NORTHERN ECONOMIST 2.0

Thursday, 13 January 2022

2021 Census Updates Out: Since 2016, Sudbury Up 2.2 Percent, Thunder Bay Up 0.3 Percent

A very quick post. So, the 2021 census population numbers are finally out from Statistics Canada along with updates for the entire 2001 to 2021 period. I have been waiting for these numbers for some time to see how Thunder Bay and Sudbury have done and the results are interesting. Since 2016, Sudbury CMA has seen a population increase from 169,136 to 172,781 - an increase of 2.2 percent. Indeed, Sudbury has seen a pretty steady increase in population since 2001 going from 164,210 in 2001 to 172,781 - an increase of 5.2 percent. Thunder Bay CMA went from 126,696 in 2001 to 124,840 by 2016 before rebounding to 125,247 by 2021. However, since 2001, Thunder Bay CMA has actually declined by just over 1 percent. Staring in 2016, there has been a tiny rebound equivalent to about one third of one percent. Thunder Bay saw a major decline from 2004 to 2016 followed by a rebound that appears to have ended starting 2020. It would appear that the pandemic year has seen a bit of an exodus from Thunder Bay. So, from 2016 to 2021, Sudbury is up 2.2 percent and Thunder Bay 0.3 percent. So, there you have it.

Sunday, 9 January 2022

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.

Monday, 3 January 2022

Ontario's Pandemic in Three Charts: A Bumbling Mediocrity

Ontario appears to be once again in pandemic crisis as the Omicron variant causes cases to soar. On December 1st, 2020 daily reported cases were 780 and by the 15th they had soared to 2,421 and on December 31st the reported number of cases was 18,445. The first chart presents the daily number of cases since the start of the pandemic with a LOWESS smooth and indeed the figure is quite astounding showing a near vertical soaring of daily case numbers to heights heretofore unseen as has been occurring in other parts of the world. Indeed, there are now so many cases that Ontario has restricted access to testing meaning that we have now lost track of the pandemic. The result is a new set of restrictions and lock down measures for January designed to slow down and blunt the wave given the surge and the confused and chaotic rolling out of vaccine boosters.

Figure 1

At the same time, the evidence has been mounting that Omicron is not as severe as the previous variants and the disease is generally milder. Yet, the concern is that while the disease is generally milder, there are so many cases that hospitals still risk being overwhelmed. While hospitalizations have been rising over the last few weeks it remains that relative to the total number of active cases, hospitalizations remain at levels well below those of previous waves as shown in the next figure taken directly off of the government web site. Indeed, as the next figure shows, there are now so many cases relative to hospitalizations that the chart shows a hospitalization line that looks practically flat at the horizontal axis.

Figure 2

This obscures the reality that it is still possible that this current wave of the pandemic will see hospital and in particular ICU capacity overwhelmed. So we proceed to the third and final chart which presents since May 2020 the total number of adult ICU beds available at Ontario hospitals (lightest green), the total number of occupied ICU beds (intermediate shade of green) and the number of adults in ICU due to COVID-19 (the darkest green). This is perhaps the most curious piece of the puzzle. While ICU hospitalizations due to COVID-19 have been rising in Ontario, they are nowhere yet near the peak reached in May of 2021.

Figure 3

Yet, the concern is about overwhelming the hospital system which has been the concern all along. Indeed, despite a pandemic that has lasted nearly two years now we still seem to be having the exact same issues with each new wave - worries about capacity whether it is hospital beds or health professionals. Indeed, it is this capacity issue that has been a key driver behind some of the longest lock downs in the developed world. It remains that Ontario, like Canada, has some of the lowest per capita hospital bed numbers in the developed world as this chart put together by yours truly for the 2022 Maclean's chart fest illustrates.

And, what chart three also shows is that after the ramping up of ICU bed capacity in the wake of the first wave - ICU capacity was reduced rather dramatically in Ontario after the summer of 2020. It was ramped up a bit in spring of 2021 but then came down again where it has remained since August of 2021. And this is during a pandemic that has been occurring in successive waves and continually generated concerns about capacity of the health system.

