Thunder Bay City Council's Increasingly Out of Touch Vision for Thunder Bay

 

If history teaches us anything, it is that periods of pandemic are ultimately associated with eras of great economic and social change and disruption.  One only has to go back to the Black Death or The Spanish Flu to see the effects on labour markets and societal attitudes and ultimately all aspects of life.   Much like the wake of 9/11 which saw enhanced security measures entrenched forever, once the pandemic has subsided, there will not be a full return to the world we had before.

 

This era will be no different and in Thunder Bay all of these changes coincide with an increasing sense of disquiet many residents feel with respect to the direction the City has been taking.  Along with continuing high rates of crime, racism and mental illness, the lineups at food banks have been increasing and there seems to be a return to a wild west frontier mentality with the increasing number of people being stopped by police for driving under the influence. 

 

Moreover, there seems to be  an increasing sense of detachment from the public by the Mayor, City Councillors and Administrators whose recent decisions with respect to major capital projects such as the proposed Turf facility and new police facilities, the silence on the epidemic of home plumbing issues linked to City water, and a preoccupation with what seem to be superficial issues like tourism signs and future sporting events, all seem to conflict with what appear to be more pressing issues.  The discussion of rising taxes when other cities such as Kitchener or Edmonton have decided to keep their increases closer to zero provides another disconnect with residents.

 

The City is in the midst of major program reviews and yet City Councillors seem to shelve much of the advice provided while continually talking about the cost savings they have generated.  They are also being presented with a new master plan on regional paramedic services whose text underlines the ominous future of a city with stagnant population growth and yet ever rising needs for the services of paramedics due to aging as well as a population more prone to a variety of social ills.  With the 2021 budget coming, one is left with the impression that ultimately, the Mayor and Councillors are gearing up for another major tax hike to meet all of these needs given their unwillingness to prioritize.

 

So, the question is what kind of vision is driving the approach of successive City Councils and the Administrators and the policy apparatus in Thunder Bay?  One would venture that Thunder Bay City Council suffers from an increasingly stale 50-year old vision of what Thunder Bay needs.  That vision could be summarized as follows:  Thunder Bay is a regional center and strategically located full-service high-tech urban oasis set in a pristine natural wonderland with a wonderful quality of life on crucial east-west trade and transport routes whose full potential is unrealized.  Indeed, the entire City’s potential is unrealized and what Thunder Bay needs is continual infrastructure investment to attract people and effective communication of our potential to convey the message of how wonderful we are.  While Thunder Bay may have social problems, they are not any worse than other places and have been blown out of proportion by the national media. City residents need to have a positive attitude, stay the course on this strategy, and we need to invest in the public services and infrastructure to make it all happen.

 

This is in essence what has been driving policy in Thunder Bay since amalgamation.  Lost in this vision of the future is the fact that since 1970, the City has stayed static in population, its industrial mainstays have largely disappeared, and its grain transportation role fallen to a shadow of its former glory.   The fact that people often move to communities because of job opportunities seems lost on Thunder Bay’s governing elites.  Anyone pointing out the fact that the City has become a welfare dependency given that over 30 percent of employment is now public sector or tied to government grants is a “Negative Nellie.”  While there indeed has been some job creation in the knowledge economy and the health and education sectors that have helped provide a market for some entrepreneurs, it remains that this has been largely a rear-guard maintenance action that has had difficulty keeping pace with the employment losses.

 

Key to this vision is the level of municipal spending, employment and infrastructure investment designed to keep the economy going via construction projects.   This spending is financed by government grants and by tax increases levied increasingly on the residential tax base given the departure of the industrial mainstays who provided the base for the past development of a very generous level of municipal spending.  Tax increases are justified by “a build it and they will come philosophy” even though after fifty years we have built a lot and population is still the same.  When the point on practically zero population growth is mentioned, the response is to mention that we have large numbers of temporary residents whether they be students or visitors from outlying First Nations who need services.  However, we do not seem to have numbers documenting this aside from the numbers City Councillors and Administrators like to throw out - numbers like “20,000 or 30,000 more” during meetings without good empirical evidence.  Most importantly, there is the unanswered question as to why municipal ratepayers should even be providing these additional population services out of a local property tax base?  Where are the provincial or federal governments in all of this?

