For those who are keeping score, 2010 isn’t the first time the city’s bean-counters delivered an unexpectedly large budget surplus, nor is it the first time a sitting municipal politician has proposed using said surplus to cut property taxes and freeze TTC fares.
This year, as we all know, Mayor David Miller vowed that part of the new-found $104 million will be applied to scaling back the tax hike for 2010, and most of the balance will go to a “tax stabilization reserve fund” for 2011.
How’s this for déjà vu:
Back in early 2006, after city officials revealed the existence of a $68 million surplus, it was one Jane Pitfield — then running for mayor — who said council should use that windfall to…cut property taxes and freeze TTC fares!
According to The Star (March 29, 2006), the city chose to earmark those surplus dollars to reserve funds, and Miller unsurprisingly dismissed Pitfield’s proposal. “The money that is from last year’s surplus has already been used in the budget once,” the mayor said. “You can’t use money twice.”
Funny how the tables can turn.
Indeed, the politics of budgetary surpluses is a kind of hall of mirrors.
As anyone who has followed Miller’s career knows, he has always been quick to scold the upper levels for failing to invest their own surpluses in cities and urban infrastructure.
What’s more, Miller’s response to tax cuts by the other orders – notably the Harper government’s decision to roll back the GST in the wake of his “One Cent Now” campaign — has been unambiguously withering.
“Our cities can’t succeed without proper investment, and we can only have the funds to invest properly if we have a share of taxes that grow with the economy,” Miller told The Star in late 2007 as the Tories prepared to reduce the GST to 5%. “There’s an emerging national consensus, and this particular government is on the wrong side of that national consensus.”
Populist expediency, it seems, has won the day down at City Hall.
But Miller’s pirouette on the subject of surpluses and taxes isn’t just about election-year politics. The move also raises troubling questions about whether this council is following the rules it set for itself in the last term.
Back in April, 2005, Miller and council approved a Long Term Fiscal Plan, an update [ PDF ] to which was on display at budget committee last week.
This recent update was mainly about pushing the province to ante up a long-term deal to split the TTC’s operating shortfall.
It made no mention, however, of a salient provision of the original report [ PDF ]. Herewith, the relevant bits of the Long Term Fiscal Plan’s “Policy on the Management of Operating Budget Surpluses” (page 8):
“Starting with fiscal 2005…the Chief Financial Officer and Treasurer is authorized…to apply any additional surplus in priority order to:
Capital Financing Reserve Fund (at least 75% of the additional surplus); and
The remainder to fund any under-funded liabilities; and/or reserves/reserve funds, as determined by the Chief Financial Officer and Treasurer…”
(Did you notice anything in the foregoing about tax cuts?)
Worth noting, too, that the City, which loves to rack up awards for public sector management, bragged in its December, 2009, newsletter about the fact that the Long-Term Fiscal Plan received “the prestigious GFOA Award for Excellence in Government Finance in 2006.”
Too bad no one bothers to read that prize-winning document anymore.
Indeed, if council was actually following its own rules, much of that surplus should be used to help reduce interest charges incurred for capital works. So either everyone’s forgotten that 2005 plan, or it’s just easier to ignore it because there’s more political hay to be made from a tax cut.
The further irony is that the mayor and his council allies seem to be icing one long-term fiscal plan even while insisting that these latest proposals for the disposal of the surplus are evidence of multi-year budgeting.
Shelley Carroll’s budget committee is meeting on Friday. My question is whether this outbreak of amnesia will persist? Just asking.
12 comments
Nice find John.
While it is not consistent with the LTFP, it is consistent with the habit of putting perceptions above prudence. This Mayor and council have are far more concerned with the next poll or election than the long term health of the city.
Lorinc,
I think there is some simplicity in how you are lumping types of taxes together.
The ‘tax cut’ from the City in reality, is just less of a hike, as the City will be collecting more taxes year-to-year. The property tax rate is still going up, just less than a previous annoucement. Likewise, property tax assessments from MPAC will also be raised regardless of this announcement.
I think what Miller rails against when other levels of government cut taxes is fundamentally different. When the provincial or federal government lower the tax rates of say, income and corporate taxes, they are permanently lowering the fiscal capacity of the government to pay for core services.
Technically the budget isn’t even balanced; it’s still conditional on TTC funding from the province. Even though the province ‘promised’ to do that, Miller is still ignoring the realities of a $25B deficit at the provincial level.
The cynic in me is wondering if Miller is sandbagging the next mayor, knowing that it’s probably going to shift rightward so he can say that he left the city in a sound financial position. In his speech he was very clear on “any future mayor that cuts services(spending) does so because they want to, not have to” is what made me think that.
@Steve MPAC reassessments don’t automatically mean higher tax revenues (unless you’ve renovated your house or everybody else around you isn’t maintaining theirs). For example, if the value of your house doubles, by law your property tax rate as a percentage decreases by half. The MPAC assessments are only supposed to be used as a guide for cities.
When the provincial or federal governments lower the tax rates of say, income and corporate taxes, they are permanently lowering the fiscal capacity of the government to pay for core services.
This isn’t necessarily true. When the economy expands, more money is collected via income, corporate, and sales taxes even if their rates remain the same. If taxes are too high, theoretically cuts can spur more economic activity and hence revenue the same way increasing/decreasing the prices of goods in the marketplace can (the real question is whether the current tax rates are too high or not – a debate we don’t need to get into here). The province hasn’t raised taxes since the health care premium and revenue went up and down with the economy. The city always has to technically raise taxes to increase revenue because the property tax is essentially a poll tax on housing values, but outside of service fees revenue has been relatively stable during the downturn.