If there is one thing that this pandemic has revealed about Canada's heath care system and the pandemic response is that we have spent a lot of money - indeed health spending to GDP soared to over 13 percent in 2021 - and yet we seem to always be chronically short of resources. Indeed in the case of ICU bed capacity in Ontario - we have been winding things down only to panic once again when the pandemic reignites. It is fortunate that the Omicron variant appears to be relatively mild and likely the last stage before becoming an endemic virus as it infects virtually everyone.

Will we have learned anything from it when it comes to our health care system? Likely not. Once it subsides it will be back to business as usual - a high spending system that is apparently resource starved at the same time, operates with just-in-time capacity and with little resilience to meet unforeseen demands. After all, recall that even before the pandemic, the Christmas holidays were always a source of concern about hospitals capacity as flu season hit and health professionals took holidays thereby reducing services. The pandemic has simply aggravated a long standing trend.

Given the general lack of outrage by Canadians or Ontarians about this state of affairs, it is obvious that they are quite happy with a bumbling mediocrity that spends more and gets less every time. I guess that as long as business and individuals get deficit fueled federal and provincial government support payments, they are not too concerned about value for money in their health care system - until they suddenly have to use it. If that is not the sign of a declining civilization, I don't know what is.

Monday, 20 December 2021

The One Hundred Buckets of Norman: A Fairy Tale

Once upon a time, not too long ago and not too far away, there were two magical kingdoms nestled on the vast shore of a great inland sea known as Lakeland. Lakeland was an earthly paradise of green woods, towering cliffs and shimmering lakes bounded by a sky so blue, that water and air seemed as one. The waters of the inland sea seemed bottom less and the two kingdoms were surrounded by vast swaths of the most aromatic and verdant pines. The winter had a crystalline crispness that took away one’s breath with its austere majesty while the summers saw long sultry days with a sun that barely set before midnight. On such summer days, the nobles and their subjects danced together far into the night blissfully unaware of the swirling turmoil in the world around them.

Alas, troubled times had come to the Two Kingdoms. A great plague had descended upon the land and the people had retreated with fear into their homes. Crime and pestilence plagued the once happy peasants and burghers and the High Council of Nobles appeared increasingly at a loss to restore happiness to their domain. They would suggest grand projects and quests to give the people hope but all the people wanted was a return to some semblance of a happier time. The Nobles called upon their most loyal retainer and Chief Warden who went by the name of Norman to suggest a way out of the time of troubles. However, even he was hard pressed to solve all the problems given they had been complicated by the springing of numerous leaks in the town’s aqueducts.

Poor Norman faced a dilemma. His most important role as Chief Warden was denoted by his second title as Keeper of the Palace Buckets. Water from the aqueducts to the palace was kept in many buckets and it was Norman’s role to make sure the buckets were filled and then emptied. However, there was so much demand for water from the Nobles that the task was never ending, and poor Norman constantly juggled buckets that were empty with others that were overflowing and had to be poured into other buckets. Some years there was too much water at the palace while other years there was not enough.

The Nobles were frustrated given that sometimes they had plenty of water while other times there was not enough for their baths and regattas. Norman tried to explain that he had one hundred buckets to fill and even if some buckets had too much water, it was difficult to then fill buckets that needed more on the other side of the palace given the large number of buckets and the size of the palace. Indeed, Norman had too many buckets to keep track of and that was part of the problem. There had been a time of fewer buckets but over the years more and more buckets had been added and that had been Norman’s crafty doing to placate the Nobles.

It turns out the nobles were not terribly good at maths. Even when the total amount of water was the same, the silly Nobles thought there was more water at the palace if there simply were more buckets. So, Norman made ten buckets become 20 and then 50 and then 100. Indeed, Norman was not even sure how many buckets there actually were, but the Nobles were so happy if they had their own bucket and access to many more that Norman was reluctant to change things. Norman thought of trying to manage the buckets better by making a list, but he soon found he just had too many buckets and not enough time or water.

