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REPORT TO: DATE OF MEETING: SUBMITTED BY: PREPARED BY: WARD(S) INVOLVED: DATE OF REPORT: REPORT NO.

: SUBJECT:

Finance and Corporate Services Committee November 5, 2012 Dan Chapman, Deputy CAO Ryan Hagey, Director of Financial Planning All October 26, 2012 FCS-12-178 2013 Budget Overview

RECOMMENDATION: For information only. BACKGROUND: The budget is the City of Kitcheners annual financial plan, and is the primary basis of financial decision making. The budget process allows Council to prioritize the programs and services delivered by the City and sets direction for the work to be completed over the upcoming year as well as future years referenced in the budget forecast. The budget establishes the financial boundaries in which the municipality operates. The budget has an operating component, which funds the day-to-day costs of the municipality (e.g. salaries, utilities, supplies) and a capital component, which funds investment in infrastructure that provides long-term benefits to the community (e.g. roads, sewers, arenas). And unlike other levels of government, a municipality is not allowed to budget for a deficit, so projected expenditures cannot exceed projected revenues. The budget includes a significant amount of numerical information, but to be effective it must also include links to operational plans, have opportunities for community engagement, and have a long term focus. Operational plans outline not only the services the City provides, but also the levels to which those services will be provided. Operational plans are developed based on the Council approved City-wide strategic plan, departmental business plans, as well as various master plans and studies completed for specific programs, services, or projects. The budget provides the financial resources to implement these plans, and it is essential funding levels and service level expectations are aligned to avoid delays, deferrals, or variances from budget. The budget process can be used as an opportunity to engage the community and gather opinions about City programs, current service levels, and finding the balance between provision of service and affordability for rate payers. Community engagement has already been a significant focus of the 2013 budget process, with a report being approved by Council in August. By approving the recommendations of the report, Council has directed staff to maintain the existing engagement activities already in place and to incorporate additional engagement opportunities into the 2013 budget process. To that end, an interactive budget website will be operational starting in November, and staff will be hosting a social media event in December

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where citizens contact staff directly regarding the 2013 budget. These additional engagement opportunities will provide new ways for the public to better understand the budget and let their opinions be known. Finally, the budget is a long term planning tool. The budget can help shape a communitys future by ensuring that funding is in place to provide the programs, services and projects required to achieve the goals of its long term strategic plan. By having a long-term focus, Council can make incremental steps through the budget process towards achieving those goals, without focusing too heavily on the immediate circumstances. In advance of more detailed presentations on the operating and capital budgets, Finance staff provide a brief budget overview for Council. The attached presentation is divided into three sections which are also highlighted in this report. The sections are: Current Financial Environment 2013 Budget Highlights Next Steps REPORT: Current Financial Environment While the federal and provincial economies are continuing to slowly emerge from the global recession, the local economy is faring much better. Unemployment levels at the end of September in the Kitchener-Waterloo area (6.4%) are considerably better than the comparators for the province (7.9%) and the nation as a whole (7.4%). While there have been some significant job losses in specific companies, those being laid off are generally finding work somewhere else and the overall local employment market remains strong. Budgets passed earlier this year by the Federal and Provincial governments focused largely on expenditure reductions. As was reported to Council in May (report FCS-12-078), these drastic reductions were required in order to reduce, but not eliminate the deficits budgeted at those levels of government. The City of Kitchener is in much better financial shape as municipalities are required to have balanced budgets and are not permitted to pass deficit budgets. In addition, out of these three levels of government, only the City of Kitchener has a positive financial position per capita, meaning that the Federal and Provincial governments do not have adequate cash and investments to cover their liabilities. Details are shown in the chart below. Financial Position/Capita 2010 2011 $700 $661 Kitchener -$14,813 -$16,238 Ontario -$17,069 -$17,890 Canada While the City of Kitchener enjoys a more solid financial footing than the Federal and Provincial levels of government, there are three causes for concern that must be addressed through upcoming budgets. The first area to be addressed is the Citys debt levels. Debt levels have been increasing the past number of years, largely due to the Economic Development Investment Fund (EDIF) and just last year due to the expansion of the Auditorium. Debt levels are planned to decrease over the next decade to coincide with the Citys targets, but this assumes no new debt other than planned debt for the existing capital program is issued.

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The second area to be addressed is the Citys reserve levels. Reserve levels have been decreasing the past number of years, largely due to reductions in the balances of the Tax Stabilization and Development Charges reserve funds. Earlier this year, Council approved a consolidated reserve fund policy, which included fundamental concepts such as: Reserve funds will only be used for the specific or intended use for which they were established Individual reserve funds should not have a negative balance Minimum and maximum target levels will be established for each individual reserve fund and for reserve funds as a collective By following its approved Reserve Fund policy, Council can build reserves towards minimum target levels and ensure that sufficient funding exists to meet future liabilities, replace existing infrastructure, while maintaining financial flexibility and minimize the potential of rate spikes in future years. The third area to be addressed is the Citys annual operating deficit. The City has experienced tax supported deficits (before applying funds from capital closeouts) for each of the past three years (2009-2011) and is projecting a deficit for 2012 as shown in the chart below.

