Police Month Continues! Police Spending in Ontario Municipalities

 

It appears that police month is continuing here on Northern Economist as I came across police spending data from the latest BMA Municipal Report  - the 2022 edition.  The BMA reports provides estimates of net policing costs per capita both excluding and including capital cost amortization as well as per $100,000 dollars of assessment.  These costs vary quite a bit and the BMA report has a preamble to the police cost data explaining that such costs can vary a great deal depending on the daily inflow and outflow of non-residents and commuters, the policing of specialized facilities in a municipality such as casinos or airports as well as demographic characteristics, the urban rural mix, service levels and the complexity of crimes. 

 

 

 

Having noted all that, Figure 1 provides a chart ranking policing costs per capita for Ontario’s thirty largest municipalities and they range from a high of $461 per capita for Thunder Bay to a low of 258 dollars per capita for Milton, Burlington and Oakville, which of course all share the costs via the Halton Regional Police Service. Indeed, a number of these other communities have the same per capita net costs because they are part of a regional service – Durham Region (Clarington, Ajax, Whitby, Oshawa, Pickering), York Region (Vaughan, Richmond Hill, Markham, Waterloo Region (Kitchener, Waterloo, Cambridge), Niagara Region (St. Catharines, Niagara Falls).  

 

 

 

In trying to find out what might account for these differences, the simplest starting point is a plot of net per capita costs against the number of officers per 100,000 population as provided in Figure 2.  It is a positive relationship with each additional officer per 100,000 resulting in an addition of nearly 2 dollars per capita in policing costs.  These are policing costs and are not simply the cost of an officer but include all the costs and support associated with that officer.  As you will recall in an earlier post, police forces also have a fairly large number of civilian employees as support.  However, simply stating that having more officers is going to cost more money is not terribly helpful in trying to explain differences across municipalities. 

 

 

 

Figure 3 plots the net costs per capita against the area of the municipality in square kilometers.  For most of these police forces, as area rises, the per capita cost actually falls though it starts to rise for very large municipal areas.   The plot vaguely resembles a u-shaped cost curve but it is ultimately not very satisfying chart because there is not really much in the middle to support the fitted curve.  The three communities on the far right who make up the upward sloping part of the curve are Hamilton, Ottawa and Greater Sudbury.

 

 

 

Figure 4 looks at the relationship between policing costs per capita and the community crime severity (Using the 2021 Crime Severity Index from Statistics Canada).  Once the polynomial curve is fitted to these points, one can say with a certain degree of confidence that there is an positive relationship between crime severity and police costs per capita but it is somewhat non-linear with one peak at a crime index of 50 and another at about 90.  Why this relationship might be bi-modal is either statistical luck of the draw with this data set or the subject of future research.

 

 

 

 

Finally, Figure 5 plots police costs per capita against total population to see if there are any economy of scale type relationship that might emerge.  The u-shaped curve that emerges is misleading because only Toronto is responsible for pulling up that curve,  For the rest of the communities, as population rises, per capita policing costs come down.  In a sense, throwing Toronto into the mix is not useful because it is so much larger than any other municipality in Ontario. 

 

I guess, the ultimate insight would be to run a regression with some of these variables as determinants of per capita policing costs.  Table 1 below presents the results of a very simple regression of net police costs per capita on municipal area (square kilometers), total population, Crime Severity Index in 2021 and regional fixed effects variables with the GTA/Central as the omitted comparison category.  Policing costs per capita do appear to be significant and positively related at the 5 percent level with Crime Severity and being in northern Ontario.  Population also seems to be a positive driver but again that is likely being driven by Toronto.  Still, it could be that really large populations create much more complex crime environments that really drive up police costs per capita.

 

 

So, in the end, what drives police costs in Ontario? Crime Severity is likely a factor but regional differences as captured by regional dummy variables also seems to be of some importance.  Obviously, more research is needed on this topic but that is time intensive and assumes that someone actually wants an answer.

Inflation, Wages and Municipal Monopolies

 

Statistics Canada released its April 2022 employment numbers today and the national unemployment rate edged down slightly to 5.2 percent.  Canada has low unemployment and real GDP growth in the 4^th quarter of 2021 was 1.6 percent which annualized translates into just over 6 percent real growth for 2021.  It is indeed a period of robust economic growth and of course inflation which in March was 6.7 percent.  However, if you have been to a grocery store, you will see that over the course of the last year many prices have gone up 30-50 percent and then there is gasoline which is now pretty much at 2 dollars a litre.  As a result, interest rates are up belatedly to arrest the surge in inflation to bring it back to the 2 percent range.  However, they will probably need to go higher given that inflation – while not yet stagflation despite alarmist media stories – is nevertheless quite persistent.  Still, Canada is not yet like Turkey which is seeing 70 percent inflation.

