NORTHERN ECONOMIST 2.0

Saturday, 4 January 2020

Thunder Bay Budget 2020: A First Look

The City of Thunder Bay has released its preliminary budget for 2020 and the proposed 2020 capital and operating budgets propose a municipal tax levy of $200.2 million which represents an increase in the levy of 3.17 percent over 2019. This is by no means the final number and there will be public meetings and deliberations on January 9th and February 3rd as well as council budget reviews on January 14th, 16th, 22nd and 29th. As usual much is being made of the net increase being only 2.32 percent after "growth" in the tax base but it remains that an increase in the total levy is what the increase in tax revenue ultimately is. Taxes will be going up.

As the accompanying figure shows, the trend in the total levy over the last thirty years has been steadily upwards. And, do not forget that on top of this, the 2020 increase in the water rate will be 4 percent and that for the wastewater surcharge will be another 4 percent.

A key driver of the proposed 2020 budget is an expansion of nearly $2 million dollars for the Thunder Bay Police Service. This will be on top of funding being received from the provincial government spread over the next three years of $2.7 million for projects in human trafficking, flood way patrol and mobile crisis response. There is also some anticipation that more provincial funding is on the way to specifically address gun and gang violence. Thus, there is a major expansion in police spending on the way but a significant chunk of the money is short-term funding from the province. A key question is once the expansion has been implemented - and the short term funding ends - how sustainable will all that spending be?

In the end, the total increase in tax levy funded new spending will be $6.1 million and in percentage terms the proposed increase of 3.17 percent is well above the combined rate of population growth - effectively zero - and inflation which is at best 2 percent. The argument has been made by the City Manager that policing costs are rising faster than other categories but that has been the case for some time. Even if one accepts the $2 million increase in policing without question, there is another $4 million in new spending that needs to be justified and made more transparent. The list of items as it stands are for amounts of $0.4 million here and $0.6 million there which the average ratepayer does not really understand. One could almost accept some increases if one could see something in the way of a new and needed service. Yet, that does not seem to be the case here.

A key addition that comes to mind and has been rejected in the past is dealing with the snow left at the end of your driveway by the City plows after a major snowfall. Given Thunder Bay's aging population and the effects of climate change bringing larger storms, the additional work required is starting to impose a significant strain on the home owning public. Yet, to date such pleas have fallen on deaf ears. As noted by the City:

"No, windrows across driveways will not be cleared by City Crews. Residents are responsible for the maintenance associated with their driveway, including the portion that is on City property. It is that portion of the City property which has been designed to provide snow storage during the winter. The City does not give up the right to store snow in that area of the boulevard when it allows the residents’ driveway to encroach across City property. It is important to note City crews have the important task of plowing snow on all City streets as quickly as possible. Snow removal from driveways is not a program offered by the City. "

Apparently, our driveways over the boulevard to access the street are an "encroachment" on City property so they can do whatever they want with the land - I suppose they could store gravel or manure there too if they wanted. One is surprised the city does not put a toll gate at the end of everyone's driveway and charge a fee to drive onto their roadway but I digress. It remains that windrow removal programs are offered by many other cities whose climate is actually milder than our own in the winter though to be fair they often do not clear the residential City sidewalks as done in Thunder Bay.

Some of the programs are targeted towards seniors or disabled residents such as in Milton or Oshawa. Then there is Richmond Hill which has the cadillac of programs and now removes the windrows on all residential driveways. The Richmond Hill windrow removal project was implemented in 2019 for all 55,000 households for a total annual cost of $4.4 million dollars. Markham also does windrow removal but for qualified registered applicants who must either be over 60 years of age or if under 60 have a medical note saying they cannot shovel snow. Even Toronto has some windrow removal depending on your location in the city. While one does not expect the upper end Richmond Hill program, it remains that when it comes to windrow removal, Thunder Bay is not even trying.

