Thunder Bay's Municipal Budget Woes

 

Well, Thunder Bay’s municipal budget opera season is now in full swing with assorted fiscal choruses and arias being played in lockstep as we move towards finalizing the 2024 budget.  Like many municipalities across Ontario, there is increasing budgetary pressure to raise taxes.  The narrative this budgetary opera season in Thunder Bay is a little more complicated because along with planning for 2024, there is also the matter of dealing with the remnants of the 2023 season.  This task has proven to be a bit more mettlesome than usual but the end result will probably be a fairly large tax increase in 2024.

 

Very often, the proposed budget generally includes a tax levy increase that is higher than what is eventually opted for as opposition mounts.  For example, the 2023 budget originally put forth 6.2 percent levy increase that went to 5.6 percent and then 5 percent but eventually passed at a 4.4 percent levy increase (after growth).  This before and after growth distinction is one that has always been a bit of a diversion because after all, a tax increase is a tax increase whether one factors in growth in the tax base or not.   One is indeed surprised that the recent increase in managerial salaries of 12 percent at the City of Thunder Bay was reported as a nominal increase rather than after growth or after inflation.

 

The last budget was a particularly vexing one mainly because the 2023 budget process was with a new council and they no doubt very much did not want to debut with one of the larger tax increases in recent history.  However, everything comes at a price and the price was taking one million dollars out of the reserve fund and the task of finding several million dollars more in terms of savings.

 

That process has not gone well, and one suspects behind the scenes municipal movers and shakers do not mind because they would be happier with a tax increase than cuts.  The initial round of cuts tended to deal with relatively high profile but small budget items such as cuts to fireworks, movie nights, and Christmas Day transit service as well as items like the sister cities program. As well, there were the controversial cuts to the Neebing Arena as well as outdoor rinks that in a hockey town like Thunder Bay generated more of a backlash.  Yet, the backlash was dealt with by delaying the cuts and taking a “survey” which is really not a survey at all. 

 

The survey site consists of a web page and link asking the question of whether you supported the proposed outdoor rink reduction and was really not a statistical survey but a consultation.  The over 80 percent opposition comes from the fact that there is a certain self-selection bias here in that the survey is voluntary and those opposed to the cut of 31 out of 39 outdoor rinks had a strong incentive to go on and register their opposition which explains the 80 percent opposition rate.  Needless to say, the odds are that after rousing public sympathy for the rinks, the next budget offering will be an orchestrated refrain about how we will have to raise taxes more if you want to keep the rinks open.

 

The reality is that the big money in the City of Thunder Bay budget is not to be found in hockey rinks or fireworks or movie nights but in two key areas: Public Safety and Public Works.  The accompanying figure has been constructed using the City of Thunder Bay’s own data and reveals that the Public Safety Category occupies nearly 40 percent of municipal spending while the Public Works Category is nearly 20 percent.  In other words, with nearly 60 percent of spending in these two categories, looking for cuts in the other 40 percent of spending is going to be difficult as a budget solution.  Even the claim that much of our spending is mandated by the “province” looks a little lame as the legislated programs category accounts for barely one percent of spending though some additional mandated spending is also internalized within some of the other categories.

 

 

 

In the end, the two largest potential sources of savings lie in Public Safety and Public Works, followed by Parks and Recreation, Contributions to Outside Boards and Agencies, Social Services and then Debt Charges. We are in a situation where without any serious attempt to sit down and examine them, the two largest categories are going to increasingly take a larger share of spending.  This will take money from quality-of-life categories such as Parks and Recreation (though oddly enough there is still interest in a new Turf facility on the part of the city administration but I guess that is the capital budget rather than the operating budget at least for now) and then contributions to associated community groups.  Cuts in these other categories will not be sufficient.

 

We are heading for a scenario where there will be higher taxes and fewer services.  It will be interesting to watch City Council and Administration sell that one.

Municipal Property Taxes and Water Rates in Ontario: A Comparison

 

As we continue to journey through  the 2023 municipal budget year, it is time to update some of the property tax and water rate comparisons I have done over a number of years.  This time, I would like to do the comparison for the top 30 municipalities in Ontario by population which essentially amounts to all the cities with over 100,000 people with the exception of Niagara Fall which is almost there at 96,000.  These cities together account for 75 percent of Ontario’s population.  The data for comparison is from the 2021 BMA Municipal report and two indicators are compared: 1) Annual property taxes for a detached bungalow and 2) Annual residential and Wastewater Costs per 200 cubic meters.  While much of the focus in municipal budgets this year is on the rather large increases in the tax levy, it remains that water charges are also another hefty amount on top of property taxes. In all the figures, I also highlight the amounts for Thunder Bay and Sudbury, which are the two northern Ontario members of the top 30.

