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Analytic approach to the provision and financing of urban public services in suburban development areas… Petersen, Gordon John 1974

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AN ANALYTIC APPROACH TO THE PROVISION AND FINANCING OF URBAN PUBLIC SERVICES IN SUBURBAN DEVELOPMENT AREAS* A CASE STUDYi KAMLOOPS, BRITISH COLUMBIA by GORDON JOHN PETERSEN B.A., University of Alberta, 19?2 A THESIS SUBMITTED IN PARTIAL FULFILMENT OF THE REQUIREMENTS FOR THE DEGREE OF MASTER OF ARTS i n the School of Community and Regional Planning We accept t h i s thesis as conforming to the required standard THE UNIVERSITY OF BRITISH COLUMBIA A p r i l , 197^ In presenting t h i s thesis i n p a r t i a l fulfilment of the requirements I'm-an advanced degree at the University of B r i t i s h Columbia, I agree that the Library s h a l l make i t f r e e l y available for reference and study. I further agree that permission for extensive copying of t h i s thesis for scholarly purposes may be granted by the Head of my Department or by his representatives. It i s understood that copying or publication of this thesis for f i n a n c i a l gain s h a l l not be allowed without my written permission. Department of ^onreunlty an:i r.e • l o n a l rlannln,-The University of B r i t i s h Columbia Vancouver 8, Canada Date A p r i l 29, 19?4 i i ABSTRACT The purpose of t h i s study i s to devise em ana l y t i c framework f o r the decision making process as i t rela t e s to the provision and financing of urban public services i n suburban development areas. The underlying basis f o r the necessity of public services i s the existence of external diseconomies or s o c i a l costs associated with a l l forms of development, although the nature of the e x t e r n a l i t i e s varies according to the physical form of the sector i n which they are generated. In the minimally or p a r t i a l l y serviced suburbs, s o c i a l costs are often of such a nature that they concern the personal health and safety of the residents, as well as the protection of t h e i r property. Assuming an objective of the community i s to " i n t e r n a l -i z e " or prevent e x t e r n a l i t i e s from a r i s i n g i the relevant p o l i c y program should be formulated systematically. At the outset i s the d i f f i c u l t and imprecise task of i d e n t i f y i n g the objectives of the various i n d i v i d u a l s and groups affected by the existence of e x t e r n a l i t i e s or by p o l i c i e s aimed at t h e i r prevention. Assuming i d e n t i f i c a t i o n of group objec-t i v e s , some of which may be c o n f l i c t i n g , a search f o r a l t e r -native approaches to at t a i n i n g the objectives i s required. In the case study, three alternatives are suggested! the f i r s t consists of providing a f u l l range of public services; the second consists of a combination of invoking ordinances i i i to r e s t r i c t continued development i n concert with support programs to i n t e r n a l i z e e x i s t i n g diseconomies of a serious natures and the t h i r d i s a "toned-down" version of the f i r s t i n that provisions are made only f o r ce r t a i n services aimed at preventing e x t e r n a l i t i e s of a serious nature. The a l t e r -natives are then evaluated "by comparing the costs and bene-f i t s of each and enumerating them according to t h e i r i n c i -dence. Although the analysis of the three alternatives does not point c l e a r l y as to which i s preferred, i t does specify the trade-offs required i n choosing among the al t e r n a t i v e s . A subsequent evaluation of the trade-offs suggests that the group objectives can be achieved most e f f e c t i v e l y and e f f i -c i e n t l y by providing a p a r t i a l range of s p e c i f i e d services. An important consideration i n implementation i s that of acquiring adequate funds to finance the selected s e r v i c i n g program. Because of the nature of the services involved, the associated costs are most appropriately allocated according to the benefits-received p r i n c i p l e . To ensure an equitable d i s t r i b u t i o n of costs among a l l b e n e f i c i a r i e s , including e x i s t i n g residents as well as owners of vacant properties designated f o r future development, recognition should be given to the p o s s i b i l i t y of d i v i d i n g system costs into three components« c a p i t a l costs of major f a c i l i t i e s which are of general benefit; c a p i t a l costs of l o c a l f a c i l i t i e s ; and oper-ating costs. The proposed strategy recognizes that the bene-f i t s associated with each category of costs accrue to i v d i f f e r e n t beneficiary groups, and as such a d i f f e r e n t type of beneficiary charge i s appropriate f o r a l l o c a t i n g the costs associated with each category. V TABLE OP CONTENTS Chapter I. INTRODUCTION 1 I I . URBAN FORMi CAUSES AND CONSEQUENCES 6 The Impact of Government Regulations and Controls on Urban Form . . . . . . . . 6 The D i v i s i o n of Powers Among Levels of Government . . . . . 6 Local Government Organization and Urban Development i n Kamloops 12 E x t e r n a l i t i e s . . . . . . . . . . . 19 Summary. . . . . . . . . . 23 I I I . INTERNALIZING EXTERNAL DISECONOMIESi THE PROVISION OF URBAN PUBLIC SERVICES 25 Introduction 25 Functions and R e s p o n s i b i l i t i e s of Municipal Governments . 26 Fi n a n c i a l Implications . 27 Toward a Rational Approach to Municipal Expenditure Po l i c y Decisions . . . . . . . 30 Economic Evaluation of Municipal Expenditures—PPB 31 Cost-Benefit Analysis . 36 Summary k6 IV. THE APPLICATION OF A SYSTEMATIC APPROACH TO INTERNALIZING EXTERNAL DISECONOMIES: A CASE STUDY kQ Introduction . . . . . . . . kQ The Physical Form of Westsyde kQ E x t e r n a l i t i e s A r i s i n g From the Process and Form of Development i n Westsyde. . . . 49 Community Objectives 52 Alternative Methods of Achieving the Community's Objectives . . . . . . . . 56 Evaluation of Alternatives . . . . 61 Participants . . . . . . . . 62 Costs and Benefits 63 Measurements of Costs and Benefits . . . . 6k The Analysis 65 v i Analysis of Alternatives A and C. . . . . 65 Producers . . . . . . 65 Consumers 66 Analysis of Alternatives B and C 70 Producers . . . . . . . . . . . 71 Consumers • 72 Conclusion ?6 Summary 77 V. FINANCING URBAN PUBLIC SERVICES: SOURCES OF REVENUE 80 Introduction. . . . . . . . 80 Philosophy of Taxation. . 81 Equity—The P r i n c i p l e of Benefits Received . . . . . 81 Equity—The P r i n c i p l e of A b i l i t y to Pay. 81 Adequacy 82 F l e x i b i l i t y . . . . . . . 82 E l a s t i c i t y 83 Balance 83 Neutrality. . . . . . . . . . . . . . . . 83 Certainty 84-Si m p l i c i t y . • 85 Philosophy of Intergovernmental F i s c a l Relations 85 Pr o v i n c i a l Grants 88 Philosophy of Public Borrowing 91 Municipal Sources of Revenue 92 Property Tax . 95 Site Value Taxation . . . . . . . . . . . 99 Sources of Revenue Based on the Pr i n c i p l e of Benefits Received. . . . . 100 Special Assessments . 102 User Fees or Service Charges. . . . . . . 105 Capi t a l Financing by Developers 109 Summary 112 VI. THE APPLICATION OF A SYSTEMATIC APPROACH TO FINANCING URBAN PUBLIC SERVICES* A CASE STUDY 115 Introduction 115 Equity i n A l l o c a t i n g Costs. . . . . . . . . 115 Financing by Borrowing . 119 Fi n a n c i a l Assistance From Senior Governments 119 Strategies and Alternatives f o r Financing Public Services 121 Methods of Financing Currently Practiced i n Kamloops . 121 Current Methods Applied to the Case Study 123 Capi t a l Financing by Developers 128 An Alternative Strategy f o r Financing the Case Study Servicing Program . . . . 128 Public Acceptance of the Proposed Financing Strategy. . . . . . . 1J6 Administrative F e a s i b i l i t y of the Proposed Financing Strategy IkO Impact on Urban Development 141 External Considerations i n the Decision Making Process . 1^ 1 Summary 1^ 3 VII. CONCLUSION Ik6 Summary 1^ 6 Suggestions f o r Further Study. . . . . . . . 153 Implications f o r Planning 15^ BIBLIOGRAPHY 157 APPENDICES . 163 APPENDIX A ALTERNATIVE SOURCES OF LOCAL REVENUE .163 APPENDIX B BORROWING RESTRICTIONS ON BRITISH COLUMBIA MUNICIPALITIES 165 v i i LIST OP TABLES TABLE 1 Comparison of Functions of Local Government Bodies . . 8 TABLE 2 Local Government Organization and Urban Form Cha r a c t e r i s t i c s i n Kamloops D i s t r i c t 14-TABLE 3 The Planning Balance Sheet 42 TABLE 4- Comparison of Costs and Benefits i n Alternatives A and C 69 TABLE 5 Comparison of Costs and Benefits i n Alternatives B and C 75 TABLE 6 Expenditure Items by Type of Benefit. . . . 87 TABLE 7 Expenditure Function as Percent of To t a l Municipal Expenditures! Kamloops 1973* • 89 TABLE 8 Sources of Revenue as Percent of Total Municipal Revenues Kamloops 1973 . . . . 93 TABLE 9 Sources of Revenue as Percent of Total Revenues Designated f o r General Expenditures 9*4-TABLE 10 C l a s s i f i c a t i o n of Revenues. . . . . . . . . 101 TABLE 11 Sources of Revenue as Percent of Domestic Water U t i l i t y Fund and Sanitary Sewer Fund: Kamloops 1973 124^  i x LIST OF FIGURES FIGURE 1 C i t y of Kamloops 197^ 15 FIGURE 2 Governmental Status of Developed Areas i n 1969. . . . . . . . . 16 FIGURE 3 E x i s t i n g Level of Servicing. . . . . . . . 17 FIGURE k Westsyde - Subdivision Patterns 50 FIGURE 5 Public Services i Production Cost Ch a r a c t e r i s t i c s 108 ACKNOWLEDGMENTS I would l i k e t o thank my f a c u l t y a d v i s o r s , P r o f e s s o r Brahm Wiesman and Dr. H. P e t e r Oberlander, f o r t h e i r h e l p f u l s u g g e s t i o n s and c o n s t r u c t i v e c r i t i c i s m s o f f e r e d throughout the course of t h i s study. Thanks a l s o to my wi f e , Maxine, f o r her p a t i e n c e , encouragement, and f i n a n c i a l support. CHAPTER I INTRODUCTION Municipal decision makers i n suburban communities are often confronted with demands to provide an infrastructure of urban public services i n those development sectors not serviced to a l e v e l comparable to that of the adjacent central c i t y . Several diverse opinions have been advanced as to the appropriate p o l i c i e s that should be adopted i n meeting these demands. At the one extreme, some have argued that services should not be extended because such a p o l i c y serves to encourage a continuation of "sprawling" development. Others have adopted the attitude that i t may be desirable to improve the l e v e l of serv i c i n g only i f the be n e f i c i a r i e s are required to finance the program (Eaton, 1966). At the opposite extreme, s t i l l others have argued that urban public services should be extended, and because of the magnitude of the costs involved i n providing these services, they should be financed, at lea s t to a p a r t i a l extent, by the p r o v i n c i a l government (Hardwick, 1973). I t i s impossible to reconcile these c o n f l i c t i n g opinions which appear to be based not on a systematic and analytic examination of the s i t u a t i o n , but on personal biases, i n t u i t i o n , or good w i l l . The purpose of t h i s 2 the s i s , then, i s to c l a r i f y the issues associated with formu-l a t i n g p o l i c i e s related to the process of development which has taken place i n the suburbs, as well as the consequences a r i s i n g from t h i s form of development. As a basis f o r investigating these issues, the following hypothesis i s postulated: 1. Urban r e s i d e n t i a l development imposes c e r t a i n external diseconomies* on each household of the community i n which development takes placet 2. The nature of external e f f e c t s i s a function of pre-v a i l i n g community standards and development regulations and controls imposed by government during development; 3. Assuming an objective of the community i s to i n t e r n a l -ize these e x t e r n a l i t i e s , or to prevent c e r t a i n extern-a l i t i e s from a r i s i n g , one means by which t h i s objective may be achieved i s to provide a comprehensive i n f r a -structure of urban public services i n those development sectors i n which the e x t e r n a l i t i e s are being generated; 4-. Assuming the provision of a comprehensive range of urban public services, financing can be derived from those sources of revenue based on the benefits-received p r i n c i p l e . ^ E x t e r n a l i t i e s , also referred to as s o c i a l costs and bene-f i t s , are the ef f e c t s of production or consumption a c t i v i t i e s that are not accounted f o r by private market evaluations be-cause the relevant benefits or costs are not appropriable, i . e . , they cannot be attached to i n d i v i d u a l p a r t i e s (Mushkin and Bird, 1972). 3 In order to prove or disprove the above hypothesis, c e r t a i n relevant evidence i s required. The evidence required to prove or disprove statements one and two i s f i r s t , a des-c r i p t i o n of the physical form of the development areas under examination? second, an enumeration of the development regu-l a t i o n s and controls by government during the period i n which development took place; and t h i r d , evidence of e x t e r n a l i t i e s a t t r i b u t a b l e to the physical form of development. The e v i -dence relevant to statement three i s f i r s t , a determination of the community's objectives with respect to i n t e r n a l i z i n g external diseconomies; second, a search f o r alternative means of achieving these objectives; and t h i r d , an evalua-t i o n of each objective. And f i n a l l y , to determine the v a l i d i t y of statement four, i t i s necessary f i r s t to enumer-ate alternate sources of revenue, and second to evaluate each source. In t h i s study, the required evidence i s derived from a case study of Kamloops, B r i t i s h Columbia. Several charac-t e r i s t i c s of Kamloops make i t an appropriate information source. F i r s t , urban development i n the various sectors of the d i s t r i c t has taken place i n an environment of widely varying community standards as well as development regula-tions and controls. Second, the e x i s t i n g physical form of development varies widely from sector to sector ( i . e . v a r i -ations i n servicing l e v e l s , subdivision patterns, and densi-t i e s of development). Third, there i s considerable evidence of the existence of external diseconomies. And fourth, there i s also some evidence of demands to i n t e r n a l i z e these e x t e r n a l i t i e s , or to take action to prevent c e r t a i n e x t e r n a l i t i e s from a r i s i n g . Chapter Outline Chapter II describes the physical form of Kamloops and examines the p r o v i n c i a l l e g i s l a t i v e enactments and adminis-t r a t i v e p o l i c i e s i n force during the periods i n which the various sectors of Kamloops were developed. Evidence of external diseconomies being generated i n the community i s also introduced. Chapters III and IV relate to the subject matter of statement three. Chapter III consists of a review of the l i t e r a t u r e concerned with decision making as i t relates to urban public services. Chapter IV then attempts to apply the systematic approaches to decision making outlined i n Chapter III to a case study of a p a r t i c u l a r suburban d i s -t r i c t i n Kamloops. The subject matter embodied i n statement four i s dealt with i n Chapters V and VI. Chapter V i s a review of the l i t e r a t u r e concerned with the philosophy of government f i n -ance as i t applies to taxation, intergovernmental f i s c a l r e l a t i o n s , and public borrowing. In l i g h t of a consideration of these p r i n c i p l e s , those means of financing currently i n 5 use, as well as p o t e n t i a l alternatives are described and evaluated. In Chapter VI alternative means of financing the s p e c i f i c s e r v i c i n g program of the case study outlined i n Chapter IV are i d e n t i f i e d and evaluated i n terms of the p r i n c i p l e s and c r i t e r i a enumerated i n Chapter V. The f i n a l chapter attempts to prove or disprove the hypothesis postulated i n Chapter I by measuring the evidence presented i n the main body of the thesis against the premises outlined i n the four statements of the hypothesis. 6 CHAPTER II URBAN FORM* CAUSES AND CONSEQUENCES The Impact of Government Regulations  and Controls on Urban Form The D i v i s i o n of Powers Among  Levels of Government The e x i s t i n g d i v i s i o n of powers i n Canada i s outlined i n the B r i t i s h North America Act—SS. 91 and 92 (1867). Section 92 indicates that the provinces have j u r i s d i c t i o n over property, municipal i n s t i t u t i o n s , l o c a l works and undertakings, and generally a l l matters of a merely l o c a l or private nature: they also have the power to levy d i r e c t taxation i n the province to r a i s e money f o r p r o v i n c i a l purposes. Since the provinces are supreme within t h e i r own j u r i s d i c t i o n , i t follows that the d i v i s i o n of powers between a p r o v i n c i a l government and the l o c a l governments i t has created i s e n t i r e l y at the d i s c r e t i o n of the provin-c i a l l e g i s l a t u r e . In B r i t i s h Columbia, the p r o v i n c i a l government has found i t convenient to make provisions f o r the establishment of several types of l o c a l government, including municipal-i t i e s , improvement d i s t r i c t s , school d i s t r i c t s , h o s p i t a l 7 d i s t r i c t s , and more recently regional d i s t r i c t s . The basic feature distinguishing each type i s the range of functions expressly delegated by the p r o v i n c i a l government and the degree of l o c a l autonomy i n carrying them out. An i l l u s -t r a t i v e comparison of the functions and powers of these various l o c a l bodies i s presented i n Table 1. An important consideration with respect to distinguishing the various types of l o c a l government i s the separation of governmental functions into three d i s t i n c t categories« l e g i s l a t i v e , administrative, and j u d i c i a l . Under the pro-v i s i o n of the Municipal Act, municipalities are delegated the r e s p o n s i b i l i t y f o r carrying out each of the three gov-ernmental functions. The power to carry them out, however, i s not boundless i n that a l l powers possessed by l o c a l au-t h o r i t i e s whether of a l e g i s l a t i v e , administrative or j u d i -c i a l character, are derived either d i r e c t l y or i n d i r e c t l y by express grant or necessary implication from the provin-c i a l l e g i s l a t u r e (Rogers, 1959). F i r s t , with regards to i t s l e g i s l a t i v e capacity, a muni-c i p a l council i s authorized to pass by-laws dealing with issues of a purely l o c a l nature. I t i s i n t h i s capacity that the very important element of regulating persons or t h e i r property comes into e f f e c t . For instance, a council i s authorized to regulate the use of land by implementing zoning and b u i l d i n g by-laws. I t may also pass by-laws 8 TABLE I COMPARISON OF FUNCTIONS OF LOCAL GOVERNMENT BODIES CO +» CO 00 o a> a) i - H • H <D © i-t +> +» u«+» •H C < 03 -=fr rH <D 03 > , O «H CO nJ 6 +> +> bjO+> Q rH -P p, a) o >H C crj a Function ° ° 3 o n) o k c to 6 S M o OD CO 3 S .H O H CVH Q) .H Regulatory Functions 1. Land-use regulation and zoning . . x - x x 2. Subdivision regulation x - x x 3. Building regulation x - x x 1+. Planning x - x x Administrative Functions 5. Education 1 -6. H o s p i t a l s 1 -7. Public Health x 8. So c i a l Welfare x 9. Water, sewers, and garbage . . . . x 10. F i r e Protection . x 11. Polic e Protection . . . . . . . . x 12. Streets x 13. Street Lighting x 14. Local Parks x Sources of Revenue 2 3 15. General property tax x - x xJ 16. User fees . . . . . x 17. Special Assessments . . . . . . . x 18. Borrowing x x - x X X X X - X X X X X X - X X X SOURCE: Municipal Act, Water Act, Local Services Act. "'"Education and hospitals administered by l o c a l boards, o Expenditures i n Community Planning Areas are financed by P r o v i n c i a l property taxes i n that l o c a l area. ^Regional D i s t r i c t s acquire general property tax funds from two sources« (1) member mun i c i p a l i t i e s ! and (2) p r o v i n c i a l property taxes i n unorganized areas. The functions of the Regional D i s t r i c t as tabulated are those expressly conferred i n the Municipal Act. The province has, i n some cases, delegated additional r e s p o n s i b i l i t i e s (e.g. r e s p o n s i b i l i t y f o r hospitals transferred from l o c a l Hospital Board to Regional D i s t r i c t ) . regulating the subdivision of land, as well as prescribing minimum standards of services to be provided. In addition, a council may adopt an o f f i c i a l community plan to which a l l future developments must conform. Although the adoption of such a plan does not commit the council to the undertaking of any of the suggested or outlined projects, the planning function enables a council to determine to some extent, the future form of the municipality. The second function delegated to municipalities i s that of administering those a f f a i r s on which l o c a l l e g i s l a t i o n has been enacted. For instance, the municipality may pro-vide a variety of services and u t i l i t i e s i n response to the needs, the health, the safety, and the comfort of the inha-b i t a n t s . In order to finance these services as well as other administrative functions of the corporation (e.g. management of c i t y h a l l ) , the municipality i s authorized to raise funds by taxing r e a l property, i s s u i n g business licences, charging fees f o r u t i l i t i e s , as well as by bor-rowing money and incurring l i a b i l i t i e s . The t h i r d category of governmental powers i s the j u d i c i a l function. Although a municipal council i s a n o n - j u d i c i a l body, i t may sometimes be clothed with j u d i c i a l or q u a s i - j u d i c i a l functions (Rogers, 1959). For instance, the council i s required to hold public hearings p r i o r to the implementation of zoning by-laws (Municipal Act, Sec. ?03). While such an integration of l e g i s l a t i v e , administrative, and j u d i c i a l functions i s contrary to the Montesquieuan philosophy of the separation of powers (Charles de Montesquieu; Trans, by Nugent, 1952), the f a c t that they are integrated bestows a municipal coun-c i l with extensive powers over matters of a l o c a l concern. Of the various l o c a l government bodies i n B r i t i s h Colum-bi a , m u n i cipalities are distinguishable because they alone are authorized to carry out, at l e a s t to some extent, a l l three governmental functions. The remaining "quasi-munici-p a l " bodies such as improvement d i s t r i c t s , school boards, hos p i t a l boards, and other various boards and commissions have been established only to carry on s p e c i a l i z e d functions of l o c a l government. Because of i t s influence on the deve-lopment process i n the case study, the p a r t i c u l a r body of i n t e r e s t i s the improvement d i s t r i c t , incorporated under the Water Act. The sphere of influence of an improvement d i s t r i c t i s considerably l e s s than that of a municipality i n that of the three governmental functions, i t has been dele-gated the administrative function only. An improvement d i s t r i c t i s r e s t r i c t e d to the provision of s p e c i f i c l o c a l services, including domestic water, f i r e protection, street l i g h t i n g , i r r i g a t i o n , drainage, dyking, garbage and sewage disposal, parks, recreational areas, community h a l l s , .sale of power, ambulance service, cemeteries, land protection and improvement, and mosquito c o n t r o l . In a manner s i m i l a r to that of a municipality, an improvement d i s t r i c t i s author-ized to pass by-laws enabling i t to r a i s e funds by s p e c i a l assessments, f i x i n g t o l l s , or borrowing. Unlike a munici-p a l i t y , however, an improvement d i s t r i c t i s not authorized to pass l e g i s l a t i o n designed to regulate or control the use or subdivision of land, nor i s i t authorized to undertake any planning functions. A more recent addition to the various categories of government organization at the l o c a l l e v e l i n B r i t i s h Columbia i s the regional d i s t r i c t . The purpose of t h i s system of re-gional organization i s to provide a means of d i s t r i b u t i n g the costs of c e r t a i n area-wide services over the p a r t i c i -pating members without creating a f u l l - f l e d g e d second-tier administrative body as found i n the new regional governments of Quebec and Ontario, Metropolitan Toronto and Metropolitan Winnipeg (Canadian Tax Foundation, 1973). The functions and services, as provided f o r i n the Municipal Act, are rather extensive, including regional and community planning, b u i l d i n g regulations, l o c a l works and services to e l e c t o r a l areas, contract works and services to mun i c i p a l i t i e s and improvement d i s t r i c t s , and grants-in-aid. In some regional d i s t r i c t s , several additional functions have been assigned. For instance, the Thompson-Nicola Regional D i s t r i c t , i n which Kamloops i s located, i s also responsible f o r regional parks, mosquito control, refuse disposal, as well as untidy and unsightly premises. 12 P r i o r to the inception of regional d i s t r i c t s , a l l those t e r r i t o r i e s not included i n incorporated municipalities (unor-ganized t e r r i t o r i e s ) were administered e n t i r e l y by p r o v i n c i a l aut h o r i t i e s , that i s , except f o r the provision of s p e c i f i e d services by improvement d i s t r i c t s as well as hospital and school d i s t r i c t s . Of the administrative functions c a r r i e d out by p r o v i n c i a l authorities with respect to development i n unorganized areas, one that has been of p a r t i c u l a r s i g n i f i -cance i s the process of approving subdivisions. Under the provisions of the Land Registry Act (S. 91)» the approving o f f i c e r i n unorganized t e r r i t o r i e s i s a designated agent of the Department of Highways. There were also provisions under the Local Services Act (S. 2) whereby the Department of Municipal A f f a i r s was author-ized to e s t a b l i s h Community Planning Areas i n unorganized t e r r i t o r i e s f o r the purposes of regulating land.use,. building, zoning, subdivision control, as well as the preparation of community plans. Unlike the s i t u a t i o n i n municipalities where such powers are exercisable at the l o c a l l e v e l , however, these regulatory powers when applied to Community Planning Areas were retained by the Minister of Municipal A f f a i r s . Local Government Organization and  Urban Development i n Kamloops The governmental status as well as the urban form c h a r a c t e r i s t i c s of each development sector i n Kamloops i s enumerated i n Table 2 . This information, as well as a com-parison of Figures 2 and 3 i suggests a relat i o n s h i p between l o c a l government organization during the process of develop-ment, and the resultant form of urban development. It also substantiates the fact that l o c a l authority to regulate and control the use, subdivision, and se r v i c i n g of land varied widely among the various government bodies. For instance, the f a c t that South Kamloops i s f u l l y serviced and compactly developed with few vacant parcels i s evidence that the dele-gated authority to regulate and control the development of land has been exercised. On the other hand, the haphazard and scattered development i n the surrounding suburbs would suggest that the responsible government bodies i n these areas either were not authorized to impose development regulations and controls, or, because of the p r e v a i l i n g community stand-ards, they were reluctant to exercise t h e i r authority. To determine which of these arguments i s i n fact accurate, i t i s necessary to note the presence of three d i s t i n c t govern-ment bodies, each responsible f o r a separate aspect of urban development i n non-municipal t e r r i t o r i e s . F i r s t , the im-provement d i s t r i c t was responsible only f o r providing cer-t a i n services: i t was not authorized to implement develop-ment regulations or controls. Second, the p o t e n t i a l regular tory powers of Community Planning areas as provided f o r i n the Local Services Act, were i n fact f a r greater than the actual powers delegated to the Community Planning Area i n TABLE 2 LOCAL GOVERNMENT ORGANIZATION AND URBAN FORM CHARACTERISTICS IN KAMLOOPS DISTRICT Governmental Governmental , E x i s t i n g Urban Form S t a t u s i n 1963 Status i n 1973 C h a r a c t e r i s t i c s South Kamloops f u l l y s e r v i c e d , 4 ' compact s u b d i -( i n c . 1893) ...... C i t y C i t y v i s i o n g r i d p a t t e r n , v e r y few vacant p a r c e l s North Kamloops ( i n c . 