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HomeMy WebLinkAboutCAO-07-062 - FCM Proposal - Equivalent of One Cent of GST for Canadian Municipalities Report To: Finance and Corporate Services Committee Date of Meeting: December 10, 2007 Submitted By: Mayor Carl Zehr, Member, FCM's Big City Mayors Caucus Councillor Berry Vrbanovic, Vice-President: At-Large, FCM Ward(s) Involved: All Date of Report: December 5, 2007 Report No.: CAO-07-062 Subject: FCM Proposal -Equivalent of one cent of GST for Canadian Municipalities RECOMMENDATIONS: 1. That City Council endorses the following motion: 1.1. WHEREAS Canadian municipalities play a vital role in: (1) promoting the quality of life and health of our citizens, (2) strengthening our national economy, and (3) protecting our global environment. 1.2. WHEREAS Canadian municipalities have doubled their share of infrastructure costs over the past 50 years while the federal government's share has shrunk to less than half without providing adequate funding to cities to help them fund this costly shift in responsibilities. 1.3. WHEREAS the municipal infrastructure deficit is estimated to have grown to $123 billion just to replace current and aging infrastructure, such as water and waste water systems; transportation systems; transit, solid-waste management, and community, recreational, cultural and social infrastructure. 1.4. WHEREAS municipalities currently receive only 8 cents of every tax dollar paid by Canadians, our cities are home to over 80% of the country's population, and they provide the services residents use on a day-to-day basis more than those of the federal and provincial governments. 1.5. WHEREAS Cities are the economic engines of the Canadian economy and investments in municipalities by the federal government will serve to strengthen the national economy, thereby growing its own revenues. 1.6. WHEREAS the federal government has enjoyed tens of billions of dollars in budgetary surpluses over the past ten years ($13.8 billion in 2006-07 alone) and it is forecast to continue to produce surpluses in the future. 1.7. WHEREAS Canadian municipalities require a reliable and dedicated source of revenue that grows with the economy to significantly reduce the need for ongoing and unsustainable increases to property taxes, user fees and, water and sewer rates. 1.8. BE IT RESOLVED that Kitchener City Council endorses the proposal of the Federation of Canadian Municipalities and calls on the federal government to provide Canadian municipalities with the equivalent of one cent of the GST on an annual basis to help them fund important municipal services and infrastructure to a growing population. 2. That City Council directs the Mayor to write the Prime Minister, the Minister of Finance, and the Minister of Transport, Infrastructure and Communities to provide them with a copy of Council's motion and to request the federal government provides Canadian municipalities with the equivalent of one cent of the GST. 3. That City Council directs the Mayor to provide a copy of his letter to the Prime Minister to the Federation of Canadian Municipalities (FCM), the Association of Ontario Municipalities (AMO) and all Members of Parliament from within the Region of Waterloo. 4. That City Council directs the Mayor to write the heads of Council for all municipalities and townships within the Region of Waterloo to provide them with a copy of Council's motion, to encourage them to pass similar motions, and to share those motions with the Prime Minister, the Minister of Finance, and the Minister of Transport, Infrastructure and Communities, all local Members of Parliament, FCM and AMO. BACKGROUND: Between 2003 and 2005 FCM worked successfully to lobby the federal government to increase its financial support of Canadian municipalities. Successes include a GST rebate for Canadian municipalities and an agreement to share a portion of the federal gas tax as well Unfortunately, despite those steps forward it is clear that more financial support is needed if Canadian municipalities are to continue to support residents' health and quality of life while helping to drive the national economy and to contribute to our collective efforts to protect the global environment. Both the federal and provincial government have to do more to ensure the future success of all municipalities -and especially our cities, which are now home to over 80% of all Canadians. Back in 2006, the Federation of Canadian Municipalities (FCM) Big City Mayors' Caucus (BCMC) released a report entitled, Our Cities, Our Future: Addressing the fiscal imbalance in Canada's cities today (htt :// w.fcm.calenlish/documents/bcmcfinal. df). The primary objective of that report was to outline the need to restore fiscal balance between Canadian municipalities and other orders of government in Canada. To that end, the report provided a clear demonstration of the fiscal challenges municipalities are facing today as demands for their services and infrastructure are growing while their primary revenue tools - property taxes and user fees -remain insufficient to meet those demands. Based on that report and its conclusions, in 2006, BCMC made three recommendations which were aimed at helping Canadian municipalities become fiscally sustainable over the long-term. Progress has been made to date on all three of these recommendations as outlined below: 1. Encourage all orders of government to work together to realign roles and responsibilities with appropriate resources: Discussions are currently underway with many provincial governments across Canada in relation to realigning municipal roles and responsibilities. Alocal example of this realignment came in June 2007 when the Province of Ontario agreed to increase its share of funding for Waterloo region's rapid transit project from one-third to two-thirds. 2. Establish a national transit strategy: In March 2007, BCMC released a national transit strategy which called for an annual $2 billion investment from the federal government to help fund a national transit strategy (htt :// w.fcm.ca/english/documents/transitsub.df). 