Tax Imbalance and Funding Our Cities

I really like cities and I really like city-states. The fact that a city of five million people in Southeast Asia has its own navy and foreign policy (Singapore) on top of being a great city is vaguely amusing. Most of us think of countries as large, continent-spanning states and not so easily confined to a single city. Sometimes I wonder how differently some of our cities would look if they were unshackled from their “senior” levels of government.

Cities are chronically underfunded in this country. There is a twisted perversion of our funding scheme. The maximum power to collect taxes is held by the federal government which in many ways has the fewest responsibilities to discharge. A great deal of the spending is in the form of dedicated transfer payments to the provinces. In effect, redirected taxes. One of the fundamental hallmarks of our politics is the provinces demanding funds from the federal government. Provinces have less of an excuse than cities as they have the power to increase their own taxes, but often lack the political courage to do so.

Cities and local governments have taken on a greater and greater role in providing services to the public as well as capital expenses but have the least ability to pay for them. Property taxes are a poor cousin to other forms of taxation and often mean that struggling communities will continue to struggle in perpetuity.

This might have been acceptable when things were less dire, but the growing infrastructure deficit and backlog of repairs means that more and more of the strain falls on cities. The maintenance of basic water and sewer pipes, roads, highways, and transit is borne by cities. Cities lack the resources to properly fund these projects as they are currently structured so they must beg and plead with the level of governments above them for the funds to function. In my current community there are deep concerns about the health of the pipes that support the town’s water service. Repairs in one part of the town took months to repair and resulted in frequent water outages for that section of Fort Smith. What if the aging system breaks down in a catastrophic manner this winter? Will the territorial government be there to fund the repairs without the town and public begging?

Organizations such as Strong Towns has been highlighting that our cities have a long way to go before they can be said to be using the money wisely, however that does not mean they are not being starved for cash. Capital and operating expense for transit and infrastructure in general would simply overwhelm the existing fiscal capacity of any city. Municipalities have far too often demonstrated mismanagement, sometimes criminally so, of their funds. Local governments are treated by their provincial masters as inept and unprofessional therefore justifying the paternal relationship between these divisions.

In these moments I am compelled to imagine a world where if all the revenues currently raised in these cities stayed within their boundaries. If I recall correctly Toronto pays out $9 billion in taxation more than it receives back. What would they look like today with all of those funds, or more of those funds? Or maybe more importantly, what would they look like 20 years from now? Plans could be enacted beyond the whimsy of three (or more) party negotiations which frequently fall apart. Cities desperately need consistent investment and research shows more and more that they are the drivers of our economy. Perhaps it’s time to treat our localities like the national priority that they are.

On a related topic check out Spacing’s article on infrastructure costs in Canada.