Economics 101 Failed

City must monitor capital spending

By SUN MEDIA

Toronto City Hall this week decided to borrow against the mortgage to fix up the house.

The good news is this will give the city more financial room to make much-needed capital improvements -- mainly to public transit -- while taking maximum advantage of hundreds of millions of dollars of federal and provincial stimulus funds.

The bad news is the city is increasing its debt load -- by taking 30 years to pay off the new borrowing instead of the normal 10. That means handing our kids a lot more of the bill.

Another strategy is to cash in early a $600-million city loan to Toronto Hydro, earmarked for waterfront improvements and the Spadina subway, and use that to pay down debt in order to free up fiscal space for more borrowing.

It's all being done to comply with a rule the city's debt and interest payments can't exceed 15% of annual property tax revenues.

The argument in favour of stretching out payments is that those who benefit from capital projects like public transit, roads, parks, libraries and community centres should pay for them over the life of the services.

CHARGE IT FORWARD

Since many of them will last more than 30 years, the reasoning goes, charging it forward makes sense.

The downside is letting the debt get out of control, meaning we could still be paying for "new" buses and subway cars long after they're scrapped.

Toronto's capital debt was $1.3 billion when Mayor David Miller took office in 2003, $2.8 billion at the end of 2008 and is set to rise to $4.7 billion by 2019.

But the mayor, who did have to make up for a dearth of capital spending during the Mel Lastman era, when the megacity was just starting up, argues now is the time to invest in the city's future, which will also help protect and create 300,000 much-needed jobs.

Only thing is, Miller isn't running again, leaving the job of paying to future councils, who will have to keep a close eye on the capital budget and the debt.

Because there's no point in building new infrastructure, if you don't have the money to maintain it.

That's how so many city services became so run down in the first place.