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]