As Mayor John Tory’s executive looks to advance the 2016 budget next week, the city’s top civil servant says this year’s “unsustainable” balancing act puts Toronto’s financial future at risk next year.

A report co-authored by city manager Peter Wallace and chief financial officer Rob Rossini raises the pitch of alarm bells that have been going off since Wallace’s arrival in May. While the city’s spending needs continue to grow — with $22.3 billion in unmet capital costs alone — council needs to find a way to increase revenues immediately, says the report, to be discussed at Tory’s executive committee next week.

“The city requires revenues that increase annually to help fund city services and hence it is not sustainable to keep total taxes below the rate of inflation,” the report reads. “In order to reach financial sustainability and balance its budget, city council needs to mature the city’s governance and decision making process and set priorities based on public needs.”

Whether that means creating new taxes — which are bureaucratically called “revenue tools” — on things such as parking or liquor sales, increasing property taxes above the rate of inflation or both, Tory and council may no longer avoid those difficult accounting and political questions.

That test for Tory may be his greatest yet after promising to keep property taxes at or below inflation during the campaign as he attempted to ward off both Rob and Doug Ford and their continued “gravy train” rhetoric in the 2014 mayoral race.

The staff report also outlines that while the 2016 budget is presented as balanced by the budget committee, it “contains fiscal risks that the city needs to be aware of.”

With a proposed 1.3 per cent property tax increase, remaining funds were drawn from the assumption of “all-time-high” municipal land transfer tax revenues — an increase of $100.5 million over last year.

Wallace warned in December that Toronto has been a “free rider on a real estate boom” that could leave the city hanging if housing sales dip.

The budget was also balanced using $51.8 million worth of one-time funding fixes such as drawing on reserves — which the report calls “unsustainable strategies” that add pressure to the 2017 budget. The report says those 2017 pressures currently total an estimated $449.8 million.

Last month, Tory and his hand-picked budget chief Councillor Gary Crawford jointly proposed those strategies to make up the budget shortfall, with Crawford calling it a “transitional” budget and “the right thing to do.”

The plan included funding for only 40 per cent ($29 million) of the $67-million worth of council-identified priorities, such as improvements to TTC and streetcar reliability and poverty reduction funding.

The proposed 1.3 per cent property tax increase represents $34 for the owner of an average detached home. That does not include an increase to the Scarborough subway levy to fund the yet-to-be-agreed-upon transit plan, which adds another $15.34 to all tax bills.

With municipal land transfer tax revenues expected to stabilize after 2016, the report says the city will be out of ways to meet growing spending needs going forward.

That reality has left some on council questioning the city’s financial health and the mayor’s priorities.

Councillor John Campbell, a fiscal conservative, said Friday it’s clear the city is at a crossroads.

“I think there is no question the city needs to find a way to downsize to become more streamlined than it is and save money at that end, or it needs to find additional sources of revenue,” he said. “I won’t call them revenue tools. I think that’s a misnomer. We have to have more taxes or fees to offset the cost of government.”

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Following the approval of the 2016 budget, which goes to council for approval Feb. 17, city staff are expected to bring forward options for raising city revenues, which is expected to be debated as part of the 2017 budget process.

With files from David Rider and Betsy Powell

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