Item - 2024.EX16.11

The Executive Committee recommends that:

1. Due to the absence of any further 2023 intergovernmental funding support, City Council approve the one-time withdrawal of $739.3 million COVID-19 backstop funding from the Tax Rate Stabilization Reserve to offset the remaining unfavourable variance to the 2023 operating year-end results.

2. City Council direct that $200 million generated from the 2023 operating year-end Toronto Shelter and Support Services one-time underspending, as a result of New Deal intergovernmental funding support, to be transferred to the Working Capital Reserve for addressing expected future shelter demand requirements.

3. City Council approve the recommended expenditure authority as detailed in Appendix D to the report (July 2, 2024) from the Chief Financial Officer and Treasurer.

The report provides City Council with the Operating Variance for the year-ended December 31, 2023. This report also requests City Council's approval for recommended expenditure authority allocations that have no impact on the City's Net Budget.

The following table summarizes the year-end financial position of the City's Tax-Supported Operations as of December 31, 2023.

Table 1: Tax-Supported Operating Variance Summary

As noted in Table 1 above, for the 2023 year-end, Tax-Supported Operations experienced an unfavourable net variance of $739.3 million or 15% of planned expenditures adjusted for Toronto Building, City Planning, obligations and reserve allocations, and prior to backstop funding.

The unfavourable variance is driven entirely by the sustained COVID-19 impacts as a result of lower than budgeted intergovernmental funding support.

Table 2: 2023 COVID-19 Financial Impacts and Intergovernmental Funding Support

In 2023, the City continued to experience significant financial impacts, both in the form of added costs and revenue losses due to sustained impact of the COVID-19 pandemic. As a result, the 2023 Operating Budget was balanced based on the expectation of continued support funding from the Government of Canada and Province of Ontario with a total budget amount of $932.8 million.

At the end of 2023, the City received $109.9 million in intergovernmental funding support, which included $68.5 million specific to Public Health, $18.8 million for Seniors Services and Long-Term Care and $22.6 million for Toronto Shelter and Support Services. In addition to the intergovernmental funding support, the City achieved $83.6 million in offsets associated with projected COVID-19 impacts compared to budgeted estimates, leaving a $739.3 million shortfall in intergovernmental funding.

As a result of the intergovernmental funding shortfall, the City's backstop strategy will be used to offset the COVID-19 related 2023 operating budget deficit. This includes a $739.3 million draw from the COVID-19 backstop that will leave the backstop fully depleted by the end of 2024.

Table 3: Rate-Supported Operating Variance Summary

The favourable year-end variance is driven by all three Rate-Supported Programs: Solid Waste Management, Toronto Parking Authority, and Toronto Water. Solid Waste Management have primarily reported underspending for the year-end, while Toronto Parking and Toronto Water have realized favourable revenues.

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