City's Participation in the Fraser Valley Regional District

COUNCIL REPORT =====~ABBOTSFORDA

Report No. CM26-2011 Executive Committee October 28, 2011 File No: 0540-20 / 0400-40-20

To: Mayor and Council From: Frank Pizzuto, City Manager, and Nathan Koning, Project Engineer Subject: Updated Review - City's Participation in the Fraser Valley Regional District

RECOMMENDATIONS

1. THAT Report No. CM26-2011, dated October 28, 2011, from the City Manager and the Project Engineer, regarding Updated Review - City's Participation in the Fraser Valley Regional District, be received ;

2. THAT Council authorize the Mayor to formally request the Provincial Government to consider a single tier governance structure for the City of Abbotsf~rd; and

3. THAT Report CM26-2011 be forwarded to the Fraser Valley Regional District for their information.

BACKGROUND

The Fraser Valley Regional District (FVRD) is a regional government serving the Fraser Valley in Southwestern British Columbia. The FVRD's primary purpose is to provide services to its members, including sub-regional services, regional services, and local government for electoral areas. Abbotsford is the largest member of the FVRD in terms of population and assessed land value and contributes nearly half of the collected funding for significant items such as general government, fire dispatch and regional development. The services received by the City are primarily administrative in nature, and are paid for through the annual tax requisition or through user fees.

The City has a responsibility to review all of its arrangements and programs to ensure they provide full value to taxpayers. While some of the intended benefits of the FVRD arrangement have been realized, many significant ones have not, leading to questions about Abbotsford's costs for regional services. In addition, representation by population in regional district governance is a concern for Abbotsford. The City holds five of the twenty FVRD board positions, providing 25% of the voting strength for unweighted votes and 42% for weighted votes. As a result, Abbotsford can be outvoted by the other members, despite representing almost half of the regional district's population and contributing the largest portion of the funding for many significant items.

On July 12, 2010, City staff provided Council with a closed report on the value in being a member of the FVRD. The report outlined the various services provided to the City by the FVRD in 2010, and evaluated whether Abbotsford was receiving good value for the $3 million it spent on these services. The report was presented at a Special (Closed) Joint Abbotsford/Mission Council meeting in September 2010, where it was noted that further information was required before options could be considered.

On January 24, 2011, City staff presented a report to Council evaluating a single tier model as a change in governance away from the FVRD. Under this model, the Report No, CM26-2011 Page 2 of 5

Abbotsford City Council would be the single decision maker for residents, and the City's current administrative structure would manage the total services provided to residents. The model did not involve a formal regional district, as services would be provided by existing staff or through partnerships formed around specific initiatives. The analysis estimated that the arrangement would save the City between $800,000 and $1.4 million annually over the amount paid to the FVRD in 2010. At the January 24, 2011 meeting, Council endorsed the staff recommendation to further examine this model.

The 2011 annual FVRD tax requisition included significant cost reductions for Abbotsford. This was the result of several changes made by the FVRD over the past year, including a revised overhead cost allocation model, a reorganized corporate structure, and increased user fees. The City's 2011 requisition was reduced by approximately $720,000 over the amount collected in 2010, with the majority of the reduction coming in the area of general government. The savings to Abbotsford residents and businesses will be partially offset by the estimated $100,000 increase in the Call Answer Levy and the Tipping Fee Levy in 2011, resulting in a net savings to the City of approximately $620,000.

ANALYSIS

Staff have completed additional work on the single tier governance model to assist Council in determining if it should be presented to the Province for consideration. This work includes a further review of the FVRD's governance role and mandate, a peer review of the proposed financial savings by an independent chartered accounting firm, and an expanded review of the costs associated with the model.

Review of Regional Districts' Role and Mandate

Professor Harry Kitchen, Department of Economics, Trent University has completed a review of the role and mandate of regional districts and the benefits to Abbotsford as a member of the FVRD. Professor Kitchen is an expert on municipal governance and finance, having completed over 100 reports, studies, articles and books on this topic. Professor Kitchen's attached report (Appendix A) presents various local government models from across Canada, and explores British Columbia's regional district model as it relates to service provision and governance. The report also examines Abbotsford's position in the FVRD and proposes a governance model for the City moving forward. Professor Kitchen will present his report to Council on November 7, 2011.

Peer Review of Financial Savings

The City has retained the accounting firm BDO Canada LLP (BDO) to review the staff analysis of a single tier governance model. The Executive Summary of BDO's review is attached (Appendix B), and identifies that the City's calculations and analysis are correct. Since the City's analysis is an internal review, BDO also recommend a value for money analysis. This may be considered in the future based on the Province's willingness to consider the City's request for a single tier governance structure.

Revised Single Tier Governance Analysis

City staff have undertaken a further review of the costs associated with the single tier model, including discussions with potential partners around specific service delivery. These figures have been added to the analysis to provide a more accurate representation of how the single tier arrangement could financially benefit the City. The analysis has also been updated to reflect the changes to the FVRD requisition and user Report No ~ CM26-2011 Page 3 of 5 fees in 2011. The attached summary table (Appendix C) shows the services provided by the FVRD and the costs to the City for these services in both 2010 and 2011. The table also provides updated costs and savings of the single tier governance model, comparing with the amount paid by the City in 2010, and showing the further savings this model offers over the amount to be paid in 2011.

Recent changes implemented by the FVRD have reduced the annual amount collected from Abbotsford by approximately $620,000 over the amount collected in 2010. The single tier model offers further annual savings in the range of $760,000, for a total savings of $1.4 million over the amount paid by the City in 2010.

E911 and Fire Dispatch

E911 and fire dispatch are important components of the emergency telephone and response system, which also includes police and ambulance dispatch. The system is required for emergencies, and is expected to respond in a unified manner. As such, staff have further reviewed how E911 and fire dispatch would be delivered under a single tier model. This included obtaining costs from other providers who can deliver the high quality service level that Abbotsford receives through the existing system.

While the contract cost for these services is known, there are other aspects to consider before a final recommendation can be made. The City contributed a total of approximately $980,000 to the FVRD for these services in 2011, and received approximately $543,000 in revenue for the PSAP contract. While the costs included in the updated analysis are sufficient to move forward, a further review of these two services is recommended to determine the most effective and cost efficient option.

Fraser Valley Regional Hospital District

Staff have also completed additional work on the impacts that a single tier model will have on the Fraser Valley Regional Hospital District (FVRHD) board, including a review of the funding history of regional facilities and the impact on Abbotsford by leaving the regional district.

Regional hospital districts (RHD) provide the administrative framework for the local share of funding for hospital capital costs, including construction and shareable capital equipment expenses. Prior to 1995, the three former regional districts that now make up the FVRD each had their own RHD, each with its own debt. The debt was combined, with Abbotsford's portion compriSing approximately 24% of the total. The combined debt has now been retired, with Abbotsford contributing an estimated 49% of the repayment.

Since amalgamation, the FVRHD has accumulated reserves to fund the Abbotsford Regional Hospital and Cancer Centre (ARHCC), the Chilliwack General Hospital Redevelopment, and the future Mission Community Health Centre. Based on the census data, Abbotsford has contributed an estimated 49% of these reserves, while approximately 42% has been used for the ARHCC.

In summary, Abbotsford's contributions to reserves, new debt and debt retirement have exceeded the estimated benefits of original debt retired, reserve funding and new debt for the ARHCC.

If the Province were to consider a single tier governance model for the City, the preferred option would be for Abbotsford to take its share of the existing RHD debt and form its own hospital governance board rather than remain with the FVRHD. Abbotsford Report No. CM26-2011 Page 4 of 5 currently contributes approximately 49% of the RHO funding, and it would likely take a similar percent of the debt. As of December 31, 2010, the FVRHD's long term debt balance was $58.4 million, and Abbotsford's portion would be $28.3 million. The City's cost to finance this debt would be approximately the same as the cost to finance its portion of the FVRHD debt under the current arrangement.

Discussions would be required with the RHO to determine on-going cost sharing between urban and rural areas, as the ARHCC would continue to serve residents from outside Abbotsford. Further discussion with Fraser Health Authority is also recommended to determine what this arrangement would look like.

Additional Considerations

The single tier governance structure would require the approval of the Provincial Minister and Cabinet, and would require amendments to the current legislation that is based on all municipalities being part of a regional district. In order for Abbotsford to be a single tier municipality, changes would be required to the Local Government Act with respect to specific regional district services. Changes would also be required to the legislation governing fees for E911 services. Currently only regional districts can collect for these services, but under a single tier arrangement, the City would require that it be able to collect fees in exchange for providing E911 services.

