NORTHERN ECONOMIST 2.0

Monday, 15 March 2021

COVID-19 Case Count Developments Update: Ontario and Thunder Bay District

Once a month is usually sufficient to provide an update of the COVID-19 case count numbers and associated trends but things are moving rapidly this month, especially in Thunder Bay, so an update mid-month is timely. Today's daily case count was 1,268 for Ontario bringing the total up to 319,373 while for Thunder Bay there was an increase of 51 bringing the total count up to 2,390. Figure 1 does the Ontario COVID-19 daily case count plot with LOWESS smooth for trend and it appears the downward trend has come to a halt with an uptick now being detected. The new variants seem to be responsible for increasing case counts around the province and if they continue to gain hold we will have the third wave. However, the trend for deaths from COVID-19 remains on a downward path as illustrated in Figure 2.

As for the Thunder Bay District, well based on Figure 3 we are still upward bound. As our District Chief Medical Officer of Health has noted, the coronavirus is probably everywhere in Thunder Bay but that still has not blunted the public's enthusiasm for carrying on as usual if one is to judge street traffic levels as well as store and mall parking lots over the last week. The public's seeming lack of concern seems to be at odds with local public health officials and politicians. The Mayor of Thunder Bay mid last week was on CBC Newsworld and making a case for Thunder Bay as a hot zone and the need for additional assistance including being included in the province's drug store pilot for AstraZeneca distribution.

The only odd thing was that the Mayor's lobbying effort was a little late given that the program had already been effectively announced the previous week meaning the provincial planning for this had been in the works for some time. Thunder Bay's case count ascent has been underway since January. One suspects that many variables go into the province designating hot zones (not that anyone is transparent and willing to reveal what they are) and Thunder Bay is probably considered still a low "risk" because its spread is largely contained to itself given its relative isolation. If a growing hot zone is adjacent to a large metropolitan center of millions of people, the problem has a different dimension. Despite some remarks on social media that this is party politics at work, it is not. It is geography.

In Ontario as cases start to mount and the new more contagious variants spread, it is becoming increasingly obvious that the only thing that will blunt this upsurge is widespread vaccination. On the plus side, the vaccine delivery process is starting to ramp up but it is now a question of speed. However, to vaccinate 14 million Ontario residents (with just one dose) by the end of June requires that we dispense nearly 1 million shots a week. This should not be a problem given that Ontario usually orders enough flu shots to vaccinate 30-40 percent of its population every year. In an average year 5-6 million flu shots are dispensed in just a few months. It is not beyond the province's technical ability to effectively double that rate in an emergency. Indeed, the Premier has stated that the province has the ability to administer 4.8 million vaccine shots a month. Yet it is currently running at about a quarter of that rate or about 300,000 shots a week because in the end you need a vaccine supply.

So here is the ultimate race. The public is tired of following rules - not that they were ever particularly good at doing so aside for a few weeks last spring when they were actually terrified. As it became apparent that the result of getting COVID-19 for 90 percent of the population was a relatively mild illness, they have been doing their own interpretations of what social distancing and social gathering restrictions mean. At the same time, the virus has been evolving - while the public response has been devolving so to speak - and becoming more contagious so case counts are starting to rise again. And the final element - the supply of vaccine - which is still not coming in quick enough and probably never will given that we do not have the capability to manufacture our own.

Wednesday, 10 March 2021

It Is Not Over Yet

On Monday evening, Thunder Bay City Council halted the process of constructing a new indoor multi-use turf facility by voting to not award the tender for the project. This does not mean that the project is dead. Rather, it was a decision made by the majority of councillors – many of whom are in fundamental agreement with the project but not its timing or cost – to not go with the current lowest bidder. From an initial proposed $33 million, the project including interest on the 25-year debenture has now climbed to $46 million. That the project is not dead yet was confirmed by the Mayor in an interview this morning on CBC radio as well as other public comments made by proponents of the project. This push to continue the project is also occurring despite what appears to be a rather large – albeit unscientifically polled – majority of 80 percent opposed.

