The Politics of Municipal Water Governance in Calgary, Edmonton, Toronto and Hamilton

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2018-08-22 Navigating Turbulent Waters: The Politics of Municipal Water Governance in Calgary, Edmonton, Toronto and Hamilton

Klain, John Andrew

Klain, J. A. (2018). Navigating Turbulent Waters: The Politics of Municipal Water Governance in Calgary, Edmonton, Toronto, and Hamilton (Unpublished master's thesis). University of Calgary, Calgary, AB. doi:10.11575/PRISM/32838 http://hdl.handle.net/1880/107658 master thesis

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Navigating Turbulent Waters:

The Politics of Municipal Water Governance in Calgary, Edmonton, Toronto, and Hamilton

John Andrew Klain

A THESIS

SUBMITTED TO THE FACULTY OF GRADUATE STUDIES

IN PARTIAL FULFILMENT OF THE REQUIREMENTS FOR THE

DEGREE OF MASTER OF ARTS

GRADUATE PROGRAM IN POLITICAL SCIENCE

CALGARY, ALBERTA

AUGUST, 2018

Abstract In Canada, water utilities are traditionally managed by municipal governments. Declining financial support from senior levels of government, public service reforms, and provincial policy interests in the 1990s caused Canadian municipalities to consider reforming their local water utilities. The current water governance literature argues that local financial circumstances condition the types of public policy decisions and governance reforms municipalities make, making these decisions contextual. However, amid similar political and economic circumstances, municipal governments in Calgary, Edmonton, Toronto and Hamilton chose distinctly different governance models. Calgary considered privatizing its water utility, later reorganizing its department as a business unit. Edmonton considered privatization, only to corporatize its water utility alongside its electric utility. In Toronto, the city considered a municipal corporation, and a quasi-independent service board, only to keep its water utility a separate business unit. Hamilton signed a private contract, only to recreate a municipal water department after the contract ended.

I argue that local dynamics conditions the decision-making process in municipalities, where politicians must balance the ideas and interests of local actors when making policy decisions. This thesis then, examines the decision-making process in each city between 1990 and

2005, demonstrating that water reform, and municipal public policy more broadly, is both contentious and politically driven.

Acknowledgements In elementary school the teachers always asked us what we were thankful for leading up to Thanksgiving weekend. As one might expect of elementary students, most mentioned their mother, father, brothers, sisters, and sometimes the family pet. Reflecting on my experience as a graduate student, my list stretches farther than the average elementary student.

Like my grade three peers, I am grateful for the support from my mother, father and step- mother as a student; undergraduate and graduate. Their support stretches far and wide, from financial, to proof-reading papers, to listening to me complain about the trials of graduate studies. But perhaps their greatest contribution is feeding me, seriously, feeding a student-athlete is no small feat.

Ask most war veterans about their strongest relationships and most will tell you they were forged with comrades in war. While graduate work can not be compared to the trials of warfare, long hours locked away in a small graduate office has forged some of my strongest friendships. Only a few people reading this will know John (Bernardino) Santos, otherwise known as “Data Scientist” John. What John lacks in height, too short to ride most amusement park rides, he makes up for with his kindness and generosity. John, thank you for working me through the simplest excel graphs and SPSS outputs, the home cooked food and guided hikes.

In chemistry, opposites attract; it is also how I would describe my relationship with

Connor Molineaux. Connor, your eagerness to learn and passion for political science is inspiring.

Thank you for pushing me intellectually, always asking hard questions and never shying away from a good conversation. And for the record, while Connor’s acknowledgments will recall a different story about our friendship, he is the department’s curmudgeon, not me.

iii

Stephen Hawking once said “Remember to look up at the stars and not down at your feet”; you can likely find Jessica Weber doing this amidst a field of flowers in the mountains.

Next to my parents, Jessica has listened to me rant, complain and sigh on more than one occasion. Thank you for entertaining my theories about human evolution, the dynamics of human relationships and being my C-train companion. To my friends John (Bernardino) Santos,

Connor Molineaux and Jessica Weber, thank you for everything.

Having read through completed theses in pursuit of finishing my own, I noticed a trend throughout acknowledgment sections. Most students started their acknowledgments with “No written work is fully the product of the author”. While trying to avoid using this line, it became clear there was no other way to say it; “No written work is fully the product of the author.” To my supervisor Jack Lucas, thank you for taking me on as your first graduate student. Jack’s enthusiasm for learning, pursuit of student development and work ethic is inspiring. I have learned and accomplished more than I could have ever imagined under his supervision. Thank you for not only being a great supervisor, but a better friend.

To those interviewees that took the time to be interrogated by a master’s student, thank you.

To Jennifer, thanks for taking the time to make sense of my academic jargon, and lend a second pair of eyes to the editing process.

To my former supervisor, Mario Levesque, thank you for not only pushing me to pursue graduate work, but investing time in me as an academic and a person.

If you’re still reading, I would like to thank the department for academic and financial support.

Table of Contents

Abstract ...... ii Acknowledgements ...... iii Table of Contents ...... v Chapter 1: The Importance of Municipal Water Governance in Canada ...... 1 The Importance of Water Governance ...... 5 Municipal Water Reform in Canada ...... 7 Thesis Outline ...... 9 Chapter 2: Understanding Water Governance In Canada: Inadequate Explanations of Municipal Water Reform ...... 12 Understanding Water Governance ...... 13 What Causes Municipal Water Reform? ...... 17 Changing Course: Local Dynamics and Water Reform ...... 19 Institutional Variation ...... 20 Actors’ Ideas ...... 22 Actors’ Interests ...... 23 Methods ...... 26 Conclusion ...... 29 Chapter 3: Setting the Stage for Municipal Water Reform: Alberta and Ontario in the 1990s ...... 30 Alberta ...... 31 Ontario ...... 38 Conclusion ...... 44 Chapter 4: Alberta ...... 46 Calgary: Business as Usual ...... 48 Edmonton: A Home-grown Business ...... 54 Analysis ...... 62 Institutions ...... 62 Ideas ...... 65 Interests ...... 67 Conclusion ...... 69

Chapter 5: Ontario ...... 70 Toronto: The Power of Public Opposition ...... 73 Hamilton: A Contract Gone Bad ...... 81 Analysis ...... 88 Institutions ...... 88 Ideas ...... 91 Interests ...... 94 Conclusion ...... 96 Chapter 6: Ideas and Interests in Municipal Water Reform: Explaining Institutional Variation ...... 97 Institutions ...... 98 Ideas ...... 100 Interests ...... 104 Explaining Variation ...... 106 Conclusion ...... 110 Chapter 7: Policy Lessons from Municipal Water Reform and the Future of Municipal Water Governance in Canada ...... 112 Future Research Agenda ...... 114 Bibliography ...... 116 Appendix ...... 137

Chapter 1: The Importance of Municipal Water Governance in Canada

“Water is implicated in everything human beings do. Without it, no food is grown, no energy captured, no goods made, no activity performed. Without water to drink, you will die within seventy-two hours. For these reasons, in every faith water is equated with life itself.”

- Ralph Pentland and Chris Wood (2013: 7)

All too often cities around the world experience local water pollution, shortages, or a combination of both. This is not a concern for most Canadian citizens. On May 12, 2000, like many other Canadians, the residents of Walkerton, Ontario went about their ordinary lives.

Residents drank, cooked and cleaned their homes with local tap water. Eight days later, on May

20, seven people were reported dead and 2,300 people from the town of 4,800 were hospitalized for E. coli poisoning.

How did this happen?

Between May 8 and May 12, 112mm of rain fell in Walkerton. On May 12, the continued rainfall led to local flooding. The heavy rains and flooding washed Escherichia coli (E. coli) into a town well from a local farm. E. coli lives naturally in animal and human intestines, but has toxic strains that produce deadly poisons. Once the bacteria enters the human body, it cements itself to the intestinal tract and releases its toxin into the bloodstream. Symptoms of E. coli include bloody diarrhea, vomiting and intestinal cramps. E. coli poisoning can leave many individuals with Irritable Bowel Syndrome, reactive arthritis and diabetes. In severe cases the bacteria can lead to Hemolytic Uremic Syndrome (HUS), where the toxin released by the bacteria causes red blood cells to break down leading to kidney failure. Patients often require blood transfusions and kidney dialysis to treat HUS.

Unfortunately, the local chlorinators, machines that monitor chlorine and bacteria levels, were not properly monitored during the flooding. Stan Koebel, the town’s general manager, and

Frank Koebel, foreman for the water utility, were responsible for daily water monitoring. Both men failed to test the water on May 12 and falsified their daily water reports— something they had done many times in the past. Five days later, the Koebel brothers took water samples but did not report the results (Downing-Vicklund, 2014: 90; Prudham, 2004; Perkel, 2002).

Meanwhile, the local hospital was overwhelmed with patients experiencing dehydration, diarrhea and vomiting. Not realizing yet that it was E. coli, most patients were sent home and told to hydrate, only intensifying the symptoms, and given anti-diarrheal medicine, which aggravates the E. coli bacteria causing it to produce more toxins in a patient’s blood stream

(Hurdey and Hurdey, 2004). The Ontario Ministry of Health soon realized that Walkerton was experiencing an E. coli crisis. On May 21, nine days after the water was contaminated, the provincial government issued a boil water advisory warning (Downing-Vicklund, 2014: 109).

Because of the Victoria Day long weekend, the advisory was slow to reach people. People continued to consume the contaminated water throughout the weekend and into the following week, when many residents were eventually made aware of the advisory warning.

Walkerton implemented a boil advisory warning for six months, forcing many residents to rely on bottled water for drinking, cooking and cleaning. Not only was Walkerton a public health crisis, but local schools and businesses were closed for months. Local businesses estimated paying over $650,000 for bottled water so they could open their shops and restaurants

(Burke, 2001). Also uncalculated is the lost revenue for local restaurants; citizens in Walkerton and surrounding areas grew skeptical of eating in local restaurants. The provincial government spent $15 million cleaning and repairing Walkerton’s water infrastructure, spending an

additional $1.5 million to distribute bottled water during the crisis and $6.9 million in compensation to residents (Perkel, 2002). Many residents also identified the social costs of the events, with the cancellation of community events and social gatherings (Downing-Vicklund,

2014: 134).

The Ontario government expressed support for an informal investigation into the events and blamed the crisis on policy changes implemented by the previous New Democratic Party

(NDP) government. Walkerton residents formed the Concerned Walkerton Citizens organization in opposition to the informal investigation and demanded the government do a full judicial inquiry into the events (Downing-Vicklund, 2014: 113). Many citizens grew frustrated with

Premier Mike Harris, believing he was more concerned with deflecting blame onto previous governments then investigating the cause of the E. coli epidemic. Amid growing public opposition to the province’s proposed informal inquiry, Premier Harris gave in and appointed

Justice Dennis O’Connor to conduct a formal investigation of the events. The investigation unveiled that a local farmer had spread manure on his corn field, which happened to be near one of the town wells, prior to the heavy rains on May 12. The farmer and his wife were subject to a

$350 million law suit by the local Public Utilities Commission (PUC), which they were later exonerated from after the report found that the farmer had followed best farming practices

(O’Connor, 2002). However, they experienced public blame by local citizens and neighbours for the water crisis.

The inquiry also unveiled a complex series of events leading up to the water contamination. First, when the contaminated well was built, local industrial leaders had pressured the town to provide more soft water. This is demineralized water that helps to prevent mineral build up on water pipes. The town responded by digging a shallower well to avoid large

mineral deposits deeper in the soil. The well was built close to farmland and in a low-lying area where water collection for the well would be easier. The Ministry of Environment informed the town that a watershed protection program was required if they were to build low-lying wells. The protection program would require the town to adequately chlorinate and test the water regularly.

The protection program was never implemented (Perkel, 2002). Second, it was revealed that Stan

Koebel and Frank Koebel of the Walkerton PUC were inadequately trained for their positions.

They were grandfathered into their positions without proper certification. The Ministry of

Environment had failed to verify their training. Both employees were responsible for maintaining and operating both the local water and electricity utility (Perkel, 2002). In addition, it was later revealed that these employees did not chlorinate or test water regularly and falsified reports on water quality. Third, while the Ministry of Environment did fail to implement or penalize the

Walkerton PUC, the previous NDP government cut the department’s budget by $210 million between 1992-1995. The Harris government cut the department’s budget again by $200.8 million between 1996-1998 (O’Connor, 2002). These budgetary cuts resulted in job cuts, leading to fewer employees available to inspect public works throughout the province, and voluntary compliance by water utility providers.

After the inquiry the government moved quickly to pass a series of water reforms which included the 2002 Safe Drinking Water Act, the 2002 Nutrient Management Act and the 2006

Clean Water Act. Not only did the Walkerton inquiry rouse legislative changes in Ontario but prompted other Canadian provinces to review their own water regulations and regulating agencies (Johns, 2008; Hill et al, 2007).1

1 In 1999 Quebec passed its Water Conservation Law. In 2000, Manitoba passed its Water Resources Conservation and Protection and Consequential Amendments Act, Alberta passed the Public Utilities Board Act, and Nova Scotia

The Importance of Water Governance

The events in Walkerton demonstrate the importance of water governance, “the practice of coordination and decision-making between actors influenced by political culture” (Bakker,

2010: 8). This means that what, where, when and how governments make decisions on local water conservation, management, operation and infrastructure spending has significant impacts on government, citizens, business, and the environment. This also means that water governance is inherently political, attempting to balance different actors’ interests (Hania, 2013). For example, Walkerton experienced political pressure from local businesses to provide soft water to the town (Downing-Vicklund, 2014: 116). This influenced Walkerton to decide on a poor location and design for a new town well. Poor training and missing certifications, coupled with a workforce spread too thin to manage Walkerton’s public utilities properly, resulted in poor management and oversight of the local utility, resulting in the PUC suing a local farmer to shift the blame for the water contamination. The Harris government’s interest in reducing provincial expenditures resulted in budget cuts to the Ministry of the Environment, affecting the department’s ability to implement regulations and properly ensure best practises in local water utilities. In addition, the Harris government blamed the Walkerton crisis on the previous NDP government, arguing that the lack of regulations and oversight was a consequence of poor NDP policies. However, the public believed Harris was more interested in passing the blame for the water crisis than launching a full investigation. This public perception led to public opposition growing strong enough to force the Ontario government to launch a formal investigation

(Downing-Vicklund, 2014: 113). Not only do these actions illustrate the importance of water

passed the Water Resources Protection Act. In 2002 Newfoundland and Labrador passed its Water Resources Act, Manitoba passed its Drinking Water Safety Act, and Saskatchewan passed the Water Regulations Act (Hill et. al, 2007: 372-373). Also, see Hill et. al, (2007), for their full summary of Canadian water governance legislation passed in the last two decades.

governance, with poorly implemented regulations and decisions sometimes resulting in tragic events, but how political water governance can be.

The politics of water governance is also intensified by institutional problems (Furlong,

2016; Saleth and Dinar, 2005). Once described as a “bewildering complex administrative galaxy”, Canada’s water governance framework helps to facilitate the politicization of water governance (Brandes et al., 2005: 29); fragmented and decentralized between national, provincial and municipal governments (Saunders, 2014: 87). The federal government has jurisdiction over fisheries, navigable waters and pollution. It maintains some political power over local water utilities by creating conservation and efficiency policies for municipalities.2 The provinces hold responsibility over potable water and wastewater, which is generally devolved to municipalities, with the provincial government able to impose new regulations and legislation affecting how municipalities manage their local water utility. These include measures for water conservation, environmental protection and economic efficiency. Complicating things further, is the option for municipalities to outsource parts of their water utility to private actors; raising concerns over accountability during times of crisis. (Clancy, 2014; Jakeman et al, 2006; Godden, Ison and

Wallis, 2011). This institutional fragmentation can create opportunities to shift responsibility between actors.

Water governance, then, is important, complex and can be highly politicized. In

Walkerton, decisions about water governance had serious and tragic consequences. Even when the safety of our water supply is not immediately threatened, however, understanding the politics

2 The federal governments’ 1994 National Action Plan to Encourage Municipal Water Use Efficiency is an example of this. It emphasized full-cost recovery for municipalities, meaning a reduction in user subsidies and a ‘user-pays’ approach where citizens take on a greater share of the costs associated with public water services and administration (Canadian Council of Ministers of the Environment, 1994).

of water governance decision-making provides insights into important decision-making processes in Canadian cities. This not only sheds light on how policy makers think about water governance in Canada, but informs our understanding of institutional and policy change more generally. While the consequences of the changes that we will investigate in this thesis are, fortunately, not as dramatic as those in Walkerton, the changes themselves represent crucial events in the development of water governance in four of Canada’s largest cities.

Municipal Water Reform in Canada

Changes to water governance in Canadian municipalities can have significant consequences. In the 1990s and early 2000s, those changes were also surprisingly common.

Figure 1 provides a timeline of major water governance reforms in Canadian municipalities, demonstrating the frequency of these changes between 1995 and 2005.

Figure 1: Instances of Public Water Restructuring in Canada 1970-20153

Instances of Public Water Reform in Canada (1970-2015) Saskatchewan Vancouver White Rock Peterborugh White Rock Peel Municpality London

Victoria Kingston York Municpality Edmonton Halifax

Moncton Toronto Hamilton Calgary

1970 1975 1980 1985 1990 1995 2000 2005 2010 2015

3 To complete this figure, I searched academic journal articles, books, and newspaper articles for water reform in major Canadian cities. Most of this information came from Bakker and Cameron, 2005, and Furlong, 2016. The timeline stretches across 45 years to illustrate the significant spike in restructuring during the 1990s and early 2000s.

Reforms ranged from municipalities creating arms-length water commissions to outsourcing management and operation of their utility to private industry.

This brief period of institutional instability also raises a preliminary research question.

What prompted this explosion of changes in the 1990s? According to water governance scholars, the most important factor was federal and provincial downloading (Bakker and Cameron, 2005).

The federal government was cutting provincial grants to provinces to address its growing deficit.

In response, provinces were forced to make cuts and find alternative funding arrangements for important services like health and education. As a result, provinces devolved greater responsibilities to municipalities. For most provincial governments this was giving municipalities greater autonomy; helping them become financially independent, relying less on provincial grants to fund municipal services. Figure 1 is dominated by municipalities from

Ontario because under the Progressive Conservative government of the 1990s, led by Premier

Mike Harris, significant cuts were made in the provincial budget to address a brief recession, curb spending and balance the provincial budget. This forced municipalities in Ontario to re- evaluate their local services and utilities, including water.

Of the Ontario municipalities that underwent water reforms, a number different business models were chosen. Most Ontario cities experienced similar provincial downloading and a reduction in grant transfers, yet chose very different business models. For example, Hamilton outsourced its management and operation to a third party on a ten-year contract, while Toronto developed an arms-length business unit. Some scholars have argued that these decisions are contextual, and often unpredictable (Bakker and Cameron, 2005). While this is an important first step in understanding these types of decisions, it remains unclear why these outcomes were so different amidst similar political and economic circumstances.

Moreover, these reforms were not unique to Ontario. Albertan municipalities experienced a similar set of events during the 1990s. While fewer municipalities restructured their water utility in Alberta, the province’s largest cities, Edmonton and Calgary, both considered privatizing their municipal water utility, but in the end decided on very different models.

Why did four broadly comparable Canadian cities— Edmonton, Calgary, Hamilton and

Toronto— facing similar economic and intergovernmental pressures, considering a similar basket of options, take distinct approaches to reforming their local water system? Using in-depth comparisons both within and across the two provinces, this thesis seeks to explain these outcomes. Edmonton decided to corporatize its water utility, while Calgary, contemplating privatization, later decided to develop a business unit within city government. Hamilton, well known for its disastrous contract with private water companies, decided to outsource the management and operation of its water utility between 1994 and 2004, while Toronto, like

Calgary, established a business unit in city government amid considerable opposition against a municipal service board (MSB). In attempting to explain these outcomes, we are provided with an opportunity to understand the political processes behind local water reform and the politics of decision-making in local government.

Thesis Outline

To explore this research question, I begin by outlining the current literature on water governance, and water governance reform in Canada, in chapter two. It is here that I identify a gap in the current literature, where variation in municipal water reform is often overlooked. In response, I propose that municipal decision-making and utility reform is susceptible to local dynamics; the current problems, policy proposals, opportunities and politics present in a particular city at a particular moment in time. I use the institutions, ideas and interests (3I)

framework to organize and structure how local dynamics may have produced different decisions in each city. I conclude the chapter by outlining the methods used in this thesis to research the impact of local dynamics on municipal decision-making and utility reform.

Having built a theoretical framework for the thesis, chapter three is a context chapter; situating our case studies in broader political and economic events in Canada between the 1980s and early 2000s. Here I outline how federal expenditure cuts and government restructuring led to provincial transfer cuts, effectively eliminating a significant portion of provinces’ annual transfer grants. In addition, I explain how declining federal transfers and provincial recessions in both

Alberta and Ontario allowed for the election of premiers intent on restructuring provincial budgets and decreasing public spending. For municipalities in Alberta and Ontario, these had far reaching consequences. Both provincial governments began processes of consolidation, budget cuts, and increased service responsibilities to municipalities. These reforms were consistent across both provinces and required that municipalities become more independent with less financial support from the province. This chapter demonstrates an important piece in our empirical puzzle: demonstrating the similarity in political and economic conditions in all four cities.

Chapter four provides a deeper analysis of the events in Calgary and Edmonton. While facing similar economic and political pressures from the Alberta government, the two cities chose different reform options. Here we find that amid similar political and economic factors and institutional structures, ideas and interests in each city differed significantly. Chapter five follows a similar pattern; providing a deeper investigation into the events in Toronto and Hamilton.