In addition, amendments would be required to the Municipal Finance Authority Act such that the City could borrow directly from the Municipal Finance Authority rather than through a regional district. Changes would also be required to the Hospital District Act to accommodate the model. As part of the discussions with the Province, the City would also ensure that it has full access to grants and other programs currently available to regional districts.

FINANCIAL PLAN IMPLICATION

The revised analysis estimates that a single tier arrangement would save the City a further $760,000 annually over the amount contributed to the FVRD in 2011. The majority of the savings would be realized in the areas of general government, regional development, regional solid waste management, and fire dispatch. The cost to provide E911 telephone service would increase over that currently paid when considering the additional funding the Abbotsford Police Department (APD) will require from losing the PSAP contract with the FVRD; however, this increase is significantly offset by savings in the other areas. There would be one-time legal costs to separate from the regional district and form partnerships around specific services, but these would be minor when compared with the long-term annual cost savings of the single tier arrangement.

STRATEGIC DIRECTIONS

This initiative aligns with economic and fiscal indicators in the strategic plan and has the potential to achieve significant cost efficiencies to the residents of Abbotsford.

COMMUNICATION PLAN

A communication plan will be developed as Council approves consideration of this report publicly. Report. No. CM26-2011 Page 5 of 5

SUMMARY

Staff have completed their additional work on the single tier governance analysis and have concluded that this model offers significant financial and governance benefits over the existing regional district arrangement. The additional work both tests and verifies the assumptions presented at earlier stages, and includes the due diligence required so that a compelling case can be made to the Province on the proposed single tier governance model.

Nath'an Koning Project Engineer "FORM SHOULD FOLLOW FUNCTION" A Municipal Governance Structure for Abbotsford

Harry Kitchen Department of Economics Trent University Peterborough, Ontario K9J 7B8

September, 2011

1 Table of Contents

Executive summary 3

A. Introduction 6

B. Municipal Structure in Four Provinces 7 B.1 Ontario 7

B.2 Quebec 9 B.3 Nova Scotia 10 B.4 British Columbia 11

C. What Should Determine a Municipal Governing Structure? 12

D. The Regional District Structure in British Columbia 13

E. The Fraser Valley Regional DistriCt (FVRD) and Abbotsford 14

F. British Columbia's Regional District Structure - A Critical Examination 15 F.l Service Responsibility 16 F.2 Governing Structure 21

G. City of Abbotsford - a more viable governance structure 23

H. Abbotsford and Mission 27

1. Is There A Role for the FVRD if Abbotsford Becomes A Separated City? 28

J. Summary 29

References 32

2 Executive Summary

A range of municipal governing structures exist in Canadian municipalities. These include two tier structures, large single tier structures, and smaller urban centres that are generally referred to as separated cities and towns that are located in counties or districts. Of these types, the question that often surfaces is what is the ideal or appropriate structure? In response, there is nothing in the literature to suggest that "one size fits all". The appropriate or ideal structure depends on a number of factors and it may differ from municipality to municipality. It is different for a large metropolitan area or an area with a mix of contiguous urban centers than it is for an urban area . with no contiguous urban areas or with two relatively small contiguous urban areas. It differs depending on service responsibilities. If some services generate spillovers, or benefit from economies of scale, or are income redistributional in nature, the desirable structure may be a two tier or large single tier structure. If urban areas are not contiguous with each other and services do not display the above characteristics, the ideal structure is likely to be a single tier within a region or district. In short, the desirable structure should be based on "form following function".

The two tier district governing structure in British Columbia is a weak form of a two-tier district or regional government. It suffers on two fronts: first, in service responsibility; and second in its governing structure, both for what it does and what it does not do. As for service responsibilities, the weakness, by and large, is at the upper tier or district level. With the exception of Metro Vancouver and possibly the Capital Regional District, the upper tier in the rest of the Province provides relatively few services and very little of significance in dollar value. This begs the question of whether one really needs a Regional District in most of the province. The limited range of upper tier services could surely be absorbed by the existing municipalities. A major criticism of the governing structure is that the vast majority of District Board members are appointed rather than elected. Without direct election, the Board is not likely to be as accountable and effective as it should be. At the same time, it has the potential for becoming an instrument or agent of local councils with considerable potential for parochialism in decision making.

3 Other arguments to support the Regional District structure also appear to be weak. One strength, it has been alleged, is that Regional District services are voluntary; that is, municipalities can opt in and opt out of District services. Opting in and opting out, however, may be more of a hindrance than a benefit, especially if municipalities opt out and economies of scale cannot be achieved.

Two other arguments for retaining the Regional District are equally weak even though it is legislated that they are to be the responsibility of the Regional District. One is that the District is required to pool the capital borrowing requirements of the member municipalities which are subsequently submitted to the Municipal Finance Authority (MFA) which, in tum, borrows on their behalf. The other is that Regional Districts are needed to apportion the capital costs of regional hospitals across the regional district. Neither of these arguments seems persuasive. Surely, each municipality could submit its own request for capital funds to the MFA without going through the regional district. For capital financing of regional hospitals, converted property assessment data are readily available and it should be an easy task to apportion these costs within regional hospital boundaries (these are coterminous with regional district boundaries) according to the propOliion of converted assessment in each member municipality. As for the legislated requirement, why not change the legislation?

Given the small role that the FVRD plays in local public service provision in Abbotsford, there is no solid political, economic or fiscal argument in support of retaining a two-tier governing structure for the City. As well, Abbotsford is not part of a large metropolitan area with a number of contiguous urban centres - ,a condition that is generally instrumental in supporting a sound and viable two-tier structure of municipal government. A further advantage would come from the costs that could be saved under a single tier structure, The single tier would permit Abbotsford to have direct control over all of its municipal services including those currently provided by the District, thus permitting improved accessibility, transparency, and accountability to city taxpayers.

If Abbotsford were to separate from the FVRD, it need not impact on Mission's service responsibilities, although it would impact on the share of the District costs funded by each of the

4 municipalities still in the District. Mission could continue as a member of the FVRD or it might wish to follow Abbotsford and opt for separation from the District or it might wish to work with Abbotsford to form a separate Regional District, taking advantage of existing relationships already in place. Options are many; however, it is not the purpose of this paper to address these possibilities.

Finally, the creation of a separated city for Abbotsford need not remove the importance of the Regional District for the remaining municipalities and electoral areas within the Fraser Valley. The District Board would be smaller in size but still responsible for providing services for its remaining members. The impact on the Board's delivery responsibilities would not be great because it currently provides relatively few services to Abbotsford. Similarly, the impact on Abbotsford would not be great either, because it currently receives very few services from the District and those that it does receive are relatively minor in nature. The biggest change would be on revenues - the Board would experience a decrease in tax revenues from Abbotsford and the residents of Abbotsford would simultaneously experience a savings in tax dollars.

5 A. Introduction

This paper was prepared for the City of Abbotsford with the specific intent of examining the current two tier Regional District governing structure in British Columbia and more specifically, the Fraser Valley River District. As well, the paper recommends a municipal governing structure that would be best for the City of Abbotsford based on principles and best practices drawn from both Canadian and international experience in municipal government systems.

At the outset, it should be noted that Canada is dominated by three types of municipal governing structures. The most common is a two-tier system. This is made up of a number of lower tiers or area municipalities - cities, towns, villages, and townships - and an upper tier that is called a county, region or district. Here, the lower tier or area municipalities assume responsibility for certain services, although this varies considerably across provinces and quite often across regions/counties/districts within a province. For some services, lower tiers rely on inter municipal agreements (fire and roads being the most common). The upper tier is responsible for the remaining services and generally, because of its geographic size or area, is more self sufficient and much less dependent on inter-municipal agreements for service delivery.

The second type of municipal structure is a large single tier municipality. Each assumes all policy making responsibility for all municipal services within its jurisdiction. Examples of cities that fall into this category include the City of Toronto, Halifax Regional Municipality, Ottawa, Winnipeg, Hamilton and Sudbury.

The third type exists where a city or town is located within a county or district but has a separate governing structure from that of the county or district. These are mainly located in Ontario and are referred to as "separated cities or separated towns". These governing units are considerably smaller in size and scale than the large single tier municipalities. Each separated city and town assumes all policy making responsibilities for all municipal services within its borders.

