Municipal Stability - Deep Dive

MUNICIPAL POPULATION TRENDS

The world’s population is increasingly moving to urban areas. Nova Scotia is no exception. From 2011 to 2016, the population of Halifax – the region’s largest urban centre – increased by 3.34%, while populations decreased in Cape Breton (-2.9%), the North Shore (-2.8%) and the South Shore (-2.5%).

Additionally, rural populations around the world, including Nova Scotia, are growing older. According to the 2016 Census, the majority of citizens in rural Nova Scotia are between the ages of 40 and 69. As shown below, about 8% of the population are under 10 years old in both towns and rural municipalities. As expected, there are more young people living in towns than in rural municipalities.

These two factors reduce the current and potential future tax bases in rural areas, which primarily rely on property taxes to raise revenues to pay for local services such as libraries, parks, public transportation, community water systems, local police, roadways and sometimes parking.

MUNICIPAL FINANCIAL CONDITION INDICATORS

The Financial Condition Indicators, developed jointly by the Province of Nova Scotia, the Federation of Nova Scotia Municipalities and the Association of Municipal Administrators, help municipal councils and Nova Scotians make sense of municipal financial information by providing a variety of sources of information in a single document.

Thirteen indicators are examined to provide a general picture of municipal financial condition.  This information is organized into three dimensions that focus on the stability of municipal entities’ revenue, how they spend their money and manage their finances, and an overall assessment of their ability to meet current and future needs in a balanced and independent manner. Indicators include:

Base FCIs - Revenue Dimension – Where municipal entities get their money (stability)

• Residential tax effort
• 3-year change in tax base
• Reliance on Single Business/Institution

Structural FCIs - Management Dimension – How they spend and manage their finances

• Budget expenditure accuracy
• Undepreciated assets
• Uncollected taxes
• Operating reserves
• Outstanding operating debt
• Debt service ratio

Key Performance Indicators FCIs - Overall Assessment Dimension – Ability to meet current and future needs in a balanced and independent manner.

• Reliance on government transfers
• Deficits in last 5 years
• Liquidity
• Combined reserves

Thresholds are based on jurisdictional scans, literature reviews and municipal consultations.

The following information provides the latest detailed financial indicators for the Nova Scotia Municipality sector:

Residential Tax Effort has emerged as an issue for 10 towns (41%) over the past year. This can limit a town’s ability to raise revenues in line with community desire for services and amenities.

Although in 2016-2017, municipalities managed debt prudently, a significant number of municipalities also experienced a growing infrastructure gap.  However, provided operating deficits are avoided, there appears to be flexibility or scope to increase borrowing levels to finance needed capital expenditures. Such borrowing could be undertaken for renewal or replacement of existing assets where a municipality’s capital plan suggests that it is optimal to do so.

In 2016-2017, the NS Municipal Finance Corporation (MFC) provided long-term loans totaling $50.2 million to 25 municipalities for capital expenditures. They were used for capital purposes as shown below.

Regarding long-term fiscal sustainability, a positive operating reserve provides a cushion to help a municipality deal with revenue shortfalls or expenditure overruns. The current results indicate that less than half of municipalities have an adequate cushion.  Careful budgeting and favourable budget variances could help stabilize reserve levels; however, data from the municipalities’ FCI reports suggests they are experiencing challenges in relation to budget accuracy.

The latest FCI-key performance indicators show municipalities in Nova Scotia are largely self-reliant with 46 (93.9%) financially independent. 32 (65%) municipalities have met financial obligations without deficit in the last five years. While 38 (77.6%) municipalities are in a good position to meet their current obligations; only 27 (55.1%) are in good position to address unexpected or future needs.

To review the overall results for each municipality and for each dimension of the index, please visit the Financial Conditions Indicator.

Looking at economic and population trends, municipalities may face significant challenges in the future that they may not have the resources to address.  This intensifies the need for municipalities to take more innovative and collaborative approaches.  Both may mitigate risks associated with change, as well as accelerate economic growth and to optimize community progress.

