Toronto’s new mayor, Olivia Chow, will be facing major challenges at the start of her tenure. One of those, the city’s finances, is likely the largest one.
Chow’s ability to actually solve the problems facing Torontonians will be determined by how well she is able to address the gaping hole in the city’s budget.
The city is facing a perfect storm. Longstanding problems that former mayors Rob Ford and John Tory ignored over the past 12 years, in combination with the impacts and after-effects of the pandemic, have left the city without the tools it sorely needs to address this crisis.
And it is a crisis: the city needs to find $1 billion to climb out of its current deficit—let alone find the revenue to deal with a series of long-neglected problems.
The impacts of this long-term neglect to adequately fund city services are evident everywhere. They range from the ridiculous to the sublime: insufficient numbers of shelter beds, overflowing garbage cans, snarled traffic, the lack of a timely solution to the closure of the Scarborough rapid transit line are but a few examples.
On top of the neglect by Toronto’s last two mayors, political vanity projects—such as throwing money away at the Gardiner Expressway and SmartTrack, and ditching the LRT plans for a Scarborough subway—made a bad situation worse.
Mayor Chow will not have manoeuvring room to make similar errors in judgment. The city’s piggy bank is empty and the pressures on Canada’s sixth largest government aren’t going away.
There are two longstanding major contributors to the crisis in Toronto’s finances. First, senior governments have downloaded major responsibilities, like social housing, to municipalities without providing the tools to pay for them. Second, under the Ford and Tory city councils, there has been a decade-long obsession with low property taxes as a means to win votes.
The resultant stresses on Toronto and the city’s finances have exploded with the impact of the pandemic. It increased the need for city services, and their cost, at a time when revenues were decreasing due to the pandemic-related economic slow down.
As if that isn’t enough pressure on city finances, cue two more stressors: the recent higher inflation rates and sharp increases in interest rates have worsened the city’s financial position. As a result, costs are increasing, including borrowing costs.
Due to the pandemic, senior levels of government—particularly the federal government—stepped in with pandemic supports to the city between 2020 and 2022. The city’s 2023 budget, crafted by former mayor Tory, made the erroneous assumption that those supports would be ongoing. Not so.
Both the federal and Ontario governments have stepped back and, in some cases, they are shirking their responsibilities. The Ontario government has unilaterally worsened the situation by implementing Bill 23, which waives or freezes development fees—estimated to cost the city up to $200 million a year.
Unfortunately, there will not be one silver bullet that will solve the city’s financial situation. It will require multiple approaches:
- Increase property taxes, quickly and consistently.
- Fully utilize the taxing powers from the City of Toronto Act to increase revenues.
- Take a long, hard look at which capital projects are worth pursuing and which ones need to be shut down so those funds can be redirected elsewhere.
- Negotiate with senior levels of government for greater taxing powers.
- Until those powers come into force, negotiate with senior levels of government for transfers to balance the operating budget without decimating the capital budget.
Toronto is the largest city in Canada, the financial centre and home to the most diverse population in the country. It’s still growing. We can’t afford for Toronto to fail. The new mayor will have to do the heavy lifting that her predecessors failed to do. It’s not going to be an easy job but tough leadership is what’s needed.
