This information is part of a series of Notes on key City issues to update City Council at the start of its 2018 – 2022 term.

 

The City’s financial policies, practices and frameworks enable Toronto to sit at or near the top of international rankings for quality of life, safety and tax competitiveness.

Toronto, like other large cities, is facing challenges that include the following: significant population growth, aging infrastructure, increasing traffic congestion, shortage of affordable housing, and rising poverty, homelessness and refugee claimants, among others.  In response, the City has implemented various strategies to addresses those challenges.

To deliver legislatively mandated services and emerging priorities in tandem, the City maximizes its financial resources to deliver a wide range of programs and services that extend beyond the mandate of most municipalities in Ontario.   Through continuous improvement initiatives and a reliable revenue stream mainly through Property Taxes, User Fees and grants from the Provincial and Federal Governments, the City has maintained service levels over the years.  With the growth in Municipal Land Transfer Tax (MLTT) revenue, the City was able to add and enhance services to advance positive outcomes in poverty reduction, environmental sustainability, housing for refugees and improvements to public transit, to name a few.  Sustainability of enhanced services and service levels are contingent on maintaining the MLTT revenue.

With respect to addressing the capital infrastructure priorities, several strategies have been implemented that include the following: realigning capital cash flow funding to better match project spending, implementing stage-gating for major capital projects, and incorporating the 2 cent increase in Ontario gas tax funding into the 10-year Capital Plan, additional debt capacity was made available to add in new capital projects that met Council’s budget direction.  Thus, the City has also made significant investments to maintain its extensive infrastructure and quality of life. Currently, half of the City’s $40 billion, 10-year capital budget and plan is dedicated to funding “State of Good Repair (SOGR)” projects which help to maintain and protect infrastructure. The other half of the City’s 10-year capital budget and plan is funding in the areas of public transit and transportation (e.g. SmartTrack, Scarborough Subway Extension) and other key priority areas (e.g. George Street Revitalization and expansion plans for Shelter sites).

 

The City of Toronto is committed to demonstrating accountability and has recognized the importance of long-term planning and priority-setting.  To provide a strategic approach that supports sound decision-making with meaningful information to assess policy impacts and service performance, and to demonstrate value in how monies have been spent, the City employs an integrated planning and performance framework that incorporates leading practices.  The framework is built upon an integrated multi-year approach designed on the principles of priority setting, multi-year planning and budgets, performance-focussed monitoring, evaluation, reporting and continuous improvement.

The City’s Integrated Planning and Performance Framework provides a strategic process that connects City Council’s goals to service objectives and multi-year budgeting priorities.

The Integrated Planning and Performance Framework enables the City to:

  • Take a multi-year view to guide service planning, service-based budgeting and the allocation of resources.
  • Set performance measures and targets using an evidence-based approach based on results, performance-focussed, and outcomes where possible, to ensure that multi-year budgets meet the goals and directions set by Council.
  • Provide increased transparency and accountability regarding the services it delivers to the public.
  • Ensure resources are efficiently allocated to services to achieve long-term strategic outcomes.
  • Monitor results, performance measures, outcomes and impact of services; thus providing staff and Council with the added capacity to re-allocate resources based on short and long-term goals.

Currently, the City’s Operating Budget establishes a 3-year plan while the Capital Budget establishes a 10-year plan for the allocation of resources required to fund services and infrastructure needed by the community to meet City Council’s priorities and achieve the City’s strategic goals and outcomes. Both capital and operating budgets will be reaffirmed each year within the multi-year planning period to appropriate funds according to the City of Toronto Act.

This multi-year service-based budgeting approach enables City Programs and Agencies to set achievable objectives with realistic timeframes and provides a more efficient, systematic and consistent approach to allocate resources across all services (over 150 unique municipal services).  As well, the multi-year service-based budgeting approaching provides City Council and the public with commitments about service delivery based on funding in the budget each year.

Pyramid illustration of the The City's Integrated Planning and Performance Framework
The City’s Integrated Planning and Performance Framework

The Integrated Planning and Performance Framework incorporates best practices and proven methodologies to integrate and implement its major components: strategic planning, service planning, multi-year service-based budgeting, and performance-focussed monitoring and reporting and evaluation.