3. Provide Canadian cities with access to long-term, predictable sources of revenue that grow with the economy: In May 2007, BCMC released its proposal for the federal government to provide a predictable source of revenue that grows with the economy by sharing the equivalent of one cent of the GST with Canadian municipalities. At its annual conference in 2007, the membership of FCM passed a motion endorsing the proposal put forward by BCMC. In November 2007, the Large Urban Mayors Caucus of Ontario (LUMCO) also endorsed their proposal. REPORT: BCMC /FCM Revenue Sharing Proposal: In May 2007, BCMC released a proposal calling on the federal government to provide Canadian municipalities with the equivalent of one cent of the GST, totalling approximately $5 billion. A copy of that proposal is attached to this report as Appendix A. This proposal would provide municipalities with a predictable source of revenue that grows with the economy and help cities meet a growing number of pressures created by Canada's municipal fiscal imbalance. To date, neither FCM nor BCMC have had formal discussions on a possible allocation formula for the $5 billion that would be allocated to municipalities across the country under this proposal. However, the following chart outlines the amount of funding that could be made available to all municipalities and townships within the region of Waterloo under FCM's proposal. These calculations assume: ^ The total amount of funds available is provided on a per capita basis equally amongst all Canadians and according to population data from the 2006 census. ^ Any funds received from the federal government would be split 50 / 50 between the Region of Waterloo and the lower-tiered municipalities. This is similar to the financial arrangement already in place for the federal gas tax transfer. Municipalitv Population 2006 Total Per Ca ita Fundin Municipal Portion Regional Portion Canada 31,612,897 5,000,000,000 -- -- Kitchener 204,668 32,370,291 16,185.145 16,185,145 Cambridge 120,371 19,037,877 9,518.99 9,518,939 Waterloo 97,475 15,416,646 7,708,823 7,708,323 Townshi of Woolwich 19,658 3,109,109 1,554,555 1,554,555 Townshi of Wilmot 17,097 2,704,062 1,352,0 ~ 1 1,352,031 Wellesle 9,789 1,548,228 774,114 774,114 North Dumfries 9,063 1,433,404 716.702 716,702 Region of Waterloo 478,121 75,619,617 -- 37,809.809 In summary, FCM's proposal for the federal government to provide Canadian municipalities with the equivalent of one cent of the GST could provide the City of Kitchener with $16 million a year. In addition, the Region of Waterloo would receive $37.8 million a year and the total amount of money that would flow from the federal government into all of the municipalities and townships of Waterloo region would be $75.6 million a year. Importantly, by linking the federal government's contribution to the growth of the economy which municipalities help to drive and strengthen, these funding levels would grow over time as the economy grows. As a result, this funding would provide municipalities with the same ability to increase their revenue levels without relying solely on increasing property tax rates or user fees for capital purposes as the federal and provincial governments currently have today. The benefit of having a source of revenue that automatically grows with the economy is clear. As outlined through the figures below, despite increasing their spending levels by more than double those of the City of Kitchener between 1988 and 2007, the federal and provincial governments did not have to increase taxes to increase their revenues because their revenues automatically grow with the economy through tools such as income, property and sales taxes. Spending Increases 1998 - 2007: ^ Federal government = 7.9% ^ Provincial government = 7.5% ^ City of Kitchener = 3.7% While the detailed proposal (Appendix A) outlines a variety of reasons why this new source of revenue is needed by Canadian municipalities, this report highlights two of the major reasons - the municipal infrastructure deficit and the municipal fiscal imbalance. Infrastructure Deficit: Much of Canada's municipal infrastructure was built between the 1950s and 1970s and is now reaching the end of its service life. Roughly 79% of Canada's infrastructure has reached or passed is service life and is now in need of replacement. At the same time, over the past 50 years municipalities share of infrastructure costs have more than doubled while the federal government's share has shrunk to less than half. As a result, the level of government least able to raise the revenues it needs to build, repair and replace important municipal infrastructure is now in charge of a growing share of our overall infrastructure. At the same time the level of government most able to increase its revenues is experiencing billions of dollars in budgetary surpluses. In 2003, the Federation of Canadian Municipalities (FCM) estimated the municipal infrastructure deficit was $60 billion. With the recent release of an in-depth survey of 85 municipalities conducted jointly by FCM and McGill University's Dr. Saeed Mirza, we know now that municipal infrastructure deficit has more than doubled to $123 billion. A full copy of the report can be found at: htt :// w.fcm.calen lish/adis~ °~ - ~/c'^ficit.html. In other words, Canadian municipalities require an estimated $123 billion over and above their current and projected levels of funding to repair, replace or prevent the deterioration of existing and aging infrastructure. None of those funds will go towards the construction of new infrastructure to meet the demands of a growing population - it is all needed to replace or upgrade what we already have. Dr. Mirza's report estimates that to build new infrastructure to meet the demands of a growing population will cost municipalities another $115 billion. The estimated $123-billion deficit includes deficits in the following key categories of infrastructure: ^ water and waste water systems ($31 billion) ^ transportation ($21.7 billion) ^ transit ($22.8 billion ^ solid-waste management ($7.7 billion) ^ community, recreational, cultural and social infrastructure ($40.2 billion). Locally, in 2004 the City of Kitchener began to implement an Accelerated Infrastructure Renewal Program to replace its aging watermains, sewers and roads. At that time, it was estimated that the City would need to spend a minimum of approximately $1.5 billion over asixty-year period (an average of $25 million per year) to replace its current and aging infrastructure. While the City of Kitchener may not be in as dire a situation as some Canadian municipalities because it began to address some of these issues back in 2004, the situation