Multi-year Budget (2020 to 2023) Council Briefing October 18, 2019 - - PowerPoint PPT Presentation

Council Briefing

October 18, 2019

Multi-year Budget (2020 to 2023)

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• Multi-year Budget Context
• Multi-year Budget Process
• EPC Recommended Operating and Capital Targets to Balance

Multi-year Budget (2020 to 2023)

Agenda

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Multi-year Budget (2020 to 2023)

Multi-year Budget Context

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The 1990s: A Challenging Decade

Winnipeg’s current fiscal policies were custom tailored to the situation it faced in the 1990s

• Population Decline
• Negative experiences (Flood of 1997, Winnipeg Jets leaving)
• Low Revenue Growth
• High Dependence on property taxes
• Among the highest property taxes in Canada

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The 1990s: A Challenging Decade

As a result, the City hoped to stop, or manage, the decline with:

• Years of property tax freezes
• Restricted Capital Investment
• Expenditure Reductions
• Reduced FTE’s
• Reduced Debt
• Withdrawals from reserves

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The 2010s: A Decade of Growth

Winnipeg’s economic challenges have reversed since the 1990s. One of main challenges now is meeting the demands of a growing city.

• Fastest population growth since the 1950’s
• Second fastest Real GDP in 2018 out of major cities
• Lowest municipal property tax of any major Canadian city
• Low reliance on property tax
• Low debt payments

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The 2010s: A Decade of Growth

As a result, we are now experiencing growing pains that we have to address to keep our population moving forward.

• There is a structural imbalance between revenues and the costs generated

by growth (including new infrastructure)

• Failure to meet this challenge could impede on future growth and the

desirability of Winnipeg as a destination for prospective residents and businesses

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Present: New Solutions are Needed

The solutions the City adopted in the 1990s are no longer working

• Low property tax revenue has led to deferred capital investment and

constrained service delivery

• Dedicated property tax increases (2.33%) has led to an improvement in

street renewal and transit infrastructure

• Options for closing the gap between operating revenues and expenditures

with funding from reduced debt payments and drawing from reserves is limited and unreliable going forward

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Present: New Solutions are Needed

The City has hard fiscal choices to make.

• Deferral of capital investment means the infrastructure gap will grow, and

key community needs won’t be met – a civic competitiveness issue

• Continued operating expenditure constraints, and FTE reductions mean

making hard choices about service priorities and cuts

How does Winnipeg’s current growth compare to our past?

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Is Winnipeg Growing?

1990-1999 +14k 2000-2009 +33k 2010-2018 +90k 2010’s Over the past 9 years, Winnipeg has grown by over 90,000 people,

• r roughly 27 people

per day.

In the 2000’s, Winnipeg grew by 33,000 people, equivalent to 9 people per day

2000’s

In the 1990’s, Winnipeg grew by 14,000 people, equivalent to 4 people per day

1990’s

Yes, the fastest it has in recent history.

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Source: Statistics Canada, Conference Board of Canada, Manitoba Bureau of Statistics. Please note that prior to 1986, population values outside of census years are linearly interpolated and census undercount values are assumed to be 1.5% of the census population.

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City of Winnipeg’s Population: 1871 to 2018

City of Winnipeg’s Population: 1980 to 2018

Source: Statistics Canada, Conference Board of Canada, Manitoba Bureau of Statistics. Please note that prior to 1986, population values outside of census years are linearly interpolated and census undercount values are assumed to be 1.5% of the census population.

Population is growing at 3 times the rate this decade than in the previous decade

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Population Growth Across Canada

Source: Statistics Canada, 2011 Census and 2016 Census, Conference Board of Canada Spring 2019 Metropolitan Outlook

14.8% 13.0% 11.4% 10.9% 6.3% 5.8% 4.6% 4.5% 3.3% 3.3% 3.3% 3.0%

0% 2% 4% 6% 8% 10% 12% 14% 16% Total Population Growth 2011 to 2016 (CY)

10.6% 10.3% 10.2% 10.0% 9.3% 7.3% 7.3% 6.8% 6.5% 5.6% 4.5% 3.9%

0% 2% 4% 6% 8% 10% 12% 14% 16% Total Population Growth Projections 2018 to 2023 (CMA)

Winnipeg was the fastest growing non-energy based city in Canada

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What was our financial situation like in the 1990s?

