TORONTO—A leading credit agency says Doug Ford’s planned cuts are credit negative for Ontario’s municipalities and local governments will likely have to raise taxes, cut services and find efficiencies of their own in order to bridge the gap.

In a report released Tuesday, Moody’s found that the cuts made to public health agencies, paramedic services, and child care and early years programs, along with the cancellation of the increase in the share of the gas tax, will leave municipalities more than $2-billion “worse off” over the next 10 years.

“While the changes benefit Ontario’s credit profile, they are credit negative for the province’s municipal governments,” reads the report.

The analysis brings a third-party perspective to a heated debate that has largely pitted Toronto councillors and Mayor John Tory against Ford’s Progressive Conservative government.

READ MORE: Toronto faces at least $89 million in-year budget cut from Ford government

In the April 11 budget, the province made cuts to local government programs across the province, those were supposed to effect the current budget year (which started for municipalities on Jan. 1) and future years. However, in May, after significant pushback, Premier Ford reversed the in-year cuts.

It’s not clear whether all future cuts and funding changes will still happen or if some will be changed. Finance Minister Vic Fedeli’s spokesperson Robert Gibson didn’t directly respond when asked to clarify. “We are taking this approach on the understanding that our municipal partners will use the additional time to work with us to find savings,” he said in an email.

The Moody’s analysis shows that if the province goes ahead in forcing municipalities to pay more of their share of costs for public health agencies, ambulance services and child care programs it will cost local governments across the province $300-million next year.

“This is simply adding to downward pressure on the rating but not to the point where there’s an outlook change or an actual rating change,” Moody’s vice-president Michael Yake told iPolitics.

The province has called on municipalities to cover the gap in funding by finding efficiencies, something mayors say isn’t possible. In his statement, Gibson noted that the government is giving large cities $7.35 million for financial audits and another $200 million to small and rural municipalities to “modernize services.” But the analysis from Moody’s finds efficiencies alone wont cover the gap.

Efficiencies, Yake said, “could solve a little bit of the funding problem.” But to cover all of that will also require a combination of “likely raising taxes, likely cutting some of the non-essential services, [and] even drawing on the reserves.”

“Municipalities are going to be able to meet this challenge,” Yake said. “But not without other implications, which are likewise negative down the road.” For example, he noted that municipalities like Toronto, have kept tax increases at or below inflation, if they go above that just to cover current service levels it limits the fiscal bandwidth for future programs.

READ MORE: Ex-health ministers blast Ford’s ‘attack’ on public health

Because of continued “uncertainty” and the lack of consultation on the initial in-year cuts, the ratings agency also warned that governance issues and administrative changes will “challenge efforts to offset the impact on municipal budgets.”

Yake noted the different approach that the Ford government took to the cuts than what “typically” happens in Canada where changes are proposed with “good communication and consensus between the municipalities and the provinces” and “well in advance” of actually coming into effect.

The lesson from for municipalities, according to Yake is that they need to find a way to be more “nimble” while still juggling the provincially-legislated expectation that they not run a deficit.

He noted details are still “lacking” for municipalities as they get ready to plan their next budgets. “There’s still a lot of questions that are left unsolved for them,” Yake said.

Don Peat, spokesperson for Mayor Tory, said the city is still reviewing the Moody’s report.

“Mayor Tory continues to believe that any changes to funding from the Government of Ontario to municipalities must be done in a prudent, collaborative manner that does not impact the vital services that people rely on each and every day. This can only be done if we work together,” Peat said in an email.

Last December, Moody’s downgraded Ontario’s credit rating to Aa3 from Aa2 and changed its credit outlook from negative to stable. It did not make any changes to the province’s credit rating after the spring budget.

In May, another ratings agency, Fitch, changed Ontario’s credit outlook to stable but kept its rating at AA-.

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