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Bulletin No. 39, September 2003
LOCAL GOVERNMENT BULLETIN – No.39, September 2003
The purpose of this bulletin is to focus debate on the need to increase local self-government in Canada and to help local communities achieve more autonomy. The local self-government web site is http://www.localgovernment.ca

In this issue
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1. The financial crunch for Quebec municipalities
2. Buffalo falls into trusteeship
3. Local government and the Ontario election.
4. Subscribe to the Bulletin
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1. The financial crunch for Quebec municipalities

The latest evidence of the dire financial status of many local governments in Canada comes from Quebec. A new study concludes that the only way local governments in Quebec have been able to control expenditures in the last decade, is by not maintaining infrastructure. Even having taken that risk to control spending, debt loads have still increased. Debt appears ready to continue rising in the next decade, and municipalities face the prospect of incurring operating deficits as well.

The study was done jointly by the Union des Municipalities du Quebec and the Conference Board of Canada, and was released in May 2003. The conclusions are not much of a surprise but the data is very telling in its conclusions.

The study notes that revenues of the provincial and federal governments have increased at double the rate revenues have increased for local governments in Quebec during the last decade. Taxable property values have grown less each year on average than the Gross Domestic Product, and non residential property values – particularly industrial properties – will continue to be less helpful in generating revenue as the knowledge economy replaces industrial activity. Thus traditional revenue sources are not capable of meeting financial obligations.

The Montreal urban area experiences these problems, as do six other major centres in Quebec, but the biggest negative impact is seen in smaller communities. As noted in Bulletin 38, this trend is seen throughout Canada.

At the same time these financial pressures are occurring, municipal roles and responsibilities are growing, and there are added costs for police, transit, affordable housing, waste and water. The problem is finding the extra money required to meet needs.

The study runs through the gamut of possible financial changes, such as municipalities getting a share of sales tax, GST, provincial and federal income tax, provincial and federal corporate tax, fuel tax and vehicle registration. Unless very sizeable chunks of these taxes are available – that would require redirecting revenue away from the provincial government – municipalities will continue to face pressures.

The report concludes: “These findings are important because they show that there is no longer any room to manoeuvre. Thus, unless municipalities slash the services they provide their populations and continue to neglect their infrastructures, they absolutely must consider ways of obtaining additional fiscal revenues. Although it may seem that a property tax hike is one solution, we have to remember that the Quebec taxpayers’ tax burden is already quite high. Furthermore, the required increase would have to be slightly more than 40%.

“This means that other avenues will have to be explored – for example, a tripartite finding program for infrastructure improvements that involves all levels of government. However, this solution will not be adequate in itself, since even without infrastructure improvements, the fiscal condition of Quebec municipalities will continue to deteriorate over the next few years. For that reason, other alternatives, such as the transfer of certain taxation powers to municipalities will have to be seriously considered.”

The 33 page summary of the study, in English, may be found at the Union des Municipalities du Quebec website:
http://www.umq.qc.ca/publications/memoire/_pdf/FiscalSituationFINALSummaryRpt.pdf .

2. Buffalo Falls Into Trusteeship

Buffalo, New York, is not in Canada, but it’s a city well known to residents of Ontario. A century ago it was a very prosperous place, but it is now on the ropes.

In June, the New York State government passed legislation establishing the Buffalo Fiscal Stability Authority which has thrown the city into trusteeship. The new control board (as it’s generally called) must approve any expenditure over $50,000 and all collective agreements. It can set spending levels, impose hiring and wage freezes and downsize the workforce. It is a solution that has been advanced for Buffalo for many years by the city’s most influential private sector groups. The control board has nine members appointed by Governor Pataki, one of which one is Anthony Masiello, the city’s mayor, and another is Joel Giambra, the head of the Erie County Executive Committee, representing the county surrounding the city.

Buffalo has substantial financial problems, but contrary to the implications of the trusteeship imposed on it, it is not bankrupt. Since Masiello assumed office a decade ago, the city has often feared operating deficits, but it has usually managed to find a way out and balance revenues and expenditures. The worst year was 2001/02, largely a result of the terrorist attacks on September 11, 2001.

The biggest financial problem is revenue. The city’s economic decline has meant a decline in property values and that, combined with constitutional limits to raise property taxes, means less money is available from the property tax base. The tax levy has declined from $142 million in 1993 to $131 million in 2002.

