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Doing Things a Bit Differently

Optimus SBR’s Industries and Government Practice regularly monitors policy developments at the federal, provincial and municipal level to inform and support its work with government and broader public sector/publicly funded organizations, as well as those in the not-for-profit and private sectors. In November, we described in our Counting Every Dollar briefing note how the Ontario government signaled priorities in its fall economic statement. This Briefing Note highlights key elements of interest to our clients from yesterday’s Ontario Budget announcement.

There were no great surprises, as the government announced many of the items in the Budget ahead of its release, perhaps to a greater extent than previous governments. What is possibly surprising is that, with the exception of a couple of major sectors, there are few deep cuts in this budget. The Ontario Public Service (OPS) is indeed shrinking – already reduced 3.5% through attrition – but, as the government has emphasized, most provincial spending takes place beyond the walls of OPS functions. Relative to what the government’s critics might have expected, this is a moderate, directional budget focused on controlling spending. A balanced budget isn’t expected until what would be this government’s second term in office.

“Protecting What Matters Most”

The 2019 Ontario Budget, subtitled “Protecting What Matters Most”,[1] opens with a statement of the government’s five core priorities:

• putting more money in people’s pockets;
• creating and protecting jobs;
• restoring accountability and trust in government;
• cleaning up the hydro file; and
• reducing hospital wait times and ending hallway health care.

It echoes some of the “Every Dollar Counts” language from the fall economic statement in a few places, and also emphasizes this philosophy in other ways. For instance, there is a callout early in the document for “Ending March Madness”, which describes how the government announced on February 13^th that all ministries were to limit their spending to commitments under contract, legislation and/or requirements to fulfill core services through the end of the fiscal year. It also notes that “Additional scrutiny will continue to be applied to discretionary spending to ensure that taxpayers are respected throughout the entire fiscal year.” It continues to set a tone.

Choice and convenience for Ontario individuals, families, and businesses are also emphasized with references to the government’s digital-first strategy, the auto insurance system, electricity bill relief, and transit and transportation, including the government’s newly announced subway plans.

The Path to Balance and a Reduced Net Debt-to-GDP Ratio

The Budget shows a projected deficit of $10.3 billion for fiscal 2019-20 and describes a recovery plan to achieve a balanced budget in 2023-24 and, more importantly, reduce the net debt-to-GDP ratio to 38.6% by that time as well. As noted above, this is likely a more moderate path towards deficit and debt reduction than many had anticipated.

How much?

For fiscal year 2019-20, the government is planning to spend $163.4 billion, which includes:

• $63.5 billion or 38.9% of the total in the Health sector;
• $29.8 billion or 18.2% in the Education sector;
• $16.7 billion or 10.2% in the Children’s and Social Services sector;
• $11.4 billion or 7.0% in the Postsecondary Education and Training sector;
• $4.9 billion or 3.0% in the Justice sector; and
• $13.3 billion in interest on the debt.

One way of looking at how spending in these sectors will play out is in the figure below, which puts forecast spending levels in terms of the 2018-19 Interim projection (i.e., this year’s spending) for each sector. Health and Education will increase as is typically the case, but spending in the Children’s and Social Services and Justice sectors will decrease from today’s levels. Postsecondary spending will decrease in the next year, but then increase thereafter (with a large change in funding approach – see more below). Below we highlight some key areas where the government is directing its attention and fiscal focus for this and future years.

Highlights by Sector

Corporate, Industrial and Small Business Sectors

As often signaled, the government is working to make the province more “Open for Business” than it has been previously. The Budget discusses a range of measures, such as the Ontario Job Creation Investment Incentive (which includes immediate write-offs of different types of equipment), maintaining small business corporate income tax reliefs, reducing WSIB premiums, the government’s 10-year Driving Prosperity Plan for the auto sector, and an emphasis on reducing regulatory burdens and red tape. The government is also committing to review industrial electricity pricing through targeted stakeholder consultations on industrial electricity pricing as well as a review of existing pricing programs. How these apply to individual industries and businesses will surely depend on their circumstances, but this focus continues to be central to the government’s priorities.

Transit and Transportation

There is much commentary on transit in the Budget, including discussions of expansions to GO Transit service, the upload of the Toronto Transit Commission (TTC), and the province’s new transit plan for Toronto and the Greater Toronto Hamilton Area, which was described as “…the single largest capital contribution to new subway builds and extensions in Ontario’s history.” It describes the four projects proposed for the City of Toronto – the new “Ontario Line”, Yonge North Subway Extension, Scarborough Subway Extension, and Eglinton Crosstown West Extension – with a preliminary cost of $28.5 billion. Additional highlights include:

• an update indicating that the upload of the TTC will take place in two parts – first through legislation in the spring to upload responsibility to the province, and then second through additional legislation expected in 2020;
• $11.2 billion in provincial funding towards the new subway transit plan;
• adopting a market-driven Transit-Oriented Development Strategy, leveraging third-party investment to reduce provincial funding for transit expansion;
• $1.2 billion in spending towards a 44-kilometer expansion of Ottawa’s O-Train network; and
• $1 billion towards 14 kilometers of new light rail in Hamilton.

At this stage, exactly how the Ontario government will secure cooperation and funding from the federal and municipal levels of government for its major projects is not yet clear, so there remains uncertainty as to whether, how, and when these plans will get executed.