Across all four cities, my findings are consistent; ideas and interests were pivotal in the decision- making process.

In chapter six we return to the theoretical framework laid out in chapter two, bringing all four case studies together. I re-examine the role of institutions, ideas and interests in governance reforms across all four cities. It is here that I also return to an analysis of the role of local dynamics in government decision-making.

Chapter seven concludes the thesis, summarizing my findings, but also outlining future research agendas. Here I call for greater attention not only in areas of municipal issues and the decision-making process more broadly, but also in understanding the politics of local governance and governance reform. This is important, and is often overlooked. Not only are municipal issues and governance arguably the most salient for Canadians, but will continue to be as Canada continues to urbanize.

Chapter 2: Understanding Water Governance In Canada:

Inadequate Explanations of Municipal Water Reform

“Governance is about effectively implementing socially acceptable allocation and regulation and is thus intensely political. A more inclusive concept than government per se; it embraces the relationship between a society and its government. The concept of governance of course encompasses laws, regulations, and institutions but it also relates to government policies and actions, to domestic activities, and to networks of influence, including international market forces, the private sector and civil society.” - Peter Rogers and Alan Hall (2003: 4)

If the events in Walkerton have taught us anything, it is that water governance matters, requiring us to take a second look at governance structures. But water governance reforms are, at their core, instances of formal institutional change and public policy decisions, meaning we must understand how and why institutions change and decisions are made. This chapter builds a theoretical and methodological foundation for the empirical chapters to follow. I begin by outlining the broader international and Canadian literature on water governance and water reform, arguing that these explanations are inadequate for explaining our case studies.

Fortunately, more water governance scholars have shifted attention to the local level. I outline current definitions of local water governance, and explanations for reform in this body of literature, finding that few scholars have sought to explain water reform, and where they have, they focus on broad changes in the field. I argue, these are inadequate for explaining the variation across Calgary, Edmonton, Hamilton, and Toronto. It is here that I propose turning our attention elsewhere to explain these changes, shifting our focus to the role of local dynamics in municipal decision-making and utility reform. I use the Institutions, Ideas and Interests (3I)

Framework to organize and structure our understanding of local dynamics, also using the

framework to identify possible explanations for the decisions made in each city. The chapter concludes by explaining the methods used to study the current research question.

Understanding Water Governance

In recent years, water has been a subject of multidisciplinary academic attention, ranging from studies of water’s social and cultural value (Shiva, 2002; Laxer and Soron, 2006), to economic and riparian rights (McDonald and Ruiter, 2005), to hydrological processes and conservation (Harrington, 2017). A consistent theme connecting these studies is water governance (Moss, 1978; Bakker, 2010; Benson and Jordan, 2010; Brioch, 2013; Brown, Keath and Wong, 2009; Carrozza, 2011; Hukka and Katko, 2003; Megdal, 2014; Fulrong, 2016;

Mullin, 2009; Van de Meene, Brown and Farrelly, 2011).

Scholars have traditionally focused on instances of change at the national and international scale; concentrating on the regulatory challenges that exist between national and subnational governments, the process of decentralized management between varying levels of government, and transboundary regulation (Moss, 1978; Saleth and Dinar, 2005; Giupponi et al.

2006; Bakker, 2007; Rouse, 2007; Godden, Iso, and Wallis, 2011; Wallis and Isson, 2011;

Bakker, and Cook, 2011; Buxton, 2012). Combined with these items are overlapping and competing provincial, federal, and international regulatory regimes; conservation efforts; withdrawal rights; and drinking water regulations, complicating the process of water governance and reform (Harrison, 1996; Doern, et al., 1999; Godden, Ison, and Wallis, 2011; Bakker and

Cook, 2011; Benson, and Jordan, 2010; Dovers, 2013).

While these are important issues, they do not adequately explain municipal water reform.

Municipal water utilities are not the same as international, or national, regulatory bodies.

Fortunately, the academic community has shifted its focus to local water governance (Mullin,

2009; Argento, et al., 2010; Farrelly and Brown, 2011; Bakker and Furlong, 2011; Scott and

Gouvello, 2014; Valdovinos, 2014; Megdal, 2014; Furlong, 2016). Like water institutions at the national and international scales, recent research has emphasized the complexity of local water utilities. Public water utilities are divided into four categories: infrastructure financing, management, operation, and distribution.

In some cases, all fall under municipal governments’ responsibility; in others, cities have outsourced different parts of their water system to private actors. These responsibilities in local water management make it unique from other utilities and water institutions, where local government and private actors can control management, distribution, maintenance, and financing

(Akmouch, and Kauffmann, 2013; Rouse, 2007). Because of the number of possible governance structures governments can create, this not only complicates theoretical explanations of change, but makes it difficult to achieve public water reform in practice (Nickum and Lee, 2006), further incentivizing us to understand the complexities of local water reform.

Initial studies of municipal water utilities understood these systems as either being publicly or privately owned, operated, and managed, resulting in an ongoing debate about best management practices. Those who support private sector involvement argue private industry is more efficient in managing and distributing services, and private management promotes water conservation by establishing price points for consumers, incentivizing them to reduce their water consumption (Brubaker, 2002; Cotta, 2012; Winpenny, 2001; Bernstein, 2001; Goldman, 2005).

Others argue water is more than a commodity; it is a human right that holds social and cultural value (Shiva, 2002; Laxer and Soron, 2006). Reducing government involvement in local water utilities diminishes accountability, transparency, and access to water, suggesting proper water

governance is an issue of democracy (Sax, 2010; Allouche and Finger, 2002; Adkin, 2009;

Overton, 2009).

More recently, the academic community has promoted a more holistic understanding of water governance, where both public and private actors are involved in local water governance

(Brown, Ashley and Farrelly, 2011; Brown, Keath and Wong, 2009; Furlong, 2015). This conceptual shift has broadened our understanding of water governance and led to the development of new governance models. (Van de Meene, Brown, and Farrelly, 2011; Bell and

Quiggin, 2008; Bakker, 2003a; Bakker, 2010; Bakker and Cameron, 2005; Furlong, 2016; Grossi and Reichard, 2008). Table 1 demonstrates this conceptual shift, organizing the difference in management models from public water utilities to direct private management.

Table 1: Business Models for Water Supply Infrastructure in Canada

Source: Bakker and Cameron, 2005: 488.

Leading the way is Furlong’s (2016) study of Ontario municipalities and Alternative

Service Delivery (ASD), arguing best management practices are likely to combine a mixture of

public-private management (Figure 2). Furlong’s model works on two axes: (1) a public-private axis, and (2) a government-authority axis. This model allows for a combination of public-private management, also allowing independence from the local government, demonstrating even publicly managed and operated utilities can be independent from local government and city councillors.

Figure 2: Alternative Serve Delivery Options

Source: Furlong, 2016: 7.

These recent shifts in water governance conceptualizations are useful for understanding the events in Toronto, Hamilton, Edmonton, and Calgary; using Furlong’s (2016) ASD model

(Figure 2), we can better characterize the decisions made in each city (Table 2). In Toronto, city council decided to move the utility from a municipal department to a municipal business unit, allowing it only slightly more autonomy from city council. Hamilton’s regional government decided to outsource its water utility to a private operator, moving the utility away from local

government and towards greater private involvement. Edmonton greatly increased the utility’s independence from government but did not involve private actors, moving its utility from a public department to a municipal corporation, including an independent board of directors.

Lastly, and similar to Toronto, Calgary’s water utility only gained slightly more autonomy from city council, moving from a municipal utility to a business unit.

Table 2: Water Reforms in Toronto, Hamilton, Calgary, and Edmonton

City Initial Business Model Change to Business Model Toronto Public Utility Municipal Business Unit

Hamilton Public Utility Delegated Management (Outsourcing Management and Operations)

Edmonton Public Utility Municipal Corporation

Calgary Public Utility Municipal Business Unit

What Causes Municipal Water Reform?

The typology in Figure 1, and recent research on water governance, helps us to conceptualize the changes in each city. But how have scholars explained these changes?

International research has attributed the salience of water reform to municipal finances.

Water reform becomes salient when infrastructure spending is required, water quality must be addressed, or water rates increase. Local councillors must then consider how to pay for these upgrades, which requires their interest in the topic (Bel and Fageda, 2007; Dore, Kushner and

Zummer, 2004; Hebdon and Jalette, 2008; Nallathiga, 2006; Parker, 2006; Seppälä, Jarmo and

Katko, 2001; Shirley and Calude, 2002; Thomas, 2001; Valdovinos, 2014; Brubaker, 2002;

Aregnto, Grossi, and Collin, 2010; Barrett and Wallace, 2011; Castro, Kaikia, and Swyngedouw,

2003). This is no different in Canada, where years of poor maintenance, and increasing urbanization, are now stressing local water supplies and utilities (Bakker, 2003b; Bakker, 2005;

Bakker, 2007; Bakker, 2010; Bakker and Cook, 2011; Bakker and Cameron, 2005; Furlong,

2015; Furlong, 2016; Hebdon and Jalette, 2008). The Federation of Canadian Municipalities

(FCM) national survey estimates Canadian municipalities need, or will need, $207 billion in maintenance, or replacement, for their potable water systems, with wastewater maintenance expected to cost Canadian municipalities $234 billion (Federation of Canadian Municipalities,

2016: 16-20).

In fact, municipal finances in Canada are perhaps even more important in the salience of water reform, as federal and provincial governments have a limited interest in municipal water governance; gaining little politically or economically from investing in local infrastructure (Hill and Harrison, 2006). This means Canadian municipalities often receive minimal financial support for investing in local water systems.4 In contrast, when federal or provincial governments intervene to change legislation, quality standards, or regulations, this can impact

Canadian municipalities, demonstrating the asymmetrical relationship between municipalities and senior government. Recent research by Jack Lucas and Allison Smith suggests even today, municipal politicians see municipal governments as the key players in local water governance in

Canada (Lucas and Smith, 2018). This is likely because citizens understand the importance of

4 As of 2016, the Canadian federal government started the Clean Water and Wastewater Fund to provide grants to Canadian municipalities to replace water treatment facilities, infrastructure, and wastewater and storm water treatment. The program is scheduled to end in 2020. For more see Infrastructure Canada’s department website, https://www.infrastructure.gc.ca/index-eng.html.

water quality and its relationship with public health; for example 97% of Calgarians view water quality as “very important” (City of Calgary, 2015: 31).

Like a jigsaw puzzle missing its final piece, this body of literature falls short in solving our empirical puzzle. Existing explanations explain why water reform becomes salient, but not why our four case studies chose different water governance structures. To make sense of these changes, we must turn our attention elsewhere.

Changing Course: Local Dynamics and Water Reform

The conventional narrative, emphasizing the importance of local finances in water reform, adequately explains why these issues become salient for local government, but not why, amid similar conditions, these four cities decided on different governance structures. Changing course, I propose a shift away from this narrative, and hypothesize that local dynamics play an important role in influencing the municipal decision-making process. I define local dynamics as the current problems, policy proposals, opportunities, and politics present in a particular city at a particular moment in time. This means that local dynamics serve as an intervening variable, impacting municipal decision-making and explaining why amid similar conditions, different cities decided on different governance structures.

Local dynamics, then, are about institutions, ideas, and interests requiring an investigation of these three facets in local decision-making. The 3I Framework provides a useful theoretical model to organize and understand, the events in each city. I will explore whether, and to what extent, institutional differences, actors’ ideas and beliefs, and their interests, affected the decision-making process, and final decision, in each city. Using the 3I Framework, I provide some preliminary explanations about what we might expect to see in our case studies.

Institutional Variation

Local dynamics and decision-making take place in institutions, which are broadly understood as sets of regularized practices and rules actors are expected to observe (Hall and

Thelen, 2009). This leads us to ask: were there any institutional differences in the four cities that may have led local government to decide on different governance structures? If so, what were these? Fortunately, institutional change has been a central topic of research in political science, providing some preliminary theoretical explanations for the changes in all four cases.

Some scholars argue institutional change is a process rooted in previous decisions.

Known as historical institutionalism (HI), this approach “views the polity as the primary locus for action, yet understands political activities, whether carried out by politicians or social groups as conditioned by institutional configurations of governments and party systems” (Skocpol,

1994: 41). A valuable insight of HI is the idea of path dependency, which is “intended or unintended consequences and inefficiencies generated by existing institutions” (Hall and Taylor,

1996: 942). New institutions and policies must always emerge in the context of existing institutional structures, meaning current institutions will condition future institutional changes and policy choices. The provincial-municipal relationship across Canadian provinces varies little, and both Ontario and Alberta provided municipalities with more fiscal and regulatory independence through the 1994 Municipal Government Act and the 1998 Local Services

Realignment Act, closely aligning institutional conditions in all four cities. As such, previous municipal decisions may have led to distinctly different governance reforms. This means we may able to explain the differences in our four cities using previous institutional changes or public policy decisions in each city. Another possibility is previous changes to other public utilities,

which may have influenced reforms in local water governance, also known as “policy spillover”

(Lucas, 2016: 17-18).5

Other scholars argue change is about how actors navigate institutions. Rational choice institutionalism (RCI) examines how actors navigate the incentive structures and rules of institutions (Shepsle, 1989), as politics is a series of collective action problems.6 Actors use institutions to interact, and negotiate, to achieve a policy objective. Actors are assumed to have fixed preferences and interests, using institutional rules and coalitions to change policies and institutions to maximize their personal interests (Hall, 2010; Hall and Taylor, 1996; Buchanan and Tollison, 1972; North, 1990). Considering this theory, it may be that amidst similar institutional settings, the way different actors worked together, navigated local institutions, or both, affected the decision-making process in each city. For example, local business interests, using local institutions to network with city councillors, may have superseded residents’ interests in Hamilton, leading to the private management of their utility. In contrast, residents’ may have navigated local insitutions and institutional networks more effectively, superseding local business interests in Toronto, leading the city to maintain management of their public water utility. Alternatively, Edmonton’s decision to corporatize may have been a combination of politicians and businesspeople working together to develop a new utility, where in Calgary, these actors may not have worked together, limiting the available options for the city.

5 Policy spillovers are events in one policy domain that occur because of decisions, or non-decisions, made in another policy domain. For more see Lucas, 2016. 6 A situation where multiple actors, individuals or organizations, benefit from a course of action to address their own specific interests. For more see Olson, 1965, 2009; Garrison, 1992; Stigler, 1974.

Actors’ Ideas

Institutions are important to understand local dynamics; however, actors’ ideas, often influenced by personal beliefs and values (Blyth, 2003), shape their policy interests. While there are competing definitions of ideas, I employ a broad understanding of ideas as “products of cognition” that are “produced in our minds and are connected to the material world only via our interpretations of our surroundings”7 (Béland and Cox, 2011: 3). This includes actors’ values and perceptions, which may “change or remain stable over time” (Béland, 2016: 736). We must then consider: How did actors conceive of their local situation and the policy proposals brought forth?

Ideas play an important role in various stages of the policy cycle. They contribute to early stages of problem definition and agenda framing (Kingdon, 1994; Howlett et al., 2009). The way problems are defined and government agendas are set is important for actors seeking to achieve specific policy outcomes (Béland and Cox, 2011; Druckman, 2004). In addition, the way actors frame problems impacts policy proposals; meaning policy formation is also associated with ideas. Competing policy solutions often materialize from an actor’s understanding of ‘right and wrong’ (Kingdon, 1994), conditioning the decision-making process (Tversky and Kahneman,

1986). Conversely, new policy implementation is subject to actors’ interpretations of policies, where public service employees may interpret policies differently than their authors had intended them (Béland and Ridde, 2016). Lastly, policy evaluation is “explicitly connected to ideational analysis” where “interpretations are typically embedded in the assumptions of actors about what constitutes good or bad policy” (Béland, 2016: 740-741).

7 For more see Goldstein and Keohane, 1993; Smyrl and Genieys, 2008; Campbell 2004.

This means actors’ understandings of their situations would have impacted reform proposals, policy development, and decision making in each city. The difference in each city may then be the result of how local politicians conceived of their economic, financial, and political circumstances, leading to specific reform proposals. Alternatively, citizens, local businesses, labour unions, and other interest groups may have understood their city’s circumstances differently, supporting different reform proposals but also using water utility reform as an opportunity to promote specific interests- known as policy entrepreneurs.8 These interests may have included efforts to privatize the utility, promote conservation, restructure water taxes, or even bring attention to outstanding labour disputes between city workers and local government. These competing ideas are also likely to have emerged while supporting reform proposals, local politicians, or both.

Actors’ Interests

Interests have been referred to as a “cluster” concept, “one whose intention, or core meaning, is intimately bound… with its cognates (such as beliefs and desires)” (Blyth, 2003:

697). If ideas emerge from deeply rooted values and beliefs, interests are grounded in an actor’s ideas and understanding of the material world. But actors’ interests are also somewhat distinct from their ideas because “the preferences and power embedded in policy actors” depends on “the distribution of resources and power in a policy domain, as well as individual capacity and skill” to achieve a policy objective (Shearer et al., 2016: 1202).9 We can then understand actors’

8 Policy entrepreneurs are actors “involved in framing discourses aimed at bringing actors together over certain problem definitions, policy solutions, or broad political and ideological objectives” (Béland, 2016: 741. For more see Kingdon, 1994). 9 Defining ideas, and differentiating them conceptually from interests, is a something political scientists are still grappling with (Béland, 2016; Blyth, 2003; Blyth, 2001). I attempt to answer Béland’s (2016) call for analytical clarity between ideas and interests by distinguishing the difference between ideas and interests by acknowledging that interests are more than the sum of their parts.

interests as grounded in personal ideas, but also emerging from local institutional, political, and economic circumstances.

Like ideas, local dynamics also encompass (often competing) interests. Interests in each city may have varied widely, from re-election for local politicians to business deals for local businesses to conservation efforts by local citizens and interest groups. We must then consider:

Were there any electoral or other strategic dynamics at play in each city that might explain their decisions?

Some scholars have interpreted political interests and decision making akin to economic transactions, where constituents trade political support for political representation by city councillors (Buchanan and Tollison, 1972). Politicians, then, make decisions in a political market, where potential electoral support and political capital10 condition which decisions are politically acceptable. Politicians can decide to ‘cash in’ on political capital they have accumulated, and make decisions that are sometimes unfavourable. They must also balance constituent interests with that of other actors’ interests. These can include business interests, cultural and social issues, economic development, local finances, and environmental conservation. Councillors’ decisions in each city to support or oppose reform proposals were likely conditioned by both constituents’ interests and other municipal interests, with upcoming elections making constituents’ interests more salient for city councillors. Research by Oliver and

Ha (2007) supports this idea. They find municipal vote choice encompasses subjective appraisals of candidates, but also encompasses where candidates stand on issues. This complexity is true of

10 Political capital refers to the amount of trust and influence a politician has with citizens. Like an economic market, trust, accountability and good will act as currency for politicians. When making public policy decisions, some decisions require more political capital than others from citizens, requiring politicians to decide when to ‘cash in’ their accumulated political capital when making decisions. For more see Buchanan and Tollison, 1972; Newton, 2002.

the Canadian context specifically, with municipal vote choice informed by ideological dispositions, provincial partnership and local issues (Cutler and Mathews, 2005). In addition, suburban voters are more likely than their urban counterparts to support candidates based on where they stand on issues (Oliver and Ha, 2007). If municipal elections impact councillors’ opinions on public policy issues, we would expect politicians to be responsive to their constituents’ interests leading up to, or during, a municipal election. This means local politicians may change the proposals they support depending on how soon the next municipal election is. In contrast, councillors who may have been recently elected, or have no upcoming elections, may pay less attention to their constituents’ interests and more attention to other actor interests by supporting reform proposals that are not supported by their constituents.

Likewise, citizens, businesses, and interest groups do not only rely on elections as a conduit for their interests. Some scholars argue the policy process is more open and is about the coalitions actors form to promote their interests. These groups compete for space in the policy arena, framing and proposing different policy solutions. But these are subject to change; a result of policy learning (Sabatier, 1987; Sabatier and Mazmanian, 1993). Policy learning occurs when actors’ beliefs and behaviours change from acquiring new information or ideas, or from engaging in new experiences (Sabatier, 1987, Fischer, 2003). Assuming interests are promoted by different actors and groups, outside of elections, the decisions made in each city might have been a process of policy learning. Cities may have had similar reform proposals to begin with, but because actors acquired a combination of new information and ideas, and engaged in new experiences, problem definitions, and subsequently policy solutions, changed. In addition, how new information and ideas were presented may have initiated the policy learning process,

requiring us to also consider the language used to present these items (Schmidt, 2008; Schmidt,

2010; Majone, 1989).

Methods

At its core, this project is about exploring how local dynamics affects decision-making in local government and utility reform. This means local dynamics serve as an intervening variable in municipal decision-making, explaining why amid similar conditions, different cities decided on different types of governance models.

With my case selection, I test this hypothesis using the method of most-similar design and process-tracing. Using the method of most-similar design, I control for the economic and political variables in each province and city. This allows for a comparison within each province and across both provinces, while allowing for in-depth case analysis. Case studies provide an opportunity to analyze historical patterns, but are also useful in helping to identify causal processes and mechanisms. This allows us to identify not only a change in a relationship, but how that change has occurred. This means we can test whether local dynamics intervene in the municipal decision-making process, which is helpful amidst a number of variables and with limited opportunities within the Canadian context to study this process. The method of most- similar design is also useful for testing conceptual validity because of its inductive approach, meaning we can appropriately test local dynamics.

