Facing a nearly $3 billion anticipated shortfall in its operating budget over this year and next brought on by the COVID-19 pandemic, a new staff report says the city may need to sell off assets and reduce staff, even while leaning on Ottawa and Queen’s Park for years to come.

The report, released Friday, lays out the city’s grim financial outlook through this year and into 2021.

Even with a slew of cost saving measures that have already been implemented, the city is looking at a year-end shortfall of $1.35 billion for 2020. City staff are also estimating that Toronto will face a preliminary operating budget shortfall of nearly $1.5 billion in 2021.

The federal government recently announced roughly $19 billion to aid the provinces with COVID-19 recovery, with some of that money earmarked for municipalities and transit in particular.

The city is expected to learn in the coming weeks just how much of that money it will be getting.  

However in the meantime, the staff report notes that “there is uncertainty as to the extent it will mitigate the budget pressures” and says the city’s ability to fill the gap “diminishes each day as we approach year-end.”

“Actions are needed to address any remaining pressures,” the report says.

The city has already managed to scrounge together some $547.8 million in savings for 2020 through staffing and spending constraints and cost avoidance, emergency layoffs, decreased TTC operating costs and budget variance. Without those savings, the city would be looking at a $1.9 billion shortfall this year.

The city manager will be tabling a report in September after it is clear how much federal funding Toronto will get. That report is expected to include difficult options for council to consider, such as selling off assets and slashing funding to capital projects and city programs.

If the city does not receive adequate funding from the federal and provincial governments, the report says, a recast of the city’s 10-year capital plan will be required, with priority given to projects the city is legally required to carry out in terms of health and safety and state-of-good-repair. That would likely mean little money for city-building projects like Rail-Deck Park.   

The city would also need to look for reductions across all city programs and agencies except for critical social services while also contemplating added revenue measures.

Noting that a $1.5 billion operating shortfall is already expected for next year, the latest report notes that the financial impacts of COVID-19 on the city will likely play out for years to come.

“The city will require continued support from federal and provincial governments into 2021 and future years while cities continue to experience financial impacts arising from COVID-19,” the report states.

Despite the dire financial circumstances, the city manager and treasurer note in the report that it would be a bad idea to allow Ontario municipalities to run deficits as their revenue tools are limited and they could face the real possibility of insolvency.  

Buyouts, salary cuts for non-unionized staff recommended

Seeking further savings in the meantime, the report is recommending packaging out staff close to retirement and cancelling bonuses and increases for non-unionized staff.

Thousands of city staff have already been redeployed to essential services or put on temporary leave because of the pandemic.

The report say further savings can be found through attrition by creating a voluntary separation program for staff who are close to retirement.

Staff who take advantage of the program will be able to retire with unreduced pensions and will receive a lump sum payment of up to three months’ salary. Their departments will then need to hold the positions vacant for at least six months following the employee’s retirement and look for ways to work with fewer staff.

Eligible staff will have until the end of August to apply for the packages and they will need to retire by the end of the year.

Staff from some key departments will not be eligible for the buyouts. They include shelter support and housing, senior services and long-term care, Toronto Paramedic Services and Toronto Fire Services.

In addition to the buyouts, the city will also be cancelling cost-of-living increases for non-unionized staff next year and eliminating a bonus program for non-union staff.  

Staff are expected to present their report to city council for consideration next week.