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Recreation centres are closed, their fees going uncollected. So are rinks, pools and municipal golf courses. Enforcement officers are being told not to bother so much with people parking illegally. Bus and subway ridership has plummeted, slashing fare revenues.

A number of cities have allowed residents to defer property taxes and other civic fees, the main sources of municipal revenue. Yet the basic functions of the city must continue.

There’s still garbage to be picked up, more now in some places since the COVID-19 pandemic has produced a kind of unmonitored home detention throughout Canada. Police and fire agencies are still busy. Many transit agencies, even those that have cut service, are still carrying the usual labour costs.

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And the pandemic has brought new expenses.

Overtime spending on municipal staff is up, and cities everywhere are ramping up their spending on temporary housing to protect homeless people from an infection outbreak.

All that is blowing massive holes in municipal budgets and has cities headed to financial crisis.

Toronto projects a budget shortfall totaling $780-million over 12 weeks, an estimate that assumes there will be no property tax defaults. The city is keeping its longer-term projections under wraps. Vancouver says it will be $189-million short by the end of the year, along with potentially another $80-million for each 10 per cent of property owners who can’t pay their taxes.

Montreal says the crisis will cost the city between $50-million and $350-million, depending on how long it lasts and the strength of the economic recovery. Edmonton expects a shortfall of $112-million by Dec. 1. Ottawa is running short about $1-million a day and Saskatoon close to $1-million a week. “And we don’t know what’s going to happen with taxes and business defaults," said Saskatoon Mayor Charlie Clark.

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While some cities have begun laying off workers by the thousands, that won’t be enough to compensate for the budgetary shortfalls, say mayors and councillors. There are warnings that basic services may be next and calls for support from higher levels of government are rising.

“The Canadian population depends on municipalities being on the front line. We do the waste, the water, protecting residents,” says Bill Karsten, a councillor from Halifax who is also the president of the Canadian Federation of Municipalities.

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“We’ve just basically cut off a large part of our revenue. This is becoming an urgent threat to vital services.”

Cities expect a big budget hit

from the pandemic

Selected Canadian cities, 2020

City

Proj. mthly. budgetary shortfall

2020 operating budget

Toronto

$281.5-million

$13.5-billion

Average, based on 12-week projection released April 3

Ottawa

$30.4-million

$3.8-billion

Based on daily loss figure released April 8

$13.2-million

$3.0-billion

Edmonton

Average, if shutdown goes to mid-September

$1.6-billion

Vancouver

$18.9-million

Average, if shutdown goes to Dec. 31

$3.5-4-million

Saskatoon

$530-million

JOHN SOPINSKI/THE GLOBE AND MAIL

SOURCE: city governments

Cities expect a big budget hit

from the pandemic

Selected Canadian cities, 2020

City

Proj. mthly. budgetary shortfall

2020 operating budget

Toronto

$281.5-million

$13.5-billion

Average, based on 12-week projection released April 3

Ottawa

$30.4-million

$3.8-billion

Based on daily loss figure released April 8

$13.2-million

$3.0-billion

Edmonton

Average, if shutdown goes to mid-September

$1.6-billion

Vancouver

$18.9-million

Average, if shutdown goes to Dec. 31

$3.5-4-million

Saskatoon

$530-million

JOHN SOPINSKI/THE GLOBE AND MAIL

SOURCE: city governments

Cities expect a big budget hit from the pandemic

Selected Canadian cities, 2020

City

Projected monthly budgetary shortfall

2020 Operating budget

Toronto

$281.5-million

$13.5-billion

Average, based on 12-week projection released April 3

Ottawa

$30.4-million

$3.8-billion

Based on daily loss figure released April 8

$13.2-million

$3.0-billion

Edmonton

Average, if shutdown goes to mid-September

$1.6-billion

Vancouver

$18.9-million

Average, if shutdown goes to Dec. 31

$3.5-4-million

$530-million

Saskatoon

JOHN SOPINSKI/THE GLOBE AND MAIL, SOURCE: city governments


Cities derive a large part of their revenue from a few sources – property taxes, transit fares and user fees – that are normally fairly stable. But some are worried huge job losses will mean huge drops this year. Business failures would mean another hit to city tax revenues, and permit fees for development and construction are dwindling as builders hesitate over going ahead with projects.