Of the three structural types, there is nothing in the literature to suggest that "one size fits all". It varies from municipality to municipality or from one conglomeration of municipalities to another

6 conglomeration of municipalities. The ideal or most appropriate structure depends on a number of things as this paper identifies and discusses. Perhaps the best way to approach the ideal structure is to start with the axiom that "form should follow function". Indeed, this is what this paper does.

The paper covers a number of topics. Following this introduction, part B summarizes the current municipal structure in four provinces where restruaturing has been most prominent over the past few decades. Part C attempts to answer the question - what should determine a municipal governing structure? Part D describes the Regional District system in British Columbia, and part E does the same for the Fraser Valley Regional District CFVRD) and the City of Abbotsford. Part F critically examines British Columbia's Regional District structure. Part G describes and defends a more viable governing structure for the City of Abbotsford. Part H considers an appropriate structure for Mission. Part I considers the role of the Fraser Valley Regional District if Abbotsford/Mission were to become a separated City. Part J summarizes the paper.

B. Municipal Structure in Four Provinces

Over the past two decades, most municipal governance restructuring initiatives in Canada have occurred in a few provinces - Ontario, Quebec, Nova Scotia, and to a lesser extent in British Columbia. The more notable of these are summarized in the next section.

E.1 Ontario

Across Canada, Southern Ontario has the widest range of municipal structures. These include a two tier county structure; a two-tier regional government structure; a single-tier structure; and a structure where there is a separated city or town surrounded by a county.

Following the provincial election of 1995, the province initiated a series of municipal amalgamations and annexations. From July 1996 to January 2001, the number of municipalities

7 in Ontario fell by 368 (from 815 to 447) or by 45 percent and the number of locally elected ' councillors declined from 4,586 to 2,804 or by 39 percent.

At the moment, there are 444 municipalities in the province - 22 counties, 8 regions and 414 Cities, Towns, Villages, and Townships. As well, there are 37 Consolidated Municipal Service Managers (CMSMs) in the south and 10 District Social Service Administration Boards (DSSABs) in the north delivering Ontario Works (workfare), social services including child care, social housing, health prevention programs, and land ambulance. Counties and regions only exist in southern Ontario. Cities and towns located within a county that are not part of the county system and do not contribute taxes to the county are referred to as single tier municipalities and are responsible for the provision of all municipal serVices to their residents. There are no single tier municipalities within the regional governing structures.

Historically, lower tier municipalities (towns, villages and townships) within counties provided the majority of municipal services while lower tiers in the regions had fewer responsibilities. To illustrate, police, water, sewer, and solid waste disposal were generally the responsibility of the lower tiers in the counties and upper tiers in the regions. The relative importance of the upper tier versus the lower tier for service responsibility changed substantially in the late 1990s and early 2000s for two reasons. First, in 1998, the province transferred increased funding responsibilities to the upper-tier level of municipal government (social services, workfare, 50 percent of land ambulance, public health, and provincial highways, for example); and second, an acceptance by many provincial, if not local, politicians that economies of scale and cost savings could be achieved if a number of services that had traditionally been the responsibility of the lower tiers were transfen-ed to the upper tier - roads, police, some emergency services and solid waste management. The result of this was to leave lower tiers with considerably less spending responsibility than they had in the past. Specifically, most regions were left with responsibility for services that absorbed between seventy and eighty cents of every municipal tax dollar and area municipalities were left with the remaining twenty to thirty cents. For counties, this split in tax dollars was roughly even.

8 To achieve its objective of fewer municipalities, the province openly stated that municipalities must restructure on their own or else the province reserved the right to do it for them. Furthermore, for those municipalities that voluntarily restructured, the province would provide them with one-time grants to cover the transitional costs of restructuring. The elimination of 3 71 municipalities was a combination of voluntary amalgamations and provincially imposed amalgamations. Many of the amalgamations involved single tier annexations in Northern Ontario (two or three contiguous municipalities merging) and many involved the amalgamation of a number of lower tier municipalities while retaining the upper tier in county systems in Southern Ontario.

In the summer of2001, after experiencing a decline in public opinion and voter popularity, the provincial government announced that it would not impose any more forced municipal amalgamations in the province and no political party since then has expressed any public interest in doing so. Voluntary amalgamations are, however, still encouraged.

B.2 Quebec

Quebec's municipal governments are classified as regional (upper tier) and local (lower tier). Local municipalities cover a variety of organizational structures including cities, towns, villages, parishes, townships, united townships, and a number of municipalities without a designation. In addition, there are a number of northern villages, reservations and unorganized territories. As well, each local municipality is a member of an urban or regional municipality. Specifically, there are three urban communities (Montreal Urban Community, the Quebec Urban Community, · the Outaouais Regional Community) whose responsibilities include real property assessment, regional planning, public transit, and sewage treatment for all local municipalities within the urban geographical boundaries. In addition, there are a large number of region all county municipalities that bring together all urban, rural and unorganized municipalities within their boundaries and whose responsibilities deal mainly with regional development and property assessment. Finally, there is the Katimavik regional administration covering northern municipalities and villages, the Naskapi village and one unorganized territory. This regional

9 structure is responsible for a wider range of services including policing, transportation, water and sewerage, solid waste disposal, communications, training and use of manpower.

Recent initiatives have included some new tax agreements with municipalities that may permit them to broaden their tax base; consolidation of local communities; reinforcement and support of urban centres through measures to improve tax fairness; and stabilization of the financial position of Montreal. On January 1, 2002, twenty-eight municipalities around Montreal were amalgamated into one large city called Montreal. Since then, however, some of these municipalities have de-amalgamated from Montreal. Amalgamations also occurred in Gatineau (Hull) and Quebec City. In addition, the provincial government has expressed interest in having its many counties enter into municipal consolidation although it has left this decision up to local councils.

B.3 Nova Scotia

The entire area of Nova Scotia is incorporated and is divided into 18 counties. Within these counties, there are 31 towns, three regional municipalities and 21 rural municipalities. Each town is geographically located within a rural municipality but forms no part of it politically. Except for some joint expenditure responsibilities, counties or districts and towns are entirely independent of each other. There are also local organizations with limited jurisdiction, including village commissions, local commissions (generally for fire or street lighting), and rural fire districts. Village commissions may be incorporated to provide particular municipal services in the more populated areas of rural municipalities.

BegilUling in 1995, the province initiated three large scale amalgamations. These include: • The Halifax Regional Municipality - an amalgamation of the former cities of Halifax, Bedford, Dartmouth, and Halifax County; • The Cape Breton Regional Municipality - an amalgamation of the City of Sydney, six towns and one rural municipality; and • The Regional Municipality of Queen's - an amalgamation of a small town (Liverpool) and the surrounding County.

10 B.4 British Columbia

Incorporated municipalities in British Columbia have two tiers of municipal governance under the regional district structure - each has its own municipal government and each is part of an upper tier regional district of which there are 27 across the province. The lower tier municipalities include 160 cities, towns, and villages. There are also 162 unincorporated electoral areas. Each of these has a single level of governance which is the regional district. In addition, there are 231 improvement districts (incorporated under the Municipal Act or the Water Act) in unincorporated areas. About 87 percent of British Columbia's population lives in incorporated municipalities.

Regional Districts in BC are federations of municipalities and rural electoral areas. The objective of the regional districts is threefold (Bish and Clemens, chapter 4). First, they are to act as a regional government and service provider for the region as a whole. Second, they are to provide governance, planning and services to the unincorporated areas of the province. Third, they are to provide a political and administrative framework for joint service provision between municipalities or between municipalities and electoral areas. A Regional District Board is the governing body ·and executive for a regional district. It is made up of elected directors who represent the unincorporated areas and appointed members from municipal councils of constituent incorporated municipalities. All incorporated municipalities provide services to their residents and fund these services through a combination of provincial grants, property taxes, user fees and a miscellaneous collection of other locally generated revenues. Regional districts are responsible for delivering services to areas outside of municipalities with service responsibilities set by the province and varying from district to district. In addition, these districts frequently combine with neighbouring municipalities to provide services across a wider geographical area. Regional districts do not tax. Instead, they requisition funds from the areas consuming the services - from municipalities for services used in these municipalities and from provincial property taxes (province levies the tax on district taxpayers) for services provided outside of municipalities.

11 Improvement districts are incorporated under the Local Government Act (Bish and Clemens, chapter 5). These districts provide a range of local services, such as domestic water, fire protection, street lighting, irrigation and drainage, dyking, garbage and sewage disposal, parks, recreation, community halls, cemeteries, land protection and improvement, and mosquito control. A typical improvement district provides one or two services. The primary purpose of improvement districts is to provide rural residents with a vehicle for supplying services to themselves and recovering costs from users. Improvement districts have not been assigned functions by statute - functions depend on Cabinet Orders.