To deliver regional governance and services, municipalities, must - at a basic level – have the financial wherewithal to do so. Challenging financial situations endanger their ability to deliver governance and local services to their communities in a sustainable manner.

Since 2012, five communities have self-determined that the best course of action to address their fiscal challenges was to dissolve their Town status and join with other nearby municipal entities.

1. Town of Canso became part of Municipality of the District of Guysborough (2012)
2. Town of Bridgewater became part of Municipality of the County of Annapolis (2015)
3. Town of Springhill became part of Municipality of the County of Cumberland (2015)
4. Town of Hantsport became part of Municipality of the District of West Hants (2015)
5. Town of Parrsboro dissolved its town status and became part of Municipality of the County of Cumberland (2016)

Other municipal entities have determined their path to a sustainable future requires greater levels of regional cooperation. To facilitate this approach, the Nova Scotia Department of Municipal Affairs and municipalities across the province are working on prototypes that model ways to:

• reduce competition;
• make helpful regulatory changes;
• increase cooperation in economic development;
• improve regional planning; and
• increase infrastructure investments.

Regional Enterprise Networks (RENs) have been established to lead a collaborative approach to economic development and support business growth in rural Nova Scotia. They are working across municipal boundaries, local governments, and the business community to facilitate the pursuit of shared goals, tackle common challenges, combine resources, and create more sustainable regions.

In 2017, the Government of Nova Scotia set a target to reduce unnecessary regulatory burden to Nova Scotia business by $25 million by the end of 2018. This target is based on an estimate of the overall regulatory burden to Nova Scotia business of approximately $560 million and, specifically, getting at ‘undue burden, estimated by business at approximately $200 million. As of March 31, 2018, 93% of this target was either fully implemented or approved for implementation.

Numerous changes have been made to the Municipal Government Act. For example, amendments to the Act enabled Cape Breton Regional Municipality (CBRM) to continue to pursue the growth potential of the Port of Sydney and contribute to the economic growth of Cape Breton. Legislation to help the province’s municipalities and villages be more consistent and accountable for expense reporting were introduced September 2017. Amendments to the Municipal Government Act:

• strengthen municipal expense policies and practices;
• require municipalities and villages to post individual and hospitality expenses online;
• require a municipal code of conduct;
• restrict repayment of alcohol expenses to municipal hospitality events only - no individual alcohol expenses; and
• improve municipal audits and strengthen audit committees.

The Provincial Capital Assistance Program now allows the Province to contribute funds towards high-cost priority municipal infrastructure projects. Projects receiving funding in 2017-2018 included upgrades to technology at pump stations, water towers, reservoirs and water treatment facilities.

CHANGES TO THE INDICATOR, BASELINE, OR TARGET:

• No specific quantitative goal or indicator was identified by the Ivany Commission to measure the health and sustainability of municipal structures in Nova Scotia. Considering the spirit of the goal, the OneNS Measurement Collective has identified the Financial Conditions Index as a foundational and comprehensive measure of the financial health of municipalities and hence their sustainability and capacity to deliver services. The information contained in the Index can be used by municipalities and their communities to determine trends and current fiscal capacity and predict future sustainability. This knowledge can be used to engage communities, partners and other municipal entities in discussions concerning how to move forward in numerous areas identified by the Ivany Commission, such as efficiency and cost-effectiveness.
• The ‘threshold’ represents a municipal performance guideline for each indicator. Thresholds were set based on research in other jurisdictions, best practice literature reviews, and with consideration for the normal operating range for Nova Scotia municipalities.
• Measures will evolve over time.  In 2016-2017, the Financial Conditions Indicators were enhanced and included the addition of two new indicators.   Although there is historical data for some of the Financial Conditions Indicators from the year 2013-2014, the base year is to be considered 2016-2017.