Northern Economist 2.0
Thursday, 23 January 2025
Sorting Out Thunder Bay's 2025 Municipal Budget
Thursday, 4 November 2021
City Council's One Percent Solution
After projecting a positive variance of $3 million for the 2021 budget year, it would appear the final tally for a budget surplus for 2021 will be coming in at $5.6 million. Thunder Bay will have its seventh consecutive positive budget variance making for accumulated variances of $26 million over seven years. Much of the savings will come from lower-than-expected COVID costs for which the city has received a lot of federal and provincial support. While Thunder Bay budgeted for a $7.2 million cost from the COVID-19 pandemic this year, a third quarter variance report now forecasts COVID costs at $5.5 million, based on trends to the end of September.
Figure 1 plots the annual tax levy increase since 2015 against the corresponding surplus at year end. For example, in 2015, the tax levy increase was $9.4 million – a 5.7 percent increase on a $164.7 million levy the year previous. The year’s end saw a positive variance of about $1 million which on $174 million tax levy was just over one-half of one percent. Since 2015, however the size of the surplus has increased substantially, often coming close to matching the size of the tax levy increase that year. In 2017 for example, the levy increase was $5.96 million – a 3.3 percent increase – but the year-end surplus came in at $5.6 million – almost 95 percent of the value of the original levy. For 2021, we have a first – a surplus of $5.6 million – which is larger than the original levy increase of $4.3 million.
The surplus is generally put into city reserve funds which in general is a prudent strategy. However, the fact that there are consistent surpluses means that there has been a consistent practice of overestimating expenditures and underestimating revenues. Given that the tax increases have been much larger than what was required given the ultimate need, one can only conclude that this has become a sort of forced savings strategy. The City of Thunder Bay raises the tax levy more than is needed with the goal of boosting its reserves for whatever long-term plans they might have for spending from those reserves.
Thunder Bay has been raising taxes consistently more than it has needed to for some time now and that money comes out of the pockets of its residents. During the pandemic, while other cities were trying to keep tax increases at zero, Thunder Bay managed an increase of 2.7 percent in 2020 and 2.1 percent in 2021. Accompanied by generous provincial and federal COVID-19 support, the result has been large and growing surpluses.
One could pose the following counterfactual. If Thunder Bay had been able to anticipate the surplus each year and implement a tax increase incorporating the surplus and balancing the budget, what would have the alternate tax levy increase have been? Figure 2 plots the actual percentage tax levy increase since 2015 and the alternate increases. In 2017, for example, the budget could have been balanced with an increase of 0.2 percent but instead there was an increase of 3.3 percent. Last year – 2020 - saw an increase of 2.7 percent but all that was needed is an increase of 0.6 percent. Meanwhile, if 2021 continues on this track, it means that rather than a 2.1 percent levy increase, there could have been a levy reduction of nearly 1 percent.
So, here is the thing. Over the period 2015 to 2021 the actual tax levy increase has averaged 3.1 percent. The average levy increase required to meet expenditures has been 1.1 percent. City council for 2022 has directed administration to prepare a municipal budget with a 2.25 percent levy increase. I would suggest that based on the City’s financial performance to date that they could easily cut that in half. One percent sounds about right.
Thursday, 10 January 2019
Municipal Government Inflation Rates: How Much higher?
Thunder Bay’s municipal tax levy increases since 2012 and forecast into 2019 are generally all well above any of these measures of inflation including the municipal inflation rate calculated by the City of Edmonton. The average CPI inflation rate for Thunder Bay over the 2012 to 2019f period is 1.5 percent. The inflation rate based on the Government Expenditure Implicit Price Index (GEIPI) is 1.4 percent while the municipal inflation rate for Edmonton is 2.2. The average Thunder Bay municipal tax levy increase for this period was 3.3 percent.
Monday, 7 January 2019
Thunder Bay Budget 2019: Onward and Upwards Simply Won't Do This Time
I suppose whether you think using municipal property tax revenues to hit such a wide range of targets is a good idea depends on whether you believe the purpose of property taxation is to fund local services or whether it has a broader range of goals. Municipal taxation is traditionally supposed to be "benefit" taxation - that is it is to be used to fund local services to residential property and property owners - rather than a form of wealth taxation - which is actually how the tax is levied. If benefits and services to property are tied to the value of the property, then the current approach works. However, we all know that there is a wide variation in services to property. As well, the aim should be for prudence in the budgeting to provide services with some effort to maintain reserves for unforeseen expenses. At the same time, the municipal ratepayer should not be treated as a sort of unlimited liability insurance provider when it comes to budgeting by being used to generate large surpluses that result in taxes higher than needed to fund operating service and needed capital projects.
