As mentioned in my last post (March 8), municipal governments in Canada are growing rapidly, which is bad news for taxpayers given the demonstrated inability of municipalities to operate efficiently and control costs.
A review of key indicators for municipalities for 2008 shows why their performance deserves a failing grade.
Salaries and benefits for employees typically represent more than 50% of the operating budget of a municipality. Since municipalities are unwilling to take the steps necessary to bring the escalating costs of employing their existing workforces under control, the next best option is for municipalities to minimize the growth in the number of their employees.
Indeed, a strong argument can be made that municipalities should freeze the growth in the number of their employees until they are operating as efficiently as the private sector. That would require resolute action by a majority of elected municipal representatives and unfortunately shows no sign of happening.
Then what to do? Restricting growth in municipal employment to no more than the growth in population would be a reasonable starting point.
Canada's population grew by 1.2% in 2008. In sharp contrast, municipal government employment grew by an astounding 3.9%, over three times faster than the growth in population. In addition, employment at business enterprises owned by municipalities, such as public transit companies, grew by 3.5%.
Are taxpayers receiving any new services as a result of this hiring rampage by municipalities? It is hard to think of any. Most municipal governments actually are quite vocal in claiming that property taxes have to rise much in excess of the inflation rate simply to, at the very best, maintain the existing level of services. So the question remains: what are all of these additional employees doing for taxpayers?
Several sub-components of the Consumer Price Index (CPI) also provide important indicators of how municipalities are performing. They all show a failing grade.
The appropriate benchmark is the increase in the overall CPI in Canada, which for the 12 months ending in December 2008 rose by 1.2%.
Three sub-components of of the CPI are directly under the control of municipal governments. The most significant of these in terms of its impact on taxpayers is property taxes. They rose by 3.2% in 2008, over two and a half times the overall increase in the CPI.
If municipalities are cutting back on services (two examples would be: reducing the frequency of recycling pick-ups or extending the time before your street is plowed to remove snow), which many are, this 3.2% increase actually underestimates the rate of inflation in property taxes. The reason for this is that the CPI property tax component is based on the assumption that municipal services continue at the same level. If Statistics Canada, which produces the CPI, actually did measure the level of municipal services and found a decline, it would adjust upward the increase in the property tax component of the CPI to reflect this.
The CPI sub-component for water rose by a staggering 9.1% in 2008, nine times more that the overall rate of inflation. This sub-component of the CPI is separate and distinct from property taxes and measures the prices charged by water utilities which are generally all owned and operated by municipal governments. Given that municipalities do not pay anything for water, these cost increases are entirely related to the operation and maintenance of water and sewer systems.
The third separate sub-component of the CPI for which municipal governments dictate price levels is local and commuter transport, which includes bus, subway and taxi fares. This CPI sub-component rose by 3.6% in 2008.
Each of these indicators demonstrates an important area where Canadian municipalities performed poorly in 2008. Taken together, they reveal a major failure by municipalities to deliver essential services to taxpayers at a reasonable cost.
Distressingly, there is no sign of an improvement in performance in 2009. In an environment where hundreds of thousands of Canadians in the private sector have lost their jobs (with even more job losses predicted) and where inflation is expected to be in the area of 1.0% for the year, Toronto has already announced an increase in property taxes of 4.0% and the city of Ottawa an increase of 4.9%.
Wednesday, March 18, 2009
Sunday, March 8, 2009
Municipalities: The Growing Black Hole for Taxpayers' Money
Canada's municipal governments collectively employ more people than either the federal government (including the military) or the total of all of the provincial and territorial governments. Over the last four years, their work forces have expanded faster than any other level of government as well as faster than total employment in all of Canada's schools, universities, and health and social welfare institutions.
If municipalities have their way, they will gain access to more sources of taxpayers' money (Toronto is leading the charge on this front) and have control over a much larger percentage of total public spending. For taxpayers, this is bad news.
Organizations that help keep taxpayers informed of what goes on inside of the federal and provincial governments, such as Offices of the Auditor General, are generally not part of municipal government. Similarly, access to information offices tend not to be a feature of the municipal landscape, nor do well-established taxpayer activist groups (e.g. The Canadian Taxpayer Federation) spend much time on municipal issues.
