Federal grants to municipalities in Canada: nature, importance and impact on municipal investments, from 1990 to 2005.
Bojorquez, Fabio ; Champagne, Eric ; Vaillancourt, Francois 等
This article examines the nature, importance and impact of federal
grants on municipal capital expenditures in Canada. This is of interest
because federal grants have become relatively more important in the past
two decades. Given the nature of federal grants, characterized by
partnerships and joint funding arrangements between the three levels of
government, these grants are likely to leverage investments in
infrastructures in Canada. We address the following questions: what
happened to municipal spending when the federal government increased its
grants and transfers to other levels of governments (provinces and
municipalities)? And, in particular, was there a "flypaper"
effect (Hines and Thaler 1995; Gamkhar and Oates 1996)?
The article covers the Brian Mulroney conservative regime from 1988
to 1993, when the involvement of the federal government in municipal
funding was relatively modest, and the surge of federal grants to
municipalities from 1993 to 2005 under the Jean Chretien and Paul Martin
liberal regime. We are not covering the most recent period, since, at
the time of submitting our manuscript, we did not have full access to
the most recent data, and some retrospective is needed to assess the
importance and the impact of federal grants on municipal investments.
However, in our conclusion, we discuss the possible impacts of the
current (2009) federal stimulus directed towards municipal
infrastructure spending.
The article is divided into three parts: the first recaps the
history of federal grants to Canadian municipalities, focusing mainly on
the 1990-2005 period; the second presents some quantitative evidence on
local government revenues and the amounts involved in federal transfers;
and the third examines their impact on municipal capital spending in
recent years.
The nature of federal grants to municipalities
The involvement of the federal government in municipal affairs is
not a phenomenon of the 1990s. From the early 1920s to the 1930s, the
federal government implemented national programs to improve housing
conditions through provincial loans and subsidies in response to massive
immigration, overcrowding and poor housing conditions in Canadian
cities. In the 1930s, the federal government implemented a housing
policy and provided subsidies to improve housing conditions. In 1938, to
support job creation during the Great Depression, Parliament passed the
Municipal Improvements Assistance Act to provide loans to municipalities
for infrastructure projects such as water and sewage improvements. In
the 1950s, the federal government provided infrastructure support for
suburban growth resulting from the postwar Baby Boom. During the 1961-74
period, the federal government had in place the Sewer Treatment Program,
which provided $979 million in loans and $131 million in grants to local
governments. In 1971, the Ministry of State for Urban Affairs (MSUA) was
created to establish cooperative relationships among the federal
government, the provinces and municipalities. The MSUA had a short
life-span (1971-79) due to the effect of a weak economy, the refocusing
of the federal government on other matters, and the changing dynamics
that characterized federal-provincial relations at the end of the 1970s.
Federal government interest in municipal infrastructures significantly
decreased in the 1980s (Champagne 2008; Hilton 2007).
The focus of this article is on the period from 1990 to 2005. As
Champagne (2008) pointed out, the Conservative government of Brian
Mulroney, from 1988 to 1993, refrained from intervening in the
relationships between the provinces and their municipalities. Hence, the
federal government was unwilling to provide funding for municipalities
until the early 1990s, and no major federal-municipal transfer program
was put in place during the Mulroney years.
Following the 1993 election, when Jean Chretien, leader of the
Liberal Party became prime minister of Canada, the federal government
implemented the Canada Infrastructure Works Program, in 1994. The
program had the objective of "assisting in the maintenance and
development of infrastructure in local communities and the creation of
employment" (Canada, Office of the Auditor General 1999:5). The
funds were allocated to provinces, territories and First Nations based
on their populations and unemployment rates. The program was implemented
through federal-provincial agreements. For most agreements, the federal
government would provide one-third of the cost, and the provincial and
municipal governments would be responsible for the other two-thirds.
Originally, the program was only temporary and was scheduled to end
after two years. However, in its 1995 budget, the federal government
extended the program until 1998-99, but without additional funding. By
the time the program ended in March 1999, the three levels of government
had spent in excess of $8.3 billion.