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Financial History – The 1990’s

City of Winnipeg Research Branch, December 1993 Real Estate News, October 1994 Winnipeg 2000 Economic Development Corporation, Property Tax Review, February 1997 Real Estate News, March 1997 City of Winnipeg 1999 Budget, Appendix 10

In the mid-1990’s, residents and businesses were becoming increasingly concerned about 3 things within the City: 1. Winnipeg had high property taxes 2. Winnipeg had a higher proportion of it’s revenue coming from property taxes 3. Winnipeg had high debt servicing costs

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"Our taxes are among the highest in the country - moving out

• f the city to avoid those taxes has been a trend for years."
• Winnipeg Sun, January 1997

City of Winnipeg Committee on Tax Reform, “Rethinking Taxation: Making Winnipeg Competitive”, June 1998

Third highest average municipal property tax in 1998

Source: City of Edmonton Property Tax Survey Data, 1985 to 2000

$2,600 $1,759 $1,350 $1,281 $1,017 $1,007 $910 $906 $817 $722 $0 $500 $1,000 $1,500 $2,000 $2,500 $3,000 Montreal Toronto Winnipeg Halifax Regina Victoria SaskatoonVancouver Edmonton Calgary 17

Sources of Revenue - Dependence on Property Tax - 1998

Source: City of Winnipeg Annual Financial 1998 Report

40% 15% 11% 10% 6% 6% 5% 5% 4% 0% 5% 10% 15% 20% 25% 30% 35% 40% 45% Property Taxes Water & Sewer User Fees Operating Grants User Fees & Charges Business Tax Interest, Land Sales & Other Transit Fares Capital Grants Other Taxes 18

Proportion of Budget toward Debt and Finance - 1998

Source: City of Winnipeg 1998 Tax-supported Operating Budget

All Other Expenditures $546,999,816 81% Total Debt and Finance Charges $127,800,990 19%

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How did the City respond?

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Reduced mill rates

Source: City of Winnipeg Assessment and Taxation Department

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Stopped taking on debt, reduced debt payments

Source: City of Winnipeg Department of Corporate Finance

$21 $4 $1 $8 $7 $4 $5 $6 $7 $1 $8 $3 $35 $5 $12 $2 $1 $0 $5 $10 $15 $20 $25 $30 $35 $40 Tax-supported Operating Budget Funds Millions

Tax-Supported Funds Freed up from Expired Debt Payments

Total operating funds that have been reallocated from debt payments since 1995: $130 million 22

Reduced Cash to Capital

Source: City of Winnipeg Department of Corporate Finance

$0 $10 $20 $30 $40 $50 $60 $70 $80 $90 $100 20002001200220032004200520062007200820092010201120122013201420152016201720182019 Tax-Supported Operating Budget Funds Millions Adopted Cash to Capital Cut Cash to Capital 23

Reduced expenditures and reserve withdrawals

Source: City of Winnipeg Department of Corporate Finance

$60 $105 $76 $83 $83 $93 $95 $107 $99 $105 $84 $75 $76 $0 $20 $40 $60 $80 $100 $120 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 Tax-Supported Operating Budget Funds Millions Expenditure reductions and transfers from other funds and reserves vary in size and availability each year. They’ve averaged $88 million over the past 5 years. 24

Started a Utility Dividend in 2011

Source: City of Winnipeg Department of Corporate Finance

$17 $18 $19 $20 $31 $32 $36 $38 $34 $0 $5 $10 $15 $20 $25 $30 $35 $40 $45 2011 2012 2013 2014 2015 2016 2017 2018 2019 Tax-Supported Operating Budget Funds Millions Utility Dividends used to help balance the tax-supported

• perating budget have averaged $34 million in the last 5

years 25

Used additional revenue for capital projects

Source: City of Winnipeg Adopted Tax-Supported Operating Budget Documents, 1985 to 2018

$997 $454 $768 $1,125 $0 $200 $400 $600 $800 $1,000 $1,200 1985 1987 1989 1991 1993 1995 1997 1999 2001 2003 2005 2007 2009 2011 2013 2015 2017 2019 Revenue Millions Compared to 2008, revenues are up $357 million. 36% of this increase, or $128 million in annual revenue, has been dedicated to public works, street renewal, and BRT. 26

Of the $431 million increase in the tax supported

• perating budget since 2004, $300 million, or 70% is due

to Salary and Benefits.

