Moving money around doesn’t cut it, city needs new deal

Opinion

The good news is the City of Winnipeg appears to have enough in its rainy day fund to cover a multimillion-dollar operating deficit this year.

The bad news is the city is robbing Peter to pay Paul to replenish the fund after it was nearly drained during the COVID-19 pandemic.

According to the city’s second quarter financial report released this week, city hall forecasts a year-end deficit of $17.7 million in its general revenue fund, a slight improvement ($1.2 million) over its first quarter estimate.

That doesn’t necessarily mean that’s where the deficit will land in 2025. In two of the past five years, projected shortfalls flipped into the black, including last year when the city ended 2024 with a $7.2-million operating surplus after forecasting a deficit of $19.2 million as of June 30.

Year-end deficits are typically covered by the city’s financial stabilization reserve fund, which is supposed to maintain a balance equal to six per cent of tax-supported budgeted expenditures, or $85.1 million for 2025.

It is nowhere near that right now. The rainy day fund’s projected balance for 2025 is $32.4 million, which would fall to $14.7 million by year’s end if the city’s forecast deficit holds.

It could fall further if the deficit this year is worse than projected. That is entirely possible given the fact several union contracts expired in June and new collective agreements could drain city finances further.

Even the money used to “replenish” the stabilization fund this year is questionable. The city transferred $5.4 million from Winnipeg Transit to the fund, even though transit is struggling financially and has forecast a deficit this year of $2.1 million, mainly due to lower fare revenue and increased costs in bus, automotive and other parts.

Lower fare revenue is due to “ongoing challenges with fare evasion and lower ridership levels,” a second quarter report stated.

Robbing Transit to backfill the rainy day fund will only weaken Transit’s already tenuous financial position (city utilities, including transit, keep their books separate from the general revenue fund).

The city also transferred $3.7 million to the rainy fund from the Southwest Rapid Transitway (Stage 2) and Pembina Highway Underpass Payment Reserve and $1.8 million from Animal Services.

But the biggest injection into the rainy day fund came from a provincial government grant. The city received $6.9 million from the NDP government’s One Manitoba Growth Program, which is designed to help municipalities pay the bills.

But that $6.9 million is coming from a provincial government that has forecast a deficit of $794 million in 2025-26. So we’ve got one deficit-ridden level of government trying to bail out another deficit-ridden level of government.

And it could get worse. The city is only a few bad snowstorms away from seeing its rainy day fund evaporate entirely.

Meanwhile, the uncertainty around the ongoing trade war between Canada and the U.S. could also have a negative impact on the city’s finances.

The upshot is that the city needs growth revenues to survive long term. The city and the province keep saying they’re in discussions to come up with some kind of new deal for the city that would lessen its dependence on property taxes. But nearly two years into the NDP government’s four-year mandate, there’s still no deal.

Property taxes don’t grow with the economy and don’t keep pace with rising city costs, including wages and benefits, increased material costs (including construction) and important services like fire/paramedic and police.

The Winnipeg Police Service is already delaying new hires in an effort to meet its savings targets for 2025, despite historically high crime rates. The Winnipeg Fire Paramedic Service is still short-staffed and continues to rely on expensive overtime to fill shifts.

Property tax revenue can’t keep up with those costs. The city needs some type of growth revenues, like sales tax and/or income tax revenues, to pay for expensive and much-needed city services.

Shifting money around from one city reserve to the next and relying on ad-hoc provincial grants to replenish the financial stabilization reserve fund is not sustainable.

Under existing circumstances, the city would not survive another public health crisis like the pandemic, or any other crisis of that magnitude. It has not replenished its rainy day fund since the pandemic and is nowhere near meeting its city council mandated target of a six per cent cushion.

The city needs a new deal. Its finances are becoming more dire every year.

tom.brodbeck@freepress.mb.ca