November is not only the beginning of the pre-Christmas season, but it’s also the first month of the new four-year Council term. I’d like to take the opportunity to explain how a municipal government operates in providing much-needed services to the residents within its boundaries.
During the past four years, Councils have undertaken a number of capital projects — including roads, bridges, culverts, and buildings — which add to the infrastructure of the municipality.
I have been involved in municipal government at the local and provincial level for over 30 years and I can tell you this with absolute certainty: no matter what any municipal Council does in terms of capital projects, there are always questions from residents wanting to know why this and not that?
These are very reasonable questions. In response, I thought it would be appropriate to talk about how municipalities pay for projects and where the money comes from.
Financing Municipal Capital Projects
At the beginning of each year, Council must determine two different types of budgets:
- Operating Budget, which details what level of services the municipality will provide during the year. These are the day-to-day items that you see being undertaken across the municipality, such as grading of roads, repairs to culverts, snow plowing, parks maintenance, a municipal library, tax collection, building inspection, by-law enforcement, planning and development, emergency management, and fire department, to name a few of the major activities. These services all require staff and equipment which must be accounted for in salaries and maintenance. This budget also includes amounts sent by various external agencies that provide municipal services like the OPP, School Boards, Health Unit, and so forth.
- The other kind of budget is called the Capital Budget. It involves additions or improvements to infrastructure such as the purchase of new vehicles, paving of a section of road, replacement of large culverts, new buildings, and major equipment.
Every service and activity undertaken by a municipality during the year must be paid for in one way or another. The major sources of funding include:
Ontario Municipal Partnership Fund (OMPF)
This is a block of money given to each municipality by the province and is based on a formula utilising a per capita calculation. Each municipality in Ontario receives this grant, but the amount will vary depending on the population of that municipality.
The municipality typically puts this money into a general account so that it can be used throughout the year to pay for expenses in the various departments.
The OMPF is an unconditional grant, as there are no conditions attached to the spending of that money. It can be anywhere from $300,000 to multiple millions each year depending on such factors as population, assessment, and geographic location.
Reserves and Reserve Funds
Municipalities are required by law to establish reserve funds set up for specific purposes.
This means that some of the money raised through taxes each year is placed into a special account dedicated to a particular function like the purchase of equipment for the public works or fire department, development and improvement to municipal parklands, and more.
The money in those reserve accounts can only be used for the purpose as described in the by-law setting up that reserve. For example, money in a fire department equipment reserve could not be used to upgrade parks.
Many municipalities also establish one or more general reserves which are funded each year so that in subsequent years expenditures can be made for capital projects using those funds in order to reduce the amount needed through taxes. We call this Pay-as-You-Go.
When the municipality determines what projects it wants to undertake each year, it will explore the various grants available from the Province of Ontario’s Ministries, as well as provincial agencies like the Ontario Trillium Foundation.
Conditional grants can only be spent on the project identified in the grant application.
The grant money used to pay for the paving and new signage at a municipal office under the Federation of Canadian Municipalities Revitalization program, for example, could not be spent on municipal roads.
The type of grants are limited to the authority of that specific Ministry. For example, grants to undertake a road project would not be available through the Ministry of Health.
So, when searching for available funding, you must first determine:
- The applicable Ministry
- Whether that Ministry has appropriate grants available, and under what criteria
Sometimes, the criteria set by the Ministry is so limited as to severely restrict the number of municipalities that are eligible to apply.
But even if you have determined that a ministry a) has grant monies available for application and b) your project seems to fit within the criteria, it’s inevitable that more municipalities will apply for that funding than there are actual grant monies available to hand out. You’re competing against all other municipalities applying for those limited grant funds in any given year.
Timing is everything, so you must also decide if this particular year is best suited to make that application. If you are awarded grant funding, you are ineligible to apply for similar funding for the following fiscal year.
So, Council and staff must look at not just the current year, but the next two or three years to determine when those funds might have the most impact.
Annual Pre-Calculated Conditional Grants
Each year, there are some grants available to municipalities for specific purposes, but for which no application is necessary.
The amount available is a per capita calculation, so municipalities are told in advance how much money is available each year, and usually what the amount will be for a five-year term.
The conditions under which the grant money can be spent are not as restrictive as other conditional grants. However, the kinds of projects or activities are limited for these grants.
One example is the Federal Gas Tax Levy grant, which is made available to all municipalities each year, and deposited directly to the municipal general fund account.
Before proceeding with a project, the municipality must obtain approval from the distributing agency, which is the Association of Municipalities of Ontario (AMO) in this case. Monies received in a given year can be banked in order to build up a fund more appropriate to the project being undertaken.
It has very specific limitations as to how it can be spent, and requires very detailed accounting at the end of the fiscal year to establish that the monies are spent properly.
Once the total operating budget is finalised, Council will deduct the funding that will come in from other sources such as any conditional grants.
The remainder is the amount that must be raised on the tax levy.
The amount on your tax bill is determined as follows:
- The amount of money required to be levied is divided by the total amount of residential assessment — as determined by the Municipal Property Assessment Corporation — in the municipality. This provides the tax rate for a particular year’s levy.
- That tax rate is then applied to the property assessment of each residential tax account to determine an individual tax bill for that property.
- Council will next add a similar amount to the tax levy for external agencies such as OPP and school boards.
The tax rate, therefore, is the same for all residential properties, but because each property has a separate and unique assessment, the tax levy bill in each case is different.
So while it may seem like Council has millions at their disposal to spend however they see fit, there are actually limitations and conditions on much — though not all — of that budget.