The One Hundred Buckets of Norman: A Fairy Tale

 

Once upon a time, not too long ago and not too far away, there were two magical kingdoms nestled on the vast shore of a great inland sea known as Lakeland.  Lakeland was an earthly paradise of green woods, towering cliffs and shimmering lakes bounded by a sky so blue, that water and air seemed as one. The waters of the inland sea seemed bottom less and the two kingdoms were surrounded by vast swaths of the most aromatic and verdant pines.  The winter had a crystalline crispness that took away one’s breath with its austere majesty while the summers saw long sultry days with a sun that barely set before midnight. On such summer days, the nobles and their subjects danced together far into the night blissfully unaware of the swirling turmoil in the world around them.

 

Alas, troubled times had come to the Two Kingdoms. A great plague had descended upon the land and the people had retreated with fear into their homes.  Crime and pestilence plagued the once happy peasants and burghers and the High Council of Nobles appeared increasingly at a loss to restore happiness to their domain. They would suggest grand projects and quests to give the people hope but all the people wanted was a return to some semblance of a happier time. The Nobles called upon their most loyal retainer and Chief Warden who went by the name of Norman to suggest a way out of the time of troubles. However, even he was hard pressed to solve all the problems given they had been complicated by the springing of numerous leaks in the town’s aqueducts.

 

Poor Norman faced a dilemma.  His most important role as Chief Warden was denoted by his second title as Keeper of the Palace Buckets. Water from the aqueducts to the palace was kept in many buckets and it was Norman’s role to make sure the buckets were filled and then emptied. However, there was so much demand for water from the Nobles that the task was never ending, and poor Norman constantly juggled buckets that were empty with others that were overflowing and had to be poured into other buckets. Some years there was too much water at the palace while other years there was not enough. 

 

The Nobles were frustrated given that sometimes they had plenty of water while other times there was not enough for their baths and regattas. Norman tried to explain that he had one hundred buckets to fill and even if some buckets had too much water, it was difficult to then fill buckets that needed more on the other side of the palace given the large number of buckets and the size of the palace. Indeed, Norman had too many buckets to keep track of and that was part of the problem. There had been a time of fewer buckets but over the years more and more buckets had been added and that had been Norman’s crafty doing to placate the Nobles.

 

It turns out the nobles were not terribly good at maths.  Even when the total amount of water was the same, the silly Nobles thought there was more water at the palace if there simply were more buckets. So, Norman made ten buckets become 20 and then 50 and then 100. Indeed, Norman was not even sure how many buckets there actually were, but the Nobles were so happy if they had their own bucket and access to many more that Norman was reluctant to change things. Norman thought of trying to manage the buckets better by making a list, but he soon found he just had too many buckets and not enough time or water.

 

So, what was Norman to do?  Well, the responsible thing to do was simply to come clean and tell the nobles there had to be fewer buckets – and indeed – maybe some of the buckets should be consolidated into a few large cisterns. True, some of the Nobles might have to do with less but given all the leaky pipes in the Two Kingdoms, the enormous expense of the plague, and all other troubles afflicting the realm, surely more bath water for the Nobles could wait. 

 

Instead, as Keeper of the Palace Buckets, Norman decided it would be wiser to keep his head from rolling by suggesting that a shining knight on a white charger might miraculously appear and make it rain buckets.  Or perhaps, the Nobles could employ another wizard to cast a spell and conjure buckets and water out of thin air.  Or maybe, the Great Emperor of the Southern Empire could be petitioned for more buckets of water. Or better yet, ask the peasants to provide more water for the Palace.

 

In the end, magical promises could buy time but not fill buckets.  After all, if the demand for buckets exceeds supply, no magic in the universe can change the outcome. The most convenient decision was simply to ask the peasants to provide more water for the palace. After all, what are peasants for if not to provide for their betters in life? One could have asked the Nobles to fill more buckets themselves and dip less but as has already been mentioned, they were not terribly good at math. Sadly, people who are not good at maths are not destined to live happily ever after.

 

The End.

 

 

 

Analysis: Federal Economic and Fiscal Update Fall 2021

 

Yesterday’s federal economic and fiscal update has been lauded as showing an economy doing much better than expected as well as improved federal finances relative to the spring 2021 budget.  In the end, the recovery from the depths of the pandemic has been much better than was anticipated and this has resulted in federal government revenues much greater than was forecast last spring.  Figure 1 shows that revenue is expected to be billions of dollars higher in each fiscal year up to 2025-26. – as much as 20 billion dollars more in some of the years.  Indeed, over the six years from 2020-21 to 2025-26, total additional revenues are expected to total about $106 billion.

 

 

 

However, as Figure 2 illustrates, that is being accompanied by a parallel process on the federal expenditure side.  Aside from 2020-21 which has turned out to have about $6 billion less spending than expected, the other years will see higher additional expenditures than originally forecast ranging from $7 billion to $15 billion.  Over the entire six-year period, the federal government will be spending an additional $54 billion than was laid out in the spring budget.  So, about half of the new revenues are going into additional spending while the other half enables the government to have a smaller deficit than planned in each of the years ahead.  

