Fiscal Imbalance

8/8/2019 Fiscal Imbalance

1/50

Canadian

Government

Alberta

Government

TheCityo

f

Calgary

Calg

ary

ACaseofFiscalImbala

nce:

theC

algaryExp

erience

IvyZhang,

MBA,

MA

Corporate

Economist

and

PatrickWa

lters,

MA

CityEcono

mist

CorporateEconomics

IGA2010-35

ATTACHMENT

November04,

2010

ISC:Unrestricted

IGA2010-35

ATTACHMENT

IGA2010-35 ATTACHMENT


2/50

TableofC

ontents

ACaseofFiscalImbala

nce:theCalgaryExperience

ExecutiveSummary.........................................................................................................................................i

ii

1.Introduction................................................................................................................................................1

1.1Backgro

undEconomicgrowthandgovernmentscalpositionsinAlberta......................................1

1.2Fiscalim

balancesafectlocalgovernme

nts................................................................................................5

1.3Implicationothestudy................................................................................................................................6

2.CalgarysContributiontoGovernmentFiscalPositions...........................................................................7

2.1Method

ologyorestimatingacitysscalcontributiontothethreeordersogovernment.................7

2.2Calgary

scontributiontogovernment

scalpositions..............................................................................7

3.eCaseofOver-ContributioninCalgaryanditsCauses......................................................................10

3.1eover-contributionsituationinCalg

ary..............................................................................................10

3.2Causesoover-contribution.......................................................................................................................14

4.ImpactofOver-ContributiononCalgaryand

theCanadianEconomy..................................................18

4.1Econom

icgrowthinCanadaisdrivenb

ybigcities................................................................................18

4.2Fiscalover-contributionrombigcities

hurtseconomicgrowthinCanada........................................20

5.eFederalan

dProvincialGovernmentsHavetheFiscalCapacitytoHelpB

igCities..........................23

5.1eCityoCalgarylackssustainablescalcapacitytodealwithgrowth

inthelong-term...............23

5.2eederalandprovincialgovernmentshavescalcapacitiestohelpbigcities.................................23

5.3ereis

onlyonetaxpayer..........................................................................................................................25

6.Conclusion.................................................................................................................................................27

Appendix:EstimatesforCalgarysContribution

..........................................................................................29

References.......................................................................................................................................................41



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iii

ACaseofFiscalImbalance:theCalgaryExperience

Execu

tiveSummary

Executiv

eSummary

PurposeoftheStudy

epaperattemptstoanswerthequestion:WhydoeseCityoCalgary

experiencen

ancialstressinprovidingservicestoCalgarians,evenin

goodeconom

ictimes?Ashortansweristha

t,Calgaryover-contributesto

thebalancesh

eetsotheederalandprovincialgovernments,leavingthe

localgovernm

ent1w

ithlessthanadequaterevenuetounditsspending

responsibilities2.

Specically,t

hestudyattemptstoachievethe

ollowing:

f

EstimateCalgaryscontributiontothescalpositionsothethreeorders

ogovern

mentovera20yearperiod(198

8-2007)3;

f

Assesstheexistenceoanover-contribution4situationinCalgaryandits

causes;

f

Discusstheimpactsoover-contribution

oneCityoCalgarysability

toundgrowth;

f

Proposeb

roadsuggestionsonhowtheederalandprovincial

governmentscanresolvethisissue.

1

Localgover

nmentincludesmunicipalitiesandsch

oolboards,etc

2

Mosturban

municipalitiesacethesamescaldi

cultiesasCalgary.Municipalitiesare

limitedbyp

rovinciallegislationastotheirtaxationandrevenueraisingpowers.

3

isperiod

waschosenduetodataavailability.

elatestPEAaccountincludespublic

nancialda

taor1981to2007.

4

Over-contributionmeansasignicantamountonetscalcontributionsrom

Calgariansarebeingdistributedtotheprovincialandederalgovernment,resulting

inlessthan

adequaterevenueorthemunicipalgo

vernmenttoinvestinpublic

inrastructu

reorthelocalcommunity.

5

Netcontrib

ution=SavingCapitalspending+Capitalconsumptionallowances

Capitalcon

sumptionallowances=Reserveundscreated,notcashoutlayatcurrent

period

MainFindings

1.ereexistsanover-contributionsituationinCalgarywhenthetaxes

andotherpaymentsgoingtothethreeordersofgovernmentare

comparedagainstthebenetsreceivedfromthoseordersof

government(seethefollowingtable):

6

Netcontributionexcludinginter-governmenttransersrepresentsagovernments

netscalpositionromataxpayersperspective.Itistheneto

agovernmentstotal

own-sourcerevenuecollectedromaregionstaxpayersandthetotalexpenditurethe

governmentspentorth

esametaxpayers.I

thenumberispos

itive,thegovernment

collectsmoreromthan

itgivesbacktothesametaxpayers.A

negativenetcontribution

meansthegovernments

pendsmoreorthetaxpayersthanitc

ollectsromthem.

1988

2007

1988-2007

$billion

Shareo

total

$billion

Shareo

total

Compound

annual

growthrate

Totalrevenueexcluding

intergovernmenttransfers

7.3

100%

27.4

100%

7%

Federalgovernment

3.4

47%

14.0

51%

8%

Provincialgovernment

3.1

43%

11.6

42%

7%

Localgovernment

0.7

10%

1.8

7%

5%

Totalexpenditureexcluding

intergovernmenttransfers

7.0

100%

16.3

100%

5%

Federalgovernment

2.4

34%

4.2

26%

3%


3.2

46%

8.3

51%

5%

Localgovernment

1.4

20%

3.8

23%

5%

Netcontribution5excluding

intergovernmenttransfers6

0.7

100%

12.2

100%

17%

Federalgovernment

1.1

164%

9.9

81%

12%


0.1

17%

3.7

31%

20%

Localgovernment

-0.5

-81%

-1.5

-12%

-5%

Sources:StatisticsCanada;Co

rporateEconomics

GovernmentscalpositionsinCalgary



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iv

ACaseofFiscalImbala


Executive

Summary

2.Calgarian

scontributelesstotheirlocal

governmentintaxesandfees

thanwhatisspentbythatgovernment.edecitismetmainlyby

transferp

aymentsfromtheprovincialg

overnment.

3.ereare

impactsofover-contributiononCalgaryandtherestof

Canadian

economy:

Over-contributionresultsininsucientinrastructureundingin

Calgary,whicheCityoCalgarya

ddressedbyraisingitsdebtrate

toon

eothehighestamongbigCanadiancities.

High

debtputsincreasingpressuresonthemunicipalitytoraise

propertytaxes,whichexposeslocalt

axpayerstotheriskobearinga

highertaxburden.

Over-contributionreducesthequalityolie,whichconstrainsthe

local

andnationaleconomy.

4.Causesofover-contribution:

ep

rovincialandederalgovernme

ntshaverevenuesources

thatarecloselyrelatedtoeconomicg

rowth.Asaresult,t

heyhave

receivedmostbenetromAlbertas

economicbooms.

em

unicipalitydoesnothaveaccesstogrowthrelatedtaxessuch

asincomeandsalestaxes.emainsourceotaxrevenue,t

he

propertytax,isnotgrowthsensitivewhichconstrainstheabilityo

thelocalgovernmenttoraiserevenues.

ereisamismatchinrevenuesourcesandrolesand

respo

nsibilitiesamongstthethreeordersogovernmentinCanada.

5.efeder

alandprovincialgovernments

havethescalcapacityto

helpcities:

eederalandprovincialgovernme

ntshaveexperiencedbudget

surplusesromthemid-1990sto200

7scalyear.

Bothordersogovernmentswereabletoreduc

etheirnetnancial

debtssignican

tlysincethemid-1990s.InthecaseoAlberta,t

he

provincialgove

rnmentpaidofallitsdebtand

accumulateda$35

billionsurplusbytheendo2007scalyear.

Althoughthetwoordersogovernmenthaveincurreddecitsto

helptheeconomyinthe2008-2009recession,theyareexpectedto

returntobalancedbudgetsinaewyears.

ereshouldnotbeanincreaseintaxpayerstaxburdenswhen

evaluatingoptionsoradditionalundingorm

unicipalities,

becausethere

isonlyonetaxpayer.

Conclusion

f

TaxpayersinCalgaryhavebeenovercontributingtothebalancesheets

otheederalandprovincialgovernmentoverthep

asttwodecades.

f

Over-contributionhasnegativeimpactsonCalgary

andthelocal

government.Over-contributionisnotsustainableinthelong-run-it

hurtsnotonlythelocaleconomy,butalsoAlbertaandCanadaasa

whole.

f

eGovernmento

CanadaandGovernmentoAlbertabothhave

accesstogrowthrelatedsourcesorevenueandhav

ebenetedlargely

romthelong-lastin

geconomicboom.eyhavethenecessarycapacity

tohelpscallystrainedcitieslikeCalgary.

f

eederalandprovincialgovernmentsshouldput

moreemphasison

promotingeconomicgrowthandhelpbigcitiesor

thebenetothe

provinceandthena

tion.



5/50

v

ACaseofFiscal

Imbalance:theCalgaryExperience

Execu

tiveSummary

ReportStructure

ispaperisd

ividedintosixsections:

1.erstisdevotedtointroducingandorganizingthepaper.

2.esecon

dsectionintroducesamethod7o

revaluatingacitys

contributiontothebalancesheetsothet

hreeordersogovernmentand

providese

stimatesoCalgaryscontributiontothesegovernments.

3.ethirdsectionstatesthatthereisanov

er-contributionsituationin

Calgaryandthenexplainsthepossiblecausesothissituation.

4.eourthsectiondescribesthedirectim

pactsoover-contributionon

eCityo

Calgaryandtheindirectimpa

ctsontherestotheprovince

andtheco

untry.

5.Sectionveproposesthattheederaland

provincialgovernmentsshould

putmoreemphasisonpromotingeconom

icgrowthandusetheirscal

capacitytohelpcitieslikeCalgary.

6.esixthsectionconcludesthepaper.

7

FortheC4SEmethod,seeeCentreorSpatialEconomics(July2005)eCityo

CalgarysContributiontoFederalandProvincialG

overnmentBalancesordetailed

explanations.



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vi

ACaseofFiscalImbala




7/50

1

ACaseofFiscal


1.

