Essay preview
Comparing Municipal
Government Finances
in Metro Vancouver
October 2014
WEST
VANCOUVER
DISTRICT OF
NORTH VANCOUVER
CITY OF
NORTH
VANCOUVER
PORT MOODY
BURNABY
COQUITLAM
PORT
COQUITLAM
VANCOUVER
PITT
MEADOWS
R
W TE
NE INS
M
T
ES
MAPLE
RIDGE
W
RICHMOND
DISTRICT OF
LANGLEY
DELTA
SURREY
CITY OF LANGLEY
WHITE ROCK
Charles Lammam, Joel Emes, and Hugh MacIntyre
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Contents
Summary / iii
Introduction / 1
1 Background / 3
2 Municipal Spending / 7
3 Municipal Revenue / 15
4 Municipal Debt and Interest Expenditures / 35
Conclusion / 39
Appendix 1 Description of the Local Government Statistics / 41
Appendix 2 Spending and Revenue per Person by Major Category / 45
Appendix 3 Municipal Summary Profiles, 2012 / 47
References / 56
About the Authors / 59
Publishing Information
60
Acknowledgments / 60
Supporting the Fraser Institute
61
Purpose, Funding, and Independence / 62
About the Fraser Institute / 63
Editorial Advisory Board / 64
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Summary
Municipal governments play an important role in the lives of British Columbians by providing important services and collecting taxes. But municipal finances do not receive the same degree of public scrutiny as more senior governments. This can pose a problem for taxpayers and voters who want to understand how their municipal government performs, especially compared to other municipalities. To help create awareness and encourage debate, this report provides a summary analysis of important financial information for 17 of the 21 municipalities in Metro Vancouver, spanning a 10-year period (2002–2012). The intention is not to make an assessment of any municipality’s finances—for instance, whether taxes or spending are too high or whether municipal governments produce good value for taxpayers. That is beyond the scope of this preliminary analysis. Government spending
There is considerable variation in per-person spending among the 17 Metro Vancouver municipalities. West Vancouver, the highest spender in 2012 (at $2,118 per person), spends more than twice the amount of Surrey, the lowest spender (at $951 per person), and more than one-and-a-half times the regional average ($1,384 per person). But the large differences in per-person spending do not seem to be driven by population. For instance, the City of Vancouver has the largest population and is the third highest spender ($1,689 per person), while Surrey has the second largest population and is the lowest spender (17th). Meanwhile, West Vancouver is the highest spender and has a relatively small population (6.6% of Vancouver’s). From 2002 to 2012, all 17 municipalities increased spending beyond the rate needed to accommodate inflation and population growth; no municipality contained spending increases relative to this key benchmark. But the growth in inflation-adjusted spending per person was faster in some municipalities than others. Pitt Meadows had the fastest growth (81.9%) and New Westminster had the slowest (13.1%). The regional average was 27.1%. Government revenue
As with spending, there is great variation in per-person revenue among the 17 Metro Vancouver municipalities. In 2012, West Vancouver collected the most revenue per person ($2,548)—nearly $1,100 more per person than Surrey fraserinstitute.org / iii
iv / Comparing Municipal Government Finances in Metro Vancouver
($1,451), which collected the least, and one-third above the regional average ($1,916). After accounting for population growth and inflation, Port Moody is the only municipality that experienced a reduction (1.9%) in revenue per person. All other municipalities saw substantial revenue growth over the decade. Pitt Meadows had the highest growth at 80.6%, with Coquitlam following closely behind at 74.4%. New Westminster recorded the slowest positive revenue growth (24.3%). For the region as a whole, inflation-adjusted revenue per person (35.9%) grew faster than spending (27.1%).
