2012 CAO Overview

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OFFICE OF THE CHIEF ADMINISTRATIVE OFFICER

2012 OPERATING BUDGET OVERVIEWIntroductionThe purpose of the Operating Budget Overview is to provide information regarding theproposed 2012 Operating Budget, as well as factors and indicators that City Council maywish to take into consideration.This Overview is divided into the following four sections:

Part 1-Environmental Scan---summary of important issues and trends that couldhave a local impact.Part 2-Review of the Baseline Financial Indicators that chart our performance.Part 3- Highlights of the 2012 Operating Budget and the Budget submitted for 2012Part 4-Looking Forward---outlines concluding statements and identifies some nextsteps for City Council's consideration related to the City's finances.


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2012 Operating Budget OverviewNovember 2011 Page 2

I Part 1 - Environmental ScanThe Economy - 2011 The Ontario economy was expected to have a breakthrough year in 2011, but

instead is expected to see a slow progress toward a full recovery from the recession.Supply-chain disruptions in the auto sector and slower than expected growth in theUS economy have dimmed the outlook for Ontario this year and next. (Source: RBCPROVINCIAL OUTLOOK, September 2011)

The City's unadjusted unemployment rate provided by Statistics Canada forSeptember 2011 continues to be higher that both the National and Ontario rates,Brantford's unemployment rate has decreased .92% compared to a decrease of .2%at the national and provincial levels. The unemployment rate as at October is 8.8%. The City's Ontario Works caseload has increased by 149 cases or6.8% over 2010levels. The assessment growth for 2011 is expected to be .67% compared to 1.403% in2010 and 1.377% in 2009. The Bank of Canada interest rates remains near historical lows (current rate of1.0%), which continues to make it affordable for homeowners with mortgages andbusinesses with investment loans .. Inflation is currently at 3.2% as of September.

The Economy - 2012 The global economic outlook has deteriorated in recent months and the risksto the recovery have intensified. Economic growth is likely to remain tepid, despite the fact that corporationshave plenty of cash in their books, borrowing costs are at record lows, andcredit conditions have improved. The investment spending by businesseswillfill in for low consumer spending growth and depressed housing marketactivity.Council Priorities and the 2012 Budget With the current economic environment and the complexity of operating a quarter ofa billion dollar corporation, it is vitally important that the City continue to focus itsfinancial and human resources towards priorities and an agreed upon direction byCouncil. As the preparation of the 2012 Budgets commenced, their preparation has beenbased upon the Community Strategic Plan and Council Priorities 2010 to 2014documents approved by Council June 27, 2011. As fundamental components of thebudget process, staff has utilized these documents in the development of theproposed allocations of the City's financial resources (2012 Operating and CapitalBudgets) and staff resources (2012 Departmental Business and Work Plans).


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Council's Direction for the 2012 Operating Budget The Finance Committee established the guidelines for staff to follow in preparing the2012 Operating and Capital Budgets. The components of this approach were as follows:

a) 1.5% Average Residential tax increase. This translated into an estimated targetincrease of .1% on the Operating Budget. The final average increase won't beknown until mid December.b) The following items are now included in the Base Budget calculation:

Service Delivery Efficiencies Fee Increase/Decreases approved through the "Early Approvalprocess" Mandatory Unmet Needsc) Overhead Charges will be eliminated for the following tax supported departmentsand divisions: Golf Farmers market Sanderson Centre Solid Waste Airport Parking

Overhead charges for all other user rate and cost shared departments/divisionsthat currently receive them will be frozen at 2011 levels.d) Unmet Needs

Will be allowed to come forward as part of the 2012 Budget. Mandatoryunmet needs should be included in the base. budget. All other unmet needswill be submitted for consideration.

Controlling Property Tax Increases Brantford has had property taxes which are "in the mid to high categories" (as per theBMA Study) for all property tax classes - residential, commercial and industrial.While there have been attempts to compare property taxes and tax rates betweenmunicipalities, care must be taken when undertaking such comparisons. It is very significant to appreciate that Brantford is a single tier municipality, among ahandful of municipalities in Ontario that perform a very broad range of services totheir communities. The City provides a multitude of services to the community. Residents andbusinesses are perhaps most aware of some of these services which they use on aregular basis (I.e. municipal water, sanitary sewers, garbage collection, streetcleaning and maintenance, and streetlighting and traffic signals), however, there aremany more services, for example, that relate to health and safety, regulatoryservices, and services related to quality of life in the community, which are not sowidely known or apparent to all.