Introduction

1.

Introduction

epaperattemptstoanswerthequestion,

WhydoeseCityoCalgary

experiencenancialstressinprovidingservicestocitizens,eveningood

economictim

es?egeneralbelieisthat,ingoodtimeseCityhasthe

abilitytoundmunicipalservicesandinvestinnewinrastructure.Inreality,

eCityoC

algarydidnotbenetscallyas

muchinboomtimesasthe

ederalandprovincialgovernmentsdid,beca

useitdoesnothaveaccessto

growthrelate

dorgrowthsensitiverevenuesources8.

estudyexa

minestheProvincialEconomic

Accounts(PEA)9to

estimate

governmentrevenuesandexpendituresthatowromandtoCalgary.

Specically,thestudyattemptstoachievethe

ollowing:

8

Growthrelatedorgrowthsensitiverevenuesourcesaretherevenuesourcesthatgrow

automatica

llywiththeeconomy.

9

egovern

mentnancialstatisticsusedinthisstudyareromtheProvincialand

TerritorialEconomicAccounts(PEA),issuedbyStatisticsCanada.InthePEA,

governmen

trevenuesandexpendituresarerecord

edordiferentprovinces.Revenues

includebothownsourcerevenuesandintergovernmentaltransersreceivedrom

otherordersogovernment.Expendituresaredividedintocurrentexpendituresand

capitalinve

stments.eormerincludestheorderogovernmentsownspending

responsibilitiesaswellastranserpaymentstooth

erordersogovernment.enet

contributio

npositionincludesanorderogovernmentssavingromownsource

revenuesandexpendituresandintergovernmenta

ltransers,plusreserveundinows

(capitalcon

sumptionallowances)andstatisticala

djustments.Inordertoseeitroma

taxpayersperspective,intergovernmentaltransersareexcludedrommostothecharts

anddiscussions.

elatestP

EAaccountincludesnineteentablesw

ithGDPinnominalandrealdollar

datarom1981to2008andpublicnancialdataor1981to2007.Tables1,6-9,12,14

areusedin

thisstudyto1)discusstherelationshipsbetweengovernmentrevenues/

expenditures/scalpositionsandregionaleconom

icgrowth;and2)estimatethe

contributio

noCalgarianstothethreeordersog

overnmentover1988-2007.

f

Estimatethecontribution10o

Calgarianstothebalancessheetsothe

threeordersogovernmentovera20yearperiod(1988-2007)11;

f

Assesstheexistenceoanover-contributionsituationinCalgaryandits

causes;

f

Discusstheimpactsoover-contributiononeCityoCalgarysability

toundgrowth;

f

Proposebroadsuggestionsonhowtheederaland

provincial

governmentscanresolvethisissue.

isstudydifersromotherstudiesthathaveexplored

themagnitudeo

over-contributionrom

citizensinbigCanadiancities,

asitusesalonger

datasettoevaluatewhethertheestimateswouldchangeoverthecourseo

businesscycles.Inaddition,t

hestudyestimatesthetax

espaidbyCalgarians

totheirlocalgovernme

ntandtheamountthatisspent

bythegovernment

onitscitizens.eresu

ltsshowthateCityoCalgar

ysscalstressis

systemic,asitsinability

tomeetitsscalcommitments

couldbetracedtothe

lackoaccesstogrowth

sensitiverevenuesources.

1.1

BackgroundEconomicgrowthandgovernment

scalpositionsinAlberta

erstdecadeothe21stcenturywasoneoincrease

dprosperityorthe

AlbertaeconomyingeneralandCalgaryinparticular.elocaleconomy

reapedthebenetsostrongdemandorcommodities

romemergingworld

economies.Inthisperiod,pricesorenergysuchascru

deoilandnaturalgas

rosesharplyandtheprovincerealizedthebenetsrom

acombinationo

risingpricesandincrea

sedsalesvolumes.

10eestimationmethod

ologywasdevelopedbytheC4SEin20

05andhasbeenusedby

variousgovernmententitiesincludingeCityoTorontoandAlbertagovernment.

11

isperiodwaschosen

duetodataavailability.



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9/50

3

ACaseofFiscal


1.

Introduction

roughane

xaminationodataromtheProvincialEconomicAccounts

(PEA)orAlbertarom1988to2007,itiscle

arthatrapideconomicgrowth12

intheprovinceresultedinincreasedrevenue

sandexpendituresorthethree

ordersogovernmentintheprovince,a

lbeitatvariouspaces.eederaland

provincialgo

vernmentsbenetedmostrom

Albertaseconomicgrowth,as

seeninthera

pidgrowthintheirown-source

revenues13(

SeeChart1.1).

12

Albertasgrossdomesticproduct(GDP)atmarketpricesgrewrom$63.9billionin1988

to$256.9b

illionin2007and$291.3

billionin200

8.

13

Agovernm

entsown-sourcerevenuesarethereve

nuesreceivedromsourcesother

thantranserpaymentsromotherordersogove

rnment,namelygovernmentrevenue

excludingintergovernmentaltransers.

Governmentcurrentex

pendituresexcludingintergovernmentaltransers

grewtheastestatthep

rovincialandlocalorders(SeeChart1.2).At

thesametime,capitale

xpendituresincreasedastestat

localordero

governmentollowedb

ytheprovincialgovernment,reectingtheincreased

demandorinrastructureandpublicservicesresultingromincreased

populationandeconom

icactivitiesintheprovince(SeeChart1.3

).In

total,thelocalandprovincialgovernmentsinAlbertaledthegrowthin

governmenttotalexpenditures(currentandcapital)rom1988to2007,

excludingintergovernm

entaltransers(SeeChart1.4).

Governmentcurrentexpendituresgrow

fas

testattheprovincialand

localordersinAlberta

Chart1.2

GDPvs.G

overnmentCurrentExpen

ditureexcluding

Intergove

rnmentalTransfersinAlberta

index,1988=

1

Sources:StatisticsCanada;CorporateEconomics

2.0

2.5

3.0

3.5

4.0

4.5

AlbertaNominalGDPatmarketprices

Fe

deralgovernment

Pr

ovincialgovernment

Lo

calgovernment

1.0

1.5.

1988

1989

1990

1991

1992

1993

1994

1995

1996

1997

1998

1999

2000

2001

2002

2003

2004

2005

2006

2007

Localgovernmentshadtorespondtoincreaseddem

andfrome

conomic

andpopulationgrowthbyincreasingcapitalinvestme

nts

Chart1.3

GDPvs.

GovernmentCapitalExpenditureinAlberta

index,1988=1

Sources:StatisticsCanad

a;CorporateEconomics

1.0

1.5

2.0

2.5

3.0

3.5

4.0

4.5

AlbertaNomina

lGDPatmarketprices

Federalgovernm

ent

Provincialgover

nment

Localgovernment

0.5

0.0

0.5

1988

1989

1990

1991

1992

1993

1994

1995

1996

1997

1998

1999

2000

2001

2002

2003

2004

2005

2006

2007



10/50

4


1.

Intro

duction

escalpositionsothethreeordersogov

ernmentinAlbertachanged

indiferentdirectionsoverthepasttwodecades:whiletheederaland

provincialgovernmentsrealizedincreasingc

apacitytospendrepresentedby

positivenetc

ontributionvalues,localgovern

mentsexperiencedaneedtoll

theincreasingscalgapindicatedbynegativenetcontributionvalues(See

Chart1.5).

BecauseundingshortallsaresystemicorlocalgovernmentsinCanada,the

ederalandprovincialg

overnmentsusedintergovernm

entaltransersasa

tooltoaddressthesca

limbalance.However,t

hisarrangementisnotstable

astranserpaymentsca

nbechangedatthediscretiono

theotherorders

ogovernment.Localgovernmentsthereoreaceuncertaintiesintheir

nancialplanningduetopotentialunexpectedcutscausedbychangesinthe

prioritiesootherordersogovernment.

Thelocala

ndprovincialgovernmentsinA

lbertaledthegrowthof

governmentexpendituresineconomicboo

mt

imes

Chart1.4

GDPvs.GovernmentTotalExpendit

ureExcluding

Intergove

rnmentalTransfersinAlbe

rta

index,1988=1

Sources:Sta

tisticsCanada;CorporateEconomics

2.0

2.5

3.0

3.5

4.0

4.5

A

lbertaNominalGDPatmarketprices

Federalgovernment

P

rovincialgovernment

Localgovernment

1.0

1.5

1988

1989

1990

1991

1992

1993

1994

1995

1996

1997

1998

1999

2000

2001

2002

2003

2004

2005

2006

2007

Governmentscalpositionsimprovedsignicantlyatthefederaland

provincialordersinA

lberta,

butdeterioratedatthelo

calorder

Chart1.5

GovernmentFiscalPositionsinAlberta:

TheNeedtoBorrow

vs.

theAbilitytoLend

billionsofdollars


0510

15

20

25

Federalnetcontributionexcludingintergovernmentaltra

nsfers

Provincialnetcontributionexcludingintergovernmentaltransfers

Localnetcontributionexcludingintergovernmentaltrans

fers

10

5

1988

1989

1990

1991

1992

1993

1994

1995

1996

1997

1998

1999

2000

2001

2002

2003

2004

2005

2006

2007

Note:NetLendingisoften

usedasananalogtothebudgetarybalance(surplus

ordeficit)butmorepreciselyit

istheneedforthegovernmentsub

sectortoborrowfrom

othersectors(oritsa

bilitytolendtoothersectors).



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5

ACaseofFiscal


1.

Introduction

escalpositionsoAlbertaslocalgovernmentsaerincluding

intergovernm

entaltransersareshowninCh

art1.6.Itisclearthat

intergovernm

entaltransfersareanimportantsourceofrevenueforlocal

governmentstollthegapbetweentheirown-sourcerevenueandtheir

spendingres

ponsibilities.

1.2

Fiscalimba

lancesaectlocalgovernments

escalsysteminCanadaisbasedonederalism14.InCanada,government

spendingissignicantlymoredecentralizedthaninotherindustrialized

nations.Forexample,in2005thecentralizationratio-

theproportiono

totalgovernmentexpendituremadebythecentralgovernment-was39per

centinCanada,comparedto50percentintheU.S.an

d78percentinthe

U.K.