Source: City of Winnipeg Adopted Tax-Supported Operating Budget Documents, 1985 to 2019

$454 $694 $1,125 $0 $200 $400 $600 $800 $1,000 $1,200 1985 1987 1989 1991 1993 1995 1997 1999 2001 2003 2005 2007 2009 2011 2013 2015 2017 2019 Revenue Millions 27

This is due, in part, to an increase in average salary and benefit expenditure per FTE by area

Source: City of Winnipeg Adopted Tax-Supported Operating Budget Documents, 2004 to 2019

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$71,825 $129,095 $50,077 $78,313 $0 $20,000 $40,000 $60,000 $80,000 $100,000 $120,000 $140,000 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019

Average per FTE by Area

Emergency Services All Other Departments

CAGR: 4.0% CAGR: 3.0%

and also a shift in the quantity of FTEs by area.

Source: City of Winnipeg Adopted Tax-Supported Operating Budget Documents, 1998 to 2018

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2,717 3,319 2,974 2,734 1,000 1,500 2,000 2,500 3,000 3,500 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018

Full Time Equivalent (FTE) Employees

Emergency Services FTE All Other Departments FTE

Finally, of the $300 million increase in salary and benefits expenditure, $233 million (78%) was allocated to Emergency Services

Source: City of Winnipeg Adopted Tax-Supported Operating Budget Documents, 2004 to 2019

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$0 $50 $100 $150 $200 $250 $300 $350 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019

Millions

Increase in Tax Supported Expenditures on Salary and Benefit by Area, Relative to 2004

Emergency Services All Other Departments

What was the result of these changes and how do we compare to other cities?

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Second largest mill rate reduction locally

Source: City of Winnipeg Assessment and Taxation Department, various Rural Municipality’s 2018 Financial Plans.

Between 2000 and 2018, Winnipeg reduced its mill rate by 60%. Only Headingley reduced theirs more, by 65%.

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$3,943 $3,805 $3,006 $2,805 $2,743 $2,699 $2,586 $2,256 $2,081 $2,000 $1,967 $1,774 $0 $500 $1,000 $1,500 $2,000 $2,500 $3,000 $3,500 $4,000 $4,500

Lowest Average Municipal Property Tax - 2019

Source: Cities Assessment and Taxation Websites and various other media sources

In 2019, Winnipeg had the lowest average municipal property taxes out of 12 major Canadian cities

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$3,943 $3,006 $2,805 $2,743 $2,699 $2,586 $2,256 $2,081 $2,000 $1,967 $1,774 $273 $0 $500 $1,000 $1,500 $2,000 $2,500 $3,000 $3,500 $4,000 $4,500 Ottawa Toronto Victoria Vancouver Québec Edmonton Regina Saskatoon Calgary Halifax Winnipeg

Lowest Average Municipal Property Tax - 2019

Source: Cities Assessment and Taxation Websites and various other media sources

$273

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Street Renewal Frontage Fee Provincial charges, District-specific taxes, HOA Improvement Charges Local Improvements and Special Taxes Capital District Charges, Capital Hospital Charges, Charge for BC Assessment, Municipal Finance Authority City Building Fund

Low proportion of property tax non- residentially

Source: City of Calgary Property Tax Survey, 2017 * Note: Revenue received from Business taxes in Calgary and Winnipeg are included in the total amount of taxes received from non-residential properties.

57% 51% 50% 44% 36% 35% 35% 26% 0% 10% 20% 30% 40% 50% 60% Calgary Edmonton Vancouver Halifax Toronto Winnipeg Regina Saskatoon

Winnipeg has among the lowest proportion of its tax revenue coming from non-residential properties.

