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Tuesday 8 November 2011

Municipal Refit. Part 3

If you haven't been following along I'd suggest you have a look at Municipal Refit. Part 1, and Part 2 before you continue here. If you're still awake after all that then it's time to look at two more aspects of the municipal sector. In Part 3 we'll be examining the fiscal framework that municipalities operate with, and the structure of the system that they exist within. It's a little long so brace yourself!

Follow the Money
In Part 2 we briefly discussed the situation with municipal infrastructure funding. It's a case by case application based process. So that covers the "capital works" side of things but what if the town doesn't get approved for a project, or what about everything else that municipalities need money for? What about recreation, fire protection, snow clearing, planning, general operations etc? The truth is that the revenue generation opportunities for municipalities are very limited. For the sake of clarity and time we will have a look at three avenues municipalities currently utilize to generate operational revenue.

1. Taxes and Fees.
The most well know to the average resident is the small selection of taxes and fees that a municipality can develop and enforce. The most common is the property tax, where property owners pay an annual tax based on the assessed value of their property. This tax has a residential component for homes and a commercial component for business properties. Property tax is often referred to as a regressive tax because there is a penalty for improving your property even though you don't use any more municipal services. The value of your home increases and your taxes increase automatically. Neither residents nor councillors generally like the property tax. Property tax usually makes up the majority of revenue but there are other smaller taxation options. There's the poll tax, which is essentially a head tax, or a tax for just living, or working in a town. I've seen them range from $50 to $300. There are also a couple types of business tax but outside of the major centers this tax doesn't have the ability to generate much revenue because businesses are so few. Then there are a few other fees and taxes that municipalities collect raging from large fees like water and sewer, to smaller ones like permits and garbage collection. The problem is that in most smaller communities, and the majority of municipalities are smaller, is that there is very little in terms of a business or population base to make these fees and taxes worthwhile.

2. Municipal Operating Grants (MOG)
The Government of NL has long recognized that municipalities are underfunded and have limited means to generate revenue. As such the Province issues an annual grant called the Municipal Operating Grant or MOG to each municipality based on an unnecessarily complicated formula to help compensate for the financial shortfall. To provide some idea of the level of assistance a town of 600 people would receive approximately $18,000 per year based on the current formula. Unfortunately despite increases in regulatory and reporting requirements and rising costs, successive Provincial Governments have been reducing the amount allocated to municipalities. Part of the problem is that this funding is determined at the whim of the current sitting government, whomever it might be.

3. Special Grants
Every year there are special grants announced by various Provincial and Federal Departments allocated for very specific purposes and open to proposals from not for profits and community groups. These can cover areas of general community development, recreation grants, wellness grants, etc. For some municipalities this is an opportunity to access additional funding to accomplish very specific tasks. There are two potential issues with these pots of money. First is that they are generally application and proposal based, so it requires a significant investment of time to complete and sometimes monitor a project. Second is that towns often find themselves trying to find or create a project that fits the criteria of a given program just to get access to the funding, instead of finding funding to meet the actual needs of the community.

Structural Un-integrity
There is little doubt that the municipal system is facing a raft of issues, but unfortunately the deeper you dig the worse it gets. At the core of the sector is a structure that was developed for a time and a situation that no longer exists. Prior to confederation NL had very few municipalities but a great many communities.  Following confederation the new Provincial Government had some money to invest in communities but they needed an entity or formal body to legitimately administer the local spending. As such there was a push to establish municipalities to fulfill that function. In short the structural issues are as follows:

1. Too many ineffective Local Governments.
Today we have 276 municipalities, 175(approximately) Local Service Districts (LSDs), and hundreds of unincorporated communities with no official organization or representation. All this for a population of 500,000.

2. Out of Date Legislation.
The Municipalities Act(1999) is prescriptive legislation. This means that towns can only do things that are specifically listed in the act. If it isn't covered in the act municipalities can't do it. This effectively ties that hands of community leaders who want to think outside the box and try anything new. The best example of this with regard to economic development. Because it wasn't part of the Act until 1999, any municipality that was engaged in economic development was technically breaking the law up to the rewrite in 1999.

3. Lack of accountability.
Despite the prescriptive nature of the legislation there is very little accountability built into the system, either from a voter perspective or from the perspective of the Department of Municipal Affairs. There was a time in the past when Municipal Affairs Analysts would do spot checks on municipalities to ensure rules were being followed but over the last 10 years Municipal Affairs has significantly reduced the amount of monitoring and accountability.

4. Organizational confusion.
Who does economic development in your area? The town, The Regional Economic Development Board, the Rural Development Association, the Chamber of commerce, or the Tourism development agency? The answer is that it can be all of them, yet it is the municipality that usually owns the public infrastructure that local tourism depends upon. The unfortunate part is that each group is usually very busy working on its mandate so not enough cooperation happens and decisions get made that can actually work against one of the other groups. And that's just economic development. Where do groups like the Rotary, the Lions, Unions, churches, recreation committees and the like fit in.

5. No recognition of regional realities.
Our communities were build on the idea of autonomy. Each community was often capable of surviving on its own for long periods of time. That time has passed. With the changes in rural populations communities are forced to come to grips with the reality that we need to address issues on a more regional basis. This does not necessarily mean amalgamation (but it could) but what it means is that there are better ways of addressing larger scale problems.

If you've read the past 3 articles you will now have some level of understanding of the issues in the municipal sector. It isn't a simple problem with simple solutions. It's a systemic problem that will require a multifaceted approach that will address the broad scope of issues. Stay tuned to Municipal Refit. Part 4 where I'll identify some of the possible solutions that can be implemented with minimal cost to start us back on track toward building sustainable communities in NL.

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