City Faces Fiscal Crisis

[unimaginative2]

City faces deep cuts

Kenneth Kidd Feature Writer
Published On Sat Oct 24 2009

With a fiscal shortfall expected to reach as high as $500 million next year, city manager Joe Pennachetti has already circulated a memo asking departments to cut 5 per cent from their net operating budgets in each of the next two years.

The Toronto Star

Soaring welfare costs have put the City of Toronto in such "dire" financial straits that tax hikes and service reductions are virtually certain next year.

"It's not going to be pretty," Councillor Joe Mihevc, a member of the city's budget committee, said Saturday.

With a fiscal shortfall expected to reach as high as $500 million next year, city manager Joe Pennachetti has already circulated a memo asking departments to cut 5 per cent from their net operating budgets in each of the next two years.

But that would work out to savings of only $340 million overall, and just $170 million next year.

By law, municipalities cannot run deficits, so the remainder of the shortfall would have to be covered by increased property taxes and user fees and/or transfers from the federal and provincial governments.

"The situation is dire this year in a way that it has never been and the traditional funding partners are stretched," said Mihevc.

Queen's Park, for instance, has just unveiled a record deficit and is itself looking at 5 per cent spending cuts in all areas except health and education.

"We know it's going to be a tough ask," Mihevc said. "There's not much money to go around."

Welfare costs alone run into the hundreds of millions of dollars, and Mihevc said the number of welfare cases is expected to top 100,000 next year - at least 25% higher than in 2008.

Mihevc said the city manager's memo is aimed at getting all departments to identify where a 5 per cent cut would come.

"Will every department be able to absorb 5 per cent without having a serious impact on service? Absolutely not. But we need to know what 5 per cent means to every department."

The cuts are to a department's net operating budget - essentially the part of their overall budget that is paid for through property taxes rather than transfers from senior governments and money the department raises itself through fees.

Only 30 per cent of the TTC's budget, for instance, is covered by property taxes. But parks, forestry and recreation is financed almost entirely through taxes.

"Five per cent, when you know what that means to a library, you know it means the possibility of cutting a whole day of service per library branch," said Mihevc. "I don't think that's something Torontonians want."

But some reductions in city services are certain, since a 3 per cent across-the-board increase in property taxes would only raise $100 million.

 

[kettal]

With the real estate market going how it is, I expect the land transfer tax would bring in some incredible money this year...

 

[Glen]

Food for thought.... In 2009 the city budget for social services was 318 million. Lets suppose that the case load goes up by 30% for 2010, let means an increase of ~ 100 million. So lets keep the the propaganda from Mihevc and Pennachetti in perspective.

 

[simply Dan]

This one from the Globe:

http://www.theglobeandmail.com/news...43-million-in-big-hurt-budget/article1336814/

Toronto set to slash $343-million in ‘big hurt' budget
Departments asked for permanent cuts of 5 per cent a year

The City of Toronto aims to cut 10 per cent – or $343-million – from its net operating budget over the next two years, the clearest indication yet of the deep and painful financial crisis facing Canada's largest city, The Globe and Mail has learned.

The proposed cuts, described as a “big hurt†by one councillor, could mean reductions in services, a prolonged hiring freeze and possible layoffs if adopted by council when it votes on the 2010 budget for day-to-day operations next spring.

The call for cuts, outlined in an Oct. 9 memo from city manager Joe Pennachetti to all departments and agencies, comes as officials moved this week to lop $25-million in spending by December to ease the fiscal pressures looming in 2010.

By law, Toronto and other municipalities cannot operate in the red, unlike the recession-ravaged province that unveiled a record deficit of $24.7-billion this week.

As the city faces rising welfare caseloads and an estimated fiscal shortfall of $400-million to $500-million next year, departments and agencies have been asked for “sustainable and permanent†cuts that would shrink their 2010 budget by 5 per cent compared with this year, with another 5-per-cent drop in 2011.

If implemented, the cuts would total more than $171-million in each year on a net annual operating budget of $3.4-billion (which excludes transfers from the provincial and federal governments).

The memo calls for immediate spending controls, a possible 3-per-cent hike in user fees and “no new initiatives.â€

“It's very serious,†said budget chief Shelley Carroll, of the restraint message. “We have to be realistic and hear loud and clear the challenge facing the other orders of government who are our partners in a number of things we do.â€

In past years, city officials have been told to freeze spending, and this year they had to find cuts of 2 per cent to offset higher wages.

But it has been a decade since departments and agencies were asked to trim their budgets by up to 5 per cent.

“We're up against the wall now,†said Councillor Joe Mihevc, who sits on council's budget committee. He said city reserves are nearly tapped out, while Ontario's pledge to pick up the costs of welfare, disability support and court costs is back-ended to 2018.

“Ten per cent over two years: That's a big hurt, but it's something that we may need to do to get our finances in line with our diminished resources,†he said. “Even if we do all of that, we will still be behind the eight-ball in terms of funding.â€

The push for cuts sets the stage for several months of political infighting before Mayor David Miller presents what he promises will be a balanced operating budget in February.

