Toronto city manager warns of 'gap' in budget

City manager Peter Wallace say councillors will have tough decisions about how to fund some "city building" projects.

Thestar.com
Dec. 1, 2015
By David Rider

Toronto councillors face the political equivalent of an ice-bucket challenge - decide how to fund $23 billion in capital projects or carve them out of the budget.

City manager Peter Wallace offered the cold dose of reality Tuesday to Mayor John Tory’s executive committee, saying he will at some point offer council a menu of “revenue tools” - new taxes or fees - to consider.

The only reason Toronto’s finances have not “crashed and burned,” Wallace said, is the land transfer tax expected to extract more than $500 million this year from the red-hot real estate market. A cooling market could hit city coffers hard.

“The City of Toronto has been a free rider on a real estate boom,” said Wallace, a former Ontario deputy finance minister who became city manager last spring.

He listed some unfunded projects including George St. revitalization, Lower Don River flood protection, TCHC revitalization principal payments, and TTC short- and long-term needs.

Wallace also advised council to stop making budgets look better by pushing capital needs on to next year’s budget, including $300 million in 2013.

The latter was noted after Tory asked specifically about the “past four years” - his predecessor Rob Ford’s tenure. Tory is expected to expand on the topic in a speech Wednesday to the Economic Club of Canada.

The capital budget process is “inadequate, unstable and poorly understood,” Wallace said. He wants a “difficult” but honest conversation about “city building” - what councillors want to fund and then how the city can pay for it.

Wallace also said the proposed 2016 budget he will present to council will have a “gap” for councillors - not city staff - to figure out how to fill. Capital financing options will include a modest increase in the council-imposed ceiling on debt-financing, he said, and a menu of “incremental” revenue tools.

In 2013, the previous council voted down more than a dozen taxes and tolls suggested by staff to fund new transit. They included a tax on commercial parking spots, a gas tax and road tolls.

Tory welcomed Wallace’s candour, telling reporters: “We are billions and billions of dollars, tens of billions of dollars short,” for long-term projects.

Still, Tory refused to reconsider approved but controversial multibillion-dollar projects including the Scarborough subway. He rejected reopening a “lengthy” debate despite more than $2 billion in potential savings if the city built the originally planned seven-stop light-rail line funded by the province.

The mayor said the 2016 budget seems less daunting than last year’s, and he intends to keep his campaign pledge to limit property tax hikes to inflation or below.

Tory did not say if he will rethink his opposition to revenue tools. He is not opposed to having an outside group review possibilities but “the decision, of course, ultimately rests with us.”
Councillor Shelley Carroll, budget chief under former mayor David Miller, told reporters even a “levelling off” of the housing market could cause havoc with the budget.

She favours Toronto imposing its own one-cent sales tax, which she says would generate about $500 million a year. However, a sales tax is one tool that municipalities could not introduce without Ontario government approval.

Some of Toronto’s unfunded projects

George St. revitalization: The downtown road, just east of Jarvis St. between Dundas and Gerrard Sts., is known for boarded-up houses and drug problems. The city has bought some of the homes but needs to buy several more to jump-start a cleanup of the notorious neighbourhood.

Don River flood protection: Naturalizing the mouth of the Don is key to revitalizing the lower Don Lands and also to unlocking almost 600 acres of waterfront land for development. Toronto has been lobbying the provincial and federal governments for help, but will be on the hook for at least $267 million - one third of the cost.

Waterfront public realm: As undeveloped parts of Toronto’s shoreline join the rest of the city, Toronto will face significant costs for turning derelict space into appealing neighbourhoods that people want to inhabit and visit. Road reconfigurations, landscaping, parks development, installation of bike lanes and community resources will cost tens of millions of dollars.

TCHC revitalization principal repayments: A major headache for Toronto is the cost of refurbishing and in some cases replacing Toronto Community Housing Corp.’s aging housing stock. The cost is forecast at $2.6 billion over the next decade, and borrowing to do just some of that work requires hefty repayments.

TTC short- and long-term needs: The TTC has identified funds for its 2016 capital budget. However, there is no funding source for the costs of repairing and replacing transit infrastructure to 2025. The total shortfall for that period is a stunning $2.8 billion. “Stable, sustainable, predictable funding is a must,” the TTC says.