Part II: THE MUNICIPAL FISCAL BALANCE 

A. INTRODUCTION
            The fiscal imbalance debate plays out very differently at the municipal level. Municipal governments do not have the same taxing powers as the federal and provincial governments; they are constrained by provincial governments in terms of what revenues they can raise, how much they can borrow, and what expenditures they are required to make. 

As the Committee heard, while there would seem to be widespread agreement that a municipal fiscal imbalance exists, the extent of the imbalance is difficult to measure. For the most part, municipal budgets are balanced since most are prohibited by provincial statutes from running operating deficits. Municipalities may borrow for capital expenditures but debt charges relative to municipal expenditures have been declining.  That is because, in part, interest rates have fallen, but also because municipalities have reduced their debt loads to avoid servicing debt.  

According to Dr. Enid Slack of the University of Toronto, this apparent financial health has been achieved at the expense of municipalities’ overall health-- that is, at the expense of the services and the infrastructure provided at the municipal level[10]. Witnesses noted that the most visible example of the municipal fiscal imbalance is the growing infrastructure deficit[11]. Mr. Glen Hodgson of the Conference Board of Canada noted that estimates for the infrastructure deficit in Canada range from $50 billion to $120 billion, based only on current needs. Representatives from the Association of Municipalities of Ontario told the Committee the infrastructure deficit is continuing to grow by billions of dollars every year, which, in their opinion, is compromising  municipalities’ ability to provide safe, clean water, to protect the environment, and to provide reliable transit and efficient transportation networks.

After hearing from cities, municipalities, and municipal associations from across Canada, it is clear to the Committee that many local governments are struggling with current fiscal arrangements. Faced with limited resources and growing responsibilities, they question their financial sustainability. They told the Committee that to address their challenges, they require an expanded set of tools – including greater decision-making authority and access to a broader set of financial instruments. They also support greater federal involvement, including more stable, long-term federal commitments and policies in areas of national interest.

The City of Toronto offers a case in point. In a written submission to the Committee, the City told the Committee that it has been forced to use operating surpluses and one-time revenues such as surplus land sales to help fund infrastructure repair and maintenance, and to use reserve funds to alleviate annual budget pressures.  As its discretionary funds are almost depleted, without new funding arrangements with federal and provincial governments, the City believes that it will be forced to begin to cut municipal services.

As noted earlier in this report, the role of the federal government in this debate is complicated by the fact that under Section 92 of the Constitution Act, 1867, municipal or local governments are under the exclusive jurisdiction of the province.  In addition, there are other factors to consider. Across the country, the responsibilities of local governments vary greatly; and, within any given province, there is a distinct rural/urban divide. The political and administrative structures of local governments also differ greatly[12]. For this reason, the Committee believes that national solutions must be flexible in order to meet the distinct needs of individual local regions whatever form they may take, as well as to continue to respect provincial and territorial jurisdictions.  

i. Evolving Local Government Roles and Responsibilities

Historically, the purpose of a municipal or local government was to provide local services such as streets, water and sanitation, parks, garbage collection, emergency services, and some social services. These services benefited local residents and could be funded from locally-generated revenue. Over time, municipal roles evolved to include a much broader set of responsibilities, many of which have traditionally been the mandate of the provincial and federal governments (refer to Chart 1:  Local Government Expenditures by Category).

Chart 1:  Local Government Expenditures by Category, 2005

Source: Statistics Canada

Note: This chart refers to municipalities, municipal libraries and museums, municipal water and sewer services, and municipal boards, commissions and special funds. It excludes school boards. 

In many instances, the expansion of municipal responsibilities occurred in the 1990s when, in response to reduced transfers at the federal level, certain provinces downloaded responsibilities to local governments. This included transit, child care, education, social housing, airports, ports, and property tax assessment. In other cases, governments reduced transfers to local governments or withdrew their own financial support, in effect increasing municipal funding requirements. Other witnesses noted the negative affect that downloading has had on the more vulnerable segments of society. Downloading has had some positive aspects: witnesses noted municipalities may be able to deliver some services in a more effective and efficient manner than the provincial government simply because they know the demographic and geographic realities of their municipalities. As they observed, their challenge lies in paying for those services, not in their delivery.

