Service Costs in New Brunswick Local Service Districts (LSDs) – Text of the Comptroller’s Report May 2008

The Finn Report (also known as Building Stronger Local Governments and Regions: An Action Plan for the Future of Local Governance in New Brunswick) was released in December 2008 and contained a number of recommendations regarding local governance in New Brunswick. The Report was produced by the Local Governance Commission that had been established in September 2007 by Premier Bernard Lord and was headed up by Jean-Guy Finn. The Graham administration (which held office when the Report was released) failed to act on the Report but a number of those recommendations were eventually adopted by the Alward government in 2011.

With respect to Local Service Districts (LSDs), the Finn Report relied heavily on the findings of the 2008 Review of Local Service District costs carried out by the Office of the Comptroller (Review of Provincially Provided Services in Local Service Districts May 2008). The main finding in the Comptroller’s Report (which was actually an update of a similar report done in 2002) was that the costs of services supplied to LSDs by the Province were significantly greater than revenues available from property taxes collected from LSD residents and businesses. That is, the analysis suggests strongly that the Province is funding service delivery in LSDs by using other revenue sources  available to it (e.g., income tax revenue, or property tax revenue from non-LSD residents), as well as property tax revenue collected in LSDs.

The reforms put in place in 2011 will result in transfer of various service delivery responsibilities from the Province to Regional Service Commissions and/or local municipalities. In other words, many (if not all) of the ‘Provincial’ services delivered to LSDs and rural communities will, over time, become ‘local’ services rather than the responsibility of the Province. It is hard not to conclude that a motivation for these reforms was a desire on the part of the Province to see that these ‘local’ service costs were paid for by local property taxes, rather than income and other tax revenues. The Comptroller’s Report is thus important, as calculations in the Report appear to support the idea that property taxes are not covering the costs of service delivery in LSDs. A major source of the shortfall in revenue appears to result from the fact that the $0.65 assessment (per $100 of property value) for provincially-supplied services has not increased for several decades.

The Comptroller’s Report is not available directly from the Government of New Brunswick website. I obtained a copy and have converted it into a web document, as shown below. This involved stripping away much of the formatting of the original report, but some re-formatting has been done to add clarity. I believe the text and data have been reproduced accurately, but, if any errors are found, please advise me.

[Note – this is the second post on LSD service costs and governance. I suggest reading the first post in this series prior to this one. Additional posts on this topic will follow.]

_______________________________________________________________________

Review of Provincially Provided Local Services in Local Service Districts – Office of the Comptroller (Audit and Consulting Services) – May 2008

Executive Summary

The Office of the Comptroller was requested by the Commissioner on the Future of Local Governance to conduct a review of  provincially  provided  services in unincorporated areas (Local Service Districts or LSDs).  A similar review was completed for 2000-01 .

The objectives of the review were:

– to determine the cost of provincially provided local services such as road maintenance and construction/upgrading provided by the Department of Transportation,  RCMP  policing services  administered by the Department of Public Safety; and administration and dog control services provided by  the Department  of Local Government; and

– to determine the shortfall between the cost of providing these services and the amount collected from the current special provincial property tax levy of $0.65 per $100 of assessment on residential owner-occupied properties in LSDs.

Currently, existing financial information systems and costing methodologies do not capture costs specific to LSDs. As a result, a  number of assumptions were used to allocate total program costs to LSDs.

The review found that total cost of provincial services provided to LSDs in 2006-07 was :

$98.7 million (including road construction/upgrading costs), an increase of $15.6 million or 19% from 2000-01. The $15.6 million increase in cost of provincial services was offset by a $10.6 million rise in tax revenue.

$76.1 million (excluding road construction/upgrading costs), an increase of $7.4 million or 11% from 2000-01. The $7.4 million increase in cost of provincially provided services was more than offset by a $10.6 million rise in tax revenue.

Property tax revenues from applying the special provincial levy of $0.65 per $100 of assessment to residential owner-occupied properties in LSDs was $43.3 million, an increase of $10.6 million or 32% from 2000-01. The increase in tax revenue was attributed to a $1.6 billion increase in the residential owner-occupied tax base for the same period. The special provincial tax levy of $0.65 per $100 did not change and has not increased since 1984.

The shortfall between the cost of provincial  services and property tax revenue was :

$55.4 million (including road construction/upgrading costs), an increase of $5.0 million or 10% from 2000-01 .  The study noted  that the Province recovered  44% of cost of services provided to LSDs in 2006-07 . This marked an increase from 39% in 2000-01.

$32.8 million (excluding road construction/upgrading costs), a  decrease of $3.2 million or 9% from  2000-01 . The study  noted  that the  Province recovered  57% of the cost of services provided to LSDs in 2006-07. This marked an increase from 48% from 2000-01.