The Framework provides the foundation that will support the key principles and actions identified in the Long-Term Financial Plan (LTFP) that was presented to Executive Committee in March 2018. A key principle within the LTFP is that the Mayor and Executive Committee set the strategic directions and priorities for the City of Toronto in the beginning of the new term of Council to inform multi-year planning and budgeting. Guided by Council’s strategic goals and priorities, the allocation of resources would be linked to service objectives, targets and outcomes and results assessed through performance measures and monitoring.

The City’s budget is a financial plan that describes how much money the City will raise and spend within a year. It is the blueprint that aligns the City’s priorities with the services it delivers to residents and guides decisions on what City infrastructure will be purchased, built and repaired.

Each year, City staff put forward a preliminary budget, and then the Mayor and City Council − with input from Toronto residents and businesses − make decisions about City services, programs and infrastructure and approve the City’s final budget.

City Council approves the operating budget for each City Program or Agency comprised of the following components:

  • Total gross expenditures, as summed by the individual expense categories, required to fund the total cost of providing the services,
  • Total revenue as summed by the individual non-tax revenue sources,
  • The resultant net expenditures that result in the level of residual tax-supported or rate-supported funding required to balance the Operating Budget;
  • Service levels by service; and
  • Staff complement (permanent and temporary positions funded by both the operating and capital budgets).

In considering the 10-year capital budget and plan, City Council approves the following components:

  • Total project cost and funding sources for each capital project/sub-project;
  • Current year cash flow funding estimates
  • Future year cash flow funding commitments which are the expenditures related to a capital project/sub-project which will not be incurred in the current year but are required in subsequent years based on the stages, scope and contractual obligations of the capital project; and
  • Future year estimates for planned projects, in principle only.

The City of Toronto Act (CoTA), sub-section 228 (1) states that the City shall in each year prepare and adopt a budget including estimates of all sums required during the year for the purpose of continuing the business of the City.  The COTA sub-section 229 (1) also allows City Council to adopt a multi-year budget of 2 to 5 years in length provided that it is reviewed and confirmed on an annual basis within the multi-year planning period.

The City of Toronto cannot incur a deficit. By provincial law, the City is required to balance its operating budget each year. In other words, the money spent must be equal to the money raised. To balance the operating budget, the City maximizes all non-tax funding sources first (program-specific reserve funds, user fees, Provincial / Federal transfers, and other 3rd party and corporate revenues) to minimize the reliance on property tax funding, which is the funding source of last resort.  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 CoTA permits the City to borrow funds (issue debt) to finance capital expenditures.  Similarly, the City maximizes all non-debt financing sources first (Federal/Provincial transfers, program-specific reserve funds, development charge funding, capital contribution from the operating budget (Capital from Current) to fund its capital programs, minimizing debt funding and ultimately the impact that servicing debt has on the operating budget.  In establishing debt affordability targets, the City restricts its debt service cost limit to no more than an average of 15 percent of property tax revenues over the 10 year Capital planning timeframe.

Each year, City Programs and Agencies develop an annual operating budget with a 2-year plan and a 10-year capital budget and plan based on City Council approved budget submission directions and targets and established financial planning policies and guidelines. As part of the Administrative Review phase of the budget process, the City Manager (CM), Chief Financial Officer (CFO) and the Executive Director of Financial Planning review all City Program and Agency budget submissions to ensure that resources are allocated efficiently and effectively to City services and key priorities. The Public Review phase officially begins when the budget is launched for Budget Committee’s consideration and review that includes public input, followed by Executive Committee’s review and recommendation to Council and subsequent review, and adoption by City Council.

The City’s fiscal year is the calendar year, and City Council establishes its budget as early in the calendar as possible.  In a non-election year, the Rate-Supported Operating and Capital Budgets are normally approved by December of the previous year so that rates changes are in place for the upcoming fiscal year.  The Tax-Supported Operating and Capital Budgets are approved early in the budget year (i.e. mid-February).

Below is the timetable of the 2018 Budget process for Tax Supported Programs.

