Setting Direction: The Next Four Years for Thunder Bay City Council

Thunder Bay’s new City Council has been sworn in and the first meeting tonight will send important signals on what the direction of the new council is as well as the ability of new council members to work together and effectively make decisions.  This is a process being repeated cross the province as new municipal councils from Toronto to Dryden to Windsor begin serving their terms. 

Many often feel the role of Council is to make decisions that do things – like boost the city’s economy or cut costs.  The reality is that much of this can only be done indirectly.  For example, the economic impact of City Council is via its role in setting tax rates and tax policy as well as providing strategic direction on what infrastructure and quality of life investments can attract business.   As for cutting costs, Council needs to follow a process that involves its civil servants –administration - which administers and delivers services.

True, City Council approves all decisions but it is only after strategic direction is provided and the alternatives have been produced and analyzed by the administration.  If City Council wants to reduce expenditure growth, it is not their role to decide what areas should be cut or restrained, it is their role to select the target expenditure level or the desire to reduce spending and then ask administration for their options on how to achieve it.  Having set the policy direction, City Council then decides on the options provided by administration to pursue in meeting the target.  In brief, the role of City Council is to select targets and then make decisions to meet those targets based on the instruments provided by their civil servants.

Of course, the automatic response to any such pontificating on the part of observers like myself is that I am not a member of Council and if I feel I know so much I should walk the walk and run for office. While I appreciate that elected office is an important calling and a tough job,  my response to that is on several levels. First, you should always be careful what you wish for. Second, such a retort on the part of any politician is really designed to stifle debate because given the number of people expressing opinions, how can we all run for office and all serve on Council or as an MP? Third, as engaged citizens and taxpayers we should contribute to debate and discussion and we all have skills that can serve the public in different way.   There is no one size fits all standard for public service and we cannot all be elected politicians.

 

So, that out of the way, the main challenges facing Thunder Bay over the next few years appear to have been categorized by the Mayor in his address last week: taxation, crime, the economy and infrastructure.  I would broaden the “crime” category to general “social fabric” given the interaction between crime, inequality and poverty but fair enough.  These are the categories most in need of attention in Thunder Bay.  Taxation of course is related to spending given that the municipal tax levy is directly linked to the amount of spending.  And, of course there are always issues that will rear their head as a result from decisions made elsewhere – such as the decision to legalize cannabis.

So the issues on tap for the first meeting tonight are whether to close Dease Pool or spend millions of dollars in repairs (apparently $2.8 million more), changes in parking regulations,  a recycling contract extension ($2.6 million more) and a report on the performance of the  new Python 5000 pothole repair machine.  Aside from the parking regulations, these issues all ultimately may involve spending more money for one reason or another.  Given that taxation rates are ultimately linked to spending, tonight will provide a pretty good indication of what we can expect from City Council with respect to tax rates in next year’s budget process and the direction for the next four years.

Long Run Economic Performance: Comparing China, the UK and USA

In light of my recent contributions on China’s economic performance which have appeared in The Hill and on the Fraser Institute Blog, I thought it might be useful to provide the figures which underpin the longer-term analysis of their performance.  The data I used is from the Angus Maddison Database – the 2018 update – and the data is summarized in the accompanying Figures 1 and 2.

Figure 1 plots total real GDP from 1820 to 2016 in 2011 USD for the United States, the United Kingdom and China.  In 1820, China had a vastly larger economy than either the US or the UK with a real GDP of $325 billion compared to $69 billion for the UK or $21 billion for the USA.  Indeed, for much of economic history, China has always been the biggest economy in the world as a result of its massive population.  In 1820, China had a population of 381 million people compared to 10 million for the United States and 21 million for the UK.  However, the 19^th century was not kind to China and by 1870, China’s economy had shrunk to $270 billion but it was still larger than the United States at $150 billion and the UK at $179 billion. 

 

Total GDP of both the US and the UK grew quickly as a result of late nineteenth century industrialization with the US matching the UK in 1878 and then pulling ahead in terms of total GDP.  By 1887, the US economy at $306 billion was larger than China at $274 billion and the UK at $228 billion.  By the eve of the First World War in 1913, the US economy at $791 billion was nearly twice the size of both the UK and China at $368 billion and $344 billion respectively. In the period since WWI, the United States grew rapidly and by the mid 1970s was over five times the size of the UK economy and about five times larger than China’s economy.

China had a Communist revolution in 1949 but economic performance in its aftermath - while substantial - was not as robust when compared to the last forty years.  From 1950 to 1975, China real GDP grows from $348 billion to $1.2 trillion – a tripling of output.  However, things for China really take off with the first economic reforms and liberalization of the 1970s and from 1975 to 2016, its economy expands from $1.2 trillion to $17.3 trillion.  Over the 1975 to 2016 period, the US economy expanded from $5.6 trillion to 17.2 trillion while the UK expanded from $1 trillion to $2.5 trillion.

