A better way to fund transit expansion

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By Charles Lammam
and Hugh MacIntyre
The Fraser Institute

With 62 per cent of Metro Vancouver plebiscite voters rejecting a $250 million annual sales tax hike, local politicians have been scrambling for another way to help fund their $7.5 billion new capital spending plan. Much of the discussion has revolved around alternative sources of revenue and new tax increases.

It’s time for municipal governments to rethink the assumption that more revenue is needed to fund transit expansion. Savings can be found within current spending envelopes, given the dramatic increases in spending by municipalities and TransLink over the last decade.

Just how dramatic have the increases been?

Charles Lammam

From 2003 to 2013 (the latest year of available data), Metro Vancouver municipalities collectively increased their spending on day-to-day operations by a total of 73 per cent. TransLink’s spending growth was even more dramatic (at 105 per cent), with spending more than doubling over the same period.

By comparison, the B.C. government (43 per cent) and federal government (46 per cent) increased spending more modestly over the same period. The increases in collective municipal and TransLink spending also greatly outpaced the combined rate of inflation and population growth in the region (31 per cent).

It’s important to note that spending increases do not necessarily translate into new or improved services for Metro Vancouverites, especially if the spending is wasted or absorbed by government employees in the form of higher compensation packages.

A recent report commissioned by the B.C. government found that, from 2001 to 2012, the wages of local government employees – including TransLink – grew by 38 per cent. This rate of growth is twice that of provincial government employees (19 per cent). The report also noted that in a single year (2012), the number of TransLink employees making more than $100,000 increased by 14 per cent.

Hugh MacIntyre

More generally, research shows that in B.C. government workers (including federal, provincial and local governments) receive 6.7 per cent higher wages, on average, than their private-sector counterparts (after accounting for education, length of time in the workforce, type of job and other relevant factors).

That wage premium, which does not include the more generous non-wage benefits (pensions, earlier retirement, job security) that government workers also enjoy, leaves less money for transit and other public services.

To be clear. The amount governments and their related organizations spend on compensation isn’t trivial. In the case of TransLink, the compensation of employees consumed more than half (52 per cent) of its operating budget in 2013.

Consider a scenario where Metro Vancouver municipalities restrained spending growth to the pace of inflation and population growth starting in 2003. Together they would have spent $4.7 billion less on their operating budgets over the decade (in 2013 dollars). And a whopping $778 million less in 2013 alone, which is more than three times the $250 million that municipal mayors say they need each year to help fund the proposed capital plan.

Alternatively, consider how TransLink and the Metro Vancouver municipalities could work together to find $250 million in savings, assuming they share the burden based on their proportional 2013 operating spending.

Municipal governments would have to collectively save $185.6 million while TransLink would have to save $64.4 million (roughly 5 per cent of operating spending in both cases). Even with these savings, Metro Vancouver municipal and TransLink spending would still have grown faster than the provincial and federal government and also the rate of inflation plus population growth

A natural place to find savings is by ensuring that wages and benefits for government employees are in line with private-sector norms for similar positions.

Metro Vancouver residents have rejected higher taxes for transit expansion. Municipal governments would do well to look for savings in their existing budgets.

Charles Lammam is director of fiscal studies and Hugh MacIntyre is policy analyst at the Fraser Institute.

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By Charles Lammam

Charles Lammam was director of fiscal studies at the Fraser Institute.

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