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City Finances - Questions and Answers |
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Other cities in Canada don't seem to have our financial problems. Why is Toronto different?
In fact, municipalities across the country are struggling financially, which is why the Federation of Canadian Municipalities endorsed a Toronto-led initiative to obtain one-cent of the GST for all Canadian municipalities.
Toronto, as Canada's largest city by more than one million people, faces challenges that smaller cities do not. The needs of transit and policing in a city the size of Toronto are significant. Comparably sized US cities have all moved from relying solely on property taxes to fund services to a model that provides diverse sources of revenue that grow with the economy such as income and sales taxes.
It seems that there is a lot of waste at City Hall. Is the City's financial house in order?
Yes it is. Much has been said about the City having its own financial house in order. In managing costs, Toronto has controlled spending far better than the provincial and federal governments - restricting growth to an annual rate of 4% over the past ten years. In fact, of all the taxes we pay - including property taxes, only 6 cents of every dollar goes to funding the City - the remaining 94 cents goes to the provincial and federal governments.
Several City operations, including the TTC and the delivery of provincial services, have been independently audited and reviewed and Toronto has been found to be efficient in the delivery of its services. Toronto also participates in benchmarking and best practice comparisons with other municipalities and continues to rate favourably. In addition, three separate credit rating agencies continue to highly rate the City's finances.
Why don't you cut staff to save money?
Staffing levels are significantly lower in all areas with the exception of policing, transit and provincially required programs. The City cannot reduce the level of service or change the standards dictated as required by provincial programs. Also, the implications of reducing emergency or transit staff are severe since such cuts could cause irreparable economic damage to the City and drastically affect the quality of life of the City's residents.
Why does the City have a funding problem?
There are three reasons for the budget shortfall. The City continues to be forced to take money needed for municipal services to pay for programs required by the province. Toronto, like all large cities around the world, needs diverse sources of revenue such as sales or income tax that grow with the economy to keep pace with the cost of delivering services. The City has all but emptied its available reserves and exhausted all other one-time solutions.
How much does it cost the City to fund provincially required programs?
In 2007, $729 million was diverted from property taxes to pay for provincial programs (e.g., Ontario Disability Support Program, Ontario Drug Benefit, Ontario Works, Social Housing). Since amalgamation, the cost to Toronto taxpayers has been more than $4 billion. In other large successful cities such programs are not funded through property taxes.
While the Province has announced that it will upload the costs of the Ontario Disability Support Program and the Ontario Drug Benefit program over the next four years, which will give the City $38 million in 2008, this is just the first step. We need further commitments from the province to upload the costs of social services and half of public transit operating costs.
Why doesn't the City simply wait for the results of the provincial funding review?
The provincial government has said it will continue with its review (even after the funding announcement regarding the Ontario Disability Support Program and the Ontario Drug Benefit) and report only after the provincial election. Because the City must, by law, present a balanced budget every year, we can't wait for the results of this review. It is impossible to predict the outcome of the review.
Why did you select the Land Transfer Tax as a possible tax?
This tax would help to protect residents and business from significant property tax increases. An increase to the property tax, equivalent to the expected revenues of the land transfer tax, may be difficult for some residents to afford. The City is also committed to reducing the tax burden on city businesses.
The Land Transfer Tax would generate revenue from homebuyers at a time when financing decisions and arrangements are being made. It is essentially a tax on those who can afford it at a time when they can best afford it.
Why the Personal Vehicle Registration fee?
The Personal Vehicle Registration fee would support road and transit projects and environmental initiatives. The fee would be paid by drivers who use the City's roads and would directly benefit those same users and the City as a whole.
Why doesn't the City contract out its services? Wouldn't it be cheaper?
We already do. The City contracts out more than 46% of services and the 75% of the City's $1.8 billion capital projects are delivered through contract service providers. Where contracting out can be effective and cost-efficient, the City does consider this option.
Why aren't property taxes enough?
We must diversify our sources of revenue because property taxes do not grow with the economy and therefore do not keep up with the cost of delivering services.
Why is this year any different from previous years? It seems that Toronto has been saying it hasn't enough money to deliver services for years.
For years, the City has tried to resolve the problem on its own but has now run out of one-time solutions and available reserve funds. The City faces a budget shortfall of $575 million in 2008.
In fact, the discussion around new revenue sources should have taken place ten years ago when Toronto reached a population of 2 million. Cities with populations greater than 2 million cannot sustain services on property taxes alone - revenues that grow with the economy are needed to keep up with service demands.
The City's operating budget is $7.8 billion. Where does the money go?
One third or $2.6 billion is directed to provincial programs where services levels are dictated by the provincial government. Another third or $2.5 billion goes to transit and emergency services. Mandatory debt and administrations costs amount to $1.3 billion. That leaves $1.4 billion or one fifth of the budget to pay the cost of municipal services.
This means that the City must find the $575 million budget shortfall from within the $1.4 billion set aside to deliver municipal services. Without new revenue, we will either have to cut services, raise property taxes, introduce new taxes or a combination of all three.
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