Russ Ford's Blog

Understanding the City Budget


There is nothing more telling about an organization than its budget. You  can say you are committed to many things but the budget forces you to make the tough choices.  It forces you to create priorities. 

If we are to have a vibrant democracy it is vital that there be a process of public engagement in the budget process. It is complicated for sure, but that does serve as a rationale for not doing it.  Residents have a right to know  how our money is being spent but more than that, we should be able to help define budget priorities. 

The city is in the final throes of its process. Some councillors have held public meeting but way too few. It should be a requirement. It is certainly to borrow an expression from health care, a best practice for our elected representatives. 

It is not possible to do a full review in a blog but let's start with the basics. Despite what you may have heard the city is on very solid financial ground.  We have the highest credit rating of any government in this country. We do not now nor have we ever had a deficit. Cities are legally forbidden to have a deficit. So every year city staff over estimate costs and under estimate income which creates a large surplus in the final quarter of the year. 

The city has debt and there is nothing wrong with that in fact it is necessary. We have a debt  on our capital investments. We did not pay cash to build the police college across the street from LAMP we borrowed the money. Debt is not an issue as long as it is manageable which it certainly is    No debt simply means nothing would ever get built.  Debt creates jobs, it builds the infrastructure the city needs.

The budget is divided into operational and capital budgets. Staff act like these two envelopes are separate and distinct. Well that is only true to a degree. 

The current administration has taken a much more pay as you go approach to capital spending. Rather than financing through debt more money is coming out of the operating budget to pay for capital expenses. 

Given the city's great credit rating and the low rate of interest, this makes little sense. Money that should be going to pay operating costs is being diverted into capital costs.  That means an almost artificial pressure is being put on the operating budget. We all know there are only two ways to alleviate that, increase taxes/user fees or cut services.    See, there is a connection between the capital and operating budgets. 

Cutting services or bringing in even higher user fees makes us a more inequitable society. Both hurt the poor the most and raising property taxes is not much better of an option.

The property tax is not a progressive tax. By that I mean the property tax is independent of your income. The amount you pay is based on the value of your property not on your ability to pay. 

The institution of the vehicle registration and the land transfer taxes were attempts to reduce reliance on the property tax as the city's sole source of revenue.  The repeal of the vehicle tax put $64 million back on the property tax and the land transfer tax yields the city over $300 million a year. Cutting or reducing it will have a significant impact on the city. Again, it will be a choice of either adding more to the property tax or cutting services or keeping the land transfer tax.  Surely that scenario is worthy of public debate. 

We all know there is a great need for more capital investments.  This need has to a degree been the result of politicians eschewing the longer term needs of Toronto for short term political benefit.  During the Lastman administration for example, taxes were held down by reducing capital expenditures.  The TTC for example was not allowed to replace vehicles. 

Lets also not forget the abysmal state of public housing. The city can easily wear the moniker of slum lord  Some of the public housing units which the city owns and operates are uninhabitable. One solution that has been proposed is to sell off some of the city's housing stock and then use the money from the sale to fix other units. 

What that means is a reduction in the stock of affordable housing which in my view is not a viable option  

So given the need to rebuild in the city's infrastructure, our fabulous credit rating and current low interest rates there is never a better time for the city to assume debt.

Not only would this enable us to build liveable housing, a transit system that does not experience breakdowns on a regular basis but it would also create jobs. In short it would provide the economic stimulus that our other two levels of government seem unwilling to provide.

What this means to communities, which is the perspective this blog tries to take, is there will be little or no relief to local concerns. There cannot be as long as the city continues to use the operating budget to cover costs that could best be financed through debt. There will be no money for increases in grants for example because the city will cry poor and say it cannot afford even cost of living increases.

It is however not a matter of being poor.  It is a matter of how you manage the money you have. 


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