Rob Ford - Why the Supervillian?

[nfitz]

Care to share what those erroneous assumptions were?

Among other things, it seemed to assume that every currently unfunded capital item in the budget magically became funded.

Reality is that they become cancelled. This has been borne out time and time again in the last century.

Furthermore, the whole thing assumes there is no growth to the tax base - yet I look out the window, and I see cranes everywhere. If (for example) the tax base of the city increases 2% per year (from growth, rather than inflation), then the budget could increase 2% per year, with no tax increases ... or effective tax decreases.

It's a worst-case scenario ... reality is that projects will be cancelled if unfunded from other sources. My real fear would be if a right-wing candidate came in ... given the historic tendancy of government spending to increase under right-wing governments.

 

[SimonP]

We would never accept continuous increases in the GST 'in line with inflation', why should we accept it on our property taxes? There is organic growth in the economy and it increases gross revenue. The organic growth also occurs the same way in our property taxes. The last decade, we've seen an incredible increase in the amount of new sources in new developments, including condo, which contribute on average $2500 per unit in property taxes. And let's not forget increased property values that add to the tax bill. So really, the city has seen their property tax revenue increase from 3 sources, yet, they still can't manage it.

I don't think you understand what it means when the papers announce that Toronto property taxes are going up 3%.

How the municipal system works is that each year the city declares the total amount they will get from property taxes. The city picks the number of dollars it needs and then sets the percentage rate at the level required to cover that. (This is why the rate is always an odd number like 0.8747%) If in 2008 they collected $1 billion and in 2009 they collect $1.03 billion that is reported as a 3% increase in property taxes. That new $30 million might include an increase to the tax rate, but it also includes the increase in appraised values, new condos, etc. For city purposes all organic growth is considered part of the tax increase.

This is very different from the GST (and also income taxes). The GST has a fixed rate, and the dollar amount fluctuates from year to year based on the economy. Since it is a fixed percentage the GST already accounts for inflation. As goods and services go up in price, so do they tax revenues so it keeps in line with inflation automatically. Gross GST revenues increase steadily, but since this process is automatic it is rarely gets much coverage.

 

[nfitz]

We would never accept continuous increases in the GST 'in line with inflation', why should we accept it on our property taxes?

What do you mean?

GST income increases every year (well perhaps not 2009!). If the price of everything rises 2% per year, the money collected by GST rises 2% per year.

Given that the value of houses has increased far ahead of the inflation rate, or even the increase in budget for the last few years, the actual tax rate for Toronto has fallen, not risen.

Here are residential tax rates from various years:

2001 - 0.701%
2002 - 0.731%
2003 - 0.657%
2004 - 0.593%
2005 - 0.617%
2006 - 0.567%
2007 - 0.589%
2008 - 0.611%
2009 - 0.603%
2010 - 0.590%

And if you look through the various residential and commercial rates, the one thing is clear, is that commercial and industrial rates have been falling a lot faster than residential rates; part of the policy to shift the tax burdern from businesses to residents. I'd think that the further right-wing the mayor, the more this would take place!

 

[SimonP]

Look at page 35 and compare the status quo vs. sustainable funding solution. The sustainable funding solution is nothing more than wishful thinking it includes 50$ TTC operating subsidy, uploading social housing costs and a portion of sales taxes. They might has well plotted a line on the graph representing the discovery of money trees in Toronto.


Do you really think scenario 3 is more likely than scenario 1?

No, none of those are likely. All of those scenarios are based on a fixed spending strategy that includes large capital spending, especially on transit, and a commitment to get the TTC fare recovery ratio down to 50%. Those are on the books, but the realistic thing is that unless the province agrees to pick up most of the bill they aren't happening.

If I were to guess the most likely outcome over the next three years it would be that property taxes will increase at about 3-4% per year, perhaps a bit more (about the rate of growth of the Toronto economy) The "one time revenues" from the province will continue to make up some of the shortfall. The province won't fully deliver and some of the capital spending (parts of Transit City) will be cancelled and the fare recovery ratio will never hit 50% for the same reason.