 

Stagflation a la 1970s requires a wage price spiral fueled by expectations of rising prices on the part of the labour force which become translated into effective wage increases.  However, that requires a certain amount of bargaining power on the part of labour and unionization rates in Canada today are dramatically lower than they were in the 1970s and 1980s.  If wages go up in the private sector, they are going to rise not so much because of labour action but because the labour market is seeing scarcity of workers.  As for the public sector, many provinces have some form of salary restraint – chief of which is Ontario which in 2019 brought in Bill C-124 which has kept most of the broader public sector to 1 percent annually. More on that in a minute.

 

In Thunder Bay, the unemployment rate (3-month average, seasonally adjusted) is now 4 percent – down from 4.9 percent the month before.  However, total employment in Thunder Bay is down from March going from 64,600 to 64,400 jobs, the size of the labour force has also shrunk going from 68,000 to 67,200 and the participation rate has fallen from 63.8 percent to 63.0 percent.  So, the robust low unemployment rate in Thunder Bay masks the fact that overall, there are fewer people working relative to the month before.  However, year over year, both the labour force and employment are up so all things considered, the low unemployment rate is a sign that the city’s economy is doing relatively well.  Which brings me to the main point.

 

As well as Thunder Bay is doing, eyebrows were indeed raised this week by the news that Thunder Bay City councilors have passed a 4 percent salary increase for its management and non-unionized staff and a 2.35 percent increase for councillors while unionized staff will be seeing a 1.5 to 2 percent increase.  The 4 percent increase for 319 managers and other non-unionized staff was dressed up as staggered which obfuscated from the fact that in 2022 the increase is nevertheless 4 percent.  The City Manager was quoted as saying: “The reason for [the increase] is to make the [city] more competitive against our competitors for skilled labour,” he said. “We are falling behind on a relative basis – against other municipalities, against the private sector, and against the public sector parameters we measure against.” As for the councilor increase, well it is now formula driven at half the rate of inflation so the 4.7 percent inflation in 2021 translates into 2.35 percent. It is not council deciding, it is simply the formula though they voted against taking a lower increase.

 

The point here is that municipal employees in Thunder Bay – like municipal employees elsewhere in the province - have a distinct advantage over other members of the broader public sector in that they have not been subject to the provincial salary restraint legislation in Bill C124.  In Ontario, health and education sector workers have been kept to 1 percent increases annually since 2019.  Municipalities have been exempted ostensibly because they have access to own-source revenues.  That is property taxes and user fees.  Municipalities still get a substantial portion of their revenues from the province in the form of grants though not as large a share as say hospitals, schools, and universities. 

 

Municipalities in Ontario derive about 40 percent of their revenues from property taxes, another 22 percent from government transfers, 20 percent from user fees and the remainder from licenses, permits, fines, and rentals. They can pass on their cost increases directly to their ratepayers and as a result can fund increases in spending while at the same time adding to their reserve funds with large annual budget surpluses.  In the end, they are no longer municipal governments serving the public interest but have become monopoly corporations and use their monopoly power to extract whatever revenues they need – even during the pandemic.  They have become bureaucratic maximizers of expenditures. A municipal election only every four years enhances that monopoly power.  Residential taxpayers throughout Ontario are going to see large increases in their bills down the road to fuel the spending increases that municipalities are going to bring in because of inflation. That the province has allowed this monopoly power to continue unchecked and indeed abetted it in the recent salary restraint legislation should be an election issue.

Thunder Bay Budget 2022: Once Again the Drama Begins

The City of Thunder Bay has launched its Budget 2022 consultation process with a town hall meeting that occurred on Tuesday of this week.  The online meeting hosted by the elected chair of the finance committee as well as the treasurer and city manager, provided an overview of city finances as well as the opportunity to ask submitted questions.  Of course, this ensured that nothing would be said about the ongoing leaky pipe saga which continues unabated in city neighborhoods or indeed anything else deemed too awkward. Not surprisingly, given the federal and provincial abundance that has been showered on municipalities everywhere, the financial impacts of COVID-19 in 2020 were borne well and even generated a surplus of about $4 million.   The presentation also made the usual plea for funding infrastructure deficits which apparently is estimated at $20 million every year.  It is a deficit which no matter how much is spent just seems to get bigger.

