NORTHERN ECONOMIST 2.0

Thursday, 4 November 2021

City Council's One Percent Solution

After projecting a positive variance of $3 million for the 2021 budget year, it would appear the final tally for a budget surplus for 2021 will be coming in at $5.6 million. Thunder Bay will have its seventh consecutive positive budget variance making for accumulated variances of $26 million over seven years. Much of the savings will come from lower-than-expected COVID costs for which the city has received a lot of federal and provincial support. While Thunder Bay budgeted for a $7.2 million cost from the COVID-19 pandemic this year, a third quarter variance report now forecasts COVID costs at $5.5 million, based on trends to the end of September.

Figure 1 plots the annual tax levy increase since 2015 against the corresponding surplus at year end. For example, in 2015, the tax levy increase was $9.4 million – a 5.7 percent increase on a $164.7 million levy the year previous. The year’s end saw a positive variance of about $1 million which on $174 million tax levy was just over one-half of one percent. Since 2015, however the size of the surplus has increased substantially, often coming close to matching the size of the tax levy increase that year. In 2017 for example, the levy increase was $5.96 million – a 3.3 percent increase – but the year-end surplus came in at $5.6 million – almost 95 percent of the value of the original levy. For 2021, we have a first – a surplus of $5.6 million – which is larger than the original levy increase of $4.3 million.

The surplus is generally put into city reserve funds which in general is a prudent strategy. However, the fact that there are consistent surpluses means that there has been a consistent practice of overestimating expenditures and underestimating revenues. Given that the tax increases have been much larger than what was required given the ultimate need, one can only conclude that this has become a sort of forced savings strategy. The City of Thunder Bay raises the tax levy more than is needed with the goal of boosting its reserves for whatever long-term plans they might have for spending from those reserves.

Thunder Bay has been raising taxes consistently more than it has needed to for some time now and that money comes out of the pockets of its residents. During the pandemic, while other cities were trying to keep tax increases at zero, Thunder Bay managed an increase of 2.7 percent in 2020 and 2.1 percent in 2021. Accompanied by generous provincial and federal COVID-19 support, the result has been large and growing surpluses.

One could pose the following counterfactual. If Thunder Bay had been able to anticipate the surplus each year and implement a tax increase incorporating the surplus and balancing the budget, what would have the alternate tax levy increase have been? Figure 2 plots the actual percentage tax levy increase since 2015 and the alternate increases. In 2017, for example, the budget could have been balanced with an increase of 0.2 percent but instead there was an increase of 3.3 percent. Last year – 2020 - saw an increase of 2.7 percent but all that was needed is an increase of 0.6 percent. Meanwhile, if 2021 continues on this track, it means that rather than a 2.1 percent levy increase, there could have been a levy reduction of nearly 1 percent.

So, here is the thing. Over the period 2015 to 2021 the actual tax levy increase has averaged 3.1 percent. The average levy increase required to meet expenditures has been 1.1 percent. City council for 2022 has directed administration to prepare a municipal budget with a 2.25 percent levy increase. I would suggest that based on the City’s financial performance to date that they could easily cut that in half. One percent sounds about right.

Health Spending in Ontario: Restraint of the 2010s is Over for Now

The Canadian Institute for Health Information (CIHI) release of the National Health Expenditure Trends 2021 provides a much awaited first macro snapshot of what happened to Canadian health spending during the COVID-19 pandemic. Canada is expected to spend a new record of $308 billion on health care in 2021 — $8,019 per Canadian. It is also anticipated that health expenditure will represent 12.7% of Canada’s gross domestic product (GDP) in 2021, following a high of 13.7% in 2020. A new feature of the numbers this year is the government COVID-19 response funding which in 2021 constitutes 7% of total health spending. The COVID-19 response funding includes money for treatment costs, testing and contact tracing, vaccination, medical goods, and other related expenses and is a separate category from the standard ones used.

Once one starts to examine and analyze spending both including and excluding the COVID-19 response spending provided, as well as adjusting for inflation and population growth, the picture looks more variable depending on the categories examined, the financing sector considered, and the province involved. For example, private sector health spending was hit quite hard and categories such as other professionals and hospital spending also saw declines in real per capita spending.

When provincial-territorial government health spending is examined, their real per capita total health spending in 2020 rose 8.1 percent but once the COVID-19 response is factored out their spending declined by about one percent though it is also expected to rebound in 2021. Hardest hit in provincial-territorial health spending in 2020 in terms of percentage declines in real per capita spending: physicians (-5.8) other professionals (-6.1), drugs (-2.3) and hospitals (-0.5). Meanwhile, public health grew 4.1 percent, other institutions (including long-term care) grew 1.2 percent while capital spending grew 10 percent.

