Okay, so now what?
Much has been said about the folly of the McGuinty government’s decision to slash (delay?) $4 billion of funding to Transit City, so I won’t add my opinions to the bonfire, except to note that this cut appears to be yet another stealth incursion by the Liberals into the municipal race and its aftermath.
As happened last month with David Caplan’s private member’s bill, George Smitherman was conspicuously fast off the mark, with praise for the government’s move, while Rocco Rossi, who early on called for a Transit City moratorium, seemed taken aback, saying in a statement he “takes no joy” in the announcement.
We should also take Dwight Duncan’s fiscal pessimism with several grains of salt. Finance ministers know how to do expectations management. Duncan relied on conservative growth projections in forecasting the eight-year phase-out of the deficit. But when the economy really begins to hum two or three years hence, a third-term Liberal government may well be in a position to eliminate the shortfall sooner than expected and thus resume those legacy-leaving capital investments, transit among them.
By then, the Millerites will likely have passed into history and someone else will be on hand to take the credit for persuading Queen’s Park to turn on those spigots. Perhaps, that’s the point of the exercise.
But enough of scenarios.
Is there anyone on the ballot today with a compelling, and mathematically plausible, solution to the city’s transit financing dilemmas? Not so much.
Rob Ford’s stated policies will actually make the city’s financial problems worse.* Smitherman’s been vague, as has Joe Pantalone (or at least the pre-John Laschinger version). And even if Rocco Rossi’s Toronto Hydro privatization scheme comes off exactly as planned, which is unlikely, the proceeds only wipe out the TTC’s operating budget problems (i.e., paying off the city’s debt to eliminate its $400 million annual interest payment, which is almost the size of the agency’s shortfall).
The truth is that none of them have a clue how to finance transit expansion without substantial provincial support.
Enter Karen Stintz, stage right. Casting against type, the North Toronto councilor has been shopping around the notion of a parking lot levy across Greater Toronto as a way of generating revenues for the transit expansion plan envisioned in Metrolinx’s $50 billion strategy, which includes Transit City. The budget, she wrote on her blog on Friday, “demonstrates that if ever there was a need to have dedicated funding for transit – it is now.”
Her proposal is hedged eleven ways to Friday – “Toronto can’t be the only one charging.” But Stintz’ basic argument is that a parking levy — both on paid downtown garages and `free’ suburban lots — is more saleable than Sarah Thomson’s miscalculated road toll/subway scheme, as well as easier to administer.
The principle is sound. In practice, she reckons said levy would raise about $90 million a year in the 416 alone. While Stintz criticized the mayor’s two new taxes a couple of years back, she nonetheless deserves credit for going to a place where few conservatives, and none of the contender right-of-centre mayoral candidates, dare venture, i.e., that budget cutting alone won’t address the city’s financial woes.
What’s more revealing, however, is the magnitude of her estimate. If a parking levy did indeed net $90 million annually, it would take the city about 40 years to earn what Queen’s Park erased in a stroke last week.
Something to think about the next time you hear a mayoral candidate bleat about self-sufficiency.
* Ford is pledging to halve the size of council, which reduces the city budget by $11 million, or slightly more than 1/10 of a percent of gross expenditure. But the overall operating shortfall will skyrocket because (i) he’ll have driven up TTC wage costs with his promise to make transit an essential service; and (ii) he’ll be foregoing the $200 million a year the city collects from the parking levy and the land transfer tax.
21 comments
Even if somebody like Rob Ford wins, even if it’s mathematically sound to outsource and get the same amount of services at a cheaper price, even if he wants to cut taxes, and even if he wanted to do anything else, he’s still going to have to deal with the fact that Toronto has a weak mayoral system. Most of council’s incumbents, including the lefties, will probably be reelected.
How much will he accomplish?
Millerites will likely have passed into history and someone else will be on hand to take the credit for persuading Queen’s Park to turn on those spigots
Flaherty was present at Rob Ford’s launch. I wonder if the federal minister of finance being present was more than just “I sat beside his father as an MPP”. I also wonder if the province’s budget slowdowns is a silent response to miller’s incessant prodding of the province for more money and the “balanced budget” media event.
