CITY CLERK

POLICY AND FINANCE COMMITTEE

REPORT No. 5

For Consideration by

The Council of the City of Toronto

on July 27, 28, 29 and 30, 1999

2 Financial Control Protocols within the Revised Council-Committee Structure

3 Other Item Consider by the Committee

City of Toronto

REPORT No. 5

OF THE POLICY AND FINANCE COMMITTEE

(from its meeting on July 28 and 29, 1999,

submitted by Mayor Mel Lastman, Chair)

As Considered by

The Council of the City of Toronto

on July 27, 28, 29 and 30, 1999

1

1999 Vehicle and Equipment Replacement Programme

(City Council on July 27, 28, 29 and 30, 1999, amended this Clause by adding thereto the following:

"It is further recommended that the action taken by the Policy and Finance Committee be amended to provide that the report requested of the Chief Financial Officer and Treasurer, regarding the use of alternative fuels, be submitted to the Administration Committee.")

The Policy and Finance Committee recommends:

(1) the adoption of the recommendations of the Budget Advisory Committee embodied in the communication (July, 27, 1999) from the City Clerk; and

(2) that all reference to the CNE, in the joint report (July 13, 1999) from the Chief Financial Officer and Treasurer and the Acting Commissioner of Corporate Services, be replaced with the words 'Exhibition Place' and that staff review that issue to ensure that this error does not occur in the future.

The Policy and Finance Committee reports, for the information of Council, having requested the Chief Financial Officer and Treasurer to submit a report to the Policy and Finance Committee on the use of alternative fuels for these vehicles.

The Policy and Finance Committee submits the following communication (July 27, 1999) from the City Clerk:

Recommendations:

The Budget Advisory Committee on July 27, 1999, recommended to the Policy and Finance Committee, and Council, the adoption of the recommendations of the Policy and Finance Committee embodied in the communication (July 20, 1999) from the City Clerk, subject to:

(1) amending Recommendation No. (2) by adding the words "including the revisions attached thereto" after the words "Appendix 'F'", so that such recommendation now reads:

"(2) the replacement of vehicles identified in Appendix 'F', including the revisions attached thereto, be approved in the amount of $40 million from the Vehicle and Equipment Replacement Reserve and that the Acting Commissioner of Corporate Services report to the Policy and Finance Committee on specific vehicle replacements for the balance of the allocation contained in Appendix 'E'; and"

(2) the Budget Advisory Committee expressing its concerns to the Policy and Finance Committee and Council with regard to the consultants report and lack of savings found therein;

(3) the Acting Commissioner of Corporate Services being requested to report to the Special Meeting of the Policy and Finance Committee on July 28, 1999, providing an update on the 5 percent reduction in the fleet recommended by the Budget Committee and adopted by City Council during the 1999 Budget process;

(4) a joint meeting of the Administration Committee and the Budget Advisory Committee being scheduled to provide a thorough review of the Fleet Operations to find savings, the said joint meeting to also deal with the issue of the depleted Capital Reserves and the need for possible reliance on leasing of vehicles to better utilize cost reductions; and

(5) the Task Force already established to review the savings from amalgamation of Fleet Operations being requested not to duplicate the work being done by the Administration Committee and the Budget Advisory Committee on this matter.

Background:

The Budget Advisory Committee on July 27, 1999, had before it a communication (July 20, 1999) from the City Clerk advising that the Policy and Finance Committee on July 20, 1999, adopted the following motions with a direction that they be tabled until such time as the Budget Advisory Committee has considered and reported thereon to the Policy and Finance Committee; and having further requested that the Budget Advisory Committee meet as soon as possible to give consideration thereto:

Moved by Councillor Ootes:

"That the Policy and Finance Committee recommend to Council the adoption of the joint report (July 13, 1999) from the Chief Financial Officer and Treasurer and the Acting Commissioner of Corporate Services subject to:

(1) amending Recommendation No. (2) by deleting the sum of '$16.4 million' and inserting in lieu thereof the sum of '$40.0 million'; and

(2) amending Appendix "F" attached to the aforementioned report by adding thereto the attached schedule";

Moved by Councillor Pantalone:

"That all reference in the joint report (July 13, 1999) from the Chief Financial Officer and Treasurer and the Acting Commissioner of Corporate Services, to the CNE be replaced with the words 'Exhibition Place' and that staff review that issue to ensure that this error does not occur in the future"; and

Moved by Councillor Rae:

"That the Chief Financial Officer and Treasurer be requested to submit a report to the Policy and Finance Committee on the use of alternative fuels for these vehicles."

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(Communication dated July 20, 1999, addressed to the

Budget Advisory Committee from the City Clerk)

The Policy and Finance Committee at its meeting on July 20, 1999, had before it a report (July 13, 1999) from the Chief Financial Officer and Treasurer and the Acting Commissioner of Corporate Services recommending that:

(1) a maximum of $44.2 million be set as the limit for the 1999 purchase of vehicles and equipment which includes the amount previously approved by Council for the Police Services Board, and 10 snowblowers for Transportation Services, and this funding be allocated by program as per Appendix E;

(2) the replacement of vehicles identified in Appendix F be approved in the amount of $16.4 million from the Vehicle and Equipment Replacement Reserve and that the Acting Commissioner of Corporate Services report to the Policy and Finance Committee on specific vehicle replacements for the balance of the allocation contained in Appendix E; and

(3) the Chief Financial Officer and Treasurer in conjunction with the Acting Commissioner of Corporate Services report on the feasibility of leasing the corporation's fleet requirements, or a portion thereof.

The Policy and Finance Committee adopted the following motions with a direction that they be tabled until such time as the Budget Advisory Committee has considered and reported thereon to the Policy and Finance Committee; and having further requested that the Budget Advisory Committee meet as soon as possible to give consideration thereto:

Moved by Councillor Ootes:

"That the Policy and Finance Committee recommend to Council the adoption of the joint report (July 13, 1999) from the Chief Financial Officer and Treasurer and the Acting Commissioner of Corporate Services subject to:

(1) amending Recommendation No. (2) by deleting the sum of "$16.4 million" and inserting in lieu thereof the sum of "$40.0 million"; and

(2) amending Appendix F attached to the aforementioned report by adding thereto the attached scheduled."

Moved by Councillor Pantalone:

"That all reference in the joint report (July 13, 1999) from the Chief Financial Officer and Treasurer and the Acting Commissioner of Corporate Services, to the CNE be replaced with the words "Exhibition Place" and that staff review that issue to ensure that this error does not occur in the future."

Moved by Councillor Rae:

"That the Chief Financial Officer and Treasurer be requested to submit a report to the Policy and Finance Committee on the use of alternative fuels for these vehicles."

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(Joint Report dated July 13, 1999, addressed to the

Policy and Finance Committee from the

Chief Financial Officer and Treasurer

and the Acting Commissioner of Corporate Services)

Purpose:

This report reviews the funding available for the 1999 vehicle and equipment replacement programme, recommends funding envelopes for each major service area, and recommends vehicle replacements where specific purchases have been identified within the funding envelopes.

Funding Sources, Financial Implications and Impact Statement:

Funds up to $44.2 million for 1999 purchases are available from the Vehicle and Equipment Replacement Reserve. Vehicles with a purchase value of $16.4 million (which includes police and ambulance requests) from the $44.2 million are recommended for authorization immediately, with the remainder to be approved by Council in a future report.

