Draft Report On City of Toronto's Financial Future

REPORT FOR ACTION
City of Toronto's Long-Term Financial Plan – DRAFT

FOR DISCUSSION – 20170712 – 0.1
Date: September 12, 2017

To: Executive Committee
From: City Manager, Deputy City Manager & Chief Financial Officer, Deputy City
Manager Cluster A, Deputy City Manager Cluster B
Wards: All
SUMMARY
[INSERT SUMMARY]
RECOMMENDATIONS
The City Manager and DCMs recommend that [potential recommendations for
discussion]:
Principles of financial management

1. City Council adopt the following principles of financial management [TBD]
a. [Insert principles we'd like Council to follow. This could be a section of the
LTFP document]
Financial direction
2. City Council direct the City Manager and Deputy City Manager & Chief Financial
Officer to [insert recommended financial direction, for example, increase
revenues in order to maintain existing service levels and capital projects]?
Governance and process strategies

3. Leverage or fully utilize the role of Executive Committee
4. Codify [the (change of) routing of reports through Committees] in the Financial
Control Bylaw and Council Procedural Bylaw
5. Require all strategies and plans to include financial estimates and/or a strategy to
finance or fund
6. [Changes related to corporate or Council governance?]
7. [Changes related to multi-year budgeting and planning?]
Expenditure strategies
8. Implementing a Service Review Program that will take stock of what services the
City delivers with a focus on spending for impact by examining the following 2
critical conditions:
a. “Doing the Thing Right” :
i. Minimizing the cost of services through cost management,
exploring opportunities for outsourcing and a program that will
modernize and transform City processes.
ii. Examining service levels against standards and benchmarks and
adjusting for similar outcomes; and,
b. “Doing the Right Thing Well” :
i. Assessing and rationalizing service offerings for overlap; relevance
and impact, with a focus on innovating the services we provide.
c. Strategically managing the City’s current assets and capital expenditures
based on best practices
d. Planning for the Future
9. Capital prioritization
a. Establish a third party reference group to examine and comment on long-
term trends, including demand and utility, of major strategic capital
infrastructure plans by the City.
Revenue strategies
10. Property tax
a. Review and report back on hardship-based tax mitigation / deferral
programs
b. Study and report on incidence and relative tax burden among GTHA and
peer cities
c. Study the merits of a progressive residential property tax rate, including its
use to raise additional revenue
d. Report back on tax preferences / concessions (underway)
e. Consider a phased dedicated capital tax levy of X% / year for Y years
11. Transit fares
a. Review and report on funding relationship options to provide incentives for
the TTC (e.g., link funding to ridership (per paid fare), fund at target
revenue cost ratio)
b. Request a report on a plan to phase out cash/tokens and facilitate reliable
card payment
c. Request a report on market risk and options to integrate service with
private taxis / vehicle-for-hire (e.g., Uber)
12. Water rates
a. Report on storm charge options (underway)
13. MLTT
a. Variability: Allocate 10-20% to capital financing reserve rather than
operating budget
b. Tax preferences: Review efficiency / effectiveness of $80M First Time
Home Buyers rebate as part of tax preference review
14. Development charges
a. Seek Development Charges Act amendment to lift historical level of
service caps
Draft / Confidential Advice Page 2 of 50

b. Capital expenditures: Require that budget requests be benchmarked
against development charges historical level of service, identify gaps, and
consider spending at historical service levels (preserves future
development charges funding levels)
c. Budget for topping of DC reserves from the property tax base to ensure
the growth share is fully funded (eliminate budget disincentive to spend on
growth)
d. Review and justify exemptions as part of the 2013 Development Charges
By-law replacement
15. Personal Vehicle Tax
a. Report back on options to reintroduce a PVT, designed to fund a specified
purpose which is linked to the general incidence of the tax and addressing
potential future declining / changing ownership structures
b. Request that a future tolling report identify timing strategies such as
integrating
16. Road tolls
a. Request that a future tolling report identify timing a strategy such as
integrating a request to allow municipal road tolls with the roll out of
provincial road tolls, or defer until the overhead ratio meets the target
threshold, [15]%, and that it addresses a potentially declining driving base
(tested through a third-party "future tech" review – e.g., RER, autonomous
cars, travel pattern shifts)
17. Parking sales tax
a. Seek provincial authority to implement a parking sales tax as an interim
measure until road tolls are implemented (at which point the parking sales
tax would be replaced by tolls)
18. HST
a. Support AMO's position in advance of any Provincial decision to raise the
HST, and endorse the gas tax allocation model to be used for provincial
transfers of HST
Asset strategies
19. CFC
a. The annual 10% CFC increase policy be revisited when CFC has reached
the 10 year average forecasted net capital expenditure on state-of-good-
repair
20. Investment management
a. In light of and to take full advantage of the new prudent investor rules,
starting in 2018 increase the investment return allocation to reserve
balance to at least the rate of inflation (from the 30 day Treasury-bill rate),
and adopt a policy of reducing unfinanced capital to $400 million by 2022.
21. Development charges
a. Capital budget directions in the future include a requirement to benchmark
growth related capital plans against DC Background Study service levels
to ensure that spending rates are not undermining the City's future DC
rates

b. The City expressly transfer the tax or rate supported co-payments related
to those exemptions DC which are reducing capital contributions to DC
reserves into the related project reserves
22. Debt service ratio policy
a. The 15% debt guideline by adjusted to exclude special capital levies from
the tax base, and the related debt service from the ratio calculation. (In
other words, special levies should be allowed to be 100% dedicated to
debt service, and not limited to 15% like the general tax levy.)
Intergovernmental strategies
23. [Potential recommendation related to adopting a full lifecycle approach to transit
(or major capital?) intergovernmental funding]
FINANCIAL IMPACT
[Forthcoming]
DECISION HISTORY
At its meeting on June 7, 8, and 9, 2016, City Council adopted recommendations

related to the report, "The City of Toronto's Long-Term Financial Direction" including a
request to report back to Executive Committee in the fall of 2016 on multi-year financial
and budget process, strengthening the City's strategic decision-making and financial
oversight, a multi-year expenditure management plan, a multi-year revenue strategy,
and an asset optimization study.
http://app.toronto.ca/tmmis/viewAgendaItemHistory.do?item=2016.EX15.1
At its meeting on July 12, 13, 14, and 15, 2016, City Council adopted recommendations
related to the report, "The City of Toronto Long-Term Financial Direction – Consultation
Plan," including a request to consult the public on the City's long-term financial direction
and to engage a third-party to assist in developing broad messaging and methodology.
At its meeting on December 13, 14, and 15 2016, City Council adopted the City
Manager's report EX20.1, "City of Toronto Long-Term Financial Direction Update",
which provided an update on the renewal of the Long-Term Financial Plan, analyzed the
key financial challenges facing the City, and presented key initiatives being advanced in
support of the Long-Term Financial Plan.

At its meeting on December 13, 14, and 15, 2016, City Council adopted
recommendations related to the report EX20.2, "The City of Toronto's Immediate and
Longer-Term Revenue Strategy Direction," which provided a framework for the
application of existing and new revenues including principles for the selection of
potential revenues, social and economic impacts, and implementation considerations.
The report provided detailed analysis on a range of revenue options to address
immediate and long-term needs, and recommended a number of revenue options.
At its meeting on December 13, 14, and 15, 2016, City Council adopted
recommendations related to the report EX20.3, "Asset Optimization Review – Toronto
Hydro Corporation and Toronto Parking Authority." The report presented findings of an
asset optimization study on Toronto Hydro Corporation (THC) and Toronto Parking
Authority (TPA). It recommended retaining ownership of both assets and to make a
direct City investment in THC to enhance its capacity to pay dividends.
COMMENTS
Please see the attached City of Toronto Long-Term Financial Plan document.
[Note: we could include all arguments and analysis in a professionally designed

document that would replace the 2005 LTFP. It could be updated as needed (e.g., if
Council makes decisions in September that require an update, or if we'd like to make an
update at the beginning of the next term of Council.)]
CONTACT
SIGNATURE
Full Name
Title of Official
ATTACHMENTS
Attachment 1: City of Toronto Long-Term Financial Plan
• Appendix 1 – Modelling and forecasting

• Appendix 2 – Public consultations
• Appendix 3 – Financial condition

City of Toronto Long-Term Financial Plan
[Note: This will be designed as a "glossy" document that can also be posted online to replace the 2005
LTFP.]
Contents
Executive Summary......................................................................................................................... 7
Introduction .................................................................................................................................... 7
The Problem and Challenge ............................................................................................................ 9
The status quo is not an option ................................................................................................................ 9
Our governance structure is outdated and inadequate ......................................................................... 15
Bridging mechanisms are not sustainable .............................................................................................. 16
Constraints .............................................................................................................................................. 17
Policy choice – What is the financial direction of the City?.......................................................... 18
Scenario 1: Live within current revenues ............................................................................................... 19
Scenario 2: Live within current service levels ......................................................................................... 20
Scenario 3: Deliver on Council directions, strategies, and plans. ........................................................... 20
Principles and decision rules ................................................................................................................... 20
Financial strategies to help achieve Council's vision .................................................................... 21
Governance and process strategies ........................................................................................................ 21
Expenditure strategies ............................................................................................................................ 27
Revenue strategies.................................................................................................................................. 30
Asset strategies ....................................................................................................................................... 35
Intergovernmental strategies ................................................................................................................. 39
Appendix 1: Modelling and forecasting ........................................................................................ 44
Appendix 2: Public consultations .................................................................................................. 45
Appendix 3: Financial condition.................................................................................................... 49

EXECUTIVE SUMMARY
[Forthcoming]
INTRODUCTION
Toronto is a great city

According to standard benchmarks, Toronto shows exceptional performance as a city and region in
terms of economic and population growth, success in integrating newcomers and sustained increases in
building and development. Toronto is one of the most liveable and competitive cities in the world as
demonstrated by various international rankings and reports. In addition to securing its position on the
world stage, Toronto’s rankings confirm that it continues to offer a high quality of life for its 2.8 million
residents who choose to live and work here, and the nearly 90,000 businesses that operate here.
Current financial state

The current financial condition of the City of Toronto reflects prudent fiscal practices, low residential
taxes, high but manageable debt and an AA credit rating. However, there are systemic and emerging
issues that could potentially threaten the City's financial sustainability. It has been challenging for the
City to keep up with closing a persistent gap between expenses and revenues. Council has directed an
expansion of service, but has not directed an expansion of funding. This growing gap is unsustainable.
The core municipal services delivered to Toronto's residents and businesses – things like safe roads and
drinking water, police and fire, waste management, libraries, and parks and recreation – are reliable and
fitting of our global city. However, the City faces unique challenges associated with both accommodating
growth and creating economic and social opportunities for residents. Of notable concern are the
substantial costs and impacts of traffic congestion and poverty. This is driven by historic under-
investment in transit and other infrastructure. And, far too many individuals and families in Toronto
struggle with issues of exclusion and disadvantage.
Each year, the cost required to keep delivering the same day-to-day services to residents and businesses
increases by hundreds of millions of dollars, Billions more are required to build planned infrastructure
like transit, housing and parks. At the same time, demand for services is increasing, and costs are rising
faster than inflation – which means it costs more each year to simply keep delivering the same level of
service. The City has achieved significant savings through expense management strategies [INSERT
EXAMPLES], and continues to look for savings and efficiencies. Despite this, current expense
management strategies alone have not been enough to maintain existing services and programs. Council
has committed not to raise property tax – the City's primary revenue lever – by more than the rate of
inflation, and even with other revenue sources rising at higher rates, it is not enough to sustain current
service levels. At the same time, Council has opted not to cut services or reduce costs. Add to this a
growing list of unfunded operating and capital commitments, annual budget gaps filled by deferring
needed investments and draining reserves, and reliance on unpredictable revenue from the real estate
market in the form of the Municipal Land Transfer Tax. In short, we have a structural financial problem
that needs a long-term solution.

