NORTHERN ECONOMIST 2.0

Sunday 7 February 2021

Municipal Budgets, Facts, Debates and Bullying

The 2021 Thunder Bay City budget should finally be ratified this week and getting there has been an interesting process on a number of fronts. First, is the sudden epiphany that struck city administrators by the fall that business as usual tax levy increases in the 3-4 percent range were not going to work this year given the push back from both business and residential ratepayers. Second is the rather assertive tone of debate adopted by some councilors in response to presentations and discussion during the budget process.

With respect to the actual budget, the initial 2021 budget request came in with a proposed tax levy increase of just over 2 percent. However, rather than go up from there, which has often been the case in past budget seasons, councilors have managed to whittle it down slightly to 1.83 percent. Ratepayers in Thunder Bay however should not relax and assume this is a new era whereby the City of Thunder Bay has finally realized its limitations and will begin a new transformative vision of more sustainable municipal government. Rather, one suspects the long game of the part of Administration is still that this is a short-term one-off event and next year with the pandemic subsiding, it will be time for larger tax increases to recover lost ground. This will be a mistake given that Thunder Bay needs to engage in a major exercise to bring its costs especially for government administrative services and protection more in line with other jurisdictions.

As for the tone of debate, well here we were treated to the spectacle of one councilor effectively interrupting a presentation to vigorously challenge debate the presenter’s facts and opinions rather than ask questions in a manner more akin to a court proceeding rather than a council meeting. In response to the presenter’s call for a review of police service spending which has accounted for half the tax levy increase since 2018, the councilor in question countered with the immense workload of the Thunder Bay police service in that it had responded to 5,000 incidents which “in his mind” equaled the amount that Toronto officers attended.

This in itself was an interesting empirical point given the data for 2019 comparing total criminal code violations excluding traffic reported in Toronto and Thunder Bay provided below in Figure 1. Needless to say, the total volume of incidents in Toronto vastly exceeds Thunder Bay. However, perhaps the councilor in question was being more nuanced and meant incidents per 100,000 population in which case Thunder Bay comes in at 7,046 and Toronto at 3,471 – at double the rate. In either case, where the number 5,000 came from and what it really means is probably best answered by the councilor.

However, if the councilor was trying to make a case supporting the police service, he was certainly not doing them any favors in his presentation of the data and facts. If one can be permitted yet another colorful marine metaphor, In launching argumentative torpedoes at presenters, the inability of councilors to effectively target and launch runs the risk of sinking their own ship. While one may think they are conducting an in-depth analysis while floundering under the water, it is probably wiser to begin from well above the surface and first survey the potential hazards.

More serious however was the debating of the presenter rather than simply asking questions and what in essence amounted to a form of bullying and badgering the presenter. Needless to say, this did not go unnoticed by several other councilors and to their credit they did attempt to rein the offending councilor in. Needless to say, the presenters provide input and answer questions to provide clarification and it is the councilors who are then supposed to debate the evidence amongst themselves rather than engage in self-congratulatory speeches and grandstanding.

This is not just a Thunder Bay phenomenon at the municipal level. City councilors and administration in Hamilton, Ontario for example are developing a reputation for being rather pugnacious towards their ratepayers and have been called out for hostile attitudes towards residents appearing before council. In Hamilton, there is a proposal supported by legal advice from their lawyers and administration to ban public letters critical of city council behavior from the public record of their meetings. This has prompted concerns that councilors in Hamilton may be trying to shield themselves from criticism.

Of course, in Thunder Bay, the response to criticism or questions on some matters - such as the leaky pipe sodium hydroxide fiasco – is simply to hide behind their lawyers and not answer questions. It would appear that in both Hamilton and Thunder Bay, lawyers appear to be hard at work in making sure there is less democracy. Coming on the heels of pandemic lock downs and social distancing that reduce personal and direct access to your representatives, it would appear we have entered a new era of government dictates from on high. And one gets the impression that many politicians do not seem to mind.

Friday 5 February 2021

COVID-19 Cases Trends: Where Next for Ontario and Thunder Bay?

