of any single item would change the tax rate by less than 0.10%) for Council to consider based on the issue papers which staff were asked to prepare. These items were discussed during or subsequent to the operating budget with direction to consider them as part of Final Budget Day: Additional, unbudgeted assessment growth revenue Decreasing the licensing fee for Temporary Retail Markets Creating a new permanent part-time constituency assistant to support Council Making an ongoing contribution to replenish the Tax Stabilization Reserve Fund Implementing the School Zone Parking Strategy As part of Final Budget deliberations, Council will consider each of these items and decide whether they will be included as part of the 2016 tax supported operating budget. A summary of the budget by division is included at the end of this report. *** This information is available in accessible formats upon request. *** Please call or TTY for assistance. FINAL - 1

2 Enterprise Operating Budgets The City enterprises are stand-alone business lines that are self-funding through their own rates (i.e. are not funded through property taxes). They include: Golf, Building, Parking, Natural Gas, Water, Sanitary Sewer, and Stormwater. The projected financial year end results in 2015 have been updated for each of the enterprises. Unlike previous years, the updated projected results for many of the enterprises are materially different than the original projections based on recent activity. As well, budgets for Parking and Water have been updated based on new information. Changes to the enterprise projected actuals or budget forecast are highlighted below. Golf Projection is consistent with previous projection and budget is unchanged. Building Projection is $431,000 better than originally forecast. Revenues are higher than forecast due to increased permit activity at the end of the year for both residential and non-residential building types. The budgets have not been adjusted because building activity is projected to stay strong for the foreseeable future. Parking Projection is $244,000 better than originally forecast. Expenses are lower than forecast due to savings in accrued property taxes for the Civic District parking garage, which has recently been assessed by MPAC. Revenues are also higher than forecast due to increased demand. The budgets have been adjusted to reflect the lower property taxes on the Civic District garage. Gas Delivery Projection is $1.2M worse than originally forecast. Revenues are considerably lower than projected due to mild weather in the last quarter of the year. Gas Supply and Transportation Supply projection is $416,000 better than original presentation and Transportation projection is $122,000 better. Warm weather in the last quarter of the year has resulted in decreased sales and lower cost of goods sold. The budgets for Gas Delivery, Supply, and Transportation have not been adjusted as these forecasts are based on a multi-year average and not just on a single year s experience. Water Projection is $182,000 better than originally forecast. Revenues are higher than forecast due to increased water consumption in October and November. The budget has been adjusted to incorporate the final wholesale water rate adopted by the Region. Despite these changes, the water utility stabilization reserve continues to be in a significant deficit until Sanitary Projection is $748,000M better than originally forecast. Revenues are higher than forecast due to increased water consumption in October and November. As well, expenses are lower than forecast due to decreased processing and maintenance costs. The budgets have not been adjusted as these forecasts are based on a multi-year average and not just on a single year s experience. Stormwater Projection is consistent with previous projection and budget is unchanged. FINAL - 2

3 Capital Budget and Forecast There are only two changes to the capital budget and forecast originally presented to Council. Since the majority of the capital budget remains unchanged, a new capital project listing has not been prepared. 1. The Fleet Replacement Equipment line (page C-127 of the capital package) has been increased by $3.9M over the 10 years of the capital budget and forecast as a result of the 2015 Annual Equipment Review. This annual process reviews equipment that is near the end of its useful life to determine its need for replacement. The revised budget has increased in the final years of the 10 year forecast based on expected replacement costs and timing from this detailed review. This account is funded completely by the Fleet reserve. 2. The Neighbourhood Festival Development line (page C-119 of the capital package) has been increased by $180,000 over the 10 years of the capital budget and forecast as a result of Council s direction around grants. Council increased the grant from $21,000 per year to $30,000 in 2016, and then gave direction for a further increase to $40,000 per year for 2017 and all subsequent years. This account is funded by an offsetting decrease in other grants as approved by Council. Information Required by the Municipal Act Regulation 284/09 of the Municipal Act titled Budget Matters Expenses requires that before Council adopts the annual budget, it must first receive a report about excluded expenses and adopt that report by resolution. This resolution is included as part of the Final Budget Day resolution. Public Sector Accounting Board (PSAB) changes effective in 2009 require the annual Consolidated Financial Statements to be prepared using full accrual accounting. As a result, certain expenses are included in the financial statements that are not included in the budget. For the City of Kitchener these include amortization expense on tangible capital assets and post-employment benefit expense. Amortization expense on tangible capital assets of $39.6 million was recorded in the 2014 consolidated financial statements. This expense is meant to represent the rate at which the City is using up its assets (based on historical cost). It can therefore be used as a rough indication of what should be budgeted for replacement. Post-employment benefit expense, which includes sick leave, workplace safety and insurance benefits, and post-employment benefits in the 2014 consolidated financial statements, was $3.2M ($34.9M $31.7M) If these expenses were excluded in the financial statements, the 2014 accumulated surplus would increase by $42.8M (the combined amount of amortization expense and post-employment benefit expense). There is no impact on future tangible capital asset funding requirements based on the exclusion of these expenses. ALIGNMENT WITH CITY OF KITCHENER STRATEGIC PLAN: The recommendation of this report supports the achievement of the city s strategic vision through the delivery of core service. FINAL - 3

4 FINANCIAL IMPLICATIONS: The financial impacts on the average homeowner are shown in the chart below. Impact on Homeowner Change $ % Taxes $ 1,050 $ 1,066 $ % Storm Water $ 125 $ 137 $ % Water $ 386 $ 415 $ % Sanitary $ 434 $ 481 $ % Subtotal (pre Gas) $ 1,995 $ 2,099 $ % Gas $ 841 $ 681 $ (160) % Total $ 2,836 $ 2,780 $ (56) -1.97% Assumptions: City Taxes: Current Assessed Value (CVA) of $280,000 Storm Water: property classified as Residential Single Detached Medium Water & Sanitary: water consumption of 204m 3 (reflects regional average water consumption) Natural Gas: gas consumption of 2,100m 3 COMMUNITY ENGAGEMENT: Citizens have an opportunity to provide input about priority areas of the budget through different processes. Their input comes through public consultation efforts for comprehensive master plans (e.g. Leisure Facilities Master Plan), strategies (e.g. Neighbourhood Strategy), or specific projects (e.g. Kiwanis Park Pool). As part of those processes, staff considers the feedback received from the public as they make their recommendations and share it with Council when those recommendations are presented for approval. The budget is the process whereby Council affirms the various approved priorities and allocates funds to bring concepts into reality. For the 2016 budget process, staff have employed a suite of traditional and electronic engagement methods in an effort to effectively inform and consult citizens. Staff have proactively provided information about the budget process via media outreach, the city s website and through Your Kitchener. Citizens have been encouraged to provide their input by: Writing, ing or phoning City Hall Attending the public input session on January 12, 2016 Responding to the City s Facebook/Twitter posts about the budget Contacting their ward councillor FINAL - 4