We identified a number of considerations based on the principles  of fairness and equity as it relates to taxation at the municipal and LSD level. Cost of service rates established by updated costing models differed from rates currently charged to  municipalities.  Also a number of considerations were identified  that will require policy decisions that could have a direct impact in determining financial responsibility for existing  services provided to LSDs. It will be up to the province to determine whether specific services are considered a provincial service, and  funded  by  the  province, or should be funded by LSDs.

In the end, the study provides an indication that a significant shortfall exists (56% if provincially provided services include road construction/upgrading costs or 43% if provincially provided services exclude road construction/upgrading costs). The determination of the results or the extent of the shortfall are based on the best information available and the reasonableness  of the results were discussed  with government officials. We do caution that the results presented  would likely differ if better  costing information existed specific to LSDs or government policy decisions were made that altered financial responsibility  for current provincial services.

1.0 Introduction

In response to a recommendation of the Task Force on Self-Sufficiency, a comprehensive review of local governance in the province is being undertaken by the recently appointed Commissioner on the Future of Local Governance. As part of his mandate, the Commissioner has been asked to review the cost of provincially provided local services in unincorporated areas Local Service Districts of the Province. At the request of the Commissioner, the Office of the Comptroller (OOC) completed this study to determine the cost of services provided.

There are three main categories of services provided to Local Service Districts (LSDs):

– Provincially provided local services include transportation, police, general administration and dog control. They are provided directly by the Province. The Department of Transportation (DOT) provides local road construction and maintenance. The Department of Public Safety (PS) arranges for RCMP protection to LSDs and the Department of Local Government (LG) provides administrative services through its staff in the regional offices and pays for dog control services . Provincial recovery of these local sen1ices is reflected in the current special provincial property tax levy of $0.65 per $100 of assessment on residential owner-occupied properties;

– Designated services include land use planning, solid waste collection and fire protection . These services are available in all LSDs, the costs for which is recovered from all properties through a local tax rate. Although library services are available to residents of LSDs there is no direct cost recovery allotted for these services; and

– Elective services include street lights, recreation and community services. These services are available at the request of the LSD and are provided by the Province. The cost of elective services is recovered through the local tax rate.

2.0 Review Objectives

The objectives of the review were:

– To determine the cost of provincially provided local services (i.e. transportation, policing, administration and dog control) to LSDs; and

– To determine the shortfall between the cost of providing these services and the amount collected under the current special provincial levy of $0.65 per $100 of assessment on residential own-occupied properties.

(For the purpose of this study, unincorporated areas of the province include LSDs and LSD components of rural communities. They were collectively referred to as “Local Service Districts”.)

3.0 Approach

The OOC completed a similar study in 2002 for the 2000-01 fiscal year in which the primary focus was determining the cost of road maintenance services and construction/ upgrading services provided by DOT and policing (RCMP) services administered by Public Safety (PS). The approach of the current study was to provide updated costing information to the Commissioner for these provincially provided local services.

In general, the costing models used in the 2002 study were updated with financial information from the fiscal year 2006/07. When we initiated our review this was the last fiscal year with complete financial information available. However for some components of the DOT transportation models, multi-year financial information was used.

We interviewed management and staff in PS, DOT, Finance, Service New Brunswick and LG. We obtained documentation from DOT and PS on the costing models used for their respective services, road maintenance and policing. We obtained the necessary financial infom1ation to update the costing models from PS and DOT. Information was also obtained centrally from Oracle FIS to update the costing models. We reviewed the financial information and key assumptions used in the costing models with management and staff from PS and DOT and made adjustments as required. Lines of inquiry are identified in Appendix I.

The RCMP provided financial information which was used in our analysis.

Key findings were discussed with DOT, Finance and PS officials and feedback was obtained prior to release of this report.

3.1 Review Limitations

Overall costs for DOT’s maintenance and construction/upgrading programs, and PS’s RCMP policing services were available. However, these costs were not captured at the LSD level. There were no systems or methodologies in place to identify costs at the LSD level. As a result, we allocated a portion of the overall cost to LSDs based on a number of assumptions. More formalized costing systems/methodologies would be required to determine costs for LSD taxation purposes.

Our review focused on the cost of provincially provided local services based on the existing level of services currently provided to LSDs. It was beyond the scope of our review to assess the adequacy of these services or determine if these services varied substantially from those provided to municipalities.

4.0 Conclusion

We determined that the cost of provincially provided local services (i.e. transportation, policing, administration and dog control) to LSDs was:

$98.7 million (including road construction/upgrading costs) as shown in Figure 4.1. The overall cost of provincially provided local services increased by $15.6 million or 19% from 2000-01 . This was mostly attributable to the increase in costs related to DOT’s construction/upgrading activities and to PS’s policing services activities.

