Author: Casey Vander Ploeg
BACKGROUND
In 2000, the Canada West Foundation launched the Western Cities Project, a multi-year research and communications effort designed to draw the attention of governments and citizens to the state of western Canada’s large cities and to explore innovative solutions that address a wide range of emerging urban concerns. A key part of this work has always revolved around municipal finance issues.
PURPOSE
The purpose of this study is to provide a broad overview of the key fiscal trends affecting six of western Canada’s large cities — Vancouver, Edmonton, Calgary, Saskatoon, Regina, and Winnipeg. The review, conducted over the 1990-2007 period, helps answer a number of questions. Has anything really changed given the urban discussion in Canada? Do the cities possess sufficient fiscal capacity to meet the challenges of population growth, their rising economic importance, and massive infrastructure needs? Are the cities on a more fiscally stable foundation? Are there new policy directions that Canadians and their governments should consider? For the first time, the Canada West Foundation is also publishing its detailed fiscal database on the six cities.
THE RESULTS
Budget balances: Over the 1990-2007 period, the six big western Canadian cities reported a total of 66 effective surpluses and 42 effective deficits. The average annual effective budget balance over the 1990-2007 period is small — 0.6% of total revenue across the six cities. In other words, the fiscal margin in which most cities operate is tight. In the last few years, the size of surpluses has been shrinking for some cities and moving from surplus into deficit for others. Smaller surpluses and the reemergence of deficits mean cities are beginning to spend beyond current revenue, or are moving in that general direction.
Borrowing and debt: The 1990-2000 period was marked by efforts to pay down tax-supported debt and check the growth of self-supported debt. The last few years, however, have seen a resumption of borrowing for most cities. Current net direct long-term debt of the six cities was $500 million higher in 2007 than in 1990. However, the per capita amount of debt in 2007 is either lower or only slightly higher than in 1990. The debt profile of most cities has also changed — tax-supported debt as a percentage of total debt has declined while self-supported debt has increased.
Expenditure: Up until the last few years, real per capita expenditure on programs and services for most cities was either flat or below 1990 levels. Real per capita expenditure on capital experienced significant ups and downs, but had not appreciably increased either. By 2007, a significant reversal can be seen. Capital spending has risen dramatically for all cities, and is the fastest growing expenditure item. Real per capita expenditure on programs and services has also increased. At the same time, it is important to note that the cities have increased their real per capita spending on programs and services only to the extent that they have secured savings in interest costs on their outstanding net direct debt. All cities have been able to take advantage of significantly lower costs of borrowing. These savings on interest expenditure have been redirected to programs and services. At the end of the fiscal day, real per capita operating expenditure for all cities is either lower in 2007 than in 1990, or only slightly higher.
Revenue: User fees are becoming more important as a source of operating revenue for most cities, provincial and federal operating grants have yet to recover to historical levels, and growth in contributions and other revenue has generally outpaced growth in the property tax. Property tax revenue, generally speaking, remains one of the slowest growing revenue sources. A notable shift on the revenue side of the budget equation concerns provincial and federal support for capital expenditure. While real per capita operating grants have not recovered to levels seen in 1990, provincial and federal governments are responding to the infrastructure challenge through increased grants for capital expenditure. Combined with other capital funding sources, capital revenue is one of the fastest growing revenue components for the cities.
POLICY IMPLICATIONS
The ability of western Canada’s cities to accommodate a rapidly growing urban population and meet their huge infrastructure requirements is hampered by a singular and heavy reliance on the property tax. Real per capita growth in property tax revenue is well below growth seen in taxes collected federally and provincially. The data indicate that new policy directions are needed to help place our cities on a more firm fiscal foundation. A package of reforms with real potential includes better matching municipal responsibilities with appropriate revenue sources, moving to user pay systems wherever possible, adopting new modes of program and service delivery, pursuing innovation in infrastructure financing, funding, and delivery, and lowering property taxes and supplementing the revenue loss with new tax tools or more robust forms of tax revenue sharing.