Budget basics
Every year, the City of Ottawa produces a municipal budget. One of the most important documents, the budget is the blueprint that defines how resources are collected and allocated. The budget is made up of two main components – the operating budget and the capital budget.
Balancing the Budget
The City is required by the Ontario Municipal Act to balance its budget each year – which means that the money spent must be equal to the money raised. To balance the budget, the City can either increase its revenues using tools such as property taxes and fees, or through managing expenses by changing or reducing the services offered or projects completed.
Developing the budget
With direction from Council and based upon legislative requirements, the City’s Finance and Corporate Services Department is responsible for assisting all City departments in developing their detailed draft budgets.
Each City department reports to a Council appointed Standing Committee. The City’s budget is broken down into a series budgets organized by each of these Standing Committees.
Each Standing Committee reviews the draft operating and capital budgets for the City services/departments under their mandate to ensure everything included complies with existing City plans and addresses the needs of the community. Each Committee then makes recommendations regarding their draft budgets which are forwarded to Council for consideration.
After all Standing Committers have reviewed and made recommendations regarding their draft budgets, Council reviews all budget recommendations at the same time. Council has flexibility in reallocating or reprioritizing funds between programs and services to address emerging issues. After Council has reviewed, deliberated and voted on all the budget recommendations, the City’s final budget is adopted.
Operating budget
The operating budget is designed to ensure the dependable delivery of a broad array of programs and services that residents rely on every day. Your municipal government is responsible for emergency services (fire, police and paramedics), roads, clean water, parks and recreation, public health programs, garbage and recycling programs, libraries and the buses that take residents to work and home.
To keep Ottawa both affordable and prosperous, City staff needs to determine how best to deliver all these services while balancing revenues and expenditures as guided and directed by Council. Ottawa is one of the largest cities in Canada – larger than the areas of Toronto, Montreal, Vancouver, Calgary and Edmonton combined. Ottawa covers an area of 2,760 square kilometres. Only 10 per cent of that is urban while the remaining 90 per cent is agricultural land, villages, marginal and forested lands, and wetlands. Given the sheer scale and diverse requirements of the city, it’s no wonder that a majority of City funds are spent on delivering existing services, many of which are available 24 hours a day, 7 days a week.
Operating Resource Requirements
The breakdown of expense and revenue categories are briefly outlined and defined below:
Expenses
| Category | Explanation |
|---|---|
| Compensation | |
| Salary and Wages | Employees’ compensation related costs in accordance with the various collective agreements. |
| Overtime | Employee overtime costs are reported in this section. Overtime may be authorized when the work or service is necessary and that overtime is the most appropriate and/or cost effective means for providing the service. |
| Benefits/Allowances | |
| Statutory | Legislative requirements such as, Canada Pension Plan (CPP) and Employment Insurance (EI) employer contributions and obligations. |
| OMERS | Employee pension related costs. |
| Group Insurance | Employee benefits and allowances as per legislative and collective agreements such as medical, dental, disability insurance and Workplace Safety and Insurance Board (WSIB). |
| Gross Expenditures | |
| Materials and Services | Costs attributed to purchased services, contract services, materials and supplies and fixed assets (computer software and non-capitalized minor assets such as computer peripherals). |
| Transfers/Grants/Financial Charges | Costs associated with but not limited to, Social Service benefit payments, debt servicing and capital formation (funding transferred to reserve funds to fund the capital program) etc. |
| Fleet Costs | Costs associated with maintenance, leases, fuel, licenses, parts, rentals, and insurance. |
| Program Facility Costs | Internal costs charged between departments for the use and maintenance of facilities. Examples include cleaning services, repairs, security and more. |
| Other Internal Costs | Costs charged from one department to another for their share of various expense types such as but not limited to, printing, translation services, audit fees etc. |
| Recoveries and Allocations | Internal costs charged between departments for goods delivered or services offered. |
Revenues
| Category | Explanation |
|---|---|
| Federal | Federal funding and grants such as, Federal Gas Tax. |
| Provincial | Provincial funding and grants such as, Provincial Gas Tax and conditional transfers. |
| Own Funds | Transfers from reserves. |