Major changes came after 2000, during a period of federal
surpluses, with the creation of various federal infrastructure
initiatives managed by Infrastructure Canada and rationalized into four
main programs. Established as a new department in August 2002,
Infrastructure Canada became responsible for the following programs:
--Infrastructure Canada Program (ICP) ($2.05 billion), launched in
2000;
--Canada Strategic Infrastructure Fund (CSIF) ($4 billion), $2
billion announced in the 2001 budget, with an additional $2-billion
provision in the 2003 budget;
--Border Infrastructure Fund ($600 million), initiated in 2002;
--Municipal Rural Infrastructure Program (MRIF) ($1 billion),
announced in 2003.
The Canada Strategic Infrastructure Fund emphasizes partnerships
with any combination of municipal, provincial, or territorial
governments, as well as the private sector. Each partnership is governed
by specifically tailored arrangements. Investments are directed to
large-scale projects of national and regional significance. Regional
equity considerations are taken into account, and costs are generally
shared among the three levels of government. Investments are made in
areas that are vital to sustaining economic growth and supporting an
enhanced quality of life for Canadians.
Under the CSIF, the maximum federal contribution is fifty per cent
of total eligible costs. As there are important differences in the
population of Canada's provinces and territories, there is a
threshold formula for defining "large-scale" projects. In
Prince Edward Island, Newfoundland and Labrador, Nunavut, Yukon and the
Northwest Territories, where populations are under 750,000, total
eligible project costs must be at least $10 million. In Nova Scotia, New
Brunswick, Saskatchewan and Manitoba, where populations range between
750,000 and 1.5 million, the threshold is at least $25 million, and in
Quebec, Ontario, Alberta and British Columbia, where populations are
over 1.5 million, the threshold is at least $75 million of total costs.
This formula ensures that funded projects are large-scale and strategic
within the context of the province or territory in which they are
located.
Turning to the Municipal Rural Infrastructure Program, each
province and territory and the First Nations community receives as one
entity a base allocation of $15 million, with the remaining funds
allocated on a per capita basis. This formula ensures that provinces,
territories and First Nations have a minimum amount of base funding to
address public infrastructure needs. The formula is also designed to
achieve a balance between the infrastructure needs of urban and rural
parts of the country. For this reason, at least eighty per cent of
funding under the MRIF is dedicated to municipalities with a population
of less than 250,000. The remaining funds are available to
municipalities with a population of over 250,000.
The MRIF is cost-shared, with the federal government contributing,
on average, one-third of total eligible project costs. Provinces and
municipalities contribute the remainder. In recognition of the unique
circumstances of the First Nations and the northern territories, where
many communities have no tax base, the federal government may contribute
more than onethird. In total, across Canada, a minimum of sixty per cent
of funding under the MRIF, with a minimum of forty per cent per
jurisdiction, targets "green infrastructure." These projects
include water, wastewater, solid waste, municipal energy improvements,
and public transit. The fund also invests in cultural, tourism and
recreational infrastructure, local roads and broadband connectivity.
After 2004, the main policy innovation of Prime Minister Paul
Martin's liberal regime was the New Deal for Cities and
Communities, aimed at "predictable and stable long-term funding,
and improving the coherence among federal programs that benefit cities
and communities" (Infrastructure Canada 2005: 5). The federal Gas
Tax Fund allocated a total of $5 billion to the provinces and
territories over a five-year period, starting in 2005, based on both a
minimum per jurisdiction for Nunavut, the Northwest Territories, the
Yukon and Prince Edward Island and a per capita distribution for the
remaining jurisdictions.
While the focus of our article is not the examination of the
various federal-provincial arrangements associated with each source of
federal funding, we illustrate in Table 1 their general nature by
presenting the intra-provincial sharing formulas agreed to in the gas
tax agreements of 2005-06. The following are points worthy of note in
the table:
--the variation in the share of the provincial amount that is spent
directly by the province rather than passed on to the municipalities;
these various funds are provided in the context of a system in which
provinces are responsible for municipal matters and are party to the
agreements with the federal government;
--the differences in the formulas used by each province to allocate
funding to municipalities, each provinces having its own sharing
formula, from one based strictly on per capita (New Brunswick, B.C.) to
a combination of per capita, per dwelling and per past expenditures
(Nova Scotia); and
--the use made by the Quebec government of a Crown corporation, the
Societe de financement des infrastructures locales du Quebec (SOFIL),
which is a conduit for both federal and provincial funds to flow to
municipalities for infrastructure projects, showing the particularity of
the bilateral relation between the province of Quebec and the federal
government.
