Federal Finances in Review

 

The last week has been a chaotic one in Ottawa given the resignation of the finance minister on the eve of the Federal Economic and Fiscal Statement (FES), the turmoil over the Prime Minister’s leadership and the ongoing verbal assaults of President-elect Trump on Canadian sovereignty.  Nonetheless, lost in all of this is that after a considerable delay, there has finally been an update to Canada’s Fiscal Reference Tables (FRT) and Figures 1-4 here provide an overview of both the past (1966-67 to 2023-24) as laid out in the FRT and the future (2024-25 to 2028-29) such as it is laid out in the FES. 

Figure 1 provides a nice snapshot of the federal fiscal footprint – the federal spending to GDP ratio. Over the period of this chart, the federal footprint reached a  maximum of 25.6 percent in 2020-21 during the pandemic. This was of a course an outlier year and if one takes this out, one nevertheless notices that from a low of 13.9 percent in 2013-14, the federal fiscal footprint has gradually drifted upwards notwithstanding the pandemic and in 2022-24 stood at 17 percent.  While not at the level of the 1980s when it exceeded 20 percent, it remains that the federal fiscal footprint both in 2023-24 and going forward to 2028-29 is the largest it has been since the late 1990s and marks a calculated expansion of federal public sector size relative to GDP.

 

 Part of this rising expenditure has been financed via borrowing and in 2023-24 the deficit stood at nearly $62 billion.  From 2023-24 to 2028-29, Canada is forecast to accumulate another $242 billion dollars in deficits bringing the national net debt to $1.549 trillion by 2028-29. Figure 2 plots the deficit to GDP ratio, and it stands at nearly 2 percent for 2023-24 and is forecast to drop to 0.7 percent by 2028-29 – assuming of course that given the deficits projected, nominal GDP growth proceeds at 4 percent annually.  Given the slowdown in the economy that appears to be underway and the likely imposition of US tariffs in 2025, this would appear to be an exceptionally rosy GDP growth forecast.

 

 Figure 3 plots the net debt to GDP ratio, and it began to take a definite upward path starting in 2019-20 when it went to 37 percent from 33 percent the year previous.  It peaked at just over 44 percent in 2022-23 and is only going to come down slowly to about 42 percent by 2028-29.  Now, while up by recent standards, it is nowhere near where it was during the federal fiscal crisis of the 1990s.  Yet, the debt is mounting, and interest rates are higher than they were during the debt and spending spiral of the pandemic and so debt service costs have gone up.

 

 In 2019-20, debt service costs were $24.4 billion representing about 7 percent of federal revenues that year.  For 2024-25 they are anticipated to be more than double at $53.7 billion or 10.8 percent of federal revenues.   By 2028-29, it is projected that annual debt service costs will reach $66.3 billion or 11.3 percent of federal revenues.  As Figure 4 illustrates, we are again nowhere near the numbers of the federal fiscal crisis when well over 30 percent of federal revenues went to service the debt. At the same time, we appear to have settled at a plateau over 10 percent for the foreseeable future and that is money better spent on programs.

 

 In her resignation letter, the outgoing finance minister appeared to have a fiscal epiphany as she noted the need to keep our fiscal powder dry to face the economic challenges coming down the pipeline.  The trends of the last few years suggest that there has been a certain dampness to federal fiscal powder for the last few years that is expected to persist into the future.  While there is still fiscal room to manoeuvre, a large recessionary shock will quickly erode that room given the gradual enrichment of long-term  federal spending via assorted initiatives over the last decade as illustrated by the federal expenditure to GDP ratio. This suggests that dealing with a major recession will be more challenging that it would have been a decade ago.

 

 

Thunder Bay’s Economy: The Year Past and the Year Ahead

 

Well, it is nearly year’s end and for Thunder Bay, time for a retrospective on economic things past as well as a brief look ahead.  Thunder Bay has had a particularly good year given that population is growing, construction is up, and the Port is doing the best it has in years. The really big driver in Thunder Bay this past year would have to be the construction sector given the continuing construction of the new more than one-billion-dollar provincial prison as well as substantial rental accommodation construction.  In the case of the jail, as the Conference Board noted in its November 2024 Metropolitan Report on Thunder Bay’s economy: “Work on the jail really helps.”  Think about it, Thunder Bay’s GDP is just shy of $6 billion.  A project the size of the jail represents a massive distortionary shock to the local economy.

 

There are many workers who are commuting to Thunder Bay for the construction work or commuting through Thunder Bay to work at the mines and this has helped buoy demand for accommodation and services this year.  Indeed, local employment is up as well having grown from about 61,200 workers in 2021 to 63,700 by 2024 and is projected to reach nearly 65,000 in 2025 as current activity continues.  And our CMA population is indeed up also and now expected to be well over 130,000.  However, 65,000 seems to be the upper end of our new “post forest sector crisis employment range.”  Prior to the forest sector crisis in the early 2000s, our employment used to fluctuate between 65,000 and 70,000.  There has been a permanent downsizing of local employment. Even the Conference Board has noted that: “Despite the run-up, employment remains below the 2003 all-time summit of 65,500 workers.”

