Item - 2022.EX34.16

The Executive Committee recommends that:

1. City Council acknowledge the projected unfavourable year-end operating variance attributed to the COVID-19 financial impacts and remaining funding shortfall, absent of any further federal and provincial COVID-19 funding support.

2. City Council approve the budget adjustments and any associated complement changes detailed in Appendix D to the report (June 27, 2022) from the Chief Financial Officer and Treasurer to amend the 2022 Approved Operating Budget, with no impact on the Net Operating Budget of the City.

The purpose of this report is to provide City Council with the Operating Variance for the four months ended April 30, 2022 as well as projections to year-end. This report also requests City Council's approval for amendments to the 2022 Approved Operating Budget that have no impact on the City's 2022 Approved Net Operating Budget.

In 2022, the City continues to experience significant and unprecedented financial impacts, both in the form of added costs and revenue losses as a direct result of the COVID-19 pandemic. As a result, the 2022 Operating Budget was balanced based on the expectation of continued COVID-19 support funding from the Government of Canada and Province of Ontario with a total amount of $1.4 billion.

It is currently estimated that $525 million in 2022 COVID-19 support funding has been secured resulting in a $875 million COVID-19 funding shortfall in 2022. When including further funding expectations of $60 million for the anticipated but not yet committed Provincial reimbursement of extraordinary COVID-19 related Public Health costs, the remaining 2022 COVID-19 funding shortfall is further reduced to $815 million.

Table 1 below details the budgeted 2022 City-wide COVID-19 related financial impacts against secured and assured COVID-19 support funding; and the resulting financial position that is reflected in the year-end variance projections:

Table 1: 2022 Anticipated COVID-19 Financial Impacts

*Reflects preliminary City allocation estimate of transit funding commitments

For details regarding expected COVID funding from other levels of governments as well as the current status of committed funding, refer to the following report titled "2022 COVID-19 Intergovernmental Funding Update" submitted to the City Council in May:

https://www.toronto.ca/legdocs/mmis/2022/cc/bgrd/backgroundfile-225633.pdf

Tax Supported Programs:

The following table summarizes the projected year-end financial position of the City's Tax Supported Operations as of April 30, 2022.

Table 2: Tax Supported Operating Variance Summary

Four Month Year-to-Date and Projected Year-End Spending Results:

As noted in Table 2 above, for the four months ended April 30, 2022, Tax Supported Operations experienced an unfavourable net variance of $311.6 million or 8.2% of planned expenditures adjusted for Toronto Building and City Planning. It is important to note that the April 30th experience is a snapshot in time and the year-end projection is based on current and expected future impacts.  The continued impact of COVID-19 and any deviation from expectations to year end will impact variance projections.  Any changes will be reflected in variance reporting for the twelve months ending December 31, 2022.

For year-end, the City is projecting an unfavourable variance of $857.1 million or 6.5% of the 2022 Gross Operating Budget, adjusted for Toronto Building and City Planning. The projected unfavourable variance is predominantly attributed to the $815 million COVID-19 funding shortfall, coupled with greater than budgeted COVID-19 related pressures in Fire Services and Shelter Services, in addition to refugee response costs which have been further impacted by supports provided to those affected by the ongoing crisis in Ukraine; and additional pressures experienced in Transportation Services associated winter maintenance.

Rate Supported Programs:

Rate Supported Programs reported a favourable year-to-date net variance of $20.4 million. The favourable variance is attributed to positive revenue variances in Solid Waste Management creating a net variance of $19.1 million and lower spending in Toronto Water, compared to budget creating a net variance of  $2.7 million.

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 3: Rate Supported Operating Variance Summary