5 PREVIOUS CONSIDERATION OF THIS MATTER: The 2016 budget has been discussed in detail by Council during previous meetings set aside exclusively to consider the budget. This includes: FCS , 2016 Operating Budget (November 23, 2015) FCS , 2016 Capital Budget and 10-Year Forecast (November 30, 2015) As well, the City hosts a stand-alone public input meeting on January 12, 2016 regarding the 2016 budget. ACKNOWLEDGED BY: Dan Chapman, Deputy CAO (Finance and Corporate Services) FINAL - 5

6 Summary of Budget Changes by Division Budget $ Change % Change Annual Restatements Restated Annual vs. Restated vs. Restated Budget Budget Budget Budget Total Budget Commentary CHIEF ADMINISTRATOR'S OFFICE ADMINISTRATION 980,810 37,500 1,018,310 1,095,653 77, % Increased compensation costs (including annualization of open government position). CORPORATE COMMUNICATIONS 1,104,400 46,643 1,151,043 1,147,336 (3,707) -0.32% ECONOMIC DEVELOPMENT - - ARTS & CULTURE 322, , ,597 2, % ECONOMIC DEVELOPMENT 3,454,486 (236,680) 3,217,806 3,339, , % Increased economic development grants and compensation costs. MARKET 253, , ,546 (4,856) -1.92% SPECIAL EVENTS 782,589 (2,720) 779, ,364 (2,505) -0.32% ECONOMIC DEVELOPMENT 4,813,147 (239,400) 4,573,747 4,690, , % MAYOR & COUNCIL 1,149,166-1,149,166 1,160,296 11, % CHIEF ADMINISTRATOR'S OFFICE TOTAL 8,047,523 (155,257) 7,892,266 8,094, , % COMMUNITY SERVICES DEPARTMENT ADMINISTRATION ADMINISTRATION 908, , ,827 11, % CORPORATE ADVERTISING REVENUE (15,263) - (15,263) (15,416) (153) 1.00% ADMINISTRATION 892, , ,411 11, % BY-LAW ENFORCEMENT ADMINISTRATION 592,397 10, , ,974 1, % PARKING/NOISE 295, , ,114 31, % Increased compensation costs. PROPERTY STANDARDS 991, ,041 1,000,848 9, % BY-LAW ENFORCEMENT 1,879,174 10,000 1,889,174 1,931,936 42, % COMMUNITY PROGRAMS & SERVICES ADMINISTRATION 400, , ,407 10, % AQUATICS AND ATHLETICS 1,283, ,284,487 1,265,894 (18,593) -1.45% COMMUNITY RESOURCE CENTRES 3,410,768-3,410,768 3,468,723 57, % Increased compensation costs for part time hourly staff. PROGRAM & RESOURCE SERVICES 1,784,068-1,784,068 1,802,665 18, % VOLUNTEER RESOURCES 226, , ,037 14, % COMMUNITY PROGRAMS & SERVICES 7,105, ,105,811 7,188,726 82, % ENTERPRISE SERVICES ADMINISTRATION 273, , ,718 8, % CEMETERIES (30,187) - (30,187) (15,057) 15, % KMAC & ARENAS 610, , ,732 (8,554) -1.40% ENTERPRISE SERVICES 854, , ,393 15, % Increased revenues to align with expectations resulting from Cemetery expansion. FIRE ADMINISTRATION 2,643,075 24,533 2,667,608 2,919, , % Increased compensation costs and computer maintenance fees. ALARM MONITORING (84,259) - (84,259) (101,660) (17,401) 20.65% Increased revenues as additional builders are using Direct Detect. APPARATUS AND EQUIPMENT 1,103,429-1,103,429 1,118,752 15, % PREVENTION 1,700,178 (34,533) 1,665,645 1,734,248 68, % Increased compensation costs. SUPPRESSION 25,584,382-25,584,382 26,282, , % Increased compensation costs. TRAINING 493, , ,293 14, % FIRE 31,440,446 (10,000) 31,430,446 32,461,335 1,030, % PLANNING 1,184,982-1,184,982 1,217,020 32, % COMMUNITY SERVICES DEPARTMENT TOTAL 43,356, ,357,280 44,572,821 1,215, % FINAL - 6

