Despite it being developed under his administration, strained by his subway plan and shaped by his appointees, Mayor Rob Ford called Toronto’s 2014 operating budget the worst budget ever. That’s probably an overstatement, but when it’s finally approved by city council next week, this budget could be one of the most irresponsible budgets since amalgamation.
The fiscal plan, which was debated by the executive committee earlier this week, does do a lot of things right. After three years, it finally starts addressing some areas like student nutrition, library hours and even the High Park Zoo, where funding has been allowed to decrease or stagnate.
But when it came time to figure out how to pay the city's annual tab for inflation and the cost of these services, councillors balked. Instead of increasing property tax revenues or looking for other stable funding sources, they opted to arbitrarily boost staff projections for land transfer tax revenue.
In other words, they gambled.
What the executive committee did
Toronto has to deliver zero-deficit budgets by law, so there’s little room for error. The city also doesn’t have a whole lot of places it is legally allowed to look for revenue. Generally, if a municipal politician wants to increase funding for something, it means looking at increasing property tax revenue. This has to do with a complex but important economic principle, one that a lot of elected officials struggle with: stuff costs money.
Ford has never much liked that principle, and the people he appointed have decided they don’t like it either. So when confronted with a 2014 budget that couldn’t possibly be balanced in a responsible way with a residential property tax revenue increase of just 1.75 per cent, councillors went to Plan B.
It's a novel strategy, but a dangerous one. Here’s the problem: the land transfer tax, as much as I like it and think it’s important to maintain, is by its nature a volatile revenue source. It’s a simple function of the city's real estate market, and as a result it could go up or down quickly and without much warning. City staff have mitigated this by being conservative in their annual projections. For 2014, staff had projected $335-million. Berardinetti went and upped that estimate to $341.5-million.
Councillors didn’t stop there. Later, at the executive committee meeting, they moved to increase the land transfer tax projection even more. First by another $11.8-million, so they could further lower the residential property tax increase. And then by another $200,000 to fund city-owned theatres. They also threw in another $192,000 to fund youth spaces. And then another $409,000 to fund after school programs. And then another $250,000 to fund leisure swim programs. Then they capped things off with $436,000 for social programs for youth, $1.9-million to maintain a fire truck, and $1.163-million for student nutrition. All to be paid for with the land transfer tax.
In total, these politicians decided to increase the projected revenues provided by finance staff by about $23-million. The land transfer tax projection went from $335-million to $358-million.
Is this necessarily a bad thing? The councillors who put the plan together would probably tell you it's not. The programs they’ve opted to fund are important, and they can point to the fact that land transfer tax revenue has always come in far beyond staff projections. And despite the doom and gloomers, is it not true that the Toronto real estate market is still going up, up, up?
Maybe. But there’s reason for concern. Consider this chart of land transfer tax budgeted revenue versus actual revenue, dating back to the implementation of the tax in 2008.
The 2013 revenue number is preliminary, . So it could end up a bit higher than the $350-million indicated above. But even so, the recent trend is reason enough to give anyone pause. Council, it would seem, is becoming increasingly reliant on land transfer tax revenue at a time when land transfer tax revenue may not be increasing — or at least not increasing anywhere near as fast as it used to.
I'll say it again: dangerous.
The strategy may still pay off this year. Councillors will be able to go door-to-door at election time pointing to the low property tax increase, while not mentioning that it was only achieved by gambling on a land transfer tax that many of the same councillors had once pledged to eliminate. But the long-term trend is a dangerous one, because what happens if the gamble doesn’t pay off?
Council will debate and approve the budget next week.
This post was originally published at http://www.metronews.ca/views/toronto/ford-for-toronto-matt-elliott/2014/01/24/toronto-budget-2014-rob-fords-executive-committee-gambles-on-land-transfer-tax.html on 2014-01-24T00:00:00.000Z