Renegotiating Municipal Funding: The Case of Saskatchewan

by Laurent Mougeot, CEO of the Saskatchewan Urban Municipalities Association (SUMA)

It all changed in the fall of 2006. For more than 15 years, municipal elected officials had to mortgage their capital investments and infrastructure reserves in order to fund their ongoing operational needs. Aggressive budget cuts by the federal and provincial governments had virtually eliminated most of the government’s grant and revenue sharing programs. This resulted, from 1991-92 to 2006-07, in an estimated shortfall of approximately $600 million in funding to Saskatchewan local government operations.

Reformed legislation regulating urban governments (The Cities Act was revised in 2002 and The Municipalities Act in 2006) offered more autonomy for local governments, and across the province, municipal elected officials had a big appetite to put management systems in place to properly address the fiscal challenges faced by their communities. Just a year earlier, after years of lobbying by the Federation of Canadian Municipalities and its Big City Mayors’ Caucus, the federal government under Paul Martin launched the New Deal Program. The program acknowledged federal interests in the business of local governments, specifically in new public infrastructure that would subscribe to the principles of sustainability and environmental stewardship. Federal dollars were finally rolling out on a predictable basis, and Canadian local governments could once again adopt more fiscally responsible plans.

On the provincial front, the story was not so good. For more than a decade, mayors and councillors had rallied behind the Saskatchewan Urban Municipalities Association (SUMA) asking their provincial association to lobby the Saskatchewan government. They wanted a new municipal operating grant; one based on the concept that urban governments provided services to citizens on behalf of the provincial government and consequently required a share of provincial revenues to sustain these core operations.

I. Lobbying the Provincial Government

Until 2006, the strategy was simple and consistent: point out a long-outstanding shortfall between the province and urban governments, and then hope the Minister of Municipal Affairs could win the argument at Treasury Board. While there were some interim increases to the municipal revenue sharing grant in 2005 and 2006, the pace of these adjustments did not point to a trend that would appease local officials. Patience was running short, and a more aggressive strategy was at the ready.

The results of a joint task force between SUMA and Ministry officials had revealed an embarrassing misunderstanding by the province. A senior provincial official reviewed all financial statements from local governments, and saw that no municipality had run an operating deficit over the past few years. He didn’t understand that legislation states that local governments cannot run operational deficits. In his mind, no deficits meant there was enough cash and therefore local governments did not need additional funding.

At their 2006 spring meeting, mayors representing the 13 Saskatchewan cities had a message for the Province; it was simple and clear. Saskatchewan needed a new revenue sharing program, and it needed that program immediately. Every year for the next four years, they wanted increases to the city revenue sharing pool − $30 million more for operating and $30 million for capital funding. As a united voice on behalf of the entire urban sector, SUMA immediately applied the call of the cities to reflect the needs of Saskatchewan’s 437 towns and villages. They added another $10 million for each side of municipal budgets, and thus the 40-40 campaign was devised.

The City Mayors’ Caucus and SUMA joined forces and the new strategy went beyond letters and meetings with Ministers. It would take the debate out of the legislature and the board rooms, and into the public domain. That is, into the media and with the taxpayers. A number of sample ads and billboards were strategically shared among key provincial elected officials and civil servants. The message focussed on the inequity between provincial and urban revenues, and how the province enjoyed a significant share of return on investments made by cities, towns and villages.

It was not long before the provincial government got wind of the mounting public campaign and contacted members of SUMA’s Executive Committee and mayors of the major cities. Neither the Premier nor the Minister had much of an interest in taking the debate public.

II. Drafting a New Funding Formula

So, on an early November afternoon, SUMA’s Vice-President of Cities took a call from the Deputy Premier. Oddly enough, both of them were on their way home to Yorkton from Regina. Vehicles stopped along Highway 10, and the basis of a settlement was discussed: the Deputy Minister of Municipal Affairs and the Chief Executive Officer of SUMA would meet the next day and pen the key principles of a new funding program. The parties would focus first on municipal operating needs, and then quantify infrastructure needs. While funding would remain unconditional (a key element for SUMA) the formula would ensure that provincial contributions would reflect provincial interests. Funding would be tied to the economy – the parties would share good times and bad. All sectors would resource the work teams, bringing the highest competencies to the table. Most importantly, the program would be predictable and long term.

