Proceedings of the Standing Senate Committee on
National Finance
Issue 13 - Evidence - Meeting of May 8, 2007
OTTAWA, Tuesday, May 8, 2007
The Standing Senate Committee on National Finance met this day at 9:31 a.m. to examine and report on issues relating to the vertical and horizontal fiscal balances among the various orders of government in Canada.
Senator Joseph A. Day (Chairman) in the chair.
[English]
The Chairman: Honourable senators, I wish to thank you all for being here this morning. We will get underway with this meeting of the Standing Senate Committee on National Finance.
On September 27, 2007, the Standing Senate Committee on National Finance was authorized by the Senate to examine and report on issues relating to the vertical and horizontal fiscal balances among the various orders of government in Canada and to report back no later than June 30, 2007.
In the fall of 2006, the committee members heard representations by key officials from various provincial and territorial government departments, academics and policy and market experts from across the country. The hearings took place over a period of six weeks. On December 12, 2006, the committee issued and interim report entitled the The Horizontal Fiscal Balance: Towards a Principled Approach as part of its ongoing study of Canada's fiscal arrangements for provinces and territories.
We would like to think that the report had some influence on the government's approach with respect to the last budget in relation to the horizontal fiscal balance, the equalization side of things.
In this next phase the committee is looking at the vertical fiscal balance, specifically reviewing the division of fiscal resources and spending responsibilities between various orders of government in Canada.
[Translation]
It is my pleasure to welcome the President of the Federation of Canadian Municipalities, Councillor Gord Steeves, from Winnipeg. He is accompanied by Gabriel Miller and Christian Laverdure.
[English]
Councillor Steeves was elected to Winnipeg city council in November 2000 and recently began his term of office as President of the Federation of Canadian Municipalities, succeeding former Guelph Ontario councillor Gloria Kovach as FCM President. Congratulations, President Steeves on your new position. It will be of interest to the committee that that you are a member of the big city mayors' caucus. Is that a caucus of the Federation of Canadian Municipalities?
Gord Steeves, President, Councillor of City of Winnipeg, Federation of Canadian Municipalities: That is correct.
The Chairman: It June 2006, the Federation of Canadian Municipalities released a report entitled Building Prosperity from the Ground Up: Restoring Municipal Fiscal Balance. We have had an opportunity to review that report.
Your predecessor shared this report with our committee and expressed the federation's interest in appearing before us to share the municipal perspective.
I understand that you may have some introductory comments and then we will proceed with our usual question and answer period if that suits your plan.
Mr. Steeves: Thank you very much. I am very pleased to be here. Before I launch into my words, I appreciate the work the committee has been doing. I certainly acknowledge the great work, with respect to the horizontal and vertical deficits and the plight of cities and communities across Canada.
It is of acknowledged appreciation that the FCM recognizes the work of this committee and the even-handedness with which it delivers its message. It is most appreciated by the representatives of cities and communities in Canada.
You are quite correct in saying that, as President of Federation of Canadian Municipalities, de facto, I sit on the big city mayors' caucus that is an arm of the Federation of Canadian Municipalities. Even before I was president, as a councillor and Deputy Mayor from Winnipeg, I was often the representative that would sit on that committee because obviously Winnipeg is one of the 22 big cities that are represented on that committee.
I am pleased to be here in front of you this morning. It is wonderful to have the experience. As far as we are concerned, we have abundant time this morning and the committee is welcome to ask whatever questions that you may have. We will do our best to respond to them after our presentation.
I want to acknowledge my friend Senator Stratton, who comes from the same part of the world as I do. It is nice to see a familiar face around the table.
[Translation]
Good morning everyone. I am pleased to be here.
[English]
I thank you for this opportunity to sit before the committee on behalf of the Federation of Canadian Municipalities. Together, the federation's more than 1,600 member municipalities represent 90 per cent of Canadians and the issues we are discussing today affect all of them.
Today, I would like to talk to you about the pressing need to restore fiscal balance to Canada's cities and communities. I would also like to talk about the valuable commitments the Government of Canada has made to support municipal government in the short and medium term.
Most of all, I want to discuss with you how the federal government can help establish a long-term vision that helps us build better places to live and work and a more prosperous future for Canada.
I do not need to remind you how important healthy cities and communities are to Canada's prosperity and quality of life. In these cities and communities, it is municipal governments that provide the basic services that are the backbone of our social and economic well-being.
Despite the vital importance of the services we deliver, municipal governments do not have the financial resources to meet our responsibilities, and as a result, we are caught in a fiscal squeeze that hampers our ability to provide the services that our communities need to prosper.
[Translation]
This is a situation that must be taken seriously.
[English]
As you may know, of every tax dollar collected in Canada, 92 cents goes to the federal, provincial and territorial governments. What is left, just eight cents, goes to municipal governments. With that eight cents, municipal governments must provide the streets, public transit, sidewalks, drinking water, sewer systems, street lighting, parks, waste management and emergency services that our communities count on every single day. That is just eight cents to meet a growing list of new responsibilities, from social housing to immigrant settlement, to climate change and adaptation.
This is the root cause of municipal fiscal imbalance. Nowhere is the imbalance more evident than in the more than $60 billion municipal infrastructure deficit. FCM members have called on the federal government to help eliminate that deficit and fix the fiscal imbalance in our communities. To its credit, the Government of Canada has taken some important steps to respond to our needs.
[Translation]
There have been some steps in the right direction.
[English]
Budget 2005 broke new ground with a plan to share a portion of the federal gas tax with municipal governments. A year later, the Government of Canada renewed important infrastructure programs that have helped communities deal with some of their most pressing needs.
Budget 2007 included some important short- and medium-term commitments to support cities and communities. The budget extended the federal gas tax transfer for an additional four years and continued funding for existing infrastructure programs. It also maintained the 100 per cent GST rebate for municipal governments.
Regrettably, the budget did not deliver the long-term plan that our communities need. With this in mind, we would like to submit for your consideration, three key recommendations to restore fiscal balance in our cities and communities.
First, the Government of Canada must make a long-term commitment to help eliminate the municipal infrastructure deficit. Municipalities must maintain and restore their infrastructure continuously and they plan their infrastructure investments over 20, 30, and even 50 years. This is why infrastructure investments need to be ongoing and long-term and why federal support for these investments must also be ongoing and long-term.
A long-term plan would include a permanent transfer of the federal gas tax with an escalator to protect its value over time and provide a long-term extension of federal infrastructure programs.
The federal government must also work with its provincial, territorial and municipal counterparts to establish the size, scope and character of the infrastructure deficit. A national plan can then be developed that will effectively guide government investments and deliver tangible results to Canadians.
This national plan must also respond to environmental and demographic changes that affect our infrastructure needs. In particular, it should account for the effects of climate change on critical infrastructure and help municipal governments protect public assets and the safety of all of our citizens.
The government should also ensure that a significant portion of new infrastructure programs are explicitly dedicated to municipal projects and that project funding is available and accessible to meet the needs of smaller urban as well as rural, remote and northern communities.
[Translation]
Our second recommendation is that there be developed a transit strategy.
