A Unity Circle: Celebrating Thunder Bay

The new Thunder Bay City Council that will be elected in October of 2018 will have a number of economic and social challenges on its plate but there is one item that should be a source for celebration.  The year 2020 will mark the 50^th year of the amalgamation of the twin cities of Port Arthur and Fort William and the rural townships of Neebing and McIntyre to form Thunder Bay.  The urban history of the Lakehead communities actually goes back to the late nineteenth century and both Port Arthur and Fort William obtained city status in the first decade of the twentieth century as the great boom drove their urban growth and development. 

I always thought it was somewhat of a shame that not more effort was made to celebrate the centennials of the twin cities circa 2006-07 but I suspect the history of urban rivalry between the two cities was such that no one really wanted to deal with it.  However, we now have an opportunity to celebrate amalgamation and I think it should go beyond simply a number of commemorative events and the publication of self-congratulatory histories.  I think an effort should be made to leave behind something concrete that adds to the city’s environment and is a legacy for the future.

As a result of its urban history of being two separate cities, Thunder Bay has always lacked a more centrally located focal point that could serve as a gathering place for the public to celebrate events.  Many cities around the world often have public squares or sites that can serve as gathering points for celebrations and events and that act as emblems for the city.  Think of Trafalgar Square in London, for example or Washington Square or Times Square in New York or the iconic four columns in Barcelona.

We of course cannot reproduce these types of landmarks nor should we but I think as a city we can take the step of creating a public space that celebrates the creation of Thunder Bay as well as points the way to a future that includes all its residents.  Somewhere in the Intercity area, preferably close to the banks of the McIntyre River – the old boundary between Port Arthur and Fort William – we should consider putting into place what I would like to call Unity Circle.  It would be a celebration of amalgamation and the bringing together of the twin cities to form Thunder Bay and would also look towards the future by including First Nations. 

Unity Circle would be a public space in the Intercity area that would contain a number of columns - I suggest six large columns of identical height arranged in a circle with the columns representing the original four municipalities that came together to form Thunder Bay, the City of Thunder Bay and Fort William First Nation. At the center of Unity Circle there would be a flame that would burn perpetually.  I think a message of unity is very important given the many social challenges that have faced Thunder Bay over the last decade and may help represent a way of moving forward into the future.

So, it is just an idea.  The actual piece of land and location is of course one of those details best left to the politicians and administrators and community leaders who make these decisions.  The design of the space and a suitable set of commemorative structures is also of course up for discussion and debate. What is most important right now is the concept.  The concept of a Unity Circle is something that celebrates our history and looks forwards by leaving the legacy of a substantial central public space that could form the focus of future public community events.  I think it is worth consideration.

Art in Northern Ontario: A Visit with Visual Arts at Lakehead University

The creative arts are a fundamental component of life and the human experience.  Northern Ontario and Thunder Bay in particular are blessed with vibrant and engaged arts communities whose creative work and activity deepens the regional quality of life.  In Thunder Bay, a vital component of the creative arts is the Visual Arts Department and associated programs at Lakehead University where the faculty and students have been contributing to the regional arts scene for decades.  Many generations of artists have acquired and honed their skills in the facilities and programs of Lakehead's Visual Arts Department.


This week, I received an in depth immersion in visual arts and the creative process as a result of my role as a reviewer for the Quality Assurance review of the visual arts program at Lakehead University.   I joined Sally Hickson from the University of Guelph and Laura Peturson from Nipissing University and spent two days visiting with staff and students at the Visual Arts Department at Lakehead.  It was certainly an illuminating experience learning about the different streams of the program and it was an eye opener learning about the capital intensity of the program given the facilities and equipment required to mount a quality program in the arts. It was quite instructive learning about ceramics, printmaking, painting, drawing and sculpture.




 



The students and faculty of the Visual Arts program regularly exhibit at the Thunder Bay Art Gallery as well as with other private galleries and their work is an impressive contribution to the region's cultural assets.  Much of their work is also showcased on campus and the recent opening of the Alumni Commons at Lakehead provides an attractive venue for their work.  All the best to the students, faculty and staff of the Visual Arts Department at Lakehead University.

