The Megacity Debate

Head Table Guests

Anne Libby, Owner of Libby's of Toronto Art Gallery and a Director, The Empire Club of Canada; Rev. Dr. G. Malcolm Sinclair, Senior Minister, Metropolitan United Church, Toronto; June Rowlands, Former Mayor of Toronto; Bob Bell, National Director, Public Market Sector, Ernst & Young; Henry J. Pankratz, Deputy Chairman, Ernst & Young and a Director, The Canadian Club of Toronto; and Julie Hannaford, Partner, Borden & Elliot and President, The Empire Club of Canada.

Introduction by Stanley Hartt

Wendell Cox

It is a great honour for me as an American to address a Canadian audience on the very important issue of the proposed Toronto megacity. I want you to know that I do have some Canadian roots. My father was a preacher on Vancouver Island for a few years while McKenzie King was prime minister but, as I'm sure you'll notice, I didn't live here long enough to learn how to pronounce some of the words.

I am pleased to be on this panel with Anne Golden. The Golden Report under her leadership drew solid conclusions that are worthy of support.

I am also pleased to share the podium with parliamentary assistant Steve Gilchrist. As a Reaganite, market-oriented conservative, I am sure that Steve and I agree about much more than we disagree. But today, we are talking about issues on which we disagree.

I will discuss three fundamental problems with the proposed megacity:

• That it will weaken democracy.
• That it will not save money.
• That it threatens this city of which you are so justly proud.

First, on the issue of democracy, megacity violates the most basic principles of democracy. For hundreds of years, your ancestors and mine fought to replace absolutism and privilege with democracy. This is no time to reverse course. By no stretch of the imagination can it be considered a victory for democracy to move City Hall farther away. Communities will have less access to government. Bigger municipal government will be less sensitive to neighbourhood concerns. People will be relegated to second-class status, because effectively dealing

with City Hall will require the hiring of lawyers and lobbyists. Special interests will gain great advantage.

Because of the inaccessibility of larger municipal governments, secession movements are underway. Staten Island is likely to secede from New York City in the next few years. A strong secession movement has developed in the San Fernando Valley of Los Angeles. Secession movements have developed in Boston, Oakland and elsewhere. One city has already seceded from the Winnipeg unicity, and more could follow.

Megacity is just too big. If it were a province, it would rank fifth in population. It would contain more people than the four Atlantic provinces combined. If amalgamating governments is such a good idea, why stop at megacity? Why not amalgamate all local governments into the province? Why not opt for a single government in Ottawa? Indeed, why shouldn't we combine it all in a single-world government? The reason, of course, is that there is an important and a crucial role for local government. There can be no justification for diluting democracy.

Then there is the issue of costs. We are being told that megacity will be less expensive. But that ignores the reality that larger governments are routinely more expensive than smaller government on a per-capita basis.

Consider the evidence from the United States. Cities of more than one-million population are 21 per cent more expensive per capita than cities of 500,000 to one million. Counties of more than one-million population are 42 per cent more expensive than smaller counties. School districts and transit districts become more expensive per unit of service as they get larger.

Let me digress here for just a minute. Some of these figures have been criticised locally, by citing exceptions to the rule. My data for cities is not a sample. It is an analysis of all 171 cities in the United States with populations of more than 100,000. 1 have excluded amalgamated city-county governments and I have adjusted the figures to account for services that are not provided by all cities. But the data is even worse for the 24 U.S. amalgamated city-county governments with more than 100,000 population. Amalgamated cities of more than one-million population are more than twice as expensive per capita as smaller cities. Further, from the 1940s to the 1970s, U.S. school districts and transit districts amalgamated to an unprecedented degree and their unit cost increases were unprecedented.

Why are larger cities less cost-efficient than smaller cities? Let me just mention five factors. Services will need to be harmonised among the former municipalities. They are likely to be harmonised upward, which will cost more money. Labour contracts will need to be harmonised among the former municipalities. They are surely to be harmonised upward. Can you imagine a trade union seeking parity with a less lucrative collective agreement? Larger governments need more bureaucrats. It is a geometric increase, not an arithmetic increase. The bureaucrats get paid more because in the public sector wages and benefits are directly related to the size of budget and the size of staff. Municipal trade unions wield more power. This raises the entire labour-cost base of the larger city. Indeed this reflects the only economies of scale in larger municipalities--economies of scale for special interests, of both the left and of the right. And, finally, as Jane Jacobs has noted, larger cities are less open to innovation, so they are less likely to implement more cost-effective alternative service-delivery strategies.

