THE ROLE OF MUNICIPAL GOVERNMENT

DAVID SEYMOUR AUGUST 19, 2013

KEY POINTS
• The Alberta Municipal Government Act sets out what municipal governments can and cannot do. However, in practice it rules out little besides some niche activities and broad restraints on taxing and borrowing. Economic theory proposes much tighter constraints on the role of government than do the constitutional arrangements that surround Alberta municipalities. • Voters are the ultimate restraint on government and have the last say on defining its role. However, they also face acute difficulties when holding government to account. Given the lack of constitutional constraints, an opportunity exists for municipal politicians to apply restraints consistent with economic theory.

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TARGET 102: BY 2036, 100 PER CENT OF CALGARIANS REPORT THAT THEY FEEL RESPECTED AND SUPPORTED IN THEIR PURSUITS OF MEANING, PURPOSE AND CONNECTEDNESS
– Imagine Calgary, City of Calgary Plan

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THE ROLE OF MUNICIPAL GOVERNMENT
Many debates over municipal policy could be easily resolved if the role of a municipality was more widely agreed upon. Questions such as whether a municipality should regulate the serving of shark fin soup, run certain commercial enterprises, allow secondary suites and increase taxes could better be answered if we understood whether such activities fit within the role of government. In spite of this, it seems to anyone reading city documents that there is almost nothing that the City of Calgary cannot do for its citizens. Its Societal Benefits policy lists 13 wide ranging goals that could be used to justify almost any conceivable activity.

CITY OF CALGARY SOCIETAL BENEFITS
1. Reduce community greenhouse emissions, air pollutants, and energy consumption (environmental) 2. Protect water resources (environmental) 3. Ensure land stewardship and protection (environmental) 4. Reduce waste to landfill (environmental) 5. Provide accessibility/availability (social) 6. Enable affordability (social) 7. Promote accommodation/acceptability (social) 8. Improve adequacy to meet need, suitability and safety (social) 9. Create a city where citizens want to live, work and invest (economic) 10. Create a city that promotes a healthy, vibrant economy by attracting and retaining businesses and helping them grow (economic) 11. Encourage sustainable communities (smart growth) 12. Reduce barriers to participation (smart growth) 13. Other (from Council-approved environmental, social, economic or smart growth policy)1

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The City’s Imagine Calgary Document contains a range of even more specific goals: • By 2036, 90 per cent of citizens agree that “Calgary is a city with soul,” which is defined as citizens having meaning and purpose in life and experiencing ongoing feelings of connectedness with some form of human, historic or natural system. • By 2036, 100 per cent of Calgarians report that they feel respected and supported in their pursuits of meaning, purpose and connectedness, and that they extend respect and support to others who meet this need in ways different from their own. • By 2036, 95 per cent of children aged two to five years exhibit high levels of emotional well-being and age-appropriate levels of attention span and impulse control, as measured by the Ages and Stages Questionnaire. • By 2036, the consumption of urban and regionally-produced food by Calgarians increases to 30 per cent.2 The City’s Transport and Municipal Development Plans identify a range of objectives that can best be described as fitting Calgarians’ behaviour to a plan rather than planning to service their needs. For example, the Municipal Development Plan calls for population densities to reach 27 people per hectare (up from 20 in 2005), 50 per cent of new development to occur within the 2005 urban footprint (5 per cent
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INDEED, MANY OF THE CONCERNS THAT VOTERS HAVE ABOUT THE CITY OF CALGARY COULD BE ALLAYED BY THE CITY ADHERING MORE CLOSELY TO A DISCIPLINED ROLE OF GOVERNMENT

leaving built area in 2005), and at least 35 per cent of trips to be walking, cycling or transit (up from 23 per cent in 2005). At the same time, public opinion research undertaken for the Manning Foundation indicates that the public actually has quite different priorities (see Figure A).