 

When the high level of taxation is mentioned, the response is that yes, the tax rate is higher here but our cost of living is so much lower so it is “okay” to have local residents pay more on their property taxes to provide services comparable to other places.  From each according to their abilities, to each according to their needs.  However, by cost of living, City Councillors generally mean that we have lower average property prices without realizing that the reason we have lower property prices is because of the lack of population growth and the fact that higher tax rates have been capitalized into lower property values.  Indeed, property prices are as high as they are in Thunder Bay because of fairly effective supply management on new home building and low interest rates.  Then there is also the need to differentiate between costs and ability to pay for those costs.

 

Take for example a comparison between Toronto and Thunder Bay.  An average property in Toronto now sells for about one million dollars whereas an average property in Thunder Bay is closer to 300,000.  Given the average 2020 property tax rates of 0.599 in Toronto and 1.563 in Thunder Bay, the property taxes paid on an "average" property would be $4,689 in Thunder Bay and $5,990 in Toronto – 28 percent higher in Toronto.  The problem is that the basis of comparison should be similarly priced properties or similar properties (eg. a three bedroom bungalow in both locations) in which case the Thunder Bay home often pays substantially more.  If you have a $500,000 property in Thunder Bay – which many people now do – you are paying as much in property taxes as a property worth three times that in Toronto. 

 

And then there is the ability to pay for those taxes which is financed out of current income.   According to the NUMBEO cost of living comparison website, in Thunder Bay, the average monthly salary after taxes is $2,783 while in Toronto it is $4,214 – 51 percent higher in Toronto.  Aside from rent and commuting costs, the cost of living for just about everything else is not that much lower in Thunder Bay compared to Toronto. 

 

So, we have an expensive vision of local and regional municipal government spending based on an economic base that no longer exists.  That vision is justified by a “build it and they will come philosophy” which after 50 years, has yet to yield results.  When the Mayor and Council are criticized – and assuming they choose to respond and do not just ignore you or disparage you as a crackpot - they respond with dubious arguments about how our cost of living and property values are lower thereby resulting in lower taxes meaning they can be raised more because they are a bargain compared to Toronto.  Of course, if the cost of living here was truly lower resulting in a surplus for local residents in excess of what they need, why we might not want to keep money in our own pockets rather than simply hand it over to the local municipal-industrial-construction complex is a question that Thunder Bay politicians do not want to answer. 

We are now in a time of great change and Thunder Bay will need to adapt as well as deal with the legacy of its past decisions. And yet, the old inflexible vision goes on, and so unfortunately does the sense of alienation felt by many local residents.  Thunder Bay needs a new vision and one that is sustainable given the current tax base.

 

 

Input Into the Federal 2021 Budget Process

 I had the opportunity to present via Zoom at the House of Commons Standing Committee on Finance today. It was a very good experience with interesting questions and discussions afterwards. Here is the prepared text of the remarks I delivered during my five minutes:

Dr. Livio Di Matteo

Professor of Economics, Lakehead University, Thunder Bay, Ontario

 

Presentation for House of Commons’ Standing Committee on Finance, Pre-Budget Consultations in Advance of the 2021 Budget, December 11^th, 1-2pm

 

Good Afternoon:

 

Thank you for the invitation to speak at these Pre-Budget Consultations in Advance of the 2021 Budget. I commend the Committee for reaching out into the academic community of economists for public input on this important process.

 

It has been said many times that the COVID-19 pandemic is an unprecedented event in recent history, and this context frames my input into the federal budgetary process.

 

The Fall 2020 Economic Statement documented the unprecedented effects and response to the COVID-19 pandemic. For fiscal year 2020-21, real per capita revenues in $2014 will have declined by 20 percent from year previous while spending is up by 70 percent.  In real terms, this is the highest per capita amount ever spent in Canadian fiscal history (nearly $16,000 in 2014 dollars).  As a share of GDP, the projected deficits will be the second largest in Canadian fiscal history- exceeded only by World War II. 

 

The Fall Statement reveals spending eventually declining and a deficit approaching one percent of GDP by 2025-26 but also a federal net debt rising to $1.5 trillion and a net debt to GDP ratio remaining in excess of 50 percent. Despite current low interest rates making current debt look manageable, it remains that any sudden future shocks – to the economy or even interest rates - could be more difficult to manage as debt burdens rise.

