The mayor's executive committee approved the city's operating budget for 2016 on Tuesday, including a residential property tax increase of 1.3 per cent, which is in line with inflation.

The budget goes to city council next week, when it is expected to get final approval.

When combined with the Scarborough subway levy of 0.6 per cent, the residential property tax hike means the average homeowner will be paying $70 more for the year.

While Mayor John Tory has included a number of promises in the budget, from reducing poverty in the city to improving TTC service, some councillors say the tax increase won't be sufficient to fulfil them.

"Service isn't improving on the TTC, but it's getting more expensive," Coun. Mike Layton said.

The budget includes a 25 cent cash fare increase, and a 10 cent increase for tokens.

The budget is expected to pass easily at council. However, councillors and city staff say discussions about new revenue tools must be at the forefront of next year's budget process.

"The day after we pass this budget we are in a hole and it's a big one," Coun. Denzil Minnan-Wong said Tuesday.

In a report presented to the executive committee Tuesday, city manager Peter Wallace said that the city cannot continue to rely on a hot housing market to bring in enough revenue to balance the budget.

The 2016 budget is relying on one-time revenue sources such as dividends, as well as on the assumption that revenues from the Municipal Land Transfer Tax (MLTT) will remain stable or even increase over the 2015 budget, the report warns.

New 'revenue tools' in 2017?

"The 2016 (Budget Committee) operating budget has not addressed the city's fundamental fiscal challenges or risks," Wallace's report says.

"Therefore, 2016 is a transition year to a more material discussion which must be held with city council prior to the 2017 budget process with the goal of achieving a sustainable fiscal plan."

The city faces "budgetary pressures" in 2017 and 2018 primarily driven by growing TTC costs, including the full implementation of the Presto card; the demand for investments in new service; and "substantially slower revenue growth," the report says.

"As a result, the 2017 and 2018 plan continues to contain fiscal risks that the city needs to manage, such as revenue reliance on the MLTT and increase in TCHC expenses," the report says. "In addition, addressing unmet capital needs of over $22 billion will incur significant operating impact on future debt servicing charges."

The city manager's office will propose strategies to help council as it considers revenue options.

Tory has proposed a 0.5 per cent levy to help pay for capital projects. But a discussion of future revenue tools could include a sales tax, a parking tax and tolls, among other options.

"Some councillors who didn't support some revenue tools last term are perhaps now warming to some of them," Layton said.

"Hopefully we will use this time to actually find ways to fill these gaps," Minnan-Wong said. "We just don't have any other choice."