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A budget running on empty

December 10, 2013

It is a truth universally acknowledged that it’s a mistake to patch an operating budget with one-time money.

Toronto’s Executive Committee, backed by Toronto’s City Manager Joe Pennachetti, has made this principle a point of pride. Mayor Ford has gone on record saying, “Before I took office, any annual surplus was used to fill holes in bloated operating budgets. . . . We have put an end to the unsustainable budget practices of the last administration. It is over.”

So why is the City of Toronto now proposing to balance its 2014 operating budget with $28 Million in housing reserves?

Entering a world of pain

Tucked on page 23 of the Shelter, Support and Housing Administration Division Analyst Notes – a treasure trove of information, if not cash — is a section entitled, “Issues for Discussion.” It might be more aptly entitled, “You are about to enter a world of pain.” It tells us:

 1)    The City’s social housing costs rise every year. When the Province downloaded its responsibilities for social housing, it also required municipalities to maintain service levels. According to provincial legislation, subsidies must keep up with the Consumer Price Index. The City cannot cut the number of rent-geared-to-income subsidies, replace the lowest-income tenants with those who need less subsidy, or cut the subsidy each tenant receives.

I support the legislation. Without these protections there would be nothing to stop municipalities from raiding housing – and making its poorest citizens poorer — to pay for sewers or subways. But cities need enough money to make it work. However . . .

2)  The Housing Reserve the City has built up since 2002 to pay for these rising costs will be entirely depleted in 2015. The reserves were saved this year only because Council voted to transfer part of the 2012 surplus and $34M from the Bank Tower Settlement — more one-time money! — into the reserve.

3)  The City’s share of the housing budget – the budget that rises every year, and for which there will be no reserves after 2015 — will increase 21%, rising from 36.7% to 57.3% by 2016 (p.23). That’s partly because mortgages are being paid off — good news for the feds and province who subsidized these mortgages; bad news for the municipalities now on the hook to subsidize rents and restore aging buildings.

More immediately, Toronto will be losing an additional $114M in provincial funding between 2013 – 2016. When social housing was downloaded, the Province set up a pool to spread Toronto’s extraordinarily high social housing and welfare costs across the GTA. That pool wound up in 2012, with the Province picking up the tab. In 2013 the Province announced it would be phasing out its contribution. City staff report this funding loss alone is the equivalent of a 1.8% tax increase in 2014 and a cumulative increase of 5.4% by 2016 (p. 24).

Triple-trouble

The result? Staff warn that their proposed 2014 base budget will lead to an additional $125M needed in 2015 and $56M in 2016 (p.17), just to maintain services at 2014 levels.

I don’t blame the City staff for recommending this budget. No doubt they were told there is simply no appetite for a big tax increase in an election year, regardless of the consequences for the next Council.

But as a citizen who plans to be around after the next election, I’d like City Council to find a better long-term strategy than “plug this year’s hole with $28M and keep your fingers crossed.” I want them to restore the Housing Reserve to do the job it was intended to do, and take a hard look at the revenue side of the budget.

Catching up to East Gwillimbury

Toronto City Council should be doing everything in its power to remind our Provincial and Federal Governments – which together gobble up 92% of our tax dollars – that they too have a responsibility to ensure their citizens are decently housed.  I applaud Toronto’s Close the Housing Gap campaign, ONPHA’s Housing Opens Doors campaign, and the efforts of the Federation of Canadian Municipalities to create a more rational approach to funding housing.

But until these efforts succeed, we cannot shirk our responsibilities. And that means paying taxes.

Can Toronto’s taxpayers afford to pay more? Toronto’s Budget Committee — and most of the people who comment on news websites — seem to think not. And yet the taxpayers in every other municipality in the GTA, from Ajax, Brampton, Caledon and so on, have managed to do it.

Toronto taxpayers pay an average $1,100 less property tax than the GTA average. Is it any wonder that our neighbours resented pooling their resources to pay for Toronto’s social housing, and the Province is pulling out now?

My guess is that Toronto has been able to keep taxes artificially low by living off the investments of earlier generations, unlike our neighbours who have had to build from scratch. Now Toronto’s infrastructure is nearing the end of its useful life, and we need to re-invest. That’s true of housing, and just about everything else in the public domain.

Perhaps its time for Toronto City Council to get on the phone to the Mayor of East Gwillimbury, or any one of our 23 neighbouring mayors, to get some tips.

Because if they can raise money to invest in their communities, why can’t we?