Surrey, Maple Ridge, Port Coquitlam, and the District of Langley all relied more heavily on developer fees—essentially taxes levied on developers— than other municipalities over the decade analyzed. However, a high reliance on developer fees can have adverse effects because, in some markets (with high demand and low supply), such taxes can be passed on to homebuyers, leading to higher home prices. This is a critical issue for Metro Vancouver, which already has high home prices relative to other Canadian regions. For property taxes, another key revenue source, some municipalities rely more heavily on businesses, as opposed to residents. Burnaby has the largest property tax share coming from businesses at 52.0% and West Vancouver has the lowest at 7.9% (the range for most municipalities is between 38.9% and 47.0%). Burnaby also relies more heavily on business property taxes as measured by its ratio of property tax rates on business relative to residential classes. However, imposing too heavy a property tax burden on businesses can have negative economic consequences since property tax rates can influence business decisions about whether or not to maintain operations, expand, or relocate. This is particularly important for Vancouver, which in many ways is the economic hub of the region. Yet the share of Vancouver’s property tax revenue coming from businesses (45.1%) is above the regional average (40.7%) and Surrey (31.3%); the city also has among the highest ratios of business to residential property tax rates. For instance, Vancouver’s heavy industry tax ratio is more than three times that of Surrey, the next largest municipality by population.
Government debt and interest spending
Virtually all Metro Vancouver municipalities examined in this report have net financial assets. Vancouver and West Vancouver are the only two that have net liabilities (gross liabilities greater than financial assets). Vancouver, the more notable exception, has net liabilities of $402 per person compared to Burnaby’s net assets of $2,914 per person. Vancouver, unique in its ability to issue government debt on its own authority, also has the highest interest expenditure relative to its operating spending (3.6%). Provincial regulations that require balanced operating budgets and that limit provincial debt accumulation play an important role in keeping municipal debt low.
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Introduction
Municipal governments provide many important services that directly affect the daily lives of city residents, including police and fire protection, water utilities, garbage collection, and parks and recreation. They also extract revenue through various methods such as taxation (including property taxes), user fees, and fees paid by land developers. Despite the fact that municipalities play an important role in the lives of British Columbians, the finances of municipal governments tend not to receive the same level of scrutiny as those of the federal and provincial government.1 As a result, it can be difficult for taxpayers and voters to understand the state of their municipal government’s finances and even more difficult to understand how their government performs relative to others.2 While provincial regulations help to limit financial mismanagement— for instance, municipal governments are generally required to balance their operating budgets every year—a balanced operating budget is only one indicator of healthy government finances.3 Taxpayers need further information and analysis if they are to make a more complete judgement about the financial state of affairs of municipal governments. 1. Some organizations have tried to shed light on local government finances in British
Columbia. Most notably, the Canadian Federation of Independent Business has published numerous studies looking at municipal finances. For the most recent publication, see Wong, 2014. For the latest in the CFIB series, BC Municipal Spending Watch, see Klassen and Fong, 2013. The Business Council of British Columbia has also examined Metro Vancouver spending (see Finlayson et al., 2012).
2. The BC government recently created the Auditor General for Local Government to improve the performance evaluation of local governments in the province. The first report of the Auditor General for Local Government was published April 30, 2014. However, this is merely one step in the right direction and not a panacea for poor local government performance (Veldhuis and Lammam, 2012). Experience with a similar office at the federal level has shown that an Auditor General does not prevent problems from reoccurring, even if the audit reports generate short-term media and public attention (Lammam et al., 2013). Like the federal Auditor General, the Auditor General for Local Governments lacks the authority to compel municipalities to improve their financial reporting and take corrective action when problems are identified.
3. See MacIntyre and Lammam, 2014 for a discussion of provincial regulations on debt accumulation.
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2 / Comparing Municipal Government Finances in Metro Vancouver
This report provides a summary analysis of important financial information for 17 of the 21 municipalities in Metro Vancouver,4 by far the largest regional district in the province, spanning a 10-year period (2002 to 2012).5 It is the third in a series of Fraser Institute reports released this year on the state of municipal finances in Metro Vancouver (see Lammam and MacIntyre, 2014; MacIntyre and Lammam, 2014). Together, the aim of the series is to foster greater public attention and encourage debate about municipal finances in the region.