The programs described above are those that are implicitly examined
in the empirical work reported in the next part of this article.
The importance of federal grants as a revenue source for
municipalities, from 1990 to 2005
Grants to municipalities were an important but not the most
important source of revenue for Canadian municipalities in the 1990-2005
period, as shown in Table 2. Indeed, they declined over the period, from
twenty-three to seventeen per cent of total municipal revenues. Property
taxes were the most important source of revenue, growing from
forty-three to fifty per cent of revenues over the period. User-fees
were the second most important source of revenues and have gradually
increased, from twenty to twenty-two per cent, from 1990 to 2005.
Transfers are of two types: unconditional and conditional grants. All
federal transfers from 1990 to 2005 are classified as conditional in the
data. The most important source of transfer revenues is the conditional
provincial grant, but this category decreased as a share of revenues
during the period, from seventeen per cent in 1990 to thirteen per cent
in 2005. Federal conditional grants, although proportionally much more
modest than provincial grants, increased from .6 per cent of local
revenues in 1990 to 1.5 per cent in 2005.
Differences are observed between provinces, as shown in Table 3,
for 2005. For all of Canada, municipal revenues amounted to $1,747 per
capita. For the provinces, municipal revenues per capita ranged from a
low of $519 in Prince Edward Island to highs of $2,145 in Ontario and
$2,135 in Alberta.
Own-source revenues accounted for almost eighty-three per cent of
all revenues across the country and ranged from a high of more than
ninety-three per cent of all revenues in PEI, Nova Scotia, and B.C. to a
low of seventy-six per cent in Manitoba. Property taxes ranged from a
high of seventy per cent in Nova Scotia to a low of thirty-eight per
cent in Manitoba. User-fees accounted for slightly more than twenty-two
per cent of all municipal revenues for Canada, but some provinces, like
Alberta and British Columbia, with twenty-nine per cent, have more
recourse to that type of revenue than other provinces like Nova Scotia
and Quebec (sixteen per cent). The importance of transfers varies from
province to province, ranging from less than seven per cent of total
municipal revenues in B.C., PEI, and Nova Scotia to more than twenty per
cent of total municipal revenues in Ontario and Manitoba. In the case of
Ontario, higher dependence on transfers reflects cost-sharing for social
services.
Provincial specific purpose transfers are the most important in
most provinces. For Canada as a whole, transfers for social services are
the most important, but this is the result of their importance in
Ontario. Transfers for transportation, for example, represent a much
greater proportion of total transfers in most provinces.
Considerable variation exists in both the size and range of
conditional grants that are used by provinces across the country. Table
4 presents provincial conditional grants per capita that went to
municipalities in 2005. It shows that
--provincial grants for social services accounted for the largest
percentage of all conditional grants in Canada--this is driven almost
entirely by Ontario;
--grants for transportation and environmental services are the next
most important, although there is variation in their relative importance
across all provinces and territories; and
--grants for recreation and culture are provided everywhere.
But do these grants affect the behaviour of municipalities? We now
turn to this question.
Impact on municipal investments
To examine the impact of federal grants or transfers--both terms
being used interchangeably--on municipal investments, we can use an
econometric model (Bojorquez 2006). The dependent variable is Canadian
municipal expenditures on infrastructure measured by annual investment
in fixed capital and inventories. The following are the model's
independent variables:
A set of control variables
--population density of each province;
--GDP per capita of each province;
-- asymmetry = [transfers.sub.t] - [transfers.sub.t - 1] (if:
[transfers.sub.t] < [transfers.sub.t1]])= 0 otherwise;
--own tax revenues;
Four measures of transfers are used one at a time:
1. all conditional grants (federal and provincial) lumped together
(these are the same categories as those used in tables 2 and 3);
2. conditional federal and provincial grants transfers taken
separately;
3. a top--down measure of infrastructure--related to grants. Thus,
federal grants = ([specific federal grants]--federal [general services,
protection of persons and property, health, social services, housing and
other]) and provincial grants = ([specific provincial
grants]--provincial [general services, protection of persons and
property, health, social services, housing transfers for debt charges
and other]);
4. a bottom--up approach of infrastructure--related grants. Thus,
federal (provincial) grants = federal (provincial) (transportation and
communication + resource conservation and industrial development +
environment and regional planning + development transfers).