The meeting on Monday evening was made remarkable by the concerted push by council members supporting the project to become increasingly strident about the need to invest in the multi-use turf facility project. The standard claims about improving quality of life and attracting people to Thunder Bay were made but then the debate went a bit off the rails. One councillor embarked on a sarcastic speech that essentially amounted to bullying the other councillors into seeing things his way by shaming them by arguing that they preferred to do nothing rather than something. One is surprised that the councillor did not regale the councillors with a lengthy speech about how doing nothing does not make history.

The same councillor also tried to guilt the opponents with a fairness argument that other sports groups had gotten city-built facilities and now it was the turn of the groups using the Turf facility. Indeed, in striking a coalition of support, the list of users for the facility now goes beyond soccer and apparently includes some eleven groups including Thunder Bay’s legendary pickleball players. Moreover, the facility can even be used to host conventions. It apparently is a reincarnated Events Center also - which incidentally a half-decade ago was also unable to garner federal and provincial support. With all the proposed users, one wonders how many children will actually get field time to play soccer?

However, Thunder Bay’s grand recreational expansions of the past were done at a time of a much more buoyant tax base and economy. It is not the 1970s anymore. True, there will always be griping and opposition to spending on large projects but the other pressing issues facing the City – social housing for the homeless, crime, water infrastructure via the leaky pipe drama affecting thousands of homeowners – were conveniently not brought into the picture. Moreover, treating the turf facility as an isolated stand alone project when there are other infrastructure projects to be decided - including a new police station - is disingenuous to say the least.

The councillor then began to draw comparisons with the Thunder Bay Art Gallery project despite the fact that the $30 million gallery project was largely being funded by its own fundraising campaign with a five million dollar contribution by the City of Thunder Bay as opposed to the Turf facility which will see its entire cost funded by the City via its own money and a debenture. The Turf facility project was initially advanced as going ahead with partners at the federal and provincial level and funding from these other levels has never materialized.

The Mayor was somewhat more diplomatic saying he did not want to make comparisons but then proceeded to draw comparisons to the hospital project twenty years ago when the City made a $25 million contribution to the largely provincially funded project that was to be funded by a temporary tax levy increase. The Mayor neglected to mention that after the funds had been raised, the tax levy was never removed and became permanently entrenched. Moreover, unlike the Turf facility which had a private sector proposal for alternate facility that was rejected by City Council, hospital construction and operations in Ontario have always been largely public sector driven. Even more, hospitals are seen as public necessities whereas sports facilities, while valuable and important, are difficult to place on the same level.

More interesting were the comments on the CBC radio interview this morning where the Mayor stated that the City’s finances were very good with only a $1.15 million deficit projected for 2021 and the lowest tax increase in a decade and that we could obviously afford the project. Making long term commitments based on one year’s finances is never a good idea particularly giving recent City Budget projections calling for tax increases of 3-4 percent in years to come. Moreover, not so long ago there was a wringing of hands over the cost of COVID-19 and only a few weeks ago the Mayor was again lamenting the need for more provincial financial support.

The thing here is that in the end, in true Thunder Bay fashion, there were two groups involved in getting a new facility that were unable to work together. One side earlier on seems to have successfully torpedoed the alternate group’s private sector proposal and have essentially gotten key city politicians and administrators on side with their idea for the publicly funded facility. The initial proposal was for $33 million and was expected to garner support from other levels of government. As noted, the total cost is now expected to be $46 million and shovels have not even gone into the ground yet, which once begun will no doubt reveal cost surprises. Given the history of rising costs in Thunder Bay public sector projects some councillors have rightly begun to balk.

