What We are Not Being Told About Ottawa's Finances

Part 3: Three last points on Ottawa's fiscal situation, as Mark Sutcliffe continues his call for the federal and provincial governments to bail out the city.

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A big hello to all the new readers of the 613. And thanks for signing the petition calling for a referendum on Lansdowne.

Reminder to others: if you haven’t already, please consider SIGNING THIS PETITION, calling on the City to hold a binding referendum before we spend $493m on Lansdowne.

It launched on Monday morning, and within 72 hours, we had already crossed the 1,500 signatures threshold! I’ll talk more about the petition strategy next week.

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Recap: It’s our mess to clean up

Mark Sutcliffe blames the federal and provincial governments for the City of Ottawa’s fiscal shortcomings. He says other levels of government are not paying enough in property taxes, and underfunding our transit system.

I agree that the federal and provincial governments should be paying more, but this is a distraction from the real story. The City of Ottawa is in a fiscal mess of our own making.

In Part 1, I called on Sutcliffe to take responsibility for his actions. His decision to keep tax increases below inflation and to spend on vanity projects like Lansdowne is a recipe for failure.

His cuts to OC Transpo service and increases to fares are driving away riders. He has created a transit death spiral through a negative feedback loop of reduced service, lower ridership and increased fares.

In Part 2, I noted that the underlying reason for Ottawa’s fiscal crisis has been our choice to grow the city out. Sprawl is expensive. The neighbourhoods we have are now established. But going forward, we cannot afford to build new sub-divisions.

But this Mayor and this Council are ready to continue growing out. They have approved an infrastructure master plan that includes creating a new Tewin community in south Ottawa. Despite the $600m price tag for getting water pipes across the greenbelt. And despite that once fully built, Tewin will cost us all a 2% property tax increase (on top of inflation and anything else we want to prioritize) just to service those homes. And despite the $3 billion deficit we have for replacing “other” infrastructure — “other” than roads and sewers; they aren’t even telling us the roads and sewers deficit.

In Part 3, I address three last issues with Sutcliffe’s budgetary approach. One point where I agree with him. And two points where his fiscal management has fallen short.

1. He’s right on the public transit crisis

On Twitter, Mark notes that: “Every large city in Canada is facing a transit crisis.”

I agree. Transit is expensive and it’s very hard for cities to fund transit systems alone.

Transit throughout Canada needs a new source of funding to help cover a share of operations.

Higher levels of government are prepared to share in transit capital costs, but it’s rare to see support for transit operations. Olivia Chow asked for, and received, $330m for transit operations from Ontario in her New Deal for Toronto last year. Mark could have asked for the same, but chose to prioritize policing and a highway interchange in his New Deal for Ottawa.

Both the Mayor and I would like to see the federal and provincial governments fund transit operations on an ongoing basis.

But here is where I disagree with Mark.

First, there are other sources of funds the City of Ottawa should also be considering. Mark is part of a City task force looking at options, such as a private parking levy, that could help fund public transit. He should be talking up those alternatives rather than just blaming others.

Second, there is a question of tactics. If all Canadian cities are facing the same issue, it is much more powerful when those cities advocate together. It is easy for federal and provincial governments to dismiss individual municipalities that cry poor. But it’s more challenging when there is a united front.

If Sutcliffe is serious about getting more federal funding for transit, he should be working through the Big City Mayors’ Caucus of the Federation of Canadian Municipalities. Get all the major municipalities in the country singing from the same song sheet.

The feds are launching a $3 billion annual Canada Transit Fund, but that is only available for capital projects. Big city mayors should be leading the push, together, to make this fund available for operational support also.

2. No, we did not find $153m in efficiencies

Sutcliffe made the claim in his Special Announcement that “our City Council has found more than $153m in savings and efficiencies without cutting services.”

Below is the table of efficiencies for 2023 and 2024 provided during the 2024 Budget process. I added the red and blue circles, to highlight two points.

Source: 2024 Draft Budget Report to Council, 8 November 2023

First, cuts are not “efficiencies”. Cuts are cuts.

OC Transpo has had to shoulder over $82m of these efficiencies. We don’t know how much these represent in real cuts (i.e., after inflation), but OC Transpo’s New Ways to Bus is eliminating 74,000 hours of service. LRT service is being reduced from 5 to 10 minute intervals during the day. Staff have been let go. How Sutcliffe can justify saying that his efficiencies are “without cutting services” is anyone’s guess.

Second, efficiencies are only substantial when the money can be re-allocated. Take police services as an example. They list savings in 2024 of $2.6m. But then their overall budget went up by $9.3m.

It’s like me telling my wife that I found efficiencies in the household budget by cutting the Netflix subscription, and that I went ahead and used those efficiencies to buy myself a new suit.

In public sector finance, savings and efficiencies are meaningful when they go back to the budget process for reallocation. That money might get allocated to tax savings. It might get reallocated to another department. It might even get reallocated back to the original department for another purpose. Savings are when the organization has a deliberate process to identify monies that can be reallocated to where they are most needed.

In the case of the City of Ottawa, the identified efficiencies are largely a mirage. They are probably a case of underspending due to staffing vacancies, contracts getting delayed and other operational issues. Not efficiencies so much as interruptions. They are largely bogus, other than the real cuts imposed on OC Transpo.

3. Sutcliffe’s first two budgets drained one-third of total reserves

When Sutcliffe came to power in late 2022, the City had reserves of $663m. By the end of 2024, we are scheduled to have $436 million.

Over two budgets, Sutcliffe has drained $227m from reserves. In other words, Mark has drained one-third of our total “rainy day” reserves.

Since the City of Ottawa does not provide a handy comparative table for City of Ottawa reserves, here’s one I’ve created.

When the City updated it reserves management policy in 2018, staff advised holding reserves equal to a “minimum of 8.5% of operating expenditures and a maximum of 12%”.

Over two years, the city has dropped to the bottom end of that range. The big question now is if the 2025 budget will breach the minimum safe level.

Transparency and accountability, please

I would be very happy is this was the last I need to write on Ottawa city finances for now. Although I doubt that’s the case.

I want a City Hall that is honest with its residents about our tax dollars. I want a Mayor that takes responsibility for their actions, rather than blames everyone else.

Is that asking too much from our City leaders?

Technical update to Part 2

A reader has brought to my attention that there was one misinterpretation in Part 2 of my analysis related to Development Charges. It comes down to whether DCs pay for the expected infrastructure capital costs over 10 years, or both the infrastructure capital and operating costs over that time.

I had the chance to consult with the experts, and the answer is the former. DCs pay only pay for the initial capital costs, and do not cover any repair or operating costs.

This revision is not material to the basic argument outlined in Part 2, that we cannot afford to build future sub-divisions. In fact, it actually strengthens the point. It’s all a bit in the weeds, but for anyone interested, I have amended the Part 2 article online to reflect this interpretation.

My thanks to that keen reader. Stay sharp, Ottawa!