2018 Budget Process
Budget Submission – May to August 2017
  • Early May 2017  – Council Directions, Budget Process and Schedule
  • End of May 2017 – Budget Submission Guidelines and Instructions to City Divisions
  • June 12, 2017 – Base Budget Submission
  • August 2, 2017 – Budget Reduction Options and New Requests
Administrative Review – July to October 2017
  • July to September 2017 – Review by Executive Director, Financial Planning
  • October 2017 to November 2017 – Reviews of Budget by City Manager and Chief Financial Officer
Political Review – November 2017 to February 2018
  • November 30, 2017 – Budget Committee Public Launch of Budget
  • December 12 to 18, 2017 – Briefings for Budget Committee
  • January 8 to 10, 2018 – Public Deputations to Budget Committee
  • February 6, 2018 – Executive Committee Review
  • February 12 and 13, 2018 – City Council Approval of Budget

 

During an election year, however, the timeframe for the public launch is delayed to January in the following year after Committee membership is established and Committees begin their meeting cycles for the new term of Council.  At its first meeting in December, the incoming City Council must approve a budget schedule that facilitates approval and adoption of the 2019 operating and 2019 – 2028 capital budget and plan for both Rate and Tax-Supported Programs in the budget year.

Along with the City of Toronto Act, the City has its Chapter 71, Financial Control By-law within the Toronto Municipal Code which is a key governance instrument in managing public resources, contributing to sound financial decision-making and enhanced accountability and transparency in managing the financial affairs of the City.

The establishment of the City’s financial management and control provisions including the City budget are grounded in the following guiding principles:

  • As the financial stewards of public resources, City Council is accountable for the efficient and effective allocation of resources to fund services and infrastructure to meet priorities and achieve its annual and multi-year goals.
  • The Budget is the primary financial policy document by which City Council appropriates funds and provides staff with spending authority to achieve their purpose and any changes to the value or purpose of those recommended funds require City Council approval.  The Budget serves as the basis of financial accountability.
  • The City must have transparent and accountable practices in place that command the trust and confidence in the use and management of public resources.

The City’s current financial reporting requirements to City Council is guided by the following principles:

  • The City is committed to transparency and accountability by establishing a standard basis for reporting all financial information to City Council and its Committees.
  • City Council and its Committees, in making decisions, should have full knowledge of financial implications before approving matters that impact current and future years.

In addition, the City is committed to ensuring an appropriate balance of accountability, transparency and agility in other financial management activities regarding Commitments, Donations, Sponsorships, and Schedule ‘A’ (authority to pay certain expenditure accounts outside the procurement process).

The City has a range of financial reporting responsibilities to various stakeholders, including City Council and the public.  Reporting is a critical component of good financial stewardship as it ensures accountability and transparency through the provision of meaningful information that will facilitate informed decisions.

The City’s current financial reporting practices to City Council and the public include operating and capital budget variance reporting, major capital project reporting, capital project closures, and financial reporting protocols, guided by the Financial Management and Control By-law.

Budget Variance Reporting

The year-end operating variance report is based on audited results and also addresses the disposition of any year-end surplus in accordance with the City’s Surplus Management Policy that provides 75% of the surplus be contributed to the Capital Financing Reserve Fund; and the remaining 25% to fund any under-funded liabilities, and/or reserves/reserve funds, as determined by the Chief Financial Officer.

At year-end, any operating surplus will be allocated based on the City’s surplus allocation policy and the demands for reserve contribution to restore depleting reserve or reserve fund in order to avoid service or payment disruption.  For unspent funds in a completed capital project prior to closure, the funds must be returned to their sources or approval must be south for a capital reallocation pursuant to the Financial Management and Control By-law.

Major Capital Project Reporting

The City has a range of financial reporting responsibilities to various stakeholders, including City Council and the public.  Reporting is a critical component of good financial stewardship as it ensures accountability and transparency through the provision of meaningful information that will facilitate informed decisions.

The City’s current financial reporting practices to City Council and the public include operating and capital budget variance reporting, major capital project reporting, capital project closures, and financial reporting protocols, guided by the Financial Management and Control By-law.

Budget Variance Reporting

Currently, the City prepares quarterly and year-end variance reports for both operating and capital actual spending against budgets at Program and Agency level. The variance reports also include non-financial information such as complement variance reporting and resultant vacancy rates for services and project delivery for operating, and capital project delivery; major capital project status reporting and capital project closures.  Any in-year budget adjustment requests are managed and controlled through the quarterly variance reports or stand-alone reports for Council approval, or through the delegated financial authority process governed by the Financial Control By-law.