FIGURE A
CALGARY VOTER CONCERNS
On a scale where 0 is “not at all concerned” and 10 is “very concerned”

Traffic congestion onon Calgary roads Traffic congestion Calgary roads The cost of living for average families The cost of living for average families in Calgary in Calgary

7.61 7.37 7.14 6.89 6.60 6.42 6.13 6.10 5.87 5.83 5.16
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7.61 7.37 7.14 6.89 6.60 6.42 6.13 6.10 5.87 5.83

The personal safety and security of and security passengers of passengers C-Train stationsafter afterdark dark atat C-Train stations Making City Hall more accountable Making City Hall more accountable

The amount of property taxes charged of property taxes charged to property owners in Calgary to property owners in Calgary The amount of crime, theft and graffiti The amount of crime, theft and graffiti in the city in the city The adequacy and efficiency of CThe adequacy and efficiency of C-Train service Train service
The rate which the city growing The rate at at which the city is is growing

Making it easier for Calgarians to deal Making it easier for Calgarians to deal with City Hall with City Hall Ensuring adequate support for adequate support for walking and bike paths in the city walking and bike paths in the city

Ensuring adequate support for local ng adequate support for local culture and arts in Calgary culture and arts in Calgary

*On a scale where 0 is “not at all concerned” and 10 is “very concerned.”

*On a scale where 0 is “not at all concerned” and 10 is “very concerned.”
Method: Live telephone interviews and online interviews Fielded in October 2012 Margin of Error +1.6% nineteen times out of twenty Full Results: www.manningfoundation.org/our-work

Manning Foundation Municipal Survey

Sample Size n=4,200 eligible Calgary resident voters (Avg 300 per Ward)

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Indeed, many of the concerns that voters have about the City of Calgary could be allayed by the City adhering more closely to a disciplined role of government. Housing affordability, the cost of government services, public safety and traffic congestion could all be addressed by the city putting more emphasis on the things governments are good at and refraining from activities where private businesses and civil society could do better.

Canadian Constitution is silent on the role of municipal governments, simply stating that all municipal questions are up to the provinces. In Alberta, the most important document is the Municipal Government Act, which provides little guidance on what the role of municipal government should be. It empowers municipal government in multiple and vague ways, leaving few activities out of its scope. The second is economic and political theory.

Broadly speaking, governments can tax, regulate and own. There are good arguments for tax funding being appropriate for some expenditure, such as a police force, but less so for others, such as a golf course. Some regulations, such as an anti-littering ordinance, can improve people’s overall well-being. Others, such as current taxi regulations, do not. Government ownership is essential if a government is to operate independently. For example, a council should own its own chambers. Nevertheless, government ownership has a poor track record generally, demonstrated in reverse by the worldwide success of privatization. The role of government can be defined by a set of rules for when government should and should not engage in these three kinds of activities. These rules may be derived from three main sources. The first is constitutional and quasi-constitutional documents such as the Canadian Constitution and the various provincial municipal government acts. The
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These provide several ideas regarding what governments might and might not be good at based on the concept of market failure. The third and most important source of restraint on government activity is the will of the voters. The voter ultimately decides what the role of government should be. However, voters as a group face some systematic challenges in restraining government. At its simplest, the problem is that becoming an informed voter is only useful if many other voters do the same. Voters as a group face a collective action problem when attempting to influence the course of government. This problem is particularly acute when dealing with small, organized interest groups.

SOME REGULATIONS, SUCH AS AN ANTI-LITTERING ORDINANCE, CAN IMPROVE PEOPLE’S OVERALL WELL-BEING. OTHERS, SUCH AS CURRENT TAXI REGULATIONS, DO NOT

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THE CONSTITUTIONAL APPROACH
The role of municipal government is barely defined in any constitutional or quasiconstitutional document. On the contrary, the relevant documents effectively tell municipalities that the role of municipal government is whatever municipal government defines it to be. The Canadian Constitution does not contemplate municipalities except for a brief line in the Constitution Act, 1867. “In each Province the Legislature may exclusively make Laws in relation to … Municipal Institutions in the Province.” For municipalities in Alberta, the Municipal Government Act begins with a very wide definition of the purpose of municipal government: (a) to provide good government; (b) to provide services, facilities or other things that, in the opinion of council, are necessary or desirable for all or a part of the municipality, and; (c) to develop and maintain safe and viable communities.
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These purpose statements could encompass almost any imaginable activity. The Act goes on to say that a municipality may pass bylaws for municipal purposes, and it gives a long list of them. The list begins: (a) the safety, health and welfare of people and the protection of people and property; (b) people, activities and things in, on or near a public place or place that is open to the public; According to this section, any bylaw is legal as long as it involves the safety, health or welfare of people or occurs in or near a place that is open to the public. There is some practical restraint on the power to enforce bylaws, which they can enforce with a maximum $10,000 fine or one year’s imprisonment. Those interpreting the Act are instructed to: (a) give broad authority to councils and to respect their right to govern municipalities in whatever way the councils consider appropriate, within the jurisdiction given to them under this or any other enactment …. The Act does enumerate limits on the power of municipal governments; however, these almost exclusively defer municipalities to provincial oversight rather than state the rights of citizens. For example, municipalities must have