These problems have developed over years, and solutions will take both time and effort. It is important
to focus on shifting the underlying structure of both expense and revenue management, not to search
for short-term measures. In a very real way, decisions made over a number of years have made both
future expense tightening and revenue increases inevitable. It is no longer appropriate or feasible to
defer difficult financial decisions for future years.
A path forward
Without definitive action the City administration will become increasingly challenged to deliver on
Council's directions and provide the services and infrastructure Torontonians expect and value. Many of
these strategies may be considered controversial. But real change will be required to ensure the City's
financial stability into the future and to support Council's policy direction to invest in and support the
growth of our city. It is better to fix these problems sooner and moderately, rather than later and
severely.
The City has made much progress since introducing the comprehensive Long-Term Fiscal Plan (LTFP) in
2005 [INSERT EXAMPLES].City Council has taken many steps to implement the recommendations of the
Plan, while working with other orders of government to improve the funding of capital programs such as
transit, and provincial cost-shared programs.
This renewed Long-Term Financial Plan provides a view of the gap that will arise between current
expenditures and revenues over the next five years if these issues continue unaddressed. The LTFP also
outlines principles and provides analysis to guide the development of new strategies to manage the
City's finances. In simple terms, the LTFP is intended to help Council address [OR …to seek direction from
Council on…] the mismatch the between the investment requirements of a vital, growing and challenged
city within our existing policy context and toolkit. The LTFP is not an exercise in precision, but remains a
work in progress which lays the groundwork for improvement with each update. It is part of a series of
steps we have taken to improve our understanding of our long-term financial situation and to favourably
influence our long-term future.
A city-wide consultation on renewing the Long-Term Financial Plan femonstrated the public's concern
for the City's financial health, the need to set a clear direction and vision for the City, and a desire to find
solutions to pay for that vision that does not compromise our social, environmental, and economic
goals.
City finances are often complex and seemingly abstract. But they are fundamental to achieving City
Council's economic, social and environmental strategies intended to lead Toronto forward. Operating
expenses are not simply government spending for its own sake – they are investments of vital public
resources by Council towards a broader public good. Capital investments address issues around
livability, congestion and public space in our dynamic and increasingly dense and complex city
We need to ask ourselves what kind of city we want and we need a plan to fund that long-term vision. A
Long-Term Financial Plan can help Council realize that vision.

THE PROBLEM AND CHALLENGE
The status quo is not an option

Council has directed an expansion of service, but not a way to pay for it. The City's expenditures – while
constant when adjusted for inflation and population growth – continue to rise year-over-year. In other
words, the City is spending less on each resident and business in the city, but as the city grows, and we
address previous years of under investment, costs continue to rise. However, our revenues cannot keep
up. Council has directed residential property tax revenues – our main source of funding – to rise at the
rate of inflation. We have been supported by an unprecedented increase to the Municipal Land Transfer
Tax (MLTT) and transfers from other governments, but these are not dependable revenue sources and
are in and of themselves insufficient to deliver on Council's directions, strategies, and plans.
Figure X shows a projection of our operating and capital expenses over the next five years, compared to
our means to pay for those expenses, if no policy changes are made. If Council maintains its current level
of services and capital projects as well as its current rate of revenue increases, over the next five years
the City would accumulate a shortfall of $XM by 20xx. This “base case” forecast has been developed
strictly on assumed inflationary increases, 2017 approved service levels and modest increases in the
City’s own source revenues, particularly MLTT and property tax revenues. This projection is founded on
a series of assumptions, only uses information known at the present time, and does not include
speculation as to future directions of City service levels, revenue policies, or additional assistance from
other orders of government. New or unforeseen spending requirements not currently reflected in these
projections, or reductions in revenue from the MLTT or funding from other orders of government, would
further increase this shortfall.
Figure X – 5-Year Operating Expenses and Revenues - DRAFT (could also include funded capital +
unfunded operating and capital)
14 $860 M
Gap
13
12
11
10
2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 2021 2022
Expense (Status quo) Revenues (Status quo)
These projections estimate that the City will face significant annual operating and capital budget
shortfalls over the next five years, which cannot be addressed through projected efficiencies or existing
revenue policies.

Going forward, a 5-year forecast for the years 2018 to 2022 demonstrates that forecasted revenue
growth based on inflationary tax rate increases and existing revenue sources will continue to be
outpaced by expenditure growth.
The gap between expenditures and revenues forecasted beyond 2018 appear to be nominal in relation
to pressures faced by the City in previous years, and closing the gap appears to be within reach.
In the absence of new and/or increased revenues, significant expenditure reduction strategies would be
necessary to match revenues. In essence, annual inflationary tax increases would be insufficient to cover
growing gross expenditures.
City Council has approved multiple service policies, strategies and plans, most of which require both
operating and capital investments over a multi-year period. Most of these approved policies, strategies
and plans are aspirational in form and do not, at this point, have associated implementation plans
complete with timing, costing and targets to gauge results.
• During its consideration of the 2018 Budget Process Schedule and Directions report, Council did
request the operating and capital cost commitments for approved polices, strategies and plans.
This information is being collected and will help form the basis for spending priority-setting and
establish a multi-year funding plan.
As well, over $30 billion in capital investments over the next 15 year have been identified to date as
unfunded due to the City's current policy to cap debt servicing costs to no more than an average of 15%
of property tax revenues over a 10 year period.
In addition, the City’s official planning process regularly establishes secondary and neighbourhood plans
that also require investments in infrastructure and community facilities that will result in added
operating costs, many of which have not been accounted for as part of the City’s unfunded capital
priorities.
In the absence of approved multi-year spending priorities and adjoining plan, the forecast at this time
cannot reliably account for which new service investments required to meet increased service demands,
and similarly, which of the City’s unfunded capital investments critical to accommodate growth and
Council’s city-building objectives, will be funded.
If one were simply to include the added expense to fund only Council’s most immediate service
priorities for childcare, social housing and transit expansion, the gap between expenditures and
revenues would widen by XX.
Furthermore, the fiscal gap could be larger should certain economic conditions impact expense and
revenue estimates during the period of this forecast. A change in interest rates, for example, would
impact the City’s cost of borrowing, its investment earnings and make the housing market more volatile,
thereby impacting the revenue to be generated from the Municipal Land Transfer Tax.

Current expenditure framework
A whole-of-government analysis – including tax- and rate-supported programs, agencies, user fees,
government transfers, and other sources – provides the best indication of the total cost of government.
Figure X shows the growth in total operating expenses from 20xx to 20xx.
Figure X – Operating Expense History by Cost Driver (Nominal cumulative % increase)
Figure X – Operating Expense History by Cost Group (Nominal vs Real vs Real per Capita) – EXAMPLE OF
THE TYPE OF QUANTITATIVE VISUAL WE COULD USE

[Describe graphs, e.g.…. The majority of expense increase is driven by labour and inflationary costs –
increases necessary to maintain the same level of service year-over-year. Budgeted gross increases have
increased moderately at an average annual rate of X percent, as measured in nominal dollars. The
cumulative increase has been X percent. Additional factors should be taken into account in order to
better assess the overall trend and affordability of expense. When adjusted for inflation – which erodes
purchasing power by approximately two percent annually, as measured by the Consumer Price Index –
operating costs have fallen by about X percent, or slightly less than one-half percent annually. When
population growth is taken into account – that is, when we consider how much the city has grown,
which both complicates service delivery as the city becomes more complex and provides a broader base
of residents and businesses over which to spread the costs of government – municipal expenditures
have actually declined about $X or X percent per resident.
[Emphasize the amount of labour cost constraint.]
Each year through the budget process, the City has been able to report progress in addressing expense
pressures through a focus on savings, generally in response to annual targets. In some cases, savings
reported by divisions and agencies have corresponded to significant reductions to City expense. The City
has undertaken a range of cost containment and efficiency exercises in the past. [Quantify.]

The City has controlled expense growth. However, this achievement has rested on a series of unique
conditions, which are not likely to persist, including: reductions in funding requirements for social
assistance and shared cost programs; short-term savings and reserve measures; deferral of expenses
related to major city-building projects and programs.
In most years, however, "savings" reported through the budget process do not necessarily represent
reductions against the prior year's budget or actual expense levels. In part this is a function of how the
savings targets are set – against budget projections rather than actual spending. Savings targets are also
typically set for net budget expenses, which means that divisions and agencies with alternative revenues
may use these to offset targets. City divisions, which are subject to greater scrutiny by Budget
Committee, typically show greater adherence to these targets than agencies. [Plain language this.]
[Paragraph on agency expense trends and challenges.]
City operating budgets have been highly constrained but, other than social assistance, have not shown
actual and sustained reductions in the key cost drivers. This is largely a function of Council and agency
decisions to prioritize maintaining or enhancing service levels, rather than service reductions.
Looking forward, further expense reductions would require strong action and a willingness to both
reduce and sustain reductions in service levels. This would require significant changes in Council and
agency direction.
Current revenue framework

In parallel with expense, it is important to consider the patterns of recent revenue performance. This
again provides the basis for assessing future sustainability of current policies and trends.
City revenues have generally performed well over the past X years. Toronto has benefited from a
number of factors beyond its control and difficult to forecast, including strong real estate market
performance. [Description of MLTT risk]
Figure X – Revenue History (Nominal cumulative % increase) EXAMPLE OF THE TYPE OF QUANTITATIVE
VISUAL WE COULD USE

