Toronto is exploring new taxes and a parking levy to tackle budget deficit

Toronto's finances 'needs to be recast': expert Toronto Board of Trade's Jan De Silva says the city is backed into a 'financial corner' to solve its budget shortfall.

A municipal sales tax, a dedicated 911 levy, more power for the Toronto parking authority to set higher prices and a graduated hike in land transfer tax for luxury homes are among the flurry of revenue proposals city staff are recommending that Toronto explore in order to stave off crushing financial pressures.

When she was elected back in June, Mayor Olivia Chow called for a special August meeting of the Executive Committee to deal with the city’s troubled finances. That meeting is set to take place next week and the report the committee will consider was released today.

It paints a stark financial picture for the city and says that Toronto will likely have to slash services and capital projects if other levels of government do not come to the table, even if property taxes are raised and a host of revenue measures being considered are implemented.

“The city is experiencing a significant immediate and long-term financial crisis: an estimated $1.5 billion starting pressure for the 2024 operating budget and $29.5 billion in capital needs, which both form part of a $46.5 billion shortfall over the next 10 years,” the city said Thursday.

“Even with the actions recommended by staff, immediate and sustained support from the Government of Canada and the Province of Ontario is needed to prevent significant tax increases, service level reductions and/or cancellation of capital projects that align with shared goals, including housing, transit and climate action.”

One of the first measures the city is looking to implement to bring in extra revenue is a bump in the municipal land transfer tax for luxury homes, which would go into effect on Jan. 1, 2024.

Home sales up to $2 million are currently subject to two per cent municipal land transfer tax, while all homes over $2 million are subject to 2.5 per cent. Raising the land transfer tax for homes over $3 million was a campaign promise from Chow. If council approves the implementation recommended by city staff, homes over $3 million will be subject to a 3.5 per cent municipal land transfer tax, increasing gradually to a maximum of 7.5 per cent for homes over $20 million.

Other measures under consideration include increasing the Vacant Home Tax rate from one to three per cent, removing existing on-street parking rate caps to allow the Toronto Parking Authority to raise rates more easily, and asking the province to allow Toronto to implement a Municipal Sales Tax that would apply to the purchase of goods and services in the city.

Some of the proposals could start bringing in revenue as early as 2024. But the city its warning at the same time that none of the revenue tools will be effective enough to stave off the budgetary pressure without help from the higher orders off government.

Officials told reporters Thursday that the revenue proposals being explored could make up 40 per cent of the shortfall, but 60 per cent would need to come through some form of revenue from other orders of government.

“However, it's important to highlight that these actions alone will not be sufficient to address the City's fiscal risks in 2024 or over the next 10 years. It will require continued collaborative efforts with City Council and other orders of government to promote the long-term financial sustainability of the City, and to ensure the City continues to generate financial benefits for the Province and for Canada,” the staff report states. “Further, it's critical to note that, given the urgency of the financial challenges ahead, inaction is not an option at this time to address the City's financial sustainability and urgent 2024 financial needs.”

The biggest problem underlying the city’s finances, municipal officials say, is the lack of sustained funding. Most other major cities in the world receive regular dedicated funding from higher levels of government, while Toronto depends mainly on property taxes to do almost everything, with sporadic and unpredictable injections of cash from other governments for specific programs and projects.

Chow has vowed to fight for a new deal for cities, but there is no indication of a breakthrough so far. Finance minister Chrystia Freeland told Chow in an open letter several weeks ago that the federal government does not have “unlimited” money to spend on Toronto.

Downloading has also been a problem, as seen in the city’s recent battle with the federal government to obtain funding to house refugees, which is an area federal responsibility.

For example, the Ontario Government decades ago downloaded responsibility for the Gardiner Expressway and the Don Valley Parkway to the City of Toronto — infrastructure which costs hundreds of millions of dollars to maintain. The city is theoretically able to add tolls on the roads, but requires permission from the province. Ontario Transportation Minister Caroline Mulroney told CTV News in an email that they do not plan to provide permission for the municipality to toll the roads though.

“To build a city we deserve after years of delays we need to face facts, including the fact that time and time again the city has been asked to step up and funds things that are the responsibility of other levels of government,” Chow told reporters Thursday.

City Manager Paul Johnson told reporters that property tax increases will likely be part of the solution, but they cannot solve the problem.

“We simply cannot close that $1.5 billion gap alone and when you look at a one per cent property tax increase generating about $40 million, it doesn't take you long to do the math to understand that again, property taxes alone aren't the solution.”

He said the city needs growth-related funding, such as a share of income tax, that increases along with economic growth.

“The time is now to begin the conversations about those larger discussions with other orders of government,” Johnson said. “The failure to do so means that we will have to take a look at other measures, which will be devastatingly impactful to the people who live work, play and learn in this community. We don't have many options available to us.”

The city said Thursday that without a new deal, it may have to inform the province that it is no longer proceeding with 978 planned new long-term care beds and that it is pausing negotiations on provincial priority transit projects and future provincial transit expansion projects.