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Bulletin No. 34, January 2003
 Local Government Bulletin No. 34, January 2003

The purpose of this bulletin is to focus debate on the need to increase the powers and authorities of local government in Canada and to ensure local communities achieve more autonomy. Our website is http://www.localgovernment.ca .

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In this issue:
1. Local Government Financing, US Style
2. Drawing Ward Boundaries in Ontario
3. Correction: Winnipeg’s Hansard Exists!
4. Subscribe to the Bulletin
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1. Local Government Financing, US Style

One recent practise of urban commentators in Canada is to speak glowingly of how national and state governments funds are flowing into cities in the United States. Canadian governments have often been urged to emulate these examples to strengthen local government.

A new study, by Professor Robert Bish of the University of Victoria, indicates that the cost of this financial help might far outweigh the benefits.

Professor Bish notes that while senior governments may provide financial and tax room for local governments, they have done so by placing Tax and Expenditure Limits (TELs) on local governments, or by watching limits be put in place by public referenda. The best known example of a TEL is Proposition 13 in California, but there are Canadian examples of these limitations, such as arbitrary rules laid down by the Ontario government restricting municipalities from increasing property tax rates against particular classes of property.

Bish notes that TELs have reduced reliance on the property tax, have led to greater use of fees and other kinds of revenue sources, have resulted in increased reliance on state aid, and “may be leading to the creation of a more centralized public sector that is less responsive to local preferences.” In short, new financial support has come at the cost of less effective and less responsive local government. Bish notes that progressive voices in the United States are now proposing to “return the property tax to local governments so that local governments can make their own expenditure decisions,” in the process re-creating accountability to local taxpayers.

Bish also summarises the recent moves in American jurisdictions to equalize school financing, usually by consolidating school districts and centralizing school funds at the state level. Two extraordinary fall-outs of this new centralized system are, first, that it is correlated with a decline in standard test scores for college levels as well as for tests done for education organizations and the armed forces; and second, what he calls “non-parent loss of interest in the local schools.” Research shows that people who are not parents of school-aged children supported local schools because good schools raised property values in the neighbourhood. Once there was no control over how local schools were funded or run, non-parents realised it was not worth their time and trouble to support public education. Many in Canada have made the same arguments about these trends in education restructuring which first occurred in Alberta a decade ago, and has been followed in many other provinces.

A third issue is alternative revenue sources. Bish notes that as of 1996, general sales tax and incomes taxes are is used by local governments in many states. He notes that sales tax as a local revenue only increases the inequalities between the financial capabilities of local governments, since some have many more retail facilities than others. The existence of the sales tax has led to major competition for new shopping centres and often more shopping centres are built than the market can support. Worse, the recent recession in the United States has caused very significant negative impacts on local government as sales and sales taxes have plummeted. Many local officials now regard internet sales as a big threat since they avoid retail sales tax.

The current recession has also produced negative impacts on the amount of income tax raised locally. “One study,” writes Bish, “concluded that Philadelphia’s 4.96% income tax rate had cost the city approximately 100,000 jobs to the suburbs.”

Bish concludes his paper with a general discussion on the merits of property tax. Property tax once was levied on personal as well as real property in the United States, so that it really could be considered a tax on wealth, but slowly personal property was removed from the tax base. By the 1960s local governments moved to relieve low income earners of the burden of the property tax since it was considered a regressive tax. More recently, however, Bish believes that many have come to realise that property tax is a relatively fair tax on wealth. He makes several conclusions about the merit of property tax, stating “if the local government is acting efficiently the benefits of the public services will raise the value of the property a greater amount than the taxes decrease it.”

He continues, “The benefit view of property taxation depends on jurisdictions being small enough… so that differences in benefits between jurisdictions can be perceived. This occurs most strongly where there are a multiplicity of small governments that can respond to the preference of their citizens… When local governing councils, both municipal and school, set the annual tax rates, citizens pay much closer attention to them than when they are funded with ‘other people’s money’…

“The benefits view of the property tax does not apply to the funding of programs specifically designed to redistribute income such as welfare. Funding welfare with the local property tax would be expected to depress property values and any increases would be limited to apartments or the part of the housing market occupied by welfare recipients. Funding welfare through local property taxes provides perverse incentives to local government councillors.”

Bish’s conclusions are generally those which have been voiced by the opponents of provincial actions to restructure local government in Canada, and may apply equally to these restructured governments. It appears restructuring has dismantled good systems and replaced them with those that are dysfunctional.

The Bish paper can be downloaded from the website of the Local Government Institute of the University of Victoria: http://web.uvic.ca/lgi/working.htm

2. Drawing ward boundaries in Ontario

Perverse tinkering with local government by the Government of Ontario seems to know almost no bounds.