[Describe graph]
There are significant shifts in the share of overall revenue attributable to different sources. Key
outcomes over the past X years include: decreasing reliance on property taxes; long-term increases in
utility rates to create sustainable funding for water and solid waste services; reliance on user fees,
particularly from transit users; strong growth in the MLTT; and moderate fiscal relief from provincial
uploads.
Figure X – Revenue History (Real per capita) EXAMPLE OF THE TYPE OF QUANTITATIVE VISUAL WE
COULD USE
[Describe graph]

Figure X – Intergovernmental Transfers History (Real per capita) EXAMPLE OF THE TYPE OF
QUANTITATIVE VISUAL WE COULD USE
[Describe graph]
In the absence of other revenue increases, the City has reached its debt capacity. The self-imposed debt
ceiling restricts debt service costs to 15 percent of property tax revenue. We have reached that limit.
[INSERT GRAPH SHOWING DEBT CAPACITY]
[Insert paragraph describing new revenue sources received through COTA – MLTT, PVT, TPST –
challenges with implementing other new sources (e.g., prohibitively administratively complex and/or
politically challenging) and that any feasible new source would not be sufficient to adequately address
the gap on its own. Include brief discussion of road tolls as an example of lack of local autonomy.]
Current net pressures

Figure X shows the net budget pressures or "gaps" which would result from expense and revenue
forecasts. This provides the best and most conservative assumptions regarding the combination of
annual expense and revenue measures required to sustain current service levels over time. As with
earlier analysis, this is a base case which does not account for any additional new expenses or savings
that may be approved by Council. Any incremental operating or capital investments will increase
expense. When considering this analysis, is it important to recognize that Council has shown a
preference for expanding services and approving new capital projects rather than restraining
expenditure growth.
[INSERT GRAPH SHOWING ACCUMULATED NET PRESSURE]
Our governance structure is outdated and inadequate

The City's current governance structures and systems pose a significant challenge to addressing our
structural financial challenges. Compared to similarly sized governments, City Council is not as effective

in setting whole-of-government direction. This manifests itself in many ways, but from a financial
sustainability perspective, it is most apparent in the City's relationship with its agencies.
Challenges related to agency governance is a primary contributing factor to the City's long-term financial
pressures. The City's relationships with agencies have not been conducive to reliable budget forecasting
or establishing credible budget targets and instructions. City agencies manage 48% of the City’s gross
operating budget, and 54% of the City’s overall workforce and account for a significant portion of
Toronto's estimated $30 billion in unfunded capital projects including 53% of the 2017 approved Capital
Budget and Plan.
Council is provided with different levels of financial information for City divisions and City agencies.
Divisions are subject to detailed review by Financial Planning staff and Budget Committee. Agency
budgets, while also reviewed by City staff and Budget Committee, are subject to board direction and
approval. Some of the City's most significant expense drivers are embedded in the budgets of TTC, TCHC
and the Toronto Police Service.
[Insert graph showing historical and forecasted agency pressures – For discussion]
[Insert paragraph on challenges setting and following strategic direction in general. E.g., inconsistent
decisions, multiple strategies and plans that are disconnected, etc.; I.e., framing the need to use the
current structure we have better, and change parts of the structure where critically needed; reference
the size of Council, which is about to grow, and associated governance challenges]
[Insert paragraph on reliance on decisions by other governments. E.g., lack of financial autonomy.]
[Insert paragraph on challenges with current budget process. E.g., annual targets applied across-the-
board; reliance on broad, future targets, etc.]
Some of the most fundamental and important steps in achieving successful long-term financial
management relate to Council decision-making and direction. The lack of sufficient integration between
program planning and the budget process has allowed for the development of unfunded operational
plans and, particularly, the significant capital overhang. [Expand on issue of approving strategies and
plans without a strategy to pay for them, and often without even financial estimates]
Bridging mechanisms are not sustainable

The City's structural financial challenge has been accumulating since X but has been mitigated largely
through unsustainable factors, most notably underinvestment and deferred investment in key city
building areas of transit and housing and unprecedented growth in the Municipal Land Transfer Tax. In
other words, the decisions made by Council to increase expenses but not increase revenues have always
been unsustainable but were feasible due to our good fortune of having a tax – the MLTT – that allowed
us to benefit from the city's booming real estate industry, and decisions to kick-the-can-down-the-road.
Most annual budgets have used temporary measures to offset expense pressures, including temporary
reserve draws and deferral of known operating pressures. These short-term measures used to balance
budgets in earlier years place incremental pressures in future years. [Continue this point, e.g., Council
continuing to defer solving the City's structural deficit, kicking-the-can-down-the-road]

[Unprecedented growth in MLTT is a risk.] Independent researchers, other governments, and real estate
market experts have been warning of a potential decline in housing prices and transactions over the
coming years. A decline in house prices and housing market activity would directly reduce MLTT
revenues. For example, a X% to X% decline in house prices and housing market activity [use industry
recognized estimate] would reduce MLTT revenues by X%, which is equivalent to a X% increase in
property tax.
[Insert graph showing impact of a decline in MLTT revenues – For Discussion]
[Insert graph showing the impact of deferred investments and borrowing from reserves – For discussion]
Constraints
Any solution set can only be found within existing constraints and limitations.
Risk tolerance
The City is responsible for critical objectives and key public policy priorities. It is not responsible to
recommend a path forward that has a high degree of risk. The City must balance its operating budget
every year, and so severe downside risk could result in cutting services to residents and businesses in
the absence of steep revenue increases from existing sources. Through the recent consultation on
renewing the Long-Term Financial Plan, we heard repeatedly that residents do not support cutting
services, especially if it would negatively impact the City's ability to deliver on its social, economic, and
environmental goals.
As a matter of basic fiscal prudence, we must manage against largely unknown, long-term, external
factors like: MLTT volatility; impacts of prior operating deferrals; other orders of government
demonstrating little capacity or willingness to relieve the City's operating pressures in any significant
way; escalating capital pressures due to delayed state-of-good-repair and other vital infrastructure
investments.
Governance
As already discussed, the City's current governance structures and systems pose a significant constraint
to any solution set. The current governance does not facilitate strategic, long-term decision making.
Changes to governance and process may be necessary to effectively address the City's underlying,
systemic financial challenges related to effective multi-year budgeting and planning.
Expenditure momentum
Savings can only be found within existing labour agreements, legal obligations, and legislated
responsibilities. Short- to medium-term savings can only be found within the relationships with the
City's unions and delegated responsibilities from other orders of governments. Substantive change may
require revisiting these agreements and relationships. The City will be entering into negotiations with [X
unions] in 20xx. The City of Toronto Act was just amended, and will remain as is until 20xx.

Council has a revealed preference to grow the size of government. It is rare that the accumulated
decisions from a Committee or Council meeting result in a reduction of expenditures. Throughout any
given year, there are numerous strategies and plans approved that significantly increase services and
capital investment. In addition, with notable exceptions, when staff bring forward proposed savings and
efficiencies – for example, through the annual budget process – these are often not approved by
Committees or Council.
Existing expenditure management strategies have not been sufficient to maintain service levels.
Incremental, annual revenue increases have largely allowed the City to maintain its service levels.
Toronto budgets have, as noted, been characterized by a wide range of stringent targets. Despite these,
year over year expense has increased. The structural drivers of many expense pressures have not yet
been addressed and cannot be realistically held without significant policy change. Council has frequently
reversed earlier savings measures.
In addition, the momentum of expenditures is very difficult to change. This is especially challenging with
the City's large agencies like the TTC and TCHC.
Revenues
• We've outgrown our legal framework
• Revenue option sterilization
• Municipal governments (and municipal finance) designed to run on property tax. Council has
made a conscious decision to keep property tax low.
• Unreliable long-term funding from other orders of government
• Reliance on real estate market
• Legislative constraints
o Legal / legislative framework (including COTA)
o Inability to exercise political autonomy (e.g., road tolls)
POLICY CHOICE – WHAT IS THE FINANCIAL DIRECTION OF THE CITY?

The city of Toronto, through its elected Council, must make a choice. Unless there is drastic change to
the City's underlying expenditure and revenue habits, either services must be cut or revenues increased.
It is likely both will be necessary.
There are three basic scenarios to address the long-term financial sustainability of the City, mitigate
existing risks, proactively address the annual budget gap, and invest in Toronto's future.
In any scenario, explicit expenditure and revenue strategies will be required to close the gap in a
financially sustainable way. Deferring costs and using one-time funding strategies also puts at risk the
sustainability of City services and their ability to meet the needs and expectations of the public.
Council must determine the extent to which expenditure or revenue strategies will contribute to closing
the fiscal gap and achieving fiscal and service sustainability.
Since late 2015 when staff first began its work to establish a long term financial direction and plan for
the City, staff advised Council that its should first establish its collective vision for the City to determine

the level and quality of services it wishes to deliver, determine and prioritize the City-building
investments required to achieve this vision and consider the associated expenditures necessary to carry
this out.
Figure X – Comparison of Policy Choices (DRAFT) EXAMPLE OF THE TYPE OF QUANTITATIVE VISUAL WE
COULD USE
Scenario 1: Live within current revenues

The City has a stable revenue base and predictable revenue growth that can form the basis of long-term
financial planning. Should Council wish to maintain tax rate increases at inflationary levels or even
support moderate increases, there will be a need for a wider range of expenditure management
strategies that reduce service levels and services and would its overall capital investments. This would
become more imperative should MLTT revenues remain flat, or in fact, decrease in the event of an
economic shift in the housing market, given the heavy reliance on MLTT revenue increases to fill the
budgetary gap in the last 4 years (confirm).
What has been evidenced to date, however, is a reluctance by Council to embrace changes to service
levels or service models, creating a mismatch between service aspirations and revenue generation.
Further expense reductions over the next 5 years will require strong action and a willingness to both
reduce and sustain reductions in service levels and reduce its capital program if residential tax increases
are to be kept at the rate of inflation.
[INSERT GRAPH SHOWING THE EXPENDITURE REDUCTIONS REQUIRED EACH YEAR, AND CUMULATIVELY,
TO MEET REVENUE LINE.]

Scenario 2: Live within current service levels
Alternatively, the City can choose to set its current service levels – that is, as they are currently delivered
without any future policy changes – as the base for financial planning. The gap between current
expenditure and revenue levels is $XM over the next X years.
In order to fund the desired expenditure level and any resultant gap, City Council would have to raise
revenues and would have to look to all of its under-utilized revenue-generating authorities to do so,
including property tax rate increases. This would be especially necessary if Council chose not to reduce
its services and service levels.
As discussed,
[INSERT GRAPH SHOWING THE REVENUE INCREASES REQUIRED EACH EARY, AND CUMULATIVELY, TO
MEET THE EXPENDITURE LINE.]
Scenario 3: Deliver on Council directions, strategies, and plans.