provincial oversight for involvement in mineral rights, for-profit corporations, regulating firearms and regulating the use of fire in forestprotection areas. There are restrictions placed on revenue gathering and borrowing that act as a practical limit on spending. Taxes must be assessed against property rather than income, sales or other factors used by the federal and provincial governments. Alberta municipalities have a debt limit (set by regulation) of 1.5 times to two times the municipality’s revenue, depending on the municipality. The Act also provides considerable scope for municipalities to regulate land use. In this regard, the purpose of the Act is: … to provide means whereby plans and related matters may be prepared and adopted: (a) to achieve the orderly, economical and beneficial development, use of land and patterns of human settlement, and; (b) to maintain and improve the quality of the physical environment within which patterns of human settlement are situated in Alberta, without infringing on the rights of individuals for any public interest except to the extent that is necessary for the overall greater public interest.

The Act goes on to enable and, in many cases, require municipalities to make land-use regulations. As with the broader purpose and powers given to municipalities under the Act, these powers are quite open ended. Land-use bylaws are mandatory for municipalities with populations of more than 3,500. These must divide the municipality’s territory into zones with permitted activities and processes for gaining development permits. For example, municipal development plans must contain regulations to protect agricultural land. The Act extinguishes some of the usual constraints that might limit government. For example, the Act states that nothing in the landuse regulation section entitles property owners to consultation. In the case of subdivision and development appeals boards, the Act exempts these quasi-judicial bodies from the usual laws of evidence that are applied to judicial proceedings. Altogether, Alberta’s Municipal Government Act places few restraints on municipal government, effectively saying that the role of government is whatever the government defines it to be. In view of this, there is a case to be made for municipal politicians setting their own constraints.

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CONTRIBUTIONS FROM ECONOMIC THEORY
Economics is the study of putting scarce resources to their best use. The role of government is part of this study, which asks whether government should control given resources by owning them, spending them or regulating their use. For example, there is a question of whether governments should run commercial enterprises. Empirical evidence overwhelmingly shows that these are best left outside of the role of government. There are other considerations in public policy, such as the distribution of welfare. It is possible to imagine a very wealthy society with great inequality, and many see that as unjust. However, there are critical difficulties with municipal governments being involved in the redistribution of wealth. Without access to the wider tax and transfer system used by the federal and provincial governments, municipalities lack an important tool for identifying and helping those in need of redistribution. Furthermore, municipalities face a geographical challenge in providing income redistribution.

If municipalities are in charge of [social] policies, they are under huge pressure to reduce their financial commitments because, if they do not, there is always the threat that wealthy individuals or companies will simply go elsewhere. When going elsewhere means only a move from one municipality to another, the threat is often (but not always) real.3 For this reason, this paper focuses on economic efficiency.

THERE ARE CRITICAL DIFFICULTIES WITH MUNICIPAL GOVERNMENTS BEING INVOLVED IN THE REDISTRIBUTION OF WEALTH

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The role of government can be broken down into ownership, expenditure and regulatory roles.

there is a cost of ownership, which is any lost opportunity to better use the same assets. If the actual return on owning an asset is lower than other possible returns, then value is being lost. In order to achieve efficiency, municipal

OWNERSHIP
The Municipal Government Act is silent on government ownership and places no constraints on it other than requiring ministerial oversight of the ownership of forprofit corporations. Nevertheless, there are good reasons municipalities might choose to restrict their role in terms of ownership. The City of Calgary is engaged in extensive ownership, claiming $5.4 billion in financial assets and $13 billion in tangible assets. The financial assets are intangibles, with the exceptions of $250 million in land inventory and full ownership of Enmax, which is valued at $2.2 billion. The tangible capital assets are predominantly engineered structures, followed by land, buildings and vehicles. In functional terms, these assets include golf courses, sailboats, parks, roads, sewers, trains, rails, buses, machinery and a development company. Against this ownership, the City carries $3.4 billion of long-term debt as part of total financial liabilities of $5.3 billion. The interest on these liabilities serves4 as a reminder that

governments should not own assets that could be better managed by other entities. Over the past 30 years, governments in more than 100 countries have privatized more than $2 trillion worth of assets, providing a rich history of what happens when the private rather than the public sector manages the same assets. The evidence has overwhelmingly shown that private management is more efficient than public management.

