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Tax hikes or service cuts? New Toronto council must close ‘frightening’ $857 million budget gap

The annual struggle to balance the City of Toronto’s budget promises to be particularly difficult this year.

Instead of the usual tens of millions of dollars the city must raise or cut to balance the $15 billion spending package, candidates elected to the next city council will have to find a way to close an $857 million gap.

Most of this shortfall is related to the cost of fighting the COVID-19 pandemic. But experts say this is just the start of the serious financial pressures councilors will face as they struggle to fulfill the legal obligation to table a balanced municipal budget.

These experts also warn that there are limited avenues to balance, compounded by sky-high inflation, sluggish new home sales that have squeezed municipal tax revenue, and an electorate accustomed to low property taxes.

All of these factors will make managing this year’s budget a daunting task, said Myer Siemiatycki, professor emeritus in the Department of Politics and Public Administration at Toronto Metropolitan University.

“It’s a scary gap to close,” he said.

“And I think that signals to me that we’re looking at deep cuts to a range of city services and programs.”

It’s a scary gap to close.– Myer Siemiatycki, Professor Emeritus, Metropolitan University of Toronto

Siemiatycki said the city has gone through years of intentionally limiting tax increases to the rate of inflation. That means the impact of funding for COVID-19 programs has been more profound on the budget, he said.

Recent cuts to recreation programs and the postponement of $300 million in infrastructure work are symptoms of the stress caused by the tax gap, he added.

“There have been consequences for the city not having enough revenue to meet the expenses it has to make to keep the city livable, viable, even sustainable,” he said.

The director of the Institute on Municipal Finance and Governance at the University of Toronto, Enid Slack, said that before the pandemic, the city was in good financial health, but that some signs of long-term wear and tear had started to appear.

“We compared Toronto’s financial health to an aging Toronto Maple Leafs defenseman,” she told CBC News.

“He’s playing pretty well, the coaches are taking care of him, but he’s getting more and more expensive,” she said. “And he’s going to need knee surgery very soon.”

Limited revenue tools available to council

The proverbial surgical tools will have to come out in the coming months as the revenue the city relied on has plummeted and the need for pandemic services has surged. It remains unclear whether the federal and provincial governments will come to the rescue as they have in previous years to help deal with the city’s deficit.

Worse still, the city’s land transfer tax revenue is sure to suffer as real estate sales have slowed dramatically, costing Toronto millions.

“If they don’t get the money from the federal government or the provincial government, they don’t have a lot of wiggle room,” Slack said.

“They have to cut services or raise taxes.”

Mayor John Tory said the budget gap could reach $1 billion. He promises to tackle it with a tax increase below the city’s rate of inflation and find budget savings, while maintaining services.

But at a time when Toronto’s inflation rate hit 6.8% in August, raising taxes below that number could still be costly for homeowners.

“I said below the rate of inflation, so people at least know it’s going to be below the rate of inflation,” Tory said of any tax increases.

“And the main thing that I will tell them as well is that I’m going to make it as low as possible, given the affordability constraints that people have in the city right now.”

Part of Tory’s pitch to voters is also that he is the person who gets the most money from senior governments.

“It’s not about relying on them to come to the rescue,” he said. “But to say they should…be partners with us to make sure we have affordable housing, we have public transit.”

Penalosa calls for permanent provincial and federal funding

Mayoral candidate Gil Penalosa has said he will fill the budget gap with a combination of tax increases, tax cuts where appropriate, and lobbying upper-level governments to get permanent financing tools.

He also did not say what a tax hike might look like if elected. But Penalosa said Toronto cannot continue to be among the GTA communities with the lowest property tax rates when it cannot provide many basic services.

“When everything gets worse, then I think there’s nothing to be proud of that we have the lowest (property taxes), of course we should never have the highest either,” he said. he declares. “But I think all options should be on the table.”

Mayoral candidate Gil Penalosa said he would tackle the city’s tax gap with possible tax increases, service cuts where appropriate, and talks with senior government to establish tools permanent funding for the city. (Susan Goodspeed/CBC)

At an event earlier this week, Tory said he’s always open to creating new revenue tools for the city. He pointed out that this was something he had already tried to do with his rejected plan to toll the Gardiner Freeway and the Don Valley Parkway to raise $200 million a year.

Slack said other major cities across North America have access to additional revenue to help provide services.

“Some of the major cities around the world have access to other types of taxes, such as income and sales taxes, which generate more revenue,” she said.

“We have to think about who does what… What should the province do? What should municipalities do? And then how should we pay for it?

Siemiatycki said beyond balancing the budget, the new city council must find new sources of revenue for Toronto.

“It’s been very disappointing that we haven’t had political leaders who have made the financial stability and sustainability of city government a rallying point,” he said.

“I think municipal residents would buy into that.”