Yet, in the end I think the project will not die. In Thunder Bay, proposed public spending projects are never too costly to completely die - they just need to evolve and stay the course. The reason the Events Centre died in 2015 was the complete dearth of support from other governments. This time they can apparently at least tap into the Federal Gas Tax money. The next two weeks are going to see a lot of horse-trading and behind the scene maneuvering led by the Mayor in particular in an effort to salvage the project in some format. Some of it will involve providing assurances regarding the state of the finances of the city and project costs. As many have noted, all Monday’s vote did was turn down the current bid. Even many of those who have been publicly branded by proponents as short-sighted civic do nothings for not supporting the project are actually not opposed to the turf facility – they are concerned about the timing and cost of the project. If there is a convincing operatic performance by proponents that we can afford this after all, it will go ahead. Unfortunately, this is simply business as usual when it comes to public spending and project development in Thunder Bay and continues Thunder Bay’s increasingly outdated civic vision.

Friday, 5 March 2021

Thunder Bay COVID Cases Trending Up Rapidly

Today's case count for the Thunder Bay District was 46, coming on top of 61 the day previous. A LOWESS plot of the daily cases clearly show the steepness of the upward trend. The Federal Health Minister this morning on CBC radio noted the situation in Thunder Bay is very serious and potentially exponential. Given that exponential growth is a growth pattern that shows larger increases over time - that is the slope of a profile is getting steeper rather than diminishing - one might opine that we are probably already there. The per capita new case count in Thunder Bay district is now the highest in the province. When the plot is examined over the course of the year, Thunder Bay never really had a "first wave" and indeed its current wave occurs in two phases - a first one starting in November (circa Day 275) that in the end plateaued but never really subsided and a second one that begins to pick up speed the first week in January (circa Day 350) and has never really slowed down. At present there are now 389 active cases and 35 hospitalized of whom 8 are in the ICU. Have a nice weekend.

Wednesday, 3 March 2021

Building a New Vision for Thunder Bay

Pandemics are ultimately associated with great economic and social change as once the pandemic subsides, there is never a full return to the previous world. In Thunder Bay, the changes wrought by the pandemic have emphasized and highlighted many of the city’s problems. Along with continuing high rates of crime, homelessness, racism, mental illness, and the growing effects of a changing climate, the lineups at food banks have been increasing and there even seems to be a return to a wild west frontier mentality with increasing numbers of people being stopped by police for driving under the influence. Thunder Bay has always been a city with a mean frontier edge to it whether it is on the city’s roads, its bars, or its school parks and playgrounds.

The recent surge in COVID-19 cases particularly in lower income homeless residents accentuates the reality that there are really two Thunder Bays – a Thunder Bay of growing poverty as employment and health becomes more precarious given job loss and city businesses hard hit by the pandemic and one of secure largely broader public sector driven employment. The evidence of the social and economic changes that have emerged over time are there for all to see - if they want to.

Figure 1 shows that the decline in homicide rates in Thunder Bay that had been occurring in tandem with the rest of the country came to an end circa 2007 – perhaps not entirely coincidentally at the tail end of the massive economic shakeup of the regional forest sector crisis. They have since been rising and Thunder Bay invariably emerges year after year as the murder capital of the country. Figure 2 shows that over the last decade, overall building permit values – which signal new investment – have trended downwards and residential permit values have been largely stagnant. Figure 3 shows that housing starts have essentially been flat at low levels compared to the pre-1990 period. Figure 4 shows that over the last 20 years, employment has trended downward with the pandemic providing the expected additional downward spike at the end of the series.

Over the longer term of its economic history, as captured by the evolving population size shown in Figure 5, Thunder Bay has essentially been stationary since the 1970s. That is important because population still is an important economic indicator in that population growth tends to respond to economic opportunity and Thunder Bay’s lack of population growth is the one long-term indicator of the state of its economy. Our city’s population peaks in the late 1970s and 1980s and has actually trended slightly downward since. One wonders about the coincidence between the end of growth in the 1970s and the onset of a monopoly municipal government in place of the formerly competitive municipalities of Fort William and Port Arthur.