There are funding issues associated with the Vehicle and Equipment Replacement Reserve and, depending on the option chosen, there could be significant funding issues in 2000 and/or 2001.

Recommendation:

It is recommended that:

(1) a maximum of $44.2 million be set as the limit for the 1999 purchase of vehicles and equipment which includes the amount previously approved by Council for the Police Services Board, and 10 snowblowers for Transportation Services, and this funding be allocated by program as per Appendix E;

(2) the replacement of vehicles identified in Appendix F be approved in the amount of $16.4 million from the Vehicle and Equipment Replacement Reserve and that the Acting Commissioner of Corporate Services report to the Policy and Finance Committee on specific vehicle replacements for the balance of the allocation contained in Appendix E; and,

(3) the Chief Financial Officer and Treasurer in conjunction with the Acting Commissioner of Corporate Services report on the feasibility of leasing the corporation's fleet requirements, or a portion thereof.

Council Reference/Background/History:

At its meeting of April 16, 1999, the Budget Committee had before it a report (April 7, 1999) from the Commissioner of Corporate Services entitled '1999 Vehicle and Equipment Replacement Programme' requesting that expenditures totalling $60,170,860.00 be funded from the Vehicle and Equipment Replacement Reserve. This matter was referred back to the Chief Financial Officer and Treasurer and the Commissioner of Corporate Services for a further report.

Discussion:

Current status of Reserve:

The January 1, 1998, balance in the Vehicle and Equipment Replacement Reserve was $81.7 million. As at December 31, 1998, there is an uncommitted balance of $62.7 million in the Vehicle and Equipment Replacement Reserve (see Appendix A for balance by former municipality). The Operating Budget will be contributing $18.4 million to the Vehicle and Equipment Replacement Reserve in 1999 which is a slight increase over the 1998 contribution of $17.1 million. The former municipalities funded this reserve in different ways. In most municipalities, the program areas made a contribution directly from the operating budget to a vehicle and equipment reserve while in others (Toronto and Scarborough) the contribution was a corporate amount. As a group, the municipalities have been underfunding the Reserve for more than just one year.

Appendix B shows (a) the amount that should be in the Replacement Reserve, if the Reserve contributions had kept pace with the depreciating value of the fleet (column entitled 'depreciation to date'), and (b) the contributions made in 1997, 1998 and 1999 on behalf of the service areas. If the contributions had kept pace with the wear and tear of the fleet and equipment, then the Reserve would contain $259.1 million instead of the $62.7 million that it currently contains. If it is assumed that the average useful life of a vehicle is 8 years, then in order to keep pace with the depreciation the contribution ought to be $48 million rather than $18.4 million that is being contributed in 1999. As an indication of the nature of the mismatch between contribution and withdrawal, the Police Service program will have contributed $5.9 million in 1998 and 1999 and yet, will have withdrawn $13.6 million over the same timeframe. On the other hand, other programs appear to have been contributing and withdrawing on a more or less even basis.

Not counting the backlog of vehicles and equipment which are fully depreciated (i.e. reached the end of their useful life) and should have been replaced ($46.3 million just for departments), the five year replacement schedule indicates that approximately $40 million will be required from departments and participating ABC's each year in the period 2000 to 2004. Based on the current vehicle and equipment portfolio, the total annual shortfall in the Operating Budget contribution is, therefore, approximately $22 million (approximately $1 million of this is rate supported).

Regardless of how the City proceeds from here on, it is clear that the Vehicle and Equipment Replacement Reserve has been, and as noted below, continues to be, underfunded and this presents a serious issue with regard to any options for replacing vehicles and equipment in the near future.

Issues surrounding future funding of the reserve will be the subject of a separate report.

Long Term:

The current Vehicle and Equipment Replacement Reserve balance, combined with the estimated contribution to the Reserve from the Operating Budget of $18.4 million in 1999, provides total reserve funding of $81.1 million in 1999. The initial fleet replacement estimate proposed was $60.2 million in 1999. There is, however, demand for replacement from the City Fleet Operations totalling $78.7 million of which the initial estimate included $44.2 million in 1999, with the remainder of $37.2 million to be funded in future years. As well, there is demand in 1999 for replacement from other participating entities of $18.4 million.

While the initially requested purchases of $60.2 million could be funded from the Reserve in 1999, this would largely deplete the Reserve and may preclude a phase-in of an appropriate level of fleet funding in the Operating Budget. Even if the fleet value were to be reduced by 5 percent thus reducing the backlog, the resultant purchases would still substantially deplete the reserve.

Funding Options:

Option No. 1 - Initial Request to Budget Committee:

Based on the assumptions that the backlog is cleared in two years, that the Operating Budget contribution does not change, and that the best available information about the 2000 replacement programme is used, there will be a deficit in the Reserve by the end of 2000. If the projected shortfall of $39.2 million were to be made up from the 2000 Operating Budget, this would represent very significant budget pressure. Even allowing for a 5 percent reduction in the fleet on a go forward basis, there would be a shortfall of approximately $20-30 million which would create a significant pressure on the Operating Budget if required in one year.

Option No. 2 - Restrict the 1999 Request to the Replacement of $44.2 million:

Restricting the 1999 withdrawals to $44.2 million would provide sufficient funding in the Vehicle and Equipment Replacement Reserve to fund the 2000 and 2001 replacement programme. Funding would run out in 2001. In order to sustain the Reserve in the long run it would be necessary to increase the Operating Budget contribution. The amount of the increase and the year in which it ought to start would depend on how much pressure any year's Operating Budget could withstand. It is recommended that an amount of $44.2 million be authorized from the Vehicle and Equipment Replacement Reserve to departments and agencies for vehicle and equipment replacement in 1999. Appendix E indicates the recommended distribution of funds amongst departments and agencies which was arrived at by first providing a proportionate share to each service area, consulting with service areas and making modifications where appropriate.

The Commissioner of Corporate Services in a previous report (April 7, 1999) indicated that the deferral of replacements in 1998 resulted in additional maintenance costs of $924,000.00 and a reduction in salvage value of $550,000.00. A deferral of the magnitude indicated above could have a similar impact on maintenance costs and salvage value in 1999.

Vehicle Replacement:

Appendix F is a listing of the vehicles to be replaced as identified so far by departments and agencies. The replacement of these vehicles is within the envelope provided for in Appendix E. It is recommended that the Acting Commissioner of Corporate Services report further as the other departments identify their lists of vehicles to be replaced.

Lease Option:

One of the options which KPMG (fleet consultant) suggests is that the City explore leasing rather than owning part of the fleet. According to KPMG there appear to be four ways in which leasing might present a better financial option for the City than owning. A leasing company might get better initial purchase prices than the City through bulk purchasing because the firm could purchase in even larger quantities than the City. For specialized equipment purchased in small quantities, this would probably not be the case. The second area which might provide a price advantage to the City is that the lessor might have a lower cost of money than the City; however, given the City's high credit rating, it is doubtful that a leasing company could provide a benefit from preferential rates. Third, a leasing company might be able to get a better salvage price on the disposal of equipment. The fourth area is that the leasing company can take advantage of the depreciation of the vehicles and equipment for tax purposes (capital cost allowance) and this might provide a price advantage to the City.

