RE:BU22.4

The City of Toronto’s2017 Budget:Directions & Schedule

Purpose

• Budget Committee sets process and policy direction

• Establish 2017 revenue and expense framework

• Confirm 2017 expense objectives and initial targets

• Set out budget process and schedule

2

Fiscal Framework

• Long-Term Financial Directions report to Executive Committee oDivergence between operating revenue and expense

oCapital gap

• Reaching limits of “kick-the-can-down-the-road” strategies • 2017 budget outcomes should be consistent with longer-term

aspirations • Opportunity to establish financial discipline and move towards

sustainability

3

Budget Committee Confirmation:Core Policy Direction

• Revenue as the starting point – expense adjusted to meet revenue capacity

• Revenue forecast based on policy direction / current values o No asset sales, revenue tools or new transfers prior to Council or other government

decisions

• Adjusted for 2016 one-time measures

• Establishes limit for 2017 expense growth

• Increment revenue of $66 million 4

2017 Total Revenue Changes

($M)

One-Time Revenues to balance 2016 budget MLTT Change in Provincial /Federal Funding OW Provincial Upload Interest / Investment Earnings Supplementary Taxes Hydro Dividend TPA Dividend Other Corporate Revenues All Other Program Revenue Changes TTC Fare Other User Fee

Revenue

(38) 20

(10) 24 (5) (5)

(10) (5) (2)

5 (12)

12 Revenue Changes before Tax Impact

Assessment Growth Tax Rate Increase @ 2% Residential

(25)

40 52

2017 Total Revenue Changes 66

5

Operating Expense is Growing Faster than Available Revenues

• Early estimates show significant pressures • Based on costs to maintain existing service level

700

600

500

400

300

200 419

250 198

261 266

19

30 29

29 25

121

137

60 53

23

10

426

6 7

2017 2018 2019 2020 2021

Base Operations Toronto Police Services Base Capital Financing Annualizations

582

293 349

291

100

6

240

71

54

42

Projected Incremental Revenue Growth ($M) 2017 to 2021

184 158 150 159180

66 120

60

74

16

53

41

73

55

42

(20)

76

56

43

(16)

14 20

52

40

(59)

(9)

(60) 2017 2018 2019 2020 2021

Assessment Growth Property Tax Increase - Res. @ 2% MLTT Fed/Provincial Grants Other Revenue Changes 7

2017 Operating Budget Pressure Summary

($M)

2017 Expense Pressure resulting from prior year decisions 2017 Total Revenue Changes

2017 Incremental Expense Pressure: Base compensation and benefits Non-salary inflation TTC - base (excl. Presto & prior year impact) Police - Total TCHC - Total CFC base Debt charges on current capital budget & plan Tax Deficiencies/Write-offs (net) Other Program/Non-Program Expenditures

Expense

125

56 23

136 19 96 31 46 30 20

Revenue

38 (104)

*

Total

163 (104)

2017 Incremental Expense Pressure Total 457 - 457

Total 2017 Tax Supported Operating Pressure 582 (66) 516

*Total TTC pressure, including prior year decision impacts and revenue loss, is a total of $189 Million Refer to slide 36 in appendix for further details 8

20.00/o

15.00/o

10.00/o

5.0%

0

0.0%

-5.00/o

-10.0%

2016

2.1%

0.6% ..... -....... ....... -----~ - 0 - . 0 .... ........ . ---

3.5% -----2.5% .... ---- .. ... . - - -

-2 4% - · ••••••• - .. -~ 0 •••••

•••• • •••• ••••••••

-3.8% ••••• •••••

16 .. 5%

6.1%

---4.8% - • -·---3.2% - - -.. -- - -3.9% -·

•••••••• -5.4% •• · • · ••••••

••••••

2017 2018 2019

-7.0% ••• •

2020 -8 .. 6% 2021

- --- Gross Expenditure Pressure _. Revised Pressure to Adjust for Revenues

-•- Revised Pressure to Adjust for Revenues {Real) •• • •• Revised Pressure to Adjust for Revenues {Real per Capita)

Establishes Future Pattern

9

Basic Approach for 2017

1) Council to establish legal spending authority

2) Constrain operating growth to match available revenue room • Direction to City divisions + Agencies • Create options for review by Budget Committee, Executive Committee and

Council • Targets must also accommodate non-program aspects of expenses / revenue

that are fixed for the short-term or by policy o Debt charges, capital policy, tax and employee benefit liabilities, pooling

compensation loss

3) Assume current levels of capital funding: • Constrain projects to fit established capital plan

10

Options for Operating Expense Constraint

• Agencies are key drivers of net operating expense

• Core question is extent to which agencies share in / limit exposure to overall fiscal pressure

