Toronto will face $46.5 billion in financial pressures over the next decade

The exterior of City Hall in downtown Toronto is seen. THE CANADIAN PRESS/Chris Young

Toronto is facing $46.5 billion in fiscal pressures over the next decade and the situation has become so dire that it is likely to threaten the city’s “fiscal stability and the sustainability of its service levels” without action, a new report is warning.

The report from Ernst & Young examined the city’s operating and capital requirements based on both its current level of service delivery and the level of service delivery expected to result from commitments already made by city council.

It found that the city is likely to face $16.9 billion in operating budget pressures between 2023 and 2032, as well as $33.6 billion in capital budget pressures.

The report points out that the city does have $11.2 billion in deferred revenues and reserve funds but it warns that 97.4 per cent of that money has already been set aside for “legislated, contractually bound, or council-directed commitments.”

As a result, it says that Toronto could be faced with some very difficult choices in the coming years.

“Without meaningful action to address and reduce the $46.5 billion pressure, the future of Toronto as a great place to live, visit, and do business could be at risk,” the report states. “Service levels and capital assets could deteriorate over time and the city might be unable to realize the projects and commitments that speak to its ambition to be a vibrant, equitable, and inclusive world-class city in the ranks of some of the most celebrated cities around the globe.”

The Ernst & Young report reveals that Toronto is facing a fiscal pressure of $880 million in 2023.

However, the model does not take into account the “additional fiscal risk” faced by the city should other levels of government not come to the table with funding to offset continuing losses resulting from the COVID-19 pandemic.

The report also warns that there will be a “snowballing” effect in subsequent years “driven mostly by the growing size of the unfunded capital program.”

Notably, the report warns that the city could be hit with a “delayed inflation wave” as collective bargaining agreements are renegotiated later in 2023 and into 2024 and other contracts with fixed costs expire.

“The annual shortfall is smaller in the earlier years and growing over the 10-year period, strongly indicating that the city’s challenges are not temporary in nature,” the report states.

Investments in housing and social services could be at risk

The report from Ernst & Young does not make any specific recommendations about how the city should address its fiscal woes, though it does say that the $1.1 billion that the city invests in federal and provincial responsibilities, such as housing, social services, and health services, “might no longer be viable.”

It also warns that it will be “increasingly difficult” for the city to continue to “provide all current services at current levels” while “maintaining capital assets in a state of good repair” and implementing “planned service enhancements and expansions.”

“This analysis provides the foundation for the city to explore and evaluate options to mitigate, address, and reduce fiscal pressures as a next phase of work, which may include a review of city programs and services, revenue sources, and assets. It is critical to recognize that there is not a single solution that can successfully address the city’s immediate and longer-term financial position,” the report notes.

Earlier this month, Deputy Mayor Jennifer McKelvie sent separate letters to federal Minister of Finance Chrystia Freeland and Ontario Minister of Finance Peter Bethlenfalvy, urging them to stick to their promise to help Toronto recover from its COVID-19 “hangover.”

In the letters, McKelvie warned that the city’s lack of “sufficient revenue streams” will impact its ability to build new infrastructure and contribute to state-of-good-repair work.

In February, city council also voted in favour of a motion asking staff to report back on new revenue options, including a possible parking levy.