THE EVIDENCE HAS OVERWHELMINGLY SHOWN THAT PRIVATE MANAGEMENT IS MORE EFFICIENT THAN PUBLIC MANAGEMENT

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For example, in a meta-study of 38 studies of privatization, Megginson and Netter (2001) concluded, “Research now supports the proposition that privately owned firms are more efficient and more profitable than otherwisecomparable state-owned firms.”5 Further evidence is provided by Boardman and Vining (2012), who studied 53 Canadian privatizations spanning from 1974 to 2011 and summarized that “the overall impacts have been largely positive, in many cases impressively so. Key economic indicators such as capital expenditures, dividends, tax revenues and sales per employee tended to increase, while others such as employment initially fell, only to rise again over the long term.”
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Municipal politicians eager to increase economic efficiency in Calgary should aim to put assets into private ownership, as the evidence on average and over the long term suggests that the assets will be better managed. In terms of prioritization, politicians should first apply the policy to assets that have clear commercial competitors or the potential for them. Such an order might be: • Golf courses • Recreation centres • Sailing assets • Snow removal and garbage services • Electricity generation • Transit services • Single-use network infrastructure, e.g., sewers, water and electricity distribution • Multiple-use network infrastructure, e.g., roads Reducing the scope of government ownership would not prevent the production of any of these services. On the contrary, there is good reason to believe that the cost and quality of the services would improve if these assets were transferred to private ownership. Of course, not all privatization is good because

Megginson and Netter note that the gains from privatization depend on the amount of competition possible in the market in which the firms or asset operates. Thus, gains for the kind of network infrastructure that municipalities own, such as roads and sewers, are likely to be lower than for assets where private competition is possible, such as recreation centres. Nevertheless, overwhelming evidence suggests that many of the assets that the City of Calgary currently owns would be better managed by the private sector. Outside of certain assets such as City Hall, which are necessary for the democratic process and should not be subject to any one landlord, it is not clear why the role of municipal government should include ownership.
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not all privatizations are created equal. In particular, any privatization should be very carefully considered so that it does not create market power or invoke regulatory costs greater than expected gains in efficiency.

REGULATION
As above, the Municipal Government Act gives a municipality near-limitless ability to regulate activity within its territory. Citizens can challenge bylaws and resolutions on the basis that they were not passed according to proper procedure, but the Act states that no bylaw or resolution may be challenged on the grounds that it is “unreasonable.” As with the ownership role of government, there are good reasons municipal politicians might wish to limit their regulatory activities. The City of Calgary regulates a wide range of activities through its various bylaws. These include the manner in which property is developed and the types of businesses that can operate in different areas. There are regulations for smoking, panhandling, signage, the storage of building materials, the idling of trucks in residential neighbourhoods and for a range of other activities. Regulation can be an effective way of increasing efficiency by reducing market failures. These occur when individuals and firms follow their incentives but the overall outcome is not as good as it could be. They can be caused by lack of information, by one party being in an overly strong bargaining position or high costs of making and enforcing agreements. Some regulation reduces transaction costs.

