Archived columns and blog posts by Matt Elliott

Clarification needed on Mayor Rob Ford's budget comments

By: Metro Canada Published on Fri Jan 11 2013

As much as I appreciate that Mayor Rob Ford finally showed up to make some substantive comments on a city budgeting process that began three months ago, I'm going to have to ask for clarification.

In a speech he gave yesterday to his Executive Committee, Ford claimed that his prudent budgeting measures have helped Toronto avoid fiscal ruin. “By getting spending under control,” he said in remarks later posted on Facebook, “we are borrowing less and are no longer on a collision course with our debt ceiling.”

How does that make any sense?

The first problem with this line of thinking: getting operational spending under control has zero impact on the city's borrowing. Acknowledging this is fundamental to understanding how municipalities prepare their budgets. Toronto does not, cannot and will not run any kind of year-to-year operating deficit. City Hall will never borrow money to cover the cost of regular expenses.

Ford could, I guess, have been referring to getting capital spending “under control” — which would, in theory, free up money for operating expenses — but his administration has made very few changes to the long-term capital plan. And that's for good reason. Most of the city's planned capital spending is on state-of-good-repair needs. If we don't buy it, stuff will break or fall apart.

Second: Toronto does not really have a “debt ceiling.” At least we don't have one in the way that the American government does. Toronto doesn't have a hard limit that can provoke legislative games of chicken and ridiculous analogies about cliffs. There is no cap on the total amount of debt Toronto can carry, and, even if there were, we've never come close to equalling debt levels carried by other cities. There's a reason our credit rating is so good.

What Toronto does have is a council-instituted policy that puts a guideline on the amount the city pays in debt servicing costs in any given year. That guideline is currently set at a level equal to 15 per cent of property tax revenue. And property tax revenue works out to only about 40 per cent of the total operating budget. In other words, it's a very conservative target.

Still, there's nothing wrong with conservative targets, because too much debt can and will hurt a government's ability to property fund services. But if the city was ever on a “collision course” with its debt ceiling, it was only because Toronto, as an aging and growing city, has a veritable boatload of needs. City Hall hasn't been out there spending capital dollars on useless tchotchkes — they've been buying new subway cars, streetcars, water mains and spackle to fix the holes in the walls at TCHC homes.

What the Ford administration has done with the “debt ceiling” is, first, push a number of projects beyond the 10-year funding envelope the capital budget deals with. That's a cheap and easy way to find savings, and not a strategy unique to this administration. Second, they've chalked up a big chunk of planned capital spending to some sort of mysterious “financing strategy” that seems to hinge on the sale of publicly-owned assets.

That's how they're dealing with the “debt ceiling” and avoiding the supposed “collision course.” The administration's mostly ineffective efforts to wrangle big savings on the operating side have got nothing to do with it.

This post was originally published at on 2013-01-11T00:00:00.000Z

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Matt Elliott

City Hall watcher, columnist and policy wonk in Toronto.
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