The year-end operating variance report is based on audited results and also addresses the disposition of any year-end surplus in accordance with the City’s Surplus Management Policy that provides 75% of the surplus be contributed to the Capital Financing Reserve Fund; and the remaining 25% to fund any under-funded liabilities, and/or reserves/reserve funds, as determined by the Chief Financial Officer.

At year-end, any operating surplus will be allocated based on the City’s surplus allocation policy and the demands for reserve contribution to restore depleting reserve or reserve fund in order to avoid service or payment disruption.  For unspent funds in a completed capital project prior to closure, the funds must be returned to their sources or approval must be south for a capital reallocation pursuant to the Financial Management and Control By-law.

Major Capital Project Reporting

The City provides additional status reporting on all major capital projects as a means to strengthen accountability, manage risks, improve controls, and ensure successful completion and implementation of major capital projects. This is done through periodic updates to the appropriate Committees and City Council are required throughout the lifecycle as follows:

  • Initial project approval based on the results of a feasibility study with a schedule, milestones, and financial information.
  • Ongoing status reporting through the quarterly variance report
  • Stand-alone reporting for any changes in major thresholds established during the initial project approval including cost escalation, delays in milestones / deliverables or changes to anticipated operating impacts, ongoing maintenance or financial and operation benefits.
  • Project completion reporting prior to closure

Financial reporting Protocols

Staff reports are currently submitted to a Standing Committee, Community Council, and City Council throughout the year for the purpose of either providing information or advice and seeking approval or direction on a municipal matter.

The Financial Control By-Law provides direction on certain information that must be included in the financial impact section of a staff report before it can be submitted to a Standing Committee, Community Council or City Council.  The Financial Control By-law also stipulates that the Chief Financial Officer must review the report and agree with the financial implications identified in the report prior to the report’s submission.  If not in agreement, the Chief Financial Officer may submit a companion report with recommendations respecting the financial implications.

The City of Toronto’s many services keep homes and 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 and fire and emergency medical response are all examples of municipal services the City provides every day. Many of these services are provided 24 hours a day, seven days a week. In the 2018 operating budget, the total cost to deliver these services to Toronto residents was $13.050 billion.

The City offers more than 155 unique services to the residents, businesses and visitors of Toronto. In order to maintain these services and service levels, the City is challenged annually to ensure sufficient funding is available to maintain the quality and level of current services while providing funding for strategic investments in City services to meet public needs and demands.

The 2018 Approved Operating Budget of $13.0 billion is composed of:

  • A Tax-Supported Operating Budget of $11.1 billion (City Programs and Agencies)
  • A Rate-Supported Operating Budget of $1.9 billion for Toronto Parking Authority, Solid Waste Management Services and Toronto Water Services which are fully funded by user fees or rates.

 

Pie Chart illustrating City's Operating Budget in 2018 (in millions of dollars)
City Operating Budget in 2018 (in millions of dollars)

The above chart provides a further breakdown of 2018 gross operating expenditures by City Program/Agency, noting that approximately 24 per cent of the 2018 operating budget of $13.0 billion is spent on services that the City has no direct control over as they are mandated and/or cost-shared with the Province.  These expenditures consist of Toronto Employment and Social Services, Children’s Services, Toronto Public Health, Long-Term Care Homes and Services, and Shelter, Support and Housing Administration which includes the City’s subsidy for Toronto Community Housing Corporation.

The next largest segment is Transportation and Toronto Transit Commission services which together account for 18 per cent while emergency services, which include the Toronto Police, Fire, and Paramedic Services, represent approximately 14 per cent of the City’s total gross expenditures.

The Rate-Supported operating budget of $1.9 billion for Toronto Parking Authority, Solid Waste Management Services and Toronto Water Services, which represents 14 per cent of the 2018 operating budget, is fully funded by user fees or rates.

These services, altogether, plus the funding allocation to the repayment of capital financing and debt charges represent 77 per cent of the City of Toronto’s total spending.  It is critical that the City continues to manage its debt borrowing as debt repayment (principal and interest) must be funded within the City’s operating budget.  The higher these debt serving costs, the less funding that becomes available for the delivery of City services.  Overall, less than 25 per cent of other service expenditures are directly managed by the City.

