A Liberal Hiatus in Thunder Bay?

Long-time standing MPP Michael Gravelle has announced that he is not seeking re-election in the riding of Thunder Bay-Superior North because of his ongoing health issues.  Mr. Gravelle has held the riding since 1995 and the popular Mr. Gravelle has seen his victories be by large margins.  One wishes him well with hopes for a speedy recovery.  At the same time, his departure leaves a gap for the provincial Liberals locally as well as provincially given the rather small contingent of provincial liberals elected the last time around. 

 

Thunder Bay voters historically at both the federal and provincial levels tend to elect Liberals and when they seek to punish them opt for an NDP candidate instead.  Oddly enough, Thunder Bay voters are indeed very conservative voters in the sense they have been doing the same thing for a long time. Federally, the last elected Conservative was Robert J. Manion in Fort William though MP Joe Commuzzi went over to the Conservatives in 2008 after being elected as a Liberal.  Provincially, the last Conservative elected in Thunder Bay appears to be Mickey Hennessy in the 1970s/early 1980s again on the Fort William side.  At present, Liberals hold both ridings federally (now known as Thunder Bay-Atikokan and Thunder Bay Superior-North) and the NDP holds the former Fort William riding with Mr. Gravelle on the north side.

 

Provincially, polling suggests that the Conservatives under Doug Ford are poised to do quite well with the opposition parties not able to gain a lot of traction with their opposition to a government that has become both centrist and populist. The Liberals in Thunder Bay have yet to name a candidate on the south side with the expected candidate, the ever astute  Bill Mauro deciding he would rather rule in hell than serve in heaven by taking his chances as Mayor.   Now, there may be another vacuum on the north side.  If candidates are not named soon, the provincial Liberals may be handing the ridings over to an NDP-Conservative race.

 

The provincial Conservatives appear to be paying the two ridings a fair amount of attention and there have been quite a few announcements which amount to substantial provincial dollars flowing into the region.  They also have their candidates lined up.  They already have Mayor of Conmee Kevin Holland running on the south side against NDP incumbent Judith-Monteith Farrell and Thunder Bay City Councillor Peng You on the north side.  Councillor You is considered a high profile catch for the Conservatives given his high vote count as an at-large councilor nearly four years ago.  At the same time, there has been some rumblings of dissatisfaction expressed about his performance on Thunder Bay City Council in terms of accomplishments to date.

 

So, what will happen?  Given the tea leaves as to what may happen province-wide, there may not be a lot of local Liberals willing to put up with the public social abuse that passes for an election campaign these days.  Even with what have traditionally been strong local organizations at the federal and provincial levels, they may not field candidates at all.  This would leave the race to essentially the other two parties and the interesting question will be if Thunder Bay Liberal voters simply embrace the NDP candidates or if the higher profile Conservative candidates this time have more of a chance. 

 

 

The Robinson Treaties and Renegotiated Payments

 

There was a news item yesterday of great importance both to the Anishinaabe signatories and descendants of the Robinson-Huron and Robinson-Superior Treaties of 1850 as well as the people of Ontario.  There has been litigation underway for a good many years regarding renegotiating payments that have not changed since 1875. A ruling in 2018 that the Crown had a mandatory and reviewable obligation to increase the treaties annuities when economic circumstances warranted was appealed by the Ontario government and was on its way to the Supreme Court of Canada when suddenly it appears that the Ontario government has decided to enter negotiations after all to determine a fair sharing of resource revenues from their territories. 

 

This is a complicated and longstanding issue but briefly in 1850 the Anishinaabe of the upper Great Lakes region signed two historic Treaties with the Crown, the Robinson Huron Treaty and Robinson Superior Treaty, that provided for a land cession of a vast territory in Northern Ontario. The Crown paid a lump sum up front and promised to pay a perpetual annuity to the Anishinaabe, to be increased subject to certain conditions. The annuity has not been increased since 1875 when it was set at $4 per person. The nature of the annuity and the conditions under which increases are to be made were the subject of this litigation and will now be the focus of negotiations with Ontario and Canada.  As well, the increases are expected to be tied to resource-based revenues.

 

There are really two calculations that should be made here.  The first is what the resource-based revenues for the Treaty areas would have been between 1875 and 2022 if some type of reasonable pattern of increases had been made.  The second, is what the sharing arrangement for future resource-based revenues should be.  These will be interesting and complicated problems – especially the redress of past underpayments.  It is a little remembered fact that resource-based revenues from 1867 to 1920 were a significant proportion of Ontario’s provincial government revenues averaging about 20 percent of total revenues.  Indeed, forestry and mining fees for the Ontario government were the equivalent of oil for Alberta today.  Today, these revenues amount to at best several hundred million dollars a year and the question going forward will be what proportion should accrue to the Robinson Huron and Robinson Superior communities - something that will inevitably be decided by lawyers and accountants though one hopes both sides will have also enlisted assistance from economists - always the helping profession.

