A $2.5-million or even a $3-million deficit this year?
A 3.08 percent tax levy increase next year?
The numbers presented at last night's City Council meeting were very preliminary and very much subject to change.
They were also very, very scary, considering they don't include the $21-million municipal property tax bill that Essar Steel Algoma will have accumulated by early next month, a bill that will create major cash-flow headaches when the city burns through its remaining cash reserves early in 2017.
The 3.08 percent levy increase is the figure churned out by a new budget formula approved by councillors last night.
Just a guideline
The formula is based on a five-year average of the Ontario Consumer Price Index (excluding energy), a five-year average Municipal Property Assessment Corp. (MPAC) market change, plus a 0.25 percent investment factor calculated using sources like Harvard School of Business, private-sector and public-sector think tanks and the Global Innovation Index.
Still, the new formula is just a guideline.
"It's not a hard target," says Chief Administrative Officer Al Horsman.
"Where the formula does come into play with council is in deliberations," Horsman said.
"You have a feel for, all things being equal, where might it be, where do we want it to be?... It's still a decision-making process. Council decides final budget."
"We would come back with what we feel as an administration is an appropriate budget for council to give consideration to."
"It's our job to find the formula, in the end," said Mayor Christian Provenzano.
"And it's our job to determine what's acceptable and what isn't. This is a guideline for staff, whereby they would have some consistency," the mayor added.
'Three percent is too high'
"I think three percent, given our community's economic health, is too high," said Ward 3 Councillor Matthew Shoemaker. "We have to factor in the circumstance of our community and the struggles that it's going through."
The six-month financial report released last night reveals the following variances from budget:
- Winter control costs are estimated at $175,000 under budget, attributed to less spring snow ditching and drainage.
- Landfill tipping fees are down $150,000 because of commercial tonnage lost to another service.
- Cemetery cremation fees are down an estimated $300,000 because of a new crematorium added near the city.
- A budget shortfall of about $250,000 is expected in supplementary taxes.
The most serious differences, however, stem from recent legislative changes regarding the Workplace Safety and Insurance Board (WSIB) and post-traumatic stress disorder (PTSD).
As of June of this year, the city has paid out about $1 million for retroactive WSIB claims.
"It is anticipated that the city will pay out a total of $2.5 million to the end of 2016 for these retroactive claims," said Jacob Bruzas, manager of audits and capital planning, in a report to City Council.
Fire Services cancers
The bulk of the claims are for presumptive cancers involving Fire Services personnel, Bruzas said.
"The $2,500,000 is more significant than expected and exceeds the availability of the contingency reserve," he said.
The legislative changes covering PTSD in first responders are very new and Bruzas was unwilling to predict their financial impact on the city.
The PTSD changes are also retroactive, but only to April, 2014.
"From that perspective, this a limited liability," Bruzas told councillors. "But we do expect at least two cases to come to light. It was difficult to give you an actual projection because there's simply no data that an actuarial analysis can be performed with great certainty because it's so new.”
Cutting discretionary spending
"There's no way, unless we change service levels, that we'll ever be able to recover the whole $2.5- to $3-million deficit that we're anticipating by year end," said Shelley Schell, the city's commissioner of finance and treasurer.
"But we're looking at any discretionary spending," Schell said.
That includes reductions in operational expenses such as office supplies.
And CAO Horsman has launched a vacancy gapping program in which all vacated positions must remain vacant for three months unless they are needed for safety reasons or generate revenue for the city.
Horsman has also asked local levy boards to contribute to the austerity measures.
He remains optimistic that things aren't as dire as they might appear now.
"I want to be clear," Horsman said. "The $2.5 to $3 million is the worst-case scenario that we've described within this report."
Ward 6 Councillor Ross Romano predicted that any changes to the tax levy will disproportionately affect residential ratepayers, given that the Sault's industrial and commercial rates are already among the highest in the province.
"We do not want to increase the burden of the taxpayer," Mayor Provenzano said.
As for the city's difficulties in collecting millions of dollars in property taxes owed by Essar Steel Algoma, Horsman said the city has been using its reserves to maintain operations.
Although the city expects to be eventually paid, allowing it to replenish those reserves, Horsman expects cash-flow problems early in 2017.
"Cash-flow wise, by early next year, we're going to be exhausting those reserves," the CAO said.
"So we need some relief fairly quickly, once that happens, or we're going to be having to go to debt and that's a very bad thing to be doing in terms of running operations."
"I think we're in the 11th hour," said Ward 4 Councillor Rick Niro.
"We're all hoping that this comes to a resolution, and that we've used whatever we had to use from our reserves. And then we can start putting that money back. I don't think we're in normal times right now," Niro said.
Meanwhile, Mayor Provenzano accused city administrators of dragging their heels on cost-containment measures.
In July of last year, he said, City Council agreed to introduce an employee incentive program to get suggestions from staff.
More than a year later, there's been no action, the mayor said.
"I don't think it should have taken a year....I think it's long overdue and frankly I think a report should have been back to us by now."
By now, the ideas should have been obtained and evaluated and we should now be implementing them, Provenzano said.
Legal team gets $50,000, not $100,000
Meanwhile, City Council voted to provide up to $50,000 more to the team of Toronto lawyers representing the city at Essar Steel Algoma's insolvency proceedings.
However, that amount was half of the $100,000 requested.
As SooToday reported last week, the team has already spent $175,000 defending the city's interests.
Ward 6 Councillor Ross Romano, a lawyer, questioned what the city is getting for that money.
The city's priority as a creditor has already been recognized by the court.
Glorified mail service?
"So there's no work to be done on that front," Romano said.
"There's nothing to be done other than, maybe just get mail, view correspondence....We're not looking at bringing any motions, we're not taking any actions right now beyond what we've done. So I cannot possibly fathom in my mind how we're going to spend money just having them get our mail."
If further funds are needed by the Toronto legal team, additional requests must be brought to City Council.