The reader will find in the appendix at the end of this article a
discussion of the data strategy and the specific econometric tests used.
Table 5 contains the results of the four regressions. The first two
columns are for all specific--purpose transfers lumped together and for
a breakdown of federal and provincial specific--purpose transfers. The
first column shows that thirteen cents of each dollar from specific
transfers was expended in investment in fixed capital and inventories,
while the effect of municipal tax revenue on such expenditures is not
statistically different from zero. The second column shows that federal
specific transfers' effect on municipal investment expenditures is
not statistically different from zero but that provincial specific
transfers increase municipal investments by fourteen cents of each
dollar received. Since the federal infrastructure funds first flowed
through provinces and thus reached municipalities as provincial
transfers and were recorded as such by Statistics Canada, this is not a
surprising result. Put differently, analysts must be careful to
correctly measure the transfers whose impact they want to assess. We
chose not to combine these two kinds of transfers since we are not sure
what we would then be measuring.
What happens when we refine our measurement of transfers,
attempting to narrow it down to investment--related transfers? Column
three shows that provincial--specific transfers to municipalities
increase investment spending by forty--five cents of each dollar from
selected specific transfers, while grants labelled as federal grants do
not have a significant impact on investment expenditures. Similarly, in
the fourth column, for every dollar of specific provincial transfer,
municipalities spent fifty--two cents in investment expenditures, while,
once more, grants labelled as federal grants do not have a significant
impact on investment expenditures.
This raises again the measurement issue. This article hopefully
makes researchers in this area aware of this problem: it is difficult to
measure the specific impact of federal grants on municipal expenditures,
since most of these funds transit through the provinces before reaching
the municipalities. It was not possible in the context of this research
to find a methodological solution to this problem, and, based on our
experience, the answer to this problem is not obvious. However, what our
result shows is that there is without a doubt a "flypaper"
effect. Specific transfers to municipalities have a significant impact
on investments expenditure by municipalities.
Conclusion
The federal government now plays a more important role in the
financing of municipal investments than it did in 1990. The rules used
to assign transfers to federal or provincial sources somewhat obscure
this, but, using various econometric tests and definitions of transfers,
we can conclude that transfers have an impact on investments. If we
consider all specific transfers, fourteen cents from each dollar is
spent in investment expenditures. Using the top-down approach,
forty--five cents from each dollar is spent for the same purpose.
Finally, using the bottom--up approach, fifty--two cents from each
dollar is spent in municipal investment expenditures. Specific federal
transfers, increases or cuts appear not to have an effect in municipal
investment expenditures, because infrastructure program funds from the
federal government flow through provinces to municipalities. But they
are likely to have an impact on investments through provincial
transfers.
We can conclude that specific infrastructure transfers from senior
governments towards local governments have a significant impact on
municipal infrastructure investments. Hence, increases in transfers for
investments purposes in the Chretien/Martin years did increase municipal
investments in Canada by about fifty cents per dollar of transfer.
However, our analysis also shows that this impact is indirectly
measured, since most of the federal transfers pass through the
provincial governments. This article highlights some of the
methodological caveats that occur when analysing federal contributions
to municipal transfers.
We now turn to the relevance of our results for the current federal
infrastructure investment policies, including the federal stimulus
package put forward to face the 2008--09 recession. How relevant they
are is the question. To allow us to answer it, we need to know how
similar or dissimilar the current federal programs are in terms of
directing transfers to investments.
Since 2005, the policy and the portfolio of the federal government
in this area have not changed significantly. After the election of a
Conservative government, led by Prime Minister Stephen Harper, in 2006,
the new regime not only maintained most federal grants to
municipalities, along with the Gas Tax Fund programs to the
municipalities, but prolonged or enhanced these programs. The
Conservative government replaced some of the federal grant programs to
municipalities with other similar programs but did not cut the level of
funding. Quite the contrary, infrastructure investments became a
political priority of the Conservative government to stimulate the
Canadian economy. The Economic Action Plan (the federal stimulus
package) allocates close to $12 billion in new infrastructure funding
over the 2009 and 2010 budget years (Canada, Department of Finance
2009). As a consequence, the amounts transferred through grants or gas
tax sharing have increased rather than decreased since 2005.
