Wednesday, 28 November 2012

The real elephant in the room

Recently, during the by-election in Calgary Centre, mayor Nenshi injected himself into the campaign. Under the guise of holding a forum to discuss municipal issues, he cleverly engineered an attack on the Conservative candidate who did not attend the meeting.

While the merits of candidates attending forums may be deliberated, the mayor surrounded by candidates from the left, berated Joan Crockatt for being the ‘elephant not in the room”. He proceeded to use the meeting to tout the idea that cities should get more money from the federal government, an issue that he had been discussing with his municipal counterparts in Ottawa.

Government funding and transfers from higher to lower governments is a perennial debate in Canada, but the real issue of how services should be delivered is never put forward. Mayor Nenshi has adopted his predecessor’s mantra of seeking more funds for infrastructure while taxing Calgarians, but has refused to use alternative ways of providing services to Calgarians, through systemic privatization or managed competition.

During his mayoral campaign he portrayed himself as a fiscal expert. Once elected he discarded ‘zero base budgeting’ for a concoction called ‘zero base reviews’ and accepted a fabricated ‘city inflation’ rate when the true inflation rate is below 2%. Last year Calgarians had a 10% tax increase. This year Council proposes a 5.7% increase. Calgary continues to push the idea that our taxes are lower than most cities in Canada. However rates and fees are increasing at a faster rate. For example the seniors’ transit fee will see a massive increase from $55 to $95. Water and Sewer and garbage bins rates will also increase. The Aldermanic budgets will see increases of $383,000 for communication and education purposes. In fact Calgarians are being nickelled and dimed to death.

The problem is that the budget process is staged and has become a sham. We appropriate savings and increase spending, instead of reducing taxes. Any money from the province is quickly appropriated and used for needless expenditures. At the same time Council continues to say there is not enough money. Calgarians on the other hand have taken a disengaged attitude as they continue to support the mayor in his quest for another term.

In a recent poll the Mayor received an 88% approval. The question is why? This mayor has done nothing to alleviate the tax burden of Calgarians. He proposes an alternative budget and yet there is more new spending instead of necessary cuts which could have been made through zero base budgeting. True there have been less acrimonious debates at City hall but the result has not produced savings or efficiencies. Savings and transfers from the province, if any, have not been translated in any tax reduction. Instead we are taking money out of reserves to balance the books.

Calgarians should really take a good look at the performance of Council under Mayor Nenshi’s leadership. Nothing has changed in the financial affairs of the city. We have seen more expenditures and discussions such as ‘shark fin’ soup and capital expenditure for Crowchild Trail, while existing problems are put on the back burner. We continue to blame  suburban development for the city’s ills. Yet we do not recognize that growth is not the problem, but that city hall’s ‘rob Peter to pay Paul’ policies to manage growth are the real problem.
There is nothing wrong to be ambitious or a liberal for that matter, but to pretend to be looking after Calgarians’ interest while discretely campaigning for a candidate is not. While the Mayor did not campaign directly for Harvey Locke the Liberal candidate, many of his supporters during the mayoral elections did.  he certainly took the opportunity to rub shoulders with all the visiting Liberals seeking the leadership of their party.

 Conservatives beware; the real elephant in the room is the Mayor, who is planning his next steps to reach higher office.  A disguised liberal, who discusses the concerns of Calgarians, without delivering any improvements, is yet another strategy from this very clever politician.

Marcel Latouche

Thursday, 22 November 2012

Abuse of Public Funds

It seems that the public’s cynicism where politicians are concerned is well justified. In recent past the number of reported abuse of financial entitlements by politicians of every ideology has increased.

IPSA has already commented on the abuse of former Conservative Minister Bev Oda, and Minister of Defence Peter MacKay. One has resigned while the other is still in cabinet. Furthermore we have been informed of possible abuse by Senator Patrick Brazeau and of course the investigation of former Liberal Minister Joe Fontana.

In the case of Mr. Fontana who is currently the Mayor of London, he has been charged by the RCMP with breach of trust. The investigation which includes the possible use of his office expense account to pay for his son’s wedding reception held in 2005. While not proven these charges remain serious and disturbing

As for  Conservative Senator Brazeau, it is reported that he may have abused his position as senator to claim a $20,000 housing allowance. While it may be legitimate because his primary residence is his father’s home in Maniwaki, Quebec, it still leaves a bitter taste in the taxpayer’s mouth.

In Quebec, Montreal Mayor Gerald Tremblay has resigned amid allegations of corruption. In Laval Mayor Gilles Villancourt has also resigned as a result of similar allegations.  Civil servants in those municipalities are also under investigation for similar infractions. 