Case studies can be limited in their representativeness and generalizability, meaning there may be a limited ability to extrapolate theories of institutional and policy change more broadly.

To account for this, I selected the four cases based on governance models identified in the literature (Furlong, 2016; Bakker and Cameron, 2005). Likewise, this type of research can

contribute to developing middle range theories, which is helpful for explaining future municipal water reforms in Canada.

I use process-tracing to complement the method of most-similar design. Process-tracing can be best explained as “analogous to a detective attempting to solve a crime by looking at clues and suspects and piecing together a convincing explanation, based on fine-grained evidence…”

(Bennet, 2010: 208). It is a technique used to examine the causal sequences of events, to understand specific outcomes. Primarily a qualitative tool that uses historical analysis to identify causal processes, it can be used for both within-case and across-case analysis in comparative studies. Again, this allows us to understand the story behind each city’s decision while identifying the actors, ideas, and interests that shaped the final decision. Process-tracing is also

“well-suited to testing theories in a world marked by multiple interaction effects, where it is difficult to explain outcomes in terms of two or three independent variables” (Hall, 2000: 18).

Using these methods to structure my data collection, I first used historical newspaper articles and academic literature to trace the development of events through each city. I then conducted 19 semi-structured interviews across all four cities with current and former city councillors in each city, along with local union representatives and public works employees.11

These interviews included a list of questions unique to the events in each city. In most cases, interviewees provided anecdotes not recorded in local newspaper articles, helping to fill in gaps in my research. Conversations with past and present elected officials, local union representatives, and city works employees, provided me with a better understanding of the politics between actors, and the broader local dynamics at play in each city.

11 See appendix for more interview information.

Throne Speeches outline a sitting government’s policy priorities and what they hope to achieve in a session of the legislature. I used Throne Speeches between 1990 and 2005 to gauge the policy interests of both the Alberta and Ontario governments during water reforms in each city. This is a common method used in political science, so much so that it has been used in the

Comparative Agendas Project; aimed at tracking policy attention in national legislatures around the world (John et al., 2013; Dowding et al., 2016). To supplement this, I collected political party platforms from the elected parties between 1990 and 2005 to further understand the election agenda leading up to, and after, utility changes in each city, as well as specific party campaign interests during each election. This helped to highlight specific policies each elected party had proposed and campaigned on, further solidifying my understanding of their policy interests.

These party platforms and Throne Speeches were collected from POLTEXT, an online database of throne speeches and party manifestos across all the Canadian provinces. I then coded each

Throne Speech by sentence, using the Policy Agendas Project codebook modified by Stuart

Soroka for the Canadian context, to identify policy topics and subtopics as for water-governance related material.12 I coded sentences based on coding practices in this code book, but also coded municipal water governance related sentences as ‘1’ and all non-related sentences as ‘0’.

After reading these documents, it became clear that both provinces were interested in cutting public expenses by downloading responsibilities and costs onto municipalities. To understand this process, I tracked legislative changes to municipal responsibilities in each province, reading through the 1994 Municipal Government Act in Alberta, and the 1996 Savings and Restructuring Act and the 1998 Local Services Realignment Act in Ontario. These changes

12 This codebook can be found on Stuart Soroka’s personal website. http://www.snsoroka.com/files/QPDataSoroka.pdf.

were substantial in restructuring municipal responsibilities and relationships with their respective provincial governments. But these were not the only pieces of legislation leading cities to consider restructuring their local water utility. Both provinces were working to, and eventually did, pass legislation deregulating their provincial electricity market. Alberta’s 1995 Electric

Utility Act and Ontario’s 1998 Energy Competition Act did not directly affect municipal water systems, but did raise concern over the future of public utilities.

Conclusion

Having outlined the current literature on water governance, reform, our research question and the methods used in this thesis, I begin the empirical section of this thesis by outlining the broader political and economic conditions in each province. It is here that both provincial governments’ policy interests are clearly outlined, supporting my argument that while economic and political circumstances were similar, we cannot use existing explanations to understand the varied outcomes between the four cities. This allows us to dive deeper into our cases studies in the following empirical chapters.

Chapter 3: Setting the Stage for Municipal Water Reform: Alberta

and Ontario in the 1990s

“In the 1990s, reductions in federal appropriations to lower levels of government… encouraged significant reform initiatives among both provinces and municipalities, as provincial and municipal officials attempted to make adjustments not only to the new economic circumstances, but also newly developing attitudes towards the role of government.” - Igor Vojnovic and Dale Poel (2000: 5)

If provincial governments in Canada had anything in common during the 1990s, it was their interest in weathering recessions, eliminating public debt and their growing annual deficits; a symptom of post-war era spending on public services and social welfare programs. They also faced growing pressure to reduce provincial expenditures as the federal government began to cut grants transfers to the provinces (Vojnovic and Poel, 2000). Facing this new reality, “provincial governments of varying political persuasions implemented extensive restructuring programmes, bringing radical changes to the governance of education, health, municipal and social services”

(Clark, 2002: 783-4). For municipalities, provincial restructuring brought with it consolidation and amalgamation, reductions in municipal transfers, and provincial downloading of services onto local governments (Glor, 2001: 123). Leading the way in many of these reforms were the

Alberta and Ontario provincial governments, often cited as some of the most extreme cases of public service and municipal reform (Clark, 2002).

This chapter will outline the broad economic and political context in Ontario and Alberta leading up to, and during, Calgary, Edmonton, Toronto and Hamilton’s water reforms. This context is important for three reasons. First, it helps situate the four case studies within broader political events during the 1990s. Second, it demonstrates both provincial governments had

corresponding policy agendas and implemented similar reform policies. This series of events is also significant because it sheds light on our research question and the importance of our case studies. Edmonton, Calgary, Hamilton, and Toronto’s provincial governments were intent on reducing financial support and transferring significant social and economic responsibilities to municipalities, yet their individual decisions to reform their municipal water utilities differ substantially. Third, it contributes to the water governance literature by supporting the idea that while financial and economic pressures make water reform salient for municipal governments, it fails to explain why local municipalities choose different governance structures when reforming their water utility.

This chapter begins by outlining events in Alberta, and then Ontario, demonstrating how provincial politics and economic pressures created the conditions for municipal water reform in both provinces. It concludes by summarizing events in both provinces, as well as their impacts on municipalities.

Alberta

The financial and political conditions of Alberta municipalities in the 1990s can be traced back to the 1980s. During the 1980s, Alberta’s oil industry faced an unstable domestic and international market. Internationally, Alberta was attempting to compete with major oil producing states that were part of the Organization of the Petroleum Exporting Countries

(OPEC) (Fossum, 1997: 105).13 OPEC decided to reduce overall oil production of oil, causing oil

13 OPEC is a group of 14 countries that make up a large majority of the world’s oil production and ‘proven’ oil reserves. These countries coordinate their domestic oil industries and work together to set production targets, which play a substantial role in influencing global oil prices.

prices to rise. The OPEC countries were also exporting their oil internationally, increasing their industry’s competitiveness in the global market.

Domestically, Prime Minister Pierre Trudeau implemented the National Energy Plan

(NEP) in 1980. His goals were to secure Canadian oil supplies by limiting oil exports to the

United States using an export tax; reduce Canada’s dependence on foreign oil; redistribute

Alberta’s oil wealth across Canada through income and corporate taxes; and make Alberta oil cheaper for the rest of Canada. In terms of regulations and taxes, the federal government implemented a 25% ownership on oil and gas discoveries made by private companies in northern

Canada and in offshore wells (Fossum, 1997: 123). The federal government used federal taxes and royalties imposed on the oil and gas industry to help establish Petro-Canada, a crown-owned energy company, which competed against Alberta’s oil industry. Alberta saw the NEP as highway robbery, providing cheap energy to central Canada’s manufacturing industry at the expense of the Alberta economy. The province was also outraged that taxes levied on their oil industry were used to fund a federal crown corporation. This frustration was heightened when the Ontario government expressed opposition to the idea of allowing Canadian oil prices to match international prices, which would have benefitted the Albertan oil industry considerably

(Fossum, 1997: 110).

In response to the NEP, Alberta Premier Peter Lougheed asked companies to reduce oil production by 85%. Lougheed argued that if Alberta could not get fair prices for its oil, it would reduce overall production, limiting the availability of ‘cheap’ oil. The province and the federal government came to a deal on Alberta oil prices in 1981. The federal government agreed to drop the export tax, while Alberta agreed their oil prices would not be tied to the international market, and they would continue to sell oil at a discounted price to Canadian markets. In 1985, Prime

Minister Brian Mulroney eliminated the NEP and developed the Western Accord, which ended the price-fixing regime implemented under the NEP.

Shortly after the cancellation of the NEP, oil prices fell by 50%. In 1986, newly elected

Premier Don Getty recognized that “…basic industries have been hit by national and international economic circumstances, and as a result, the opportunities for advancement and prosperity are, for a time, more limited than before” (Alberta, 1986). These economic uncertainties and pressures increased in 1989, after Prime Minister Mulroney introduced a cap on the Canadian Assistance Plan (CAP), which provided provinces with funding for social assistance programs. Under the CAP, the federal government reimbursed provincial governments

50 cents on the dollar, commonly referred to as ‘50-cent dollars’, for their social assistance programs (Kneebone and White, 2009: 23). This new federal policy limited transfers to provinces whose economies were growing 5% or more annually: Alberta, Ontario, and British

Columbia (Boychuck, 2006: 165). In 1991, the Getty government admitted that “Reduced federal government support, inflationary pressures, increased demand on services, and fluctuating commodity prices all influence Alberta's fiscal position” (Alberta, 1991).

To stimulate the provincial economy, Premier Getty committed loans and investments to private projects. Between 1985 and 1992, the Getty government committed $12.2 billion in loans and investments (Schwartz, 1997: 409). Many of these investments failed, delegitimizing government intervention in the economy and re-affirming among the public the importance of small government, lowering Alberta’s credit rating and affecting its ability to obtain low-interest loans (Schwartz, 1997: 409; Kneebone, 1994: 156). The failure of provincial investments and the unstable oil prices also led to the province incurring average primary deficits of 3.7% of annual gross domestic product (GDP) between 1982 and 1992 (Dahlby, 1993: 3). Figure 3 illustrates

this swift change in the Alberta economy, with surpluses from the 1970s quickly transitioning to substantial deficits in the 1980s and early 1990s. In 1992, amidst a poorly performing provincial economy and declining public support, Premier Getty stepped down and Ralph Klein was elected

Premier in 1993.

Figure 3: Primary Deficits in Alberta (As a Percentage of GDP)

Source: Dahlby, 1993: 4

During the 1993 provincial election, Klein campaigned on reducing Alberta’s annual deficit, and overall debt, by downsizing government and addressing government expenditures.

The same year, Prime Minister Jean Chrétien decided to reduce overall CAP transfers, further cutting federal financial aid to fund provincial health and social services, and emphasizing

Alternative Service Delivery (ASD) for public services (Clark, 2002: 783).14 The Klein

14 ASD is a range of service delivery options beyond direct delivery and privatization (Furlong, 2016).

government’s first speech from the throne acknowledged the economic realities of the province,

“Alberta's economy is also being affected by reduced federal government support, increased federal taxation, growing demands on services, an inflated currency, and sharp drops in commodity prices” (Alberta, 1993)

Klein promised to eliminate Alberta’s $2.5 billion-dollar deficit by 1997, cutting expenses by $700 million in 1995 and by another $1 billion in 1996 (Party Manifesto, 1993). The

Premier was focused on reducing the number of elected officials, and downsizing government agencies and bureaucracy. Klein’s policy agenda was clear: “A perceived lack of fiscal responsibility is perhaps the greatest reason for the cynicism that people feel towards governments today, but my government is changing that perception in this province, and not because it is expedient or fashionable. This government is initiating fundamental change in the way it manages the public purse because there is no other choice” (Alberta, 1993).

Shortly after Klein’s election, the federal government extended its policy to reduce CAP transfers until 1995, when it implemented the Canadian Health and Social Transfer (CHST) in

1996. The CHST eliminated ‘50-cent dollars’, no longer covering 50% of provincial expenditures on health and social services, and provided the provinces with lump sum grants.

This change in funding was significant for provinces, as they had received $1,510 per capita in funding for health care and social services in 1985, which by 1997/1998 had declined to $1,078

(Eisen, Lamman and Ren, 2016: 15). In addition, the federal government had cut other intergovernmental cash transfers to the provinces by 34% between 1995 and 1997.

These changes were substantial for all provinces, but had severe implications for Alberta.

The province had been experiencing unstable oil prices, was recovering from Premier Getty’s poor investment strategy, and was now fully responsible for budgeting and managing its social

services and heath care expenditures. Recognizing the declining financial support from the federal government, Klein emphasized the need “to streamline and deregulate government”

(Alberta, 1995) to reduce expenditures and balance the budget.

For Alberta municipalities, these provincial policy goals resulted in declining cash transfers as early as 1988, with the most notable changes between 1992 and 1996. From 1992 to

1996, transfers from the Alberta government fell from 22% to 12.6% (Lesage and McMillian,

2009: 402). This is significant because 95% of transfers municipalities received in Canada came from provincial governments (McMillan and Dahlby, 2014: 9; Kitchen, 2002).15 Coinciding with the reduction in financial aid, the Klein government revised and developed a new Municipal

Government Act (MGA), with the intention of making municipal government less dependent on the provincial government. The act was used to justify the reduction in government transfers to municipalities because of the new authority they were granted. The 1994 MGA gave municipalities “natural person powers” 16 allowing them to legislate ‘broadly’ in their spheres of jurisdiction, which included public utilities, transportation, businesses agreements, and public health. Legally, they could enter business deals, borrow money, take loans, make financial investments, start municipal companies, and more. Financially, the MGA provided municipalities with the ability to seek market financing; impose new taxation provisions to raise own-source revenue; and establish special taxation regulations to help pay for health services and health professionals. It also restricted municipalities from running deficits for more than three years at a time, and if they did, needed to plan the following years budget to address it

15 Figure 4 shows transfers from the provincial government around, or below, 2% of Albertan municipalities’ income between 1990-2000. This graph also excludes health transfers to the cities. 16 A ‘natural person’ is a human being that has the capacity for rights or duties. A ‘legal person’ is anything the law gives a fictitious existence and personality (Mandersheid, 1998: 695). This did little to change the legal status for Albertan municipalities, but is symbolic for the purposes of recognizing municipal autonomy and jurisdiction.

(Municipal Government Act, 1994: c.244). The act intended to give municipalities more legal and financial autonomy so that they could become “independent corporate entities” (Lessage,

2005: 73).

In addition to using the MGA to justify downloading responsibilities onto municipalities, the provincial government highlighted its intentions to continue cutting provincial expenditures at the expense of municipalities. In the 1997 Throne Speech, the Alberta government promised to hold an Alberta Growth Seminar with municipalities to “…respond to the pressures of growth and the rising demand for public services while continuing to live within its means” (Alberta,

1997). For many municipalities, these provincial policies led to reduced expenditures and increased local taxes. Municipal own-source revenue grew 78% to 90% during the 1990s because of municipal downloading and declining provincial transfers (Lesage and McMillian,

2009: 405). Figure 4 illustrates this trend, highlighting declining transfers to municipalities beginning in the 1980s, with a noticeable decrease beginning in the late 1980s. The transfers cities did receive also came in conditional grants, instead of unconditional grants. This meant the provincial government could target where it wanted its transfer money spent, a political tactic used by senior levels of government to emphasize their own policy agendas. Unconditional grants fell from 9% to 0%, and conditional grants fell from 14.7% to 8.7% (Lessage and

McMillan, 2009: 402). The provincial government’s interest in reducing “provincial funding put a significant extra financial burden on the municipalities” (Lessage and McMillan, 2009: 402) and was “the defining factor in Alberta municipal finance from 1988-2004” (Lesage and

McMillan, 2009: 401).

Figure 4: Municipal Total Revenue, Own-Source Revenues and Transfers as a Percentage of Personal Income, Alberta

Source: McMillan and Dahlby, 2014: 11

Ontario

Like Alberta, Ontario municipal downloading emerged from the province’s economic problems in the late 1980s, combined with a recession between 1989 and 1992 (Cross, 2015). In

1988, Canada signed a free-trade agreement with the United States. The agreement significantly affected Ontario’s manufacturing industry, traditionally a cornerstone of the provincial economy, by increasing competition between American and Canadian manufacturing industries and deregulating foreign direct investment, providing Canadian investors more access to American companies. The trade deal also led to the appreciation of the Canadian dollar. The appreciation of the Canadian dollar increased the price of Ontario manufactured goods for American consumers, and gave Canadian consumers more purchasing power over American goods, resulting in declining revenues for Ontario manufacturing companies (Newfoundland and

Labrador, 1994: 54). These events led to significant job losses in Ontario’s manufacturing industry, which employed as much as one-quarter of the province’s workforce. Between 1989

and 1992, 189,000 manufacturing jobs were lost, slightly more than 80% of the total net employment loss during the 1989-1992 provincial recession (Newfoundland and Labrador, 1994:

54). The unemployment rate also doubled during this period, from 5.1% to 10.8%

(Newfoundland and Labrador, 1994: 54).

In addition to the 1988 trade deal, Prime Minister Mulroney capped social transfers to

Ontario in 1989. Premier Bob Rae acknowledged that this was the “…deepest recession since the

1930s” and that the “federal government's cap on transfers to the provinces…[came] as the recession struck with full force…” (Ontario, 1992). The federal government continued cutting social transfers to the provinces between 1992 and 1995. In response, the Ontario government continued to borrow money to create stimulus packages for the province, hoping to provide more job opportunities to Ontarian’s. Figure 5 demonstrates the growth of public debt amidst these events.

Figure 5: Net Debt-to-GDP and Accumulated Deficit-to-GDP 1990-2018 (Percent)

Source: Ontario Financing Authority. 2018. “Province’s Debt History”. http://www.ofina.on.ca/borrowing_debt/debt.htm.

In 1995, Mike Harris was elected Premier. Harris had campaigned on cutting the province’s debt under his “Common Sense Revolution” platform. He promised to reduce non- priority spending by 20% and balance the provincial budget in four years (Party Manifesto,

1995). To achieve this, he established a ‘Fat Finding Commission’, concluding “many of the things government does can be done cheaper, faster and better if the private sector is involved”

(Party Manifesto, 1995, p. 16). His first Throne Speech reiterated his intentions for the province.

“To balance our books, Ontario must continue the spending cuts begun in July”, later emphasizing that “the new administration has only begun to meet the challenge of reducing the size and cost of government; much more must be done” (Ontario, 1995b).

During his first term, Harris decided to cut $8 billion in expenditures over three years.

Many of these cuts came from universities, schools, hospitals, and municipalities, with municipalities usually receiving $1.5 billion in transfer payments each year (Ibbitson, 1997). For municipalities, these cuts also resulted in legislative and regulatory changes. The Ontario government decided to reduce transfers to municipalities and replace them with revenue-raising authority. The most well-known example of this was the change in funding to public schools.

Public school funding was traditionally split 50/50 between the province and municipality, with municipalities funding public schools with property tax revenues. The Ontario government decided to provide more funding to public schools, allowing municipalities to use more of their property tax revenues for other services. This was part of Harris’s attempt to reduce transfers to municipalities and make them more financially independent (Seigel, 2009).

Combined with the Ontario government’s goal of reducing municipal dependence on the provincial government, the Harris government passed the Savings and Restructuring Act in 1996.

The act was intended to “to achieve fiscal savings and promote economic prosperity through

public sector restructuring, streamlining and efficiency and to implement other aspects of the government’s economic agenda” (Ontario, 1995a). It granted municipalities broad powers, which included new licensing and user fees, as well as the ability to privatize their utilities without holding a referendum. However, this act was also a Catch-22: it granted municipalities more legislative autonomy, but allowed the province to justify downloading new services and costs on to local governments (Seigel, 2009). In addition, the federal CHST was passed in 1996, eliminating ‘50-cent dollars’ for health and social services. This increased Ontario’s responsibility in financing and managing these services, and likely gave the Ontario government more ammunition to support its restructuring objectives.

For municipalities, these pieces of legislation resulted in reduced transfers from the provincial government, widespread amalgamation, and subsequent downloading. Figure 6 illustrates the reduction in government transfers to Ontario municipalities.

Figure 6: Ontario Municipal Revenue Sources as a Percentage of Total Municipal Revenue

Source: Seigel, 2009: 51

It shows a decline in government transfers, with an increase in user charges and property taxes by municipalities, demonstrating a shift in financial autonomy for Ontario municipalities.

Alongside the provincial government’s interest in making municipalities more financially independent, the Harris government pushed for municipal consolidation across Ontario. From

1995 to 2000, the number of municipalities was reduced from 815 to 447, and the number of municipal politicians from 4,506 to 2,804 (McAllister, 2004: 88). Harris argued consolidating, or amalgamating, municipalities would provide better economies of scale; larger populations would provide a larger tax base to fund public services, making them cheaper for municipalities to operate.

The most significant set of changes came in 1998 under the Local Services Realignment

(LSR) initiative. For the Harris government it was “a major step toward more efficient and cost- effective government in Ontario” (Ontario, 1999: 1). The LSR’s key priorities were greater government accountability, streamlined service delivery, even greater autonomy for municipal governments, reducing duplicated departments and services, and capitalizing on local expertise and innovation (Ontario, 1999). The LSR disproportionally offloaded social, health, and public services onto municipalities. Table 3 outlines the redistribution of these services between the province and municipalities. Some of the most notable changes, and largest responsibilities offloaded onto municipalities, included social housing, municipal transit, airports, policing, and sewer and water services. Additionally, public health services went from a 70/30 provincial- municipal funding split to a 50/50 split, while ambulance services shifted from a 90/10 provincial-municipal split to a 50/50 split (Kitchen, 2002: 31). Siegel argues this initiative was

“the greatest single re-alignment of powers in the history of the municipal system” (Siegel 2009:

31).

