Catherine's Financial Plan 2023-2026: Technical Backgrounder

This is the Technical Backgrounder for Catherine’s financial plan, which we have made available to show our commitment to transparency. There is a shorter document available, called Catherine's Financial Plan.


Table of Contents

How To Read This Document

Projected Free Balance

Reserve Management

New Partnerships With Higher Levels Of Government

Smart Debt To Reduce Future Costs

Bold Climate Action

Housing Affordability

Reliable And Affordable Transportation

A World-Class City For Cycling

Building The Healthiest City


Introduction

Mayoral candidate Catherine McKenney is releasing their full financial plan before voters head to the polls, to clearly demonstrate how Catherine’s bold plan for a healthier, greener, and better connected city will be funded. Catherine will get this plan done while maintaining the current 3% approach to property taxes, recognizing that affordability is key as many in our community struggle to make ends meet. 

Budgets are about choices. The 2022 City of Ottawa operating and capital budgets amount to $5 billion. These budgets have the flexibility to fund priorities that make people’s lives better. Catherine has been involved in the City budget process for many years as a Councillor, and before that, as advisor to the City’s senior management. Catherine and the campaign’s team of economists know how to find the flexibility in the City budget and are sharing those insights now.

Catherine is among the first mayoral candidates in the country to ever release such a thorough platform costing. As Mayor, Catherine will ensure our city’s budget is transparent for you.

Mayoral candidate Catherine McKenney has released a financial plan that sets a high standard for fiscal transparency. Key economic and fiscal assumptions, sources and uses of funds and debt sustainability considerations are clearly laid out. This high level of transparency promotes policy debate, accountability and trust.

— Kevin Page
President, Institute of Fiscal Studies and Democracy, University of Ottawa
Former Parliamentary Budget Officer of Canada


How To Read This Document

This document is Catherine McKenney’s plan for financing platform commitments. 

The plan begins by identifying four sources of funds to support commitments. These sources are above and beyond the current budget, and do not involve any cuts to existing services.

The plan then turns to the uses of funds, costing major commitments in five priority areas. 

This financial plan has identified sources of funds that amount to more than the uses of funds proposed in this platform. The surplus of sources over uses represents a contingency, or fiscal prudence, that can be tapped into should there be unexpected shocks to the revenue and expenditure projections in this plan. 

The sources of incremental revenues and costing of major platform commitments is presented on a modified accrual accounting basis as per standard City of Ottawa budgetary practices.


Sources Of Funds

Four sources of incremental revenue can finance platform commitments in the operational and capital budgets, as summarized in the tables below. 

As Mayor, Catherine will continue the current 3% approach to property taxes. Accordingly, this model assumes there will be no changes to the property tax approach of the current Council.

 



1. Projected Free Balance

Since 2018 (i.e., as far back as the City publishes financial statements), total City revenues from all sources grew by 4.6% annually*. With the status quo 3% property tax approach that McKenney will adopt, total revenues for the next term of Council accordingly can be modelled to grow at 4.6% annually.

Official average annual projections over the next four years are for population growth of 1.4% (City of Ottawa Official Plan) and inflation of 2.7% (Bank of Canada July 2022 Monetary Policy Report, which has inflation at 4.6% in 2023, 2.3% in 2024 and 2.0% in 2025 and 2026). Added together, this means an expected annual average growth in population plus inflation of 4.1% over the next four years. 

The compounded difference between 4.6% and 4.1% annual growth amounts to a projected free balance in the City budget. The projected free balance represents discretionary resources that are available to be allocated to different priorities.

The free balance is allocated through the City’s annual budget process. In recent years, decisions on the allocation of available resources have been largely taken before the budget draft was released publicly, and codified into that document – obscuring the full extent of discretionary resources. 

The degree of flexibility within the free balance is influenced by City policy around land use. The City commissioned Hemson Consulting over a number of years to calculate the tax revenues and costs associated with new housing builds. Their 2021 analysis noted that a new urban infill generates $606 per person per year more in revenue than is consumed in city services, and that a suburban greenfield development generates $465 per person per year less in revenue than is consumed in city services. In other words, land use decisions to intensify increase the size of the free balance, while sprawl reduces it. The analysis in this document is neutral on the effects of intensification versus sprawl in determining the level of available free resources.

This free balance is intuitively aligned with a 3% property tax approach, in which 2% is nominally earmarked for inflation and 1% for infrastructure and other discretionary initiatives. Property taxes collected in 2022 amount to $1.96 billion, and accordingly that 1% discretionary balance amounts to about $20 million in 2023, $40 million in 2024, $60 million in 2025 and $80 million in 2026. Growth in other line items, such as user fees and development charges, additionally contribute to the projected free balance.