Amalgamations in British Columbia remain largely a local initiative. This has produced a few relatively small amalgamations - the District of Matsqui and the District of Abbotsford into the City of Abbotsford in 1995 is but one of very few examples (Vojnovic, 1997). In 2001, the Greater Vernon Services Commission (GVSC) was established with governance and administration services for water supply, parks and recreation, multiple use/theatre complex; and tourism and economic development for the Regional District of North Okanagan, City of Vernon, and District of Coldstream. Most recently (February 6, 2009), a single tier structure of the Northern Rockies Regional Municipality was created by combining the former entities of the Town of Fort Nelson with the Northern Rockies Regional District.

, C. What Should Determine a Municipal Governing Structure?

As the title of this paper implies, the short answer is that "fmID should follow function". In other words, the type of governing structure should depend on the services for which municipal governments are responsible and the geographical setting in which the municipalities are located. There is no "one size fits all" or "cookie cutter" model for every municipality and for every province. If a municipality is part ofa large metropolitan area or an area with a mix of contiguous urban and rural areas (such as in Metro Vancouver and possibly in the Capital Regional District), the desirable structure is likely to differ from the structure that would be appropriate if an urban area, like Abbotsford and Mission (see discussion in part H below), has no other large or notable contiguous urban centres nearby. It also depends on the types of

12 services for which municipalities are responsible. If municipal services provided by one municipality create a positive or negative impact on other municipalities (these are often referred to as services that generate spillovers or externalities) without the latter having any control or influence over the former, there is an argument for a different governing structure when compared with a municipality whose services have no noticeable impact on neighbouring municipalities. Similarly, the desirable governing structure may also depend on other factors. For example, if it is critical that a uniform quantity and quality of a municipal service be provided across all municipalities within a geographical area, either because it is mandated by the province or because local municipalities want it, a large single tier municipality might be the appropriate structure or the upper tier in a two tier system could be responsible for such services. Examples include arterial roads, water and sewers, and policing.

If, on the other hand, local preferences are to be an important consideration in determining the level and type of service, smaller single tier and primarily urban based governing structures are often preferred. These structures, if there are enough of them, result in competition across municipalities and provide an incentive for efficient, accountable and effective service responsibility. Similarly, it is often argued that accessibility is important as a criterion for designing government structures because it is the ease with which local residents can gain access to local government that can influence government policy. This is done through public meetings, hearings, elections, and direct contacts with officials. Smaller urban government units, it is often suggested, can provide the average resident with greater "access" to local politicians, better representation and better decisions.

D. The Regional District Structure in British Columbia

Regional Districts in British Columbia are a form of two tier municipal governance. Their origin dates back to the early 1960's when they were created to address at least three "urban fringe" issues (BC Ministry, 2006): . • to overcome a lack of planning in rural areas adjacent to urban boundaries;

13 • to assist rural residents in accessing basic services such as fire protection and water supply; and • to internalize "free rider" circumstances where residents of rural areas used municipal services or facilities (recreation was often cited) without paying a fair share of the costs.

Regional Districts have three basic roles (BC Ministry, 2006; and BC Ministry, 2005): • as a provider of regional services; • as a political and administrative framework for inter-municipal or sub-regional services across jurisdictional boundaries; and • as a local government for electoral/rural areas including service provision.

Every regional district performs these roles but the extent to which the district is involved in each varies across the province. In Metro Vancouver, for example, both the district and municipalities share responsibility for water, sewer and solid waste. In other parts of the province, such as Thompson-Nicola, the district may be primarily involved in the rural government role (BC Ministry, 2006) leaving service responsibility up to the municipalities.

E. The Fraser Valley Regional District (FVRD) and Abbotsford

The FVRD is a regional government providing a limited range of services to two cities, one village, three district municipalities, and a number of unincorporated areas. The 2010 population for each municipality is listed in Table 1. Abbotsford is by far the largest municipality accounting for more than 48 percent of the district population. It also has the largest assessed land value of all municipalities in the District.

In 2010, Abbotsford paid slightly more than $3 million to the FVRD through its annual requisition and user fees. To ensure that the City continues to get the best value for the dollars spent, it undertook a review of all service agreements, regional activities, and the regional boundary. This report is part of this review.

14 In the Fraser Valley Regional District (FVRD), the District provides:

• general government administration;

• electoral area planning; and • solid waste management planning; • air quality monitoring and planning which has been delegated by the province.

Tabl e 1 : Th e F raser Va II ey R'egIOna I D'Istnct . Pl'opu atIOn b,y M umcipality Municipality Population Percent of total Abbotsford (C) 138,179 48.5 Chilliwack (C) 77,975 27.4 Harrison Hot Springs (VL) 1,598 0.6 Hope (DM) 6,322 2.2 Kent (DM) 5,579 2.0 Mission (DM) 37,574 13.2 Unincorporated Areas (RDR) 17,768 6.2 FVRD 284,995 100.0 C = city; VL = village; DM = district municipality; RDR = unincorporated areas. Source: 2010 population statistics taken from BCStats.

The remaining services provided by FVRD are voluntary. Abbotsford subscribes to only a few of them. Table 2 lists all services provided by the FVRD to Abbotsford along with the amount paid for each of them in 2010. Furthermore, in the recent past, the District has transferred some of its service responsibility back to the City. In particular, this includes the operation and management of the Abbotsford Mission regional water and sewer utilities (in 2005).

F. British Columbia's Regional District Structure - A Critical Examination

The two tier district governing structure in BC is a weak form of a two-tier district or regional government. It suffers on two fronts: first, in service responsibility, both for what it does and what it does not do; and second, in its governing structure. Each of these is examined separately.

15 Table 2: Services Provided by FVRD to Abbotsford and Amount Paid for these Services, 2010 Amount Paid Service $1 %2 GeneraJ Government and Administration3 1,204,764 50 4 Combined E911 , 5 584,655 48 Fire Dispatch 381,427 49 Regional Development Services 273,473 49 Air Quality Management 203,410 49 Mosquito Control 59,271 49 Regional Solid Waste Management6 219,075 65 Noxious Weed Control 41,328 93 Treaty Advisory Committee 30,042 47 Regional Feasibility Study - Animal Control 14,527 58 Grant-in-Aid - Elizabeth's Wildlife Center 14,000 95 Total 3,025,972 --- Notes: I Amount paid by Abbotsford on 2010 requisition, unless otherwise noted. 2 Percent paid by Abbotsford of the total requisitions and fees collected for the service. 3 Includes general government and administration; general government - contract recoveries, fiscal services to municipalities, and communication resourcing. 4Includes estimated $363,000 in Call Answer Levy Fee paid by Abbotsford residents in 2010.

5 Does not consider approximately $540,000 in annual revenue received by the APD in exchange for providing the primary PSAP contract to the FVRD. 6 Includes an estimated $173,000 in Tipping Fee Levies paid by Abbotsford residents in 2010. Source: Abbotsford, 2010, page 2l.

F.I Service Responsibility

Service responsibility refers to the level of government that makes decisions over spending responsibilities and funding. It does not refer to delivery because services may be delivered in a number of ways - by the municipality itself, by contracting out to the private sector, or by purchasing from a neighbouring jurisdiction.

The strongest case for the upper tier in a two tier municipal government structure exists in large metropolitan areas where there are a number of contiguous urban areas and where the upper tier

16 is responsible for district-wide or region-wide services that exhibit notable spillovers or

l 2 externalities , and/or benefit from economies of scale , or are income redistributionae in nature. The remaining services should be the responsibility of the lower tiers where residents can vary the level of service according to local preferences and where local residents have easier access to the politicians who make the decisions on spending and funding (Kitchen, 2010). A typical example of this division of service responsibility is illustrated in Table 3. This, or course, assumes that the vast majority of municipalities within a two-tier governing structure provide this range of public services (as distinct from being provided by residentslbusinesses themselves) and the choice then becomes one of whether the service should be provided at the upper tier or at the lower tier. If a number of these services are not the responsibility of municipal governments, arguments in SUppOlt of a two-tier structure drop decisively.

