Hard road

Budget debate about to heat up at Shire Hall

Mayor Peter Mertens cancelled a scheduled council meeting on Tuesday, citing a lack of pressing issues. This quiet period at Shire Hall won’t last.

Early next month the council will gather to begin to grapple with the County’s 2012 budget. It is likely to be the most painful exercise this young council has yet to face. The warning signs are ominous.

The County’s new manager Merlin Dewing has said local government must get smaller—that it can’t continue to do and fund more than it can afford—pr else it must pry open new sources of funding.

That seems unlikely. Shire Hall’s chief sources of operating revenue—that is money needed to run the day-to-day business of the municipality—are its taxpayers (about 50 per cent) followed by user fees and service charges (about 23 per cent), also derived mostly from residents. The next largest slice of revenue used to pay for operating bills comes from the federal and provincial governments (about 20 per cent). Last year this amounted to about $10 million. Ottawa is expected to contribute its proportionate share. The province, however, is a wild card.

For all its ambition to keep a firm hand on municipal affairs, the province is unlikely to wield much financial clout this spring. This is because the province is beginning to understand, far too late, it has serious financial issues of its own.

Ontario’s debt has ballooned in the last eight years—rising to $252 billion as of this week— $115 billion higher than it was in 2004. Worse, its debt relative to gross domestic product (GDP), a measure of the size of the economy, is in the same sketchy neighbourhood as Ireland and Spain—economies now dependent on outside support to pay their bills. Ontario has been spared this humiliation for the time being because lenders know that Ottawa will backstop this profligate province’s debt. This likely won’t be enough. Debt ratings agencies Standard and Poors and Moody’s have both signalled their concern, warning they may downgrade Ontario’s credit rating, making it more expensive to finance the province’s ballooning debt.

Much hinges on a report by former TD economist Don Drummond. In a preview of his report, Drummond warned Premier Dalton McGuinty that the province faces hard choices. This can only be bad news for County finances. It is not just the operating side of the County’s ledger that relies on provincial dollars; capital projects such as roads and sewers also depend on provincial largesse. Last year the County budgeted on about $1.7 million in provincial support for capital projects—a distinctly low period of capital activity in the County. Municipalaties are beginning to worry also that the province will renege on its promise to continue to upload the cost of social services programs. Bit by bit, Ontario has reassumed this expense in recent years, targeting a full upload by 2018—but some in municipal circles worry whether the province will be able to honour this commitment.

A quiet winter is about to break into heated debate at Shire Hall.