So, what was Norman to do? Well, the responsible thing to do was simply to come clean and tell the nobles there had to be fewer buckets – and indeed – maybe some of the buckets should be consolidated into a few large cisterns. True, some of the Nobles might have to do with less but given all the leaky pipes in the Two Kingdoms, the enormous expense of the plague, and all other troubles afflicting the realm, surely more bath water for the Nobles could wait.

Instead, as Keeper of the Palace Buckets, Norman decided it would be wiser to keep his head from rolling by suggesting that a shining knight on a white charger might miraculously appear and make it rain buckets. Or perhaps, the Nobles could employ another wizard to cast a spell and conjure buckets and water out of thin air. Or maybe, the Great Emperor of the Southern Empire could be petitioned for more buckets of water. Or better yet, ask the peasants to provide more water for the Palace.

In the end, magical promises could buy time but not fill buckets. After all, if the demand for buckets exceeds supply, no magic in the universe can change the outcome. The most convenient decision was simply to ask the peasants to provide more water for the palace. After all, what are peasants for if not to provide for their betters in life? One could have asked the Nobles to fill more buckets themselves and dip less but as has already been mentioned, they were not terribly good at math. Sadly, people who are not good at maths are not destined to live happily ever after.

The End.

Wednesday, 15 December 2021

Analysis: Federal Economic and Fiscal Update Fall 2021

Yesterday’s federal economic and fiscal update has been lauded as showing an economy doing much better than expected as well as improved federal finances relative to the spring 2021 budget. In the end, the recovery from the depths of the pandemic has been much better than was anticipated and this has resulted in federal government revenues much greater than was forecast last spring. Figure 1 shows that revenue is expected to be billions of dollars higher in each fiscal year up to 2025-26. – as much as 20 billion dollars more in some of the years. Indeed, over the six years from 2020-21 to 2025-26, total additional revenues are expected to total about $106 billion.

However, as Figure 2 illustrates, that is being accompanied by a parallel process on the federal expenditure side. Aside from 2020-21 which has turned out to have about $6 billion less spending than expected, the other years will see higher additional expenditures than originally forecast ranging from $7 billion to $15 billion. Over the entire six-year period, the federal government will be spending an additional $54 billion than was laid out in the spring budget. So, about half of the new revenues are going into additional spending while the other half enables the government to have a smaller deficit than planned in each of the years ahead.

Whereas the spring 2021 budget saw a deficit (including actuarial losses) in 2021-22 of $154.7 billion, it is now forecast to be $144.5 billion. By 2025-26, the deficit (including actuarial losses) is now expected at $13.1 billion whereas before it was going to be $30.7 billion. Naturally, smaller deficits down the road will result in a smaller net debt and smaller net debt to GDP ratios given the projected GDP growth. So rather than a net debt of $1.529 trillion by 2025-26, it should only be $1.359 billion. The world should last so long.

Two things have been left unsaid about the updated numbers. First, when all is said and done and the COVID-19 spending bubble wound up circa 2022-23, spending will be about 22 percent higher than it was in 2019-20. Put another way, COVID-19 aside, federal spending will have grown at just over 7 percent a year. The pandemic in classic Peacock-Wiseman fashion has provided an opportunity for the federal government to expand its spending and there has been an upward shift or displacement that is going to remain permanent.

Second and more disturbing is if one accepts the average federal government inflation forecast over the next five years of 2.6 percent and adds in population growth of just over 1 percent annually, then the average nominal GDP growth of 4 percent from 2022 to 2026 is eaten up by inflation and population growth such that real per capita GDP after the post COVID rebound is essentially going to be flat after 2022. If inflation turns out to be higher at say in the 4 to 5 percent range, then we are looking at a decline in real per capita GDP over the same period. There is not going to be any real growth. That is the disturbing aspect of this update. There is going to be a permanent enrichment of federal spending but not in the actual real economic growth of the economy.