- Provincial Loan to the City of Toronto
- Provincial Loan to City of Toronto: Proper Accounting Treatment for Forgiving the Loan
- Provincial Support For Social & Affordable Housing
PROVINCIAL LOAN TO THE CITY OF TORONTO
July 16, 2013
Toronto Loan Forgiveness
- As part of the support provided by the Ontario government to the City of Toronto, the Province is forgiving a loan made to the City in 2004 over the next three years.
- This will provide the City with a financial benefit of $231 million by 2016.
- Consistent provincial uploading and other sources of continuous provincial support will more than offset the phasing-out of Toronto's Pooling Compensation.
- In 2004, the City of Toronto entered into a debenture loan agreement with the province.
- The 2004 loan was a restructuring of loans made to Toronto in 1998 and 1999 to fund transition costs as a result of amalgamation as well as to make essential investments.
- The City made initial payments on this loan, but ceased making payments in 2002.
- As a result, the Province agreed to restructure the loans.
- The City made a further payment in 2003 and another following a 2004 restructuring of the loan, but ceased payments again beginning in 2005.
- Both principal and interest remain outstanding under the terms of the loan.
- The City has missed 17 payments to date. Interest payments are in arrears, and additional interest payments continue to accrue under the terms of the loan.
- The City of Toronto’s own external auditor was very clear in a report to the City’s Audit Committee in 2011.The loan was not forgiven and the City was obligated to pay back the principal of $170 million and accrued interest owing to the province.
“…[P]ayment has not been made on the outstanding debt since 2005…[T]he City continues to record both the principal and the accrued interest on the loan in order to reflect the current amount legally owing to the Province. As a part of our audit procedures, we confirmed the loan balance with the Province….”
Price Waterhouse Cooper, Report to the Audit Committee for the year ended December 31, 2010. Prepared as at June 20, 2011.
- Each year since 2005, the Province has sent correspondence to the City making it clear that it expects the City to repay the loan.
“The Province charged an accounting provision against 2005-06 expenses to reflect the risk of non-collection of the balance owing. However, as was emphasized with City officials, setting up this provision does not forgive the loan, nor does it in any way preclude the Province from continuing to pursue collection of the loan from the City of Toronto.
It is important to note, therefore, that the existence of this accounting provision does not relieve the City of its legal obligations under the Loan agreement.”
May 14, 2007 correspondence from the Deputy Minister of Finance to Toronto’s City Manager
PROVINCIAL LOAN TO CITY OF TORONTO: PROPER ACCOUNTING TREATMENT FOR FORGIVING THE LOAN
July 16, 2013
- The Province will be remitting (i.e., forgiving) the outstanding Toronto Debenture Loan and unpaid interest over a three year time frame.
- As each portion of the loan is forgiven, this will provide an equivalent amount of revenue for the City in each year the loan is forgiven.
- This includes principal and interest. This will provide the City with $231 million in additional revenue over three years.
Proper Accounting for the Loan Forgiveness
- The City of Toronto is legally required to repay the loan.
- The City of Toronto has recorded the loan on their financial statements as an amount owing to the Province.
- The Province has previously taken a provision to reflect the inability to collect the outstanding amount from the City.
- This does not remove the legal requirement for the City to repay the loan.
- By forgiving the loan, the City receives an immediate financial benefit as they no longer need to repay the principal and unpaid interest to the Province. Simply put, they get to keep the money that was provided to them.
- Following proper accounting standards, the City’s financial statements will show the elimination of the loan’s value from its liabilities and result in a one-time revenue increase to its statement of operations.
City Staff Report
- Per the City’s staff report of July 3, 2013, titled Provincial Amalgamation Loans, “Over the three year period (2014 to 2016), the City will record an "accounting" gain of $211,851,946 ($170,171,726 plus accrued interest of $41,680,820).”
- The benefit to the City of the forgiveness of the accrued interest on the Loan will be about $61 million – and the total value to the City of the forgiveness of the loan and accrued interest is $231 million.
- The report claims there is no benefit, from a budget perspective, of being forgiven from having to repay the principal portion of the loan (the City does identify a benefit from the forgiveness of interest). It simply attributes the loan forgiveness as an “accounting gain”.
- However, the “accounting gain” properly reflects that the City has received the benefit of the cash from the original loan.
PROVINCIAL SUPPORT FOR SOCIAL & AFFORDABLE HOUSING
July 16, 2013
- The Ontario government has been generous in its support to the City of Toronto, investing more funding in affordable housing than any government before.
- Since 2003, the Province has provided almost $1 billion to the City in support of social and affordable housing. This $1 billion includes investments to create affordable rental housing units; for repairs and for improvements to social and affordable housing units; and to provide rental and down-payment assistance.
- The Province continues to urge municipalities, and the other provinces and territories to join Ontario in asking the federal government to commit to permanent, flexible funding for social and affordable housing.
- Provincial funding continues to increase for the City of Toronto; however, Toronto’s expenditures on social housing do not appear to have been increasing as the benefit of the provincial uploads to the City has been increasing.
|City of Toronto Social Housing Expenditures (SMAIR) ($M)
|Total Benefit of Provincial Uploads
|*SMAIRS (Service Manager Annual Information Returns)
Ongoing Support for the City
- By 2016, total continuous support will total almost $800 million, or a 700 per cent increase since the current government assumed office in 2003. Toronto will also benefit from the forgiveness of an outstanding loan made to the City (the value of forgiving the Toronto Loan is $231 million) as well as other provincial investments.
- The net benefit of the Toronto Pooling Compensation phase-down, loan forgiveness, uploads and other funding is $110 million between 2013 and 2016.
- The estimated total benefit of provincial uploads as of 2013 for the City of Toronto is nearly $364 million annually.
- Ontario Drug Benefit upload: over $47 million.
- Ontario Disability Support Program (ODSP) upload: over $19 million.
- ODSP Benefits upload: over $171 million.
- Ontario Works (OW) Benefits upload: over $54 million.
- Ontario Works Administration upload: $58 million.
- Court Security and Prisoner Transportation upload: over $13 million.
- The cumulative benefit of continuous benefits and cost uploads to the City of Toronto since 2008 is over $1.2 billion.
- Other important sources of continuous provincial support to the City include provincial gas tax funding as well as public health and land ambulance funding.
The province has also provided or committed over $10.6 billion in infrastructure funding to the City since 2003.
- This includes an $8.4 billion contribution to the revised Toronto transit plan.
Toronto Does Not Have Uniquely High Social Housing Costs
- More than half of the municipalities that are responsible for social housing costs have higher relative costs compared to Toronto when municipal social housing costs are compared to their property tax base.
- The decision to phase-out Toronto Pooling Compensation is based on fair treatment for all municipalities. Other municipalities have seen their equivalent provincial funding phased-out as uploads for social assistance program costs have been implemented.
- For example, Hamilton, London and Ottawa have all seen the social programs grants they previously received through the Ontario Municipal Partnership Fund (OMPF) phased-out as the uploads were implemented.
- The OMPF Social Program Grants will be phased-out for all municipalities by 2016, as agreed to through the Provincial-Municipal Fiscal and Service Delivery Review.