There are a number of reasons why the two tier structure in Be falls short of meeting an ideal and effective two tier governing structure as is generally discussed in the literature and is practiced in a number of places (Bird and Slack, 2004 and Kitchen, 2010, and 2011). The weakness, by and large, is at the district or regional level (upper tier), both for what it does and what it does not do. Let me illustrate.

1 Spillovers are oftwo types. Positive spillovers exist when residents in neighbouring municipalities benefit from a service provided in an adjacent municipality without having any input into the decision-making process and without having to pay for it. Negative spillovers exist when the provision of a service in a specific municipality generates costs for neighbouring municipalities without the latter having any input into the decision-making process that lead to the provision of this service in the first place. Examples of services generating spillovers include welfare assistance, child care services, social housing, land ambulance and public health where these are partially funded by the municipal sector as they are in Ontario. Solid waste, public transit and regional planning may fall into this area as well

2 Economies of scale exist when per unit costs of delivering municipal services decline as the popUlation base served increases. Examples of services include water, sewerage, solid waste, and public transit when these services are provided across the entire region or district.

3 While some elements of income distribution are inherent in most public services, income distribution here refers to welfare assistance, child care services, social housing, public health, and land ambulance along with income transfers. These services should be funded by provincial and federal governments. Where they are partially funded from the local tax base, it is argued that this base should be a district-wide or region-wide base.

17 Table 3: Assignment of Municipal Spending Responsibilities in a Metropolitan T wo-T"ler G overnmg. Strue t ure Upper Lower Function or service Tier Tier Justification Social services: Welfare assistance X Income redistribution; externalities Child care services X Income redistribution; externalities Social housing X Income redistribution; economies of scale; externalities

Public health X Income redistribution; economies of scale; externalities Land ambulance X Economies of scale; externalities

Roads and bridges X X Local versus regional roads Public transit X Externalities; economies of scale Street lighting X No externalities Sidewalks X No externalities

Water system X Economies of scale Sewer system X Economies of scale

Garbage collection X Economies of scale; externalities Garbage disposal X Economies of scale; externalities

Police protection X Externalities; economies of scale Fire suppression X Local responsiveness; scale economies for specialized services Fire prevention/training X Economies of scale

Local land use planning X Local access, responsiveness Regional land use planning X Externalities Economic development X Externalities

Parks* and recreation X Local responsi veness . Libraries X Local responsiveness Bird, Richard M. and Enid Slack, 2004, "Fiscal Aspects of Metropolitan Governance" International Tax Program Paper 0401 (Toronto: Joseph L. Rotman School of Manage. ..m ent, University of Toronto), at 69 . * Where parks are regIOnal, the responsibilIty should rest With the upper tier (thiS note IS added by the author).

First, with the exception of Metro Vancouver (GVRD) and perhaps the Capital Regional District where there are a number of contiguous urban areas and where a two tier structure may make sound economic, fiscal, and political sense, most regional districts in BC cover large geographical expanses with very few, if any, contiguous urban centres. In general, the districts are an amalgamation of the occasional urban area with large tracts of rural and electoral areas scattered between and around them. From the literature and best practices in two tier governing structures, the combination of such a disparate grouping of municipalities under a regional or district umbrella for a limited range of services may be an unnecessary level of government and a waste of taxpayers' dollars. For the few functions that the regional districts provide, these could easily be the responsibility of each municipality with the municipality providing the service

18 itself, contracting out to the private sector for its delivery, or purchasing it from a neighbouring jurisdiction.

Second, while most regional districts are primarily responsible for administrative services, a few of them, such as Metro Vancouver, also share responsibility (with the municipalities that make up Metro Vancouver) for the major services of water, sewer and solid waste. Here, joint responsibility can be a problem. Take water and sewerage, for example. The upper tier or district is responsible for the largest proportion of capital costs - collection of water, purification and treatment plants, major trunk lines - and the bulk of operating costs (water treatment). In other words, the District is the wholesaler (BC, 2006). Local municipalities are responsible for transporting water and sewage through pipes that link local residents, businesses and institutions to the District's trunk lines and for setting the price structure for its consumption. These municipalities are retailers (BC, 2006). Since the majority of the costs are the responsibility of the upper tier and retail prices the responsibility of local municipalities, there may be little incentive for the latter to implement efficient pricing practices to control consumption (to create an efficient use of resources) as long as the cost of overuse or over consumption can be passed along to the former (the wholesaler).

Similar problems with joint responsibility for sewerage collection and treatment surface iflocal municipalities do not have standards requiring all buildings to separate storm water from sewage, for example. When stOlm water goes into the sewage system, it creates a need for a larger treatment facility than should otherwise be necessary and hence, higher costs that must be borne by the upper tier or district level of government.

Joint responsibility for solid waste collection, recycling and disposal face the same problems. For example, the hefty costs of landfill sites and disposal facilities makes it imperative that the level of government responsible for disposal also be responsible for setting user fees or charges for collection (bag tags, for example) because the latter controls the amount of refuse collected and hence, impacts on the life of the disposal sites.

19 For water, sewer, and solid waste, upper tier responsibility for. the entire service creates an easier and improved environment for setting efficient user fees and for reducing costs. It should also lower administrative costs when there is one administrative governing unit rather than two.

Finally, one tier service responsibility for these services reduces taxpayer confusion over who is responsible for what and has the potential to increase accountability by eliminating the opportunity for officials of one level to blame officials of the other level.

Third, a frequently stated positive of the regional district structure in BC is that they are voluntary organizations; that is, they only provide a limited range of services that their members or residents agree they should provide (BC 2006). Unfortunately, this alleged positive is likely to be a negative or a hindrance and stand in the way of an effective and efficient upper tier governing structure. Voluntary purchasing creates problems if member municipalities can' opt in and opt out' as they wish. Failure of some municipalities to participate may mean that economies of scale will not be achieved - which was supposed to be an important reason for forming regional districts, in the first place.

Fourth, two arguments made in support of creating regional districts are still used today to support their existence; in fact, these are legislated. One is that the regional district, as a level of government, is required to pool the capital borrowing requirements of the member municipalities which are subsequently submitted to the Municipal Finance Authority (MFA) who, in tum, borrows on behalf of all municipalities in the province and at a lower interest rate than the municipalities could get on their own (the City of Vancouver is the only BC municipality that may borrow outside the MFA). The other argument is that a regional district is needed for 4 apportioning the shareable capital costs of regional hospitals across the regional district . These costs are apportioned on the basis of converted assessed values in the district; that is, if a municipality has 18 percent of the District's converted assessed value, it pays 18 percent of the shareable capital costs of regional hospitals.

4 Member municipalities in Metro Vancouver are not required to fund hospital capital costs from their property taxes, as distinct from other Districts in British Columbia.

20 On the surface, the legislated arguments for justifying and defending the importance of regional districts is weak, at best, and could be easily rescinded. Surely, each municipality could submit its own request for capital funds to the MFA without going through the regional district. The MFA would then total all requests before borrowing on behalf of each municipality. For capital financing of regional hospitals, converted property assessment data are readily available. Given this, it should be an easy task to apportion these costs within regional hospital boundaries (these are coterminous with regional district boundaries) according to the proportion of converted assessment in each member municipality. This is really only a simple spread sheet exercise using a computer program and could surely be handled by the provincial government.

Fifth, a further justification for a district-wide or region-wide government structure is that it is needed for sharing the costs of certain types oflocal public services (funded by the property tax) across the entire district or region. This argument applies, however, only to certain types of services; namely, those that are primarily "income redistributional" in nature, or generate "spillovers" and are fully or partially funded from local property taxes. The most common examples include social services (social assistance, child care services, and disability support), social housing, and land ambulance. Indeed, one of the strongest justifications for the upper tier in a two tier governing structure in Ontario or a large single tier government that encompasses the entire region or county is based on the requirement that municipalities must fund a significant portion of the costs of social services (about 20 percent), social housing (100 percent), and land ambulance (50 percent) from local property taxes. The fairest and most accountable way of doing this is to fund the costs through the upper tier level of government on the basis of assessed property values (that is, from property taxes) across the entire area. Since regional districts in Be are not required to fund these kinds of services from the local property tax base, a major justification for the existence of an upper tier structure disappears.

F.2 Governing Structure

Each district is governed by a Regional District Board of Governors. Members of the Regional Board get there in one of two ways. If they represent one of the municipalities in the district, they are appointed to the Regional Board by their respective municipal council. If they represent an

21 electoral area, they are directly elected by the voters in that area. Most Regional District Board members are from municipalities and hence, are there by appointment. The number of members from each municipality varies with population.

