Toronto needs to take one last step to reach civic greatness

Toronto needs a greater push toward the next transformational wave of civic improvements. It can invest and grow or slip back to the second tier of cities.

Thestar.com
Oct. 16, 2016
By Royson James

Welcome to Toronto, boom town Canada, fat-cat city with white hot real estate and a magnet of a downtown where condo skyscrapers stretch the limits on every corner.

Office buildings and jobs have returned to the core; so have new hotels. The kids whose parents left for the suburbs are back.

Crime’s down, our profile is up. The Economist says this is the best city in the world to live.

Pearson is growing faster than any big city airport in the world. A population the size of Calgary, Edmonton and Vancouver combined is headed to the Toronto region by 2050.

“I believe that Toronto is at one of those very special moments in time,” Mayor John Tory told the board of trade in September. “You can feel it in the air and you can see it in the headlines.”

Yet, the city’s senior bureaucrats beg on the boulevard.

“We have to make sure we seize this moment,” Tory told the suits. But his was more a cry for help from the cash-strapped magistrate than a rallying cry from a civic champion.

City staff are putting the final touches to a report, due in December, that will challenge Tory and city council to consider controversial road tolls, parking and hotel taxes, among others.

Call it the Toronto Paradox: a perennial civic mishmash of financial machinations that befuddles the average citizen.

How can a city with such obvious wealth, such matchless charms that propels it to the top of global rankings for livability, fail so miserably to take that last step into civic greatness? How can a place that generates so much money for so many, have so little in the public coffers?

How can the civic piggy bank be empty when land sales in the hottest real estate market in the county have netted city hall $3 billion since 2008, thanks to a special made-in-Toronto tax on property sales?

How can the most often cited culprit be low taxes on property even as a tax on property transfer is heralded as a saviour?

“If it weren’t for the land transfer tax we’d be @*#&$*,” said one finance official earlier this month. But what happens when the housing market cools?

The reality is that Toronto is Canada’s calling-card city. As such, it attracts more of the country’s poor and desperate even as it generates riches for its citizens. It costs an enormous amount of money to run the city. And the mayor is in perennial catch-up mode - backfilling here, patching up there as revenues lag costs.

Look closer and the fault lines pop into view.

Toronto plans subways it can’t afford to build, much less operate; proposes roads it struggles to construct and refuses to clear of tumble weeds; and runs a housing company for the underclass that is dangerously under-resourced.

Around town, everyone, it seems, has a parent or nana sitting on a million-dollar nest egg bungalow with the lowest property taxes in the region; yet the city manager says he doesn’t have enough tax dollars to fix the housing units the city rents to the poor.

As the heart of the region, Toronto spends an average $3 billion a year trying to keep its public spaces and travel routes spruced up and in good repair to accommodate the world arriving at its doorstep.

There’s little left in the kitty to treat its citizens and the world with splashy, spectacular, bold additions.

That “rail deck park” the mayor wants over the railway lands? Fabulous idea. Only, the more than $1 billion it’s expected to cost is nowhere accounted for.

Already, the city’s infrastructure backlog bulges beyond $33 billion. That means, Toronto city council has approved plans for subways, roads, sewers, neighbourhood revitalization, new parks, housing repairs and absolute necessities without the money to pay for them.

Pointing to the list, one senior bureaucrat asks: “Which one of these projects would you drop?”

The fiscal picture for day-to-day operations is equally cloudy - not because there is no capacity to deliver services but because costs rise way above inflation and city council approves property tax hikes below inflation.

Following current trends of anticipated costs and projected revenues, the city’s $11.7 billion operating budget, will face a $1 billion shortfall by 2021.

Former city manager Joe Pennachetti says Toronto’s cash crunch is “messy and it’s got to be fixed. We can’t stay like that. Toronto will not survive without realignment.”

It’s been like this for decades. The sentinels sound the alarm. Hogtown grunts along, unmindful. Citizens snap to attention only when politicians dip into their pockets. And Toronto’s taxpayers are among the most pampered, property-tax protected and spoiled in the region - born sucking a silver spoon greased by the downtown towers.

For years city staff used budgetary tricks, papered over the holes, dipped into reserves, deferred maintenance, fiddled with forecasts and employed all manner of voodoo budgeting to balance the books and keep property tax increases around 2 per cent. Today, they warn, the day or reckoning is at hand.

“It is no longer appropriate to ‘kick the can down the road’ on these difficult financial decisions,” city manager Peter Wallace said in a joint report last May. He was gingerly nudging politicians toward a vote to raise property taxes higher than current practice, impose road tolls and other “revenue tools.”

“Taxes is the price of admission into a great city,” says rookie downtown Councillor Joe Cressy. “Too many consider taxes a four-letter word.”

He’s right on both counts.

Toronto survived the last decade because of an unusual confluence of events and circumstances not likely to be repeated, Wallace has said since taking over the top bureaucrat’s job in 2015.

The economy has hummed along, though Toronto gets only 6 to 7 cents of every tax dollar generated here; the province and federal governments get the rest.

