Enhanced Fiscal Capacity

Municipalities are the order of government that most significantly affects the daily lives of citizens. They provide essential services and the majority of infrastructure. Providing high quality services and safe public infrastructure are essential to Ontarians all over the province. Unfortunately, rough waters are ahead for Ontario municipalities.

According to the Association of Municipalities of Ontario (AMO), the province’s municipalities face an annual estimated shortfall of $4.9 billion for the next 10 years to simply maintain current service levels and finance critical infrastructure needs. There are also headwinds ahead. Demographic changes such as an aging population will only put more pressure on services while aging infrastructure must be replaced not for only public safety, but for economic development and quality of life purposes as well. It is clear that moving forward, municipalities will need some sort of a “new deal”. The current framework they are working with was developed in the 19th century and will not allow them to achieve fiscal sustainability in the 21st century. 

In terms of revenue generation most municipalities only have a few options: raise property taxes, add/raise user fees, and ask other levels of government for more funding. Raising property taxes and user fees by the rate of inflation will generate approximately $2.9 billion per year. With a $4.9 billion annual shortfall over the next decade, this is insufficient. The property tax is also a regressive form of taxation which does not take into account an individual’s ability to pay. Other levels of government have proven to be helpful partners by uploading costs and increasing infrastructure spending. However, even with this assistance the infrastructure deficit has barely begun to be addressed.

Some will argue that municipalities should cut spending to get where they need to be. While it is always wise to find efficiencies, this alone will not generate $4.9 billion annually. Furthermore, municipalities are already barred by law from running an operating deficit. Alternatively, municipalities could choose the route of cutting services, but this strategy would be short-sighted with an aging population that has come to rely on these services.

There are a variety of ways that Ontario’s municipalities can achieve fiscal sustainability. Over the past few years OGRA has been advocating for municipal own source revenue tools. While most municipalities were in favour of such a proposal it was not addressed when the Province reviewed the Municipal Act last year. Since then, AMO put forward a proposal to increase the HST by 1% and have those revenues delivered to municipalities. This proposal was summarily rejected by all three of Ontario’s political parties. Not only do municipalities in other countries have access to more revenue sources than do Ontario municipalities, but so do the majority of those in other provinces within Canada.

Whichever party forms government after the June 7th provincial election must take the issue of municipal fiscal sustainability seriously. Continuing to disregard municipal proposals to address the issue will not only exacerbate the situation but make it worse. The population will not stop aging, infrastructure will not stop needing repairs, and the municipal infrastructure deficit will not shrink with current levels of funding. Ontario’s municipalities are open to new ideas that the province’s political parties put forward so long as they provide a clear path to fiscal sustainability. Uploading services and increasing infrastructure funding are great starting points, but municipalities cannot be expected to work in a 19th century framework to address 21st century issues. Ontario’s municipalities require a new deal going forward.