City's Are Over Spending - Not Lacking Revenue

Municipal overspending costs each household $5,200
Senior levels of government should freeze unconditional transfers to cities

Toronto, November 3, 2015 – Excessive city spending took $5,200 from each Canadian household over the past decade, according to the latest report from the Canadian Federation of Independent Business (CFIB). Cities of all sizes overspent by $68 billion between 2003 and 2013.

“We keep hearing about cities having a ‘revenue problem,’ but it is clear that it’s a spending problem they are dealing with,” said Laura Jones, CFIB’s executive vice-president.

The report zeroes in on 14 major cities and finds that overspending is a widespread trend. Operating spending ballooned by 80 and 74 per cent in Calgary and Edmonton, respectively, even after adjusting for inflation, which is more than three times the rate of their population growth over the past decade. St. John’s spending grew four times faster than its population. Victoria was the nation’s worst offender, as inflation-adjusted operating spending increased by 36 per cent—six times the rate of population growth from 2003 to 2013.

CFIB recommends that senior levels of government freeze additional general-purpose funding to municipalities until cities better manage their operating spending.

Most of the cities studied allocate over half of their operating spending to employee wages and benefits. Spending on municipal employee compensation has grown drastically, in part because cities, large and small, have expanded the size of their workforce more rapidly than the private sector during the past decade. On top of that, a city worker in Canada is paid 22 per cent more in wages, salaries and benefits than someone in the private sector doing the same job.

“When you look closely, it’s easy to see that employee compensation is the root of the municipal spending problem,” said Nina Gormanns, research analyst at CFIB and co-author of the report. “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.” 

While most cities continue to overspend, some show signs of promise: Ottawa kept its inflation-adjusted operating spending close to the population growth benchmark; Montreal made progress with reductions to personnel costs; and Toronto reduced spending in recent years to meet the benchmark. CFIB is calling on cities to rein in spending and implement a sustainable compensation system, passing resulting savings on to taxpayers or using them for priorities such as infrastructure.

“Any senior level money going to cities should come with clear conditions for prudent fiscal management and accountability,” added Jones. “As taxpayers, we have a right to expect our governments to be responsible and respect the limits of what we can afford.”