The City of Toronto is gearing up for the 2015 budget process, the first of Mayor John Tory’s term. This is exciting — trust me. It’s where the future of Toronto will be figured out.
Metro’s Jessica Smith Cross has some details from yesterday’s budget committee meeting. The big news was that Toronto chief financial officer Rob Rossini mused about introducing new municipal taxes on cigarettes, alcohol, parking and some forms of entertainment as a means of balancing the budget.
It made for good headlines, but the idea strikes me as a bit of a red herring. Even if Tory and council were inclined to support these kinds of taxes — they aren’t — narrowly targeted taxes are not very useful budgetary tools to begin with. The city would need to put in place all sorts of infrastructure to collect them and most projections indicate they wouldn’t bring in much revenue anyway.
So, taxes on booze and smokes? Definitely a no-go.
Still, it’s fair to assume Rossini didn’t raise the idea of new taxes just for fun. At the very least, we should take this as an indication that city hall beancounters are concerned about revenues and whether the city’s financial situation is really sustainable, especially with elected officials continuing talk of keeping property tax increases at or below the rate of inflation.
To put this in context, there are two charts from an orientation given to the budget committee this week that are worth keeping in mind when the budget process formally kicks off next month.
Let’s start with this one, showing city net operating budget growth between 2005 and 2014.
There’s a pervasive myth that city spending has been growing in all departments since amalgamation, but reality is different. Only two departments have really put significant upward pressure on the city budget: emergency services — primarily the Toronto Police Service — and the TTC.
This is a nearly impossible trend to stop.
With the TTC, stopping or reversing spending growth would be disastrous. The transit budget grows because transit ridership grows. It’s hard to add bus service without adding new buses and new bus drivers. And besides, even the most ardent budget-slashers tend to recognize transit as a public good. Without cutting service, the only way to really mitigate the budgetary impacts of the TTC is to get the provincial government to buy in to a cost-sharing formula.
The police budget is a slightly different story. Politicians often talk about wanting to rein it in, but they stop short of endorsing a reduction in the number of officers on the street. In the past, I’ve written about how the size of the police budget is hard to justify given falling crime rates. But I’m not optimistic that any elected official will ever truly advocate for a significantly smaller police force.
In both cases, the city has upward budget pressure that, for various reasons, it can’t do anything about in the short-term.
That brings us to chart number two.
This chart illustrates how the city has balanced its budgets over the last number of years. Aside from property tax increases, the city has four main options to deal with a budget gap. They can get the provincial or federal governments to upload costs or services, they can reduce departmental budgets, they can find one-time money through surpluses or reserve funds, or they can increase their projections for the municipal land transfer tax.
The Ford administration made a point of crowing about how they ended the city’s reliance on one-time revenues like prior year surpluses to balance the budget. They didn’t actually eliminate that reliance entirely, but they did reduce it, so let’s give them partial credit.
The interesting thing to note, though, is how they did it. It wasn’t primarily through budget restraint — which has always been a part of the budget process — but rather through an increased reliance on the land transfer tax.
That tax on city real estate has brought in skyrocketing revenue, providing the city with tons of opportunity over the last couple of years to limit property tax increases while maintaining services. But it’s not, by definition, a completely stable source of revenue. Any drop in Toronto’s real estate market could cause revenues to plunge, leaving Toronto in a really tough budget position.
This would be less of a problem if council was raising property taxes to keep pace with the city’s inflationary and growth pressures, but they haven’t done that. And every indication is that they still don’t seem to want to do that.
But add the city’s increasing reliance on a real estate tax with uncontrollable spending pressures and the city’s long-term budget picture starts to look a little, um, scary, doesn’t it?
The budget process will officially begin on January 20, 2015.
This post was originally published at http://www.metronews.ca/views/toronto/torys-toronto-matt-elliott/2014/12/19/potentially-scary-charts-to-keep-in-mind-for-mayor-torys-first-budget.html on 2014-12-19T00:00:00.000Z