Of the funds available, 40 per cent are required to pay for police and fire services, and a further 32 per cent cover fringe benefit costs for employees and retired employees. The killer in fringe benefit costs are health insurance costs. In 1993 health insurance costs stood at $21 million: in 2003 they increased to $48 million. Lobbying of the State government to reform health insurance costs have not been successful. Facing these pressures, the city has been forced to drastically cut back on programs. Mayor Masiello’s summary of the problems can be found at http://www.city-buffalo.com/document_1719_178.htm . The reward for facing these problems head-on is apparently trusteeship.

Buffalo’s financial plight seems to result from the very classic urban/suburban split. The suburbs, represented by Giambra, have more financial resources than the city, including access to the sales tax which because of a political deal made a decade ago, is not available to the city. On the other hand the city has all the problems: poverty, a lack of jobs, declining property tax revenue, an expensive school system, and the handsome contracts for the police and fire personnel. .

Attempts by city representatives over the last decade to rearrange some of the revenue and expenditure patterns with the county have not been successful – in fact the county has repulsed any attempt to share the burden with the city. Just after Labour Day Mayor Masiello asked for a share of the sales tax with the county, that the state government in Albany reform the program for medical insurance, and he suggested further staff cuts. County representatives screamed at any thought of sharing the sales tax yet, unless some kind of program like this is put in place, it is estimated that the city’s annual deficit could be over $100 million within three or four years.

Some of the most trenchant comments on the situation comes from the electronic journal Buffalo Report (http://buffaloreport.com), such as: “The real issue for the control board is philosophical. Is the Board just supposed to control city spending and keep Buffalo in the black, or is supposed to really do something about the fundamental problems of more ways to spend and fewer ways to raise money? Will it recommend a different split of county sales tax revenue?”

Bankruptcy and trusteeship is not unknown to municipalities in New York State. The City of New York faced the problem 30 years ago and is now burdened with a very large deficit that is clearly unsustainable. Other municipalities in New York state have also found the same problem. Given the current hostility of some provincial governments to their municipalities in Canada, similar fates may befall large municipalities here as well. Buffalo is a cautionary tale.

3. Local Government and the Ontario Election

Ontario voters are being offered real choice in the October 2 election at least on the subject of the relationship between the provincial government and local governments.

The Progressive Conservative Party under Ernie Eves is offering a program entitled “Fair Deal for Municipalities.” Jeffrey Simpson of the Globe and Mail tags the name of the program as “Orwellian” since there’s nothing about it that’s fair. The proposal of the Tories is to require municipalities to have a referendum before being permitted to raise property taxes, and the referendum must garner support from half the voters before the increase can be levied. Since less than 40 per cent of those on the municipal voter’s list usually vote, the new rule effectively means that municipalities will never be allowed to increase property taxes. Together with the extraordinary financial restraints imposed on locals government by the Harris/Eves government since 1995, municipalities would be in a desperate situation.

In contrast, both Dalton McGuinty’s Liberal Party and Howard Hampton’s New Democratic Party are suggesting a return to normalcy in provincial/municipal relationships. Liberal commitments include changing planning polices to control sprawl; transferring to municipalities 2 cents a litre of the existing provincial gas tax to be used for public transit; matching federal support for new affordable housing; increasing housing allowances; changing the Ontario Municipal Board to be fairer to citizens and municipalities; and several other matters. The full program may be found at http://www.ontarioliberal.com , and look under policy package 2, `Strong Communities.’

Hampton’s NDP has a smorgasbord of ideas for urban areas, some of which are similar to the Liberals, such as the gas tax transfer and stronger controls to prevent sprawl. It may be found at http://www.publicpower.ca

If by any chance there is a minority government led by the Liberals, it seems that the Liberals and the NDP won’t have much problem agreeing on programs to strengthen local government and address local concerns. If the Tories are re-elected, municipalities will be in serious trouble.

4. Subscribe to the Bulletin

The bulletin is sent monthly, at no cost, to about 1500 individuals involved directly or indirectly in local government in Canada. Those who receive this Bulletin directly (not forwarded by a third party) are already part of the subscription list. Others who wish to subscribe should go to http://www.localgovernment.ca and follow the instructions. To unsubscribe, please send a message to info@localgovernment.ca indicating your wish to unsubscribe.

More information about the sponsors of the bulletin, a library of relevant and useful documents, and an archive of past Bulletins, can be found on our web site. We appreciate your comments, your feedback (to j.sewell@on.aibn.com ), and items of interest that you wish to share with us and others who visit the web site. Our next Bulletin will be in October.
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