Explaining the 2016 Preliminary Budget Choices
Can council acknowledge that Things Cost Money? Tune in!
“We’ve got some hard work ahead of us.” That was the refrain at this morning’s Budget Committee, where staff presented the preliminary budget. As we found out earlier this month, for the first time in roughly a decade, there’s a budget hole that has to be filled. This is a Big Deal, because, unlike the provincial or federal government, the City of Toronto is not legally allowed to run a deficit.
Our current situation is partly the result of years of below-inflation blended property tax revenue increases. The value of a dollar decreases over time–every year, the City has to spend a little more money on the same amount of stuff. This would be fine if the City were taking in a little more money, too, but it isn’t. Property tax revenue does increase, but it is lower than the increase in expenses. That means every year it gets that much harder to make ends meet.
Sometimes Council votes to spend more money to improve services (for example, clearing snow off bike paths as well as road ways). Employees also bargain for higher pay and benefits, because their cost of living goes up at the rate of inflation. But since we’re taking in less money (in real terms) every year, these extra expenses put the City even more behind. While it’s a slow process, in the long run it’s not sustainable. And the 2016 budget is a symptom of all those long run problems.
There’s also several considerable increases in expenses. For one, the Toronto Pooling Compensation money is gone. A few years ago the province decided to phase out $150 million in funding meant to compensate Toronto for the cost of downloading services. Suddenly money that we used to count disappeared. That’s some $44 million.
Other costs are not unexpected, but hard to cover nevertheless. Toronto Police Services and the TTC each have billion-dollar budgets that are hard to rein in, for both political and practical reasons. This year, their budget increases add up to over $56 million.
And that’s just the operating side. The capital budget is a little different, because it covers big, multi-year infrastructure projects that the City can borrow money to pay for. Borrowing money seems like a pretty good option–interest rates are extremely low. But there’s a limit to how much the City can borrow. Legally, the payments the City makes on its borrowed money can’t be more than 25 per cent of its annual revenue. The City has also set a lower limit for itself, just to be safe: 15 per cent. They’re going to be really close to that limit in 2019 (14.87 per cent). Yes, they could choose to raise the limit, but it might be bad for their credit rating. And that means borrowing money won’t be quite as cheap any more.
What can we do?
While in previous years staff have been able to balance the budget themselves, this year Council will be forced to acknowledge that Things Cost Money. So what can they do to bridge the gap between the money they have and the things they have to pay for?
The City’s options fall into two general categories:
Get rid of things: City staff initially said the gap was $57 million. But they weren’t counting a lot of things Council voted for: the Poverty Reduction Strategy, 24-hour winter drop-ins, employment programs for youth and single parents, and the improvements suggested by the TCHC task force, to name a few. That’s an extra $67 million. The City could just…not do all that. They could go even further, and cut division budgets. Hey, apparently the police budget doesn’t have to be quite that big.
Mayor Tory and budget chief Gary Crawford (Ward 36, Scarborough Southwest) have suggested freezing City divisions’ and agencies’ discretionary expenses, like travel, office supplies, professional conferences, and so on. This sort of corner-cutting misses the forest for the trees: the City’s budget problem is structural, not some tabloid scoop about unionized fat cats run amok. Throughout yesterday’s meeting, various staff told the Budget Committee (with varying levels of diplomacy) that Council has to take a serious look at the kind of city they want to build, the kind of services they believe a city government should provide, and then make policy accordingly–not the other way round.
Actually get more money: This is not a popular option, but it is possible. While the mayor has promised a tax increase at or below the rate of inflation (1.3 per cent), a 2.17 per cent increase would cover that initial $57 million hole. The difference between those increases, for the average residential tax payer, would be about $17.50.
There are also are a number of other taxes the City could implement. Bringing back the Vehicle Registration Tax, for example, would fill over half the budget hole. At yesterday’s meeting, councillors like Joe Mihevc (Ward 21, St. Paul’s) and Paula Fletcher (Ward 30, Toronto-Danforth) took a shine to taxing parking lots ($1 per space per year), which might net hundreds of millions of dollars a year. The City could also ask the province for the ability to charge, say, a sales tax, to help prevent a shortfall in the next budget cycle. A one cent sales tax could yield around $500 million annually, and we wouldn’t be having this conversation anymore.
What happens next?
Now councillors have to learn about the budget in more details and make some tough decisions.
The budget process picks up again in the first week of January, with a week of in-depth budget briefings from City divisions. After that, there will be meetings across the City [PDF] where members of the public can make speeches to the Budget Committee. By the end of January, the Budget Committee will send their recommended budget to Executive Committee for their input. Council as a whole votes on the budget at a session that begins on February 17.
Several councillors also host community budget consultations; now’s the time to contact yours and bother them about having one in your neighbourhood.