SUMMARY

This report compares two approaches to governance reform in the Greater Toronto Area (GTA). The first is the Megacity model, as identified in the Ontario Government's City of Toronto Act 1996 --- currently before the legislature. The Act would amalgamate Metro Toronto and its six local cities into a single city of 2.3 million people. The second approach is identified here as the Mayors' model --- a synthesis of reform proposals put forward by various GTA mayors in which local governments are strengthened but limited in population to well under one million.

The comparison draws on experience in the United States, where there is a wider range of city sizes than in Canada. The experience is used to evaluate the models on the basis of two key principles advanced by David Crombie's "Who Does What" advisory panel:

Democracy, Accountability and Responsiveness

Efficiency

The consideration of the "Democracy, Accountability and Responsiveness" principle analyzes the difficulty larger local governments (over one million population) face in sustaining viable democratic processes. The three US megacities over two million population have faced particularly intractable problems. Two of the three (New York and Los Angeles) are contending with advancing secession movements --- sparked by the belief that remote city halls were ignoring local neighborhood needs. The third megacity (Chicago) has lost almost one million residents,⁽¹⁾ who seceded "with their feet."

So far as the "Efficiency" principle is concerned, the US experience points to substantially higher costs for cities in the population range over one million. These cost penalties are typically in the 20 percent to 40 percent range and can exceed 100 percent in the case of amalgamated municipalities. For residents and businesses of these larger cities, cost premiums mean higher property taxes and/or lower service levels.

There appears to be no valid reason why GTA cities should not remain well within the efficient urban population range (above 100,000 and below 1,000,000), a range providing for high quality services with lower tax burdens. For services delivered more efficiently over a larger area, the government's newly announced GTA coordinating board (Greater Toronto Service Board) will provide an effective mechanism to ensure the delivery of efficient, quality services over a wider area. The existence of this Board makes the existing five upper-tier (regional) governments redundant and invalidates any apparent case for megacities --- whether in the "416" area or the "905" area.

BACKGROUND

Local and regional governance has been the subject of considerable attention over the last year. Various proposals have been advanced, especially with respect to the Greater Toronto Area. The debate has been narrowed to two basic approaches --- the Megacity model and the Mayors' model.

1. Megacity model: The Megacity model has been proposed by the provincial government. The six cities located within the Municipality of Metropolitan Toronto (Metro) and Metro itself would be amalgamated into a single "megacity." Legislation to implement the Toronto "megacity" was tabled on December 17, 1996.⁽²⁾ Further, a Greater Toronto Area coordinating board, the Greater Toronto Service Board (GTSB) would be established to coordinate regional services. The structure of Greater Toronto Area local governments outside Metro would be reviewed in early 1997. Some municipal amalgamations could be proposed, and eventually a two-tiered governance structure would be established by abolishing regional governments (Durham, Halton, Peel and York) and amalgamating existing cities into larger, stronger cities.

Mayors' model: The Mayors' model consists of two separate but similar proposals, The Governance Solution for the Greater Toronto Area⁽³⁾ by Mississauga Mayor Hazel McCallion and Change for the Better⁽⁴⁾ by the Mayors of the six cities within Metro. These two proposals would reform governance GTA-wide by strengthening cities, holding population to a range under 1,000,000 each, and establishing a Greater Toronto Area coordinating board to oversee regional services. The coordinating board would be composed of elected officials from the local governments. The present regional governments would be abolished.

Similarities and Differences

The two models are similar in their approaches to regional public services. Both the Megacity model and the Mayors' model envision a greater Toronto coordinating body with powers limited to coordinating specified regional services (GTSB). And the two proposals share similarities insofar as cities would be strengthened. The key difference is that in the Mayors' model, city sizes would be similar both within and outside Metro (the "416" and "905" areas, respectively); in the Megacity model, there would be a major imbalance between the inner city (2.3 million population) and the "905" cities (all well under one million population).

PRINCIPLES

In developing its proposal, the government established the "Who Does What" panel to review alternatives.⁽⁵⁾ The "Who Does What" panel employed the following four principles in its deliberations. These principles are appropriate for evaluation of the two models.

