Northern Economist 2.0

Thursday, 21 March 2019

Reflections on a Town Hall: Trudeau in Thunder Bay

Well, in the wake of the release of the 2019 Budget, Prime Minister Trudeau is off to Thunder Bay where he will be hosting a Town Hall on the campus grounds of Lakehead University on Friday March 22nd.  Indeed, the preparations for his arrival are already underway as the grounds of the C.J. Saunders Fieldhouse where the event will occur are being swept and tidied up from the accumulated grit of a harsh winter.  This is apparently Trudeau’s first visit to Thunder Bay since 2016 which is a signal that the election campaign is already underway.  The festivities get underway at 7 pm (but if you want a front row seat you need to register and arrive by 5:00 pm).

Thunder Bay can be considered a relatively politically safe place for the federal Liberals to have a Town Hall given the two ridings have returned mainly Liberals to Ottawa for nearly 100 years.  Thunder Bay voters are actually very conservative voters in the sense that they dislike change and always do the same thing – that is, return Liberals to Ottawa.  The only way they deviate from their inherent conservatism is to actually vote Conservative. Indeed, the last federal Conservative party politician who was elected was Robert Manion, who if memory serves me correctly, was around in the 1930s.  Of course, there was MP Joe Commuzzi circa 2007 – who started as a Liberal but then switched to the Conservatives and served as a Minister– but he was not elected as a Conservative so my initial point stands.

So what issues will Prime Minister Trudeau have to face in Thunder Bay? Well, the audience is likely to be filled with gushing supporters who will hang on his every word and engage in numerous standing ovations despite the recent disillusionment over the SNC-Lavalin-Raybould Affair.  Indeed, the Prime Minister is probably looking forward to an evening’s relief from the stress and acrimony of Ottawa.  There is nonetheless the potential for some fireworks and charged questions on a number of topics should the Town Hall decide to deviate from what is likely to be a large pep rally.  For those who might be interested, here are the parameters of just two interesting question areas.

What is the Federal Government going to do to help Thunder Bay address the December 2018 report by the Office of the Independent Police Review Director on relations between Indigenous People and the Thunder Bay Police Service? It is true that the local police are a municipal function and municipalities are creatures of the provinces, but it remains that First Nations and Indigenous peoples are a very important responsibility for the Federal government.  The recommendations for the Thunder Bay Police Service are going to involve a substantial increase in expenditures on an already stretched municipal tax base.  Is there any real federal financial assistance coming or is Thunder Bay on its own in dealing with this? Indeed, given that Thunder Bay is a regional centre for health and education services for area First Nations, what can the federal government do to assist in this regard?

As well, what is the Federal Government doing to actually implement its own growth plan for the  Northern Ontario economy?  All of us are familiar with the 2011 Northern Growth Plan released by the Ontario Liberal government which, over the course of the next 25 years, was supposed to assist the North in reversing its economic decline.  Well after five years of the provincial Northern Growth Plan – the plan to end all plans – the population of the North remains flat, employment is down and the value of new investment is also down.  

This lacklustre result has not deterred the Federal government from announcing its own Prosperity and Growth Strategy for Northern Ontario in April 2018 with twelve areas of action.  However, since then there really has not been much to be seen and heard as to specifics of what this strategy entails, aside from mentioning the strategy whenever there is an announcement of federal money from FEDNOR as was the case in Sudbury in December 2018.  Aside from this, there is little to be found in a Google News search when the term "Prosperity and Growth Strategy for Northern Ontario" is typed in.  So, is there an actual Federal action strategy for Northern Ontario or is it just another election marketing ploy?

I guess we will have to wait until tomorrow night to see if we learn anything new.  I for one expect there will indeed be some entertainment involved in this Town Hall Meeting.  Who knows, maybe we'll even get yet another announcement of federal support and commitment for the Ring of Fire? At the very least, in an election year one might expect some federal infrastructure dollars to finish four-laning the highway to Nipigon.

Friday, 15 March 2019

Why Thunder Bay Needs a Municipal Organizational Review

Thunder Bay Mayor Bill Mauro has called for an organizational review of how the City conducts its operations and has directed the City Manager to prepare a report that will deal with the scope of the proposed review.  This is in the wake of a 2019 Budget that saw the new council come in with a total tax levy of 2.29 percent which is below the annual average increase of the previous council’s four-year term of 3.6 percent.  However, there is room for improvement and an organizational review is a good way to try and put the city on a more sustainable tax levy path.