still goes well beyond its ability to generate the needed revenue through property taxes and user fees alone. The financial pressures this growing infrastructure deficit will have on municipal budgets and the size of the investments that will be required simply cannot be collected through increased property taxes and user fees alone. The size of the investments needed are just too large. Canadian municipalities current reliance on these two forms of revenue is regressive, unsustainable and simply cannot meet the growing funding demands placed upon cities for services and infrastructure. Municipal Fiscal Imbalance: The root of this funding problem lies in the imbalance between ~~ll~f~~~`t~`~a~~ R~tI the services municipalities offer, ~ _`~ the infrastructure they are responsible for building and maintaining, and the resources and revenues at their disposal. Currently 92 cents of every tax "~ dollar paid by Canadians goes to the federal and provincial governments while only 8 cents of every tax dollar goes to Canadian municipalities. Municipal governments like the City of Kitchener use the 8 cents they receive from every tax dollar spent to help fund a wide and growing variety of city services such as: Local roads, sidewalks and sewer Community centres and programs Libraries Bylaw enforcement Sports fields The Auditorium Road maintenance Traffic control Cemeteries Centre in the Square Storm water collection Parks, playgrounds and natural areas Fire fighting and prevention Seniors programs Swimming pools Walk and bike trails Indoor ice rinks Snow clearing Street lighting Street sweeping Your Kitchener Market Leaf pickup At a time when Kitchener is estimated to grow substantially in future years, resident's demands and expectations for these municipal services show no signs of reducing. Through several public consultations held in recent years Kitchener residents have clearly indicated they do not support any major cuts to city services. Adding to the municipal fiscal imbalance here in Waterloo Region, is the fact that only a portion of property taxes actually go to the City of Kitchener. In 2007, a homeowner with an average house valued at $203,000 paid a total of $2,764 in property taxes and yet only $880 of those property taxes went to the city - approximately $73 per month. FINANCIAL IMPLICATIONS: The financial implications of supporting the recommendations contained in this report are minimal, while the benefits of the revenue sharing proposal could significantly reduce municipalities reliance on current revenue sources - ie. increased property taxes and user fees. COMMUNICATIONS: There are a number of initiatives currently underway by FCM, BCMC, AMO and individual cities across the country to raise the level of awareness of these issues and to apply political pressure to the federal government to give the revenue sharing proposal serious consideration. In support of those efforts that are already underway across the country, City of Kitchener staff should use all available communications tools at its disposal (ie. media releases and other media opportunities, Your Kitchener, City websites, speaking engagements, posters in City facilities, etc.) to share information about these funding issues and FCM's proposal with the residents of Kitchener. This sharing of this information can be done at a very minimal cost. To help facilitate information being shared by other municipalities and townships within the Region of Waterloo with their residents, City of Kitchener staff should also be prepared to share its information (ie. text, charts, reports, etc.) with other municipalities for their own use (ie. posting on their own websites). CONCLUSION: Canadian municipalities play a vital role in: (1) promoting the quality of life and health of our citizens, (2) strengthening our national economy, and (3) protecting our global environment. Our communities provide residents with the services and infrastructure they rely upon and use on a day-to-day basis more than those of the federal and provincial governments. Over the past 20 years, Canadian municipalities have been squeezed by increasing responsibilities for services and infrastructure and reduced transfer payments from other orders of government - producing a greater reliance on increasing their main sources of revenue: property taxes and user fees. Without a reliable and dedicated source of revenue from the federal government that grows with the economy, municipalities will have no choice but to use a variety of tools to meet its financial commitments such as cutting municipal services or significantly increasing property taxes, user fees, and water and sewer rates over the long-term. By sharing the equivalent of one cent of the GST with Canadian municipalities, the federal government has an opportunity to invest in our communities, strengthen the national economy, increase its own revenues, and put the entire nation on a more solid footing for the future. Mayor Carl Zehr Councillor Berry Vrbanovic Member, Federation of Canadian Municipalities Vice-President: At-Large Big City Mayors Caucus Federation of Canadian Municipalities ATTACHMENT: FEDERATION OF CANADIAN MUNICIPALITIES BIG CITY MAYORS' CAUCUS: SHARING THE WEALTH FOR A STRONG AND PROPEROUS CANADA: A PROPOSAL TO THE GOVERNMENT OF CANADA FOR SHARING REVENUES WITH CANADA'S BIG CITIES Fe er~.tl® ® ~. 1 1C1 1t1eS 1 l ~.®rS' ~.CS Sharing the Wealth for a Strong and Prosperous Canada: r sal t the ern ent f ana ®r rin eenes it ana s i ities May 3, 2®®7 SIG CITY MAYORS' CAUCUS The Big Ciry Mayors Caucus (BCMC), comprises a regionally representative group of FCM member cities. It meets two to three times a year to discuss shared issues and to reinforce FCM's policy and advocacy agenda set by the National Board of Directors. L Vancouver, His Worship Mayor Sam Sullivan 2. Surrey, Her Worship Mayor Dianne Watts 3. Calgary, His Worship Mayor David Bronconnier 4. Edmonton, His Worship Mayor Stephen Mandel 5. Regina, His Worship Mayor Pat Fiacco 6. Saskatoon, His Worship Mayor Don Atchison 7. Winnipeg, His Worship Mayor Sam Katz 8. Brampton, Her Worship Mayor Susan Fennell 9. Hamilton, His Worship Mayor Fred Eisenberger 10, Kitchener, His Worship Mayor Carl Zehr 11. London, Her Worship Mayor Anne Marie DeCicco-Best 12. Mississauga, Her Worship Mayor Hazel McCallion 13. Ottawa, His Worship Mayor Larry O'Brien 14. Windsor, His Worship Mayor Eddie