Metro Vancouver municipalities cry poor while flush with revenue

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Municipal officials in Metro Vancouver hailed the recent renewal and expansion of the Gas Tax Fund, which provides federal transfers to municipalities for infrastructure spending. But before the ink could dry on the federal commitment, Metro Vancouver vice-chairman and City of Vancouver councillor Raymond Louie argued that municipalities need even more transfers from the federal government to pay for projects like the Lions Gate sewage treatment plant.

Asking for more money is common among municipal officials. Despite soaring transfers from higher level governments, municipalities repeatedly claim they need more because their revenue sources lack growth potential.

So how has municipal revenue actually performed over the last 10 years in Metro Vancouver?

In a recent Fraser Institute report, we found that the region’s 21 municipalities have collectively experienced large revenue increases. Rather than use the money for infrastructure improvements, most of it has gone to big increases in day-to-day operating spending, which includes general government administration and services such as policing, utilities, garbage, and parks.

From 2002 to 2012, Metro Vancouver municipal revenue grew by 86.2 per cent to $4.6 billion from $2.5 billion. Over a comparable period, the pace of municipal revenue growth was more than one-and-a-half times the growth in B.C. government revenue and nearly two-and-a-half times federal revenue growth.

The impressive growth in municipal revenue also outpaced benchmarks such as provincial economic growth and the combination of population growth and inflation (the increase in overall prices). After adjusting for population growth and inflation, Metro Vancouver municipal revenue grew by 35.9 per cent over the decade.

With growth like that, it’s hard to see how municipalities are being starved of revenue.

The bulk of municipal revenue has not been used to build new infrastructure such as roads or sewage treatment plants. Resources have instead been pumped into government operations. In other words, the dramatic growth in operating spending is the real source of the so-called “fiscal squeeze” experienced by Metro Vancouver municipalities.

Over the same 10-year period, Metro Vancouver municipalities increased operating spending by 74.2 per cent to $3.3 billion from $1.9 billion. Again, this growth rate outpaced operating spending increases at the federal and provincial levels.

Increases in municipal operating spending also outpaced population growth and inflation in Metro Vancouver (34.1 per cent) and provincial GDP growth (56.6 per cent). Metro Vancouver municipalities now spend $1,384 per person or 27.1 per cent more per person compared to 10 years earlier—this after accounting for inflation.

If Metro Vancouver municipalities had fixed their collective operating spending at the 2002 level of $1,088 per person (in 2012 dollars), together they would have spent $4.0 billion less on their operating budget from 2002 to 2012 or $714 million less in 2012 alone. That money could have been reprioritized for infrastructure initiatives.

So which categories did the operating spending predominantly go to? The three receiving the largest per person spending increases over the decade are: solid waste and utilities (42.6 per cent); parks, recreation, and culture (38.6 per cent); and general government administration (35.3 per cent). It is fair for Metro Vancouver residents to ask whether they have received corresponding increases in the quality and quantity of these services.

Increases in operating spending may not translate into improved services if they simply go to paying high salaries and benefits for more government employees. Consider that between 2001 and 2011 (the latest year of available data), the number of local government employees in B.C. increased by 29 per cent. This compares to overall employment growth (private and government) in the province of 18 per cent.

Total municipal revenue in Metro Vancouver has grown considerably over the past decade with the lion’s share going to dramatic increases in operating spending. Before asking other levels of government to pay for infrastructure spending, municipal officials should take a closer look at how they manage their own resources.

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