There are some darker clouds on the horizon in the form of a couple elections that might change things. Here are a couple other possibilities:

1) Mel Lastman redux: Rossi or Ford are elected after promising some sort of tax freeze or below inflation increase. Like Lastman they dump the increase onto business taxes ending the rebalacing strategy of Miller. Selling assets and using PPPs to fund capital costs saves money this decade, but leads to dramatic problems further on. Cuts to transit, arts, and social services cover the rest.
2) Mike Harris redux: Hudak is elected in 2011, and does a Harris type number on Toronto. Most or all provincial funding is removed, and spending obligations are increased by more downloading. Property taxes go up ~6% per year and are accompanied by cuts to pretty much everything

 

[Glen]

Furthermore, the whole thing assumes there is no growth to the tax base - yet I look out the window, and I see cranes everywhere. If (for example) the tax base of the city increases 2% per year (from growth, rather than inflation), then the budget could increase 2% per year, with no tax increases ... or effective tax decreases.

I had a good laugh about his issue with a very prominent economist just recently. While you may be bedazzled by all those cranes and marvelling at the increasing tax base you are over looking the added expenditures. Per capita (NB the average household in Toronto is 2.5 persons) the city spends over $2000 on core municipal services like police, garbage, roads, libraries, etc. Every new household further deteriorates the city's financial position. You should also note that the city has not been able to realize much if any in the way of efficiencies from economies of scale.

Appendix A of this lists the per person expenditures.

or as noted by Peter Tomlinson

To the degree that new residential development is causing a fiscal operating loss
for the City (i.e. tax revenue brought in by new development is less than added
operating costs needed to service that development), a higher residential tax rate
would reduce (or eliminate) this loss. The higher tax rate would increase the tax
revenue that new development brings in. The higher tax rate might also slow the
pace of residential development to some degree. If new development continues
to produce an operating loss even at the higher tax rate, a reduced pace of
residential development is fiscally beneficial.80

 

[Glen]

No, none of those are likely. All of those scenarios are based on a fixed spending strategy that includes large capital spending, especially on transit, and a commitment to get the TTC fare recovery ratio down to 50%. Those are on the books, but the realistic thing is that unless the province agrees to pick up most of the bill they aren't happening.

The capital expenditures are amortized and appear on the operating budget, along with carrying costs. They will not be netted off the operating budget in whole. Cuts in capital spending will impact the capital budget, with the yearly portion of such disappearing from the operating budget, but such cuts would amount to very little, less than $100 per per household on the operating side.

 

[nfitz]

I had a good laugh about his issue with a very prominent economist just recently.

Whose issue? My issue?

While you may be bedazzled by all those cranes and marvelling at the increasing tax base you are over looking the added expenditures. Per capita (NB the average household in Toronto is 2.5 persons) the city spends over $2000 on core municipal services like police, garbage, roads, libraries, etc. Every new household further deteriorates the city's financial position. You should also note that the city has not been able to realize much if any in the way of efficiencies from economies of scale.

Just from observation this doesn't seem to hold true. From what I've seen, people in Toronto get better services than most of the surrounding cities (better transit, more parks, community centres, libraries, swimming pools). I was quite surprised when I moved to Toronto just how responsive and quick it was to get City of Toronto to fix things around my neighbourhood. Yet at the same time, the property tax paid for an average household (not by size of house, which is misleading because of the larger houses and lots in suburbia, and the higher housing costs in the city) is often lower than many surrounding cities.

Toronto seems to have much better efficiencies of scale than, say, Ajax.

 

[SimonP]

The capital expenditures are amortized and appear on the operating budget, along with carrying costs. They will not be netted off the operating budget in whole. Cuts in capital spending will impact the capital budget, with the yearly portion of such disappearing from the operating budget, but such cuts would amount to very little, less than $100 per per household on the operating side.

The entire increase in property taxes under Miller has been about $350 per houshold. $100 per houshold is a huge savings. Going to 50% fare recovery, about $150 per household at current TTC budget, is another huge chunk. If those dissappear, and they will if provincial funding does, then so does a lot of the fiscal hole.

 

[GraphicMatt]

I would imagine Glen is just circling around his main point, which is that the city needs to raise residential property taxes and lower commercial taxe rates. Which, sure, is true enough. But does he also think we should elect Rob Ford to do it?