7 Summary of Budget Changes by Division Budget $ Change % Change Annual Restatements Restated Annual vs. Restated vs. Restated Budget Budget Budget Budget Total Budget Commentary FINANCE & CORPORATE SERVICES DEPARTMENT ADMINISTRATION 571, , ,326 17, % ACCOUNTING 1,115,429 (14,000) 1,101,429 1,106,024 4, % FINANCIAL PLANNING 563, , ,488 19, % HUMAN RESOURCES 1,953,719 14,000 1,967,719 2,141, , % Increased compensation costs (including annualization of health and safety specialist) and legal services. INFORMATION TECHNOLOGY 4,736,794-4,736,794 4,800,969 64, % Increased computer maintenance fees. LEGAL 981, ,223 1,021,105 39, % LEGISLATED SERVICES 1,155,914-1,155,914 1,144,184 (11,730) -1.01% REVENUE 569, , ,058 3, % SUPPLY SERVICES 492, , ,680 11, % FINANCE & CORPORATE SERVICES DEPT TOTAL 12,140,573-12,140,573 12,463, , % INFRASTRUCTURE SERVICES DEPARTMENT ADMINISTRATION 453, , ,717 6, % ASSET MANAGEMENT 642, , ,571 (769) -0.12% ENGINEERING ADMINISTRATION 102, , ,950 22, % Reduced internal recovery. TRANSPORTATION SERVICES 3,724,133-3,724,133 3,835, , % Increased hydro costs for street lighting based on expected 2016 rates. FACILITIES MANAGEMENT 12,497, ,865 12,611,409 12,917, , % Increased utility costs based on 2016 expected rates. OPERATIONS ADMINISTRATION 4,656,673-4,656,673 4,708,926 52, % Increased fleet costs. REGION SIDEWALK REPAIRS 863, , ,479 13, % DOWNTOWN MAINTENANCE 681, , ,060 17, % ENVIRONMENTAL SERVICES 2,996,898-2,996,898 2,996,598 (300) -0.01% MINOR IMPROVEMENTS/REPAIRS 893, , ,472 32, % ROAD MAINTENANCE 1,216,585-1,216,585 1,375, , % Growth funding - increased wages to better align to actuals. SANITATION 491, , ,355 12, % SIGN SHOP 39,770-39,770 40,817 1, % SPORTSFIELDS, TRAILS & PARKS 1,056,998-1,056,998 1,134,888 77, % Increased compensation costs. TRAFFIC MAINTENANCE 408, , ,710 7, % TURF & RINKS MTCE 1,823,557-1,823,557 1,855,520 31, % WINTER MAINTENANCE 5,515,056-5,515,056 5,609,663 94, % Increased compensation costs. OPERATIONS 20,643,855-20,643,855 21,144, , % INFRASTRUCTURE SERVICES DEPARTMENT TOTAL 38,063, ,865 38,177,101 39,122, , % NET DEPARTMENTAL EXPENDITURES 101,608,024 (40,804) 101,567, ,253,141 2,685, % FINAL - 7

8 Summary of Budget Changes by Division Budget $ Change % Change Annual Restatements Restated Annual vs. Restated vs. Restated Budget Budget Budget Budget Total Budget Commentary GENERAL EXPENSES GRANTS-CHARITABLE 2,007, ,400 2,247,042 2,262,719 15, % KITCHENER PUBLIC LIBRARY 10,269,505-10,269,505 10,423, , % Increased annual operating grant. CENTRE IN THE SQUARE 1,400,000-1,400,000 1,750, , % Increased annual operating grant. OTHER 816, , ,655 38, % GAPPING (2,000,000) - (2,000,000) (2,000,000) % DEBT CHARGES 3,898,858-3,898,858 3,978,147 79, % Increase reflects payment schedule of issued debt. CAPITAL OUT OF CURRENT 944,000 (196,000) 748, , , % Increased funding as per capital investment philosophy. CONTRACT SERVICES 639, , ,889 1, % TRANSFERS TO RESERVES 8,194,073-8,194,073 8,176,756 (17,317) -0.21% TAX WRITEOFFS & REBATES 445, , ,204 (100) -0.02% PROVISIONS - BAD DEBT ALLOWANCE 500, , , % GENERAL EXPENSES TOTAL 27,115,037 43,400 27,158,437 27,955, , % TOTAL NET EXPENSES 128,723,061 2, ,725, ,209,059 3,483, % GENERAL REVENUES TAXES GENERAL LEVY (108,055,193) - (108,055,193) (109,405,883) (1,350,690) 1.25% Increased assessment growth revenue (1.25%). SUPPLEMENTARY TAXES/WRITE-OFFS (999,000) - (999,000) (999,000) % LOCAL IMPROVEMENTS (86,747) - (86,747) (41,000) 45, % Decreased revenue to align with continuity schedule. COMMERCIAL & INDUSTRIAL CAPPED PAYMENTS IN LIEU (3,253,298) - (3,253,298) (3,368,298) (115,000) 3.53% Increased revenue for Region's transit facility and library parking lot. (112,394,238) - (112,394,238) (113,814,181) (1,419,943) 1.26% OTHER REVENUE INVESTMENT INCOME (1,850,000) - (1,850,000) (1,950,000) (100,000) 5.41% Increased revenue based on actual trends. PENALTIES AND INTEREST (3,088,576) - (3,088,576) (3,114,262) (25,686) 0.83% CONTRIBUTION FROM ENTERPRISES (9,741,821) - (9,741,821) (9,979,821) (238,000) 2.44% Increased dividend from Gas enterprise. CONTRIBUTIONS FROM RESERVES (1,250,000) - (1,250,000) (1,300,000) (50,000) 4.00% Increased dividend from Kitchener Power Corporation. SUNDRY INCOME (98,426) - (98,426) (104,633) (6,207) 6.31% SOLAR ROOF (300,000) - (300,000) (300,000) % (16,328,823) - (16,328,823) (16,748,716) (419,893) 2.57% GENERAL REVENUES TOTAL (128,723,061) - (128,723,061) (130,562,897) (1,839,836) 1.43% GRAND TOTAL - 2,596 2,596 1,646,162 1,643, % FINAL - 8

9 2016 Final Budget Day Finance & Corporate Services Committee January 18, 2016 FINAL - 9

10 Connect to the Budget Keep up at Facebook.com/CityofKitchener Tweet or #kitbudget2016 Phone x 7700 See more at FINAL - 10

11 Presentation Agenda Overview Boards Enterprise Operating Budgets Capital Budget Tax Supported Operating Budget Resolution FINAL - 11

12 Overview FINAL - 12

13 Final Budget Day Process Minimal staff presentation Highlights of proposed operating and capital budgets Updates on local comparators Follow up items for information and decision Operating and capital issue papers Outcome is an approved budget for 2016 Forwarded on to Council for final approval FINAL - 13

14 Key Notes of the 2016 Operating Budget The proposed budget: Holds tax supported City services status quo Includes increased investments in arm s length organizations Includes increased investments in utility infrastructure FINAL - 14

15 2015 Capital Forecast Highlights The proposed capital budget: Is balanced Provides new investment in high priority areas Reduces the City s debt FINAL - 15

16 Update on Local Increases a = actual, p = proposed 2016 Local Tax Rate Increases Cambridge 2.91% p Region of Waterloo* 2.88% p Waterloo 2.70% p Kitchener 1.50% p *Base Budget + Police 2016 Local Combined Water/Sewer Increases Kitchener (Water, Sanitary, Stormwater) 9.28% p Cambridge (Water and Sanitary only) 6.08% p Waterloo (Water, Sanitary, Stormwater) 5.01% p FINAL - 16

