Economic Development Action in Thunder Bay: City Council’s Keynesian Economic Action Plan

 

As Thunder Bay’s leaky pipe saga continues with lawn after lawn being dug up to replace service lines likely corroded by the addition of sodium hydroxide as a lead mitigation strategy, one might indeed be hard pressed to find a silver lining.  However, one is surprised that the more pollyannish members of City Council have not seized on the obvious boost to Thunder Bay’s economy from the ample work being generated for plumbers, hardware purveyors, asphalting and landscaping companies – not to mention city employees – from the continual calls to replace interior plumbing and service lines.  Indeed, one is astounded that there has not been an economic impact tally of the boost to the city’s GDP from all the construction work and at a bargain basement price with respect to city coffers.

 

For a modest investment in sodium hydroxide of only several hundred thousand dollars a year over approximately three years – probably not more than $1 million - there have been thousands of homes that have had to incur thousands of dollars in repairs.  If one assumes only a modest 3,700 affected households (based on the current membership of the Thunder Bay Leaky Pipe Club Facebook page) and assumes an average of $5,000 in spending for each, why the direct spending impact is already just shy of $20 million dollars.  The economic multiplier is an astounding value of 20 – something unheard of in municipal economic impact circles and the likely recipient of an Economic Development Commission Powerpoint presentation or two at the next NOMA meetings.

 

It would appear that Thunder Bay City Council and Administration have been inordinately clever embarking on a massive urban infrastructure renewal program and doing it for a pittance.  Indeed, they have not even had to borrow as the stimulus spending in question has been provided directly by affected households or their insurance companies. The constant parade of diggers in many neighborhoods across town has given new meaning to the term shovel ready infrastructure projects and the demonstrable associated benefits of increased employment and income.

 

Indeed, this is the ultimate Keynesian aggregate demand stimulus activity.  It does not matter if the spending is needed or not, as long as it occurs, it can stimulate aggregate demand and create employment and boost income especially if there is involuntary unemployment. Involuntary unemployment is when a person is willing and able to work at the prevailing wage as opposed to voluntary unemployment which is something members of City Council are more likely familiar with.  The benefits of building projects was noted by Lord Keynes himself when he  noted in his General Theory that “Pyramid-building, earthquakes, even wars may serve to increase wealth, if the education of our statesmen on the principles of the classical economics stands in the way of anything better.”

 

Of course, it is unlikely that City Council deliberately embarked on this as a Keynesian economic stimulus program given that they probably do not know what Keynesian means.  Indeed, upon stumbling across  the term, they probably hear “Canesian” and think it is some type of descriptor of a program at the 55 Plus Centre on Red River for senior citizens who when afflicted with ambulatory difficulties make use of a pole-like device for vertical as opposed to fiscal stabilization purposes. 

 

However, if they are interested in expanding their understanding and implementation  of Keynesian policy, they might heed Lord Keynes when he wrote: “If the Treasury were to fill old bottles with banknotes, bury them at suitable depths in disused coalmines which are then filled to the surface with town rubbish, and leave it to private enterprise on well-tried principles of laissez-faire to dig up the notes again...there need be no more unemployment…the real income of the community and its capital wealth also, would probably become a good deal greater than it is.”  One is surprised city workers are not dropping off bottles of cash for burial when water service lines are repaired so that affected homeowners can then dig them up again and generate yet another round of spending stimulus.

 

So, there you have it.  Thunder Bay truly understands the power of private enterprise and individual initiative as well as Keynesian aggregate demand policy.  That is perhaps why Thunder Bay City Council after discouraging a private solution now finally wants to harness private enterprise to build its multi-use turf facility.  The economic activity it has generated via the Leaky Pipe Expenditure Stimulator has generated enough of a boost to GDP and the tax base to now support a private sector turf facility option.

 

 

It Is Not Over Yet

 

On Monday evening, Thunder Bay City Council halted the process of constructing a new indoor multi-use turf facility by voting to not award the tender for the project.  This does not mean that the project is dead.  Rather, it was a decision made by the majority of councillors – many of whom are in fundamental agreement with the project but not its timing or cost – to not go with the current lowest bidder.  From an initial proposed $33 million, the project including interest on the 25-year debenture has now climbed to $46 million. That the project is not dead yet was confirmed by the Mayor in an interview this morning on CBC radio as well as other public comments made by proponents of the project.  This push to continue the project is also occurring despite what appears to be a rather large – albeit unscientifically polled – majority of 80 percent opposed.

 

The meeting on Monday evening was made remarkable by the concerted push by council members supporting the project to become increasingly strident about the need to invest in the multi-use turf facility project.  The standard claims about improving quality of life and attracting people to Thunder Bay were made but then the debate went a bit off the rails.  One councillor embarked on a sarcastic speech that essentially amounted to bullying the other councillors into seeing things his way by shaming them by arguing that they preferred to do nothing rather than something.  One is surprised that the councillor did not regale the councillors with a lengthy speech about how doing nothing does not make history.

