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Financial relief for cities has arrived. Now what?


BY SHELLEY CARROLL Just about everyone has a story about that friend of a friend who won $400,000 in the lottery, blew it all in one year and ended up back in their 9 to 5 job. The moral of that tale doesn’t have to be "easy come, easy go." It’s a matter of being prudent, having a plan and sticking to that plan.

The City of Toronto is in a similar situation at the moment: we are about to receive a healthy infusion of funds from our federal partners. Hearing that we will likely receive the funds we need is a bit like winning a lottery — but I am hoping we take the most prudent path with that new money. Impact on cities All governments have been slammed by the cost of responding to COVID-19. Municipal governments, however, must cover the cost immediately. They don’t have the option of running a deficit for a few years. That's why you've seen all the mayors of the GTA banding together to demand that the federal and provincial governments find financial solutions. By law, municipalities are required to cover all of their day-to-day operating expenses by the end of the year. The pandemic's impact on cities varies from place to place. In any city, people who can't work because of COVID-19 have been able to collect EI or CERB, but how far that money goes depends on the household and the cost of living in each city.

Toronto has had unique challenges, and they boil down to the usual things that set us apart: housing most of Ontario’s poor and providing the core transit system to a region of six million people. By the end of 2020, the pandemic is expected to cost the City of Toronto $1.9 billion. Costs we continue to incur are things such as emergency homeless shelters and isolation spaces, enhanced public health services and big revenue losses such as $20 million a week in transit fares and a quarter of a billion dollars in land transfer tax collection. The City has absorbed as much of these losses as possible. By freezing the usual hiring to cover retirements and, yes, some layoffs, the City Manager has saved half a billion dollars. This has reduced the cost of COVID-19 on Toronto to $1.3 billion and change.

Federal support When Prime Minister Trudeau announced that he was sending $19 billion to premiers across Canada to support their province's municipalities, we all jumped for joy in our virtual offices. We quickly did the math and determined that if the money is distributed based on population, everything will be alright. But the number cruncher in me came back down to Earth pretty fast. If the provincial government flows these federal funds to us and we simply plug the hole in our 2020 Budget and move on, that would make us much like the "easy come, easy go" kind of lottery winners. Instead, I would like to offer some things to consider:

This means the City will have to resolve to be careful with our money. We must make this emergency funding last and hunt for savings in areas that aren’t a priority. There are things we have made strong commitments to and we should be putting money aside for future years so we can keep those commitments. And there is one other thing I believe we should do that is going to take the most courage of all. New thinking Just like a wise lottery winner who invests in the future, we have got to take the lessons of the pandemic and have a conversation about finding new ways to invest in our city. We have to do this right now in order to survive the coming years when other orders of government are deep in deficit. Consider this: during the lockdown, those whose finances were unaffected continued to shop online for fun and the governments who receive HST — sales tax — continued to earn revenue from that.

As businesses open up and masked shoppers return to malls and salons, the provincial and federal governments are watching their HST earnings grow and recover. Imagine if just one cent on the dollar were added to that HST and forwarded to the city where it was earned. A property tax system will always be the backbone of a healthy, predictable city funding formula. But as more businesses shut down their physical stores and pivot to online sales permanently, Toronto will be losing out on commercial property tax with no other revenue to replace it. That's why a sales tax, which captures revenue from all purchases (including online and only from those who have purchasing power), would be a great tool — and help our City weather any other storms the future may hold.

If I've given you some food for thought, watch this episode of TVO's Political Blind Date I appeared in with Budget Chief Gary Crawford last year. In it, I explain how a municipal sales tax allows cities such as New York and Chicago reduce their reliance on property tax.

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