The City receives funds to pay for services from four primary sources, with the largest being Property Taxes. About 32 percent of the funds for the operating budget are generated property taxes. The remaining revenue is received from provincial grants and subsidies based on various funding agreements, as well as user fees and charges for certain City services.

Property Tax

The City’s largest source of revenue is the Property Tax. In 2018, the City collected $4.2 billion in property taxes. City Council determines the tax rate increase annually through the budget process and subsequently through by-law. The City also collects property taxes on behalf of the Province of Ontario in order to help pay for education.

Property taxes are used to fund the operations of emergency services, such as police and fire services; transit and transportation services, such as roads and transit services; and recreation services, such as parks, community centres, and libraries. These represent about 32 percent of its Operating Budget.

When translated into an average tax bill of $2,907 for the average value of a home assessed at $624,418 the chart below shows how 2018 property taxes will be spent based on the approved 2.1 per cent residential property tax rate increase.

Where the Money Comes From ($ Millions)

Pie chart illustrating the City's Operating Revenues in 2018 (in millions of dollars)
City Operating Revenues in 2018 (in millions of dollars)

 

How Your Tax Dollar Works for You in 2018

Bar graph showing where property tax dollars go: a large portion goes to the Police Services & Board, and the least goes to Economic Development & Culture, and OtherAs illustrated above, 78% of the property tax revenue is spent on 5 services and debt servicing costs. Approximately 23% of property taxes paid goes to fund the Toronto Police Service and Board. Meanwhile, TTC and Emergency Services, including Toronto Police Service, Toronto Fire Services and Toronto Paramedic Services, account for more than half of the average taxes paid by households.

With 13% spent on Debt Charges, it is critical that the City manages its debt borrowing as debt repayment must be funded within the City’s Operating Budget.  The higher these debt servicing costs, the less funding is available for the delivery of City services. The City policy that ensures debt charges at 15% of property taxes over a 10 year period assists in constraining debt costs.

Municipal Land Transfer Tax

The Municipal Land Transfer Tax was introduced in 2008 as a tax on the sale of land. Municipal Land Transfer Tax provides approximately 9 percent of the City’s own-source revenue and has increased dramatically over the recent past. The Municipal Land Transfer Tax remains a sources of revenue strongly tied to the growth of real estate market sales for continued tax revenue growth, however it has been repeatedly used to fund recurring expenses of the City. A flattening of real estate market growth, or a potential market decline, will present funding pressures for the City.

User Fees

User fees account for 28 per cent of the City’s revenue. Toronto Water, Solid Waste Management Services and Toronto Parking Authority are funded entirely by the user in the form of fees. In turn, the revenue collected from these user fees pays for the services that are provided and the infrastructure to deliver them.

The Toronto Transit Commission is partially funded through user fees through transit fares. The TTC collected $1.2 billion in transit fare revenue in 2018, which paid for 63 percent of the cost of operating the TTC. This is considerably more than other large transit operators in North America.

The policy of managing the user fee program can be found at the link below: https://www.toronto.ca/legdocs/mmis/2011/ex/bgrd/backgroundfile-40701.pdf

Program and Agency Heads are accountable for ensuring that user fees are appropriately set, collected, deposited, and administered in compliance with the principles set out in the User Fee Policy.  The fundamental principles of the policy are that user fees:

  • Be applied to those City services and products that provide a direct benefit on individuals, identifiable groups or businesses; and
  • Be established to recover the full cost (direct and indirect) of those products and or services, to the extent that there is no conflict with other policies or legislative requirements.

Authority is granted to the Chief Financial Officer to determine automatic annual inflationary adjustments that are applied to each user fee for which City Council has approved an automatic annual inflationary adjustments.

In addition to new user fees and changes to existing user fees, City Council must approve waivers and exemptions, and subsidies (user fee is less than the full cost of providing the service). However, an annual inflationary adjustment is automatically applied effective January 1 every year.

User fees are reviewed annually as part of the budget process in order to confirm their adequacy to recover the full cost of the associated service and where required, to recommend appropriate adjustments through the budget process.  A comprehensive review of all user fees is conducted at least once every four years to ensure relevance and conformance with best practices.