It is true that the Thunder Bay CMA population is larger at about 125,000 or more and has actually trended slightly upwards in recent years. However, it is the official population of the City of Thunder Bay within its city boundaries and not the CMA population and residents external to Thunder Bay city proper that matter because in the end it is the tax base of the City of Thunder Bay that pays for services in the city via the tax levy. Yet, what is quite remarkable is that despite the lackluster growth in major indicators, there has been substantial growth in the tax levy of the City of Thunder Bay and associated municipal employment as Figures 6 and 7 demonstrate. While the rate of growth of the tax levy has declined over the last five years, it has grown faster than both population and inflation combined.

All this coincides with the growing disquiet many residents feel with respect to the direction the City has been taking. Yet, in the face of mounting evidence of substantial issues there seems to be an increasing sense of detachment from the public by the Mayor, City Councillors and Administrators given recent decisions such as the pursuit of expensive major capital projects like the proposed new Indoor Turf and police facilities, the silence on the epidemic of home plumbing issues linked to City water, and a pathological preoccupation with seemingly superficial issues like tourism signs and sporting events. True, our city councillors are always quick to articulate their concerns about the problems facing Thunder Bay and indeed much of their meetings are taken up by pious words too numerous to count but in the end, they are either unable or unwilling to systematically tackle the future.

A key part of the problem is that our patterns of civic decision making are rooted in a mid-twentieth century vision of where Thunder Bay needs to go. My take on that vision – which I articulated in an earlier post – bears repeating and can be summarized as follows: Thunder Bay is a regional center and strategically located full-service high-tech urban oasis set in a pristine natural wonderland with a wonderful quality of life on crucial east-west trade and transport routes whose full potential is unrealized. Indeed, the entire City’s potential is unrealized and what Thunder Bay needs is continual infrastructure investment to attract people and effective communication of our potential to convey the message of how wonderful we are. While Thunder Bay may have social problems, they are not any worse than other places and have been blown out of proportion by the national media. City residents need to have a positive attitude, stay the course on this strategy, and we need to invest in the public services and infrastructure to make it all happen.

This is in essence what continues to drive civic policy in Thunder Bay even though since amalgamation in 1970 the City has stayed static in population, its industrial mainstays have largely disappeared, and its grain transportation role shrunk to a shadow of its former glory. While there indeed has been some employment diversification into a knowledge economy and the health and education sectors that have helped provide a market and business opportunities for some entrepreneurs, it remains that this has been largely a rear-guard maintenance action that has barely kept pace with the employment losses. Moreover, much of this employment growth has been in broader public sector employment making it increasingly tied to political decision making in Toronto or Ottawa. Our political clout is not as large as we like to think given the higher population growth in southern Ontario.

Key to this local vision is the level of municipal spending, employment and infrastructure investment partly geared towards keeping the economy going via construction projects. This spending is financed by government grants and by tax increases levied increasingly on the residential tax base given the departure of the industrial mainstays who provided the base for the past development of a very generous level of municipal spending and programs. Tax increases are justified by “a build it and they will come philosophy” but it has become apparent that after fifty years we have built a lot and not too many have joined us. When the point on practically zero population growth is mentioned, the response is that we have large numbers of temporary residents whether they be students or visitors from outlying First Nations requiring services. However, we do not seem to have accurate numbers documenting this aside from the ones City Councillors and Administrators like to throw out - numbers like “20,000 or 30,000 more” during meetings without supporting empirical evidence. More to the point, there is the question as to why municipal ratepayers should even be providing these additional services out of a local property tax base? Where are the provincial or federal governments in all of this? Indeed, in the wake of rising cases recently, the pandemic has revealed just how truly stretched our resources are given that Thunder Bay is serving as a regional health and social service support center on a city budget.

We have an expensive vision of local and regional municipal government spending based on an economic base that no longer exists. That vision is justified by a “build it and they will come philosophy” that continues after waiting 50 years for results. Thunder Bay continues to invest and prepare for the next boom and yet that boom never comes or is much more subdued than expected. Even the most recent mining strategy released by the city’s Community Economic Development Commission continues in this tradition by documenting the prospects of 7,000 jobs over the next decade - nearly a decade after the prospects for the Ring of Fire’s mining boom were first pronounced.