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From 2007-2011, there have been significant strides made to control property taxincreases. Average residential tax increases directly attributed to the specific budgetyear have ranged from a property tax decrease of 2.2% (2008) to an increase of1.73% (2007) over the five year period, with an overall average of 0.39% for thisperiod before the impact of the phase out of the residential tax grant There are several factors which impact property tax increases

o Revenue increases through assessment growth(2011 and the submitted budgetfor 2012 show decreased assessment growth of approximately 25-30%,however the year over year increase is stil l positive)o Increase revenues from other sources, such as through user fees. A policy ofthe City's Strategic Financial Plan is that user fees be considered where thereis a clear relationship between the fees paid by the user and the benefitreceived by the user, and the user has a choice as to the extent to whichhe/she uses the service. Fees have been increased where applicable whileremaining affordable.o Continuation of the pursuit of: 1) cost control, 2) cost reduction and 3) costavoidance measures in the provision of existing services.

Cost control and reductions measures should continue as a means of not onlycontrolling property tax increases but also organizational efficiency: Improved business processes. Greater use of technology and e-government innovation. Greater use of service performance measurement to monitor and improveon service delivery efficiency and effectiveness. The continuation of cost reductions through service delivery efficiencies.

Cost avoidance measures would be the next phase in the controlling ofproperty tax increases. Some initiatives that could be undertaken wouldinclude: Review of current program and service levels. The disposal of underutilized or redundant assets in order to avoidincurring operating and capital costs.

In addition to the continued pursuit of internal organizational efficiency through costcontrol, reduction and avoidance, the opportunity to achieve the most cost efficientservice delivery through enhanced partnerships with organizations external to theCity, should be given serious exploration.


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I Part 2 - A Review of the Baseline Financial Indicators As noted in previous Budget Overviews, understanding the changes in the City'seconomic and fiscal situation/trends provides an important context for the annual

budget process and can assist in the City's financial planning for the future.The benefits of analyzing the current situation and trends are as follows:

Identify how we are performing from a historical perspective.Assist in predicting potential threats to our existing situation thereby allowing thedevelopment of timely mitigating strategies.Enable us to view our strategies from a long-term perspective, resulting in betterdeclsion-maklnq and strategic positioning.Provide a process for the analysis of data to gain insight into long-term trends. For the past six years, staff has presented a series of financial indicators to assist

Council in understanding the City's current financial situation at that time. The following available financial indicators have been updated for this Overview:

Property Tax IndicatorsRevenue SourcesAssessment IndicatorsNet New Assessment GrowthFinancial IndicatorsGross ExpendituresExpenditures by Service AreaProvincial FundingAnnual SurplusMunicipal Debt IndicatorsAnnual Debt Carrying Costs


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2012 Oper at in g Budget overviewNovembe r 2 011 Page 6

Indicator - Revenue SourcesProperty Tax Indicators

2012 Operating fund BudgetedRevenues .To ta l Taxat ion. Reven~~s. Water & Sewer

%

Energy GroupCompanies Revenues

4.62%

The largest portion of City revenues comes from property taxes. Trends over the lastseven years has seen increased reliance on revenues from property t a decrease on totalgrants, which includes funding from the Federal and Provincial Governments and aminor decrease in revenues from user fees and service charges.

Indicator - Assessment GrowthAssessment Indicators

$41500,000$4,000,000$3,500,000$3,000,000$21500,000$2,000,000$1,500,000$1,000,000$500,000

$0

N et N ew A ssessm en t G ro w .th 2001 ..20114,353,505

2001 2003 2005**2011 net new assessment growth is a preliminary number


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Assessment Growth is fundamental to a municipality's ability to increase its tax revenuewithout increasing the overall budget.Brantford has seen a trend of increasing Assessment Growth between 2000 and 2007.The strongest assessment growth has occurred from 2005 to 2007, with 2005 and 2006each exceeding $3.0 million, and 2007 exceeding $4.0 million.However, for 2008 to 2010 there has been a decline in new assessment growth, with the2009 and 2010 assessment growth returning to levels experienced in the early 2000's.The downturn in the economic performance of Ontario and Canada since 2008,combined with native land claims, has no doubt impacted the City's Assessment Growth.2011 growth rate to date is expected to drop by almost 50%, reaching the lowest level ofgrowth experienced in the last 10 years.