 

Figure 1 ranks these municipalities by the property taxes for a detached bungalow in 2021 and they range from highs of $6,643 and $6,500 for Markham and Richmond Hill to lows of $3,444 and $$3,262 for Windsor and Chatham-Kent with an average of $4,323 and a median of $4,049.  It should be noted that the top ten property tax amounts are all in the GTA where of course property values are also the highest.  Thunder Bay is essentially mid-ranked in this comparison with its property tax figure  of $3,955 below both the average and the median.  Greater Sudbury, is much lower than Thunder Bay and at $3,453 has the third lowest property taxes for an average detached bungalow in Ontario’s top 30 municipalities.

 

 

 

Figure 2 now does the ranking by  residential water and wastewater(sewer) costs per 200 cubic metres of water.  The top three are Greater Sudbury, Windsor and Thunder Bay at $1,409, $1,306 and $1,278 respectively.  At the bottom are Hamilton, Mississauga and Brampton with Hamilton at $781, and the last two tied at $590.  The average was $976 while the median was $929.  The two northern Ontario cities both are amongst the highest when it comes to water rates in the province.  One suspects that water rates for some of the cities at the bottom are likely to go up substantially in the near future given urban growth and other issues.  Hamilton for example, is likely facing some expensive issues with respect to its water infrastructure given recent developments with respect to sewer discharges. 

 

 

 

Of course, for the average municipal residential ratepayer, what really matters is the total package when it comes to property taxes and water charges  and this is provided in Figure 3 where the two items are summed up and ranked by municipality.  When the two totals are summed up they range from highs of $7,537 and $$7,478 for Markham and Richmond Hill to lows of $4,482 and $4,457 for Waterloo and Chatham-Kent.  The average is $5,299 and the median is $5,099.  At $5,233 Thunder Bay is slightly below average and slightly above the median for the totals of property tax and water rate.  However, it does have the 11^th highest total coming right after the ten GTA municipalities ahead of it and just before Hamilton.  With those types of numbers, when it comes to municipal finance, Thunder Bay is definitely GTA class in terms of property and taxes and water rates.  Greater Sudbury on the other hand is in the top of the bottom third with a total of $4,856.

 

 

 

The more interesting question is what the numbers will look like for 2022 once complete as well as where they are going to be headed in 2023.  Municipalities have been hit with escalating costs for labour, materials, supplies and energy as well and one can expect that there will be a lot of upward pressure to bring in property tax and water rate increases that reflect the inflation rate.  These increases will come at the same time as rising interests will put financial pressure on the mortgages of home owners and the pressure that inflation has been generating on family budgets.  Given that in Ontario, municipal elections in October have put in place a council for the next four years, one suspects that most councils will eventually  front end fairly large tax increases at the start of their terms and ease off midway through their terms in the run up to the next election.  Sad, but very likely to be the outcome in many cities across Ontario.  It will be the rare council with the foresight, fortitude and ability to rein in their costs sufficiently to prevent large tax increases this year.

 

Municipal Employment in Thunder Bay: An Analysis

 

The last post presented an overview of what for lack of a better term can best be described as higher tier municipal employment in northern Ontario – that is individuals in the five major municipalities of northern Ontario who earned $100,000 or more in annual salary (let's call them Listers) thus placing them on the public sector salary disclosure list.  What was interesting in the overview was that Thunder Bay in 2021 had the most municipal Listers at 547 followed by Sudbury at 540, then the Sault at 246, North Bay at 187 and finally Timmins at 142.  This ranking roughly parallels population size with the exception that based on population, one would expect Sudbury to exceed Thunder Bay.  The per capita cost of municipal employees on the public sector salary disclosure list was also the highest in Thunder Bay of the five cities.  As a result, a more detailed look at trends for Thunder Bay is of interest.

 

Figure 1 plots the number of Thunder Bay  municipal employees earning $100,000 or more over the period 2017 to 2021 and shows that the number was relatively stable over the 2017 to 2019 period but took a large leap in 2020 (to 558 from 452) and has remained at approximately the same level (at 547 in 2021).  The percentage increase in the number of employees over $100,000 in 2020 was approximately 24 percent and at the time was attributed to a large number of employees in protective and emergency services who had been just under the threshold for a number of years going over.  However, this is only part of the story as the increase in the total wage and salary bill of municipal Listers (see Figure 2)  in Thunder Bay from 2019 to 2020 was nearly 30 percent.   That is the salary bill for those on the list  increased more than the number of employees on the list  suggesting compensation increases drove a portion of the increase.  And indeed, compensation particularly of higher tier administration and management was an issue last year with some increases approaching 12 percent.  This could be seen as particularly annoying by others in the broader public sector - particularly  front line workers in health and education - who were limited to one percent annually by Bill 124 while the municipalities were exempt.