Francis 15. Toronto, His Worship Mayor David Miller 16. Gatineau, Maire Marc Bureau 17. Montreal, Maire Gerald Tremblay 18. Laval, Maire Gilles Vaillancourt 19. Quebec, Mairesse Andree P. Boucher 20. Longueuil, Maire Claude Gladu 21. Halifax, His Worship Mayor Peter J. Kelly 22. St. John's, His Worship Mayor Andy Wells Federation of Canadian Municipalities z4 Clarence Street ®ttawa, ®ntario I<i N 5P3 For more information, please contact Michael Buda Senior Policy Analyst Tel.: (6i3) go7-6z7i E-mail: mbuda a~fcm.ca tr Ctl In June zoo6, the Federation of Canadian Municipalities Big City Mayors' Caucus (BCMC) released a report entitled, Our Cities, Our Future: Addressing the fiscal imbalance in Canada's cities today.' The primary objective of that report was to outline the need to restore fiscal balance to Canada's cities because of the growing vertical fiscal imbalance that exists between all three orders of government. In so doing, the report provided an overview of the fiscal challenges cities face due to insufficient revenue tools, beyond proper- ty taxes and user fees. Our Cities, Our Future also advanced the case that the inter- governmental relationships between all orders of govern- ment need to be modernized to meet the zest century. As a result, the Caucus made three recommendations in the report, which, if implemented, would help cities become more fiscally sustainable and create greater economic suc- cess for Canada. Those recommendations proposed that the Government of Canada seek to: Encourage all orders of government to work together to realign roles and responsibilities with appropriate z. Provide Canadian cities with access to long-term, pre- dictable sources of revenue that grow with the econo- my; and 3. Establish a national transit strategy. The Caucus believes that implementing these recom- mendations would alleviate much of the fiscal pressure Canada's rapidly-expanding cities are currently experienc- ing. Indeed, these recommendations, together with the federal government's existing support for cities through infrastructure programs, the full rebate of the Goods and Services Tax (GST) paid by municipalities, sharing of the federal gas tax and other programs will help cities become financially sustainable. Establishing such a solid framework with the federal government will provide cities with the abi- lity to meet their current responsibilities and continue to drive the nation's prosperity. With these investments cities could become true partners in Canada's prosperity. Since the release of Our Cities, Our Future, the Caucus has been actively lobbying for each of these recommendations. In February zoo7, for example, the Caucus agreed to pursue a more in-depth study on sharing revenues that grow with the economy. In early March zoo7, the Caucus released a national transit strategy, which calls for an annu- al $z billion federal investment to enhance municipal transit infrastructure. Finally, discussions are underway with many provincial governments over the realignment of municipal roles and responsibilities. Along those lines, the proposal in this document outlines why cities need access to revenues that grow with the economy; analyzes the ade- quacy of various revenue sources; and outlines the national benefits of sharing revenues that grow with the economy. Based on the work undertaken by the Caucus, this proposal recommends that the Government of Canada share the equivalent of one cent of the GST revenues with Canada's cities, totalling approximately $5 billion if shared with all municipalities, of which the BCMC share would be approxi- mately $z billion. The BCMC looks forward to working with all orders of government to ensure that Canada's cities have the fiscal capacity to enable them to continue to play a pivotal role in the national economy.. why cities need ~°evenues that g~°ow with the economy While federal and provincial governments have taken some positive steps in recent years to help municipal govern- ments address their fiscal pressures, they unfortunately have not done enough. All governments need to recognize that cities are partners in prosperity, and therefore it is in the interest of all governments to play a role in the success of cities. Although access to federal and provincial gas taxes, the GST rebate, increased infrastructure programs and new own-source revenues for some municipalities is welcome, cities are still financially strapped to meet their growing needs. To truly be a successful nation, one that offers opportunity, prosperity and liveability for all, the view of cities and the accompanying intergovernmental relation- ships need to be modernized to reflect the zest century. To do so, it is critical that we provide cities with revenue tools to address their ever-growing needs and to support their role in the national economy. Cities require access to revenues that grow with the econo- my because they need to make important investments that fuel economic growth. Infrastructure, quality-of--place fea- tures, and environmental and social services not only attract investment, but also skilled workers. In the zoo? worldwide quality-of--life survey, Vancouver, Toronto, ®ttawa, Montreal and Calgary were among the top 5o cities internationally and were the top five cities in the Americas. However, current revenue sources alone are inadequate if Canadian cities hope to maintain and build on the quality of life which encourages economic prosperity. ' Big City Mayors' Caucus, "Our Cities, Our Future: Addressing the fiscal imUalance in Canada's cities today," June 2006. Mercer Human Resources Consulting, "200 Worldwide Quality of Living Survey," (London: Mercer Human Resources, April 2, 2000 oUtained from http://www.mercerhr.com/summary.jhtml?idContent A Proposal to the Government of Canada for Sharing Revenues with Canada's Big Cities 3 Canada's wealth is gene~°atec~' in cities While all communities in Canada contribute to the nation's wealth, the majority of economic activity and wealth gene- ration takes place in large cities. Twenty-seven Census Metropolitan Areas (CMAs) generated two-thirds of Canada's gross domestic product (GDP) in zoo3. As the Caucus's zoo6 paper Our Cities, Our Future indicates, big cities also account for large shares of their provincial GDPs: • Halifax accounts for 47 per cent of Nova Scotia's GDP; • Montreal's CMA accounts for 51.5 per cent of Quebec's GDP; • Winnipeg