Thunder Bay, The Conference Board and Smart Growth

 

The Major City Insights for Thunder Bay by the Conference Board of Canada was released October 15^th and the report essentially summarizes the economic situation in Thunder Bay as “Local economy treads water” with the key points being as follows:

· Thunder Bay faces a tepid economic outlook featuring mixed performances from the various sectors of its economy. Ongoing work on the city’s $1.2-billion jail remains an economic bright spot, but other important sectors face a range of difficulties.

 

· Plans for at least two local lithium plants remain in play, but faltering demand for electric vehicles (EVs), which use lithium in their batteries, and the recent removal of the federal EV mandate could scupper them. The big drop in lithium prices since 2022 is a bad sign for the industry.

 

· Modest recent improvements in lumber and pulp prices spell some optimism for the long-suffering local forest products industry, although this year’s big jump in U.S. softwood lumber tariffs to a total of 35.19 per cent is a setback.

· Thunder Bay’s real GDP has largely floundered against this uninspiring backdrop. We forecast no change in 2025 following a 0.2 per cent easing in 2024, then a 0.7 per cent rise in 2023. Fractional 0.7 per cent growth is our call for 2026, followed by annual advances just above 1 per cent in 2027–29.

 

· The window of migratory opportunity might have closed for Thunder Bay due to sharply lower federal immigration targets that are limiting the number newcomers from abroad. Rising return-to-office orders from firms and governments, meanwhile, will eventually limit other Ontarians’ ability to take advantage of very affordable local housing.

Out of 24 CMAs covered in the Conference board reports,Thunder Bay ranks 24^th in terms of real GDP growth forecast for the 2026 to 2029 period.  Total employment is expected to remain flat going forward and while population for the CMA is forecast at 134,000, it will remain at that level for the foreseeable future. On the other hand, low growth is not negative growth and business owners in Thunder Bay appear to be well adjusted to a low growth environment given that the most recent survey results out of Thunder Bay Ventures find them cautiously optimistic amid economic challenges.

Needless to say, it is not the most auspicious backdrop for the unveiling of the City’s Smart Growth strategy.  What the ultimate plan to address the City’s economic future will be is interesting to say the least and community input is being solicited on the draft as well as being subject to review by assorted City Standing Committees.  Despite what seems to be some robust construction activity underway in the city in terms of residential and hotel activity, it appears that this is not sufficient to offset what the Conference Board views as “tepid” economic performance.

Indeed, while the City seeks to address growth, a lot of the emphasis to date seems to be on assessment growth and growing the property tax base which are usually not the main targets of economic growth inducing policies.  It would be like next week's federal budget making the case that moving Canada's economy forward requires more people paying more income taxes. The aim should be growing the city’s level of economic activity to increase  both real total and real per capita GDP through private and public sector investment in productive job creating activities.  The City of Thunder Bay Smart Growth plan proposes two key measures to guide growth over the next decade:

• Grow the property tax base by 3% annually

• Grow the population by 1% annually

It would appear that in the end, this is not really an economic growth plan per se but a plan to try and grow Thunder Bay’s municipal tax base that is accompanied by a lot of social and quality of life and community goals masquerading as economic targets.  Indeed, the entire approach resembles a much earlier initiative by Thunder Bay Ventures circa 2005 called Thunder Bay Fast Forward concerned with growth in the midst of the forest sector crisis which also generated sets of indicators. Nevertheless, this latest effort at growth and measurement will probably go over well given the general level of economic literacy in the community. One suspects that perhaps such an approach also works well in a city where one-third of employment is broader public sector and public sector construction projects have been key drivers for the last few years. 

Of course, growing both the economy and the municipal tax base are not mutually exclusive goals but it is odd the performance indicators for successful growth do not include real GDP (which incidentally looks somewhat flat going forward) though employment and labour force indicators as well as building permits which are correlated with overall economic growth are included.  However, as the report states, the “key performance indicators such as tax base and population growth are priority metrics”.  In other words, as long as there are more people on public sector incomes paying more property taxes, this plan will be declared a success.