1. Democracy, Accountability and Responsiveness: Municipal government is a democratic institution fundamental to local political decision-making. Its structure should be as understandable as possible to promote public access, participation, and accountability. It should respect and accommodate diversity and be responsive to the needs and preferences of communities.

2. Fairness: The structure should ensure that costs and benefits are shared fairly across the entire community.

3. Efficiency: The structure should allow services to be delivered by the lowest level of government that has the capacity to do so effectively. It should also be more cost-effective than the current system, delivering maximum value with available resources.

4. Coordination: The structure should encompass the interests of the entire community. It should support the strategic coordination of certain key services and foster an approach to decision-making which integrates economic, environmental and social considerations.

This report analyzes the two models primarily in light of the first and third principles. The second principle should be left to Toronto residents themselves to apply, since there are many concepts of fairness. The fourth principle, coordination, can be achieved with a wide variety of governance structures and would not appear to be critical to the differences between the Megacity model and the Mayor's model. However, it should be emphasized that the Megacity's potential to dominate Greater Toronto Area regional processes would probably reduce the likelihood of "905" cooperation within the GTSB (see further discussion of the GTSB, below).

DEMOCRACY, ACCOUNTABILITY AND RESPONSIVENESS

Other things being equal, smaller governmental units are more democratic than larger ones.

Smaller governments are more accountable: Smaller governments tend to be more accountable and responsive to their citizenry. They are more accountable to citizens, because the individual citizen has more "voice" in a smaller governmental unit. For example, a voter's voice in a city of 100,000 population is 10 times as strong as in a city of 1,000,000. Bigger government is more remote from the electorate and is, by definition, less accountable and less responsive.

Smaller governments are more responsive. As governments increase in size, processes and communications necessarily become more bureaucratized (more rigid). As government processes become more rigid, they become less understandable to the individual citizen. This discourages people from addressing issues with their government. This less efficient and effective feedback process often results in smaller problems escalating into crises, as it is only when circumstances become unbearable that citizens have sufficient impetus to deal with the overly complex processes typical of more remote governments. With a less efficient and effective feedback system, the quality of government services is likely to decline.

Larger governments are more susceptible to special interests: This is so for three reasons. First; special interests have the financial resources to hire professional advocates (such as lobbyists) to learn, understand and manipulate the rigid processes of larger governments. Conversely, individual citizens and neighborhood groups rarely have the financial resources to hire professional advocates. Second; there are economies of scale with respect to political advocacy --- it is simpler and less expensive for special interests to influence a larger government than multiple smaller governments. Third; the more diffuse voice of the electorate makes larger government more susceptible to special interest influence.

Smaller local governments are more attuned to communities and neighborhoods: Regional governments are necessarily more sensitive to broader geographic issues than local, community or neighborhood issues. This is because regional governments include a larger number of communities, which diminishes the voice of each such community in the political process. Individual, neighborhood, and community issues are likely to be less effectively addressed by larger, rather than smaller governments. As a result, regional governments are not appropriate for local governance.

Large governments are less controllable: Larger governments tend to be more difficult for policy-makers to control. As governments become larger, elected officials must rely to a greater degree on their staffs and are less well positioned to effectively exercise their oversight function.

The municipal secession trend: The political disenfranchisement that occurs when governments are too large is feeding a growing municipal secession movement. Strong succession movements have begun in two of three U.S. megacities (cities with more than two million population):

New York City's borough of Staten Island is well advanced in its process to secede and establish itself as an independent city (population: 400,000). Proponents predict a binding referendum before the end of the decade.

A strong secession effort has begun in the San Fernando Valley of Los Angeles, which would create a new city of more than one million people, dropping the population of Los Angeles to two million. State legislation to facilitate the secession process was narrowly defeated in 1996 and will be reconsidered in 1997. The proposed secession is also emerging as a major issue in the mayoral election due later this year.

A consequence of diluted democracy is that governments in larger U.S. cities have generally been less successful in delivering quality public services to their residents. This has contributed, along with other factors, to a virtual population hemorrhage. Chicago, the only U.S. city of more than two million population that is not facing a secession drive, has lost nearly one million residents since 1950.⁽⁶⁾

The municipal secession movement should be considered in the context of its daunting challenges. Municipal enabling legislation tends to require super-majority (more than 50 percent) referendum results and favorable municipal boundary commission decisions, in addition to well financed advocacy campaigns by the larger government to preclude secession.

