Regional Employment Update: Ontario Regions and the North

Ontario’s economy has increasingly become a tale of two regions – the GTA and everyone else.  It is worth doing a quick review and update of regional employment numbers (data from Statistics Canada) that provide some additional insight on the past and the most recent distribution of regional employment.  In 2001, employment in Ontario was 5.921 million jobs and over the period 2001 to 2018 it rose by 22 percent to reach 7.242 million jobs.  Figure 1 plots the growth rate of Ontario employment as well as for the five major regions from 2001 to 2018 as well as for the sub-periods of 2001 to 2010 and 2010 to 2018. 

 

In terms of overall growth rates, employment expanded the most in the GTA, which saw an increase between 2001 and 2018 of nearly 32 percent.  Indeed, the GTA’s share of Ontario employment during this period went from 45 percent to 48 percent.  The next largest increase was for the area immediately adjacent to the GTA – central Ontario - comprising of Muskoka and the Kawarthas, Kitchener-Waterloo-Barrie and Hamilton Niagara.  It saw growth of nearly 23 percent in employment and its share of Ontario’s employment remained constant at about 23 percent of the total between 2001 and 2018.

The next highest growth rates were for Eastern Ontario and the Southwest respectively at 17 and 5 percent each.  However, this employment growth was not enough for both of these regions to hold their own in terms of employment shares.  While Eastern Ontario maintained its 13 percent share of total employment between 2001 and 2018, the Southwest saw a decline from 13 to 11 percent.   

 

 

And then there is the north which saw employment drop by 1 percent between 2001 and 2018 from 358,000 to 354,000 and its employment share of the provincial total drop from 6 percent to 5 percent.  Of course, this trend is nothing new, but such an update is another reminder that despite a plethora of studies and government pronouncements over time - including the Northern Ontario Growth plan -  there has not been a reversal of northern Ontario’s economic fortunes.  Figures 2 and 3 break employment over time in the Northeast and the Northwest.  The Northeast reached its peak employment circa 2008 and has since generally trended down.  The Northwest peaked in 2003 and has trended down since though there has been a slight rebound since 2015.

And there you have it - again.

Thunder Bay City Budget 2019: It's Not Over Yet

Thunder Bay City Council has made the effort to address the rising level of taxes and expenditures in its most recent budget deliberations on Wednesday evening this week which apparently lasted eight hours.  The Administration was directed to find options for about $3 million in savings and they responded with a tiered list of three categories ranging from the least to the most intrusive that totaled $4.8 million.  The reductions approved by Council from the first list alone amounted to almost $1.7 million and among the items that were eliminated (as listed in a CBC report) were:

• $150,000 for consultation and study for increased monitoring of area waterways and other open spaces
• $16,500 that will reduce family swim hours at Churchill Pool and hours of operation for the thunder slide at the Canada Games Complex
• $330,000 for the purchase of a new pumper truck for Thunder Bay Fire Rescue
• $20,700 for the city to hang Christmas lights in the downtown south core and Westfort and for the installation of hanging baskets in the two cores
• $45,000 in reductions to city budgets for WSIB and overtime.

As well, several vacant city positions were eliminated.  However, some of the reductions in other services in the other more “intrusive” categories such as the elimination of weekend residential street snow or sidewalk plowing were not accepted.

When all was said and done, the increase in the total tax levy was brought down from initial 3.3 percent (that had actually jumped to 3.69 percent) – to 2.29 – that is from $195.9 million to $194.1 million – about $1.8 million dollars.  That does not seem like a lot because there was also the addition of about $1 million in new spending for police services (the jump to 3.69 percent) as a result of the need to deal with the recommendations of the Ontario Independent Police Review Director on the relations between the police and Indigenous people.  The budget still has to be ratified and that vote is scheduled for February 11^th. 

So, while an effort was made to restrain spending, when you look at the updated figures (See Figures 1 & 2)  that include the original proposed increases and the new revised January 30^th figures, there is still work to be done.  The new revised budget figures still entail an increase in the total tax levy though the rate of increase is now much closer to the inflation rate and lower than the average increase of 3.9 percent over the period 2000 to 2018.

 

 

It remains that despite what seem like numerous reductions to many items, there is still more tax revenue needed.  The City Budget is in some ways analogous to our hydro and water bills where even after people reduce their usage considerably, the total bill still goes up because of “fixed costs.”  Indeed, what has been done in the most recent budget meeting can best be termed as dealing with the “low hanging fruit.”  A more substantive effort requires a comprehensive expenditure and service review that needs to consider more substantial long-term changes. 

Among these, there does need to be a review of services like snow removal or garbage collection or transit that examines how they can be done with less money while preserving a core service requirement.  There needs to be a review of overall city staffing that can start with a hiring freeze and reduction of the total complement via attrition with restructuring of management of services and service delivery so that fewer people – including managers - are required.   