Financial Indicators

Indicator - Gross Expenditures1997 to 2 01 2 G RO SS E XP EN DIT UR ES

300 - _ . .~ ~ -- - - - - - - -~. . . . . . . - -, . , . . -

. . . . . . . .

-..

275250225

175. . . .


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Indicator - Expenditures by Service AreaExpenditures by Service Area illustrate the allocation of each tax dollar received by theCity for the various service areas.An initial observation of this baseline data shows that Emergency Services (Police Fire,Ambulance), account for 37.6 cents of every tax dollar in 2012. City Council has limitedcontrol over the budgets, as many of the services and programs are mandatory or costshared.

2 01 2 B u d ge te d N e t E xp en d I tu re s. P e r T a x D o l l a rC o r p o r a te s e r v lc e s J 01. ~

C A D ~ 0.4C ity C o un ci l ) 0 .4

B U i l d i n g & P ro pe ly S td s ) 1 1 . 4S an de rs o n C en t r e ~ 0 . 5

C h l l d u r e ~ 0 .75 1 . J os l : p h 's U fc a r e ~ 0 .7H u m a n R e s o u r c e s Ii 0 .8

4

D e s l g n 8 . C o ns tr u ct io n ~ 0 .9P r o p e r t y M ;m;Igelrent . 0.9

C i t y C l e r k 1.1fnginmlng.F 1.1SOIidW a~e ~ 1.3

J oh n N ob le H om e 1 m 1 .3P ~ n o in g ~ ~ 1. 3

[ c o n o m k D ev e l o p m en t ~ 1 .5H e a ~ h U n i t : f a 1 .8I T S e r v ic e s 1m rs

F inance~ 2 .2. ;A m b u la n c e ~ 2 . 6iU b r a r y J~ 3 1P u b [c W o r k s ~ 5.l

O n t a r i o W o l k s ~ 5 . 9s o d a l H o u s n g - ~ 6 .5Iranspcrtatbn ~. 6 .5

P ~ I J .s & R e c )wE! ' . ~ 7 . 4C o r po ra te F 1 n a oc e bwx .t _ f f i S i l i 8 .5

fire ~w*",\$""*i'JI 1 2 . 7i .P o ik e ~ -5 UBr lHkM'i&Ai%': i 2 2 34---.r ~~~~ - r - - " : - '- - ,

C E N T S


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Indicator - Annual Surplus

$10,000,000$8,000,000$6,000,000$4,000,000$2,000,000

$0

Annual Budget Surplus 200.1- 2011

Annual Surplus As Percentage Of Gross Expenditures. 2001 - 20114.0%3,5%3.0%2.5%2.0%1.5%1.0%0.5%0.0%

T"" to8 ~ . .-, . . . .0 0N N . ( ' o J

Brantford's surplus has ranged from $2.5 million in 2000 to a high of $9.4 million in 2007.Based on third quarter variance reports, the estimated surplus for 2011 is only $73,600,substantially lower than past experiences.


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Municipal Debt IndicatorsIndicator - Annual Debt Carrying Costs

$6,000,000$5,000,000$41000,000$3,000,000$2,000,000$1,000,000

$0

A n nual C arrying C osts Ta x S upp orted D eb t201 1 - 2021

2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 2021I Oi-CurrentD e b t - --0 Potentla iNew Deb t(No t Is sued) I

A nn ual C arrying C osts N on ..T ax S u ppo rted D ebt2011 - 2021 -$4,500,000$4,000,000$3,500,000$3,000,000$2,500,000$2,000)000$1,500)000$1,000)000$500,000$0 2011 2012 20132014 2015 2016 2017 2018 2019 2020 2021

IIICurrent Debt oPotentiel New Debt (Not Issued)


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2012 Oper at in g Budget Over vi ewNovembe r 2 011 Page 11

Brantford has the following Current and Potential New Debt (Not Issued) associated withboth tax-supported and rate-supported capital projects:

$50,000,000$45,000,000$40,000,000$35,000,000$30,000,000$25,000,000$20,000,000$15,000,000$10,000,000$5,000,000$0

T otal T ax Su p po rted D eb t2011 .. 2020

mCurrent Debt DPotential New Debt (N~t:!SSU~~) 1

$45,000,000$40,000,000$35,000,000$30,000,000$25,000,000$20,000,000$15,000,000$10,000,000$5,000,000$0

Total Non..Tax S upp orted D eb t2 01 1 .. 20 20

20112012 2013 2014 2015 20162017201820192020.mCurrent Deb t tlPotentia l New Deb t (No t Is sued )


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Debt Room Remaining2010 .. 2020$100$90$80$70

V I $60c0::$50:2 : $40

$30$20$10$0

2011 2 0 1 2 2 0 1 3 2 0 1 4 2 0 1 5 2 0 1 6 2 0 1 7 2 0 1 8 2 0 1 9 2 0 20

The following charts' provide details on the tax supported current and potential newdebt (not issued) on a project basis.

Northwest Industrial Area - Phase 2 $5,082,180Ice $1Non-Profit Housing Mortgages $421,027Total $6,723,207

rades

$10,000,000$14,000,000

,856$3,450,000

Total $41,909.856


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2012 Operating BudgetOverviewNovember 2011 Page 13

The following charts provide details on the user rate supported current and potentialnew debt (not issued) on a project basis.

Local ImprovementsD'Aubigny Creek Storm Water Pond

John Noble Home affordable Housing

Total $27

Water Treatment Plant UpgradesWater Pollution Control Plant rades

$578,907$2,594,979$1,643,382

$22,259,719

$10,000,000$5,000,000

rth Water/Sewer U$400,000

$2,950,000Total $20

If all planned debt is issued, total debt will reach a maximum of $84.3 million in 2013.At this level of debt, the debt room available is approximately $44 million using aterm of 15 years and an interest rate of 3.75%.


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I Part 3 - 2012 Operating Budget HighlightsCouncil Direction

Council has directed 1.5% Average Residential tax increase. This translated intoan estimated target increase of 1% on the Operating Budget.

Overhead charges have been removed from some areas, resulting in decreasedcharges to non-user rate supported departments operating budgets. However.administrative divisions have received the burden through decreased revenues,thus, increasing the pressure to meet the 1% budget target and in some caseshas led to NON-RECOMMENDED Service Reductions.

Operating budgets include debt servicing requirements in the appropriatedepartmental. budgets.

General Observations Emergency Services (Fire, Police, and Ambulance) account for 36% of the totalmunicipal budget in 2012. 2012 Budget submission is $2.83 million above the1% target increase.

Corporate Finance accounts for 8.5% of the total municipal budget in 2012. 2012Budget submission is $1.65 million above the 1% target increase.All other departments account for 55.5% of the total municipal budget in 2012.2012 Budget submission is only $.41 million over budget.

Sources of Income/Cost Sharing/Outside Levy To date the municipality has only seen a .67% assessment growth compared to1.403% in 2010 and 1.377% in 2009. Building permits, a primary source of income has decreased. The 5 yearaverage is $1,320,568. As at October 21, 2011, the revenue was $822,866. Asper 3rd quarter variance report, a draw on reserves in the amount of $350,000 isbeing anticipated. In 2011 budget pressures were relieved by significant uploading of Social

Services costs to the Province ($5 million). Although we will see continueduploading of Municipal Social Services costs annually until 2018, thosereductions will be much smaller than that of 2011. In 2012 the Municipallyuploaded Social Services costs will be approximately $316,600.

Many services are cost shared with the Province (or in some Cases the Countyof Brant). Reductions to service in these areas would only result in a portion ofsavings 20-50% by the municipality or no savings at all. GRCA levy has increased by 4% and has been reflected in Water andWastewater rates for 2012.


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Corporate Finance , Interest rates are stagnant, decreasing investment income by $138,308 or 10%.

Our current average rate of return on long term investments is 2.8% compared to3.02% in 2010. Bank of Canada issued statements October 27th indicated thatthere is no pre-conceived notion that rates will be moving away from theovernight target of 1% for an extended period.