The BMA 2018 Municipal Study (see below) provides some quick comparisons in its Executive Summary that show why Thunder Bay needs a longer-term strategy to keep future increases closer to 2 percent. A property tax comparison shows that for the most part, property taxes in Thunder Bay are higher than either the provincial average or the average for northern Ontario. A basic detached bungalow has property taxes that are 10 percent higher than the provincial average and 19 percent higher than the average for northern Ontario.  For a two-storey home, Thunder Bay is 30 percent higher than the provincial average and 22 percent higher than the northern Ontario average. It should be noted that house values in Thunder Bay are substantially below the current provincial average - which incidentally in January 2019 was $554,936 while in Thunder Bay for February 2019 it was closer to $256,000. [Had to calculate this myself as the Thunder Bay site reports the median but not the average. Take 13.8 million dollars and divide by 54 sales]. A homeowner in Thunder Bay pays anywhere from 10 to 30 percent more in property taxes than the provincial average for a home that is about half the value. How's that for the Thunder Bay competitive advantage when it comes to attracting new business?

Our property taxes on apartment buildings are also higher than the average for the province or the North as are those for neighborhood shopping malls, office buildings, hotels, vacant industrial land and standard industrial land.  The only categories where we are  lower are motels – where we are 11 percent below the provincial average and 13 percent below the northern average – and large industrial land – where we are 3 percent below the provincial average but 8 percent above the North.

This raises questions of long term sustainability of these taxes given the slow economic and population growth in the City as well as the affordability when it comes to households paying these taxes.  While taxes are levied on the value of property, they are paid out of current income and here Thunder Bay also does not perform as well.  The slide below continues the comparison but this time on property taxes as a percent share of household income and water/sewer charges plus taxes as a  percent share of household income.  


For both these measures, we are higher than the provincial and northern averages though one may argue that the percent difference is small.  Average household income in Thunder Bay was $87,359 (the provincial average for municipalities in the BMA study was $102,194) with property taxes (at 3.9 percent on income) representing $3,407 dollars.  At the provincial percent share, taxes would be $3,319 - $88 dollars less - and at the northern Ontario percent share it would be $3,145 - $262 dollars less.  If our property taxes were as affordable as the Northern Ontario average - each household would pay $262 dollars a year less.

Why do we have higher taxes? That is the type of question a good organizational review would help answer.  When you start looking at the cost comparisons for services like general government, ambulances, general assistance, assistance to the aged, parks, sports and recreation, library, cultural services, police, and fire, Thunder Bay is usually at the higher end of the cost rankings for comparison Ontario municipalities.  While we can make arguments that the higher costs are a function of the geographic spread of the city, its regional role or its aging demographics, it remains that our costs are higher even when compared to other northern Ontario cities with similar features such as Greater Sudbury or Sault Ste. Marie.  

At the same time, the evidence suggests that we are increasingly providing a regional role in terms of health and education services and servicing a population larger than the official statistics might indicate.  Every year, thousands of university and college students move to Thunder Bay to acquire their education boosting our population from September to April.  Then there are the outlying First Nation communities who come to the city to also get health and education services many of whom also stay for extended periods to access these services.  However, how much more additional municipal service provision results from these demands that have to be met by the municipal property tax base is not a question with ready answers due to a lack of data - or at least publicly available data.  There is only so much a simple country economist can analyze if the data is not available. 

So, an organizational review is a good thing if it takes a look at how things are currently being done as well as what the actual demands for municipal services in Thunder Bay are.  If we have a municipal tax base for a City of 110,000 but are servicing a more regional population of 130,000 then we need to find some solutions.  An organizational review is not about cutting service but how to meet our current and growing needs and doing it in a manner that does not fiscally punish residential households and businesses in Thunder Bay.  Its about how to do more with less.  Simply throwing up your hands and saying taxes are higher here because things cost more is not really an option.  Things cost more for a reason and the organizational review should find out why.

Sunday, 10 March 2019

Some Recent Posts, Activities and Other Musings

Along with Northern Economist, I also contribute to two other blogs - the Fraser Institute and Worthwhile Canadian Initiative.  I try to post material related in some way to Northern Ontario on this blog - albeit with a fair number of exceptions.  My posts on the other two blogs tend to be almost exclusively on either provincial, national or international economic issues and often with a strong economic history bent.

I just did a post on Worthwhile Canadian Initiative comparing the most recent employment numbers to what transpired in the early 1980s.  The inspiration for this was a number of media reports that gushed positively to no end about how well employment was performing and that there was plenty of steam left in Canada's economy.  Indeed, a number of stories noted that Canada's January-February employment growth in 2019 was the best since the same two months on 1981.  Of course, all of these stories neglected to add what happened after February 1981 which was one of the most severe recessions in the postwar period that saw unemployment rates peak at nearly 13 percent.  For this post, click here.

And then there are my last two posts on the Fraser Institute blog.  As part of the lead up to the March 19th Federal Budget, I take a look at federal government finances and note that large deficits are on track until 2022-23.  A key point is that there has not been a revenue slowdown.  While these deficits might be understandable during a recession or as part of a strategic investment mandate, it is not really the case here.  It is just more spending.  For this post, click here.