 

 

 

 

Depending on what you think is the total municipal employment of the City of Thunder Bay, those making over the list probably make up anywhere from one-fifth to one-third of the City’s municipal employment though given the absence of readily accessible municipal employment numbers, these are estimates at best.  One thing that does not need to be estimated however is the ratio of the total wage and salary bill of Thunder Bay municipal employees earning $100,000 plus to the total value of the tax levy as illustrated in Figure 3.  Between 2017 and 2019, this share averaged 27 percent but in 2020 it took a leap to 36 percent  and then declined to about 34 percent in 2021.  In any event, one could make the case that the value of the wage and salary bill accounted for by those Thunder Bay municipal employees earning $100,000 plus represents over one third of the tax levy.  

 

 

 

Figures 4 and 5 round out the analysis by presenting first the average salary of Thunder Bay municipal employees on the List and then the per capita cost of these employees.  Again, 2020 – the pandemic year – is the crucial point in time.  In 2020, the average salary per List member rose just over  5 percent  - going from $121,002 to $127,091.  Meanwhile, the per capita cost of those on the municipal salary list rose from $494 to $640 – an increase of nearly 30 percent.  Between 2019 and 2020, the number of municipal Listers grew from 452 to 558 (24 percent) while their salary bill went from $54.7 million to  $70.9 million (30 percent increase).  Thus the average salary rose by about the difference.  However,  when you spread that salary bill across the entire population of the municipality you get a somewhat different result - salaries rose 30 percent but population growth was flat. 

 

The List get a lot of attention every year.  While accountability is important, it remains that the real accountability measure is not how much is being paid out but the value received for that money as well as its sustainability over the longer term.  It is not that people on the list are making too much given what they may or may not do or that their salaries rose too much or even that there are a lot more of them.  In the end, you do get what you pay for even in the public sector.  The real issue is that the cost of services has grown dramatically but the tax base and population of Thunder Bay have not.  Thunder Bay’s official population has stayed flat at about 110,000 people over the period 2017 to 2021, the value of the tax levy grew from $184 million to $204 million – an increase of 11 percent  but the wage and salary bill of its municipal list employees has grown from $50.1 to $69.6 million dollars – an increase of nearly 40 percent.  

 

No one is saying that those employees are not worth what they are being paid or are not deserving of their pay especially given the travails of the pandemic.  However, ultimately  the money does have to come from somewhere and to date the solution has simply been to pass the bill onto municipal ratepayers - something that was aided by the Ontario government under the provisions of Bill 124 which exempted municipalities because they had "own source revenues" - that is a municipal tax base.  It would appear a number of fiscal and budgetary chickens are coming home to roost.

Thunder Bay: The Challenges Ahead in 2022

 

The start of a new year is always a time for reflection on the past and a looking ahead to the future.  During a pandemic which has yet to see its end, the temptation is to simply to hunker down and focus on the present. Yet, Thunder Bay is a city that needs to look ahead given the collection of challenges that it faces.  One could summarize the challenges as threefold - the social fabric, the economy and civic finances – which are often considered as separate compartments, but which move together as one given, they are all related and intertwined.  Our tendency is always to compartmentalize because that is of the course the easiest way to try and understand the problems, but it is important to realize that the solutions themselves are not organized in watertight compartments.

 

To start with, there is the deteriorating social fabric that has created two Thunder Bays – a Thunder Bay of crime, homelessness, poverty and addiction and another that is a relatively prosperous enclave that on a day-to-day basis does not see the other side.  Intertwined with all of this has been a history of racism with respect to Indigenous peoples in the community. Occasionally, there is spill over between the two worlds especially with respect to crime and addiction but for the most part they are indeed two separate worlds.  One of the best recent overviews of poverty and social issues in Thunder Bay comes from a 2019 community report by the Wellesley Institute documenting Thunder Bay social and developmental indicators that lag the provincial average as well as note a high proportion of households with an average income below $20,000 .  Indeed, compared to the rest of the province, a higher proportion of youth in Thunder Bay live in low-income households.

 

The deteriorating social fabric has generated a growing long-term demand for emergency services. Indeed, many of the demands made on police, paramedics and fire are social and domestic disputes or relate to mental illness.  The statistics for crime are telling because while total criminal violations per 100,000 are down somewhat, those for homicides have been on an upward trend for quite a few years now as Figure 1 illustrates.  Table 1 illustrates the rate per 100,000 for several select criminal code violation categories and they suggest that despite an aging population and a decline in some types of crime, Thunder Bay has become a more violent place in general as the number of total violent criminal code violations per 100,000 has grown by 17 percent since 2015.  

