Budget 101: Understanding Budget Terms

A budget forecast is an early look at the City's financial outlook before the annual budget is finalized.

Just as households plan ahead for rising grocery, utility or housing costs, the City forecasts changes in expenses, revenues and service demands to prepare for future budget decisions.

Why does the City prepare a forecast?

• Provides an early look at financial challenges and opportunities
• Helps Council and staff prepare for upcoming budget decisions
• Supports transparency and public awareness
• Informs long-term financial planning

Why doesn't the forecast show the final tax increase?
The forecast identifies potential budget pressures and opportunities. Final budget decisions, including any tax increase, are made later through Council's budget process.

The operating budget funds the day-to-day delivery of City services. Examples include:

Think of it this way: The operating budget is similar to a household budget that pays for regular expenses such as groceries, utilities and transportation.

What happens when operating costs increase?
The City may need to find efficiencies, increase revenues, use reserves or adjust taxes and fees to continue delivering services.

The capital budget funds major infrastructure projects and long-term assets. Examples include:

Think of it this way: If replacing a roof is a major investment for a homeowner, rebuilding a road or replacing a bridge is a major investment for the City.

Why isn't infrastructure funded through the operating budget?
Major infrastructure projects often cost millions of dollars and provide benefits for decades. Capital budgeting allows these investments to be planned and funded over time.

Property taxes are one of the City's primary sources of funding.

The tax levy is the total amount the City needs to collect through property taxes to help pay for services and infrastructure.

If Council approves a 5% tax levy increase, the City will collect 5% more property tax revenue overall than it did the previous year.

Does a 5% tax levy increase mean every property tax bill will increase by 5%?
Not necessarily. The impact on individual properties can vary depending on property assessments and other tax policy decisions.

Residential taxes are the property taxes paid by homeowners and residential property owners.

What determines my property tax bill?
Your property's assessed value, municipal tax rates and Council-approved budget decisions all help determine how much property tax you pay.

The commercial tax base refers to the total assessed value of commercial and industrial properties that contribute property tax revenue. Examples include:

• Office buildings
• Shopping centres
• Industrial facilities
• Warehouses

Why does this matter?
A strong commercial tax base helps generate revenue, support economic growth and reduce pressure on residential taxpayers.

The City also receives funding from sources other than property taxes. Examples include:

• Recreation program fees
• Transit fares
• Parking revenues
• Provincial funding
• Federal funding

When residents pay transit fares or register for recreation programs, a portion of those costs helps offset the cost of providing the service.

Why are these revenues important?
When revenues from fees, fares or grants decrease, the City may need to identify alternative funding sources or adjust spending plans to maintain services.

Some projects are funded jointly by multiple levels of government. A transit project may be funded through contributions from:

• The Federal Government
• The Province of Ontario
• The City of Hamilton

Why does the City seek grants and partnerships?
External funding can help reduce the amount that must be funded through local property taxes or user fees.

The tax-supported budget includes services funded primarily through property taxes. Examples include:

• Fire protection
• Road maintenance
• Parks and recreation
• Libraries
• Public transit
• Public health

Are all City services funded through property taxes?
No. Some services are funded through user fees rather than property taxes.

The water rate-supported budget funds water, wastewater and stormwater services through user rates.

Your water bill helps pay for:

• Drinking water treatment
• Watermain maintenance
• Wastewater treatment
• Sewer infrastructure

Good to Know: Water and wastewater services are generally funded by the people and businesses that use them, not through property taxes.

Do water rates affect property taxes?
Water and wastewater services are generally funded through water rates rather than property taxes.

The capital levy is the portion of property taxes dedicated specifically to infrastructure projects and asset renewal.

A portion of every property tax bill helps fund investments such as:

• Road rehabilitation
• Facility upgrades
• Fleet replacement
• Technology improvements

Why not borrow for everything?
Paying for some infrastructure through annual funding helps reduce borrowing costs and interest payments.

The net levy is what remains to be funded through property taxes after other revenues have been applied.

If operating a recreation facility costs $10 million and user fees generate $3 million, the remaining $7 million must be funded from other sources, including property taxes.

Why is the net levy important?
It shows how much funding must ultimately come from property taxpayers.

Debt financing means borrowing money to help pay for major infrastructure projects.

Think of it this way: Similar to taking out a mortgage to purchase a home, the City may borrow funds and repay them over time.

Is municipal debt always a bad thing?
Not necessarily. Responsible borrowing allows costs to be shared over the years residents benefit from an asset rather than requiring the full cost to be paid upfront.

Inflationary pressures are increases in the cost of delivering City services and infrastructure. Examples include rising costs for:

• Fuel
• Construction materials
• Utilities
• Equipment
• Labour
• Insurance

Why does inflation matter?
Even when service levels stay the same, rising costs can create budget pressures that affect future budget decisions.

Reserves are funds set aside for future needs, emergencies and major projects.

Think of it this way

Reserves are the City's savings accounts. Examples include:

• Snow reserve
• Asset replacement reserve
• Capital reserve
• Tax stabilization reserve

Why doesn't the City simply use reserves all the time?
Once reserve funds are spent, they must be rebuilt. Using reserves to pay for ongoing annual expenses is generally not sustainable.

A multi-year financing strategy is a long-term plan for funding City services and infrastructure over several years. It may include:

• Planned reserve contributions
• Future infrastructure investments
• Debt repayment plans
• Capital levy increases

Why does this matter?
Long-term planning helps make funding more predictable, sustainable and affordable over time.

Funding collected for future infrastructure projects that has not yet been assigned to a specific project.

Why keep funds unallocated?
It provides flexibility to respond to emerging priorities, unexpected infrastructure needs and future project requirements.

Funding approved for a group of similar projects, such as road rehabilitation, sidewalk renewal or park improvements.

Why is this approach used?
It improves flexibility, reduces administrative work and supports long-term planning.

Adjusting funding annually to account for inflation and rising construction costs.

Why is this important?
Without annual adjustments, rising costs can reduce the number of projects the City can complete.

Adjusting previous budget figures to reflect changes in accounting practices, organizational structures or reporting methods.

Why is this done?
It helps ensure year-to-year comparisons remain accurate and meaningful.

Sustainable funding sources are funding sources the City expects to receive every year, similar to a regular paycheque.

Examples include:

Non-sustainable funding sources are one-time revenues that are not expected to continue in future years.

Examples include:

Why is the distinction important?
One-time funding can help pay for one-time expenses, but ongoing services require funding sources that are available year after year.

Like households managing their finances, the City must make decisions about how available funding is used. These decisions may involve balancing:

The goal is to maintain services, invest in infrastructure and support long-term financial sustainability while keeping costs as affordable as possible for residents and businesses.

Property taxes help fund many City services. Tax increases may be required when costs rise, infrastructure ages or demand for services grows.

Population growth often increases demand for roads, transit, recreation facilities, emergency services and other municipal infrastructure and services.

Many grants are temporary, project-specific or require municipal cost sharing. They generally cannot be used to fund ongoing operating costs.

• Operating spending pays for services delivered today.
• Capital spending pays for infrastructure that will serve the community for years to come.

Reserves help prepare for emergencies, replace aging infrastructure, manage financial risks and reduce future borrowing costs.

Borrowing allows the cost of major infrastructure projects to be spread over the years residents will benefit from them.

Residents can:

• Review budget documents
• Attend budget meetings
• Watch Council discussions
• Provide feedback to Council and staff
• Participate in public engagement opportunities

For information on upcoming budget meetings and engagement opportunities, visit the City's budget webpage.