[English]
Public transit is critical to the quality of life and environmental health of our urban communities. It is also critical to our economic competitiveness. A recent survey by the Toronto Board of Trade found that traffic gridlock was the number one priority of the city's largest corporations. A 2006 federal study found that traffic congestion costs Canada's urban economies as much as $3.7 billion each year. Despite this, Canada remains the only G8 country without a national transportation program. The need for permanent, dedicated federal funding for transit is growing. The Canadian Urban Transit Association estimates that Canada's public transit systems need $200 billion in new capital investment by 2010. In March 2007, the FCM unveiled its national transit strategy and called on the federal government to develop its strategy by 2008-09.
Our third and final recommendation is to clarify roles and responsibilities. Over the past two decades, municipal governments had to assume many new responsibilities, for example, in areas like housing and immigration, without the funding to meet them. At the same time, governments are not making the most of opportunities for cooperation in areas like the environment, security and emergency preparedness.
To ensure that resources match responsibilities and that tax dollars are spent most effectively in areas of overlapping jurisdiction, governments need to do a better job of working together. Our report, Building Prosperity from the Ground Up: Restoring Municipal Fiscal Imbalance, illustrates this point. These issues affect all Canadians. They call for greater intergovernmental cooperation and a continuing federal role in our cities and communities.
Mr. Chairman, Canada needs cities and communities that work well. Unfortunately, our cities and communities are struggling under the weight of a fiscal imbalance and its most visible symptom, the infrastructure deficit.
The Government of Canada has taken short and medium steps to help municipal governments deal with these problems but the challenge of building healthy communities requires a long-term vision. By making a long-term commitment to eliminate the infrastructure deficit, by establishing a national transit strategy and by helping to clarify roles and responsibilities, the Government of Canada can do its part to keep cities and communities strong.
[Translation]
That is the least we can do if we believe in the importance of our communities.
[English]
It would be the start to fixing the municipal fiscal imbalance once and for all. The FCM and municipal governments across the country are ready, willing and able to work with you toward that goal.
Thank you. Mr. Chairman, if you have any questions, I would be pleased to answer them.
Senator Eggleton: Mr. Steeves, thank you for appearing before the committee today.
I will ask questions along two lines: downloading and dependency on property tax. During the cutbacks at the federal level in the 1990s that was passed down to the provincial and then the municipal level, there was a fair bit of downloading. That is a big issue in Ontario but how much of it is an issue in other provinces?
Perhaps you could give some examples of programs that have been downloaded. When I say downloaded, I include in that de facto downloading, which could be the result of cutbacks in federal programs, such as immigrant settlement. In that situation, the burden on the lowest level of government must do something about immigrant settlement, despite the lack of transfer payments.
Mr. Steeves: Thank you for that question, which is likely a question that only a former mayor could truly appreciate because it is a great problem for municipalities, and I will provide a couple of examples.
In Alberta, we have seen the following services off-loaded: regional airports, provincial campgrounds, seniors' housing, agricultural service boards, servicing of new school sites and provincial secondary highways. In Newfoundland and Saskatchewan, the cost of property assessments has been off-loaded to municipalities. In parts of Alberta and Quebec, housing has been off-loaded to the municipalities. In Ontario, civic police forces are being asked to police courthouses. In the City of Winnipeg, because of changes and evolution in evidentiary laws coming from the courts, our police force is telling the FCM that a police officer, who 10 years ago could make eight arrests during the course of a day, is limited to one or two arrests during the course of that same shift. The exclusive reason is due to the obligations imposed by evidence gathering, video-taping evidence and so on. Senators can well imagine the pressure that puts on a local police force.
I wish to leave senators with one example from Senator Stratton's and my neck of the woods in Winnipeg. The Clean Environment Commission of the federal government came down with a directive based on pollution flowing into Lake Winnipeg. It was based on phosphate levels in the Red River that was flowing into Lake Winnipeg and the CEC deemed it had to be corrected, quite rightly. As a result of this, the provincial government said that Winnipeg had to alter by one-half its phosphate contribution going into the Red River. Winnipeg is only a 3 per cent contributor of the total phosphate load going into Lake Winnipeg. The CEC report, as mandated to be carried out by the provincial government, will result in a $1.3 billion capital cost to the taxpayers of the City of Winnipeg. Winnipeg began collecting those funds three years ago through increases in water and sewage rates of almost 30 per cent over that time, and the rates are scheduled to double over the next four years. All of it is to pay for the capital cost of correcting our water sewage treatment plant. The City of Winnipeg runs an annual budget of about $900 million and is being asked to incur one capital expenditure of $1.3 billion. That is one example of many in terms of the kind of off-loading that we have seen from provincial governments. To be completely fair, the Province of Manitoba has offered to contribute $24 million to our plight.
Senator Eggleton: I appreciate those examples but do you find this across the board in all provinces in Canada?
Mr. Steeves: Absolutely, and there is no shortage of examples. I apologize for giving a Winnipeg example, but it is closest to my heart.
Senator Eggleton: That is understandable. In terms of property tax, one statistic from the report of the Conference Board of Canada's dealing with cities was that we rely upon municipal property tax to the tune of about 53 per cent of revenues, whereas in the United States it is about 23 per cent. Could you confirm that to be part of what you have found? Do you have other international comparisons in terms of the degree of reliance on property tax at the local level in Canada?
What other taxes do other cities and jurisdictions in the world tap into to help to provide the kind of revenues they need to do their work and provide their services?
Mr. Steeves: Your numbers are correct. Cities such as Winnipeg, Edmonton, Calgary, Vancouver, Toronto and Montreal, hover between 45 per cent and 50 per cent of total revenue coming from home-based residential taxes. If you factor in the component of business-based property taxes — not business taxes but business-based property taxes — you will get into the 60 per cent and above range of taxation.
In our estimation, or in anyone's estimation, this is a difficult and, to a certain extent, regressive form of raising revenue. In a city of 500,000 people, such as Hamilton, Burlington and Surrey, a property tax raise of 2 percent would raise about $5 million extra per year. In the context of a city of 500,000 people, that is not a great deal of money. That is why, over time, you have seen cities and communities get further behind in terms of infrastructure projects. If you compare a $5 million revenue increase on an annual basis versus the cost of installing an underpass in your standard city, which costs about $60 million, you can begin to see how cities get behind given that type of revenue trade-off.
That is why programs such as MRIF, municipal rural infrastructure fund and CSIF, Canada strategic infrastructure fund, which are funded by the federal government, have become so important to cities. In fact, if those programs ever ceased to exist, I dare say you would see the end of those types of programs in cities and communities.
Think about small communities, such as Estevan, Saskatchewan or Rimouski, Quebec, that have smaller populations. If such communities raise the taxes by 2 per they would realize about $20,000. Try to imagine that $20,000 in the context of a $12 million water or sewage treatment plant and it becomes almost unfathomable in terms of how they might make it work.
The senator talked about different methods of taxation across different jurisdictions. In the United States primarily, and less so in Canada, and in other parts of the world, municipalities receive consumption-based taxes that grow with the economy.
We are fond of providing the example of places such as Phoenix and other cities in Arizona where every time there is a consumer exchange, the municipality receives a portion of the money spent in the same way the PST and the GST works. That means that there is ongoing and continuous funding for cities on an increasing basis if the economy expands.