Making Thunder Bay's Next Municipal Election Count

We are about six months away from Thunder Bay’s next municipal election and the race for the mayor’s chair and council spots represents an opportunity to examine directions and priorities.  The last election was obsessed with the event centre and the issue was a distraction from important issues such as the sale of municipal public assets, economic development, the city’s economy, the sustainability of municipal finances as well as the ongoing saga of infrastructure renewal and in particular the James Street Bridge which has now been closed to vehicular traffic since 2013.

Sadly, with the exception of the events centre, which has ridden off into the sunset for the time being, all of these other issues are still ongoing.  And of course, added to all of these issues are those with respect to relations with First Nations as well as court cases involving the city’s politicians and administration. Needless to say, Thunder Bay has garnered an inordinate amount of negative attention on the national stage in areas under the purview of municipal government and such attention is certainly not a magnet for business investment.

When it comes to economic development and the city’s economy, it remains that both population and employment levels in the city have been flat for the last four years.  The low unemployment rate in the city results from a labour force that has shrunk faster than employment and of itself is not a positive harbinger for the future.  Waiting for the Ring of Fire to kick start the economy appears to be a process akin to Waiting for Godot and all the talk of smelter locations in the world will be of no avail given low current chromite prices.  As for the current trappings of prosperity in the city, they are largely the result of a large public sector and associated public spending which after the June provincial election could very well come to a crashing halt.

Of course, even without long term private sector wealth creation, the illusion of prosperity created by public sector spending has helped fuel municipal government spending and tax increases which over the last few years have averaged above the city’s inflation and GDP growth rates.  Moreover, there has been a continued shift of the tax burden onto the residential ratepayer and they now account for about 70 percent of tax revenues.  Added to this are the continued steep increases in user fees and charges which given the talk about “rainfall taxes” show no sign of abating anytime soon.

Indeed, the thirst for residential tax revenues also results in city council giving the go ahead to new urban residential developments outside core areas that while adding to the tax base in the short term also add to urban sprawl and require municipal servicing whose maintenance will add to city expense in years to come.  The sustainability of this type of short term development formula should be a topic for debate and discussion but again it is an issue the politicians are happy to ignore when it comes to an election year. 

So, what is to be done? Well, for starters Thunder Bay residents need to pay closer attention to the fiscal, economic and social issues affecting the city and ask candidates more pointed questions about what solutions might help address the situation.  Perhaps one should ask why anyone might want to buy a new house in Thunder Bay if the property tax bill for a new bungalow is going to be in the range of $5000 to $7000 onto which will be added another $1000 a year in water and sewer charges. 

Given the length of tenure that many current members of council have had, a legitimate question is whether or not Thunder Bay might not be better off with a substantial transfusion of new blood on City Council with new ideas and new energy to look at new ways of doing things.  After all, current members of City Council have generally been the most comfortable with solutions that involve raising taxes and spending more money.  While the claim is often made that millions in efficiencies and savings have been implemented, the fact is the tax levy continues to grow which means total spending is going up and not down.

Making Thunder Bay’s next municipal election count requires making an effort to create real change in the way municipal issues are dealt with and that requires some new blood. It truly is time for change.

Population Growth Results: Thunder Bay and Sudbury at the Bottom

Statistics Canada has released its recent sub-provincial population estimates for 2016/17 and the results find that population is still growing faster in the Prairies well as parts of Ontario but the two major northern Ontario CMAs are not in the pack.   According the Statistics Canada, the 10 CMAs with the highest population growth in 2016/2017 were in either the Prairies or Ontario. In 2016/2017, the population growth rate was 2.0% or higher in four CMAs: Saskatoon (+2.8%), Regina (+2.4%), Guelph (+2.2%) and Ottawa–Gatineau (Ontario part) (+2.2 and were followed by Toronto (+1.9%), Oshawa, Winnipeg, Edmonton and Calgary (+1.8% each), and Kitchener–Cambridge–Waterloo (+1.7%).  The figure below shows the picture pretty clearly.

 

At the bottom of the rankings are Sudbury, Thunder Bay and Saguenay.  Sudbury is third from the bottom with a population increase of only 0.1 percent.  The population decreased in the Saguenay (-0.2%) and Thunder Bay (-0.1%) CMAs for the fourth consecutive year with Saguenay’s population decrease partly attributable to out-migration of young adults aged 18 to live elsewhere in Quebec. In Thunder Bay, the number of deaths surpassed the number of births, and has done so since 2006/2007, contributing to its population decline. 

