Promoting Local Accountability of Provincial Funds

15 Mar 2010

Issue:

Despite efforts to reduce spending and obtain greater efficiencies by some municipalities, the Ontario government continues to receive additional funding requests from the local level. Unfortunately, given Ontario�s fiscal position, there is little room if any for additional provincial transfers.

More importantly, however, not all municipalities endeavor to implement meaningful steps to reduce local public costs before making requests to the province. The OCC believes that these municipalities have a spending problem, not a revenue problem, which should not be borne by taxpayers across Ontario.

Background:

Municipalities have long indicated that they struggle without adequate funds to meet increasing needs. There is no doubt that previous provincial downloading of services has increased the gap between the services that Ontario municipalities must deliver and what they can afford. There is also no doubt as to the significant need for infrastructure renewal across Ontario.

Local governments are required to make up for shortfalls primarily through property tax revenue to deliver essential programs such as social services. Unfortunately, property taxes are highly regressive and are disproportionally applied to those who employ Ontarians, but don't get to vote: businesses.

To tackle this funding challenge and limit property tax increases, some local governments have obtained cost savings through value for money audits. The City of Toronto, for example, earned a 560% return on investment (ROI) on such audits in 2008, while the City of Oshawa earned an average of 331% over the last three years.

Although such audits are successful relative to the funds invested to undertake them they are not widely used and the savings can be small relative to the overall budget of municipalities. As such, regardless of property tax increases, new revenue sources (in the case of the City of Toronto), and value-for-money audits, municipalities still find themselves significantly short of funds. According to a recent study by the Toronto Board of Trade, for example, the City of Toronto is well on its way to a $1.2 billion annual short fall, up from the current $382 million annual shortfall.

Despite continued needs for additional funds, local taxpayers continue to face increased legacy costs and disproportionally higher public sector wages. Specifically:

* As of 2008, salaries, wages and employee benefits accounted for over 40 per cent of total municipal operating expenditures - up from 36.7 per cent in 2000.

* Adjusted for inflation, salary, wage and employee benefit costs increased by 50 per cent between 2000 and 2008.

* Total full-time employment increased by 2.4 per cent between 2000 and 2008; whereas part-time employment increased by 0.8 per cent and seasonal employment fell by 13 per cent. Overall, total employment grew by 0.4 per cent over the same period.

* Adjusted for inflation, the cost of wages salaries and employee benefits has increased by 24 per cent, per household between 2000 and 2008. On a per capita basis, this figure increases to 39 per cent.

Spending across Ontario municipalities, not surprisingly, has grown by 40 per cent in the last eight years (adjusted for inflation).

Ten years after the downloading of public services, some municipal governments continue to ignore viable options to improve their fiscal positions: Reduce overall local government spending and undertake meaningful efforts to obtain efficiencies with existing resources. Options to achieve these goals, which have eluded serious attention at the local level, include:

* Creating a competitive bidding process for the delivery of publically funded services which includes both the public and private sectors;

* Reducing and/or freezing public sector wages until private sector wages catch up and municipal books can be balanced;

* Addressing substantially large legacy costs within the public sector such as pension deficits;

* Allowing small suppliers full access to public contracts; and,

* Lowering the dependence on higher business property taxes relative to residential property taxes.

The OCC is concerned that the avoidance by some municipalities to make much needed, difficult decisions to reduce spending and seek greater efficiencies with their local public funds comes at the expense of all taxpayers in Ontario. More importantly, given that there is only one taxpayer, the transfer of habitual local public sector cost increases, ultimately, impedes Ontario�s prosperity.

RECOMMENDATIONS:

The Ontario Chamber of Commerce urges the Government of Ontario to:

1. Freeze or limit provincial transfers to municipalities that do not undertake comprehensive, meaningful, actions to reduce spending, obtain efficiencies, or act on recommendations by an independent audit.

2. Require that municipalities with populations greater than 100,000 meet a minimum credit rating and employ an independent credit rating organization to regularly assess the fiscal health of municipalities.

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