For example, the regulation for the storage of building materials may seem onerous, but the alternative is that neighbours offended by the sight of such materials would have to sue under the common law. Similarly, noise and odour nuisances could be pursued through the courts, with the offended party claiming that the peaceful enjoyment of his or her property had been violated. The costs in doing this would be large compared with the cost of having bylaws that achieve a similar result without the need for litigation. Regulation can also solve problems by forcing people to act in better co-ordination with each other when using public spaces. One example is a bylaw against littering. It would be more convenient for individuals to dispose of litter wherever they are when they no longer wish to hold it, but the result of everyone doing so would be pleasing to no one. A littering regulation makes it worthwhile for one citizen not to litter, because it gives the person confidence that others will behave the same way. Another example is the regulation of taxi fees, this regulation is made necessary because taxi plate holders have monopoly power, even if the monopoly is deliberately given to them by the City. Regulation can solve market failures; however, it can also have unintended consequences that are worse than the problem the regulation
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was supposed to solve. Taxi regulations are an acknowledged government failure where the political mechanism creates worse problems than the original market failure it was supposed to fix. By limiting the number of plates available, the City simultaneously creates a shortage of taxis and raises the value of plates. In turn, these raised values give the plate owners an incentive to lobby against expanding the number of plates, and the shortage continues to grow. Similarly, land-use regulations can restrict the supply of land that can be built upon, which benefits existing homeowners but is a cost to new homebuyers and to the continued growth of the city. If subject to proper regulatory principles, most of the rationales for this intervention would be quashed. The restriction of land development is justified on the basis of infrastructure costs and reported taste for certain urban forms (types of buildings and neighbourhoods). However, these objectives could be better met by pricing infrastructure correctly and allowing consumers to reveal their preferences in the market. Subjecting land-use regulation to sound regulatory principles (see Figure B) would lead to the rejection of much of the current planning. These poor regulatory decisions have very large distortionary effects, which suggests that improving regulatory decisions would be worthwhile. Taxi regulation, for example, has led to a distortion where plates trade at
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a reported $150,000 each. The total value of these plates is over $200 million, representing wealth inadvertently transferred from the public to the plate holders since 1986 when the number of plates was capped. Similarly, the Demographia International Housing Affordability Survey7 cites the median Calgary House price as $358,400, or 4.3 times the median household income. The Survey also cites that a ratio of 3.0 is achievable in properly regulated markets, even when they are growing. This suggests that Calgary homes are overvalued by a median of $108,000 each, or approximately $40 billon across the city. These figures are indicative only, but their magnitude suggests that regulatory performance is a major issue in Calgary. Because circumstances vary, there is no general rule for what is good regulation and what is bad regulation. The task of identifying the role of government with respect to regulation means identifying which regulations are likely to improve overall efficiency by reducing market failure and which are more likely to increase it. Calgary’s cut red-tape initiative is driven by staff, business and public submissions and focuses mainly on improving the administration of bylaws rather than on the bylaws themselves. There are several ways this initiative could be expanded to be more systematic.

THIS SUGGESTS THAT CALGARY HOMES ARE OVERVALUED BY A MEDIAN OF $108,000 EACH, OR APPROXIMATELY $40 BILLION ACROSS THE CITY

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The Standard Cost Model8, used in the Netherlands and championed by the Organisation for Economic Co-operation and Development, involves calculating the economy-wide cost of regulatory compliance as a starting point for reducing the overall regulatory burden in a measurable way. The model quantifies the compliance cost of existing regulations and is a test for new ones. Another systematic approach is regulatory impact analysis. At present, the City of Calgary states that the City Administration may apply a series of tests during the development of a bylaw including whether the bylaw is good for the population as a whole and whether there are any alternatives. An improvement to this policy would be to formalize these tests and include more-rigorous cost-benefit analysis. The mandatory publication of a regulatory impact statement would accompany any new bylaw (see Figure B). The mayor and the city manager should sign this statement. A specially created officer of regulatory quality might ask and answer these questions.9 The mandatory publication of such a statement would change the dynamics of making bylaws. The process could be applied to the existing stock of bylaws on a rolling basis with all bylaws being reviewed at least every five years.

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FIGURE B
PROPOSED REGULATORY IMPACT QUESTIONNAIRE

1. What is the problem to be solved, and is the bylaw necessary?

2. What alternative private, including common law, remedies exist?

3. What will the impact be on private property rights?

4. What will the effects be on the freedom to contract?

5. Who, if anyone, is likely to benefit from the regulatory change?

6. What is the estimated cost of compliance to those affected?

SIGNED:
Mayor

City Manager

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EXPENDITURE
In 2012, the City of Calgary’s expenditures were $2.96 billion, with transit, police and water and resources being the largest expenditure items at $438 million, $411 million and $383 million respectively. As with ownership and regulation, there are some activities for which government expenditure is more efficient than private sector expenditure and others for which it is not. Since the Municipal Government Act places restrictions on how municipalities can source revenue but places almost no restrictions on how they can spend it, there is scope for municipal politicians to set their own limits on the expenditure role of government. The most helpful economic theory for identifying useful expenditure is the public good theory, which distinguishes public goods from private goods. Public goods are goods for which the beneficiaries cannot be made to pay at the point of consumption (they are non excludable), and the consumption of which by one person does not lessen what is available for others (they are non rivalrous). Private goods are the opposite in both ways. The police service is an example of a public good, because once the streets are safe, all people benefit, even tourists who do not contribute to the municipality. What is more,

