April 21, 1998

  To:Strategic Policies and Priorities Committee

 From:City Clerk

 Subject:Provincial Downloading - Updated Estimates

 Recommendations:

 The Budget Committee on April 20, 1998, recommended to the Strategic Policies and Priorities Committee, and Council:

 (1)the adoption of the report (April 17, 1998) from the Chief Financial Officer and Treasurer; and

 (2)that the Chief Financial Officer and Treasurer communicate with the Province prior to April 24, 1998 as to what her estimate is of the residential tax room and how the figures were determined.

 Background:

 The Budget Committee on April 20, 1998, had before it a report (April 17, 1998) from the Chief Financial Officer and Treasurer regarding an update of the financial impact of provincial downloading initiatives on the 1998 Operating Budget.

 City Clerk

 Barbara Liddiard/rc/cp

Item No. 11

Attachment

 c.Chief Financial Officer and Treasurer

Chief Administrative Officer

(Report dated April 17, 1998, addressed to the

Budget Committee from the

Chief Financial Officer and Treasurer)

 Purpose:

 This report provides an update of the financial impact of Provincial downloading initiatives on the 1998 Operating Budget.

 Funding Sources, Financial Implications and Impact Statement:

 The budget impact of Provincial downloading, based on the latest estimates, has been reduced by $32.3 million from the December 12, 1997 amount of $163.5 million to $131.2 million. $22.9 million is already reflected in the 1998 Budget, therefore, the remaining budget reduction totals $9.4 million to various program areas (as noted in the recommendations). The details of the Provincial calculation of the Residential Education Tax Room is to be confirmed and may have a negative impact on the budget in the approximate amount of $16 million.

 Recommendations:

 Approve adjustments to the 1998 Operating Budget for the following programs:

 Net Change ($ Millions)

Program Increase (Decrease)

 Hostels(3.1)

Income & Skills Support(1.9)

Children=s Services(1.7)

Housing 1.1

Property Assessment(3.8)

 Net Adjustment(9.4)

 Council Reference/Background/History:

N/A.

 Discussion:

 Province-Wide Impact

 In May of 1997, the Province announced details on the financial impact of its AWho Does What@ proposals. Service and funding responsibilities totalling $3 billion will be downloaded to Ontario=s 815 municipalities in exchange for the Province=s assumption of $2.5 billion in residential education taxes. In addition, the Province eliminated municipal support grants totalling $665 million. The Province announced that the swap in service responsibilities would be revenue neutral for municipalities.

City of Toronto Impact

 Under the original downloading proposal, the new City of Toronto stood to come up $375 million short. On August 6, 1997, the Province decided to pool the cost of Welfare, Social Housing, Ambulance Services, Child Care and Public Health across the Greater Toronto Area. This shifted more of the financial impact to the 905-areas and reduced the impact on Toronto to $84.4 million. On October 6, 1997, the Education Tax Room amount changed and the net impact on Toronto was reduced to $65.9 million.

 On December 12, 1997, the Province modified the pooling equation by eliminating Public Health, Child Care and Land Ambulance services from the pooled services and increasing Toronto=s share of GO Transit costs. As a result, Toronto=s shortfall increased from $65.9 million to $163.5 million. Adjusting for the known base amounts in the City=s budget, the net financial impact, currently reflected in the 1998 Budget, is $140.6 million.

 On April 3, 1998, the Province provided a further update to the numbers. The latest downloading estimates totalled $157.1 million. Adjusting for the known base amounts in the 1998 Budget, the resultant net impact on the budget is $131.2 million.

 Based on a formula provided by the Province, a preliminary calculation reveals that Toronto=s share of the Residential Education Tax Room could potentially be revised downward to $557.4 million, and will have a negative impact of approximately $16 million on the 1998 Budget which would revise the net downloading impact to $147.2 million.

 The potential tax room allocation for Toronto is less than the 50% share (47percent or $30 million less) of total residential education taxes needed to offset the new downloaded costs. The exchange of service responsibilities is not revenue neutral, with the shortfall in residential education tax room a major factor behind the additional downloaded costs faced by Toronto . The revised tax room calculation or confirmation of the previous amount has yet to be clarified by the Province.

 Minor adjustments to various program areas result in a $9.4 million net reduction and relate to changes to Provincial cost sharing and further fine-tuning of the estimates:

 HostelsReduce by $3.1 million

Income Skills & SupportReduce by $1.9 million

Children=s Services Reduce by $1.7 million

HousingIncrease by $1.1 million

Property AssessmentReduce by $3.8 million

 Net AdjustmentReduction of $9.4 million

 A complete history and updated impact of Provincial downloading is summarized in Appendix A.

 Implications:

 Several concerns over the downloading of services for the new City of Toronto have been identified and continues to be monitored. Specifically, there are many additional costs that are not included in the downloading estimates:

• Transition costs for Social Services, Child Care and Social Housing are estimated at $11.2 million and, at this time, are required in 1998.

• Administrative costs of Social Housing is expected to be $10.0 million on an annualized basis. Although the timing of this impact is not known, it is probably not a 1998 issue.

• Capital provisions in the restructuring funds for transit, housing and water & sewer may not be adequate to support future requirements.

 Capital deficiencies related to Social Housing were previously estimated at $260 million over five years, with the majority of the deficiencies related to Ontario Housing Corporation assets. The actual budget impact continues to be identified and refined.

 The capital subsidy loss for the Toronto Transit Commission will reach $180 million per year by the year 2001. This impact has not been recognized by the Province as a direct downloading cost due to the timing of its announcement and its deferred impact.

• Some programs now mandated by the Province (e.g. Daycare, Housing, Public Health), were previously discretionary and now will be 100% municipally funded and are not all considered part of the GTA pooling.

 Access to Provincial Funds:

 The Province has set up a series of funds worth about $900 million to help municipalities cope with some of the downloaded costs. Originally, Toronto was not eligible to access these funds since the Province assumed the City had a larger tax assessment base and had more room to find efficiency savings.

 However, the Province has indicated that $53.3 million may be allocated to Toronto from the Municipal Capital and Operating Restructuring Fund. This one-time funding may be available to provide for capital projects under the Transportation Program. This may provide the City with some additional flexibility in the Capital Program. Further clarification is being sought from the Province.

 Conclusions:

 With the changing roles and responsibilities driven by Provincial legislation, the nature of the business of local government has been dramatically re-defined. Provincial downloading has placed significant financial pressures on Toronto=s operating and capital budgets, for 1998 and beyond.

 In the 1998 operating budget, Toronto has identified offsets to its own internal budget pressures primarily through restructuring and efficiency savings. Although the updated estimates of Provincial downloaded costs are lower than originally expected, the City must still address remaining operating budget pressures of $117.6 million.

 Remaining 1998 budget pressures (as at April 3, 1998)$127.0 million

Additional program adjustments:

(Hostels, Income & Skills Support, Children=s Services, Housing

Property Assessment)($9.4 million)

Remaining 1998 budget pressures (as at April 20, 1998)$117.6 million *

 *(These pressures could change, pending clarification of the Province=s calculation of the Residential Education Tax Room:)

 Options to address the remaining budget pressures have been outlined in a separate report to Budget Committee.

 Contact Name:

 Shekhar Prasad, 392-8095

 Appendix A

 Provincial Estimate of Downloaded Costs

New City of Toronto

($ Millions)

 *Latest Provincial estimate has been adjusted to reflect known budget base amounts for Public Health, Ambulance, Children=s Aid, Transit and Gross Receipts Tax. Provincial Offences Net Revenue adjusted for part-year impact in 1998.

 **Residential Education Tax Room calculation to be confirmed by the Province.