 

 

 

Whereas the spring 2021 budget saw a deficit (including actuarial losses) in 2021-22 of $154.7 billion, it is now forecast to be $144.5 billion.  By 2025-26, the deficit (including actuarial losses) is now expected at $13.1 billion whereas before it was going to be $30.7 billion.  Naturally, smaller deficits down the road will result in a smaller net debt and smaller net debt to GDP ratios given the projected GDP growth.  So rather than a net debt of $1.529 trillion by 2025-26, it should only be $1.359 billion.  The world should last so long.

 

Two things have been left unsaid about the updated numbers.  First, when all is said and done and the COVID-19 spending bubble wound up circa 2022-23, spending will be about 22 percent higher than it was in 2019-20.  Put another way, COVID-19 aside, federal spending will have grown at just over 7 percent a year.  The pandemic in classic Peacock-Wiseman fashion has provided an opportunity for the federal government to expand its spending and there has been an upward shift or displacement that is going to remain permanent. 

 

Second and more disturbing is if one accepts the average federal government inflation forecast over the next five years of 2.6 percent and adds in population growth of just over 1 percent annually, then the average nominal GDP growth of 4 percent from 2022 to 2026 is eaten up by inflation and population growth such that real per capita GDP after the post COVID rebound is essentially going to be flat after 2022.  If inflation turns out to be higher at say in the 4 to 5 percent range, then we are looking at a decline in real per capita GDP over the same period. There is not going to be any real growth.  That is the disturbing aspect of this update.  There is going to be a permanent enrichment of federal spending but not in the actual real economic growth of the economy. 

Inflation and Unemployment

 My most recent post on the Fraser Institute Blog dealt with an international comparison of inflation and unemployment. Enjoy.

Unemployment and inflation—Canada’s worrying numbers

— December 3, 2021

With the inflation debate in Canada focusing on whether this inflation is transitory or not, we’ve seen little discussion about how our inflation compares with other advanced economies.

The International Monetary Fund released its update of the World Economic Outlook Database in October and there are now updated estimates for 2021 and beyond. While monthly consumer inflation in Canada (according to Statistics Canada) is currently pushing 5 per cent, our consumer inflation for 2021—as estimated by the International Monetary Fund (IMF) using consumer prices—is expected to be closer to 4 per cent.

For the major 35 IMF advanced economies, consumer inflation in 2021 is expected to average 2.8 per cent, putting Canada well above the average. The rates are expected to range from highs of 7 per cent for Estonia and 5 per cent for the United States to lows of just under 1 per cent for Switzerland and Japan. At 3.8 per cent, Canada’s inflation rate for 2021 is expected to rank 6th highest of the 35 IMF advanced economies.

Of course, some might argue that a little inflation might be just the lubricant needed to help pandemic-stricken economies rebound given the traditional macroeconomic relationship (provided by the Phillips Curve) between inflation and unemployment, which posits an inverse relationship between the two variables. That is, high inflation rates have been associated with low unemployment rates whereas lower inflation rates have often been accompanied by higher unemployment rates.

This would suggest that across these countries, if Canada has a higher inflation rate, then it should also have a markedly lower unemployment rate.

However, that does not appear to be the case. Again, the IMF estimates for 2021 reveal an average unemployment rate for the 35 IMF advanced economies at 6.2 per cent with Canada again above the average at 7.7 per cent. The highest rates are just over 15 per cent for Greece and Spain while the lowest are expected in Japan and Singapore at just under 3 per cent. Indeed, Canada is expected to have the 8th highest unemployment rate of these advanced economies.

Higher unemployment and higher inflation—once termed “stagflation”—is a truly miserable macroeconomic outcome. Indeed, the sum of the inflation rate and the unemployment rate has been dubbed the Misery Index and a quick calculation of this index for these advanced economies puts Canada in the 6th highest spot. As the chart below illustrates, the most “miserable” advanced economies in 2021 are expected to be Spain, Greece, Estonia, Latvia, Italy and Canada with the combined sum of the inflation rate and the unemployment rate ranging from 17.9 per cent to 11.5 per cent.

 

CanvasJS.com

At the bottom in terms of misery are Taiwan, Singapore, Switzerland and Japan ranging from 5.4 per cent to 3.5 per cent.

For Canadians, the adage that misery loves company will be cold comfort given the higher costs of food, energy and rent that have marked the last few months. While many might argue that our inflation is not as severe as that of the U.S., with our unemployment rate remaining higher than other countries (including the U.S. at 5.4 per cent), Canadians are indeed left wondering if 2022 will be better or worse.

IT's Back....Again! The Turf Facility Project

 

Like a zombie that keeps coming back to life, the multi-use indoor turf facility project is back on the agenda at Thunder Bay City Council this evening as a report is received on the eight outside proposals that were commissioned.  And in an apparently blatant disregard for transparency, the details of the discussion will not be shared with the public.  However, the decision has been further complicated by a new application for federal funding on which the City awaits an answer with the funding apparently tied to building a facility that conforms to green and inclusive community building conditions.  This of course raises the question as to what the actual price tag for such a facility will ultimately really be.

 

This application is for approximately $22 million dollars and that is expected to cover about half of the costs so we are looking for a total price tag of about $44 million of which half would supposedly come from federal funding.  And yet, the question is whether the costs of the new building will now change substantially given that it must conform to the requirements of the federal funding program.  City council rejected the proposal to build the facility when it was $39 million so getting it for substantially less in terms of City dollars may be attractive to those on council who like to pay lip service to the Zeller's Rule - the lowest price is the law. 

