Thunder Bay's Tax Crisis

As expected, Monday evening’s City Council Meeting was a long one wrapping up at 3am and as predicted the Turf facility is going forward if by a slim margin of  7-6 in favour.  For the record to assist you in decision making next election, those in favour of spending more money despite the caveats: Mayor Bill Mauro and councilors Albert Aiello, Shelby Ch'ng, Andrew Foulds, Cody Fraser, Kristen Oliver and Aldo Ruberto.  Those in favour of delaying the project in light of the current situation: Mark Bentz, Trevor Giertuga, Brian Hamilton, Rebecca Johnson, Brian McKinnon and Peng You.  In the end, Mayor Mauro got what he wanted and one wonders why he risked so much political capital to drive something that a large majority of the public seem to oppose.

The evening also discussed the budget and originally there was a proposal to raise the 2021 tax levy by 3.45 percent in order to deal with the $8.4 million in COVID-19 expenses – though left unexplained is why with $9 million in provincial and federal assistance coming, are those costs for 2020 not largely taken care of.  In the end, apparently the increase is now proposed at only 2 percent but that will likely change given Thunder Bay’s deteriorating tax base and the “need” for more money.  And, there was plenty of evidence in the documentation for Monday night’s meeting on the eroding tax base.

I suppose there was little time at Monday night’s meeting to discuss other items of business such as Corporate Report No. R 18/2020 included in the Committee of the Whole Agenda and buried on pages 236 to 239 (with a lengthy Appendix afterwards).  This report was on Property Tax Accounts with 2018 Arrears.  Of course, the table of numbers spanning properties that stopped paying their taxes over the 2008 to 2018 period was probably too much to process for the bleary eyed councilors.  Sometimes one wonders if City Council is some type of cult designed to ram through decisions by handing councilors 300 page documents and then depriving them of sleep with long meetings.   Of course, the more alert ones in favor of the turf facility may have been alarmed at the prospect of discussing the growing number of tax arrears properties at the same time new spending was being proposed and heaved a sigh of relief it did get too much attention.  Nevertheless, I suspect the numbers themselves would have little impact - pictures are much better and as usual I had to provide my own.

 

 

Figures 1 to 3 takes the data in the report and plots the number of properties (both total and residential) in tax arrears, the total value of tax arrears by year in dollars, and finally the value of those arrears as a percentage of the total tax levy that year.  The plots are disturbing as despite the occasional up and down, they show a clear upward trend over time.  Whereas the average annual number of properties in arrears from 2008 to 2010 was close to 100, for the 2016 to 2018 period, it averaged close to 300.  In essence, the number of properties in arrears has tripled over the last decade.  It is not just business properties, it is also residential.  The value of the tax arrears in 2018 was $2.5 million – a not inconsequential sum given that the original proposed tax increase of 3.45 percent would have likely added nearly $7 million to the tax levy.  Indeed, as a percentage of the tax levy, the trend is also upwards and reflects foregone revenue – which if looked at cumulatively since 2008 represents the evaporation of nearly 10 percent of the tax levy.

If property owners in Thunder Bay are stopping to pay taxes on their properties and giving up on them, there is a serious issue.  The solution is not stricter enforcement and chasing people down by hiring a Sheriff of Nottingham type with a half dozen tax facilitators and support people to extract the cash.  There are probably many reasons why people are unable to meet their tax obligations and give up on the property they are holding. 

For some, it is being on a fixed income or job loss or health issues.  Some are seniors with dementia whose families have lost track of the properties.  For others, it is a simple calculation: - given diminished circumstances, the value of what they own is not worth keeping given the tax burden that has been imposed.  This is apparent from some of the properties listed which are undeveloped lots and properties being taxed at high rates but often in locations where there is no prospect of them ever being developed let alone a market buyer found due to plans, zoning rules and regulations that only Thunder Bay insiders can navigate.   

