Future Operating Budgets

An accurate long-range financial plan includes a thorough analysis of pressures on future operating budgets. A careful examination of operating budgets includes a review of impacts resulting from the implementation of future capital programs, and capital financing required to support future capital programs.

Base Operating Impacts
Over the City's ten-year planning term, City programs and services face a number of funding pressures. First and foremost are inflationary pressures. Each year, the cost of goods and services needed to provide programs and services increases. Inflationary pressures add approximately $24 million annually to the budget. Collective bargaining with City employees will also cause service costs to rise.

The impact of population growth on the operating budget must also be considered. Population growth causes increased demand for services, and translates into a number of new requirements: new roads, streetlights, parks, sidewalks, water mains and sewers, community facilities, recreation programs, new ambulances. As such, population growth and economic development place additional pressure on the City's tax rate. Growth pressures average $10 million per year.

Socio-demographic Trends
Between 2002 and 2011, the City will face many important social and demographic challenges. These challenges include an aging population, increased homelessness, the affordability of housing, and concerns surrounding personal safety and security.

In 2001, 88,000 of the City's population were 65 years of age and over; this figure is expected to rise to 124,000 by 2011, an increase of 40 per cent. As a result of this aging population, the City's health and social services needs will rise at a faster rate than previously experienced.

The City also enjoys greater ethnic diversity as more immigrants from Asia, South America and Europe make the City their home. Moreover, the influx of migrants (people moving from another country or province to the City) is expected to increase threefold over the next ten years-from 7,600 in 2001 to 21,000 in 2011.

Over time, additional outreach services will be required to help integrate these new residents. Furthermore, to keep pace with the City's changing population, services must be tailored to community needs, including increased investments in health and long-term care, recreation and programming for seniors, specialized services for newcomers, and increased community funding for newcomer-serving agencies.

Addressing homelessness and providing adequate access to affordable housing will continue to be significant challenges for the City. A clear and demonstrable need for additional affordable housing-especially rental housing-is evident in the City. As a result of extremely low vacancy rates and a limited supply of new rental units, market rents have risen substantially (see Appendix 1.3). While this has resulted in a backlog of renters already experiencing affordability problems, continued household growth and low construction rates will only exacerbate the problem.

Pressures resulting from the changing face of the City are difficult to estimate, as they will depend on the precise nature of those changes and City Council's direction at the time.

Future Capital Program Impacts
Capital projects often generate additional operating costs. As growth leads to the purchase of additional buses, construction of new community centres, and development of new recreational facilities, for example, so too do these kinds of projects require additional funding to deliver and manage new programs and services, and to maintain and repair new facilities, equipment and vehicles. Based on the projects identified in the City's long-range financial plan, operating costs could increase by over $100 million over the ten-year planning period.

Capital Financing Envelope
Contributions to capital reserve funds, including debt charges, in the 2002 operating budget total $273 million. Decisions surrounding the capital forecast and the pay-as-you-go policy could have an impact on this amount. Current funding levels cannot support the capital programs planned for the next ten years.

Property Tax and Rate Implications
Council reduced the property tax rate in 2001 and froze the rate in 2002, primarily through a combination of amalgamation savings and assessment growth. By 2003, the City's operating budget is forecast to achieve a projected $77 million in amalgamation savings. In 2003, however, amalgamation savings and assessment growth alone will not be sufficient to offset budget pressures. Council will examine the anticipated shortfall during the 2003 budget review process.

City water and sewer operations have also benefited from the efficiencies and savings of amalgamation. Legislative and regulatory changes in the areas of health, safety and environmental concerns, however, increased the costs of providing water and sewer services.

Tax-Supported Projections
Existing tax rates will generate new tax revenue based on assessment growth. From 2001 to 2003, this growth combined with amalgamation savings have enabled the City to absorb a significant amount of inflationary and downloading pressures to achieve Council's budget objectives. In the ensuing years, however, the ability to freeze property taxes at this level will be increasingly difficult given the significant budget pressures discussed in previous sections.

Rate-Supported Projections
Based on expected increased consumption, the amount of annual revenue generated from current water and sewer rates will grow. As with programs funded from property taxes, the ability to maintain future water and sewer rates at current levels will be difficult given projected operating budget pressures and anticipated legislative changes.

[top]