In Alberta we have an investigation into political donations to the Progressive Conservatives and also the continuing audit into the expenses of former executives at the Alberta Health Services. These investigations have now uncovered the use of taxpayer dollars to expense tickets to Progressive Conservative fundraisers. This case, however, hits close to the Premier's home as the allegations involve Lynn Redford, the sister of Alberta’s Premier.

While some of these allegations are still under investigation, they show a pattern of complete disregard by politicians or those close to them for taxpayers’ dollars. It seems that once in office they believe that the public purse is theirs rather than the public’s. Rules and regulations are either designed or ignored to allow excesses by people in public office.

It seems that our political leaders no longer take any responsibility for their use of public funds. This type of abuse is getting so common that it has infected the non-profit sector. Executives at the Salvation Army are now under investigation for millions of dollars which have disappeared in the last two years.  Can the pubic have any trust left in the system?

We should not rely on the CBC  to be the watchdog of the public purse. It is important that safeguards are put into place to audit, on a regular basis, the expenses of elected and appointed officials. While FOIP legislation may provide access to information, it should be the governments’ responsibility to make their expenses public without any request. 

Transparency is the only path to accountability. Better still, limited terms for elected officials would be a better solution.

Marcel Latouche

Thursday, 15 November 2012

The Government debt connundrum

The debate about government debt is getting louder as the United States rapidly approaches the so-called ‘fiscal cliff”. Burdened by deficits and a large debt of $16 trillion, the U.S has created a legal mechanism that will trim the 2013 deficit by automatically creating spending cuts and increase taxes. The repercussions of such a policy, if a political deal is not arrived at, are great for not only the U.S but world economies, including Canada.

In Canada the Finance Minister just announced that his government will now wipe out the deficit a year later than expected. In Alberta the government is proposing to increase its debt level. All of this under the cloud of more problems from Europe which has been in the economic doldrums for quite some time. It is too bad that we don’t seem to learn anything from failed socialist policies which have caused massive spending and large deficit which now overburden many economies

Debt is a financial tool. It makes sense to use long debt to finance long term assets. But too often governments have used debt to finance deficits caused by political expenditures motivated by the desire to give the electorate wants instead of needs.  Political parties who are not in power automatically oppose debt, until they get in government and then perpetuate the trend of paying for promises through deficits, and debt.

Those who do not trust policymakers with deficit spending propose a balance budget policy because in their view policymakers do not worry about the costs of their policies as the burden falls on future taxpayers.  However, talks of a balanced budget are cheap when not in power; but too often economic realities are ignored when doing so. Most economists oppose a strict balanced budget rule, as it would hinder the use of fiscal policy to stabilize output, smooth taxes, or redistribute the tax burden across generations. As Harvard Professor N. Gregory Mankiw correctly points out: “Fiscal policy is not made by angels…” And politicians are certainly no angels when it comes to managing other peoples’ money.

So what is the answer to managing debt?  In my view capital debt may be justified when it is used to provide needs. Spreading the burden of capital expenditure instead of using cash passes the burden on future generations who would benefit from long term assets. Using cash to finance capital expenditure will unduly penalize current taxpayers through increased taxes.

This means that responsible governments should cut their desire of financing ‘wants’ and also cutting operating costs. More specifically labour costs which cause enormous deficits.  The burden of financing public sector wages and benefits is growing rapidly and the growing unfunded pension liability is an additional burden. Governments, who legitimately increase their levels of debt for long term assets, should put in place policies which have caveats and sunset clauses. Debt should not exceed 20%-30% of GDP, and any tax increase used to pay for the debt should immediately be removed when the debt is fully paid for.

Instead of calling for expensive ‘referenda’ to survey the taxpayer, politicians should take a good look at their policies. They should sign an agreement with the public that they will not make promises that necessitate increasing the debt level. We should have a dialogue that clearly explains that the government cannot provide everything that the public wants without explaining the costs. Too often politicians pander to special interest groups who pass the burden of their desires to the taxpayer. Organizations who support better fiscal management with fewer taxes should also actively explain the public about the consequences of answering surveys which result in further government expenditure

As the levels of debt by governments and individuals become chronic, governments should lead by example and cut their debts. Politicians should also explain to the public that not all services should be provided by the government and stop politicizing privatization.  In the 21st century there is virtually no service that cannot be put to tender and provided by the private sector or through managed competition.

Debt is not a four letter word that should be ostracized. The management of debt requires prudence, restraint, transparency, and accountability. It should not become a tool to finance  ‘wants’ and entitlements.

Marcel Latouche

Saturday, 10 November 2012

The policy of cycling

With the snow fall becoming more frequent, the bike lanes nightmares are increasing. City Council has taken the view that Calgary should increase the number of useable bike lanes around town. It is a policy which has been pushed forward by certain groups in the city namely Civic Camp.

