Saving Money in a Roundabout Way

 

The theme at the November 2^nd Thunder Bay City Council, Meeting will be “saving money in a roundabout way.”  Despite all the hand wringing and gnashing of teeth during the spring and summer over the impact of COVID-19 it turns out that for 2020 the City of Thunder Bay will be seeing a positive variance on their operating budget – that is, a surplus – of about $1 million.  However, this positive outcome is not really the result of any great fiscal sacrifice or structural reforms on the part of our municipal councillors but mainly the result of money from other levels of government coming to the rescue. 

 

While there was indeed some cause for concern as user fee revenues dried up when the pandemic took hold, the City has been bailed out by other levels of government.  First, there was over $9 million dollars in assistance from federal and provincial levels of government of which some will carry over into 2021. Second, the city was quick to issue temporary layoffs to about 800 workers which was not as regrettable as city officials might have you think because with layoffs in early April, most would have ended up on the Federal CERB – more government money. 

 

The positive variance for 2020 means another $1 million will end up going to reserves which again means business as usual as the last five years will have now seen nearly $14 million dollars in accumulated positive variances.  The City of Thunder Bay seems to typically overestimate spending and underestimates revenues and the inevitable resulting surplus is then banked.  Taxpayers are thus not only paying for services but also for an indirect roundabout municipal savings program with tax levy increases since 2015 ranging from 2.3 to 5.7 percent. 

 

There is fiscal prudence and then there is crying wolf. Indeed, between the “accidental surpluses” and the deliberate direction of funds into reserves as part of operating and capital budgets, the City of Thunder Bay has seen its reserve funds grow from approximately $99 million in 2015 to an estimated $137 million in 2019. Returning at least a portion of the “accidental” surplus to ratepayers in the form of lower tax levies is not something the City seems interested in doing given its insatiable need for more legacy projects.  For 2021, ratepayers in Thunder Bay have already been prepared in a roundabout way for a tax levy increase of 3.45 percent as bringing about only a two percent increase would require $5 million in “savings”.   

 

And speaking of savings and roundabouts, the other way to save money that will come up at this week’s meeting is a proposed roundabout at the intersection of Redwood and Edward.  The concept of a traffic roundabout is actually quite good and common in many other cities – particularly in Europe.  It can help smooth traffic flow provided they are properly constructed and properly used given the average Thunder Bay driver’s pathological inability to manage a merge lane.  There is a small roundabout at Marina Park but that is not a real test under traffic flow conditions as it essentially connects road access within the park to parking lots.

 

The initial proposal was for a roundabout at Ford and Victoria but the City’s Engineering Division after a study said the intersection did not warrant one.  A proposal for one at Edward and Redwood seems odd given that the intersection was just fixed and repaved but apparently there is more sewer work planned so now is a time to replace more expensive traffic lights with a roundabout.  While building the roundabout will cost $1 million dollars compared to $850,000 for regular traffic signals, savings will emerge over time in a roundabout way through lower operating costs over 20 years which will be $150,000 annually compared to $275,000 annually for traffic lights. That seems like a lot for annual maintenance for either option given that in other cities the annual maintenance estimates are closer to $10,000 but hey this is Thunder Bay so let us go with it.

 

If you simply sum up the costs over 20 years, the traffic lights will cost $5.6 million over that period but the traffic roundabout $3.85 million generating a total cost difference of $1.75 million at the end of 20 years.   If we assume that the numbers for maintenance over 20 years are instead totals over 20 years then what you actually get is a total cost of $1.15 million for the roundabout and $1.125 million for the traffic lights - making the roundabout only slightly cheaper over 20 years.  So, what really should be done is a cost benefit analysis under differing interest rate/discount rate scenarios.  That is, there needs to be not only an estimate of the costs but a monetary estimate of the benefits in terms of commuting time saved or lives saved and injuries from the expectation of fewer accidents in a roundabout relative to traffic lights. 

