Municipal Efficiency April 2-2008

8/14/2019 Municipal Efficiency April 2-2008

1/12

12

THE TAXPAYER

Guest Commentary

by Bruce Hollands

Toward more efcient municipal government in Canada

may appear to have merit. However, municipalspending has not been adequately scrutinizedto fully support the concept. Are purchas-ing processes as competitive as they can be?Could Canadian municipalities operate moreefficiently? Have alternative delivery mecha-nisms been fully exploited? Are municipalitiesdoing too many things, allowing core servicesto suffer?

This piece, the first in a special three-partseries on efficiency in municipal government,tells the real story of growth in local govern-

ment revenues and argues in favour of morecompetitive purchasing and public-privatepartnerships. Provincial downloading will notbe addressed, since by and large, local govern-

ments have been receiving the revenues need-ed to meet their provincial obligations.

}Water andwastewater oper-

ations, account-ing for between 20and 50 percent of

total municipal ex-penditures~

More revenues, more demands, moretaxes

The revenue picture for local governmentshas been steadily improving, and has indeednever been better. In addition to the more than$20 billion received in infrastructure programfunding noted above, in 2004 the municipalGST rebate (a return of GST paid by munici-

Municipalities a growing force, agrowing concern

In Canada, the power of municipalities con-tinues to grow, something that could have seri-ous effects on taxpayers if left unchecked.

Several landmark court decisions somethat include the Supreme Court of Canada have granted municipalities greater discretion-ary authority and operating freedom. Memo-randa of Understanding signed bythe Union of British Columbia Mu-nicipalities and the Association ofMunicipalities of Ontario with theirrespective provincial governmentshave entrenched the principle ofconsultation in areas of provincialprerogative.

As well, billions of dollars havebeen transferred from the feder-al, provincial and territorial gov-ernments to municipalities for in-frastructure renewal exceeding $20 bil-lion since the 1990s. Most taxpayers are un-aware of this financial assistance, and rare-ly are these revenues mentioned in discus-

sions about fiscally strapped municipalities.Instead, we are reminded by organizationslike the Federation of Canadian Municipali-ties (FCM) and the 18 provincial and territo-rial municipal associations that local govern-ments collect only 8 cents on every tax dollar,and that the provinces and federal governmentreceive the lions share: 42 cents and 50 centsfrom every dollar, respectively.

The notion that municipalities need great-er revenues from senior levels of government

Part 1: Municipalities a growing force


2/12

13

THE TAXPAYER

palities from their purchase of products andservices) increased from 57.14 percent rep-resenting $775 million per fiscal year to 100percent, resulting in an extra $580 million an-nually for municipalities. Still more revenuehas come by way of ashare of the federal gastax under the New Dealfor Cities and Commu-nities, worth $600 mil-lion in 2005-2006 andslated to reach $2 bil-lion annually in 2009-2010. Provincial gov-ernments are also con-tributing significantlyto the municipal bot-

tom line through vari-ous annual grants andby sharing a portion of their own gas tax reve-nues.

Yet demands for additional tax revenuescontinue, and municipalities are getting theauthority to raise them. Torontos new taxa-tion powers granted under Ontarios City ofToronto Act, gives the city broad and permis-sive powers limited only by exclusions, mak-ing the list of potential new taxes almost limit-less.

Toronto Comes of Age At Your ExpenseToronto Councillor Shelly Carrolls com-

ment that Toronto came of age on October22, 2007, after city council voted for new tax-es on land transfers and personal vehicles isprophetic. Other municipalities in Ontarioand across Canada are already clamouring forsimilar new taxation powers. What does thefuture hold?

A recent FCM press release suggests thatwe can expect more of the same: until mu-nicipalities receive the equivalent of one centof the GST, property taxes will continue to in-crease (October 11, 2007). The previous

}According to most ex-perts, more competitivepurchasing procedures

could easily yield $2 - $5billion in savings across the

municipal sector. And thisis at the purchasing end ofthe spectrum. Operationalsavings could also be in the

billions.~

FCM demand was for a share of the federalgas tax; now its for a portion of the GST.

