Municipal Financing Opportunities in Canada: How Do Cities ...

Municipal Financing Opportunities in Canada:How Do CitiesUse �eir Fiscal Space?

IMFG Papers on Municipal Finance and Governance No. 52 • 2021

Jean-Philippe Meloche and François Vaillancourt

Municipal Financing Opportunities in Canada:

How Do Cities Use Their Fiscal Space?

ByJean-Philippe Meloche and François Vaillancourt

IMFG Papers on Mun ic ipa l F inance and Governance

Institute on Municipal Finance and Governance Munk School of Global Affairs and Public Policy University of Toronto 1 Devonshire Place Toronto, Ontario, Canada M5S 3K7 e-mail contact: [email protected] http://www.munkschool.utoronto.ca/imfg

Series editors: Tomas Hachard and Philippa Campsie

© Copyright held by authors

ISBN 978-0-7727-2532-5 ISSN 1927-1921

About the Urban Project

The Urban Project is an initiative led by the Federation of Canadian Municipalities (FCM) that brings city leaders together with other levels of government, academia, civil society, and the private sector to identify actionable and scalable solutions to the biggest challenges facing Canada’s cities. With generous support from Maytree, Metcalf Foundation, McConnell Foundation, and TD Bank Group, IMFG has commissioned a series of papers focused on municipal legislative and fiscal autonomy, governance, and intergovernmental relations, drawing on discussions convened by the Urban Project.

About IMFG

The Institute on Municipal Finance and Governance (IMFG) is an academic research hub and non-partisan think tank based in the Munk School of Global Affairs at the University of Toronto.

IMFG focuses on the fiscal health and governance challenges facing large cities and city-regions. Its objective is to spark and inform public debate, and to engage the academic and policy communities around important issues of municipal finance and governance. The Institute conducts original research on issues facing cities in Canada and around the world; promotes high-level discussion among Canada’s government, academic, corporate, and community leaders through conferences and roundtables; and supports graduate and post-graduate students to build Canada’s cadre of municipal finance and governance experts. It is the only institute in Canada that focuses solely on municipal finance issues in large cities and city-regions.

IMFG is funded by the City of Toronto, the Regional Municipality of York, the Regional Municipality of Halton, Avana Capital Corporation, and Maytree.

Authors

Jean-Philippe Meloche is Associate Professor, School of Urban Planning and Landscape Architecture (École d’urbanisme et d’architecture de paysage), Université de Montréal. He is also Fellow at the Interuniversity Research Centre in Analysis of Organizations (CIRANO), where he is principal researcher on territorial topics. His research focuses on urban finance and urban transport issues in Québec and Canada.

François Vaillancourt is Emeritus Professor, Department of Economics, Université de Montréal, and Fellow at the Interuniversity Research Centre in Analysis of Organizations (CIRANO). His main research focus is intergovernmental financial relations in Canada and abroad. He has been a consultant for the AFD, the IMF, and the World Bank.

Acknowledgements

The authors thank Jean-Philippe Roy for his research assistance and Richard Bird, the Federation of Canadian Municipalities, Tomas Hachard, and Enid Slack for comments on a preliminary draft.

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Abstract

This study investigates how Canadian cities are using the revenue sources their provincial laws enable them to use. Drawing on data from both Statistics Canada and municipal financial statements for the largest city in each of the 10 provinces, the authors examine municipal spending and assess how much money was obtained from most of their sources of revenue. In general, most of the financing tools available to the Canadian cities studied yield very low levels of revenue. The authors also considered whether new revenue sources granted to municipalities by their provincial governments really contribute to the diversification of their revenues and found that adding more tools for municipal financing does not seem to contribute to the diversification of revenues. Rather, diversification is mainly driven by balancing revenues between property tax (the major revenue source for all the cities) and user charges. Furthermore, the data suggest that the relationship between diversity and the ability to raise more revenues is not uniform among this group of cities. The authors conclude that giving more revenue sources to municipalities does not automatically result in more diversified revenues or in more services. The sample is too small, however, to generalize or confirm these results. The authors note the difficulty of finding and using comparable data on the finances of Canadian cities and suggest that efforts to remedy this data gap might lead to greater ease in comparing cities.

Keywords: municipal finance, current spending, capital spending, tax revenue, property tax, transfers.

JEL codes: H71, H72, H74, H77, R51

Municipal Financing Opportunities in Canada:

How Do Cities Use Their Fiscal Space?



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1. Introduction

For a long time, Canadian cities have been asking for access to more diversified tax revenue sources. Although the property tax is recognized by many experts as the best option for financing local services (Kitchen 2013; Kitchen, McMillan, and Shah 2019), some authors argue that Canadian municipalities depend too heavily on this sole source of tax revenue (Slack 2011). According to Kitchen and Slack (2016), a good mix of taxes gives cities more flexibility to respond to changes in local conditions. In the United States, Chernick, Langley, and Reschovsky (2011) have observed that municipalities with more diversified revenues raise more money than those that are more dependent on the property tax.

According to Carroll (2009), it is important, however, to make the distinction between the diversification of local revenue sources and the complexity of the financial structure of local governments. If diversification is seen as a way to lower revenue volatility and facilitate the management of local services, making the tax system more complex may also reduce the ability of taxpayers to link revenue and expenditure, thus reducing the efficiency of local service production (Kitchen, McMillan, and Shah 2019).

As Carroll (2009) observed in the United States, a more spread-out distribution of fiscal pressure on more than one or two revenue sources has a positive impact on municipal revenue stability. However, raising the level of complexity of the local fiscal system by multiplying the number of tools without spreading out revenues among them has the inverse effect. In other words, diversification can have a positive impact on local capacity, but the same is not true of complexity. The way revenue sources are granted to and used by municipalities is important.

In past decades, the legal framework that enables Canadian municipalities to carry out their activities and collect revenues has evolved in all provinces. Most major cities have been granted new revenue sources, as documented by Taylor and Dobson (2020), but, as we will show in this paper, not all of them have yielded much revenue. While we can identify these potential revenue sources in legal texts, we know little about how cities use them. The object of this paper is to investigate this question. We want to know how municipalities in general, and the largest city of each province in particular, use their fiscal space.

Since municipalities are created by provincial laws, we first examine municipal finance from a provincial perspective. To answer our questions, we use data sets produced by Statistics Canada that contain some data on revenue. One problem with these data, however, is that they are not disaggregated in the same way as municipal laws. Consequently, many revenue sources identified by Taylor and Dobson (2020) are not reported on as such. Furthermore, given the various

Municipal Financing Opportunities in Canada: How Do Cities Use Their Fiscal Space?


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reporting requirements imposed on municipalities, the comparability of municipal data produced by Statistics Canada is weak, while the lack of comparable data at the municipal level has long been decried by experts in the field.1 To overcome this problem, we also examined the possibility of using provincially produced, publicly available data sets disaggregated by municipality. This proved an unfruitful route, however, since as of September 2020 such data is available for only four provinces (British Columbia, Alberta, Ontario, and Québec) for 2018. Given our aim to ensure as complete a cross-province comparison as possible, addressing the main points raised in Taylor and Dobson (2020), we have finally chosen to complement our province-wide analysis by focusing our analysis at the city level.

Since there are about 3,500 municipalities spread across the 10 provinces in Canada,2 we needed to choose what type of cities to investigate. We decided to focus on the city with the largest population in each province. This sample allows us to look at all the different legal environments in every Canadian province by investigating only one city in each province. Although this approach means that we have a bias toward big cities, our sample remains fairly diversified. Some of these cities have a population of more than one million (Toronto, Montréal, and Calgary), but others are relatively small (Charlottetown and Moncton, with less than 100,000 inhabitants).

As Taylor and Dobson (2020) note, some of these cities have a legal status that differs from those of other municipal bodies in their province.3 In some cases, they have access to more revenue sources.4 Although this is a good way to assess the extent to which municipalities are able to diversify their sources of revenues, we recognize that this is not representative of the average city in each province.

The main source of information for our analysis at the city level is the official financial report for 2018 of every selected city. In most of these cities, the financial year ends on December 31. The only exceptions are Halifax and Charlottetown, where the financial year ends March 31. For Halifax, the data collected correspond to the financial year ending in March 2018. For Charlottetown, the end of the financial year changed from December 31, 2018, to March 31, 2019, during 2018. We have thus decided to take the financial report covering January 2018 to March 2019, correcting the data (multiplying it by 0.8) to account for the fact that this period covers 15 months instead of 12.

1. This point about data was raised in all the comments received on this paper.

2. The 2016 Census, Statistics Canada (https://www150.statcan.gc.ca/n1/pub/92f0009x/2015000/t/tbl0a-eng.htm), lists about 5,200 territorial entities in Canada, some of which are what Statistics Canada designates as Indian reserves or settlements and thus not municipalities as such.

3. Among cities with their own charter act, Taylor and Dobson (2020) identified Vancouver, Calgary, Winnipeg, Toronto, Montréal, and Halifax.

4. Cities with taxing powers different from those of other municipalities in their province are Winnipeg, Toronto, Halifax, and St. John’s (Taylor and Dobson 2020, Table 5.1, p. 45–46).


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One major limit of our research is that the information in municipal financial reports may not be completely clear (Dachis, Robson, and Omran 2017) and may use different aggregation criteria from one city to another, which may hide some own-source revenues. We will note different accounting choices when relevant.

The content of the report is divided as follows. Section 2 provides an overview of municipal finance in Canadian provinces. It discusses the role of municipalities in the provision of public services, and identifies their major sources of revenues for operating activities as well as their financial needs for capital funding. Section 3 examines information about municipal financing at the city level, including detail on what each municipality in our sample needs its money for. It also discusses the level of autonomy of these cities in financing their activities. Section 4 describes the revenue sources used for operating activities and Section 5 the main tools used by our sample of cities for capital financing. Section 6 presents our conclusion.

2. Provincial overview

Before we look at municipal revenues, the first question we need to answer is this: What are the roles and responsibilities of Canadian municipalities? Since municipalities are created by provincial law, these responsibilities are set by provinces. We can thus expect to have quite homogenous responsibilities among municipalities within one province, but variation across provincial boundaries – with some exceptions for charter cities.

Since revenues assigned to local government depend upon the expenditure assignment (Kitchen, McMillan, and Shah 2019), we also expect these differences to appear in the share of revenues from each source. Thus, while municipalities in all provinces have responsibilities for local infrastructure (roads, parks, libraries, etc.) and the services associated with them (snow removal, outdoor skating rinks, book collection), they do not all have the same responsibilities for public transit or welfare services. Thus, for example, public transit fares will contribute more or less to municipal revenues depending on a municipality’s responsibility (or not) in this area.

In this section, we explore municipal financial data at the provincial scale using data on Local Government Finance Statistics from Statistics Canada. These data are collated from publicly available sources such as audited financial statements published by municipalities. Since municipal financial statements do not always contain the precise detail needed to convert accounting to the Local Government Finance Statistics standards, Statistics Canada applies some general aggregations, losing as a result some details on minor revenue sources.

2.1 The role of municipalities in the provision of public servicesThe extent to which municipalities participate in the production and provision of local public services depends on the level of decentralization of the province in which they are situated (Kitchen, McMillan, and Shah 2019), and on the legal framework that expresses their powers and fields of jurisdiction (Taylor and Dobson 2020).


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The number and size of municipalities also vary from one jurisdiction to another. Table 1 presents data on the number of local municipalities per province in relation to total population in Canada. We observe a large number of quite small (in terms of population) municipalities in provinces like Saskatchewan, Newfoundland and Labrador, and Prince Edward Island, while in British Columbia, Ontario, and Nova Scotia, one finds municipalities with a larger average population. This variation may be linked to the type of responsibilities provincial governments delegate to their local governments.