17 Summary of Proposed Budget Increases FINAL - 17

18 Boards FINAL - 18

19 Board Budgets Centre in the Square (CITS) No changes to budget Follow up issue paper (BD01) about handling of transitional costs Kitchener Public Library (KPL) No changes to budget FINAL - 19

20 Enterprise Operating Budgets FINAL - 20

21 Setting Enterprise Fees Enterprise When fees are set Golf User fees (already set) Building User fees (already set) Parking User fees (already set) Gas Outside budget process Water Final Budget Day Sanitary Sewer Final Budget Day Storm Sewer Final Budget Day FINAL - 21

22 2016 Budgets and 2015 Actuals Each enterprise is preceded by a summary of changes to the 2016 budget and 2015 projected actuals Most budgets remain unchanged from original presentation Significant changes to 2015 projected actuals for most enterprises FINAL - 22

23 Golf Summary of Changes Budget remains unchanged from original presentation Projection is consistent with original presentation FINAL - 23

24 Golf Enterprise (000's) Budget Projection Budget Budget Budget Budget Budget OPERATIONS Revenue 2,657 2,589 2,683 2,710 2,737 2,765 2,792 Expenses 2,172 2,153 2,192 2,200 2,227 2,249 2, OTHER EXPENSES Transfer - Golf Cart Repl. Reserve Debt Charges Transfer to Capital Net Profit (Loss) before Dividend Dividend Transfer to City Net Revenue (Expense) STABILIZATION RESERVE FUND Opening Balance (906) (906) (918) (919) (932) (944) (957) Add: Excess of revenue over expense Less: Interest Expense (13) (13) (13) (13) (13) (13) (13) Closing Balance (894) (918) (919) (932) (944) (957) (970) Minimum Benchmark (10% of total revenue) Maximum Benchmark (15% of total revenue) FINAL - 24

25 Building Summary of Changes Budget remains unchanged from original presentation Projection is $431,000 better than original presentation Increased permit activity in last quarter of year for both residential and non-residential buildings FINAL - 25

26 Building Enterprise (000's) Budget Projected Budget Budget Budget Budget Budget REVENUE Building Permit Revenue 3,540 5,012 4,613 4,659 4,706 4,753 4,800 Interest Income Total Revenue 3,555 5,045 4,640 4,686 4,732 4,778 4,825 EXPENSES Direct 3,431 3,377 3,570 3,632 3,696 3,761 3,826 Indirect Total Expenses 4,337 4,284 4,492 4,571 4,651 4,732 4,815 Net Revenue (Expense) (783) STABILIZATION RESERVE FUND Opening Balance 5,056 5,056 5,890 6,123 6,327 6,500 6,640 Add: Excess of revenue over expenses (783) Add: Interest revenue/(expense) Closing Balance 4,349 5,890 6,123 6,327 6,500 6,640 6,747 Minimum Benchmark (100% of expenses) 4,337 4,284 4,492 4,571 4,651 4,732 4,815 Maximum Benchmark (150% of expenses) 6,506 6,425 6,738 6,856 6,976 7,098 7,223 FINAL - 26

27 Parking Summary of Changes Budget has been updated to reflect lower property taxes for Civic District garage Projection is $244,000 better than original presentation Expenses are lower than forecast due to multi-year savings in taxes for Civic District garage recently assessed by MPAC. Revenues are also higher than forecast due to increased demand. FINAL - 27

28 Parking Enterprise Budget Projected Budget Budget Budget Budget Budget (000's) REVENUE Hourly Monthly 2,901 3,064 2,809 2,843 2,930 3,054 3,184 Metered 902 1,065 1,009 1,009 1,012 1,042 1,073 Other ,116 1, Subsidies 1,204 1,204 1,193 1,193 1,229 1,266 1,304 Total Revenue 6,364 6,662 6,953 7,630 6,608 6,864 7,109 EXPENSES General 3,100 3,274 3,104 3,167 3,221 3,282 3,353 Debt Charges Property Taxes Transfers to Capital fund Total Expenses 4,537 4,520 4,510 4,622 4,693 5,295 5,386 Net Profit before Dividend 1,827 2,142 2,444 3,008 1,915 1,569 1,723 Dividend Transfer to City 1,750 1,750 1,750 1,750 1,750 1,750 1,750 Net Revenue (Expense) , (181) (27) STABILIZATION RESERVE FUND Opening Balance (1,681) (1,681) (1,314) (640) Net Revenue (Expense) , (181) (27) Interest Revenue (Expense) (25) (25) (19) (9) Closing Balance (1,629) (1,314) (640) Minimum Benchmark (10% of total revenue) Maximum Benchmark (15% of total revenue) ,043 1, ,030 1,066 FINAL - 28

29 Gas Delivery Summary of Changes Budget remains unchanged from original presentation Projection is $1.2M worse than original presentation Warm weather in the last quarter of the year has resulted in decreased sales and lower profits FINAL - 29

30 Gas Works Utility Delivery (000's) Budget Projection Budget Budget Budget Budget Budget Gas Delivery Revenues 37,463 36,936 37,377 38,125 38,512 38,897 39,286 Expenses 14,431 14,766 14,772 15,049 15,332 15,620 15,914 Gross Profit 23,032 22,170 22,605 23,076 23,180 23,277 23,372 Gross Profit % 61.48% 60.02% 60.48% 60.53% 60.19% 59.84% 59.49% Other Programs Revenues 10,011 10,133 9,840 9,968 10,395 10,560 10,754 Expenses 7,659 7,107 7,413 7,545 7,678 7,775 7,912 Gross Profit 2,352 3,026 2,427 2,423 2,717 2,785 2,842 Gross Profit % 23.49% 29.86% 24.66% 24.31% 26.14% 26.37% 26.43% Transfer to Gas Capital 17,444 17,444 10,620 10,648 10,337 10,593 10,261 Net Revenue (Expense) 7,940 7,752 14,412 14,851 15,560 15,469 15,953 Stabilization Reserve Fund Opening Balance 5,518 5,518 (217) 400 1,191 2,424 3,294 Net Revenue (Expense) 7,940 7,752 14,412 14,851 15,560 15,469 15,953 Interest Revenue (Expense) Transfer to Gas Investment Reserve (13,525) (13,525) (13,796) (14,072) (14,353) (14,640) (14,933) Transfer from(to) Capital Reserve Fund Balance end of year (26) (217) 400 1,191 2,424 3,294 4,369 Minimum Benchmark (10% delivery revenue) 3,746 3,694 3,738 3,813 3,851 3,890 3,929 Maximum Benchmark (15% delivery revenue) 5,619 5,540 5,607 5,719 5,777 5,835 5,893 Capital Reserve Fund Balance beginning of year 2,013 2,013 4,003 1,667 1,296 1,322 1,348 Transfer from Stabilization Reserve Fund Capital Close Outs 0 1, Interest Expense Anticipated Capital Requirements 0 0 (2,392) (400) Balance End of Year 2,053 4,003 1,667 1,296 1,322 1,348 1,375 Minimum Benchmark (50% avg balance in 10 yr forecast) 4,000 4,000 5,700 5,700 5,700 5,700 5,700 Maximum Benchmark (150% avg balance in 10 yr forecast) 12,000 12,000 17,200 17,200 17,200 17,200 17,200 FINAL - 30