As retirements occur, management departments could be amalgamated.  A glance at the City organizational chart shows numerous divisions within each category and one wonders for example why under Corporate Services and Long-Term Care there are separate divisions for Financial Service, Revenue and Internal Audit given that they are all finance related.   Why is the Waterfront Coordinator not under Tourism Thunder Bay? Why is there a Central Support division in Community Services and another in Infrastructure and Operations? There is both a Corporate Strategic Services block as well as a Corporate Projects division in Community Services. There may well be good reasons for some of these organizational patterns but they do need to be reviewed and examined for efficiencies.

In terms of services, weekly winter garbage collection – say from November to 1^st to March 30^th could probably be changed to every two weeks with a three can limit every collection period.  This would reduce the core staff required with the uptake in summer filled by summer seasonal student workers when weekly two can limit service resumes.  Snow removal on weekends in residential neighborhoods could be moved from the current 5cm threshold to 10 cm which could help reduce overtime costs. 

In short, Council has made a start but there is still more to be done after this year’s budget is passed.

An Economic Look Ahead to 2019

Given the international economic tumult of trade wars, rising interest rates and Brexit, everyone is interested in what 2019 may bring for the global economy and here are my thoughts as laid out in a short post for Focus Economics:

"The only certain things about the world economy in 2019 are uncertainty and volatility given the current state of trade relations between the world’s two largest economies at a time when economic growth in both also appears to be slowing down.  The United States had a strong 2018 and is likely at the top of its economic cycle.   Despite President Trump’s protests directed at the Federal Reserve, interest rates are projected to continue rising and if there is continuing disruption to U.S. and world trade the U.S. economy may enter a mild recession.  Compounding this are the potential negative wealth effects on spending by consumers and investors of an increasingly volatile stock market which is reacting to a high degree of political and economic uncertainty.  As for China, its rate of growth while still robust by European or North American standards is nevertheless slowing down and this is being exacerbated by the impact of US tariffs as well as a massive amount of Chinese debt that will constrain future prospects for infrastructure spending.  Naturally, a resolution of the current trade disputes between the U.S. and China would go a long way in improving the world economic outlook.  With respect to Europe, growth there has also been slowing and the ultimate impact of Brexit remains a large source of economic uncertainty.   Meanwhile Japan continues to expand but very weakly. And of course, it remains that the recovery from the 2008-09 recession is incomplete given that fiscal stimulus and easy money have in the end generated an even larger global debt pile.  Based on all this, the optimistic projection for 2019 is that overall growth will remain positive but slow from rates achieved in 2017 and 2018.  The pessimistic projection for 2019 is that continued trade disputes, gradually rising interest rates, debt overhang and economic uncertainty will come together to tip the global economy into recession"

There are other viewpoints in this Focus Economics blog post and you can of course check them all out here.

Dealing With China: Maybe We Need a New Approach?

In its dispute with Canada over the Meng Wanzhou affair, China has definitely upped the ante.  Along with the detention of Michael Kovrig and Michael Spavor, the announcement that Canadian Robert Schellenberg has now been given a death sentence for drug smuggling sends a message that China is definitely a bully and will continue to target Canadians until it gets what it wants - Canada's release of Meng Wanzhou to China.  China has obviously a lack of expertise with respect to Canada in its foreign service and diplomatic corps given its misreading of Canadian law as well as Canadian practices, conventions and sensibilities.  No doubt, it thinks its latest actions will spark an offer to trade Meng Wanzhou for the three Canadians in some sort of bizarre international hostage swap straight out of the plot of a low budget drug cartel movie.

As a small country, Canada does not have the clout to force China to do anything.  Obviously, the message that China is sending to the rest of the world - that it will resort to the "kidnapping" of other country's citizens while guests in their country as a bargaining tool - will do little to advance its soft power in the rest of the world.  China's government may think it is now a major power on the world stage and that it should be treated with more respect but respect must be earned and with power also comes the responsibility to set an example if you are truly trying to gain influence.  China has sadly shown itself as a mean-spirited bully and has resorted to a grand theatrical strategy because it feels it can scare small countries like Canada to do their bidding.

What is Canada to do?  I am not an expert in international affairs but I think our relatively quiet and reasonable behavior to date is simply being viewed by China as a sign of weakness.  The Canadian response to China's bullying needs to be a response that in no uncertain terms communicates that their behaviour to date is unacceptable.  Canada needs to be as creative as possible in sending its message to China.  I would urge the Canadian government to consider any or all of the following set of actions and naturally to word them as firmly but as politely as possible.

