Crazy Like a Fox: Politics and Financial Reality in Canada

During the the last election for Mayor in Toronto I wrote some threads criticizing the Smart Track plan put forward by John Tory, which is his plan to carry the development of the city's transit system forward. I wasn't criticizing it as a transit plan, per se, but rather as a financial plan. Transit expansion, according to Mr. Tory, could be payed for by Tax Increment Financing (TIF), in which tax revenue increases flowing from development carried on by private developers along the routes of expanded transit paths would be used to pay off the very large loans the city would have to take out to get construction under way.

I wasn't the only critic of this idea. In practice, when tried elsewhere on the scale that Mr. Tory is considering, the plan has failed to deliver revenue streams comensurate with amounts needed to pay down the debts incurred in the course of project construction. In some cases, on a much smaller scale than the one envisaged in Toronto, TIF has succeeded in delivering expected revenues, but in the most noteworthy large scale application of the plan, in New York City, TIF has been applied to interest charges on loans without making a dent in the principal.

That's the kind of plan your credit card company loves.

In addition to the difficulties posed by a plan based on Tax Increment Financing, there is the question of the way that tax dollars are apportioned in Canada. Toronto collects only a very small percentage of the tax dollars paid in the city. A report published by the government of Canada, www.fin.gc.ca... lauding the success of the Toronto Waterfront Revitalization Initiative as a jobs producer and as a tax revenue generator, made it crystal clear, in an unprecedented way for a government document , that the City of Toronto would only receive between 5 and 6 cents of every tax increment dollar that accrued as a result of that project and 95 cents would flow to the Province of Ontario and to the Government of Canada.

The result of this situation, in political terms, is the appearance of bottles of "Snake Oil" on the counter, during elections in this city. Snake Oil like Tax Increment Financing.

The Federation of Canadian Municipalities has published reports saying that municipalities see only about 8 cents out of every tax dollar collected from municipalities. This situation makes John Tory's TIF plan look even more unlikely as a vehicle guaranteed to deliver Toronto from the large debts it will incur. Mr. Tory may very well have had faith in "snake oil" during the election, but having been elected, he will now have to face financial and political reality in order to cope with Toronto's transit and other problems.

I don't think Tory is an evil man. I think he is going to do his darnedest to pull the city through this situation without placing an undue burden upon the city's taxpayers. Sincere as he undoubtedly is, he will fail in this , absent a concerted effort from the federal and provincial governments.

Of course, expecting such an effort would be to ignore the zeitgeist in upper levels of government, where downloading costs to the municipalities is all the rage.

This leads to consideration of another result of the bizarre way that tax dollars are divided in our country, that is, the myth of "sad sack" Toronto, always whining about money and always going, cap in hand, to the back door at Queen's Park, pestering the provincial government for yet another handout to help this poor, hard up, mixed up municipality pay for a lavish subway system or some other extravagant infrastructure project, when, up in Bear Paw, they can't even get a small hockey arena built.

This kind of mythology is dangerous to our country, but it is a symptom of a much deeper problem.

During the election campaign here in Toronto, as I pulled my hair out, thread after thread, trying to get the Ford brothers elected (herding cats), I decided that what I really needed to do was to try to come to some understanding of the country's financial position.

I don't even understand my own financial position.

I reasoned that seeing the big picture would help me to understand why Toronto was having so much trouble keeping pace with other major cities around the world in providing adequate transit service, that is, adequate to the demands of a city which is the "engine" of the national economy. The Federation of Canadian Municipalities reckons that hundreds of millions of dollars in tax revenue are lost each year in this city, lost to the city, lost to the province and lost to the national government, simply because the transit system is not able to meet the demands made on it by actual and potential economic activity.

The federal government publishes huge amounts of financial information but the information is presented in a way that makes it impossible for the average citizen to get a clear picture of the balance sheet. Currently the country is in debt and that dept is increasing. The province is also in debt and that debt is increasing. The City of Toronto is also in debt and that debt is increasing.

The Holy Grail of all three of these levels of government is not to pay off debt, but rather, to stop debt from increasing.

They call it, "balancing the budget", as opposed to what, "balancing the books", i.e., equalizing assets and liabilities? To balance the budget, expenditures must not exceed revenues in any given year. In Toronto, the Ford brothers were all about this. When you, the taxpayer, are paying large debt servicing charges (interest on loans), you are pouring money down the drain, basically enriching bankers, because you couldn't pay cash for what you have already bought on credit.

This is somewhat of an artificial situation in Toronto, because Toronto and Torontonians have paid in cash for their infrastructure projects, including transit, many times over. I know I am simplifying the situation vastly. A tax return filed in Toronto doesn't mean, absolutely, that the money being taxed was actually earned here within the city limits. Very large corporations headquartered in the city operate nationwide. Their money is earned all over the country, through the efforts of Canadians, all over the country.

