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Revenue Options for Canadian Municipalities
Enid SlackInstitute on Municipal Finance and Governance
Presentation to Canadian National Summit on Municipal Governance
July 11, 2005
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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
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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%)
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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%
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Fiscal Challenges Facing Municipalities Offloading of services
International competitiveness
Urban sprawl
No diversification of revenue sources
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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
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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
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Revenue Options – Existing Sources
Property taxes
User fees
Development charges
Borrowing
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Property Taxes Good tax for local governments
(related to benefits received, property is immovable, visible tax)
Modest increase
Over-taxation of business
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User Fees Price at marginal cost
Altering behaviour versus generating revenues
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Development Charges Appropriate to pay for growth-
related costs associated with development
Marginal versus average cost pricing
Tool to reduce sprawl
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Borrowing Appropriate to pay for capital
expenditures
Debt charges relative to own-source revenues have fallen in Canadian municipalities
Need for new debt instruments
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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
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Revenue Options – New Tax Sources
Income tax
Sales tax
Fuel tax
Hotel tax
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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
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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
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Income Tax Revenue elasticity
Appropriate to finance social service expenditures
Large potential revenues
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Sales Tax Revenue elasticity
Taxes commuters and visitors
Incentive for cross-border shopping
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Fuel Tax Benefit tax if used to pay for roads
Not as good as tolls to reduce congestion
Not very elastic
Limited revenue potential
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Hotel/Motel Occupancy Tax Taxes visitors to pay for the
services they use (e.g. roads, policing)
Limited revenue potential
Potential “cross-border” problems
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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
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Concluding Comments Municipalities face fiscal challenges
Municipalities would benefit from new sources of revenue
Municipalities could also do more with existing revenue sources