Page 1 of Report F-01-17

Committee of the Whole - Budget MeetingAgenda

Date: January 16, 2017Time: 9:30 amLocation: Council Chambers Level 2, City Hall

Pages

1. Declarations of Interest:

2. Delegation(s):

In order to speak at a Committee of the Whole - Budget meeting, individualsmust register no later than noon on the day before the meeting. To register,complete the online application at www.burlington.ca/delegation, [email protected] or phone 905-335-7600, ext. 7481.

2.1 Brian Aasgaard, President, Friends of Freeman Station, will speak to the2017 operating budget. (F-45-16-2)

2.2 Jim Young, Burlington Seniors' Advisory Committee, will speak to the2017 operating budget. (F-45-16-2)

3. Consent Items:

3.1 Expenses excluded from the 2017 operating budget (F-01-17) 1 - 5

3.2 20-year budget driver forecast (F-02-17) 6 - 12

4. Regular Items:

Please see the Committee of the Whole - Budget agenda for Thursday, January19, 2017.

5. Confidential Items:

Confidential reports may require a closed meeting in accordance with theMunicipal Act, 2001. Meeting attendees may be required to leave during thediscussion.

6. Procedural Motions:

7. Information Items:

8. Staff Remarks:

http://burlington.ca/delegation

http://burlington.ca/delegation

mailto:[email protected]

9. Committee Remarks:

10. Adjournment:

Page 1 of Report F-01-17

SUBJECT: Expenses excluded from the 2017 operating budget

TO: Committee of the Whole - Budget

FROM: Finance Department

Report Number: F-01-17

Wards Affected: Not applicable

File Numbers: 435-01

Date to Committee: January 19, 2017

Date to Council: January 23, 2017

Recommendation:

Receive and file finance department report F-01-17 regarding expenses excluded from

the 2017 operating budget.

Purpose:

An Engaging City

Good Governance

Background and Discussion:

With the implementation of fully compliant PSAB statements a regulation to the

Municipal Act 2001(O.Reg. 284/09) was passed that allows municipalities to exclude

from the annual budget, estimated expenses for all or a portion of the following:

Amortization expenses,

Post-employment benefit expenses, and

Solid waste landfill and post-closure expenses.

For 2011 and subsequent years, a municipality must, prior to adopting a budget for the

year that excludes any of the expenses listed above, prepare and have Council approve

a report containing the following:

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(a) An estimate of the change in the accumulated surplus of the municipality or

local board to the end of the year resulting from the exclusion of any of the expenses listed above, and

(b) An analysis of the estimated impact of the exclusion of any of the expenses

listed above on the future tangible capital asset funding requirements of the municipality.

This report details the impact of the expenses listed above should they have been

included in the 2017 Budget. As the City does not have responsibility for landfills within

their level of authority, this report focuses on amortization expenses and post

employment benefits.

Discussion:

In 2009 accounting standards and reporting requirements underwent major revisions,

most notably the inclusion of tangible capital asset accounting as required by the Public

Sector Accounting Board (PSAB). However, the new standards do not require that

budgets be prepared on the same basis. Therefore most municipalities, including the

City of Burlington, continue to prepare budgets on a cash basis.

The annual budget process is an important municipal exercise which considers plans for

current and future activities and acquisitions. One of the main outcomes of the annual

budget process is a tax rate which Council is asked to approve. This tax rate is

determined on a cash basis and does not include the PSAB requirements of accrual

accounting and accounting for non-financial assets and liabilities such as amortization

and post-employment benefits.

Post-Employment Benefits

Included in this category are expenses related to dental & health care benefits that the

City provides between the time an employee retires and the time that an employee

reaches 65, as well as the potential future costs to the City as a self-insured employer

under the Workplace Safety and Insurance Act, 1997.

The City of Burlington has been reporting the impact of post-employment benefit

expenses to Council annually as part of the financial statements. The City does budget

annually for the current year costs expected to be incurred, but does not budget for the

estimated future liability.

The change in the estimated future liability as of 2017 ($18.9 million) compared to the

2016 liability ($18.0 million) would result in a decrease to the City’s accumulated surplus

of approximately $921,000 in 2017.

