January 30/04 Report
9:30 am

Present:

Meeting began at 9:44 am. Seven new items were added to the agenda. Collins led decision to receive those for a future agenda. They included a report calling for a 15 cent transit fare hike. The seven items are:

• information item on $809K increase required by changes to Ontario Municipal Act
• recommendation for approval of user fee increases from Operations and Maintenance division including parks, cemeteries, waste disposal, tree trimming, marina slip rentals, etc.
• recommendation for transit fare increases in 2004 and 2005
• recommendation for $1,157,370 new spending in relation to 'work accommodation'
• information item on winter control budget
• amendments to budget for $34 million in roads and storm sewer capital worksamendments to budget for recycling program

Eight sets of overheads distributed covering various parts of Public Works. Only 5 were completed. Remaining ones moved to next meeting were Fleet and Facilities, Waste Management, and Capital Planning and Implementation.

City Manager Robertson began the budget presentation and noted that this was part of ending the situation of "artificial budgets" followed in the past. Followed by Peter Crocket, head of Public Works who presented the department overview.

This is a massive department covering transit, parks, water and wastewater, roads (including Red Hill), waste management, cemeteries, horticulture, traffic operations, forestry and operations and maintenance. It has 1762 employees. Total operating budget in 2003 was $131 million. Net increase is $21.385 million. The biggest item is $16 million for winter and summer roads maintenance, $7.4 million in employee costs $700K for OMERS and $600K for benefits), $3.7 million in fuel and energy costs (extra $1.3M for hydro, $1M for heating fuel, $600K for street lighting and traffic signals), $2.5 million contractual costs (rent, waste contracts as a result of increased tonnage, DARTS contract, taxiscrip), $2.3 million vehicle/equipment (this is contribution to reserves). Also $1M for insurance (blamed on 9/11 effects). There were also $824K in phantom revenues ("there's been a lot of discussion over a number of years about phantom revenues" "We've made sure this year that those are all taken out of our 2004 budget" Some of this correction has been phased in over several years). They anticipate an extra $7 million in cost recoveries which offsets some of these increases. Percent increase sought is 17.9%.

Vehicle reserves underfunded. Need to get to $7.4M per year as a regular contribution to make it sustainable. They spend a total of $1.139 million on consultants for operation, plus $12 million for consultants for capital projects. $49.6 million is for contractual costs.

Two major enhancements: $809K as a result of municipal act changes - requirement for road patrol year round, currently only provided during the winter; also must now do traffic counts (these were largely abandoned in 1999-2000). Also need $1.1M for "work accommodation" - essentially covering for employees who are on light work as a result of injuries (eg 5 transit drivers at this point; 13 collection staff in waste). In some areas work accommodation "ratio is as high as 1 in 6". Plan to move people through work accommodation faster.

Reductions include winter control where there was a $9 million overrun last year ($12M to $21M). They are proposing a "cut" of $4.7M (but this is still $4.3M higher than last year). No reserves left at end of 2003. Should have "somewhere between $6 and $10M" in reserve. Hoping $16M will represent the new average costs, but represents a risk.

Savings of $1.3M in restructuring planned in 2004. Transit fare increase to generate $362K ("assumes that part of the budget will be approved by the end of February so that we can do the proper notification… anything later than that will have an impact on our revenue".)

Consulting budget of $13.1M divided between capital ($12M) and operating. "Used for a variety of things, whether its environmental assessment work, whether it's a lot of the infrastructure analysis and development of our capital budge… geotechnical" "Consultants are used from a perspective of specialized expertise and they of course are used from a volume perspective. If we were to eliminate consultants or drastically reduce them, we either don't do the work or we'd have to increase staff substantially to deliver the work." The $12M allocated to capital is based on a percentage of the total capital budget. Design work, contract admin and management. "I do not have the design and construction management staff to be able to deliver the capital program that is before you without a substantial use of consultants." "We deliver the capital program, I believe it is about 60% in-house and 40% using consultants".

