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Toronto Mayor John Tory said the province’s decision to try to get property tax rebates out of the city is going to hurt Toronto’s bottom line and its ability to deliver services.Chris Young/The Canadian Press

John Tory is threatening to "jack up the rent" the Ontario government pays to lease space in city-owned buildings.

The Toronto mayor gave warning Monday after learning the province is trying to squeeze money out of the city by appealing property tax assessments on Ontario government buildings.

His tough talk sets the stage for a showdown between the two levels of government over scarce tax dollars, as both struggle to find the funds to keep programs afloat in a tough fiscal environment.

As first revealed by The Globe and Mail, the Ontario government is fighting its own property tax assessment system, the Municipal Property Assessment Corporation (MPAC), at the Assessment Review Board. The province is arguing MPAC made errors in the assessments on 19 different provincial properties in Toronto and the values of those properties should be lowered. Among the properties under appeal are the Legislative Building at Queen's Park, the Frost Building headquarters of the Ministry of Finance and Osgoode Hall.

If the province succeeds, the city will have to pay the province up to $65-million in property tax rebates.

Well, two can play at that game, Mr. Tory said.

"I understand they need to find money for themselves, but so do we," the mayor told reporters following a tour of Gardiner Expressway construction. "We will be putting this in the context of a much broader series of discussions where we can say, 'Fine, we're going to review some arrangements we have with them and jack up the rent, or change different things.'"

The mayor will soon have an opportunity to press the province for more cash when a key provincial lease of a city building – Old City Hall – comes due at the end of next year.

The Ontario government rents space in Old City Hall for use as a courthouse. The current lease, which costs the province $5.8-million per year, expires at the end of 2016. According to a city staff report released Monday, the city and province are currently in talks to extend that lease agreement another five years at a price of $6.7-million annually. The province needs the space until 2021 because its new downtown court centre (which, coincidentally, is one of the properties under MPAC appeal) will not be completed for several years.

Neither Mr. Tory's office nor the city bureaucracy could provide a list of other properties the city rents to the province.

Mr. Tory said the provincial government's decision to fight for a property tax rebate will hurt the city's ability to deliver services.

"If this reassessment happens, it's at a cost to us and it merely makes our problems bigger. Then we're going to be coming to see them," he said. "Look, we can reassess those properties, but that's going to create a problem for us, which means we can't build transit or we can't do as much housing or help with child care."

Infrastructure Minister Brad Duguid – who oversees Infrastructure Ontario, the provincial Crown corporation that is handling the property appeals – defended the decision to challenge the property tax assessments. He said the city has to realize the province is just trying to save money for its taxpayers.

"I think all municipalities would understand, as they have a responsibility to manage their properties in as efficient and professional a way as possible, Infrastructure Ontario has a similar responsibility and that's all they're doing here," he said.

The affair also revived persistent questions about MPAC's ability to do correct assessments. The agency is frequently the target of anger from businesses and homeowners who argue it has messed up their assessments and forced them to pay too much tax.

"It's sad and comical at the same time that it's arrived at this position, that the province itself is appealing MPAC," Ontario Progressive Conservative Leader Patrick Brown said at Queen's Park following the daily question period. "Any MPP hears it: You get complaints left, right and centre about MPAC and I'm glad the province is finally recognizing the system is flawed."

Added provincial NDP Leader Andrea Horwath: "It certainly doesn't engender a lot of confidence in the rest of us in terms of the MPAC system."

But Ontario Finance Minister Charles Sousa said the system is working exactly as it is supposed to: MPAC makes an assessment, and if someone disagrees – in this case, the province – they can appeal it.

"There is a process there to ensure that the people, anyone who owns property, has fairness in the system and that the properties are properly assessed," he said. "That's what's happening here. That's all there is."