Rob Ford on Our Crumbling Fiscal Foundation
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Rob Ford on Our Crumbling Fiscal Foundation

Mayor's lunchtime speech long on rhetoric, short on substance.

Mayor Ford isn’t prone to speech-making, and so when the Empire Club announced he’d be addressing a luncheon—a talk titled Rebuilding Our Fiscal Foundation—it garnered a fair degree of interest. For all that, the speech didn’t contain anything by way of new proposals, initiatives or announcements, and felt more like an attempt to rally the troops after a run of bad polls and losing votes at City Hall than anything.

The full text of his remarks:

19 years ago… on October 14, 1992, the Toronto Blue Jays won their first American League pennant. It set up a 2-year run that defied everyone’s expectations. A Toronto team did something no one thought possible: back-to-back World Series wins outside the United States for the first time ever. Well, almost 20 years later, the City of Toronto is trying to do something many think is impossible. We’re trying to do something that should have been done 14 years ago when the city was amalgamated.

We’re trying to fix Toronto’s financial foundation.

And you know what? Just like the ’92 Blue Jays… we ARE going to succeed.

This afternoon, I’d like to tell you a little bit about how we’re going to do it. First, let me tell you why it’s essential that we succeed.

Everyone has their own idea of what Toronto should become. Some want Toronto of the future to be a world leader in “green” practices. Others see Toronto as the world’s next financial hub. Still others want Toronto to be a global centre for arts and culture.

Whatever your dream for our city is, it depends on one thing. Your dream depends on our ability to make our own choices, to chart our own course, to shape our own destiny.

The sad truth is that we are losing our ability to make our own decisions.

Toronto’s financial foundation is crumbling. If we don’t fix the foundation now, our dreams for the future will collapse.

Already, the city’s financial situation is limiting our choices about how, when, and where to build and shape our wonderful city. Toronto’s capital plan – approved by the last City Council – commits the city to borrowing almost two billion dollars over the next two years. When added to our existing debt, this means Toronto will hit its debt ceiling in 2014. This means we cannot approve any new capital projects that would require borrowing before 2014. Our hands are tied.

The city’s rising debt also puts pressure on our operating budget. About $430 million of this year’s operating budget will be spent servicing the city’s debt. By 2014, that amount will be over $600 million. We must raise that money by taxing property owners. This growing debt charge contributes to the fundamental fiscal challenge facing Toronto today.

That challenge is the large – and growing – structural deficit in the city’s operating budget.

At the beginning of 2011, we faced a $774 million deficit for the year beginning 2012. That’s the difference between what we expect our expenses to be – and what we expect our revenues to be. That number remains the same today.

This week, we announced the city is running a modest surplus in its 2011 operating budget. If we’re lucky, this could produce a surplus of up to $139 million at year-end. That’s good news. Much better to have a surplus than a shortfall. But, it’s not a solution to our problem.

For years, we have used unexpected surpluses – one-time revenues – to paper over our deficit. Each time we’ve done that, the deficit has gotten larger. Every year the gap gets harder and harder to fill. Today, this deficit threatens the very foundation of our city.

If we think it’s tough to eliminate the deficit this year… we can’t afford to wait until next year. Because it only gets worse.

Our deficit increases each year because our expenses grow faster than our revenues. Our expenses grow at market rates… driven by inflation, labour agreements and market forces. Our revenues, on the other hand,

are tied to property tax… and our assessment base has historically grown slower than inflation. Every year, we get further behind.

So, even if we raised property taxes by 34 per cent, to raise an additional $774 million… by 2013, we’d have another deficit, because next year’s expenses will continue to grow faster than revenues.

Ladies and gentlemen, higher and higher taxes are not the answer.

For one thing, there is a limit to how much we can raise taxes. For many years, private sector incomes in Toronto have not kept pace with inflation. Yet, Toronto’s property taxes grew faster than inflation for 10 years. Imagine if we continued to do that… Eventually, we would be taxing people more than their income. That’s impossible. So, any plan for Toronto that depends on annual tax increases above inflation – is doomed to fail.

And, while Toronto’s residential taxes are lower than nearby cities, our commercial tax rates are higher. This discourages companies from expanding in Toronto and is part of the reason unemployment in Toronto is so much higher than in the 905 region.

Even with our lower residential property taxes, Toronto is one of the most expensive cities to live in. A number of recent studies confirm this. One study lists Toronto as the 9th most expensive city in the world. Another study called Toronto “one of the most severely unaffordable housing markets in the world.”

So, our ability to raise property taxes – even if we wanted to – is limited. Our capital spending plans will place additional stress on the operating budget over the next two years. Our expenses continue to grow faster than our revenues. All of this contributes to a significant and growing structural deficit that is already limiting the city’s opportunities and choices.

If we don’t take action now to repair our city’s financial foundation, we will lose the ability to choose our own destiny.

So, what do we do about it?

The good news is – We have a plan. We’re taking action… and we’re serious about it.

To eliminate our structural deficit, we must make permanent changes. We are looking for ways to control spending – ways to improve efficiency. We are looking for ways to engage community groups or private companies who can help us improve results. And, we are looking for ways to increase non-tax revenues.

