Council is back in session on Wednesday, September 4th. Our first meeting will include a comprehensive briefing on City finances in advance of the 2025 budget process. The briefing will include updates on the Ongoing Service Review Process; the Long-Range Financial Plan – Transit Working Group; the original funding plan for Ottawa LRT vs today’s reality; an overview of the Payment in Lieu of Taxes shortfall; and an update on the status of ongoing discussions with other levels of government.
These explanations will be valuable as we head into Budget season. I’ve started an evergreen question-and-answer section on some of the most recent budget questions I have received. I will continue to update the section with the most frequently asked questions as we progress through the next several months, culminating in the City’s 2025 draft budget being tabled at Council on Wednesday, November 13, 2024, and considered for adoption by Council on Wednesday, December 11, 2024. The last question in my question-and-answer section also provides some additional resources if you are interested in understanding more on municipal finances.
CITY OF OTTAWA FINANCES AND BUDGET 2025
SERVICE REVIEWS
What is the Service Review Process and why is it being undertaken?
The mayor made a commitment during his campaign to do a review of the city’s financial situation to look for improvements to service delivery, efficiency, and effectiveness. The service reviews are part of the overall budget process, where we are always looking at savings to fund City priorities.
Who is overseeing the service reviews and how has feedback been gathered?
The Service Review Working Group oversees the service review. It is comprised of Mayor Sutcliffe, Councillor Curry and me (Councillor Carr). We work with senior leaders at the City to review and decide on areas on which to focus for the service reviews. Input has been gathered from Members of Council, City staff and residents.
How much savings has been found to date?
The Service Review Working Group (SRWG) found $19.4 million in base operating budget efficiencies that were included in the 2024 Budget as well as $2.5 million capital efficiencies. More efficiencies will be included in future budgets.
Were there any other efficiencies found?
In addition to the Service Review program overseen by the SRWG, $2.875 million in efficiencies have also been realized by Citywide departments, an additional $2.6 million by Ottawa Police Services and $30.6 million by Transit Services through improvement initiatives led by the senior and departmental leadership teams.
The total 2023 and 2024 capital and operating efficiencies have resulted in a total of just over $153 million in efficiencies to date.
LONG RANGE FINANCIAL PLAN- TRANSIT WORKING GROUP
What is the Transit Long Range Financial Plan (LRFP)?
The Transit Long Range Financial Plan (LRFP) was approved by Council in February 2019 as a companion report to the Stage 2 Light Rail Procurement, which included revised operating and capital cost projections over 30 years to 2048. Since that time, staff have continued to update the transit affordability model reflecting the impacts of the pandemic, inflation and experience from operating rail for the last several years.
Were the projections on the Transit LRFP modified to account for this new reality?
In September 2023, a technical briefing was provided to Councillors to present the latest updated projections for the Transit LRFP, which by then had become unaffordable due to a variety of factors, but primarily due to the reduction in ridership caused by the COVID-19 pandemic, an increase in the cost of operating rail, and an increase in construction costs worldwide. The briefing described the key pressures and changes from 2019 to the revised 2023 estimates, making the transit funding model unaffordable and identifying a funding gap of $6.6 billion over 30-years, which is now $8.6 billion.
What actions have been taken to address this funding gap?
In November 2023, Council approved motion (ACS2023-OCC-CCS-0153) recommending that an “internal working group be made up of City staff from the relevant departments, working with the Mayor, as well as the Chairs of the Transit Commission (Councillor Gower), Transportation Committee (Councillor Tierney) and Planning and Housing Committee (Councillor Leiper). The group was given the task of exploring all mitigation levers and options discussed in the technical briefing and some additional ones, including but not limited to:
- Feasibility of bulk pass purchases;
• Sustainability and equity lens review of passes;
- Exploration of Urban Transit Area;
• Other sources of revenue, such as, municipal vehicle registration fees, ride-hailing fees, private parking levies, land value capture, sale of development rights at transit stations, road tolls, cordon (area) charges, and mobility charges;
• Feasibility of development rights / air rights on City-owned land near transit stations (Transitway and O-Train);
• Updated ridership projection model;
• Service alignment review; and,
• Advocate for additional funding from senior levels of government and funding similar to Metrolinx / GO Transit in the Toronto area.
ORIGINAL FUNDING FOR OTTAWA’s LRT
How has the original funding model for Ottawa’s LRT projects changed?
The original funding model for Ottawa’s Light Rail Transit (LRT) projects envisioned each level paying one-third of costs. Currently, however, local taxpayers pay 56% of the costs.
Is this the same funding model for all cities in Ontario?
No. There are considerable differences in funding models across the province. Unlike Toronto, Hamilton, Mississauga, and Brampton, where transit projects are fully funded by higher levels of government, Ottawa has been required to cover 56% of the costs for major projects like Stage 2 of the Light Rail Transit (LRT). This funding model is unsustainable, especially given that Ottawa residents disproportionately fund Toronto transit projects. Through their provincial taxes, Ottawa residents have contributed approximately $5,250 each toward Toronto transit projects, while contributing only $285 to projects in Ottawa.
What has been the total impact of this imbalance?
This imbalance has contributed to an annual operating shortfall of $140 million for Ottawa’s transit system, which threatens to force either significant tax increases or drastic service cuts. Both options would severely impact the quality of life for residents and the operational viability of businesses that rely on a robust transit system.
PAYMENT IN LIEU OF TAXES (PILT)
What is PILT and why does the Federal Government pay PILT?
