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Mayor John Tory speaks during a news conference in Toronto on Jan. 18, 2018.Frank Gunn

Just hours after Toronto City Council passed its last budget before this year's municipal election, Mayor John Tory would not repeat his 2014 campaign pledge to keep property-tax hikes at the rate of inflation if he wins a second term.

"I will only say to you that I think people know that I am a balanced person in terms of my approach to financial management and everything else," Mr. Tory told reporters on Tuesday.

"And that I very much recognize the need for the city to be responsibly managed and at the same time for us to address the needs, especially, of those who are struggling."

Late Monday, Mr. Tory and council passed a $10.97-billion operating budget for 2018 that includes another base property-tax hike for homeowners limited to the rate of inflation – 2.1 per cent.

Mr. Tory and his allies easily fended off motions from his critics on council's left to raise property taxes by as much as 4 per cent or bring back the city's short-lived vehicle-registration tax and put the additional money into child care or transit.

Described by many as a play-it-safe "election budget," it will see city spending rise on transit, social housing and anti-poverty measures, although many departments have cut costs or frozen their budgets. It also features a list of expanded services and a couple of last-minute cash infusions meant to address recent public outcries about overcrowding in homeless shelters and on subway cars.

But critics inside and outside city hall have long warned that Mr. Tory's ability to cap residential property tax hikes at inflation over the past four years is largely the result of windfall revenues from the city's nine-year-old tax on real estate transactions. It generated $95-million more than anticipated in 2017 and is expected to bring in more than $800-million this year.

With the once-red-hot real estate market now looking less so, some say Toronto's reliance on those revenue to balance its books is a big gamble.

In a crash or steep correction, Mr. Tory and city council could be forced to make service cuts or introduce larger property-tax hikes, city manager Peter Wallace warned again this week – as he has done for years. (By law, municipalities in Ontario cannot run operating budget deficits.)

For example, to handle a $90-million drop in revenue, Toronto would need an additional 3-per-cent property-tax hike. Or it would be forced to cut an amount equal to its entire subsidy for its daycare system. Both options would be politically charged in an election year, even with Mr. Tory still facing no declared high-profile opponent.

However, Mr. Wallace also told councillors in the chamber on Monday that, despite the softening in Toronto's residential housing market, the commercial real estate market has remained strong – as have land-transfer tax receipts.

And he stressed that the issue is not affecting the city's strong "AA" standing with its credit-rating agencies.

However, ratings agency DBRS did mention the city's reliance on the land-transfer tax in its most recent report, noting that it exposed a "modest but rising share of the operating budget to dynamics of the local housing market."

The city has dedicated $40-million from the land-transfer tax to its capital reserve fund, a decision that could be reversed and used as a cushion if revenues decline this year. And for 2019, city finance officials plan to stop including any projected increase in the tax in their budget calculations.

Enid Slack, the director of the Institute on Municipal Finance and Governance at the University of Toronto, has long argued that Toronto should have access to a more diverse set of revenue sources, such as income and sales taxes, as many other cities around the world do.

"It is a very volatile tax and it really does depend on what is happening in the housing market," Dr. Slack said.

"And I think people can't contemplate that those revenues are not guaranteed, by any means, and that they could fall when there is a change in the housing market."



Taxes for homeowners rise a little more than inflation …

  • Residential base property tax-rate increase: 2.1 per cent
  • “City Building Levy” for infrastructure: 0.5 per cent
  • Impact of current value-assessment shift and other tax-rate policies: 0.31 per cent
  • Effective average residential tax-rate increase: 2.91 per cent
  • Impact on average homeowner (with a home worth $624,418): $82.10*

… but city spending per resident is going down.

  • Real per-capita spending in 2010: $4,480
  • In 2018: $4,308

*Excludes increases in rates paid separately for garbage collection (1.9 per cent) and water (5 per cent).

Source: City of Toronto

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