 

Given the reliance on construction, the real concern is moving into 2026 to 2027 when the provincial jail construction winds up given the massive scale of the project.  The projection for housing starts coming from the Conference Board suggest an annual flow of less than 200 new starts a year for the foreseeable future.  While the Art Gallery and the proposed Turf Facility may take up some of the construction slack as the jail project winds down, neither of those projects are of comparable scale to the jail project.  If there is a silver lining to this, it is that local homeowners might finally be able to get a hold of a local tradesman to do their repairs and renovations.

 

By the end of next year, the full impact of changes to international student visas will also have emerged which will more fully affect the local post-secondary sector as well as local retailers that rely on international student labour.  Should the currently lagging lithium and critical mineral projects finally emerge by this period, then they will likely help take up the economic slack.  Unfortunately, at present with the sales of electric vehicles slowing, it appears that demands for regional lithium development may have stalled for the time being.  As well, the demand for forest sector products remains weak.  Indeed, when it comes to GDP growth, the Conference Board notes that: “Thunder Bay’s real GDP has essentially stagnated against this sombre backdrop. It is on tap to ease by 0.2 per cent in 2024, after rising only 0.1 per cent in 2023. We expect 2.0 per cent growth in 2025. Local GDP growth will ease to 1.2 per cent in 2026 and 0.7 per cent in 2027, then return to 1.2 per cent in 2028”.

 

And then there is of course what the impact of President Trump and the proposed tariffs may be on the local economy.  It is of course unclear what the impact of tariffs might be unless they are also applied to regional natural resource products.  There are industries in our area that ship to the U.S. including wood and paper products, and minerals and a slowdown here may also impact the Port of Thunder Bay.  However, the incoming US President is more of a known quantity this time around and the evidence is that he is quite transactional with much of his behaviour designed to stake out bargaining positions.  Canadians should be prepared to wheel and deal.  It will be a tumultuous year to be sure with President Trump sending out assorted signals about how he feels about Canada.

 

 

Ontario Health Spending: What's Up and What's Down

 The Canadian Institute for Health Information (CIHI) has released its 2024 National Health Expenditure Trends data and it paints an overall picture of rising health spending.  As I have noted elsewhere, total health-care spending in Canada is expected to increase by 5.7 percent in 2024, after rising 4.5 percent in 2023 and only 1.7 percent in 2022 coming on the heels of the pandemic.  The picture for provincial government health spending is also one of increase but once adjusted for population and inflation, the results are more mixed particularly if one looks at changes since the year before the pandemic.  Over the period 2019 to 2024, British Columbia and Prince Edward Island see the largest increases in real per capita provincial government spending at 17 and 16 percent respectively while at the bottom are Manitoba and Nova Scotia, which over the five years have seen their per capita provincial government health spending stay essentially flat.  Ontario, over this same period saw an increase of just under seven percent.

 

 

Figure 1 plots real per capita Ontario provincial government health spending ($2010) from 1975 to the present and the evidence shows that since 2010, real per capita health spending spending growth was lackluster at best rising from $3,617 to $3,783 - an increase of of 4.6 percent or about half a percent annually.  After 2019, the pandemic saw a ramping up provincial government health spending to a peak of $4,316 in 2021 - an increase over two years of almost 14 percent.  Since 2021, there has been a decline in real per capita spending and in 2024 it is estimated to sit at $4,040 - for a decline of about 6 percent.  Nevertheless, real per capita provincial government health spending in 2024 is still projected to be 6.8 percent higher than 2019.

 

What is quite interesting is how spending by expenditure category has performed over the 2019 to 2024 period.  Figure 2 plots the percentage change in real per capita provincial government health spending by category.  Over this five year period, the largest increase has been for real per capita spending on other institutions - namely, long-term care - at nearly 50 percent.  This is of course understandable in the wake of what transpired in long-term care homes during the pandemic as well as the promise to build more long-term care beds for an aging population.  Next is home and community care at 10.7 percent , followed by public health at 9.3 percent and then hospitals at 8 percent.  Other professionals is next with an increase of 5.3 percent followed by capital at 3.2 percent.  What comes next however is even more interesting .  All other health care net of home and community care spending is down by about a third of one percent.  Spending on provincial government drug plans in real per capita terms is down 4.4 percent while physician spending is down 5.8 percent.  Finally, real per capita provincial government health spending on health administration is down nearly 24 percent. 

 The surprise here is that spending has dropped on two items that directly affects a lot of individuals in Ontario - namely, government paid for prescription drugs and physician services.   Obviously, if one measures availability of physician services by how much is being spent per person after population growth and inflation, it is obvious that Ontario is having trouble keeping up in this category.  With an aging population, the decline in physician and also drug plan spending is definitely going to be felt even if the provincial government asks us to take solace in the increases in long-term care, home care and hospital spending. 

Technological Change and Employment in Economic History

 

Technological change has been the chief contributor to economic growth since the industrial revolution. Yet, technological change always seems accompanied by anxieties related to long-term unemployment despite increases in both total employment and per capita income over the last 150 years.  This anxiety continues  with the current onset and diffusion of assorted new technologies including AI, machine learning and quantum computing.  Yet the evidence suggests that despite over 150 years of rapid technological change, more jobs have been created than destroyed so that on net employment has continued to rise and matched or exceeded population growth.