Under a status quo 3% property tax regime, we can plan for a free balance above inflation and population growth amounting to $267 million over four years

 

2. Reserves Management

The City holds cash reserves to mitigate against unexpected fluctuations in revenues and expenditures, and to serve as a counter-cyclical policy tool. 

The extraordinary inflation in 2021 and 2022, which the Bank of Canada believes peaked earlier this summer and which will return to normal levels by 2024, is one economic shock that the City can mitigate through the strategic deployment of reserves. 

At the end of 2021, the City held $680 million in total reserves, of which $583 million were discretionary. The City uses a portfolio-based approach to managing reserves, with guidance to hold discretionary reserves equal to between 8.5% to 9.6% of total expenditures. At the end of 2021, our reserve ratio stood at 14.8% of total expenditures, meaning the City was effectively holding $205 million in excess reserves.

The City of Ottawa can comfortably draw down $90 million of reserves to manage inflationary pressures and fund new priorities, providing flexibility while continuing to keep reserve levels safely above the guidance level.

3. New Partnerships With Higher Levels Of Government

Transfers from other levels of government account for about 20% of City spending. These transfers occur through well established mechanisms, such as provincially-led infrastructure projects and gas tax revenues from federal and provincial governments.

In addition to these existing mechanisms, the City will aim to grow transfers from higher levels of government through new approaches, including direct transfers from the federal government to municipalities. Recent federal programs, including the $4 billion Housing Accelerator Fund and the $400 million Active Transportation Fund, have allowed the federal government to work directly with municipalities on shared priorities, notably in climate, housing and sustainable transportation. The City of Ottawa will increasingly emphasize how its priorities dovetail with those of higher levels of government, such that the City is seen as a preferred delivery agent for achieving shared objectives. 

The City of Ottawa will also work more strategically with other municipalities to develop innovative partnerships with higher levels of government. Federal funding to the Federation of Canadian Municipalities’ Green Municipal Fund is one example of a new approach to partnership that Ottawa and other municipalities can champion.

Ottawa accounts for 2.7% of Canada’s and 7.0% of Ontario’s populations. While federal and provincial funding is not allocated on a per capita basis, the City of Ottawa can use per capita calculations to set minimum targets for funding received from higher levels of government. The table below shows these target allocations for incremental funding opportunities from the federal Housing Accelerator and Active Transportation funds.

The City will aim to secure $108 million from the Housing Accelerator Fund and $11 million from the Active Transportation Fund, and position itself as a preferred delivery agent for future funding envelopes established by higher levels of governments.

4. Smart Debt To Reduce Future Costs

Provincial statutes prevent municipalities from using debt to fund operating costs and run deficits. Debt can be used, however, to fund capital costs for transformative legacy projects that improve the quality of life in Ottawa and which can also reduce costs in the future. The City, for example, is using debt to finance light rail transit and our new central library.

In order to realize significant savings and build for the future we want, smart debt – in the form of green bonds – will be mobilized in two areas:

  • $65 million for green building retrofits, which are expected to pay back within eight years and then be revenue-positive for the City from reduced energy costs.

  • $250 million to make Ottawa a world-class city for cycling, providing residents throughout the City with the option to safely travel and promoting a mode shift that gets cars off the road reducing our road maintenance costs. This green bond is cost-neutral to taxpayers, by frontloading 25 years of planned active transportation spending into four years. The City is spending $15 million on bike infrastructure spending in 2022, and is expected to continue spending at this level for the 25 years of the Official Plan. Projected future annual payments on bike spending would simply be redirected to pay the principal and interest on the bond, making this proposal cost-neutral to the City.

The City has a modest debt burden. While the City has $3 billion in outstanding and $1.7 billion in authorized but not yet issued debt, debt sustainability is measured in terms of tax and rate supported debt as a ratio of own source revenue. Ottawa’s ratio is 6%, compared to an 8.5% limit agreed by Council, or a 25% limit set in provincial legislation. 

Compared to other cities and levels of government in Canada, the City of Ottawa is in an enviable position regarding debt sustainability. For example, the federal government – which has the lowest net-debt-to-GDP ratio among G7 countries and which comfortably maintains a AAA credit rating – has debt servicing equal to 7.4% of total tax revenues. 

The City of Ottawa is expected to have a total borrowing capacity of about $5.6 billion by 2026. After outstanding and authorized debt of $4.7 billion, Ottawa would have about $800 million in borrowing headroom, assuming continued growth in own-source revenue and market borrowing terms. The City has sufficient capacity to borrow $244 million for building retrofits and active transition, that will help us build a better City while reducing future costs to taxpayers. Borrowing to invest in these sectors is a fiscally smart move.

