Local government funding in the 21st Century

One of the major challenges facing local government is the lack of revenue which funds many services and programs that we rely on. Over the years, the population of Canada has become more urbanized. A full 1/3 of Canadians live in the Toronto, Montreal, and Vancouver regions. In BC, 86% of us live in urban areas. Though as the population has become more urbanize, federal and provincial governments have downloaded many responsibilities to local government without giving local government new funding tools. The staple tax for local government since the founding of Canada has been property tax.

Back in late November, Metro Vancouver hosted a Regional Finance Symposium with keynote speaker Gord Hume who wrote the book “Taking Back Our Cities”. Hume pointed out that local government and cities are becoming the heart of the 21st century economy (beside the US and China, the top 50 cities in the world make the largest economy). Yet in Canada, local government relies on "a 17th century tax system with a 19th century governance model." In Canada, local government receives revenue primarily through property tax which according to Hume is regressive and doesn’t tax productive economic values. In Canada, property tax represented 3.5% of GDP in 2012 according to OECD with only France and the UK that were higher. Because of the challenges with property tax, most local governments have been reluctant to drastically increase property tax revenue which has created an infrastructure funding deficit that will only continue to grow. According to the Federation of Canadian Municipalities:

Federal government expenditures in constant dollars per capita have been declining, while their revenues have been increasing. Provincial/territorial government expenditures have been increasing at almost the same rate as their revenues. However, both federal and provincial government revenues fell in 2009. Municipal government expenditures have been increasing at a faster rate than their revenues over the past 20 years

So what are some solutions to address the revenue challenges of local government that recognizes its importance in the 21st Century world economy? One of the solutions to addressing the revenue challenge is to have a stable federal funding program to pay for municipal infrastructure like water lines, sewer mains, and public transit. One of the other revenue solutions could be to allow local government to capture a position of sale tax either through the creation of a new sales tax or the reallocation of sales tax. For example, Saskatchewan now shares 1 cent of its PST with local government. There is also board support for regional 1% or penny sales tax in many parts of US that is used to pay for municipal infrastructure. In the US, 34 states now allow cities to charge their own local sales tax. That concept could be imported to Canada.

In Metro Vancouver the mayors have been pushing the Province to allow new funding tools to help pay for transit, but so far the Province has been reluctant to entertain that idea insisting that they rely on property tax. Is the Province still stuck in the 19th Century and will its policies hold back the economic growth of our region? Metro Vancouver will be launching a campaign later this year to align with the Provincial election to hopefully make local government issues an election issue. I’ll certainly be following that.