accounts for 65.5 per cent of Manitoba's GDP; • Vancouver accounts for 57 per cent of British Columbia's GDP3 ; • Edmonton and Calgary combined account for 64.5 per cent ofAlberta's GDP4; • St. John's accounts for 47 per cent of Newfoundland and Labrador's GDPS; • Toronto's CMA (including the BCMC cities of Brampton and Mississauga) accounts for 49.z per cent of ®ntario's GDP6; and • The CMAs of Kitchener, London, Windsor, Hamilton and the ®tttwa share of the ®tttwa-Gatineau CMA, account for an additional z3 per cent of ®ntario's GDP'. Although cities are where Canada's wealth is generated, municipal governments reap few of the rewards as they struggle to keep up with changing demographics, infrastructure demands and social and environmental challenges. The majority of the wealth generated flows to provincial and federal governments. ®n average, out of every tax dollar collected in municipalities, eight per cent goes to municipal governments, 4z per cent goes to provincial governments and 5o per cent goes to the federal government.$ There is a disparity between what cities generate in terms of tax dollars and what other orders of government reinvest in cities. Between 1999 and zooz,9 the citizens of Calgary, Edmonton, Toronto, London, Montreal and Halifax togeth- er sent $51 billion more in taxes and other payments to the Government of Canada than they received back in benefits from the federal government. This occurred despite the fact that from fiscal years 1999/00 to zoos/o6, the federal gov- ernment recorded $81.4 billion in surpluses.'° As a result of these economic disparities, the Caucus is asking that a greater share of the tax dollars generated in cities remains with municipal governments so that they can continue to invest in the infrastructure and quality-of--place features that attract the necessary investment for generating wealth. Challenges af~ecting wealth gene~°ation Clearly, cities need to retain a share of the revenues that grow with the economy so that the wealth generated in cities continues to increase. By sharing these growing revenues, the federal government will provide municipal governments with greater opportunity to be more economically competi- tive and to sustain and enhance the public infrastructure and services that are necessary to attract limited invest- ment dollars. Unfortunately, as Our Cities, Our Future acknowledges, cities are facing numerous challenges that if not addressed could impair Canada's competitiveness and economic prosperity. The following are some of the challenges that are greatly af- fectingthe ability of Canada's big cities to generate wealth and that are consequently compromising Canada's future success. The only way to address these challenges and con- tinue to grow the economy is to provide municipalities with a revenue source that reflects economic growth. s Federation of Canadian Municipalities, Big City Mayors' Caucus, "Cities: Partners in National Prosperity," (Ottawa: Federation of Canadian Municipalities, June 2, 2005) iq. This report includes the GDP figures for Halifax, Montreal, Winnipeg and Vancouver. a The Conference Board of Canada, "Canada's Huh Cities: A Driving Force of the National Economy," (Ottawa: The Conference Board of Canada, July, aoo6) q. 5 City of St. John's, Newfoundland & Lahrador, "Economic Overview 2005 St. John's Metropolitan Area," (St. John's Newfoundland: City of St. John's, Novemher 2~, 2005) z. a Statistics Canada: "Provincial Economic Accounts, Annual Estimates," (Ottawa: Government of Canada, 2005) 6 Paul Knafelc, "Economic Trend Analysis -Canada's Technology Triangle." (Waterloo Region, Ontario: Canada's Technology Triangle, Novemher aoo6). $ Federation of Canadian Municipalities, "Building Prosperity from the Ground Up: Restoring Municipal Fiscal Balance", z5. a At the time this proposal was written only the 1999-aoo2 data was availahle. '° Government of Canada, Receiver General of Canada, Puhlic Accounts of Canada, 2006: Volume z, Summary Reports and Financial Statements, (Ottawa: Puhlic Works and Government Services, Septemher, 2006) q~. 4 Federation of Canadian Municipalities (FCM) Big City Mayors' Caucus Rapid urbanization for the private sector.'S In addition, a subsequent report by the TD Financial Group indicates that the transportation According to recent census data, it is clear that Canadian cities will continue to be faced with challenges directly associated with population growth. The zoo6 census reveals that Canada is becoming increasingly urban. In fact, four out of five Canadians, or approximately z5 million peo- ple, are now living in urban areas. Further, 8o per cent of Canada's overall population growth occurred in the coun- try's 33 CMAs. CMAs with cities in the BCMC accounted for 58.3 per cent of the population growth. Six metropolitan areas-Toronto, Montreal, Vancouver, ®tttwa-Gatineau, Calgary and Edmonton-now have populations of over one million people and make up 45 per cent of the entire Canadian population." sector saves on average 4o cents for every dollar invested in transportation infrastructure.i6 Population growth, while a sign of economic success, makes it harder for cities to provide adequate service deliv- ery for more citizens. It is also harder to manage the impact of larger, more diverse populations on land use, the environment, transportation networks, infrastructure, and social integration.' The pressures of growth come with a financial cost that cities are not appropriately equipped to bear. However, given the proper tools, cities can benefit from the growth for which they are paying. For example, the Caucus's proposal for a national transit strategy, which calls for federal investment in clean and efficient public transit systems, is an effective measure to help cities meet the public transit needs of growing urban populations. Federal sharing of revenues that grow with the economy is another effective tool to help cities meet the costs of growth. Infrastntctttre pressures Cities need high quality infrastructure to attract investment and skilled workers. Central services such as affordable housing, parks and recreation, arts and culture, public tran- sit and community safety all play a role in attracting people to cities. Important considerations for business include quality infrastructure: effective public transit systems; effi- cient road and transportation networks; reliable water and