If you have been following the budget process for some time (just going back to the 2009 budget process) you were already aware that to balance the 2010 city operating budget the city would have to round up almost another half a billion (the 2009 budget was approaching $9 billion: 5% is about $450 million)! The 5% increase rate has been about the average annual increase in the city ops budget during the Miller term as mayor. While the city coffers benefit somewhat from the city's new vehicle licensing and land transfer fees these only pay a few percentage points of total operating costs or of the city need for total revenue. By far, the biggest load or revenue comes from property taxes (with more of it shifting to the residential side to keep jobs & businesses in the city).
The Mayor (whose office sets the budget framework or agenda) as the real budget chief has being setting the expected increase in the property tax rate close to a known or acceptable inflation rate (such as the Consumer Price Index or city rate of wage increases). That is, while the city operating costs have been advancing at over 5% a year, the city mill rate change has been less. This required the city finance managers to zero balance most or likely all reserve accounts_ required for a future rainy day, to build up funds to maintain or expand a city service or programme.
Much of the inability of the city to operate with minor or inflation rate tax increases changed with amalgamation and the Harris download of social services costs. While McQuinty has started a city recovery from this provincial burden, Ontario will likely be unable to afford taking it all back soon_ given its record deficits, structural unemployment & declining corporate taxes. Most analysts expect a slow economic recovery to average rates of growth. (While the 2010 HST will somewhat moderate the recession impact and help the recovery Ontario has too many demands on its revenue_ such as McQuinty "early years/full day kindergartens".)
The city Budget Committee and financial management have already sent out a message to city departments for a 5% operating cost reduction for 2010. This level of cutback comes after the city has just negotiated new wage settlements with unionized workers. Effectively when you add back the accumulated sick pay allowance, workers received about a 5% annual increase. Of course, we now find out a double financial whammy: while committing to a liability to workers as they retire the city had not been put money aside for this. And to make it worse, a "programming error" has added about $200 million to this "unfunded" liability. This also is about equal to the size of the budget imbalance at this time. But we have not heard how the city will be handling this in the future.
Will it be a pay-as-you-go? We hope the Budget Committee reveals some integrity and provides a significant statement in the final budget documents. It is hard to comprehend how competent financial management has not already been highlighting or footnoting this significant financial liability.
Given that the city wage contracts are in place for 2010 and that payroll makes up most of the operating budgets how can you attain a five percent reduction. Attrition and non-replacement due to resignations, retirement and other might do half the job. If the city staff is equally spaced (say, age 25-65) then about 2.5% or half the goal should come from retirement. But given the unfunded liability, each department likely will have to budget half a year salary for each retiree to pay off accumulated sick pay!
So to attain the 5% goal, will deeper staff cuts be made? And how will this impact city service levels which have been generally declining during the Miller years?
Some councillors have suggested the 2009 summer strike has provided some evidence on how the city can operate with lower staff levels and reduced times of services, etc.
From the Monday Star, Budget Committee Chair, Shelley Carroll says "It's time for (senior staff) to review everything we're delivering at this point in time, and decide what's working, what's not working, and what can be improved and made more efficient".
After all the cutbacks and efficiency searches from previous years we must be frank and ask the councillor hasn't this all be done before. And what we see now is the best they can do?
(We are still wondering when solid waste management- that is garbage pickup will reveal a financial statement on its operating performance and efficiency improvements. We are still wondering how foregone payroll of at least $120 million only provided about a $35 million carry-forward to 2010.)
And furthermore, is it staff's job to "decide" what services to the public are not working? Maybe, the public should have some input since they are the paying customers!
The bottom line that we all must face is that in many ways the Mayor, the Executive Committee and the Budget Committee have been shortchanging us on the real truth about Toronto's sustainable financial future. Robbing city reserves and seeking Queen's Park handouts to balance the operating budget became a cover-up job. During the Miller term, the rate gap between increasing operating costs and property tax revenues has finally caught them. You were not able to sustain an annual gap of about 2%. While the Mayor did seek additional money from the Feds (gasoline tax sharing), he has never laid out any harsh realities nor fully achieved his 1 Cent GST objective.
However, each of us has noticed a city that looks less clean and neat. We drive on roads needing more and more repair. We have just had a report that our recreational and forestry backlog "deficit" will soon approach $600 million from a current $200 million plus.
Obviously, city life in Toronto across the board is less now that what we used to know.
We doubt that the city has enough "fat on its bones" to deliver a 5% service cut without hurting many. And we don't mean city workers.
We are left with a need to find a financial fix. And the "bottom line" fix is more money from us in property tax to maintain at least what we now have. But with city unemployment at high levels, can many or most of the city property tax payers handle a rate hit that might be double or more than what we've seen for several year? Especially, now when many of us are more aware that the public sector in city service has better wages, benefits and pensions than most of us not holding a government job.
That is, the $64,000 question. And with 2010 an election year in Toronto, we wonder how many councillors will back even a 3-4% hike?
Such is the political conundrum you must answer when you have avoided and delayed facing reality.
More to come ...
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