Budget Legacy: Rob Ford's budget surplus is neither surprising or unprecedented

So Mayor Rob Ford’s got a budget surplus. And it’s a big pile of cash: $292 million in gross terms. That’s enough coin to fill a whole bunch of swimming pools.

But this isn’t particularly good or surprising news for Ford. A closer look at the city’s budget history reveals that the mayor’s surplus numbers look much the same as the surpluses delivered by Mayor David Miller and his budget chief, Councillor Shelley Carroll. Ford’s numbers are actually a little lower – likely owing to some of the consequences-be-damned cuts to revenue the new new mayor made in his first few months in office.

Far from being the result of belt-tightening or cost-containment, Ford’s surplus comes almost entirely on the back of the Land Transfer Tax. Though Ford has vowed to get rid of it, it’s hard to find fault with a revenue tool that has continuously outperformed staff estimates. It also hasn’t had noticeable impact on the city’s real estate market, except for maybe discouraging some speculation. And, really, if the worst thing you can say about a tax is that it annoys real estate agents, you’re doing okay.

It’s no surprise that the mayor now appears to be backing away from his campaign promise to eliminate the tax.

It should seem clear to Toronto residents now that they were swindled last summer when the mayor stood up and claimed a threatened deficit would require $774 million in program reductions. Even back then, staff and councillors knew that much-reported figure didn’t reflect the city’s true fiscal reality. (A staff report from January 2011 pegged the real opening pressure at $200 million lower.) They also knew that the real estate market in Toronto hadn’t crashed – and that revenues would come in higher than budgeted for once again.

In the context of real city budget numbers – with big-time opening pressures but also big-time surpluses – the service cuts Ford pushed for start to look especially empty and symbolic. A 10% increase to staff projections on land transfer revenue could have eliminated virtually all of the mayor’s service cuts. An increase of less than one percent would have saved the High Park Zoo.

With news of the surplus, some councillors are calling for more aggressive inclusion of land transfer tax revenues into the city’s budget projections. It’s a sensible argument, but it should be approached cautiously. The last thing this city needs is to get caught with its pants down if and when the condo market slows.

In the long-term, the best fiscal strategy for Toronto remains one that looks at diversifying revenues and providing steady, direct funding for infrastructure. Coupled with multi-year budgeting, that kind of environment would allow for continued low property taxes, a better business climate, sustained and secure public services, and actual city-building. More than anything, that big city approach to finance can and should be David Miller’s legacy – a legacy that we’re seeing pay off with sustained year-end surpluses.

Provided, of course, that Rob Ford doesn’t screw it up.

That damn streetcar purchase

Much of the 2011 surplus will go directly toward paying off a capital purchase council made in 2009, when they bought much-needed new vehicles for the downtown streetcar network.

As John Lorinc points out today at Spacing, this is policy that makes sense. Directing money to major capital purchases means more room in the capital budget to fund transit and other infrastructure improvements that the city desperately needs.

But the mayor’s team can’t help themselves. They’ve pointed to the streetcar purchase as a boogeyman – a liability that could devour us all. Even Councillor Peter Milczyn, who voted in favour of the motion to buy the streetcars, has been claiming the streetcar order was made “with no way to pay for it.”

I’m not sure what “no way to pay for it” actually means, but since it’s a line of attack that comes up a lot, here’s some quick history. Toronto planned its streetcar purchase under the assumption that they would get funding from the provincial and federal governments. The province came to the table, but the feds refused to pony up the cash under their stimulus program. They told the city, rather profanely, to go away.

With Harper’s government holding firm, the city chose to continue to the order (because the alternative was to spend a huge amount of money rebuilding thirty-year-old streetcars), making up for the missing federal money by deferring several items in the TTC’s capital budget.

It wasn’t a great outcome, but the alternatives were worse. And there’s certainly no truth to the allegation that council made a decision without a plan to pay.

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