The City of Winnipeg is expecting to post a small surplus at the end of the year after tightening its belt to deal with both an early-year budget hole and the end of a provincial commitment to cover half the cost of Winnipeg Transit.

As of the end of September, the city was on course to post a $1-million surplus at the end of 2017, Winnipeg controller Paul Oalfson writes in a new report to city council's finance committee.

Earlier in the year, the city faced a $9.5-million budget shortfall after council banked on using surplus funds from 2016 to help pay for services this year. That surplus failed to materialize due to heavy December snow, forcing city departments to cancel discretionary spending during the first few months of 2017.

In the spring, when the Progressive Conservative government signaled the end of an agreement to cover 50 per cent of transit costs, finance officials predicted the city would wind up with an $8.2-million shortfall.

Olafson reports this projected deficit has been eliminated through a series of measures that includes reduced transfers to reserves to pay for buses and to cover the construction of the second phase of the Southwest Transitway, among other measures.

The city expects the surplus to rise by the time the final figures for 2017 are reported at the end of December, Olafson writes.

In a separate report, finance officials say Winnipeg collected $2 million worth of growth fees by the end of September. This exceeds the projection of $1 million for all of 2017.

While these funds are supposed to be spent on infrastructure built to accommodate the growth of the city, the money is in limbo until the city decides how to spend the money. The city is also facing legal challenge from developers who contend Winnipeg has no right to impose the fees.

Council finance chair John Orlikow (River Heights-Fort Garry) said he believes the city will defeat the legal challenge and ought to be spending the money.