Roles, Responsibilities, Resources, and Relationships. Report to the Provincial and Territorial Municipal Associations

Transcription

1 Roles, Responsibilities, Resources, and Relationships Report to the Provincial and Territorial Municipal Associations Submitted by Enid Slack, Harry Kitchen, Melville McMillan, and François Vaillancourt June 15, 27

2 Table of Contents Executive Summary Introduction and Outline Municipal Government Organization Overview of Trends in Provincial/Territorial and Local Expenditures and Revenues, Provincial/Territorial Government Expenditures Local Government Expenditures Comparison of Provincial/Territorial and Local Government Expenditures Provincial and Territorial Government Revenues Local Government Revenues Comparison of Provincial/Territorial and Local Government Revenues Municipal Roles and Responsibilities Inter-Provincial Comparison of Municipal Expenditures Trends in Municipal Expenditures Trends in Municipal Capital Expenditures Level of Municipal Government Expenditures Expenditures by Function Roles and Responsibilities Mandated and Discretionary Services City Charters and Special Legislation Recent Changes in Responsibility Assignments Municipal Resources Inter-Provincial and Inter-Territorial Comparison of Revenues Property Tax Property Tax Base Municipal Property Tax Structure School Property Tax Structure Property Tax Relief Schemes User Fees Payments-in-Lieu of Property Taxes Investment Income Financing Infrastructure Intergovernmental Relations Intergovernmental Transfers: A Quantitative Overview Federal Grants Provincial/Territorial Grants Provincial/Territorial Unconditional Grants Provincial/Territorial Conditional Grants Intergovernmental Relations Provincial/Territorial-Municipal Relationships Inter-Municipal Relations Provincial Restrictions on Municipal Borrowing Appendix A: List of Interviews

3 Appendix B: Municipal Government Organization Appendix C: Expenditures and Revenues, Appendix D: Federal Conditional Grants to Municipalities Appendix E: Provincial Restrictions on Municipal Borrowing References

4 Executive Summary This study provides a cross-jurisdictional comparison of the roles, responsibilities, resources, and relationships among municipal governments and their provincial and territorial governments across Canada. The study includes information on municipal responsibilities, expenditures, revenues (own-source revenues and intergovernmental transfers), and intergovernmental relationships (including provincial/territorial-municipal and inter-municipal relationships). Information for this study was gathered from Statistics Canada data (the only comparable data on municipal governments across Canada), a review of municipal legislation in each province (Municipal Acts and other relevant legislation), a review of the literature, and interviews with municipal associations and provincial, territorial and municipal officials in each province and territory. This report is based on the best information available in late 26 and early 27. Any changes since that time will not be reflected in the report. Trends in Municipal Expenditures On average, across Canada, municipal expenditures per capita in current dollars were $1,814 in 25. These expenditures increased from $1,238 in 199 or by $576 over the period from 199 to 25. In constant dollars (adjusting for inflation), spending increased by $86 per capita over the 16-year period from $1,47 to $1,493. As a percentage of GDP, municipal spending fell from 4.7 percent to 4.3 percent. Municipalities in all provinces provide water and sewers, roads and streets, solid waste collection/disposal, parks and recreation, land use planning, policing (except in the territories where it is contracted by the territorial governments with the RCMP and not all municipalities in every province pay for policing), and fire protection (not all municipalities in every province). Municipalities in some provinces are also responsible for courts of law, public transit, health services (including land ambulance), social expenditures (but not generally social assistance except in Ontario), housing, and tourism and promotion. Aside from Ontario where social services expenditures are relatively high, expenditures for general government, protection, transportation, environment, and recreation and cultural services represent the bulk of municipal outlays (about 85 percent). In Ontario, these services account for about 65 percent of expenditures. The fastest growing expenditures over the last 16 years have been on protection (fire and police), social housing (mainly in Ontario), environment (water, sewers, garbage), and social services. Transportation expenditures have decreased as a proportion of total expenditures over the same period (except in Québec) as have debt charges. Capital expenditures account for 2 to 25 percent of total municipal expenditures. Capital expenditures lagged as a share and in constant dollar terms during the 199s. Capital outlays in constant dollars per capita only regained the level of the 198s in 25. 3