The 2016 and 2017 estimated future liabilities were determined through a 2015 actuarial

review. In completing the review, an independent organization evaluates the probability

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of events and quantifies the contingent outcomes based on industry and City of

Burlington-specific experiences.

Any annual surpluses generated from the insurance carrier administering the health

plans are placed in a Benefits Reserve Fund. This fund currently has a balance of $1.7

million which is used in part to fund these liabilities. In addition, there is a reserve for

the WSIB liability with a current balance of $4.1 million. It is important to note that, while

PSAB requires a municipality to disclose the liability in its financial statements, there is

no requirement to fund the liability.

Amortization Expenses

The estimated amortization expense on tangible capital assets for 2017 is $33.2 million.

The City’s 2017 budget does not include this expense, however funding for the

acquisition of tangible capital assets in the amount of approximately $55.5 million is

included in the budget, resulting in a net increase to the accumulated surplus of $22.3

million.

Impact on Accumulated Surplus in 2017

It is estimated that the overall impact of these excluded expenses on the 2017

accumulated surplus will be a net increase of $21.4 million summarized as follows (in

$000’s):

Change in Post employment benefits expenses $(634)

Change in Future WSIB expenses (287)

Acquisition of Tangible Capital Assets 55,488

Amortization expense on Tangible Capital Assets (33,163)

$21,404

Impact on Future Tangible Capital Asset Funding Requirements

Amortization expense represents the reduction in the economic benefits realized by the

City’s assets during a fiscal accounting period. The amount of amortization expense

can be used as a rough indication of what should be budgeted annually for replacement

of the City’s tangible capital assets. It must be noted however that amortization

expense is based on the cost when assets were purchased or built and therefore it may

not properly represent costs in today’s dollars and using current standards.

Amortization expense also does not necessarily capture the true useful life of assets,

nor does it reflect the cost of any growth related assets that may be required. Annual

capital funding should typically exceed amortization expense when considering all of

these issues.

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In recent years the City has implemented sophisticated modeling systems for many

capital categories to assist with the determination of what assets need to be repaired or

replaced based on condition assessments and priority factors. These systems will

continue to be refined and relied upon to more accurately determine capital funding

requirements, rather than relying on the financial reporting amortization expense.

Financial Matters:

There are no direct financial implications associated with this report. The information

contained in this report will be used to meet the financial statement reporting

requirements, but will not result in any budget to actual variances.

Total Financial Impact

Not applicable.

Source of Funding

Not applicable.

Other Resource Impacts

Not applicable

Conclusion:

Adoption of this report by Council is needed prior to the approval of the 2017 budget to

meet the requirements of O.Reg. 284/09 of the Municipal Act 2001.

Respectfully submitted,

Michelle Moore

Coordinator of Accounting

335-7600 ext. 7535

Report Approval:

4


All reports are reviewed and/or approved by Department Director, Director of Finance

and Director of Legal. Final approval is by the City Manager.

5


SUBJECT: 20-year budget driver forecast

TO: Committee of the Whole - Budget

FROM: Finance Department

Report Number: F-02-17

Wards Affected: All

File Numbers: 100-01

Date to Committee: January 19, 2017

Date to Council: January 23, 2017

Recommendation:

Receive and file finance department report F-02-17 regarding the 20-year budget driver

forecast.

Purpose:

Address other area of responsibility

Background and Discussion:

On November 26, 2012, City Council approved the Long Term Financial plan (Report

F-22-12), which contains the following key strategic objectives for the city:

1. Competitive Property Taxes 2. Responsible Debt Management 3. Improved Reserves and Reserve Funds 4. Predictable Infrastructure Investment 5. Recognized Value for Services

Other related reports:

CM-01-16: Burlington’s Strategic Plan 2015-2040

RPM-09-12: Joseph Brant Hospital Contribution Agreement

F-39-13: Asset Management Financing Plan

CW-20-15: Asset Management Plan Update

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F- 45-16: 2016 Operating Budget Overview Report

Discussion:

The purpose of this report is to present the 2017–2036 operating forecast. The

simulation uses the 2017 proposed budget (as submitted) as a starting point and

adjusts the 2018 – 2036 forecast based on estimated budget drivers and the 2017

capital budget and forecast.

