Ontario Releases 2020-21 First Quarter Finances and Announces $1.6 Billion in First Round of Emergency Funding for Ontario Municipalities

2020-21 First Quarter Finances Report

Today, the Ontario government released its report on the 2020-21 First Quarter Finances, which provides information on the fiscal and economic outlook from April 1 to June 30, 2020. The government re-iterated its commitment to provide a multi-year provincial Budget by November 15, 2020.

A lot has changed since the government released Ontario’s Action Plan: Responding to COVID-19 on March 25, 2020, which was intended to be the date of the Ford Government’s second Budget. The last five months have been full of unpredictability and uncertainty, with the government taking unprecedented action to protect the health of Ontarians and the economy.

With all of Ontario now in Stage 3 of re-opening and generally positive case numbers in recent days, today’s report provided a sound reminder of the measures taken to get us to this stage. While the government today shed light on the financial picture, the reality is economic uncertainty and risk remain. Since COVID-19 will be the main driver of the province’s finances for the foreseeable future, it seems prudent to include that data alongside the economic data.

The COVID Numbers

• Number of reported cases to date is 40,289 with 90.8% resolved.
• There have been 2,787 deaths to date (or 6.9% of cases has led to a death).
• The long-term care sector has disproportionately been impacted by COVID-19, with 14.6% of cases occurring there and 1,800 resident deaths (64.6% of deaths).
• Ontario is conducting on average of 25,000 tests per day.
• Average number of daily cases was 81 from August 3 to August 10.

The Financial Numbers

• The deficit for 2020-21 is now projected to be $38.5 billion, an increase of $18.0 billion from the outlook presented in March.
• Total revenue is projected to be $150.6 billion, down $5.7 billion due to lower taxation revenue, government business enterprises revenue and other non-tax revenue forecasts but partially offset by higher transfers from the federal government. The Safe Restart Agreement with the federal government provided Ontario with approximately $7 billion to address the economic impacts of COVID-19.
• Program expenses are projected to increase by $13.1 billion due to temporary supports related to COVID-19 and the safe restart and reopening of the province.
• The net debt-to-GDP ratio is projected to be 47.1% in 2020-21, an increase of 5.4% from that reported in March.
• The unemployment rate now sits at 11.3% a decrease from the record high of 13.6%.
• COVID Response Action plan has been increased from the $17 billion announced in March to $30 billion.
• Ontario is maintaining a $2.5 billion reserve to protect against unforeseen adverse changes that may occur this fiscal year.

Additional spending and initiatives related to COVID-19 since the release of the Action Plan

Health Care: an additional $4.4 billion

• Funding of $610 million for the purchase of personal protective equipment and other critical supplies;
• $53 million to ensure vulnerable people continue to have access to prescription medication during the pandemic;
• $50 million to the Ontario Together Fund to help businesses provide innovative solutions or retool their operations to manufacture essential medical supplies and equipment to help stop the spread of COVID-19;
• $15 million to support the design and implementation of the new Ontario Health Data Platform. This data platform provides recognized researchers and health system partners with access to anonymized health data that will allow them to better detect, plan and respond to COVID-19;
• $15 million in provincial support for 110 municipalities across the province towards the enhanced cleaning of transit systems;
• $14 million in funding to provide additional community-based mental health and addictions services for people in Ontario with mental health needs;
• $12 million to provide virtual mental health supports, including services to support frontline health care workers; and
• To ensure that the resources are in place to support the health of the people of Ontario, the COVID-19 Health Contingency Fund has been increased by $4.3 billion.