$76.1 million (excluding road constructjon/upgrading costs) as shown in Figure 4.2. The overall cost of provincially provided local services increased by $7.4 million or 11% from 2000-01. This was mostly attributable to the increase in costs related to PS’s policing services activities.

We determined property tax revenues collected by applying the special provincial levy of $0.65 per $100 of assessment to residential owner-occupied properties in LSDs was $43.3 million as shown in Figure 4.1 and Figure 4.2. This was an increase of $10.6 million or 32% from 2000-01. The increase in tax revenue was attributed to a $1.6 billion increase in the residential owner-occupied tax base for the same period. The special provincial tax levy of $0.65 per $100 did not change and has not increased since 1984.

We determined the shortfall between the cost for provincially provided local services and property tax revenue of $43.3 million was:

$55.4 million (including road construction/upgrading costs) as shown in Figure 4.1. The overall increase in the shortfall from 2000-01 was $5.0 million, even though costs increased by $15.6 million for the same time period. The rise in costs was offset by an increase in tax revenue of $10.6 million. Our study indicates that the province is recovering 44% of the cost of providing services to LSDs. This marks an increase from 39% identified in a similar study completed in 2002.

$32.8 million (excluding road construction/upgrading costs) as shown in Figure 4.2. The overall decrease in the shortfall from 2000-0l was $3.2 million, even though costs had increased by $7.4 million for the same time period. The rise in costs was more than offset by the increase in tax revenue of $10.6 million. Our study indicates that the province is recovering 57% of the cost of providing services to LSDs. This marks an increase from 48% identified in a similar study completed in 2002.

Figure 4.1: Summary of Overall Cost (Including Construction/Upgrading)/Shortfall Related to Provincially Provided Local Services in LSDs.

2006-07

2000-01

Increase

$ millions

% of total

cost

$ millions

% of total

cost

$ millions

% Increase

TOTAL COST

$98.7

$83.1

$15.6

PROPERTY TAX REVENUE

$43.3

44%

$32.7

39%

$10.6

32%

SHORTFALL

$55.4

56%

$50.4

61%

$5.0

10%

(Note 1 – Comparative figures for 2000-01 obtained from Review of the Provision of Government Services to Local Service Districts and Property Taxation Levels, October 2002,Office of the Comptroller. 2000-01 Total Cost figure was reduced by $4.3 million (refer to Figure 5.1.1))

Figure 4.2: Summary of Overall Cost (Excluding Construction/Upgrading)/Shortfall Related to Provincially Provided Local Services in LSDs

2006-07

2000-01

Increase/

(Decrease)

$ millions

% of total

cost

$ millions

% of total

cost

$ millions

% Increase/

Decrease

TOTAL COST

$76.1

$68.7

$7.4

PROPERTY TAX REVENUE

$43.3

57%

$32.7

32.7%

$10.6

32%

SHORTFALL

$32.8

43%

$36.0

52%

($3.2)

-9%

(Note 2 – Comparative figures for 2000-01 obtained from Review of the Provision of Government Services to Local Service Districts and Property Taxation Levels, October 2002,Office of the Comptroller. 2000-01 Total Cost figure was reduced by $1.6 million (refer to Figure 5.1.2)
5.0 Findings

5.1 Cost of Provincially Provided Local Services

In terms of our first objective, we determined that the cost of provincially provided local servjces (i.e. transportation, policing, administration and dog control) to LSDs was:

$98.7 million (including road construction/upgrading costs. The overall cost of provincially provided local services has increased $15.6 million from 2000-01 , which represents an increase of 19% (Figure 5.1.1). The breakdown between the various cost components is detailed in Figure 5.1.1.

$76.1 million (excluding road construction/upgrading costs). The overall cost of provincially provided local services has increased $7.4 million from 2000-01, which represents an increase of 11% (Figure 5.1.2). The breakdown between the various cost components is detailed in Figure 5.1.2.

Road construction/upgrading had the largest increase in costs of 57%. This is reflective of the significant increase in overall costs in the Permanent Highway Program and Rural Road Initiative introduced in 2005-06. The 3 year average of costs from 2000-01 to 2002-03 was $50.6 million. The 5 year average of costs for the subsequent period 2003-04 to 2007-08 has increased to $69.8 million.

Policing services costs have increased by 37% since 2000-01. This is reflective of annual salary adjustments made to the RCMP contract, along with increases in RCMP resources since 2000-01.

Road maintenance costs have not changed significantly since 2000-01. The overall cost for summer and winter maintenance have been relatively stable from 2000-01 to 2006-07, ranging from $82 million to $84.5 million with the exception of 2002-03 which was $90.4 million.

Administration and dog control costs have not increased significantly from 2000-01. The number of LG regional offices has been reduced by 3 since 2000-01, which would have offset any increases in salary and overhead costs for the same time period.

Each cost component will be addressed in detail in the following sections.