While certain flexibility is required to manage the rights of cyclists, it seems that Council has decided that this issue is part of their ‘social indoctrination ‘agenda. First it started with the view that cyclist are being endangered by sharing the road with cars. This was followed by the view that we should be encouraging the use of bicycles to alleviate the number of cars on the road and maximize the use of bicycles as a means of transportation to the downtown core.

Being a recreational cyclist, I have supported the building and proliferation of cycling facilities around town; more importantly the addition of miles of cycling paths around our parks and river banks. For example the existing bike routes in Fish Creek and Nose Hill parks are something that Calgarians should be proud of. The placement of signs to help cyclist and users in distress to report their location is an even better idea.

The problem with the current policy for bicycles is that it is not well thought. In the past it was conceived as a recreation issue, but increasingly the design, rules and regulations are taking a life of their own. In Lakeview for example the Community Association is complaining that the introduction of bike paths in the community is causing traffic problems. It seems that the addition of two bike lanes has reduced the width of the road and that there seems to be conflict between cars and bikes.

Although the bike lanes were requested by the community association it seems that the current design is not only ugly, but also is not being used by cyclists, as some of them still use the lanes dedicated for cars. hence the problem with ‘social engineering ‘without proper rules.

Calgary is not Copenhagen or Portland. We have months of snowfall and our roads were never designed for cyclists. Cyclists very often disregard the rules of the road. They ride in pedestrian crossings and sidewalks. They are a vehicle and should observe the rules of the road. Dedicated bike lanes should not be cleared of snow as a priority, since more people use cars and buses for winter commuting. Instead of bike lanes bus routes should take precedence after a snow storm.

What is becoming apparent is the intransigent attitude of certain members of Council, mostly those belonging to Civic Camp, who have a hidden agenda to rid Calgary of as many cars as possible. Alderman Pincott’s arrogant ‘take it, or leave it’ response to Lakeview’s community association concerns speaks for itself.

Bicycles are great, but in Calgary their use is more for recreation rather than commuting. Our roads were not designed for massive bicycle use. While bicycle paths are encouraged, major traffic arteries and streets should not be changed to accommodate wide bicycle routes. As long as Council believes that we must put bikes ahead of transit and cars, we are going to create conflict. We currently spend millions of dollars which could be better spent on mass transit instead. A balance is required in future policies for bicycles. What we don’t need is arrogance from civic representatives.

Marcel Latouche

Thursday, 8 November 2012

No crystal ball; just good planning required

“What do you get when you put five economists in the same room? Six opinions.”

Just because we do not have a crystal ball it does not mean that we cannot plan to manage risks. Today it has become more important for governments to manage risks. In light of what is happening in Europe and what can happen in the United States if they cannot agree on solving the fiscal cliff, even Canada’s governments should be preparing for another recession.

As the Federal Minister of Finance prepares his economic update we are told that Canada faces a 2%-2.4% growth for 2013and in Alberta 3.5% . We also face a $2 billion federal loss of tax revenue.

The Macdonald- Laurier Institute recently published a report  by Marc Joffe showing the provincial default risk vulnerability for 10-20 year and 30 year windows. Ontario has the highest risk in the 10-20 year window, but low and behold the so-called ‘have province’ of Alberta has the highest vulnerability in the 30 year window.

The reasons given for Alberta’s risk is that we have a large swing from net financial surplus to a large debt. We also have a population expected to age more rapidly than other provinces and of course the economy is exposed to volatile energy revenues.

Under the Canadian system there may be an assumption that provinces may be bailed out by the federal government in the event of a crisis. Presumably that assumption may also be true that provinces may bail out local governments under the same conditions. This system creates a cumulative problem that we should not rely upon.

With lower oil prices and a possible further recession Alberta is in no position to continue its path of large expenditures and reluctance to change the way services are provided. It has recently been reported that Alberta has a. $10-billion pension liability and a $4-billion maintenance deficits on its books.

The pension liability is one that should be tackled immediately. We can reduce its growth by changing the way we do business in Alberta. Through managed competition and privatization of services the province could reduce its future pension growth by minimizing the use of unionized labour which is the major source of growing pensions.

While the government of Alberta says that it will rein in costs in its next budget, there are some fears that politics may well interfere and prevent major reduction in expenditures.

Futhermore, if we face such a risks as forecasted by Marc Joffe, it would be prudent to put into place policies to minimize those risks. We can start by opening our doors to immigration of qualified people. To do this we must also look at our protectionist policies regarding the acceptance and recognition of foreign qualifications, Thus a growing younger population may alleviate the risks caused by the aging demographics.

