Public sector size and its impact on the economy is a
long-standing research question in public finance. In the case of Canada with its federal system
of government, measures of public sector size often focus on either total
public sector size or break it down into measures of federal and/or provincial
public sector size. These measures
commonly take government spending or government revenues as a share of GDP to
estimate the size of the public sector footprint. Less common are attempts to related municipal
public sector size to the size of their local economies.
Data is always an issue when trying to get an empirical
handle on measuring things like public sector size. Fortunately, in the case of Ontario
municipalities, it is possible to get annual data on total municipal government
expenditures and revenues from the Ontario Ministry of Municipal Affairs Annual
Financial Information Returns which are filed by municipal governments. Also fortunate is that Statistics Canada now
provides some estimates of GDP for major census metropolitan areas going back
to 2009. While the data is a bit onerous
to compile and put together, the preliminary results for Thunder Bay and three
other Ontario municipalities are interesting.
Figure 1 plots total municipal expenditure as a share of CMA
GDP from 2009 to 2022 for Thunder Bay, Greater Sudbury, Windsor, and
Barrie. These are relatively smaller
Ontario urban centres well outside the GTA/Niagara region with two in northern
Ontario. Greater Sudbury is always an
automatic comparison for Thunder Bay on many levels given that it is the
largest city in northern Ontario with Thunder Bay second. Also, note that for 2021 and 2022, GDP was
estimated using the annual average growth rate of GDP for the 2010 to 2020
period.
The results reveal that total municipal expenditures in
these four cities as a share of GDP reveal that Thunder Bay has a larger
municipal footprint than the other three.
Over the entire period 2009 to 2022, Thunder Bay’s municipal expenditure
to GDP ratio averages 9 percent while Sudbury is at 6 percent, and Windsor and
Barrie each at 5 percent and 4.7 percent respectively. In terms of trends over time, since 2011,
Barrie has been trending slowly downwards, Windsor is stable, Sudbury has been
growing while Thunder Bay managed a small decline that was reversed during the
pandemic. Indeed, the two end points of
this chart are both associated with economic trauma in that the start is marked
by the aftermath of the Great Recession and Financial Crisis and the end by the
COVID-19 pandemic.
Nevertheless, the results suggest that based on this albeit
limited sample, the two northern Ontario municipalities have larger municipal
public sectors than ones in southern Ontario. Even within the north, Thunder
Bay is certainly in a league of its own when it comes to the size of its
municipal footprint. Some of these differences
across the cities can of course be ascribed to the generally more robust
southern Ontario economic environment and better economic growth performance
which naturally spills over into GDP. At
the same time, Thunder Bay is different, and the question as always is why?
One might argue that the municipal public sector in Thunder
Bay is larger than these other cities because it has a weaker economy. Given that so much municipal spending is
mandated or guided by the province, Thunder Bay does not spend more per se but
does relative to the size of its economy.
This is the “province makes us do it defence”. On the other hand, one could argue that more
spending is also a choice and Thunder Bay and the Lakehead cities that preceded
it have always because of their isolation engaged in more municipal spending to
provide services they feel ought to be available. In this regards, part of the difference between Thunder Bay and other cities lies in municipal utilities given that the City of Thunder Bay essentially owns TBayTel- its own municipal telecom utility.
In some sense, neither explanation is terribly flattering in
explaining why Thunder Bay’s municipal public sector can be nearly twice as
large as that in some other southern Ontario cities. We have a weak economy which despite all
efforts continues to be weak and our municipal government plays the role of an
economic stabilizer. Or, ownership of TBayTel aside, we may simply like
to spend more than other cities and are quite comfortable with the City of
Thunder Bay being as large an economic driver as it is. One suspects both these explanations are potentially
inconvenient truths no one in Thunder Bay really wants to hear.
