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To Invest or Not to Invest

Toronto can and should be able to retain and attract industrial manufacturing operations if the right climate for investment retention and expansion is present. Toronto can continue to follow the status quo of decline and loss of industrial opportunity and investment or it can change course and provide an environment of economic leadership and competitive advantage.

A healthy employment base is crucial to the stability and success of any city. While Toronto is in the centre of the country's financial and other key sectors, it is also home to a long established manufacturing and distribution industry that serves Toronto and area and supplies products nationally and internationally. A cornerstone for the future success of all private sector activities is competitiveness, with a municipal environment that supports such competitiveness.

Furthermore many of Canada's major 'home-grown' technology Companies, such as Husky Injection Moulding Systems and the Royal Group Technologies, are headquartered in the Toronto Region and their success, in part, has been a result of their proximity to Toronto. They have also spun-off other successful Canadian operations with equally strong global reach. These firms and others provide employment to many residents of Toronto but the fact they are located outside of the City of Toronto underscores the risk that increasingly indicates Toronto will become the 'bedroom' of the 905 belt if Toronto's investment climate is not conducive to manufacturing and other business activities.

Competitiveness & Investor Confidence

When assessing the competitiveness of a jurisdiction for investment decisions, one must separate competitiveness from investor confidence. Both of these issues play a role in any decision to invest in a particular location.

Competitiveness is a relative thing. One cannot discuss the competitiveness of a jurisdiction without referencing it to some other location. Competitiveness is primarily an objective evaluation based upon comparison of business/technical data (i.e. the business tax rate, the transportation costs, etc). For different businesses, the reference jurisdiction can be radically different. For example, the reference jurisdiction for assessing the competitiveness of the upstream chemical business would be the United States Gulf Coast states and cities while a reference jurisdiction for the downstream plastics moulding business could be Chicago or Detroit.

Investor confidence with respect to a particular jurisdiction is another issue. Here perception is reality and confidence can be highly subjective and driven by the investor's perceived notions of a particular jurisdiction. Businesses want to feel welcome in order to invest, expand and grow. Factors such as regulatory certainty play a large role with respect to investor confidence and investors want to know that the 'rules of the game' will not be changed after the fact without adequate consultation with the affected parties. At the end of the day, if a jurisdiction gets competitiveness factors correct but it fails to adequately address the investor confidence factor, the investment will go elsewhere.

In addition, there are many other factors that impact the competitiveness of a jurisdiction and the decision to invest in a new manufacturing facility or the expansion of an established facility.

Some factors such as the supply and cost of raw materials and energy or federal and provincial regulations are beyond the control of the City. However, the City can have a major impact on investment decisions because of its economic and planning policies as well as regulations in fields such as health and environment.

Following are the issues that TIN believes are critical to the future of manufacturing in the City of Toronto:

Location/Transportation/Critical Mass

Toronto is ideally located within the heart of southern Ontario within one day's trucking of 40% of the population of Canada and the United States, 54% of the manufacturing capacity of the USA and 65% of Canada's industrial output.

As part of the Toronto Region, Toronto also has an enviable critical mass of suppliers and industrial and individual consumers, all of which have a positive impact on the decision making process of an investor.

Toronto's transportation infrastructure is barely adequate and major arteries are quickly becoming congested. The deteriorating infrastructure and threat of gridlock need to be addressed immediately.

The railway infrastructure in the Toronto Region must be nurtured as a carrier of goods and people as well as a conduit for high-speed communications. As a result of its ability to operate cooperatively with the trucking industry while delivering raw materials and finished products, the railways must be regarded as an important link in the City's economic growth.

Toronto is fortunate to be located on the Seaway system and it is imperative that the City's Port is maintained and actively developed for shipping and related activities. Not only does such a facility allow finished goods and raw materials to be delivered in massive quantities at economical rates, but bulk tonnage movement delivers environmental benefits as well. For example, the tonnage moved through the Port in 2003 was the equivalent of taking over 30,000 trucks off the road.

Quality & Availability of Labour-Power

Also an important factor in siting a manufacturing facility is the ability of the area to readily supply labour that has the required training. This labour force must also have the work ethic and attitude to maintain the operation's reputation as a 'good place to work' and enhance its ability to compete and grow. Currently, Toronto has an adequate supply of trained labour but it must continually work at maintaining this advantage.

