Inflation, pandemic costs driving Ontario property tax hikes as upkeep backlogs grow

Inflation is hitting city budget line items from debt financing to construction costs

Jordan Omstead, The Canadian Press

With a number of Ontario municipalities eyeing property tax increases, experts say homeowners across the province can expect to see higher tax bills this year because of inflation, pandemic costs and recent provincial changes to development charges.

The proposed hikes would be another hit to the wallets of consumers, who are feeling the pinch of inflation in many cost−of−living areas such as groceries, gas, and mortgage rates.

In Toronto, homeowners are expected to see a 5.5 per cent property tax increase – a $183 hike on average before accounting for other increases laid out in the budget proposal. That’s in line with other projected bumps in Hamilton, Thunder Bay and Waterloo.

Enid Slack, director of the University of Toronto’s Institute on Municipal Finance and Governance, says cities and consumers are facing the same problem.

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“Inflation is affecting all of our expenditures, and it affects the (cities’) expenditures as well,” she said.

Toronto Mayor John Tory, in unveiling his proposed budget this week, acknowledged the tax hike came at an inopportune time as residents face rising costs of living in an increasingly unaffordable city. But he noted it was still below the city’s 6.6 per cent inflation rate.

“I wish it could be lower, because any increased cost right now is hard for people to bear,” he said. “We have worked to keep those increases as low as we possibly can.”

Inflation is hitting city budget line items from debt financing to construction costs. Hamilton budget documents indicate the city expects its annual fuel budget to increase by around 50 per cent, while Tory has said increased fuel costs alone added $46 million to Toronto’s proposed budget.

The ongoing effects from COVID−19 are another factor, Slack said, as municipalities look to make up decreased revenues – notably from transit – while also continuing to spend on pandemic−related social services, public health and shelter costs.

In Toronto’s case, pandemic costs have left a $1.4−billion hole and it hopes the other levels of government will bail out.

“It’s not clear that money is coming for 2023. There are still deficits arising from COVID. There are still the pressures to invest in infrastructure. And so, a property tax increase has to be looked at in that context,” Slack said.

David Amborski, professor at Toronto Metropolitan University’s School of Urban and Regional Planning, said the pandemic’s effects on city budgets have been “significant.”

“You have to think about everything within that context,” he said. “It makes you think very carefully about the delivery of services.”

A study out of Toronto Metropolitan University in 2019 found Toronto had some of the lowest property tax rates in southern Ontario, both as a measure of property value and household income. It suggested the city could raise its property tax rate by 20 per cent and still be in the middle range of those levied by municipalities in the Greater Toronto and Hamilton Area.

Meanwhile, some municipalities in the province have directed staff to implement smaller increases.

Sudbury has asked staff to draft a budget with no more than a 3.7 per cent tax hike, while Peel Region has proposed a 2.8 per cent increase. And Ottawa, following up on a campaign pledge from newly elected Mayor Mark Sutcliffe, directed city staff to cap property tax increases at 2.5 per cent.

Amborski delivered a warning to municipalities that are seeking to keep property tax increases well below the rate of inflation.

“That makes very little sense because one of the major expenditures is wages and salaries,” he said.

“You have to at least stay close to the rate of inflation, so you’re not falling behind in terms of your service level, in terms of quality or expanding the range of services to the public or what they want.”

Some municipalities have also argued that changes brought in by the Ontario government to freeze, reduce and exempt fees developers pay to build affordable housing, non−profit housing and some rental units would lead to higher property taxes. Those fees go to municipalities to pay for services to support new homes, such as roads and community centres.

“Many of the municipalities, certainly in the Greater Toronto and Hamilton Area, have said that they will be losing some significant revenues and will have to raise property taxes as a result,” Slack said.

It’s not just cities in Ontario that are looking at boosting property taxes. Others across Canada are following suit – Edmonton has proposed a 4.96 per cent increase while Vancouver is eyeing a five per cent hike.

There is a more fundamental problem with municipal finances that pre−dates recent inflationary and pandemic−related pressures, Slack said. Municipalities are tasked with delivering a wide range of services with limited ways to raise revenues, and city infrastructure has paid the price.

Unless cities set aside more money, the backlog in upkeep costs to aging infrastructure – known as “state of good repair” – will skyrocket, she said. That’s already the case in Toronto, where those costs are slated to nearly double over the next decade.

“I think rather than going to the federal, provincial governments asking for money all the time, they should be asking for other ways of raising revenues, like access to income and sales taxes,” Slack said. “So that way we solve the longer−term structural problem.”

Speaking at an unrelated news conference Wednesday, Ontario Premier Doug Ford said municipalities don’t have to raise taxes and should “drive efficiencies” instead.

“Government as a whole, municipally, provincially, federally, they don’t have an income problem,” he said in Toronto.

“They have a spending problem. If every government ran it, like in a business … If everyone you know, ran it the way (president) Jeff (Leger) runs Shoppers Drug Mart, we’d drive things more efficiently.”

banner image: The Canadian Press

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