Looking for a New Deal a presentation to the CITY OF EDMONTON April 15, 2004 Melville McMillan and Paul Boothe Institute for Public Economics Department

Looking for a New Deal

a presentation to the

CITY OF EDMONTONApril 15, 2004

Melville McMillan and Paul BootheInstitute for Public Economics Department of Economics University of Alberta

Institute for Public Economics Dept of Economics 2

Outline

• Conclusions

• Recent Fiscal Trends

• Future Directions (?)

• The Issue

• An Overview of Municipal Expenditures and Revenues


Overview of

Revenues and Expenditures


Municipal Expenditures (Percent)Alberta Municipalities

2001Edmonton

2002

General government services 12.2 16.8Protection 14.3 21.0Transportation 28.3 24.7Health 1.5 aSocial services 1.5 aEducation 0.3 aResource conservation and industrial development 3.4 aEnvironment 13.9 14.0Recreation and culture 13.7 14.0Housing 0.7 aRegional planning and development 3.0 aDebt charges 7.1 2.8Other -- 6.7

100.0 100.0Notes: a) Included in 'Other'.


Municipal Revenue Sources (Percent)All Alberta

Municipalities2001

Edmonton2002

Own-Source Revenue 84.1 92.1 Property and related taxes 44.4 36.5 Real peoperty taxes 31.6 28.1 residential — 17.3 nonresidential — 10.8 Business 4.0 5.9 Other 8.8 2.5 Other taxes 1.6 5.3 Sales of goods and services 26.1 24.3 Investment income 10.3 18.6 Other own-source 1.6 7.4

Transfers 15.9 7.9

100.0 100.0


Observations fromExpenditure and Revenue Picture

• Expenditure (predominantly) have a close connection to property and social programs are relatively minor

• Heavy reliance on own revenues notably- property taxes- user charges

which are good mechanisms for financing such expenditures

• Creates strong benefit-cost linkage for local citizens

• However, some services provide benefits extending beyond the community – e.g., policing, some transportation (as well as social programs) - suitable grants are warranted


Trends


Alberta General Purpose Local Government:Selected Revenues as a Percentage of Total Revenue, 1988 to 2001


Fiscal Developments, 1988 and 2001------------Alberta Municipalities ------------

1988 2001

Transfers as a % of expenditures 21.9 15.9

Real property taxes as a % of revenues 21.3 31.6

Real property taxes as a % of personal disposable income 1.8 2.9

Provincial plus local property taxes as a % of personal disposable income 4.05 4.4

Debt charges as a % of expenditures 17.4 7.1

Own-source revenues in real (1992) dollars per capita $1,181 $1,217

Own-source revenue as a % of personal disposable income 6.5 6.1

Municipal program spending as a % ofprovincial and local program expenditures 17.0 15.8


Observations fromthe Fiscal Trends

• Transfers / grants have declined significantly

• Own revenues are now more important

• Property tax increases are the main source of expanded own revenue

• Yet, municipal program expenditures have largely been “keeping up”.

• In part because debt and debt serving costs have fallen


…Observations from the Fiscal Trends

There has been a clear shifting (“an offloading”)of greater municipal government financingresponsibility onto local governments

That is,

the burden on the municipal taxpayershas been increased to reducethe burden on the provincial taxpayer


