Incorporation – A Third Option: Self-governance with contracted services

This was just posted on the Salt Spring exchange in 4 parts.  I have permission from John Gauld the author to publish this document on my Salt Spring web site;

 

SSI is known as a community that questions conventional practices and is creative and innovative in its response to community challenges. Perhaps the up-coming incorporation question is an opportunity for islanders to think outside the box and find a “made-on-Salt Spring” solution to local governance? Perhaps a contract municipality?

A first principles approach to define the community’s objectives for local government might be a governance model that;

• is responsive and accountable to the community; coordinating the disparate local government services to achieve community priorities; and
• manages the community’s physical, human and financial resources to deliver an appropriate level and quality of service to meet the community’s needs while balancing costs to align with the community’s ability to pay.

Arguably, a further objective of many community members is a local government that operates smoothly and efficiently, managing controversy and conflict and taking care of business without requiring the average citizen to be pressed into local affairs to defend their interests. Most of us would rather spend our free time relaxing and enjoying life?

An approach to the incorporation decision might start with an evaluation of the existing SSI governance system in relation to first principle community objectives.

Accountability: The existing multi-agency governance structure results in multiple taxation authorities and taxation levels determined by adding up the taxes and costs of improvement districts, regional and provincial government and other agencies. Direct and indirect taxation authorities include the SSI Fire District, North Salt Spring and other water districts, the Capital Regional District, BC Ministry of Transportation and Islands Trust.

These agencies have no obligation or method to coordinate their planning for major expenditures or proposed tax increases. For the community member this can result in uncertainty about pending taxation levels and the need to follow the financial planning process of all of the agencies. Although it may be argued that the individual agencies are designed to be responsive and accountable, the overall multi-agency structure is cumbersome, unresponsive and lacks accountability.

Improvement districts are considered particularly problematic in their accountability. The province (Ministry of Community Services 2006 – Improvement District Governance: Policy Statement) acknowledges that improvement districts have a lower level of public accountability and administrative effectiveness; inherent conflicts with regional districts and are challenged to deal effectively with growth and development. The province expects improvement districts, over time, to be converted to municipal or regional jurisdiction and at some future point in time all improvement districts are expected to be under municipal or regional district jurisdiction.

Ability to Pay: The level of services and ability to pay question is considered especially important within the SSI community. Demographic indicators suggest a low tolerance for potential property tax increase. Statistics Canada data for the SSI community relative to BC averages includes;
• a substantially higher percentage of seniors 65 years and over: (24.1% on SSI compared to 14.9% BC average);
• lower income levels than the BC average;
• higher self-employment incomes, lower wages and lower salary incomes; and
• more low income households (22.2% on SSI compared to 16.4% in BC)

Community members are aware that change is the only constant. The financial estimates of the past and current incorporation studies are however, linear projections that do not take into consideration the change that we know to be inevitable. Our personal speculation about incorporation cannot help but include consideration of current trends and how they will effect future change.

Revenue Sources: Local government revenues are essentially limited to property taxation; linked in turn to the island’s total assessed property values. The fundamental financial equation for municipalities is that any increase in municipal expenditures; whether inflationary or related to increased demand for services will result in increased taxation of existing properties unless there is an increase in property assessments through new development. Property improvements and new development provide additional revenue that has the effect of off-setting increased expenditures. This financial benefit might also be described as the local government growth imperative.

Residential Tax Base: The property tax base on the island lacks diversity at 94% residential. This leaves very little opportunity to shift the tax burden from residential to non-residential (commercial, industrial and institutional) properties. A 2006 City of Vancouver study by MMK Consulting found that the residential properties in Vancouver contributed 40% of the tax revenues while consuming 71% of municipal services; leaving the non-residential properties contributing the remaining 60% of tax revenues and consuming just 29% of the services. This study is the basis of the understanding that residential properties in general do not pay their own way.

