Toronto needs to find more money or spend less

The city manager is the latest to warn that the city is heading towards a financial cliff.

Thestar.com
May 10, 2017
By Edward Keenan

The language of bureaucratic reports can be a bit dry and understated, so let me translate a bit of the Toronto city manager and city finance honcho’s recent pre-budget summary for a general audience.

In financial terms, the city’s government is speeding along in a car that has problems - low on gas, dented, engine failing - that we’ve been aware of and refused to deal with for a long time. And it turns out we’re accelerating now, in that car, toward a brick wall. Not only that, but on the other side of that wall, it appears there is a cliff.

So, we have some quick decisions to make.

You see, the city cannot sustain the service levels it has by raising taxes only by the rate of inflation. The mayor has steadfastly promised to raise them no higher than that. He and council have equally steadfastly refused to cut services by much. In the language of the report, “Further expense reductions in 2018 will require strong action and a willingness to both reduce and sustain reductions in service levels if residential tax increases are to be kept at the rate of inflation.”

This comes after a lot of preamble saying any budget increase at all for any department is off the table, as a starting point. In practical terms, given the increased expenses already built in (a new subway extension opening, raises for staff guaranteed by signed contracts), the flatline opening assumption already represents deep service cuts. The “strong action” mentioned in that bit is on top of those.

The report goes on: “There has been a reluctance by council to embrace service level or service model changes, creating a mismatch between service aspirations and revenue generation.”

To translate that last line: council has been trying to have its cake and eat it too. And it simply cannot.

The “if” the city manager’s italicized in an uncharacteristic bit of flair above - “reduce and sustain reductions in service levels if residential tax increases are to be kept at the rate of inflation” - is significant. If they keep tax increases low, they need to slash services. There’s a choice there. They could raise taxes instead, see. But it’s one or the other.

Worse news, though. About that cliff. Even if they raised taxes more dramatically and cut services steeply, there’s the chance the Municipal Land Transfer Tax revenue could drop off dramatically - to the tune of tens or hundreds of millions of dollars - if the real estate market tanks or slows.

And yet somehow, it gets even worse. “In the absence of other revenue sources, the city has reached its debt capacity.” The city has a self-imposed debt ceiling that says service costs cannot exceed 15 per cent of its property tax revenue in any given year. The city has reached that limit.

Which means the mayor can go out and thunder about the province not funding the relief line all he wants - the truth is if they delivered the dollars tomorrow, the city would not be able to raise its share. Because the credit card is maxed out.

This is pretty dire stuff. I know budget discussions can seem boring, but we’re talking about whether police will continue to have the resources to protect us, whether library branches can stay open, whether the TTC can run enough buses to get you to work on time or whether shelters will have beds for homeless people through the winter. This is the stuff of our day-to-day lives in the city. And it’s at risk. Not eventually. Immediately.

There are fixes, of course, available to council. They can raise their debt ceiling if they like - 15 per cent is widely considered a very conservative limit. They can dramatically cut services, though many people (including me) will howl and fight if they do. They can raise property taxes, though many people (not including me) will howl about that. Raising property taxes could also create debt room without raising the ceiling.

What they can’t do is continue to, as city manager Peter Wallace is fond of accusing them of doing, “kick the can down the road.”

There are options. The problem is that none of them are fun. And none come without a political cost.

If I can translate one other bit of bureaucratese: “Since late 2015, staff have been engaging in an earnest conversation with city council and the public about the state of the city’s finances and its current fiscal framework,” the report’s “issue background” section opens. That and the summary that follows it mean, we told you this would happen, and you refused to listen.

Wallace has been warning about this since 2015. His predecessor, Joe Pennachetti, made similar warnings for years before that. Everyone who pays close attention to this stuff knew this was coming. Despite the challenges of bureaucratese, it isn’t that hard to understand - you need to collect more money, or else you need to spend less.

Now why you would delay action on this, and its political fallout, until the last budget before the election campaign kicks off? Explaining that is beyond my capacities as a translator. But the timing certainly frames the choice for the politicians, who have the summer and fall to figure out what to do. And the choices they make, in turn, will neatly frame the choices for voters next year.