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Toronto Mayor John Tory, right, and budget chair Gary Crawford leave a press conference where they briefed the media on the next Toronto budget plan on Jan. 20, 2015.FRED LUM/The Globe and Mail

Toronto Mayor John Tory is faced with the unusual situation of relying on a provincial loan to balance the city's books and help deliver a budget that provides better services and holds the residential property tax increase at 2.75 per cent.

Calling it "the right thing to do," Mr. Tory introduced his fiscal plan in a tightly ordered day of events on Tuesday that included a morning news conference, staff briefings and a lunchtime speech by the mayor. But it took an unexpected turn when the province made it known that the millions of dollars in provincial funding the mayor and city staff had been expecting to get for the budget to break even would instead come in the form of a line of credit given to the city at market rates.

Earlier in the day, city staff had indicated that Toronto's operating budget – which by law must be balanced – depended on reaching a deal for Queen's Park to plug a $86-million gap created by cuts to provincial funding for the city that began last year. City officials said they hoped a deal could be reached by the end of next week.

Late Tuesday, Ontario Finance Minister Charles Sousa clarified in a statement that the provincial relief would be a $200-million line of credit – not the restoration of the funding. The $129-million fund for Toronto is being phased out over three years, and the cuts began in 2014.

Mr. Tory, who came to office promising to improve relations with the provincial and federal governments, said in a statement that the line of credit "will reduce budgetary impacts in 2015 and provide flexibility in future years."

He did not say if the city had expected something different.

In a televised town hall on Tuesday evening, Mr. Tory said the provincial move means the budget chair will have to find savings, but they would not be as high as $86-million.

The mayor characterized his budget proposal as a balance between affordability and the need to invest in services and infrastructure. He contrasted that with the "meat cleaver" approach of former mayor Rob Ford, particularly for transit funding.

"That is what this entire budget is focused on – focused on getting Toronto moving, putting people first and keeping taxes low," Mr. Tory said as he outlined the plan on Tuesday morning.

But the city is also banking on a strong real estate market to keep pace with last year, when the city collected $425-million in land transfer taxes – $75-million more than forecast.

Toronto's chief financial officer, Rob Rossini, described the jump in revenue last year as "stunning," and identified the number in this year's budget as a possible risk. As a partial hedge against a market correction, the city will direct only $385-million of the expected revenue to its operating budget, with the remaining $40-million going to capital projects.

Other risks identified in the spending plan include an expectation that the three-year slide in revenue from traffic tickets will be partly reversed this year. The city also is counting on the police service to hold its budget at 2014 levels aside from salary increases.

The proposed budget – which needs committee and council approval and will not be finalized until March – would increase residential taxes by 2.25 per cent, plus an additional 0.5 per cent for the Scarborough subway levy approved last term. Non-residential taxes will rise 0.75 per cent before the levy.

The proposed budget will mean the city portion of the average residential taxpayer's bill will go up by $71.70. A policy to bring residential and commercial tax rates more in line means the final cost will be $83.19 for the average homeowner.

Mr. Tory promised during the election campaign to keep property-tax increases at or below the rate of inflation. The City of Toronto's rate of inflation is about 2.6 per cent.

Residents also will pay more for transit fares, garbage collection, water and recreation services. On the spending side, the plan includes $75-million in new funds for transit, transportation infrastructure and $8-million for shelters, including 181 new spaces for the city's homeless population.

"It's the right thing to do, and it's the right way to do it: the thoughtful, methodical, careful way," Mr. Tory said, describing the budget to a lunchtime crowd.

Early indications are the budget will get broad support from council, but not from all.

"There are a lot of crossed fingers in this budget," said Councillor Gord Perks, who identified the reliance on revenue from the real estate market and cheques from the province as risks.

In introducing his plan, Mr. Tory warned that he will ask all city departments to find 2 per cent in savings for next year's budget. He also slammed his predecessor, Mr. Ford, for his approach to budget cuts.

"With the previous administration, they sort of assumed the best way to go on a diet was to cut off your arm and say you lost weight," Mr. Tory said. "This is not a thoughtful way to do this."

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