Tag Archives: Joe Pennachetti

Budget Chief No

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As we head into today’s abbreviated budget committee meeting with news of a $90 million surplus for the first 3 months of 2012, Budget Chief Mike Del Grande announces what any good, prudent, sane fiscal manager would. Hey, everybody! It’s party time! Let’s roll us back some sources of revenue. Woo-hoo!!

Or, as Elizabeth Church in the Globe and Mail phrases it: “He [budget chief] plans to push for a reduction of the land transfer tax in 5-per-cent increments beginning next year.”

Huh.

What?

Could you elaborate a little further, Mr. Budget Chief?

“He [budget chief] plans to push for a reduction of the land transfer tax in 5-per-cent increments beginning next year, arguing that the city cannot continue to rely on a revenue source that is tied to the fortunes of the real estate market…Mr. Del Grande says the city’s continued reliance on the tax will leave a ‘massive shortfall’ in its budget when the real estate market cools. ‘The land transfer tax is giving us a false sense of security’.”

O… K… Let me see if I follow the budget chief – who is a chartered accountant, don’t you know – follow his logic here. Because Toronto is experiencing a particularly hot real estate market, despite all the fear-mongering that the land transfer tax would kill people’s ability to buy a house, and is thus generating higher than expected revenues for city coffers, we need to start eliminating the source of revenue in order to wean ourselves off the LTT bounty in preparation for the time when we’re making less when the market cools? Sort of a voluntary reduction before the inevitable enforced one sets in?

Hmmm…

We really need to question Budget Chief Del Grande’s motivations. Or his competency.

Regardless of your position in life, whether a public sector budget chief, a private sector financial controller, an individual homeowner, in gazing into the future and spying a possible economic downturn on the horizon, who reacts with the suggestion to cut revenues? Batten down the hatches everyone! We need to start making less money now in order to be used to making less money later!

It makes no sense.

Don’t believe me?

Ask the city manager, Joe Pennachetti, himself a chartered accountant although, evidently, he secured his credentials at an entirely different school (of thought). In a talk delivered a couple weeks ago at the Munk School’s Institute on Municipal Finance and Governance and one we wrote about here and here, and Matt Elliott wrote here (yes, I do think it’s an important enough point to flog over and over until everyone knows it by rote), Mr. Pennachetti suggested that, while there were still efficiencies to be found, it was revenue generation that we needed to be talking about going forward. City building, whether infrastructure, transit, couldn’t be done through cuts or further efficiencies. Toronto, like every other city in this province, country, continent, needs new sources of revenue.

Of course, city building is not part of our current budget chief’s vernacular. I don’t think it too off the mark to suggest he’s more of the Grover Norquist/starve the beast type of politician. Taxation is bad. Therefore government spending is bad. Widows and orphans be damned.

Only hardcore right wing ideologues would suggest that, in this age of austerity, government look to reduce revenues.

Even if the budget chief demanded that any surplus be used to pay down capital debt, he’d gain some traction as trying to have a reasonable argument although not much of one. The city’s debt level is just fine, thank you very much. Credit rating agency Moody’s thinks so. The city manager thinks so (with one caveat: our social housing repair backlog). Any attempt to compare our situation to that of Greece automatically disqualifies you as a serious participant in this discussion.

Instead, Budget Chief Del Grande only raises the spectre of our capital investment debt to argue against both government revenue and spending. This year it’s: “Councillors who want to spend the surplus are forgetting the huge capital costs facing the city,” he [Del Grande] said, “including the multimillion-dollar tab for refurbishing the crumbling Gardiner Expressway.” Last year we had to cut services and programs in order to pay down the debt.

The budget chief needs to start coming clean with us and simply admit that he doesn’t think government should be in the business of governing. That way, we could cease pretending to have a rational debate on this point with him and get on with what we really should be discussing. Mike Del Grande’s unfitness to be overseeing our city’s finances.

— fit of piquely submitted by Cityslikr

Fiscal Discipline

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Fiscal discipline.

The term screams of denial, restriction, restraint, asceticism even.

So it plays easily into the language of those ideologically bent on cutting our way back to prosperity. Anti-government types who see any public sector spending as inherently wasteful. A discipline of living within our means by way of making due with less.

But what if we interpret fiscal discipline through another lens?

Not one that suggests some sort of punitive action but one that provides a ‘training expected to produce a specific character or pattern of behavior, especially training that produces moral or mental improvement.’ A discipline that teaches the value of our tax dollars spent rather than the simple cost to each of us individually? To train a larger community into seeing that paying less inexorably translates into doing with less. You get what you pay for, folks, and demanding city service levels be maintained (or even improved in the case of transit) while insisting on paying less is the exact opposite definition of ‘discipline’.