Since1926,t

hedistribu

tionogovernmentrevenuesandexpenditureshas

changeddramaticallyorallordersogovernmentinC

anada.Overthe

1926-2005period,provincialgovernmentsincreasedtheirshareospending

(rom20percentin19

26to44.7percentin2005)attheexpenseolocal

governments(rom42

percentin1926to19.5in2005).Inthemeantime,

theederalandprovinc

ialgovernmentsshareototalgovernment

revenuesincreased(ro

m62percentin1926to81.8in

2005),whilelocal

governmentswerelewithasmallershare(rom37percentin1926to11.6

percentin2005)(Rose

netal,2008).

Overtheyears,thedeb

ateoververticalscalimbalance15inCanadahas

beenongoingbetween

theederalgovernmentandpro

vincialgovernments.

esediscussionscouldeasilybeextendedtoincludelocalgovernments.

everticalscalimba

lancebetweenthelocalgovernmentsandtheederal

orprovincialgovernmentshasmadeitdicultorlocalgovernmentsto

nancetheirspending

responsibilities.esituationis

evenworseorbig

citieslikeCalgary,beca

usetheyover-contributetothe

scalpositionsothe

14

Federalismisasystemothegovernmentinwhichsovereignt

yisconstitutionallydivided

betweenacentralgoverningauthorityandconstituentpoliticalunits(likestatesor

provinces).InCanada,

thesystemoederalismisdescribedb

ythedivisionopowers

betweentheederalparliamentandthecountrysprovincialgovernments,underthe

ConstitutionAct(previouslyknownastheBritishNorthAmericaAct)o1867.

15

everticalscalimba

lancereerstoagapbetweenrevenuesourcesandspending

responsibilitiesbetweenordersogovernment,thatis,betwee

ntheederalandprovincial

governments(SSC,200

6).

Intergover

nmentaltransferisimportantin

llingthegapsbetweenlocal

governmentsown-sourcerevenuesandth

eirspendingresponsibilities

Chart1.6

LocalGo

vernmentsFiscalPosition

sinAlberta

billionsofdo

llars

Sources:Sta


12

14

Netcontr

ibutionw

ithintergovernmenttrans

fers

Alberta

loca

lgoevrnmenttota

lrevenues

In

tergovernmenta

ltransferrevenues

81 0 4 6 02

2

1988

1989

1990

1991

1992

1993

1994

1995

1996

1997

1998

1999

2000

2001

2002

2003

2004

2005

2006

2007



12/50

6


1.

Introduction

ederalandp

rovincialgovernmentsattheexpenseospendingontheirown

inrastructure.

1.3

Imp

licationofthestudy

Economicstudieshaveidentiedtheimportanceocitiesandtheirimpact

onlocalandnationaleconomies.esestudiesalsoshowthatwhilebigcitie

s

suchasCalgaryledeconomicgrowthinAlbertaorthepasttwodecades,

growthintherestotheprovincehasbeencatchingupwiththatobigcities

duetotechnologicalspill-overandmovemen

tsolabourandcapital.

Logically,inc

reasingpublicinvestmentsinC

algarythatpromoteinnovation

andeciencywouldcreateawin-winsituationortheprovinceslong-term

economicgrowth.However,inrealitytheinsucientpublicinvestmentin

Calgaryduetoover-contributiontootherordersogovernmenthashurtnot

onlyCalgaryslocaleconomybutalsotherestoAlbertaandtheCanadian

economy.

eederalandprovincialgovernmentshavethescalcapacitiesthat

municipalgo

vernmentslacktoaddressgrow

threlatedissues,sotheyshould

helpnanciallyconstrainedcitieslikeCalgary.Byhelpingcitiestoprosper,

thenationas

awholeprospers.



13/50

7


2.

CalgarysContributiontoGovernmentF

iscalPositions

moremoneyintaxesandotherpaymentsromCalgarythantheyspentin

thecity.Specically,thenetcontributionpositionortheederalgovernment


entaltransersjumpedrom$1.1billionin1988

to$9.9

billionin2007,

growingby18percentannually.Duringthesame

period,thenetcontributionpositionoreGovernm

entoAlberta,


entaltransers,grewmoresign

icantlyby30times

romtheinitialamoun

to$0.1

billionin1988to$3.7

billionin2007(see

charts2.1and2.2).

2.CalgarysContributio

ntoGovernment

FiscalPositions

2.1

Methodologyforestimatingacitysscal

contributiontothethreeordersofgovernment

Overtheyears,residentsandbusinessesinC

algaryhavecontributed

signicantly

tothescalpositionotheederalandprovincialgovernments.

However,thiscontributionisnotwellunderstoodbythegeneralpublic

becauseoth

elackoreadilyavailabledataromocialsourcessuchas

StatisticsCanada.Toovercomethedatalimitationandevaluatethese

contributions,eCentreorSpatialEconomics(C4SE)developed

amethodologyoreCityoCalgaryin2005toestimateCalgarys

contribution

totheederalandprovincialgo

vernmentscalconditions.e

methodwasalsousedorsimilarexercisesbyothergovernmententities,

includingtheAlbertaGovernmentandeCityoToronto16.

Inthisstudy,t

heC4SEmethodisextendedtoestimateCalgarians

contribution

totheirlocalgovernmentsscalposition.Detailsothe

methodandestimatesorCalgaryaredescribedintheappendix.

2.2

Calgaryscontributiontogo

vernmentscal

positions

epositivenetcontributionpositionsortheederalandprovincial

governmentsinthe1988-2007period17,excludingintergovernmental

transers,ind

icatethattheederalandprovincialgovernmentscollected

16

TorontoBoardoTrade(2002)StrongCityStrongNation:SecuringTorontos

ContributiontoCanada,June

17

eperiod

oestimationwaschosenbasedontheavailabilityodata.elatesttaxation

dataavaila

bleisor2007,w

hileunemploymentdataortheCalgaryEconomicRegionis

rom1988.

Calgarysnetcontribu

tiontothefederalgovernments

scalposition

grew

thelargestover

thepasttwentyyears(from$

1.1billionin1988to

$9.9

billionin2007)

Chart2.1

CalgarysContribu

tiontotheFederalGovernment

billionsofdollars


16

'

12

14

Netcontr

ibution

from

Ca

lgarytothe

Fe

dera

lGovernmentexc

ludingtransfers

Fe

dera

ltota

lspend

ing

inthec

ity

(Current+

Cap

ita

lTrans

fers)

Fe

dera

lrevenuesco

llecte

dfrom

thec

ity

(Tota

lrevenue

trans

fers

)

810 6 2

1988

1989

1990

1991

1992

1993

1994

1995

1996

1997

1998

1999

2000

2001

2002

2003

2004

2005

2006

2007



14/50

8


2.

Calg

arysContributiontoGovernmentFiscalPositions

emajorso

urcesorevenuecontributedromCalgarytotheederal

governmentare:directtaxesrompersons,d

irecttaxesromcorporateand

governmentbusinessenterprises,indirector

excisetaxes,andcontributions

tosocialinsu

ranceplans.

eourmajorsourcesorevenuecontributedromCalgarytothe

provincialgo

vernmentinclude:investmentincome,directtaxesrom

persons,indirecttaxes,anddirecttaxesrom

corporateandgovernment

businessente

rprises,allowhicharedrivenbyeconomicactivities.

Thefundinggapbetw

eenthelocalgovernmentsown-sourcerevenues

anditsspendingresp

onsibilitiesgrew

overthepasttwentyyears(from

$0.5

billionin1988to

$1.5

billionin2007)

Chart2.3

CalgarysContributiontotheLocalGovernm

ent

billionsofdollars

Sources:StatisticsCanad

a;CorporateEconomics

4.5

'

3.0

3.5

4.0

Netcontribution

from

CalgarytotheLocalGovernmentexc

ludingtransfers

Localtotalspend

inginthecity(Current+CapitalTransfers)

Localrevenuescollectedfrom

thecity(Totalrevenue

transfers)

2.0

2.5

0.5

1.0.

1.0

0.5.

1.5

1988

1989

1990

1991

1992

1993

1994

1995

1996

1997

1998

1999

2000

2001

2002

2003

2004

2005

2006

2007

enegativenetcontributionpositionorthelocalgovernment,excluding

intergovernmentaltran

sers,wasobservedduringthesameperiod.elocal

governmentoCalgary

collectedlesstaxesaspaymentsromCalgariansthan

itspendinthecity.Inotherwords,t

herewasaundinggapbetweenthelocal

governmentsown-sourcerevenuesanditsspendingre

sponsibilities.Over

thepasttwodecades,thegaphaswidenedrom$0.5billionin1988to$1.5

billionin2007(seeChart2.3

).

CalgarysnetcontributiontoAlbertaGovernmentsscalpositiongrew

signicantly

overthepasttwentyyears(from

$0.1

billionin1988to$3.7

billionin2007)

Chart2.2

Calgarys

ContributiontotheAlberta

Government

billionsofdollars


14

'

10

12 8 4 0

1988

1989

1990

1991

1992

1993

1994

1995

1996

1997

1998

1999

2000

2001

2002

2003

2004

2005

2006

2007

'

Netc

ontributionfrom

CalgarytotheProvincialGovernmentexcludingtransfers

Provincialtotalspendinginthecity(Current+C

apitalTransfers)

Provincialrevenuescollectedfrom

thecity(Tota

lrevenue

transfers)



15/50

9


2.

CalgarysContribut

iontoGovernmentF

iscalPositions

Onlyaerad

dingintergovernmentaltranse

rpaymentrevenuesromthe

otherorders

ogovernment(mainlyromth

eAlbertaGovernment),was

thelocalgov

ernmentabletobridgetheund

inggaprom1988to2007

(seeChart2.4

).Overthepasttwodecades,thesetranserpaymentsgrew

asterthanthelocalgovernmentsown-sourcerevenues($0.7billionin1988

and$1.8

billionin2007),rom$0.6

billionin1988to$2.1

billionin2007.

istrendis

thenetresultoincreasesinprovincialgovernmentrevenues,

arisinglargelyromeconomicgrowth,andtheslowerincreasesinthelocal

government

revenuesthatislesslinkedtoeconomicgrowth.

