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Local Government Bulletin No.56, April 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 comfort of elastic taxes
2. British Columbia Agreement on a New Deal
3. Flush with money
4. The continuing mystery of the new City of Toronto Act
5. Subscribe to the Bulletin
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1. The comfort of elastic taxes

Interesting research about cities – particularly in Western Canada – is being produced by the Canada West Foundation in Calgary. One recent example is its telling contrast of elastic and inelastic tax bases, the former better known as sales and income tax, the latter as property tax. In a presentation to the Institute on Municipal Finance and Governance at University of Toronto in February, Casey Vander Ploeg of the Foundation has shown how the two different sets of taxes work with reference to the City of Calgary. (The Institute has been established at the University of Toronto after the initiative of Alan Broadbent, and is headed by economist Enid Slack. One of its function is to create reliable data on municipal financial issues.)

Mr. Vander Phloeg noted that in 2002 Calgary City Council proposed a 3% property tax increase for the year. On a $165,000 home (that was the median value of homes in Calgary in 2001) the extra tax paid because of the 3% increase was $21 during the year, or about $1.75 per month. As every municipal politician knows, trying to pass a small tax increase like this poses no end of difficulty.

Compare that to the easy ride provincial and federal governments have generating tax revenue. Mr. Vander Ploeg takes the example of a Calgarian earning $60,000 per year in 2001, and receiving a 3% pay increase for 2002, giving extra compensation that year of $1,800. The extra income tax paid by that person in 2002 was $399.62. Assuming that half the raise was spent on goods and services, the federal government collected a further $63 from the GST. So the provincial and federal governments collected $462.62 more in taxes by doing nothing. (In any other province there would also be provincial sales tax added on.)

City council must endure much criticism to generate an extra $21 from the two, three or more people living in one house, while the federal and provincial governments sit back, relax, and declare they are opposed to increasing taxes as the money rolls in. It is a picture that needs changing.

Many of the publications of the Canada West Foundation are helpful in understanding the plight of cities. Two documents refer to this particular issue: `Straight Talk’ and `No Time to be Timid.’ Both are on the foundation’s website, http://www.cwf.ca

2. British Columbia Agreement on a New Deal

The first federal/provincial agreement on a New Deal for communities was signed by Prime Minister Paul Martin, British Columbia Premier Gordon Campbell, and the Union of British Columbia Municipalities, on April 15. It is titled `Agreement in Principle regarding the transfer of federal gas tax revenues under the New Deal for Cities and Communities.’

The Agreement satisfied virtually all of the conditions of the UBCM save that instead of funds being available for any local government program concerned with sustainability, funds are focused on five classes of investment: public transit, community energy, water and waste water, solid waste management, and capacity building.

The Agreement (which is 24 pages long) makes it clear money is not being turned over to municipalities, but that municipalities will carry out approved programs closely monitored by the federal government. These programs are defined with considerable care in Schedule A, and eligible costs are set out in Schedule B. Schedule C sets up a Community Works fund for “local spending priorities” with different amounts awarded to different governments depending on whether they are local or regional.

The Agreement requires the filing of annual reports by the province (and presumably by each municipality) as well as outcome reports. In short, it implements the principles of the Sgro report from 2002 which argued very strongly that the federal government had to control every penny that it was allocating to municipal matters. (See Bulletin No. 32, November 2002. ) The conclusion made in that Bulletin about the Sgro Report seems appropriate to this Agreement: “Yes, there’s the hope of some new money for infrastructure, but generally one is left with the discouraging thought that another good chance to recognize the needs and desires of cities to manage their own affairs for the benefit of Canada has been lost.“

In all, the federal government is transferring $635 million to British Columbia over five years – that works out to about $30 per capita per year, hardly a princely sum. The bulk of that money will be seen by local governments in Year Five: $76.3 in the fiscal year 2005-6; the same for the next year; $101.7 million in 2007-8; $127.1 million in 2008-9; and $254.2 million in 2009-2010 One can assume that if the Liberal Party loses power at the federal level before 2009 the large chunk of the money under this Agreement will not appear.

The text of the Agreement can be found at http://www.mcaws.gov.bc.ca/lgd/new_deal_agreement.pdf .

3. Flush with money

The rest of Canada looks on with envy as the debt-free Government of Alberta unrolls its 2005 budget.

This happy financial state has proven to be a boom to municipalities. The Alberta government has agreed to advance $3 billion over the next five years for municipal infrastructure, in addition to a further $650 million in highway construction to build ring-roads in Edmonton and Calgary and to improve roads around Fort McMurray. And the New Deal Agreement with the federal government (another $134 million a year is expected) is yet to be signed in Alberta.