In light of the Conference Board Report, one suspects the response of our civic leadership to square the Smart Growth Plan with the Conference Board report will be to remark they are measuring different things and growth is more than about just measuring economic output – the perennial apples and oranges comparison. They may even claim the Conference Board report is missing the real sources of economic growth and performance just like Statistics Canada is missing the true size of our population with their numbers.  All we can do is wish our municipal leaders good luck on this one.

 

Finances of the City: Hamilton Edition

 

Municipal budget season is underway in cities across Ontario.  Hamilton is a particularly interesting case this year given that the initial start of the 2026 budget season saw an 8.9 percent potential property tax increase presented. Hamilton’s Mayor Horwath has waded into the debate with directions to staff to hold the tax increase to 4.25 percent by finding operational efficiencies that do not involve staff cuts.  However, according to one report, nearly half of the 2026 operating budget increase is being driven by employee costs with the City of Hamilton’s head count up 12 percent since 2022 and now stands at 9,449. 

Getting a grasp on Hamilton’s current municipal finances requires more of a historical perspective.  So, what do Hamilton’s finances look like and how have they evolved? Well, that is a good question and an attempt to provide a long-term perspective on Hamilton’s municipal finances is in order. Data for Hamilton is available for 2000 to 2022 from Ontario’s Ministry of Municipal Affairs Financial Information Return. Hamilton – like quite a few other municipalities – appears to have fallen behind in filing their financial reports with the provincial government so 2023 to 2025 must rely on Hamilton municipal budgets. 

However, these budgets present financial information in a dizzying and confusing array that overwhelm the reader with detail that make the big picture difficult to see.  They are also not standardized in presentation and vary greatly in length with Budget 2023 clocking in at 51 pages, Budget 2024 at 365 pages and Budget 2025 at 434 pages.  Trying to make sense of them can be a slog even for an economist and if there is anything the provincial government should do, it is to speed up the reporting of financial information on FIR so the public can maintain a consistent grasp of the numbers when it comes to municipal finance across Ontario.

Figures 1 to 5 provide a limited overview of some of Hamilton’s key long-term municipal finance indicators.  Figure 1 plots total operating expenditure and total tax revenues for the 2000 to 2025 period.  Total tax revenue grew from $486 million in 2000 to $1244 million while total operating expenditures went from $985 million to $2,163 million.  There is of course no cause for alarm regarding the gap because tax revenues only fund a portion of operating expenditures with the rest coming from provincial and federal grants, user and licensing fees, investment income, etc.…However, as Figure 2 illustrates, the share of total expenditure accounted for by property tax revenues has grown over time with the linear trend showing an increase from an average of about 45 percent to nearly 55 percent – growth of nearly 10 percentage points.  Essentially, municipal ratepayers in Hamilton have been bearing a larger share of municipal operating expenditure over time with average tax revenue per household nearly doubling since 2000 going from $2,544 to $4,863.

 

 

Figures 3 and 4 plot the annual growth rates of total tax revenue as well as total operating expenditure and fits trend lines to the data as well as provide the average growth rate for each series over the 2001 to 2025 period. Both tax revenues and total expenditures exhibit rising growth rates from 2001 to about 2010 and then a decline in the wake of the 2008/09 economic slowdown and then an uptick in growth rates after 2019 to the present.  Over the entire 200 to 2025 period, tax revenues have grown at an average annual rate of 3.8 percent while total operating expenditures have grown at 3.3 percent.  This differential growth has been driven by the rising reliance on taxes over slower growing grants and other revenue sources.

 

 

Finally, Figure 5 looks at the evolution of the municipal headcount as well as the wage and salary cost per employee.  While the recent increases in head count may seem alarming, it turns out that the current numbers have been  higher in the past particularly in the wake of the 2001 amalgamation.  The period from 2005 to 2022 has been relatively stable in terms of municipal employment going from lows of approximately 7,300 to highs of about 8,200.  The period since 2017 has seen steady growth with employment rising from 7,502 to 9,449 at present – an increase of 26 percent.  Since 2017, the number of households in Hamilton has only grown about 12 percent while population has grown nine percent.  As well, between 2000 and 2025, the wage and salary cost (benefits not included) per municipal employee has grown from approximately $36,000 annually to nearly $113,000 in 2025 – essentially a tripling of the cost per employee.  It should be noted that while the average annual rate of increase of wages and salaries per employee in Hamilton form 2001 to 2025 was 4.9 percent, the average CPI inflation rate for Ontario over the same period was 2.3 percent.

