By Charles Lammam
Unlike most nearby municipalities, the City of Vancouver is in the red, financially, and has been for more than a decade, finds a study the month from the Fraser Institute, an independent, non-partisan Canadian public policy think-tank.
The study, Government Debt and Other Liabilities in the City of Vancouver, spotlights government liabilities (debt, employee pension obligations, etc.) in Vancouver between 2002 and 2013.
While nearby municipalities such as Surrey and Burnaby are in the black, with their financial assets exceeding their liabilities, Vancouver has gone the other way, and has been in the red since 2002.
In 2012 (the latest year of comparable data), the City of Vancouver had $268 million more liabilities than financial assets, which include its cash holdings and investments, putting them in the red. Meanwhile, other Metro Vancouver municipalities were collectively $2 billion in the black.
Between 2006 and 2011, net liabilities in Vancouver more than quadrupled to $419 million from $101 million. While net liabilities decreased in 2012 and again in 2013, the decline stemmed from an increase in financial assets, not a reduction in gross liabilities.
In fact, Vancouver’s gross liabilities (before accounting for financial assets) more than doubled to a record-high $1.8 billion in 2013 from $857 million in 2002.
How did this happen?
From 2002 to 2008, Vancouver’s liabilities were on an upward trend. But in 2009, they took off with the city more than doubling its debt to $1.2 billion from $543 million when it borrowed $630 million to bail out the floundering Olympic Village project in Southeast False Creek. Since then, liabilities have seen moderate growth.
Moreover, Vancouver, unlike other municipalities, has the power to take on debt without permission from the provincial or regional governments.
Vancouver city hall seems to take on debt almost at will and the city’s newly proposed capital plan continues that trend, calling for another $400 million in debt. But there is a cost to all this borrowing. Governments, like the rest of us, have to pay interest in addition to repaying the principal and it’s Vancouverites who will foot the bill,” Lammam said.
As the city piles on the debt, the cost of servicing the debt (interest and principal) is set to rise. With more money going to servicing the debt, less is available for important municipal services such as garbage collection and policing. In 2013, debt servicing costs ate up 7.8 per cent of Vancouver city hall’s budget. That number, notes the study, may increase to approximately 9 per cent by 2019.
Vancouver city hall can take on debt more easily than surrounding municipalities but citizens pay in the end, either through increased taxes and fees or reduced services.
For examples of less indebted governments, Vancouverites can only look enviously at neighbouring Lower Mainland municipalities.
Charles Lammam, study co-author and is a resident scholar in economic policy at the Fraser Institute.