Well, it turns out that my home here on Shaw Webspace has reached the limits of its space. It is hard to believe that you can run out of space on the internet in this day and age but apparently I'm out of room here and therefore my new posts will be migrating to Blogspot.com. You can access my new Northern Economist 2.0 Blog at http://northerneconomist.blogspot.com and continue reading my posts there.
- Jan 31, 2012
- Posted By: Livio Di Matteo
- Tags: assets, city council, finances, municipal golf course, selling, thunder bay
City Council in Thunder Bay is wrestling with whether or not to sell one of its golf courses - most likely, the Municipal golf course which at nine holes is the smallest of its three golf courses (the others being Strathcona and Chapples). The budget is tight and the city's three golf courses together cost 400,000 dollars to operate and closing one would apparently save about 100,000 dollars. At the same time green fees do cover between 70 and 85 percent of the costs so on net these three golf courses cost the city about 120,000 to 60,000 dollars in net costs to operate. On a net operating budget of about 190 million dollars, saving this expenditure will not of itself restore fiscal balance.
Given the City's rising expenditures and revenue needs and the desire to embark on new capital spending, what councilors and administration are really contemplating is the asset value of Municipal Golf Course. With its rolling landscape and rural location, it will likely be purchased by a property developer for premium estate sized lot housing. It has been estimated in the past that Municipal Golf course could fetch about 1.2 million dollars which represents a nice little pot of money for the City. One could imagine given the rising housing prices in Thunder Bay that this land is now worth considerably more.
There are two issues here. The first is whether or not the City of Thunder Bay should be in the golf business. On the one hand, golf is not an essential municipal service and the case can be made that the city should divest itself of the operations of a golf course. On the other hand, Thunder Bay has a long history of municipal involvement in cultural and recreation facilities and subsidizing these activities for public use. In the end, whether or not the City should run the golf courses is a social and political choice and what council decides here will depend on how the wind blows. Do not expect consistency. Selling one golf course but keeping two still means it is in the golf business. On the other hand, consistency would also require a review of a whole lot of other things the City operates such as the Community Auditorium. Political and social choices do not always follow any pattern of logical consistency.
The more interesting issue is how should the city proceed with selling Municipal. Simply selling off the land and using the revenues generated to fund current operating spending for the coming year smacks of opportunism and desperation. It is a short term response to the fiscal constraints and avoids dealing with a more comprehensive review of all Thunder Bay City spending and operations. If Municipal golf course is sold, the money should go either into reserves or a separate fund to maintain and renew the two other city owned and run golf courses. This would be more responsible fiscal planning. Simply selling off the course and spending the money to meet current operating expenditures would mean open season on all city assets and would indicate that Thunder Bay's civic leadership is unwilling and unable to deal with its finances in a responsible way. Oh, one more point. Not all of this land needs to be sold for housing. It would be forward looking if a few acres of it could be set aside as public space for future generations.
- Jan 29, 2012
- Posted By: Livio Di Matteo
- Tags: canada, centralization, decentralization, economic planning, expenditure shares, federal, fiscal federalism, joint task force, jtf, northwestern ontario, provinces, revenue shares
The Canadian Federation is an institutional arrangement whereby the constituent units are able to both cooperate and compete with jurisdictions that are both separate and coordinate. The debate over the respective roles of the federal and provincial governments has taken various forms over time with views that emphasize the centrality of the federal government along with others that emphasize the federation as a compact amongst equals with the federal government as more of a coordinator. Given that political discourse and decision making out of Ottawa has recently been taking a more decentralized tone when it comes to federal-provincial matters, it might be instructive to take a look at the numbers to see what the balance is between the respective tiers of the Canadian federation.
I’ve gone to the Federal Fiscal Reference Tables to collect data for a basic set of centralization (or decentralization) measures for the period 1966 to 2009. The first figure takes the ratio of a tier’s own-source revenue (that is, without intergovernmental transfers) to the total of federal, provincial-territorial and local own-source revenue. The second figure, takes the ratio of a tier’s spending (net of transfers made to the lower tier) to the total of federal, provincial and local spending (with the spending of each tier net of intergovernmental transfers to the next tier). The point of this is to take a look at the relative resource and expenditure shares across the tiers of the federation. The results depict what most of us probably already know but which can now be visually demonstrated. Canada has become more decentralized at the federal-provincial level but the results also suggest it has become more centralized at the provincial local level.
In 1966, the federal government accounted for 43 percent of spending, the provincial-territorial level 32 percent and local governments 25 percent. By 2009, the federal share was down to 31 percent and the local share down to 20 percent while the provincial-territorial share was up to 49 percent. Indeed, given that under the constitution municipalities are “creatures” of the provinces, there are really only two levels of government. The Canadian Federation has decentralized to the point where more than two-thirds of spending is now at the provincial-local level. Own-source revenues have not decentralized as dramatically. In 1966, the federal government accounted for about 50 percent of own-source revenues, the provincial-territorial sector 34 percent and the local sector 16 percent. By 2009, the shift was down to 40 percent for the federal level, up to about 46 percent for the provincial-territorial level and down to approximately 13 percent for local governments (numbers have been rounded).
A more decentralized Canadian federation is not a future possibility - it is already here. Whether this is a return to the “classical” federalism referred to by Tom Flanagan in a recent Globe and Mail piece is subject to debate. If one goes back to the immediate post-Confederation period, spending and revenues were also concentrated at the federal level and they became more concentrated in the twentieth century as result of the world war years. While the federal government practiced “executive federalism” in the second half of the twentieth century, Canada was nonetheless decentralizing as expenditures in provincial areas of jurisdiction –health, education and social welfare – grew.
