NORTHERN ECONOMIST 2.0

Monday, 16 November 2020

The COVID-19 Surge in Ontario and Thunder Bay District

The COVID-19 case count is surging in Ontario and is even affecting more remote parts of the province that saw a relatively mild first wave – such as the Thunder Bay District. It has been a while since I plotted my provincial and local numbers with trend and presented a visual update, so here it is. Figure 1 plots the daily number of cases in Ontario with a LOWESS smooth that highlights the trend. The second wave of cases is as known already much larger than the first and is definitely poised to continue surging. Based on the trend line, one can easily expect to see 3,000 cases per day within three weeks which brings us the early December. More ominous is the rise in death rates shown in Figure 2 and here while there is an upward trend, the second wave so far has seen a milder death toll than the first wave. However, if one extrapolates that trend line, one could see the death toll hit the levels of the first wave in about three weeks also. Needless to say, the trends are not pointing to a good place.

As for Thunder Bay, one expects the smugness should be over but Thunder Bay is a stubborn place. Many in Thunder Bay have been carrying on in their splendid isolationism as if they were somehow exempt from infectious spread given the low number of cases and only one death to date. As Figure 3 shows, the District was largely spared during the first wave not so much by superior behavior but by geographic distance, low population density and good luck.

The luck seems to have ended given the large number of close contact cases over the last week. There has finally been a local super spreader event though the demographic affected at this point appears to be a younger one. Whether this can be contained and spread to more vulnerable demographics prevented remains to be seen. If nothing happens to curtail the current trend, at the current trend rate of increase, within three weeks one can expect 25 to 30 cases per day. And, eventually there will be more deaths.

Thursday, 12 November 2020

More Information Is Better: Too Bad Politicians Seem to Have a Double Standard

Several days ago, a member of Thunder Bay City council raised the issue of asking the Thunder Bay District Health Unit for a more detailed breakdown of location when it came to the reporting of COVID-19 cases. In particular, the councilor in question wanted the numbers and cases just for Thunder Bay alone reported separate from its surrounding communities given that with a population of 109,000, there was no real way of ascertaining identities and he felt it would be helpful for residents to know. While one might be tempted to conclude it was simply a slow evening at City Council, in fact this has become more of an issue in recent days given the spike in cases.

The councilor in question has a point. At present, the TBDHU provides only the broadest of descriptions of where individuals reside and the circumstances around the exposure. At the same time, the TBDHU has actually been announcing specific locations associated with outbreaks within the region when necessary – a case in point this week as 17 COVID-19 cases were connected to the Adult Teen and Challenge facilities in Thunder Bay. However, a breakdown of location to Thunder Bay, Thunder Bay Surrounding Area, District Communities and First Nation Communities does not appear to be a violation of privacy laws. Moreover, when travel is mentioned as a source of the infection, it would be helpful to know if it was travel within northern Ontario, travel outside northern Ontario but within the province of Ontario, inter-provincial travel or international travel.

While the councilor’s call for more information is laudable, he is in some respects being inconsistent - to say the least. After all, along with the COVID-19 pandemic underway, Thunder Bay is also experiencing a pandemic of plumbing and water line leaks which may be linked to the introduction of sodium hydroxide into city water in 2016 to mitigate lead. Despite numerous pleas for assistance and information, the City of Thunder Bay has provided no information as to the extent of the problem, how many homes have been affected, or what neighborhoods are most affected. Such information might help homeowners know if they are at greater risk of leaks than others and take mitigating steps but instead, we are all being left to social media to acquire information. If the City of Thunder Bay was managing COVID-19 information in this manner, more people would die.

If the Thunder Bay District Health Unit in the face of mounting cases of infection refused to provide any information whatsoever, it would be seen as irresponsible and contributing to the spread of the disease and its mortality and morbidity. However, in the case of pinhole leaks in Thunder Bay, the City is collecting information and shares nothing. The councilor who raised the issue of more information from the District Health Unit has a double standard. What is good for the goose is good for the gander and he should advocate for the people paying the taxes that support his role as a councilor.

Monday, 9 November 2020

Municipal Autocracy is Alive and Well in Thunder Bay

The Mayor and Council of the City of Thunder Bay grow ever more divorced from the needs and interests of the public they are supposed to serve with their behaviour sometimes reminiscent of 19^th century Russian aristocrats. They pursue grand public schemes and profess concern for the public but are deaf to plights raised that diverge from their own views of what is best for the city. In this, they are aided and abetted by their administrators whose chief interest seems to be maximizing revenues and spending – at least in areas where they see fit.