 

My coauthor Olivia Di Matteo (UBC) and I have a paper on the program of the Social Science History Association Meetings in Toronto this week that looks at whether the past can inform the future when it comes to the impact of technology – quantum computing in particular – on the economy.  Our paper overviews the recent history of technological anxiety with comparison to actual outcomes, surveys the state of quantum computing and the challenges it faces, and then tries to extrapolate from current available metrics and past performance what the potential effects on employment and income might be.  The historical evidence suggests a positive and significant relationship between income, employment and assorted measures of technological change including computing measures.  Going forward there is no reason why future growth cannot benefit from new quantum technology, but much depends on having a measure of quantum computing to gauge its impact on income and employment.  Measuring the impact of quantum computing is more difficult given that new metrics apart from those obtained during the age of classical computing may apply.

 

The focus in the remainder of this blog post (excerpted directly from material in that paper)  is the historical evidence on employment performance in three countries at the forefront of technological change over the last 150 years: The United Kingdom (Figure 1), Canada (Figure 2), and the United States (Figure 3)[See note at end of post for data sources]. The United Kingdom’s experience as the first industrial nation revealed increases in both employment and the labour force as technological change both created and destroyed jobs but with substantial net job creation.  Indeed, using census records on employment in England and Wales since 1871 and Labour Force Survey Data from 1992, Stewart, De, and Cole (2015) show declines in occupations such as agricultural labourers, washers, launderers, telephonists, and telegraph operators both in absolute numbers and as a share of employment.  Meanwhile, these declines were accompanied by increases in other occupations such as accountants, bar staff, hairdressers, and other services. Overall, employment in the United Kingdom has trended steadily upwards since the mid 19th century irrespective of massive technological change as Figure 1 illustrates.

 

 

 

The picture is similar for Canada, as illustrated in Figure 2.   Between 1851 and 2021, in tandem with a population that grew from 2.4 to 38.3 million – a 16-fold increase – estimates of the Canadian labour force show growth from 762,000 to 20 million – a 26-fold increase in size.  Employment data is available from 1891, and over the period 1891 to 2021, employment in Canada grew from 1.6 to 18.0 million – a 11-fold increase – while the labour force over the same span also increased from 1.7 to 20 million – an approximately 12-fold increase.  The slowdown after 2017 in terms of labour force and employment can be attributed to the impact of the pandemic, and as the chart illustrates, there was recovery by 2022.  Evidence for the United States parallels that of the United Kingdom and Canada with respect to employment as illustrated in Figure 3. Again, from 1900 to 2022 – ostensibly a period of great technological change – total employment in the United States expanded six-fold while the population grew four-fold.  

 

 

 

So, why all the anxiety about technological change?  Well, despite the historical evidence to date, there is a background foreboding that much like mutual fund returns, the past may not be an indicator of the future if the onset of quantum information technologies, AI and machine learning together somehow represent a fundamentally different economic process that unlike the past will destroy more jobs than it creates. However, at this point these new technologies are still in their infancy and there is really no reason at this stage to expect the future to be that much different than the past, unless the relationship between technological change and its contribution to the economy itself shifts in some unforeseen fashion.

 

Sources/References

 

Data Sources for Figures 1-3: UK [  Data Source: A millennium of macroeconomic data for the UK, The Bank of England's collection of historical macroeconomic and financial statistics, Volume 3.1.], Canada: [Denton and Ostry (1961); Historical Statistics of Canada; Statistics Canada Catalogue 71-201 Annual, 1973 & 1989, Historical labour force statistics, actual data, seasonal factors, seasonally adjusted data; Statistics Canada, v102029212 Canada [11124], Labour force (Persons), Total, all occupations; Both sexes v102029368 Canada [11124], Employment (Persons), Total, all occupations, Both sexes]; USA:[ Historical Statistics of the United States (HSUS) from 1900 to 1945 and that of the Bureau of Labour Statistics (BLS) from 1948 to 2023.]

 

Stewart. I., D. De, and A. Cole (2015) Technology and People: The great job-creating machine. Deloitte.

Inflation, Productivity and Real Wage Stagnation: Canada 1960 to 2023

 

Today’s CPI inflation numbers have many breathing a sigh of relief with the expectation that with inflation below 2 percent, more interest rate relief is on the way and Canadians can resume their high personal borrowing lifestyle.   Lost in the short-term euphoria and celebration of expected lower borrowing costs is the long term cost that inflation has had on our standard of living given the low productivity gains of the last five decades.  Nowhere is this more evident than when one takes a look at how real wages have performed over time.

 

Figure 1 plots the average annual monthly hourly Canadian manufacturing wage – nominal and real – for the period from 1960 to 2023.  The nominal hourly manufacturing wage data and the All-City CPI data are both from the US Federal Reserve of St. Louis data sets [CPALCY01CAA661N; LCEAMN01CAM189S] with the real hourly wage data in $2015.   Why manufacturing wages?  Well, the manufacturing sector has generally been held up as the beacon for good quality and high paying jobs with a lot of hand wringing as manufacturing jobs have declined as a share of employment.  It sounds old fashioned but many still regard manufacturing jobs as the “high ground” of an economy in terms of value added to which I would also add the resource sector (including agriculture).