These results are not unexpected given the decline in surgeries and physician visits brough about by the pandemic. The closing of outpatient departments and postponing of medical visits and procedures during the height of the pandemic meant a reduction in some aspects of health service provision and health spending. According to CIHI’s own analysis of COVID-19’s effect on hospital care services, from March to December 2020, overall surgery numbers fell 22% compared with the same period in 2019, a drop of 413,000 surgeries.

Moreover, real per capita spending growth net of the COVID response funding also varied across provinces in 2020 (See Figure 1). While Newfoundland and Labrador, Prince Edward Island, New Brunswick, Quebec, Manitoba, Saskatchewan, and Alberta saw a decline in real per capita spending net of COVID-19 response funding, Ontario, British Columbia, and Nova Scotia saw small increases with Ontario the largest at 1.2 percent. New Brunswick, Quebec and Alberta saw the biggest declines in real per capita health spending at -3.3, -3.5 and -3.6 percent respectively. This demonstrates that during the health system disruption of the pandemic, the decline in service provision at least as measured by real per capita spending, was greater in some provinces relative to others.

In 2019, Ontario’s total provincial government health spending was $63.1 billion and in 2020 including the COVID-19 response funding it soared to $72 billion. In 2021 it is expected to reach $75.2 billion including the COVID funding response. Even when the COVID-19 response is removed, Ontario still saw increases in health spending with provincial government health spending net of COVID forecasted at $67.4 billion in 2020 and $71.7 billion in 2021. Moreover, these increases continue once adjustments are made for population and inflation.

Figure 2 plots real per capita provincial government health spending in Ontario in $2020 from 1975 to 2021 calculated from the CIHI data. Spending growth moderated substantially after 2010. Whereas the average annual growth rate of real per capita provincial government health spending from 2000 to 2009 averaged 3.1 percent, for the period 2010 to 2019 it grew below 1 percent. However, when COVID-19 spending is factored in, real per capita provincial government spending grew 8.1 percent in 2020 and 2 percent in 2021. When you factor out the COVID-19 response, the growth rates are 1.2 percent and 3.9 percent respectively.

Finally, Figure 3 looks at real per capita provincial government health spending growth by major categories. Hospitals declined in 2019 by 1.2 percent but then grew at 2.1 percent in 2020 and can be expected to grow 1 percent in 2021. Other institutions (including long-term care) also shrank half a percent in 2019 but then grew 4.4 percent in 2020 and is expected to grow 18.6 percent in 2021. Physician spending grew 1.8 percent in 2019, then shrank by half a percent in 202 and is expected to rise 1.7 percent in 2021. Other professionals (e.g., provincially funded dental and optometry) fell 2 percent in 2020 but can be expected to grow 6 percent in 2020. Provincial government drug spending in real per capita terms fell in both 2019 and 2020 but is expected to grow 9 percent in 2021. Public health saw increases close to 10 percent in each of the three years reported in this chart. Administration on the hand has shrunk in each year including an 18 percent drop in 2020.

So, the impact of the pandemic on provincial government health spending in Ontario after the COVID-19 response has been factored out appears to be a renewed focus on making health a priority at least for the immediate future. Whereas pre pandemic the focus appears to have been on restraining expenditure growth, the stops are off for the time being. Whereas real per capita spending growth was under one percent for the 2010s, there is a reversal underway with major increases in other institutions (mainly long-term care), other professionals and drugs.

Monday, 25 October 2021

Reforming Thunder Bay City Council

This evening’s Thunder Bay city council meeting is going to feature yet another scintillating debate on the size and composition of City Council. This is another one of those Thunder Bay issues that has gone on for decades and rears its head usually as a vehicle for individual councilors to garner media attention and sell themselves as either reform minded or committed to safeguarding taxpayer dollars. In the end, the talk is as circular as the yet to be fully opened new roundabout at the intersection of Redwood and Edward.

In this current iteration, councilor Peng You has put forward a notice of motion to reverse a decision made nearly a year ago to start work in 2023 reviewing municipal representation and council composition with an aim for a new system – if accepted - to be implemented for the 2026 municipal election. If this decision is reversed by a two-thirds majority of council, then council would also be asked to consider a potential plebiscite question on the 2022 municipal ballot. What exactly that question should be would no doubt then consume hours of debate.

