An eagle-eyed Spacing reader wrote this week to point out that Mayor Rob Ford and his chief bean counter Mike Del Grande are relying on a $25 million draw against the city’s reserves to help balance the 2011 budget with no property tax increase.
Anyone who’s hung around the giant clam in recent years knows that when Ford and his merry band of waste-busters were in opposition, they railed loudly and often about the perils of reserve raids.
In 2007, as Del Grande was bemoaning the city’s imminent bankruptcy, Doug Holyday told The National Post, “The fact is we’ve [taken] $384-million [from reserves], which would be a further 19% tax increase on top of what’s already 4%, it’s alarming.”
In 2009, the Responsible Government Group (RGG), which was chaired by Case Ootes and included several members of Ford’s executive committee, presented an alt-budget that called on council to put $44 million back into the welfare reserve. As the RGG’s folksy values statement noted, “We understand that you expect the City to manage its budget like you manage your own – by making the right tough choices, living within its means, keeping a bit of reserve for unexpected emergencies, and managing the budget for the benefit of the whole family. [Emphasis added].
I guess the moral math computes differently now that power has sloshed to the other side of council.
Ford’s pragmatic use of the reserves, combined with the hefty surplus bequeathed to him by the previous crew, is not only hypocritical. It also runs contrary to a very broadly supported “Long-Term Fiscal Plan” [PDF] approved by council during David Miller’s first term — something I noted in this space when the former mayor did his surplus surprise shtick last spring.
At its April 12-14, 2005, session, council adopted the plan, which specified, among other things, what the city should be doing with its operating surpluses:
“Starting with fiscal 2005…the Chief Financial Officer and Treasurer is authorized…to apply any additional surplus in priority order to: Capital Financing Reserve Fund (at least 75% of the additional surplus);
and
“The remainder to fund any under-funded liabilities; and/or reserves/reserve funds, as determined by the Chief Financial Officer and Treasurer…”
According to the minutes [PDF], Ford appears to have been absent that day, but Del Grande – and indeed most of council’s rightists – voted in support of this approach, with Scarborough’s best-known accountant even successfully moving an amendment designed to create more transparency in the capital budget.
Political expediency and the structural deficit trumped Miller’s attempts to prove he wasn’t just another free-spending lefty. Indeed, the previous council’s reliance on reserve funds draws combined with previous-year surpluses to make up budgetary shortfalls grew steadily and finally crested in 2008 ($282 million) before dipping somewhat in 2009 as part of a strategy to replenish those rainy day funds.
This year, the previous-year surplus and the “on-time” reserve draw (sic) in the budget add up to an impressive $307 million — $25 million more than in 2008, when the right was really squawking about such horrors.
If Ford and Del Grande genuinely had the gumption to adhere to the city’s extant policies, especially those few that actually seek to impose some fiscal discipline on council, they could have parked at least $200 million into a capital reserve fund, to be spent on, say, subways, or roads or other civic goodies.
As it happens, the City of Toronto per capita reserve level is “much lower” than the average of the other municipalities in the GTA ($1023 compared to $2173), according to the city’s 2009 financial statements [PDF], which went on to warn, “These one-time draws have somewhat limited the City’s future financial flexibility in responding to risk and adverse circumstances.”
Was definitely true in 2009. Still true today.
14 comments
Why do folks feel that there should be such a huge reserve. Where do people think this pool of money comes from if it doesn’t come out of residential taxes. If council were to adopt zero based budgeting as a premise and hold the City bureaucrats accountable to stay within their allocated budget then we might be a whole lot better off especially if we were to demonstrate fiscal responsibility as a basic starting point. Just an opinion.
All this reserve raiding could be avoided or severely curtailed if the ‘right’ weren’t just as afraid as the ‘left’ of people who hold parking permits!
Each passing year I grow more irritated that the city allows people to park for as little as $13 per month or .40c per day; and no greater than $43 per month or $1.30 per day.
I went on http://www.parkingspots.com, out of curiosity to see what a monthly spot would cost in various ‘permit’ neighbourhoods.
I found that it was impossible to get a space for under $50.00 per month in the cheapest of these areas; but the average was just over $100.00 with certain areas at up to $200.00 per month.
If the City were charging market-value; it would discourage a few people from owning (good for the environment, and makes it easier to find a spot if you are driving); but they would ultimately bring in way more money.
This should appeal to ‘right’ and ‘left’ equally, good for the environment and the City’s wallet, while being consistent with market-economics.
But neither side seems willing to learn or do what’s best for the City.
Market-rate permits and on-street rates (meters) would bring in countless millions in revenue (at least 10M per year, but probably more than double that)….
Oh well.
Why stop at permit parking? If you’re going to charge people to park in front of their homes, in their own neighbourhood, why stop at permit parking? Let’s go after the people who aren’t paying a red cent for their parking- those who have driveways and garages built into their homes! We should charge a fee based on square footage. This will, of course, penalize people with monster homes and long driveways… but fair’s fair.
@patrick What about snow removal? What if a main breaks? Some years (in a row even) there can be very little snow and others we get a monster storm. Why not stock away reserves in those quiet years so that we don’t get a shock bill during others? Should we borrow instead?