Privatizing Toronto Hydro makes a lot of sense economically. They only pay the city dividends in the amount of tens of millions a year, but applying even conservative sale prices to the debt could eliminate half of it, at a savings of ~$200M/year in interest. The city also has been trying repeatedly to get access to much of the company’s cash for general expenditure, at a risk of their ability to finance expansion and maintenance. This is one of the strongest examples of why governments shouldn’t run businesses. Another saleable asset is Green P, which subsidizes parking by selling it at below market rates.
My fear is that the sales wouldn’t be applied to the debt, though.
Should the mayor not “incessantly prod” the province for the funding it is owed, needs and deserves? Or should they just sit on their hands and quietly hope that the premier will do the right thing, all prior evidence to the contrary?
I think Smitherman lost my vote with his reaction to this move.
Whether you agree with Transit City or not, any candidate for mayor who takes joy or sees opportunity in this announcement is pretty transparently looking to score political points rather than focus on what’s best for the city, and is unworthy of the office.
Here is a solution.. Charge Toronto homeowners the same amount of taxes as its neighbours to the north in Vaughan. That amounts to over 1 billion per year (1 million households @ an extra $1000 per year). Toronto’s cries for more revenues would be far more effective it had similar tax burdens.
Expecting more while paying less has cost Toronto legitimacy on the issue.
If I was Premier, what I would do besides forcing Toronto to re balance its commercial / residential tax rates, is take 3 cents* of every new dollar generated by the addition of the PST on gasoline sales (16.34 billion liters per year) and dedicate that towards PT. That generates just under 1/2 billion per year to be spent province wide.
* that would require a maximum input tax credit of 10 cents per liter for those claiming such.
@Paul If it pisses them off, then no. Also, it’s getting harder and harder to prove that Toronto’s money problems are the result of poor funding.
Toronto’s budget is up almost $2.6B since the mayor first took office from new taxes (not the least of which is the LTT) and increased provincial transfers. That’s from $6.6B in 2004 to $9.2B in 2010. How long before the province starts to tire of the incessant prodding, least of which when they have a $21B deficit and the whole rest of the province to deal with?
The city should start by doing whatever it can to break up their employee unions. That’s a start. If the union is gone and there is a realistic threat of losing a job, watch productivity and efficiency suddenly sky-rocket. There’s 20% saving right there. Next would be the TTC’s union.
The reason Transit City and Metrolinx’s plan costs so much is because they are required to use Union staff to build all the new infrastructure. You take out unions and use a regular RFP bid process from companies, all of a sudden, it’s a guarantee of a conservative 35% (although the end costs are more likely in the 50% savings range if you factor in overtime and delays). So the $50 billion plan becomes $32.5-35 billion (or $25 billion).
@Glen Some of the reasons why some suburban tax rates are so high is because they have much less business to tax (even in places like Mississauga – the ratios are much lower compared to Toronto). Due to historical circumstances, Toronto has a much higher mix of commercial/residential. However, high taxes has meant that the tax base growth for commercial real estate has been anemic in Toronto, especially compared to 905. Toronto’s tax burden’s aren’t much different than our neighbours, we just are lucky enough to have those commercial properties to tax highly. While fixing the very bad tax burden on businesses in the city is needed, you try running on jacking up voter’s taxes by $1000. The right will crucify you for jacking up taxes and the left will for giving breaks to “wealthy businessmen”.
@JT While I generally agree that union busting would do Toronto good, much of the construction does not *require* union labor, but a lot of it has nonetheless been given to them. This is especially true where the work is dolled out by the labour friendly city council. Much work, particularly road and sidewalk work, is actually given to non-union private companies. Also, a host of dynamic rules are in place to make it very difficult for some companies to even provide cost-effective services. One example was with the streetcar purchase, where only Bombardier stood a chance as any other company would have had to build an expensive plant to qualify for the 25% domestic content rule.
And even if Rocco Rossi’s Toronto Hydro privatization scheme comes off exactly as planned, which is unlikely, the proceeds only wipe out the TTC’s operating budget problems (i.e., paying off the city’s debt to eliminate its $400 million annual interest payment, which is almost the size of the agency’s shortfall).