An alliance of business, labour and civic activists spearheaded a national campaign at the start of the millennium. It pushed the federal government and province of Ontario to send cities some more cash, much of it in a share of gas tax revenues.

Ontario premier Dalton McGuinty reversed most of the massive download of costs imposed by Conservative premier Mike Harris in the late 1990s - and gave Toronto its own municipal charter, allowing the city to levy taxes not permitted elsewhere in the province.

Of this, the biggest “saviour” of all is the municipal land transfer tax - a gift from McGuinty and former mayor David Miller that keeps on giving: $3 billion since inception in 2008.

Finance staff worry the windfall can’t continue at the current clip which yielded $517 million last year alone.

Through it all, city taxpayers have lived in a fool’s paradise of low property taxes - the only city tax that’s levied against everyone. It’s a sheltered existence that infuriates Toronto’s neighbours who pay higher rates. And Toronto’s low tax rates has shut the ears of the province to cries for more assistance.

So, should Toronto put a stop to capital projects - pause to catch its fiscal breath and close the funding gap?

Not a chance. In fact, what Toronto needs is a greater push toward the next transformational wave of civic improvements. Double down. Find the money that’s obviously there. Invest and grow or slip back to the tier of cities occupied by Huston, San Francisco, Manchester.

Coming out of the SARS crisis, Toronto was in woeful shape. Civic advocacy - much of it centred on a platform erected in the pages of the Star and its campaign for a New Deal for Cities - resulted in a cultural renaissance.

Six new major cultural buildings popped on the architectural horizon and created a buzz that reverberated beyond our shores. Luminato arrived, as did the MaRS project. Waterfront revitalization started. The ROM, Art Gallery of Ontario, opera house and Ontario College of Art and Design are a testament to that time.

Now we need new ones, a new wave to address the city’s status as a global player. But that is near impossible when the city seems reluctant to assume the mantle, and with it, raise the money to sustain the stature.

“Wealthy? Damn right, we are” says urban planner Joe Berridge, who charts competitiveness among global cities as he travels to remake cities around the world. “We can afford to pay for what we need.”

Over the past 10 years jobs increased by 160,000 or 12.7 per cent, TTC ridership jumped 26 per cent, value of building permits rose 76 per cent and the amount of office space occupied increased by eight million square feet.

Meanwhile, Toronto emerged as Canada’s only global city - topping several rankings for livability, cost of dong business, city of opportunity and overall attractiveness for business.

With all that going for it, why is the City of Toronto a perennial beggar? What’s the cause of the fiscal dysfunction? What’s the fix? The paradox of Toronto is summed up in five areas:

Investors and other levels of government get more of the money generated in Toronto than the city government does.
Toronto ratepayers are the lowest taxed in the region - even though the city has the widest number of taxing tools (obviously untapped) available to it.
New city attractions and infrastructure are clearly needed to sustain Toronto’s growing global reach and status. But simply maintaining what it has is a costly undertaking, falling short by $33 billion and counting.
There are no ongoing plans for the new wave of investments, attractions and “wow projects” needed to prop up the city’s ascendant global status.
Instead of taxing all property owners and spreading the pain around, city council imposes hidden taxes in the form of fees - so much so that since 2010 Toronto Transit Commission users paid four times more in fare increases than the rest of us paid in property tax hikes.
“That’s insane and immoral,” a senior staffer opined recently.

The analogy of someone being house rich but cash poor aptly sums up the City of Toronto - a municipality sitting on huge wealth but unable or unwilling to cash in and use it.

In 2001, the value of building permits in the city was $1.6 billion - a quarter of the growth in the 905 municipalities. By 2013, Toronto had rebounded to soar past the suburbs, before falling back within competitive range.

For a stretch this decade, Toronto had more highrise towers under construction than anywhere in North America until this year when it fell into second behind New York.

But it is the developers and investors that pocket the boom-time dough.

In total, the City of Toronto netted a piddling $40 million in new annual revenues from tax assessment growth in 2015, a year that saw 53,616 building permits issued for a value of $7.8 billion. Individual developers make more than that on a big project.

Development charges on a large apartment unit are $48,720 in Mississauga, $45,903 in Brampton and $44,716 in Markham. In Toronto? $24,634.

“Wealth exists in our city; we’re not collecting it,” says Cressy, the rookie councillor, who represents a downtown ward bursting with development.

The most-used method of paying for city services is property tax, applied on all properties. In all, Toronto collected $3.9 billion such taxes last year. Considering there are more than 1 million property units, the haul is laughably low.

Office buildings and industrial properties and all rental apartments pay only one-third of their share of increases - an attempt to lower their historically high tax rate down to the provincial average. Homeowners and condo owners pay the full amount, but don’t be sorry for them.

Taxes on Toronto homeowners are the lowest in the GTA. Property taxes on an average Toronto were $3,170 last year. By comparison, in Vaughan and Richmond Hill it’s nearly $5,000; in Mississauga the take is $3,945; and $4,480 in Markham.

