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City about to go broke, staff say
Apr 20, 2007 04:30 AM
Toronto is on the verge of bankruptcy and only quick and drastic intervention from Queen's Park can avert massive service cuts, say the city's top bureaucrats.
City manager Shirley Hoy and her deputy, chief financial officer Joe Pennachetti, will deliver the grim news when city council meets today to set the 2007 budget.
"The budget is cobbled together with one-time fixes," Hoy said yesterday. "Starting next year, we have a $600 million problem, so have we hit the wall? I'd say so."
Hoy says the city may be wise not to begin the 2008 budget cycle until it gets definite word of help from Queen's Park.
"Let's not even pretend we can cobble together another budget. Cuts in services? We're talking about more than that. It's more like, what services the city has to get out of – the (deficit) numbers are that large."
The provincial government must upload $200 million in program costs within 12 months and start paying its bills for shared programs, or the city will slide into a morass of service cuts, Pennachetti says. "We are in dire straits."
Critics can quibble with minor spending decisions – like the $2.9 million earmarked to add new staff to the mayor's office and add meeting rooms at city hall. But there's little doubt it will take much more than budget restraint to solve this historic fiscal mess.
For example, to close the $600 million fiscal gap left after this year's budget, one would have to completely close down at least two or more of the following services: ambulance ($147 million), fire ($345 million), parks and recreation ($297 million), transportation ($273 million), waste management ($238 million).
Mayor David Miller has avoided facing service cuts since he came to power in 2003.
He has led city council to use reserve funds and budget hocus-pocus to stay out of the poorhouse. Today will be no different as city council meets to set the 2007 budget.
Toronto has tapped its discretionary reserve funds for about $1.3 billion since 2001, about $1.1 billion under Miller. Pennachetti's report before council today shows that on a near-$8 billion budget, only $24 million remains in those reserves – equivalent to a homeowner having a loonie left to cover unforeseen expenses.
And the pittance that remains shouldn't be touched, Pennachetti says. For instance, $7 million of that sum is to be held as an election reserve fund, to cover unexpected events such as recounts or by-elections.
Pennachetti admitted this week he has another fund – a working capital reserve fund – essentially, money to cover payroll. If city revenues lag, the working capital reserve, totalling $80 million, is supposed to cover wage costs.
In fact, the city pays out more than $100 million each pay day. If revenue inflows get delayed significantly, the city's working capital reserve is supposed to cover the shortfall and allow workers to cash their cheques.
Messing with that fund would be looking for trouble.
"Joe will not recommend we use that," Hoy vowed. "New York – when they got into bankruptcy problems (in the 1970s) was when they dipped into working capital.
"The day you use (that money) is the day you use the B word – you're broke, bankrupt."
Pennachetti backed Hoy. He said it would go against his general accounting principles to touch that fund.
"That's money for real disasters – like SARS to the 10th degree. The working capital reserve would be a last desperation move – I don't even want to go there," he said.
Pennachetti and Hoy both say the city has patched up its budget so many times that residents think they can do so indefinitely. The budget committee and the city's executive committee understand the fiscal crisis. Today they plan to drive it home to the individual city councillor, they say.
"We've never pillaged the parks department or laid off firefighters and, I guess, until that happens, the average citizen won't get it," Pennachetti said.
Miller's approach has been to negotiate with Queen's Park to secure more funding, not cut what he considers valuable municipal services. It is difficult to argue with the approach. Ask most voters if they want services reduced and they will say no.
But where the mayor has opened himself to criticism is his failure to tell the public, in stark terms, what they face if he doesn't get more money from Queen's Park.
So far it has been an intellectual exercise. Toronto says it is being shortchanged and Queen's Park either flatly denies the charge or tosses a few bones to the city as hush money.
The strategy of quiet diplomacy blew up last week when the city's executive committee voted to seek a judicial ruling on the amount of money Toronto is owed by Queen's Park.
On the narrow specifics of the matter the city wants to send to the courts, Toronto has a good case. Queen's Park did sign an agreement to pay 80 per cent of emergency shelter per diem costs, child care and half the administrative costs of managing the Ontario Works program. The province has been paying much less – a shortfall the city says totals $71 million this year.
But that $71 million is peanuts, compared with the fiscal hole. Another grievance concerns a decision by the province forcing Toronto and other municipalities to pay for Ontario Disability Support Program and Ontario Drug benefits, two provincial services.
The hit on Toronto is more than $175 million. No court can force the province to pay that because provinces have constitutional jurisdiction over cities. Toronto has been negotiating with Queen's Park to upload that problem. The province is reviewing it and is expected to take some action by early next year.
Hoy says both the $71 million and the $175 million have to be removed to give the city a fighting chance. And even then, Toronto needs revenues that grow with the economy.
To suggest that Toronto raise property taxes higher is not realistic.
Even if you doubled or tripled the 3.8 per cent increase this year, the city would be nowhere near closing the gap.
Within months, Toronto has cleaned out its reserves, started looking at new taxes (land transfer, alcohol, entertainment, road tolls), and moved to take the province to court, charging that they are deadbeats. Such desperation is a clear signal the wolf is at the door.