Of greater importance to our analysis is that the general nature of
these programs has not changed significantly. They remain conditional
grants with tripartite funding aimed at municipal investment
expenditures; the exact nature of these expenditures may vary but not
their "capital" nature or the need for intergovernmental
arrangements. Put differently, the program has not morphed from a
conditional tripartite cost--sharing program to, for example, an
unconditional block grant or a conditional federal transfer with no
counterpart funds.
In our opinion, the empirical results obtained in the third section
of the article mainly based on data relating to the Liberal period
(1993-2005) can be generalized to the most recent period led by the
Conservative government (2006-09). The data to monitor the impact of
both provincial and federal transfers on municipal investments beyond
2005 is just becoming available and will allow us to verify our main
conclusion that federal grants have a significant impact on municipal
investments. More work would also be necessary to know precisely how
differences in provincial sharing formulas affect the use of these funds
at the municipal level, but this is beyond the purview of this article.
Appendix
The exercise in data construction is necessary because, while we
know that specific transfers contain amounts not related to
infrastructure, such as health and social service transfers, we also
know that transfers have been classified with a specific label ex--post
taking into account their use by Statistics Canada. So we cannot regress
investment expenditures on a specific transfer because we would be in a
situation where the use of a transfer on expenditure explains the label
of the transfer and thus its amount.
We can analyse the impact of specific--purpose transfers on
investment expenditures by a panel regression for the ten Canadian
provinces for the 1988--2003 period. With panel data, one must be
cautious in the choice of the econometric estimation technique. We use
the following sequence of tests to ascertain which estimation technique
would be best to use:
1. Individual effects: We test for all [[mu].sub.i] = 0, in order
to ascertain if different provinces have significantly differents
effects.
2. Hausman: the ordinary least squares (OLS) technique was used and
we computed the Hausman test to compare the random effects versus fixed
effects coefficients. H0= equality of coefficients. If H0 is rejected,
we have to use the fixed effects that are always consistent. In the
other case, we cannot reject H0 we use the random effects that are best
linear unbiased estimators BLUE.
3. Heteroskedasticity: taking into account the fixed or random
effects found in 2, we test the null hypothesis (H0)
"homoskedasticity" using the Breusch--Pagan test, which
consists of regressing the squared residuals from the OLS on the
independent variables of the model and performing a F significance test.
4. Interprovincial correlation: modelling for
heteroskedasticity/homoskedasticity, we performed the Breusch--Pagan
interindividual autocorrelation test, which H0 is inter--individual
residual independent.
5. Intra--provincial autocorrelation: Stata using the Wald test (we
must use the command "xtserial," which is a user--written
program--for more details, visit
http://www.stata-journal.com/software/sj3-2/st0039), where H0 is the
absence of residual autocorrelation. This is a test for the AR1 form of
autocorrelation.
The confidence level for every test was five per cent.
References
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Fabio Bojorquez is an economist with KPMG, Montreal; Eric Champagne
is assistant professor, School of Political Studies, University of
Ottawa; and Francois Vaillancourt is professor, Departement de sciences
economiques, Universite de Montreal. This article is based on work
prepared for "Multilevel Governance and Public Policy in Canadian
Municipalities," part of the SSHRC-funded Major Collaborative
Research Initiative. The authors thank the Journal's two anonymous
referees for their comments on the first version of the paper.
Table 1. Federal Conditional Grants to Municipalities
Information on Gas Tax Agreements, by Province
Province Provincial sharing formulas in gas tax
/Territory agreements
(date signed)
Newfoundland $21.88 million for provincial regional
and Labrador waste-management strategy. $60.37
(1 August 2006) million to municipalities and other
local entities on per capita basis but
with $6.03 million (10%) reserved for
small municipalities. Amount per
recipient municipality is $21,406 over
the four years, plus $120 per person.