There are four additional advantages that leasing might provide. The leasing costs would be a fixed nondiscretionary operating budget expense which would be included in each program's budget. The appropriate cost would be applied to the appropriate cost centre and programs would know the exact cost of each piece of apparatus. This should lead to a rationalization of the fleet and better utilization between programs. Leasing provides flexibility in lease payments scheduling and this can provide the City with an opportunity to shift fleet expenses to subsequent years when amalgamation pressures would have subsided. Leasing might provide some other side services such as asset management, and planned replacement and reporting which might reduce administration and overhead costs associated with managing the Fleet Operations. As well, there is a further issue. If the Reserve were to become depleted, replacement financing could not come from the issuance of debentures, since the average useful life of a vehicle is 8 years and normally debenturing is for a term of at least 10 years. Therefore, another funding option would have to be pursued. Leasing is one such potential option.

A preliminary review of this option indicates that it is worth pursuing further. Appendix C is one illustration of the impact of leasing. All or some of the fleet could be leased, but in this illustration only cars, light trucks and heavy trucks (approximately 25 percent of the value of the fleet) are leased for a term of 8 years. (See Appendix D for the current mix of vehicles and equipment.) Assuming no savings from leasing vis-a-vis owning, with a modest annual increase in the Operating Budget, the lease payments can be accommodated and the Reserve preserved to be used for the other vehicle and equipment types. If there were savings from leasing, then they would moderate increases to the Operating Budget.

Therefore, it is being recommended that staff proceed to explore a leasing option so that the analysis can proceed with firm numbers. It is still necessary to do serious analysis to confirm whether leasing can be proven to be a financially viable option. If the City did decide to lease, then it is possible that fleet costs could be reduced in the short run (as in Appendix C). Available reserve funding could be used to phase in the lease payments in the Operating Budget over a longer time period. The contribution to the Vehicle and Equipment Replacement Reserve would be converted to lease payments (depending on the proportion of the fleet leased). Given the actual amounts involved, there would still be a shortfall between the amount currently in the Operating Budget and the funding necessary to cover the lease. Changing from a reserve approach to a leasing approach still requires that the Operating Budget increase in the long run. To lessen the immediate impact, the funds remaining in the Reserve could be used to cushion the schedule of this increase. Thus, it would make sense to minimize purchases in the short run so that more new units could be leased right away. In this way the reserve balance is preserved at as high a balance as possible for this purpose.

This option might increase maintenance costs in the short run and reduce the salvage value of the existing units. If the leasing option is viable, it will still take some time to implement and could therefore be explored to take effect for vehicles and equipment delivered in 2000. This option should be jointly explored by the Chief Financial Officer and Treasurer and the Commissioner of Corporate Services with a report to the Policy and Finance Committee in due course.

Conclusions:

The Reserve for Vehicle and Equipment Replacement is underfunded and continues to be underfunded. Any option will require an increase in the Operating Budget whether to sustain a replacement reserve or to pay for lease payments. The challenge is to find the most appropriate way to phase-in this increase. To fund $60.2 million of vehicle and equipment replacements this year from the Vehicle and Equipment Replacement Reserve as originally requested, while affordable in 1999, is not sustainable in the intermediate term. Restricting the replacement to $44.2 million this year and $40 million annually from then on (the 2001 - 2004 replacement programme average) along with a modest increase in the contribution to the Reserve from the Operating Budget is sustainable in the long run. Leasing a portion of the fleet might be a better option than owning. If this is a serious option, then the benefit to the City is maximized by minimizing fleet purchases in 1999 and pursuing a Request for Expression of Interest as quickly as possible. At a maximum, purchases should be restricted to $44.2 million in 1999.

Contact Names:

N. Donald E. Altman, Manager, Financial Planning, Phone: (416) 397-4220, Fax: (416) 392-3649;

E-mail: daltman@mta1.metrodesk.metrotor.on.ca

Len Brittain, Director, Treasury and Financial Services, Phone: (416) 392-5380;

Fax: (416) 392-3649; E-mail: lbrittai@toronto.ca

Stan Burrows, Director, Fleet Management Services, Phone: (416) 392-1034, Fax: (416) 392-7301;

E-mail:sburrows@toronto.ca

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Appendix A

Vehicle and Equipment Replacement Reserve

(Net of Commitments)

$ in Million

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Appendix B

* 0.0 contribution to Reserve - any purchases funded directly from operating budget.

Appendix C

Leasing Cars, Light and Heavy Trucks and

Impact on Reserve and Operating Budget

$ 000's

	1999	2000	2001	2002	2003	2004	2005	2006	2007	2008	2009
Reserve Opening Balance	62.7	36.9	27.6	19.9	13.8	9.3	6.4	5.1	5.1	5.1	5.1
Operating Budget Contribution	18.4	20.0	21.6	23.2	24.8	26.4	28.0	29.3	29.3	29.3	29.3
Reserve Available Funds	81.1	56.9	49.2	43.1	38.6	35.7	34.4	34.4	34.4	34.4	34.4
Purchases	(44.2)	(29.3)	(29.3)	(29.3)	(29.3)	(29.3)	(29.3)	(29.3)	(29.3)	(29.3)	(29.3)
Reserve Closing Balance	36.9	27.6	19.9	13.8	9.3	6.4	5.1	5.1	5.1	5.1	5.1
Lease Payments	0.0	1.6	3.2	4.8	6.5	8.1	9.7	11.3	12.9	12.9	12.9
Total Operating Budget Annual Increase	0.0	3.2	3.2	3.2	3.2	3.2	3.2	2.9	1.6	0.0	0.0
Increase due to Lease Payment	0.0	1.6	1.6	1.6	1.6	1.6	1.6	1.6	1.6	0.0	0.0
Increase due to Reserve Contribution	0.0	1.6	1.6	1.6	1.6	1.6	1.6	1.3	0.0	0.0	0.0

Assume: Lease has a term of 8 years and no savings from lease payments in the long run

Annual replacement programme (purchases) would have been $40 million if not leasing

Assume leasing valued at $10.7 million

Operating Budget is increased instead of using Reserve to fund lease payments

Cushion in Reserve not to fall below $5 million.

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Appendix D

Schedule of Licensed and Unlicensed Fleet Units

* Transfers out were to City ABC's such as the Parking Authority.

** Transfers in were from the former Scarborough Public Utilities Commission.

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Appendix E

Allocation of Funds to Departments and Agencies

* Details of replacement vehicles outlined in Appendix F

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Appendix F

Vehicles to be Replaced

* To be reported under separate cover to Policy and Finance Committee

** Previously approved by Council on April 26, 1999

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Revisions to Appendix F

Vehicles to be Replaced

Revisions to Appendix F

Vehicles to be Replaced

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Revisions to Appendix F

Vehicles to be Replaced

The Policy and Finance Committee submits the following report (July 27, 1999) from the Director, Fleet Management Services:

Purpose:

This report responds to the request from the Budget Advisory Committee for an update on the 5 percent fleet reduction.

Funding sources, Financial Implications and Impact Statement:

There are no financial implications as a result of this report.

Recommendations:

It is recommended that this report be received for information.

