Municipal Budgets: Operating vs Capital Budgets - Open Council (2024)

As part of their financial plan, municipalities set the capital and operating budgets each year by taking into consideration their government-mandated responsibilities, maintaining service level standards and their community’s priorities.

These documents are the blueprint that outline the where money will be collected and spent in line with the municipality’s priorities and level of service according to their vision and mission statements, values and long-term strategic plan.

What is the Capital Budget?

The Capital Budget plans for the acquisition and replacement of Tangible Capital Assets, which are defined as significant expenditures to provide municipal services with a benefit beyond one year. The capital budget excludes the costs of operating these services, which form part of the operating budget.

Compared to personal budgeting, this is the equivalent to buying a new car, furniture, or building an addition on the house.

It covers long-term investments in the purchase, construction, maintenance and repair of physical facilities and infrastructure such as road repairs, bridges, libraries and parks that are funded by water and wastewater fees, property taxes, government grants and long-term debt and are paid off over time.

In Ontario, municipalities can incur long-term debt to fund capital projects (ie. run a deficit), however they may not commit more than 25% of total own-source revenue to service long-term debt and other long-term obligations.

What is the Operating Budget?

The Operating Budget covers the ongoing, day-to-day expenses that the municipality incurs to provide programs and services to residents including items such as staff salaries (planning, departments, pensions), emergency services (police, fire and EMS) and water, social services and parks and recreation that are funded primarily by property taxes ($110 million), water and sewage fees.

Compared to personal budgeting, this is the equivalent to buying groceries, electricity, and insurance premiums.

Unlike the federal and provincial governments, municipalities are unable to levy income or sales taxes.

Operating budget must be balanced (zero ‘net profit or loss’)

Yearly budget, local municipalities

In Ontario, municipalities are required by Section 289 and 290 of the Municipal Act to plan balanced operating budgets. This means that expenses must equal revenues every year and they cannot borrow money to fund operating expenses. In balancing the operating budget, the City can do one or more of the following:

• Increase its revenues via property taxes and/or user rates.
• Leverage the use of application-based grant programs, where available/applicable.
• Manage expenses through adapting or reducing the cost of programs and/or services.

290(1) For each year, a local municipality shall, in the year or the immediately preceding year, prepare and adopt a budget including estimates of all sums required during the year for the purposes of the municipality, including,

(a) amounts sufficient to pay all debts of the municipality falling due within the year;

(b) amounts required to be raised for sinking funds or retirement funds; and

(c) amounts required for any board, commission or other body. 2001, c.25, s.290(1); 2006, c.32, Sched.A, s.120(1).

Section 290 of the Municipal Act

Upper-tier municipalities

For each year, an upper-tier municipality shall, in the year or the immediately preceding year, prepare and adopt a budget including estimates of all sums required during the year for the purposes of the upper-tier municipality, including,

(a) amounts sufficient to pay all debts of the upper-tier municipality falling due within the year;

(b) amounts required to be raised for sinking funds or retirement funds;

(c) amounts in respect of debenture debt of lower-tier municipalities for the payment of which the upper-tier municipality is liable; and

(d) amounts required by law to be provided by the upper-tier municipality for any of its local boards, excluding school boards. 2001, c.25, s.289(1); 2006, c.32, Sched.A, s.119(1).

Section 289 of the Municipal Act

Financial Statements are prepared annually at year-end and reviewed by an independent auditor.All Statements must be in compliance with the Public Sector Accounting Standards for local municipalities.

The capital and operating budgets as well as financial statements must be made public so that residents can see how council is allocating and spending funds.

Capital budget process

The Capital Budget is guided by:

• Asset Management Plan (Ontario Regulation 588/17 – Asset Management Planning for Municipal Infrastructure)

which in Belleville’s case considers several plans and studies including but not limited to:

• Strategic Plan
• Transportation Master Plan
• Wet Weather and Wastewater Servicing Master Plan (2019)
• Parks and Recreation Master Plan
• Infrastructure Phasing Strategy
• Development Charges Background Study (2020),2021
• Roads Needs Study

The proposed capital projects must be evaluated on the following criteria:

• Public safety & Legislation
• Service levels
• Strategic initiatives
• Financial implications
• Economic & Growth implications
• Community support
• Other (e.g., timing, project readiness)

What projects are funded?

