A Budget with a Hole – Why That May Be (Mostly) a Good Thing

Toronto City Council passed a $12 billion operating budget this week with a $649 million “hole”. In other words, it approved a plan for 2021 with money it hasn’t fully sourced yet. This may seem strange for many who know that in Ontario, City governments aren’t allowed to run deficits.  But in unusual times, this budget takes a balanced approach to City finances, but may pave the way for a “new deal” with Provincial and Federal governments moving forward.

Toronto continues to struggle with the financial strain presented by COVID-19.  Revenues remain down everywhere from transit fares to recreation program fees while costs for programs such as shelters have risen significantly. Through support from higher governments, as well as internal spending cuts and efficiencies, the City narrowed its projected operating gap in 2021 from $1.5-billion as estimated in the fall, to a current gap of $649 million.

The approved budget calls for the Provincial and Federal governments to step up once again, leveraging their broader borrowing powers and revenue streams to help cover the losses.  If that support is not received, the City will push the pause button on new capital construction in 2021 and use the savings to cover the “hole.”

This maneuver is not without risk. Though the budget holds the line on service levels this year, the City has been behind on maintaining its infrastructure for decades.  If the anticipated funding falls through, we will only fall further behind on critical construction work.

But we know that a “new deal” is required between governments to address how regional issues, from maintaining the DVP and operating transit to maintaining a network of social service supports and affordable housing, are ultimately dealt with. These were issues long before COVID-19 and should not be the sole responsibility of Toronto property tax payers. This pressure may be our best chance to finally address those problems.

Council knows that this will mean difficult choices. If new revenue tools are permitted by the Province, which ones are the most appropriate to address ongoing issues? Council has had a bad habit of kicking this can down the road, but a motion yesterday will bring that debate back into the forefront later this year.

Council was also mindful that in this year especially, there have been many who have been impacted financially by COVID-19.  It will be good news for many that the final budget includes a 0.7% residential property tax increase, the lowest the City has seen in 8 years. After the City building levy is added, the increase for the average homeowner in Toronto is $69 (though of course significantly more if you own a Willowdale house, and maybe slightly less if you’re living in a condo).

This budget may not fix our finances today, but it seems a fair approach under the circumstances. And it offers the opportunity to finally fix some of the City’s biggest underlying issues.

(For more on property taxes and how your property value impacts your tax bill make sure you’ve seen last week’s ‘Looking Forward)