As a result of the loss of manufacturing jobs to regions outside of Toronto, many in the labour pool are disadvantaged because jobs are often a great distance away and less available to Toronto residents. Further the need for new, appropriately skilled individuals plus the ageing of the workforce should be of concern to the City Government.

Toronto's Official Plan calls for a significant increase in population density that should be accompanied by a large increase in the number of skilled, high-paying jobs. Toronto's employment districts are still under threat from non-industrial re-development.

Industrial Taxation

Although industrial tax rates have decreased until this year, there continues to be a striking disparity between industrial tax rates in Toronto and the surrounding area. This disparity could slowly diminish if industrial tax rates were to remain frozen in the City but it remains a serious competitive issue with tax rates outside the City being 25% to 50% lower. The anomaly here is that industry requires little servicing so, in fact, it continues to pay a huge premium for the few municipal services it receives while paying directly for services, such as waste haulage, because it cannot use the City's services.

In addition, the consideration of additional levies and /or user fees to be applied to industrial facilities has a compounding effect on taxes and should only be considered after due consideration and application of the principles and criteria guidelines (available upon request) outlined by the industry coalition referred to as the Thursday Group.

As a result, rather than considering an increase to industrial taxes, Toronto should make as a priority ways to reduce industrial taxes as a technique to attract more industry and jobs to the City and more assessment for the City. For industry, there must be real value received for taxes paid which means eliminating the huge disparity between the industrial and residential tax classes.

Plant Construction Costs

This issue has a significant impact on investment decisions for the capital and construction costs of a facility directly impact the viability of the facility to deliver a return on investment and the ability to expand and grow into the future.

The recent decision by the City to not increase industrial development charges is lauded by the industrial sector.

It is now time for the City to keep development charges at zero and work hard to lower industrial tax rates as a means to attract more industry and increase the City's industrial tax base.

Energy Costs

As mentioned earlier, to a great degree this issue is not controlled by the City and is a Provincial challenge. However, competitive energy costs are critical to investment decisions and there is an opportunity for Toronto to consider the benefits of having its own power generating facility to supply back-up power at competitive rates.

For example, the City should consider the installation and operation (publicly or privately owned) of a gasification facility that can take the residual (i.e. after products that can be sustainable, mechanically recycled are separated) waste in Toronto's garbage stream, gasify it to produce syn gas and use the gas as fuel to drive turbines that can generate electricity. If studies show that such a facility is viable then Toronto's waste and energy challenges could be alleviated as well as creating jobs and introducing new technology.

Stability of the Policy Environment

Industry requires stability and predictability in the policy and regulatory environments of all governments. Dramatic changes to policy that alter the rules when done without consultation with industry create uncertainty and mistrust. When enacting environmental, health and safety regulations that are the responsibility of other levels of government, Toronto needs to ensure that it does not implement by-laws that duplicate the requirements of other regulating instruments. If Toronto duplicates labour, environmental and health requirements already imposed by others, the increased regulatory burden directly impacts the competitiveness of the City and the decisions made by investors.

An issue that is often missed by those developing public policy and implementing by-laws is that any single new measure introduced by the City may, on the surface, appear to only add a fraction to the cost of doing business but when ALL measures from ALL departments (combined with similar actions from the federal and provincial levels of government) are stacked together they could add up to tilt the balance against locating, expanding or continuing to operate in Toronto.

Further, it would be helpful to the manufacturing industry if the City would initiate a review of its legislation to eliminate duplication and to strive for simplicity in the by-laws that impact industry.

The Jurisdictions fiscal Situation/Outlook

It is a well-known fact that "perception is reality" and as a result, it is important that the City must be managed in a fiscally sound manner and be seen to be managed as such. Toronto has improvement to make in this area.

Industry understands the difficult situation cities like Toronto face as far more tax revenue is being contributed by the City constituents to other levels of government then the constituents receive in return. Industry supports the City's lobbying efforts to get the provincial and federal governments to understand the need and offer new sources of revenue to support the City's needs. However, Toronto has to work to get its own financial house in order. Not doing so will weaken the City's ability to compete. New sources of revenue coupled with budgetary restraint will hopefully mean the City will not have to resort to increased industrial taxes and development charges, both of which negatively impact the competitiveness of Toronto.

Conclusion

Toronto is coming to a fork in the road; it can change course and provide an environment of economic leadership and competitive advantage to the benefit of all who live and work in our great city or it can continue to follow the status quo of decline and loss of opportunity and investment.

Prepared by: The Toronto Industry Network