2015 Toronto budget — first impressions

Today was the official launch of the 2015 Toronto budget process — or the first budget since the fall election.

What happened today was not the final budget. Rather, today marks the beginning of the publicly visible part of the budget process. That means that city staff (unelected civil servants) present their recommended budget — a document that is based on many months of behind-the-scenes work with city departments and agencies, as well as guidance from the mayor. The final budget will be approved in March after a process of consultation with the public and City Council members.

Here’s how the process works at a high level:

I spent the morning getting briefed, along with the members of the budget committee and a pretty large crowd of journalists and other City-Hall watchers, on what’s in the budget. Here are my first impressions. I’ve divided it into “substance” and “process.” The process part of it may sound unbelievably nerdy, but I think it has underappreciated importance — hence the work I and others are doing to improve the process through Better Budget TO.

Substance

Let’s start with the positive. This budget actually does make some investments in key areas. The largest investment in service improvement— making up about half of the new investment on the operational side—is in transit, including reversing many of the ill-advised cuts to bus routes and other TTC services that City Council (not just Rob Ford) imposed under the previous administration. The total transit investment is small compared to the size of Toronto’s transit gap; about $30m (the $36.6m figure below minus the free fare for kids, which is a revenue cut not a service improvement) is being invested, representing less than 2% of the overall TTC operating budget ($1.8b). And in many cases, it appears to be just restoring service levels that the Ford administration, supported by the previous City Council, decided to cut. But still: it demonstrates that investment in basic transit service (not just shiny new capital projects) is an important priority for the new mayor, which is very important.

Here’s a breakdown of the new operating funding for the TTC:

There are also new investments in social services—what the budget calls “poverty reduction.” The roughly $15m investment in this area constitutes about 20% of total investment in new services. This includes investment in shelter beds, recreation centres, and student nutrition programs. The biggest item here are the 181 new shelter beds, including 24-hour drop-ins for women and 54 beds focused on the LGBTQ community, which should make a difference in freeing up much-needed shelter capacity.

The focus on equity issues here is most welcome. That said, there was a missed opportunity to focus not just on “poverty reduction” but on broader issues of income and wealth inequality, which is on the agenda at even Davos but not so much during today’s budget presentation. Issues such as child care and the distributional effect of revenue changes (e.g., the TTC fare increase) do not seem to enter the picture (with the exception of a welcome adjustment to the property tax rate on multi-residential rentals, which pay a much higher rate than single family homes, even though their occupants have lower incomes).

On the revenue side, things are less positive. The big problem the city faces is one of under-investment, and the fact is that the revenue that the city takes in has not been sufficient to keep pace with the rising cost of providing services, to say nothing of the large service gaps that we have in critical areas like transit, housing, and child care.

This budget does not address this problem. It arguably makes the problem worse by “increasing” property taxes at below the rate of inflation. As Gord Perks pointed out during today’s budget hearings, the overall property tax “increase” (including residential and business taxes) in the budget is 1.8%, which is almost a full percentage point below what inflation in Toronto was this year. That means a real cut.

I use scare quotes when I say “increasing” property taxes because what is actually happening is the property tax rate is being cut while the overall amount of money the city collects is increasing. When talking about other kinds of taxes, a tax “increase” or “cut” means an increase or decrease in the rate (e.g., increasing the HST from 13% to 14% or cutting the GST from 7% to 5%). When you “increase” property taxes at less than the rate of inflation, that means you are not only cutting the rate of property tax increase; you are also likely to decrease the level of service.

The budget presentation rightly points out that Torontonians pay less in property taxes (both the rate and the average property tax bill) than almost every surrounding municipality:

It is of course not surprising that this budget focuses on keeping property taxes low. That was a key campaign promise of Mayor Tory. But even if he wanted to keep this promise, however misguided, there are other revenue options within the city’s power that the mayor could have looked at, as helpfully outlined by the Canadian Centre for Policy Alternatives’s Sheila Block (see chart below from Sheila’s longer paper).

Having said that, this may not be the year for the new mayor to jump into revenue raising. Doing so successfully could well require more laying of the groundwork with Torontonians—particularly given the marked absence of fiscal truth-telling over the past several years (and arguably during the recent election campaign).

So my main objection to this budget is not really its tax policy, even if I don’t agree with it. My main issue is how the various pieces come together. Much time and fanfare are spent explaining the new investments and low-tax agenda. But the details on how City Council will square new investments with net tax cuts while making the numbers add up (as provincial law requires) are scant.