 

And you also need to apply a discount factor or interest rate given the weighting of benefits over time – a dollar today is not the same as a dollar tomorrow.  Basically, projects with high-up front benefits and lower-upfront costs tend to be favored in any cost-benefit analysis but we have really no way of determining that in this case because all we have are cost estimates and no publicly available monetary estimate of anticipated benefits.

 

Still, costs are what are going to be used and it looks like savings so the Councillors will go for it whether there really are going to be savings over the next 20 years or not.  It is likely none of them will be on council 20 years from now for a final reckoning.  The Councillors are desperate for some feel good achievements given the beating they have taken over the spending on the turf facility and their cone of silence on the pinhole leak issue.  At the midpoint of their mandate, they are not doing so well politically given a recent TBNewswatch Poll grading their performance that saw 50 percent of respondents give them a collective “F” and another 25 percent a D. Only 1.6 percent gave them an A.  With those kinds of marks, none of them will be going to Thunder Bay’s political graduate school – higher political office.

 

 

 

The Importance of Manufacturing in the Age of COVID-19

 

Ontario’s economy has been hit hard by the Covid-19 pandemic.  Seasonally adjusted monthly employment in Ontario between February 2020 and September 2020 fell 6.3 percent - from 7,551,900 jobs to 7,077,600 jobs.  However, as illustrated in my last post, the employment drop varied across its CMAs.  The worst hit CMAs are Kitchener-Waterloo-Cambridge and Thunder Bay - which saw declines of 11.2 and 9.2 percent respectively while at the other end are Guelph and Brantford, which despite early losses have now recovered and in the case of Guelph even seen a small increase.  The question of course is what might account for this variable performance?

One’s first thought is that it is the result of the impact of Covid-19 with cities harder hit by the virus getting a bigger employment wallop.  However, a plot of the percent change in employment levels across Ontario’s 15 largest CMAs from February 2020 to September 2020 (Figure 1) against Covid-19 cases per million population as of mid-October show only a slight relationship between more negative employment growth and higher case counts.  

 

 

 

 

 

 

 

 

 

 Can the effect of Covid-19 on employment depend on a community’s employment structure?  For example, are communities more dependent on occupations in health, social services, education and public administration  (HSEP)– which are mainly broader public sector jobs – more insulated from employment effects of Covid-19?  Figure 2 illustrates this relationship for Ontario’s 15 largest CMAs and again there really is not much of a relationship.  Indeed, outside of Ottawa, Kingston and Thunder Bay have the largest HSEP shares in Ontario at 42 and 37 percent respectively and they are not exactly coasting. And, if one looks at the share of employment in food and accommodation services (not shown) it is also a pretty flat curve.  Indeed, the employment drop across CMAs seems to be impervious to being more service intensive as well as the specific effects of Covid-19. 

 

 

However, there is one more figure that is worth considering. Figure 3 plots the percent of employment in manufacturing against the percentage change in employment. What is interesting here is that the relationship is a positively sloping one – that is, on average, larger employment shares in manufacturing seem to be associated with a smaller employment drop over the February to September period.  It is of course by no means an ironclad relationship.  Kitchener-Cambridge-Waterloo, for example has a manufacturing employment share of 17 percent but nevertheless experienced the largest employment drop of the 15 CMAs at 11 percent. 

 

However, the four CMAs with the largest manufacturing employment share are Windsor (23%), Brantford (19%), Guelph (19%) and Kitchener-Cambridge-Waterloo (17%).  They average 19.4 percent in manufacturing as a share of employment and their average employment drop was 4.5 percent.  Meanwhile, the four cities with the lowest manufacturing employment share are Thunder Bay (6%), Kingston (5%), Sudbury (3%), and Ottawa (2%). They averaged a manufacturing employment share at approximately 4 percent, but an average drop in employment of 7 percent.  What is it about manufacturing that may insulate your economy more from Covid-19 related employment drops over the longer term?

