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Davy Had A Bad, Bad Day

2007_7_16EfficiencyinAction.jpg It seems that many people believe that the City of Toronto doesn’t need to levy taxes in order to maintain a high level of City services. If only the City had its finances in order and cut back on spending, they say, then there would be no financial crunch. In response, Mayor Miller likes to point out how many cutbacks there indeed have been and how much contracting out is already taking place and, above all, how the TTC was recently rated the “most efficient” transit system in North America
If anyone doubts this last point, they need look no further than the sign at right, affixed to a hoarding currently located at York Mills station, or the fact that the woman who voices the stop announcements is not paid anything (on top of her usual salary for her job as a TTC communications assistant) for doing so. Perhaps if the Mayor had offered up such striking examples of efficiency, he might not have suffered such a stunning defeat on Monday night, as City Council voted 23–22 to defer consideration of two proposed taxes until October, following the provincial election.
The vote was remarkable for at least two reasons: 1) the Mayor doesn’t lose votes, especially not on matters he has deemed a priority; if there’s something he doesn’t think he can win, he’ll sooner not let it get to a vote than suffer the embarrassment of a loss; and 2), twenty-three plus twenty-two equals forty-five, which means that every single member of Council was present, which is an even rarer occurrence than the Mayor taking a blow like this; apparently, Councillor McConnell flew back into Toronto especially for the occasion.
According to the Star, the outcome was determined by two surprising swing voters: Suzan Hall (Ward 1 Etobicoke North), who is usually so quiet and unremarkable that her Wikipedia entry was once marked for deletion, and Brian Ashton (Ward 36 Scarborough Southwest), whose position on Council’s Executive Committee was supposed to (in theory) compel him to vote with the Mayor—his failure to do so will surely result in his ouster. And poor Council newbie Anthony Perruzza (Ward 8 York West), of whom we are rather fond, is also sure to face retribution from Miller’s office, for daring to be an NDPer who won’t unconditionally support the Mayor.
If we ourselves sat on Council, we would have voted to implement the “revenue tools” (one a land transfer tax, the other a vehicle ownership tax [PDF]) right away; anything that strengthens City coffers and provides fewer excuses to rely on privatization sounds good to us. That said, delaying consideration until after the provincial election isn’t entirely unreasonable, even if it is a bullshit excuse concocted by the real estate and automobile lobbies in order to buy themselves more time. For most people, the ideal result would be the province fully uploading those services and other costs that it imposed upon Toronto in the dark days of Mike Harris. While that still likely won’t happen within the next three months (if ever), delaying the implementation of the taxes does give McGuinty an opportunity to ride in on a white horse, offering new money for the City in order to reduce the necessity of new taxes. He’d look like a hero, simply for doing the minimum to keep his province’s most important asset from going bankrupt. And isn’t that what politics is all about?
Jonathan Goldsbie is the unnamed person quoted here stating that “taxes are an investment in a society that works.” Photo by Goldsbie.

Comments

  • guest

    I just don’t understand why the elites at Eye Magazine, Now Magazine, The Toronto Star, Spacing Magazine, Torontist, etc, are all so totally in favour of these new forms of taxation, and are so adament that in the absence of new taxes, the city will fall apart. When bus operators are being paid $80,000 per year and it costs us twice as much to pick up garbage in Toronto as it does in York Region, the ideological underpinnings of these postings become very clear. These people view the city more as an employement agency than a provider of services.
    It’s important not to confuse taxation/increased revenue with increased service delivery. A strong percentage of the massive shortfall the city faces next year is the continuous wage increases it gives to its heavily-unionized workforce, both at the TTC and at the various municipal services (most notably, garbage collection). Some facts:
    1. It costs half as much to pick up a bag of garbage in York Region (outsourced)
    2. The City of London does not employ a single bus driver directly, and instead puts the bus service out to competitive bidding. Not surprisingly, once competition was introduced in 1986, it saw a 40% reduction in per-mile bus operating costs:
    “While transit was deregulated in Great Britain outside London, inside London service was converted to competitive contracting … Actual unit cost reductions (cost per vehicle mile) are more than 40 percent since competitive contracting began in 1986.”
    http://www.publicpurpose.com/ut-lamtacc.htm
    As an example of additional waste: the TTC, unlike every other large organization in the modern world, actually has its own payroll department, as opposed to outsourcing this function to ADP or another organization that specializes in payroll. Again, the TTC is left picking up the cost of these workers when time and time again, it’s been shown that companies that specialize in payroll can do this for less.
    The reality is that bloated salaries for city employees are zero value add for the traveling public and zero value add for taxpayers. The average homeowner couldn’t care less if the guy picking up his garbage was a union member or not. The average homeowner couldn’t care less if the TTC, Laidlaw, or 402603 Ontario Ltd. operates the local bus, and might actually favour outsourcing as it might bring about more pleasant bus drivers (witness YRT’s VIVA drivers) or, as is more likely, more service frequency.
    So, to the writers in Eye, Now, Spacing, Torontoist, etc – let’s have the discussion not about the “huge service cuts” that might come because this NDP plan failed, but rather take a serious look at how city services are delivered and by whom. There’s a lot more fat than Miller suggests.

