Land-transfer tax keeps city from return to cash crises
Don't heed those who say Toronto’s surplus should mean this levy’s end; the city needs every penny, argues Royson James.

thestar.com
Aug. 28, 2015
By Royson James

Some of the very people who claimed that the city’s land-transfer tax (LTT) would cripple the real estate market, make Toronto uncompetitive and hamstring future city budgets are now claiming Toronto is rich.

That’s because budget figures project a year-end surplus of $65 million, fuelled largely by higher than budgeted revenues from land sales.

In context, relatively speaking, the surplus is so tiny as to go almost unregistered on a near-$10-billion budget. And fears about the impact of the LTT have been highly exaggerated.

Houses large and small - including the detached, eight-foot-wide Regent Park curiosity selling for $750,000 - are burning up the MLS listings. Whatever projections the city’s budget gurus concoct, the market exceeds. So, some land-transfer-tax haters try another tactic: Argue that the city doesn’t need the money - not when it is showing a year-end surplus.

The argument doesn’t hold water, of course. Remove the land transfer tax and Toronto is back into the budgeting roulette that drove citizens and bean counters batty.

Remember when the city had to sell hydro poles to itself, hide money here to spend it there, scheme to deliver surpluses that would suddenly appear to cover “deficits” and all the time bamboozle its residents with voodoo budgeting?

Mayor David Miller ended that and the annual begging trip up to Queen’s Park with the implementation of a stable source of revenue. Considering our history - how we plot and toil to tie ourselves up in fiscal knots that make it difficult for us to wiggle free and improve our city - the LTT has proven a consistent and sustainable revenue tool.

There is no sign of the revenue falling off, either. Similarly, there is no indication that the city does not need every penny that the tax yields.

How can one say that when there is $65 million left over at the end of the year? Because the surplus is artificially generated - and wisely so. Eliminating the surplus does nothing for city services; it would simply be a budgeting exercise that reflect a more liberal view of city financing - one that is not practised by most municipal financial officers, studiously tight-fisted.

Left to their conservative traits, chief financial officers would project Toronto’s land transfer revenues at $300 million a year - not the $500 million the city stands to collect in 2015. Their mindset is always to cover against catastrophic collapse lurking around the corner. What if the market plummets? What if Donald Trump becomes president and invades Toronto? What if all the subway trains self-combust, leaving Toronto with once-in-a-lifetime liabilities?

So they hedge their bets, always.

After the first two years of LTT - when revenues were conflated because of the approved exemptions for first-time homebuyers and protections - the trend has bent upwards. But the city’s fiscal watchdogs continue to prepare for a collapse of the market.

In 2010, the revenue was $279 million - a full $103 million more than projected. It jumped to $350 million in 2012, then $361 million. Last year, they projected LTT revenues of $356 million. It came in at $450 million.

So for 2015, did they bump up the projection by 5 per cent and budget for around $475 million? No, they lowballed again, at $431 million. And you can guess the outcome.

Current projections call for year-end revenues of $487 million. And, really, it will be more like $500 million.

When politicians discovered the little game and started using the resulting “surplus” to protect services, the bean counters devised another foil. Instead of spending the surplus - money the city can’t depend on, they argued - why not ensure it is used for capital projects and to finance the debt. That way, if the catastrophe does arrive one year, the operating budget is still insulated.

So, this year alone, about $50 million of the surplus will be squirrelled away for debt financing.

Understand, this is entirely arbitrary. And it does feed into the narrative that the city is taking money from taxpayers - money it doesn’t need for services.

Except, the money is needed. For services. And other things, like debt financing and rainy day funds. Already, city hall is musing about a fare hike for TTC users. This will probably milk another $50 million from riders when the politicians are salting away extra cash for rainy days they invent.

As if that’s not bitter enough, here comes the anti-tax brigade to suggest that we don’t need the LTT, we can cut property taxes, restrain services, hold off on transit improvements, because, y’know, spending is out of control.

Follow that argument and we’ll be right back to the days when it took a budget Houdini to balance the city’s books.