If the City of Thunder Bay is going to raise spending by $6.1 million dollars in 2020, one really needs to see a more concrete demonstration of value for money. In the absence of new spending that can be tangibly seen as providing some direct benefits to homeowners who are footing more and more of the bill, it becomes difficult to accept we need levy increases in excess of the combined rate of inflation and population growth. It is even more difficult given that over the last few years, the city inevitably posts surpluses - positive variances - in the millions of dollars that are then put into reserve funds. Indeed, 2018 was close to a $4 million surplus though it should be noted that 2019 was tracking closer to a few hundred thousand with the associated plea that 2020 would require a larger tax increase. One suspects the final surplus for 2019 will be larger once the 2020 budget deliberations are over and done with.

Sunday, 15 December 2019

Making Decisions at Thunder Bay City Council

Thunder Bay City Council does have a tough job when it comes to making decisions that affect the public welfare that have to balance diverse interests and needs as well as financial and economic criteria. At the same time, they sometimes do not do themselves any favours. Two cases in point come to mind - the soccer bubble on Golf Links Road and Dease Pool.

First, the decision to finally allow a private developer to go ahead with a project to build a soccer bubble on Golf Links Road. According to the news story, the project - which was proposed in spring of 2019 - was intended to open for winter 2020 but zoning restrictions halted the progress. Essentially, the area of the building site was zoned "Prestige Business Park" which meant that a recreational facility could only be built as an auxiliary feature to a "prestige" item like a hotel. This hurdle was finally overcome apparently by allowing the project to proceed with a promise to build the hotel later. No doubt, the City of Thunder Bay probably also has a planning definition of what a prestige hotel should be like and will intervene when it sees fit.

Why this could not have been done sooner is a good question. There is a shortage of space for soccer in the city and having a private developer step up is a good idea. Indeed, why should the City spend scarce resources on a publicly funded indoor turf facility at all if the private sector could provide the services thereby freeing up resources for things the private sector would likely not fund - like a swimming pool in a socio-economically challenged neighborhood? One wonders if the decision to stall the private developer was in part in the hopes they would go away so that there would be less competition for the City run turf facility - once it was finally built. If that is the case, they should move faster - taking years to decide and build the facility while not allowing for an alternate facility is a disservice to those who want their children to play soccer - and are willing to pay the fees for it. The need for the space is all the more urgent given the collapse of the Sports Dome in 2016.

Regarding the decision to close Dease Pool and "repurpose" the space, I have already opined at some length on the issues here in a previous blog post. The final decision is apparently going to be made tomorrow night and the outlook is grim for the people who want a new pool rather than any of the suggested alternative uses given the recommendation is for demolition. Moreover, there is some division in the local community itself given that the survey respondents happy with the alternatives proposed by the City (44%) is greater than those who are unhappy (38%). At the same time, one suspects that those happy with the alternatives are divided four ways while those who are unhappy all want to see a new pool but that nuance will likely escape the decision makers.

In the end, a decision will be made and the appropriate imperial decree made that public comment has been received and considered and had no effect on Council’s Decision as the proposed accepted redevelopment is consistent with all relevant planning legislation and represents good planning.

Thunder Bay City Council has spoken, the case is closed.

Tuesday, 3 December 2019

Should Lakehead University Go Private?

Universities in Ontario are in a transition period as the provincial government brings in a new performance based funding formula that ties a substantial portion of the government grant revenue to a set of ten indicators. The new Strategic Mandate Agreement – known as SMA3 - includes performance indicators such as “Research Funding”, “Graduation Rates” and oddly enough “Graduate Employment Earnings”. How a university is expected to acquire information on the latter is a bit of a puzzle to me.

While the previous formula also had a set of performance based indicators, they were more numerous. It remains that a reduction in the number of indicators while increasing the proportion of revenue tied to those indicators makes the prospects of future short-term revenue volatility a greater possibility. The public may be willing to accept a 5 or 10 or 20 percent revenue fluctuation in its local university and the subsequent disruption to programs and enrollment, that it would not tolerate if a similar model were applied to say hospitals or physician services or the provincial drug plan. In these latter examples, people could die in the wake of disruption from sudden funding changes, whereas in the case of universities it would be unlikely.

Lakehead will of course also be impacted by these changes to the funding formula and one wonders if in the long-run, Lakehead – not to mention other universities – should give serious consideration to ending their dependence on provincial government funding entirely and go completely private. The immediate reaction to this is to cringe given that provincial grants in Ontario still account for anywhere from 30 to 50 percent of university revenues and their elimination would probably necessitate as much as a doubling of tuition fees. Lakehead University is for example closer to 50 percent for its revenue share from grants, while University of Toronto is closer to 30 percent.