  • brokenengine

    Johnathan, I’d be pissed too.

  • x_the_x

    I suspect the opposition and defeat was due to three factors:
    (1) the Mayor did not adequately demonstrate that a tax increase was necessary – voters and (some) councillors simply don’t believe that the Mayor has done everything he can to constrain spending (including privatization and outsourcing of city services where efficient). Some examples off the top of my head: the 150M the Mayor and his cronies handed to Bombardier workers in Thunder Bay (which is 1/2 of the alleged shortfall), justified by an utterly discredited theory of job creation and a preposterous view that the mandate of the Mayor of Toronto is to redistribute income to the rest of the Province from Toronto’s already highly-taxed (comparative to other municipalities) residents; the premium paid on the landfill deal; the regular refusal to cut council perqs, etc. ad nauseum. I suspect there is not a person in the room who isn’t a committed Millerite (and even some who are – see Ashton) who trusts the Mayor on the public finance file. In other words, the Mayor has lost and/or spent his capital with council;
    (2) this particular tax is completely inequitable. Why should the (alleged) underfunding of city services fall wholly on the small percentage of Toronto residents who buy and sell real estate in a given year? Axiomatically, if the electorate had determined that current levels of services couldn’t be met without a tax increase, and that retaining the services was desirable (which of course begs the question), the only equitable way to fund the shortfall is through an increase in the general property tax, which everyone pays and is scaled progressively. This tax – especially once you consider Miller’s carve out for first time buyers – is a disguised wealth tax. In other words, meet the new NDP, same as the old NDP. (More cynically – this is exactly why the tax is structured this way – it is much easier to ram through a tax which 98% of the population will not be forced to pay in a given year than one in which the burden is fairly spread – who wouldn’t support greater city services if someone else was footing the bill?)
    As for your waxing enthusiastic about taxes, the “taxes pay for civilization” platitudes that you seem fond of don’t hold up to any prolonged examination. If all taxes are “good” and pay for a “society that works”, why do we retain any income at all? Why not let the tax man take it all? If your platitude held true, then you would have no gripe. This is the logic of your blanket support for any incremental tax increase – it is exactly parallel. Once you except that there is a point when more taxation becomes socially undesireable, your platitude falls apart. What is that point? I submit that this is the crux of debate in council.
    (3) This tax would spur perverse economic incentives at a time where growth within the city is slowing and economic activity is being generated largely from outside the jurisdiction of Toronto – 905 on a regional basis, Alberta on a national basis. In short, businesses do not need another reason to locate outside of the GTA -city mismanagement, aided by provincial incompetence and mistreatment of municipalities, has already created many obvious advantages. You could not find an economist who would advocate for a tax increase amongst stagnating growth.
    You are right about one thing – this is a ringing defeat for the Mayor. Shame that, unlike our provincial and federal parliaments, this does not cause an election as it signals that the mayor – after years of overselling and underperforming – has lost the confidence of council. Put another way, council has rejected the Mayor’s plan for the future of the city and his method of finance. Time for a new plan.

  • Patrick Metzger

    While a fee on auto registration can at least can clain some relationship to civic goals in terms of potential increased transit use, the land transfer tax is nothing more than a money grab that would be disastrous for the city.
    With prices and property taxes in Toronto already far higher than in the 905, adding several thousand dollars onto the price of a house will be another big step in the apparently inexorable decline of Toronto(see TD Economics report that came out today for confirmation.) If you want to see a hollowing out of the city, American style, the best way to do it is to make housing prices (the chief expense of the middle class who pay most of the taxes) so out of whack with the neighbouring suburbs that it’s just not worth it to live here. Then businesses disappear, the tax base disappears, and voila – Newark!
    That’s such basic, oft-proven economics that it truly astonishes me that people don’t get it. It tends to come off as sour grapes – “I’m not a homeowner, so what do I care? Rich people deserve to pay more.” But the vast majority of homebuyers are far from rich, and there are plenty of nice places to live that are much cheaper already.