The situation of ratepayers and homeowners in Thunder Bay often seems to be akin to the welfare of Russian peasants whose fate was the lot of the ‘unfortunates’ to whom ‘God is high above and the Tsar is far away.’ Just ask the homeowners whose pleas about the damages they are incurring to their property from pipes leaking are met with silence. Indeed, there may be a lot in common in the general attitudes of the Mayor and Council of Thunder Bay and the Czar and his assorted Grand Dukes given that Czar Nicholas II filled in his occupation during the 1897 Russian Census simply as “The Owner of the Russian Land.” I suppose the leaky pipe protestors last week should consider themselves blessed that the Mayor and Council did not summon mounted police to disperse them.

Nowhere is this autocratic arrogance more blatantly demonstrated than in the 2021 “Budget Survey” that Council is now asking input for on its website. It begins by asking for a line by line ranking of programs in terms of importance to you that include: Roads, Winter Maintenance, Drinking Water, Wastewater (Sewer), Stormwater Management, Garbage and Recycling, Long Term Care Services, Parks, Recreation Programs and Facilities, Child Care, Libraries, Economic Development, Communication and Resident Engagement, Animal Services, and By-Law Enforcement.

This is ceremonial accountability at its best as it allows for input on items so broadly defined that a ranking is meaningless. Honestly, are we being threatened with an end to clean drinking water or garbage collection or a shut-down of City long-term care facilities, if we refuse to hand over our taxes? Everyone knows that choices need to be made but there is a difference between explaining the options and implicit threats of service cuts that smack of bullying ratepayers.

However, the most striking question is the one that brings the impact of COVID-19 into the budgetary discussion. As the section reads:

“The financial impact of COVID-19, due to revenue losses and increased costs, has been estimated at over $8 million for 2021 (4.2% of the municipal taxes levy). City Administration will be presenting City Council with options to address these costs. To cover these increased costs, what option(s) would you support?

a. Temporarily reduce/modify services in 2021

b. Temporarily increase user fees in areas that have increased costs due to COVID-19

c. Increase taxes in 2021

d. Draw from the reserve fund that is set aside for emergencies and budget to replenish in future years.”

Take careful note of the nuances here. First, the financial impact of COVID-19 for 2021 is set at $8 million but nowhere is there mention of the nearly $9 million dollars that has been received in pandemic aid to date from higher levels of government that has apparently resulted in a $1 million operating surplus for 2020.

Second, the mention of these costs as 4.2 percent of the municipal tax levy is a hint that what the City probably really wants is a 4.2 percent tax increase. This is an increase in spending on the 2020 tax levy of $199.4 of an additional $8.4 million and assumes there will be no additional assistance or support from the provincial or federal government in 2021. Given that they did not have to draw down on emergency reserves for 2020, doing it in 2021 is a legitimate option that should be given greater weight.

In light of the twin pandemics of both COVID-19 and leaky pipes that have hit the homeowners and taxpayers of Thunder Bay, The City of Thunder Bay needs to limit its tax levy increase this year to no more than 2 percent as mentioned earlier this year. Instead of bullying taxpayers by implicit threats to reduce their garbage collection or snow removal if they don’t get their 4.2 percent, they should look at making core services like roads, water, sewer, sanitation a priority while reducing their emphasis on other things or by looking for ways to do them more efficiently. As to how to do it, it is indeed up to the administrators to provide the options and for the councilors to choose among the options - that is what they are being paid for.

And as a final point, they do need to provide affected homeowners some assistance with respect to the leaky pipe pandemic. Without commenting on the situation or compromising their “legal position” they could in recognition of the economic and mental burden of the pandemic temporarily suspend the hundreds of dollars in fees they charge homeowners to turn off and turn on the water when faced with ruptured pipes. Continuing to do so means they are treating the misfortune of the leaky pipe situation as simply an opportunistic source of municipal revenue.

Friday, 6 November 2020

Ontario Budget 2020 Summary

Ontario delivered its 2020 budget and it did not really contain any surprises. While it is the largest nominal deficit in Ontario history, as a share of GDP the deficit for 2020-21 is about 4.6 percent which is one third that of the federal deficit to GDP ratio. Moreover, it is actually smaller than the one Ontario had in 2010-11 in the aftermath of the 2008-09 Great Recession when it was still at just over 5 percent.

