Taxes paid in red ink

Here is a simple experiment you might want to try with your children some sunny, hot afternoon, says American humourist Dave Barry.

Gather a cork, bar magnet, and pail of water. Simply attach your magnet to your cork, then drop it into the water, and voila, you have a compass. How does it work? Simple. Notice that, no matter which way you turn the bucket the cork always floats on top of the water (unless the magnet is too heavy).

“Using this scientific principle,” Barry adds, “early mariners were able to tell at a glance whether they were sinking.”

To relieve the boredom on gloomy days, high-powered business accountants occasionally play this game. They pretend the cork is their company, the bar magnet is the tax burden, and the water and bucket are their city, province and country’s competitiveness quotient.

Unfortunately, their corks often sink into red ink.

Spare a moment to pity these accountants. They have so many taxes to calculate, audit, and pay. First are business taxes, assessed on how much the company owes based on its most recent profit or loss. Next are the taxes collected from customers and employees.

Thirdly are the amounts owed for levies, rents and royalties. Then the GST is gauged. The last bills pay auditor fees for the time and effort to prepare their annual corporate taxes.

Most Calgary companies — from small, mum-and-pop shops to global corporations — remit between 30 and 49 different taxes yearly, covering about 200 tax obligations. Some must be sent annually while others are calculated monthly or quarterly.

That’s before they send property taxes to city hall.

Does anyone care about the large tax burden business carries? Calgary’s 50,000 companies pay an average of 26.3% of their revenues to the tax collector. Each employee costs the company about $37,000 in employment taxes (CPP, employment insurance, and workplace safety levies). That’s a tough burden, but especially onerous on small and medium corporations.

No wonder the members of the Calgary Chamber of Commerce are calling for tax reform.

Yet we listen with some sympathy to the cries from city hall. Property taxes do not pay their bills. Instead, they must go cap-in-hand to the province and feds and ask for more money. Often they are so fixated on big brother’s wallet, they forget about Calgarians’ needs.

While Chamber members are not interested in increasing their tax burden, they would support reforming Alberta’s municipal finance system to provide local governments with new revenue tools responsive to citizen demands, have revenues closely linked to municipal activities and all are accountable to taxpayers.

The Chamber recommends the province:

Provide local government regions (Capital Region Board of Municipalities or Calgary Regional Partnership) with the ability to impose new consumption taxes — to build and maintain necessary infrastructure and services (roads, water, wastewater systems, public transit) — and reduce provincial taxes by an equal amount.

Create a clear citizen engagement and accountability framework for any new local government taxation authority that includes: Rate caps, electoral assent requirements to levy new taxes, earmarking of revenues for specific purposes and ensuring those taxes expire once the purpose is met.

Calgary is a great city to build a business and generates good income for some of the brightest in Canada.

What these smart entrepreneurs do not like is to spend January, February, March, and two weeks of April using their red ink to fund three levels of government. After that, their high-powered accountants pay bills, do payroll, and provide a return to their shareholders — (hopefully) signed in the black.

Somebody needs to mind the city store

Are Albertans getting good value from the vast amounts of money their local governments spend on their behalf?

Without a good accounting watchdog it’s hard for them to know, and that is precisely what the Calgary Chamber of Commerce is recommending.

The Chamber takes some inspiration from the U.S. Sarbanes-Oxley Act.

Signed into law six years ago by President George W. Bush, the act was his response to the accounting debacles of the Enron and WorldCom era. SOX, as it was less-than-affectionately called, was intended to make corporate governance more rigorous, financial practices more transparent and corporate executives criminally liable for lapses.

It had a chilly reception at first: 2003 is known as the audit year from hell. While regulators talked in hushed terms of prohibitive implementation costs, many chief financial officers blanched when the final bills arrived. Compliance actually cost two to three times the amounts anticipated and were about 10 times more onerous. Much complaining and whining ensued.

The 2004 audit was equally dreaded. More grumbling and bleating. But surprisingly, the audits were quicker and cheaper to do. A few brilliant, progressive executive teams had found a new tool to streamline operations, improve efficiencies and deliver higher value to their shareholders.

By 2007, the rest of the companies had figured out how to strengthen internal controls, produce more reliable documentation and standardize their automated and manual risk assessment processes.

So although SOX today has few fans, CFOs grudgingly admit it provides more shareholder protection — the intent of the law — and generates hefty bonuses for them.

Alberta’s municipal governments could use a dose of SOX.