Supporting People and Jobs: an additional $7.3 billion

• Up to $4 billion for municipalities and transit systems to provide one-time assistance, in partnership with the federal government, to help local governments address budget shortfalls related to COVID-19 and maintain the critical services people rely on every day;
• An investment of over $1.5 billion, together with the federal government, providing a temporary pay increase of $4 per hour for more than 375,000 eligible workers for work performed from April 24, 2020 to August 13, 2020.
• $340 million to provide temporary immediate relief for industrial and commercial electricity consumers that do not participate in the Regulated Price Plan by deferring a portion of Global Adjustment charges, which is expected to be recovered over a 12-month period beginning in January 2021;
• $241 million in funding committed by Ontario to partner with the federal government in order to provide over $900 million in urgent relief to small businesses and their landlords through a new program, Canada Emergency Commercial Rent Assistance;
• An increase of $56 million for a total of $176 million, to provide to May 31, 2020 the off-peak price of electricity for 24 hours a day for residential, farm and small business time-of-use customers;
• $50 million to increase the government's contribution to the Risk Management Program for a total contribution of $150 million annually. This funding supports farmers with unforeseen challenges such as fluctuations in market prices or production costs;
• $25 million to ensure Ontario's food supply chain remains strong and ready to recover, including up to $15 million to enhance health and safety measures on farms and in food processing facilities, and up to $10 million in emergency assistance for beef and hog farmers;
• $10 million to provide financial support for Indigenous small- and medium-sized enterprises experiencing reduced or no revenue due to COVID-19;
• $10 million for the Connecting Links program, for a total investment of $40 million in 2020-21, to support municipalities by helping them build, repair or replace municipal roads and bridges that connect two ends of a provincial highway through a community or to a border crossing;
• $8 million for the COVID-19 Energy Assistance Program for Small Business (CEAP-SB) to provide support to businesses struggling with bill payments as a result of the outbreak;
• $8 million to help small businesses reach more customers through the Digital Main Street platform. This program, in partnership with the federal government, will help up to 22,900 Ontario businesses create and enhance their online presence and generate jobs for more than 1,400 students;
• $5 million to support food rescue organizations to purchase critical infrastructure to ensure food is safely redistributed to those in need and help prevent nutritious food from ending up in landfills;
• The Support for People and Jobs Fund has been increased by $3 billion to ensure that Ontario has the resources to continue responding to the needs of the people of Ontario through the economic reopening and recovery phases; and
• The standard Contingency Fund has been increased by $2.2 billion to protect the health and safety of the people of Ontario during the COVID-19 outbreak.

Prudently, judging by the case numbers, Ontario has been easing its restrictions slower than other jurisdictions, notably our neighbours to the south. The high number of infections in the US and other relevant countries could hinder our trade and economic confidence. At this point, no one can say with certainty whether Ontario will see a resurgence of COVID-19 infections or a second wave in the fall (although this seems likely and needs to be planned for now). That being said, there have been positive signs the Ontario economy is beginning to recover, with an increase in jobs reported in June and July and home sales, manufacturing and retail sales all increasing as well.

The financial picture painted today is certainly eye-opening – even if it is slightly better than the $41-billion deficit the Financial Accountability Office had previously forecast. In any event, these budget numbers just further highlight the importance of the economic recovery both to Ontario’s long-term fiscal health and to the Ford Government’s re-election odds. With little appetite for tax increases, the government’s revenues to bring this deficit down will primarily need to come from increased economic activity by the private sector.

Ontario Announces $1.6 Billion in First Round of Emergency Funding for Municipalities

In a separate announcement, the Ontario government, in conjunction with the federal government, announced that, in the fall, municipalities will be provided with $1.6 billion in funding, as part of the first round of emergency funding under the Safe Restart Agreement. The Safe Restart Agreement provides a total of up to $4 billion in funding to the province’s 444 municipalities and 110 public transit providers. The government says this money will help Ontario’s municipalities continue to deliver critical public services in a manner that protects the health and well-being of Ontarians.

Details of the Funding:

• $695 million to help municipalities address operating (i.e. budgetary) pressures related to COVID-19
• Funding will be allocated on a per household basis and will be shared 50/50 between upper- and lower-tier municipalities
• A further $695 million will be available in Phase 2 to eligible municipalities that have provided a business case to the province with information on their COVID-19 related financial pressures.
• Over $660 million in support to the 110 public transit systems for costs related to lower ridership, enhanced cleaning and masks for staff
• Providers will receive a base amount and an allocation based on ridership
• A further $1.44 billion will be available to transit systems in Phase 2 based on business cases of actual financial pressures.
• $212 million in further funding through the Social Services Relief Fund to help vulnerable people find shelter
• Today’s announced funding brings the government’s assistance to service managers and Indigenous program administrators to $510 million.

Even with today’s funding announcement, some municipalities will continue to face significant budget pressure. The Phase 2 funding will likely help in this regard, but will likely not completely cover these deficits. As a result, further adjustments in this area will be necessary in the months ahead.