Good question. Obviously, it is easier to shut down things are deemed non-essential such as personal services and perhaps even some broader public sector service activities.  Moreover, some of these sectors are relatively low-paying and the fairly generous CERB payments probably more attractive than returning to work.  These are very labour-intensive activities and when hit hard can generate a lot of employment losses.  On the other hand, manufacturing – especially advanced manufacturing – is already quite capital intensive so it is relatively more difficult to shed employment.  Moreover, once the economy reopened – it was things that were needed be they masks or toilet paper or metal products – and production resumed as quickly as possible. And, manufacturing is much higher paying making staying on the CERB less attractive.

 

The relative robustness of employment in the Covid-19 era as a result of manufacturing intensiveness may have global implications for economic recovery.  Economies around the world have been hit hard with large drops in GDP and employment. However, many countries over the last few decades have seen an evolution of their economies away from goods production and towards services.  The G-7 countries certainly are in this category.  This means countries that are currently more manufacturing intensive will likely do much better in the short to medium term especially if they are producing goods in high demand.

 

This also explains China’s seemingly robust economic recovery.  Given that so much of the world’s manufacturing has relocated to China over the last two decades, they are poised to dominate economic recovery over the next couple of years.  China’s success however may be fragile. First, their longer-term export success requires that other economies recover.  Being a mercantilist means you want to expand your national economy and power by exporting high value-added products and importing low value-added items.  However, having your export markets devastated by Covid-19 is going to be bad for business. Second, most other countries are about to embark on a manufacturing repatriation program as they realize that having a mercantilist and authoritarian country with a monopoly on goods production does place your supply chain at risk and ultimately your national economic welfare.

 

 

Ranking Employment Change in Ontario CMAs During COVID

 The economic impact of Covid-19 has affected output and employment in economies around the world and of course, Ontario is no exception.  However, just as the economic impact varies across countries around the world, so does it vary within countries and within regions.  Seasonally adjusted monthly employment in Ontario between February 2020 and September 2020 has fallen from 7,551,900 jobs to 7,077,600 jobs - a percentage drop in employment of 6.3 percent.  The drop was steepest from February to June - which saw a drop of 13 percent but the rebound since has recovered some but not all of the jobs lost.  

The accompanying figure plots the percentage change in employment level for the province along with its major CMAs during this eight month period of the pandemic for which Statistics Canada has released the seasonally adjusted monthly employment numbers.  The results are interesting. The worst hit CMAs are Kitchener-Waterloo-Cambridge and Thunder Bay - which saw declines of 11.2 and 9.2 percent respectively.  At the other extreme are Guelph and Brantford, which have now recovered all of their lost employment and in the case of Guelph seen a small increase.  

There is no apparent pattern to the impact of employment losses based on the impact of  COVID.  Thunder Bay had a very mild impact from Covid-19 in terms of cases and mortality (to date Thunder Bay District is at a total of 114 cases and one death - one of the lowest rates in the province given a population of about 140,000) and yet it had the second highest percentage employment losses.  Toronto and Ottawahave had higher rates incidence and mortality compared to Hamilton and yet are in the middle of the pack in terms of employment losses while Hamilton has done worse than they have  The employment losses really make little sense in terms of the impact of the virus.

 There also seems to be no obvious patterns in terms of location.The hardest hit in terms of employment losses are in northern Ontario, the Golden Horseshoe, central Ontario and eastern Ontario. The smallest hits are in central Ontario, eastern Ontario and southwestern Ontario.  Good and bad performance is spread everywhere which brings us to perhaps factors such as local response to the pandemic by employers and health authorities as well as composition of the local economy.  

Were some communities quicker to implement lock downs and shutdowns and with more stringent rules and slower return to work? The case of the two northern Ontario CMAs may be a case in point given the share share of public sector employment in those cities and yet their poorer employment performance. 

The Kitchener-Waterloo area is exceptionally dependent on students and the businesses servicing those students so maybe that is a factor.  A detailed look at the restaurant, accommodation, hospitality, recreation and cultural/entertainment shares of local employment may also yield insight into why some CMAs did so poorly relative to others given these sectors were exceptionally hard hit.  Of course, as we move into winter one grows concerned that additional impacts on these sectors may have permanent long-term effects.

Until we drill down into more detailed data, the differential impact is a bit of a puzzle.