wastewater systems; electricity; and solid waste disposal. Due to their limited financial resources, cities often face a difficult public policy choice to either replace or refurbish aging infrastructure or try and meet the expansion demands created by rapid urbanization. The average age of infra- structure in Canada is 4o to 5o years old, resulting in a recent boom in replaced and refurbished city infrastructure that has also produced a boom in municipal debt levels. The infrastructure gap is now at least $ioo billion'; or six to io times current investment flows.'4 If cities had access to revenues that grow with the economy, not only would some of this gap be reduced, but it would also benefit the nation- al economy and the federal government. In fact, a zoo; Statistics Canada report revealed that every $i spent in infrastructure generated approximately i7 cents of savings Growing responsibilities Canada's cities continue to face increased pressures from the offloading of services and unfunded mandates from other orders of government. For example, cities have had to take a greater role in many areas of shared interest with the federal government, such as municipal airports, local ports and harbours, social housing, public safety and emergency preparedness, and transit. In other cases, offloading has meant that federal and provincial/territorial governments have downsized their own responsibilities: federally in areas such as immigration settlement and public safety, and pro- vincially, in some places, in areas such as social services and education. As a result, cities have been left to fill the financial and operational void left by other governments in order to maintain the level of services expected by the public. In addition, the federal and provincial/territorial govern- ments have mandated that cities must meet certain re- quirements, such as increased emergency preparedness standards, without providing the funds to meet those re- quirements. These are known as "unfunded mandates." In all of these cases of offloading, pressure has been placed on municipalities to increase expenditures and revenues but their ability to do so is limited." " Statistics Canada, Portrait of the Canadian Population in 2006, 2006 Census -Population and Dwelling Counts (Ottawa: Government of Canada, 2000 5. '~ Conference Board of Canada, "Mission PossiUle -Successful Canadian Cities -Canada Project Final Report -Volume III," (Ottawa: Conference Board of Canada, 2000 ~. '3 In 2003, drawing on studies Uy the Canadian Society of Civil Engine- ering and TD Economics, FCM cited the infrastructure deficit at $6o Uil- lion and growing Uy aUout $2 Uillion a year. The $6o Uillion figure was for a limited set of "core" infrastructure only, and did not include certain key areas of municipal infrastructure, most notaUly puUlic transit and affordaUle housing. As part of FCM's call for along-term plan to elimi- nate the municipal infrastructure deficit, all three orders of government need to work together to undertake a comprehensive study of the size, scope and nature of the deficit. '4 TD Bank: "Mind the Gap -Finding the Money to Upgrade Canada's Aging PuUlic Infrastructure. (Toronto: Toronto Dominion Bank, 2004) 5~ 'S Statistics Canada, "PuUlic Infrastructure and the Performance of the Canadian Economy, i~6i-2ooo," (Ottawa: Government of Canada, aoo3). i6 TD Bank, "Mind the Gap." "Federation of Canadian Municipalities, "Building Prosperity from the Ground Up: Restoring Municipal Fiscal Balance", Annex 3. A Proposal to the Government of Canada for Sharing Revenues with Canada's Big Cities 5 Increasing social and environmental challenges The challenges that cities are facing regarding social and environmental issues are compounded by decisions of other orders of government to offload certain services, as well as by pressures from population growth. Cities encounter social challenges since, despite their high- er cost of living, they are often the preferred living choice far disadvantaged persons.'$ Municipal governments are becoming increasingly responsible far the significant cast of delivering services that support marginalized individuals. Cities are also facing increased costs in meeting communi- ty safety needs. Municipal costs for police, fire and emer- gency services are increasing at an alarming rate. For many municipalities, policing costs alone account for a major portion of their budgets. This trend is unsustainable. Without additional revenue tools cities will not be able to meet the expectations of other governments and the public, without compromising service delivery in other areas. In addition to social challenges, rapid population growth is also creating environmental problems. Close to 6o per cent of harmful emissions are concentrated in urban areas, affecting air quality and the health of residents. Climate change threatens municipal assets including roads and bridges, transportation systems, water and wastewater infrastructure, and coastal systems. Climate change also threatens the overall integrity of green spaces and water- sheds, which could undermine the rich biodiversity found in Canadian cities and their surrounding regions. '$ External Advisory Committee on Cities and Communities, "From Restless Communities to Resilient Places - Building a Stronger Future for All Canadians" (Ottawa: Government of Canada, June z5, 2006). z3. In ~r()(?i, s:3; eatoon lai a ioa ~ e-di£~it crime rate twat was lri~;hest in ~lanada, accordin . tir ~rtaEistics l anada. '! he :~asl<atoon l'oiice "service has piace~l ar6c@ieiorzai police oFficers orr !} rtn:rls an:l irr the streets to reduce crime and irrcre:rse ponce `~..=.il~ilit}'. [gut dain~; so has pur l~rr~,srrre orr th<: cur's auuua! oprratissri bniE~;cts ror t{~<. p;rs4 sip, rears. Irr ~'.f)E?:', the police haEl£,et rv;r~. I'1: o per cent of the eity s overall budget. 'I hat share has increa<:ed to ? i.7 per <:eut in ?f!i?Er. r;.lrreseutin~~ a ji j. ~ millicsn increase iu just five. ~~ears. !.?r,er the same Fire-Fear period. ;'~? uevr~ polio officers !-rave been hired or are in the proctrss of beintr, hind. ~f these, i9 h.rve been (rtnclecl thrautih the chi's irril! rate. 'E lr:. provincial and federrl L;or--4rnrrrents have fitndecE the other ?! positions. 