My thoughts on Municipal Finance

Click here to read it as a twitter thread.

Today the Federation of Canadian Municipalities put out a statement asking for $10 -15 Billion in direct federal aid to Cities. This raises some deep questions about public finance, public services and the relationships between orders of government.

The COVID outbreak put an enormous strain on all governments, the fact that municipalities “broke” under that strain reveals an underlying weakness in the current financial and service arrangements between orders of government.

This has happened before. The Great Depression exposed deep problems with who did what. A look at what happened then will help guide us now.

Before the Depression social assistance was provided locally by a hodgepodge of charities (often religious). Today’s Children’s aid societies and the United way are vestigial remnants of that system.

Many municipal governments (including Toronto) had administrative or coordinating roles to make sure that the charity from the wealthy (and some direct government funding) was spent “efficiently”.

This system couldn’t cope when the Depression hit which lead to the first large direct federal role in social assistance, particularly in providing housing and employment insurance.

During the Depression something like 10% of municipalities went bankrupt. This lead to the current legal restriction on municipalities that prevents us from borrowing to cover day-to-day operating costs. It was also a key consideration in the creation of The Bank of Canada.

We need to think on that scale or bigger. The job losses from the first weeks of the pandemic are larger than any period in our economic history.

We also need to understand how bad the City’s finances are. Currently we are spending about $65 million/week more than we take in. For context the total property tax is about $85 million/week. We would need to increase property taxes by 75% if we wanted to cover this ourselves.

This clearly shows that we don’t have the right financial tools for delivering the services we have. This vulnerability is the result of downloading. A few years ago I was at a municipal conference and Hugh MacKenzie presented a graphic representation of downloading.

This shows how much of public capital was owned by which government over time. It only goes to 2003, but the trend continues. Ownership of the assets matters because with ownership comes the responsibility for maintenance. Toronto is tens of billions behind on maintenance.

The story on the operating side is worse. Some of the services for which Toronto has full or partial responsibility, but does not have the financial capacity to carry are shelters, childcare, home for the aged, social housing, and transit.

You may have seen that the TTC is planning to lay off a huge part of it’s workforce. Without help this is just the tip of the iceberg.

FCM is right we need immediate cash. However the impact of COVID will last for years. We also need to negotiate a realignment of roles, responsibilities and revenues.

Finally, cities will be need to provide stimulus and jobs through public works the Feds will have to help with that too. Councillor Joe Cressy wrote about that here. This is an urgent public conversation that needs to take place in full public view.