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E-BLAST: Moving Beyond Property Tax: Toronto’s Long-Term Financial Plan

Today is my eldest grandson's birthday. He was born in the middle of my 2006 re-election campaign. That summer is so clear in my mind, even after 17 years.


A photo of me, my grandkids, and my daughter Martha with my dad. My grandson Tristan is standing next to me on the right.


The 2006 election was the first with extended terms of office. Councillors and new candidates alike were excited at the prospect of having a longer, four-year term to make an impact. Adding to the excitement, the Provincial government had announced a year earlier that the next term of office would include a new piece of legislation called the City of Toronto Act. 


"The City of Toronto grew up a long time ago. It's time for the law to catch up," said Premier Dalton McGuinty when he announced the legislation’s creation way back in 2005. "Together with our new investments in things like public transit, health care and education, this Act would provide Toronto with the tools it needs to be as optimistic about its future, as it is rightfully proud of its past." As it turns out, the City of Toronto Act may not have all of the tools a big city needs to succeed. 


That lands us here, with our updated Long-Term Financial Plan. The plan, which outlines our city's financial challenges and various paths forward, was released earlier this month and discussed at Executive Committee last week. I've taken a lot of time to pore over the reports and hear feedback from our community. The reality is, we need a whole new financial framework to support the level of services our city offers without overly relying on your property taxes. Let's take a look at how we got here and what options are available for us to build a city that delivers for Torontonians.



THE CITY OF TORONTO ACT


That City of Toronto Act (CoTA) arrived in the nick of time. The "Mitigation Fund" that had been given to newly-amalgamated Toronto was gone. Now, the effects of the Provincial download of social housing and transit system operating costs were really coming home to roost. The CoTA was meant to give us the powers and revenue tools that would allow us to mature our municipal finances to match other large cities.


We were grateful at the time, but the CoTA stopped just short of providing the revenue tools and powers that exist to make big cities financially sustainable all over the world. We would still have no tax based purely on income and a resident's ability to pay. It left Toronto municipal leaders and staff feeling not so much grown-up, as the Premier said, but more like an irritable teenager. Like my 17 year old grandson, we're ready to take on the world but we can't get the keys to the car without a whole lot of begging.


MOVING BEYOND PROPERTY TAX


In 2007, the CoTA gave City Hall the power to implement the first Municipal Land Transfer Tax (MLTT) in Canada. Even though this tax is quite common stateside, it was controversial here. The media was full of doomsday scenarios about a Toronto real estate crash that never arrived. Once fully implemented, the MLTT allowed us to stabilize the rate of property tax such that subsequent mayors were able to promise very modest increases for several years. Today, we have one of the lowest mill rates in the province.


A map comparing property tax rates across southern Ontario. Click to view a larger version.


You may wish to debate whether or not our property taxes are low. If you feel that Toronto's property taxes are too high, then I'd submit that you're arguing in favour of the Long-Term Financial Plan (LTFP). The LTFP outlines in detail the financial difficulty the City of Toronto is facing after years of auditing, hunting for efficiencies, making cuts, and delaying important state-of-good repair work. More importantly, this plan provides us with a menu of solutions so that Toronto can finally be, as Premier McGuinty said so hopefully 17 years ago, "as optimistic about its future as it is rightfully proud of its past.”


The goal of this plan is to avoid Toronto falling any further into disrepair and failing to deliver the quality of life that all Torontonians deserve. To do so, the plan proposes that we should consider all of the leftover unimplemented revenue tools from the CoTA that we have the right to use now. However, those tools alone aren't enough. The LTFP further recommends that we petition the Province for the right to collect the kind of mature forms of taxation that all cities our size and larger have access to, namely a municipal sales tax or some form of true income tax.


A NEW FISCAL FRAMEWORK


You may recall that last summer, Mayor Tory was already mentioning the need for a Municipal Sales Tax in his campaign speeches. That was because he had already had staff show him how deep our fiscal woes have become and how little progress he could make balancing our books with only the tools left in the CoTA toolkit. Let's take a quick look at those tools and why we need bolder action.