Already, some councillors warn that the city manager's request will be hard to fulfill.

“Short of rolling back a contract, you're talking about laying people off at some point,†said Councillor Adam Vaughan, who sits on the Toronto Police Services Board. He added that any reduction in police services would likely be appealed to the Ontario Civilian Police Commission.

The proposed retrenchment is in stark contrast to 2009, when the city hired more than 1,000 new employees to deliver significantly expanded transit and other city services.

The council-approved 2009 operating budget grew by $530-million to $8.7-billion, with new spending and help for those hit by the recession.

The mayor's critics say the threat of sharp cuts reinforces their assessment of the city's fiscal health.

“It demonstrates we don't have a sustainable budget,†said Councillor Karen Stintz. “We have been living beyond our means and we have to restrain spending.â€

Unlike city departments, agencies and boards operate at arm's length and develop their own budgets before submitting them to Toronto budget officials for review.

For example, on Nov. 16 the board of the Toronto Public Library will debate its 2010 budget, including “reduction scenarios,†said Linda Hazzan, TPL director of marketing and communications.

 

[grey]

 

[Chuck]

Welfare and social housing should be treated as loans, not blank checks. Once one's financial situation has improved, it should be mandatory to pay the subsidy back to taxpayers, like student loans. The initial welfare payouts should actually be increased to offer more assistance to obvious temporary users that may have lost their job, but the monthly payout should be pared back by 10% per year to a minimum value much lower than today to discourage long term reliance/abuse.

 

[CookieMonster]

During this financial crisis I don't think we can afford to have our libraries just lend books for free, they should rent them instead.

 

[Northern Light]

The City's financial crisis is real; though not world-ending.

For those trying to figure it out, I will throw out some approximate numbers (without looking them up, but it roughly shows what's going on)

Fiscal 2009: You start with a hole of 450M

This 'hole' is based on no tax increase (not even for inflation)

Each 1% increase in property tax is good for about 60M.

So, a 3.5% hike makes about about 210M of the hole go away.

That leaves 240M.

You then get 1-time provincial money of 100M which reduces this to 140M.

And you get most of the difference by drawing down reserves or 1-time asset sales.

That means, all other things being equal, the next year your hole will start at 240M plus whatever inflationary pressure you face.

For our purposes, the City-controlled, City-funded portion of the City budget is between 4-5B (welfare costs are shown in full but 80% reimbursed by the province)

So at 5B each 1% pressure equals a 50M budget hole.

Wage increases for 2010 show an effective pressure of just under 2%, so let's say 90M.

That' means your 2010 hole is 330M. HOWEVER.....

You then have 3 more impacts to consider.

1) Rising welfare cost (the City pays roughly 20% of the total case load); so if cases have risen by 30% then the city is out about another 100M

So now you have a hole of 430M

2) You have to consider the impacts of the previous year's budget, TTC service increases in 2009 don't show up as budgeted for the whole fiscal year for instance, cause they kick in 3 installments, Feb, May, and Sept. But in 2010, These all show up as FULL YEAR costs. They represent new fiscal pressure in range of 50M or so. But any new parks opened now have maintenance costs and any new debt now has to be serviced.

By the time your done, there is about 100M in 'new fiscal pressure' other than welfare.

So now you have a hole of 530M.

3) Finally you have to adjust for any changes to revenue (property tax assessments/arrears, LTT revenues, plate revenues, garbage bin revenues etc.

As the City will likely show an overage on its 2009 revenue projects, this actually reduces the 2010 hole a bit, we will have to wait to see the exact numbers, but I think they'll have at least 50M to roll over.

That means a net hole of 470M.

And then the cycle begins again.

*****

Its worth noting that if you looked strictly at property tax, forgetting the LTT and plate fees for a moment.

Toronto Property Tax rates are still lower, adjusted for inflation than they were at the time of Amalgamation.

Miller has increased slightly above inflation, but after 3 years of tax freezes at the beginning we're about 4.5% short of inflation in this particular tax.

That is partially offset by the new taxes of course.

********

Whew, I'll save my proposals for another post

 

[Northern Light]

On the subject of welfare:

The province controls the rates, not the City.

However, the payout for a single person with no children in Toronto is about $570.00 per month (all in)

The suggestion that this can be cut at all defies logic.

No one, however frugal, could survive on that.

As such you end up with other subsidies such as public housing, or the use of food banks, or reliance on family or other charity in addition to what welfare pays, and/or you lose people to homelessness as welfare simply doesn't meet the most basic needs.

***

Of course its true that some people abuse the system; there are practical limits to what you can do; but assuming they don't have a $200,000 stashed in their mattress, its a pretty miserable sum to scam the system for; you're not getting rich on it.

I would suggest that 90% of recipients want to get off the system; and what we should do is not only provide them more support, but different supports and different rules, so that its more possible, nay, easy to get off welfare instead of a challenge.

For instance, right now, to get on welfare, you have to get down to $572.00 in net assets (excluding a home under a certain value), but including any RRSPs etc.

And you can't exceed that amount while on welfare.

