When officials announced this month that Toronto was posting an unexpectedly big budget surplus of $154-million for 2011, critics of Mayor Rob Ford let out a triumphant “a-ha.” Here, they crowed, was proof of what they had been saying all along. The city was not in such bad financial shape after all. Mr. Ford had manufactured a crisis to justify spending cuts that were simply not needed.
It proved nothing of the sort. The city often finds itself with sudden windfalls at year end when tax revenues come in higher or spending lower than expected. Because Toronto is required by law to have a balanced budget, officials are careful to make conservative projections at the start of the year, giving themselves some leeway when the bills come due. The result is often a tidy, and tempting, year-end surplus.
For years, the city has been using part of this money to cover expenses for the year to come. It is like relying on sofa-cushion money to pay the mortgage. It is not part of the household budget and you can’t count on it. It means that the city is paying its bills with unsustainable, unpredictable revenue, leaving it to begin each annual budget struggle from behind the eight ball.
This is a sloppy, unwise practice and Mr. Ford is right to want to end it. City finance officials have been saying for years that Toronto should quit relying on windfall money to plug its annual budget gap. Using the temporary surpluses and dipping into reserves only masks the fact that, in truth, the city’s spending chronically exceeds its permanent revenue. This “structural deficit” has dogged the city’s books for years, making it hard to find the wherewithal to pay for critical needs.
Now, at long last, the city is moving to close that chasm. This year, instead of using its windfall to pay for current programs its income won’t support, it plans to put aside the extra $154-million for future needs. A proposal from the city’s executive committee, which will go to city council next week, would see the money go toward a fund for TTC capital projects like the purchase of new streetcars.
Chief financial officer Cam Weldon said this week that by preserving rather than spending the windfall, the new budget approach “takes us a long way to fiscal sustainability.”
Unfortunately, if predictably, the mayor’s critics are not listening. No sooner did city officials announce their new surplus numbers than city council’s left erupted in outrage at the mayor. How dare he try to cut services when he had all that extra cash to pay for them? Why would he put away money for a rainy day with $154-million in hand?
“As if it isn’t a rainy day when even wading pools are deemed unaffordable,” huffed the Toronto Star, referring to the unspeakably cruel decision to close five city wading pools that are underused and in need of repair.
In truth, the Ford administration has shown itself quite willing to use new-found resources to save services that face the chop. Mr. Ford is backing a staff proposal to save threatened student-nutrition programs and community centres by dipping into an extra $8.8-million income from the property tax. But here is the difference: This money comes from permanent growth in tax assessments, not a one-time windfall.
Using that kind of ongoing income to pay for ongoing needs make sense. Using cushion money does not.