Calgary Spending Tracker Report – 2019

Introduction

 

The Alberta Institute’s Calgary Spending Tracker Report for 2019 analyzes the growth in the City of Calgary’s operating budget during their most recent 4-year budget cycle, from 2015-2018.

City Hall claims that spending has to go up every year because inflation pushes up the City’s costs and population growth increases the demand for the City’s services.

This is debatable, as it assumes that the City was perfectly efficient to begin with and that it’s impossible for the City to find any spending reductions whatsoever.

Yet, even if we accept that spending has to go up over time, Council and City administration claim that it is their goal to limit the City’s spending growth to the combined rate of population growth and inflation.

Unfortunately, our analysis shows that Calgary’s spending has outpaced the combined rate of population growth and inflation every single year since the beginning of the recession.

For Calgary’s 2019-2022 budget, the City is once again promising to keep spending in check, but if their record is anything to go by, we shouldn’t be too optimistic.

 

— DOWNLOAD THE REPORT HERE —

 

 

Municipal Tax Collection

 

In order to understand how the City of Calgary compiles their budgets, first, you have to understand how they collect their tax revenue.

Tax collection works very differently at the municipal level than it does at the provincial or federal level.

Provincial and federal governments collect personal and corporate income taxes, and set their tax rates in advance, often not changing those rates for many years.

The amount of tax they collect each year is based on a percentage of personal income and corporate profits, and so the government’s revenue depends on how the economy is doing in that jurisdiction at that time.

Of course, sometimes governments spend more than they collect, resulting in a period of deficit spending.

Crucially, though, provincial and federal governments set their tax rates first, and then decide how much they can spend in their annual budget second, based on what they expect to collect in revenue.

Municipal governments collect property taxes, based on a percentage of property values, but their budgeting is done backwards compared to their provincial and federal counterparts.

Municipal governments work out how much they want to spend each year first, and then once they have calculated what all the properties in the city are worth in total, they pick whatever tax rate will ensure they collect enough tax dollars to pay for all the things they have put in their budget.

This means that councils are effectively running what they call ‘revenue-neutral’ budgets where, if they are ever short on revenues for existing or new projects, tax rates automatically go up to compensate, ensuring the City is never short of money to fund their budget.

 

 

Municipal Spending

 

City Hall claims that spending has to go up every year because inflation pushes up the City’s costs and population growth increases the demand for the City’s services.

Unfortunately, while Calgary’s economy is struggling, Council made a decision to dramatically increase spending far beyond what would be required to keep pace with growth.

Calgary’s spending has outpaced the combined rate of population growth and inflation every single year since the beginning of the recession.

Council made this choice at a time when property values, particularly downtown property values, were falling rapidly, reducing the City’s tax revenue from those buildings.

While it’s true that, initially, no-one predicted such a long-lasting economic downturn, it was obvious even back in 2014 and 2015, that taking no action to get spending under control and relying on a quick recovery was reckless.

You might think the rational response to a drop in revenue would be to reduce expenses – that’s what many Calgary businesses and families were forced to do during the downturn.

But, as we’ve seen, that’s not how City Hall works.

Calgary’s ‘revenue-neutral’ budget system meant that when downtown property values fell, tax rates automatically went up to compensate.

This left businesses outside the core – whose property values may have even reduced, but at a slower rate than those in the core – paying dramatically higher taxes.

Council relied on those businesses outside the downtown to make up the revenue shortfall while waiting for the economy to recover.

Except, the economy hasn’t recovered yet and downtown property values keep dropping, so now Council plans to ‘shift’ the burden on to households as well.

So, yes, downtown property values have declined.

But, Calgarian’s taxes aren’t going up because downtown property values went down.

No, Calgarian’s taxes are going up because when downtown property values went down, Council didn’t reduce spending proportionally.

In fact, Council kept increasing spending faster and faster, and now households have to cover the difference.

 

 

Statistics

 

In many situations, and in particular during a recession, governments should be more careful about the spending choices they make.

They should work hard to find efficiencies and reduce spending, in order to give residents and businesses a break by increasing taxes more slowly, or even not increasing taxes at all.

At the very least, though, when times are tough, cities should limit their spending increases to the combined rate of population growth and inflation.

The City of Calgary has not done even this most basic of necessities.

From 2015-2018, Calgary’s population increased from 1,230,915 to 1,267,344.

City of Calgary Population
Year Total Increase Increase %
2015 1,230,915
2016 1,235,171 4,256 0.35%
2017 1,246,337 11,166 0.90%
2018 1,267,344 21,007 1.69%

 

From 2015-2018 the inflation rate for the City of Calgary specifically, as opposed to the wider province or Canada, ranged between 1% and 2%.

City of Calgary Inflation
Year Increase %
2016 1.00%
2017 1.60%
2018 2.00%

 

By blending these two sets of figures, we can obtain a combined rate of population growth and inflation, a figure which the City of Calgary itself claims to aim to limit spending increases to.

City of Calgary Population + Inflation Combination
Year Population Growth Inflation Combined
2016 0.35% 1.00% 1.35%
2017 0.90% 1.60% 2.52%
2018 1.69% 2.00% 3.72%

 

 

Budget 2015-2018

 

The time period covered by this report roughly coincides with the economic downturn in Calgary, and when Council was setting its 4-year 2015-2018 budget, the effects of the economic downturn were already starting to be felt in Calgary.

Instead of heeding the many warnings about the economy they were given at the time, Council decided to forge ahead with significant spending increases that required significant tax increases to fund them.

From 2015 to 2018, Calgary’s operating budget increased from $3.45 billion to $3.99 billion.