 

 

 

When nominal hourly wages are examined, their performance looks impressive.  The monthly nominal manufacturing wage in Canada in 1960 averaged $1.78/hr. By 2023, it was $30.66/hr and the average annual growth rate of real nominal hourly wages in manufacturing was 4.7 percent.  However, when adjusted for inflation using the All-City CPI for Canada with 2015 as the base year, real nominal wages barely double over the period going from $13.64/hr to $24.91/hr.  The average annual growth rate of real hourly manufacturing wages over this entire period was only 1 percent annually.  Given that at 1 percent annual growth it would take approximately 72 years for a quantity to double, we can expect real hourly wages in manufacturing to be double those in 1960 by 2032.

 

 

 

Figure 2 plots the annual average growth rate of real hourly manufacturing wages and adds a 5^th order polynomial smoothing plot.  When one examines both Figure 1 and 2, it becomes apparent that the stagnation in real wage growth really sets in during the 1970s.  There was a brief uptick in real wage growth in the wake of the FTA and NAFTA (in 1988 and 1994 respectively) but decline sets in again after the 2008-09 financial crisis.  When one combines the productivity decline that starts in the 1970s following the first oil price shock with the effects of inflation, the erosion of the standard of living – as captured by real wages – is dramatically illustrated.  It makes the case for why bringing inflation under control is so important and also why we need a productivity agenda to drive Canadian policy going into the next election.

Harris or Trump? For Canada, Post November 4th Is Going to Be a Challenge

 

As we move into the final sprint of the US election, it bears as always to pay attention to the economic implications for Canada.  Whatever one’s political priors or favorites may be in this election, in the end it needs to be realized that when it comes to US trade and economic interests, it does not matter whether Trump or Harris wins– American interests trump (no pun intended) Canadian ones.  And in the case of the economy and our trade relationship with the United States, be prepared for some tough bargaining.  While 2024 marked the 30^th Anniversary of NAFTA, it has since 2020 been replaced by the USMCA or CUSMA agreement with renewal talks beginning in 2026. 

 

Along with perennial sticking points like milk and dairy or softwood lumber, in the United States, despite what economists and evidence might say about economic growth and the benefits of trade in the wake of NAFTA and CUSMA, the debate will be shaped by the widespread belief that NAFTA in particular resulted in job losses and wage stagnation.   In the case of manufacturing, the accompanying graphic summarizes quite nicely why the Americans are going to be playing hardball.  In many respects, US manufacturing job losses did coincide with NAFTA. 

 

Figure 1 presents annual Canadian and American manufacturing employment from 1976 to 2023 using a dual scale since US employment and population in general is about ten times ours.  In 1994, there were nearly 19 million Americans employed in manufacturing and 1.8 million in Canada. In the decade afterwards, by 2005, US manufacturing employment fell to 16.2 million while Canadian manufacturing grew to 2.2 million.  In the wake of NAFTA, American manufacturing employment fell by 14 percent while Canadian manufacturing employment rose by 20 percent. 

 

 

 

 Since 2005, American manufacturing employment has declined slightly to 15.6 million while Canada’s declined to about 1.8 million where it has stabilized somewhat.  In other words, over thirty years, Canada has stayed flat in terms of total manufacturing employment (notwithstanding the rise and fall from 1994 to about 2010) while the US has seen a decline.  The good news is that since about 2019, as evidenced by the 5^th order polynomial smoothing line, both countries have seen a slight increase in manufacturing employment as a result of fallout from the pandemic, trade issues with China and the rise of onshoring production activities.

 

Yet those same polynomial smooths show a pretty consistent decline for the US since 1976 with Canada doing somewhat better.  True, Canada is not to blame for the decline in US manufacturing.  Both countries have seen a decline in manufacturing employment over time both in absolute numbers as well as a share of total employment.  It is not 1960 anymore.  There have been productivity issues in both countries as well as intense competition starting in the 1990s from China and other Asian economies as well as Mexico which is/was a part of CUSMA/NAFTA.  However, that does not matter.  For the United States, creating jobs in manufacturing will mean looking at all the players – including Canada.  It will not matter whether Harris or trump becomes President in this regard.  Notice has been served.

Changing Thunder Bay City Council: What Is The Path Forward?

 

I have already opined on the recent report putting forth options for the reform of Thunder Bay City Council, but the matter is so fundamentally important to the future of local democracy in our city as well as the effectiveness of municipal government that it is worth another post.  This especially requires another post given that the current council will soon move to deliberate and decide on which of the two options – if any – it is going to go with. 

 

To start, there are actually three options: The first, is four east-west wards running parallel from north to south numbered 1 to 4 that basically gives each ward a rural area, urban area as well as some industry and waterfront in the geographic and population composition of the ward.  Each ward would have two ward councillors for a total of eight.  As well, there would be two at-large councillors and a mayor.  This proposal is being recommended by city administration.  The second option is a full at large system with ten at-large councillors – no ward councillors - plus the mayor. One suspects that some type of ward structure will be retained with at large councillors “assigned” ward representation duties but how that might actually work is shrouded in fog. And third – while not explicitly referred to but lurking in the background – is simply the status quo option of seven ward councillors, five at large councillors and one mayor.