What kind of city lets this happen?  How can so many councilors talk incessantly about how they care about social justice and equity and helping the socially deprived and at the same time not realize the long-term effect of their decisions, policies and actions in raising the economic burden on workers and families in Thunder Bay?  It is not just a provincial or federal responsibility.  Its theirs too.

Thunder Bay's Priorities: Business as Usual

The City of Thunder Bay recently sent a delegation of administrators and councilors to the AMO meetings where they also had the opportunity to present their priority list to members of the provincial cabinet.  According to the report in the media, here are what the priority topics appear to have been:  Priority topics included:

• Bombardier
• Crisis centre
• Non-urgent patient transport
• RegenMed
• Thunder Bay Expressway
• Shelter House
• Provincial Offences Act
• Joint and several liability
• Multi-sport complex
• Multi-purpose correctional facility
• Next Gen 911 service
• Police services funding

What is intriguing about this list is that there is no explicit mention of any of Thunder Bay’s “water issues” – the current court case over the 2012 flooding and the water treatment plant, the issue of lead in Thunder Bay’s water supply or the epidemic of pinhole leaks in residential homes across the city. Perhaps the issue of “joint and several liability” is the code term for the water issues given that the province is going to inevitably be involved in any of this legal fallout given that municipalities are creatures of the provinces? Maybe, but then maybe not. 

Unfortunately, there is no way of knowing what the actual priorities are and there is no point in asking your councilor for insight or contacting someone at Thunder Bay City Hall to ask a question because more often than not, they will not respond.  Even worse, even members of council may be unaware of what is actually going on.  Thunder Bay appears to have become a full blown  “insider-outsider” city.  Those in the right social circles seem to know everything while those not graced with the correct social connections …well, you are pretty much left guessing as to what is actually going on.  Thunder Bay has always been a pretty insular place in this regard but the social isolation of the pandemic has made it worse.

On Monday night, there will likely be another marathon City Council meeting which will include another lengthy debate on the turf facility – which nevertheless will get approved despite the many reservations that have been raised.  It is always easy to approve new spending when it is someone else’s money and at present our City Council is no doubt being inspired by our federal government which after a 343 billion dollar deficit is going to dream even bigger. Then there will likely be a lengthy discussion of whether there should be changes to the numbers of city councilors to make the city more “efficient” but this has been discussed many times before and will be discussed many times again.  In the end, it will likely not matter because when it comes to the efficiency of any production process, it is not just the number of inputs that matters but also their quality. 

So, stay tuned for signs from the heavens to provide any additional enlightenment as to what Thunder Bay’s priorities are.  The only certain priority is that taxes will be going up in 2021.  It is business as usual for Thunder Bay's cozy inner circle.

 

Putting a Dollar Figure On the Cost of COVID-19 in Ontario

It is said that economists know the price of everything but the value of nothing.  Nevertheless, such sentiment like this does not stop economists from looking at costs and as Ontario’s COVID-19 pandemic declines and enters a lull, it is worth assessing what the cost of the pandemic to date has been.  As the accompanying figure illustrates, after just over 200 days since the first case in Ontario, we appear to be on a downward trend in terms of new daily cases.  Indeed, the daily growth rate is currently at 1/10 of one percent but relapses are likely.  As of August 14^th, we are at a total of 40,459 cases with 2,788 deaths - with over 80 percent of them early on in the province’s long-term care homes.

 

Everyone is pretty much aware of the economic and fiscal impact of COVID-19 on the country given the estimates of the annualized drop in Canadian GDP this year ranging from 6 to 8 percent, the 13 percent unemployment rate and the $343 billion dollar federal deficit.  Ontario this week released its first quarter finances and the picture was grim with a projected deficit for 2020-21 of $38.5 billion and a drop in real GDP of 6.6 percent this year. 