There was no push to catch up. Taxes went up 1.3 per cent on the average Toronto home. There is no push to double that rate - not when the property tax bill is so visible that it invites ratepayers’ reflex action to scream at every tiny hike.

By comparison, the city’s water rate has jumped 9 per cent per year for nine straight years plus 8 per cent per year the last two years - with nary a sound of protest.

Finance staff acknowledge it’s politically easier to raise transit fares, water rates, and parking ticket fines than property taxes. But, they say, the stable, broad-based, more progressive property tax base has to be tapped if city services are to survive.

The pressure on the city’s operating budget is such that between now and 2021 costs are projected to rise $2 billion while revenues are pegged at $1 billion. The gap, played out annually in budget gymnastics at city hall, leaves bureaucrats jittery and citizens deaf to what is considered “crying wolf.”

In December, staff will again bring forward a list of funding ideas to see if the politicians will embrace them as budgetary solutions.

Cressy, in pushing for the rail deck park over the rail lands, captures the reality.

“This is a city too content to nickel and dime big ambitious projects before we get started,” he says.

Toronto’s had nearly two decades of constrained budgets, unsustainable strategies, and Houdini-like escapes from fiscal ruin. That does not translate into a crisis. It reflects a perennial dysfunction rooted in the fear of hiking property taxes. The city’s guardians just want to set up Toronto for even greater success.

“Being the greatest place to live is necessary but not sufficient,” Berridge says. If this is not sustained through ongoing impactful reinvestments, a city risks falling into what he calls the Barcelona and San Francisco trap: beautiful places that earned kudos but failed to fend off competitors looking to overtake them.

Little of what has gone on in the last decade is a well thought-out strategy to grow Toronto. The global accolades spring from some long-standing fundamentals that play out handsomely. But fortunes can change quickly, if investments lag.

Toronto is a great place to live because its citizens share the space without social upheaval and strife and riots and conflicts that gain international exposure. But at home, residents know the social safety net is fraying.

Very little of the $10 billion tax-supported budget goes toward poverty reduction. Belt-tightening has sweated out hundreds of millions of dollars, including many of the perks for the poor. Today’s cost of running the city per citizen rises below the rate of inflation - not a sign of a city with a spending problem. Meanwhile, the hot housing market forces the city’s diverse population and racial mix to disperse further afield.

The divisions have become more apparent. A cash-strapped city is tempted to impose hidden taxes on transit, waste and recreation while the windfall for property owners get sheltered. Encroaching gridlock is real.

All this is happening while we are in boom times, with cranes popping, with no recession.

“We have exhausted the efficiency stuff. We don’t have a million dollars sitting in the corners of city hall,” says Councillor Michael Thompson, the economic development czar who’s been globe-trotting selling the city.

“We have to have some tax tools, no matter how unpalatable it is. We don’t have a choice if we want a livable city - more transit, more daycare, more housing. People have to understand, if the tax tools don’t pass we are in trouble.”

To connect such comments with a real vote to raise taxes requires “leadership and relentless organizing from the grassroots,” Cressy says.

“Toronto is crying out for a champion.”

How to put Toronto on sound fiscal footing

1. Hike property taxes on all residents and businesses. So long as the Toronto tax rate is unconscionably low, compared to the rest of the province, few will listen to the city’s credible cries for help and relief of the huge burdens of sustaining a global city.

2. Tap into the range of tax tools the province has given Toronto. In effect, grow up and accept the mantle of the big city. These include parking tax, road tolls, hotel tax. Tolls on the Gardiner-Don Valley Parkway combo could provide the $1 billion to rebuild the Gardiner and leave change for transit.

3. Development charges are so low that condo developers make off like bandits. Across the border in Mississauga they pay nearly double the Toronto rate. Adopting the GTA average rate could yield Toronto $70 million a year - enough revenues to cover the annual payments on a $1-billion loan.

4. Sell off a portion of Toronto Hydro. The staff report isn’t filed yet, but early optimistic claims suggest the city could sell 30 per cent of the utility; retain control; squeeze more revenues because of the infusion of private sector rigour and, consequently, continue to receive the $60 million in annual dividend; and use the proceeds from the sales to address the infrastructure backlog. That sounds like Christmas, Thanksgiving and New Year’s all rolled into one, but it’s worth exploring.

5. After tapping the tax tools provided, re-engage the guardians of the city’s civil society to petition the province to remove the final bits of social service costs off the city’s back: social housing, in particular.

6. Tweak the city’s governance structure to reflect its status as a world city. The mayor needs critical, executive, top-level help of three or four czars to oversee critical city functions: housing and social cohesion, transportation, economic development, culture. The current office - despite John “the energizer bunny” Tory - is under-resourced, scatterbrained, a mile wide and an inch deep.

7. Undertake a relentless push toward civic improvements that are transformative, big, bold, great and of global scale. Ground these in tourism, education, culture, health, leveraging the things Toronto is good at.