 

 

Pulling everything together, it appears that the fiscal challenges affecting the City of Hamilton this year have been brewing for some time.  Tax revenues have been growing as a share of total operating expenditure due to slower growth of other sources of revenue.  While the average annual growth rate of total tax revenues since 2001 has averaged 3.8 percent, since 2021, the percent increases have ranged from 4.5 to 8.1 percent.  Tax revenues have been growing faster than the growth of total operating expenditure but increases in wage and salary costs per employee in particular have been rising faster than tax revenue growth, total operating expenditures, as well as the CPI inflation rate.  Whereas in 2000, employee wage and salary costs accounted for 34 percent of operating expenditures, by 2025 they accounted for nearly 50 percent. Indeed, since 2017, the average wage and salary per employee has been over $100,000 and this does not consider the costs of pensions and other benefits.

While Hamilton is not unique in facing municipal fiscal challenges, the increases of the last four years have been particularly large making this year's budget exercise especially challenging.

 

The Finances of the University: Lakehead’s Exceptional Performance

 

With all the doom and gloom about the finances of Canadian universities these days, it is refreshing to know that some universities have been doing well in coping with all the fiscal challenges thrown at them over the last decade.  Nowhere is this more the case than in Ontario where domestic tuition fees were cut 10 percent in 2018 by the province, and have remained frozen since, provincial government grants have generally been a declining source of revenue and the flow of international students curtailed by the federal government. While Ontario produced Laurentian, it has also produced Lakehead where the last decade has seen a better financial performance than one might have expected which is good news for Thunder Bay, northwestern Ontario and of course the students, staff and faculty at Lakehead.

The evidence is quite convincing.  Figure 1 (and subsequent figures) takes data from the audited financial statements of Lakehead University from 2014 to 2025 and plots total revenues and expenditures.  Between 2014 and 2025, Lakehead’s total revenues grew from $177.3 million to $246.0 million - 38.7 percent – while total expenditures grew from $167.0 million to $230.5 million – a 38 percent increase.  While the pandemic period from 2020 to 2022 saw a dip in revenue growth, since 2022, revenues have managed to grow faster than spending. Indeed, over the period 2015 to 2025, the average annual growth rate of revenues was 3.3 percent compared to 3.0 percent for expenditures.  

 

 

The result has been a decade where the budget has usually been balanced, sometimes with substantial surpluses, and the long-term debt been reduced.  Figure 2 plots Lakehead University’s deficits (-)/surpluses (+) as well as the total long-term debt again from 2014 to 2025.  Out of these 12 budget years, Lakehead ran a surplus 75 percent of the time with an accumulated surplus of $43.9 million while the long-term debt has decreased nearly 16 percent going from $111.5 million in 2014 to $94.0 million in 2025.  The worse deficit year was 2022 with a deficit of $16.7 million in the wake of the pandemic but the three years since has seen growing surpluses with 2025 at $13.5 million.

 

 

Drilling down into some of the data, Figure 3 presents the data for Lakehead’s major revenue sources – provincial government grants and student fees.  In 2025, these sources made up 82 percent of Lakehead’s revenue with the remainder a combination including investment income, research income, ancillary fees, and sales of goods and services.  The narrative regarding provincial government grants should be nuanced by the fact that there are the general operating grants and then more specific restricted grants tied to conditions.  In 2014, the value of the operating grant was $65.3 million, and it then proceeded to decline through to 2019 when it reached $62.9 million.  Note that this decline preceded the arrival of the Ford government in 2018 showing that in the end universities in Ontario do not have any tried-and-true political party friends at the provincial level. Grants then rebounded in 2020 declining to a low of $61.6 million in 2022. Since 2022, the operating grant has been somewhat erratic rising to $66.7 million in 2023, falling to $61.0 million in 2024 and then climbing again to $69.5 million in 2025.  Stable funding it is not.  As for restricted grants, they climbed in fits and starts going from $15 million in 2014 to almost $17 million by 2021 and then rising more steeply to 30.5 million in 2025. 

