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Toronto Mayor John Tory.Fred Lum/The Globe and Mail

Toronto Mayor John Tory says the city's departments and agencies must aim for a "net zero" operating budget increase next year, all the while investing in his anti-poverty plan and adopting new technology – raising questions from critics about how the city can expect to balance its books.

In his annual letter to the budget committee, being released on Monday, Mr. Tory calls for a "net zero" increase over last year's tax-supported net operating budget, saying any new services or wage increases should be "absorbed within existing budgets."

He also says any residential tax increase must be at or below the rate of inflation, repeating his campaign pledge. But he goes on to call for investments in "strategic priorities" such as transit, affordable housing, his anti-poverty strategy, funding for the arts, and new technology to make the city more efficient. He also wants city bureaucrats to examine "efficiencies" and the contracting out of city services, and assess whether current service levels are providing "value for money."

While freezing budgets across departments may sound drastic, Mr. Tory's letter actually appears much less draconian than the advice issued last week by city manager Peter Wallace, who warned in a budget report that city departments and agencies need to budget for at least a 2.6-per-cent budget cut.

That report also suggests that with a harsher 5.1-per-cent cut to most city programs and agencies, a zero target increase could be brought in at the TTC, Toronto Community Housing and the Toronto Police Service. His numbers show the city facing a $582-million budget hole next year, just to keep services as they are.

The discrepancy between the budget targets left some of Mr. Tory's critics scratching their heads. Left-leaning City Councillor Gord Perks, who has called for property-tax increases to allow the city to better fund its services, said the mayor's numbers do not add up.

"The difference is, the city manager can do math and the mayor can't," Mr. Perks said.

Mr. Tory's letter says the city must focus on its priorities, and "spend our money wisely." But he also calls for moving forward quickly on his big-ticket projects, such as his Smart Track transit plan, and the Scarborough subway, which was revealed to have an extra $900-million in its cost projections last week.

"While out budget is under real strain, we must continue to build the city we want," Mr. Tory writes in his letter.

Mr. Tory also wants city officials to find cost savings by updating the city's technology and focusing on "analytics" and turning the "data-driven organization" while prioritizing "open data."

He also warns that the city has relied on its property taxes and the windfall of the city's land-transfer tax, and must alongside the 2017 budget process "have a serious conversation about new ways to raise new revenues."

That conversation is expected to begin Tuesday, when a staff report on the menu of options for new taxes or fees – including potential taxes on hotel rooms or parking spaces – is scheduled to be released.

But any new fees or taxes are not expected to make a large difference to the 2017 budget, as they could take months to bring in.