Item - 2023.EX1.6

The Executive Committee recommends that:

1. City Council approve in-year budget adjustments to the 2022-2031 Approved Capital Budget and Plan as detailed in Appendix 4 to the report (November 24, 2022) from the Chief Financial Officer and Treasurer.

The purpose of this report is to provide City Council with the City of Toronto capital spending for the nine month period ended September 30, 2022, as well as projected expenditures to December 31, 2022. Furthermore, this report seeks Council's approval for in-year budget adjustments to the 2022 Approved Capital Budget and Plan.

Table 1 below summarizes the City's 2022 actual capital expenditures compared with the 2022 approved capital budget for the period ended September 30, 2022 as well as the projected expenditures by December 31, 2022.

Table 1: Capital Variance Summary

The City's actual capital spending through the first nine months of 2022 is $1.997 billion or 36.1% of the approved capital budget of the year. The projected spending rate is 70.3% by year-end based on submissions from City divisions and agencies, and as per previous experience actual year-end spending rates tend to be slightly lower than Q3 projections. Both the year-to-date spending and the year-end projection reflect the required pause in capital spending of $300 million which accounts for roughly 5.4% of the total approved budget to address the 2022 COVID-19 support funding shortfall from the federal and provincial governments. This is to ensure the City maintains a balanced 2022 Operating Budget while addressing the financial impacts continuing to arise from the pandemic, subject to any material changes in federal and provincial COVID-19 support funding received by year-end. When excluding the $300 million pause, the year-end projected spending rate is expected to be 75.7%.

Potential impact from the inter-governmental funding shortfall

The City continues to actively engage with Federal and Provincial counterparts at all levels to secure continued COVID-19 funding support. From March 2020 to year-end 2021, the City has benefited from nearly $2.9 billion in COVID-19 related emergency funding commitments from the federal and provincial governments, with additional estimated $567 million in funding support in 2022. The City is expecting to generate internal savings to further reduce COVID-19 pressure, resulting in a $734 million COVID-19 funding shortfall in 2022, however the gap decreases to $703 million if the City receives the continued full reimbursement of public health costs. In the event that continued COVID-19 funding is not forthcoming or adequate to fully address the financial impacts arising from the pandemic, the City's capital program will be materially impacted. As part of the City's balancing strategy, a $300 million reduction to the 2022 Capital Budget will be required in addition to a $403 million draw from the City's COVID-19 Backstop to ensure the City maintains a balanced 2022 Operating Budget while addressing the financial impacts continuing to arise from the pandemic.

Ongoing significant global supply chain issues triggered by COVID-19 have been worsened by the conflict in the Ukraine. In addition the labour market has made access to skilled trade workers more challenging which continue to severely impact capital delivery. Furthermore, with uncertainty around intergovernmental funding commitments to address COVID-19 financial pressures, the projected spend rate continues to be impacted in 2022. The supply chain and labour market challenges are being experienced in all sectors, all markets and jurisdictions.

Programs and Agencies have paused capital projects in 2022 and/or made commitments to do so by year end to address the potential provincial COVID-19 funding shortfall. Below are the main areas with the largest impacts from the pause of capital project spending (see appendix 6):

         -TTC has identified $87.0 million in paused spending largely impacting SOGR projects.

         -Transportation Services has identified $87.0 million in paused spending, mainly impacting transportation infrastructure rehabilitation projects.

         -Corporate Real Estate Management has identified $34.2 million in paused spending, mainly impacting state of good repair projects.

         -Parks, Forestry & Recreation has identified $27.7 million in paused spending, mainly impacting state of good repair projects for various buildings and structures.

Despite the challenges mentioned, the City will continue to plan annual capital projects in line with both affordability and achievability, based on the historical actual capacity and in consideration of emerging challenges such as inflationary impacts and supply chain disruptions. The strategy is to build on improvements experienced to date and improve the capital spend rate in future years; fully utilizing approved funding and enabling any excess funding capacity to support additional capital priorities, while promoting realistic capacity to spend in light of external factors and challenges.