In addition, the municipal political process is not favourable to taxpayers. Organized political parties are typically not found in municipal governments. Consequently, there is little criticism or scrutiny within city councils of what is happening within a city. Indeed, city councillors too often play the role of ward boss - "I'll vote for project A that spends taxpayer money in your ward if you vote for project B that spends taxpayer money in my ward". The greater interest of all taxpayers in keeping taxes low and having their city run efficiently is not part of the ward boss operating environment.
Moreover, as with the provincial and federal levels of government in Canada, there is essentially no opportunity for taxpayers to vote through referendums on any issue, regardless of the financial consequences, that impacts them at the municipal level.
My post of March 5 noted that the majority of a municipality's operating budget is made up of the salaries and benefits paid to their employees. City councils have repeatedly demonstrated their inability to control these costs. As city governments get much larger, the prospects for taxpayers are grim. Annual property tax increases well in excess of the rate of inflation for the foreseeable future are all but guaranteed.
Can anything be done to force municipalities to operate in a fiscally responsible and efficient manner? Under Canada's constitution, the provinces set most of the rules under which cities operate. The provinces also provide cities with a significant percentage of their revenue.
Change in how municipalities operate would therefore seemingly have to be a provincial initiative. However, provinces are unlikely to champion such an initiative. It is hard to imagine, for instance, Premier McGuinty telling the Toronto city council that it needs to operate the city much more efficiently. As well, even if one province were to take the initiative, there would be no requirement for the other provinces to follow suit.
The federal government has committed billions of taxpayer funds to infrastructure projects, most of which will be within the jurisdiction of municipalities. It could play an important role in establishing fiscal and efficiency criteria that municipalities must meet before receiving federal money. Will this happen? Almost certainly not, but it is likely the best chance that municipal taxpayers have of seeing their cities improve the way they operate.
[Next time: the municipal report card for 2008]
If municipalities have their way, they will gain access to more sources of taxpayers' money (Toronto is leading the charge on this front) and have control over a much larger percentage of total public spending. For taxpayers, this is bad news.
Organizations that help keep taxpayers informed of what goes on inside of the federal and provincial governments, such as Offices of the Auditor General, are generally not part of municipal government. Similarly, access to information offices tend not to be a feature of the municipal landscape, nor do well-established taxpayer activist groups (e.g. The Canadian Taxpayer Federation) spend much time on municipal issues.
In addition, the municipal political process is not favourable to taxpayers. Organized political parties are typically not found in municipal governments. Consequently, there is little criticism or scrutiny within city councils of what is happening within a city. Indeed, city councillors too often play the role of ward boss - "I'll vote for project A that spends taxpayer money in your ward if you vote for project B that spends taxpayer money in my ward". The greater interest of all taxpayers in keeping taxes low and having their city run efficiently is not part of the ward boss operating environment.
Moreover, as with the provincial and federal levels of government in Canada, there is essentially no opportunity for taxpayers to vote through referendums on any issue, regardless of the financial consequences, that impacts them at the municipal level.
My post of March 5 noted that the majority of a municipality's operating budget is made up of the salaries and benefits paid to their employees. City councils have repeatedly demonstrated their inability to control these costs. As city governments get much larger, the prospects for taxpayers are grim. Annual property tax increases well in excess of the rate of inflation for the foreseeable future are all but guaranteed.
Can anything be done to force municipalities to operate in a fiscally responsible and efficient manner? Under Canada's constitution, the provinces set most of the rules under which cities operate. The provinces also provide cities with a significant percentage of their revenue.
Change in how municipalities operate would therefore seemingly have to be a provincial initiative. However, provinces are unlikely to champion such an initiative. It is hard to imagine, for instance, Premier McGuinty telling the Toronto city council that it needs to operate the city much more efficiently. As well, even if one province were to take the initiative, there would be no requirement for the other provinces to follow suit.
The federal government has committed billions of taxpayer funds to infrastructure projects, most of which will be within the jurisdiction of municipalities. It could play an important role in establishing fiscal and efficiency criteria that municipalities must meet before receiving federal money. Will this happen? Almost certainly not, but it is likely the best chance that municipal taxpayers have of seeing their cities improve the way they operate.