1. Issue an immediate travel advisory to all Canadians considering travel to China that they may be at risk of arbitrary arrest and detention.  As well, an advisory to all Canadians conducting business in China that their safety should be a concern and that the Government of Canada cannot guarantee their safety while operating in China.
2. The Chinese Ambassador to Canada should be immediately summoned to Rideau Hall and given a dressing down by the Governor General that the behaviour by the Chinese government of Canadian Citizens in China is not only disrespectful but appalling in the community of nations and diminishes China's standing in the world.  The displeasure of the Canadian people must be stressed in no uncertain terms.
3. Canada's ambassador to China should be temporarily recalled to Ottawa for immediate "consultations and instructions"
4. Given Canada's concerns about the deteriorating relations between Canada and China and our ever present concern for safety of all our visitors, an immediate RCMP presence is to be instituted around the Chinese embassy in Ottawa and all other Chinese consulates in other Canadian cities.  As well, given that the issue that has sparked all of this is the arrest of Meng Wanzhou on an extradition request by the United States, we should also post enhanced security around the United States Embassy as well as the residences of Meng Wanzhou in Vancouver.
5. A Royal Commission should be struck to evaluate the future of Canada-China trade and economic relations in light of the recent deterioration in relations with public hearings to commence immediately.  Serious consideration to be given to the question that the prospect of further increasing trade with China is not in Canada's best interests.
6. With respect to Huawei and the adoption of its 5G Network in China, the Canadian government should finally announce that it plans to ban Huawei from Canadian 5G networks in accord with our American, Australian and New Zealand allies.

 Ottawa may view these actions as not "constructive" because they might further inflame China.  I would venture that China is already inflamed and thinks we are going to be intimidated into doing their bidding.  I'm not sure being calm, reasonable and quiet is getting us anywhere.  Why not try something different.

Municipal Government Inflation Rates: How Much higher?

On Tuesday night this week, Thunder Bay City Council began its budget deliberation process and there was a fair amount of grilling of City Administration by councilors with respect to the overview of where spending and tax rates would be going over the next few years.  Apparently, councilors were surprised when Administration said that the city had a $20 million annual infrastructure gap for the next 15 years as well as projected tax increases at over 3 percent – 3.83 percent for 2020 alone – until 2024.  Part of the questioning involved the standards being applied to estimate the infrastructure gap and clarification was requested. This of course is a reasonable question given the extremely wide range of estimates available for infrastructure gaps at least at the national level.

I tuned in for a bit on Tuesday night and caught part of an exchange between Councilor Mark Bentz and City Manager Norm Gale in which Councillor Bentz expressed some disquiet at the projected tax increases until 2024 being well in excess of increases in the Consumer Price Index inflation rate. The reply from the City Manager was that the Municipal Consumer Price Index was not the same as inflation from the Consumer Price Index and that it was indeed much higher.  So, I decided to do a little digging to see what the source of such a statement might have been and to see indeed how much higher an inflation rate you could get for government spending in general.

It turns out the City of Edmonton actually did a bit of research into this issue and published a report titled Municipal Price Index 2018 in which they compared consumer inflation and municipal inflation from 2012 to the present and provided some forecasts for the future. It turns out that based on their estimates for Edmonton, the inflation rate for municipal government services was indeed higher than for consumer prices but as Figure 1 illustrates, the gap is not as large as one might think. Over the entire period 2012 to 2019(forecast), the average consumer price inflation rate for Edmonton was 1.6 percent while the average municipal inflation rate was 2.2 percent for an average difference of 0.7 percent.  
 

So, what about Thunder Bay?  Well Figure 2 plots the inflation rate since 2012 for Thunder Bay based on the CPI.  It then plots inflation based on the Government Expenditure Implicit Price Index obtained from the 2018 CIHI National Health Expenditures Data Appendix A.  It then also plots the municipal inflation rate for Edmonton from Figure 1 and the annual increases in Thunder Bay’s municipal tax levy.  Note that for 2019, the CPI Inflation rate for Thunder Bay and the GEIPI rate are both assumed to be 2 percent.  So, what do we get?

Thunder Bay’s municipal tax levy increases since 2012 and forecast into 2019 are generally all well above any of these measures of inflation including the municipal inflation rate calculated by the City of Edmonton. The average CPI inflation rate for Thunder Bay over the 2012 to 2019f period is 1.5 percent.  The inflation rate based on the Government Expenditure Implicit Price Index (GEIPI) is 1.4 percent while the municipal inflation rate for Edmonton is 2.2.  The average Thunder Bay municipal tax levy increase for this period was 3.3 percent.

So, unless one is going to argue that municipal “inflation” in Thunder Bay is nearly double that for consumer prices – and I would need to see some evidence for that rather than just a blind assertion by City Administration – then one would have to conclude that this year’s 3.25 percent proposed increase in the tax levy is too high.  Obviously, the rate of municipal inflation is going to be partly determined by the City in terms of what they negotiate to pay for various goods and services as well as the choices of what goods and services to consume or provide.

If we go with the Edmonton forecast for municipal inflation of 2.7 percent – then to bring the tax levy down from 3.25 percent to 2.7 percent, there needs to be about $1.7 million dollars in reductions from this year’s proposed tax levy increase.  If you want to bring the levy down to a two percent increase, then there would need to be a $2.4 million reduction in the proposed levy.  So, whichever way you look at it, we can probably do better than 3.25 percent this year.