Municipal spending in Metro Vancouver: an update

Municipal governments have many responsibilities. They deal with transportation and road networks, water and sewer services, property development, public safety, garbage and recycling, parks and recreation and other services for residents. Increasingly, municipalities are under pressure to address regional housing issues, notably around affordability. In Metro Vancouver, most communities have expanded in size in demographic terms. As populations increase, local governments must spend more as they deliver services to more residents while also having to maintain an expanding inventory of infrastructure assets.

The pace of municipal spending growth in Metro Vancouver, however, has come under scrutiny, as it has tended to race ahead of population growth and inflation for at least two decades. In late 2016, BCBC documented a decade and a half of outsized municipal spending growth in the region, with real per person spending surging by 10% between 2000-05 and then by 20% between 2005-10, before slowing to a 7% pace over the following five-year period. Here, we review and update municipal spending patterns in Metro Vancouver. We look at spending growth over the full decade period but also examine growth over the two five-year sub-periods to identify any moderation (or acceleration) in the pace of municipal spending growth.

Across Metro Vancouver, spending in most municipalities continued to outpace population growth and inflation over the 2009-19 period, which was also the case in both five-year sub-periods. Encouragingly, this update finds the rate of real per capita spending growth did moderate in most Metro municipalities.

Spending growth continues to race ahead in Metro

A brief recap of region-wide spending patterns provides context and a backdrop for reviewing comparative local government spending patterns. Total spending in Metro Vancouver’s 21 municipalities rose from $3.4 billion in 2009 to $5.4 billion in 2019, an increase of more than 50% before allowing for inflation (in nominal terms). Over the first five-year sub-period (2009-14), spending rose 24% and then by 27% between 2014 and 2019.

Because population growth was slightly stronger in the latter sub-period (8.8% compared to 6.6% between 2009 and 2014), per capita spending grew at a similar pace in both sub-periods (Figure 1). Inflation was higher over the 2014-19 sub-period, so spending growth was generally moderate after taking inflation into account.

In 2019, municipal spending per Metro Vancouver resident amounted to $2,016. This was up 5.6% from 2014, an increase of $106 in inflation-adjusted dollars. The most recent increase is more modest than the 10% jump ($175) seen over the earlier 2009-14 sub-period.

Per capita measures are necessary to compare spending levels over time and across jurisdictions. But when reflecting on these increases, readers should recognize the incidence of the tax increases necessary to cover rising expenditures is more concentrated than the per capita figures suggest. The average household in Metro, for example, has about 2.6 persons, so on a per household basis real municipal spending increased by $275 over the past five years and by $455 between 2009 and 2014. To finance these sizable spending increases, rising property taxes have been taking a larger bite out of household budgets. Moreover, business property taxes, which in most municipalities provide a disproportionate share of local government revenues, must grow comparatively quickly adding to high business operating costs in the region.

Municipal spending levels, spending growth, and debt loads

Spending patterns differ substantially across Metro Vancouver’s unusually large number of municipalities. Larger municipalities generally benefit from being able to spread fixed costs across a larger population base. But local council decisions regarding the scope of services, service delivery models, approaches to fiscal management, and residents’ sensitivity to escalating property taxes (required to finance spending increases) are often the key factors shaping local government spending.

Table 1 displays several indicators related to municipal spending and municipal debt for Metro Vancouver municipalities. The right-hand column is a Municipal Fiscal Index that summarizes each municipality’s relative ranking across the six fiscal indicators. The cells in the table are coloured with lighter yellow tones for lower spending levels, slower spending growth, lower debt levels, and lower debts financing costs with higher values for these fiscal indicators shaded progressively darker. The resulting “heat map” provides a visual summary of comparative fiscal circumstances across Metro municipalities, with darker tone corresponding to higher Fiscal Index values (and higher spending and stronger spending growth and more debt).

The Metro Municipal Fiscal Index only provides a sense of relative fiscal promiscuity across Metro municipalities. The Index is not a rating system. Nor should it be viewed as a measure of a municipality’s fiscal sustainability. It is simply a summary ranking of several different municipal fiscal indicators we have tracked for more than a decade. The relative rankings, however, can be viewed within the broader context of two decades of strong (and arguably) oversized municipal spending growth.

Maple Ridge tops the rankings, with the lowest Municipal Fiscal Index number. Maple Ridge has relatively low per capita spending levels, but its ranking was boosted because of the municipality’s sizable reduction in per capita expenditures in 2014-19. North Vancouver City, Burnaby, Langley City and Delta round out the top five spots. Burnaby and Langley city benefit from having no debt and thus no debt financing costs.

