By caving on property tax, Chow is playing a dangerous game with Toronto's budget

Police funding and property taxes at the centre of city budget battle
Photo: Depositphotos
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Toronto’s proposed 9.5 per cent property tax increase has given the city’s right wing a new impetus to attack mayor Olivia Chow. However, the conservative forces that decry the tax increase are the same ones who created the current crisis.

Due to long standing structural underfunding, Toronto suffers from an operating budget pressure of $1.8 billion. On top of this, the city needs to find $26 billion over the next decade, to keep existing infrastructure in a state of good repair. The reality is, this money has to come from somewhere. There needs to be either tax increases, program and service cuts, or more support from the provincial and federal governments.

Torontonians are increasingly aware that the city is falling apart. From overcrowding and canceled service on the TTC, to the housing and homelessness emergency, to the lack of paramedic services, the city is approaching a quality of living crisis. People are correct to ask, “how did we get here and how do we get out?”

Notably absent from the right wing call for “efficiencies,” is any talk of efficiencies in the police budget. This is despite the fact that, during Toronto’s budget consultations, 43 per cent identified the police budget as an area needing decreased support.

Torontonians are increasingly aware that the city is falling apart. From overcrowding and canceled service on the Toronto Transit Commission (TTC), to the housing and homelessness emergency, to the lack of paramedic services, the city is approaching a quality of living crisis.

People are correct to ask, “how did we get here and how do we get out?”

When looking at the figures, it becomes clear that Canada’s largest city has been battered by a series of challenges.

Toronto has to run Canada’s largest transit system with less support than any other city on the continent. It attracts immigrants and refugees at almost twice the rate of the rest of the country. In turn, this has exacerbated the overcrowding in the shelter system, with the city having to house “close to 5,000” asylum seekers. Unique pandemic related costs and revenue reductions have also impacted the city.

In addition to its unique challenges, Toronto faces the same problems as every other municipality, with inflation, increased borrowing costs due to higher interest rates, downloading of services from higher levels of government, and a broken funding mechanism based primarily upon property taxes.

One of the worst tragedies to befall the people of Toronto has been successive right wing municipal governments that have structurally underfunded the needs of the city.

The scope of Toronto's $1.776-billion budget shortfall is illustrated in this graph presented on Jan. 10, 2024.
City of Toronto

More than a decade of starving the city’s social safety net

Since the election of former mayor Rob Ford in 2010, Toronto has seen a steady erosion of its tax base. This continued under mayor John Tory. Both Ford and Tory pledged to keep property tax increases “below the rate of inflation,” which actually means a cut in real economic terms.

In 2010, Toronto’s aggregate property tax was 0.83 per cent; this was reduced to 0.72 per cent in 2014, and by the end of John Tory’s term, stood at 0.66 per cent. This is an incredibly low rate relative to other municipalities, despite Toronto’s increased need.

For example, Edmontonians pay a property tax rate of 0.87 per cent, Ottawans 1.07 per cent, and Hamiltonians 1.26 per cent. In dollar terms, the average Toronto residence was charged $4,640 in 2021, the second lowest in the greater Toronto Hamilton area (GTHA). In comparison, the average resident of Oakville paid $6,185, while Vaughan homeowners paid $5,805.

In context, the 8 per cent residential rate increase, plus the 1.5 per cent building fund increase, proposed by Chow’s budget team, merely brings the city back into balance with the rest of the country. It amounts to less than $30 per month of increased costs for the average homeowner.

The response from right wing politicians and media was predictably apoplectic. Defeated mayoral candidate Anthony Furey called the tax increase, “unnecessary,” “destructive,” and “heartless.” Beaches-East York councillor Brad Bradford (another failed mayoral hopeful) accused Chow of being “completely tone deaf.” While Etobicoke Centre Liberal MP Yvan Baker labelled the budget a “shakedown.”

Left wing pressure group Progress Toronto pushed back against the anti-tax rhetoric, highlighting the disparity in media coverage and political outrage between property tax increases and rent hikes.

