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2012 is the year that the City and its Council changed the course of City finances. I'm proud to say that the City is on track to achieving fiscal sustainability.

The opening spending shortfall for the 2012 operating budget was $774 million – representative of a chronic structural deficit as a result of years of relying on one-time revenues and ever growing disparity between expenses and revenues.

In the 2012 Budget, we have reduced the City's reliance on one-time surplus revenues from $327 million to $102 million. The 2012 Budget also marks the first decline in gross expenditures since amalgamation with a $19 million decrease. This is a major breakthrough.

Balancing the 2012 operating budget was mainly accomplished by a permanent reduction in annual expenditures of $327 million which not only helped to address the budget shortfall, but helps to bring the City's expenses more in line with its revenue. Input from the Core Service Review conducted in Spring 2011 formed the backbone for where the City made reductions. In the end, the City realized cost savings of $267 million in base budget expenditure reductions, and service efficiencies. Additionally, $60 million in savings was achieved from service changes.

Together, these expenditure reductions fulfilled a direction to division heads at the start of the budget process: to find 10 per cent reductions of their respective net operating budget. The sizeable cost savings to be generated from base and service efficiencies have limited service impacts, enabling the City to maintain the core services that residents depend upon, but it was a major challenge to find the savings.

The 2012 Operating Budget was further balanced with an increase in sustainable revenues of $345 million, primarily attributed to economic growth generating $164 million, a 10 cent TTC fare increase which will provide $30 million in transit revenue, and a modest 2.5% residential and 0.83% non-residential property tax increase in line with inflation that will contribute $57 million.

For the 2012 Capital Budget and Plan, the main challenge continues to be maintaining Council's debt repayment policy limit of 15 per cent of property tax revenues while financing new transit vehicles needed to accommodate an increase in ridership and maintaining the City's assets in a good state. The ten-year capital plan addresses this by using a strategy to inject $700 million in non-debt financing into the capital budget.

The added $700 million in new financing is expected to come from proceeds from the use of future operating budget surpluses in accordance with the City's surplus policy, potential monetization of City assets and expected provincial and federal assistance. Through these actions, the City intends to fully finance the capital plan from the TTC that was previously unfunded, minimize the amount of property taxes used to pay debt financing costs, while maintaining the City's debt service ratio well below its 15 per cent threshold in relation to property taxes. The move also allows safeguards for the City in the uncertain global economy.

The 2012 Toronto Water Budget includes a nine per cent water rate increase. This is a planned increase and part of a multi-year budget and infrastructure renewal program to tackle a $1.7 billion backlog of repairs. The plan, first implemented in 2006, endorsed annual nine per cent rate increases for nine years to address Toronto's aging water infrastructure.

The approved 2012 Solid Waste Operating and Capital Budget results in no rate increase for the majority of residential customers. At the same time, it seeks to create fair, harmonized rates across the entire customer base.

The 2012 budget made significant progress towards fiscal sustainability. However there is still work to do. Based on our expenditure and revenue forecasts for 2013 and 2014, which include assumptions for modest property tax and TTC fare increases, we will need to find expenditure savings and/or increased revenues of $199 million and $80 million respectively, to balance the budget in these years.

Therefore, in 2012 and 2013, the City will continue to conduct service efficiency studies which will look at specific functions to enhance service delivery with the goal of providing further savings through automation and process engineering.

With ongoing efforts, City Council can potentially bring fiscal sustainability to Toronto and thereby eliminate the City's structural deficit by 2014.

Throughout this past year of many challenges and achievements, the City Finance team has shown professionalism, perseverance and dedication in their roles as financial stewards. I'm very proud to have led such a great team during this year.

Sincerely,

Deputy City Manager and Chief Financial Officer
Cam Weldon

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