Intergovernmentaltransferisanincreasin

glyimportantrevenuesource

fortheloc

algovernmentinCalgary

Chart2.4

LocalGo

vernmentsFiscalPosition

inCalgaryafterTransfer

Adjustm

ent

billionsofdo

llars


0.5

1.0

1.5

2.0

2.5

'

Netcontributiontothelocalgovernmentafte

rintergovernmenttransferadjustment

M

unicipalrevenuescollectedfrom

thecity(To

talrevenue

transfers)

Lo

calgovernment'srevenuefrom

intergovern

mentaltransfers

0.5

0.0

1988

1989

1990

1991

1992

1993

1994

1995

1996

1997

1998

1999

2000

2001

2002

2003

2004

2005

2006

2007

'

Lo

calown

sourcerevenues(Totalrevenue

tr

ansferrevenues)

Lo

calgovernment'srevenuefrom

intergovern

mentaltransfers



16/50

10

ACaseofFiscalImba

lance:theCalgaryExperience

3.

The

CaseofOver-ContributioninCalgaryan

ditsCauses

3.eCaseofOver-Con

tributionin

CalgaryanditsCause

s

3.1

e

over-contributionsituationinCalgary

Fromthetax

payersperspective,t

herehasb

eenanover-contribution

situationinC

algaryoverthepasttwodecades:alargeamountotax

paymentswe

nttotheederalandprovincial

governments,leavingless

thanadequateundingorthemunicipalgovernmenttoinvestinlocal

inrastructur

e.isreportdoesnotsuggestthatCalgaryshouldnot

contributeto

theprovincialortheederalgo

vernment.Itrecognizesthat

strongereconomiesshouldcontributetobothnationalandprovincial

governmentstoassisttheweakereconomies

.However,t

hecurrent

over-contributionsituationisclearlyunsustainable.Calgaryandother

municipalitiesinthesamesituationwouldn

otbeabletosustainadynamic

economyunlesstheyareabletoinvestinare

asthatallowthemtomaintain

theirlocalin

rastructureandsupportanapp

ropriatequalityolieor

currentanduturegenerations.

Giventhelackoconsensusonstandardsor

thresholdsordeningover-

contribution,severalstatisticalindicatorsareusedheretoillustratethe

point.

3.1.1

ArelativelysmallshareofCalgarystaxd

ollarswenttothe

localgovernm

enttoprovidegoodsandservicesforthelocal

community

Acomparisonbetween

theederal,provincialandloca

lgovernmentscal

positionsinCalgarysh

owsthatmostothetaxrevenu

esromCalgary

gototheederalandprovincialgovernments,andtheirshareorevenues

receivedromCalgary

hasincreasedrom89percentin1988to93percent

in2007.Totalexpendituresortheprovincialandlocalgovernmentgrew

asterthanthoseorth

eederalgovernment,becausetheprovincialandlocal

governmentshadtoad

dressincreasingdemandsrom

localbusinessesand

residents.

Iintergovernmentaltransersareexcluded,theanalys

isshowsthat

theederalandprovincialgovernmentsrealizedincrea

singpositivenet

contributionpositions,w

hichmeansthattheyhadthe

capacitytocontribute

moreundstolocalgovernmentsovertheyears.Howe

ver,thelocal

governmentoCalgary

wouldhavehadanincreasingundinggapbetween

itsown-sourcerevenuesandspendingresponsibilities

overthisperiod,rom

$0.5

billionin1988to$1.3

billionin2007.elocalgovernmentwasableto

avoidthisundingshortallsonlywiththehelpointergovernmentaltranser

revenues(Seetable3.1).



17/50

11

ACaseofFisca

lImbalance:theCalgaryExperience

3.

T

heCaseofOver-Con

tributioninCalgary

anditsCauses

1988

2007

1988-2007

GovernmentscalpositionsinCalgary($billion

)

$billion

Shareototal

$billion

Shareototal

Compoundannualgrowthrate

Totalrevenueexcludingintergovernmenttransfers

7.3

100%

27.4

100%

7%

Federalgover

nment

3.4

47%

14.0

51%

8%


3.1

43%

11.6

42%

7%

Localgovernment

0.7

10%

1.8

7%

5%

Totalexpenditureexcludingintergovernmenttransfers

7.0

100%

16.3

100%

5%

Federalgover

nment

2.4

34%

4.2

26%

3%


3.2

46%

8.3

51%

5%

Localgovernment

1.4

20%

3.8

23%

5%

Netcontributionexcludingintergovernmenttransfers

0.7

100%

12.2

100%

17

%

Federalgover

nment

1.1

164%

9.9

81%

12

%


0.1

17%

3.7

31%

20

%

Localgovernment

-0.5

-81%

-1.5

-12%

-5

%

Netcontributionwithintergovernmenttransfers

0.7

100%

12.2

100%

17

%

Federalgover

nment

0.5

78%

8.9

73%

16

%


0.1

14%

2.6

21%

19

%

Localgovernment

0.1

8%

0.7

6%

15

%


Table3.1GovernmentscalpositionsinCa

lgary

3.1.2

Acce

leratedpopulationgrowtha

ndhighinationinCalgary

resultedincostincreasesinprov

idingnewinfrastructureand

localpublicservices

From1988to

2007,Calgaryexperiencedastergrowthinpopulationand

higherinationthanmostotheotherregionsinCanada(seeChart3.1

andChart3.2

).Asaresult,t

hetotalpercapitagovernmentexpenditurein

realdollars($1988)inCalgarydeclinedover

theperiod,mainlyromthe

ederalandprovincialgovernments(seetable3.2).edeclineoccurred

duringthetimewhenstandardsorenvironmentalprotectionincreased

andcompetitionstoin

creasethequalityolieamong

internationalcities

intensied.eailure

toaccountorpopulationgrow

thandination

adverselyafectedthecityscompetitivenessintheglobaleconomy.



18/50

12

ACaseofFiscalImba


3.

The


ditsCauses

Calgaryha

dfasterpopulationgrowththan

therestofAlbertaandCanada

Chart3.1

Populatio

nGrowth:Canada,

Alberta

andcityofCalgary

percent

Sources:Sta


4

3

Ca

lgary

Cana

da

Alberta

1988

1989

1990

1991

1992

1993

1994

1995

1996

1997

1998

1999

2000

2001

2002

2003

2004

2005

2006

2007

CalgaryhadhigherinationratesthantherestofAlbertaandCanada

Chart3.2

InationComparison:Canada,

AlbertaandC

algaryCMA

percent

Sources:StatisticsCana

da;CorporateEconomics

7

6

CalgaryCMA

Canada

Alberta

4 5 2 3 1

1988

1989

1990

1991

1992

1993

1994

1995

1996

1997

1998

1999

2000

2001

2002

2003

2004

2005

2006

2007

1988

2007

1988-2007Compound

annualgrowthrate

$1988

Shareototal

$1988

Shareototal

Percapitaexpenditureexcluding

intergovernm

enttransfers

10,796

100%

9,013

100%

-0.9

%

Federalgover

nment

3,697

34%

2,316

26

%

-2.4

%


4,924

46%

4,609

51

%

-0.3

%

Localgovernment

2,175

20%

2,088

23

%

-0.2

%


Table3.2Per

capitagovernmentspendinginCalgary($1988constantdollars)

Calgary

Cana

da

Alberta

1988

1989

1990

1991

1992

1993

1994

1995

1996

1997

1998

1999

2000

2001

2002

2003

2004

2005

2006

2007



19/50

13

ACaseofFisca


3.

T

heCaseofOver-Con

tributioninCalgary

anditsCauses

3.1.3

e

CityofCalgaryslong-term

capitaldebtreportsshow

nancialstrains

AccordingtoeCityoCalgarysnancial

reports,themunicipal

government

hasexperiencedtwoperiodso

highdebtorborrowingsince

1967.er

stwasduringthelate1970sand

early1980sandthesecond

wasduring2

000-2009.eCityoCalgaryborrowedincapitalmarketsto

investininrastructuretoaccommodateitsastgrowingpopulationduring

thesetwope

riods.Calgarysmunicipalgovernmentlong-termdebtincrease

d

substantially

rom$1.2

billionin1999to$2.1

billionin2007and$2.9

billion

in2009(seeChart3.3).Evenaeradjustingorpopulationgrowth,t

heper

capitadebtbalanceinCalgarystillshowsanunsustain

ableupwardgrowth

trend(seeChart3.4).ItisestimatedthateCityoC

algarycouldreachits

debtborrowinglimitsin2012-2014,inonewrevenuesourcesareavailable

andcapitalinvestmentpressuresintensiy.

FromCalgariansperspective,evenithesecapitalinvestmentsareneededto

benettheminthelon

g-run,acontinuousincreasein

long-termdebtisan

unairtaxburden.

TheCityo

fCalgarysborrowinghikespeakedduringthepasttwo

economic

booms(late1970s-early1980s

;2000-2009)

Chart3.3

TheCity

ofCalgaryTotalLong-term

DebtBalance(1971-2009)

billionsofdo

llars

Note:Exclud

esmortgagesandleases

Sources:TheCityofCalgary,variousFinancialRe

port

1.5

2.0

2.5

3.0

Totallong

term

debtbalance($billions

)

0.0

0.5

1.0

1971

1973

1975

1977

1979

1981

1983

1985

1987

1989

1991

1993

1995

1997

1999

2001

2003

2005

2007

2009

ContinuousgrowthindebtatTheCityofCalgaryis

notsustainable

Chart3.4

TheCityofCalga

ryPerCapitaLong-termD

ebt(1971-2009):

thousandsofdollars/person

Sources:TheCityofCa

lgary,variousFinancialReport

2.5

3.0

2.0

1.5

0.5

1.0

0.0

1

3

5

7

9

1

3

5

7

9

1

3

5

7

9

1

3

5

7

9

19

19

19

19

19

19

19

19

19

19

19

19

19

19

19

20

20

20

20

20


e


20/50

14

ACaseofFiscalImba


3.

The


ditsCauses

Clearly,t

heederalandprovincialgovernmentsareth

emajorbeneciaries

oeconomicgrowthin

Albertaintermsoincreasedt

axrevenues,because

theyhaveaccesstogro

wthrelatedtaxsources.eseg

rowth-relatedtax

revenuesarededucted

romsourceoincomeandgro

wwithinationand

seeminvisibletotaxpayers.Growthinmunicipalreve

nueslagseconomic

growthbecauseothe

lackolocalgovernmentaccess

tothegrowth

sensitiverevenuesources.Moreover,transerpaymentsareprovidedtolocal

governmentsatthediscretionotheprovincialgovern

mentwhereprovincial

prioritiestakeprecede

nceovermunicipalneeds.