Figure 5.1.1 Comparison of Cost of Provincially Provided Local Services (Including Road Construction/Upgrading) in LSDs (2006-07 and 2000-01).

2006-07

2000-01

Increase/

(Decrease)

% Increase/

Decrease

$ millions

$ millions

$ millions

Dept. of Transportation

Road Maintenance

$45.4

$46.1

($0.7)

-1%

Construction/Upgrading

$22.6

$14.4

$8.2

57%

Total

$68.0

$60.5

$7.5

12%

Dept. of Public Safety

Policing Services

$29.1

$21.3

$7.5

37%

Dept. of Local Government

Administration

$1.2

$1.1

$0.1

9%

Dog Control

$0.4

$0.2

$0.2

100%

Total

$1.6

$1.3

$0.3

23%

TOTAL

$98.7

$83.1

$15.6

19%

1. Comparative figures for. 2000-01 obtained from Review of the Provision of Government Services to Local Service Districts and Property Taxation Levels, October 2002,Office of the Comptroller
2. Comparative figure for 2000-01 was reduced by $1.6 million to reflect change made in 2006- 07 model (i.e. to apply a factor of 1.5 to the cost per km for primary (regional) local as compared to other local highways).
3. Comparative figure for 2000-01 was reduced by $2.7 million to reflect change made in 2006-07 model (i.e. to reflect change in allocation of costs between primary (regional) local and other local highways from 17/83 to 30/70 split).

Figure 5.1.2 Comparison of Cost of Provincially Provided Local Services (Excluding Road Construction/Upgrading) in LSDs (2006-07 and 2000-01).

2006-07

2000-01

Increase/

(Decrease)

% Increase/

Decrease

$ millions

$ millions

$ millions

Dept. of Transportation

Road Maintenance

$45.4

$46.1

($0.7)

-1%

Dept. of Public Safety

Policing Services

$29.1

$21.3

$7.5

37%

Dept. of Local Government

Administration

$1.2

$1.1

$0.1

9%

Dog Control

$0.4

$0.2

$0.2

100%

Total

$1.6

$1.3

$0.3

23%

TOTAL

$76.1

$68.7

$7.4

11%

1. Comparative figures for 2000-01 obtained from Review of the Provision of Government Services to Local Service Districts and Property Taxation Levels, October 2002,- Office of the Comptroller.
2 Comparative figure for 2000-01 was reduced by $1.6 million to reflect change made in 2006-07 model (i.e. to apply a factor of 1.5 to the cost per km for primary (regional) local as compared to other local highways).

5.1.1 Department of Transportation Costs

Road Maintenance

General

In carrying out our review, we referred to a similar study completed in 2002. As part of the 2002 study, the costing model prepared by DOT for Maintenance Costs Outside Municipalities for the fiscal year 1997/98 was used. This was the last year in which the model had been updated by DOT.

The model allocated the cost of road maintenance to three classifications of provincially designated highways: arterial, collector and local. For the purpose of this review, we focused on costs of road maintenance related to provincially designated local highways. The model was updated jointly by the OOC and DOT for the 2002 study. DOT has not updated the model since the 2002 study was completed.

We reviewed the 2002 costing model and key assumptions with management and staff from DOT. The model was updated for the fiscal year 2006-07 with financial information obtained from Oracle FIS (FIS) and DOT’s Online FIS reporting system (OFIS) for summer maintenance costs and overheads.

For winter maintenance costs, the 2002 model was updated using a three-year average (represented by fiscal years 2004/05, 2005106 and 2006/07) of actual costs to reflect the fluctuation in winter maintenance costs due to winter conditions that can vary significantly from year to year.

Cost of Road Maintenance in LSDs

We were unable to determine the cost of road maintenance in individual LSDs. DOT does not track road maintenance costs at that level of detail. Since road maintenance costs were not available for individual LSDs, we used the costing model to develop a per km rate to apply to highway kilometres in LSDs.

For the purpose of this review, we applied the same basic funding principle that currently exists between DOT and the municipalities to allocate road maintenance costs to LSDs.

For provincially designated highways within municipalities that are classified as arterial and collector, DOT is responsible for funding all summer and winter road maintenance costs. As a result, for the purpose of our study, we have not included the cost of maintenance of provincially designated arterial and collector highways in LSDs.

For provincially designated local highways within municipalities, which are designated as “regional’ in nature, DOT shares the cost with municipalities based on 50% of the pre-set per kilometre rate. This classification does not currently exist for LSDs. We looked to the Fiander-Good Study (refer to the discussion below) to approximate primary local “regional” highway kilometres in LSDs. We applied the percentage (17%) of primary local “regional” highway kilometres established by the Fiander-Good study to current local highway kilometres. As a result, we identified 2,050 kms of primary local “regional” highways in LSDs.

