1. Revenue Options for Canadian Municipalities Enid Slack Institute on Municipal Finance and Governance Presentation to Canadian National Summit on Municipal Governance July 11, 2005

2. 2 Outline of Presentation Background on municipal finance Fiscal challenges facing municipalities Revenue options - existing sources Need for a mix of taxes at the local level Revenue options – new sources Revenue sharing versus taxing authority

3. 3 Background on Municipal Finance – Expenditures Municipal expenditures, Canada, 2003: Transportation (19%) Health, social services, social housing (13%) Fire and police protection (17%) Water, sewers, garbage (17%) Recreation and culture (12%) Debt charges (4%) Planning and development (2%) Other (16%)

4. 4 Background on Municipal Finance –Revenues Municipal revenues, Canada, 2003: Property and related taxes – 53% User fees – 23% Provincial transfers – 15% Federal transfers –1% Other revenues – 8%

5. 5 Fiscal Challenges Facing Municipalities Offloading of services International competitiveness Urban sprawl No diversification of revenue sources

6. 6 Fiscal Challenges – Success on Fiscal Measures Municipalities have done well on fiscal measures: Size of the operating deficit Amount of borrowing for capital Rate of property tax increases Reliance on provincial grants Extent of tax arrears

7. 7 Fiscal Challenges –Infrastructure and Services Fiscal health may been achieved at the expense of the overall health of Canadian municipalities: The state of municipal infrastructure (water, sewers, roads etc.) The quality of service delivery

8. 8 Revenue Options – Existing Sources Property taxes User fees Development charges Borrowing

9. 9 Property Taxes Good tax for local governments (related to benefits received, property is immovable, visible tax) Modest increase Over-taxation of business

10. 10 User Fees Price at marginal cost Altering behaviour versus generating revenues

11. 11 Development Charges Appropriate to pay for growth-related costs associated with development Marginal versus average cost pricing Tool to reduce sprawl

12. 12 Borrowing Appropriate to pay for capital expenditures Debt charges relative to own-source revenues have fallen in Canadian municipalities Need for new debt instruments

13. 13 Municipal Access to Other Taxes Cities should have access to a mix of taxes: Range of expenditure responsibilities (need revenues to match) Services used by commuters/visitors Revenues that grow with the economy Increase municipal flexibility

14. 14 Revenue Options – New Tax Sources Income tax Sales tax Fuel tax Hotel tax

15. 15 Taxes per Capita, 2000 LAAtlantaChicagoBostonDetroitToronto Property General Sales Selective Sales Income Other Total $461 153 205 0 194 $1,013 $1,038 558 332 0 175 $2,103 $444 147 415 0 85 $1,091 $962 0 65 0 65 $1,092 $383 0 142 480 35 $1,040 $1,005 0 $1,005

16. 16 Non-Tax Revenues per Capita, 2002 LAAtlantaChicagoBostonDetroitToronto User Fees Transfers - Federal - State/Prov. - Local - Total Other Revs. Total Revs. 566 98 935 16 1,049 307 $2,935 945 60 30 262 352 640 $4,040 264 111 360 0 471 264 $2,090 508 430 902 0 1,332 236 $3,168 687 204 1,101 8 1,314 534 $3,575 281 52 422 96 570 198 $2,054

17. 17 Income Tax Revenue elasticity Appropriate to finance social service expenditures Large potential revenues

18. 18 Sales Tax Revenue elasticity Taxes commuters and visitors Incentive for cross-border shopping

19. 19 Fuel Tax Benefit tax if used to pay for roads Not as good as tolls to reduce congestion Not very elastic Limited revenue potential

20. 20 Hotel/Motel Occupancy Tax Taxes visitors to pay for the services they use (e.g. roads, policing) Limited revenue potential Potential “cross-border” problems

21. 21 Revenue Options: Revenue sharing versus local taxing authority Municipalities should set their own tax rates: Autonomy Flexibility Accountability Stability and predictability But have to address border problems Expenditures and tax rates need to be determined on a regional basis

22. 22 Concluding Comments Municipalities face fiscal challenges Municipalities would benefit from new sources of revenue Municipalities could also do more with existing revenue sources