Contractual costs are $49.6M. Waste collection, bluebox, landfill sites operated by contractors, "we use contractors significantly on the winter control side, primarily for cleanup as opposed to initial response". "We do not own a bobcat, for example, we contract all of our bobcat services for snow removal". Road spill cleanup also contractual. Maintenance contracts for "electrical, mechanical, plumbing, air conditioning, heating and ventilation involved in operating some 700 facilities". "Very extensive use of various cleaning contracts".

Mitchell: How much of these increases are actual compared to inter-departmental transfers? Crockett doesn't really answer. "Reason we do this is to ensure that we know what our programs cost". Mitchell asks what it costs staff to do the internal transfers.
Mitchell: increase in roads and winter maintenance. When we first amalgamated we pulled $5M out of this section of the budget, now we're putting $16M back in. Crockett doesn't have comparative figures. We did reduce winter control by $3M in 2001. "We did pull $3 million out of winter control in 2001. And over and above that we also found an issue with respect to the material costs that because of the way things were transferred between the region and the various municipalities, that got lost in the translation as we combined all of the budgets and that totalled, I believe, about $3 million. We are incorporating some of that back. Some of it is in terms of cost tracking, some of it quite frankly if I had to do all over again I would have waited for three years before we did what we did simply because the … Based on the best available information at the time it made sense to do what we did. As we got better information and we've got better data we're finding that we have significant variances, and that's been our problem over the course of 2003."

Mitchell: "Couple of rural roads paved this year, paved with 8 inches of asphalt that we just can't afford to do that style of thing at this time." Question: "How come we're getting greater than a 10% increase in contractual costs over one year?" Crockett: Being driven by a lot of things. Example: "cost with respect to waste management. As our community grows and our road system grows, as our storm system grows, our contractual costs increase greater than inflation simply because we're managing more system … much of what we do is based on the number of units, not just the unit cost". Mitchell says growth should increase revenues to offset this. Crocket responds: "As things work through in terms of new development going in, we are providing the service…long before it shows up on our assessment rolls. And as a result of that we're providing the service long before we're getting the revenue". "The other side of it too, and we all know this, is that residential doesn't pay all the costs of the services that it gets, that we are very dependent on commercial/industrial revenue increases as well, and of course, we haven't been getting those lately either."

Mitchell: Issue of cleaning up because of contractors doing poor job. "Yesterday at about quarter to three we ploughed in Tapleytown school, right full, just before the buses got there. So the police had to come, and they had to load the students out on the road, all because somebody didn't think enough and ploughed in the entrance to the school 15 minutes before the buses were to get there." Phone rang off the wall. It better be charged back to that contractor.

Merulla: "Glad to see that Councillor Mitchell has seen the light with respect to contracting out". Concern about the snow removal budget and the argument presented in 2001 that privatization equalled savings through efficiency. Snow removal budget has doubled. Crockett: For winter control coming into amalgamation 26% was contracted out and today it is about 28% contracted out.

Merulla asked for more consulting contract info to include consultants during amalgamation. "I would like to publicly state that I would like 1999 and 2000 included as well in the actual transition board to council and all the consultant costs at that time." "the breakdown of the consultant costs by company, rationale and the amount and that goes for the consulting budget as well". Robertson says they are working on this and refers to January 2003 report as to format. Merulla and Collins disagree because that report didn't include the supplier or the amounts or the rationale. Also requested status report on the MFP contract.

Ferguson: Winter control for 2001, 2002, 2003? Crockett 2003 budget $12M, spending $20M. $15 budgetted in 2001 and $12M in 2002. Ferguson: what's five-year average? Crockett: $16M represents 5-year rolling average, peak is $20M? $4.7 reduction takes us back to about where we cut it in 2001. But no money in reserve. (So in the "budget" they called it $20.7M, then they "reduced" this by $4.7M which are listed as "savings". But the budget in 2003 was only $12M so even with the "reduction" the new budget figure is $4M HIGHER). Crockett stresses this $16M figure is exposure. Crockett states that $21M budget would be very small risk but "nobody funds a winter control program with very little risk, but they use a viable reserve to protect that and ensure money is there when it's needed". Figure then changes to $16.7M as the actual budget this year. Ferguson: price tag on the April storm last year? Crockett: "Not off the top of my head but I assume that it was a $1M to $1.5M storm". (This is quite revealing because the Winter Control budget was more than $8 million in deficit by the end of 2003, but we now know that only $1.5 million of that came in April. This means when the budget was passed at the end of March, the winter control people should have known that we were already over $6M in deficit, but that wasn't accounted for in the 2003 budget. This is further evidence of budget fudging last year.)