Local service districts and
unincorporated municipalities will not
receive funds.
PEI $4.5 million towards completion of the
(22 November PEI Sludge Remediation Program. $11
2005) million to the province for roads and
bridges. $17.1 million on a per capita
basis to municipalities that provide
sewer and/or water services (minimum
allotment of $100,000). $4.9 million
(the balance) will be allocated to the
Communities and Capacity Building Fund
(CCBF), which will give consideration to
incorporated communities that do not
provide sewer and/or water services to
their residents for projects that are
regional in scope and for local
capacity-building efforts
Nova Scotia 25% of the amount is calculated on a per
(23 September capita basis (municipality
2005) population/total population). 25% of the
amount is calculated on a per dwelling
basis (number of dwellings in the
municipality/total number of dwellings
in the province). 50% of the amount is
calculated on the expenditures of the
municipality (rolling average of the
municipalities' expenditures over five
years/rolling average of the total of
all the municipalities' expenditures
over five years).
New Brunswick Purely on a per capita basis.
(24 November
2005)
Quebec SOFIL manages the funds, which are
(28 November dedicated to municipalities.
2005) Municipalities under 6,500 people
receive $210,000, plus $122 per
resident. Municipalities with 6,500 or
more people are allocated $154 per
resident.
Ontario Allocated province-wide on a per capita
(17 June 2005) basis, with allocations made on a 50/50
basis between lower-and upper-tier
municipalities, where they exist.
Unincorporated areas will receive funds
administered by the province.
Manitoba Purely on a per capita basis for 2005-06
(18 November and 2006-07. 90% on a per capita basis
2005) for 2007-08 to 2009-10.10% to the public
transit communities in Winnipeg,
Brandon, Thompson, and Flin Flon for
2007-08 to 2009-10.
Saskatchewan Purely on a per capita basis, with some
(23 August 2005) discretion available by the New Deal
Partnership Committee co-chairs. 20% of
the first five-year allocations have to
be used for regional infrastructure
projects.
Alberta Minimum amount of $79,484 for small
(14 May 2005) municipalities, purely on a per capita
basis for everyone else ($144 per
person)
British Columbia Purely on a per capita basis.
(19 September
2005)
Source: Slack et al. 2007: Table D.1
Table 2. Per Capita Level (Current $) and Distribution of Total
(as a percentage), Local Government Revenue, Canada, 1990-2005
Revenue source 1990 1991 1992 1993
Municipal 1,179 1,247 1,315 1,322
per capita $
% % % %
Property taxes 42.9 43.2 43.2 43.8
Payments-in-lieu 4.9 4.9 4.9 5.0
Other taxes 1.2 1.1 1.1 1.0
User-fees 19.8 18.9 18.5 18.6
Investment income 7.0 6.0 5.3 5.1
Other 1.0 1.0 1.0 1.1
Other-source revenue 76.9 75.1 74.0 74.6
Unconditional grants 5.2 5.0 5.1 4.0
Conditional grants 17.9 19.9 20.9 21.4
Federal 0.6 0.6 0.6 0.6
Provincial 17.3 19.3 20.3 20.9
Total grants 23.1 24.9 26.0 25.4
TOTAL 100.0 100.0 100.0 100.0
Revenue source 1994 1995 1996 1997
Municipal 1,355 1,404 1,329 1,332
per capita $
