The City of Toronto's operating budget is in a scary state. City councillors will soon discuss ways to right their wayward bottom line. The trouble is that among the many options up for debate only a few smart ones exist.
To dig out of Toronto's half-billion dollar hole, Shelley Carroll, the city budget chief, is calling for Queen's Park to extend one percentage point of provincial sales tax revenue to cities. But Ontario, with unprecedented deficits of its own, has quickly rejected this proposal. The message: the City of Toronto can no longer pass the buck onto higher-order governments to bail out its bad habits.
Another new tax to be debated at city council is on billboards. Torontonians can expect a pitched battle over it. But the revenues from such a tax – the city expects to net less than $10 million per year – are a drop in the $500 million deficit bucket. If the city does not focus on limiting expenses this year and next, it will need to significantly expand its search for new revenues.
Although the main budget problem is with expenditures, new revenue options that the city actually has the power to levy can help reduce wasteful spending by charging for the services that people are willing to pay for.
For the short term, the city could consider smarter water pricing. And in the longer run, the best options are road tolls and TTC fares-by-distance. Together, these revenue tools could help Toronto make virtue out of fiscal vice.
Smarter revenue options for the city would aim to raise revenues to cover costs so that service benefits match with public expenses. In other words, those who overuse the services would pay more, while those who use a lower level of services would pay less. A user-pay system creates the right incentives and discourages undesirable waste.
The city is moving in the right direction by pricing water to better match delivery costs. Thanks to the universal implementation of water meters, households can be charged in relation to their level of water use and the costs of delivery. The schedule of annual hikes of 9 per cent to water prices should reduce excess water use and increase innovation. A further reform would apply higher prices for each unit of consumption and higher charges to houses that must have water pumped further to reach them. This means prices would align more closely to a full-cost approach.
Another smart option is tolls for the Don Valley Parkway and the Gardiner Expressway. The recently imposed vehicle registration fee does not link usage to costs. However, road tolls tax those who truly wear down the roads that need repair. According to the OECD, the excessive number of cars on Toronto's roads causes more than $3 billion in congestion costs. Tolls on the DVP or the Gardiner would directly charge those who contribute to the traffic congestion and pollution in the downtown core. This would lead to fewer cars and therefore open up space for a better flow of public transportation, bikes, taxis and commercial traffic.
The days of the TTC relying on higher levels of government to cover shortfalls appear to be over. And if citizens don't want to consider changes to services, the task is to find practical ways to raise revenues.
The solution is to charge those who travel long distances on the TTC more than those who travel short distances. This cannot happen with antiquated paper transfers. Introducing zone-based fares or fares-by-distance would need some time to properly develop. And Metrolinx and the TTC would need to share the hefty upfront price for smartpass infrastructure to make this transition happen.
Instead of smarter pricing, all individual-fare TTC riders will face a 25 cent hike in January and Metropass users will face an extra levy of $12 per month.
While popular, last week's decision to give Metropass discounts to post-secondary students further delinks the cost of transit with what people pay.
Broad-based fare hikes carry the risk of losing ridership, whereas a distance-based fare plan need not mean fewer riders – it may make sense to cut fares for people living in the downtown core who cost less to transport. The case for riding the TTC would be made even stronger with tolls on the DVP or Gardiner.
Charging someone who lives in the suburbs the same amount as someone who lives downtown encourages wasteful sprawl, which is partly why GO Transit charges by distance, as do many other big-city transit systems.
Although the city's budget is in crisis mainly because of spending problems, smarter new revenue options can encourage environmentally friendly behaviour and reduce wasteful expenditures. They can help Toronto cope with its short-term and long-term budget problems. If the City of Toronto considers smarter revenue sources, something good might come out of the latest in the long line of budget crises at city hall.