WHEREVER POSSIBLE, MUNICIPALITIES SHOULD ENSURE THAT USERS PAY THE COST OF WHAT THEY USE

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one person enjoying a safe environment does not make the city less safe for others to enjoy. Conversely, a restaurant meal is a private good because it is easy to identify the person who benefits and make that patron pay for it, and once the person consumes the meal, it is not available for others. Few goods are perfectly public or perfectly private, but all of the goods and services that the City of Calgary delivers can be categorized as more like one or the other. Governments have an advantage when funding public goods. Because they are able to force people to pay taxes, they can overcome the fact that it is difficult to charge people for a particular service. However, governments have no advantages when it comes to providing private goods. Because a person or group “uses up” private goods, governments run into problems deciding who gets them, e.g., who should use space in a leisure centre? An additional complication comes from the way services are funded. While the power to tax gives municipalities the ability to fund public goods, taxes do not fund all municipal services. In 2012, the City of Calgary sourced $1.59 billion from taxes, and a further $124 million came from higher levels of government. However, $1 billion came from user fees that were collected for services such as transit, water and sewer. Wherever possible, municipalities should

ensure that users pay the cost of what they use. Consumers are then more likely to utilize only what they need, reducing waste. Once costs and benefits are aligned, municipal politicians should ask if the municipality should be providing the service. Applying the public good test to Calgary’s current expenditure would likely reduce the level of tax supported expenditure by a considerable amount. The test would likely classify expenditure areas (listed with their 2012 expenditure in thousands) as follows:
Police Fire Public Goods Roads, traffic and parking Parks and recreation facilities General government Public works Mixed Public-Private Goods Public transit Water services and resources Waste and recycling services Community and social development Social housing Societies and related authorities Calgary Public Library Board Real estate services Private Goods TOTAL 410,926 246,003 656,929 355,081 211,142 264,647 176,992 1,007,862 438,405 382,577 111,034 55,567 113,184 68,593 52,195 72,400 1,293,955 2,958,746

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These categories from the City of Calgary financial statements are far from a perfect split of public and private goods. However, they give an idea of how much tax-supported expenditure could be reduced if councilors strictly adhered to the principle of using the power to tax to fund only true public goods. In 2012, such goods consumed only $656 million compared with the $1.5 billion collected in tax revenue. These costs would not disappear, and most would continue to be paid in some form. What would change is that the public would have a greater amount of choice about how much to consume. For example, those who do not wish to play golf would no longer see their property taxes used to maintain City golf courses.

INDIVIDUAL LICENCE HOLDERS HAVE A STRONGER INCENTIVE TO BECOME INFORMED AND LOBBY THAN DO VOTERS WHO DO NOT HAVE A DIRECT INTEREST IN THE INDUSTRY
difference if a large number of other voters do the same.10 The incentive for rational voters is to economize on time spent monitoring government activity and future policy options and use their time for pursuits that are more directly rewarding. A classic example of this challenge, referred to earlier, is the problem of taxi regulation. Research in Winnipeg has shown that taxi regulation transfers wealth from passengers and drivers to licence owners.11 The majority of people would be better off without this regulation, but because there are only several hundred taxi licences and more than 700,000 Winnipeggers, the amount transferred from each passenger is very small compared with

THE VOTERS’ CHALLENGE
Voters are the ultimate arbiters of the role of government, and it is to them that municipal governments should look when defining the role of government. However, as a group, voters face a systematic problem when monitoring government activity and holding government to account. Many voters would like to invest more time in becoming informed about policy options but find that their efforts will only make a
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the amount transferred to each licence holder. Individual licence holders have a stronger incentive to become informed and lobby than do voters who do not have a direct interest in the industry.12 For this reason, this very frustrating regulation continues, year after year, in almost every Canadian jurisdiction. As another example, much of the current land use planning activity by the City is likely subject to the same dynamics. The City boasts that Imagine Calgary, which is used to link planning activity to the will of the citizens, was the largest community engagement exercise of its type in the world. While the 18,000 participants sounds impressive, they were in fact a self selected sample of less than two per cent of Calgarians, whose vision will now impose a variety of regulatory costs on all residents. Because of the challenge that voters as a group face in restraining government activity, there is a role for ethical leaders who believe in limited government to refrain from policies that will cost the majority at the expense of a more politically active minority.

CONCLUSION
In the absence of clear guidance from the Constitution Act or the Municipal Government Act, the City of Calgary has had great latitude to choose its own definition of the role of municipal government. This has led to a range of ownership, regulatory and expenditure functions, many of which are well outside what economic theory suggests is the optimal role of government. Municipal politicians interested in optimizing the cost and quality of services that Calgarians receive should relentlessly question whether each ownership, regulatory and expenditure activity of the municipality is something that the City should be engaged in or whether other institutions could better serve Calgarians’ needs.