194-6) Town C i t y (merged with S. Kamloops i n p a r t i a l l y s e r v i c e d , s u b d i v i s i o n 1967) p a t t e r n somewhat haphazard, „ ,, , T . some s c a t t e r e d vacant p a r c e l s V a l l e y v i e w ....... Improvement v D i s t r i c t (I.D.) Town B r o c k l e h u r s t I.D. D i s t r i c t M u n i c i p a l i t y (D.M.) D u f f e r i n ......... Unorganized D.M. Westsyde Unorganized Unorganized minimally s e r v i c e d , haphazard D a l l a s Unorganized Unorganized s u b d i v i s i o n p a t t e r n , r e l a t i v e l y B a m h a r t v a l e ..... Unorganized Unorganized high p r o p o r t i o n of vacant p a r -R a l e i g h . . . . I.D. I.D. e e l s s c a t t e r e d s p o r a d i c a l l y H e f f l e y Creek .... I.D. I.D. throughout area ^Immediately p r i o r t o amalgamation. iTAll unorganized t e r r i t o r y i n c l u d e d i n Community P l a n n i n g Area No, 8 ( e s t . I960). ^ E n t i r e a r e a i n c l u d e d i n Thompson-Nicola Regional D i s t r i c t ( i n c . 1967). For the purposes of t h i s study, the v a r i o u s l e v e l s of s e r v i c i n g are d e f i n e d as f o l l o w s : F u l l S e r v i c i n g - i n c l u d e s hot-mix a s p h a l t roads with curbs and g u t t e r s , c o n c r e t e sidewalks and ornamental s t r e e t l i g h t i n g , as w e l l as storm sewer, s a n i t a r y sewer, and water d i s t r i b u t i o n systems. P a r t i a l S e r v i c i n g - i n c l u d e s hot-mix or cold-mix a s p h a l t roads, roadside d i t c h e s f o r storm drainage, some s t r e e t l i g h t i n g , as w e l l as s a n i t a r y sewer and water d i s t r i b u t i o n systems. Minimal S e r v i c i n g - i n c l u d e s g r a v e l or cold-mix a s p h a l t roads, some roadside d i t c h e s , o c c a s i o n a l s t r e e t l i g h t i n g , and a water d i s t r i b u t i o n system. 18 the Kamloops d i s t r i c t (No. 8).* As such, i t could be argued that the province has been reluctant to exercise i t s author-i t y to regulate and control urban development i n unorganized t e r r i t o r y . And t h i r d , the Department of Highways, acting i n the capacity as approving o f f i c e r i n unorganized areas, was not authorized to l e g i s l a t e development regulations! the basis f o r approval was the P r o v i n c i a l Subdivision Regulations outlined i n the Local Services Act. Compared to the subdi-v i s i o n regulations l e g i s l a t e d i n some mu n i c i p a l i t i e s , the regulations to be complied with by subdividers i n unorganized t e r r i t o r i e s have not been onerous, namely, that l o t shape be reasonable, that public access be provided to each parcel, and that l o t size be adequate to accommodate sewage disposal by septic tank.** *According to Order i n Council No. 11?1, June 1, 1959» Community Planning Areas were to be established f o r the following purposes« (1) The preparation of community plans by the a p p l i c a t i o n of Divisions (1) and (6) of Part XXI of the Municipal Act. (2) The regulation of land use, zoning, subdivision-control and construction of buildings or structures of any kind by the a p p l i c a t i o n of D i v i s i o n (3), (4) and (5) of Part XXI of the Municipal Act. I t follows, then, that the p o t e n t i a l powers available to Com-munity Planning Areas were equivalent to the powers of a municipality. The regulations made by the Department of Municipal A f f a i r s with respect to Community Planning Number 8, however, r e s t r i c t e d the powers of the l o c a l area to im-posing building regulations, subdivision regulations (quite l i m i t e d compared to provisions of Municipal Act), and some very rudimentary zoning regulations (B.C. Reg. 105/60), **The minimum l o t size requirement has been an influencing f a c t o r on average parcel size--most r e s i d e n t i a l l o t s i n the suburban areas are r e l a t i v e l y large, that i s , i n the order of one-quarter to one-half acre. 19 E x t e r n a l i t i e s In t h i s section, evidence i s introduced that indicates f i r s t , the existence of external e f f e c t s associated with urban development, and second, that the nature of external e f f e c t s varies according to the physical form of the deve-lopment sector i n which they a r i s e . I t should be r e i t e r a t e d at t h i s point that e x t e r n a l i t i e s are the costs or benefits of e i t h e r production or consumption a c t i v i t i e s not accounted f o r by private market evaluations. The c l a s s i c example of an external diseconomy i s the housewife's laundry hanging outdoors being d i r t i e d by the smoke from a nearby factory. Examples of e x t e r n a l i t i e s abound i n urban development areas, the most obvious being t r a f f i c congestion and p o l l u t i o n of every description. Other forms are more subtle and l e s s obvious. For instance, a study conducted i n the Munici-p a l i t y of Richmond concluded that on the average, each dwelling unit i s subsidized by the municipality i n an amount of approximately $250 annually (Richmond Planning Department, 1972). In other words, the mere f a c t that a dwelling u n i t exists r e s u l t s i n the imposition of a diseconomy on the entire community by virtue of the f a c t that the community i s obliged to provide services both to the property and to i t s inhabitants. In the context of t h i s study, the e x t e r n a l i t i e s of par-t i c u l a r i n t e r e s t are those a r i s i n g i n suburban development sectors. The nature of the external diseconomies generated i n the suburbs i s generally of a markedly d i f f e r e n t nature from those generated i n the central c i t y . To i l l u s t r a t e t h i s d i f f e r i n g nature, consider the e x t e r n a l i t i e s a r i s i n g from the alternative methods of sewage d i s p o s a l — a community sanitary sewer system;on one hand, and i n d i v i d u a l septic tank disposal systems on the other. In a f u l l y serviced area, a property owner imposes external diseconomies on the entire community only i f the funds expended by the c i t y to provide sanitary sewer service to his property are not f u l l y recoverable by taxes and fees charged against that property. In such a s i t u a t i o n , the external diseconomy at t r i b u t a b l e to the property owner would be equivalent to the subsidy paid by the municipality to make up the difference. On the other hand, the e x t e r n a l i t i e s or p o t e n t i a l ex-t e r n a l i t i e s a r i s i n g i n a minimally serviced suburban develop-ment area i n which sewage disposal i s accommodated e n t i r e l y by i n d i v i d u a l septic tanks are of a va s t l y d i f f e r i n g nature from those a r i s i n g i n f u l l y serviced areas. According to the U.S. Department of Health, D i v i s i o n of Environmental Engineering (1962), the septic tank method i s usually a sa t i s f a c t o r y means of sewage disposal i n those areas where the s o i l s are r e l a t i v e l y permeable, and where r e s i d e n t i a l parcels are large and widely dispersed, as i n a g r i c u l t u r a l or country r e s i d e n t i a l d i s t r i c t s . I f a disposal system does f a i l , i t i s possible to move the absorption f i e l d to another 21 part of the owners property? hence, no external diseconomies are i n evidence. With progressive suburban subdivision and development, however, the density of development i n e v i t a b l y increases and the average parcel .size decreases. I f no a l -ternative means of sewage disposal are made available such that suburbanites must also r e l y on septic tanks, the poten-t i a l f o r external diseconomies of two types becomes apparent. F i r s t , with increased density, the effluent load per unit area i s increased proportionately, with the r e s u l t that the absorbing s o i l i n the entire area i s l i k e l y to become satur-ated and clogged with sewage residues more ra p i d l y than be-fore. Therefore, the rate of s u r v i v a l of a l l septic tank disposal systems may be reduced; i n a sense, a negative ex t e r n a l i t y i n the form of a shortened septic tank l i f e i s imposed on each resident by his neighbors. Second, i n the event that a suburban resident's disposal system malfunc-tions, he does not have the alternative available to the farmer or large l o t holder of moving the disposal f i e l d to another part of his property. Hence, when the absorption system f a i l s , sewage seeps onto the ground surface, thus imposing external diseconomies on the entire community— sewage seepage i s a nuisance as v/ell as a public health hazard. Similar evidence i s available with respect to other services as well. For instance, the t r a f f i c load on an ar-t e r i a l highway designed to accommodate a r u r a l or semi-rural population often exceeds i t s capacity. With suburban deve-lopment, each additional motorist imposes e x t e r n a l i t i e s on other motorists not only by contributing to an increase i n t r a f f i c congestion, but by posing an increased safety threat to a l l motorists and highway pedestrians as well. As the d e f i n i t i o n suggests, e x t e r n a l i t i e s are not neces-s a r i l y associated only with consumption a c t i v i t i e s ? they are often associated with production a c t i v i t i e s as well. For instance, consider a s i t u a t i o n i n which development has taken place i n a natural drainage course. I f t h i s property i s subsequently inundated by unusual floods because of i n -adequate dyking, diversion, or drainage f a c i l i t i e s , the resultant damage i s i n e f f e c t an external diseconomy imposed on the property owners by the producers, i n that the l a t t e r did not make provisions f o r adequate protective safeguards. In the event that action i s taken to i n t e r n a l i z e the above mentioned e x t e r n a l i t i e s by providing a d d i t i o n a l ser-vices, evidence exists that additional external diseconomies associated with the form of development may also a r i s e . Pearson (1967) has shown that the per unit cost of se r v i c i n g an area i s a function of parcel size and shape, distance from developed sectors that are presently serviced, the pro-po r t i o n of vacant parcels, the s p a t i a l d i s t r i b u t i o n of vacant and occupied parcels, as well as the l e v e l of ser-v i c i n g provided ( i . e . f u l l , p a r t i a l , or minimal). I f ser-v i c i n g costs are indeed based on these variables, i t can.be expected that i n the context of the pattern of development exis t i n g i n the suburbs of Kamloops, the per unit costs of providing even a p a r t i a l l e v e l of s e r v i c i n g w i l l be r e l a -t i v e l y high. I t could be argued that these high s e r v i c i n g costs are, i n e f f e c t , external diseconomies a r i s i n g from the development practices of private i n t e r e s t s , which did not take into account the p o t e n t i a l e f f i c i e n c i e s to be achieved by planning f o r future servicing requirements, or by co-ordinating development so as to avoid the sporadic scattering of vacant and unoccupied parcels of land. Summary The evolutionary process of l o c a l government organiza-t i o n i n the Kamloops d i s t r i c t has s i g n i f i c a n t l y affected the present urban form of that c i t y . The f a c t that the various l o c a l governmental bodies were delegated d i f f e r e n t responsi-b i l i t i e s and powers resulted i n a s i t u a t i o n i n which deve-lopment regulations and controls varied widely from sector to sector; development regulations were r e l a t i v e l y stringent i n the C i t y of Kamloops and considerably less stringent i n the surrounding suburbs. As a consequence, the present physical form of each development sector r e f l e c t s the nature of the development regulations and controls i n force during the period i n which that sector was subdivided and developed. Urban development, whatever i t s nature, gives r i s e to external diseconomies being imposed by each i n d i v i d u a l on every other i n d i v i d u a l i n the community. The nature of the external e f f e c t s , however, varies widely depending on the nature of the physical form of the sector i n which they a r i s e . For instance, e x t e r n a l i t i e s associated with the pro-v i s i o n of urban public services i n f u l l y serviced areas are generally of a monetary nature, whereas the external d i s -economies generated i n p a r t i a l l y or minimally serviced sec-tors are often of such a nature that they concern the health and safety of the residents, as well as the protection of t h e i r property. The evidence introduced i n t h i s chapter, therefore, would suggest that external e f f e c t s are associated with urban development, and that the nature of the e x t e r n a l i t i e s i s a function of governmental regulations and controls i n force during the period of development. 25 CHAPTER III INTERNALIZING EXTERNAL DISECONOMIES* THE PROVISION OF URBAN PUBLIC SERVICES Introduction Assuming an objective of the community i s to i n t e r n a l -ize the external diseconomies outlined i n the preceding chapter, one means of achieving t h i s objective i s to pro-vide a comprehensive range of urban public services i n those areas i n which the e x t e r n a l i t i e s are being generated. The method adopted to te s t the v a l i d i t y of t h i s premise i s e s s e n t i a l l y that of applying a systematic and analytic approach to decision making at the l o c a l l e v e l with respect to the e x t e r n a l i t i e s a r i s i n g i n a p a r t i c u l a r Kamloops suburb. Chapter III reviews the l i t e r a t u r e relevant to providing urban public services; p a r t i c u l a r emphasis i s placed on the several systematic approaches developed to aid i n l o c a l decision making. Chapter IV applies these approaches to resolving the problems associated with the external d i s -economies a r i s i n g out of the Kamloops case study. 26 Functions and R e s p o n s i b i l i t i e s of Municipal Governments Municipal government as i t exists i n Canada i s of a dual or composite character. F i r s t , when i t i s executing general p r o v i n c i a l laws within i t s boundaries, the corpora-t i o n can be said to be acting as an agent of the province. The functions c a r r i e d out i n t h i s capacity are generally of a mandatory nature. For instance, municipalities i n B r i t i s h Columbia are required tot (1) provide s o c i a l assistance to i t s poor and destitute (Municipal Act, S. 639); (2) pay costs necessary to maintain and enforce laws (Municipal Act, S. 644); and (3) act as agents f o r l o c a l boards by c o l l e c t i n g t h e i r share of l o c a l property taxes (Public Schools Act, S. 199). Second, when i t i s performing the duties of regu-l a t i n g the conduct and supplying the wants of the population i n a geographical area by l o c a l laws, i t i s acting i n i t s municipal aspect (Rogers, 1959). The functions c a r r i e d out i n t h i s capacity are the ordinary housekeeping requirements of places where people congregate to l i v e and carry on busi-n e s s — f i r e protection, water, sewers, garbage disposal, street l i g h t i n g , streets, sidewalks, and so on. Unlike the functions undertaken as the agent of the province, however, the delegated powers of municipalities to carry out house-keeping functions are of a discretionary nature; thereby freeing them of any l e g a l obligation to provide such ser-v i c e s . Housekeeping services, therefore, are generally 2? provided i n response to demands by the constituents. F i n a n c i a l Implications A widespread concern at the municipal l e v e l i s the rap i d l y increasing demand on l o c a l f i n a n c i a l resources not only to provide more funds f o r the obligatory functions over which l o c a l government aut h o r i t i e s have no control, but to s a t i s f y the growing demands of l o c a l residents f o r more and better services of a housekeeping nature. Consider f i r s t the mandatory functions of municipal governments. Of prim-ary i n t e r e s t i s education because i t absorbs a large propor-t i o n of revenues obtained from taxes on r e a l p r o perty—the p r i n c i p a l source of revenue available to m u n i c i p a l i t i e s . Indeed, the proportion of property taxes required f o r educa-t i o n i s ever increasing? i n B r i t i s h Columbia, the proportion required f o r education increased from 40,6 percent i n 1957 to 5^.3 percent i n 1968 (Plunkett, 1971). In Kamloops, the proportion of property taxes required f o r education was 55.1 percent i n 1973 (Kamloops Budget, 1973). The costs to municipalities of providing s o c i a l welfare services are increasing as well, although they are not of the same magnitude as educational costs (Plunkett, 1971). And, as with education, municipal authorities have l i t t l e r e a l control over s o c i a l welfare expenditures since the standards of assistance are determined e n t i r e l y by the province. This trend of increasing costs i s expected to continue. Baumol (1967) has argued that there i s a tendency f o r sus-tained and cumulative increases i n the costs of a c t i v i t i e s i n what he c a l l s the non-progressive sector of the economy. This sector comprises a c t i v i t i e s that are labour-intensive, the best examples being teaching and medical services. Such a c t i v i t i e s can benefit very l i t t l e from increase i n produc-t i v i t y brought about by innovations, c a p i t a l accumulation, and economies of large-scale production, which are character-i s t i c of the progressive sector of the economy (Baumol, 1967). The p r i n c i p a l concern of municipal governments with respect to increased expenditures on education and welfare i s that t h e i r share of the mainstay of the municipal revenue system—the y i e l d from r e a l property t a x e s — i s diminishing. As such, the capacity of mun i c i p a l i t i e s to respond to urban needs i s reduced (Plunkett, 1972). The f i n a n c i a l problems confronting l o c a l governments are compounded by l o c a l demands f o r a higher standard of exi s t i n g services and f o r the provision of additional ser-v i c e s . Hickey (1972) a t t r i b u t e s t h i s i n part to the advent of the automobile and a prosperity that has made i t possible fo r the majority of workers to move from the older residen-t i a l areas into suburbia and the countryside, and yet con-tinue to work i n the center of an urban area? hence the resultant demand f o r the extension of public works to these d i s t r i c t s . In addition, demands f o r c e r t a i n l o c a l public services which have not t r a d i t i o n a l l y been a s i g n i f i c a n t item i n the budgets of l o c a l governments, are r a p i d l y i n -creasing. Of these the most s i g n i f i c a n t are recreation and community services. Between 1961 and 19&7, the average annual rate of increase i n municipal expenditures on t h i s service i n B r i t i s h Columbia was 19.1 percent (Plunkett, 1972), Plunkett argues that t h i s upward trend of l o c a l respon-s i b i l i t y to meet addit i o n a l and increasingly complex demands i s l i k e l y to continue. There i s no longer any r e a l public doubts with regard to the necessity of c i t i e s providing f o r the maintenance of roads and streets, or operating a pure water system. These and other housekeeping services are now taken f o r granted by v i r t u a l l y a l l c i t i z e n s . Instead, the c r u c i a l issues that concern the urban resident have a much more subjective q u a l i t y i n that they tend to revolve around a concern f o r "the q u a l i t y of urban l i f e " . More s p e c i f i c a l l y , these issues concern development patterns, the emphasis on transportation with respect to vehicles or people, the re-h a b i l i t a t i o n of neighborhoods, the provision of s o c i a l and recreational amenities, and the provision of public support to housing schemes f o r those who cannot be provided with adequate accommodation e n t i r e l y through the market mechanism. In addition, there are the issues associated with development planning and the l o c a t i o n of public improvements i n a manner which minimizes t h e i r undesirable s o c i a l and economic e f f e c t s 30 on both people and neighborhoods (Plunkett, 1972). I t i s i n the context of these predicted substantial increases i n urban expenditures that Robinson emphasizes the need f o r municipal authorities to respond to the following issues i (1) what are the legitimate items that concern muni-c i p a l governments; (2) given the l i m i t e d budget of a munici-p a l i t y , how much should be spent on each item; (3) how i s the municipality to determine whether i t s expenditures are achieving t h e i r objectives; and (4) how are m u n i c i p a l i t i e s to obtain the funds to finance t h e i r a c t i v i t i e s (Robinson, 1971). Toward a Rational Approach to Municipal  Expenditure Policy Decisions To enable municipal authorities to come to grips with the foregoing questions i n a l o g i c a l and r a t i o n a l manner, several analytically-based devices have been devised. One that may be well-suited to municipal government, i s the planning-programming-budgeting (PPB) system. This approach " i s intended to highlight management considerations i n bud-geting and i n so doing to bring out the most s i g n i f i c a n t eco-nomic, f i n a n c i a l , and physical aspects of the budgetary a c t i -v i t y " . This i s i n contrast to the t r a d i t i o n a l system of budgeting, which "does not provide information on what a government i s a c t u a l l y doing and what i t gets f o r the money spent" (United Nations Department of Economic and S o c i a l A f f a i r s , 1965). 31 Economic Evaluation of Municipal  Expenditures—PPB The underlying concepts of PPB are r e l a t i v e l y s t r a i g h t -forward: to i d e n t i f y the goals of municipal government, to consider alternate ways of achieving those goals and the costs of each a l t e r n a t i v e , and to s e l e c t the method that achieves each goal at l e a s t cost. Objectives. According to Mushkin and Willcox (1968), i d e n t i f i c a t i o n of the fundamental governmental objectives of the j u r i s d i c t i o n i s a key phase i n the implementation of a PPB system. Sometimes c a l l e d missions, goals, or needs, these define as sharply as possible the chief purposes f o r which the government unit exists (Mushkin and Willcox, 1968). As Robinson points out, however, such a c a l l f o r the i d e n t i -f i c a t i o n and formulation of government objectives assumes that governments at the municipal l e v e l can have permanent objectives that can be i d e n t i f i e d and formulated in; precise terms, that a p o l i t i c a l mechanism e x i s t s which can s e l e c t such objectives and weight them according to voters* prefer-ences, and that the voters w i l l i n f a c t choose a set of s p e c i f i c objectives rather than r e t a i n the option of "playing i t by e a r " — t h a t i s , of basing action on what the present generation of municipal o f f i c i a l s deems to be the most im-portant and pressing problems rather than on what was decided i n the past (Robinson, 1971). In f a c t , several writers have questioned the v a l i d i t y of t h i s assumption and i n so doing, have i m p l i c i t l y questioned whether the a n a l y t i c a l approach of PPB i s r e a l l y suited to the actual decision making process i n government. For i n -stance, Lindblom (1961) i n his representation of the incre-mental approach to decision making, claims that i t i s wrong to impute objectives to governments because decision makers, to say nothing of the electorate, do not i n fa c t wholly agree on objectives or values. P o l i c i e s are agreed upon by s h i f t i n g c o a l i t i o n s of groups: democratic government takes advantage of agreement between two ind i v i d u a l s where i t finds i t . Though some groups may get together to muster enough support f o r a p a r t i c u l a r p o l i c y to ensure i t s im-plementation, t h i s does not imply any agreement about long-run objectives but i s simply a momentary coalescence of short-run i n t e r e s t (Lindblom, 1961). I f i t i s assumed, contrary to Lindblom's arguments, that municipalities do indeed have objectives, the problem of determining them remains. As H i l l (1968) has pointed out, elected o f f i c i a l s are generally more than hesitant to e x p l i -c i t l y express the objectives they may wish to pursue. Con-sequently, i n d i r e c t methods of determining a community's objectives must be adopted. An additional p r a c t i c a l problem associated with deter-mining a community's objectives i s the l i k e l i h o o d of c o n f l i c t s 33 of objectives among various groups i n the community. For instance, such c o n f l i c t s may arise between r i c h and poor, between apartment dwellers and home-owners, or between i n d u s t r i a l developers and conservationists. I f at some point i n time a p a r t i c u l a r municipal govern-ment i s able to formulate i t s objectives, the question then arises as to how permanent t h i s statement of objectives and p r i o r i t i e s i s . Robinson (1971) points out that since PPB systems envisage multi-year rather than single-year budgets, the l o g i c of PPB requires a r e l a t i v e l y permanent set of governmental objectives. Because of the nature of munici-pal decision making, however, the achievement of a permanent set of objectives i s d i f f i c u l t . Rather than being concerned with broad p o l i c y issues, the implementation of l o c a l p o l i c i e s are d i r e c t l y related to the interests of i n d i v i d u a l s and small groups (Robinson and Cutt, 1968). An associated fea-ture of requiring a r e l a t i v e l y permanent set of objectives i s the loss of some f l e x i b i l i t y , which could be considered by some as undesirable. By reason of having adopted a pro-gram, an organization reduces i t s freedom to do something d i f f e r e n t i n future years, since a conscious act of r e v i s i o n i s required (Smithies, 1965). If i t can be assumed that r e l a t i v e l y permanent objec-t i v e s can be determined, the problem then arises of formu-l a t i n g them i n a meaningful and useful manner. Meaningful and u s e f u l objectives should s a t i s f y the following c r i t e r i a : (1) they should be stated i n such terms that o f f i c i a l s w i l l be able to say unequivocally whether a p a r t i c u l a r measure i s a movement towards or away from i t s achievement (Robinson, 197D? and (2) they should r e f l e c t p o t e n t i a l impacts on c i t i z e n s and the communityj that i s , they should be "people-oriented" (Hatry, et a l . , 1973). Thus the objective "to improve the physical and economic condition of the c i t y " , though an unexceptionable statement of p o l i c y , i s not very useful as i t does not s a t i s f y the f i r s t c r i t e r i o n . And, objectives which concentrate on workload measures such as tons of garbage collected} or immediate physical measures such as number of acres of playground, f a i l to s a t i s f y the second c r i t e r i o n . The foregoing discussions would tend to indicate that while PPB may be an e f f i c i e n t means of implementing community objectives once they have been formulated, i t does not pro-vide a d i r e c t means f o r the community to set out i t s objec-t i v e s i n an appropriate public document. Nevertheless, Robinson sees the p o t e n t i a l f o r a considerable i n d i r e c t value, because i f a municipality decides to implement PPB, i t must devise some means of determining what i t s objectives are, and the degree of p r i o r i t y attached to each. The esta-blishment of such machinery may i n i t s e l f be a major improve-ment i n administrative e f f i c i e n c y , since i t would provide c r i t e r i a against which administrators could evaluate p o l i c y decisions, and would require them to consider the conse-quences of governmental programs i n a way that i s avoidable under the present ad-hoc procedures (Robinson, 1971). Selection of Alternatives. I t i s c l e a r that i f a gov-ernment could get agreement on the i d e n t i f i c a t i o n and formu-l a t i o n of p o l i c y objectives, the process of operational!zing a PPB system would be greatly s i m p l i f i e d . D i f f i c u l t i e s could s t i l l remain, however, as there could be alternative programs that would serve the same objectives. Many analysts stress the need to search widely f o r ideas. According to Hatry and Cotton (1967), a major deficiency of past analyses of government programs has been the inadequate consideration of a l t e r n a t i v e s . Mushkin and Herman (1968) a t t r i b u t e t h i s deficiency i n large part to the tendency f o r government de-partments and agencies to r e s t r i c t the consideration of p o l i c y alternatives to those f a l l i n g within the purview of the p a r t i c u l a r agency's function. Since one of the reasons f o r introducing a PPB system i s to get away from such l i m i -tations, i t i s therefore important that a wide-ranging search be conducted f o r new alternatives that extend beyond organizational l i n e s (Mushkin and Herman, 1968). Evaluation of Alternatives. Following the search f o r alte r n a t i v e s , a preliminary evaluation of the various a l t e r -natives i d e n t i f i e d i s desirable. Those options that are not relevant are discarded. Those that necessitate additional new technology may be reviewed i n terms of how much