 

At the same time, the application process for the new funds is competitive and Fort William First Nation has also asked for $25 million from the fund to build a long-term care home.  As elastic as the federal budget constraint seems to be these days one suspects it is unlikely Thunder Bay’s cabinet representative is going to be able to swing both projects.  After all, Minister Hajdu’s star seems on the wane given what some might interpret as a demotion from Health. 

 

The minister was not even able to use her clout to secure a return to international flight status for Thunder Bay’s airport for the coming winter getaway travel season meaning no return to direct flights to places like Cuba and the Dominican Republic in January and February.  And as Indigenous Services Minister, it would be awkward to say the least to have funding for the turf facility approved in her hometown while the needs of indigenous long-term care are neglected. 

 

So, Thunder Bay seems to be about to embark on another divisive and argumentative round of talks over a project that many in the community are now opposed to in the wake of numerous other city issues with good odds that nothing is going to happen.  Even if a project is approved, often it does not happen as those waiting for the transitional housing project on Junot Avenue have discovered. 

 

Still, the fact that this project still resurfaces and has its proponents begs the question of why so many members of council are so devoted to seeing it go ahead and staking so much political capital on the project considering the other problems this city faces.  There is a lot going on here. There are homeless encampments in the city, there are homeless people wandering the streets of major thoroughfares at peak traffic times soliciting funds at intersections, there are hundreds showing up for meals at the local soup kitchens.  Homes are still having their front lawns dug up in the wake of the sodium hydroxide leaky pipes fiasco that has affected thousands of homeowners.  And tax rates having been rising over the last few years well in excess of the amounts necessary to fund City services.

 

With so much on its plate and an election coming soon, who benefits from continuing this discussion?  Good question.

 

 

COVID-19 Wave Score: Ontario 4, Thunder Bay 1

 

It has been a while since I have plotted the COVID-19 daily case counts for both Ontario and the Thunder Bay District but with the gradually mounting numbers of recent days, now is as good a time as any to look back at the big picture for both the province and our region. The evidence suggests that for the time being matters are well in hand likely the result of Ontario’s high double vaccination rates as well as the gradual easing of restrictions with the maintenance of mask wearing in public indoor spaces.

 

Figure 1 plots Ontario’s daily cases since the start of the pandemic and there have indeed been four waves with the second and third waves the most severe. Our fourth wave is underway, but it is subdued relative to the second and third waves.  Yet this fourth wave seems to have two components based on Figure 1 – a first upswing that appears to have peaked about mid-September and followed by a short decline and then a second upswing that does seem to coincide with the broader reopening of Ontario in mid-October.  Figure 2 does a better job of separating out these two components of the fourth wave with the current upswing starting at about day 640 which corresponds to the last week of October – several days before Halloween.

 

 

 

 

Similar charts are presented for Thunder Bay District in Figures 3 and 4.  Figure 3 reveals that over the course of nearly two years, Thunder Bay only had one very long wave that started circa Day 250 (around the first week of October 2020) and then rose over the course of the next four months to peak during the first week of March 2021 before starting a gradual decline to the current daily levels.  However, Thunder Day district also appears to be in the process of seeing a gradual upswing as Figure 4 illustrates with numbers over the last few weeks distinctly higher than they were in August. Still, over the course of the long haul, Ontario has had four distinct waves while Thunder Bay's relative isolation in the end resulted in only one.

 

So, going into the Christmas season and the winter, the current trends show there is likely to be a continued increase in cases though we should hopefully be spared the surges of previous waves provided vaccine provided immunity does not wane, school children begin to be vaccinated in large numbers, and booster shots make their way into the older population in a timely manner.  Many recent cases are in the school age population and given that COVID-19 is generally not very severe in the very young, that has also spared hospital ICU capacity.  So, for the time being this is what the pandemic looks like – ever present and persistent- but likely to stay in abeyance provided new and more lethal variants do not emerge.

City Council's One Percent Solution

 

After projecting a positive variance of $3 million for the 2021 budget year, it would appear the final tally for a budget surplus for 2021 will be coming in at $5.6 million.  Thunder Bay will have its seventh consecutive positive budget variance making for accumulated variances of $26 million over seven years.  Much of the savings will come from lower-than-expected COVID costs for which the city has received a lot of federal and provincial support.  While Thunder Bay budgeted for a $7.2 million cost from the COVID-19 pandemic this year, a third quarter variance report now forecasts COVID costs at $5.5 million, based on trends to the end of September.

 

Figure 1 plots the annual tax levy increase since 2015 against the corresponding surplus at year end.  For example, in 2015, the tax levy increase was $9.4 million – a 5.7 percent increase on a $164.7 million levy the year previous. The year’s end saw a positive variance of about $1 million which on $174 million tax levy was just over one-half of one percent.  Since 2015, however the size of the surplus has increased substantially, often coming close to matching the size of the tax levy increase that year.  In 2017 for example, the levy increase was $5.96 million – a 3.3 percent increase – but the year-end surplus came in at $5.6 million – almost 95 percent of the value of the original levy. For 2021, we have a first – a surplus of $5.6 million – which is larger than the original levy increase of $4.3 million. 

