Grant Bishop is an Action Canada fellow
There are less than three weeks before Toronto's municipal elections. Amazingly, for all the attention on transit, there is little talk about the city's dire finances. But city politicians – especially would-be mayors – don't like to talk about Hogtown's fiscal crunch. It's much easier to punt the ball to the inevitable budget crisis next December/January.
Toronto will face a budgetary shortfall of $450-million next year and $325-million in 2016. Unable to run in the red, the city will have to fill the gap. But you won't find this whopping figure mentioned, let alone addressed, in the summary of Toronto Council's approved 2014 budget. Nor will you find it in the backgrounder touting the city's great new programs. This underscores the problem with budgeting in the Big Smoke: we're focused on filling holes year-to-year. We need a multi-year view to avoid the fiscal cliff.
Next year's challenge is significant. The $450-million shortfall represents roughly 4 per cent of Toronto's spending. Even accounting for projected growth in the assessed value of Toronto's property tax base and assuming a 2 per cent increase in Toronto's residential property taxes, city staff forecast a budgetary shortfall of $300-million.
On page 13 of Toronto's "2014 Operating Budget Corporate Report", you'll find the stern warning: "Based on these firm estimates the City will be challenged to find efficiencies and other cost savings or revenue changes to address the pressures." They also caution: "Annual inflationary tax rate increases are insufficient to cover inflationary expenditures (specifically compensation costs in certain City Programs)."
Admittedly, a significant part of the decline in Toronto's revenues over the next two years – a $86-million decrease in 2015 and $43-million in 2014 – results from the province's decision to eliminate the Provincial Toronto Pooling Compensation funding (a provincial measure to subsidized Toronto's disproportionate social housing expenditure burden relative to other Ontario municipalities). Nonetheless, the province had phased in the elimination over three years. Indeed, virtually all of the looming expenditure challenges are clearly visible on the horizon for Toronto's City Council.
This is a failure of transparency and courage. The numbers aren't unpredictable; they're just uncomfortable. And, for our municipal politicians, it is easier to procrastinate on the hard choices, rather than have an adult conversation today.
In contrast to Toronto, cities like Calgary and Vancouver have already committed to multi-year budgeting processes to enforce transparency and fiscal discipline. Calgary develops budgets on a four-year cycle (conveniently matching the term for elected councilors). The aims are to ensure that Calgary's long-term goals are linked to short-term spending decisions and to provide ongoing scrutiny for the quality and sustainability of services. Vancouver's annual budget also has an explicit three-year look-ahead that outlines how operating expenditures and revenues will be balanced over the horizon. Those cities' budget documents make the numbers – and the choices – clear for citizens. Knowing the numbers – and publicizing any deviation from the planned trajectory – makes it easier for citizens to hold their municipal governments to account.
The sustainability of city finances and services also affects a city's economy. In the global market in which Toronto competes for investment and talent, the municipal fiscal outlook is a critical consideration for businesses' decisions about where to establish operations.
The Toronto Board of Trade has long called for multi-year budgeting. The Board's pre-budget deputations to Toronto's City Council this past year emphasized "the importance of introducing multi-year budgets as a means of providing tax payers and businesses with longer-term certainty on the direction of City services, finances, and tax levels."
Ben Dachis and Bill Robson of the CD Howe Institute have also stressed the importance of multi-year budgeting for Canada's cities: "Looking only one year ahead exacerbates many problems, such as the neglect of interactions between capital commitments – spending on, say, transit infrastructure – and related future operating commitments." As they contend, "multi-year budgeting can guard against one-time fixes that ignore long-term consequences."
Given the perennial fiscal handwringing to which Torontonians have become accustomed, it's obvious that we're guilty of that short-term thinking. It is lamentable that none of the leading mayoral candidates have stepped forward to address this gap. Multi-year budgeting is the obvious antidote to our annual crisis, and Toronto's mayoral contestants should pledge to swallow that medicine.