Addingtothenancia

lconstraintsothelocalgovern

ments,t

heAlberta

governmenthasincreaseditsinvolvementintheprop

ertytaxeldbytaking

controloeducational

propertytaxrevenuesromthe

taxbaseocitiessince

1994(seeChart3.5)18.

ishasreducedlocalautonom

y(Rosenetal,2008).

Calgarysover-contributionsituationisdirectlycausedbyitslacko

accesstogrowthsensitivetaxsources.Localresidents

andbusinesses,

whilecontributingsignicantamountotaxesandotherpaymentstothe

otherordersogovern

ments,experiencedinsucient

newinrastructure

investmentsandlimitedprovisionoservicesinthecity.

18

FormanyyearstheAlbertagovernmenthasundedthegreaterpartothecosto

providingK12educa

tion.Priorto1994publicandseparate

schoolboardsinAlberta

hadthelegislativeauthoritytolevyalocaltaxonproperty,assupplementarysupport

orlocaleducation.In

1994thegovernmentoAlbertaeliminatedthisrightorpublic

schoolboards,butnotorseparateschoolboards.Since1994

therehascontinuedtobe

ataxonpropertyinsu

pportoK12education.ediferenceisthatthemillrateis

nowsetbytheprovincialgovernment,andthemoneyiscollectedbythelocalmunicipal

authorityandremittedtotheprovincialgovernment.erelevantlegislationrequires

thatallthemoneyraisedbythispropertytaxmustgotothesupportoK12education

providedbyschoolbo

ards.eprovincialgovernmentpools

thepropertytaxundsrom

acrosstheprovincean

ddistributesthem,topublicandsepar

ateschooljurisdictionsand

Francophoneauthorities,accordingtoaormula.

3.2

Causesofover-contribution

3.2.1

Municipalitiesdonothaveaccesstogrowthrelatedsources

ofrevenue

Overthepasttwentyyears,Albertaexperiencedthecountrysastest

economicgr

owth,drivenbyitsenergysecto

r.GDPinAlberta,unadjusted

orination,grewby4timesrom$63.9billionin1988to$256.9

billionin

2007.Totalrevenuescollectedinthisperiod

grewby3.7timesortheederal

government,by3.4timesortheprovincial

government,andby2.3times

orthelocal

governments(seeChart1.1inIntroduction).ecomparison

clearlyshow

sthatduringthisperiodtheed

eralandprovincialgovernments

benetedmorenanciallyromtheprovinceseconomicgrowththanthe

localgovern

mentsinAlberta,sincetheyhaveaccesstorevenuesourcesthat

aretiedtoeconomicgrowth.

ediferencesingovernmentrevenuegrow

thratesaretheresultoeach

governmentsabilitytocapturediferentrevenuesources(seetable3.3).

Manyotheserevenuesourcesgrowwithec

onomy.Forexample,in2007th

e

ederalgovernmentcollected91percento

itstotalrevenueinAlbertarom

threemajor

sources:directtaxesromperso

ns(mainlyincometaxes),direc

t

taxesromcorporateandgovernmentbusin

essenterprises,andtaxeson

productionandimports.eAlbertaGover

nmentcollected82percento

itstotalreve

nueintheprovincerom:investmentincome(mainlyroyalties),

directtaxesrompersons(mainlyincometaxes),andindirecttaxes(taxes

onconsump

tions).A

llotheserevenuesare

closelycorrelatedwiththe

economicgr

owthintheprovinceandthereoregrowautomaticallywith

increasesin

personalincome,investmentac

tivityandconsumption.

However,localgovernmentsinAlbertacollected83percentotheirtotal

revenuesin2007romtaxesonproductionandimports(mainlyrealand

personalpro

pertytax),asourceotaxindirectlylinkedtoeconomicgrowth

throughinvestmentinproperty.


5s


21/50

15

ACaseofFisca


3.

T

heCaseofOver-Con

tributioninCalgaryanditsCauses

Governmen

trevenuesourcesinAlberta

1988

200

7

FederalGovernmentOwn-sourceRevenue

sinAlberta

$million

Shareototal

$million

Shareototal

1Directtaxesfrompersons

4,499

45%

20,173

54%

2Directtaxesromcorporateandgovernm

entbusinessenterprises

1,785

18%

6,818

18%

3Directtaxesromnon-residents(withholdingtaxes)

115

1%

469

1%

4Contribu

tionstosocialinsuranceplans

1,073

11%

2,119

6%

5Taxeson

productionandimports

1,939

20%

6,750

18%

6Othercurrenttransersrompersons

2

0%

2

0%

7Investme

ntincome

484

5%

733

2%

Totalreven

ueexcludingintergovernmentaltransfers

9,897

100%

37,064

100%

ProvincialGovernmentOwn-sourceReven

uesinAlberta

$million

Shareototal

$million

Shareototal

1Directtaxesfrompersons

2,322

23%

6,840

20%

2Directtaxesromcorporateandgovernm

entbusinessenterprises

917

9%

3,469

10%

3Contribu

tionstosocialinsuranceplans

320

3%

985

3%

4Taxeson

productionandimports(includ

ingprovincialpropertytaxandexcisetax)

1,672

16%

6,553

19%

5Othercurrenttransfersfrompersons

439

4%

1,652

5%

6Investme

ntincome

4,471

44%

14,885

43%

Totalreven


10,141

100%

34,384

100%

LocalGovernmentOwn-sourceRevenuesinAlberta

$million

Shareototal

$million

Shareototal

1Taxeson

productionandimports(mainlymunicipalpropertytax)

1,875

79%

4,591

83%

2Currenttransersrompersons

44

2%

154

3%

3Investme

ntincome

454

19%

763

14%

Totalreven


2373

100%

5,508

100%


Table3.3GovernmentrevenuesourcesinAlberta


e


22/50

16

ACaseofFiscalImba

lance:theCalgaryExperienc

3.

The

CaseofOver-Contri

butioninCalgaryan

ditsCauses

availableormunicipa

lpurposesdoubledrom1988t

o2007,causingtotal

revenuesexcludingintergovernmentaltranserstoinc

reaseby130percent

overthesameperiod(seetable3.5).isisinsharpcontrastwiththescal

situationsotheprovincialandederalgovernmentsinAlberta,w

hichgrew

by270percentand24

0percentrespectively.eslow

-growingrevenue

scenariooreCityoCalgaryisexpectedtocontinue,becauseitsmajor

revenuesource,propertytax,isnotgrowth-sensitive.

3.2.2

Pro

pertytaxisnotgrowthsensitive

AccordingtoeCityoCalgarysnancialreports,nettaxesavailable

ormunicipalpurposes(namelyeCitysshareopropertytaxrevenues)

accountedor34percentoeCitystotal

revenuein1988.issharehas

increasedby

8percentagepointsovereighteenyearsto42percentin2007

(seetable3.4).etrendshowsthateCityoCalgaryisincreasingly

relyingonrevenuesrompropertytaxestonanceitsexpenditure

responsibilities.However,t

hismainsourceorevenuedidnotgrowatthe

samepaceasthelocaleconomyandthecity

spopulation.eCitysnettaxes

AlbertaGo

vernmentsincreasinginvolvem

entinthepropertytaxadded

tolocalgo

vernmentsscalstress

Chart3.5

AlbertaG

overnmentRevenueSource:TotalRevenuevs.

ProvincialPropertyTax

percentageshare

billionsofdollars

Sources:Sta

tCanCatalogueno.13-018-XWE,Vol.2,tab08-engNo.2

0.6

0.8

1.0

1.2

1.4

1.6

1.8

3.0

%

4.0

%

5.0

%

6.0

%

7.0

%

8.0

%

9.0

%

Provincialrealpropertytaxcollectedthroughmunicipalities($billions):RHS

Shareofprovincialrealpropertytaxasitst

otalrevenue(%):LHS

Promisedcapofprovincialpropertytaxtake$1

.2

0.0

0.2

0.4

0.0

%

1.0

%

2.0

%

1988

1989

1990

1991

1992

1993

1994

1995

1996

1997

1998

1999

2000

2001

2002

2003

2004

2005

2006

2007

:

Revenuesources

1988

2007

Changeoshare

in1988-2007

Nettaxesavailableform

unicipal

purposes(propertytaxes)

34%

42

%

8%

Salesogoodsandservices

49%

26

%

-24%

Governmenttransersandrevenue

sharingagreements

9%

17

%

8%

Investmentincome

4%

2%

-2%

Finesandpenalties

1%

2%

0%

Licences,permitsandees

1%

3%

1%

Miscellaneousrevenue

2%

10

%

8%

Totalrevenue

100%

100%

0%

Sources:eCityoCalgary1988FinancialReportand2007An

nualReport

Table3.4eCityofCalgarysrevenuesources

AccordingtoRosenetal(2008)propertytaxisataxo

nwealth,astock

variablethatreerstothevalueotheassetsanindivid

ualorabusiness

hasaccumulatedatap

ointintime.InCanada,propertytaxesarelevied

onassessedvaluesolocalproperties.eamountopropertytaxrevenue

collectedisnotclosely

relatedtothepersonalcircumstancesoindividual

taxpayers.Inthecaseopropertytaxesonhomeowne

rs,t

hetaxdoesnot

reecttheequityothehomeowner.Instead,itisbase

donthegrossvalue

otherealestate.us

thepropertytaxisthesameortaxpayerswithsame


7s


23/50

1

ACaseofFisca


3.

T

heCaseofOver-Con

tributioninCalgaryanditsCause

Revenuesou

rces

1988

($thousands)

2007

($thousands)

Totalgrowthin

1988-2007

(percent)

Nettaxesavailablefor

municipalpurposes

397,076

1,208,265

204%

Salesogoo

dsandservices

576,163

740,543

29%

Governmenttransersand

revenuesharingagreements

105,348

482,850

358%

Investmentincome

41,482

56,474

36%

Finesandpe

nalties

16,988

53,571

215%

Licences,permitsandees

13,545

74,238

448%

Miscellaneousrevenue*

20,981

280,464

1237%

Totalrevenu

eexcluding

governmenttransfers

1,066,235

2,413,555

126%

Totalrevenu

e

1,171,583

2,896,405

147%

Sources:eC

ityoCalgary1988FinancialReporta

nd2007AnnualReport

*emiscellaneousrevenueinTable3.5or1988includesmiscellaneousrevenue($12.2

million)andnetinternalrevenueromServiceFunds($8.8million)rom1988Financial

Report,and

or2007includesdevelopercontributions($134.6million),miscellaneous

revenue($20million)andequityinearningsogovernmentbusinessenterprises($125.8

millions)rom2007AnnualReport.