All user fees will be included in Chapter 441 of the City of Toronto Municipal Code.  Chapter 441 will be updated to reflect the adoption of new fees or changes to existing user fees at the City Council meeting immediately following the meeting at which the fee approval was obtained.

Provincial and Federal Transfers

The City receives grants and subsidies from other orders of government which are mainly for mandated programs such as Social Assistance, Child Care, Public Health, Social Housing and some Transit capital funding.

These transfers represent about 18 percent of its Operating Budget.

The City of Toronto cannot budget for an operating budget deficit. The City is required by provincial law to balance its budget 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, or service levels.

In addition to the operating budget, the City prepares a 10-Year capital budget and plan. The capital budget funds the City’s assets that support service delivery. It pays for the construction and repair of transit, roads, bridges, public buildings (such as libraries, community centres and fire stations), water and sewer facilities, parks and other major infrastructure projects. The City of Toronto updates and presents a new 10- year Capital Budget and Plan each year as part of the annual budget process. The capital budget is funded from reserves, development charges, other levels of government, and by borrowing funds or taking on debt.

When creating a 10 year capital budget plan Council considers:

  • Funding for projects that have already been approved, including, the total costs of approved projects, changes to the scope of approved projects, and any unspent funding that can be carried forward from prior years to complete projects.
  • Planned estimates and funding sources for each project for the 10 year time horizon. For example, the Provincial or Federal Government could announce spending for a project, which would need to be reflected in the plan.
  • The amount of debt that can be spent during the budget year and the remaining 9 years of the Capital Plan.

The 2018 – 2027 Council approved capital budget and plan of $39.8 billion is composed of:

  • A Tax-Supported Capital Budget and Plan of $25.9 billion (City Programs and Agencies)
  • A Rate-Supported Capital Budget and Plan of $13.9 billion for Toronto Parking Authority, Solid Waste Management Services and Toronto Water Services which are fully funded by user fees or rates.

Where the Money Goes ($ Millions)

Pie Chart illustrating City of Toronto Planned Capital Spending, 2018-2027 (in millions of dollars)
Planned Capital Spending, 2018-2027 (in millions of dollars)

The above chart provides a breakdown of how the $39.8 billion capital program is spent amongst City Programs, Agencies and specific initiatives. Around $18.8 billion or 48 per cent of the 10-year Capital Budget and Plan is dedicated to Transit and Transportation Services to projects such as the purchase of buses and streetcars, subway expansion, Smart Track and the Gardiner Expressway Rehabilitation, to name a few.  Despite the City’s sizeable investment in transit, there remains the need for a partnership between the Government of Canada, the Province of Ontario and the City of Toronto for a dedicated, long term, stable funding plan.

The City prioritizes and addresses various capital needs based on five project categories. Over the 10-year period, $19.6 billion or 49 per cent is dedicated to State of Good Repair (SOGR) projects. This reflects the City’s commitment to ensuring its assets and infrastructures are able to support service delivery to meet service outcomes.

Approximately $17.6 billion or 44 per cent of capital funding is dedicated to service improvement and growth related capital projects in order to meet service needs arising from the City’s growth, such as Transit and Transportation improvements including SmartTrack, the Scarborough Subway Extension (SSE) as well as other top priority projects such as the George Street Revitalization ($562.057 million), the Shelter Expansion ($178.560 million), Community Centres ($437.039 million) and Port Lands Flood Protection ($411.400 million) projects are also prominent in the 10-year Capital Plan.

The chart below identifies how the City utilizes various funding sources to fund the $39.8 billion 10-Year Capital Budget and Plan:

Where the Money Comes From ($ Millions)

Pie chart illustrating City of Toronto Planned Capital Funding, 2018-2027 (in millions of dollars)
Planned Capital Funding, 2018-2027 (in millions of dollars)

The primary sources of funding the 2018 – 2027 Capital Budget and Plan include $8.0 billion in Federal and Provincial subsidies including Provincial Gas Tax that has been allocated to the Toronto Transit Commission for transit projects.

Reserve and reserve funding mainly reflects the use of Capital Financing Reserve funding of $2.9 billion provided from the City’s non-debt capital financing strategies. Capital from Current in the amount of $5.6 billion over the 10-year period is also part of the non-debt capital financing strategies to minimize the reliance on debt.