 

The size of the initial fiscal response to the onset of the pandemic in the February to April period of 2020 was appropriate.  However, the continuing unprecedented fiscal response generated results that have not paralleled the fiscal support provided.  The fiscal assertiveness of the federal response to the pandemic was not matched by assertiveness in targeting the response as might have been afforded under the federal spending power or the power of quarantine that exists under the Constitution.  

 

Moreover, much of the spending went to individual income transfers in excess of the pandemic generated income losses.  After all of this unprecedented response, we are now in the midst of a more severe second wave that threatens the economic recovery that began over the summer.

 

The Federal 2021 budget must learn from the past and better target any additional projected fiscal response with a view to long-term economic recovery and growth.  The additional spending must be directed towards productivity boosting investments.  Even prior to the pandemic, the business investment to GDP ratio had been faltering.  While the short-term income support provided at the peak of the pandemic was important, if we are to continue to spend at these record levels, then there must be more to show for it.

 

Government spending priorities should be directed towards initiatives for boosting our long-term productivity via investment in physical and human infrastructure. Public infrastructure in roads and transport, bridges, communications, schools, health care, water, sewer and environmental systems require investment.  Education has taken a major blow during the pandemic and we need to ensure that students at the elementary, secondary and post-secondary level, do not fall behind in educational achievement and opportunities and reduce future labour productivity growth. 

 

Then, there is the matter of our national defense and security in a more multi-polar and unstable world that requires equipment and resources and vision.  And there is a need for private sector investment in sectors producing goods and services that we can export and continue to earn our way in the world. If our export markets falter and our incomes drop, there will be no international emergency response benefit payments offered to us.  The federal government, therefore, should work with the private sector in assessing its investment needs.

 

Historically, excessively large amounts of government spending are not well correlated with long-term economic growth.  It is not that government cannot help the economy.  However, effective government requires knowing when to spend and when not to spend and more importantly, what to spend the money on. 

 

If we are to embark on a program of infrastructure spending, we must ensure that projects with the best return are selected. Assorted public projects should be assessed by an arms-length panel of key leaders with expertise in business, accounting, engineering and economics who can make recommendations in areas of national interest. It would be extremely unfortunate if federal infrastructure money flowed to community or sports centres rather than say roads and sewers simply because "shovel ready" plans exist for the former but not the latter.

 

Thank you.

 

 

Dealing with the Real Issues at Thunder Bay City Council

 

Thunder Bay City Council has a packed agenda this week but among all the items there is not one mention of the crucial issue now affecting close to 3000 residents in the city – the issue of the continued plague of leaky pipes and resulting damage to homes and businesses.  Compounding all that has been happening on this front,  is that there are increasing reports of heavier chlorine smells in city tap water.  There is no point in asking your City Councillor why that is as they have probably been advised by the City’s lawyers not to talk about anything related to water.  So, as usual we are left having to surmise what is going on and my educated guess is that there have been so many line breaks and repairs in the city water system that they have upped the disinfecting of the water to prevent potential contaminants from getting in to the water.  We are fortunate that Thunder Bay's Mayor and council is not responsible for information updates on the local COVID-19 situation given their stoic reticence on issues affecting public health and welfare.

 

However, the City does not want to talk about water so we will have to focus on other issues in their hefty agenda this week.  Among the pressing issues on the Monday evening agenda are: waterfront trail development, an update on protective shields for transit drivers, and advocacy for a federal basic income program. Of these, having the City advocate for a federal basic income program is the one where Thunder Bay City Councillors have the most expertise.  After all, Thunder Bay has been running a basic income program for the members of Thunder Bay City Council since 1970 and we are still evaluating the value for money of the program given the annual spending on a mayor and twelve councilors. So I suspect that several hours will be devoted to discussing basic income and there will be many eloquent words on the need to alleviate suffering and hardship that is not related to the provision of basic municipal water and sewer infrastructure.

 

The more interesting item later this week will be the discussion of responses to the Grant Thorton Program Review that will be provided to council by City Administration.  Unfortunately, given that Superior North EMS and the TB Fire Rescue are undergoing their own separate strategic planning processes, they are not included in the report which seems paradoxical given that it is a systematic review of the entire city’s operations.  One could ask either the Mayor or the councilors about this but they have probably been advised by their lawyers not to respond. 

