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November 27, 2007
The 2007 Local Government Performance Index
by Larry N. Mitchell and David Seymour
The 2007 release of the Frontier Centre for Public Policy’s Local Government Performance Index (LGPI) collected some 3000 data points concerning the 2005 financial performance of municipalities in Canada’s 30 most populous jurisdictions. While this inaugural report forms a baseline for future editions, which will contain more detailed data with year over year time series perspective, a number of trends have already emerged.
The LGPI presents this data in a series of theme-based sections called topics. They examine levels and origins of municipal revenue, levels and destinations of municipal expenditure, levels of long-term debt, public reporting standards and the balance between municipal activities judged core and non-core.
Revenue levels and origins present diverse results with much less variance in the city size and regional group trends, noted in other topics, than there is between the municipalities within those groups. While larger municipalities and municipalities on the Prairies raise and spend more on average than smaller cities and those located elsewhere do, the relative differences between these groups are small compared to the almost three to one difference between some members within these groups. The average municipality raises 49% of revenue through taxation, followed by user charges at 23% and grants from other governments at 12%. These averages show considerable variation, however, with some municipalities sourcing most of their revenue from user charges, and other government grants revenue exceeding that sourced from user charges in others.
Keeping these gross expenditure variations in mind, the assessment finds a largely consistent relationship between capital creation and operating expenditure. The average municipality directs its spending in a three to one ratio in favour of operating expenditure as opposed to capital expenditure. Expenditures are finely balanced with revenue with the average variation for all LGPI cities being a deficit of $15 per household.
The average debt position is comfortable by international standards, at 2.9% of median household income. Nevertheless, the debt topic presents the most volatile results. Six of the 30 cities are debt-free, while the most indebted municipality carries $8,274 in long-term debt and $544 in interest charges per household for 2005. As with other topics, city size and location are a strong predictor of debt status, with Quebec and larger cities carrying higher debt on a per household basis.
The core--non-core topic is an attempt to classify the expenditures of municipalities according to whether those expenditures pertain to core or non-core municipal activities. The finding is that municipalities with a non-core focus have higher expenditures, as might be expected from a more diverse range of operations. However, the strength of this topic’s findings is limited by the resolution or poor transparency of the disclosure. That is, with the average municipality breaking its expenditure into six to ten line items, not all expenditure can be decisively identified as to its true nature. This problem is further accentuated by the practice of consolidating subsidiary operations with core municipal activities, a practice addressed in the public disclosure standards topic.
The LGPI was assembled on the basis that public accountability is contingent on public disclosure. The onus for public disclosure should fall on the municipality and not the analyst or the city stakeholder, so the data recorded in the LGPI is from publicly available financial statements and annual reports. Each municipality was assessed according to the criteria of Accounting Disclosure Standards. If they were included, Additional Statistics, Added Key Item Disclosures, Informative Coverage and Added PSAB Disclosures were used. This numerical evaluation was adjusted for any other outstanding qualitative factors, and a final grading of good, average or poor was given. Even the better performing municipalities were subject to several caveats. In particular, the lack of detailed expenditure breakdowns, the consolidation of core municipal activities with those of subsidiary operations, and (though it is mandated for the future) the lack of tangible asset accounting and funded depreciation mean that all the municipalities have dramatic room for improvement in public accounting.
Finally, the City Section presents a financial and statistical overview of each municipality. In particular, it presents a chart with all statistics for the municipality expressed as a percentage of the average. The findings in this section are too voluminous for presentation in an executive summary, but they do present valuable details for each municipality.View Full Document in PDF (69 pages)
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