In 2016, China re-assumed its historical role as the world’s largest economy.  Yet, as I pointed out in my oped pieces, this is not the end of the story.  Despite its impressive and rapid economic growth in terms of total output, China still lags when it comes to per capita output. As Figure 2 shows, over the entire 1820 to 2016 period, China has always had a lower per capita GDP than either the UK or the US and the relative gap has not changed all that much despite the rapid growth of the last 40 years.  In 1820, per capita GDP in China was about 26 percent that of the UK and 41 percent that of the USA.  By 1975, its per capita GDP was 7 percent that of the UK and 5 percent that of the United States.  After the robust growth of the post 1975 period, by 2016 per capita Chinese GDP now stands at 34 percent that of the UK and 24 percent that of the US.

 

So, China has done very well but it still has a long way to go.  Its rapid extensive growth masks the fact that large swaths of its population are still quite poor.  Its economy is showing signs of economic and political fragility given its aging population, large debt levels and economic inequality and this has global implications.  Such fragility is probably a reason for its more authoritarian turn in recent years under President Xi Jinping.  After the rapid growth and improvement in living standards of the last few decades, any economic slowdown may create a politically volatile domestic mix of discontent.

Homicide Rates for 2017: Canada (and Sudbury) Up but Thunder Bay Down

Well, with all the excitement about the Federal Fall Economic Statement yesterday, the release by Statistics Canada of the 2017 homicide numbers flew in somewhat under the media radar.  According to Statistics Canada, the homicides in Canada hit its highest rate in almost a decade in 2017 with much of the increase attributed to more firearm-related and gang-related incidents. The firearm-related homicide rate increased 18 percent from 2016 to 0.72 per 100,000 population—the highest rate since 1992. Police reported 660 homicide victims in Canada in 2017, 48 more than in 2016. The homicide rate rose 7 percent in 2017 to 1.80 victims per 100,000 population—the highest level since 2009.  It would appear that the upward increase in homicide rates was driven by British Columbia and Quebec.

 

 

What is also of interest is the homicide rate by CMA for 2017 as shown in Figure 1.  In 2017, the homicide rate per 100,000 ranged from a high of 5.8 in Thunder Bay to a low of 0 in Saguenay.  Greater Sudbury came in close to the bottom at 0.61.  The good news for Thunder Bay is that the homicide rate for 2017 is down from 2016 when it stood at 6.62 per 100,000.  The bad news is if one takes the average homicide rates for all CMAs for the period 2006 to 2016 (see Figure 2)  Thunder Bay also ranks the highest at an average of 4.04 per 100,000, just ahead of Winnipeg at an average of 3.69. As for Sudbury, its homicide rate is up from last year - when it stood at zero - but given the rankings there does not seem to be that much to worry about there.

Needless to say, despite an improvement in 2017 Thunder Bay still has work to do.

Ontario 2018 Economic Outlook and Fiscal Review: Commentary

The Ontario government delivered its Fall 2018 Economic Statement and the end result was not as dire as anticipated.  From a revised deficit of $15 billion dollars just weeks ago, the Ford government has now brought the deficit down to $14.5 billion – not the fiscal Armageddon many would have expected.  Indeed, some might argue that the fiscal statement was positively underwhelming given that there was not as significant a dent in the deficit as the rhetoric suggested, there was no timetable for balancing the budget, nothing about how to deal with a large net debt and the fact that the net debt is now $347 – up from an amount that was itself revised upwards to $338 billion from $323 billion only a few weeks ago.

Part of what is happening here is that the provincial government is facing a much larger fiscal challenge than it probably even itself realized.  The Ford government has promised to tackle the deficit and restore Ontario’s public finances.  It also wants to enact more tax relief (for example the LIFT credit for lower income workers) and wants to spend money on the promises it made – including infrastructure such as long term care beds.  At the same time, Ontario’s economy is expected to slow – eroding revenue growth – while interest rates are creeping upwards adding to debt service costs.

So, moving from its financial commission review 11 weeks ago, revenues are now projected to be $2.7 billion dollars lower going from $150.9 to $148.2 billion.  This is the result of the cancellation of cap and trade – which for 2018-19 is a $1.5 billion revenue hit – as well as a projected slowdown in land transfer tax and corporate income tax revenue.  This is accompanied by a decline in spending by $3.1 billion as expenditures go from $165.8 to $162.8 billion with much of this involving cancellation of previous government initiatives.  As a result of spending dropping just a bit more than revenue, the deficit is reduced $500 million from $15 to $14.5 billion.

