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Councillor Mike Del Grande, chair of the city’s budget committee, said the first-quarter results are not a sign that the cost-saving efforts of the Ford administration should stop.Deborah Baic/The Globe and Mail

Toronto's operating surplus is expected to reach $90-million by the end of the year – a number that has the city's budget chairman musing about cuts to the land transfer tax, and opposition councillors talking about restoring services.

The city spent about 10 per cent, or $70-million, less than expected in the first three months of this year, new numbers released on Monday show. That was mostly because of one-time savings in labour costs and higher-than-expected revenue from land transfer taxes. By the end of 2012, staff expect the surplus to grow to $90-million.

An estimated saving of $27.7-million achieved through new contracts with the city's inside and outside workers and an increase in revenue from the TTC because of growing ridership also contributed to the windfall.

News of the surplus follows a year of budget wrangling that pitted Mayor Rob Ford with his pledge to "cut the gravy," against his critics on council who accused him of dismantling valuable city services.

Councillor Mike Del Grande, who as budget chairman, led last year's charge to close a funding gap originally estimated at more than $700-million, said the new numbers suggest the city could take in less rather than spend more as some suggest. He plans to push for a reduction of the land transfer tax in 5-per-cent increments beginning next year, arguing that the city cannot continue to rely on a revenue source that is tied to the fortunes of the real estate market.

The tax, introduced when David Miller was mayor, brought in $17-million more than expected in the first quarter, at $66-million, and is forecast to generate $330-million by the end of the year, about 14 per cent more than budgeted.

Mr. Ford ran on a pledge to scrap the tax, but since coming to office has talked of phasing it out.

Mr. Del Grande says the city's continued reliance on the tax will leave a "massive shortfall" in its budget when the real estate market cools. "The land transfer tax is giving us a false sense of security," he said.

Under the current rates, buyers of a $500,000 home pay the city $5,725 in transfer tax.

Mr. Del Grande estimates his 5-per-cent cut would reduce city revenue by between $15-million and $17-million annually.

Councillor Gord Perks, a critic of the Ford administration, said property owners would have to make up the loss in revenue. "I think the land transfer tax has to stay unless Torontonians want to face massive property tax increases," he said.

Richard Silver, president of board of directors of the Toronto Real Estate Board, said shifting more of the tax burden to property taxes would be a more "realistic" way to pay for city services, rather than relying on a single group. He'd like the entire tax scrapped rather than a gradual reduction.

Councillor Paula Fletcher said the budget numbers suggest some of the cuts made last year – such as TTC routes – were not necessary. "We actually do have money for city building," she said.

In his bid to streamline government, the mayor launched a massive core service review last summer that culminated in two all-night meetings featuring a parade of residents pleading for the preservation of everything from library hours to pools to petting zoos.

Mr. Ford's push for austerity also resulted in major reductions to labour costs through unfilled vacancies and contracts negotiated with the city's unionized workers. The figures released on Monday for the first time put a dollar figure on the savings from new contracts with the city's inside and outside workers – an estimated $27.7-million for the year. The report also reveals the city spent more than $1.5-million on contingency plans in preparation for a possible labour disruption.

The TTC added about $3-million in revenue from higher ridership and another $5-million in savings in part because of lower-than-expected fuel costs.

Mr. Del Grande said on Monday the good fiscal news is no reason to start spending.

Councillors who want to spend the surplus are forgetting the huge capital costs facing the city, he said, including the multimillion-dollar tab for refurbishing the crumbling Gardiner Expressway.