As with any modeling tool, the simulation forecast has greatest precision in the first

year. It is imperative that the results are simply used as an information tool regarding

major budget drivers and future projected tax impacts. Not only does it provide an

analysis of what the future financial picture for the City of Burlington might look like, but

it also helps assess financial risks and the affordability of existing and new services,

existing and future capital investments, as well as provides an opportunity to analyze

sensitivities to assumptions.

When forecasting into the future, it is difficult to predict with 100% accuracy given

uncertainties around:

Changes in economic conditions and market demands

Fluctuations in customer expectations

Legislative changes

Reassessment impacts

Operating impacts from approved capital initiatives

Joint venture and other business agreements

Business process improvements

When updating the 20-year forecasting model, staff considered the general outlook for

the city. Staff have shown a realistic scenario where assessment growth is maintained

at 0.6% per annum; no new legacy projects are forecasted; and infrastructure renewal

funding is addressed over the 20-year time horizon, as per the Asset Management

Financing Plan (F-39-13 and CW-20-15). These components provided the basis for

estimating budget drivers (as per Appendix A) and include the following assumptions

within each item:

Maintaining Current Service Levels – Base Budget

Inflationary Impacts and User Fees

With the exception of human resources and commodities (hydro, water, fuel etc.), 2.0% inflation per year has been applied to all other expense categories

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(materials and supplies, purchased services and contributions to local boards and committees)

The increases to User Rates and Fees assumed a 2.0% increase per annum, which is dependent on the nature of the revenues and external market conditions

An annual increase of 3% to the Vehicle Depreciation Reserve Fund to sustain the City’s fleet and equipment inventory

Corporate Expenditures/Revenues

An annual increase to the provisions for Insurance and Contingency Reserves of $100,000 each.

An increase in Investment Income of $100,000 per year in 2019 and beyond given the current low interest rate environment.

Reversal of one-time revenue of $220,000 for assessment growth stabilization in 2018.

Other Expenditures

Infrastructure Renewal Funding and Joseph Brant Hospital

An annual increase of 1.25% for Dedicated Infrastructure Renewal Funding from 2017-2022, reduced to 1.0% for 2023-2033 and 0.5% for 2034 and 2036. This provides funding for capital renewal, as per the Asset Management Financing Plan (approved 20-year scenario).

An annual increase of $200,000 (2020-2024) in order to phase in required increase for debt charges.

Includes the repositioning of the hospital levy to infrastructure renewal in 2019 ($1.5 million), 2026 ($800,000) and 2027 ($2.5 million)

Business Cases

Details from the 2017 Capital Budget and Forecast as well as growth related

operating impacts in the future

In order to address Service enhancements, similar to the one included in the

2017 Proposed Budget for Tree Service ($254K), $600,000 have been included

8


in the 2018 Forecast for Playfield Service levels, reducing to $400,000 annually

from 2019 and beyond for other Service enhancements.

Allowance for Unknown Factors

As with all forecasts, it is imperative to recognize that there are a vast number of

unknown factors that will likely occur in the future that could impact the model. In order

to address these unpredictable factors, an amount of $100,000 has been included in the

2019 forecast, increasing by $50,000 per year until 2027, and maintained at $500,000

beyond that.

Assessment Growth

The weighted assessment growth for the 2017 budget is 0.15%. Assessment growth is

estimated to be 0.6% in 2018 and maintained unchanged for the remainder of the 20-

years. Over the last 5 years, weighted assessment growth has ranged from a low of

0.15% to 1.16%. The five year average is 0.75%.

Financial Matters:

The proposed 2017 Budget reflects a city tax impact of 4.23%, resulting in an overall tax

impact of 2.48% (City, Region and Education).

The simulation forecasts the city tax impact from 2018 to 2036 to begin at 4.96%

reducing to 2.90%. The overall tax rate impact (City, Region and Education) ranges

from 2.93% in 2018 to 2.27% in 2036.