A couple of things. The city’s debt is $2.5B. It it is paying $400M in annual interest, then it has the worst bondsellers going. Money is exceptionally cheap to borrow at present, and if the city is paying more than 5% on its debt it is too much.
At present, Hydro generates approximately $45M in yearly dividends for the city. In order for a sale of Hydro to make sense (even before considering all the other advantages the city retains by holding on to it), it would have to sell for in excess of $1B. In short, those advocating for a sale of Hydro must think that potential buyers are stupid, in that they will pay more than the dividend is worth.
@McKingford A good deal of the city’s debt are long-term (30 year) bonds issued in the 1980s when interest rates were high. Also, the city’s gross debt was $3.06B in 2006. It’s higher now. Also, Toronto Hydro pays out a DIVIDEND of ~$45M. It is more profitable than that, but retains earnings as well so that it can invest and expand. The city often tries to fight them for it.
But Stintz’ basic argument is that a parking levy — both on paid downtown garages and `free’ suburban lots — is more saleable than Sarah Thomson’s miscalculated road toll/subway scheme, as well as easier to administer.
Today must be a cold day in hell, because I agree with Karen Stintz. Raising parking rates is much more highly desirable than a congestion fee, in large part for the simple reason that it would require just about zero additional administrative processes; the infrastructure is in place, we just need to charge more.
And in addition, by charging a lot more for parking, we accomplish a great deal in terms of urban planning that decades of underpriced parking has distorted.
The idea of taxing parking is a good one, but it should be applied not just in Toronto but beyond, so that the suburban municpalities don’t get another competitive edge, and so that they can get the funds for the transit projects they need to build.
@Christopher: I am sorry to say, but you have achieved the remarkable feat of being virtually entirely wrong about everything in your post. The city’s gross debt is, of course, irrelevant – its net debt is what I said it was: $2.5B.
Most of the debt was *not* incurred in the 1980s (I wish the right wingers would get their story straight – I thought it was spending *now* that was out of control). In any event, the City is currently moving *from* a 10 year repayment window *to* a 30 year repayment window – precisely to take advantage of low interest rates (ie. it is irrelevant when the city accumulated its debt because the 1980s debt has long since been refinanced).
And I am at a bit of a loss to understand what you think you were correcting me about re: the Hydro payment to the city, given that we both seem to agree it pays about $45M…
“Someone else will be on hand to take the credit for persuading Queen’s Park to turn on those spigots. Perhaps, that’s the point of the exercise.”
Once again I find myself admiring the incisiveness – and the cynicism – of John Lorinc’s take on local politics. Sure, Smitherman would love to be the mayor who “reannounces” the LRT plan, and the government’s stated reason for cutting now makes no economic sense (capital plans have minimal impact on the operating budget). But the delays and uncertainties created by multi-tier funding are a real problem in Toronto. (Is there some Most-Cancelled Project Award the Eglinton line is in the running for?)
On parking lot levies, I think Translink tried that last year in Vancouver but it was ultimately torpedoed. They’ve had more luck with a regional gas tax, another alternative to the road toll.
@McKingford Before you outright accuse me of being wrong on everything without any proof, the city (or more accurately, its predecessors) used to issue 30 year debt, some of which is still on Toronto’s books and depending on the bond, still have up to 7 years left. Read up on how bond markets work to find out why, but the city would have to buy them back at a premium to get rid of them to refinance. Bonds trade like stocks, and the bondholders don’t necessarily have to sell them back (unless it’s an unusual bond, but those don’t normally exist in government). If you owned a bond from 1988 that was paying you, say 18%/year, wouldn’t you demand a premium?
And while net debt is an important measure, gross debt is very much still extremely important and not how you ludicrously put it as “irrelevant”. Sure city hall is worth money and that takes away from Toronto’s net debt, but are they going to ever sell city hall? If toronto has cash in the bank paying 1.5% it takes away from the net debt to bonds paying 5-8%. Is that irrelevant? The debt (and spending) is still growing at a faster rate that inflation and population growth, which is not sustainable.
