A restatement of Toronto’s 2018 budget using natural categories
This article was substantially expanded on January 26, 2018
Since founding the budgetpedia.ca project in 2015 I’ve been researching and pondering the Toronto budget. After all you have to understand something to explain it. Well, it turns out there’s a much simpler way of thinking about the budget than what we’ve seen from the City. As far as I can tell this is actually more accurate and more conventional as well. So here’s a quick recasting of the City 2018 budget to show you where this thinking has led. All numbers are in $000's.
Expenses
First expenses. The main idea here is to isolate core operating expenses which are what you would expect: staff, and costs of supporting them.
Here’s the little matrix that supports it (and shows the full names truncated above):
The budgets just passed by the Toronto Budget Committee (both Rate and Tax supported) total ~$12.7B. As you can see the core budget here is about $8.6B. As I mentioned, the key point here is that the core budget consists of things that most of us are familiar with: salaries, and other goods and services purchased to support the staff’s operations.
The remaining items are more easily understood separate from the core budget, and are also quite familiar. Asset maintenance is that portion of the City’s state of good repair budget (listed in its capital budget), which would apply to routine maintenance only — not improvement or replacement of an asset nor purchase of new assets (think painting a porch rather than replacing it). Accruals consist of the expensing of the depreciation of the City’s assets, and the current year’s increase in pension liabilities, to be paid out (much) later. Accrual and asset maintenance figures come from the City’s own estimates, as provided here (see p.6).
The financial help to persons line item is isolated because it’s not a direct operating expense in the usual sense. It is pass-through amounts given to Toronto residents as income support (through Toronto Employment and Social Services), housing support (through Toronto Shelter Support and Housing Administration), or child support (through Children’s Services).
Revenues
Next revenues. Probably nothing here that wouldn’t be familiar to readers of regular budgets.
A couple of notes about this chart: User Fees are all fees, including fees for water, garbage, and parking (the so-called “Rate-supported” budgets); TTC fares; Parks & Rec fees, etc. Senior government (mostly Ontario) includes money provided for capital investments (also taken from here, p.6) as well as operations; this is how the City’s independent auditor treats that, and it makes sense. Also note that some of the revenue comes from reserves. That’s legitimate. In fact the accounting standard calls for posting of about half the City’s reserves (~$2B of ~$4B) on financial statements as deferred revenue. In other words money set aside for when we need it. Think snow storms. Other revenue includes things like development charges and investment income.
Here’s the list of numbers used for the revenue chart:
Note that the total revenue is substantially higher than total expenses. This is truth. The notion of a “balanced budget” put forward by the City is artificial; it relies on unconventional budgeting practices. And no, the extra cash isn’t free money. It’s money that has to be carefully invested in City projects.
Distribution of revenue
The revenue can be thought of as cash. So the question becomes: how to distribute this cash wisely. At a high level, here’s how it’s done:
First of course, is cash that has to be allocated to pay the cash portion of the expenses. Next, the cash for accruals (depreciation and pension obligations) needs to be set aside for when those costs actually have to be paid. That leaves the rest as cash for investment in the City’s future. That cash for investment is really where much of the political debate belongs.
Here’s the little matrix of numbers for this chart:
I think that cash for accruals and cash for investment is analogous to what the current budget system refers to as capital from current (CfC). It is a carefully planned amount to balance Council-approved capital projects with the political limits of raising property taxes, and the fiscal and political constraints imposed by more senior governments. The cash for investment is what would be referred to as a surplus, but is not to be confused with free money. It is planned. Many demands and constraints on budgeting come into play, but the constraints on property taxes and contributions from senior governments are the main ones.
Put another way, cash for investment is what we collectively decide it should be. It provides for things like TTC capital enhancements, SmartTrack, Port Lands Flood Protection, George Street Revitalization, and the Gardiner Expressway Rehabilitation Project (see also the Gardiner East Reconfiguration), Toronto Community Housing Corporation investments, and of course the controversial Scarborough Subway Extension. The sources of funds is a matter of planning and negotiation.
Of course we could also plan collectively for additional funds for social or recreation programs.
So there it is. A basis for understanding Toronto’s budget that (I hope) makes sense, and as a bonus follows conventional accounting standards. I hope this becomes a good place to start for those of us that are interested in getting a better grip on what’s going on, whether City staff, Councillors, Civil Society people, or residents and businesses at large.
Please send me feedback! henrik@budgetpedia.ca
Notes
An initial reduction of the budget amount was done to correct items that I had previously identified: double counting of inter-divisional charges, incorrect expensing of contra-revenues, and inclusion of capital staff costs in the operating budget.
As a technical matter I’ve left off landfill accruals and investment earnings as listed here (p.6) from the spreadsheet calculations, for the sake of expediting the presentation.
Please note that the majority of these figures are very rough estimates; I don’t have access to accurate figures (another problem — another story). For details see the spreadsheet linked in the figure captions.
Henrik Bechmann founded the budgetpedia project in 2015, and is currently the project lead (see budgetpedia.ca). The opinions expressed here are his own.