Table3.5

eCityofCalgarysrevenuegrowthbysource

assessedvaluehomesbutdiferentmortgages.Bycomparison,income,

consumption,andsalestaxesareleviedon

owvariablesthatareassociated

withacertainperiodotime,sooveralleconomicconditionscontributeto

theamountsothesetaxrevenuesatthesam

etime.

epropertyvaluesinCalgarylagbehindchangesintheeconomybyat

leastayear;

assumingthattheassessedprop

ertyvaluesaccuratelyreect

changesthattookplaceintheeconomyoverthepreviousyear.Inaddition,

propertytaxescouldo

nlybeleviedandcollectedwhenpropertiesarebuilt.

Consequently,taxesarenotcollectedromarangeoactivitiesotherthan

realestate.

3.2.3

Propertytax

isaneasytargetforcriticism

Propertytaxistraditio

nallyaneasytargetorcriticism

becauseothe

ollowingeatures.(Ro

senetal,2008):

i.

Realestatetransactionstypicallyoccurinrequentlyandonaraction

ototalpropertiesinamunicipality,thereoreth

epropertytaxmustbe

leviedonanestimatedvalue.Ithisestimateisp

erceivedasinaccurate,

thetaxisperceiv

edasunair.

ii.

epropertytax

ishighlyvisible,sotaxpayersareawareoany

increasesintheirpropertytaxbills.Incontrasttotheederaland

provincialincom

eandpayrolltaxeswhicharedeductedatsource,

propertytaxisoenpaiddirectlybythetaxpaye

r.Moreover,the

paymentsareo

enmadeonalump-sumamoun

t,soeachpayment

comesasalarge

shock.

iii.

Propertytaxisp

erceivedasaregressivetax,partiallyaconsequenceo

thetraditionalviewothetaxwhichcontinuestodominatepublic

debate,andwhic

hisreinorcedbytheactthats

omepropertyowners,

particularlytheelderly,donothaveenoughcash

tomakepayments

andmaythereorebeorcedintosellingtheirho

mes.

iv.

Taxpayersmayeelthattheyarepowerlesstodo

anythingaboutother

taxesbuthaveso

mepowerindecidingproperty

tax.Forexample,itis

hardtoorganize

acampaignagainsttheederalincometaxbecausea

nationalcampaignwouldinvolvelargecoordina

tioncosts.However,

itisrelativelyeasytotakeanaimattheproperty

tax,whereitislevied

locally.


ces


24/50

18

ACaseofFiscalImba

lance:theCalgaryExperien

4.

Imp

actofOver-ContributiononCalgaryandtheCanadianEcon

omy

LargestCMAsinCanada

1988

2008

1988-2008totalgrowth

Total

Nationalshare

Total

NationalshareT

otalgrowth

percent

Montreal,Q

uebec

1,518

12%

1,901

11%

382

25%

Ottawa-Gatineau,Ontario/Quebec

482

4%

671

4%

189

39%

Toronto,On

tario

2,090

16%

2,920

17%

830

40%

Calgary,Alb

erta

379

3%

702

4%

323

85%

Edmonton,Alberta

414

3%

621

4%

207

50%

Vancouver,BritishColumbia

758

6%

1,243

7%

485

64%

Canada

12,687

100%

17,118

100%

4,431

35%


Table4.1.TotalemploymentgrowthinCa

nadassixlargestCMA:(ousandsofpersons)

4.Im

pactofOver-Contributionon

Ca

lgaryandtheCanadianEconomy

4.1

EconomicgrowthinCanad

aisdrivenbybigcities

ereisanincreasingconsensusamongeco

nomistsandpolicyanalyststha

t

bigcitiesaretheenginesoeconomicgrowthinanationaleconomy.e

theoreticalandempiricalliteraturepointso

utthatcitiesafecttheeconomy

inthreeway

s-sharing,matching,andlearn

ing19.

4.1.1

Eco

nomicgrowthrepresentedbyemploymentgrowth

StatisticsCa

nadadoesnotproducegrossdo

mesticproductdataatthesub-

provinciallevelbutreleasesemploymentda

taatthecensusmetropolitan

19

ediscu

ssionontheimportanceocitieswassummarizedinarecentworkingpaper

Importanceocities:withemphasisonCanadianurbanareaspreparedbyeCityo

Calgarys

CorporateEconomicsgroup.

areas(CMA)level,the

reoreemploymentdataareuse

dasaproxyinthis

papertoshowthecontributionocitiestoCanadaseconomicgrowth.

Overtheperiod1988-

2008,veoutothesixbiggestCMAsinCanada

hadasteremploymen

tgrowththanthenationalaverageandCalgaryled

thepackwithagrowthrateo85percent(seetable4.1

).Amongthejobs

createdinCalgary,occupationsthatrequirehigheducationandskillssucha

thoseinnaturalandappliedsciences,socialscience,e

ducation,government

servicesandreligiong

rewtheastest(seetable4.2).

Bigcitiesarenotonly

theleadersoeconomicandem

ploymentgrowthin

Canada,butalsothep

laceswhereknowledgeeconom

iesexpandandhighly

educatedandskilledw

orkerslocate.


19

my y


25/50


4.

ImpactofOver-ContributiononCalgaryandtheCanadianEconom

4.1.2

Pop

ulationgrowthisdrivenby

peoplelookingforbetterjob

opp

ortunitiesandahigherqualityoflife

StartinginMarch1987,StatisticsCanadahasprovidedannualworkingage

population(age15+)estimatesatthecensusmetropolitanareas(CMA)

level.ees

timatesshowthatovertheperiod1988-2008,mostothegrowth

occurredin

Canadianbigcities.Fiveouto

thesixbiggestcitiesexcept

Montrealex

periencedaboveaverage(24percent)growth(seetable4.3).

Calgaryrecordedthehighestgrowth(74pe

rcent)comparedtotheresto

thecountry

(24percentinCanada),w

hich

islargelyexplainedbyitsstrong

labourmarket(seetable4.1).

Historicalevidenceshowsthatpeoplemovetobigcitiesnotonlyorbetter

jobopportu

nities,butalsoorahigherqualityolie.Qualityolieisused

asaproxyorthegeneralwell-beingoindividualsan

dcommunitiesand

isalsousedtomeasur

etheliveabilityoagivencityornation.Qualityo

lieisacompositemeasurethatincludesenvironmentquality,physicaland

mentalhealth,e

ducation,recreationandleisuretime,andsocialbelonging.

ehigherthequality

olie,t

hemoreattractivethecityisandconsequently

themorepeoplewillm

ovetothecity.Asmoreindividualsandbusinesses

areattractedtoaregio

n,increasedpressuresareplace

donroads,parks,the

air,waterandotheren

vironmentalresources,w

hichn

egativelyimpactsthe

regionsqualityolie.equalityolieisonlysustainableoverthelong

termisignicantinvestmentsaremadetoupdateold

inrastructureand

buildnewinrastructure.

CalgaryEco

nomicRegion(CER)

1988

2008

1

988-2008change

Total

%share

Total

%share

Total

%share

All

402.3

100%

755.5

100%

353.3

88%

Managemen

t

37.0

9.2%

69.7

9.2%

32.7

88%

Business,Finance&Administrative

94.7

23.5

%

164.1

21.7

%

69.4

73%

Natural&A

ppliedSciences&related

36.8

9.1%

81.8

10.8

%

45.0

122%

Health

18.3

4.5%

35.3

4.7%

17.0

93%

SocialScien

ce,E

ducation,GovernmentService&Religion

25.3

6.3%

54.7

7.2%

29.4

116%

OccupationsinArt,cultureRecreation&Sport

10.2

2.5%

18.6

2.5%

8.4

83%

Sales&Serv

ice

95.4

23.7

%

170.7

22.6

%

75.3

79%

Trades,Tran

sport&EquipmentOperators&related

58.6

14.6

%

119.1

15.8

%

60.5

103%

OccupationsUniquetoPrimaryIndustry

14.1

3.5%

24.1

3.2%

10.1

71%

OccupationsUniquetoProcessing,Manuactu

ring&Utilities

12.1

3.0%

17.6

2.3%

5.5

45%


Table4.2.C

algaryEconomicRegion(CER

)TotalEmploymentbyOccup

ation:(ousandsofpersons)


nce

r, 25


26/50

20

ACaseofFiscalImbalance:theCalgaryExperie

Twowidely

knownreportsthatmeasurequ

alityolieorcitiesarethe

GlobalLiveabilityReport20publishedbytheEconomistIntelligenceUnit

(EIU)andtheLivingReports21p

ublishedbyMercer.Calgaryrankedhighin

bothreports,whichexplainswhysomanypeoplemovedtothecityoverth

e

pasttwodecades.

elatestEIUreportreleasedinJanuary20

10rankedCalgarynumber

veamong140citiessurveyedworldwide.Calgaryscored96.6outo100,

comparedtoWesternEuropesaverageo92.1,NorthAmericasaverage

20

eEIUsreportsurveys140citiesaroundthew

orldannually,usingover30qualitative

andquantitativeactorsacrossvebroadcategories:Stability,Healthcare,Cultureand

environm

ent,Education,andInrastructure.

21

Mercerhasdesignedanobjectivewayomeasuringqualityolivingorexpatriatesbas

ed

onactorsthatpeopleconsiderrepresentativeoqualityoliving.Mercerevaluateslocal

livingcon

ditionsinallthe420citiesitsurveysw

orldwide.Livingconditionsareanalys

ed

accordingto39actors,groupedin10categories:Politicalandsocialenvironment,

Economicenvironment,Socio-culturalenvironment,Healthandsanitation,Schoolsand

education

,Publicservicesandtransportation,R

ecreation,Consumergoods,Housing,

Naturalenvironment.

o91.5,andtheWorld

averageo76.CalgarysoverallrankinginMercers

reportovertheyearswasalsohighamongthe420citiessurveyed.However

itsrankinghasdeclinedinthepastthreeyearsromn

umber24in2007to2

in2008and26in2009.

