There’s justification to trim city salaries
As city council prepares to examine its planned 4.7 per cent property tax increase for 2017, two questions come to mind when considering the possibility of a tax freeze.
First, can city hall perform such a financial feat without much of a disturbance to services? Second, could city hall go even further and deliver an actual tax cut?
The answer to both questions is “yes.” In fact, council need look no further than the largest area of spending to find the answer – salary and benefit costs.
In 2014, the city approved a 4.7 per cent property tax increase for 2017 as part of its multi-year budget. With the continued deterioration of Calgary’s economic situation, constant property tax increases are becoming more daunting for Calgarians to shoulder.
The growing appetite for meaningful tax reductions among Calgarians is likely driven by two main factors. First, since 2011, Calgarians have seen their annual property tax bills increase by an average of 7.6 per cent. Over the same period, inflation in Calgary averaged 1.7 per cent annually.
Second, Alberta’s dire economic conditions have contributed to approximately 40,000 job losses and an average decrease in earnings of 2.2 per cent. Data from Statistics Canada suggest Calgary is feeling the pain more so than Edmonton and many other parts of the province.
With these factors in mind, it’s entirely reasonable for Calgarians to expect city employees to feel the pinch too. As salaries and benefits account for 51 per cent of total expenses (2015), this area of spending is too large to ignore when looking for savings opportunities. Coupled with severe private sector job losses and rising municipal taxes, nothing should be off limits for the city when considering tax relief for all Calgarians.
From 2014 to 2015, total spending on salaries, wages and benefits at the City of Calgary increased by 6.1 per cent. Meanwhile, the number of people living in Calgary only grew by 2.4 per cent and inflation was only 1.2 per cent. Growth for wages and benefits for municipal government employees in Calgary is significantly out of line with economic factors, including the decrease in earnings that Calgarians in the private sector have suffered.
To provide more context, a recent Fraser Institute report compared private and government sector compensation. In 2014, for all municipal employees, they estimated that government sector workers were paid a premium of 6.9 per cent above private sector workers. However, if you included the golden pensions that city employees enjoy, the gap would rise substantially.
The city has estimated that each one per cent decrease in the property tax rate would be the equivalent of $15 million in forgone revenue for the city. Thus, a property tax freeze would require the city to find approximately $70.5 million in savings.
Based on information from Calgary’s annual report, a freeze in salaries and benefits in 2017 for city employees would likely save, based on a rough estimate, approximately $77 million (cautiously calculated from the four per cent salary increase negotiated in 2014). What’s more striking is that a two per cent salary reduction (equivalent to the private sector average) would yield an estimated additional $38 million in savings to the city.
The most frequent argument used by those who oppose tax reductions is that the quality of city services would be negatively impacted. Clearly, that’s not true. City hall could freeze taxes, or reduce them, merely by asking city employees to feel the pain a bit too.
When council discusses the property tax rate for 2017, it’s important to remember that it’s not a matter of if reasonable cuts can be made but, rather, if council chooses to make them.
John Whittaker is a policy analyst at the Manning Centre.
This column was published by the Calgary Herald on June 25, 2016