Indeed, there is virtually no evidence that amalgamation saves money. Even the KPMG report, commissioned by the Ontario government hedged away its projected savings. And the Deloitte-Touche report, released yesterday by the Borough of East York found KPMG's illusory savings non-existent. If you want to reduce the cost of local government, there is no better way than the competitive market. For example, the conservative state government of Victoria, Australia is requiring municipalities implement competitive tendering, and the savings have been far more than even the theoretical, though false savings that the government expects from amalgamation. As the Trimmer report put it, savings from larger units of governments rely on false economies of scale. Larger cities mean higher taxes, which are likely to drive away the very middle class that is the secret of your success.

Let me suggest that the savings from amalgamation will begin after the GST is repealed!

You have been told that amalgamation is a "fait accompli"--that Metro already accounts for 72 per cent of the combined Metro--municipality spending. But this is a false number. It includes Metro utilities such as TTC, but excludes municipal utilities. In reality, if you exclude welfare, which really should be handled at the provincial level, the six cities account for 56 per cent of spending, while Metro accounts for 44 per cent.

There is considerable justifiable concern about metropolitan services--services that go beyond municipal boundaries. Indeed, Metro is not the metropolitan area; the region does not end at Steeles Avenue. The region extends far beyond Metro. Many of the arguments advanced by the government to support amalgamation are appropriate only in this broader sense, and the government has wisely suggested creation of a Greater Toronto Services Board that would coordinate services throughout the metropolitan region.

But amalgamation could torpedo metropolitan coordination and co-operation. Remember that Pierre Trudeau used to talk about how difficult it was to be "in bed with an elephant"--that it was not easy sharing a continent with the United States. The same will apply to metropolitan co-operation in the context of megacity. The "905" municipalities will be reluctant to lend their full co-operation and support to a GTSB that is dominated by megacity.

You have a vibrant urban area in Toronto. It is admired around the world. It is internationally competitive and our American cities look to Toronto as a model of how to do things right. But cities are fragile, as anyone who visits American cities finds out quickly. If you implement megacity you are going to remove democracy, services are going to decline, taxes are likely to go up, the middle class will be driven away, and you are going to see businesses scatter to 905, 604, 403 and any number of other places. The bottom line is that you are looking to pay two to four hundred million dollars in transition costs to dilute democracy and to create a structure that will be more expensive in the future.

So what is the answer? It is to establish the proposed GTSB--to strengthen the existing municipalities and to abolish Metro. That will preserve democracy, and better position the area for improved competitiveness and cost efficiency.

And just a word on the transfer of social services to municipalities. Redistributive services should be financed at the societal level--such as at the provincial level--not at the municipal level. It would make as much sense for Ottawa to download defense to provinces as it does for the province to download welfare to municipalities.

Virtually all of the experts agree--and virtually all of the evidence demonstrates--that larger cities are less democratic and more costly. Amalgamation violates the fundamental principles that conservative governments hold dear. Margaret Thatcher's solution to municipal governance was to abolish the Greater London Council, not its constituent municipalities. It is, in the final analysis, a question of values.

It is about the right of the people to determine how they are governed. Canada has often relied upon referenda to decide important issues--and megacity should be no different.

To paraphrase Abraham Lincoln: "Government of the people, by the people, and for the people is government that is closer to the people."

Thank you.

Steve Gilchrist

It's indeed an honour to be speaking before you and giving the government's perspective and perhaps something a little different from what Wendell has just articulated in his point of view.

Let me start off by painting an historical context for this bill. Between the years 1889 and 1953, Toronto alone underwent 33 expansions--33 amalgamations or annexations, call them what you will--and in every one of those the provincial government was the body that created the enabling legislation. Of course in 1953 we saw the creation of Metro itself--the bringing together of a strong urban core with a lot of rural land for future development. Clearly the government of the day recognised there were very different issues, very different services that needed to be delivered in the urban and the rural parts of that community and that's why the second-tier government was created--to be the arm's-length arbiter of how you did that balancing act.

In 1967 our community had matured that much more. We had much more urban development throughout what we now know as Metro Toronto and the government decided that it was appropriate to go from 13 communities down to six. Now as we look around Metro Toronto, it is one homogenous urban city, from the far end of Etobicoke to the east end of Scarborough. There is very little land to be developed and, even more importantly, the infrastructure to service that is in place--the sewers, the roads, the schools and the libraries. We've made those investments; it is one city. In fact, ironically, since 1988 when we went to direct election in Metro council, every person that lives in Metro has been a voting Torontonian.

