On shortfalls and taxes: Toronto is in a tough financial situation no matter who wins the election

Elections are typically a time when candidates make big promises about how they intend to fix the city.

These promises range from big to small, but usually have one thing in common: there’s a cost to them.

Figuring out inventive ways to pay for election promises is not a new art, but the costing of promises has taken on new significance in this election given that Toronto is facing unprecedented financial difficulties.

Looming over the race to pick the city’s next mayor is a problem lying in wait for whoever wins: Toronto had a deficit to the tune of $1.5 billion.

That might not amount to a massive quandary for a provincial or federal budget, but for a Canadian municipality — even the biggest one in the country — it’s a serious problem.

HOW WE GOT HERE:

Most people who used the TTC before 2020 well remember standing shoulder to shoulder with their fellow commuters, scarce a millimetre of space between bodies, on the morning and evening commutes.

As frustrating as those commutes could be, they also resulted in a very substantial cash flow to support the transit system.

But the city wasn’t getting rich off anybody’s sardine-like ride to work. Most of the time the service just managed to pay its bills.

That’s because unlike other major transit systems in the world, such as London, Paris, or New York, Toronto does not receive major operational funding for its subway system from the higher levels of government. The TTC has typically relied on ticket sales for around 60 per cent of the cash it takes to keep the subways, buses and streetcars running, with the city usually chipping in the bulk of the remainder.

So when stay-at-home orders forced people to work from their kitchen counters and living rooms for two years, the TTC’s main revenue source all but evaporated.

But Toronto couldn’t just shut down transit. Essential workers still had to get around, as did others who needed to help family members or for emergencies. So the trains kept running.

Similarly, parking revenue at Green P lots dried up as well.

Keeping the system running with almost no revenue was necessary but not viable. Recognizing the extraordinary circumstances, the federal and provincial governments agreed to step in to compensate the city for running the system.

Ottawa and Queen’s Park came to the table to help rescue Toronto from financial peril in fiscal 2020 and 2021.

While ridership has since returned to much higher levels over the past couple of years, it has not returned to pre-pandemic levels. The total number of trips across the TTC in 2022 was just 58 per cent of what it was in 2019.

By law, the city is not allowed to run a deficit. It balanced its books in 2022 and for 2023 by assuming that the higher levels of government would once again come forward to help carry the city through the prolonged “COVID-19 hangover” as it has been dubbed.

But those governments have not come forward with funding. The hole that leaves for the city to backfill amounts to roughly $1.5 billion. Not exactly change Toronto has between the couch cushions.

OTHER FACTORS

If the problem doesn’t sound bad enough, the Ford government has also slashed the city’s ability to charge development fees to the tune of roughly $200 million a year in the hopes that developers will be incentivized by the break to build more rental housing.

Former mayor John Tory said when the cuts were made by the province that it represented a significant threat to the city’s finances.

The Ford government has promised to make the city whole for the loss in revenue that is being used to pay for its housing plan, but has not specified exactly what that means, and has said that it will first send in auditors to make sure it agrees with how the city has been spending its money.

Add to all that extraordinary inflation and growth pressure driving up the city’s costs, and the financial picture looks grim.

WHY THIS MATTERS AT THE BALLOT BOX

The city’s funding shortfall and the ways to pay for it might not have been front and centre in the campaign, but they will most definitely shape what the next mayor can do.

“It's kind of loomed over everything in this campaign – how to pay for all the promises that are being made,” Professor Matti Siemiatycki, director of the Infrastructure Institute at UofT and a professor in the Department of Geography and Planning, told CP24.com.

“The city has this very large budget hole that has to be filled and will impinge on any candidates’ policy choices and proposals. So yeah, it's been present and it's been talked about, but I don't think we've heard definitively what the solutions are.”

Given the city’s financial problems, it might seem laughable for anyone running for mayor to promise to fix so much as an extra pothole. But that has not stopped those running for the job.

Some of the promises in the campaign have included subway expansions which would cost billions and the elimination of revenue streams like the land transfer tax, which would cost hundreds of millions of dollars annually.

It seems extremely unlikely that Toronto will be able to navigate these choppy financial waters without any new revenues – be it from new taxes, property tax increases or other means, let alone have money to pay for new promises.

This year’s TTC service cuts were a taste of what could happen to other services without better solutions.

“There’s some really difficult choices there,” Siemiatycki says. “It's either cut expenses and services or raise additional revenue. Those are the ways that that you solve a budget shortfall.”

• MORE: See more on each of the candidates’ tax commitments in our Promise Tracker

Some candidates like Josh Matlow have been up front about proposing new revenue streams to pay for promises. He’s said he would implement a two per cent property tax increase to fund a “City Works Fund” and implement a commercial parking lot levy.

Mitzie Hunter has proposed a general six per cent property tax hike, but has said it would be just three per cent for households making less than $80,000 per year.

Olivia Chow has said she will raise the Municipal Land Transfer Tax on luxury homes purchases over $3 million and raise the vacant homes tax, but has not said how much she would raise property taxes.

Most of the other candidates have vowed not to increase taxes beyond the rate of inflation, but have not substantively said how they would otherwise keep the city running in terms of the required revenue.

Ana Bailao has said a new deal with the province is required while Mark Saunders has said he would assess the city’s current spending and Anthony Furey has vowed to find money by cutting “pet projects.”

According to Siemiatycki, the election campaign has included “an interesting range of approaches” for voters to consider when they go the polls.

“I think that's interesting that you see this range of approaches between the super direct approach of ‘taxes will be going up this much to pay for these services’ to ‘we need to look at what services and how much they cost’ all the way to ‘no new taxes - we're sticking with the current status quo,’” he says. “And again, some of this is about policy approaches, and some of this is about a political theory of what wins during election time.”

Siemiatycki said it will be interesting to see which approach wins out with voters on Election Day, but whoever wins, one thing is clear.

“The key is this issue does need to be resolved, whichever approach ultimately wins the day,” Siemiatycki says. “There is no shortcut around the fact that there is this very large budget hole that has to be filled and it's either going to be filled through additional revenues or through significant service cuts.”

Candidates don’t typically win elections by promising to reduce services, but they might have to if they become mayor. The values of whoever becomes the new mayor will shape those choices.