Fiscal novelties give Toronto some wiggle room

A streetcar heads eastbound on Queen Street.

The City of Toronto has turned to a novel retooling of its finances to wriggle out of a fiscal straightjacket over the next two years created by aggressive transit expansion and a fast-looming deadline to tap federal government stimulus funds.

In a 10-year capital budget made public yesterday, the city proposes to cash in a loan to Toronto Hydro three years ahead of schedule, using $600-million in proceeds to pay down $2.4-billion in taxpayer-funded debt.

As well, for the first time, the city will borrow money for some long-term projects such as the York-Spadina subway extension and waterfront redevelopment, only as the need arises, with lenders repaid over 30 years instead of the standard 10-year window.

The one-two punch, lauded by one top economist but questioned by some city councillors, frees the city to borrow for big-ticket transit investments and its one-third share of federal stimulus projects, without running afoul of council-approved debt guidelines.

“If you want a city to succeed in the 21st century for its residents, for its businesses, and be a place of opportunity for everybody, you need to invest," said Mayor David Miller, who laid out proposals to spend $2.4-billion on capital projects in 2010 and $25.7-billion over the next 10 years.

“On top of that, at the time of a global recession, you need to invest to create employment," he added, with the 10-year plan expected to create and preserve 300,000 jobs.

Without the change in tactics, Toronto could have jeopardized its generally positive credit rating by breaching council guidelines that prohibit the city from spending more than 15 per cent of property-tax revenues to repay debt principal and interest.

The budget move is after years of city resistance to cash-in the Hydro loan, the city's biggest liquid asset, and won praise from TD Bank chief economist Don Drummond.

“It would be very silly for them to jeopardize getting some of the federal money," he said of the $500-million in city projects that recently qualified for federal stimulus funds, that under Ottawa's rules must be completed by March 31, 2011.

As well, he said, the city's 15-per-cent debt guideline (raised from 10 per cent in 2005 to allow increased borrowing to finance improvements in transit, roads and other services) is “fairly arbitrary," and should not be used to stall reinvestment.

The new strategy has positive repercussions for the city's 2010 operating budget, effectively trimming $67-million in debt-servicing costs and relieving pressure on an operating budget partly financed by taxpayers.

Over the next 10 years, the overall capital spending plan is unchanged from what council recommended last year.

What changed is that projects on the books for the next five years had to be moved ahead to tap the federal funds, creating an unexpected fiscal bulge for the city in 2010 and 2011.

The city's proposals, if adopted by council early next month, would smooth out the bulge and keep the city below the 15-per-cent debt ceiling.

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