So that is the preamble to this bill. Clearly, the government recognises that there are choices to be made in terms of how the governance evolves to match the evolution of the city itself. We looked at a number of different options and you've heard some of them articulated in the press these last few weeks including the status quo, which even the mayors themselves said was not working. There was the four-city model and there was the one-city model. There were a variety of strengths and weaknesses to each of those arguments and I can't begin to do them all justice in the 10 minutes we have here today but Fortune magazine, when it was recognising the strengths of this community was talking about Metro Toronto. In fact they said the most reasonable place to live in terms of cost for an apartment was Scarborough and the nicest neighbourhood was in Markham. I think they misjudged the map and surely confirm what Wendell has said--that things don't stop at Steeles Avenue.

In fact there have been 60 different studies done just in the last five years on the issue of consolidating services. If consolidating a particular service, such as the fire departments, leads to tremendous savings to the taxpayers, and if as you go through those few services that are left in the hands of the municipal councils and in every one of those cases, an argument can be made for cost savings (and these case studies have done just that), then you are left with the conundrum that if it makes sense to consolidate all the services they oversee, why would you continue to have six or even four separate governments?

The most definitive response I think to that question was offered by the mayors themselves last fall when they prepared a document that gave an alternative to what we were talking about in moving to one city--how they would address the issue of cost savings, greater efficiency, more productivity from their staff and make sure the taxpayers had the biggest bang for their buck. They concluded that by consolidating services and by going to alternative service delivery you could save $240 million. The KPMG Study which, by the way, was commissioned to get a sense of comparison to the mayors' report, concluded $300 million. Let's leave their $300 million off the table. I'm prepared to accept the mayors' $240 million. Their conclusion was that we would save a quarter of a billion dollars by consolidating services. So that's what is on the table right now; that's the cost if we don't act.

Some councils have voted to take a different position. York has voted to explore complete amalgamation with Toronto. City of Scarborough Council voted to eliminate York and East York and go to a four-city model. Some of the submissions coming to the Legislative Assembly Committee have included that as one of the suggestions that we should follow. But there is a problem with that model. Even if you quibble on where those dollars are going, Metro does oversee 72 per cent of all the service delivery at the municipal level. Three-quarters of all the work is done by Metro. The other six cities are dividing the other 28 per cent and even that isn't done evenly. York and East York collect and distribute only one per cent of all the municipal tax load within Metro, yet they have a parallel political administration and bureaucracy to oversee all the functions and services they provide.

The reality is that there has been no consensus for an alternative to the model that we have put forward. The four-city model is not only flawed but the cities themselves can't agree on it. But let's say they did agree, even York and East York. Right now we have already integrated services such as police and transit, the administration of hostels and children's aid societies and homes for the aged. All of the "people" services, by and large, are co-ordinated under the Metro government. Is the suggestion that we would break all of these things into four? Or, as is more likely the case, would you create a special-purpose body, unelected, unaccountable, that would oversee it much like the TTC or the Police Service Board that has some elected representatives, but also has a number of people that you and I don't get a chance to vote for. You either face extraordinary confusion and expense to break up those services and put them back into four cities or go to a variety of special-purpose bodies that would be far less accountable than our elected officials.

It became clear to us there was only one real choice. As dramatic as it may seem to some, and certainly as revolutionary as it may seem to others, it makes sense. It makes sense from the viewpoint of saving money. It makes sense from the viewpoint of now having one instead of seven competing economic development offices that spend much time saying why you shouldn't go to the other part of Metro. Now we can have one message around North America and around the world that we have a common market. We have one city and we don't care where the investment is made within that city as long as the property-tax base expands from that new investment. We will all profit.

Similarly, issues such as actual-value assessment have come before us, and that is a reality that we will all face by January 1 of next year. For the first time, we'll have fair taxation in this province in almost 50 years. The bottom line will be that if you go to the four-city model you are beggaring the three cities that no longer benefit from the extraordinary assessment base in downtown Toronto unless you go back to a Metro-style model of pooling. Well, again, if you are going to go through that exercise, why are we creating the four different bureaucracies if the end result is to come together on issues such as taxation?

