{"id":54115,"date":"2016-02-09T07:00:52","date_gmt":"2016-02-09T12:00:52","guid":{"rendered":"http:\/\/spacing.ca\/toronto\/?p=54115"},"modified":"2016-02-08T13:56:30","modified_gmt":"2016-02-08T18:56:30","slug":"three-card-tory","status":"publish","type":"post","link":"https:\/\/spacing.ca\/toronto\/2016\/02\/09\/three-card-tory\/","title":{"rendered":"LORINC: How the City plans to pay for services in the future"},"content":{"rendered":"

\"feature-lorinc\"<\/a><\/p>\n

The 2016 budget debate, which lands today at executive committee<\/a> after doing the usual rounds, has offered up a curious mix of urgency and its opposite.<\/p>\n

On the one hand, Mayor John Tory and city manager Peter Wallace have been warning for some time now that city council needs to adopt unspecified new revenue tools meant to address not merely normal course operating pressures but shortfalls that are looking a lot like entrenched structural deficits.<\/p>\n

On the other, the mayor\u2019s proposed property tax hike of just 1.3% \u2014 a figure that is slightly under the Bank of Canada rate, but doesn\u2019t reflect rising prices of food and other imports \u2014 is lower than anything the post-amalgamation council ever approved<\/a>, except for the four years (1998-2000, in the Lastman era, and 2011, year-one of Ford) which featured zero tax increases (many thanks to Western University\u2019s Zack Taylor for the longitudinal data). Soaring real estate prices have added a $100 million windfall to the land transfer tax, and so it seems almost certain that the federal budget will bring all sorts of manna for housing and transit. The message: we can relax because David Miller\u2019s land speculation tax is going to save us, again.<\/p>\n

So: Bad news and good news. Pick your poison.<\/p>\n

At the risk of hurling Spacing readers into a pit of budgetary obscurata, let me further confound this ambivalent picture with a substantial, though little noted, shift in the City\u2019s policy for funding certain capital expenditures from the operating budget \u2013 the so-called \u201ccapital from current (CFC)\u201d or \u201cpay-as-you-go\u201d line item. If you don\u2019t pay much attention to the CFC figure, don\u2019t feel bad. No one does.<\/p>\n

For many years, council approved capital budgets where CFC income (the dollars drawn from the operating budget) accounted for only 10 to 15% of all the sources of capital funding. The balance came from federal or provincial one-time grants, reserve fund draws or debentures.<\/p>\n

But as the proposed long-term capital plan<\/a> \u2013 2016-2025 \u2013 makes clear, council intends to significantly\u00a0hike\u00a0the CFC contribution to the capital budget in coming years. By 2025, according to city budget documents, capital from current funding will rise while\u00a0the debt-financed portion will fall until they\u2019re at parity \u2013 both accounting for about 22% of the overall figure. Over that ten-year period, the operating budget will fund a whopping $4.5 billion in capital outlays. (At an average of\u00a0$450 million per year, that\u2019s roughly a quarter of the annual emergency services budget.)<\/p>\n

\"cfc<\/a><\/p>\n

Before I get into the reasons why this subtle shift presents a major\u00a0funding challenge for the city\u2019s day-to-day operations, it\u2019s worth explaining the pay-as-you-go approach to budgeting.<\/p>\n

If you buy something large and long-lasting, like a house or a piece of machinery for your company, it makes good sense to borrow the funds, partially because most of us can\u2019t pay cash for major purchases but also because such outlays generate a return that exceeds the interest on the funds borrowed. But there are all sorts of smaller \u201ccapital\u201d necessities that don\u2019t require debt-financing: a new coffee maker, repairs to the fence, and so on. Those you can pay for from your pay cheque or whatever savings you might have in the bank.<\/p>\n

The city takes a similar view: For the big-ticket infrastructure that lasts for decades, borrowing makes a lot of sense. But for all the myriad smaller expenditures \u2013 e.g., vehicles, computers or software licenses that need to be replaced every five or six years, small-scale projects that can be completed in a year, studies, etc. \u2013 it is prudent to just pay as you go; that\u2019s what capital-from-current is.<\/p>\n

In years past, council\u2019s capital budgets depended on a far more modest draw on the operating budget. In 2009, council passed a 2009-2018 capital plan in which CFC accounted for only 11% of the long-term outlay of $28 billion. The next year, that\u00a0proportion rose to 16%. By 2012<\/a>, midway through the Ford era, the CFC component of had hit 20%, but fell back to 13% in 2015<\/a>. Interestingly, only 10% of the 2016 capital budget will be CFC dollars, but that ratio\u00a0will shoot up in coming years if the current budget plan is approved at council later this month.<\/p>\n

Why is\u00a0the City now planning to rely much more heavily on the operating budget to pay for all sorts of capital expenditures? What changed? Certainly, one can discern Peter Wallace\u2019s influence: he came in with a mandate to impose some fiscal realism on a council and a chief magistrate notably lacking in the same.<\/p>\n

With interest payments on the City\u2019s long-term debt consuming a steadily expanding\u00a0portion of the annual operating budget (over $600 million per year, making it the second largest expenditure after policing), the 2016-2025 budget suggests a\u00a0proposed remedy to contain interest costs is for the City to borrow less and therefore limit\u00a0debt servicing outlays.\u00a0All true, but Tory & Co. continue to advocate for pricey big ticket projects \u2014 like the Gardiner re-build or the Scarborough subway \u2014 as well as absorb massive\u00a0bills for over-runs on earlier mega projects (Spadina extension, Union Station refurb, etc.).<\/p>\n