research or engineering of what kinds would be needed to provide i t . Those that c a l l f o r new i n s t i t u t i o n a l organizations would be assessed i n terms of f e a s i b i l i t y (Mushkin and Herman, 1968). The following stage, the analysis proper, involves the tenta-t i v e s e lection, from among the remaining range of options, of those that would be subjected to in-depth analysis. Cost-Benefit Analysis The systematic evaluation of alternative means of achieving an objective consists b a s i c a l l y of assessing the benefits or gains pertaining to each alternative r e l a t i v e to cost. Additional relevant c r i t e r i a , such as the incidence of costs and benefits, may also be integrated into the analysis. The t r a d i t i o n a l cost-benefit model, applied to public investment projects, i s conceptually derived from the econo-mic theory of the firm i n which each firm endeavors to maxi-mize i t s p r o f i t s (Mishan, 1971), Microeconomic theory i n d i -cates that when a profit-maximizing entrepreneur i s faced with the need to choose between a number of projects, he compares the p r o f i t a b i l i t y of alte r n a t i v e projects by deter-mining the p r o f i t s of each project, calculated on the basis of the monetary revenues and costs predicted to accrue, and relates these to the c a p i t a l invested. Heathen chooses the most p r o f i t a b l e projects. By applying t h i s conceptual frame-work to public investment projects, an analyst using the cost-benefit approach, instead of considering only costs and revenues as they accrue d i r e c t l y to the agency involved, would have to take into consideration the e f f e c t s of the project as they apply to the entire community. As Mishan (1971) points out, an economist carrying out an analysis of a public investment project asks whether society as a whole w i l l be made better o f f by undertaking i t , or by undertaking instead, any of a number of alternative projects. In com-paring the cost-benefit analysis of a public investment to the p r o f i t and loss accounting of the private firm, Mishan indicates the basic, adaptations of the private enterprise approach to make i t applicable to a public investment project. Namely, the more precise concept of the revenue of the private firm i s replaced by the less precise concept of s o c i a l bene-f i t . For the costs of the private concern, the analyst sub-s t i t u t e s the concept of opportunity c o s t — o r s o c i a l value foregone elsewhere i n moving factors into a projected eco-nomic a c t i v i t y . In place of the p r o f i t of the private con-cern i s the concept of excess s o c i a l benefit over cost, or some related investment c r i t e r i o n . I m p l i c i t i n the cost-benefit approach i s that the basic c r i t e r i o n f o r acceptance of a project i s economic e f f i c i e n c y . In a manner si m i l a r to a private firm which chooses that project which maximizes p r o f i t s , the public agency chooses that project which as H i l l (1968) puts i t , maximizes the net project contribution to the entire community; or i n other words, maximizes s o c i a l benefit over cost. The t r a d i t i o n a l emphasis on economic e f f i c i e n c y as the sole c r i t e r i o n f o r evaluating alternative programs has been questioned on the grounds that other c r i t e r i a are relevant as w e l l . Whether or not the d i s t r i b u t i v e e f f e c t s of an investment program should be included i n an analysis has given r i s e to a considerable amount of controversy. The proponents of the t r a d i t i o n a l approach have been very e x p l i -c i t i n s t a t i n g that the sole c r i t e r i o n f o r evaluation of alternative projects i s that of economic e f f i c i e n c y . Equity considerations have been recognized as important i n the decision making process but have been l a r g e l y ignored i n cost-benefit evaluations. For instance, Eckstein says, "there i s no l o g i c a l way of incorporating d i s t r i b u t i v e e f f e c t s into the benefit-cost analysis, which must confine i t s e l f to the one dimension of benefit f o r the country as a whole" (Eckstein, 1958« p. 36). In a s i m i l a r vein, Prest and Turvey indicate that ". . .we have to eliminate the purely transfer or d i s t r i b u t i o n a l items from a cost-benefit evaluation (Prest and Turvey, 1965* P» 688). The rationale f o r t h i s approach i s based l a r g e l y on the argument that i t i s most e f f i c i e n t to r e d i s t r i b u t e income d i r e c t l y from one group of individuals to another through government programs of taxation and subsidies, than to do so i n d i r e c t l y through government investment programs that are designed also to increase national product (Maass, 1966). In addition, there i s the p r a c t i c a l d i f f i c u l t y of evaluating the r e d i s t r i b u -t i o n a l consequences of public expenditure programs. As Good (1971) points out, there exists the inevitable problem that even i f one accepts i n d i v i d u a l preferences as a measure of i n d i v i d u a l welfare there i s no generally accepted method i n welfare economics f o r aggregating the diverse preferences of d i f f e r e n t i n d i v i d u a l s . In other words, there i s no generally accepted s o c i a l welfare function. Nevertheless, the f a c t remains that the objectives of a community are u n l i k e l y to be l i m i t e d to concerns f o r eco-nomic e f f i c i e n c y . As such, to be relevant, an analysis must take account of these various objectives; one of the most important being a concern f o r the d i s t r i b u t i o n a l or equity e f f e c t s of an investment project. Weisbrod (1968) has made the claim that the disappointing response of p o l i t i c i a n s to many cost-benefit analyses of federal investment projects can be a t t r i b u t e d l a r g e l y to the tendency of analysts to ignore the r e d i s t r i b u t i o n a l e f f e c t s of the projects i n ques-t i o n . And i n response to the above mentioned arguments that d i s t r i b u t i o n a l e f f e c t s are best handled by taxation and lump-sum transfers, L i c h f i e l d and Margolis stated that " . . . pub-l i c morality r e j e c t s t h i s avenue and instead accepts the i n -d i r e c t tinkering of the market place to a f f e c t these transfers. The impersonal market place i s not only a place where con-f l i c t s can be resolved without personal bitterness and v i o -lence, but i t i s also a place where a i d can be received with-out shame or humbleness" ( L i c h f i e l d and Margolis, 1962» p. 136). ko Several writers have given l i p service to the necessity of considering the d i s t r i b u t i v e e f f e c t s of a public invest-ment. For instance, Prest and Turvey (1965) suggest that these e f f e c t s should be considered as a constraint when evaluating alternative plans. Even i f a p a r t i c u l a r a l t e r -native i s c l e a r l y superior i n terms of economic e f f i c i e n c y , i t may be rejected because of a d i s t r i b u t i o n a l constraint. I t i s r a r e l y applicable i n practice that the unfavorable ef f e c t s on income d i s t r i b u t i o n of a project can be overcome by making some of the gainers compensate some of the losers. More recently, however, several writers have been em-phasizing the necessity of including the r e d i s t r i b u t i o n a l e f f e c t s i n the analyses of public projects. Weisbrod (1968) i n p a r t i c u l a r stresses the p r a c t i c a l i t i e s of such an approach i n that the resultant analyses would be much more useful to decision makers who base t h e i r decisions not only on the c r i t e r i o n of economic e f f i c i e n c y but on the c r i t e r i o n of equity as well. At the l o c a l l e v e l , the i n c l u s i o n of r e d i s -t r i b u t i o n a l e f f e c t s i s even more relevant than at higher l e v e l s of government. In examining public programs at the l o c a l l e v e l , there i s evidence that considerable r e d i s t r i b u -t i o n does take place. For instance, Netzer has estimated using empirical data that benefits from expenditures f i n -anced by the property tax more than o f f s e t the tax burden f o r some income classes below $7,000. For the lowest class (under $2,000), expenditure benefits were estimated to be 41 one and a h a l f to two times the tax burden. For the $15,000 and over c l a s s , the tax burden i s estimated to be anywhere from two to seven times expenditure benefits accruing to people i n t h i s income group (Netzer, 1966). In the event that an urban program does r e s u l t i n d i s -t r i b u t i o n a l i n e q u i t i e s , l o c a l a u t h orities are very l i m i t e d i n balancing or ameliorating the inequitable d i s t r i b u t i o n i n that they.possess few, i f any, suitable mechanisms with which to achieve t h i s end. They cannot resort to the mechanisms of income taxation and transfer payments which are available to senior l e v e l s of government. As a r e s u l t , l o c a l decision makers tend to base t h e i r decisions l a r g e l y on the d i s t r i b u -t i o n a l e f f e c t s of the project i n question. I t i s therefore important that the incidence of benefits and costs of a pro-ject should be incorporated into any analysis on which l o c a l a u t h o r i t i e s may base t h e i r decision. In addition, to the extent that l o c a l a u t h orities may desire to tax i n d i v i d u a l s i n accordance with the benefits they receive, a tabulation of the incidence of benefits would f a c i l i t a t e the determina-t i o n of the appropriate levy to be charged. In recognition of the premise that municipal p o l i c y makers are desirous of determining the incidence of the costs and benefits accruing from a l o c a l investment project, L i c h f i e l d has devised a system whereby the benefits and costs accruing to a l l p a r t i e s are presented i n a tabular form as i l l u s t r a t e d conceptually i n Table 3. to H* CD I •£0- cf o o 0) CD 01 CN K X •£0-•eft-3 i > i i &. to to to •€8-o -ee- O M H >> H* H> 1 1 i M> •€r> CD •1 ro ro W CD 3 R° 8= o CD 3 •€» M &. 1 1 3 -ea-to o 3 o H-P. CD o CD C a p i t a l Benefits Annual Benefits C a p i t a l Costs Annual Costs o o. o CD 01 C a p i t a l Benefits Annual Benefits C a p i t a l Costs Annual Costs fa 3 i—' t-3 2 M bo-it' t-1 o w M I H3 L i c h f i e l d argues that a tabular presentation of the benefits and costs accruing to a l l p a r t i e s affected by a decision, i s not only an orderly way of assembling a l l of the relevant data, but i t also confronts the decision makers with the hard choices of i m p l i c i t or e x p l i c i t assignment of weights to intangibles or favored groups ( L i c h f i e l d and Margolis, 1962). For each of the alternative projects, the parti e s (both private and public) who w i l l be producing and operating them, as well as the pa r t i e s who w i l l consume the services provided, are enumerated. When aggregating individuals into subgroups, each subgroup i s distinguished by the objectives i t wishes to achieve. In e f f e c t , the planning balance sheet translates the operational demands of the subgroups into "instrumental objectives"» the u t i l i t i e s that are sought by each group and the d i s u t i l i t i e s they t r y to avoid ( L i c h f i e l d and Chapman, 1970). For each party i s then forecast the costs and benefits that w i l l accrue. C a p i t a l and annual benefits and costs are kept separate, the former being those which accrue once f o r a l l (denoted by c a p i t a l l e t t e r s i n Table 3), and the l a t t e r those which w i l l continue (small l e t t e r s ) . When measuring these costs and benefits, L i c h f i e l d recommends d i v i d i n g them into three broad categories! (1) those costs and benefits which can be measured i n monetary terms using present tech-niques with a reasonable degree of accuracy ( i n Table 3t those entries preceded by $)j (2) those costs and benefits which can be measured on another scale. An example i s t r a v e l time, which can then be transformed into monetary measure-ments. These measurements w i l l have a l e s s e r degree of accuracy than those i n the previous class ( i n Table 3, M denotes money, T—time, and P — p h y s i c a l capital)} and (3) those costs and benefits which at present cannot be s a t i s -f a c t o r i l y measured i n monetary terms and which are usually of an intangible nature. I t may be possible to place these items i n an order of magnitude or a l t e r n a t i v e l y to leave them unmeasured but to draw attention to them when pre-senting the res u l t s of a study ( i n Table 3, I denotes i n -tangibl e s ) . I t should be noted that the degree of accuracy i n measuring;each of the classes of costs or benefits w i l l vary. Consequently, the assumptions made i n the measurement must be c l e a r l y indicated when the r e s u l t s of a study are presented to avoid the dangers of a greater degree of accur-acy being attributed to them than i s warranted (The I n s t i -tute of Municipal Treasurers and Accountants, 1969). I f a lternative plans are being compared, the analysis aims at the difference i n costs and benefits that w i l l a r i s e under each a l t e r n a t i v e . The resultant output of t h i s ap-proach i s a systematic presentation, i n descriptive and tabular form, of a complete set of s o c i a l accounts which show a l l the s i g n i f i c a n t costs and benefits which would re-su l t from the implementation of the plan, or from alt e r n a t i v e plans, and t h e i r incidence. Aside from grouping related p a r t i e s , no attempt i s made to aggregate the costs and "benefits accruing to the various sectors such that " t o t a l net benefits" of a "benefit-cost r a t i o " can be derived. These accounts can then be "reduced" by eliminating double counting, t r a n s f e r payments, common items, etc., so that a f a i r l y simple summary statement r e s u l t s ( L i c h f i e l d , 1964a). This planning balance sheet may point quite c l e a r l y to a conclusion or may leave room f o r value judgment. In the l a t t e r case, i t would c l e a r l y indicate the trade-offs deci-sion makers would have to make between tangibles and intan-g i b l e s , e f f i c i e n c y benefits and r e d i s t r i b u t i o n a l benefits, or the diverse and possibly c o n f l i c t i n g objectives of the various subgroups of the community. In addition, the b a l -ance sheet would enable the decision makers to pick out elements of the design that were high i n cost or low i n benefit. Consequently, the design would be a l t e r e d to e l i -minate these undesirable elements. I f they preferred to adhere to the design, the analysis could provide the basis f o r considering some subsidy to those who were bearing a p a r t i c u l a r l y large share of the burden ( L i c h f i e l d , 1964b). The purpose of the a n a l y t i c and systematic approach outlined i n the PPB and benefit-cost techniques i s to enable p o l i c y makers to make informed and therefore logically-based decisions. As Schultze argues, i t i s not good enough to depend on i n t u i t i o n and good w i l l alone when making decisions. Even i f the solutions of PPB turned out to be no d i f f e r e n t from the t r a d i t i o n a l methods, i t would have enabled the avoidance of ", . . the endless hours spent on p o l i c y d i s -cussions i n which the i r r e l e v a n t issues have not been sepa-rated from the relevant, i n which ascertainable facts and relat i o n s h i p s have not been investigated but are the subject of heated debate, i n which consideration of alternatives i s impossible because only one proposal has been developed, and, above a l l , discussions i n which n o b i l i t y of aim i s presumed to determine effectiveness of program" (Schultze, 1968i p. 75). Summary Decisions with respect to providing urban public ser-vices are being made i n an environment of demands and respon-s i b i l i t i e s to improve the standards of e x i s t i n g services, to extend e x i s t i n g services to new development areas, and to make provi s i o n f o r a wide range of new services. I t i s es s e n t i a l , therefore, that decision makers adopt sound management p o l i c i e s such that c i t i z e n demands can be ade-quately s a t i s f i e d without imposing excessive burdens on the sources of revenue required to finance these services. A systematic and ana l y t i c approach to p o l i c y making e n t a i l s the c l e a r i d e n t i f i c a t i o n of the factors g i v i n g r i s e to c i t i z e n demands, a formulation of the objectives of the community i n meeting these demands, a search f o r alte r n a t i v e means of achieving the objectives, and an evaluation of each 4? alternative to determine which achieves the community's objectives i n the most s a t i s f a c t o r y manner. 48 CHAPTER IV THE APPLICATION OF A SYSTEMATIC APPROACH TO INTERNALIZING EXTERNAL DISECONOMIES t A CASE STUDY Introduction The p a r t i c u l a r development area to which the systematic approach outlined i n Chapter III i s to be applied i s the Westsyde d i s t r i c t , a suburb of Kamloops. Westsyde i s chosen as a case study f o r several reasons. F i r s t , the process of transforming t h i s d i s t r i c t from a semi-rural community to a suburban r e s i d e n t i a l community i s not yet complete. Second, there i s considerable evidence that associated with t h i s p e c u l i a r form of mixed development i s the p o t e n t i a l f o r the generation of a variety of external diseconomies. And t h i r d , a current issue i n the community i s that of taking action to i n t e r n a l i z e e x i s t i n g e x t e r n a l i t i e s or to prevent p o t e n t i a l e x t e r n a l i t i e s from a r i s i n g . The Physical Form of Westsyde A description of the physical form of Westsyde i s essen-t i a l l y a description of what i s generally referred to i n the l i t e r a t u r e as "urban sprawl" (Clawson, 1971). F i r s t , West-syde i s an i s o l a t e d node of development i n that i t i s physi-c a l l y separated from the remaining development areas i n Kamloops. Second, the l e v e l of s e r v i c i n g i n Westsyde i s minimal (except f o r two p a r t i a l l y serviced subdivisions). Third, as Figure 4 shows, the pattern of subdivision, which has obviously been influenced i n large part by a previous subdivision designed f o r a g r i c u l t u r a l purposes, i s somewhat haphazard. In addition, the l o t s are r e l a t i v e l y large, a s i g n i f i c a n t proportion of the area i s s t i l l vacant, and the vacant t r a c t s and occupied l o t s are scattered sporadically throughout the area. I t should also be noted that of those areas s t i l l vacant, a considerable proportion of the prime a g r i c u l t u r a l land i s i d l e . E x t e r n a l i t i e s A r i s i n g From the Process and Form  of Development i n Westsyde At t h i s stage, i t i s necessary to consider the theore-t i c a l concept of external diseconomies i n terms of s p e c i f i c problems confronting the residents of Westsyde. F i r s t , the t r a f f i c load on the major arterial—Westsyde Road—which was designed and b u i l t to accommodate a r u r a l population, often exceeds i t s carrying capacity. Not only i s the road incon-veniently congested, but the poor alignment together with the absence of street l i g h t i n g and sidewalks poses a safety threat to motorists, c y c l i s t s , and pedestrians a l i k e . Second, because sewage i s disposed i n d i v i d u a l l y by septic tank sys-tems, and because the density of development i s r a p i d l y i n -creasing, the p o t e n t i a l f o r widespread f a i l u r e of i n d i v i d u a l 51 disposal systems i s enhanced. Third, the water supply, although adequate f o r domestic purposes, i s d e f i c i e n t i n terms of f i r e protection standards (Strong, Lamb and Nelson, 1973)* Fourth, storm drainage f a c i l i t i e s are v i r t u a l l y non-existent; hence the p o t e n t i a l f o r damage to property i n vulnerable areas. The foregoing problems are r e l a t i v e l y easy to i d e n t i f y i n that they e n t a i l the safety and health of the residents, as well as the protection of t h e i r property. There are, however, a number of external e f f e c t s associated with the process and form of development which, even though not of a serious nature, could possibly be construed as community problems. For instance, the absence of such services as street l i g h t i n g , curbs and gutters, as well as sidewalks along a l l r e s i d e n t i a l streets may prove to be unsightly or inconvenient to some residents, while to others, i t may be a matter of l i t t l e concern. Even more d i f f i c u l t to i d e n t i f y i s the impact of con-t i n u a l increases i n the density of development on the so-c a l l e d " l i f e - s t y l e " of the residents. The claim has been made by several Westsyde residents of long standing that the continuous i n f l u x of new residents i s , i n e f f e c t , d i s -rupting the area's semi-rural or country r e s i d e n t i a l atmos-phere, the l a t t e r being an i n f l u e n t i a l f a c t o r i n t h e i r de-c i s i o n to reside i n the area. 52 Community Objectives As stated i n the preceding chapter, to be meaningful and useful, objectives must be people-oriented and stated i n such terms that evaluation c r i t e r i a to measure the degree of objective achievement can be applied. The f a c t remains, however, that the PPB system does not provide a d i r e c t means for the community to set out i t s objectives i n an appropri-ate public document. Hence, the process of i d e n t i f y i n g objectives i s a d i f f i c u l t and very imprecise task. In t h i s study, no attempt i s made to determine unequivocally the objectives of the C i t y of Kamloops with respect to i n t e r n a l -i z i n g the external e f f e c t s being generated i n Westsyde. Instead, an i n d i r e c t approach i s adopted, i n determining the s p e c i f i c objectives of the various groups concerned eith e r d i r e c t l y or i n d i r e c t l y with the existence of external d i s -economies i n Westsyde, Consider f i r s t the objectives of the residents of West-syde with respect to the e x t e r n a l i t i e s i d e n t i f i e d i n the previous section as a f f e c t i n g personal health and safety, as well as personal property protection. One means of obtaining some i n d i c a t i o n of the residents' objectives regarding these matters i s to consult the media f o r evidence of s p e c i f i c demands made by c i t i z e n s i n the area. As might be expected, these demands are most vociferous i n those areas where the external diseconomies are of a serious nature and very apparent. For instance, recent flood damage to properties i n natural drainage courses has given r i s e to vigorous de-mands f o r adequate protection to a l l vulnerable properties. In t h i s instance, the objective of the community may be worded as follows J To ensure the protection of persons and t h e i r property from damage attributable to uncontrolled storm waters. Extensive demands are also i n evidence with respect to the congestion and safety hazards on Westsyde Road, I t should be noted that Westsyde Road i s a component of a broader transportation systemj hence, the community's ob-j e c t i v e s cannot be r e s t r i c t e d to a consideration of Westsyde Road alone, A transportation objective applicable to the entire transportation system i s as follows: To provide access to community services, f a c i l i t i e s , and employment i n a safe, quick, comfortable, and convenient manner f o r a l l segments of the community. Even though the associated external diseconomies are of a very serious nature, there i s l i t t l e evidence i n the media of c i t i z e n demands with respect to sewage disposal and water supply services. This can be a t t r i b u t e d p r i m a r i l y to the f a c t that the associated diseconomies are p o t e n t i a l rather than e x i s t i n g . Of a l l urban public services, one of the l e a s t v i s i b l e to the average c i t i z e n i s sewage disposal} that i s , so long as e x i s t i n g f a c i l i t i e s are operating 54 s a t i s f a c t o r i l y . I t i s e s s e n t i a l l y t h i s s i t u a t i o n that exists i n Westsyde; there have been few reported septic tank f a i l -ures. As discussed i n the previous section, however, the p o s s i b i l i t y exists that i n d i v i d u a l disposal systems may f a i l on a widespread basis sometime i n the future. I f t h i s were to happen, the resultant e x t e r n a l i t i e s would be highly v i s -i b l e i n that they would constitute a threat to the public health of the community. An appropriate objective i n t h i s instance follows J TO dispose of domestically produced sewage i n a safe and a e s t h e t i c a l l y pleasing manner so as not to threaten the public health of the community. The objec-t i v e as. worded above i s more meaningful than an objective concerned with providing access to a community sanitary sewer system f o r a l l r e s i d e n t i a l dwellings i n the community, i n that the l a t t e r presupposes that t h i s i s the most desirable method of sewage disposal without consideration of possible a l t e r n a t i v e s . The e x t e r n a l i t i e s associated with an inadequate supply of water f o r f i r e protection purposes, though of a serious nature, are seldom manifested; as such, there i s l i t t l e e v i -dence of demand f o r an improvement i n t h i s p a r t i c u l a r service. The p o s s i b i l i t y e x i s t s , however, of f i r e f i g h t i n g e f f o r t s being seriously hampered by an inadequate water supply. An objective related to the domestic water supply system i s : To provide a supply of potable water i n flows adequate both f o r peak hour domestic demand and f o r f i r e prevention purposes. The foregoing objectives are of a rather uncontroversial nature i n that the promotion of personal safety and health, as well as the protection of personal property, i s generally taken f o r granted by residents of Canada, both urban and r u r a l . The s i t u a t i o n i s not nearly so straightforward, how-ever, with respect to those e x t e r n a l i t i e s which may be re a d i l y apparent, but are not generally considered of a s e r i -ous nature. Included are those e x t e r n a l i t i e s related to con-venience, comfort, aesthetics, or the l i f e - s t y l e of the r e s i -dents. A consideration of the community's objectives with respect to these factors should take account of the old adage that what i s one man's bane may be another man's meat. The absence of street l i g h t i n g , curbs and gutters, sidewalks, etc. may prove to be-unsightly and inconvenient to some r e s i -dents, while to others, i t may be of l i t t l e concern, or even desirable. The lack of good public t r a n s i t service may prove to be very inconvenient to some suburban residents, while to others, access to downtown i s of no great advantage. The l i f e - s t y l e aspirations of some residents may e n t a i l the en-joyment of a f u l l range of urban public services} at the same time t h e i r neighbors may be of the opinion that the provision of such services i s l i k e l y to contribute to the disruption of the semi-rural l i f e style which they prefer. Herein l i e s the crux of the problem of determining the objectives of a community—the inev i t a b l e c o n f l i c t s of objectives among various groups i n the community. 