Vancouver budget task force report
Trying to get a handle on the annual $500M infrastructure deficit
Mayor’s Budget Task Force Report, January 2024.
In April 2023, after a 10.7% property tax increase in March, Ken Sim announced that he was setting up an external task force led by Randy Pratt (Adera Capital) to look for ways to reduce costs (excluding policing, libraries, and parks) and increase revenue, reducing upward pressure on property taxes. They released their report in January 2024.
The report identifies three key challenges:
Increasing property taxes - it describes recent property tax increases as “unsustainable.”
“The staggering $500 million annual gap in infrastructure funding.” The city should be spending $800M to maintain its infrastructure in a state of good repair, and instead is spending only $300M.
Non-core responsibilities. The city has taken on services which should really be funded at the provincial level: below-market housing, childcare, drug addiction and mental health.
Improving operational efficiency
There’s some discussion of factors driving up costs:
The City’s operating costs have risen 29% above the Consumer Price Index during the past 10 years, primarily as a result of cost increases for public safety and utilities. Furthermore, those costs have risen faster than the population has grown in the same time period. This increase in costs is driven primarily by the cost of utilities growing by 41% above the rate of inflation (driven by Metro Vancouver costs that have been passed along to the City plus investment in sewer separation), wage growth for those providing public safety (driven by wage settlements that are not only in excess of inflation but are greater than labour settlements in other areas), as well as increased staffing levels.
The report makes recommendations to improve the budgeting process:
Establish a finance committee
Have a longer-term budget plan (four years)
Shorten the annual budget development process
Some further recommendations:
Establish key performance indicators, including cost-of-service metrics. (For example, how many staff hours does it take to process an application?)
Look for ways to optimize processes. (I think there’s lots of room to reduce the scope of approval processes - co-design and micromanagement are extremely labour-intensive.)
Look for ways to improve economies of scale through centralized functions, e.g. having a single group to manage leases instead of each department managing leases on its own.
Look for ways to cooperate with neighbouring municipalities in buying goods and services, to get better prices.
Manage absenteeism - the current average is 18 days, which is higher than the provincial average of 10 days.
Look for ways to apply advanced technology.
Improving capital asset management
“Capital assets” are things that the city owns that can be used for a long period of time, like a sewer system, a community centre, or a bridge, but which require maintenance and eventual replacement. The report notes that provinces and other major cities have set up capital asset management frameworks, like the capital plan (“depreciation report”) that BC requires strata buildings to have. They recommend that the city set up a similar framework.
Many provinces and large cities have implemented capital asset management frameworks. They outline the standards and processes applied through an asset’s full life cycle, from planning and acquisition through to operation, maintenance, and disposal or renewal. For instance, the the Province of British Columbia has developed a Capital Asset Management Framework to support provincial public-sector agencies to help make informed, cost-effective decisions on capital plans and apply best practices in managing capital assets.
A new municipal funding model?
The report notes that municipal funding is constrained:
Canadian municipalities have very limited revenue tools, especially in comparison to provincial and federal governments. Most cities, including Vancouver, are restricted by statute from collecting income and sales taxes that capture economic growth and, as a result, rely heavily on property taxes and user fees to sustain municipal services and infrastructure.
The report focuses on the question of whether the city of Vancouver should receive more transfers from the provincial and federal governments - it says that only 1% of the city’s budget comes from transfers, whereas most cities get 10% of their funding from transfers.
It does mention an FCM proposal for alternate funding sources:
Municipal funding has not typically been correlated to municipal economic growth. Taxes that have economic ties, such as income tax or sales tax, are levied by provincial and federal governments.
Recently, in recognition of the role of municipal governments in fostering favourable economic conditions for our cities, there has been a growing call for cities to have a share of economic-linked taxes. The Federation of Canadian Municipalities (“FCM”) has led the development of a new municipal growth framework that would result in municipal financial capacity being more closely linked to national population growth, inflation, and economic growth.
The FCM report calls for
doubling federal transfers from $2.5B to $5B, and linking them to GDP growth;
matching provincial transfers for another $5B, potentially in the form of allocating a portion of provincial sales taxes or income taxes to municipalities;
allocating transferred funds to operating costs as well as capital costs.
It mentions the fight over development charges on new housing. Scott Aitchison, the federal Conservative housing critic, is certainly focused on this issue.
At a time of acute housing shortages, development charges can potentially add to the overall cost of development and to the cost of purchasing or renting some types of housing, resulting in municipalities coming under increased pressure from the federal government and some provinces to freeze or limit the scope of development charges.
However, these charges remain a critical source of revenue for municipalities in some provinces and are needed to build the underlying infrastructure that supports growth. Faced with rapid population growth, municipalities must choose between a limited set of revenue tools (primarily property taxes and development charges) to pay for the infrastructure that growth requires. Without alternatives, municipalities will be forced to raise property taxes to pay for the cost of growth at a time when most families can least afford it.
More
Previously: The downside of low property taxes, municipal finance ideas, land value capture is an unreliable source of revenue
Ken Sim creates task force to find efficiencies in Vancouver's budget. Justin McElroy, CBC News, April 2023.
Vancouver Mayor's Budget Task Force says City needs "disciplined focus" on spending: report. Kenneth Chan, Daily Hive, January 2024.