For instance:

• The budget assumes the province will come to the table with $86m for Toronto. That is more than all the new operating investments combined. This despite a very large provincial deficit and the fact that the province would likely say that they are increasing funding to Toronto through transit funding, “uploading,” and more (read any provincial budget or fall economic statement and you’ll see what I mean). A lot of weight seems to be given, here, to the potential for a softening of relations with Queen’s Park under the new mayor.
• The budget asks departments to absorb the cost of inflation. This “flatlining” approach means a net cut in service levels unless departments can come up with ways of increasing productivity. But there is no detail or evidence in the budget documents about what those ways might be — and in my experience, when a government talks about “efficiencies” without giving any details, when ends up happening is a service cut.
• The budget does not include any new money for police compensation, even though the police budget is the largest item in the city’s operating budget, compensation makes up the vast majority of spending on police, and police (being a sector subject to arbitration) nearly always get an increase.

A more honest, credible budget would have devoted more time, energy, and transparency to these “making the numbers add up” issues—presenting a credible, evidence-based plan for achieving the very large numbers implied in the items above.

Process

Today was the beginning of the budget process, not the end, and there are several more steps to go before we can pronounce on the success of this year’s process.

The bar is fairly low here. The last term of Council saw some of the most chaotic, confusing, and myopic budgets in recent memory. Having said that, in several areas the city appears to be moving in the right direction. For instance:

• The mayor and budget chief seemed to take more ownership over the budget, meaning it was not presented as simply a technical staff-driven document, but rather an expression of the administration’s values and priorities (see my recent article in Policy Options for more on this distinction)
• Staff seem to be making a genuine effort to improve the number, quality, and accessibility of communications products and budget information. For instance, they took the time to fill the City Hall lobby with charts, facts, figures, and infographics, and they acknowledged that they were working at better communications in their budget presentation.

• The media reporting around this year’s budget seems to be less singularly focused on the budget “gap” and property tax rate, and more on a holistic assessment of the administration’s budgetary priorities.
• The city is moving toward multi-year budgeting, a long-time request of groups such as the Toronto Region Board of Trade. This year’s budget takes a two-year outlook for the operating budget.

There remains a lot of room for improvement. This is part of the work that I will be doing together with others involved in Better Budget TO, as well as others who have an interest in improving how the city budgets (Commitment 2 Community is doing some great work in this area — they are holding several workshops and training sessions on the budget over the coming weeks which are well worth checking out— and today Women in Toronto Politics put out a very helpful primer on how the budget process works).

Some initial thoughts on areas for improvement (for a longer list of ideas — 24 ideas, to be precise—see Better Budget TO’s consultation paper from last year):

• There remains room to make the budget much more long-termist. Although the budget takes a two-year outlook, it could look over a longer time horizon and also do more to address the implications of that longer outlook (i.e., if you see fiscal challenges on the horizon, you make a plan to address them, rather than simply saying “we are going to have to address that next year, and it’s going to be hard”). This year’s budget includes an explicit link between Council’s strategic plan and the budget, but I’d like to see a deeper analysis of the degree to which the budget actually carries through Council’s expressed priorities (and the relative resourcing of various priorities).
• I’d like to see some more innovations in how the public is engaged. Better communications material is a good start. But I’d also like to see new and enhanced methods of engagement, including more support for participatory budgeting, effective budget town halls, and a more accessible, productive approach to “deputations” (budget-speak for presentations at City Council), to name a few.
• Evidence, facts, and data. Happily, there are nods in the budget documents to open data and the move to a more “service-based” budget, where decisions are made on the basis of service levels, and not just bean-counting. But it remains far from clear what was the evidentiary basis of the decisions in the budget, or how evidence (both internal to City Staff and from outside experts) can be injected into the public-facing part of the process.
• The budget presentation could be clearer and more concise. The staff presentations contain lots of good information, but often it feels like you have to sort through them to determine what really matters. There could be more proportionality between how much time is spent on a topic and how important (or fiscally material) that topic is.
• Perhaps a small thing, but there should be a single document that sums up the budget, just as there is at the provincial and federal levels. Instead we are left with a series of slide presentations, brochures, briefing notes, etc., none of which paint a full picture of the city’s finances (including all four of the city’s budgets—operating (tax-supported), capital (tax-supported), operating (rate-supported), and capital (rate-supported)).

That’s all for now. I’m sure there’s lots I’ve missed. If you want to discuss further feel free to comment on this article or get in touch with me on Twitter @alexmazer or by email at alex@alexmazer.ca. Look forward to following — and participating in—the debate over the coming weeks as our city’s budget moves towards the finish line!