56 To add a note of complexity to the problem of deter-mining the community's objectives, i t must be kept i n mind that the growth of the C i t y of Kamloops i s projected to con-tinue at a rapid rate. As i s c l e a r l y evident i n a recent planning study, an objective of the c i t y council and the planning authorities i s that of accommodating t h i s new growth i n some r a t i o n a l manner (Kamplan Committee, 1973). This objective i s relevant to the matter at hand because of the p o t e n t i a l i n the Westsyde area f o r the accommodation of additional urban development. Alternative Methods of Achieving  the Community's Objectives As Mushkin and B i r d (1972) point out, the alternatives available to municipalities i n dealing with the problem of e x t e r n a l i t i e s are of several broad categories* (1) the municipality may provide services that " i n t e r n a l i z e " the e x t e r n a l i t i e s ; or (2) the municipality may invoke ordinances or levy taxes that attempt to modify the s o c i a l behavior of firms and households i n order to remove the e x t e r n a l i t i e s or to prevent them from a r i s i n g . With these broad categories i n mind, consider i n general terms those alte r n a t i v e s available to deal with the s p e c i f i c e x t e r n a l i t i e s being generated i n Westsyde. F i r s t , the ob-j e c t i v e of preventing storm water damage can be achieved i n one of several ways; (1) the provision of adequate storm 57 drainage f a c i l i t i e s to diver t storm waters from developed areas; (2) the displacement of a l l e x i s t i n g development from areas vulnerable to periodic flooding; or (3) i n areas not yet developed, the invoking of ordinances pre-venting development i n vulnerable areas, provided that development may take place i f provision f o r adequate pro-t e c t i o n i s ensured. Second, several alternatives or combination of a l t e r -natives could be implemented to achieve the community's transportation objectives. Among those included are: (1) the upgrading, realignment, and widening of Westsyde Road along with the provision of sidewalks and street l i g h t i n g ; (2) the improvement of public transport so as to encourage residents to u t i l i z e public rather than private modes of transport; (3) the invoking of stringent zoning and planning ordinances to discourage continued development, thereby l i m i t i n g the increasing t r a f f i c load growth rate; and (4) the imposition of t o l l s or other charges to discourage motorists from u t i l i z i n g highways. Third, with respect to the sewage disposal objectives, several a l t e r n a t i v e s are available, including: (1) the pro-v i s i o n of a community sanitary sewer system; (2) continua-t i o n of i n d i v i d u a l disposal systems provided that systems are maintained and inspected as a safeguard to system malfunc-tioning; (3) the i n s t a l l a t i o n of i n d i v i d u a l household treatment and r e c y c l i n g f a c i l i t i e s ; and (4) the invoking of stringent zoning and planning ordinances to prevent continued increases i n the density of development. Fourth, the alternative means of achieving the water supply objectives are rather l i m i t e d ; i n f a c t , the only alternative i s that of improving the l e v e l of se r v i c i n g to a point where adequate supply f o r f i r e prevention purposes can be ensured. S i m i l a r l y , the alternative means of achieving the ob-jecti v e s r e l a t e d to convenience, comfort, or aesthetics are also l i m i t e d — t h a t i s , either provide the "convenience" services to s a t i s f y the demands of those who desire a f u l l range of urban public services, or maintain the status quo to s a t i s f y those who prefer the ex i s t i n g s i t u a t i o n . And with respect to the l i f e - s t y l e aspirations of those who prefer a semi-rural or country r e s i d e n t i a l atmosphere, the one f e a s i b l e a l t e r n a t i v e i s that of invoking ordinances to prevent continued development i n the d i s t r i c t . The s p e c i f i c alternatives as outlined above can be grouped into two packages* (1) the provision of a f u l l range of services; and (2) a combination of invoking ordin-ances aimed at l i m i t i n g continued urban development and implementing modest support programs aimed at preventing e x t e r n a l i t i e s i n e x i s t i n g development areas from a r i s i n g (e.g. a septic tank maintenance and inspection program). Although these two basic packages of alternatives are not i n theory mutually e x c l u s i v e — a program of l i m i t i n g urban development and providing a f u l l range of services could be implemented simultaneously—they are i n practice almost t o t a l l y incompatible because of associated economic imp l i -cations which w i l l be discussed i n a subsequent chapter. I t should also be noted that there exists a r e l a t i o n -ship between the alternatives of achieving the objectives s p e c i f i c to Westsyde and the alternative means of achieving the city-wide objective of accommodating addi t i o n a l growth ( i . e . , e i t h e r i n f i l l i n g e x i s t i n g development areas, or channelling growth to new development areas). A p o l i c y of i n f i l l i n g e x i s t i n g development areas would d e f i n i t e l y have ramifications i n suburban communities such as Westsyde; i t would make impossible the implementation of p o l i c i e s to cur-t a i l the continued urban development i n that community. I t would also necessitate the adoption of alternate methods of i n t e r n a l i z i n g the additional e x t e r n a l i t i e s associated with addi t i o n a l development. The c i t y ' s adoption of a p o l i c y of channelling growth to new development areas, however, would make possible a wider choice of p o l i c i e s to be implemented i n Westsyde. I t i s obvious, therefore, that p o l i c i e s speci-f i c to the circumstances i n Westsyde cannot be formulated i n i s o l a t i o n of a consideration of the broader p o l i c i e s of the c i t y with regards to accommodating addi t i o n a l development. 60 The foregoing lays the groundwork and provides a basis f o r the formulation of three al t e r n a t i v e p o l i c y packages which could he implemented to i n t e r n a l i z e e x i s t i n g external-i t i e s and to prevent c e r t a i n p o t e n t i a l e x t e r n a l i t i e s from a r i s i n g , i n the Westsyde area. 1. Alternative A consists of the provi s i o n of a f u l l range of urban public services i n an amount adequate to ser-vice e x i s t i n g as well as future residents. Among the services to be provided are a community water system adequate f o r f i r e prevention purposes, a community sanitary sewer system, a storm drainage system, a program of upgrading the street system, p a r t i c u l a r l y Westsyde Road, as well as the provision of sidewalks, street l i g h t i n g , and curbs and gutters. 2. Alternative B consists of invoking zoning ordinances aimed at preventing continued urban development i n Westsyde. In concert with such a p o l i c y would be several support programs aimed at i n t e r n a l i z i n g or preventing e x t e r n a l i t i e s of a serious nature from a r i s i n g . Included would be a program of i n d i v i d u a l sewage disposal system maintenance and inspection (an alternative may be that of i n s t a l l i n g i n d i v i d u a l treatment and rec y c l i n g f a c i l i t i e s i n each household*): *Although t h i s innovative a l t e r n a t i v e i s technologically f e a s i b l e , the c a p i t a l costs are high r e l a t i v e to alternative disposal methods. No attempt was made i n t h i s study to de-termine whether the external costs associated with conven-t i o n a l methods (e.g. r i v e r p o l l u t i o n ) are of a magnitude great enough to o f f s e t the difference i n c a p i t a l costs. The p o s s i b i l i t y remains, however, that future technological advances may make t h i s alternative economically f e a s i b l e . 61 a program of discouraging private t r a f f i c , thereby-obviating, at lea s t to some extent, the necessity of upgrading Westsyde Road; the improvement of the water supply system to ensure adequate f i r e protection f o r e x i s t i n g residents; and the provision of modest storm drainage f a c i l i t i e s to protect e x i s t i n g developed properties vulnerable to damage. 3. Alternative G i s , i n a sense, a "toned-down" version of Alternative A i n that only those services aimed at i n t e r n a l i z i n g or preventing e x t e r n a l i t i e s of a serious nature are provided. As such, convenience services such as sidewalks, street l i g h t i n g , curbs and gutters, and street improvements are not provided. As with Alternative A, no attempt i s made to curb further development i n the area; as such sewer and water trunk mains, as well as a r t e r i a l road improvements are de-signed to adequately service both e x i s t i n g and future development. Evaluation of Alternatives To simplify the process of carrying out the evaluation, i t i s necessary to make an assumption; that i s , the sources of revenue used to finance the projects w i l l not a f f e c t the outcome of the evaluation—any variations from t h i s assump-t i o n would a f f e c t not the t o t a l f i n a n c i a l costs and benefits, but t h e i r incidence. Participants As stated i n the previous chapter, L i c h f i e l d ' s method of analysis and evaluation stresses the importance of enu-merating the project costs and benefits according to t h e i r incidence among the various i n d i v i d u a l s or groups affected by the p r o j e c t . The groups are c l a s s i f i e d f i r s t according to whether they are producers or consumers, and second according to t h e i r p a r t i c u l a r objective. Producers are i n d i v i d u a l s or groups who play a part i n creating and running the services to be r e a l i z e d from the project. In the above al t e r n a t i v e s , the producer i s the C i t y of Kamloops, except i n Alternative B where i n d i v i d u a l homeowners "produce" t h e i r own sewage disposal service. The consumers, on the other hand, are the i n d i v i d u a l s or groups who consume the services provided. In the evalu-ation of the three alternatives at hand, the consumers can be further c l a s s i f i e d according to t h e i r various objectives. F i r s t are the e x i s t i n g residents of Westsyde whose objectives are those previously stated as r e l a t i n g to t h e i r personal health and safety and the protection of t h e i r property. Second are those residents whose objective i t i s to enjoy the amenities of a f u l l range of convenience services. Third are those residents who prefer to maintain the status quo, that i s , the semi-rural or country r e s i d e n t i a l atmosphere of the d i s t r i c t . Fourth are the owners of vacant properties 63 whose objectives are not necessarily related to the external diseconomies outlined e a r l i e r but to the impact of each alte r n a t i v e program on the development p o t e n t i a l of t h e i r property. F i f t h , the C i t y of Kamloops can be considered as an i n d i r e c t consumer i n that each alternative program may have an impact on the c i t y ' s objectives of accommodating additional urban development. And f i n a l l y are the future residents as provided f o r i n Alternatives A and C. I t should be noted, of course, that there i s l i k e l y to be considerable overlapping among the members of the various groups of con-sumers . Costs and Benefits In implementing any one of the three a l t e r n a t i v e s , a l l producers and consumers incur both costs and benefits. The costs are the value of the goods and services used to produce and operate a project (the inputs), and benefits are the value of the services provided (the outputs). Each cost and benefit might be one of three kinds. F i r s t , private or s o c i a l — p r i v a t e relates to costs which the producer or con-sumer must bear and to benefits that can be appropriated to them? s o c i a l , or external, relates to the diffused costs suffered by others which need not be compensated and benefits enjoyed by others f o r which payment cannot be exacted. Second, r e a l or t r a n s f e r — r e a l r e l a t e s to the use of r e a l (economic) resources, that i s land, men and materials! 6k whereas transfer r e l a t e s to f i n a n c i a l resources which are simply transferred from one section of the community to another as a r e s u l t of a transaction, without using up or adding to r e a l resources (e.g. the purchase of land). And t h i r d , r e a l (technological) or pecuniary—these r e l a t e to changes i n the value of established as opposed to new goods and services, brought about by external changes. Real costs and benefits arise where there are changes i n actual q u a l i t y (e.g. the increase i n development p o t e n t i a l of pro-p e r t i e s accessible to new public services)} whereas pecuniary changes i n value ar i s e simply because of r e l a t i v e changes i n the supply or demand of goods or services (e.g. the impact on community-wide land prices of placing newly serviced l o t s on the market) ( L i c h f i e l d , 1966) . Measurements of Costs and Benefits As outlined i n the previous chapter, a l l costs and benefits must be included i n the analysis, but i t r a r e l y occurs that a l l costs and benefits are commensurable. In other words, some costs and benefits may be measured i n monetary terms, others are often measured i n d i f f e r e n t scales of measurement (e.g. time, ph y s i c a l u n i t s ) , whereas others s t i l l are immeasurable, and as such are noted as intangibles i n the analysis. The comparison of the costs and benefits of the various alternatives may be made i n terms eith e r of absolutes or differences. As L i c h f i e l d (1966) points out, the absolutes are often over-laborious to measure whereas differences can r e a d i l y be grasped. I t i s t h i s approach of measuring the differences, or noting the r e l a t i v e magnitude of the various costs and benefits, that i s adopted i n the comparison of the three a l t e r n a t i v e s . The Analysis To simplify the process of evaluation, the alternatives are compared i n p a i r s ; Alternatives A and C are f i r s t com-pared, followed by a comparison of Alternative B with either A or C, depending on which i s found to be the superior method of s a t i s f y i n g the community's objectives. Analysis of Alternatives A and C Table 4 summarizes the differences i n costs and benefits which w i l l accrue to the various sectors from the implemen-t a t i o n of Alternatives A and C. Although not comprehensive i n the sense of including every single party which would be affected, they do cover the major i n t e r e s t s , as follows: Producers Consumers C i t y of Kamloops Westsyde residents Owners of vacant property i n Westsyde Future residents C i t y of Kamloops Producers C i t y of Kamloops—Capital Costs. Because Alternative C i s i n fact a subset of Alternative A, i t follows that the 66 differences i n c a p i t a l costs can be a t t r i b u t e d t o t a l l y to the i n c l u s i o n of the a d d i t i o n a l services provided i n A, that i s , street improvements with street l i g h t i n g , side-walks, and curbs and gutters. Although no actual cost estimates from Kamloops are available as to the magnitude of the difference i n c a p i t a l costs, i t i s assumed that the c a p i t a l costs of providing a f u l l range of services as i n Alternative A r e l a t i v e to the c a p i t a l costs of providing a p a r t i a l range of services as i n C are roughly equivalent to the r e l a t i v e s e r v i c i n g costs as determined by Pearson (196?). Pearson's study indicated that the c a p i t a l costs required to provide a f u l l range of services are approximately f i f t y percent higher than those required to provide a p a r t i a l l e v e l of s e r v i c i n g . C i t y of Kamloops—Annual Costs. The difference i n the operating and maintenance costs associated with the addi-t i o n a l services ( i . e . street upgrading, curbs and gutters, and street l i g h t i n g ) i n Alternative A as compared to the road maintenance costs i n Alternative C i s l i k e l y to be minimal. In f a c t , i t could be argued that the operating and maintenance costs may be l e s s i n a f u l l y serviced than i n a p a r t i a l l y serviced area. As such, i t i s unclear as to which alt e r n a t i v e i s preferable i n t h i s respect. Consumers Westsyde Residents. The various sectors of residents 6 ? i n Westsyde can be i d e n t i f i e d according to t h e i r respective objectives. 1. Objectives r e l a t i n g to the personal health and safety of residents, as well as protection of t h e i r p r o p e r t y — both alternatives achieve these objectives to an equi-valent extent and as such are neutral. 2. Objectives r e l a t i n g to provision of convenience s e r v i c e s — Alternative A i s preferable i n that i t makes provision f o r a l l the convenience services? whereas Alternative C makes no such provisions. The benefits associated with the provision of these services are of an intangible nature. 3. Objectives r e l a t i n g to the preservation of the semi-r u r a l l i f e - s t y l e - - s i n c e both alternatives envisage the continuation of urban development ( i . e . to ensure an e f f i c i e n t u t i l i z a t i o n of the services), both alterna-t i v e s are neutral i n t h i s respect. The negative bene-f i t s associated with t h i s objective are also of an intangible nature. Owners of Vacant Property i n Westsyde. As discussed above, both alternatives are neutral with respect to con-tinued urban development? as such they are also neutral i n r e l a t i o n to the aspirations of owners of vacant property to r e a l i z e the development p o t e n t i a l of t h e i r property. The benefits i n t h i s case are r e a l technological benefits as opposed to pecuniary benefits i n that they e n t a i l the 68 increase i n development pote n t i a l of properties accessible to new public services. Future Residents. Both alternatives are neutral with respect to continued urban development which would enable new residents to l i v e i n Westsyde. The benefits accruing to new residents would be of an intangible nature. C i t y of Kamloops as Consumer. Both alternatives are neutral regarding the c i t y ' s objectives of accommodating new r e s i d e n t i a l development. The benefits accruing to the c i t y are measured i n physical u n i t s . Reference to Table 4 suggests that the two alternatives are neutral i n a l l respects except i n the case of c a p i t a l and annual costs to the c i t y , and i n s a t i s f y i n g the objec-t i v e s of those residents who desire a f u l l range of public services. As such, the evaluation does not point c l e a r l y to a conclusion, but i t does provide a basis f o r determining the trade-offs which must be made i n choosing between the a l t e r n a t i v e s . I f Alternative A i s chosen, the decision makers are i m p l i c i t l y s t a t i n g that the a d d i t i o n a l benefits a r i s i n g from the provision of the a d d i t i o n a l convenience services are more valuable or at l e a s t equivalent i n value to the difference i n the c a p i t a l costs of the two alterna-t i v e s . There are two factors which would tend to suggest that Alternative C i s preferable i n the circumstances TABLE 4 COMPARISON OF COSTS AND BENEFITS IN ALTERNATIVES A AND C Alternative A Alternative C Benefit Cost Benefit Cost Item Number Sector Instrumental Objectives A C A C Net Remarks Advantage Producers 1.0 Consumers 2.0 2.1 2.2 2.3 3.0 4.0 5.0 C i t y of Kamloops Residents of Westsyde personal health, safety and pro-t e c t i o n of prop. convenience services l i f e - s t y l e Owners of development vacant property p o t e n t i a l Future residents C i t y of Kamloops accommodation of growth $V $A $a *5 $C $c $A>$C C ? not clear $V 2 Equivalent i ^ i 3 A = Equivalent = Equivalent s Equivalent = Equivalent ON p r e v a i l i n g i n Westsyde. F i r s t , there has been l i t t l e e v i -dence of a widespread demand by the residents of Westsyde fo r access to the a d d i t i o n a l services provided i n Alterna-t i v e A. Second, the c a p i t a l costs required to provide these ad d i t i o n a l services are of a considerable magnitude. Calcu-l a t i o n s based on a recent engineering report indicate the c a p i t a l costs of constructing a sanitary sewer system and improving the water supply system (exclusive of a r t e r i a l road improvements and storm drainage f a c i l i t i e s ) w o u l d amount to approximately $ 3 2 0 0 per e x i s t i n g dwelling unit, or i f average costs are based on the ultimate population following i n f i l l i n g , the c a p i t a l costs would amount to approximately $ 1 6 0 0 per dwelling unit (Strong, Lamb, and Nelson, 1 9 7 3 ) . I t i s obvious, therefore, that an increment i n c a p i t a l costs of f i f t y percent to provide the a d d i t i o n a l services as i n Alternative A would constitute a large a d d i t i o n a l per unit expenditure. :: The evaluation suggests, therefore, that i n the circum-stances as they e x i s t i n Westsyde, the adoption of a p o l i c y as outlined i n Alternative C would be preferable to Alterna-t i v e A as a means of achieving the objectives of the community. Analysis of Alternatives B and C Table 5 summarizes the difference i n costs and benefits which w i l l accrue to the various sectors from the implementa-t i o n of Alternatives B and C. The major int e r e s t s which would 71 be affected here are as follows: Producers Consumers Ci t y of Kamloops Westsyde residents Westsyde residents Owners of vacant property i n Westsyde Future residents C i t y of Kamloops Producers C i t y of Kamloops—Capital Costs. Because Alternative B i s aimed at maintaining the status quo, the associated c a p i t a l costs are not extensive. The c a p i t a l costs associated with Alternative C, on the other hand, are substantial. Pearson (1967) has estimated that the c a p i t a l costs required to pro-vide a p a r t i a l l e v e l of servicing (as i n C) are seventy-five percent higher than those required to provide a minimal l e v e l of servicing (as i n B). City of Kamloops—Annual Costs. Because Alternative C e n t a i l s the provision of a more extensive range of services than B (e.g. sanitary sewer), the annual maintenance and operating expenditures associated with C w i l l be greater than i n B, although no cost estimates are available as to the mag-nitude of the difference. As such, B i s the preferred a l t e r -Residents of Westsyde—Capital and Annual Costs. C a p i t a l as well as annual maintenance and operating costs are incurred by e x i s t i n g residents i n the form of expenditures on i n d i v i -dual sewage disposal systems as required i n Alternative B. native. In Alternative C, the c a p i t a l and. operating costs of the community sanitary sewer system are incurred by the c i t y (note previous assumption concerning the subsequent a l l o c a -t i o n of costs by the c i t y ) . As such, C i s the preferred alternative i n t h i s respect. Consumers Westsyde Residents. The various groups or i n d i v i d u a l s are i d e n t i f i e d according to t h e i r objectives. 1. Objectives r e l a t i n g to the personal health and safety of residents, as well as the protection of t h e i r pro-p e r t y — b o t h alternatives are equivalent with respect to water supply objectives and f l o o d damage protection objectives? they are not equivalent, however, with res-pect to sewage disposal objectives and transportation objectives. Alternative C ensures that the sewage disposal objective of not posing a threat to public health w i l l be achieved. Alternative B which concen-trates on reducing the l i k e l i h o o d of e x t e r n a l i t i e s , cannot ensure that e x t e r n a l i t i e s associated with i n d i -v idual disposal systems w i l l not a r i s e . Regarding the community's transportation objectives, i t i s unclear as to which alt e r n a t i v e i s preferable. Alternative C attempts to achieve the objective by increasing the carrying capacity of Westsyde Road. Alternative B on the other hand adopts an approach of r e s t r i c t i n g the 73 t r a f f i c load to a l e v e l which can be adequately accom-modated by that road's e x i s t i n g carrying capacity. 2. Objectives r e l a t i n g to the provision of convenience s e r v i c e s — n e i t h e r Alternative B or C makes provision f o r convenience services and as such, both are neutral i n t h i s respect, 3 . Objectives r e l a t i n g to the preservation of the area's semi-rural or country r e s i d e n t i a l atmosphere—Alterna-t i v e C envisages the continuation of urban development by i n f i l l i n g , whereas continued development i s r e s t r i c t e d i n Alternative B. I f the preservation of the area's semi-rural atmosphere i s enhanced by reta i n i n g a r e l a -t i v e l y low density of development, i t follows that B i s the preferred alternative i n t h i s respect. Owners of Vacant Property i n Westsyde. I f the objective of t h i s group i s to r e a l i z e the development p o t e n t i a l of t h e i r property, i t follows that C which makes provision f o r continued urban development i s the preferred a l t e r n a t i v e . Future Residents. Since B makes no provision f o r con-tinued development, benefits accruing to future residents i n new development areas are nonexistent; as such, C i s the preferred a l t e r n a t i v e . C i t y of Kamloops. For the same reasons outlined with respect to future residents, C would be more e f f e c t i v e than B i n achieving the C i t y ' s objectives of accommodating new r e s i d e n t i a l development. The evaluation of Alternatives B and C as outlined i n Table 5 does not point c l e a r l y to a conclusion as to which i s the preferred a l t e r n a t i v e . I t does, however, specify the tradeoffs which are necessary i n choosing between the a l t e r -natives. I f the decision makers choose Alternative C, they are i m p l i c i t l y s t a t i n g that the higher c a p i t a l and annual costs, together with the costs of s a c r i f i c i n g the area's semi-rural atmosphere, are more than o f f s e t by (1) the benefits of ensuring that sewage w i l l be disposed of i n a manner that w i l l not pose a public health threat, (2) the c a p i t a l benefits accruing to the owners of vacant property who w i l l r e a l i z e the development p o t e n t i a l of t h e i r property, ( 3 ) the benefits accruing to new residents i n new develop-ment areas, and (4) the benefits r e a l i z e d by the C i t y of Kamloops i n accommodating a part of the demand f o r continued urban development i n the c i t y . The single most important f a c t o r which would suggest the preference of adopting the provisions of Alternative C rather than those of B i s the deficiency of B with respect to preventing the e x t e r n a l i t i e s associated with i n d i v i d u a l sewage disposal systems. Because of the serious nature of the external diseconomies which arise from malfunctioning septic tanks, i t i s e s s e n t i a l that these e x t e r n a l i t i e s be prevented on an absolute basis. In the circumstances as they exis t i n the Westsyde d i s t r i c t , i t i s doubtful i f t h i s re-quirement can be ensured by implementing the provisions of TABLE 5 COMPARISON OF COSTS AND BENEFITS IN ALTERNATIVES B AND C A l t e r n a t i v e B A l t e r n a t i v e C Item No. S e c t o r I n s t r u m e n t a l O b j e c t i v e s Net B e n e f i t Cost B e n e f i t Cost Remarks Advantage To« A C Producers 1.0 2.0 C i t y of Kamloops Residents of West-syde Consumers 3.0 3.1 3.H 3.12 3.13 3.14 3.2 3.3 4.0 5.0 6.0 Residents of Westsyde Owners of Vac. Prop. Future r e s i d e n t s C i t y o f Kamloops p e r s o n a l h e a l t h , s a f e t y & p r o t e c , of p r o p e r t y Water supply Storm drainage T ransp o r t a t i on Sewage d i s p o s a l Convenience s e r v . S e m i - r u r a l l i f e s t y l e $X Accommodation of growth P, i 2 Lio $B $b $R $ r $V • i i $C $c $C>$B $c>$b $T $ t |R>|T Sr>J5t i6 > i5 $V>$X A l t . B A l t . C E q u i v . E q u i v , Not c l e a r A l t . C E q u i v . A l t . B A l t . C H f ^ l O A l t ' C P i>P 1 A l t . C ^ A l t e r n a t i v e B, l a r g e l y because the d e n s i t y o f development has a l r e a d y surpassed by a' c o n s i d e r a b l e margin the d e n s i t y a t which i n d i v i d u a l s e p t i c tank d i s p o s a l systems are deemed to be t o t a l l y adequate (Strong, Lamb and Nelson, 1973)• In a d d i t i o n , the implementation of a s e p t i c tank maintenance and i n s p e c t i o n program i s l i k e l y t o g i v e r i s e t o adminis-t r a t i v e and enforcement d i f f i c u l t i e s . C o n c l u s i o n The f o r e g o i n g e v a l u a t i o n of A l t e r n a t i v e s A, B, and C suggests t h a t the s p e c i f i c o b j e c t i v e s of the community can best be achieved by implementing the p r o v i s i o n s of A l t e r -n a t i v e C, which e s s e n t i a l l y amounts t o p r o v i d i n g a p a r t i a l l e v e l of s e r v i c i n g i n the a r e a . T h i s c o n c l u s i o n v a l i d a t e s to a p a r t i a l extent the premise of statement three i n the h y p o t h e s i s . I n oth e r words, the e v a l u a t i o n suggests t h a t i t i s not necessary t o p r o v i d e a comprehensive, or f u l l range of s e r v i c e s : the o b j e c t i v e s o f the community can be achieved more e f f i c i e n t l y by p r o v i d i n g a p a r t i a l range of c e r t a i n , s p e c i f i e d p u b l i c s e r v i c e s . I t s hould be noted, however, t h a t the margin of pre -f e r e n c e of A l t e r n a t i v e C over B i s not g r e a t . In a suburban development s e c t o r i n which d e n s i t y has not surpassed t h a t a t which s e p t i c tank d i s p o s a l i s deemed adequate, a l l o t h e r t h i n g s b e i n g e q u a l , a p o l i c y o f r e s t r i c t i n g a d d i t i o n a l urban development would l i k e l y be the most e f f e c t i v e and e f f i c i e n t 77 means of i n t e r n a l i z i n g and p r e v e n t i n g the e x t e r n a l d i s e c o -nomies a s s o c i a t e d w i t h urban development. Summary The a p p l i c a t i o n of a systematic approach t o i n t e r n a l i z i n g e x t e r n a l diseconomies i n the case study c o n s i s t e d o f s e v e r a l s t e p s . The f i r s t i s t h a t of i d e n t i f y i n g both e x i s t i n g and p o t e n t i a l e x t e r n a l diseconomies i n Westsyde. Second i s the d i f f i c u l t and imprecise task o f i d e n t i f y i n g the o b j e c t i v e s of each i n d i v i d u a l or group t h a t may be a f f e c t e d by the e x i s t e n c e o f p a r t i c u l a r e x t e r n a l diseconomies o r by the implementation of p o l i c i e s aimed a t t h e i r p r e v e n t i o n . The advantage of i d e n t i f y i n g i n d i v i d u a l and group o b j e c t i v e s r a t h e r than attempting t o i d e n t i f y community-wide o b j e c t i v e s i s t h a t the former approach r e c o g n i z e s the p o s s i b i l i t y of c o n f l i c t i n g o b j e c t i v e s among v a r i o u s groups. F o r i n s t a n c e , i n the case study, the o b j e c t i v e s of the r e s i d e n t s who p r e f e r the p r e s e r -v a t i o n of the area's s e m i - r u r a l o r country r e s i d e n t i a l atmos-phere, was found t o be incom p a t i b l e with the o b j e c t i v e s of those who p r e f e r the amenities a s s o c i a t e d with a c c e s s i b i l i t y t o a f u l l range of urban p u b l i c s e r v i c e s . Upon i d e n t i f i c a t i o n of the o b j e c t i v e s , i t i s d e s i r a b l e to conduct a search f o r a l t e r n a t i v e s t r a t e g i e s and techniques t h a t c o u l d be employed t o achieve these o b j e c t i v e s . I n the case study, t h r e e a l t e r n a t i v e programs are submitted. A l t e r -n a t i v e A c o n s i s t s of the p r o v i s i o n o f a f u l l range of p u b l i c 78 services i n the study area. Alternative B consists of a combination of invoking ordinances aimed at r e s t r i c t i n g con-tinued development i n the area, i n concert with several modest support programs aimed at i n t e r n a l i z i n g or preventing e x t e r n a l i t i e s of a serious nature from a r i s i n g . Alternative C i s , i n a sense, a "toned-down" version of Alternative A i n that only c e r t a i n services aimed at i n t e r n a l i z i n g or pre-venting e x t e r n a l i t i e s of a serious nature are provided. The next step consisted of evaluating each alt e r n a t i v e to determine which i s the most e f f e c t i v e i n a t t a i n i n g the previously i d e n t i f i e d objectives. The evaluation consists of a comparison of each alternative by enumerating a l l the costs and benefits (tangibles as well as intangibles) of each according to t h e i r incidence among the various affected indiv i d u a l s and groups. Even though the evaluation may not point c l e a r l y to a conclusion as to which i s the preferred a l t e r n a t i v e , i t does specify the trade-offs necessary i n choosing between a l t e r n a t i v e s . The evaluation of Alterna-t i v e s A, B, and C i n the case study does not point c l e a r l y as to which i s the preferred alternatives a subsequent con-sideration of the required trade-offs s p e c i f i e d i n the evalu-ation, however, suggests that Alternative C would l i k e l y be the preferred alternative circumstances. This conclusion validates to a p a r t i a l extent the premise of statement three i n the hypothesis. In other words, the evaluation suggests that i t i s not necessary to provide a comprehensive, or f u l l range of services; the objectives of the community can be achieved more e f f e c t i v e l y and e f f i c i e n t l y by pro-viding a p a r t i a l range of certa i n , s p e c i f i e d services. 