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Jock Finlayson: We need to watch spending by local governments (Vancouver Sun)

A cross Canada, municipal elected officials and their advocacy orga-nizations have been sounding alarm bells over a perceived inadequacy of resources to finance local government services and physical assets.

Last month, for example, the Federation of Canadian Municipalities (FCM) called on the federal government to provide billions of dollars to help close the "infrastructure deficit" that is said to plague many cities and towns.

FCM president Karen Leibovici stressed the need for "long-term, sustainable, predictable, flexible" federal funding for municipal infrastructure projects, including public transit, roads, and sewer and water systems. Here in B.C., the Union of BC Municipalities has been pressing the province to allocate a sizable portion of its carbon tax revenue to local governments - even through the provincial government has been running budget deficits since 2008. On Nov. 28, the Metro Vancouver Regional District held an all-day symposium on the theme of local governments' need for new and expanded revenue sources to finance both long-term infrastructure and day-to-day municipal operations. (Full disclosure: I was a panelist at one of the sessions of this symposium.)

What is one to make of the full-court press for more money coming from so many municipalities? Local governments in Canada do have a credible argument that support is needed from senior governments to help pay for costly infrastructure upgrades. But in terms of the ability to fund day-today municipal operations, it's hard to make a case that local governments have been starved of resources. A review of the most recent set of Fiscal Reference Tables published by the federal Department of Finance yields the following interesting data points:

. Spending by local governments in Canada went from $76.5 billion in 2000 to $132.5 billion in 2011. This translates into a spending jump of 73 per cent in a little more than a decade.

. The provincial and territorial governments collectively saw their spending climb from $216.9 billion to $387.9 billion over the same period; this amounts to an increase of 79 per cent.

. Finally, expenditures by the federal government rose from $179.3 billion to $270.2 billion from 2000 to 2011, for a cumulative increase of 51 per cent.

Two conclusions can be drawn from the above information.

First, when looking at the broad Canadian public sector, local governments clearly haven't been inhibited in their spending as a result of insufficient financial means. Indeed, it is striking that local government outlays have grown much faster than federal spending, even though Ottawa has been running substantial budget deficits since 2008 (municipalities are generally prohibited from incurring operating deficits).

Second, while the provinces and territories together have posted a slightly bigger increase in spending than the local government sector, it is provinces - rather than municipalities - that are primarily responsible for many of the fastest-growing components of public expenditure, notably health care and education.

Closer to home, a few months ago my colleagues and I at the Business Council published a paper that examined trends in municipal operating spending in Metro Vancouver. We compared spending levels and growth rates among the 21 municipalities in the region, and also looked at how these local governments compare with the provincial government on a variety of fiscal performance indicators. What we found surprised us.

First, for the 21 Metro Vancouver municipalities as a group, total operating expenditures jumped by 80 per cent between 2000 and 2010, reaching $3.1 billion in the latter year. By comparison, provincial government noncapital spending increased by 41 per cent over essentially the same period.

Second, measured on a per-person basis, which accounts for the impact of population growth, the cost of local government operations in Metro Vancouver rose by 56 per cent over the 10 year period covered in our study.

Third, adjusted for inflation, real per-capita municipal operating spending in Metro Vancouver increased by approximately one-third from 2000 to 2010. This is three times faster than the growth of real provincial government per-capita operating spending over the same time period.

Fourth, the spending patterns among the 21 municipalities in Metro Vancouver vary dramatically, both in terms of the level of operating outlays per resident, and also in the growth of such spending over time. It is hard to understand why such large variations in spending should exist, considering that the services provided by these municipalities are quite similar.

Finally, in the past decade the number of people working for municipalities in B.C., including in Metro Vancouver, has risen significantly faster than employment in the broadly defined provincial public sector (which includes the B.C. government itself together with education, health care and social services). This is important, inasmuch as payroll-related costs are the biggest line item in most municipal budgets. In recent years, municipal governments have been giving their employees pay hikes two to three times greater than those handed out by either the province or the federal government. These generous compensation increases are a major factor behind the run-up of municipal operating costs in Metro Vancouver over the past several years. To limit spending growth, local politicians need to focus more attention on containing municipal compensation costs.

Jock Finlayson is vice-president and chief policy officer of the Business Council of British Columbia.

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