Item - 2018.EX36.17

The Executive Committee recommends that:

1.  City Council approve an increase to the Toronto Transit Commission's (TTC) Operating Budget of $6.900 million gross and $0 net, to reflect a one-time contribution to Toronto Transit Commission's stabilization reserve of $6.900 million based on a one-time recovery from Metrolinx for future Toronto Transit Commission's operating costs, with funds to be withdrawn annually over a 15 year period to offset Toronto Transit Commission's costs.

2.  City Council request that all City Programs and Agencies continue to monitor operating expenditures and revenues and submit their respective second quarter operating variance reports to the Chief Financial Officer as a continuation of the budget monitoring process during City Council recess.

3.  City Council direct that Heads of City Divisions and Agencies projecting year-end unfavourable variances to continue monitor the year-end projections and implement mitigation strategies and notify the Chief Financial Officer and the City Manager of actions being taken to offset the unfavourable variances.

4.  City Council approve the budget adjustments and any associated complement changes detailed in Appendix F to the report (July 13, 2018) from the Interim Chief Financial Officer to amend the 2018 Approved Operating Budget, such adjustments to have no impact on the 2018 Approved Net Operating Budget of the City.

The purpose of this report is to provide City Council with the Operating Variance for the five months ended May 31, 2018 as well as projections to year-end. This report also requests City Council's approval for amendments to the 2018 Approved Operating Budget that have no impact on the City's 2018 Approved Net Operating Budget.

The following table summarizes the financial position of the City's Tax Supported Operations as of year-to-date and the projection at year-end:

Table 1: Tax Supported Operating Variance Summary

In accordance with the Building Code Act, the surplus from Toronto Building must be contributed to the Building Code Act Service Improvement Reserve Fund. That fund was established to create and maintain systems and processes which enable service delivery timelines and reporting requirements in accordance with the Building Code Act.

Year-to-Date Spending Results:

As noted in Table 1 above, Tax Supported Operations reported a favourable net variance of $124.167 million or 7.6 percent of planned expenditures for the five months ended May 31, 2018, and are projecting year-end under spending of $24.548 million or 0.6 percent of the 2018 Approved Operating Budget.

The year-to-date net favourable variance was primarily driven by:

- Over-achieved Municipal Land Transfer Tax revenue due to higher than anticipated non-residential market activity in the first quarter ($18.429 million net).
 

- Underspending in Parks, Forestry and Recreation, primarily driven by underspending in salaries and benefits due to delays in the hiring process of hard-to-fill job classifications ($14.626 million net).

- A favourable variance in Transportation Services driven by lower contract costs, road and bridge repair materials, and higher than planned revenue from permit fees ($13.669 million net).
 

- Over-achieved revenue in Toronto Building primarily due to higher than planned building permit application activity ($10.800 million net).
 

- Underspending by the Toronto Transit Commission of $21.162 million net primarily as a result of lower than planned PRESTO adoption rate and associated transaction costs, utility costs, labour and material costs of $16.284 million net within the Conventional Service, and lower net costs of $4.878 million associated with lower than planned contracted service cost due to lower ridership within the Wheel Trans program.

Favourable variances in other Programs and Agencies are primarily due to under-spending in salaries and benefits as a result of vacant positions.

After accounting for Building permit revenue of $10.800 million, the year-to-date variance is $113.367 million favourable.

Year-End Spending Projections:

For year-end, the City is projecting a net favourable variance of $24.548 million or 0.6 percent of the 2018 Approved Operating Budget. After the Building Code Act legislative requirements are met, the projected year-end variance is anticipated to be $1.704 million over budget. The key drivers for the expected unfavourable year-end net position are largely due to the following:

- An over expenditure in Shelter, Support and Housing Administration of $22.119 million net for emergency shelter and motel beds is projected as the City continues to experience strong demand for Hostel Services based on the assumption that the average refugee population in the City's emergency shelter facilities will plateau at the current rate of 41 percent.

 - An unfavourable variance in Fire Services of $4.740 million net as a result of higher than budgeted WSIB awards for work-related cancers in the presumptive legislation.
 