These deficits have occurred through varying weather conditions and economic cycles, which leads staff to conclude that there is a chronic shortfall in funding for the expected service levels delivered by the City. The deficit can be addressed by increasing funding for services, or by decreasing the service level expectation to align with current funding levels. The proposed 2013 budget was prepared in light of the factors identified above and balances the often competing priorities of affordability and sustainability. In terms of affordability, staff identified early in the process that a 5.87% tax rate increase in the current economy was not a viable starting point, so the proposed budget will begin at a tax rate increase of 2.87% with options to reduce the increase by another 1%. Sustainability will be addressed by making budget corrections, to the extent possible, to areas of ongoing deficits while still remaining within Councils direction regarding tax rate increases. Prudent use of debt and reserve balances is also a significant consideration in ensuring the municipalitys financial sustainability. 2013 Budget Highlights 1) Capital Budget The capital budget is largely similar to the 2012 version, although there are some significant additions to address: Emerald Ash Borer removal of affected trees only LRT Construction replacement of gas infrastructure within the LRT corridor Gas Pipelines replacement costs for gas infrastructure throughout the city 2) User fees and City-run Utility Rates Increases to user fees across the City are generally 3%, although fees were reviewed on a program by program basis, so individual fees may be increasing (or decreasing) by a rate other

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than 3%. As well, the City operates a number of utilities (Gas, Water, Sanitary, and Storm water). The rate increases for City-controlled portions (i.e. does not include the impact of rate increases for Regional water/sewer charges) of these utilities is expected to be inflationary. 3) Operating Budget Staff will be presenting the 2013 operating budget tax rate increase which meets Councils direction of 2.87% as well as a 1% potential tax rate reduction list. In order to achieve a 2.87% budget increase, staff propose to defer some budget impacts to 2014, eliminate capacity for any service improvements or additional staff, and continue to press for efficiencies within existing base budgets. Based on Councils direction, staff developed options that could reduce the potential tax rate increase by 1%. In preparing options, staff considered all of the 20 areas identified by Council in August, and have proposed reductions in many of those areas. Some reductions were included in the base budget to achieve the 2.87% target, and reductions in other areas were not feasible based on recent service level reviews or ongoing operating budget deficits. In the end, staff are proposing 10 potential reductions from the 20 priority areas identified by Council. All of the options are feasible, although they each carry some risk or impact on existing service levels. The list of potential reduction options are shown in the chart below, and detailed issue papers are included as part of this budget package.

Next Steps A number of public budget meetings are already scheduled in the upcoming months. The table below summarizes the budget meetings with Council: Date Topic Capital Budget November 8 Operating Budget December 6 Public Input January 7 Budget Approval January 17

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To prepare for these meetings, Council will receive budget information approximately two weeks in advance of the meeting dates to allow time for review. At the meetings, Council can request additional information be provided to them for consideration of final budget approval. The public are welcome to attend any of the meetings listed above, and are encouraged to address Council directly as part of the public input session. In addition, as described earlier in the background section of the report, the public will be able to provide their input as part of the interactive budget website, and will be able to engage staff through a social media event, focused solely on the 2013 budget. ALIGNMENT WITH CITY OF KITCHENER STRATEGIC PLAN: Foundation: Efficient and Effective Government Goal: Financial Management Strategic Direction: Strive for competitive, rational and affordable taxation levels FINANCIAL IMPLICATIONS: None. COMMUNITY ENGAGEMENT: Budget information is available on the City of Kitchener website (www.kitchener.ca/2013budget). Feedback is welcomed using the following methods: Public meeting planned for January 7, 2013 in the Council Chambers Budget webpage Responses to upcoming Facebook and Twitter postings Regular mail at: 2013 Budget, c/o Corporate Communications, Kitchener City Hall, PO Box 1118, 200 King St. W. 2nd Floor, Kitchener, ON N2G 4G7 Hard copies of budget information are available by calling 519-741-2602 and leaving a message with mailing address.

ACKNOWLEDGED BY:

Dan Chapman, Deputy CAO (Finance and Corporate Services)

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2013 Budget Overview


Finance & Corporate Services Committee November 5, 2012

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Presentation Agenda
Current Financial Environment 2013 Budget Highlights Next Steps

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Current Financial Environment

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National and Local Economic Trends


Labour Market
Local unemployment is lower than a year ago, falling from 6.8 to 6.4 per cent
Ontario rate is 7.9% (as of September 2012) Federal rate is 7.4% (as of September 2012)

Gained 11,300 jobs in first four months of the year and lost 9,900 in last five months. Rate of job losses is slowing. The CMA is up 9,700 jobs in manufacturing compared to 12 months ago.

Other year-to-date indicators


Housing starts up 8% Office vacancy is up from 9.1 to 9.9%
4

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CPI Inflation (Ontario)


Jan Feb Mar Apr May Jun Jul Aug Sep 2.4% 2.9% 2.2% 2.1% 1.2% 1.2% 0.7% 1.0% 0.7% 2.4% 2.7% 2.5% 2.4% 2.2% 2.0% 1.8% 1.7% 1.6%

Monthly

Annual Av.

Monthly inflation numbers have decreased from the start of the year Annual average is much higher than values from recent months
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Drummond Report

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Federal/Provincial Budgets Differ from Municipal Budgets


Federal and Provincial budgets do not have to balance
Expenses can exceed revenues

Municipal tax supported budgets must balance


Expenses must equal revenues

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Budget Balances
Ontario

Canada

1.2 1.0 0.8 0.6 0.4 0.2 0.0

Kitchener*

*includes capital closeouts


2010 2011 2012 2013 2014 2015 2016 2017

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Financial Position

Financial Position/Capita 2010 2011 Kitchener $700 $661 Ontario -$14,813 -$16,238 Canada -$17,069 -$17,890
Financial Position = Financial Assets Liabilities Kitchener has enough cash and investments to cover outstanding liabilities Ontario and Canada do not

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Significant Trends
City debt levels have been increasing
EDIF & Auditorium Expansion

City reserve levels have been decreasing


Tax Stabilization & Development Charges

Result is an increasing debt to reserve ratio Annual operating deficits


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Debt to Reserve Ratio

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Brampton Cambridge Markham Mississauga Vaughan Whitby Barrie Oakville Sudbury St. Catharines Hamilton Burlington London Guelph Average Kingston Windsor Waterloo Chatham-Kent Thunder Bay Toronto Oshawa Kitchener Ottawa

0.5

1.0

1.5

2.0

2.5

3.0

3.5

2010DebttoReserveRatios (Municipalities>100,000)

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Operating Deficits
Year 2009 2010 2011 2012 (projected) -$1.42M

Deficit Before -$3.74M -$0.48M -$0.24M Capital Closeouts

Ongoing operating deficits point to an imbalance between:


Service level expectations Budget allocation for services

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Sources of Deficit
Utility Costs
Electricity, Water