Health

At a system level, the Budget reiterates some of the recent announcements coming from Bill 74, including the planned creation of the Ontario Health agency (for more on this, see our briefing note on The Changing Ontario Health Care Landscape), and recently released guidance on Ontario Health Teams. This is the first time the government has quantified the anticipated savings from Ontario Health, estimated at $350 million annually once the agency is at maturity. Other system-level initiatives include:

• streamlining transfer payment agreements and consolidating multiple service contracts to reduce administration costs;
• creating a centralized procurement system for an integrated health sector supply chain under Ontario Health – to manage the purchasing of products and devices for hospitals, home and community care, and long‐term care;
• modernizing public health units to achieve economies of scale and streamline back-office functions, with an expected annual savings of $200 million by 2021-22; and
• expanding the scope of practice of certain regulated healthcare professionals, such as pharmacists, nurse practitioners, dental specialists and optometrists.

Commitments for specific health sectors include:

• targeted investments of $384 million for hospitals in 2019-20 for “maintaining critical hospital capacity, increasing access to specialized and innovative treatments, and supporting volume growth”;
• $17 billion in capital grants over the next 10 years to modernize and increase capacity for approximately 60 major hospital projects;
• $3.8 billion in mental health, addictions and housing supports over 10 years to focus on core services as well as a robust data and measurement framework;
• $174 million in 2019-20 to support “community mental health and addictions services, mental health and justice services, supportive housing, and acute mental health inpatient beds”, while targeting priority populations;
• $267 million in additional funding for home and community care to increase front-line service delivery;
• $1.75 billion over the next five years for long-term care beds, including the immediate allocation of an additional 1,157 new long‐term care beds through 16 projects across the province, as well as upgrades to 15,000 older long-term care beds to achieve modern design standards;
• changes to pharmacy fees, and focusing the MedsCheck program on transitioning patients, which is expected to realize annual savings of $140 million by 2021-22;
• $90 million in annual spending on a new dental program for low-income Ontario seniors; and
• an ongoing review of the Ontario Drug Benefit Program.

Energy

What may be a surprise to some is that relatively little is said about the Energy sector. The section on Lowering the Cost of Energy echoes some previous announcements for the sector. Reference is made to consultations on industrial electricity pricing to inform the design of new policies, and there is discussion elsewhere in the document of modernizing the Ontario Energy Board. Given that this remains a priority sector for the government, we will have to wait to hear more and/or monitor other legislative developments to see what will happen in the sector.

Education

Commitments in the Education sector include:

• creation of a Minister’s Task Force on School Boards;
• $3.7 million to fund a revised First Nations, Métis, and Inuit curriculum for Grades 9-12;
• $13 billion in capital grants over a 10-year period to help build new schools in high-growth areas and improve the condition of existing schools, including $1.4 billion in school renewal; and
• finding internal efficiencies in the Ministry of Education through modernization initiatives, to generate an estimated savings of $25 million annually by 2021-22.

In postsecondary education, the government has committed to a 10% reduction in tuition for publicly-funded colleges and universities for the 2019-20 school year, and a tuition freeze for 2020-21. Most strikingly, it describes a new approach to funding Ontario’s publicly-assisted postsecondary institutions, including 45 colleges and universities. The government proposes to become a national leader in outcomes-based funding in this sector, moving from a system in which just over one per cent of funding is tied to performance to one in which 60% of funding is tied to performance by 2024-25.

Children and Social Services

As noted above, this sector is expected to see a decrease in funding over time. Commitments here include:

• $1 billion over the next five years to create up to 30,000 child care spaces in schools, including approximately 10,000 spaces in new schools;
• $390 million annually to support the new Ontario Childcare Access and Relief from Expense (CARE) tax credit; and
• investment in the construction of the Grandview Children’s Centre in Ajax and the Children’s Treatment Centre at the Children’s Hospital of Eastern Ontario.

Municipalities

Commitments to municipalities include:

• $200 million in 405 small and rural municipalities to improve service delivery to enable modernization, such as technology solutions, service delivery reviews, and shared services agreements;
• $40 million over two years to assist with implementation costs for recreational cannabis legalization; and
• $30 million over five years to 39 municipalities through the Ontario Community Transportation Grant Program to partner with community organizations for coordinated local transportation services.

Discussion: Doing Things a Bit Differently

There is of course much more in the Budget. In some respects, it takes on a familiar form – deficits followed by a plan to get the budget balanced and net debt-to-GDP ratio down over the medium term, as well as anticipated increases in spending in health care, education, and infrastructure. In others it represents a major departure from past governments – for instance, in its tone, focus on reducing burdens for businesses, the expected spending changes in some sectors, and the new approach to postsecondary funding. So this new government is doing things a bit differently. As ever, execution on some of these initiatives and commitments will be harder than others, and much will depend on what happens with the Ontario economy in the next 18-24 months.

Optimus SBR’s Industries and Government Practice

Optimus SBR is an implementation-focused firm that specializes in turning policy into action. Our Industries and Government Practice has extensive expertise in policy, governance, strategy, stakeholder consultation and facilitation, organizational effectiveness, and a range of implementation services from planning and project management to process improvement. If you have found this helpful, give us a call, or send us a note.  

Brad Ferguson, SVP, Industries and Government Practice
Brad.Ferguson@optimussbr.com
416.649.9184

David Lynch, Principal
David.Lynch@optimussbr.com
416.723.3284

[1] Excerpts in bulleted form below preserve or paraphrase the Ontario Budget wording to ensure accuracy and clarity.