Transit deficit the elephant in the room as Ottawa prepares for draft budget

Almost one year ago, as council prepared to pass the 2024 city budget, Mayor Mark Sutcliffe warned that the next one would be a whole lot tougher.

Residents will soon get a clearer sense of how much tougher — and who will be paying the bill — as city staff table their draft 2025 budget on Wednesday.

Will the pain fall on transit riders? Or taxpayers? Or will the city keep hoping that other levels of governments come to the rescue?

Wednesday's draft will provide staff's best guidance for how council should weigh those questions as it prepares for a final vote next month.

How did we get here?

The 2024 budget came to about $5.8 billion of combined operating and capital spending.

As always, inflationary pressures for wages, fuel and electricity will push up those costs. But the city is also facing revenue challenges. Mayor Mark Sutcliffe has been complaining about waning federal transfer payments for months, arguing that the federal government isn't compensating the city for what it would owe if it had to pay property taxes.

But the toughest challenge — and the biggest unknown in Wednesday's draft budget — is how to fill a $120 million hole in the transit budget.

Ridership is still far below what the system needs to break even, especially in the face of mounting rail costs. Worse, most of the lost riders were downtown commuters, who tended to buy more expensive adult passes.

The riders who remain are more likely to be students or seniors, who pay less.

What does it mean for property tax bills?

If this were a normal budget year without a massive transit deficit, the broad strokes of an answer to that question would already be clear. Councillors would set budget directions, signalling exactly what kind of tax hike they were prepared to stomach.

They did precisely that this fall, settling on a 2.9 per cent target, but only for the citywide and police levies.

What does that mean? Take a glance at your property tax bill, and you'll notice that it's actually made up separate charges. One funds most city services, another one funds police. A 2.9 per cent hike to both would add about $100 to the property tax bill for an average home in urban Ottawa. 

But yet another levy funds transit, and council gave staff only the vaguest notion of where they want it set. 

Remember that $120 million hole? If the city covered it purely using the transit levy on property tax bills, it would take a 37 per cent hike.

That would add about $333 more to that average property tax bill.

But that won't happen, right?

Almost certainly not. Council asked staff to play with about a half dozen "levers" to make up the transit shortfall. The transit levy is only one of them. 

Another is based on a wish: that Mayor Mark Sutcliffe's Fairness for Ottawa campaign will convince the feds and the province to come up with money.

The other options are less pleasant. They include fare hikes, service cuts, changes to fare discounts and deferred capital projects.

Relying on fares alone would require a 75 per cent increase. That would push the cash fare for a single ride above $6.70.

Councillors have called that prospect unrealistic and unpalatable, much like the all-taxes option, making it more likely that staff will come back with a mix that keeps all the levers at what the city treasurer has called "a reasonable level."

What else should we be watching for?

The city budget covers far more than transit, of course, and Wednesday's draft will reveal how staff plan to meet council's other priorities with only the slightest financial wiggle room.

A 2.9 per cent tax hike will raise only $62 million for city services, while an expanded tax base from new homes will bring in about $31 million more. Staff will also look to find efficiencies, as they have to the tune of about $153 million over the past two years.

But with such a slim margin and rising inflationary costs, how much will be left to fund new actions on climate change or affordable housing — both priorities council has repeatedly committed to — or to maintain aging infrastructure that councillors have repeatedly complained about?

While the final word will be council's next month, Wednesday's draft will be the first stab at an answer.

Ottawa Morning3:56What to expect from the city’s 2025 draft budget

The City of Ottawa’s 2025 draft budget will be tabled on Wednesday. CBC reporter Arthur White-Crummey breaks down what it might look like – from property tax hikes to an increase in transit fares.