4.2

Fiscalover

-contributionfrombigcitieshurts

economicgrowthinCanada

Residentsandbusines

sesinCalgarycontributedtheirairshareotax

paymentstotheeconomicallydisadvantagedregionsthroughpositive

netcontributiontotheederalandprovincialgovernments.Inaddition,

Calgariansover-contributedduringthe1988-2007period,w

hichresulted

inanumberoissuesthatotherbigcitiesinsimilarsituationshavealso

experienced.

LargestCM

AsinCanada

1988

2008

1988-2008totalgrowth

Total

Nationalshare

Total

Nationalshare

Totalgrowth

percent

Montreal,Quebec

2,543

9%

3,064

9%

521

20%

Ottawa-Ga

tineau,Ontario/Quebec

696

3%

962

3%

266

38%

Toronto,O

ntario

3,037

11%

4,541

14%

1,504

50%

Calgary,A

lberta

544

2%

945

3%

401

74%

Edmonton,Alberta

621

2%

882

3%

261

42%

Vancouver,BritishColumbia

1,224

5%

1,939

6%

716

58%

Canada

26,792

100%

33,311

100%

6,520

24%


Table4.3.W

orkingagepopulationgrowth

inCanadassixlargestCMA:(ousandsofpersons)


21

my

m e r a m,

o t


27/50


4.

ImpactofOv

er-ContributiononCalgaryandtheCanadianEconom

4.2.1

Ove

r-contributionconstrainseconomicgrowthinthe

contributingregions

Calgarysrap

idpopulationgrowth,a

longwiththeneedtoupgradeanaging

capitalstock,isdrivingupoperatingandcapitalbudgetcostsorthelocal

government.Becauseothelongleadtimes

thatarerequiredtoplanand

constructmunicipalinrastructure,eCityoCalgarymustanticipate

populationg

rowthtoplan,buildandnancenewinrastructurelongbeore

thetaxbaseisavailabletopayortheseexpe

nditures.iscreatesscalstrain

onthemunicipality.

Intermsob

usinesscycles,Calgaryseconomyisalsomorevolatilethan

otherregion

sinCanadabecauseitisafecte

dbyinvestmentcyclesinthe

energymark

ets.Asaresult,demandorpub

licservicesromlocalbusinesses

andresidentsdiferromeconomicboomto

busttimes.Duringboomtimes,

increasedeconomicactivityandrapidpopulationgrowthdrivethedemand

ornewinrastructureinvestmentsandmoremunicipalservicessuchas

police,reandpublictransitservices.W

hileduringrecessions,reduced

demandornewinvestmentsispartlyofset

byincreaseddemandorincom

e

assistance.

Calgarysover-contributiontotheotherordersogovernmentsmakesit

harderorth

elocalgovernmenttoplanoritslong-termnancialneeds.

eCityoC

algarycanneitherundallprojectsornewcapitalinvestments

andincrease

dservicesintheboomtimes,nortakeadvantageoinvestment

opportunitie

sinthelowercostenvironmentexperiencedduringrecessionary

times.Asaresult,eCityhascurrentlyon

eofthehighestdebtrates

amongbigC

anadiancitiesandcouldreach

itsdebtborrowinglimit

in2012-2014.isputsadditionalpressure

onthemunicipalitytoraise

propertytaxesandexposeslocaltaxpayerstotheriskobearingahighertax

burdeninth

euture.

PeoplemovetoaplacelikeCalgarynotonlyorjobopportunities,but

alsoorahigherqualityolie.Becauseothemobilit

yoskilledworkers,

citiesaroundtheworldareincreasinglycompetingwitheachotheror

thoseworkers.Strong

labourmarketconditionsinCa

lgaryhaveacted

asamagnetorworke

rsromoutsidetheregion.is

hascreatedan

equallyhighdemandorshelterandsupportservices

toaddressissues

suchashomelessnessandafordablehousingissues

thatneedallorders

ogovernmenttoaddress.Downloadingomanygovernmenthousing

andsupportprogramsromotherordersogovernmenthasaddedtothis

challenge.

ereisevidencethat

over-contributiontootherordersogovernmentrom

Calgaryhasalsonegativelyimpactedthecitysability

tomaintainitsglobal

competitiveness.ecitysdropinMercersqualityo

livingrankingisa

caseinpoint.Ithelackoinvestmentinpublicservicesandinrastructure

continuesandCalgarylosesitsattractiveness,uturegrowthintheregion

willbeconstrained.

Similarchallengesalsoapplytoothercities,w

hereinvestmentsare

associatedwithjobsandeconomicgrowth.AccordingtoK&L(November

2003),Canadiancitiesmustmoreandmoreproveth

emselvescapableo

competingwithintern

ationalcitiesornancialcapitalandskilledlabour.

Municipalgovernmen

tshaveanimportantroletopla

yinthisregard.City

governmentsareresponsibleorprovidingmanyoth

eservicesthatmakea

cityglobally-competitiveservicedland,anecienttransportationsystem

publicsaety,potablewater,recreationacilities,aculturallydiverseand

tolerantsocialenviron

ment,andetceteratheirscalcapabilitiesareo

paramountimportance.Aninabilityocitygovernmentstonancethese

investmentsinsocialinrastructure,eitheratallorviaanecientsystemo

revenuewillcausenotonlytheeconomiesocitiesto

stagnatebutalsothat

otheprovincesandthenation.


ence


28/50

22

ACaseofFiscalImbalance:theCalgaryExperie

4.

Imp

actofOver-ContributiononCalgaryandtheCanadianEcon

omy

4.2.2

Over-contributionhurtstherestofCanadianeconomy

Economica

nalysisindicatesthatlong-term

economicgrowthdepends

largelyontechnologicalprogressandknow

ledgecreationinanations

hubcities.E

mpiricalstudiesoundthathistoricalgrowthrateshavebeen

diferentatglobal,nationalandstateorpro

vincialorders.Someregionsgrew

rstandbecameleadingeconomies.Otherseitherlaggedtheleaderswith

lowergrowthratesorcaughtupwithaster

ratesogrowth.ecatch-up

ineconomicperormanceiscalledconvergence,aphenomenonoundat

variousgeographicallevelsinnumerousstu

dies.Oneotherecentstudies,

the2006Co

nerenceBoardoCanada(CBoC)report,s

howedthatintra-

provincialc

onvergenceoccursinCanadabetweenhubcitiesandremaining

communitiesinrespectiveprovinces.Based

ontheCBoCreport,acasestudy

romeCityoCalgary,

Growthconvergenceandstrategicinvestment:

anAlbertacasestudy,urtherconrmedconvergenceinAlbertabetween

hubcities(C

algaryandEdmonton)andthe

restotheprovince,andcalled

orastrateg

icinvestmentinthesehubcitiestopromotelong-termeconom

ic

growthintheprovince.

ereisaconsensusthatpublicundingshouldocusonpromotinggrowth

inleadingeconomies,becauseitisthemostecientwayousinglimited

publicundingandtherestotheeconomy

wouldbenetromconvergenc

e.

Incontrast,

abigcitysover-contribution,asinthecaseoCalgary,would

hurtthepro

vincialandnationaleconomies

romaconvergenceperspective.


23

ies

al d s. e rd e art 2007


29/50

ACaseofFisc

alImbalance:theCalgaryExperience

5.

TheFed

eralandProvincialGovernmentsHavet

heFiscalCapacityto

HelpBigCiti

5.2

efedera

landprovincialgovernmentshavesca

capacitiestohelpbigcities

eCanadianandAlbertaGovernmentshavebothexperiencedimproved

publicnancessincethemid1990s,partlyduetothe

downloadingo

responsibilitiestolocalgovernmentsinordertoredu

cetheirexpenditures

BasedonthePEAdata,t

heederalgovernmenthadb

udgetsurplusessinc

1997duetocontinuousincreasesintotalrevenuesan

ddramaticdownwar

shisintotalcurrent

expenditures(seeChart5.1

).In

thesameperiod,the

GovernmentoAlber

taalsohadsurplusesduetothe

astgrowthintotal

revenuesandarelativ

eslowgrowthintotalcurrentexpenditures(seeCha

5.2).

5.

eFederalandProvincial

GovernmentsHavetheFiscalCapacity

to

HelpBigCities

5.1

eCityofCalgarylackssustainablescalcapacity

todealwithgrowthinthelong-term

eCityo

CalgarysLongRangeFinancialPlanprojectssignicantannua

l

operatingandcapitalbudgetshortallsorthemunicipalityinthenext

decade.Acc

ordingtotheprojection22in

theLongRangeFinancialPlan

2009Update:2010-2019,eCitywouldacesignicantannualoperating

andcapital

budgetshortallsoverthenextdecadeiprojectedlevelso

existingrev

enuesourcesdonotchange.ecumulativeoperatingunding

shortallwo

uldtotalmorethan$1billionrom2012to2019,andthe

cumulative

capitalgapwouldreach$6billionin2019(notincludingprojects

andupgrad

esnotcurrentlyidentiedinthecapitalbudgetsystem).Closing

theoperatingbudgetgapwithadditionalpropertytaxeswouldrequire

additionalm

illrateincreasesaveragingtwo

percenteachyearabovee

CityoCalg

arymunicipalpriceindex(MPI)orecasts23.

22eoperatingprojectionisbasedonprovidingthesamekindsoservicescurrently

provided

andspendingthesameamountperca

pita(adjustedororecastedination)

to

providet

hoseservices.iswouldbeequivalen

ttomaintainingtheexistingpercapita

resourcesandeciencyoreachcurrentCityse

rvice.ecapitalprojectionisbasedo

n

maintain

ingandextendinginrastructuretoservetheorecastedpopulationaccording

tothe10

yearcapitalplan,aswellascarryingoutthenot-undedprojectsincludedinthe

capitalbudgetingsystem.

23

emod

elisbasedonthecurrentlyapproved2

009-2011operatingbudgetandprojects

eightyearsbeyondthis,includingimpactsopo

pulationgrowth.