Revenue Shortfalls
Bylaw, Site Plans

Operations

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Implications
Budget has been developed to strike a balance between:
Affordability Sustainability

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2013 Budget Highlights

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Budget Calendar
Topic Budget Overview User Fees and Charges Capital Budget Operating Budget Public Input Budget Approval
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Date November 5

November 5 November 8

November 26 LEAF Follow-Up Report

December 6

January 7

January 17

Capital Budget
2013 Capital Forecast is largely similar to 2012 version Significant additions include:
Emerald Ash Borer (funding for removal of affected trees only) LRT Construction Gas Pipelines

Funding constraints limit ability to fully address planned initiatives


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User Fees & City Utility Rates


Most user fees are being increased around 3%. Modest inflationary increases to City-run Utility rates anticipated
Does not include impact of Regional sewer/water charges

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2013 Tax Rate Increase Projection Recap


Original Projection from Jan 2012 5.87% Staffs Reduction Goal Revised Projection 3.00% 2.87%

Original projection was not considered affordable, so staff committed to reducing proposed budget by 3%
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Strategies Required to Achieve 3% Reduction


Deferring costs to 2014 Continuing to press for efficiency savings in base budgets Eliminating capacity for service improvements Engaging KPL in discussions about costs for new Central Library Increasing user fees 3% effective January 1 No additional tax supported FTEs
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Tax Supported Operating Budget Guidelines


Staff prepared the 2013 tax based budget based on the budget guidelines approved by Council May 14th:
2.87% 0.00% - 1.00% 1.87% - 2.87%

Base Tax Levy Increase (incl EDIF)

Potential Reduction Options

Potential Tax Levy Increase

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Citizen Preferences
62% of residents surveyed favoured a property tax increase at the rate of inflation (cited as 2.0% 2.5%) at current service levels
29% chose 0% tax increase 8% chose increase beyond inflation

Ontario Inflation
(Cumulative as of September) = 1.6%

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Council Direction for Potential Reductions


May 14
Council directed staff to include potential reduction options of up to 1% as part of the 2013 budget submission

August 27
Council identified 20 priority areas and 4 cost types for staff to consider for reductions
Staff not limited to only these items

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Staff Development of Potential Reductions


All priority areas and cost types identified were considered, but not all have proposed reductions
Some reductions were included in base budget to meet 2.87% target Some reductions not viable based on
Recent service level reviews Recurring deficits

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Staff Proposed Potential Reductions


Staff are proposing 10 potential reductions
align to 10 of the 20 priority areas identified by Council

All potential reductions are feasible, although they each carry some risk/impact on service levels Issue Papers for each potential reduction included in this package
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Potential Reductions
IssuePaperTitle ConsolidateOnpoint Tools EnhancedSickLeaveClaimsManagement EliminateInfraRedAsphaltProgram ReduceCITSBoxOfficeHours ReduceFireDepartmentStaffThroughAttrition ImplementFireInsuranceRecoveries AdjustUtilityBillingPostageCharges RemoveDowntownBulkGarbageBins LimitGrantFundingIncreaseto1%in2013 ReduceCouncilTechnology&HomeOfficeBudget Amount ($10,175) ($50,000) ($128,500) ($24,000) ($480,000) ($200,000) ($60,000) ($29,000) ($19,359) ($11,000) ($1,012,034)

IP#

PR01

PR02

PR03

PR04

PR05

PR06

PR07

PR08

PR09

PR10

TOTAL

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Next Steps

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Budget Follow Ups


Additional budget information may be requested during upcoming budget meetings Requests will be recorded by staff and then approved by Council at the end of the meeting to ensure:
Information is important to majority of Council Council is not overrun with information Staff are spending their time appropriately
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Public Engagement
Random survey of 175 residents was completed All budget content posted on the Citys budget webpage
Reports, presentations, issue papers

Increased use of social media Interactive portion of the website will be available by November 15
Can see impact of reductions on personal property taxes Can vote for potential reductions and provide comment Results to come back on Public Input night
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CITY OF KITCHENER 2013 BUDGET POTENTIAL REDUCTIONS ISSUE PAPER ISSUE: FUND: DEPARTMENT: PREPARER: PR01 - Consolidate OnPoint Tools Capital Finance & Corporate Services Information Technology Dan Murray, Interim Director of Information Technology

DESCRIPTION OF POTENTIAL NET BUDGET REDUCTION: Information Technology currently maintains two versions of the OnPoint GIS Mapping and Information Tool. One version runs internally and is available to authorized internal staff and a second version of the product is available through the Internet for the public to access. Information Technology staff propose consolidating the two separate versions of the product, allowing both the internal and external needs to be delivered from one internal server. This consolidation was not possible to achieve in the past due to technology limitations. With a firewall technology upgrade performed in 2011, staff can now leverage that technology to consolidate the versions and thereby realize a financial savings for the corporation. The public OnPoint GIS mapping tool on the Internet is used by residents and businesses to locate properties and related information as well as access to the digital imagery of the City. It is also used to communicate road construction details, planning information, registered building permits as well as spatially locate a variety of other information useful to outside interests. The external OnPoint mapping system is used on average of 1500 times per month. BUDGET REDUCTION: A reduction of $10,175 to the Infrastructure Maintenance capital account can be realized by avoiding paying software maintenance on the second instance of the OnPoint mapping tool. RISKS/IMPACTS ASSOCIATED WITH REDUCTION: By consolidating the two OnPoint GIS Mapping versions onto one physical server, there are a few risks that Information Technology staff will have to address: Data Security the consolidation of the two OnPoint versions is completely dependent on the ability of the software to be able to have separate security models for each version due to the difference in the information required in the two versions. At the time of writing of this issue paper, staff believes this can be done. Performance it is possible that having multiple OnPoint instances on one physical server may introduce performance issues with either the internal version or the external Internet version. Information Technology staff do not feel that this is high risk.

