Moved by Metropolitan Chairman Tonks:

Moved by Metropolitan Councillor Brian Ashton:

(1) Metro Council endorse in principle the direction proposed in the Report of the Advisory Council on Social Housing Reform, involving a new funding structure for both non-profit and public housing, separation of rent supplement and "supply" subsidy, a simplified municipal program management structure, and a new Ontario-wide provincial-municipal-provider housing body with a role in financing, cost benchmarking and accreditation/trouble-shooting;

(2) Metro Council urge the Minister of Municipal Affairs and Housing to take the necessary next steps on the Advisory Council's proposals, including:

(3) Metro Council urge the Minister of Municipal Affairs and Housing to undertake the following related actions:

(4) the Province be urged to fully involve the municipalities and the housing sector in decisions on program reform; and

(5) Metro Council recommend to the 1998 City of Toronto Council that it establish a political liaison group to oversee the new City's involvement in social housing program reform and to collaborate with housing sector organizations in the reform process.

(1) Introduction:

The provincially-appointed Advisory Council on Social Housing Reform issued on September 2, 1997, a report recommending major reforms to social housing programs, in the context of devolution. Although Metro's position is that devolution of housing onto the property tax base is fundamentally unsound, steps must be taken to ensure that devolution is done in a manageable way. It remains to be seen to what extent the Advisory Council proposals may be adopted by the Province, but they stand as a leading proposal on how to implement devolution. It is important that Council be aware of these ideas.

The Advisory Council was appointed in June 1997 with a mandate to review and recommend reforms to the social housing funding system and program structure. The focus was particularly on the relation between government as funder and the various housing provider agencies, but it also covered savings/efficiencies, accountability, and security of tenure for residents. Establishing the Advisory Council responded somewhat to the housing sector's call for fuller consultation and a simplified program, and the devolution-related concerns of key parties.

The work was carried out in 14 mainly all-day meetings over an intensive 2-month period, with some opportunity for deputations. The report is a direction-setting one rather than a detailed plan.

The Council comprised representatives of the non-profit and co-op housing sectors, Ontario Housing Corporation, the private sector, and housing finance. Participating in an "outer circle" at Council meetings were nominees of the co-op and non-profit sector organizations, the Association of Municipalities of Ontario (AMO), and the Ministry of Municipal Affairs and Housing. Metro and the City of Toronto were directly represented, through the Cityhome General Manager who was the municipal sector member, and the Metro Housing Company General Manager who was one of two AMO representatives in the outer circle.

The Council's work should be understood in the context of concerns of the key parties about the complex structure of existing social housing, and where devolution may lead.

The identified concerns of municipalities were:

The identified concerns of housing provider agencies were to ensure:

The identified concerns of the Province were:

The Advisory Council proposals appear to meet a number of the concerns of various parties.

(2) Proposals of the Advisory Council on Social Housing Reform:

The three main elements of the proposals are a new funding model, redefined roles for the various parties, and harmonization of the public housing (OHC) and non-profit housing systems. They also involve simplifying program management and increasing provider autonomy; and setting up a new municipal/provider/provincial partnership body to perform key roles.

New Funding Structure:

Central to the report is a new funding structure for social housing. The current system involves five main programs (with variations), each applying to housing built in a certain period, each having a different structure of funding and imposing different requirements on the housing provider agencies. The majority of projects are subject to detailed budget review each year.

Social housing subsidy can be considered as having two elements. There is the geared-to-income subsidy, that makes up the difference between what a lower-income tenant can afford and the market rent: for example, between a $350.00 geared-to-income rent and a $750.00 market rent. As well, there is the "supply" or "bridge" subsidy that makes a new project viable by covering the difference between market rent and a new project's high break-even costs: for example, between a $750.00 market rent and an $1,150.00 break-even rent. The numerous new non-profit units with high mortgages and break-even costs well above market rents mean that budgeting becomes a matter of bureaucratic review rather than market discipline and internal efficiency.

The essence of the proposed new funding structure is to separate the geared-to-income subsidy (rent supplement) from the "supply" subsidy. Projects would be required to operate on a break-even basis using market rents. Low income tenants would not be hurt by this shift as the project would receive a rent supplement payment under a contract with the municipality. The supply subsidy, which relates to mortgage debt service, would be divided in two. The portion of debt that was "affordable" to the provider agency within market rent revenues (after allowing for operating costs etc.) would be the responsibility of the provider. The portion that was beyond that level or "unaffordable" would be separated out into a new debt instrument to be paid directly by the municipality (which would be funding it anyway).