| Fees and Services | Revenue earned by various fees, sales and services but not limited to transit passes, utility revenue, recreation programs and memberships, business licenses, permits, and fire inspections etc. |
| Fines | Provincial Offences Act (POA) fines and various penalty charges. |
| Property Taxes | Property tax revenue levied based on property tax class and assessed value. |
| Investment Income | Income generated by the City’s investments. |
| Development Charges | Development charges are one-time fees levied on new residential and non-residential properties to fund a portion of the City’s growth-related capital costs. |
| Payment-in-lieu of taxation | Federal properties in Ottawa are exempt from property taxes and instead compensate municipalities for services in the form of payment in-lieu of taxes (PILTs) that are consistent with applicable municipal and provincial tax rates as prescribed by the Federal PILT Act and associated Regulations. |
| Other | Revenue(s) that do not fit within the above revenue categories such as, land sales and local improvement charges. |
Capital budget
The budget is developed in accordance with the Council approved Transportation Master Plan, Infrastructure Master Plan, 2019 Development Charges Background Study, and the Long Range Financial Plans (LRFP). The City funds its capital programs through a combination of tax supported and other reserve funds, rate supported reserve funds, development charges, debt and grants from senior levels of government. Debt funding used to fund eligible components of the capital program will be in accordance with the Fiscal Framework and are well below the provincial debt limit.
In order to progress and grow, Ottawa must look beyond simply providing existing services. A City needs to be guided by a clear and overarching vision of what it is to become. The capital budget funds City infrastructure as well as Council’s Strategic Initiatives, which support the Term of Council Priorities.
The bulk of infrastructure funding goes to maintaining and rehabilitating existing infrastructure as identified in the Comprehensive Asset Management analysis. As funding allows, the City continues to fund growth, building new infrastructure and investing in the future. The City adds between $600 million and $800 million worth of new capital to Ottawa’s existing asset base every year including buses and vehicles, water pipes, roads, bridges, trunk sewers, street lighting, libraries and much more. These are investments that residents and businesses will benefit from for years to come and which contribute to the growth of Ottawa’s economy and quality of life.
Capital Budget Funding Summary
All projects in the capital budget are categorized by renewal, growth, and service enhancement. Furthermore, the budget outlines how each project is financed. Funding of the project(s) is organized under following major funding types:
| Funding type | Description |
|---|---|
| Revenues | Sources of revenue provided from the Federal and/or Provincial government for specific capital works. |
| Tax Supported and Other Reserve Funds | Some of the City’s tax supported reserve funds receive yearly contributions from the operating budget, known as ‘Pay-as-you-go’ (PAYG). Other sources of revenue include funding received from the collection of cash-in-lieu of parking and parkland. Reserve funds may be categorized as either legislated or discretionary. Legislated or mandatory reserve funds are created by statute and require that revenues received for special purposes are segregated from the general revenues of the municipality. Discretionary reserve funds are established and approved by Council and include a specific by-law. |
| Rate Supported Reserve Funds | Water, wastewater, and stormwater reserve funds are considered rate supported reserve funds. Facilities and infrastructure for the collection, production, treatment, storage, supply, or distribution of water are funded from the Water Reserve Fund. The Wastewater Reserve Fund supports costs for the City’s sewer system. The Stormwater Reserve Fund supports the capital projects supporting the operational needs related to storm water services. |
| Development Charges | Revenue collected from developers is applied to growth related capital works that support new development. |
| Debt | Several capital projects are funded with debt to be paid from tax supported funds, water, waste water or storm water charges, federal or provincial gas tax revenues or development charge revenues. |
| Capital category | Description |
|---|---|
| Renewal | Work to upgrade, refurbish, or replace existing assets to equivalent capacity or performance capability. |
| Growth | Work to add additional assets or facilities or expand on existing assets to meet the needs of the growing community. |
| Service Enhancements | Work to rebuild or replace parts or components of an asset, to restore it to a required functional condition and extend its life, which may incorporate some modification. This generally involves repairing the asset to deliver its original level of service without resorting to significant upgrading or renewal, using available techniques and standards. |
How is the budget funded?
