Ontario municipalities should brace for a $2-billion shock in the decade ahead, as cuts in provincial transfers sink in, according to the credit rating service Moody's.

The warning comes in a report released last week, and set to be presented at Peel Region's council meeting Thursday.

Peel and the other three Greater Toronto regional councils — Halton, York and Durham — are well-positioned to weather the storm, the report says, because they have the healthiest reserve funds.

But several other jurisdictions with smaller reserve funds, including Toronto, will be especially hard hit, according to Moody's vice president Adam Hardi.

"Raising taxes is not a very popular choice among municipalities," Hardi told CBC Toronto Tuesday. "But we have heard already that some municipalities may be looking at least to fund some of the funding shortfalls through higher taxes."

The province announced in its April budget that municipalities would be expected to shoulder more of the costs of dozens of services. But after pressure from mayors around the province, Premier Doug Ford announced he was postponing some of the cuts until 2020. Those services included in the reprieve are public health, daycare and paramedic services.



But in 2020, when all the reductions and cost-share adjustments are in place, Moody's says Ontario municipalities will face a total of about $300 million in added costs and another $2 billion — minimum — in the subsequent 10 years.

Toronto has estimated it'll cost about $178 million a year to cover the cuts once they're in place. The province has disputed that figure, pegging it at about $130 million.

Coun. Gary Crawford, Toronto's budget chief, says the city faces 'tough choices' in its efforts to cover a funding shortfall brought on by provincial funding cuts. (Grant Linton/CBC)

The provincial government announced a $7.35-million fund last month to help large municipalities and school boards find internal savings.

"The previous government was spending $40 million a day more than it was taking in, which is simply unsustainable," a spokesperson for Finance Minister Rod Phillips wrote in an email to CBC Toronto Tuesday.

"The debt and deficit left behind put critical services, including healthcare and education, in serious jeopardy. Continuing to ignore the problem simply is not an option for our government."

As well as considering tax hikes, the Moody's report recommends municipalities find "administrative efficiencies," and look into cutting some non-essential services. It also expects municipalities to rely on their reserve funds to help weather the coming financial storm.

That's where some municipalities, like Toronto, could find themselves struggling, the report says.

Rod Phillips, Ontario's finance minister, says the cuts to municipal transfers are necessary to restore the province's financial health. (CBC)

That's because Toronto's reserve funds are especially weak — second lowest of the 10 Ontario municipalities that Moody's tracks. Only Waterloo's are lower.

Coun. Gary Crawford, Toronto's budget chief, acknowledged that the city needs to find more sustainable ways to operate, rather than drawing on reserves to balance the budget.

"The mayor ... still wants to keep the city affordable, which means keeping property taxes low but at the same time providing the incredibly important services we need," Crawford said Tuesday.

"Every year we manage to come out the other end with that commitment intact and my hope is to do the same this year."

However, Crawford also said the city needs to look for leaner ways to operate.

"We really need to seriously look at a lot on the expenditure side, [and] on the revenue side ... As I say every year, some tough decisions are going to have to be made," he said.

"I think we'll be fine."

Waterloo expects $300M loss in 2020

Craig Dyer, Region of Waterloo commissioner of corporate services and chief financial officer, said he and his staff will be meeting with the city's finance committee in August to determine how they'll cope with the coming provincial cuts.



"Overall, we estimate the aggregate changes will exceed [a] $300 million loss in municipal funding in 2020 and $2 billion over the next 10 years," the report states.

"In our view, municipalities will need to address these shortfalls through a combination of administrative efficiencies, raising taxes, cutting some nonessential services and drawing on reserves," it continues.

"Municipalities with the highest liquidity will be best positioned to absorb these shocks."

The province said it is also setting up a $200-million fund to help smaller municipalities modernize their operations.

"Our government's balanced, responsible approach to managing the province's finances is working," Robert Gibson, a spokesperson for for Finance Minister Rod Phillips, wrote in an emailed response to CBC News.

"We are already seeing the success of our plan. Ontario is leading the country with the creation of over 190,000 jobs since we took office and recently saw its first credit outlook improvement from Fitch rating agency in eight years."