Inflation is a word that’s coming up a lot on the campaign trail.
As noted in an article this week about city finances, all the leading mayoral contenders have a plan to match property tax increases to the rate of inflation. Mayor Rob Ford wants property tax increases kept lower than inflation. Olivia Chow generally says “around inflation.” John Tory has said “at or below inflation.” Karen Stintz says ”within” inflation. And David Soknacki, sticker for details that he is, says “running to within a percentage point of inflation.”
On the bright side, at least none of them are talking about an irresponsible tax freeze that would just lead to a big budget hole in future years. But we need to consider whether all this talk about inflation and property taxes is actually valuable. Because I’m not so sure it is.
To make any sense of this, we first need to ask what “inflation” even means in this context. It’s generally assumed that when candidates talk about inflation, they’re talking about the consumer price index (CPI), but the problem with using CPI to look at city finances is right there in the name: CPI is specifically a measure for consumers, and the City of Toronto is not a consumer in the traditional sense.
As an example, take something as simple as salt. In a year with a miserable winter, Toronto might need to purchase about 200,000 tonnes of salt to clear the roads. That’s probably — and hopefully — slightly more salt than you’d use at home. For most consumers, the price of salt on a year-to-year basis isn’t really a concern.
But the city is dealing with huge quantities, and the price of salt has in fact increased at a rate much higher than CPI in recent years. The city is forecasting nearly a four per cent increase to their salt costs in 2015 and 2016, a rate that will track significantly higher than inflation.
That’s just one example. The city also faces cost pressures from things like arbitrated wage increases (for emergency services and the TTC), huge amounts of diesel fuel and natural gas, employee insurance plans and building materials.
These are things that the average consumer doesn’t deal with — and all of them can come with cost increases beyond the city’s control.
Some municipalities have taken steps to recognize that CPI might not be a great measure for municipal budgeting. In Edmonton, they’ve developed their own Municipal Price Index, or MPI, which calculates an inflation rate unique to Edmonton that's based on the goods and services the municipal government pays for. It’s pretty nerdy, which is why I like it.
Since they started doing their analysis, Edmonton’s municipal inflation rate has tracked above the CPI by between half a percentage point and 2.41 per cent. That's a pretty significant gap that underscores an important point: cities that increase property taxes at rates beyond the common understanding of inflation aren’t necessarily spending more money on new or enhanced services. It could be they’re simply facing rising costs that aren’t reflected in the CPI.
Toronto doesn’t really have anything like Edmonton’s MPI. The city’s CFO does publish a list of economic factors alongside the city budget, which point to various year-over-year cost increases, but stops short of providing an inflation percentage that could be used for budgeting. Which is too bad — a formalized Toronto MPI could be really useful.
But candidates for mayor do have something more useful than the CPI to consider. They’ve got the city’s budget projections, and those are pretty clear. Before potential tax and TTC fare increases, the latest budget forecast shows a $452-million gap in 2015 and a $324-million gap in 2016.
Instead of talking about how they’ll stick to inflation, maybe candidates could tell us how they’ll deal with that.
This post was originally published at http://www.metronews.ca/views/toronto/ford-for-toronto-matt-elliott/2014/08/15/why-we-should-keep-inflation-out-of-torontos-mayoral-race.html on 2014-08-15T00:00:00.000Z