 

 

 

Per 100,000 population, homicides have been the highest in the country for several years now while the city’s booming gang related drug trade has also resulted in a nearly 50 percent increase in total drug violations since 2015.  At the same time, the pandemic itself has resulted in fewer service calls for police especially around property crimes given more people are at home thereby better safeguarding property.  However, other emergency services – namely the Superior North EMS paramedic services have seen an increase in service calls per capita and are forecasting large increases well into the 2020s.  Indeed, even city officials have acknowledged that the rising demand for emergency services in general is leading to cost increases that are unsustainable when it comes to the city budget.

 

Aggravating the social distress by fueling homelessness is the rising cost of housing in the city both in terms of rents as well as the price of homes.  While Thunder Bay’s housing prices remain a far cry from Vancouver or the GTA, since 2010 they have grown at an uncharacteristically fast pace with the average MLS price being $144,034 in 2010 and forecast at $289,186 in 2022 as illustrated in Figure 2.  While the demographic trend towards smaller households and low interest rates have been factors as demand drivers, also important is the slow pace of new residential construction in Thunder Bay on the supply side.  Housing starts are at their lowest point in decades while new apartment construction has been unable to fill the gap.  The average of course masks the range in prices and there are homes approaching $1 million in Thunder Bay.  As for rents, since 2010, the average rent for a 2-bedroom apartment in Thunder Bay has grown from $761 to $1,089 while the rent for a larger three bedroom went from $867 to $1,358 – increases of 43 and 57 percent respectively.  

 

 

 

These social issues in the end are effectively compounded by an economy and by extension a property tax base that has not really grown in several decades.  As Figure 3 illustrates, employment in Thunder Bay has essentially been flat for almost 20 years.  If the rest of the province was in a similar boat that might be somewhat more palatable but going only forward from the Great Recession, Thunder Bay has seen a decline in employment growth not to mention a compositional shift. Indeed, a rising share of that employment – approximately 30 percent - is now in the broader public sector given the declines in industrial employment over the last two decades.  

 

 

 

For decades the top ten employers in Thunder Bay have been broader public sector institutions ranging from municipal, provincial, and federal governments to school boards, the hospital, and the post-secondary sector.  And of course, there is construction which has been increasingly dominated by public sector projects of one type or another. While the regional mining sector has been a bright side in Thunder Bay’s role as a mining services sector it remains that the mining sector in the region is not as labour intensive as it was in the past. And yet, Thunder Bay appears at least in some regards to still have some substantial gleams of prosperity if the number of shiny new trucks being driven around can be taken as an indicator.  But then, the pandemic has seen the city, like much of the country, awash in government support payments.

 

Which then brings us to the final challenge which is really driven by the first two.  The economy in the city and private sector wealth generation has not been robust.  We have a set of social issues which has been fueling increasing demand for services in health and emergency services – many which are provided by municipal government. And we have a municipal government whose finances are stretched given the demands being placed on it and the resources available.  The sources of municipal financing are threefold -the property tax, government grants and assorted user fees and other own source revenues including a dividend from the municipal telecom company.  Of these, only taxes and user fees are directly within the control of municipal government, and they make Thunder Bay property owners the main funders of increases in municipal spending.

 

In the case of Thunder Bay, the property tax is increasingly borne by the residential taxpayer especially given the decline in industrial and business assessments over the last two decades.  Grants in per capita terms have essentially been flat notwithstanding the COVID-19 supports which have helped fuel some of the surpluses of recent years.  Nonetheless, the 2022 budget exercise will be an important one given the projected gross tax levy increase of 2.44 percent which would raise the tax levy by almost $5 million and bring the total levy to nearly $209 million.  Water infrastructure issues are being dealt with by a 3 percent increase in water rates.  However, the gross- tax supported budget – when one adds the capital budget – will be up about 23 percent mainly because of the near doubling of the capital budget with major capital projects planned such as a new police station at nearly $60 million.  Given the limits of the tax base and available reserves, this new capital spending is going to be funded primarily by debt.  While interest rates are still at historic lows, increasing the city’s debt will have ramifications down the road with increased debt servicing costs.

 

There is no easy solution to these problems.  Crime and social problems cannot be solved on a municipal budget alone and require provincial and federal support.  At the same time, raising municipal taxation rates more will continue to place the burden of these problems squarely on the residential taxpayer.  The municipal tax base was designed to provide revenues to service property. It was not designed to provide a broad range of social and health services to the public.  Yet, municipal councillors do not always seem to be sensitive to this point.  In response to the release of the 2022 budget, one councillor has already stated that we should add $1 million to an already rising police budget –already up by $1.8 million - to hire more officers. How simply adding more officers will fix the complex problems of crime and social issues needs to be explained.  As another councillor has noted, the costs for emergency services are exceeding inflation for the city again reinforcing the issue of sustainability.  It is only a matter of time before yet another helpful councillor with aspirations of grandeur will suggest that tax increases should match the new higher inflation rates nearing 5 percent nationally.  Unfortunately, residential ratepayers pay taxes out of current incomes that do not rise lockstep with inflation.