So in terms of our ability to attract new jobs and investment, it makes sense to have one city from that viewpoint as well. There are a number of mitigating factors that will offset a lot of the concerns I think that Wendell has expressed about the democratic aspects of this bill. One of the things that does not receive a lot of attention is the fact that after we have elected the 44 councillors, they will be broken up into six community councils--groups far smaller than even the existing councils in places like Scarborough, North York or even here in Toronto. And those councillors will be the ones who decide local issues. So we make a very clear distinction between those issues such as garbage collection and fire service, on which all of us have a right to expect equal standards, and certainly in the case of fire service the highest possible standards. We make a distinction between those and the purely local speed limits on your streets, whether there should be a cross-walk, whether there should be changes made to the shape of that community. That will be done by the six or seven local councillors. We've made that distinction. We've put that balance in place but we're not electing a second level of government to do that. It's no different from serving on the works committee or the planning committee. This will be just one other task of those councillors.

So the bottom line is all about vision. Our vision is that this is a great city that's going to become even greater. We will be able to attract new jobs and investment. We will be able to find the greatest possible efficiencies and cost savings by co-ordinating our service delivery and by ending duplication overlap. We will be able to accomplish at the municipal level all of those same goals that we set for ourselves provincially and that we are moving on. And if I may say, it's also consistent with what we campaigned on. We said on pages 12 and 13 of The Common Sense Revolution we would reform municipal government within our first term. We would seek to find those efficiencies. This bill does just that and we are confident it is going to lead to property-tax decreases in the very short term.

Thank you very much.

Anne Golden

Members of The Canadian and Empire Clubs, fellow panelists, ladies and gentlemen: I am pleased to speak to you today about the dramatic changes being proposed for our city region; and I am honoured to join the list of the illustrious speakers who have addressed this forum in the past.

Completing the GTA report in nine months wasn't easy. Summarising my thoughts about the megacity in less than eight minutes is even harder--but I'll do my best.

When people tell me that they are both anxious and confused about "the Megacity," they are referring not only to the proposal to amalgamate Metro's six municipalities into one City of Toronto, but to the series of announced changes which include assessment reform, structural reform within Metro and the GTA, the so-called disentanglement proposals for re-defining who does and pays for what, and finally, and to some most importantly, the process itself by which these mega-changes are being implemented.

The primary rationale being put forward by the government for these massive changes is that "the status quo is not an option." This has become a mantra, a ritualistic response to critics of every stripe regardless of the merit of their arguments.

Perhaps a little ironically, the Task Force which I chaired couched its recommendations in the same language. However when we noted that the status quo was not an option, our recommendations were grounded in research and made in response to a clear diagnosis of the problems. I believe that much of the present anxiety is because of the absence of a perceived logical link between the proposals for change and the real need for reform.

What in fact is the case for change? What are the key problems that bedevil the economic and social health of our city and our region? Unless we understand the case for change, we cannot intelligently analyse the current megacity proposals.

First, the property tax; there are two separate but related challenges. One is to stop the continuing erosion of the property-tax base through successful assessment appeals; the second is to reduce or eliminate the difference in the level of property taxes paid by businesses in Metro compared to those outside Metro. This inequity is encouraging businesses to migrate from Metro to other GTA municipalities, thereby further eroding the already compromised tax base. Unless this dual problem is solved, we face the prospect of the infamous "downward spiral"--a vicious cycle of reduced assessments, higher taxes and/or reduced services, which in so many cities south of the border has resulted in urban decay.

Let me be crystal clear. Unless this dual problem is solved, the mismatch between social needs and what the property tax can afford will intensify and we will experience the same kind of urban decline and central city decay that we have smugly assumed could never happen here. With so much at stake, will the government's tax proposals solve the problems? The answer is: "Partly."

The introduction of a comprehensive, uniform, and updated property-tax system based on current value assessment (we called it AVA) is the right thing to do. There is no alternative that meets the tests of both reliability and fairness. Phased in properly, it is the essential first step. Here the government is to be commended. However, the second and complementary step to assessment reform is some measure of GTA wide business-tax pooling, with a uniform rate on businesses in the GTA to reduce the business-tax gap. To date, the government has not determined how business and commercial tax rates for education will be set, or whether there will be a uniform rate. They have said that the dollars collected from businesses will stay within the city region--and that is positive--but without a uniform rate, the incentive for out-migration of businesses from Metro will continue.

But where the potential for urban decay really lurks is in the current plan to download welfare and welfare-related costs to municipalities. Because society's most vulnerable groups are concentrated in Metro to a far greater extent than anywhere else, the pressure to raise taxes or cut services in bad times will be unavoidable. Since business taxes will also go up, the tax-gap problem for Metro's businesses will get even worse. Any plan to redistribute provincial and municipal funding and programme responsibilities that does not address these issues is unacceptable.

