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.   

Ontario's Fiscal Paradox

My latest on Ontario's public finances...

Ontario has wrapped up its 2018 pre-budget public consultations as it prepares to deliver its next provincial budget. Ontario Finance Minister Charles Sousa confirmed in the fall fiscal statement that Ontario’s 2018 budget will be balanced, as will budgets over the next two years. However, the average Ontarian may be confused by the fact that despite a future of projected balanced budgets, the provincial net debt will continue to increase.

Indeed, recent years have seen the provincial debt grow by amounts exceeding that year’s deficit. For example, in fiscal year 2014-15, Ontario’s budgetary deficit was $10.315 billion but the net debt rose by $17.386 billion. In 2015-16, the deficit was $3.515 billion but $10.796 billion was added to the net debt. In 2016-17, the deficit was $0.991 billion but $6.276 billion was added to the net debt.
So how can this happen? See here for the rest of the post on the Fraser Blog...

2018 Blog Rankings Out!

Focus Economics has put out their list of Top Economics and Finance Blogs for 2018  and I am pleased to report that Worthwhile Canadian Initiative is once again on the list.  As our entry reads:

"The Worthwhile Canadian Initiative is a "mainly Canadian economics blog." The blog is currently maintained by four economics professors, namely Stephen Gordon, Frances Woolley, Nick Rowe and the Northern Economist, Livio Di Matteo. Topics covered on the blog generally encompass macroeconomics, but also include politics, immigration, inequality, finance and education."

Great news and congratulations to my fellow bloggers at WCI! 

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.