 

What remains important in the discussion is what the rationale for creating a new structure is.  First and foremost, whether warranted or not, there appears to be a widespread desire for change in city council’s composition driven by dissatisfaction with assorted aspects of municipal government in Thunder Bay.  A desire for change for the sake of change is never in of itself a good reason to change things but even recent albeit unscientific polls on TBnewswatch suggests that most respondents want change.  Past TBnewswatch  polls have suggested a desire for a smaller council with eight councillors plus a mayor garnering the most support.  When given the two proposed options plus the status quo as choice, the most recent poll finds that over 86 percent want change with only 13 percent supporting the status quo.  Moreover, when it comes to the two proposed options – about 46 percent support the 10 councillors plus mayor all at large option, and 40 percent support the four ward two councillor per ward plus two at large and a mayor format. 

 

 

What type of performance improvements to our municipal governance are these proposals supposed to make?  Anecdotally, observation suggests that Thunder Bay City Council meetings appear to be long and drawn out with detailed discussions and gridlock on minor and major matters alike.  Yet, how changing the composition of city council will address issues of dysfunction are not really obvious.  There is also a desire to save money but reducing council by two members saves at best $100,000 in salaries, benefits, and expenses on a tax funded budget of over $200 million.  Indeed, if cost savings are really what you are after, the savings do not come from the reduction in the size of city council but an improvement in the quality of councillors and decision-making on it.  There is nothing in either of the two proposed options that lend any evidence as to how a smaller council will be a better council when it comes to decision making. 

 

In the end the three options can be interpreted as follows: the status quo, a modified status quo which shrinks the council slightly but still includes a mix of ward and at-large councillors, and the ten councillors at large option which I would term the “mayor plus ten assistant mayors” option.  The attractiveness of an all–at large council to some members of the general public springs from the conviction that such councillors have the interests of the entire city at large while ward councillors are parochial nimbyists who block change.  My observations are that ward councillors seem stuck with the grunt work of dealing with specific ward and neighborhood issues while most  at-large councillors pick and choose what ward issues to advocate for based on the political benefits while behaving as pontificating prima donnas at meetings with speeches that chew up far too much time. 

 

In the end, an all–at large council favours those candidates with a lot of prior popular name exposure (it is like high school all over again) and/or the financial resources or special interest backing to mount a city-wide campaign.  The argument that somehow only at large councillors have the ability to see the whole city’s interests is spurious.  The average municipal politician usually puts their political interests first, and everything else is weighed and slotted towards meeting those interests – whether it is in the city’s interests or not.  Having no ward councillors at all is fundamentally at odds with the purpose of municipal government which is to provide municipal services to rate payers who either reside and/or operate businesses in wards.  Moving to an all–at large system reduces accountability to the mundane needs of ratepayers by creating a council of big picture overlords who will pass the buck on specific local issues when it suits them. 

 

Those that want an all–at large system should consider this analogy.  If at large councillors are really better able to see the “bigger municipal picture” than by extension having all MPs and MPPS elected from an at large list would be better at seeing provincial or national interests as opposed to parochial MPs or MPPs who just look after their ridings.  Perhaps, one might consider this a straw man argument and a deflection from the real issue but think about it carefully.  One may feel comfortable about all at large candidates with no wards because Thunder Bay is a relatively small city and ultimately everyone knows someone who knows someone who is friends with a councillor.  Everyone feels that they can have their voice heard.  And yet, without the institution of direct ward or riding representation, there is no guarantee that you will always have a direct opportunity to be heard.

 

So, what is the solution?  Well, my preferred option – which is of course not up for discussion in the current set of offerings - is eight ward councillors plus a mayor option.  The city would be divided not into four but eight wards thereby ensuring that some dedicated rural ward representation would remain.  It is now 50 years after amalgamation and the city has been united long enough that the average ward councillor should be able to see the forest for the trees.  If they cannot, it is more a function of the quality of the councillor rather than the ward system.  Going down to eight councillors plus a mayor would likely save several hundred thousand dollars – again a small sum compared to a budget in the hundreds of millions – but enough to increase resources available to perhaps attract better candidates. This does not necessarily mean raising salaries for councillors but could even involve providing funds so that they can hire some independent research support so they can better inform themselves on issues.

 

Of course, the other argument that has also been made in favour of an all–at large council is that there is a lack of Indigenous representation on the current city council.  Given that the Indigenous population in Thunder Bay is spread out across the city rather than concentrated in one ward, an all–at large system increases the odds that an indigenous candidate and by extension the growing indigenous population can gain a voice on city council.  However, there is no guarantee that having ten at large councillors will ensure an indigenous candidate gaining office.  Indeed, if having at large councillors is the best way to ensure better odds for an indigenous candidate getting elected to Thunder Bay City Council, then the best thing to do is to retain the current system with seven ward and five at-large councillors plus a mayor.  At least it will be the devil we know best.

 

 

Getting Ready for Budget Season: A look at Thunder Bay Municipal Indicators

 

Municipal budget season is well underway in Thunder Bay, but the main public theatrics over the 2025 budget should be transpiring over the next few months.  The most recent indication is that City Council is expected to target a 3.8 percent municipal tax levy increase.  There are budget pressures underway not the least of which is apparently an additional $5.6 million to cover wages and benefits. Putting budgets into context is always more useful if a long term is taken and fortunately the Ontario government does provide resources to track municipal spending.  Here, a useful tool are the multi-year financial reports provided from the Financial Information Returns which provide standardized reporting of a municipality’s financial activities as well as additional statistical information.

