Broke City?

Two financial experts gathered yesterday to discuss municipal finance and whether, as some have said, Toronto is really on the rocks.

By Jake Tobin Garrett

Photo by {a href=”http://www.flickr.com/photos/loserprince/2610015591/”}claire.somerville{/a} from the {a href=”http://www.flickr.com/groups/torontoist/”}Torontoist Flickr Pool{/a}.

Last night, the University of Toronto’s Cities Centre had its first talk in a series called Toronto in Question. The question, Is Toronto Broke?, brought Enid Slack, director of the Institute of Municipal Finance and Governance at the University of Toronto, and Shirley Hoy, CEO of the Toronto Lands Corporation and former City Manager, together for an evening of frank discussion.

Hitting the Skids?

So, is Toronto broke? “Of course not,” Slack said. “The city can’t go broke.” By law we have to balance our budget every year, unlike the provincial and federal governments. But that doesn’t mean the budget problems we have each year aren’t real or important.

One of the biggest questions is whether Toronto has, as Rob Ford says, a spending problem, or whether the city actually has a revenue problem. It’s clear from both Enid Slack and Shirley Hoy that the problem lies distinctly with an inability to generate adequate revenue for city services. Combine a lack of appropriate revenue tools with the downloading of many social services from the province during Mike Harris’s tenure, with the forced amalgamation of the City of Toronto and you wind up with what Hoy called a structural deficit.

And what about that $774 million dollar budget gap we are desperately trying to plug? Many have come out questioning the validity of that figure, with former budget chief David Soknacki saying that it might actually be half that size. In fact, one of the things Slack said was that Toronto can only estimate its revenues and expenditures to a certain extent. The land transfer tax is, for example, bringing in more than the City thought this year. Basically, we don’t really know enough to proclaim $774 million as the number to end all numbers.

How Our Taxes Are Failing Us

With the lengthy list of services that the City must provide, you’d think it would have access to a variety of financial tools and taxes with which to fund itself. After all, these aren’t just piddling services, but ones that are crucial to well-being and health of citizens, as well as in attracting international businesses and tourists.

You might think that, but you’d be wrong. The City largely funds itself through three revenue sources: the property tax, provincial transfers, and user fees. The City has no access to the so-called growth taxes—sales and income tax—as do the provincial and federal governments. Slack did speak in favour of the property tax as a stable tax, well-suited to municipalities. It is essentially immobile (meaning people can’t just pick up their property and move to another jurisdiction), and it works in theory like a benefit tax. This means that, supposedly, you understand and feel that the tax you are paying is directly related to benefits you yourself see. (Remember all those services listed earlier?)

But the property tax also has some very real limitations. For one, it’s inelastic, meaning that it doesn’t grow at the same rate as the economy. It is also a highly visible tax. Slack said that she rarely encounters people who know how much income tax they paid last year or how much HST they paid, but those same people will be able to sound off the exact number in property tax they paid, because they got a bill for it. The number is right there, presented to you on official stationary.

The property tax, Slack said, “is good for local government, but it shouldn’t be the only tax for Toronto.” While the City of Toronto Act, passed in 2006, allowed Toronto access to more funding tools, it didn’t open up the tax system to allow Toronto a piece of the really good taxes—what Slack called the “bread-and-butter” taxes of the income and sales tax. The taxes the City could levy, Slack called “nuisance taxes.” These are very visible taxes that bring in small amounts of revenue, and basically just irritate people. Chicago, she said, has a whole slew of these taxes, on everything from bottled water to amusement to boat mooring. The personal vehicle tax, for all its headaches, brought in only about $45 million—just the tiniest of nibbles in what Toronto spends each year.

One Possible Solution

What she advocates for is access to the sales or income tax. Not only would this bring in stable, growth-related revenue for the City, it would capture some revenue from those who pay property taxes outside of Toronto, but come in to work or vacation and use our services. These taxes don’t have to be large, and could be carried out by piggybacking a small percentage onto the current HST or income tax paid in the city. In fact, Mayor Naheed Nenshi of Calgary has called for a penny added to the GST paid in Calgary to go towards the city. (Toronto had a similar campaign under former mayor David Miller.)

Of course, any talk of taxes is rapidly turning into a taboo subject, as one man in the audience mentioned. He spoke of the need to reclaim the word “tax” from its current depths as a kind of slur. If we want something nice for the kitchen, he said, then we have to pay the price. Similarly, if we want a nice city to live in with good services, we have to pay the price.

This does, of course, become complicated due to the fact that many city services, like sewage and water delivery, and to some extent police and fire, are invisible; we don’t really think about them much until something goes wrong with them. What we think about is what we can see: the condition of our roads, our parks, our libraries, our transit system. There becomes a disconnect between what we feel we are paying for and what we feel we are getting in return.

If we are truly to build and sustain the kind of city we want, and deserve, we are going to need access to bigger, better revenue tools. Unfortunately, the pretty-much-over provincial election didn’t really address this issue. “Let’s go to the province and say we want to take control of our city,” Slack said. “We’re a city of 2.5 million people with a budget of $13 billion. I think we’re all grown up.”