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Looking for a New Deal

This presentation provides an overview of municipal expenditures and revenues in the City of Edmonton, highlighting recent fiscal trends and discussing future directions for financing. It explores the shifting burden on municipal taxpayers and examines the adequacy of existing municipal finance sources. The presentation also suggests options for restoring transfers, living with the new status quo, and expanding own-revenue sources.

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Looking for a New Deal

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

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

  4. Institute for Public Economics Dept of Economics 4

  5. Institute for Public Economics Dept of Economics 5

  6. Observations fromExpenditure 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

  7. Trends Institute for Public Economics Dept of Economics 7

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

  9. Fiscal Developments, 1988 and 2001------------Alberta Municipalities ------------ Institute for Public Economics Dept of Economics 9

  10. 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 Observations fromthe Fiscal Trends Institute for Public Economics Dept of Economics 10

  11. …Observations from the Fiscal Trends There has been a clear shifting (“an offloading”)of greater municipal government financingresponsibility 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

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

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

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

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

  16. City of EdmontonFiscal Developments Institute for Public Economics Dept of Economics 16

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

  18. theMain 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

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

  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 Institute for Public Economics Dept of Economics 20

  21. …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

  22. Live with theNew 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 Institute for Public Economics Dept of Economics 22

  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.) Institute for Public Economics Dept of Economics 23

  24. 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

  25. Conclusions Transfers reduced and municipalities morereliant 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

  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 Institute for Public Economics Dept of Economics 26

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