* Includes revenues from municipalities and other local entities such as regional service commissions and boards, regional library districts, housing corporations, improvement districts, recreation boards, and conservation authorities.

Source: Calculations by authors using Tables: 10-10-0020-01 for revenues, Table 17-10-0060-01 for population, and Table 36-10-0224-01 for personal income, Statistics Canada. Number of municipalities from Muniscope (https://muniscope.ca/research/municipal_facts/Provincial_Municipal_Statistics).

The last three columns of Table 1 present data on total municipal revenue. We observe that per-capita revenue is highest in Alberta, almost four times higher than in P.E.I., where it is the lowest. As a share of personal income, it is also highest in Alberta, almost three times the level in P.E.I., again the lowest. This tells us that municipalities in Alberta need more money than municipalities in P.E.I., probably because they need to finance more local services.

Table 1: Local governments and their total revenue, Canadian provinces, 2018

Province

Population Municipal entities

Entities/ 100,000 in-habitants

Total revenue*

Revenue per capita

Revenue /personal income

(n) (n) (n) M ($) ($) (%)

British Columbia

5,010,476 182 3.6 13,476 2,695 5.5

Alberta 4,298,275 342 8.0 18,060 4,199 7.6

Saskatchewan 1,161,767 779 67.1 3,127 2,689 5.6

Manitoba 1,352,825 137 10.1 2,712 2,004 4.6

Ontario 14,308,697 444 3.1 51,589 3,603 7.4

Québec 8,401,738 1,134 13.5 22,073 2,632 5.8

New Brunswick 770,301 104 13.5 1,391 1,804 4.2

Nova Scotia 958,406 50 5.2 2,177 2,269 5.2

Prince Edward Island

153,396 63 41.1 168 1,094 2.7

Newfoundland and Labrador

525,560 276 52.5 1,012 1,925 4.1


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The responsibilities of local governments can be inferred in part from their expenditures. Comparing municipal spending for a large panel of countries, Kitchen, McMillan, and Shah (2019) observe that municipalities in almost all jurisdictions provide a bundle of core local services benefiting properties, including infrastructure such as roads and water and sewer pipes and treatment plants, and services such as recreational and cultural services, fire protection, waste management, as well as regulating responsibilities like land use. Figure 1 shows some disaggregated data on municipal expenditures for Canadian provinces. It shows that municipalities produce five core services in all provinces; community and social services are not provided by all municipalities in Canada.

Figure 1: Municipal operating expenses per capita by main items ($), 10 Canadian provinces, 2018

Note: Transportation includes local roads, public transit, and street lighting; Protection services include police and fire protection; Utilities include waste management, water services, and energy; General government and planning includes general government, land use planning, economic development, and all other expenses not classified elsewhere; Recreation and culture includes sport, leisure and cultural activities; Community and social services includes public health, social programs, and social housing.

Source: Calculations by authors. Data from Statistics Canada – Canadian classification of functions of government, by general government component, Table 10-10-0024-01. Population from Table 17-10-0060-01.

In addition to core services, municipalities are often granted power for police services. In Canada, local police services are sometimes provided and financed

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Figure 1: Municipal operating expenses per capita by main items ($),10 Canadian provinces, 2018

Figure 3: Expenses per capita by principal items, 10 selected cities,Canada, 2018 ($)

Figure 4: Transportation spending per capita ($) and transit mode share (%),10 selected cities, Canada, 2018

Figure 6: Reliance on the property tax, three indicators, 10 selected cities, Canada, 2018

Figure 8: Other sources of revenues, dollars per capita, 10 selected citiesCanada, 2018

Figure 10: Importance of debt, three indicators, 10 selected cities,Canada, 2018

Figure 11: Indicators of number of revenue tools, revenue diversity,and financial need, 10 selected cities, Canada 2018

Figure 9: Revenue per capita from different sources of capital financing, 10 selected cities, Canada, 2018 ($)

Figure 5: Own-source revenue as a percentage of total revenue by major sources,10 selected cities, Canada, 2018

Figure 7: Sales of goods and services, dollars per capita by main categories,10 selected cities, Canada, 2018

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directly by a provincial police corps (as in Newfoundland and Labrador, or some parts of New Brunswick), or provided by a provincial police service, but paid for more or less fully by municipalities (as in Québec), or contracted out to the RCMP with an implicit federal subsidy. This variation may explain why per-capita expenses for protection services are lower for some provinces (Figure 1).

In some places, municipalities are also involved in providing electricity and/or natural gas to their residents. Local public electric or gas companies are common in Ontario (75, including Ottawa Hydro and Toronto Hydro), present in Québec (nine, mainly small, except for Sherbrooke), Nova Scotia (four small companies), Alberta (Lethbridge), New Brunswick (Saint John), Prince Edward Island (Summerside), and Saskatchewan (Saskatoon).5 Most municipalities in Canada, however, do not produce nor provide electricity or natural gas. Data from Statistics Canada show significant expenditures for that function only in Saskatchewan.6

Less often, municipalities may also be responsible for providing social services such as schooling, health care, and social protection programs. This is common in some European countries (Kitchen, McMillan, and Shah 2019), but not in Canada. As Figure 1 shows, Ontario municipalities are the only ones with important responsibilities in social services. Elsewhere, these services are provided almost exclusively at the provincial level (Kitchen 2002). Schools and hospitals are provincial responsibilities in every Canadian province. They are either provided directly by the province or by local entities such as school boards or hospital corporations, which are accountable to the provincial government.

In Figure 1, the main budget item of municipalities in most provinces is general government and planning. This includes land use planning, economic development, local democracy, central administration, financial expenses, and other expenses not classified elsewhere. This broad category includes many functions that may be disaggregated differently from one municipality to another and that generate differences between provinces.

For example, the interest cost of road financing may be considered an infrastructure cost and attributed to transportation in some municipalities, but as a financial expense recorded under general government spending for others. The salary of the chief director of the sports and leisure department may be considered as an expense of the central administration for some municipalities, but as part of recreation and culture expenses for others. It is possible to disaggregate this category (in which we have included planning and development ourselves), but the main sub-items called “general services” remain the largest. That is one reason

5. For more details, see the Electric Utility Directory (https://callmepower.ca/en/directory) and Wikipedia’s list of utilities in the Northwest Territories (https://en.wikipedia.org/wiki/List_of_Canadian_electric_utilities#_Northwest_Territories).

6. This anomaly may be explained by the fact that the classification used by Statistics Canada does not take into consideration the expenses of government business enterprises owned by municipalities.


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why investigating financial data at the municipal level may yield more precise information about what municipalities do compared with examining provincial-level data.

Moreover, although data on expenses per capita gives information about what municipalities do, it does not give information about the share of responsibility between provincial and local governments within each item. Transportation, for instance, varies considerably from one province to another partly due to the size of cities and the need to supply public transit (see Figure 1), but also to governance arrangements between provinces and municipalities. In British Columbia, for instance, the province is involved in the provision of transportation from major roads to urban public transit. In Ontario and Québec, on the other hand, most major roads (except highways) and all public transit services are financed (in part through provincial subsidies) and operated by municipalities. If we look at the difference between Alberta and Prince Edward Island in Figure 1, we see that Alberta municipalities spend the most on almost each item and those in P.E.I. spend the least. Differences between the two provinces may not come from different legal municipal responsibilities but from different levels of involvement of municipalities and provinces in each specific field of responsibility.

Table 2 compares the share of municipal expenses in total provincial and municipal expenses for five aggregate expenditure categories for Alberta and P.E.I. The role (measured as a share of spending) of municipalities in Alberta in providing each of these services is systematically higher than that of municipalities in P.E.I.

Note: Public order and safety includes police, fire protection, law courts, and prisons; Economic affairs is mainly transportation for municipalities, but includes other economic sectors for provinces; Environmental protection includes waste management, waste water treatment, and environmental conservation; Housing and community includes land use planning, water supply, and street lighting; Recreation and culture includes sports, leisure, and cultural activities. Data are not consolidated, so they include transfers from provinces to municipalities.

Source: Calculations by authors. Data from Statistics Canada – Canadian classification of functions of government, by general government component, Table 10-10-0024-01.

Table 2: Percentage share of municipalities in total provincial and municipal expenditures, five major items, Prince Edward Island and Alberta, 2018

Prince Edward Island Alberta

Public order and safety 25.8 55.9

Economic affairs 4.2 26.8

Environmental protection 13.5 53.6

Housing and community amenities 28.8 74.4

Recreation and culture 48.4 79.7


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Even if all municipalities need money to finance the bundle of services they provide, some need more because they provide a wider range of services. This is the case, for instance, with municipalities in Ontario. In other provinces, however, municipalities may need more money because they are more involved in the production and provision of local services. This is the case, for instance, with municipalities in Alberta. The quest for new sources of revenues and diversification may thus not be the same in every province.

2.2 Sources of revenueAccording to Kitchen, McMillan, and Shah (2019), the most common municipal tax revenue sources worldwide are, in order of decreasing importance: property taxes, personal income taxes, taxes on sales (such as hotel and billboard taxes), and taxes on business. In Canada, municipalities rely more heavily on the property tax to finance their services than do municipalities in other countries (Kitchen 2013; Slack 2011). Not only do revenue sources granted to municipalities depend on their financial needs (what they do), but also on the legal constraints they face.

Taylor and Dobson (2020) have analyzed provincial laws pertaining to municipalities in Canada to identify the types of revenue that municipalities are allowed to levy in each province. Table 3 shows the different sources of revenue identified in legal texts by Taylor and Dobson (2020). All municipalities are allowed to use tax on real property. They are also all allowed to set user fees, and licence, franchise, and permit fees, as well as fines and penalties.

According to Taylor and Dobson (2020), the main differences among provinces in revenue sources granted to municipalities come from business taxes, accommodation levies, land transfer taxes, vehicle registration taxes, billboard taxes, electricity and natural gas taxes, and poll taxes. These taxes are allowed in some provinces, but not in all. How much money comes from each one is not stated in the study.

The last row of Table 3 shows the total number of financing tools available to municipalities in each province. Municipalities in Manitoba and Ontario benefit from a wider variety of revenue sources, but this variety applies mainly to their major city (Winnipeg and Toronto). In New Brunswick, Saskatchewan, and British Columbia, municipalities are limited in the number of financing tools they can use. But this does not mean that their revenue sources are less diversified. According to Carroll (2009), the number of revenue sources is more a measure of complexity than a measure of diversity. To measure revenue diversification, we need information about the weight of every source in total revenue. We will come back to that question later in our discussion.

To understand the importance of each revenue source in municipal finance, we look at data from Canadian Government Finance Statistics (Statistic Canada). Table 4 examines the make-up of local government revenues using broad categories – grants, tax revenues, and non-tax revenues – with the last two showing two sub-categories each.


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* Only Winnipeg is allowed to levy billboard tax and electricity and gas tax. ** Only Toronto is allowed to levy land transfer tax, vehicle registration tax, and billboard tax. *** Only Halifax is allowed to levy accommodation tax. **** Only St. John’s is allowed to levy accommodation tax.

Source: Taylor and Dobson (2020), pp. 43–44.