Six Ottawa areas municipalities were forcibly restructured by the provincial government several years ago, and the new mega-council for the City of Ottawa took effect on January 1, 2001. That restructuring gave rural areas far more representation per capita than the urban areas of the city.

City Council decided to rectify the misrepresentation by proceeding under the Municipal Act to reconfigure the ward boundaries. It undertook a long and transparent process with much public involvement, including a Citizens Task Force which in June 2002 proposed more balanced ward boundaries. The appropriate city committee held a public hearing later that month, followed by a City Council meeting which adopted the recommendations. At the end of July, Council passed the by-law enacting the new wards.

The Council decision was duly advertised and the by-law was appealed to the Ontario Municipal Board by several rural residents, pursuant to normal procedures under the Municipal Act. At the OMB’s pre-hearing conference on October 17, it was learned that the previous day the Minister of Municipal Affairs, Chris Hodgson, had signed an order staying all proceedings in the ward boundary case. This was the first time that any word had been heard from provincial officials in this matter: the province said nothing during the period of consultation nor during the period of appeal.

The OMB panel concluded it was not able to challenge the Minister’s order, and the City of Ottawa had no choice but to take its case to the court to show the Minister did not have the power to make such an order.

As the court action began, a provincial government lawyer filed an affidavit in support of the Minister’s Order, giving the following reasons:

“i) The City of Ottawa is still in its infancy. It is too early to determine (less than one full term of office) how well the ward system is working.
“ii) The existing wards took into account the boundaries of the rural municipalities that existed prior to the establishment of the new City of Ottawa to ensure the opinions of these communities would be heard at city council. Alterations of these boundaries may reduce the ability of these distinct communities to be heard at city council.
“iii) There is a need for further evaluation of the matter in which rural areas are represented on municipal councils.”

In her decision Judge Ellen Macdonald commented: “Aside from the fact that no factual basis is offered to support these reasons, paragraph 24 of the (Ministry’s) factum begs the question of why these reasons were not disclosed by the Minister at any time before the scheduled pre-hearing conference. If they had been, parties affected by them would have had the opportunity to test their validity. It also begs the question of why the Minister did not appeal the By-law (to the OMB).”

The judge concluded “Section 25 (of the Municipal Act) does not authorize the Minister to state an objection to the Board from a bylaw duly enacted to the city pursuant to the mandate to revise its own boundaries. I read Section 25 taking into account its plain and unambiguous language and the legislative intent that underlies it.” She finished with some stinging words: “Nor can it be that the Minister, purporting to act under Section 25, has discretion to thwart the decision of a democratically elected council, by indefinitely staying the hearing of the three appeals. There are unsettling overtones of ambush present because the Minister’s act, in delivering the Notice of Deferral when he did, has the effect of preventing the appeals from being heard.”

She went on to state that the Minister’s attempted order “undermines the entire scheme of the Municipal Act.” She concluded the order is invalid, that “the Minister acted without jurisdiction and that the Minister’s order “is quashed. It has no legal effect.”

However, the government was not to be stopped by a mere judge. It has now appealed the decision, even though its own new Municipal Act, which came into effect on January 1, 2003, is even more authoritative in denying the Minister the power to intervene in this manner. By appealing, the provincial government has effectively trumped the attempt by the City of Ottawa to follow spirit and letter of the law to the achieve fair ward boundaries. The Municipal Act requires candidates for the elections, scheduled for November 2003 to register under the ward boundaries in effect on January 1 – and in this case the provincial appeal has left in place the old boundaries the city was trying to replace. It appears to be a substantial abuse of the process by the province to frustrate a municipal council that was simply trying to follow the law.

Since this decision, Chris Hodgson, the Minister of Municipal Affairs, has resigned, and has indicated he will not seek re-election in the provincial election expected to be called in the next several months. His prospects for being re-elected looked bleak. As reported in Bulletin 33, Mr. Hodgson was responsible for the forced amalgamation of the 17 small municipalities comprising the former County of Victoria, into the City of Kawartha Lakes. This amalgamation has recently unravelled and Mr. Hodgson acknowledged that a municipally based referendum intended to undo the amalgamation was something which should go ahead. He has refused any comment on why he intervened in the Ottawa ward boundary issue, but having caused this grief, he has now quietly taken himself out of the action.

The case is cited as “City of Ottawa vs. Minister of Municipal Affairs and Housing” and the decision was dated December 13, 2002. It is not available electronically.

3. Correction: Winnipeg’s Hansard Exists!

In the last Bulletin, it was suggested that no municipal council in Canada had a printed `Hansard’ to record council deliberations. (Several cities tape council meetings.) It has since been learned that the City of Winnipeg has maintained a Hansard for a number of years, although it is not available until three or four weeks after the council. meeting. My apologies.

4. Subscribe to the Bulletin

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