  • guest

    Amen x_the_x!

  • johhnyroyale

    Patrick:
    The TD Economics report which you’re referring to suggests that two of the challenges currently facing the city of Toronto are
    “The limited flexibility of the City of Toronto due to its structural deficit; and the rising number of low-income families among newcomers and the self-perpetuating
    cycles of poverty.”
    With that in mind, a method of taxation directed at the upper and middle classes while increasing with economic expansion (unlike property tax) is a good solution.
    The reason property values in the city of Toronto are higher than the 905 is that greater demand exists for these properties. Also, price is not the only consideration when purchasing a home; proximity to services and work also factor into the decision. So an increase of 2% on property values, largely paid by the seller will not have the impact of large scale urban decay seen in many American cities. If anything it may have the impact of reducing real estate prices (slightly).
    I would suggest that a larger issue is that of the 905ers entering the city of Toronto, using our services, roads etc. while their tax dollars go to the 905.
    All taxes should be set proportionately based on income, this includes speeding tickets, user fees and property based taxation. This is a step in the right direction although should have been used as a last resort after exploring other options such as uploading services and increasing the efficiencies of existing services. The city council made a wise decision, for once.

  • guest

    davy?
    that sounds a bit overly familiar, and frankly, disrespectful.

  • guest

    One interesting chart which came up early in the City Council meeting showed property taxes by type of property – over the past ten years, the property tax rates on businesses and multi-unit dwellings have been vastly reduced (by 50% or more), while the rates on residential properties have stayed the same.
    Now that there’s a deficit, no one is considering raising business property tax rates back to what they were ten years ago, the only “choice” offered is to tax residential properties more.
    So basically this is a large tax shift, from businesses to individuals.
    I don’t mind taxes per se, but people need to be conscious of what is going on.

  • x_the_x

    Number 6, if I may retort.
    (1) “With that in mind, a method of taxation directed at the upper and middle classes while increasing with economic expansion (unlike property tax) is a good solution.”
    Property taxes increase as property values rise, and property values rise with economic expansion, so I am not sure what your point is.
    (2) “So an increase of 2% on property values, largely paid by the seller…”
    This error is repeated all over the place and rarely corrected, usually in the context of arguments supporting greater business taxation (sometimes with the cute but meaningless caveat that businesses should be prevented from passing the tax on to their customers). Briefly, the incidence of a tax is not the same as its burden. You could even write into the law that the tax must be paid by the seller, and the buyer would pay a portion of the tax, as the seller’s higher costs would be reflected in the purchase price.
    Besides my didactic point, how is this a defence and why are we unconcerned with fairness to the seller? I suppose the theory is that it is paid out of the equity earned by the seller in the property, which only exposes it further as a wealth tax. Why is the seller required to shoulder the burden of underfunded city services from its equity? How is that logical or equitable? Moreover, presumably, the seller is also a buyer of a new property, and one would think that the city wouldn’t want to create any disincentives for that seller to buy in the city of Toronto.
    (3) ” … If anything it may have the impact of reducing real estate prices (slightly).”
    This begs the question.
    Leaving aside that falling property prices in the city core is exactly the start of the spiral which ends in Detroit, home ownership is the greatest single lever of social mobility in Canada and one of the primary sources of retirement savings and inter-generational wealth creation. Falling house prices therefore means less social mobility and a greater government liability for social programs, including retirement programs. Beside that, your treatment of the tax as another cost to swallow as part of exhorbitant Toronto house prices (which only holds true in the trendy areas – quite accessible elsewhere, but who wants to live there, right?) is illogical – all the other money put into the purchase is a capital investment, for which I get a return, whereas the tax is a cash grab by a city government who can’t get its fiscal house in order -I get zero return on that. Or the return I do get – better city services (or, more likely, better paid city workers) is shared by the 98% of the population who doesn’t pay the tax. Again, how is this equitable?

  • Patrick Metzger

    Johnnyroyale – I’m not suggesting that the TD report attributes Toronto’s failure to keep up with the GDP growth of other areas to Millers proposed tax, just that the tax would accelerate a process of economic deterioration already underway.
    “So an increase of 2% on property values, largely paid by the seller will not have the impact of large scale urban decay seen in many American cities. If anything it may have the impact of reducing real estate prices (slightly). ”
    Any drop in price means more sellers than buyers; i.e. more people moving out than in. That’s precisely the economic effect I’m talking about.