 

The first question is of more interest to an economic historian.  What would the per capita payment look like today if some pattern of reasonable increase had occurred in every year since 1875?  Suppose the payment had increased each year by the rate of inflation?  If one uses the CPI for Canada from 1870 to 2020 from the Jorda-Schularick-Taylor Macro Database and calculates annual inflation and takes the average, one gets an average annual inflation rate of 2.4 percent for that 150-year period.  If one applies a 2.4 percent growth rate to the base amount of 4 dollars and works forward (y^x where y is 1.024 and x the number of years from 1875 to 2022) then that 4-dollar amount in 1875 would be about $134 dollars per capita today.  The total payment in 2022 using this per capita number would need to be multiplied by population of the affected Treaty areas.  By way of “an estimate” according to Statistics Canada, the total population by Aboriginal Ancestry in private households in the Robinson Superior Treaty Area in 2016 was 3,340 while for Robinson-Huron it was 7,060 making for a total of 10,400. That would make the payment in 2022 alone about $1.394 million dollars.  Doing such a calculation backwards to 1875 would result in a lump sum settlement payment in the hundreds of millions of dollars if not more based on what the population estimate for previous years was.  Naturally, the population estimate both in the past, currently and going forward will be of extreme importance.

 

Of course, this is only one approach and a crude one at that to estimating the past payments.  Indeed, there will be more precise ways of calculating the past payments based on what the actual resource revenues were each year which governments invariably must have as well as the actual population receiving the $4 annually which the provincial and federal governments must have buried away somewhere in their finance ministries.  So, this is a necessary step for the government and people of Canada to undertake given the historic injustice of keeping the payments frozen for a century and a half.  Hopefully, the negotiations will not take another century.  

 

 

A Spring Election Is Coming to Ontario…Money is Flowing Like Spring Melt

 

The Northwest of Ontario is still gripped in throes of winter relative to southern Ontario, but spring is inevitably on its way along with a Spring Budget at Queen’s Park (April 28^th) to be followed by a spring election in early June.  The Northwestern Ontario Municipal Association (NOMA) will hold its annual conference and general meeting April 27-29 in Fort Frances and the meetings will overlap the budget date.   There will undoubtedly be the traditional lament over the region’s needs especially in the aftermath of the pandemic, but the truth of the matter is that municipalities - even in Ontario's north - have generally done quite well financially during the pandemic as has the provincial government for that matter. 

 

Municipalities generally run surpluses (or in the language of municipalities, positive variances) and the pandemic does not seem to have changed that.  And, because of federal transfer supports and growing own source revenues, Ontario has seen provincial total revenues rise since 2017-18.  Based on the Fiscal Reference Tables and the Ontario 2021 Fall Economic Statement, total revenues were $150.594 billion in 2017-18 and reached $164.893 billion in 2020-21.  Fiscal year 2021-22 is forecast at $168.617 billion while by 2023-24 the forecast is for revenues of $178 billion. 

 

If anything, the numbers will likely be revised again in the April 28^th budget to show higher revenues than anticipated and a smaller projected deficit as even the Financial Accountability Office of Ontario (FAO) has already noted.  For 2021-22, the FAO expects a $16.0 billion budget deficit, lower than the government outlook for a $20.5 billion deficit. By 2023-24, the FAO projects the deficit will decline to $2.8 billion, compared to the government outlook of $11.4 billion.

 

So, one can expect that with robust provincial revenue growth and an election in the wind, there will be plenty of spending or “investments” in projects and programs across the province as the province fans out its ministers and spending announcements as a sort of missionaria protectiva to secure as many seats as possible.  Indeed, the spending has been underway since March and currently totals nearly 11 billion dollars.  Some of these announcements are really tax expenditure or foregone revenue in the case of the refund and cancellation of vehicle registration fees (approximately $2.2 billion) as well as the gasoline and fuel tax cut to take effect this summer ($645 billion).  Some are substantial infrastructure projects with billions of dollars for hospital and long-term care construction as well as highway projects. 

 

In terms of specifics for northern Ontario municipalities to date, there are four announcements of note: 1) The industrial electricity subsidy for northern Ontario ($176 million), the refurbishing of GO Transit train coaches’ contract for Ontario northland North Bay ($109 million) and the contract to widen the Thunder-Bay to Nipigon highway ($107) and 4) Rural Broadband internet ($900 million) which one would expect a reasonable share should flow to the north.  These are not inconsequential amounts or projects from a regional perspective and come on top of other announcements such $75 million for resumption of Ontario Northlander train service from Timmins to Toronto.  Throw in money for more medical doctor training with the expansion of NOSM and you can see a deliberate effort to woo northern voters.  Watching the opposition parties use the northern neglect line will be interesting given that many of the northern ridings are indeed held by the opposition and not the current government.

