Slaying the City of Toronto Budget Beast

Why jacking up property taxes (again!) might cause more damage than good and what might be done instead

Cash crunch. That’s a phrase politicians and public policy officials have been invoking to justify their bloated budgets ever since the first politicians and public policy officials crawled out of the rain forest. “If it wasn’t for the current crisis,” the explanation always goes, “We’d never increase spending.”

Yeah. Well I’m old enough to have figured out that there’s always a “current crisis” on tap to justify the latest cash crunch. But every subsequent tax increase also creates a whole new set of victims.

Since both tax increases and budget cuts will unavoidably cause pain, we should ideally seek to find the balance that distributes the pain as fairly and rationally as possible.

If you're concerned about housing shortages, for instance, then it’s worth remembering that raising the property tax is absolutely going to make things worse. Why? Because higher property tax rates make it harder for people to own homes. And by “people” I also mean landlords.

Think about a family that’s considering investing in a couple of homes. The idea is that tenants will be able to rent those homes for a monthly price that’s, say, 15% above their monthly mortgage payments. Taking into account existing taxes, maintenance, and other costs, that might just about make sense. However, if property taxes jump by another 10-15%, our imaginary family may decide that their investment would now only work if they could charge higher rents. But between rent controls and a tight market, that may not be possible.

What will probably happen? Low-profit landlords will be forced to sell their properties and potential investors will abandon their plans. General higher housing costs will discourage low-income families from entering the market altogether which could, over time, contribute to gentrification. Either way, the number of affordable rental properties and homes will drop.

Think this will be the first major property tax increase for a while? Think again. This graph shows how property taxes on an average Toronto home have risen since 2012 in relationship to the inflation rate.

The tax payments were estimated using the actual final tax rates for each year as they would impact owners of the average Toronto home. The price of that “average” home was based on MPAC’s $770,000 estimate of the typical residential property price in Toronto in 2012 and assumed an average annual fair value increase of 5%.

Just to give you a sense of how much all that would add to the cost of living in Toronto, the typical property tax bill that in 2012 would have been $5,938 will have jumped to $8,680 by 2023. Increasing the 2024 bill by another 16% (as suggested by Mayor Chow) would push that bill above $10,000.

Of course, it’s unreasonable to enjoy Toronto services and expect to pay no taxes. And we all understand that, over time, taxes will increase. But at a certain rate of increase, the damage you’re inflicting outweighs any good you might hope to achieve.

Why not just borrow to bridge the gap? Isn’t that what governments do? Well, that certainly seems to be what this government has done often enough in the past. Which would explain why the 2023 budget included $833 million in debt charges. I’d say that credit card is already just about maxed out.

Ideally, we should be able to carefully review city spending to catch errors like program duplication, zombie funding for long-extinct services, and even corruption. That way, we could reduce spending without hurting any of the residents we’re here to serve. But successful reviews are easier imagined than executed. (Which isn’t to say that a city the size of Toronto shouldn’t maintain a full-time and well-staffed financial audit office!)

Sidestepping the possible presence of obvious budget cuts we can all agree on, I’m going to propose two practical approaches:

• Reducing funding for underused services

• Limiting certain services to clients with the greatest need

I used various data analytics tools to understand both funding and outcomes for existing city programs. The data itself came from City of Toronto sources, including their Open Data project and their Key Indicators dashboard.

Reducing Funding for Underused Services

Here’s an excellent example. Between COVID closing its physical doors, and a nasty ransomware attack that took its website down for months (so far), Toronto Public Library (TPL) has had a rough few years. But even when you account for those events, key usage metrics are way down.

For example, the average quarterly system-wide “circulation of materials” between 2007-8 was 9% higher than the similar average between 2022-3. “Standard and electronic reference transactions” were also down by 35% over that same period.