As the capital city of Canada, Ottawa is home to a significant number of federally owned properties—approximately 1000 properties. These properties are exempt from traditional municipal property taxes. To compensate, the federal government provides Payments in Lieu of Taxes (PILT) to municipalities. These payments are intended to fairly contribute to the costs of municipal services provided to these properties, ensuring an equitable sharing of the city’s financial responsibilities.
In recent years, there has been a decline in PILT contributions from federal entities such as the National Capital Commission (NCC), Canada Post, and other federal agencies. Over the past five years, this reduction has resulted in an estimated shortfall of $99.2 million.
RESERVE FUNDS
What are the reserves?
Reserve funds are monies set aside to fund capital expenditures, similar to having a personal savings account for future needs. They are also used to manage unexpected expenses and to support the City’s finances for the long-term.
Each reserve fund is made up of several discretionary reserves. The use of each discretionary reserve is restricted to the specific purpose for which they were created and cannot be used for any other purpose, unless otherwise approved by Council and subject to any other relevant legislation.
Who establishes the reserves?
Reserves are established under Council authority with approved uses and source of funds.TheCity of Ottawa Reserve Policy provides recommended maximum and minimum balances for a number of reserves.
Are all the current reserve balances within the Reserve Policy guidelines?
New reserve balances will be provided with Budget 2025, however last yearthe suggested maximum balance for the City Wide Capital reserve Tax Stabilization, and Employee Benefit reserves were significantly higher than the maximum suggested balances. The Transit Operating reserve was slightly below the minimum balance as Transit Services continues to align the services with transitioning to increase rail services and aligning to new ridership needs.
Is money from the reserves being used to offset tax increases?
No. From a financial and accounting perspective, reserves are independent of the City’s ongoing Capital and Operating expenditures, but reserves do provide a source of funds to manage fluctuations and unexpected or emergency needs for both operating and capital requirements. The City continues to increase its annual contributions to reserves, which is not a source to offset tax increases.
Why have the balances of the reserves decreased over the last several years?
The increases in the reserve balances from 2020 – 2023 were a result of financial mitigation strategies put in place due to the pandemic, mainly through capital deferrals and closure of old capital projects. The return to normal levels in 2023 – 2024 was a result of returning the deferrals and several larger capital projects, which is normal for the rate program and bigger capital projects that vary year to year.
The City’s sound financial management placed the municipality in a strong position at the onset of the pandemic as can be seen from the 2019 ending reserve balances. Immediately following the beginning of the pandemic and continuing throughout 2020 – 2022 and into 2023, the City implemented significant financial and non-financial mitigation strategies to protect the City against the ongoing uncertainties of the pandemic. As a result of these strategies the City’s reserves increased significantly over this time frame, all of which regular reporting and updates were provided to Committee and Council.
LANSDOWNE
Is it true that Lansdowne 2.0 will add 1% to our annual taxes?
No, this is not true. Lansdowne is not being funded from a tax increase. The funding strategy approved by Council assumes $16.7M debt servicing coming from the existing tax target, not from a 1% tax increase. The City is adding a $1.3M pressure annually for 13 years which equates to 0.065 of 1% and can be accommodated within the existing tax target. It will also be offset by other revenues, including property tax uplift, the sale of air rights, ticket surcharges, rent, waterfall distributions.
Where can I read about the financial strategy for Lansdowne?
Page 114 -24of theNovember 2023 report to Council on Lansdowne outlines this.
Can the money that we allocated to Lansdowne be used to address the current financial situation if Council decides not to move forward on this project?
No. Lansdowne will be paid through debt servicing. There are therefore no funds available to be reallocated elsewhere.
DEBT FINANCING
Can we finance the transit deficit through debt?
No. Provincial legislation limits the use of long-term debt to financing the construction or acquisition of capital assets that have been approved by Council.
Why do we use debt to finance large city-building projects and why is this permitted?
Long-term debt is an important source of capital financing for the City to be able to grow and maintain its assets in a state of good repair. Provincial legislation limits the use of long-term debt to financing the construction or acquisition of capital assets that have been approved by Council. The term of the long-term debt must be equal to or less than the life of the asset. The province limits the total amount of municipal long term debt servicing to 25 per cent of its own-source revenues.
The Chief Financial Officer/Treasurer, under the City of Ottawa Delegation of Authority By-law, has authority to issue debt for capital projects up to a maximum amount approved by Council as part of the annual budget process and in accordance with the legislative criteria set out in the Municipal Act, 2001.
What is the City’s total debt?
The total net long-term debt outstanding as of December 31, 2023, was $3.265 billion, which was an increase from $3.21 billion the previous year. In the same year, the City added $1.70 billion in new tangible capital assets to its inventory, increasing the total net book value of the City’s tangible capital assets to $22.25 billion. The outstanding net long term debt of $3.265 billion represents 14.85 per cent of the value of the City’s tangible capital assets. From a taxpayer’s perspective, that is equivalent to a $74,250 mortgage on a $500,000 home.
All debt was issued in accordance with the Delegation of Authority By-law.
What are examples of projects in the city that have been funded with debt?
LRT Stage 1 and 2; Lansdowne 1.0 stadium and urban park; roads; sanitary Sewer; Water Services ( including $60 million for Lemieux Island Transmission, $60 million for Combined Sewage Overflow Storage Tunnel, and $50 million for ROPEC Plant Digester Expansion) and t various services, buildings, structures and other assets.
More information
How can I find out more about municipal budgeting?
There is an “Understanding your City Budget” page on ottawa.ca which includes budget basics, operating/capital, how the budget is funded, budget terms, the process, and information on the long range financial plans.
Also, MFOA provides a Finance 101 course which includes 14 modules. Although there is a cost, the course provides valuable information.