The news on COVID infections in Ontario has become quite positive in recent days with counts showing a decline. Indeed, as Figure 1 shows,there is a definite downwards slope to the daily count profile but we are still some distance away from the lows reached circa the first week of August when daily counts average about 100 per day. Given the total number of current cases of 275,330, 100 cases per day constitutes a growth rate in cases of about 1/3 of one percent whereas it is currently about 15 times higher at 0.6 percent. However, the apparent downward trend will start the call for a relaxation of restrictions.

Needless to say, there are reasons not to start relaxing restrictions given the spread of the more contagious new variants as well as some erratic performance of the numbers with widely shifting daily case counts as new reporting systems are implemented. As well, as Figure 2 shows, deaths have yet to exhibit a substantial downward trend in Ontario.

At the same time, the new unemployment numbers released today suggest that protracted lock downs come at a great economic cost. However, the slow and reactive nature of Canadian governments to the pandemic has now put us in this place. In the absence of substantial high rates of vaccination - given that Canada is lagging other countries substantially - as well as more available rapid testing that would allow business to test and isolate their staff - it is difficult to see what the other options are?

As for Thunder Bay, well the daily case count trends there do not look too good. As Figure 3 shows, we have gone up and still appear to be quite high. While the majority of the recent cases have been confined to the institutional settings of the prison and correctional center, it remains that with the staff going back and forth to home and work and the release of some prisoners into the community, the potential for rapid community spread is still high.

Needless to say, the move by the Mayor to declare a second state of emergency makes perfect sense given the need to isolate and protect vulnerable populations. At the same time, the Mayor also called for relaxation of lock down restrictions for small business a few days before which appears somewhat inconsistent with what followed, but politicians are known for changing their minds. Sometimes, it is even based on evidence.

Given its low population density and relative isolation, Thunder Bay should be able to create a reasonably good bubble. However, as isolated as it is, it would appear that cases continually pop up and quite a few are linked to travel. While it is true the number of cases directly linked to travel are small, it remains that those cases have spread the virus whether the case counts and testing catch it or not. The best thing Thunder Bay and the District Health Unit could do right now is help the move to implement more rapid testing starting with everyone who gets off a plane at the Thunder Bay Airport.

It would be more useful to catch them as they arrive rather than several weeks later with the subsequent announcement that someone on a flight tested positive. Rapid testing services should also be provided to businesses and institutions that want to open up more generally. As well, why not innovate a testing version of the "Ride" program? The District Health Unit with a mobile van in conjunction with the Thunder Bay police should pick locations around town where continually shifting traffic stop points are set up. Traffic stops would be conducted and the driver and passengers pulled aside and asked what "essential business they are up to" and then provided with a rapid test and must await the result in their vehicle. Indeed, given there are limited ways to drive to Thunder Bay, the odd random checkpoint at the City limits might also be a good thing to try.

No doubt there will be many who argue that this is "authoritarian" and an infringement of "Freedoms." Okay. Make the rapid test voluntary if you want. It can be declined. However, it is still an opportunity for health unit officials to stop and provide information and get the message out in a more direct way to a public that often still does not get it. The inconvenience of being stopped in itself may make people think twice about going out for non-essential reasons and help slow transmission.

Tuesday 2 February 2021

Why Laurentian Has Filed for Creditor Protection and Not Lakehead

Yesterday’s news that Laurentian University is facing insolvency and has filed for protection from its creditors in the wake of a deteriorating financial situation brought about by the impact of COVID-19 is an important development in Ontario’s university sector. Laurentian’s President Robert Haché said the move was necessary to put Laurentian on a firm footing after years of deficits and that: ““We are facing unprecedented financial challenges and our financial health is currently amongst the weakest in the province compared to other universities.”

Among the compounding factors to the impact of COVID-19 on the university’s finances were years of recurring deficits, the poor demographics in northern Ontario, the closing of the Barrie campus project and the Ontario governments decision to first cut and then freeze tuition fees. Needless to say, the recent Ontario University application numbers showing a drop in first choice applications for nearly two-thirds of Ontario universities and surges in applications for the remainder – McMaster, Waterloo, Toronto, Western, Ottawa and York - has not helped matters. Obviously, given the COVID situation, all the GTA students really want to stay in the GTA next year though how they are all going to be accommodated is beyond me. There may be online recruitment opportunities for the smaller universities outside the GTA.