 

Figure 1 presents municipal property taxes per household and water and sewer charges per household since 2000.  While many other municipalities appear to have filed their 2023 returns, Thunder Bay appears to be lagging and therefore this long-term snapshot only goes to 2022.  From 2000 to 2022, municipal property taxes in Thunder Bay have nearly doubled going from $1,947 to $3,918.  The growth of water and sewer charges has been more pronounced going from $379 per household in 2000 to $1,158 in 2022 – a tripling of the average per household charge.

 

 

 

Figure 2 plots a dual scale chart with the total municipal workforce (full time, part time and seasonal) on the right size axis and the value of wages, salaries, and benefits per employee on the left axis.  Perhaps one of the reasons Thunder Bay is lagging in putting out its financial information is that it is a bit short staffed given that the total size of the municipal workforce has declined from a peak reached circa 2013 and has been pretty flat since 2016.  On the other hand, since 2000, the size of the municipal workforce has gone from 2,344 employees (there is a data  gap in 2003) to 3,404 in 2022 – an increase of 45 percent.  Over the same period, average wages, salaries and benefits per employee have grown from $46,978 to $83,799 – an increase of 78 percent.

 

 

 

However, these indicators and the increases over time are best placed in context to an assortment of other indicators and this is done in Figure 3 which plots the percent increase in an assortment of indicators from 2000 to 2022.  As one can see, prices in Thunder Bay as measured by CPI inflation have risen by 49 percent.  Own purpose property tax revenues (the total tax levy) has grown 122 percent while total grants revenues have only grown by 55 percent.  Municipal property taxes per household have grown 101 percent while water and sewer charges have grown 205 percent.  

 

 

 

Meanwhile the total taxable assessment has grown by 60 percent which when divided by the number of years works out to an annual average growth of 2.7 percent.  This seems at odds with the fact that published reports have been of average assessment growth over the last ten years of only 0.6 percent annually.  However, one suspects that the 0.6 percent is real growth – after inflation – because the average annual assessment growth of 2.7 percent minus the average annual inflation rate of 2.2 percent from 2000 to 2022 yields real average annual assessment growth of 0.5 percent.  Given that property prices have grown substantially in Thunder Bay over the last decade in particular, the nominal rather than inflation adjusted tax assessment has been growing in tandem

 

More interesting is the fact that between 2000 and 2022, the population of the City of Thunder Bay has actually decreased by 6 percent.  This also seems at odds with recent reports that Thunder Bay is over 130,000 people but it must be remembered that FIR deals with municipal finances and the population of the City of Thunder Bay is that within its city limits while the recent population reports are for the larger Census Metropolitan Area.  Essentially, growth in Thunder Bay has been occurring outside the city limits where they do not have to pay property taxes to the City of Thunder Bay.

 

And finally to round things off, the municipal workforce over the 2000 to 2022 period grew by 45 percent, the total compensation per employee grew 78 percent and the total value of building permits grew 85 percent.  However, after inflation of 49 percent, salaries and benefits per employee only grew in real terms by 29 percent while to end things,  the real total value of permits grew by 36 percent. 

Rising Crime in Canada: Evidence from Thunder Bay

 

Rising crime and perceptions of rising crime in Canadian urban areas have become more concerning as media reports increase and a recent study by the MacDonald-Laurier Institute provides some evidence to back up the feeling that crime is up.  The report looks at the last decade’s worth of police reported crime data for nine major Canadian urban centers: Calgary, Edmonton, Montreal, Ottawa, Peel, Toronto, Vancouver, Winnipeg, and York Region.  Essentially, crime and especially violent crime is up in all of these cities with sexual assaults in particular showing large increases.  Of course, this study omits a lot of cities and so of course the question that arises for inquiring local minds is how Thunder Bay has been doing over the last little while?  Is crime rising in Thunder Bay? Well, it depends on the time span you want to look at as well as the specific type of crime.  But overall, the feeling that crime is rising here is not misplaced.

 

Using police reported crime data from Statistics Canada, here is a quick snapshot of how some crime rates in Thunder Bay (crimes per 100,000 population) have been performing. Figure 1 plots the crime rate for total violent crimes and total property crimes for the period 1998 to 2023.  Over the long haul, the trends do not seem particularly concerning.  The property crime rate in 1998 was 6,285 crimes per 100,000 population and after 2009 it began declining quite steadily followed by a spike in 2019 and then further decline.  Between 1998 and 2023, the property crime rate fell from 6,285 crimes per 100,000 to 3,117 per 100,000 – a 50 percent drop.  

 

 

 

Violent crime between 1998 and 2023 has also dropped but not by as much.  It went from 2,401 violent crimes per 100,000 to 2,195 per 100,000 -a nearly 9 percent decline.  However, the violent crime rate seems to be broken into two phases.  It went from 2,401 in 1998 to a low of 1,414 in 2015 – a decline of 41 percent.  Since 2015, it has grown and by 2023 was, as noted, at 2,195 – an increase of 55 percent.  While violent crime is lower than 1998 that is small consolation given what appears to be a fairly rapid increase in recent years.