 

 

The surplus is generally put into city reserve funds which in general is a prudent strategy.  However, the fact that there are consistent surpluses means that there has been a consistent practice of overestimating expenditures and underestimating revenues.  Given that the tax increases have been much larger than what was required given the ultimate need, one can only conclude that this has become a sort of forced savings strategy.  The City of Thunder Bay raises the tax levy more than is needed with the goal of boosting its reserves for whatever long-term plans they might have for spending from those reserves. 

 

Thunder Bay has been raising taxes consistently more than it has needed to for some time now and that money comes out of the pockets of its residents.  During the pandemic, while other cities were trying to keep tax increases at zero, Thunder Bay managed an increase of 2.7 percent in 2020 and 2.1 percent in 2021.  Accompanied by generous provincial and federal COVID-19 support, the result has been large and growing surpluses.

 

One could pose the following counterfactual.  If Thunder Bay had been able to anticipate the surplus each year and implement a tax increase incorporating the surplus and balancing the budget, what would have the alternate tax levy increase have been? Figure 2 plots the actual percentage tax levy increase since 2015 and the alternate increases.  In 2017, for example, the budget could have been balanced with an increase of 0.2 percent but instead there was an increase of 3.3 percent.  Last year – 2020 - saw an increase of 2.7 percent but all that was needed is an increase of 0.6 percent.  Meanwhile, if 2021 continues on this track, it means that rather than a 2.1 percent levy increase, there could have been a levy reduction of nearly 1 percent.

 

 So, here is the thing.  Over the period 2015 to 2021 the actual tax levy increase has averaged 3.1 percent.  The average levy increase required to meet expenditures has been 1.1 percent.  City council for 2022 has directed administration to prepare a municipal budget with a 2.25 percent levy increase.  I would suggest that based on the City’s financial performance to date that they could easily cut that in half.  One percent sounds about right.

Health Spending in Ontario: Restraint of the 2010s is Over for Now

 

The Canadian Institute for Health Information (CIHI) release of the National Health Expenditure Trends 2021 provides a much awaited first macro snapshot of what happened to Canadian health spending during the COVID-19 pandemic.  Canada is expected to spend a new record of $308 billion on health care in 2021 — $8,019 per Canadian. It is also anticipated that health expenditure will represent 12.7% of Canada’s gross domestic product (GDP) in 2021, following a high of 13.7% in 2020.  A new feature of the numbers this year is the government COVID-19 response funding which in 2021 constitutes 7% of total health spending.  The COVID-19 response funding includes money for treatment costs, testing and contact tracing, vaccination, medical goods, and other related expenses and is a separate category from the standard ones used. 

 

Once one starts to examine and analyze spending both including and excluding the COVID-19 response spending provided, as well as adjusting for inflation and population growth, the picture looks more variable depending on the categories examined, the financing sector considered, and the province involved.  For example, private sector health spending was hit quite hard and categories such as other professionals and hospital spending also saw declines in real per capita spending. 

 

When provincial-territorial government health spending is examined, their real per capita total health spending in 2020 rose 8.1 percent but once the COVID-19 response is factored out their spending declined by about one percent though it is also expected to rebound in 2021.  Hardest hit in provincial-territorial health spending in 2020 in terms of percentage declines in real per capita spending: physicians (-5.8) other professionals (-6.1), drugs (-2.3) and hospitals (-0.5).  Meanwhile, public health grew 4.1 percent, other institutions (including long-term care) grew 1.2 percent while capital spending grew 10 percent.  

 

These results are not unexpected given the decline in surgeries and physician visits brough about by the pandemic. The closing of outpatient departments and postponing of medical visits and procedures during the height of the pandemic meant a reduction in some aspects of health service provision and health spending. According to CIHI’s own analysis of COVID-19’s effect on hospital care services, from March to December 2020, overall surgery numbers fell 22% compared with the same period in 2019, a drop of 413,000 surgeries.

 

 

 

Moreover, real per capita spending growth net of the COVID response funding also varied across provinces in 2020 (See Figure 1).  While Newfoundland and Labrador, Prince Edward Island, New Brunswick, Quebec, Manitoba, Saskatchewan, and Alberta saw a decline in real per capita spending net of COVID-19 response funding, Ontario, British Columbia, and Nova Scotia saw small increases with Ontario the largest at 1.2 percent. New Brunswick, Quebec and Alberta saw the biggest declines in real per capita health spending at -3.3, -3.5 and -3.6 percent respectively.  This demonstrates that during the health system disruption of the pandemic, the decline in service provision at least as measured by real per capita spending, was greater in some provinces relative to others.

 

In 2019, Ontario’s total provincial government health spending was $63.1 billion and in 2020 including the COVID-19 response funding it soared to $72 billion.  In 2021 it is expected to reach $75.2 billion including the COVID funding response. Even when the COVID-19 response is removed, Ontario still saw increases in health spending with provincial government health spending net of COVID forecasted at $67.4 billion in 2020 and $71.7 billion in 2021.  Moreover, these increases continue once adjustments are made for population and inflation.

 

 

Figure 2 plots real per capita provincial government health spending in Ontario in $2020 from 1975 to 2021 calculated from the CIHI data.  Spending growth moderated substantially after 2010.  Whereas the average annual growth rate of real per capita provincial government health spending from 2000 to 2009 averaged 3.1 percent, for the period 2010 to 2019 it grew below 1 percent. However, when COVID-19 spending is factored in, real per capita provincial government spending grew 8.1 percent in 2020 and 2 percent in 2021.  When you factor out the COVID-19 response, the growth rates are 1.2 percent and 3.9 percent respectively.