The advantage of this system is to reduce the level of government oversight required. The municipality would not have to review providers' budgets in detail each year. Instead, all providers would operate within the discipline of market rents. Rather than administering a complex budget approval process, the municipality would simply contract with each provider for a certain number of rent supplement units, and handle directly the "unaffordable" portion of debt. While municipal monitoring and review would still be required, this would focus on performance and outcomes rather than detailed budget review. Separating out the rent supplement portion is also considered to offer the potential of better integrating housing assistance with other forms of municipally-administered benefits such as social assistance and child care subsidies.

A system of market rents with rent supplement agreements, somewhat similar to the report's recommendations, is used in one of the existing housing programs and is considered to work well.

Benchmarking:

The portion of debt that was "affordable" would be determined through a benchmarking exercise. This would determine reasonable operating costs, necessarily varying by locality or type of housing stock or type of provider and resident. It would also determine capital reserve requirements to pay for future major repairs as the buildings age. Such a process would occur in the planning period for the new system and would be repeated every four to five years thereafter to reflect changing trends in wages, materials, taxes, utilities, etc. There would be a similar agreed process to establish market rents. The room available between benchmarked operating costs (and capital reserve requirements) and market rent revenues would define the amount of "affordable" debt.

Such a benchmarking system would still involve administrative review of costs and revenues. But rather than being done on a provider-by-provider or line-by-line or annual basis, it would be done in a global, comprehensive way. It would be applied to providers in a way that permits them discretion to manage their own budgets within these broad parameters, and frees the municipality from a detailed oversight role.

Legal Agreements:

The recommended new system would involve each provider agency entering into two agreements with the municipality, replacing the existing Operating Agreement for each project. The first would be a Rent Supplement Agreement; the second would be a Repayable Operating Loan Agreement covering the "supply" subsidy.

The word "repayable" applies because, over time, as the available room in the agency budget for debt service increases (as normally occurs), the agency would be responsible to gradually start repaying, without interest, the "unaffordable" portion of debt that the municipality had paid. The report recommends an appropriate mix of penalties and incentives to ensure that budgetary "room" gradually emerging is used to repay this debt. Administering these agreements would involve reliance on auditors' confirmation each year that the agency had complied with the terms and conditions (within the discipline of market rents), rather than today's detailed review of budgets.

The report recommends that the term of the Rent Supplement Agreement equal the remaining period of existing project amortization and of subsidies under existing Operating Agreements. This would ensure security of tenure for tenants and no loss of affordable units.

Revised Roles and Responsibilities:

Revising the roles of all main parties would require a collaborate reform process, as noted below.

Provincial Standards:

The report recommends that certain provincial standards be provided for in legislation. These would cover the number of geared-to-income units; the range of income groups or level of income targeting; fair municipal practices around application, eligibility, and degree of subsidization of tenants; and compliance with federal funding principles for the housing that CMHC co-funds. These principles would ensure that an uneven patchwork does not develop across the province and would safeguard the existing public investment in social housing.

Harmonization of OHC "Public Housing" with Non-Profit Housing:

The Advisory Council recommends that the Ontario Housing Corporation (OHC) cease to operate in its current form, and that each municipality decide the preferred way to manage OHC units now run by a housing authority in its area. This is in accordance with the principle of "say for pay". (For example, a housing authority might become an independent non-profit agency, be merged with a municipal housing company, or be divided into various provider agencies.) Agencies operating former OHC units would be funded on the same basis as other social housing, with agreed market rent levels and a Rent Supplement Agreement with the municipality.

The report recommends that ownership of OHC properties stay with the Province initially, but that a future ownership structure be determined jointly, such that neither the Province nor municipality could unilaterally realize capital gains from the properties. This Advisory Council recommendation reflects the difficulty of resolving differences of opinion on this question.

Long-Term Funding Issues:

The report makes recommendations on two long-term funding issues. It recommends that adequate capital reserves for major maintenance should be built into the new funding structure. However, it does not comment on the current repair needs of the older public housing stock.

The report also recommends that the Province set up a process like this Advisory Council to plan for social housing projects whose agreements and subsidies will be expiring in the next few years. It points out the risk that as mortgages and the parallel operating agreements start expiring in the next few years, the global funding envelope for social housing may be whittled away as a result.

(3) Implementation Steps Suggested by the Advisory Council:

The report recommends that a Working Group be established to plan the proposed reforms and, as a first step, test their feasibility in more detail. This group would comprise representatives of municipalities, the Province, and providers. The report recommends that the Province, in consultation with municipalities and providers, prepare terms of reference for this group.

The Advisory Council explicitly recognizes that its proposals require a detailed financial feasibility and legal analysis. Particular areas that will require work include the process for cost benchmarking and determination of "affordable" and "unaffordable" debt, legal agreements including replacement of existing agreements, and monitoring and compliance procedures.