That is important in the context of places like Calgary and Edmonton, when you consider the massive growth and expansion of these economies. With the mill rate system, cities like Calgary are not really keeping pace with that wonderful economic expansion in the same way the provincial and federal governments are by virtue of their GST and PST link to the economy. It is a different model that, as I think the senator understands only too well, does not work very well. We have always advocated the concept of consumption-based growth revenue sharing for municipalities. We have not quite gotten there, but there has been some talk in the bigger communities about exploring that issue once again. You may have heard about that concept.
Senator Eggleton: You have mentioned consumption or sales tax. What about income tax? Are there jurisdictions that receive percentages of income tax in the United States or in Europe?
Mr. Steeves: It is exactly the same thing. I completely concur. I do not know of a Canadian model we could follow, but we have seen other international jurisdictions that do it; they have a tie-in. It is better than having municipalities that rely on expansion of their property base as a sole means of increasing their revenue within their municipality, which is why we see urban sprawl. The reason for that and there is such an attraction for city planners to accomplish it is because it represents their only true and consistent source of new revenue.
If you changed the framework and came up with an income tax or consumption back tax-based model, you would see civic administrations that are far more inclined to be entrepreneurial. They would look at ways of increasing the velocity of money within their economy in the same way that federal and provincial governments can because of their link to expansionist taxes like the sorts of taxes I have mentioned.
Senator Eggleton: Mayor Miller was at a function I was also at last night in Toronto. Mr. Miller pointed out that the National Trade Centre in downtown Toronto, which I took part in having constructed when I was in charge of infrastructure with the federal government, saw considerable investment from federal, provincial and municipal governments. All three orders of government split the cost three ways. However, the federal and provincial governments have since recouped all of their money from the investment, where the municipal government did not get anything back because property taxes do not apply to this municipally owned building.
I think that demonstrates that while senior governments get money back through growth taxes, which are not available to local government, it does not create the same equitable situation for municipalities.
Senator Stratton: Residential tax bothers me. It does not work, as you have stated quite clearly, Mr. Steeves. Senator Eggleton has spoken with his history of being a former mayor of Toronto.
When you talk about a consumption tax, you look at it on the basis of how to deal with it without getting overly complicated. In my view, you do not even want to get into income tax because it gets pretty scary.
Would decreasing a point in the sales tax, for example the GST, go a long way to solving that kind of thing? I think you need to focus and push for that. In order to accomplish this, you need something, as you have said, that will grow over time and will not be fixed. The approach should be pushing government for a point of tax.
My view is that we should be getting rid of residential tax as much as possible and eliminating school tax. That should be off the plate for homeowners, and we should be moving into this century with that in mind. I know you have to talk to the provincial government with respect to the school tax. The municipalities get the blame, anyway.
Would you not want to focus on something like that rather than being fuzzy around the edges? Let us go for it and put the pressure on to get that accomplished.
Mr. Steeves: Absolutely, and I want to thank the senator for those comments. Frankly, he made some comments that I should have made during my presentation.
The school tax is a huge issue for municipalities. The reason it is so acute in Manitoba and Saskatchewan is that they form over 50 per cent of the local reality tax rolls. If you are paying property tax in Manitoba or in Saskatchewan, over one-half of it is going directly to the local school division, which is onerous and obviously prevents raising additional revenue for municipalities in those two provinces.
The rest of the provinces hover around 25 per cent. There are five provinces and territories where there is no school component. That is another example of provincial inequities that you see across the board.
The senator is quite right in his assertion that a growth-based percentage of the GST would be ideal. As you are all aware, 1 per cent of the GST currently raises about $5 billion of revenue in Canada. We know the federal government is talking about making some changes in that regard.
About five years ago, we began with the suggestion that that would be the most prudent and best way to advance the plight of municipalities by virtue of that type of growth-based funding, and it did not happen. However, we moved from that to the gas tax-based funding. That was primarily linked to infrastructure because that was the core concern, and it was a user pay model. That is where we evolved.
You have heard big city mayors talking about the one point on the GST, again, because they see the same thing that the senator does; namely, that it would address the infrastructure deficit more directly and substantively. It would also change the entire mentality and structure of civic administration from property asset-based economies to more entrepreneurial and money velocity economies. I maintain that would be one of the most exciting things we could do as a country.
It would change Montreal, Winnipeg, Vancouver, Estevan, and Lethbridge into places that are trying to generate events and income in their own municipalities instead of just building more buildings.
Senator Eggleton: You have called for a national transit strategy. You pointed out that Canada is the only G8 country without ongoing federal involvement in national transit funding.
My recollection is the situation there is similar to the situation in property tax, inasmuch as there is a much greater reliance on the fare box in Canada than in other countries, just like there is a higher reliance on property tax in Canada than in other countries.
If I am not mistaken, my own system in Toronto is about 80 per cent from fare box, and I think New York City is something like 45 per cent from the fare box with the balances in each case being part of a federal or federal-provincial program, or federal-state in the United States. What is the situation there compared to other jurisdictions?
Mr. Steeves: Thank you again for the question. My knee-jerk reaction to 80 per cent and 40 per cent is those are probably in the higher range for municipalities, in terms of what a fare box means to the total actual substantive portion of the cost of running a transit system.
I know in Western communities, particularly where you do not have rapid transit systems, you are probably looking at something below 40 per cent. In places like Winnipeg and Quebec City, where there are no rapid transit regimes to generate that type of operator revenue, you will probably fall to around 30 per cent of the operating revenue. The reason you see places like New York and Toronto with those high percentages is probably because they have rapid transit systems generating a lot of revenue.
Obviously the downside or difficulty is rapid transit systems are unbelievably expensive, as you are well aware. It is nothing for a substantive leg of a subway or a metro system in a big city to cost one billion dollars. We had a person come from New York City and talk about installing the Second Avenue subway line. The cost, if you can believe this, was $1 million a foot to push this subway line through. The costs are astronomical. In the context of a city trying to get into the realm of rapid transit, like Winnipeg and Quebec City, the price is almost prohibitive in terms of building new lines. Calgary and Edmonton are trying to expand relatively modest networks. It is essential that the federal and provincial governments become major players in those projects.
Correct me if I am wrong, but we have seen a sunsetting of the transit trust fund. Everything has been rolled in the new Building Canada Fund where we are informed that municipalities could access this type of funding for projects like transit, but it is still unclear. The point is that without dedicated transit funding, it is such a big-ticket item that some municipalities might not be able to do it.
The Chairman: Councillor Steeves, when you talk about municipalities what size are we talking about; you talked about the large cities.
Mr. Steeves: All sizes, senator. I apologize if I came across as big-city centric. The Federation of Canadian Municipalities speaks squarely for municipalities of all sizes from coast to coast to coast. That includes the City of Toronto down to municipalities of literally under one hundred people.
The Chairman: Is the Federation of Canadian Municipalities a volunteer association?
Mr. Steeves: Each member pays a per capita membership fee.
Senator Nancy Ruth: I am fascinated by this discussion because in your report you very clearly say that Canadians pay enough tax. This discussion is about taking a point of this, taking a point of that, and maybe adding a new tax. Where is your head in terms of increasing or creating new taxes for the taxpayer?
Mr. Steeves: Fair enough, and a perfectly legitimate and great question that has to be answered.