8 0 CHAPTER V FINANCING URBAN PUBLIC SERVICES t SOURCES OF REVENUE I n t r o d u c t i o n To ensure a degree of c o n t i n u i t y w i t h the a n a l y t i c approach t o choosing among a l t e r n a t i v e means of a c h i e v i n g a community's o b j e c t i v e s , i t would seem l o g i c a l t h a t a syste m a t i c approach should a l s o be employed i n determining the a p p r o p r i a t e sources of revenue t o f i n a n c e the s e l e c t e d a l t e r n a t i v e s . Suggestions have been made t h a t a t p r e s e n t such an approach i s not g e n e r a l l y f o l l o w e d a t the l o c a l l e v e l . In Eaton's o p i n i o n , government a u t h o r i t i e s simply take money where they can f i n d i t , where the money i s , without too much l o g i c o r p r i n c i p l e i n the process (Eaton, 1966). T h i s chapter reviews those i s s u e s t h a t should be taken i n t o c o n s i d e r a t i o n i n adopting a system-a t i c approach t o the a c q u i s i t i o n o f revenues. 81 Philosophy of Taxation* Equity—The P r i n c i p l e of  Benefits Received This p r i n c i p l e , i n which equity i s interpreted as requiring that the burden of taxation be allocated among taxpayers i n r e l a t i o n to the benefits each derives from the enjoyment of public services, conforms to a basic rule of the private sector of the economy} that goods and services should be paid f o r by t h e i r users. In the opinion of the Ontario Committee on Taxation (1967), the a l l o c a t i o n of costs according to the benefits p r i n c i p l e i s desirable only when several conditions are s a t i s f i e d . F i r s t , when the benefits and b e n e f i c i a r i e s of government expenditure pro-grams can be i d e n t i f i e d r e l a t i v e l y clearly} second, when a modified d i s t r i b u t i o n of wealth and income i s not a p o l i c y objective; and t h i r d , when the imposition of benefit-related charges on the users or b e n e f i c i a r i e s of a service w i l l not r e s u l t i n an i n e f f i c i e n t use of that service. Equity—The P r i n c i p l e of  A b i l i t y to Pay This p r i n c i p l e , i n which equity requires the equal treatment of persons possessing the same capacity to pay *For the purposes of t h i s study, a tax i s considered to be a pecuniary charge l e v i e d upon persons and/or property to meet the costs of government (Baker, 1971). taxes, i s appropriate f o r financing those government expen-ditures where i t i s e i t h e r impossible or inappropriate to allocate costs among taxpayers i n accordance with benefits received. There are several c r i t e r i a upon which a b i l i t y to pay can be based—including wealth, consumption, and income. The Ontario Committee ( 1 9 6 7 ) argues that income i s a better index of a b i l i t y to pay than the other two f o r several rea-sons. F i r s t , income i s more comprehensive i n that i t com-pri s e s both consumption and saving, or increases i n wealth, during a given period of time. Second, income i s more universal than wealth and a better index of an i n d i v i d u a l ' s standard of l i v i n g . Adequacy It almost goes without saying that a tax system must be capable of providing the flow of funds that government deems appropriate i n any given period. F l e x i b i l i t y A tax system should be so:constituted that government can r e a d i l y increase or decrease the flow of tax funds i n response to changing circumstances. An e s s e n t i a l charac-t e r i s t i c of f l e x i b l e taxes (e.g. property tax and income tax) i s that rate alterations can be graded so as to accom-modate small as well as large changes i n revenue require-ments. E l a s t i c i t y This p r i n c i p l e requires that a revenue system he com-posed i n part of taxes whose y i e l d s respond c l o s e l y to changing economic circumstances without deliberate changes i n rates. Balance A tax system should consist of more than one -tax be-cause no single tax can simultaneously f u l f i l l the require-ments of equity, f l e x i b i l i t y and e l a s t i c i t y . For instance, a property tax i s r e l a t i v e l y unresponsive to economic change but highly f l e x i b l e , whereas consumption taxes are rather more e l a s t i c but r e l a t i v e l y i n f l e x i b l e . There are, how-ever, disadvantages i n too great a m u l t i p l i c i t y of taxes. F i r s t , the t o t a l burden of many small weights may be greater than a single moderate weight. Second, a large number of taxes usually involves a large cost of c o l l e c t i o n . And t h i r d , a m u l t i p l i c i t y of taxes may dissipate altogether taxpayer consciousness of the cost of government, a conscious-ness which i s a necessary element of ensuring p o l i t i c a l a ccountability (White and Hamilton, 1972). Neutrality The p r i n c i p l e of n e u t r a l i t y i s d i r e c t l y related to the objective of e f f i c i e n c y i n the use of the human and material resources of society. I f one assumes that the pattern of 84 r e l a t i v e prices determined by competitive market forces tends to encourage the most e f f i c i e n t a l l o c a t i o n of the nation's resources, then to the extent that a tax system minimizes i t s d i s t o r t i o n of r e l a t i v e prices, i t minimizes i t s interference with productive e f f i c i e n c y . An important implication follows, namely that the more general a tax, the less i t w i l l normally i n t e r f e r e with i n d i v i d u a l choices on the part of producers, resource owners, and consumers. I t should be noted that the p r i n c i p l e of n e u t r a l i t y i s appropriate only when economic e f f i c i e n c y i s a prime c r i -t e r i o n of p o l i c y . Frequently, governments are more con-cerned with other goals and w i l l consciously depart from n e u t r a l i t y i n order to further these objectives (Ontario Report, 1967). Certainty A taxpayer should be able to e a s i l y ascertain the time, manner and amount of payment of tax. A c e r t a i n tax not only removes the p o t e n t i a l f o r a r b i t r a r y decisions of auth o r i t i e s , but i t enables a taxpayer to be well informed of his tax burden and therefore able to relate i t to the benefits he derives from public services. I f a taxpayer i s only dimly aware of his t o t a l tax burden, he i s l i k e l y to underestimate the cost of the public services with which he i s provided. This i s p a r t i c u l a r l y l i k e l y where many of his taxes are hidden i n the prices of goods and services he purchases, rather than imposed upon him d i r e c t l y . 85 S i m p l i c i t y The p r i n c i p l e of s i m p l i c i t y must be considered as d i c -t a t i n g the greatest c l a r i t y within the l i m i t s set by cer-t a i n t y and equity. I t should be noted that undue s i m p l i c i t y may make i t impossible to recognize the varying circumstances of p a r t i c u l a r taxpayers (Ontario Report, 1967). Philosophy of Intergovernmental  F i s c a l Relations The statement was made i n Chapter II that the d i v i s i o n of functions and revenue sources between a p r o v i n c i a l govern-ment and the mun i c i p a l i t i e s i t has created i s e n t i r e l y at the d i s c r e t i o n of the p r o v i n c i a l l e g i s l a t u r e . A province concerned with determining an appropriate d i v i s i o n of ex-penditure functions and revenue sources between i t s e l f and i t s m u n i c ipalities should take into consideration two p r i n -c i p l e s ! (1) l o c a l autonomy; and (2) the incidence of bene-f i t s associated with expenditure items (Johnson, 1969) . The j u s t i f i c a t i o n of l o c a l autonomy i s based l a r g e l y on the premises that services to people should be provided by the government closest to people, and decisions should be made at the lowest possible l e v e l (Hickey, 1972). I f t h i s con-cept of decentralizing l e g i s l a t i v e and administrative func-tions i s to be encouraged, the Ontario Committee (1967) suggests that the p r i n c i p l e of l o c a l autonomy can be r e a l i z e d only i f mu n i c i p a l i t i e s are accorded a wide measure of 86 discretionary authority over the quantity and q u a l i t y of the public services entrusted to them, and equipped with sources of revenue both adequate f o r the discharge of t h e i r spending r e s p o n s i b i l i t i e s and s u f f i c i e n t to ensure d i r e c t accounta-b i l i t y to the p u b l i c . The j u s t i f i c a t i o n f o r considering the incidence of bene-f i t s associated with expenditure items l i e s i n the diverse nature of services; hence the wide range of benefits associ-ated with services provided at the municipal l e v e l . On the one hand there are the ordinary housekeeping requirements of l o c a l government—police and f i r e protection, water, sewers, streets, sidewalks, and so on. For these kinds of items, the benefits accrue primarily to those who reside and work within the m u n i c i p a l i t y — i n t e r n a l benefits are dominant (Eaton, 1966). Other services funded and provided at the l o c a l l e v e l do not f i t too neatly into the category of ex-penditure of a purely concern. Because of the nature of these services—denoted by the Alberta Task Force (1972) as human resource programs (e.g. hospitals, l i b r a r i e s , recreation, education, public health and welfare)--the resultant, benefits often " s p i l l over" and benefit people i n j u r i s d i c t i o n s other than those providing and financing the services; external benefits are substantial, or even dominant. Table 6 presents i l l u s t r a t i v e expenditure items where the external benefits are dominant, where i n t e r n a l or l o c a l benefits are dominant, and where the external and TABLE 6 EXPENDITURE ITEMS BY TYPE OF BENEFIT External Benefits Dominant Education Public Health S o c i a l Welfare Public Housing Administration of Justice Hospitals Intermediate A i r and water p o l l u t i o n control Expressways and a r t e r i a l highways Recreational services and f a c i l i t i e s C u l t u r a l f a c i l i t i e s — l i b r a r i e s * museums, etc. Internal Benefits Dominant General governmental services F i r e protection Police protection Public transport Domestic water Sewage c o l l e c t i o n and disposal Storm drainage Garbage disposal Residential streets Street l i g h t i n g Sidewalks, etc. SOURCEt J . A. Johnson, "Provincial-Municipal Intergovern-mental F i s c a l Relations," Canadian Public Administration. Summer 1969. ~ — • 88 i n t e r n a l benefits are both substantial. Table 7 i l l u s t r a t e s the r e l a t i v e proportion of t o t a l expenditures allocated by the C i t y of Kamloops to i t s various functions. Based on considerations of l o c a l autonomy as well as the incidence of benefits accruing from urban public services, Johnson (1969) argues that f o r services where the r a t i o of external benefits to l o c a l benefits i s large, the case f o r l o c a l autonomy and r e s p o n s i b i l i t y i s weak. In these s i t u a -tions, the l e v e l of service should be approximately uniform and as such should be determined by a government above the municipality. Consequently, the r e s p o n s i b i l i t y f o r providing the funds f o r the program should also rest with the higher-l e v e l government. For items where i n t e r n a l benefits are dominant, the r e s p o n s i b i l i t y should be l o c a l and the costs should be met by taxes or charges borne by those who reside and work within the municipality. I t i s also i n providing these services that the case f o r l o c a l autonomy and respon-s i b i l i t y i s greatest (Johnson, 1969). P r o v i n c i a l Grants To cope with the gap between l o c a l revenue sources and l o c a l r e s p o n s i b i l i t i e s , p r o v i n c i a l and municipal authorities could implement one or a combination of the following options« (1) a complete tr a n s f e r of administrative and f i n a n c i a l res-p o n s i b i l i t i e s of human resource programs from municipalities to the province as recommended by Johnson; (2) increase the 89 TABLE ? EXPENDITURE FUNCTIONS AS PERCENT OF TOTAL MUNICIPAL EXPENDITURES:1 KAMLOOPS 1973 Expenditure Function Percentage External Benefits Dominant 1. Education 2 36.2 2. H o s p i t a l s 2 1.3 3. Transfers to Regional D i s t r i c t 2 and Municipal Finance Authority . . . . 0.7 4. S o c i a l welfare3 13.2 5. Public health. . 0.6 6. Administration of Ju s t i c e . . . . . . . . . 0.3 Intermediate 7. Recreation and C u l t u r a l Services 11.6 Internal Benefits Dominant 8. General government services 9.0 9. Police protection . . . . . . . 4.8 10. F i r e protection . 4.2 11. Transportation services and parking. . . . 8.6 12. Garbage and waste disposal . 2.5 13. Debt charges 3.4 14. Other 2.9 SOURCE: Calculations derived from C i t y of Kamloops Budget 1973. ^ o t a l municipal expenditures $17*850,250. This t o t a l i s exclusive of expenditures on s e l f - l i q u i d a t i n g services. Domestic water $1,186,525 Sanitary sewer $ 838,325 2 Transfers to other governments—38,2% of t o t a l expenditures. ^So c i a l welfare expenditures are financed from two sources: Conditional transfers from Prov. 73% Local general revenue 27% 4 Recreation and c u l t u r a l services are financed from two sources: Conditional transfers from Prov. 20% Local general revenue 80% p r o v i n c i a l f i n a n c i a l assistance to municipalities; and (3) broaden the municipal revenue base. Implementation of the f i r s t a l t e r n a t i v e i s l i m i t e d to some extent because of the b e l i e f of both p r o v i n c i a l and l o c a l a u t horities that l o c a l autonomy w i l l be threatened by such a p o l i c y * . The alterna-t i v e of broadening municipal revenue i s also l i m i t e d because of major d i f f i c u l t i e s that adhere to municipal reliance upon any major non-property tax f i e l d (e.g. l o c a l income tax, gasoline tax, or l o c a l sales t a x — s e e Appendix A). Hence, the provinces have found i t necessary to provide f i n a n c i a l assistance to municipalities i n the form of p r o v i n c i a l grants, the two prevalent forms are conditional and uncon-d i t i o n a l grants. In general, provinces have tended to place s t i p u l a t i o n s as to the functions to be financed by provin-c i a l grants. The funds, usually earmarked f o r the funding of humanrresource programs, could be construed as being a compromise which recognizes both the r e s p o n s i b i l i t y of p r o v i n c i a l governments with respect to these services, as well as benefits to be derived by maintaining l o c a l auto-nomy and a l o c a l day-to-day administrative presence. Unconditional or revenue deficiency grants, on the other hand, are designed to make up across-the-board d e f i c i e n c i e s *For instance, the Alberta Task Force ( 1 9 7 2 ) recommended that p r o v i n c i a l r e s p o n s i b i l i t y i n these areas of human resource programs should increase, but not to the extent of assuming f u l l f i n a n c i a l r e s p o n s i b i l i t y — t h e rationale being to preserve some semblance of l o c a l autonomy and thereby p o l i t i c a l accountability. i n municipal revenue to the extent that there i s a need to supplement the property tax and i n so f a r as t h i s need cannot be met through non-property tax sources. Philosophy of Public Borrowing There are several c o n f l i c t i n g views among government o f f i c i a l s as to the circumstances under which i t i s appro-pr i a t e to borrow. F i r s t , the "future generations" view holds that since the benefits from c a p i t a l expenditures w i l l be enjoyed by future generations i t i s always appropriate to borrow f o r c a p i t a l expenditures—subject, of course, to other factors such as the cost of borrowing, the willingness to assume higher debt charges, and so on. Second, the "pay-as-you-go" view holds that i n normal circumstances c a p i t a l as well as ordinary expenditures should be financed from current revenues. The exponents of t h i s view argue that future generations w i l l have c a p i t a l expenditures to finance as well, and that as long as c a p i t a l expenditures bear a reasonably constant relationship to ex-penditures they should not be financed by borrowing. A t h i r d view, i n between the above extremes, holds that when the benefits of public works w i l l be enjoyed e n t i r e l y by a l i m i t e d number of taxpayers, i t i s appropriate to finance the public works by borrowing, and to require the taxpayers concerned to service the debt through s p e c i a l 92 taxes. In a sense borrowing f o r t h i s purpose becomes s e l f -l i q u i d a t i n g ; by d e f i n i t i o n the debenture debt i s repaid out of incremental revenues (Johnson and Andrews, 1964). Other factors may also influence the borrowing decision. For instance, the decision to borrow may be influenced i n part by the rate of i n t e r e s t . Evidence assembled by Johnson and Andrews (1964), however, suggests that municipal govern-ments are not materially affected i n t h e i r borrowing plans by changes i n the rate of i n t e r e s t ; spending needs are by f a r the more compelling force. An additional f a c t o r which i s very i n f l u e n t i a l at the municipal l e v e l i s the existence of numer-ous statutory l i m i t a t i o n s on borrowing imposed by the pro-vince (see Appendix B f o r B r i t i s h Columbia regulations). Municipal Sources of Revenue The Municipal Act of B r i t i s h Columbia authorizes (subject to numerous r e s t r i c t i o n s ) municipalities to acquire revenue by levying the following charges: (1) property tax (S. 367); (2) business tax (S. 427); (3) licences (S. 438); (4) fin e s (S. 220); (5) special assessments—e.g. frontage tax (S. 415); (6) user fees (S. 564); and (7) connection charges (S. 532). Tables 8 and 9 show the r e l a t i v e y i e l d of the various revenue sources u t i l i z e d i n Kamloops and indicate that by f a r the most important source of revenue i s the l o c a l property tax. Of the remaining sources, p r o v i n c i a l grants contribute the most s i g n i f i c a n t y i e l d . In a sense p r o v i n c i a l grants are 93 TABLE 8 SOURCES OF REVENUE AS PERCENT OF TOTAL MUNICIPAL REVENUE!1 KAMLOOPS 1973 Revenue Source Percentage Property Taxation 1. Real property tax 27.0 2. Special assessments . . . . . . . . . . . . 0.7 3. Grants i n l i e u of taxes 0.8 4. School t a x 2 36.2 5. Hospital tax2 . . . . . . . . . . . . . . . 1.3 Sales of Services (user charges) 6. Transportation 1.1 7. Garbage fees 0.6 8. Recreation and c u l t u r a l fees . 1.2 9. Other 0.6 Other Revenue From Own Sources 10. Licences and permits 1*6 11. Fines 0.7 12. Other 1.1 Transfers From Other Governments 13. Conditional transfers from Fed. Gov't.. . . 0.4 14. Conditional transfers from Prov. Gov't. . . a. S o c i a l welfare 9.5 b. Recreation. 2.2 c. Admin, of Justice 1.3 d. Other 0.9 15. Unconditional transfers from Prov. Gov't. . a. Local gov't, grant @ 32/person. . , 9.8 b. Special grant.? 0.9 Other Transfers K 16. Recoverable debt charges 0.8 17. Transfers from own reserves 1.3 SOURCE: Calculations derived from C i t y of Kamloops 1973. ^ o t a l municipal revenues $17,850,250. This t o t a l i s exclusive of revenue from s e l f - l i q u i d a t i n g services. Domestic Water $1,186,525 Sanitary Sewer $ 838,325 2 The municipality acts as agent f o r l o c a l school and hospital boards by c o l l e c t i n g school and hos p i t a l taxes. -^Portion of 1972 Prov. property taxes c o l l e c t e d i n unor-ganized areas p r i o r to amalgamation. 4 Debt charges on parking f a c i l i t i e s , operated on a s e l f -sustaining basis, are recoverable. TABLE 9 SOURCES OF REVENUE AS PERCENT OF TOTAL REVENUES DESIGNATED FOR GENERAL EXPENDITURES1 Revenue Source Percentage Property Taxation 1. Real property tax 56.1 2. Special assessments 1.4 3. Grants i n l i e u of taxes . . . » 1.5 Sales of Services (user charges) 4. Transportation 2.3 5. Garbage fees. . . . . . . . . . . . . . . . 1.2 6. Recreation and c u l t u r a l fees. . . . . . . . 2.4 7. Other 1.5 Other Revenue From Own Sources 8. Licences and permits 3.3 9. Fines 1.4 10. Other 2.4 Transfers From P r o v i n c i a l Government 11. Local government grant @ 32/person 20.5 12. Special grant 1.8 Other Transfers 13. Recoverable debt charges. 1.6 14. Transfers from own sources 2,6 SOURCE: Calculations derived from C i t y of Kamloops Budget 1973. Total revenues designated f o r general expenditures $8,591,750. This t o t a l i s exclusive of revenues c o l l e c t e d f o r school and ho s p i t a l boards ($6,713,475) and conditional / I a n P f ^ r s f T o m t h e Federal ($66,275) and P r o v i n c i a l ($2,478,750) governments. the only means by which municipalities have access to a l t e r -native sources of revenue such as income tax, sales tax, and gasoline tax. Property Tax The property tax i s , i n essence, a levy against a pro-perty i n proportion to the value of that property. Although i t i s seldom achieved i n practice because of imperfect assessment procedures, the fundamental p r i n c i p l e of equal treatment of equals ( i n t h i s case equal r e f e r r i n g to pro-perty values rather than a b i l i t y to pay or benefits received) i s t h e o r e t i c a l l y possible to achieve. When measured against the p r i n c i p l e s of a b i l i t y to pay or benefits received, how-ever, i t i s not clea r whether equals are indeed treated equally. F i r s t , i t i s unclear who benefits from a large part of l o c a l expenditures, and second, i t i s also unclear who bears the ultimate burden of the property tax. The f i r s t problem regarding the incidence of benefits has a l -ready been discussed at length. The second problem with respect to the incidence of the burden of taxation i s c l a r i f i e d by c i t i n g two examples. The f i r s t i s that pro-perty taxes imposed on landlords do not necessarily r e s t with the landlord. At l e a s t i n growing communities where the demand for housing warrants i t , rents can be revised quite r a p i d l y to restore the return to the landlords. Secondly, under most circumstances, higher property taxes 96 imposed on businesses w i l l ultimately r e s u l t i n higher pro-duct pr i c e s borne to some extent by resident consumers (Ontario Report, 1 9 6 ? ) . I f i t can be assumed that the ultimate burden of property taxation on owner-occupied residences f a l l s on the owner, there i s some controversy as to whether or not the tax bur-dens are all o c a t e d according to a b i l i t y to pay. On the one hand, Netzer (1966) has advanced the argument that a per-son's expenditures on shelter are roughly proportionate to his a b i l i t y to pay, and therefore, some accordance with the p r i n c i p l e of a b i l i t y to pay i s achieved. On the other hand, the Ontario Committee points out that those with low incomes spend a la r g e r f r a c t i o n of t h e i r incomes on the provision of shelter than do those with high incomes, whether the costs are incurred through owning or renting accommodation. This being so, those with low incomes carry a property tax load that i s r e l a t i v e l y heavier than the load ca r r i e d by those with la r g e r incomes. The property tax, i s i n e f f e c t , a regressive tax. Real property taxes on business that are passed on to consumers through higher prices have the same ef f e c t , f o r low-income indivi d u a l s spend a larger f r a c t i o n of t h e i r incomes than do upper-income indivi d u a l s (Ontario Report, 1967). An important advantage of the property tax i s i t s f l e x i b i l i t y ; rate a l t e r a t i o n s can be e a s i l y implemented to accommodate small as well as large changes i n revenue requirements. In addition, the property tax i s also c e r t a i n i n that i t i s r e a d i l y ascertainable and c l e a r l y v i s i b l e . The e f f e c t of the property tax on the a l l o c a t i o n of resources, r e l a t i v e p r i c e s , and productive e f f i c i e n c y i s very unclear, and as such the extent of conformity with the p r i n c i p l e of n e u t r a l i t y i s l a r g e l y indeterminate. A d e f i n i t e weakness of the property tax i s that i t has been unable to keep pace with increases i n municipal expen-ditu r e . Research by the Economic Council of Canada (1968) has shown that during the period of 1953 to 1963 property tax revenues rose more than one and one-half times as r a p i d l y as personal incomes, thereby substantiating Netzer's (1966) findings that the income e l a s t i c i t y of property taxes has been r e l a t i v e l y high. Continuing i n v e s t i g a t i o n by the Eco-nomic Council of Canada suggests, however, that on average, the assessment base has r i s e n at only about the same rate as personal income, or perhaps very s l i g h t l y f a s t e r . But since municipal expenditures have been r i s i n g f a s t e r than;personal income, many municipalities have f o r some time faced upward trends i n the rates which they must apply to the property tax base (Economic Council of Canada, 1968). The foregoing discussion of the theory underlying the property tax would do l i t t l e to enable an outsider to a n t i -cipate the extent of adverse c r i t i c i s m to which the tax has been subjected. In essence, the c r i t i c i s m s leveled at the property tax are not a r e s u l t of the nature of the tax, but rather the manner i n which i t i s administered, as well as the extent to which l o c a l governments depend on the pro-perty tax to finance expenditure which c i t i z e n s f e e l should r i g h t l y be financed by taxes which better r e f l e c t a b i l i t y to pay. The fundamental c r i t i c i s m of the administration of the tax i s that the p r i n c i p l e of equal treatment of equals i s so often v i o l a t e d . F i r s t , assessment practices are very imper-f e c t : assessed values of s i m i l a r properties are anything but uniform i n many cases. Second, the p r i n c i p l e of equal t r e a t -ment of equals i s v i o l a t e d because of extensive tax con-cessions and exemptions. As a r e s u l t a community's assess-ment base i s narrowed; i n a sense, properties being taxed are forced to subsidize those properties that are favoured, A second c r i t i c i s m of the property tax i s that i t i s being r e l i e d on too heavily to finance those services which should r i g h t l y be financed by taxes which better r e f l e c t a b i l i t y to pay (Baker, 1971). For instance, Eaton (1966) considers i t to be an anomaly that the same kind of tax i s used to finance education expenditures as expenditures on housekeeping items. 