Downloading has also taken the form of unfunded mandates. As witnesses explained, both the federal and provincial governments have often failed to provide appropriate cost-sharing arrangements with municipalities to facilitate the transition to mandated service provision standards, for example, improved water quality standards[13].  This can place a significant strain on already overburdened municipal finances. As a general comment, the Committee believes that when either the provincial or federal government introduces new measures that involve local governments, it should give due consideration to local government needs and provide appropriate compensation.

While they share in the same basic responsibilities, the precise functions of local governments vary significantly from one province to the next, and even between regions within a province. However, it was clear to the Committee that many municipalities are struggling to meet their individual expenditure needs with current revenue sources. As noted earlier, municipalities do not have the same taxation powers as other orders of government and continue to depend largely on a narrow set of revenue tools; namely, property taxes, user fees and intergovernmental transfers. These tools provide limited revenues and offer only modest capacity for growth. For example, the City of Vancouver told the Committee in a written submission that municipal local revenues grew by 14 per cent over the 1995-2001 period, compared with 30 per cent and 38 per cent at the provincial and federal levels respectively. The Federation of Canadian Municipalities observed that out of every tax dollar collected in Canada, 92 cents goes to the federal, provincial and territorial governments, while only eight cents goes to municipal governments.

Currently, the largest source of municipal revenues is property taxes, accounting for over half of all local revenues. As Dr. Slack explained, there are inherent difficulties in this reliance. The property tax is visible, making it more difficult to increase than income and sales taxes; and it is inelastic, meaning that the tax base does not increase automatically as the economy grows.  It is also regressive; low- and middle-income taxpayers pay a proportionally higher percentage of their income on property taxes than high income taxpayers; a difficulty experienced particularly in strong real-estate markets when property taxes are based on market value assessments. Other witnesses commented that an over-reliance on property taxes has contributed to the problem of urban sprawl, since cities have become dependent on expansion for new revenue.  In turn, this creates new financial pressures as lower‑density suburbs have proportionally fewer taxpayers supporting the same infrastructure requirements as core city areas. Moreover, witnesses noted that urban sprawl has other costs: it is a major contributor to greenhouse gas emissions.

Some witnesses, such as the Association of Municipalities of Ontario, suggested that the property tax is being used inappropriately to fund services that are arguably provincial responsibilities. As an example, in Ontario, approximately 50 cents of every dollar paid in property taxes is used to fund provincial health and social services programs such as disability benefits and long-term care for seniors.

Dr. Slack observed  that there may be potential for municipalities to raise additional revenues by allowing user fees to reflect more closely the actual cost of providing services such as transit and waste management. However, she believes that  municipalities’  ability to increase non-residential property taxes is limited because businesses are already overtaxed relative to residential properties and the services that they receive.

The Federation of Canadian Municipalities is of the belief that an increase in property taxes alone may not be sufficient to address municipal needs. To demonstrate this point, they noted that in a mid-size city of 500,000 residents, a 2 per cent property tax increase would raise an addition $5 million in revenue annually; in comparison, installing an underpass in that same city could cost over $60 million.

ii. Federal Involvement in Municipalities

The federal government is actively involved through both policy decisions and distribution of funding in several areas that directly interest municipalities. As many witnesses noted, cohabitation across all orders of government is now the norm for many policy spheres such as immigrant settlement, emergency preparedness, crime prevention and safety, and the environment. 

Funding arrangements with specific municipal involvement include several infrastructure funds (many of which have a dedicated municipal component); the federal Goods and Services Tax rebate for municipalities; the Gas Tax Fund; and public transit trusts and funds. Targeted programs include the Affordable Housing Initiative and the National Homelessness Initiative, among others, and immigration and refugee settlement and integration programs. Some of these initiatives are discussed below.