Expenditures jumped in 2020-21 to $189.5 billion as a result of the pandemic – an increase of 15 percent over the previous year. It will remain high but not increase further for the next two years under the medium-term scenario going to $185.4 billion in 2021-22 and $188.3 billion in 2022-23 but all of these expenditure figures contain several billion dollars in contingency reserves.

Revenues fell 3 percent in 2020-21 as a result of the pandemic – not as big a hit as might be expected because federal transfer payments as a result of COVID jumped from $25.4 billion to $33.4 billion – an increase of 31 percent. However, those transfers will decline to $27.1 billion and 27.6 billion over the next two years. As a result, even with the projected economic recovery and its impact on tax revenue, total revenues are not expected to grow much until 2022-23 when they reach $160.2 billion.

The deficit is projected at $38.5 billion in 2020-21, $33.1 billion in 2021-22 and $26.2 billion in 2022-23 while the net debt will grow from $355 billion in 2019-20 to $473 billion by 2022-23. GDP is expected to grow by about 6 percent a year after this year so the net debt to GDP ratio is projected to only rise to just under 50 percent at 49.6 percent.

Thursday, 5 November 2020

Why Makings Things Matters in the Age of COVID: A Tale of Three Cities

The Covid-19 pandemic has come with a huge cost in terms of employment loss with the retail, food and accommodation, and travel sectors exceptionally hard hit. The employment impact in Ontario has been substantial also with total employment falling about 13 percent from February 2020 to June of 2020. The rebound since June has been insufficient to make up all the employment losses and as of September total employment in Ontario was still about 6 percent lower than February 2020. The impact has also varied across major cities in Ontario with Kitchener-Waterloo, Thunder Bay and Peterborough and Hamilton hit the hardest whereas Guelph, Brantford, Oshawa and London experienced softer blows.

The composition of employment seems to be a factor and this post drills down a bit into the employment composition by broad industry sector – goods and services. The goods sector consists of employment in agriculture, resources, utilities and oil and gas, construction and manufacturing. Everything else ranging from wholesale and retail trade and transport, finance and real estate, health and education to food and accommodation and public administration are the services.

Figure 1 plots the composition of employment across these two industry sectors for three cities in Ontario: Hamilton, Thunder Bay and Guelph. What is quite interesting is despite their industrial, agricultural and resource extraction histories, Hamilton, Guelph, and Thunder Bay, are now all remarkably service intensive - part of the trend everywhere in high income economies. Hamilton’s goods production sector accounts for 21 percent of employment whereas Thunder Bay is the lowest of the three cities at 17 percent. However, Guelph on the other hand still has a relatively large share of employment in goods production at 27 percent.

Figures 2 and 3 plot the percentage change in employment for total, goods, and service sector employment for the three cities for two periods: the onset of the pandemic between January 2020 to May 2020 and the period of employment recovery as the first wave was brought under control from May 2020 to September 2020. The data is non-seasonally adjusted three-month average monthly employment data from Statistics Canada.

From January to May, all three cities saw a drop in monthly employment, but Guelph was hit half as hard with a drop of about 6 percent compared to more than twice that for both Hamilton and Thunder Bay. What is also interesting is the employment hit was harder in Guelph for the goods sector with a 25 percent employment drop compared to 17 percent for Thunder Bay and 13 percent for Hamilton. However, service employment dropped about 13 percent in both Hamilton and Thunder Bay during the first wave of the pandemic, but Guelph’s was essentially stable.

As for the recovery period from the first wave from May to September, all three cities saw employment grow: 4 percent for Hamilton, 9 percent for Thunder Bay and 8 percent for Guelph. The performance across sectors is more interesting. Employment in Guelph’s goods sector rebounded robustly growing 57 percent compared to only 21 percent in Hamilton and 26 percent in Thunder Bay. Construction was the major source of the rebound in all three cities but manufacturing reinforced the rebound in Guelph whereas in Thunder Bay manufacturing employment continued to decline even from May to September. Services did not recover as well as goods production in all three cities with Guelph actually seeing some service sector employment losses from May to September. For whatever reason, the service sector job losses in Guelph were delayed compared to the other two cities.

What explains this? Good question but one cannot help but wonder if the CERB played a role. On average, foods sector jobs are higher paying than service sector ones though where the service jobs are is important- for example, retail and food and accommodation versus health and education. The CERB kicks in during the pandemic and millions took advantage of it over the summer and into the early fall. The CERB and its income support may have provided more of a disincentive to return. Having a large goods production sector relative to service sector did not insulate against employment loss in the first wave of the pandemic but may have slowed the rebound in the presence of the CERB.