FINANCIAL ACCOUNTABILITY OFFICE OF ONTARIO
FAO projects education spending shortfall of $12.3 billion over nine years

On May 31, the Financial Accountability Office of Ontario (FAO) released its review of the Ministry of Education's spending plan from the 2021 Ontario Budget and the 2021-22 Expenditure Estimates.

The FAO reviewed the Ministry of Education's programs and commitments and concluded that ministry spending will grow at an average annual rate of 2.0 per cent from 2019-20 to 2029-30. In contrast, the 2021 budget calls for education spending to increase by an average of 1.2 per cent. This results in annual spending gaps that are expected to reach $2.9 billion by 2029-30. Overall, the cumulative Ministry of Education spending gap from 2021-22 to 2029-30 between the FAO's forecast and the Province's 2021 budget spending plan is $12.3 billion. This means that the Province will need to increase funding to the education sector or introduce new spending restraint measures. 

Spending by school boards, which accounts for 87 per cent of total ministry spending, is projected by the FAO to grow by an average annual rate of 2.3 per cent from 2019-20 to 2029-30. The largest component of school boards spending is compensation, which comprises about 82 per cent of all operating spending. Growth in compensation is driven by enrolment levels, which impact the overall number of teachers and other employees, and wage increases, which are largely negotiated through collective bargaining agreements. Enrolment is expected to grow by 0.6 per cent each year, while the FAO assumes 2.0 per cent annual wage increases after the current collective agreements expire, which is in line with historical wage growth for education sector workers and projected inflation.

The FAO projects that ministry transfer payments to municipal service managers for child care will decline by an average of 0.5 per cent per year from 2019-20 to 2023-24. This decline reflects the impact of previously announced changes to cost sharing agreements with municipalities, which are expected to save the Province nearly $134 million annually by 2022-23. After 2023-24, the FAO projects child care transfer payment spending will increase by 2.4 per cent each year, which reflects the ministry's base child care funding policies and the Province's plan to create up to 30,000 new child care spaces in schools.

To learn more, read the full report here.

Quick facts:

• Under provincial legislation, annual wage increases for public sector employees, including nearly 280,000 teachers and other educational staff, are capped at one per cent for a three-year period. The collective agreements for teachers and other education workers are scheduled to expire on August 31, 2022.
• In the 2019 Ontario Budget, the Province committed to create up to 30,000 new child care spaces in schools by 2023-24.
• As of the writing of this report, 20,807 child care spaces are approved or constructed, leaving 9,200 spaces remaining to be allocated.
• Given that it takes an average of three to five years from the date of approval to complete new child care spaces in schools, the FAO projects that the full 30,000 spaces will not be completed until 2026-27.
• Childcare Access and Relief from Expenses (CARE) tax credit spending is projected to decline by 1.0 per cent a year from 2023-24 to 2029-30.
• The CARE tax credit benefit calculation, which is income tested based on family income, is not indexed to inflation. As family incomes increase with inflation, the overall number of families that are eligible to receive the CARE tax credit will decline, as will the average benefit amount that eligible families receive.
• The FAO estimates that the number of families that receive the CARE tax credit will decrease from about 310,000 in 2019-20 to 280,000 in 2029-30.
• The FAO estimates that from 2019-20 to 2022-23, the Ministry of Education's spending plan includes $4.8 billion for time-limited measures in response to the COVID-19 pandemic.
• Funding includes $2.3 billion for school boards ($1.6 billion in provincial transfers and $0.7 billion in school board reserve funds), $1.8 billion in direct payments to parents and $0.5 billion for child care.
• The Province recently announced that over $1.6 billion in COVID-19-related funds will be made available for the 2021-22 school year. The FAO estimates that only $623 million will be spent by the Ministry of Education. Up to $536 million will be funded by other ministries, largely for PPE procurement, while the remaining $478 million will only be committed by the Province in the second half of the 2021-22 school year, if necessary, depending on the status of the COVID-19 pandemic.