Economist talks on municipal money
While provincial and federal governments benefit from a tax system fluctuating annually, municipalities must work with tax revenue that grows slowly relative to the cost of services they must provide.
That was one of the messages enveloped in a presentation by Dr. Wade Locke, an economist and professor at Memorial University of Newfoundland, who spoke at an information session on municipal revenue during Municipalities Newfoundland and Labrador’s Municipal Symposium in Gander Apr. 30.
Dr. Locke, who did his economic PhD on local government finance, said it is important for the public to understand municipalities provide the most essential services.
“If you didn’t have snow clearing, garbage collection, or fire services – those are the things that affect our day-to-day quality of life.”
He said property tax would remain the main source of revenue for years, which has its share of both good and bad points.
“Whatever property tax is doing, it’s not providing the level of funding that’s really needed to be able to allow communities to address the issues that are important to them, and that could be because of collection, or other issues.”
According to the 2007 Census of Municipalities, 80 per cent of municipalities in the province have had issues with delinquent taxpayers, with 78 per cent having to make use of collection services.
Dr. Locke said property tax remains relatively stable, and by considering at budget time the expected rate of delinquency, municipalities can adjust the mil rate to a level that allow revenues and expenditures to even out.
“This kind of tax does facilitate local budgeting. The problem is, it expands very slowly.”
Property assessments are carried out by the Municipal Assessment Agency every three years in the province.
“If your assessment goes up, your property tax will go up by your mil rate. That more or less a true statement, but it’s not true.”
Latching on to that point, Dr. Locke explained that when a person’s income increases at a high rate, they may buy a larger house, but property tax the individual pays may not rise in proportion with that person’s affluence. As a share of expenses, property tax will represent more of burden for people with lower incomes.
“The poorer you are, the bigger this is a burden for you.”
With labour demands expected to rise in the future, he said municipalities will be faced with greater demand for services. While property taxes will rise in some places, particularly in St. John’s, the property tax base will not react quickly enough.
A study by the Canada West Foundation found local taxes grew 1.7 per cent per annum from 1961 to 2007 in Canada, while provincial personal income tax grew 10.2 per cent per annum over the same time frame.
Thus, he said provincial and federal governments have an easier time attaining the revenue necessary to meet expenditures.
“That’s a problem that calls for some kind of other action.”
Dr. Locke said the time has come for municipalities to consider alternative funding initiatives, which may not be easy to implement. However, he said such a move will be essential in order for towns in Newfoundland and Labrador to sustain themselves and prosper.
“Some share of the provincial sales taxes should be made available to (municipalities). It won’t be easy to convince government to go along with that, and it’s not going to be easy to administer.”
Dr. Locke said a similar arrangement could be made for income taxes. He added an expanded grant program would also be a possibility, as the provincial government is in good financial standing despite recent deficit-running budgets.
“We’re going to have to do something to deal with the fairness issue and balance issue associated with property tax.”