The administration of these initiatives varies. Until very recently, most federal funds have been channelled to municipalities through bilateral agreements with the provinces and territories. In recent years, the use of tripartite agreements has become more common, making local governments more equal partners to federal and provincial/territorial governments. For example, the Gas Tax Fund initiative is managed through agreements entered into by the Minister of Infrastructure Canada with each provincial/territorial government, the City of Toronto and in two cases, a municipal association (the Union of British Columbia Municipalities and the Association of Municipalities of Ontario). Witnesses also cited the Urban Development Agreements (UDAs) that are currently in place in Vancouver, Saskatoon, Regina, and Winnipeg. UDAs are a partnership of all three levels of government, working in collaboration on broad local issues such as inner city revitalization, strengthened innovation, or sustainable economic development[14]. The Committee also learned of bilateral federal/municipal agreements. The Green Municipal Enabling Fund and the Green Municipal Investment Fund were set up between the federal government and municipalities, without the provinces acting as intermediaries[15].

B. THE MAJOR ISSUES  

i. Revenue Sources and Revenue Sharing

Witnesses supported diversifying municipal revenue sources, but were divided as to what form that should take: some advocated more revenue-sharing arrangements with other orders of government, while others suggested giving the municipalities direct access to growth taxes. Others were less concerned about what form new revenues would take, as long as the arrangements were made permanent. 

Many witnesses advocated giving large cities and city-regions access to a broader mix of taxes, including income and sales taxes revenues. They noted that doing so would make municipalities less dependent upon transfers from senior levels of government; provide more accountability to the taxpayer; and respond to the municipalities’ growing responsibilities by offering a stable, predictable source of funding that grows with the economy. The Conference Board of Canada noted that most major cities in the United States and Europe have access to forms of growth taxes, and as such are more able to address their concerns directly.

The Committee was interested to learn of the unique revenue-sharing arrangements that exist in the province of Manitoba. As Mr. Bell of the Association of Manitoba Municipalities explained, the province recently announced a new Building Manitoba Fund that links municipal grant money to provincial gas tax revenues. In addition, the province shares a percentage of personal and corporate income tax with its municipalities, as well as a share of video lottery revenues. 

Giving cities direct access to growth taxes may be challenging. One issue raised by Dr.  Slack lies with the current governance structure of municipalities where large metropolitan areas are not governed as unique regions, for example Toronto within the Greater Toronto Area. Existing municipal boundaries could present problems should one municipality choose to levy a tax while a bordering municipality does not.   

Another solution proposed by witnesses would be to provide municipalities with their own tax room. In this case, accountability would also lie with the municipalities who could choose how much of the tax room they would occupy. Also called “transfer of tax points,” tax room is transferred when one level of government reduces the amount of tax it imposes, thereby allowing another order of government to increase their taxes by a corresponding amount.  The transfer of tax room has no net financial impact on the taxpayer per se; the only discernible effect is that a different order of government receives the revenues that another order could have collected. However, the value of the tax room changes along with the growth rate of the economy, and specifically the revenue potential of the tax base.

Many witnesses advocated transferring to the municipality all or part of the tax room made available by a lower GST rate. As they noted, 1 per cent of the GST currently raises about $5 billion of revenue in Canada, and would provide substantial funds to address the infrastructure deficit[16].

As the Committee heard, these proposals – either a reduction in the GST and/or allowing access to income and consumption taxes –  present other challenges due to the current constitutional status of municipalities. In Canada, provincial governments retain the exclusive authority to grant municipalities the power to levy taxes. Municipalities would be unable to take advantage of a transfer of tax points at the federal level unless provincial legislation was amended to allow them to do so. With respect to the GST, witnesses noted that this is complicated by the fact that Canada does not have a well‑integrated system of federal and provincial sales taxes, the exception being Atlantic Canada.  This would complicate any move to levy, for example, a municipal sales tax in place of the GST. There is also the unique situation of Alberta, which has no provincial sales tax and may not wish to establish one in order to assist municipalities in taking up the tax field vacated by the federal government.  Moreover, a transfer of tax points could lead to a more fragmented tax system favouring the more wealthy municipalities, and could worsen the problems of regional disparities in fiscal capability within provincial/territorial boundaries.