• 3 options, based on differing distribution of reductions between Agencies and City divisions

• Option 1 provides broadest coverage, best targeting for key sources of expense growth

11

2017 Operating Budget Target Options

Options based on: absorbing Non-Program plus Corporate Pressures

Option 1: Across the Board -2.6% Reduction Target for all City Programs, Agencies and Accountability Offices

$516m pressure absorbed by all divisions and agencies

Option 2: -5.1% Reduction Target for City Programs, Agencies and Accountability Offices, but

Maintains TTC, TPS and TCHC at 2016 Approved Budget or 0% increase

Option 3: -3.8% Reduction Target for City Programs, Agencies and Accountability Offices

-4.1% for TTC to absorb incremental debt servicing for its capital costs, and

TPS and TCHC maintained at 2016 Approved Budget or 0% increase

12

2017 Operating Budget Target Options

2017 Budget Reduction Targets vs. 2016 Budget Option 1 2016 Budget

Net 2017 Pressure Net ($M) Further cut Forecast If All

Div/Agency Keep Flat

% $

Other City Operations Other Agencies SSHA/TCHC TTC & Wheel Trans Police

1,740 264 348 610

1,006

66 8

130 189

19

-----

-2.6% -2.6% -2.6% -2.6% -2.6%

(45) (7) (9)

(16) (26)

Total excl. Non-Program 3,967 414 - (102) Non-Program/Corp Net of Taxes 5 102 102

Total Tax Supported (incl. SSE) 3,972 516 102

Option 2 Further cut % $

-5.1% -5.1% 0.0% 0.0% 0.0%

(88) (13)

---

(102)

Option 3 Further cut % $

-3.8% -3.8% 0.0%

-4.1% 0.0%

(66) (10)

-(25)

-(102)

13

How City Divisions will Approach Targets

• Focus on non-core expense / back office

• Consolidation and integration strategies

• Alternative service delivery oBusiness-case supported oConsistent with ancillary Council policies – fair wage

• Support core policy outcomes

• Program-related revenues

• Adjust service levels

14

Debt Limit as a% of Property Tax Levy 15% +-~-------------------------------------------------------------------------------

• • • 2016 - 2025 Council Approved Capital Budget & Plan - 2017 - 2026 Debt Target -Debt Limit

2016 2017 2018 2019 2020 2021 2022 2023 2024 2025 2026

Debt Costs as % of Tax Levy

15

2017 – 2025 Capital Budget and Plan Directions

The 2017 – 2026 Capital Budget and Plan submission to be prepared on a status quo basis:

• This requires that capital plan submissions adhere to the 2017 – 2025 Capital Plan approved by Council as part of the 2016 Budget process,and

• Projects be added in the new tenth year, 2026, that can be accommodated within current debt targets.

• Estimate and timing of unfunded list to be refined and prioritized

16

Summary of Unmet Capital Needs ($M)

Major Unmet Capital Needs ($Million) - 15 Years Unmet Need Priorities

TCHC Province/Federal Share of $2.6 billion requirement 1,728 TCHC Capital Maintenance 650 TCHC Revitilization Projects 356

Less Prov Grant on Energy Retro Fit -29 SOGR Backlog to 2% of Asset Value (Exc.TCHC) 1,046 TTC Board Approved Unfunded 2,679 SSHA (George Street Revitalization) 480 Long Term Homes Care Services 246 Other City Priorities 1,318 Lower Don Flood Protection 975 Waterfront Land Servicing (EBF, WDL and Keating) 150 Waterfront Public Realm Initiatives 350

Less Waterfront DCS/Federal & Provincial Funding -1,125 Unfunded Projects from Environmental Assessments 2,000

Tier 2 Unmet Need Priorities TTC Future Capital Needs Other Programs

2,323 597

Unfunded Transit Expansion Initiatives All Unfunded Transit Expansion Initiatives (Preliminary - Pre-Design Estimates)

15,300

Total of Unfunded Capital Projects ($Million) 29,043

17

Budget Schedule

18

2017 Budget Schedule

Activity Parking Authority, Toronto

Water, Solid Waste Management Capital Budget ­

City Divisions & ABCs Operating Budget ­

City Divisions & ABCs Budget Submission Operating - Base Budget Only

June 20, 2016 June 20, 2016 June 20, 2016

Budget Submission Operating - Reduction Options and New Requests

August 2, 2016 August 2, 2016 August 2, 2016

BC Members Informal Reviews September 15 - September 30, September 15 - October 18, 2016

Budget Launch - Budget Committee November 4, 2016 December 2, 2016

Budget Briefings - Budget Committee November 18, 2016 (Regular BC Meeting)

December 16, 19, 20 & 21, 2016

Public Presentations - Budget Committee

November 18, 2016 (Regular BC Meeting)