99 Site Value Taxation An a l t e r n a t i v e which has attracted considerable atten-t i o n i s that of l i m i t i n g the property tax to the taxation of land without buildings, thereby exempting improvements from assessment. Among the advantages claimed f o r s i t e value taxation are: (1) i t takes account of l o c a t i o n rents; (2) i t i s e n t i r e l y neutral and therefore w i l l not tend to d i s -courage investment i n new construction and r e h a b i l i t a t i o n as with the present tax; (3) i t would encourage more intensive u t i l i z a t i o n of land because i t would increase s u b s t a n t i a l l y the holding costs of land; and (4) l e s s speculative with-holding of land from development would r e s u l t i n reduced urban sprawl (Netzer, 1966). There i s some dispute as to the v a l i d i t y of these claims as i s evident i n the Ontario Committee's (1967) comments on t h i s tax i n which they argue that the tax would not eliminate the land speculator and urban construction would be compressed on to more crowded s i t e s . In addition, the basis of assessment of s i t e value taxation i s subject to dispute i n that as Fischer (1954) claims, the demand f o r urban land i s derived from the i n -ten s i t y and character of the demand f o r structures i n general, and the character of improvements of p a r t i c u l a r s i t e s shapes the demand f o r the s i t e themselves. Therefore, there i s no meaningful way, i n theory as well as i n pra c t i c e , of separating the value of the s i t e from the value of im-provements i f the s i t e i s not a vacant one. As a r e s u l t , 10G formidable p r a c t i c a l d i f f i c u l t i e s would a r i s e , making assess-ment even more d i f f i c u l t than at present. Additional disad-vantages c i t e d by the Ontario Committee are» (1) i t would narrow the base of taxation by removing part of the weight of taxation from i n d u s t r i a l and commercial taxpayers; (2) regressiveness and inequality would be greater because the weight on any p a r t i c u l a r taxpayer would no longer be governed by his expenditure on s h e l t e r — i . e . small homeowners would be more heavily taxed; and (3) since land-use patterns have developed under the e x i s t i n g system of r e a l property taxa-t i o n , the t r a n s i t i o n a l e f f e c t of s i t e value taxation would d i f f e r widely from one property holder to another (Ontario Report, 1967). Sources of Revenue Based on the  P r i n c i p l e of Benefits Received The statement was made e a r l i e r i n the chapter that the a l l o c a t i o n of costs according to the benefits p r i n c i p l e i s desirable only whent (1) the benefits and b e n e f i c i a r i e s of government expenditure programs can be i d e n t i f i e d r e l a t i v e l y c l e a r l y ; (2) a modified d i s t r i b u t i o n of wealth and income i s not a p o l i c y objective; and (3) the imposition of benefit r e l a t e d charges on the users or b e n e f i c i a r i e s of a service w i l l not r e s u l t i n an i n e f f i c i e n t use of the service. Several means of levying charges can be u t i l i z e d to allocate costs according to the benefit p r i n c i p l e . Table 10, which TABLE 10 CLASSIFICATION OF REVENUES Type of Revenue Example Extent of Individual Benefit Extent of Public Purpose Quasi-private price e l e c t r i c i t y and telephone rates Special benefit the exclusive consideration Public purpose incid e n t a l Public p r i c e bus fare Less special benefit although s t i l l preponderant Public purpose of some importance User fee metered water rates Special benefit measurable Public purpose of s t i l l greater importance Special assessment frontage tax Special benefit s t i l l assumed Public purpose c o n t r o l l i n g Tax general property tax Special benefit only an in c i d e n t a l r e s u l t Public purpose the exclusive con-sideration SOURCEi Mushkin and Bi r d , "Public Pricest An Overview," i n Public Prices f o r Public  Goods, ed. Mushkin (1972), p. 24. 102 c l a s s i f i e s revenues according to the extent of i n d i v i d u a l benefit as well as the extent of public purpose, indicates that d i f f e r e n t sources may be appropriate depending on the extent to which a service benefits i n d i v i d u a l s as opposed to the community as a whole. Special Assessments Special assessments are e s s e n t i a l l y l e v i e s against r e a l property to defray a l l or part of the costs of s p e c i f i c public improvements. A special assessment i s distinguished by several c h a r a c t e r i s t i c s * (1) i t i s a levy r e s t r i c t e d to an area demonstrably benefited by the improvementj (2) the proceeds from the levy are used to defray the cost of making ess e n t i a l l o c a l improvements, e.g. sewers and drains, water supply, and street improvements; and (3) the assessments become l i e n s upon the benefited property. Generally, improvements to be financed by s p e c i a l assessments may be i n i t i a t e d e i t h e r by the p e t i t i o n of pro-perty owners or by the l o c a l government authority. The municipality may also decide i f any of the improvement costs are to be met from general revenues. Weinstein (1970) suggests that i f a community as a whole w i l l derive some benefits from the project, the municipality should generally be required to pay part of the cost. 103 The basic feature distinguishing s p e c i a l assessments from user fees or service charges i s the method of a l l o c a t i n g the costs. Depending upon the nature of the p a r t i c u l a r ser-v i c e , three alternate methods of a l l o c a t i n g costs are a v a i l -a b l e — f r o n t a g e , zone, and area. F i r s t , as the name implies, frontage assessment (most commonly used f o r street improve-ments) i s an assessment on property varying according to the l o t frontage abutting an improvement. I f the municipality does not set a uniform amount per foot to be assessed, the computation f o r each l o t i s simply a r a t i o of that l o t frontage to the t o t a l frontage abutting the improvement mul t i p l i e d by the assessible cost of the project. Second, under a system of zone assessments, the land on both sides of the improvement (e.g. an a r t e r i a l road), but s t i l l i n the benefit area, i s divided into zones or s t r i p s p a r a l l e l to the improvement. The property within each zone i s then assessed a percentage of the costs i n proportion to i t s area. The rate of assessment diminishes with the distance from the improvement. Third, area assessment, which i s most often used f o r sanitary and storm sewers, i s based on the premise that each parcel served by the f a c i l i t y should be assessed that proportion of the cost which i t s area bears to the t o t a l area of the d i s t r i c t . This method of assess-ment i s generally considered more equitable than frontage since area gives consideration to the l o t depth and shape as well as width. Several additional methods of a l l o c a t i n g 10k costs have "been advanced. F i r s t , the property valuation method attempts to integrate the p r i n c i p l e s of benefits received and a b i l i t y to pay. The amount assessed to each l o t i s the r a t i o of that l o t ' s property valuation to the t o t a l valuation of the assessment d i s t r i c t , m u l t i p l i e d by the assessible project cost. And second, the d i r e c t benefit method i s based on the premise that since a government pro-vided improvement may r e s u l t i n an enhancement of value of c e r t a i n properties, the a l l o c a t i o n of costs should vary according to the benefits a p a r t i c u l a r property w i l l receive. This method i s applied by determining the value of a l o t before and a f t e r the public improvementt the difference i n the two values i s the s p e c i a l assessment f o r that l o t (Wein-st e i n , 1970). The obvious disadvantage of the l a t t e r method l i e s i n determining the proportion of increased value a t t r i -butable to the provision of the service. I t should be noted that s p e c i a l assessments can be used to defray the costs of a p a r t i c u l a r c a p i t a l improvement i n several ways: f i r s t , i n cases where improvements are f i n -anced on a pay-as-you-go basis, s p e c i a l assessments are l i k e l y to be a lump-sum levy? and second, i n cases where improvements are financed by borrowing, sp e c i a l assessments are l e v i e d annually u n t i l the debt i s r e t i r e d . As a tax, the s p e c i a l assessment has a number of advan-tages: (1) i t i s an equitable tax to the extent that i t 105 conforms with the p r i n c i p l e of benefits received; (2) i t i s easy to understand; (3) administration i s r e l a t i v e l y s t r a i g h t -forward; (4) i t i s c e r t a i n i n amount and r e a d i l y ascertain-able; (5) i t provides an a l t e r n a t i v e to the property tax, thereby f a c i l i t a t i n g a better balanced tax system; (6) pro-perty tax exempt properties can be assessed f o r t h e i r share of the benefit; and (7) projects do not add to tax burdens or f i n a n c i a l l i a b i l i t i e s of the general taxpayer. The s p e c i a l assessment i s , however, not without i t s disadvantages: (1) i t i s r e s t r i c t e d i n scope to financing services f o r which there are i d e n t i f i a b l e b e n e f i c i a r i e s ; (2) i t i s inequitable to the extent that i t takes no account of a b i l i t y to pay; and (3) i t i s i n f l e x i b l e i n that rate a l t e r a t i o n s are l a r g e l y i n f e a s i b l e . User Fees or Service Charges The U.S. Bureau of the Census defines user fees as "amounts received from the public f o r the performance of sp e c i a l services benefiting the person charges". User fees are b a s i c a l l y of two t y p e s — t h e f l a t rate (e.g. monthly garbage fees) and the rate which i s charged as a function of the quantity of a p a r t i c u l a r service consumed (e.g. metered water charges). In essence, a f l a t rate i s a tax rather than a user fee i n that i t takes no account of covering variable costs associated with a variable use; f l a t rate charges assume a marginal price of zero (Downing, 1969). 106 Variable user fees, on the other hand, are s i m i l a r to taxes but d i f f e r i n two important respects. F i r s t , payment i s not compulsory but may be avoided, at l e a s t i n theory, by not using a government f a c i l i t y or not accepting a gov-ernmentally supplied service. And second, the government i s obliged to render a s p e c i f i c benefit to the persons making payment (Weinstein, 1970). A fundamental problem associated with levying variable user fees i s that of deter-mining the appropriate "price" to be charged. T r a d i t i o n a l l y , the l e v e l of public u t i l i t y rates has been determined by considerations f o r recovery of h i s t o r i c a l or o r i g i n a l costs. To achieve t h i s , rates are usually set so as to equate aver-age revenue (AR) with average costs (AC); average costs being the summation of average variable costs (AVC) and average f i x e d costs (AFC). In the case of public u t i l i t i e s , AVC would be comprised of operating and maintenance expendi-tures? whereas AFC would be comprised of c a p i t a l costs. Rates determined i n t h i s manner not only apportion costs according to the p r i n c i p l e of benefits received, but they ensure the recovery of c a p i t a l and maintenance outlays as well. In some cases, i f a government wishes to encourage the consumption of a p a r t i c u l a r service, i t may set the rates below average cost; the difference between cost and s e l l i n g p r i c e would then be recovered by general taxation. A government i s also able to use i t s monopoly power to set p r i c e s above cost and thereby generate funds f o r other purposes. According to Milliman (1972), however, i t i s question-able whether rates determined by the average cost of services as opposed to the marginal cost of supply w i l l lead to e f f i -ciency i n the use of e x i s t i n g services. Instead, public prices should be determined according to the p r i n c i p l e s of marginal-cost p r i c i n g which says that the demand price should be made equal to marginal cost, with marginal cost defined as the incremental costs of production. The theory of marginal-cost p r i c i n g stresses that investment and operating decisions on s o c i a l investments should be made independently of reimbursement p o l i c i e s f o r i n d i v i d u a l lumps or units of productive capacity. Since resources are drawn away from alternative uses, marginal costs should r e f l e c t accurately the s o c i a l opportunities foregone. The equality of pr i c e and marginal cost ensures that consumers equate marginal benefits from t h i s use of resources with the r e a l alterna-t i v e s foregone elsewhere (Milliman, 1972). For some types of public goods, production i s charac-t e r i z e d by longrun decreasing costs or increasing returns to scale. Marginal cost w i l l l i e below average cost i n increasing returns cases (see Figure 5). I f demand price i s made equal to average cost ( P ^ ) — i . e . , f u l l - r e c o v e r y cost as i n the t r a d i t i o n a l system—the pr i c e w i l l exceed marginal cost. This r e s u l t i s i n e f f i c i e n t because the value that consumers place upon extra output exceeds the cost of alte r n a t i v e production that could be s a c r i f i c e d 108 F I G U R E 5 P U B L I C S E R V I C E S P r o d u c t i o n C o s t C h a r a c t e r i s t i c s elsewhere to produce t h i s extra output. I t i s therefore desirable to expand production (Q 2 to Q^) to the point where p r i c e (P^) equals marginal cost. As Milliman points out, however, t h i s solution w i l l generate a d e f i c i t , and the goals of cost recovery come into c o n f l i c t with e f f i c i e n c y . The question then arises as to who should bear the costs of t h i s d e f i c i t ; i s i t equitable according to the p r i n c i p l e of benefits received that the general taxpayer should pay these costs when the b e n e f i c i a r i e s are c l e a r l y the users of the f a c i l i t y ? I f general taxes are to be employed to recover the costs i n t h i s case, the e f f i c i e n c y questions would be concerned with the possible adverse e f f e c t s of these taxes upon resource a l l o c a t i o n versus the adverse e f f e c t s of the levy of beneficiary charges that might return h i s t o r i c a l costs but s t i l l be i n e f f i c i e n t . In the r e a l world, there-fore, i t may be necessary f o r l e g a l and f i n a n c i a l reasons to implement f i x e d repayment contracts, f i x e d beneficiary charges, and f i x e d operating r u l e s , even though they may not be at a l l conducive to e f f i c i e n t resource use (Milliman, 1972). C a p i t a l Financing by Developers The practice of t r a n s f e r r i n g the r e s p o n s i b i l i t y f o r providing or paying f o r municipal service i n s t a l l a t i o n s i n new developments from the municipality to the developer i s becoming an increasingly popular means of financing public services i n urban growth areas. C a p i t a l financing by deve-lopers enables the financing of municipal works to take place through private borrowing. Accordingly, a munici-p a l i t y ' s borrowing capacity i s not affected. The developer, i n accepting the obligations of financing the c a p i t a l works does so i n the expectation of recovering the costs imposed upon him as part of the sale p r i c e of his l o t s . Whether he i s i n fa c t successful i n s h i f t i n g the entire burden to his purchasers depends on p r e v a i l i n g conditions of supply and demand, and the l i k e l i h o o d of his success i s d i r e c t l y r e l a t e d to the buoyancy of demand (Ontario Report, 1967). In B r i t i s h Columbia, the Municipal Act enables munici-p a l i t i e s to transfer the r e s p o n s i b i l i t y f o r providing or paying f o r municipal services i n several ways: (1) pass by-laws requiring -the provision of c e r t a i n services as an ad-junct to land subdivision r e g u l a t i o n s — t h o s e services i n -cluding storm drainage, road surfacing, sidewalks, boule-vards, street l i g h t i n g , underground wiring, sewage c o l l e c -t i o n systems, and community water systems, a l l to prescribed minimum standards (Sec. 711): (2) cost-sharing agreements between the developer and municipality f o r the construction of trunk mains (Sec. 711); (3) subdivision or developers agreements i n which developers agree to provide or finance the i n s t a l l a t i o n of services as a necessary condition to municipal cooperation f o r r e g i s t e r i n g a subdivision plan*; * P r i o r to 1973» subdivision agreements were s i g n i f i c a n t l y more important i n that municipalities were not authorized to require as wide a range of services as at present. I l l and (h) land-use contracts i n which the developer and munici-p a l i t y are open to negotiate any terms and conditions f o r the use and development of the l a n d — a prevalent condition of a land-use contract being the developer's r e s p o n s i b i l i t y f o r providing or financing service i n s t a l l a t i o n s (Sec. 7 0 2 A ) . A fundamental problem associated with the conceptual basis of a land-use contract i s that i t v i o l a t e s the p r i n -c i p l e of c e r t a i n t y and hence the p r i n c i p l e of ascertaina-b i l i t y . In a sense, i t runs counter to the l e g a l maxim which states that municipal l e g i s l a t i o n must be impartial: or i n other words, the municipality must not l e g i s l a t e to consider each case on i t s merits (Rogers, 1959). It i s i n t e r e s t i n g to note the d i v e r s i t y i n the views of the Ontario Committee and the conceptual basis underlying the use of land-use contracts. The Committee suggests that the province should prescribe guidelines within which the municipality would delineate the developer's r e s p o n s i b i l i t y to i n s t a l l or pay f o r designated services, set performance guarantees, and e s t a b l i s h standards. The province should also set out the l i m i t s within which a developer could be held responsible f o r external services or f o r the oversizing of services within the subdivision. The Committee also sug-gests that i n f i x i n g the statutory l i m i t s f o r developer con-tr i b u t i o n s toward municipal service i n s t a l l a t i o n s , some method should be devised that w i l l ensure that the services 112 demanded are neither more elaborate nor more extensive than i s warranted i n r e l a t i o n to the value of the land and the p o t e n t i a l value of the housing or other development upon the land (Ontario Report, 196?). Summary Chapter V consists of a review of the philosophy of government finance as i t relates to taxation, intergovern-mental r e l a t i o n s , and public borrowing. When adopting a taxation system f o r financing urban public services, each revenue source should be evaluated i n terms of the following c r i t e r i a : equity as i t relates to the p r i n c i p l e of benefits received, equity as i t relates to a b i l i t y to pay, adequacy, f l e x i b i l i t y , e l a s t i c i t y , balance, n e u t r a l i t y , certainty, and s i m p l i c i t y . An a d d i t i o n a l concern i s that of determining an appropriate d i v i s i o n of functions and revenue sources between a province and the municipalities i t has created. In deter-mining t h i s d i v i s i o n , consideration should be given to several p r i n c i p l e s , including l o c a l autonomy and t h e l i n c i -dence of benefits associated with expenditure items. For those services where i n t e r n a l benefits are dominant, the r e s p o n s i b i l i t y should be l o c a l and the costs should be met by taxes or charges borne by those who reside and work within the municipality. With regards to formulating p o l i c i e s re-l a t i n g to the borrowing decisions of m u n i c i p a l i t i e s , l o c a l decision makers should take account of the several c o n f l i c t i n g views as to the circumstances under which i t i s appropriate to "borrow. The "future generations" view holds that i t i s always appropriate to borrow f o r c a p i t a l expenditures; the "pay-as-you-go" view holds that c a p i t a l expenditures should be financed from current revenues; and the t h i r d view holds that when the benefits of public works w i l l be enjoyed en-t i r e l y by a l i m i t e d number of taxpayers, i t i s appropriate to finance the public works by borrowing, and to require the taxpayers concerned to service the debt through s p e c i a l taxes In addition, alternative sources of l o c a l revenue are described and evaluated. The property tax, the mainstay of l o c a l revenue sources, i s a highly f l e x i b l e , c e r t a i n , and r e l a t i v e l y simple tax. I t i s unclear, however, whether the tax adheres to the p r i n c i p l e of benefits received or to the p r i n c i p l e of a b i l i t y to pay. The fundamental c r i t i c i s m of the property tax arises not because of i t s nature, but be-cause of the manner i n which i t i s generally administered, and the extent to which i t i s r e l i e d on to finance those services which should r i g h t l y be financed by taxes which better r e f l e c t a b i l i t y to pay. Sources of revenue based on the p r i n c i p l e of benefits received, including s p e c i a l assessments and user fees, are appropriate only when the benefits and b e n e f i c i a r i e s can be i d e n t i f i e d r e l a t i v e l y c l e a r l y , a modified d i s t r i b u t i o n of wealth and income i s not a p o l i c y objective, and the imposition of beneficiary charges w i l l not r e s u l t i n i n e f f i c i e n t use of the service. 115 CHAPTER VI THE APPLICATION OF A SYSTEMATIC APPROACH TO FINANCING URBAN PUBLIC SERVICESi A CASE STUDY Introduction The application of a systematic approach to the imple-mentation of the selected Westsyde s e r v i c i n g program requires the adoption of a financing strategy derived by applying the p r i n c i p l e s of government finance as outlined i n the previous chapter to the p r e v a i l i n g circumstances i n Westsyde. The f i r s t concern i s that of securing adequate funds to finance the program and a l l o c a t i n g the associated costs i n an equi-table manner. The second i s that of formulating a p o l i c y r e l a t i n g to the necessity of borrowing f o r c a p i t a l expendi-tures. The t h i r d concern i s that of determining the l e v e l of p a r t i c i p a t i o n of the province and the federal government financing the selected s e r v i c i n g program. Equity i n A l l o c a t i n g Costs A fundamental issue to be resolved at the outset i s that of determining the most equitable means of a l l o c a t i n g program costs; should they be all o c a t e d according to the p r i n c i p l e of benefits received, the p r i n c i p l e of a b i l i t y to pay, or a combination of the two? The statement was made i n 116 the previous chapter that the a l l o c a t i o n of costs according to the benefits p r i n c i p l e i s desirable only when: (1) the benefits and b e n e f i c i a r i e s of government expenditure programs can be i d e n t i f i e d r e l a t i v e l y c l e a r l y ; (2) a modified d i s t r i -bution of wealth and income i s not a p o l i c y objective; and (3) the imposition of benefit related charges on the users or b e n e f i c i a r i e s of a service w i l l not r e s u l t i n an i n e f f i -cient use of the service. With respect to the f i r s t c r i t e r i o n , the b e n e f i c i a r i e s of the s e r v i c i n g program as i d e n t i f i e d i n Tables 4 and 5 i n Chapter IV are the e x i s t i n g residents of Westsyde, the owners of vacant land i n Westsyde, future residents i n Westsyde, and the C i t y of Kamloops. The benefits accruing to the residents of Westsyde are d i f f i c u l t to quantify i n that they are associated l a r g e l y with t h e i r personal health and safety, and the protection of t h e i r property. I t has been suggested that the benefits may be r e f l e c t e d i n the form of property value increments (Kenney, 1964). I f t h i s i s assumed to be a v a l i d suggestion, the associated benefits are c l e a r l y i d e n t i -f i a b l e . A second group;of b e n e f i c i a r i e s , the owners of vacant property, r e a l i z e benefits of a tangible nature i n the form of property value increments. A fundamental premise of several publications related to the provision of water and sewer services i s that the development p o t e n t i a l of a vacant 11? p a r c e l i s enhanced with s e r v i c e a c c e s s i b i l i t y , and a l l other t h i n g s being equal (e.g. market demand), the owners of such p r o p e r t y w i l l r e a l i z e an increment i n p r o p e r t y v a l u e s (Kenney, 1964) and (Wicker, 1966). The t h i r d group of b e n e f i c i a r i e s , new r e s i d e n t s who take up r e s i d e n c e when the vacant p a r c e l s are developed, r e a l i z e b e n e f i t s of an i n t a n g i b l e n a t u r e . As L i c h f i e l d (1966) p o i n t s out, the b e n e f i t s must be of a p o s i t i v e nature or no one would take up r e s i d e n c e i n the a r e a . I f the C i t y o f Kamloops opts f o r a p o l i c y of accommo-d a t i n g growth by i n f i l l i n g e x i s t i n g development areas, the C i t y w i l l r e a l i z e b e n e f i t s a s s o c i a t e d with the o b j e c t i v e s of accommodating the p r o j e c t e d i n f l u x of p o p u l a t i o n . Whether t h i s b e n e f i t t o the C i t y C o u n c i l and S t a f f i s t o be c o n s t r u e d as a p o s i t i v e b e n e f i t t o e x i s t i n g taxpayers i n those s e c t o r s other than Westsyde i s u n c l e a r . T h i s i s evidenced i n the c o n f l i c t between the c o n v e n t i o n a l o p i n i o n s t h a t c o n t i n u e d p o p u l a t i o n growth i s b e n e f i c i a l t o the e n t i r e community, and the more r e c e n t o p i n i o n t h a t new r e s i d e n t s c o s t the community more than they c o n t r i b u t e ( M c C a l l , 1973). To a v o i d an exten-s i v e c o n s i d e r a t i o n of t h i s c o n t r o v e r s y , i t i s assumed t h a t e x i s t i n g r e s i d e n t s i n s e c t o r s other than Westsyde w i l l i n no way b e n e f i t from the proposed s e r v i c i n g program i n Westsyde. A second c o n d i t i o n to be s a t i s f i e d i f c o s t s are t o be a l l o c a t e d a c c o r d i n g t o the b e n e f i t s p r i n c i p l e i s t h a t a 118 modified d i s t r i b u t i o n of wealth and income i s not a p o l i c y objective. Present financing practices i n the C i t y of Kam-loops would c l e a r l y indicate that r e d i s t r i b u t i o n i s not a p o l i c y objective i n providing housekeeping services such as water, sewers, roads, and storm drains. The t h i r d c r i t e r i o n that the imposition of benefit charges w i l l not r e s u l t i n an i n e f f i c i e n t use of the service i s generally related to those services encouraged by the com-munity. The.: imposition of excess fees on public health or education services may discourage t h e i r use, thereby f r u s -t r a t i n g the attainment of the community's objectives i n t h i s regard. Because of the nature of the se r v i c i n g program under consideration, however, i t i s concluded that the imposition of benefit charges w i l l not r e s u l t i n an i n e f f i c i e n t use of the services. Indeed, Milliman (1963) suggests that such charges can be employed to discourage i n e f f i c i e n t or excessive use of water. The foregoing analysis suggests that the costs of the serv i c i n g program can be all o c a t e d i n an equitable manner according to the benefits p r i n c i p l e . This conclusion concurs with the view of the International C i t y Manager's Association (1961) that beneficiary charges should be developed to cover a l l costs of u t i l i t i e s such as water supply and sewage d i s -posal; the general taxpayer should not be required to support a u t i l i t y operation. 