Thunder Bay Is Not Growing Where It Should

 

Thunder Bay has embarked on a plan to build and diversify the municipal tax base and attract more residents.  This plan for growth is seen as an imperative given that Thunder Bay’s economy while not shrinking in absolute terms is nonetheless growing less slowly than Ontario and Canada.  For example, over the 2010 to 2024 period, Thunder Bay’s average annual real GDP growth was 1.8 percent compared to Canada’s 2 percent or Ontario’s 2.1 percent.  Employment has also shown this differential given that between 2006 and 2024; Thunder Bay added 9 percent more jobs to its economy while Ontario and Canada both added about 27 percent more jobs. 

So, the focus is on growth and a large part of that growth is on growing our population.  Population growth is of course correlated with economic growth as more people usually means more economic activity and therefore a larger economy which in turn should spillover into growth of taxable assessment.  This is a key concern for the City of Thunder Bay given that it is the anemic growth in taxable assessment that have helped shift an ever-larger tax burden onto the residential tax base given the decline in the industrial tax base of forest product mills and grain elevators over the last tree decades. 

Of course, simply growing population in Thunder Bay is not the panacea that one might think when it comes to increasing taxable assessment.  The reality is that population in the Thunder Bay area is increasing and has been for some time.  However, the population of the City of Thunder Bay has not been increasing relative to its surrounding areas.  If more people live around Thunder Bay but they are not owning homes and businesses within the confines of the City of Thunder Bay, then the impact on the city’s taxable assessment is going to be rather muted at best.  As the accompanying figure shows, there is a difference between population growth in the City of Thunder Bay and the Thunder Bay Census Metropolitan area.  Population statistics for the CMA are from Statistics Canada counts while the City of Thunder Bay’s population is taken from the Ontario Ministry of Municipal Affairs Financial Information Returns.

The results are plotted for the period 2001 to 2024 and are quite interesting. According to the official numbers compiled  by the Ontario government, the City’s Thunder Bay’s population in 2001 was surprisingly just over 115,000 while the CMA population was about 126,000.  During the first decade of the 21^st century – the period of the forest sector crisis – the CMA population declined by 1.2 percent while the city proper itself declined by 5 percent.  Since 2010, there has been growth in the CMA population going from 125,000 to 133,000 for an increase of 6 percent.  The city population itself has gone from 109,140 in 2010 to 108,843 in 2023 – a slight decline.  However, since 2016 – which is when population began to grow more robustly in the CMA, the city population has indeed grown by about 1 percent.

 

The point is that Thunder Bay is growing but not necessarily where the taxable assessment needs to be to broaden and diversify the municipal  tax base.  True, if the CMA population goes up, more businesses are likely to open in the city thereby expanding the business tax base, but a lot of growth is nevertheless occurring outside of the city boundaries.  What is more interesting according to these numbers is the following. Between 2001 and 2023, the Ontario Ministry of Municipal Affairs numbers put Thunder Bay’s population going from 115,000 to about 109,000 – a decrease of about 5 percent.  Municipal taxes per household have gone up from $1,947 dollars in 2001 to $4,070 in 2023 – an increase of over 100 percent - while water and sewer charges have gone from $379 in 2001 to $1,195 in 2023 – an increase of over 200 percent.  Meanwhile, total municipal employment over the same period went from 2,344 (FT, PT and Seasonal) to 3,122 – an increase of 33 percent.

Is it any surprise that population outside of the city boundaries has grown while the city proper has either declined or remained stagnant?  When choosing where to live in the Thunder Bay area, there has clearly been a substantial number of people voting with their feet.  The surrounding townships offer a lower municipal tax burden while providing access to whatever Thunder Bay proper has to offer.  If the City of Thunder Bay itself is to grow its population and economy, it will need to address the fundamentals that have fostered this shift outside the city.

Sorting Out Thunder Bay's 2025 Municipal Budget

 

Well, Thunder Bay’s budget season is well underway but the public interest to date has been somewhat underwhelming but that is perhaps because the tax levy increase has been advertised as being 3.7 percent which is below the 6.1 percent in last year’s proposed 2024 budget.   However, this year’s budget process has also been a little different than the past and somewhat more confusing than usual.  Until this year, both the capital and operating budgets were done together and the final tax levy reported consisted of the taxes going to fund the operating budget and the taxes going to fund capital spending.  We can term this the total tax levy – which now has been broken apart into the operating tax levy (the subject of current deliberations) and the capital tax levy (which was done last fall).

Last year, the original proposed total municipal tax levy (which incidentally only funds about 40 percent of total capital and operating spending this year– the rest coming from provincial and federal grants, other user fees, the TBayTel dividend and reserves) came in at about 232 million dollars (of which 211.5 million was the operating tax levy and 20.2 million was the capital tax levy).  The 232 million dollar proposed total tax levy represented an increase of 6.1 percent from the previous year’s total tax levy.   Based on the revised numbers presented in this year’s budget, the total tax levy in 2024 seems to have come in at just under 230 million dollars of which 209.6 million dollars was the operating tax levy and just over 20 million was the capital tax levy.  In the end, based on these numbers, the actual total tax levy increase last year was closer to 5 percent than the initially proposed 6 percent.  

This year, the budgeting process is essentially the same in that there is a capital and operating budget, but they were discussed separately and the tax levies reported separately as a capital tax levy and an operating tax levy. So, the 2025 capital budget process that concluded in the fall reported: 

“The proposed 2025 Capital Budget includes $22,642,600 financed from the tax levy.

The “base” tax levy amount of $19,906,900 (2024: 19,178,100) is 3.8% more than the

previous year’s “base” tax levy which is in line with City Council direction.”

This was of course reported as a 3.8 percent capital tax levy increase because rather than 22.6 million dollars as the capital spending amount, only 19.9 million was used in the percent growth calculation because 2.7 million dollars in the total of 22.6 million was the retirement of a debenture.  If one compares the total capital tax levy amount this year of 22.6 million dollars to last year’s total of 20.2 million dollars (rather than last year's "base" of $19.2 million)  – then one gets a capital tax levy increase of 12 percent – substantially higher than 3.8 percent.  However, one should also factor in anything retiring debt etc.. for the previous year and if you do that last year's comparison amount would be $21.684 million. So, that woulds make the increase in the capital levy 4.2 percent. I suppose one can quibble on how to account for money in the capital budget being used to retire debt but, in the end, a tax dollar is a tax dollar, and the total capital tax levy numbers are what should be compared. 

So, putting everything together:  In 2024, based on the revised numbers to date this year, the total tax levy was $209.6 million dollars for the operating budget and 21.7 million dollars for the capital budget for a total of $231.3 million dollars.  This year, the operating budget tax levy is $217.4 million dollars, and the capital budget tax levy is $22.6 million dollars (which incidentally is only part of total proposed capital spending with the rest coming from grants and reserves and borrowing) for a total tax levy of approximately $240 million dollars - up just over 10 million dollars from last year.  However, there is also assessment growth of $1.693 which when added to the total levy brings it up to $241.7 million dollars. The percent increase in the operating tax levy increase is indeed 3.7 percent but based on how reporting used to be done in the past based on a total municipal tax levy, the increase from $231.3 million dollars to $241.7 million dollars is more like 4.5 percent - which by the way is still quite a bit lower than last year.  However, the total tax levy increase this year is also indeed about 3.7 percent if you believe that the millions of dollars being spent in the 2024 and 2025 capital budget to retire debt as well as the assessment growth should not really be counted as part of the levy.  However, a tax dollar is a tax dollar and if the money is being raised as taxes, then it should be part of the reported increase.