Canada's Best Cities 2005

Canadian Business' fourth annual ranking.

Intro | The winner | Toronto vs. Mississauga | Calgary vs. Edmonton | Saint John vs. Moncton | Comeback city

The city the rest of Canada loves to hate is down. Its infrastructure is crumbling, employment is stagnant and business is moving out to cheaper neighbouring places such as Mississauga, Brampton and Markham. All of which puts Toronto dead last in our fourth annual ranking of Canada's best places to do business. A 300-employee business looking to set up shop in Toronto can expect to pay at least $28.5 million every year to operate. That's the highest payout outside the Vancouver area in the country, and $5.6 million more than plunking that same business in Saguenay, Que., Canada's best bang for the corporate buck.

But costs are only half the story. Our survey also looked at corporate building permits, unemployment and crime rates in 40 cities. The combination of those factors propelled booming St. John's, Nfld., to the top and shoved Toronto to the bottom, despite its having one of the lowest crime rates in the country. What really turns the tables against Canada's largest city is that business activity appears to have stopped growing. While its housing boom continues, non-residential building permits declined 18% during the first six months of 2005 compared to the same period a year earlier. One of the only major office buildings completed in the downtown core in recent years is the Maritime Life tower. Meanwhile, the city's unemployment rate grew by 1.4% from June 2004 to June 2005. One report estimates 100,000 jobs have fled Toronto since its peak in 1989; over the same period, the surrounding region gained 700,000 new jobs.

Apparently, Toronto isn't the centre of the universe. Heck, it's barely the economic power of its own region. Allowing Toronto to keep some of the money it raises would be nice, say city officials. Local households still fund much of the social infrastructure for the rest of the country, each paying almost $9,500 more in tax than they receive in government services — even though the Conference Board of Canada conservatively projects a $1.1-billion shortfall next year between Toronto's revenues and responsibilities. It's this gap — more than the actual flight of jobs — that keeps Mayor David Miller up at night. “If we're going to be able to invest in the things this city needs to succeed, for example, expanding the transit network so it reaches the whole city, we have to spend significant resources we don't have,” says Miller. “To me, that's the single biggest worry about our future competitiveness.”

Toronto seems to be getting a raw deal from the upper levels of government. In 1998, the province downloaded social programs such as welfare and housing onto the city without giving it the financial tools to deal with those issues. The feds, meanwhile, have handcuffed one of the city's major industries, banking, making it harder for that sector to grow and compete internationally. But Toronto has made mistakes, too. It didn't raise property taxes in either 1998, 1999 or 2000, despite the provincial downloading. That followed a poor development plan that tried to force business to move beyond the downtown core without any of the tax benefits. And it kept business taxes high relative to neighbouring communities, which have been happily siphoning off jobs.

The city needs help, but who's really listening? Yes, the feds are giving municipalities $5 billion in gas tax revenue over the next five years, a program Miller says should be made permanent. Yet neither Ottawa nor Queen's Park will likely give Toronto a cut of income and sales taxes — even though just the growth in those taxes the city contributes would make up its funding gap — unless it's part of a wider new deal for all cities.

While the politicos argue about who should get what, the business situation in Toronto might get worse before it gets better. “Competition is white hot; it's unprecedented,” says John Boyd, president of relocation consultant the Boyd Co. Inc. in Princeton, N.J. “Willy Loman would never understand it, but there's a new breed of salesman roaming Canada, the U.S. and, indeed, the world, and they're selling labour markets, tax breaks, access to intellectual and financial capital, job training programs, and even giving away free land in certain instances.”

If jobs continue to flow out of Toronto to the suburbs (see page 46), the city — and, by extension, the rest of the country — will suffer. “No one seems to realize that we really need to find ways to help Toronto so that it can create more wealth, more jobs, more tax revenues, that can be shared elsewhere,” says Glen Grunwald, president and CEO of the Toronto Board of Trade.

Ultimately, the real competition for Toronto may not come from its nearest neighbours at all. With free trade trends likely to continue, cities are vying for jobs with other cities throughout North America and the globe. (Beginning on page 56, we profile battles between Calgary and Edmonton, Moncton, N.B., and Saint John, N.B., Vancouver and the rest of British Columbia, and Montreal and Boston.) “There are global competitive forces at play here,” says Boyd. And that means Toronto has to get better to stay in the game.