Budgets 101 – Operating and Capital

Join the discussion on January 20th at 7 pm – Burlington Lions Club – details: https://www.focusburlington.ca/2026communitydiscussion/

Municipalities in Ontario have long been required to approve two budgets: an operating budget and a capital budget. The province spells out the rules in the Municipal Act. Burlington combines its operating and capital budgets into one document covering $493 million in spending. This graphic provides an overview of the 2026 budgets.

Thinking about this in terms of your personal finances, the operating budget covers day-to-day expenses, including food, utilities, mortgage payments or rent. The capital budget covers large expenses such as purchasing a new car or replacing the roof. You might have a chequing account and a savings account. Your chequing account is for the operating budget. The savings account is for your capital budget.

For individuals or families, borrowing money to cover day-to-day expenses is a slippery slope. As your interest payments increase, you’ll need to borrow more, creating a vicious cycle that could lead to bankruptcy.

As in the personal example above, the city’s operating budget funds day-to-day expenses, including salaries and benefits, fire truck fuel, and other operating costs. The capital budget funds long-term expenses, for example, bridge repairs, new transit buses, and protected bike lanes.

To avoid the debt trap, the Ontario Municipal Act (OMA) requires the city to raise sufficient revenue to cover all day-to-day expenses. Municipalities can’t legally borrow money to fund their operating budgets.

This chart compares the two budget types.

	Operating Budget	Capital Budget
Expenses	Day-to-day expenses: salaries and benefits, bus fuel, maintenance costs …	Long-term assets and infrastructure …
Funding Sources	Property Taxes User Fees Grants …	City Reserve Funds Development Charges Debt Grants …
Time Frame	Annual	Multi-year
Borrowing Allowed	No	Yes
Accounting Impacts	Everything is an expense	Capital Assets are depreciated over their useful life.

Here’s an example of a project outlined in the 2026 Capital Budget

Starting in 2026, the west side of Sherwood Park is being renewed. The total cost is $5 million (over 3 years), with $2 million coming from debt.

The budget describes the work like this: “2026-2028 work includes construction for the renewal of the playground, construction of a cricket pitch, sports lighting, new irrigation, repair of the main parking lot, new splash pad, and renewal of the rugby field. “

The funding is explained on page 318.

The funding sources are:

Capital Levy – funds from the 2026 operating budget. This is like taking some money from your chequing account to help buy a new car.

Capital Reserve Funds – funds set aside over multiple years for infrastructure renewal. This is like taking some money from your savings account to help buy a new car.

Debt – not much explanation is required for this one. Whatever you can’t come up with between your chequing account and savings account, for that new car, you can borrow from the bank.

There is another interesting item on page 318. That’s the “Expected Operating Budget Impact.” The city doesn’t explain what the $55,000 is for or why there is only a one-year impact. A simple example is the larger library in the Bateman community centre. Capital funds were used to build the library. The larger library requires more staff, “impacting” the day-to-day expenses covered by the operating budget.

Time-line Confusion

The city recently issued a Request for Proposal for the Civic Square Renewal. If you search the 2026 capital budget for the words Civic Square, you won’t find much. If you search the 2025 capital budget, you’ll find this (page 404).

The good news is that the cost to Burlington taxpayers, through the capital levy and reserve funds, is only $809,000. The cost to Canadian taxpayers is $3,018,000, as most of the funding comes from the federal government’s “Investing in Canada Infrastructure: Community, Culture & Recreation Stream funding” program. This funding is classified as “External” in the funding breakdown above. The bad news is that there is only one taxpayer.

What’s confusing is how the previous capital budget (2025) allocated funds for a project in a future year. My guess is that the city expected to complete the Civic Square renewal in 2025. For whatever reason, the project didn’t proceed, but the funds were allocated and set aside, so the project doesn’t need to be listed in the 2026 capital budget. This makes it difficult for residents to understand the city’s 2026 capital plans, as it requires reviewing multiple budgets. Normally, a deferred project should be identified by staff, presented to council as a request to “carry forward” the approved funds into the next fiscal year’s capital budget. Leaving the Civic Square project out of the 2026 budget, or burying it in with something else, certainly avoided any questions from the public.

How much debt is there?

As of December 2024, Burlington owed $115 million. The 2025 budget allocated an additional $8.95 million, and the 2026 budget allocates an additional $10.35 million, bringing the total potential debt to $134 million. On a per-person basis, that’s approximately $670. The 2026 budget indicates that the cost of servicing this debt will be $13.5 million (annually).

Borrowing is permitted under the Municipal Act for capital projects. The OMA limits a municipality’s borrowing by requiring that debt payments not exceed 25% of the municipality’s revenue, excluding grants from other levels of government. Burlington, with annual debt payments expected to be $13.5 million and revenue from taxes and fees around $360 million, is well below the OMA’s limit. Borrowed money is still money, and the city has a responsibility to taxpayers to use that money responsibly.

Join the discussion on January 20th at 7 pm – Burlington Lions Club – details: https://www.focusburlington.ca/2026communitydiscussion/

For more information on reserve funds, read this article: https://www.focusburlington.ca/reservefundsoverview/