 

If Thunder Bay wants to spend even more on police as a solution to its crime and social problems, then it will have to spend a lot less on other things.  In the absence of external resource increases from the provincial or federal government, you cannot spend more on police services and just as much more on everything else and limit the tax levy increase to 2.44 percent.  There really is no other way to explain it. 

 

Is a Tax Revenue Bonanza Coming to Thunder Bay?

 

Things have been relatively quiet of late at Thunder Bay City Council all things considered.  Indeed, for the most part, this will be a relatively subdued year barring any unfortunate issues rearing their head because we are moving into the final year before an election next fall.  Among the items that have emerged over the past few weeks include a new community well-being plan, piloting work from home projects, recognizing the National Day for Truth and Reconciliation, awareness campaigns for incident reporting in anti-racism matters, and vaccine policies for city workers.  

 

In terms of direct services and expenditures, Thunder Bay is moving forward with the curbside collection for organics by initiating the process for studying the matter – that should take the better part of a year – and is also going to spend an additional $1.5 million for the Boulevard Lake Dam.  And as a bonus, there was the debate over whether residents be allowed to continue using plastic bags for garbage pick-up or garbage bins made mandatory.  None of these have been exceptionally attention getting but then it is summer and Thunder Bay's camp culture means a lot of people have gone to the countryside and are not paying much attention.

 

What issues have been rather quiet?  Well, after a discussion about the multi-use turf facility being back on the agenda in June to solicit private sector proposals little has been said since.  After a vote to move forward with a plebiscite to reduce its size and forwarding the matter to administration for a report, again little more in terms of what has been done since.  There is also the matter of the budget – one expects some type of report soon on the budgetary position and the size of a likely surplus as we approach year end.  And of course, there is the matter of the ongoing leaky pipe scenario which is still seeing homes dig up their front lawns as corroded service pipes are replaced in the wake of the addition of sodium hydroxide – not to mention interior pipes leaking and the resulting damage.  Which brings me to the main event.

 

The damage that is being done in literally thousands of homes across the city by leaky pipes is resulting in repairs and often substantial renovations.  Another unintended fringe benefit to all this – aside from water connection fee revenue to the city and a lot of employment for trades people and landscapers – is the potential of a rising property tax base in the wake of the property renovations.  Even if property tax rate stays the same, the expanding base due to higher valuations on residential properties reflecting enhanced value due to renovations may be a factor in increasing the City of Thunder Bay’s property tax revenues. With increases in the tax rate, revenue increases could be greater.  Far-fetched? Maybe and then maybe not.

 

The Municipal Property Assessment Corporation (MPAC) establishes the value of properties for taxation purposes using a method known as current value assessment.  The most used valuation method for residential properties is what is known as direct comparison which analyzes the recent sales of comparable properties.  However, it is not just the sale price that is used in the multiple regression models assigning a residential property but up to 200 factors using data from land title documents, building permits, on-site inspection and communications with property owners and reviews of sales transactions.  In the structural features segment of the variable sets there is included the renovation and year of renovation.

 

The five major factors as reflected by ultimate weighting of results are the age of the buildings, the square footage of the living area, the location (reflected by recent sales in your area), lot size and construction quality.   However, renovations do enter into the formula, and it remains to be seen if the increase in renovations as reflected by building permits issued to properties to conduct their renovations and repairs and any onsite inspections will ultimately also be a factor in increasing the total value of the assessment in Thunder Bay.

 

Homeowners in Thunder Bay affected by the leaky pipes fiasco have had to contend with disruption and repairs to their property, the inconvenience of having their water supply interrupted for a period, the stress of worrying about future leaky pipes, the cost of repairs if insurance coverage is inadequate, and future increase in home insurance costs as insurance companies re-calibrate their rates to deal with the higher risk of insuring properties in Thunder Bay.  Now to all this is the prospect that if future budgets begin to raise rates at historic levels of 3-4 percent, some of the increase in taxes will inevitably reflect the effect of the leaky pipe repairs on property values. And of course for the average homeowner, it will be difficult to separate any effect of leaky pipe renovations on assessed values from the increase in home prices that has occurred over the last year.

 

True, City Council has directed administration to restrain increases to 2.25 percent for 2022 and that will probably happen given the election coming in Fall 2022.  However, once a four year mandate has been granted after next fall, be prepared for much higher rate increases with the increase in assessments a potential additional factor.

 

 

Thunder Bay City Council Swimming In Cash - Again.