January 4, 5 & 9, 2017

Budget Committee Wrap-Up N/A

January 12, 2017

Budget Committee Final Wrap-Up November 28, 2016 (Afternoon)

January 24, 2017

Special Executive Committee December 1, 2016 (Regular Meeting)

February 7, 2017

Special Council December 13 & 14, 2016 (Regular Meeting)

February 15 & 16, 2017 19

For Budget Committee’s Consideration & Approval:

• The 2017 budget process schedule

• Operating reduction target

• Capital budget guidelines

20

Thank You

21

Appendix

22

Objectives of the Report

• Targets set at staff level in the past have been met with mixed compliance

• Formal policy direction through Budget Committee to establish budget targets for City Programs and Agencies

• Uses current forecast of pressures for City Programs, Agencies, and Non Program to set budget targets to achieve property tax rate increase at inflation

23

What’s different for 2017?

• Budget Committee and Council approval of budget directions and targets

• Ability to examine service delivery and service levels • Success will be determined by more explicit treatment of Agencies

• Budget targets address current pressures only • Corporate freeze not consistent with agenda

• Does not make progress in new service or capital investments deferred/discussed by Council

• No new revenue sources assumed • Additional revenue premature prior to Council decisions

24

City Governance: Gross Budget City Council has direct control of 43% of the Gross Budget

$11.8 Billion

Agencies (Indirect),

Direct City 3,498.5, 30% Control,

5,026.2, 43%

Provincially Funded (Cost

Shared), Debt Charges, 2,743.0, 23%

486.7, 4% 25

City Governance: Net Budget City Council has direct control of 23% of the Net Budget

Direct City Control,

901.3, 23%

Debt Charges,

463.4, 12%

Provincially Funded (Cost

Shared),

Agencies (Indirect),

1,821.6, 46%

$3.9 Billion

744.9, 19% 26

City Governance: Net Budget Increase6-Year Net Budget Increase Comparison – Agencies & City Operations

6 yr Avg

6.0%

4.0%

2.0%

0.0%

-2.0%

-4.0%

-6.0%

3.6% 3.8% 3.2%

2.7%

1.8% 1.6% 1.5% 1.9%

0.0%

1.3%

0.1%

1.1% 0.9% 1.3%

0.0%

1.1%

-1.2%

-0.2%

-2.3%

-3.4%

-2.2%

2011 2012 2013 2014 2015 2016

Agencies City Operations Total Net Budget Inflation Rate Toronto (Stats Canada, Toronto) 27

2017 Operating Pressures

2828

Projected Incremental Base Expense Growth ($M) 2017 to 2021

700

600

500

400

300

200

100

419

250 198

261 266

60

63

44

52 46

121

137

60

53

23

10

6

7

622

459

308

373

312

2017 2018 2019 2020 2021

Base Operations Rate Programs Base Capital Financing Annualizations

29

Projected Incremental Revenue Growth ($M) 2017 to 2021

300 261

216 217 219240 140

180

120

60

(9) (20) (16)

20 14

16

40 41 42 42 43

52 53 54 55 56

60 63

44 52 46

(59)

74

71 73 7614

14

14 14 15

(60) 2017 2018 2019 2020 2021

Assessment Growth Property Tax Increase - Res. @ 2% MLTT Fed/Provincial Grants Rate Programs Other Revenue Changes City Building Fund

30

500

Incremental Revenue Growth – 2010 to 2016 (budgeted) and 2017 to 2021 (projected)

462

248

164

198

337

284 292

140

261

216 217 219

50

100

150

200

250

300

350

400

450

$M

2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 2021

31

Projected Cumulative Net Pressures ($M) 2017 to 2021

2017 2018 2019 2020 2021

(483)

(681)

(773)

(929) (1,022)

(1,200)

(1,000)

(800)

(600)

(400)

(200)

32

250

Projected Incremental Debt Charge Growth for Unmet Capital Needs ($M) - 2017 to 2021

225

196200

150 135

100 73

49 50

2017 2018 2019 2020 2021

33

2016 Operating Budget Pressures

34

2016 Balancing Actions

35

2017 Pressure Estimates Resulting from 2016 Budget Decisions

($M)

Annulization from prior year decisions (incl. TTC) Operating Impact from completed capital projects (incl. TTC) TTC - Previously Approved Presto Card Implementation Phased Impact from TPC loss (Add'l increase in CFC) Deferred funding of employee benefit liabilities Deferred funding of insurance premiums & claims One-Time Revenues to balance 2016 budget

Expense

14 22 29 45 10

5

Revenue

38

Total

2017 Pressure resulting from prior year decisions 125 38 163 Equivalent to Additional Residential Property Tax Increase of: 6.2%

36