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Wednesday, May 18, 2011

Bad luck comes in threes

This has been a week of bad news for Londoners, especially those who are wedded to a tax freeze.

At last weeks’ targeting-setting meeting, an increase of 2.4 per cent was accepted as an initial target on the understanding that once a few possible lucky breaks materialized, the tax levy could be frozen at current levels.

The lucky breaks consisted of a number of possibilities: restraint in wage demands from protective services; higher than projected assessment growth; some generous grants from higher levels of government; some enhanced revenue streams.

The news over the last couple of days has been far from encouraging on the first three of these.

First, the wage settlement the provincial government cut with the Ontario Provincial Police, which after increasing pay by more than 5% earlier this year, freezes pay until 2014 when they get a further 8.5%. Such a settlement, designed to keep pace with Toronto police wages, can’t help but impact the local negotiations or an arbitrated settlement. In the face of these promises, it will be hard to limit the police services budget to a 3% increase which won’t even cover the cost of the hiring approved earlier this year.

Second was the report from the Conference Board of Canada predicting a decline in housing starts. London’s population growth has long been lower than many other similar-sized cities. Averaging at less than one per cent per year, it doesn’t take a lot of new homes to keep pace with such increases, especially when there are a lot of recently built homes looking for new owners. Those who are considering changing residences are likely to be thinking of downsizing rather than trading up to higher assessed properties on the periphery. Even the projected number of housing starts seems high. 1,700 new homes would mean one for every two people added to the population. Local predictions are even lower. According to the London Free Press, Mike Baldinelli, outgoing president of the London Home Builders Association, thinks it could be below 1,000. London’s new housing starts are predicted to be third lowest in Canada.

Third, the injections of cash from higher levels of government seem more unlikely than ever, especially at the federal level. The federal Conservative Government has a comfortable majority with no election looming. It is committed to corporate tax cuts, not keeping municipalities happy, especially ones which engaged in such partisan politics leading up to the 2011 general election. In fact, it took the feds only two weeks after the vote to give a decisive “no” to Diamond Aircraft’s request for a $35M loan to keep its D-Jet program alive and more than 200 people employed. While government officials claimed that they would not carry a grudge over the partisan antics of our mayor, they certainly made the decision quickly and with finality.

None of this is the fault of the current council; and that is the point. It is very difficult for a municipality to have a significant impact on those factors that affect its economic growth, and a tax freeze, while an attractive concept, is not something that is likely to generate growth. People rarely decide to move to a community on the basis of the taxes, especially when the taxes in question are relatively similar throughout the region. For businesses, too, the level of taxation is only one part of the overall picture. It’s hard to court businesses or homebuyers on the basis of taxes alone. People and businesses come or go because of relationships and opportunities, because they feel welcome and at home, because it’s a great place to live. And making it a great place to live costs money.

That leaves only one option, enhanced local revenue. So far, the only ongoing source that has been identified is the London Hydro dividend, which, since London is the sole shareholder, means moving money from one pocket into another. Will investing in a tax freeze be preferable to investing in renewable sources of energy?

It may be possible to sell off an asset or two. But unless the proceeds are invested in making the city a better place to live, the benefits will be ephemeral.


Anonymous said...

I'm probably naive, but what's wrong with 1% growth? Why all the obsession with getting bigger and bigger? What's wrong with saying we're big enough for now and focussing on the people and businesses we have? I for one, don't really want to see a 'bigger' London. Sorry!

Anonymous said...

Surely, Gina, you are not suggesting that Mayor Joe has made promises that he cannot keep?


His tax freeze promise reminds me of Fibber McGuinty's promise to cut the rates on the 407. He found he could not deliver on it. In fact, a cynical observer might conclude that both the Premier and the Mayor knew when they made them that their promises were impossible to fulfill.

I'm reminded of the old axiom, "Election promises are like a railway platform, something you get in on, not something you stand on."

anon one

Numbers Guy said...

There is nothing wrong with 1% growth. Much is made of growth but show me a big city without big city problems that cost more money.

And Gina, there aren't really any Canadian cities the size of London. And it is important to actually get some figures for assessment growth for other cities before you make statements like this. What are the numbers?

Gina Barber said...

@Numbers Guy- I guess I should have used the term "medium-sized cities".