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 Editorial

Toronto leads for Sharing Central Financing

Mayor David Miller has won the attention by demanding 1 cent from GST for his city and this demand for 1% of GST is exciting all cities. The cities face a financial crunch and the money doled to them is ties with strings. These cities that almost mini states desire to perform, but are hamstrung. In order to be the growth engines of the state, local communities incur major expenses to attract, retain and expand businesses.  First and foremost, they have to provide quality basic services.  Basic services appear to be just as important to economic health as specific economic development services from the perspective of municipal officials involved in economic development.  A strong public service foundation is necessary and, rightly so, is taken for granted by existing businesses and assumed by business prospects.  Certain types of local programs, such as parks and recreation, are often referred to as discretionary.  However, they are an important part of the quality of life in communities, a factor that can contribute to lower crime rates and that is an inherent part of the package that businesses and their workers expect.

 In addition, cities and towns fund a wide variety of services that are directly geared to economic development. A wide spectrum of economic development activities and tools are utilized by cities and towns to support, promote, retain, expand and attract businesses.  These include programs such as technical assistance for start-up small businesses, funding for regional economic development organizations, funding for chambers of commerce, and incentive policies, such as reductions in impact fees and local sales tax rebates. Most cities and towns play major roles in their own growth and development and, therefore, in the country’s growth and development. 

Cities and towns are good investments for both the state and the business communities.  The adage of the 21st century, “think globally, act locally,” exemplifies the importance of local communities in a global economy as the world flattens.  Thriving local economies reduce the costs of municipal (and state) government in the long run.  State policies that strengthen municipalities are a good investment and result in substantial increases to the state treasury. 

Probably the greatest constraint facing city governments as they seek to address poverty is the inadequacy of financial resources. How can cities increase their resources? Property and business taxes are major sources of revenue for most large cities. But property tax is politically sensitive, unresponsive to inflation and economic growth and difficult to enforce which is widely seen as having a negative economic impact. 

Normally under a federal system, 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 Future,  “…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. 

The major points relevant to a revival of any constitutional initiative are that the provinces will jealously guard the constitutional arrangements that give them exclusive control over their municipalities.  Any injection of the municipal question into national constitutional discussions has, in the past, provoked a reaction that has jeopardized even the ad hoc relationship between the federal and municipal governments. 

 Up to now, municipalities have been allowed sole occupancy of the field of real property taxation.  Property taxes include levies both for general municipal purposes and also for schools.  Provincial grants – the other source of municipal revenues – are given with strings attached in the form of conditions that govern how the money will be spent.  These grants are made to further certain municipal objectives and can include money earmarked for schools and social services.  The conditions placed on provincial money mean that municipalities are limited in their ability to spend their grants for locally determined purposes but must make choices that meet provincial policy goals.  Interestingly, about 80% of provincial transfers to municipalities are for a specific purpose, while roughly 50% of federal transfers to municipalities are for a specific purpose.

 There is a definite merit in Miller’s crusade. The history of other cities reveals that all such cities that received funding in an innovative manner have been able to show results that are simply staggering. 

 The Prefecture of Paris receives a special share from the tax collected and the civic services are something to be proud of.

 The City of Shanghai has a provincial level status, and this status enables it to collect all taxes, and transmit some share (almost 23%) to the federal government, and retain the rest. It enables it to provide all such services that make this city one of the most enviable ones).

 European Union parliament is also seized of the issue. In its meeting held in February, the Parliament took note of the cities that need to provide all essential services, but the financial crunch makes then inhibit from taking such steps.  The parliament recommended that such cities, that have A1 status, should have special share from the Federal Kitty.  So what Mayor Miller wants is not something different.  

The cities have the ultimate responsibility for providing education, health, transport , water, economic development and a host of other services. These cities do need not grants, as grants are inhibitory by the very reason of being tied to specifics. They come with strings attached. The cities need finance that can be used as per their needs. 

David Miller’s demand is a reality in Poway.  The city of Poway receives 1 percent of the sales tax collected, which is 7.75 percent on sales made within the city limits; the rest is split between the state and the county. City officials expect Poway's total sales tax income to be about $13.2 million for the current fiscal year that ends June 30.  That figure represents about 34 percent of Poway's $38 million annual budget, making sales taxes the city's single-largest source of revenue.  Poway's sales tax income typically goes into the city's general fund. Because Gateway's sales patterns tend to fluctuate dramatically from one quarter to another, though, the city puts that money into a special projects fund, said Peter Moote, deputy director of administrative services for the city.

 In California, local sales tax revenues accrue to the jurisdiction in which the sale occurs. This gives cities an incentive to promote the location of retail businesses within their boundaries. Although sales taxes account for only a modest portion of total city revenues, cities regard them highly because they represent a major share of their discretionary income.

 The concept of sharing GST is innovative for Canadian people, but is an accepted fact all over, and has proven that is one of the most equitable ways of funding. After all businesses are supported by the City, so if they have a share in the revenue generated, it is only fair and just.

 Prepared on behalf NEPMCC by Dr. Bikram Lamba, a political and business strategist and Ombudsman of NEPMCC. He can be contacted at torconsult@rogers.com.