Ontario’s municipalities are going to go over a budgetary cliff in the next decade unless they get unprecedented levels of funding from other levels of government. The Association of Municipalities of Ontario (AMO), the umbrella group that represents almost all of Ontario’s cities and towns (444 of them, to be precise), has just produced a discussion paper assessing the state of affairs. Their conclusion, after more than two years of study: the best, or perhaps least-bad, solution is a one per cent increase in the HST, with that new tax money being dedicated to cities to help pay for needed infrastructure.
They might be wasting their breath. Premier Kathleen Wynne said Wednesday morning that’s not something her government is considering for now.
Instead, she emphasized the help the Liberals have already promised will be coming the next few years. “There’s a lot of support that we’ve got in place that hasn’t actually been realized yet in Ontario,” Wynne said in Toronto. “We know infrastructure is a challenge … [but a tax increase is] not something we’ve talked about.” What is planned: increases in both the Ontario Community Infrastructure Fund (OCIF) and doubling the municipal share of gas taxes.
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AMO is well aware of the money that’s promised for the future, but in their report concludes that isn’t close to enough to deal with the looming budgetary icebergs.
AMO estimates that municipalities need $4.9 billion more than they’re currently receiving, every year, for the next decade — and that’s simply to maintain existing service levels and infrastructure, and invest in the most critical new infrastructure. Trying to close that fiscal gap on their own would mean doubling property taxes by 2025, something that would be politically difficult even if Ontario cities didn’t already have, on average (according to AMO) the highest property taxes in Canada.
At the same time as municipalities are facing a crisis, neither the province nor the federal government are exactly overflowing with money. Ontario just narrowly returned to a balanced budget this year and the Liberals are more interested in spending that dividend on direct transfers to voters, via policies like pharmacare for people under 25. And even if it were the federal government’s responsibility (it’s not, constitutionally) Ottawa is going to need to start driving back towards a balanced budget itself.
Since the existing pie isn’t big enough for municipalities to get a slice, AMO says governments need to make it bigger — and that means a tax increase.
AMO estimates a one per cent increase in the HST would raise $2.4 billion annually. Distributed roughly per capita, that would mean $1.1 billion for the cities of the Greater Toronto and Hamilton Area, and $1.3 billion for cities elsewhere in the province. By comparison, the promised funds Wynne pointed to amount to less than a billion dollars a year. And both OCIF and the provincial gas tax come with strings attached — for example, the province only makes gas tax revenue available to cities with public transit systems. (The association is too polite to point out that the Liberals have also announced cuts to provincial transfers like OCIF with no notice in the recent past, so those funding mechanisms are hardly a foundation for long-term municipal planning.)
In short, the money that’s currently on the table for municipalities isn’t even close to sufficient, and someone needs to step up. That’s Kathleen Wynne’s job, because as much as Queen’s Park gives lip service to municipalities as a “mature level of government” it’s still the province’s role to make sure they’re well-run. Municipalities have been struggling under a fiscal straitjacket imposed by Queen’s Park in the 1990s, one the Liberals have loosened only a little: some of the downloading from the Harris years has been reversed, but the costliest items (from policing to highways to transit and social housing) are still borne by cities.
Wynne knows all this, because she got into politics railing against many of the changes of that era. She also knows that, at last summer’s AMO conference in Windsor, her government asked municipalities to come to a consensus on some form of new revenue. She knows that because she said it herself.
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Wynne has faced this dilemma before. In 2014, she ruled out any increase to the HST to fund large transit investments despite multiple reports arguing cities needed one — including from the provincial agency that was created to advise the government on this stuff, Metrolinx. Instead, the government opted to pay for its transit ambitions in part by fiddling at the margins with some taxes, and in part with the sale of Hydro One and the creation of a carbon cap-and-trade system. Past performance doesn’t always predict future behavior, but it’s a good place to start: don’t be surprised if the government punts again.
This isn’t just a matter of making political choices: the problem with doing nothing is that the status quo is expensive, too — as anyone who has been stuck in traffic where nobody has coughed up cash for transit can tell you. Municipalities don’t have the privilege of simply ignoring the problem, the way Queen’s Park so often prefers to. Either needed infrastructure won’t get built, or property taxes are going to have to go up more than anyone actually wants. Most likely the former.
With this week’s announcement of a minimum-wage increase, Wynne reminded voters that she believes that government exists to do things, and do the things that can only be done together and not individually. Municipal infrastructure — the unsexy stuff of basic civilization like roads, water, and sewers — is exactly that. The Liberals can make all the bold proposals about high-speed rail they want, but while they run for re-election the province’s towns and cities are struggling to keep the lights on, thanks in large part to their dependence on a dysfunctional property tax system. Even if AMO doesn’t have the perfect answer, there’s no real-world solution that won’t involve some new and large source of tax money for cities — sales, income, something.
The opposition parties would no doubt lambaste the government for even considering an increase in the HST. They did last time. But opposition parties will always lambaste the government; that’s their job. It’s the government’s job to do what’s necessary anyway.