High employee compensation leaves less money for transit expansion and other public services
Over the next two months, Metro Vancouver residents will decide whether they want to pay $250 million more in sales tax each year to help fund a $7.5 billion capital expansion plan, mainly for public transit.
Both the tax hike and transit plan sprang from the Mayors’ Council on Regional Transportation, which governsTransLink, the authority responsible for planning, financing and managing public transit and major roads and bridges in the region.
Putting aside whether the transit expansion plan is the best option for the region, the mayors’ call for higher taxes assumes that none of the money currently being spent by municipal governments and TransLink can be spared.
This is a questionable assumption. Surely savings could be found in current spending envelopes, especially given the dramatic increases in municipal and TransLink spending over the last decade.
And just how dramatic have the increases been?
As the chart below shows, 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. provincial government (43 per cent) and federal government (46 per cent) increased spending more modestly.
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). As a result, spending per Metro Vancouver resident has marched upward in real terms.
Importantly, this spending is for day-to-day items such as wages and benefits for government employees and the costs of government administration – not capital projects such as roads and bridges, new transit lines, or more buses. (It includes debt interest payments for improved comparability between governments).
Such spending increases do not always translate into new or improved services for Metro Vancouverites, especially if the spending is simply wasted or absorbed by existing government employees in the form of higher compensation packages.
In the case of TransLink, the compensation of employees consumed more than half (52 per cent) of its operating budget in 2013. 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 their peers in the provincial government (19 per cent). The report also noted that in 2012, the number of TransLink employees making more than $100,000 increased by 14 per cent.
More generally, research shows that in British Columbia, government workers (including federal, provincial and local governments) receive 6.7 per cent higher wages, on average, than their private-sector counterparts. This is 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, consumes tax dollars and leaves less money for transit and other public services.
Consider the following hypothetical scenario where municipal governments in the region had actually restrained their day-to-day operating spending.
If Metro Vancouver municipalities increased their collective operating spending beginning in 2003, in-step with inflation and population growth, together they would have spent $4.7 billion less on their operating budgets over the decade (in 2013 dollars). More telling, they would have spent $778 million less in 2013 alone, which is more than three times the $250 million that the Mayors’ Council wants to collect by raising the provincial sales tax.
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 spending.
TransLink and municipal governments would each have to save about 5 per cent of their non-capital spending in 2013. Even with these savings, Metro Vancouver municipal and TransLink spending would still have grown faster than their senior government counterparts and the rate of inflation plus population growth
A good place to find savings is by ensuring that wages and benefits for government employees are in line with private-sector norms for similar positions.
Before requiring Metro Vancouverites to pay higher taxes, municipal governments and TransLink would do well to scrutinize their existing budgets to fund their transit expansion plan.
By Charles Lammam and Hugh MacIntyre The Fraser Institute
Charles Lammam is director of fiscal studies and Hugh MacIntyre is policy analyst at the Fraser Institute.