A favourite option within our CoTA toolkit amongst residents and environmentalists is a parking levy. We have the right to charge a levy on all non-residential parking spots with a slight amendment to the CoTA. We heard many deputations in favour of this at Executive Committee last week. It feels like a tax that only big business will pay, and our consultant estimates a high amount of initial revenue—around $490 million annually. However, there are a number of challenges to implementing this measure that we can see playing out in other cities, and it isn't enough to solve our fiscal woes. Moreover, a parking levy is truly an environmental policy lever—by increasing the cost of parking you reduce the use of cars. If successful, the revenue potential from this levy decreases over time.



The CoTA also allows us to reintroduce a municipal vehicle registration tax. Council implemented this for two years over a decade ago and it netted the City $75 million annually. We used that revenue to extend Simcoe Street down to Lakeshore Boulevard and to create grade separations on Morningside Drive and another on Sheppard Road to solve traffic bottlenecks. Despite this progress, the vehicle tax became a political issue in the very next election and every mayoral candidate promised to scrap it. Today, it would be much more expensive to collect because the Province got rid of their own vehicle registration tax. Unlike last time, when we piggybacked on the Province's collection software, we would now have to create our own software and a team of staff to run it.


Other tools mentioned in the CoTA include taxes on alcohol, cigarettes, entertainment and amusement, and road pricing charges (otherwise known as congestion charges). These all have varying implementation challenges. Even if we were to introduce all of the above here in Toronto, in the best case scenario we would only fill about 30% of the City's chronic funding gap that has grown to $1 billion annually. To solve the problem in one fair tax, we end up back at the same place: Municipal Sales Tax.


A 1% MUNICIPAL SALES TAX


A 1% Municipal Sales Tax has been discussed on and off for almost 30 years, when the Provincial government first began to radically alter the relationship between our two levels of government. At that time, the Province downloaded essential services like social housing and transit to cities without giving us the revenue tools or funding to properly operate them.


People who live in Baltimore, Chicago, New York City, Seattle, Washington DC, Los Angeles, Austin, Houston, Miami, Milwaukee and hundreds of other towns and cities pay a Municipal Sales Tax. More often than not, the rate is about one cent on the dollar. In many of these American cities, the state is already levying a state sales tax and the two rates are collected together, not unlike our HST. These US cities use this revenue to fund the kinds of big social services like transit and housing that Toronto is struggling to maintain.



So why is this conversation coming up again now, when times are hard? Toronto needs a big financial lift, and property tax is the least fair way to get that lift. Think about the street where you live. You all have to pay roughly the same property tax even though your lives and incomes may be vastly different. Some homeowners on your street may have paid off their mortgage a while back, while others are first-time buyers on a tight budget. Property tax is not based on your income or ability to spend, and we need to be leaning on those who can afford to invest more into our city, not families and seniors who are struggling with the rising cost of living.


Property tax also isn’t enough to fill our budget hole. Raising our property tax rate by 1% raises only $39 million, and our city needs about $1 billion per year to fill the hole left by COVID-19 and to repair so much of what is ailing our city. We need to implement a fair, long-term, predictable and affordable solution. Any Provincial or Federal leader should want to help us do just that.


With a sales tax, each of you will invest differently in the city depending on how much you are able to spend. It will also let us capture revenue from people who come to Toronto, whether that be for work or play. This measure actually has the potential to generate the billion dollars we need to properly fund all of our city services, from fixing our local roads and improving your neighbourhood park to running our transit system, building affordable housing, and fighting climate change.



COUNCIL'S RESPONSIBILITY


Last but certainly not least, in exchange for a massive change to our financial framework permitted by you, the community, and by other orders of government, City Council must make a commitment to long-term responsibility. Every year, we use our budget process to look for efficiencies. We must redouble our efforts with exhaustive annual program reviews to make sure we can hold up a demonstrable public good for every dollar we spend.


As Budget Chief, I will commit to leading the charge to wrap strict and sound spending policies around any new source of revenue coming in to the City's coffers. We can't ask anyone to invest more into our city unless we are prepared to be both disciplined and transparent about where that investment goes in good times and bad.


The Long-Term Financial Plan is the beginning of a city-wide conversation our Mayor and City Council wants to have with you—our residents. The City is stepping up and putting everything on the table. We're exploring every option available to us to deliver the services and quality of life you expect and deserve. I look forward to continuing this conversation with all of you in the months ahead.

 

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