Additionally we must both cut the spending spree and increase our contribution to the Heritage Fund. In IPSA’s 2006 report “A blueprint for Alberta” we advocated the following:
” In our opinion the policy of saving revenues from oil and gas should continue. However many of the policies must change. At the heart of these changes is that income from the fund should be reinvested and not used to top up general revenues. Alberta should also adopt a policy of not including oil and gas revenues in its budget because of their volatility. Based on conservative estimates of future resource revenues, we advocate that for the next 10 years, 75% of the net surplus be placed in the Heritage Fund, the remainder 25% or approximately $10 billion should be used to bring real infrastructure to par in the province. Roads, water and sewer should be a priority, and not ‘social infrastructure’. Once we have been able to close the infrastructure gap, we should gradually increase the percentage of the resource revenues allocation to the Heritage Fund, to be managed for future generations. While the proportion of savings to expenditure may vary in the short term, we still believe that a 100% savings, investment
in real assets after ten years is advisable. This policy will require that the government reduce its expenditures and have a better fiscal discipline. This measure is advocated to remove the savings from the hands of eager politicians who may decide to spend to build political legacies.”

The numbers may have changed but the principles remain the same. This seems to be truer today given the new fiscal environment surrounding us.  In conclusion we advocate, spending restraint, change in our saving pattern and labour practices. This demands transparency and a bipartisan plan to reform our fiscal strategy.

Marcel Latouche

Thursday, 1 November 2012

A Taxing proposition

Alberta Municipal Affairs Minister Doug Griffiths, must be congratulated on his decision to kill the idea of ‘new powers of taxation’ for municipalities. In the past the Institute has always said that any new powers given to municipalities under a charter must not contain new powers of taxation unless they were revenue neutral.

In our view a complete review of the roles of the Province and Municipalities should be undertaken, not behind closed doors, but with open and public participation. While municipalities would like to see new powers to be able to impose taxes such as  civic levies on alcohol, hotels, gaming, vehicle registrations, insurance and tobacco., the issue is real issue remains that there is only one taxpayer no matter who collects the taxes.

In the past municipalities have argued that an infrastructure deficit exist and that funds from the province were inadequate. However they never acknowledge that municipalities have continued to spend with the same abandon without ever looking at alternative ways of providing services. The cost of public sector labour is on a continuous upward trend; in some cases reaching over 60% of operating costs.

As the Minister shuts one door, Transformation Calgary opens a new one with their proposal for a 1% tax. On the face of it this proposal seems to have some merit, but the administration and jurisdictional problems abound. To have it implemented would require Federal and Provincial buy in.

The premise of a new 1% tax is that Calgary suffers from a lack of infrastructure that would make it world class. Therefore Transformation Calgary flies in Oklahoma City’s former mayor, Ron Norick to explain to 150 Community associations’ leaders how it can be done. Problem is that we do not take into consideration a number of factors.

First that taxation rules in the U.S is totally different from ours. Municipalities have the ability to raise funds through municipal bonds, and their relationship with the State is different from the Municipal/Provincial relationship.  This is another reason why new taxing powers should not be granted before roles are clearly defined.

Furthermore, why is it that infrastructure problems must be solved through taxation? In the case of recreation arenas there are many sports organization that would raise the money to provide them, provided that government would allocate the land and grant tax credits for their provision.. As for libraries, in the 21st century grand buildings are becoming obsolete. With the advent of technology books will be available digitally.

Why a new tax, when we could give tax credits to contributors. Individuals and companies who contribute towards these ‘badly needed’ infrastructures could easily be given the right to deduct a percentage of their donation from their municipal taxes. Instead of imposing a new tax, which is never voluntary, we should reward philanthropic contribution no matter how large or small through tax deductions.

The whole idea of this tax is to appeal to the community on the basis of a leftist mantra. One that believes that quality of life should be provided through taxation. The philosophy is that if’ you build they will come’, that may be true but can’t we find another the way of funding them. Taxation for the arts is not the only way to decrease crime and obesity, and foster innovation, creativity, talent and capital. How about financial incentives?
The problem with a new tax is that once started it will never stop. One tax will lead to another. Going down this slippery slope should be a non-starter. One of the startling remarks was that Oklahoma was so pleased with the initial tax that citizens voted for another one. Of course the new library is named after Norick. How about the Felesky Library or the Brookman Saddledome? There are many philanthropic Calgarians who have their names associated with the arts and education, lets us continue on this path rather than taxing ordinary people. Calgarians must also be mindful of what is happening in Edmonton with regards to the new arena and the Katz contribution to the Progressive Conservative.

While we believe that new facilities are needed, we also believe that they can be built without new taxes. Should Calgarians ever accept a 1% tax they should ensure that sunset clauses are always included in any proposal.  

Be careful of politicians and their friends who bear gifts of new infrastructure that will cost you only pennies. A tax is a tax and it comes out of your pocket whether you like it or not. Tax is a dirty word. Demand tax credits before you contribute one more penny in taxes.

Marcel Latouche