 

Uses Of Funds

Major commitments for the City’s operational and capital budgets are costed in this section and summarized in the tables immediately below. 

As noted in the operational budget table below, the cost of the platform is less than the available incremental resources. The residual balance serves as a contingency, providing us with a cushion against any unexpected economic shocks.

1. Bold Climate Action

The City of Ottawa has a comprehensive plan, Energy Evolution, to reduce greenhouse gas emissions throughout Ottawa by 100% by 2050. That Plan requires investment by the City, other levels of government, residents, businesses and other organizations. The City of Ottawa will focus on areas under its direct responsibility, as well as strategic investments designed to mobilize additional resources from others. The City will reduce the emissions in its own assets and operations, but more importantly, act as a catalyst in helping the residents, organizations and businesses of Ottawa transition to a low carbon future.

The City has costed what is required to implement Energy Evolution. Based on City costing, we will invest in the following Energy Evolution measures, in addition to the transit and active transportation measures noted in the Reliable and Affordable Transportation, and A World-Class City for Cycling sections, towards achieving net zero emissions by 2050:

  • Retrofit municipal buildings to be energy-efficient and save money, and support homeowners, organizations and businesses to do their own retrofits

    Ottawa will issue $65 million in green bonds to finance retrofitting municipal buildings, as part of our capital budget, generating savings from lower future energy costs that are expected to fully repay the bonds within eight years, and be a net positive contribution to the City’s finances thereafter. The City will plan for an equal level of municipal building retrofits financed through energy performance contracts with an energy service company. The City will also invest up to $4 million annually in providing advisory services and structuring financial mechanisms that help households and businesses undertake their own retrofits, including by tapping into available funding such as the federal Greener Homes Initiative. Retrofitting buildings can reduce Ottawa’s greenhouse gas emissions by 33% by 2050, and is among the most important actions the city can do to move towards a low-carbon future.

  • Support the switch to electric for personal and commercial vehicles, and to sustainable modes of transportation

    The City will embark on an ambitious program of installing public electric vehicle (EV) charging stations, working in partnership with Hydro Ottawa, commercial EV charging partners along with commercial and residential landlords. The City will also make advisory and financial services available to households, institutions and businesses to better understand and execute the switch to electric vehicles. City efforts to catalyze greater EV adoption will cost $2 million annually. The City will also renew its own fleet with green vehicles, however, this can be done at no additional cost beyond the expenditures already planned for renewing City vehicles. Electrifying personal and commercial vehicles can reduce Ottawa’s emissions by 31% by 2050. Work underway to electrify buses and build our active transportation network will reduce emissions by a further 6% by 2050.

  • Divert organics and develop renewable natural gas

    The City will increase the diversion of organics from the waste stream. The City will also invest in biogas refinement from organic composting and wastewater treatment, in order to create renewable natural gas, which will serve as a source of income for the City. Investments in these areas will amount to $10.5 million annually. Action in diverting waste and developing renewable natural gas can reduce Ottawa’s emissions by 17% by 2050.

In addition to advancing Energy Evolution, Ottawa will invest in other measures to build a more resilient city and better adapt to climate change.

  • Increase the tree canopy, through adding $2 million annually to the Trees in Trust program, in conjunction with federal efforts through their two billion tree program.

  • Create a new role of Chief Climate Officer, to ensure climate and nature impacts are at the centre of every major decision the City makes and position Ottawa as a world leader in climate. The climate office will be funded at $1 million over four years, and will consolidate existing expertise from across city staff.


2. Housing Affordability

Ottawa’s plan for housing will address affordability for both those looking to enter or move within the housing market as well as those experiencing, or at risk of experiencing, homelessness.

  • Accelerate middle-class housing affordability

    The City will focus efforts on securing at least $108 million over the next term of Council from the federal Government’s application-based Housing Accelerator Fund. These funds will be used to rapidly increase the stock of middle-income housing.

  • End chronic homeless by 2026

    500 individuals are chronically homeless in Ottawa. To end chronic homelessness, the City will provide 250 individuals with new supportive housing built by co-investment partners funded through the federal National Housing Strategy, and support 250 individuals facing chronic homelessness with rental allowances at a cost of $2 million annually.

  • Prevent families and individuals from falling into homelessness

    The City will provide rental allowances to 1,800 households on the verge of homelessness. $11 million annually in support will help these households stay in their current living arrangements and out of shelters.

  • Ottawa Community Land Trust

    The City will provide $5 million in seed funding to capitalize the Ottawa Community Land Trust, a not-for-profit corporation that owns and manages land for affordable housing indefinitely, in order to retain our existing affordable housing and stop the loss of affordable units.