The presentation on the city's finances was actually useful in that it tried to present a discussion of how the basic budgets fitted together in terms of tax and rate supported expenditures as well as the capital budgets and provided a breakdown of where the money went.  The City Manager did go on to say that the budget was complex and the plethora of multi-colored slides did certainly convey an impression of complexity.  However, municipal budgets are actually not that complex - they are only presented in such a manner because it is to the advantage of administrators who may want to manage the amount of scrutiny. 

The CD Howe Institute has already noted that municipal budgeting in Canada is a bit of a travesty with opaque and late budgets that impede understanding and accountability.  Moreover, the format of budgets differs from the public sector accounting standards used in year-end financial statements making budgeting very  confusing, even for elected councilors. The fact is the budget is really quite simple.  Money comes in and money goes out.  In general, more money comes in than goes out which is why there is an operating surplus that is then placed into reserves.  

The most entertaining part of the evening was the City Manager's response to a question as to why Thunder Bay's municipal staffing levels seemed to be so much higher than other municipalities with comparable populations which of course leads to the real elephant in the room, the number of employees on the provincial sunshine list.  The answer provided was that the comparisons provided - municipalities like Kingston, Cambridge, Guelph, Waterloo and Whitby - were not really appropriate because they were lower tier municipalities.  Thunder Bay was a single tier municipality and responsible for delivering police, fire and paramedic services whereas these other lower tier municipalities only had to do fire. Indeed, the dancing around required to answer this question and other questions suggests that the current City Manager may have a promising future as a chief medical officer of health at either the federal or provincial level.

Now, Ontario does have two broad  types of municipalities: upper-tier and local with the latter divided into lower tier and single tier municipalities.  County and regional municipalities are considered upper tier.  A single tier municipality is a lower tier municipality that is not part of an upper tier.  A lower tier municipality is a municipality that is part of an upper tier - the City of Waterloo for example is lower tier because it has both a local municipal authority and is part of a regional municipality.  On the other hand, all the northern Ontario municipalities are considered single tier - including Sudbury, which despite being considered as a regional municipality, is regional only in terms of its geographic coverage. 

So, given that we should compare apples with apples, let us compare the five major northern Ontario municipalities in terms of their sunshine lists: Thunder Bay, Timmins, Sault Ste Marie, Greater Sudbury and North Bay.  Figure 1 presents the number of municipal workers earning more than $100,000 in 2020 and not surprisingly, the numbers track pretty closely with population size with Sudbury in first place with 592 employees on the list and Thunder Bay next at 557.   North Bay comes in next with 187, then Timmin with 144 and Sault Ste Marie - which is actually bigger than North Bay or Timmins - at only 114.  

 

 

Figure 2 takes the total salary bill for its members on the provincial sunshine list and divides by the number of employees on the list to provide the average salary per municipal sunshine lister.  In this chart, North Bay comes out on top at $131,015 per municipal sunshine lister followed by the Sault at $127,787.  Then comes Thunder Bay just below the Sault at $127,319 followed by Timmins at $121,643 and then Sudbury at $120,912.   This particular ranking would probably be the most pleasing to city administrators as it places Thunder Bay in the middle of the pack.  Expect to see this slide in a future City of Thunder Bay budget presentation.

 

 

However, the real comparison should be relative to your resources available and in this regards it is always per capita comparisons that should be done if you want an estimate of per person effects.  Population is correlated with the size of your economy and resources available so what happens when we take the total salaries paid to municipal sunshine list members and divide by city population?  Figure 3 shows this and reveals that Thunder Bay spends about $640 dollars per capita on its municipal sunshine list employees, well above the next highest North Bay at $475.  Sudbury is next at $434 followed by Timmins at $419 and Sault Ste Marie at $199.  Thunder Bay spends 35 percent more than North Bay in per capita terms and 47 percent more than Sudbury - which stylizes itself as a "regional" municipality.

 

 

The truth probably is that Thunder Bay spends so much because it is behaving on the expenditure side like a regional government especially in district housing, paramedic services and public health but it has the resource base of a single tier municipality.  Needless to say, we have here an irresistible spending force which has yet to come up against an immovable budgetary object.  That immovable budgetary object is the property tax and rate paying property owner of Thunder Bay whose taxes on comparable properties across these five cities are generally higher.  Property owners in Thunder Bay are essentially helping to pay for a regional empire they probably did not ask for.