Funds flow into the City from property taxes, user fees, and other revenue sources to be used to pay for operating costs related to the delivery of services as well as the required capital costs by transferring monies annually to the City’s capital reserve funds.
Municipal
Property Taxes
The City's major source of revenue is property tax. This includes payments in lieu of taxes paid by other levels of government. City Council is responsible for setting the property tax rate each year. The City's property tax base is the value of all property as assessed in accordance with legislation set by the province. Total property taxes are the amount of revenue generated by this rate placed on the value of assessed property. These taxes account for 50 per cent of the City's operating budget, which includes contributions to the City's capital program and debt charges.
Development Charges
Development charges are fees collected by municipalities, under authority of the Development Charges Act of 1997, to offset capital costs incurred to support growth-related infrastructure. Fees apply to all forms of development and are collected when building permits are issued.
User Fees
Fees are charged to users of many City services to cover part or all of the costs associated with the service. One important factor in determining user fee amounts is whether all residents, regardless of income, have access to these services. User fees include transit fares, recreation program fees, and childcare fees.
Rate Supported Programs
The budget is developed and presented in accordance with the 2017 Long Range Financial Plan V – Water, Wastewater and Stormwater programs. The LRFP Water, Wastewater and Stormwater reflects the financial strategies that balance the need to maintain and build the capital assets that support these essential services recognizing that the assets last for multiple generations.
Unique to the Environment and Climate Change Committee is a breakdown of tax supported and rate supported services into their own sections of the budget Book. Rate supported services include utility charges such as water rates and sewer surcharges that are included on residents' water bills. Funding sources for capital, operating, and maintenance costs for water and sewer systems include:
- Water bill revenues - per cubic meter rate charged on water consumption
- Sewer surcharge revenues - percentage rate charged on the amount of water consumed and billed
- Water service charge (replaces former fire hydrant charge) - based on the size of the water meter, this charge contributes to the funding of the infrastructure costs needed to ensure adequate water supply to properties in the event of a fire
- Development charges - revenues generated from the rates applied to new residential/commercial units. These charges provide funding for the growth portion of associated capital projects as identified in the Development Charges By-law.
- Water and sewer reserves - funds transferred from operations to reserves that enable capital requirements to be funded on a cash basis
- Debt financing - financing source to fund major capital infrastructure
Other Revenues
Revenue(s) that do not fit within the above revenue categories such as, land sales and local improvement charges.
Reserves
Reserves and reserve funds are monies set aside to fund capital expenditures, similar to having personal savings accounts for anticipated needs. They are also used to manage unanticipated expenses and to support the City’s long-term financial stability.
The City uses a portfolio approach to manage City reserves. Under this approach, individual reserves are pooled together and managed as larger groups. Use of the reserves is restricted to the specific purpose for which they were created and cannot be used for any other purpose, unless otherwise approved by Council subject to any other relevant legislation.
The following portfolios are established for the management of pooled reserves:
- Capital
- Cash In Lieu of Parkland
- City Wide Capital Reserve
- Fleet Reserve
- Housing Reserve
- Ottawa Public Health Reserve
- Parks, Recreation and Facilities Reserve
- Police Capital Reserve
- Police Fleet Reserve
- Transit Capital Reserve
- Combined operating and capital (for rate supported services or separate operating entities)
- Ottawa Public Library Reserve
- Parking Reserve
- Road Safety Reserve
- Solid Waste Reserve
- Stormwater Reserve
- Water Reserve
- Operating
- Employee Benefit Reserve
- Landfill Closure Reserve
- Tax Stabilization Reserve
- Transit Operating Reserve
- Restricted
- Building Code Cap
- Building Code Insurance Fund
- Building Code Stabilization
- Federal Gas Tax
- Provincial Gas Tax
Debt
Several capital projects are funded with debt to be paid from tax supported funds, water, wastewater or stormwater charges, federal or provincial gas tax revenues or development charge revenues.
Through the Long Range Financial Plan, Council has adopted a number of guiding principles related to debt financing for capital projects:
- Maintain current tax-supported debt servicing costs at existing levels by allowing new tax supported debt each year in an amount, which approximately corresponds to the principal amount of debt maturing. Thus, tax-supported debt is referred to as revolving debt as it replaces maturing debt with new debt.