Our organization's policy is we do not want to increase the overall tax burden to Canadians. We have heard from the Conference Board of Canada is that municipal governments are actually operating within the confines of their financing pretty well. Our sense is that in the course of the last decade, we have seen provincial and federal governments to a greater or lesser extent working with very large surpluses. Our impression is that there is opportunity in the framework of the grander federal-provincial-municipal tax schemes, for the needs of the municipality with a tax adjustment to be met to address the infrastructure deficit. That is why we are fond of trotting out the statistic about the one dollar and how the municipalities are only receiving 8 cents of that tax dollar. That is telling.
When people ride around in their city, go to various civic functions or, in their small community, go to their community centre, all this is covered on a day-to-day basis by the municipality. That statistic really highlights that it is a very difficult scenario in which to work. Frankly, we are not trying to increase the dollar, but we are trying to increase the 8 cents within the dollar.
Senator Nancy Ruth: Who will lose given that you want the feds to pay for the subways and everything else?
Mr. Steeves: We do not like to use the word ``lose.'' We know the federal government is right-headed in looking at surpluses. The government knows how to deal fairly with the surpluses. We have seen the federal government eliminate one point on the GST, and there is talk of eliminating another. We know each point constitutes about $5 billion.
Periodically, we are forced to look at terrible and tragic examples such as the overpass collapse in Laval and a similar incident just the other day in Toronto. Our suggestion is that if we know there is a surplus at the federal level, and we do, and if we know that there is a deficit in infrastructure, which we do, that the federal government transfer the surplus to the municipal governments. This would be reasonably easy to support. We suggest that transfer because we see our cities and communities as the engines of the economy of Canada. We see the infrastructure as the absolute base backbone of our economies. There is not a single piece of our economy that does not use the infrastructure framework on a daily basis.
That is the cognitive shift that we are trying to impress upon Canadians, hopefully the Senate of Canada, and obviously the other House as well. I harken back to the earlier property tax discussion. We would do it ourselves were it not for the idea that municipalities are handcuffed to a pretty regressive regime of revenue generation.
Senator Nancy Ruth: Can you tell us about your timelines for getting the wheels of various governments to change in the direction you want? You are not only coming before this committee; you have a whole plan mapped out. Can you tell us about your plan?
Mr. Steeves: I will be glad to. Perhaps I have not been kind enough to the federal government in my comments. I acknowledge that the federal government has come a long way in the course of the past six or seven years in terms of funding for municipalities. There has been the gas tax and the GST. There have been some tremendous improvements. We saw in the last budget the expansion from 2010 to 2014 in terms of the gas tax.
Our timeline is that the deficit exists right now. Our requests are on the table right now. We have been around long enough, as have you, to understand that these things do not happen overnight. We have always worked with reasonable time frames for any other level of government with which we are dealing. We are hoping we can see an increase in amount in the gas tax and the new Building Canada Fund on a yearly basis.
We do not have a great foothold with the federal government right now on things like the GST and revenue sharing on consumption-based taxes, so I would be reluctant to put a time frame on that. I do not want to over-promise or to suggest that it could be done in the time frame, but this has been on the table for several years.
Senator Di Nino: I wish to ask for a couple of clarifications. When you spoke about off-loading, I believe you said that housing had been off-loaded in certain parts of the country. Are you talking about subsidized and/or assisted housing as opposed to housing in general?
Christian Laverdure, Deputy Director, Policy, Federation of Canadian Municipalities: Yes, we are talking about affordable housing with the homeless component. The most visible area is in the province of Ontario, but off-loading does exist in other provinces. I believe Quebec and Alberta have some issues with off-loading.
Senator Di Nino: The second point for clarification is on your famous dollar and the eights cents. Am I correct that the eight cents does not include realty taxes, fees or other income that the municipalities receive?
Gabriel Miller, Senior Policy Analyst, Federation of Canadian Municipalites: Thank you for the question. The eight cents includes all taxes that are collected and go to local governments. It does not include user fees. Fees for service are not considered a tax, but it includes all property taxes and payments in lieu of taxes that we receive from the federal government.
Senator Di Nino: On urban planning, we have heard about urban sprawl. In the eyes of many people, urban sprawl is expensive, creates a different set of problems, and eventually creates an even more expensive problem for the cities.
There have been suggestions that the cities of the future, particularly as opposed to the smaller municipalities, will be Hong Kong-type of cities in terms of high-rises and so forth. Could you comment on that?
Mr. Steeves: That is key to the development of cities. By your question, it sounds as though you have been studying the latest census data that has shown that the fastest growing areas in our country are actually the ex-urban areas of metropolitan areas. I am referring to the cities that are experiencing rapid growth: the Mississauga, Surrey and the Sherwood Park. The problem is that, as you expand cities in a lower-density fashion, you have on a proportional basis, less taxpayers paying for more infrastructures. Compare Winnipeg to the city of Manhattan. If you have 20 feet of road in front of a suburban home versus 20 feet of road in front of a high-rise in Manhattan, you have 15 taxpayers in Manhattan paying for that road and one taxpayer paying for it in Winnipeg. That is about as straightforward as I can say it.
Over time, because of the property tax regimes, cities have become dependent on new expansion for new revenue, and the only way that they can achieve that is by being short-sighted in terms of expanding ex-urban areas around central cores. Smarter cities, the cities you are referring to, are those that have increased zoning disincentives for sprawl and zoning incentives for more intense development in the downtown regions, thereby making more walkable communities. Vancouver, with the GVRD metro, is one of the better examples of this.
Again, part of the challenge for those types of places is that when there is room to expand around a city, surrounding municipalities are trying to get a share in terms of development. If the commute times are reasonable enough, cities find themselves competing with surrounding municipalities that do not have regional planning regimes, and that becomes the challenge in urban growth.
The regime of taxation that we have been speaking about this morning has made that a worthwhile incentive for civic planners. It is unfortunate, but that is what has happened.
Senator Di Nino: That would also address the most topical issue today, which is the environment. That would be another benefit, would it not?
You spoke about the transfer of tax monies. Are there municipalities around the world that have taxing powers? I understand that there may be. What is your opinion about municipalities of a certain size, yet to be determined, being given their own taxing powers?
Mr. Steeves: To answer your first question directly, yes, there are several examples of municipalities as close as the United States. There are differing regimes of consumption-based taxation and income taxation with regard to the proportions that go to cities, but there is no shortage of examples of cities that draw upon that type of revenue.
The direct challenge in Canada is that it is the exclusive authority, on a provincial basis, of the provincial government, to grant the municipality that power. It has been discussed and debated vigorously in different cities and provinces across Canada that municipalities be given a portion of, for example, the PST in any given province.
The political reality is that it requires a provincial government to vacate a percentage point on their revenue stream and allocate that to municipalities. That is, to put it mildly, always a tough sell within municipal-provincial negotiations, not that it has not been vigorously debated and is an ongoing debate at the municipal-provincial level. Now, to an increasing extent, we may be having this discussion of the GST at the federal level as well.
As difficult as consumption-based taxes sometimes are to get into place, once they are in place people recognize them as a substantive revenue generator, especially in the context of a strong economy like the one we have had in Canada for the last 10 years. It would have been nice to have been part of that economic growth at the municipal level.
