Toronto Hydro is slashing its annual dividend to the City of Toronto, blowing a $35-million hole in the city’s 2017 budget plan.

Hydro on Monday announced the dividend, which has fluctuated between $25 million in 2010 and $56.25 million last year, will be $25 million.

City council’s proposed budget plan to guide debate assumes $60 million from Hydro. If council spends the money anyhow, it translates into an additional 1.35-per-cent property tax hike. If council instead cuts spending to accommodate the lost revenue, there could be a major reduction in city services or poverty-reduction efforts.

The announcement comes amid a brewing debate over whether the city should sell a minority stake in the century-old utility to free up money for Mayor John Tory’s SmartTrack transit plan, social housing and Hydro infrastructure.

Hydro, which the Star and other media outlets reported was thinking about eliminating the dividend altogether, said in a news release the cut is “necessary to maintain the safety and reliability of the electricity grid, and to help the company keep pace with unprecedented growth in Toronto.”

Hydro board member David McFadden, who becomes chair in December, told reporters the move was driven by Hydro’s rising debt level compared to capital holdings — 63.3 per cent, above the ceiling favoured by regulator the Ontario Energy Board and the bond-rating agencies that determine Toronto Hydro’s borrowing costs.

The dividend cut is “basically an accounting thing, a cash-flow thing. It’s being used to maintain our balance sheet so it’s not out of line with our debt-equity split,” McFadden said, adding he believes the dividend could rise back to normal after three years.

The Hydro board recognizes the problem the cut poses for the city, which was already facing a massive budget headache, and “agonized” over the decision, he added.

John Tory is on a trade trip to Israel; his spokeswoman Amanda Galbraith said in a statement that the mayor is “concerned” about the dividend cut’s impact on the city operating budget.

But Tory, who in September gave a speech saying the cash-strapped city needs to look at selling a minority stake in Toronto Hydro, believes the cut “underscores how the city is playing catch up when it comes to our outdated and aging infrastructure.

“This is another example of how we need to make up for lost time and part of that is having an honest discussion with the people of Toronto about how we plan to pay for it.”

City manager Peter Wallace will soon release a report on the pros and cons of selling stakes in Toronto Hydro and the Toronto Parking Authority. The city will launch operating budget deliberations in early December.

The dividend — an annual flow of money to the city, the sole shareholder — is cited as a reason for opposing privatization, because the amount would be reduced in accordance with the amount of the utility sold.

Councillor John Campbell, a member of the city budget committee, said the sudden loss of the revenue could convince councillors they should not look at privatizing Hydro.

“The city will now know the pain of cutting off that (dividend) budget stream,” Campbell said. “The city doesn’t have a lot of leeway when it comes to cutting money and not impacting people.”

With files from Jennifer Pagliaro

Dividends from Toronto Hydro paid to city

2010: $25.0 million

2011: $33.1 million

2012: $48.0 million

2013: $43.0 million

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2014: $60.6 million

2015: $56.25 million

Source: Toronto Hydro

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