Ontario Budget 2020 Summary

 

Ontario delivered its 2020 budget and it did not really contain any surprises.  While it is the largest nominal deficit in Ontario history, as a share of GDP the deficit for 2020-21 is about 4.6 percent which is one third that of the federal deficit to GDP ratio.  Moreover, it is actually smaller than the one Ontario had in 2010-11 in the aftermath of the 2008-09 Great Recession when it was still at just over 5 percent. 

 

Expenditures jumped in 2020-21 to $189.5 billion as a result of the pandemic – an increase of 15 percent over the previous year.  It will remain high but not increase further for the next two years under the medium-term scenario going to $185.4 billion in 2021-22 and $188.3 billion in 2022-23 but all of these expenditure figures contain several billion dollars in contingency reserves. 

 

Revenues fell 3 percent in 2020-21 as a result of the pandemic – not as big a hit as might be expected because federal transfer payments as a result of COVID jumped from $25.4 billion to $33.4 billion – an increase of 31 percent.  However, those transfers will decline to $27.1 billion and 27.6 billion over the next two years.  As a result, even with the projected economic recovery and its impact on tax revenue, total revenues are not expected to grow much until 2022-23 when they reach $160.2 billion.

 

The deficit is projected at $38.5 billion in 2020-21, $33.1 billion in 2021-22 and $26.2 billion in 2022-23 while the net debt will grow from $355 billion in 2019-20 to $473 billion by 2022-23.  GDP is expected to grow by about 6 percent a year after this year so the net debt to GDP ratio is projected to only rise to just under 50 percent at 49.6 percent.  

 

 

Thunder Bay City Budget Deliberations 2020: The Plot Thickens

Well, things should be quite interesting this evening at Thunder Bay City Council as they have their final budget deliberation meeting. Councillor Mark Bentz has staked out his position. In remarks reported in the local media, he is of the position that levy hikes are not sustainable given that tax levy increases are more than double the consumer price index over the last decade. In a very stark graph provided in the Chronicle Journal, Councillor Bentz asserts that since 2011, the tax levy has grown by 32 percent while the CPI has gone up 14 percent and the assessment base only 7 percent.  This is of course a pretty classic interpretation  of sustainability in that the tax levy is growing faster than the tax base meaning that the tax burden is essentially deepening on ratepayers.

The key question is what is the solution?   Part of the debate this evening is going to be over the list of items totaling 2 million dollars in cuts that have been produced by administration as part of getting the levy increase down from about 6 million to about 4 million dollars.  Some of the items mentioned include ending residential weekend snowplowing and closing the Conservatory and even reducing library hours.  It is quite interesting that all of these proposals entail direct service reductions to current ratepayers.  Your taxes will still go up, but you will be getting less. So there.

The fundamental problem is that the key expenditure component on the operating budget is wages and salaries.  The total wage and salary bill functions as a combination of both price and quantity – that is the salary per employee multiplied by the number of employees.  These are ultimately the items that also need to be addressed.  It can probably start with a hiring freeze given that despite a flat economy and a population total that has not budged in 20 years, there are more employees on the municipal payroll than there were 20 years ago. 

If one looks at the accompanying graph, one can see that since 1999, the number of employees of the City of Thunder has grown.  The actual number of FTEs (Full time Equivalent positions) rose from approximately 1,568 positions in 1999 to 1,840 in 2009 but by 2019 had declined to 1,715 and are now scheduled to rise to 1,724 in the 2020 budget.  The dip between 2009 and 2019 is the result of the City getting out of some of its homes for the aged obligations in 2016 so the pre-2016 figures includes more staffing for homes for the aged.  The other thing is that these total FTEs actually do not include police which in 2016 were an additional 333 FTEs.  It is possible to estimate an adjustment that removes homes for the aged staff prior to 2016 but adds police and the results show a steady increase and flattening out of employment.  

 

Between 1999 and 2019, employment as measured by these “estimated” adjusted FTE numbers may have grown from 1,642 to 2,040 – an increase of 24 percent.  Given that population in the City of Thunder Bay has been flat over the same period, the per capita numbers of municipal employees has grown substantially.  There may indeed be very good reasons why this has been the case but it needs to be discussed.  At minimum, a hiring freeze is not an unreasonable thing to do while numbers like this are discussed.  More to the point, perhaps Councillor Bentz can actually get the numbers from 2011 to 2020 on employment from administration given that in the end my numbers are only “estimates” as such data is not easily obtainable.  I would be interested in seeing the resulting charts.