If Council wants to meet its current directions, strategies, and plans – what it has approved or directed
staff to do – revenues will have to be raised substantively, likely in addition to substantive changes to
the City's expenditure framework. A select list of approved strategies and plans can be found in
Appendix X. As directed by Council, staff have been working to estimate their cost. The City's multi-year
financial and service planning process does not require a financing strategy, let alone financial
estimates, for these types of strategies and plans to be approved by Committee or Council. This is in
addition to the City's unfunded capital list, which stands at $XB over the next X years.
It is estimated that to deliver on Council's current directions, the City will need to find an additional $XM
over the next X years. This will need to be achieved through a combination of extensive expenditure and
revenue strategies, although, as discussed, it will not be possible to make significant progress to funding
these initiatives without comparatively dramatic increases to revenues.
[INSERT GRAPH SHOWING GAP BETWEEN STATUS QUO AND UNFUNDED OPERATING AND CAPITAL
LINES]
Principles and decision rules

Council should adopt a set of financial principles and
Question:
decision rules to help guide it toward financial
sustainability, and remain consistent with the financial - Create a set of financial
direction it chooses. principles to match each
scenario?
[INSERT PRINCIPLES / DECISION-RULES. TBD]
- AND/OR a set of more generic
Potential principles (DRAFT, FOR DISCUSSION) principles to follow regardless
• Prioritize X [e.g., high level guiding prioritization of the scenario?
lens, e.g., SOGR over expansion

• Ensure operating and capital plans have adequate funding before they are approved and
implemented
• Manage expenditures [by…]
• Maximize existing revenue sources before implementing new options [by…]
• Mitigate risk and plan for contingencies [by…]
• Use debt strategically [by…]
• Operate with prudent foresight
• Promote integration of priorities and resources
• Apply cost benefit analysis to all City and agency activities
• Etc.
FINANCIAL STRATEGIES TO HELP ACHIEVE COUNCIL'S VISION

The Long-Term Financial Plan is designed to encourage progress towards the City's long-term financial
goal of sustainability. It does not recommend a specific path forward, but does quantify the impact a
range of strategies could have. These strategies are best thought of as "dials" or "levers", which can be
turned up or down to help manage expenditures and raise revenues. [Continue explanation, e.g.,
quantified to help better understand impact; description of work done to date; setting direction staff
will take; etc.]
Governance and process strategies

Recognizing some of the core limitations to any solution set, governance and process changes are
potentially a prerequisite to substantive changes on both the expenditure and revenue side. Potential
governance and process strategies can be grouped as follows.
Corporate governance
Changes or improvements to:
• Roles and responsibilities of staff vis-à-vis Council
o Strengthening some functions (e.g., City Manager and DCM & CFO) and clarifying others
(e.g., Division Heads)
• Internal controls and capacity
o Agenda forecasting and management
o Strategic alignment
o Strengthening central functions
o Staff clarify on financial planning and management framework
o Corporate planning, management and governance (projects and programs)
o Corporate capacity building
o Multi-year service planning
• Organizational design (?)

Council governance
Changes or improvements to make Council a more effective decision-making body.
• Role and mandates of Committees and Council – Clarify or
change
Questions:
o Executive Committee
o Budget Committee - What problems should be
o Standing Committees highlighted?
• Decision-making rules - How do we improve strategic
o Delegation of authorities direction and prioritization?
o Clarifying who has authority to make o Renewed City Strategic
recommendations Directions or Plan?
o Approving strategies and plans along with o What would be the
financial estimates and/or financing strategy process?
• Legislative process o Where does priority
o Routing of reports setting occur?
 E.g., what goes to Standing Committee - What are we planning on doing
and what goes to Budget Committee? for the next term of Council?
 E.g., Financial decisions only made by What foundational changes
budget committee; Standing Committees can (or should) happen now?
no longer making decisions with a
financial impact
 Codify the process in the Financial Control Bylaw and Council Procedural Bylaw
o Managing the number of reports, and what goes where
 (Linked to strategic alignment and agenda forecasting and management)
 Controls about who can submit items to Clerks
• Multi-year budgeting and planning
o Toronto's annual budget cycle is important. The budget process establishes the City's
financial plan to achieve its priorities for the year. However, there are constraints to
true multi-year financial planning in the current process. The process focuses narrowly
on the fiscal year under consideration. There is little detailed emphasis on prior year
performance and outcomes. Forecasts for revenue and expense are generally limited to
a two-year timespan. Most government budgets of comparable size and complexity
contain additional analysis of multi-year expense, revenue, economic and
intergovernmental factors.
o Council has an opportunity to establish broad guidance for divisions and agencies with
respect to the likely level of incremental investment available for services and City-
building infrastructure, before plans are developed and come forward for approval.
o Potential areas for actions (this term or next)

 As part of the annual budget process,
clearly show progress towards long-
term projections and/or strategies Question: What changes to multi-
 Require all City and agency strategies year budgeting and planning do we
and plans include a financial strategy want to make now? What do we
(e.g., how it could be paid for), and want to signal we'll do in the
financial estimates (e.g., what it will future?
cost)
 All decisions with a financial impact are
reviewed by the Budget Committee before going to Council (e.g., Standing
Policy Committee > Budget Committee > City Council)
Strengthen financial decision-making and oversight
Agency governance
Toronto's government includes, in addition to City divisions, 34 agencies, seven corporations, and nine
adjudicative bodies to achieve a range of City Council objectives and to deliver public services. The City
has Shareholder Directions in place for each of its seven corporations that set out shareholder
requirements including accountability and reporting to the shareholder. While the City has Relationship
Frameworks in place for most of its smaller agencies, there are opportunities to enhance the
governance, accountability and financial oversight of the City's larger agencies. In the absence of a
standardized framework, agency provisions are currently set out across a range of different instruments,
frameworks, by-laws, policies, and legislation.
An Agency Governance Review is currently underway. Full details can be found in the City Manager's
report on the governance review of city agencies coming forward in the fall. The outcome of this review
will be detailed agency directions for consolidation in a new Toronto Municipal Code chapter. Agency
directions will strengthen stewardship of City agencies and make the following improvements:
A. Enhance accountability
o Establish agency internal control requirements
o Formalize in the Municipal Code those policies that agencies must comply with and
those policies that must be adopted by boards under the City of Toronto Act
o Establish performance and risk management requirements
B. Strengthen strategic, fiscal and service alignment

o Consolidate current and recommend new directions regarding the annual submission of
the agencies' operating budgets and capital budgets and plans, and all in-year financial
controls in alignment with City guidelines

o Outlines a more formal mechanism for the City
Questions:
Manager as well as the Deputy City Manager &
Chief Financial Officer to provide input into the - Should agencies receive
budget review process at the Board and Budget mandate letters and use them
Committee level to set multi-year priorities?
o Sets out the process for variance reporting, - If not, what other tool should
annual reporting, budget adjustment requests we use to provide agency-
and audits to strengthen financial management specific guidance and whole of
and oversight government approach on City
o Establish periodic mandate reviews and formal priorities?
directives to boards - If so, what would they set
priorities against? (e.g., City of
C. Improve agency capacity and effectiveness Toronto Strategic Plan?)
o Enhance agency capacity for compliance and - How do we ensure agencies
high performance meet their directions? Is there
o Provide policies, guidelines and corporate need for an oversight
support to improve board capacity function?
o Improve board orientation and training
o Coordinate City liaison support to boards
A harmonized framework for agencies will modernize the governance of City agencies based on leading
practices informed by international research, and codify agency requirements to ensure transparency
and accountability. Ensuring City Council has the ability and information to make critical decisions from a
whole of government view, including its agencies, is critically important given that City agencies account
for almost half of the Toronto government. It is a fundamental enabler for City Council to achieve its
medium and longer-term priorities.
[REFERENCE COUNCIL DECISION RE TPA AND AGENCY REVIEWS]
Transparency and evidence-based decision-making

[Importance of transparency, engaging the public, academic sector, and business sector in long-term
decision-making, and evidence-based decision-making]
• Undertake detailed cost benefit analysis of all initiatives over $XM AND/OR standard business
cases to capture monetized and non-monetized benefits
• Increased engagement of the public, academia, business, and the broader public sector in
evidence-based financial decision-making

DISCUSSION: Are there strategies from the City Hall Task Force to leverage?
SET STRATEGIC PRIORITIES

RECOMMENDATION 1: ANNUAL MAYOR’S ADDRESS
The Mayor should deliver an annual Mayor’s Address to Council in early Spring that lays out his or her strategic
priorities and public commitments for the coming year and remaining term of Council.
RECOMMENDATION 2: START OF TERM BUDGET CONSULTATIONS
At the start of every Council term following an election, City staff should conduct large-scale public
consultations on the City’s long-term service priorities to confirm Council’s strategic direction for the four-year
term.
RECOMMENDATION 3: NEW BUDGET SEQUENCE
The preliminary budget should be presented to the Mayor and Executive Committee first, then referred to
Budget Committee, to ensure consistency between the Mayor’s public priorities, as well as start of term budget
consultations, and the final budget presented to Council.
RECOMMENDATION 4: REQUIRE FINANCIAL OFFSETS
Any motion (or amendment) tabled at Council that generates a financial impact, but does not identify a specific
in-year offset, should be automatically referred to Budget Committee in order to ensure that Council decisions
are consistent with previously adopted financial plans.
MONITOR THE ABCS

RECOMMENDATION 5: ROLLING ABC REVIEW
City staff should conduct an annual, rolling review of local agencies, boards, corporations, and commissions to
ensure that each organization’s operations are aligned with the City’s strategic priorities.
DELEGATE AUTHORITY
RECOMMENDATION 6: ENHANCED COMMUNITY COUNCILS
Council should delegate further responsibility and decision-making authority to Community Councils so that City
Council can focus on city-wide priorities, and direct city staff to identify specific opportunities for delegation
that could be in place by the start of the next Council term.
STREAMLINE DEBATE
RECOMMENDATION 7: STAFF “QUESTION PERIOD”
Councillors’ questions to staff should be restricted to a single “question period” at the beginning of each Council
session.
RECOMMENDATION 8: CAP MEETING TIMES
The length of Council meetings should be capped at 12 total hours per day (including breaks and interruptions).

RECOMMENDATION 9: ELECTRONIC SUBMISSIONS
Routine submissions to Council, such as public petitions, requests to hold agenda items, and declarations of
conflict should be submitted electronically in advance of Council meetings.
ENGAGE THE PUBLIC

RECOMMENDATION 10: NEW DEPUTATION MODEL
Council should create a more welcoming atmosphere for deputations, including increased information for
newcomers, dedicated deputation guides, and posted speaking schedules.
RECOMMENDATION 11: “CITIZEN SUMMARIES”
Staff reports should include plain language materials that explain the context and key issues for debate for a
general audience.
SHARE INFORMATION
RECOMMENDATION 12: SHARED DATA STRATEGY
City Council should approve and prioritize a “shared data” strategy concurrent with its Open Data Policy.
RECOMMENDATION 13: OFFICE OF DATA ANALYTICS
The City Manager should create an Office of Data Analytics to pursue pilot projects that demonstrate the
benefits of shared data.
RECOMMENDATION 14: SYNCHRONIZED DATA RELEASES
City staff should better synchronize data releases in advance of public consultations or deputations.