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RECOMMENDATIONS
LESS AMBITIOUS REFORM
POLICY Ensure all spending funded according to benefits model Introduce standard cost model for regulation CURRENT STATUS Calgary currently has a strong benefits-orientated funding formula City undertakes consultations such as cut red tape initiative to gauge regulatory burden DESCRIPTION Primary principle is that beneficiaries of a service pay the cost of it BENEFIT More efficient because people will not over consume when they are paying themselves Formal measurement of regulatory burden over time

Scientific surveys and calculations of regulatory administration

Abandon Imagine Calgary targets

City rhetoric heavy with Imagine Calgary targets

These targets should be abandoned, they were formed through a spurious process and contemplate a wide range of goals that the City cannot hope to achieve A formal checklist of regulatory conditions is signed off by the mayor and possibly a regulatory quality officer

Allow city to focus on a more defensible role of government

Introduce mandatory regulatory impact statements

Currently the City administration (Animal and Bylaw Services) produces a report although there is no formal policy underlying this

Increased transparency and an avenue for citizens whose rights have been improperly violated by regulation to challenge the relevant bylaws Far better focus from municipal government, emphasizing activities where government has a competitive advantage Higher accountability and more attention on regulatory quality

Reform Societal Benefits Policy to market failure principle

Social benefits policy currently encompasses 13 wide ranging goals including “other,” that allow almost any conceivable activity to be related to a societal benefit The Administration is responsible for issuing a report on new bylaws to council, but no specific individual is responsible for this City currently owns a number of assets that are exposed to competition or potential competition Municipal Government Act currently rules out almost no activities, effectively stating that the role of a municipal government is whatever its council defines it to be. A review is underway City currently owns networks for water, sewer, rail, and electricity distribution

The policy should be reformed to reflect a principled role of government, acknowledging where government can make a difference, regulating market failures and providing public goods, rather than promising a wide range of outcomes A regulatory compliance officer whose primary job it is to sign off on regulatory quality is responsible for issuing a report on the quality of any new bylaw or plan Assets where competition is actual or possible, such as golf courses, recreation centres, and sailing facilities transferred to private economy The Act should be reformed to reflect a principled role of government, acknowledging where government can make a difference, regulating market failures and providing public goods, rather than leaving the role to be defined ad hoc by councils Network assets where competition is not possible but only one use applies transferred to private economy

Implement regulatory compliance officer

Divest assets exposed to competition

More efficient and customer responsive services, lower costs/ risks for taxpayers Far better focus from municipal government, emphasizing activities where government has a competitive advantage

MORE AMBITIOUS REFORM

Redefine role of government in Municipal Government Act (Provincial prerogative)

Divest single use network infrastructure

More efficient and customer responsive services, lower costs/ risks for taxpayers More efficient and customer responsive services, lower costs/ risks for taxpayers

Divest multiuse network infrastructure

City currently owns the street network

Network assets where competition is not possible and multiple uses apply transferred to private economy

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NOTES
1. Policy Goals for Assessing Societal Benefits, City of Calgary 2012 2. Imagine Calgary cited in ‘Nenshi’s Charade of Consultation’ Cory Morgan Ranting and Raving http://corymorgan. com/nenshis-charade-of-consultation/ 3. Sancton, A (2008) ‘Drawing Lines: Defining the Roles of Municipal, Provincial, and Federal Governments in addressing urban social issues in Canada.’ Canada West Foundation, Calgary p4 4. It is sometimes argued that because the City can borrow at comparatively low interest rates, it makes sense for the City to fund investments. However, the interest rates on an investment are determined by the riskiness of the investment rather than the type of investor. Thus, the risk does not change because the City makes an investment; rather, the taxpayer absorbs more risk in order to keep the interest rate low. 5. Netter, J and Megginson, W ‘From State to Market: A Survey of Empirical Studies on Privatization.’ Journal of Economic Literature, Vol. 39, No. 2, June 2001. Available at SSRN: http://dx.doi.org/10.2139/ssrn.26231 6. Boardman, A and Vining, A ‘A Review and Assessment of Privatization in Canada’ SPP Research Papers The School of Public Policy 7. Cox, W and Pavletich, H (2013) 9th Annual Demographia International Housing Affordability Survey Available online: http://www.demographia.com/dhi.pdf 8. See, for example, the Standard Cost Model Network for more detail on this model: http://ec.europa.eu/dgs/secretariat_general/admin_burden/eu_scm/eu_scm_en.htm 9. See Wilkinson, B (2004) ‘Constraining Government Regulation’ New Zealand Business Roundtable for a more detailed discussion of this topic. 10. See Caplan, B. (2006) The Myth of the Rational Voter for evidence of voter information levels. Caplan shows that voters sensibly hold low levels of information due to the incentive problems caused by the prisoners’ dilemma nature of becoming informed. 11. See Prentice et al. (2010) “Taxi Fares and the Capitalization of Taxi Licenses.” Available online at http://www.ctrf. ca/conferences/2010Toronto/2010Proceedings/53PrenticeMossmanvanSchijndelTaxiFares.pdf. 12. See Olsen, M. (1971) The Logic of Collective Action, p. 3, “Where small groups with common interests are concerned, then, there is however a surprising tendency for the ‘exploitation’ of the great by the small.”