31 Gas Supply & Transportation Summary of Changes Budgets remains unchanged from original presentation Supply projection is $416,000 better than original presentation Transportation projection is $122,000 better than original presentation Warm weather in the last quarter of the year has resulted in decreased sales and lower cost of goods sold FINAL - 31

32 Gas Works Utility Supply & Transportation (000's) Budget Projection Budget Budget Budget Budget Budget Gas Supply Revenues 37,552 35,280 23,791 28,338 29,277 27,670 28,874 Expenses 34,532 27,757 29,457 28,212 28,505 27,926 28,485 Gross Profit 3,019 7,523 (5,667) (257) 389 Gross Profit % 8.04% 21.32% % 0.44% 2.64% -0.93% 1.35% Gas Utility (Supply) Stabilization Opening Balance 1,464 1,464 9,063 3,487 3,664 4,495 4,301 Add excess of rev. over exp. 3,019 7,523 (5,667) (257) 389 Interest Balance end of year 4,528 9,062 3,487 3,664 4,496 4,301 4,755 Minimum Benchma rk (10% of tota l revenue) 3,755 3,528 2,379 2,834 2,928 2,767 2,887 Ma ximum Benchmark (15% of total revenue) 5,633 5,292 3,569 4,251 4,391 4,150 4,331 Gas Rate (January to October) Gas Rate (November - December) Gas Transportation Revenues 6,257 6,530 8,895 8,377 5,537 5,182 5,022 Expenses 6,188 7,342 8,695 8,133 5,591 4,987 5,087 Gross Profit 69 (812) (54) 195 (65) Gross Profit % 1.10% % 2.25% 2.91% -0.98% 3.76% -1.29% Gas Utility (Transporation) Stabilization Balance beginning of year 1,161 1, Add excess of rev. over exp. 69 (812) (54) 195 (65) interest Balance end of year 1, Minimum Benchma rk (10% of tota l revenue) Ma ximum Benchmark (15% of total revenue) 928 1,101 1,304 1, Gas Rate (January to October) Gas Rate (November - December) FINAL - 32

33 Water Summary of Changes Budgeted has been updated Small decrease to cost of water supply Utility remains in significant deficit until 2019 Issue Paper BD02 deals with potential water rate decreases Projection is $182,000 better than original presentation Consumption has increased at end of year leading to higher revenues FINAL - 33

34 Water Utility (000's) Budget Projection Budget Budget Budget Budget Budget REVENUE AND EXPENSES Sale of Water 37,944 35,993 40,602 42,538 45,299 48,235 51,901 Water Supply 21,933 21,189 22,295 22,521 22,970 23,390 24,068 Gross Profit 16,011 14,804 18,308 20,017 22,329 24,845 27,833 GROSS PROFIT % 42.2% 41.1% 45.1% 47.1% 49.3% 51.5% 53.6% MISCELLANEOUS REVENUE Other Revenue 945 1,047 1,063 1,072 1,082 1,093 1,103 EXPENSES Operating 7,827 8,648 8,942 9,210 9,486 9,771 10,064 Interest expense (revenue) - 15 (3) (3) (6) (21) (25) Transfer to capital (Accelerated Infrastructure Program) 6,810 6,810 7,696 8,696 9,827 11,104 12,548 Transfer to capital (Other) 2,291 2,291 2,314 2,706 3,313 2,112 2,821 16,928 17,764 18,949 20,609 22,621 22,965 25,408 Net Revenue (Expense) 28 (1,913) ,972 3,528 STABILIZATION RESERVE FUND Opening Balance (361) (361) (2,293) (1,902) (1,445) (669) 2,314 Net Revenue (Expense) 28 (1,913) ,972 3,528 Interest revenue(expense) (5) (19) (30) (24) (15) Transfer from capital reserve Closing Balance (338) (2,293) (1,902) (1,445) (669) 2,314 5,902 ### Minimum Benchmark (10% of total revenue) 3,794 3,599 4,060 4,254 4,530 4,823 5,190 ### Maximum Benchmark (15% of total revenue) 5,692 5,399 6,090 6,381 6,795 7,235 7,785 CAPITAL RESERVE FUND Opening Balance 3,350 3, Capital Close Outs Interest revenue(expense) Transfer to Capital (2,802) (2,802) (801) (150) Closing Balance Minimum Benchmark (50% avg balance in 10 yr forecast) 16,657 4,500 8,328 8,328 8,328 8,328 8,328 Maximum Benchmark (150% avg balance in 10 yr forecast) 13,500 13,500 24,985 24,985 24,985 24,985 24,985 % Increase in Water Retail Rate 9.90% 7.60% 7.60% 7.60% 7.60% 7.60% % Increase in Region Wholesale Rate 4.90% 2.90% 3.90% 2.90% 2.90% 2.90% % Increase in Consumption -1.19% -1.50% -2.63% -1.03% -1.04% 0.00% FINAL - 34

35 Sanitary Summary of Changes Budget remains unchanged from original presentation Projection is $748,000 better than original presentation Consumption has increased at end of year leading to higher revenues Sewage processing costs and maintenance costs are lower than expected FINAL - 35