The 2023 Capital Budget in the Budget Presentation broke down as follows:

• Transportation services – Road, sidewalk, bridge, traffic infrastructure reconstruction and maintenance – $6.5 million
• Facilities and parks – Parks, playgrounds, trails, dog parks, tennis/pickleball courts, soccer fields, skate parks, monuments – $10.3 million
• Fleet and equipment – pickup trucks, street sweepers, plows, Zamboni, buses, tractor, mower replacements – $13.3 million
• Water services – maintenance and equipment – $2.3 million
• Wastewater and stormwater services – maintenance and equipment – $2.9 million
• Information technology – Servers, software, networks, system security – $500,000
• Library – Network equipment – $45,000
• Police services – speed gun, transcription system, photo analyzing program, fleet vehicles – $1.3 million

Revenue sources for these projects

Sources of financing for these projects include:

• User rates – $12.68 million
  • Water – $7.1 million
  • Wastewater – $5.35 million
  • Parking – $225,000
• Taxation (ie. operating budget) – $5.67 million
• Reserve funds – $6.2 million
  • Development charges
  • Casino revenue share ($3.3 million in 2019)
• Government grants (eg. Ontario Community Infrastructure Fund, Investing in Canada Infrastructure Program) – $4.3 million
• Canada Community-Building Fund (Federal Gas Tax) – $3.54 million
• Provincial Gas Tax – $446,000
• Long term debt – $3.98 million
  • Taxation – $3.68 million
  • User rates – $300,000
• Donations – $22,000

Example

You can see individual approved projects in the 2023 Capital Budget Summary:

Operating budget process

The Operating Budget is guided by:

• Strategic Plan
• Annual Departmental Operating Plans
• Relevant legislation and strategic initiatives adopted by Council

In Belleville’s case theBudget & Financial Controls Policyoutlines the process and responsibilities of the Financial Committee and Council.

The following is the 2021 operating budget overview for the City of Belleville, Ontario that totaled $162.6 million.

What services are funded?

Expense categories from largest to smallest include:

• Emergency services – $39.3 million
  • Police – $22.8 million
  • Fire – $12.5 million
  • EMS – $4 million
• Environmental services (water, waste) – $33 million
• General government (council, admin, taxation, property management, human resources) – $18.2 million
• Recreation (parks, arenas, fields, community centres) – $13.4 million
• Social & family services – $10.9 million
• Transportation operations (roads, traffic) – $9 million
• Debt – $8.4 million
• Planning & development – $8.4 million
• Capital projects – $8 million
• Social housing – $5.3 million
• Long term care – $3.2 million
• Library – $2.34 million
• Social services – $2.34 million
• Engineering – $1.2 million
• Public health unit – $1.1 million
• Garbage – $1 million
• Conservation – $785,000

Revenue sources for these projects

For revenue, municipalities rely primarily on property taxes, followed by federal and provincial cash transfers, user fees and revenue from government business enterprises.

The services in the budget were funded by the following sources:

Taxation

82.36%, or $133,931,500 was contributed by the following:

• Property taxes – $108 million
• User fees & service charges – $15.1 million
• Other taxation – $3.6 million
• Development charges – $1 million
• Municipal Accommodation Tax on short term rentals – $750,000
• Dividends from electrical utility – $969,000
• Investment income – $400,000
• Conditional grants – $379,000

User pay

The remaining 17.64% was contributed by the following user rates:

• Water – $16.6 million
• Wastewater – $11.3 million
• Parking – $750,000

Example

You can see individual service adjustments made in the 2023 Operating Budget Issues Summary:

And all revenues and expenditures in the budget document:

Sources

• Municipal budget planning: surplus & deficit