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Toronto’s government is too reliant on the cash it rakes in from the city’s land-transfer tax, which has ballooned with the real-estate boom but could plummet in a market crash, a new report from the city’s financial managers warns.

The document, titled Long Term Financial Plan: The City of Toronto’s Roadmap to Financial Sustainability, does not lay out a specific plan but instead outlines a series of recommendations and hard choices that will be left for the next city council, to be elected Oct. 22.

The report repeats warnings that departing city manager Peter Wallace – who is leaving city hall at the end of March for a senior civil-service job with the federal government – has made for years, including the “moderate but growing” risk of relying on the city’s “volatile” land-transfer tax.

The levy on property sales, brought in under former mayor David Miller in 2008, has produced windfall revenues thanks to the city’s red-hot real-estate market. Of the $9-billion the city raises in total taxes and fees, the land-transfer tax now represents about 9 per cent. Each year, it has brought in tens of millions more than first estimated, making it easier for Mayor John Tory to fulfill his campaign pledge of keeping property-tax hikes at or below inflation at budget time.

But the report warns that using modelling based on 2017 numbers, a market correction featuring price declines between 10 per cent and 20 per cent could see the city lose $174-million in revenue over four years. Even if the housing market merely flattens out, the city would face a cash crunch.

The report says that, over the next several years, hundreds of millions in new revenues, including but not limited to higher property taxes, are needed not just to fund the expansion of city services – but to maintain current service levels and avoid cuts to areas such as libraries, parks and road maintenance.

Mr. Tory has declined to extend his 2014 pledge to keep residential property-tax-rate hikes at or below inflation if he is elected to a second term.

In a statement on Monday, Mr. Tory’s spokesman, Don Peat, points out that for the past four years, the mayor and council kept his promise to keep those hikes at or below inflation. But Mr. Peat said the mayor supports debating a new long-term financial plan, and the report’s calls to make the delivery of city services more efficient.

“The Mayor has repeatedly acknowledged, as has the City Manager, that a discussion on the long-term direction of the City’s finances needs to be had,” Mr. Peat said in an e-mail. “That’s why Council asked for this report which the Mayor sees as the beginning of that important discussion.”

Now that Doug Ford has won the leadership of the Ontario Progressive Conservative Party, Mr. Tory isn’t facing any high-profile challengers for his job, although he does face the prospect of pleading with Mr. Ford for cash for transit and other projects if his former rival becomes premier.

Left-wing critics on council have long called for property-tax hikes, noting that Toronto’s property taxes are the lowest in the greater Toronto area.

“We’re heading towards not a very nice scenario unless we basically have an adult conversation with Torontonians,” city councillor Joe Mihevc said. “We’re a booming city, but we fear telling our people that booming cities stress the infrastructure, and we have to find a way to pay for it.”

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