The question is whether or not this is exactly the decentralization we want. Even if we accept that the provinces should be a more dominant fiscal tier given their responsibilities for health, education and social welfare, do we now want to simply transfer more tax points to the provinces and eliminate federal-provincial grants all together so that revenue shares better reflect expenditure shares? What about the cities? Cities are increasingly where most Canadians live and their governments and services are the closest to the taxpayer and yet the balance has shifted away from them also. Our focus has been so dominated by Ottawa’s relationship with the provinces that we have ignored the local sector’s relationship with their respective provinces. While Ottawa and the provinces have engaged in a process of give and take over 140 years given a framework and powers set forth in the constitution, municipalities have only what the provinces let them have. Based on these figures, it has been mainly the provinces taking and little giving to the municipalities or regional governments over the last few decades.
With respect to northern Ontario, this type of long-term trend does not bode well for any prospect of decentralization of any type of decision making authority from Queen's Park to the North. While in Northwestern Ontario, we are currently engaged in a process of regional economic planning, this will likely result in a set of consultative rather than action oriented institutions and processes that will retain control in the hands of Queen's Park. The final draft report (January 2012) released by the Northwestern Ontario Joint Task Force titled Regional Economic Development Planning Zones Pilot Project presents a model in many ways similar to the NWORDA concept of several years back and lays out a mandate for a Northwestern Regional Development Authority (REDA) with its own board. Will the province provide it's CEO and Board with revenue raising capacity (say from resource rents) to create a development fund to make strategic investments? Will it give it access to allocation of a share of the Northern Ontario Heritage fund for regional projects? Will it be allowed to make decisions on wood and fibre allocations? Without these types of powers, REDA will be merely another talk forum piled upon layers of regional discussions that have been occurring for decades.
- Jan 28, 2012
- Posted By: Livio Di Matteo
- Tags: boom, building permits, bust, economy, investment, northern ontario, ontario, trends
Building permits issued and their values are an important indicator of the pace and pattern of capital formation in an economy. Northern Ontario’s resource based economy is often characterized by booms and busts in employment and output, and investment spending is no exception. Figure 1 below takes the total value of building permits issued in Northeastern and Northwestern Ontario, adjusts for inflation by converting into 1997 dollars and combines them into a series for Northern Ontario as a whole. The results are quite indicative of relatively longer-term boom and bust cycles not always directly tied to recessions (1981-82, 1991-92, 2009).
The period from the mid 1970s to 1982 was a period of decline in the real value of new investment activity and investment spending was already low when the 1981-82 recession hit. The period from 1982 to 1989 was definitely a boom period but a decline had set in even before the 1991 recession hit. The entire period from 1989 to 1998 appears to have been a bust in the North. However, since 1998, there has been a pretty steady upswing in the real value of building permits and even the 2009 recession period has not resulted in too steep a drop in activity. However, the peak reached in 2008 is nowhere near the peak of 1989 in terms of real values. If one fits a linear trend line to this data, one can see that the long-term trend is essentially flat. There have been ups and downs but overall, this entire 35-year period – nearly half a lifetime – is a flat performance. Compare this to Ontario as a whole (Figure 2) which also exhibits a boom/bust cycle but an overall steep upward trend over the same period when a linear trend is fitted. One similarity is the relative size of the peak in the 1980s for both Ontario as a whole as well as the North - it has yet to be surpassed by either suggesting the uniqueness and intensity of the 1980s investment boom.
However, there is more to this data than meets the eye. Over the next few posts, I plan to break down this data into Northeastern and Northwestern Ontario, Thunder Bay and Greater Sudbury as well as the actual categories of residential, industrial, commercial and institutional permits. The aggregate data and its broad trends does not do justice to the regional and investment sector stories that have also been occurring with respect to investment spending in Northern Ontario.
- Jan 24, 2012
- Posted By: Livio Di Matteo
- Tags: 2012, budget, city, estimates, tax increase, thunder bay
City council met last night and received the proposed budget for the 2012 tax year along with proposed tax and rate information. According to the budget highlights fact sheet and reports in the local media, the budget as currently proposed will result in property taxes of $2,568 for the average residential property in 2012 representing an increase of $67 or 2.67 percent - up from $2,501 last year. What is not immediately clear from all of this is whether this 2.67 percent increase includes the 1.5 percent rate increase for infrastructure under Renew Thunder Bay that was proposed and voted on in November or whether that increase will be voted on separately and result in a tax increase on top of the 2.67 percent. In addition, it was also reported that there would be a 6 percent increase in the water rates resulting in an increase for the average user of 52 dollars. Based on this amount, it would make the current average water bill for a city ratepayer about 866 dollars resulting in an increase to 918 dollars. What is the total increase to City ratepayers in the money they will be sending to city Hall next year? Well, for an average household- the total in terms of property taxes and water fees in 2011 can be estimated at $3,367 dollar. For 2012, the estimate would be $3,486. This represents a total increase of 119 dollars or 3.5 percent. The only other question is if this includes the 1.5 percent increase for infrastructure under Renew Thunder Bay or if that amount is on top.
January 27th update!!!
It would appear that numbers are still being revised. This morning's media report was that the water rate increase was going to be 7 percent and thatb this represents an increase for the average household of 50 dollars. This also means that with the average water bill before the increase was 714 dollars which brings it up to 764 dollars for 2012. As a result, the above estimate for total payments to the city for taxes and water can be revised. Now, total payments for taxes and water for an average residence were $3,215 in 2011 and will go up $117 to $3,332 in 2012 representing a 3.6 percent increase in total payments to the city. Still no clarification on if the 1.5 percent Renew Thunder Bay increase is included in these increases or is on top.