Competition, Competition, CompetitionWhen it comes to purchasing, municipalities

can behave like sovereign countries, arbitrar-ily excluding innovative and efficient productsand services, with no recourse for the private

sector except through lengthy and costly lob-bying efforts. Taxpayers get handed the bill.

For example, a product certified by all re-quired international, national and provincialagencies, and used by other municipalities inCanada, can be excluded from a tender if mu-nicipal staff so choose. This means less com-petition, resulting in higher prices for goodspurchased by local governments. And higherfront-end costs are only part of the story ten-dering that is less competitive has costly cas-

Part 1/3 Toward more efcient municipal government in Canada

Three part series


3/12

14

THE TAXPAYER

cading effects further down the line.Water and wastewater operations, account-

ing for between 20 and 50 percent of total mu-nicipal expenditures, are a case in point. Mod-ern pipe materials, like polyvinyl chloride(PVC) are corrosion proof, giving them supe-

rior longevity. As well, their ultra smooth sur-faces mean that less energy is needed to pumpwater through them (which represents as

sector. And this is at the purchasing end of thespectrum. Operational savings could also bein the billions.

More Public-Private Partnerships (P3s)Although P3s have multiple advantages,

they remain underutilized in the municipalsector. British Columbia has made some in-roads in this area by requiring municipalities

receiving provincialfunding to tender allinfrastructure projectsabove $20 millionas P3s. This hashelped leverage a greatnumber of projects;however, since they

are all designated asdesign, build, financeand operate (DBFO),only large consortiacan compete. If projectthresholds were low-

ered to $1 million and proposal criteria limit-ed to design and build (DB), more local com-panies could get involved, spurring even morecompetition and innovation.

}Toronto Councillor Shel-ly Carrolls comment that To-ronto came of age on Oc-tober 22, 2007, after citycouncil voted for new tax-es on land transfers and per-sonal vehicles is prophetic.Other municipalities in On-tario and across Canada arealready clamouring for simi-lar new taxation powers.~

much as seven percent of Canadas electrici-ty consumption and accounts for 70 to 90 per-cent of a municipal water utilitys operatingcosts). PVC is also less prone to leaks, whichaverage between 20 and 50 percent in most

water distribution systems. However, thesepipes continue to be excluded from select mu-nicipal tenders, even if it would make econom-ic sense to use them, given their lower operat-ing and life-cycle costs.

Collectively, municipalities spend about $50billion annually, accounting for about 11 per-cent of total government spending in Cana-da. According to most experts, more compet-itive purchasing procedures could easily yield$2 - $5 billion in savings across the municipal

An excellent example of how P3s can lever-age public funds is a $25-million, 5,500-seatarena in Chilliwack, built using only $6 millionin public funds, with the private sector invest-ing the rest. Abbotsfords 7,000-seat arena, onthe other hand, is totally funded from publicmonies and will cost taxpayers more than $55million. And the project is already over budg-et, because risks have not been properly trans-ferred to the private sector, which would havebeen the case had a P3 been used. Not surpris-ingly, Abbotsfords council just voted for a 16

Part 1: Municipalities a growing force

Toward more efcient municipal government in Canada


4/12

15

THE TAXPAYER

percent tax increase.A recent poll conducted by the Canadian

Council for Public-Private Partnerships, Envi-ronics and Research Group shows that 64 per-cent of Canadians agree that Its time to allowthe private sector to deliver these types of serv-

ices in partnerships with governments. Yetunions and municipalities remain largely op-posed. This position is not in line with voterinterests. Perhaps it is all about self-interest.

Infrastructure CrisesThe Canadian Water and Wastewater Asso-

ciation estimates that $60 - $100 billion willbe needed just to refurbish existing water and

wastewater infrastructure in Canada. With-out P3s, competitive tendering and municipal-ities operating more efficiently, Canadian tax-payers will be stuck footing the bill. Using ad-ditional tax dollars to prop up inefficient localgovernments will only worsen the impending

infrastructure crises, because the impetus forchange is seldom encouraged when a service ismanaged by the non-competitive public sector.