Shall Metro residents have local government? In each community there are both local and regional public policy issues. Local issues are most competently addressed by local governments, and regional issues by regional coordinating bodies. But the Megacity model would leave Metro residents without local government and with two levels of government that are effectively regional in scale (megacity and GTSB). Local government is required within Metro just as much as it is required outside Metro.

The stronger city governments proposed by the Mayors' model would be more accountable and responsive to their electorates than the amalgamated regional Metro government. Consequently, these cities would respect and accommodate diversity and be responsive to the needs of communities and neighborhoods more than would one Metro-wide government. Cities averaging 400,000 population are, by definition, more accessible to their citizens than an amalgamated regional government of 2.3 million.⁽⁷⁾ Regional public policy issues would be handled, under both proposals, by the GTSB.

The Megacity model approach to governance within Metro is anti-democratic. More remote government is not more democratic government; to the contrary it is less democratic. To paraphrase Abraham Lincoln:

Government of the people, by the people and for the people is government that is closer to the people.

EFFICIENCY

Controlling costs is a significant challenge in government. This is because competitive incentives, which effectively regulate costs in the private sector, are largely non-existent in government. Virtually all of the international evidence indicates that cost control becomes more challenging as the size of government increases. For example:

Higher costs: Larger governments generally have higher unit costs than smaller governments. According to the U.S. government's Advisory Commission on Intergovernmental Relations:

Average costs are generally understood to have a u-shaped relationship to scale of production. As production increases from zero, average costs initially decline, then level off, and finally after a point begin to increase.⁽⁸⁾

For example:

U.S. cities of more than one million population spend 21 percent more per capita than the cities with 500,000 to 1,000,000 residents, 18 percent more per capita than cities with 100,000 to 500,000 residents and 13 percent more than the average city (Chart: US City Expenditures per Capita by Size).⁽⁹⁾

U.S. counties with more than one million population spend 42 percent more per capita than counties with 300,000 to 500,000 residents and 30 percent more than the average county.⁽¹⁰⁾

U.S. primary and secondary school districts with more than 50,000 students spend 18 percent per pupil more than school districts with 15,000 to 25,000 students and six percent more than the average school district.⁽¹¹⁾

U.S. public transit systems operating more than 1,000 buses have costs per service hour 26 percent higher than systems with 300 to 500 buses and 19 percent higher than the average public bus system.⁽¹²⁾

In all of the cases above, the cost of larger government units is greater than that of both medium sized units and average sized units. There is no evidence that the higher cost structures of larger cities is significantly related to factors such as demographics or service levels , since many smaller US cities exhibit similar characteristics.

Diseconomies of management scale: As governments increase in size they require additional layers of management and support personnel, further increasing costs.

One important variant of economies of scale is Diseconomies of scale in management. As the size of a provision unit increases, beyond some point, scale economies attained as a technical matter of production may be offset by management difficulties that multiply as the provision unit attempts to organize more production in house.⁽¹³⁾

Greater resistance to innovation: Smaller governments tend to experiment more than larger governments, and they are more innovative. A healthy competition develops between local governments as the media and citizens take note of comparative efficiency and effectiveness. As government increases in size, there are fewer comparable governments against which to compare their performance. In addition, the larger bureaucracy and stronger trade unions tend to more successfully resist innovation. Internationally renowned urbanologist and Toronto resident Jane Jacobs cited discouragement of innovation in expressing her opposition to the Megacity model at a recent public meeting at Toronto City Hall.⁽¹⁴⁾

Greater resistance to legislative reform: Larger governments are more difficult for legislatures (such as the Ontario provincial parliament) to reform. Larger governments are able to marshal considerable political and financial support to maintain the status quo.

