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.