On the budget bubble


As budget debates go, 2014’s, which is slated for two days of debate this week, will be especially sensitive – and not just because Rob Ford intends to disrupt the proceedings.

With an election just eight months away, behind-the-scenes negotiations have been going on for months.

Little of that, however, has to do with the city’s long-term fiscal plan. The wrangling has been about how to juggle the cuts needed to keep taxes as low as possible in order to boost councillors’ re-election chances.

Here are three misconceptions to keep in mind as council ponders the bottom line.

MYTH 1: Toronto is broke because there’s a spending problem.

Many on the right like to repeat the “spending problem” slogan as if it were a given. It helps justify cuts.

But in reality, regular inflation, which is running at 1.5 per cent, adds upwards of $150 million in costs every year.

In addition, there’s the added financial pressure of things like insurance costs for staff and diesel fuel for TTC vehicles, whose price increases typically outpace the rate of inflation.

The city purchases well over 120 million litres of diesel a year. The fact that costs are up 5 to 10 cents a litre can alone add $6 to $12 million to the city budget.

The fact that tax increases are often in the 2 to 3 per cent range shows that the city is actually in constant budget reduction mode.

Toronto has never run a deficit. It’s required by law to maintain a balanced budget. What debt the city does have is the result of borrowing for large capital projects or major repairs.

Despite that debt, it has managed to maintain an AA to AA+ credit rating, which is higher than the province’s and just a little shy of the top score. This allows T.O. to pay a record low interest rate (4.5 to 5.4 per cent) on its debt.

MYTH 2: All the new building and increased property values will bring in enough money to solve the perennial budget crisis.

Reality check: property tax assessment isn’t growing as fast as you’d think, despite all the cranes in the air.

New construction has added only $25 to $35 million in new taxes, roughly the equivalent of a 1 per cent across-the-board tax increase.

And, alas, while it would seem logical that with property values rising the city should be rolling in dough, the system is designed to prevent that.

Under Current Value Assessment (CVA), the annual appreciation of a property’s value doesn’t necessarily lead to higher taxes. Total assessment growth jumped about 60 per cent, from $274 billion to $422 billion between 2004 and 2012.

However, once MPAC (Municipal Property Assessment Corporation) reassessments are factored into the equation, true growth in property value is closer to 12 per cent, or just over an average 1.5 per cent a year.

In addition, while there are more residential buildings, in many cases these have replaced industrial or commercial properties that typically had higher tax rates, meaning a shiny new building replacing an ugly old factory doesn’t necessarily bring a tax benefit.

Higher-taxed industrial assessment has fallen by 17 per cent as our manufacturing base shrinks. Today only 4 per cent of property taxes come from industrial uses, and 60 per cent from residential.

In the good old days, our large industrial and commercial base paid its bills, but thanks to Mike Harris, Toronto can only increase taxes on these classes in a limited way.

Over time, the burden on residential property owners has grown disproportionately: properties classed as residential pay 45 per cent of property taxes, a total of just under $3.9 billion a year, funding just under 40 per cent of the budget.

MYTH 3: Lots of money is squirrelled away in reserve funds.

Every year we’re able to solve last-minute budget problems by uncovering a previously unknown reserve fund.

The pre-amalgamation cities put away billions, but that money is almost all gone now, spent to avoid needed tax increases through the first decade of amalgamation.

Unlike the federal and provincial governments, which borrow in emergencies, the city cannot borrow for non-capital expenses and in crises needs to rely on provincial and federal reserves or funds. See the ice storm debacle.

Our barely sufficient reserves cannot continue to fund tax freezes.

After 20 years of politicians promising to find fat in government, there are no great pools of gravy to solve budget problems and Rob Ford’s failure to produce them is the proof in the pudding.

The bottom line

While this year’s budget will be unremarkable in that there will be few cuts to services, the long-term problem is that despite a growing economy, Toronto’s finances, while stable, are not secure.

The state-of-good-repair backlog for roads, subsidized TCHC housing, parks and other services will necessitate more borrowing, and the associated yearly payments will become increasingly onerous.

Alternatively, we could have a discussion, perhaps during the election this year, about reducing the quality or quantity of city services that would lower the costs of those services.

However, this won’t happen, because even right-wing politicians know that residents value their services so we need to stop fooling ourselves.

Selected capital budget highlights


$237 million 300 new buses (2014 to 2017)

$14.5 million Initial planning for Scarborough subway extension

$7.3 million Completion of second subway platform and concourse improvements at Union Station

$7.5 million Construction of new Festival Plaza at Exhibition Place

$3.25 million 10 new specialized fire trucks that will serve densely populated areas, the growing numbers of high-rise towers and special public events

$6.93 million Division of Toronto Centre for the Arts’ main auditorium into two smaller venues

$6.1 million Substantial completion of new Scarborough Civic Centre Library

Source: City of Toronto




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