Government amalgamations do not produce lower cost government. The evidence is clear that amalgamated governments are not more cost efficient. For example:

A number of city-county amalgamations have occurred in the United States. In each case, the amalgamated government represents only a part of the metropolitan area (as would be the case with an amalgamated Toronto). U.S. amalgamated cities of more than one million population spend 112 percent more per capita than the amalgamated cities with 500,000 to 1,000,000 residents, 152 percent more than amalgamated cities with 100,000 to 500,000 residents and 38 percent more than the average amalgamated city (Chart: US Amalgamated City Expenditures per Capita by Size).⁽¹⁵⁾

During the 1950s and 1960s, US primary and secondary school districts consolidated on an unprecedented basis. In each of these decades, the number of school districts was reduced by half. Costs per pupil rose from 45 percent to 80 percent more in the decades of consolidation than in the decades before and after. (inflation adjusted).⁽¹⁶⁾

During the 1960s and 1970s, US transit agencies went through unprecedented consolidations. Transit costs per kilometer increased 42 percent per decade during the consolidation period, compared to eight percent and 14 percent increases in the decades before and after (inflation adjusted).⁽¹⁷⁾ Again, the reduced cost escalation following the "run-up" of costs during the consolidation period were on top of a much inflated base.

The research demonstrates that municipal amalgamations do not save money, either in Canada or elsewhere.⁽¹⁸⁾

There is no academic evidence to suggest that consolidation produces savings.⁽¹⁹⁾

Contrary to the claimed and unsubstantiated efficiency advantages of amalgamation, a study of 48 US metropolitan areas found that "the level of expenditures will fall as the number of jurisdictions increases."⁽²⁰⁾

Increased cost escalation pressures: Where governments merge, unit costs in the amalgamated government migrate to the highest unit cost pre-existing government cost structure. This is illustrated by the largest component of municipal costs --- employee wages and benefits. Successive collective agreements can be expected to increase the compensation of municipal employees to the level of the highest paid workforce of the pre-existing cities.⁽²¹⁾ Downward convergence in labor rates is unprecedented. There would also be a convergence of collective agreement work rules toward the least productive provisions, which further increases the unit costs of government services, though less obviously.

In the longer run, unit costs are likely to rise at a greater rate in amalgamated governments. Again, employee compensation can drive this dynamic. With fewer or even no comparable governments for bench-marking, government employee labor rates are established through an arbitrary and political non-market process. In addition, labor disputes are more disruptive to regional governments than local governments. The larger number of residents impacted by strikes in larger jurisdictions increases the political pressure on elected officials to settle, skewing the balance of power in the favor of trade unions.

Moreover, municipal amalgamation's purported cost efficiency advantages relate almost entirely to administrative costs. Administrative costs represent a relatively small percentage of municipal budgets --- 10 to 15 percent. "Delivering maximum value with available resources" requires even greater attention to the direct costs of service delivery that constitute 85 to 90 percent of municipal operating costs. The comparative return is illustrated by a KPMG study that estimated the maximum savings from amalgamation in the Hamilton-Wentworth region at two percent. The savings from "alternative service delivery approaches," which would not require amalgamation, were estimated at from 15 to 30 percent.⁽²²⁾

But the research demonstrates that even the comparatively insignificant administrative cost savings do not survive the transition from projection to reality. A frequently advanced example contends that an amalgamated Metro government would employ a single fire chief instead of the present six city fire chiefs. It is likely, however, that a new "megacity" fire chief would be installed over the present city chiefs, who would become area chiefs (if not immediately, in a relatively short period of time).

Despite the overwhelming evidence to the contrary, Metro has suggested that amalgamation would save up to $208 million annually.⁽²³⁾ But a substantial portion of Metro's savings would be achieved through such measures as achieving industry staffing ratios, application of best practices, workforce flexibility, and competitive tendering. Such productivity improvements are not the result of amalgamation --- they are rather better management practices that could be achieved by any government, large or small (But they are more likely to be achieved by smaller, rather than larger governments.)

The performance of the more remote Metro government reinforces the case for not amalgamating the six cities into a larger megacity. The Metro Council faces a significant budget shortfall in 1997. It has characterized its choices as simply two --- "cut service to avoid a tax increase" and "combining cuts and tax increases."⁽²⁴⁾ The substantial economies that can be achieved from "alternative service delivery strategies" are not mentioned, despite their citation by Metro itself in its advocacy of amalgamation. There is virtually no reasonable prospect that amalgamation of the six cities into a megacity would be more cost-effective than the current system, and it surely would not deliver maximum value with available resources.