A glance at spending by ministry showed that most ministry functions are still up from 2017-18, including health and education.  Ministries that are seeing drops include the Attorney General, Economic Development, Government and Consumer Services, Indigenous Affairs, Municipal Affairs and Housing and Tourism.  There does not appear to have been a major hit to any of the major transfer partners.  Infrastructure spending also is still on track and may be a factor in the increase in the estimate of the net debt to $347 billion. 

So, the long and short of it is that this is really a place holder fiscal statement.  There is really no significant dent in the deficit, no time table for balancing the budget and the net debt is higher than what was projected just 11 weeks ago.  If the Ford Government is sincere about reducing the deficit, it probably needs more time to develop and implement a strategy that "will require difficult decisions" and will tackle it in the spring 2019 budget.  Until then, we wait.

Natural Resource Resurgence in the Northwest

There has been good news when it comes to the forest sector in northwestern Ontario in the wake of nearly a decade of doom and gloom.  Softwood lumber prices have rebounded and there is expanded production underway at sawmills in Ear Falls and Kenora with the two plants now providing about 250 jobs.    In White River, the previously closed sawmill has now been operating for about five years.  Resolute Forest Products just announced its third quarter profits were up and  it would pay a special dividend and its optimism for the future recently translated into an announcement that it would invest $53.5 million on its northwestern mill operations. 

According to the MNR, in 2006, there were 40 large active sawmills in Ontario (mills that processed more than 50,000 cubic metres annually) of which 34 were in northern Ontario.  There were 58 medium size mills (processing 5,000 to 50,000 cubic metres annually) in Ontario of which 14 were in northern Ontario. There were nearly 60 small sawmills in Ontario (less than 5,000 cubic metres in production annually) of which 19 were in northern Ontario.  The sawmill industry was distributed throughout the province, but large employment intensive mills were concentrated in the north.  By 2012, Ontario was down to about 97 mills – a 40 percent reduction from 158 to 97 sawmills. 

As for the pulp and paper mills, Canada as a whole saw a decline from 50 to 30 pulp mills between 2000 and 2014 – a reduction again of 40 percent.  Approximately over the same period, total employment in logging, paper and wood products in Canada fell from 308,664 to 190,651 – a loss of 118,000 jobs or a drop of about 38 percent.  As for northern Ontario, in 2003 there were 12 large pulp and paper mills in northern Ontario while by 2012 the number had gone down to 7 – a drop of 42 percent.  Since then, the mill in Iroquois Falls has also shut down and while there were plans for redevelopment it has since suffered an unfortunate fire.

The forest sector crisis in northern Ontario saw the loss of over 20,000 jobs in the northwest part of the province alone.  It was not just a downturn but in many respects the end of an entire way of life.  Well-paying industrial jobs in many small communities that supported a small-town friends and family oriented lifestyle vanished. After the destruction of the forest sector crisis that saw pulp and sawmills shuttered and significant employment losses, we are now seeing new investment and some employment recovery.  However, despite this recovery in investment and employment, it is unlikely that the size of the industry well ever again return to its former glory.

The following figures present an overview of the evolution of employment in northwestern Ontario’s resource sector.  Figure 1 plots the number of resource occupations defined by Statistics Canada as production, supervisors, technical, laborers and harvesting in natural resource, agriculture and related activities.  Note that these numbers include all resource activities and not just forest sector ones.  Still, the good news is that the number employed in resource occupations bottomed out in 2012 and has since been on an upward trend with the last few months of 2018 showing a distinct surge. In 2012, monthly resource employment in NW Ontario averaged 5600 whereas in 2018 to date it has been 7270 – an increase of almost 30 percent.  Much of this has been due to the mining sector but forestry has also played a role.

Figure 2 shows a similar trend, but it is annual resource employment by industry rather than occupation with resource industries defined as forestry, fishing, mining, quarrying, oil and gas.  Needless to say, for northwestern Ontario this would mainly be forestry and mining.  Here, the rebound seems to date from 2014 with annual employment going from 3000 in 2014 to 5100 in 2017 – an increase of 70 percent.  However, from 2002 to 2009 total employment plummeted from 9000 to just under 3000 - a drop of about 67 percent.

So resource employment is on the rebound, but we are nowhere near the peaks reached in the period from 2000 to 2003 just before the forest sector crisis took hold.  The remaining firms are more efficient and capital and technology intensive and therefore will not employ as many people for similar levels of output as produced a decade ago.  Still, the sector has survived and in some respects is even thriving which is good news.