5 Trends in Municipal Revenues Municipal revenues comprise own-source revenues (mainly property taxes and user fees plus some small sums from investments, amusement taxes, licences and permits, and fines and penalties), and conditional and unconditional grants (largely from provincial/territorial governments with some from the federal government). Over the period from 199 to 25, property taxes and user fees increased as a proportion of municipal revenues (from about 43 percent to 5 percent and from 19.8 percent to 22.2 percent respectively); intergovernmental transfers fell as a proportion of municipal revenues across Canada (overall from 23.1 percent to 17.1 percent) except in Québec (although they are still a small proportion of total revenues in that province). There are some inter-provincial differences in revenues. For example, land transfer taxes are levied by municipalities in Nova Scotia and Québec and are permitted in Manitoba. Amusement taxes are levied at the municipal level in Nova Scotia, Manitoba, Saskatchewan, and BC. Hotel taxes are levied in Nova Scotia, Saskatchewan, Alberta, BC, Québec, and they are permitted in Manitoba. A poll tax is levied in Newfoundland. Development charges may be levied by municipalities in BC, Alberta, Saskatchewan, Ontario, Yukon, and NWT. Revenue sharing (income tax, fuel tax, VLT/casino revenues) is used in Manitoba and provincial fuel tax sharing occurs in BC, Alberta, Ontario, and Québec. Mandated versus Discretionary Expenditures Mandated services are those that municipalities are required to provide by the laws and/or regulations of their provincial/territorial governments. Municipalities also provide a range of services that are demanded by their constituents even though they are not mandated. These services are referred to as discretionary services and are necessary for a functioning and viable municipality. The distinction between mandated and discretionary services is not particularly clear. Indeed, when the question about mandated versus discretionary services was posed in our interviews, respondents were frequently uncertain about which services were required by law and which were not. There were even conflicting views among provincial and municipal government officials in the same province/territory. This observation is important because it indicates that municipalities are delivering a wide range of services that citizens demand whether or not they are mandated. The distinction does not appear to be all that important in terms of the services that municipalities actually deliver. It is also worth noting that, in many provinces, municipal legislation has become more permissive with respect to municipal undertakings and has thus afforded municipalities greater flexibility in the services that they may deliver. Again, all of this suggests that it does not matter whether services are mandatory or discretionary. A viable and vibrant municipality knows that it has to deliver a number of services whether or not they have been mandated by the province. The number of mandated services varies across the country. Nevertheless, components of services in five broad areas are most commonly mandated: general government, protection of persons and property (some policing, aspects of fire protection, building code enforcement, and 4

6 emergency planning), transportation (roads and streets), environment (notably solid waste management), and regional planning and development (land use planning and zoning). The most significant discretionary municipal service (in terms of expenditure amount) is recreational and cultural services (except in Nunavut where these expenditures are mandated). In almost all jurisdictions, public transit, health (except for land ambulance in Ontario and in the City of Winnipeg), social services (except in Ontario), and tourism and industrial development are also discretionary services. A real concern expressed in the interviews, however, was around the standards of service that municipalities have to meet and the enforcement of those standards. In other words, whether or not a service is mandatory, once the municipality delivers the service, provincial or other standards often have to be met. For example, there are standards for fire protection, water and sewerage services, solid waste disposal, building inspection, day care, and housing for the elderly. Municipalities are more concerned with finding sufficient funds to meet the service standards associated with all of these functions than they are with the distinction between mandated or discretionary services. Moreover, there was a feeling that these standards have increased significantly over the last 1 years. Municipal Borrowing The amount that municipalities can borrow for capital projects is almost always controlled by the province/territory. Provincial/territorial constraints on long term municipal borrowing vary across the country, but generally include one or more of the following: permitting borrowing only for provincially-approved capital projects; requiring prior approval of provincial authorities for borrowing; requiring prior approval (through a referendum) by local taxpayers for borrowing above a specified limit; restricting annual debt servicing costs to some percentage of municipal own-source revenues; restricting the amount of debt to some percentage of assessed property values; and permitting (or requiring) borrowing from a provincially controlled municipal fund. Intergovernmental Relations The relative importance of transfers varies from province to province ranging from less than 7 percent of total municipal revenues in BC, PEI, and Nova Scotia to more than 2 percent of total municipal revenues in Ontario and Manitoba. Transfers are substantially more important in the territories (accounting for more than one third of revenues). There is no obvious explanation as to the differences in the importance of transfers -- they reflect the interaction between provincial and municipal responsibilities, the use of property taxes as a provincial source of revenue, and the financing arrangements for school boards. In the case of Ontario, higher dependence on transfers reflects cost sharing for social services. Legislative requirements (or possibilities) for consultation vary across provinces and territories with respect to changing legislation that affects municipalities and also with respect to other matters affecting local governments. Only four provinces or territories (BC, Nova Scotia, Ontario, and Yukon) have a legislated requirement to consult with local governments with respect to legislation that affects them. In some provinces, a collaborative approach without 5

