In the face of a billion dollar budget shortfall and more financial problems to come, Mayoral hopefuls will need to share more than their vision for the city

As Toronto voters head to the polls on Monday, June 26, they will need to consider more than a candidate’s vision for Toronto. The City is facing major financial challenges with troubling implications for residents. Our next Mayor must have a credible plan to deliver on that vision and address the City’s fiscal challenges.

The City’s financial woes were on display at the March Council meeting. There was bad news and then there was worse news. Toronto City Council received an update on the grim state of the City’s finances and reviewed a new report that projects even bigger financial problems in the decade to come if no new fiscal arrangement is reached with the federal and Ontario governments.

In February, City Council passed the 2023 budget. The City’s $16.16 billion operating budget relied heavily on the hope that the federal and Ontario governments would come through with over a $1 billion to cover COVID-19 related impacts on City services ($933 million), supportive housing costs ($48 million), and refugee-focused services ($97 million). 

The province has confirmed it will provide the funding for supportive housing, and City staff say they believe the federal budget includes funding for temporary housing for refugees, but so far neither the feds nor the province has offered any help with the City’s nearly $1 billion COVID-19 related budget shortfall. In addition to the 2023 budget shortfall, the City’s 2022 budget is still short $454 million — costs also associated with the pandemic.

In order to balance the City’s budget as required by law, City finance staff say they have been putting away funds in a reserve account as a “backstop” to cover the shortfall if the province and feds don’t deliver. It’s a one-time emergency measure. Once those reserve funds are gone, the City will have limited options for addressing future budget shortfalls, which are all but guaranteed by the ongoing financial impact of the COVID-19 pandemic. 

Adding to Toronto’s financial challenges, City staff estimate that the Ontario government’s decision to dramatically reduce development charges and parkland dedication charges under Bill 23 will cost the City $2.3 billion in lost revenue over the next decade — that’s revenue that is needed to build affordable housing, pay for parks, and provide other infrastructure to serve residents in new developments. It’s a windfall for developers at the expense of cities and communities. 

The province has promised to make the City “whole,” replacing lost revenues related to Bill 23, but requires a third-party audit of the City’s books first. Premier Ford claims the City is wasting the revenues it already has — a familiar refrain from his time as a city councillor a decade ago. The City and the province are currently working out the terms for the third-party audit. Will Toronto be “made whole” by the province? That’s the two-billion dollar question.

On top of this disconcerting situation, Council reviewed a City-commissioned report authored by consultants Ernst & Young that projected that over the next decade the City will face “fiscal pressures” totalling $46.5 billion. These are funds that the City won’t have based on current revenue sources and funding levels but will need to maintain current service levels and to enhance services where the City has already committed to make improvements. 

Most of the financial challenges come from capital needs that are unfunded at $29.5 billion (TTC and other transit tops the list), including $10 billion just to keep existing assets, such as the TTC and City facilities, from falling into disrepair; $9.5 billion is needed to service additional debt, and $7.5 billion to cover current unfunded operating costs, including inflation. 

Notably, the consultant’s calculations don’t include the cost of unfunded City-endorsed plans and strategies or any improvements to City services that aren’t already committed to. They don’t include the full cost of responding to the climate emergency. For example, any unfunded parts of the Reconciliation Action Plan, Poverty Reduction Strategy, TransformTO Net Zero Strategy, Toronto Strong Neighbourhoods Strategy, and Toronto Seniors Strategy are not included in the calculation.

The consultant also notes that the report doesn’t provide an analysis of the environmental, social, and governance or equity implications of decisions that Council may make, such as reducing services or cutting the capital plan. The priorities of creating a liveable, equitable, and sustainable city should drive Council decisions, including the long-term financial plan.

Ernst & Young was contracted to produce this 10-year financial outlook as part of the City’s process for updating its long-term financial plan. In July, the new Mayor and City Council will begin the process in earnest with a review of City staff reports that are expected to consider the magnitude of the problem; options for generating revenue, including a commercial parking levy; potential service cuts; and a new fiscal framework with the federal and Ontario governments. 

Certainly, the federal and Ontario governments should come through with immediate relief to address the City’s pandemic-related budget shortfall. It is unreasonable to imagine that a municipal government, with its limited revenue options and requirement to balance its budget (unlike the province and the feds), can fill a near billion dollar budget hole single-handedly. Further, the City of Toronto and other cities require a new deal to properly resource urgently needed services and infrastructure. But so far, mum’s the word from the senior orders of government. 

What do the Mayoral candidates propose to do?

At the same time, the City of Toronto needs to move beyond its damaging decade-old practice of prioritizing low property taxes above all else. If City Council had opted for even slightly higher property tax increases, incrementally over the past decade, the City would have generated millions more to address urgent needs and create a more liveable, equitable and sustainable city. Instead, the Mayors and Councillors of the day committed to creating a city in decline. 

In addition, Council must make it a priority to adopt new revenue tools, such as the commercial parking levy which the City estimated could raise up to $575 million a year. A proposal from the Toronto Environmental Alliance and TTCriders calls on the City to invest those funds in the beleaguered TTC to improve transit services and advance the City’s climate action plan. 

Do the Mayoral candidates endorse the failed plan of the past decade, or do they have something new to offer?

During the March Council meeting, some Councillors remarked on the City’s investment in areas considered federal and provincial jurisdictions.The Ernst & Young report calculated that the City directly invests approximately $1.1 billion in these areas, including housing, social services, and health services. Some will call for cuts to these vital services in response to the failure of the federal and provincial governments to pay its fair share. It will be the residents, particularly those who are most vulnerable, most marginalized and from equity-deserving groups, who will pay the price for any withdrawal of investment in these areas. 

A message to the next Mayor: talk to residents and communities

Council passed motions calling on the federal and provincial governments to get started on a “new fiscal framework to ensure long-term financial sustainability for the City” and for the province to provide the City with revenue tools that “grow with the economy” like provincial sales and income taxes. Council also voted to set up a program “where Members of Council form delegations” to meet with MPs and MPPs to advocate for the City’s budget issues. Absent from the discussion was any role for community members, community groups, or other stakeholders in these critical issues. Communities will be deeply impacted by these decisions. It would be smart to engage them.

How will the next Mayor lead this work?

Council’s debate highlights the need for Mayoral candidates to make clear how they’ll address current fiscal challenges and safeguard services for Toronto residents, and what they’ll do to raise revenues and achieve a fair deal with senior orders of government to build a better city. Take a look at their plans before you give them your vote.

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