"We would really like future council to have an open for business attitude, and how can we help get projects going."
- Mike Powell, CEO, BURNCO
“If you track what city spending would have been in 2016 relative to where it would have been had spending grew just with population and prices you would get about $750 million less spending in 2016.”
- Trevor Tombe, Associate Professor, University of Calgary
“Faster permitting enables lower carrying costs, decreasing the interest cost related to carrying that project, and as a result that money saved is better spent expanding, spending on technology and employing more Calgarians.”
- Naim Ali, Managing Director, Steinbock Development Corporations Ltd.
The Chamber recommends that City Council contain annual spending increases within a “Smart Spending Bandwidth” – the combined rates of inflation plus population growth. This will ensure necessary services continue to be provided, while guarding against inefficient program delivery and climbing property tax bills.
In A Calgary that Works, the City’s expenses are kept to a reasonable level, a level that ensures a good quality of life but with the lightest possible cost burden to business and residents. This results in taxes that are manageable and bearable, enabling business to continue to grow, invest, and hire.
In A Calgary that Works, jobs are created because new businesses can start-up quickly, and current businesses are not held back by inefficient duplication, bureaucracy, or red tape. An efficient city means that processes are lean, quick, and consistent.
In A Calgary that Works, Council is disciplined in keeping expenses at the lowest level necessary, by looking for best practices, and benchmarking the delivery of services against other leading cities.
For multiple terms of City Council, going back close to ten years, Calgary has had a government that lacked fiscal discipline and overspent, provided services at a cost that is not comparable to other leading jurisdictions, and held businesses back with excessive bureaucracy and red tape. This is contradictory to the current Council’s priority for a “well-run city,” and Calgary cannot claim to be efficient. And recently, this has compounded the negative effects of the economic downturn. As a result, businesses have closed their doors, staff have been laid off, and Calgary is becoming a harder sell to potential businesses and talent for relocation.
We asked Calgary businesses to identify their biggest municipal issues. The Chamber’s Calgary Business Leader Market Perceptions survey indicated that the best ways governments could help business was to adopt a more business friendly tone and attitude, reduce property taxes, and remove regulatory barriers.
Calgary is becoming a less competitive place to do business, as the costs of doing business – including those from property taxes – continue to increase.
Calgary, like all municipalities in Alberta, is governed by provincial legislation called the Municipal Government Act (MGA). The MGA, while allowing cities to borrow money from provinces for capital spending like infrastructure, requires all municipalities to run a balanced operating budget each year (this may soon change as the new draft city charter proposes to give Calgary and Edmonton the ability to balance their budgets over a four-year cycle).
The City determines how much money it will need for the year, then, based on all its revenue sources, assesses whether it will have enough revenue to cover the operating budget. As illustrated in Figure 1, with only limited means for raising revenue, if the City increases spending, its main lever to cover these costs comes from either residential or business property taxes. In fact, a 3% increase in costs is associated with a 5% increase in property taxes.
When spending is not constrained, if processes are inefficient, and if policy or programs are unproductive, then costs increase. And when costs go up, more revenue is needed to cover those costs. That means tax increases eventually follow. As illustrated in Figure 2, the level of municipal spending and total property taxes paid by Calgarians are closely related. Since 2008, the City’s spending has increased by 64%. During that same period, Calgary’s total property tax bill has increased by 58%.
In fact, Calgary’s spending has exceeded what spending would have been if City Council had followed the popular limit of inflation plus population growth, referred to as the “Smart Spending Bandwidth” (see Figure 3). Since 2009, average annual spending has outpaced the Smart Spending Bandwidth. While average annual inflation and population growth has been 3.4% since 2009, average annual spending increases have been nearly double, at 6.5%. This has driven the requirement for additional taxes at a similar rate, leading to a cost structure and tax revenue requirement that is untenable going forward, and made even more so in the economic downturn.
Had the City increased spending each year to within the Smart Spending Bandwidth of inflation and population growth since 2008, the City’s expenses would have been $743.6 million lower in 2016, with total savings since 2008 reaching over $4.6 billion. To put that into perspective, $4.6 billion is roughly the same amount as the total costs of the proposed Green Line LRT, and the amount of total lost economic output during the 2014-2016 recession. This overspending is eroding Calgary’s competitiveness as a place to do business. Business simply cannot afford to continue to pay for spending that is unreasonable and uncontrolled.
To rectify this problem, the City needs to address current inefficiencies in service delivery by ensuring their performance, and therefore spending, is aligned to benchmark performance against other leading jurisdictions. Municipal Benchmarking Network Canada – a partnership between Canadian municipalities – identifies and collects consistent and comparable data on municipal services to determine where efficiency gains could be made in each jurisdiction. Based on their 2015 Performance Measurement Report, some areas where Calgary can improve, include:
Inefficient processes and activities, and ultimately spending, not only costs taxpayers money, it also puts a strain on business activity. Take the current property assessment appeals process for example; Calgary businesses have found the process expensive, time consuming, and complex.
