The State of the City and a New City Agenda

Strategy Institute on Local Government

Tuesday, July 12, 2005

Notes for speech by John Sewell.

Municipal legislation was first passed in central Canada in the mid-19 th century and it laid the groundwork for municipal legislation in Canada ever since. The general approach was to treat municipal councils as minor administrative devices with bits and pieces of power functioning under the thumb of provincial governments. This attitude was reflected in the British North America Act of 1867, the prime constitutional document of Canada , in which provinces are given the power to legislate about municipal matters. That has led to the statement that

municipalities are mere “creatures of the province” and thus a province can do with them what it likes. The sad situation was summed up in 1997 when, in a court case challenging amalgamation in Toronto , Mr. Justice Stephen Borins of the Ontario Supreme Court stated:

“… there are four principles which apply to the constitutional status   of municipal governments:

  (i) municipal institutions lack constitutional status;

  (ii) municipal institutions are creatures of the legislature and exist   only if provincial legislation so provides;

  (iii) municipal institutions have no independent autonomy and their   powers are subject to abolition or repeal by provincial legislation;   and

  (iv) municipal institutions may exercise only those powers which are   conferred on them by statute. “

This might be an accurate statement, but it is chilling nonetheless.

Of course, times have changed since the mid-19 th century. The locus of private decision-making has clearly moved into large urban areas, urban areas which are part of an international network often obscuring national roots. Cities have become important players in the world, the locus of new ideas about politics, social services, culture and economics.

But the legislation that creates the structures for municipal governments has not changed. City decision-makers are hedged in by an incredible number of rules. Their powers are very limited. Their need to seek provincial approval is extensive. Their revenue sources are very small.

When municipalities were established in the mid-19 th century they were given the power to levy taxes on property, then a significant source of revenue. Today, however, the main sources of revenue come from transaction taxes such as income taxes, sales taxes and corporate tax.

In recent years there have been nods in the direction of municipal reform. New legislation has been introduced in Alberta and in several other provinces, including Ontario . The Alberta legislation attempts to expand municipal powers by creating spheres of jurisdiction but the change has not been significant. The legislation in Ontario is somewhat modeled on Alberta , but its special detail makes it more restrictive than the legislation it replaced. It is fair to say tinkering with municipal powers in this manner has not been particularly helpful for municipalities. When limited power is tied to limited resources then cities are left with very little maneuvering room to resolve the problems they face.

What makes the matter worse is the recent downloading. The federal government began shedding financial obligations with Paul Martin's budget in 1994-5. Provincial governments responded in turn by shedding some of their financial obligations and imposing them on the municipalities. Municipalities were granted no new revenue sources, just added expenditures, and in the case of Ontario some of those expenditures were significant. For instance, Ontario municipalities which had engaged in building a great deal of affordable housing in the 1970s and 80s found they were now stuck with paying all of the subsidy costs involved in that housing. They were punished for having attempted in the past to resolve one of their largest problems, namely housing.

Rarely has the divergence in interest between levels of government been so clear and plain. The most common picture today is of a municipal leader making an impassioned plea to the provincial or federal government for some new or extra stipend for a good cause – more money for the transit system, please, or for sewers and water pipes. Or a mayor will ask for a smidgen more legislative room to enact, for instance, a hotel room levy to help fund an advertising campaign directed at tourists, or an improved convention centre, perhaps. On a day-to-day basis, such requests seem to the woman on the street like the inevitable squabbling of elected leaders as they vie for power and prestige. The big issues – severe social inequality, homelessness, unsafe neighbourhoods, spiraling health costs – are necessarily pushed to one side by local leaders in the hope that some small amelioration can be achieved.

Canadians can't afford to put off resolving the dispute for much longer. The big problems must be addressed.

If the problem is so clear, why haven't the provincial and federal governments responded in a rational way? One answer is power. Senior politicians, like everyone else in positions of power, oppose the idea that someone else should have the ability to do what they are doing. Lord Atkin came up with the phrase “Power tends to corrupt and absolute power tends to corrupt absolutely”, which captures the problem of the powerful. If we were to soften the phrase, and denude it of references to corruption, one might say: “Power tends to be self-admiring and those holding it are wary of sharing their authority with others.” So the first problem we have is a psychological one.

Of course, giving local government more power does not mean that other governments have less. The paradox is that empowering the city helps to empower other levels of governments and creates opportunities for them to be supportive of each other. We know this from family dynamics. When children are treated as adults and act as adults, family members become stronger – everyone wins and the family becomes more viable. Forcing local government to continue within the rigidity of antique legislation creates reactions of resentment and belittlement and does not encourage creativity, flexibility and maturity. We've seen lots of that.