7 legislation is used (for example, Manitoba). In some provinces and territories there is no express mechanism to consult (for example, Newfoundland and Labrador, and PEI). Information derived from the interviews on provincial/territorial-municipal relationships suggest some general points (which may not hold for each and every province and territory). The state of federal-provincial relations has an impact on provincial-municipal relations. When federalprovincial relations are not good, attempts by municipalities to maintain good relations with the federal government are seen to undermine the provincial stance. The legal nature of the consultative mechanism is more reflective of the state of cooperation in the long run than a determinant of good or bad cooperation. The financial context matters. When unilateral cuts are being made to provincial transfers to municipalities, relations tend to suffer. The problem is exacerbated where no advance warning is given by the province/territory to municipalities. The political personnel in place matters. In many cases, the individual politicians make a difference by setting the tone for the intergovernmental relationship. The senior civil service in place also matters but day-to-day cooperation is usually maintained even when official relations are not particularly good. Provinces with numerous municipal associations find their relationship with municipal associations a bit more challenging than those with only one because of the perceived need to arbitrate inter-municipal conflicts that are less evident when there is only one association. Provinces with vast unincorporated areas end up as both providers of services to these parts of the province and as partners with municipalities. Municipalities are often in tax competition with unincorporated areas and provide services to them that are not paid for by people who live in these areas outside of municipal borders. This situation complicates relationships somewhat. Provinces where municipal affairs are the responsibility of a department with many different responsibilities are seen as giving less attention than desired to the concerns of municipalities. Provinces with a large city (in terms of population) and many smaller municipalities need to balance their relationship with each. 6

8 Roles, Responsibilities, Resources, and Relationships Report to the Provincial and Territorial Municipal Associations Submitted by Enid Slack, Harry Kitchen, Melville McMillan and François Vaillancourt June 15, Introduction and Outline The purpose of this study is to provide a cross-jurisdictional comparison and analysis of the roles, responsibilities, resources, and relationships among municipal governments and their provincial and territorial governments across Canada. The study includes information on municipal responsibilities, expenditures, revenues (own-source revenues and intergovernmental transfers), and intergovernmental relationships (including provincial/territorial-municipal and inter-municipal relationships). Information for this study was gathered from Statistics Canada data, a review of municipal legislation in each province (Municipal Acts and other relevant legislation), a review of the literature, and interviews with municipal associations and provincial, territorial and municipal officials in each province and territory. A list of the people who have been interviewed can be found in Appendix A. This report is based on the best information available in late 26 and early 27. Any changes since that time will not be reflected in the report. This report is divided into five parts as follows: The second part describes municipal organization in each province how many municipalities are there? What types of municipalities are there (e.g. cities, towns, villages, etc.)? This section identifies those cities that have separate charters or special legislation; a more detailed discussion of charter cities can be found in part four. The third part of the report identifies trends in provincial/territorial and municipal expenditures and revenues from 199 to 25. Trends in municipal finance are provided for all of Canada; differences across provinces and territories are shown in subsequent parts of the report. The fourth part focuses on municipal roles and responsibilities. It compares the responsibilities of municipalities in different provinces and territories, provides information on municipal expenditures by category of expenditures, and discusses which services are mandated versus discretionary. The fifth part reviews municipal own-source revenues, largely property taxes and user fees, plus amusement taxes, licences and permits, investment income and other smaller revenue sources. It also describes briefly how infrastructure is financed by municipalities. The sixth part addresses intergovernmental issues differences in the dependence on grants and types of grants across provinces and territories, provincial/territorial/municipal relations, inter-municipal relationships, and provincial restrictions on municipal borrowing. 7

9 2. Municipal Government Organization Table 2.1 summarizes the number and types of government structures in each Canadian province and territory and identifies where there are city charters or special legislation. A more detailed description of municipal organization by province/territory can be found in Appendix B. The information in Table 2.1 shows that there is a range of municipal structures in Canada. In general, these structures consist of a mix of single-tier and two-tier incorporated municipalities and, in most provinces, a number of unincorporated communities. Because there is very little information on unincorporated areas, however, the expenditure and revenue data in subsequent parts of this study only include incorporated municipalities. 1 Under a single-tier structure, each municipality is responsible to provide all municipal services. Frequently, however, municipalities rely on inter-municipal or joint-use agreements or special purpose bodies for sharing services with neighbouring jurisdictions (these arrangements will be discussed in more detail in Part 6). The most common type of municipal structure in Canada is the two-tier system. Under a two-tier structure, there are a number of lower tiers or area municipalities cities, towns, villages, and townships and an upper tier that is called a county, region or district. The lower tier assumes responsibility for certain services, although this responsibility varies across provinces and quite often across regions/counties/districts within a province. For some services, lower tiers rely on inter-municipal agreements (fire and roads being the most common). The upper tier is responsible for the remaining services and generally, because of its geographic area or size, is more self-sufficient and much less dependent on intermunicipal agreements. In some provinces, there are one or two charter cities or cities with special status. These cities are governed by legislation that differs somewhat from legislation governing the rest of the municipalities in the province in terms of powers to run their own affairs, although seldom do they have more taxing power. More information on city charters and special legislation is provided in Part 4 below. In particular, there is a discussion of what special status means in terms of roles, responsibilities, resources, and relationships. The trend over the past decade towards increased reliance on own-source funding for municipalities, partly as a result of reduced provincial grants, has been accompanied by a provincial push towards municipal restructuring including consolidations or amalgamations in some provinces. The most notable activity has occurred in Ontario with smaller initiatives in New Brunswick, Nova Scotia and most recently, Quebec. Restructuring studies have also been completed in Edmonton and Calgary and in Newfoundland where new regional county service districts have been created. 1 The result of this omission is that per capita expenditure and revenue data are somewhat distorted because municipal spending only includes spending by incorporated municipalities but population numbers include the population of the entire province. In those provinces with a significant population in unincorporated areas, municipal spending per capita is under-stated. 8

