Municipal Issues

Located in the province of Ontario, the city of Toronto is the largest municipal government and the financial capital of Canada. A home to more than 2.7 million people, Toronto is one of the fastest growing cities in the world. In 1998, the city of Toronto was formed from the amalgamation of seven municipalities. It has an annual operating budget of more than 7 billion dollars and spends more than six of the provinces in the country .With a growing population, Toronto faces an enormous demand to provide services to its residents, and continues to face increasing financial challenges. These include increased expenditure pressures and inadequate sources of revenue (Slack, 2005). However, the City of Toronto Act that came into force in 2007 provides some viable tools to address the city's financial constraints. These comprise of giving the city the authority to manage its financial measures, the ability to raise taxes and the mandate to improve provincial and federal municipal relations.

Toronto continues to face a financial squeeze due to a number of problems. A significant challenge the city faces is increased operating expenditure and the resultant needs that cannot be met up due to different factors. Operating expenditures pay for resources used up in delivering services, for example snow removal or garbage collection. Expenditures on policing are also much higher in Toronto than surrounding regions due to a higher crime rate with a large and diverse population with a high incidence of poverty. The city receives a disproportionate share of new immigrants every year; the city is faced with the costs of settlement and integration (Slack, 2005). With a high poverty rate, Toronto spends more in social and family services. Fire protection is more costly to provide, given a higher population density and a greater concentration of high rise buildings compared to rural areas which mainly rely on volunteers (Slack & Bird, 2006).

Another driver of increasing expenditures for Toronto is the average 6.5 percent annual appreciation in salaries, wages and benefits due to an expansion of full time employment positions (Toronto Board of Trade, 2010). Full time employees enjoy benefits such as sick leave and paid vacation that part time workers do not have. A large segment of the full time jobs are funded either from fee-for-service or sustained conditional grant funding and the rest of the funding is through property tax. Between 2006 and 2008 a 6.8 percent increase in salaries, wages and benefits for police, fire and transit was observed, higher than the average annual growth (Toronto Board of Trade, 2010).

Toronto is one of the major economic engines in Canada and has the need to be internationally competitive. Thus it must attract business and skilled labour, which means it must provide transportation and communication infrastructure. In addition, it needs to provide services that enhance quality of life such as parks and recreation, social services and much more (Slack, 2005). However, there is increasing cost in providing these services due urban sprawl, which stretches services and results in pollution and traffic congestion. Furthermore, with an aging and deteriorating infrastructure, there is increased pressure for the city to replace or renew this infrastructure so as to remain attractive and competitive to both businesses and residents. The city's water and waste water infrastructure is very old and 30 percent of the pipes are more than 50 years old (Pennachetti, 2005).The city is faced with debt servicing costs to maintain, repair, replace and expand all these facilities.

The amalgamation of the seven municipalities has actually made local government more complicated and in some cases has cost more than it saved. This has been felt in particular in the outlying regions of Toronto as a result of provincial offloading of various social services and social housing to the central municipal government, increasing the city's responsibilities without provincial fiscal support (Tindal & Tindal, 2008).The 2008 recession put the city's fiscal capacity under stress, for example a 22 percent increase in the social assistance caseload was noted (Weldon, 2009). In addition, federal and provincial governments ordered cities to meet certain requirements, for example water quality standards, without providing adequate resources to meet those needs (Slack, 2005).

Another significant financial challenge facing the Toronto is insufficient revenue sources. The city has five primary revenue sources. These include property taxes, user fees, conditional and unconditional grants, reserve funds and other local sources (Toronto Board of Trade, 2010). Other local sources of revenue include: licences and permits, remittances from city owned enterprises and interest and penalties on taxes and fines (Tindal & Tindal, 2008).

Property tax is the main source of municipal government revenue and funds all or portions of all city programs except water, sewer and storm water programs which are funded from user fees (Toronto Board of Trade, 2010). Unfortunately, in recent years there has been increased provincial government plundering of this revenue source at the expense of the city. This has mainly occurred with respect to education funding where there is a provincial education tax in the property tax on commercial properties in the city (Bedford, Cunningham, Crombie, Golden, Greenberg, & Sewell, 2005). The property tax is not a flexible source of revenue. It does not increase automatically as the economy grows, but rather responds more slowly to annual changes in the economy (Tindal & Tindal, 2008). When it is not sufficient to pay for all services and programs, the city has to make the unpopular decision to increase property taxes which affects both local businesses and residents. Toronto taxes on business are generally well above the level of services received and higher than the taxation in surrounding municipalities. As a result, it drives businesses and residents to neighbouring municipalities, which in turn results in the degradation of the tax base for the city (Slack & Bird, 2006). Furthermore, over-taxation of downtown properties and rental housing relative to suburban properties and owner-occupied housing contributes to the problems of urban sprawl, homelessness and discouragement of rental unit construction (Tindal & Tindal, 2008).

Another important revenue source is user fees. These are charges imposed upon an individual to use a specific public service (Tindal & Tindal, 2008). The city's revenues and expenses are vulnerable to economic recession. A decline in the economy reduces user fees such as recreation fees, transit ridership and building fees (Pennachetti, 2005). This has been obvious in Toronto where the city