36 Sanitary Utility (000's) Budget Projected Budget Budget Budget Budget Budget REVENUE AND EXPENSES Sewer Surcharge 41,925 40,002 45,999 49,628 54,421 59,671 66,116 Cost of Sewage Processing 23,641 22,785 25,231 26,971 28,771 30,489 32,293 Gross Profit 18,284 17,217 20,768 22,657 25,650 29,182 33,823 GROSS PROFIT % 44% 43% 45% 46% 47% 49% 51% MISCELLANEOUS REVENUE Other Revenue ,040 EXPENSES Administration 1,641 1,654 1,696 1,747 1,799 1,853 1,909 Maintenance 3,362 3,114 4,126 5,167 6,381 7,778 9,440 Interest Expense (Revenue) Sewage Rebates Transfer to capital (Accelerated Infrastructure Program) 10,106 10,106 11,419 12,904 14,581 16,477 18,619 Transfer to capital (Other) 3,490 3,490 3,408 2,969 3,003 3,189 3,344 19,131 18,903 21,111 23,300 26,332 29,926 34,003 Net Revenue (Expense) (176) (971) STABILIZATION RESERVE FUND Opening Balance (461) (58) Add: Excess of revenue over expenses (176) (971) Add: Interest revenue(expense) 8 7 (7) (1) Closing Balance 335 (461) (58) ,347 Minimum Benchmark (10% of total revenue) 4,193 4,000 4,600 4,963 5,442 5,967 6,612 Maximum Benchmark (15% of total revenue) 6,289 6,000 6,900 7,444 8,163 8,951 9,917 CAPITAL RESERVE FUND Opening Balance 1,455 1,455 2, Add: Capital closeouts - 2, Less: Transfer to capital (1,394) (1,395) (2,501) Add: Interest revenue(expense) Closing Balance 62 2, Minimum Benchmark (50% avg balance in 10 yr forecast) 7,912 7,912 12,067 12,067 12,067 12,067 12,067 Maximum Benchmark (150% avg balance in 10 yr forecast) 23,735 23,735 36,200 36,200 36,200 36,200 36,200 % Increase in Retail Sewer Rate 9.90% 10.80% 10.80% 10.80% 10.80% 10.80% % Increase in Region Wholesale Rate 7.90% 6.90% 6.90% 6.90% 5.90% 5.90% % Increase in Consumption -3.61% -1.50% -2.63% -1.03% -1.04% 0.00% FINAL - 36

37 Storm Water Summary of Changes Budget remains unchanged from original presentation Projection is consistent with original presentation FINAL - 37

38 Storm Water Utility (000's) Budget Projected Budget Budget Budget Budget Budget REVENUE Stormwater Charge 13,097 13,254 14,471 15,927 17,529 19,293 21,235 Other Revenue ,615 13,746 15,029 16,528 18,179 19,995 21,994 EXPENSES Administration 1,705 1,680 1,734 1,786 1,840 1,895 1,952 Maintenance 2,167 2,300 2,424 2,822 3,279 3,800 4,395 Interest Expense (Revenue) (1) (1) (1) (1) (1) (7) (18) Storm Water Credit Program Grants to Charities/Places of Worship Transfer to capital (Accelerated Infrastructure Program) 4,618 4,618 5,527 5,899 6,865 7,747 8,830 Transfer to capital (Other) 4,267 4,267 4,347 5,011 5,146 4,610 3,137 13,478 13,611 14,822 16,384 18,076 19,083 19,432 Net Revenue (Expense) ,562 STABILIZATION RESERVE FUND Opening Balance (1,158) (1,158) (1,040) (849) (716) (623) 280 Add: Excess (Deficiency) of revenue over expenses ,562 Add: Interest revenue(expense) (17) (17) (15) (12) (10) (9) 4 Closing Balance (1,038) (1,040) (849) (716) (623) 280 2,846 Minimum Benchmark (10% of total revenue) 1,310 1,325 1,447 1,593 1,753 1,929 2,123 Maximum Benchmark (15% of total revenue) 1,965 1,988 2,171 2,389 2,629 2,894 3,185 CAPITAL RESERVE FUND Opening Balance , Add: Capital closeouts - 1, Less: Transfer to capital (469) (468) (1,310) (286) Add: Interest revenue(expense) Closing Balance (2) 1, Minimum Benchmark (50% avg balance in 10 yr forecast) 5,378 5,378 7,458 7,458 7,458 7,458 7,458 Maximum Benchmark (150% avg balance in 10 yr forecast) 16,133 16,133 22,375 22,375 22,375 22,375 22,375 % Increase in Retail Stormwater Rate 3.00% 9.20% 9.20% 9.20% 9.20% 9.20% % Growth - Residential 1.00% 1.00% 1.00% 1.00% 1.00% 1.00% % Growth - Non Residential 0.50% 0.50% 0.50% 0.50% 0.50% 0.50% FINAL - 38

39 Capital Budget FINAL - 39

40 Capital Budget Change #1 Fleet Replacement Equipment Budget updated based on results of 2015 Annual Equipment Review Total impact is increased budget of $3.9M, primarily in the final four years of the 10-year forecast Account is funded by Fleet reserve FINAL - 40

41 Capital Budget Change #2 Neighbourhood Festivals Budget updated based on Council direction during Annual Grant Review Total impact is increased budget of $180,000 over the 10-year forecast Account funded by transfer of grant funding FINAL - 41

42 Capital Issue Papers IP# Title BD 03 BD 04 City s Capacity to Leverage Federal Funding for Infrastructure Accelerate Funding for Amenities at South Kitchener District Park BD 05 Tree Planting (Urban Forest Capital Provision) FINAL - 42

43 Tax Supported Operating Budget FINAL - 43

44 Highlights Proposed increase is 1.50% Council can influence increase by choices during budget deliberation Proposed budget maintains existing service levels No proposed reductions or additions Forecasted tax rate increases are inflationary Between 1.5% and 2.5% FINAL - 44

45 City had more assessment growth than projected $43,000 additional revenue Options: Additional Assessment Growth 1) Reduce the next tax levy From 1.50% to 1.46% 2) Fund other budget items Option Cost Hire a permanent part-time constituency assistant $32,000 Reduce temporary market fee $19,283 Replenish the Tax Stabilization Reserve $43,000 Implement School Zone Parking Strategy $41,280 FINAL - 45

