Mayor John Tory says he believes Torontonians will accept a “modest” tax increase as long as they’re confident the money is going “exclusively to building a bigger and better city.”

On Wednesday, Tory proposed an annual “city building” tax of 0.5 per cent added to property tax bills, dedicated to paying for transit and social housing infrastructure. He said it would be a clearly identified charge, start in 2017 and add about $13 to the average property tax bill of $2,654.50.

The new fee would then compound for five years, growing to a minimum of $65 by 2021, when it is estimated to raise up to $70 million a year. It will stop growing that year, but council could vote to extend it indefinitely.

“This will be something that will now allow us to have a designated fund to support . . . housing and transit projects across the city,” Tory said after delivering a speech to a downtown business audience.

“It’s not going to supply all the money . . . but it’s certainly going to supply some, and I’m hopeful the other governments and other suggestions that will come will help us to further finance this city building fund.”

City council will have final say over whether there is a new levy, similar to — and on top of — the one added in 2014 to pay the city’s share of Scarborough subway construction costs.

The mayor was elected last year pledging to keep property tax increases at or below the rate of inflation. He insisted Wednesday his plan does not constitute a broken promise.

“I believe I am doing exactly what people expected me to do,” Tory told reporters.

Tory’s move comes one day after city manager Peter Wallace sounded the alarm about $23 billion in capital projects that council has planned, but for which there is no identified source of funding.

The mayor called that a “fraud” on the public, and the new dedicated tax “is a step forward for the city in terms of honesty, in terms of transparency, in terms of putting some reality to all those measures that were promised.”

Councillor Gord Perks said he’s glad the mayor has started to recognize that the city has a revenue problem.

“I’m glad he got his toe in the tax water,” Perks said.

While Perks said he will support the new capital tax fund, more revenue is needed to make up for the budget shortfall expected for 2016.

Outside city hall, reaction was generally positive to Tory’s announcement.

“It is important that we are seeing recognition that the city needs to increase revenues to pay for services and infrastructure,” said Enid Slack, director of the Institute on Municipal Finance and Governance at the University of Toronto.

“Any time you link taxes with the services you provide, it makes it easier for taxpayers to accept.”

The Toronto Region Board of Trade applauded Tory’s move as a good first step, and supports the mayor’s commitment to “find ways to grow this fund.”

Sheila Block, a senior economist at the Canadian Centre for Policy Alternatives’ Ontario office, wrote Wednesday that “unlike provincial and federal taxes, property taxes do not increase with economic growth, population growth and inflation.”

It’s left up to council every year, she said, to vote on an increase “just to provide the same level of services as they did last year.

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“And, each year in which city revenues fall behind, the prior year’s decisions have a compounding impact on future years.”

That debate — what is expected to be a difficult one with a gap in the 2016 budget — will get underway at city hall later this month.

With files from Jennifer Pagliaro and David Rider

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