Memorandum

TO: CC: FROM: DATE:

Council Colleagues Administrative Leadership Team Naheed K. Nenshi 24 November 2013

Budget 2014 deliberations

This week, we will be discussing the 2014 budget, starting with Administrations proposal. This brief note highlights the process we will be following, as well as my thoughts on the key decisions before us. I have also been contacted by a couple of you on amendments you would like to propose, and I have incorporated them here.

PROCESS We will start at 9:30 AM on Monday with a presentation from Administration and questions on the presentation. We will then have public submissions, which will be like a public hearing: five minutes each followed by questions from Council. I have not heard a lot of buzz around these submissions, and I dont think there will be very many this year. We will then have some housekeeping motions, including one to change the time of recess so that we go from 9:30 am to 6 pm every day, which is my recommendation. We will then move to table 4.1 and 4.2 to the right positions in the agenda and I will ask Coun. Farrell as Vice-Chair of PFC to move the recommendations in 5.1. We will then go through each of the departments in the order in the binder, starting with Community Services and Protective Services. Each GM will present their adjustments and youll have the chance to ask questions of them or of the Directors. You may also propose amendments to any of the departments at this time. Once we have completed all departments, I will ask for amendments that impact across departments, including any relating to the $52 million tax room. Once we have dealt with all amendments, we will return to a vote on 5.1, which is essentially a vote on the budget as a whole. Should this not pass, bad things happen. I will recommend that we simply keep going until there is a budget that a majority can agree upon. And I will go first to those who voted against to look for proposals that they could support. Once we have a budget, we pass a number of other motions to put it into place. The tax rate is not finalized, however, until Tax Rate Finalization day, which happens in the spring. So if, for example, new labour contracts are finalized, there may be changes to the
733 Coral Springs Blvd NE Calgary, Alberta T3J 3T4 Canada +1 (403) 830-8232 naheed@post.harvard.edu

rate at that time. Thats typically also when we discuss the tax room, if any, as the provincial budget is done by that time.

BACKGROUND We are being asked to approve both the Capital and the Operating budget. The Capital budget, with the exception of pay-as-you-go capital, is funded from grants and reserves. Adjustments to the capital budget have no impact on the property tax rate. On the Operating budget, you will see that there are both one-time and base adjustments. One-time adjustments are typically funded from reserves. Changes to these also have no impact on the property tax rate. Only changes to base funding change the property tax rate.

ADJUSTMENTS Ive gone through all of the proposed adjustments, and I am not opposed to any of them up front, though I have a number of questions that I will be asking about a number of them. The adjustments are by and large rather small numbers, and very few of them impact the base budget (and therefore the property tax rate). I understand that one Councillor has some questions on item 4.2, and will have an amendment asking for a report back to Council in January. I think this is fine. However, despite the fact that I think the adjustments are fine, I feel that 6.1% is much too high. I think an absolute maximum should be growth plus MPI, which is 5.7%. This is a difference of about $5 million. So, I suggest the following motion: BE IT RESOLVED THAT Council direct administration to bring the tax rate increase down to 5.7%, cuts to be subject to the approval of the City Manager. Now, I would also be interested in bringing the rate down further, if this is Councils will. I understand that a Councillor will be bringing a motion to freeze management exempt-level salaries for 2014. I favour this, but will also point out that, to be logically consistent, we should freeze Council salaries as well. I dont know what the impact of this would be on the property tax rate, but I expect it would actually be quite small - certainly far less than one point. I would also favour broad-based cut at the end of the process. If you are interested in such a cut, I would suggest a motion such as: BE IT RESOLVED THAT Council direct administration to bring the tax rate increase down to 4.9%, cuts to be subject to the approval of the City Manager. 2

I would NOT use this technique to go down much below this amount, which is about $14 million below the 6.1%. If your desire is to see a lower rate, then I think Council has to be accountable for the resulting cuts. If you want to go lower than about one point, then I would suggest a motion that either outlines the specific cuts you would like to see, or ask Administration to come back with those cuts for Council approval.

THE FAMOUS $52 MILLION

For 2014
Administrations recommendation is to use the 2014 $52 million for as-yet-unspecified flood mitigation work. I believe that this is not the best use for these funds in 2014. When we have a better sense of what mitigation efforts are needed, we will appeal to the province and the federal government for these funds. If we need to cover a shortfall (and we will), I believe that would be a good use for FSR funds. However, I believe that funds are still needed for flood recovery work in this year. You will see that there is a recommendation for a 4% increase in drainage fees. This may not seem like much, but it is on top of very large increases we have already assessed in water and wastewater to get a handle on the utilitys debt. The present value of this fee increase, as near as I can tell, is about $70 million. I believe it is dishonest to tell citizens on the one hand, were giving you back the $52 million and, on the other, Were raising your fees by $70 million. The fact is that there are costs to the flood that will not be covered by other sources and we need to determine how best to cover them. I would not like to use the FSR exclusively for this purpose, as I am certain that some of these funds will be needed for supplementary mitigation work. So, I propose that we REJECT the drainage fee increase and give the 2014 tax room to the utility for flood recovery work. Should they require more than $52 million, they can make application to Council for a one-time transfer from the FSR.

For future years

I know there are many different and strongly-held opinions on this matter. I will remind Council, however, that returning the $52 million to taxpayers means a one-time decline in the tax increase for 2015 only, but would remove a permanent source of revenue and funding for the City. Some have suggested that we give back the $52 million for 2014 only. This is not possible. If it is removed from the base, it is removed forever. A couple of Councillors will be moving to create a ten-year plan for transit, specifically the Green Line. Given the financial constraints on the provincial government post-flood, I suspect we will not see a new commitment to transit (including the promised but unannounced GreenTrip funds) until 2016 or 2017 at the earliest. I believe that the people in SE and NC Calgary deserve better transit sooner than that, and I favour this use of the funds. 3