The budget isn't balanced, and council will have to find some combination of service cuts and additional revenue to make up the difference.
The staff-proposed City budget has been released, and we’ve had the chance to go over it in high-level detail. We’ll do a deeper dive in the coming days as more information comes out, but here are the need-to-know highlights that will guide the budget debate over the next three months.
The proposed residential property tax revenue increase is 2 per cent.
This is in line with the mayor’s edict that property taxes not exceed inflation. There are, however, some wrinkles to understand with property taxes. For starters, while the residential increase is 2 per cent, the total City increase, referred to as the blended rate, is 1.39 per cent. That’s because other property tax classes, like commercial and industrial, are increased at a lower ratio to make up for years of being overtaxed.
However, the residential property tax increase will actually be higher than 2 per cent. That number doesn’t include the mayor’s city-building fund for transit infrastructure, which adds another 0.5 percent. Add in some CVA changes, which get really wonky, and that brings the increase to 3.48 per cent.
A one-percentage-point increase in property tax revenue raises $25.8 million in revenue to the City. Every percentage increase costs the average household an additional $27.50 per year.
The Land Transfer Tax continues to save Toronto’s budget
Last year, City staff estimated that Toronto would take in a record $540 million in the Land Transfer Tax. It was seen as a risky assumption—normally, staff are conservative in their estimates, but they wanted to be more honest about what the true number might be. Well, the number is in, and the tax brought in $638 million, a 18 per cent increase over the estimate. The $100 million more over the estimate is equivalent to 4 per cent in additional residential property tax revenue. The robust real estate market is helping to keep property taxes artificially low. However, that won’t last forever—eventually there will come a year where the Land Transfer Tax doesn’t set a new record, and at budget time the City will have to scramble to make up the difference.
There’s $100 million in one-time funding
This 2017 budget includes $100 million in one-time, unsustainable funding to pay for ongoing expenses. This includes a $14-million draw from TTC reserves, and $72 million in TCHC deferrals. This funding gap won’t go away, and council will need to solve it with increased funding, reduced services, or a combination of the two.
Even with the $100 million in one-time funding, there’s still a $91-million gap
By provincial law, council must pass a balanced budget. For the second year in a row, however, the city manager has provided a budget where council will have to make changes to balance the numbers. The changes can be made on either the service or revenue side of things. City staff have listed $73 million worth of potential service cuts that council could choose from.
- Taking seven fire trucks out of service ($15.4 million)
- Discontinue food production to Meals on Wheels agencies ($792,500)
- Close 12 outdoor pools ($790,100)
- Close 36 wading pools ($470,800)
- Discontinue service at 10 indoor pools ($1.48 million)
- Elimination of homelessness prevention service ($18.5 million)
- Reversal of TCHC task force recommendations ($4.2 million)
- Reduce hours and the collections budget at the Toronto Public Library ($6.2 million)
This list is meant to inform council what potential cuts could be, and is not a set of recommendations. It remains to be seen how much appetite there is on council to enact many of these cuts, particularly because the mayor has said he won’t back Poverty Reduction Strategy-related cuts.
On the revenue side, council has been provided with a list of options that could also help close the gap. In property tax terms, it would take an additional 3.6 per cent residential property tax revenue increase on top of the 2 per cent in order to fund $91 million.
Alternatives include harmonizing the Land Transfer Tax ($77 million), implementing a hotel tax by the end of 2017 ($5 million), and, with provincial permission, repealing the vacant commercial property tax rebate ($11 million if started in six months).
Given that there’s an ongoing debate about new City revenue tools, these could look like attractive options rather than cutting services.
Over the next two weeks, the budget committee will hear more detailed presentations from each City division, and we’ll learn more from the City analyst notes when they come out.