What’s different in the formula?
The biggest change affects providers with mixed units (Section 103 providers). These providers had to live within their indexed benchmark rents. No subsidies were provided relative to the benchmark operating costs nor were these to be indexed. Furthermore, in the base year when final benchmarks were issued, a ratio between benchmark operating costs and benchmark revenues was established. The ratio was to remain in place forever. Based on this ratio, Section 103 providers were required to remit a “mandatory payment” representing any unused portion of indexed benchmark revenues once the ratio had been taken into account. Needless to say, this was very complicated to understand and implement for both providers and service managers.

The revised formula is less complex, easier to understand and introduces indices for the operating costs benchmarks. The indices will apply to both mixed project providers (Section 103) and 100% RGI providers (Section 106). The revised formula will be more responsive to changes in revenues and costs.

Starting on January 1, 2008, all providers coming under the SHRA will begin receiving an operating cost subsidy for their fiscal year starting in 2008.

Why did the formula change?
The initial formula for mixed projects was designed at a time when rent revenues had been able to cover operating costs. There was also the belief that the relationship between revenues and operating costs would always be the same.

However, with the reality of economic conditions since the funding formula was first implemented, such as higher insurance costs, higher utility costs, flat and declining rents, it became clear to everyone that the current formula would not work. In fact, independent analyses conducted by both housing providers and Service Managers showed that, unless the formula was revised, all providers faced financial deficits in the coming years.

What’s the impact on Housing Providers and on Service Managers?
The revised formula is designed to keep the financial operations of housing providers in a neutral state (i.e. where benchmark revenues equal benchmark costs).

For providers under the revenue-based model its means a form of financial assurance knowing that when costs exceed rent revenues, will increase subsidies to mitigate the situation. But it does not mean that providers get whatever they want. Subsidies are still pegged to benchmark revenues and benchmark costs. Providers must still operate in as efficient a manner as possible by making sure proper rents are charged, non-rent revenues sources are explored, and costs efficiency strategies are in place. ONPHA can be of help in each of these areas.

For all providers (both mixed project and 100% RGI) the cost indices will be tracked by the Consumer Price Index (CPI) which is produced by Statistics Canada and represents an independent data source that keeps up with current economic conditions. Each of the benchmark operating costs will be tracked by their own specific CPI sub-index where available.

For Service Managers, the revised formula means that they will need to spend more money, but the revised formula will assist them in better preparing their municipal budgets and meeting their roles and responsibilities under the legislation. To their credit, Service Managers and their municipally-elected representatives recognized the importance of community-based affordable housing and that its financial viability was at risk with the current formula. The revised formula will help ensure ongoing financial viability of non-profit housing.

What was the process for making the funding formula change?
The Ministry of Municipal Affairs and Housing had originally struck a Benchmark Advisory Team (BMAT) consisting of representatives from Service Managers, ONPHA, CHF Canada, SHSC, and AMO.

Originally BMAT was charged to come up with recommendations for the derivation and issuance of final benchmarks under the SHRA. When that mandate ended, the BMAT was reconstituted by the Ministry in December 2006 to review the funding formula and the indices needed for that formula. After thorough testing of the existing formula under the SHRA, the BMAT reported to the Ministry that a revised formula was needed to keep step with current economic conditions. A technical sub-committee of BMAT representatives met many times to consider various options and to revise the formula.

The BMAT subsequently issued a report of its recommendations. Once the Ministry accepted the report, the final recommendations went to a Memorandum of Understanding committee meeting consisting of the Minister of Municipal Affairs and Housing and municipally-elected representatives from both the Association of Municipalities of Ontario (AMO) and the City of Toronto. Based on the successful outcome of this meeting, the Minister agreed to sign the regulation on September 6, 2007.