Supplementary Tax revenues have been reduced by $1,000,000 or 50% for2012.

Operating Contingency includes allowances for compliance to regulations(energy), pay equity, legal matters, outstanding arbitration of agreements(police/fire) and other miscellaneous items.

Conclusion:The pressures faced by Emergency Services and Corporate Finance represent89% of the monies to be found to reach 1% target.

I 2012 Operating Budget SubmittedBase Budget Note: All "Tab and Page" references in Part 3 relate to the 2012 Budget WorkbookBinder. The submitted 2012 Net Municipal Budget is $121,502,863 (summary of the NetOperating Budget at Tab Net Operating Budget, Paqe 1). The Net Budget includes Base Budget Increases in the amount $5,632,334representing a 4.86% increase over the 2011 Budget (before assessment growth). Asummary of the various components that make up the 2012 base budget are:


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2012 Base Budget Increases/Decreases

$6,041,063Annualization of Staff $587,870Contractual Obligations $562,053 Budget Increase/Decrease9Utilities Base Budget Increase/Decrease10 and 11273,895Inflationary Costs 2 Base Budget Increase/Decrease12-14Council Approved Initiatives

$381,511$632,629

Service Delivery Efficiencies -$1,182,673Revenues -$6,134,767Removal of One-Time Amounts $75,149Other Reductions $1,036,284Total

Assessment Growth

$5,632,334

When the Assessment Growth of $776,253 is taken into account the percentageincrease of the Net Municipal Budget is reduced to 4.16% prior to any Reductions orUnmet Needs.

Road Map to Reductions to Achieve 2012 Budget Target As directed by City Council, staff has identified a number of cost reductions (bothrecommended and not recommended) in an attempt to achieve City Council's targetof a 1% budget increase for 2012. The following table is a summary of those costreductions:

Fee Increases 14,200 Tab 3.1 Fee Increases Pages 1 and 2Service Level Reductions $93,500Total of RecommendedReductions $107,700

With the inclusion of the recommended Fee Increases, and Other RecommendedReductions totaling $107,700 the resulting proposed 2012 Net Budget increase is4.07%.


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2012 Operating Budget OverviewNovember 2011Page 17

$2,409,137$3,576,097

With the inclusion of the not recommended Service Level Reductions, and GeneralService Reductions totaling $3,576,097, the resulting proposed 2012 Net Budgetincrease is 1.00%. including assessment growthUnmet Needs There are 38 Unmet Needs totaling $1,569,110 (with an Ongoing Annualized Impact

of $1,453,319) that have been identified by the appropriate department head,Please refer to Tab 4 Unmet Needs for details.


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I Part 4 - "Looklng Forward"The following are signif icant elements of the City's current financial position: The full impact of Provincial Government uploading of some social services costs totaling

over $5.0 million was realized in 2011. Expected levels from 2012 through to the completionof the uploading schedule in 2018 are estimated to be between $200,000 and $300,000 peryear, decreasing over time. While there is no longer OMPF funding provided by the Provincial Government, the Provincecan continue to have a significant impact of the City's budget as a result of regulatoryrequirements, and mandated increases in levels of service that would have to be funded bythe municipality. With Provincial funding as a revenue source to municipalities at diminished levels theaccountability and responsibility for the delivery of services and the financial future rests withthe City.

With the city's constant focus on cost reduction, cost control, and cost avoidance, the returnscontinue to diminish. We wi l l continue to modify business processes, make structuralimprovements in the organization, use improved or new technology, continue to review ofprograms, service levels, and the disposal of underutillzed or redundant assets. Finally, there is a growing trend in municipalities in both Canada and the United states topartner in the delivery of services beyond their own municipal boundaries and beyondmunicipal organizations. Indeed, the City and County of Brant already partner in the deliveryof several major public services including Ontario Works, Housing, John Noble Home, LandAmbulance, and Child Care. The exploration of the opportunity to expand beyond theseexisting successful shared service arrangements with the County, as well as with adjacentjurisdictions, and more broadly with the MUSH (Municipalities, Universities, Schools, andHospitals) Sector is an unexplored opportunity as a means of enhancing service delivery andoperational efficiency.

Ted SalisburyChief Administrative O r

Documents

2012 CAO Overview