What a 2.4 Percent Municipal Tax Levy Increase Really Means

Thunder Bay City Council has voted to pass the 2018 municipal budget and will formally ratify it at a vote this evening.  The Mayor and Council have of course been patting themselves on the back about how it is a “responsible budget” and how it keeps the tax levy increase in spending within the average of the last two terms of council.  The tax levy increase is now coming in a 2.4 percent now – just above the rate of inflation - which is down from the 3.03 percent increase that was originally on the way after several weeks of deliberation and debate.  This was managed by essentially taking out about $1 million from the city reserve fund to lower the levy against the advice of City administration it turns out who also noted that the reserves – used to cover unexpected costs or deficits throughout the year - have been declining since 2012

What this all really means is that this is an election year.  The average municipal tax revenue increase over the period 2011 to 2018 has averaged 3.3 percent and ranged from a high of 5.7 percent in 2015 to a low of 2.2 percent in each of 2014 and 2016.  The increase of 2.2 percent in 2014 was also during an election year and was followed by a 5.7 percent increase in 2015.  Keeping the increase low this year can be interpreted as a deliberate political strategy to not raise the ire of ratepayers in the lead up to the October election and one can expect a hefty increase to make up lost ground when the 2019 budget comes in.

In the end, a tax levy increasing at just above the rate of inflation is not much of an accomplishment given that it was done by dipping into the reserve fund.  While much was said during council debate about the hard decisions that have been made the fact remains that spending is going to go up by the amount originally agreed upon – just over 3 percent – but it is going to be subsidized by borrowing from the reserve fund. 

But then, cost control is hard work and in the end some of the efforts at cost control have backfired.  One need only look back at the attempt by Thunder Bay to reduce garbage collection costs in 2017 which were supposed to eliminate a truck and labour costs via attrition while at the same time reducing bag pick-up to two bags from three with additional bags requiring a tag.  And what was the end result?  After a period of chaos, the truck was reinstated but the three-bag limit was not and things have remained very quiet since.  So, one has to conclude that costs have remained the same while less garbage is being collected and revenue is probably up for the City from the bag tags. It was certainly a win for the City of Thunder Bay but not for rate payers who altogether have to pay more but are getting less.

We can expect more of the same next year after the dust clears from the election.  The current cast of councilors will largely be returned to office and the cycle will start anew. We will be paying more and getting less, and the debut will be a hefty tax levy increase to replenish the reserve fund as well as boost spending to make up for the previous year’s slowdown.  There will be the usual grumbling and complaints, but they will be dismissed because after all Thunder Bay voters are the ones doing this to themselves by falling for the same thing election after election.  Why would city politicians take them seriously when they complain?

Additional Note: February 6th - Well, the budget did pass last evening. Please note that the 2.4 percent levy increase coming in is "net" or after factoring in "new growth".  The gross levy increase is actually 3.13 percent.  Originally, the net increase was going to be close to 3 percent and the gross increase nearly 3.6 percent.  So, total spending is still going up 3 percent and the net is 2.4 because of the use of projected surplus funds from 2017 budget away from the reserve fund and towards the tax bill.  However, apparently there was an effort to move even more of the projected 2017 budget surplus away from the reserve but it did not succeed.  Of course the 3.13 percent does not mean that everyone's tax bill will be going up 3.13 percent or 2.4 percent if you are an "existing" ratepayer.  That is the total increase in tax financed expenditure. Much of the burden of the increase will go to residential ratepayers. See my post last month here for a more detailed discussion.   

Economics News Around the North: January 25th Edition

Here are the economic news stories that have caught my interest over the last little while in northern Ontario.  The start of the new year has been a bit slow when it comes to economic news in the region but then there is so much else going one politically, economically and otherwise in Ontario, Canada and the world especially as we move into a critical phase with the NAFTA negotiations and the start of election campaigning in Ontario in the run up to the June election.

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.

Crime in Northern Ontario Down

My last post on policing resources in the major northern Ontario cities noted that all five cities saw an increase in policing resources. In 2000, the largest number of police offers adjusted for population was in Thunder Bay at 171.6 (per 100,000 of population), followed by Sault Ste Marie at 156, Timmins at 153.1, North Bay at 147.6 and finally Greater Sudbury at 143.1.  By 2016, Thunder Bay was still first at 199.5 officers per 100,000 of population.  It was followed by Timmins at 196.2, Sault Ste. Marie at 176.7, Greater Sudbury at 160.7 and then North Bay at 152.6.  Growth in per capita policing resources was greatest in Timmins at 28 percent, followed by Thunder Bay which saw a 16 percent increase.  Next highest growth was Sault Ste. Marie at 13 percent, followed by Greater Sudbury and North Bay at 12 and 3 percent respectively.

