Toronto Mayor John ToryFred Lu/The Globe and Mail
Toronto's municipal government is facing a $483-million budget hole next year and can no longer rely on its usual range of annual quick fixes to balance its books, according to a new report from its top civil servants.
The analysis, released Monday, says the traditional Band-Aids used to balance the city's now $12-billion operating budget and keep property tax hikes low are tapped out. For example, reserve funds that could be raided are already low, and the annual windfall of increased revenue that comes in from the city's land transfer tax on house sales is expected to level off.
Meanwhile, the city faces a growing $29-billion grocery list of major capital projects, including new transit lines and repairs to crumbling social housing, for which it does not have the money.
The report, signed by city manager Peter Wallace and his top deputies, concludes that City Council needs to bring in new cash, perhaps from new sources – such as road tolls or a sales tax – and get more serious about cutting spending, contracting out more services and selling off assets. The city must also embrace more long-term budget planning, the report says.
It comes in advance of another report from city finance staff due next month on new revenue options, including a hotel tax, a municipal sales tax, a share of income taxes and taxes on alcohol, tobacco, car registration and parking spots.
Business as usual, Mr. Wallace warns, could see council forced to bring in large property-tax increases or spending freezes that would balance the city's books, but worsen long-term pressures. And, he said, it could mean accepting a dramatic downsizing of Toronto's list of future transit projects and other plans: "If we don't address this, we just simply do not fulfill the vision that Toronto has for itself."
Mayor John Tory responded to the report on Monday saying that he welcomed the call to take a long-term approach to budgeting and to seriously examine whether the city should sell off assets such as Toronto Hydro, contract out more city services or charge new fees or taxes.
"We simply have to start having an honest discussion about the options that are in front of us," he said.
But he emphatically ruled out any discussion of a property tax hike above the rate of inflation to support the city's operating budget, saying seniors and people with young families were "stretched to the limit." (He has already secured council approval for his 0.5-per-cent infrastructure levy, which would be added on top of any tax increase.)
However, as left-leaning city councillor Gord Perks pointed out, Mr. Wallace's report actually shows that when adjusted for inflation, property taxes in Toronto have declined. Mr. Perks argues that property tax hikes need to be considered.
Mr. Tory also praised the report's call for more scrutiny of the city's many arm's-length agencies, using the opportunity to reveal questionable financial management he said his office had recently uncovered. Toronto Community Housing Corp., he said, issued $450-million in debentures in 2007 and 2010 for the revitalization of Regent Park – but never told senior city staff, and had no plan in place at the time to pay the money back.
TCHC spokeswoman Lisa Murray said the 30-year debentures were approved by the corporation's board and that money was now being put aside to pay them off.
Mr. Tory also criticized the Rob Ford administration for overusing the city's "unfinanced capital" account. Mr. Tory said it had ballooned to $1-billion in debt that the city had yet to formally issue, meaning it was not counted toward the city's debt limit and that interest payments were not included in the city budget.
Jeff Gray