This of course creates a conundrum. To get on welfare we will force you to use up any savings for education, first/last rent, retirement etc. so that once on welfare you will be wholly dependent on the system.

And once on the system, if you get a job and start to save, we cut you off right away, before you can even get first/last rent together, or save for a single year of school.

A bizarre choice that rule. Even Alberta doesn't do that.

We should also look at providing the help people need in a timely way, so that people who need help with addiction, get it w/no waiting period, at no cost, so they have an incentive to turn their life around.

We should make sure people have the basic skills they require for employment.

And that no one stays on welfare merely to get prescriptions paid for, that they couldn't if they had a low-wage job. That means having some form of pharmacare (possibly with a deductible linked to income) so that someone could leave welfare behind but still retain necessary medical coverages.

That's a more humane way to get case loads down, than cutting already anemic rates.

 

[Northern Light]

City Fiscal Solutions:

Until the budget comes out, we don't know the real numbers; but let's play with a nice round number 500M as the fiscal hole.


First the easy part, the 'inflationary' tax increase to property taxes, say 2%, bring in about 100M.

So the real 'hole' is 400M.

Cutting truly discretionary frills (reduced travel, conferences, consultants etc., plus increasing gapping (leaving positions unfilled for longer after someone quits/retires etc.) should get you another 40M or so.

At 360M you have to start raising revenue or making cuts.

So let's go the cuts first.

I would cut back on lawn-mowing in City parks (not less frequent, but less area covered) by reverting more area to meadow or forest, there is an environmental benefit, and I would even argue an aesthetic one over acres of blah grass. Better still, the cut here is to seasonal positions and no layoffs as such are required.

Estimated savings from reducing mowed areas: 5M

I would cut deeply into 'future plans'; by this I mean everything from Avenue studies (with which I agree) to the never ending 'needs assessments' carried out by parks which create expansion of service wish-lists.

I agree with improving services and improving zoning by-laws etc. But the lists of what could be/should be/ may be are already long enough to fill 20 years of capital budgets and/or keep developers similarly busy.

By reducing 'studies'; 'assessments' and the like savings can be had in the range of 20M, conservatively.

Although entirely symbolic in monetary terms, I would sack the Toronto A La Carte program, and its associate positions in public health; and replace it with more permissive rules, and existing inspectors. No brand managing, no micro managing etc. (savings .2M)

********

Revenue generation

Asset/property redevelopment is largely longer term, so I will leave that aside.

I would, however, start charging for EVERY city parking lot, at every library, arena, park etc. Its an easy argument, downtown such parking either doesn't exist or is paid today. But in the inner-burbs, its almost entirely free.

I estimate the City would rake in over $100,000 per year just charging for parking at Sunnybrook Park. If you think of all the various lots around the City, I think 4M in revenue is very, very achievable.

In the same vein, I would put in new pay and display parking on side streets near popular BIAs (with local permit holders exempt from paying). In areas like Greektown, there hundreds of cars for employees/customers clogging local street for free. This could easily net the City another 4M.

Finally, I would raise parking rates for on-street parking, as these are simply too low. Not just Vancouver, but Calgary charges $5.00 per hour for downtown parking, Toronto is still $3.50

An increase of .50c per hour would net the City a good 3M.

*****

From there, the question becomes toll the Gardiner or bigger property tax hike?

I prefer the former, which if timed to begin with 30min GO service on the Lakeshore line (and more rush hour trains) would be fair and feasible and pull 200M without missing a beat.

OR you can add an extra 2% to the property tax increase, but that still leaves about a 100M hole.

I wouldn't toll the DVP till GO Richmond Hill and Stouffville improvements are in place.

I think the remainder of the hold will get erased by new assessment in 2010, and by a TTC fare increase.

 

[kEiThZ]

Yeah. Nobody saw this one coming....riiiiiiight. This is exactly why Miller's bailing out. He doesn't want to be the one to have to make the hard cuts or sharply increase taxes.

 

[nfitz]

Presumably all the notice to the media - who then dutifully write these stories - is to warm us up for a big tax increase.

And why not - with Miller not running for re-election, and the next budget being done during election time, this is the perfect opportunity for a large tax increase.

 

[Juan_Lennon416]

So the Mayor and City Council could spend like pigs but the Departments have to cut back? Absolute nonsense!

 

[nfitz]

No, first they scare us with the scope of the cutbacks; and then they replace much of it with a tax hike instead.

It's the same bait and switch they pulled with the last TTC fare hike, when they announced that to deal with a shortage of $ they would have to close the Sheppard subway and significantly cut off-peak service - only to turn around and raise fares instead, to "save" the Sheppard service.

 

[unimaginative2]

I know the city's not the best at saving for a rainy day, but they really should create a fund in boom times (as the 2003-2007 period most obviously was) to save up for the predictable increase in social assistance costs during a recession.

I certainly hope they don't follow the approach they have in the past of threatening the most painful possible cuts in order to secure a provincial bailout. The city hasn't laid off anyone since amalgamation. There's clearly some low-hanging fruit that doesn't involve shutting down day cares and abandoning snow removal.