Ottawa Mayor Bob Chiarelli's property-tax freeze is showing signs of a thaw to cover a massive gap between revenues and the city's basic needs in the coming years.

City manager Bruce Thom said yesterday the city's shortfall over the next five years is estimated to be $1.5 billion.

Mr. Chiarelli and council cut property taxes last year by 10 per cent and the mayor has pledged to freeze taxes this year and next.

But Mr. Thom said a property-tax increase, likely to come in two years, would help bring down that deficit, though he will honour it this year while showing councillors the cost of that pledge. He stressed the city desperately needs new sources of revenue to cover the shortfall, because each percentage point in tax only produces about $7.8 million a year in revenue. "Not dealing with the problem is not an option," said Mr. Thom. "The real costs of running cities have been understated for years." Mr. Thom warned that the city cannot meet the pent-up demand of a growing city and an aging infrastructure with existing revenue streams. Mr. Chiarelli agrees with Mr. Thom that what Ottawa needs is a steady and reliable source of revenue, rather than ad-hoc funding.

Ottawa's combined capital and operating budget is about $2 billion this year. Mr. Chiarelli said the federal government's nationwide $2-billion infrastructure program and the province's transit plan should help cover some of that funding gap. The city should also reap between $30 million to $40 million from the provincial transit plan, Mr. Chiarelli said.

As city bureaucrats wrestle to meet 2002 budget goals behind closed doors, Mr. Thom called for a review that would estimate city financial needs for the next decade.

Last month, the mayor and city staff said budget estimates were $127 million over on the $309-million capital budget goal, and $25 million over on the $1.68-billion operating budget goal.

Mr. Chiarelli said he would hold managers "feet to the fire" to meet the goals.

To deal with funding problems, the city manager called for: a comprehensive review of the problem by staff and council; an examination of current revenue streams; a review of city services and service levels; talks with the provincial and federal governments to explore new revenue streams; creating private-public partnerships on city projects and increased user fees.

Mr. Thom said the consequences of not addressing the shortfall are poor roads, traffic congestion, poorly serviced sewer and water mains, increased air and water pollution and an overall decline in the quality of life among other things.

Mr. Thom said the new city inherited a number of infrastructure problems from the former lower-tier municipalities that had been delayed or unfunded.

"We can't keep doing this," Mr. Thom said.

Amalgamation was not the cause of the huge shortfall but the budget process this year has given bureaucrats a good overall view of the problem, Mr. Thom said.

The city manager said most municipalities have been raising property taxes at the rate of inflation.

When pressed by Bay Councillor Alex Cullen at yesterday's city council meeting, corporate services manager Kent Kirkpatrick revealed that the city's projected operating budget overrun for 2002 once soared as high as $113 million.

"That represented every department's needs, wants, wishes -- utopia," he said.

Mr. Kirkpatrick expected that despite recent warnings that the revised projections have still shown a $25-million shortfall, the draft to be submitted to city councillors on Feb. 13 will be balanced.

And he said it won't take tax or user-fee hikes to do it.

"I don't want to be cavalier about $25 million," said Kanata councillor Alex Munter. "But in a $1.6-billion budget, you can squeeze that out. If you cut two per cent from each department, let's say, that's the problem solved."

"I expect that the budget (city staff) will present us with will be pretty close to passable. Of course, I'll want to consult with the public about it," said Knoxdale-Merivale Councillor Gord Hunter.

© Copyright 2002 The Ottawa Citizen

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