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Opinion: If city charters allow deficits, who will clean up the mess?

Originally published in the Edmonton Journal and Calgary Herald on August 17, 2017.

By: Amber Ruddy and Colin Craig

The Alberta government recently proposed giving Calgary and Edmonton more powers – changes that have been articulated in new, draft “city charters“for the two cities.

Here’s what taxpayers need to know about the proposed changes.

First, the good news — the proposal doesn’t contain any major new taxes. Many observers thought the government might include new taxing powers for Alberta’s largest cities in new charters — perhaps a new municipal sales tax, an amusement tax or a vehicle registration tax. Thankfully, there are no new major taxes in the cards … for now.

Over the past year and a half the Canadian Taxpayers Federation and the Canadian Federation of Independent Business have been working together to campaign against new taxing powers for municipalities so we’re quite pleased to see a victory on this front.

While many politicians in Calgary and Edmonton claim their governments are hard up for cash and need new taxing powers, the fact is they’re not very effective with the funds they currently raise through taxation.

Research by the Canadian Taxpayers Federation concluded Calgary’s property taxes increased almost three times the rate of inflation between 2005 and 2015. Research by the Canadian Federation of Independent Business shows that municipal spending in Calgary and Edmonton increased two and a half times faster than inflation and population growth between 2005 and 2015. Municipalities don’t need new revenue sources.

When it comes to problems with the proposed new city charters, the most troubling concern we have is the idea of allowing the two cities to begin running deficits; something they’re currently not allowed to do.

The government’s proposal would allow a municipality to run a deficit as long as the municipality’s budget makes up for it over the next three years; thus, balancing the budget over a four-year period instead of annually.

This proposal is very troubling from an accountability standpoint. Imagine if, say, Edmonton’s city council headed into an election year and decided to go on a reckless spending spree and run a large deficit in an attempt to win votes. If many of those elected officials then lost their seats — who would have to clean up the financial mess? The next council of course.

This problem often plays out at the provincial and federal levels. Why would anyone want to import that problem to the municipal level?

Another concern with the proposed changes is that the two cities would be allowed to loan out money for “clean energy” projects and “affordable housing” initiatives.

Municipal governments contend they do not have enough resources to perform their basic responsibilities right now — fixing our streets, policing them, maintaining parks. Why would they want to expand into even more services — services that clearly aren’t municipal responsibilities?

What would be the cost of hiring staff to administer these programs? What happens if the loans aren’t repaid? If Calgary and Edmonton are given the power to run new loan programs, hopefully they refuse to exercise them.

A final pressing concern with the government’s plan lies with the commitment to create a new provincial funding formula for Calgary and Edmonton. The details have not yet been released, but we hope the proposal does not involve the transfer of funds from outside Calgary and Edmonton into those two cities.

Further, it should be noted that when one government hands funds over to another government, this often leads to a lack of accountability. The government that spends the money should also be the government that has to raise the money through taxation.

The Alberta government is seeking input on these proposed changes until Oct. 10. Give the government a thumbs up for not creating new taxes. But let them know some of their other ideas need to be rethought.

Colin Craig is the Interim Alberta Director for the Canadian Taxpayers Federation. Amber Ruddy is the Director of Provincial Affairs for the Canadian Federation of Independent Business.

August 17, 2017

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