Examining Table 4, one finds that the importance of grants varies according to provincial policies. Grants exceed 25 percent of total local government revenues in only one case – P.E.I. This information about grants is important, since this type of municipal revenue is not part of own-source revenues. The higher the grants, the lower the direct role of municipalities in the financing of their services. The

Table 3: Municipal sources of revenue enabled for operating purposes in provincial laws, Canada, 2020

Source BC AB SK MB* ON** QC NB NS*** PE NL****

Tax revenues

Tax on real property x x x x x x x x x x

Business tax x x x x

Accommodation levies and fees x x x x x

Land transfer tax x x x x

Vehicle registration tax x

Billboard tax x x

Electricity and natural gas tax x

Poll tax x

Non-tax revenues

User fees x x x x x x x x x x

Licence, franchise, and permit fees x x x x x x x x x x

Fines and penalties x x x x x x x x x x

Total number of tools 4 5 4 9 8 6 4 6 5 7


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need for revenue diversification, for instance, may be lower for municipalities with higher grants. They need less tax revenues to finance the same level of services. On the other hand, grants are not considered a source of revenue diversification. According to Slack (2017), more tax autonomy generates greater efficiency and accountability for local governments. Thus lowering the revenue autonomy of municipalities to reduce their dependency on the property tax, for instance, may not be desirable.

Reliance on taxes on property varies across provinces. As a share of total local government revenues, property taxes vary between 33 percent in P.E.I. and 63 percent in Nova Scotia. Within the property tax category, taxes on the value of

Table 4: Type of revenues as a percentage of local revenues, Canadian provinces, 2018

Province

Grants Tax revenues Non-tax revenues

Property taxes

Other taxes

Sale of goods and services

Other revenues

British Columbia 7.9 43.7 12.0 32.7 3.7

Alberta 22.1 41.9 12.7 19.3 4.0

Saskatchewan 18.1 32.4 13.7 32.3 3.5

Manitoba 16.8 46.4 5.7 28.7 2.4

Ontario 23.3 45.8 7.4 21.0 2.5

Québec 15.9 60.5 1.6 17.9 4.1

New Brunswick 21.6 55.0 1.4 21.1 0.8

Nova Scotia 12.4 63.1 0.9 21.5 2.1

Prince Edward Island 45.2 33.3 0.6 20.2 1.2

Newfoundland and Labrador 20.6 49.3 6.3 22.0 1.2

Note: Local revenues include revenues from municipalities and other local entities such as regional service commission and boards, regional library districts, housing corporations, improvement districts, recreation boards, and conservation authorities. Property taxes include payment in lieu of tax and excludes business tax.

Source: Calculation by authors using data from Table 10-10-0020-01, Statistics Canada.


– 12 –

properties7 never account for less than 70 percent of revenues and often more than 90 percent.

Looking only at own-source revenues, the importance of property taxes varies between 40 percent of total own-source revenues in Saskatchewan and 72 percent in Québec and Nova Scotia. Although Manitoba and Ontario are the provinces in which the number of financing tools is the highest (see Table 3), they are not the provinces in which the reliance on property tax is the lowest. By comparison, in Saskatchewan and British Columbia, the importance of the property tax in total own-source revenues of municipalities is the lowest. Revenues from user charges and other types of taxes allows these provinces to lower their dependency on the property tax.

As Taylor and Dobson (2020) point out, even if all provinces enable municipalities to levy property taxes, there are significant variations across provinces in the frequency and method of property value assessment and the classification of properties, tax rate differentials, and tax abatements. While municipalities are free to set rates of property taxation, some provinces have imposed limits on how much they can be increased each year or how much they may vary across property types (Kitchen, Slack, and Hachard 2019).

Non-tax revenues in Table 4 are mainly from the sale of goods and services. These revenue sources are particularly important in British Columbia and Saskatchewan (representing more than 30 percent of total revenue), but less important in Québec.8 One notes, however, the higher percentage of other non-tax revenues in Québec (due to the relative importance of fines and penalties). The way Statistics Canada classifies various revenues from sales of good and services is not explicit.

Bird (1993) identifies three types of user charges: (1) public pricing (water, electricity, etc.); (2) service fees (licences); and (3) benefit taxes like local improvement taxes. If pricing is clearly associated with the sale of goods and services, the two other forms of user charges may not be classified as such. Benefit taxes will probably appear in other tax revenue, but licences, permits, and other contributions are not so easily categorized. We have little information on their importance in total revenues and how they have been classified in these aggregated data.

Looking at the numbers in Table 4 and the revenue sources identified in Table 3, we are still missing information needed to properly assess the importance of all these revenue sources granted to municipalities by their provincial governments.

7. Referred to as real property tax by Statistics Canada; by this we mean a tax levied as a rate (usually per $100) on the assessed value of a physical property that is land and structures (housing, commercial, or industrial properties, etc.).

8. Perhaps because water is less often metered in Québec than elsewhere in Canada (Meloche and Vaillancourt 2017).


– 13 –

2.3 Financial liabilities and capital financingIn the work of Taylor and Dobson (2020), revenue sources used for operating purposes are treated separately from revenue sources dedicated to capital financing. As Figure 2 shows, capital investment is an important municipal responsibility in Canada. It seems to be even more important in western provinces than in the east. In Alberta, for instance, the value of tangible assets owned by municipalities is higher than tangible assets owned by the provincial government.9 How infrastructure responsibilities are shared between provincial governments and municipalities affects the level of tangible assets under municipal control and consequently the need for capital financing.

Taylor and Dobson (2020) identify one funding source (borrowing) and five revenue sources for capital purposes:

• Special assessments

• Local improvement district charges

• Development levies/charges

• Density bonusing levied on developers

• Tax increment financing linked to new projects

These tools are granted to municipalities by provincial laws, but they do not necessarily correspond to revenue sources that are distinct from property taxes. Borrowing, while not a revenue source, allows municipalities to pay for major projects over time, with interest. Ultimately, however, debt payments must be made through revenues raised by tax or non-tax (such as user charges) sources.

Special assessments and local improvement district charges are tools that allow municipalities to charge taxes on a restricted geographical area and dedicate their revenues to the capital cost financing of assets that benefit this restricted area. These revenues are collected as property taxes. It is the same thing with tax increment financing, whereby all taxes on property collected from a new development are dedicated to debt financing of public infrastructure associated with this new development (Haider and Donaldson 2016).

Development charges and density bonusing are the only sources of revenue that are used to fund municipal capital investments but are not associated with property taxation. The rationale for development charges is discussed in Found (2019). Contributions from developers are often in-kind (donated assets), mostly when they relate to on-site capital expenditure. Other contributions may be financial. These contributions are meant to finance upfront, growth-related capital costs. Development charges may be important, but no national-level data appear to be available for 2018. In Alberta, donated assets accounted for 4.7 percent of municipal revenues in 2018, more than twice development charges (2.2 percent);

9. This includes assets owned directly by provinces as well as those owned by education and health institutions.


– 14 –

these donations are concentrated in Calgary and Edmonton (57 percent of the total).10 In Ontario, donated assets accounted for 10.9 percent of capital financing in 2018, while development charges account for 12.9 percent of this amount.11 In British Columbia, contributions by developers accounted for 14.3 percent of total municipal revenues in 2018. These contributions are heavily concentrated in a few municipalities: the top five recipients account for 67 percent of development charges. Among the 10 largest municipalities (in terms of revenue) of the province, the importance of development charges in total revenues varies from 0 percent in Victoria to 33.5 percent in Langley. It accounts for 13 percent of the revenue of the city of Vancouver.12

Density bonusing is the other way to raise new revenue to finance capital spending. These revenues result from negotiations between municipalities and developers when their projects require an exemption from municipal bylaws on a building’s height. This form of financing, however, lacks transparency. Revenues

Figure 2: Net stocks of fixed public capital per capita by level of government, Canadian provinces, 2018 ($)

Note: End-year net stock calculated with linear amortization. Provinces include capital stock owned by provinces directly as well as what is owned by providers of education and health services.

Source: Calculation by authors using data from Table 36-10-0096-01, Statistics Canada.

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2,500

3,000

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0

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16,000

14,000

12,000

10,000

8,000

6,000

4,000

2,000

0

16000

14000

12000

10000

8000

6000

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2000

0



Brit

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Colum

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Alber

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Man

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Ontario

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Brit

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Ontario

Quebec

New B

runsw

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Nova S

cotia

Prince

Endw

ard

Islan

d

Newfo

undlan

d

and

Labra

dor






Transportation

Utilities


Protection services



Transportation

Utilities


Protection services



4,500

4,000

3,500

3,000

2,500

2,000

1,500

1,000

500

0



30.0

25.0

20.0

15.0

10.0

5.0

0.0

100.090.080.070.060.050.040.030.020.010.0

-

1600

1400

1200

1000

800

600

400

200

0 Calgar

y

Sask

atoon

Win

nipeg

Toro

nto

Mon

tréal

Mon

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Halifax

Charlo

tteto

wn

St. J

ohn’s

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Charlo

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1.8

1.6

1.4

1.2

1.0

0.8

0.6

0.4

0.2

0.0

350.0

300.0

250.0

200.0

150.0

100.0

50.0

0.0

1,800

1,600

1,400

1,200

1, 000

800

600

400

200

0


Land transfer tax


Billboard tax

Fines and penalties

Business tax


2,000

1,800

1,600

1,400

1,200

1,000

800

600

400

200

-

1.80

1.60

1.40

1.20

1.00

0.80

0.60

0.40

0.20

0.00

Calgar

y

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Win

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Calgar

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3.5

3.0

2.5

2.0

1.5

1.0

0.5

-

10. Our calculations, using data from Alberta Government, Municipal Financial and Statistical Data (https://open.alberta.ca/opendata/municipal-financial-and-statistical-data).

11. Our calculations, using data from Ontario, Provincial Summaries by Schedule, Schedule 10, 2018 (https://efis.fma.csc.gov.on.ca/fir/Prov2009On.htm). We use “Donated Tangible Capital Assets” for donations.

12. Our calculations, using data from British Columbia, Municipal and General Financial Statistics (https://www2.gov.bc.ca/gov/content/governments/local-governments/facts-framework/statistics/statistics).


– 15 –

are not necessarily standardized or proportional to any benefit (Moore 2013) and are therefore hard to predict. Bertaud (2018) argues that this practice generates bad urban planning incentives as it pushes planners to set lower regulatory building heights than optimal in order to generate revenues by granting additional height on an ad hoc basis. Such practices may result from a lack of flexibility in the relevant municipal law.

Capital spending can be irregular and requires large payments that must be amortized over a long period (ideally matching the useful life of the asset with a margin of prudence). Thus, there is a need to smooth its funding. There are two ways to do so. Municipalities can save money in a special reserve fund to pay cash at the time of constructing infrastructure; or they can borrow the money and make payments on debt out of their operating revenues. Usually, if the rate of economic growth is high, surpassing the interest rate, municipalities can make efficient use of borrowing. If the rate of economic growth is below the interest rate, debt financing may not be preferable. A discussion of strategic financing of urban infrastructure can be found in Bird and Slack (2017).

Table 5 shows net financial and non-financial assets of Canadian municipalities by province. The last column presents the ratio of net financial liabilities to the value of tangible assets. This provides indirect information on the use of borrowing in capital funding by municipalities in each province. One can conclude that municipalities in Québec and P.E.I. rely the most on borrowing to finance capital expenditures, while municipalities in British Columbia have more financial assets in hand than debt, since their net financial value is positive.13

As Taylor and Dobson (2020) show, all provinces apply limitations on municipal borrowing. The province where these limitations are the strictest is British Columbia. In Québec and Newfoundland and Labrador, restrictions are the lightest. In those two provinces, municipal borrowing requires only provincial approval while in British Columbia, borrowing needs approval from local voters while debt servicing costs and total debt on liabilities are also capped. This may explain why municipalities in Québec have the highest financial liability, as measured using the net financial assets per capita (amount found in Table 5). At the other end of the spectrum, municipalities in British Columbia have no net liability. The value of their financial assets is positive.

Here again, information is missing about municipal capital needs and sources of revenues in Canadian provinces. Is capital financing highly subsidized by the provincial government? Are developers paying for all or some of capital spending? To investigate these questions, we need to look at more detailed data. This is what we attempt to do in the next sections of this study.

