Everyone Agrees On Two Points

1) Province has to pickup the bill for services that they demand.
2) City has to make the right fiscal decisions and forget the political ones.

We see no sign from the city that they are mature enough to handle help from the province. Giving them the keys to the candy store is not the answer.....

Financial tsunami rolling toward city
April 21, 2007

When New York City was facing the threat of bankruptcy in 1975, then mayor Abraham Beame appealed to president Gerald Ford for a federal bailout. Ford refused, which led the New York Daily News to publish its famous front-page headline: "Ford to City: Drop Dead."

Now, Toronto is facing its own major budget crisis, with top staff suggesting the city could go broke unless it gets swift help from Queen's Park. And at least one councillor, Adam Vaughan, believes neither the provincial nor federal government will provide any assistance to the city "unless we declare bankruptcy, like New York City had to do."

The good news is that the rhetoric is somewhat overblown, because Toronto will have a balanced budget this year, whether or not Queen's Park provides a last-minute injection of cash to make the process easier. Equilibrium will be achieved without major service cuts, no transit fare hike, and a modest 3.8 per cent increase in residential property tax.

But the good news ends there. Balancing of this year's books presents a deceptive picture. In fact, the city has slipped into a financial abyss. It spent recent years surviving on borrowed time, borrowed money and one-shot budget gimmicks like selling its street lights and utility poles to Toronto Hydro in 2005. When this year's budget is wrapped up, even those last-ditch options will have been exhausted.

Discretionary reserve funds are all but drained, stripped of more than $1 billion since 2001, to cover Toronto's chronic budget shortfalls. Property taxes remain the city's main way to raise money. But because these do not grow with the economy, they are a poor way to cover costs that rise by $250 million each year, just due to inflation and debt service charges.

To thrive, the city must expand – not cut – public transit and other key services. City officials note that significant job reductions have occurred since amalgamation, including 430 positions cut from water services and almost 200 fewer library workers. Thousands of other jobs have been added. But the bulk of these are police (with 742 hired), public health staff (with 819 hired) and transit workers, with more than 1,300 hired, mainly due to expansion of the subway system and increased security concerns.

Since former premier Mike Harris, the province has loaded Toronto with extra responsibility for transit shortfalls, welfare programs, drug benefits and subsidized housing. But it failed to give the city the means to pay for these downloaded burdens. And Queen's Park steadfastly refuses to pay its promised share of emergency shelter, child care and other costs.

This adds up to a financial tsunami scheduled to hit the city in its next budget. Fed by multiple factors, the crisis demands a multi-step solution.

First, Queen's Park must assume responsibility for paying for provincially imposed services, beginning with its $175 million drug benefit and disability programs. "We have to have the uploads start in 2008 – it must happen," Toronto's chief financial officer Joe Pennachetti told the Star's editorial board this week.

Second, city staff must wring more efficiencies from the system. It should start with Toronto's elected officials refraining from self-indulgent spending that, while small, sends the wrong signal to residents and the province, such as giving themselves a 9 per cent pay hike last year.

Third, the city should look at further, moderate hikes in property taxes and consider imposing some of the new levies made possible by expanded tax powers granted by the province, such as a land transfer tax; vehicle, road and parking levies; and taxes on alcohol, tobacco and entertainment.

Only when armed with new sources of money, and a fair deal from the province, will Toronto be able to avoid bankruptcy and be in a position to build on its services and successfully move into the 21st century.