Other witnesses suggested a different approach, similar to how the current Gas Tax Fund is administered. In this case, the federal government would provide the municipalities with the equivalent of a one per cent reduction in the GST. Witnesses suggested that in this case, the federal government would be able to impose conditions on how those funds are spent, for example, specifically directing it towards infrastructure. The federal government, and not municipal governments, could remain accountable to the taxpayer, although other arrangements are possible.

For example, witnesses suggested that a GST fund be governed in the same way as the federal Gas Tax Fund, which is administered on the basis of negotiated agreements with each province, territory, and in some cases, municipal association or city. Witnesses appreciated the flexibility of the current arrangements, noting that they take into account the different relationships that exist between the municipalities and the provincial governments across the country, as well as the significant differences in priority areas of investment [17]. Witnesses also noted that there are fewer restrictions over the use of Gas Tax Funds than when the program was originally introduced. They also appreciated its predictability: since funds are distributed on a per capita basis based on recent Census data, municipalities know how much they will be receiving in advance (in this case, until the fiscal year 2013-2014), and as such, are able to plan capital expenditures over that period. They are also able to hold funds in reserve to facilitate major projects.

The Committee agrees with witnesses that municipalities need a wider range of revenue sources to meet their expenditure responsibilities, and in particular to address the growing infrastructure deficit, and social and environmental challenges.  It believes that any new revenue sources should be selected based on their potential to provide stable, predictable, and adequate income that is directly linked to economic activity.  It notes that the federal government would need to seek an agreement with the provinces in order to give the municipalities access to growth taxes, and that such a change might have implications for federal-provincial arrangements.  

Recommendation: That the federal government consider giving the municipalities access to growth taxes, including the GST.

ii. Cities and the Competitive Advantage

As was noted during the hearings, Canada has become one of the most urbanized countries in the world.  The recent 2006 Census indicates that over four-fifths of Canadians are living in urban areas; the vast majority of Canada’s population growth has been concentrated in metropolitan areas. Moreover, two-thirds of Canada's population growth was attributable to net international migration.  Three quarters of immigrants to Canada settle in the three largest cities:  Toronto, Vancouver, and Montreal.

The rapid growth in urban municipalities has put enormous pressure on service delivery and infrastructure.  The larger cities in particular have seen an expansion in their responsibilities and are facing greater demands in the level of services provided. Many witnesses commented that cities and city-regions are facing unique and complex challenges, such as poverty, housing, air quality, traffic congestion and crime, but lack the tools and authority to address them.

Ms. Yalnizyan discussed inequality in Canada, particularly in large cities. She opined that inequality is at a record level in Canada, despite 10 years of strong and sustained economic growth.  She offered the example of housing markets. The growth in housing values is far outpacing that of incomes, jeopardising access to affordable housing. She explained how rising real estate markets in Toronto have also affected community development: people who are on fixed, low, insecure or stagnating incomes can only afford to live in certain low-value neighbourhoods. They are low-valued because they lack access to basic services such as transportation, child care and recreation. As she noted, this trend is accelerating in larger cities, partly due to Canada’s reliance on immigration; immigrants tend to settle in poorer areas. For this reason, she explained, housing and transit are linked. She also noted that there is no national strategy for either, nor for labour-market training or child care, which she feels are all elements of a comprehensive anti-poverty strategy. 

Generally, witnesses were of the belief that the current governance structures do not reflect the modern realities of Canada.  They noted that despite their growing importance and the complexity of the issues that they face, constitutionally, cities and city-regions are governed by a century-old  model that makes them almost completely dependent on the provinces. As a result, they generally lack policy autonomy and are not systematically included in the decision-making process at either the federal or provincial level. As Ms. Yalnizyan observed, “a place at the table is needed.”