46 Ten Year Tax Rate Projection (000 s) Operating Impact of Capital Facilities and Growth Customer Relationship Management System 195 Doon Pioneer Park Community Centre (DPPCC) Addition 109 Mill Courtland Community Centre 120 New Community Centre - South End 341 Grand River Park 260 South District Park New Library - South End New Pool - South End Williamsburg Cemetery Phase II 52 New Indoor Turf Field - South End 326 CLASS Software Upgrade Capital Policy Growth Operations to Service Growth , , Impact of Capital Facilities and Growth on Tax Rate 0.75% 0.57% 0.49% 0.86% 1.61% 0.65% 1.11% 0.71% 0.44% 0.45% Estimated Assessment Growth (%) -1.25% -1.25% -1.25% -1.25% -1.25% -1.25% -1.25% -1.25% -1.25% -1.25% Base Inflation 2.50% 2.50% 2.50% 2.50% 2.50% 2.50% 2.50% 2.50% 2.50% 2.50% Strategic Initiatives 0.50% 0.50% 0.50% 0.50% 0.50% 0.50% 0.50% 0.50% 0.50% 0.50% Net Tax Rate Impact, Before EDIF 2.50% 2.32% 2.24% 2.61% 3.36% 2.40% 2.86% 2.46% 2.19% 2.20% Economic Development Investment Fund -0.75% -0.72% -0.71% -0.72% -0.71% -0.68% -0.64% Net Tax Rate Impact, Including EDIF 2.50% 2.32% 2.24% 1.86% 2.64% 1.69% 2.14% 1.75% 1.51% 1.56% FINAL - 46

47 Operating Issue Papers IP# Title BD 06 Permanent Part-Time Constituency Assistant BD 07 Temporary Retail Market Business Licensing BD 08 Tax Stabilization Reserve BD 09 Mileage and per Diem BD 10 School Zone Parking Strategy BD 11 Public Input FINAL - 47

48 Resolutions FINAL - 48

49 Resolutions Draft resolutions provided to Council as a handout Numbers will change based on decisions made today FINAL - 49

50 Final Budget Day Issue Paper (IP) Index IP # Description BD01 Centre in the Square (CITS) Transitional Costs BD02 Water Rate Reduction Scenarios BD03 City s Capacity to Leverage Federal Funding for Infrastructure BD04 Accelerate Funding for Amenities at South Kitchener District Park BD05 Tree Planting (Urban Forest Capital Provision) BD06 Permanent Part-Time Constituency Assistant BD07 Temporary Retail Market Business Licensing BD08 Tax Stabilization Reserve BD09 Mileage and per Diem BD10 School Zone Parking Strategy BD11 Public Input FINAL - 50

51 CITY OF KITCHENER 2016 BUDGET ISSUE PAPER ISSUE: BD01 Centre in the Square (CITS) Transitional Costs FUND: Operating DEPARTMENT: Centre in the Square PREPARER: Ryan Hagey, Director of Financial Planning BUDGET IMPACT: None BACKGROUND: During Operating budget discussions on November 23, staff was directed to report back on options for how transitional funding of $250,000 could be disbursed to Centre in the Square (CITS) in In addition to the $1.75M operating grant for CITS, issue paper Op 01 on page O-88 of the Operating budget package includes a recommendation to fund transitional costs, estimated at $250,000 in 2016, from the Tax Stabilization reserve fund. The issue paper is silent on when funds would be forwarded, or what would happen to surplus funds. RATIONALE / ANALYSIS: Timing of funding transfer The CITS operating grant is currently paid out over the course of the year in equal monthly instalments. This method has worked for several years when CITS reserve levels were high and cash flow was not an issue, but will be more of a concern given the fact that CITS has used much of its reserve funds in recent years. For the transitional funding of $250,000 at least three payment options could be considered: 1. Funds are disbursed with monthly transfer. The transitional funding could be added to the regular monthly transfer amount, which would increase the monthly transfer by $20,833 per month. 2. Funds are disbursed at the request of CITS. Council could approve staff to disburse up to an additional $250,000 given some sort of condition (e.g. written request from the CITS Board). 3. Funds are only disbursed at the end of the year, and only if they are needed. Transitional funding would only be transferred once a deficit for 2016 was confirmed. Surplus funds CITS believes that the full $250,000 of transitional funding will be required in 2016 and further funding may be required beyond 2016, although it is their intent to eliminate the need for transitional funding as soon as 2017 if possible. If the full $250,000 is not required in 2016, there are at least three options that could be considered for any surplus transitional funds beyond what is required to balance the 2016 CITS budget. 1. CITS returns 100% of surplus funds to the City of Kitchener Returning all of the unused funds would ensure that CITS has access to all of the funding available, but also ensure the City is only paying for actual transitional costs. This would also recognize the extraordinary nature of this funding from an already depleted Tax Stabilization Reserve Fund. 2. CITS returns 50% of surplus funds to the City of Kitchener Prior to entering into a fixed funding model in 2013, the City and CITS shared yearend surpluses and deficits 50/50. If CITS kept a portion of a surplus, the City would be paying for actual costs incurred, and allowing CITS to keep 50% of a surplus to replenish its reserves. FINAL - 51

52 CITY OF KITCHENER 2016 BUDGET ISSUE PAPER 3. CITS does not return any surplus funds to the City of Kitchener If CITS kept all of a surplus, the City would be paying for actual costs incurred, and replenishing its reserves from the City s reserves. This would have the largest potential negative impact on the City s Tax Stabilization Reserve Fund which is already in a weak position. FINANCIAL IMPLICATIONS: Transitional funding for CITS is planned to come from the Tax Stabilization reserve fund, so any decision about it would not have a direct impact on the tax rate in Making a contribution of $250,000 to support CITS transition costs would reduce the projected balance in the Tax Stabilization Reserve Fund to $431,400 in 2016, which is well below the target minimum of $5.4M. RECOMMENDATION: Staff recommends that Council proceed as follows: Timing of Funding Transfer Option #2 Funds are disbursed at the request of CITS. and Surplus Funds Option #1 CITS returns 100% of surplus funds to the City of Kitchener (only applies to transitional funding ). The CITS Board has discussed this matter and support the staff recommendation. FINAL - 52