Table 3: The Distribution of Responsibilities Between the Province and its Municipalities

Before and After the 1998 Local Services Realignment

Source: Kitchen, 2002, p. 31

Kitchen’s (2002) comparative study of municipal finances in Canada contextualizes how significant these changes were. From 1988 to 2000, Ontario municipalities’ per capita expenditures increased 62%, while the Canadian average increased by only 30%. In 2000, at the end of Harris’s major restructuring policies, Ontario municipalities’ per capita expenditures were

$1,912, while the average per capita expenditures across Canadian municipalities were $1,235, a difference of 55%. These numbers highlight the shift in responsibilities to municipalities and the significant rise in expenditures to service them. The provincial government’s move to download these services to reduce their own expenditures was “the most serious problem for municipalities” (Golden and Slack, 2006: 40).

Conclusion

As we have seen, both Alberta and Ontario faced very new realities in the 1990s.

Reductions in federal health and social transfers, economic downturns, and growing public debt, led to the election of governments interested in downsizing government, reducing debt, and cutting public expenditures. For municipalities in each province, this resulted in a handful of quick but substantial changes to their governing conditions and responsibilities.

In Alberta, municipalities saw their provincial grant transfers diminish quickly between

1992 and 1996, with unconditional grants falling from 9% to 0% and conditional grants falling from 14.7% to 8.7%. The 1994 MGA gave municipalities more ‘authority’ over their spheres of jurisdiction, which included services such as public utilities, transportation, and public health, and in raising own-tax revenue sources. In return, municipalities were expected, as demonstrated by the significant decrease in grant monies, to become more independent and rely less on provincial grants to fund public services. Like Alberta and the 1994 MGA, the Ontario government reduced grants transfers, replacing them with ‘revenue-raising authority’ under the

1996 Savings and Restructuring Act, and consolidated Ontario municipalities to promote economies of scale, which were intended to reduce the cost of public services by increasing municipalities’ tax bases. Ontario also downloaded a significant amount of responsibilities onto

Ontario municipalities under the 1998 LSR, requiring them to not only be more independent, but fund a larger portion of public services.

These similarities create something of a puzzle when we consider the water reforms in

Calgary, Edmonton, Toronto, and Hamilton. The salience of water reform in these four cities was a result of fewer transfer dollars, and provincial and municipal government reforms aimed at reducing spending and downsizing government. Contrary to both provincial governments policy

goals, municipalities were left in worse financial positions than before. With declining provincial support, water reform become salient for all four municipal governments. But if local finances and political pressures were the major motive for reform: Why, then, did Calgary, Edmonton,

Toronto and Hamilton, facing similar circumstances, choose distinctly different governance models?

This not only reaffirms our need to further investigate the events in each city, but demonstrates while Canadian municipalities may be considered ‘creatures of the provinces’

(Sancton, 2015), these case studies reveal a substantial amount of municipal autonomy in public policy decisions. Situating the case studies within the broader political and economic context also supports our running hypothesis: local dynamics intervene in shaping these decisions.

This chapter has provided contextual information to better understand the political and economic pressures experienced in each of the four case studies, confirming the need to further investigate each city. It has also highlighted the gap I identified in the current literature; the current economic narrative may explain why water reform becomes salient, but does not explain variation in water governance structures. Again, this suggest municipal governments, and public policy decisions, are subject to other factors that may include institutional variation, as well as actor’s ideas and interests.

Chapter 4: Alberta

“The government should be getting out of the business of being in business.”

- Ralph Klein (Globe and Mail, 2013)

Alberta’s open pastures, unfettered grasslands, and prairie skies evoke a sense of both freedom and isolation. The latter is perhaps what Albertan municipalities felt throughout the

1990s as the Alberta provincial government began to roll back its responsibilities to, and support for, local governments and public services. It was during this time that the provincial government maintained three priorities: (1) reducing the size of government, (2) cutting government expenditures, and (3) restoring open and unregulated markets. For Alberta’s largest cities,

Edmonton and Calgary, this meant a significant reduction in provincial grants. Figure 7 illustrates the severity of these grant reductions in the 1990s, showing a clear decline in transfers to both cities beginning in 1992.17 By the mid-1990s, both cities’ provincial and federal transfers were halved, with transfers returning to 1992 levels in 2000. The province also assigned these cities added responsibilities to provide public services. The 1994 Municipal Government Act

(MGA) helped to legitimize the provincial funding reductions and the municipal downloading.

The government argued it was designed to give municipalities more fiscal autonomy, or in other words, allow them to become “independent corporate entities” (Lessage, 2005: 73).

17 For consistency, both federal and provincial transfers were used in the dataset because annual reports were inconsistent in reporting provincial and federal transfers separately. However, Kitchen’s (2002) study of municipal finances across Canada indicates almost all the financial grants municipalities receive come directly from provincial governments.

Figure 7: Provincial and Federal Government Transfers to Calgary and Edmonton1819

Provincial and Federal Government Transfers to Calgary and Edmonton (Millions of Dollars) 100

0 1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000

Calgary Edmonton

Source: Alberta. Municipal Affairs. Municipalities and Communities. 2002-1994 Municipal Financial Data and Statistics. Edmonton: Minister of Municipal Affairs, 2018.

The provincial government also used the 1995 Electric Utilities Act to justify further grant cuts to Albertan municipalities. The Electric Utilities Act prohibited municipalities from owning and operating their own electrical utility. The provincial government argued municipally owned and operated electricity utilities held a monopoly on the industry, and an unfair advantage against potential competition from private industry because the utility was subsidized by taxpayers. Premier Klein argued opening the industry to competition would provide consumers with more efficient service and better rates. It would allow municipalities to outsource electricity as a public service, helping to justify the province’s reduced municipal grants. This forced

Calgary and Edmonton, and other Albertan municipalities, to reform their local electrical utilities; Calgary created ENMAX Energy Corporation (ENMAX), and Edmonton developed the

Edmonton Power Corporation (EPCOR). For local governments, the Electric Utilities Act was

18 Information prior to 1994 came from annual financial reports from Calgary and Edmonton. 19 Figure 7 was created by gathering, scanning, and coding municipal transfer grants by year, from the Edmonton Public Archives, University of Calgary Taylor Family Digital Library and Calgary Public Libraries. I indexed transfers to 2002 inflation per Statistics Canada guidelines.

more than just deregulating the electricity industry; it meant rethinking the future of public utilities in general. As one former Calgary politician recalled, “This [was] Alberta, and the mantra was ‘privatize everything’” (Interview 1).

These events, combined with provincial and federal political cultures that supported outsourcing public services, led both Calgary and Edmonton to reform their water utilities.

What, then, caused Alberta’s two largest cities to make such different decisions? This chapter aims to understand the underlying factors that affected the decision-making process and final decisions in those cities. It begins by providing a timeline of events, first in Calgary and then Edmonton, highlighting the inherently political nature of decision-making inside, and outside, city council. The chapter concludes by analyzing both cities using the 3I Framework, emphasizing the role of ideas and interests in the decision-making process.

Calgary: Business as Usual

Within Calgary, water utility reforms first emerged on city council’s agenda in the early

1980s. The city was interested in reducing distribution and service costs. The city had been considering a regional water authority with neighbouring municipalities, as both Calgary and the surrounding region continued to expand while using the same water source. Expanding water services to outlying municipalities would allow Calgary to lower its operating and distribution costs, and to address water conservation efforts (Climenhaga, 1989). In addition, Calgary’s existing state-of-the-art water treatment facility was awarded recognition by the United Nations and considered to be valuable in the establishment of a regional water authority (Interview 1).

The proposal faded from city council’s agenda as quickly as it appeared. One former

Calgary politician mentioned a limiting factor was the Alberta government’s initiative to slowly

consolidate cities and reduce the total number of municipalities in the province. In other words, the provincial government did not support the idea of enlarging a municipal water authority when it was trying to merge municipalities to save money (Interview 1). A former city employee told a different story: the decision against pursuing the proposal was because Calgary’s water facilities would subsidize the other communities’ water utilities. By creating a regional authority, and establishing Calgary as the primary water provider, the city would have to continually maintain their water treatment plants to account for their increased use. Only Calgary would bear the financial burden for maintaining and operating water facilities for surrounding municipalities

(Interview 2). The interviewee also mentioned the city was aware of the deal Edmonton had made with its neighbours. Edmonton had offered water distribution services to surrounding areas, which they argued frequently with over management and operations (Interview 2). Calgary was not interested in this scenario.

In 1994, Calgary city council proposed to privatize the city’s utilities, including sewer, water, and electricity (Calgary Herald, 1994). This proposal emerged based on a variety of factors. The first factor was the Klein government’s interest in cutting municipal expenditures, and downloading public services to municipalities, meanwhile reducing provincial financial support. In 1990, Calgary received $86.220 million in grant monies, later declining to $65.2 million in 1994. This sharp decrease came after the provincial government made a 20% cut to municipal grants in 1993 (Collum, 2005). The city finance department mentioned this reduction in financial support was a major concern “which will phase out significant municipal grants over the next few years and shift additional program costs to the municipal level” in which “to meet

20 These numbers have been indexed to inflation per Statistics Canada use of 2002 inflation. Without adjusting for inflation, Calgary received $109.9 million in 1990 and $65.2 million in 1994.

the challenges greater than those faced in the past, City council, the administration and the citizens of Calgary will need to reach a consensus on municipal services to be provided and the mode of delivery” (City of Calgary, 1993: 7). A former Calgary councillor confirmed that, amidst grant reductions, there was general pressure from the province to cut and outsource services where possible (Interview 1). The former politician felt the provincial government’s agenda during the 1990s was “a lot of bogus stuff” (Interview 1).

In addition to reduced financial support, the city’s debt load was growing. Ironically, under former Mayor Ralph Klein, the city had accumulated $920 million in public debt by 1990.

By 1994, just after Klein left office to enter the 1995 provincial election as leader of the

Progressive Conservatives, Calgary’s public debt had grown to $1.5 billion (Braid, 1994a). Much of this debt had come from the 1988 Winter Olympics, costing the city $829 million. But Klein had also spent money to finish the second portion of Calgary’s light-rail transit and had spent

$76 million to upgrade the Glenmore water treatment plant (Braid, 1994b). It was estimated that another $511 million would be required to finish upgrading treatment plants and municipal water infrastructure (Ludwick, 1994). The city had been paying as much as $131 million a year in interest to service their $1.5 billion public debt (Ferguson, 1994b).

What made financing this debt difficult, and in part influenced the privatization proposal, was that the provincial government had just passed the 1992 Spending Control Act and the 1993

Deficit Elimination Act. The Spending Control Act limited municipal expenditures and legislated that local governments use any annual surpluses to service their debts. The Deficit Elimination

Act banned municipal governments from using deficit financing.21 Lastly, the proposal to

21 Deficit financing is when a city funds their expenditures by borrowing money.

privatize and sell these utilities had been influenced by rumours of electricity deregulation, which led to city council’s consideration of privatizing other services.

Privatizing sewer, water, and electricity was estimated to save the city $32 million a year and offload infrastructure maintenance to private industry (Ferguson, 1994b). Two options for privatization were considered. The first was to publicly offer shares in the utilities to a wide range of private investors, with multiple investors owning the utilities. The second was to find a single investor to purchase all three utilities. Three companies showed interest in purchasing the bundled utilities. The first was the multinational utility company ATCO (Motherwell, 1996), who had business operations in 67 countries and already serviced electricity to municipalities in southern Alberta. TransAlta, another electricity provider in Southern Alberta, also showed considerable interest in Calgary (Braid, 1994a). Lastly, Edmonton’s Canadian Utilities, a subsidiary of ATCO, demonstrated interest in expanding its business into the utility sector in

Calgary, as it was already in the business of distributing water to small towns outside Edmonton.

Canadian Utilities also promised to create jobs if it took ownership.

On April 19, 1994, Mayor Al Duerr suggested a $200,000 feasibility study on the merits of privatization. Duerr proposed the Royal Bank of Canada assess the potential economic impact of privatizing municipal electricity, water, and wastewater services. Duerr argued exploring the issue was important, with potential privatization providing the city with a large cash payout to service its municipal debt (Edmonton Journal, 1994). Many city councillors openly opposed the proposal for privatization. Councillors Bob Hawkesworth, Barry Erskine, John Schmal, Ray

Jones, David Bronconnier, Barb Scott, Rick Smith, and Sue Higgins commented on the shortsightedness of such a proposal. Hawkesworth argued the RBC report “[would] come back saying privatization is a great thing because they’ll end up being the broker” (Ferguson and

Lunman, 1994). Councillors Carol Kraychy, Ray Clark, Bev Longstaff, Joanne Kerr, and Dale

Hodges argued further research would be required for them to take a position on the issue.

Kraychy argued “The bottom-line has to be that we protect the citizens in terms of supply and costs” (Ferguson and Lunman, 1994). Only alderman Glen Johnson supported the initiative to privatize Calgary utilities.

Contrary to newspaper coverage, a former Calgary politician mentioned during an interview that city council was in fact not very ideological. The feasibility study was about

“long-term prosperity.” In terms of the local water utility, the interviewee revealed Calgary had completed comparative studies with cities in the United States and did not see any advantages to outsourcing their water utility (Interview 1). Like Kraychy, this former politician recalled that the real question being debated was, “What do we hope to achieve in privatizing the water utility?” (Interview 1).

Shortly after council announced it would consider a feasibility study, the unions representing electricity, water, and wastewater employees openly opposed any proposals for privatization. The unions, representing 1,500 municipal utility employees, claimed job cuts were inevitable and private investors would also cut wages (Lunman, 1994). The Canadian Union of

Public Employees (CUPE), a national workers union, backed the local unions, and opposed proposals for privatization (Edmonton Journal, 1994). CUPE Local 38 president Peter Marsden said Calgary’s actions caught him “totally off-guard.” The city promised the union no initial layoffs, transfers of employee’s pensions over to any future investor, and job cuts, if any, would be minimal. Marsden said these guarantees were “a crock” and the city could not guarantee anything once the utilities were handed over to private industry (Lunman, 1994). The

Association of Alberta Taxpayers also publicly disapproved the idea, arguing taxpayers would

pay more for utilities and maintenance (Ferguson, 1994a). The group suggested the municipal government hold a plebiscite for Calgarians to vote on the potential privatization. They argued

“It would definitely be a good way to gauge public opinion” (Ferguson, 1994a). Surprisingly, other than unions, there was little public opposition to these proposals (Interview 1; Interview 2;

Interview 3).

On April 25, 1996 city council voted 9 to 5 against the $200,000 feasibility study, with another proposed feasibility study turned down later that year (Steinhart, 1994). Because of the

1995 Electric Utilities Act, the City of Calgary approved a proposal to make The City of Calgary

Electric System a wholly owned subsidiary, which was absorbed by its arms-length electricity company, ENMAX, in 2001 (ENMAX, 2018). In terms of the water utility, the city decided to maintain ownership of the municipal water services. City council agreed there was too much uncertainty associated with privatizing its water utilities, including uncertainty related to water rates for customers. City council determined the long-term risks outweighed the short-term gains, especially with the utility running a $10 million profit in 1994.

In 1999, Calgary underwent a major restructuring process. The city restructured its water utility as a business unit, called Calgary Waterworks, and removed it from the Division of

Engineering and Environmental Services (Sanders, 2000). A business unit is a municipal department with slightly more autonomy than other municipal departments, via a separate budget. Business units require the utility to meet all capital and operating expenses with revenues and user fees, meaning it must be self-sufficient (Bakker and Cameron, 2005). A current Calgary city employee recalled this initiative was part of the city’s Manage Competition Model, the idea being the water utility would put their services up against private industry and allow for bidding between both the public department and private industry (Interview 3). The goal was to create

competition and allow the most cost-effective and efficient operator to manage the city’s water utility. However, the employee pointed out this has never actually been implemented, and the public utility has always been responsible for managing and operating water within the city.

Edmonton: A Home-grown Business

Edmonton’s involvement in public water utilities differs significantly from Calgary. As early as 1986, Edmonton began experiencing declining water quality. The Rossdale water intake- treatment plant had been built adjacent to stormwater and sewage drains (Ellis, 1991). This meant the water treatment plant was processing tainted water. The local Public Board of Health proposed relocating this plant further upstream, which it had been lobbying for since 1912.

Nothing ever came of this.

In 1991, the city’s Rossdale treatment plant required $85 million in upgrades, partially related to poor water effluent quality (Ellis, 1991). City council decided to pay for these upgrades by raising municipal water rates; they added $2 to every taxpayer’s monthly bill for five years. While this amount does not seem substantial, this became politically unfavourable, giving Edmontonians the highest water rates in Canada (McKeen, 1991). Mayor Jan Remier argued the city’s lacking financial support from the province (especially compared to Calgary) left Edmonton with only one option: raising rates. In 1991, Calgary received $90.8 million in provincial and federal transfers. Edmonton received $57.1 million, over $30 million less.22 While a relatively trivial matter, some councillors opposed raising water rates, arguing it would only hurt citizens.

22 These numbers have been indexed to inflation per Statistics Canada use of 2002 inflation. Without adjusting for inflation, Calgary received $109.6 million and Edmonton $69 million in 1991.

Much like Calgary, Edmonton began to experience the financial constraints imposed by the provincial government in 1993 and 1994. As mentioned, the provincial government had just passed the 1992 Spending Control Act and the 1993 Deficit Elimination Act, and had cut municipal grants by 20% in 1993. Between 1990 and 1994, provincial and federal grants to the city of Edmonton fell from $49.6 million to $42.7 million, hitting a low of $23.7 million by

1998.23 These cuts are also significant compared to Calgary, which by 1998 was still receiving

$37.4 million24 in grant monies.

In 1995, when Alberta began contemplating the deregulation of the electricity industry,

Edmonton expressed skepticism about its ability to compete in a deregulated industry. Edmonton differed from most municipalities, including Calgary, in that Edmonton Power generated and distributed its own power to the city and surrounding areas. As one former senior EPCOR executive commented, the problem with this was “there are only so many tax dollars, [and] you need capital to fund these operations” (Interview 5). Edmonton was worried it would be unable to compete with private industry. The ensuing deregulation forced the city to consider remodelling its electricity utility. Considering the future of its electricity utility, declining municipal grants, and a poorly performing municipal water department, Edmonton city council formed a committee to consider amalgamating the water utility with Edmonton Power. This committee consisted of Richard Picherak, City Manager; Bob Ardiel, City Finance General

Manager; Al Maurer, Public Works General Manager; and Ron Liteplo, the city’s lawyer

(Adrienne, 1995). The committee supported the idea of amalgamating both utilities because they

23 These numbers have been indexed to inflation per Statistics Canada use of 2002 inflation. Without adjusting for inflation, Edmonton received $63.2 million in 1990, $52.9 million in 1994 and $26 million in 1998. 24 These numbers have been indexed to inflation per Statistics Canada use of 2002 inflation. Without adjusting for inflation, Calgary received $41 million in 1998.

used the same billing system and marketing strategies (Adrienne, 1995). But a former Edmonton city councillor emphasized the city’s interest in water reform was related to the province’s initiative to deregulate the electricity industry, causing Edmonton to consider the efficiency and management of its water utility (Interview 4).

The city contacted Don Lowry, former senior executive at Edmonton Telephone, which had been sold to Telus telecommunications in 1995, for his advice about the future of the city’s electricity company. The city had contemplated various options but was primarily interested in creating a city corporation.25 Lowry was tasked with studying the viability of this new company and its governance model. He proposed that if a municipal corporation was created, growing the company into other markets would reduce the risk associated with competing only in the Alberta electricity industry. As a municipal corporation, it would give the city an annual dividend, making the company an asset, rather than a liability. More importantly, Lowry saw an opportunity for growth. He suggested the company also work towards operating municipal water utilities; they were more stable, more monopolistic, and less competitive in nature (Interview 5).

As a result, in 1996 Edmonton corporatized its electricity utility, creating EPCOR, in response to the ensuing electricity deregulation in the province. Meanwhile, Edmonton was still considering options for its water utility, including:

• Keeping the utility as a municipal department

• Outsourcing services to a private service provider

• Establishing a stand-alone municipal corporation

25 This is an arms-length company that is wholly owned by the city but has an independent budget and board of directors.

Shortly after EPCOR was created, the company approached city council about operating and managing the water utility, creating a fourth option. EPCOR wished to expand its business model and enter municipal water markets. Managing and operating Edmonton’s water utility would grow its business profile, allowing it to expand to new markets domestically and internationally.

These four options led to a contentious debate over water reform within the city. Within city council, there was a distinctive split between councillors who opposed moving the water utility away from city management, and those who supported moving it to EPCOR, or even outsourcing its services to private industry. Councillors Brian Mason and Michael Phair were vocal opponents of moving the water utility away from city management. Mayor Bill Smith, elected in 1995, supported outsourcing management of the water utility. In an interview, a former city councillor mentioned Smith consistently supported Premier Klein’s mandate

(Interview 6). A former Edmonton councillor recalled a distinct “philosophical divide between councillors”, characterized as a left and right divide (Interview 4). A different former Edmonton politician described Edmonton city council as having a conservative majority with a liberal minority (Interview 6), while another former city councillor recalls some city councillors strongly supporting the provincial government’s mandate to outsource public services, cutting public expenditures (Interview 7). A former senior executive of EPCOR pointed out in their interview that some city councillors were worried about supporting any type of water reform because of potential public opposition (Interview 5). This former executive consistently tried to remind city council that moving the water utility under EPCOR’s management still meant that the city would have control, as EPCOR was a city corporation.

