Well, another week has come and gone and there are many economic stories bubbling around northern Ontario and even farther afield with implications for northern Ontario. For example, this morning's Thunder Bay Chronicle-Journal reported on upcoming talks between the forest sector and the federal government on preparing for the upcoming Canada-US softwood lumber negotiations. However, little information was provided in the story as to what strategy options are being explored as Canada moves into negotiations with the Trump administration on this file.
Stakes high for forestry sector, Chronicle-Journal March 19th, 2017.
The policies of the Trump administration will soon also be front and center with respect to environmental funding dealing with the Great Lakes. The budget proposed in the United States has put forth rather large cuts to program spending and one area that will have a direct impact on northern Ontario is what seems to be the complete elimination of $300 million dollars annually for the Great Lakes Restoration Initiative with plans shifting the responsibility onto state and local governments. See:
Canadian politicians outraged at Trump Great Lakes funding cuts. The Globe and Mail, March 17th, 2017.
In brighter news, while northern Ontario reports the lowest optimism when it comes to construction activity in the Ontario Construction Secretariat 2017 Construction confidence Indicator, it is nevertheless up from 2016 and part of that optimism is due to a number of post-secondary construction projects in Sudbury and North Bay at Laurentian University and Canadore College. However, the Trump effect is again rearing its head here as: "Despite the boost in overall confidence, nearly half of the 500 contractors surveyed report they expect the Donald Trump presidency to have a negative or harmful effect on Ontario’s economy and construction industry. This sentiment is most acute in Windsor-Sarnia where 59 per cent of respondents believe Trump’s government will harm Ontario’s economy." See:
Post-secondary projects generate optimism in North Bay, Sudbury-survey. North Bay Nugget, March 16th, 2017.
In business activity and expansion news:
Explor Resources starts drilling program on Timmins-area property. Northern Ontario Business. March 16th, 2017.
Prime Gelato makes the leap to grocery stores and restaurant menus in Thunder Bay. CBC News. March 17th, 2017.
U.S. Coast Guard ready to break ice from Duluth to Thunder Bay. CBC News. March 15th, 2017.
Seminar offered to help local firms export to the U.S. Saultonline. March 14th, 2017.
When it comes to civic issues and municipal government, a couple of items. The urban renewal legacy of the 1970s haunts us still. In Thunder Bay, they are revisiting the future of Victoriaville Mall. In the 1970s, both the north and south downtowns in Thunder Bay (corresponding to the old cities of Port Arthur and Fort William) received urban renewal makeovers that in the long run were less than successful. The Keskus Mall in downtown Port Arthur was eventually demolished to make way for the Casino but Victoriaville which was built right on the main downtown intersection and permanently affected traffic patterns lingers on and apparently costs the City of Thunder Bay $500,000 annually. Victoriaville hit tough sledding right off the bat in the recession of the early 1980s as its anchor store -the Chapples family store - went under. Keskus did not lose its major retail anchor until the late1990s when Eaton's went under.
Thunder Bay city council considers step towards Victoriaville mall demolition. CBC News. March 15th, 2017.
And in Sudbury, the big municipal fiscal issue is the contentious reorganization of its fire and paramedic services with a big meeting slated for March 21st. For my take on the issue and links to some of the news stories, see my earlier blog post here.
In Sudbury mining news, see:
Vale to mothball century-old Ontario nickel mine. Mining.com. March 13th, 2017.
It is also Federal budget week with the budget coming down March 22nd and we will have to see what emerges specifically geared towards northern Ontario. For my contribution to federal budget debate this week, see here. Have a great week.
Northern Economist 2.0
Sunday 19 March 2017
Friday 17 March 2017
Fire Services in the North: The Case of Sudbury
Sudbury is in a bit of a tizzy over proposed changes to its
fire and paramedic services. The
proposed plan will see nine of the current 24 fire halls closed and a move to
reduce the number of volunteer firefighters and hire more full time
firefighters. The staff report estimates that the full-time compliment would go
from 108 to 166 within the next decade, while the volunteer ranks would be
almost cut in half from the current staffing level of 350.
Sudbury is a very large and dispersed municipality with the
central core area served by full time firefighters and outlying areas served by
volunteers who are paid part-time employees. Under the new plan, Sudbury's municipal government maintains that firefighters would be able to reach 90 percent of
Greater Sudbury within nine minutes, as opposed to the current 69 percent. Part of what is planned is an
equalization of services to standardize and improve coverage and response
times. However, part of the plan
also involves composite stations staffed by both full-time and volunteer
firefighters, as well as increases in taxes in the areas currently served by
volunteer firefighters.
It is useful to see where Greater Sudbury stands in its fire
service costs relative to other cities in Ontario. Figure 1 uses data from the BMA Management Consulting 2016
Municipal Study to plot the net per capita fire service costs (including
amortization of any capital assets) for cities in Ontario with more than
100,000 of population as well as the Northern Ontario Five (N5) – Thunder Bay,
Timmins, Sault Ste Marie, North Bay, and Greater Sudbury. The results show quite a difference in
per capita costs ranging from a high of $273 in Thunder Bay to a low of $102 in
Milton. Sudbury’s costs are quite
modest coming in at $149 – the lowest among the N5 – and placing 22nd
among the 27 cities in Figure 1.