Self-indulgence, perhaps?

With Moody’s maintenance of Toronto’s Aa1 credit rating last week, Mayor Ford and his allies hailed their curtailing of expenditures as the kind of fiscal discipline the city needs, conveniently ignoring the fact it’s the same level rating we’ve had for 10 years now. Wait. You mean during the 7 years chief tax-and-spender David Miller was mayor we had an Aa1 credit rating? Doesn’t that give lie to the entire underpinning of Mayor Ford’s reality? That the city was an out-of-control financial train wreck waiting to happen? We’ve borne the brunt of unnecessary cuts owing to a hysteria generated by a misguided but successful municipal election campaign in 2010.

On their radio show yesterday, the mayor and his councillor-brother hosted the city’s budget chief, our own resident Droopy Dog, Mike Del Grande who bemoaned the fact our credit rating hadn’t been upgraded a step to AAA, the highest level Moody hands out. I mean, what’s a guy gotta do to get a AAA around here? How many widows and orphans do we have to ignore before we’re awarded best in class?

“We need firm discipline,” the budget chief said at an Executive Committee meeting last year. “I get a little concerned when we start making arguments about the widows and orphans. Negligibles add up. We cannot afford to do everything that everybody wants us to do…the 2011 budget is cupcakes. We tend to spoil everybody. We need to learn to say ‘no.’”

Yet, we read this from the Moody’s report: “Toronto’s rating relative to other Canadian municipalities reflects a low debt burden and high levels of liquidity, balanced by operating budget challenges typically not experienced elsewhere.”

Huh. Low debt burden and high levels of liquidity. So why is the solution to our operating budget challenges from Team Ford only consisting of saying ‘no’ to government spending and paying down an already low debt burden? Oh, right. Fiscal discipline as a form of abnegation. No cupcakes for you, widows and orphans!

If we want an improved credit rating, Moody’s offers a solution. “Continued fiscal discipline, including a permanent solution to the existing operating budget pressures, [bolding ours] along with a continued strengthening in financial position, could exert upward pressure on Toronto’s rating.”

That would be fiscal discipline with a caveat from Moody’s. To ‘exert upward pressure on Toronto’s rating’ (arguably a necessity at this particular time) the city needs to find ‘a permanent solution to the existing operating budget pressures – in itself a challenge ‘typically not experienced elsewhere’. According to city manager Joe Pennachetti in a talk at the Institute on Municipal Finance and Governance last week, there’s maybe $100 million more in efficiencies to be found which is roughly 1% of a $9 billion operating budget. In other words, we’ve about maxed out in the amount of cutting as a source of fiscal discipline we can do without unnecessarily harming our ability to deliver adequate services.

Now we must talk about generating revenue. It’s hard to believe that any credit rating agency would seriously consider an upgrade until we begin to show that type of fiscal discipline. A willingness to consider and implement new ways to pay for all the services and programs we say we want. Or, what the city manager referred to as city building.

As we ramp up to the 2013 budget debate, starting sometime next month, this should be the direction the conversation goes. The slash-and-burn disciplinarians have had their way, exploiting a faux crisis of their making, not only succeeding at hacking away at services and programs but eliminating vital sources of revenue the city needs to properly develop and grow healthily going forward. That is only one aspect of fiscal discipline and, as it turns out, the least effective.

“The [Moody’s] high investment-grade rating also reflects a large and diversified economy, which remains a source of credit strength, providing access to a broad tax base.”

How to fairly and efficiently tap that ‘broad tax base’ should be the starting point of next year’s budget discussion. It’s one we’ve long avoided having as it’s fraught with political implications and easy prey for those too undisciplined to make difficult decisions. Discipline doesn’t have to mean simply doing without. It can also represent learning how to contribute to a wider good.

— floggingly submitted by Cityslikr

Crisis? What Crisis?

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It was surprisingly calm, Joe Pennachetti’s talk yesterday afternoon at the Institute on Municipal Finance and Governance. Serene, even. Reflections on Toronto’s Fiscal Health and the Decade Ahead: A Discussion with the City Manager. Toronto’s Fiscal Health? I mean, isn’t that sort of an oxymoron?

Nope, according to our City Manager we’re doing just fine, thank you very much. Still got that Double A credit rating. Our debt, hardly runaway, will peak at about 10% of our assets in 2015, a financial situation most of us personally would consider top notch. “We have a very healthy financial city at this point of time,” Pennachetti stated.

It belied the hysteria and apocalyptic noise we were subject to during last year’s budget process. And the year before that. And during the 2010 municipal campaign.

