Funding Municipal

Infrastructure in Canada:

Challenges and Opportunities

Enid Slack Institute on Municipal Finance and Governance Munk School of Global Affairs University of Toronto Saskatchewan Heavy Construction Association Regina, Saskatchewan April 4, 2012

Infrastructure Matters

“To separate the economy of a city from its

infrastructure is like asking how the human

body would function in the absence of its

skeleton and cardiovascular and nervous

systems”

Christopher Kennedy, The Evolution of Great

World Cities: Urban Wealth and Economic Growth

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Funding Infrastructure in Canada

Trends in municipal finance in Canada

Fiscal challenges facing municipalities and

what it means for infrastructure

Traditional and non-traditional ways to

finance infrastructure

3

Municipal Expenditures and

Revenues in Canada

Source of data: Statistics Canada,

CANSIM Table 385-0024 - Local general

government revenue and expenditures,

current and capital accounts, year ending

December 31.

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General government, 10%

Fire and police, 16%

Roads and transit, 21%

Health, 3%Social services, 9%

Resource conservation/ind'l

dev., 2%

Water, sewers, garbage, 17%

Recreation and culture, 12%

Housing, 4%

Planning and development, 2%

Debt charges, 3% Other, 1%

Municipal Expenditures, Canada, 2008

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Total Municipal Expenditures per Capita, Canada, 1988-2008,

Current and Constant (1988) Dollars

Source: Statistics Canada, National Economic Accounts, CANSIM Table 385-0024.

1,000

1,200

1,400

1,600

1,800

2,000

2,200

2,400

1988 1989 1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008

Current $ Constant 1988 $

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Selected Municipal Government Expenditures per Capita, Canada,

1988-2008, Constant (1988) Dollars

0

50

100

150

200

250

1988 1989 1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008

Policing Firefighting Roads, Snow, Parking Public Transit Water and Sewage Garbage Collection

Source: Statistics Canada, National Economic Accounts, CANSIM Table 385-0024.

Property and related taxes, 50%

Other revenues, 3%

User fees, 22%

Investment income, 4%

Provincial general purpose grants,

3%

Provincial specific purpose grants,

16%

Federal specific purpose grants,

2%

Sources of Municipal Revenue, Canada, 2008

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Major Municipal Revenues by Source, Constant (1988) Dollars per Capita,

1988-2008

0

200

400

600

800

1988 1989 1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008

Property Tax User Fees Unconditional Transfers Conditional Transfers

Source: Statistics Canada, National Economic Accounts, CANSIM Table 385-0024.

Other Municipal Revenues in

Selected Provinces

Land transfer tax

Amusement taxes

Hotel taxes

Poll tax

Vehicle registration tax

Revenue sharing (income tax, sales tax, fuel

tax, casino revenues, fine revenues)

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Net Financial Debt for Local Governments (Municipalities and School Boards), Canada,

1988-2007

0

5000

10000

15000

20000

25000

1988 1989 1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007

Mil

lio

ns

Source: Statistics Canada, CANSIM Table 385-0014

Fiscal Challenges Facing Municipalities

Federal and provincial offloading

Need to be internationally competitive

High costs associated with sprawl

Impact of economic downturn

No diversification of revenue sources

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Is There a Municipal Fiscal Imbalance?

Municipalities have done well on fiscal

measures:

Size of operating deficit (no fiscal imbalance)

Amount of borrowing for capital

Size of reserves

Rate of property tax increases

Reliance on provincial grants

Extent of tax arrears

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Is There a Municipal Fiscal Imbalance?

Fiscal health may have been achieved at the

expense of municipal overall health:

State of municipal infrastructure

Quality of service delivery

Infrastructure and services are difficult to measure

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Infrastructure Financing

1. Traditional

Taxes, User Fees, Transfers,

Borrowing

2. Non-traditional

Public-Private Partnerships (PPPs),

Development Levies, Value Capture

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Taxes

Taxes

Property

Income

Sales

Mainly used for

operating

expenditures

User Fees

Signals what people

are willing to pay for

Need to be able to

identify the

beneficiaries

Appropriate for water,

sewage, garbage

collection, highway

improvement (tolls),

public transit…

Intergovernmental Transfers

Reflects greater

revenue-raising ability

of federal and

provincial governments

Distorts local decisions

Not stable and

predictable

Borrowing

Appropriate for

projects with long

term benefits

Pooling can lower

costs

Borrowing may

crowd out current

expenditures

Public-Private Partnerships

New source of capital

Public sector can draw on

private sector expertise;

innovation

Potential for cost savings

with competition

Potential loss of control for

the public sector

Private borrowing costs

may be greater than public

borrowing costs

Development Levies

Covers growth-related

capital cost

associated with new

development

Off-site infrastructure

(e.g. highways, sewer

lines, etc.)

Growth pays for itself

Impact on land use

Value Capture

Tax increment financing

(TIF) in US and parts of

Canada

TIF recoups increase in

land value resulting from

public investment

Issues re: borrowing

costs, impact on other tax

authorities, over-estimate

of increment

Concluding Observations

Infrastructure matters

How we pay for

infrastructure matters

Get the prices right

Many different tools will

be needed

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