A second problem is that city politicians often seem unable to figure out what it is that they want. In recent years they have been saying the problem is a financial one but as they ask for more money, too often they have shown themselves to be incapable of spending the resources already available to them wisely.

As well, they have trouble formulating in legislative terms what exactly they mean by having more power. One thinks, for example, of the negotiations that have been going on between the province and officials both from the City of Toronto and the Association of Municipalities of Ontario about new municipal legislation for Ontario municipalities and for the city. These negotiations have been going on for nine months, but have produced little. There are no significant proposals on the table and municipal politicians have not managed to say what they want. Nor have they been willing to rely on outsiders to help them with that task. It is as though the municipal politicians are acting like the very children which the province is trying to treat them like.

Attempts have been made by people like Alan Broadbent and Jane Jacobs a few years ago to bring the mayors of Canada 's largest cities together to work out a united agenda. That initiative went beyond the politicians, and included representatives in each city from United Way , business and labour. But the good intention ran aground in two areas: first, there was often what could charitably be called a deficit in municipal leadership. Toronto was saddled with Mayor Mel Lastman who disliked working with others and was unpredictable in his behaviour. It meant the mayors had a very hard time working together. And when it wasn't Mayor Lastman who was causing a problem, it was someone else.

As well, each of the large cities was lodged in its own province and therefore each had a different political master. The federal government felt it really did not have much to contribute to these mayors, apart from a few speeches. Thus, this attempt to get a city agenda in the forefront of political change failed.

Paul Martin himself urged the idea of a new deal for cities two years ago, but in the end this has been watered down to a new deal for communities – which turns out to be simply a device for transferring funds (about $30 per person per year) from the federal government to local governments. It is not a device to strengthen either cities or local government.

**

Insert on John Godfrey

I'd like to comment on the remarks of John Godfrey which we have just heard. My life seems filled with Godfreys. First Paul Godfrey, as chair of Metro Toronto, now John Godfrey as Minister of State and whatever. I'm an admirer of John Godfrey – he's stuck out his neck in the past for children and immigrants, and has done much to define agendas for both at the federal level. But the mandate he's been given on this file is limited.

The gas tax transfer, as I've mentioned is equivalent to about $30 per person per year, although in the first two years the amount flowing to most communities is $20 per capita. For Toronto that is peanuts, and its peanuts for most Canadian cities. It will buy you one fifth of a monthly transit pass.

Just to put it in perspective: the tax surplus generated by the provincial and federal governments from the city of Toronto is $11 billion a year. They collect $11 billion more in taxes than they return in services. That's about $4000 for every man woman and child in Toronto , every year. Returning $30 of that is returning less than 1 per cent.

I'm sure many will say, yes, but they have also promised money to Toronto for day care and immigrant settlement services. And the NDP budget amendments provide money for the next two years for transit, affordable housing, and Kyoto .

It's true these files all bring new money to Toronto and to other cities. In the case of Toronto , I've looked at each area and have calculated the amounts that would flow to Toronto . Including the gas tax money, the total amount of new money coming from federal sources to the Toronto governments and its agencies, as well as to social agencies, is about $500 million this year, and $550 million next year. It then drops considerably since the NDP amendments are in place only for two years.

Maybe $500 million is not a sum to scoff at. However, it represents less than 5 per cent of the tax surplus generated from Toronto . Those senior governments still walk away with 95 per cent of the tax surplus they generate from Toronto – money they spend in the rest of the country. The problem is that Toronto is starved for money and programs. If you are wondering why there are so many homeless people on the street in our city, it's because there has been no program to build affordable housing for the past decade. If you are wondering why there is so much gun culture among our youth, it's because we've refused to fund adequate support programs for very poor youth during the last ten years and they are now paying the price, just as Stephen Lewis warned us when he reported on the challenges facing black youth after the shooting of Rodney King in Los Angeles, and the ensuing mini riot in Toronto..

Other parts of the country are doing well living off Toronto 's wealth – and the wealth of other large cities, since Vancouver , Calgary , Edmonton , Winnipeg and other large cities also produce tax surpluses which are carted away by provincial and federal governments to be spent elsewhere.

What concerns me is that Mr. Godfrey doesn't seem to recognize this. He doesn't make reference to this problem. And if the federal government is to get serious about cities and the roles they play in making a strong Canada , that is something which Mr. Godfrey and Prime Minister Paul Martin must do. When Mr. Martin introduced the idea of a new deal for cities two years ago, many thought that was about to happen. It didn't the program is watered down so cities are treated no differently than the smallest town or village. Throwing a small amount of money at the city problem isn't good enough.