The intention of this report is not to make an assessment about any particular municipality’s finances—for instance, whether taxes or spending is too high or whether municipal governments produce good value for taxpayers. That is beyond the scope of the report, which is a preliminary analysis of key financial data. The intention is, however, to inform the public about the state of municipal finances and provide some basic comparative information that is otherwise not readily available. The next step for research is to dig deeper into the reasons behind the differences in the financial statistics we observe. This report is organized as follows. The first section explains the data source used for the analysis and describes key data adjustments that were made. The second section provides an overview of government spending for the 17 Metro Vancouver municipalities in 2002 and 2012, while the third section provides a similar overview of revenue. The fourth section examines interest expenditures on outstanding municipal debt. The final section summarizes the report’s findings. In addition, there are three appendices providing: a detailed description of the database; additional spending and revenue tables; and summary profiles for each of the 17 municipalities.
4. “Metro Vancouver” is formally the Greater Vancouver Regional District (GVRD). The
regional government spends on major local services such as water, sewers, drainage, solid waste disposal, regional services, and the Housing Corporation. However, the purpose of the paper is to examine the finances of “lower tier” local governments and not the regional government.
5. The period of 2002 to 2012 was selected because it represents the longest period of available and comparable data. For more details see Appendix 1 (p. 41). In addition, 10 years is a reasonable time span for analyzing trends over the longer term.
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1 Background
This section has three purposes. First, it explains the rationale for the exclusive focus on municipalities in Metro Vancouver. Second, it introduces the data source used for analyzing municipal government finances including spending and revenue. Third, it notes key adjustments made to the data in the report.
Why focus on Metro Vancouver?
Differing relationships between regional districts and municipalities in British Columbia make province-wide municipal comparisons difficult. Besides a few activities mandated by the provincial government, the services provided by regional districts are diverse and largely depend on what the municipal governments want them to do (Bish and Clemens, 2008). We focus solely on Metro Vancouver to avoid the problem of comparing spending in areas where municipal responsibilities differ from one regional district to another6 and because the Metro Vancouver region contains the lion’s share of the provincial population living in municipalities. Specifically, the region’s combined population is 2.4 million or 59.3% of the 4.1 million living in municipalities in British Columbia (Lammam and MacIntyre, 2014).7
6. A regional district government can also provide services within one of its constitu-
ent municipalities that are not offered in other municipalities. Two examples of regional district services in Metro Vancouver that are not provided to all 21 municipalities are support for municipal labour relations (available to 18 municipalities) and the Mosquito Control Program (available to five municipalities). Metro Vancouver’s 2014 regional district budget allocated $2.1 million for labour relations and $130,000 to the Mosquito Control Program (Metro Vancouver, 2013).
7. The database used in this report does not include population figures for areas outside municipalities. There were 489,815 people (10.8% of BC’s population) living in unincorporated areas in 2012. For more information on the Local Government Statistics database, see Appendix 1 (p. 41) and .
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4 / Comparing Municipal Government Finances in Metro Vancouver
Data source—local government statistics
Municipal finances can be difficult to comprehend owing in part to differences in accounting practices and an inability to draw reliable conclusions (Dachis and Robson, 2014). In British Columbia, reporting on municipal finances is greatly aided by the Local Government Statistics database, which is published by the provincial government’s Ministry of Community, Sport, and Cultural Development (2013b). The provincial government requires municipalities to produce annual financial information on a consistent accounting basis in calendar year format (January to December).8 Importantly, the data in the Local Government Statistics database are for municipalities only; other local government units such as school boards are not included.9 A more complete description of the Local Government Statistics can be found in Appendix 1 (p. 41). A key term to define is “spending”, which throughout the report refers to a municipal government’s operating spending—that is, spending on public services such as policing, utilities, garbage, and parks. Such spending includes debt servicing payments (by design of the database) but excludes capital spending, which is spending on acquiring or improving capital assets such as a sewage system. Capital spending is excluded because its treatment switched in 2009 to an accrual basis that spreads the cost of capital spending over several years (British Columbia, Ministry of Community, Sport, and Cultural Development, 2013a). As a result, capital spending before and after 2009 is not strictly comparable.