The provincial government’s revenue is actually only projected to be $5.7 billion lower from the March update at $150.6 billion (though it was at $156.7 billion in 2019-20) but program expenses, COVID-19 assistance and contingency funds are up dramatically – reaching a total of $186.7 billion to deal with the pandemic.  From total spending of $161.1 billion in 2018-19 with a deficit of $7.4 billion, to total spending of $165.7 billion in 2019-20 and a deficit of $9.2 billion, there has been a large provincial fiscal cost.  Ontario’s nominal GDP was expected to be $909 billion in 2020-21 but is now expected to be $844 billion.

Here is an interesting way to look at the cost to date of this pandemic in Ontario.  For the period 2019-20 to 2020-21, GDP is projected to be lower by $65 billion dollars while government spending will be up.  Total spending is up $30 billion - from $156.7 billion to $186.7 billion.  So, one measure of the direct fiscal and economic cost in Ontario of the pandemic to date given the anticipated loss in GDP and the projected spending increase is to combine the two for a total of $95 billion.  If you take Ontario’s population in 2020-21 (14.831 million) and divide, the per capita cost in Ontario this year is expected to be $6,406. 

While that sounds like a lot – and it is - there is another way to look at the numbers.  With total cases at 40,459, the cost per case to date in terms of additional spending and output loss is $2,348,056.  And if you want a quick back of the envelope calculation of the value of a life – yes, economists (and governments) do that too – then given the number of deaths to date at 2,788 – we get a cost of $34,074,605.  A per capita cost of $6,496 dollars, a per case cost of $2.3 million and a per life lost cost of $34.1 million – anyway you look at it, this has been expensive. 

When Governments Fail

This piece I wrote originally appeared in the Vancouver Province (August 5th)  and Toronto Sun (August 4th)

COVID underscores problems with government intervention

Some economists justify government intervention by citing “market failure”—that is, the failure of the free market and price system to allocate resources efficiently. In other words, under certain conditions, the market is unable to capture the true value of transactions and therefore too little or too much of a good is provided. So these economists want the government to “correct” the market failure with taxes, subsidies and/or regulation.
However, there can also be government failure. That is, government decisions can also result in inefficiencies or mistakes that have real effects. With the COVID pandemic, we’ve seen government failures across Canada.
For example, in the years before the pandemic, the federal government seemingly (and quietly) deactivated its pandemic early warning system, failed to maintain stockpiles of personal protective equipment (e.g. masks), and once the pandemic began often moved slowly to deal with its impact. While there was a massive fiscal response, producing a projected $343 billion federal budget deficit, this is really a fiscal atonement for the sin of being caught with your pants down. And remember, the “government” doesn’t pay for it, taxpayers do.
Then there’s the provinces who—given that health care is a provincial responsibility—allowed their long-term care sectors to become fertile fields of death for so many seniors.
Of course, we don’t need a pandemic to witness government failure. Our municipalities frequently make decisions or choose spending priorities that ultimately lead to deterioration of roads, sewers and other municipal infrastructure. Sometimes, municipalities make decisions to solve one problem on the cheap while creating bigger problems down the road. For example, in Thunder Bay (where I teach economics), the municipal government put sodium hydroxide in the city’s water to reduce lead levels for a minority of households, which generated a rampant citywide pinhole leak problem that eventually led to a policy reversal.
Again, when markets fail, the stock solution is government involvement. But what to do when government fails? Given that government decisions are made via a political and bureaucratic process, one expects that ultimate redress is through political accountability in parliaments, legislatures and municipal councils. Yet we have witnessed the erosion of political accountability in Canada over the years, with the pandemic providing the opportunity for further erosion.
Rather than debates in parliaments and legislatures, we now have one-hour daily briefings and pronouncements from the mount at all levels. As the pandemic continues, those pesky constituents can be avoided because meeting with them is “not safe.” You can email or phone your MP, MPP or municipal councillor but they are often “overwhelmed” and responses are invariably slow. Indeed, COVID precautions have reduced the direct accountability of politicians and policymakers, and increased their ability to be more selective in dealing with their constituents. In some cases, this isolationism has reinforced a sense of entitlement for those in government and fuelled their belief that rules are for the masses but not for them (see federal Health Minister Patty Hajdu’s flights during Easter and the Victoria Day long weekend while she warned against “non-essential” travel during the lockdown).
When decentralized markets fail, governments are quick to intervene. However, when governments fail, there’s an even bigger problem—the people who failed are in charge. For accountability’s sake, governments should understand this problem and act accordingly. We seem to have a ways to go on that one.