Of course, Laurentian’s predicament and that of smaller universities in Ontario in general is not that surprising. As noted over a decade ago, one of the perils of being a small university was the bigger burden of debt acquired in the first decade of the 21^st century as universities undertook massive capital spending projects to deal with rising enrollments, infrastructure renewal and program expansion even though long-term demographic projections suggested that enrollment growth would eventually ebb . Long term debt as a percentage of total university revenue was higher in smaller Ontario universities though a decade ago, Wilfrid Laurier, Lakehead and UOIT seemed in worse shape than Laurentian.

So, why is Laurentian in trouble and not say Lakehead? Using data from annual financial statements, it is fairly easy to piece together some answers. The two universities are fairly similar, in terms of their total enrollment, though Laurentian is slightly bigger at just over 9,000 students in total enrollment while Lakehead is just over 8500. Total revenues and spending are shown in Figures 1 and 2 and they also show similar size total revenue and spending envelopes over time.

They also now have similar stocks of debt. On the surface, Lakehead has a bigger stock of long-term debt than Laurentian (see Figure 3) but the stock of debt has gradually diminished since 2011-2012 whereas Laurentian appears to have acquired its debt more quickly in recent years.

In a sense, Lakehead has had more time to deal with its debt stock in the wake of the rapid acquisition prior to 2006. Most of it is also the result of capital projects rather than cumulative deficits. Since 2006, Lakehead has only run deficits three times (Figure 4) whereas Laurentian has managed to run one 11 times. Continual deficits have a nasty habit of adding up over time.

Given nonexistent growth in government grants, a big difference between the two institutions has to do with where the recent revenue growth. Laurentian as a bilingual university has had difficulty maintaining and staffing the range of programs necessary to attract enrolment to offset weak grant revenues and the tuition freezes. Offering programs in both languages in a sense has harmed potential economies and the cancelled Barrie campus was supposed to be an avenue for growth though how successful it might have been is an interesting question. Lakehead on the other hand has been able to expand into international enrolment and particularly graduate international enrollment and attract them to their campus. Unlike residents of the GTA, international students seem willing to try out Thunder Bay.

As Figure 5 shows, Lakehead’s tuition revenue since 2006 has been consistently above Laurentian – even though it is the slightly larger university – and it has actually grown rapidly over the last few years. Laurentian has not and its persistent deficits mean that it will need to take some steps to deal with its finances though advertising to potential students you are insolvent is probably not the best recruiting tool. Given the application drops across the Ontario system for smaller universities, the Ontario government will be facing increasing issues in its university sector in the wake of it deciding to hamstring university revenues on the tuition front. In the end, universities need to make sure that their costs are balanced by their revenues and that will be a challenge in the current environment.

Monday 1 February 2021

The Zaniness Continues at Thunder Bay City Council

Canada’s longest running combination of basic income for politicians experiment and situation comedy continues with the weekly meetings of Thunder Bay City Council as they wrap up their budget reviews and deal with their usual business at hand. For those of us of a certain vintage, the online meetings do look like a continually shifting combination of the Brady Bunch intro and Hollywood Squares and during the long meetings one can draw some amusement from deciding which councillor or administrator is playing the role of Paul Lynde, or perhaps Gladys, Marcia or Peter.

Nevertheless, even the councillors themselves seem to be increasingly exasperated by the meetings with last week seeing one councillor complain out loud about accomplishing nothing after several hours of debate on the presence of hockey nets at city skating surfaces produced no solution. Several weeks ago, the chair of the budget committee’s facial expression was priceless as one councillor for whatever reason went on a bit of a rant that the city budget was so complicated that it made him dizzy. It would appear that fiscal vertigo is one of the job hazards of being a Thunder Bay City Councillor.

And last week’s meeting also dealt with the free transit fare proposal and produced a suggestion that given the cost of implementing a completely free fare system, that perhaps there should be one free day a month. One is surprised that the more progressive minded members of council did not use this opportune juncture to borrow from the collective wisdom of our current Prime Minister and recently departed Governor General to state that we all experience reality differently and that transit patrons should simply decide when boarding the bus if they thought it was a fare free day. In the end, Council simply decided to freeze transit fares saving riders $68,000 as it would appear that the $115,000 cost of one free day a month was better spent on a new Thunder Bay waterfront sign.