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CITY OF KITCHENER 2013 BUDGET POTENTIAL REDUCTIONS ISSUE PAPER ISSUE: FUND: DEPARTMENT: PREPARER: PR02 Enhanced Sick Leave Claims Management Operating All Michael Goldrup, Director of Human Resources

DESCRIPTION OF POTENTIAL NET BUDGET REDUCTION: Staff propose the implementation of Sun Lifes Salary Continuance Program to manage sick leave claims currently administered in-house. Staff estimate this will result in financial gains sufficient to off-set the cost of the service, and generate an additional savings of approximately $50,000 per year. Currently sick leave claims are managed in-house. Claims management is carried out by the WSIB/Accommodation Administrator, and the appropriate supervisor with intervention of the Manager, Employee Relations, as required. Management of sick leave claims for Fire staff was handled in-house as well by their Attendance Management/Return to Work Coordinator, although this position has recently been eliminated. Long Term Disability claims are managed and adjudicated by Sun Life. Sun Lifes short term disability (sick leave) duration management is among the most successful in the industry according to independent surveys. Of the 40,000 employees they have supported during their return to work in 2010, sixty-three per cent of the short term disability cases were resolved in less than 8 weeks. By case managing the absences, Sun Life can triage and intervene as soon as possible, all employees are managed consistently and equitably, privacy concerns are avoided and the City gets the full benefit of the case managers expertise. The City will have to establish rules which will determine at what point sick leave cases are sent to Sun Life, for example, any sick leave claims greater than 4 days. Once Sun Life receives the claims, they will then begin their case management which includes initial assessment of the absence right through to its resolution of return to work, transition to another job, or transition to Long Term Disability. Sun Life will communicate regularly with the City to facilitate return to work planning allowing the Accommodation Administrator to increase their focus on the early and safe return to work of the employees, the monitoring and managing of workplace accommodation plans, attendance issues, and improved management training on injury prevention, attendance support etc. which would mitigate the current cost associated with sick leave claims. Another advantage to moving the claims management to Sun Life is that the City can expect improvement in absence resolutions when Sun Life is managing both the short term and long term plans. In conjunction with Sun Lifes management of sick leave claims, the City will be working with Sun Lifes wellness partner, Buffett, to conduct an integrated data analysis which will analyze past, present and anticipated future claims. Information analyzed includes absenteeism statistics, WSIB claims, prescription drug claims, long and short term disability claims. Once the data is analyzed, the City will be able to project future wellness opportunities based on the organizations current profile and forecast future health risks and associated costs. A set of recommendations will be provided so that the City can plan for the future. The needs and interests of departments, and employee groups will be addressed through these recommendations. With these programs in place, the City will be able to enhance employees health and wellbeing, job satisfaction, engagement and productivity. Staff currently involved with managing sick leave

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claims would instead be able to focus their efforts on helping affected employees return to work as soon and as safely as possible. In doing so, the City would be taking a proactive and preventative approach to address current situations that if left unattended, could escalate into future disease and disability claims. BUDGET REDUCTION: In 2010, the Corporation paid $1.73M in sick leave usage; this benefit increased in 2011 to $1.81M. Using a comparable municipality as a benchmark with an average of 267 cases per year, the cost of having Sun life manage these cases is approximately $124,000, based on Sun Lifes fee of $465 per case. In moving the adjudication of sick leave to Sun Life, HR staff anticipate that, both through case management and through the deterrence impact of having to anticipate meeting the medical evidence test to have claims approved, there will be a drop in sick leave usage. Staff estimate this decrease will result in financial gains sufficient to off-set the cost of the service from Sun Life and generate an additional savings of approximately $50,000 per year. RISKS/IMPACTS ASSOCIATED WITH REDUCTION: As per Sun Lifes experience, the return on investment varies from client to client as it depends on how sick leave absences have been managed prior to moving to Sun Lifes product. The City will only be able to determine the return on investment once it has had a few years of experience. What Sun Life can definitely advise, is that the City can expect gains in duration management, which means that the duration period between the time employee goes on sick leave to the time they return to work, is shortened.

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CITY OF KITCHENER 2013 BUDGET POTENTIAL REDUCTIONS ISSUE PAPER ISSUE: FUND: DEPARTMENT: PREPARER: PR03 Eliminate Infra-Red Asphalt Program Operating Infrastructure Services, Operations Dan Locke, Manager of Sewers, Traffic & Operational Support

DESCRIPTION OF POTENTIAL NET BUDGET REDUCTION: Included in the 2013 tax supported budget is funding for infra-red road repair. The Operations Division is responsible for maintaining roughly 1400 lane kms of road for the City of Kitchener. The infra-red unit is used to perform seamless asphalt repairs whereby the existing asphalt is recycled by heating and a small amount of additional asphalt is added. The asphalt is then raked and rolled producing a seamless repair. This repair is a more permanent repair than placing hot asphalt directly on the existing cold surface which can cause raised structures that the plows may hit in the winter, potentially causing damage to the structure and the equipment. The Infra-red Asphalt Program was added to the Operations division budget as part of its annual growth allocation. Due to staff resources, this activity has not been able to be utilized since 2010. BUDGET REDUCTION: Funding provided for this function in the 2013 budget is $128,500. RISKS/IMPACTS ASSOCIATED WITH REDUCTION: Meeting Minimum Maintenance Standards (MMS) legislation in relation to maintenance of asphalt road surfaces is achieved through crews assigned to the road repair and utility cut activities on a daily basis. The infra-red road repair activity is an additional resource that can be utilized to efficiently correct minor asphalt maintenance issues that may not be deficiencies according to MMS, but which may still affect operational maintenance activities such as snow plowing or quality of ride issues related to raised structures.