Finally, a post on the evolution of the United States federal debt looks at the the contribution to the debt to GDP ratio ranked by president all the way back to George Washington who incidentally was pretty good at fiscal management given the hand he was dealt in the wake of the American Revolution.  Overall, wartime presidents have seen the largest increases in their debt to GDP ratios with Franklin Roosevelt and Woodrow Wilson topping the ranking.  For this post, click here.

Overall, it has been a pretty busy time between blogging, the occasional media interview (did The Current in December with an interview after Stanley Fischer) working on research papers in health and historic wealth inequality, public presentations - did Port Arthur Rotary in November and on the books for Fort William Rotary in April - and other assorted research projects.  Of course there is never enough time to do everything and my historical projects on Lakehead Port Statistics pre-1950 and constructing a fiscal series for Ontario pre-1960 are going to take a lot longer than anticipated...

In other news, I am off on some travels this month.  Have a trip to Regina coming to visit their Economic Department and I will be heading off  to Sudbury and Laurentian University next week for a couple of presentations during their Research Week. My first presentation is a paper co-authored with Rob Petrunia (Lakehead) as follows:

Monday March 18th: 1:00 – 2:35 pm Economic Inequality and Crime Rates in Canada (Governors’ Lounge, 11th floor, R.D. Parker Building)The Department of Economics will present a talk by Dr. Livio Di Matteo (professor of Economics at Lakehead University) on a critical issue in an age of globalization and technological change: the rising trend in income and wealth inequality and its adverse social effects.

My second presentation is titled "Arrested Development: Northern Ontario's Economy in the Past, Present and Future and is part of the following session:

Tuesday March 19th: 10:00 – 11:30 am The Economy of Northern Ontario: Structural Changes and Implications for the Labour Market( Governors’ Lounge, 11th floor, R.D. Parker Building)The Department of Economics will present a seminar on the changing economic landscape and the effects of long-term structural changes on the labour market of Northern Ontario

The latter talk with be a pretty expansive overview of the history of Northern Ontario's economy in terms of its development, the host of government initiatives and plans over the decades, what has worked or not worked, and thoughts about the future.

If you are in Sudbury for Research Week, feel free to attend!

Saturday, 2 March 2019

Air Canada and Thunder Bay: The Saga Continues...

Well the Air Canada service story out of Thunder Bay has gotten more interesting. After announcing they were going from six to three flights a day to Toronto out of Thunder Bay – albeit on larger jets – they have also announced that they are ending direct Thunder Bay Winnipeg service.  There was a 5:35am flight to Winnipeg and one back at 10:15 in the evening.  While you can still get to Winnipeg from Thunder Bay via Toronto, it is effectively a reduction in Air Canada capacity out of Thunder Bay and the surrender of that direct route to Westjet which still has direct Thunder Bay-Winnpeg service.

The more interesting part of the story that was reported on TBNewswatch was that it states the airline said that on the changes being made to the Thunder Bay-Toronto run, the total number of available seats “will increase from 390 to 408 daily because the A319 is a much larger plane”.  This was a bit of a head scratcher given that as you know I had estimated in a previous post that there was going to be a reduction in capacity from 468 to 408. The capacity for the Q400 was assumed to be at the max – 78 seats – which multiplied by the current six daily (weekday)  flights – gives you 468.  So, going from 468 to 408 is a -13 percent drop which to me is a capacity reduction.

If you take the current number as 390 and divide by 78 you get five – that is as in five flights a day.  However, Air Canada has six flights a day on weekdays – but currently five direct flights a day on the weekend.  If you take 390 and divide by six you get 65 which is well below any of the figures I have seen for seat configuration for a Q400 on SeatGuru for either Westjet, Air Canada or Porter.  Indeed, often the configuration is for 74 seats – a bit below the maximum capacity. 

So, it appears that Air Canada in stating (according to the TBNewswatch story) that daily capacity is growing from 390 to 408 – an 18 seat increase which in percent terms is about 5 percent – is referring to its weekend capacity.  Its weekday capacity is still going down from 468 to 408 (or 444 to 408 if you want to use the 74-seat configuration) which represents a decline of 13 percent (or 8 percent using the 74-seat configuration).

Overall, if you use 78-seats as the measure for a Q400, total weekly capacity on the Thunder Bay-Toronto run will be going from 3,120 seats a week (5 times 468 plus 2 times 390) to 2,856 (7 times 408).    This is a reduction of 264 seats on a weekly basis or a drop of about 8 percent.  If you use the 74-seat measure, Air Canada on the Thunder Bay-Toronto run is going from 2,960 seats to 2,856 seats – a reduction of 104 seats on a weekly basis or a 4 percent drop. 

Whatever way I look at the numbers it seems to point to an overall capacity reduction by Air Canada out of Thunder Bay – even without including the elimination of the Winnipeg runs.

 A special thanks to my Northern Economist reader out of Dryden who alerted me to the numbers at the end of the Feb 26th TBNewswatch story!