There are of course more serious issues to be discussed but councillors in Thunder Bay prefer spending time on these digressions to avoid the more serious business at hand. To use yet another colorful marine metaphor, it would appear they are simply a school of freshwater smelts who rather than swim upstream to perform their reproductive duty as nature and need mandate, prefer to linger in the shallows, dally around the shore and even go in the opposite direction by joining the flow downstream. In the end, they do not accomplish what they should and all they manage is entangling themselves on hockey nets and other debris.

Among the more serious issues are two in particular. First, there is the matter of the 2021 budget which after several review meetings has done little to further reduce the levy. Apparently, the few hundred thousand dollars in savings that have been generated by the ponderous line by line review is seen as sufficient given that the starting levy increase came in at about two percent. Suggestions of making more substantial reductions were rejected by most councillors and the Mayor, because they have apparently already made so many and they have been keeping levy rate increases after assessment growth at an average of 2.39 percent since 2012.

The selective mathematical analysis leaves out the point that the total levy increase since 2012 has actually averaged just over 3 percent annually. Moreover, one wonders how they can continually say they have made reductions when the total tax levy continues to grow faster than the rates of population growth and inflation combined. It remains that the councillors have yet to seriously deal with the spending and staffing reform necessary to reduce the tax levy to more sustainable levels. As stated previously on Northern Economist, given that nearly 60-70 percent of the municipal tax levy is spending on wages, salaries and benefits, there needs to be a policy of reducing the staffing footprint via attrition with reallocation to priority services and functions.

The hard work of making more lasting structural changes in spending, given that Thunder Bay spends substantially more than other municipalities particularly on protection services and administration, is too much for our councillors to handle. Instead, as shown in last week’s meetings, the councillors prefer the parry, thrust, dodge, spin approach to policy debate with several councillors shedding crocodile tears for the taxpayer’s burden and then calling for tax reform at the federal and provincial level to reduce the reliance of municipalities on property taxation. No doubt, they will next send a delegation to Belgium requesting Pfizer speed up vaccine deliveries to Thunder Bay because the High Council of the Lakehead has decreed it. Of course, there is a certain irony in the fact that external powers often respond to our City councillors and administration with the same casual indifference that Thunder Bay ratepayers have come to know.

And speaking of casual indifference when responding to constituents, secondly, there is the perpetually pesky matter of the pinhole leaks in the wake of the addition of sodium hydroxide to the water supply. Thunder Bay City Council and Administration have delivered their reply in court. In response to the lawsuit filed by St. Joseph’s Care Group (SJCG), they simply deny any responsibility for the problem. Indeed, their position is summarized by:

· the city reasonably and in good faith exercised its power resulting from policy decisions concerning the management, maintenance and modification of the water system

· the city denies that its acts or submissions caused or contributed to the presence of pinhole leaks in copper water pipes

· the city lawfully carried on its responsibilities for the general benefit of the community at large

· the city at no time made non-natural use of its water supply or infrastructure

None of this is surprising as the City has basically denied any responsibility all along, nor has it offered any assistance given the hardship thousands of homeowners and institutions have suffered in Thunder Bay. Indeed, the real problem with the pinhole leaks issue is not only whether they followed an approved process but also the City’s reaction of doing absolutely nothing to assist property owners once the problems became apparent.

What is more surprising is the assertion that: “The plaintiff knew that its pipes were old and beyond their reasonable life expectancy, yet they took no steps to replace them, nor did they install water leak detection systems.” What they are essentially saying is that if your house in Thunder Bay is more than 30-40 years old, you should go probably go out and replace all of your piping as preventive maintenance. The building codes in Thunder Bay are so high quality that houses have a forty-year expiry date. That should be an interesting addition to Thunder Bay’s marketing as a destination for prospective businesses and immigrant seeking to come and set up shop in Thunder Bay.