 

Well, after a break of a few weeks, Thunder Bay City Council will be back in session this evening and the agenda is long.  Of course, much of the attention will be focused on Councillor Peng You’s move to put a question on the next municipal ballot regarding the size of council that specifically would ask: “"Are you in favour of a smaller city council, one made up of 8 councillors elected at-large and one mayor elected at-large?"  This is an old issue in Thunder Bay and usually resurfaces the year before an election and is a cheap and convenient way for a councillor to get attention as being fiscally responsible while not having much happen afterwards.  As we all know, the current arrangement consists of 12 councillors (seven ward and five at large) as well as the Mayor elected at large.

 

Reducing the size of council as an economy measure is largely symbolic as a $200 million plus tax supported budget is not going to be significantly affected by having four fewer councillors.  The quality of council is a more significant factor in driving the budget than the quantity of councils and council would be better off having fewer councillors and paying them more to attract better candidates able to actually analyze issues and make better decisions.  So, the question Councillor You wishes to place on the ballot is typical in that it is a simplistic question designed to address a much more complex issue.  A smaller city council makes sense as a symbolic political gesture and would be more useful if some of the meagre savings were reallocated to attract better candidates. 

 

However, there is also another issue here and that is the effectiveness of democratic representation.  Moving to a completely At-Large system potentially reduces accountability for neighborhood issues.  Councillors must be assigned to a Ward.  Otherwise, you have a council composed of a mayor and eight mini mayors each of whom will be more concerned with the big picture at the expense of the more mundane grass roots concerns of constituents.  It is a question of balance and a completely at-large-system runs the risk of affording councillors the opportunity to shirk even more when it comes to neighborhood issues they would rather avoid.  It is bad enough now having a mayor and five prima donnas with the ward councillors having to pick up the slack.  Good luck getting attention once they are all at large.  

 

However, that is only one of many issues this evening.  The other, tucked away near the end of the 248-page Committee of the Whole document, is the non-consolidated financial statement and reserve fund update.   It turns out that even with the ravages of the pandemic and the wringing of hands about budget problems and the need for resources, the City of Thunder Bay has turned out to have a net positive variance in 2020 of $4.1 million or in other words a surplus.  Moreover, in terms of total assets: “Cash and investments of $131.6 million have increased by $11.7 million from the prior year, primarily resulting from an increase in reserve funds of $21.8 million.”  It would appear that all that federal and provincial money was not all spent on the pandemic and substantial savings were generated.  Given that Thunder Bay was projecting a $3 million surplus for 2021 at the same time that 2020 seemed to only be on track for a $1 million surplus, it would appear that things have improved even more. 

 

Now of course, municipal governments of course are not allowed to run deficits on operating expenditures by the provincial government, so deficits are covered out of reserve funds while surpluses augment reserve funds.  Having reserves is important and fiscally responsible. At the same time, many municipalities – Thunder Bay included – are now in the practice of running habitual surpluses funded by tax increases that are often higher than they need to be. The 2020 and 2021 tax hikes are in the end larger than they needed to be.  The City of Thunder Bay consistently overshoots with the increase used to fund a savings program at ratepayer expense. For 2020, there was additional help from Ottawa and Queen’s Park and Thunder Bay is now swimming in cash.

 

 

 

 

Thunder Bay's Tax Crisis

As expected, Monday evening’s City Council Meeting was a long one wrapping up at 3am and as predicted the Turf facility is going forward if by a slim margin of  7-6 in favour.  For the record to assist you in decision making next election, those in favour of spending more money despite the caveats: Mayor Bill Mauro and councilors Albert Aiello, Shelby Ch'ng, Andrew Foulds, Cody Fraser, Kristen Oliver and Aldo Ruberto.  Those in favour of delaying the project in light of the current situation: Mark Bentz, Trevor Giertuga, Brian Hamilton, Rebecca Johnson, Brian McKinnon and Peng You.  In the end, Mayor Mauro got what he wanted and one wonders why he risked so much political capital to drive something that a large majority of the public seem to oppose.

The evening also discussed the budget and originally there was a proposal to raise the 2021 tax levy by 3.45 percent in order to deal with the $8.4 million in COVID-19 expenses – though left unexplained is why with $9 million in provincial and federal assistance coming, are those costs for 2020 not largely taken care of.  In the end, apparently the increase is now proposed at only 2 percent but that will likely change given Thunder Bay’s deteriorating tax base and the “need” for more money.  And, there was plenty of evidence in the documentation for Monday night’s meeting on the eroding tax base.

I suppose there was little time at Monday night’s meeting to discuss other items of business such as Corporate Report No. R 18/2020 included in the Committee of the Whole Agenda and buried on pages 236 to 239 (with a lengthy Appendix afterwards).  This report was on Property Tax Accounts with 2018 Arrears.  Of course, the table of numbers spanning properties that stopped paying their taxes over the 2008 to 2018 period was probably too much to process for the bleary eyed councilors.  Sometimes one wonders if City Council is some type of cult designed to ram through decisions by handing councilors 300 page documents and then depriving them of sleep with long meetings.   Of course, the more alert ones in favor of the turf facility may have been alarmed at the prospect of discussing the growing number of tax arrears properties at the same time new spending was being proposed and heaved a sigh of relief it did get too much attention.  Nevertheless, I suspect the numbers themselves would have little impact - pictures are much better and as usual I had to provide my own.