 

The responses from administration have been divided into implement, further review and no further action.  The most interesting items in this report are the further review because they contain some of the most contentious and larger ticket cost items and include: discontinuing private child care, moving city run Pioneer Ridge to an alternative model of care, the sale or closure of the Jumbo Gardens Community Centre, Vale Community Centre and Boulevard Lake Beach, “service adjustments” (which one suspects is adminspeak for reductions) for Chippewa Park and the Canada Games Complex, the closure of both remaining city owned golf courses and finally, water and sewer operations.   

 

The last item in particular is understandable as still under review as there has probably been advice from lawyers to the city of Thunder Bay not to deal with any water and sewer issues publicly.  Indeed, one suspects the Mayor and Council would probably be most  happy if their lawyers would advise them not to discuss or answer any questions at all about anything in the program review.

 

The meetings tonight and later this week will feature a lot of talk and posturing but in the end little of substance will transpire in the public sessions.  

 

 

The Shape of Federal Fiscal Things to Come: Chrystia Freeland’s 1 Percent Solution

 

Yesterday’s Federal Fall Economic Statement is actually quite a remarkable document. On the one hand, given the expectations being raised that the deficit for 2020-21 might reach $450 billion, coming in an $381.6 billion has probably caused many to heave a sigh of relief.  That was probably the intention. Of course, that $381.6 billion figure is the lower bound estimate given economic assumptions and could be as high as just under $400 billion.  Moreover, none of the scenario deficit projections were factoring in the $70-$100 billion in stimulus spending that was to be spread over 3 years once the pandemic was brought under control.

 

The Fall Economic Statement appears to be as much a political as it was an economic and fiscal document in that it continues federal spending and support for the pandemic as well as positions the government for substantial spending announcements of stimulus spending in the spring probably in advance of a federal election once the pandemic appears to be under control – which it currently is not. 

 

If one takes the base case scenario, revenues for 2020-21 will be $275.4 billion and spending $641.6 billion for a deficit (after actuarial adjustment of federal liabilities – the recent twist in federal finance reporting) of $381.6 billion.  For 2021-22, revenues are expected to rise to $335.9 billion and spending decline to $441.5 billion for a deficit of $121.2 billion.  After that, deficits will continue to decline reaching $24.9 billion by 2025-26 and returning us to the deficit range of the 2018 to 2019 period.  This period of deficits will take the federal net debt from $772.1 billion in 2018 to reach $1.494 trillion by 2025.

 

The document is quite clever because it lays out a fiscal plan with a target – which critics have been clamouring for – without actually stating there is a fiscal target.  The pandemic is essentially a dis-equilibrium situation for the federal government’s finances and the federal government hopes to return to its version of equilibrium finances by 2025 at which point revenues will be higher at $417.3 billion and spending at $484.4 billion.  

 

 If one takes their GDP growth forecasts into account, the deficit to GDP ratio for 2020-21 is actually just over 16 percent but will decline to 5 percent the year after and then essentially reach 1 percent.  Prior to the pandemic, a deficit to GDP ratio of 1 percent was what the federal government saw as perfectly reasonable given low interest rates and GDP growth rates and that is what they want to get back to.  It is the 1 percent solution.

 

To place all of this in very long term visual perspective, data from the Jorda-Schularick-Taylor MacroHistory Data Base, Statistics Canada, my federal fiscal history and the 2020 Fall Economic Statement is used to generate figures 1 and 2 below. Figure 1 shows real per capita federal revenues and spending from 1870 to 2018 and then forecasts from 2019 to 2025.   

 

 

 

If all pans out as forecast, then the surge in spending and revenue collapse of the pandemic will subside with real per capita revenues and spending eventually up 2.5 percent and 3.4 percent respectively from their 2018 amounts.  That will be viewed as a perfectly acceptable growth when spread over 5 years. Figure 2 presents the deficit to GDP ratio with the pandemic showing the second largest deficit to GDP ratio in history but with a return to roughly where it was just prior to the pandemic.

 

 

 

This is the shape of federal fiscal things to come, assuming the federal government’s vision pans out.