Expenditure strategies
In an effort to establish a long term financial direction and plan that will provide scenarios for a
sustainable financial framework for municipal services and city-building investments, both revenue and
expense measures will be required.
A review of historical expenditure and revenue trends have shown that expenditures have consistently
outpaced the City's stagnant but changing revenue base that, annually, has resulted in a funding "gap".
Annually, the City has eliminated the funding gap with a series of balancing strategies that have included
a combination of expenditure reductions and deferrals, efficiency savings, one-time measures and
revenue increases while maintaining property tax rate increases at or below the rate of inflation.
While the City has perennially faced budget challenges, mitigating measures which helped balance the
budget previously are either not expected to reoccur (e.g. large MLTT revenue growth); are no longer
feasible (e.g. deferring TCHC pressures); or have been fully optimized (e.g. new revenue sources within
Council’s authority).
The level of expenditure management anticipated over the next 5 years, beginning with the 2018
Budget process, will require a program of spending restraint and reform measures across the whole of
government that places a particular emphasis on efforts to modernize, transform and innovate City
services, service levels and processes and to capture their resultant benefits that will make them most
efficient and effective moving forward.
The recommended expenditure management framework has three components:
1. Service Review Program
2. Strategic asset management and capital expenditures
3. Planning for the future
Service Review Program

The Service Review Program will:
(a) Ensure current service delivery costs are minimized. For example:
• With about 50% of the City’s budget allocated to fund payroll costs, the City will undertake a
series of strategies to reduce labour costs; examine its complement and workforce with an
emphasis on reviewing and rebalancing management and administration functions to provide
the necessary supports for efficient and effective service and capital project delivery.
• Examine all services and activities for outsourcing and other service delivery model
opportunities
• Improve proactive risk management activities that can reduce insurance and legal claim
expenses
• Maximize the use of strategic contract pricing for key expenditures
• Rationalize fleet, technology and space
• Undertake various functional and operational reviews to ensure optimal service delivery and
staffing: mail and printing; communications; information technology development and

sustainment; recruitment; contract development; capital project delivery; development
application review; inspections; functional versus district model reviews (i.e., transportation);
finance and administration.
(b) Modernize and transform service processes and functions so they are optimized
• The City currently has a series of key, enterprise-wide projects and initiatives recently
completed, underway and planned that will modernize and/or transform critical processes and
realize benefits that will reduce costs, increase productivity and add value.
• These initiatives will establish lean, end-to-end standardized processes based on best practices,
with many to be enabled by the most current technology, modernizing and digitizing
government operations.
• Key initiatives include but are not limited to: Supply Chain Management; Human Resource
Management; Shared Services IT and Fleet Services with Agencies; Customer Service (strategy
and channel access); Permitting and Licensing; Scheduling and Attendance Management; Real
Estate Services; TTC SAP implementation
• The new Chief Transformation Officer, together with business process owners, will shepherd a
program of these transformative initiatives, supported by training for senior leaders leading
transformational and technology projects.
(c) Examine service levels against standards; other levers and benchmarks and adjust to meet the same
outcomes;
• Service standards that have been established by legislation, best industry practices; Council
approved policy or management practices along with their stated outcomes will be updated
from their initial documentation in 2011 for the Core Service Review
• Council approved service levels will be compared to updated service standards and
benchmarked against similar municipal services
• Service levels will be validated with opportunities to adjust service levels to meet similar
outcomes
(d) Evaluate services provided against their intended outcomes through an established program review
cycle, with supports to create new, innovative ways to meet achieve those outcomes.
• Since 2014, the City, as a first step, has approved service-based budgets that are public-facing
and customer-centric. This represents the “public accountability” view of government rather
than the traditional organizational or “management accountability” view.
• To move toward further maturity, it is recommended that whole of government programs be
established based on outcomes and City Program/Agency services be aligned to these whole of
government programs, with stated outcomes established for all current service and activities,
where they do not exist
• It is recommended that a Program Review Framework and 5-year review cycle be established for
all City Programs and Agencies in order to evaluate service alignment, relevance and
effectiveness based on established priorities and outcomes.
• This will enable the City to identify opportunities to shed least valuable or effective service
offerings; offerings where duplication or overlap may exist and that otherwise should be
rationalized with other service providers.

• For example, community programming with similar activities and intended outcomes are
offered by City Programs such as TESS and City community centres; by City Agencies such as in
AOCCs and libraries; by partners in community hubs and through our grant programs.
• A true Program Review process would answer the questions: Who is best to deliver these
services? Which services are best meeting the intended outcomes? If not, is there a better,
more innovative way?
• Such a program of review would enable the City to focus its resources on best meeting the
intended outcomes.
• This program would be supported by the Innovation Office together with the Enterprise
Performance Management project that will permanently build the capacity for innovation by
bringing data analytics and visualization tools and processes to bring innovative approaches to
service delivery.
Strategic asset management and capital expenditures

To manage its assets more strategically, the City will undertake the following strategies, many of which
are possible through other City efforts:
• Reduce its leased space through the Office Modernization Project
• Invest in and complete energy efficiency and retrofit projects in City facilities that will
concurrently reduce costs and increase resiliency through TranformTO
• Rationalize the 147 Technology projects currently approved based on impact
• Recommend that the new Realty Agency bring forward a plan for use in capital planning that:
o Examines service models to rationalize service locations, particularly for the City’s 3
emergency services
o Reviews opportunities to maximize highest value through the sale of air rights and use
proceeds for SOGR and co-location for new/expanded facilities
o Reviews opportunities to decommission/repurpose/make surplus land and properties
• Integrate official planning with capital planning and capital planning is part of service planning
• Implement stage-gating for all capital projects
• Continue to align capital spending with project activities and timelines
[SECTION ON CAPITAL PRIORITIZATION, CAPITAL DELIVER REVIEW,

Question: What is the alignment,
STAGE GATING, ETC.?]
or differentiation, between this
• Rec: Establish a third party reference group to examine and asset section and the "Asset
comment on long term trends and affecting demand and Strategies" section below? (The
utility of major strategic capital infrastructure plans by the draft LTFP outline envisioned a
City. separate section on asset
strategies.)

Planning for the future
In order to plan for the City’s future that achieves both fiscal and service sustainability, it is
recommended that the following steps be taken:
• Identify all "approved" but unfunded initiatives to determine relative value/impact of cost
against outcome i.e. will the investment directly meet the intended result?
• Establish implementation and costing of all unfunded plans, policies and strategies
• Establish service objectives, targets and value-added outcomes for all current services, activities
and unfunded plans, policies and strategies
• Identify areas where adjustments can be made to current resources so that outcomes can be
met without new investment
• "Right-size" the level of new, funded capital and services based on priorities; value for money;
spending for impact
• Use Executive Committee Review (special meeting to establish priorities based on
considerations above)
• This will provide an implementation plan of priorities for the next 5 years and guide the level of
added investment required annually.
Equity impact
[Connection to equity work – e.g., gender-based budgeting, etc.]
Revenue strategies
Economic Criteria to evaluate revenue strategies

The December 2016 report on revenue options updated the previous studies and provided a clear basis
for evaluating new tax and fee ideas using economic criteria. For simplicity these were reduced to four
general characteristics: revenue quality, economic impact, administrative efficiency and policy fit. Within
these four general concepts there are many issues that are considered when evaluating a tax or fee
option, as shown below.
Revenue quality
• Yield / Amount
• Stability
• Growth potential
Economic Impact
• Incidence vs. capacity to pay
• Minimize unintended consequences
• Generate positive externalities
• Match beneficiary to pay (broad taxes for broad expenses)

• Minimize economic distortions
Administrative Efficiency
• Available and feasible
• High expected compliance
• Enforcement cost
• Time to implement
• Lower compliance cost for payers
• Acceptable administrative costs
Policy Fit
• Political acceptance
• Visibility and accountability
• Public policy alignment --These principles are consistent with responsible pricing of public goods
– like road tolls on highways to supress unrestrained(?) demand, reduce economic loss (wasted
travel time) and ensure efficient movement of freight
When it comes to long term fiscal strategy, revenue quality, especially the amount of revenue potential,
is the first consideration. In order to address problems like a $30 billion list of unfunded capital
priorities, significantly increased revenue sources are required. As in indication, the debt service
charges on $30 billion at 4% interest would range from about $1.8 billion (30 year amortization) to
almost $4 billion million (10 year debt).
Revenue adequacy
The December revenues report applied these criteria to all manner of existing and potential tax and fee
options. Council endorsed tolling the Gardiner Expressway and Don Valley Parkway, a new hotel and
short term rental tax, and further study of a vacant household tax and municipal lotteries. Of these, only
tolling had the potential to significantly increase the City's fiscal capacity.
The pie charts below illustrate the relative importance of various tax and fee options under the City's
control, and shows how these have changed over the last 10 years.
• [INSERT PIE CHARTS: showing major City revenues (p tax, MLTT water rates, solid waste fees,
transit fares and hotel tax)] 2008 and 2017
These graphs illustrate that City has four main sources of revenue, and that property tax is by far the
largest. Small changes in rates for large revenue sources have the greatest potential to raise incremental
revenues. Other than MLTT, the City of Toronto Act taxing powers generate only very marginal revenues
– Third Party Sign Tax, and in the future Hotel Tax, in combination would account for less than 0.6% of
all own source revenues.
In the past 10 years the balance between these taxes has changed significantly. Water rates have in
risen by about 8% per year to deal with infrastructure renewal requirements. MLTT has grown rapidly
with the real estate market, allowing both property taxes and transit fares to increase at about the rate
of inflation.

