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This is a wicked problem.

Social, Public, Private & how they work.

The government funding gap

Stakeholders

Based on a March 28, 2013 study conducted by the Mowat Centre titled Filling the Gap, Ontario funds a disproportionate share of federal spending compared to other provinces even though Ontario is no longer a wealthy province.

The federal government oversees a wide range of Departments, Agencies, Crown Corporations, Special Operating Agencies and various affiliated organizations that are all responsible for providing social service funding.

The study finds “that there is roughly an $11B structural gap between what Ontarians pay to the federal government and what they receive.

The provincial government has 26 ministries with the largest spending on the Ministry of Health and Longterm Care (38%) and the Ministry of Education (18%). Each ministry is mandated to administer financing to its specific social service under direction from the minister and the government of Ontario.

+$ reduced subsidies

–$ demand on services

+$

The City of Toronto has 47 divisions (including Parks and Recreation, Police Services, Waste Management, Water, etc.) , 2 corporations (Toronto Community Housing and Toronto Parking Authority) and oversees one body (The Toronto District School Board).

All citizens of the City of Toronto.

+

+

+

User Fees 15%

For the purpose of this project Social Service providers in the City of Toronto are defined as Education (TDSB), Shelter & Support, Transit (TTC) and Toronto Public Health.

reduced subsidies

–$

downloaded services

+

+

Other Revenues 22% Government Transfers (Provincial, Federal, 22% and Subsidies) 24%

+

User Fees 15%

–$ approaching retirement

11% 40%

22%

New Canadians

30.5%

0.5%

Toronto

Oshawa

Oakville

Mississauga

The population of the GTA is expected to grow to over 7.5 million by 2025

Gather money for a cause

4.9% 15.1%

Government gathers money

Library, Culture, Parks, City Planning, Facilities 13.4% TTC and Transportation Services Governance and Internal Services 4.9% 19.5%

Re-allocate funds

30.5%

Financing (Capital and Corporate) 15.1%

Governance and Internal Services 4.9%

13.4%

Police, Fire, EMS 16.6%

Library, Culture, Parks, City Financing (Capital and Corporate) Planning, Facilities

4.9%

15.1%

GST 1991 NAFTA 1994

Reserve Funds

deliver

Earned Income

Social Services

Each of the established funding models have their advantages and their limitations.

Private Donations optionally give money through these mechanisms

Social Impact Bonds (SIB) are an emerging investment tool that enables the government to offer a financial return to private investors who fund vital social services. The ability to offer a financial return hinges on successfully meeting agreed upon measurements and demonstrated government savings.

Property taxes don’t work like other taxes: The City of Toronto, like all municipalities faces increased challenges in funding social services in part because of the taxation policies that are imposed by the Ontario Government.

to cover the rate of inflation. Property tax rate is tied directly to the City’s operating budget meaning that if the municipal government wants to generate more revenue from the existing property base they must increase the city’s budget.

Public money

Private System

15.1% Financing (Capital & Corporate)

An example: The pilot social impact bond in Peterborough Prison in the United Kingdom is a program to reduce reoffending rates of short term prisoners. £5m was raised from 17 social investors to fund a consortium of nonprofit organizations over six years to work with 3,000 prisoners after they are

Private money

Albert Einstein

Governance & Internal Services

Service Providers

3.

funding for operating costs

performancebased payments

The private system has an incredible ability to generate huge amounts of revenue however it is primarily motivated by profits and therefore any private funding of social services will likely require a return on investment. This return does not necessarily have to be a direct financial return but it is important to recognize that the success of this system hinges on individualistic motivations.

The philanthropic sector by definition provides a formalized mechanism that enables charitable individuals to give in order to help those who are in need. However, the system relies predominantly on the generosity of individual donors thus creating a challenge in long-term sustainable funding.

1.

Police, Fire, EMS

Make money

Public Sector

This means that as Toronto grows and the demand for social services increases the City has no choice but to “raise taxes” which in today’s political climate is a very unpopular position.

Organizations

Crown Corporations

Selling of goods & services

Is built for

Pays

$50m+ Project

Borrows Funds

Accepts risk

+

opposed the provincial government’s plan. In April 1997, the provincial government passed Bill 103, amalgamating the six municipalities, and downloading welfare, public transit, emergency services and social housing to the newly formed City of Toronto (Schwartz, 2001). Social services were most affected by these changes.

Delays

“ A P3 works essentially like leasing a car.” The Canadian Council for PublicPrivate Partnerships defines PPPs as, “A cooperative venture between the public and private sectors, built on the expertise of each partner, that best meets clearly defined public needs through the appropriate allocation of resources, risks and rewards.”

4. repayment & ROI from performancebased payment

Charitable Sector

There’s no magic pile of money.

OLG

$2.0B

Ontario Gov’t

• maximize efficiencies of private sector • frees public funds for core economic & social programs • private sector assumes the risk

$0.9B

$4.5B

4.4% of provincial budget

There’s only one pot of money and it gets circulated in many different ways.