Data adjustments
The report examines the government finances of 17 of 21 municipalities in Metro Vancouver. The four municipalities not covered are Belcarra, Lions Bay, Bowen Island, and Anmore, which together account for approximately 0.3% of the total municipal population in Metro Vancouver. They were excluded because they individually have populations below 5,000 and thus different financial arrangements than the other municipalities. Specifically, a municipality with a population less than 5,000 is not required by the provincial government to offer police services. Local police services in these municipalities are provided by the provincial government, typically contracted out to the RCMP.10 8. At the time of writing, the Local Government Statistics database was available online from 2005 to 2012 at . Earlier
years are available upon request.
9. The Local Government Statistics database, however, also provides financial information on regional districts. 10. Municipalities with a population of 5,000 to 15,000 pay 70% of the cost while municipalities with over 15,000 pay 90%.
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Comparing Municipal Government Finances in Metro Vancouver / 5
A data adjustment was made for the unique case of West Vancouver. Unlike other Metro Vancouver municipalities, West Vancouver operates its transit services through the Blue Bus system. The municipality spends on such services and is then reimbursed by Translink, the regional transit authority.11 As a result, unadjusted spending and revenue figures for West Vancouver include items not included in other municipalities. The amount of the Translink reimbursement was removed from West Vancouver’s spending and revenue figures and from the aggregate Metro Vancouver figures to make West Vancouver’s data comparable with the other municipalities. Adjustments were made throughout the report to account for inflation and differences in population. As table 1 shows, population varies greatly among the 17 municipalities examined. The City of Vancouver has the largest population with 666,517 or 27.7% of the total. Surrey has the second largest with a population of 482,725 (20.0%), followed by Burnaby at 231,811 (9.6%) and Richmond at 199,949 (8.3%). Coquitlam, the District of Langley, Table 1: Metro Vancouver Municipal Population, 2012
Population
Percent of Total
Rank
Vancouver
666,517
27.7%
1
Surrey
482,725
20.0%
2
Burnaby
231,811
9.6%
3
Richmond
199,949
8.3%
4
Coquitlam
129,716
5.4%
5
Langley, District of
107,505
4.5%
6
Delta
100,337
4.2%
7
North Vancouver, District of
89,437
3.7%
8
Maple Ridge
78,124
3.2%
9
New Westminster
68,534
2.8%
10
Port Coquitlam
58,517
2.4%
11
North Vancouver, City of
51,870
2.2%
12
West Vancouver
44,284
1.8%
13
Port Moody
34,567
1.4%
14
Langley, City of
26,261
1.1%
15
White Rock
19,211
0.8%
16
Pitt Meadows
18,604
0.8%
17
Metro Vancouver total
2,407,969
Note: The total population excludes four municipalities in Metro Vancouver. The four not displayed are: Bowen Island (pop. 3,777), Anmore (pop. 2,337), Lions Bay (pop. 1,406), and Belcarra (pop. 689). Sources: British Columbia, Ministry of Sport, Community, and Cultural Development, 2013a; calculations by authors.
11. Gerald Yip, Accounting Supervisor, District of West Vancouver, personal communi-
cation, April 28, 2014.
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6 / Comparing Municipal Government Finances in Metro Vancouver
Figure 1: Population growth (%) in Metro Vancouver
municipalities, 2002–2012
Port Moody
Surrey
New Westminster
Langley, District of
Pitt Meadows
Vancouver
Richmond
Maple Ridge
Burnaby
North Vancouver, City of
Coquitlam
Langley, City of
Port Coquitlam
North Vancouver, District of
West Vancouver
Delta
White Rock
-5
0
5
10
15
20
25
30
35
40
Percent
Sources: British Columbia, Ministry of Community, Sport and Cultural Development, 2013a; calculations by authors.
and Delta are the other municipalities with a population over 100,000. At the other extreme is Pitt Meadows with the smallest population of 18,604 or 0.8% of the total. White Rock, the City of Langley, Port Moody, and West Vancouver all have a population less than 50,000. Because of the variation in population, the financial data are presented on a per-person basis unless otherwise noted. In addition, the 2002 values are adjusted to 2012 dollars to make 2002 and 2012 spending and revenue figures directly comparable.12 There has also been also great variation in population growth among Metro Vancouver municipalities over the last decade. The region as a whole grew 15.1% (317,458 new residents) between 2002 and 2012, led by Port Moody with 35.3% growth (9,022 new residents) and Surrey with 28.1% growth (105,968 new residents). Delta and White Rock are at the other end of the scale with population declines of roughly 1% (figure 1). The City of Vancouver, which in many ways is the core of the region, experienced growth (15.4%) in line with the total for the region.
