From $350 million surplus to $774 million deficit in one Ford year?

We’ve heard a lot recently from Mayor Rob Ford and his supporters about how the city is facing a $774 million budget hole. This crisis is used to explain why we need to consider the possibility of slashing snow removal, contracting out garbage collection and stopping the practice of fluoridating the water.

But wait! Here comes Councillor Gord Perks, who sat on the budget committee of David Miller (and alongside Shelley Carroll and Kyle Rae, did most of the heavy lifting of actually writing those last few David Miller budgets) to argue with the math. As he was quoted in Torontoist, without much context, my old friend and former colleague Perks says:

The mayor’s allies are profoundly misleading Torontonians. [...] In 2010 we ran a $350 [million] surplus. I don’t understand how in one year that becomes a $774 million deficit. The important thing is though, that water and garbage are not on the property tax, so none of the cuts to things like environment days or fluoridation or any of that has a single thing to do with your property taxes.

To which, I imagine the vast majority of readers say, “WTF?” At least, that’s what my work colleague Rob Duffy said to me, demanding an explanation. Has Rob Ford really dug a $1 billion hole in during his eight months in the mayor’s chair?

Not exactly. Perks is not lying, those numbers are more or less accurate. But for their shock value, they do a bit of fancy dancing around our concepts of what the budget is and means, and leave out some pertinent details. The fact is that Ford is using the projected deficit number for 2012 for shock value to justify cutting services, while Perks is using the actual surplus number from 2010 to justify saving them.

Here’s how it actually works:

First of all, when we discuss the budget, we mostly talk about the projected budget that gets approved by council: it itemizes the amount of money each department is allowed to spend in the upcoming year. This budget is required by provincial law to balance: no council can pass a budget that projects an operating deficit. [*]

For years, the city of Toronto has faced a structural deficit of about $500-$700 million dollars. This means that every year when we write out our projected expenses and our projected revenue, we see a shortfall of about half a billion. Once that number is announced, there’s usually a period of shock-inspiring possible cuts announced to illustrate how serious the problem is. [**] Then, when the panic has taken hold, everyone goes about shaving a bit here, deferring expenses there, across every department, until the $700 million number gets down to zero. This is the same way you might, in your home budget, decide that rather than selling your car to make your budget balance, you’ll budget $10 less per week for groceries, $20 less per week for entertainment, and $5 less per week for coffee, etc. etc. Since this is projected spending—the size of each department’s allowance—the money can usually be found. The budget is balanced, and then it gets passed by council.

In 2010, for example—the year Perks is referring to—the city faced a projected deficit of $821 million. After weeks of haggling, that number was balanced without any significant service cuts at all, and with just a 4 per cent tax increase for residents (lower for businesses).

This process has taken place under Mel Lastman and David Miller pretty much every year since amalgamation.

Now, at the end of the year, after all the money has been spent, we take our projected budget—which was approved at the start of the year by the process I just outlined—and compare it to what we actually spent. As you’d hope, we usually find that we did not spend every penny we budgeted: we have a surplus. This is because the budget contains enough money to deal with emergencies that may arise (for example, you budget enough money that even if there’s a big blizzard, you’ll still be able to afford to clear the snow). It’s also because the city staff are drilled with a mantra to save money wherever possible, so in many cases if a staff member unexpectedly quits, they are not replaced and their work is reassigned, for example. The budget is intended to provide us enough money to get through a year where costs are higher than usual. Which means in a normal year where no emergency-spending situations arise, we should show a surplus. (This will be true of your home budget, too, if you’re doing it right). This surplus can be rolled into the following year’s budget to defray the new projected deficit.

In most years, the surplus has been $50-$60 million. In 2009, in part due to the garbage strike and lighter than usual snowfall, it was $181 million. In 2010, partly due to higher than expected revenue from parking fees and from investments the city had made, we showed an unusually large surplus, as Perks says, of $350 million. That lowered the traditional budget hole Ford faced for the 2011 budget considerably.

So you see: while Perks is technically right, there’s another, perhaps more accurate way to phrase all this. It is that going into the 2010 budget season, David Miller faced a projected budget shortfall of more than $800 million, and he managed not only to balance the budget without cutting any services at all, but to eventually show a huge surplus. So why is the somewhat smaller shortfall that Ford faces an emergency? Why would this, lesser crisis, require considering slashing whole government departments?

Now. A few other things: that $774 million hole we’re all told to panic about would be considerably smaller if Ford had not eliminated the vehicle registration tax, frozen TTC fares and frozen property taxes.

And finally, as Perks notes at the end of his quote, garbage collection and water services are both paid for directly through people’s water bills, or “Utility Bills,” as the city calls them, not from general revenues. So cutting them will have no impact on property tax rates, nor, presumably, on the projected budget deficit. Cutting those things would have, I think, the effect of lowering people’s water bills. Which may be a valuable goal (or it may not be), but is a sideshow from the real budget discussions.



[*] So how does the city incur debt, you ask? When we build or buy things that are assets, we are allowed to borrow in order to spread the cost over a period of years—the same way you might not have a credit card to buy groceries while you will have a mortgage to buy your house. The assets are in the capital budget, which is separate and is not required to balance. The value of the assets partially offsets the  liability of the debt—that is, you can sell your house to pay off your mortgage if you get into trouble. [back]

[**] Remember, anyone, when Miller talked about cutting bus routes  and shuttering the Sheppard subway and closing libraries on weekends in the leadup to the 2008 budget when Miller wanted “new revenue tools”? [back]

Origin
Source: The GridTO