Currently, if a property owner does not agree with the assessed value of their property they can appeal through the Local Assessment Review Board. Property tax assessments are handled on the basis that every year is a new year, so businesses are forced to appeal (even if they win) year after year. Furthermore, there is no mechanism for mediation or resolution once a complaint has been filed, nor an Ombudsman to deal with assessment issues the Board does not resolve.
The assessment appeals process is expensive for businesses, and places a large burden on Calgary’s resources. A successful appeal doesn’t provide a mechanism to recover legal or administrative costs. This kind of inefficient and challenging process must change.
The inefficient City spending and processes are placing a serious strain on Calgary’s business community – especially in this tough economic environment, when many government policies continue to increase business costs. Increased corporate income taxes, minimum wage hikes, carbon levies, and rising property taxes are driving up the cost of running a business, all while revenues and incomes drop as a result of fewer customers, and reduced investments.
In 2017, a typical medium-sized business (less than 500 employees) will likely pay an extra $75,000 due to minimum wage hikes, property tax increases, and the carbon levy. In 2018, this figure will increase to $162,000.
In addition to these direct costs, the administrative burden, long wait times, and regulatory uncertainty are just as harmful to businesses. Businesses are facing difficult decisions as to how to pay for higher costs when fewer dollars are coming in the door; including layoffs, reduced staff hours, reduced investment, reduced salaries, or even closure.
This cannot continue. We have already seen the loss of many Calgary businesses, jobs, and, ironically, reduced the tax base. For example, after nearly three decades of serving Calgarians, Abruzzo Ristorante closed their doors, citing the continual increase in operating costs, particularly property taxes.
Unfortunately, Abruzzo is not the exception. Many Calgary restaurants have closed, citing high and unstainable costs, including increased property taxes. Along Stephen Avenue alone, we have seen Escoba, Trib Steakhouse, Divino Wine and Cheese Bistro, Mango Shiva, and Double Zero Pizza close their doors. This list is far from exhaustive. There are many other businesses that have already closed their doors, with many others rumoured to be near their tipping point if things don’t change. In fact, a record number of businesses – 7,124 – closed their doors in 2016. Among those businesses was one of Alberta’s oldest – western-wear store Riley & McCormick.
This is why operating efficiently is such a big deal. When our government doesn’t operate efficiently, overspending occurs, leading to higher property tax bills and unnecessary time and compliance costs. Businesses like Abruzzo close their doors, and their staff are left looking for other ways to provide for their families.
Given all the other costs being placed on the business community, it is more important than ever that Calgary’s next City Council prioritize operational efficiency.
The Chamber recommends City Council contain annual spending increases within a “Smart Spending Bandwidth” – the combined rates of inflation plus population growth. This will ensure necessary services continue to be provided, while guarding against inefficient program delivery and climbing property tax bills.
One of the best ways to encourage a thriving business community is for the City to keep its tax burden low. To do this, program delivery must be efficient to ensure overspending does not occur. While we applaud The City of Calgary for participating in a benchmarking study and working with other large cities across Canada to compare performances in service delivery, we urge the next City Council to seek efficiencies to become the leading jurisdiction and achieve performance and costs closer to their best performing peers.
Business and individual tax payers understand that operational and program spending are necessary to meet the demands of city services. To ensure necessary services can continue to be provided, while guarding against inefficient program delivery and climbing property tax bills, City Council must put a limit on spending increases. A prudent limit would be to keep spending increases below the rates of inflation plus population growth, known as a “Smart Spending Bandwidth.”
Since 2009, average annual spending increases, at 6.5%, has nearly doubled average inflation and population growth – 3.4%. Ensuring that annual spending increases stay within the Smart Spending Bandwidth could help achieve multiple positive outcomes. First, it will provide an incentive for City Council to provide services more efficiently, as overspending on any one service will mean less money for other services. Second, it may discourage the implementation of unnecessary regulations and procedures. Finally, as property taxes are strongly related to increases in spending, any savings in spending can be used to reduce Calgarians’ property tax bill. As discussed above, had the City stayed within the Smart Spending Bandwidth since 2008, total savings would have been $4.6 billion.
How might the City look to address its cost structure? While this is for City administration and Council to ultimately determine, options that should be considered include:
There is no doubt that many government services provide large social benefits. However, government spending also comes at a cost – higher property taxes paid by Calgary businesses and households. To eliminate any unnecessary spending – and larger tax bills – the next City Council must work to address inefficient service deliveries, and unnecessary regulations.