Item - 2020.EX15.8

City Council considered Items EX15.7, EX15.8 and CC23.3 together.

The City Manager and the Chief Financial Officer and Treasurer gave a verbal presentation to City Council.

The Executive Committee recommends that:

1.  City Council approve the budget adjustments and any associated complement changes detailed in Appendix D1 and Appendix D2 to the report (July 7, 2020) from the Chief Financial Officer and Treasurer to amend the 2020 Approved Operating Budget, such adjustments to have no impact on the 2020 Approved Net Operating Budget of the City.

The purpose of this report is to provide City Council with the Operating Variance for the five months ended May 31, 2020 as well as projections to year-end. This report also requests City Council's approval for amendments to the 2020 Approved Operating Budget that have no impact on the City's 2020 Approved Net Operating Budget.

Since mid-March, the City of Toronto, consistent with other major Canadian and Greater Toronto and Hamilton Area municipalities has been experiencing significant financial impacts, both in the form of added costs and revenue losses as a direct result of the COVID-19 pandemic.

COVID-19 related financial impacts are anticipated to total $1.9 billion by year-end for the City's Tax Supported Programs, prior to offsets achieved through a series of implemented mitigation strategies that focus on spending and workforce restraints, reducing the year-end shortfall to a projected $1.350 billion. 

- These items are expected to collectively generate $547.8 million in total offset by year-end, comprised of $513.7 million in savings from workforce restraints, spending constraints and cost avoidance; $34.1 million in added offsets available from budget variance; and include 9,980 staff that had been placed on emergency leave within City programs and approximately 2,000 added staffing impacts estimated within City agencies.

The following table summarizes the anticipated year-end COVID-19 financial Impacts, projected offset from mitigations strategies and the resulting financial position of the City's Tax Supported Operations as of May 31, 2020 and the projection at year-end:

Table 1 - Tax Supported Operating Variance Summary

Year-to-Date and Year-End Spending Results:

As noted in Table 1 above, for the five months ended May 31, 2020 Tax Supported Operations experienced an unfavourable net variance of $211.1 million or 5.0 percent of planned expenditures. This is mainly driven by COVID-19 related cost and revenue impacts experienced beginning from mid-March onwards. The impact on the year-to-date results are reflected in the following areas:

- Toronto Transit Commission - Conventional Service ($190.0 million unfavourable) primarily due to significant loss of ridership revenue from the impact of COVID-19. Ridership losses peaked at 86 percent below budget in late April and are currently projected to be 80 percent below budget through the summer. This was partially offset by the implementation of cost containment strategies and matching service capacity to demand.

- Shelter Support and Housing Administration ($11.5 million unfavourable) primarily due to unplanned COVID-19 related expenditures related to new physical distancing measures implemented in the City's shelter system, as well as underachieved revenues in Hostels and the Social Housing Service.

- Court Services ($9.4 million unfavourable) due to underachieved revenues resulting from lower than plan ticket issuance and partial suspension of collection activities due to COVID-19.

For year-end, the City is projecting $1.9 billion in COVID-19 related financial impacts, reduced by $547.8 million from offset generated through $513.7 million in mitigation strategies/cost avoidance and $34.1 million in offsets from budget variance for a net unfavourable variance of $1.350 billion or 11.6 percent of the 2020 Gross Operating Budget, adjusted for Toronto Building. The unfavourable variance is primarily driven by COVID-19 financial impacts, resulting in increased emergency social support costs such as Shelter, Seniors Services and Long Term Care, as well as lost revenue in City Services such as Toronto Transit Commission, the Toronto Zoo, Exhibition Place, and Corporate revenues such as Municipal Land Transfer Tax and Municipal Accommodation Tax.

As noted, the projected year-end pressure resulting from COVID-19 related financial impacts of $1.9 billion has been lessened to $1.350 billion through a series of mitigation strategies and other offsets, these include:

$513.7 million in projected savings generated through mitigation strategies and cost avoidance as detailed below:

- Workforce restraints including redeployment of staff to critical and essential service areas; implementing emergency and seasonal / part-time staff layoffs; the implementation of a hiring slowdown; and savings generated from labour negotiations.

--Workforce restraints have resulted in 9,980 City staff being placed on emergency leave, some of which have since returned back from leave, along with approximately 2,000 added staffing impacts estimated within City agencies.

- Spending restraints such as matching transit service capacity to demand; reducing discretionary spending; reviewing all services for criticality (prioritize critical, essential and priority services).

- Cost avoidance arising from expenditure management and tracking and forecasting COVID-19 related savings.
 

An additional $34.1 million in offsets are available from budget variance experienced within Municipal Land Transfer Tax revenues from January 1 to March 31 that will be used to reduce COVID-19 related Municipal Land Transfer Tax financial impacts.

Based on these initiatives, the City has achieved $188.4 million in offsets within its Tax-Supported programs as of June 28, 2020 and expects to generate a total of $547.8 million in offset by year-end.

- It is important to note that the projected savings generated through mitigation strategies and cost avoidance are in part based on the City's experience during the pandemic and may either increase or decrease as the emergency situation betters or worsens, consistent with the rate that recovery and restart initiatives begin across the City.
 

The City Manager and Chief Financial Officer and Treasurer continue to engage with their Federal and Provincial counterparts to obtain funding support for municipalities to offset projected deficits resulting from COVID-19 related financial impacts.

- The City Manager will be reporting to Council in September on the results of these discussion, noting any full or partial offsets to the projected year-end deficit.

- The City Manager will also be reporting to the July 28 and 29 City Council meeting, providing details on experienced and anticipated COVID-19 related financial impacts along with further mitigation options that would need to be considered by Council during their meeting of September 2020, if municipalities continue to receive inadequate financial support from the Federal and Provincial governments.

Rate Supported Programs:

Rate Supported Programs reported an unfavourable year-to-date variance of $8.8 million. The unfavourable variance is attributed to lower than budgeted revenue primarily from Toronto Parking Authority. At year-end, an unfavourable projected variance is anticipated to be $100.9 million, again primarily driven by significantly lower revenues from Toronto Parking Authority.

Rate Supported Programs are funded entirely by the user fees that are used to pay for the services provided and the infrastructure to deliver them. Solid Waste Management Services and Toronto Water's respective year-end surpluses, if any, must be transferred to the Wastewater and Water Stabilization Reserves and Waste Management Reserve Fund, respectively, to finance capital investments and ongoing capital repairs and maintenance.

Table 2 - Rate Supported Operating Variance Summary