To start, one suspects the motion will fall flat quickly. Most councilors are quite happy with the status quo of 12 councilors plus a mayor with 7 ward councilors and 5 at-large councilors. After all, it has gotten them where they currently sit, and a smaller council will mean more competition for the remaining spots. However, even a defeat of Councillor You’s motion will be useful to him as he will then be able to complain that his desire to save taxpayers money by advocating for a council of 8 at-large councilors plus one mayor has been thwarted by spendthrifts resistant to change – a useful mantra when one has plans for running for higher office.

The problem is that changing the system of municipal representation in Thunder Bay – an institutional compromise devised nearly 50 years ago to balance the north-south population division of the city – needs to be done thoughtfully. It is true that there are more councilors per capita in Thunder Bay than is the case in quite a few other cities. At the same time, that is what happens when you devise a hybrid model of representation to combine ward specific interests with at large viewpoints designed to represent the whole. Simply reducing the number of councilors is not going to save a meaningful sum of money – the total cost of all the councilors in terms of their stipends and expenses is currently well under one million dollars on an operating budget close to $200 million – under one half of one percent. Indeed, one can even make the case that they should use the meager savings from reducing the size of council to pay the remainder more to attract a better quality of candidate – which in the end really would not save any money on representation though it might lead to better civic decision making in the long run.

And then there is the issue of representation. Should we have only at-large councilors who could all end up being from more affluent parts of the city as can sometimes be the case? If we go to a smaller council, can we ensure that it will make better decisions or will the reduction in representation simply reduce the number of viewpoints. And then there is the fundamental issue of at-large or ward representation. If we go totally to ward representation, what will the boundaries of a new ward system be? Can we design some north-south ward boundaries given the geographic population distribution which still resembles that of 50 years ago?

The case decades ago for at-large councilors was that in the wake of amalgamation and the Fort William-Port Arthur split, having purely ward representation would lead to parochial decision making and deadlock. However, fifty years after amalgamation, is that division still as important in how municipal politicians approach issues? Surely, ward councilors can be just as capable as at-large councilors of taking the entire city’s interests into mind. And then, it remains that much of what the city does is local service provision and ward councilors are the best located as the focal points of concerns in specific neighborhoods rather than at-large politicians using their councilor positions to prepare for higher office.

In the end, the councilors should leave the issue as it was decided a year ago and let the city clerk’s office review the boundaries of wards and provide options for composition of City Council. Better yet, given that city administration ultimately has an interest in the design of any council, it would be better if more of an effort was made to commission an independent arm’s length panel to review the situation and present options to council. Whatever happens, one can rest assured that there is not going to be any radical changes in the size and composition of council decided by council and city administration as it is akin to asking predatory foxes to provide policy on the hen house. Any radical institutional change will occur as it did prior to amalgamation in 1970 – by provincial fiat or decree. Quite frankly, I don’t think the province is interested this time around.

Saturday, 23 October 2021

Ontario’s Pandemic Sees Light at the End of the Tunnel But Not for All

Ontario is holding out the hope of light at the end of the COVID-19 tunnel as its daily case counts hover around 400 and a post-Thanksgiving Weekend surge has not materialized. As a result, the provincial government is beginning a lifting of capacity limits for Ontario bars, gyms and restaurants starting Monday the 25^th and has outlined a long-term plan that could see all restriction lifted by March of 2022 – including mask mandates and vaccine-certificate rules.

However, the government maintains that it will pursue a cautious approach that will monitor assorted indicators that could prompt a tightening of restrictions if necessary. That may indeed be the result given that countries such as Denmark and Finland which eased restrictions – including masking – have seen a rebound in COVID cases despite high vaccination rates. Reasonably good vaccination rate compliance and masking in public places are probably the key reason why Ontario has not seen a rebound this fall. However, the announcement that vaccine certificate requirements may be lifted in the spring will not do anything to incentive the remaining 25 percent of Ontarians who have yet to get fully vaccinated.

And, while light at the end of the tunnel may be coming for many Ontarians, the contrary seems to be underway in the province’s long-term care homes. The rather large proportion of staff in long-term care homes that have still not been fully vaccinated means that the risk of the virus being carried into homes is still high. Even fully vaccinated residents of LTC homes are still vulnerable given their waning immunity and frailty. As a result, the Ontario government is creating new requirements.