GREATER TORONTO SERVICE BOARD

Both models propose a board to coordinate regional services in the Greater Toronto Area (GTSB). GTSB, if wisely designed, would not only improve fairness and coordination, but would also be more responsive, accountable and efficient. The public would be best served if the GTSB design includes these features.

Accountability: A board that is accountable to the constituent municipalities. Board members should be municipal elected officials, appointed by their municipalities (and serving at the pleasure of their municipalities). A board constituted in this manner would substantially improve the likelihood that GTSB and municipal policies are coordinated. The alternative of a separately elected board would create an uncoordinated public policy framework that would encourage disagreements between elected officials at the two levels of government. A separately elected board would also be more likely to seek expansion of GTSB powers at the expense of the cities, re-establishing service duplications.

Limited powers and coordination: Provisions should be adopted to limit GTSB authority to specific regional powers. This will reduce the potential for service duplication to evolve. GTSB powers should be expanded only as agreed upon by the constituent municipalities.

Limitation on administrative staff size: Provisions should be adopted to establish and maintain the administrative staff size at GTSB to the minimum level required to provide the required quality and quantity of service.

Provisions to guarantee efficiency: GTSB should be required to contract for all of its core services and have no operating personnel. Contracts might be with constituent cities, other publicly owned organizations (such as the Toronto Transit Commission) private non-profit organizations or with private firms through competitive tendering.⁽²⁵⁾

No direct taxing or assessment authority: GTSB administration and services should be financed by user fees and by assessments ratified by (not imposed upon) the constituent cities. This would ensure greater accountability and coordination of regional and local policies.

CONCLUDING COMMENTS:

TOWARD DEMOCRATIC AND EFFICIENT GOVERNMENT

Both the Megacity model and the Mayors' model effectively deal with the coordination principle through the proposed regional coordinating body (GTSB). And while both the Megacity model and Mayors' model would strengthen cities and abolish regional governments outside Metro, the Megacity model would abolish cities and effectively maintain regional government ("megacity") within, violating the principle of democracy, accountability and responsiveness. The Megacity model would eventually create a two tier GTSB-local government structure outside Metro (after an interim three tier period) and a two tier GTSB-megacity government inside Metro. With its reliance on a megacity (rather than a more manageably sized local government) in Metro, the Megacity model would dilute democracy, creating government that is more remote and thereby less accountable and responsive to its electorate. Moreover, the Megacity model is inconsistent with the efficiency principle, in that amalgamated governments tend to be more costly than smaller governments.

The Megacity model approach with respect to governance inside Metro is not only inconsistent with its approach outside Metro, but is at odds with the general world-wide trend toward more democratic institutions, devolution, decentralization, market driven government and customer oriented government.

In the longer run, implementation of megacity's diluted democracy within Metro is likely to extend to communities outside Metro. A future provincial government, professing less of a commitment to "smaller government," and less dependent electorally on constituencies outside Metro could be expected to impose a similar model there, making local government a thing of the past throughout the Greater Toronto Area.

Finally, any revision of local governance should be subject to a binding referendum in each of the affected cities. There is no more appropriate issue for referral to the people than the question of how they shall be governed in their local communities.

By pre-emptively implementing the Megacity model, an historic opportunity would be lost. There is general consensus that the government's proposed Greater Toronto Services Board is a much improved approach to coordination of regional public services. Establishment of GTSB would provide the opportunity to design "right-sized" local governments in both the "416" and "905" areas. There is no doubt that cities averaging well below one million in population would be more democratic and more efficient than a megacity.

1. From its peak population (1950).

2. City of Toronto Act, 1996.

3. The Governance Solution for the Greater Toronto Area, Mayor Hazel McCallion, City of Mississauga (November 5, 1996).

4. Change for the Better: A Framework for Restructuring Local Government, Mayor Frank Faubert, City of Scarborough; Mayor Barbara Hall, City of Toronto; Mayor Doug Holyday, City of Etobicoke; Mayor Mel Lastman, City of North York; Mayor Frances Nunziata, City of York; and Mayor Michael Prue, Borough of East York (November 1996).

5. WDW Panel Recommendations on Local Governance (December 6, 1996). Accessed from the Ontario Ministry of Municipal Affairs and Housing web page at http"//www.mmah.gov.on.ca/inthenews/backgrnd/120696ce.htm on December 9, 1996.