Of course, the logical question that follows next is what was going on in crime rates over the same period of time?  It should be noted that policing is much more complex in the early 21^st century dealing not only with traditional crimes but also with new crime areas such as cyber and internet crime.  As well, social issues in general have been consuming more police resources as well as new standards of accountability which entail more intensive use of policing resources when dealing with incidents.  Homicide investigation is especially resource intensive.  Nonetheless, a look at crime rates it is still a useful piece of information. 

Traditional measures of the crime rate such as criminal code incidents per 100,000 of population or per police officer measure the volume of crime.  One example is the homicide rate and past evidence has found the homicide rate declining in northern Ontario in a manner akin to other Canadian cities with the exception of a recent surge in Thunder Bay.  Another measure of crime is the Crime Severity Index.  The Crime Severity Index combines both volume as well as takes into consideration the seriousness of crimes by assigning each type of offense a seriousness weight and generally serves as a complement to other measures.  The index has been set to 100 for Canada in 2006 and enables comparisons of crime severity both at a point in time and over time. 

 

Figure 1 plots the value of the Crime Severity Index obtained from Statistics Canada for the five major northern Ontario cities for the period 1998 to 2016.  The severity of crime differs across these five cities in any given year but all cities have seen a decline over time.  The largest declines over time have been in Sudbury and North Bay at 36 and29 percent respectively.  Next is Thunder Bay with a 17 percent decline in crime severity between 1998 and 2016, followed by Sault Ste. Marie at 16 percent and then Timmins at 15 percent.  The good news is that while there are annual ebbs and flows, crime rates over the long term are down in these major northern Ontario cities.

Policing Resources and Costs in Northern Ontario: A Brief Municipal Comparison

Municipal budget season is upon us and expenditures on protection – police and fire – are some of the most important areas in which municipal tax dollars are spent. Municipal police services have the responsibility of ensuring the security of residents, businesses and visitors to their communities and the basic activities are crime prevention, enforcement of laws, maintaining public order,  assisting the victims of crime as well as emergency services.  Over the years, policing has become more complex dealing with new types of criminal activity in the cyber age as well as devoting more resources to social concerns.

One interesting point of comparison for the five major northern Ontario cities is the number of police officers per 100,000 of population and the trend in this number over time.  Figure 1 plots Statistics Canada data on police officers per 100,000 for the period 2000 to 2016.  In 2000, the largest number of police offers adjusted for population was in Thunder Bay at 171.6, followed by Sault Ste Marie at 156, Timmins at 153.1, North Bay at 147.6 and finally Greater Sudbury at 143.1.  By 2016, Thunder Bay was still first at 199.5 officers per 100,000 of population.  It was followed by Timmins at 196.2, Sault Ste Marie at 176.7, Greater Sudbury at 160.7 and then North Bay at 152.6.   

 

As Figure 2 illustrates, growth in per capita policing numbers was greatest in Timmins at 28 percent, followed by Thunder Bay which saw a 16 percent increases.  Next highest growth was Sault Ste Marie at 13 percent, followed by Greater Sudbury and North Bay at 12 and 3 percent respectively.

 

Another point of comparison is spending. The BMA Municipal Reports provide some data on the costs of providing policing services. The rankings for costs generally parallel those for police numbers. When the net costs per 100,000 dollars of assessment are compared (including amortization), in 2016 the highest cost was in Timmins at $441 per $100,000 of tax assessment followed by Thunder Bay at $434. Next was Sault Ste Marie at $402, then North Bay at $317 and finally Greater Sudbury at $299.  Naturally, this ranking is influenced by the richness of the tax base and all other things given cities with a weaker total tax base can expect costs of policing per $100,000 of assessment to be higher.  At the same time, over the last decade, all five cities have seen a reduction in the net costs pf policing per 100,000 dollars of assessment.  This could be a function of growth in tax bases as well as other efficiencies and economies.

Thunder Bay Taxes Are Going Up Again!

