revenue options for canadian municipalities enid slack institute on municipal finance and governance...

Revenue Options for Canadian Municipalities

Enid SlackInstitute on Municipal Finance and Governance

Presentation to Canadian National Summit on Municipal Governance

July 11, 2005

2

Outline of Presentation Background on municipal finance

Fiscal challenges facing municipalities

Revenue options - existing sources

Need for a mix of taxes at the local level

Revenue options – new sources

Revenue sharing versus taxing authority

3

Background on Municipal Finance – Expenditures Municipal expenditures, Canada, 2003:

Transportation (19%) Health, social services, social housing (13%) Fire and police protection (17%) Water, sewers, garbage (17%) Recreation and culture (12%) Debt charges (4%) Planning and

development (2%) Other (16%)

4

Background on Municipal Finance –Revenues Municipal revenues, Canada,

2003:

Property and related taxes – 53% User fees – 23% Provincial transfers – 15% Federal transfers –1% Other revenues – 8%

5

Fiscal Challenges Facing Municipalities Offloading of services

International competitiveness

Urban sprawl

No diversification of revenue sources

6

Fiscal Challenges – Success on Fiscal Measures Municipalities have done well on

fiscal measures:

Size of the operating deficit Amount of borrowing for capital Rate of property tax increases Reliance on provincial grants Extent of tax arrears

7

Fiscal Challenges –Infrastructure and Services

Fiscal health may been achieved at the expense of the overall health of Canadian municipalities:

The state of municipal infrastructure (water, sewers, roads etc.)

The quality of service delivery

8

Revenue Options – Existing Sources

Property taxes

User fees

Development charges

Borrowing

9

Property Taxes Good tax for local governments

(related to benefits received, property is immovable, visible tax)

Modest increase

Over-taxation of business

10

User Fees Price at marginal cost

Altering behaviour versus generating revenues

11

Development Charges Appropriate to pay for growth-

related costs associated with development

Marginal versus average cost pricing

Tool to reduce sprawl

12

Borrowing Appropriate to pay for capital

expenditures

Debt charges relative to own-source revenues have fallen in Canadian municipalities

Need for new debt instruments

13

Municipal Access to Other Taxes Cities should have access to a mix

of taxes:

Range of expenditure responsibilities (need revenues to match)

Services used by commuters/visitors Revenues that grow with the

economy Increase municipal flexibility

14

Revenue Options – New Tax Sources

Income tax

Sales tax

Fuel tax

Hotel tax

15

Taxes per Capita, 2000LA Atlanta Chicago Boston Detroit Toronto

Property

General Sales

Selective Sales

Income

Other

Total

$461

153

205

0

194

$1,013

$1,038

558

332

0

175

$2,103

$444

147

415

0

85

$1,091

$962

0

65

0

65

$1,092

$383

0

142

480

35

$1,040

$1,005

0

0

0

0

$1,005

16

Non-Tax Revenues per Capita, 2002

LA Atlanta Chicago Boston Detroit Toronto

User Fees

Transfers- Federal- State/Prov.- Local- Total

Other Revs.

Total Revs.

566

98935

161,049

307

$2,935

945

6030

262352

640

$4,040

264

111360

0471

264

$2,090

508

430902

01,332

236

$3,168

687

2041,101

81,314

534

$3,575

281

52422

96570

198

$2,054

17

Income Tax Revenue elasticity

Appropriate to finance social service expenditures

Large potential revenues

18

Sales Tax Revenue elasticity

Taxes commuters and visitors

Incentive for cross-border shopping

19

Fuel Tax Benefit tax if used to pay for roads

Not as good as tolls to reduce congestion

Not very elastic

Limited revenue potential

20

Hotel/Motel Occupancy Tax Taxes visitors to pay for the

services they use (e.g. roads, policing)

Limited revenue potential

Potential “cross-border” problems

21

Revenue Options: Revenue sharing versus local taxing authority Municipalities should set their own tax

rates: Autonomy Flexibility Accountability Stability and predictability

But have to address border problems

Expenditures and tax rates need to be determined on a regional basis

22

Concluding Comments Municipalities face fiscal challenges

Municipalities would benefit from new sources of revenue

Municipalities could also do more with existing revenue sources