- Debt funding for lifecycle projects should be reduced and employed on projects related to capacity expansion or growth, projects financed by development charges, future new non-traditional infrastructure projects and projects tied to third-party matching funding. It is recognized that the goal of eliminating debt financing for lifecycle projects will be phased in.
- When required, debt funding is considered an appropriate way to finance longer-life capital projects since future taxpayers who will benefit from the project will pay for it through future debt charges.
By successfully fulfilling these objectives, the City will endeavour to maintain an attractive credit rating with Standard and Poor’s Rating Services and Moody’s Investors Service Inc. or such other rating agencies as may be approved from time to time.
Government Funding
The City receives funding from all levels of government to help administer several mandated programs. A number of these programs are partially funded by the province through a cost-sharing arrangement, including Ontario Works, public health, child care and land ambulance. The City's housing and homelessness initiative is partially funded through the federal government.
Budget terms
| Term | Definition |
|---|---|
| Comprehensive Asset Management | An integrated business approach involving the different disciplines of planning, finance, engineering, maintenance and operations to effectively manage existing and new infrastructure. |
| Consumer Price Index (CPI) | An indicator of changes in consumer prices experienced by Canadians. CPI is obtained by comparing, over time, the cost of a fixed basket of goods and services purchased by consumers. Since the basket contains goods and services of unchanging or equivalent quantity and quality, the index reflects only pure price change. As CPI is an indicator of changes for goods and services that can be associated with a retail price many public goods and services provided by governments are excluded since they cannot be associated with a retail price. The target population of the CPI consists of families and individuals living in urban and rural private households in Canada. |
| Cost-shared Services | The costs of several of the City’s services are shared between the City and other levels of government. For example shelters, daycare, emergency medical services, public health and income support programs are funded by both the City and the Province of Ontario. |
| Debt Ratio | Indicates what proportion of debt a municipality has relative to the total of all reserves and reserve funds. The measure gives an idea of the potential risks the municipality faces in terms of its debt‐load. A generally accepted target ratio for municipalities is considered to be 1:1. In addition, the City’s Debt Management Policy calls for direct debt to be less than 55 per cent of operating revenue. |
| Development Charges | Fees levied against new developments to pay for the initial capital costs of servicing growth. The principle behind development charges is that ‘growth pays for growth’ to ensure the financial burden of servicing new development is not placed on existing taxpayers. |
| Development Charge Debt | Any debt funded from development charges. |
| Efficiencies | The savings realized or additional revenue generated using existing resources. |
| Effectiveness | Refers to whether a goal or objective is achieved. For example, garbage is picked up on time therefore the program is effective. |
| FTE (Full-time Equivalent) | A budgeted amount to represent permanent full and part‐time productive hours of work. City departments budget hours of work depending on program and service needs. |
| Grant | A monetary contribution—typically from one level of government to another—as a means to lend support to a specific service, program of function. |
| Growth | When additional costs are incurred in order to provide the same level of service to more citizens. |
| Long-term Debt | Matures more than one year after it is issued. |
| Operating Impact from Capital | Identifies additional operating costs—including compensation—resulting from new or expanded assets such as a facilities, vehicles, trails or parks being put into service during the budget year. |
| Own Source Revenue | All revenues received, not including Federal and Provincial Grants. |
| Payment-in-Lieu | Compensation from the Federal and/or Provincial governments in recognition of lost property tax revenue. Federally and provincially owned land are exempt from taxation, however, they often compensate the municipality with ‘payment-in-lieu of taxes.’ |
| Performance Measure | Data collected to determine how effective and/or efficient a program is in achieving its objectives. Specific service levels are established for all major services, and then monitored to determine the level of success achieved. |
| Rate supported Budget | Self-supporting and does not require a property tax transfer. The City’s Water Services, Wastewater and Stormwater are represented in this budget. Some of the costs associated with their respective service areas are recovered through user fees and other non-tax sources. |
| Reserve | Reserves and reserve funds are monies set aside to fund capital expenditures, similar to having personal savings accounts for anticipated needs. They are also used to manage unanticipated expenses and to support the City’s long-term financial stability. |
| Service Area | An organizational unit with a specific strategic focus and the authority to expend corporate resources in order to deliver an internal or external service. |
| Tax Levy | The percentage associated with property values to determine the taxes owing which fund City services. |
| Tax Rate | The rate levied on each real property according to assessed property value and property class. |
Learn about the budget - video
How the City Budget Works - Video
Get informed about how the City budget works and how you can get involved.