'i be mill rate hay also haa[ to cc~~er 3~: E additional sapr?ort staffrti~ile three positions ~~-ere fundCd relayed 6acEn~.t pressures, piace~s a sit;niEicant burden on t ea:,paj'erti of '~.rslcatoor7. far' sharing; elre ecltaivalerrt of-one cent of GS'! w~itlr mun polities, cities like 4 r,lc:rtocrr Frill be bett;:r egriil~petE to address cammruritr° Oafet~' i,sucs not onEr throu~~h inae,r irr~ poiict. presence but also b` investin * in ~; rune prever~ inv-est in all of the important quaiitr -of-plac make 4~,anad.i's cities iive,ri~le an:E attractive ors and investor<;. 6 Federation of Canadian Municipalities (FCM) Big City Mayors' Cancns ®utdated and insufficient financial resources Municipal governments must, by law, balance their operat- ing budgets. Since they do not have access to growth taxes, the only avenues open to them are to increase property taxes and user fees, leverage limited own-source revenues, or by default and without recourse, allow the deterioration of municipal services and infrastructure. Cities rely primarily on property taxes, user fees and inter- governmental grants to finance their public services. Canadian cities are highly and almost singularly dependent upon property taxes.ln fact, property taxes account for gz.7 per cent of all local tax revenues collected by cities.'9 However, there are many disadvantages to relying on prop- erty taxes including: its weak relationship to ability to pay; its inelasticity in relation to economic growth; its negative impact in attracting business; suburban flight if adjacent jurisdictions have lower rates; its inappropriateness as a revenue source to fund the increasing scope of income dis- tributive services and programs; and public resistance to increasing tax rates to pay for existing municipal services and infrastructure. ®therjurisdictions, particularly in the United States and Europe, have recognized the limitations of relying primarily on the property tax to finance municipalities and have pro- vided municipal governments with revenue sharing oppor- tunities and new financing tools. Canadian cities are seek- ing similar opportunities to diversify their revenue bases beyond the property tax.~° Analysis of ~°evenues thatg~°ow with the economy Before deciding to recommend that the Government of Canada share the equivalent of one cent of the GST, the Caucus decided to identify some basic economic criteria to measure the efficacy of its proposal. This process included an analysis of a select group of revenue sources that grow with the economy, such as the personal income tax, the corporate income tax and the GST. The following criteria were used: Ease ®fadministrati®n -The revenue source should be rel- atively easy to administer and the costs of administration should be kept as low as possible. Adequacy -The yield should be sufficient to meet local expenditure needs and changing fiscal circumstances. Predictability-The revenue source should be relatively pre- dictable to allow for longer term planning. Strategic -The use of the revenue source should meet key priorities that advance common government objectives. Acc®untability -Cities should be accountable for how the revenue is spent and provide this information to their citi- zens and the federal government. Analysis of possible options Based on the criteria, the Caucus narrowed the potential revenue sources to three: personal income tax, corporate income tax and the GST. As the following table demonstrates, all three sources yield a significant return.' a_caoEf f~djuJted LevF~l~ (biliirans} /~vcrag,c lknnual t,~rc~~afth Rate (i+~c~ta-zoo,j F'orecasta~i annual G~°c~~vth R;~te (~or.~F~-:~o~,j E=~recast«;d Grc~wl:h hate F~fext zo 1`e3a~°s Personal Income Tax $io3 3.9% 3•~ % 77% Corporate Income Tax $z8 8.3% 2.g% 67% Goods and Services Tax $30 3.g% z.6% 6i '9 TD Bank, "Mind the Gap." ~° Enid Slack, "Easing the Fiscal Restraints: New Revenue Tools in the City of Toronto Act," (Toronto: Institute on Municipal Finance and Governance, University of Toronto, Fehruary z5, 2005). ~' Big City Mayors' Caucus, "Our Cities," 38. A Proposal to the Government of Canada for Sharing Revenues with Canada's Big Cities 7 All three sources raise significant revenue with the personal income tax having the highest tax base at $i o3 billion. The growth rate of all sources is comparable, ranging from 6i per cent to 77 per cent over the next zo years. The three sources, since they are directly linked to the economic activity in the places they are generated, would be strategic and transparent, as cities would use the funds to invest in infrastructure and services to sustain and increase econom- ic activity. The shared revenue sources would be reinvested to support growth. Desi~°ec~ o~ition Since all three sources meet the outlined criteria, any one of them is an appropriate source to share with cities to improve their fiscal environment. The Caucus has decided to recommend that the federal government permanently share the equivalent of one cent of the GST annually with the cities. This would amount to approximately $5 billion per year nationally, or $z billion per year for BCMC cities. There are several reasons for choosing the equivalent of one cent of GST. The potential yield is necessary to address the current demands of cities. This revenue would be com- bined with continued federal investments in the gas tax, GST rebate, infrastructure and other programs, and a new national transit strategy, as well as with provincial and municipal investments through realigning roles and responsibilities with appropriate resources and making better use of municipal own-source revenues. This formula could finally provide municipal governments with the fiscal tools they need to meet the ongoing challenges they face. In addition, this funding source is predictable. For long- term planning purposes, cities need to know what revenue sources they have at their disposal. Since the GST is fore- casted to grow annually at an approximate rate of z.6 per cent over the next zo years, or 6i per cent in total, cities will be able to predict what their share will be over time. This will help them plan and finance major infrastructure projects. Seeking the equivalent of one cent of the GST is also strategic since the GST is a source that grows with the economy. If cities are seeking additional resources to invest in infrastructure and services that support economic growth, accessing a revenue source such as the GST makes sense: it reflects the economic activity that takes place in cities. The federal government has run