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Thursday, July 1, 2010

Who wouldn’t want a zero per cent tax increase?


I was asked by local media yesterday about how I felt about Joe Fontana’s pledge to have no tax increases for the next four years. Well, what’s not to love? Who wouldn’t like to be able to campaign on that?

But is it doable? Is it realistic to suggest that we can keep everything we have, continue to pay off our debts, meet our contractual obligations, pay for our regulated programs, expand services to new homeowners and industries, without any extra costs even though we still have inflation?

The last person to make those kinds of promises was Ottawa mayor, Larry O’Brien, in his 2006 election bid. He won the election but four years later taxes have increased by 14%. This year the tax increase was 3.77% and transit fares went up by 7.5%.  O'Brien is not the front runner in the current campaign for mayor.

Windsor recently announced a zero per cent tax increase. To get there, they had to eliminate their municipal daycare programs, getting rid of the equivalent of 74 full-time staff as well as making cuts to parks and engineering departments, among others.

Fontana says he can do it without any cuts. He’ll just increase the tax base through growth.

What kind of growth will it take to make up the difference?

Currently, 1 per cent of our budget is equivalent to $4.2M. That means in order to cover the 2.7% increase adopted recently by council as a preliminary target, Fontana would have to find another $12.4 M in revenues. Add to that the additional $8M required for our water and wastewater sustainability plan, and you’ve got over $20M to find in assessment growth. In terms of growth, this would mean adding at least 8,000 new single family homes to the tax base every year. But our population growth is only about 3,000 per year. Who will buy these homes?

What will attract newcomers to London are jobs. So what about attracting businesses and industry to London in order bring more people here?

Attracting industry and luring businesses away from their existing locations can be an expensive undertaking. Currently, taxpayers pick up the tab for servicing new industries to the tune of nearly $7M per year. Where will the money come from to double or triple that? What kind of incentives will we have to give to businesses to locate here? How will the costs be covered?

To have the kind of business and industrial growth envisioned by Fontana would mean something on the order of ten new One London Places added every year for the next four years or two and a half Masonville Malls.

And don’t forget the time lag. It takes about two years to get the buildings up and the taxes flowing.

Fontana suggests that all this can be accomplished by simply relaxing the rules a little bit, not standing in the way of anyone with a piece of land he or she may want to “develop”. No wonder he has the support of the Building and Construction Trades.

It will be interesting to see who the rest of his backers and allies are. It would appear there is plenty of opportunity for assessment growth for political campaigns.

5 comments:

Evan Harper said...

The other half of Mr. Fontana's campaign seems to be pre-emptively working the refs; every time the Free Press (hardly a muckracking ragsheet) cautiously points out the incoherence of his fiscal promises, he cries "pro-DeCicco bias!"

The only thing I can remember him saying to explain how he'd fill the fiscal gap is something about public-private partnerships. I haven't seen any specifics, but I can only guess that this means selling or leasing off City assets on terms that are unfavorable in the long run, but create a nice revenue bump up-front to make the budget numbers look better.

Even then, though, you have to wonder how $20m could possibly be squeezed out of such schemes.

Butch McLarty said...

If this is supposed to be Mr. Fontana's so-called platform, then I'm the undisputed Caliph of Baghdad.

Specifics, Joe, specifics.

And if you can't get specific, Joe, put Cheryl Miller on the case, because she's always dreaming in technicolour anyway.

dougsamu said...

My historical memory is foggy, as I was a youngster and much less interested then, but didn't Fontana sit on council during those no tax increases day of yester-yore? Wasn't there a huge tax increase after council got a wakeup? Haven't we been playing catch-up recently over sewer repairs and giant sinkholes because there was no maintenance because there was no money?

Please correct my assumptive memory here if I'm wrong.

Anonymous said...

I find it interesting how in London everyone compares a tax hike (or not) to 'x number of new buildings' or 'y new Masonville malls', like plowing over our valuable farm land and cutting down our trees will provide the silver bullet to wild and dangerous promises, including Joe's 'no tax increase' promise.

We need vision, people. We need it NOW.

The point is that all of this is unsustainable unless we look at what we're doing to improve property value. The basic lesson in economics is that more supply = decrease in value. Increasing the volume of houses, industrial parks and other developments in the London area only depreciate the value of existing property. Add that to unprecedented allocations to rental and lease units, and we have a 'slum lord' economy where no one takes pride in owning a piece of London (including, it seems, our own City Hall).

As we depreciate our property, we marginalize our ability to raise more taxes.

Joe's 'no tax increase' will lead to widespread depreciation of property, as it did in the past.

Steve Parker said...

Politicians who promise tax cuts usually under estimate their own greed.