Come to think of it, Pennachetti’s presentation quietly pulled the carpet out from the raison d’être of the Rob Ford mayoralty. We have a spending problem, folks, not a revenue problem. Time to tighten our belts and Stop the Gravy Train.

(Are you as bored reading that as I am writing it?)

Now to be sure, the city manager was not averse to finding efficiencies, trimming whatever fat there was to be trimmed. The KPMG Core Services Review was his idea. Long overdue in fact. He thought it should’ve been carried out over two years not one (another sign there was never any need to hit the panic button the mayor and his allies so wanted push). Pennachetti was also onboard for the aggressive negotiating tactic we saw with the city’s workers earlier this year. Like the Deputy Mayor, he felt the city needed more control over scheduling and back end things like benefits.

Here’s the thing. If I heard the numbers right, the Core Services Review netted the city a savings of about $24 million. The labour savings? About $20 million. That’s on an operating budget north of $9 billion. Or about .5%.

I know everyone has different lines they draw. Count the pennies and the pounds take care of themselves. What’s 44 million when you’re talking billions? But a million here and a million there eventually adds up, etc., etc.

The point I’m trying to make here is those are numbers that don’t correspond to the tumult we witnessed arriving at them. No one’s suggesting finding $44 million in savings wasn’t valuable but was it worth the cost, not just in terms of money but the psychological and political warfare that preceded it? Forty-four million is simply a far cry from last October when the mayor in a speech to the Empire Club warned, Toronto’s financial foundation is crumbling. If we don’t fix the foundation now, our dreams for the future will collapse.

Mr. Pennachetti did want the assembled crowd to know that the $774 million number being thrown around at the beginning of last year’s budget debate as a spectre of this crumbling financial foundation was real. Yeah Joe, nobody ever disputed the veracity of that amount as an opening pressure. There was just a whole lot of disingenuousness in using it as the amount that needed to be cut from the budget, the shortfall needing to be made up. The number was nothing more than a scare tactic used by those wanting to cut more, to cut deeper.

Admittedly, it’s not all chocolate and roses. There are a couple ‘smoking guns’ as Pennachetti referred to them that the city needs to deal with to maintain the current fiscal balance. One is the ever increasing chunk of the budgetary pie taken by emergency services (TPS, EMS and fire department) and the TTC. The other is social housing, especially the eye-popping outlay of cash needed for the repair backlog at the TCHC, roughly three-quarters of a billion dollars.

But as the city manager pointed out, these are things we won’t be able to efficientize™ (Lucas Costello) or rationalize under control. In fact, in one moment of surprising frankness, Pennachetti expressed doubt there was more than $100 million in service efficiencies left to be found in the budget. There would be no cutting our way to a brighter, more prosperous future.

Which is where the 2013 budget debate (coming soon to the airwaves near you) is going to get really interesting. With precious left to cut, the city will be facing the need to approach balancing the budget in two ways Mayor Ford abhors. Going cap in hand to the senior levels or, as some might refer to it, hitting up a couple of fucking deadbeats for the money they owe us. Or we’re going to have to look at generating more revenue, ie raising taxes.

Consider these numbers.

If the province finally re-uploaded the cost of social housing and their half of the TTC operating budget — two things they used to be able to find the money to do – that would free up $550 million for the city which is nearly $100 million more than the estimated opening pressure for 2013. We would then start the debate in positive rather than negative territory. Any talk of cutting services, shuttering programs, finding efficiencies, layoffs would be moot.

That’s not going to happen, of course. Somehow we have found ourselves, alone in the developed world, in a position where senior levels of government contribute precious little to the well-being of their municipalities. They seem to believe that we’re not their problem and serve as little more than piggy banks, sending off money and getting nothing near the value for it.

That leaves us with no alternative but to look at different ways to generate revenue. Yes, raising taxes. This runs contrary to the mayor’s view that we don’t have a revenue problem but, let’s face it, that was an empty rhetorical tic from the get-go. Nothing more than wishful thinking on the part of a sizeable majority of Torontonians who let themselves be convinced that we were overburdened with taxation and under-serviced.

(Interesting observation from the city manager yesterday who said that if we took a picture of an average street corner, we could see at least 20 services the city provides us. Check out slide 4 of yesterday’s presentation to see just all the things you receive in return for the local taxes you pay.)

While the last two budget cycles have been all about austerity and cutting, there is very little left to excise — outside of perhaps the police services which is another topic the mayor will likely be unwilling to broach — without causing serious, irreparable pain that starts diminishing the quality of life in Toronto. It’s now time to start talking about building and growing and figuring out exactly how to pay for it. That’ll include some unpleasant words Mayor Ford doesn’t like to hear but it’s the direction he’s unwittingly taken us in.

— supertramply submitted by Cityslikr