Earlier this year, Council approved our plan to conduct a number of reviews designed to attack the structural deficit. Together, these reviews form a structured, methodical process that will lead to a reasonable solution. The first of these – the Core Service Review is now complete. It’s goal was not to balance the 2012 budget. It was to find permanent savings that will help eliminate our structural deficit.

At the end of the day, the Core Service Review identified $93 million in savings for the 2012 budget and many opportunities for future savings that the City Manager will study further.

A number of Service Efficiency Studies are currently underway that will feed into the 2012 budget launch this Fall. Again, the primary purpose of these studies is to find permanent efficiencies that will help to eliminate our structural deficit.

For example – The TTC, the Police Service and the City have always issued separate contracts for employee benefits. One of the first things we did this year was combine those opportunities into one contract. By hiring one provider for all three groups, we saved taxpayers over $6 million.

One key ingredient in any solution to Toronto’s financial challenges will be a new relationship with our employees. Together with our Agencies, Boards and Commissions, the City of Toronto employs over 53,000 people. The vast majority of these are hard-working men and women who take pride in what they do for Toronto. But, the fact remains that it takes 37 homeowners to pay for each city worker.

The math is simple. The average city employee costs taxpayers just under $90,000 – that’s salary and benefits. The average homeowner pays the city $2,400 in tax each year. So, it takes about 37 average homes to pay for each and every city employee. That’s 37 taxpayers. That’s 37 private sector jobs to pay for one public sector job.

We need to find better ways of doing business. We need to trim our workforce down to a sustainable, affordable size.

Council recently approved a Voluntary Separation Program that will see up to 1,000 employees voluntarily leave the city in exchange for up to 6 month’s severance pay. The one-time cost to the city will be about $41 million. The permanent savings going forward will be more than $60 million per year – every year.

Toronto needs a public service that is flexible, innovative and energetic. We need a public service that is ready and eager for the challenges that lie ahead.

Almost one year ago, I was elected with a mandate to rebuild Toronto’s fiscal foundation. As I’ve outlined, we have a lot of work ahead of us. But, we’ve already accomplished a number of strategic objectives.

We outsourced garbage collection west of Yonge St. This will save taxpayers over $8 million every year.

We accelerated the city’s budget process. Toronto used to approve its operating budgets at the end of April – for a year that starts on Jan. 1. This meant that almost half the year was over before budget changes could impact city spending. This year, we passed the 2011 budget before the end of February. We are now on track to approve the 2012 budget by end January next year, and I expect we will approve the 2013 budget before 2012 ends. This allows us to make changes – and save money – earlier.

We are also moving to multi-year budgets. Our next budget should cover the period 2012 to 2014. This will improve our ability to plan ahead and to allocate our resources more effectively.

Let me conclude by saying that Toronto is a great city with great potential. We are the financial and commercial capital of one of the richest, most stable countries on Earth. Our diverse, highly-skilled workforce – and location next to the world’s richest economy – makes Toronto a natural place for international businesses to grow and invest. But, our high cost of living and high commercial property tax rates are holding us back.

We must work to build a Toronto that gets the biggest bang for every taxpayer buck – by keeping costs down and running an efficient government with a smaller, more innovative civil service.

We must build a Toronto that generates a significant and growing portion of its revenues from non-tax sources that grow as fast as our expenses.

We must build a Toronto that deals with other governments in a mature way. We must deliver downloaded services at a fair price and in the best interest of Toronto taxpayers.

We must build a Toronto that “recycles” under-used capital assets to provide funding for infrastructure repairs and expansion – and to reduce our need to borrow.

We must build a Toronto that sets targets and focuses our economic development and planning resources on growing our assessment base and creating high value jobs in Toronto – for Toronto residents.

We must build a Toronto that uses property tax increases, never above the rate of inflation, and only as a last resort to deal with inflationary pressures.

If we do all this – then we will have built a Toronto that has the ability to imagine its own future and make decisions to achieve its own goals.

You can help us do this.

One of the unique challenges of city government is that we make all our sausage in public. At the federal and provincial level, finance ministers develop their budgets in private – where they can fine tune them before revealing them publicly on budget day.

At the city level, our budgets are made in public. For people new to this process it’s a bit surprising. It’s a messy process. But, it’s the process we have. And, you can get involved.

The 2011 budget process and this service review have included more public consultation than any other Toronto budget process – ever. As we kick off the 2012 budget this Fall, there will be more opportunity to get involved. Come to a public meeting. Send a written submission to the Budget Committee. If you have an idea on how to save money or eliminate our deficit – share it with us. Pick up the phone and let your councillor know you want them to stay the course. We all know the decisions will be hard, but, let them know you believe the outcome is worth it.

If we don’t tackle our deficit this year – we will have to tackle it next year. But next year, it will be even harder. We can’t afford to wait. Our children and grandchildren cannot afford it.

I strongly encourage you to join us in this task. Help us rebuild Toronto’s financial foundation.

To create opportunities for a brighter, better Toronto, we must build on a sustainable, affordable foundation that will last long into the future.

That’s why I was elected. That’s why every councillor was elected. That’s what the people of Toronto want.

That’s what the taxpayers demand. And, ladies and gentlemen, that’s exactly what we’re going to do.

Thank you.