Thursday, 4 October 2018
Thunder Bay's Tax Levy Debate
This is all really quite entertaining because what matters is the increase in the total tax levy - that is what is being drawn from the tax base and used to fund spending. The tax levy is essentially an expenditure estimate for taxpayer assisted spending and in the end what matters is the total amount of the revenue taken in and its growth and not whether some of it comes from the existing base and some of it is coming from new assessment growth. The latter argument is really only being advanced to deflect attention from the overall increases.
So, what are the numbers? Well, here is my two cents worth. The accompanying figure plots the annual tax levy increase for the period 2008 to 2018 based on total tax revenue numbers from the Financial Information Returns from the Ministry of Municipal Affairs and Housing (with the exception of the last couple of years which come from City of Thunder Bay budget documents). If you take the average, it comes out to comes out to 3.3 percent which is pretty close to the Chamber estimate. If you take the average for only the 2011 to 2018 period, you get an average of 3.4 percent. The last four years average out to 3.7 percent which is a rate well in excess of the rates of inflation and income growth in this city but the number is skewed by the 5.7 increase in 2015 - the year right after the last election. In the end, the tax levy in Thunder Bay has increased at an average of over 3 percent annually for the last decade and based on the chamber numbers is projected to continue doing so.
Thursday, 25 January 2018
Economics News Around the North: January 25th Edition
Here goes....
Architect envisions creative solutions to re imagine existing buildings. TBNewwatch, January 24th.
Well, this looks like a creative way to try and create some type of downtown event centre/conference facility in Thunder Bay. Of course, you can add Victoriaville as well as the empty Sears store at intercity to the list of underutilized space in Thunder Bay. Personally, it would be nice to see the Sears store retooled in a circular two level galleria space of small stores around a public space that could be used to house the farmers market. The only problem would be to find tenants for the small retail spaces given that rents at the ISC are apparently pretty steep.
Record year for airport. The Chronicle Journal, January 25th
The airport's economic role in the city of Thunder Bay and region continues to grow. Passenger volumes in 2017 were 844,627 which represents an increase of 4.6 percent from 2016. Since 1997, this represents an increase of over 60 percent.
In not so positive transportation news, cab fares in Thunder Bay are going up by 15 percent. They were already quite high. And if that is not enough, it looks like the increase in Thunder Bay's tax levy is going to stay at around 3.6 percent as the budget remains pretty much unchanged. Living in Thunder Bay does sometimes seem like a sort of reverse Walmart marketing jingle - pay more, get less.
On the bright side:
Getting more out of wood. The Chronicle Journal, January 23rd.
More federal funding to support initiatives in the bio-economy.
Conference explores growing economy. Sudburystar.com. January 7th, 2018.
On Feb. 6-7, the Greater Sudbury Chamber of Commerce will host its inaugural PEP (Procurement, Employment and Partnerships) conference and trade show presented by SNC Lavalin in partnership with the Canadian council for Aboriginal Business.
And of interest if you are planning to pursue resource development activities in the region North of 50....
Northern communities face threat of climate change. TimminsPress.com, January 24th.
Meanwhile, in the Sault....
New Sault company aims to create jobs, produce gadgets for all ages at soon-to-open shop. SooToday.com, January 23rd.
Of course, Sault Ste. Marie is disappointed that they did not make the 20 city short list for Amazon's second corporate campus and joins other disappointed Canadian cities, but not Toronto which remains under consideration.
In North Bay, they are hoping home construction is going to jump start their economy. Not sure where the housing demand is expected to come from but it is important to be hopeful. Perhaps if Toronto gets the Amazon campus, given the cost of housing, Amazon workers will live in North Bay and commute to Toronto.
North Bay community is up to housing-construction challenge. North Bay Business Journal. Jan 2nd.
So that is what has caught my eye across this vast expanse at least economically. One other bright item of news involves this morning's decision in a Thunder Bay courtroom exonerating the Chief of Police. Great to hear. All the best.