The property-tax crisis is closely linked to the second critical challenge: to make the Greater Toronto region economically competitive. To do so, both our Task Force and the Crombie Panel recommended the creation of a new regional governing body.

In light of the megacity proposals, we must remember that the problems of fragmentation that were identified exist not within Metro, but among the five regions of the GTA and between the municipalities and the province. Lamentably, in my view, the current proposals do not go far enough in addressing the lack of co-ordination that presently exists at the Greater Toronto regional level. The creation of a Greater Toronto Services Board would be a useful step only if it were accompanied by the simultaneous elimination of one of the levels of government below it--and this is not part of the current plan. As it stands, the current plan would leave us with, for example, 20 economic development departments, one for Metro representing 50 per cent of the region's people, and 19 others competing with Metro on behalf of the other 50 per cent. This doesn't make sense.

We need a new government structure that will facilitate a more strategic and integrated approach to managing the growth that will come with the expected addition of some two million people to this city region over the next 25 years.

This brings me to my third issue, also fundamental to our economic competitiveness, which is the need for more integrated planning of land use and infrastructure, such as transportation across Greater Toronto. This is necessary to avoid both the environmental costs of inefficient land use and the unnecessary spending of billions of dollars over the next 25 years. This is money that will be wasted on roads, sewers, and schools, for example, that we wouldn't need if we moved to more compact urban development. These savings could then be redirected into human services--services which underpin our exceptional quality of life. And it is this quality of life that is our city region's single greatest comparative advantage.

My real concern about the megacity unification plan is that it will make this essential regional agenda more difficult to achieve. If amalgamating Metro's municipalities solves a problem, that problem has yet to be identified. The main point about megacity for Metro is that it misses the point!

The fourth critical issue is the need for more entrepreneurial, more cost-effective, and less-entangled government. Our research confirmed problems of excessive duplication, overlapping mandates and, in some instances, jurisdictional gridlock--but the problems identified were between the five regional governments, not within Metro. Our research also confirmed that the opportunity for cost savings and improved efficiency was tied to the injection of competition into the management system, not the elimination of a few dozen politicians or senior officials, as some suggest.

And so we must ask the question: "Will a single, bigger bureaucracy in Metro be more cost-effective?"

The evidence says no. Beyond a population of one million, most service mergers create diseconomies of scale, because salary settlements and service standards migrate to the highest level when wage and service structures are integrated. For example, merging fire departments saves five fire chiefs' salaries, while the salaries and benefits of thousands of firefighters rise. A single bureaucracy reduces opportunities for efficiencies through contracting out, and for innovations that occur when various jurisdictions are able to do things differently. (Jane Jacobs feels strongly about this point).

Time does not permit a full refutation of the unsubstantiated claims of cost savings which have been made. Suffice it to say that alarm bells should go off when defenders of megacity resort to superficial and hastily produced studies to make their case. The Deloitte & Touche study released yesterday makes the same point.

Finally, I want to say something about the process. Today's polls confirm that people from across political, income, and occupation spectrums share anxieties about a process they see as overly hasty, insufficiently thought out, and heavy-handed. Signs of government flexibility on some of the issues are in the air. I hope that this flexibility will be applied to the critical issues highlighted here.

To recap, the real task before us is to create the capacity for region-wide problem solving, combined with effective local government. The government's proposals for assessment reform and a GTA wide body are relevant and constructive, but the current proposals to download welfare, social housing and long-term care are destructive. These must be revamped to meet three essential criteria: one, to ensure that municipalities aren't forced, because of an inadequate tax base, to abandon their responsibility to meet people's needs; two, to prevent the inequitable and asymmetrical impact on Metro Toronto; and, three, to avoid further polarisation between city and suburbs.

As for the plan to "Megacitize" Metro, it is irrelevant at best and possibly counter-productive. Counter-productive because it distracts us from the real task. It absorbs our energy and creates needless anxiety and alienation. It also creates a new problem--that of ensuring adequate citizen access to decision making, for which compensating new local councils and committees are now being proposed.

My greatest concern about the combination of proposals before us is that they foster a political climate and dynamic of unhealthy competition instead of regional cooperation. It is this destructive competition which has polarised U.S. city centres and their suburban municipalities. It is this polarisation that has produced the too-familiar pattern of over-concentration of poverty in their inner cores together with the continuous outward flight of money and jobs to newer and more distant suburbs.

This not a road worth taking, but if we fail to grasp that we are all in this together, we will go down this road whether we want to or not.

The appreciation of the meeting was expressed by Julie Hannaford, Partner, Borden & Elliot and President, The Empire Club of Canada.