Council Reference/Background/History:

During its consideration of the joint report from the Chief Financial Officer and the Acting Commissioner of Corporate Services regarding the 1999 Vehicle and Equipment Replacement Program, the Budget Advisory Committee requested a report to the Policy and Finance Committee, to provide "an update on the 5 percent fleet reduction as requested by the Budget Committee and approved by Council during the 1999 Operating Budget process".

Comments and/or Discussion and/or Justification:

City Council approved a recommendation from the Budget Committee requesting a 5 percent fleet reduction by December 31, 1999, when it approved the 1999 Operating Budget. To date, Departments have reduced 110 vehicles from the fleet and have projected an additional 80 vehicles by year end.

The Budget Committee also recommended a zero based review be undertaken, which was approved by City Council when it approved the 1999 Operating Budget. The target date for completion of that review is December 31, 1999.

Conclusions:

Departments have projected a reduction in fleet units of 190 by December 31, 1999. Additional reductions are expected to be achieved through the zero based review.

Contact Name:

Stan Burrows, Director, Fleet Management Services, Phone: (416) 392-7791, Fax: (416) 392-7301

Email: sburrows@toronto.ca

2

Financial Control Protocols within the

Revised Council-Committee Structure

(City Council on July 27, 28, 29 and 30, 1999, adopted this Clause, without amendment.)

The Policy and Finance Committee recommends:

(1) the adoption of the joint report (July 28, 1999) from the Chief Administrative Officer and Chief Financial Officer and Treasurer, subject to amending Table 1, Item No. (3) contained therein by inserting the word "may" before the words "Refer to BAC"; and

(2) the adoption of the joint report (July 6, 1999) from the Chief Administrative Officer and Chief Financial Officer and Treasurer, subject to amending Recommendation No. (2) by deleting the words "Table 1 and", so that such Recommendation now reads as follows:

"(2) the decision-making protocol set out in the section of this report headed "Guidelines for Routing of Committee Reports with Financial Implications", Appendix A be adopted;".

The Policy and Finance Committee submits the following joint report (July 28, 1999) from the Chief Administrative Officer and Chief Financial Officer and Treasurer:

Purpose:

This report establishes and recommends criteria for determining what matters the Policy and Finance Committee should refer to the Budget Advisory Committee for its consideration. This report is supplementary to the joint report (July 6, 1999) from the Chief Administrative Officer and the Chief Financial Officer and Treasurer entitled "Financial Control Protocols within the Revised Council-Committee Structure"

Financial Implications:

There are no financial implications arising from this report, however, the recommended criteria are designed to clarify the decision-making protocols for addressing matters with financial implications.

Recommendations:

It is recommended that:

(1) for those matters having significant in-year budget changes and/or future year commitments, that the Policy and Finance Committee utilize the Budget Advisory Committee, when appropriate, to provide a detailed review and identify funding and other options to minimize financial impacts for the City in a report back to the Policy and Finance Committee;

(2) the decision-making protocol set out in revised Table 1 be adopted; and

(3) the appropriate City Officials be authorized and directed to take the necessary action to give effect thereto.

Council Reference/Background/History:

At its meeting of July 20, 1999, the Policy and Finance Committee had before it the joint report (July 6, 1999) from the Chief Administrative Officer and the Chief Financial Officer entitled "Financial Control Protocols within the Revised Council-Committee Structure" respecting the roles and relationships for the planning, management and expending of resources within the City of Toronto as well as the decision-making protocols for routing staff and Committee reports with financial implications. The Policy and Finance Committee referred this joint report to the Budget Advisory Committee for consideration and report thereon to the Policy and Finance Committee.

The Budget Advisory Committee, at its meeting of July 27, 1999, requested the Chief Administrative Officer and the Chief Financial Officer and Treasurer to establish clear criteria as to which items should be referred to the Budget Advisory Committee for consideration, from the Policy and Finance Committee and that said criteria be submitted to the Special Meeting of the Policy and Finance Committee on July 28, 1999.

Discussion:

Criteria for the Referral of Matters to the Policy and Finance Committee:

The joint report (July 6, 1999) from the Chief Administrative Officer and Chief Financial Officer addressed the need to provide guidelines for routing staff and Committee reports having financial implications within the revised Council-Committee structure. The operative criteria for assessing when the financial implications of reports and recommendations of staff and Standing Committees should be referred to the Policy and Finance Committee is whether the financial impact requires an in-year change to the approved budget. Given the Policy and Finance Committee's responsibility for recommending Council approval of expenditures not included in the approved budget, any in-year budget changes would require approval from this committee. The key assumption underlying the approval process is that in-year budget changes will only be recommended in exceptional cases.

Table 1 of the above-noted report summarized the approval process for likely scenarios resulting in in-year budget changes from Standing Committee reports and recommendations.

Criteria for the Referral of Matters from the Policy and Finance Committee to the Budget Advisory Committee:

Within the revised Council-Committee structure, the Budget Advisory Committee is responsible for assisting the Policy and Finance Committee in developing the annual capital and operating budgets. Functioning like a focused working group, the Budget Advisory Committee engages in the detailed, intensive political review of the CAO-recommended budget before providing advice to the Policy and Finance Committee on a final recommended budget that weighs City-wide needs and priorities while achieving financial goals. The Budget Advisory Committee meets regularly during the budget process.

The Budget Advisory Committee may also meet on an ad-hoc basis to consider matters, referred to it by the Policy and Finance Committee, that have a significant impact on a future budget. Recently, the Policy and Finance Committee has had a number of issues before it with significant financial implications resulting in in-year changes as well as future year impacts. In some cases, items having in-year changes have been referred to the Budget Advisory Committee for a more detailed review of the issue to assess the financial implications and to identify other options including funding. The detailed knowledge acquired from the budgetary review of individual program or agency budgets can be beneficial in providing advice to the Policy and Finance Committee on matters having in-year or future year financial impacts. However in other instances, matters may be sent on directly from the Policy and Finance Committee to Council for its consideration.

We continue to recommend that all in-year budgetary changes arising from Standing Committee reports and recommendations be referred to the Policy and Finance Committee for its consideration first. The Policy and Finance Committee should have the option of referring all matters that have significant in-year budget changes and/or future year commitments to the Budget Advisory Committee, where a detailed review of the financial implications would identify funding and other options to minimize financial impacts for the City.

A revised Table 1 reflects the approval process for likely scenarios where issues resulting in significant in-year budget changes and/or future year impacts may benefit from a detailed review by the Budget Advisory Committee in support of Policy and Finance Committee deliberations.