However, freeing oneself from the clutches of the provincial government might come with some benefits. Provincial governments in general have been encroaching on university autonomy for the last 50 years. In Ontario, if one goes back to the 1960s and 1970s, provincial grant revenues for some universities accounted for well over 50 percent of their revenue. Even more interesting is that despite accounting for the lion’s share of their funding, the provincial government generally left them alone to run their own affairs. Over time, as the provincial government has reduced its relative contribution, it has also gradually become more intrusive by setting performance targets, establishing lengthy bureaucratic quality assurance reviews and tying more and more funding to short term goals linked to provincial economic development and employment visions.

At the same time as grant funding has been reduced, the provincial government has also regulated and circumscribed the ability of universities to raise tuition because of the political fall-out. So, universities in Ontario – like many in the country – have come to have less autonomy from the provincial government while at the same time having their funding growth restricted. The government is calling more and more shots while providing less and less funding value. For its 30 to 50 percent funding share, it basically wants universities to operate as arms of the provincial training, education and economic development ministries. Moreover, its mandated goals end up affecting 100 percent of university operations and performance while only providing at best half the general grant revenue.

It is unlikely that any Ontario university would want to push the envelope and drastically change its funding. It would require a degree of innovation and risk taking that universities as currently structured and configured in their operations would be quite averse to. Indeed, the lack of experience in operating as a private and more profit oriented institution is a significant obstacle. Still, one wonders how much more autonomy universities in Ontario are willing to cede to the provincial government. Are there any rams among the sheep?

Saturday, 30 November 2019

Doug Ford's National Health Strategy

Ontario Premier Doug Ford is hosting Canada’s provincial premiers and territorial leaders at a dinner tomorrow tonight in advance of the First Minister Meeting in Toronto on Monday. Apparently, Premier Ford is expected to ask the premiers to get behind a call for an increase in the federal Canada Health Transfer escalator to 5.2 percent from the current 3 percent which took effect in 2017 under the Trudeau administration - after being announced nearly five years earlier by the Harper government. This was a reduction in the growth rate of federal health transfers in the wake of the 2004 Health Accord Escalator which saw annual increases of 6 percent.

Now, asking the federal government for more transfers at meetings of provincial premiers is a practice with a long tradition and one might expect the federal government to make some bland soothing diplomatic statements but generally ignore the premiers. Indeed, provincial premiers traditionally pine for the good old days of 50/50 health cost sharing with the federal government in the early days of Medicare. This eroded after 1977 when Established Program Financing turned into a block grant and then the Canada Health and Social Transfer after 1996. However, I think this time Doug Ford’s request is actually a reasonable one given recent trends in federal finances, federal health transfer funding and provincial-territorial government health spending.

First, according to the federal Parliamentary Budget Officer, federal finances are generally sustainable but that of the provinces are not given growing and aging populations and their growing demands on the health care system. Indeed, federal policy to grow Canada’s population via larger immigration rates is a factor behind growing demand for health services along with aging populations and the onset of new demands given changes in illness patterns and new technologies. Immigrants to Canada are on average generally younger than Canadians, but it turns out that some of the highest growth rates in health spending recently have been for younger cohorts. And as for federal finances, it is true they are running large deficits but given the lack of interest in taming their deficits, why not spend it on something more useful like health care?

Second, the provinces have made big strides in making their health care systems more sustainable and been bending the cost curve but a decade of this is beginning to strain their health systems. Between 2009-10 and 2019-20, it turns out that after adjusting for population growth and inflation, real per capita provincial-territorial government health spending has been growing at 0.9 percent annually. Indeed, a glance at Figure 1 below shows how since 2009-10, real per capita provincial-territorial health spending has essentially flattened out. Indeed, the situation is worse in Ontario than the rest of Canada. Along with the effects of the 2008-09 Recession on provincial finances, there was also the announcement of the coming end of the 6 percent health transfer escalator which has spurred the provinces to get their health spending under control.