At the same time, the proposed 2016 capital budget doesn\u2019t yet reflect the reality that the federal Liberals are ready, eager, and willing to transfer huge sums to municipalities to build assets like new transit lines and\u00a0social housing projects.<\/p>\n

The Trudeau government won\u2019t reveal its spending plans until March, so the City obviously shouldn\u2019t be counting its stimulus dollars before they\u2019ve hatched. Still, the federal largesse \u2014 all of it in the form of project dollars \u2014 will almost certainly relieve some of the pressure on the capital budget, and that infusion\u00a0should ripple through other parts of the city\u2019s spending plans, including the reliance of operating dollars to finance capital expenditures.<\/p>\n

The proposed 2016 budget, however, suggests the opposite. We\u2019re actually planning to make more use of operating dollars for capital projects, not less.<\/p>\n

Outside the antiseptic world of budget documents, what happens if the city, over the next decade, does begin to rely far more heavily on pay-as-you-go project financing\u00a0than it has in the past?<\/p>\n

It\u2019s difficult to say with precision, of course, but the overall impact, as Parkdale-High Park councilor Gord Perks predicts, is an increasing squeeze on the City\u2019s day-to-day needs: recreation and library programs, planning processes, salaries for civic workers, bus frequencies, subsidies for daycare and housing… the list goes on. In some cases, maybe a squeeze may be helpful and long over-due, such as with the police budget. In other cases, vital services will just get whittled away while user fees go up.<\/p>\n

We\u2019ve seen the rising CFC show before, incidentally. Three years ago, when the Ford administration slashed borrowing and increased the use of capital-from-current, the Wellesley Institute slammed<\/a> city council for short-sightedness. \u201cIn this interest rate environment and market,\u201d according to the Institute\u2019s assessment, \u201cthis plan will defy economic sense, starve the operating budget, and threaten the good repair of Toronto\u2019s future.\u201d The macro conditions haven\u2019t actually changed all that much from then to now, except that John Tory\u2019s proposed tax-hike for 2016 is even lower than the rates approved by council during the Ford era.<\/p>\n

The point is that the city’s\u00a0largely over-looked\u00a0plan to lean far more heavily on\u00a0pay-as-you-go capital financing is merely the latest piece of evidence in the long-running narrative about the structural failings\u00a0of post-amalgamation Toronto\u2019s operating budget. That\u2019s not a new story, of course, but it\u2019s one that becomes ever more gnarly and difficult to untangle with each passing year. When the big new transit lines — all of them adding to the TTC’s operating shortfall — start to come online a few years hence, those fiscal pressures\u00a0will become\u00a0even more intractable.<\/p>\n

If Wallace does ante up some\u00a0new proposed revenue sources to help fund the complex needs of a big city like Toronto, and if council can resist the temptation to behave myopically, then the City might get itself to a place where this sort of creative accounting doesn\u2019t end up impacting people\u2019s lives. Indeed, as Perks argues, the City needs to boost taxes and<\/em> borrow more to take advantage of low interest rates if it wants to deliver both the hard and soft\u00a0services the residents of this city need.<\/p>\n

Until city council takes that step, however, we can just think of that escalating\u00a0capital-from-current line item as a kind of fiscal barometer, its every rise bringing us that much closer to the point where the math no longer makes any sense at all.<\/p>\n

photo by Adrian Berg<\/a> (creative commons)<\/em><\/p>\n","protected":false},"excerpt":{"rendered":"

The 2016 budget debate, which lands today at executive committee after doing the usual rounds, has offered up a curious mix of urgency and its opposite. On the one hand, Mayor John Tory and city manager Peter Wallace have been warning for some time now that city council needs to adopt unspecified new revenue toolsContinue reading “LORINC: How the City plans to pay for services in the future”<\/span><\/a><\/p>\n","protected":false},"author":4051,"featured_media":54124,"comment_status":"open","ping_status":"closed","sticky":false,"template":"","format":"standard","meta":{"_acf_changed":false,"ngg_post_thumbnail":0,"_ef_editorial_meta_paragraph_assignment":"","_ef_editorial_meta_date_first-draft-date":"","_ef_editorial_meta_checkbox_needs-photo":"","_ef_editorial_meta_number_word-count":"","footnotes":""},"categories":[2],"tags":[],"class_list":["post-54115","post","type-post","status-publish","format-standard","has-post-thumbnail","hentry","category-politics"],"acf":[],"yoast_head":"\nLORINC: How the City plans to pay for services in the future - Spacing Toronto<\/title>\n<meta name=\"robots\" content=\"index, follow, max-snippet:-1, max-image-preview:large, max-video-preview:-1\" \/>\n<link rel=\"canonical\" href=\"https:\/\/spacing.ca\/toronto\/2016\/02\/09\/three-card-tory\/\" \/>\n<meta property=\"og:locale\" content=\"en_US\" \/>\n<meta property=\"og:type\" content=\"article\" \/>\n<meta property=\"og:title\" content=\"LORINC: How the City plans to pay for services in the future - Spacing Toronto\" \/>\n<meta property=\"og:description\" content=\"The 2016 budget debate, which lands today at executive committee after doing the usual rounds, has offered up a curious mix of urgency and its opposite. 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