budget surpluses every year since 1997 and thus has the resources to share. Additionally, the federal government has cut the GST from seven per cent to six per cent and proposes an additional cut to five per cent in fiscal year zoio/ii. This action by the federal government signals that it does not require all of the revenue generated from the GST. If there is room to cut the GST, then surely there is room to share the equivalent of one cent of the GST with cities so they can invest in cre- ating national prosperity. This option also resonates with the public. It is a message that Canadians easily understand. When the public is pay- ing their GST they will be able to see that some of their tax dollars are being spent, not in ®ttawa, but back in their community. The GST is visible and so are the challenges facing cities: citizens can see the relationship between their one cent and what it means for their city. It is a tangible connection. Anticip~ztec~ ~°esults of sh~z~°ing ec~uiv~zlent of one cent GST with cities Sharing the equivalent of one cent of GST with municipali- ties will have significant benefits, not only for cities and their residents but for the country as a whole. Federal benefits From a national perspective, this significant investment in municipalities will greatly improve productivity. There is no doubt that a significant portion of the funds shared with cities will be spent on maintaining, replacing and expand- ing infrastructure, and will have spin-off effects for the national economy. As addressed earlier in this proposal, for every $i spent in infrastructure there are approximately i7 cents of savings for the business sector, while the trans- portation sector saves on average 4o cents for every dollar invested in transportation infrastructure. Inaddition to that and based on the yield generated from sharing the equiva- lent of one cent of the GST, the productivity savings range between $34o million and $80o million. With these kinds of savings it is likely that the funds would be re-invested in innovation or job creation which will have significant spin- off effects for the federal government, particularly in terms of generating additional income and payroll tax revenues. This kind of investment in cities will also secure their role as the economic drivers in their regions, provinces and the country. It will also allow cities to continue to support the federal government in meeting its national priorities. Providing cities with this increased revenue means that municipalities could invest more in federal priorities such as community safety, climate change and infrastructure. This investment in cities would also represent a significant step by the federal government in addressing the fiscal imbalance, while at the same time establishing a new inter- governmental partnership that speaks to the zip` century relationship among all governments. 8 Federation of Canadian Municipalities (FCM) Big City Mayors' Caucus Benefit tc~ cities Sharing the equivalent of one cent GST with cities, accom- panied by the creation of a national transit strategy and continued gas tax and infrastructure and other existing investments, will provide cities with the sound financial footing they require to meet the needs of the economies they support. These combined investments will provide cities with the resources to invest in critical infrastructure to support businesses and residents; enhance services to an ever growing and diverse population; and contribute their fair share of resources to address social and environ- mental challenges. A major benefit to cities will be the increased return they see in their investments. For example, as cities host numer- ous festivals and events and currently do not see a return from their investment, having access to a revenue source that grows with the economy will finally result in a benefit to the municipality, not just the community. This new benefit will provide cities with additional incentives to host future events further generating economic activity. Municipal governments will also be able to better meet increasing community safety pressures. Important invest- ments in policing, emergency preparedness and crime pre- vention can be made, improving the quality of life in cities. Not only will these kinds of investment affect residents, but they will also better position cities to attract additional investment. Simply put, access to a diversity of revenue sources will allow municipal governments to engage in city building, rather than simply struggling to keep up. These invest- ments will ensure that cities are well positioned to compete with other global cities, resulting in increased prosperity for all of Canada. C 1 Due to the pivotal role that cities play in the national econ- omy and the increasing pressures associated with econom- ic growth, the BCMC is recommending that the federal gov- ernment share the equivalent of one cent of the GST with cities. For the BCMC, this would represent an additional investment of $z billion per year (or approximately $5 bil- lion if shared with all municipalities). For cities to be fiscally sustainable and unleash their poten- tial to attract additional investment and generate greater wealth for the country, they need a combination of revenue tools. In addition to access to a revenue source such as the equivalent of one cent of the GST, cities require federal investments through a national transit strategy and require all governments to discuss realigning roles and responsibi- lities with the appropriate resources. Municipal governments will continue to work with their respective provinces to address challenges posed by off loaded and overlapping services and unfunded mandates. As the mayors of the country's largest cities, the Caucus members are committed to investing in their local eco- nomies for the benefit of all of Canada. But cities alone cannot shoulder the burden of investing in economic growth, especially since all governments and all Canadians benefit from the investment. The Caucus looks forward to working with the federal government to imple- ment this proposal and hopes that together we can mod- ernize the intergovernmental relationships between all gov- ernments to better reflect the role Canada's cities play in shaping the country and generating wealth. A Proposal to the Government of Canada for Sharing Revenues with Canada's Big Cities 9