Urban Dilemma in a Federal System

This November, 2005 the Province of Manitoba and the Federal Government signed a historic deal that will transfer $167 million in revenues from the Federal gas tax to municipalities over the next five years. There had been considerable disagreement between Manitoba's cities, notably Winnipeg, Brandon and Thompson, and smaller, particularly rural municipalities over the formula for the disbursement of these funds. Cities, such as Brandon, with transit systems had argued that an amount should be set aside for the operation of transit with the rest being divided among all municipalities on a per capita basis. In the end the province stepped forward with an extra $1.5 million to fill this gap and close the deal. The Association of Manitoba Municipalities (AMM) was not at the table when the final deal was signed. While I believe under these particular circumstances this was the right decision, particularly with a looming federal election, a deal being signed to provide funding for municipalities without the direct participation of AMM in the final agreement provided clear evidence of a significant and unfortunate rift between large and small municipalities in the future of the "New Deal" concept for Canadian cities. Indeed this episode provides an opportunity to revisit the role of municipalities in the context of Canadian federalism.

Cities are at the centre of economic, cultural and political life in Canada. Nearly all growth is happening in our cities. With over eighty percent of Canadians living in urban areas, over sixty five percent in Canada's thirty largest cities alone, the economic and political strength of out urban areas is growing out of all proportion to its legal position in the federation. Ninety-five percent of all population growth in Canada since 1996 has been in our 27 largest cities. This pattern is particularly evident in Western Canada.

While these urban jurisdictions are home to the vast majority of Canadians, cities lack the legal rights they need to move these communities forward. The share of the gas tax is a good start to addressing the fiscal imbalance that exists between cities and other senior levels of government but it does not address the fundamental need for greater autonomy for cities. As the example of the gas tax deal has demonstrated, the shifting of revenue from senior levels of government to cities has been discretionary and based the political whims of the governments of the day both provincially and federally.

The debate as articulated by groups such as the Canada West Foundationⁱ can be boiled down into three primary areas. The first is the creation of a true partnership between cities and provinces in decision making. Canadian cities must be brought to the table in an equal partnership with the provinces and federal government on issues ranging from taxation to housing, infrastructure to the environment. While some governments both provincially and federally have done a better or worse job of working directly with cities the fact remains that no entrenched relationship exists specifically as related to the municipal relationship to the Federal Government.

Second is the need to address the matter of the fiscal imbalance between the capacity of various levels of government to raise the revenues they need to support the services they provide. Both the federal and provincial governments have diverse and growing sources of revenue, income tax, sales tax for example, to draw upon for the provision of program needs. Municipalities have as their primary own source revenue the antiquated and entirely less progressive system of the property tax. Property tax revenues, as compared with those which the provincial and federal governments have available, do not keep pace with economic growth even with a modestly growing assessment base and mill rate increases. Many municipalities like Brandon have attempted to obtain new revenues through new and increased user fees and other initiatives but these are not able to meet the needs for revenue. This imbalance between the growing obligations and needs of cities and the antiquated system of deriving revenue sits at the heart of the current crisis.

The gas tax transfer was a real step in the right direction but more must be done.

This issue will not be addressed only by the increased transfer of funds from the Federal or Provincial Governments to cities. While this funding is welcome and needed, for there to be long term sustainability of municipal infrastructure and quality of life in our cities that will attract and retain talented and creative people from our own country and around the world a devolution to municipalities, in particular large cities, of powers which have until now rested firmly with the provinces must occur. This initiative will require federal leadership to ensure a fair and equitable process.

In the case of Brandon the growing hunger for growth and a diversified economic base has placed the city in a position to provide various economic incentives to business to locate in this community. The province has also participated in these initiatives but their horizon for return on investment is much shorter than that of the municipality. New jobs and the spin-off activity they create is quickly captured by senior levels of government in the form of income tax, corporate tax, sales tax and other revenue sources. For cities like Brandon the recovery of these economic benefits is much slower for municipal government using the property tax almost exclusively.

Cities of all sizes make significant investments in tourism and convention activities which may be very slow to generate additional property tax revenue while producing immediate benefits to other levels of government through taxes on hotel stays, meals, shopping and job creation. A means must be found of sharing this benefit if cities are to continue their role in promoting economic development in their communities.

Third is the growth of the desire among cities for greater freedom of action and autonomy of various areas of jurisdiction. With a desire to increase the independent decision making capacity of cities will come a greater degree of political accountability for the actions which are taken on behalf of citizens. This is part of a larger feeling among municipalities, especially Canada's largest municipalities, that they have been under the direct control of other levels of government for too long and that it is time for them to demonstrate their own political autonomy. Looking at the debates which have taken place across Canada for decades now between the provinces and federal government it is not difficult to see where this desire for autonomy may originate. Dynamic cities filled with creative people need not only compete with other centres in the region but with cities around the world. Canada will need to provide cities large and small with the room they need to develop new ideas in governance and policy making that will make our communities competitive. There is a will in Canada's cities for change that will make our country greener, promote creativity and support new kinds of economic development. Through a shifting of powers to allow greater autonomy and accountability to cities in making independent decisions with a full partnership from senior governments Canada will tap into the full potential of our most forward thinking communities.

i Kari Roberts, Roger Gibbins, "Apples and Oranges? Urban Size and the Municipal-Provincial Relationship." Canada West Foundation, Calgary 2005.