Illustration by Brian McLachlan/Torontoist.
People tend to do a lot of shouting around budget time. They feel, by turns overtaxed, under-serviced, that the City is spending too much, and that the City isn’t delivering everything it should. Usually lost in the shuffle are some basic facts about how the budget process actually works and what options are open to the City should it wish to effect any serious changes to its books.
This morning Toronto’s Budget Chief, Councillor Shelley Carroll (Ward 33, Don Valley East), gave one of what is sure to be a great number of speeches on the City’s 2010 budget. Things are going to be more controversial than usual this time around for two reasons: it’s an election year, and the economic crisis has put added pressure on the City (primarily in form of drastically increased welfare rolls) and the province (which consequently has less money to send the City’s way, as it has in other years).
Because the budget can be rather mysterious, we’ll repeat some of the essentials from Carroll’s very helpful overview. (Apologies to the financial geeks in the audience.) Toronto’s budget comes in two parts: the capital budget (which funds major infrastructure projects and long-term development, such as subways) and the operating budget (which pays for day-to-day costs such as staff and services). The City can take on debt in order to pay for capital expenditures but is required—unlike other levels of government, which are legally permitted to run deficits—to balance its operating budget. The primary revenue streams for the operating budget are property taxes (39% in 2009), provincial grants and subsidies (24%), and user fees (15%). Because all regular City services are funded out of the operating budget, and because the City cannot run a deficit, any decrease in revenue forces the City to find efficiencies in or cut services, and any increased demand on services (such as welfare) forces the City to either cut elsewhere or raise new money.
Yesterday the City announced its capital budget, which lays out a plan from 2010–2019. There was some good news on that front, as the City will be refinancing some of its debt to take advantage of the current low interest rates, thereby reducing the amount it needs to spend each year on debt servicing. One of the biggest challenges the City faced in putting together the capital budget was the much-vaunted federal stimulus funding. While it does mean an infusion of new cash, the money does come with two significant strings attached: it must be spent quite soon, and it only covers one-third of the cost of the projects being funded—the City must pay for the rest. What this means is that over the long term the City benefits, as some major projects have new funding, but in the short term the City is forced to spend more money to cover its share of the projects on deadline. The majority of this money ($25.7 billion over ten years) will go to transit projects, and to bringing many roads, water lines, and other basic infrastructure into a state of good repair.
Coming in February will be the new operating budget; since this is where the City is looking at both major cuts and tax increases, this is what most of the political fireworks and policy debates will hinge on. To help get a sense of what the operating budget might look like, the City has asked each department and agency to prepare a budget showing what two successive years of 5% cuts would mean. The goal of this exercise, said Carroll this morning, is to see where further efficiencies might be found, and have a concrete sense of what significant cuts would look like. (The easiest way to frame the debate is to be able to give voters a choice: Would you rather pay x amount more taxes or lose library service two days a week? Pay x amount more or lose a given set of bus routes?) Based on those submissions, the City will then begin the long task of producing an operating budget that avoids cuts where they seriously damage important services, and raises taxes and user fees only as much as necessary. It’s an impossible balancing act, and—this year more than most—there will be an awful lot of shouting indeed.
Carroll and her fellow panellists—Board of Trade Policy Director Brian Zeiler-Kligman and National Post columnist Peter Kuitenbrouwer—all agreed, as has pretty much everyone else, that we need systemic change in the operating budget. As Carroll put it, “we are past the point of symbolism.” (Carroll also pointed out that the City is still suffering the aftereffects of a three-year tax freeze implemented right after amalgamation: had property taxes gone up 3% in each of those years, the City would have $300 million more to work with.) “Every global city of Toronto’s size has two things,” said Carroll, which we currently lack: better relationships with higher levels of government (which would hopefully lead to initiatives such a restoration of provincial contributions to the TTC’s operating budget), and “dedicated revenues that grow with the economy.” Specifically, she argued, Toronto will soon be the only city of its size which does not levy a sales tax. Carroll credited municipal sales taxes with sustaining cities such as Chicago and New York, and warned those listening that “if it’s not a part of the discussion then you’re just fooling yourself.” She also counselled voters to be mindful of these financial realities, warning that “[a] 0% [tax hike] is not an option. If you hear that in this year’s election, please be a discriminating consumer.”
As for her own potential mayoral aspirations, Carroll kept largely quiet, and probably with good reason. The viability of her campaign will depend in large part on reactions to the budget she proposes, and how close she comes to managing the impossible balancing act. What we can say in the meantime is that hers was the most rhetoric-free, ideology-free speech on budgetary matters we’ve heard thus far in this pre-pre-election season, and that’s about as promising a sign in a candidate as one could hope for.