The Ontario government is cancelling close to $150-million in funding for Toronto in a move that the city says was unexpected and will threaten programs.

The funding news was delivered to the city in a letter sent last week by Ontario Finance Minister Charles Sousa, obtained by The Globe and Mail. The cuts will be phased in over three years and leave the city $50-million short in its 2014 budget – money that must now be made up through program reductions or tax increases.

By 2016, all $149.3-million in provincial funding will be gone – the equivalent of a 6-per-cent tax increase.

Story continues below advertisement

In response, Mayor Rob Ford is asking to meet with Mr. Sousa as soon as possible.

In his letter to Mr. Ford, the Finance Minister notes that a similar fund for other Ontario municipalities is also being phased out.

The funding cut comes at a critical time for Mr. Ford and Ontario Premier Kathleen Wynne, who have found themselves at loggerheads, particularly over transit funding.

Ms. Wynne is trying to mend fences with Toronto's mayor, telling The Globe this week that she wants to work more closely with him and that she will not "stand in judgment" over the drug allegations that continue to swirl around him.

The sudden change to provincial funding will be an early test of those conciliatory efforts.

Mr. Ford, looking to next year's civic race, has said he wants to cut the city's land transfer tax by 10 per cent in 2014 – a goal that becomes less attainable with Queen's Park reducing its annual payment to the city by $50-million.

Officials in Mr. Ford's office say the cuts were unexpected and the province is reneging on a commitment given to the city in 2008 by former finance minister Dwight Duncan to maintain funding for a decade. Former premier Dalton McGuinty's government originally committed the money to compensate Toronto for social services downloaded in the late 1990s, such as public housing.

Story continues below advertisement

Mr. Duncan said any suggestion that he verbally promised the city that it could count on receiving the funding for another five years is "completely" inaccurate.

"I don't know where Ford is getting this from," Mr. Duncan said Thursday. "I at no time gave the city any assurance, verbally or written or otherwise, that it would continue to 2018."

In fact, he said, what his successor has conveyed to the Ford administration about the funding should not come as a surprise to city officials.

Mr. Duncan said provincial government officials began talking last year about the funding program, and there was no mention by anyone about continuing it to 2018. While the matter was not discussed by cabinet prior to the transition to the Wynne government, he said, there had been talks between provincial and municipal officials.

"There is no easy solution," the mayor's chief of staff, Earl Provost, said when asked about the provincial cuts. "We understand they are trying to deal with financial realities, as are we."

Mr. Provost said the mayor hopes to use the meeting to discuss the province's previous commitment to the funding arrangement, spelled out in a letter sent to city staff from a Ministry of Finance official in 2008.

Story continues below advertisement

Mr. Sousa is unlikely to change the funding decision, sources at Queen's Park said.

The Finance Minister defended the cancellations of the payments, known as the "Toronto Pooling Compensation," contending in a written statement that Toronto has reaped significant gains from provincial uploading over the past decade.

"The City of Toronto will also continue to benefit from many other sources of provincial support – by 2016, funding to the City of Toronto will have increased by nearly 700 per cent since 2003, even with the phase-out of Toronto Pooling," he wrote. "Our government is committed to ensuring that all municipalities receive fair and consistent support for the public services Ontarians value."

Mr. Sousa did not address the government's alleged pledge to keep pooling going until 2018. He was not available for an interview Thursday.

Officials within the mayor's office say Toronto has used the provincial funds for social housing programs, and point out that the cuts come at a time when services for the homeless and the city's vast affordable housing portfolio are facing budget pressures.

Councillor Gord Perks, a frequent critic of the mayor, said the cancellation of the provincial payments shows that Mr. Ford has dropped the ball in his role as an advocate for Toronto's interests with the province.

Story continues below advertisement

"This will have an impact on our ability to deliver services," he said. "If our mayor spent less time coaching football, returning phone calls and visiting potholes and more time building solid relationships with the provincial government, this wouldn't have happened."