Thursday, October 12, 2006

New Ontario initiative for local boondoggles

It's been tough going for London city politicians over the past three years as the municipal debt has soared to $371.1 million, or over $1,000 per man, woman and child in London, the repayment cost of which topped $38 million in 2004, or 5.6 per cent of the city's budget. This has made deficit financing a political liability instead of a source of anonymity for expenditures as it had been during the glory years of temple-building. Only a short time ago council had been able to erect massive money-losing capital projects like the John Labatt Centre, the Central Library, Covent Garden Market and the Convention Centre by passing off the costs to future taxpayers, unimaginable feats if they had been forced to confront the taxpayers of that time with the immediate costs. Although the costs of debt financing continue to be buried under the mountainous details of much larger and unreadable budgets, the general economic malaise of almost insupportable obligations has begun to be felt and the future taxpayers have arrived terribly quickly. The political benefits of borrowing have none-too-soon run their course, and the current council has suffered itself, however loudly, to a voluntary limit of only $30 million in new debt each year, jeopardizing future capital projects like the $70 million performing arts centre recommended by the city's Creative Cities task force. Politicians have lately taken instead to pleading for the anonymity of grants from the general revenue of provincial and federal jurisidictions to fund their shortfall, to replace the anonymity of borrowing from their own electorate.

In response to the poverty of local politicians, though, the provincial government is set to pass legislation this fall enlarging the powers of municipalities to create more debt by issuing bonds for capital project financing based on the expected increase in property tax revenue in areas surrounding the construction of these projects, a plan known as "tax incremented financing" or TIFs. Although the legislation will be tested on two pilot projects in the Toronto area, the TTC's $2.1 billion subway extension to York University and the city of Vaughan as well as the brownfields redevelopment project in the West Don Lands, other municipalities like London will soon be clamouring to use this tool because it flatters their pretensions of economic stimulus by central planning. Although the bonds are in effect nothing more than borrowing from future tax revenues like all other borrowing, TIFs will provide an incentive for local politicians to artificially elevate property assessments in certain areas by selling the overall costs to general ratepayers — which in every case exceed the localized gains to municipal revenue — as a benefit. Should TIFs become an unregulated mechanism, taxpayers can expect a boom again in the construction of indulgent self-promoting white elephants. Performing arts centres, theatres, skating rinks, fountains, amusement parks, etc.… all could be held hostage to the touting of concentrated growth at the expense of unreported and much less readily attributable general decline.

And, of course, such a system of deficit financing rationale would forever entrench incentives for municipal and provincial politicians to maintain an arbitrary, punitive, regressive and economically distorting system of property taxes as the main source of local revenue. Thanks goes to Paul McKeever, leader of the Freedom Party of Ontario, for forwarding this story to the London Fog — the party's 2007 platform includes specific proposals to eliminate property taxes.

2 comments:

Pietr said...

Who owns the debt?
Couldn't they be mobilised to demand control?

Pietr said...

While I'm at it, 'brownfield development was invented in the nineties as the wonderful answer to city expansion and the need for 'green' space;obviously it meant that a few property owners got rich, and the prices were high due to the massive regulatory problems of building on 'used' ground.