Toronto facing financial crisis in election year, writes York prof

The biggest challenge the next mayor of Toronto will face is sorting out the megacity’s balance sheet, according to Harvey Schwartz, professor emeritus in the Department of Economics in the Faculty of Liberal Arts & Professional Studies at York University.

“The tax revenue collected is not sufficient to pay for operating costs. As a result, the city has had to raid its reserve funds and there is very little left in these accounts,” Schwartz writes in an article in the February issue of Policy Options.

Right: Nathan Phillips Square and Toronto City Hall. Photo: Wikimedia Commons.

The article, “Toronto: Trouble in the Megacity, Facing a Financial Crisis in 2010”, details how the city’s operating budget increased over a decade, from $5 billion in 1997 − prior to amalgamation of the former City of Toronto and its five surrounding municipalities − to $8.1 billion in 2008.

Toronto’s debt is expected to grow from $803 million in 2009 to $4.69 billion by 2019. This increase will create a significant burden for Toronto because interest on the debt is paid from the operating cost budget, says Schwartz, an economist whose research focuses on urban problems.

The city’s credit rating will be downgraded if it spends more than 15 per cent of property tax revenue on interest and debt repayments. So in order to keep its AA+ rating, Toronto plans to use $600 million to pay down existing debt and will take out a 30-year debenture to finance projects.

Schwartz documents how Toronto’s finances failed after amalgamation, when transition costs exceeded consultants’ estimates and annual savings were much lower than expected. Harmonizing wages and salaries across the six former municipalities increased wage costs, says Schwartz, and the downloading of many social programs from the provincial to the municipal level has led to serious problems for the city.

“Five months after city council passed an $8.2-billion operating budget for 2010, soaring welfare costs put the city into a serious financial position. The number of welfare cases is expected to top 100,000 in 2010. This will produce an estimated $8.7-billion operating budget for 2010,” says Schwartz. “The $8.7-billion budget means that Toronto will have an operating cost budget deficit of $500 million.”