As provided in an October 1^st news release:

“Vaccination rates of staff in many homes are not high enough in the face of the risk posed by the Delta variant, and this is putting vulnerable residents at risk. To ensure the health and safety of staff and residents, mandating vaccination for in- home staff has now become essential, and homes are now required to meet the following requirements:

· Staff, support workers, students, and volunteers will have until November 15, 2021 to show proof that they have received all required doses of a COVID-19 vaccine, or to show proof of a valid medical exemption.

· Staff who do not have all required doses or a valid medical exemption by the deadline will not be able to enter a long- term care home to work.

· Newly hired staff will be required to be fully vaccinated before they begin working in a home unless they have a valid medical exemption.

· Homes will begin randomly testing fully vaccinated individuals, including staff, caregivers and visitors, to help detect possible breakthrough cases of COVID-19 as early as possible.

In addition to adding randomized testing of vaccinated individuals, homes will continue to regularly test individuals who are not fully vaccinated. The ministry will leverage provincial testing resources to inspect and audit these results by sending testing teams into homes to validate the results that homes have been reporting to the province. The ministry will also step up rigorous inspections of homes’ infection, prevention and control measures.”

The provincial government is understandably nervous about the long-term care sector given that 41 percent of the province’s COVID-19 deaths to date have been long-term care residents given such residents number about 115,000 – just barely over half of one percent of the province’s population. There have continued to be outbreaks with 5 LTC homes in Ontario currently experiencing an outbreak – all in southern Ontario. The government recognizes that the vaccination rates are not high enough and has mandated them by November 15th and yet it obviously does not believe it is going to happen because it is mandating additional testing requirements. Yet, what is more interesting is the response of the long-term care sector to the announcements.

Take for example the Southbridge Group which has interpreted the provincial requirements as follows and applied them to all their homes across the province:

1. Fully vaccinated essential caregivers and visitors shall be required to do a COVID-19 rapid test once a week. Daily swab clinics will be held Monday to Sunday from 10am- 6pm.

2. Essential caregivers and visitors who have received only a single dose of the COVID-19 vaccine (i.e. partially vaccinated) shall be required to do a COVID-19 rapid test every day they attend the home up to 14 days after the day they receive their second shots. After this time, they will follow the testing frequency listed in #1 above.

3. Essential caregivers and visitors who are unvaccinated will be required to do a rapid test every day they attend the home.

We also ask that unvaccinated essential caregivers and visitors should limit their movement only to the room of the resident they are visiting and should refrain from going to common areas such as dinning or lounge rooms where other residents are congregated.

This is a particularly interesting interpretation of “randomized testing.” A quick search reveals that the definition of “random” as usually applied in statistics or polling is: “made, done., happening, or chosen without method or conscious decision”. So, one might expect that 1 in every 20 visitors might be selected for testing or perhaps 1 in 10. A test at least once a week for everyone is not random no matter what the business school graduate brainiacs at corporate head office might think. Applying testing to both the fully vaccinated as well as the unvaccinated equally seems a bit unreasonable but acceptable if it truly is random. Mandatory testing for the unvaccinated and random testing for the fully vaccinated seems more reasonable. However, this application of the requirements treats everyone the same – vaccinated or unvaccinated - a one size fits all policy – that in the end is being done because so many long-term-care staff and workers and even visitors are apparently still unvaccinated. And why 10am to 6pm only for testing? What if a family member wants to visit in the late evening after a long day at work or early in the morning before work?

And what is more interesting is that the anecdotal evidence - gleaned from others who like myself who have a loved one in long-term care - suggests the application of the new provincial requirements differs across homes in Ontario and often even the same community. Some homes are indeed testing randomly all staff and visitors, some say fully vaccinated visitors and caregivers will not be tested at all, some are testing everyone irregardless of vaccine status, some say you can now only visit in the resident’s room, while others say you can help feed the residents in the dining room. Moreover, unlike the provincial approach to the relaxation of restrictions which ostensibly is going to be attuned to case counts and local conditions, there is no evidence that the LTC sector is using local case counts in their approach in terms of a measured approach to the new restriction requirements. For some LTC homes, It is essentially a fortress mentality that is turning LTC homes into prisons.

Overall, the Southbridge rules – and likely those of other homes and providers across the province –represent a return to a much more restrictive set of rules. This is after a gradual easing of restrictions during the summer and early fall that saw a somewhat more normal pattern of visitation. The new requirements for many will in the end discourage visitation to the homes further accelerating the decline in the condition of residents that became apparent during the pandemic when personal visitation ceased completely. One understands the skittishness particularly in the case of for-profit LTC homes given that their deaths rates from COVID were higher. And yet, there must be a better way. The long-term care sector needs to think more creatively and employ fewer one size fits all solutions and more outside the box solutions to balance resident safety with resident needs for frequent care and visitation.