Paying Municipal Councillors

 Last evening's Thunder Bay City Council Meeting was notable for a number of items - the shelving of the Multipurpose Turf Facility tender but not the project, the lack of a major and substantive discussion on the city's growing tax arrears problem - but especially for the operatic self-flagellation of councilors as they reluctantly approved their pay increase in a scene oddly reminiscent of the coronation scene in Mussorgsky's Boris Gudonov.  The councilors finally convinced themselves to vote in favor of giving  themselves a pay increase that in the end will add about $3000 to a $200 million 2021 operating budget.  The crowning moment was the vote when 12 councilors voted in favor, but the Mayor in a grand gesture of fiscal rectitude and atonement for the increase in costs of the Turf Facility project to $46 million, voted no.  It was all really patently quite silly on a number of levels and perfect evidence that in the end, you get what you pay for even with municipal councilors.  

A couple of points.  First, at a base salary of $31,852 the salary paid to a City Councilor suggests that the job is really not very important and is something best taken up by people who either  have time on their hands, are desperate to supplement their income, perhaps are looking to make connections for their own private business interests, or are political careerists looking for a stepping stone to higher public office.  The purpose of being on Thunder Bay City Council should not be as a recruiting farm team for local political parties seeking provincial and federal candidates.

It is not that running for office is about the money but public office does involve a sacrifice of time, career and family and the current compensation is insufficient given the opportunity cost of what you need to give up to do the job effectively.  This means that in the end, while public service and commitment should be the main drivers of running for office, it is difficult to attract the best candidates especially given the character assassination involved that passes for a political campaign these days. If anything, the problem with Thunder Bay City Council is that for a city of just over 100,000 and twelve Councilors plus a Mayor, there is too much quantity and not enough quality.  A smaller council of eight councilors plus a Mayor would allow for compensation that better reflects the responsibility of the position and attract the caliber of person needed to make decisions on a municipal corporate budget of hundreds of millions of dollars.

Second, is the interesting message that City Administration has sent regarding what they recommend as an appropriate increase for councilors.  As it stands, the City Administration basically recommended that the raise should be tied to half the rate of inflation in the City for 2020 which was calculated at 0.55% based on an inflation rate of 1.1%. It is interesting that when putting forth budget proposals to the councilors, this same rule is not adhered to by City administration as historically the initial budgets proposed  have been well above the rate of inflation in the Thunder Bay.  Indeed, municipal employee pay increases in Ontario have even managed an exemption from current provincial legislation limiting public sector salary increases to 1 percent annually. In the end, why pay more to attract better candidates? City Administration in some respects has a vested interest in keeping the quality of city councilors where it is, as their lives would definitely become much more difficult if the quality of councilors increased.  

It really is a classic case of the bureaucracy completely capturing the legislative and policy process.  No doubt, the local community cable channel borrowing from the BBC would be well advised to produce and air a sitcom called Yes, Councillor.  The first episode could feature amusing discussions on staffing and pay increases between city managers and the councilors. On the other hand, this pretty much already occurs every Monday evening on the local cable channel.  We should look into getting Netflix to air the meetings -  as a revenue generating reality show.

Thunder Bay Municipal Budget 2021: Overview

 

It is budget time at Thunder Bay City Council and this year’s discussion should be quite interesting given the coming together of the pandemic, numerous water issues that have affected residents directly in their pocket-books as well as the long-term effects of rising municipal expenditures combined with a flat population profile and an essentially stagnant property tax base.

 

The proposed 2021 municipal tax levy, which represents the total amount of dollars that needs to be raised from property taxpayers to fund City services, local boards and agencies and contribute to capital infrastructure programs, is $203,682,300 - an increase of 2.15% or $4.3 million over the 2020 approved municipal tax levy of $199,398,000. By comparison, in 2020 the municipal levy increase was $5.3 million, representing a 2.73% increase over 2019. Not included in the increase are costs associated with the COVID-19 pandemic, which are proposed to be funded from the Stabilization Reserve Fund in 2021 and one expects the millions of dollars in federal and provincial funds that have been provided for the purpose.

 

As well, there are numerous user fee increases not least of which is for water which comes in at 3.5 percent.  The irony of a 3.5 percent increase for water given the epidemic of residential pinhole leaks affecting thousands of residents is notable. As well, the 2021 proposed capital budget is presented at $51,607,300 gross of which $16,525,700 is funded by the tax levy representing an increase of 8.6% compared to the 2020 budget.  In terms of employment, the number of fulltime equivalent positions (FTEs) rises from 1724 to 1758 which we are assured is temporary because it has to do with cleaning costs associated with COVID.  This increase of 34 FTEs in municipal employment comes on the heels of 9 FTEs in 2020 and 10.5 in 2019.

