Canada's mayors make good points but...

By Walter Robinson
web posted March 5, 2001

A scan of this week's screaming, bold-font front-page headlines reveals that "Urban areas are in crisis, mayors warn" or "Big cities push for more power, U.S. style taxing" and my personal favourite "Canada's cities are waking up and they're a little grumpy."

It's probably more accurate to state that Canada's cities are stressed (have been for some time), municipal leaders are mighty upset and that federal politicians (and the press gallery) are just now finally waking up to this reality. And the rumblings out of last week's Big City Mayors' Caucus facilitated by the Federation of Canadian Municipalities are not going away any time soon.

Mayors from Canada's largest cities recently met in Ottawa to map out their battle plan for putting the issues of infrastructure (read: money), social needs (read: money) and constitutional respect and equality (read: money) onto the national radar screen of public policy debate.

Their argument is simple. First, Canadian cities should be recognized as a legitimate order of government. Second, lack of recognition puts them at a competitive disadvantage vis-à-vis American and European cities. Third, they have not been given and/or do not have the power to create (ie: tax) sufficient revenues to fund their activities and services.

On the first two points, they're bang on. Canadian cities are legal creatures of the provinces. This stems originally from Baldwin's Upper Canada Act (1849) where cities (local authorities as they were then known) were relegated to such "monumental" tasks of regulating public drunkenness and controlling public parades of poultry. This status, akin to government impotence, was re-affirmed in the British North America Act of 1867.

At the time of Confederation less than one in six Canadians lived in cities. Today – 134 years later – over 84% of us live in urban regions. We are one of the most urbanized nations on the planet. Further still, the economic output of Canada's major cities (Toronto, Montreal, Vancouver, Ottawa and Calgary) is staggering, accounting for over 58% of our GDP. The "centre of the universe" alone (aka: Toronto) is estimated to drive some 45% of Ontario's GDP and a whopping 26% of Canada's GDP.

In addition, municipal governments consume/purchase over $40 billion annually in goods and services. Business and academic literature alike teem with study after study pointing to the world's urban regions as the locus for the 21st century globalization of commerce, culture and social cohesion.

Yet, our cities are still seen in law and in the upper-tier (read: Ottawa and the provincial capitals) mindset as doormats to be stepped on or as guinea pigs to be amalgamated, divided, or played off against each other, depending on the prevailing ideology of senior governments or the public policy fad du jour.

This brings us to their second point; compared to U.S. and European cities, they just can't compete. This argument has considerable merit. Owing to local government history stateside, U.S. cities have much greater status. Indeed, they can levy sales taxes, hotel taxes, and even municipal income taxes to meet the needs of their citizens.

So they are much less reliant on block or grant funding from the state or federal government. But this arrangement also comes with more democratic accountability and voter empowerment, something Canadian cities have eschewed.

As for our friends across the pond, again, hundreds of years of historical precedent have cemented European cities as a key order of government. And European city governments are more taxpayer focused, embrace the private sector and engender a healthier democratic ethos, which begets greater citizen involvement.

Where our cities need more fiscal creativity and vision is on the crucial point of money. How to get it, where to raise it and how to spend it, all are key questions to be addressed. To be fair, the structure of municipal finances has changed dramatically over the past decade and has been exacerbated by federal and provincial downloading in a very acute manner in the past five years.

According to noted academic and consultant Harry Kitchen from Trent University in Peterborough, municipal governments have three main revenue sources: grants from other orders of government, property taxes and user fees. The chart below indicates the effects of downloading.

Source 1988 1998
Grants 23% 15%
Property tax 49% 57%
User fees 20% 21%
Other 8% 7%

Contrary to popular opinion, user fees have not spiked dramatically on a national basis in the past decade.

The mayors say their needs are most acute in infrastructure, specifically inter-modal urban transit (roads, buses, rail), water and wastewater initiatives and affordable housing.

On the transit side, they are demanding that Ottawa should stop its theft of gas taxes at the nation's pumps. They have a point. Ottawa collects $5 billion each year in gas taxes but returns less than 6% of this sum to road construction and public transit initiatives. While cities starve for funds, Finance Minister Paul Martin sits atop oodles of federal surplus cash, a good chunk of it siphoned from our weekly fill-up.

But our mayors are not lily white. Blame for problems of urban sprawl, gridlock, congestion and its consequent economic impact (loss of productivity) rests squarely on their shoulders. For years they have foregone needed capital investments and preventive maintenance costs in favour of short-term payback for areas such as arts funding and other special interest initiatives.

As the 1974 landmark U.S. study, The Costs of Sprawl noted, "sprawl is the most expensive form of residential development in terms of economic costs, environmental costs, natural resource consumption, and many types of personal costs …" But few Canadian cities have adopted smart growth strategies to grow up, instead of sprawling out.

Now they're demanding more money for new roads (read: more sprawl) and light rail (which can also lead to sprawl) without looking to maximize or consider tolling existing roads. As Noble winning economist noted back in 1963, "in no other major area are pricing practices so irrational, so out of date, and so conducive to waste as in urban transportation."

Turning to water, Canadian mayors could learn a lesson from the Europeans, especially the French and to a lesser extent the British. In France, 95% of water use is metered so users pay accurate costs for actual consumption. In addition, private water companies (both in plant construction and product delivery) have flourished. But we continue to apply flat rates for water use in many cities and for the most part forbid any private sector involvement in upgrade of our aging water and wastewater support infrastructure.

Last November, at the AGM of the Canadian Council for Public Private Partnerships, it was reported that if we add all the infrastructure needs for schools, hospitals, water and roads, the public sector simply does not have the capacity to fund all the needs. Engaging the private sector is no longer an option; it's a long overdue necessity.

Canada's mayors make valid points on their neutered status. However, if they want to compete with U.S. and European cities, they should stop complaining about them and start copying from them. In so doing, they could find allies amongst taxpayers and other groups.

Walter Robinson is the federal director of the Canadian Taxpayers Federation.

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