The most frustrating thing about watching Mayor John Tory wrestle with Toronto’s 2015 operating budget is the feeling that all of this could have been so easily avoided had the previous mayor and council made better budget decisions.
Toronto’s financial problems are no surprise. They’re mostly the result of politicians who insisted on starving the city of revenues needed to keep pace with inflation and growth.
Let's rewrite history to illustrate. Pretend, if you can, that Rob Ford was not the guy Toronto elected mayor in 2010. Instead, let’s say Toronto elected an inanimate carbon rod.
It’s a safe bet that Mayor Carbon Rod would not be overly ambitious with policy. But for our purposes, let’s say that a rod-led council made the same decisions they did under Ford — with three major exceptions.
The difference these decisions would make to the city’s overall fiscal health are significant.
Let’s compare Rob versus Rod, year by year. For easy math, I’m using figures from the city’s 2015 operating budget presentation, which estimates annual city revenue from a 0.25 per cent residential property tax increase at $6.3 million.
In 2011, the first budget year of the term, city documents pegged the inflation rate at 3.3 per cent. Under Ford, taxes were frozen so there was no increase to match inflation. In our scenario, taxes would go up by 3.3 per cent to match inflationary pressures.
In addition, Ford cut $48 million in annual revenues by killing the vehicle registration tax. Mayor Rod wouldn’t do that, so the city keeps the tax and the revenue that comes with it.
The different strategies result in a significant revenue gap. Under Mayor Rod, the city would collect additional revenues of about $131 million in 2011 alone.
In 2012, Toronto inflation was 0.7 per cent. Our inanimate rod would pass a residential property tax increase at that level, which is actually lower than the 2.5 per cent increase passed under Ford.
The same goes for 2013. Ford passed a budget with a residential property tax increase of two per cent, again above that year's 1.4 per cent inflation rate.
But the rod still comes out ahead over time, thanks to the maintained vehicle registration tax revenue and the inflationary increase in 2011.
Finally, in 2014 Ford’s last budget included a residential property tax increase of 2.23 per cent, which built in a 0.5 per cent hike solely for the Scarborough subway. The inanimate carbon rod does away with the subway tax and passes a budget with an inflationary residential tax increase of 2.6 per cent, building an extra $21 million into general city revenues.
The difference in budget strategies adds up. After four years with a maintained vehicle registration tax and inflationary tax increases, my quick calculations suggest Mayor Rod would have about $92.6 million in additional annual revenue.
That’d be more than enough to plug the $86 million budget gap left by the provincial government’s housing cut. Council would even have some fun money left over.
The average cost to residents? Well, under our alternative, you’d still be paying $60 a year to register each car in your driveway. Whether that’s worth getting indignant about is up to you.
Then there’s the added cumulative property tax increase needed to keep pace with inflation. It works out to an extra 1.77 per cent over four years. The city says each 0.25 per cent residential property tax increase works out to about $6.50 on average, so our inflationary increases mean the average 2014 tax bill would be about $46 higher than it was under Ford — that translates to less than four dollars a month.
In other words, if the average household with one car contributed about ten bucks more a month in vehicle and property taxes, Toronto’s biggest current budget obstacle could effectively be eliminated.
And, of course, even with the inflationary increases, Toronto’s average property tax bill would still remain the lowest in the GTA — $43 lower than the average bill in Milton, Toronto's closest competitor.
It’s not a perfect solution. Despite appearances, the inanimate carbon rod has its flaws. Inflationary increases would still leave program budgets badly in need of extra funds and wouldn’t do much to help the TTC with its need to improve service.
But still, as a hypothetical it’s a striking example of how the political desire to pass budgets with low annual revenues increases conflicts with good long-term fiscal planning.
Had Toronto simply stuck with inflationary tax increases, refrained from cutting a revenue source while trying to deal with a structural deficit and not insisted on trying to work a subway tax levy into its already constrained operating budget, there would be a lot less budget grumbling going on right now.
But alas, the inanimate carbon rod never put its name on the ballot.
This post was originally published at http://www.metronews.ca/views/toronto/torys-toronto-matt-elliott/2015/02/18/torontos-2015-budget-problems-were-easily-avoidable.html on 2015-02-18T00:00:00.000Z