12. The Consumer Price Index (CPI) for the Census Metropolitan Area (CMA) of Vancouver (Statistics Canada, 2013) is used to calculate inflation adjustments. fraserinstitute.org
2 Municipal Spending
This section analyzes spending in 17 of the 21 Metro Vancouver municipalities. Table 2 presents per-person spending levels and rankings in 2002 and 2012 from high to low—that is, from the highest spending municipalities to the lowest spending municipalities—and the change in ranking over the period.13 All figures are presented in 2012 dollars. Table 2 also displays the growth in (inflation-adjusted) per person spending from 2002 to 2012.
Spending
As depicted in figure 2 (and summarized in table 2), West Vancouver was the highest spending municipality in 2012 (spending $2,118 per person) while Surrey was the lowest spender (spending $951 per person). Put differently, West Vancouver spent more than double the amount per person than Surrey.14 The average for the region is $1,384 per person, as illustrated by the vertical line in figure 2.
13. Appendix 1 (p. 41) gives a definition of the various categories of spending while
Appendix 2 (p. 45) provides a breakdown of spending by major category in each municipality. Specific categories of spending that are discussed include debt servicing payments for debt related to that category’s activity. For example, payments on debt acquired to construct a new water-purifying facility are included in the solid waste and utilities category. 14. Given that municipalities in the region provide a similar basket of services (such as police and fire, solid waste and utility services, and parks and recreation), such large differences in per-person spending are no doubt surprising. However, explaining these differences in spending is beyond the scope of this report and an important area for future research. That said, there may be host of things that drive per-person spending and the differences across individual municipalities within the same region. Potential factors might include: the terms of collective agreements and/or the size of municipal payrolls per resident; differing preferences among residents as to the quantity and quality of locally provided services, as originally hypothesized by Professor Charles Tiebout (1956); geography (dispersed populations may be most costly to serve, although New Westminster runs counter to this logic); cost factors related to scale (perhaps it is more costly on a per-resident basis to provide services in smaller population centres); and whether municipalities outsource services or provide them in house. fraserinstitute.org / 7
8 / Comparing Municipal Government Finances in Metro Vancouver
Table 2: Municipal spending ($ 2012) per person in Metro Vancouver municipalities, 2002, 2012 2002
Spending
per person
Burnaby
Coquitlam
Delta
Langley, City of
2012
Growth in spending
per person
Rank
Spending
per person
Rank
Change in
rank
Percent
Rank
1,000
9
1,249
13
−4
24.8
12
933
12
1,393
7
5
49.2
3
1,215
4
1,596
4
0
31.4
8
946
11
1,192
14
−3
26.0
11
Langley, District of
765
15
1,269
11
4
65.9
2
Maple Ridge
765
14
1,139
16
−2
48.8
4
New Westminster
1,624
1
1,837
2
−1
13.1
17
North Vancouver, City of
1,070
8
1,541
5
3
44.1
5
North Vancouver, District of
1,168
6
1,454
6
0
24.5
13
Pitt Meadows
691
16
1,257
12
4
81.9
1
Port Coquitlam
892
13
1,163
15
−2
30.4
10
Port Moody
1,145
7
1,345
9
−2
17.5
15
Richmond
1,177
5
1,340
10
−5
13.8
16
676
17
951
17
0
40.8
6
Vancouver
1,397
3
1,689
3
0
20.9
14
West Vancouver
1,615
2
2,118
1
1
31.1
9
983
10
1,351
8
2
37.5
7
Surrey
White Rock
Metro Vancouver average
1,088
1,384
27.1
Note: The Metro Vancouver average is the combined spending of the 21 Metro Vancouver municipalities divided by total municipal population.