It is municipal budget season in Thunder Bay and the inevitable process of thrust, parry and spin is well underway. First the thrust: the amount spent by the City of Thunder Bay obtained from the tax levy is going up by 3.6 percent.  Moreover, water and sewer rates as well as tipping fees at the landfill will be going up by three percent.  In an effort to forestall the inevitable complaints that these increases are too high, the resulting parry and spin on the part of the City appears to be as follows. 

The 3.6 percent increase in the tax levy will only be a 2.9 percent increase to existing ratepayers after factoring in assessment growth.  According to the budget chair: “This is a budget that stays the course in terms of not reducing services but maintaining investments while living within our means.”

Moreover, much of the increase is going to hire new full-time positions and vehicles for the Superior North EMS.  The paramedic service has seen call volumes grow substantially in recent years as a result of the aging population and the opioid crisis. As well, according to the budget chair, in an ideal world “we would stay below the level of inflation,” but there has been a reduction in provincial transfer payments.

The efforts by the City to justify a 3.6 percent increase in the levy – that is in tax financed city expenditure – are pretty standard.  Differentiating between existing ratepayers and “new growth” conveniently sidesteps the fact that in the end it is all tax revenue coming from city ratepayers.  Arguing that we are “investing” in services and living within our means needs to be considered within the context of whether the services are cost-effective as well as the fact the money is not from some kind of endowment but comes directly from city ratepayers.   

As for the paramedic service, it would be nice to see some kind of breakdown in statistics as to exactly what the sources of the increased demand are in terms of case mix and demographic breakdowns.  In an interview on CBC Thunder Bay radio this morning, the chief of the Superior North Emergency Medical Services also noted that the city has a large transient population that is a source of increasing demand.  This raises the question as to whether city ratepayers rather than the province should be on the hook to fund what is increasing regional demand for emergency health services. However, as noted above, the province is apparently not very interested in raising its grant contribution.

The most entertaining line was the one that ideally, we would see tax increases that stay below the rate of inflation.  The last four years have seen increases in tax revenue all above the inflation rate suggesting that this aspiration has yet to be achieved by the current city council.  Nevertheless, given that it is an election year one should have goals and dreams to campaign on.

Given that it is an election year, it is also important to take a longer term look at municipal finances – in particular I want to focus on Thunder Bay municipal own-source revenue – that is tax and user fee revenues and then provide some comparisons to basic economic indicators for the city. The data on total municipal tax revenue, residential and non-residential tax revenue, and user fees spans the period 1990 to 2016 and is from assorted past City of Thunder Bay Consolidated Financial Statements as well as from the Financial Information Returns (FIR) maintained for each municipality by the Ministry of Municipal Affairs and Housing.  For 2017 and 2018, I use current City of Thunder Bay budget summaries with the total for 2018 a forecast based on the tax levy increase of 3.6 percent. From Statistics Canada, I have the inflation rate - inflation is Ontario’s Consumer Price Index with 2002 as the base year – as well as median total tax filer income and annual employment for Thunder Bay. Population figures for Thunder Bay are from the Census of Canada.

One point with respect to City of Thunder Bay financial data is that the summaries and budget information over the last few years do not seem to provide the tax revenue breakdown between residential and non-residential revenue. I suspect the reason for this has less to do with economy of presentation and more to do with drawing attention away from the fact that the residential share of tax revenue has risen dramatically. While FIR does provide this information, unfortunately it only becomes available with a lag and 2016 is the last available complete set of FIR data. Overall, municipal finance data is rather opaque and difficult to use not just in Thunder Bay but Canada as a whole.  Cities could do better when it comes to being accountable to their ratepayers via concise, comprehensive and easy to use statistics.

For the period 1990 to 2016 (but forecast to 2018 for taxation revenue), Figure 1 plots taxation revenue and its two components – residential and non-residential taxation (commercial and industrial).  It then also plots user fee revenue (water & sewer and other fees) and then the total of taxation revenue and user fees. In 2016, tax revenues grew 2.2 percent with residential tax revenue growing at 3.8 percent and non-residential tax revenue actually declining 1.1 percent.  User fee revenue also declined 2.5 percent (despite rate increases the previous year). As a result, own source revenues in 2016 grew a modest 0.6 percent compared to 5.3 percent the year before.  If one looks only at total municipal tax revenue, it grew 5.7 percent in 2015, 2.2 percent in 2016 and based on recent estimates (and not FIR data) grew at 3.3 percent in 2017 and will grow 3.6 percent in 2018.