13. In British Columbia public projects are undertaken when all funds from developers are in the bank. They thus appear as a financial asset.


– 16 –

3. More details on why municipalities need money

As we have noted, municipal data aggregated at the provincial level hide many details about sources of revenues. It is also difficult, from that perspective, to understand the financing needs of different municipalities. To fill in part of this data gap, we turn to data at the city level by focusing only on the city with the largest population in each province. Doing so allows us to look at financing tools enabled by the different legal environments of Canadian provinces, while keeping data collection simple at least in terms of numbers of official financial statements examined: comparability is another kettle of fish.

This section presents the sample of cities used in our study. Details on their expenditures are presented to better understand their financial needs. We also present data on fiscal autonomy to show how these cities depend on their own revenues for financing their responsibilities.

3.1 Municipal expendituresThe selection of cities used in this study is shown in Table 6. This table presents four basic statistics (population, share of CMA population, mean income of

Table 5: Net worth and real assets ($), municipalities, Canadian provinces, 2018

ProvinceNon-

financial assets (M$)

Non-financial

assets per capita $

(M$)

Net financial

assets ($)

Net financial

assets per capita

($)

Net financial/

Non-financial

assets (%)

British Columbia 59,607 11,896 5,463 1,090 9.2

Alberta 79,002 18,380 -4,446 -1,034 -5.6

Saskatchewan 8,695 7,484 -124 -107 -1.4

Manitoba 8,611 6,365 -318 -235 -3.7

Ontario 169,087 11,817 -5,573 -389 -3.3

Québec 56,248 6,695 -24,369 -2,900 -43.3

New Brunswick 4,236 5,499 -680 -883 -16.1

Nova Scotia 4,698 4,902 -259 -270 -5.5

Prince Edward Island 400 2,608 -187 -1,219 -46.8

Newfoundland and Labrador 3,911 7,442 -644 -1,225 -16.5

Source: Calculation by authors using data from Table 10-10-0020-01, Statistics Canada, for assets and Table 17-10-0060-01 for population.


– 17 –

residents, and total municipal expenses) and two indicators of the importance of city expenses. Toronto spends $4,163 per inhabitant every year to offer municipal services, while Charlottetown spends only $1,537 per inhabitant; this comparison yields a ratio of 2.7.14 This finding suggests that services offered by our selected cities vary in scale and scope. The pattern of variation is similar to the one yielded by provincial comparisons in Table 1. The provincial institutional framework explains part of these variations. Given that Toronto, Montréal, and Calgary are both the largest cities in terms of population and the ones with the highest expenses per capita, it is likely that the population size of a city can also explain part of this pattern.

Other reasons than the institutional framework or population size may explain differences in expenses per capita. Average income, for instance, may explain part of that difference. In a city like Calgary, where the average personal income of the

Table 6: General statistics, largest city in each province, Canada, 2018

City, province

Population

(n)

City share of CMA

population (%)

Average personal income

($)

Total city

expenses ($M)

Expenses per

capita ($)

Per-capita exp./pers.

income ($)

Vancouver BC 672,963 25.4 46,821 1,587 2,359 5.0

Calgary AB 1,310,966 88.3 69,177 3,873 2,954 4.3

Saskatoon SK 268,188 82.9 53,183 804 2,998 5.6

Winnipeg MB 753,389 90.5 46,029 1,619 2,149 4.7

Toronto ON 2,956,024 46.6 50,479 12,306 4,163 8.2

Montréal QC 1,774,457 47.7 44,742 6,792 3,347 7.5

Moncton NB 75,812 49.6 41,410 167 2,197 5.3

Halifax NS 430,319 99.9 46,429 802 1,864 4.0

Charlottetown PE 39,569 51.6 41,538 61 1,537 3.7

St. John's NL 111,255 52.3 52,803 329 2,958 5.6

Sources: Estimated population for 2018, Statistic Canada (City = https://www150.statcan.gc.ca/t1/tbl1/en/tv.action?pid=1710014201, and CMA = https://www150.statcan.gc.ca/t1/tbl1/en/tv.action?pid=1710013501); personal income from 2016 census (https://www12.statcan.gc.ca/census-recensement/2016/dp-pd/prof/index.cfm?Lang=E); financial data from cities’ financial statements sources in reference list.

14. A similar calculation with provincial data yields a ratio of 4.15 between P.E.I. municipalities and those in Alberta; larger cities are thus more similar in their spending patterns.


– 18 –

population aged 15 and over with income is $69,177, it is likely that the wages of municipal employees are higher than in a city like Moncton, where the average personal income is only $41,538.15 This difference will increase expenses per capita in Calgary for the same level of services as Moncton.

Nevertheless, the main reason why we find so much variation in expenses between cities is that they do not offer the same services or because they are not organized in the same way to produce them. Figure 3 shows the variety of services offered by our selected cities in dollars per capita, using the same six expenditure items as in Figure 1.

From Figure 3, we can see that the City of Toronto spends more per capita than all other cities mainly because it provides social services to its citizens. This breakdown of expenditure responsibilities between the provincial government and municipalities is specific to Ontario. These social services are framed by provincial programs and financed mainly by transfers.

The City of Montréal spends more on transportation than other cities as a result of the financing arrangements for public transit between the province of Québec and its municipalities. It also reflects the high modal share of public transit in that city. As Figure 4 shows, spending on transportation depends highly on modal share

15. The median wage is 28 percent higher in Calgary than it is in Moncton. See Statistics Canada, 2018, Table 11-10-0073-01, Wages, salaries and commissions of tax filers aged 15 years and over by main industry sector and sex (https://www150.statcan.gc.ca/t1/tbl1/en/tv.action?pid=1110007301).

Figure 3: Expenses per capita by principal items, 10 selected cities, Canada, 2018 ($)

Source: Authors, data from Table A-1 in the Appendix.

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2,500

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4,000

2,000

0

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Brit

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undlan

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and

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Transportation

Utilities


Protection services



Transportation

Utilities


Protection services



4,500

4,000

3,500

3,000

2,500

2,000

1,500

1,000

500

0



30.0

25.0

20.0

15.0

10.0

5.0

0.0

100.090.080.070.060.050.040.030.020.010.0

-

1600

1400

1200

1000

800

600

400

200

0 Calgar

y

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1.8

1.6

1.4

1.2

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0.8

0.6

0.4

0.2

0.0

350.0

300.0

250.0

200.0

150.0

100.0

50.0

0.0

1,800

1,600

1,400

1,200

1, 000

800

600

400

200

0


Land transfer tax


Billboard tax

Fines and penalties

Business tax


2,000

1,800

1,600

1,400

1,200

1,000

800

600

400

200

-

1.80

1.60

1.40

1.20

1.00

0.80

0.60

0.40

0.20

0.00

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3.5

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-


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of public transit. One exception is Vancouver. In Vancouver, overall expenses per capita are relatively low for a large city, because many responsibilities are assumed by Metro Vancouver or by the provincial government, such as public transportation, which is provided by TransLink. This transit organization finances itself in part by a property tax, which it sets but that is collected by municipalities. The flow of funds does not appear as an expenditure in Vancouver’s financial statements. In small municipalities like Moncton and Charlottetown, on the other hand, expenses for transportation are low, since the modal share of public transportation is low.

In Saskatoon, expenditures on utilities are higher because the city operates Saskatoon Light and Power, the sole municipal utility in Saskatchewan. As we noted previously, about 90 municipalities in Canada provide electricity or gas to their residents, representing less than 3 percent of all (3,500) municipalities. In our sample, Saskatoon happened to be one of the two providing these services, the other being Toronto. Expenses and revenues show up in the books of Saskatoon, but not of Toronto, because of different accounting practices.

In St. John’s, there is no municipal police department. Police services are provided by the Royal Newfoundland Constabulary (Provincial Police Service), and financed by the provincial government.

In Halifax, the official financial report does not include the statement of the Halifax Regional Water Commission ($138 million in 2018), a government enterprise owned by the municipality. Consequently, utilities expenses in Halifax

Figure 4: Transportation spending per capita ($) and transit mode share (%), 10 selected cities, Canada, 2018

Source: Mode share calculated from commuting CMA data from 2016 Census (Statistics Canada, 98-400-X2016326); per-capita spending from Table A-1 in the Appendix.

Note: TransLink data is not included in the Vancouver municipal spending data.

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3,000

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Transportation

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Transportation

Utilities


Protection services



4,500

4,000

3,500

3,000

2,500

2,000

1,500

1,000

500

0



30.0

25.0

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100.090.080.070.060.050.040.030.020.010.0

-

1600

1400

1200

1000

800

600

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200

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1.8

1.6

1.4

1.2

1.0

0.8

0.6

0.4

0.2

0.0

350.0

300.0

250.0

200.0

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100.0

50.0

0.0

1,800

1,600

1,400

1,200

1, 000

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Land transfer tax


Billboard tax

Fines and penalties

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2,000

1,800

1,600

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1,000

800

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200

-

1.80

1.60

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-

appear very low. This is only a matter of accounting, since the municipality is in fact responsible for the provision of water and the collection of wastewater. On the other hand, Halifax’s financial report includes expenditures on educational services ($151 million). It is reported in the document as a local expenditure, even if the expenses are actually a transfer of tax revenue to the relevant school boards.

Other cities such as those in Ontario, Nova Scotia, Manitoba, and British Columbia collect school property taxes for school boards or the province (Saskatchewan) or both (Alberta).16 In other cases, there is no school board property tax (Newfoundland and Labrador, Prince Edward Island), the province collects both municipal and school property taxes (New Brunswick), or school boards collect their own taxes (Québec).17

Municipalities other than Halifax display only their net revenues from taxes as their own revenues in their financial reports. For that reason, all revenues and expenditures presented here for Halifax are net of educational services.

3.2 Fiscal autonomyThe information on expenditures reviewed above shows that the 10 municipalities needed revenues for different reasons and in different proportions. Also important in assessing the real financing needs of cities is to observe the proportion in which they finance their expenditures with their own revenues.

Even if expenses are recorded as municipal services in cities’ financial statements, it does not mean that they finance all of them out of their own revenues. Provincial governments participate in the financing of municipal responsibilities, but with different degrees of involvement from one city to another. Figure 5 shows the share of own-source revenues in total revenues for the 10 cities. The higher the bar in Figure 5, the more autonomous the municipality is in its financing. According to this figure, Charlottetown received only 71 percent of its revenues from its own sources. At the other end of the spectrum, Vancouver collects almost 100 percent of its revenues from its own sources.18

The pattern of fiscal autonomy of each city is similar to the pattern of municipal fiscal autonomy in each province, as shown in Table 4. However, Winnipeg, Toronto, and Montréal receive more grants than average in their province. In all other cases, the fiscal autonomy of the largest city is above its provincial average.

Since grants represent the only non-autonomous source of revenue for municipalities and since they are mainly used by provinces to finance municipal


– 20 –

16. Separate school boards have opted out of the pooling of tax revenues and thus receive it directly from municipalities who collect it. See Alberta, Education Property Tax (https://www.alberta.ca/education-property-tax.aspx#:~:text=Municipalities%20collect%20the%20education%20property,an%20equal%20per%2Dstudent%20rate).

17. This is based on a Google search of “school tax collection” for each province.

18. One explanation is that the federal gas tax transfer goes to TransLink directly, not to Vancouver.


– 21 –

capital expenditures, they do not necessarily appear in municipal financial statements. In Vancouver and Halifax, for instance, capital acquisitions are reported “net of transfers” in their financial reports, which makes it very difficult to establish the real level of participation of the provincial government in the funding of local tangible assets. It is possible, then, that Figure 5 overestimates their effective autonomy.

Montréal and Toronto appear to have lower fiscal autonomy than most other cities, but they also have higher expenses. That means that they benefit from the help of their respective provincial governments in financing some of their extra responsibilities. In Toronto, for instance, transfers are higher because of the co-financing by the province of the social services provided by the city.