Other revenue lines will take a hit too. Vancouver, for instance, gets $100-million just from parking meters and fines, and sees that falling by $68-million if restrictions on peoples’ movement last until the end of the year. Toronto is projecting a loss of about $47-million in parking fees over just 12 weeks, through the end of June, and is losing more than $20-million in transit fares each week.

Mayors have been on the phone to provincial and federal leaders over the past three weeks, including two lengthy teleconferences with Deputy Prime Minister Chrystia Freeland and Infrastructure Minister Catherine McKenna, warning them of the possibility that some cities might go bankrupt or be dangerously hobbled if they don’t get help.

A spokeswoman for Ms. Freeland did not respond directly when asked if the federal government was preparing for a municipal bailout request or would be open to one.

“We are committed to working with municipalities to ensure they have all the support they need during this pandemic,” read a statement forwarded by Kat Cuplinskas.

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“The Prime Minister and Deputy Prime Minister are in close contact with mayors from across Canada, including through the Federation of Canadian Municipalities. We are grateful for the leadership that all municipalities continue to demonstrate at this immensely challenging time.”

Unlike other levels of governments, cities are not legally allowed to run operating deficits except on a short-term basis within a single year, to cover costs before tax money comes in. By law, they must balance their books by the end of the year.

The idea that provincial legislation might be changed to allow deficits was raised by staff at Ottawa city council last week as one of a series of possible requests of the government. In Toronto, staff also say the idea is on the table, but no formal request has been made.

Asked last week if Quebec would allow cities to run deficits this year, along with whether it would allow them to grant tax holidays to their local businesses, Premier François Legault said those questions will be addressed at a future time. “We’re going to have to reflect on this with all municipalities once we get closer to the end of this crisis,” Mr. Legault said.

The possibility is controversial, with some saying it could lead to financial disaster.

Vancouver Mayor Kennedy Stewart, who asked the province last week for an immediate cash transfer of up to $200-million, called the idea “insane.” He warned it will simply lead to future service cuts, since cities would need to find a way to pay the debt back in the following years with only a very limited set of revenue sources to go to.

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Enid Slack, director of the Institute on Municipal Finance and Governance at the University of Toronto, is similarly unconvinced.

“If they start borrowing for operating [expenses], where does that end?” she said. “They will have to pay this money back and, you know, will they be able to? There’s really issues around fiscal sustainability.”

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The scope and shape of the problem facing cities, and ideas about solutions, vary across the country.

The two largest cities in the Vancouver region – Vancouver and suburban Surrey – have already laid off 3,500 employees between them, mainly those who had been working in now-closed facilities.

For Vancouver, that will save some money, but it also means losing $50-million in revenue from those facilities by the end of December, along with $14-million from permit fees and $7-million from lost rents for various civic buildings.

Victoria, which has decided to roll back a planned tax increase, is eliminating some capital projects while Kamloops is about to decide whether to go ahead with those it had planned.

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Cities in B.C. have asked for the province to give large block grants to cities to help make up their shortfalls, and to extend B.C.’s tax-deferral program, currently available to seniors and some special cases, to all residents and businesses.

Calgary and Edmonton, already suffering from Alberta’s prolonged economic downturn, were among the first cities in the West to do wholesale temporary layoffs. Edmonton furloughed 2,000 employees doing non-essential services on March 31, while Calgary laid off 1,200.

Toronto has nixed plans to hire 5,400 seasonal employees for recreational programs that have been cancelled because of the pandemic. The city, which says it will deplete its reserves by the end of June at the currently projected burn rate, is considering various scenarios for saving money, without being specific.