Outside of city council, there was opposition from local unions and the public. Local unions were concerned about job cuts if EPCOR took control of the utility, or if management was outsourced to private industry. It was estimated that service integration with EPCOR would cut about 70 jobs (Farrell, 1996a). A former councillor recalled there being an initial divide between Edmontonians over water reform proposals. This interviewee identified that perhaps the biggest problem was the media’s influence on the public’s perception of the events and of the decision-making process. Many citizens did not understand the difference between corporatizing the water utility and privatization, and the media did little to help this issue (Interview 4). A different former city councillor mentioned this, as well. They argued public opposition arose because of poor communication with citizens which led many of them to misunderstand the proposals councillors were considering. Public opposition declined after citizens slowly learned what city council was considering, and that corporatization differed from privatization (Interview

6). Another interviewee hypothesized public opposition to any type of water reform might have come from the recent privatization of Edmonton’s telephone company. They argued

Edmontonians were likely worried that selling Edmonton Telephone was a watershed moment, and other utilities would follow suit (Interview 7). A former senior EPCOR executive recalled significant public opposition between left- and right-wing Edmontonians, specifically from an activist group called the ‘Screaming Nannies.’ They remember this group being a “hard left- wing” activist group that opposed almost any decision city council made (Interview 5). This interviewee also stated most citizens’ issue was they did not understand the difference between a municipally owned corporation and a private-sector operator. Again, public misunderstanding led to significant public opposition (Interview 5).

On February 7, 1996, city council voted 12 to 0 in favour of transferring the water utility to EPCOR (Ziegler, 1996). City council saw EPCOR’s offer as an opportunity to grow the company. Allowing EPCOR to grow its portfolio, by managing the city’s water utility, would expand available opportunities for the municipally owned company and increase the annual dividends the city received from the company (Interview 7). City council also mentioned the decision was in response to continually declining transfer grants (Ziegler, 1996).

On May 1, 1996, the city transferred the water utility’s operations and management to

EPCOR. It became a subsidiary of EPCOR known as Aqualta. EPCOR President David Foy supported the amalgamation, which was expected to save the city roughly $5 million in annual operations costs (Farrell, 1996b). Vice President Beverlee Loat commented she expected to have the water utility operating as efficiently as the electricity utility in “no time” (Loat, 1996).

Premier Ralph Klein was also highly supportive of Edmonton’s decision, keeping with his mandate to reduce government spending at both levels of government (Loyie, 1996). In its first year of operating both electricity and water, EPCOR returned $63.2 million in dividends to the city (Jeffs, 1997).

However, shortly after both utilities were corporatized, concerns arose that privatization would be the next step for EPCOR (Edmonton Journal, 1996). Mayor Bill Smith openly supported the amalgamation of both utilities but commented “I’m absolutely opposed to privatization” (Farrell, 1996b). This changed quickly. In 1997, after running a $13 million deficit and with upcoming amendments to the Electric Utilities Act of 1995 that would separate distribution and retail functions, Smith began to consider the privatization of EPCOR. Four of the five individuals interviewed stated the province’s continual deregulation of the electricity industry made city council anxious about EPCOR’s competitiveness against private industry

(Interview 4; Interview 5; Interview 7; Interview 8; Ziegler, 1996). If the company entered a volatile electricity market, dividends might decline. This was a possibility EPCOR had also mentioned to city council: it could not guarantee a stable dividend return each year as the market became increasingly deregulated (Interview 5). However, selling EPCOR would allow the city to reinvest the money in more stable investments (Interview 7; Interview 8).

Two initial studies were approved: an internal review by city staff and one by the Royal

Bank of Canada (RBC), the latter costing the city $350,000 (Edmonton Journal, 1998). Some city councillors raised concerns over allowing RBC to study the privatization proposal. They argued the bank would present a biased report in favour of selling EPCOR. In response, city council created an executive committee, consisting of councillors Allan Bolstad, Michael Phair, and Mayor Bill Smith, to discuss having the University of Alberta’s Parkland Institute develop a third feasibility study (Ziegler, 1996). The executive committee voted 2 to 1, Bolstad and Phair supporting a third-party study, costing the city an additional $50,000.

The politics of utility privatization re-emerged in 1998, as the feasibility studies were being conducted. City council was, again, divided, with the general theme of discussions concerning who should operate and manage local utilities (Rusnell, 1999). Councillors Brian

Manson, Robert Noce, Allan Bolstad, and Dave Thiele – a newly elected city councillor and former waterworks employee –openly opposed the idea (Geddes, 1998). Some city councillors were waiting to read the feasibility reports before supporting any specific decisions (Geddes,

1998). Public opposition resurfaced as well. An advocacy group called “A Better Edmonton” sponsored a public forum before the 1998 municipal election to spotlight Mayor Smith’s support of privatization. Their intentions were to politicize the issue before the municipal election.

During the 1998 municipal campaign, mayoral candidates Ihor Broda, Rory Nungent, and

Tooker Gomberg openly opposed EPCOR’s privatization. Mayoral candidate Ihor Broda even campaigned on a ‘publicly owned business strategy’ for the city’s utilities (Sadava, 1998). These efforts did little, as Smith was re-elected with 50.62% of the mayoral vote.

In 1999 RBC, finished its study, supporting the privatization of EPCOR. On February 18,

1999, the city’s administrative review was finalized; this supported RBC’s position. Both reports argued that in a deregulated electricity market, EPCOR would be less competitive, and the city would take on more financial risk by keeping EPCOR as a city corporation. More specifically,

RBC recommended the city sell EPCOR and its electrical generating capacity and retain control of Aqualta (Chambers, 1999a). RBC estimated the city could save $42 million a year in management and operating costs if it privatized the company’s electric utility (Chambers,

1999b). The Parkland Institute report suggested the contrary. The report suggested Edmonton maintain ownership of EPCOR, and subsequently Aqualta, as it predicted the company’s value would rise. This report also argued the provincial government was over-dramatizing the need to cut expenditures so quickly, placing additional pressure on Edmonton to make such a rash decision (Loyie, 1999). Alongside these competing reports, Edmonton had two companies interested in purchasing EPCOR. The first interested buyer was ATCO, expressing interest in taking over EPCOR’s electricity division. The second interested buyer was AEP Resources, a subsidiary of Ohio power. The company expressed initial interest in the electricity portion of

EPCOR but mentioned it would also entertain the purchase of Aqualta.

On March 23, 1999 city council decided to follow the RBC recommendation and exclude

Aqualta from potential privatization. The vote on EPCOR was pushed back until August of 1999, where a narrow 7 to 6 vote rejected the proposal to privatize EPCOR’s electricity division

(Interview 7). The majority agreed with the Parkland Institute study: EPCOR’s long-term revenues outweighed potential short-term gains from selling the company (Busnell, 1999).26

Analysis

The events in both cities demonstrate how contentious, and complex, local water reform is. Using the 3I framework we can make sense of these events, determining similarities and differences, but also asses the role of local dynamics in explaining differences between both cities.

Institutions

Recalling Chapter 3, Edmonton and Calgary were both subject to legislative and institutional changes under the 1994 Municipal Government Act and the 1995 Electric Utilities

Act. The 1994 MGA gave municipalities more revenue-raising authority and legislative independence. But the MGA was used to justify provincial transfer cuts to Alberta municipalities. Table 4 provides a detailed account of the reduction in provincial and federal transfers to Edmonton and Calgary during the 1990s. In 1990, Calgary received $86.2 million,27 and in 1992, it received the highest transfer payment of the decade, at $91.7 million. However, just before 1994 (the same year the city tabled a privatization proposal), Calgary’s transfers declined significantly. In 1993, the city received $69.1 million and $55.9 million in 1994, a 40%

26 EPCOR currently operates as a business, with Edmonton as the sole shareholder. Edmonton city council appoints the board of governors for EPCOR. In developing EPCOR, the city decided to retain a corporate structure by opting not to appoint city councillors or residents to the board of governors (Gibson, 2005: 13). The city typically selects business leaders from across Canada. EPCOR is independent of the municipal government and some concerns over proper water management and infrastructure development have emerged (Gibson, 2005: 14). However, annual water quality reports must be submitted to Alberta Environment and Parks (Hill et. al, 2007: 379). Additionally, while the municipal government does not directly participate in the affairs of EPCOR, it holds the ability to dissolve the company as the sole shareholder. This means that services can be returned to public management if required. 27 These are federal and provincial transfers because annual reports were inconsistent in reporting federal and provincial transfers. However, Kitchen’s (2002) study of municipal finances across Canada indicates almost all the financial grants municipalities receive comes directly from provincial governments.

reduction from 1992 transfer levels. In Edmonton, the narrative is even more severe. In 1990,

Edmonton received $63.2 million,28 followed by its highest transfer payment of $69 million in

1991. In 1995 and 1996, the same period city council considered reforming its utilities, the city received significantly less transfer money. In 1995, Edmonton received $42.7 million and in

1996, it received $28.9 million, a 59% reduction from 1992 transfer levels.

Table 4: Provincial and Federal Government Transfers to Calgary and Edmonton29

Year Edmonton Edmonton Calgary Calgary (Non-indexed) (Indexed) (Non-indexed) (Indexed) (millions) (millions) (millions) (millions) 1990 $63.2 $49.6 $109.9 $86.2 1991 $69 $57.1 $109.6 $90.8 1992 $64 $53.8 $109.2 $91.7 1993 $63 $53.9 $80.7 $69.1 1994 $52.9 $45.3 $65.2 $55.9 1995 $42.7 $37.4 $54.1 $47.4 1996 $28.9 $25.7 $41.4 $36.8 1997 $27 $24.4 $43.6 $39.4 1998 $26 $23.7 $41 $37.4 1999 $26.4 $24.5 $40.1 $37.3 2000 $46 $43.9 $57.7 $55.1 Source: Municipal Affairs. Municipalities and Communities. 2002-1994 Municipal Financial Data and Statistics. Edmonton: Minister of Municipal Affairs, 2018. While Edmonton received significantly less money than Calgary, both cities experienced similar economic pressures as part of institutional reform imposed by the provincial government.

28 These are federal and provincial transfers because annual reports were inconsistent in reporting federal and provincial transfers. However, Kitchen’s (2002) study of municipal finances across Canada indicates almost all the financial grants municipalities receive comes directly from provincial governments. 29 This table was created using the same grant transfers I digitized for figure 7. For consistency, both federal and provincial transfers were used in the dataset because annual reports were inconsistent in reporting provincial and federal transfers separately. Information prior to 1994 came from independent municipal reports from Calgary and Edmonton.

The 1995 Electric Utilities Act only legislated reform for electricity, but may have resulted in some type of policy spillover, where provincially imposed regulatory and policy changes in the electricity sector made some councillors question water reform. Interviewees from each city mentioned there was some expectation from provincial politicians that provincially mandated electricity reform would lead to other types of municipal service reforms (Interview 1;

Interview 6). Calgary’s decision does not appear to be caused by policy spillover; ENMAX, the city’s electricity corporation, was created in 2001 (seven years after privatization proposals were considered). This meant Calgary did not have an existing municipal corporation to transfer its water utility to. The probability of a policy spillover, or incentive to transfer the water utility to an already established municipal corporation, was less likely. During an interview, a current

Calgary employee suggested transferring the water utility to ENMAX has likely been discussed behind closed doors (Interview 3), but Calgary’s water quality has been so good there has never been a need to consider significantly restructuring the utility.

Edmonton, however, might be explained as a spillover. Edmonton had just created

EPCOR, and having experienced a significant cut in transfer monies in 1996, the decision to outsource the operations and management of the water utility to EPCOR may have been influenced by the recent electricity deregulation.

We must also consider local institutions. Subject to both the 1994 MGA and 1995

Electric Utilities Act, Edmonton and Calgary had similar political institutions. Each city had 12 city councillors, the only difference being Edmonton had six wards, with two elected officials from each ward, whereas Calgary had 12 wards with one elected councillor from each ward.

This difference may have limited the number of competing interests represented in Edmonton city council, assuming both councillors from each ward were synonymous in representing their

constituent’s interests. But as we have seen, this was not the case. Councillors were more philosophically divided over water reform in Edmonton than in Calgary. These institutional similarities, and the outcomes in each city, suggest there were other, perhaps more important, factors in the decision-making process.

Ideas

In both cities, actors perceived their situations differently, leading them to support or oppose certain proposals. For Calgary Mayor Al Duerr, considering privatization and proposing the feasibility study were about local finances (Edmonton Journal, 1994). He believed privatization could provide the city with a substantial amount of money to pay down its outstanding debt. For city councillors Bob Hawkesworth, Barry Erskine, John Schmal, Ray

Jones, David Bronconnier, Barb Scott, Rick Smith, and Sue Higgins, privatization was shortsighted. Understanding their financial situation, these councillors believed Calgary’s outstanding debt could not be solved by simply privatizing local utilities. Some, like Councillor

Kraychy, understood the situation as an attack on taxpayers. Barb Scott also commented on city council’s commitment to citizens, arguing the privatization proposals was “another step in the

Americanization of Calgary and Canada” and government has a responsibility to provide its citizens with quality water and sewer systems because “it is fundamental to [citizens] health and well-being…” (Ferguson and Lunman, 1994). For one former Calgary councillor, the privatization proposal was about “long-term [economic] prosperity,” and citizens’ health

(Interview 1).

More explicitly than Calgary, Edmonton city council was philosophically divided over water reform proposals. A distinct left-right divide characterized city council (Interview 4), with one former Edmonton councillor describing city council as primarily conservative with a small

liberal minority (interview 6). Interviewees recall the most contentious debates surrounding the role of government and public services (Interview 4; Interview 6; Interview 7). Some councillors believed water was an essential good, and a basic human right, and should be accessible to all.

They argued private management and operations would limit accountability to citizens and possibly raise water rates, making water inaccessible to some citizens. Other councillors argued the private management of the water utility would promote efficiency, cost savings, and possible conservation, because increasing price points would incentivize citizens reduce their water consumption. One interviewee also recalled these councillors aligning themselves with the provincial government’s mandate. They believed government had a limited role in public service provisions, and interrupted the role of the market (Interview 7). The division between city councillors during the reform process was surprising for one former councillor, because previous decisions and most decisions were commonly agreed upon (Interview 4).

But perhaps how councillors in each city perceived their local situation, considering each city’s finances, is the most surprising part. While Calgary had a substantial amount of public debt from the recent Olympics and infrastructure spending, it was receiving larger transfer grants than Edmonton. Most Calgary councillors understood the privatization proposals as part of a larger symptom: the city’s debt load. In Edmonton, which received significantly less transfer monies, reform proposals were debated using philosophical issues such as the role of government, accountability to citizens, and access to essential resources.

Outside of city council in Calgary, the Association of Alberta Taxpayers made similar arguments to Councillor Kraychy, perceiving privatization proposals as an attack on taxpayers, proposing city council hold a plebiscite on the issue. In Edmonton, one former councillor recalls citizens, as well as councillors, being philosophically divided (Interview 4). A former EPCOR

executive recalled substantial opposition from a “hard left-wing” interest group they called the

“Screaming Nannies.” Similar to debates within city council, this group opposed reform proposals that would move the water utility outside of city council’s control. Some interviewees also believed citizens did not understand the different governance structures proposed by the city. One interviewee argued this was because local new sources improperly identified proposals

(Interview 4), while another argued it was city council’s poor communication with citizens about reform proposals (Interview 6).

Again, support for, or opposition against, specific proposals was a matter of how citizens and interest groups understood local circumstances. For the Association of Alberta Taxpayers, they understood the developments as a financial issue. The “Screaming Nannies” perceived the events in Edmonton as part of a larger philosophical debate on public services and governmental accountability to citizens. Once Edmontonians understood reform proposals and the different governance structures associated with them, public opposition steadily declined (Interview 6).

These initial findings suggest that how actors understand their local circumstances, and how their values and belief systems interact with them, affects the proposals they support or oppose. This not only complicates the decision-making process, but makes it contentious.

Interests

At the provincial level, both municipal governments had to contend with the Alberta government’s policy interests. Former councillors from Calgary and Edmonton mentioned both governments felt pressure from the provincial government to reform their utilities, which in turn would cut municipal expenditures, leading both cities to rely less on transfer grants (Interview 1;

Interview 6). A former Edmonton councillor highlighted that a combination of financial and

political pressures, emanating from provincial policy interests, complicated decision-making for city councillors. He argued because the provincial government supported tax cuts and expenditures cuts, with expenditures cuts coming out of municipalities’ back pockets, it was difficult, politically, to raise taxes within the city. Citizens supported the provincial government’s low-tax approach, and expected this would continue at the municipal level

(Interview 6). In some ways, the 1994 MGA and Alberta government’s policy interests were counterintuitive, by giving municipalities more tax-raising authority, meanwhile championing

‘low-tax’ policy agendas.

Interests within both cities also appear to have affected the decision-making process. In

Calgary, many councillors opposed the feasibility study. While they may have opposed the idea of a feasibility study based on their perception of Calgary’s financial situation, they most likely saw this as a political move. There are no accounts of any substantial public opposition, but it would be naïve to assume councillors were not conscious of the proposal’s timing: less than a year away from the 1995 municipal election. However, this is also true for some Edmonton councillors. A former EPCOR senior executive recalls Edmonton councillors being anxious to support specific reform proposals because of potential political opposition (Interview 5). In contrast, some councillors saw EPCOR as a business opportunity (Interview 7). Broadening

EPCOR’s operations would make the company more marketable, and if the company could expand to other markets, the annual dividend the city received each year would continue to grow.

But some councillors were also risk-averse, seeking to limit the risk associated with water reform; for these individuals, transferring the utility to EPCOR, which was municipally owned,

“made sense” (Interview 4).

A former EPCOR senior executive also recalled the company actively supporting this initiative, and perceiving the possible decision as a “win-win” situation, since the water industry was less volatile and more monopolistic. But investment strategies and re-election were not the only strategic interests at hand during these events. Unions staunchly opposed water reform. In

Calgary, CUPE Local 38 opposed privatization proposals over wage cuts; and potential losses of jobs, employee pensions, and benefits (Lunman, 1994). The same was true in Edmonton.

Again, these localized, and competing, interests, coupled with ideas, appear to have affected the decision-making process differently in both cities. This made proposals, and decisions, complex and contentious.

Conclusion

This chapter has outlined the underlying factors that affected decision-making in each city, demonstrating how political and complex municipal decision-making and public policy are.

Using the 3I Framework, we have identified some preliminary themes between both Albertan cities. With some financial variations, institutionally, both cities were relatively similar. But often, actors in both cities understood their local circumstances differently, which often manifested itself into support for, or opposition against, specific reform proposals. How actors conceived of their local circumstances was also coupled with their interests, such as re-election, business development, economic development, and job security. These initial findings suggest local dynamics, specifically ideas and interests, manifest themselves into different policy interests and goals, affecting municipal decision-making.

Chapter 5: Ontario

“We want to ensure that municipalities and regional governments do everything possible to deliver services more efficiently.” - Mike Harris (Ontario Progressive Conservative Party, 1994: 5)

Slash-and-burn agriculture is a method farmers use to recover plots of land overgrown with trees, shrubs, roots, and vegetation. As the name implies, this method involves cutting down and burning unwanted overgrowth, to start anew. In 1995, Mike Harris’s PC government adopted this method when it started cutting municipal transfer grants and restructuring provincial and municipal governments as part of its plan to eliminate Ontario’s debt (Graham and Phillips,

2008). The Harris government was intent on restructuring and reorganizing government in the province, demanding “that government does business like a business” (Ontario Progressive

Conservative Party, 1994: 16). For Toronto and Hamilton, this meant reduced grant transfers.

Figures 8, 9, and 10 demonstrate these grant cuts to Toronto and Hamilton. In Figures 8 and 9, a declining trend is clear for both cities after 1995. Only in 1999 and 2000 do we see a significant increase in funding to both cities; the result of Toronto’s amalgamation with surrounding municipalities (Figure 8), Hamilton consolidating its two-tier regional government into a single tier government (Figure 10), and the 1998 Local Services Realignment Act (Table 3) significantly downloading further public service responsibilities onto Ontario municipalities in return for funding that, many municipalities claimed, was not proportionate to the new responsibilities.

Figure 8: Provincial and Federal Grants to the City of Toronto (1990-2004)3031

Provincial and Federal Grants to the City of 1600 Toronto (In Millions) 1400 1200 1000 800 600 400 200

1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004

Source: Ontario. Municipal Affairs. Municipal Finance Policy Branch. Federal and Provincial Operating and Capital Grants 1988 to 1999; Region of Metropolitan Toronto and Region of Hamilton Wentworth. Toronto: Ministry of Municipal Affairs, 2018.

Figure 9: Provincial and Federal Grants to the City of Hamilton (1990-1999)3233

Provincial and Federal Grants to the City of Hamilton 1990-1999 (In Millions)

30 25 20 15 10 5

1990 1991 1992 1993 1994 1995 1996 1997 1998 1999

Source: Ibid.

30 Figure 8 includes federal and provincial grants to Toronto City, excluding Metro Toronto, up until the City of Toronto’s amalgamation in 1998. This was done to maintain consistency across the financial data. Both federal and provincial transfers were used in the dataset because the Ontario Municipal Financial Policy Branch’s dataset did not differentiate between the two. 31 Grant transfers have been indexed to 2002 inflation rates, as per Statistics Canada standard guidelines. 32 Figures 9 and 10 include federal and provincial grants to Hamilton City, excluding the Hamilton-Wentworth regional government, until the City of Hamilton’s amalgamation in 2001. This was done to maintain consistency across financial data. Both federal and provincial transfers were used in the dataset because the Ontario Municipal Financial Policy Branch’s dataset did not differentiate between the two. 33 Grant transfers in Figures 9 and 10 have been indexed to 2002 inflation rates, as per Statistics Canada standard guidelines.