Figures 2 and 3 provide composition information for taxation revenue and total own source revenue for the period 1990 to 2016. When one considers only tax revenue, from a 50/50 split in 1990 the distribution by 2016 had evolved into a 70/30 split.  The residential ratepayer in Thunder Bay now provides the City of Thunder Bay with 70 percent of municipal tax revenue. When the picture is broadened to total own-source revenue, the residential ratepayer in 2016 provided about 46 percent of own-source revenue, the non-residential ratepayer 21 percent and user fees – which incidentally are paid by both residential and non-residential ratepayers -about 34 percent.  
 

Figure 4 plots the average annual growth rates for total taxation revenue as well as residential and non-residential tax revenue and user fees, alongside the growth rates for Thunder Bay’s population, employment and median total tax filer income and Ontario’s inflation rate.  The average annual growth rate for taxation revenue has been 4.1 percent but residential tax revenue has grown at 5.6 percent while non-residential taxes have been growing at 2.3 percent.  On average, both residential and non-residential taxes revenues have grown faster than either population (-0.2%), employment (-0.1%), inflation (1.9%) and median tax filer income (2.2%).  User fee revenue has also grown faster than all of these indicators at an average of 5 percent.

So, the 2018 municipal budget year is shaping up to be somewhat modest in terms of increases at least by historical standards.  Total tax revenue is anticipated to only go up 3.6 percent (as opposed to 4.1 percent) while user fee increases of 3 percent look pretty good compared to average increases of 5 percent.  But then, 2018 is an election year and I suspect that we will be in for some pretty steep increases in 2019 once the election dust clears.  If one goes back to the 2014 election, that budget year saw a 2.2 percent increase in municipal taxation revenue but they made up for it in 2015 with a 5.7 percent increase.

It probably is a smart strategy to moderate tax increases in an election year and then raise them steeply early on in the new mandate so that their memory fades by the time the next election rolls around. It may perhaps be seen as calculating and opportunistic behavior on the part of our municipal politicians but it seems to work. Thunder Bay residents keep re-electing the same people over and over again.

Looking Ahead to 2018

Well, it is the New Year and as always it is a time of reflection and looking ahead to see what the New Year might bring for Canada, Ontario, northern Ontario and naturally The Most Serene Kingdom of Thunder Bay where there is always optimism. Of course, 2017 has been a pretty tumultuous year but 2018 is also looking turbulent given the changes poised to take effect as well as events around the globe. However, on the bright side, the global economy is expected to do reasonably well according to Goldman Sachs or then perhaps not if you listen to Morgan Stanley. At least, Canada will not be Venezuela which FocusEconomics expects to be 2018’s most miserable economy though Canada is expected to be in the top ten for nominal GDP.  

Nevertheless, this year will certainly be a test of the aspiring nature of current economic policy in Ottawa and Queen’s Park.  At the top of the list, the United States will dramatically lower business and personal tax rates effective January 1^st.  The last time this happened in the 1980s, Canada countered with the federal tax reforms that lowered rates and broadened the rates.  This time, no such response appears to be coming despite the fact the federal business tax rate in the United States is expected to fall from 35 to 21 percent.  A saving grace is that new US corporate tax rates will match rather than fall below Canadian ones.

If the US economy booms in the wake of its tax cuts, Canada might be expected to benefit from increased trade.  Yet, federal economic leadership is adrift on the trade front given the United States is playing hardball on NAFTA and talks with China and the Asia Pacific are stalled.  The aspirational tone of current trade talks is not bearing fruit given Chinese and American reactions. Indeed, the possibility is high that Trump will pull the plug on NAFTA early in the New Year.

On the plus side, we can take solace in the fact that while the United States is playing hardball on trade, Donald Trump considers Justin Trudeau a “friend”.  One can only imagine our trade talks with the Americans if Donald Trump was dealing with enemies. Perhaps we can look forward to a visit to Canada by President Trump in 2018.

At the federal level, we can also take cheer in the most recent Federal Department of Finance’s long-term projections (a few days before Christmas when no one is paying attention) that the federal budget is now expected to be balanced by 2045 compared to the 2050s as forecast in last year’s long-term forecast.  Given the international situation with North Korea, the United States, Russia, China, and the Mid-East, the world should last so long.  Where is Lester Pearson when you need him?