Sources: British Columbia, Ministry of Community, Sport and Cultural Development, 2013a; Statistics Canada, 2013; calculations by authors.
At $1,837 per person, New Westminster is the second highest spender, spending approximately $300 less than West Vancouver. Notably, both West Vancouver (ranked 1st) and New Westminster (2nd) have relatively smaller populations (44,284 and 68,534, respectively) but consistently spend more per person, to varying degrees, than much larger municipalities such as Vancouver (3rd), Surrey (17th), Burnaby (13th), Richmond (10th), Coquitlam (7th), the District of Langley (11th), and Delta (4th)—all of which have populations over 100,000. Also notable is the very large difference in spending between neighbouring municipalities (see map, p. 10). For instance, West Vancouver (1st) spends approximately $600 more per person than both the City and District of North Vancouver (5th and 6th). New Westminster (2nd) has per-person outlays nearly $600 higher than next door Burnaby (13th) and approximately $450 higher than Coquitlam (7th). Vancouver (3rd) spends $350 more per person than Richmond (10th). Spending per person by Delta (4th) is over $600 greater than adjacent Surrey (17th). Among the Tri-Cities, Port Coquitlam (15th) stands out for relatively lower spending—approximately $200 less per person—than both Coquitlam (7th) and Port Moody (9th).
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Comparing Municipal Government Finances in Metro Vancouver / 9
Figure 2: Municipal spending per person ($ 2012) in Metro
Vancouver municipalities, 2012
West Vancouver
New Westminster
Vancouver
Delta
North Vancouver, City of
North Vancouver, District of
Coquitlam
White Rock
Port Moody
Richmond
Langley, District of
Pitt Meadows
Burnaby
Langley, City of
Port Coquitlam
Maple Ridge
Surrey
0
500
1000
1500
2000
2500
$ 2012
Sources: British Columbia, Ministry of Community, Sport and Cultural Development, 2013a; calculations by authors.
Vancouver, the region’s commercial hub and most populated municipality (666,517 people), is the third highest spender in 2012 ($1,689 per person). Population, however, does not seem to explain the differences in perperson spending.15 As noted, West Vancouver and New Westminster both spend more per person than Vancouver while having a fraction of Vancouver’s population (6.6% and 10.3%, respectively). On the other hand, Surrey, with the second largest population (over 482,725), is the region’s lowest spender, spending nearly half per person the amount of Vancouver. And Maple Ridge (16th), Port Coquitlam (15th), and the City of Langley (14th) are among the lowest spenders despite having relatively small populations (between 3.9% and 11.7% the size of Vancouver).
15. One theory posits that there are “economies of scale” in the provision of local gov-
ernment goods and services whereby the cost of producing one unit of a good or service decreases as the volume of production increases. The idea is that larger municipalities can benefit from scale since they can spread their fixed costs across more units, resulting in lower average costs compared to smaller municipalities. If this were consistently true, we would expect Vancouver, by far the largest municipality in the region, to be among the lowest spenders per person.
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10 / Comparing Municipal Government Finances in Metro Vancouver
Municipal government spending per person
in Metro Vancouver, 2012
WEST
VANCOUVER
$2,118
DISTRICT
OF NORTH
VANCOUVER
$1,454
$1,345
CITY OF NORTH VANCOUVER
COQUITLAM
$1,541
$1,393
PORT MOODY
PORT
COQUITLAM
BURNABY
VANCOUVER
$1,689
$1,249
$1,163
R
W TE
NE INS
TM
S
E
W
PITT
MEADOWS
MAPLE
RIDGE
$1,139
$1,837
RICHMOND
$1,340
SURREY
DELTA
$1,257
12
$951
DISTRICT OF
LANGLEY
$1,269
$1,596
CITY OF LANGLEY
$1,192
WHITE ROCK
$1,351
Vancouver and Surrey are two of only four municipalities to retain their spending rank in 2002 and 2012 (the other two are Delta and the District of North Vancouver). In...