The other information provided by Figure 5 is the breakdown of own-source revenues into broad categories: taxes on property, sales of goods and services, and other revenues. This information shows that Halifax is the city that relies the most on property taxes, while Saskatoon uses it the least. This is consistent with the provincial overview in Table 4. We also observe that sales of goods and services are more important for cities in the west, while dependency on property taxes is higher among cities in the east.

The next section provides more details on these sources of revenue, and more specifically on revenue sources used for operating purposes.

4. Operating revenues

As we mentioned in the introduction, even if the property tax is recognized by Kitchen, McMillan, and Shah (2019) as a good option for financing local services, Canadian municipalities may depend too heavily on this source of revenue (Slack

Figure 5: Own-source revenue as a percentage of total revenue by major sources, 10 selected cities, Canada, 2018

Source: Authors, data from Table A-2, Appendix.

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– 22 –

2011). This section explores the question of dependency on property tax. It also details the types of goods and services that allow cities to collect user charges, as well as the other type of taxes, which Taylor and Dobson (2020) have identified as tools available for revenue diversification.

4.1 Dependence on property taxFigure 6 compares three indexes. One is calculated using the percentage of property tax in municipal revenues (as it appears in Figure 5). The second is based on the amount of property tax paid in dollars per capita. The third is obtained from the ratio of property tax per capita over average personal income (this is a proxy for the individual fiscal effort needed to pay the property tax).

To compare these three variables, we present them in Figure 6 as a ratio over their own average (equals 1 by definition). Thus, a value of 1.6 indicates that this city is 60 percent above the mean of the 10 cities while a ratio of 0.8 indicates that it is 20 percent below the mean.

In accordance with what we observed in the previous section, we see that Moncton, Halifax, and St. John’s are the cities in which the share of property taxes is the most important in total revenues. However, measured in dollars per capita, it is Montréal in which the property tax effort is the highest. This effort is 60 percent above the average while Moncton is 40 percent above the average. Saskatoon, Winnipeg, and Charlottetown are below the mean average. In this last city, the property tax represents an important share of revenues, but the amount of expenditure it finances is quite small. That explains why the fiscal effort on a per-capita basis or as a percentage of personal income is lower.


Note: Each indicator is calculated with respect to its mean value, which is 1.Source: Authors, calculations based on data from Table A-2 in the Appendix.

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4,500

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30.0

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1600

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– 23 –

As noted by Taylor and Dobson (2020) and Kitchen (2013), the implementation of the property tax varies from one province to another. Not only do assessment practices differ between provinces in their periodicity and exemptions, but the rates that apply on these assessments may also vary, not only between provinces, but also in accordance with property usage.

Most property taxes are based on property values set by a property assessment body. But some rates may apply on other characteristics of properties, such as the number of units in a building or the frontage length. It is difficult to distinguish the amount of revenues collected from different types of rates, since most municipalities report revenues from property tax in total in their financial statements.

Cities may lower the direct fiscal charge that weighs on their residents by setting different rates for residential and non-residential properties. Table 7 shows effective rates for these different types of properties as well as the ratio of non-residential to residential rates. One can observe that non-residential properties pay more than four times the residential rate in cities likes Vancouver and Montréal, while the differential is only about 1.5 in cities like Winnipeg and Moncton.

According to Kitchen (2013), there is no rational explanation for this kind of rate differentiation, since residential benefits from municipal services are higher than commercial benefits. Found, Dachis, and Tomlinson (2013) argue that this differential may affect local competitiveness and productivity. Starting at the end of the 1990s, Ontario municipalities have reduced the gap between residential and

Source: Official city websites for Vancouver, Calgary, Saskatoon, Winnipeg, Toronto, Montréal, and St. John’s; and provincial websites for Moncton, Halifax, and Charlottetown. For Montréal we do not include tax rates of boroughs.

Table 7: Residential and non-residential tax rates, percentage of assessed value, 10 selected cities, Canada, 2018

City Residential Non-residentialRatio

non-residential /residential

Vancouver 0.12 0.50 4.06

Calgary 0.39 1.53 3.92

Saskatoon 0.54 0.86 1.61

Winnipeg 0.58 0.84 1.45

Toronto 0.47 1.31 2.83

Montréal 0.81 3.59 4.43

Moncton 1.65 2.47 1.50

Halifax 1.21 3.37 2.80

Charlottetown 0.67 2.36 3.52

St. John's 0.73 2.47 3.38


– 24 –

commercial rates (Kitchen 2013). According to Smart (2012), the transfer of the fiscal burden from business properties to residential ones has had a small positive impact on employment in cities and on business productivity in Ontario. These results provide support for a reduction of this gap in municipalities like Montréal and Vancouver, where it is the widest.

4.2 Sales of goods and servicesThe second major own-revenue source of Canadian municipalities is the revenue collected from the sale of goods and services. Cities use different accounting processes to report these revenues. They may be levied as user fees, such as a price per litre on water consumption or a passenger fare in public transportation. Some cities may consider rental revenues from municipal properties as a sale of goods and services. Others consider fees for permits, licences, and franchises as a sale of goods and services. Even fines may be accounted for in these revenues (as is the case in Toronto).

For simplification, we have merged under sales of goods and services all types of revenues that were considered as direct contributions to local services by the beneficiary, including rent revenues and contributions from local and community organizations. On the other hand, we have tried to separate fines and penalties, and licence, franchise, and permit fees from this category to better reproduce revenue categories used in Table 3. It was not always possible (in Toronto mainly, but also in Moncton) to do this.

Figure 7 shows revenues from sales of goods and services in dollars per capita for four specific items and “other.” We can see in this figure that Saskatoon is an exception. Revenues from the sale of energy represent the main source of revenues from user charges in this city. Such revenues are not reported in Toronto (Toronto Hydro). In Halifax, revenues from the sale of water (utility charges) are not reported either. In both of these cities this is because the service is provided by a municipal government business enterprise (not considered as a consolidated entity in the financial report of its owner19). If water charges were taken into consideration in cities’ revenues, Halifax would be very similar to Moncton or St. John’s in the graph.

Apart from Halifax, Montréal is the only city not reporting revenues from the sale of water services. These services are financed by a water tax instead of user charges. They are thus considered as a tax on property. Revenues from transportation (transit fares and parking) are important, however, in Montréal, as they are in the other most populous cities. This is consistent with what was observed about public transit mode share in Figure 4.

The major component of “other” types of sales is revenues from real estate activities. In Toronto, they also include fines and penalties, but not in other cities.

19. Following accounting principles specific to these cities, Halifax and Toronto report only profits and losses and variation in capital assets from the government enterprise in their financial statements.


– 25 –

As we have already indicated, revenues from the sale of goods and services per capita are higher in the west and lower in the east. Significant divergences are observed, however, between cities in the way they implement user charges.

4.3 Other revenuesProperty taxes and user charges are the main financing tools of Canadian cities. A good balance between these may be considered the best way to diversify revenues. Taylor and Dobson (2020) have, however, identified other tools granted by provincial laws for financing recurrent spending. Using their list, as reported in Table 3, we have identified the revenues collected from each of these sources for our sample of cities. These revenues are reported on a per-capita basis in Figure 8.

Although licence, franchise, and permit fees are used as a source of revenue in every city, they yield more money in western cities such as Vancouver ($150 per capita) compared with less than $50 for most other cities. Fines and penalties are particularly important in Montréal. It is difficult to find any explanation for this finding.20 Usually fines and penalties are there to ensure that municipal rules and bylaws are respected. In an ideal world, revenue from fines and penalties would tend towards zero, as delinquents amend their wayward ways and fines should not be relied on as a constant revenue source.21 In practice, human behaviour may not

Figure 7: Sales of goods and services, dollars per capita by main categories, 10 selected cities, Canada, 2018

Source: Authors, based on data gathered from cities’ financial reports of 2018.

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Sask

atoon

Win

nipeg

Toro

nto

Mon

tréal

Mon

cton

Halifax

Charlo

tteto

wn

St. J

ohn’s

Vanco

uver

Calgar

y

Sask

atoon

Win

nipeg

Toro

nto

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tréal

Mon

cton

Halifax

Charlo

tteto

wn

St. J

ohn’s

Vanco

uver


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1.6

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1.0

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0.6

0.4

0.2

0.0

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1,600

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800

600

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Land transfer tax


Billboard tax

Fines and penalties

Business tax


2,000

1,800

1,600

1,400

1,200

1,000

800

600

400

200

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1.80

1.60

1.40

1.20

1.00

0.80

0.60

0.40

0.20

0.00

Calgar

y

Sask

atoon

Win

nipeg

Toro

nto

Mon

tréal

Mon

cton

Halifax

Charlo

tteto

wn

St. J

ohn’s

Vanco

uver


Calgar

y

Sask

atoon

Win

nipeg

Toro

nto

Mon

tréal

Mon

cton

Halifax

Charlo

tteto

wn

St. J

ohn’s

Vanco

uver

Calgar

y

Sask

atoon

Win

nipeg

Toro

nto

Mon

tréal

Mon

cton

Halifax

Charlo

tteto

wn

St. J

ohn’s

Vanco

uver

3.5

3.0

2.5

2.0

1.5

1.0

0.5

-

20. About 90 percent of fines and penalties are for driving and parking violations in 2018. Source:City of Montréal 2020 budget, Table 30, p. 136.

21. This is true only for a steady-state population; new drivers or new residents of a city may need time to comply with the rules, generating new groups of delinquents.


– 26 –

be that influenced by these fines and penalties and they may be a form of sin taxes (such as those associated with alcohol, cannabis, gambling, or tobacco) with some stability in revenue over time.

A land transfer tax, when it is used, represents an important source of revenue for some municipalities. Toronto seems to use it intensively. However, when we look at rate structures for this tax in the four out of our 10 cities where it is used, we see both progressive and flat statutory rates (see Table 8).22 One can wonder why Montréal and Toronto chose a progressive tax structures; perhaps there is a larger variance in prices in those two cities than in Halifax or Charlottetown, which use a flat rate. The last two rows of Table 8 show the amount of tax collected in each city for a transaction of a housing unit of $500,000 and one of $1,000,000.

According to Dachis, Duranton, and Turner (2008), the introduction of the land transfer tax in Toronto caused a small decline in the number of sales of houses and in housing values (1.5 percent). It also caused a reduction in household mobility. No such studies exist for the three other cities. Most likely the larger amount of money collected in Toronto does not come from higher rates, but is probably due to a large number of transactions and/or the higher price of properties.

Figure 8 shows that the business tax23 is important only in Winnipeg. Since 2013, St. John’s no longer levies a business tax; it has been merged into its property

Figure 8: Other sources of revenues, dollars per capita, 10 selected cities, Canada, 2018

Source: Authors, based on Table A-2 in the Appendix.

Brit

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4,000

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2,000

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0



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100.090.080.070.060.050.040.030.020.010.0

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1600

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0 Calgar

y

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St. J

ohn’s

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uver

Calgar

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nipeg

Toro

nto

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cton

Halifax

Charlo

tteto

wn

St. J

ohn’s

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uver


1.8

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1.4

1.2

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0.6

0.4

0.2

0.0

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2,000

1,800

1,600

1,400

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1,000

800

600

400

200

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1.60

1.40

1.20

1.00

0.80

0.60

0.40

0.20

0.00

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ohn’s

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uver


Calgar

y

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nto

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cton

Halifax

Charlo

tteto

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St. J

ohn’s

Vanco

uver

Calgar

y

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nto

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cton

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ohn’s

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uver

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22. In Winnipeg, there is a land transfer tax, but it is not a local revenue. It is collected by the province for its own needs.