Senator Di Nino: You talked about the political reality. We all understand that, particularly in this game. The problem is that you are asking the provinces and the federal government to increase taxes or not reduce taxes because of the benefits it would give to the municipalities. Some of the arguments made by the municipalities, having in effect their own taxing powers, is the taxpayer then would look at the municipality as the instigator of that tax or the government responsible for not reducing those taxes. Is that not a political reality as well?
Mr. Steeves: It is at both levels, I suppose. If I understand your question correctly, and all of a sudden municipalities had that power to, for example, level an MST, municipal sales tax, which is the fanciful term that we use periodically, probably on a time by time basis you might see pressure at the municipal level.
Our answer would be that we have had tremendous success at the municipal level in talking to taxpayers about the need for infrastructure in their communities. It really is quite astounding how taxpayers seem to get the idea that infrastructure needs help in Canadian communities. It seems intuitive to people. They see their community centres, their roads and they say, yes, I agree with that premise.
On the other side of the coin we have seen jurisdictions go to a HST model, a harmonized sales tax, if there is room to combine GSTs and PSTs. I am not expert on the harmonized sales tax because we do not do it in Manitoba, but if there is room to do that, there would be room to do that with a municipal sales tax as well without increasing the overall burden.
Those opportunities would exist, and politically, I would like to have that problem for a while so I could see what it was like, but I think it could be managed.
Senator Murray: Let us go to your recommendations. You want the federal gas tax transfer to be made permanent with an escalator to protect its value over time.
The last figure I was able to get indicates that the federal gas tax is 11 cents per litre. We know that the federal government, according to the public accounts 2005-06 took in $3.9 billion on the excise tax on fuel and gasoline. If it is 11 cents a litre, why do you think you need an escalator. Do you think people will buy less gas? Are you afraid that the federal government will lower the gas tax?
Mr. Steeves: Just to be clear, I am not sure what the total excise is on gas tax. Our portion is not 11 cents a litre.
Senator Murray: Of course not. That is the federal government's portion and they remit part of it to the municipality.
Mr. Steeves: This year the remissions on the gas tax are about $800 million.
Senator Murray: I have those numbers, too.
Mr. Steeves: They are going up to about —
Senator Murray: Two billion.
Mr. Steeves: By 2010-11.
Senator Murray: Why do you need an escalator? It is not a percentage; it is a flat 11 cents per litre.
Mr. Steeves: You are right. The gas tax is a bit of a notion, and the number itself is notional. Although predicated on the gas tax at a point in time, it is a set number regardless of where fuel sales will go.
Senator Murray: Do you know the set number?
Mr. Steeves: Yes, over the course of the next five years. Is that what you are asking?
Senator Murray: I know the total amount. It is $800 million this year, $1 billion next year and $2 billion in the out years. What does that represent? Is that a percentage of their take? How do they calculate the total amount?
Mr. Miller: Originally, the idea was that it would ramp up to 5 cents per litre.
Senator Murray: Is that 5 cents of the 11 cents?
Mr. Miller: I believe that is right, however, as Councillor Steeves was saying, the terms in which we discuss this has its origins in the idea of a percentage of the gas tax collected, but now we talk about it in terms of the total transfer commitment that the federal government is giving to us.
To go a step further and address your question about why an escalator is needed, we are seeing a commitment to ramp up to $2 billion a year and transfer from the federal government through provinces to municipalities. The concern is, if that is made permanent, that we will want to retain the value of that transfer to our communities against inflation, but also against the effects of population growth and economic expansion.
Senator Murray: People will continue to buy gasoline in at least the quantities that they are buying it now. The escalator is economic growth.
Mr. Miller: I take your point, senator, but in terms of the way we are now discussing this with the federal government, they approach it in terms of the amount that they will transfer. It is not tied so much to consumption, except in a conceptual way.
Senator Murray: You say that federal government can start the transition by expanding project eligibility criteria for the gas tax transfer. This would enable municipal governments to put their share of gas tax funds toward local priorities, and you say, ``. . . whether for assets like transit or water systems, as currently allowed, or newly eligible projects like sports facilities, libraries, parks or other social infrastructure.''
I do not want to say this in an argumentative or contentious way because I have an open mind on the issue, but what you are saying here is that you want the gas tax transferred unconditionally. The alternative, when you expand the project eligibility, is a bunch of public servants in Ottawa poring over various projects to see whether they are eligible.
Mr. Steeves: The fewer conditions obviously the better, but I want to underline the point that we would never go into the operating framework for funding. That is not part of what the requests would ever be. It would always be infrastructure-based. That would be a fair comment.
Senator Murray: Okay.
Mr. Steeves: Capital based.
Senator Murray: That would be broad enough.
The same comment applies to your statement:
The government should also ensure that a significant portion of new infrastructure programs are explicitly dedicated to municipal projects, and that project funding is available — and accessible — to meet the needs of smaller urban as well as rural, remote and northern communities.
What do you mean by ``a significant portion of new infrastructure programs are explicitly dedicated to municipal projects,'' as distinct from what, provincial roads? Is that what you are talking about?
Mr. Steeves: The words ``province'' and ``territory'' are the concerns, I guess. Prior to the new Building Canada Fund there were funds like the Municipal Rural Infrastructure Fund and the Strategic Infrastructure Fund.
Senator Murray: The Canada Strategic Infrastructure Fund, the Border Infrastructure Fund, the Municipal Rural Infrastructure Fund and the Public Transit Capital Trust are being phasing out.
Mr. Steeves: All of these had significant municipal priority involvement which was what we were striving for. The concern with the new Building Canada Fund is that we are not certain where municipalities will fit in, in terms of priorities.
Senator Murray: Does it need to be explicitly dedicated to municipal projects? Why do the provinces not saw off and say a percentage is ours and a certain percentage is yours. They can give you some of theirs, ``theirs'' being the province. I am looking for solutions.
Mr. Steeves: Clarity around that issue would be most welcome. That is what we are looking for. We are concerned because right now that clarity is not there.
Senator Murray: Let us get to public transit. This is my last question.
It took me 90 minutes to drive 60 kilometres on a very good divided highway as it does every morning at that time. Yet I know perfectly well there are other places in this country whose need is much greater than that of the National Capital Region so I am not complaining.
The question is this: Can a federal government prioritize when it comes to something like public transit? I think the big cities are the ones where the need is greatest. Does a federal government dare say that your need is lesser when it comes to funding of this kind? A federal government could do that on the basis of some quite rational examination but there would be quite a political uproar and we would not get any help from you fellows at all. You would run for cover because you do not want to set one municipality against the other. How much leeway would a federal government have in addressing the problems of public transit in this country in terms of prioritizing the needs?
Mr. Steeves: You have hit on a great point about our organization. I appreciate your intuitiveness.
