Local Government Fiscal Framework (LGFF)
One of the most pressing issues facing municipal governments today is the challenge of paying for the maintenance, replacement, and expansion of local infrastructure. Local infrastructure are things Albertans rely on day-to-day such as roads and transit, sidewalks, water and wastewater lines, fire trucks, recreation facilities, and public service buildings.
Since 2016, ABmunis has invested significant time and resources into helping the Government of Alberta design and finalize the creation of Alberta’s newest municipal infrastructure funding program, the Local Government Fiscal Framework (LGFF). To understand the context behind this work, we need to go back to 2007 when the Government of Alberta created a key infrastructure funding program, the Municipal Sustainability Initiative (MSI).
What level of funding should LGFF start at?
During the 2023 provincial election, you may have heard us call for infrastructure funding to be set at $1.75 billion. We were referring to LGFF. The fact is provincial investment in community infrastructure has been on a downward trend since 2011. For example, in 2011, the Government of Alberta provided infrastructure funding to municipal governments that was equivalent to $424 per capita. Since then that figure has dropped by 64 per cent. In 2023, the province will invest only $154 per capita through municipal infrastructure grants (excluding federal infrastructure funding that is transferred on by the Government of Alberta).
So what are the facts when it comes to investments in provincial infrastructure?
- Municipalities in Alberta are facing an estimated $30 billion infrastructure deficit and don’t have the financial means of other levels of government.
- Community infrastructure has taken a backseat to other provincial priorities over the last decade.
- Alberta’s population continues to grow, and municipal infrastructure funding has not kept pace.
To understand the context behind this work, we need to go back to 2007 when the Government of Alberta created a key infrastructure funding program, the Municipal Sustainability Initiative (MSI). MSI was promised to be a 10-year funding program with a 3-year phase-in period. After the phase-in period, municipalities would receive $1.4 billion per year between 2010 and 2016. This represented $1.35 billion in MSI Capital for building infrastructure and $50 million in MSI Operating for day-to-day operational expense.
At the time, the Government of Alberta was collecting about $1.4 billion in taxes from communities through provincial education property taxes. The provincial education property taxes are collected by municipalities on behalf of the government. The province’s intention was that MSI would indirectly transfer those funds back to municipal governments to be invested in local infrastructure.
However, the reality was something different. The highest that MSI Capital reached in any particular year was $896 million in 2015. By that time, provincial education property taxes had grown to $2.2 billion and are now at $2.5 billion.
In 2014, the province rolled out the Basic Municipal Transportation Grant (BMTG) under MSI. If the MSI promise had been met, and combined with the BMTG, then the total funding should have been around $1.73 billion annually. Instead, the funding has been on a downward trend, averaging $834 million annually over the last five years (2019-2023).
In 2016, ABmunis began work to design an infrastructure funding program that could replace MSI Capital and BMTG and better support municipal governments. That review led to ABmunis calling for a program that will:
- Set annual funding levels based on a linkage to provincial revenues,
- Provide more predictability so that municipalities can effectively plan for their future,
- Be embedded in legislation to prevent changes based on short-term political goals, and
- Adequately fund Alberta’s community infrastructure needs.
Fortunately, the Government of Alberta has listened to our calls and created the LGFF, which is set to replace MSI Capital and BMTG in 2024. Under its current design, LGFF will meet 3 of 4 of our requests. However, it fails in the most important area – it does not provide an adequate level of funding to address community infrastructure needs.
At this time, the Local Government Fiscal Framework Act will deliver a mere $722 million when the program starts in 2024. This is 36 per cent less than the historical average of MSI Capital & BMTG.
Yes, the funding pot will grow over time based on growth in provincial revenues (some restrictions apply), but with the funding pot starting at only $722 million, it could take 20 to 30 years to get back to the level of investment that was in place a decade ago.
The following provides a chronological summary highlighting ABmunis’ key work and notable developments in the pursuit to replace MSI with LGFF.
The Funding Pot
- 2016 – ABmunis develops recommendations for a new infrastructure funding program.
- 2017 – ABmunis seeks input from members and begins advocating to the province for the replacement of MSI.
- 2018 – The Government of Alberta announces that MSI will be replaced with a new program in 2022.
- 2018 – ABmunis and the Rural Municipalities of Alberta (RMA) align positions and enter discussions with the province on the design and amount of funding for the new program.
- 2018 – The Government of Alberta introduces the City Charters Fiscal Framework Act, which provides post-MSI funding for the cities of Calgary and Edmonton starting at $500 million.
- 2019 – The Government of Alberta repeals the City Charters Fiscal Framework Act and introduces the Local Government Fiscal Framework Act, which sets the post-MSI funding at $455 million for the cities of Calgary and Edmonton and $405 million for all other municipal governments and Metis settlements. A total of $860 million.
- 2020-2022 – ABmunis advocates for improvements by calling for the starting amount to be increased and to remove the 50 per cent cap on the revenue index factor calculation so that the annual changes in LGFF funding match annual changes in provincial revenue.
- 2021 – The Government of Alberta announces that MSI will be extended for two more years delaying the start of LGFF to 2024 and that the starting amount of LGFF is reduced from $860 million to $722 million. The decision reduces Calgary and Edmonton’s starting amount to $382 million and to $340 million for the non-charter municipalities and Metis settlements.
- 2022 – ABmunis and RMA continue to jointly advocate for the starting amount of LGFF to be increased and for the removal of the 50 per cent cap.
- 2023 – The Government of Alberta’s 2023 Budget announces that the Local Government Fiscal Framework Act will be amended to remove the 50 per cent cap on the growth factor calculation so that LGFF funding will grow at the same rate as provincial revenues.
- 2023 – ABmunis implements a campaign during the provincial election that calls for municipal infrastructure funding to be increased to $1.75 billion.
The Allocation Formula to Distribute the Funding Pot
- 2019 – The Local Government Fiscal Framework Act defines the LGFF allocation formula for the cities of Calgary and Edmonton.
- 2019-2021 – ABmunis collects preliminary input from members on ideas and priorities for an allocation formula for the non-charter municipalities.
- 2021 – ABmunis tasks a Municipal Financial Health Working Group to develop a recommendation for the design of an LGFF allocation formula for non-charter municipalities.
- 2022 – ABmunis seeks input from members on the principles and proposed formula variables for an LGFF allocation formula.
- 2022 – Based on a request from the Minister of Municipal Affairs, ABmunis and RMA enter negotiations on the design of an LGFF allocation formula for the non-charter municipalities.
- 2022 – ABmunis and RMA are unable to reach an agreement and submit separate proposals to the Minister of Municipal Affairs.
- 2023 – The finalization of the non-charter allocation formula is delayed by the spring 2023 provincial election. ABmunis is hopeful to assist the Government of Alberta to finalize the LGFF allocation formula for non-charter municipalities by fall 2023.
Note: The Government of Alberta has announced that the MSI Operating program will be replaced by an LGFF Operating program, but it is not part of the Local Government Fiscal Framework Act. ABmunis expects to have the opportunity to help design the LGFF Operating program once the allocation formula for the LGFF Capital program is finalized.
Questions about our advocacy on LGFF should be directed to advocacy [at] abmunis.ca (advocacy[at]abmunis[dot]ca).