Other funding sources include development charges for eligible capital projects that support growth and development across the City; donations and third party funding; and recoverable debt where the project costs will be repaid through their future stream of revenues and/or savings upon completion.

Rate-Supported Programs, which include Toronto Water, Solid Waste Management Services and Toronto Parking Authority, have their own capital reserves funded by the users in the form of fees, to finance their 10-Year Capital Budget and Plan totalling $13.9 billion collectively. No debenture financing is required for these programs’ capital investments.

Approximately 49 per cent of the funds spent in the capital budget and plan are for State of Good Repair (SOGR) projects, while 27 percent support service improvement with the remaining 24 percent allocated for growth, legislative and health and safety projects.

That State of Good Repair budget is driven by the fact that the City owns a significant amount of infrastructure which includes:

  • roads, expressways, bridges, traffic signal controls;
  • water and wastewater treatment facilities, distribution and collection pipes, reservoirs, pumping stations;
  • subways, streetcars, buses; and
  • civic centres, recreation facilities, public housing buildings, parkland and other lands.

This infrastructure, excluding land, is currently estimated to be worth over $84 billion.

City’s Physical Infrastructure Estimated Value
Transportation $15 Billion
Water and Wastewater $28 Billion
Public Transit $54 Billion
Buildings, facilities, and fleet $13 Billion
Toronto Community and Housing Corporation (TCHC) $9 Billion
Total $84 Billion

 

The 10-year Capital Budget and Plan will address the backlog in some key areas, such as the elimination of the Gardiner Expressway backlog, however funding is not keeping pace with the growth in SOGR needs, resulting in the growing backlog in some key Program areas.

As demonstrated in the chart below, when one excludes the Gardiner Expressway project from the City’s overall SOGR Backlog estimates, the City’s accumulated SOGR backlog is increasing over the 10-year period from $2.192 billion or 6.0 per cent of the total asset value in 2018 to $3.697 billion or 9.4 per cent of the total asset value by 2027.

SOGR Backlog as a Percentage of Total Asset Value (excluding the Gardiner Express)

 

 

The City of Toronto Act 2006 has specific debt regulations that apply to the City. The most important is that the City can use debt to pay for capital projects, but not for operating costs.

The City’s credit rating among the three credit rating agencies has not changed since 2001. DBRS and Standard & Poor’s both rate the City of Toronto at AA (Stable) while Moody’s Investor Services rates the City of Toronto at AA+ (Stable) – one notch below AAA.

The City has established a number of Reserves and Reserve Funds.

The major difference between Reserves and Reserve Funds is that all earnings (i.e. interest) from the investment of Reserve Funds must go back into the Reserve Fund, while the earnings from Reserves can be used to fund operating as investment revenue.

There are two types of Reserve Funds: Obligatory Reserve Funds and Council Directed Reserve Funds:

  • Obligatory Reserve Funds are funds received and set aside for specific purposes by legislation by the Federal or Provincial Governments or created as a result of contractual agreements.
  • Council Directed Reserve Funds are created by Council for specific purposes through by-law.

The City’s reserves and reserve funds stood at $4.5 billion as of December 31, 2017.

The vast majority of these funds are committed to fund projects identified in the ten year capital plan, and known future liabilities, leaving only a small portion available for discretionary spending. For example, the full balance of the Vehicle and Equipment Replacement Reserve is required to meet future vehicle and equipment replacements.

Effective January 1, 2018, a new provincial regulation allows the City to manage its investment funds pursuant to the prudent investor standard. The new regulation provides the opportunity to the City to invest in broader range of instruments to enhance the City’s long-term risk-adjusted investment returns. A new Council-approved Investment Policy now permits investments in equities and real assets in addition to fixed income.

Under this new framework, the Toronto Investment Board (Board) was established to manage the City’s investments. The Board is currently comprised of seven members including the City’s CFO and six other Toronto residents who have deep expertise in investment and governance.  The Board is expected to “exercise the care, skill, diligence and judgement that a prudent investor would exercise” in making investment decisions. The Board adopts and follows an Investment Plan that implements the Council-approved Investment Policy.