Watch a short video and learn the basics of how the City budget works.
We always hear about them, and often this can feel like another language all together.
Before we get started, there is important information you should know. Ontario cities like Ottawa receive only 9% of all taxes collected, but are responsible for over 50% of the infrastructure.
Let’s start by looking at what the word budget means…Simply put, it is a planned itemized summary of money that is coming into to the City and how that money is spent for a specific period of time.
It is very important to note that provincial government legislation in Ontario states money coming in equals money going out also known as Revenue equals Expenditures...or a balanced budget.
The City of Ottawa provides more than 100 services to the citizens of Ottawa, so City Council and Administration always have to make difficult decisions to ensure this balancing takes place.
There are two main components of the budget when looking at the “money going out” side of
the scale. Operating pays for all the day-to-day activities of the Corporation: this includes items such as: salaries and wages, utilities, supplies, fuel, and insurance - just to name a few.
The Capital budget pays for all the new big investments or the rehabilitation of current assets under the City’s control.
So let’s focus on how the city collects to pay for all these services.
For every dollar that comes into the city... 53 cents comes from property taxes, 18 cents from provincial grants, and 29 cents from user fees and other sources.
So, now we have learned what a budget is, how cities collect money and how they spend it.
Now let’s take a look at how these pieces work together: Money comes in through property taxes, grants & subsidies, and user fees. The money collected is required for both the operating and capital budget.
We've already talked about the operating budget, including day to day expenses, but it also includes money for funding capital budgets.
The Capital budget pays for all the new big investments or the renewal or rehabilitation of city assets and infrastructure.
This connection is made through 2 methods: the Reserve Fund method which sets aside funds to pay for capital projects on a cash basis. These are usually projects that are paid for in the short term such as a road widening or replacement of a sewer line. Or the debt payment
Ok. So let’s recap.
One - A budget is a plan for money coming in and money going out. There are two building blocks
to the City Budget: Operating and Capital.
Two - The operating budget is like your paying your house bills to keep the lights on. Just like
in a normal household, our bills go up with inflation.
Three - The capital budget is like your major outlays: vehicles, house, renovations etc.
Four - Money comes in from three sources: Property Tax Levy, User Fees, and Grants and Subsidies.
Five - Money coming in is used to deliver over 100 services to City residents.
Six - City Council and Administration, with the input of the public, decide how best to balance the City budget guided by Provincial legislation.
And that, is how your City develops its budget.
The budget process
Key steps
A key component to developing the budget is hearing from you! To help you better understand how Ottawa plans its spending every year – and how you can get involved – we have broken down some of the key steps that go into developing the City’s budget.
- Develop budget guidelines and priorities
This occurs at the start of a 4-year Council term through the term of Council Governance Review report. Guidelines and priorities are derived from several key documents including the Long Range Financial Plan, the Fiscal Framework and the Strategic Plan.
- Set budget timetable
This occurs in the summer or early fall of each year. It involves the Council approval of the Budget Directions Report which provides the direction for annual City budgets. It outlines dates for the tabling of the draft budget and approval of the budget. Questions can be directed to your member of Council.
- Draft budget preparation
In the summer and fall, the draft budget is created. Each Department reviews their services, projects and funding to ensure that their requests for the next year match the needs of residents and the community, and the priorities established by Council.
- Draft budget presented to City Council
In November, the draft budget is presented to Council, and the public. In the weeks following, each Standing Committee reviews their part of the City budget. Ward councillors organize community consultations to gather input from residents on the draft budget. Citizens also have the opportunity to register and make a presentation at any of the Standing Committee meetings.
The draft budget, and the schedule for community and standing committee meetings are published on Ottawa.ca.
- Review and approve the final budget
Council approves the final budget in early December. The approved budget details are published on ottawa.ca in the new year.
Note: In an election year, this process is delayed until the new year.