 

 

Finally, Figure 3 looks at real per capita provincial government health spending growth by major categories.  Hospitals declined in 2019 by 1.2 percent but then grew at 2.1 percent in 2020 and can be expected to grow 1 percent in 2021.  Other institutions (including long-term care) also shrank half a percent in 2019 but then grew 4.4 percent in 2020 and is expected to grow 18.6 percent in 2021.  Physician spending grew 1.8 percent in 2019, then shrank by half a percent in 202 and is expected to rise 1.7 percent in 2021.  Other professionals (e.g., provincially funded dental and optometry) fell 2 percent in 2020 but can be expected to grow 6 percent in 2020. Provincial government drug spending in real per capita terms fell in both 2019 and 2020 but is expected to grow 9 percent in 2021.  Public health saw increases close to 10 percent in each of the three years reported in this chart.  Administration on the hand has shrunk in each year including an 18 percent drop in 2020.

 

So, the impact of the pandemic on provincial government health spending in Ontario after the COVID-19 response has been factored out appears to be a renewed focus on making health a priority at least for the immediate future.  Whereas pre pandemic the focus appears to have been on restraining expenditure growth, the stops are off for the time being.  Whereas real per capita spending growth was under one percent for the 2010s, there is a reversal underway with major increases in other institutions (mainly long-term care), other professionals and drugs.

Reforming Thunder Bay City Council

 

This evening’s Thunder Bay city council meeting is going to feature yet another scintillating debate on the size and composition of City Council.  This is another one of those Thunder Bay issues that has gone on for decades and rears its head usually as a vehicle for individual councilors to garner media attention and sell themselves as either reform minded or committed to safeguarding taxpayer dollars. In the end, the talk is as circular as the yet to be fully opened new roundabout at the intersection of Redwood and Edward.

 

 In this current iteration, councilor Peng You has put forward a notice of motion to reverse a decision made nearly a year ago to start work in 2023 reviewing municipal representation and council composition with an aim for a new system – if accepted - to be implemented for the 2026 municipal election.  If this decision is reversed by a two-thirds majority of council, then council would also be asked to consider a potential plebiscite question on the 2022 municipal ballot.  What exactly that question should be would no doubt then consume hours of debate.

 

To start, one suspects the motion will fall flat quickly. Most councilors are quite happy with the status quo of 12 councilors plus a mayor with 7 ward councilors and 5 at-large councilors.  After all, it has gotten them where they currently sit, and a smaller council will mean more competition for the remaining spots.  However, even a defeat of Councillor You’s motion will be useful to him as he will then be able to complain that his desire to save taxpayers money by advocating for a council of 8 at-large councilors plus one mayor has been thwarted by spendthrifts resistant to change – a useful mantra when one has plans for running for higher office.

 

The problem is that changing the system of municipal representation in Thunder Bay – an institutional compromise devised nearly 50 years ago to balance the north-south population division of the city – needs to be done thoughtfully. It is true that there are more councilors per capita in Thunder Bay than is the case in quite a few other cities.  At the same time, that is what happens when you devise a hybrid model of representation to combine ward specific interests with at large viewpoints designed to represent the whole.  Simply reducing the number of councilors is not going to save a meaningful sum of money – the total cost of all the councilors in terms of their stipends and expenses is currently well under one million dollars on an operating budget close to $200 million – under one half of one percent. Indeed, one can even make the case that they should use the meager savings from reducing the size of council to pay the remainder more to attract a better quality of candidate – which in the end really would not save any money on representation though it might lead to better civic decision making in the long run.

 

And then there is the issue of representation.  Should we have only at-large councilors who could all end up being from more affluent parts of the city as can sometimes be the case?  If we go to a smaller council, can we ensure that it will make better decisions or will the reduction in representation simply reduce the number of viewpoints. And then there is the fundamental issue of at-large or ward representation.  If we go totally to ward representation, what will the boundaries of a new ward system be?  Can we design some north-south ward boundaries given the geographic population distribution which still resembles that of 50 years ago? 

 

The case decades ago for at-large councilors was that in the wake of amalgamation and the Fort William-Port Arthur split, having purely ward representation would lead to parochial decision making and deadlock.  However, fifty years after amalgamation, is that division still as important in how municipal politicians approach issues? Surely, ward councilors can be just as capable as at-large councilors of taking the entire city’s interests into mind.  And then, it remains that much of what the city does is local service provision and ward councilors are the best located as the focal points of concerns in specific neighborhoods rather than at-large politicians using their councilor positions to prepare for higher office.

 

In the end, the councilors should leave the issue as it was decided a year ago and let the city clerk’s office review the boundaries of wards and provide options for composition of City Council.  Better yet, given that city administration ultimately has an interest in the design of any council, it would be better if more of an effort was  made to commission an independent arm’s length panel to review the situation and present options to council.  Whatever happens, one can rest assured that there is not going to be any radical changes in the size and composition of council decided by council and city administration as it is akin to asking predatory foxes to provide policy on the hen house. Any radical institutional change will occur as it did prior to amalgamation in 1970 – by provincial fiat or decree. Quite frankly, I don’t think the province is interested this time around.

