City's Financial Overview

The City of Toronto is an $8.2 billion operation (including operating and capital, tax- and rate-supported). In budget terms, the City is the 6th largest government in Canada, after the provinces of Ontario, Quebec, BC, Alberta and Manitoba. It is currently in a reasonably sound financial condition and has a high credit rating (AA).

Its performance measures compare favourably with other Ontario municipalities. However, as City Council enters its third term since the 1998 amalgamation, it is facing unprecedented financial challenges. Since amalgamation residential property tax increases have been held to 12.8% - below the rate of inflation - and commercial/industrial rates have been frozen.

These results have relied to a great extent upon amalgamation savings and a number of one-time non-sustainable revenues and provincial funding assistance. Over the next five years, the City faces significant gaps both in maintaining its $52 + billion worth of physical assets as well as providing adequate financial resources for operating its programs and services.

The City's financial health is not sustainable without new financial tools that match its responsibilities. Solutions for fiscal sustainability require additional stable and long-term revenue sources and/or a realignment of responsibilities.

Economic Condition
City's Financial Condition
Current Level of Efficiency
Financial Outlook

Economic Condition

The City has a sound and diverse economy. In general the state of the economy does not have much impact on the City as its major revenue source - property taxes - is generally insulated from general economic trends. But the economy does impact the City in a number of ways. Building activity impacts building permit revenues, business activity impacts TTC ridership on the revenue side, and employment levels eventually impact social assistance caseloads on the expenditure side.

After some relatively good years when the City's welfare caseload was falling, as was the region's unemployment, 2001 was a turn around year with caseloads beginning to rise along with unemployment. The expectation is that the caseloads are likely to continue to increase in 2003/04. A number of unanticipated events, including SARS, West Nile virus, and the August Blackout, were expected to negatively impact the City's 2003 operating position by as much as $19 million.

City's Financial Condition

    On Taxation

Unlike other levels of government, the City must raise the property tax rate to garner increased revenue from the tax base. Other levels of government can acquire increased financial resources without changing the rate because an increase in business activity - sales or income (wages and profit) - generates more revenue since their taxes are a percentage of this activity. The increase in residential property tax rates have been well below the rate of inflation since amalgamation.

Almost half of the City's revenues come from property taxes which are directly tied to the assessment base. Over the past decade, unlike some regions in the GTA which have experienced assessment growth in excess of 40%, the City has had virtually no assessment growth.

While the City's property tax rates on commercial/industrial properties are above the GTA average, a significant proportion of this is due to the fact that the Province sets a higher education tax rate on Toronto businesses compared to the education tax set on GTA businesses.

   On User Fees

Toronto has a higher reliance on user fees than other GTA municipalities with respect to the operating budget and the City rates are generally quite competitive. The City's user fees are not out of line with other GTA municipalities.

   On Aging Infrastructure

The City's infrastructure is old and in some cases investments are not keeping up with need. For instance, with vehicles, not only is the fleet reserve being exhausted, with $80 million more having been taken out of it than has been put into it since amalgamation, but the average age of the fleet is increasing close to the replacement age. Much of the road network is in excess of 40 years old and a significant proportion of the water system is more than 75 years old.

   On Reserves & Debt

The City's reserves are substantially below the Provincial and the GTA average.In the 1990s the Provincial government withdrew its funding support for a number of crucial municipal services, including transit (operating and capital) and transportation capital, partially alleviated by Federal and Provincial contributions to the 2002 and 2003 transit capital program.

The Local Services Realignment introduced by the Province in 1998 resulted in the City acquiring responsibilities for new services without matching financial resources. The lack of sustainable capital funding, together with an increasing demand for capital maintenance of an aging infrastructure, has resulted in increasing backlog and deteriorating infrastructure. Thus, there is a sizeable gap between affordable capital funding and needs.

The City's capital requirements are financed by a number of sources including operating contributions, reserves, Toronto Hydro proceeds, debt, and other short-term funds such as OMERS surplus and provincial TTC grants. In the absence of long-term commitments from senior governments for TTC and transportation capital, debt is forecasted to increase substantially over the next few years. Increasing debt results in increases in debt service costs and a reduction in spending flexibility as debt charges consume more of each tax dollar.

Low reserves, coupled with rising debt and a lack of substantive long term funding commitments from senior governments, have led to a decline in the City's credit rating since 1997 from AAA to AA (DBRS). It was not until November 2002 that Moody's Investors Service upgraded Toronto's credit rating from Aa2 to Aa1, just below the Aaa status. The upgrade reflected City management's commitment to maintaining fiscal discipline, and the expectation that senior governments will commit additional capital funding.

Current Level of Efficiency

Notwithstanding the City's fiscal challenges, a number of performance measures illustrate that the City has made improvements in its operations over time and compares favourably with its peers. When the 2002 Municipal Performance Measurement Program (MPMP) performance measures are compared with those of 2001, improvements can be found in a number of areas.

MPMP Measure (Samples only)	2000 Result	2001 Result	% Change
Operating costs for governance & corporate management as a % of total municipal operating costs	3%	2%	-21%
Operating costs for fire services per $1000 of assessment	$1.38	$1.34	-3%
Operating costs for winter control maintenance of roadways per lane kilometre	$4,379	$4,339	-1%
Operating costs for solid waste collection per tonne	$50.98	$50.34	-1%
Operating costs for conventional transit per regular service passenger trip	$1.78	$1.86	4%
Operating costs for police services per household	$649	$676	4%

Toronto fared quite well in relation to other Ontario municipalities in 2001 - Toronto's results were better than the average of the select group in 18 out of 28 measures, or 64% of the total. Some examples include:

• Governance and corporate management costs as a % of total operating costs (Toronto 2.3%, average 3.3%)
• Operating costs for Fire Services per $1,000 of assessment (Toronto $1.33, average $1.46)
• Operating costs for Conventional Transit per regular service trip (Toronto $1.86, average $2.89)
• Operating costs for Wastewater Treatment and Disposal per megalitre of wastewater treated (Toronto $203, average $258)

1. Inadequate fiscal capacity to deal with economic impacts due to limitations on raising taxes for residential taxpayers only
2. Limited revenue growth (assessment, user fees)
3. Uncertainty with respect to sustained senior government funding
4. Capital financing pressures
5. Continued tax competitiveness issues
6. Demand for improved services

• Remaining wage harmonization
• Official Plan and related growth impacts, e.g. TTC Ridership Growth Plan, Subway Expansion
• Sectoral Plans, e.g. Cultural Plan, Economic Development Strategy, Social Development Strategy, Environmental Plan, Solid Waste Diversion
• Information Technology Refresh
• Economic downturn, e.g. Transit ridership, social assistance caseload
• Service expansion demands, e.g. Tuberculosis, dental, children/youth

1. Rationalizing the existing arrangement of revenues and responsibilities
2. New cost-sharing for specific programs
3. Proposed uploading of certain services
4. New funding sources
5. A City service prioritization review