23. A municipal business tax is related to the use or occupancy of a property for business rather than residential purposes; it is linked to items such as annual rental value (Winnipeg currently, the province of Québec in a few municipalities), square footage, and so on and is distinct from taxes on property value.


– 27 –

tax. The City of Winnipeg is also the only one with a tax on sales of gas and electricity for non-heating purposes.24 It accounts for 1.6 percent of its own revenues.

Accommodation taxes are levied in Winnipeg, Halifax, and St. John’s. These revenues represent 1.1 percent of own-source revenues in St. John’s. They are marginal in Halifax (0.2 percent). In Toronto, the municipal accommodation tax (MAT) became effective on April 1, 2018.25 It does not appear in the financial statement for 2018. The City of Toronto is now implementing a 4 percent tax on hotels and short-term rentals. A new short-term rental by-law was implemented in 2021.

Billboard taxes may be a good way to control signs and publicity in a city, but they are not an important source of revenues. Even if Winnipeg and Toronto levy such a tax, it is nearly imperceptible in Figure 8 (0.1 percent of own revenues).

5. Capital financing

Cities selected for our study do not always have a clear accounting of their capital revenues and expenditures. For that reason, we gathered information from their financial statements to estimate capital accounts that could be compared with those of other cities.

To do so, we considered all acquisitions of tangible capital assets declared in cities’ financial statements as their capital spending for 2018. We considered

Table 8: Rates, land transfer tax, Toronto, Montréal, Halifax, and Charlottetown (2018)

Toronto Montréal Halifax Charlottetown

Rates

Up to $55,000

$55,001–$250,000

$250,001–$400,000

$400,001–$2,000,000

Over $2,000,000

0.5%

1.0%

1.5%

2.0%

2.5%

Up to $51,700.00

$51,701–$258,600

$258,601–$517,100

$517,101–$1,034,200

$1,034,201–$2,000,000

Over $2,000,000

0.5%

1.0%

1.5%

2.0%

2.5%

3.0%

1.5% 1.0%

Amount of tax collected $6,525 for a $500,000 house

$5,949 $7,500 $5,000

Amount of tax collected $16,525 for a $1,000,000 house

$15,863 $15,000 $10,000

Source: Official city websites.

24. See City of Winnipeg, Assessment and Taxation, Gas and Electricity Tax (http://www.winnipegassessment.com/AsmtTax/English/Other_Taxes/GasElect.stm).

25. City of Toronto, 2018, Implementation of Municipal Accommodation Tax (Hotel and Short-Term Rental Tax), Report Ex 30.4 (https://www.toronto.ca/legdocs/mmis/2018/ex/bgrd/backgroundfile-110698.pdf).


– 28 –

the variation in long-term debt for that year as capital financing from debt. We considered all revenues tagged as special assessment, local improvement tax, special levies, or contribution from developers as capital financing, even when reported in operational revenues. We labelled them “direct contributions.”

Most of the time, transfers for capital expenditure were clearly identified as such in financial reports. In the end, the difference between the capital need and the identified sources (debt, contributions, and transfers) was assumed to come from operating revenues or reserves (past savings).

5.1 Revenue sourcesNeeds for capital financing are not the same as those for operating purposes and sources of financing also differ. Figure 9 shows the major categories of capital revenues. The size of the bar represents capital financing revenues in dollars per capita. Capital investments are less stable than operating expenses from year to year. Given time and resource constraints, we could examine only data for 2018. It is possible that one of our 10 cities had above-average spending on infrastructure work during that year, while another was in a trough of spending, so that our picture is not a good representation of cities’ usual spending patterns.

Since Vancouver and Halifax report only tangible capital acquisitions net of government transfers, they appear to have relatively low investments. We also find low investments in Winnipeg, Charlottetown, and St. John’s. In Moncton, we noticed that tangible capital assets acquisition doubled from 2017 to 2018. This is


Note: Vancouver and Halifax report only tangible capital acquisitions net of government transfers in their financial statement. Moncton reported higher-than-usual capital investments in 2018.Source: Authors, data from Table A-3, Appendix.

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– 29 –

an indication that either 2017 or 2018 may not be a typical year in terms of capital investments for that city.

We argued in Section 2 of this report that the only true dedicated source of revenue for capital financing is direct contribution and, more specifically, direct contributions from developers. The rationale behind these development charges is explained in Found (2019). We notice that they are important in capital financing for western cities like Vancouver, Calgary, and Saskatoon. They are, however, nearly non-existent in cities like Montréal, Halifax, and Charlottetown.

Some of the 10 cities do not appear to borrow for their capital investments. If they do so, they have erased past debts at a faster pace in 2018 than they have created new ones. This is the case for Halifax, St. John’s, and Calgary. Debt financing was important in Montréal and Moncton in 2018. Surplus is used to pay for investments in all cities except for Charlottetown and Vancouver.

5.2 Long-term debt To compare levels of long-term debt among the 10 cities, we constructed three indexes similar to those used to analyze property tax revenues (Figure 6): debt as a percentage of total revenues, in dollars per capita, and as the ratio of per-capita debt on average income. These indexes are shown in Figure 10.

Figure 10 shows that Montréal has the highest value for all three debt indicators. It is, as shown in Figure 9, the city that relied the most on debt – after Moncton – to finance its investments in 2018. St. John’s has the second-highest rate of indebtedness. But the city was not relying on debt for its capital financing in 2018. Québec and Newfoundland and Labrador are the only provinces in Canada in which there is no cap on municipal borrowing (Taylor and Dobson 2020, 50).

Figure 10: Importance of debt, three indicators, 10 selected cities, Canada, 2018

Note: Each indicator is calculated with respect to its mean value, which is 1.Source: Authors, data from Table A-4, Appendix.

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Brit

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an

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cotia

Prince

Endw

ard

Islan

d

Newfo

undlan

d

and

Labra

dor






Transportation

Utilities


Protection services



Transportation

Utilities


Protection services



4,500

4,000

3,500

3,000

2,500

2,000

1,500

1,000

500

0



30.0

25.0

20.0

15.0

10.0

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100.090.080.070.060.050.040.030.020.010.0

-

1600

1400

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1000

800

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0 Calgar

y

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nipeg

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nto

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800

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0.60

0.40

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Calgar

y

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nipeg

Toro

nto

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Charlo

tteto

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St. J

ohn’s

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Calgar

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nto

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Charlo

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ohn’s

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ohn’s

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– 30 –

Calgary has above average debt as a percentage of revenues and in dollars per capita, but not as a percentage of average income. Halifax has very low debt, because Halifax spends less in capital investments and when it does, it uses a special fund, financed by surpluses from operating revenues.

5.3 Other tools of capital financing

Two other tools of capital funding are mentioned in Section 2 of this report: density bonusing and tax increment financing. According to Moore (2013), benefits from density bonusing are not easy to estimate, since a large part of contributions are made in kind, often in the form of social housing units. These benefits are not necessarily reported in municipal financial statements. If they are, it is not clear where they appear. They are probably considered as contributions from developers.

According to Taylor and Dobson (2020), all provinces except Québec and Newfoundland and Labrador allow their municipalities to raise capital financing from density bonusing. It is possible to find information about the mechanisms in place for Vancouver and Toronto in the work of Moore (2013) and Singh (2016).

According to Moore (2013), the way in which cities determine the value of individual agreements, which benefits to secure from which developers, and where the benefits should be distributed remains obscure at best. In these circumstances, it is hazardous to estimate the financial importance of such contributions. According to a memo from the City of Vancouver, benefits from negotiations with developers over changes in urban bylaws generated an average of $185 million per year between 2013 and 2017.26 This represents nearly half the capital financing needs for that city. It is a considerable amount of money. It may explain why developers’ contributions are such an important revenue source for capital financing in Vancouver in Figure 9. In Toronto, cash contributions from density bonusing are more modest (Moore 2013; Singh 2016).

Tax increment financing (TIF) is another tool allowed in Alberta, Saskatchewan, and Manitoba. The revenue from tax increment financing is usually treated as part of the property tax. These revenues are not tagged as TIF in financial reports. For that reason, they are hard to identify. According to Haider and Donaldson (2016), the evidence shows that TIF-financed projects are usually a small share in the financing of total investments (a few millions of dollars).

In Winnipeg, the grants provided to the Downtown Residential Development Grant Program (DRDG) are based upon the annual incremental taxes generated by the development. The Exchange Waterfront Neighbourhood Development Program is also funded through tax increment financing. The funds are used to undertake initiatives aimed at increasing safety, providing transportation options, improving

26. City of Vancouver, 2017 Annual Report on CACs & Density Bonus Zoning, RTS 12718 (https://vancouver.ca/files/cov/2018-09-24-2017-annual-report-on-cacs-density-bonus-zoning-rts-12718.pdf).


– 31 –

the image and awareness of the neighbourhood, and infrastructure improvements to beautify the neighbourhood and make it more pedestrian-friendly. An important source of ongoing funding for the Heritage Investment Reserve Fund, the Housing Rehabilitation Investment Reserve Fund, and the Economic Development Investment Reserve Fund is incremental tax revenue from projects financed by these funds. The Multiple Family Dwelling Tax Investment Reserve Fund is also designed to act as a bank that accumulates incremental taxes generated by approved multi-family dwelling construction and rehabilitation projects. There is no aggregation of the total money invested in these projects and secured with TIF.

In Calgary, the education portion of the incremental property tax in a designated redevelopment district may be dedicated to redevelopment programs in the area. The duration of the redevelopment district and the community revitalization finance tool will generally be up to 20 years. The Rivers District Community Revitalization Plan of the City of Calgary is financed with this tool.

6. Concluding remarks

The goal of this study is to investigate how cities are using the revenue sources that provincial laws enable them to use. Following the work of Taylor and Dobson (2020), we have tried to put numbers on each of these sources for 10 major cities representing the institutional diversity of the Canadian provinces. With data from financial statements, we have assessed how much money was obtained from most of their sources of revenue. Our work remains descriptive, but it raises questions that need further discussion.

Some elements of our overview bring us back to the distinction made in the introduction between the diversification of local revenue sources and the complexity of the financial structures of local governments. One might question whether new revenue sources granted to municipalities by their provincial governments really contribute to the diversification of their revenues. One way to answer this question is to provide a measure of diversity for our selected cities and compare it with the number of financing tools granted to each city.

Figure 11 shows indexes of the number of tools and their diversity for these cities. The first is a simple index based on the number of tools available to municipalities as it appears in the last line of Table 3. The measure of diversity is built with the share of each revenue sources in total revenues. This information appears in Table A-2 of the Appendix. We used it to calculate a standardized Hirschman-Herfindahl Index on which our diversification index is based (higher value means more diversification).

Toronto and Winnipeg have access to the highest number of revenue tools (eight and nine respectively) and are the cities with the most diversified revenues. This finding may suggest that adding more options helps cities diversify their revenues. But this relationship does not hold true for all selected cities. In fact, western cities such as Vancouver, Calgary, and Saskatoon do have limited tools compared with the average, yet their diversity indexes are above the average. This

means that they have managed to balance their revenues using the tools available in a better way than some other cities. In St. John’s, for instance, the number of tools is above the average, while the diversity index is below the average. This means that adding more tools for municipal financing does not seem to contribute to the diversification of revenues there.

In general, most of the financing tools available to our Canadian cities yield very low levels of revenue. Diversification is mainly driven by balancing revenues between property tax (the major revenue source for all) and user charges. The number of tools is not high enough to generate complexity in the way Carroll (2009) measures it in the United States, but adding more sources of revenues does not seem to be sufficient to generate revenue diversification for our Canadian cities.