119 Financing by Borrowing; A second issue to be resolved i s that of determining whether the servicing program i s to be financed on a pay-as-you-go basis, by borrowing and incurring l i a b i l i t i e s , or by establishing a reserve fund. A pay-as-you-go financing pro-gram implemented i n concert with a benefits approach would impose an excessive burden on the sources of revenue, the b e n e f i c i a r i e s . E s t a blishing a reserve fund i n which adequate funds to finance c a p i t a l expenditures are c o l l e c t e d from future b e n e f i c i a r i e s p r i o r to program implementation i s de-f i c i e n t because of the extensive delays i n acquiring the required funds. As a consequence, the only f e a s i b l e a l t e r -native to financing c a p i t a l expenditures i s that of borrowing and i n c u r r i n g l i a b i l i t i e s . F i n a n c i a l Assistance From Senior Governments It was suggested e a r l i e r i n the chapter that the major fa c t o r j u s t i f y i n g the a l l o c a t i o n of project costs according to the benefits p r i n c i p l e i s that the benefits and benefi-c i a r i e s of the case study program can be i d e n t i f i e d r e l a -t i v e l y c l e a r l y . I t was also suggested that because of the nature of the services involved i n the proposed program, the resultant benefits are l a r g e l y i n t e r n a l or l o c a l . In other words, i t i s u n l i k e l y that society at large benefits from such a program, and as such, i t would appear l o g i c a l that there should be no compulsion on e i t h e r the p r o v i n c i a l or 120 federal government to provide assistance i n financing the proposed program. Nevertheless, f i n a n c i a l assistance i s forthcoming from both governments. The p r o v i n c i a l assistance i s unique to the case study. P r i o r to amalgamation, a l l roads i n Westsyde (unorganized t e r r i t o r y ) were under the j u r i s d i c t i o n of the Department of Highways which had made commitments to upgrade the main arterial—Westsyde Road. Upon amalgamation, t h i s commitment was not rescinded and consequently, the municipality w i l l not be responsible f o r financing the work. Federal assistance, on the other hand, i s available to municipalities i n the form of grants and loans f o r financing public u t i l i t y services as part of i t s neighbourhood improvement program.* Although i t i s not d e f i n i t e i f Westsyde would q u a l i f y , i t would appear that the community i s well suited to t h i s form of assistance i n that i t i s presently a viable r e s i d e n t i a l neighbourhood comprised of middle-income families r e s i d i n g p r i m a r i l y i n owner occupied single family u n i t s . One of the objectives of the Federal neighbourhood improvement program i s to en-courage the maintenance and improvement of such environments. *The Federal Government, under the terms of the National Housing Act, w i l l contribute 25 percent of the costs of improvements of municipal and public u t i l i t y services (trunk main f a c i l i t i e s only) i n the neighbourhood. In addition, i t may make loans f o r up to 75 percent of a municipality's share of the costs a f t e r a l l Federal contributions have been de-ducted (Central Mortgage and Housing Corporation, August 1973). 121 Strategies and Alternatives f o r  Financing Public Services As discussed i n the previous chapter, a wide v a r i e t y of alternative sources of revenue, each based on the benefits p r i n c i p l e , may be applied according to the nature of the servicing program and the circumstances p r e v a i l i n g i n the community. In p l o t t i n g a strategy f o r financing the program, the analyst must give, consideration to several f a c t o r s . F i r s t , f o r l e g a l and f i n a n c i a l reasons, a l l c a p i t a l costs, namely, p r i n c i p a l and i n t e r e s t , must be recovered. In addi-t i o n , adequate funds to cover a l l operating costs must be provided. Second, rates should be set so as to encourage an e f f i c i e n t u t i l i z a t i o n of the service. Third, the system must be equitable to the extent that a l l b e n e f i c i a r i e s , regardless of the nature of the benefit, are required to contribute according to the l e v e l of the benefits they receive. And fourth, the financing program must not be unduly complicated and expensive to administer. Methods of Financing Currently  Practiced i n Kamloops I t should be r e i t e r a t e d that the present C i t y of Kamloops i s an agglomeration of several sectors of development which were only recently amalgamated to form a single municipal e n t i t y . P r i o r to amalgamation i n 1973, each sector was administered e i t h e r l o c a l l y or by the province? hence the practices of providing and financing urban public services varied s u b s t a n t i a l l y from sector to sector. I t follows, therefore, that the past practices of the various l o c a l bodies are r e f l e c t e d i n the current p r a c t i c e s of the c i t y . Domestic Water. A l l c a p i t a l and annual costs associated with the supply of domestic water are financed on a s e l f -l i q u i d a t i n g or se l f - s u s t a i n i n g basis; that i s , the costs are incurred by the be n e f i c i a r i e s of the service. C a p i t a l expen-ditures are i n i t i a l l y financed p r i m a r i l y by public borrowing; the most notable exception a r i s i n g i n subdivisions where the developer i s required to i n s t a l l or finance on-site services, and i n some instances cost-sharing of o f f - s i t e services. The c a p i t a l cost incurred by the developer are passed on to the consumer i n the l o t purchase p r i c e . The c a p i t a l costs financed by public borrowing, on the other hand, are u l t i -mately incurred by consumers i n the form of one or a combina-t i o n of the following charges: (1) connection charges assessed when a property i s linke d to the community water system; (2) metered user fees; or (3) f l a t rate user fees,* The rates of the l a t t e r two sources are set at a l e v e l which i s adequate not only f o r c a p i t a l debt servi c i n g , but f o r annual operating and maintenance costs, and contributions to *The Water U t i l i t y Fund makes separate reference to a f l a t rate levy and a water tax; i n r e a l i t y , an annual water tax ( i d e n t i f i e d as a spe c i a l assessment) i s i d e n t i c a l to a f l a t rate levy. 123 a reserve fund as w e l l . Table 11 i l l u s t r a t e s the pre-eminence of f l a t rate l e v i e s over al t e r n a t i v e sources. I t should be noted that these l e v i e s are applied only to properties con-nected to the system: no contributions are required from vacant parcels i n the benefiting area. Sanitary Sewer. Like the domestic water system, the sanitary sewer system i s financed on a s e l f - l i q u i d a t i n g basis. Except f o r those c a p i t a l costs incurred by developers as required by the municipality, a l l c a p i t a l debt s e r v i c i n g as well as annual operating and maintenance costs, and con-t r i b u t i o n s to the reserve fund are financed p r i m a r i l y by f l a t rate user fees (see Table 11). Streets and Storm Drainage. Aside from a r t e r i a l s desig-nated as primary or secondary highways by the Department of Highways, a l l funds expended on streets and storm drainage are derived from the general revenue fund. Current Methods Applied  to the Case Study This section consists of an evaluation to determine whether the present methods employed i n Kamloops constitute an appropriate strategy f o r financing the case study ser-v i c i n g program. Streets. As stated e a r l i e r , the transportation compo-nent of the proposed ser v i c i n g program—the upgrading of 124 T A B L E 11 SOURCES OF REVENUE AS PERCENT OF DOMESTIC WATER U T I L I T Y FUND AND SANITARY SEWER FUNDJ KAMLOOPS 1973 Domestic Water 1 Source Percent Metered user fees • 13*5 F l a t rate user fees 80.0 Connection fees 2.8 Other 3.7 2 Sanitary Sewer F l a t rate user fees 83.6 Connection fees 2.0 Reserve fund surplus 12.6 Other 1.8 SOURCEi Calculations derived from C i t y of Kamloops Budget 1973. L T o t a l revenues f o r domestic water fund $1,186 ,525. "Total revenues f o r sanitary sewer fund $ 8 3 8 , 3 2 5 . 125 Westsyde Road—is to be funded by the province. I f p r o v i n c i a l assistance were not forthcoming, the a p p l i c a t i o n of current financing methods would indicate that the necessary funds would be obtained from the general revenue fund, which i s derived l a r g e l y from general property tax y i e l d s . Because the benefits and b e n e f i c i a r i e s associated with t h i s compo-nent of the servicing program are not as c l e a r l y i d e n t i f i a b l e as those associated with storm drainage, sanitary sewer, and domestic water, a tax of general a p p l i c a t i o n such as the property tax may be an equitable means of a l l o c a t i n g costs. However, i n the event that the program r e s u l t s i n superior access to Westsyde as.compared to that i n other sectors of the c i t y , a tax of general a p p l i c a t i o n would be inequitable to the extent that the associated benefits are not equitably d i s t r i b u t e d . Storm Drainage. The present method of a l l o c a t i n g costs associated with the provision of storm drainage f a c i l i t i e s i s inequitable to the extent that the general taxpayer i s required to finance the project rather than the e a s i l y i d e n t i f i a b l e b e n e f i c i a r i e s — t h e owners of property i n areas vulnerable to f l o o d damage. Sanitary Sewer. The cost estimates of a recent engin-eering study show that i n order to recover a l l c a p i t a l plus operating costs, an annual f l a t rate user fee would amount to $332 per e x i s t i n g household (Strong, Lamb and Nelson, 126 1973). Of course, t h i s per unit fee would gradually decrease with the continued development projected f o r the area, thereby enabling the annual debt servicing and operating costs to be d i s t r i b u t e d among a greater number of households. Incidentally, the calculated rate compares with an annual f l a t rate fee i n Brocklehurst of $120, and $48 i n North and South Kamloops. This strategy f o r financing the sanitary sewer component of the s e r v i c i n g program i s d e f i c i e n t i n several respects. F i r s t , the burden on homeowners, so long as the area i s not f u l l y developed, i s excessive. Second, t h i s strategy does not adhere s t r i c t l y to the benefits p r i n c i p l e i n that a l l b e n e f i c i a r i e s are not required to contribute according to the benefits they receive. There i s no accounting f o r the owners of vacant land who benefit i n the form of an increase i n the development p o t e n t i a l of t h e i r property. Third, t h i s method of financing i s inequitable i n that i t takes no account of the f a c t that the c a p i t a l costs of serving i n d i -vidual properties vary according to the size and dimensions of each p a r c e l . And fourth, the f l a t rate fee system assumes that the marginal cost attributable to each household i s zero. I t takes no account therefore of variations i n effluent production among the users of the service. Whether or not t h i s constitutes a v a l i d c r i t i c i s m i s dependent on the extent to which operating and maintenance expenditures vary according to the l e v e l of use of the service. According to Isard and Coughlin (1957)» because of the nature of the technology of a conventional sewer c o l l e c t i o n and trans-mission system, variations i n expenditures according to the l e v e l of use are rather i n s i g n i f i c a n t . Domestic Water. The domestic water component of the proposed ser v i c i n g program consists of improving an:existing system which i s financed on a f l a t rate user fee basis. The incremental c a p i t a l costs associated with the improvement would therefore be financed by increasing the f l a t rate to the extent that a l l additional c a p i t a l and operating costs are recovered. This method of financing i s also d e f i c i e n t i n a number of respects, several of which are i d e n t i c a l to those related to financing the sanitary sewer component. F i r s t , contributions are not required from a l l b e n e f i c i a r i e s , namely, the owners of vacant land. Second, no account i s taken of v a r i a t i o n s i n c a p i t a l costs according to p a r c e l dimensions. Third, no account i s taken of var i a t i o n s i n consumption among households; the marginal cost i s assumed to be zero. However, because the provision of domestic water ent a i l s operating costs which vary according to con-sumption ( i . e . pumping costs), the marginal costs of pro-duction i s not zero. As such, the f l a t rate system a l l o -cates costs i n an inequitable manner. And fourth, a f l a t rate structure i n no way encourages an e f f i c i e n t u t i l i z a t i o n of the service; as Milliman (1963) points out, such a rate structure i s l i k e l y to contribute to excessive and wasteful usage of water. C a p i t a l Financing by Developers 128 The statement was made e a r l i e r i n the chapter that developers are often required to provide and finance ser-vices i n new subdivisions. In the serv i c i n g program under consideration, the f e a s i b i l i t y of applying t h i s technique i s somewhat marginal. This can be attributed primarily to the small size of the vacant parcels and the extent to which they are scattered throughout the area. As such, i t i s unl i k e l y that major developers w i l l be instrumental i n the i n f i l l i n g process; the>.present trend indicates that the i n i t i a t i v e to develop i n the area w i l l be supplied by many in d i v i d u a l builders. An Alternative Strategy For Financing  The Case Study Servicing Program A report by the Joint Committee of the American Bar Association and the American Society of C i v i l Engineers (1951) gives recognition to the inconsistency and inequity i n e x i s t i n g financing structures, many of which are s i m i l a r i n nature to those currently employed i n Kamloops. The report suggests that the needed annual revenue of a water or sewage works s h a l l be contributed by users and properties f o r whose use, need, and benefit the f a c i l i t i e s of the works are provided, approximately i n proportion to the cost of providing the use and the benefits of the works (Joint Committee, 1951). A financing strategy should therefore take into account the breakdown of c a p i t a l costs into several components. F i r s t , regarding c a p i t a l costs, i t i s important to note that only a portion of t o t a l costs attributable to each beneficiary vary according to the dimensions and area of each parcel, namely, the l a t e r a l c o l l e c t i o n and d i s t r i b u -t i o n component. The remaining portion of c a p i t a l costs, namely, expenditures on trunk mains, intake and treatment f a c i l i t i e s , as well as water storage reservoirs, are con-stant regardless of the area's subdivision c h a r a c t e r i s t i c s ; as such t h i s component i s of general benefit to a l l benefi-c i a r i e s i n the Westsyde d i s t r i c t . And second, the incidence of operating and maintenance costs bears l i t t l e r e l a t i o n s h i p to the incidence of c a p i t a l costs. In view of t h i s v a r i a -t i o n i n types of costs, the Joint Committee suggested a combination financing system as follows: 1. Use general tax funds f o r that part of the c a p i t a l costs of major f a c i l i t i e s which are of general benefit, 2. Use s p e c i a l assessments f o r c a p i t a l costs of structures whose benefits are l o c a l , and 3. Use variable service charges f o r operation and mainten-ance costs (Joint Committee, 1951). Ca p i t a l Costs of Major F a c i l i t i e s . In the context of the case study s e r v i c i n g program, i t should be noted that the general benefits alluded to i n statement one are general only to residents and property owners of Westsyde; the re-maining sectors of the community i n no way benefit from the 130 program. As such, i t would be inequitable to use general tax funds acquired from the entire community. An alterna-t i v e i s to impose a s p e c i a l m i l l rate on properties i n the benefiting d i s t r i c t . The fundamental deficiency of t h i s a l t e r n a t i v e , however, i s that occupied properties would be taxed much more heavily than vacant properties; t h i s i s inequitable to the extent that major f a c i l i t i e s such as trunk mains, which are constructed to accommodate eventual development of a l l vacant properties, are of general benefit to both occupied and vacant properties. I t i s therefore submitted that t h i s component of c a p i t a l costs should be allocated according to the t o t a l number of e x i s t i n g as well as future households i n the benefiting area on a f l a t rate levy basis. The rate per household i s simply calculated by d i v i d i n g annual debt ser v i c i n g costs by the t o t a l number of present and future households. A l l o c a t i n g the share att r i b u t a b l e to e x i s t i n g households presents no s p e c i a l problems. A l l o c a t i n g the share a t t r i b u t a b l e to future households, on the other hand, can most simply be achieved by a f l a t rate acreage assessment; the acreage rate equaling the household rate times the projected number of households per acre. Based on t h i s strategy, i t was found that the annual rates i n the case study f o r providing sanitary trunk sewer f a c i l i t i e s (the only service f o r which comprehensive cost 131 estimates are available) are as follows: 1. Annual f l a t rate levy per household $30 2. Annual f l a t rate levy per vacant acre $120* C a p i t a l Costs of Local F a c i l i t i e s . The Joint Committee (1951) suggests that special assessments are appropriate l e v i e s f o r recovering the c a p i t a l costs of structures whose benefits are l o c a l , namely the l a t e r a l sanitary sewer c o l l e c t i o n system and the water d i s t r i b u t i o n system. The basis of the s p e c i a l assessment may be e i t h e r parcel frontage or par-c e l s i z e ; both methods have the advantage of r e f l e c t i n g the density of the area served. Both methods also have i n d i -vidual advantages. The parcel size method takes account of the shape and dimensions of the parcel; f o r instance, a panhandle l o t would be assessed more equitably using the parcel size method than the frontage method. The frontage method, on the other hand, has the advantage of charging only those parcels that have access to the service. This i s an important advantage i n an area such as Westsyde where the c o l l e c t i o n system w i l l i n i t i a l l y be constructed to pro-' vide s e r v i c i n g to e x i s t i n g residents; intervening vacant parcels w i l l abut the service but subsequent subdividing *The rates are derived as follows: (a) t o t a l annual debt ser v i c i n g costs f o r trunk f a c i l i t i e s .....$164,000 (b) t o t a l number of households present = 1,200 future 4,200.... 5400 (c) annual rate per household = 164000/5400 = ..... $30 (d) annual rate per vacant acre = 4 x JO = ........ $120 may necessitate additional c o l l e c t i o n f a c i l i t i e s . As such, the frontage method would l i k e l y "be the most equitable i n that contributions from vacant properties would be based according to actual a c c e s s i b i l i t y to services, rather than anticipated a c c e s s i b i l i t y to future services as would be the case with a special assessment based on parcel s i z e . For instance, consider a s i t u a t i o n i n which two parcels, vacant Parcel A and occupied Parcel B are equal i n area. Using the parcel size method, the contributions required of both par-cels would be i d e n t i c a l ; whereas i f the frontage method were employed, the contribution required of Parcel A would be s i g n i f i c a n t l y less than f o r Parcel B. The difference i n contributions would r e f l e c t the greater c a p i t a l costs attributable to Parcel B than to Parcel A. The property frontage rate i s calculated by multiplying the number of front feet of each property by one h a l f the in-place cost per foot of the sewer. This assumed that another property across the street i s also being served by the sewer. Adjustments are required of course to account fo r flankage on corner l o t s . In addition, to ensure that panhandle and cul-de-sac l o t s are not given an u n f a i r advantage, provisions are made f o r a minimum parcel frontage. Based on t h i s method of a l l o c a t i n g costs, i t was found that the annual frontage rate i n the case study f o r pro-viding sanitary sewer i s $1.»'30 per foot. A t y p i c a l 10,000 133 square foot l o t with a frontage of 85 feet would accordingly he assessed $110.50 per annum.* Operating and Maintenance Costs. The Joint Committee (195D suggests that operation and maintenance costs should he financed by variable service charges. F i r s t , with respect to the water supply, the service charge would vary according to the volume of water consumed; as such water meters are required to measure the volume. And second, with respect to sanitary sewers, the v a r i a t i o n i n charge should he based on the measured volume of sewage presented by each customer. Unfortunately, a cheap and accurate means of measuring the volume of sewage presented by small contributors i s not as yet a v a i l a b l e . The practice of using metered water consump-t i o n as a measure of sewage contributed i s the next best alt e r n a t i v e (Downing, 1969). A charge based on water use would have to take into consideration the difference between water use and sewage contributions. Downing (1969) points out that t r a d i t i o n a l l y , when variable charges are used, the rate i s set not equal to the marginal costs but to the average variable costs. He argues that a charge equal to average variable costs r e s u l t s i n a •Calculations derived as followst (a) t o t a l c o l l e c t i o n footage (b) t o t a l frontage (c) t o t a l annual debt servicing costs (d) frontage rate = 203700/155200 = ,. 77600 f t . .155200 f t . $203,700 $1.30 smaller quantity demanded than i s economically j u s t i f i e d . However, several- d i f f i c u l t problems aris e i n attempting to equate the charge to marginal cost. F i r s t , the theory of marginal cost p r i c i n g requires the derivation of a demand curve which r e f l e c t s the p r i c e that consumers are w i l l i n g to pay f o r varying volumes of sewage contributed. As Downing (1969) shows, i t i s r e l a t i v e l y easy to predict the general shape of the curve. In practice, however, i t i s necessary that the exact location of the curve be determined, a task which i s d i f f i c u l t and imprecise. Even i f i t i s assumed that the demand curve can be derived, the price at which demand equals marginal cost i s not adequate to recover average variable costs.* Consequently, t h i s d e f i c i t must be made up by alternative charges. I t i s therefore suggested that the marginal cost p r i c i n g method i s an inappropriate means of a l l o c a t i n g variable costs. The conventional method of equating charges to average variable costs as recommended by the J o i n t Committee (195D ensures t o t a l recovery of operating costs and also avoids the necessity of deriving a demand curve. The question then arises as to whether t h i s method of a l l o c a t i n g operating costs i s preferable to a f l a t rate levy. In other words, *In decreasing cost situations, as i s usually the case with public u t i l i t i e s , the marginal cost curve l i e s below the average variable cost curve (see Figure 5 i n Chapter V). 135 would the additional c a p i t a l costs of i n s t a l l i n g water meters (about $150 per dwelling unit) plus the additional administrative costs of meter reading and b i l l i n g , be more than o f f s e t by savings i n system operating costs? Although no cost estimates are available i n t h i s regard with respect to the case study, an interview with a municipal engineer suggested that i n many cases, i t i s u n l i k e l y that switching from a f l a t rate levy to a variable rate i s worth the addi-t i o n a l c a p i t a l and administrative expenses.* In: recognition of t h i s opinion, i t i s therefore suggested that annual operating costs be allocated among households connected to both the water and sanitary system on a f l a t rate basis. Based on t h i s method of a l l o c a t i n g costs, i t was found that the annual f l a t rate levy i n the case study f o r pro-v i d i n g sanitary sewer i s $26 per connection.** Because the system w i l l achieve e f f i c i e n c i e s of scale with f u l l u t i l i z a -t i o n of the system's capacity, i t can be expected that t h i s annual levy per connection w i l l gradually decrease as deve-lopment progresses. *Interview with D.N. Lockwood, Assistant C i t y Engineer, C i t y of Port Coquitlam, A p r i l 19?4. ** Basis of c a l c u l a t i o n (a) annual operating costs $31,000 (b) e x i s t i n g households 1200 (c) per unit levy $26 136 Summary of Costs. The following i s a summary of charges u t i l i z i n g the proposed alternative of a l l o c a t i n g costs "by a combination of charges. Item (a) C a p i t a l costs of major f a c i l i t i e s (b) C a p i t a l costs of l o c a l f a c i l i t i e s (c) Annual operating and maintenance costs Occupied Property Vacant Property f l a t rate l e v y — $30 per household frontage t a x — $1.30 per foot f l a t rate l e v y — $26 per connection f l a t rate l e v y — $120 per acre frontage t a x — $1.30 per foot Based on the. above schedule of charges» (a) A t y p i c a l occupied 10,000 square foot l o t with 85 foot frontage would be charged an annual levy of $166.50. (b) A serviced vacant l o t of s i m i l a r dimensions would be charged an annual levy of $140.50. (c) Vacant property with no access to c o l l e c t i o n l a t e r a l s would be assessed an annual levy of $120 per acre. Public Acceptance of the  Proposed Financing Strategy It i s anticipated that the proposed departure from con-ventional financing techniques w i l l give r i s e to extensive opposition from c e r t a i n i n d i v i d u a l s and groups i n the bene-f i t i n g area. F i r s t are the long-time residents of Westsyde, many of whom occupy r e l a t i v e l y large l o t s , who w i l l be charged f o r services which, i n t h e i r i n d i v i d u a l circumstances, may not i n f a c t be necessary. In defence of t h i s p a r t i c u l a r group, 137 which comprises a small minority of the area's e x i s t i n g population, i t could be argued that the new se r v i c i n g costs are i n e f f e c t external diseconomies imposed on them by the more recent residents who now comprise a majority of the area's population. As such, a subsidy from the l a t t e r to the former group may be j u s t i f i e d . The question then arises as to the form that t h i s subsidy should take. Assuming that a l l properties occupied by such residents are to be connected to the system, i t i s submitted that the f l a t rate levy of $30 per household f o r the c a p i t a l cost of major f a c i l i t i e s i s j u s t i f i e d on the grounds that the capacity of the trunk mains must be adequate to accommodate each household, re-gardless of the circumstances under which that household i s developed. In addition, the f l a t rate levy of $26 per household f o r operating expenses i s also j u s t i f i e d . The subsidy, therefore, must be drawn from the component of t o t a l costs a t t r i b u t a b l e to the c a p i t a l costs of l o c a l f a c i l i t i e s . One means by which t h i s subsidy can be effected without creating undue administrative d i f f i c u l t i e s i s to make provisions f o r a maximum parcel frontage} the costs of the subsidy would then be passed on to other residents i n the form of an increment i n the levy per frontage foot. Such a technique would enable the avoidance of excessive burdens being imposed on residents l i v i n g on r e l a t i v e l y large properties. I t should be noted that the maximum parcel frontage p r o v i s i o n would apply only to occupied 138 parcels: serviced vacant properties would s t i l l be required to contribute according to t o t a l frontage. In the event that the owner of a subsidized parcel subsequently subdivides h i s property, the maximum frontage provision would of course be waived. In addition, to ensure that t h i s provision does not discriminate against owners of vacant property, the entire amount of the subsidy should be recouped i n the form of a lump-sum payment when the new l o t ( s ) i s connected to the system. I t i s conceivable that i n some instances, i t may be appropriate to relax the assumption that a l l properties occu-pied by long-time residents are to be connected to the sani-tary sewer system. In those circumstances where i t can be demonstrated beyond doubt that an i n d i v i d u a l disposal system w i l l be t o t a l l y adequate and that threats to the public health of the community w i l l be prevented on an absolute basis, i t may be appropriate to exempt the property from the service charges. An addit i o n a l condition of t o t a l exemption must be that the property w i l l not be serviced at any time i n the future. I f the owner wishes to r e t a i n his option to be connected to the system at a future date, considerations of equity dictate that he be charged the f l a t rate levy of $30 per household f o r the component of t o t a l costs a t t r i b u t -able to the c a p i t a l costs of major f a c i l i t i e s . 