 

 

Ontario’s Pandemic Sees Light at the End of the Tunnel But Not for All

 

Ontario is holding out the hope of light at the end of the COVID-19 tunnel as its daily case counts hover around 400 and a post-Thanksgiving Weekend surge has not materialized.  As a result, the provincial government is beginning a lifting of capacity limits for Ontario bars, gyms and restaurants starting Monday the 25^th and has outlined a long-term plan that could see all restriction lifted by March of 2022 – including mask mandates and vaccine-certificate rules. 

 

However, the government maintains that it will pursue a cautious approach that will monitor assorted indicators that could prompt a tightening of restrictions if necessary.  That may indeed be the result given that countries such as Denmark and Finland which eased restrictions – including masking – have seen a rebound in COVID cases despite high vaccination rates. Reasonably good vaccination rate compliance and masking in public places are probably the key reason why Ontario has not seen a rebound this fall.  However, the announcement that vaccine certificate requirements may be lifted in the spring will not do anything to incentive the remaining 25 percent of Ontarians who have yet to get fully vaccinated.

 

And, while light at the end of the tunnel may be coming for many Ontarians, the contrary seems to be underway in the province’s long-term care homes.  The rather large proportion of staff in long-term care homes that have still not been fully vaccinated means that the risk of the virus being carried into homes is still high.  Even fully vaccinated residents of LTC homes are still vulnerable given their waning immunity and frailty.  As a result, the Ontario government is creating new requirements.

 

As provided in an October 1^st news release:

 

“Vaccination rates of staff in many homes are not high enough in the face of the risk posed by the Delta variant, and this is putting vulnerable residents at risk. To ensure the health and safety of staff and residents, mandating vaccination for in- home staff has now become essential, and homes are now required to meet the following requirements:

 

·      Staff, support workers, students, and volunteers will have until November 15, 2021 to show proof that they have received all required doses of a COVID-19 vaccine, or to show proof of a valid medical exemption.

·      Staff who do not have all required doses or a valid medical exemption by the deadline will not be able to enter a long- term care home to work.

·      Newly hired staff will be required to be fully vaccinated before they begin working in a home unless they have a valid medical exemption.

·      Homes will begin randomly testing fully vaccinated individuals, including staff, caregivers and visitors, to help detect possible breakthrough cases of COVID-19 as early as possible.

 

In addition to adding randomized testing of vaccinated individuals, homes will continue to regularly test individuals who are not fully vaccinated. The ministry will leverage provincial testing resources to inspect and audit these results by sending testing teams into homes to validate the results that homes have been reporting to the province. The ministry will also step up rigorous inspections of homes’ infection, prevention and control measures.”

 

The provincial government is understandably nervous about the long-term care sector given that 41 percent of the province’s COVID-19 deaths to date have been long-term care residents given such residents number about 115,000 – just barely over half of one percent of the province’s population.  There have continued to be outbreaks with 5 LTC homes in Ontario currently experiencing an outbreak – all in southern Ontario.  The government recognizes that the vaccination rates are not high enough and has mandated them by November 15th and yet it obviously does not believe it is going to happen because it is mandating additional testing requirements. Yet, what is more interesting is the response of the long-term care sector to the announcements. 

 

Take for example the Southbridge Group which has interpreted the provincial requirements as follows and applied them to all their homes across the province:

 

1. Fully vaccinated essential caregivers and visitors shall be required to do a COVID-19 rapid test once a week. Daily swab clinics will be held Monday to Sunday from 10am- 6pm.

2. Essential caregivers and visitors who have received only a single dose of the COVID-19 vaccine (i.e. partially vaccinated) shall be required to do a COVID-19 rapid test every day they attend the home up to 14 days after the day they receive their second shots. After this time, they will follow the testing frequency listed in #1 above.

3. Essential caregivers and visitors who are unvaccinated will be required to do a rapid test every day they attend the home.

 

We also ask that unvaccinated essential caregivers and visitors should limit their movement only to the room of the resident they are visiting and should refrain from going to common areas such as dinning or lounge rooms where other residents are congregated.

 

 

This is a particularly interesting interpretation of “randomized testing.” A quick search reveals that the definition of “random” as usually applied in statistics or polling is: “made, done., happening, or chosen without method or conscious decision”.  So, one might expect that 1 in every 20 visitors might be selected for testing or perhaps 1 in 10.  A test at least once a week for everyone is not random no matter what the business school graduate brainiacs at corporate head office might think.  Applying testing to both the fully vaccinated as well as the unvaccinated equally seems a bit unreasonable but acceptable if it truly is random.  Mandatory testing for the unvaccinated and random testing for the fully vaccinated seems more reasonable.  However, this application of the requirements treats everyone the same – vaccinated or unvaccinated - a one size fits all policy – that in the end is being done because so many long-term-care staff and workers and even visitors are apparently still unvaccinated.  And why 10am to 6pm only for testing?  What if a family member wants to visit in the late evening after a long day at work or early in the morning before work?

 

And what is more interesting is that the anecdotal evidence - gleaned from others who like myself who have a loved one in long-term care - suggests the application of the new provincial requirements differs across homes in Ontario and often even the same community.  Some homes are indeed testing randomly all staff and visitors, some say fully vaccinated visitors and caregivers will not be tested at all, some are testing everyone irregardless of vaccine status, some say you can now only visit in the resident’s room, while others say you can help feed the residents in the dining room.  Moreover, unlike the provincial approach to the relaxation of restrictions which ostensibly is going to be attuned to case counts and local conditions, there is no evidence that the LTC sector is using local case counts in their approach in terms of a measured approach to the new restriction requirements.  For some LTC homes, It is essentially a fortress mentality that is turning LTC homes into prisons.