Growth in Tax Base: The added challenge for SSI relative to the municipal financial equation is that growth in the property assessment base is partly confined by a provincial policy statement expressed through the Islands Trust Act. Whereas all other BC local jurisdictions are enabled and encouraged to grow their tax base the Trust area “object” is interpreted that land use planning services should be delivered in a manner to preserve and protect the islands from types of development and scale of development that would detract from its unique amenities and environment. From a financial perspective this suggests limited or slow growth of the assessed tax base; a potential financial disadvantage for municipal revenue growth.

Growth in Local Government: The Business Council of British Columbia, using data provided by the provincial Ministry of Community, Sport and Cultural Development reported in May 2012; The growth of Municipal Spending in Metro Vancouver that the per capita increase in municipal spending in metro Vancouver rose 56% from 2001 to 2010. Provincial per capita spending rose 10% over the same period. Interesting to the SSI context, the report references local government officials who rationalize much of this unbalanced expenditure increase being caused by fire and police services who, because of collective agreements and the perceived imperative to provide certain levels of service, are largely out of the control of local elected representatives.

The BC Public Sector Compensation Review – Ernst and Young (2014) reported that between 2001 and 2012 local government bargaining unit achieved an average 38% cumulative increase in compensation compared to a 19% cumulative increase by provincial government employees over the same period. Inflation during this period was 23%. The EY research also concluded that local government management and excluded positions were paid higher compensation in the majority of cases than their provincial counterparts. This report recommends that the provincial government should do what is necessary to bring regional and local government compensation into alignment with provincial government compensation over time, including using financial levers if necessary.

Municipal Benchmarking: For those that follow the local government budget process it is known that there is a hierarchy within the local government departments and competition among departments for resources and status. Benchmarking between jurisdictions and internally generated statistics are the levers that are typically used to increase salaries and equipment. Local elected officials are hard pressed to challenge the staff generated comparisons given the fear of falling behind in the inter-government competition for well-qualified staff. The issue of upward harmonization of local government salaries, services and equipment is already impacting SSI and will likely become more acute if a SSI municipality enters the municipal employee bargaining environment.

The incorporation question, like most decisions; is a trade-off of positives and negatives or striking a balance between desired and less desirable outcomes. On one hand, the current multi-agency governance model might be improved if replaced with an autonomous municipal government that can more ably manage the competing interests of local government service providers and coordinate and adjudicate among the competing local government departments.

On the other hand, municipal governments include buildings, property, equipment, staff, collective bargaining, and the inevitable comparison and harmonization of salaries, equipment and service levels with other local governments. This comes at a price that will very likely increase local property tax levels.

Contract Municipalities: Although we may prefer not to look south for inspiration, communities in California have faced similar issues that may now face SSI. As early as the 1950’s, suburban California communities were vulnerable to potential hostile annexation. They wanted to retain their local decision making autonomy while maintaining their existing regional service providers and avoiding costly investment in buildings, facilities and staff. Although not entirely analogous to the SSI context, the California situation resulted in contract cities – a municipality whose municipal services are provided via a contract arrangement with another units of government, a public agency, or private or commercial organizations. Contract cities typically start out contracting with the existing service providers and over time their contracts evolve to include other service providers, various contractual arrangements and competition for contracts that better meet their needs and are more cost effective. Contract municipalities have very few employees whose role is to administer a series of contracts that provide all of the local government services.

The suggestion made here, is that the contract municipality model may be well suited to the Salt Spring Island by providing local autonomy and at the same time managing a number of uncertainties about future municipal costs, particularly the risk of taxation growth beyond the means of the local community to pay.

Contract Municipalities are typically and best created at the time of municipal incorporation. In British Columbia the letters patent that legislatively establish a municipality are unrestricted in the province’s ability to establish a contract municipality. A SSI contract municipality could be established by provincial letters patent, resulting in little or no change to the existing list of service providers. In contrast, the option of converting an existing conventional municipality into a contract municipality would be very challenging; requiring that staff and their benefits and pensions be terminated and the municipal organization be deconstructed; a very unlikely scenario. Converting from a contract municipality to a conventional municipality is relatively easy whereas the reverse is almost impossible in the BC context. In this regard a contract municipality is a “one time” opportunity at the time of incorporation.

