The Fiscal Sustainability of the Greater Toronto Area

Recently many commentators have expressed concern about the fiscal health of Toronto and, more generally, the Greater Toronto Area (GTA). Such concern is puzzling because most of the available evidence suggests that municipalities in the GTA are fiscally healthy. Over the past decade, for example, none have deficits in their operating budgets, none have borrowed excessively to pay for capital expenditures, none have raised property taxes significantly, none have run up large tax arrears, and all have become less reliant on provincial grants. It may be, however, that, in a more fundamental sense, the overall fiscal health of the GTA region has less to do with balancing its budget, which municipalities in Ontario are required to do by law, than with how well services are being provided and the state of municipal infrastructure. Our main aim of this paper is to analyze the fiscal sustainability of the GTA. To begin with, we first discuss in Section 1 just what is meant by fiscal sustainability at the local level and how it can be measured. We then outline in Section 2 the fiscal situation in the GTA as a whole now and over the last decade. Of course, not all parts of the GTA have had the same experience over this period, so in Section 3 we compare some key fiscal indicators for the different regions within the GTA in 2000. Against this factual background, we then move on to consider what may happen in the future. To begin with, in Section 4 we assume, essentially, that past revenue and expenditure trends and current policies will carry on unchanged for the next thirty years or so, and then summarize the outcome of such a “business as usual” scenario in terms of what would happen to property tax rates. Unfortunately, owing in part to the substantial recent changes made in municipal organization and finance in Ontario, the data needed for proper projections are simply not available, so the estimates we present in Section 4 are inevitably rather conjectural. In Section 5 we therefore consider several important additional factors that seem likely to have an impact on the tends shown in Section 4, and hence on the fiscal sustainability of the GTA in the future. Finally, in Section 6 we consider briefly what might be done by each level of government to give municipalities a new fiscal deal that would indeed improve their ability to provide the services and maintain the infrastructure needed to make the GTA city-region as a whole economically competitive and successful in the future. Section 7 contains a brief summary and conclusion.

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