 

Of course, the budget next week will probably unveil even more spending initiatives given that revenues are likely higher than expected which means the government will be able to spend more and lower the deficit.  As for the province’s $400 billion dollar debt and high net debt to GDP ratio?  An election is coming, and an election is too important a time to worry about public finances as politicians have demonstrated since time immemorial. And besides, what politician would not want a future without challenges for their grandchildren especially when there is an election to win?

 

 

The Rancor of Vrancor

 

I was briefly in Hamilton, Ontario last week and the spillover from the GTA is starting to have an impact on Hamilton’s skyline downtown as new residential construction begins with many more proposed.   Along with some picturesque and redeveloped older buildings that retain their charm, there are entirely new projects on old sites such as the old Kresge building site downtown.

 

 

 

Some of them are indeed quite large with proposals for building ranging from a few to as many as 45 stories.  Many have attracted the rancor of residents in downtown residential neighborhoods as some of the proposed buildings are so large and dense, they effectively will more than double the population of some downtown neighborhoods and cast large dark shadows across leafy neighborhoods.

 

What is more interesting is that given the shortage of housing and the need for urban infill combined with the desire of many not to see valuable farmland filled up with subdivisions, the opposition is actually not anti-development or anti infill.  There is an acceptance that taller or more dense buildings with family sized housing units need to be built.  What is causing concern is that the proposed units violate height restrictions already in place – the scale and intensity of the development – as well as create units that really in the end are not family sized units but tiny condos destined for investors - domestic or otherwise.

 

Now there is a lot going on here and the issue is quite complicated but here is what seems to be going on with respect to several projects at the corner of Queen Street and King being both built and proposed by a company known as Vrancor which along with being a hospitality company is also property management and development company. First there a residence and hotel at the corner of Queen and King currently under construction which appears to have stalled because Vrancor now wants one of the buildings to exceed the height it had originally proposed.  The original proposal was for a 10-storey hotel and six storey apartment building. However, Vrancor has modified that to 12 storey hotel and now wants the six-storey apartment to increase in height from six to 25 storeys. The City of Hamilton has apparently approved the increase for the hotel but the other one is now at the Ontario Land Tribunal (OLT) and construction has been stalled since and now stands at a 12 storey hotel and a flat base with a construction crane.

 But then, as much as there is a building boom in Hamilton there are also some curiously stalled projects and empty lots with pictures of buildings that will probably never exist.

 

 

 

 

What is even more interesting is the proposal for the parcel of land immediately north of the Vrancor development under construction which is currently a parking lot.  Here the proposal for Vrancor Towers II is for four towers – two of 15 storeys and two of 27 storeys for a total of 762 dwelling units along with 1003 metres of commercial space and 369 parking spaces on top of a three to seven storey base.  Needless to say, this development will dwarf the adjacent residential area of single homes in the Strathcona neighborhood, effectively double its population, add to the infrastructure needs of sewer and water, cast large shadows, and generally create a spate of negative externalities.   

 

So the full scale of the development of four mega towers has attracted protest and debate. The City of Hamilton is apparently instructing its legal counsel to oppose these proposed developments at least at the scale they are intended because they do not comply with their own guidelines regarding transition, height, scale, massing, shadow, and density.  This will inevitably also end up at the OLT.

 

 

 

Given the sudden rush to add to housing stock, these types of situations will become more common across the country.  The need to intensify urban development to accommodate a larger population and preserve green space makes a lot of sense but the scale of what is being proposed seems to be a lot all at once that will overwhelm rather than complement existing uses.  Even politicians who are trying to rapidly “solve” the housing crisis after years of neglect must admit that development needs to increase density and be forward looking but it also needs to recognize the needs of existing residents who have already made investments in the area based on expectations of a certain style and quality of life.  And the residents of the area themselves are not opposed to apartment units but probably wonder why something more European in scope rather than modeled on 1950s Toronto might not be a better fit.

 

In the end, these buildings are not really family sized units but merely stacked little boxes for investors to buy and sell irregardless.  The only good thing is that for the next two years, foreign buyers are facing more restrictions and interest rates are going up.  Never mind pinning your hopes on the OLT to stop the project.  Higher interest rates alone may put an end to some of the more oversized development proposals that have been popping up in Hamilton. 