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ABOUT THE AUTHOR

DAVID SEYMOUR leads the Foundation’s project to develop
market-oriented policy for municipal government. Seymour returns to Canada after a year advising the minister responsible for implementing charter schools in his native New Zealand. Previously, he served as the Senior Policy Analyst at the Frontier Centre for Public Policy. He is the author of Birth of a Boom: Saskatchewan’s Dawning Golden Age. Seymour holds degrees in electrical engineering and philosophy from the University of Auckland.

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UPCOMING PAPERS
The Manning Foundation is building intellectual capital for municipal governance in five streams of public policy enquiry. Each stream will include a series of public policy papers designed to stimulate new thought about the role of municipal government in society. Manning Foundation research papers are placed in the public domain via the Foundation’s website and are available for review, debate, criticism and support by Canadians regardless of their political affiliation.

1. ORGANIC CITIES
An enquiry into how cities grow and what role government should play in regulating growth and providing infrastructure, with the goals of economic efficiency and liveability. Much of the debate around municipal development is based around what urban forms are desirable, with sprawlers and smart growthers alike arguing that land-use regulation and infrastructure provision should favour their ‘optimal’ urban form. The Organic Cities project takes a different perspective: that what is important is not the urban form that emerges, but the processes that are in place, particularly the role of government. On this view, it is more important that the market is left free to serve consumer demand, with the important constraints being property rights and the real costs of infrastructure provision rather than land-use regulations. Upcoming papers include enquiries into the economics of consultation processes so in vogue at city halls across the country and the effects of future advances in vehicle technology.

2. APPROPRIATE ACTIVITIES
An enquiry into the optimal role of government, with a positive analysis of what municipal government currently does and a normative analysis of what roles government is best equipped to fill. These roles broadly divide into an ownership role, a regulatory role, and an expenditure role each of which can be over or under played. This stream builds on concepts such as market failure, public goods and subsidiarity to identify which activities municipal government does or does not have a comparative advantage over other levels of government. Upcoming papers include enquiries into the proper role of municipal government as a regulator and as a distributor of wealth.

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3. CITIZEN SOVEREIGNTY
An enquiry into how well citizens can hold government to account, including monitoring of its activities and protecting their natural rights. This stream investigates standards of municipal accounting and performance reporting, open government, public safety and intergenerational equity. It considers concepts such as open government and open data, and property rights. Future papers in this series include enquiries into the quality of performance reporting, intergenerational equity with respect to municipal government and open data projects.

4. THE OPEN SOCIETY
Open societies share power among a range of different institutions, unlike closed societies where it is vested in just one. The Open Society is an enquiry into the role of different institutions in the city, including the church, charities and associations. This stream has a historical element, it considers how these different elements have interacted in the past and may do so in the future. Upcoming papers include an account of the role of civil society in building Calgary.

5. MUNICIPAL ISSUE PAPERS
This stream covers basic elements of public policy, including an introduction to the role of government at municipal level, briefings on areas of municipal policy and issue papers framed in terms of values, facts and ideas of conservatism applied to municipal policy. Particularly salient policy areas include public safety, mobility and affordability.

MANNING FOUNDATION FOR DEMOCRATIC EDUCATION www.manningfoundation.org info@manningfoundation.org 403.536.8585 514 11 Ave SW Calgary, AB T2R 0C8 28

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