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Tory’s budget fix isn’t ideal, but the best solution is a political hot potato

A $5-a-month increase in the average homeowner's property tax would do away with the $86-million hole, but politicians prefer to count on a fairytale rescue years away.
Feb. 12, 2015
By Edward Keenan

Yesterday Mayor John Tory and budget chief Gary Crawford unveiled their strategy to solve the problem of a $86 million hole that appeared in their budget when they rejected the province’s backhanded offer of an expensive loan.

They are cutting expenses with a few tweaks that they say will not affect services. That’s straightforward enough.

For the other $60 million, they are borrowing from the capital budget, where they are legally allowed to run a deficit. The specific plan involves a lot of ledger work, but it amounts to paying $60 million fewer of our capital costs in cash for each of the next two years and borrowing to make up the difference. Then, in future years, we have to pay all that back from operating funds.

Essentially, it’s like skipping a mortgage payment or two so you don’t have to cut the grocery budget, on the promise you’ll double up those mortgage payments later.

It’s not a complete disaster, but it’s not ideal, either, and it doesn’t solve any problems, it just punts them into the future. The $60-million hole in the budget we paper over with borrowed funds this year will be back again next year, except then we’ll also face paying back the bridge financing and interest on top of it.

At some point, sooner or later - barring some radical unforeseen shift in the city’s revenue and expense position (either a deus ex provinciae or a visit from the efficiency fairy) - we’ll need to either cut services or raise taxes to get rid of this hole. The further off we push that decision, the harder the task becomes.

The frustrating thing about this, if you were evaluating it in a vacuum, is that the permanent solution is not all that painful.

The current proposed property tax increase will cost the average homeowner an additional $5 a month. If you doubled that, you would eliminate this hole in the budget permanently, with no need to borrow. It would mean another $5 a month, which is not nothing, obviously. But it’s not a back-breaking amount for the vast majority of people, either - a couple of coffees, fewer than a couple of TTC tokens. It’s worth noting that would still leave Toronto homeowners with an average tax bill about $500 a year below the GTA average, and more than $1,000 a year cheaper than the one our average neighbour in Vaughan faces.

The reason we don’t even contemplate this, of course, is clear to anyone who watched the election: John Tory (and his opponents) all promised lower-than-inflation property tax increases. Raising the property tax rate has become the unquestionable taboo in Toronto politics - garbage fees, TTC fares, recreation fees can all be hiked, and now we see that all sorts of debt-incurring contortions can be engaged, but the sacred property tax rate needs to be left alone.

At the same time, the other alternative, cutting services, seems to be equally intolerable to the people and politicians in Toronto. Rob Ford threatened a big game, but was seriously politically wounded by the service cuts he did oversee. His successor and current city councillors show no appetite for the heavy axe work required to balance the budget on the spending side.

The problem is, that doesn’t leave a lot of viable options. The wished-for alternatives are fantasies.

As Rob Ford found under the tutelage of the same city manager John Tory has chosen to keep by his side for this budget round, massive efficiency savings just aren’t available. This whole crisis was caused by a provincial decision to stop funding social housing in Toronto, and a further decision not to provide temporary help this year. The idea they’ll suddenly reverse course to rain dollars on a city that’s too afraid to raise taxes that are more than 30 per cent lower than the regional average is a pipe dream.

The thing is, the decision to cut services or raise taxes doesn’t disappear with this borrowing game, it just gets harder. As anyone who has seen an ad for financial planning can tell you, a dollar invested in a retirement savings plan today is worth several invested a decade from now, thanks to the miracle of compounding.

That miracle is reversed - a disaster - when it comes to putting off property tax increases. A refusal to raise them an extra $5 a month now creates a need for more than $10 a month next year, which becomes a jump of $20 or more a month down the road. (That’s the reason, as Metro columnist Matt Elliott was pointing out Thursday, that if the city had not kept property taxes flat in 2011, this budget hole would not exist.)

It looks like Tory and Crawford are buying time with this strategy, and it will work to do that, at a cost that is not absurd. It’s certainly preferable to slashing services or delaying other much-needed expenditures. But it’s unclear what they are buying it for - it certainly looks like it’s just the time to steel themselves (and us) for a far more difficult decision on taxes and services in a few years.