First task for new mayor: Get spending under control


February 21, 2010

Don Drummond

{{GA_Article.Images.Alttext$}}City budget chief Shelley Carroll and Mayor David Miller answer questions Feb. 16, 2010 after the introduction of the city’s 2010 operating budget.

LUCAS OLENIUK/TORONTO STAR FILE PHOTO

The recently released City of Toronto operating budget for 2010 has made one thing clear: fixing the city’s finances has become the most pressing issue in this year’s mayoral campaign.

Toronto taxpayers are facing a $9.2 billion budget that includes a 2.5 per cent overall property tax increase (4 per cent for residential ratepayers, 1.33 per cent for businesses) as well as $16 million in new or increased user fees. The budget also features some $172 million in cost reductions and service efficiencies.

But despite the city’s attempts at restraint, its overall spending has nonetheless grown by roughly $500 million. That’s a 5.7 per cent increase, three times the rate of inflation.

This budget merely continues a spending pattern that goes back nearly a decade: Toronto’s municipal government continues to spend money faster than it collects it – the very definition of a structural deficit.

The city, to its credit, acknowledged the problem in its budget presentation, noting that this year’s structural deficit amounted to $313 million and will reach $469 million in 2011 – a figure that matches the Board of Trade’s independent forecast of a $465 million hole, contained in its recent report The Growing Chasm: An Analysis and Forecast of the City of Toronto’s Finances.

The board’s forecast also showed that, if left unchecked, Toronto’s structural deficit could grow to $1.2 billion by 2019.

The city is pinning substantial hopes on more money from Queen’s Park, in the form of an operating subsidy for the TTC. Premier Dalton McGuinty has given no indication that he will comply. His response is not at all surprising, given Ontario’s $24.7 billion deficit, much of it also structural.

But even if McGuinty grants Toronto’s wish, the city’s structural deficit will still amount to roughly $900 million by decade’s end – an amount that would represent a tax increase in excess of 25 per cent.

So the task of balancing Toronto’s books has now been punted to the next mayor, whoever that may turn out to be. And it falls to the mayoral candidates to propose concrete, lasting solutions to the problem.

Toronto will not solve its budget woes by tinkering around the edges. A more far-reaching transformation will be needed. And no single option can act as a cure. The problem calls for a combination of short-term and long-term measures.

In the near term, the city must review its assets to determine which serve an important public policy goal, with an eye toward selling or monetizing those that do not. The proceeds from any asset sale, applied against the city’s debt, would reduce its annual interest payments – which, at a growth rate of 14.6 per cent annually, have been rising faster than any other operating expense.

In the longer term, some combination of outsourcing, internal competition, public-private partnerships and alternative delivery will be needed for a number of existing city services.

New labour negotiation rules must be part of the mix as well, given that rising labour costs, at 6.4 per cent per year, represent one of the main drivers of the structural deficit. For example, province-wide bargaining might prove to be a better tool for negotiating contracts for essential-service workers than the existing arbitration process, which tends to produce very expensive settlements.

Whatever the case, the most lasting package of solutions will be the one that manages to bend the city’s ever-rising spending curve downward. Closing the gap between expenses and revenues should be the top priority, since it is the only path out of a structural deficit.

Once expenditures are under control, the case for new revenue sources will be more compelling. Indeed, if it is clear the city has been thorough, creative and transparent in managing the resources it already has, then it may very well find a more receptive audience in the premier’s office when it comes along with a cost-sharing request for more TTC operating funds. Queen’s Park is more likely to come to Toronto’s aid.

There are no easy answers, and voters should beware of candidates who downplay the issue or suggest the city can grow its way out of the problem. Given the wealth of information now available, the candidates have the information they need to cost their proposals and show voters what their balanced budget will look like.

In the interim, city council should send an immediate signal that it recognizes the severity of the problem by going one step beyond the current hiring slowdown and spending restraint policies in effect. They should implement an immediate hiring and spending freeze.

These measures would help keep the reins on spending while the long-overdue debate on fixing the city’s finances takes centre stage in the months ahead.

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