- Over spending in Toronto Police Service of $3.800 million net due to higher than budgeted salary and benefits costs, driven by overtime spending for uniformed officers to meet service demands from extraordinary investigations and an increase in the establishment for Communications Operators in order to meet the standard call centre response times.
 

- An over expenditure in the Tax Deficiencies / Write-offs corporate account of $6.722 million as a result of the number of appeals and associated assessments being higher than provision.
 

- Lower than budgeted Parking Authority Revenue in the Non- Program Revenue account of $3.650 million due to earlier than planned closure of surface parking lots, increased discounts provided in support of the King Street Transit Pilot, and lower customer transaction volume.

 - The above unfavourable variance, after Council directions and legislative requirements are met, will be partially offset by:
 

- Sustained under-spending in Toronto Conventional Service - Wheel Trans programs;

 - A higher Dividend Income from Toronto Hydro based upon better than anticipated 2017 performance;

 - Under-spending in Municipal Licensing and Standards primarily in salaries and benefits from vacant positions and higher than budgeted revenue from Private Transportation Company applications;

 - Favourable variance in Court Services due to under spending in salaries and benefits from vacant positions and higher than budgeted revenue; 

- Lower than budgeted issuance of Tax Increment Equivalent Grants.

City Council, at its meeting of June 26-28th, 2018, adopted a recommendation in the Operating Variance Report for the Three Months ended March 31st, 2018 directing that Heads of City Divisions and Agencies projecting year-end unfavorable variances must implement mitigation strategies effective immediately in conjunction with the Interim Chief Financial Officer.

It should be noted that the projected year-end result does not take into account the allocation of any additional surplus funds to reserves directed by City Council such as the Development Application Review Reserve Fund. Doing so would further increase the projected net unfavourable variance at year-end.

Rate Supported Programs:

As noted in Table 2 below, Rate Supported Operations reported a favourable net variance of $37.130 million and the programs are projecting a year-end under-expenditure of $16.172 million for the year ended December 31, 2018.

Table 2: Rate Supported Net Variance Summary

The key year-to-date net favourable variance in Rate Supported Programs was driven by:

- A favourable variance in Solid Waste Management Services of $4.940 million net or 13.4 percent in salaries and benefits due to vacancies in Collections and Litter Operations and higher than planned revenue from collection bin fees. However, due to an anticipated decrease in revenue as a result of changing global market conditions for demand and price of recyclable materials, an unfavourable year-end projection of $7.194 million net is anticipated.

 - Underachieved revenue in Toronto Parking Authority of $0.973 million net or 3.9 percent is primarily due to lower than planned revenue in off-street parking due to maintenance work and delayed customer returns to previously closed carparks, and lower than expected revenues for on-street parking due to delays in implementing approved rate increases and reduced customer volume in the downtown core due to the King Street Transit Pilot. Toronto Parking Authority is anticipating a further decrease in revenue for on-street and off-street parking as well as a delay in acquiring sponsorship for the Bike Share Program, resulting in an unfavourable year-end projection of $4.235 million net.

- A favourable variance in Toronto Water of $33.163 million net reflecting the sale of water being posted in advance of the five month plan, one-time compensation from 3rd party for damages related to a previously completed capital project, and underspending in salaries and benefits. A favourable year-end variance of $27.601 million is forecasted on the basis of the current year-to-date trend.

Complement:

As of May 31, 2018, the City recorded an operating vacancy rate of 1.9 percent after gapping against an approved complement of 51,887 operating (service delivery) positions. The year-to-date vacancy rate for capital positions was 24.6 percent of an approved complement of 3,718 positions for capital project delivery.

Table 3: 2018 Year-To-Date Vacancy Rate

*Vacancy after Gapping percent is based on operating positions only.

**Corporate Accounts are largely driven by Parking Enforcement Unit vacancies.

The year-end operating vacancy rate, after gapping, is projected to be on target for an approved complement of 51,682 operating (service delivery) positions. The forecasted vacancy rate for capital positions is projected to be 12.2 percent for an approved complement of 3,639 positions for capital project delivery.

Table 4: 2018 Year-End Projected Vacancy Rate

 *Vacancy after Gapping percent is based on operating positions only.

**Corporate Accounts are largely driven by Parking Enforcement Unit vacancies

A detailed overview of the five month complement is provided in the Approved Complement Section of this report.