While COVID-19 has created a uniquely difficult situation for Ontario’s municipalities, it has also exposed areas to improve municipal fiscal governance.
Local governments do not have the fiscal autonomy they need to make them competitive and maintaining the status quo could be devastating for communities in a post-COVID economic recovery. The impact of the virus and the resultant public health measures have meant that most municipalities are seeing a decline in revenue and increase in expenditures.
In response, as all levels of government look to balance debt and deficits while protecting the well-being of our communities, the Ontario Chamber of Commerce (OCC) released its latest report, Better Budgets: Bolstering the Fiscal Resilience of Ontario’s Municipalities, which identifies 14 recommendations for both the Province and municipalities which can bring immediate and long-term relief to communities across Ontario.
“Municipalities in Ontario are facing a triple threat this year: an ongoing pandemic that has been devastating to local economies, reduced revenue from closed or limited services, and increased spending on public health and human services. The Financial Accountability Office estimates the pandemic will collectively cost municipalities $2.7 billion in 2021, on top of the expected $4.1 billion impact of 2020,” said Cambridge Chamber of Commerce President & CEO Greg Durocher. “In Budget 2021, the Government of Ontario committed to a long‐term economic growth plan. It is imperative public policymakers do everything they can do to ensure communities like ours do not get left behind in recovery.”
During the June 28 edition of our Chamber Chat, Cambridge City Manager David Calder and CFO Sheryl Ayres took a closer at the report and provided some great insight on the merits and viability of some of these recommendations, while identifying misconceptions relating to others.
“I commend the Ontario Chamber of Commerce on their work on Better Budgets,” said David, adding the report contained some ‘old chestnuts’ municipalities having been trying to change for many years when it comes managing finances. “It’s a good variety. Some we can support and some that might not be as supportable.”
Greg said for many years there has been ongoing discussion centred on the ‘restrictiveness’ of municipalities’ ability to raise revenue, noting changes are clearly needed, especially when it comes to Ontario’s property tax system.
“We have to undue to the system so to speak and make sure taxes are applied appropriately,” he said.
Sheryl agreed the current property tax system, which has been in place since the 1990s, is need of a full review.
“In doing that, they also need to look at other revenue tools that municipalities can use in addition to property taxes,” she said, noting that 91% of tax dollars go to the Provincial and Federal governments, leaving the remainder for municipalities. “Yet, we’ve got the greatest portion of expenses related to the assets that we own, and we are closer to the people in terms of the local services we provide. I believe we need a comprehensive review of the whole tax system and how it’s allocated across three levels of government, ensuring there is transparency and equity in how the funds are raised from the residents of Canada.”
David said the downloading of services to municipalities is an important issue that needs to be addressed.
“We need to review who should be providing what services and whether there are ways to be more cost efficient in the supply of those services,” he said. “It’s a very complex conversation but one that needs to take place.”
David said municipalities have been looking for ways to be more autonomous for many years in effort to make better decisions at the local level.
“We’ve got to figure out where do we want to be in that spectrum,” he said. “There needs to be discussion around trying to make sure we control our delivery a little bit where appropriate.”
The OCC report agrees and states the Ontario’s post-pandemic recovery and long-term success will depend heavily on unleashing the economic potential of its municipalities.
“Given that local governments in Ontario cannot run budget deficits, their current options for fiscal sustainability are limited to tax increases, service cuts, and the use of reserves,” said Claudia Dessanti, Senior Manager, Policy of the OCC. “Now is the time for municipalities and the province to explore alternative means of achieving fiscal sustainability.”
Key recommendations outlined in the report include:
Undertake a comprehensive and forward-looking review of Ontario’s property tax system to ensure the system is more equitable, efficient, and predictable for businesses.
The OCC report was created in partnership with KPMG Canada. Read the report.
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