11/14/2013

Today the Ministry of Finance issued 2014 allocations from the Ontario Municipal Partnership Fund (OMPF). Letters to heads of council and treasurers are being mailed at this time.
 

Allocation notices may be viewed on the Ministry’s website.  Below are key aspects of the funding announcement for 2014 and issues on the funding horizon for 2015 and beyond.
 
A reduced envelope province-wide
 
The total envelope will continue to decrease.  A further $25 million cut will occur in 2014 dropping total allocations to $550 million.  The Fund was $575 million in 2013 and $598 million in 2012.   If the government continues with its fiscal plan for the OMPF, continued cuts should be expected in 2015 to reach $500 million by 2016. 
 
Impact on recipient municipalities
 
While all recipient municipalities will continue to receive some funding, there will be negative impacts for most communities.  Individual municipal reductions for the coming year will be primarily determined as a percentage of 2013 allocations and scaled based on the relative fiscal health of each municipality. 
 
Northern Ontario municipalities will experience either no change or a cut ranging up to 10% of the previous year’s allocation.  Municipalities in all other regions will experience either no change or a cut of up to 15% of their previous year’s allocation.  (Last year’s cuts were up to 5% in the North and up to 10% in other regions).  These changes are very significant for some communities – at least 10% will experience an impact greater than $50 per household.
 
How does OMPF structure for 2014 compare? 
 
For 2014, the grant components are Assessment Equalization, Northern Communities, Rural Communities, Fiscal Circumstances and Transitional.  Previous grant components dedicated to policing, farmland and managed forests have been eliminated.      
 
In 2013, the Ministry introduced a new funding concept to measure the relative fiscal circumstances of municipalities.  This continues for 2014 and scales allocation cuts according to those municipalities most in need.  The Municipal Fiscal Circumstances Index (MFCI) measures such factors as weighted assessment per household, median household income and employment rates among others, on a relative basis for municipalities that have been receiving OMPF.  As noted above, the degree of funding cuts to municipalities will be determined in part by the use of this measure.
 
This approach demonstrates some sensitivity to the fiscal condition of municipalities and the limited capacity of some to shoulder these cuts.  However, the transition formulas of 2013 and 2014 have not and will not be responsive to changing social service and police costs. This is a concern.
 
AMO’s Position
 
AMO participated in OMPF discussions with the Ministry of Finance.  AMO advocated for a deferral of the 2014 cut of $25 million and reconciliation to be restored.  AMO is very concerned that the municipal subsidy of provincial farmland and managed forest property taxation policy continues, now without any provincial assistance.  AMO also emphasised the need for new transitional assistance from the provincial government for municipalities facing future OPP billing model changes.  This would include help now for those with high costs and transition assistance for those with bills that will increase.
 
Fiscal Outlook 
 
While the upload of social assistance benefit programs and court security costs continues, there are a number of significant issues facing municipalities in the near future which pose significant risk.  They are:
 
Policing Costs
 
The scale of OMPF cuts will be magnified by 2014 OPP wage related cost increases of approximately $25 million in 2014. The lost OMPF revenue and the OPP cost increase will have a $50 million (est.) impact on property taxpayers.  Almost ¾ of all municipalities use the OPP.  The impact of these two events at the same time will put a burden on municipal property taxpayers.  Tax increases or service reductions are likely in all corners of the province.  
 
Other OMPF recipient municipalities will also face increased policing costs in 2014.  Emergency service costs are rising faster than the rate of inflation and other municipal costs and services.  This affects the resources available to deliver other core services that are just as vital to a community.  
 
Reconciliation
 
From 2005 to 2011, reconciliation was a key feature of OMPF funding.  Reconciliation recognized the difference between projected and actual municipal costs. From 2011 onwards, the impact of a reduced OMPF funding envelope has been amplified by the government’s decision to end reconciliation payments.  In 2014 and future years, the significance of this change will become particularly acute for municipalities facing OPP wage related cost increases. 
 
Property Tax Room
 
For the last 15 years, the Province has offset reassessment impacts by resetting education tax rates.  This has allowed municipalities to “occupy” the tax room created and help offset the impact of municipal tax increases.  The 2013 Fall Economic Statement signalled a likely end to this policy and possible education property tax increases in the future.  
 
Property Assessment Issues
 
A number of key property assessment methodology issues remain unresolved and represent a risk to the stability of the assessment base. These include assessments related to mills, billboards and landfills in particular. Market value is the foundation of the assessment system. The successful resolutions of these issues need to be fair for all taxpayers.
 
Our evaluation of the Future of the OMPF
  • The four grant components for 2014 will likely be the core funding elements for future years.  Discontinued grant components include policing and offsets for provincial farmland and managed forest property taxation policies.  
  • Significant dollars in 2014 are designated as “transitional.”  These funds are not discretionary in the same manner as the province considered “transition” funding in prior years. These dollars remain an integral part of the overall OMPF envelope.  
  • Which grant components will be cut in 2015 and 2016 has yet to be determined.
  • For context, below are historical OMPF allocations to the sector.
Historical OMPF allocations
Historical OMPF Allocation by Grant (in millions of $)
Component 2010 2011 2012 2013 2014 2015
Social Services Grant 84 25 25 0 0 0
Policing Grant 82 92 94 0 0 0
Farmland and Managed Forests Grant 47 47 46 0 0 0
Assessment Equalization Grant 150 147 147 0 149 ?
Northern Communities Grant 84 85 86 0 79 ?
Rural Communities Grant 158 159 162 0 138 ?
Northern and Rural Fiscal Circumstances Grant 0 0 0 0 50 ?
Transitional and Stabilization Grants
(incl. Northern & Rural Social Program)
45 42 38 0 134 ?
TOTAL OMPF 650 597 598 575 550 525