For roadways that are considered municipal in nature, the municipality is responsible for funding road maintenance. This municipal classification does not currently exist in LSDs . We looked to the Fiander-Good Study to approximate “municipal” street kilometres in LSDs . We applied the percentage (83%) of other local highway kilometres established by the Fiander-Good study to current local highway kilometres. As a result we identified 10,251 kms of other local highways in LSDs. We assumed that Fiander-Good classification of other local highways in LSDs is similar in nature to a municipal street.

_______________________________________________________________
Fiander-Good Study

In 1994, Fiander-Good Associates Ltd. was requested by DOT to complete a study to review and establish criteria to develop a functional classification system of the provincially designated highway system. The study examined the existing system and proposed a revised classification of arterial collector and local highways. The study resulted minor changes in arterial and collector highway classifications.

The study further broke down provincially designated local highways by their functionality into two subcategories:

– primary local “regional” highways which were still part of the integrated provincial highway system, and
– other local highways which essentially provided transportation services for a local area and were not used extensively as collectors to the provincial system.

DOT implemented the new classification system for cities and towns. This resulted in these municipalities taking over the maintenance for other local roadways now considered municipal streets. The study recommendations were not implemented for villages.
_______________________________________________________________

The total cost was allocated among the two classifications of provincially designated local highways in LSD’s: primary “regional” local and other local highways. It was determined through discussions with DOT that the maintenance cost per kilometre for primary “regional” local highways would be approximately 50% higher than for other local highways. DOT indicated that primary local “regional” highways receive a higher level of service than other local highways. This results in a combined rate (both summer and winter maintenance) of $5,780 per kilometre for primary local “regional” highways and $3,854 per kilometre for other local highways as shown in figure 5.1.3. The average per kilometre rate for locally designated highways is $4,175.

The total cost (includes summer/winter maintenance, traffic engineering, and allocation of district administration, building maintenance and DOT overhead) for provincially designated highways was $88.9 million (including arterial, collector and local highways). The portion of that cost allocated (based on the updated model) to provincially designated local highways in LSDs was $51.3 million. Once we applied cost sharing ratios similar to municipalities, the LSD’s portion of road maintenance cost was $45.4 million as shown in Figure 5.1.3.

Figure 5.1.3; Road Maintenance Cost for Locally Designated Highways in LSDs

Local Highways

Kms

Weight

Cost per Km

Total Cost (Millions)

Cost Sharing Ratio

LSD Portion (Millions)

Primary Local

“Regional”

2,050

1.5

$5,780

$11.8

50/50 PNB/LSD

$5.9

Other Local

10,251

1

$3,854

$39.5

100% LSD

$39.5

TOTAL

12,301

$4,175

$51.3

$45.4

Notes:
1. Kilometres were obtained from DOT’s Asset Management System. We applied the ratio of 17/83 established in the Fiander-Good Study to allocate local highways to Primary Local (Regional) and Other Local.
2. The cost per kilometre represents a combined annualized rate. It was derived from the total maintenance costs (summer and winter maintenance and additional allocated amounts) divided by the total number of DOT maintenance kilometres .

Cost per km has been adjusted to reflect the following:
• Overall road maintenance costs were increased by $3 .8 million to include Head Office overhead,(payroll burden, CPP, superannuation, IT support and rental costs).
• Overall road maintenance costs were reduced by $1.2 million to reflect the cost of village roads maintained by DOT and charged back to the villages. These costs were included in the regular maintenance tasks and revenue recorded for the recovery from the municipalities.

Road Construction/Upgrading

General

As a starting point we referred to the OOC 2002 study. In 2002, the OOC compiled financial information provided by DOT to prepare a costing model, because one did not exist for construction/ upgrading.

We reviewed the 2002 model and key assumptions with management and staff from DOT. The 2002 model was updated witb financial information obtained from FIS and OFIS . For the updated 2006/07 model, a 5-year average was utilized to reduce the impact of significant fluctuations in expenditure levels from year to year. We have calculated capital costs based on actual costs for the fiscal years 2003/04 to 2006-07 and budgeted costs for 2007/08.

The overall actual cost (excluding Municipal Designated Highway Program 1) for road construction/upgrading for all 3 classifications of provincially designated highways were as follows:

– 2003-2004: $53.0 million,
– 2004-2005: $67.4 million}
– 2005-2006: $83.1 million,
– 2006-2007: $86.2 million, and
– 2007-2008 (budgeted): $59.5 million.

We allocated the cost of construction/upgrading to the three classifications of provincially designated highways: arterial, collector and local. For the purpose of this review, we focused on costs related to provincially designated
local highways in LSDs.

We did not include the cost of the Permanent Bridge program in our construction/upgrading costs. DOT currently funds the construction/ upgrading of these structures, including those located in municipalities.

