Learn the Budget Basics
The City of Toronto’s many services keep our neighbourhoods safe and vibrant, encourage business growth and investments, and make Toronto welcoming for visitors from around the world.
Garbage collection, public libraries, road repair, TTC, recreation programs, childcare, water testing, police, fire and emergency medical response are all municipal services the City provides. Many of the City’s 150+ services are provided 24 hours a day, seven days a week.
It is important to understand how the City budget works, and the steps involved leading up to finalizing the budget.
The City’s budget is a financial plan that describes how much money the City will bring in and spend within a year. It determines the level of service provided to Toronto residents and guides decisions on what City infrastructure – roads, buildings and public transit –will be purchased, built and repaired.
The operating budget covers day-to-day spending on services such as recreation programs, parks maintenance, public health, city roads, transit, police and other emergency services. Approximately 32 per cent of the funds for the operating budget comes from property taxes. The remainder comes from provincial grants and subsidies, as well as user fees.
The capital budget funds the City’s infrastructure that supports service delivery. It pays for the construction and repair of transit, roads, bridges, public buildings such as libraries, community centres and fire stations, and parks. The City of Toronto updates and presents a new 10-year Capital Budget and Plan each year as part of the budget process. The capital budget is primarily funded from reserves, development charges, other levels of government and by borrowing funds.
The City also has three rate supported programs: Toronto Water, Solid Waste Management Services and the Toronto Parking Authority. These programs are funded almost entirely by the user in the form of fees. For example, water and garbage and recycling costs are calculated by how much water is used and the size of the garbage bin. In turn, the revenue collected from these user fees pays for the services that are provided and the infrastructure to deliver them.
The accounting process of allocating the cost less the residual value of a tangible capital asset to operating periods as an expense over its useful life in a rational and systematic manner appropriate to its nature and use. Depreciation accounting is anther commonly used term to describe the amortization of tangible capital assets.
The costs of several of the City’s services are shared between the City and other levels of government. For example shelters, daycare, emergency medical services, public health and income support programs are funded by both the City and the Province of Ontario.
The difference between ‘gross’ and ‘net’ costs
The gross is the total cost to deliver programs and services. This expenditure is offset by funding and subsidies for cost-shared services as well as fees and charges for programs and services. The difference between gross expenditure and these revenue sources is the net budget, which is the amount of the operating budget that is paid for by your property taxes.
Budget surpluses and deficits
A surplus occurs when the City either spends less than it thought it would, or raises more revenue than predicted. The City has a policy to use 75 per cent of operating budget surpluses to fund infrastructure projects in the capital budget and 25 per cent to top-up reserves to meet City obligations. The City of Toronto has never had a deficit, as provincial law requires the City to balance its budget. A deficit would occur if the City’s expenses were greater than its revenues, or if the City collected less revenue than it anticipated.
Balancing the budget
The City is required by provincial law to balance its operating and capital budgets each year – which means that the money spent must be equal to the money raised. To balance the budget, the City can either increase its revenues using tools such as property taxes and fees, or through managing expenses by changing or reducing the cost of services.
The budget is reviewed, debated, changed and approved by the Budget Committee, Executive Committee and finally City Council.
Each year, City staff put forward a preliminary budget. The Mayor and City Council, with input from Toronto residents and businesses, then make decisions about the City’s services, programs and infrastructure and approve the City’s final budget.