Our organization obviously struggles with balancing the interests of small versus large municipalities. You are quite right about the political challenges. What we have evolved to, and what has worked from a municipal perspective, is when the federal government, as they have in the past, dedicates funding towards a national transit strategy, if that is what they do, then, de facto, it focuses on big cities. Really, there is not a huge transit component in smaller communities. That sounds difficult at the start but, in a strange sort of way, it allows the largest cities to address the rapid transit needs in the larger communities. It also allows the Municipal Rural Infrastructure Fund, formerly the Strategic Infrastructure Fund and all the infrastructure funding to operate more squarely across the board; smaller and larger communities. There has been a tacit acknowledgement over the past several years from smaller communities that if that separate transit fund exists, then smaller municipalities will say, we acknowledge that need exists in larger cities, it is a good thing to have and it works. It gives everyone a fair shake at the other municipal infrastructure funding levels, which is how it had evolved over the course of the last five years. The challenge now with the new Building Canada Fund, as you have hit on directly, is that everything is now back in the same pool again and we might start running into those problems again. That is why our National Transit Strategy is calling for, if I am reading you correctly, exactly what you suggested. There is a need for a specific National Transit Strategy, a specific portion of funding that been terminated now and will, hopefully, alleviate, those concerns between the smaller and the larger municipalities. I think it actual works with an infrastructure transit fund and everything else, the larger portion, available to larger municipalities, that scenario works in that context. When I say ``works'' it means it works practically for infrastructure projects and it works politically and was working for quite a few years. We would like to get back to that, if we could.
Senator Murray: One of the things I have to get my mind around, as do some others is; does it ignore the role of the provinces? For many years we were accused of ignoring the municipalities in our discussions about intergovernmental relations, in particular intergovernmental finance. I take the reproach for this myself. Now we are in direct discussions with the municipalities, which is good. I hope we are not in danger of ignoring the provinces. Somehow we have to take the three levels into account.
Mr. Steeves: I take your point, senator, but, given the last budget we saw I do not think this federal government could be accused of ignoring the provinces.
Senator Murray: No, I mean on the municipal issues.
Mr. Steeves: Yes.
The Chairman: Senator Eggleton has a short supplementary on Senator Murray's question.
Senator Eggleton: Senator Murray talked about transit. The dilemma that occurred with the previous government when there were some funds transferred is, what the basis for the transfer is. Most infrastructure money is transferred on a per capita basis. When it came to transit funding, at least in the Toronto sense, the city of Toronto, at 2.5 million people is half of the population of the greater Toronto area. On a per capita basis and the GTA's 5 million people, 50 per cent would go to the city of Toronto. The mayor argued that the 50 per cent per capita basis is one thing but 90 per cent of the transit ridership is in the city of Toronto, within the Toronto Transit Commission. How will you work that formula?
Mr. Steeves: Here is how we did it and it worked.
There was specific money allocated to transit on the greater infrastructure funding you would see a proportion although different provinces were different. For example, in one province you would see a 75 per allocation on a per capita basis within the province; the remaining 25 per cent of the infrastructure funding was actually distributed on a per ridership basis on the transit side. What that did practically is that in provinces the 75 per cent is divided between everyone and the largest cities still get their proportion; 25 per cent divided, based on transit ridership which de facto eliminated most smaller communities and that money could be addressed directly to transit needs. I do not know as much as you about the Toronto experience but those per capita allotments were done by the provinces. Again, every province was different across the board but it was worked out. Provinces and municipalities, provided they were at the table and understood it, always seemed to work it out. Those are some examples of how they did it.
Senator Eggleton: If you have enough money you can work it out.
Mr. Steeves: Yes, you sure can.
[Translation]
The Chairman: I now give the floor to a senator who comes from a small community, Mille-Îles, in Quebec, Senator Biron.
[English]
Senator Biron: How does the province of Quebec react to your proposition that the federal government increase its intervention or subvention to municipalities and how do municipalities in Quebec propose ways that are acceptable to the province of Quebec?
[Translation]
Mr. Steeves: With its municipalities, the province of Quebec is unique. Quebec is the strongest and most progressive province in the country.
Quebec still today is afraid of seeing the federal government negotiate directly with municipalities. We are in fact working with the province of Quebec and it is more and more difficult for the government to do its job with the municipalities of Quebec. Christian may have something to add.
Mr. Laverdure: The Federation of Canadian Municipalities works in collaboration with l'Union des municipalités du Québec and the Fédération québécoise des municipalités. Most municipalities appreciate the fact that the Federation of Canadian Municipalities deals with the federal government on behalf of municipalities.
The Federation of Canadian Municipalities wants to be a part of the discussions and consultations. If the federal government establishes policies that will wind up having an effect on municipalities, it must talk to the stakeholders at the beginning of the process. In the implementation of its policies, it must go through the provinces and territories. Our intervention consists in ensuring that the voice of municipalities be clearly heard.
The Chairman: For the information of senators, we had invited the Association québécoise des municipalités to come to today's meeting. Representatives from that association told us that the Federal of Canadian Municipalities was qualified to speak on behalf of all of Canada, including Quebec.
[English]
Senator Mitchell: If given a choice between the percentage of the gas tax or a percentage of the GST, which is now the 1 per cent solution being discussed by David Miller and other big-city mayors, which would you choose. Would you like to be in the position of having to choose?
Mr. Steeves: I will be perfectly candid with you, senator. Obviously, 1 per cent of the GST equals a great deal more money than a percentage of the gas tax so we would prefer that choice. However, we are not actively involved in negotiations with the federal government in respect of that 1 per cent solution. I guess the door has not been opened to the discussion from a federal-municipal perspective. We have been banging away at the Building Canada Fund, the gas tax and transit funding. That has been our modus operandi for the past few years.
As well, we are cooking the idea of 1 per cent of the GST but I certainly do not want to leave this honourable committee with the impression that it is on the table as an active point of discussion.
Senator Mitchell: You do not want to lose the momentum of your current efforts in that regard. I believe that one of the most significant economic development issues facing our country today is the building and funding of our cities because they constitute the engine of the economy. I am quite sympathetic to what you are saying and I am positively predisposed to the 1 per cent solution.
When it comes to a national transit strategy, you mentioned something that we hear frequently. Talking about public transit, one strategy would not work for bigger and smaller communities alike. In that regard, could you summarize the elements; what it means? I am having difficulty understanding what a national transit strategy would mean.
Mr. Steeves: That is fair. Perhaps I could ask my two able administrators to provide the committee with the details on the transit strategy.
Mr. Miller: By way of context, it means first engaging in conversation with both cities and communities, and, as Senator Murray indicated, with provinces that share jurisdiction for public transportation and have a key interest in it.
In terms of recommendations, I would be happy to provide the committee with a copy of the FCM's national transit strategy in which the recommendations are outlined. I might miss one or two elements but, certainly, one of the recommendations is long-term permanent, predictable and stable funding. That needs to be accompanied by a plan to integrate our transit investments with other policies that support transit use and support smart land use. The effectiveness of transit investments depends in large part, not entirely, on the kind of cities that are built around the transit systems. If Canada is to make transit investments, then we have an interest in seeing that they are made in a wise and effective way. In extension, there is a leadership role for the federal government in ensuring that information on transit use and planning is shared across the country in a far better way than it is currently shared. That information would include generating research both internationally and nationally and establishing mechanisms for cities and provinces to share that information more effectively. In that way, when cities and provinces use their share of any federal transit funding and their own transit funding, they will do so according to best practices.
Senator Mitchell: That is excellent. That brings me to the point of Kyoto, climate change and the role it plays in respect of building cities. More and more communities are looking at the climate change challenge. Okotoks, Alberta, has been remarkable in its efforts in the area of alternative energy sources and conservation, and should be highlighted.