Bruce Hollands is president of Innovative Service Solutions.

He is a government relations and business developmentspecialist with extensive experience in the municipal

sector. Bruce served as vice president at the Federation

of Canadian Municipalities and acted as senior advisor to

Ottawa Mayor Bob Chiarelli and the Canadian Water andWastewater Association.

[email protected]


Three part series


5/12

10

THE TAXPAYER

Part 2: New Approaches

}Keeping

property taxincreases incheck will re-quire setting

priorities, bet-ter manage-

ment and newapproaches toservice deliv-

ery.~

Guest commentary

by Bruce Hollands

New Approaches

In part one of our three-part series, we ar-

gued that, left unchecked, the growingpower of municipal governments could

have deleterious effects on taxpayers pocket-books. Contrary to the claims of municipal-ities that they are cash-strapped, their reve-nues have steadily increased over the last twodecades, keeping ahead of inflation and pop-ulation growth.

The answer to the woes of municipalitiesdoes not lie with higher property taxes, newmunicipal taxation powers or a blank cheque

from other levels of governments. It lies rath-er with more competitive tendering, increasedoperational efficiencies and greater use ofpublic-private partnerships (P3s). Such prac-tices could keep costs under control, whiledelivering greater value for tax dollars.

For example, through P3s local gov-ernments could significantly increase thenumber of infrastructureprojects funded by the fed-eral governments $33 bil-

lion Building Canada Plan.Underscoring the benefits ofP3s at a recent conference,federal Finance Minister JimFlaherty said: When con-tributions by other levels of

government and the privatesector are taken into account we should be able to lev-erage more than $100 billionin investment in infrastruc-

ture over the course of the next seven years inCanada. This would go a long way in helpingalleviate the impending infrastructure crisis

we hear so much about.

Political WillKeeping property tax increases in check

will require setting priorities, better manage-ment and new approaches to service delivery.However, without political will, the munici-pal juggernaut will never be brought undercontrol. Nowhere is that will more importantthan in standing up to civic unions.

The New Rich Unionized PublicEmployees

When considering their salaries, bene-fits and pensions, it would not be far off themark to say unionized municipal employeesare Canadas new rich. For example, the av-erage salary for the City of Ottawas 16,000employees is $80,000 per year, much higherthan the Canadian average, which is $50,000,

www.taxpayer.com
http://www.taxpayer.com/http://www.taxpayer.com/http://www.taxpayer.com/


6/12

11

THE TAXPAYER

}When considering theirsalaries, benefits and pen-

sions, it would not be far offthe mark to say unionizedmunicipal employees are

Canadas new rich. For ex-ample, the average salary for

the City of Ottawas 16,000employees is $80,000 per

year, much higher than theCanadian average, which is$50,000, less the generous

pension.~

less the generous pension. To receive a pen-sion similar to that of a municipal employee,the average Canadian would have to save mil-lions of dollars in RSPs. All told, employeesalaries and benefits now absorb 50 percent

of most municipal budgets.The only way for municipalities to low-er labour costs is to outsource more serv-ices and reduce thenumber of union em-ployees. This will

be difficult becausethe Canadian Unionof Public Employees(CUPE), which repre-sents municipal work-

ers across Canada, isa powerful organiza-tion that can deployresources into any mu-nicipality. At the timeof writing, CUPE isthreatening Hamilton

with a strike because of the citys demand todouble the percentage of casual workers from10 to 20 per cent. This proposal would helpHamilton reduce a projected 6 to 7 per cent

tax increase for 2008.Examples of how unions distort and un-dermine municipal budgets include unrea-sonable overtime benefits and policies likefirst-right of refusal (FRR) which grantsprivileges to workers with the most seniori-ty. In some cases, FRR guidelines ensure thatseniority determines who is first offered over-time hours. In municipalities this combina-tion, along with poor management, has al-lowed some bus drivers to earn as much as

$100,000 per year.

