Toronto is in financial difficulty because it gave a huge raise to its staff

There is much talk nowadays about the financial difficulties that Toronto faces, given both operating cost pressures and demands for capital investments. The talk has been initiated largely by Toronto’s new City Manager Peter Wallace, who promotes an ‘adult conversation’ about the topic. Essentially he is campaigning for new sustained revenue for the city, and by implication a new and higher base cost for running the City.

Justification for the additional costs is based on the notion that cost cutting endeavours have been implemented and run their course (not quite, but that’s another story), and now it’s time for new revenues. Most of the public discussion I’ve heard revolves around this theme.

What’s missing from the public discussion is awareness of a basic fact. From the time of amalgamation (1998) City of Toronto staff have received, on average, a pay increase of about 1/3. That’s over and above inflation increases and increases in staff to accommodate the growth of Toronto’s population. The Budgetpedia project is having some expert analysts look at this closely, but the first pass suggests that this increase amounts to preliminary estimates of some $14B cumulative costs between 2000 and 2015, now costing the City some $1.4B per year, every year. That’s larger than the annual police budget. Yet the City started the 2017 budget process with cost pressures of ~$600M, much less than this amount. So it’s fair to say that, other things being equal, the rise in staff costs is the main reason Toronto is facing such financial difficulties.

I’ll give details below, but first, why is this important?

To be clear, I’m not claiming that the cost increase isn’t justified. It may be justified, or more likely, partly justified. I just don’t know; we don’t have the data (yet) to properly evaluate that. But there are a number of issues that should be considered:

1. Every investment is made with an opportunity cost elsewhere. So the $14B has been invested in our staff at the expense of say, investment in Scarborough urban development, affordable housing, or poverty reduction. I think it’s healthy to revisit such priorities from time to time, and now that citizens are being asked for more money, this is a good time.
2. We don’t know how these increases have been distributed. Is it unions or management? Is it some divisions or agencies more than others? If so why? Insiders tell me a big part of the increase can be explained through ‘harmonization’ and gender equity (both forms of equal pay for equal work). And the higher paid person is not expected to accept a decrease, so the lower paid person is given an automatic increase. Also I gather there are now ten pay grades rather than five (whatever that means) providing more opportunity to achieve pay increases by getting the same work reclassified as something else. It’s not clear that these or other factors are being well scrutinized and managed. They are certainly not well disclosed to the public.
3. Given the increased staff costs, we should expect greater value for our investment. In particular we should expect full modernization of our civil service. This means (finally) leaving the ‘red tape’ user experience behind us. It is broadly speaking obsolete, dysfunctional, and unnecessary. It comes largely from following an antiquated hierarchical command and control, compliance-based management model that’s a couple of centuries old. We can do better now with modern digital platforms (for transparency among other things), and well understood models of open government, open data, and collaboration-based decision processes.

The data

It’s hard to get high quality financial and staffing data from Toronto. The Budgetpedia project has however managed to piece together at least the beginnings of a reasonable dataset. There are two basic pieces of this dataset that are relevant to the discussion of staff costs.

The first is staffing levels over time. These are presented pro-rated to 100,000 people, to factor out the effect of staff increases related to increased city population. The data source is staffing budget reports cobbled together by diligent hunting, and some compromise. See the budgetpedia.ca chart to explore the live chart #1.

Chart 1: City of Toronto budgeted staffing positions over time

The second is staffing costs over time. The data source in this case is reliable — it is from notes to the audited financial statements of the City (usually around note 21), from 2000 (when they first became available) to 2015. These include one key line item: Salaries, wages, and benefits, here shown prorated per 100,000 people to match the proration used for the staffing levels. The numbers are also adjusted for inflation. See the budgetpedia.ca chart to explore the live chart #2.

Chart 2: City of Toronto actual Salaries, wages & benefits over time

The budgeted staffing levels stand in as a proxy for actuals, but the assumption is that budgeted staffing tracks actual staffing fairly closely. By anecdote the gap of actual to budget has been increasing, so if anything actuals would tend to track a bit lower over time, thus magnifying the effect. For analytical purposes, we assume that staffing levels are essentially flat. So the comparison becomes fairly straightforward — staffing levels are flat; staffing costs are up. Staff have received a pay increase above inflation and increases for population.

Then the question remains, how much?

Taking the proportions from chart 2 (but per person in Toronto - same ratios, smaller numbers to deal with), staff pay has risen from 2000 - 2015 from 1464.60 per resident to 2021.20 per resident = (2021.20 – 1464.20)/1464.20 = 38%. Applying this percentage to the 2000 staffing budget of $3761.658B gives a pay increase for staff of ~ $1.4B (rounded down) on an annual basis.

Chart 3: estimating raises by shape from 2000–2015

The cumulative total can be estimated in two parts. 2000–2010 (eleven years) when there is an inflexion point in the chart, and 2011–2015 (five years) when pay flattens out. For the first eleven years we can estimate 1/2 of $15.4B = $7.7B (half because the increase forms a right angled triangle). For the final five years the increase is 1.4 x 5 = $7B, because there is more or less a straight line during this period. So the cumulative pay increase for the period is estimated at $14.7B, say $14B. See the budgetpedia.ca chart for the live chart #3.

Update, August 2017. See Update: Extra cost of Toronto staff raises for a professional analysis of the staff raises data we have. It concludes more cautiously that the annual cost of the staff raises is about $1B.

Henrik Bechmann is the project lead of budgetpedia.ca. The opinions expressed here are his own.