TheCanadianGov

ernmentenjoyedbudgetsurplusesfrom1

997to

2007

Chart5.1

FederalGovernmentFiscalBalancesinCa

nada(1981-2007)

billionsofdollars


250

'

200

Netcontribution

Totalreven

ue

Totalcurre

ntexpenditure

150

50 0

1981

1982

1983

1984

1985

1986

1987

1988

1989

1990

1991

1992

1993

1994

1995

1996

1997

1998

1999

2000

2001

2002

2003

2004

2005

2006


rience

ed eas

the

nal

ars.

7 08) 2008


30/50

24

ACaseofFiscalImb

alance:theCalgaryExper

5.

The

FederalandProvincialGovernmentsHavetheFiscalCapacitytoHelpBigCities

Sincethem

id-1990suntilbeorethe2008-09recession,t

hetwoorderso

governmentwereabletoreducetheirnetnancialdebts(oraccumulated

decits)signicantly.InAlbertascase,t

heprovincialgovernmentpaidofall

itsdebtsandhadasurpluso$35billiondo

llarsbytheendo2007scalyear

(Chart5.3a

ndChart5.4).

eederal

andprovincialgovernmentsbothenteredtherecentrecession

withstrong

scalpositionsandthusaredb

etterthanalmostallothermajor

industrializedcountries.A

lthoughbothordersogovernmentrandecits

orscalyear2008-09andbeyondtosupportthenationalandprovincial

economicrecovery,theyplantoreturntob

alancedbudgetsinaewyears.

Accordingtothe2010FederalBudget,nominalGDP

inCanadaisexpecte

togrowatanannualaveragerateo5percentin2010-14,rom$1,601

billionin2010to$1,9

53billionin2014.etotalederalgovernment

revenuesromtaxesa

ndothersourcesisexpectedtogrowatthesamerate

economyrom$233b

illioninthescalyear2008-09

to$296.5

billionint

scalyears2014-15,representing14.6percentand15.2percentonomin

GDPinCanada,respectively.

Inits2010budget,theGovernmentoAlbertaalsoanticipateseconomic

growthandincreases

ingovernmentrevenuesoverth

enextourscalyea

enominalGDPor

Albertaisanticipatedtogrowatanannualrateo7

TheAlbertaGovernmentenjoyedbudget

surplusesfrom1

994to2007

Chart5.2

AlbertaGovernmentFiscalBalancesintheProvince

(1981-20

07)

billionsofdollars


45

35

40

Ne

tcontr

ibution

To

talrevenue

To

talcurrentexpen

diture

25

30

10

1 5 05

5

1981

1982

1983

1984

1985

1986

1987

1988

1989

1990

1991

1992

1993

19941995

1996

1997

1998

1999

2000

2001

2002

2003

2004

2005

2006

2007

TheCanadianGov

ernmentreduceditsdebtlevelf

rom1

997to2008

Chart5.3

FederalGovernm

entNetFinancialDebtinCanada(1981-200

billionsofdollars

Sources:StatisticsCan

ada;CorporateEconomics

200

300

400

500

600

0

100

1981

1982

1983

1984

1985

1986

1987

1988

1989

1990

1991

1992

1993

1994

1995

1996

1997

19981999

2000

2001

2002

2003

2004

2005

2006

2007


25

ties

e e rs

he n

ues

ng

while

,


31/50

ACaseofFisc


5.

TheFed

eralandProvincialGovernmentsHavet

heFiscalCapacityto

HelpBigCit

percent,rom$259billionin2010to$317

billionin2013,contributingto

growthintotalgovernmentrevenuerom$33billioninscalyear2009-10

to$40billioninscalyear2012-13.

esecontinuedincreasesingovernmentr

evenuesoverthenextewyears

shouldstrengthentheabilityoederaland

provincialgovernmentsto

rebalancetheirbudgetswithoutinhibitingtheircurrentlowtaxpolicies.

esestron

gscalpositionsalsoprovidetheederalandprovincial

governmen

tsthenecessarycapacitytohelp

bigcitieslikeCalgaryby

grantingthemnewrevenuesourcesorgivingthemmoretranserunds.

TheAlbertaGovernmentbecamedebt-freein2000andaccumulated

surpluses

upto$35billionin2007

Chart5.4

ProvincialGovernmentNetFinancialDebtBalanceinAlberta

(1981-20

07)

billionsofdollars


0510

5

20

15

30

25

35

1981

1982

1983

1984

1985

1986

1987

1988

1989

1990

1991

1992

1993

1994

1995

1996

1997

1998

1999

2000

2001

2002

2003

2004

2005

2006

2007

5.3

ereisonlyonetaxpayer

Inarecentstudyusin

gasimilarmethodtotheC4SE

study,Dr.Kneebone

estimatedthescalcontributionsromCanadasnine

majorcitiesto

theederalandprovincialgovernments(R.Kneebone,2007).estudy

showsthatthemajor

citiesresidentspaidmoreintaxesthantheyreceive

backinprograms:aresultneitherunusualnorunexp

ected,sincethese

imbalancesreecttheinuenceoaprogressivetaxs

ystemandthe

designogovernmentprogramsthattranserincome

totheagedandthe

disadvantaged.Howe

ver,thendingshaveollowing

implications:

Itmaybenetgo

vernmentstoappreciatehowascalmeasure

mayhavedetrime

ntalimpactsonthecentresoe

conomicactivity

responsibleorge

neratingmostoCanadaswealth.I

thedesigno

taxesandspendin

gprogramsmatteroreconomicgrowth,andi

theirimpactiseltacrossregionsothecountryinawaydetrimental

toeconomicgrow

thinsomeregions,thenthetra

de-ofbetween

economicecien

cyandequity,w

hichallpolicym

akersmustace,

mayneedtobeco

nsideredalongtheregionalaswellasthepersonal

dimension.

Allordersogovernm

entrepresentthesametaxpayer.ediferentorder

ogovernmentmayh

avediferentresponsibilitiesbuttheirinterestsare

complementary:they

servethesamecitizensandworktowardsthesame

goalstoprovideahig

hqualityolie.Amunicipalgo

vernmentisoenth

onlygovernmentpresenceinaregionandisresponsibleorthedelivery

omostlocallyneededpublicgoodsandservicesand

inrastructure

investments.ereore,itisunderincreasingpressur

etoraisemorereven

toundservicesandinvestmentsarisingromtheefectsopopulation

growth.

eCityoCalgaryasothermunicipalitiescannotbudgettorunoperatin

decitsandhavelimitedrevenuesources.Itacessignicantchallengesw

balancingcompeting

prioritiesbetweeninvestinginnewcapitalprojects,


erience


32/50

26

ACaseofFiscalImb

alance:theCalgaryExpe

5.

The

FederalandProvincialGovernmentsHavetheFiscalCapacitytoHelpBigCities

replacingorupgradingoldinrastructure,andincreasingoperational

budgetstomeetgrowthinserviceneedsdu

ringeconomicboomtimes.

Sincethere

centeconomicrecession,revenueshavebeenreducedbutthe

demandso

rlocalservicesarestillpresent.Inresponsetothesechallenges,

eCityo

Calgaryhasusednancialreserveundsasabuferbetween

peaksandvalleys,andhasborrowedheavilyincapitalmarketstoaddress

capitalundinggaps.esemeasuresarete

mporaryinnatureandarenot

sustainable

overthelongrun.

econsistentover-contributionsituationinCalgarymeansthatthe

municipalgovernmentneedshelpromtheotherordersogovernment

inCanadatoundingnewinrastructures.

eprovincialandederal

governmen

tscanhelpeCityoCalgarybyeithergivingmore

intergovern

mentaltranserundsorgrantingnewrevenuesourcestoe

City.

Inevaluatingoptionsoradditionalundin

gormunicipalities,wemust

considerth

eriskoraisingthealreadyhigh

overalltaxburdenontaxpayer

s,

becauseasoennotedthereisonlyonetaxpayerandthetaxroomis

limited.

Apreerred

scenarioortaxpayersisthatthereshouldnotbeanincreasein

theirtotalt

axbill,namelyadditionalundingormunicipalitiesshouldnot

increasetaxburdensuponthetaxpayers.A

erexperiencinglongwaittim

es

ornewinrastructureinvestmentstostart

duringtheboom,asignicant

portionoCalgarysbusinessesandresiden

tsareincreasinglyreluctantto

paymoretaxes.


27

sion

d ld es


33/50

ACaseofFisc


6.

Conclus

6.Conclusion

TaxpayersinCalgaryhavebeenovercontributingtotheederaland

provincialgovernmentsscalbalanceshee

tsoverthepasttwodecades.

eresultisthatarelativelysmallshareo

taxrevenueswenttothelocal

governmen

ttoprovideinvestmentsininrastructureinvestmentsand

provisiongoodsandservices.Fastpopulationgrowthandhighination

ratesinCalgaryduringrecenteconomicbo

omsintensiedthissituation.A

s

thelocalresidentsandbusinessesareincreasinglyreluctanttopayanymore

taxestothe

municipalgovernmentandyet

demandhigherlevelsoservice

,

eCityo

Calgaryhadtoborrowheavilytonanceitscapitalinvestments.

isisnotsustainableinthelong-run.

isover-contributionsituationisnotwell

understoodbythegeneralpublic

duetoalackoocialdataandmeasurements.Amethodintroducedbythe

C4SEin2005providesapowerultooltoexploretheproblemandopensthe

discussionorsolutions.UsingtheC4SEm

ethod,thisstudyestimatedand

comparedC

algarysscalcontributionstothethreeordersogovernments

rom1988to2007.eresulthasshownth

atCalgariansconsistentlypaid

muchmore

intaxesthantheyreceivedinb

enetsromtheprovincialand

ederalgovernments.

eevidenceshowsthatover-contribution

notonlyhurtsthelocaleconom

y,

butalsoafectstherestoCanada.AstheG

overnmentoCanadaandthe

GovernmentoAlbertabothhaveaccessto

growthrelatedtaxsourcesand

benetedla

rgelyromtherecenteconomic

boom,t

heyareinstrongscal

positionsandhavethecapacitytohelpscallystrainedbigcitieslikeCalga

ry.

isstu

Fiscal Imbalance

Documents

Regimen fiscal

Fiscal Liquid Metering

The Great Imbalance

Fiscal stimulus

Codul Fiscal

ımf fiscal rules

Potassium Imbalance

Pleno Fiscal

Nota Fiscal Eletrônica

47347929 Control Fiscal

legislacion fiscal

Vertigo and Imbalance