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TO: |
Mayor and Members of Council |
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FROM: |
Jim Baird,
Commissioner, Development Services Andy Taylor,
Commissioner, Corporate Services |
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PREPARED BY: |
Mark Visser, Manager of Strategy, Innovation & Investments |
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DATE OF MEETING: |
2004-Jun-28 |
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SUBJECT: |
Financial Impacts of Bill 124 to the Town of |
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THAT the report dated
To inform Council of the estimated
financial impact of Bill 124 to the Town of
The “Building Code
Statute Law Amendment Act” (Bill 124) is the Province’s response to an
extensive review of the building regulatory system in
The most appropriate
way to accurately track revenue and expenses within a given area is to
establish an Enterprise Fund department in which all of its funding is derived
from the services it renders.
By definition, an
Enterprise Fund means:
A fund established to finance and account for the
acquisition, operation, and maintenance of governmental facilities and services
which are entirely or predominantly self-supporting by user charges; or where
the governing body of the governmental unit has decided that periodic
determination of revenues earned, expenses incurred, and/or net income is
appropriate. Government owned utilities and hospitals are ordinarily accounted
for by enterprise funds.
The Town currently
uses the Enterprise Fund approach for Waterworks. Whether or not the Town of
Over the past 3 years,
the Building Department has collected an average of $10.2 million in revenues
on an annual basis, with the revenue figures being on a slight decline. Direct costs to the department are increasing
and are averaging $3.2 million over the same period. While these numbers give the impression that
the Town is charging approximately three times the amount it costs to provide
the service, this is not the case. In
order to determine the actual costs to run the Building Department, a financial
model was developed to allocate indirect costs to the Building Department based
on a set of objective criteria (headcount, office space, estimated actual
usage, etc.). This model has most
recently been updated with 2003 actuals.
FINANCIAL
CONSIDERATIONS:
In 2003, the Building
Department earned $9.9 million in revenues.
Total direct departmental expenses totaled $3.6 million, representing a
reported surplus of $6.2 million.
However, there are numerous departments and activities through the Town
that support the Building department operations, including, but not limited to,
Finance, ITS, Human Resources, and Legal.
Based on cost allocation model, the additional costs to the Town of
providing the Building Department services in 2003 was $1.8 million. Once these costs are added to the direct
operating costs, the 2003 surplus is reduced to $4.4 million.
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Building |
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$ |
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Revenues (2003
Actual) |
9,865,943 |
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Less: Direct
Departmental Expenses |
3,616,415 |
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Less: Indirect
Operating Costs |
1,834,400 |
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Less: Capital
Costs |
58,493 |
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5,509,308 |
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Surplus/(Deficit) |
4,356,635 |
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This surplus will be
necessary in the first few years to build up Reserves for items such as Future
Obligations (both on services to be performed and future staff
obligations such as post-retirement benefits and vacation pay),
Contingencies, Revenue Stabilization, and Transformational Costs (in order to
increase service levels). While the
funding of these reserves is still not finalized, it is important to note that
the approximate $4.4 million dollar annual surplus from Building operations
will no longer be available to balance the Town’s operating budget.
The same approach was
then applied to Planning & Design and Engineering. In the past, it has been the case that
municipalities have end-loaded costs to builders in the Building permit fees at
the expense of Planning, Design, and Engineering fees. As a result, Engineering and Planning &
Design have historically operated at a significant loss to the Town. Applying the same cost allocation model to
these areas in 2003, Planning & Design and Engineering ran at deficits of
$2.5 million and $2.0 million, respectively, for a $4.6 million total
deficit. The deficit in these two
departments is very similar to the surplus that the Building Department
generates.
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Planning&Design |
Engineering |
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$ |
$ |
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Revenues (2003
Actual) |
2,139,040 |
1,442,259 |
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Less: Direct
Departmental Expenses |
3,225,566 |
2,352,275 |
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Less: Indirect
Operating Costs |
1,435,315 |
1,096,922 |
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Less: Capital
Costs |
15,154 |
23,951 |
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4,676,036 |
3,473,148 |
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Surplus/(Deficit) |
(2,536,996) |
(2,030,889) |
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In order to achieve
full cost recovery in Planning & Design and Engineering, fee increases are
necessary. The following table
illustrates that if fees are indeed to be adjusted to attain full cost recovery
in these three Development Services business units, Bill 124 would not have a
negative impact on the net tax rate.
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Building |
Planning&Design |
Engineering |
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Total |
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Surplus/(Deficit) |
$4,356,635 |
($2,536,996) |
($2,030,889) |
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($211,249) |
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Increase/(Decrease)
in Fees to achieve Full Cost Recovery |
-44% |
119% |
141% |
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2% |
It is important to
note that these fee adjustments do not need to be implemented immediately and
can be phased in over several years. As
well, periodic fee adjustments would be necessary to modify service levels and
manage reserve balances.
BUSINESS UNITS CONSULTED AND
AFFECTED:
Various Business Units throughout the Town were consulted in this process in order to obtain input on usage patterns for the Development Services Departments.
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Jim Baird, Commissioner of Development Services |
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Andy Taylor, Commissioner of Corporate Services |
Q:\Finance and Administration\Finance\SHARED\2004
Finance_Admin Cttee Reports\0458 Financial Impact of Bill 124 to the Town of
Markham June 28 04.doc