Cost of Construction/Upgrading Provincially Designated Highways in LSDs

We were unable to determine the cost of road construction/upgrading in individual LSDs. DOT does not track its capital costs at that level of detail. As a result, we adopted a provincial approach in applying the cost of capital expenditures and identified the total road construction/upgrading costs related to provincially designated local highways located in LSDs.

For the purpose of this review, we applied the same basic funding principle that currently exists between DOT and municipalities to determine road construction/upgrading costs in LSDs. For all provincially designated highways within municipalities, DOT is generally responsible for funding construction/upgrading. For construction/upgrading of roadways that are considered municipal in nature, the municipality is responsible for funding.

In determining road construction/upgrading costs in LSDs we have excluded the cost of arterial and collector highways. Based on the municipal model, DOT is responsible for funding construction/ upgrading on these roadways.

For provincially designated local highways within LSDs that are not considered primary local “regional” in nature (i.e. other local), we have assigned the funding responsibility for construction/upgrading to LSDs in determining the overall cost. As mentioned under Road Maintenance, this assumes that the provincially designated highways identified in the Fiander-Good study as other local highways are similar in nature to a municipal street.

In determining road construction/upgrading costs in LSDs, we had to allocate the cost of provincially designated local highways in LSDs between the primary “regional” local and other local classification. Based on discussions with DOT, primary “regional” locals would account for approximately 30% of the total construction/upgrading costs of local highways within LSD’s. Although primary “regional” local highways represent only 17% of the total kilometres, their proportionately higher allocation is due to their regional function and higher traffic volumes. The remaining 70% of cost is allocated to other locals highways as seen in figure 5.1.4.

The 5-year average of capital costs for construction/upgrading of provincially designated highways within LSDs was $69.8 million (including arterial, collector and local highways). Once we applied cost sharing ratios similar to municipalities, the 5-year average cost related to other local provincially designated highways in LSDs was $22.6 million as shown in Figure 5.1.4.

Figure 5.1.4: Capital Costs for Locally Designated Highways in LSDs

Local Highways

% Breakdown of Local Highway

Road Construction / Upgrading Costs (Millions)

Cost Sharing Ratio

LSD Portion (Millions)

Primary Local

“Regional”

30%

$9.7

100% PNB

Other Local

70%

$22.6

100% LSD

$22.6

TOTAL

100%

$32.3

$22.6

Capital costs have been increased to reflect the following:
– Overhead of $0.5 million relating to payroll burden, CPP, superannuation
– Overhead of $0.1 million relating to Highway Construction ordinary account
– Overhead of $0.4 million relating to District Administration

Other Considerations

Costs related to provincially designated local highways in LSDs for road maintenance and road construction/upgrading could be affected by the following circumstances.

All financial information used to update the mode] was based on actual or budgeted costs. The determination of whether actual costs were adequate to maintain the provincial highway system was beyond the scope of this report.

The financial data used in the analyses does not differentiate between fixed costs, step-variable costs and variable costs. Consideration would have to be given to the existence of fixed costs prior to any budgetary decisions being taken.

The current classification of provincially designated highways in LSDs used in this study is not based on the functionality of the roadway. We used the Fiander-Good study results to approximate “regional” and “municipal” kilometres in LSDs. Our calculations were based on this study completed over 10 years ago and which has not been updated . There have been significant changes made to the national highway system in that time period. If a similar study was completed today, the functional classification results may differ.

The Fiander-Good study identified criteria for primary local “regional” highways. The remaining provincially designated local highways were classified as “other local”. It was noted after the completion of the study that further work would be required to subdivide other local roadways into categories which would define their function at a local and regional level (i.e. identifying municipal type streets in LSDs) and to determine financial responsibility.

Municipalities may choose to contract out to DOT to perform maintenance on some municipal roads . Similarly, some municipalities will perform maintenance on provincially designated highways within their boundaries and are reimbursed by DOT. The current rate charged (or collected) by DOT to perform (subcontract) the maintenance is $2,540 per lane kilometre or $5,080 per kilometre, assuming an average of 2 lanes. DOT uses the same rate regardless if it is an arterial, collector or local highway. This rate differs from the rates established in the costing model.

The Fiander-Good Study identified provincially designated highways within municipalities that should be considered municipal streets. The province implemented the study recommendations for all municipalities except villages.

5.1.2 Public Safety Costs

General

The Department of Public Safety entered into a twenty year agreement, referred to as the “Provincial Police Service Agreement’ (PPSA) with the RCMP in 1992 to provide policing services within New Brunswick. Policing services provided under the PPSA are cost shared with the federal government with the province being responsible for 70% of the costs.

RCMP services are provided to 58 small municipalities (populations under 5,000 and referred to as the “umbrella agreement”) and 269 LSDs . In addition, there are 19 municipalities with extended agreements, and 10 First Nations covered under the PPSA.