If property taxes had increased at the same pace as water rates over the past ten years, the City would
be generating an additional [$3 b] per year in revenue, more than sufficient to address the complete
unfunded capital list. But property taxes are constrained due to political accountability to the citizens,
who simply will not tolerate that kind of tax increase. In fact the public interest has been so dominant in
Toronto, that Toronto has the lowest residential property tax rates in the GTHA, and likely the lowest tax
effort – tax cost as a share of household incomes.
Toronto's non–residential rates remain among the highest, despite the 15 year plan to accelerate
reduction of non-res tax ratios to 2.5 times the residential rate, and legislation requiring new multi-
residential rates to be at the residential rate, and prohibiting any multi residential tax increases. The
move toward Provincial targets will inevitably increase Toronto's residential rates. If this were done
tomorrow, Toronto residential rates would be [much closer to?] the GTHA average.
Maximize existing revenue sources

[Framed as the need to maximize existing revenues before looking for new options]
Property tax strategy

• Value as municipal finance tool.
• Recognized as the most progressive/least disruptive of City options (Dec report)
• Improve understanding of property tax incidence
• Rec: Review & report back on hardship based tax mitigation/deferral programs
• Rec: Study & report on incidence, relative tax burden among GTHA and peer cities
• Rec: Study the merit of a progressive property tax rate, including its use to raise additional tax
revenue.
Capital levy strategy

Survey's often link the public's resistance to property tax increases to concern about what will be done
with the additional revenue. For this reason, in recent years Council has tied incremental rate increases
to special projects. From 2014 – 2016, a phased increase of 1.6% was adopted to help pay for the
Scarborough Subway Extension project. In 2017 Council approved a 0.5% special capital levy for 'City
building', ostensibly to begin to address the unfunded capital projects list. Together these tax increases
are generating approximately [$ 55m] year.
In [2006?], Mississauga, a City that was a leader in municipal property tax freezes, acknowledged that
capital maintenance costs were growing faster that the tax base, and introduced a [5%] capital tax levy.
The public returned [all?] incumbents in the subsequent municipal election.
The success of these initiatives demonstrates the importance of setting clear goals for additional tax
increases, and of gaining public support for the projects to be funded with the proceeds. With these
caveats, Council should consider additional special levies in the future.
• Rec: Consider a phased dedicated capital tax levy [x]% / yr

Public good pricing strategy
Leverage the above revenue selection criteria to help price public goods. For example, these criteria
were developed in regard to consideration of new taxation options, but are equally applicable for
amendments to existing taxes, and new and existing fees. For example, an increase or decrease (!) in
TTC fares (which are the jurisdiction of the TTC Board) can be considered in terms of the impacts on
revenue generation, ridership, vehicle utilization, station crowding, traffic mobility, the TTC's
customers, fare evasion rates, etc. The result is responsible pricing of public goods, in a way that
matches demand with service capacity and optimizes public benefit in terms of service and cost.
MLTT strategy
• Re-state current risks -- variability, too much reliance
• Disincentive to move
• Rec: Dedicate 10- 20% to capital financing reserve rather than the operating budget
o Mitigate risk of increase
o Pay for unfunded capital
• The FTHB Rebate program worth almost $70M annually (2016:$67.3M). Debate about who the
rebate actually benefits – buyer or seller. An unintended consequence is driving up house
prices.
• Rec: Review efficiency/effectiveness FTHB rebate as part of tax preferences review
Transit fare strategy

• Explain the significance of transit fares – Second largest revenue source
• Set long-term direction on transit fare strategy (?)
o Significant direct control through collection system design (e.g., regional, integrated fare
design), revenue sharing negotiations, enforcement (e.g., fare evasion), and fare design
(e.g., concession fares like discounted child, senior, and low income rates)
• Consider transit fares in conjunction with analysis and strategies related to tax preferences, user
fees, intergovernmental relations, and agency governance
• Rec: Review and report on funding relationship options to provide incentives for TTC – e.g link
funding to ridership (per paid fare), fund at target rc ratio;
• Rec: Request report on plan to phase out cash/tokens, facilitate reliable card payment
Tax preferences and rebate strategy

• Explain current framework of tax preferences, rebates, foregone revenue
• Policy importance and impact

• They have become entrenched in property tax policy, development charges, land transfer tax,
and certain fees
• Revenue loss as a result
• Rec: Report back on tax preferences/concessions (underway). Potential strategy going forward
of:
o Cost benefit analysis of existing tax preferences
o Annually reporting on tax preferences
Development charges strategy

• Discussion of issues with current DC framework. Application of development charges revenue to
multi-year revenue strategy
• Rec: Seek DCA amendment to lift historical level of service caps
• Rec: Cap ex: Require that budget requests be benchmarked against DC historical level of service,
identify gaps, consider spending at historical service levels (preserves future DC funding levels)
• Rec: Budget for top up of reserves from tax base to ensure growth share fully funded (eliminate
budget disincentive to spend on growth)
• Rec: Review & justify exemptions as part of 2013 DC by-law replacement
[SECTION ON BILLBOARD, HOTEL AND SHORT-TERM RENTAL, VACANT HOME, AND OTHER SPECIALTY
TAXES?]
Explore new revenue options

• Describe what we've already done (e.g., analyzed all potential revenue options, etc.) A new
appendix to be added for the full analysis of revenue options.
• Continued push for more revenue options
o Continued exploration of potential revenue options which may or may not be within the
City's control, including:
 Personal Vehicle Tax
 Graduated residential property tax rates
 parking sales tax (declining base)
 road tolls
• Rec: Report back on option to reintroduce PVT to fund specified purpose linked to general
incidence of the tax and addressing potential future declining/changing ownership structures
• Rec: Request that future tolling report identify timing strategy such as integrating request with
roll out of provincial tolls, or defer until o/h ratio meets target threshold: [15]%; and that it
address potential declining base test concept via 3rd party " future tech' review" (RER,
autonomous cars, live work)

• Rec: Seek Province authority to implement parking sales tax as an interim measure until road
tolls are implemented (to be replaced by tolls)- demonstrated willingness to approve less
controversial taxes
• Rec: Support AMO position in advance of any Provincial decision to raise the HST; endorse gas
tax model for provincial transfers
Equity analysis for all revenue strategies

• Contextualize analysis and recommendations within the economic and distributional impacts
(e.g., regressive impacts on tenants and homeowners)
[Additional appendix with list of revenue options]
Asset strategies
Background
The City's operating budget balance of revenues and expenditures may be the most immediate issue
facing Council, but it is the state of the City's physical and financial assets (and liabilities) that is most
often impacted by fiscal ill-health. In times of fiscal constraint, these less immediate 'balance sheet'
needs can be deferred. Capital maintenance can be delayed, assets retained beyond their normal useful
life, high return investment options are constrained, growth related infrastructure requirements are
ignored or delayed, and reserve shortfalls go unattended.
Examples of these kinds of situations are not uncommon. However, in recent years the clearest metric
that the City risks falling behind in terms of investment in physical and financial assets has been the
growing quantified list of unfunded capital needs.
Over time, deferred attention to asset requirements can prove to be a false economy. A number of
negative consequences can increase costs to the point where the savings from investment deferral are
lost. These include:
• Rising operations and maintenance costs
• Increasing liabilities and related insurance claims due to asset deterioration.
• Falling service quality
• Foregone investment in efficiency initiatives
• Reduced economic development and related assessment growth
• Lower investment returns due to lower reserve balances
The City has a number of operational guidelines and Council adopted policies that are intended to
ensure that expenditure deferral does not get to the point where costs offset the budgetary savings.
These include:
• Annual 10% increases in capital from current

• Capital levies such as for the SSE and City Building
• Capital refinancing to extend term, and increase debt capacity
• Repair and maintenance standards /guidelines
• Life cycle costing and analysis
• Risk management loss prevention strategies
• Surplus asset divestiture
• Recoverable debt to ensure that high return efficiency initiatives are not screened out of
budgets
A number of strategic reports were considered by Council including:
• Build Toronto/Real Estate Strategy (June 2017)
• Asset Monetization Review (Dec 2016)
• Various TCHC Refinancings (2016, 2017)
• Monetization of Toronto Hydro Promissory Note Jan 19 2010
• Long Term Financial Strategy – Debt Restructuring (Nov 19 2009)
As a result of these reports, Council directed staff to take specific actions that led directly to increased
debt capacity, including making use of 30 year debt, selling a corporate asset (Enwave), pre-paying
sinking fund obligations.
Some initiatives require regular re-consideration – financings strategies need to be responsive to current
market conditions. But there are additional measures the City can consider to ensure that, over the long
run, the balance sheet remains healthy, and capital expenditure capacity is optimized.
Achieving Capital from Current targets

The Capital-From-Current (CFC) policy has been a significant success story for the City, helping restore its
capital expenditure capacity, keeping debt levels below 15% of the property tax, and creating some level
of budget safety net against a temporary downturn in the real estate market and MLTT operating
revenues.
However, the policy does not articulate a goal or end point. CFC increases at 10% per year result in
exponential growth in CFC. Within 15 years CFC will be over $1b, and annual budget increases will
exceed $100m. At some point these increases will be out of proportion with a policy of reasonable
growth in capital spending capacity.
[Insert graph]
Many fiscally prudent municipalities seek to fund regular state of good repair from current sources. In
this way, there is no debt service burden for maintaining existing infrastructure used by today's citizens,
and so generational transfers are minimized. Growth related or service enhancement expenditures,
which will benefit or are necessary for future citizens, are more appropriately debt financed, so that the
cost of paying for these is spread (amortized) over time.
If the City were to adopt this 'pay as you go' approach, it would require CFC levels of averaging about
$1.4b per year for the 2017 capital budget and ten year plan, before accounting for applicable grants.

Most grant funding is directed toward new and or enhanced services, but some key supports are for
state of good repair. For example, federal funding for the Gardiner rebuild was estimated to be about
$900m; federal and provincial funding for the SSE (replacing the SRT) is about $2.5 billion. So a targeted
CFC of about $1b could be reasonable at present – and there is still a long way to go from the 2017
contribution of just under $300m.
In keeping with this strategy, it is recommended that the annual 10% CFC increase policy be revisited
when CFC has reached the 10 year average forecast net capital expenditure on state of good repair.
Optimizing investment returns and allocations back to reserves

The City has significant reserves, which are invested and currently yield returns in the low single digits,
contributing over $100m in operating budget revenues. In the future, the City's new prudent investor
powers will result in higher expected returns.
However, when these reserve balances are below target, or are 'borrowed' to interim finance capital
projects until long term debt is issued, investment returns suffer. Furthermore, the current policy
provides for only the smallest share of returns (equivalent to the 30 day T-bill rate) retained by the
reserves, so that over time the purchasing power of balances is eroded by inflation.
Rec: In light of and to take full advantage of the new prudent investor rules, starting in 2018 increase the
investment return allocation to reserve balances to at least the rate of inflation (from the 30 day T-bill
rate), and adopt a policy of reducing unfinanced capital to $400M by 2022.
Optimizing DC service levels to protect future DC recoveries

Growth related project expenditures may be recovered through development charges, subject to a
number of legislative provisions, such as the requirement that the share of costs that benefit 'existing
development' are to be funded from the property tax or rate base.
Additionally, since amalgamation, successive DC by-laws have included discretionary policies such as
rate increase phase-ins and exemptions that have reduced recoveries further, and therefore required
larger than otherwise tax and rate supported contributions to growth related capital projects, making
growth related projects less affordable within constrained capital envelopes. They also have the
unintended effect of robbing Peter to pay Paul – for example DCs that are rebated to fund affordable
housing would have been collected to pay primarily for transit, road and park expansion.
Another feature of the Development Charges Act (DCA) is that certain DC recoverable costs are limited
to the average 10 year historical service level of growth related expenditure rate. The DCA does not
impose these historical service levels caps for water and roads programs and recently removed the
restriction for transit, so the larger programs are unaffected. But for some programs, spending below
this calculated service level results in lower spending 'caps' in the future. It can be a negative feedback
cycle, making future growth related expenditures even less affordable.