 

[SimonP]

I would imagine Glen is just circling around his main point, which is that the city needs to raise residential property taxes and lower commercial taxe rates. Which, sure, is true enough. But does he also think we should elect Rob Ford to do it?

I also totally agree with that argument. I think it's one of the most important things the city should be doing. Which is why I find it odd that Glen is so anti-Miller. Miller has been pursuing just such a strategy at considerable political cost to himself. Even odder is why he seems to support the right on council that caused the whole problem when they were in power under Lastman.

 

[nfitz]

The entire increase in property taxes under Miller has been about $350 per houshold. $100 per houshold is a huge savings.

10¢ a day per person is a huge savings?

Is the increase only $350 in seven years for the average household? I've only owned a house for 3 years ... the way everyone goes on, you'd have thought it had doubled. Compare to the cost of car insurance in the same amount of time!

If the Sun is to be believed, the average Toronto home is worth $470,374 and pays $2,402 of taxes. A $350 increase in seven years equates to an average annual increase of 2.3%.

Looking at Stats Canada consumer price index for Toronto, it increased from 100 in 2002 to 113.6 in 2009; an average annual inrease of 1.8%.

So all this fuss and whining is because property taxes have increased at 2.3% instead of 1.8%? But we have this policy of transferring taxation from business to residents. So that taxes inreasing at all beyond the rate of inflation is only because of the shift in taxation away from business. If all the assumptions are correct here, Miller should get a medal!

What are the equivalent increases over the same period of time in other Ontario cities? Mississauga, Vaughan, Oshawa, Ottawa?

 

[nfitz]

I would imagine Glen is just circling around his main point, which is that the city needs to raise residential property taxes and lower commercial taxe rates. Which, sure, is true enough. But does he also think we should elect Rob Ford to do it?

But we all now that Miller has done exactly this ... it's probably the only reason taxes for residents has gone up!

 

[Glen]

Whose issue? My issue?

Just from observation this doesn't seem to hold true. From what I've seen, people in Toronto get better services than most of the surrounding cities (better transit, more parks, community centres, libraries, swimming pools). I was quite surprised when I moved to Toronto just how responsive and quick it was to get City of Toronto to fix things around my neighbourhood. Yet at the same time, the property tax paid for an average household (not by size of house, which is misleading because of the larger houses and lots in suburbia, and the higher housing costs in the city) is often lower than many surrounding cities.

Toronto seems to have much better efficiencies of scale than, say, Ajax.

Sigh, what you pay has little relationship to what it cost. Using the averages in the report I linked to before the city spends more than $5500 per household for traditional municipal services, all the while it collects only $2,300 on average. The ability to offer more and better services for far less tax (residents) is not magic, it is done by having the commercial/industrial/ multi residential taxpayer subsidise it. This is a short term benefit. Eventually the added taxes come back and lower assessments, and the tax revenues drop. Start reading from page 59 here.

 

[nfitz]

Sigh, what you pay has little relationship to what it cost. Using the averages in the report I linked to before the city spends more than $5500 per household for traditional municipal services, all the while it collects only $2,300 on average.

Okay then, how much does the city deliver in services to multi residential housholds, businesses, industries, etc.? Or are you simply assigning all the city costs to residential?

I'm not seeing the $5,500 and $2,300 numbers in that report. Perhaps I missed it. Can you reference the page?

 

[SimonP]

10¢ a day per person is a huge savings?

Is the increase only $350 in seven years for the average household? I've only owned a house for 3 years ... the way everyone goes on, you'd have thought it had doubled. Compare to the cost of car insurance in the same amount of time!

If the Sun is to be believed, the average Toronto home is worth $470,374 and pays $2,402 of taxes. A $350 increase in seven 7years equates to an average annual increase of 2.3%.

I got that number by looking at the change in total taken in property taxes from 2004 to 2010:

2004 - $2.915B
2010 - $3.534B

That gives a 21% increase in property taxes during that period. That compares to a 24% increase in home values during that time, which is why the mill rate is actually falling. If property taxes were charged as a fixed percentage, like income taxes and the GST, the Miller era would have seen budget surpluses each year.