When the Mayor and Council are criticized, their rebuttal takes the form of dubious arguments such as the need to invest today for tomorrow and how we need to invest in our quality of life. Who can argue with quality of life or renewal of aging infrastructure? Yet, it turns out that much of this money is being spent on just two things – administration and protection. We have one of the highest per capita tax levies of major cities in the province and spend the highest per capita amount of 27 major Ontario municipalities on administration, police and fire while managing to be one of the lowest spenders on the remainder. The need for a re-balancing of spending priorities is obvious.

Taxes and fees go up but that is justified by our civic leaders as all right because our cost of living and property values are lower thereby resulting in lower taxes relative to bigger cities with more expensive housing meaning they can be raised more because they are a bargain compared to Toronto. This is debatable but not the main point. If the cost of living here was truly lower resulting in a surplus for local residents in excess of what they need, why we might not want to keep money in our own pockets rather than simply hand it over to the local municipal-protection-administrative-construction complex is a question that Thunder Bay politicians do not want to answer.

What is to be done? The mindset and vision that has permeated our local municipal political and economic decision-making culture needs to change. That is more difficult than you can imagine given how entrenched the current vision has become and the short-term municipal political and bureaucratic interests tied to specific projects and expenditures. It is beyond the abilities of any one individual to change an entire municipal tax and spending culture but change needs to start somewhere. It probably also is more than just a municipal culture vision as in the end the outlook of the entire community has been permeated by the current mindset. It is also a new community vision of what Thunder Bay ultimately can or cannot be and do.

Changing Thunder Bay’s municipal tax and spending culture requires four steps. First, there needs to be a recognition that there is indeed a problem and we are a long way away from that given the substance of debate at City Council. Second, once the problem is recognized, there needs to be a meaningful reorientation of priorities. The current expenditure review process is insufficient because it merely presents a smorgasbord of specific tasks and projects to horse trade over given that administrators and councillors look at parts rather than the whole system. The reorientation needs to be at a broader level. Third, in keeping with the reorientation of priorities, it needs to be followed by a major reorganization of services. Fourth, this should then lead to renewal – a renewal of the local municipal and community vision affecting taxes and expenditures and ultimately the quality of life in Thunder Bay.

In the end, the new vision must be one that acknowledges that we need to live within the economic limits of how the Thunder Bay economy has evolved and the fiscal resources available. Within this new limited resource base, there needs to be a shift in priorities away from the current big-ticket items of protection and administration and towards the social and environmental needs of Thunder Bay’s citizens and their growing diversity. It will be a big change and it requires leaders with a municipal and regional vision that goes beyond short-term spending to create short-term employment projects in the hopes that we can buy time until the next boom comes. After 50 years of treading water, it is time to swim in a new direction.

Thursday, 25 February 2021

What Drives Ontario University Deficits?

In the wake of the Laurentian insolvency, there is growing interest in the state of university finance in Ontario – at least amongst universities. For the most part, for the Ontario government Laurentian and its plight might as well be on the moon. They would undoubtedly be much more preoccupied had the insolvency happened to the University of Toronto or Ryerson and then maybe not given at least one pundit has suggested that the current government really knows nothing about universities.

In any event, the final report on what happened at Laurentian that might shed a definitive story of what has happened there is still to come though one media account summarizes it as too many programs, too many instructors, too many managers, too few students and not enough money. And the previously mentioned pundit would add that tenured professors are overpaid while part-timers are underpaid, though relative to who or what is never elaborated upon. That is essentially the level of financial debate regarding universities in Ontario.

So, what can we learn from the information available on the recent state of university finances? Well, an examination of university financial reports for 2020 is one way to start by comparing the deficits (-) or surpluses (+) of 20 Ontario universities. It turns out that in 2020 a surprising number of universities did run a deficit – seven to be precise – but the majority ran surpluses. The range runs from a deficit of -$21.5 million for Ryerson to a surplus of +$441 million for University of Toronto. The interesting thing is how could both the largest and the smallest university deficit both be in downtown Toronto institutions given the similarity of the operating environment but there it is.