 

 

While total provincial grants to Lakehead grew 25 percent from 2014 to 2025, the real revenue story is in student fees which rose from $57.5 million to $102.4 million – an increase of 78 percent.  This is even though overall enrolment has grown but not in leaps and bounds.  The revenue increase is largely the result of a compositional shift as more higher tuition paying international students arrived at the university.  Given that many of these students are primarily graduate level and in disciplines that are in demand, it appears the immigration restrictions have not hit Lakehead’s enrolment as hard as some other universities.  This suggests a careful mix of programs tailored to demand.

So, to summarize, Figure 4 presents the average annual growth rates of these major indicators for the 2015 to 2025 period.  Total revenue at Lakehead has grown at an average annual rate of 3.3 percent while expenditures have grown 3 percent.  This in and of itself presents a picture of fiscal sustainability rooted on both the expenditure and revenue side.  While general operating grants have only grown at an average annual rate of 0.7 percent, restricted grants (targeted to some purpose) have grown 8.7 percent annually and student fee revenue has grown 5.5 percent.  And the icing on the cake is that long-term debt has been declining at -1.5 percent annually. 

 

This is extremely good news and evidence that even in today’s challenging university environment, it is possible to succeed both financially and academically as a university offering programs in a fiscally sustainable manner.  Lakehead has managed this operating as it does in a dispersed fashion with campuses in Thunder Bay, Orillia and Barrie making it a province wide university.  This success may indeed serve as a model for future of Ontario’s universities. This success is also a testament to the strength of its board and administrative leadership as well as its students, staff and faculty.  It is nice to have some good news for a change.

The State of Post Secondary Education: Crisis or Opportunity?

 

It is another academic year, and recent reports have helped kick off its start with analysis and introspection regarding the state of university and college education in Canada.  There is the OECD international compendium of indicators titled Education at a Glance 2025 which covers all aspects of education including post-secondary or tertiary education.  Then there is Alex Usher’s Higher Education Strategy Associates compilation The State of Postsecondary Education in Canada 2025. And last but certainly not least there is the Royal Bank’s ominously titled Testing Times Fending off a crisis in Canadian postsecondary education. There is indeed quite a bit of reading here geared towards understanding the current situation with respect to postsecondary education in Canada and other parts of the world.

Canada boasts a highly skilled and well-educated population with 63 percent of population aged 15 to 64 holding some type of post-secondary or tertiary degree attainment. However, in terms of the distribution of those degrees, Canada ranks 26^th out of 41 OECD countries, in the share of 25–34-year-olds with master’s degrees.  Meanwhile, Canada is unique in that it boasts the largest proportion in the OECD – one quarter – of degrees being what they term short-cycle degrees.  These are programmes usually offered by community colleges and similar educational institutions, of at least two years duration, and are vocationally oriented.  While there is often a lament that Canada needs more skills and career-based training, it appears that a large proportion of the system is indeed geared that way.

On the surface, the demand for post-secondary education in Canada should grow in coming years based on demographic projections showing the total number of individuals aged 15 to 19 and 20 to 24 growing until at least the mid 2030s, then levelling off or declining for a few years before resuming substantial growth.  Recall that the 15-19 population pool was shrinking during the 2010 to 2020 period though increases in participation rates combined with the flow of international students helped grow university enrolment.

However, when it comes to public sector spending on tertiary education, Canada is below the OECD average n USD per capita.  Government expenditure on post-secondary in Canada amounts to USD 13,684 per tertiary student compared to the OECD average of USD 15,102.  And, as noted by Alex Usher, spending on higher education as a share of the economy in Canada has been dropping pretty steadily since 2011.  

