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City manager Peter Wallace is seen on March 19, 2013. City council voted 40-3 to have Mr. Wallace report back on a more strategic, multiyear approach to budgeting.Moe Doiron/The Globe and Mail

The controversial question of whether Toronto should even consider selling off two of its biggest assets – Toronto Hydro and the Toronto Parking Authority – divided city councillors right down the middle on Tuesday, showing just how politically difficult any such sale would be.

Toronto's local politicians spent an entire day debating the latest warnings from their financial officials that Canada's largest city is headed for a fiscal reckoning and needs to both bring in more revenue and shave costs if it wants to maintain services and expand public transit.

In the end, city council voted 40-3 to have city manager Peter Wallace report back on a more strategic, multiyear approach to budgeting, on the potential for contracting out of more city services and on an "asset optimization" review that would look at selling off some or all of key assets such as Toronto Hydro and the Toronto Parking Authority in order to put the proceeds into public transit or other infrastructure.

A motion from downtown left-leaning councillor Kristyn Wong-Tam calling for Toronto Hydro to be excluded from the review failed on a 19-24 vote. Her similar motion on the parking authority lost on a 21-21 tie. In her remarks, Ms. Wong-Tam raised the spectre of Chicago's 2008 privatization of its parking authority, which many critics regard as a massive failure.

While the debate revealed the political fault lines around any sell-off of these two key assets, the fight was mere shadowboxing compared with what may come. City bureaucrats are to deliver a report later this month on the range of "revenue tools," or new taxes and fees the city could consider. Proposed new levies on hotel rooms or a tax on parking spots are expected to be on the table.

One thing Mayor John Tory has repeatedly said is not on the table is raising residential property taxes beyond the rate of inflation, something that would involve breaking an election promise.

That is something several left-leaning councillors have been demanding he do, in addition to looking into new taxes or fees. Downtown Councillor Pam McConnell said a 5-per-cent property-tax hike – political poison at city hall at the moment – would only cost the average homeowner $11.45 a month, or "a couple of cups of coffee."

Mr. Wallace's report points out that property taxes have actually gone down, when inflation is factored in. So has city spending, the report says, if it is measured with both inflation and population increases taken into account, although Mr. Wallace also calls for reduced spending.

In a pointed exchange near the end of Tuesday's debate, left-leaning Councillor Gord Perks challenged the mayor's stand on property-tax hikes, given Mr. Tory's call for "all options" to be on the table.

Mr. Tory countered that seniors tell him property-tax hikes may force them out of their homes. And he argued that his proposed 0.5-per-cent infrastructure levy shows he is open to new ways to raise revenue.

Then he turned on Mr. Perks: "I've not heard any such flexibility from you whatsoever, on optimizing assets, on expenditure. … I've never heard you stand up and propose an expenditure reduction of any kind."

In his report before council on Tuesday, Mr. Wallace warned that the city cannot continue to rely on windfall revenues from the city's land-transfer tax and raids on its depleted reserve funds to balance its books.

Asked if he would consider selling assets for a short-term gain that would then cost the city needed revenue in the long term, Mr. Wallace replied: "It would not be my advice that we sell the furniture to heat the house."

An Environics poll commissioned by the Society of Energy Professionals, one of Toronto Hydro's unions, suggests that about 70 per cent of Torontonians oppose the sell-off of Toronto Hydro.

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