10 Municipal amalgamations or consolidations are not new, although the latest round, in some provinces, has been more dramatic than the earlier efforts of the 195s, 196s and early 197s. Initiatives in the earlier decades were generally in response to the rapid increase in urbanization and the need to provide services and a tax base over a wider geographic area. Earlier reforms culminated in fewer municipalities through consolidations and the introduction of regional or district governments. The most frequently cited examples include the 1967 merger of thirteen lower-tier municipalities and an upper tier government to create Metro Toronto consisting of six area municipalities plus a regional government; the consolidation of fourteen municipalities to create the city of Laval in Quebec in 1965; and the unification of twelve lower-tier municipalities and an upper-tier government to create the new city of Winnipeg in Between 1965 and 1967, the provincial government in British Columbia implemented a series of regional districts across the province, including those areas that had not been part of an incorporated municipality. The most talked about regional district in British Columbia is the Greater Vancouver Regional District (GVRD). The GVRD was created in 1967 and assumed responsibility for a number of functions that had been the responsibility of several special purpose bodies. In the early seventies, the province of Ontario introduced ten new two-tier systems of regional government. Each of them included an upper tier governing body and a number of lower-tier governing jurisdictions. In each of these regions, a series of new area municipalities (lower tiers) were created through the consolidation of former townships, villages and occasionally, towns. Historically, most major municipal consolidations have occurred in central and eastern Canada. These consolidations have been driven (or, in some cases, even forced) by provincial governments with the major rationale generally being cost savings and improved efficiency. This provincial initiative has been the subject of considerable discussion, debate, and frequent dispute. Out of these amalgamations and annexations has come the current structure of municipal government in Canada. 9

11 Province/Territory Table 2.1: Structure of Municipal Government Population Structure of Municipal Government City Charters/Special Status (25) 515, incorporated municipalities 3 cities, 279 towns, Cities of St. John s, Corner Brook and Mount 1 regional council, 183 local service districts Pearl incorporated under separate charters The Charlottetown Area Municipalities Act governs the City of Charlottetown, the Town of Stratford, and the Town of Cornwall. Summerside is also governed by separate legislation. Newfoundland and Labrador Prince Edward Island 138, incorporated municipalities 2 cities, 7 towns, 66 communities Nova Scotia New Brunswick 937, municipalities towns, 3 single-tiered regional municipalities, and 21 rural municipalities, drawn from 18 counties 752,6 12 incorporated municipalities 8 cities, 26 towns, 68 villages; 2 rural communities, and 268 unincorporated local service districts Quebec 7,598,146 1,9 local municipalities 2 cities and towns, 89 other municipalities (including townships, united townships, parishes, municipalities, and villages); 96 unorganized territories, 3 Indian Reserves, 14 northern villages, 8 Cree villages, 1 Naskapi village. The regional level of government includes Montreal and Quebec City, 86 regional county municipalities (include urban, rural and unorganized municipalities, 1 Kativik regional administration Ontario 12,541, incorporated municipalities 22 counties, 6 regions, 417 cities, towns, villages and townships; 36 consolidated service managers in the south, 11 district social services administration boards in the north; unincorporated townships Manitoba 1,177, municipalities 116 rural municipalities, 21 villages, 51 towns, 9 cities, 2 local government districts The City of Toronto is governed by the City of Toronto Act Winnipeg has its own charter 1