 

If one wants some comparisons, Figure 1 plots the total municipal tax levy from 1990 to the current forecast for 2021 with the trend readily apparent. As well, while we know that Thunder Bay in 2020 had the second highest property tax rate of 35 Ontario cities, Figure 2 looks at the per capita levy in 2020 for 27 Ontario cities.  It turns out, that at $1783 per capita, Thunder Bay is the fourth highest.  For those purists who say it is unfair to compare us with cities like Toronto, very well, let us just look at the five major northern Ontario ones.  Here, Thunder Bay is ranked first – primus inter pares – above North Bay, Timmins, Sudbury and the Sault.

 

If City Council is to be guided on what to do this year it may want to heed the results of its own budget survey which had nearly 500 respondents though one expects that the expert statisticians resident on City Council will simply discount the results as based on a small and biased sample of negatively minded people not representing the true mind of the City of which only City Councillors have the divine power to ascertain.  Still, the survey results were quite telling as the general tenor of the responses was to focus on core services. 

 

As the report reads: “While there was a wide variety of topics covered, the strongest message and overarching theme centred around not spending money on extras considered ‘wants’ and instead focusing on essential ‘needs’. For example, not spending money on new capital projects such as the Multi-use Indoor Turf Facility, a waterfront sign, roundabout, or art gallery, and instead investing in existing City infrastructure (roads, facilities, fixing water pipes), and social services such as crime prevention and supporting vulnerable populations. It was also conveyed that citizens have experienced financial hardship because of the pandemic and do not want to see their taxes raised at this time – especially not to support new capital projects. Citizens outlined they would like to see the City invest in what we currently have and support the core needs without increases taxes – understanding this means giving up those items which would be nice to have but are not essential services.”

 

Indeed, based on a ranking of what is considered “very important or important,” the top programs and services in the city should be: emergency services, winter maintenance, drinking water, road maintenance and construction, garbage and recycling.  Included at the bottom are transit, child-care, libraries, recreation programs and facilities, animal services, and economic development.  There certainly does not seem to be a groundswell of support in this survey for new capital projects that do not reflect a core services mandate.

 

What should the City of Thunder Bay do this budget season?  Well, that is the $203,682,300 question.  First, it probably is time for Thunder Bay to visit the concept of core services in a more substantial manner.  Given our tax base, running the expansive set of services that we have is increasingly difficult given the size of the tax base. If the province wants us to fund an expansive set of community and social services on a local and regional level perhaps, they should foot more of the bill. Second, the 2.15 percent proposed increase does represent a retreat from the 4 percent or more number that was being bandied about earlier in the year.  While it may seem that City Councillors and administration have seen the light, it is unfortunately an oncoming freight train in a dark tunnel and more needs to be done. 

 

While 2 percent does mirror the rule of keeping increases to the sum of the rate of inflation (approximately 2 percent) plus population growth (pretty much zero), it should represent an upper bound rather than a flexible target.  There is more to be done to get levy growth even lower. Third, given that approximately 70 percent of costs are often associated with employment levels, there really needs to be a program of reduction via attrition and redeployment and retraining of staff.  For the next three years, for every two municipal employees that retire or resign, there should only be one replaced.  That FTE footprint needs to start coming down to where it was a few years back – say 1700 as in 2017.  At 100,000 per employee – which is not an unreasonable estimate of what each municipal FTE costs when salaries and benefits are combined, that would eventually reduce spending by $5 million a year.

 

Of course, all this talk of numbers and reductions is probably a lot for more upbeat members of council and one certainly one would not wish to bore them to death as they are perfectly capable of doing that to themselves during their marathon five and six-hour meetings.  A better way of framing all of this is via a simple analogy from the world of nature.  Simple stories are often the best ones as they can reduce complicated issues to the essentials needed for understanding.

 

Picture if you will, our municipal government as a Physalia physalis – also known as a Portuguese Man O’ War – floating serenely in a large aquarium.  It is essentially a large jelly like inflated bladder that in the end is rather brainless and feeds instinctively on the small fish and creatures in the aquarium via the lethal stingers in its tentacles.  Along with being rather brainless, it also really has no anus so it is probably recycling its own waste matter which can eventually get monotonous and a little stale given the size of its environment. 

 

As it sits in its limited environment and exhausts its food supply, it really is not capable of doing what needs to be done.  The solution is either to expand the size of the aquarium and restock it with new prey or replace the current Physalia Phyalis with a new and much smaller one or perhaps even an entirely new creature.  The current creature of course behaves by instinct and really is not capable of altering its size or its environment.  It is not capable of expanding the size of its environment – economic growth and an expanded tax base – and it does not appear to be capable of shrinking on its own.  I suppose that a solution has to be done by forces external to the situation.  I guess that is where the voters will ultimately come into the picture.