 

Overall, the Southbridge rules – and likely those of other homes and providers across the province –represent a return to a much more restrictive set of rules.  This is after a gradual easing of restrictions during the summer and early fall that saw a somewhat more normal pattern of visitation.  The new requirements for many will in the end discourage visitation to the homes further accelerating the decline in the condition of residents that became apparent during the pandemic when personal visitation ceased completely.   One understands the skittishness particularly in the case of for-profit LTC homes given that their deaths rates from COVID were higher.  And yet, there must be a better way.  The long-term care sector needs to think more creatively and employ fewer one size fits all solutions and more outside the box solutions to balance resident safety with resident needs for frequent care and visitation. 

 

 

Ontario’s Pandemic: The Beginning of the End or the End of the Beginning?

 

The last few weeks have seen a major improvement in Ontario’s daily COVID-19 case account.  The fourth wave seems to have peaked at just under 1,000 daily cases several weeks ago and for the last seven days has averaged under 500 daily cases (See Figure).  This is at the bottom of the scenarios that were envisaged just a short while ago as the fourth wave picked up steam and this may indeed be the beginning of the end of the pandemic in Ontario. At the same time, we may simply be embarking on a new post-pandemic era characterized by intermittent ebbs and flows of infection and a long-term change in how things are done.  In the end, it has been a remarkable learning process.

 

 

We appear to owe this new diminished phase of the pandemic partly to continued public restrictions with respect to the wearing of masks in public places and the high rates of vaccination.   The prolonged restrictions and phased in reopening over the summer has also been wise given the experience of Alberta and Saskatchewan with the Delta variant.  The high rates of vaccination in the province have been having their desired effects and the onset of the vaccine passport system has encouraged more hold backs to go and get vaccinated.  Yet, there are bumps.  The fact that the new QR code vaccine passport many can download for the first time today requires iOS 15 - for many of us a new iPhone - means a lot of us are not going to be conveniently loading it into our Apple Wallets.

 

And while the provincial government is apparently planning to announce a further relaxation next week in pandemic restrictions dealing with capacities in assorted public venues at the same time, it is announcing new restrictions reflecting slower progress in other areas.  The easing of pandemic measures will include ending capacity limits in all locations where proof-of-vaccination requirements are in place, such as restaurants, bars and gyms, a senior official in Ford's government said on Wednesday.  To its credit, it is going to retain the requirement for masking in public spaces.  Moreover, future outbreaks will apparently be met with more local response as opposed to province wide one size fits all provincial lock downs though my guess is that is more aspirational given the heavy handed tendency towards centralization of policy at Queen’s Park.

 

At the same time, it has been recently announced that long-term care homes will be instituting testing for staff and visitors whether doubly vaccinated or not at the same time that it is mandating vaccines for all long-term care home staff by November 15^th.  While this continued testing has been out forth as “random” testing to provide early detection of breakthrough cases, some evidence to date suggests that Ontario LTC homes will be interpreting it as weekly testing suggesting that things will not be going back to normal for some time. Calling it "random" may be government political word massage to make visitors to LTC homes think it is not going to be formalized but it remains that the Oxford Dictionary defines random as: "done, chosen, etc. without somebody deciding in advance what is going to happen, or without any regular pattern" and not something done on a weekly basis.

 

The fact that testing is going to be used on doubly vaccinated individuals (who granted can still transmit the virus) while some hospitals have announced that visitors (to be clear not patients) will require double vaccination to get in to see their loved ones suggests that the real elephant in the room is still the high proportion of not vaccinated people in Ontario – for which a lot of other vaccinated people will continue to pay the price.  It remains that as of today only 73 percent of all people in Ontario are fully vaccinated.  And in long-term care homes, as of the latest figures for end of August, more than half of homes had less than 90 percent of their staff doubly vaccinated.

 

So, practice and implementation continue to lag science and evidence though the other revealing result of this pandemic has been how much public health, epidemiology and infectious disease science is a lot more like economic science than they would care to admit.  When it comes to scientific expertise, the pandemic has revealed that we are all economists now. Economists have been the butt of jokes for years about how their economic forecasts always seemed off the mark and yet during the pandemic, epidemiologists, bio-statisticians, and other assorted medical experts, have joined the ranks of economists and weather forecasters – not just in the range of forecasts provided but by the constantly shifting advice.   One does not have to think that far back to recall debates and discussion over whether to close border or wait, aerosol transmission or not aerosol, masks are effective or not effective, take AstraZeneca, don’t take AstraZeneca, etc.

 

In the end, this will hopefully be a humbling experience for science that will improve it.  Economic science, like the other sciences is evidence based and empirical with theoretical frameworks driving the analysis.  Facts are indeed facts but interpretation of the facts via theory and explanation is open to debate, consensus only evolves over time, and most importantly:  decision and policy making based on the evidence and the conclusions drawn from the evidence in the end is not done by the scientists but by politicians and civil servants who have agendas and constraints of their own not least of which is public reception and compliance.  The decisions in the end have been much more coloured by the art of the possible than many would have liked. We are indeed at an end but the drama continues.