12 Saskatchewan 994, urban municipalities (including 273 villages, 147 towns, 13 cities, and 4 resort villages); 296 rural municipalities; 172 organized hamlets not incorporated and are governed by the rural municipalities of which they are a part; 35 northern communities (2 towns, 13 villages, 9 hamlets are incorporated and 11 northern settlements (unincorporated) in northern Saskatchewan which are part of the Northern Saskatchewan Administration District (NSAD) and administered by the Northern Municipal Services Branch Alberta 3,256, cities, 12 towns, 15 villages, 64 municipal districts, 3 special areas, 51 summer villages, 7 improvement districts, 4 specialized municipalities; 8 Métis settlements undergoing transition to local government British Columbia 4,254, (two-tier) regional districts which include 47 cities, 52 districts, 15 towns, 41 villages, the Sechelt Indian Government District; 164 unincorporated regional district electoral areas Nunavut 29, single-tier incorporated communities only one of which is tax-based (Iqaluit) Northwest Territories 42,982 6 tax-based municipalities (1 city, 4 towns, and 1 village) and 27 non-tax based areas (4 charter communities, 1 hamlets, 3 settlement corporations, and 1 unincorporated municipalities) Yukon 3,988 1 incorporated city, 7 incorporated towns, 6 local advisory boards Source: Canadian Tax Foundation (25); interviews City of Lloydminster has its own charter Vancouver has its own charter. 11

13 3. Overview of Trends in Provincial/Territorial and Local Expenditures and Revenues, This part of the report provides an overview of the trends in provincial/territorial and municipal expenditures and revenues for Canada as a whole over the period from 199 to 25. Interjurisdictional comparisons of municipal expenditures and revenues are provided in subsequent chapters chapter 4 for expenditures, chapter 5 for revenues, and chapter 6 for intergovernmental transfers. More detailed, year by year data can be found in Appendix C. Provincial/territorial expenditures and revenues are included in this part because it is important to understand the provincial-municipal context in which municipalities operate and to compare how municipal and provincial/territorial governments have fared over the last 16 years. For example, the decline in provincial-municipal transfers needs to be understood in the context of the provincial financial situation. It is also important to understand that differences in municipal expenditures sometimes reflect differences in the number of local services that are funded and delivered by the provincial or territorial government. 3.1 Provincial/Territorial Government Expenditures Table 3.1 and Figure 3.1 show provincial/territorial expenditures for selected years from 199 to 25. Table 3.1 reports on per capita expenditures in current dollars and constant dollars (adjusting for inflation), the relative importance of provincial expenditures in economic activity (expenditures as a proportion of Gross Domestic Provincial Product), and the types of services funded at the provincial/territorial level. Appendix Table C-1 provides information on per capita expenditures and the distribution of expenditures by category in each of the years from 199 to 25. The following information can be noted from Table 3.1 and Figure 3.1: Provincial/territorial expenditures per capita in current dollars increased from $5,321 in 199 to $8,19 in 25 or by almost $2,7. In constant dollars per capita, provincial/territorial government expenditures increased by $553 per capita over the 16- year period. As a percentage of Gross Domestic Provincial Product (GDPP), provincial/territorial government expenditures fell from 21.7 percent to 18.9 percent, a decline of 2.8 percentage points. Provincial/territorial expenditures in constant dollars per capita increased by.61 percent per year on average over the 16-year period. In terms of the relative importance of spending by category for all provinces and territories combined, the largest share of spending is on health at 33.6 percent of total spending in 25. This share has increased from 26.6 percent in

14 Table 3.1: Provincial/Territorial General Government Expenditures for Selected Years, 199 to Per Capita (current $) 5,321 6,82 6,77 8,19 Per Capita (constant 1997 $) 6,47 6,193 6,256 6,6 As a percent of Gross Domestic Provincial Product () Average annual compound growth rate in constant dollars per capita from 199 to Services: General Administration Protection Transportation & Communications Health Social Services Education Resource Conservation Environment Recreation/Culture General Purpose Transfers Debt Charges Other Note: this table combines all provinces and territories. Protection provincial police, courts, correction and rehabilitation, regulatory measures. Transportation mainly provincial highways. Health hospital, medical, preventative care. Social services social assistance, workers compensation. Education elementary and secondary, post-secondary, special training. Resource Conservation mainly agriculture Recreation/Culture - mainly culture and broadcasting. Other labour, employment, and immigration, housing, research establishments. Source: Calculated from Statistics Canada, FMS data 13