6. In 1950 Chicago's population was 3.62 million, and dropped to 2.72 million in 1995 (U.S. Census Bureau data).

7. The amalgamated cities that are to be created outside Metro are likely to average 400,000 population, or less.

8. Advisory Commission on Intergovernmental Relations, The Organization of Public Economies (Washington, DC: 1987).

9. Calculated from 1990-1 United States Census Bureau data. Education and government enterprise (utility) expenditures excluded (in most cities these functions are performed by other public agencies or privately owned utilities). Data does not include amalgamated city-county governments.

10. Calculated from 1991 United States Census Bureau data, education and government enterprises excluded (Does not include amalgamated city-county governments).

11. Calculated from United States Census Bureau data (1991).

12. Calculated from United States Federal Transit Administration data (1994).

13. Advisory Commission on Intergovernmental Relations, The Organization of Public Economies (Washington, DC: 1987).

14. December 2, 1996.

15. Calculated from 1990-1 United States Census Bureau data. Education and government enterprise (utility) expenditures excluded (in most cities these functions are performed by other public agencies or privately owned utilities).

16. Analysis of U.S. Department of Education data.

17. Analysis of American Public Transit Association data.

18. See Andrew Sancton, "Reducing Costs by Consolidating Municipalities: New Brunswick, Nova Scotia and Ontario," Canadian Public Administration (Fall 1996) for a summary of this research.

19. Sancton.

20. David A. Sjoquist, "The Effect of the Number of Local Governments on Central City Expenditures, " National Tax Journal (May 1982), cited in Sam Staley, "Bigger is not Better: The Virtues of Decentralized Local Government, Policy Analysis, Cato Institute (Washington, DC: January 21, 1992).

21. Only a relatively small increase in labor rates, less than three percent, would cancel out even the most optimistic projections for administrative savings, because employee compensation is a far larger item of expense than administration.

22. Cited in Sancton.

23. "Estimated Savings and Benefits from Integration in Brief," attachment to letter from Alan Tonks, chairman of the Municipality of Metropolitan Toronto to the Honorable Al Leach, Minister of Municipal Affairs and Housing (November 28, 1996).

24. The Municipality of Metropolitan Toronto web page (http://www.metrotor.on.ca.tax/budget_priorities.html) accessed December 10, 1996.

25. Competitive tendering is also called "public-private competition," in that all qualified organizations, both public and private, are allowed to compete on the same basis for contracts. Public agencies around the world have demonstrated a remarkable ability to reduce unit costs when they are subjected to competition, while maintaining or improving service levels. Competitive tendering of various public services has been legislatively mandated in the United Kingdom, Australia, Denmark, Sweden, Finland, New Zealand, Colorado, and elsewhere. In Australia, a nationally adopted program requires conversion of many public services (especially municipal and regional services) to competitive tendering and will be a requirement of federal funding assistance to state governments.

International public policy consulting firm with specializations in economics, public transit, transportation, devolution, labor policy, public expenditure policy, and strategic planning.

In business since 1985

Completed projects in North America, Australia, New Zealand, Europe, and Africa.

Examples of projects:

Conducted research on governmental efficiency, performance, governance, and governmental organization.

Directed state legislative and policy program for the American Legislative Exchange Council (Washington), 1992-1995; included oversight of programs, publications, and conferences.

Conducted performance audit of British Columbia Transit (Vancouver).

Drafted Michigan legislation to restructure public transit organization and governance in Detroit.

Drafted amendments to principles adopted at the Federalism Summit (National Governors Association, Council of State Governments, National Conference of State Legislators, & American Legislative Exchange Council, Cincinnati, 1995).

Presented seminars on politics, economics & government services to legislators and public administrators from 35 states, Canada, New Zealand, Australia, Slovenia, Belarus, the Czech Republic, Russia, and South Africa.

Principal appointed to 3 terms on the Los Angeles County Transportation Commission by Mayor Tom Bradley (1977-1985)

While on the Commission, chaired 2 American Public Transit Association Committees

Chaired Transportation Research Board (National Academy of Sciences) Energy Contingency Planning Conference

Co-author of numerous publications, such as:

People, Markets and Government (State Legislators Guide to Economics)

Emerging Transit Organizational Structures: Options for Improving Customer Service