More Outsourcing and User FeesThe Economic Opportunities Commission

report from Winnipeg highlighted in the

last issue ofThe Taxpayer provides goodexamples of how municipalities can improvetheir bottom lines through outsourcing and

the increased use of cost-recovery fees. Tre-mendous savings could be achieved if munici-palities outsourced basic services like issuingpermits, information management, street and

traffic light maintenance, public works equip-ment and maintenance, snow plowing and fa-cilities management, to name a few.

And, by outsourcing facilities manage-ment, savings in the order of 10% could beachieved. Several public sector organizationshave already done so: including, among oth-ers, Public Works and Governments ServicesCanada, Ontario Realty Corporation, BritishColumbia Buildings Corporation and CanadaPost Corporation. For a municipality the size

www.taxpayer.com

http://www.taxpayer.com/http://www.taxpayer.com/


7/12


8/12

13

THE TAXPAYER

Municipalities Must Get Their Housesin Order

Experience in many municipalities over thelast three decades confirms that municipal

governments could collectively save billions

through better management and improvedservice delivery. Clearly, the union genie must

be put back in its bottle. More services need tobe outsourced to the private sector and great-er use of user fees must be considered. How-ever, little will change unless voters get moreinvolved in local affairs and elect politicians

who are prepared to implement long-term so-

lutions that will keep taxes under control andtackle the infrastructure deficit in a rational,innovative and cost-effective manner.n

Bruce Hollands is president of Innovative Service Solutions.He is a government relations and business development

specialist with extensive experience in the

municipal sector. Bruce served as vice

president at the Federation of CanadianMunicipalities and acted as senior

advisor to Ottawa Mayor Bob Chiarelli

and the Canadian Water and WastewaterAssociation.

[email protected]

revenues that have been wrongly used to con-vince citizens they are getting tax relief. Thisabsolves them of any responsibility for in-creasing property taxes.

All three levels of government will have to

work together to deal with the looming infra-structure deficit, which the Federation of Ca-nadian Municipalities (FCM) estimates to be$123 billion. Contrary to what many local of-ficials claim, municipal revenue shortfalls arenot linked to this deficit nor do we know itsfull extent. For instance, the latest FCM studyon the infrastructure deficit admits that thereport does not provide an exhaustive orcomplete account of thephysical condition of mu-

nicipal infrastructure. Andthis study is the basis forthe municipal sectors lat-est demand for a share ofthe GST. In fact, only 85 ofthe 166 municipalities sur-

veyed responded in full orpartially, representing only46 per cent of Canadaspopulation.

With all the clamour

about the infrastructure deficit since the1980s, the response rate to FCMs surveyshould have been much higher. More impor-tantly, was such a survey needed? Shouldntmunicipal authorities know the state of in-frastructure within their jurisdictions? Theirfailure in this regard is proof positive thatthey are inadequately managing their assetsand cannot be trusted with federal and pro-

vincial revenues without stringent spendingguidelines.

}Clearly, the un-

ion genie must beput back in its bot-

tle. More servic-es need to be out-sourced to the pri-

vate sector andgreater use of

user fees must beconsidered.~

www.taxpayer.com



9/12

14

THE TAXPAYER

Part 3: In Need of Reform

}Independent in-quiries should be

established in eve-ry province to eval-uate and compare

the salaries of pub-lic employees with

those in the privatesector in an effort to

ensure someparity.~

In need of reform

Canada needs a more standardized mu-nicipal service delivery regime. Munic-

ipal activities are similar across thecountry, yet business processes are often verydifferent. As a result, Canadas 3800 or so mu-nicipalities waste billions of dollars each yearon tailor-made products and services. Cost-ef-fective, off-the-shelf solutions must be morewidely used and conditions for the broad im-plementation of best practices and more com-petitive procurement must be created if munic-ipal government is to become more efficient.Moreover, significant savings and economiesof scale could be achieved if municipalities co-ordinated purchasing and operated more uni-formly.

There is also a critical need to improve fi-nancial management and reporting and to pro-vide elected local officials with the tools theyneed to address spiralling labour costs.

