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Toronto declines province’s loan offer to balance books; will go to bank

Newly elected Mayor John Tory during a year-end interview in his new office at City Hall in Toronto, Ontario on Tuesday, December 16, 2014.

Peter Power/The Globe and Mail

Toronto is turning to a bank loan to balance its books, an unprecedented step after Mayor John Tory failed to get the financial relief he was seeking from the Ontario government.

Mr. Tory took office two months ago promising to mend relations with the province, but Thursday he indicated the goodwill that got him face-to-face discussions with the Premier didn't bring the desired results.

Mr. Tory had hoped to persuade the province to reverse or cushion cuts it has made to funding for social housing. Those cuts, announced in 2013 and phased in over three years, have left the city with a $86-million hole to fill in its 2015 budget. Rather than restoring funding, the province offered to extend a line of credit at commercial rates, an offer Mr. Tory announced Thursday that Toronto was rejecting.

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"We have concluded that the city can do better on its own. We thank the province for its offer, but in the end we will take care of our own house," Mr. Tory said.

City staff will work in the next two weeks on a list of possible budget savings and capital projects that can be delayed or cut, and also on the terms of the bank loan, presenting them to the budget committee on Feb. 13.

Municipalities are prohibited from borrowing to cover operating costs, but Toronto is getting around that by redirecting money earmarked in the operating budget for capital projects, city manager Joe Pennachetti said. The bank loan will fill the gap in the capital budget for work that would have been covered by funds collected this year from property taxes.

"I am not going to mince words and say this is normal. We have never done this before," Mr. Pennachetti told the budget committee Thursday.

The loan will mitigate the effect of the provincial funding cut, he said. Without it, taxes would increase by an extra 3.4 per cent this year and another 1.7 per cent in 2016.

Mr. Tory, whose transit plans hinge on provincial and federal funds, said he remains optimistic about his relationship with Premier Kathleen Wynne. "Both Premier Wynne and myself have a four-year term in front of us. There are going to be a lot of things that we are going to work on together, issues big and small," he said.

But an adviser from his campaign was not so positive, suggesting the province had reneged on financial assurances given to Mr. Tory's transition team. The Premier's staff told Mr. Tory's team "we will make you whole," said campaign pollster Nick Kouvalis.

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Ms. Wynne's office did not respond to a request for comment, but in a statement Finance Minister Charles Sousa noted that the city finished 2013 with a $168-million surplus and is expecting a final surplus of approximately $100-million for 2014. "While we recognize the unique challenges of Ontario's largest city, any support must be consistent with Ontario's fiscal plan," the statement said, a reference to the province's efforts to meet its deficit-reduction targets

Councillor Shelley Carroll said the city needs to make a "fundamental shift" and recognize higher taxes are ahead to cover social housing. "Essentially we've got to own up to the fact that the province has said unequivocally the cost for housing for the poor belongs on your property tax base," she said. "That's going to be a hit to our residents."

With a report from Oliver Moore

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