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Olivia Chow holds a news conference under the windows of the mayor’s office at city hall on June 27.Fred Lum/The Globe and Mail

Toronto is forecasting a budget deficit of roughly $915-million this year, which it plans to address by almost depleting its pandemic reserve fund if other levels of government don’t step in.

The city council’s executive committee is expected to discuss a series of budget-related reports Tuesday, the day before Olivia Chow takes office as Toronto’s new mayor. Ms. Chow, who won last month’s by-election to replace John Tory, will be inheriting a dire financial situation, mostly stemming from reduced transit revenues due to lower ridership and higher shelter costs for people experiencing homelessness during the pandemic.

The reports, released publicly last week, provide an update on Toronto’s finances for this year until the end of April, as well as year-end 2022, when the city faced a deficit of $395-million.

And the financial situation isn’t expected to improve. A long-term outlook from Ernst & Young projects a shortfall of almost $50-billion over the next decade for both operations and capital infrastructure projects.

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In order to offset last year’s deficit, council is being asked to redirect $300-million from the capital budget and $95-million from the city’s pandemic reserve, which is currently more than $1-billion.

More than half of the $300-million will be set aside for expenses in future years. This includes the purchase of new ambulances as well as upgrades to Exhibition Place, the sprawling grounds that are home to the annual Canadian National Exhibition.

The city is planning to plug this year’s budget hole by using up most of that pandemic backstop, even though a draw of that magnitude would limit its ability to address future COVID-19 spending shortfalls, projected to be between $720-million and $920-million next year alone. Of more than $5-billion in reserve funds, about 95 per cent has been committed to future operating expenses and infrastructure projects.

But just over $100-million in planned spending for road rehabilitation and sidewalk construction projects will be permanently reduced.

Enid Slack, the director of the Institute on Municipal Finance and Governance within the University of Toronto’s School of Cities, said drawing down the reserve fund is a cause for concern, but Toronto doesn’t have a lot of room to manoeuvre.

Expenses are increasing, including costs for social housing and addressing the climate crisis, and Dr. Slack said there should be a renewed look at what the city should be responsible for and how to pay for it.

“It may mean uploading some things to the province. It may mean leaving things as they are but giving the city access to more revenues like income or sales taxes,” she said in an interview. There has been talk about the province doing more for social housing and taking on the costs of fixing the Gardiner Expressway and Don Valley Parkway.

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Addressing the city’s limited revenue options and striking a new agreement with the other levels of government should be the No. 1 priority for Ms. Chow when she takes office, according to Murtaza Haider, a professor and research director of the Urban Analytics Institute at Toronto Metropolitan University.

“I think the mayor has pretty much one job right now, which is to have these open dialogues with the province and the feds and bring them in to say: Let’s have these candid conversations in front of the taxpayers and people and see if there is a way out of this mess,” he told The Globe and Mail.

Ms. Chow has already announced her intention to call a special executive committee meeting in August, when council is normally on recess, to discuss the city’s long-term financial situation. She has called the fiscal picture “very serious” and said one of her first priorities will be to press the other levels of government for more money.

The province gave the city an additional $235-million in funding to address its 2022 challenges, but Ottawa did not match that amount. Neither government has committed to providing a backstop this year.

During the mayoral by-election campaign, Ms. Chow said she supports a “modest” property tax increase to pay for some city services, but did not commit to a specific figure or maximum when pressed by her opponents.

Deputy mayor Jennifer McKelvie, who is in regular contact with the incoming mayor, will chair Tuesday’s executive committee meeting, her office said in a statement.

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