Revised Table 1: Approval Process for in-Year Budget Changes

Financial Issues that may Arise at Standing Committees	Comments	Standing Committee Approval	Policy and Finance Approval	Budget Advisory Review	Refer to CFO
1) Spending in current year is within budget and is for purposes originally intended (e.g. allocation of an approved budget item )	Standing Committee recommends allocation of budget- no requirement for P and F approval	X
2) There is significant unexpected expenditure but no additional funding is required in current year because significant service level changes are being made to offset	Forwarded to P and F for recommendation to Council because of changes to service level, service standard, priorities or risk assumed by the corporation from that approved in original budget. Only refer to BAC for review if future year commitment.	X	X	X Only if results in future year impact
3) Funding is not available in approved budget for a proposed expenditure in the current year (e.g. new item that can't be accommodated in the budget)	Item requires P and F recommendation to Council because it is beyond the scope of the approved budget. Refer to BAC to identify options, including funding if financial impact is significant.	X	X	X
4) Item requires an increase in gross expenditures and revenues above the approved budget, but approved net expenditures are not exceeded (e.g. new provincial grants and associated new revenues and expenditures)	Item requires P and F recommendation to Council because of changes to gross expenditures or revenues in approved budget	X	X
5) Minimal impact in current year but approval may cause an increase in financial commitments in future years (e.g. new initiative to be implemented at end of current year with minimal costs in current year but significant costs in future years)	Standing committee makes recommendations with respect to any policy elements but implementation is subject to review in next year's budget process (i.e. no implementation in current year). The financial component is referred to the originating commissioner and to the CFO for consideration during next year's operating and capital budget process. Refer to BAC secretary to include in pending file.	X		X Refer to BAC secretary for budget process pending file.	X
6) Financial issues that impact future years only (e.g. emerging issues that may result in additional costs next year)	Standing committee makes recommendations with respect to any policy elements but implementation is subject to review in next year's budget process (i.e. no implementation in current year). The financial component is referred to the originating commissioner and to the CFO for consideration during next year's operating and capital budget process. Refer to BAC secretary to include in pending file.	X		X Refer to BAC secretary for budget process pending file	X

Implementation:

Applying the criteria to staff and Committee reports and recommendations and Notices of Motion will require the Chief Financial Officer and Treasurer and her staff, particularly in the Budget Services Division, to review all such reports, recommendations and motions so that the financial implications are identified. Program managers will be including recommendations in their reports that will specify if Policy and Finance Committee and Budget Advisory Committee approval is recommended to assist the City Clerk in dealing with the implementation of these financial protocols. Continued consultation between program areas, agencies and Finance and Clerks staff is necessary to support the implementation of the financial protocols.

Conclusion:

The joint report (July 6, 1999) from the Chief Administrative Officer and Chief Financial Officer set out the roles and relationships for the planning, management and expending of resources within the City of Toronto as well as the decision-making protocols for routing staff and Committee reports with financial implications. It clearly identifies guidelines for ensuring consistent treatment of matters with financial implications by defining an approval process based on the revised Council-Committee structure.

However, further clarification has been requested to ensure consistency for Policy and Finance Committee in dealing with matters with financial implications and its relationship to the Budget Advisory Committee. It is therefore further recommended that for those matters having significant in-year budget changes and/or future year commitments, that the Policy and Finance Committee utilize the Budget Advisory Committee when appropriate to provide a detailed review and identify funding and other options to minimize financial impacts for the City in a report back to the Policy and Finance Committee.

Consultation between program areas, agencies and Finance and Clerks staff is necessary to support the implementation of the recommended financial protocols.

The Policy and Finance Committee also submits the following joint report (July 6, 1999) from the Chief Administrative Officer and Chief Financial Officer and Treasurer:

Purpose:

This report sets out the roles, responsibilities, relationships and related financial control protocols for Council's new committee structure.

Impact Statement:

The relationships, protocols and processes outlined in this report require no additional resources. However, the processes and relationships are designed to enhance the efficiency, accountability and overall quality of the City's budget process and financial management systems.

Recommendations:

It is recommended that:

(1) the roles and relationships described in the section of this report headed "Framework of Roles and Responsibilities for the Planning, Management and Expending of Resources within the City of Toronto" be adopted;

(2) the decision-making protocol set out in the section of this report headed "Guidelines for Routing of Committee Reports with Financial Implications", table 1 and Appendix A be adopted;

(3) in order to ensure that information on the financial implications of recommendations is available to standing committees, community councils and City Council:

(a) all staff reports be required to identify clearly, at the beginning of the report, any financial implications including:

(i) the amount of expenditures and revenues;

(ii) the source of revenues;

(iii) any in-year financial implications beyond the approved budget; and

(iv) future year financial impacts;

and, when there are financial implications, include a statement indicating that the Chief Financial Officer and Treasurer has reviewed and concurs with the financial implications; and

(b) standing committee and community council recommendations to Council and Notices of Motion introduced at Council, which have financial implications beyond the approved annual budget, be accompanied by staff identification, including review by the Chief Financial Officer and Treasurer, of any financial implications during consideration of the items by Council; and

(4) the appropriate City officials be authorized and directed to take the necessary action to give effect thereto.

Council Reference:

On February 2, 3 and 4, 1999, Council adopted as amended Clause No. 1 of Report No. 1 of The Special Committee to Review the Final Report of the Toronto Transition Team, entitled "Revisions to the Council-Committee Structure". In adopting the clause, Council directed the Chief Administrative Officer and the Chief Financial Officer and Treasurer to submit a joint report fleshing out the budget-setting process for the year 2000 budget and related financial control protocols, including:

(i) the relationship between in-year policy development by standing committees and the annual budget process;

(ii) the process to be used by the Policy and Finance Committee and Council in setting budgets for the whole range of City programs;

(iii) the role of standing committees and community councils in the annual budget-setting process; and

(iv) guidelines for the in-year financial monitoring and management of specific program areas within standing committees' portfolios.

Subsequently, on March 2, 3 and 4, 1999, Council adopted, as amended, a motion by the Mayor, seconded by the Deputy Mayor, which defined the role of a Budget Advisory Committee:

(i) to assist the Policy and Finance Committee with the preparation of the annual operating and capital estimates; and

(ii) to consider items, referred to it by the Policy and Finance Committee, that have a significant impact on a future budget.

Council incorporated into the motion a memorandum dated February 22, 1999 from the Chief Administrative Officer and Chief Financial Officer and Treasurer entitled "Clarification of Planning and Financial Management Responsibilities".

On June 9, 10 and 11, 1999, Council struck out and referred to the Administration Committee for further consideration Clause No. 4 of Report No. 6 of The Corporate Services Committee. The following two recommendations were incorporated in the clause:

"all staff reports be required to clearly identify any financial implications including:

(i) the source of funding;

(ii) the amount of expenditures and revenues; and

(iii) any in-year financial implications beyond the approved budget or future year financial impacts;

and that financial/budgetary reports clearly identify any policy implications and the relevant committee approval received or required for the policy change; and that these requirements be incorporated into the new staff report guidelines currently in preparation by the City Clerk and the Chief Administrative Officer; (and)

(staff) develop a protocol….for dealing with staff reports, Standing Committee and Community Council recommendations to City Council, and Notices of Motions introduced at City Council, which have financial implications, beyond the approved annual budget or legal implications, such that staff can identify any financial or legal implications and bring such information to the attention of Committee or Council for its consideration."

This report responds to Councils directive of February 2, 3 and 4, 1999, builds on the above-mentioned Council action of March 2, 3 and 4, 1999, and takes into consideration the recommendations embodied in Clause No. 4 of Report No. 6 of The Corporate Services Committee.

Discussion:

Context:

The report on "Revisions to the Council-Committee Structure" included the following comments, which reflect the underlying premise of the processes and relationships described in the present report:

"(Clear and rigorous financial control procedures) are necessary to ensure that budgets are developed in a coordinated and consistent manner, allocations within budgets reflect Council's relative priorities and financial means, and allocations and, therefore, priorities are not undermined by ad hoc and piecemeal in-year changes. Financial control procedures are necessary, too, to hold staff accountable for the service levels that Council establishes through the budget process...

