Joe Fratesi explains the budget

The following is the continuation of a letter that Chief Administrative Officer Joe Fratesi wrote to City Council, explaining the 2003 City Budget, as prepared by his staff:

******************************************* Not having any surplus from one year would mean automatic revenue increases or cost reductions in the following year if Council were to continue this past practice.

You will also note that over the last six years the amount used from the previous year's surplus in current budgets has dropped from well over $2.1 million to $250,000.00.

That same amount is in the 2003 Budget and we will continue with the goal to reduce the contribution to zero in 2004.

Now turning to the surplus from the 2002 Budget, the 2002 year end audit indicates a surplus of just under $1.5 million.

As mentioned above it is recommended that $250,000.00 of this be utilized to reduce the 2003 tax levy.

As in past budgets we recommend that the remaining surplus funds be allocated for one-time only expenditures in 2003.

This may include extra roadwork, capital reserve provisions or items included on the supplementary list.

Staff cannot stress enough the importance of Council considering one-time only expenditures (capital or otherwise), as any ongoing or recurring expenditure should be included in the levy, if Council wishes.

The Treasurer has provided to Council the recommendations of not only himself but all of the Senior Management Team regarding the allocation of the 2002 surplus.

This recommendation is contained on page 11 of his budget report.

This list includes several maintenance issues which can no longer be delayed.

The list also includes replenishing the Property Purchases Reserve Account which has become unacceptably low.

It also includes setting aside the sum of $250 000,00 towards the purchase of new computer software systems including financial reporting systems which have been identified by Council in both resolutions and the Corporation Strategic Plan.

The recommendation includes the establishment of a Capital Reserve for Facilities Maintenance, a fund which can be looked to by Council in future for many of the maintenance issues which no doubt will require attention soon.

This also was identified as a priority item in the City's Strategic Plan.

Increased milling and overlay is something that Council has chosen as a priority in previous budgets and it is suggested that the amount of $380,000.00 additional work be approved from surplus funds.

The sum of $120,000.00 is identified as a further sum for design work for the Third Line culvert.

This project will in fact become more important as the new Davey Home and the new hospital become a reality and the need for east/west connection becomes more pressing.

No amounts are recommended in the 2003 budget for Economic Diversification, as the existing Reserve appears to be sufficient for the upcoming fiscal year.

Additionally, a request has been made to the Ministry of Northern Development & Mines to consider repeating the very successful Capital Assistance Program (NOHFC) which provided $2.5 million to the City in 2002.

Recommendation

The 2003 Budget as presented does in fact recommend an increase in taxes for most residents.

As mentioned earlier, reference to tax rates will in fact be confusing given the declining assessments which our City has experienced.

Scott McLelten, the Manager of Budgets on page 5 of the Overview probably illustrates in the best possible manner the impact of the 2003 budget as presented.

Approximately 80% of residential properties experienced a decline or no change in assessment. The "average" residential assessment declined by about 4%. For that average residential homeowner the increase in taxes will amount to about 3.1 or about $55.00 annually.

While obviously some homeowners with the same or increasing assessments will experience larger increases in taxes and those with greater than average decreases (7% or more) will see decreases in taxes, the average homeowner who experienced an assessment decline of 4% will experience an increase in realty taxes of about 3.1.

Summary

The Senior Management Team believes that the budget as presented is realistic in providing a good level of service to the citizens of our community in an effective and efficient manner.

Inflation for 2002 is said to be in excess of 2.5% so that the tax increase impact on residents with average assessment of 3.1% is indeed reasonable.

Other Northern Ontario communities are facing tax increases for their residents which exceed the increase recommended in our budget.

Comparison to other Northern communities

Sudbury, for example recently settled its budget which resulted in tax increases of 6.6% for most residents.

In addition to this, several facilities are slated to be closed in order to save operating funds.

The City of Timmins which experienced a deficit in its operating budget for 2002, settled its budget which results in a 3.87% increase for most homeowners.

To arrive at this palatable position, a significant amount of money was taken from Reserves and cuts were made to operations including Transit services, and Parks and Recreation.

Even in Southern Ontario, where assessments are increasing and where municipalities are receiving increased revenues because of that fact, reports of municipal budgets show increases to homeowners ranging from 3.2% to as much as 10%.

Southern Ontario comparisons

The following are examples of some of the communities who have reported:

- Cambridge - 3.2% (final)

- Some municipalities in York Region - 5.24% (final)

- Sarnia - preliminary budget 6.67 increase with target of 3% for final

- Uxbridge - 10% preliminary with 3.5 target for final

- Oshawa - 10% preliminary

Reserve for new hospital

It is expected that most municipalities will indeed pass on a tax increase of at least 3% for 2003.

The Budget which has been presented continues to fund the Reserve for the City's contribution to a badly needed new hospital.

It continues to fund a higher level of road improvements.

It continues to fund snow removal at a high level.

It continues to shy away from further reliance on reserves or previous year's surplus as revenue.

It continues our program for major road construction on a "pay as you go" basis.

Sewers

It allows for the continued funding of the City s portion of the $60 million major sewage infrastructure improvements over a reasonable period of time.

City Council and the residents of Sault Ste. Marie can be proud of the infrastructure improvements that have been made over the last several years including in areas of policing, fire protection, water filtration, sewage treatment and recreational facilities.

The City continues to face significant challenges but nonetheless has been able to move forward to maintain and improve our infrastructure components and to provide a very good level of service to our ratepayers.

The 2003 Budget which is presented to you continues in that direction in what staff believes to be a very responsible manner.

This budget is therefore wholeheartedly recommended to City Council for its approval.

Respectfully submitted,

Joe Fratesi, Chief Administrative Officer