Ferguson: What's the total work accommodation bill? Crockett not sure but $1.1M is unbudgetted till this year. This is raising overtime budgets. Ferguson: why do we have to provide WA. Isn't that worker comp's job. Robertson: individual gets compensation, but we have to fill the service (eg. Fire crews must be certain size). Aggregate corporately for WA is 2.5M to 3M. "You're seeing it this year as a big number. In the past we've tried to simply swallow it, and as I've said it's simply driven the budget so it's artificial to put in that way." Also important to address it. We'll be trying to reassign these workers to lower City costs.

McHattie: Contractual costs of new development, and delay in getting revenues, and fact that residential growth doesn't pay. Is this an argument against urban sprawl? Crockett: "If we grow systematically and intelligently we can minimize the cost of growth. If we do sporadic growth, for example throw a subdivision up in the middle of nowhere so to speak, obviously its more costly to provide services to that location. The whole GRIDS process will try to address what growth costs and try to take that into account." Insertion from another staff member that development charges study is underway and will address this. McHattie notes that this won't cover operating costs. Crockett intervenes and says they identify the operating costs of capital projects.

McHattie: Question on Red Hill Expressway in terms of operating costs. Have we done the lifecycle costs. Crockett says there have been reports and can make those available. Collins intervenes and asks Crockett to clarify if we have included those operating costs in this and future budgets. Chris Murray "The report is public and will obviously drive what the future operation and maintenance costs of the project will be." McHattie asks for true operating costs both east-west and north-south. We're in tough situation with companies closing. Need to look at costs before we proceed further on the expressway. "The world is a different place with Stelco announcement yesterday, Levi Strauss disappearing, Camco disappearing, Slater Steel, WestJet. Are we in a different financial picture than we were just a month ago?" Asks for info to be provided.

McHattie: notes function of ESAIG and suggests it may be a model for reducing consulting costs. Crockett says they tap into info from other departments. Difficult to do this for environmental assessment with volunteers.

Braden: answer later - what does contracting out cost. Great increase in cost of doing business between contracting out and not contracting out? What percent is cost of employee related costs rising? Crockett "We're obviously being consistent with corporate recommendations". 9.3%. Included is $1.1M for work accommodation.

Pearson: phantom revenues over the years? Crockett: largely within operations and maintenance. "Since 2001 we've identified a series of revenues which were overstated within budgets in order, for whatever reasons, in terms of revenues expected, whether it be in relation to revenue for facility rentals, cemetery fees, those sorts of things, advertising revenues", and we've tried to identify those and correct them "so we don't have a revenue that artificially suggests our budget balances when it doesn't because we are not going to realize those revenues."

Collins: are overtime costs included in budgets, and how much? Total change is $693K, total is $2.9M overall. Significant component in transit and $200K in winter control. Transit overtime hours on mechanics side because we've reduced number of mechanics. Collins: service impact of freezing overtime excluding winter control? Crockett doesn't know.

Collins: Do energy costs incorporate April increases? Crockett: Yes. During 2003 budget discussions rolled back energy costs of traffic signals by $300K "and we in fact went $300K over budget"

Collins: we only start 85% of capital projects planned. Would there be savings if we only budgetted for what we realistically are going to complete? Crockett downplays this, "it's not a straight relationship". Collins: can you provide a scenario if we let fewer contracts and what the savings would be. Crockett says it will affect the consulting side more than staff side "simply because we use consultants not only for expertise but also for volume".

Collins: Municipal act changes affect all municipalities? Crockett: may affect them differently because some already doing what's now required. All municipalities will be affected by 'road control' requirement. Collins asks if other municipalities will show this as a budget pressure. Crockett doesn't know.

Collins: How many vacancies? Gapping savings included in 2004 budget? Crockett No.

Collins: This is my 9th budget and never seen work accommodation before? How was it dealt with in the past? Crockett over last 2 years we've tried to incorporate it.

