Adequate Level of Provincial Funding for Community Infrastructure
IT IS THEREFORE RESOLVED THAT Alberta Municipalities advocate for the Government of Alberta to restore municipal infrastructure funding to an adequate level by setting the new Local Government Fiscal Framework Capital funding program at a starting amount of $1.75 billion when the program begins in 2024.
WHEREAS Albertans rely on public infrastructure for a broad spectrum of daily uses including transportation, access to safe water, removal of wastewater, fire and emergency services, recreation facilities, public buildings, and other day-to-day public services provided by municipal governments across Alberta;
WHEREAS the Government of Alberta plans to replace the Municipal Sustainability Initiative (MSI) Capital with a new municipal infrastructure funding program in 2024 called the Local Government Fiscal Framework (LGFF) Capital program and LGFF Capital will represent the bulk of infrastructure funding that the Government of Alberta provides to municipalities;
WHEREAS the LGFF Capital program will meet ABmunis’ principles for increased predictability and responsiveness; however, the program does not meet the principle of revenue adequacy because the starting amount of funding in 2024 is set to be $722 million, which is 36 per cent lower than the historical funding average under the MSI program and does not compensate for changes in Alberta’s population and inflationary changes in the cost of construction and materials (1);
WHEREAS municipal governments have limited fiscal capacity to generate the revenue needed to maintain existing infrastructure as well as build new infrastructure to support community growth;
WHEREAS the Government of Alberta currently collects $2.5 billion in property taxes, an amount that Budget 2023 signals will increase by a rate determined by combination of inflation and population, which further limits municipalities own revenue generation potential without unduly burdening Alberta homeowners and renters (2);
WHEREAS Alberta’s population has grown at an average of 1.8 per cent annually since 2011 (3), but provincial investment in community infrastructure has declined over that same period;
WHEREAS Alberta’s population continues to grow with the province’s “Alberta is Calling” campaign helping to contribute to a 3.5 per cent increase in Alberta’s population between July 2022 and July 2023 and the Government of Alberta estimates that population growth will be up to 4.4 per cent in 2023;
WHEREAS in 2011, the Government of Alberta delivered $420 per capita across all municipal capital funding programs, but that level of investment has trended downward since that time to only $151 per capita in 2023-24 and will only rise to a projected amount of $180 per capita in 2024-25 (5);
WHEREAS over the last decade, the province has placed a lower priority on funding community infrastructure with total municipal capital funding dropping from 3.7 per cent of provincial spending in 2011-12 to only 1.0 per cent of budgeted spending in 2023-24 (6);
WHEREAS the quality of community infrastructure is a critical factor in the quality of life offered in Alberta’s communities and is a key element to create a competitive advantage to attract and retain people, families, workers, and business investment in Alberta;
WHEREAS the Government of Alberta is making great efforts to encourage people to move to Alberta but there needs to be a corresponding increase in investment in community infrastructure to support new and existing residents (4);
(1) The historical average of the Municipal Sustainability Initiative (including the Basic Municipal Transportation Grant) was $1.13 billion per year between 2011 to 2020 before the Government of Alberta front-loaded the 2022 and 2023 funding years in 2021.
(2) Government of Alberta’s 2023-2026 Fiscal Plan, page 66.
(3) ABmunis calculations using Statistics Canada Table 17-10-0005-01 (2011-2022) and Table 17-10-0009-01 (2023)
(4) Statistics Canada. Table 17-10-0009-01 Population Estimates and the Government of Alberta’s 2023-24 First Quarter Fiscal Update and Economic Statement.
(5) Figures are based on ABmunis calculations using the total of capital funding programs delivered by the Government of Alberta, excluding funding from the Government of Canada that flows through the Government of Alberta. Figures are sourced from the Government of Alberta’s annual fiscal plans and consist of the Municipal Sustainability Initiative Capital, Basic Municipal Transportation Grant, Water for Life, Municipal Water and Wastewater Partnership, Strategic Transportation Infrastructure Program, First Nations Water Tie-In Program, GreenTRIP, Alberta Community Resiliency Program, and the Municipal Stimulus Program. Population is based on Statistics Canada Table 17-10-0005-01, Population Estimates on July 1st. The projection for 2024-25 is based on targets presented in the Government of Alberta’s 2023 Fiscal Plan and estimated population based on the average annual change from 2011 to 2023.
(6) ABmunis calculations using total provincial expenditures reported in the Government of Alberta’s 2023-2026 Fiscal Plan, page 164. Infrastructure spending is based on total municipal capital funding programs delivered by the Government of Alberta, excluding funding from the Government of Canada that flows through the Government of Alberta (same funding programs listed in footnote 5).
Since ABmunis’ initial work to design an infrastructure funding program to replace MSI, ABmunis has been consistent in our principles that LGFF:
1. deliver an adequate level of funding,
2. be responsive to changes in Alberta’s economy and community needs,
3. provide increased predictability for municipalities to plan for their financial future, and
4. be embedded in legislation for improved stability of the program.
The Government of Alberta has delivered all of the principles, with the exception of funding adequacy.
ABmunis appreciates that the Government of Alberta acted on the calls from municipalities to remove the 50 per cent cap on the revenue growth index factor calculation. However, the starting amount of the LGFF funding pot is the primary determinant of what level of funding municipalities will receive into the future.
