Making Ends Meet - An Ongoing Challenge

This month we are looking at the challenges of municipal growth and the impacts that come with growth – or the lack of it.

Growth for the sake of growth isn’t really a desirable growth. Bigger does not necessarily mean better, or more sophisticated, or more diverse; sometimes it just means more people or more activity – and more associated costs.

There seems to be a pride amongst elected officials that their communities grow while they are in office, a result that these officials attempt to attribute to actions they have taken that are making their community better. These officials are charged with working towards a vision of success for their community a generation or more down the road, but the reality is that elections often get in the way of good governance, and that ends up restricting vision to what’s popular now.

A Focus on Growth

While we are focusing on growth, the challenges that come with it are often considerable. As but a single example, there are almost daily news reports about homeless encampments around the country, and about hidden homelessness that often goes unreported. The province of Ontario has only recently rolled out strong mayor powers to nearly 170 new municipalities with the intent that those strong mayors put effort into increasing the diversity and amount of housing, among other priorities of the Ontario government. Homelessness has many reasons, some insidious, some very obvious, and some very political. Ultimately, when the economy outgrows people’s ability to pay for places to live, that growth leads to homelessness as an inadvertent side effect. The ripple from that leads to greater social costs, many of which are borne by the local government as well.

There are other examples of the unintended consequences of growth and political populism, but housing is perhaps the one that hits – if you’ll excuse the pun – closest to home.

Income vs. Outgo

One of the most significant ways in which growth challenges local governments requires an implicitly understanding that residential taxes don’t pay for residential services. Growth in population alone only means that the municipal government is even more stretched. There is a bit of an aphorism about ‘the more successful public transit is, the more money it loses’. This is usually a truism. The recovery of transit costs is minimal, so the more the community grows and the more demand there is for new routes and new buses, the more money the transit system will lose.

The same statement could be made for almost everything that local government provides. The only service that actually makes money is tax collection. Everything else from recreation to transportation, to social services, is a net financial cost centre. If government was a business, it would shut down almost immediately.

All this comes down to the adage that ‘if your outgo exceeds your income, then your upkeep will be your downfall’. So it is with local governments. The income streams for Canadian local governments are very limited. The largest source of income is property taxes, which is just a proxy for the estimated wealth that is implied by home ownership. In Northern parts of Canada, there aren’t even property taxes to rely on in the vast majority of hamlets.

The other major sources of income include government transfers (grants from other orders of government), and fees and charges – what you pay to get into the pool, or what you pay for a permit to put in your new deck. These are minimal in terms of the proportion of total revenue available to municipalities.

Unlike the United States, Canadian municipalities don’t have access to many other forms of taxation such as sales taxes or income taxes. In the end, there is only one taxpayer of course; regardless of the way in which our governments choose to extract the dollars.

Difference in Funding

There are differences in how local governments are funded across Canada, but they are not particularly significant. Since local governments are under the legislative authority of the provinces and territories, change does not come quickly, nor is it particularly imaginative.

Some municipalities will try to change the residential–non–residential assessment and tax mix, but it is a slow process that is littered with some successes, but more ill-fated attempts

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When Innovation is a Dirty Word

Sometimes innovative approaches don’t work, and sometimes the paternal provinces shut down the attempts at diversifying revenue. A good example of that is in Alberta, where the provincial government recently removed most use of photo radar, thereby removing a revenue source for larger municipalities. This was a move that had no financial effect on the provincial government but created a new and major gap for cities and towns.

I have deep opinions on how local government is funded and frustrations about how it is restricted because of political decisions elsewhere with the provinces or in the country. I would be interested in your ideas of how you see funding in practice – or where you see it break down.

As always, you can reach me at ian@strategicsteps.ca.