  • rek

    I would have voted against it too. Toronto does not need to encourage more people to move to the 905 region and drive in for work, and that’s exactly what more taxes would accomplish. And it’s not like Toronto’s cheap to live in. What Toronto needs to do is take control of existing taxes, upload service funding back to the province, and find more efficient ways of doing things while *expanding* services (going to the lowest bidder usually means shitty service will follow shortly). It’s fffing ridiculous that the biggest city in the country, the ‘economic engine’, the home/workplace of 1 in 6 Canadians, is scrounging for pennies from the people who live there to compensate for all the money squeezed out of it by the rest of the country.

  • johhnyroyale

    Patrick: “With prices and property taxes in Toronto already far higher than in the 905, adding several thousand dollars onto the price of a house will be another big step in the apparently inexorable decline of Toronto(see TD Economics report that came out today for confirmation.)”
    Maybe you should have read the report.
    “the City [of Toronto] enjoys lower rates than surrounding municipalities. Lifting residential property tax rates to the average of the 905 region would yield and additional $600-700 million annually.”
    The TD Economics Report also suggested that two areas which provide challenges for sustained growth in Toronto are “its structural deficit; and the rising number of low-income families among newcomers and the self-perpetuating
    cycles of poverty.” These are two areas that will benefit from the proposed tax: the structural deficit through increased revenue from the tax, a wealth tax which prevents the taxation of low-income families. The TD Report even discussed this as a possible solution for Toronto plight, although ultimately settling on different taxation solutions.
    Prices in the 905 are also increasing. So the actual increase in the differential in price is pretty negligible. Overall movement of people is toward urban centres (a 9.2% increase in GTA population from 2001 to 2006). People aren’t suddenly going to flee Toronto because this is where the jobs are. With the ever-increasing cost of gasoline, the cost of commuting is high. This also helps to limit the incentives of the 905. That’s not even counting the opportunity cost of your time.
    I was not suggesting ” that the TD report attributes Toronto’s failure to keep up with the GDP growth of other areas to Millers proposed tax”.

  • Chris Dart

    I will admit, as unpopular as it may make me, I lived in the Niagara Region for five years and while many things sucked there, the garbage was contracted out, yet always got picked up on time.
    I think contracting some things out (trash, payroll) would be a totally appropriate thing for the city to do.
    I also think it’s high time we threw a toll on the DVP.

  • johhnyroyale

    x:
    1. True, but look at this from the city’s perspective, the collection of these two taxes differ. Land transfer taxes are more efficient. They act as a tax on consumption which to quote the TD report again “are the most efficient means of raising revenues.” These taxes are a requirement of every property sale and are generally administered by the lawyer doing the deal. They automatically increase with property value increases and it’s easy to implement additional increases in this tax.
    Property taxes aren’t continously increasing with each sale as the land transfer taxes increase. They often require regular review and can be disputed and reviewed, causing delays in the collection of the tax and additional labour to administer. It’s also either the homeowner or bank who actually does the submitting of taxes so there can easily be back taxes owing on a property tax account because of financially over- committed homeowners and forgetful bank employees. I doubt it’s easy or efficient to collect back property taxes. With the land transfer system back tax owing would be rare as it’s a requirement of the sale.
    2. You got me! I was trying to bullshit you and I failed.
    We simply disagree on this point. I believe wealth taxes are good.
    It’s a funny coincidence that this vote was scheduled on the day of the Census 2006 publication. I would presume that the number of real estate transactions in coming years would increase as the baby boomers, now reaching retirement and death, downsize.
    As the TD report points out the real weakness of this strategy (other than the fact that it’s a tax(you almost got me there)) is that it doesn’t simultaneously improve social and environmental outcomes. That’s why a road toll is a better solution.
    Tax the boomers!
    Tax the 905ers!
    Rob from the rich and give to the poor.

  • Patrick Metzger

    Johnnyr – residential property tax rates in TO are lower than in some surrounding municipalities, but not taxes paid, an entirely different animal. A higher tax rate on a cheaper home still amounts to less cash, and for most homeowners it’s all about cash flow .
    Housing is not liquid wealth. You can’t break off a piece of the front porch to buy groceries, no matter what the market price of your home. A rise in property taxes is not matched by a commensurate rise in income – it’s possibly the most unfair method of taxation around, particularly for long-time homeowners on fixed incomes.
    Besides that, commercial property taxes are in many cases twice as high in Toronto as in the 905.
    In any case, the TD report specifically recommends that Toronto “develop new revenue tools to reduce its dependency on property tax.”

