Stable municipal funding and fair taxes

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Canadian cities and towns face unprecedented pressure and demand for investment in infrastructure, social services, immigrant settlement, social housing, public transit and child care services. But, they are limited in their ability to generate revenue and face significant barriers when trying to properly meet these critical needs.

There are many factors contributing to the crisis in municipal financing. Canada’s stimulus funding is coming to an end as is more than $1.5 billion annually in other federal funding programs for municipal infrastructure and housing.

Federal funding for infrastructure is set to decline in coming years, while communities face existing and new demands such as stronger environmental standards, climate change and growing social needs.

Canadian communities continue to struggle with an infrastructure deficit of more than $120 billion while relying on regressive property taxes and user fees for more than 75 per cent of their revenues. As a result, Canadians face some of the highest rates of property tax in the world. In contrast, most European and American cities have access to revenues from income and sales taxes.

Municipalities need stable, predictable and increasing revenues to deliver on their growing  responsibilities.

The federal government must improve its major funding programs for municipalities. The federal government should:

• renew the $1.2 billion a year Building Canada Infrastructure Fund, but eliminate the requirement to consider wasteful financing through public private partnerships;
• renew and expand federal funding for homelessness and affordable housing;
• commit $400 million a year to revitalize public urban transit systems;
• index federal gas tax funding to keep up with inflation and economic growth; and
• introduce a new national clean water fund to pay for the federal share of the $20 billion cost of meeting new federal wastewater standards.
   

Other revenue and funding sources

Municipalities also rely on other revenue or funding sources.

User fees have increased significantly in recent years and now account for approximately 22 per cent of local government revenues. However, user fees disproportionately affect lower income people and can lead to greater inequality and social exclusion. They can also be administratively expensive to collect and are often not a very effective way of managing consumption.

Other municipal revenue sources can include fines, development charges, hotel taxes, amusement taxes, vehicle registration, congestion charges and land transfer taxes. While some of these revenues are beneficial they do not generate significant revenue.

Revenue sharing of other federal and provincial revenue sources, such as sales taxes, income taxes or environmental taxes could easily be expanded. To reverse growing inequality provincial governments could allow municipalities to share revenue from new progressive taxes, such as high-income surtaxes.

Improved public borrowing alternatives can provide municipal governments with new and lower cost sources of financing. These include pooling borrowing power through municipal financing authorities (active in many provinces) or crown corporations, tax exempt bonds, special purpose bonds (e.g. climate or green bonds), or direct investment through public pension funds.

Privatization and public private partnerships may be tempting for municipalities because they either offer a quick buck through asset sales or lower up-front costs for capital investments. But public private partnerships lock governments into much more expensive deals that heap debt onto future years. This is a “penny-wise, pound foolish” approach because these revenues and savings come at a major cost: reduced revenues and higher costs in future years. In particular, they make no sense when governments can borrow at a much lower rate than private investors. The federal P3 Fund should be eliminated and the money should be redirected to projects which keep community assets public.

The federal government must renew and improve its funding programs for Canada’s cities and communities. Communities also need access to sustainable and growing revenue sources through a share of federal or provincial sales tax revenues. The Canadian Union of Public Employees supports municipalities in their quest for a better deal on municipal financing.

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