Canada’s cities need more than cap-in-hand solutions

Well-functioning cities are drivers of economic growth and innovation

by Ailish Campbell. Posted February 21, 2015


The mayors of Canada’s biggest cities have a clear-eyed focus on Canada’s challenges.   They also know that they don’t have the money to fix these challenges alone.

In meeting mayors in Toronto, I heard about traffic congestion, affordable housing and integrating new immigrants to Canada – the vast majority of which end up in cities.

A common theme to all big city mayors was the mismatch between their revenue-raising powers and the essential services and infrastructure cities must provide.

Why should Canadians care?

Simply put, well-functioning cities are drivers of economic growth and innovation.   From a domestic perspective, getting cities right is essential to getting the economy right.

Cities are also an essential part of Canada’s global value proposition to attract investment and knowledge workers.   In determining where to locate new investments and where to live, firms and skilled workers have choices that are global in scope.

The fiscal challenge is that cities have little flexibility in the forms of revenue they can raise.

Property taxes and fees form the majority of city budgets.  Even these revenue raising tools can face restrictions set out in provincial legislation.

The amount raised through these forms of revenue is also insufficient to pay for large-scale infrastructure.  Transit in cities can’t be paid for through property taxes alone, for example, or it “would cripple people”, says Toronto Mayor John Tory.

Long-time watchers of city politics have noted that mayors have a cap-in-hand approach to the provincial and federal government.  But really, what choice do they have?

Mayors are forced in to constant pitching for their personal projects, often knowing they are in competition with the mayor next door, or the mayor one province over.  This is not a winning strategy for a smart country.  Nor does it advance the needs of citizens.

It’s time to recognize that Canada’s fiscal system is broken.

This is not an argument for increasing taxes.  Rather this is an argument for aligning what level of government taxes Canadians with the responsibilities they’ve either been given or down-loaded, and examining what is taxed and at what rates.  It’s a tall order.

Let me suggest three paths forward.

One – solving a problem means recognizing it and taking the steps to correct it.  Cities need to be formally recognized and given more diverse sources for revenue.

Provinces could give cities, especially Canada’s largest cities, any taxing power the province itself has.   Not all municipalities should have such an independent power.

Giving Canadian mayors the power to set tax rates and choose the right tax tool for their local area would also make mayors politically responsible to citizens for what is spent.   As one federal politician put it to me, under the current system “Mayors want money, but let federal politicians wear the headache of justifying taxes.”   It may be time to share the burden.

A formal tax-sharing agreement between provincial and federal governments with big cities may also be a way forward.

As Dr. Enid Slack at the University of Toronto has argued, current revenue sharing practices are unpredictable.   Edmonton Mayor Don Iveson has made this point concerning the Alberta Municipal Sustainability Initiative (MSI).

At some point an archaic system doesn’t need more gears and a bit more grease, it needs a total re-think.  A formal tax-sharing agreement as a start may pave the way to longer-term solutions, such as writing cities in to the constitution as Mayor Gregor Robertson of Vancouver has suggested.

The U.S. constitution permits municipalities to conduct various forms of revenue-raising that Canada’s does not.  New York, for example, receives revenues from property tax, sales and use taxes and income taxes.

Two  – while waiting for that re-think, stable and long-term funding is required.

Problems such as water and housing can’t wait.  Cities shouldn’t have to win an Olympic bid to build mass transit.

As Mayor Naheed Nehshi has suggested, the next federal election could be fought on which party has the best urban strategy, including predictable long-term funding.

This suggests mobilizing voters in Canada’s major cities to ask local candidates and leaders what their commitments are to investing in cities, given they have the power to make a difference.

Mass transit plans, major bridge and highway construction and affordable housing funding are three areas for discussion.  Specific, concrete plans should be presented to tell citizens what, exactly, will be funded and over what proposed time horizon.

City mayors must also be clear about their proposals and costs.  Detailed identification of priorities will permit a discussion on the role of other forms of financing, such as road tolls, to make up any shortfall.

Three – cities could be using the revenue powers they do have more effectively.

User fees related to the volume of what is consumed rather than flat fees, such as on water and garbage, are one example.   Pricing private transit use more appropriately – such as through parking rates and the gas tax – would also help set fees for public transit.

As Professor Chris Ragan and the Ecofiscal Commission have pointed out, how governments raise revenue matters.  A dollar is not simply a dollar.  Fiscal structures shape incentives and behavior.  To this I would add that city governments can be a powerful source in structuring incentives to solve challenges, if they are given the choice of tools to do so.

These paths forward on a fiscal re-think for large Canadian cities could move at different speeds.  As big city mayors will tell you, the point is Canada needs to get moving.   The country’s global competitiveness depends on it.


Ailish Campbell is the Vice President, Fiscal and International Policy, at the Canadian Council of Chief Executives.  She serves on the Advisory Board of Canada 2020.  The views expressed here are her own.