FOR IMMEDIATE RELEASE:
[La version française suit le texte anglais.]
COVID-19 PANDEMIC TO COST MUNICIPALITIES $6.8 BILLION OVER TWO YEARS
TORONTO, December 10, 2020 - Today, the Financial Accountability Office of Ontario (FAO) released a report that provides an overview of municipal budgets, estimates the financial impact of the COVID-19 pandemic on municipalities, and assesses the adequacy of federal-provincial financial support.
The COVID-19 pandemic will result in significantly lower revenues and higher expenses for municipalities in 2020 and 2021. Before taking into account cost savings measures implemented by municipalities and federal-provincial financial support, the FAO projects a negative financial impact on municipalities’ budgets of $4.1 billion in 2020 and $2.7 billion in 2021, for a combined negative impact of $6.8 billion over two years. The most significant revenue losses for municipalities are from transit fees and fees from recreation, culture and other services. On the expense side, municipal spending will increase largely for temporary housing and homeless shelters, public health, and social and family services (including long-term care facilities).
In response to the pandemic, municipalities implemented cost savings measures in 2020 and the Province announced up to $4.0 billion in financial support to municipalities, which included federal government support through the Safe Restart Agreement. For 2020, the FAO estimates that savings of $1.1 billion from municipal cost savings measures and a projected $3.0 billion transfer in financial support from the Province will allow municipalities to completely mitigate the $4.1 billion financial impact from COVID-19 in 2020.
For 2021, $1.0 billion of the $4.0 billion in federal-provincial support will remain after drawdowns in 2020. However, under the Province’s funding terms, the federal-provincial support is only available for general operating pressures in 2020 and municipal transit pressures through the first quarter of 2021. Consequently, the FAO projects that only $0.3 billion will be provided to municipalities in 2021 to address first quarter transit pressures. This will leave $0.7 billion of the $4.0 billion in federal-provincial support unallocated, even though municipalities will still face a remaining $2.4 billion financial shortfall from the COVID-19 pandemic in 2021.
Looking forward, without additional support from the Province or federal government, municipalities may be required to implement additional mitigation measures in 2021 to either increase revenue or reduce spending, utilize reserve funds set aside for budget stabilization (estimated to be a combined $1.8 billion by 2021), or, if possible, run reduced budget balances.
To learn more, read the full report here.
- Municipalities within the Greater Toronto Area will experience the largest relative financial impact from the COVID-19 pandemic, with a loss equivalent to 7.5 per cent of revenue over two years, or $4.6 billion.
- The Province is contributing up to $2.2 billion, or 56 per cent of the total $4.0 billion in financial support to municipalities, with the federal government contributing $1.8 billion, or 44 per cent.
- Over the last 10 years, total municipal revenue has grown at an annual average of 3.8 per cent, moderately slower than nominal economic growth, which averaged 4.1 per cent.
- Property tax was the largest source of municipal revenue in 2018, accounting for $21.8 billion, or 40 per cent of total revenue.
- Over the last 10 years, municipal expenditures have grown at an annual average of 3.2 per cent. Since 2009, after accounting for inflation, municipal spending per person has grown from $3,218 to $3,274, an increase of $56 per person. This suggests that the overall quantity and quality of services provided by municipalities has been relatively stable over the last 10 years.
About the FAO
Established by the Financial Accountability Officer Act, 2013, the Financial Accountability Office (FAO) provides independent analysis on the state of the Province’s finances, trends in the provincial economy and related matters important to the Legislative Assembly of Ontario. Visit our website at http://www.fao-on.org/en/ and follow us on Twitter at https://twitter.com/InfoFAO.