City manager Joe Pennachetti

Mayor Rob Ford likes to say that there’s lots of room to save money in the city budget through efficiencies and that new taxes aren’t needed to move the city forward.

Toronto’s top bureaucrat disagrees.

Speaking at an event held by the Institute on Municipal Finance & Government yesterday, City Manger Joe Pennachetti told attendees that he doesn’t believe it’s possible to find enough service efficiencies to close the $100 million gap remaining in the city’s budget. He warned that finding further cost savings would mean “a little bit of pain” as important services are cut.

He also spoke at length at the need for new revenue sources – he favours a sales tax – to finance new transit projects, affordable housing and enhanced services.

Pennachetti, professional and apolitical throughout his presentation, noted that in general Toronto’s finances were “very healthy”, citing the city’s top-notch credit rating. He also pointed to the city’s relatively low debt level, which is set to peak at about $4.5 billion in a few years. The city owns assets worth almost ten times that figure.

This kind of message, of course, doesn’t really square with the kinds of things we hear from Ford. The mayor is prone to wild exaggerations that make it sound like the city is on the verge of having all its stuff repossessed in the middle of the night. During his campaign for mayor, he promised to reduce the city’s overall budget by $3 billion over four years, all while guaranteeing that public services would not be cut. Everyone in Toronto remembers the spiel: there was a gravy train and Rob Ford was going to stop it.

But Pennachetti, not one for slogans, painted a positive picture of the fiscal strategy implemented under the previous council. In fact,  aside from a few unwise revenue cuts and some hasty (and mostly unnecessary) service reductions, Toronto’s long-term fiscal strategy under Ford looks a lot like it did under Miller. And that strategy is working.

Still, Pennachetti did have some positive things to say about the last year. He praised the much-maligned Core Service Review process, which ultimately produced about $20 million savings after council approval. He did note, however, that the process would have been smoother had it been stretched out over a longer period of time. He also had kind words for the recent labour negotiation process – which should net another $20 million in annual savings – and cost reductions at the TTC.

Pennachetti also countered another of Ford’s talking points, attributing the city’s recently uncovered $292 million surplus primarily to extra revenues and not efficiencies or cuts. He did say repeatedly that he hoped council wouldn’t vote to use some of that cash to plug gaps in the 2012 operating budget and preserve services. But councillors are probably just going to ignore him on that one.

The most interesting part of Pennachetti’s presentation saw him turn from phase one of the city’s fiscal plan – creating sustainability – to phase two, which is all about finding new money to build and enhance the city. He pointed to revenues as “the issue that will drive us to the point where we are truly city building.”

Running down a list of money-raising options that would make the mayor break out in cold sweats, Pennachetti discussed the pros and cons of several revenue tools, including road tolls. With the infrastructure is already in place to collect either a sales tax or an increased gas tax, he thinks either of those funding strategies could allow for rapid movement on major infrastructure projects like the Downtown Relief Line.

Pennachetti listed several priorities for city building, but mainly focused on transit and affordable housing. The latter, he said, is a “huge problem that just grows every year.” TCHC has 81,000 households on its wait list and a repair backlog totalling more than $750 million. He acknowledged that selling some old houses and using the proceeds to tackle repairs was not going to make a significant dent in the long-term problem the city is facing with its public housing stock.

All told, Pennachetti cited three revenue priorities going forward, all of them from the David Miller playbook: uploading social housing costs, cost-sharing TTC operating costs with the province and a 1% share of the HST. Together, all three measures would improve Toronto’s financial position by more than a billion dollars, bringing us more in line with budgetary situations seen in other major North American cities.

And from there: we can build a great Toronto. Assuming, that is, that Rob Ford doesn’t stand in the way.

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