Local Government Finance

A presentation to Metro Vancouver’s Sustainability Community Breakfast:

Paying for our Cities

Gary MacIsaac, Executive Director

Union of British Columbia Municipalities

@garymacisaac

Presentation Outline

• What do cities cost and what are the trends?

• How is this paid for and what are the trends?

• What’s the problem: context and perspectives

• What’s UBCM doing?

• Where might the solutions lie?

2011 Municipal/RD Expenses and Changes in Equity$9 Billion

Municipal Operating Spending as a % of BC GDP

2011 Municipal and RD Revenues $9.3 Billion

Municipal Revenue Sources 1986-2010

Spending and taxes of BC local governments is way out of line –

they are spending and taxing much more than in other provinces

•FALSE

BC municipal expenses compared to other selected provinces

Canada: interprovincial comparisons

in municipal spending (average per capita $ - 2008)

BC Alberta Ontario Quebec Canada

General Government 206 267 193 244 216

Fire & Police 361 362 421 329 364

Roads & Transit 338 766 425 551 476

Water/sewer/garbage 425 472 353 399 385

Recreation & Culture 362 430 234 281 276

Total 1,692 2,297 1,626 1,804 1,717

(courtesy Dr. Harry Kitchen)

Municipal Revenue in Selected Provinces (average per capita $-2008)

BC Alberta Ontario Quebec Canada

Property Tax 874 1,252 1,238 1,137 1,096

User Fees 535 715 569 280 481

Total Own Source Revenue 1,590 2,265 1,995 1,500 1,739

Grants 106 564 750 242 475

Total 1,696 2,830 2,745 1,742 2,214

(courtesy Dr. Harry Kitchen)

Municipal property taxes represent a big percentage of

business’s overall tax load

•FALSE

Selected taxes on businesses in BC

High property taxes deter business investment and affect business decisions

•PARTLY TRUE; PARTLY FALSE

Are property taxes a factor in industrial business decisions?

• Not a major competitive issue under typical operating conditions

• Not a significant factor in investments in major capital projects

• Affect decisions on re-investment in existing facilities, which may affect the long term viability of operations

• Major factor for firms in financial distress due to structural or cyclical factors

One Small Business: property taxes compared to total

operating costs

1%

7%

92%

1985

Property tax

Building lease

All other operating

2%

9%

89%

2010

Property Tax

Building Lease

All other operating

Property tax is the primary source of revenue for local

governments

•TRUE IN CANADA BUT NOT NECESSARILY INTERNATIONALLY

International comparison (cont.d)

Property taxes:

• Account for more than 90% of all local tax revenue in five countries - Australia, Canada, Ireland, New Zealand, and the United Kingdom.

• Local governments in ten countries get less than 10% of their tax revenue from the property tax.

(courtesy Dr. Harry Kitchen)

International comparison of

municipal tax sources

Income taxation (corporate and personal):

• Largest source of local tax rev. in 14 countries. In Denmark, Finland, Norway, Sweden, Luxembourg, and the Czech Republic, it accounts for more than 90% of local revenue.

• Not used in Australia, Canada, Mexico, France, Greece, Hungary, Ireland, Netherlands, New Zealand and the United Kingdom.

• Cities/towns/counties/special districts in 14 states in the U.S. are permitted to use a local income tax.

(courtesy Dr. Harry Kitchen)

International comparison (cont.d)

Consumption taxes (in various forms):

• Generate between 20% and 75% of local tax revenue in ten countries.

• Local sales taxes are non-existent in five countries and produce less than 10% of local revenue in another twelve countries.

(courtesy Dr. Harry Kitchen)

International: what does it

tell us?

• The evidence does not suggest that local governments are more efficient, effective and accountable under one tax vs. another tax.

• Access to one or more taxes mainly depends on: - local government’s administrative capacity; - types of expenditures that must be funded; - willingness of a senior government to assign taxes to local government;

- constitutional and legislative requirements.(courtesy Dr. Harry Kitchen)

Select Committee on Local Government Finance

UB

CM

Sel

ect

Co

mm

itte

e o

n

Loca

l Go

vern

men

t Fi

nan

ce

Chair Al Richmond; Committee Co-Chair

Mayor Greg Moore; Committee Co-Chair

Mayor Frank Leonard

Mayor Taylor Bachrach

Mr. Paul Macklem

Ms. Carol Mason

Timelines and Mandate

Mandate: Consider whether local governments have the right revenue tools for the services they now deliver, or whether changes are indicated?

Committee Meetings: November 2012 through to July 2013

Committee to report to UBCM Executive by July 2013

BC’s Local Government Finance System

Strengths Weaknesses

Property tax doesn’t grow with economy or

distribute fairly

Significant infrastructure

upgrades needed soon

Low levels of Provincial support

Property tax is stable and predictable

Low per capita costs

Competitive tax levels

Where might the solutions lie?

Build on system strengths and

overcome weaknesses

Recognize the importance of building the

economy

Lead and share innovative practices to

improve system performance

Find solutions that resonate

with all governments

and with taxpayers