 

 

 

Figure 2 presents the percentage change in crime rates over a ten-year period – 2013 to 2023 – for a select number of crime categories.  The results paint a more complicated picture.  The total crime rates (all criminal code violations including traffic) are down 2.5 percent over the last ten years.  This seems to be driven in part by a decline in property crimes as the total property crime rate over the same period is down 13.4 percent.  However, over a ten-year period, the total violent crime rate is up nearly 39 percent.  Homicides are up 120 percent from 2013 (though these are two points in time.  Using a three-year moving average for 2012 and 2022, homicides are only up 87 percent if that makes you feel better).  Total sexual assaults are up 68 percent while total assaults in general are up 31 percent.   Impaired driving is up about 5 percent while robberies are up 39 percent. 

 

So, are perceptions of rising crime justified?  I would think so given that while overall crime rates might be down or flat, the rates for more serious crimes such as homicides, assaults and robbery are up.  There you have it.

The Shape of Councils to Come

 

The Corporation of the City of Thunder Bay’s Council Composition Committee has after a number of months of deliberation and thought settled on two potential options for the reform of Thunder Bay City Council.  This is a topic with a long history and I have done several posts on it over the years the most recent one being in the wake of the decision to form an arm’s length committee to review the composition and structure of council.  The desire to look at the size and composition of council is rooted in the beliefs that there might be cost savings by reducing the size of council given that similar size cities often have fewer councillors or that council’s deliberations might be more efficient or effective if there were fewer councillors.  The current proposals if implemented would not be the first time that City Council has seen changes, but it is the first time in a long while.

 

When Thunder Bay was created in 1970 from amalgamation of the twin cities of Port Arthur and Fort William and the rural municipalities of Neebing and McIntyre, it began with a 12 councillor plus mayor council elected evenly across four wards.  However, interurban rivalry between the Williamites and Arthurites was still intense as was rural dissatisfaction and so in 1976 the four wards were revised to seven.  Then in 1985 there was the further revision that sought to balance north-south neighborhood concerns with the need to take the overall interest of the city into account known as the Larson compromise – after then councillor Rene Larson.  This created the current form of seven ward councillors plus five at large plus the mayor.  After nearly forty years, the proposals seek to change this.

 

There are two proposals.  The first, interestingly enough, seems like a tomorrow is yesterday proposal given that it features four wards.  The proposal puts forth four east-west wards running parallel from north to south numbered 1 to 4 that basically give each ward a rural area, urban area as well as some industry and waterfront in the geographic and population composition of the ward.  Each ward would have two ward councillors for a total of eight. Plus, there would be two at-large councillors and a mayor.  This proposal is apparently also being recommended by city administration and the committee chair and former city councillor Rebecca Johnson feels it is “quite exciting” given that each ward combines all aspects of the community. The other option is a full at large system with ten at-large councillors – no wards - plus the mayor. There will now be public consultations and information sessions that the committee will use to narrow down the options to just one and this will then be submitted to council for approval and then will hopefully be in place for the October 2026 election.

 

 

 

So, what to make of all this.  Well, in terms of cost savings, going from a current council of 13 members to one of 11 under either option is simply a cosmetic cost saving.  While theatre is important in politics, pointless cost saving theatre is a waste of time.  What is more important is whether the new format is an improvement on representation and decision making in terms of having balanced representation of all city interests as well as a more streamlined decision-making process.  Having fewer members on council is again more of a cosmetic streamlining as a council of 11 is as likely to have long winded grand-standers as a council of 13.  The savings on time and committee streamlining is marginal at best.  As for the idea that having wards cutting east west and spanning rural, urban, industrial and waterfront areas, that is actually more interesting and certainly an intriguing change.  Of course, one has to ask if any perceived dysfunctions of council currently are due to having somewhat more homogeneous rather than diverse wards under the present system or simply a function of personalities and issues.

 

One item that seems odd is why a vestige of the hybrid ward/at-large system is still being retained in the recommended proposal?  An all at-large system in a sense would ultimately lead to a lack of democratic representation as the ability to mount a city-wide campaign \would increasingly relegate council positions to higher income individuals or those with support from key interest groups.  However, the purpose of city government is to provide services to ratepayers. Having geographic wards with councillors attached to those wards as focal points and accountable to voters in their ward is superior to at-large councillors who under the pretense of representing the “whole” city – which by the way is the mayor’s job – can essentially dodge neighborhood issues they are not as interested in.  Why have a council with eight ward councillors and two at large plus a mayor?  Why not simply go to eight ward councillors plus a mayor thereby saving another two councillor salaries – as miniscule as those savings are in a $200 million dollar a year operating budget.

 

In the end, the preferred option – like all the council options and changes of the past – is likely going to be a political compromise.  The current council essentially must approve the final option and going from 13 to 11 means some dear colleagues must inevitably be bade farewell come October 2026.  Council voting to reduce its size and create redundancy for some of its members may be a challenge. The fact that the number of ward councillors goes from seven to eight will probably secure the votes of the majority of current seven ward councillors.  While that is a majority, it would leave a bitter taste if all five at-large councillors vote against the new regime so having a couple of at-large councillors in the new arrangement should placate enough of them, even if it makes them an endangered species. 