OPG

Through the process of understanding complex public, private and charitable systems, it is revealed that the sustainable funding model for social services lies in the movement of money. There is no silver bullet when it comes to funding social services – the sustainable funding of social services is actually centralized around more efficiently allocating money to institutions, organizations or government that can systemically address social problems. When this happens, there doesn’t have to be an investment of money into services at the same extent as current funding and demand would

$1.6B

Negatives • loss of public control • public debt gets deferred into the future • private sector borrows money at a higher rate, therefore the project often costs more • contracts often ‘hidden’ from the public • project costs can be 16% higher than if government run

Positives • new way to finance large projects • brings together the strengths of both sectors

Government

Private Investors

Three crown corporations exist in the province of Ontario: Ontario Power Generation (OPG), Ontario Lottery and Gaming Corporation (OLG) and Liquor Control Board of Ontario (LCBO).

Crown corporations are peculiar hybrid entities—somewhere between a government body and a private enterprise. They are wholly owned by the state but operate at arm’s length from government.

Private System

Partners with

Private Sector

Greater Toronto Area. A task force was convened to investigate the social and financial implications of amalgamation, which revealed that the most significant impact would be the download of social services (previously paid for or cost-shared by the province) to municipalities. In 1997, a referendum was held which indicated that 70-81% of voters

working capital

Business

Public-Private Partnerships: the funding model

Social Impact Bond-Issuing Organization

LCBO

9.98%

9.96%

8.66%

SARS 2003

The funding of Social Services in the City of Toronto

Public Sector

EU/US Debt Crisis 2011

7.98%

dictate. Therefore government can turn taxpayers’ money towards decreasing the financial burden

The sustainable funding model for social services lies in the movement of money. created by the structural gap between what Ontarians pay to the federal government and what they receive. With the compounding

effects of the aging population, urbanization, and increased immigration escalating the stresses on the larger social systems, it is essential to think of the charitable, public, and private systems not in isolation, but rather how we can make transparent to the public which systems are best equipped to address specific problems. This would take advantage of each individual system’s strengths and experiences. The key understanding for the public is that if they do not pay for a social service through their taxes, they continue to carry the cost through the consumption of goods and services.

By comprehending that ultimately there is only so much money in the entire social system, the public can gain to understand that by deferring paying for social services through taxes, they will end up paying for the same social services downstream through charitable and/or private pathways. There is only one bucket of money.

Global Credit Crisis 2008

Dot Com Bust 2001

5.65%

The public taxation system is an effective tool of collecting money from the citizens and redistributing those funds towards infrastructure and services that benefit the entire city. While this system is sustainable, due to the political cycle it is challenged in its ability to generate exponential revenue.

Private Sector

released to reduce their reoffending, measured by convictions. If the social impact bond delivers a drop in reoffending beyond 7.5%, investors will receive an increasing return capped at a maximum of 13% per year over an eight year period. (socialfinance.ca)

2.

16.6%

In 1994, Progressive Conservative Candidate Mike Harris campaigned for Premier of Ontario on a plan entitled the “Common Sense Revolution.” The plan promised to reduce the size of government and lower income taxes by 30%. In order to realize his campaign promises, Harris proposed an amalgamation plan of the six municipalities of the

10.20%

give money to

deliver are required to pay taxes

+$

Charities

Social Impact Bond: An emerging funding model

“We can not solve our problems with the same thinking that created them”

Collection of money

Library, Culture, Parks, City Planning, Facilities 13.4%

How the funding of social services in Toronto changed with Amalagamation

Ontario GDP

+$

+$

Tax Payer

Organizations

Fundraising

$

12.68%

Gov’t Agencies

benefit

Tax System

Could borrow $ and fund directly at a lesser rate

Politics & the Economy

+$

Gov’t

Giving to charities

+$

spend money on

TaxTax System Public System

19.5%

TTC & Transportation Services

One might think that as the city grows, and as property values continue to rise year-over-year, that revenue generated for the city would also increase. But property taxes don’t work like other taxes. Unlike other forms of taxation, such as sales tax, property taxes are not tied to economic growth. In fact, property taxes don’t even increase

According to a Fraser Institute report released in March 2012, “Canada’s immigrant selection policies resulted in an average fiscal burden on taxpayers of $6,051 per immigrant who came to Canada between 1987 and 2004.”

+$

“…there will be more seniors than children (under 15 years) in Canada for the first time ever, sometime between 2015 and 2021.”