They made a very salient point that the 2024 provincial rent guideline on average Toronto rent amounts to a $65 monthly increase for a one bedroom apartment. This is more than twice the dollar figure of the property tax increase, and yet garnered almost no media coverage or political commentary. This speaks volumes about the relative power and influence of landlords vs tenants in Canadian society.

Fighting with the feds

A complicating factor in the budget deliberations is the question of funding for unhoused refugees. The city estimates that 4,300 refugees and asylum seekers will need a shelter bed in 2024, at a cost of $250 million. In its initial proposal, the Toronto budget committee put the responsibility for funding these shelter beds firmly at the door of the federal government. They stated that should the Trudeau Liberals not come through with support, then a special 6 per cent “Federal Impacts Levy” would have to be added to the property tax increase to cover the quarter of a billion dollar shortfall.

This was an interesting tactic from Chow, who you would normally expect to be fighting the Ontario Progressive Conservatives. However, the new Toronto mayor has negotiated a “New Deal” with the province, in exchange for the city acquiescing to Ford’s plan to develop Ontario Place. The Ontario government has agreed to upload responsibility for the Gardiner Expressway and Don Valley Parkway, and has pledged over a billion dollars to buy 55 subway trains and exceed housing construction targets. This adds up to three billion dollars taken off Toronto’s capital budget over the next decade.

The embattled federal Liberals were clearly not happy with being made responsible for the refugee crisis. They sent “outraged” backbench Toronto-area MP Yvan Baker on a media tour to pour cold water on Toronto’s demands and accuse Chow of not looking for savings.

However, it appears that Chow was able to resist Baker’s attack and extract a last-minute concession from the federal government. On January 31, Immigration minister Marc Miller announced a “stopgap” $362 million refugee housing fund to be used by provinces and cities. While this is unlikely to cover the full amount Toronto was asking for, it was enough for Chow to declare victory and cancel the 6 per cent levy.

Police call extra $14 million and 200 officers a ‘cut’

Despite calls to “defund the police” from parts of the coalition that supports Chow, the proposed Toronto budget actually gives more money to the police.

The Toronto Police Service (TPS) is one of the largest line items in the Toronto budget, taking in $1.174 billion. They are slated to get an extra $14 million above the amount they received in 2023. Budget chief Shelly Carroll said that this was enough for the service to hire an additional 200 officers. On the face of it, there is not much for police reform activists to be happy about in the 2024 Toronto budget.

However, the prospect of expanding the forces under his command did not appear to make Toronto police chief Myron Demkiw happy. Instead he decried the $1.174 billion proposal as “an unacceptable risk to our ability to provide the adequate and effective police services that are required by legislation.”

Mayor Olivia Chow
City of Toronto

The police and their supporters labelled the $14 million increase a “cut” because it is $12.6 million lower than the $1.18 billion they’d requested. This framing of the TPS budget increase as a “cut” was even repeated uncritically by several media outlets. Demkiw, a paid city employee, was also given free rein to attack the budget and publish his remarks on the TPS website. The special place of the police is shown by the fact that it would be practically unheard of for the head of any other city department to use similar language.

Notably, the Police Services Board and mayor Chow’s budget team ignored budget consultations where 43 per cent of the 10,802 respondents called for decreased funding for the police. Only 10 per cent of respondents supported more resources for the TPS.

Overwhelmingly, the area seen as deserving increased assistance was affordable housing and shelters, which was supported by 37 per cent of responders. These levels of support are not reflected in the budget where currently the average household pays $696 of their property tax to the TPS and only $291 to housing.

The demands of the police have also been undermined by a recent report that showed that there is “no consistent association” between police funding and crime rates in Canadian cities over the last decade.

Problems…

Notwithstanding absurd accusations that Chow’s budget is a “socialist fantasy,” the reality is far more moderate.

The proposal contains $152 million in new and enhanced initiatives, to fund such things as 450 shelter beds for refugees, modestly increased library hours, plus transit and community safety initiatives. TTC fares will also be frozen and the Scarborough busway will be built. However, even these initiatives are a mixed blessing, as they include $30 million for more TTC special constables, who have been accused of “violence and anti-Black racism” by community organizations.