City of Edmonton (Municipal)Property Taxes Per Capita, 1989-2002

0

100

200

300

400

500

600

1989 1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002

Year

Do

llar

s

$ per capita Real 1992 (Alta CPI)$ per capita

… the annual property tax bill is growing


City of Edmonton (Municipal)Property Taxes Per Capita, 1989-2002

0

100

200

300

400

500

600

19891990

19911992

19931994

19951996

19971998

19992000

20012002

Year

Do

llar

s


… the real dollar p.t. bill constant


City of Edmonton (Municipal)Property Taxes as a Percentage of PDI, 1989-2002

19891990

19911992

19931994

19951996

19971998

19992000

20012002

Year

Do

llar

s

1.50%1.75%2.00%2.25%2.50%2.75%3.00%3.25%3.50%3.75%4.00%

% P

DI


% of Alberta per capitaPersonal Disposable Income

… the burden of the p.t. in Edmonton has declined


City of Edmonton (Municipal)Property Taxes, 1989-2002

0

100

200

300

400

500

600

19891990

19911992

19931994

19951996

19971998

19992000

20012002

Year

Do

llar

s

1.50%1.75%2.00%2.25%2.50%2.75%3.00%3.25%3.50%3.75%4.00%

% P

DI


% of Alberta per capitaPersonal Disposable Income


City of EdmontonFiscal Developments

1989 1995 2002

Real (1992 $) property tax per capita $454 $441 $454

Property taxes as % of PDI 2.46% 2.53% 2.21%

Non-utility revenue pr capita (real, 1992 $) $997 $1,054

Non-utility revenue as % of PDI 5.45% 4.13%

Financing charges as a % of combined expenses 12.70% 3.50%

Real expenditures per capita $1,341 $1,370

Expenditures as a % of PDI 7.70% 6.70%


The City of Edmonton

• it dodged the property tax bullet

a little different:

- The property tax burden has actually declined (relative to income)


theMain Issue

Given a heavier burden rests on the municipal taxpayer, are the existing sources of municipal finance appropriate and adequate?

What are the options and are any an improvement?


Future Directions

• Restore Transfers

• Living with the New Status Quo

• Expanding Own-Revenue Sources


Restoring Transfers

• the GST rebate

- about $19 per capita or 1.08% of municipal revenue

• fuel tax sharing?

- e.g. 50% of the current federal fuel tax would generate about $78 per capita or about 4.6% of municipal revenue in Alberta.

Federal


…Restoring Transfers

• Province pay its costs? - City identified $88 million; 6.3% of City budget

• Increased conditional and unconditional transfers?

- new $16 per capita police grant ($10.7 million gross, $7.63 m net; 0.6% of revenue)

- province assume ambulance in 2005? (reduce City taxpayer cost $10 m or 0.77% of revenue)

• (more) revenue sharing? - e.g., fuel tax

Provincial


Live with theNew Status Quo

• i.e., adjust to greater reliance on own-revenue sources?

- property taxes, user charges

• eliminate the Provincial property taxes for schools?

- 39% of property taxes ($358 per capita)

• expand user fees and charges? - little evidence of willingness to do so over last

decade


Expand Own-Revenue Sources• Municipal sales taxes - fuel taxes - general sales taxes

(in U.S. account for about 10% of municipal revenue)

but, border problems suit better to revenue sharing

• Municipal vehicle registration fees - also, tolls, parking charges

• Municipal personal income tax surcharge (in U.S. account for 4% of municipal revenues; popular with cities)

(Piggyback on existing taxes to minimize costs.)


Multi-facetted Approach

• Reduce property tax

• Increase user fees

• Increased provincial tax sharing

• 1% new city sales tax (plus 0.5% provincial sharing)- province has rejected

• 5 ¢/ℓ city tax on fuel (plus 5 ¢/ℓ from federal government)

Winnipeg’s plan


ConclusionsTransfers reduced and municipalities more

reliant on own revenues

Prospects for a “New Deal”

• Restore transfers - willingness

Federal Provincial

- desirability stability / reliability vs free money well designed

• Expand own-revenue sources - Province willing?

• More of the same - remember, own-revenue burden of Alberta municipal governments and especially that of the City has declined (relative to income)


Looking for a New Deala presentation to the

CITY OF EDMONTONApril 15, 2004

Melville McMillan and Paul BootheInstitute for Public Economics Department of Economics University of Alberta

Documents

Looking for a New Deal a presentation to the CITY OF EDMONTON April 15, 2004 Melville McMillan and Paul Boothe Institute for Public Economics Department