 

However, what is more interesting will be the public reaction to the recommended proposal especially in the rural wards.  The Neebing and McIntyre wards essentially have two dedicated rural voices on council.  What the proposed four ward structure does is essentially divide the rural areas into four bits and place them in a minority position within each of the largely urban wards.  While the Larson Compromise of 1985 in the end addressed north-south rivalry issues and the need for “Thunder Bay views”, it also dealt with the interests of the two rural municipalities that were once independent.  Essentially what the compromise did was allow for specific ward representation including specific rural interests as well as provide the overarching at-large councillors.  While Thunder Bay has largely come together in the case of the old Port Arthur/Fort William split, the rural-urban differences with respect to taxation and service levels is probably still an issue now.

 

The political mix at the moment is that five of the current seven ward councillors are most likely to support the recommended model.  I would be surprised if the Neebing and McIntyre councillors supported the new model.  As five councillors is not a majority, this leaves the balance of the decision to the five at-large councillors to decide if the proposal becomes reality.  It should make for some interesting Monday night political theatre this winter.

Memories of Canadian Federalism

 

A blog post titled  “Memories of Canadian Federalism” evokes thoughts of a potential discourse about a President’s Choice product, perhaps a salad dressing or syrup, that promises a fusion of flavors that is both united and diverse.  Alas, that is not the case here.  I am in the process of putting the final touches on my fall Fiscal Federalism graduate course which interestingly enough seems to have a rather large number of students enrolled – for a graduate course.  The explanation for the bump in enrollment likely rests with a dearth of electives this fall for graduate and senior undergrad students in Economics at Lakehead rather than any innate magnetism on my part.

 

I have been teaching this course for a number of years now and it has evolved into a course that covers both the classic economic foundations of federalism with papers by James Buchanan, Charles Tiebout, Richard Musgrave, and Wallace Oates to more recent work that marks the new fiscal federalism with its focus on micro theory and incentives.  There are a lot of empirical papers – especially on measuring the Tiebout migration mechanism – and of course lectures on grants, transfers and equalization and those aspects that characterize what can only be termed as the “immeasurable majesty of the Canadian federal system in all its splendor.” Weekly module topics include, Federalism: Rationale and Functions, Federalism, Mobility and Resources: Tiebout Model-Theory, Federalism, Mobility and Resources: Tiebout Model-Empirical Evidence, Federalism, Spending and Public Sector Size, Centralization and Decentralization, Grants and Equalization, Public Goods and Taxation in a Federal System and the relatively new section Federalism, Health, Pandemics and the Environment.

 

Now, to the point.  In the process of going through my many folders and files, the following gem tumbled out:

 

 

 

I had not seen this for a long time, but it is a set of 20 little pamphlets in a convenient pocket sized paper carrying case called “Notes on Canadian Federalism.”  This obvious collector’s item dates back to the early 1980s or so in the wake of the national unity crises brought about by the election of the PQ in Quebec and the first sovereignty referendum as well as the natural resource clashes between Ottawa and Alberta over energy policy,  not to mention the conversion of federal grants for health and post-secondary education from a 50/50 cost sharing approach to the block Established Program Financing grant and the debate over repatriating the Constitution..  It was the best of times; it was the worst of times and in the tumult the Canadian Unity Information Office issued this 20-pamphlet set of information that in essence was a short lay person’s course on federalism but from the lens of the government of the day and its own agendas.  Why pamphlets?  Well, this is the 1980s.  There was no Twitter or Facebook.

 

 

 

As the images show, a wide variety of topics are covered by these 20 pamphlets which taken together provide a short course in Canadian federalism.  There are all kinds of interesting quotes in these pamphlets.  For example, in No. 1 What is Federalism it defines federalism as: “a type of association between groups, communities, peoples or nations who have agreed to unite in order to better safeguard their future and their prosperity…federalism ensures unity in diversity…Federalism…ensures a spirit of healthy rivalry among the member states. On the other hand, it calls for a sense of solidarity and for dialogue among participating governments.”  In No. 5, Advantages and Disadvantages of Federalism, among other things…”it should be noted that the economic policies implemented by one of the governments in the federation sometimes have negative effects on the total economic situation of the country. For example, heavy borrowing on the part of the provinces may greatly increase the deficit in the balance of payments and negatively influence national monetary policies.”  This is quite an intriguing statement given that it was eventually the borrowing of the federal government that led to the federal fiscal crisis and transfer payment cuts of the 1990s.

 

And in Note 12 The Provinces and their responsibilities there is this: “Certain responsibilities must belong to the provinces because each province has its own special characteristics that give it, its “personality”: language, culture, and different economic institutions.  Albertans may want to stress the physical sciences in university teaching and research programs, while the people of Ontario may want to concentrate more on business administration.”  Of course, in this day and age, if Alberta and Ontario were individual people, this would probably be seen as some type of gender-based career stereotyping.  But I digress.

 

These are intriguing documents and now a part of Canada’s fiscal economic history.  In essence, they provide a short course on federalism from the perspective of the federal government and issues of the day.  All things considered, they discuss concepts at a fairly high level for today’s general public and these types of discussions would not be out of place and perhaps even of benefit today.  After all, Canada is still a federation and if it seems acrimonious today it must be remembered that it has always been so.  The danger to a federation and its unity comes not from rancorous debate over issues, but from silence when the constituent units have decided to stop talking.