July 8, 2020

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Winnipeg has fiscal capacity to weather COVID-19 storm



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The City of Winnipeg may be facing short-term financial challenges related to the COVID-19 pandemic, but they pale in comparison to the fiscal crises the provincial and federal governments are up against.

City hall has taken a number of steps to offset a moderate decline in revenues since the novel coronavirus pandemic began, including spending cuts and service reductions. Administration is now proposing a second round of measures to balance the books, including more borrowing.

While those steps will put some pressure on city finances, the long-term implications will likely be negligible, partly because civic revenues haven’t been as hard hit as those at the provincial and federal level.

The city relies largely on property taxes and utility rates to pay its bills. Unlike the massive drop in income and consumption taxes at the provincial and federal levels during the pandemic, city revenues have been relatively stable.

Winnipeg is also shielded from the massive cost increases associated with the pandemic, including soaring health-care expenditures and subsidies to individuals and businesses. (All financed by senior levels of government.)

The city has faced some revenue declines. Penalties for unpaid property taxes and fees have been waved; revenues are down from swimming lessons and membership fees; there’s been a drop in traffic enforcement fines due to fewer motorists on the road; amusement taxes are down.

Some of that has been offset by spending cuts, including temporary layoffs.

All told, there’s a $33.7-million deficit projected in the tax-supported budget this year — which doesn’t include utilities and special operating agencies. When Winnipeg Transit, utilities and SOAs are included, the city’s projected deficit is $66.7 million, mainly due to a sharp decline in Transit ridership.

Under the City of Winnipeg Charter, it is prohibited from running a deficit in its tax-supported budget. However, it can operate with a shortfall, as long as it brings the books into balance by year’s end.

There are a few ways it can do so, including transfers from reserve accounts. It can also reduce the amount of cash it uses to finance capital projects (called "cash to capital"). The city plans to do both this year.

It’s proposing to replace $18.4-million worth of cash to capital in 2020, and will borrow the money instead. The city will also draw from the Financial Stabilization Reserve and Land Operating Reserve to help balance the books.

Winnipeg's financial outlook has improved since April, including a slightly lower projected deficit. The city’s reserves are also far from depleted.

The Fiscal Stabilization Reserve had a balance of $107.8 million on Dec. 31, 2019. If all the proposed measures are approved, the fund will fall to $93.8 million by March 31, 2021 — well above the city’s target balance of $68.6 million.

Winnipeg will have to borrow more than expected this year, but its total debt will remain below limits set by council in 2015.

The city’s cash flow is also in good shape: finance officials are projecting liquidity levels for 2020 (cash on hand to pay the bills) will be above target levels. One of the reasons: the Manitoba government advanced grant money to the city earlier than usual this year because of the pandemic.

City hall isn’t out of the woods yet. A second wave of COVID-19 could hurt its finances further, and the city doesn't yet know how many of the homeowners and businesses that requested deferrals will not be able to pay property taxes later this year.

Still, Winnipeg has some cushion. It has almost $100 million in its rainy day fund; if necessary, there is money in other reserves that could be repurposed with council approval.

None of these measures are long-term solutions; the city can’t draw from its reserves forever or borrow at unsustainable levels. However, in the short-term, it has the fiscal capacity to weather this storm.

Ironically, it’s the city — normally considered the poorest of the three levels of government — that may come out of this with the fewest number of bruises.


Tom Brodbeck

Tom Brodbeck

Tom has been covering Manitoba politics since the early 1990s and joined the Winnipeg Free Press news team in 2019.

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