"As a general rule, the budget should be considered a service level contract. From the point when Council adopts the budget, staff will be held accountable for delivering on the budget contract and service levels contained therein. The budget setting process for the following year must be undertaken with all competing priorities on the table together. This approach should not leave room for ad hoc in-year changes."

Framework of Roles and Responsibilities for the Planning,

Management and Expending of Resources within the City of Toronto:

Within the context of the above comments and the decisions made by Council on February 2, 3 and 4 and March 2, 3 and 4, 1999, the following description of roles and responsibilities provides the framework for the specific budget-setting process for 2000, which is set out later in this report.

(a) Role of Policy and Finance Committee:

The Policy and Finance Committee has clear responsibility for recommending the budget. This committee sets the financial priorities and recommends the rules of the game (via Financial Control By-laws, etc.). Once Council has approved the budget, requests for in-year changes should only occur on a very exceptional basis and be made through this committee. Policy and Finance is the finance committee of Council. The Policy and Finance Committee monitors in-year performance of the City's programs through its regular review of budget variance reports.

(b) Role of the Council's Policy Committees and Community Councils:

Council's Committees each have services, which they oversee. Standing committees monitor the ongoing delivery of programs and emergence of issues within their jurisdiction. They recommend program changes and develop policies. In general their recommendations should not result in any in-year budget changes. Recommended program changes form part of the mix of priorities to be taken into consideration in the preparation of future budgets.

(c) Role of the Budget Advisory Committee:

The Budget Advisory Committee assists the Policy and Finance Committee in developing the annual capital and operating budgets. It engages in the detailed, intensive political review of the program budget requests before providing advice to the Policy and Finance Committee on the budget submission to Council. The Budget Advisory Committee functions like a focused working group. It need only meet regularly for the duration of the budget preparation process as determined by the Policy and Finance Committee. It is expected that the Budget Advisory Committee will meet on a regular basis between October and March.

During the other six months of the year, staff are gathering new information to present to the Budget Advisory Committee in the next year's cycle. This time is also used to implement the directions taken as part of the last budget. It is therefore unnecessary for the Budget Advisory Committee to meet regularly during this period. The Budget Advisory Committee does not monitor in-year programs and operations. These are the responsibilities of the Policy and Finance and other standing committees respectively.

The importance of the Budget Advisory Committee lies in weighing the priorities and submissions from all departments and agencies during the budget process and making the necessary trade-offs to achieve particular fiscal goals.

(d) Role of the Audit Committee:

The Audit Committee assures Council that funds have actually been spent on the basis of program appropriations that were approved by Council and ensures that financial controls are operating in an appropriate fashion.

(e) Role of the Chief Administrative Officer and Commissioners:

The Chief Administrative Officer is responsible for the general control and management of the administration of all departments in the City; effective and efficient delivery of services; and for providing effective advice to the Mayor and Council in developing and implementing policies, plans and programs.

The Chief Administrative Officer and the commissioners are authorized to implement the delivery of programs and services consistent with Council's plans and direction. Staff's primary role is to implement Council's directives and policies and manage the day to day operations in a professional manner on an ongoing basis. Adequate administrative structures and accountability mechanisms have been established and approved by Council to ensure that the Standing Committees and Council are advised on the actual accomplishments and results on a regular basis.

The Chief Administrative Officer is held accountable by the Policy and Finance Committee for ensuring that proper planning and financial management structures and processes are in place, and for delivering on the approved budget. The Commissioners are held accountable by the standing committees for program delivery within their areas of responsibility. In addition, the performance management process requires commissioners to deliver on the budget contract.

(f) Role of the Chief Financial Officer and Treasurer:

The Chief Financial Officer and Treasurer, among other responsibilities, has a statutory responsibility to maintain proper books of accounts for the corporation, ensure that appropriate financial controls, checks and balances are built into the system. The Chief Financial Officer and Treasurer must ensure that the City has a budget, which can be used to set the mill rate.

(g) Role of the Auditor:

The Auditor is accountable to the Audit Committee for reviewing and assessing programs on a regular basis to ensure that expenditures are consistent with Council-approved objectives, by-laws and procedures. The Auditor also reports to the Audit Committee on any system control problems and any program reviews, which suggest ways to improve on performance.

(h) Delegated Authorities:

Once the budget is approved, it represents a financial plan to which the departmental program management is to be held accountable. As part of the corporate management framework, and under existing By-law 7-1998, senior managers and staff have been delegated authorities to take appropriate actions consistent with the approved financial plan (budget). The Chief Administrative Officer, through the Chief Financial Officer and Treasurer, ensures that an appropriate delegation of financial and program authorities document has been formally established, authorized and implemented.

Further appropriate internal controls have been established in the assignment of staff duties and responsibilities so that decisions made by one person are automatically reviewed by another and, responsibilities are divided so that more than one person is involved in any given transaction.

(i) Policies and Systems:

The Chief Administrative Officer, through the Chief Financial Officer and Treasurer, ensures that effective financial management, business planning and asset management policies, processes and systems are in place through the establishment and assurance of:

(a) an effective financial accounting system for the recording and reporting of expenditures, revenues, assets and liabilities;

(b) a well designed management reporting and budget process for departmental programs which provides timely information to facilitate the assessment of operational results in relation to plans and performance;

(c) established financial policies in relation to the account code structure, activity based costing, accrual accounting, recognition of non-cash expenditures, asset management and administration costs, financial reporting and performance assessment;

(d) clearly defined functional and organizational roles and mandates of the key positions within the Finance Department; and

(e) the development of an effective establishment control system.

The Chief Administrative Officer, through the commissioners, ensures that effective business planning and management systems are in place through:

(a) the implementation of a multi year business planning process which focuses on core programs, goals, objectives, expected outcomes, resource requirements and performance measures;

(b) the development and establishment of relevant performance measures for City programs and services; and

(c) the development and implementation of performance review and management systems.

Guidelines for Routing of Committee Reports with Financial Implications:

The intent of the revised Council-committee structure is to limit, to the extent possible, the routing of reports through more than one standing committee. A major issue in the previous committee structure was the duplication and bottlenecks arising from routinely sending reports to standing committee, then Budget Committee, then Strategic Policies and Priorities Committee. The fact that a matter before a standing committee has financial implications is insufficient reason in and of itself to refer the matter to the Policy and Finance Committee. Most items have financial implications to some degree. The question should be whether or not the financial impact is within the approved budget. Carefully applied criteria, based on approved committee mandates, need to guide referrals to Policy and Finance Committee in order to prevent the inefficiencies and duplication that bogged down the previous structure.

Within the revised Council-committee structure, the Policy and Finance Committee has responsibility for recommending Council approval of expenditures not included in the approved budget. Responsibility for policy and program review and development lies with the relevant standing committees. The following table summarizes the criteria that will be used to determine when the financial implications of reports and recommendations at standing committees require referral of the recommendations to the Policy and Finance Committee. It is important to reiterate that a key assumption underlying the approval process is that in-year budget changes will only be recommended in exceptional circumstances.

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Table 1: Approval Process for in-Year Budget Changes

These scenarios for in-year budget changes arising at Standing Committees have also been summarized in a decision tree in Appendix A.

