Canadian municipalities pressing for a new funding deal

The Federation of Canadian Municipalities is asking the federal and provincial government to move to a new funding deal for cities and towns, to pay for expanding services and allow municipalities to grow their economies.

The FCM’s latest paper, Making Canada’s Growth a Success: The case for a municipal growth framework, calls on the higher levels of government to:

• Increase transfers to municipalities to $5 billion, through the Canada-Community Building Fund (effectively doubling the Fund)
• Link federal transfers to economic growth by indexing them to Gross Domestic Product (GDP)
• Broaden eligible expenses under federal transfers to include operating costs as well as capital costs (infrastructure), enabling municipalities to direct funding towards local priorities that enable population growth and economic development.

The FCM proposes a new Municipal Growth Framework would see provinces and territories matching the federal transfers.

“This could be facilitated by provinces/territories choosing to reform municipal finance in their jurisdictions, allocating a portion of provincial sales or income taxes to municipalities, reducing some or all of the provincial portion of the property tax, uploading some responsibilities to the PT or granting municipalities powers to levy new taxes or user fees.”

The paper also sets out ending chronic homelessness as a critical priority of higher levels of government.

“While the federal government’s most recent budget made considerable investments in combatting homelessness and addressing the lack of deeply affordable housing, the current status quo does not facilitate municipalities’ goal of ending chronic homelessness,” the FCM states.

“Instead, it is creating additional costs for all orders of government in responding to the effects, rather than the root causes, of homelessness.”

It proposes the Municipal Growth Framework commit to a plan for:

• Coordinated investment and policy measures to increase the supply of non‑market housing and prevent the flow of individuals into homelessness.
• New investment in supportive housing through a Housing First-based approach cost-shared between federal, provincial and territorial governments.

The paper is a welcome sign that municipalities are committed to seeing a new fiscal deal in negotiation with provinces and the federal government, to replace the current paradigm of municipal funding mechanisms, including transfers and property taxes, that has been in place since the early 1900s, said MHCA President & CEO Chris Lorenc.

“The current turn of the century model is inadequate to the task before municipalities today,” Lorenc said. “What is required is a blank page discussion around who is responsible for what service, funded how and then design access to revenue streams.

“The need for a new fiscal deal affects all cities across Canada, not just Winnipeg. We need political leadership to start the long overdue discussion and bring it to a conclusion.”

The MHCA, including through its partnerships with other business associations, has been calling for a new fiscal deal for more than a decade.

Currently, municipalities – which own more than 50% of public infrastructure – receive directly just 10 cents of every tax dollar collected. They are handcuffed in their revenue sources, which is why most of their revenues flow from property taxes.

Funding deals and transfers are tied to purpose, and don’t have the flexibility necessary for cities and towns to finance strategies to encourage economic growth.

“We need to rethink how our municipalities are positioned for growth – to grow their economies so they can meet rising demands for services and to prepare for population growth,” Lorenc said.