Poor information system in municipalities leads to support deficit

Municipal governments are the silent partners in Canadian citizens’ lives. The services they provide underpin our way of life, but too often their performance is falling short of international best practices.

The Local Government Performance Index, an analysis by the Frontier Centre for Public Policy, a western Canadian think-tank, has found that our cities are suffering from more than just a lack of attention. Poor public disclosure, archaic accounting and vast performance differences from city to city paint an unflattering picture.

A quick glance at the municipal financial statements shows Canada’s 30 largest municipalities are doing a highly variable job of managing important, but taken-for-granted, services. Public disclosure of municipal finances is often inadequate, and the resulting lack of information makes analysis – not to mention their assessment by municipal stakeholders — next to impossible.

With such weak information systems, municipalities cannot hope to recognize and recover the costs of operating and replacing vital infrastructure.

The failure of bridges, water and wastewater systems are directly related to poor information about assets and their condition. Such information gaps effectively obscure the substantial capital funding required to make up shortfalls in asset maintenance, renewal and replacement.

In a new study, the Federation of Canadian Municipalities estimated that the infrastructure deficit grew over four years from $60 billion to an estimated $123 billion. Because only half the municipalities surveyed responded, that figure can at best be considered a guesstimate. If true, however, it would equate to a funding requirement of between $1,800 and $3,700 per person.

To meet this challenge, cities could benefit by supplementing, or even replacing, traditional debt sources with innovative privately funded mechanisms. These include public/private partnerships or their variants including fund, design and build schemes.

But we need to put this problem into context. The level of municipal debt as a proportion of median household income in Canada was 2.9% in 2005, or about $1,800 per household — low by most standards.

While there are some star performers, many Canadian municipalities are underperforming in absolute terms and in comparison to overseas counterparts. Many are using accounting standards and asset management reporting that were replaced long ago in other jurisdictions with full accrual accounting and asset management best practices.

Even with these serious information deficiencies, however, substantial variations among the country’s municipalities exist. Six of Canada’s 30 largest cities are debt free, but Montreal carries an average of $8,274 of debt per household. When school board levies are not counted, a household there pays $2,060 per year on average in property taxes. Yet, in Richmond Hill, Ont., households pay $846, four times less than the $3,522 average in Montreal.

Although all larger municipalities tax, spend and borrow more than smaller ones do, municipalities in Quebec do all of those things much more than those in other regions.

But are services in high tax jurisdictions that much better? The Frontier index suggests they are not.

Municipal core services include roads, public transit, fresh water delivery, sewage treatment, garbage disposal, and police and fire protection. By dividing municipal activities into such basic core services, it is possible to measure a municipality’s level of core focus. The Frontier study found that municipalities with a broader range of activities – beyond those core functions — tend to spend more. Most municipalities report the maintenance of roads and the running of art galleries together in the same financial statement. But, when bridges are falling down, it is time to prioritize.

Half of all Canadians live in our 30 largest municipalities, from Vancouver to Halifax, yet the level of accountability those cities are subjected to does not match international standards. The public policy issues they face are among the most underrated in Canada. But understanding those issues is extremely difficult, because municipal reporting is littered with the information deficits.

The reporting gap is a problem in itself, but nothing compared to the impact the practical deficits it hides may have on Canada’s well-being. Full accrual accounting, world-class asset management and robust public disclosure cannot come fast enough to Canada’s cities. Such reforms could turn this threat into an opportunity.

(The Local Government Performance Index, which analyzes Canada’s 30 largest cities, is available atwww.fcpp.org. The Frontier Centre is an independent think-tank with offices in Winnipeg and Regina.)

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