The Global Urbanist

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Governance

Why Toronto grows while Detroit shrinks

Isidoros Kyrlangitses argues that while Detroit's "home rule" status gives local voters greater influence, its pro-residents policies result in population decline, whereas Toronto's limited powers induce a focus on pro-development policies that encourage population growth. This may explain why Toronto's economy booms while Detroit's continues to slide.

Cities: Toronto, Detroit

Topics: City politics, Urban economics, Property and real estate

I moved from Riverview, in Detroit's south, to Toronto in 2002 sceptical if the higher taxes, additional cost of living, and colder weather would be worth the migration.

One of the attractions the region had over Downriver Michigan was its growth. At the time I assumed the stereotypical Canadian reasons for growth; tighter gun control makes safe appealing cities and liberal immigration policies keep filling them with people.

I later decided that these reasons disguise the fundamental differences in municipal governance between Ontario and Michigan. Ontario cities emphasize land value while Michigan cities emphasize services. The result is growing populations in Ontario cities, while cities in Michigan pursue revenue growth through services that do not necessarily translate into population growth.

Authority Ontario cities Michigan cities
Revenue powers Can raise revenue only through property taxes;
New forms of tax must be approved by the province
Have 'home rule' allowing them to raise revenue through any means as long as they do not conflict with federal or state laws
Legal status Arms of the province; can be overruled by the province on all matters Independent entities similar to corporations with certain constraints defined by the state;
The state has influence over the cities but not direct control

From a first glance of the above table, Michigan cities appear to be strong, in control, and have the tools to create innovative city government.

So why have Ontario cities faired better in terms of population growth?

Ontario cities like Toronto only have the right to tax through property taxes, whereas Michigan cities like Detroit can charge any form of tax (e.g. income or business tax).

This leads to Ontario cities having to boost property values to increase the tax base, while Michigan cities try to offload the tax burden from residents to businesses and services. The different approaches lead to vastly different outcomes in land use.

Cities in Ontario become much more flexible with their zoning laws since they want to increase density to increase property values. The idea is that a 40-story condominium with 300 units is worth more and generates more property tax revenue than a $5 million mansion on the same acreage.

The flexible zoning laws do not apply just to developers, but to homeowners as well. With a little work to meet fire codes, a basement apartment can be added to a residence, greatly enhancing the property value. The intensification encourages population growth, and therefore market growth for local business.

Michigan's older cities are developed to their boundaries and have a difficult time intensifying land use. City councils find it easier to create a new tax on non-residents than to convince existing voters that intensification is good, not simply a force for more congestion and traffic.

Workers and businesses start to get taxed on income and assets. At the same time their local market, whether it is their pool of labour or their customers, starts to stagnate. With no market growth start-up businesses have little incentive to enter. The local taxes can be used as an excuse to locate in a different region.

In Michigan the fringe of urban sprawl was the ideal environment for a new business with fewer regulations, taxes, and years of market growth as fields become neighbourhoods. Innovation and investment leave the stagnant market of older cities such as Lincoln Park, Wyandotte and Riverview, eventually leading to a gradual population decline in older cities.

The province of Ontario has several tools to promote development, mostly by overruling local politics. The province can force amalgamations (mergers of cities) should it deem the larger scale would allow them to be governed more efficiently.

In Michigan local city councils have the last word in development and zoning, creating an environment that stifles re-development and intensification due to large political risks. In Ontario a developer has the option to appeal a city council decision to the Ontario Municipal Board (OMB).

The advantage of the OMB is exemplified in the following: a developer chooses to build a condominium tower next to a neighbourhood of single family homes. In Michigan the neighbourhood association would lobby a few city councillors against the proposal due to traffic, height, shadows, appropriateness, etc. City council would listen to the resident voters and not approve the proposal.

The same would happen in Ontario, except the developer has the option to appeal council's decision to the OMB. With a few compromises (smaller scale and more green space) the development gets approved and local politicians can blame the province!

From the provincial point of view, any intensification that uses existing infrastructure is ideal because new residents will increase tax revenues for the city, the province and the federal government. The political backlash for the province is minimal because it is localized. New construction sites are not the election issues provincial politicians campaign for or against. The OMB is the province's relief valve so developments don't get bogged down by local politics.

Fifty years ago Toronto was half the size of Detroit. Today Toronto is almost three times the size of Detroit. Ontario's growth is not an overnight gold rush, but a slow and steady process of development and redevelopment. Michigan's process of redevelopment needs improving if it wants population growth and influence at the federal level.

When city revenue is based on the property value of their jurisdiction, cities have an incentive to increase land value. When local politics get in the way of developments, a process should exist to reach a compromise rather than denying the potential tax revenue to the region.

Michigan and Ontario may sometimes seem worlds apart, but they have similarities beyond the climate. Both regions are heavily dependent on automobile manufacturing, with Ontario producing as many vehicles as Michigan.

The difference is that population growth in Ontario has allowed a diversity of industries to absorb a good portion of the auto industry fallout. In Michigan the industry's decline is causing a general population decline.

In my Toronto neighbourhood a store will vacate a space, and everyone will eagerly anticipate the new venture coming to replace it. On a recent walk through Wyandotte in Detroit vacant storefronts abounded and business ideas floated around, but the empty sidewalks make any prospective businesses apprehensive about where customers would come from.

While attending Michigan schools, I was taught that Henry Ford's $5/day wage brought residents to Michigan. My experience in Ontario has convinced me that jobs follow people; people don't follow jobs. Michigan must set population growth objectives for its communities and design a process to achieve them. The jobs will follow.

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