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