% (a) % % %
Property taxes 43.5 41.8 44.9 45.9
Payments-in-lieu 5.0 4.8 4.8 4.7
Other taxes 1.1 1.0 1.1 1.2
User-fees 18.8 19.2 20.2 21.3
Investment income 5.1 6.5 5.5 5.1
Other 1.1 1.0 1.1 1.1
Other-source revenue 74.6 74.3 77.6 79.4
Unconditional grants 3.6 3.3 3.9 3.1
Conditional grants 21.8 22.3 18.6 17.5
Federal 0.8 1.4 1.3 0.9
Provincial 21.0 21.0 17.3 16.6
Total grants 25.4 25.7 22.4 20.6
TOTAL 100.0 100.0 100.0 100.0
Revenue source 1998 1999 2000 2001
Municipal 1,470 1,535 1,489 1,545
per capita $
% % % %
Property taxes 47.6 47.5 49.1 49.0
Payments-in-lieu 4.7 4.3 4.2 3.6
Other taxes 1.2 1.3 1.3 1.4
User-fees 20.6 21.4 23.0 23.4
Investment income 4.8 4.7 5.2 5.3
Other 1.1 1.2 1.4 1.5
Other-source revenue 80.0 80.4 84.2 84.2
Unconditional grants 3.2 2.5 2.5 2.8
Conditional grants 16.8 17.1 13.3 13.0
Federal 0.7 0.5 0.5 0.7
Provincial 16.2 16.6 12.8 12.3
Total grants 20.0 19.6 15.8 15.8
TOTAL 100.0 100.0 100.0 100.0
Revenue source 2002 2003 2004 2005
Municipal 1,579 1,645 1,716 1,747
per capita $
% % % %
Property taxes 49.4 49.8 49.6 50.1
Payments-in-lieu 3.2 3.1 3.1 2.6
Other taxes 1.4 1.4 1.4 1.5
User-fees 23.5 22.7 22.4 22.2
Investment income 4.6 4.9 5.2 5.1
Other 1.5 1.6 1.5 1.4
Other-source revenue 83.6 83.4 83.3 82.9
Unconditional grants 3.0 3.0 2.9 2.9
Conditional grants 13.4 13.6 13.7 14.3
Federal 1.3 1.2 1.3 1.5
Provincial 12.1 12.4 12.4 12.8
Total grants 16.4 16.6 16.7 17.1
TOTAL 100.0 100.0 100.0 100.0
Source: Slack et al: Table C-4
Table 3. Per Capita Level and Distribution of Total
(as a percentage), Local Government Revenue, Canada,
2005, Ten Provinces and Canada
Revenue source NL PEI NS NB
Municipal 857 519 1,206 1,093
per capita $
% % % %
Property taxes 55.7 65.4 70.0 48.9
Payments-in-lieu 2.9 0.3 3.3 5.3
Other taxes 1.2 1.2 0.8 0.5
User-fees 18.4 24.5 16.4 25.0
Investment income 1.6 0.4 2.1 0.4
Other 0.5 1.6 0.7 0.4
Own-source revenue 80.2 93.4 93.2 80.5
Unconditional grants 5.6 2.6 3.1 8.1
Conditional grants 14.6 4.0 3.7 11.4
Federal 1.8 0.4 1.0 3.7
Provincial 12.9 3.6 2.7 7.7
Total grants 19.8 6.6 6.8 19.5
TOTAL 100.0 100.0 100.0 100.0
Revenue source QC ON MB SK
Municipal 1,476 2,145 1,293 1,358
per capita $
% % % %
Property taxes 61.6 48.0 38.1 43.9
Payments-in-lieu 4.7 1.8 3.5 3.0
Other taxes 0.4 1.3 2.5 6.0
User-fees 16.6 21.3 23.7 24.0
Investment income 1.7 4.2 7.0 4.0
Other 2.2 1.4 1.4 1.0
Own-source revenue 87.1 77.9 76.2 82.0
Unconditional grants 2.6 2.7 13.9 6.0
Conditional grants 10.3 19.4 9.9 12.1
Federal 0.2 2.1 2.6 5.9
Provincial 10.1 17.3 7.3 6.2
Total grants 12.9 22.1 23.8 18.0
TOTAL 100.0 100.0 100.0 100.0
Revenue source AB BC Canada
Municipal 2,135 1,326 1,747
per capita $
% % %
Property taxes 40.3 52.4 50.1
Payments-in-lieu 1.7 1.8 2.6
Other taxes 1.8 2.9 1.5
User-fees 29.1 29.0 22.2
Investment income 13.3 7.4 5.1
Other 1.7 0.5 1.4
Own-source revenue 87.8 93.9 82.9
Unconditional grants 0.3 2.0 2.9
Conditional grants 11.9 4.1 14.3
Federal 0.6 0.8 1.5
Provincial 11.3 3.3 12.8
Total grants 12.2 6.2 17.4
TOTAL 100.0 100.0 100.0
Source: Slack et al. 2007: Table 6.1
Table 4. Provincial Conditional Grants Per Capita
to Municipalities, 2005