Mr. Steeves: We are doing that, senator.
Senator Mitchell: What is your organization doing generally with respect to Kyoto and climate change? I should emphasize Calgary and its commitment to being beyond the Kyoto objectives. Second, what element of the Kyoto Protocol would enter into the national transit strategy? Is there a potential for cities to sell credits, if they achieve beyond their objectives, to create a new revenue stream?
Mr. Steeves: Those are excellent questions. I will make some general comments and then ask my administration to add to them.
The good news in the climate change battle, and you mentioned Okotoks, which we have highlighted, is that cities are coming precariously close to neutralizing their GHGs in this country. There has been remarkable progress that people have not fully understood. Cities are achieving to that level and it has been amazing. Certainly, the cities in Alberta are leaders.
We have the Partners for Climate Protection, which is a network of cities that share best practices. This PCP network — an unfortunate acronym — goes through the steps, beginning with baseline in their GHG emissions. Then they go through five steps of eliminating and reducing, both at an administrative level — the in-city, in-house operations — and then expanding out into the community at large. The cities have done great work in getting there.
We administer the Green Municipal Fund for the federal government, which is a rotating loan out that we do to municipalities. Municipalities apply for this funding to do innovative projects in their community, and they pay the money back to the federal government for things like water treatment, transit systems, land planning and all of those types of projects.
They get funding based on innovation — not because it is a project that works but because of innovation. We have established hundreds of million dollars of projects that are measured and attributable to the Kyoto platform.
The last question — which was a spectacular one — is the selling of credits, which we are just working on now and developing through our GMF fund and CSCD. I do not want to sound too excited about this, but we are genuinely in the process, with this GMF funding, of establishing these projects. For example, the city of Nanaimo can get the money from FCM and they can do their project — in this case, I think it was a methane treatment — and then sell the credits they are receiving back to an organization. In this case, it was EPCOR in the city of Edmonton, which uses the credits in their own fashion. Then the city can receive funding back for the funding of that project to pay it back. It is an aggregator system.
We are still a bit up in the air to see what type of voluntary versus mandatory emission offsets will happen with the federal government and how that will work, but we are working toward that structure. It is entirely plausible that you could have a situation where municipalities are doing these projects and getting the money back for doing them, as incredible as that sounds.
Senator Mitchell: What is particularly telling about it is that you are not just buying hot air. Those who resist Kyoto disparage tradable permits. These are real reductions, they are really tradable and they are worth real money, which leads to my next question: Would it not be a great help if we had a national market established in Canada — preferably in the city of Calgary because it would be such an appropriate place to put it — for the trading of emission credits? We need some leadership at the federal level to cause that to occur.
Mr. Steeves: I guess those are fair comments. I will ask my colleagues to comment. We are in the throws of that. We are watching closely and are on top of where it will go because we, too, want to act.
Mr. Laverdure: If I may add a few points, last fall we tabled a submission on clean air with the Minister of the Environment. We talked about quite a lot of things, including climate change and climate adaptation. We would be pleased to give the submission to the committee so that you can see just about every point.
We made strong linkages back to transit and energy efficiency. We are also big on a biofuel strategy for rural communities; it has been extremely well received within the rural communities. If you would like, we would be pleased to table our submission.
Senator Mitchell: Yes, please.
The Chairman: We were thinking of implementing a fine system every time you use an acronym that we do not understand. I heard GMF and it sounded like CSCD. Could you tell us what they are? I know what FCM is.
Mr. Steeves: GMF is the green municipal funds, which is the funding that comes from the federal government that we administer.
The Chairman: ``We'' being?
Mr. Steeves: The FCM. The CSCD is our centre for sustainable community development, which is an arm of the Federation of Canadian Municipalities that administers the entirety of our sustainability program. FCM is divided into three groups. There is our policy group, which is most of the day-to-day things that we do; we form policy on behalf of municipalities. We also have the CSCD that I just mentioned, which does all of our sustainability work with municipalities; and what we call our ICMD, our international centre for municipal development, which does international work with our municipalities and municipal associations abroad.
The Chairman: Is this a revenue generator for the Federation of Canadian Municipalities?
Mr. Steeves: They are revenue neutral from our perspective. We administer them on behalf of the federal government, but they stand alone. They do not really generate revenue for our policy advocacy. There are some benefits to having them in our organization, obviously, but we do not use them to fund our policy issues. That is paid for by the member municipalities.
The Chairman: Thank you. That is helpful.
[Translation]
Senator Ringuette: Congratulations on your French, Mr. Steeves. You probably do not often have the opportunity to use your French, and I appreciate your efforts.
[English]
I appreciate the example that you gave earlier about the 20 feet of road in Manhattan and the 20 feet of road in Winnipeg. Perhaps I could add a third level to that, which would be 20 feet of road in Edmundston, New Brunswick.
You confirm what I have been saying for a while, namely that the density of population to pay for that 20 feet of road is better in Manhattan and Winnipeg, but not too good in Edmundston. That goes for all the different services. If you have the density of population, then your service cost is less. That is a normal economic issue.
I recognize the need for infrastructure. We had the minister responsible for intergovernmental affairs from Saskatchewan, who indicated to us the great need for infrastructure that would include you. How much of that discussion is happening with the provincial government for which the municipalities that you represent supply some services? With regard to your infrastructure needs, your operational needs and your revenue needs, you indicated that perhaps property taxes are a bit archaic as a way of generating your revenue. Essentially, the municipalities in Canada are a creature of the provincial governments. Therein lies the first line of dialogue and modernization of the way you operate.
If the federal government was not in a surplus situation, what would be your alternative options for financing your needs?
[Translation]
Mr. Steeves: Those are good questions. In each province and territory, there is a representative of the association, and in some provinces and territories, there are two or three of them. For example, in Alberta, there is a representative from the Alberta Urban Municipalities Association and a representative from the Alberta Association of Municipal Districts & Counties. It is the same thing for each province.
We very much count on this association for establishing talks with their provincial government. What creates a problem for our association is the fact that the situation varies from province to province and from territory to territory, but we will try to compare the provinces amongst themselves in order to determine the best practices in each one of them.
The situation however remains difficult for us, even if, year after year, we work very hard at correcting the problem, because certain provinces are in constant communication with their municipalities, which is the case of Manitoba, whereas other provincial governments, for one reason or another, have difficulty establishing regular contacts with their municipalities.
Our organization is continuously striving to establish direct relations with the federal government and it would be difficult to give our members the assurance that we are able to influence provincial governments, because our organization has no direct relationship with the provincial or territorial governments, with the exception of a few members who represent provincial associations and who, they, are in direct contact.
Last year, for example, we set up an annual meeting process in order to meet the representatives of the Intergovernmental Affairs Department of each province and territory so as to be able to discuss these various issues.
As for your second question, relating to the surpluses, it would be difficult for me to answer. We are for the time being fortunate in this country to have a surplus, but if that came to change or if the surplus was no longer sufficient, then we would have to pursue these discussions regarding the infrastructure deficit, and it is in this perspective that we are working. Those would be my general comments, but I would like my colleague to explain further what would happen if there no longer were a surplus.
Mr. Laverdure: What luck that there is a surplus. As Mr. Steeves stated, and I will repeat it here, we have a very good relationship with all of the provincial, territorial and municipal associations, 18 of which are members, and among them 13 provinces and territories.
