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Ontario Finance Minister Charles Sousa says a 2008 letter laying out a payment schedule to the City of Toronto was just a projection, not a promise.Kevin Van Paassen/The Globe and Mail

The City of Toronto is insisting it had a deal with the province to fund social housing programs at least until 2018 – and it has the paper to prove it.

A war of words over plans by the province to cut almost $150-million in funding to Toronto over three years heated up Friday, as both the city and the province argued over whether Queen's Park is reneging on a deal.

City staff, who say they received no warning of the planned cuts, produced as evidence a Ministry of Finance letter from 2008 that lays out a payment schedule to 2018.

But Finance Minister Charles Sousa insisted that, even without the $149.3-million, the city will come out ahead because of various social programs the Liberals have taken off the backs of municipalities since 2003. And he said the 2008 letter was just a projection, not a promise to keep paying.

"There was no commitment to continue funding beyond 2016. It was a table illustrating the relative impacts," he said at Queen's Park on Friday.

Toronto city manager Joe Pennachetti and Councillor Shelley Carroll, a Liberal and budget chair in 2008 when those negotiations took place, see it differently.

"It was clear in that letter and it was clear to the City of Toronto – the staff and mayor at that time – that these monies would continue," Mr. Pennachetti said.

The letter, written by an assistant deputy minster, describes payments "the City of Toronto can expect to receive from the province" until 2018.

The city argues the money is needed to pay for costs Queen's Park dumped on municipalities in the 1990s that are not among those the Liberals have moved back to the provincial level, such as social housing. City officials suggested Mr. Sousa did not take all of these costs into account in his calculations.

Ms. Carroll said the province is not "100 per cent crystal clear" on how the $150-million is used. "We need to sit down with them and make sure they understand that piece of paper," she said, referring to the 2008 letter.

Mayor Rob Ford and Mr. Sousa are scheduled to do just that Monday afternoon at Mr. Sousa's office.

A Queen's Park source said the Ministry of Finance informed Mr. Pennachetti of the cut earlier this month. Mr. Sousa then outlined it in a letter to Mr. Ford. Both the city manager and the mayor say the province's decision was unexpected. By 2016, all $149.3-million in provincial funding will be cut – the equivalent of a 6-per-cent tax increase.

At a news conference Friday, Mr. Ford made it clear he will not raise taxes to make up for the provincial cut.

"It is going to have to come down to program cuts, unfortunately," he told reporters. "It's the province's fault. The province hasn't given us the money. Ask Premier Wynne why she is doing this."

Mr. Ford said he is optimistic the city and the province can "work something out."

Toronto isn't the only Ontario municipality feeling the squeeze. Other cities and towns will see the money they get from Queen's Park clawed back as a result of a 2008 deal that saw the province cut the money in exchange for taking on some services.

Pat Vanini, executive director of the Association of Municipalities of Ontario, says circumstances have subsequently changed, with higher policing costs and shrinking tax bases in some communities. She says the province should pause the cutbacks until these problems are sorted out. Smaller, rural and northern municipalities have been hit particularly hard.

"If they don't have a strong fiscal health, why are you taking money out of the fund in the first place, let alone when you have all these other new costs that these municipal governments are going to bear?" she said.

Mr. Sousa's office said it is currently consulting with the AMO and representatives from those municipalities on the future of the funding.

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