15 Base-Period (1997) Dollars Figure 3.1: Total Provincial/Territorial Expenditures Per Capita, Canada in Constant Dollars 6,8 6,6 6,4 6,2 6, 5,8 5, Year Provincial/territorial education expenditures account for the second largest proportion of total spending and its share has remained fairly constant over the period at about 2 percent of total expenditures. Provincial/territorial spending on social services is the third largest category at 16.1 percent in 25; its share has fallen slightly from 17 percent in 199. Debt charges have declined over the period. General purpose transfers (unconditional grants) from the federal government are not very important at the provincial level, accounting for less than 1.5 percent in the 199s and less than the 1 percent in the 2s. 3.2 Local Government Expenditures Local government statistics are separated into two distinct components municipal services (sometimes referred to as local general government expenditures) and education (specifically, public elementary and secondary schools). Panel A of Table 3.2 sets out information on municipal expenditures for selected years from 199 to 25; Panel B provides information on school board expenditures. Appendix Table C-2 provides information on per capita municipal and school board expenditures for each year from 199 to 25 as well as a breakdown of municipal services. 14

16 Table 3.2: Local Government Expenditures for Selected Years, Panel A Municipal Per Capita (current $) 1,238 1,414 1,463 1,814 Municipal Per Capita (constant 1997 $) 1,47 1,44 1,365 1,493 Municipal As a percent of GDPP () Average annual compound growth rate in constant dollars per capita municipal from 199 to 25 () Services: General Administration Protection Transportation & Communications Health Social Services Education Resource Conservation Environment Recreation/Culture Debt Charges Other Panel B School Board Per Capita (current $) 981 1,83 1,113 1,29 School Board Per Cap (constant 1997 $) 1,115 1,13 1,38 1,61 School Board As a of GDPP Average annual compound growth rate in constant dollars school board expenditure per capita from to 25. Protection includes courts of law, correction and rehabilitation, police, firefighting, and regulatory measures. Transportation and communications includes roads and streets, snow and ice removal, parking, and public transit. Health includes hospital and preventive care. Resource conservation & Industrial Development includes agriculture, tourism, trade and industrial development. Environment covers water, sewer, solid waste collection and disposal, and recycling. Debt charges cover interest payments. Other includes housing, regional planning and development, and miscellaneous expenditures. Source: Calculated from Statistics Canada, FMS data

17 Base-Period (1997) Dollars Figure 3.2: Total Municipal Expenditures Per Capita, Canada in Constant Dollars 1,55 1,5 1,45 1,4 1,35 1,3 1, Year Municipal Expenditures Information on municipal expenditures in Table 3.2 and Figure 3.2 can be summarized as follows: Municipal expenditures per capita in current dollars increased from $1,238 in 199 to $1,814 or by $576. In constant dollars, spending increased by $86 per capita over the 16- year period from $1,47 to $1,493. As a percentage of GDP, municipal spending fell from 4.7 percent to 4.3 percent, a smaller percentage point decline than for provincial governments. Municipal expenditures increased by.43 percent per year over the 16-year period, less quickly than the provincial average. Municipal governments in Canada deliver a range of services extending from those that have private good characteristics to those that have public good characteristics. Services with private good characteristics (for example, water, sewers, solid waste, and transit) have specific beneficiaries that can be identified and non-payers can be excluded. Services with public goods characteristics (for example, police and fire protection, local roads, streets, and street lighting) have collective benefits that are enjoyed by local residents. Some local governments, as will be noted below, also provide services that are redistributive in nature (such as welfare assistance, health, and social housing). 16

18 Figures 3.3 and 3.4 provide a breakdown of expenditures by category from 199 to 25. Because social services are only cost-shared between the provincial and municipal governments in Ontario, the breakdown of expenditures by function is shown with Ontario included (Figure 3.3) and without Ontario (Figure 3.4). In terms of the distribution of expenditures by category, over half of all expenditures are accounted for by transportation (roads, streets, snow removal, public transit), protection (police and fire), and environmental (water, sewage, solid waste collection and disposal) expenditures. The percentage is slightly higher when Ontario is excluded. Expenditures on environmental services have increased in relative importance over this period, reflecting the growing importance that municipalities are placing on clean water and environmental issues and increased provincial standards. Social service expenditures include social assistance and other social services such as homeless shelters, women s shelters, immigration settlement, food banks etc. As noted above, social assistance is a provincial financial responsibility in every province except Ontario where costs are shared between the provincial and municipal governments. Social services (including social assistance) account for almost 2 percent of municipal spending in Ontario. In Manitoba, the province pays for and administers provincial social assistance. Municipalities pay a flat amount based on an 8-year average (calculated over the period from 1994 to 22) annually to the province for social assistance. This flat amount does not vary with cyclical swings in social assistance expenditures. For the country as a whole, social services accounted for over 9 percent of total municipal spending in 25; when Ontario is excluded, social services only accounted for less than 1 percent of total municipal spending. Education is a provincial or shared provincial-school board responsibility in all provinces. Health expenditures are the responsibility of provincial governments except for land ambulance in Ontario (and in parts of Alberta and in Winnipeg). Some relatively small municipal expenditures are made on public health (e.g. anti-smoking campaigns, restaurant inspections, etc.) in some provinces. 2 Expenditures on recreation and culture have accounted for approximately 12 percent of municipal expenditures throughout the period (14.5 percent when Ontario is excluded). Debt charges for capital projects have dropped dramatically over the 16-year period reflecting a drop in interest rates and a reduction in municipal borrowing. School Board Expenditures Panel B of Table 3.2 shows school board spending from 199 to 25 and indicates the following: School board spending in current dollars per capita increased from $981 to $1,29 or by $39 per capita. In constant dollars per capita, spending decreased by $54 per capita. As a percent of GDP, school board spending fell from 4 percent to 3 percent. 2 In some provinces (such as Saskatchewan and Ontario), municipalities may be asked by local health authorities to contribute to the capital cost of new health facilities. 17