Apr 20, 2007 04:30 AM
Toronto is on the verge of bankruptcy and only quick and drastic intervention from Queen's Park can avert massive service cuts, say the city's top bureaucrats.
City manager Shirley Hoy and her deputy, chief financial officer Joe Pennachetti, will deliver the grim news when city council meets today to set the 2007 budget.
"The budget is cobbled together with one-time fixes," Hoy said yesterday. "Starting next year, we have a $600 million problem, so have we hit the wall? I'd say so."
Hoy says the city may be wise not to begin the 2008 budget cycle until it gets definite word of help from Queen's Park.
"Let's not even pretend we can cobble together another budget. Cuts in services? We're talking about more than that. It's more like, what services the city has to get out of – the (deficit) numbers are that large."
The provincial government must upload $200 million in program costs within 12 months and start paying its bills for shared programs, or the city will slide into a morass of service cuts, Pennachetti says. "We are in dire straits."
Critics can quibble with minor spending decisions – like the $2.9 million earmarked to add new staff to the mayor's office and add meeting rooms at city hall. But there's little doubt it will take much more than budget restraint to solve this historic fiscal mess.
For example, to close the $600 million fiscal gap left after this year's budget, one would have to completely close down at least two or more of the following services: ambulance ($147 million), fire ($345 million), parks and recreation ($297 million), transportation ($273 million), waste management ($238 million).
Mayor David Miller has avoided facing service cuts since he came to power in 2003.
He has led city council to use reserve funds and budget hocus-pocus to stay out of the poorhouse. Today will be no different as city council meets to set the 2007 budget.
Toronto has tapped its discretionary reserve funds for about $1.3 billion since 2001, about $1.1 billion under Miller. Pennachetti's report before council today shows that on a near-$8 billion budget, only $24 million remains in those reserves – equivalent to a homeowner having a loonie left to cover unforeseen expenses.
And the pittance that remains shouldn't be touched, Pennachetti says. For instance, $7 million of that sum is to be held as an election reserve fund, to cover unexpected events such as recounts or by-elections.
Pennachetti admitted this week he has another fund – a working capital reserve fund – essentially, money to cover payroll. If city revenues lag, the working capital reserve, totalling $80 million, is supposed to cover wage costs.
In fact, the city pays out more than $100 million each pay day. If revenue inflows get delayed significantly, the city's working capital reserve is supposed to cover the shortfall and allow workers to cash their cheques.
Messing with that fund would be looking for trouble.
"Joe will not recommend we use that," Hoy vowed. "New York – when they got into bankruptcy problems (in the 1970s) was when they dipped into working capital.
"The day you use (that money) is the day you use the B word – you're broke, bankrupt."
Pennachetti backed Hoy. He said it would go against his general accounting principles to touch that fund.
"That's money for real disasters – like SARS to the 10th degree. The working capital reserve would be a last desperation move – I don't even want to go there," he said.
Pennachetti and Hoy both say the city has patched up its budget so many times that residents think they can do so indefinitely. The budget committee and the city's executive committee understand the fiscal crisis. Today they plan to drive it home to the individual city councillor, they say.
"We've never pillaged the parks department or laid off firefighters and, I guess, until that happens, the average citizen won't get it," Pennachetti said.
Miller's approach has been to negotiate with Queen's Park to secure more funding, not cut what he considers valuable municipal services. It is difficult to argue with the approach. Ask most voters if they want services reduced and they will say no.
But where the mayor has opened himself to criticism is his failure to tell the public, in stark terms, what they face if he doesn't get more money from Queen's Park.
So far it has been an intellectual exercise. Toronto says it is being shortchanged and Queen's Park either flatly denies the charge or tosses a few bones to the city as hush money.
The strategy of quiet diplomacy blew up last week when the city's executive committee voted to seek a judicial ruling on the amount of money Toronto is owed by Queen's Park.
On the narrow specifics of the matter the city wants to send to the courts, Toronto has a good case. Queen's Park did sign an agreement to pay 80 per cent of emergency shelter per diem costs, child care and half the administrative costs of managing the Ontario Works program. The province has been paying much less – a shortfall the city says totals $71 million this year.
But that $71 million is peanuts, compared with the fiscal hole. Another grievance concerns a decision by the province forcing Toronto and other municipalities to pay for Ontario Disability Support Program and Ontario Drug benefits, two provincial services.
The hit on Toronto is more than $175 million. No court can force the province to pay that because provinces have constitutional jurisdiction over cities. Toronto has been negotiating with Queen's Park to upload that problem. The province is reviewing it and is expected to take some action by early next year.
Hoy says both the $71 million and the $175 million have to be removed to give the city a fighting chance. And even then, Toronto needs revenues that grow with the economy.
To suggest that Toronto raise property taxes higher is not realistic.
Even if you doubled or tripled the 3.8 per cent increase this year, the city would be nowhere near closing the gap.
Within months, Toronto has cleaned out its reserves, started looking at new taxes (land transfer, alcohol, entertainment, road tolls), and moved to take the province to court, charging that they are deadbeats. Such desperation is a clear signal the wolf is at the door.
