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 of Economics  University of Alberta
Outline
• An Overview of
Municipal Expenditures and Revenues
• Recent Fiscal Trends
• The Issue
• Future Directions (?)
• Conclusions
Institute for Public Economics
Dept of Economics 2
Overview of
Revenues and Expenditures
Institute for Public Economics
Dept of Economics 3
Municipal Expenditures (Percent)
Alberta Municipalities
2001
General government services
Protection
Transportation
Health
Social services
Education
Resource conservation and
industrial development
Environment
Recreation and culture
Housing
Regional planning and development
Debt charges
Other
Edmonton
2002
12.2
14.3
28.3
1.5
1.5
0.3
16.8
21.0
24.7
a
a
a
3.4
13.9
13.7
0.7
3.0
7.1
--
a
14.0
14.0
a
a
2.8
6.7
100.0
100.0
Notes: a) Included in 'Other'.
Institute for Public Economics
Dept of Economics 4
Municipal Revenue Sources (Percent)
Own-Source Revenue
Property and related taxes
Real peoperty taxes
residential
nonresidential
Business
Other
Other taxes
Sales of goods and services
Investment income
Other own-source
Transfers
Institute for Public Economics
All Alberta
Municipalities
2001
84.1
44.4
31.6
Edmonton
2002
92.1
36.5
28.1
—
—
17.3
10.8
4.0
8.8
5.9
2.5
1.6
26.1
10.3
1.6
5.3
24.3
18.6
7.4
15.9
7.9
100.0
100.0
Dept of Economics 5
Observations from
Expenditure 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
Institute for Public Economics
Dept of Economics 6
Trends
Institute for Public Economics
Dept of Economics 7
Alberta General Purpose Local Government:
Selected Revenues as a Percentage of Total Revenue, 1988 to 2001
50
45
Property and Related
40
Percent
35
Real Property Tax as % of
30
25
20
Provincial Transfers
15
10
5
Federal Transfers
0
1988
1989
1990
1991
1992
1993
1994
1995
1996
1997
1998
1999
2000
Years
Institute for Public Economics
Dept of Economics 8
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
$1,181
$1,217
6.5
6.1
17.0
15.8
Own-source revenues
in real (1992) dollars per capita
Own-source revenue as a % of personal
disposable income
Municipal program spending as a % of
provincial and local program
expenditures
Institute for Public Economics
Dept of Economics 9
Observations from
the 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
Institute for Public Economics
Dept of Economics 10
…Observations from the Fiscal Trends
There has been a clear shifting (“an offloading”)
of greater municipal government financing
responsibility onto local governments
That is,
the burden on the municipal taxpayers
has been increased to reduce
the burden on the provincial taxpayer
Institute for Public Economics
Dept of Economics 11
City of Edmonton (Municipal)
Property Taxes Per Capita, 1989-2002
… the annual property tax bill is growing
Dollars
600
500
400
300
200
100
0
1989 1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002
Year
$ per capita
Institute for Public Economics
Real 1992 (Alta CPI)
$ per capita
Dept of Economics 12
City of Edmonton (Municipal)
Property Taxes Per Capita, 1989-2002
… the real dollar p.t. bill constant
600
Dollars
500
400
300
200
100
0
89
19
90 9 91
19
1
92 9 93 9 94
19
1
1
95 9 96
19
1
97 9 98
19
1
99 0 00 0 01
19
2
2
02
20
Year
$ per capita
Institute for Public Economics
Real 1992 (Alta CPI)
$ per capita
Dept of Economics 13
4.00%
3.75%
3.50%
3.25%
3.00%
2.75%
2.50%
2.25%
2.00%
1.75%
1.50%
Dollars
… the burden of the p.t. in Edmonton has declined
89 9 90 9 91 9 92 9 93 9 94 9 95 9 96 9 97 9 98 9 99 0 00 0 01 0 02
19
1
1
1
1
1
1
1
1
1
1
2
2
2
Year
$ per capita
Institute for Public Economics
Real 1992 (Alta CPI)
$ per capita
% of Alberta per capita
Personal Disposable Income
Dept of Economics 14
% PDI
City of Edmonton (Municipal)
Property Taxes as a Percentage of PDI, 1989-2002
600
4.00%
3.75%
3.50%
3.25%
3.00%
2.75%
2.50%
2.25%
2.00%
1.75%
1.50%
500
Dollars
400
300
200
100
0
89 9 90 9 91 9 92 9 93 9 94 9 95 9 96 9 97 9 98 9 99 0 00 0 01 0 02
19
1
1
1
1
1
1
1
1
1
1
2
2
2
Year
$ per capita
Institute for Public Economics
Real 1992 (Alta CPI)
$ per capita
% of Alberta per capita
Personal Disposable Income
Dept of Economics 15
% PDI
City of Edmonton (Municipal)
Property Taxes, 1989-2002
City of Edmonton
Fiscal Developments
1989
1995
2002
Real (1992 $) property tax
per capita
$454
$441
$454
Property taxes as % of PDI
2.46%
2.53%
2.21%
$997
$1,054
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%
Non-utility revenue pr capita
(real, 1992 $)
Non-utility revenue as % of PDI
Institute for Public Economics
Dept of Economics 16
The City of Edmonton
a little different:
• it dodged the property tax bullet
- The property tax burden
has actually declined (relative to income)
Institute for Public Economics
Dept of Economics 17
the
Main 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?
Institute for Public Economics
Dept of Economics 18
Future Directions
• Restore Transfers
• Living with the New Status Quo
• Expanding Own-Revenue Sources
Institute for Public Economics
Dept of Economics 19
Restoring Transfers
Federal
• 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.
Institute for Public Economics
Dept of Economics 20
…Restoring Transfers
Provincial
• 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
Institute for Public Economics
Dept of Economics 21
Live with the
New Status Quo
• i.e., adjust to greater reliance on ownrevenue 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
Institute for Public Economics
Dept of Economics 22
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.)
Institute for Public Economics
Dept of Economics 23
Multi-facetted Approach
Winnipeg’s plan
• 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)
Institute for Public Economics
Dept of Economics 24
Conclusions
Transfers 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)
Institute for Public Economics
Dept of Economics 25
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 of Economics  University of Alberta
Institute for Public Economics
Dept of Economics 26