While staff will look for ways to smooth out the timing of operating impact from prior

approved capital projects, it is important for council to recognize the significant

pressures in 2018. One way to stabilize significant spikes would be to partially advance

a known 2018 budget pressure. While this would increase the 2017 budget, it could

assist in mitigating the 2018 forecasted impact.

Total Financial Impact

The model indicates tax increases as follows (detailed in Appendix A):

Average

Proposed

2017 2018 2019 2020 2021

2022-

2026

2027-

2031

2032-

2036

Net City Tax

Increase

4.23%

4.96%

4.19%

3.86%

3.81%

3.52%

3.43%

3.14%

Overall Tax Bill

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Average

Proposed

2017 2018 2019 2020 2021

2022-

2026

2027-

2031

2032-

2036

Impact 2.48% 2.93% 2.66% 2.58% 2.50% 2.44% 2.45% 2.37%

Conclusion:

The 20-year budget driver forecast is a tool that provides a high level summary of major

budget drivers and the expected tax impacts. This will be helpful to establish future

budget targets, as well as provide the ability to undertake tax impact sensitivity analysis

should circumstances change.

Respectfully submitted,

Meri Gjeka

Financial Analyst

335-7600 ext.7975

Appendices:

a. 20-year forecasted budget drivers

b. 20-year tax increase forecast graph

Report Approval:

All reports are reviewed and/or approved by Department Director, Director of Finance

and Director of Legal. Final approval is by the City Manager.

10

City of Burlington

2014 2015 2016

2017

Proposed

Budget2018 2019 2020 2021 2022 2023 2024 2025

City Tax Levy 146,119$ 152,515$ 160,989$ 168,599$ 175,968$ 183,533$ 191,368$ 198,891$ 206,711$

Inflationary pressures & User Fees 3,344$ 3,871$ 3,967$ 4,019$ 4,088$ 4,283$ 4,487$ 4,702$ 4,927$

Corporate Expenditures/Revenues 137$ 200$ 100$ 100$ 100$ 100$ 100$ 100$ 100$

Assessment Growth Stabilization (220)$ 220$

Base Budget 3,261$ 4,291$ 4,067$ 4,119$ 4,188$ 4,383$ 4,587$ 4,802$ 5,027$

Incremental Tax Impact (%) 2.09% 2.27% 1.96% 1.86% 1.81% 1.81% 1.78% 1.80% 1.79%

Other Expenditures/Revenues

Capital Invest 2,300$ 2,002$ 3,611$ 2,410$ 2,507$ 2,607$ 2,231$ 2,313$ 2,198$

Repositioning the levy for JBH -$ -$ (1,500)$ -$ -$ -$ -$ -$ -$

Service Improvements 600$ 400$ 400$ 400$ 400$ 400$ 400$ 400$

Business Cases 834$ 1,581$ 1,033$ 440$ 470$ 445$ 305$ 305$ 245$

Total Other Expenditures/Revenues 3,134$ 4,183$ 3,544$ 3,250$ 3,377$ 3,452$ 2,936$ 3,018$ 2,843$

Allowance for Unknown Factors -$ 100$ 150$ 200$ 250$ 300$ 350$ 400$

Total Net Taxes 133,816$ 140,038$ 146,119$ 152,515$ 160,989$ 168,699$ 176,118$ 183,733$ 191,618$ 199,191$ 207,061$ 214,981$

0.15% 0.60% 0.60% 0.60% 0.60% 0.60% 0.60% 0.60% 0.60%

Tax Bill Impact (%) 3.50% 3.64% 3.14% 4.23% 4.96% 4.19% 3.86% 3.81% 3.80% 3.49% 3.50% 3.40%

Overall Tax Bill Impact (%) * 1.49% 2.08% 2.01% 2.48% 2.93% 2.66% 2.58% 2.50% 2.52% 2.39% 2.42% 2.38%

2026 2027 2028 2029 2030 2031 2032 2033 2034 2035 2036

214,581$ 222,759$ 231,214$ 240,024$ 249,204$ 258,771$ 268,744$ 279,143$ 289,987$ 299,819$ 310,073$

Inflationary pressures & User Fees 5,164$ 5,412$ 5,672$ 5,945$ 6,232$ 6,534$ 6,850$ 7,182$ 7,530$ 7,896$ 8,281$