[Next time: the municipal report card for 2008]
Thursday, March 5, 2009
Lies Our Municipal Governments Tell Us
"Taxpayers have a choice of either paying higher taxes or receiving reduced services". How often have you heard that comment by your elected representatives at municipal budget time? If you follow municipal politics, you have likely heard it many times.
The problem is that this is the most popular and most frequent lie told by municipal politicians.
Typically well over 50% of a municipality's costs are made up of the salaries and benefits paid to their employees. In most cities those employees are virtually all members of powerful public sector unions. As a result, they receive pay and benefits that are significantly higher than are received by individuals in the private sector that perform similar functions (see my post of Jan. 23/09 for a link to a recent study on this topic).
Even though their pay and benefits are much higher, the productivity of municipal employees is much lower than it is in the private sector. To cite one visible example - you can always tell when a city crew is carrying out a street or sidewalk repair because the majority of the crew will be watching, rather than doing, the work. It sounds like a tired cliche, but it remains true to this day. By contrast, a work crew hired by the city from the private sector to do a similar repair will have fewer people at the work site and the majority will be actually working.
Other examples of inefficiency in municipalities abound. Recall the famous case a few years back of a camera crew that followed a group of municipal workers around Montreal for several days. The municipal workers were nominally responsible for patching holes in city streets. They actually did little of this. Instead, they spent most of the time in restaurants or aimlessly driving around the city.
So what the municipal politicians are actually telling us when they say that the choice is higher taxes or reduced services is that they are unwilling to confront their public sector unions and make them work as efficiently as the private sector, and at the lower wage and benefit levels that prevail in the private sector.
In the private sector there is relentless pressure to cut costs and improve efficiency particularly in the depths of a recession. The last thing a company in the private sector wants to do in a recession is to raise prices.
Unfortunately this is not the world of municipal governments. Since they levy property taxes and can seize your home if you don't pay them, it is easy for municipal politicians to raise taxes well in excess of the rate of inflation even in a recession.
How much are your municipal taxes increasing this year? Likely much more than the rate of inflation and more than the increase in your salary (at least if you work in the private sector). In the city of Ottawa, they are going up by 4.9% in an environment where inflation is about 1%.
For municipal politicians the path of least resistance runs directly to the wallets of taxpayers.
[The next post will present a short report card on the recent performance of Canada's municipalities. You won't be happy with the results.]
The problem is that this is the most popular and most frequent lie told by municipal politicians.
Typically well over 50% of a municipality's costs are made up of the salaries and benefits paid to their employees. In most cities those employees are virtually all members of powerful public sector unions. As a result, they receive pay and benefits that are significantly higher than are received by individuals in the private sector that perform similar functions (see my post of Jan. 23/09 for a link to a recent study on this topic).
Even though their pay and benefits are much higher, the productivity of municipal employees is much lower than it is in the private sector. To cite one visible example - you can always tell when a city crew is carrying out a street or sidewalk repair because the majority of the crew will be watching, rather than doing, the work. It sounds like a tired cliche, but it remains true to this day. By contrast, a work crew hired by the city from the private sector to do a similar repair will have fewer people at the work site and the majority will be actually working.
Other examples of inefficiency in municipalities abound. Recall the famous case a few years back of a camera crew that followed a group of municipal workers around Montreal for several days. The municipal workers were nominally responsible for patching holes in city streets. They actually did little of this. Instead, they spent most of the time in restaurants or aimlessly driving around the city.
So what the municipal politicians are actually telling us when they say that the choice is higher taxes or reduced services is that they are unwilling to confront their public sector unions and make them work as efficiently as the private sector, and at the lower wage and benefit levels that prevail in the private sector.
In the private sector there is relentless pressure to cut costs and improve efficiency particularly in the depths of a recession. The last thing a company in the private sector wants to do in a recession is to raise prices.
Unfortunately this is not the world of municipal governments. Since they levy property taxes and can seize your home if you don't pay them, it is easy for municipal politicians to raise taxes well in excess of the rate of inflation even in a recession.
How much are your municipal taxes increasing this year? Likely much more than the rate of inflation and more than the increase in your salary (at least if you work in the private sector). In the city of Ottawa, they are going up by 4.9% in an environment where inflation is about 1%.
For municipal politicians the path of least resistance runs directly to the wallets of taxpayers.
[The next post will present a short report card on the recent performance of Canada's municipalities. You won't be happy with the results.]
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