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Municipal Revenue Tools

Enhancing Revenue Tools for Municipalities

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Municipalities in Ontario are restricted by outdated provincial laws that limit their main source of revenue to the property tax – a regressive tax that does not take into account a homeowner’s ability to pay nor the resources (s)he may consume.

According to the Federation of Canadian Municipalities (FCM), municipalities receive only $0.09 of every tax dollar with $0.91 going to federal, provincial, and territorial governments. Municipalities are expected to maintain 60% of the country’s infrastructure with nine per cent of the public purse. This limits municipalities to a tax regime that provides inadequate funding and offers little year-over-year stability. Moreover, municipalities are not permitted to run deficits in their operating budgets, a fact that makes capital investments easier to delay.

The Association of Municipalities of Ontario (AMO) calculated that the reliance on property taxes as a main source of revenue means that in order to fund existing programs and service levels, property taxes will have to increase by 4.51% annually for the next ten years. Moreover, to address the $60 B infrastructure deficit, property taxes will have to rise 3.84% annually for the next ten years. In other words, Ontario municipalities will need to raise property taxes 8.35% annually for the next ten years to simply maintain current levels of service.

Municipal governments, like their provincial and federal counterparts, are elected and responsible to the citizens who elect them. However, they don’t enjoy constitutional recognition and are often referred to as “creatures of the province”.

Many provincial and federal politicians agree that municipalities are in fact mature orders of government and equal partners. Many of these officials have even served in both settings. However, there has been no reflection of this supposed equal partnership with regard to the inter-governmental financial arrangement. If provincial representatives truly believe that their municipal counterparts are equal, they must trust them with the ability to levy taxes other than the property tax. Other provinces already grant municipalities this ability.

Within the Canadian context, there is a widespread disparity between the revenue sources that municipalities can pursue. Rural communities in Prince Edward Island currently have access to more revenue tools than the City of Ottawa. There are a number of best practices that have emerged from other jurisdictions that have implemented tax reforms. OGRA believes that incorporating these practices will ensure that the buy-in and success of these changes will be widespread and meaningful.

Currently, the City of Toronto enjoys revenue generating tools through the City of Toronto Act that all other municipalities do not have access to. Granting all municipalities the same authority as the City of Toronto is the bare minimum the province can do to address the issue of municipal fiscal sustainability. The vast majority of Ontario’s municipalities have asked for this.