Presentation by Chris Murray on Red Hill Valley Project:

"Essentially we're here for the citizens of Hamilton so they can travel safer and more cost effectively and address environmental problems in Red Hill Valley." 6.5 employees. Successes in 2003 include restarting of construction of valley expressway, finalizing of technical and summary reports, tolling report, and "we're implementing a community relations program". Also got government approvals. "Certainly we had some challenges with respect to Greenhill Avenue and moving forward that work, but it's underway and my understanding from the project engineer is that our June deadline for completion this year seems to be on target. We may be off by a few weeks." "Of the $19.6M approved in 2003 budget, 78% have been tendered and awarded." "A substantial amount of work will be awarded this year which will have likely the greatest impact to the environment, and its critical in meeting the commitments we have made and the requirements of all the approvals that we maintain a high degree of control over the consequences of this project. So in order for us to do that we have developed and we will be implementing an environmental management plan." Operational objectives in 2004 for 100% of grading and drainage. "We expect that within the next 4-6 weeks that we will have completed the clearing from Mud Street to 2-300 metres south of Melvin" 75% of creek realignment will be tendered and awarded this year. QEW work funded 100% by the province "and that work involves not only the connection of Red Hill to the QEW but also widening of the QEW which is a bit of a separate issue here." "There's going to be a substantial amount of work awarded within the next few months". Basically two contracts one from Mud to Greenhill, second to Melvin. These include 75% of creek realignment as well as the portion of the CSO pipe. "In the fall of this year we will be awarding the contract for the Barton Street interchange works which includes the Rennie Street landfills works and that will be going this fall." The budget presented was only for operation of the office and it shows a 17.8% increase (from $368K to $496K).
Cost to complete is $139.1 M with City paying $75.6 and province paying $63.5M (plus what they pay at the QEW). Graph presented shows that this year they expect to tender and award $88.9M in contracts. City portion this year is $17.9M and $15.0M from province. Overhead notes that unit costs are rising and "increased legal and security expenses". Murray says "as well as the kinds of challenges we have faced in the past and we don't believe they'll go away entirely and the need for legal support in order to address matters that get raised from time to time by people who don't support the project, so that's something that's difficult to target but nonetheless I believe it's something that we all have to bear in mind because it will probably continue on as this project moves forward."

McCarthy: Is the $75.6 million required this year? Murray: No for 2003-2007. This year is for $17.9M.

McHattie: Cost of QEW. Murray: Estimate is in the order of "about $60-65 million". This is in addition to provincial support for valley portion. McHattie: total cost of project? Murray: total $399M. McHattie: lifecycle costs, what do they add to costs. Murray: $399M to build the project. Ongoing costs additional. "The report that's on the web does address the longterm lifecycle costs of the facilty, both with it and without it. It does look at the lifecycle costs of structures, and does give us good information about funds that need to be set aside to make sure that the maximum amount of benefit can be achieved from the facility. So that is in that report." McHattie: can you use your personal knowledge to calculate the total cost? Murray: lifecycle calcualed over 75 years "but doesn't come to my mind at this moment, but certainly is a figure that is publicly known". McHattie: Does this include spinoff costs such as servicing lands. Murray: info is in other reports. "The cost-benefit report looked at the infrastructure that's being built, and when we say infrastructure, we mean not just the road but certainly the maintenance of the stormwater management system as well as the creek, and I think we recognize that whether you build this road or not, the creek is facing a number of problems that should be addressed in any event. So that was also factored into the cost figures that the report reports."

McHattie: have to make serious decisions on budget and "being quite shaken over the past month over the revelations of industries being in serious trouble in this City, I just have to ask if these costs can be brought together in one report instead of having to go across a number of reports to try and determine what the assumptions are under each section of costs. It's very difficult to do that, for me, and certainly for the public as well as they participate in our budget discussions." "I need to see these costs because this is the biggest project in our history, it's going to influence us into the ensuing decades and it's going to drive some of our capital costs". Asks for all costs to be brought together, perhaps even including ecological costs. Otherwise can't respond properly to taxpayers. "Perhaps time to at least slow down and perhaps postpone the project". Collins asks if he wants a new report, or just all the other reports. McHattie: consolidation of costs, the big picture. Crockett: all staff costs are incorporated into capital costs of project. There's three reports. It's not a simple task pulling those reports together. You can't just add them together. You need the context of each of the reports in order to understand the numbers in them. Asks for further direction. Collins: perhaps summarizing the costs. McHattie: "what are the real costs and I would hope all councillors would be interested in what those real costs are". Crockett says they will attempt to pull together an executive summary.