The Alberta Urban Municipalities Association has announced itself happy with the new money – almost a 50 per cent increase from last year - only wondering how it will be distributed. Will it be given out on a per capita basis or will some other measurement be used? Ah, to be in a position to be worried only about that issue….

4. The Continuing Mystery of the New City of Toronto Act

There continues to be no news to report on whatever it is that officials from the City of Toronto and Province of Ontario are discussing regarding the promised new legislation defining City of Toronto powers. There was a flurry of excitement in the first week of April as the two governments hinted they would use a celebration of urban author Jane Jacobs as the place to make an announcement, but that too proved to be without substance. Toronto Mayor David Miller has said there will be some sort of public process, but has not defined what that might be. After six months of private discussion and negotiations, members of the public are no clearer about where the discussions are going, or why they are being kept so tightly under wraps. In a situation like this, it is always best to fear for the worst – either nothing of substance is occurring, or a deal that will be unpopular is being rigged up.

The opportunity is that the province and the city can be leaders in this initiative, if they wanted to be. They can help define the kinds of progressive relationships which might be struck between large urban areas and provincial governments, but if they won’t tell others what they are doing, they will miss this opportunity.

Some interested bystanders who are in neither the city’s nor the province’s camp (I’m one such person) have suggested that an eight point plan would be of advantage to both parties. For the purpose of engendering public discussion – or at least notifying the negotiators that there is some useful middle ground - here is the Eight Point Plan for a new City of Toronto Act, with commentary in brackets:

1. Address the structural mismatch between the city and the other governments by removing from city responsibility the great bulk of the costs of two large social programs, welfare and social housing, costs which are better shared by the provincial and federal governments.

[This recognizes Ontario’s struggle to retrieve from the federal government some of the $23 billion gap the province is suffering this year, a gap between the tax revenue collected in Ontario by the feds and the amount spent on Ontario by the feds. The city experiences a $10 billion gap this year with the federal government. This statement joins the city as a party to the province’s demand to close the gap somewhat, and begins to rectify the disastrous downloading of the late 1990s.]

2. Remove the provincial education property tax on commercial properties in the city. (It is levied at a far higher in the city than on commercial properties in other municipalities, and represents an significant intrusion by the province into the property tax base which has long been a revenue source only for municipalities.)

[This has a price tag for the province, but is in lieu of asking for a slice of income tax in item 4 below.]

3. Increase the city’s authority to fairly structure and levy property taxes.

[A key word here is `fairly.’ Property tax unfairly falls on tenants in large rental buildings who pay three or four times more property tax than do owners for comparable amounts of space; and municipalities often impose higher rates of taxation on non-residential properties. Giving municipalities more power to shape the way property tax is applied must be tempered by some principles of fairness in which the reshaping may occur.]

4. Provide the city with the ability to levy excise taxes including hotel/motel occupancy, meals, fuel, liquor, tobacco, vehicle registration, land transfer, and sales tax, and tax increment financing to support local infrastructure development.

5. Provide city residents with a fair deal on immigration support and a labour market agreement, comparable to what is available in other provinces,.

[Immigrants arriving in Toronto receive significantly less federal funding per capita than immigrants in Montreal. Ontario does not have a labour market agreement with the federal government, and thus federal funds for this purpose cannot flow.]

6. Grant the city legislative powers which are broad and expansive, free of the need for provincial approval of city decisions, permitting the city to take actions which `meet or beat’ provincial and federal laws or regulations, and which meet the `dual compliance’ test laid out by the Supreme Court of Canada.

7. Undertake an independent review of governance for the city providing for responsive and accountable governance capable of addressing both city wide and neighbourhood concerns and issues. This review should also deal with the role and function of the Ontario Municipal Board as an approval agency of city land use decisions.

[Forced amalgamation wrecked the local governments in Toronto in 1998, and the current system clearly doesn’t work. Many think city council itself, seeming to have difficulty governing the city well, will face a similar problem arriving at a good system of government. On the other hand, the province should not impose a system of government on the city as it did with amalgamation in 1998. Hence the middle ground, an independent commission.]

8. Establish a regional land use and transportation institution or institutions capable of creating and maintaining a strategic growth management plan for the Greater Toronto Area congruent with provincial policies.

[The city of Toronto needs some structure which permits discussion and decision-making with other municipalities within the Greater Toronto urban area.]

Perhaps the recitation of these eight points will lead to one or other of the governments making public their intentions. Who knows, maybe they will buy into some version of an eight point program.

5. Subscribe to the Bulletin

The bulletin is sent monthly, at no cost, to about 1500 individuals involved directly or indirectly in local government in Canada. Those who receive this Bulletin directly (not forwarded by a third party) are already part of the subscription list. Others who wish to subscribe should go to http://www.localgovernment.ca and follow the instructions. To unsubscribe, please send a message to info@localgovernment.ca indicating your wish to unsubscribe.

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 May.

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