19 Shares, Percent Shares, Percent 1 Figure 3.3: Composition of Municipal Expenditure, Canada (including Ontario) Year General government services Protection of persons and property Transportation and communication Social services Environment Debt charges Recreation and culture The sum of other expenditure categories Figure 3.4: Composition of Municipal Expenditure, Canada (excluding Ontario) Year General government services Protection of persons and property Transportation and communication Social services Environment Debt charges Recreation and culture The sum of other expenditure categories 18

20 Percent School board spending in constant dollars per capita decreased by.15 percent per year over the 16-year period. 3.3 Comparison of Provincial/Territorial and Local Government Expenditures A comparison of provincial and local spending over the period from 199 to 25 suggests the following: Spending per capita in constant dollars increased for both the provincial and municipal governments but decreased for school boards. The growth in spending was somewhat higher at the provincial level than the municipal level. As a percentage of GDP, expenditures of provincial and municipal governments and school boards declined over the 16-year period (see Figure 3.5 for a comparison of provincial and municipal spending as a percentage of GDP). Municipal expenditures (local general government expenditures) as a share of total provincial-local expenditures declined over the 16-year period from less than18 percent of consolidated expenditures in 199 to less than 17 percent in Figure 3.5: Total Expenditure by Provincial/Territorial and Municipal Governmentas a Share of Provincial/Territorial GDP, Canada Year Local government Provincial government 19

21 Percent Figure 3.6: Local Expenditures as a Share of Provincial/Territorial-Local Consolidated Expenditures, Canada Year 3.4 Provincial and Territorial Government Revenues Table 3.3 shows the source of provincial/territorial revenues for selected years from 199 to 25, including per capita revenues in current dollars and constant dollars (adjusting for inflation), the surplus/deficit, and a breakdown of revenues by source. Appendix Table C-3 provides information on per capita revenues and the distribution of revenues by source in each of the years from 199 to 25. Provinces and territories rely on a variety of taxes that are also levied by other governments (both federal and local) as well as having their own taxes. Taxes levied by provincial/territorial governments that are also levied by the federal government include, for example, personal and corporate income taxes and many excise and consumption taxes. Taxes levied by provincial and local governments include mainly the property tax, the main source of revenue to local governments. Provinces have their own taxes such as natural resources and capital taxes. Provincial/territorial governments in aggregate ran up deficits during the late 198s and in the early to mid-9s. For all provinces and territories taken together, this situation changed in the early 2s when the provinces began to run surpluses (although a few provinces continue to run deficits, e.g. PEI, Quebec and Ontario). 2

22 Over the period from 199 to 25, Table 3.3 indicates the following: Income taxes, consumption taxes and property taxes have not changed much in terms of their proportion of total provincial/territorial revenues. Income taxes and consumption taxes account for a much greater proportion of provincial revenues than do provincial property taxes. User fees have also stayed roughly the same at the provincial/territorial level over the last 16 years. Investment income has increased somewhat as a proportion of total revenues. Own-source revenues overall were roughly the same proportion of total revenues in 25 as they were in 199, although they were somewhat higher in 2. Total grants decreased from 199 to 2 but then increased again in 25. Over the 16- year period, general purpose grants increased as a proportion of total revenues but specific purpose grants declined. 3.5 Local Government Revenues Local revenues in Table 3.4 are divided among municipal governments (in Panel A) and school boards (in Panel B). Appendix Table C-4 shows a breakdown of municipal revenues (only) for each year between 199 and 25. Municipal Revenues Municipal revenues comprise own-source revenues (mainly property taxes and user fees plus some small sums from investments, amusement taxes, licences and permits, and fines and penalties) and conditional and unconditional grants (largely from provincial/territorial governments). Since municipalities are not permitted to budget for operating deficits, the annual budget must include sufficient revenues to cover all operating expenditures. If expenditures exceed revenues in a particular year, the resulting deficit must be covered in the following year s budget. Borrowing is permitted, however, for capital expenditures (see Section 6.5 for a discussion of provincial restrictions on borrowing) and most of the deficit reported in Table 3.4 reflects borrowing for capital projects. Table 3.4 and Figures 3.7 and 3.8 show that, over the last 16 years, the relative importance of own-source revenues (mainly municipal property taxes and user fees) has grown, in large part, because the dependence on transfers has fallen: Own-source revenues increased overall from approximately 77 percent of revenues in 199 to almost 83 percent by 25 for Canada as a whole. For Canada, excluding Ontario, own-source revenues increased from over 83 percent to over 87 percent of total municipal revenues. The difference reflects the higher grants to Ontario municipalities for social services which are cost-shared. 21

