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Canadian cities burn through cash as coronavirus slams revenue

TORONTO (Reuters) - Canadian cities are seeing a drop in their revenue as the coronavirus pandemic rips through the economy, which for some could impede their ability within months to provide public services without help from higher levels of government.

FILE PHOTO: Vehicles travel along highway 401 as the number of coronavirus disease (COVID-19) cases continue to grow in Toronto, Ontario, Canada April 6, 2020. REUTERS/Carlos Osorio

With property tax payments deferred, transit systems empty and parking ticket issuance declining in some areas, municipalities’ revenue is falling just as demand for services, such as long-term care, climbs.

Across Canada, peoples’ movement has been restricted to help contain the virus.

The coronavirus represents “an unprecedented hit” on municipalities’ finances, said Bill Karsten, president of the Federation of Canadian Municipalities, a national lobby group.

Some major cities, such as Toronto, have billions of dollars of reserves and investments. But for others the cash may run out quickly.

“I’m hearing from municipalities across Canada that they have a couple of months,” Karsten said.

Toronto has estimated the financial pressure at C$65 million a week, or about 25% of its normal income. Ottawa City Council project’s about C$270 million of lost revenue if the impact of the virus were to last until December.

Ottawa has placed about 4,000 part-time workers on unpaid leave and is seeking financial support, such as accelerated infrastructure funding or additional gas tax funding, from the federal and provincial governments.

Some government support has been announced, including C$243 million in Ontario to help city-funded long-term care.

The federal government, which is rolling out more than C$200 billion of economic support for Canadians, and the provinces can bolster cash holdings by issuing debt. But for many municipalities, regulations prevent them from borrowing for operational needs and require that they balance their books.

While many cities are struggling due the virus outbreak, those “that are also affected by the oil price shock are doubly impacted,” said Maria Berlettano, CIBC Capital Markets’s head of Canadian government credit strategy.

The price of oil, one of Canada’s major exports, has plunged about 60% since January after a price war broke out between major producers. Much of the revenue for municipalities comes from property taxes, which depend on a strong economy to support property prices.

St. John’s, in the oil-producing Atlantic province of Newfoundland and Labrador, is especially vulnerable, analysts at Moody’s Investors Service said in a note.

Like other levels of government, the financial cost for municipalities will depend on the length of the crisis. If it drags on, selling assets or raising property taxes could be on the table.

“There’s only so far that we can tighten our belt,” said Ottawa councillor Tim Tierney. “There’s going to be a bit of a come-to-Jesus point if we don’t actually see some federal or provincial help if this continues for an extended period of time.”

Reporting by Fergal Smith and Moira Warburton in Toronto and Steve Scherer in Ottawa; Editing by Cynthia Osterman

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