McCarthy: asked question of Rinaldo, what are tax implications this year of not doing Red Hill and he's written back $1.7M? Also issue of hydro funds. Crockett notes that $1.7M is capital financing costs versus the actual capital outlay costs.

Braden: 2-3 weeks ago asked about mounds and got commitment that I would get an answer that week. How come? Crockett: it came out this week, delayed by legal issue on documentation provided with media release. Braden: If there's a good reason, should have been told. "And I don't read the paper, almost religiously now, because I just don't find it's very accurate".

Braden: Employee related expenses up 17%. Justification? Murray: "It's really a combination of matters such as merit increases, and in this particular case there was an anomoly where one of the staff was pegged lower than what their salary range should have been, and so it's addressing that gap between what was pegged last year and this year."

Braden: Concerned with costs, "which seems to be a running target" but also with benefits. "Given the budget this year, in which we're intending to spend up to $180M more than we're taking in; so in simple numbers spending an extra half million dollars per day, each and every day, more than we're taking in. The expectation of this road becomes more important. I think the other day Councillor Merulla said the water and sewer contract might be the biggest project we're undertaking but it's limited time and it only 10 years. This one is sort of for keeps. I'd like to see in simple plain English what the expectations are, and there has to be a temporal context to this. The Hemson study which I've asked to be brought up so I can question him in the next two weeks, it talks about a sort of normative perspective in which if everything goes right, this is what's supposed to happen. That's sort of if you build it they will come. We really need to know what do we really think's going to happen and here's the controversy, the thing that's confusing. Our director of Economic Development is saying (last year) that we've got a ten-year window of opportunity for those lands on the mountain - and I think he means the airport lands but he might mean the North Glanbrook lands as well - we got now a nine year window of opportunity to get those things going. And the road is seen by some people as one of the important pieces of this puzzle. But our new budget says that we're not going to service that land until 2007 and 2008. So for more than half of this ten year window of opportunity we're sort of holding our breathe and saying there isn't going to be any growth. So that's a real problem, sending out confusing messages. If you give those to the new councillors they'll be as confused as I am. The second thing those studies say is that the employment lands that I've just mentioned are going to provide 65% of all the new growth in employment lands, including Brownfield development and Ancaster. 65% of all those jobs are going to be in employment lands from 2001-2021. Again for a third of that time frame we're agreeing that we're going to have no growth at all. So somehow the job rate is going to go through the roof, in the future, for some reason that nobody can explain. It's getting really serious in the administration now that some of our senior staff members now are saying to us all, privately and confidentially, we can't afford almost any project in the capital budget, and they're naming this project as one we can't afford. So somehow this administration, and this corporation…" Collins interrupts and says he's allowing a lot of latitude for editorial comments, not the time now to debate the budget, but this if for questions. Braden thanks him for patience and continues: "We need to figure out how to handle the communication in a way that we understand what we collectively are trying to achieve here. So costs are a huge issue, but also there's this issue of expectation and the Hemson report doesn't do it. Again, it's a normative perspective. It's a this should happen. Given yesterday's events, we need to wake up." "The similarity between this corporation and Stelco should be clear to everybody and we want to avoid the route that Stelco went yesterday".

Collins: "Comment made that somewhere in the budget binders that this project is unaffordable? Did I misunderstand you councillor? Braden repeats. Jackson asks who on senior staff is saying this.

Ferguson: Tolls, where does this stand? Murray: Report coming first quarter of this year. Speaks to cost of implementing a tolling operation, what kind of potential revenues, also impact on traffic in the community. There is the real problem of trying to extract a revenue and then seeing the road not serve the purpose it was supposed to serve.

LUNCH BREAK

AFTERNOON SESSION