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City of Toronto 2016 Operating & Capital Budget Review

Published on
February 29, 2016

When the 2015 City of Toronto budgets were presented, Mayor John Tory and seven other new Councillors had just taken office, so the development of the budgets was mainly a staff driven process. By the end of 2016 budget process, this was Mayor Tory’s budget.

The major tenet of the 2016 budget reflected the Mayor’s campaign promise of maintaining property tax increases at, or below, the rate of inflation. Council approved the budget with only a 1.3% increase for residential properties and a 0.43% increase for non-residential properties, in keeping with Council’s tax policy to continue to reduce business taxes and taxes on rental apartment buildings.

After two months of public deliberations, the 2016 Tax Supported Operating Budget was approved at $10.1 billion and the 10-year Capital Budget and plan at $21 billion. City Council approved the budget with a final vote of 33-9, with three Councillors absent.

A significant new item contained within the approved budget was the establishment of the City Building Fund (CBF). The City Building Fund will create a stand-alone funding envelope dedicated to transit and affordable housing priorities. The CBF is designed to have a base funding mechanism from a dedicated levy, as well as having the potential for diverting future one-time revenues from general revenues to the CBF, including those generated through the current real estate asset review.

The 2016 budget was the first for Toronto’s new City Manager, Peter Wallace. During this budget, Mr. Wallace and Chief Financial Officer Rob Rossini attempted what many of their predecessors had discussed; they presented a shift to the way in which staff prepared budgets and how priorities were established. Prior to this budget, Council motions throughout the year often contained language that would approve a program or service level in principal, “subject to the budget process”. In previous years, staff would take that as a direction to find a way in which to incorporate Council’s request within the budget. This year, items that were “subject to the budget process” became the responsibility of the Budget Committee and City Council to decide whether it would be placed into the 2016 budget.

As such, at the December 15th budget launch, staff presented the public with a preliminary budget that had a shortfall in excess of $120 million. That shortfall focused considerably on Council’s stated but non-earmarked priorities, including elements of the Poverty Reduction Strategy, upgrading Toronto Community Housing Corporation housing stock – repairs and new build, and the Mayor’s signature program SmartTrack.

While this new approach made some headlines, it has also prompted some important political discussions related to the details of the budget items. Whether in future years City Council decides to return to the era of “division by division” budget debates, or by setting the property tax rate after the budget details are finalized, is unknown at this time. However, what is clear is that Councillors have demonstrated a renewed interest in how the City’s budget is prepared.

In order to balance the 2016 budget, City Council decided to make some targeted budget reallocations, relied on reserve accounts, and codified previous budget assumptions into the base budget. The most impactful was the assumption of an ongoing stability in the real estate market as it relates to the Municipal Land Transfer Tax (MLTT). The Operating Budget also required some assumptions regarding labour costs for City services throughout the coming year. The results of the contract negotiations with CUPE 416 and CUPE 79 will certainly impact the current and future budgets, as labour costs represent a majority of the City’s Operating Budget.

With respect to labour negotiations, at the time of this update, the negotiating team has reached a tentative agreement with its outside workers in CUPE 416. That agreement is subject to ratification on February 25th by CUPE 416 members and subsequently by City Council. The contract negotiations with CUPE 79, representing approximately 20,000 inside workers, has now entered a “work-to-rule” phase by the union as negotiations continue.

With the 2016 budget process complete, staff continue to reiterate their belief that City Council will require major changes in budgeting practices for 2017 and beyond. Even commenting in the City’s official press release regarding the budget’s final Council approval that:

“Moving forward in 2017 and beyond, Council is encouraged to focus on the City’s operating and capital cost drivers, and to match funding to Council-directed priorities for services and infrastructure to ensure the budget is fiscally sustainable to meet the current and future needs of Toronto residents.” – City Manager Peter Wallace

"The City is focused on building the necessary social and physical infrastructure to support Toronto's growth and maintain the city's aging infrastructure in a state of good repair," said Deputy City Manager and Chief Financial Officer Rob Rossini. "Despite significant capital investments, Council has identified a number of capital projects that remain unfunded."

"In 2017 and beyond, the City needs to set priorities and assess revenue options in order to address unmet capital and ongoing service needs," said Josie La Vita, Executive Director, Financial Planning.

NEXT STEPS – MOVING TOWARDS THE 2017 BUDGET

City of Toronto Initiatives

Over the years, City Council has continuously been cautioned that they are balancing budgets in a precarious manner. This year’s deliberations left Councillors to openly question if 2017 may actually be the year that the “duct tape finally comes off.” Regardless of the true state of the City’s future finances, City Council has made it clear that they would like to understand the details of the challenges and options available to them prior to the 2017 budget process.

During the 2016 budget discussions, Mayor Tory and Budget Chief Gary Crawford managed the process, in part, by the deferral of consideration of a range of contentious items to a series of future comprehensive review processes.

While some may try to characterize these report requests as delay tactics, it was prudent for City Council to seek detailed information in advance of the next budget planning process. These report requests represent significant decision points and should not be considered lightly or without meaningful input from stakeholders. Had City Council simply moved ahead without taking the time to consider the impacts, it might have had resulted in unintended consequences to the City’s social and economic frameworks.

In many instances, staff have already started these reviews while others will begin to take shape in the coming weeks and months. These reports are generally expected to be completed by June or July 2016, while others may not be available until Fall 2016. These reports include:

  • Review of the City’s real estate assets
  • Review of where Council is required to spend money, where it is discretionary, and what is the impact on agencies, boards, commissions and divisions if the City gaps, underfunds or eliminates the programs
  • Review of potential revenue options including revenue tools, taxes, and other municipal funding options
  • Review of strategies to raise money to contribute to the City Building Fund
  • Review of outsourcing of garbage collection east of Yonge Street
  • Review of emerging and evolving transit plans
  • Review of the police operations, including changes to provincial legislative frameworks required in order to make the desired changes
  • Review of the licensing bylaw including ground transportation
  • Review of the Toronto Community Housing Corporation – management and development

Initiatives by Other Orders of Government

Beyond what the City of Toronto has direct control over, there are ongoing discussions and negotiations with other orders of government. Both the Provincial and Federal Governments have made repeated promises with respect to investments in infrastructure, communities, and transit.

With each order of government’s campaigns firmly behind them, we are anticipating more details in the forthcoming budgets about how they will assist Canada’s largest City. That assistance could come with direct funding arrangements and/or with amendments to legislation, including City of Toronto Act review.

The Ontario Budget will be tabled on February 25, 2016 and the Federal Budget is to be tabled on March 22, 2016. Each of these budgets has the potential to add to or alleviate some of Toronto’s budgetary pressures.

CITY OF TORONTO 2016 BUDGET VOTES AND BACKGROUND LINKS

EX12.1 - 2016 Property Tax Rates and Related Matters

EX12.2 - 2016 Capital and Operating Budgets

2016 Budget Website - Presentations, Notes, and Related Documents

ABOUT SUSSEX STRATEGY GROUP – MUNICIPAL AFFAIRS PRACTICE

Sussex proudly maintains one of Canada’s only dedicated municipal government relations practices, and Toronto’s largest municipal lobbying practice. Our consultants have direct and detailed knowledge of each major policy decision made at Toronto City Hall during every administration since amalgamation. Our robust experience in municipalities throughout Canada allows us to provide municipal specific counsel to you, our valued clients. We continue to look forward to putting this experience to the highest and best use on your behalf.

Should you have any questions about the City of Toronto Budget or need assistance with Municipal Affairs, please contact our office at (416) 961-6611 Ext. 111 or email Jamie Besner at jbesner@sussex-strategy.com

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