Can Ottawa afford to keep raiding its reserve funds?

City has been told it should work to replenish rather than deplete accounts

One way to find some money to keep a tax promise is to raid city hall’s cookie jar.

The city is proposing to dip into its reserves in a big way in 2019 to pay for policing and affordable housing.

The appeal is obvious: It lets the city avoid raising property taxes beyond council’s mandated threeper-cent ceiling.

And there’s a ton of money in all reserve accounts. It’s money that has accumulated over the years from surpluses and budgeted contributions.

But here’s the thing: This is the opposite of what council should be trying to do with some of its reserve cash. In fact, the city has been told it should be working to replenish, rather than deplete, those accounts.

Much of the reserve money is dedicated to specific priorities, such as the costs of closing the Trail Road landfill many years in the future, or ongoing capital projects. Currently, the reserves total about $426 million. By the end of 2019, they’re projected to shrink to $401 million.

Until just after 10 a.m. on Wednesday, Ottawa police thought they would be receiving $4.8 million from the city ’s reserves to help pay for costs that have been growing under council-backed budget restrictions of Mayor Jim Watson’s city hall.

Then, in his budget speech ahead of tabling the 2019 draft budget, Watson called for the police service to receive only $2.4 million from reserves, putting the police force under the gun to find administrative savings between now and Feb. 25, when the police services board is scheduled to vote on the budget.

But the city isn’t taking money from the “tax-stabilization” reserve account just for policing. At least $3 million is proposed to come out of the reserve for affordable housing initiatives, part of the $15 million Watson wants to set aside this year to build more units.

The new council got a taste of reserve-account spending only weeks after taking office in 2018 when, on Dec. 12, it authorized $54,000 from the tax-stabilization reserve to pay for more school crossing guards between January and March 2019.

The 2019 budget proposal, however, includes larger transfers from the tax-stabilization reserve to city operations.

The draft budget earmarks a total of $11.3 million in one-time payments from that reserve to a gender-equity strategy, the brownfield program, initiatives under the Building Better Revitalized Neighbourhoods program, public health, the Rideau-Rockcliffe ward byelection and bike lanes on McArthur Avenue.

The tax-stabilization reserve has a 2019 opening balance of about $25.7 million, but the draft budget predicts that number will dwindle to $16.4 million by Dec. 31.

It was just last year that council, in voting for a new reserve-management policy under staff’s recommendation, decided the tax-stabilization reserve should have a minimum of $34.8 million. As of last March, the city expected to hit that minimum balance in 2020, so if council wants to meet its own goal, it will need to find a way to replenish that reserve next year by more than $18 million.

The tax-stabilization fund isn’t the only operating reserve that needs more money. The transit-operating reserve, for example, is supposed to have a balance of at least $4.7 million by 2020. It’s projected to have $1.5 million at the end of 2019, which means it will require a cash injection sometime soon.

The interesting thing about the tax-stabilization reserve is it’s also the account from which the city draws in case the winter maintenance budget goes into deficit.

The city wants to put $2.4 million more into the 2019 winter maintenance budget, for a total of

$70.8 million, but only time will tell if that will be enough. Snow clearing and road salting have been non-stop in recent weeks, and the costs will surely take a huge bite out of the winter maintenance budget.

The city, however, never sweats the health of the winter maintenance allotment in a multibillion-dollar budget because it knows there’s money to backstop a deficit, either through a citywide end-of-year surplus or the tax-stabilization reserve.

The treasurer is expected to get a report this week about where public works stands in its winter maintenance budget for 2019.

On the other hand, there could be money to flip back into the reserves once the city sorts out the 2018 budget year-end results.

City treasurer Marian Simulik said the city had a 2018 surplus of about $13 million for city operations. The money, after any deficits are covered, will go into the tax-stabilization reserve.

That the city is proposing to fund several areas using the tax-stabilization reserve will make councillors question the sustainability of plugging budget holes with reserve money. Coun. Keith Egli, for example, questioned the strategy after learning Wednesday that the police service could get its hands on the city’s reserves this early in the year.

A larger share of the city’s revenue for 2019 is proposed to come from the reserves, compared to the previous year. In 2018, the city budgeted $3.42 billion in operational spending with about $57 million, or 1.7 per cent of all revenue, coming from reserves. For 2019, the draft $3.6-billion budget calls for $100 million from reserves, or 2.8 per cent of revenue.

The police budget will reveal how disciplined council will be during this four-year term about its reserves. Police brass are already pencilling in more “one-time” budget payments from the tax-stabilization reserve in both 2020 ($5 million) and 2021 ($2.2 million).

Judging by his remarks at council, Watson is weary of letting police rely on the city’s reserves for backup, especially after the city covered police budget deficits for three consecutive years.

Council will have to figure out how to put more cookies in the jar.