The regional district governing structure in British Columbia is effectively a two tier system with the Regional District Board representing the upper tier and the participating municipalities along with the electoral areas representing the lower tier. The fact that the Regional District Boards are made up of members who are mainly appointed rather than directly elected has been criticized: first, because it lacks accountability (Smith and Kennedy, 1998); and second, because no one speaks out forcefully and consistently for the district or region (Artibise, 1998).

Achieving an accountable, effective and efficient level of government - be it local, district, regional, metropolitan, provincial or federal - begins with the direct election of councillors in each governing jurisdiction. The current practice of appointing members to the District Board from councillors elected in each of the participating municipalities has been defended on the grounds that it is important to have strong lines of communication between local councils and the Regional District Board. That logic, of course, would suggest that representatives of municipal governments should sit on the governing body of senior levels of government. To be sure, the two levels of municipal government must work in a co-operative manner, co-ordinating their efforts so as to achieve effectiveness and efficiency in service delivery. This is an argument for administrative co-ordination, however, not for political intermarriage (Kitchen, 1996 and 2011).

A clearer demarcation between the two tiers of municipal government should clear up the confusion among voters about district responsibilities and local responsibilities, an important prerequisite for increased accountability and effectiveness. A further problem with the current governing structure is that local taxpayers, when they vote for their local councillors, often don't know whether they will be on the Regional District Board. This decision is made by the local council following the election; hence, voters may not be voting for councillors who spend their taxes and user fees.

22 Direct election is impoltant because it provides an incentive for members to take a region or district wide perspective as opposed to the parochialism (Smith and Stewart, 1998; Bird and Slack, 2004a; Kitchen, 2008 and 2011) that is frequently observed by Regional District Board members who are on a city or local council and by virtue of this, on the Regional District Board as a representative of their municipality. Elected members at the Regional District Board level can be assessed by the electorate on the basis of their performance on District services and will be less likely to face conflict between district and local interests. Members of the Regional District Board will be able to focus their energies entirely on district-wide issues. The potential for parochialism should be reduced and the electoral process will be greatly simplified with separate slates of candidates for each governing unit.

A move to directly elected councillors would be relatively easy to implement. The regional district governing structure is already in place - it is the Regional District Board. The only difference would be that candidates for the Regional District Board would seek election to the Board only. The Regional District, however, would then require significant service responsibilities which they do not have at the moment.

G. City of Abbotsford - a more viable governance structure

Except for the regional districts of Metro Vancouver and possibly, the Capital Regional District, where the configuration of municipalities and their immediate proximity to each other supports an improved two tier structure (as described above), arguments for retaining the current two-tier system in the rest of the province are less persuasive. This includes the FVRD and, in particular, Abbotsford.

As regional governments or regional districts go, the FVRD is a very weak two-tier structure. It provides relatively few services to the entire region, certainly none of the major municipal services (as noted in Table 3) such as water, sewerage, solid waste collection and recycling, police and fire protection, public transit, roads and streets, parks and recreation, and libraries, and so on. It is required to provide services in four general areas: general government

23 administration; electoral area planning; solid waste management planning; and air quality monitoring and planning (delegated by the province).

As for the remaining FVRD services, many of which are primarily administrative in nature, they are voluntary and member municipalities and electoral areas may choose whether or not to subscribe to them. Abbotsford, in 2010, subscribed to fourteen regional services - two were partially based on user fees and the remainder were cost apportioned to the participating municipalities and electoral areas in the Regional District based on converted assessment.

Given the small role (one might even say, almost non-existent) that the FVRD plays in local public service provision in Abbotsford, there is no solid political, economic or fiscal argument in support of retaining a two-tier governing structure for the City. Abbotsford is currently responsible for its own major services and the few relatively minor services provided by the District could easily be transferred to the City without any loss in service efficiency or effectiveness and with increased local control over both their level and breadth. A further advantage, according to a recent city staff report (Abbotsford, July 5, 2010) suggests that the City could save considerable revenue from the creation of a single tier. If Abbotsford were to move to a single tier municipality, this would be in accordance with a time honoured and well respected axiom that municipal "form should follow function".

The idea of a single tier municipality in BC is rare, but it is not new. In 2009, the Northern Rockies Regional Municipality was incorporated as a single tier system; hence, there is a precedent for moving to a single tier structure. Furthermore, the type of single tier municipality that would be most appropriate for Abbotsford at this time is identical to a number of single tier municipalities that have existed for many decades in Ontario and have proven to be viable and efficient governing structures. These are often referred to as "separated cities" or "separated towns". Indeed, this was the only type of municipal government structure to withstand any restructuring during the wide-spread amalgamations and annexations that lead to a reduction of almost 3 70 municipalities in Ontario in the late 1990s and early 2000s. Two counties and five regions became single tier region-wide municipalities and every other county experienced amalgamations of a number of their lower tier municipalities. The separated cities and towns,

24 however, were spared. The following lists afew of the Ontario Counties that have separated cities and towns of roughly the same size as the urban area of Abbotsford and Mission. • City of Windsor in the County of Essex • City of Kingston in the County of Frontenac • City of London in the County of Midlesex • Cities of Barrie and Orillia in the County of Simcoe • City of Guelph in the County of Wellington.

Where separated cities or towns exist and as the name implies, each is located within a county (identical to a district or region) but is not part of the county governing structure. Each single tier city/town has its own council and each is responsible for making all policy decisions on the services provided to its residents/ businesses. This does not mean that these cities and towns necessarily deliver their own services: many do, but some buy from the county in which they are located and some sell services to the county in which they are located; and some contract out service delivery (solid waste is the most common example).

Arguments in support of Abbotsford moving away from the existing two-tier system of local government and to a single tier structure are based on a number of factors. First, Abbotsford is not part of a large metropolitan area with a number of contiguous urban centres - a condition that is generally instrumental in supporting a sound and viable two-tier structure of municipal government.

Second, the limited range of services provided by the Fraser Valley Regional District and the fact that those that are provided are not income redistributional, do not generate spillovers of any significance, and are unlikely to benefit from any notable economies of scale suggests that there is no solid argument for a two tier structure in Abbotsford. In fact, there is no serious support in the literature for defending an upper tier structure with as few relatively minor service responsibilities as exists in the FRVD.

Third, a single tier would permit Abbotsford to have direct control over all of its municipal services including those currently provided by the FVRD, thus permitting improved

25 accessibility, transparency, and accountability to city taxpayers. A single tier has the potential to be more sensitive to local preferences for all services.

Fourth, it appears as if there would be cost savings for Abbotsford ifit were to become a single tier structure (Abbotsford, 20 10). This would avoid administrative duplication and higher administrative costs created by two levels of local government. In fact, a recent response from the FVRD to the City of Abbotsford indicated that the "the 20 II Tax Requisition to be collected by the City of Abbotsford has been reduced by $717,736 to $1,774,302" (Fraser Valley Regional District, Feb. 16,2011). This amount was 28 percent less than the 2010 requisition. One interpretation of this is that Abbotsford has been paying a larger share of the District's administration costs than it ought to have paid and it may still be doing so. In other words, Abbotsford's property tax payments to the District have been subsidizing District services provided to other municipalities and electoral areas in the District. While it has long been accepted in Canadian tax policy that an important role for government should be to redistribute resources from rich communities to poor communities to make the latter fiscally viable, it has also been argued that this responsibility should be carried out by provincial and federal governments who have a much wider range of taxes upon which to draw (personal; and corporate income and a wide range of sales and consumption based taxes) and the fact that these taxes are much more akin to those that are appropriate for income redistribution (1?oadway and Kitchen, 1999). Municipal governments only have access to the property tax and it is widely accepted that this tax is not appropriate for redistributing the costs of funding municipal services such as those provided by the regional districts (Kitchen, 1992; and Kitchen, 2002).

Finally, the case for creating a separated city for Abbotsford (and an amalgamated Abbotsford/Mission as the next section of this paper suggests) may be strengthened if the province were to consider this a pilot project before considering similar structures for other relatively large urban centers in the rest ofthe province.

26 H. Abbotsford and Mission

If Abbotsford were to become a separated city within the Fraser Valley Regional District, this need not impact on Mission. Mission is a municipality of about 38,000 people, separated from Abbotsford by the Fraser River. In some ways, these two municipalities are already integrated in the delivery of public services. For instance, Abbotsford and Mission currently share water and sewer services, recycling, and public transit.