@Christopher Hylarides
The mill rate is relative to the entire assessment base in the city. If your house doubles in value but the average house in the city only goes up by 50% then your taxes will rise by 50%. The effects of assessment changes are relative. If your assessment value goes up vs. the average so will your taxes. If your assessment goes down (relative to the average) then so will your taxes.
‘How is it possible that during the Miller years, only in an election year does Toronto show a surplus and we are broke and in deficit all other years. Remember that Miller won the last election by bragging about how good finances were only to tell us 6 months later that we were broke and needed new taxes and service charges. He obviously hoped that we would forget about the con job before the next election. As plain as day we are being scammed again. All this ‘found’ money was supposed to be a boost for Miller in his re-election bid but is now formatted to save fiscally discredited Miller’s allies from the wrath of the public. Je me souviens.’
DM
@Glen The tax rate is is relative to the assessment average of the city, but not the individual assessments for each property. I alluded to taxes going up or not based on relative fluctuations, but it’s actually not that common despite the horror stories that are heard in the press. Most people assume that because their assessments went up their taxes automatically will not realizing that it’s ok because so has everybody else’s. Part of the problem is that housing assessments are notoriously secret in Ontario.
Also, neighbourhoods and other factors determine your value more than the entire city. See here.
To quote:
MPAC divides the province into approximately 140 market areas and then further divides each of those areas into neighbourhoods and sub-neighbourhoods to evaluate the degree to which location influences the market area. For waterfront properties MPAC typically looks at the entire lake or a group of similar lakes. For condominiums, each condo plan is typically considered its own neighbourhood.
If it were up to me, residential property taxes would be a fixed number on a combination of a flat tax per square foot of land (so people who build upwards and use land more efficiently are taxed less) and square foot of furnished housing space. It would be fair and transparent and since the poor tend to live in smaller places, the rates would be lower for them.
I think my basic point is that when you lower GST from 7 to 5. This creates a structural capacity problem for government to raise revenues. The same cannot be said for property assessments since a year-over-year increases will not create a similar outcome where revenues will be cut in such a dramatic fashion.
I don’t want to get into a debate about what method of taxing is more appropriate. There is a generally consensus that Canadian cities recieve far less revenue from upper levels of government compared to European and even American cities.
My main point is that John Lorinc is being somewhat disengenuous when he states that Miller is using this as “populist expediency” for a tax “cut” because:
1. its not a “tax cut” since we will all still be paying more in property taxes next year.
2. municipalities are chronically underfunded and provide enormous amounts of services for their fiscal capacity. So, its entirely appropriate for the Mayor to ask for money provincially or federally, while not raising taxes locally.
3. expediency is a strange term to use for a Mayor that has announced he will not be seeking reelection.
Steve,
I think David Miller’s actions of late would suggest a politician who is keeping an eye on his public image in the waning days of a term in office. To your main comment: as I wrote last week, the mayor’s $100m press conference was conspicuously political and thus invited political response. Torontonians were told they’d be getting a 4% tax hike, which was subsequently rolled back to 2.9% with much fanfare. Sounds like the actions of an administration that wants to be remembered as being on the side of taxpayers. More importantly, though, the mayor and the city’s senior bureaucrats have not explained why they are failing to follow their own long-term fiscal plan, and a specific provision designed to make future infrastructure investment more affordable. Put another way — the city’s debt servicing for 2010 will be $400 million. What if council had allocated all or most of that $100 million against those debt charges, as per the policy, and leave the tax hikes at 4% and 1.3%? It would mean the city could borrow more next year to finance capital projects. So this move means council is foregoing the opportunity to invest in the city so we can, on average, pay about $23 less on our property taxes.
I agree with John on this one. His actions are certainly legacy work; whether you agree or disagree with him he’s still very much a politician. Maybe he has further political aspirations (provincial/federal NDP?).
Also, don’t forget that Miller decided not to run before Mr. Giambrone totally melted down. Miller’s image took a crucial hit during the last strike and I think he was caught off guard at the rightward tilt of the current campaign. Everything he banked on is under threat, not the least of which is Transit City. Giambrone was expected to carry the torch. The only thing that can save the left is a superstar to step in and there have been no indications that people like Olivia Chow or Jack Layton will step in to do this.
@John The city could have also applied the cash to the debt’s $3B principal and presented a plan to shrink it down, but there seems to be very little talk about doing that. Eliminating that $400M/year in interest would be a big step forward.
John,
I’m in complete agreement that lowering the proposed tax hike makes zero public policy sense. And the measly $23 is personally insignificant compared to the $100 million the city could have allocated in addressing the infrastructure deficit.
Perhaps I will limit my critique somewhat and say that Miller or any potential future right or left wing mayor, can legitimately scream at upper levels of government for a lack of funding regardless of what direction they decide to take in terms of property tax rates. I don’t see any hypocrisy in that at all.
Have to agree with John on this one. Aside from Miller’s motivation, property tax increases are based on previous year’s rate. When the increase is reduced this year, it also creates a structural change that affects the years to come. Politically it would be difficult for the next mayor to increase the rate 5.1% instead of 4% to catch the loss this year.
I agree with the reduction of commercial rate increase though. The sooner the city resolves the imbalance of tax burden between residential and commercial the better.
This is all similar to the complaints of the missed opportunity stemming from Lastman’s tax freeze. For all the talk about the effects of Lastman’s tax freeze, what Mayor Miller is doing is not really different. In fact Lastman can at least argue an expectation that savings from amalgamation would cover any increase in program spending.
The city still has a structural deficit. It still needs to shift a large part of the property tax burden off commercial properties and renters. Prolonging this adjustment only serves political purposes.