City of Calgary Operating Budget
Year $ Increase Increase %
2015 $3,450,882,000
2016 $3,694,495,000 $243,613,000 7.06%
2017 $3,820,905,000 $126,410,000 3.42%
2018 $3,990,700,000 $169,795,000 4.44%

 

The City of Calgary didn’t have to increase spending by that much.

They could have held spending increases to the combined rate of population growth and inflation, as they regularly promise to do.

They could have chosen to be even more prudent with their spending, by holding increases to the rate of inflation or the rate of population growth, rather than both combined.

They could have even chosen to give residents and businesses some relief by not increasing spending at all.

Given many businesses and families have had to make significant cuts to their budget over the last four years, none of these potential options are particularly radical.

Using the data in the Statistics section above, we calculated how much the City’s budget would have increased by each year had they followed each of the spending options outlined above.

City of Calgary Spending Increase (%)
Year No Increase By Population By Inflation By Combined Actual
2015
2016 0.00% 0.35% 1.00% 1.35% 7.06%
2017 0.00% 0.90% 1.60% 2.52% 3.42%
2018 0.00% 1.69% 2.00% 3.72% 4.44%

 

We also calculated what the cumulative spending increases would have been over the four year period, for each spending option.

City of Calgary Spending Increase (Cumulative %)
Year No Increase By Population By Inflation By Combined Actual
2015
2016 0.00% 0.35% 1.00% 1.35% 7.06%
2017 0.00% 1.25% 2.62% 3.90% 10.72%
2018 0.00% 2.96% 4.67% 7.77% 15.64%

 

City Council increased Calgary’s spending by almost 16% over the four year budget period.

This is more than double the 7.8% combined rate of population growth and inflation that Council had pledged.

It’s also more than triple the 4.7% increase that would have occurred had Council limited spending increases to just the rate of inflation.

By converting these rates of spending increases to dollar figures, we can demonstrate what the City’s operating expenditure would have been for each year, under each spending scenario, and compare that with their actual spending.

City of Calgary Spending Scenarios ($)
Year No Increase By Population By Inflation By Combined Actual
2015 $3,450,882,000 $3,450,882,000 $3,450,882,000 $3,450,882,000 $3,450,882,000
2016 $3,450,882,000 $3,462,813,737 $3,485,390,820 $3,497,441,874 $3,694,495,000
2017 $3,450,882,000 $3,494,117,725 $3,541,157,073 $3,585,523,844 $3,820,905,000
2018 $3,450,882,000 $3,553,011,051 $3,611,980,215 $3,718,876,976 $3,990,700,000

 

Had Council limited their spending increases to the combined rate of population growth and inflation, spending would have been $272 million lower than it is now.

Had Council limited their spending increases to the rate of inflation, spending would have been $378 million lower than it is now.

Had Council limited their spending increases to the rate of population growth, spending would have been $437 million lower than it is now.

Had Council held spending flat, spending would have been $539 million lower than it is now.

 

Calgary Operating Expenditure 2015-2018

 

Sources:

2015, 2016, and 2017 operating expenditure figures: City of Calgary’s Annual Reports

2018 operating expenditure figures: 2018 Adjustment to Action Plan 2015-2018

2015, 2016, and 2017 population figures: City of Calgary’s Annual Reports

2018 population figures: 2018 Municipal Census

2016 and 2017 inflation figures: City of Calgary’s Annual Reports

2018 inflation figures: Calgary and Region Economic Outlook 2018-2023 (Fall 2018 Report)

 

 

Conclusion

 

Council’s decision to increase spending by faster than the combined rate of population growth and inflation has had a significant impact on residents, businesses, and their tax bills.

Council is currently debating a $250 million tax increase for Calgary households, because non-downtown businesses can no longer carry the burden of having to keep paying higher taxes to compensate for falling downtown property values.

But Council had another choice, and still does.

Instead of opting to automatically raise taxes when their revenue dropped, Council could have controlled spending.

Based on the City’s estimation that a $250 million tax increase works out to an approximately $500 tax increase for an average household, we can calculate the impact that these various spending scenarios would have had on an average household’s tax bill.

Savings If Spending Had Been Restricted By Scenario
Scenario Total Annual Savings Annual Savings Per Household
By Combined $271,823,024 $543.65
By Inflation $378,719,785 $757.44
By Population $437,688,949 $875.38
No Increase $539,818,000 $1,079.64

 

Had Council limited their spending increases to the combined rate of population growth and inflation, the average Calgary household’s tax bill could be about $544 lower per year.

Had Council limited their spending increases to the rate of inflation, the average Calgary household’s tax bill could be about $757 lower per year.

Had Council limited their spending increases to the rate of population growth, the average Calgary household’s tax bill could be about $875 lower per year.

Had Council held spending flat, the average Calgary household’s tax bill could be about $1,080 lower per year.

As you’ve seen in this report, the City of Calgary’s overall revenue has not reduced.

The revenue they collect from large buildings downtown reduced, forcing Council to raise taxes on everyone else in the City to maintain their inflated spending levels.

Those increased taxes elsewhere have more than compensated for lost revenue in downtown Calgary – in fact, that’s the problem!

Unfortunately, the longer you wait to address a problem, the more dramatic the consequences.

It may no longer be feasible to reduce spending back to the level it would have been 4 years ago had Council kept spending flat.

However, it would be a reasonable goal to reduce spending to the level it would have been had Council been even remotely fiscally prudent and held spending increases to the combined rate of population growth and inflation.

This would completely eliminate the need for the $500 per average household tax increase that is currently being proposed by Council.

Council claims their 2019 budget will increase spending by less than the combined rate of population growth and inflation.

But this claim isn’t very believable given they made the same claim in 2015, 2016, 2017, and 2018 too, and look how that turned out.

Taking action to remedy the out-of-control spending increases that occurred from 2015-2018 would give Calgarians more confidence that the City will stick to their projected spending restraint in the next four years.