Of course, one can understand the concerns of ratepayers in
Greater Sudbury that the proposed changes will raise costs and therefore raise
taxes. The costs of fire fighting according to the BMA Municipal Study 2016
Report can vary as a result of a number of factors, which include:
1. The nature and extent of fire risks: The type of building
construction, i.e. apartment dwellings vs. single-family homes versus institutions
such as hospitals
2. Geography: Topography, urban/rural mix, road congestion
and fire station locations and travel distances from those stations
3. Fire prevention and education efforts: Enforcement of the
fire code, and the presence of working smoke alarms
4. Collective agreements: Differences in what stage of
multi‐year agreements municipalities are at and also differences in agreements
about how many staff are required on a fire vehicle
5. Staffing model: Full‐time firefighters or composite
(full‐time and part‐time)
Costs in the end are an interactive function of the geographic area that must be served as well as the population base in that area that is available to cover the costs as well as its compactness - in other words, population density is a factor. The importance of population density as a determinant of
fire service costs is highlighted in Figure 2, which plots the net costs per
capita of Figure 1 against population density (population per square kilometer)
and reveals an inverse relationship when a linear regression is fitted to the
data. It of course does not
control for any other variables and there is a fair amount of dispersion (the
R-squared is also very low) around the fitted relationship but if Sudbury’s
population density is plugged into the relationship, all other thing given, the per capita cost of its
fire services rise to 181 dollars per capita. Thus for Sudbury to be at 149 dollars per capita it must
mean there are other factors affecting its costs or it is doing something to keep its costs well below – nearly 20 percent
below - what is predicted by its population density alone.
It is the volunteer staffing model which has probably been a
factor in keeping Sudbury’s fire fighting costs per capita relatively low
given the large land area that must be served and the accompanying low
population density. Moving away
from this model will probably bring Sudbury’s per capita costs more in line
with other major Ontario municipalities.
No wonder ratepayers are upset.
At the same time, making the changes needs to weigh the improvements in
service and response time that are expected to emerge against the expected
additional costs. It is an
important cost-benefit analysis and should make for an interesting City council
meeting in Sudbury on March 21st.
Thursday 16 March 2017
A Brief History of Federal Budgets
The following op-ed appeared
in the Waterloo Region Record, March 16th, 2017 and the New
Brunswick Telegraph-Journal, March 13th, 2017.
The upcoming federal budget
comes in Canada's 150th year — an important milestone for what is perhaps the
most successful country in the world. The evolution of federal finances since
1867 reflects a changing economy and offers important lessons regarding the
perils of persistent deficit spending and growing indebtedness.
Canada's federal government has
indeed grown. In 1867, it had a budget of $14 million, an expenditure-to-GDP
ratio of approximately five per cent, a net debt of $75.7 million, and a net
debt-to-GDP ratio of 20 per cent. Transportation, communications and economic development
accounted for a quarter of federal spending, and transfers to other governments
20 per cent. Meanwhile, debt service charges were 27 per cent due the newly
formed federal government assuming provincial debts. There were no transfers to
persons.
By comparison, total federal
government spending in 2017 is estimated at $331 billion with an
expenditure-to-GDP ratio of nearly 16 per cent and a net federal public debt of
$760 billion, resulting in a debt-to-GDP ratio of 36 per cent. Assorted
transfers to persons and other levels of governments now account for nearly
two-thirds of federal government spending.
Until the First World War,
customs duties dominated federal government revenue. The war effort sparked the
search for new revenues leading to the creation of the first personal and
corporate incomes taxes and the first federal sales tax. Over time, the
importance of these three new revenue sources grew, and in 2017 it's
anticipated that the personal income tax alone will make up 51 per cent of federal
government revenue, with corporate taxes comprising 13 per cent and commodity
taxes (GST, excise taxes and customs duties) making up 17 per cent.
The 150 years since
Confederation have seen the federal government's primary focus transition from
the active economic development of a country grounded in liberal economic
principles to an activist role partly aimed at bringing about a more
egalitarian society via social spending. Despite the benefits, expanded federal
spending in the post-Second World War era — given the subsequent slowing of
economic growth, rising interest rates and the absence of more concerted fiscal
discipline — ultimately resulted in the 1990s federal debt crisis.
Prudent government spending is
useful, such as the construction of the transcontinental CPR railway where
subsidies encouraged the building of a risky transportation project. However,
the same strategy also saw over-subsidization of the CPR and substantial
subsidies to two other less-successful rail lines. More government spending is
not always better, and that also applies to deficit financing.
Over the period 1867 to 2017,
Canada's federal government ran a deficit nearly three-quarters of the time,
with the largest deficits-to-GDP ratios during the two world wars and the great
divergence between revenues and spending leading to the 1990s debt crisis.
Large deficits and interest rates greater than the economy's growth rate during
the 1970s and 1980s lead to a rising debt-to-GDP ratio and the federal fiscal
crisis of the early 1990s.
The important policy decisions
when it comes to spending are when to spend, what to spend, how much, and how
to pay for it. The wrong answer to any of these questions has negative fiscal
implications.
Given the surge in federal
deficit financing in the wake of the 2016 budget, one wonders if the lessons of
the 1990s have already been forgotten. While interest rates remain at historic
lows, economic growth is also low, making a case for fiscal prudence given the
dynamics of deficits and debt. The progress made in reducing the federal net
debt-to-GDP ratio below 40 per cent will be largely squandered if we allow debt
to once again grow uncontrollably.
Livio Di Matteo is a senior
fellow at the Fraser Institute and professor of economics at Lakehead University.
He is the author of “A Federal Fiscal History: Canada, 1867-2017.” Distributed
by Troy Media
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