 

 

Ontario Universities: The Challenges

 

Well, the news for universities in Ontario this last week was that the provincial government was freezing tuition fees for another year.  Moving into the 2022-23 academic year, this is now the third year in a row coming on top of a ten percent reduction for the 2019-20 academic year when the freezes began.  The Ontario government is heading to an election in June and this move is ostensibly being sold as “ensuring that student have access to affordable, high-quality postsecondary education, and reducing the financial strain on families” (as stated by the Ontario Minister of Colleges and Universities).  No doubt, the current government wants to demonstrate it has a heart, is working hard and has big big dreams.  However, the goal of decreasing the financial strain on Ontario families is being accompanied by an increase in the financial strain facing Ontario universities as was noted by McMaster.  My own university seems to have remained silent with respect to public pronouncements on the matter but then as a small university its approach is probably wise and akin to being a small furry mammal that lets the larger Bronto and T-Rex universities take the asteroid impact.

 

In the wake of the debacle involving Laurentian which saw Ontario as the only province with a university going into receivership, one would think the provincial government would be more aware of the burdens facing universities during the pandemic.  Along with the program delivery, cost, and revenue disruption caused by the pandemic, universities in Ontario – which on average rely on tuition for anywhere from 40 to 60 percent of their revenues – have also been deliberately financially constrained.  They are not allowed to raise tuition fees, nor are they being provided with increases in provincial government grant funding and are being subjected to increasing oversight in terms of their programs designed to make them more business-like and attuned to market conditions.  And while restraining universities financially, the provincial government at the same time has increased competition in the provincial university sector by creating more universities. 

 

One would have thought that central planning had gone the way of the Berlin Wall but, just as autocracy has resurfaced in the world, so has central planning in Ontario.  The provincial government thinks it can have its cake and eat it too probably because under Bill 124, the province is limiting salary increases to one percent in certain parts of the public sector.  The thinking is undoubtedly that universities do not need to raise tuition if salary increases are limited to one percent.  Oddly enough, the provincial government exempted municipalities from Bill 124 under the argument that they have substantial own source revenues but not universities.  Universities really are not so much publicly funded these days as they are publicly assisted but apparently are not allowed to consider tuition as own source revenues.  There you have it. 

 

The result has been that universities, being the resourceful entities that they can be, have coped by increasingly relying on international students as a source of revenue because the tuition freeze only applies to domestic students.  International students are paying what the market will bear and the difference is an illuminating shot of what tuition fees might look like if Ontario students were paying a larger share of the costs of university education. 

 

At McMaster for example, tuition for Canadian undergraduates in 2021-22 ranged from $5,955 to $6,043 depending on program of study.  For international undergraduates, the range was $31,470 to $37,237.  At my own university, the undergraduate domestic tuition ranged from $5,398 to $5,985 while the international counterpart was $25,750 to $26,500.  Universities in Ontario for the time being have seen increasing enrollments – even with the pandemic – and rising tuition revenues from international students making the provincial government’s strategy seemingly a success - except for Laurentian of course.  However, with international enrollment approaching 20 percent even at smaller Ontario universities and an even larger share at some of the bigger ones, the question about access may shift to whether more international students are being accepted at the expense of domestic ones. 

 

True, one could argue that should not happen as international students are essentially subsidizing domestic ones and increasing resources – a win-win situation except perhaps for international students who are paying more.  However, the real issue is that universities in Ontario are becoming increasingly dependent on international students and subject to potential major fluctuations in enrollment which makes their financial stability somewhat more precarious.  Accompany that with the large amounts of debt most universities have acquired to finance expansions of classrooms and residences pre-pandemic which then sat largely empty during much of the pandemic, and you can see that finances can quickly become unpredictable.

 

With the return to in person learning at Ontario universities this fall, the financial challenges that have been provided by the Ontario government will be augmented by the transition to full in person learning which not all students welcome with open arms.  (And to be frank, not all faculty welcome it either. If you were living in the GTA, no 2 hour commutes over the last two years would have generated a lot of time for research). Many students have welcomed the flexibility of in person learning given it has enabled them to schedule their education around employment.  There may be a slip in enrollment as students decide to not return to finish programs that are fully in person given what seems to be a robust labour market now. 

 

The solution to this could be to allow universities to charge substantially different tuition fees for domestic students for in person and online classes.  If universities are really trying to fill their in-person classrooms and some students really want the flexibility of online learning, then many courses need an in-person section and a separate online section.  Hybrid – unless properly done with substantial classroom investments – ultimately becomes voluntary in person classroom attendance with fully online evaluation and the attendant issues that involves.   Those students who want online should pay for the flexibility it provides with a much higher tuition fee. 

 

How will the Ontario government deal with these challenges?  Given their approach to date, they are unlikely to give universities the flexibility and autonomy they need to implement such changes as differential pricing for in-person and online courses dependent on university needs and decision making. Given their tendency to disrupt the university sector, they are more likely to mandate that universities only offer in-person classes and set up a separate provincial on-line university to compete with them.  You heard it here first.