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CITY OF KITCHENER 2013 BUDGET ISSUE PAPER ISSUE: FUND: DEPARTMENT: PREPARER: PR04 - CENTRE IN THE SQUARE OPERATING GRANT AND POTENTIAL NET BUDGET REDUCTION OPERATING CENTRE IN THE SQUARE SANDRA BENDER, CEO

DESCRIPTION OF CITS NET BUDGET: The operating grant for The Centre In The Square (CITS) was $1,420,079 in FY2011 and $1,371,449 in FY2012. The projected operating grant for FY2013 is $1,394,763 based on the FY2012 base amount plus 1.7% (annual inflation rate). DESCRIPTION OF POTENTIAL NET BUDGET REDUCTION: Based on a potential budget reduction of $24,000, the potential operating grant for FY 2013 would be $1,370,763. BUDGET REDUCTION: To respond to this potential reduction, CITS would Reduce Box Office hours and services Implement staff layoffs Reduction in Box Office Hours and Services The CITS would reduce the hours of the box office to 12 noon to 6pm Mon-Sat (versus 10am to 8pm Mon-Fri and 10 am to 6 pm Sat). Staff Layoffs Ticketing and Box Office staff would be laid off to meet the operating budget requirements. RISKS/IMPACTS ASSOCIATED WITH REDUCTION: Reduction in Box Office Hours and Services Currently, the CITS provides ticketing services for the Kitchener Memorial Auditorium, Registry Theatre, Grand Philharmonic, Elmira Theatre Company and KW Little Theatre. Ticket transactions by phone and the box office window between 12 noon and 6pm represent approximately 58-60%. This is followed by the 10 am to 12 noon hours of operation (32-33%). The reduction in hours will reduce service levels and convenience for patrons. Lack of convenience could result in reduced sales. Reducing services will limit growth for regional ticketing services provided by the CITS, which is an income generator for CITS to meet its annual operating budget. Staff Layoffs Layoffs will result from the reduced hours of operation and to balance the CITS operating budget. Layoffs will require one-off termination and severance payments, having further shortterm financial impacts on the CITS overall budget. Impact on the overall staff morale, employment confidence and productivity for remaining staff.

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ALTERNATIVE PROPOSAL FOR THE CITS NET BUDGET: The CITS proposes a multi-year funding arrangement with the City of Kitchener (CoK) at $1.4M per annum for a 4-year period, starting 1 January 2013. Based on the FY2012 base amount plus 1.7% (annual inflation rate), the projected operating grant for FY2013 is $1,394,763. This proposal represents an increase of $5,236 to cap the operating grant at $1.4M. Over the 4year term, based on a projected yearly inflation rate of 2%, the CoK would see a savings of $148,666. Having recently recruited a new CEO, the CITS is undergoing a full review of its systems and processes, as part of the overall strategic planning process. This process is intended to reposition the CITS and its engagement with the local community, as well as review its internal business operations to ensure maximum effectiveness, efficiency and sustainability across operations and administration. During the multi-year agreement, the CITS will not request any inflationary increase or one-off funding initiatives to implement the required structure and system. This proposal stabilizes the yearly operating grant and ensures a consistent level of investment for the CITS to make long-range plans and commitments to manage its yearly operating costs. It equally enables CITS to support a number of local arts organizations that receive services through CITS. For example, KWAGs tenancy at the Centre. KWAG currently covers 70% of the actual operating costs. The remaining 30% is supported by the CITS through its own operating funds and earned revenue. RISKS/IMPACTS ASSOCIATED WITH PROPOSAL: The operating grant for the CITS will be frozen during the period of this proposal. o CITS will need to meet the staffing and production requirements while implementing new sustainable directions for the CITS. CITS will need to manage any one-time costs associated with staffing and new systems, as an outcome of the current strategic planning process. o CITS earns the majority of its operating budget. The arts and entertainment market is soft throughout the region and industry, as a whole, which may impact the capacity of the CITS to implement new systems and processes over the short-term. o CITS does not currently receive additional operating or project grants from provincial or federal art councils, the Creative Enterprise Initiative or the region. Despite these potential risks, the lack of stable funds over this period of change and development is perceived as the greatest risk for the CITS. With a multi-year operating grant of $1.4M, the CITS board and management can work through aspects of the business over the longer-term, and not on a year-to-year basis. Stable operating funds will support the implementation of a new strategic plan and position the CITS for future growth and successful outcomes for the surrounding community.

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CITY OF KITCHENER 2013 BUDGET POTENTIAL REDUCTIONS ISSUE PAPER ISSUE: FUND: DEPARTMENT: PREPARER: PR05 Reduce Fire Department Staff Through Attrition Operating Community Services - Fire Michael May, Deputy Chief Administrative Officer, Community Services

BACKGROUND: As directed by City Council on August 13, 2012, staff has reviewed several options to reduce the annual operating budget of the Fire Department. As approximately 96% of the Fire Departments annual operating budget is comprised of staffing related costs (salaries and wages, benefits, overtime and lieu day payout), so any substantial and sustainable budget reductions within the Fire Department will have to have an impact on staffing levels. This issue paper outlines the budgetary and public/firefighter safety risks of reducing staffing levels within the Department, and provides one option City Council could consider for making such a change. The Fire Departments net annual operating budget for 2012 was $29,333,721 and its capital budget was $1,267,000. On an annual basis, the Fire Department generally makes up 29% of the citys budget. Over the past 5 years, staffing related costs within the Fire Department have grown by 25% or approximately $5.9M. During that same timeframe, a number of other areas within the Departments budget have been reduced and revenues from Direct Detect have increased to offset some of the growth in staffing costs. As a result of these adjustments, the Departments overall budget has grown by approximately $5.5M or 22%. To assist in putting these figures into context, the following information is provided from data gathered through the Ontario Governments Municipal Performance Measurement Program:

Operating Cost of Fire Service/Household


$500 $400 $300 $200 $100 $-

Markham

Vaughan

Burlington

Brampton

Kitchener

St. Catherines

Kingston

Oshawa

Whitby

Guelph

Barrie

London

Ottawa

Chatham-Kent

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Thunder Bay

Mississauga

Cambrige

Waterloo

Hamilton

Oakville

Windsor

Sudbury

Average

Toronto

In addition to the above information, according to a survey of 20 Ontario municipalities that was recently conducted by Brantfords Fire Department, Kitcheners Fire Department had the 4th lowest ratio of firefighters to population at 1:1,223 and the lowest of the three municipalities surveyed in Waterloo Region. REPORT: One option City Council may consider to reduce the Fire Departments annual operating budget is to achieve staffing reductions through attrition within the suppression division meaning positions would not be filled as retirements occur. There are currently 8 members of the Fire Department who are eligible to retire (over 30 years of service and over 50 years old). However, as the chart below indicates, there are zero firefighters scheduled for retirement in 2013. To provide some context, a 5 year history of fire fighter retirements is also found below:

Scheduled Retirements (2013 2017) 2013 2014 2015 2016 2017 0 3 3 3 2

5 Year History of Retirements (2008 2012) 2012 2011 2010 2009 2008 4 7 5 7 1

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With no scheduled retirements in 2013, there is no guarantee staffing levels can actually be reduced through attrition next year. However, City Council may wish to reduce the Fire Departments budget to reflect a reduction of four positions (one firefighter per platoon), and should those retirements not occur, staff would look to find alternative corporate funding sources to fund those salaries on an interim basis (e.g. gapping, capital accounts, tax stabilization reserve fund, operational surpluses in other areas of the corporation). Under this scenario, failure to find an alternate source of funding would mean the Fire Department would run a deficit in 2013. BUDGET REDUCTION: Assuming all four individuals are 1st Class Firefighters, the budget savings of not replacing the next four retirees from the Fire Departments suppression division would be $480,000. Given all of these retirements will not occur on January 1, 2013, budgeting for this reduction next year will likely result in a negative variance within the Fire Department in 2013. The exact amount of this variance cannot be quantified as the timing of retirements is not known.

RISKS/IMPACTS ASSOCIATED WITH REDUCTION: It is important to note that for reasons of public and fire fighter safety (outlined below), the Fire Chief and his management staff do not support this potential reduction and continue to recommend the current levels of service as outlined in the City Council approved Standards of Cover. Reduction in Service Levels: As the next four retirements occur within suppression, the staff complement on each platoon would be reduced by one individual. This reduction in available suppression staff would increase the likelihood and frequency staffing levels on any given shift would fall below 37 firefighters. When this occurs, an aerial unit is moved from Station 4 (Fairway and King) to Station 6 (Pioneer and Homer Watson) and a pumper unit is removed from service at Station 6. (Note: aerials units have a crew of two fire fighters and a pumper unit has a crew of four). Between February 1 and August 31, 2012 staffing levels dropped below 37 staff a total of 29 times. This is approximately 14% of the time that a pumper unit was taken out of service. During City Councils 2012 budget deliberations staff anticipated this would occur 20% of the time. When these changes were made and a pumper unit was removed from service at Station 6 during the timeframe noted above, the following operational impacts were experienced: 1. The total response time for Station 6 and 7 increased by 43 seconds (based on the 90th percentile calculations). This is based on 81 calls that the two stations responded to when the aerial was in service versus the remaining calls when the regular unit was in service. 2. At Station 4, first on scene unit reliability dropped by 15% when the aerial unit was reassigned due to these staffing changes. When the aerial is not assigned to Station 4, other apparatus from other districts must respond to cover off incidents if the pumper is already engaged at an incident. There were 42 calls that had lengthier response times due to aerial 4 being reassigned to another station. The response time (at the 90th percentile) increase for these situations was 13 seconds.

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3. The Departments standard effective response force objective is to have 15 staff on location within 12 minutes (an industry standard). This is for both public safety and fire fighter safety. The sampling size of the effective response force response times was too small to provide sufficient data. Anecdotally, it is known that with the reduction of one first response unit, there will be an increase in the effective response force response times. Budgetary Risks: There are two budgetary risks associated with this potential staffing reduction: The reduction of one firefighter on each platoon will increase the likelihood and frequency staffing levels on any given shift fall below 35 firefighters, requiring additional personnel to be called in on overtime. This would negatively impact the Departments overtime budget. There are no scheduled retirements in 2013. If retirements do not occur within the Department, a source of interim funding would be required until such time as they do occur, or the Fire Department would run a deficit.

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CITY OF KITCHENER 2013 BUDGET POTENTIAL REDUCTIONS ISSUE PAPER ISSUE: FUND: DEPARTMENT: PREPARER: PR06 - Implement Fire Insurance Recoveries Operating Community Services Fire Tim Beckett, Fire Chief

BACKGROUND: Many insurance companies have policies that provide coverage for fire department charges when a fire department is called to save or protect property. The level of insurance coverage provided can range from $1,000 to $25,000 per occurrence depending on the scale of the response and the municipal resources deployed. Charges can be made directly to the insurance company on a claim that is already being made. To date, the City of Kitchener has not charged insurance companies to recover these expenses despite clauses that already exist and have been priced into many insurance policies that would allow for a charge. REPORT: The concept of municipalities charging insurance companies to cover certain eligible Fire Department costs is relatively new. To date, staff is aware of eight (8) smaller municipalities (all with volunteer fire departments) that have begun to charge insurance companies to cover these expenses. As one example, the Municipality of Meaford is using the revenue generated from insurance company fees to fund fire prevention and public education programs, equipment purchases and training of fire fighters. Given the City of Kitchener has not traditionally charged insurance companies for these expenses, staff has no in-house knowledge or expertise to effectively administer these complex charges. Should Council wish to proceed in charging insurance companies to cover these costs, staff would conduct a competitive request for proposal process to identify a third party company to administer these charges on behalf of the City. The company would retain a percentage of the funds recovered for their work and the City would recover the balance of the funds. Engaging an outside company would benefit the City by: Immediately providing the City with the knowledge and expertise required to administer this complex system of charges (e.g. comparing each individual fire incident report to specific insurance policies on a case-by-case basis to identify, applying for and securing funds from the insurance company). Utilizing the companys expert knowledge and experience to ensure the City is securing the maximum amount of eligible revenue from the insurance companies under this coverage. This requires an expert knowledge and understanding of an array of insurance policies. Ensuring these charges can begin to be collected in 2013 instead of attempting to build inhouse expertise, knowledge and processes within the City which would require significantly more time to develop and implement with no guarantee of success. Eliminating the need for addition staff within the Fire Department to attempt to develop an inhouse system to recover these charges and then administer the program.