So, there are challenges facing Canadian postsecondary education spanning financial, technological and social levels.  The financial challenge to post-secondary institutions in Canada is quite serious and has been aggravated by provincial and federal policies.  In Ontario, for example, university tuition for domestic students was cut by 10 percent in 2018 by the Ford government and has been frozen at that nominal level ever since.  Indeed, the RBC Testing Times report notes that most undergraduates in Canada are paying approximately what they would have paid a decade ago.  Universities made up a lot of the revenue by admitting more international students, but that tap has been cut off too by changes in federal immigration policies.  Going forward universities will face tighter revenue circumstances accompanied by rising costs.  After all, inflation has not just hit individuals, but institutions also.

The RBC report notes that post-secondary education and skills they impart are vital to the dealing with the economic changes facing Canada but add that: “Without a new financial arrangement, institutions are forced to make decisions with their viability in mind, rather than the country’s prosperity. These decisions will have important implications for education quality and access, especially in rural communities where workforce shortages are already acute, as well as the country’s ability to retain top talent”. They suggest boosting government funding to the post-secondary sector tied to specific criteria or outcomes.  As well, they think student fees – that is – tuition could play a greater role.  

However, the financial challenge is only the tip of the iceberg given that there are more serious existential challenges: technological and social which are both intertwined with AI.    The rise of AI in the short term is posing challenges to how classes are taught and students graded and assessed but in the longer run will affect the demand for university and college education as well as its role in shaping society.  As an article by Ryan Craig in Forbes argued, AI will likely shrink the university given its potential for personalized learning and independent tutoring. 

More optimistic but not any less transformative, Nick Ladny (also in Forbes) makes the case for the end of college as we know it with AI facilitating customized corporate education, transforming the role of faculty into mentors facilitating human interaction rather than purveyors of knowledge, more decentralized neighborhood campuses, and smartphone provision of education.  Those institutions that adapt quickly to the new reality will survive while others will simply close.  Nimbleness is key to dealing with change and universities in general tend to move slowly.

However, universities and colleges have faced the onslaught of change before and yet here they still are.  I think the next decade will see a major sorting of universities into those that successfully adopt and transition to the world of AI education and those that do not.  There will likely be changes in the types of courses and programs taught given that AI can do much more so much more quickly and effectively.  There will need to be new skill sets that involve the application of technology and AI tools to analyzing, interpreting and solving human problems.  Some jobs that right now are performed by skilled professionals such as accountants, lawyers and even physicians, can be automated by AI.  On the other hand, asking the right questions and interpreting the answers will be a skill that AI with its tendency to essentially compile and regurgitate what exists or apply set algorithms to data will not be able to perform as effectively as a creative and intelligent human.  This suggests that the teaching roles and administrative functioning of the university are likely to see the biggest changes from AI while the research function can be transformed in more positive ways.

When I think of my own discipline of Economics, I think posing interesting research questions and devising approaches to their solution via theory will remain a human endeavor, but the compilation of facts and rudimentary processing of data will be largely automated by AI. A well-trained economist with a wealth of theoretical and empirical knowledge will be able to harness AI to do creative things whether it is modelling long-term business cycle fluctuations or assessing the full quantitative impact of economic and social variables in economic history. 

On the other hand, AI can do more mundane things like model the economic impact of a construction project or a value of life calculation resulting to a significant drop in the demand for many economic consulting services.  In the long run, this will likely make the economics profession and indeed many others smaller and more elitist in their structure.  Economists will set directions and design the questions and validate the results with much of the menial mental and data grind done by AI.

In the end, universities will not disappear.  They will evolve into on and off ramps on the information highway rather than destinations in and of themselves.  They will also retain valuable social functions in terms of providing a human social environment for the young to learn how to function in this new economy and to develop human relation and networking skills. Faculty will still be required to mentor and guide and set directions but there will be fewer of them.  And, as AI is very good at automating routine things, most university administrations will likely see significant downsizing as human resources, payroll and even basic academic advising and student services can be automated. It will indeed be a new age, but successful universities will seize opportunity, evolve, and persevere rooted as they are in the depths of the past but continuing to the end of the human age.