But the only way to implement real changeand catalyse the municipal sector is throughbinding provincial legisla-tion. This will make mu-nicipalities more sustain-

able and transform theminto dynamic engines oflocal economic growth.

Binding legislationBinding legislation is

needed because leavingthings to the discretionaryauthority of municipali-ties doesnt work. We allremember the spending

on non-core infrastructure that was commonduring the heyday of the national infrastructureprogram. Another example are amendments tothe Ontario Municipal Act, which allow munic-ipalities to create new positions, such as audi-tor general and ombudsman, to enhance localaccountability. Few local governments have act-ed on it because it is not a requirement, forcingcitizens in some communities to petition for theestablishment of these positions.

One good example of binding legislation isOntarios Bill 175, the Sustainable Water andSewage Act, 2002. This measure compels mu-nicipalities to assess the costs of water andsewer services and to recover the money need-ed to operate, maintain and replace them. Al-though this has lead to higher user fees, it has

made Ontarios water and wastewater infra-structure financially and environmentally moresustainable. It has also provided consumersan incentive to reduce water use, thereby low-ering the cost of future infrastructure invest-ments.

Enforcement mechanisms, however, must bein place. It was recently discovered that city ofOttawa bureaucrats dumped $41 million from

Guest commentary

by Bruce Hollands

www.taxpayer.com


10/12

15

THE TAXPAYER

}Moreo-ver, significant

savings andeconomies of

scale could beachieved if mu-nicipalities co-ordinated pur-

chasing and op-

erated moreuniformly.~

other departments into its water and sewer op-erations.

Legislation that required consideration ofpublic private partnerships (P3s) would also bebeneficial. This method of financing and deliv-ering public services has provenits value around the world, foster-ing innovation and a higher lev-el of public sector accountability.Canadians have spoken about P3sfor decades but have barely begunto put them into practice.

Off-the-shelf savings andsmarter purchasing

A special report on technolo-gy and government in The Econ-omist (February 16, 2008) showshow significant savings can beachieved when a municipality dis-cards traditional approaches. By getting rid ofits servers and using off-the-shelf software pro-vided by Google, Washington, D.C., for exam-ple, was able to reduce its software costs by afactor of twelve from $50 a month per em-ployee to $50 a year. This illustrates the finan-cial drag customized purchasing has on munic-ipalities. Collectively, Canadian municipalities

could reduce their IT costs by some $100-$150million annually if they followed Washingtonsexample, not to mention the additional millionsthat could be saved in needless consulting andmaintenance fees.

Legislation must be enacted to help ensuremore accountability, uniformity and innova-tion in the business processes used by munic-ipalities. Contracts should be performance-based, with incentives for success and penal-ties for failure. Municipalities must more ef-

fectively transfer risk to the private sector, buymore shrewdly, and put an end to tenders thatallow costs to escalate after contracts have beenawarded. In most cases, tenders should sim-ply define a service outcome and let the private

sector determine how to best achieve it. Finally,assessing the lifecycle costs of products mustbecome a prime consideration in all purchas-ing.

Municipal accounting -- dramaticimprovements needed

Another area that would benefit from frame-

work legislation is accounting. Proper finan-cial information is essential to effective and ac-countable management. A recent study by theFrontier Centre for Public Policy, The 2007 Lo-cal Government Performance Index (LGPI),found significant deficiencies in the account-ing practices of Canadian municipalities. Thismakes it difficult to analyse the performance ofour local governments, undermines the man-agement of our infrastructure, and makes itimpossible to grasp pension fund liabilities,

www.taxpayer.com



11/12

16

THE TAXPAYER

}By getting ridof its servers andusing off-the-shelfsoftware provid-ed by Google,

Washington, D.C.was able to re-duce its softwarecosts by a factorof twelve from$50 a month peremployee to $50a year.~

Part 3: In need of reform

which are incompletely and inconsistently re-ported. The lack of mandatory and basic ac-counting for infrastructure assets leaves Cana-da far behind international standards.

