When Toronto held a 40th birthday party for its space-age-looking city hall on Sept. 17, it was supposed to be a celebration of not just the building, but the promise that the future was still there for the taking just as it was back in 1965. There was a definite buzz that day at the hall, a place where the city's financial, shopping and cultural strengths neatly intersect. And then the opening celebratory fireworks failed to ignite, prompting someone on the stage with Mayor David Miller to wonder aloud if anyone had a lighter.
The fizzled pyrotechnics are all the more ironic given that Toronto seems to have lost some of its spark. It's misfiring not just at parties, but in corporate boardrooms, as well. The city's business taxes are the highest in the Greater Toronto Area, non-residential building permits are declining and employment is stagnant. The numbers are all the more startling because much of Canada is quite buoyant especially Toronto's neighbouring cities, the largest of which is Mississauga, whose comparatively dowdy city hall is an hour or so away, depending on traffic.
If Toronto has the sizzle, Mississauga is the steak, the epitome of ruthless municipal efficiency. Unlike Toronto, Mississauga doesn't have a debt nor does it cry to the province every year to fill in funding gaps. In part, that's because its residents are mostly quite well off, at least well enough to afford higher residential property taxes. “A city can't keep its taxes down if you're going to allow your commercial and industry to wander away,” says Hazel McCallion, Mississauga's mayor for the past 27 years. “That's why a lot of companies are moving out here, because of the very high taxes they pay in Toronto.” Currently, Mississauga's commercial tax rate is 2.8% compared to Toronto's 4.5%. (Not coincidentally, Toronto homeowners pay less property tax than their suburban brethren.) But business also likes the fact that Mississauga is a well-run city, has access to a large labour pool and offers an efficient transportation infrastructure. (It has the province's third-largest transit service and is well served by rail lines.) While Pearson International Airport is technically Toronto's, it really works in favour of Mississauga, where it is located.
The availability of cheap land was the initial driver of business to Mississauga, and there's still 3,000 acres earmarked for development. But site relocation expert John Boyd of New Jersey-based Boyd. Co. says Mississauga is no longer a one-trick pony. He credits McCallion for creating a business-friendly atmosphere as the real corporate turn-on. “You have a proactive and consistent leader who has never overpromised,” says Boyd. “She has always been very straightforward with prospects and kept her word, so business has a very trusting relationship with the city that's personalized in the mayor. But it extends to all agencies.” McCallion is also a “classic example” of a politician who can personalize the message she sends corporate site seekers, says Boyd. No business seems too small for the tireless 84-year-old mayor; she's even officially opened a bicycle repair shop. “Some municipalities look at only the tax revenues, but I look at the jobs because we're anxious to have people to live and work in the same community,” she says.
Nothing illustrates the factors that have led to Mississauga's success quite like the development of its financial services sector. New technologies such as the Internet have enabled financial firms, typically the last industry to consider relocating to the suburbs, to move their back-office functions out of the downtown to places that offer comparatively cheaper land and taxes, newer and more easily retrofitted office buildings, and better transportation. According to Boyd, operating a typical 300-employee office in Toronto will cost $28.5 million annually, about $50,000 more than running that same business in Mississauga. Not much of a saving when compared to many other parts of the country, but significant enough for cost-conscious businesses.
Miller, Toronto's mayor for the past two years, says the city wants to attract precisely the other kind of businesses, those willing to pay the higher price to be in an urban environment with all the amenities that it provides. That narrows Toronto's appeal to sectors such as financial services, high-tech and life sciences, along with cultural trades such as the film industry. “It's in those industries where Toronto has a definite advantage over its GTA cousins,” says Miller. Toronto also stacks up nicely against major cities that compete for such industries. It's on the international stage where it has a cost advantage, according to KPMG's Competitive Alternatives study in 2004, which pegged Toronto as the third-least expensive place to do business among 30 of the largest cities around the world. “We're competing with places like Frankfurt, New York and London to be a significant financial services centre,” says Miller. “Those jobs, except some of the back-office jobs, are going to be downtown.”
Toronto certainly has its fair share of the elite. It's the third-largest financial services centre on the continent. The headquarters of Canada's five largest banks, six largest accounting companies and nine of the 10 largest law firms are all there. Glen Grunwald, president of the Toronto Board of Trade, says some 70,000 businesses employing 1.3 million people call Toronto home, and it's the most culturally diverse city in the world. It all sounds very impressive. Yet the handwringing over the city's declining status as the place to do business in Canada is leaving many with sweaty palms.
No wonder. Companies such as Imperial Oil and HudBay Minerals have moved their headquarters out of town in the past year. The city has lost high-profile gigs like the new airplane manufacturing facility Bombardier offered up for grabs earlier this year. More often than not, though, Toronto's loss is the surrounding region's gain. Wells Fargo Financial Corp. Canada, Symcor and Maple Leaf Foods have all recently consolidated some operations in Mississauga. There are 100,000 fewer jobs in Toronto than at its peak in 1989. Meanwhile, the surrounding region called the 905 after its area code has added more than 700,000 jobs, and the rest of the province more than 300,000. Roughly 80% of all Class A office space built in the GTA since 1998 has been developed in the 905.
Clearly, something is amiss in the Big Smoke, and it didn't happen overnight. Indeed, a series of reports over the past 15 years have only confirmed that the city is underfunded, the region has been poorly planned, and its infrastructure is in dire need of a makeover. Toronto corporate property taxes are much higher than those of neighbouring cities in large part due to higher education taxes and 3.5 times what residential property owners pay. By comparison, Mississauga's tax ratio is 1.3 and Markham is even lower at 1.1. A report by the deputy city manager and chief financial officer recommends that Toronto shift more of the tax burden onto homeowners over a period of 15 years to be more or less in line with Mississauga and other surrounding cities. Such a move would not only make existing business owners happy, but could also spur new commercial development.
Toronto needs a bit more than that to stage a commercial recovery, however. It has to improve its infrastructure, get a better handle on regional planning and obtain access to more revenue sources. Uploading responsibility for social services, along with a new immigration deal with Ottawa, would eliminate about three-quarters of the $1.1 billion in costs the city currently can't handle, says Anne Golden, president of the Conference Board of Canada. Toronto, she adds, should reduce traffic congestion by building a fast rail link from the airport to downtown's Union Station, and champion a fast transit loop through itself, Montreal and Ottawa.
Initiatives like those will require plenty of money money that Toronto currently doesn't have. Mark Mullins, an executive director at the Fraser Institute, says more user fees are one potential source of new funds for infrastructure development. But he cautions against handing out more money to the city carte blanche. “Let's not interfere with market choices; if people really want to set up shop in Mississauga, and they do it en masse, we don't want to stop that,” says Mullins. “In the old days, you didn't think much of the suburbs, and now there really is competition. It's not entirely clear to me that the city is trying.”
Perhaps like rental car agency Avis, Mississauga has tried harder because it's always been No. 2 in the region. It's also in a bit of a quandary. Mississauga wants all the business it can get, but it also needs a strong, vibrant regional core to ensure new blood keeps coming to the area. Toronto is the international calling card. As Mayor McCallion puts it: “If the heart isn't strong, the arteries, which we are, are not strong.”