The average annual growth rate of real per capita federal health transfers since 2009-10 has been 2.1 percent while provincial-territorial health spending has grown at 0.9 percent. In other words, health spending is growing slower than federal real per capita health transfer increases. As a result, the federal transfer share of provincial-territorial government health spending has actually grown from 20 percent to 23 percent. This is not because the federal government has become more generous but because after population growth and inflation, the provinces are increasing their spending slower than the increases in transfers. The provinces have become more responsible when it comes to managing their health spending but after nearly a decade of much slower growth they need some help.

There are only so many efficiencies that one can obtain within the health care system without at some point needing to actually get more real resources. The recent efforts to once again health care reform delivery in Ontario via the Ontario Health Teams is a step to further bend the cost curve but it will come to naught without the federal government also coming to the table with assistance. Trying to do more with less eventually will create a situation where less is indeed less. In trying to solve his problems, Doug Ford will also be helping the other provinces solve theirs.

Saturday, 23 November 2019

The Four Ages of Health Spending and Ontario’s Differential and Growing Gap

The last post documented the “Four Ages’ of Ontario provincial government health spending. The first age, in the wake of the creation of the Medicare system stretches from 1975 to 1989 and saw average annual growth of 3 percent. The second age from 1990 to 1997, encompassing the 1991 recession and the 1995 federal fiscal crisis and transfer cut witnessed a decline in real per capita provincial government health spending with an average growth rate of -0.7 percent annually. From 1998 to 2010 – there was a recovery in the average annual growth rate of provincial government health spending to 3 percent, fueled by a recovering economy, the fiscal dividend of low interest rates, and increases in federal transfer funding. Finally, with the actions taken to meet the expiry of the Health Accord in 2017 and the economic slowdown after the Great Recession in 2008-09, the growth rate plummets again eking out an increase averaging 0.5 percent annually from 2010 to 2019.

It should be noted that the four ages of health spending marks not only Ontario, but indeed all the provincial health care systems. However, what is interesting is the differential performance of Ontario with respect to the rest of Canada. As Figure 1 illustrates, when the average annual growth rates of provincial/territorial government health spending between Ontario and the rest of the country are compared, Ontario has been growing slower – or shrinking faster -than the rest of country since 1990.

For the period 1975 to 1989, Ontario on average grew slightly faster at 3 percent annual average growth compared to 2.9 percent for the rest of Canada. However, come the cuts of the 1990s, Ontario shrank at -0.7 percent annually while the rest of the country only shrank at -0.2 percent. Meanwhile, during the recovery period from 1998 to 2010, Ontario grows at 3.1 percent but the rest of Canada at 3.3 percent. Finally, since 2011, while growth has slowed everywhere, the rest of Canada still manages to edge Ontario out with average annual growth of 0.6 percent compared to 0.5 percent for Ontario.

The long-term effect of this on real per capita provincial government spending have accumulated over the long term to generate a growing gap between Ontario’s and the rest of Canada's provincial/territorial government health spending. As Figure 2 shows, from 1975 to 1989, per capita provincial government health spending in Ontario was lower than the rest of Canada but rises to close the gap. It briefly matches the rest of the country and then after 1995 again falls below where it has since remained. Indeed, since 2010 the gap has widened appreciably. In 2010, real per capita provincial government health spending in Ontario was $4,213 compared to $4,491 in the rest of Canada - 6 percent lower. In 2019, it is forecast at $4,386 compared to $4,742 in the rest of Canada – 7.5 percent lower.

Ontario – the largest economy in Canada – on a per person basis basically spends less on its government health system than the rest of the country. While some of that might be ascribed to a greater population density and economies of scale in providing health services, given that there appear to be constant calls to addresses waiting times and shortages, it is unlikely the difference is due to superior system performance combined with greater efficiencies. Moreover, that gap has been growing over time. In other words, the wealthiest economy in the Canadian federation is providing less spending per person when it comes to public sector health care than the rest of the country. Some of the growing gap is the result of the more brutal impact of the two major recession periods on Ontario compared to the rest of the country but it is also a function of Ontario's poor fiscal management as well as its choices. More on how that difference pans put across assorted categories of health spending in the next post.