The Finances of the University-Lakehead Edition

 

Many will have caught Alex Usher’s post on HESA dealing with university finances in Canada during the pandemic year which paints a surprisingly different picture of university finances than what one might expect.  Of the 34 universities with data available for the 2020-21 fiscal year, 30 of them posted surpluses and some of them were quite staggering.  For example, a 726 million-dollar surplus at University of Toronto (a $441 million surplus the year previous) or Queen’s with $144 million surplus (year previous was $35.7 million).  This seems quite at odds with the sky is falling scenarios that propagated the early part of the pandemic as universities argued that they were going to lose money. So how did this happen?

 

According to Usher: “Well, apart from the University of Saskatchewan (where the turnaround was mostly due to a quite amazing uptick in the investment portfolio), the formula was pretty simple.  Overall, university revenues rose slightly – about 2.6% in nominal terms – while expenditures stayed unchanged.   Essentially, the savings from keeping campuses closed offset the usual 2-3% growth in salary costs.”  Indeed, as he concludes: “universities did not in fact lose money during the pandemic.  They cut their budgets in anticipation of a fall in revenue and then the fall never came.  They will be in good shape to deal with the next year or two when, I suspect, we will see a bit more labour militancy that we’ve seen for awhile.”

 

So of course, the interesting question is how did Lakehead University do?  Well, Lakehead has also done surprisingly well according to its 2020-2021 financial statement that was recently released. From 2020 to 2021, revenues did fall slightly from $200.2 million to $198.3 million – a drop of just under one percent.  However, total expenses fell even faster going from $198.7 million in 2020 to $187.6 million in 2021 – a drop of 5.5 percent.  As a result, there was an operating surplus of $10.691 million in 2021 which was up from a surplus of $$1.542 million in 2020.  And this was before the unrealized gains from an interest rate swap are factored in which brings the total surplus to $14.456 million.  It turns out Lakehead, like Saskatchewan, did very well on its investment portfolio seeing an increase in investment income from $3.4 million the year before to $20.055 million – a staggering 488 percent.  One wonders why their management of their own investment portfolio does not translate into better management of the university pension plan – one of the worst university pensions in the country in terms of the benefits provided to retirees but I digress.

 

On the revenue side, aside from investment returns it turns out everything else was down.  Government general grant revenue was down 3 percent while student fees were down 1.5 percent.  There was a slight fall in enrollment which accounts for this as total enrollment (full-time and part-time students) went from 8505 to 8365 – a decline of 1.6 percent.  However, the good news is that 2021-22 is expected to see a rebound with total enrollment currently estimated at about 8668 – an increase of about 3.6 percent.  So, one can expect both tuition and grant revenue to rebound this year. 

 

As for expenses, well salaries and benefits were down -0.3 percent, supplies for operations were -25 percent, the costs of operating assorted sales and services were -61 percent, building and equipment maintenance costs were -19 percent and travel was down a remarkable 93 percent – from $4.1 million the year before to $302 thousand during the pandemic year.  This may prove to be one of the more important cost savings as the constant shuttling of administrators and staff from Thunder Bay to Orillia and Toronto obviously can be replaced by Zoom technology.  As for salaries and benefits, the university took full advantage of the provincial restraint salary guidelines thereby keeping compensation cost growth low and that will continue this year given the contract that was negotiated.  And, it turns out that having all the faculty and staff work from home saved several million dollars in operations and maintenance as costs like utilities were shifted onto employee home budgets.

 

 

So, in the end the sky did not fall and when the last year is placed in long-term context, Lakehead’s finances are indeed looking quite robust.  Figure 1 plots revenues, expenditures, and deficits since 2000 and they show growing revenues and expenditures and deficits in only 5 of the last 21 years. The last five years have seen a string of operating surpluses of which 2020-21 is the largest. Indeed, Lakehead has seen an accumulated surplus since 2020 of $83 million dollars.  Where has that money gone? Likely into the university’s long-term investment portfolio which according to the financial statement sits at about $144 million dollars and of course this year earned a whopping $20 million dollar return.  It certainly has not gone into paying down the debt which as Figure 2 shows went up $8.038 million in 2020-21 from th year previous to reach $106.6 billion.  This was to finance the athletic facility expansion. 

 

 

 

When it comes to long-term major revenue performance as depicted in Figure 3, government grants in total dollars have been flat at about $65 million annually since 2010 and as a share of total revenue have declined from a peak of 43 percent in 2009 to reach 32 percent at present.  As for student fees (tuition), it has grown dramatically since 2010 –nearly doubling from about $43 million in 2010 to reach $84 million at present.  Figure 4 shows that enrollment growth is only partially responsible for this because despite the long-term upward trend, total enrollment is about where it was a decade ago and has been recovering after a decline.  What has changed is the composition of the students as there has been a larger share of international; students who also pay much higher tuition.

 

 

 

 

 

So, there you have it.  Lakehead’s finances during the pandemic were quite good and come on top of a long-term stable and improving financial situation marked by rising revenues, enrollment growth and an expanding university investment portfolio.  This echoes the comments made by the university during the situation at Laurentian that Lakehead is "very financially sound".  That is good to know. If Alex Usher is right, Lakehead like the rest of the university sector will see increasing calls from its faculty and staff for a return on their investment of time and personal resources into the operations and success of the university.