Tax and the city: T.O. seeks new revenue streams

By BRYN WEESE, Toronto Sun

Last Updated: February 22, 2010 8:24pm

http://www.torontosun.com/news/torontoandgta/2010/02/22/12988881.html

Toronto the big, Toronto the great — but Toronto the city-state?

Councillor Shelley Carroll, the city’s budget chief, thinks that status — or at least the increased taxation powers that go along with it — is coming and soon.

It’s not that the City of Toronto, a 12-year-old amalgamated municipal entity, doesn’t spend money like a city-state already.

It does.

City Hall’s whopping $9.2 billion proposed 2010 budget, to be voted on by council in April, exceeds the spending totals of several provinces, and has skyrocketed nearly 30% from $6.6 billion in 2004.

But provinces increase their spending, too, as inflation drives up costs.

A major difference, however, is that Toronto must rely mainly on one very regressive means of raising revenue — property tax. The two new land transfer and vehicle registration taxes provided only a small boost to the city’s coffers.

In the 2010 proposed budget , property taxes generate 39% — or $3.6 billion — of the city’s revenues.

A figure Carroll said is way too high.

“Property tax still makes up 39% of our revenue and it should never be more than 18%,” Carroll said. “It should never be more than 18% in a city this size or larger, and we are going to get larger.”

American cities by comparison — even those much smaller than Toronto — have far more ability to raise revenues from progressive taxes, such as a sales tax and even a municipal income tax. They are more autonomous and don’t rely on senior levels of government, as Toronto does.

For example, Chicago boasts a 2.25% sales tax — among others — which it uses almost exclusively to fund the lion’s share of its transit authority.

New York City dings residents with a 3% municipal income tax, among other things. Property taxes are relied on to a far lesser degree.

And it’s not just the big cities.

The City of Philadelphia, for example, has seven taxes, including a sales tax and a “payroll” levy, which takes 3.9% of residents’ income and 3.5% from the income non-residents earn inside the city’s limits. Philly also has a property tax, a business privilege tax, a land transfer tax, a parking tax, and an amusement tax.

Taxes raised $2.3 billion — more than half — of Philly’s nearly $4 billion budget, whereas taxes garners Toronto barely one-third, with another $1.8 billion coming from the province, primarily for provincially mandated cost-shared programs like welfare and public health.

Carroll, who has long advocated in the face of heavy criticism for increased taxation powers for the city, said the solution to Toronto’s chronic cap-in-hand approach to the province for funding is giving the city more power over its own affairs and finances — and that means giving it new revenue tools, such as a sales tax or municipal income tax.

“You cannot go beyond 3 million (residents), nobody in the world ever has, without beginning to look at those other revenue tools,” she said. “No one has.”

But Duncan MacLellan, an assistant professor of politics and public administration at Ryerson University, said that won’t be easy because it means the province would have to give up some of the revenue it collects from Torontonians.

“If you want to look for additional revenue sources, you have to be very careful in Canada because you can’t step on the toes of other levels of government,” he said. “Let’s face it, they don’t want more people cutting into the pie.”

Carroll, too, knows it won’t be a slam-dunk with the province.

“The challenge for the province … is if they are really going to use some of those, dare I say it, city-state tools that would put Toronto on the right footing, they are going to have to leave the room,” she said. “Somebody has to be really courageous.”

Toronto Mayor David Miller, who isn’t seeking re-election in this October’s municipal election, said last week a sales tax, or something like it, is coming.

“In the long run, the city needs two things — a return to the principle that the operating subsidy of the city (to the TTC) should be matched by the province … and like all institutions it needs revenues that can grow with the economy like a sales tax,” he said last week while unveiling the proposed 2010 operating budget.

“In the long run, that’s the answer to the city’s sustainability.”

MacLellan agrees Toronto, and other large Canadian cities desperately need a new funding model.

“We are in the year 2010, and we’re living on a model from 1867,” he said. “We haven’t changed the financial model for cities in such a long time that I think we really need to take a very hard and sharp look at what we can do.

“If everyone is talking about cities being the engines of prosperity, and places for knowledge growth … that sounds great, but they are being starved for cash,” he added. “You can’t have it both ways.”

Recently, Statistics Canada found 80% of Canadians lived in urban areas, and that number is expected to climb.

All the more reason, MacLellan argued, to update the way we pay for our cities.

But it’s not as if there haven’t been attempts.

New Toronto homebuyers and drivers will remember the Land Transfer Tax and vehicle registration tax that came into effect in 2008.

Carroll called those two taxes — which account for only 2% of the city’s revenues — a baby step.

“It was very painful to go there in the first baby step … towards what must eventually happen. The question is when,” she said. “Toronto will have them (additional revenue tools), but somebody will have had to be incredibly courageous at both the provincial and municipal level.

“A sales tax … and the payroll (municipal income) tax are models that somebody ought to look at in the City of Toronto,” she added.

The idea, though, isn’t without critics, who argue the city already spends too much money and that more taxing powers would only exacerbate what they accuse are already wild spending habits.

“Municipalities complaining about how they’re funded is always code for wanting more money,” said Kevin Gaudet, the federal director of the Canadian Taxpayer Federation. “It’s a classic saying, but Toronto doesn’t have a revenue problem, it has a spending problem. The mayor has never seen a dollar he didn’t want to spend.

“No matter how many new mechanisms Toronto has, it’s never going to be enough,” he added.

Carroll is all-too-familiar with the other side of the debate, having argued with several councillors over the issue for years.

But their arguments, she insisted, are disingenuous, especially on such an important issue as the city’s financial footing.

“We need to stop trying to figure out how to parlay this discussion into votes one way or the other,” she said. “If we could all get together and agree that it (the city’s finances) is a challenge. If we could be honest about the fact that this structural deficit is there, and stop confusing the message, then … put it to a referendum. Is it a sales tax? Is it a payroll (municipal income) tax? Is it road tolls?

“But as long as we continue to use our electorate for these picayune one-upmanship games, we can’t go to them to have the discussion.”

bryn.weese@sunmedia.ca

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