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How Toronto Could Avoid Raising Property Taxes

This article originally appeared in the Financial Post on January 17, 2024.

Toronto Mayor Olivia Chow is proposing to hike the city’s property taxes 10 per cent. That is totally unnecessary. The mayor could find most of the revenue she’s after elsewhere. The trouble is, she just hasn’t looked.

Toronto city council had planned just a 1.5 per cent increase in property taxes. Mayor Chow wants to add nine per cent to that hike, which would squeeze an additional $380 million out of city residents.

The mayor and city councillors could find that kind of cash in an instant, if only they’d commit to bringing down costs for Toronto’s overpriced construction projects. Cardus research shows Toronto could cover 91 per cent of its hoped-for revenue boost without asking taxpayers for a penny more than they’re already paying.

All Toronto needs to do is to introduce fair and open contract bidding for all of its construction projects.

Right now, that doesn’t happen. The City of Toronto does something no other Ontario city does: it restricts bidding on many of its construction projects to companies whose workers are represented by a favoured group of trade unions. If a company’s workers choose to belong to a different union — or not belong to a union at all — it cannot bid on those projects. This cushy deal with certain unions is simply unfair. As a result, the city fails to treat all workers equally and violates their constitutionally-protected freedom of association — which involves the freedom not to associate in a union, if that’s what workers prefer.

The city’s deal with favoured unions means construction companies that are otherwise qualified to bid on municipal construction projects can’t do so, simply because their employees have chosen to organize themselves differently. Fewer bidders means less competition. Less competition means higher construction prices for taxpayers.

Our research estimates that restricted competition for construction contracts inflates Toronto’s annual construction costs by about $347 million. That’s how much the city could save on its construction projects through increased competition if it opened it up to all qualified bidders regardless of the union choices of their employees. As noted, it’s 91 per cent of the $380 million Mayor Chow hopes to raise with her tax hike.

None of this should come as a surprise to city councillors or the mayor. Cardus raised this issue during last year’s mayoralty election. To their credit, some mayoralty candidates proposed opening up competition in the city’s bidding process as a way to address the budgetary deficit.

Other Ontario cities have already done so. Before 2019, Hamilton, Sault Ste. Marie, and the Region of Waterloo all had the same sort of cushy union deals as Toronto. That year, however, the Ontario legislature’s passage of Bill 66 freed all cities to implement open competition. Though it’s a no-brainer that competition would lead to savings Toronto City Council chose to opt out, making it the only municipality in Ontario that still restricts competition in this way and therefore pays hundreds of millions of dollars more than it needs to.

Some defenders of the status quo at Toronto City Hall will claim any savings from fair and open contract bidding would come at the expense of workers’ wages. But Toronto already has a Fair Wage Policy that prescribes how much construction contractors have to pay in wages. It doesn’t need a second layer of regulation to protect workers. Toronto’s savings would come from the innovation that competition encourages. More companies competing for the city’s contracts would incentivize them to find more efficient ways of building, which would enable taxpayers’ money go further.

In the midst of a cost-of-living crisis, Toronto is already one of the most expensive housing markets in Canada — for both buyers and renters. Landlords won’t simply swallow the increased property tax bill but instead will simply pass on the cost to tenants through increased rents.

Raising taxes in this way when the city is wasting hundreds of millions of dollars every year on construction is simply irresponsible. City Council should open up competition for construction projects to all qualified bidders. It’s fairer for workers. It’s better for taxpayers. And it’s long overdue.

Renze Nauta leads work and economic research at non-partisan think-tank Cardus.

January 17, 2024

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Overpaying for construction forces up property taxes in Toronto.