Moreover, while the SJCG is represented by Cheadles LLP of Thunder Bay, the city has used the tax dollars of the affected parties to hire the Toronto Law Firm of Theall Group thereby ensuring the leakage of water pipes is being supported by the leakage of spending power out of the local economy. But then, the hiring of Toronto law firms to deal with local residents whether it is litigation or labour bargaining has become a feature of publicly funded institutions in Thunder Bay. No doubt, councillors will assuage their consciences by intoning the importance of shopping local in Thunder Bay and asking for the rest of us to support local business as we select companies to replace our copper pipes. If that does not stimulate the economy, then having your housing stock expire every forty-years should do the trick in generating new housing construction projects for a non-growing and aging population.

The zaniness continues and we are all paying for it.

Thursday 28 January 2021

New CIHI NHEX Numbers Out: The Results Are Not What You Might Think

The annual Canadian Institute for Health Information (CIHI) National Health Expenditure (NHEX) data tables and report release was today and as a member of the CIHI NHEX Advisory Panel, I always look forward to the new report. With 2020 being the year of COVID, the impact on health spending in Canada is of particular interest. To say that there has been a lot going on is of course the understatement of the year. The numbers for 2018 and 2019 have been updated with upward revisions with spending in those years reaching $254.6 and $265.5 billion respectively bring the health expenditure to GDP ratio for 2019 up to 11.5 percent. Indeed, total health spending as a share of GDP in Canada has now been estimated at 11.5 percent for three years running. However, unlike the 2019 release which featured a forecast for 2019, the 2020 numbers do not provide a forecast for 2020.

The numbers for 2020 are a lot murkier as while there have been spending announcements totalling $29 billion across all levels of government, the net results on spending are still unclear. As the report notes: “On one hand, there are significant spending implications associated with the treatment of a large number of patients with COVID-19 symptoms (often with prolonged stays in intensive care associated with high resource use), widespread testing and tracking

of the population, the creation of excess health system capacity and the purchase of personal protective equipment (PPE). On the other hand, health systems have observed a reduction

in overall health service delivery across the continuum of care…”

For example:

· Visits to emergency departments (EDs) across Canada declined by almost 25,000 a day in mid-April 2020 — about half the usual number of patients. By the end of June 2020, visits remained lower than is typical for that time of year (about 85% of June 2019 volumes).

· From March to June 2020, overall surgery numbers fell 47% compared with the same period in 2019, representing about 335,000 fewer surgeries.

· In the 3 provinces where data is available (Nova Scotia, Ontario and Manitoba), the number of patient visits (in person and virtual) to all physicians dropped by 13% to 33% from March to June 2020.

So, the impact of COVID on health spending in Canada in 2020 appears to still be a work in progress. While there have been unprecedented increases in announcements of spending on health and costs associated with treating COVID-19, at the same time there may have been a decline in spending on a lot of other things meaning the net impact for 2020 still has to be worked out. If one were to add the $29 billion in spending announcements to the totals for 2019, one might obtain a potential upper bound spending estimate for 2020 of $294.5 billion which when applied to a GDP estimate for 2020 from the last Federal 2020 fall economic update of $2.183 trillion (avg of private sector forecasts), then the health expenditure to GDP ratio could be 13.4 percent.

However, the examples of service volume reduction during the pandemic provided in the report suggest that there may be a significant decrease in spending in non-pandemic related health spending offsetting the increase in pandemic related spending thereby possibly even reducing total health spending from the 2019 level. It is indeed an interesting possibility.

If total spending in 2020 stays at the 2019 level, the health spending to GDP ratio becomes 12.2 percent – not an outrageous spike from 11.5 percent at all given a pandemic year with hundreds of billions of dollars in deficit spending. If it goes lower than the 2019 level, one can expect a health spending to GDP ratio in 2020 not much different from 2019. Again, this may be possible given the prospect that the provinces may have had some difficulty in spending all of the money the federal government has transferred to them for health and pandemic assistance as reported in this story in the Toronto Star.

Of course, one can understand why care has to be taken in making sure the right numbers for 2020 are calculated. The pandemic response in Canada has been a year-long case of playing catch-up whether it was with recognition of the problem, deciding what to do and then implementing measures. After a year we seem to still be debating travel restrictions. The erratic vaccine acquisition and rollout and the ongoing saga of testing or not testing at airports are just high-profile examples of how our governments – federal and provincial – just do not seem to be able to get things done either quickly or well. If on top of all this health spending during the 2020 pandemic year actually goes down, then there will be yet another barrage of criticism for all governments – to say the least.