 

 

Figures 1 to 3 takes the data in the report and plots the number of properties (both total and residential) in tax arrears, the total value of tax arrears by year in dollars, and finally the value of those arrears as a percentage of the total tax levy that year.  The plots are disturbing as despite the occasional up and down, they show a clear upward trend over time.  Whereas the average annual number of properties in arrears from 2008 to 2010 was close to 100, for the 2016 to 2018 period, it averaged close to 300.  In essence, the number of properties in arrears has tripled over the last decade.  It is not just business properties, it is also residential.  The value of the tax arrears in 2018 was $2.5 million – a not inconsequential sum given that the original proposed tax increase of 3.45 percent would have likely added nearly $7 million to the tax levy.  Indeed, as a percentage of the tax levy, the trend is also upwards and reflects foregone revenue – which if looked at cumulatively since 2008 represents the evaporation of nearly 10 percent of the tax levy.

If property owners in Thunder Bay are stopping to pay taxes on their properties and giving up on them, there is a serious issue.  The solution is not stricter enforcement and chasing people down by hiring a Sheriff of Nottingham type with a half dozen tax facilitators and support people to extract the cash.  There are probably many reasons why people are unable to meet their tax obligations and give up on the property they are holding. 

For some, it is being on a fixed income or job loss or health issues.  Some are seniors with dementia whose families have lost track of the properties.  For others, it is a simple calculation: - given diminished circumstances, the value of what they own is not worth keeping given the tax burden that has been imposed.  This is apparent from some of the properties listed which are undeveloped lots and properties being taxed at high rates but often in locations where there is no prospect of them ever being developed let alone a market buyer found due to plans, zoning rules and regulations that only Thunder Bay insiders can navigate.   

What kind of city lets this happen?  How can so many councilors talk incessantly about how they care about social justice and equity and helping the socially deprived and at the same time not realize the long-term effect of their decisions, policies and actions in raising the economic burden on workers and families in Thunder Bay?  It is not just a provincial or federal responsibility.  Its theirs too.

Higher Taxes AND Higher Debt: Municipal Finances in Thunder Bay

Thunder Bay’s per capita municipal debt rose from $1,618 in 2015 to $1,839 in 2018 – an increase of 14 percent.  Over the same period, its provincial municipal counterparts on average went from $699 per capita to $758 – an increase of 8 percent.  As a result, by 2018, the per capita municipal debt in Thunder Bay was essentially more than twice that of the average in Ontario.  One might creatively argue that a reason for our higher debt levels is that we have been keeping our property taxes below the provincial average in an effort to be competitive with other municipalities.  However, it turns out that is really not the case once you adjust for population.

The accompanying figure takes data from the Ontario Financial Information Returns and past City of Thunder Bay Budgets to make a comparison of average per capita own purpose municipal tax revenue for Ontario and Thunder Bay.  For Ontario as a whole, between 2009 and 2020, per capita property taxes rose from $1,176 to $1,492 – an increase of 27 percent. (Note that the Ontario tax revenue numbers for 2019 and 2020 are estimates based on linear extrapolation as the FIR provincial numbers go to 2018. Population was obtained from Statistics Canada).  Meanwhile, Thunder Bay’s per capita municipal tax revenue over the same period goes from $1,320 to $1,879 – an increase of 42 percent.  Thus, Thunder Bay not only has more municipal taxes being paid per person in every year since 2009 but it has increased faster than the provincial average.

 

In 2009, the average municipal taxes per person were $144 higher than the provincial average whereas by 2020 they were $387 higher.  Put another way, Thunder Bay’s per capita municipal taxes were 12 percent higher than the provincial average in 2009 and are now 26 per cent higher.  It has not helped that since 2009 Thunder Bay’s population – that is the City of Thunder Bay and not the CMA – has declined by 1 percent whereas Ontario’s has grown 13 percent.  Total municipal tax revenue (as opposed to per capita) between 2009 and 2020 has actually grown 44 percent in Ontario and 41 percent in Thunder Bay but Ontario’s increase in being spread over a larger population while Thunder Bay’s is being spread over a stagnant population base – hence the surge in per capita municipal taxes. Creative councilors and administrators at the City might reply that municipal property taxes are not paid per capita, that they are paid per "bungalow" and we are "mid ranked" there.  My response to that is ultimately, people pay taxes and not their bungalows.

