Ford’s fake fiscal crisis

Sorry, the books are cooked — here’s the financial ­recipe for keeping our services and building a fair, liveable city

You wouldn’t know it by listening to the mayor’s office, but Toronto is not a municipal version of Greece, with all its fiscal malfunctions.

Everything we’re seeing in the current budget uproar is the result of a reckless ideological tax-cutting agenda – and the numbers bear this out.

Let’s start with the stated budget hole of $775 million. Even that figure is iffy. The fact is, we know that a multi-hundred-million-dollar structural year-end surplus is built into the budget left over from David Miller’s cost containment, the well-performing property market and prudent financial management by unelected city managers.

This money, about $300 million, is not included in the $775 million and obviously dramatically shrinks the budget hole.

It’s true that Toronto has some fiscal challenges, but they’re not due to excessive spending, which has increased by 3 to 4 per cent over the last decade, less than that of the provincial and federal budgets over the same period. It’s also in line with population growth of 2 to 3 per cent, which drives the need for more services.

Add to this the ever-present inflation factor, which will always be with us, and the fact that the operations budget has increased by only 2 to 5 per cent over the last 10 years is impressive.

The city has always had budget challenges, but this new financial crisis is clearly intentionally generated. One of Mayor Rob Ford’s first acts was to heedlessly cut taxes and drain the coffers. He accomplished this by cancelling the vehicle registration tax, worth $60 million a year. Then he refused a reasonable and usual 3 to 4 per cent property tax (the range in the later Lastman and Miller years) in 2010 that would have cost the average homeowner only $80 to $90 a year.

Mayor Lastman came to realize tax freezes were not sustainable and raised taxes 5 per cent in 2001. It’s clear that his freezes still cost the city about $150 million every year.

By refusing an inflationary tax increase, the mayor essentially deprived Toronto of up $140 million in 2010, and because the modest increase stays in the base, it would have provided approximately another $140 million the next year and every year to come.

The truth is, finding new “efficiencies” is difficult. Politicians of all stripes have been promising and demanding efficiencies for years, so most of the obvious ones have already been implemented.

The big problem is that cities rely on a property tax base that grows, due to new construction, at a meagre 0.5 per cent on average without a tax increase, whereas the federal and provincial governments’ revenues grow annually by an average 4 to 6 per cent.

That’s because other levels of government take in more income and sales tax every time someone gets a wage increase, even a small one, and spends it in the economy.

Rising property values can mean  higher taxes in cities, but under our provincially mandated system, most of that increase is simply redistributed (in a tax decrease) by the provincial Municipal Property Assessment Corporation (MPAC) to property owners who have not seen their property value rise as quickly.

The city does not get more revenue without a specific tax increase.

As well, Toronto is limited in its ability to implement other kinds of taxes by the province’s City Of Toronto Act. In New York City, there is a 1 per cent income tax on everyone who works in the city, and in many European countries it’s common to have cities collect income taxes.

Most American cities have access to a sales tax and use it to raise money for capital investments. Imagine T.O. adding 1 per cent to the GST. One per cent generates about $5 billion nationally, meaning that since we account for about 10 per cent of national spending, the city could score itself a nice $500 million.

While the above possibilities are interesting, current laws prevent them from being considered. So let’s look at what is feasible.

First, we know a 3 to 4 per cent property tax increase will bring in up to $140 million. The Vehicle Registration Tax was good policy and could be re-implemented, garnering $60 million. While no one likes TTC increases, most people who take transit would prefer a modest fare increase to service cuts. (We know this from the My TTC poll done at the time of the last fare increase.)

That’s another $25 million – and the same could be done across the board for other user fees, for another $25 million in revenue.

That’s $250 million toward the goal.

The land transfer tax could also be modestly increased and bring in an additional $40 to $50 million. It only affects about 1,500 to 2,000 people a year because of exceptions, and applies only to people who buy homes worth more than $400,000.

Further, the city can find some “efficiencies” and will inevitably take in new revenues – this is what the $300  mil year-end structural surplus I spoke of earlier is made of.

Assume cutting $43 million in efficiencies, the amount found in 2010. Setting a limit on requests for budget increases for police and other programs would subtract another $100 million from the $775. Yes, it would prevent those departments from improving service, but at least there would not be cuts.

Finally, based on the last 10 years’ experience, we can count on about $100 million of one-time revenues and assessment growth.

This leaves about $200 million from the mayor’s likely inflated $775 million. Given that the foolish property tax freeze cost around $140 million, which accounts for more than half the difference, the only solution would be a one-time special levy to get our finances back in order. Small, predictable yearly increases would follow.  This represents a sustainable budget path – not the crisis projected by the mayor.

What all this means is that if we face major cuts, they will have been made by politicians ideologically committed to shrinking government – and not because there aren’t other pragmatic options.

Origin
Source: NOW