In order to address these two concerns, it is proposed that capital budget directions in the future
include a requirement to benchmark growth related capital plans against DC Background Study service
levels to ensure that spending rates are not undermining the City's future DC rates.
Secondly, where discretionary DC exemptions are reducing capital contributions to DC reserves, it is
recommended that the City expressly transfer the tax or rate supported co-payments related to these
exemptions into the related project reserves.
Reviewing Debt Service Ratio Policy

The debt-service-ratio guideline is 15% of average ten year property tax revenue. This policy is designed
to protect the operating budget from excessive debt financed capital demands, and has been quite
effective. The result is that the City expects to be at the cap for the foreseeable future, and a growing
list of capital aspirations remain outside the capacity of the City to debt finance without exceeding the
15% guideline.
In order to increase debt capacity and stay within the guideline, the City must increase its property tax
base. At current interest rates, every 1% increase in the tax base raises about $40M, through
assessment growth, tax rate increases, or a combination of the two. At 15% the debt service cap is lifted
$6m by a 1% increase in the tax base. This is the debt service on about $50M of 10 year debt financing,
or about $100M in 30 year debt.
The property tax base is growing about 3% per year. Therefore, under the guideline, the City can
increase its debt by between $150M and $300M each year depending on the mix of term of debt,
assuming that 15% of the revenue increase is available to service debt. This rate of increase is
insufficient to deal with growing state of good repair, growth, and make an impact of the list of
unfunded capital expenditure aspirations.
As discussed in the revenue section, a special capital levy could help provide the revenue to service
significant increases in debt. However, to the extent that supplemental tax increase is 100% dedicate to
debt service, it would drive the City beyond the debt service guideline ratio of 15%, contrary to the
intent of the levy.
Therefore, in order to optimize the spending capacity from a special capital levy, it is recommended that
the guideline be adjusted to exclude special capital levies from the tax base, and the related debt service
from the ratio calculation. In other words, special levies should be allowed to be 100% dedicated to
debt service, and not limited to 15% like the general tax levy.
[Asset optimization]
[Section explaining, at a high level, the importance of asset optimization, the work we've recently done,
and that we will continue to explore opportunities for optimization and monetization of assets so long
as X, Y, and Z criteria are met]

Intergovernmental strategies
Positioning within overall long-term strategies

• Significance
o Quantified through model
• Before asking other governments to solve our problem, we must first make changes under our
control
o (Referring to above discussion)
o Governance and process strategies
o Expenditure strategies
o Revenue strategies
o Asset strategies
• Cannot assume other governments will fix our financial problems
o Poor track record of them doing so
o This does not mitigate risk
• Constraints of this relationship
o Municipal finance is highly controlled through provincial legislation
o Limited local autonomy
Legislative framework
• Summarizing the current state of City-Provincial relations.
o COTA just being amended
 On May 30, 2017, Bill 68, Modernizing Ontario's Municipal Legislation Act, 2017
received Royal Assent.
 The legislation includes amendments to the City of Toronto Act (COTA), the
Municipal Act, the Municipal Conflict of Interest Act (MCIA), the Municipal
Elections Act (MEA) and other statutes.
 Bill 68 is the culmination of the Province's municipal legislative review
consultations, including the five-year review of COTA.
 COTA was also amended through the Province's 2017 Budget legislation. On
May 17, 2017, Bill 127, Stronger Healthier Ontario Act (Budget Measures), 2017
received Royal Assent.
 Subject to proclamation, Bill 127 provides the authority requested by the City to
tax hotels and short-term rentals, and to enact a "vacant homes" tax:
• Amendments to Part X of COTA would permit the City to impose a tax on
the purchase of transient accommodation and provide authority for
collection by intermediaries
• Addition of a new Part XII.1 to COTA would provide authority for an
optional tax on vacant residential units
• Both taxes would also be subject to Provincial regulations.
o Summarizing the tools we have in COTA that we both use and don't use

 [score on incidence, fairness, efficiency, policy fit, economic impact, revenue
quality – as in December revenue report]
 [Quantify the tools we haven't used. I.e., show that of the options we could do
today, we will only be able to generate $X over Y years.]
Taxes on real property
 Property Tax
 Municipal Land Transfer Tax
 Parking Levy
x Graduated residential property tax rates
Specialty taxes
 Third Party Sign Tax
 Personal Vehicle Tax
 Entertainment and amusement tax
 Tobacco tax
 Hotel / Short-term rental accommodations Tax
 Alcoholic Beverage Tax
x Parking Sales Tax
x Municipal Business Income Tax
x Municipal Personal Income Tax
x Municipal Sales Tax
User Fees
 TTC Fares and other user fees
 Road pricing / expressway tolls
Legend
 = revenue tool is being used by the City of Toronto
revenue tool is authorized but not being used by the
 =
City of Toronto
revenue tool is contemplated but the City does not
have sufficient authority to use at this time (e.g.
 =
legislative proclamation and/or Provincial regulation
is required)
City does not have legislative authority for revenue
x = tool and/or tool is specifically prohibited by the City of
Toronto Act
o Summarize the current state and our current toolkit for the next five years, with the
recent amendment
• [Reference Council's decision to on campaigning the Province on supporting Toronto]

Key areas to pursue
Transit
• Current context
o Importance of transit and problems underinvestment has caused (i.e., narrative of why
we need to invest in transit)
o Current landscape of intergovernmental transit planning and funding
 Inconsistent approach to funding major transit expansion initiatives. For
example, Project by project, we make different commitments to capital,
operating, and maintenance costs (i.e., different models of ownership and
operation)
o Quantify how much each order of government:
 Has spent on transit
 Is planning on spending on transit
o List the City's current outstanding requests
o Inability to pay for existing transit projects under current revenue framework
• Potential actions (DRAFT, FOR DISCUSSION)
o Full lifecycle cost approach to transit
 The City should take a principled approach to funding the costs of an expanding
network
 We should take a comprehensive look at who pays for what over the lifecycle of
transit, including
• Planning
• Capital
• Operating and maintenance, lifecycle maintenance
 Consider which orders of government are best positioned to pay for which
lifecycle costs, including decision-making authority and policy objectives (e.g.,
fare policy as a policy tool to improve mobility)
 Model out potential impacts of changes to current funding arrangements
o Sustainable revenue stream dedicated to transit
o Prioritize transit projects
 Reference that, as per Council direction, staff are working to prioritize transit
priorities (2019 report)
Housing
• Our key asks to other governments – focussed on 'housing first', maintenance of existing social
and affordable housing, and creation of new social and affordable housing
o Social and affordable housing
 Contribute one-third ($864M from each order of government) to the TCHC
capital renewal and state-of-good-repair program

 Federal contribution of $1.4B over ten years to maintain existing levels of
federal funding for social housing and reinvest future savings from expiring
social housing agreements back into social housing
 The federal government to create a dedicated carve-out for housing from Phase
2 of the 10-year Social Infrastructure Fund
 The federal government to enable refinancing of non-renewable social housing
mortgage loans held by CMHC without penalty
 Federal support for the City's new Affordable Rental Housing ($1.5 billion/10
years) and Affordable Ownership Housing ($200 million) targets
 The federal government spur new affordable housing development through
financing, funding, regulatory changes, tax incentives and surplus land
 The Province to harmonize Housing Services Act shelter rates ($81M annually)
 The Province to increase support for new affordable housing by partnering with
the City to make strategic surplus provincial sites available, and providing new
funding and financial incentives for affordable housing
o Homelessness
 The federal government to support a "Housing First" approach to ending
homelessness that is flexible to meet local needs and provide additional
resources to achieve this goal
 The federal government to make permanent and double funding for the
Homelessness Partnership Strategy (The City currently receives $21.6M)
 The Province to provide support for the transformation of the City's Emergency
Shelter System
• Argue that it is time to revisit the intergovernmental relationship on housing – including broader
social policy in addition to capital and operating funding
o New City led models of service delivery – George St (partnership with Infrastructure
Ontario? Location of shelter, affordable housing, etc. other services), TCH new Senior
Housing entity (long-term care integration, etc.)
o Province has already agreed to a focused conversation on housing costs when PMFSDR
uploads end in 2018
o Significant federal commitment to social infrastructure. Request the federal government
to create a vision for a National Housing Strategy that provides all Canadians access to
safe, stable and affordable housing.
• Model out potential impact [what to model is TBD]
Other critical areas

• E.g., regional highways
o For example, in 2010 a process concluded with the Province to review road
classifications (roads and bridges review). It got our highways reclassified to regional
(TBC) but we did not get any new funding. Recent attempts at Gardiner funding have
been unsuccessful.
o Model out potential impact

New strategic approach
• Our current strategy comprises a laundry list of things Council has directed us to request
• We will continue to do so, but the City could benefit from a more strategic approach
• Potential for a "who-pays-for-what" review

APPENDIX 1: MODELLING AND FORECASTING

APPENDIX 2: PUBLIC CONSULTATIONS
[Include Executive Summary of report, and direct readers to the full report, which is about ~100 pages.]
In July 2016, City Council directed staff to undertake public consultations to provide input and advice to
the renewal of the City's Long-Term Financial Plan (LTFP). The consultation took place in two phases.
Phase 1, in the fall of 2016, focused on how the City manages expenses, raises revenue, and maximizes
assets. Phase 2, in the spring of 2017, built on the input received in Phase 1 and incorporated new topics
related to the City's systems of governance, decision-making and financial management. Consultation
methodologies included online surveys, public meetings across the city, and self-directed meetings
hosted by community groups.
This report includes the results from both phases of the City’s consultation on its long-term financial
plan. The consultation was a direct conversation with the public about how the City can manage
expenses, raise revenue, make the most of its assets, and make decisions that have a long-term financial
impact. It was an opportunity to hear the public's input on these important issues as the City renews its
long-term financial plan – which will guide financial decision-making over the long-term and help put
Toronto on a path to financial sustainability.
Key themes
• The public understands the City’s fiscal challenge, has faith in the people of Toronto to address it
and welcomes strong leadership from City Hall.
• The public feels expenses can be better managed by establishing clear, long-term, strategic
goals and priorities – and to follow through on these commitments.
• The public will support spending if they can see the link to strategic goals and priorities.
• People overwhelmingly want to see the City implement a rigorous, fact-based assessment
process for capital projects to ensure decisions are made well, and made once.
• There is openness to new revenue options, but no clear consensus on which to pursue.
• There is widespread opposition to asset sales, especially those supporting vital services or those
generating revenue for the City.
• Data and digital tools emerged as both as a means that the public would want to be used more
to share information, but also to guide decision-making.
• The public values consultation and engagement very highly and wants broader perspectives and
participation, and to see its input reflected, or at least reported, in decisions.
• It is very difficult to present budget information that is both comprehensive and easily accessible
– but the public feel there are many improvements that could be made to the information and
how it is shared.
• Toronto is facing many enormous challenges that cannot be addressed by adjusting priorities.
Instead, participants expressed that the City should focus on building capacity, working more
efficiently and finding creative solutions.
• There was a strong argument made by participants in favour of the City having more powers to
address the challenges it is facing. However, participants stated that this is not an excuse for not
making better use of the powers it has.

