[kEiThZ]

I read an article recently that complained about the fact that municipal governments (and TO in particular) are so concerned about balanced budgets that they avoid "good debt".

Good debt is defined as debt that provides a long term return on investment. So for example, a subway or a road is good debt, because we get to use it for decades. Deficit financing for social programs would be bad debt since there is no return on investment outside of the year in which it was spent....and before this derails into a left/right argument on social spending, these are the definitions from the article, not my own.

If we did this, we wouldn't need assistance from other levels of government. We could, for example, run a steady program of subway construction (ie. one station per year), or build one LRT line every couple of years, etc. The hit on taxes would be minimal, resulting from increased debt servicing costs.

So UT, should TO take on debt to finance its infrastructure programs?

 

[RedRocket191]

In TO, they balance the budget because they have to. Section 290 of the Municipal Act states that every annual budget has to be balanced.

While I don't doubt that good debt is good, any debt is illegal in Ontario.

We have to address that before we can get anywhere

 

[urbanfan89]

As long as it isn't crass pork infrastructure (like, say, a highway into more suburban sprawl), infrastructure debt is positive.

 

[Whoaccio]

Ignoring the legal impossibilities of the idea, I think moderate deficit financing may be a good idea. At the end of the day though, I think we should be careful about this idea. God knows what ATU133 would do if they got wind of this. "Highest pay of any profession in the GTA" clause anybody?

 

[kEiThZ]

Ignoring the legal impossibilities of the idea, I think moderate deficit financing may be a good idea. At the end of the day though, I think we should be careful about this idea. God knows what ATU133 would do if they got wind of this. "Highest pay of any profession in the GTA" clause anybody?

Yeah I'd worry about that. Seems like every tax increase or fed/prov grant quickly results in a hardened bargaining stance.

And I'd also be worried about bad business case decision, ie. Sheppard Subway....running below cost recovery for the other lines.

But in the end, if done wisely, I think it's a topic worth discussing with the province, to see if they'd lift the shackles. It would make the city grow up and operate like a real government. No more blaming other levels of government for all your woes or having to rely on their charity for infrastructure.

 

[afransen]

The city also needs to be able to service the debt. Ultimately, 'mortgaging'/amortizing infrastructure spending makes a lot of sense. Better done by the province, though...

 

[cacruden]

If Toronto had a good fiscal record/position - then financing infrastructure with the issuance of municipal bonds could be a good thing -- as long as the bonds are part of the overall business plan. The problem is that Toronto does not have a good fiscal record/position - so it would only lead to it being abused and putting Toronto in a worse fiscal position. IMHO

 

[unimaginative2]

The city is allowed to borrow for capital expenditures. Infrastructure spending has nothing to do with the operating budget balance.

 

[RedRocket191]

The city is allowed to borrow for capital expenditures. Infrastructure spending has nothing to do with the operating budget balance.

But they have to eventually make payments on that infrastructure and pay to operate it. It all comes around in the end.

 

[unimaginative2]

Of course, but I was just responding to his question. He asked if cities should be allowed to borrow to pay for infrastructure. They already are.

 

[RedRocket191]

Of course, but I was just responding to his question. He asked if cities should be allowed to borrow to pay for infrastructure. They already are.

True.

It's truly a shame when cities have money to build stuff, but don't have money to operate it (ie, transit).

I do know that Metrolinx has a plan for operating costs of the RTP, and they may even bundle capital and operating together in the public release for simplicity. I know that they have considered using deficit financing as an part of the investment strategy, but I don't know if it will be in the final plan.

But, we just plain need more money from upper levels of government.

 

[Glen]

Good debt is defined as debt that provides a long term return on investment. So for example, a subway or a road is good debt, because we get to use it for decades. Deficit financing for social programs would be bad debt since there is no return on investment outside of the year in which it was spent....and before this derails into a left/right argument on social spending, these are the definitions from the article, not my own.

What you describe above is capital vs. operating expenses, which the city has two separate budgets for.

 

[lordmandeep]

No, the city would go into more debt and then it will have to pay more interest leading to fewer tax dollars to fund services and then David Miller will tax cars $50 to enter the city of Toronto...

 

[kEiThZ]

What you describe above is capital vs. operating expenses, which the city has two separate budgets for.

I understand the distinction. What I am asking is...if its a good idea to take on debt to build infrastructure...with the concomittant increase in debt servicing costs.

 

[Glen]

I understand the distinction. What I am asking is...if its a good idea to take on debt to build infrastructure...with the concomittant increase in debt servicing costs.

In the case of such projects there is usually little choice. By their very nature, having a long service life, infrastructure projects are capital projects. The dollar amounts are so high that they cannot be tolerated in operating budget. Take for example the purchase of the Green-lane landfill site. IIRC it cost $220 million. If city taxpayers had to pay for that in one year it would not have been possible. Even if the city could afford to pay for it in one shot, accounting standards would expense it over its useful life anyway.