So, not only are we a higher debt municipality but we are also a higher tax municipality and a slower growth municipality.  The sustainability of rising taxes on essentially a stagnant resource base given the dearth of major industrial and commercial development is a serious issue but one that rarely seems to be at the fore of debate at municipal council.  City Administration now is apparently on the basis of “new and emerging information” recommending that the vote on the new $33 million Indoor Turf Facility be postponed until November 2021.  Given that there is an anticipated COVID-19 budgetary shortfall, economic uncertainty, a failure to date to obtain financial support from higher levels of government for the facility, a high debt level and a program spending review under way (not to mention the private sector is already building a similar facility) it stands to reason that they take a pause on this one - for now.

It is not that Thunder Bay would not benefit from new all season sports facilities for its population but at what price?  Are we willing to accept even higher debt and taxes at a time when we already have more of both relative to the provincial average?  Do we want a “special one-time tax levy” to deal with COVID-19 and an indoor turf facility?  Our municipal finances are already quite special when compared to the provincial average as are our other problems ranging from crime to our water system travails.  How much more special do we want to be?

Thunder Bay City Budget 2019: It's Not Over Yet

Thunder Bay City Council has made the effort to address the rising level of taxes and expenditures in its most recent budget deliberations on Wednesday evening this week which apparently lasted eight hours.  The Administration was directed to find options for about $3 million in savings and they responded with a tiered list of three categories ranging from the least to the most intrusive that totaled $4.8 million.  The reductions approved by Council from the first list alone amounted to almost $1.7 million and among the items that were eliminated (as listed in a CBC report) were:

• $150,000 for consultation and study for increased monitoring of area waterways and other open spaces
• $16,500 that will reduce family swim hours at Churchill Pool and hours of operation for the thunder slide at the Canada Games Complex
• $330,000 for the purchase of a new pumper truck for Thunder Bay Fire Rescue
• $20,700 for the city to hang Christmas lights in the downtown south core and Westfort and for the installation of hanging baskets in the two cores
• $45,000 in reductions to city budgets for WSIB and overtime.

As well, several vacant city positions were eliminated.  However, some of the reductions in other services in the other more “intrusive” categories such as the elimination of weekend residential street snow or sidewalk plowing were not accepted.

When all was said and done, the increase in the total tax levy was brought down from initial 3.3 percent (that had actually jumped to 3.69 percent) – to 2.29 – that is from $195.9 million to $194.1 million – about $1.8 million dollars.  That does not seem like a lot because there was also the addition of about $1 million in new spending for police services (the jump to 3.69 percent) as a result of the need to deal with the recommendations of the Ontario Independent Police Review Director on the relations between the police and Indigenous people.  The budget still has to be ratified and that vote is scheduled for February 11^th. 

So, while an effort was made to restrain spending, when you look at the updated figures (See Figures 1 & 2)  that include the original proposed increases and the new revised January 30^th figures, there is still work to be done.  The new revised budget figures still entail an increase in the total tax levy though the rate of increase is now much closer to the inflation rate and lower than the average increase of 3.9 percent over the period 2000 to 2018.

 

 

It remains that despite what seem like numerous reductions to many items, there is still more tax revenue needed.  The City Budget is in some ways analogous to our hydro and water bills where even after people reduce their usage considerably, the total bill still goes up because of “fixed costs.”  Indeed, what has been done in the most recent budget meeting can best be termed as dealing with the “low hanging fruit.”  A more substantive effort requires a comprehensive expenditure and service review that needs to consider more substantial long-term changes. 

Among these, there does need to be a review of services like snow removal or garbage collection or transit that examines how they can be done with less money while preserving a core service requirement.  There needs to be a review of overall city staffing that can start with a hiring freeze and reduction of the total complement via attrition with restructuring of management of services and service delivery so that fewer people – including managers - are required.   

As retirements occur, management departments could be amalgamated.  A glance at the City organizational chart shows numerous divisions within each category and one wonders for example why under Corporate Services and Long-Term Care there are separate divisions for Financial Service, Revenue and Internal Audit given that they are all finance related.   Why is the Waterfront Coordinator not under Tourism Thunder Bay? Why is there a Central Support division in Community Services and another in Infrastructure and Operations? There is both a Corporate Strategic Services block as well as a Corporate Projects division in Community Services. There may well be good reasons for some of these organizational patterns but they do need to be reviewed and examined for efficiencies.

In terms of services, weekly winter garbage collection – say from November to 1^st to March 30^th could probably be changed to every two weeks with a three can limit every collection period.  This would reduce the core staff required with the uptake in summer filled by summer seasonal student workers when weekly two can limit service resumes.  Snow removal on weekends in residential neighborhoods could be moved from the current 5cm threshold to 10 cm which could help reduce overtime costs. 

In short, Council has made a start but there is still more to be done after this year’s budget is passed.