Toronto is facing a $774-million deficit in 2012. (CBC)

Toronto's chief financial officer had some sobering news for municipal politicians on Thursday.

As things stand right now the city, said Cam Weldon, is facing a deficit next year of $774 million.

"We have a revenue problem and a spending problem," Weldon told the city's budget committee.

One major problem, according to Weldon, is that the city spent $360 million in surplus revenue to balance the $9.3 billion 2011 budget.

The city needs to replace the $360 million, plus it will be on the hook for a further $414 million in increases to the cost of wages and benefits, as well as other cost increases next year.

The 2011 budget is rejecting a request by the TTC for a fare increase and is offering Torontonians a property tax freeze.

But according to the city's financial experts things are going to have to change in the 2012 budget.

A 10-cent fare increase for the TTC, coupled with a two per cent property tax increase, are recommended.

There should be $25 million extra from the land transfer tax, as well as a $15-million dividend from Enwave, which will help the city reduce the deficit, but Toronto will still be facing a $530 million deficit.

The financial plan update presented to the budget committee says there are remedies — suggesting major cost reductions, increasing revenue sources and obtaining provincial assistance for the TTC.

The 2012 budget process is set to begin shortly after the 2011 budget is passed later this month.