Governance Indicator #4: Governance and Finance

by Byron Miller 

A critical aspect of governance concerns the ability of democratically elected governments to actually implement the policies they adopt.   Having robust democratic decision-making at the municipal scale means nothing if, at the end of the day, municipal governments cannot carry out the wishes of their citizens.  Over the last three decades we have seen federal and provincial governments adopt a variety of neoliberal governance strategies, cutting spending to reduce deficits and debt.  The result has been the cutback or elimination of a range of federal and provincial programs, e.g., social housing, and the downloading of more responsibilities to municipal governments.  While Canadian cities have to take on more and more responsibilities, their fiscal capacity has not increased.  Indeed, municipal fiscal capacity remains highly constrained—among the most constrained of all OECD countries.  In rapidly growing cities such as Calgary, where substantial infrastructure investments are needed to keep pace with rapid growth, insufficient fiscal capacity is a major problem.  Calgary’s current infrastructure deficit is estimated at over $6 billion, and that’s only acknowledging bare bones infrastructure needs.

But there’s a further twist to this story.  Calgary actually contributes substantially more revenue to federal and provincial coffers than it gets back in expenditures—and this discrepancy has grown significantly over the past two and a half decades.  In 1988 Calgary contributed $700 million more in revenue than it got back in expenditure.  By 2007 that figure had ballooned to $12.2 billion!

Increasingly Calgary finds itself facing a fiscal crisis.  Calgary is projected to face an operating revenue shortfall of $300 million dollars by 2021.  Under provincial law, cities cannot engage in deficit spending to cover operating expenses, so something has to give.  Given its highly constrained ability to raise revenue, Calgary’s only real options are to cut services, raise user fees, and/or raise property taxes.  Other revenue generation mechanisms available to cities in most other OECD countries are not available to Calgary and, under current arrangements, the City cannot rely on the provincial and federal governments to fill the gap, despite Calgary’s massive over-contribution to federal and provincial coffers. Similarly, and perhaps even more concerning, Calgary faces a projected cumulative capital funding deficit (above and beyond the current infrastructure deficit) of $7 billion by 2021. The City could legally incur more debt to cover this gap, but there are limits to how much debt a city can incur without negative consequences, and it appears Calgary is nearing that point.

In short, Calgary is a rapidly growing city with rapidly growing infrastructure and service provision needs.  It is also a wealthy city that contributes far more revenue to the provincial and federal governments than it receives back in expenditures.  Through elections as well as public opinion polls Calgarians repeatedly indicate their support for infrastructure investment and high quality services.  Yet because revenues consistently fall far short of what is needed and, indeed, contributed, our democratically elected officials are unable to fully carry out the mandate given them by the citizens of Calgary.

Table 1: Government Fiscal Positions in Calgary 

1988  Share of total 2007  Share of total 1988-2007 Compound annual growth rate
Total revenue* $7.3 billion 100% $27.4 billion 100% 7%
Federal government $3.4 billion 47% $14.0 billion 51% 8%
Provincial government $3.1 billion 43% $11.6 billion 42% 7%
Local government $0.7 billion 10% $  1.8 billion   7% 5%
Total expenditure* $7.0 billion 100% $16.3 billion 100% 5%
Federal government $2.4 billion 34% $  4.2 billion 26% 3%
Provincial government $3.2 billion 46% $  8.3 billion 51% 5%
Local Government $1.4 billion 20% $  3.8 billion 23% 5%
Net contribution* $0.7 billion 100% $12.2 billion 100% 17%
Federal government $1.1 billion 164% $  9.9 billion 81% 12%
Provincial government $0.1 billion 17% $  3.7 billion 31% 20%
Local government $ -0.5 billion -81% $ -1.5 billion -12% -5%
Source: City of Calgary 2010 A Case of Fiscal Imbalance: the Calgary Experience (original data sources: Statistics Canada; Corporate Economics)
* excluding intergovernmental transfers

Net contributions excluding government transfers represents a government’s net fiscal position from a tax payer’s perspective.  It is the net of a government’s total own-source revenue collected from a region’s tax payers and the total expenditure the government spent for the same tax payers.  If the number is positive, the government collects more than it gives back to the same tax payers.  A negative net contribution means the government spends more for the tax payers than it collects from them. 

 

City of Calgary 2011 Long-Range Financial Plan Chart 1

Source:  City of Calgary 2011 Long Range Fiscal Plan 

 City of Calgary 2011 Long-Range Financial Plan Chart 2

Source:  City of Calgary 2011 Long Range Fiscal Plan 

 City of Calgary 2011 Long-Term Financial Plan Chart 3

Source:  City of Calgary 2011 Long Range Fiscal Plan

 

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