Figure 10: Provincial and Federal Grants to the City of Hamilton (1999-2004)34

Provincial and Federal Grants to the City of Hamilton 1999-2004 (In Millions) 300

250

200

150

100

1999 2000 2001 2002 2003 2004

Source: Ibid.

Recalling the events in Alberta, Ontario was also considering electricity deregulation in

1995. After Harris’s election, he appointed an advisory committee on competition in Ontario’s electrical system. The committee later suggested the province deregulate its electricity sector, ending Ontario Hydro’s 90-year monopoly on the province’s electricity market. In 1998, the

Ontario government passed the Electricity Competition Act, opening the electricity market to wholesale production, retail choice for consumers, and access to the power transmission grid for new competitors in generation. As in Alberta, this move to deregulate the electricity market helped further justify the province’s transfer cuts and service downloading. Ontario municipalities were forced to restructure their local electricity utilities, motivating local governments to consider the future of their other utilities. These factors, alongside public support for Harris’s policies, led Toronto and Hamilton to consider reforming their water utilities.

34 Figures 8, 9 and 10 were created by digitizing and coding municipal grant transfers by year from Toronto City, the City of Toronto, the Hamilton-Wentworth Regional Government and the City of Hamilton. I would like to thank Susan Martin and the Ontario Department of Municipal Affairs Financial Policy branch for finding, compiling and emailing the required documents.

What, then, caused two of Ontario’s largest cities to decide on profoundly different options? Like the previous chapter, this chapter strives to understand the reform and decision- making processes in both cities. The chapter outlines the events in Toronto and then Hamilton. It concludes by analyzing both cities using the 3I Framework, where (similar to the other case studies), I emphasize the role of ideas and interests in the decision-making process.

Toronto: The Power of Public Opposition

The City of Toronto35 first experienced problems with its water utility in 1991. Previous municipal governments had neglected the city’s water infrastructure maintenance needs. By the early 1990s, most of the infrastructure was over 50 years old, with some sections of the water network close to 100 years old. At the same time, concerns were emerging about the quality of

Toronto’s primary potable water source, Lake Ontario. With questionable water quality and aging water infrastructure, Toronto decided to spend $500 million to build a new water treatment plant and replace some of the aging infrastructure. To pay for these upgrades, city council raised water rates by 15%, giving Toronto the highest municipal water rates in Canada in 1991 (Dexter,

1991).

Shortly after the 1995 election, the Harris government passed the Savings and

Restructuring Act in 1996. To “promote economic prosperity through public sector restructuring, streamlining and efficiency” (Ontario, 1995), the act allowed any group of municipalities to

‘voluntarily’ amalgamate (Miljan and Spicer, 2015). As one might expect, very few municipalities voluntarily engaged in restructuring; the province had only approved only 21 restructuring plans, reducing the number of municipalities from 850 to 800 (Miljan and Spicer,

35 Before the 1998 amalgamation, the City of Toronto was the municipal government for what is now considered downtown Toronto.

2015). Unsatisfied with these numbers, the provincial government decided to persuade municipalities to voluntarily amalgamate by deliberately consolidating the City of Toronto with five neighbouring municipalities, and by amalgamating the municipalities of Kent County into a single municipality. The provincial government intended to make it clear that if municipalities would not consolidate on their own terms, the province would do it for them. The act also gave municipal governments direct taxation, allowing local government to implement municipal income taxes, sales taxes, gas taxes, and even poll taxes. This provided municipalities with the ability to increase their revenues streams (Rennie, 1996). The Harris government rationalized their ‘voluntary’ municipal restructuring program, arguing it would reduce the number of municipal politicians, lower taxes, and create more efficient municipal structures (Miljan and

Spicer, 2015). The Ontario government also argued that by granting new powers of taxation, cities would depend less on grant transfers, absolving some of the province’s responsibility to help fund public services. For Toronto, the provincially mandated amalgamation meant joining with East York, Etobicoke, North York, Scarborough, York, and Metro Toronto. The population grew from 580,838 citizens to 2.3 million, and the number of municipal politicians representing the region decreased from 100 to 45.

In 1998, the provincial government merged the six municipalities against significant public opposition, with as many as 76% of citizens in the Metro Toronto region in opposition

(Farooqui, 2017). Adding insult to injury, the province passed the Local Services Realignment

Act (Table 3) and continued to cut transfer grants to the newly amalgamated city.

The Local Services Realignment Act downloaded a significant portion of public service responsibility and financing onto Ontario municipalities. Meanwhile, Toronto’s transfer grants had been steadily declining since the election of the Harris government in 1995. In 1995,

Toronto received $1.4 billion in transfer grants. By 1998, the new ‘megacity’ of Toronto (Siegel,

2005) – Canada’s largest city – received $776.7 million, a 45% reduction from 1995.36

Amalgamation, combined with deteriorating financial support and provincial downloading, left Toronto to consolidate public services from all six municipalities. In terms of the water utility, this created a host of problems. The first problem was the new ‘megacity’ inherited aging water infrastructure networks from five other municipalities. One former Toronto councillor mentioned in an interview that water infrastructure was in dire condition after amalgamation, with some pipes calcified so badly that they were completely clogged (Interview

9). The other problem the councillor revealed was Toronto had committed to replacing 0.5% of the water infrastructure a year; a rate equivalent to a 200-year replacement plan (Interview 9).

Secondly, the aging infrastructure led to sewage flooding. During heavy rains, city sewers would fill with water pushing sewage into Lake Ontario via the Don River. Citizens and city councillors began raising concerns over potential public health and environmental problems if the flooding was not addressed (Interview 9; Interview 10). Lastly, for efficient operations and management, the city had to consolidate all six municipal water systems, which operated differently; an administrative nightmare for any city (Interview 11).

Combined with these issues was the ensuing electricity deregulation. Until the 1990s,

Public Utility Commissions (PUCs) had regularly provided electricity and water services to municipalities (Bakker and Cameron, 2005). The 1998 Electricity Competition Act required municipalities to establish new, stand-alone electricity companies, forcing local governments to decide whether to retain ownership of their electricity utility. In 1999, Toronto decided to

36 These numbers have been indexed to inflation per the Statistics Canada use of 2002 inflation. Without adjusting for inflation, Toronto received $1.6 billion in 1995 and $850.7 million in 1998.

incorporate its utility, creating Toronto Hydro. But the Electricity Competition Act also created some uncertainty surrounding the future of other utilities, causing Toronto to contemplate possible changes to its water system.

In 2000, Toronto decided to review its water services (Bakker and Cameron, 2005). The city had four objectives: (1) accountability and public transparency, (2) quality assurance and environmental responsibility, (3) efficiency, and (4) institutional capacity for innovation and flexibility. The review also compared the current model with other service delivery options

(Bakker and Cameron, 2005). Four models were considered:

• A Municipal Service Board (MSB)37

• A corporatized subsidiary of Toronto Hydro

• A corporatized municipal utility

• The status quo; a municipal department

A spokesperson for Toronto argued that “restructuring could conceivably alleviate some of the challenges faced in the delivery of water and wastewater services by creating an environment which supports a more focused, informed decision making and provides opportunities to adjust bias practices to be more cost efficient” (The Globe and Mail, 2001).

In other words, Toronto was interested in full-cost recovery, investing $270 million a year just to maintain their aging water infrastructure (The Globe and Mail, 2001). Now it needed to replace most of its water pipes, which cost substantially more money, and address the raw sewage that had been draining into Lake Ontario (Interview 9). These problems were expected to

37 Under a MSB model, board members are appointed by city council and include a combination of city councillors and citizens, the latter requiring expertise relevant to water and wastewater management. The city still retains authority to approve operating and capital budgets, and sets water rates (Bakker and Cameron, 2005).

cost the city $2 billion over 10 years. Some city councillors showed interest in corporatizing the water and wastewater utility because of the rising maintenance costs and required infrastructure upgrades. They argued corporatizing their water utility could save the city as much as $110 million a year (Toronto Star, 2001). But city bureaucrats warned council if they reformed their water utility into a full-cost recovery model to pay for these upgrades, water rates were likely to double, from $350 to $700 a year per household (Wanagas, 2002).

The city established an informal working committee to develop a plan for a municipal corporation. Councillor Brad Duguid argued a municipal corporation would open “the door for the utility to bring forward the most efficient way to manage the business,” reminding city council that the investment needed in local water infrastructure could result in high water rates for citizens (Rusk, 2001). Mayor Mel Lastman supported the proposal to create an arms-length public water utility, arguing it was an opportunity to upgrade infrastructure while saving the city money. The committee also heard from private operators in the United States who suggested outsourcing operations and maintenance could save the city an additional $110 million a year

(Rusk, 2001). After hearing from private operators, the committee decided to examine the

“Chicago Model.” The City of Chicago ran its water utility with publicly paid employees, but outsourced operations and management to a private operator. This model limited opposition from unions, while lowering operations and maintenance costs for the city. A former Toronto councillor mentioned some councillors supported this idea, but the vote on the proposal was deferred, and never re-merged on council’s agenda (Interview 10).

A current Toronto councillor, who served on city council during the reform process, recalls council supporting full-cost recovery models, but notes these models were also politically unfavourable. The councillor mentioned Torontonians were tax-adverse in the 1990s, making tax

increases difficult for city council even as transfer grants to the city declined. The interviewee argued the provincial government’s policy interest had permeated local politics, and local citizens favoured low taxes and a small government. The politician felt this structured how the city made decisions and handled local finances after the amalgamation (Interview 11).

In February 2002, councillor Irene Jones was nominated as a ‘water advocate.’ Jones was selected as an intermediary between citizens and municipal government. Four open houses were held in April 2002, allowing local citizens and advocacy groups, to comment on water reform proposals (Harding, 2002). Councillor Jones felt these meetings were rushed, arguing “this is a massive decision. [city council] should be taking our time” (Harding, 2002). Mike Price, city water and wastewater general manager, agreed and did not understand the rush to make such an important decision. In May, the working committee recommended an MSB (Bakker and

Cameron, 2005). The committee argued an MSB would help remove politics from investment decisions, and water rates, since the board of directors would combine city councillors and citizens.

The proposal had support and opposition from city councillors. A former Toronto councillor recalls council debating the recommendation. They remember city council being divided: one-third left-leaning, one-third centre-leaning, and one-third right-leaning (Interview

10). They also recalled that shortly after the events in Walkerton, councillors began to support the idea of maintaining the water utility as a public department (Interview 10). Councillor Irene

Jones openly opposed the MSB proposal, arguing “councillors have to take responsibility for the system. I think we need to be seen as responsible people taking care of the public interest. To me, this reflects an agenda to contract out and perhaps ultimately privatize our water services, piece by piece” (Moloney, 2002). She later argued the decision on water rates and the water

utility, “is not something that’s politically palatable for councillors, and I think that’s why they want to divest off onto a service board, which doesn’t have the direct accountability that we do through elections” (Moloney, 2002). Councillor Betty Disero argued an MSB was the best decision city council could make in terms of efficiency and public accountability. “What I'm saying is give some comfort to the public, take it one step away from direct political control, in order to keep it within the public sector” (Moloney, 2002). Other councillors raised concerns over addressing water quality under an MSB model. City councillor and Health Board chair Joe

Mihevc argued “There has to be some assurance that whatever system of governance is put in place has as its first priority the supply clean and safe water” (Moloney, 2002). But, amidst a diversity of opinions, Deputy Mayor Case Ootes was confident the majority of councillors would agree to an arms-length management structure.

Outside of city council, Toronto faced extensive public opposition over the recommendation. Water Watch Toronto, an environmental interest group, argued an MSB was a

“slippery slope” to privatization. Surprisingly, this argument was effective in gaining public support to oppose the committee’s proposal (Furlong, 2016). The Toronto Environmental

Alliance also raised concerns over the safety of public water under an MSB. President of the

Toronto Environmental Alliance, Shelly Petrie, argued Mayor Lastman should put safety above all for residents (Moloney, 2002). CUPE’s Local 416, representing 1,200 water and wastewater employees, was skeptical about the MSB recommendation. Brian Cochrane, president of CUPE

Local 416, argued a new utility could result in potential job loss, which “could be detrimental to

Toronto’s water supply.” In frustration, he commented the consultation process was “typical” as the city had not “bothered to discuss this with us, and that's very disappointing” (Harding, 2001).

The union was also concerned this might be a stepping-stone to privatization, creating some uncertainty for water and wastewater employees (Harding, 2001).

Councillor Brad Duguid responded to critiques about Toronto’s decision to pursue an

MSB, and potential privatization, arguing “Because it's so preliminary, I don't think we should jump to any conclusion…. But one thing is for sure: we can't just sit back and accept the status quo in terms of our infrastructure” (Harding, 2001).

Juggling its current financial situation, with opposition inside and outside of city council, the city decided to host more open houses and discuss the MSB proposal with citizens. Despite city council’s intentions, the open houses heightened public opposition. Public surveys demonstrated Torontonians were only interested in a publicly owned and operated water system

(Young and Keil, 2007). In the end, even with an adopted clause by city council in 2001 that the city would not privatize its water services, it decided against adopting an MSB because of substantial public opposition (Furlong, 2016).

The city decided to maintain water and wastewater services as a municipal department.

The Water and Wastewater Services Division is now a separate business unit within the Works and Emergency Services Department. However, the city did achieve some of its desired goals: it implemented full-cost accounting, a separate business plan developed by council, and special performance measures to ensure the system’s efficient operations and management (Bakker and

Cameron 2005).

Hamilton: A Contract Gone Bad

Hamilton38 first experienced problems with its water utilities in the early 1990s, with poor wastewater management leading to local water pollution. A regional review of the utility later identified that the wastewater facility did not comply with provincial standards and was operating “significantly” below expectations (Walls, 1999a). Some councillors from the regional council of Hamilton-Wentworth also raised concerns over the quality of local water in the city

(Interview 12). In addition, like many other Canadian cities, Hamilton had also neglected to invest in local water infrastructure over the years (Interview 13). Now, its water infrastructure required substantial investment.

However, Hamilton could not afford the required investments, and needed significant financial support. The local economy was undergoing rapid deindustrialization as the steel and manufacturing industry, which had led to Hamilton’s nickname of ‘steel town’, was in decline.

Large American companies that had made Hamilton their manufacturing base, decided to move production elsewhere, pursuing cheaper working wages. Because both companies and factory workers began relocating for better opportunities, Hamilton lost a significant portion of its commercial and residential property taxes (Interview 14). This left Hamilton in a severe operating deficit in the early 1990s; so severe, it sold the municipally owned bus company and made the local airport a Public-Private-Partnership (P3) (Interview 14). Complicating Hamilton’s situation even further was the declining government grant transfers in the 1990s. In 1990, the

38 In 1974, the City of Hamilton; Towns of Dundas, Stoney Creek, and Ancaster; and the Townships of Flamborough and Glanbrook were incorporated under the Regional Municipality of Hamilton-Wentworth. This regional authority was responsible for the supply and distribution of water to the city of Hamilton (Furlong, 2016).

city received $16.4 million in grant transfers, with a high of $28.2 million in 1992. By 1994, the year before Hamilton decided to restructure its water utility, it received $15.9 million.39

In 1995, Stuart Smith, president of Phillip Utilities Management Corporation (PUMC), approached the Hamilton-Wentworth regional council to operate and manage the water and wastewater services. The company promised to establish their main headquarters in the city, develop a local training centre for workers, and hire as many as 100 people (Interview 14).

PUMC did not have previous experience managing or operating municipal water and wastewater services, raising some concern among regional councillors. Foregoing a formal tendering process, and ignoring the company’s lacking experience, regional council decided to accept

PUMC’s offer (Interview 13). PUMC and the Hamilton-Wentworth regional government negotiated a 10-year deal for $187 million. President Stuart Smith commented it was

“…relatively easy to persuade the Regional Municipality of Hamilton-Wentworth [into a contract]…” (Wells, 1999b). Former regional councillor Dave Wilson argued Smith “had a lot of credibility and tremendous influence in many communities- he added quite a bit to [PUMC’s] charisma” (Wells, 1999a).

Surprisingly, quite a few current and former Hamilton politicians and city managers recalled little debate over the proposed deal (Interview 12; Interview 14; Interview 16; Interview

17). These interviewees all mentioned regional city councillors were aware of the problems in

Hamilton; one interviewee recalled regional councillors having a “what-do-we-have-to-lose attitude” (Interview 14). This same individual mentioned administration had also argued the

PUMC contract was an opportunity for the region to save money. Another former councillor

39 These numbers have been indexed to inflation per the Statistics Canada use of 2002 inflation. Without adjusting for inflation, Hamilton City received $20.9 million in 1990, $33.6 million in 1992, and $18.5 million in 1994.

argued most regional councillors were influenced, or possibly pressured, by the provincial government to outsource the water and wastewater utility (Interview 18). A former Hamilton

CUPE Local president argued the tendering process was obscure and held behind closed doors.

They pointed out regional council did not hold public consultations, and tried to ease citizens’ concerns over privatization by framing the decision as “supporting local business” (Interview

13).

The contract guaranteed the City of Hamilton $700,000 in annual savings. PUMC was guaranteed the first million in savings as profit, with savings greater than a million being split

60/40 between PUMC and the regional government (Bakker, 2003). Hamilton remained responsible for capital investment, water rates, and tax collection. PUMC was responsible for the water treatment plants’ day-to-day operations and management, as well as some equipment maintenance, and had promised $15 million worth of capital investment over the 10-year contract (McLaughlin, 1995). The company decided to keep all former city employees, and raised their pay by 10% (McLaughlin, 1995), also claiming it could save the city $5 million during the first four years. Terry Cooke, chairman of the Hamilton-Wentworth regional council, commented that the first year of operations had been “extremely positive… for a bunch of reasons,” one of which was reduced regional expenditures on the water and wastewater services

(McLaughlin, 1995).

Shortly after the contract was signed, 180 million litres of untreated effluent leaked into the Hamilton harbour and flooded 100 nearby households. While PUMC was held responsible, tax payers ended up shouldering most of the costs (Ohemeng and Grant, 2011), with the regional government paying $2 million to cover the costs of the sewage leak (Leitner, 2004). One interviewee argued the regional government bore the maintenance costs because it would look

bad to residents if they hesitated to back the contract regional council had unanimously supported (Interview 13). After the incident, CUPE President Judy Darcy traveled to Hamilton to launch Water Watch, a national campaign advocating municipalities maintain public management of local water services (Swick, 1999). In addition to the sewage leak, the company was 10 months late submitting its annual review, a trend that continued throughout its management of the water and wastewater services.

In 1999, the CUPE commissioned a study of the contract. The report argued the contract was unfair because it had not been tendered, PUMC had failed to provide annual reviews after the first year, and PUMC failed to meet effluent standards. Stan Spencer, PUMC senior vice president, called the report “misleading and factually incorrect” (Wells, 1999b). CUPE President, and founder of Water Watch, Judy Darcy argued PUMC was the “worst example” of privatization

(Wells, 1999b). After the report was submitted, some local councillors admitted to less-than- optimal results from the negotiated contract, which only brought “modest” economic development to the Hamilton-Wentworth region. Regional councillor Dave Wilson argued he now had “serious reservations” about outsourcing the service to private industry (Wells, 1999a). However, the

International Union of Operating Engineers (IUPE) Hamilton Local 722, representing some of the water and wastewater employees, argued they favoured the delegated management scheme. They argued it provided them with greater job security than when the municipal services had been publicly managed and operated (Wells, 1999a).

As PUMC’s reputation was deteriorating within the community, the company suddenly filed for bankruptcy. In 1999, PUMC was sold to Azurix, a subsidiary of the American energy company Enron. PUMC had only made $6.5 million of its promised $15 million capital investment into Hamilton’s water system (Brubaker, 2003). However, during the sale to Azurix,

some regional councillors began to oppose the contract. Councillors Sam Merulla and Chad

Collins attempted to stop the sale of PUMC to Azurix. City staff argued that stopping the sale would break the contract being transferred to Azurix, resulting in a $7 million penalty (Werner,

2004a). In a whirlwind of events, the operations and management of Hamilton’s water services were sold twice more in a three-year span. In 2001, Enron sold Azurix to American Water

Services (McGuinness, 2001). Shortly after American Water Services acquired Azurix, RWE.ag, a German-based utility company, bought American Water Services (Werner, 2004).

As the water utility passed between different corporations, the Harris government decided to dissolve the Hamilton-Wentworth regional government. In 2001, the municipalities of

Hamilton, Ancaster, Dundas, Flamborough, Glenbrook, and Stoney Creek were amalgamated into the City of Hamilton. This amalgamation created a municipality larger than the Hamilton-

Wentworth region. The city now had over 100 neighbourhoods to service (Bakker, 2003), which included additional aging water infrastructure to address.

In 2004, as the contract was ending, the city was still experiencing budgeting issues and had not received the guaranteed infrastructure spending negotiated under the contract

(Interview 15). The debate over the future of the water and wastewater utility grew contentious inside and outside of city council (Interview 12; Interview 15; Interview 16; Interview 17).

