No Cracks in Toronto Finances as Ford Fights Allegations
Toronto Mayor Rob Ford’s allegations of cocaine use, which has become material for U.S. late-night comedy sketches and prompted calls for his resignation, hasn’t impaired the city’s finances.
More than two years into Ford’s tenure, which has included reports he was video-taped inhaling crack cocaine, a conflict-of-interest lawsuit, and a photograph of him reading briefing notes while driving, Moody’s Investors Service has praised North America’s fourth-largest city for reducing spending and cutting debt.
“I don’t really think the political circus matters, I think it’s really the fact that the funding of Toronto seems to be on a more stable basis,” said John Braive, vice chairman at Canadian Imperial Bank of Commerce’s CIBC Global Asset Management, which oversees $50 billion of fixed-income assets including Toronto’s bonds. “The budget looks like it’s under better control than it’s been for a number of years.”
The Toronto Star newspaper said on May 16 two of its reporters watched a cellphone video allegedly showing Ford smoking from a crack cocaine pipe. U.S. website Gawker was the first to report on the video and is trying to raise $200,000 to buy it.
Bloomberg News hasn’t seen the video and can’t verify its authenticity.
“I do not use crack cocaine nor am I an addict of crack cocaine” Ford said today. He couldn’t comment on a video he has not seen “or does not exist,” Ford said, and declined to answer media questions.
The Toronto Police say they are reviewing allegations against the mayor while an executive committee of city council today urged the mayor to address them.
“The allegations need to be addressed openly and transparently,” the committee wrote in a letter, signed by Deputy Mayor Doug Holyday and five councilors.
“Certainly it’s undermining the credibility of his leadership,” said John Johnston, chief strategist at the Toronto-based investment-management firm Davis Rea Ltd., which doesn’t hold the city’s bonds. “From an investor’s perspective his leadership has been good in the sense that he has brought spending down.”
The controversy hasn’t affected the city’s C$4.6 billion of bonds, which are beating Vancouver’s debt and an index of Canadian provincial issuers. Relative yields on Toronto’s C$500 million of 3.5 percent bonds due in December 2021 are trading at their narrowest since they were issued. The spread to government debt has fallen to 115 basis points from 143.5 basis points in November 2011.
Toronto bonds, rated Aa1 at Moody's, are up 2.1 percent this year compared with 1.5 percent for Vancouver, according to a Bank of America Merrill Lynch index. Canadian cities and provinces returned an average 0.6 percent, the index shows.
As other provincial governments struggle to tame deficits amid slowing growth and shrinking revenues, Toronto in 2012 cut spending for the first time since it was amalgamated with five surrounding suburbs in 1998 while its debt burden is half the average of other Canadian cities, Moody’s said in a May 15 report.
“If you are a bondholder, there is lots going on out there in terms of the mayor, but in terms of what influences us, it’s really what is the underlying budget position of the city, and it’s improved,” Braive said by phone.
The city’s net debt to total revenue is 37 percent, compared with an average of about 65 percent to 70 percent for Canadian cities, Moody’s said in its annual review on the city, a day before the video allegation broke. That compares with Montreal’s at 97 percent and Quebec City at 127 percent, according to the most recent data, Jennifer Wong, an analyst at Moody’s, said in a phone interview yesterday.
“The mayor is facing difficulties and controversies but it’s important to note the city possesses strengths that underpin the high investment-grade rating,” Wong said. “We expect the city will continue with the progress they’ve made over the last few years.”
Toronto is in the midst of a building boom with 112 high-rises under construction, more than any other city in the world, according to Emporis.com. It has overtaken Chicago as the fourth-largest North American city with a population of 2.79 million, according to a statement from the city in March. Home to the country’s five-largest banks, two of the biggest insurers and its largest wireless operator, Toronto’s economy is driven by financial services. Still, unemployment averaging 8.4 percent in the three months to April was higher than Ontario’s at 7.7 percent.
Ford, 43, was elected in October 2010 to lead Canada’s biggest city on a promise to “stop the gravy train.” He slashed council budgets by 42 percent and outsourced half the city’s residential waste collection to the private sector. He has halted bike lanes, eliminated a vehicle registration fee and waged a battle to expand the city’s transit through subways in a bid to turn back the “war on the car.”
In January he won an appeal of a court ruling that had found him in conflict of interest over donations collected for his high school football charity. He has been photographed reading a briefing while driving on a city expressway and gave up on a public weight-loss campaign to trim his 330-pound frame which he dubbed “Cut the Waist.”
“There were initial successes at the beginning of his mandate, but then the personal behavior began to overshadow that,” said Richard Leblanc, associate professor of law, corporate governance and ethics at York University in Toronto. “It’s unfortunate because he had a trajectory there that’s now been diminished. It’s not sustainable or recoverable. His credibility has been so diminished, in a corporate context, that’s why a CEO is fired. They cannot operate.”
While the city’s debt has taken Ford’s controversies in stride, Toronto’s reputation has taken a beating that may slow investment, Leblanc said.
“Jon Stewart, American comedians have had a field day with this,” he said. “From an investment and jobs point of view, people will refrain from investing and brokering deals because they believe the mayor can’t get the votes. You’re waiting for the next mayor with the authority and gravitas to make deals.”
Ford has remained largely silent on the video as packs of media have trailed him from City Hall to doughnut shops. He has been let go from coaching the Don Bosco Eagles football team, his chief of staff Mark Towhey left yesterday and calls are mounting for him to address the allegations head on and resign.
The Toronto Star, whom Ford has accused of having a vendetta against him, said yesterday in an editorial, it’s time for him to leave.
’’A CEO would have been fired a long time ago,’’ Leblanc said.
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