According to the Frontier Centre study, One

of Canadas best hopes for economic advance-ment could well lie within improving the com-petence of local government, more particularly

their adoption of asset management best prac-tices It advocates the adoption of more com-petitive tendering, the reduction of union influ-ence in work practices and the creation of moreperformance incentives for employees. Not sur-

prisingly, the study showed that a lack of corefocus is correlated with higher municipal cost.It argues for a consistent Canada-wide set ofaccounting standards and performance frame-works for municipal accounting.

Flexible successor provisionsThe constraints placed on municipalities re-

garding outsourcing are largely attributable tosuccessor provisions. Broadly, these provisions

under provincial labour codes require privatecompanies to assume responsibility for all un-ionized public employees who are redeployedor transferred by outsourcing, or whose bene-fits may be affected. Though the right of munic-

ipalities in this regard has been confirmed innumerous court cases across the country, mostcurrent statutes contain far too many loopholes

that enable unions to chal-lenge outsourcing. Taxpayer-friendly laws that allow elect-ed municipal officials moreflexibility in outsourcingwould be beneficial.

The pension bombAs discussed, sub-optimal

accounting practices makeit difficult to determine thetotal pension liability in themunicipal sector. We doknow, however, that it isgrowing and unsustainable.Though greater use of out-

sourcing could help municipalities mitigate thisliability, the retirement of a large number ofhighly paid unionized employees over the nextdecade will strain finances. Therefore, pension

benefits must be scaled back now to deal withthe effects of a contracting workforce and re-tirement age should be increased from 55 tosomewhere between 60 and 65.

This is also a social justice issue. Independ-ent inquiries should be established in everyprovince to evaluate and compare the salariesof public employees with those in the privatesector in an effort to ensure some parity. In ad-dition to salaries, the range of employee bene-fits should be thoroughly examined and weight-

www.taxpayer.com


12/12

17

THE TAXPAYER

}Contracts should beperformance-based, withincentives for success andpenalties for failure. Mu-nicipalities must more ef-

fectively transfer risk tothe private sector, buy

more shrewdly, and putan end to tenders that al-

low costs to escalate af-ter contracts have been

awarded.~

ed, with special emphasis on pensions, so thatcomparisons fairly reflect the total wage pack-age received by public employees. The two-tierworld so often mentioned by unions has beenfinally created in Canada, and it is public em-

ployees who occupy the upper seats.

Toward better municipal governmentConcerted legislative municipal reforms

throughout the provinces will make local gov-ernments more effective, innovative and ac-countable. This will not only create economiesof scale for existing products and services, butit will create new products and new process-es as demand identifiesnew needs. Over thelong term, this could be-come the foundation forpublic service deliveryreform across all threejurisdictions of govern-ment, reducing duplica-tion and overlap.

The following mightserve to inspire andguide some of the pro-posed legislation:

1. Make provincial and

federal funding to munic-ipalities contingent uponmore outsourcing, im-proved accounting practices, competitive ten-dering procedures, greater use of P3s, grouppurchasing, etc., within a provincial and nation-al framework;

2. Establish an independent procurementauditor responsible for the municipal sector ineach province to enforce competitive procure-ment practices and handle complaints from

suppliers. The municipal authority to excludeproducts and services from tenders must beabrogated.

3. Create an independent certification bodyin each province to determine which products

and services meet municipal sector require-ments. This will encourage the development ofstandardized products and services and drivedown the price of municipal goods and servic-es.

4. Reduce inter-provincial trade barriers andincrease the number of suppliers available tomunicipalities by rolling out the Alberta-BritishColumbia Trade, Investment, and Labour Mo-bility Agreement (TILMA) across Canada.n

Bruce Hollands is president of Innovative Service Solutions.

He is a government relations and business

development specialist with extensive

experience in the municipal sector. Bruceserved as vice president at the Federation

of Canadian Municipalities and acted

as senior advisor to Ottawa Mayor Bob

Chiarelli and the Canadian Water andWastewater Association.

[email protected]


www.taxpayer.com

Municipal Efficiency April 2-2008

Documents

Transcript of Municipal Efficiency April 2-2008