1. 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

2. Institute for Public Economics Dept of Economics 2 Outline Conclusions Recent Fiscal Trends Future Directions (?) The Issue An Overview of Municipal Expenditures and Revenues

3. Institute for Public Economics Dept of Economics 3 Overview of Revenues and Expenditures

4. Institute for Public Economics Dept of Economics 4

5. Institute for Public Economics Dept of Economics 5

6. Institute for Public Economics Dept of Economics 6 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

7. Institute for Public Economics Dept of Economics 7 Trends

8. Institute for Public Economics Dept of Economics 8 Alberta General Purpose Local Government: Selected Revenues as a Percentage of Total Revenue, 1988 to 2001

9. Institute for Public Economics Dept of Economics 9 Fiscal Developments, 1988 and 2001 ------------Alberta Municipalities ------------ 19882001 Transfers as a % of expenditures21.915.9 Real property taxes as a % of revenues21.331.6 Real property taxes as a % of personal disposable income1.82.9 Provincial plus local property taxes as a % of personal disposable income4.054.4 Debt charges as a % of expenditures17.47.1 Own-source revenues in real (1992) dollars per capita$1,181$1,217 Own-source revenue as a % of personal disposable income6.56.1 Municipal program spending as a % of provincial and local program expenditures17.015.8

10. Institute for Public Economics Dept of Economics 10 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

11. Institute for Public Economics Dept of Economics 11 …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

12. Institute for Public Economics Dept of Economics 12 City of Edmonton (Municipal) Property Taxes Per Capita, 1989-2002 … the annual property tax bill is growing

13. Institute for Public Economics Dept of Economics 13 City of Edmonton (Municipal) Property Taxes Per Capita, 1989-2002 … the real dollar p.t. bill constant

14. Institute for Public Economics Dept of Economics 14 City of Edmonton (Municipal) Property Taxes as a Percentage of PDI, 1989-2002 … the burden of the p.t. in Edmonton has declined

15. Institute for Public Economics Dept of Economics 15 City of Edmonton (Municipal) Property Taxes, 1989-2002

16. Institute for Public Economics Dept of Economics 16 City of Edmonton Fiscal Developments 198919952002 Real (1992 $) property tax per capita$454$441$454 Property taxes as % of PDI2.46%2.53%2.21% Non-utility revenue pr capita (real, 1992 $)$997$1,054 Non-utility revenue as % of PDI5.45%4.13% Financing charges as a % of combined expenses12.70%3.50% Real expenditures per capita$1,341$1,370 Expenditures as a % of PDI7.70%6.70%

17. Institute for Public Economics Dept of Economics 17 The City of Edmonton it dodged the property tax bullet a little different: - The property tax burden has actually declined (relative to income)

18. Institute for Public Economics Dept of Economics 18 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?

19. Institute for Public Economics Dept of Economics 19 Future Directions Restore Transfers Living with the New Status Quo Expanding Own-Revenue Sources

20. Institute for Public Economics Dept of Economics 20 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

21. Institute for Public Economics Dept of Economics 21 …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

22. Institute for Public Economics Dept of Economics 22 Live with the New 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

23. Institute for Public Economics Dept of Economics 23 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.)

24. Institute for Public Economics Dept of Economics 24 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

25. Institute for Public Economics Dept of Economics 25 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)

26. Institute for Public Economics Dept of Economics 26 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