Another question raised by the work of Chernick, Langley, and Reschovsky (2011) in the United States concerns the link between diversification and the ability to raise more revenues. In major cities, where municipal expenditures are higher, the financial need may push provincial governments to grant more revenue sources. This may be why these cities are governed by specific charters. By way of contrast, in provinces where municipalities already have access to more diversified revenue sources, they may raise revenues more easily. If this is true, one could expect to find more diversity where municipal revenues are higher.

This hypothesis is what we tried to validate with our variable “financial need” in Figure 11. This variable is associated with total per-capita municipal revenues. In this figure, we can see that Toronto has more diversified revenues, given its


– 32 –

Figure 11: Indicators of number of revenue tools, revenue diversity, and financial need, 10 selected cities, Canada 2018

Note: Each indicator is calculated with respect to its mean value, which is 1.Source: The number of tools available to municipalities is an index based on Table 3. The diversity index is based on a standardized Hirschman-Herfindahl Index calculated with the share of revenue sources in Table A-2 (see the Appendix). Financial need is based on total operating revenues as they appear in Table A-2.

Brit

ish

Colum

bia

Alber

ta

Calgar

y

Sask

atoon

Win

nipeg

Toro

nto

Mon

tréal

Mon

cton

Halifax

Charlo

tteto

wn

St. J

ohn’s

Vanco

uver

Calgar

y

Sask

atoon

Win

nipeg

Toro

nto

Mon

tréal

Mon

cton

Halifax

Charlo

tteto

wn

St. J

ohn’s

Vanco

uver

Calgar

y

Sask

atoon

Win

nipeg

Toro

nto

Mon

tréal

Mon

cton

Halifax

Charlo

tteto

wn

St. J

ohn’s

Vanco

uver

Calgar

y

Sask

atoon

Win

nipeg

Toro

nto

Mon

tréal

Mon

cton

Halifax

Charlo

tteto

wn

St. J

ohn’s

Vanco

uver

Sask

atchew

an

Man

itoba

Ontario

Québec

New B

runsw

ick

Nova S

cotia











2,500

3,000

2,000

1,500

1,000

500

0

Prince

Edw

ard

Islan

d

Newfo

undlan

d

and

Labra

dor

16,000

14,000

12,000

10,000

8,000

6,000

4,000

2,000

0

16000

14000

12000

10000

8000

6000

4000

2000

0



Brit

ish

Colum

bia

Alber

ta

Sask

atchew

an

Man

itoba

Ontario

Québec

New B

runsw

ick

Nova S

cotia

Prince

Edw

ard

Islan

d

Newfo

undlan

d

and

Labra

dor

Brit

ish

Colum

bia

Alber

ta

Sask

atchew

an

Man

itoba

Ontario

Quebec

New B

runsw

ick

Nova S

cotia

Prince

Endw

ard

Islan

d

Newfo

undlan

d

and

Labra

dor






Transportation

Utilities


Protection services



Transportation

Utilities


Protection services



4,500

4,000

3,500

3,000

2,500

2,000

1,500

1,000

500

0



30.0

25.0

20.0

15.0

10.0

5.0

0.0

100.090.080.070.060.050.040.030.020.010.0

-

1600

1400

1200

1000

800

600

400

200

0 Calgar

y

Sask

atoon

Win

nipeg

Toro

nto

Mon

tréal

Mon

cton

Halifax

Charlo

tteto

wn

St. J

ohn’s

Vanco

uver

Calgar

y

Sask

atoon

Win

nipeg

Toro

nto

Mon

tréal

Mon

cton

Halifax

Charlo

tteto

wn

St. J

ohn’s

Vanco

uver


1.8

1.6

1.4

1.2

1.0

0.8

0.6

0.4

0.2

0.0

350.0

300.0

250.0

200.0

150.0

100.0

50.0

0.0

1,800

1,600

1,400

1,200

1, 000

800

600

400

200

0


Land transfer tax


Billboard tax

Fines and penalties

Business tax


2,000

1,800

1,600

1,400

1,200

1,000

800

600

400

200

-

1.80

1.60

1.40

1.20

1.00

0.80

0.60

0.40

0.20

0.00

Calgar

y

Sask

atoon

Win

nipeg

Toro

nto

Mon

tréal

Mon

cton

Halifax

Charlo

tteto

wn

St. J

ohn’s

Vanco

uver


Calgar

y

Sask

atoon

Win

nipeg

Toro

nto

Mon

tréal

Mon

cton

Halifax

Charlo

tteto

wn

St. J

ohn’s

Vanco

uver

Calgar

y

Sask

atoon

Win

nipeg

Toro

nto

Mon

tréal

Mon

cton

Halifax

Charlo

tteto

wn

St. J

ohn’s

Vanco

uver

3.5

3.0

2.5

2.0

1.5

1.0

0.5

-

higher needs. Moncton and Halifax are under the average for both indicators. But the relationship between diversity and the ability to raise more revenues is not systematic among our group of cities. Montréal, for instance, raises more revenues per capita than all other cities, while having a diversity index near the average. The inverse is observed for Winnipeg and Charlottetown. Since diversity is never very high among Canadian cities, compared with the outcomes observed by Chernick, Langley, and Reschovsky (2011, 2014) in the United States, it may not be relevant to try to link it to financial need anyway.

In the end, we notice that giving more revenue sources to municipalities does not automatically result in more diversified revenues or in more services. Our sample is too small, however, to confirm these results. It remains difficult to study municipal revenues for all provinces at the level of detail that is found in the various municipal laws and it is hard to build comparable data across municipalities from different provinces. Indeed, it is impossible to obtain comparable data at the municipal level for Canada, even though Statistics Canada produces province-wide numbers.

The size of our sample of cities examined in some depth has consequently been reduced to what was manageable to investigate, which is only one city per province. This sample size is insufficient to conduct any comparative or statistical analysis as in Chernick, Langley, and Reschovsky (2011, 2014) or Carroll (2009) for the United States. Given the importance of the third order of government in Canada, it would be very useful to remedy this data gap, perhaps starting with municipal governments with a population above 5,000.27 Once such data become available, one could consider standardizing them further along the lines of the U.S. composite cities approach by Chernick, Langley, and Reschovsky (2014).

7. References

7.1 Documentary sources

Bertaud, A. 2018. Order without Design. Cambridge: MIT Press.

Bird, R. M. 1993. Threading the fiscal labyrinth: Some issues in fiscal decentralization. National Tax Journal, 46(2): 207–227.

Bird, R. M., and Slack, E. (Eds.). 2017. Financing Infrastructure: Who Should Pay? Montréal and Kingston: McGill-Queen’s Press-MQUP.

Carroll, D. A. 2009. Diversifying municipal government revenue structures: Fiscal illusion or instability? Public Budgeting & Finance, 29(1): 27–48.

Chernick, H., Langley, A., and Reschovsky, A. 2011. Revenue Diversification in Large U.S. Cities. IMFG Papers on Municipal Finance and Governance No. 5. Toronto: Institute on Municipal Finance and Governance, University of Toronto.


– 33 –

27. According to data from the 2016 census, this would encompass 700 municipalities. Statistics Canada, Population and dwelling counts, for Canada and census subdivisions (municipalities), 2016 and 2011 censuses – 100 percent data.

Chernick, H., Langley, A., and Reschovsky, A. 2014. Comparing Central City Finances Using Fiscally Standardized Cities. Lincoln Institute of Land Policy. Retrieved from https://www.lincolninst.edu/sites/default/files/pubfiles/2427_1770_Chernick_WP14HC2.pdf

Dachis, B., Duranton G., and Turner, M.A. 2008. Sand in the Gears: Evaluating the Effects of Toronto’s Land Transfer Tax. Commentary 277. Toronto: C. D. Howe Institute.

Dachis, B., Robson, W., and Omran, F. 2017. Fuzzy Finances: Grading the Financial Reports of Canada’s Municipalities. Toronto: C. D. Howe Institute, Commentary 496.

Found, A. 2019. Development Charges in Ontario: Is Growth Paying for Growth? IMFG Papers on Municipal Finance and Governance No. 41. Toronto: Institute on Municipal Finance and Governance, University of Toronto.

Found, A., Dachis, B., and Tomlinson, P. 2013. What Gets Measured Gets Managed: The Economic Burden of Business Property Taxes. Toronto: C. D. Howe Institute, E-brief No. 166.

Haider, M., and Donaldson, L. 2016. Can Tax Increment Financing Support Transportation Infrastructure Investment? IMFG Papers on Municipal Finance and Governance No. 25. Toronto: Institute on Municipal Finance and Governance, University of Toronto.

Kitchen, H. 2002. Municipal Revenue and Expenditure Issues in Canada. Canadian Tax Paper No. 107. Toronto: Canadian Tax Foundation.

Kitchen, H. 2013. Property tax: A situation analysis and overview. In McCluskey, W., Cornia, G., and Walters, L. (Eds.). A Primer on Property Tax: Administration and Policy, First Edition. Oxford: Blackwell Publishing Ltd.

Kitchen, H., McMillan, M., and Shah, A. 2019. Local Public Finance and Economics: An International Perspective. London: Palgrave Macmillan.

Kitchen, H., and Slack, E. 2016. New Tax Sources for Canada’s Largest Cities: What Are the Options? IMFG Perspective Papers No. 15. Toronto: Institute on Municipal Finance and Governance, University of Toronto.

Kitchen, H., Slack, E., and Hachard, T. 2019. Property Taxes in Canada: Current Issues and Future Prospects? IMFG Perspective Papers No. 27. Toronto: Institute on Municipal Finance and Governance, University of Toronto.

Meloche, J.-P., and Vaillancourt, F. 2017. Financing urban infrastructure in Québec: Use of fees in the water and transportation sectors. In Bird, R., and Slack, E. (eds.), Financing Infrastructure: Who Should Pay? Montréal and Kingston: McGill –Queen’s Press.

Moore, A. 2013. Trading Density for Benefits: Toronto and Vancouver Compared. IMFG Papers on Municipal Finance and Governance No. 13. Toronto: Institute on Municipal Finance and Governance, University of Toronto.

Singh, N. S. 2016. Effective Density Bonusing in Securing Affordable Housing: A Study of Toronto Downtown and Waterfront Area. Master’s thesis. Toronto: Ryerson University.

Slack, E. 2011. The Property Tax – in Theory and Practice. IMFG Papers on Municipal Finance and Governance No. 2. Toronto: Institute on Municipal Finance and Governance, University of Toronto.


– 34 –

Slack, E. 2017. How Much Local Fiscal Autonomy Do Cities Have? A Comparison of Eight Cities around the World. IMFG Perspective Papers No. 19. Toronto: Institute on Municipal Finance and Governance, University of Toronto.

Smart, M. 2012. The Reform of Business Property Tax in Ontario: An Evaluation. IMFG Papers on Municipal Finance and Governance No. 10. Toronto: Institute on Municipal Finance and Governance, University of Toronto.

Taylor, Z., and Dobson, A. 2020. Power and Purpose: Canadian Municipal Law in Transition. IMFG Papers on Municipal Finance and Governance No. 47. Toronto: Institute on Municipal Finance and Governance, University of Toronto.