A modern state like Canada needs a national government. It needs provincial governments. it needs municipal governments. There is a hierarchy of command among these governments. The national government calls the most important shots.

These various governments are like hockey referees, making sure the game goes according to the rules of the country. In hockey, in the NHL, under the four official system, officials make up 25% of the people on the ice most of the time. In Ontario, people who are publicly employed, i.e., working for the government in one form or another, make up roughly 20% of all people employed in the province. Indeed, in the country as a whole, from 2009 to 2014, public sector employment increases were at 20% of total employment increases, which is in line with the numbers for Ontario.

www.budget.gc.ca...

Without tracking the numbers down specifically, I feel confident that public sector employment in Canada would be close to 20% of total employment.

The hockey analogy is not a bad one. Does the game need that many officials? I think it does. Do Canadians need that many public sector employees? Probably. But . . . are they managed well? Are they paid too much? Those questions are the subject of politics. All I know is that the government of the City of Toronto can't pay for transit expansion.

People who have read some of my other threads will know that I am a disciple of Stevie Cameron, author of On the Take, the scathing exposé of rampant corruption during the administration of Brian Mulroney, Conservative Prime Minister during the period 1984-93. According to Cameron, that government was particularly corrupt in its handling of public money, but I have no doubt that any government elected in this country would be doing substantially the same thing.

During the post mortems which followed the last federal election, wonderful, fresh, idealistic, young, new, bright, hopeful, inspiring Justin Trudeau speculated that the Liberal Party of Canada lost the election because they were outmanouvered by better "bagmen" and that something would have to be done about that.

The NDP are no better. Nobody, not even the "parlour pinks" campaign to put an end to political patronage in this country. They can hardly wait to get into office nationally for the first time so they can plunge into the gravy train.

So, what do we have so far? We have a very well paid and benefitted civil service, 20% of people employed in the country. We have political patronage enriching criminals and grifters of all sorts who buy their way into the good graces of the party in power with political contributions.

Is there anything else sapping the strength of the country?

As a matter of fact, we have a terrible case of the "American Flu". I'm calling it a "flu" because when dealing with symptoms of a psychiatric nature, it is sometimes better to use euphemisms so as not to upset "the patient". Because of our closeness to the United States, a closeness that makes Siamese twins look like casual acquaintances, we are subject to the neurotic "whims" (paranoid and murderous manias) of our esteemed neighbour.

All Canadian politicians go along with these whims, some more willingly than others, for obscure but I am willing to bet, mostly financial reasons. Canadian voters should not labour under any misconceptions aboout this. No party elected to power in this country will substantially alter Canada's unswerving commitment to any whim which pops into the relentlessly addled pate of Uncle Sam.

Humouring Uncle Sam is very expensive in money spent on nasty toys and nasty camping trips overseas. The government of Canada can show Canadians the numbers on the cost of bringing Libya, for example, to its current level of self-sustaining anarchy, and make those numbers look very small, mainly because they don't include the cost of the fleet of aircraft, and other hardware, without which, the expedition would have been impossible.

Canadians will be forever playing "Simon Says", with the United States doing all of the "saying". It will be increasingly expensive as the American gameplan in world politics falls apart, as I think it will. We have already been sucked into putting hi-fi microphone surveillance systems into the lobbies of the nations's airports. This is a mirroring of the militarization of the homeland going on in the United States. It is spillover. It is the "American Flu" spreading to this country. It has nothing to do with security, just as similar initiatives in the US have nothing to do with security. It is about moving product.

As the world outside has become less open to American military predation, the arms industry has "moved product" at home and created a security state in the homeland, in order to keep moving product. The "American Flu" is a disease that is going to cost us more and more.

Canadians are going to have to decide whether thay can continue to afford to go down this road. The costs are heavy in money and in style of life. How long does it take, after putting a neurotic in charge of your daily routine, before you yourself start to become neurotic and start to regard neurosis as normality . . . Mr Harper?

Canada is a very large place for 30 million people to manage. Is it too much? Is it too much under the present circumstances, the present commitments? Is Uncle Sam really crazy or is he "crazy like a fox"?

unfortunately some good information is buried under a mountain of verbal diarrhea.

Transit financing is getting harder and harder everywhere around the world, simply because of the costs of modern systems increasing so much. City funding models were never designed for such massive capital projects. Mr. Tory is proposing one way of trying to improve funding. In Vancouver they are having a referendum to raise taxes on everyone to pay for improved transit. The developers in Vancouver have already escaped with billions in profits due to a new transit system project. Pick which funding model you like better.

The tax money being divided between cities, provinces and the federal government is no secret, no conspiracy. Bigger decisions are made higher up the food chain. It's the decision making model the world has used for a very long time. Cites are at the bottom of the tax food chain. They don't get much and simply keep things running for the most part.

I better stop there, cause if I get into the craziness of supporting the Ford's for political office I'm going to really get upset.

a reply to: noeltrotsky

What good information?

2nd.