There are 11 municipalities and the Codiac Region, which have direct contracts with the RCMP under the Municipal Policing Agreement (MPA). An additional four First Nations communities are policed by the RCMP under the First Nations Community Policing Federal Agreement (FNCP).

As part of the 2002 study, we obtained the costing model originally prepared by PS in 1993 to determine the per capita rate charged to small municipalities who received services under the PPSA. The original costing model included the total costs of the RCMP contract under the PPSA (excluding extended agreements) with adjustments made for revenues generated from enforcement activities, and provincial portion of RCMP services. The model for the 2002 study was updated jointly by the OOC and Public Safety (PS).

The model allocated the cost of policing services based on the proportion of the population of the small municipalities to the total population being served under the umbrella contract, which also included LSDs. For the purpose of this review, we were interested in the cost of policing services related to LSDs.

We reviewed the 2002 costing model and key assumptions with management and staff from PS. We also obtained background information from the RCMP to assess the key assumptions and update the costing model. The model was updated with financial information obtained from FIS for the fiscal year 2006-07, as well as with financial information obtained from the RCMP.

There were no overhead costs allocated from PS. PS is not involved in the direct delivery of policing services, unlike DOT who is directly responsible for providing summer and winter maintenance . The overhead cost attached to PS would be insignificant to overall policing services costs.

Cost of Policing Services in LSDs

We were unable to determine the actual cos1 of policing services in individual LSDs. PS and the RCMP do not track its policing services costs at that level of detail. Since policing services costs were not available for individual LSDs, we adopted a provincial approach in applying the costing model and identified the overall cost of providing policing services to the population serviced under the PPSA (excluding municipalities with extended contracts and First Nations communities). We then prorated the cost of services between small municipalities and LSDs.

As shown in Figure 5.1.5, based on the updated costing model, the total cost of providing policing services to LSDs was $29.1 million.

Figure 5.1.5: Public Safety: RCMP Policing Services Costs in LSDs

$ (Millions)

$ (Millions)

Total

Allocated

Total Provincial Portion (70%) of RCMP Policing Services for FY 2006-07

$57.4

$47.8

Breakdown

RCMP Detachment Policing

$38.7

$38.7

Allocation to Detachment Policing for:

Highway Patrol

$6.7

$2.4

Support Services

$7.1

$4.4

Telecom and CROPS Support

$4.9

$2.3

Total Allocation to Detachment Policing

$18.7

$47.8

Total before adjustments

$57.4

$47.8

Adjustments

Extended Contract Billings

($9.4)

Revenues

($2.1)

First Nations Policing

($1.3)

($12.8)

Total Cost of RCMP Policing Services (Small Municipalities and LSDs)

$35.0

Population (Small Municipalities and LSDs)

324,654

RCMP Costs Per Capita

$108

LSD Population

270,067

LSD Policing Costs (Millions)

$29.1

1 Highway Patrol (HP) costs are considered provincial in nature, in that they are responsible for patrolling the National Highway System in NB. However, based on information provided by the RCMP, it was recognized that the HP also supports detachment policing. We estimated approximately 1/3 of the HP resources were used to supplement detachment policing.
2 Support Services (Dog Section, Identification Operations , Major Crime Unit, Traffic Services and Crime Stoppers) have components that support detachment policing as well as a provincial component. Based on the individual services involved, a portion of the resources were allocated to detachment policing.
3 Telecom and CROPS (Criminal Operations) support costs have been allocated based on the number of regular members in each service area.
4 Municipalities that have extended contracts are billed based on an annual per officer rate of $94,700 (average rate for 2006-07).
5 Participating municipalities share revenues generated from court and voluntary fines. An adjustment was made to reflect an estimate of revenues that would be generated if small municipalities and LSDs were participating in the revenue sharing.
6 Four out of the 14 First Nations communities have First Nation Community Policing agreements for RCMP policing services and their costs have been excluded from the analyses. The remaining communities are policed from RCMP detachments, which are included in the Umbrella Agreement. An adjustment was made to reflect the level of activity related to First Nation’s communities.
7 Municipalities under the umbrella agreement were charged a per capita rate based on the 2001 census results from Statistics Canada therefore the 200l census results were used for the LSDs.

Other Considerations

Costs related to RCMP policing services in LSDs could be affected by the following circumstances.

Support Services (Criminal Intelligence, Commercial Crime, Dog Section, Ident Operations , Air Services, Major Crime Unit, and Crime Stoppers) and Telecom Services were $7.1 and $4.9 million for 2006-07 (Figure 5.1.5.). For the purpose of our study, $4.4 million of Support Services and $2.3 million of Telecom Services were allocated to detachment policing based on the number of officers these services supported. However, a policy decision may be required by the government to determine whether these services should be considered a provincial service and funded fully by the province, or should be allocated to detachment policing.