The report also recommends that, to the extent possible, the Province achieve the changeover on a voluntary basis rather than by imposing it. Housing providers operate under existing legal agreements with their funders. A reform involving a consensus process and voluntary change would avoid potential legal wrangles associated with changing these agreements over the objections of housing providers.

(4) Comments and Issues for Metro:

Desirability of Program Reform and Simplification:

The Advisory Council presents good suggestions for simplifying and improving social housing programs. Many municipalities, housing providers and sector organizations, and housing officials are concerned about how the programs can be handed to municipalities in their current complexity.

Program administration involves functions such as flowing monthly subsidy funding, reviewing each provider agency's annual budgets and audited statements, conducting periodic compliance reviews, allocating capital funding among providers, setting operating policies (e.g., budget constraints, eligibility and access procedures, income verification rules) troubleshooting projects or boards in difficulty, etc. Devolution could mean that instead of seven provincial regional offices performing these functions, some 40 to 50 county/regional/city municipalities across the province would perform them in a variety of uneven ways.

The costs of housing program administration are not included in the "who does what" fiscal exchange. It is in municipalities' interest to ensure they inherit a simplified, low-cost administrative system.

Devolution of funding responsibility to municipalities, however unwise it is as a basic policy choice, must be accompanied by some municipal role in program administration - "say for pay". The challenge is to establish a viable system after devolution, and the Advisory Council recommendations could be a way to turn devolution into a positive opportunity.

It is desirable to move toward the Advisory Council's proposed system where housing provider agencies operate with more autonomy under the discipline of market rents. This works well in one existing housing program, and is similar to positions taken by the Ontario Non-Profit Housing Association. With downloading planned to become a fiscal reality as of January 1998, the Province should move as quickly as possible to a program structure that matches the new municipal funding role.

Complexity of Reform Process:

It would be a complex process to implement a transition to the reformed system. Operating cost benchmarks would have to be developed, with variations by area and type of provider and resident and housing stock. The role of the new Ontario-wide housing body would have to be fleshed out and agreed to in detail. A clear picture would need to be developed of how the benchmarking and market rent-setting would be done in future years after the initial round. The debt of all or most social housing would have to be refinanced. Providers' legal agreements with the Province would have to be replaced by agreements with the municipalities. The extent of provincial standards and municipal discretion would have to be clarified. The question of voluntary provider renegotiation and participation versus legislated abrogation and replacement of agreements would have to be dealt with. Federal concurrence would have to be obtained.

With the proposed reform involving revised roles for all main parties, it will be essential to first reach a broad consensus on program reform. A consensus-building process would facilitate reform by ensuring a new system that has the support of housing sector organizations and avoids legal challenges from dissenting agencies.

Costs and Benefits of Reform:

The Advisory Council's proposals would essentially shift the key ongoing decision and negotiation focus from the Ministry's annual budget review process to the periodic setting of benchmarks and market rents by the Ontario-wide body. It will be necessary to demonstrate to the parties involved that the difficult program reform process has enough pay-off in improved efficiency, reduced conflict, and a re-balancing of municipal/provider/provincial control, to justify the complexity of the reform process itself.

The idea of separating rent supplement from "supply" subsidy was originally suggested in tandem with the idea of truly reducing the mortgage debt to levels that provider agencies could sustain at market rents - for example, through a write-down and/or transferring the "unaffordable" debt to a provincial obligation such as a bond. The Advisory Council proposals turn this idea into one where there would still be "unaffordable" debt tied to the property. This would mean municipalities as funders would have an interest in setting benchmarks and market rents at levels that constrain operating costs and minimize the "unaffordable" debt that municipalities must pay directly. The new system will have to be constructed to balance this municipal interest with the proposed simpler (and municipally less costly) oversight system with reliance on broad-level cost benchmarking.

Need for Detailed Feasibility Analysis:

The complexity of reform means that a detailed feasibility analysis would be required, as identified by the Advisory Council. This would give municipalities and providers a picture of what the financial arrangements would look like in their case, and a clear picture of what their roles would be in relation to each other and to the Province and new Ontario-wide body. Parties involved could then clearly assess and compare to the current system.

It is important to move forward with this in the way recommended by the Advisory Council: through a Working Group involving municipalities, the Province and providers, to sort through the detailed financial, legal and administrative implementation issues.

Range of Views of Key Parties Involved:

The Advisory Council achieved a remarkable consensus between the main parties involved about the direction to pursue. While key players from the municipal, housing sector, and provincial world have been involved, it will be necessary to build a broader understanding and consensus.