Governance

Mission-driven positive change

Barrie (urban)

TTC and Transportation Services

19.5%

Other Revenues

Country of Origin by Continent: 79% Asia, 11% Europe, 6% America/USA, 4% Africa

Fundraising

0

Social Services (Housing, Health, Children & Senior’s Services, Employment

22%

* Immigration by Category: 63% Economic Immigrants, 23% Refugees, 11% Family Class, 3% Others

The number of tax-filers in Canada making charitable donations has been steadily decreasing from 30% in 1990 to 23% in 2011. As government funding to social

services decreases, government offloaded the responsibility of social services to large charitable organizations to fill the gap. These charitable organizations rely on donations from the public to fulfill their mandate, and with decreasing numbers of charitable donations (as donors choose increasingly to individualize their giving), this puts these organizations at risk of losing a large part of their funding base.

Charitable System Charitable System

1.0%

Social Services 16.6% (Housing, Health, Children and Senior’s Police, Fire, EMS Services, Employment 16.6% Services)

User Fees

people moving to the city

Canada. Charities File indicates that the largest number of donations are given to healthcare organizations, leaving remaining charities focusing on the other areas of activity struggling to diversify their funding base.

1.5%

13.4%

15%

What is the role of business?

City of Toronto Unemployment Rate

49% of total revenues from Canada’s 85,000 charities come from government, and government funding of registered charities represents 14% of all government spending in

2.0%

30.5%

Government Transfers (Federal, Provincial & Subsidies)

63%

$6,051

• Relief of poverty • Advancement of education • Advancement of religion • Other purposes (proven by case law)

Get money. Spend money.

19.5%

Property Tax

Babyboomers

78%

2.5%

39%

39%

demand on services

23%

60%

3.0%

Where the $ goes

39% 30.5%

Government Transfers (Provincial, Federal, and Subsidies) 24%

Urbanization

3%

Residential

3.5%

Children and Senior’s Services, Employment Services) Property Tax

24%

63%

Commercial Occupied

4.0%

Vaughan

24%

+

of immigrants to Canada are economic immigrants*

Multi-residential

4.5%

15%

+ +

under-employed compared to skill level

+$

Industrial Occupied

In the City of Toronto:

immigrants that arrived in Canada settled in Toronto

78%

The activities of charities in Canada are limited to:

Where the $ comes(Housing, from Health,

+

–$

of immigrants to Ontario settle in Toronto

Toronto Real Estate Board

39%

City Services

40%

Tax structure “A well-functioning tax and benefit system is an essential part of a healthy economy, a sustainable public infrastructure, and a strong democracy.

Ontario’s tax system supports the province’s programs and investments in education, health care, transportation infrastructure, andProperty skills.Tax

Other Revenues 22%

Ontario Gov’t Services

Social Services

of immigrants to Canada settle in Ontario

Canadian Charities by the numbers

Social Services

+$

77,739

How does Toronto’s Property Tax rate compare?

They then use this tax revenue to finance programs and services for Canadians.”

Tax Payer

Canadian Immigration in 2011

Why we pay taxes.

The tax revenue we collect each year is either given back to taxpayers in the form of benefit payments or tax credits, or is provided to the federal, provincial, territorial, and First Nations governments on whose behalf we collect the tax revenue.

Federal Gov’t

The need for a holistic view.

6.35%

Federal Government

1995–96 “slump”

early 1990s recession

Brian Mulroney 1984–93 (majority)

early 2000s recession

“Great Recession”

Jean Chrétian 1993–2003 (majority)

Stephen Harper 2006–present (minority)

Paul Martin 2003–2006 (minority)

Citizens Vote

(2011 election = majority)

Kim Campbell 1993–93

Next Federal Election, October 2015

Government of Ontario Bob Rae 1990–95 (majority)

Mike Harris 1995–2002 (majority)

Dalton McGuinty 2003–2006 (majority) Kathleen Wynne 2013 (minority)

Ernie Eves 2002–03

Metro Toronto

Government Elections: Federal, Provincial, Municipal

Next Provincial Election, October 2015

Amalagamation: City of Toronto June Rowlands 1991–1994

Barbara Hall 1994–1997 Considered a “socialist” mayor

Art Eggleton 1980–91

Mel Lastman 1998–2003

David Miller 2003–2010 Considered a “socialist” mayor

Rob Ford 2010–present Next Municipal Election, October 2014

2025

2020

2015

2014

2013

2012

2011

2010

2009

2008

2007

2006

2005

2004

2003

2002

2001

2000

1999

1998

1997

1996

1995

1994

1993

1992

1991

1990

The political cycle will repeat itself. Either the current government will be re-elected or the government will change which will have implications on funding, priorities and promises made.

A full list of resources/references are available in the paper.

Funding Social Services Shouldn’t Be a Shell Game Project2_GigaMap_FINAL_R.indd 1

How can a sustainable funding model be established to support social services in the City of Toronto?

Zahra Ebrahim Dustin Johnston-Jewel Karen Oikonen Peter Scott Adam Starkman

SFIN 6B04 Understanding Systems & Systemic Design Project 2 April 11, 2013

4/9/13 6:51:06 AM


Funding Social Services Gigamap