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Local Government Bulletin No.54, February 2005

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

In this bulletin:
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1. The Dance of the Seven Veiled Deal
2. Choosing to be Mayor
3. Election contributions in Hamilton, Part 3
4. New revenue sources for a big city
5. Subscribe to the Bulletin
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1. The Dance of the Seven Veiled Deal

It is turned into a dance of the seven veils. Every few months the government drops another piece of gauze, revealing a bit more about the shape of its New Deal. The dance began in 2003, with Paul Martin’s announcement in June. The first piece of the veil to drop was in March 2004, and it had covered the name, originally New Deal for Cities, but then revealed to be the New Deal for Cities and Communities. (See Bulletin No. 45.) The next veil to drop was on February 1 of this year, with the announcement by John Godfrey, who is now the Minister of Infrastructure and Communities, that $5 billion in federal gas tax revenue will be transferred to provincial and territorial governments and from them to municipalities over the next five years. The amount that will be transferred this year, 2005, was not specified.

The announcement stated that money will be transferred on a per capita basis, which means the federal government has rejected the idea that most of this money should be used for transit purposes - that would dictated at least a portion of the amount would be transferred according to transit ridership. It was also clear that there’s no intention of making five equal annual grants. The announcement did say that in Year Five (2010, after the next federal election) $2 billion will be transferred. That means the remaining $3 billion will be spread out over four years, allowing the government to decide on the precise amount to be transferred on what specific dates according to its election schedule.

The next veil will probably be dropped when the federal budget is revealed on February 23, and the Minister of Finance, Ralph Goodale, states the amount to be transferred during this budget year, whether during 2005 or early in 2006.

Once the actual amounts of money are sorted out then the question is the rules by which provincial governments distribute the funds to municipalities. That’s another veil to be dropped. Apparently provincial and territorial redistribution policies must be approved by the federal government.

Mr. Goodale has said that the new deal is about more than revenue, “It is about new relationships and a new way of doing business through partnerships.” Exactly what the new relationship with either provinces or municipalities is remains unclear since the federal government has a long history of working out financial agreements with provincial governments. It’s a pity Mr. Goodale didn’t mention exactly how many veils had to be dropped before the deal could be fully revealed.

For the full text of the press release of the February 1 announcement and the distribution of $5 billion over 5 years by province and territory, go to
http://www.infrastructure.gc.ca/ndcc/publication/newsreleases/2005/20050201ottawa_e.shtml

2. Choosing to be Mayor

Dave Bell had to make the choice of whether he preferred to be the Mayor of Marathon, or an officer with the Ontario Provincial Police. He has chosen the former.

As reported in Bulletins 51 and 42, Dave Bell was an Ontario Police Officer when in 2003 he decided to run for Mayor of Marathon, Ontario, on the north shore of Lake Superior. The OPP made it clear that they would not permit him to be an officer and at the same time serve as Mayor, and laid charges against him of insubordination and discreditable conduct under the Police Act. After a hearing last fall he was found guilty when the adjudicator decided he would have a conflict of interest, as Marathon receives policing from the OPP under contract.

A week before the sentencing hearing in early February Bell retired from the OPP and will be able to receive the normal pension for the amount of time he has worked with the OPP.

Given his decision the matter is now at an end, and Bell can proceed to be the best mayor possible for Marathon without the worry of OPP sanctions.

3. Election Contributions in Hamilton, Part 3.

The struggle to secure an independent audit of the election contributions of Hamilton’s mayor Larry Di Ianni continues into its fourth day today before Mr. Justice Timothy Culver in a Hamilton courtroom.

As reported in Bulletins 52 and 50, Hamilton resident Joanna Campbell analyzed election contribution filings of various candidates, including mayor Larry Di Ianni, in the November 2003 municipal election campaign, and found numerous instances where companies and individuals had exceeded the $750 limit or were not adequately identified. Penalties for such offences are severe – loss of public office. After city council refused to order the appropriate compliance audit as set out in the Municipal Elections Act, Campbell went to court to seek the audit.

The mayor’s lawyers have attacked the need for such an audit by engaging a local accounting firm. It has prepared a 262 page report which confirms most of the irregularities documented by Chapman, but then goes on to show that almost $13,000 has been refunded to comply with the law since the mayor first filed his campaign statement.

Chapman’s lawyer responded that the legislation asks the court to order a compliance audit, not to conduct one. He also noted that the auditor was hardly independent. “The choice of auditor was made by the candidate,” he said, “instructed by that person, paid by that person, and reports to that person alone.”

He also argued that Di Ianni’s campaign accepted at least one cheque with a face value of more than $750, rather than rejecting it outright, making refunds only at a later date. The mayor’s lawyers responded that the cheque was from several donors – but that practise is specifically prohibited by the Act.

For the latest updates on this story, go to http://www.environmenthamilton.org/CATCH/index.htm and go to `past Catch articles.’

4. New revenue sources for a big city

As reported in the last Bulletin, consideration is being given to legislation addressing new powers and revenues for Toronto. That Bulletin suggested the parameters for new legislative powers for a big city – this Bulletin tackles the question of new revenues.

