Draft reports urged council to stop risky ‘underinvestment’
For three years, former city manager Peter Wallace warned that the city was on the edge of a fiscal cliff.
The city doesn’t generate enough revenue to pay for all the new infrastructure and programs approved by council. And, Wallace had warned, council’s tradition of balancing budgets by relying on record land-transfer windfalls from a hot housing market, raiding reserve funds and deferring costs into the future is risky and unsustainable for Toronto.
As the alarm grew, there was much anticipation ahead of a report Wallace promised would be a long-term financial plan.
When that so-called plan arrived in front of Mayor John Tory’s executive committee in March 2018, a year delayed, it came without specific recommendations on how to move forward. Instead it recommended staff return, in a new term of council, with an action plan, deferring any decision until a later date.
But drafts of the report recently obtained by the Star through a freedom of information request show Wallace and his staff did prepare a financial plan with specific recommendations and that it was largely written before the last budget process of the term got underway in 2017.
With an election for a new council now looming on Monday and Tory again promising to keep property taxes at or below the rate of inflation, the drafts spell out not only how the last eight years of austerity under mayors Rob Ford and Tory have led to “underinvestment” in housing and transit, but also what to do about it.
Parts of the drafts — which were not finalized and never released — speak to raising property taxes to match the city’s expenses, while Tory has pushed to keep property taxes low at the outset of each budget process; undertaking detailed cost-benefit analysis on all initiatives over a certain dollar figure when Tory has voted against such measures; and introducing new taxes, including bringing back the vehicle registration tax, which Tory has rejected.
“For some reason council was shielded from having to make an urgent decision about the kind of city we want to live in,” said Councillor Gord Perks, who has consistently called for council to first decide what to fund and then raise the money to accomplish those plans. “And as a result, the gradual, slow decline of the city continues.”
Wallace, who left his post at the city shortly after the financial report was released for a federal appointment as secretary of the Treasury Board, declined to comment.
In a statement, Tory’s campaign spokesperson said: “Mayor Tory has shown this term that we can keep taxes low while still making major investments in services, including transit and housing.” The spokesperson accused Perks of wanting to raise taxes “skyhigh” and other measures that would “make life unaffordable.”
The Star had to fight to get the drafts of Wallace’s report after initially requesting them in February. That included filing an official appeal to Ontario’s Information and Privacy Commissioner after the city denied the Star’s request, saying the final report had already been published and that there was a “considerable body of publicly available supporting information.”
In both the drafts and the final report, Wallace presented three hypothetical paths, saying it was up to council to choose a financial direction: cut services to save costs; maintain existing service levels while not pro- ceeding with planned improvements; or invest in the plans and strategies already approved by council by raising revenues.
While the final report, which never went to a full meeting of council for debate, did not force them to make that choice, the drafts recommended they do just that. And while the final report offered no steps to take depending on the path chosen, the drafts offer a concrete plan.
“The former city manager was always clear that we needed to pick a lane of low services and low taxes or higher services and higher taxes,” Perks said. “The John Tory administration made sure that council never had a chance to vote on that.”
Significantly, a draft dated Sept. 12, 2017, outlines that maintaining services while insisting on low taxes has to some degree worked as a result of “good luck” and that relying on overachieving municipal landtransfer tax revenues and other unsustainable measures “have adverse long-term impacts.”
“These unsustainable bridging strategies, especially deferring costs, have begun to manifest themselves largely in the form of underinvestment. This is most notable in the areas of housing and transit.”
“At times,” the draft says, “this underinvestment has been an explicit decision.”
The draft said that as the main source of revenue for the city’s core services, property taxes “should grow in line with the city’s expenditure needs” and called for the city to “leverage all feasible revenue options, including personal vehicle tax, parking sales tax, municipal sales tax.” Tory specifically voted against exploring all of those options, some which require provincial approval, in 2016.
The commitment to low taxes, which was also a key tenet of Ford’s administration, comes at a cost, the draft noted, saying in 2017 the city collected the equivalent of $1,408 per resident in property taxes compared to $1,484 in 2010, when adjusted for inflation. If tax hikes had just kept pace with inflation, the city would have brought in an additional $220 million in 2017.
Compared to the rest of the GTA, the city’s residential property taxes are relatively low. That has meant that as the city’s population continues to balloon there is less money to spend per capita on essential services like road maintenance and parks cleanup each year.
It has also led to significant
“Council was shielded from having to make an urgent decision about the kind of city we want to live in” GORD PERKS COUNCILLOR
and ongoing underinvestment in key areas, Wallace outlined.
Fewer and fewer resources have been dedicated from all levels of government to social housing, leaving the stock of publicly owned Toronto Community Housing buildings, many built decades ago, in a desperate state of disrepair.
Already, hundreds of Toronto Community Housing units have been shuttered and tenants relocated to other properties because their homes were no longer habitable, creating additional pressure on the evergrowing waiting list for subsidized housing. There are active applications from 96,828 households in line as of the second quarter of 2018, the city’s centralized list shows.
“Toronto’s social housing problem,” the draft report noted, “is directly linked with issues of homelessness, mental health and poverty.”
On transit, Wallace’s draft plan noted “transit and transportation priorities remain underfunded” as “maintenance backlogs continue to grow.”
That underinvestment not only leads to a degradation of service but also hits the city’s finances.
In 2017, TTC ridership decreased significantly, with trips totalling 533.2 million compared to 538 million in 2016. That ridership was 1.9 per cent below budget, resulting in a decrease in revenues of $5.4 million, the TTC reported.
While TTC officials have blamed changing employment growth, researchers say it’s directly linked to service levels and fares.
What’s happening in the transit system is a great example of the cost of austerity, said Enid Slack, director of the University of Toronto’s Institute on Municipal Finance and Governance. If you don’t invest in maintenance and improvements, not only do you pay more in the long run, she said, but you lose ridership, which leads to less revenue to maintain the system.
Before requesting help from the other levels of government, “it is critical the city first use the policy levers under its control,” the draft report says, noting “it is not responsible to assume that other governments will fix our financial problems — there is a poor track record of them doing so and it does not mitigate risk.”
In the final report, the notions of matching property taxes to the city’s expenses and exploring different revenue options were either omitted or significantly watered down. The final report did not single out any specific tools.
A personal vehicle tax, for example, like the one which was scrapped under Rob Ford, could bring in $100 million annually for the city to put directly to a specific purpose, the draft report says.
The final report said a new term of council “offers the opportunity to implement a series of changes to address Toronto’s fiscal challenges and support council in making more strategic, integrated decisions on a multi-year time frame.”
Draft recommendations also called for all services and activities to be considered for outsourcing. Debates about further contracting out garbage collection and the partial selloff of Toronto Hydro caused grief for Tory earlier in the term and both considerations were eventually dropped.
One of the drafts recommended undertaking cost-benefit analysis of all initiatives over a certain, undefined amount in a section titled “transparency and evidencebased decision-making.”
As council fought over whether to build a controversial onestop Scarborough subway for more than $3.35 billion this term, Councillor Josh Matlow, who has questioned the merits for such an expensive plan compared to a network of light rail lines, frequently requested a value for money assessment be conducted. Tory voted against each one of those motions.