But you’re right on one part, most of the debt currently on the city’s books are not from the 80s. Still, much of it’s debt was obtained over the past 20 years at varying levels of interest, and it’s not as low as you might think. The current 30 year bonds, even with record low rates, or going out the door at 5.1% (see the link in this post). Municipal bonds tend to pay higher rates because they don’t have the same abilities as senior levels of government to pay them back, so there’s higher risk.
RE: $45M There’s a difference between PROFIT and a DIVIDEND. Profit is revenue in excess of expenses. Dividends are part of a profit that gets paid out to shareholders. For example, the big banks only pay out about half their profit to shareholders, the rest they reinvest to expand, etc. Still, it’s that profit that matters because it expands the value of the company. Also, there’s efficiencies that can be gained by it being not owned by government, not the least of which is less political wrangling.
@McKingford The city just can’t ‘refinance’ at will. When bonds are sold, it would have to try and buy them back. It’s not like a line of credit that you and I have.
@Michael S Selling GreenP would help a lot with that in at least getting rid of the cheap/under market rate parking. Chicago also sold off it’s street parking.
One of the reason Karen Stintz’s proposed parking tax generates such little money is that it’s set pretty low: $100/space/year is only 27 cents/space/day.
If the typical downtown space earns $10/day (my guess, allowing for vacant spots), that’s under 3%. But it would hurt more in the inner suburbs, where a small business could easily have 5-15 spaces. I wonder if the flat rate approach is too simple to work well.
Maybe it is time for a new political party to form, along the lines of the Bloc Quebecois, it’s time for Toronto to form it’s own party – The Toronto Party.
With 23 of 107 provincial seats within its boundary, Toronto comprises of 21% of the MLAs sent to Queens Park.
In the last election, the bulk of those seats went to the Liberals, with a handful to the NDP. If most or all of those 23 seats went to the Toronto Party, neither Liberals or PCs would likely be able to form a majority government, with the Toronto Party holding the balance of power, where the interests of Toronto must be taken into consideration for every political decision.
It’s time for the rest of Ontario to listen to the needs of Toronto instead of milking the city for all its worth!
A new political bloc or independence for Toronto now!
@Christopher
Toronto’s non residential tax base makes up 28% of it’s entire assessment base. In Mississauga it 28.4% (all figures 2008).*
The reason Toronto’s counter productive tax rates is that once assessments were updated and moved to CVA amounts, the longstanding rule that non residential properties were to be taxed at a rate of 17% more than residential was abandoned. Overnight the province allowed the rates to go up 500%. All done to prevent updated assessments from impacting on the older residential neighbourhoods in Toronto. Particularly the well connected Rosedale and Forest Hill ones. Seemingly needed to have million dollar homes pay a pittance in taxes while jobs were destroyed in the city is good city building.
Once the brain-trust at QP figured out that nearly every small business would go bankrupt, they ‘solved’ [sic] the issue by introducing tax capping. So now instead of dying overnight, it will take to the 2016. Duke’s is a good example of this.
http://southofsteeles.blogspot.com/2010/03/dukes-revisted.html
* Toronto’s commercial assessment base could be higher if taxes were lower. Most comparisons of similar properties demonstrate that Toronto’s high taxes go so far as to reduce market values to the point of offering little to no extra revenue. To illustrate look at the sale of the Kodak Lands, 395k per acre. Or any other commercial acreage (that cannot be converted into residential) sold in Toronto and compare that to land values in Mississauga. You will usually find Toronto values to be 50% to that of those in Mississauga or Vaughan.
@Andrew, You’ll need a new name. Toronto Party is already taken http://www.thetorontoparty.com/
Karen Stinz’s proposal is a good one – it would make a good start – but the money raised is too little to make any substantial new transit projects viable. It might be useful for replacing ageing buses and streetcars, though (given that the Province just backed out of its program to fund the renewal of bus fleets).
For reference, a commercial boulevard parking permit is 276+taxes or $364+taxes, depending on where it is in the city.
http://www.toronto.ca/transportation/offstreet/com_blvd.htm#fees
Any parking tax would have to take into account where this fee should be instead of or in addition to this fee.