From this point on, the parties engaged in a process that acknowledged shared interest and key components of what would become a new fiscal relationship between the province and local governments. Recognizing that rural interests may be different than those of cities, northern communities may have different fiduciary needs than towns and villages, four working groups formed the base of the partnership – one for each of: cities; towns & villages; rural’; and northern local governments. Administrators brought comprehensive knowledge of their respective sectors and challenges. Each group appointed co-chairs (municipal and provincial) who met on a regular basis to compare progress reports and items of shared interest. Project charters provided the foundation for work plans and coordination of research, sharing results between the sectors.

At last, there was a shared sense of progress and engagement, but citizens were heading to the polls to elect their provincial government. In came a majority government under a brand new party – one that had never held power before. And the stakes were high. SUMA promptly engaged with the new Premier, Brad Wall, and as soon as the new cabinet was sworn in, SUMA met with the Minister responsible for local governments. SUMA was able to secure a commitment from the Minister that movement toward the new revenue sharing formula would carry on as planned. The key principles were sound and reflected the spirit of a healthy relationship. The Minister further committed to completing the research on the new municipal operating grant in time for consideration for the next provincial budget.

The working groups quickly resumed their work. Cities took the lead and soon shared the results of their labour. The first step looked at the main areas of municipal service delivery to identify where they tied in with provincial interests. Leading these discussions was the question “If a city quit providing this service, how would it impact the province?”

For example, law enforcement reflects a high level of provincial interest. Enforcing provincial and federal laws is the majority of what municipal police services do. Minimal police resources are spent on municipal bylaws. However, there is a more limited provincial interest in municipal services tied to properties; services such as water, street maintenance, and waste management. In this first analysis of provincial interests, policing, emergency response, parks and recreation, and public transit were identified as areas of shared interest.

The next phase involved quantifying the costs of those services. Assessment was based on municipal financial statements for each sector (northern communities, rural communities, cities, and towns and villages). They assigned a percentage of the operating costs to the Government of Saskatchewan based on the level of provincial interest in each area of shared interest.

Municipal governments had moved to an interest-based approach. Numbers quantified and extracted from a shared-interest approach and applied to real financial data became defensible in front of Treasury Board. Municipal governments could finally answer the decades-old question of what a municipal operating grant puts in the provincial government’s shopping cart. The Ministry of Municipal Affairs moved from being just another ministry of government to an advocate and partner on behalf of all Saskatchewan taxpayers.

Based on the science of the shared interest model, municipalities could take an invoice to the province for services they delivered on a daily basis. That collective invoice was bigger than anyone could have imagined. It was also very close to one point of the provincial sales tax (PST). Premier Wall seized that opportunity quickly.

As a neighbour to Alberta, the option of reducing the PST rather than handing over one cent to the municipal sector must have been awfully tempting to Premier Wall. He did, however, realize the value of assuming the provincial share of interest in the business of municipal service delivery. After all, the Saskatchewan Party platform was clear on that subject.

III. A New Fiscal Relationship

At the SUMA Convention in February of 2009, the Premier of Saskatchewan announced the Municipal Operating Grant to urban delegates and residents of Saskatchewan. The new program would grow with the economy, and municipalities could take comfort in the predictable and unconditional funding. And so began a new era of meaningful relationship between urban governments and the government of Saskatchewan.

Twenty per cent of provincial sales tax revenue is still distributed among local governments.  The formula uses PST revenue data from the previous fiscal period, allowing cities to approve their operating and capital budgets before the new fiscal year begins in January. Traditionally, they had to wait until late April. Overall, the growth of the revenue sharing pool for local government has increased by 87 per cent in the five years since 2007-08. Today, this operating provides $110 million more annually than it did just five years ago. In the current fiscal year, the total amount being invested in local operations is $237.4 million, and we know already that next year’s total amount will see a 11.4 per cent increase and move to $264.4 million.

Operating under the guidance of a clear project charter with joint research and collaborative policy development is now the norm for the province and SUMA. A more progressive urban agenda has emerged, and quantitative research and interest based discussion is leading public policy foundation.

Lessons learned:

–       Create a respectful environment. A true partnership cannot exist otherwise.

–       Identify your core values and principles at the outset. It will help you stay focussed and engaged.

–       Communicate your interests. Understand the other party’s interests. Identify common objectives.

–       Work the process out with your partners. Put it in writing and share it with the stakeholders.

–       Commit proper resources and bring the most competent individuals to the table.

This article was published previously in Urban Voice and Public Service Digest.