For example, if the Government of Alberta’s revenue grows at the rate seen between 2008 and 2020, then it will take about 20 years for LGFF Capital to return to the same funding level that was already in place under MSI from 2010 to 2019 (7). This doesn’t consider the significant shortfall municipalities will face to address inflationary increases in the cost of infrastructure and new growth needs associated with a rising population over the upcoming decades.
ABmunis’ members have called for an increase in LGFF since the Local Government Fiscal Framework Act was passed in fall 2022. The purpose of this resolution is to define what funding increase is necessary for LGFF Capital to address community needs and that will be considered acceptable by municipalities. The request for the LGFF Capital funding pot to be increased from $722 million to $1.75 billion is based on three metrics:
1. Capital Funding as a Percentage of Provincial Expenditures
In 2011-12, provincial capital funding for municipalities represented 3.7 per cent of provincial expenditures. In 2023-24, that figure has dropped to about 1 per cent and is forecasted to be 1.2 per cent in 2024 when LGFF is implemented. If the province committed to reinstate municipal capital funding to 3.7 per cent of provincial expenditures, then LGFF should be $2.4 billion. (8)
(7) Between 2008 and 2020, the Government of Alberta’s revenue grew at an average annual rate of 1.1%. If the same growth rate is projected against an LGFF funding pot of $722 million, it would take until the year 2043 until LGFF reaches a funding amount of $1.1 billion, which was the average of MSI between 2010-2019. The 2021 and 2022 years were excluded from the calculation of annual average changes in provincial revenue due to the unique increase in resource revenues in those years.
(8)Refer to footnotes 5 and 6.
2. Capital Funding per Capita
In 2011, provincial capital funding for municipalities amounted to $420 per capita. In 2024, the total provincial capital funding for municipalities is forecasted to be only $180 per capita. If the province committed to reinstate funding per capita to the 2011 level, then LGFF should be $1.9 billion. (9)
(9) Figures are based on ABmunis calculations using the total of capital funding programs delivered by the Government of Alberta, excluding federal funding that flows through the Government of Alberta. Funding figures are sourced from the Government of Alberta’s annual fiscal plans and consist of the Municipal Sustainability Initiative Capital, Basic Municipal Transportation Grant, Water for Life, Municipal Water and Wastewater Partnership, Strategic Transportation Infrastructure Program, First Nations Water Tie-In Program, GreenTRIP, Alberta Community Resiliency Program, and the Municipal Stimulus Program. Population from 2011-2023 is sourced from Statistics Canada Table 17-10-0005-01 and Table 17-10-0009-01 and 2024 is estimated based on the average annual change from 2011 to 2023.
3. Funding Depreciation Cost of Community Infrastructure Plus Growth Needs
Municipal governments manage 53 per cent of Alberta’s public infrastructure but collect significantly less taxes from Albertans compared to the Government of Alberta and the Government of Canada. (10) With the inadequacies of the municipal property tax system and the revenue generating capacity of the provincial government, there is a strong argument that the province should be responsible for at least 50 per cent of community infrastructure costs. (11)
(10) Ownership of public infrastructure is measured by the reported the historical cost of tangible capital assets excluding land. Figures are based on ABmunis’ calculations using Alberta Municipal Affairs’ 2021 Financial Information Returns – Schedule G(4) with the total of all municipalities and the Government of Alberta’s 2021-22 Annual Financial Report, Schedule E14.
(11) The Government of Alberta’s 2023 Fiscal Plan (page 121) states that Alberta has a tax advantage of $19.7 billion compared to other provinces.
In 2021, amortization expense from all municipalities totaled $2.75 billion. This is a fair indicator of how much needs to be spent annually to maintain community infrastructure. But those figures must be adjusted upwards to reflect the current day cost to replace that existing infrastructure plus add the cost to build new infrastructure to support the growth in Alberta’s population. When rolled together, the figures support ABmunis’ request for LGFF to be $1.75 billion.
Alberta Municipalities acknowledges that asking the Government of Alberta to increase investment in community infrastructure by $1 billion is a significant request. However, the figures demonstrate how provincial support for community infrastructure has declined over time, Alberta continues to be a place of growth, and there will be significant long-term consequences in terms of future costs to Albertans and challenges to retain people if the construction of infrastructure continues to be deferred.
Replacement of Provincial Property Taxes
In addition to these three metrics, municipalities are increasingly concerned with the amount of provincial property taxes that are extracted from municipalities with lower levels of grant funding being returned. When MSI was created in 2007, the program was intended to return all provincial property taxes to municipalities in the form of funding for local infrastructure. At the time, the Government of Alberta was collecting $1.4 billion in provincial education property taxes and planned to deliver $1.4 billion in MSI to municipalities starting in 2010. On top of that, the province was delivering hundreds of millions of dollars of other capital funding programs to municipalities.
Since then, provincial education property taxes have grown to $2.5 billion and the total of all provincial capital funding to municipalities in 2023 was significantly less at only $712 million. This is concerning because increases in provincial property taxes constrain a municipality’s flexibility to increase property tax to fund municipal services and at the same time, there is less infrastructure funding coming back from the Government of Alberta.
The Government of Alberta recognizes that changes are needed. Premier Smith’s August 2023 mandate letter to the Honourable Ric McIver, Minister of Municipal Affairs directs the Minister to review “the feasibility of amending the education property tax to assist municipalities with retaining more funding for local priorities”. The scope and outcome of that review is unknown and is likely many years away and therefore, an increase in the LGFF Capital program is the best solution to fund community infrastructure in Alberta until there are any meaningful changes in provincial education property taxes.