Province/territory NL PEI NS NB
By function: $ $ $ $
General administration 13 1 2 3
Protection 4 1 0 1
Transportation 12 11 0 31
Health 0 0 0 0
Social services 0 0 12 0
Resource
conservation/
ind'l dev. 1 2 0 0
Environment 20 2 3 18
Recreation/culture 16 2 14 31
Housing 2 0 0 1
Regional planning/
development 0 0 0 0
Debt charges 41 0 0 0
Other 0 0 0 0
TOTAL 111 19 32 84
Province/territory QC ON MB SK
By function: $ $ $ $
General administration 6 2 3 4
Protection 2 2 2 6
Transportation 35 29 35 41
Health 0 48 6 0
Social services 11 257 0 3
Resource
conservation/
ind'l dev. 10 5 5 1
Environment 44 12 14 13
Recreation/culture 16 6 19 16
Housing 16 9 3 0
Regional planning/
development 7 1 3 0
Debt charges 1 0 0 0
Other 3 0 5 0
TOTAL 149 372 94 84
Province/territory AB BC YU NWT
By function: $ $ $ $
General administration 4 12 18 55
Protection 16 3 8 7
Transportation 144 5 44 63
Health 0 0 0 4
Social services 19 0 0 2
Resource
conservation/
ind'l dev. 9 2 2 10
Environment 17 7 11 227
Recreation/culture 23 6 58 38
Housing 7 2 0 64
Regional planning/
development 0 1 9 32
Debt charges 1 3 0 0
Other 0 3 0 0
TOTAL 241 44 149 503
Province/territory NU Canada
By function: $ $
General administration 34 5
Protection 25 4
Transportation 425 39
Health 34 19
Social services 195 105
Resource
conservation/
ind'l dev. 15 6
Environment 245 20
Recreation/culture 204 12
Housing 648 9
Regional planning/
development 168 2
Debt charges 0 1
Other 45 1
TOTAL 2,037 223
Source: Slack et al. 2007: Table 5.1
Table 5. Regression Results, Per Capita Municipal
Investment Expenditures, Four Measures of Transfers
for Canada, Ten Provinces, 1988-2003
Specific
transfers,
Specific federal and
transfers provincial
aggregate separate
Specific transfers 0.131 --
(3.10) ** --
Specific federal -- 0.566
-- (1.82)
Specific provincial -- 0.144
- -- (2.37) *
Tax revenues 0.066 0.097
(1.84) (1.62)
Other revenues (1) 0.117 0.125
(2.22) * (1.57)
Population density -2.819 -1.511
(1.90) (0.89)
GDP 0.005 0.004
(4.14) ** (2.43) *
Asymmetry -0.075 --
(1.60) --
Provincial asymmetry -- -0.128
-- (1.80)
Federal asymmetry -- 0.211
-- (0.55)
Constant 56.577 41.745
(2.25) * (1.19)
Log likelihood -725.818 [R.sup.2]
(between)
= 0.8068
Test results
Individual effects yes yes
Hausman test fixed random
effects effects
Heteroskedasticity yes no
Interprovince corr. yes --
AR1 yes yes
Top-down Bottom-up
transfers transfers
Specific transfers
Specific federal 0.315 0.265
(1.74) (1.47)
Specific provincial 0.446 0.523
- (4.09) ** (4.49) **
Tax revenues 0.106 0.104
(3.17) ** (3.28) **
Other revenues (1) 0.054 0.049
(1.69) (1.55)
Population density -2.043 -2.074
(1.44) (1.54)
GDP 0.004 0.004
(3.93) ** (3.97) **
Asymmetry
Provincial asymmetry 0.512 -0.627
(2.76) ** (3.29) * *
Federal asymmetry 0.326 0.335
(1.46) (1.54)
Constant 45.163 50.686
(1.75) (2.03) *
Log likelihood 724.0067 -723.8362
Test results
Individual effects yes yes
Hausman test random fixed
effects effects
Heteroskedasticity yes yes
Interprovince corr. yes yes
AR1 yes yes
Source: Bojorquez and Vaillancourt 2006.
Absolute value of z statistics in parentheses
* significant at 5%
** significant at 1%