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Staff is aware of at least one third party company that could process these charges on behalf of the City. That company conducted a preliminary review of the Fire Departments 2011 incident responses and estimated the City could have been entitled to charge insurance companies for up to $300,000 in that year alone. To charge these fees to insurance companies, a change would be required to the Citys fees and charges schedule. These fees would be charged through the third party to insurance companies that provide coverage for Fire Department responses. BUDGET REDUCTION: According to preliminary estimates, beginning to charge insurance companies to cover Fire Department expenses could eventually generate up to $300,000 in revenue each year. Staff estimates it would take several months (following final budget day) to complete a competitive RFP process and finalize the necessary legal agreements. As a result, it would be prudent to budget an increase in revenues within the Fire Department of $200,000 in 2013. An additional increase to the Departments revenue could be made as part of the 2014 budget process once the City has had some experience charging these fees and have a more reliable estimate of revenues generated. RISKS/IMPACTS ASSOCIATED WITH REDUCTION: The risks associated with beginning to charge insurance companies for these costs include: 1. The program is not tested in larger municipalities, but has a handful of smaller volunteer departments that have seen successful reimbursements. 2. If Fire related call volume drops, so will revenues due to less claims available. 3. There may be push back from insurance companies as this is something the City has not charged for in the past although this has not been the experience of municipalities already charging for these costs.

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CITY OF KITCHENER 2013 BUDGET POTENTIAL REDUCTIONS ISSUE PAPER ISSUE: FUND: DEPARTMENT: PREPARER: PR07 Adjust Utility Billing Postage Charges Operating Finance & Corporate Services Revenue Division Saleh Saleh, Supervisor of Collections and Payment Processing

DESCRIPTION OF POTENTIAL NET BUDGET REDUCTION: The Revenue Division is responsible, among other things, for meter reading, billing, collections, and customer service on behalf of the utility enterprises (gas, water, sewer and storm). This issue paper identifies potential net budget reductions amounting to $60,000 within these functions resulting from operating efficiencies and increased revenue forecasts. The following budget reductions are put forward for Council consideration based on a review of operating efficiencies and revenue forecasts: Reduce the budget for envelopes and printed forms by $5,000. The increase in the use of e-post has reduced the volume of printed bills and envelopes. Additionally, the City has recently changed its process such that accounts paid through online or telephone banking are flagged and no longer receive return envelopes with their bills. Reducing this budget assumes that the trend towards electronic commerce will continue. Reduce the staff overtime budget by $5,000 (approximately 50%). Overtime hours have been strictly limited in recent years. There is also a preference by staff to receive lieu time off instead of overtime pay. Reduce the budget for debit card fees by $5,000 to reflect the increased use of other payment methods such as online or telephone banking. This assumes that the trend towards other methods of payment will continue. Increase the Utility Account Administration Revenue budget by $45,000. Revenues have been increasing in this budget line over the past two years. Building this full revenue stream into budget presumes that the current annual volume of tenant and owner moves is sustainable. Staff have also reviewed postage charges currently incurred through the mail room. The mail room currently processes utility bills that need to be weighed and an appropriate postage applied as they are not standard mail-outs. Examples include customers who receive multiple bills in one envelope or customers who have mailing addresses located outside of Canada. As the cost of mailing these bills is directly related to the utility enterprises, staff are recommending that the full cost be borne by the enterprises. Presently, 28% of Mail Room costs are recovered from outside the tax base. It is recommended that this be increased by $60,000 to 43% to ensure that the allocation more closely reflects the true cost of providing the mail room service to the enterprise units. BUDGET REDUCTION: Savings in this area would normally accrue back to the utility enterprises. However, the benefit of these savings can be realized within the 2013 tax-based budget because of an opportunity to also improve the allocation of postage costs between the tax-based budget and the utility budgets based on a detailed review. The end result is a $60,000 reduction to the tax-based budget and no impact to the utility budget. RISKS/IMPACTS ASSOCIATED WITH REDUCTION: Assumptions have been made for each of the potential reductions, as outlined above. If any of these assumptions are not actualized e.g. trends do not continue, the ability to achieve the full extent of budget reductions may be impacted, and the amounts may not be fully realized.

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CITY OF KITCHENER 2013 BUDGET POTENTIAL REDUCTIONS ISSUE PAPER ISSUE: FUND: DEPARTMENT: PREPARER: PR08 - Remove Downtown Bulk Garbage Bins Operating Infrastructure Services, Operations Scott Berry, Interim Director of Operations

DESCRIPTION OF POTENTIAL NET BUDGET REDUCTION: The Operations Division currently has 44 bulk bins being administered through the operating budget. These bins are all located at city facilities and provide waste management containers for the facility with the exception of the six bins defined below. The core area of the downtown currently has six bulk bins which receive six day per week collection and are being used by users other than city facilities and are located as follows: Halls Lane behind 22 Water St S (behind Professional Building/The Honest Lawyer) Halls Lane behind 141 King St E (behind K-W Labour Association) Halls Lane behind 183/185 King St E (behind Dream Hair Salon) Goudies Lane behind 30 King St E (behind The Stag Shop) Forsyth Parking Lot behind 150 King St W Bell Lane beside 12 Water St N (adjacent to Money Mart)