* *

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Less reliant on tax, more reliant on transfers

Source: City of Winnipeg 1998 and 2016 Annual Financial Reports

40% 15% 11% 10% 6% 6% 5% 5% 4% 33% 17% 11% 13% 3% 4% 5% 9% 5% 0% 5% 10% 15% 20% 25% 30% 35% 40% 45% Property Taxes Water & Sewer User Fees Operating Grants User Fees & Charges Business Tax Interest, Land Sales & Other Transit Fares Capital Grants Other Taxes 1998 2017

More reliant on capital grants from other levels of government as well as user fees and charges. Less reliant on property tax revenue and Business Tax

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Lowered debt and finance charges

Source: City of Winnipeg Tax-Supported Operating Budgets, 1994 to 2019

$124 $35 $0 $20 $40 $60 $80 $100 $120 $140 $160 Total Tax-Supported Debt and Finance Charges Millions

Total Debt and Finance Charges reduced from $124 million to $35 million of the Tax-Supported operating budget

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Net Tax Supported Debt is Increasing

Source: City of Winnipeg Treasury Department

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• 50

100 150 200 250 300 350 400 450 Net Existing Tax Supported Debt Millions

Increase in 2016 due to Police Headquarters Financing

Lowest expenditures per capita

Source: Cities’ 2017 Tax-Supported Operating Budgets and Annual Reports

$1,937 $1,952 $1,999 $1,585 $1,557 $1,829 $1,573 $1,492 $1,540 $1,348 $470 $403 $343 $627 $488 $164 $273 $217 $152 $260 $0 $500 $1,000 $1,500 $2,000 $2,500 $3,000 Vancouver Edmonton Calgary Toronto Ottawa Regina Halifax Hamilton Saskatoon Winnipeg Expenditure Per Capita Transit Expenditure Per Capita 39

Low capital investment per capita

Source: 2012 to 2017 Cities Annual Financial Reports

$1,657 $1,540 $1,275 $1,093 $959 $722 $684 $404 $330 $0 $200 $400 $600 $800 $1,000 $1,200 $1,400 $1,600 $1,800 Saskatoon Edmonton Toronto Ottawa Calgary Winnipeg Hamilton Montreal Halifax

Average: $963 per capita

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Low revenue per capita

Source: Cities’ 2017 Tax-Supported Operating Budgets, Utility Budgets, and Annual Reports * Note: The City of Edmonton figures for water and sewer includes land drainage only. This does not include water and sewer revenue collected by the EPCOR utility.

$3,398 $2,993 $2,440 $2,528 $1,836 $194 $546 $537 $566 $397 $0 $500 $1,000 $1,500 $2,000 $2,500 $3,000 $3,500 $4,000 Edmonton Calgary Saskatoon Regina Winnipeg Tax Supported Revenue per Capita Water and Sewer Revenue per Capita

*

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Past approaches are no longer sustainable to meet the needs of a growing City.

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The structural fiscal deficit: 2008-2028

Source: City of Winnipeg Economic Research Office Budget Model

$500 $700 $900 $1,100 $1,300 $1,500 $1,700 Adopted Budget Projected Expenses Projected Revenues

$241 million deficit projected by 2028 This gap would not exist in a multi-year budget. In the short term, future years would also need to be balanced, not just the current one

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We can no longer rely on reduced debt

Source: City of Winnipeg Department of Corporate Finance

$0 $5 $10 $15 $20 $25 $30 $35 $40 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020f 2021f 2022f 2023f 2024f 2025f 2026f 2027f 2028f Tax-supported Operating Budget Funds Millions

Tax-Supported Funds Freed up from Expired Debt Payments

Debt payments are forecasted to increase in the near-term then fall slightly, leaving little-to-no additional funds to allocate to

• perations

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We can no longer rely on cutting cash to capital

Source: City of Winnipeg Department of Corporate Finance

$0 $10 $20 $30 $40 $50 $60 $70 $80 $90 $100 2000 2002 2004 2006 2008 2010 2012 2014 2016 2018 2020 2022 2024 2026 2028 Tax-Supported Operating Budget Funds Millions Adopted Cash to Capital Cut Cash to Capital Under the current projections, all cash to capital would need to be cut to get us closer to a balanced budget 45

Expenditure reductions and transfers from reserves are unreliable

Source: City of Winnipeg Department of Corporate Finance

$0 $20 $40 $60 $80 $100 $120 Tax-Supported Operating Budget Funds Millions Expenditure reductions and transfers from other funds and reserves vary in size and availability each year. Funds available in reserves are hard to predict and not necessarily sustainable as we use them up 46

Utility dividends face growth pressure

Source: City of Winnipeg Department of Corporate Finance

5 10 15 20 25 30 35 40 45 50 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020f 2021f 2022f 2023f 2024f 2025f 2026f 2027f 2028f Tax-Supported Operating Budget Funds Millions Utility dividends may be increasing but there is pressure to reduce them (Note: dotted line current assumes 11% dividend on projected WWD sales as in the 2019 rate report) 47

But even with these measures, we still have a gap – and this does not include unfunded capital. The challenge is structural.