Thunder Bay's Exciting New Lottery

 

In its ongoing efforts to be innovative and trend setting, the City of Thunder Bay has inaugurated an exciting new lottery – Lotto Nightmare Pipe Dream.   The price of admission is simply being a property owner in the City of Thunder Bay and there is an annual top up fee known as a property tax.  To win?  You have to have a copper pipe leak either in your home plumbing or – if you are a really big winner – in the city water feed line to your property. The prize?  Well, the prizes range from 0$ - not winning - to up to minus $30,000 dollars or more depending on how big a winner you are.  The odds of claiming a prize are unknown but you can win from anywhere in the city though apparently the odds go up if you are lucky enough to live in the Northwood or Red River Wards.

 

Needless to say, the epidemic of leaky pipes in Thunder Bay in the wake of the introduction of sodium hydroxide to mitigate lead in the water has become the lottery from hell. Despite what might be considered to be the comforting biblical allusion of having a Mayor and 12 Councillors gathered in perpetual Monday evening supper time council meetings presiding over our welfare, they continue to remain silent on the issue with no prospect of the good news of salvation in sight.  Yet, based on the Facebook membership numbers in the Thunder Bay Leaky Pipe Club as well as numerous local media stories, nearly 1500 households have been affected.  The demonstration this week by affected residents is evidence of the growing problem.  And, the numbers will likely grow given that it is quite probable that all pipes in the city have probably had decades of life removed from them by the introduction of sodium hydroxide.  So, even homes in newer subdivisions can probably expect to see cases in years to come.

 

The Mayor and Council are refusing to make any public comment.  They are not even saying if they are studying the issue or collecting data or have hired a water/environmental consulting firm to advise them on the issue.  Simply saying absolutely nothing – which is what the Mayor did at his virtual town hall this week - because of potential legal issues is outrageous given that these are our elected representatives.  There needs to be accountability here – not just by the City of Thunder Bay- but also by the province which has mandated municipalities to take action on lead corrosion but oddly enough has not provided for a uniform approach to the problem.  However, the province  has been reported as stating other cities use sodium hydroxide with no pinhole leak issues suggesting they are washing their hands of the matter.  However, at least one of the cities mentioned by the province in the news report– Ottawa – does not seem to use sodium hydroxide but phosphates as its lead corrosion approach.

 

So, It turns out other cities have also had a lead problem – Toronto and Hamilton for example – but both dealt with it by introducing phosphates into the water supply.  In Toronto’s case phosphate was introduced in 2014 and was even endorsed by Toronto Public Health – to my knowledge there was no endorsement by public health officials in Thunder Bay for adding sodium hydroxide. If there was, I would like to see it.  Hamilton approved the use of orthophosphate in 2015.  Phospates apparently have a long history of use in the UK and along with Toronto and Hamilton, Sudbury and Winnipeg also use it also for lead corrosion control purposes. 

 

Where does this leave us?  In Thunder Bay, there are always more questions than answers and the silence of the mayor and council does not help us out at all. Why did Thunder Bay opt for sodium hydroxide rather than phosphates in treating its water for lead corrosion? Was it a cost issue – that is, we opted for a cheaper chemical?  Was it a water composition issue based on the chemical nature of our existing water supply given that it comes from Lake Superior that necessitated using sodium hydroxide rather than phosphates?  Is adding phosphate a solution to our water issues given that there is at least one example of a community in North America – Folsum, California of Folsum Prison Blues fame - adding it to their water to stop pinhole leaks. We need answers and sooner rather than later. Thunder Bay’s new lottery is not all it is cracked up to be.

 

 

Ranking Canada's COVID-19 Performance: It is Not as Pretty as We Like to Think

 

The IMF has released the October 2020 edition of its fiscal monitor and economic indicator numbers for world economies and its World Economic Outlook report titled “A Long and Difficult Ascent”  paints a pretty gruesome picture of the carnage wrought by the COVID-19 pandemic.  While the global economic growth outlook has improved somewhat from its June 2020 report, it is still projected at -4.4 percent and is surrounded by a fair amount of risk. 

