City of Torontos' long-term fiscal plan.

• Author: Brittain, Len
• Position: Government Finance Officers Association's Award for Excellence in Government Finance

Editor's note: In 2006, the City of Toronto received GFOA's Award for Excellence in Government Finance in the budgeting and financial planning category for its long-term fiscal plan.

Much has been said about a government's need for a long-term financial plan, particularly in this era of constant political change. In this article the process leading up to the establishment of the City of Toronto's plan will be discussed, along with what the plan entails, the outcomes, and some lessons learned.

FINANCIAL BACKGROUND ON TORONTO

The City of Toronto is Canada's largest municipality with a population of 2.6 million. It is located at the core of a larger urban area in south-central Ontario called the Greater Toronto Area, with a population of 5.7 million people. The city is the capital of the Province of Ontario and the city's CAD$10 billion operating and capital budget is larger than any of Canada's Atlantic provinces. Formed from the amalgamation of seven municipalities in 1998, the city is the nation's political, economic, and cultural center, and a major destination for immigrants.

In the early 1990s, the North American economy went through a recession that financially impacted all levels of government. Transfer payments from the Ontario government to municipalities were reduced significantly, particularly for transit operations and transportation. While the 1998 amalgamation exercise achieved significant savings, the demand for services resulted in financial requirements exceeding the city's revenue base. During the same year the Ontario government, under the "Local Services Realignment" initiative, assigned financial responsibilities for a number of income-distributive programs to the city, such as social assistance and social housing, in exchange for assuming part of the funding responsibility for education, which had previously been on the property tax bill. Although the initiative was intended to be revenue neutral, it turned out that the city was, and still is, burdened with ever-increasing net costs.

Ontario Premier Dalton McGuinty once said: "Toronto is the engine of economic growth in Ontario and much of Canada. Its continued economic prosperity and quality of life has to be a priority for all of us. It's a miracle it has delivered prosperity for so long and to so many despite living in a legislative and fiscal straightjacket that would baffle Houdini."

The following three main issues summarize Toronto's structural financial problems:

1. Expenditure pressures due to aging infrastructure, unique demographic mix associated with being Canada's largest and most diverse city, over-inflationary cost increases for many items, e.g. energy, and continuously increasing demand for services, including a tendency for service levels to be raised following amalgamation to the levels provided in other areas.

2. Insufficient revenue growth to support growth in operating and capital requirements, due to legislatively restricted access to non-tax revenue sources, exacerbated by relatively weak commercial/industrial tax competitiveness and generally low annual assessment growth.

3. Asset degradation due to insufficient funding, and growing liabilities to provide for future costs, particularly in the area of employee benefits.

Despite these financial challenges, Toronto's stable AA credit rating (Aa1 from Moody's) positioned the city well for long-term financial planning.

PLAN DEVELOPMENT

In 2001, the Toronto City Council adopted a strategic plan to set out an overall vision, together with a set of goals and directions, for the new City of Toronto. In 2002, a set of fiscal sustainability principles was added to the council's strategic plan. Further, a number of financial policies and funding strategies have been developed and implemented.

The strategic plan ties all program plans together from the fiscal perspective. They include plans for solid waste management, growth strategy and the expansion of public transit, economic development...