Not because they are guilty of malfeasance, but because they too need another device to streamline operations, improve efficiencies,and deliver higher value to their citizens (in addition to the eye-opening results a zero-based annual budget would bring).

The Chamber believes the province’s best version of SOX would be to create an Office of Municipal Auditor General. Actually, a mini-Sheila Fraser (the federal auditor-general who strikes fear into the heart of every politician and is ranked as 66th greatest Canadian) would do the trick.

The Chamber thinks this role should be structured to examine the operations of municipalities and tell Albertans if they are getting good value for their hard-earned property and business tax dollars.

It must be independent, have authority over key bureaucrats who are accountable for the accuracy and completeness of financial and risk management reporting, be able to investigate off balance sheet transactions, track internal controls, analyze potential conflicts of interest, provide protection to whistle-blowers and tell citizens how their elected officials and administrators are doing.

That office could also answer some critical questions the business community is keenly interested in:

Are current programs and services necessary, well managed and efficient?

Are there effective measures in place to track goals?

Are there high-risk projects that may incur high cost overruns or debt?

Are tendering contracts following acceptable, ethical procedures?

Are safety measures tracked and implemented to prevent accidents?

Would the privatization of certain municipal services and municipally owned utilities give taxpayers a better return, better service or a break on their taxes?

Should the property tax system move away from the current income tax approach to a fee-for service assessment?

Local governments are similar to a series of supply chain management decisions. Managers make decisions based on what’s appropriate within their immediate sphere of control. Often, these decisions run counter to the municipality’s broader goals because they lack the breadth and depth needed to fully appreciate the consequences of those decisions on an organization-wide basis. An external auditor-general could identify best practices and help managers monitor and measure how well their decisions align against their bosses’ top priorities.

Other Canadian jurisdictions — Vancouver, Toronto, Ottawa and Halifax — have found their auditor generals useful. The analysis helps set priorities (even when elected officials change and bring new concerns to council chambers) and measures the trade-offs necessary if budgets are slashed or programs scaled back.

Alberta’s municipalities need to operate within a renewed, sustainable, accountable, responsive and effective fiscal environment. The Chamber recommends the province:

Overhaul the municipal finance model to be more responsive to taxpayer demands and more closely link municipal revenues to activities — without increasing the overall tax burden.

Create an office of Municipal Auditor General to conduct value-for-money audits of municipal activities.

Just as Sarbanes-Oxley transformed the accountability and transparency of corporate executives, the Chamber believes a provincial version would deliver greater value to citizens. Surely the people administering the city’s $2.1 billion budget would be well served by the oversight of a municipal auditor general.

City’s campaign financing rules must change

The Cynical Satirists Club, a group focused on lampooning life and its vagaries, recently debated the important issue of political campaign financing. The audience assembled with their voting machines. The judges lined up to weigh the evidence. The room buzzed with excitement.

 

The pro side started. Lobbyists are justifiably fed up with the process of investing millions of dollars to get politicians elected, they claimed, then having them promptly forget who elected them. And worse, they argued, these same politicians conveniently forgot to ratify the legislation the lobbyists wanted. Much applause.

 

It was the con team’s time for a scathing rebuttal. Lobbyists should bypass politicians and give their millions directly to voters. The world, they concluded, would be much better served if all politicians were eliminated and corporations governed.

 

The audience alternatively laughed, clapped and jeered.

 

Thankfully, the judges were made of stern, ethical stuff. After some consultation they announced back-room lobbyists should be severely curtailed from giving their millions to politicians; politicians had to abide by strict rules; and voters were to be taxed, not tempted with bribes.

The room was silenced by their brilliant insight. Democracy was safe until the next satirical debate.

 

Sadly, many countries and jurisdictions do not regulate the money politicians use to get elected. Many have had their careers abruptly ended by scandals that erupted when they voted as their funders (lobbyists) advised them to. This, in turn, dissuaded bright, competent candidates from running who did not want to jeopardize their reputations. They wanted to serve their people with the highest of ethical standards.

 

Fortunately, Canadians do things differently and correctly. This country’s elected officials and its constituents believe in accessible, transparent and unbiased guidelines to ensure that politicians are fairly elected by citizens, and make decisions in their best interests, minimally affected by those who funded their campaigns.

 

Federal and provincial politicians follow stringent rules dealing with funding elections. These pieces of legislation all regulate how much money an individual, corporation, union or employee organization can contribute to a candidate’s campaign.

