Budget 101: How Mayor Rob Ford's City Hall (almost) balanced the 2013 operating budget
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Even with things mired in chaos, the City of Toronto launched its 2013 budget process last week. It might feel like a small footnote amidst the news cyclone surrounding Toronto's mayor, but it also represents a package of decisions on how the city will use nearly $10 billion next year to support important things like transit, housing, economic development and culture.
This year's budget process feels different than last year's. Where the 2012 budget stormed in with talks of fiscal apocalypse and 22-hour meetings in which teenagers cried, the lead-up to 2013 has been fairly subdued. Part of that is due to the array of distractions—football, court appearances, etc.—that have thrown the mayor off his game. Another part? I'm not sure Ford really knows what he wants to do next.
The most unusual thing about Ford's third budget is probably that it's not actually balanced. By provincial law, Toronto's government can't carry a year-to-year operating deficit. Yet all the budget documents that have been presented so far include a $21-million honest-to-goodness gap. It's all part of what looks like a daring attempt by the mayor, the budget chief and the city manager to play a do-or-die game of chicken with Police Chief Bill Blair.
But more on that later. First, a step-by-step look at how staff recommends Toronto balance its 2013 operating budget.
Establishing the opening shortfall
The "opening pressure" is sometimes referred to as "Toronto's deficit" by people who don't really get how municipal finance works. In reality, it represents a fairly loose staff estimate of the gap between expected revenues and projected expenses in the next year. Last year, you might remember, staff pegged the opening pressure at $774 million, a figure the Ford administration used to justify everything from potential library closures to the threatened sell-off of animals at city-run farms.
This year, once $11 million in "new and enhanced services" are factored in, the opening pressure was $476 million, the lowest it has been in several years. A lot of factors go into calculating the figure -- economic conditions, service levels -- so many, in fact, that it can be quite variable. In the latter years of Mayor David Miller's administration, it bounced around from a low of $562 million in 2007 to a high of $821 million in 2010, owing partially to that pesky worldwide financial crisis.
But no matter how imposing the opening pressure number is, City Hall's job is the same. Unlike the provincial and federal governments, who can run habitual operating deficits, Toronto has to get things to zero.
Step one: Reduced capital & other revenue
The first step to balancing? Easy. Turns out, due to low interest rates and other financial wizardry, Toronto can save a few million just via reduced capital financing costs. The city also scored a cool $5 million off some of its many investments, and scrounged up a few additional bucks via other means.
Still got a ways to go, but that combined $52 million puts a nice dent in our opening shortfall.
Step two: Ask the province for help
Since soon after the days of Premier Mike Harris came to a close, Toronto has been promised that the province would, over time, re-upload some of the costs Harris pushed onto cities.
So let's ask the province if they can help with the more than $400 million the city has remaining. Surely their pledge to upload costs will take a big chunk out of the remaining shortfall.
Gee, thanks a lot, province!
Step three: Look to TTC riders
The City hasn't increased its annual subsidy for TTC service since Mayor Rob Ford took office, and in fact the current subsidy remains below where it was in 2009. This is all despite crazy high record-smashing ridership that leaves passengers crammed together each day at rush hour.
But, still, that doesn't mean Toronto can't look to transit riders when it needs to balance its budget. All that extra ridership means more gross revenue, and a January fare hike will bring in another $18 million.
Step four: Look to the land transfer tax
Ford promised to get rid of it. The Toronto Real Estate Board has run perpetual campaigns against it. But there's no denying that Toronto's land transfer tax is the fiscal gift that keeps on giving. In addition to the hundreds of millions it contributes to the base operating budget, the tax has provided an extra $27 million in surplus revenue that we can use to help balance the 2013 budget.
Without it, the city would probably need to hike property taxes by at least another one per cent.
Step five: Jack up user fees for city services
We've already increased fares for TTC users, but let's not forget about all the other fees the city charges. City Hall will ding you for everything from swimming lessons to marriage licenses to building permits. By increasing the cost of some of those and other items next year, the city nets an extra $12 million.
Step six: Property taxes
Property taxes are way more complicated than most people think. Each year, the city decides that they will raise a certain amount of money from property taxes. Then a bunch of math wizards disappear into a windowless office and determine what each individual property owner (and, indirectly, tenant) gets billed.
When the newspaper headlines say that property taxes are going up by 1.95 per cent, what that means is that the city has decided it needs to take in $3.725 billion in property taxes next year, which is 1.95 per cent more than they needed to take in last year. It doesn't mean, necessarily, that your individual property tax bill will go up by 1.95 per cent.
This year, staff have indeed recommended a 1.95 per cent increase, which is a bit higher than the 1.75 per cent the mayor wanted. As a general rule, a one per cent increase works out to about $23 million in new revenue.
As an extra bonus, all those cranes dotting Toronto's skyline have grown the assessment base, which nets another $27 million to add to the pile. That gets us halfway to balanced.
Step seven: Find some "gravy"
This is Ford's favourite part, and the part of budgeting he pledged he'd be best at. City staff have identified $169 million in cuts and efficiencies for the 2013 budget year.
That sounds like a big number, but it's actually virtually identical to the cost containment achieved by Budget Chief Shelley Carroll and finance staff in 2010.
The details behind these savings are still being reviewed and debated, but we know that they include rather steep cuts to the number of approved positions at Toronto Fire Services and continued budget flat-lining at departments like Toronto Planning.
But, hey, look: we're almost finished!
Step eight: Raid the reserve funds
Having exhausted most other options, staff now dip into the city's reserve funds for an extra $47 million. This practice of relying on "one-time funds" was demonized as irresponsible when the previous administration did it. But let's move on.
City Hall used $37 million in reserves in 2008, $43 million in 2009 and $67 million in 2010. Under Ford, they used $26 million in 2011 and $83 million in 2012.
Just a tiny sliver of shortfall to cover. Let's move on to the final step.
Step nine: The zone of mystery
With $21 million left to balance, the balancing strategy takes an unexpected turn—City Hall has turned to look squarely at Police Chief Bill Blair and demand that he fill in the remaining gap through cuts to his budget request.
We've heard this story before. Last year, City Hall attempted to exert pressure on the police to achieve a 10 per cent cut to their total budget, but the cops held firm. Eventually, the mayor's office waved the white flag and agreed to a small budget increase. It appears that Ford and Budget Chief Mike Del Grande -- himself just appointed to the Police Board -- are taking an even harder line this year, using the budget process itself to exert pressure.
Will it work? It's hard to say. The police budget is one of the single biggest line items on Toronto's ledger, and has continued to increase even as overall crime statistics decline. There's a very good argument to be made for cutbacks.
But Blair's got good arguments on his side, too. About 90 per cent of his budget goes to labour, meaning there's only so much room for reducing costs before he'll be forced to open the door to laying off front-line officers. That puts police-booster Ford in a tough spot. During his campaign, he pledged to hire 100 new police officers. The budget path he's on means he could achieve the exact opposite: a net reduction in the number of cops patrolling Toronto's streets.
So far, Blair has managed to bring his request down by another $2 million. But that's not enough.
And so that's the game. With about $21 million left to balance, Toronto's number crunchers are staring down the police chief. And someone has to blink before we can actually balance this thing.