Inside city council, a current Hamilton politician remembers a distinct ideological divide between city councillors: those who supported maintaining private operations and management, and those who did not (Interview 12). Mayor Larry Di Ianni commented the possibility of continuing private management was “…a question of having a system that is providing us with security” (Werner, 2004b). Councillor Phil Bruckler argued P3s gave municipalities “another level of vigilance” (Werner, 2004b). Councillor Sam Merulla openly opposed the continuation of

the status quo. He questioned how effective private management was, while raising concerns about transparency and accountability (Interview 17).

One former councillor recalled more councillors being opposed to private management than previously, speculating that PUMC’s poor management of the water utility was a driving factor. They also recalled more councillors opposing private involvement in the utility because of how politically sensitive that issue had become. The councillor argued councillors were more concerned about political fallout among their constituents than supporting the continuation of private management (Interview 17).

Outside of city council, there was extensive public opposition to continuing any type of private management, especially after sewage flooding in 1996 (Interview 19). Friends of Red

Hill Valley, a local citizens group, argued the process had not been transparent, and the city’s experience with PUMC illustrated how unreliable private companies could be (Furlong, 2016).

Hamilton Water Watch opposed another tendering process, arguing private management limited access to water and accountability to citizens. Citizens of City Hall, Environment Hamilton, and the Council of Canadians, also publicly opposed the contract, and the potential for creating a new one, for similar reasons (Interview 18).

The Public Works and Environment Committee tabled a proposal to move the water utility back to public management until a tendering process was organized. City councillors voted 9 to 6 against the proposal. Councillors Tom Jackson, Chad Collins, Andrea Horwath,

Brian McHattie, Bernie Moreli, and Sam Merulla voted in favour of the proposal. Mayor Larry

Di Ianni and councillors Phil Buckler, Terry Whitehead, David Braden, Murray Ferguson, Bill

Kelly, David Mitchell, Maria Peterson, and Margret McCarty voted against the proposal. The

councillors opposed to the proposal wanted to organize a tendering process before deciding whether the city should reinstate the utility as a municipal department. As city council debated the tendering process, Hamilton’s Woodward Wastewater Treatment Plant was discharging elevated levels of effluent, biosolids, and chlorophyll back into the local water source (Werner,

2004b). City council was urged to make a quick decision.

City council decided to continue with the tendering process, shortlisting four companies.

Only American Water Services Canada Corp made the final cut, bidding $50 million to manage, operate, and maintain the municipality’s water and wastewater systems. This was more than the city had been anticipating, expecting a bid between $12 and 16 million. The company argued the risk associated with running Hamilton’s water system increased their bid substantially (Interview

18). The city later rejected the company’s offer. Councillor Terry Whitehead mentioned the rejection was about dollar value, not ideology. Other councillors raised concerns over the total cost of re-establishing a department for the water and wastewater utility, hiring employees back, and upgrading the Woodward Wastewater Treatment Plant.

After the failed tendering process, the city of Hamilton had three options:

• Start a new tendering process.

• Combine their water system with another utility.

• Place the water and wastewater utility back under public management.

Even though reforming the water and wastewater utility as a municipal department would cost the city $1 million (Bakker, 2003), Hamilton decided to bring the utility back in-house. A current public works employee hypothesized it was the most politically feasible decision for city council. Councillors knew restructuring the utility as a public department was politically feasible,

as citizens had grown uncomfortable with the recent contract and the utility changing company hands so many times. The interviewee also mentioned senior management felt it had learned a significant amount about water governance during the ten-year contract, and could run the utility efficiently (Interview 19).

Analysis

Again, these events demonstrate how contentious and complex local water reform is. We can make sense of both Toronto and Hamilton by using the 3I Framework, determining similarities and difference between the cities. We can also assess the role of local dynamics in both cities’ decision-making processes.

Institutions

Like the Alberta cities in the previous chapter, Toronto and Hamilton underwent the same legislative and institutional changes under the 1996 Savings and Restructuring Act and the 1998

Local Services Realignment Act. The Savings and Restructuring Act gave municipalities greater taxation authority, allowing them to implement municipal income taxes, sales taxes, and even poll taxes. In return, the province reduced grant transfers to Ontario municipalities, while strongly ‘encouraging’ municipal amalgamation to achieve economies of scale. Likewise, the

Local Services Realignment Act hampered both municipal governments financially and administratively, by offloading a significant portion of public services onto them, while providing inadequate financial support (Table 3). Table 5 provides a detailed account of the reductions in provincial and federal transfers to Toronto and Hamilton.

Table 5: Provincial and Federal Government Transfers to Hamilton and Toronto40 Year Hamilton Hamilton Toronto Toronto (Non- (Indexed) (Non-indexed) (Indexed) indexed) (millions) (millions) (millions) (millions) 1990 $20.9 $16.4 $884.8 $693.7 1991 $23.5 $19.5 $1.2 billion $993.6 1992 $33.6 $28.2 $1.4 billion $1.2 billion 1993 $19. 7 $16.9 $1.6 billion $1.4 billion 1994 $18.5 $15.9 $1.6 billion $1.4 billion 1995 $24.9 $21.8 $1.6 billion $1.4 billion 1996 $13.7 $12.2 $1.2 billion $1.1 billion 1997 $11.9 $10.8 $1.2 billion $1.1 billion 1998 $9.5 $8.7 $850.7 $776.7 1999 $4.7 $4.4 $985.6 $915.6 2000 $193.2 $184.3 $ 1 billion $954 2001 $200.8 $196.4 $1.2 billion $1.2 billion 2002 $215.3 $215.3 $1.2 billion $1.2 billion 2003 $218.5 $224.6 $1.4 billion $1.4 billion 2004 $241.2 $252.5 $1.3 billion $1.4 billion Source: Ontario. Municipal Affairs. Municipal Finance Policy Branch. Federal and Provincial Operating and Capital Grants 1988 to 1999; Region of Metropolitan Toronto and Region of Hamilton Wentworth. Toronto: Ministry of Municipal Affairs, 2018.

In 1990, Toronto received $693.7 million, which increased to $1.4 billion by 1995. In

1996, after the Ontario PCs were elected and the Savings and Restructuring Act passed,

Toronto’s transfers fell to $1.1 billion. Following the passage of both acts, the city received

$776.7 million in 1998, a 45% reduction from 1994 transfer levels. This was also a significant transfer cut, considering the province had just amalgamated Toronto with five neighbouring municipalities, leaving the newly amalgamated city responsible for servicing over 2.3 million

40 This table was created using the same grant transfers I digitized for figures 8, 9 and 10. Both federal and provincial transfers were used in the dataset because the Ontario Municipal Finance Policy Branch dataset did not differentiate between the two. Grant transfers have been indexed to 2002 inflation rates as per the Statistics Canada standard guidelines.

citizens. Toronto received more money following 1999, but under the Local Services

Realignment, was now also responsible for funding items such as social housing, ferries, airports, and 50% of ambulances, road maintenance, and public health costs. Compared to Hamilton, these transfer cuts were manageable. In 1990, Hamilton41 received $16.4 million in transfer monies, which fell to $15.9 million in 1994, just before negotiations with PUMC. In 1995, there was a brief increase in transfer grants as Hamilton received $24.9 million, but this would eventually decline to a meager $4.7 million in 1998, a 70% reduction from 1994 levels. While both cities received different amounts of financial support, provincially legislated changes, leading to government reforms, led both Toronto and Hamilton to experience similar economic and institutional pressures.

The 1998 Electricity Competition Act deregulated the electricity market, but also directed councillors’ attention towards the possible deregulation of other utilities. However, a policy spillover was more likely in Toronto than Hamilton. The city incorporated Toronto Hydro in

1999, and began contemplating water reform in 2000. But again, the city was working to consolidate its services across the newly amalgamated municipalities amidst declining transfer grants and new public service responsibilities. In Hamilton, however, a spillover effect was certainty not the case. Hamilton negotiated a contact before deregulation in 1995, and reconsidered water reform in 2004-2005, after the electrical industry had been deregulated for seven years.

41 The financial data presented here are consistent with the City of Hamilton, exempt from the Hamilton-Wentworth regional government, up until Hamilton’s amalgamation in 2001. This was done to give a better representation of the financial pressures the City of Hamilton was facing, and maintain consistency in reporting financial data over this time period.

Locally, the structure of municipal ward systems may have limited councillors, and citizens, ideas and interests in the policy process. After amalgamating, Toronto city council had

56 councillors, but with two councillors each representing one ward. If councillors represent their constituent’s interests, councillors in each ward represent the same constituent interests, meaning the number of councillors present in city hall does not have a substantial effect on how political municipal policy decisions are. In Hamilton, regional council had 28 members, including a chairman, representing the six municipalities that made up the region (Ontario,

1974). After Hamilton’s amalgamation in 2001, under a new single tier government, this number was reduced to 15 councillors. Surprisingly, with fewer councillors the reform process became substantively more contentious, with councillors ideologically divided over reform proposals.

Considering these changes, this suggests these structural differences have no substantial effect on the how contentious the policy process may become.

Again, similar to Calgary and Edmonton, the general similarities in municipal-provincial relationships, and local institutions, suggest there were other, perhaps more important, factors in the decision-making process.

Ideas

Toronto required large amounts of capital investment in local water infrastructure to fix local sewage flooding, and consolidate water services (in addition to many other services) after amalgamation, all within a city that was described as ‘tax-adverse’ (Interview 11). City councillors interpreted these events in a variety of ways. Mayor Mel Lastman, along with other councillors, supported full-cost recovery, and water utility corporatization, on the grounds of public finances. For Lastman, water infrastructure investments and sewage leaks required money, and the best way to invest under current conditions was to move towards full-cost

recovery (Toronto Star, 2001). Councillor Irene Jones, tasked with being an intermediary between citizens and council, was concerned about the larger issues of public accountability and responsibility, later opposing the proposed MSB model because “councillors [sic] have to take responsibility” and “[take] care of the public interest” (Moloney, 2002). Councillor Betty Disero understood the events as both issues of economic efficiency and public accountability, later supporting the proposed MSB (Moloney, 2002). Meanwhile, other councillors perceived the events as a potential public health and environmental crisis, not necessarily supporting any specific reform proposal, but rather advocating for the best solution to fix Toronto’s water infrastructure and clean the city’s water (Interview 9; Interview 10). Health Board Chair Joe

Mihevc expressed these concerns, arguing “that whatever system of governance is put in place has as its first priority the supply clean and safe water” (Moloney, 2002).

In Hamilton, there was initial agreement among regional councillors about the state of

Hamilton’s water services and new economic realities (Interview 12; Interview 14; Interview 16;

Interview 17). Councillors understood the city did not have money to pay for aging water infrastructure or pollution reduction, and shared a “what-do-we-have-to-lose attitude” (Interview

14), entering a private contract with PUMC in 1995. Nine years later, in 2004, councillors were divided over water reform proposals. Both Mayor Larry Di Ianni and Phil Bruckler, perhaps reflecting on the disastrous series of events, understood reform as an opportunity to “[provide

Hamilton] with security” (Werner, 2004b), with Bruckler supporting the continuation of a P3 as they provided “another level of vigilance” (Werner, 2004b). But councillor Sam Merulla may have interpreted the ten-year contract differently, arguing what was most important was accountability and transparency to citizens, something he felt had been inadequate under the previous contract (Interview 17). He did not support continuing private operations and

management. In an interview, one former councillor speculated councillors’ opposition to continuing private management was because of the city’s poor experience with PUMC

(Interview 17).

Outside city council in Toronto, interest groups understood the MSB proposal as a

“slippery slope” to privatization, emphasizing the importance of government accountability, transparency, and responsibility to citizens. Environmental groups, such as Toronto

Environmental Alliance, made similar arguments, but raised concerns over public health and citizen safety. In Hamilton, Friends of Red Hill Valley, Hamilton Water Watch, Citizens of City

Hall, Environment Hamilton, and the Council of Canadians made similar arguments to their

Toronto counterparts, about city council contemplating a new tendering process (Interview 18).

Likely reflecting on the PUMC contract, these groups understood possible water reform as an issue of accountability, transparency, and the unreliability of private operators.

What might be most surprising is how actors conceived of local circumstances considering the cities’ local finances. In Toronto, citizens were ‘tax-averse’, yet there was heavy opposition against an MSB, which was still a municipally controlled utility. One would think with large capital investments in water infrastructure required, a full-cost recovery model, or business-like governance structure, would have been supported by citizens and interest groups.

In Hamilton, under the 1994 contract, companies failed to invest the negotiated amount of capital into Hamilton’s water infrastructure. Additionally, the Woodward Wastewater Treatment Plant required maintenance to prevent it from polluting effluents into the local water. But regardless of these infrastructure problems, actors were more concerned about Hamilton’s experience with private management, causing them to support a public utility proposal. Both instances demonstrate that even with serious financial problems in Toronto and Hamilton, actors did not

always interpret reform proposals as an economic decision. This suggests actors’ ideas, and perceptions of local circumstances, were central in what reform proposals they supported.

Interests

The Ontario government’s “fat-finding commission,” a commission to identify budgetary cuts, personifies the policy interest of the provincial government, and each city’s political climate. The Ontario government was interested in “performance standards [being] set for all government services” (Ontario Progressive Conservative Party, 1994: 3). One Hamilton interviewee recalled city council receiving pressure from the provincial government to pursue a

P3 contract in 1994; anything to outsource services and cut public expenditures (Interview 16).

What made these conditions even more difficult was that early in Harris’s tenure, most citizens agreed with the provincial government’s policies, making it difficult for city councils to gain support for public service decisions (Interview 11). Like Calgary and Edmonton, provincial legislation that provided municipalities with greater tax raising authority was somewhat counterintuitive, when citizens supported ‘low-tax’ policies.

Locally, interests within Toronto and Hamilton appear to have been important in decision-making. In Toronto, while councillors had different ideas about water reform, the decision to create the Water and Wastewater Services Division was likely political, with significant public opposition against the MSB proposal, and an upcoming municipal election in

2003. The decision to create a business unit likely quelled concerns about public accountability and municipal transparency, while allowing the city to implement full-cost accounting and special performance measures to ensure utility efficiency. In Hamilton, political capital and re- election were important to the decision making-process. Former CUPE Local Hamilton President recalled that in 1994, council had framed the PUMC contract as “supporting local business”

(Interview 13). Other interviewees recalled councillors framing the decision this way, as well

(Interview 12; Interview 13; Interview 14; Interview 17; Interview 18; Interview 19). Business interests were also important in 1994 and 2004. In 1994 PUMC used business incentives to lobby, and persuade, regional council to negotiate a contract. In contrast, businesses were interested in 2004, but an unfavourable offer from American Water Canada Corps and the politicization of the policy process, made pursuing additional tendering proposals politically costly.

In 2004, councillors considered public support for a new tendering process and water reform (Interview 12; Interview 17). A former Hamilton city councillor recalled councillors taking the “public opinion of constituents as gospels” (Interview 17). With an upcoming municipal election in 2006, political interests likely played a substantial role in councillors supporting, or opposing, proposals to maintain private management, or re-establish a public department.

Re-election and business interests aside, unions in both cities opposed certain water proposals for fear of privatization. Both the Toronto and Hamilton CUPE Locals raised concerns over job security, wages, and the utility’s future. Both supported the public management of their local utility. Surprisingly, the IUPE Hamilton Local 722, representing some of the city’s water and wastewater employees, preferred their contract with the private operators (Wells, 1999a).

This difference between unions is significant, identifying that groups that may traditionally be associated with specific ideas and interests, in fact do not always share the same policy goals.

Conclusion

This chapter has summarized the underlying factors that affected decision-making in

Toronto and Hamilton. Yet again, these case studies have shown how contentious and complex municipal decision-making and public policy are, using the 3I Framework to identify some preliminary themes between both cities. Institutionally, Toronto and Hamilton shared the same relationship with the provincial government. There was some variation in the structure of local institutions (Hamilton consolidated from a two-tier government into a single-tier government).

However, this structural difference does not appear to have played a substantial role in the city’s decision-making process. In contrast, ideas and interests were important to the decision process.

Not only did actors’ interpretations of local circumstances influence which reform proposals they supported; so too did their auxiliary interest in re-election, business development, economic development, and job security. Like Calgary and Edmonton, these findings indicate that local dynamics, emphasizing ideas and interests, materialize themselves into different policy interests and goals, ultimately affecting municipal decision-making

Chapter 6: Ideas and Interests in Municipal Water Reform:

Explaining Institutional Variation

“Ideas shape how we understand political problems, give definition to our goals and strategies, and are the currency we use to communicate about politics. By giving definition to our values and preferences, ideas provide us with interpretive frameworks that make use see some facts as important and other as less so. In turn, this has serious consequences for how we understand the role of interests in politics.” - Daniel Béland and Robert Henry Cox (2011: 3)

Having explored water reform in four of Canada’s largest cities, we now return to our initial research question: Why did four broadly comparable Canadian cities— Edmonton,

Calgary, Hamilton and Toronto— facing similar economic and intergovernmental pressures, considering a similar basket of options, take distinct approaches to reforming their local water system?

Public finances, aging infrastructure, public services reform, and intergovernmental pressures made water reform salient across all four cities. However, local dynamics, specifically actors’ ideas and interests, were central in conditioning each city council’s final decision about how to address this issue. The importance of ideas and interests in each city also links our discussion back to the theoretical framework I proposed in the second chapter: Institutions,

Ideas, and Interests. How actors conceived of local circumstances, combined with their interests, manifested in their support for or opposition to specific reform proposals. In turn, this often politicized the policy and decision-making process, limiting councillors’ reform options.

This chapter begins by discussing the role of institutions, followed by ideas, and interests across all four cities. Next, I explain the variation in all four cities, arguing that ideas and interests were central in the policies actors supported.

Institutions

Canadian municipalities share similar institutional relationships with the federal government, and their respective provincial governments. In some ways the provincial legislation passed in both provinces, the 1994 MGA in Alberta, and the 1996 Savings and

Restructuring Act and 1998 LSR in Ontario, created even more similarities between the four cities.

Legislated changes in the electricity sector may have directed attention towards reforming other utilities, but do not explain variation across our case studies. Both provincial governments deregulated their electricity industries - Alberta in 1995, and Ontario in 1998. In

Alberta, interviewees recall electricity deregulation compelling both city councils to review their water utility. A former EPCOR senior executive and two former Edmonton councillors remember deregulation as part of the reason that city council decided to review the water utility

(Interview 4; Interview 5; Interview 7). In Calgary, a former public works employee argued the city’s privatization proposal considered the upcoming electrical deregulation. Instead of just electricity, the city decided to review privatizing its main utilities (Interview 2).

In Ontario, the City of Toronto’s decision to incorporate Toronto Hydro in 1999 may have led it to review water utility reform. The City of Hamilton negotiated a contract three years before deregulation, and then decided to reform its utility again in 2004-2005, seven years after deregulation. Had water reform in each city simply been a case of policy spillover, each city would have reformed their water utility similar to their electrical utility, by either outsourcing services, or creating a municipal corporation. One of these options – the outsourcing of water services – was, while simple, politically divisive. As a result, cities considered a wide array of options.

Local institutional differences between the cities, which may have limited the number of ideas and interests present in the policy process, does not appear to have substantially affected support for specific policy proposals. Edmonton and Toronto each had two councillors for every ward. Edmonton had six wards, or 12 councillors, and Toronto had 22 wards, or 44 councillors.

In comparison, Calgary had 12 wards, each with one councillor. Hamilton differed from the other three cities because it negotiated its 10-year contract with a regional (rather than city) council, consisting of 28 members representing six different municipalities. In 2004, after amalgamating with these municipalities, Hamilton had 15 wards, each with one councillor. But ward systems, or the number of councillors in each city hall, do not appear to have any strong correlation to how contentious these public policy decisions were. Edmonton’s ward system arguably disadvantaged the ability of councillors to accurately represent all possible ideas and interests because two councillors represented the same ward, yet multiple interviewees recall council being ideologically divided. A similar argument can be made for Hamilton. With 28 regional councillors across six municipalities, the decision to negotiate a ten-year contract, was met with general consensus among regional councillors, and no public opposition. After amalgamating in 2001, and having fewer councillors, Hamilton’s 2004 decision-making process became substantially more political, dividing city council, and the public, on water reform.

If, then, institutions were broadly similar, and differences in local political systems appear to have had little effect on how political water reform was, this suggests how actors navigate incentive structures and institutions (Shepsle, 1989) to solve collective action problems, merits greater attention. For example, PUMC saw Hamilton’s financial situation, and deteriorating water infrastructure, as a business opportunity for both actors. A former CUPE

President recalled PUMC executives ‘wine and dining’ Hamilton councillors before entering the

1995 contract (Interview 13). They remember PUMC senior executives lobbying councillors to negotiate a management contract, having no previous management experience. But in 2004, when city council considered, and went through with, a new tendering proposal, the decision became highly contentious. If business interests had negotiated a contract easily in 1994, why was it so difficult to attract businesses again in 2004, and why did city council not continue with the tendering process?

In Edmonton, EPCOR offered to manage the water utility, a sound financial decision given the city’s circumstances. The company was able to convince city council to transfer the water utility to the company, but not without causing ideological rifts within city council and among residents and stakeholders. Similarly, Calgary had financial problems as well, experiencing growing public debt. Businesses were interested in managing local water services in Calgary, but this idea was opposed by many councillors. These events in Hamilton,

Edmonton, and Calgary reveal two things. Actors’ ability to navigate local institutions to achieve policy goals was an important component for achieving change, but also, successfully navigating these institutions was part of actors’ ability to appropriately frame, and align, ideas and interests in favour of their policy goal. Moreover, ideas and interests were central in allowing actors to navigate similar institutions successfully.