A vision of SSI as a contract municipality is fairly straight-forward. Local government on SSI would include;
• a Mayor and Council making all decisions, setting priorities, determining service levels, and establishing budgets and tax levels; and
• a staff of possibly 2-3 persons to administer the contracts to deliver the local services.

A contract municipality has little need for staff and physical assets, even the needs of a small office and council chambers might be provided through a lease arrangement. All buildings, land and specialized equipment would be owned by the contract municipality and utilized by the successful contractors. Initially, all the existing service delivery agencies would likely continue; RCMP, CRD, Islands Trust and the existing improvement districts. The improvement districts would have to be restructured through provincial legislation to act as non-elected bodies contracted by the municipality. Over time the local Council might identify other potential service providers and introduce competition to the contracting process.

It is recognized that the contract municipality model may seem to some to be radical or suspect for several reasons. Foremost, contracting for services may be perceived as a right leaning, anti-labour approach.

Contracting Out: Contracting out in BC is nothing new. In 1995, James McDavid and Eric Clemens published Contracting out Local Government Services; The BC Experience and their findings that 32% of local government services in BC were being delivered by private contractors. Contracting out was actually found to be more prevalent in BC compared to equivalent studies in the United States. Their view was that contracting out was increasing in BC and at that time 22.8% of municipal administrators predicted an increase in contracting out over the following five years.

Service delivery to contract municipalities may or may not include private sector contractors. Current local services on SSI are almost exclusively provided by other levels of government or non-profit organizations. Roads maintenance is the notable exception to the current public providers rule, however this approach seems to have worked well for many years is not known to be of any particular concern to the community. If more private sector contracting is considered appropriate, an advantage of contracting out in the SSI context is that island contractors would have an advantage over off-island  contractors. Contracting to island businesses would support local entrepreneurship and employment.

Contract Management: There are also concerns that contractors; both public and more so private, are less responsive and dependable than municipal employees. Private contractors might be considered more likely to provide lower wages, poor benefits and substandard working conditions. This concern is really about the municipality’s ability to establish standards, select, monitor, sanction and, if necessary, replace contractor’s who do not perform to required standards. The support for, and sophistication of municipal contract management has been increasing together with increased levels of contracting. An important lesson learned that is applicable to SSI is managing the size of contracts so that the bidding pool is larger and inadequate performers can be readily replaced. Methods of monitoring contract performance are steadily improving and both current technology (webcams and drones) and future technology advances will further improve a municipality’s ability to achieve all of its performance requirements through third party contracts.

Conclusion: SSI has been prone to community divisiveness on challenges it has faced in the past. If limited to polar options from each end of the spectrum, there is a greater potential for divisiveness and acrimony. Exploration of an “out-of-the-box” middle ground municipal model based on a contract municipality may be the key to achieving a greater community consensus on the incorporation question?

Incorporation is a big decision for the island. A new governance model should be able to effectively manage the level of service and the service delivery costs so that taxation levels can be maintained within the community’s ability to pay. Organizational flexibility and agility is also required to respond to the challenges of an environment that is changing at an ever-increasing pace. The contract municipal model provides a high level of financial control and a much greater degree of flexibility in the choice of service delivery providers.

SSI also has a cultural history of self–reliance, independent thinking, volunteerism and entrepreneurship. It is considered that the introduction of a conventional municipal structure will very likely stifle some of the very characteristics that give SSI its unique community character. The contract municipality has many attributes that are very likely a good “fit” for SSI. In this regard, the Incorporation Committee is asked to include the contract municipality model within its scope of work. The contract municipality model should also be considered for inclusion in the Committee’s recommendations for a future referendum.

John Gauld
200 Wright Road
Salt Spring Island BC
V8K 2H8
jrgauld at telus.net

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