 

Alberta’s provincial candidates can accept donations from individuals or groups to a maximum of $15,000 in between elections and $30,000 during a campaign. Anonymous contributions cannot exceed $50. The province also requires candidates to place any surplus campaign funds in trust for the candidate to use during the next election. Or, if nominees decide not to run again, the money can be transferred into the coffers of their registered party, constituency association or into the war chests of other party candidates.

 

Municipalities in British Columbia go one step further. Their legislation mandates that each candidate appoint a financial agent to keep proper records of all contributions. If there is a surplus balance of $500 or more, after the campaign bills are paid, those funds must be held in trust by the municipality and will be returned to the candidate if he or she decides to run again. If the decision is no, the monies are treated as a donation to the municipality.

 

Calgary’s politicians also want and need the protection of similar legislation.

 

The Calgary Chamber of Commerce, always a fan of accessible, transparent and unbiased processes recommends the provincial government amend the Local Authorities Elections Act and bring the municipalities in-line with their federal and provincial colleagues:

 

• Impose a maximum limit on campaign contributions that any individual or group can donate, and publish the final list of donors on the municipal website.
• Establish a provincially maintained Candidate Conflict of Interest Registry with lists of family members, interests in corporations or organizations, land holdings and contracts with the municipality.
• Require all surplus campaign funds be donated to a registered not-for-profit charity or the municipality.
• Mandate that only individuals and organizations operating or residing in the municipality are eligible to contribute to campaigns.

 

Calgarians deserve to have the best and brightest citizens represent them at City Hall. They need to be able to raise money to run election campaigns. And, when elected, voters ought to know who funded them, how much they gave and what they will do with their war chest once they decide to leave political life.

 

This city does not need a debate by the Cynical Satirists Club to know we will support the premier if he introduces legislation that establishes campaign contribution limits and restricts surplus funds.

How would Rip feel about Calgary 2108?

Once upon a time, writes Washington Irving (1783 – 1859), a simple, easygoing man named Rip Van Winkle lived in a picturesque village at the foot of the Catskill Mountains. Although he was enormously popular amongst his neighbours and their children, he was married to a harridan who nagged and browbeat him night and day.

 

One morning, to escape Dame Van Winkle’s tongue-lashings, Rip ran away to the Catskills and fell asleep under a shady tree. He dreamt he had stumbled upon a group of men bowling with ninepins so joined them in their revelry and moonshine.

 

When he woke from his lengthy sleep, his gun was rusty and his beard was white and long. He climbed down to the village. Large new-fangled houses had replaced the old familiar homes. He failed to recognize the people he met. Everything was different. Nothing was as it had been because 20 years had elapsed.

 

The story has a moral. Society sometimes needs radical changes to move forward, but these changes must not eradicate the old ways and traditions entirely. If a modern day Rip Van Winkle, citizen of Calgary, dozed for 100 years, what extreme urban makeover would he find in 2108?

 

Last year, city hall adopted a 100-year vision and sustainability plan. Council asked its planners for an integrated land use and transit plan to match the centenary vision (www.calgary.ca/planit). The draft plan predicts another 1.3- million people will live here in 60 years and perhaps three million by 2108.

 

The city’s plan envisages three scenarios. The dispersed model assumes that most new housing will be on the urban fringes and modest redevelopment would occur near LRT stations. The compact scenario pre-supposes no new subdivisions and all business and housing growth would happen in the existing footprint. Major roads would be redeveloped to incorporate all existing transportation types, including cycling and walking, and rapid transit will be built to efficiently serve the entire city.

 

The hybrid development presumes 62% of the new population and 92% of new jobs will take place in the existing urban footprint. Community roads, built to encourage pedestrian use, would feed into the same rapid transit system as the compact scenario.

 

Today is the deadline for Calgarians to comment on the city’s plan.

 

After polling its members, the Calgary Chamber of Commerce throws its considerable weight behind the hybrid model. We believe it incorporates many elements of the Chamber’s Renaissance Calgary project and preserves the finest of the old with the best of the new.

 

The Chamber submitted some recommendations critical to the success of a hybrid scenario, including:

• Prioritize housing affordability and include it as one of the city’s sustainability principles.
• Maintain a 30-year supply of land to ensure land costs stay affordable.
• Participate in a regional land use plan by co-ordinating Calgary’s with the surrounding districts.

 

Would Rip Van Winkle be amazed upon re-entering his native Calgary? Would the extreme makeover preserve the finest of the old with the best of the new? After all, real, lasting change is an amalgam of both the old and new.