Ideas

Actors’ ideas emerge from their interpretations of the material world (Béland and Cox,

2011). Ideas were central in how actors conceived of their local circumstances - leading to different problem definitions, agenda framing, and policy proposals and evaluation (Kingdon,

1994; Howlett et al., 2009; Béland and Cox, 2011; Druckman, 2004; Béland, 2016) In all four cities, actors conceived of their circumstances differently, affecting the policy cycle, and

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subsequently the reform proposals they supported or opposed. These competing ideas can be organized into three categories: financial costs and risk, accountability and transparency, and public health and the environment.

Some actors defined, framed, and proposed solutions based on their ideas about financial costs and risk. In Calgary, Mayor Al Duerr encouraged city council to consider privatization proposals because of limited public finances (Edmonton Journal, 1994). He supported the proposed $200,000 feasibility study, later voted down, arguing privatization could address the city’s public debt. Conversely, while other Calgary councillors interpreted Calgary’s finances similarly, they did not believe the city’s financial situation was as bad as Duerr claimed, arguing privatization was near-sighted. Toronto Mayor Mel Lastman and councillor Brad Duguid, along with other councillors, advocated for full-cost recovery models, specifically a corporate utility, to pay for the city’s infrastructure needs (Rusk, 2001). Lastman argued Toronto’s problems were about public finances, and full-cost recovery could solve them. In Edmonton, some councillors believed water reform was about cost savings, interpreting Edmonton’s utility reform as an opportunity to address the utility’s cost-efficiency (Interview 7). They supported outsourcing its operations and management to a private operator. In Hamilton, the city could not afford capital investments required to stop water pollution, and repair the system. The contract with PUMC provided much-needed investment capital, and would lower operation costs. As one interviewee described, most councillors, had a “what-do-we-have-to-lose-attitude” (Interview 14). Again, many of these councillors interpreted local water reform as a symptom of poor municipal finances. Their interpretation then, framed their policy solution, which was engaging with the private sector to raise investment capital, and lower operating costs.

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Water reform was not only interpreted as an issue of local finances and financial risk, but accountability and transparency, with some actors using social and political values to frame reform efforts. In Calgary, councillors Carol Kraychy and Barb Scott counter-framed

(Druckman, 2004) privatization proposals as an attack on tax-payers, opposing the proposed privatization study. Toronto councillor Irene Jones opposed the MSB model on the grounds of government accountability and transparency (Moloney, 2002). Similar to Jones, Edmonton councillors Michael Phair and Brian Mason counter-framed, and opposed, their colleagues reform proposals on moral and ethical grounds (Geddes, 1998). In 1996 and 1998, both councillors argued reform was not just about public finances, but democracy, arguing the importance of government accountability, transparency, and responsibility in public utilities.

Councillor Sam Merulla made similar arguments in Hamilton in 2004, framing the decision- making process as a choice between private or public management, using the city’s poor contract with PUMC to support his position.

Interest groups from all four cities believed the reform process was an issue of democracy, emphasizing the importance of government accountability, transparency, and responsibility to citizens. These included the “Screaming Nannies” from Edmonton; Friends of

Red Hill Valley, Hamilton Water Watch, and Citizens of City Hall from Hamilton; Toronto

Environmental Alliance; and the Association of Taxpayers in Calgary. Interpreting reform proposals, and counter-framing, events in each city led many of these groups to support public management, and to oppose private involvement in their city’s water utility.

Other actors interpreted their city’s circumstances as a public health and environmental problem. In Toronto, councillor Joe Mihevc (Moloney, 2002) and Toronto Environmental

Alliance drew attention to aging infrastructure. These actors believed a lack of maintenance and

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repairs would lead to the continual pollution of Lake Ontario, also leading to public health issues. Councillor Mihevc supported policy proposals that would address his concerns; meanwhile, Toronto Environmental Alliance believed only public management would adequately protect citizens, the environment, and local watersheds. Environment Hamilton made similar arguments to their environmental counterparts in Toronto, arguing private operators had less incentive to protect local waterways.

These competing interpretations of local circumstances not only affected problem definition, agenda framing, policy proposals, and evaluation, but embroiled actors in contentious ideological debates about the role of government and service provision, further reinforcing their support for certain policy proposals, and further politicizing the policy process. In Calgary, two privatization studies were voted down amidst councillors’ concerns about protecting citizens and government accountability (Steinhart, 1994). After the working committee in Toronto proposed an MSB, a former councillor recalls council becoming ideologically divided (Interview 10).

Some councillors believed a public department was necessary to ensure accountability, while others argued an MSB, and even the previous corporatization proposal, would be more cost- effective by allowing informed businesspersons, and engineers, to chair the utility, eliminating local politics in water management. In both Hamilton and Edmonton, multiple interviewees recall city councillors being ideologically divided over water-reform proposals (Interview 7;

Interview 12; Interview 15; Interview 16; Interview 17). Councillors in both cities interpreted local circumstances differently, leading to larger-scale philosophical debates about the role of government, and further politicizing the policy and decision-making process.

Actors’ competing interpretations of local circumstances affected the policy cycle by producing different problem definitions, which led to competing policy solutions and

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evaluations, as well as counter-framing. Subsequently, competing ideas, problem frames, and policy solutions also politicized these events, further complicating the decision-making process, and in most instances growing public opposition against initial reform proposals.

Interests

Interests are intimately bound with actors’ values, beliefs, and ideas (Blyth, 2003), but are also influenced by the distribution of resources and power in a policy domain (Shearer et al.,

2016). Alongside competing ideas, electoral, business, economic development and union interests competed with one another.

Former Prime Minister Brian Mulroney once said, “Political capital is meant, not to be hoarded, but to be spent...” (Geddes, 2013), referring to the trust and influence politicians build up with citizens during their time in office. Interviewees recalled political interests influencing councillors’ decisions. A former Hamilton politician argued councillors “[took] public opinion of constituents as gospel,” often raising concerns over accountability and transparency, because they knew it would garner political support (Interview 17). A former Hamilton CUPE local president recalled some councillors framing the tendering proposal in 2004 without referring to privatization, aware that the term “privatization” was unpopular among citizens (Interview 13).

A current Hamilton politician, who was also on council in 2004, described reform decisions as a difficult balance between short-term and long-term interests. They argued citizens are often concerned about short-term items, such as water rates and taxes. However, city councillors must balance citizens’ short-term interests with the city’s long-term interests, such as operating, maintenance, and infrastructure costs (Interview 12).

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A current Toronto councillor mentioned Torontonians in the 1990s were tax-averse, but the city needed to invest in water infrastructure and address its sewage flooding problem

(Interview 11). This forced city council to consider developing an arms-length corporation, which it believed to be the most cost-effective model. Nevertheless, political opposition grew strong, forcing city council to hold additional open houses, and eventually keep the utility as a public department. In both Calgary and Edmonton, interviewees emphasized the importance of citizens’ interests in the reform process, as councillors worked to ease constituents’ concerns about transparency and accountability (Interview 3; Interview 4), and to minimize citizen’s perceptions about water reform-related risks (reduced accountability and water quality)

(Interview 4; Interview 6). A former EPCOR senior executive mentioned city councillors actively framed EPCOR as a municipally owned corporation to ease public opposition (Interview

5).

City councillors also had to contend with business and labour interests. PUMC and

EPCOR both strongly supported policy reforms that involved third parties. PUMC’s president,

Stuart Smith, saw Hamilton’s situation as a business opportunity, promising various incentives to persuade regional council to negotiate a contract. In Edmonton, a former EPCOR senior executive remembers reassuring city councillors during the consultation process that the city owned EPCOR, holding 100% shareholder ownership, and could implement changes if required

(Interview 5). Labour unions in three of the four cities opposed reform proposals involving private actors: the CUPE Local 38 in Calgary, CUPE Local 416 in Toronto, and local unions in

Edmonton all made similar arguments about job insecurity, reduced wages, and benefits. These unions supported interest groups, and citizens, who were concerned about accountability, transparency, and government responsibility. Surprisingly, in Hamilton, the IUPE Local 722

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supported continued private management in 2004, arguing private contractors paid employees more competitive wages than they had received under public management (Wells, 1999a).

Public opposition in each city, and interview data, demonstrate city councillors rely on political capital (Buchanan and Tollison, 1972) to make public policy decisions, but are also policy learners, responding to new experiences and information (Sabatier, 1987; Sabatier and

Mazanian, 1993). City councillors must, then, evaluate which policy proposals are politically acceptable, while balancing competing interests.

Explaining Variation

So how can we explain municipal variation accounting for the political, economic, and institutional similarities in, and across, each province?

Local dynamics, including the current problems, policy proposals, opportunities, and politics in a particular city at a particular moment in time, were fundamental to each city’s decision-making process. More specifically, the way ideas and interests manifested themselves into support for specific policy proposals, also making the reform process political, conditioned the available, and politically acceptable, reform options for city councillors (Figure 10).

Figure 10: Decision-making Process in Municipal Water Reform

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Necessary infrastructure investments, local sewage overflows, a provincial government interested in offloading responsibilities to municipalities, and declining transfer grants caused

Toronto to consider water reform. In response to residents’ ‘tax-averse’ attitudes, Toronto originally considered a corporate utility. A working committee formed, studying utility reform, and prioritizing cost-efficiency and infrastructure investment. The committee proposed an MSB, hoping to remove politics from investment decisions and water rates, but also provide businesspersons an opportunity to sit on the board of directors, hoping they would provide useful expertise in operating efficiencies. What appeared to be a logical, and politically acceptable, proposal met opposition from city council and local citizens. Councillors had various interpretations of Toronto’s fiscal health, and the state of its water system. Councillors who prioritized Toronto’s financial well-being, and understood water reform as a financial problem, supported full-cost recovery models like a corporate utility, and later an MSB; those who understood reform as an issue of democratic accountability and transparency, supported public management. Open houses were held, allowing citizens an opportunity to voice their opinions, only to backfire, attracting growing public opposition against the MSB proposal. Many citizens and interest groups believed water was a right, and government should deliver essential services, while others believed only government could properly protect the environment and public health of citizens. These ideas manifested into support for municipal management, and opposition to the

MSB model. With such significant opposition, which was a political cost that city councillors were not willing to bear - especially ahead of the 2003 municipal election, the city had one remaining option: keep the utility under public management. Toronto reformed the utility into a business unit, giving the utility some financial and regulatory autonomy from other public services.

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Hamilton experienced very similar financial and infrastructure problems, resulting in negotiating a ten-year contract with PUMC. The majority of regional council supported this decision, sharing a “what-do-we-have-to-lose” attitude. Nonexistent opposition from citizens and interests groups facilitated council’s decision, as did the political ‘schmoozing’ by PUMC executives to persuade regional council to negotiate a contract. As the contract ended, city council began considering its next step. Many factors led to councillors’ and citizens’ anxiety about the future of the utility: a sewage leak; poor performance results; and private companies not only failing to invest in infrastructure (as a condition in their contract), but repeatedly selling the utility to other businesses. The debate over the future of the utility became distinctly ideological for councillors and citizens. Councillors supported or opposed the continuation of private management, based on their interpretation of local circumstances, but also on their constituents’ interests. For some councillors, it was about cost efficiency, but interviewees suggested policy decisions were primarily about political capital. Because the issue had become so contentious outside of city council, most councillors opposed private management based on their political interests. Surprisingly, Hamilton proposed a new tendering process that resulted in the rejection of their only offer from American Water Services Canada Corp. After this failed tendering process, the city decided to re-establish its municipal department. It had considered another tendering process, but growing public opposition limited council’s choices, making any type of policy proposal other than public management politically unfeasible for city councillors

(Interview 18).

Like Toronto and Hamilton, Calgary’s transfer grants were declining amidst required water infrastructure investment, and a growing debt load. Constrained by provincial financial legislation, limiting how municipalities could service their debt, the city began to look for

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alternatives. In 1994, ahead of the 1995 municipal election, the city was interested in privatizing its three main utilities, partly a result of ensuing electrical deregulation. It did not propose any alternatives to privatization, with the city only contemplating a feasibility study. There was considerable opposition within city council, with some councillors understanding the city’s financial circumstances, but interested in maintaining public management. For these councillors, privatizing the city’s utilities was a ‘band-aid’, providing Calgary with very temporary financial relief. Again, other councillors believed reform was a question of democratic accountability and responsibility to taxpayers. Local unions, representing 1,500 public works employees, and CUPE

Local 38, staunchly opposed the privatization. They were concerned privatizing the utility would lead to job loss and wage cuts. Council eventually voted down the privatization proposal in 1996.

While there was little public opposition, opposition from unions representing a large number of public works employees, and a preemptive privatization proposal on the heels of the 1995 municipal election, were enough to incentivize councillors to oppose the feasibility study.

Lastly, Edmonton, facing similar political and economic conditions as the other cities, considered a handful of options: keeping the utility public, outsourcing services to a private provider, establishing a stand-alone municipal corporation, or handing management over to

EPCOR. With four options, and councillors uncertain about what these might mean for the water utility, a contentious debate emerged. Again, councillors’ and citizens’ interpretations of these events directly affected which policies they supported. Some councillors believed Edmonton’s financial position would improve if Edmonton outsourced its water services. These individuals also argued the private sector could operate the utility more efficiently, and government had no role in service provisions. For other councillors, reform was about responsibility and accountability to citizens. These individuals government had a right to provide citizens with

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essential services, like water, supporting public management. Interest groups also understood reform as potentially limiting government responsibility, as we as citizens’ access to water.

Many of these groups opposed any private involvement in water management. Business and labour interests also complicated the policy and decision-making process. EPCOR lobbied

Edmonton to transfer the water utility to the company, interpreting the situation as a business opportunity, with some councillors agreeing (Interview 7). Local unions expressed concerns about job losses and wage cuts if the utility moved away from council’s control. Water reform was, then, highly political, with actors’ ideas and interests manifesting into support for specific reform proposals, which in turn further politicized the process. One interview recalled councillors being reluctant to support any specific proposals (Interview 5), demonstrating how local dynamics conditioned the politically acceptable reform options. Aware that councillors could not support outsourcing services, especially with an upcoming 1995 election, and with

EPCOR providing a very attractive business offer, the city decided to hand the utility over to

EPCOR. This eliminated the need for Edmonton to create a new municipal corporation for its water utility, which was one of its four initial options, and provided the city with annual dividends and financial aid during a time of substantial transfer cuts. The decision was also politically viable after citizens learned the difference between different governance structures, realizing the city would maintain ownership of EPCOR.

Conclusion

In Toronto, Hamilton, Calgary, and Edmonton, local dynamics (specifically, ideas and interests) played a central role in conditioning politically acceptable reform options. Ideas were instrumental in how actors interpreted local circumstances, and which policy reforms they supported. This led actors to define, frame, and evaluate policy proposals differently,

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subsequently politicizing the reform process. Layered on top of actors’ ideas were their interests, often competing for policy attention. This created a highly political environment, leaving city council, interest groups, businesses, unions, and citizens, in contentious debates over water reform proposals. How these dynamics emerged, and which reform proposals were politically acceptable, conditioned councillors’ decisions. This means water reform is contextual (Bakker and Cameron, 2005), but also political, and reforms are often contingent on the interplay of ideas and interests in the policy process, where how much political capital councillors have, or public opposition they experience, will condition the decision-making process.

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Chapter 7: Policy Lessons from Municipal Water Reform and the

Future of Municipal Water Governance in Canada

“Anyone who thinks that making local democratic decisions about hard services is easy or routine has not watched the agonies that local councils often go through in making such decisions.” - Andrew Sancton (2015: 339)

“Most elected officials are ordinary people, sometimes frustratingly so from the standpoint of their lack of experience…Whatever their motives, they are charged with balancing professional concerns of municipal staff with the usually parochial concerns of local residents, the concerns of local employers with those of environmentalists, the concerns of those who want or need high levels of expensive municipal services with those who want low taxes and user charges.” - Andrew Sancton (2015: 340)

Water reform is both contextual (Bakker and Cameron, 2005), and political. This was true for Toronto, Hamilton, Calgary, and Edmonton. Collectively, all four cities were under similar political, and economic, pressure to reform their local water utilities, yet decided on different governance models. Local dynamics, specifically ideas and interests, were essential in conditioning these decisions. Interpreting the events differently led actors to define, frame, propose, and evaluate reform proposals differently, and in turn effectively politicizing the policy process. Additionally, competing interests complicated the decision-making process. In turn, both ideas and interests, politicized reform proposals, limiting reform options for city councillors. This means that local dynamics, intervene in the decision-making process.

These findings contribute to the current literature in three ways. First, it expands current explanations of water reform, and utility reform more broadly. The performance of local utilities, required infrastructure upgrades, municipal finances (Hebbdon and Jalette, 2008; Bel and

Fageda, 2007), and senior level government policy interests, are important for agenda setting.

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However, this is something most Canadian municipalities, and municipalities in federal systems for that matter, are all susceptible too. These current findings illuminate the political nature of local utility reform, involving competing ideas and interests in the policy and decision-making process, explaining variation across Canadian municipalities. Secondly, this research identifies some of the causal mechanisms involved in utility reform, but also municipal public policy processes and decisions. These mechanisms consist of ideas and interests, effecting how actors interpret their local circumstance, and policy proposals. This then results in different process of framing, agenda setting, solutions, evaluation, and politicization, conditioning councillor’s decisions. This causal process results with local dynamics conditioning politically feasible policy options for city councillors, forced to navigate competing ideas, and interests, as well as their own electoral interests when making decisions. Lastly, it provides original research on municipal politicians’ decision-making process, illuminating some of the political and economic variables present in utility reform and municipal policy decisions. This provides a departure point for other scholars wishing to explore the dynamics, and effects, of local dynamics in municipal politics, policy, and decision-making.

Additionally, this thesis suggests, contrary to debates in multi-level governance and municipal politics literature (Plunkett and Graham, 1982; Sancton, 1992; Sancton, 2009) municipalities have some autonomy in public policy decisions. While all four cities were subject to economic and political pressures from senior government, local actors, ideas and interests were influential in the policy process in each city. Instances such as these then, require returning to this debate among multi-level governance and municipal politics scholars, investigating municipal policy change in other areas.

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In more applied terms, this research provides important information for decision-makers, providing them with a better understanding of how local politics impacts the policy process, and how ideas and interests manifest into policy support. This information allows policy makers to navigate these turbulent waters, developing better policy proposals, and hopefully negotiate public policy decisions easier.

Future Research Agenda

As we’ve seen, even when the safety of our water supply is not immediately threatened, understanding the local dynamics of water reform, public policy and decision-making processes, merits greater attention. This research contributes to a young, but growing, body of literature in water governance, but there is still much to do.

Further research is required to determine whether these cases studies are outliers, or whether these findings can explain utility reform in other cities. Adding case studies from other provinces would allow us to determine whether local dynamics consistently condition councillors’ policy choices. More research, like Lucas and Smith’s (2018) municipal policy importance, would be beneficial in gauging how city councillors, and citizens, understand utility reform, decision-making, and the municipal policy process more generally. This would provide empirical data that could help highlight the importance of ideas and interests in the local policy and decision-making process. Additionally, comparative studies with cities in other federal systems would be useful in determining whether certain institutional, and political, arrangements amplify, or weaken, the effects of local dynamics in explaining local policy changes, and different types of policy changes. Other countries to consider would be the United Kingdom,

Australia, and the United States.

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Water governance will become an increasingly important policy topic as Canada continues to urbanize. In 2016, three of Canadas largest Census Metropolitan Areas (CMA),

Toronto, Montreal and Vancouver, were home to 35.5% of Canada’s population (Statistics

Canada, 2017), with 82% of Canadians living in large-to-medium sized cities (CBC, 2017). This in-migration will place additional pressure on municipalities’ water services and infrastructure.

Likewise, more Canadians are also moving to urban cities in southern Canada, and the Prairie

Provinces, (Statistics Canada, 2017) which draw water from similar rivers and tributaries. Water will likely become even more political in Western Canadian municipalities as temperatures rise due to global warming, and droughts become more likely. This will pit farmers and municipalities against one another over irrigation and drinking water, but also downstream and upstream residents against one another over withdrawal rights. These developments then, pose important research questions about municipal funding, multi-level governance, the role of public private partnerships, service provisions, the policy process and political decision-making.

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Appendix Appendix 1: Interview List

Interview Interviewee number Category: (1) Current or Former City Councillor; (2) Business Date Location Type of Recorded Confidentiality Person; interview (Yes/No) assured (Yes/No) (3) Current or Former City Works Employee; (4) Current or Former Union Representative

Interview #1 Category 1 March 23, Phone No Yes 2018 Interview #2 Category 3 March 19, Calgary, In Person No Yes 2018 Canada Interview #3 Category 3 January 10, Phone No Yes 2018 Interview #4 Category 1 January 26, Phone No Yes 2018 Interview #5 Category 2 January 29, Phone No Yes 2018 Interview #6 Category 1 December Phone No Yes 7, 2017 Interview #7 Category 1 December Phone No Yes 11, 2017 Interview #8 Category 2 March 26, Phone No Yes 2018 Interview #9 Category 1 December Phone No Yes 11, 2017 Interview #10 Category 1 January 9, Phone No Yes 2018 Interview #11 Category 1 December Phone No Yes 6, 2017 Interview #12 Category 1 March 19, Phone No Yes 2018 Interview #13 Category 4 January 30, Phone No Yes 2018 Interview #14 Category 1 December Phone No Yes 10, 2017 Interview #15 Category 1 January 16, Phone No Yes 2018 Interview #16 Category 4 January 24, Phone No Yes 2018 Interview #17 Category 1 March 14, Phone No Yes 2018 Interview #19 Category 3 February 7, Phone No Yes 2018

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