As they remarked in their recent report, Mission Possible: Successful Canadian Cities, the Council of the Federation believes cities and city-regions are the drivers of national prosperity. Along with increased access to new revenue sources, they encourage the federal government to make strategic, targeted investments in large cities, particularly in areas of national interest, namely, the environment and competitiveness.    Other witnesses disagreed. The Cape Breton Regional Municipality told the Committee that Halifax receives a greater share of government assistance than its population would suggest. For example, the majority of the federal government commitment to the transit system in Nova Scotia went to the Halifax Regional Municipality. In their opinion, this is exacerbating the regional disparities that already exist within the province.

iii. Rural Municipalities

The Committee heard that smaller, rural and remote communities are also dealing with unique challenges. Like urban areas, they are also faced with an erosion of services and a growing infrastructure deficit, but may have even more difficulty raising revenues on their existing tax bases.  Property tax revenues are tied to property values, which are generally lower in smaller communities. People and businesses are migrating to larger centres, eroding the existing tax base. In the absence of economics of scale, the cost of providing services and infrastructure in smaller, rural and remote communities may be higher compared to urban areas.  Imposing user fees that correspond to the actual cost of services in small communities and remote areas would be prohibitive. 

Some smaller municipalities note that their needs are not taken into consideration by other levels of government when developing policies. The Cape Breton Regional  Municipality noted that in their view, decisions are often made in, and for, large urban centres without due consideration to the effect on outlying regions.

Many witnesses observed that while some solutions may work for larger cities, such as giving municipalities access to growth taxes, for the reasons discussed above they would not generate sufficient revenue in small, rural, and remote communities. In their opinion, a more suitable option would be targeted grants and other programs from both the provincial and federal governments.  Some also suggested ensuring a significant portion of any new infrastructure programs is dedicated to the needs of smaller urban as well as rural, remote and northern communities. As an example, witnesses spoke of the $1 billion Municipal Rural Infrastructure Fund (MRIF) that was announced in Budget 2003, which was structured to respond to the specific needs of  municipalities in  rural and remote areas. At least 80 per cent of MRIF funding was earmarked for municipalities with populations of less than 250,000.

iv. The Federal Gas Tax Fund and Infrastructure Funding

As witnesses noted, the Government of Canada has taken steps to respond to the infrastructure deficit. The federal government began investing in municipal infrastructure in 1993 with the establishment of the Canada Infrastructure Works Program.  Since that time, the federal government has invested billions of dollars in various infrastructure programs, largely directed towards municipal governments. These include current programs which are now sunsetting, such as the Canada Strategic Infrastructure Fund, the Border Infrastructure Fund, and the Municipal Rural Infrastructure Fund noted above.  Recent budgets introduced new infrastructure funds, including the Building Canada Fund, the national fund for gateways and border crossings, the national fund for P3 (Public-Private Partnership) projects, and the Asian-Pacific Gateway and Corridor Initiative.

Federal funding for infrastructure also includes the rebate on GST and the federal portion of the Harmonized Sales Tax paid on purchases of goods and services by municipalities. In 2004, the federal government increased this rebate from 57.14 per cent to 100 per cent. According to the 2007 Budget, the GST rebate will provide municipalities with $715 million in the fiscal year 2007-2008. 

In 2005, the federal government announced the creation of the Gas Tax Fund.  The fund was originally a $5 billion transfer payment program equivalent to 5 cents per litre of gas tax revenues, to be delivered from the fiscal years 2005-2006 to 2009-2010. In Budget 2007, the federal government committed to extending the initiative to the fiscal year 2013-2014. Under this proposal, over the next seven years municipalities will be receiving a total of $11.8 billion in gas tax funding. The Gas Tax fund was designed to assist cities and communities to make long-term financial investments in urban planning and environmentally-sustainable infrastructure projects in such areas as public transit, water and wastewater projects and community energy systems.  Payments are conditional and are distributed largely on the basis of population.

Table 2: Planned Federal Investments in Infrastructure, 2007-2008 to 2013-2014

Source: The Budget Plan 2007.

1. Totals $1 billion, including $24 million in initial funding in the fiscal year 2006–2007.

2.  Includes the Infrastructure Canada Program, the Canada Strategic Infrastructure Fund, the Border Infrastructure Fund, the Municipal Rural Infrastructure Fund and the Public Transit Capital Trust. 

