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Toronto Mayor John Mr. Tory and city staff have found $25-million in savings in the past few weeks.Mark Blinch/Reuters

Mayor John Tory is proposing the City of Toronto take the unusual step of borrowing money from its own capital reserves to balance the books.

Faced with provincial funding cuts and constrained by promises to improve services while holding property tax increases at the rate of inflation, Mr. Tory has spent the past several weeks looking for ways to fill an $86-million hole in his proposed 2015 operating budget. On Thursday, Mr. Tory said that he and city staff have landed on a solution: through "internal borrowing" – having the city lend itself the funds out of its capital reserves.

"This represents a thoughtful, responsible solution to the budget," Mr. Tory said. "We've found a creative way, which is what happens when you bring fresh eyes to a place like this – totally legal and totally proper and totally prudent – to allow us to spread out what you've just heard were the biggest cutbacks this city government has faced in 20 years or more."

The strategy, which needs to be approved by the budget committee and city council, would see Toronto borrowing $130-million over the next three years to ease the blow of the province's withdrawal last year of a $129-million fund. The loan would have to be paid back with interest, at market rate, and would hold the city to a strict plan of finding a total of $160-million in savings or additional revenue over the next four years.

Despite staff acknowledging that the strategy has never been used in Toronto since amalgamation, city manager Joe Pennachetti said the move is responsible. "This is the best way to balance the pressure we have to maintain services, and at the same time maintain appropriate tax levels. I believe this is the most prudent way of dealing with this."

As part the announcement, Mr. Tory said that in the past few weeks, city staff have found $25-million in potential savings to help fill the 2015 budget hole. The savings would come in part by reducing the proposed budgets of the Toronto Police Service and the Toronto Transit Commission by $5-million each. Savings also come from additional revenue from parking enforcement and cheaper gasoline prices.

Mr. Tory first announced details of his original 2015 budget proposal in January. As part of that plan, he promised $95-million in improvements to the TTC, as well as increased spending on shelter beds and road repairs.

But the proposal included an $86-million hole that the city was relying on the province to fill. After the province made clear it would offer only a one-time line of credit at the market rate, the city declined that offer.

Since then, Mr. Tory and city staff have considered a number of options for plugging that hole, including a bank loan. And while Mr. Tory said Thursday that there is "no risk whatsoever" to the latest strategy, at least one of his council colleagues disagreed.

"This is a really high-risk approach," Councillor Gord Perks said. "They're borrowing from our ability to fix roads, buy buses, repair housing – all of those things we're going to need to do in the future."

He said the approach does not provide a permanent solution to the provincial funding withdrawal, and that the city should raise property taxes beyond the 2.75 per cent Mr. Tory promised.

"Mostly what we were told today is the problem is being put off until tomorrow," said Mr. Perks. "It's an enormous gamble."