At this early stage, the 2008 operating budget seems to be shaping into a best-of-times worst-of-times sort of affair.

In the worst-of-times category, 2008 is the year that Toronto hits the fiscal wall it's been charging toward for the past decade. With the city's reserve accounts depleted, Toronto councillors have much less maneuvering room than ever when it comes to balancing the city's $8-billion budget.

High property tax increases or massive service cuts are the stark alternatives absent anything else.

At the same time, the city has reason for optimism.

Toronto's financial troubles have, since amalgamation, stemmed primarily from the financial straitjacket that the provincial government provided along with the keys to the new city in 1998. City officials estimate Toronto has borne around $700 million in unfairly downloaded costs each year. In 2008, the provincial government will weigh in with its own estimate of that number and hopefully bring forward a plan to start repairing the damage.

While that will be too late for 2008, right now the city is pinning its hopes on being able to use about $100 million in new transit funding announced by Finance Minister Dwight Duncan late last year to offset all that looming trouble with the operating budget.

Doing so will be a bit of a trick, but it would sure help. Toronto's budget chief Shelley Carroll said with $100 million, what was once an anticipated 18 per cent property tax hike could whittle down to somewhere between three and four per cent.

"I really hope I don't have to say the number four," said Carroll. "But we need confirmation of exactly what we're allowed."

The trouble is that the transit funding announcement seemed to indicate the money was to go to capital - tracks and buses and streetcars and subways - not the day-to-day cost of running the system. Carroll said the province seems to be indicating that Toronto might be able to fill its operating gap by using some of the transit money to help operate the system next year. But that needs to be sewn up before anyone in Toronto can rest easy.

However, the political stars seem to be in alignment. Mayor David Miller made a point of staying out of the provincial election this time, despite pressure from some members of council with allegiances to the Progressive Conservatives and New Democratic Party. In a year-end interview with this newspaper, he denied having made a deal with Premier Dalton McGuinty to keep clear of the election in return for financial help in 2008, but he did admit that his relative neutrality in the election was strategic.

Given that - and given what's at stake - it's hard to see a circumstance in which the province would let Toronto hit its fiscal wall at high speed this year.

And given that, the city's budget debate might be a bit more sedate. Carroll said the budget as put together by staff and members of the city's budget committee is ready in draft form, and depending on how those talks with the province go, will be available by the end of January for public consultation.

"I'm comfortable with it," Carroll said. "I know there are going to be things in there that some councillors would rather not see, but I think we've done a really good job, given that this was always going to be the worst year."