***

Let me turn to the question of what a new arrangement might look like for larger municipal governments, those governments that operate in cities. I believe a viable new arrangement would encompass three general points: Revenues,

Powers, and Regional decision-making

Revenues

There are several ways of approaching the question of revenue. One is to re-establish the relationship that cities and provinces had before downloading began. If the provincial governments were required to take back downloaded costs for such matters as affordable housing, child care, and transit, a significant amount of revenue room would be created for cities. This would remove the immediate problems, and allow cities the flexibility to improve spending on things like road maintenance, park maintenance, recreation programs, by-law enforcement, and so forth. This seems to be a good first step.

Second would be to provide cities with small revenue sources that they have been asking for - a hotel-motel occupancy tax, for instance, as well as excise taxes on fuel, liquor, tobacco, vehicle registration and land transfer. These are all relatively small sources of revenue but they would help the city to address specific problems. For instance, a hotel tax could fund tourist information programs. The city should also have the power to levy tax increment financing, TIF, to support neighbourhood infrastructure development.

A third approach would be some arrangement for better revenue sharing. The model here is the Edmonton Commitment which the Ontario Government agreed to in the 1970s. The Edmonton Commitment obligated the Ontario government to increase grants to municipalities equal to the increase in general revenues available to the province. It seemed like the perfect way to help municipalities share in the increase of wealth as reflected in sales, income and corporate taxes. Of course it lasted only several years and was abandoned when the province found it had other financial challenges. This will always be the fate of revenue sharing. No government likes to raise taxes, the revenue from which it then has to pass on to a different level of government. The province will be accused of taxes that are too high, and blamed for funding municipal programs over which it has no control. Revenue sharing is a good idea in theory but it is not so good in practice.

A fourth approach is to give the city powers to raise revenues from the big income sources, namely income and sales taxes. But that is very difficult to do when urban areas consist of a number of different municipal councils. One council can't levy a sales tax if the others don't because of the border problem – shoppers will cross the border to shop more cheaply. Same with trying to levy income taxes. So these taxes can't be used until someone addresses the regional questions.

Powers

This question is pretty straightforward. The city should be granted legislative powers which are broad and expansive, free of the need for provincial approval of city decisions. These powers should permit the city to take actions which ‘meet or beat' provincial and federal laws and regulations – that is, the city should be able to do things which strengthen (but do not weaken) standards set out in senior government legislation or regulation. This was expressed by the Supreme Court of Canada as the ‘dual compliance' test: a municipal bylaw would be disallowed only if it compelled what senior government law forbids.

Regional Decision-Making

It is imperative that the institutional capacity be created locally to address regional issues. Most cities consist of a number of different municipalities that are not joined together in any useful framework. Vancouver is an exception, with the Greater Vancouver Regional District. Megacities have usually been created to be dysfunctional rather than to cerate stronger local government, and most need to be rethought.

But even most megacities don't cover the whole of the urban area. We need some new structures which are the current embodiment of the metropolitan government spirit of 50 years ago. Those structures must be empowered to deal with land use and infrastructure planning, transportation, and the protection of natural systems. They must be capable of creating and maintaining a strategic growth management plan for the larger city, and provide a context for local planning.

It's a bit unclear exactly what form this structure might take, but what's needed is an agreement by provinces and municipalities in urban areas that independent studies must be undertaken to find what's best for each area. A process should be undertaken by the province in consultation with the city and other local governments to forge a consensus on the shape and structure of this institution (or institutions) – that's the starting point.

Let me summarize.

The legislative framework for municipalities is inappropriate and serves no one's long term interest. It must be replaced.

The failure of remedial action can be laid at the feet of provincial and municipal leaders alike, and both must take action.

The best way to start implementing more appropriate revenue arrangements is to think small – make small changes about reversing downloading, and provide some new revenue tools which are limited.

Questions of powers are more straightforward – allow cities to do what they want, while removing the need for approvals.

Tie these questions together by studying and establishing regional frameworks appropriate to different locales.

Perhaps this is seen as a limited agenda, but it seems to me that unless we can go this far, we can never start considering some of the larger matters of autonomy that have been talked about. Until we get agreement on these small and reasonable steps, I suspect we'll never get agreement on a larger picture. The challenge is to create a constituency for these kinds of changes at the local and provincial levels. Once they have been made, maybe it will be found that these are adequate to allow considerable local autonomy.

Thank you.