A chart provided by the City of Toronto shows a comparison in residential property taxes.
City of Toronto

The budget also contains $600 million in “efficiencies,” including a $16 million cut to windrow clearing of plowed snow from suburban driveways. Chow’s supporters have cited the $600 million in cost savings to deflect accusations that they aren't trying to restrict expenditure. But it would be a mistake to believe that $600 million can be cut painlessly.

On CBC Metro Morning Jan 19, budget chief Shelly Carroll stated that this figure could be reached in part by not replacing retiring workers. This would have the effect of putting remaining workers under increased stress with an inevitable lowering of service quality.

Chow is early in her term and is enjoying a high degree of popularity. On this basis it seems likely that she will get her budget passed. However, she is playing a dangerous game.

By her own measures the 2024 property tax increase is set to raise approximately $340 million. But she plans on raising taxes by $280 million in 2025, and $215 million in 2026. Back-to-back above inflation property tax increases, without much to be seen by the way of improved services, will give a right wing a larger and larger stick with which to beat mayor Chow. And even after all of this pain, the budget shortfall will remain. This puts her re-election in real danger.

… and solutions

The problem is that the municipal funding model is inherently broken and unjust. Eighty eight per cent of Toronto’s $17 billion budget is supported by taxes, the largest being property tax, while the remaining $2.1 billion is supported by rate fees for service (waste, water, parking, etc.) These funding sources do not grow with the economy in the same way as income and corporate taxes. They are also flat taxes, which put increased relative burdens on the poor.

Unlike a progressive income tax, which has higher rates for higher earners, every Toronto homeowner currently pays 0.66 per cent of the value of their property. Perpetually increasing this figure puts a disproportionate burden on middle income homeowners who have a far lower ability to adapt to increased costs. Fees for service are even more regressive as they have zero relation to the wealth of the individual taxpayer.

Toronto city council votes on the 2024 budget on February 14.
CityTV

Graduated property taxes are an essential progressive reform to remove the burden from middle income property owners, while proportionally shifting tax to wealthy mansion owners. A report by global accounting firm Ernst and Young estimates that such a measure could raise between $10 to $68 million.

The fact that this would undermine the ability of the right wing to unite the so-called middle class with the rich, is probably why this progressive tax measure is currently illegal.

However, one source of revenue that is currently legal, and could be “implemented relatively quickly,” is a graduated commercial/industrial property tax. This would allow the city to get increased revenue from Bay Street financiers at the centre of the city, without unduly impacting small businesses. Such a progressive “make the bankers pay” tax would likely be very popular if promoted with conviction.

To really fix the broken system, Toronto needs transformative measures and a transformative movement to force the province to amend the City of Toronto Act and upload funding responsibilities.

A heavily progressive municipal business income tax that primarily impacted large corporations could be popular and raise between $192 and $769 million. New York City currently charges such a tax. A large retailer surcharge on companies with more than $5 billion gross sales could also raise between $39 and $65 million dollars per year.

Battered by inflation, and spurred on by the right wing media, Chow risks a middle class tax revolt if she does not fundamentally overturn this failed system.

Combined with moving police responsibilities to civilian agencies, the above measures would go a long way to erase Toronto’s $1.8 billion operating pressure.

However, there is a limit to what can be done by taxation alone. If Toronto’s tax rate becomes significantly higher than other municipalities it risks capital flight and job losses. Retailers could set up just outside city limits. Therefore the solution really lies in the hands of the provincial and federal governments that have the ability to raise the necessary resources for all municipalities, not just Toronto. Only 9 per cent of taxes and fees paid by Torontonians goes to the city, while 44 per cent goes to the province and 47 per cent to the feds.

Ernst and Young call for a “new fiscal framework” where there are no unfunded mandates from higher levels of government. That “Functions that are fundamentally provincial or federal responsibilities should be funded by those governments.”

Achieving such a new deal would take a significant political movement. But it is probably the only long term solution to the ongoing crisis facing the people of Toronto.

Battered by inflation, and spurred on by the right wing media, Chow risks a middle class tax revolt if she does not fundamentally overturn this failed system.

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