Is Bigger Really Better? Lessons from Municipal Amalgamation in Quebec and Ontario Tasha Kheiriddin Executive Vice-President and Acting President, Montreal Economic Institute

Montreal Economic Institute 2

3 Historical background  In December 1997, Ontario’s Progressive Conservative government passed Bill 103, forcing the merger of municipalities province-wide, including 7 which became the new MegaCity of Toronto  In December 2000, Quebec’s Parti Quebecois government passed Bill 170, forcing merger of 200 smaller municipalities into 40 larger ones, including 28 municipalities on the Island of Montreal

Montreal Economic Institute 4 Reasons given for amalgamation  Lower costs  Smaller workforce, fewer elected officials  Lower taxes  Less duplication of services  Improved accountability  Increased global competitiveness

Montreal Economic Institute 5 Hidden objectives?  Quebec: Many English-speakers from the West Island believed that the Parti Québécois intended to undermine their language rights  Ontario: The Progressive Conservative government wanted to shift control of Toronto from left-leaning inner-city politicians to conservative-minded suburbanites

Montreal Economic Institute 6 Number of employees  Montreal Prediction: Workforce would shrink by 1,260 people after five years  Reality: 330 more people work for the city today than in 2002 Employees who serve the public directly have declined by 2% while managers and supervisors have increased by 9%  Toronto Prediction: Number of employees would decline  Reality: Staff count since amalgamation has risen by 2400 positions

Montreal Economic Institute 7 Wages of workforce (Montreal) 2001* Increase** Managers and supervisors % Professionals and white collar workers % Blue collar workers % PolicemenN/A % Firefighters % Crossing guardsN/A % TOTAL % * City of Montreal only ** From 2002 to 2004 Average annual income (adjusted for inflation), by type of employee (in 2004 dollars)

Montreal Economic Institute 8 Administrative Costs  Montreal Prediction: Drop in spending of 7%  Reality: Increase of 16.3% (inflation for the period was 6.7%)  Toronto Prediction: Amalgamation would save $300 million a year by eliminating duplication, revised downward to $240 million, then to $150 million  Reality: It is impossible to determine savings. Meanwhile, the city’s operating budget has increased from $4.2 billion in 1998 to $7.6 billion in 2006.

Montreal Economic Institute 9 Taxes and fees  In Toronto, Average property tax bill is up 27% since 2000 User fees increased for permit parking, commercial garbage removal, planning applications and building permits User fees were imposed on many people for recreation services  In Montreal, Taxes from all sources (mostly on property and water) are up 12.5% since 2002 Many low-income households now pay higher property taxes as a result of the mergers

Montreal Economic Institute 10 Competitiveness  Prediction: Bigger, unified cities would spur investments  Reality: The unity of Montreal island has not been a factor in a single investment in the last four years Toronto continues to see head offices and jobs flee to neighboring lower-tax jurisdictions “There is simply no connection between the municipal organization of a metropolitan area and its rank in the hierarchy of global cities. For example, the central city of Sydney, Australia has a total population of 20,000.” (Andrew Sancton)

Montreal Economic Institute 11 Why these additional costs?  Pressure to provide all services previously offered in various merged municipalities  Unions bid wages up to highest, not lowest level  Hard to fire people – more likely reshuffled to new positions  No more competition between smaller cities  Easier for interest groups to hijack political process  No real economies of scale

Montreal Economic Institute 12 Montreal and Toronto are not alone  “Study after study has shown that the efficiency gains of bigger government do not materialize” – Andrew Sancton Study of 48 metropolitan regions in the Southern U.S. by David Sjoquist Study of Miami area by Milan Dluhy Study of Bay Area and Minneapolis/St. Paul by Daniel Elazar Essay by Charles Tiebout, “Tiebout model”

Montreal Economic Institute 13 Political Consequences - Quebec  Intense public protest helped put Liberal government in power in 2003 on demerger platform  In 2004 Montreal went through tremendously flawed demerger process, which saw 15 cities and towns secede  Many powers are still retained by a so-called “agglomeration council” of the City of Montreal, resulting in higher taxation without control over spending

Montreal Economic Institute 14 Political Consequences - Ontario  In 2006, Toronto City Council is more left-leaning than ever before, and now controls a city of 2.5 million people, larger than 5 provinces  Toronto now seeking expanded powers of taxation and regulation in new City of Toronto Act which threatens to increase taxes and hurt business  Deamalgamation movements have sprung up in other Ontario communities (Victoria-Haliburton, Flamborough)

The verdict on municipal amalgamation ? Bigger is not better - rather, small is beautiful.