Comparing deficits for Ontario universities really needs to be adjusted for the scale of institutions in terms of enrollment given that total enrolment in 2020 (as taken from the AUCC web site) ranged from a low of 1,370 for Algoma University to a high of 93,081 at University of Toronto. Using absolute deficit numbers is not going to tell you much. Figure 1 thus presents the deficit (-)/surplus (+) per student. The largest deficit per student is actually Wilfrid Laurier at -$527 per student in 2020 followed by Ryerson at -$455 and then Nipissing and Laurentian at -$374 and -$339 respectively. Deficits are not a specific northern Ontario problem given the list includes Wilfrid Laurier, Guelph, Ryerson, Windsor and Ontario Tech.

Are there any characteristics that might explain why these institutions had deficits in 2020 while the others had surpluses – the largest at Algoma and University of Toronto respectively, now there is an interesting juxtaposition – at $5364 and $4,738 respectively. The first and the last in terms of total enrollment both have the largest surpluses per enrolled student. Who would have thought? Algoma and U of T as the Alpha and Omega of Ontario universities.

Why not address the elephant in the room. Do deficits or surpluses have anything to do with how generous faculty salaries are? Figure 2 provides a ranking of average faculty salaries (all ranks) for these 20 universities taken from Statistics Canada with the exception of Algoma, which for some reason is not in the salary statistics for universities from Statistics Canada. However, I took an average of the salaries provided in the latest Ontario salary disclosure (which I would imagine actually biases the number upwards a bit).

The results here are also interesting. Unlike the steepness of the deficit/surplus profile, this profile is rather gentle going from a low of $111,000 at OCAD to a high of $176,550. University of Toronto not only manages to generate the largest surpluses in both absolute and per student across all of Ontario universities, but it has managed to do it with the highest average faculty salaries. Laurentian, is decidedly middle of the pack when it comes to faculty salaries along with Wildfrid Laurier and Western. Indeed, if you plot the deficit/surplus against the average faculty salary for these 20 universities, you get Figure 3 which gives the counterintuitive result (especially if you are an Ontario cabinet minister) that higher faculty salaries are correlated with bigger university surpluses.

Of course, Figure 3 is only an association. What you really want to see is if there indeed is a statistically significant relationship between the two variables after controlling for some confounding factors. Figure 4 presents the results of a very simple linear regression of the surplus per student on average faculty salary (avgfacsal), per student tuition revenue (perstudenttuition), whether or not the university has a medical school (medschool) (which can be an expensive proposition), and the ratio of government grant revenue to tuition revenue (granttuitionratio) for the university. Moreover, to account for the scale of institutions it is a weighted regression with the weighting factor being total student enrolment.

The results show that arguing that higher faculty salaries will give you a better financial position is indeed not the right call. On the other hand, the coefficient is also not negative nor significant for that matter. In the general scheme of things, universities are not so dopey as to go around paying more than they should for the help nor are they captives of fiscal terrorist faculty associations when it comes to compensation. Guess what? Having a medical school is not significant to a deficit/surplus position. More interesting, neither is the ratio of grant revenue to tuition revenue. That is to say, government support of universities has stagnated so much that it really was not a statistically significant determinant of a university’s financial health in 2020. That is not to say it could not be or never was but in 2020 it is not.

What is the most significant determinant in this albeit limited set of variables? Tuition revenue per student. The regression coefficient is positive and quite significant. Figures 5 shows that there is indeed a nice positive slope to the relationship between surpluses per student and total tuition revenues per student. And who are those two high-flyers at the far northeast corner of the chart? Why the Alpha and Omega of Ontario universities - you can decide which should be which. Figure 6 shows it is little Algoma U – obviously the little university that could - and big U of Toronto – which is really not a surprise. They appear to have boosted their enrolment as well as got the right mix of students (i.e. higher paying international students) to ensure their financial survival – at least for 2020. Who knows what the future will bring?