Overspending by municipal governments across the country have cost each household around thousands of dollars over the past decade, said the Canadian Federation of Independent Business in a new report.
The total amount overspent by municipal governments between 2003 and 2013 was $68 billion, the study found.
“When you look closely, it’s easy to see that employee compensation is the root of the municipal spending problem,” said Nina Gormanns, senior research analyst at CFIB and report co-author.
“City spending on wages and benefits is out of touch with what’s fair and reasonable, and isn’t showing any signs of slowing down. It’s not surprising to find that two-thirds of taxpayers don’t feel they’re getting their money’s worth from government.”
The CFIB report singles out Victoria as “the nation’s worst offender” for having inflation-adjusted operating spending increase by 36% — six times the rate of population growth from 2003 to 2013.
Richard Truscott, CFIB vice-president for Alberta and B.C., said population growth is a reasonable indicator of what spending growth should be.
“As the population grows, there should be some ways for the municipal government to achieve economies of scale and use technology to keep costs down,” Truscott said.
“Unfortunately, we see just the opposite. We see the municipal operating expenses go up. They go up faster than the population grows.”
While Canadian cities keep talking about having a revenue problem, the CFIB report says it is clear that cities should first get a handle on spending.
Victoria’s “overspending” totalled $4,683 per household between 2003 and 2013, says the report. That’s the total of the annual differences between actual operating spending and spending if it had been held to inflation and population growth.
Victoria Mayor Lisa Helps said the figures might be true for the past decade but the CFIB should focus on the next decade, especially since the city has refined its budgeting process in the past year.
“I hadn’t seen the study when we did our budget process, but I certainly heard loud and clear on the campaign trail and on a regular basis that we have to keep spending in line with what people can afford to pay,” Helps said. “Measure us again 2015 to 2025 and I think we’ll probably see some changes.”
Helps said inflation is a reasonable measure, but if population is to be considered it should take into account regional growth.
“Our population is 82,000 but on a daily basis we have at least 180,000 or more as our population using services.”
The report says “the elephant in the room” is employee compensation. In 2013, the share of operating expenses going to salaries, wages and benefits ranged from 45% in Charlottetown to 64% in Edmonton and Montreal. Victoria was the third-highest at 63%.
The report says that the real spending on employee salaries, wages and benefits between 2006 and 2013 increased by 23% in Victoria and 15% in Vancouver compared with population growth rates of 3% and 9%, respectively.
“Real spending increases beyond population growth may be justified if municipalities are providing additional services and/or better value for money for existing services. However, many taxpayers do not feel that public services offer good value for their tax dollars, or that value for money has increased accordingly,” says the report.
“With half or more of the overall operating budget being devoted to employee compensation, that’s obviously a main cost driver,” Truscott said.
“Obviously, there can be some growth, but the level of growth we’ve seen over the past decade has caused some real problems and the chickens are coming home to roost.”
Thirty-three per cent of Victoria small businesses responded yes when asked if they thought their local government did a good job on controlled spending, 11% were not sure and 55% said no.
The CFIB says that municipal compensation should be brought in line with the private sector.
“This would result in lower taxes and fees, allowing small- business owners to invest more money back into their business, which would in turn help them grow and continue to support their communities and local economies,” the report says.
It recommends municipal governments limit operational spending to no more than inflation and population growth, and implement sustainable compensation systems that better compare with private sector workers by:
• Limiting wage increases
• Ensuring new employees are hired at wage scales more in line with the private sector
• Introducing pension reforms that might move toward shared or defined contribution pensions from defined benefit pensions
• Considering contracting out operations.
It says provincial governments and the federal government should freeze funding to municipal governments and provincial governments should appoint municipal auditors, such as has been done in B.C.
Helps said the CFIB recommendations should take into consideration the number of responsibilities that have been downloaded to municipalities from senior governments.
“In theory it all sounds great. What I would love to see from the CFIB is an implementation plan,” Helps said.
“You can have all the ideas in the world. How do they propose that municipalities bring these things in?”
