As Ontario rolls in tax dollars, why are its cities so cash-strapped?

The surge in revenues flowing into Ontario government coffers — at a time when municipal budgets are stretched thin — is reigniting debate over how cities fund their services. 

Experts in municipal finance and public policy say there's a mismatch between the services cities are expected to provide and the revenues they have available to pay for them. 

That mismatch becomes apparent in new figures outlined in the budget tabled last week by Premier Doug Ford's government, revealing just how flush with money the province is right now:

Contrast that with the far more sedate pace of municipal revenue growth: property tax revenue into all of the more than 400 cities and towns in Ontario rose by just $3.5 billion from 2017 to 2021, the latest year for which figures are available. That's a 17 per cent increase over four years. 

The responsibilities that cities have in Ontario far outstrip their capacity to pay for them, says Sunil Johal, a professor in public policy and society at the University of Toronto. 

"Municipalities' ability to raise revenue is frozen in time, while the costs that have been thrust upon them continue to escalate and get more complex," said Johal in an interview. 

While the fiscal challenges facing cities predate COVID-19, the pandemic has made the situation more stark, says Johal. 

"They're going to have to make really tough choices around cutting services, reducing services at a time when people need so many of those services," he said.

"We need to think about a long-term solution to a problem that is only getting more serious and more significant." 

Municipalities in Ontario deliver not only local services — including police and fire protection, transit, water, sewers and waste collection — but also have roles in public health, social housing, and shelter for the homeless.

Cities have "huge expenditures, but very few sources of revenue," says Enid Slack, director of the Institute on Municipal Finance and Governance at the University of Toronto's School of Cities. 

Slack says the time has come for a new conversation about the division of responsibilities between the province and municipal governments, and how to pay for those services. 

"There are just so many challenges that cities are facing, in particular Toronto," Slack said, highlighting inflation, high interest rates, crumbling infrastructure, population growth and the lingering effects of the pandemic, affecting both transit ridership and demand for social services. 

"We have to match up the revenue sources with the kinds of expenditures the cities are making," she said. "So if we decide that municipalities are best at providing social services, then we need to give them the revenues to be able to do that."