Budget woes put Toronto at risk

The budget outlook for Canada’s largest city looks a lot more dire today.

The federal and provincial governments have failed to provide Toronto with the ongoing financial support the city has requested to cope with the financial hangover of COVID-19, estimated at $933 million in this year’s budget.

The province deserves credit for previously pledging to cover $235 million of the outstanding 2022 costs. Credit as well to Ontario Finance Minister Peter Bethlenfalvy for appearing open to addressing Toronto’s ongoing needs.

That’s a more welcome signal than the one sent by federal Finance Minister Chrystia Freeland, herself a Toronto MP. According to Deputy Mayor Jennifer McKelvie, Freeland was “very clear” Monday that the Liberals’ pledge to assist the city would not be honoured in Tuesday’s budget.

Where does that leave Toronto? As city officials explained at Wednesday’s council meeting, Plan B is to dip into reserve funds to cover the outstanding costs. It’s like raiding your retirement savings to pay for groceries, McKelvie noted. It’s a dangerous shortterm strategy that guarantees grief down the road.

Once those funds are exhausted, there will be nothing left to cover future budget shortfalls. The city could well be forced to confront harder choices next year, ones that most certainly will see Toronto residents paying more for much less, as property taxes go up and service cuts are needed to balance the books. (Municipalities are not allowed to run deficits.)

It’s a grim situation, one with profound risk of eroding the city’s quality of life and its role as an economic engine for the province and the nation. Given those stakes, it’s disappointing and surprising the provincial and federal governments have not been seized with finding a long-term solution.

The recent federal and provincial budgets lay bare the fiscal inequities that lie at the heart of the financial woes that confront Toronto and virtually every other Canadian municipality. Both senior governments have seen revenues jump as the economy rebounds from the COVID upset. The city, with its reliance on property taxes, has enjoyed no such financial bonanza, even as it continues to be saddled with costs related to the pandemic, such as a drop in transit ridership and fare revenue.

Yet as city staff made clear Wednesday, while COVID-19 was an aggravating factor in the city’s budget, Toronto faces ongoing structural financial problems. Its responsibilities outstrip the financial tools it has to pay for them, McKelvie said.

That’s underscored by a report that warns the city faces $46.5 billion in operating and capital costs over the next decade. “Unless the pressures … are addressed promptly, they will present themselves in every forecast year and will become increasingly more difficult to manage over the 10-year period,” it warns.

The report notes that the city spends $1.1 billion a year on housing, social services and health services, areas that are more properly the responsibility of federal and provincial governments. City taxpayers are right to ask whether they should be saddled with paying such bills.

A staff report expected in July will detail revenue-raising options for the city, such as an alcohol tax and road tolls. But such moves aren’t likely enough to cover the city’s budget gap.

That’s why McKelvie and other councillors are right to demand a new fiscal framework, a point driven home during Wednesday’s council session. “We know this issue cannot be resolved through increased property taxes or reducing service levels alone. The magnitude is simply too large,” McKelvie said.

It could be that Ottawa and Queen’s Park are awaiting the outcome of the June 26 byelection to elect a new mayor before making any financial commitments. Even when John Tory was mayor, there was a reluctance by both governments to commit to a substantial discussion about reforming the financial relationship.

“Do they understand the seriousness of the situation in Toronto or is there a disconnect?” said Coun. James Pasternark (Ward 6 York Centre).

One has to wonder.