A listing of items dealing with future financial issues referred by Standing Committees to the Chief Financial Officer will be maintained for inclusion in the next year's budget deliberations. This list, categorized by originating Committee, can be included in the Standing Committees' outstanding items lists to provide Committee members with some assurance that the items have not been overlooked and will be considered as part of the next year's budget process.

Clear financial information must be included in standing committee reports in order to apply the decision-making protocol described in table 1 above. The financial reporting requirements contemplated in Clause No. 4 of Report No. 6 of The Corporate Services Committee provide a basis for appropriate guidelines. These guidelines should also apply to standing committee and community council recommendations to Council and Notices of Motion introduced at Council, which have financial implications beyond the approved annual budget. Therefore, it is recommended that:

(a) all staff reports be required to identify clearly in a financial impact statement, at the beginning of the report, any financial implications including:

(i) the amount of expenditures and revenues;

(ii) the source of revenues;

(iii) any in-year financial implications beyond the approved budget; and

(iv) future year financial impacts;

and, when there are financial implications, include a statement indicating that the Chief Financial Officer and Treasurer has reviewed and concurs with the financial impact statement; and

(b) standing committee and community council recommendations to Council and Notices of Motion introduced at Council, which have financial implications beyond the approved annual budget, be accompanied by staff identification, including review by the Chief Financial Officer and Treasurer, of any financial implications during consideration of the items by Council.

Budget-Setting Process for Year 2000 Budget:

The roles, responsibilities and protocols outlined in this report provide a framework for the operating and capital budget setting processes for the year 2000.

The Operating Budget:

The proposed schedule for preparing the year 2000 operating budget is set out in Table 2 below. The development of initial forecasts will take place over the summer. The Policy and Finance Committee will kick off the political process on September 16, 1999, when it considers a detailed report from the Chief Financial Officer and Treasurer on the timetable, process and guidelines for the year 2000 operating budget. The Policy and Finance committee will consider an overview of the operating budget forecast in October. During October and November, standing committees and community councils will be briefed by program staff on service levels and standards. Departments and agencies will submit their operating budget estimates at the beginning of November for review by the Chief Administrative Officer, Chief Financial Officer and Finance Department during November and December. The Strategic Plan will have provided broad City direction late in the fall to assist with priority setting.

Committee review and public consultation will take place from January through the end of March 2000. Council approval of the operating budget is targeted for April 17 and 18, 2000.

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Table 2: Proposed Schedule for Year 2000 Operating Budget

The Capital Budget:

The proposed capital budget process and timetable are recommended in a separate report from the Chief Financial Officer and Treasurer entitled "2000-2004 Capital Program and 10-Year Capital Plan". The proposed schedule for the capital budget process is set out in Table 3 below. Preparatory work to develop the 2000-2004 capital program has commenced at the staff level. Departmental and agency preparation of their capital budgets will occur during the summer with Chief Administrative Officer and Chief Financial Officer and Treasurer review of departmental and agency submissions taking place late summer and early fall. Political review of the capital budget will commence in mid-October when the Policy and Finance Committee considers an overview of the Capital Works Program and related issues. Preliminary review of the capital budget by the Budget Advisory Committee will take place in October. The Budget Advisory Committee will review the capital budget again in November following public deputations and consideration at standing committees and community councils. Council approval of the budget document is anticipated by the end of 1999.

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Table 3: Proposed Schedule for Year 2000 Capital Budget

Conclusions:

This report sets out a framework of financial control roles, responsibilities and reporting relationships for Council, committees and staff. These protocols build on Council's decisions, earlier this year, regarding the revised Council-committee structure and a role for the Budget Advisory Committee, which focuses on assisting the Policy and Finance Committee to develop the capital and operating budgets. The report also summarizes the process and schedules for the preparation of the year 2000 operating and capital budgets.

The recommendations in this report are intended to clarify decision-making mandates and roles, avoid duplication, enhance accountability for financial decisions and reinforce the rigour of the budget process. As the Council of the new City of Toronto enters its third budget cycle, these recommendations reflect the emergence, over the past year and a half, of more stable, mature, made-in-Toronto decision-making structures and processes.

Insert Table/Map No. 1

appendix a

The Policy and Finance Committee also submits the following communication (July 27, 1999) from the City Clerk:

Recommendations:

The Budget Advisory Committee on July 27, 1999, recommended to the Policy and Finance Committee, and Council the adoption of the joint report (July 6, 1999) from the Chief Administrative Officer and Chief Financial Officer and Treasurer, subject to:

(1) the Chief Administrative Officer and the Chief Financial Officer and Treasurer being requested to establish a clear criteria as to which items should be referred to the Budget Advisory Committee for consideration from the Policy and Finance Committee; the said criteria to be submitted to the Special Meeting of the Policy and Finance Committee on July 28, 1999; and

(2) the Variance Reports being forwarded directly to the Budget Advisory Committee to assist in controlling overexpenditure or time sensitive adjustments to the budget plans on a quarterly basis, in order that the Budget Advisory Committee can report the results with accuracy to the Mayor and the Policy and Finance Committee for final approval.

The Budget Advisory Committee reports, for the information of the Policy and Finance Committee and Council, having:

(i) referred the communication (July 27, 1999) from Councillor Pitfield to the Chief Administrative Officer for a report thereon to the September 14, 1999, meeting of the Policy and Finance Committee; and

(ii) requested the Chief Financial Officer and Treasurer to report back to the Policy and Finance Committee on the possibility of doing a monthly Variance Report.

Background:

The Budget Advisory Committee on July 27, 1999, had before it a communication (July 20, 1999) from the City Clerk advising that the Policy and Finance Committee on July 20, 1999, referred the joint report (July 6, 1999) from the Chief Administrative Officer and the Chief Financial Officer and Treasurer to the Budget Advisory Committee for consideration and report thereon to the Policy and Finance Committee, wherein it is recommended that:

(1) the roles and relationships described in the section of this report headed "Framework of Roles and Responsibilities for the Planning, Management and Expending of Resources within the City of Toronto" be adopted;

(2) the decision-making protocol set out in the section of this report headed "Guidelines for Routing of Committee Reports with Financial Implications", table 1 and Appendix "A" be adopted;

(3) in order to ensure that information on the financial implications of recommendations is available to Standing Committees, Community Councils and City Council:

(a) all staff reports be required to identify clearly, at the beginning of the report, any financial implications including:

(i) the amount of expenditures and revenues;

(ii) the source of revenues;

(iii) any in-year financial implications beyond the approved budget; and

(iv) future year financial impacts; and

when there are financial implications, include a statement indicating that the Chief Financial Officer and Treasurer has reviewed and concurs with the financial implications;

(b) Standing Committee and Community Council recommendations to Council and Notices of Motions introduced at Council, which have financial implications beyond the approved annual budget, be accompanied by staff identification, including review by the Chief Financial Officer and Treasurer, of any financial implications during consideration of the items by Council; and

(4) the appropriate City officials be authorized and directed to take the necessary action to give effect thereto.

The Budget Advisory Committee on July 27, 1999, also had before it a memorandum (July 27, 1999) from Councillor Jane Pitfield, East York, regarding the roles and responsibilities for the Budget Advisory Committee and the Policy and Finance Committee.