First off, it seems reasonable that a big city’s ability to control the elements of the property tax system should be secured. This tax is currently the city’s only source of independent tax revenue and the rules of provincial governments do not contain the flexibility appropriate to today’s market. That was a problem Mayor Glen Murray found when he tried a modest reshaping of property taxes for Winnipeg (described briefly in Bulletin No. 46, and subsequently rejected by the government of Manitoba.) There must be significant powers given to the city to reshape property taxes.

The larger issue is increasing revenue. As the struggle over securing a share of provincial and federal gas tax makes clear, big cities need more revenue to meet current needs, and even more revenue to fund actions in areas where they would like to act. Enid Slack’s paper cited in Bulletin 51 concludes that the only taxes capable of raising serious amounts of revenue are sales taxes (that term should include the good-and-services tax) and personal income tax. Corporate taxes may produce significant revenue but it would be very difficult for a city to indicate specifically which corporate activities attract tax in the city.

Both sales and income tax are areas occupied by the provincial and federal governments, so there are two ways of proceeding. Toronto mayor David Miller and many others suggest revenue sharing as the best approach. In an op-ed article in the Toronto Star on February 15 Miller wrote, “We need a model of revenue sharing. We need a share of the income tax or of the sales tax. My goal is to work with the province to secure increased revenues from economic growth, rather than increased taxes.”

This arrangement would see the province set taxes at a level which would produce more revenue than it needed, which it would then pass on to big cities under an agreed formula. This generally was the approach in the 1970s in Ontario, when the provincial government agreed to what was known as the `Edmonton commitment’ (Edmonton being the place where the commitment was made). Under the Edmonton commitment, the province would increase municipal grants equal to the increase in provincial revenue, which meant municipalities shared in the general economic growth of the province, as suggested by Miller is the goal.

The Edmonton commitment turned out to be too weak. Within a year or two the province found it faced its own financial pressures and the annual transfers did not grow at the rate of increase in provincial revenues. But the idea is finding favour once again. Will a provincial government agree to a binding formula that forces it to tax more than it needs in order to pass that extra revenue on to a big city? Would that arrangement work where a city is by far the largest economic unit in the province, thus making big demands on the provincial budget? It is difficult to give unqualified positive answers to these questions.

The weakness of this approach is that the province is implicated in city expenditures over which it has no control. No government wants to be responsible for the actions of other governments that it does not control. Provincial governments will find this idea of revenue sharing very distasteful.

A second approach is for big cities to have independent ability to levy sales and income taxes. There are some technical issues involved with this approach, but none seem insurmountable. Cities would have to find reasonable ways of collecting these taxes, most probably in conjunction with these other governments. They will have to take special care in imposing these taxes not to drive from their borders the sources generating these taxes. This may require negotiations with surrounding local governments so that they too impose such taxes, something that may be of interest since many of them also face revenue problems. These factors all ensure that the city would not be able to exercise these new taxing powers precipitously.

The bigger question is political: which city politician thinks there is anything to gain by being able to impose higher taxes? Who wants to be seen as advocating higher sales tax, or imposing a local income tax?

Yet if big cities are to address the two expensive issues, responsibility for which is being shed by senior governments – affordable housing and income support through the welfare and unemployment insurance systems – they will need these big revenue sources. Mayor Miller takes the opposite tack, saying the provincial government should be responsible for all of the costs of the welfare system and social housing, but that course of action will almost certainly mean that these two issues receive even less funding than they now do.

Thus there are costs and drawbacks to both options. Revenue sharing has the same limitations today that it has always had - no municipal control and no attention to municipal priorities. Independent powers for big cities to levy big taxes carry heavy political costs.

The best course of action is to bite the bullet and ask for independent revenue sources. There’s no better way for big cities to become empowered than to ask for significant powers and revenue sources. Big cities will continued to be babies if they ask for the protections and limitations that come with revenue sharing. Ways must be found to engage in public debate which fleshes out the options so the wisdom of independent powers and revenues comes clearly into focus. That may take some time, but it’s a process which is long overdue. Big cities in Canada will never become self-respecting independent governments – the kinds of cities in other countries they talk admirably about - if they do not have the revenue sources to address their pressing problems.

One last point: the city should not be simply limited to these three areas of taxation – property tax, sales tax, and income tax. There are many other areas of taxation which may raise only small amounts of revenue, but are still appropriate to the city - hotel tax, for instance, fuel tax, vehicle registration, or other sources of revenue which discourage undesirable activity. The city may also wish to experiment with new kinds of taxes such as a carbon tax, or taxes relating to emissions, or even a Tobin tax on share transfers. In short, big cities should be given the broadest possible mandate to levy taxes. Big cities will then be charged with making the case to the voters of their wisdom in imposing certain taxing policies.

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The remaining parts of this package which would shore up general legislative powers and much wider revenue sources, will be addressed in the next Bulletin.

5. Subscribe to the Bulletin
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More information about the sponsors of the bulletin, a library of relevant and useful documents, and an archive of past Bulletins, can be found on our web site. We appreciate your comments, your feedback (to j.sewell@on.aibn.com ), and items of interest that you wish to share with us and others who visit the web site. Our next Bulletin will be in March.

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