Financial Health
Most respondents expressed a belief that the City is in poor financial health, with sixty-two per cent of
respondents believing the City’s finances are either somewhat unhealthy and unstable or very unhealthy
and unstable – and roughly half of respondents feel that the City’s finances are worse than they were
five years ago. Respondents understood the financial challenge the City is facing. The public sees and
experiences the increasing demands on the City’s infrastructure and senses that it is falling behind.
One of our greatest assets in dealing with this challenge is Toronto’s diverse population and social
cohesion. The majority of respondents believe diversity, tolerance, multiculturalism and openness to
new people and ideas is Toronto’s strongest asset. Many respondents believe that Toronto residents are
engaged in their communities, care to vote and are well-informed.
A common theme among responses is that the municipal government should have stable leadership,
make long-term plans, have a strong relationship with the province and have a vision for what the city
can become.
Participants understand the challenge, have faith in the people of Toronto to address it and welcome
strong leadership from the City.
Expense Management
This desire for leadership and clarity was strongly heard in discussion about expenses. Participants were
divided on whether to begin the spending discussion with the available revenue or with projects and
programs they would like to see implemented, but they agree on the need to establish clear, long-term,
strategic goals and priorities – and to follow through on these commitments.
There was also broad consensus on the need to apply clear criteria to spending decisions, such as
protecting vulnerable residents, following established principles, and distinguishing needs from wants.
There was also overwhelming support for greater transparency and accountability, more
communication and more open government. With clarity about spending goals, and performance
measurement, the public would have far more confidence in the City’s financial management.
There is a persistent idea that expenses can be reduced by finding efficiencies. While the public is open
to adjusting service there is no desire to reduce overall service levels.
On the capital spending side, however, there were many calls for improving the planning process. There
were also a number of calls to avoid revisiting spending decisions that have already been made. There
were many suggestions for a more rigorous assessment process and cuts to specific projects. The
Gardiner Expressway reconstruction and Spadina Subway Extension were raised persistently as
examples.

Revenue Options
The discussion of revenue presented 23 options. There was no recommended or preferred option
presented to the public. Overall, opinions were mixed, but 16 of the 23 presented revenue options were
considered acceptable by over 50% of respondents city-wide.
A development levy, billboard tax, and tobacco tax received the most support, with property tax
increases, expressway tolling, and Uber Registration Fee rounding out the top six. A Municipal Business
Income Tax and Municipal Sales tax enjoyed the least support, and were the only options to earn less
than 30% support.
Asset Management
Like the revenue options, information for the asset management discussion was presented agnostically,
with no specific recommendation. There had been, however, a public debate about the potential sale of
Toronto Hydro, which was dismissed by the Mayor shortly before the LTFP consultation.
There was divided opinion on exploring the potential sale of assets, with a slight majority against it
under any circumstance. There was broad consensus, however, on the need for a measured approach,
with a business case for any sale and prioritizing long-term value over short-term gain. In general,
participants, do not want to explore privatizing services that people depend on or that are considered
essential, or those that generate revenue for the City.
Decision-making and governance

There was vigorous debate in many areas. Whether to begin the budget process with a spending limit or
wish list, for example. It is self-evident that the City cannot undertake projects without funding, but
many participants felt that the absence of committed funds (including those in the City's own budget)
should not preclude examination and prioritization of projects. Consensus emerged around the desire
for a clear, long-term framework to guide decisions. Many concerns were raised about specific decisions
made by Council, but they are out of scope for this report.
Overwhelmingly, participants would like their input taken more seriously by the City. They believe public
input should carry more weight in City decision-making than it currently does. They would also like to
see broadening participation on long-term issues, including environmental and social impact of different
decisions, for example. It also means broadening inclusion to actively reach out to people, communities
and interests that are not typically reflected in public consultation processes. The only caveat to
increasing participation is a desire to streamline decision-making.
Financial and Other Decision-making information

To be able to provide better input, most participants want both more information, and for that
information to be presented in a way they can more easily understand. There is an obvious tension
between providing all the data available, which is inherently complex, and providing more accessible

data, which often requires reducing the level of detail. Participants suggested potential solutions to this
challenge include:
• Providing more detail of spending at the community level
• Presenting alternative spending options, including cost and benefits
• Expanding the open data program to include more areas
• Using narrative or storytelling to present information
• Developing easily-shared charts and visualizations to facilitate sharing through social media
• Tracking progress of programs and strategies
• Creating more dialogue and opportunities to ask questions
To provide information to Council, several participants want to see regular, long-term forecasting
presented, including potential issues and opportunities. As elsewhere, much of the input came back to
the need for more evidence-based decision-making.
Public communications and engagement

Participants almost universally welcome increased transparency and engagement. They would like to
see engagement embedded in City governance. There was also a sense that the City is increasingly open
and engaging. One area that emerged was the idea that the City could make better use of data and that
there are opportunities for digital tools to help engage the public. Open data received attention as an
excellent tool for public information. Participants also felt that the City could also make better informed
decisions by aggregating and analyzing public data.
Balancing Priorities
One theme that emerged was the need to earn support for spending by demonstrating its value, and
transparently and effectively evaluating programs and projects. Many participants felt that with earned
support and credibility there would be more support for investing in aspirations, rather than being
limited to the funds available.
There were arguments in favour of focusing on fewer priorities, which were based on a concern that
trying to do too much would lead to poorer quality and less effective work. However, in general, there
was a feeling that the City could not limit its priorities. Participants argued that there are too many
enormous, complex, multidimensional challenges that need to be addressed – whether the City is ready
or not. And so, participants argued that the City focus should be on building capacity, working more
efficiently and finding creative solutions.
The size and complexity of these challenges were cited as a supporting argument for the widely-held
desire to increase the City’s powers. At the same time, some participants felt that the City could make
better use of the power it has before asking for more. In general, many participants felt that the City
could both use existing powers more effectively and get new ones.

APPENDIX 3: FINANCIAL CONDITION
[Note: This may be better placed at the beginning of the report]
[Summary of current state. Show five years historical data, and projections – including range and/or
boundary of error corresponding to scenarios. Show comparative benchmarking where appropriate and
feasible.
[These ad hoc indicators should be written up as context. The MFOA stuff can be the quantitative
portion]
Economic and demographic forecasts

• Average house price (TREB)
•
Credit rating
• Comparison with other jurisdictions
•
Size of operating and capital budgets – vs GDP
Capital overhang
Assessment growth
• 5-year history and comparison with GTA regions
•
Assets
Debt
• Debt (5-yr history & 5-yr forecast; per capita comparison)
• Debt service (5-yr history & 5-yr forecast; per capita comparison)
Reserves
• Reserve balance (5-yr history & 5-yr forecast; per capita comparison)

[Reference: City's 2015 Annual Financial Report:
http://www1.toronto.ca/City%20Of%20Toronto/Accounting%20Services/Financial%20Reports/Files/pdf
/2015/2015_FinanceAnnualReport_web.pdf ]
MFOA's Fiscal Health Indicators

http://www.mfoa.on.ca/MFOA/WebDocs/AG_Del_6.pdf
Financial Principles Indicator

Total Debt to Operating Revenue
Total Taxes Receivable less Allowable Uncollectables as a percentage of Total

Taxes Levied
Sustainability
Net Financial Asset or Net Debt as a percentage of Own Purpose Taxation Plus
User Fees
Reserves/Discretionary Reserve Funds as a percentage of Operating Expenditures
Debt Servicing cost as a percentage of Operating Revenue
Total Debt Burden per Household

Flexibility
Asset Consumption
Operating Surplus Ratio
Own Source Revenues as a percentage of Total Operating Revenues
Taxes Per Household

Vulnerability
Total Residential Taxes per Household as a percentage of Household Income
Revenue Per Capita

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REPORT FOR ACTION

City of Toronto's Long-Term Financial Plan – DRAFT

Date: September 12, 2017

Principles of financial management

Governance and process strategies

Draft / Confidential Advice Page 2 of 50

Draft / Confidential Advice Page 3 of 50

At its meeting on June 7, 8, and 9, 2016, City Council adopted recommendations

Draft / Confidential Advice Page 4 of 50

[Note: we could include all arguments and analysis in a professionally designed

Attachment 1: City of Toronto Long-Term Financial Plan

• Appendix 1 – Modelling and forecasting

Draft / Confidential Advice Page 5 of 50

Draft / Confidential Advice Page 6 of 50

Toronto is a great city

Current financial state

Draft / Confidential Advice Page 7 of 50

Draft / Confidential Advice Page 8 of 50

The status quo is not an option

Expense (Status quo) Revenues (Status quo)

Draft / Confidential Advice Page 9 of 50

Draft / Confidential Advice Page 10 of 50

Figure X – Operating Expense History by Cost Driver (Nominal cumulative % increase)

Draft / Confidential Advice Page 11 of 50

Draft / Confidential Advice Page 12 of 50

Current revenue framework

Draft / Confidential Advice Page 13 of 50

Draft / Confidential Advice Page 14 of 50

Current net pressures

Our governance structure is outdated and inadequate

Draft / Confidential Advice Page 15 of 50

Bridging mechanisms are not sustainable

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POLICY CHOICE – WHAT IS THE FINANCIAL DIRECTION OF THE CITY?

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Scenario 1: Live within current revenues

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Scenario 3: Deliver on Council directions, strategies, and plans.

Principles and decision rules

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FINANCIAL STRATEGIES TO HELP ACHIEVE COUNCIL'S VISION

Governance and process strategies

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Strengthen financial decision-making and oversight

B. Strengthen strategic, fiscal and service alignment

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Transparency and evidence-based decision-making

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SET STRATEGIC PRIORITIES

MONITOR THE ABCS

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ENGAGE THE PUBLIC

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Service Review Program

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Strategic asset management and capital expenditures

[SECTION ON CAPITAL PRIORITIZATION, CAPITAL DELIVER REVIEW,

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Economic Criteria to evaluate revenue strategies

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