The rate charged to municipalities for RCMP services varies depending on the nature of the agreement with the Province. The Province administers the PPSA on behalf of municipalities and LSDs. Small municipalities (population under 5,000) are charged a per capita rate of $96 (2006) and $100 (2007) for RCMP services. This rate is established annually by the Province. This rate differs from the rate ($108) established in the costing model.

Municipalities administered under extended agreements are charged a per officer rate of $91,680 (2006) and $94,770 (2007). If the extended contract per officer rate was expressed in terms of per capita for those 19 municipalities, the per capita rate would on average be $175 (varying from a low of $100 to a high of $246 per capita). The rate structure for recovering RCMP costs from municipalities should be reviewed for the existing contract, given the inequities identified above.

5.1.3 Local Government Costs

General

We obtained financial information from FIS for the fiscal year 2006-07. LG also provided salary and overhead costs for 2006-07.

Administration

LG provides support to LSDs through 8 Local Service Managers (LSMs). Administrative services cost for fiscal year 2006/07 was $1.2 million. This expenditure captured salary costs of the LSMs, along with departmental and miscellaneous overheads.

Dog Control

LG also pays for dog control services on behalf of LSDs. This expenditure was $0.4 million for fiscal year 2006/07.

 

5.2 Shortfall Between Cost of Provincially Provided Local Services and Property Taxation Revenues

We determined the property tax revenue collected by applying the current special levy of $0.65 per $100 of assessment to residential owner-occupied properties in LSDs was $43.3 million. This represents a $10.6 million increase from 2000-0l, as shown in Figure 5.2. 1. This can be attributable to the significant increase of $1.6 billion in the residential owner-occupied tax base from 2000-0l , an increase of 32%. The current special provincial levy of $0.65 per $100 of assessment did not change from 2000-01 and has not increased since 1984.

In terms of our second objective, we determined the shortfall between the cost of provincially provided local services and property tax revenue of $43.3 million was:

– $55.4 million (including road construction/upgrading costs). The shortfall represents an overall increase of $5.0 million from 2000-01. Even though costs increased by $15.6 million, tax revenue rose by $10.6 million in the same time period as shown in Figure 5.2. Our study indicates that the province is recovering 44% of the cost of providing services to LSDs. This marks an increase from 39% identified in a similar study completed in 2002.

– $32.8 million (excluding road construction/upgrading costs). The shortfall represents an overall decrease of $3.2 million from 2000-01. Even though costs increased by $7.4 million, tax revenue rose by $10.6 million in the same time period as shown in Figure 5.2.2. Our study indicates that the province is recovering 57% of the cost of providing services to LSDs. This marks an increase from 48% identified in a similar study completed in 2002.

Figure 5.2.1: Shortfall Between Cost of Provincially Provided Local Services (Including Road Construction/Upgrading) to LSDs

 

2006-07

 

2000-01

 

$ (Millions)

% of Total Cost

$ (Millions)

% of Total Cost

Increase $ (Millions)

% Increase

Total Cost

$98.7

 

$83.1

$15.6

19%

Property Tax Revenue

$43.3

44%

$32.7

39%

$10.6

32%

Shortfall

$55.4

56%

$50.4

61%

$5.0

10%

 

 

Residential Owner-Occupied Tax Base

$6,656.6

 

$5,041.3

$1,615.3

32%

l. Special provincial property tax levy of $0.65 per $100 of assessment on residential owner-occupied properties.
2. Comparative figures for 2000-01 obtained from Review of the Provision of Government Services to Local Service Districts and Property Taxation Levels, October 2002, Office of the Comptroller. 2000-01. Total Cost figure was reduced by $4.3 million (refer to Figure 5.1.1).

 

Figure 5.2.2: Shortfall Between Cost of Provincially Provided Local Services (Excluding Road Construction/Upgrading) to LSDs and Property Tax Revenues

 

2006-07

 

2000-01

 

$ (Millions)

% of Total Cost

$ (Millions)

% of

Total Cost

Increase/Decrease $ (Millions)

% Increase/Decrease

Total Cost

$76.1

 

$68.7

$7.4

11%

Property Tax Revenue

$43.3

57%

$32.7

48%

$10.6

32%

Shortfall

$32.8

43%

$36.0

52%

($3.2)

-9%

 

 

Residential Owner-Occupied Tax Base

$6,656.6

 

$5,041.3

$1,615.3

32%

l. Special provincial property tax levy of $0.65 per $100 of assessment on residential owner-occupied properties.
2. Comparative figures for 2000-01 obtained from Review of the Provision of Government Services to Local Service Districts and Property Taxation Levels, October 2002; Office of the Comptroller . 2000-01 Total Cost figure was reduced by $1.6 million (refer to Figure 5.1.2).

 

[Note – Appendices to this Report are omitted]

 

Facebooktwitterby feather