These bins are being used exclusively by businesses or residents in the downtown and have no connection to any city facility. Some of these bin locations are being abused to the point that Operations staff are responding on a daily basis to pick up refuse that is left beside the bin. In 2003/2004 there were an additional 9 bulk bins in the core that were being used by other than city facilities and were removed as part of a rationalization of the service through discussions with Economic Development staff and the Downtown BIA. The rationale at the time was to remove 9 of the 15 bins and to look at the remaining 6 bins at a later date. Operations has had preliminary discussions with Economic Development and plan to meet with Downtown BIA representatives to discuss options including the removal of these bins or to have those businesses/residences take over the cost involved in retaining the bins. Other options for businesses/residents include use of the four deep well garbage receptacles in the core, use of the approximate 40 streetscape deep well garbage receptacles in the core, seven day per week King Street curbside collection for smaller items and utilizing the Region of Waterloo Landfill for larger items. BUDGET REDUCTION: The potential reduction to Operations Division operating budget expenditures is $4,800 per bin per year or approximately $29,000 per year for all six bins in addition to tipping fees. Current annual expenditures for tipping fees are approximately $130,000 for approximately 64 locations (either bulk bins or deep well garbage receptacles). RISKS/IMPACTS ASSOCIATED WITH REDUCTION: The removal of the bulk bins from downtown could cause increased incidents of unseemly garbage buildup if downtown businesses did not find an alternate garbage disposal option.

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CITY OF KITCHENER 2013 BUDGET POTENTIAL REDUCTIONS ISSUE PAPER ISSUE: FUND: DEPARTMENT: PREPARER: PR09 Limit Grant Funding Increase to 1% in 2013 Operating General Expenses Ryan Hagey, Director of Financial Planning Renate Willms, Supervisor, Administration, CSD

DESCRIPTION OF POTENTIAL NET BUDGET REDUCTION: In developing the 2013 budget, staff included a 1.7% increase to community grants and economic development grants. The proposed reduction would reduce the level of increase to 1.0%. A brief description of the grants is provided below. Community Grants: The City of Kitcheners operating budget includes an allocation of grant funding provided to notfor-profit organizations. These are more commonly known as Tiers 1, 2, and 3, travel assistance and in kind facility grants. These grants are used to provide funding and support for programs and opportunities that benefit Kitchener residents in the areas of arts and culture/special events, community support and development, and sports and recreation. The budget process sets the overall funding available to be distributed. There is a completely separate process for recommending how much funding specific organizations receive through Tiers 1, 2 and 3 grants, which is ultimately approved by Council. In kind facility and travel assistance grants are reviewed and processed by staff upon receipt. Since Council considers and approves Tier 1 grants prior to the other grants, the Tier 2 grant allocation varies annually as the amount allotted to this funding source is the balance remaining after the other grant sources have been allocated their amounts. Economic Development Grants: The Economic Development budget includes an allocation of grant funding provided to partner organizations to help foster economic growth within Kitchener. The majority of the funding is provided to CTT, Communitech and the Small Business Centre, with minor amounts provided to other organizations. BUDGET REDUCTION: Reducing the increase for grant funding from 1.7% to 1.0% would result in a savings of $19,359 as shown in the following table.

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Community Grants Tier 1 - Minor Sports (foundational funding) Tier 1 - Community Groups (foundational funding) Tier 2 (projects, events and programming for new and emerging groups) Tier 3 (seed funding for innovative projects in collaboration with other local funders) Travel Assistance/In Kind Facility (travel grants for Kitchener athletes 18 years and under; in kind facility grants for events at Kitchener facilities) Creative Enterprise Enabling Organization Total Community Grants Economic Development Grants Skills Canada Business & Education Partnership Junior Achievement Communitech CTT Small Business Centre Total Economic Development Grants Combined Total

2012 1.70% 1.00% Savings Budget $749,747 $12,746 $7,497 $5,248 $1,529,440 $26,000 $15,294 $10,706 $134,216 $10,737 $7,517 $2,282 $183 $128 $1,342 $107 $75 $940 $75 $53

$56,000 $952 $560 $392 $2,487,657 $42,290 $24,877 $17,414 2012 Budget $5,417 $5,417 $5,311 $30,000 $155,192 $76,575 $277,912 1.70% $92 $92 $90 $510 $2,638 $1,302 $4,725 1.00% $54 $54 $53 $300 $1,552 $766 $2,779 Savings $38 $38 $37 $210 $1,086 $536 $1,945

$2,765,569 $47,015 $27,656 $19,359

RISKS/IMPACTS ASSOCIATED WITH REDUCTION: If grant increases are reduced, it may be difficult for organizations to keep up with inflationary increases, continue and/or expand their core services, and respond to governance and/or legislative changes. As well, a decrease to the grant funding provided by the City of Kitchener would not keep pace with user fees being charged to many of the Citys grant recipients.

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CITY OF KITCHENER 2013 BUDGET POTENTIAL REDUCTIONS ISSUE PAPER ISSUE: FUND: DEPARTMENT: PREPARER: PR10 Reduce Council Technology & Home Office Budget Operating CAO, Office of Mayor and Council Dorothy McCabe, Chief of Staff

DESCRIPTION OF POTENTIAL NET BUDGET REDUCTION: Since 2010, the Office of Mayor and Council has reduced its budget through the elimination of an FTE, 2 years of council salary freezes, reduction in the Home and Tech Operating Budget and through other cost containment efforts. As per Councils directive to explore potential areas for budget reductions, the Technology and Home Office Expense budget was reviewed. Based on the 2011 surplus of $18,214 and a projected similar surplus for 2012, funding allocated for this area could be reduced by $1,000 per council member per year for total annualized savings of $11,000. As per policy 147, Technology and Home Office Expenses, the Mayor and each member of council are provided an allocation of a maximum of $5,300 per year for each year of Councils four year term to be used for technology and home office expenses such as: a cell phone, BlackBerry, computer and related equipment, and a dedicated home office telephone line. BUDGET REDUCTION: The Technology and Home Office Expenses budget allocation could be reduced by $1,000 per year per member of council for ongoing annualized savings of $11,000. RISKS/IMPACTS ASSOCIATED WITH REDUCTION: Generally, the cost of technology is decreasing and there was a surplus in 2011 and a projected surplus in 2012. However, it is important to ensure there are sufficient funds for the annual ongoing operating expenses (data plans, the cost of telephone lines, internet connections and others) as well as sufficient funds for future capital items in future terms in office.

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