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6 Comments leave one →
  1. jannie mills permalink
    December 10, 2013 12:11 pm

    Painful indeed, Joy… thanks for the clear, if devastating message. How do we get the measure out that is not a four letter word!

  2. December 10, 2013 1:08 pm

    “My guess is that Toronto has been able to keep taxes artificially low by living off the investments of earlier generations, unlike our neighbours who have had to build from scratch.”

    Not quite – in past, Toronto has kept residential taxes low because taxes on commercial and industrial buildings were much higher than in the surrounding areas.

    $1,100 difference? You cannot directly compare our taxes to East Gwillimbury… are you talking lower/high “mill rates” or what people actually pay? Service levels are different, and property values for the same size house/lot are different.

    But here is what is happening – high commercial and industrial taxes in the 416 have been one reason why all the jobs have gone to the 905 – except for the office towers downtown and for the shopping malls and big box retail that serve the residents and have to be here.

    The city has a program which has been lowering commercial/industrial taxes – see http://www1.toronto.ca/wps/portal/contentonly?vgnextoid=b27b285441f71410VgnVCM10000071d60f89RCRD

    Toronto is also suffering from the fact that under Mel Lastman, we had several years when property taxes were frozen, and even since then, taxes have not always been at the rate of inflation or made up for the years when tax was frozen. In effect, if inflation is 2% and the City freezes taxes for that year, then this is like a permanent tax cut of 2% because this reduction is carried forward to all future years, as opposed to looking at this differently as a one time “rebate” and then increasing taxes by inflation plus the missed 2% the following year..

    • December 10, 2013 1:26 pm

      Thanks for this thoughtful addition to the discussion. All good points.

      The $1,100 difference I cited came from page 14 of the City’s 2014 Staff Recommended Tax Supported Operating Budget. I interpreted it to mean actual taxes paid. There is a separate chart on page 13 for tax rates, which also places Toronto at the lowest rates within the GTA. Here’s the link: http://www1.toronto.ca/staticfiles/City%20Of%20Toronto/Strategic%20Communications/City%20Budget/2014/PDFs/Presentations/FINALrevisedDec2.1_2014%20Operating%20Budget%20Launch.pdf

      • December 10, 2013 3:01 pm

        ok – the 2 charts are very interesting and yes, I see where the $1,100 comes from. Except that I still do not know if it is an apples to apples comparison because Toronto has a lot of condos and multiples – you cannot compare the property tax on a one bedroom condo against a house in the countryside on a one acre lot, and then say that Toronto’s taxes are lower!

        The numbers come from a study by BMA – the 2012 version is at http://www.niagararegion.ca/government/budget-taxes/pdf/2012-municipal-tax-study.pdf and I am reviewing it.

        What the budget report doesn’t do is to look at the long term cumulative increase in taxes, which would take into account the 2011 tax freeze, as well as earlier ones… what i would like is a comparison of mill rates since 1998 for all the municipalaties.

        In the end, higher property taxes make far more sense than higher user fees or things like the land transfer tax of vehicle tax – more progressive and there is no extra cost to collect it.

  3. Rosemary Gray-Snelgrove permalink
    December 13, 2013 7:08 pm

    Thank you, Joy, for this wake-up call – as if there haven’t previously been a good number that have been excellent but that somehow allowed many of us to stay asleep about the financing of Toronto as a city. I can’t add anything to the discussion regarding the best form of taxation to maintain the city’s operations. But I will comment on the zeitgeist as I’m seeing it. I think there is a rise in reasonable hope among many (including myself) who fell into a sense of helplessness when the Harris government began the dismantling of what seemed to be sensible important programs (like housing). A veil fell over collective eyes, preventing the discerning of what action could be taken, allowing new standards and values to take hold.
    This is being shaken off, I think. The world as a place where business needs must be primary now prevails but it’s so blatant that reaction is building. This was predicted by many, including Rick Salutin and yourself, in this blog.
    So – learning that reserves are being eaten up by bad planning, by absence of vision, by narrow thinking, isn’t a surprise but better thinking, vision and planning can still be interjected into the discussion. We must keep up the discussion!! Thank you. Rosemary

  4. December 14, 2013 4:09 pm

    One quarter of all subsidized housing tenants in Ontario are on rent schedules far far below RGI and they never ever go up. No housing authority can subsist on this. They don’t even go up with inflation or half or quarter of inflation. The social assistance rents just stay the same locked in time!

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