@Patrick and @Tuzanor — more than just heavy snow seasons, reserves can be very important for catastrophic events, such as the torrential rain that hit the city about four years ago and caused something like $500m in damage, including washing out a chunk of Sheppard West, massive damage in the parks, etc. Reserves are to governments what home insurance is to households and personal injury insurance is for workers in risky jobs. Sh*t happens, and when it does, you want to have enough socked away to deal with the issues.
Of all the ways this can be explained on a level which drives the point home to even the most casual reader, perhaps this might help:
If Toronto taxpayers (I single them out from than Torontonian taxpayer-citizens at large) favour holding the municipal corporation to the same rigorous standard as they do themselves by doing away with the city’s rainy day fund (the one set up during Miller’s first term), then all in favour should promptly do away with their RRSP and CPP accounts and dump that “windfall” on the latest handheld devices for the kids, on that luxury car you’ve had your eyes on for years, and on a Yorkdale shopping spree.
Should something critically important break — like a water main — then the city government better be prepared for paying down those emergency repairs the way you should if your kitchen faucet pops off in your hand and sprays everything in its wake.
For the oft-parroted zero-sum/based budgeting approach, springing new costs onto citizens after the fact will do one thing: invoke an ugly internecine battle between neighbourhoods and former boroughs. It would be divide-and-conquer on an epic level.
Were zero-sum budgeting to happen the next time a 2005 Finch flood repeated itself on, say, Black Creek and Eg West, then having Scarberians, East Yorkers, and old Torontonians cry foul for their fees skyrocketing to pay down these emergency repairs would result in the total breakdown of municipal governance and functionality, especially when the next emergency repair happens nearby their backyard. It would make a never-ending hoarding of resources, bringing the city at large to its knees and making it an urban laughingstock.
Thanks, but if I wanted to move to a city where intra-urban provincialism still runs rampant, then I would have moved to New Orleans or Houston already.
The short of it is this: cities operate as corporations, but “corporation” isn’t universal code for “exploiting money from others” — however much one’s animus towards the preceding municipal government might be. If you want to take down a corporation, then go after a for-profit one already making mad bank off you.
Budgeting is based fundamentally on history and forecasts. Of course there will be the occasion when a disaster occurs and nobody expects municipalities to have that degree of foresight to be able to plan for all of it. If a reserve is deemed necessary as part of the budgetary process then ensure tranparency in the budget review and call a spade a spade and let council decide on its efficacy. For bureaucrats to find 250 to 300+ million or so under a proverbial sofa cushion is fiscally irresponsible. I mean for a city with a population of 2.6 million to have a surplus that large says that someone was sandbagging to the tune of about $100 for every man, woman and child living in this city. I’ve got better things to do with my money.
The right in N.America has always been hypocritical about ‘fiscal responsibility’: debt soared under Reagan, Mulroney, the Bushes… If you’re going to cut social spending and widen the income gap, and not even draw down the debt, what good are you at all? Oh… Guess I’m in the irrelevant income percentile.
No, we are not breaking policy. The 2005 direction relates to surpluses after the budget has been passed. While it is desirable to use surpluses for capital, Council always has the choice to use it for other purposes.
That’s in every councillor’s handbook.
As usual Mr. Lorinc is interested in making the news rather than checking. The “eagle eye” comment is a shot towards Sue-Ann Levy’s column. He could have spoken to Mr. Weldon our Chief Financial Officer and gotten his answer but once again his desire is to slant towards his bias.
@James – for those who pay parking pad permits, they pay a lot more than the sticker price. They had to buy the land, too.
@ Councillor Del Grande. The section I’m referring to (on page 8 of the Long-Term Fiscal Plan) is entitled, “ Policy on the Management of Operating Budget Surpluses (approved by council, September, 2004). It talks about achieving a zero surplus carry forward by 2007 in staged reductions, which, as we all know, didn’t happen. It says prior year surplus contributions to a capital reserve should be reported to the budget committee.
By the way, the policy goes on to say that debt service charges should not exceed 10% of the net property tax levy. According to the budget documents presented last week, debt charges will represent a $407.6 million line-item, while property taxes brought in $3.579 billion. That’s 11.4%.
Councillor Del Grande, setting aside the specifics of the 2005 direction and whether council is allowed to spend surplus dollars to balance operating, wouldn’t you admit that doing so this year goes against the spirit of fiscal responsibility you and other members of the new mayor’s executive committee advocated for over the past number of years?
I really don’t believe that this budget, rushed as it was, is reflective of the new administration. The short time frame between the election and the budget process dictated that this should be a stop gap. As such using $25 million of reserves, while unfortunate, is not the end of the world. What is more worrisome is the spin some media is applying to this, like this very article. Claiming moral equivalency between a 25 million draw and perennial 300 million draws is deceptive and does nothing to to forward honest debate on the city’s budgetary concerns.
Glen, the gap between the election and the budget was one of Mayor Ford’s making. He was warned that this may have unpalatable consequences. As for the morality of reserve draws, it is surely moral to accept the consequence in government of having used absolutist terms in opposition.