The federal government has no constitutional right to give cities access to new revenue sources and financing instruments, and should not participate with cities in revenue-sharing programs.

Ottawa’s role should be limited to funding only those services, such as immigration and urban aboriginal programs, for which it is directly responsible, as well as programs, such as social housing, that are of a national interest or where there is a compelling reason for Ottawa to have a national presence.

According to Professor Harry Kitchen, author of Financing City Services: A prescription for the future, the latest paper in AIMS’ Urban Futures Series, “…increased funding responsibilities for Canadian cities, reduced provincial grants, and a corresponding increase in reliance on own-source revenues over the past 12 to 15 years have changed the fiscal environment in which cities now operate.” That in itself, however, does not justify new federal involvement in financing cities.

Cities have become increasingly important players in the competitive global economy. The result is the current call for a massive influx of federal dollars under a renewed national “cities agenda”, but Kitchen concludes that there is much the cities could do to put their own houses in order.

  • Assessment practices should be improved so that all properties are assessed in a uniform manner, variable tax rates should be used to capture servicing-cost differentials across properties, property types, and neighbourhoods, and the current property tax discrimination against commercial and industrial properties should be eliminated.
  • Development charges are widely used to finance the off-site capital costs of new development; to improve their fairness changes should be made to ensure that each individual property or neighbourhood pays only a capacity cost that covers the capital cost of constructing the added facility, plus a location or distance/density charge that reflects the capital cost of extending the service to particular properties or neighbourhoods.
  • User fees are generally set to generate revenue rather than to direct resources to their most efficient use. This has led to overinvestment in services and the building of unnecessarily large plants or facilities.
  • With respect to solid waste collection and disposal, efficiency could be improved by introducing per bag fees for garbage collection; and tipping fees for solid waste disposal that capture all costs, including the opportunity costs of landfill sites.
  • With respect to public transit and transportation, efficiency could be improved by using higher prices in peak hours, which would reduce peak-hour demand and encourage use during off-peak hours.

In addition, cities should be allowed to impose higher taxes on parking lots, add a city vehicle registration fee to the current provincial fee, have a dedicated municipal fuel tax with rates set locally, and use tolls or congestion charges on major arterial roads. Cities would then be able to tax both residents and nonresidents (commuters and visitors) for services that both groups consume but for which the latter group does not pay.

Given the importance of infrastructure for improving Canadians’ quality of life and enhancing Canada’s ability to be competitive, cities should borrow to finance infrastructure that benefits future generations. They should also have access to new financing instruments, including revenue bonds and the opportunity to create tax incremental financing districts, and they should move to a system of full accrual accounting where all capital assets are amortized over their expected life rather than expensed in the year of purchase. In addition, provincial governments should require that cities have asset management plans.