When we must undertake talks with the provinces and territories, we leave that up to the provincial and territorial associations. We hold daily discussions, which is excellent. Our role is to prepare presentations to the federal government, and the provincial and territorial associations count on us to play that role. We, in turn, look to the associations to negotiate directly with their respective provincial or territorial government.
In answer to your second question regarding what would happen if there were no longer a surplus, I would say that the GST or the other tax points that would allow us to recover some money are only a few of the numerous tools at the disposal of the Federation of Canadian Municipalities.
What we really want to do is to define the municipal infrastructure deficit and to reach an agreement with the provinces, the municipalities and the federal government on how to go about filling the gap or eliminating it.
Once that definition is established, we will then have to develop a long-term plan — this is not something that can be accomplished within three or five years — and see how we might put an end to this deficit. The GST, or the example you gave, or the surplus, are just some of the tools that could be used, but there is a whole toolkit.
Senator Ringuette: When you say that there is a whole toolkit, are your members, at the provincial level, talking at present with the provinces about the various methods or some modernization of the fiscal regime? Is the idea that the provincial government takes over responsibility for all of the property taxes in order to then redistribute the money? Is that the kind of discussion that you have in mind?
During the meetings our committee has held, we have heard provincial governments ask for additional funding for areas of provincial jurisdiction, especially health, postsecondary education and infrastructure. There of course must be some differentiation between provincial infrastructure and municipal infrastructure.
Mr. Laverdure: I cannot speak about the approaches made by all of the provincial, territorial and municipal associations to their respective governments, but I can assure you that they have launched talks with the provinces and territories they deal with in order to try and review some of the funding mechanisms.
They deal directly with their own province or territory. I am unable to tell you which province or which association does what, but I know that this is what is done. We are not the only ones to hold talks with the federal government, and the territorial, provincial and municipal associations have their share of talks with their own government.
Senator Ringuette: Last week, representatives of the Conference Board of Canada appeared before the committee and presented to us their study on municipalities and their problems. The study dealt essentially with the province of Ontario, that transferred to the municipal level a range of provincial responsibilities, without necessarily having transferred the corresponding budgets.
The Conference Board of Canada purports to be a national institution, and, as a New Brunswicker, I was very disappointed that such a study be presented as being national, whereas it dealt only with the province of Ontario. I hope that the same cannot be said of your association.
It seems to me that you take into consideration all of the municipalities and all of the provinces, and not just Ontario, Alberta and British Columbia.
Mr. Laverdure: We have more than 1,600 members throughout Canada, including all of the provinces and territories and the major cities, Vancouver, Toronto, Montreal, all the way down to small municipalities with just 250 residents. We represent everyone. Our pleas are national in scope. When Mr. Steeves talked about downloading, in his statement, that targeted all of the provinces.
Senator Ringuette: But not all to the same extent.
Mr. Laverdure: Depending on whether the services fall under provincial or federal jurisdiction. Mr. Steeves gave the examples of affordable housing, of municipalities that are faced with waves of immigrants. There are also all sorts of areas of federal responsibility that no longer fall under the jurisdiction of municipalities.
[English]
Senator Eggleton: I suspect that if there were not a surplus, you would not be here today. The point is there is an imbalance between the governments that spend the money and how much money they are able to raise. That is the big issue. The taxpayer has various needs, and some of those needs are provided by the local level of government, some by the province and some by the federal government. Ideally, each level of government ought to be able to raise the revenues it needs to cover its area of responsibility. That is not what is happening and that is why there is an imbalance.
As the witnesses have pointed out, out of every dollar, the local level of government receives 8 cents. It gets most of its revenue from the property tax, which is not a growth tax, but it has continually more and more areas of responsibility put onto its shoulders. We need a combination of measures and what the FCM has outlined is quite reasonable. For example, dealing with the infrastructure deficit, monies coming from the federal and provincial governments need to be long term instead of going from budget to budget. One cannot plan on that basis. In order to plan, they need 20 years in terms of infrastructure funds. The same is true with regard to the transit infrastructure money through a national transit strategy that they are advocating.
The idea of the permanent gas tax transfer is good as well. It ensures that they can rely upon that every year. An escalator is a good idea because there is still a large infrastructure deficit. They need more from the progressive tax sources to be able to cover the infrastructure deficit and make that a reasonable request.
From what I am hearing from the Federation of Canadian Municipalities, uploading of more responsibilities on the municipalities is occurring all over the country. Either give them the money or to take back the responsibility is a reasonable solution.
I want to ask about the One Cent Now campaign of the big cities. The 1 per cent, or $5 billion, could easily be achieved. To answer Senator Nancy Ruth's concern about not increasing taxes, instead of eliminating this 1 per cent, we could give it to the municipalities. We would hardly notice the 1 per cent and the $5 billion would go a long way toward doing many of these things.
There is a constitutional question involved, and the constitutional situation is not ideal. When the Constitution was written and municipalities were made creatures of the province, 20 per cent of the population of Canada was urban. Today it is 80 per cent urban and the municipal government is a big factor in day-to-day lives and in the development of the economy. Let us not get into constitutional matters.
However, there is one aspect of it, and that is whether the federal government should be turning over $5 billion to the municipalities unconditionally or whether it should say that $5 billion will go towards the infrastructure programs. You get it one way or the other, but I hear some divisions of opinion as to whether that is an impediment. What are your thoughts about that?
Mr. Steeves: On the specific infrastructure discussion and where the money should be directed, there was some discussion in Toronto among the big city mayors about where the money should specifically be directed. The issues of operating and unconditional turning over were discussed among the big city mayors meeting in Toronto last week. I think it is the decided position of those big city mayors — again, not yet FCM policy — that the money should certainly be only infrastructure-based money. There is no hint that it should leach beyond that or bleed into operating funds. It is still the position of municipalities that they should be able to fund their own operating expenditures through their current regimes. It is specifically the issue of infrastructure.
Senator Nancy Ruth: It is not a question but a preference that I want to share with you. You were looking to go after the surpluses in the federal government. I sit as a Conservative senator, so do not be surprised to hear me say this, but would I much rather pay down the debt with the surplus. The last time it was paid down, it was equivalent to $660 million of tax relief for the next generation of Canadians. However, if you were to encourage the debt repayment at the federal level, it would relieve, in time, a tax burden to the taxpayer. I would prefer that municipalities went after their own tax point, where they are politically responsible to the electors for collecting it and for its use, rather than going after federal money.
Mr. Steeves: Fair comment.
The Chairman: Thank you, Senator Nancy Ruth. I think a lot of us, not just Conservatives, are interested in seeing the federal debt of almost $500 million paid down.
Senator Eggleton: There is a lot of municipal debt, too.
The Chairman: For those watching on television, our committee's interim report released in December 2006 is entitled The Horizontal Fiscal Balance: Towards a Principled Approach. It can be found at www.parl.gc.ca, under the Standing Senate Committee on National Finance reports.
It remains only for me to thank each of our witnesses, the President of the Federation of Canadian Municipalities, Mr. Gord Steeves, and with him, Mr. Gabriel Miller and Christian Laverdure.
Thank you very much for being here today and for giving us your comments.
The committee adjourned.