Friday, 15 October 2021

Ontario’s Pandemic: The Beginning of the End or the End of the Beginning?

The last few weeks have seen a major improvement in Ontario’s daily COVID-19 case account. The fourth wave seems to have peaked at just under 1,000 daily cases several weeks ago and for the last seven days has averaged under 500 daily cases (See Figure). This is at the bottom of the scenarios that were envisaged just a short while ago as the fourth wave picked up steam and this may indeed be the beginning of the end of the pandemic in Ontario. At the same time, we may simply be embarking on a new post-pandemic era characterized by intermittent ebbs and flows of infection and a long-term change in how things are done. In the end, it has been a remarkable learning process.

We appear to owe this new diminished phase of the pandemic partly to continued public restrictions with respect to the wearing of masks in public places and the high rates of vaccination. The prolonged restrictions and phased in reopening over the summer has also been wise given the experience of Alberta and Saskatchewan with the Delta variant. The high rates of vaccination in the province have been having their desired effects and the onset of the vaccine passport system has encouraged more hold backs to go and get vaccinated. Yet, there are bumps. The fact that the new QR code vaccine passport many can download for the first time today requires iOS 15 - for many of us a new iPhone - means a lot of us are not going to be conveniently loading it into our Apple Wallets.

And while the provincial government is apparently planning to announce a further relaxation next week in pandemic restrictions dealing with capacities in assorted public venues at the same time, it is announcing new restrictions reflecting slower progress in other areas. The easing of pandemic measures will include ending capacity limits in all locations where proof-of-vaccination requirements are in place, such as restaurants, bars and gyms, a senior official in Ford's government said on Wednesday. To its credit, it is going to retain the requirement for masking in public spaces. Moreover, future outbreaks will apparently be met with more local response as opposed to province wide one size fits all provincial lock downs though my guess is that is more aspirational given the heavy handed tendency towards centralization of policy at Queen’s Park.

At the same time, it has been recently announced that long-term care homes will be instituting testing for staff and visitors whether doubly vaccinated or not at the same time that it is mandating vaccines for all long-term care home staff by November 15^th. While this continued testing has been out forth as “random” testing to provide early detection of breakthrough cases, some evidence to date suggests that Ontario LTC homes will be interpreting it as weekly testing suggesting that things will not be going back to normal for some time. Calling it "random" may be government political word massage to make visitors to LTC homes think it is not going to be formalized but it remains that the Oxford Dictionary defines random as: "done, chosen, etc. without somebody deciding in advance what is going to happen, or without any regular pattern" and not something done on a weekly basis.

The fact that testing is going to be used on doubly vaccinated individuals (who granted can still transmit the virus) while some hospitals have announced that visitors (to be clear not patients) will require double vaccination to get in to see their loved ones suggests that the real elephant in the room is still the high proportion of not vaccinated people in Ontario – for which a lot of other vaccinated people will continue to pay the price. It remains that as of today only 73 percent of all people in Ontario are fully vaccinated. And in long-term care homes, as of the latest figures for end of August, more than half of homes had less than 90 percent of their staff doubly vaccinated.

So, practice and implementation continue to lag science and evidence though the other revealing result of this pandemic has been how much public health, epidemiology and infectious disease science is a lot more like economic science than they would care to admit. When it comes to scientific expertise, the pandemic has revealed that we are all economists now. Economists have been the butt of jokes for years about how their economic forecasts always seemed off the mark and yet during the pandemic, epidemiologists, bio-statisticians, and other assorted medical experts, have joined the ranks of economists and weather forecasters – not just in the range of forecasts provided but by the constantly shifting advice. One does not have to think that far back to recall debates and discussion over whether to close border or wait, aerosol transmission or not aerosol, masks are effective or not effective, take AstraZeneca, don’t take AstraZeneca, etc.

In the end, this will hopefully be a humbling experience for science that will improve it. Economic science, like the other sciences is evidence based and empirical with theoretical frameworks driving the analysis. Facts are indeed facts but interpretation of the facts via theory and explanation is open to debate, consensus only evolves over time, and most importantly: decision and policy making based on the evidence and the conclusions drawn from the evidence in the end is not done by the scientists but by politicians and civil servants who have agendas and constraints of their own not least of which is public reception and compliance. The decisions in the end have been much more coloured by the art of the possible than many would have liked. We are indeed at an end but the drama continues.