  • guest

    In #12, johnnyroyale is right that Toronto residential tax rates are generally lower than those in the 905:
    (PDF) http://www.milton.ca/ecodev/TAX_COMPARISON.pdf
    If a taxpayer in the 416 pays a higher dollar amount, it’s because his property value is higher.
    Note, however, that the 416 tax rates for commercial and industrial properties are far higher.

  • guest

    Hey johnnyroyale, the rich already pay. According to StatsCan, in 2002 the top 10 per cent of taxpayers paid 52.6 per cent of all federal taxes, up from 46 per cent in 1990, making them the only group whose share of taxes exceed their share of income. If the rich were eliminated, who’s going to pay?

  • dowlingm

    If we ourselves sat on Council, we would have voted to implement the “revenue tools”… anything that strengthens City coffers and provides fewer excuses to rely on privatization sounds good to us.
    Jonathan – I hope you never do sit on Toronto City Council. Bad taxes are the enemy of public buy-in to the need to pay taxes.
    There was an interesting comment on McConnell posted on Posted Toronto – hope it’s not true (see comment posted at 1.20pm):
    http://communities.canada.com/nationalpost/blogs/toronto/archive/2007/07/18/93449.aspx#93809

  • paigesix

    I know that property taxes are shitty when my father–raised downtown, TTC/bike commuter, hater of all things GTA–threatened that another tax hike would make him pack up and move to the suburbs.
    Road tolls are more than necessary. People who come from the 905 and use OUR resources cos their own cities cannot provide the culture, clubs, events, etc that we have/they want need to start paying.
    I also think anyone whose place of work is more than 20km from their residence and cannot provide proof of TTC/public transit use should also have to pay an additional congestion tax.

  • paigesix

    oh and, GREAT POST & writing. Toronotist’s been lacking some strong editorial work lately.

  • x_the_x

    Interesting article in today’s Star [abbreviated]:
    “Mayor David Miller has ordered Toronto’s public service to save every penny it can, in hopes of quickly slicing up to $100 million from city spending.”
    This is less than the premium handed to Bombardier, as more fully argued above. Thus, the cutbacks are required because of the Mayor’s own mismanagement of the public finances.
    “Planned $1.2 million renovations to his own office will be scrapped, and three jobs – two clerical posts and an economic development officer – will go unfilled” + “Miller said the cuts may well be noticed. He noted that the school board closed six pools this year because the city withdrew swimming programs, saving $500,000.”?
    It absolutely galls that, in one breath, he can claim poverty and feign sadness over the closing of community pools, and in the next, disclose that any of those pool closing savings went to pay for his office reno.
    “Neighbourhoods across this city are protesting,” Miller said.”
    Yes, they are mortified that your office won’t be renovated as planned, and you will be unable to reward your union buddies with above-market premiums in future asset purchases. I hope those councillors who voted for the deferral are watching – constrained spending may be the best thing to happen to this Mayor.
    “Details of all the cuts won’t be known for a week or two, he said, and it’s still too early to know how much money can be squeezed from the city’s $7.8 billion operating budget”
    That means the shortfall of 100M is slightly more than 1% of the total budget. It stretches credulity to almost comical lengths to suggest that 100M can’t be cut in a budget of 7.8B – any manager who made the same statement in the private sector would be unemployable.
    “Even if the province uploads the cost of social services, the city will still need to find cost-saving measures and internal efficiencies, so I think the mayor’s comments were quite appropriate,” said Councillor Karen Stintz (Ward 16, Eglinton-Lawrence), who added the city’s operating budget has jumped $1.6 billion since Miller took office.”
    1.6B!! Thats a 25% increase over what, 5 years.
    “Shortly after Miller talked of saving money, the mayor was arguing in favour of a motion to spend $1.2 million to buy Theatre Passe Muraille and keep it from going out of business.”
    Our charlatan Mayor clearly doesn’t get it. You can’t plead poverty and bail out a theatre in the next sentence (one questions whether it is the role of the city government to save theatres in the first place, even if we were flush). His little PR campaign – articles in all the newspapers with dire warnings – simply does not stand up to even a cursory examination. As I said above, I hope the rest of council is watching.

  • brokenengine

    Paige, I have to say I agree wiht you 100%, but the problem is, all those commuters also drive revenue into the city, and they will all start going somewhere else. Jobs might actually move outside of Toronto, to the suburbs. We don’t want to become Detroit.

  • guest

    Wow, thanks for sharing x_the_x, I had no idea David Miller was mismanaging money like that. I can’t believe they closed pools to save $500,000 while they’re spending millions on things like office renovations.

  • AR

    Detroit has been a hotbed of American culture, especially music and is currently in renaissance mode as many prominent buildings are restored and people are slowly retrying urban life.