 

The same councillor also tried to guilt the opponents with a fairness argument that other sports groups had gotten city-built facilities and now it was the turn of the groups using the Turf facility.  Indeed, in striking a coalition of support, the list of users for the facility now goes beyond soccer and apparently includes some eleven groups including Thunder Bay’s legendary pickleball players.  Moreover, the facility can even be used to host conventions.  It apparently is a reincarnated Events Center also - which incidentally a half-decade ago was also unable to garner federal and provincial support.  With all the proposed users, one wonders how many children will actually get field time to play soccer?

 

However, Thunder Bay’s grand recreational expansions of the past were done at a time of a much more buoyant tax base and economy.  It is not the 1970s anymore.  True, there will always be griping and opposition to spending on large projects but the other pressing issues facing the City – social housing for the homeless, crime, water infrastructure via the leaky pipe drama affecting thousands of homeowners – were conveniently not brought into the picture. Moreover, treating the turf facility as an isolated stand alone project when there are other infrastructure projects to be decided  - including a new police station - is disingenuous to say the least.

 

The councillor then began to draw comparisons with the Thunder Bay Art Gallery project despite the fact that the $30 million gallery project was largely being funded by its own fundraising campaign with a five million dollar contribution by the City of Thunder Bay as opposed to the Turf facility which will see its entire cost funded by the City via its own money  and a debenture. The Turf facility project was initially advanced as going ahead with partners at the federal and provincial level and funding from these other levels has never materialized.

 

The Mayor was somewhat more diplomatic saying he did not want to make comparisons but then proceeded to draw comparisons to the hospital project twenty years ago when the City made a $25 million contribution to the largely provincially funded project that was to be funded by a temporary tax levy increase.  The Mayor neglected to mention that after the funds had been raised, the tax levy was never removed and became permanently entrenched.  Moreover, unlike the Turf facility which had a private sector proposal for alternate facility that was rejected by City Council, hospital construction and operations in Ontario have always been largely public sector driven.  Even more, hospitals are seen as public necessities whereas sports facilities, while valuable and important, are difficult to place on the same level.

 

More interesting were the comments on the CBC radio interview this morning where the Mayor stated that the City’s finances were very good with only a $1.15 million deficit projected for 2021 and the lowest tax increase in a decade and that we could obviously afford the project.  Making long term commitments based on one year’s finances is never a good idea particularly giving recent City Budget projections calling for tax increases of 3-4 percent in years to come.  Moreover, not so long ago there was a wringing of hands over the cost of COVID-19 and only a few weeks ago the Mayor was again lamenting the need for more provincial financial support. 

 

The thing here is that in the end, in true Thunder Bay fashion, there were two groups involved in getting a new facility that were unable to work together.  One side earlier on seems to have successfully torpedoed the alternate group’s private sector proposal and have essentially gotten key city politicians and administrators on side with their idea for the publicly funded facility.  The initial proposal was for $33 million and was expected to garner support from other levels of government.  As noted, the total cost is now expected to be $46 million and shovels have not even gone into the ground yet, which once begun will no doubt reveal cost surprises. Given the history of rising costs in Thunder Bay public sector projects some councillors have rightly begun to balk. 

 

Yet, in the end I think the project will not die.  In Thunder Bay, proposed public spending projects are never too costly to completely die - they just need to evolve and stay the course.  The reason the Events Centre died in 2015 was the complete dearth of support from other governments. This time they can apparently at least tap into the Federal Gas Tax money.  The next two weeks are going to see a lot of horse-trading and behind the scene maneuvering led by the Mayor in particular in an effort to salvage the project in some format. Some of it will involve providing assurances regarding the state of the finances of the city and project costs.  As many have noted, all Monday’s vote did was turn down the current bid.  Even many of those who have been publicly branded by proponents as short-sighted civic do nothings for not supporting the project are actually not opposed to the turf facility – they are concerned about the timing and cost of the project.  If there is a convincing operatic performance by proponents that we can afford this after all, it will go ahead.  Unfortunately, this is simply business as usual when it comes to public spending and project development in Thunder Bay and continues Thunder Bay’s increasingly outdated civic vision.

 

 

Thunder Bay City Budget 2021: And Now for New Police Facilities

Thunder Bay is surveying its residents for input into the 2021 budget and as part of the budget input process a virtual town hall was held Wednesday this week to overview and answer questions.  Surprisingly, no questions were answered about the pinhole leak problem but then it was not a live phone or zoom in but one with “submitted questions” and this careful screening undoubtedly eliminated such awkward inquiries.  As part of its new autocratic behaviour, Thunder Bay City Council is rapidly overtaking the Communist Party of China for the breathtaking nature of its staged theatrical consultations. 

