Provincial law curbs cities’ tax authority

Provincial laws stunting taxation abilities of municipalities, writes Jon Willing.

The novel coronavirus pandemic could present a golden opportunity for Ontario cities to win the money-collecting power they've been begging for from the province.

In Ottawa, the municipal government is facing a nine-figure revenue shortfall because of facility closures and physical-distancing rules that have come with the pandemic. Transit ridership is down more than 80 per cent, representing the largest hit to the municipal revenue budget.

If the clampdown continues until the end of June, the city projects it won't see about $102 million in budgeted revenue. The number balloons to $273 million if today's physical distancing rules are still in effect at the end of the year.

The city has tucked-away cash and investments to pull through 2020 to offset an expected deep budget deficit, but it will eventually need to replenish the backup funds.

Of course, the City of Ottawa is hardly the only municipality whose budgets are taking a beating during the coronavirus era.

This might be the time that the Ontario government gives serious thought to expanding the taxing powers for municipalities, whose cash-collecting aspirations are stunted by provincial law.

Ottawa municipal finance staff, who are huddling up with finance staff in other cities to come up with ideas to salvage their budgets, have raised three ways the province could help through legislation: allow deficits in municipal budgets, relax legislated restrictions on some reserve accounts and let the city use more ways to collect revenue.

A question remains about whether these one-off ideas would apply only to the COVID -19 era, or if municipalities would want the measures to stay once the pandemic is over, but it's safe to assume that municipalities would want revenue expansion to stick. It's been a long-standing annoyance.

There is little legislative wiggle room when it comes to bringing in more money, other than going to property taxpayers for more funds. On that point, Ottawa Mayor Jim Watson's call to cap annual property tax increases to three per cent this term faces huge difficulty.

Other revenue enjoyed by the city, such as user fees, is legally tied to providing the service for which the money is collected.

(The province, it should be noted, has granted the City of Toronto broader powers to raise revenues. For example, the city has a municipal land transfer tax).

Watson has advocated for more revenue powers in the past. In 2016, his name was included on an open letter with four other Canadian mayors asking for the ability to generate more money for municipalities.

Researchers have also pushed the idea of expanding municipal taxing powers so local governments, especially large in large cities, can generate enough revenue to pay for infrastructure costs. Some, like a pair of researchers at the Munk School of Global Affairs, have suggested a municipal sales tax and income tax could rake in millions to help offset cities' growing costs.

Sustainable transportation advocates often bring up road tolls as a way municipalities could boost municipal revenues while pushing more people to use public transit.

In fact, the idea of charging motorists to use a city-owned highway has come up in recent years by a councillor who's now an MPP.

Stephen Blais, recently elected the Liberal MPP for Orléans, once called for fees charged to out-oftowners to drive on Highway 174. He even crunched the numbers on a $5-per-trip basis, estimating in 2013 that it would bring in $6.5 million annually to city hall to help maintain the busy highway.

A few years later, some councillors kicked around the idea of including road tolls in the next transportation master plan, even though the city didn't have the ability to collect tolls under provincial law.

City treasurer and chief financial officer Wendy Stephanson brought up a key point that could inform how the city goes about choosing money-making measures if the province gives in.

“Whatever we do we want to make sure we're stimulating the economy and that we're not affecting anybody that has been hit by the (coronavirus),” Stephanson said in a press conference after Wednesday's council meeting.

At first blush, it's hard to imagine how any new taxes would help boost the economy, requiring people to shell out more money to the government.

It would require a big-picture pitch by city hall to explain how the extra revenue could help keep roads in better shape, expand public transit or house impoverished families.

Ideally, one or both of the upper-levels of government would fill Ottawa's budget hole caused by the coronavirus response.

Then again, those governments will be climbing out of their own fiscal holes when the public health crisis is over, and who knows what position they'll be in to bail out municipalities.

For that reason, the time might be right for the province to take the shackles off cities and let them reload their coffers using new revenue schemes.