Port Moody, Langley district, West Vancouver, Vancouver, and White Rock occupy the bottom five spots in the Fiscal Index rankings. Port Moody’s Fiscal Index score is high because it recorded the strongest spending growth during 2014-19 and was one of only four municipalities where spending accelerated in the second period. West Vancouver’s Fiscal Index score reflects the municipality’s very high level of per person spending, coupled with above-average spending growth in both sub-periods. Vancouver’s Fiscal Index score is “hurt” by its relatively high spending and high debt levels. White Rock claims the bottom spot (highest Index number) due to its prolific spending growth in both sub-periods, the fact that spending growth accelerated in the second sub-period, and also because the municipality now has the third highest debt level (in per capita terms) in the region.

The four municipalities with populations of fewer than 5,000 are shown separately at the bottom of Table 1 because of the unique financing challenges smaller communities face.

Households and businesses throughout the region have seen property taxes rise to finance ongoing and in some cases outsized municipal spending growth. Region-wide, there is some indication that municipal officials are beginning to recognize the problem of “tax fatigue” and are working to limit spending increases. The indicators in the Fiscal Index do not reflect the differing scope or level of service provision across municipalities in the region. But framed within the broader context of out-sized municipal spending growth the rankings can help residents evaluate if they have experienced service improvements that match the scale of recorded municipal spending increases.

Appendix: a closer look at the fiscal indicators and municipal rankings

This section provides supplemental information for the fiscal indicators shown in Table 1.

Per capita spending levels – which municipalities spend the least and the most?

Figure 2 shows 2019 per capita municipal expenditures in ascending order. At the low end, Surrey spent just $1,441 per resident delivering municipal services, which is $575 (or 32%) below the Metro Vancouver average. At the other end, West Vancouver is an outlier, spending 3,702 per resident, fully $1,700 (82%) above the Metro Van average. After West Vancouver (which operates its own transit system and has its own police force), New Westminster spent $2,580 per resident (23% above the Metro average), followed closely by the City of Vancouver (22% higher).

Per capita spending growth – municipalities showing indications of fiscal restraint?

Growth rates in real per capita expenditures are shown in Figure 3, with municipalities ranked by spending growth over the entire 10-year period. The rates of real spending increases in each five-year sub-period are also shown. The changes in spending growth in each municipality between the two sub-periods are shown in the fourth column of Table 1. Spending growth slowed in all municipalities apart from Coquitlam, Port Moody, Richmond and White Rock.[1]
Coquitlam went from having one of the smallest spending increases in 2009-14 to having one of the largest increases over the 2014-19 sub-period. Real per capita spending growth more than doubled in Port Moody and Richmond. White Rock saw large spending growth rates in both sub-periods, which resulted in the biggest spending increase over the full 10-year period.

Maple Ridge, Delta and the City of North Vancouver appear to have shifted to a more sustainable fiscal path, with real per capita expenditures moving only slightly higher and per person spending actually declining in Delta. New Westminster, Pitt Meadows and Surrey each recorded notable reductions in per capita spending growth in the more recent five-year sub-period.

Municipal debt and financing costs – how much debt and what it costs taxpayers?

Municipal borrowing (debt) is seldom discussed. Most residents probably believe municipalities carry little, if any, debt. But they do borrow to finance large capital investments. The spending figures cited above generally do not include capital projects like enhancements to road networks or the construction of new community centres, ice rinks or swimming pools. The cost of borrowing to finance new infrastructure, however, does impact annual municipal expenditures.

Across Metro Vancouver, total municipal long-term debt totalled $1.76 billion at the end of 2019, up nearly 18% from 2014. In per capita terms, municipal debt levels edged lower from $624 to $613 (in current dollars) between 2009 and 2014 but then rose appreciably from $613 to $622 (also not adjusted for inflation) between 2014 to 2019.

Figure 4 ranks municipalities by long-term per capita debt. Several municipalities have no long-term debt, while a few others have modest debt levels. Residents of Vancouver currently face the highest debt burden, followed by those in Port Coquitlam and White Rock. Several municipalities (West Vancouver, White Rock, and Port Coquitlam) stand out for sharp increases in per capita debt levels between 2014 and 2019.

The per resident cost of financing municipal debt is displayed below in Figure 5. Generally, debt financing cost rankings align with per capita debt loads. One notable exception is New Westminster, which had the second highest per capita debt financing costs but the fifth highest debt loads.

In 2019 debt to revenue across Metro Vancouver municipalities averaged 26.1%. In the City of Vancouver, the ratio was 55.5%. For context, consider that the province’s taxpayer-supported debt-to-revenue ratio in 2019 stood at 80%.

[1] Spending growth picked up slightly in Bowen Island. But here we are focusing only on municipalities with populations of more than 4,000.