Corporate Expenditures/Revenues 100$ 100$ 100$ 100$ 100$ 100$ 100$ 100$ 100$ 100$ 300$

Assessment Growth (1,298)$ (1,350)$ (1,403)$ (1,459)$ (1,517)$ (1,578)$ (1,641)$ (1,706)$ (1,774)$ (1,836)$ (1,901)$

Base Budget 5,264$ 5,512$ 5,772$ 6,045$ 6,332$ 6,634$ 6,950$ 7,282$ 7,630$ 7,996$ 8,581$

Incremental Tax Impact (%) 1.81% 1.83% 1.84% 1.86% 1.88% 1.89% 1.91% 1.93% 1.86% 1.89% 1.95% 1.89%

Other Expenditures/Revenues

Infrastructure Renewal Funding 3,084$ 4,874$ 2,467$ 2,564$ 2,665$ 2,770$ 2,879$ 2,992$ 1,632$ 1,688$ 1,746$

Repositioning the levy for Joseph Brant

Hospital (800)$ (2,500)$ -$ -$ -$ -$ -$ -$ -$ -$ -$

Business Cases 230$ 170$ 170$ 170$ 170$ 170$ 170$ 170$ 170$ 170$ 70$

Total Other Expenditures/Revenues 2,914$ 2,944$ 3,037$ 3,134$ 3,235$ 3,340$ 3,449$ 3,562$ 2,202$ 2,258$ 1,816$

Net Taxes 222,759$ 231,214$ 240,024$ 249,204$ 258,771$ 268,744$ 279,143$ 289,987$ 299,819$ 310,073$ 320,470$

Tax Bill Impact (%) 3.81% 3.80% 3.81% 3.82% 3.84% 3.85% 3.87% 3.88% 3.39% 3.42% 3.35%

Overall Tax Impact (%) 2.62% 2.63% 2.65% 2.68% 2.70% 2.73% 2.76% 2.78% 2.54% 2.56% 2.54%

Allowance for Unknown Factors 450$ 500$ 500$ 500$ 500$ 500$ 500$ 500$ 500$ 500$ 500$

Total Net Tax Levy 223,209$ 231,714$ 240,524$ 249,704$ 259,271$ 269,244$ 279,643$ 290,487$ 300,319$ 310,573$ 320,970$

% Assessment Growth 0.60% 0.60% 0.60% 0.60% 0.60% 0.60% 0.60% 0.60% 0.60% 0.60% 0.60%

Tax Bill Impact (%) 3.42% 3.41% 3.42% 3.42% 3.43% 3.44% 3.44% 3.45% 2.95% 2.97% 2.90% 3.58%

Overall Tax Bill Impact (%) * 2.51% 2.42% 2.43% 2.45% 2.47% 2.49% 2.50% 2.52% 2.28% 2.30% 2.27% 2.47%

20-Year Forecasted Budget Drivers

City Tax Levy

3-Year History 2018-2036 Forecast

Description

% Assessment Growth

2026-2036 Forecast

20 YR

AVERAGEDescription

Appendix A of F-02-17

11

20 Year Tax Increase Forecast Graph Appendix B of F-02-17

2.48%

2.93% 2.66% 2.58% 2.50% 2.52%

2.39% 2.42% 2.38% 2.51% 2.42% 2.43% 2.45% 2.47% 2.49% 2.50% 2.52%

2.28% 2.30% 2.27%

4.23%

4.96%

4.19%

3.86% 3.81% 3.80%

3.49% 3.50% 3.40% 3.42% 3.41% 3.42% 3.42% 3.43% 3.44% 3.44% 3.45%

2.95% 2.97% 2.90%

0.0%

1.0%

2.0%

3.0%

4.0%

5.0%

6.0%

Pro

po

sed

201

7

2018

2019

2020

2021

2022

2023

2024

2025

2026

2027

2028

2029

2030

2031

2032

2033

2034

2035

2036

20 Year Tax Increase Forecast Projected Overall Property Tax Increase (City/Region/Education)

Projected City Tax Increase

12

Documents

Page 1 of Report F-01-17