Added to all this are expected increases in interest rates for 2018 and the tightening of mortgage rules with a new stress test. The stress test will effectively function like an increase in the interest rate for home buyers without the added stress of implementing an actual increase for the Bank of Canada. These changes are anticipated to have a depressive effect on Canadian housing markets especially outside of Toronto and Vancouver.  As for Toronto and Vancouver, being in an economic world of their own, they should only slowdown a bit.

Things are marginally better when moving into Ontario. Ontario’s economy has done relatively well in 2017 though NAFTA talks are inevitably keeping Premier Wynne awake at nights. While Ontario is expected to balance its operating budget, debt will continue to grow based on the forecast capital spending ranging from public transit to high speed rail. Yet, it is also not a done deal that Ontario’s era of deficits is over given what appears to be a ramping up of spending with implications for the future.  Moreover, the increase in the minimum wage and other regulatory changes that are being phased in with respect to employment standards, scheduling, and overtime mark the debut of a massive experiment.  How much change can employers absorb before throwing up their hands and scaling down their operations?

Ontario is also on track to a June election and many of the progressive initiatives of the current Wynne government are designed outflank the NDP given the Conservatives under Patrick Brown have sailed into the centre of the political spectrum with their policies.   The Wynne government’s policies are aspirations for a more socially just Ontario with less weight placed on trade-off between equity and efficiency.  Along with the guaranteed annual income experiment, there is also a new youth pharma care program.  

In the end, all three political parties in Ontario appear to be placing themselves along a centre-left alignment meaning that Ontarians can expect government spending and debt to maintain their current trajectories no matter who wins.   

Of course, more government spending will be seen as good news for northern Ontario given the economic dependence on government. While the resource sector saw some marginal improvements in 2017, the development of the Ring of Fire still appears to be quite distant though 2018 being an election year one can expect to see a number of positive inspiring announcements with respect to its future.  As well, it will be interesting to see if there is any mention of the “success” of the Northern Ontario Growth Plan in the next provincial election campaign.  Any mention of the 25 year plan to boost the economy of northern Ontario that started in 2011 will likely mention the wonderful things yet to come - after all, we have yet to reach the halfway mark.

As for Thunder Bay, its economic engine is government activity as the core sector with subsequent commercial and retail activity an economic multiple of this core.  It is a recipe for stability that works given that the city’s economy has been static in terms of employment for several decades.  Rising public sector salaries and incomes provides a base for municipal taxation and further local public-sector employment and the process will continue until the flow of public money is constricted – which does not appear to be any time soon.

Why tamper with perceived success? This means the current batch of local politicians – provincial and municipal – will all be re-elected come June and October and everyone will go back to sleep.  The northern Ontario economy and Thunder Bay in particular have become a sort of economic Brigadoon – an isolated sleepy region coming magically to robust economic life every 100 years. 

Yet, despite the evidence of slow economic and employment growth from Statistics Canada and the Conference Board, its boosters have often maintained that Thunder Bay is one of the fastest growing cities in Canada and with some of the lowest unemployment rates in the country.  That the low unemployment rates in Thunder Bay's case also mean the labour force has been shrinking faster than employment is apparently not seen as a cause for concern. 

I suppose it depends on what indicators you wish to measure growth with and your interpretation of the evidence. I guess who am I to argue with Thunder Bay’s ruling political class when it comes to the interpretation of economic arguments and indicators. In the end, their attitude towards and understanding of economists is best summarized by the line once made by one city politician:"You want to listen to economists? They record history. They don't make history."

Given the last real boom period in northern Ontario was the resource commodity and baby booms of the 1950s and 1960s, we can expect the regional economy to again awaken circa  2050 – roughly the same time the federal budget is expected to balance again.  By then, perhaps the federal government will carry the public sector spending ball for northern Ontario and give the provincial government and municipalities a rest.

Happy New Year and may God save us all.

Thunder Bay Building Permits: A Reality Check

A recent TBnewswatch story reported  the estimated value of building permits in Thunder Bay in 2017 was up substantially from the year before  at 146 million dollars.  Based on the numbers presented in the story, the increase in 2017 can be calculated at approximately 55 percent.  This is of course an upbeat year end story. Given the coming year will see both a provincial and municipal election, one can expect these types of numbers to be presented by local politicians as evidence that Thunder Bay's economy is doing well. However, it is important to adjust these kinds of number for inflation - that is present them in real dollars - as well as look at more than two years of data.