The cities, municipalities and municipal associations told the Committee that they were very appreciative of recent federal initiatives, in particular the Gas Tax Fund. However, they expressed regret that recent federal budgets have not delivered a long‑term, structural solution to eliminate the municipal infrastructure deficit. As many remarked, municipalities require dedicated, sustainable, predictable and long-term federal infrastructure funding for long-term capital planning purposes, without which they lack the confidence to proceed.

As witnesses remarked, sharing the revenue generated by the GST would be an excellent first step in addressing municipalities’ infrastructure deficit.  In conjunction with this, witnesses suggested that a long-term plan include making permanent the gas tax transfer. The Federation of Canadian Municipalities also recommended introducing an escalator to protect its value over time, both against the effects of inflation, and against the effects of population growth and economic expansion. In addition, the Federation recommended that the federal government expand the current project-eligibility criteria for the Gas Tax Fund such that municipal governments have greater discretion to allocate the funds toward local priorities.  Some witnesses were less concerned with this issue. They appreciated the current administrative and reporting arrangements, and that the funds were distributed as straight transfers and were not application-based.

With respect to the environment, witnesses noted that the responsibility for fighting air pollution and climate change is shared among federal, municipal and provincial/territorial governments. However, they told the Committee that these orders of government continue to operate independently and, in the absence of a national plan, their policies and programs tend to overlap, which is both costly and inefficient.

The Federation of Canadian Municipalities told the Committee that it would like the federal government to work with provincial, territorial and municipal governments to develop a national plan that would guide government investment in infrastructure. In their view, the plan must also take into account environmental and demographic issues, including accounting for the effects of climate change on critical infrastructure.

Witnesses also called on the federal government to ensure that a significant portion of new federal infrastructure programs are explicitly dedicated to municipal projects. As they observed, sunsetting infrastructure funds had significant municipal priority involvement, whereas it is not clear if the new Building Canada Fund does. The Association of Municipalities of Ontario is also concerned that, by combining funding for both provincial and municipal projects together under the Building Canada Fund, the interests of Canada’s municipalities may be overtaken by those of the provinces and territories. 

The Committee recognises the significant resources that the federal government has dedicated towards infrastructure. However, it agrees with municipalities that, for long-term capital planning purposes, a greater level of stability and permanence is necessary.  For this reason, it supports making permanent the gas tax transfer. As is currently the case, this funding should be in addition to existing targeted federal infrastructure programs. It also notes the municipalities’ concern over what they see as the lack of a federal national infrastructure plan, particularly as it relates to the effects of climate change on critical infrastructure. A national infrastructure plan should also include a comprehensive national transportation plan.  

Recommendation: That the federal government make permanent the Gas Tax Fund, and introduce an escalator to protect its value over time.

Recommendation: That the federal government develop, in collaboration with the provinces, territories and municipalities, a national plan that would guide long-term government investment in infrastructure. The plan should take into account transportation, environmental and demographic issues. It should also take into account the needs of smaller urban as well as rural, remote and northern communities.

v. National Transit Strategy

Current federal funding for transit includes the $900 million Public Transit Capital Trust, and the $400 million Public Transit Fund. These funds support capital investments in public transit infrastructure including rapid transit, transit buses, intelligent transportation systems and other investments such as high-occupancy vehicle and bicycle lanes.  In addition, several existing federal infrastructure funds and programs have public transit components. Other federal programs support increased transit use, such as the public transit tax credit.

Witnesses told the Committee that public transit is critical both to the quality of life and environmental health of urban communities, and to Canada’s economic competitiveness.  The Federation of Canadian Municipalities informed the Committee that a 2006 federal survey found that traffic congestion costs Canada's urban economies up to $3.7 billion annually.[18]  Despite this, Canada remains the only G‑8 country without a long term federal transit-investment policy.  In their view, greater federal and provincial involvement is necessary as the cost of building large-scale transit projects is prohibitive; as witnesses noted, the Canadian Urban Transportation Association estimates that Canada's public transit systems will need over $20 billion in new capital investment by the year 2010.