Source: City of Winnipeg Department of Corporate Finance, Economic Research Office Budget Model

$0 $50 $100 $150 $200 $250 $300 $350 $400 $450 Funds used to Balance the Operating Budget Millions

Historical

2020f 2021f 2022f 2023f 2024f 2025f 2026f 2027f 2028f

Forecast Forecasted Tax-Supported Operating Budget Deficit

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The Structural Deficit

Structural Deficit: A permanent deficit that results from an underlying imbalance in government revenues and expenditures. City 2020 Budgeted Deficit Submissions:

• 2020: $89.6 million
• 2021: $119.9 million
• 2022: $158.6 million
• 2023: $174.9 million

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Conclusion:

• The 1990’s were a challenging decade: Low population growth, negative

shocks, high property tax and debt;

• The City hoped to stop the decline with tax and operating/capital

expenditure deferrals and reductions;

• Currently, we are facing an inverse situation: exceptional population growth

and the lowest property tax and spending per capita;

• The context has changed; the solutions used in the past are no longer

reliable

Multi-year Budget (2020 to 2023)

Multi-year Budget Process

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Introducing a four year balanced budget process will help the City with long-term, sustainable planning. This multi-year balanced budget aims to:

• control expenses,
• invest in priority services,
• drive efficiencies, and
• achieve sustainability and greater certainty for taxpayers,

stakeholders, and the Federal and Provincial governments. Citizen needs and expectations are evolving. This multi-year balanced budget process provides an opportunity to develop a transformative budget that creates a sustainable financial plan to meet the dynamic needs of a growing city.

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Multi-year Budget Process

• October 18 – EPC setting of multi- year budget parameters including expenditure targets
• November 12 to December 9 – SPCs, EPC, Police Board meetings
• November 12 to November 20 – Multi-year Budget presentations
• November 22 to November 27 – Multi-year Budget delegations
• November 28 to December 9 – Multi-year Budget recommendations
• January 2020 – BWG / EPC deliberate on budget recommendations from SPCs
• February 2020
• EPC tables preliminary multi- year budget
• SPC and Board preliminary budget review meetings
• March 2020 – Council approval of multi-year budget
• Annual review of future budgets

Multi-year Budget (2020 to 2023)

EPC Recommended Operating and Capital Targets to Balance

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Key Assumptions

These proposed recommended targets present a balanced tax-supported

• perating budget from 2020 to 2023

1. Property Tax Increases: 2.33% annually (road renewal and BRT) 2. Fees and Charges: Inflationary increases annually 3. Natural Assessment Base Growth: 1.2% annually 4. Efficiencies/Vacancy Management: $17 Million annually 5. Additional Transfers/Savings: $32.5 million in 2020 growing to $40 million by 2023 6. Provincial Operating Grants: Flat at $149.7 million annually (2016 level) 7. Utility dividend rate: 11% of Water and Sewer Sales 8. Remaining Tax Supported Debt Room: $150 million in total

EPC Recommended Target To 4-Year Balance

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Services Annual Budget Growth Rate Police, Fire, Transit, Water & Waste 2.0% Public Works 1.5% Community Services 0.5% Property, Planning, and Development, SOAs, and Internal Services (Corporate, Audit, Innovation, Assessment & Taxation) 0.0%

Department Operating Budget Growth Rates Capital Financing: reduced to $20 million annually

Capital Financing Source Annual Amount Cash to Capital $20M Debt Financing (incremental to capital budget forecast) $0

Information Provided to Councillors to assist with budget process:

• OurWinnipeg
• Community Trends Report (2016 – 2020)
• Adopted Capital Budgets (2016-2019)
• Adopted Operating Budgets (2016-2019)
• Annual Reports (2016-2018)
• Detailed Financial Statements (2016-2018)
• State of the Infrastructure Report
• City Asset Management Plan
• Open Budget (Open Capital Projects)
• Unfunded Capital Projects
• Legislated & Non-Legislated Services List
• PeopleSoft General Ledger Balances (training to be provided)

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