Municipal Election 2018: Spending in Northern Ontario Cities

We are about three weeks out from the municipal election and across northern Ontario, voters will be looking for information on which to base their decisions.  Inevitably, some of that decision making will be based on comparisons of how municipal ratepayers feel they fare relative to other similarly sized cities.  Taxes are often the basis of such comparisons, but municipal property taxes are a function of what municipalities spend so another basis for comparison is expenditure.

Among the many municipal statistics provided in the annual BMA Municipal Study is fairly detailed comparisons of spending on municipal services.  The aggregate number on which any comparison can begin is what is known as the net municipal levy per capita (NMLPC).  This is an estimate of what the spending need for a municipality is to provide its services – as determined by the city administration and elected council – and ultimately is what feeds into required tax revenues.

Now the BMA reports are quite explicit in qualifying what a NMLPC measure can and cannot do and what its limitations are.  Spending per capita can vary as a result of different service levels as well as type of service.  There are also demographic and socio-economic reasons why spending may vary across cities and per capita spending is simply an aggregate and not an indicator of value for money.  However, the BMA maintains that changes in per capita spending reflects changes in total spending relative to population and “Increasing per capita expenditures may indicate that the cost of providing services is outstripping the community’s ability to pay, especially if spending is increasing faster than the resident’s collective personal income.”

So, the accompanying figure 1 shows the NMLPC for the five major northern Ontario cities for the years 2007 and 2017. In 2007, the NMLPC was highest in Thunder Bay at $1,216 and lowest in Sudbury at $1,041.  By 2017, spending was highest in Timmins at $1,651 (with Thunder Bay second at $1,641) and lowest in Sault Ste. Marie at $1,434.  If one compares the growth rates in the per levy, they were actually highest in Timmins at an average of 4.6 percent annually and lowest in Thunder Bay at 3.5 percent annually.

 

However, in all of these cities, per capita spending grew faster than population suggesting that there was a deepening of per capita spending.  That could be the result of a desire to improve services or it can reflect a weakening economic base and the spreading of costs across fewer people.  Over the last ten years, population actually shrank in four out of five of these cities – the exception being Sudbury which saw its population rise 2.3 percent over the last ten years.  Yet even in Sudbury, spending rose faster than population given t per capita expenditure is growing.

 

More interesting, is figure 2 which plots the average annual growth rates of the net municipal levy per capita (from 2007 to 2017) and average household income (2010 to 2017). In all of these cities, per capita municipal spending has been rising faster than average household income.  So, it would appear that in all of these cities, municipal spending has generally risen faster than both population and income.  This suggests that recent years have seen municipal spending outstrip the resource base in these communities as measured by population and income.  Indeed, sustainability for sub-national governments has been outlined as a key concern in a recent federal PBO report.  Municipal ratepayers in all five of these cities should be asking how candidates for their ideas on how they plan to address the fiscal sustainability of their cities?

Large Municipal Operating Surpluses Do Not Always Mean You Are Good at Budgeting

The City of Thunder Bay’s final 2017 budget surplus is apparently now double what was originally projected. Whereas a $2.8 million year-end surplus had been forecast in January, it has now apparently grown to $5.6 million dollars.  Note that when the budget was approved last year, there would not have been a projected surplus as at the municipal level projected revenues need to match projected expenditures. 

Moreover, it should be noted that this is not an overall operating surplus but a “tax-supported” surplus meaning that there is a surplus on the tax supported side of municipal expenditures.  This is an important distinction because while it is a “tax reported” surplus, the variance is being reported as a percentage of the total net operating budget (2.3% of $240.1 million) and the total gross operating budget (1.6% of $358.7 million).  Given that municipal tax revenues in 2017 were $183.987 million, the variance can also be reported as a percent share of that which comes out to 3 .04 percent – a much larger number.  Indeed, I would argue that this is the correct variance number.

Fiscal Comparisons for Major Northern Ontario Cities

The results of the 2016 Census for major northern Ontario cities draws attention to what I think is growing evidence that high and rising municipal property tax and user charge burdens have been inducing tax migration to surrounding lower tax townships and municipalities.  In many respects, northern Ontario cities are in a tough spot given that they have declining tax bases as a result of weak economic growth, dispersed urban areas to serve, weak population growth, and fixed costs and obligations to comply with provincial legislation affecting municipalities.

Thunder Bay's Fiscal Follies

The Thunder Bay City Council budget situation grows more and more curious.  A media report yesterday contained what can only be termed contradictory information.  On the one hand, the story in the Chronicle-Journal stated that: “The proposed budget includes a 2.67 per-cent property tax increase on top of a 1.5 percent hike for the enhanced infrastructure renewal program.”  This means that the combined property tax increase for this budget year is actually 4.2 percent.  Yet, a little later in the story, Councilor Linda Rydholm is quoted as saying she was willing to support the budget because: “At ward meetings and other places, it seems like people are expecting the 2.67 per cent increase, particularly knowing that 1.5 percent is for infrastructure, roads and buildings.”  In other words, the tax increase is 2.67 percent but the 1.5 percent is included. 

It would appear that we are still sorting out the size of the actual increase in Thunder Bay’s 2012 municipal taxes.  Moreover, it would appear that even city councilors are confused as to whether the total increase is 2.67 percent or 4.2 percent.  Add to this the fact that seven million dollars was inadvertently left out of this year’s municipal budget and now will be funded out of the reserve fund, one has to wonder what exactly is going on?  Is there some confusion on the part of the media in understanding council's message?  Are city councilors unable to grasp the details and complexity of the budget process?  Are city administrators and councilors engaged in a strategy of sowing confusion to obscure the true size of the increase? Or is this simply some giant comedy of errors at taxpayer expense?

If the total municipal tax increase is indeed 4.2 percent, it means that total payments to the city by municipal ratepayers will rise nearly 5 percent this year once the rise in water rates of 6.7 percent is included.   In 2011, the water bill for the average household was 714 dollars while the average property tax bill was 2,501 dollars.  Using these figures to compute a weighted average results in an increase of 4.8 percent in total payments by ratepayers to the city in 2012 (4.8=0.22*6.7+0.78*4.2).  Breaking up a 4.8 percent increase into three separate numbers may fool some of the taxpayers some of the time but it cannot fool all of them.  If City Council wants to remain at all credible, it will need to come clean and address this confusion and very quickly.  This credibility is all the more important given the cost overruns for operating the new waterfront park and the desire to build a new multiplex that will also require a large public operating subsidy.