  • Transition families out of motels

    The City spends about $15 million annually on providing about 320 families with emergency shelter in motels and hotels. For $3 million annually, the City will provide those families with rental subsidies that allow them to live with dignity in proper accommodations, instead of living in motels. The City will reinvest the net savings of $12 million into additional support for addressing homelessness. 

 

3. Reliable And Affordable Transportation

The City will make the investments required to bring our transit system and transportation network up to the standard expected by residents, with reliable, safe and affordable options for moving around Ottawa. Transit estimates are based upon ridership and cost data provided in the Canadian Urban Transit Authority’s 2020 Canadian Conventional Transit Statistics.

The City will invest in the following transit and transportation initiatives:

  • Improve transit reliability

    When the LRT was introduced into service in 2019, operating costs were prematurely cut from the OC Transpo budget on the assumption that bussing could be significantly reduced. Given unreliable LRT performance and evolving requirements for our bus network, we will increase transit operations by 20% within four years, ramping up to an additional $71 million of annual spending by 2026. These investments will provide residents with reliable transit that takes them where they need to go on time.

  • Freeze transit fares

    OC Transpo fares are among the most expensive in the country. Furthermore, our approach has been to use fare hikes to fill transit revenue gaps, however, this has led to a vicious cycle of lower ridership leading to less revenues leading to higher fares leading to even lower ridership. To break this downward spiral, transit fares will be frozen at 2022 levels for the full term of the next Council. Ottawa will allocate up to $15 million annually by 2026 to keep transit costs at 2022 levels.

  • Free transit for 17-and-under

    Children under 7 already ride for free on OC Transpo, which will be expanded to age 12 at a cost of $10 million annually. Ottawa will additionally allocate up to $12 million annually by 2026 to provide a free Presto pass to middle and high school students age 17 and below who do not already receive a free card through their school board.

  • EquiPass

    The monthly EquiPass rate will be reduced to the price of the Community pass, costing $1 million annually by 2026, in order to make transit more accessible to low-income residents.


4. A World-Class City For Cycling

The City will make the investments required to transform our active transportation network into a leading centre year-round.

  • Make Ottawa a World-Class City for Cycling

    The City will front load 25 years of planned bike spending into 4 years, in order to quickly build out an All Ages and Abilities bike network. The financing of this infrastructure will be done through issuing a cost-neutral green bond, estimated at a $250 million face value. The City is spending $15 million on bike infrastructure in 2022, and is expected to spend at this level or more annually throughout the course of the 25 year Official Plan. Those future $15 million annual payments will be used to pay the principal and interest on the green bond. The bond will be sized to the maximum security that can be issued corresponding to $15 million annual debt service charges for a 25-year tenure given interest rates when the bond is issued – expected in 2026 following the completion of construction. This will allow the City to save on future road repair costs, as more bikes means less wear and tear on streets, and protect against the risk of construction cost escalations.


5. Building The Healthiest City

The City will invest in the following initiatives to improve prosperity and quality of life throughout the city:

  • Keep wading pools and beaches open during heat waves

    The City will set aside an envelope of resources to provide additional resources to keep wading pools and beaches open when required during heat events, estimated at $250,000 annually. This includes extending the season as required.

  • Get more youth into lifeguarding

    Ottawa has a shortage of lifeguards – often due to the high, and for many families, prohibitive cost for getting licenced as a lifeguard. To increase the supply of lifeguards, the City will create a new program that provides up to 100 low-income youth with a grant to complete lifeguard certification (of up to $1,000), in return for those individuals committing to serve two seasons as a City lifeguard. This program will cost $100,000 annually and will increase the availability of lifeguards for aquatic programs and remove financial barriers for youth from lower-income families to train as lifeguards.

  • Open library branches on Sundays

    10 of the 33 Ottawa Public Library branches were open on Sundays in 2022. The City will increase the library budget by $1.2 million annually to allow all branches to remain open on Sundays.

  • Enhance support to community services agencies

    The City will additionally allocate $500,000 annually in a sustainability fund designed to assist agencies to better deal with unexpected shocks to their financial stability.

  • Support restaurants through waiving of patio fees

    The City will continue to waive patio fees for the first two years of the next Council, at a cost of $750,000 annually, as restaurants manage with escalating food costs, staff shortages and ongoing uncertainties related to COVID-19. In 2023, Council will reassess if fees should be reestablished or not.


 


As per the modified accrual accounting practice used in the City’s budgeting process. The City’s financial statements, which are reported on a full accrual accounting basis, have annual average growth in total revenues of 6.3% since 2018.
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