Budget Madness

With further budgetary thoughts to our post today over at Torontoist (an AFUITBS Two-Fer Thursday!), I want to get all wonky on you. Not to show off or anything since I don’t really have that kind of wonk depth but to try and figure out just what’s going on ahead of next week’s city council Budget 2013 meeting.

wonky

Today at Executive Committee meeting, Mayor Ford hailed his latest budget with the usual flourish of meaningless cheerleading. “Phenomenal!” “Fantastic!” “Turned the corner!” “More to do!”

He then proceeded to pull out a more curious turn of phrase. “By getting spending under control, we are borrowing less and are no longer on a collision course with our debt ceiling.

“A collision course with our debt ceiling.”

Ah yes. The debt ceiling. offthecliffThe go-to boogeyman of conservative politicians everywhere.

The problem with our mayor invoking a debt ceiling for the city of Toronto is that it’s kind of a nebulous concept. For starters, the debt the city accrues is entirely on the capital side of the ledger. Municipalities cannot run an operating budget deficit owing to provincial legislation. So cutting spending on things like councillor budgets, contracting out garbage collection, reducing the police budget, eliminating programs in no way reduces what we borrow or helps us avoid a collision course with our debt ceiling. It’s either a gross misunderstanding of how our budget works or a full embrace of pure and utter disingenuousness.

Toronto’s debt is owing entirely to our capital expenditures. These are big ticket purchases the city makes for things that are used over the long term. Like new subway cars and buses. Road construction. State of good repair upkeep on other major infrastructure items that have a lifespan of decades.

Boil it down like this. (If your waste collection has not yet been contracted out.)

Your weekly garbage pickup is paid for out of the operating side of the city’s budget. The trucks that are used to pick up your garbage are paid for from the capital budget.

As for the debt ceiling, well, it’s not so much a bricks and mortar (which, if it were would be paid for out of the capital budget) ceiling as it is a suggested guideline. budgetingA self-imposed limit by city council to keep the amount the city pays to service its debt (interest charges basically) to 15% of the revenue it generates through property taxes. It is an entirely arbitrary and very, very conservative number.

How conservative?

In the 2013 proposed operating budget, 39.5% of the revenue comes from property taxes. By far the single biggest chunk but still, under 40%. According to our 15% debt ceiling, the amount paid in 2013 to service our capital debt cannot be more than 15% of that 39.5%.

Confused? Let’s try to put it in terms we can grasp.

Take all the interest payments you pay annually. Mortgage interest, car loans, credit cards. Add it all up and then see if it’s less than 15% of 40% of your take home pay. Yeah. 40% not 100%.

Imagine going out to apply for a mortgage and the banks do a calculation based on 40% of your annual salary! Gross, net, whatever. 40% of that! How many of us could afford to buy a house?

Yet that’s how the city conducts its business.

And the fucking kicker to all this is that we’re still sitting at 12%! capitalexpensesA couple years back, city staff suggested we were heading toward the 15% limit in a few years time. The mayor and other conservatives heard the news and wet themselves, seeing it as proof of their claim of out-of-control spending by the previous administration instead of what it actually was. A much needed injection of capital spending on an aging transit fleet and badly needed infrastructure state of repair.

So they began slashing and burning on the operating side in order to pay down debt in a wholly manufactured panic to keep not just under the 15% debt ceiling but well under it. Why? I talk about that in the Torontoist post. But essentially, it’s because as much as right wing politicians mouth the platitude of government being run like a business, they don’t believe that at all.

Making matters much worse, Mayor Ford crows about keeping property tax increase low, below the rate of inflation. This in turn not only decreases revenues for the city but keeps the debt servicing levels low which means it restricts the amount we can borrow and stunts capital expenditure and growth. Huzzah! To fewer and more decrepit buses. Hip-hip-hooray for burst water mains! Can I get a witness to the next chunk of concrete that crashes down from the Gardiner?

On page 30 of the city’s debt fact sheet (h/t to Rowan Caister for putting it back out there on the interwebs and a document I highly suggest you read in time for the budget debate next week), a chart shows just how dire Toronto’s debt problem actually is. Spoiler alert: it isn’t. Not only do we rank low on the interest costs as a proportion of operation expenses in comparison with other Canadian municipalities, that proportion is eye-poppingly small. 4% in 2008. texaschainsawmassacreWhile it certainly has risen since then not by a whole hell of a lot.

And this is the gravy to the likes of Mayor Ford and his council enablers talk about. This is the amount they’re frantically trying to eliminate for what? It’s not going to build us the subway he wants very quickly. It won’t keep up with the amount of state of good repair the city’s going to need over the next couple decades. In fact, their abhorrence of debt and debt payments will only serve to further build up our capital back log while not even making up for the years of operating cuts they’ve inflicted.

A good news budget? Only if you refuse to grasp its full implications.

wonkily submitted by Cityslikr

3 Responses to Budget Madness

  1. Sonny says:

    I looked at the proposed 2013 budget and Ford is not the “honest” man Lenczner spoke on. There is no debt ceiling. City Assets are valued at $17-18 billion.
    The truth is the City’s debt is rising under Ford because of all the new subway trains, streetcars, buses and vehicle purchases…

    The Ford lie is that “property taxes will not go up more than 1.75%” because of the mill rate increase and the rise in assessments.
    The last 2 years property taxes have gone up!

    Given the recent $232 million surplus for the 2012. The Cons don’t have to cut anything unless they scare and trick the average citizen/consumer er taxpayer…

  2. Nicholas Provart says:

    I like the Toronto Standard’s take on it recently, talking about how Toronto has the 5th lowest tax rate in the world. They suggest printing up T-shirts with the slogan “I paid the fifth lowest tax burden in the world but all I got was this lousy infrastructure” [see http://torontostandard.com/the-sprawl/toronto-is-the-5th-most-tax-friendly-city-in-the-world%5D

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