“There are certain things we can do with our rainy-day funds,” Mayor John Tory said. “But after that, we have two other alternatives. Raise taxes, which seems nonsensical. Or cut services, when people are as needy as ever.”

One of the biggest questions hanging over Toronto’s finances is the future of the housing market, which saw a marked decline in the second half of March. The city’s finances have relied increasingly on strong housing sales fuelling its land transfer tax, which was supposed to raise $800-million this year. The municipal land transfer tax (MLTT) is no longer expected to bring in that much, although the full scale of the impact may not be seen for months, because the tax is not paid until a home sale closes.

“We’ve got staff that are watching the data … but to be able to fine-tune that number, that’s one of the most challenging numbers to try and predict a change,” said Toronto’s chief financial officer Heather Taylor. "I don’t actually expect to see significant MLTT impacts until the latter part of 2020.”

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The province’s second-most populous city, Ottawa, is in a somewhat unusual position as a Canadian municipality with sufficient reserves not to have to run a deficit, even in its worst-case scenario of having the pandemic effect play out until the end of the year.

But while the national capital many not run out of money, Ottawa’s chief financial officer Wendy Stephanson recently warned council that it would be unsustainable to drain its reserves. “Our cash reserves are intended to help with our year-over-year fluctuation, but a reduction in one year must be replenished in future years to maintain the city’s liquidity, financial sustainability and strong credit rating,” she told council last week.

The city, which is currently spending about $7-million more each week than it is taking in, has put thousands of staff on unpaid leave and is examining capital projects to see if any can be deferred. Broader staff cuts have not been ruled out.

In Montreal, the city is carrying out a review of spending, which includes deciding whether to push back certain infrastructure projects. It’s already spent $5-million in protective equipment for its staff over the past two weeks and it expects overtime paid to police and fire department personnel will contribute to a major increase in costs as the COVID-19 crisis continues. “All the financial projections we made no longer hold,” said executive committee chairman Benoit Dorais, who oversees the city’s finances.

Mayor Valérie Plante’s administration is asking the Quebec and Canadian governments to inject money quickly to help relaunch the Montreal economy and to consider reimbursing it for certain spending, Mr. Dorais said.

Montreal will have to make quick and painful decisions to cut spending in the weeks ahead, said Germain Belzile, a lecturer in applied economics at Montreal’s HEC business school.

Raising taxes to maintain spending is not an option for a city whose businesses and residents are already among the highest-taxed in Canada, he said. “People are simply going to leave Montreal if it becomes unbearable.”


Ms. Slack, with the Institute of Municipal Finance and Governance, thinks a long-term effect of the current crisis is that governments should take a hard look at which level provides, and pays for, services.

For decades cities have assumed ever-larger responsibilities. They’ve faced more demand for transit or they’ve had to take on social services downloaded to them from above. But they receive only a small percentage of what is paid in taxes.

Mayors insist that big budget cuts will mean lasting damage to cities and hinder a comeback once the pandemic subsides. “We are the engines of recovery. It’s in their mutual interests to keep us strong and healthy,” said Toronto’s Mayor Tory.

Mr. Stewart in Vancouver also emphasized the crucial need to keep certain parts of city hall, beyond fire and police, intact. “If you lay off your inspectors, your permit and licensing staff, the whole local economy grinds to a stop,” he said.

Saskatoon’s Mr. Clark, mayor of a city that accounted for 60 per cent of the recent job growth in the province, said they’re trying to keep their economy going “as much as we can.”

“There is still construction, we’re still conducting public hearings. We’re ensuring that our economy can roar back, but that’s absolutely dependent on our city’s ability to roar back.”

Author and journalist Malcolm Gladwell discusses the far-reaching impact of the coronavirus pandemic on refugees, conflict and the economy. Gladwell was in conversation with Rudyard Griffiths from the Munk Debates. The Globe and Mail

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