 

However, in the end, performance is relative and what is more interesting is how different advanced economies are expected to fare in 2020.   Moreover, what is also of interest is their performance economically and fiscally relative to their pandemic performance – which certainly should be of interest to Canadians.   Polling results have often indicated that Canadians have largely approved of the way that their governments have responded to COVID-19 and an international ranking places Canada near the top of countries whose public thinks their country has handled COVID-19 well.  How justified is this perception by Canadians?

 

In understanding how well Canada has done dealing with COVID-19, one has to start with how Canada ranks in terms of the severity of the disease which in itself can indicate how good a job Canada has done in limiting its spread.  Figures 1 and 2 plot the ranked total number of COVID-19 cases per 1 million population and the deaths from COVID-19 per 1 million people as of October 17th (as taken from Worldometer) for 35 advanced economies as defined by the IMF.  Cases per 1 million ranged from highs of 32,914 and 25,083 for Israel and the United States to lows of 490 and 376 for Korea and New Zealand respectively.  COVID deaths per million people ranged from highs of 893 and 722 for Belgium and Spain (with the USA third at 675) to lows of 5 for both New Zealand and Singapore.  

 

 

 

 

 

Canada ranks 21^st in total cases per million – putting it in the bottom half of incidence severity – but 10^th highest in deaths per million population putting it in the top third.  So, while Canada was not hit as hard by infections compared to many countries, it was among those seeing higher death rates – largely because of its poor handling of the long-term care sector where over 80 percent of the deaths occurred.  While Canada is not the United States or Spain or Belgium in terms of the incidence and mortality of COVID-19, it is not Australia or New Zealand or Korea either. One might argue being an island helps but it did not help Cyprus or Malta that much.

 

How about the economic impact?  Figures 3 to 6 are based on the IMF October 2020 World Economic Outlook Report.  Figure 3 ranks the 35 advanced economies in terms of their projected 2020 real GDP growth rates and here Canada ranks 24 out of 35.  While everyone is going to see their economy shrink, some are going to be hit worse than others. Canada is basically at the top of the bottom third with an anticipated drop in real GDP for 2020 of -7.1 percent.  Overall, it is sandwiched between highs of -1.8 and -1.9 percent for Lithuania and Korea and lows of -10.6 and -12.8 for Italy and Spain. Figure 4 ranks these same countries according to their estimated 2020 unemployment rate and here Canada is an honorary Mediterranean country where at 9.7 percent it is coming 4^th out of 35 countries – behind Greece, Spain and Italy.  And if one looks at the percentage point increase compared to 2019, Canada’s is a 4 percent point increase.  Based on Figure 5, we are the second worse increase of the 35 advanced countries, behind the Americans who are expected to see a 5.2 percent point rise in their unemployment rate. 

 

 

 

 

 

 

 

Of course, one might think that Canada’s somewhat mediocre performance relative to other advanced countries when it comes to the spread of COVID-19 and its mortality rate may simply be due to the fact that Canada has been a cheapskate in terms of its public spending compared to other countries.  And, by extension, perhaps our economic performance has been so much worse than other advanced economies because our federal and provincial governments have been captured by deficit scolds who have foisted restraint upon Canadians.  Well, put those notions to rest.  When the government deficit to GDP ratios for these advanced economies are ranked in Figure 6, it appears that Canada is finally number one in something – the size of its 2020 government deficit relative to GDP.  It is expected in 2020 to have the largest government deficit to GDP ratio of these 35 advanced economies registering at 19.7 percent. 

 

 

 

Once again, Canada has been spending a lot and seemingly getting relatively much less for its money.  True, we have not done as badly as some countries when it comes to the effects of COVID-19 on our population (unless you are a resident of a long-term care home) but our economy appears to have been fairly hard hit even with the many billions of support and assistance that have been funneled into it.  Why Canadians have to date been so charitable towards their federal and provincial governments when it comes to performance during the COVID-19 pandemic is a bit of a puzzle to me. Perhaps we just like to be nice.