53 CITY OF KITCHENER 2016 BUDGET ISSUE PAPER ISSUE: BD02 Water Rate Reduction Scenarios FUND: Operating DEPARTMENT: Infrastructure Services Utilities PREPARER: Ryan Hagey, Director of Financial Planning BUDGET IMPACT: None BACKGROUND: During Operating budget discussions on November 23, staff was directed to report back on the impact of reducing the water rate increase by 1% (to 6.6%) and 2% (to 5.6%) in RATIONALE / ANALYSIS: The proposed 2016 rate increases for water is 7.6%. This increase is more than the rate of inflation, but is based on analysis of the City s water system as presented in August 2015 as part of the State of the Infrastructure Update. This presentation noted that significant rate increases are required in water, sanitary, and storm water over the next 10 years in order to move these utilities to sustainable funding levels that can support the timely replacement of existing infrastructure. The water utility stabilization reserve has a negative balance (which is in contravention of the Council approved reserve policy) due to reduced water consumption and increased costs from significant water main breaks in 2014/2015, and the capital reserves are depleted. This means the City has not been saving up ahead of time for unexpected repairs or planned replacements. As there are no funds saved up in advance, the only way to reduce the proposed water rate increase would be for Council to impact service levels. The majority of spending in the water budget is non-discretionary. It is either a flow-through cost from the Region supplying water (54%) or tied to legislated/maintenance requirements (22%). As a result, the only part of the budget that could potentially be reduced is the amount of funding spent on capital replacement (24%). The State of the Infrastructure presentation outlined that spending on capital replacement has been lacking and has led to an increasing number of failures in water infrastructure. Increased capital replacement spending is the main reason for the water rate increase. Capital replacement is primarily accomplished through the Accelerated Infrastructure Replacement Program (AIRP), which replaces the water, sanitary and storm water infrastructure that is most in need of repair. A reduction to the water rate would delay the entire program as water would not be able to contribute to its proportionate share of the program. A 1% reduction to the water rate increase would mean the City would be able to reconstruct 5,300 metres (5.3 kilometres) less roadway over the 10-year capital budget and forecast. A 2% reduction to the water rate increase would roughly double this impact. Reducing the water rate below 7.6% would be taking a step back from moving to a sustainable funding level for infrastructure replacement in the first year of a 10 year plan. FINAL - 53

54 CITY OF KITCHENER 2016 BUDGET ISSUE PAPER Impact of a Water Rate Reduction: Reduced spending on capital replacement will result in: Increased failures. Examples include water main breaks, sewer backups, and increased flooding. This will disrupt service to customers in the form of no water until the water main is fixed, sewer backups into private property, or flooding on roads and private property. Increased costs. Any immediate savings in capital spending will be offset by increased operating and maintenance costs as well as higher rates of inflow and infiltration in the sewer network. Further, the infrastructure will ultimately still have to be replaced, but the construction costs will only escalate over time. Decreased revenues. With reduced replacement of water mains, the City will experience more water main breaks, which will result in less revenue for the City. When a main break occurs, the City must pay the Region for supplying the water, but since it is not delivered to a customer, the City will not receive revenue from billing a customer. FINANCIAL IMPLICATIONS: As noted in the Rationale/Analysis section above, any reduction in water revenues must be fully offset by a reduction in water expenses. This means that total revenues and total expenses would go down by the same amount, which would lead to the same bottom line figure in While there is no financial impact of reducing the water rate, there are significant impacts to reaching sustainable service levels. RECOMMENDATION: That the proposed water rate increase of 7.6% be approved in order to move to a more sustainable funding level that ensures proper maintenance and replacement of water infrastructure. FINAL - 54

55 CITY OF KITCHENER 2016 BUDGET ISSUE PAPER ISSUE: BD03 City s Capacity to Leverage Federal Funding for Infrastructure FUND: Capital DEPARTMENT: General PREPARER: Ryan Hagey, Director of Financial Planning BUDGET IMPACT: None BACKGROUND: During Capital budget discussions on November 30, staff was asked to report on the City s capacity to leverage funding for infrastructure, if the next Federal budget included such an opportunity (e.g. something similar to the Infrastructure Stimulus Fund). RATIONALE / ANALYSIS: From time to time the Federal government has announced merit-based grant programs, whereby the cost of a municipal project is shared between different levels of government. The parameters for these programs vary depending on the goal of the program, but there are indications that the new Liberal government will seek to invest in municipal infrastructure. For Kitchener, the majority of the City s infrastructure relates to roads and the underground infrastructure in the road right of way (water, sanitary, storm water). According to the State of the Infrastructure Update presented to Council in August 2015, this infrastructure is nearly 80% of the City s total asset base, with a replacement value of over $3.5 billion. Therefore any City application to a Federal funding program would likely be directed towards the City s water, sanitary, storm water, and road infrastructure. Typically Federal funding programs require a municipality to pay a share of the costs of the project. As noted during the 2016 capital budget presentation, the City has minimal reserves for any of this infrastructure, meaning the City has not saved up any funding that could be used to pay its share of the costs. So if a Federal funding program requires the City to make a contribution towards the cost of a project, the City would have to find the funds from other projects, rather than using unallocated funds held in reserve. These funds could potentially come from the Accelerated Infrastructure Replacement Program (AIRP), which is shown on page C-150 of the 2016 Capital budget. These funds have been fully allocated in 2016, but there is capacity to reallocate AIRP funds from given that the specific road segments beyond 2016 have not been fully defined. While the majority of the City s infrastructure deals with roads and related infrastructure highlighted above, the City also owns significant buildings, equipment, recreational amenities with a replacement value of close to $1 billion. Much of this infrastructure is renewed through general provision capital accounts, which means funding is set aside each year in the budget to save up for specific projects that may require more than one year s worth of funds. Budgeting this way increases the City s flexibility to leverage Federal funds if made available. FINANCIAL IMPLICATIONS: As there are no specific details about any Federal infrastructure funding program, specific financial implications cannot be identified. As noted above, any matching funds required by the City would have to come from identified capital projects instead of funds held in reserve. RECOMMENDATION: For information. FINAL - 55