A look at municipal funding 2007 to present
Equalization and its impact on Cape Breton
As indicated, each year the provincial government would provide all municipalities in Nova Scotia with a detailed spreadsheet showing all of the annual entitlements based upon the formula defined in the Municipal Grants Act, as well as the actual grants that they would receive in the respective year.
Based upon the provincial information that was distributed to all municipal units each year, the first substantial deviation from the formula that is set out in the legislation occurred in 2002-03. In that year, the province committed a total of $31,050,000 for the municipal equalization program.
From that time, despite rising annual total entitlements, there was no change in the total fund until 2006-07 when an additional $1 million in funding was added. From that time to the present (now thirteen years), the total fund has remained at $32,050,000.
Imposing a cap on an equalization program over a substantial period of years inevitably means that the jurisdiction (in this case Nova Scotia) has abandoned the principle of equalization.
For purposes of comparison, unlike the Nova Scotia program for municipalities, the federal equalization transfer to Nova Scotia increased substantially during the past decade (2007 – 2016) – by $268 million or 18.3 per cent.
By capping the municipal equalization program over such a prolonged period of time, the provincial government in Nova Scotia has done what it argued should not be done within Canada as described in Part 1 of this series.
The government of Nova Scotia is really facilitating a growing disparity in the quantity and quality of public services across the various regions of our province even as the federal government consistently has fulfilled its equalization commitment to all provinces, including Nova Scotia.
In order to calculate the extent of the impact of this cumulative under-funding in Cape Breton, there are two possible approaches.
The first method is simply to compare the entitlements of municipalities in Cape Breton as defined by the Municipal Grants Act to the actual grants received by these same units over a defined period of time.
Using this method, from 2007 through 2016, the total difference between the equalization entitlements of Cape Breton’s municipalities and the actual grants paid is in excess of $160 million.
Although $160 million is a very large number, this method is based not on the national equalization commitment or formula but a formula that uses less than 40 per cent of actual municipal expenditures in Nova Scotia. It is best described a “partial equalization” and is certainly not consistent with the national commitment as set out in the language of section 36 (2).
The average annual under-funding of Cape Breton’s municipalities if calculated using this “partial equalization” method is now in excess of $20 million. A more precise estimate is not possible as the provincial government stopped providing the detailed spreadsheets showing the extent of the actual entitlements as of 2015.
The second method of evaluating the extent of the equalization under-funding in Cape Breton is to use a formula that is based on the actual national equalization commitment and the actual annual transfer received by Nova Scotia. This calculation requires a couple of steps.
The first step is to determine the share of the federal equalization funding provided to Nova Scotia that is based upon municipal property tax revenue. We know that this figure in 2011-12 was 26.8 per cent. Conservatively, for the purposes of estimating the annual average during the past decade, I will assume an annual average figure of 25 per cent.
Next, we need to estimate Cape Breton’s share of the federal fund that comes to Nova Scotia every year. This is done by calculating the Cape Breton share of total annual municipal equalization entitlements from the spreadsheets provided by the province.
In the 2014-15 fiscal year, Cape Breton’s municipalities which were entitled to equalization (CBRM, Town of Port Hawkesbury, and County of Inverness) accounted for 52.7 per cent of the total entitlement for all municipal units in the province.
For the purposes of estimating the annual average figure during the past decade, I will assume a figure of 50 per cent. In other words, to simplify the calculation, I have assumed that for the period from 2007 through 2016 Cape Breton municipalities accounted for a minimum of 50 per cent of the entire equalization entitlement for municipalities in Nova Scotia. Due to the existence of the provincial spreadsheets, I know this to be a conservative estimate.
Using this approach to the calculation, from 2007 through 2016, the total under-funding of Cape Breton’s municipal governments is $1.965 billion, with the annual average now in excess of $200 million.
CBRM’s legal action on equalization was based only on the first method of calculating the under-funding, while the advocacy of the organization that I represent (NSEF) is based upon the view that the second method of calculating the differential is the more comprehensive and accurate approach.
NEXT WEEK: CBRM’s Legal Action - The Decision and The Implications