Higher Taxes AND Higher Debt: Municipal Finances in Thunder Bay

Thunder Bay’s per capita municipal debt rose from $1,618 in 2015 to $1,839 in 2018 – an increase of 14 percent.  Over the same period, its provincial municipal counterparts on average went from $699 per capita to $758 – an increase of 8 percent.  As a result, by 2018, the per capita municipal debt in Thunder Bay was essentially more than twice that of the average in Ontario.  One might creatively argue that a reason for our higher debt levels is that we have been keeping our property taxes below the provincial average in an effort to be competitive with other municipalities.  However, it turns out that is really not the case once you adjust for population.

The accompanying figure takes data from the Ontario Financial Information Returns and past City of Thunder Bay Budgets to make a comparison of average per capita own purpose municipal tax revenue for Ontario and Thunder Bay.  For Ontario as a whole, between 2009 and 2020, per capita property taxes rose from $1,176 to $1,492 – an increase of 27 percent. (Note that the Ontario tax revenue numbers for 2019 and 2020 are estimates based on linear extrapolation as the FIR provincial numbers go to 2018. Population was obtained from Statistics Canada).  Meanwhile, Thunder Bay’s per capita municipal tax revenue over the same period goes from $1,320 to $1,879 – an increase of 42 percent.  Thus, Thunder Bay not only has more municipal taxes being paid per person in every year since 2009 but it has increased faster than the provincial average.

 

In 2009, the average municipal taxes per person were $144 higher than the provincial average whereas by 2020 they were $387 higher.  Put another way, Thunder Bay’s per capita municipal taxes were 12 percent higher than the provincial average in 2009 and are now 26 per cent higher.  It has not helped that since 2009 Thunder Bay’s population – that is the City of Thunder Bay and not the CMA – has declined by 1 percent whereas Ontario’s has grown 13 percent.  Total municipal tax revenue (as opposed to per capita) between 2009 and 2020 has actually grown 44 percent in Ontario and 41 percent in Thunder Bay but Ontario’s increase in being spread over a larger population while Thunder Bay’s is being spread over a stagnant population base – hence the surge in per capita municipal taxes. Creative councilors and administrators at the City might reply that municipal property taxes are not paid per capita, that they are paid per "bungalow" and we are "mid ranked" there.  My response to that is ultimately, people pay taxes and not their bungalows.

So, not only are we a higher debt municipality but we are also a higher tax municipality and a slower growth municipality.  The sustainability of rising taxes on essentially a stagnant resource base given the dearth of major industrial and commercial development is a serious issue but one that rarely seems to be at the fore of debate at municipal council.  City Administration now is apparently on the basis of “new and emerging information” recommending that the vote on the new $33 million Indoor Turf Facility be postponed until November 2021.  Given that there is an anticipated COVID-19 budgetary shortfall, economic uncertainty, a failure to date to obtain financial support from higher levels of government for the facility, a high debt level and a program spending review under way (not to mention the private sector is already building a similar facility) it stands to reason that they take a pause on this one - for now.

It is not that Thunder Bay would not benefit from new all season sports facilities for its population but at what price?  Are we willing to accept even higher debt and taxes at a time when we already have more of both relative to the provincial average?  Do we want a “special one-time tax levy” to deal with COVID-19 and an indoor turf facility?  Our municipal finances are already quite special when compared to the provincial average as are our other problems ranging from crime to our water system travails.  How much more special do we want to be?