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(Communication dated July 20, 1999, addressed to the

Budget Advisory Committee from the City Clerk)

The Policy and Finance Committee at its meeting on July 20, 1999, had before it a joint report (July 6, 1999) from the Chief Administrative Officer and the Chief Financial Officer and Treasurer recommending that:

(1) the roles and relationships described in the section of this report headed "Framework of Roles and Responsibilities for the Planning, Management and Expending of Resources within the City of Toronto" be adopted;

(2) the decision-making protocol set out in the section of this report headed "Guidelines for Routing of Committee Reports with Financial Implications", table 1 and Appendix A be adopted;

(3) in order to ensure that information on the financial implications of recommendations is available to Standing Committees, Community Councils and City Council:

(a) all staff reports be required to identify clearly, at the beginning of the report, any financial implications including:

(i) the amount of expenditures and revenues;

(ii) the source of revenues;

(iii) any in-year financial implications beyond the approved budget; and

(iv) future year financial impacts; and

when there are financial implications, include a statement indicating that the Chief Financial Officer and Treasurer has reviewed and concurs with the financial implications;

(b) Standing Committee and Community Council recommendations to Council and Notices of Motions introduced at Council, which have financial implications beyond the approved annual budget, be accompanied by staff identification, including review by the Chief Financial Officer and Treasurer, of any financial implications during consideration of the items by Council; and

(4) the appropriate City officials be authorized and directed to take the necessary action to give effect thereto.

The Policy and Finance Committee referred the foregoing joint report to the Budget Advisory Committee for consideration and report thereon to the Policy and Finance Committee.

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(Communication dated July 27, 1999, from

Councillor Jane Pitfield, East York.)

Recommendation:

It is recommended that the variance report be sent to the Budget Advisory Committee as well as the Policy and Finance Committee to allow analysis.

At the July 27, 1999, Budget Advisory Committee meeting this recommendation was approved and deferred to the Policy and Finance Committee as well as to the Chief Administrative Officer.

Current Situation:

Responsibilities of Financial Management split between two Committees:

Budget Advisory Committee - budget review

Policy and Finance Committee - review of variance analysis

Impact: The ability of both committees to function effectively is compromised as each activity requires the knowledge of the other (budget review & variance).

Workload of Policy and Finance Committee:

The newly formed Policy and Finance Committee has a very heavy workload with diverse and complicated issues of policy. Workload of Budget Advisory Committee:

The Budget Advisory Committee meets regularly from October to March dealing only with budget planning and reporting to the Policy and Finance Committee.

Observations:

The Policy and Finance Committee does not have the time required for a full review of variance analysis.

The Budget Review Committee, as a financial planning tool, needs to see the variations between budget plans and the actual results, to take corrective action and avoid over expenditures - especially if they are time-sensitive.

Conclusion:

This recommendation is consistent with the recommendations contained in the two separate reports from the Chief Administrative Officer in the matter of Revisions to Council-Committee Structure. This recommendation does not infringe upon any other committee of Council and takes no authority away from Policy and Finance who has the prerogative and the discretion to deal with the recommendations of the Budget Advisory Committee as they please.

For variance analysis to be actionable, it must be sufficiently detailed to provide information on whether or not to act and what corrective action to take. Such an analysis requires very intimate and detailed knowledge of the original budget plan. Splitting the responsibility for the budget planning and variance analysis between two committees could result in overall weakening of the financial management process in the City and compromise Council's ability to set priorities in an effective manner.

The Policy and Finance Committee submits the following attachment to the foregoing communication (July 27, 1999) from Councillor Jane Pitfield, East York:

Appendix 2: City of Toronto Budget Advisory Committee - Definition of Roles and Responsibilities

(1) The Purpose of the Budget Advisory Committee:

(a) to develop, enhance and maintain the budget process in the City of Toronto with a view to providing effective financial management for all of the City's programs and services including agencies, boards and commissions; and

(b) to function as a "focus group" to assist the Policy and Finance committee in relation to the budgetary process in the City - Budget preparation and variance analysis.

(2) Definition:

A "budget" is defined as:

(a) a financial planning tool:

(i) prepared in advance of a specific period; and which

(ii) identifies all potential resources that may be consumed in the delivery of the stated program deliverables; and

(iii) quantifies all intended deliverables; and which

(b) may be used during the specified period to monitor the operational and cost effectiveness of operations with emphasis on:

(i) the nature of the variance - whether due to output volume changes or higher level of expenditures;

(ii) the extent to which management may have been able to control the resource consumption;

(iii) extent of management discretion in permitting the resource consumption; and which

(c) may enable an objective assessment of results achieved; and

(d) identify means by which management effectiveness may be improved; and

(e) provide feedback into the next budget cycle to enable the realization of the concept of "continuous improvements" based on actual operational experience.

(3) Guiding Principles:

(a) the Budget Advisory Committee will act in an advisory capacity only to the Mayor, the Policy and Finance Committee or any of the Standing Committees in the context of any matter relating to budgets;

(b) the focus of the budget Advisory Committee will be to:

(i) assist in the setting of financial priorities in the City through an effective budgetary process;

(ii) ensure a sound process for the development of budgets and variance analysis; and

(iii) identify continuous improvements through variance analysis by which the City's programs may be delivered more efficiently.

(4) Role of the Budget Committee:

(a) Budget Preparation:

To examine, assess and evaluate the current situation and provide the leadership to ensure that the budgets achieve their true character as a financial planning tool to facilitate and achieve continuous improvements through analysis of the factors of variances.

(b) Variance Analysis:

To review the City's operational results on a timely and ongoing basis and identify variances caused by expenditure levels as well as volumes of outputs and use that information to recommend corrective action as appropriate and ensure the proper consideration of that information in the development of the program budget for the following period.

(c) Enabling Environment:

To ensure that an adequate enabling environment exists to permit the budgetary process to serve the City as intended; such an environment would include: financial and operational management information systems, management policies to ensure process integrity, training programs for managers to improve cost consciousness, and proper feedback mechanisms to facilitate the concept of continuous improvements.

(5) Frequency of Meetings:

The frequency of meetings of the Budget Advisory Committee will be set by the Committee Chair based on the potential agenda and workload anticipated.

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Councillor Jane Pitfield, East York, appeared before the Policy and Finance Committee in connection with the foregoing matter.

3

Other Item Considered by the Committee

(City Council on July 27, 28, 29 and 30, 1999, received this Clause, for information.)

(a) Legal Division's Outside Consultants Budget.

The Policy and Finance Committee reports having referred the following communication to the Chief Financial Officer and Treasurer with a request that she include in the June variance report an analysis of the Legal Division's Consultants budget and any other discretionary funds that were approved in the 1999 Operating Budget that were intended to last all year:

(July 27, 1999) from Councillor Elizabeth Brown respecting the inclusion in the June variance report being prepared by the Chief Financial Officer and Treasurer, of an analysis of the Legal Division's Consultants budget and any other discretionary funds that were approved in the 1999 Operating Budget that were intended to last all year.

Respectfully submitted,

MEL LASTMAN

Chair

Toronto, July 28 and 29, 1999

(Report No. 5 of The Policy and Finance Committee was adopted, as amended, by City Council on July 27, 28, 29 and 30, 1999.)