Ottawa city councillors began drafting the 2010 budget on Friday, trying to come up with ways to pay a multimillion-dollar settlement for the city's failed light rail plan while limiting program cuts and tax increases.

To make matters worse, the city's capital and snow clearing reserve funds are expected to start 2010 in the red.

"Which is not a good thing for a treasurer to have to say but that's the reality of the situation in Ottawa," city treasurer Marian Simulik said Friday.

Councillors spent most of Friday morning listening to Simulik, give a sobering update about the pressures on the city's finances for the upcoming year. These include:

• The $36.7 million settlement the city must pay out to Siemens Canada, PCL Constructors, Ottawa LRT Corp. and St. Lawrence Cement Inc. — the companies originally contracted to build the failed north-south light rail system in Ottawa.
• $20 million that the city would like to invest to update infrastructure.
• A proposed $10 million increase to the police budget.
• $13 million the city must raise through service charges to pay for the new green bin composting program.

Simulik said those costs add up to an estimated 8.7 per cent tax increase for downtown homeowners, a 3.0 per cent increase for commercial property owners and a 6.5 per cent increase for rural homeowners who won't have green bin service and therefore won't have to pay the service charges.

Mayor Larry O'Brien said he wasn't satisfied with a projected 8.7 per cent tax increase, but wouldn't specify a percentage target that he might ask council to meet. (CBC)Mayor Larry O'Brien said he "wasn't satisfied" with the projected tax increases but wouldn't specify an alternative rate he would like council to adopt.

"I'm comfortable that we're heading in the right direction and the city is in very, very solid shape," O'Brien said.

"We have a budget process that's going to make sure that the citizens can feel confident that we've pulled out every technique in the book to make sure the tax rate is as low as possible."

Sean McKenney, president of the Ottawa and District Labour Council, was less optimistic.

"I think our city's in a mess," he said. "I think the councillors have an incredible amount of work to do."

Alta Vista Coun. Peter Hume said he wouldn't go as far as to call the situation a mess.

"But we're certainly constrained," he said.

No rainy day fund

Even with a tax increase, paying the light rail settlement will push the city's reserve capital fund into negative territory.

Coun. Rainer Bloess, who represents Innes ward, admitted that many councillors are nervous about that.

"We like to have money for a rainy day and right now that rainy day better not come."

'We like to have money for a rainy day and right now that rainy day better not come.'— Coun. Rainer Bloess

Meanwhile, snowy days are also a worry, as the special fund set aside to pay for snow clearing during years of bountiful snowfall has also been wiped out.

"Well, I guess we're all going to have to do a sun dance this year," said Coun. Diane Deans.

Deans said councillors are hoping for less snowfall than the past few years, but she emphasized that she considers snow clearing a fundamental service for residents.

"It's what they pay their taxes for," she said. "And if we have a really snowy winter, we'll clear the streets and deal with the problem as it arises."

Simulik said the city will rebuild the capital reserve fund by using debt to finance infrastructure spending next year. She is recommending a cap on infrastructure spending for the next four years.

If Ottawa gets an average snowfall this year, she added, the regular snow clearing budget should be sufficient.

Simulik said that compared to other cities, Ottawa has come through the recession relatively unscathed, the light rail settlement was modest and the city still holds a triple-A credit rating.