Item - 2023.EX6.4

The Executive Committee recommends that:

1. Due to the absence of any further 2022 COVID-19 support funding, City Council approve the one-time redirection of $300 million in 2022 budgeted Capital From Current funds as detailed in the year end 2022 Capital Variance Report, as well as a one-time withdraw of $95.3 million in COVID-19 backstop funding from the Tax Rate Stabilization Reserve to offset the remaining unfavourable variance to the 2022 Operating year-end results.

2. City Council approve the recommended expenditure authority as detailed in Appendix D to the report (June 26, 2023) from the Chief Financial Officer and Treasurer.

The purpose of this report is to provide City Council with the Operating Variance for the twelve months ended December 31, 2022.

The City continued to experience significant financial impacts, both in the form of added costs and revenue losses as a direct result of the lasting impacts of the COVID-19 pandemic. The 2022 Operating Budget expected continued COVID-19 support funding from both the Government of Canada and Province of Ontario totalling $1.4 billion. Of this budgeted amount, the City received actual Federal and Provincial COVID-19 support funding of $850.3 million across multiple COVID-19 funding streams.

In addition to COVID-19 support funding, the City has generated internal savings of $153.5 million associated with actual COVID-19 impacts compared to budgeted estimates. These savings have further offset the COVID-19 funding gap, resulting in a final 2022 Year-End COVID-19 funding shortfall of $395.3 million.

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

Table 1: 2022 COVID-19 Financial Impacts

 * COVID-19 impacts above Budgeted estimates for Shelters of $40M have been offset through program specific funding and internal savings. 

The 2022 Year-End COVID-19 funding shortfall of $395.3 million reflects an improvement from the $726.0 million shortfall previously reflected in the Nine Month Operating Variance reported to Council in December 2022, as a result of the following:

- Added Provincial funding towards Transit Impacts ($37.4 million);

- Provincial support towards the City's remaining 2022 COVID-19 shortfall ($235.0 million); and

- Greater than previously projected internal savings attributed to the Q4 performance of Corporate Revenues such as the Municipal Accommodation Tax, Parking Tag and Parking Authority revenues ($58.3 million).

The City had requested that the Federal government provide $235 million in further COVID-19 support funding for 2022 impacts, which would have matched the final Provincial contribution towards the remaining 2022 shortfall. 

Due to the absence of further funding support to address the remaining $395 million shortfall, a portion of the City's backstop strategy will be used to offset the COVID-19 related 2022 operating budget deficit. This includes a $300 million adjustment to the 2022 Capital Budget consistent with the paused capital projects detailed in appendix 6 of the Capital Variance Report; as well as a further $95 million one-time draw from the COVID-19 backstop. 

The COVID-19 backstop will now be reduced to $1.039 billion prior to any additional reserve contributions, which remains sufficient to manage the 2023 budgeted COVID-19 impacts of $933 million only. However absent of further funding supports would be insufficient to address continued COVID-19 related impacts expected in 2024 and future years, with 2024 impacts previously estimated to be between $720 million to $927 million.

Tax Supported Programs:

The following table summarizes the year-end financial position of the City's Tax Supported Operations as of December 31, 2022 reflecting an unfavourable variance of $395.3 million.

Table 2: Tax Supported Operating Variance Summary 

As noted above, due to the absence of further Provincial or Federal funding, the City will address the $395.3 million shortfall through the City's COVID-19 backstop strategy. These efforts are required to maintain a balanced 2022 year-end result.

Twelve Month Year-End Spending Results:

As noted in Table 2 above, for the twelve months ended December 31, 2022, Tax Supported Operations experienced an unfavourable net variance of $395.3 million or 9% of the 2022 Budget prior to backstop funding. The unfavourable variance is driven entirely by the COVID-19 funding shortfall. 

Rate Supported Programs:

Rate Supported Programs reported a favourable net variance of $99.9 million. The favourable variance is attributed to favourable revenue and expense variances in all three Rate Supported programs.

Rate Supported Programs are predominantly funded by 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, must be transferred to the Waste Management Reserve Fund and Wastewater and Water Stabilization Reserves, respectively, to finance capital investments and ongoing capital repairs and maintenance.

Table 3: Rate Supported Operating Variance Summary