There remain some differences between various housing providers, municipalities, and the Province. For example, such differences are reflected in the reservation, spelled out in the Advisory Council report, that certain co-op and community-based providers may prefer to keep existing operating agreements. There is some concern over the proposal that providers have a long-term obligation to repay the "unaffordable" debt, beyond the 25-year termination point of today's operating agreements. There is wariness of the idea that municipalities may do income verification (for calculating geared-to-income rents) on a centralized basis. There will be special issues in the case of "special needs" or "low-income singles" housing providers, whose rent revenues cannot cover day-to-day operating costs let alone debt service, and some of whom have additional funding from other provincial ministries.

It will be important to construct a partnership between the municipal sector and the housing sector organizations, to work through such issues in the reform process.

Ultimately, the Province will have to make a decision on whether and to what extent it will legislate a replacement of existing operating agreements in the case of those providers who prefer the current arrangement. The new City of Toronto will also need to take positions on the more detailed version of these proposals once they get to a more developed stage.

Confirming Repair Liabilities:

The proposals recognize the need for adequate provision for capital reserve funds for future repairs to non-profit housing, but do not address directly the question of repairs to older public housing. As Council is aware, this is a big potential liability. There is a need to systematically arrive at an agreed assessment of the needs and potential funding liabilities before devolution takes place. A comprehensive study of repair needs and funding requirements should be undertaken as part of the proposed Working Group process that will move toward implementation. This must involve building-by-building "technical audits" of older housing stock, not just sampling, to project the precise future requirements.

Resolving the Future of OHC Public Housing:

The proposal to harmonize public housing owned by Ontario Housing Corporation with non-profit housing will be important for the new City of Toronto. Once the municipality is funding half the subsidy costs of the Metropolitan Toronto Housing Authority (MTHA), there will be a need to integrate the management of MTHA with other publicly-owned housing, and give the community and the municipality a significant say in decisions. It is also desirable to move toward more income-mixing in various MTHA communities. The Advisory Council recommendations are an effective way to move in these directions.

The Advisory Council did not put forward a clear recommendation on the issue of ownership of OHC. It found it difficult to recommend a no-cost transfer to municipalities of a large provincial asset created with federal and provincial funding; on the other hand, municipalities would sooner or later raise objections to having a funding role but no ownership. In the case of Metro, the OHC/MTHA stock is old and needs regeneration and redevelopment. A few sites revert in the long term to the City; others are immediately adjacent to Metro Housing Company sites, which presents opportunities and need for collaborative regeneration or redevelopment. Municipal ownership of MTHA is desirable if the City is to have the ability to plan the long-term future of the housing it will be funding.

The question of expiring funding agreements, identified in the report, will become a large concern for the new City of Toronto, where operating agreements and subsidies will start expiring beginning in 2007 (for the oldest MTHCL building), leaving projects non-viable on geared-to-income rent revenues. An Advisory Council type process would be a way to force attention to this issue. It could also force attention to the fact that federal devolution agreements signed with other provinces and proposed for Ontario provide for exactly such tailing off of total federal funding.

Role for Sector Organizations:

A key part of the recommendations is to have a "peer-based" system of accreditation, management support, and troubleshooting. Existing housing sector organizations perform some of this organization support role already, and are the logical choice to carry out expanded functions under a mandate from a new province-wide housing body. The existing organizations are the Ontario Non Profit Housing Association, the Cooperative Housing Federation of Canada - Ontario Region, and the Co-op Housing Federation of Toronto (and counterparts in other cities). A peer-based system of advice and troubleshooting can provide preventive steps that will keep various situations from becoming "problems" that the municipality must step in and resolve. This will ensure a simplified and less costly program administration role for the municipalities.

Federal Devolution and Federal Concurrence:

The Advisory Council recommendations would require federal (CMHC) concurrence in order to implement them, for the large majority of social housing which is jointly funded. Previous reports to Metro Council have described the federal intention to devolve to the provinces the housing programs CMHC administers. While federal devolution, in and of itself, could have negative consequences, program reform can turn it into an opportunity to rationalize today's complex system. Various outcomes are possible, depending on federal positions on housing devolution and on program reform. Program reform could apply to virtually all social housing units or conceivably only to the majority of social housing units which are in provincially-administered programs. Either way, federal involvement will be required in working through the reform proposals in detail.

New City or GTA Responsibility:

Within Greater Toronto, the provincial intention to pool the costs of social housing and various other community services costs presents a special set of questions. Costs that are pooled GTA-wide could be administered either individually by the five GTA unitary/upper-tier municipalities (including the new City of Toronto), or by a GTA-wide body. The detailed implementation planning would need to resolve this issue.