This is done in Figure 1.  Using annual total value of building permit numbers from Statistics Canada for 1998 to 2016 and adding the 2017 estimate from the City of Thunder Bay's Chief Building Official and then deflating using the CPI, the real value (in 2016 dollars) of total building permits is presented.  The good news is that 2017 is indeed up from 2016 but there has been an overall downward trend from peaks in real value reached in 2012 and 2013. Over a longer term view, a fitted linear trend suggests that there has been a slight increase in the real value of permits since the late 1990s but the 2017 performance is really not much higher than a decade ago or even two decades ago.


One can view the above chart as good news in the sense that construction activity over time in Thunder Bay over the long haul has been reasonably stable and perhaps even characterized by some very modest growth.  It should be noted that this activity is composed mainly of residential followed by institutional and government construction projects.  Indeed, the peaks in Figure 1 are much less impressive once you remove the government and institutional permit values. 

The composition of these permits is provided in Figures 2 and 3.  Figure 2 presents an area graph based on annual numbers while Figure 3 simply aggregates all the permits since 1998.  Nearly thirty percent  building permits since 1998 are of institutional and public sector origin.  Industrial permits are below 10 percent.  Commercial permits have been surprisingly large as a proportion of the total which is actually a cause for some optimism given that they reflect private sector perceptions of economic opportunities in Thunder Bay.

Thunder Bay Employment Flat for Forty Years

My recent Fraser Institute Blog post on employment growth in Canada at the provincial and CMA level since 2007 appears to have attracted a fair amount of interest if only based on the hits via my Linkedin page.  The article was posted on the Fraser Blog on December 4^th and by December 14^th, it had garnered 1,515 views.  The interest has been quite pronounced from Linkedin profiles in Ontario and of course particularly from the Thunder Bay area. As a follow-up, I decided to look at employment levels in Thunder Bay and Greater Sudbury from a longer-term perspective using data from Statistics Canada.

Now Statistics Canada has annual province level unemployment rates and employment data available on its site from 1976.  Its annual CMA level data only appears to go back to 1987.  So, in order to generate CMA employment levels and unemployment rates for Thunder Bay and Greater Sudbury prior to 1987, what I did (acting on the suggestion of my Lakehead colleague Rob Petrunia) was run regressions of CMA level employment and unemployment rates for both cities on the Ontario data along with a time trend variable.  The assumption is that employment levels and unemployment rates in the two cities should reflect what is going on in the province as a whole. The regression results were then used to estimate fitted values for Thunder Bay for the period 1976 to 1987 and for Sudbury from 1976 to 1990 (Sudbury data starts in 1990). 

The results are intriguing.  Figure 1 plots the unemployment rates in the two cities from 1976 to 2016 and there seems to be some good news here.  While unemployment rates in both cities fluctuate a great deal over time, they have generally trended downwards since the late 1970s.  The average unemployment rate in Thunder Bay between 1976 and 1985 was 9.7 percent while in Sudbury it was 11 percent.  Over the period 2010 to 2016, Thunder Bay’s unemployment rate was 6.1 percent while over the same period in Sudbury it was 7.5 percent. 

 

However, the good news seems to end when employment levels are examined in Figure 2 – at least for Thunder Bay.  Sudbury has seen its employment grow over time while Thunder Bay has essentially remained flat. In 1976, estimated total employment (full and part time) in Thunder Bay was 61,224 and in Sudbury it was 60,475.  By 2016, Thunder Bay’s employment was 60,100 while in Sudbury it was 81,700.  In other words, over 40 years Thunder Bay has essentially remained flat in terms of its employment level – indeed there has been a slight decline of 2 percent since 1976.  As for Sudbury, its employment level has grown by 36 percent since its estimated 1976 value.

 

A declining unemployment rate when total employment is growing can be seen as good news.  A declining unemployment rate when total employment is declining means that your labour force is actually shrinking faster than your employment level.  For Sudbury, a lower unemployment rate is good news given that it has been accompanied by rising employment.  For Thunder Bay, a declining unemployment rate is a misleading indicator and masks the moribund nature of its economy given that its employment level has been essentially the same for 40 years.