I Read Reports So You Don’t Have To: Sept. 5, 2017 Budget Committee Agenda

After a few months on summer break, City Council committees start meeting again this week. Including my favourite one, Budget Committee! Here’s a quick read-through of the agenda, adapted from Twitter. Mostly because my soul recoils at the thought of using pictures of text instead of actual text.

6-Month Operating Variance Report

You all know how I love a good operating variance report. Basically it’s just a look at how well the City’s actual expenses and revenues are matching up with the budget, and why. There’s always a few good tidbits in the full report.

The big takeaway is that, totally unsurprisingly, our reliance on ever-rising Municipal Land Transfer Tax (MLTT) revenue will bite us in the ass when the real estate market slows down.

The projected annual surplus is basically all because of

Higher than budgeted Municipal Land Transfer Tax revenues due to higher than expected sales revenue achieved in the first half of 2017 is expected to decline in the last half of the year, which reflects a slowdown in the marketplace.

and

It is important to note that the projected City surplus at year-end of $33.905 million is primarily equivalent to the projected higher Municipal Land Transfer Tax revenues of $30.000 million. After isolating Toronto Building surplus and Municipal Land Transfer Tax over-achieved revenue, the forecasted year-end position for Tax Supported Operations results in a $13.996 million unfavourable variance.

(Translation: without the MLTT we’d have a deficit. Also that revenue is going down lol.)

Just gonna say I told you so:

So did the City Manager:

Moving forward, MLTT revenue is forecasted to stabilize given the 2016 action of maximizing this revenue source by budgeting at 100% of actual experience. In fact, it assumes no decline in the future. Given the City’s reliance of MLTT, a stable real estate market is assumed.

(Translation: our budget assumes that 1) MLTT revenue will definitely be this high, no wiggle room, 2) forever.)

  • Moving on! As ever, “gapping”—delaying filling budgeted-for positions—is a major source of savings. As ever, they are totally going to fix this for next year.

Favourable variances in other Programs and Agencies are primarily due to underspending in salaries and benefits as a result of vacant positions. The majority of the vacant positions are expected to be filled by year-end, other new vacant positions may occur throughout the system.

The problems with this strategy are obvious if you sit down and think about this for 30 seconds, but whatever.

  • As you recall, housing the high number of refugees required dipping into reserves:

Shelter, Support and Housing Administration unfavourable year-end forecast resulting from over-spending in Hostel Services due to the increased demand to accommodate the influx of refugees ($10.338 million net). The pressure will be partially offset by the draw of $3 million from the Social Housing Stabilization Reserve being a one-time contribution approved by City Council on April 26th, 2017 when it adopted item CD19.11 “Service Level Impact of the 2017 Service Adjustments to Shelter, Support and Housing Administration”.

  • The mystery of the missing parking ticket revenue is my favourite long-running low-stakes municipal budget story:

City Operations is projecting a year-end gross expenditure favourable variance of $95.567 million or 1.8%, with a revenue shortfall of $79.894 million or 2.5%. […] The key drivers for the projected favourable variance include:

  • Under-spending in Court Services of $3.767 million net, mainly due to operational savings resulting from processing the lower volume of tickets predominantly filed by Toronto Police Service with projected 19,647 fewer charges than planned.
  • TTC ridership is lower than expected. On Twitter, I commented that it’s too early to tell if it’s the beginning of a TTC Ridership Death Spiral—the dreaded phenomenon where ridership (and therefore revenue) goes down, so the TTC cuts service, which makes ridership go down even more, etc. Steve Munro comments on Twitter that service is actually constrained by a shortage of vehicles, and that the TTC inflates ridership estimates.

An under-expenditure of $44.240 million net in Toronto Transit Commission – Conventional Service was primarily driven by lower departmental material expenditures, accident claims and labour costs. However, customer journeys (ridership) to the end of May was 214.9 million, which was 4.2 million (1.9%) less than the planned 219.1 million journeys for the first half of 2017.

The goal of a newly created role of Chief Transformation Officer is to provide expertise and guidance towards building a modern and adaptive public service that delivers maximum value to the taxpayers. This includes breaking down silos and leveraging expertise across the City, increasing City-wide efficiencies and effectiveness. The Shared Service Project is a City-wide transformational project that focuses on reducing duplication and optimizing service delivery between the City and agencies resulting in cost savings and service improvements. Due to the close alignment of goals and objectives between Shared Services and the newly created Transformation Office, and the need for additional resources in both areas, an in-year adjustment is required to transfer 2 staff and Shared Services budget from Office of the Chief Financial Officer to Office of the Chief Transformation Officer with no financial impact to the 2017 Council Approved Operating Budget.

Economic Development and Culture projects year-end unfavourable variance of $0.626 million or 1.0% over the 2017 Approved Operating Budget.

  • Unfavourable expenditures driven by the severance costs arising from the 2017 Budget process and loss of the lead sponsor for the Nuit Blanche which will negatively impact the 2017 Fall programming activities. The expenditures for Nuit Blanche will be scaled back to reflect the loss of sponsor.
  • I sense some veiled frustration here:

City Planning:

  • Favourable gross expenditures variance of $0.961 million due to savings in salaries and benefits from
    hiring delays, offset by higher IDC for postage, printing and copying for increased development review and study activity.

  • Favourable revenue of $1.299 million from stronger user fees due to higher volumes of development
    applications for Community Planning and Committee of Adjustment, offset by lower recoveries from capital and reserve funds due to delayed hiring.

  • 33.0 positions below the approved complement, which after gapping, is equivalent to a 3.3% operating vacancy rate.

  • City Planning is actively recruiting to fill positions but is delayed by office space restrictions to seat new hires and to attract experienced candidates due to the temporary nature of the positions.

Note the catch-22: there’s way more development applications, but not enough planners to process them. From a (very short-term) budget perspective, however, both factors contribute to savings.

Anyway, that’s just what jumped out at me from the operating budget variance report.

Other Stuff

  • From the appendices to the generally less exciting capital variance report:

    “Perpetual Care of Landfills” sounds vaguely Catholic. Our Lady of Perpetual Care of Landfills – 2014.

PERPETUAL CARE OF LANDFILLS - 2014  
Sub Projects to be closed:  
CSW312-14 PERPETUAL CARE OF LANDFILLS - 2014           2015  2016  9,960,000 6,994,649
CSW312-14-03 2014 BEARE ROAD - BASIC                   2015  2016            73,203
CSW312-14-06 2014 OLD L.F. INVESTIGATONS & ENGINEERIN  2015  2016            440,649
[...]

Reserve and Reserve Funds are created with Council approval to set monies aside: for planned future expenditures; to protect the City against unbudgeted or unforeseen events; to smooth out future program expenditures which may fluctuate from one year to the next; or to accumulate funds for future capital expenditures or irregular or occasional expenses (such as municipal elections every four years).

The major difference between Reserves and Reserve Funds is that all earnings (i.e. interest) from the investment of Reserve Funds must be allocated to, and form part of, the Reserve Fund; while the earnings from Reserves are allocated to the operating budget as investment revenue.

  • A lot of people (or maybe a few people with a lot of time on their hands; you never know) are reporting tree protection by-law infractions and so Urban Forestry wants to hire more enforcement officers.

    Via Twitter, Jonas Spring, a local landscape contractor, argues that without enough staff to actually process permits, this move is counterproductive. The process is so delayed, he claims, that many contractors are proceeding without permits.


Thanks for reading! I do plan to livetweet, so tune in to @neville_park tomorrow morning for updates and analysis.

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