139 Other indiv i d u a l s from whom opposition i s anticipated are the owners of vacant land i n the benefiting area. These individ u a l s can be c l a s s i f i e d according to whether or not t h e i r property abuts a c o l l e c t i o n l a t e r a l . F i r s t the owners of vacant property abutting a c o l l e c t i o n l a t e r a l may con-sider i t to be inequitable that they are required to c o n t r i -bute an annual levy not s i g n i f i c a n t l y l e s s than the actual users of the system. I t i s submitted that these arguments are not j u s t i f i e d f o r the following reasons. One, the development p o t e n t i a l of vacant parcels i s immediately en-hanced upon provision of the service; and two, the c a p i t a l costs attributable to a p a r t i c u l a r property must be recovered regardless of whether that property i s vacant or occupied. Second, the owners of vacant property with no access to c o l l e c t i o n l a t e r a l s may consider i t to be inequitable or unreasonable that they are being charged an annual levy of $120 per acre f o r a service which may not be available to them f o r some time i n the future. Some have argued that a preferable method of a l l o c a t i n g the costs att r i b u t a b l e to these future development areas i s to impose a development surcharge i n the form of a lump-sum payment when the property i s developed and connected to the system (Kenney, 1964). A major disadvantage of t h i s approach i s that i t takes no account of the fa c t that these c a p i t a l costs must be amor-t i z e d whether or not these properties are developed, and the body which must supply these amortization funds during that 140 period i n which the property i s not developed i s the muni-c i p a l i t y . The question then a r i s e s as to the sources of revenue that should be tapped to acquire the required funds. I t could be argued that whatever the source, that source i s i n e f f e c t being used to subsidize not only the owners of vacant property i n future development areas, but future residents as well. I t i s therefore submitted that the pro-posed method of a l l o c a t i n g the costs a t t r i b u t a b l e to vacant property i s j u s t i f i e d just as the establishment of a reserve fund i s j u s t i f i e d — t h e present costs are allocated among those who cause the costs, even though the associated bene-f i t s may not be immediately r e a l i z e d . Administrative F e a s i b i l i t y of the  Proposed Financing Strategy Combination financing strategies s i m i l a r to that pro-posed f o r the case study are being used quite extensively i n a number of municipalities i n the United States and have been found to be quite acceptable to both the l o c a l adminis-t r a t i o n and the consumers of the service (Kenney, 1964). I t i s evident, however, that the more provisions introduced to ensure that costs are allocated on an equitable basis, the more complex w i l l be the administration of that program. Even though the proposed financing strategy would d e f i n i t e l y involve a more complex administrative structure than i s presently employed, i t i s submitted that the required 141 provisions to administer the program would not be unduly complex, and that the additional administrative costs would be more than o f f s e t by the benefits associated with a more equitable d i s t r i b u t i o n of costs. Impact on Urban Development I t was stated e a r l i e r that, a l l other things being equal, the development p o t e n t i a l of vacant properties i s enhanced by the a v a i l a b i l i t y of those services provided i n the case study s e r v i c i n g program. As such, i t i s probable that urban development w i l l be i n c i t e d when s e r v i c i n g i s made avail a b l e , regardless of the financing strategy em-ployed. However, because the carrying costs of holding vacant property w i l l be higher with the proposed financing program than the conventional method, i t i s expected that the owners of vacant property w i l l be encouraged to develop t h e i r property more rapidl y than would be the case i f the conventional method of financing were employed. This i s advantageous from a servicing e f f i c i e n c y point of view i n that i t would encourage the early u t i l i z a t i o n of the f u l l capacity of the system (Pearson, 1967). External Consideration i n the  Decision Making Process An assumption i m p l i c i t i n the.process of devising the proposed s e r v i c i n g program and financing strategy has been 142 that there w i l l he no constraints to developing the vacant parcels i n the study area. The enactment of the B r i t i s h Columbia Land Commission Act r e s t r i c t i n g the development of a g r i c u l t u r a l land f o r urban purposes may prove to be a s i g -n i f i c a n t influencing f a c t o r i n the decision making process with respect to the p r o v i s i o n of services i n the area. Although i t i s u n l i k e l y that the small vacant parcels i n the e x i s t i n g development area of Westsyde proper w i l l be affected by the l e g i s l a t i o n , the status of the future development areas, f o r which capacity i n the proposed system i s provided, has not yet been determined. I t i s conceivable that a decision to r e s t r i c t development i n the future deve-lopment areas may render the proposed ser v i c i n g program i n f e a s i b l e i n that the t o t a l c a p i t a l costs f o r f a c i l i t i e s adequate to accommodate the e x i s t i n g development area would not be proportionately lower than the costs involved i n pro-viding f o r e x i s t i n g as well as future development areas. As such, the beneficiary charges i n the e x i s t i n g develop-ment area may prove to be excessively burdensome, regardless of the method of financing employed. I t i s evident, therefore, that p r i o r to making a deci-sion with respect to s e r v i c i n g the Westsyde area, the status of the future development areas must be determined. Summary In implementing the proposed case study se r v i c i n g pro-gram, an important consideration i s that of acquiring ade-quate funds to finance the program. Because of the nature of the services involved, i t was found that the costs should be allocated according to the p r i n c i p l e of benefits received. Even though the present financing techniques employed i n the Cit y of Kamloops are based on the benefits p r i n c i p l e , the technique i s d e f i c i e n t i n that i t does not al l o c a t e the pro-gram costs among the b e n e f i c i a r i e s i n an equitable manner. To ensure an equitable d i s t r i b u t i o n of costs among a l l bene-f i c i a r i e s , including the owners of both occupied and vacant properties, an alte r n a t i v e combination financing strategy i s proposed. This strategy takes into consideration the pos s i -b i l i t y of div i d i n g t o t a l system costs into three components: (1) c a p i t a l costs of major f a c i l i t i e s which are of general benefit; (2) c a p i t a l costs of l o c a l f a c i l i t i e s ; and (3) operating costs. The proposed strategy recognizes that the benefits associated with each category of costs accrue to d i f f e r e n t beneficiary groups and as such a d i f f e r e n t type of beneficiary charge i s appropriate f o r a l l o c a t i n g the costs associated with each category. F i r s t , the c a p i t a l costs of major f a c i l i t i e s are allocated among a l l the b e n e f i c i a r i e s f o r whom capacity i s provided; the charges take the form of a f l a t rate levy on e x i s t i n g households, and f l a t rate acre-age levy on vacant land designated f o r future development. Second, the c a p i t a l costs of l o c a l f a c i l i t i e s are allocated among a l l those who have d i r e c t access to the service by means of a frontage tax. No d i s t i n c t i o n i s made between vacant and occupied properties. And t h i r d , annual operating expenditures are allocated among occupied properties connected to the system on a f l a t rate levy basis. I t i s anticipated that opposition to t h i s method of a l l o c a t i n g costs w i l l be forthcoming from c e r t a i n groups and ind i v i d u a l s , including the owners of vacant property, as well as the long-time residents l i v i n g on r e l a t i v e l y large par-cels who may not desire to p a r t i c i p a t e i n the se r v i c i n g program. I t i s submitted that levying charges against vacant properties i s j u s t i f i e d on the same grounds that the establishment of a reserve fund i s j u s t i f i e d — t h e present costs are allocated among those who cause the costs, even though the associated benefits may not be immediately r e a l i z e d . The opposition from long-time residents, however, may be j u s t i f i e d i n that external diseconomies i n the form of new serv i c i n g costs have been imposed on them by the new residents of the area. To grant some r e l i e f to t h i s group, provisions are made f o r a maximum parcel frontage, and i n some circumstances, t o t a l exemption from the service charges. The proposed financing strategy i s more complex and co s t l y to administer than e x i s t i n g methods because of the addi t i o n a l provisions to ensure an equitable d i s t r i b u t i o n of costs. I t i s suggested, however, that the addit i o n a l ad-ministrative costs are more than o f f s e t hy the benefits associated with a l l o c a t i n g costs i n an equitable manner. 146 CHAPTER VII CONCLUSION Summary A major concern of municipal decision makers i n sub-urban communities i s that of formulating p o l i c i e s r e l a t i n g to the provision and financing of an infrastructure of urban public services i n those development sectors not serviced to a l e v e l comparable to that of the adjacent central c i t y . As a basis f o r investigating the issues associated with t h i s subject matter, the following hypothesis, consisting of four statements, was postulated i n the introduction* 1. Urban r e s i d e n t i a l development imposes c e r t a i n external diseconomies or s o c i a l costs on each household of the community i n which development takes place; 2. The nature of external e f f e c t s i s a function of pre-v a i l i n g community standards and development regulations and controls imposed by government during development; 3. Assuming an objective of the community i s to i n t e r n a l i z e these e x t e r n a l i t i e s , or to prevent c e r t a i n e x t e r n a l i t i e s from a r i s i n g , one means by which t h i s objective may be achieved i s to provide a comprehensive in f r a s t r u c t u r e of urban public services i n those development sectors i n which the e x t e r n a l i t i e s are being generated; 4. Assuming the provision of a comprehensive range of urban public services, financing can be derived from those sources of revenue based on the benefits-received p r i n c i p l e . The evidence required to t e s t t h i s hypothesis was derived l a r g e l y from a case study conducted i n Kamloops, B r i t i s h Columbia: with p a r t i c u l a r emphasis on the community of Westsyde, a r e s i d e n t i a l suburb recently amalgamated with the remainder of the c i t y . Statement One. A review of the l i t e r a t u r e as well as personal observation i n the case study suggested an abun-dance of examples supporting the premise that urban r e s i -d e n t i a l development imposes c e r t a i n external diseconomies on each household of the community. For instance, there were the obvious examples of t r a f f i g congestion and p o l l u t i o n of every description, as well as a more subtle form of s o c i a l c o st—municipal subsidies to i n d i v i d u a l consumers of public services. Statement Two. A review of the h i s t o r i c a l process of development i n the Kamloops d i s t r i c t indicated that the exis t i n g physical form of the various nodes of development i s a function of the p r e v a i l i n g community standards and development regulations and controls imposed by government during development. For instance, the fa c t that the central c i t y i s compactly developed, subdivided i n an orderly manner, and f u l l y serviced* indicates that the l o c a l authority dele-gated by the province to regulate and control the subdivision, use, and servicing of land has been exercised. On the other hand, the physical form of Westsyde, which i s characterized by a haphazard subdivision pattern, a minimal l e v e l of ser-v i c i n g , as well as a large proportion of vacant t r a c t s sporadically interspersed with occupied parcels, r e f l e c t s the fact that the authority to regulate the development of land was retained by the province and as such, was exercised only to a l i m i t e d extent. The v a r i a t i o n s i n the physical form of development sec-tors was found to be s i g n i f i c a n t to the extent that the nature of the external diseconomies a r i s i n g i n a p a r t i c u l a r sector varies according to the physical form c h a r a c t e r i s t i c s of the development sector i n which they are generated. For instance, e x t e r n a l i t i e s associated with the provision of urban public services i n f u l l y serviced areas are generated to the extent that the s e r v i c i n g costs a t t r i b u t a b l e to i n d i -v idual consumers are not f u l l y recovered by taxes and charges l e v i e d against those i n d i v i d u a l s — t h e y are subsidized by the municipality. On the other hand, external diseconomies generated i n p a r t i a l l y or minimally serviced sectors are often of such a nature that they concern the personal health *For d e f i n i t i o n of the various l e v e l s of s e r v i c i n g ( f u l l , p a r t i a l , and minimal) as used i n t h i s study, see Table 2 i n Chapter I I . 149 and safety of the residents, as well as the protection of t h e i r property. This evidence from the case study supports the v a l i d i t y of the premise that the nature of external e f f e c t s i s a function of p r e v a i l i n g community standards and development regulations and controls imposed by government during development. Statement Three. To te s t the v a l i d i t y of the statement that e x t e r n a l i t i e s can be i n t e r n a l i z e d by providing a com-prehensive infrastructure of urban public services, the following approach was adopted. At the outset was the d i f f i -c u l t and imprecise task of i d e n t i f y i n g the objectives of each i n d i v i d u a l or group that may be affected by the e x i s t -ence of p a r t i c u l a r e x t e r n a l i t i e s or by the implementation of p o l i c i e s aimed at t h e i r prevention. I t was found that the term " i n t e r n a l i z i n g " i s r e l a t i v e to the extent that i t may be conceptualized d i f f e r e n t l y by groups with d i f f e r e n t ob-j e c t i v e s . For instance, the meaning of the term as i t i s conceptualized by those residents with the objective of preserving Westsyde*s semi-rural or country r e s i d e n t i a l atmosphere i s l i k e l y to d i f f e r markedly' from that of those residents with the objective of enjoying the amenities associated with a c c e s s i b i l i t y to a f u l l range of urban public services. Because of t h i s p o t e n t i a l f o r c o n f l i c t i n g objectives among various groups, no attempt was made to 150 lump i n d i v i d u a l and group objectives into community objec-t i v e s or standards. Instead, i n those cases where c o n f l i c t s were i n evidence, an attempt was made to determine the r e l a -t i v e proportion of t o t a l i n t e r e s t s represented by each group. Upon i d e n t i f i c a t i o n of the objectives, a search was conducted f o r alternative strategies and techniques that could be employed to achieve these objectives. In the case study, three alternative programs were submitted. The f i r s t consisted of the provision of a f u l l range of public services i n the study area. The second consisted of a combination of invoking ordinances aimed at r e s t r i c t i n g continued develop-ment i n the area, i n concert with several modest support programs aimed at i n t e r n a l i z i n g or preventing the generating of external diseconomies of a serious nature. The t h i r d a l ternative was, i n a sense, a "toned-down" version of the f i r s t a l t ernative i n that only c e r t a i n services aimed at i n t e r n a l i z i n g e x t e r n a l i t i e s of a serious nature were provided. The next step consisted of evaluating each alternative to determine which was the most e f f e c t i v e i n a t t a i n i n g the previously i d e n t i f i e d objectives. The evaluation consisted of a comparison of each alternative by enumerating a l l the costs and benefits (tangibles as well as intangibles) of each according to t h e i r incidence among the various affected indiv i d u a l s and groups. Even though the evaluation did not point c l e a r l y as to which was the preferred a l t e r n a t i v e , i t did specify the trade-offs necessary i n choosing "between al t e r n a t i v e s . For instance, i f decision makers were to select the alternative of providing a p a r t i a l range of ser-vices rather than the alternative of invoking ordinances aimed at r e s t r i c t i n g continued development, they would i m p l i c i t l y be s t a t i n g that the a d d i t i o n a l c a p i t a l costs, as well as the costs of s a c r i f i c i n g Westsyde*s country r e s i -d e n t i a l atmosphere, would be more than o f f s e t by the bene-f i t s accruing to present and future Westsyde residents, as well as the benefits to the owners of vacant land who would r e a l i z e an increase i n the development p o t e n t i a l of t h e i r property. A subsequent consideration of the required trade-offs s p e c i f i e d i n the case study evaluation suggested that the a l t e r n a t i v e of providing a p a r t i a l range of c e r t a i n , s p e c i f i e d services would l i k e l y be the preferred alternative i n the p r e v a i l i n g circumstances. This conclusion s p e c i f i c to the case study neither proved nor disproved the premise of statement three that e x t e r n a l i t i e s can be i n t e r n a l i z e d by providing a compre-hensive infrastructure of urban public services. Instead, the evaluation indicated that a l t e r n a t i v e programs to i n t e r n a l i z e diseconomies should be evaluated i n terms of the extent to which they achieve the objectives of the affected i n d i v i d u a l s and groups. Because objectives and standards are l i k e l y to vary from community to community, no single program w i l l be appropriate i n a l l communities. Statement Four, A review of the l i t e r a t u r e on govern-ment finance indicated that alternative methods of a l l o c a t i n g the costs of l o c a l government expenditure programs are appro-pri a t e f o r d i f f e r e n t services. Because of the nature of the services involved i n the proposed case study program, i t was found that the costs should be allocated according to the benefits-received p r i n c i p l e . This conclusion, which concurs with the premise of statement four, was based on three fac-tors} the benefits and b e n e f i c i a r i e s can be i d e n t i f i e d r e l a t i v e l y c l e a r l y ; a modified d i s t r i b u t i o n of income i s not a p o l i c y objective of the municipality i n providing these services; and imposing the beneficiary charges w i l l not con-tribu t e to the i n e f f i c i e n t use of the service. To ensure an equitable d i s t r i b u t i o n of costs among a l l b e n e f i c i a r i e s , i t was suggested that the financing program take into consideration the p o s s i b i l i t y of d i v i d i n g t o t a l system costs into three components: c a p i t a l costs of major f a c i l i t i e s which are of general benefit; c a p i t a l costs of l o c a l f a c i l i t i e s ; and operating costs. The pro-posed strategy recognized that the benefits associated with each category of costs accrue to d i f f e r e n t beneficiary groups, and as such a d i f f e r e n t type of beneficiary charge would be appropriate f o r a l l o c a t i n g the costs associated with each category. 153 Suggestions f o r Further Research Having completed the research i n the case study, several suggestions can he made as to the d i r e c t i o n i n which further research should be channelled. F i r s t , a more comprehensive search f o r a l t e r n a t i v e methods of achieving the i d e n t i f i e d community objectives would be desirable. More s p e c i f i c a l l y , consideration should be given to the p o s s i b i l i t y that technological advances i n sewage disposal and domestic water supply may contribute to the economic f e a s i b i l i t y of adopting a program of i n d i v i d u a l sewage disposal and r e c y c l i n g systems rather than the conventional community sanitary sewer and domestic water systems. A second issue requiring a d d i t i o n a l research i s that of i d e n t i f y i n g the benefits and the b e n e f i c i a r i e s of l o c a l government expenditure programs s i m i l a r to the proposed case study program. I t was concluded i n the study that the benefits associated with the p r o v i s i o n of housekeeping ser-vices are l a r g e l y i n t e r n a l . This conclusion runs counter to the popular argument that society w i l l benefit to the extent that housing prices w i l l be s t a b i l i z e d i f the supply of serviced land i s increased to accommodate the continued increase i n the demand f o r urban r e s i d e n t i a l land. I f further research were to indicate that t h i s argument i s indeed v a l i d , the proposed method of a l l o c a t i n g the costs of the case study program may prove to be inappropriate. 154 Implications f o r Planning E s s e n t i a l l y four implications f o r planning can be derived from t h i s study. The f i r s t i s derived from the conclusion that the nature of the external e f f e c t s gener-ated i n a p a r t i c u l a r development sector are a function of community standards as well as development regulations and controls during development. The relevant implication i n t h i s case i s that the environment of a development area can be s i g n i f i c a n t l y influenced by the imposition of planning regulations and controls on the subdivision, use, and s e r v i c i n g of land. A second implication i s derived from the conclusion that the appropriateness of alternative programs should be evaluated i n terms of the objectives of the affected i n d i -viduals and groups. As such, an important element i n the planning function as i t relates to the provision of urban public services i s that of i d e n t i f y i n g the objectives of the i n d i v i d u a l s and groups that would be affected by the implementation of a servicing program. A t h i r d implication i s derived from the conclusion that new development i s l i k e l y to be spurred by improved accessi-b i l i t y to c e r t a i n public services. 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Rogers, Ian MacFee. The Law of Canadian C o r p o r a t i o n s . Toronto: 1959. S c h u l t z e , C h a r l e s L. The P o l i t i c s and Economics of P u b l i c Spending. Washington: The Brookings I n s t i t u t i o n , 1968. 161 S m i t h i e s , A r t h u r . "Conceptual Framework f o r the Program Budget," i n Program Budgeting. E d i t e d by David Novick. Cambridge: 1965. Strong, Lamb and Nelson (Kamloops) L t d . Westsyde Sewer and  Water Study. Kamloops, 1973. U n i t e d Nations Department of Economic and S o c i a l A f f a i r s . A Manual F o r Programme and Performance Budgeting. New York: 1965. U.S. Department of H e a l t h , E d u c a t i o n , and Welfare, P u b l i c H e a l t h S e r v i c e , and Food P r o t e c t i o n . Environmental  H e a l t h P l a n n i n g Guide, P u b l i c H e a l t h S e r v i c e P u b l i c a -t i o n No. 823. Washington: U.S. Government P r i n t i n g O f f i c e , 1962. Weinstein, Bernard L. S p e c i a l Assessments and S e r v i c e C h a r l e s i n M u n i c i p a l Finance. New York: Tax Founda-t i o n , Inc., 1970. Weisbrod, Burton A. "Income R e d i s t r i b u t i o n E f f e c t s and B e n e f i t - C o s t A n a l y s i s , " i n Problems i n P u b l i c Expendi-t u r e A n a l y s i s . E d i t e d by Samuel B. Chase. Washington: The Brookings I n s t i t u t i o n , 1968. White, P h i l i p and S t a n l e y Hamilton. The Real P r o p e r t y Tax  i n B r i t i s h Columbia - An A n a l y s i s . Vancouver: 1972. Wicker, Warren Jack. Arrangements F o r Water and Sewerage  S e r v i c e s . Chapel H i l l : U n i v e r s i t y of North C a r o l i n a , I n s t i t u t i o n of Government, A p r i l 1966. 162 APPENDICES 163 APPENDIX A ALTERNATIVE SOURCES OF LOCAL REVENUE Local Income Tax A tax on earnings i s a t t r a c t i v e because i t i s more l i k e l y to be i n accordance with the p r i n c i p l e of a b i l i t y to pay than i s the r e a l property tax? and l i k e the property tax, an income tax i s also r e l a t i v e l y f l e x i b l e . The imple-mentation of income taxes at the l o c a l l e v e l , however, i s complicated by several administrative problems. F i r s t , i f the tax i s to be of l o c a l design, only simple and therefore crude d e f i n i t i o n s of income could be provided, r e s u l t i n g i n considerable i n e q u i t i e s . Second, income tax requires sophisticated administration but such an organization i s most d i f f i c u l t to es t a b l i s h at the l o c a l l e v e l (White and Hamilton, 1972). I f the tax i s to take the form of a share of personal income tax c o l l e c t e d f o r the province by the p r o v i n c i a l government, i t i s l i k e l y that the p r o v i n c i a l government would have to set a standard rate f o r a l l muni-c i p a l i t i e s , with the r e s u l t that the tax would more c l o s e l y approximate a p r o v i n c i a l government grant rather than a l o c a l source of revenue. 16k Local Sales Tax A sales tax, which i n e f f e c t i s a levy on consumption, i s also somewhat les s than p r a c t i c a l at the l o c a l l e v e l be-cause of problems of compliance as well as problems of ad-ministration. As White and Hamilton point out, the basic d i f f i c u l t y of a l o c a l r e t a i l sales tax i s that the geograph-i c a l area of the authority levying the tax i s not nearly large enough to prevent wide-scale avoidance by means of people making purchases i n j u r i s d i c t i o n s with lower rates. I f neighboring municipalities agree to pool revenues i n order to avoid t h i s d i f f i c u l t y , the r e s u l t i s a reduction i n l o c a l autonomy and a weakening of the s e n s i t i v i t y of the l o c a l tax-payer to the l e v e l and d i r e c t i o n of l o c a l expenditures (White and Hamilton, 1972). Gasoline Tax A gasoline tax i s a t t r a c t i v e as a l o c a l revenue source since a considerable proportion of l o c a l expenditure arises from automobile transport and the control of t r a f f i c . How-ever, such a tax i s not without i t s disadvantages i n that gasoline taxes are presently l e v i e d by the p r o v i n c i a l govern-ment. As such, a l o c a l gasoline tax would either necessitate the province's vacating the f i e l d e n t i r e l y or continuing with the levy but d i s t r i b u t i n g to l o c a l a u t h orities those receipts attributable to sales i n t h e i r respective areas. In addition, as with the l o c a l sales tax, i t would be r e l a t i v e l y easy f o r consumers to avoid those areas where the rate was highest. 165 APPENDIX B BORROWING RESTRICTIONS ON BRITISH COLUMBIA MUNICIPALITIES B r i t i s h Columbia municipalities must comply with the following r e s t r i c t i o n s as outlined i n the Municipal Act: (1) Long-term municipal debt s h a l l not exceed the amount of municipal revenue f o r the current year and any revenue surplus appropriated f o r the budget (S. 24?): (2) For c i t i e s , towns, and d i s t r i c t s , long-term debt (excluding debts f o r temporary current borrowings, debts f o r school or hospitals, and 50 percent of that f o r s e l f -l i q u i d a t i n g enterprises) s h a l l not exceed 20 percent of the average taxable assessment over three years plus the value of the s e l f - l i q u i d a t i n g municipal enterprises (S. 248): (3) Borrowed funds must be used f o r c a p i t a l purposes (S. 248) except i n the case of borrowing i n a n t i c i p a t i o n of current revenues, up to the amount of revenue not yet received (S. 264)} (4) The term may not exceed 30 years and the type of issue i s l i m i t e d to instalment, s e r i a l or sinking fund debentures, a l l of which may be c a l l a b l e (S. 252)} (5) Long-term borrowing must conform to the f i v e -year c a p i t a l budget prepared annually by the municipality and approved by the Inspector of M u n i c i p a l i t i e s (S. 199A)} (6) A l l long-term borrowing must be approved by the electors unless i t i s incurred f o r l o c a l improvements, water and sewerage f a c i l i t i e s , public u t i l i t i e s or projects ordered by the p r o v i n c i a l a u thorities responsible f o r p o l l u t i o n control (S. 253); (7) Short-term borrowing (up to f i v e years) may be incurred without f i r s t obtaining the consent of the electors, provided the aggregate does not exceed twenty d o l l a r s per capita or $500,000, whichever i s the le s s e r (S. 260). 

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