The 2021 budget includes a tax supported infrastructure deficit estimated to be $21.7 million annually, while the rate supported infrastructure deficit is estimated at $7.6 million annually.  The budget process is still advancing the prospect of a two per cent tax levy increase.  However, that does not factor in expenses related to the ongoing COVID-19 pandemic which would result in a 6 percent tax levy increase.

While the town hall noted that the City will be looking to reserves and other sources to mitigate the impact of COVID-19 it remains that the words of the Finance Committee Chair alone are not enough to keep the levy at 2 percent.  Many of the councilors will be happy with exploring an increase between 2 and 6 percent as part of a convoluted political ballet of creative manoeuvre to pursue additional spending agendas.  

In terms of spending, along with the coming Turf Facility (with a cost range of anywhere from $30 to $42 million), many have forgotten that new police facilities are also coming down the pipeline and Monday night’s meeting will see a needs assessment study with a veritable alphabet soup range of options -  A,  B, B1, B2, C, C1, D and E – with options B1 and B2 in particular reminiscent of beloved  Australian children’s television characters.

In brief, with estimated construction and separate total project costs at the end of each option, here are the nominees:

OPTION A Base Case New HQ any location $45,025,668 / $ 49,875,204

OPTION B New Central HQ with South Satellite (south core satellite includes Exhibits, Comm Services) $48,638,522 / $ 54,117,483

OPTION B1 New Central HQ with South Satellite (south core satellite includes Patrol & Comm Services) $49,568,285 / $ 55,068,311

OPTION B2

New Central HQ with South Satellite (South core satellite includes Patrol) $48,736,702 / $54,078,066

OPTION C

Existing HQ with South and North Satellites (perhaps they will be named Deimos and Phobos though being associated with Mars they are also the Greek Gods of fear, panic and terror and therefore probably not appropriate names to be associated with modern policing) (South core satellite includes Exhibits, Range North core satellite is covert (no public access) $50,939,978 / $ 62,626,447

OPTION C1 Existing HQ with South & North Satellites (south core satellite includes Comm Services Support Bldg includes Exhibits, Range, Comm Services) $49,133,748 / $ 62,878,096

OPTION D
New South HQ with North Satellite (satellite is covert (no public access) includes Range) $48,371,662 / $ 53,581,582

OPTION E

New South HQ with North Satellite (north satellite includes Comm Services). $46,635,047 / $51,791,507

This is going to be a fairly complicated decision but the long and short of it is that new police facilities will have a total cost of anywhere from $ 49,875,204 to $62,878,095 and that is before any of the inevitable cost overruns that usually characterize public sector construction projects in Thunder Bay. Some of us are now old enough to have seen it all and examples of cost overruns include the new hospital – whose costs ultimately more than doubled from initial estimate to final project - to most recently the Marina Park pedestrian overpass refurbishment which is now $500,000 overbudget – an increase of 38 percent.   

The direction of the project is definitely towards a new build, not only because the word “new” appears in 6 out of the 8 options but because the existing HQ with north and south satellite options (C and C1) seem to have the largest spread between construction and total project costs and ultimately the highest total costs.

So, the die is cast.  Not only is $40 million dollars or more headed towards a new turf facility but another $50-$55 million dollars is headed towards a new police facility which is close to $100 million in new capital infrastructure spending before the inevitable costs overruns of which only 30-40 percent is probably a lower end estimate.  It is no wonder Thunder Bay City councillors and staff are remaining silent on fixing the leaky pipe infrastructure – they have other priorities for Thunder Bay’s tax dollars which incidentally are financed by the second highest residential tax rates of 35 Ontario municipalities.

 

 

 

Ontario's Fiscal Paradox

My latest on Ontario's public finances...

Ontario has wrapped up its 2018 pre-budget public consultations as it prepares to deliver its next provincial budget. Ontario Finance Minister Charles Sousa confirmed in the fall fiscal statement that Ontario’s 2018 budget will be balanced, as will budgets over the next two years. However, the average Ontarian may be confused by the fact that despite a future of projected balanced budgets, the provincial net debt will continue to increase.

Indeed, recent years have seen the provincial debt grow by amounts exceeding that year’s deficit. For example, in fiscal year 2014-15, Ontario’s budgetary deficit was $10.315 billion but the net debt rose by $17.386 billion. In 2015-16, the deficit was $3.515 billion but $10.796 billion was added to the net debt. In 2016-17, the deficit was $0.991 billion but $6.276 billion was added to the net debt.
So how can this happen? See here for the rest of the post on the Fraser Blog...