23 Table 3.3: Provincial/Territorial Government Revenues for Selected Years, 199 to Per Capita - current $ 5,88 5,79 6,979 8,249 Surplus/deficit per capita current $ Per capita constant $ 5,781 5,813 6,511 6,789 Own source Revenue: Income taxes Consumption taxes Property taxes Other taxes Health and Drug Insurance Premiums Contributions to Social Security User Fees Investment Income Other Total Own Source Revenue General Purpose Grants Specific Purpose Grants Total Grants Total Note: this table combines all provinces. Income taxes personal, corporate, mining and logging. Consumption taxes general sales, alcohol and tobacco, gasoline and motive fuel, liquor profits, amusement, gaming profits. Property taxes general property and related taxes. Other taxes payroll, motor vehicle, capital taxes, and miscellaneous. Source: Calculated from Statistics Canada, FMS data 22

24 For all municipalities combined, property taxes increased in relative importance from almost 48 percent of total revenues in 199 to almost 53 percent in 25. User fees increased in relative importance from under 2 percent of total revenues in 199 to over 22 percent in 25. Payments-in-lieu of property taxes accounted for 4.9 percent of all revenues in 199 and for 2.6 percent in 25. Total grants fell from 23 percent of revenues in 199 to only 17 percent in 25. When Ontario is excluded, grants fell from 16.7 percent to 12.6 percent of total revenues. Federal grants to municipalities have historically been fairly small and all federal grants are for specific purposes. Federal grants increased from less than 1 percent of revenues in 199 to 1.5 percent in 25. The increase in grants has been directed to environmental and infrastructure projects (see part 6 below). School Boards The main sources of revenue for public elementary and secondary schools are provincial grants and property taxes. Other sources of revenue include federal government contributions, fees, rental income, and other sundry sources but all of these are fairly small in magnitude. In all but two provinces (Manitoba and Saskatchewan), local school boards have lost the power to set budgets and local tax rates. In most provinces, the province either fully funds public schools from their own revenues (which might include a provincial property tax for education) or the province stipulates the local education tax rate that has to be levied for education and the revenues collected by municipalities are remitted to local school boards (see section for a more complete description of education property taxes by province). Panel B of Table 3.4 shows the following: Provincial/territorial grants to school boards have increased over the last 16 years from over 63 percent of total revenues to 71.5 percent. Local property taxes as a proportion of total revenues have fallen significantly over the same period. 3.6 Comparison of Provincial/Territorial and Local Government Revenues A comparison of revenues at the provincial/territorial and local level suggests the following: Annual deficits for provincial/territorial governments have, in most cases, turned into annual surpluses. Deficits at the municipal level generally exist only where long term borrowing for capital purposes has taken place. Overall, taxes account for about 6 percent of provincial/territorial revenues and 54 percent of municipal revenues. Differences across provinces/territories in the dependence of local governments on taxes are set out in Part 5. Provincial/territorial governments have access to a mix of taxes; municipal governments rely largely on the property tax. 23

25 Table 3.4: Local Government Revenues for Selected Years, Panel A Per Capita Municipal current $ 1,179 1,44 1,489 1,747 Surplus/deficit current $ per capita Per Capita Municipal constant $ 1,339 1,43 1,389 1,438 Own source Revenue Municipal: Property taxes Payments-in-lieu of property taxes Other taxes User Fees Investment Income Other Total Own Source Revenue General Grants to Municipalities Specific Grants to Municipalities: Federal Provincial Total Grants Total School Board Revenue per capita $: Provincial Grants () Local Property taxes () Other Panel B , , ,266 Property taxes: taxes on real property, developers contributions and lot levies, special assessments, and business property taxes. Payments-in-lieu of property taxes these are made by senior levels of government and are in place of property taxes. Other taxes: amusement taxes, licences and permits. User Fees: water and sewage, rentals, concessions and franchises. Investment Income: profits from own enterprises, interest and penalties from taxes. Other: fines and penalties Source: Calculated from Statistics Canada