Further benefits from economies of scale and internalizing the impact of positive and negative spillovers might come from sharing additional services including police and fire, recreation and culture, to name a few. This would not mean that service standards needed to be the same across both municipalities. They could be if residents so choose, but they need not be. Differentials in both service levels and funding could exist to reflect differences in the range and level of services - urban versus rural, central business district vers'!s suburban, neighbourhood versus neighbourhood, and so on. In fact, these differentials may be captured more easily in the larger delivery area because seamless service areas could be established that are not restricted by municipal boundaries. Different service levels could be funded through area rates, special charges and user fees.

If Abbotsford were to separate from the FVRD, it need not impact on Mission's service responsibilities, although it would impact on the share of the District costs funded by each of the municipalities still in the District. Mission could continue as a member of the FVRD or it might wish to follow Abbotsford and opt for separation from the District or it might wish to work with Abbotsford to form a separate Regional District, taking advantage of existing relationships already in place. Options are many; however, it is not the purpose of this paper to address these possibilities.

27 I. Is There A Role for the FVRD if Abbotsford Becomes A Separated City?

The creation of a separated city within the Fraser Valley Regional District need not lead to the demise of the District governing structure. The FVRD could continue as it has in the past with the only difference being that Abbotsford/Mission would not be part of its governing structure. Examples of governing structures of this type that work well in other cities and surrounding counties were noted in part G above and there is no apparent reason why this structure could not work well in the FVRD. Furthermore, given the limited range of services provided by the District to Abbotsford (listed in part E above), removing AbbotsfordlMission from the District governing structure is unlikely to have much impact on the District's service responsibility and delivery, although it could have a significant financial impact on the District's revenues. Its main administration building could remain in Chilliwack. It could continue with its current governance structure and decision-making responsibilities for the remaining municipalities and electoral areas within the District.

At the same time, it is unlikely to lead to much, if any, additional responsibilities and hence, costs for the City because the latter is already providing the vast majority of services used by its residents. The City would, however, benefit from savings in the property taxes and user fees that would no longer go to the District (Abbotsford, 2010).

The governing structure recommended here does not refer to service delivery. It refers to the decision-making body that is responsible for setting policy and determining the direction in which the municipality wishes to proceed. Service delivery may be done in a variety of ways. Where it is beneficial, the City might purchase services from the District or the District might purchase services from the City. Alternatively, either or both may contract out for service delivery or purchase from a neighbouring municipality. The choices are wide-ranging and none of them need impinge on the governing structure, nor should they have any impact on the governing structure (Kitchen, 2002, ch. 11).

28 J. Summary

A range of municipal governing structures exist in Canadian municipalities. These include two tier structures, large single tier structures, and smaller urban centres that are generally referred to as separated cities and towns that are located in counties or districts. Of these types, the question that often surfaces is what is the ideal or appropriate structure? In response, there is nothing in the literature to suggest that "one size fits all". The appropriate or ideal structure depends on a number of factors and it may differ from municipality to municipality. It is different for a large metropolitan area or an area with a mix of contiguous urban centers than it is for an urban area with no contiguous urban areas or with two relatively small contiguous urban areas. It differs depending on service responsibilities. If some services generate spillovers, or benefit from economies of scale, or are income redistributional in nature, the desirable structure may be a two tier or large single tier structure. If urban areas are not contiguous with each other and services do not display the above characteristics, the ideal structure is likely to be a single tier within a region or district. In short, the desirable structure should be based on "form following function".

29 Other arguments to support the Regional District structure also appear to be weak. One strength, it has been alleged, is that Regional District services are voluntary; that is, municipalities can opt in and opt out of District services. Opting in and opting out, however, may be more of a hindrance than a benefit, especially if municipalities opt out and economies of scale cannot be achieved.

Two other arguments for retaining the Regional District are equally weak even though it is legislated that they are to be the responsibility of the Regional District. One is that the District is required to pool the capital borrowing requirements of the member municipalities which are subsequently submitted to the Municipal Finance Authority (MFA) which, in tum, borrows on their behalf. The other is that Regional Districts are needed to apportion the capital costs of regional hospitals across the regional district. Neither of these arguments seems persuasive. Surely, each municipality could submit its own request for capital funds to the MFA without going through the regional district. For capital financing of regional hospitals, converted property assessment data are readily available and it should be an easy task to apportion these costs within regional hospital boundaries (these are coterminous with regional district boundaries) according to the proportion of converted assessment in each member municipality. As for the legislated requirement, why not change the legislation?

Given the small role that the FVRD plays in local public service provision in Abbotsford, there is no solid political, economic or fiscal argument in support of retaining a two-tier governing structure for the City. As well, Abbotsford is not part of a large metropolitan area with a number of contiguous urban centres - a condition that is generally instrumental in supporting a sound and viable two-tier structure of municipal government. A further advantage would come from the costs that could be saved under a single tier structure. The single tier would permit Abbotsford to have direct control over all of its municipal services including those currently provided by the District, thus permitting improved accessibility, transparency, and accountability to city taxpayers.

If Abbotsford were to separate from the FVRD, it need not impact on Mission's service responsibilities, although it would impact on the share of the District costs funded by each of the

30 municipalities still in the District. Mission could continue as a member of the FVRD or it might wish to follow Abbotsford and opt for separation from the District or it might wish to work with Abbotsford to form a separate Regional District, taking advantage of existing relationships already in place. Options are many; however, it was not the purpose of this paper to address these possibilities.

31 References:

Abbotsford (July 5, 2010), FVRD Review

Artibise, Alan FJ. (1998), Regional Governance without Regional Government, background paper for the Regional-Municipality of Ottawa-Carleton, Ottawa.

Bird, Richard M. and Enid Slack (2004), "Fiscal Aspects of Metropolitan Governance" International Tax Program Paper 0401 (Toronto: Joseph L. Rotman School of Management, University of Toronto).

Bish, Robert L. and Eric G. Clemens (1999), Local Government in British Columbia, third edition (Richmond, B.C.: Union of British Columbia Municipalities).

Boadway, Robin and Harry Kitchen (1999), Canadian Tax Policy, Third Edition, Canadian Tax Foundation, Toronto.

BC Ministry of Community Services (2006), Primer on Regional Districts in British Columbia.

BC Ministry of Community Services (2005), Introduction to Regional Districts: Communities in Partnership, First Edition.

th Fraser Valley Regional District (2011, February 16 ), "Review of City of Abbotsford Report Single Tier Governance"

Kitchen, Harry (1996), Structuring Regional Council for the Future, Regional Municipality of Halton, Oakville, Ontario, 90 pg.

Kitchen, Harry (1992), Property Taxation in Canada, Canadian Tax Foundation, Toronto.

Kitchen, Harry (2000), Municipal Governmentfor Victoria County: A New Beginning, (Lindsay, Ontario: Victoria County Restructuring Commission).

Kitchen, Harry (2002), Municipal Revenue and Expenditure Issues in Canada, Canadian Tax Foundation, Toronto, chapter 12.

Kitchen, Harry (2008) "Financing Public Transit and Transportation in the Greater Toronto Area and Hamilton: Future Initiatives", a report completed for the Residential and Civil Construction Alliance of Ontario (Toronto), 75 pages - available at www.rccao.com

Kitchen, Harry (2010), Principles and Best Practices for Funding, Financing, and Cost Sharing Metro Vancouver's Municipal Services, a discussion paper completed for Metro Vancouver.

Slack, Enid (2001) "Fiscal Aspects of Alternative Methods of Governing Large Metropolitan Areas", a paper prepared for the World Bank Institute, Washington, D.C ..

32 Smith, Patrick J. and Stewart Kennedy (1998), Making Accountability Work in British Columbia, Report for the Ministry of Municipal Affairs and Housing, British Columbia.

Vojnovic, Igor (1997) "Municipal consolidation in the 1990s: an analysis of British Columbia, New Brunswick, and Nova Scotia", volume 41, no. 2 Canadian Public Administration, 239-283.

33 Tel: 604 688 5421 BOO Canada LLP Fax: 6046885132 600 Cathf'dral Place 18DO va ncouver@bdo.((1 925 West Georgia St,'eet www.bdo.ca Vancouver BC V6C 3L2 Cana da

Direct Line: (604) 443-4716 E-mail: [email protected] OCT Z 72011 October 20, 2011 RECEIVFD

Ci ty of Abbotsford Finance and Corporate Servi ce s 32 315 South Fraser Way Ab botsford, BC V2T 1W7

Attentio n: Judy Lewis, Director of Finance

De ar M s. Lewis:

Re : Consulting Services - Fraser Valley Regional District

We enclose a copy of our report on the above-noted matter. We take the opportunity in this cover letter to summarize the findings from our report:

Purpose of Engagement

Over the past several months, City of Abbotsford (City) staff has conducted an analysis of the City's membership with Fraser Valley Regional District (FVRD). Specifically, staff compared the services provided either directly or indirectly by the FVRD to the City, to the cost of receiving those services.