Witnesses were in agreement that an important component of an infrastructure plan would be a national transit strategy that would provide permanent, long‑term funding. The plan should provide greater continuity and predictability than do the current fiscal arrangements outlined above. The Federation of Canadian Municipalities suggested that any funding should be accompanied by a plan to integrate transit investments with other policies that support transit use and smart land use. They told the Committee there is a leadership role for the federal government in generating information and research on best practices on transit use and planning, and ensuring that that information is shared across the country.  

The Committee has since learned that the federal government intends to develop a National Urban Transit Policy, in consultation with the provinces, territories and other interested partners. However, the strategy is not expected to involve new funding beyond what is currently earmarked for infrastructure projects[19].

Recommendation: That a national urban transit strategy include permanent, long‑term funding dedicated to urban transit.

vi. Federal Leadership

Some witnesses commented that the federal government could assist municipalities by discharging its own responsibilities more effectively.  As Dr. Slack noted, “It is not just the money that the federal government gives to cities but how they deliver their own services that helps cities; that is, they deliver services to people in cities”.  The City of Vancouver agreed with this assessment. In a submission to the Committee, they ask for assurance that areas of federal/provincial responsibility will be adequately funded and serviced to avoid pressure on the city to allocate funds outside of their mandate. Examples they cite include regional transport, health care, non-market housing, social programs and daycare.

The City of Toronto also agreed with this view. Moreover, it told the Committee that it considers federal programs such as the Affordable Housing Initiative and the Residential Rehabilitation Program essential in addressing the affordable housing problem in Toronto. The City also welcomed the introduction of the Homelessness Partnership Strategy in December 2006, which replaced the National Homelessness Initiative. They note, however, that these programs are short term initiatives, most of which do not provide funding past the year 2009. Other witnesses noted the lack of a national housing strategy.

There was general agreement among witnesses that the federal government has a greater role to play in coordinating policies and programs across all three orders of government.  Many witnesses recommended clarifying roles and responsibilities, and working more collaboratively in areas of overlapping jurisdiction.  As the Federation of Canadian Municipalities told the Committee:

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.

Witnesses called for a greater municipal involvement and authority in areas of shared and overlapping jurisdiction. Other witnesses note that the federal and provincial governments have already started the process of working more collaboratively with municipalities, citing the Gas Tax Fund as an example.

CONCLUSION

While it respects the constitutional jurisdiction of the provinces, the Committee believes that there is a significant federal role in our communities. This starts with ensuring that the actions and policies of federal government do not exacerbate the social and economic disparities that may exist within provinces and territories. The Committee shares the concern of many witnesses about the rising inequality in Canada, in a time where Canada’s economic performance and fiscal capacity is strong.  For this reason, the Committee supports changes to the vertical fiscal arrangements which, in its opinion, are one element in a strategy to better enable provincial and territorial governments to respond to local needs, be it for post-secondary education, or for social services and social programs. 

As a first step, it recommends that the federal and provincial governments undertake a joint study of the impact of the move to equal per capita cash support under the CST and CHT. The Committee also supports restructuring the CST into two separate components. It believes that this change should lead to greater accountability and transparency in the use of federal funds at the provincial, and ultimately, municipal level. In its opinion, this may help to ensure that resources better correspond to responsibilities and that tax dollars are spent most effectively.

In addition, it believes that federal government should continue to pursue opportunities to work more collaboratively with other orders of  governments, particularly for issues that cut across jurisdictional boundaries like climate change and immigrant settlement. This points to the need for national policies on matter that are key to Canada’s economic and social development. Thus, it supports the development of national plans for both infrastructure and transit.  These plans would be incomplete without long-term, dedicated funding. Accordingly, the Committee is also recommending that the federal government consider making changes to its existing funding arrangements that benefit municipalities, with the objective of providing greater continuity and predictability than is currently the case. In particular, it supports making permanent the Gas Tax Fund. It also encourages the federal government to consider giving municipalities access to growth taxes such as the GST. It notes that in order to do so, the federal government would need to seek an agreement with the provinces.