As part of this analysis, City staff prepared a report evaluating the merits of a single tier model of governance as a possible replacement to the current model of governance provided through membership in a regional district. The City report summarized the services currently provided by the FVRD, and proposed options for how these services might be delivered under a single tier model. The proposed options would result in some services being provided by City staff and others through partnerships for specific services or initiatives, with parties the City currently conducts business with. This analysis indicated that the single tier arrangement could save the City up to $1.4 million annually. The actual savings would depend upon the details of the inter-jurisdictional agreements established within the single tier arrangement.

BDO was engaged to examine the City's review, including the various analyses, and findings to provide an opinion on the reasonableness of the City's review; specifically whether there were factors that were overlooked or misapplied and whether the approach had merit. BDO was asked not to formulate an opinion on Abbotsford remaining with or withdrawing from the FVRD; but · simply, to provide an opinion on the City of Abbotsford's detailed review.

BDO (al1ada UP. a Canadian hmltcd IldDlllty partnership. IS a memb C' r of BDO Internallcnallmllted. Cl UK company limIted by guarantee. and forJn!lo part 01 th£.' Int{'rnatlonai SOO network of lndepel1dent member firm!l. IBDO Conclusions Drawn from our Review:

1. Calculation Errors

Although there are many estimates and uncertainties in the proposed model and the estimated savings, no calculation errors were observed in the analyses.

2. Other considerations

• Legislative changes - Legislative changes would be required for .the City to move away from the Regional District model. This is a significant area, and beyond the scope of this review; however, it is clear that the cost, time and ancillary issues associated with legislative changes should be given further consideration.

• Indirect benefits - Thorough consideration should be given to indirect benefits difficult to quantify, such as managed growth in the region. These benefits might be identified through continued discussion with the FVRD.

• A detailed qualitative and quantitative value-for-money analysis provided by an outside organization could also add objectivity and value to the City's review.

Please do not hesitate to contact us shOUld you wish to discuss the contents of our report.

Yours truly,

Bill Cox, CA Partner of BOO Canada LLP through a corporation Chartered Accountants

BC/mkn Updated. N • City's Participation in the Fraser Valley Regional District October 28, 2011

Updated Single Tier Governance Analysis Financial Breakdown

The following table provides a breakdown of the single tier costs itemized on the summary table. SelVices in blue contain updated figures from the previous analysis.

* Does not include potential infrastructure costs Updated, N • City's Participation in the Fraser Valley Regional District Appendix C October 28, 2011

Updated Single Tier Governance Analysis Summary

The following table summarizes the regional seNices provided to the City by the FVRD in 2010 and 2011, and the updated estimated costs to provide these services as a single tier City. Services in blue contain updated figures from the previous analysis.

Estimated cost for Metro Vancouver to operate two monitoring stations in Abbotsford, based on FVRD 2011 budget: $ 73,000

that the City remain with the Fraser Valley Treaty Advisory Committee (FVTAC), as it is currently loarticioating in three treaty tables and two are nearing completion. is established based on a MOU between the UBCM and the Province

amendment to the FVT AC operating procedures and protocols is recommended, allowing members from outside the District to have Yoting status is required for the City to recover costs attributable to E911 through the call answer levy. Irecommended that the ammendment also allow the City to attribute call answer levy funds to police dispatch, so the City can levy amount currently collected by the FVRD.

Notes: 1. Amount paid by Abbotsford in 2010: $2,489,572 through requisition, $363,000 through Call Answer Levy, and $173,400 through Tipping Fee Levy 2. Amount paid by Abbotsford in 2011: $1,772,539 through requisition, $453,644 through Call Answer Levy, and 177,140 through Tipping Fee Levy 3. Savings resulting from FVRD changes in 2011, including a revised cost allocation model, a reorganized corporate structure. and increased user fees. 4. See attached Financial Breakdown table for further details of each category 5. Costs to FVRD include TIpping Fee Levy collecled in Abbotsford 6. Costs to FVRD include Call Answer Levy collected in Abbotsford 7. Transfer to E-Comm would likely result in the APD losing their PSAP contract with the FVRD. Single tier costs shown include an estimated $543,000 in funding that the APO would require to supplement this lost revenue. 8. Amount shown for Single Tier Costs: Updated Analysis does not include potential infrastructure costs Evaluating Governance Options Updated Single Tier Analysis

• ABBOTSFORDi~A

Background • FVRD formed in 1995 as the Regional Government serving the Fraser Valley

• Intended benefits included growth management and major service delivery

• Provides regional services and administration

• ~A ABBOTSFORD Services .

Service Amount Paid in Amount Paid in 2010 2011 General Government $1,204,764 $622,533 Combined E911 $584,655 $591,366 Fire Dispatch $381,427 $384,925 Regional Development $288,000 $264,441 Air Quality Management $203,410 $202,724 Mosquito Control $59,271 $52,677 Solid Waste Management $219,075 $177,140 Noxious Weed Control $41,328 $75 1<4,9().. ~ Treaty Advisory Committee $30,042 """""" "'" $32,227'" -- -- Grant-in-aid $14.000 -,'" / ' $0 TOTAL $3,025,972' $2,403,323 ./ • ~~ / / ABBOTSFORD

FVRD Review • Original FVRD Review - July 2010 - Abbotsford's fees exceeded $3-Million - Collected through requisition and user fees

• Responsibility to ensure value - Questions about Abbotsford's costs - Some benefits have been real ized --- while some have not ------/'

/' • ~A // ABBOTSFORD Single Tier Analysis • Original Analysis - January 2011

• Efficiently address regional services - Services provided by City staff - Partnerships with other Jurisdictions

• Arrangements similar to existing ~ "",,~~M'_M~ partnerships for water, wa st~water , transit, ~ recycling, composting aod"'regionai parks ,.'

• ,l d ==~V~ / / ABBOTSFORD

2011 FVRD Requisition • Reduced annual costs to Abbotsford by $620,000

• FVRD changes: - Revised overhead allocation model

- Reorganized corporate structure ...."..,.",...--,...... /.~.""",.. i - Increased user fees .r- or I /'~ j ...... irA / : ABBOTSFORD Further Examination • Required to provide complete case for Single Tier model

• Governance review by Professor Harry Kitchen

• Peer Review of City's Analysis by BOO 0'6~~~;" -""" -"".~ • Updated Costs and Savings of ~Jt:l g l e Tier Model ~ .~J'f'''· ?

. ~. ~" // ABBOTSFORD

External Reviews • Review by Professor Kitchen - Governance role and mandate of regional districts - Abbotsford's position in the FVRO , • Review by BOO i I, - Accounting review of City's analysis _""·,, .rf" ~' ,"" - e - Considers completeness and reqp9na6ility of City's analysis "'"~ /"' /"'"

... 0- .A .. / ~ Vh ABBOTSFORD Further Analysis • Updated Single Tier costs for specific service delivery

• Confirmed costs to contract for services: - E911 and Fire Dispatch - Noxious Weed Control - Mosquito Control "-" -- // ....- / j,~ .. ABBOTSFORD

Further Analysis • E911 and Fire Dispatch - Costs to contract for these services is known - Further review recommended to determine most effective and cost efficient option

• Regional Hospital District - City would take its share of the de~t~"""--~,,,","---": • • •• ,,P , - CIty's costs to servIce debt \/Y-Gl1ld not change J"

ABBOTSFORD• irA Cost Efficiencies • General Government

• Regional Development

• Regional Solid Waste Management

---.~ , /~ • Fire Dispatch /~. ~ ...--/ /"

/ // ...... ~~ ./ ABBOTSFORD

Analysis Summary

2010 Costs with FVRD $3,026,000 2011 Costs with FVRD $2,403,000 . Savings: 2010 vs. 2011 $623,000

Single Tier Costs: Updated $1,644,000 Single Tier Savings over 2010 $1,382,00Q y

"0- .// .. //-/- ~A # ABBOTSFORD Single Tier Summary • Simplified governance with major services through partnerships

• Significant cost efficiencies

ot ~~ ~~V-A ABBOTSFORD