7.2 Sources of municipal financial information

City of Calgary. 2018 Annual Report:

https://www.calgary.ca/content/dam/www/cfod/finance/documents/plans-budgets-and-financial-reports/annual-reports/annual-report-2018.pdf

City of Charlottetown. Consolidated Financial Statements. March 31, 2019:

https://www.charlottetown.ca/UserFiles/Servers/Server_10500298/File/Mayor%20and%20Council/Finance/Audited%20Financial%20Statements/City%20of%20Charlottetown%20Consolidated%20Financial%20Statements%20(March%2031,%202019)....pdf

City of Moncton. Consolidated Financial Statements. December 31, 2018:

http://www5.moncton.ca/docs/budget/2018-12-31_City_of_Moncton-FS-Eng.pdf

City of St. John’s. Consolidated Financial Statements. December 31, 2018:

http://www.stjohns.ca/sites/default/files/files/publication/2018%20Consolidated%20Financials_City%20of%20St%20Johns.pdf

City of Saskatoon. 2018 Annual Report:

https://www.saskatoon.ca/sites/default/files/documents/asset-financial-management/finance-supply/cos_2018-annualreport-web.pdf

City of Toronto. Annual Financial Report for the fiscal year ending December 31, 2018:

https://www.toronto.ca/wp-content/uploads/2019/09/9655-SO-DS19-0220_2018FAR_Final_Web.pdf

City of Vancouver. Statement of Financial Information, December 31, 2018:

https://vancouver.ca/files/cov/city-of-vancouver-statement-of-financial-information-december-31-2018.pdf

City of Winnipeg. 2018 Detailed Financial Statements:

https://www.winnipeg.ca/finance/files/2018DetailedFinancialStatement.pdf

Halifax Regional Municipality. Consolidated Financial Statements, year ended March 31, 2018:

https://www.halifax.ca/sites/default/files/documents/city-hall/budget-finances/Consolidated%20Financial%20Statements%20Year%20ended%20March%2031%2C%202018.pdf


– 35 –







http://www5.moncton.ca/docs/budget/2018-12-31_City_of_Moncton-FS-Eng.pdf









https://www.winnipeg.ca/finance/files/2018DetailedFinancialStatement.pdf




Ville de Montréal. Annual Financial Report. Fiscal Year Ended December 31, 2018:

http://ville.Montreal.qc.ca/pls/portal/docs/PAGE/SERVICE_FIN_FR/MEDIA/DOCUMENTS/RAPPORT_FINANCIER_ANNUEL_2018_EN.PDF


– 36 –



8. Appendix


– 37 –

Tab

le A

-1: E

xpen

ditu

res

per

capi

ta (

$), 1

0 se

lect

ed C

anad

ian

citi

es, 2

018

Van

cou

ver

Cal

gary

Sask

atoo

nW

inn

ipeg

Toro

nto

Mon

tréa

lM

onct

onH

alif

axC

har

lott

e-to

wn

St. J

ohn

’s

Tra

nsp

orta

tion

316

757

671

545

1,21

01,

489

385

632

284

812

Pro

tect

ive

Se

rvic

es68

563

557

662

662

962

352

351

330

334

5

Uti

liti

es44

751

189

641

833

038

839

795

287

663

Gen

eral

go

vern

men

t

& p

lan

nin

g

350

545

404

323

365

802

677

319

485

790

Rec

reat

ion

&

cu

ltu

re38

834

238

423

634

044

121

430

622

934

8

Com

mu

nit

y &

so

cial

ser

vice

s17

416

466

012

8884

00

00

Tota

l 2,

359

2,95

42,

998

2,14

94,

163

3,82

82,

197

1,86

41,

587

2,95

8

Sou

rces

: Fin

anci

al d

ata

com

e fr

om a

nn

ual

rep

orts

. We

use

est

imat

ed p

opu

lati

on f

or 2

018

(Sta

tist

ics

Can

ada)

to

calc

ula

te r

even

ues

per

cap

ita

(h

ttps

://w

ww

150.

stat

can

.gc.

ca/t

1/tb

l1/e

n/t

v.ac

tion

?pid

=171

0014

201

).


– 38 –

Tab

le A

-2: D

ata

on o

pera

ting

rev

enue

s, 1

0 se

lect

ed C

anad

ian

citi

es, 2

018

Van

cou

ver

Cal

gary

Sask

atoo

nW

inn

ipeg

Toro

nto

Mon

tréa

lM

onct

onH

alif

axC

har

lott

etow

nSt

. Joh

n's

In %

of

tota

l ow

n-so

urce

rev

enue

Tax

on

rea

l p

rop

erty

48.4

54.0

34.3

42.8

44.0

59.9

72.6

72.6

60.9

71.1

Sale

s of

goo

ds

and

ser

vice

s43

.034

.958

.839

.838

.027

.824

.710

.428

.521

.6L

icen

ce, f

ran

chis

e, a

nd

per

mit

fee

s5.

53.

23.

22.

51.

31.

11.

43.

72.

01.

7F

ines

an

d p

enal

ties

1.3

2.6

1.7

2.8

0.0

3.1

0.1

1.4

2.1

0.6

Lan

d t

ran

sfer

tax

0.0

0.0

0.0

0.0

7.4

4.1

0.0

5.2

2.1

0.0

Bu

sin

ess

tax

0.0

1.2

0.0

4.2

0.0

0.2

0.0

0.0

0.0

0.0

Acc

omm

odat

ion

lev

ies

and

fee

s0.

00.

00.

00.

70.

00.

00.

00.

20.

01.

1E

lect

rici

ty a

nd

nat

ura

l ga

s ta

x0.

00.

00.

01.

60.

00.

00.

00.

00.

00.

0B

illb

oard

tax

0.0

0.0

0.0

0.1

0.1

0.0

0.0

0.0

0.0

0.0

Inve

stm

ent

acti

viti

es1.

82.

91.

83.

54.

72.

31.

26.

40.

73.

8M

isce

llan

eou

s re

ven

ue

0.0

1.2

0.2

2.0

4.6

1.5

0.0

0.0

3.7

0.0

Tota

l ow

n-so

urce

rev

enue

s ($

mil

lion

)1,

721

3,66

575

31,

376

9,89

66,

197

183

807

5429

3To

tal

in $

/cap

ita

2,55

82,

795

2,80

71,

826

3,34

83,

492

2,41

61,

876

1,37

62,

635

Per

cap

ita/

aver

age

inco

me

(%)

5.5

4.0

5.3

4.0

6.6

7.8

5.8

4.0

3.3

5.0

Hir

sch

man

-Her

fin

dah

l In

dex

of

div

ersi

ty*

0.69

0.68

0.64

0.74

0.78

0.65

0.51

0.53

0.64

0.52

*Ou

r ca

lcu

lati

on o

f th

e in

dex

corr

espo

nds

to

1-H

HI,

wh

ere

HH

I is

a s

tan

dard

ized

Hir

sch

man

-Her

fin

dah

l In

dex

calc

ula

ted

wit

h t

he

shar

e of

eac

h

reve

nu

e so

urc

e in

tot

al r

even

ues

. Val

ue

clos

e to

0 m

ean

s th

at a

ll r

even

ues

com

e fr

om o

nly

on

e so

urc

e, w

hil

e a

valu

e cl

ose

to 1

mea

ns

that

rev

enu

es

are

perf

ectl

y ba

lan

ced

betw

een

all

sou

rces

. So

urc

es: F

inan

cial

dat

a co

me

from

an

nu

al r

epor

ts. W

e u

se e

stim

ated

pop

ula

tion

for

201

8 (S

tati

stic

s C

anad

a) t

o ca

lcu

late

rev

enu

es p

er c

apit

a (h

ttps

://w

ww

150.

stat

can

.gc.

ca/t

1/tb

l1/e

n/t

v.ac

tion

?pid

=171

0014

201)

. We

use

per

son

al in

com

e fr

om 2

016

cen

sus

(Sta

tist

ics

Can

ada)

for

ave

rage

in

com

e (h

ttps

://w

ww

12.s

tatc

an.g

c.ca

/cen

sus-

rece

nse

men

t/20

16/d

p-pd

/pro

f/in

dex.

cfm

?Lan

g=E

).


– 39 –

Tab

le A

-3: D

ata

on c

apit

al fi

nanc

ing,

10

sele

cted

Can

adia

n ci

ties

, 201

8

Van

cou

ver

Cal

gary

Sask

atoo

nW

inn

ipeg

Toro

nto

Mon

tréa

lM

onct

onH

alif

axC

har

lott

etow

nSt

. Joh

n's

In %

of

tota

l ow

n-so

urce

rev

enue

Gov

ern

men

t tr

ansf

ers

0.0

44.4

34.8

34.1

25.4

39.1

11.4

0.0

51.9

50.8

Dir

ect

con

trib

uti

ons

74.2

40.9

53.2

30.7

10.7

0.7

8.5

2.1

0.0

5.8

Deb

t va

riat

ion

25

.80.

03.

51.

915

.636

.651

.00.

048

.10.

0

Rev

enu

e fr

om o

per

atio

n0.

014

.78.

533

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– 40 –

IMFG Papers on Municipal Finance and Governance

1. Are There Trends in Local Finance? A Cautionary Note on Comparative Studies and Normative Models of Local Government Finance, by Richard M. Bird, 2011. ISBN 978-0-7727-0864-9

2. The Property Tax – in Theory and Practice, by Enid Slack, 2011. ISBN 978-0-7727-0866-3

3. Financing Large Cities and Metropolitan Areas, by Enid Slack, 2011. ISBN 978-0-7727-0868-7

4. Coping with Change: The Need to Restructure Urban Governance and Finance in India, by M. Govinda Rao and Richard M. Bird, 2011. ISBN 978-0-7727-0870-0

5. Revenue Diversification in Large U.S. Cities, by Howard Chernick, Adam Langley, and Andrew Reschovsky, 2011. ISBN 978-0-7727-0870-4

6. Subnational Taxation in Large Emerging Countries: BRIC Plus One, by Richard M. Bird, 2012. ISBN 978-0-7727- 0874-8

7. You Get What You Pay For: How Nordic Cities are Financed, by Jorgen Lotz, 2012. ISBN 978-0-7727-0876-2

8. Property Tax Reform in Vietnam: A Work in Progress, by Hong-Loan Trinh and William J. McCluskey, 2012. ISBN 978-0-7727-0878-6

9. IMFG Graduate Student Papers. Development Charges across Canada: An Underutilized Growth Management Tool? by Mia Baumeister; Preparing for the Costs of Extreme Weather in Canadian Cities: Issues, Tools, Ideas, by Cayley Burgess, 2012. ISBN 978-0-7727-0880-9

10. The Reform of Business Property Tax in Ontario: An Evaluation, by Michael Smart, 2012. ISBN 978-0-7727-0882-3

11. Hungary: An Unfinished Decentralization? by Izabella Barati-Stec, 2012. ISBN 978-0-7727-0884-7

12. Economies of Scale in Fire and Police Services, by Adam Found, 2012. ISBN 978-0-7727-0886-1

13. Trading Density for Benefits: Toronto and Vancouver Compared, by Aaron A. Moore, 2013. ISBN 978-0-7727-0901-1

14. Merging Municipalities: Is Bigger Better? by Enid Slack and Richard M. Bird, 2013. ISBN 978-0-7727-0903-5


– 41 –

15. Public Finance and the Politics of Scale in Montréal: Will the Proposed Reforms Save the Megacity? by Jean-Philippe Meloche and François Vaillancourt, 2013. ISBN 978-0-7727-0915-8

16. Decentralization and Infrastructure in Developing Countries: Reconciling Principles and Practice, by Roy Bahl and Richard M. Bird, 2013. ISBN 978-0-7727-0919-6

17. Provincial-Municipal Relations in Ontario: Approaching an Inflection Point, by André Côté and Michael Fenn, 2014. ISBN 978-0-7727-0923-3

18. A Better Local Business Tax: The BVT, by Richard M. Bird, 2014. ISBN 978-0-7727-0921-9

19. Cooperation and Capacity: Inter-Municipal Agreements in Canada, by Zachary Spicer, 2015. ISBN 978-0-7727-0934-9

20. Can GTA Municipalities Raise Property Taxes? An Analysis of Tax Competition and Revenue Hills, by Almos Tassonyi, Richard Bird, and Enid Slack, 2015. ISBN 978-0-7727-0938-7

21. How to Reform the Property Tax: Lessons from around the World, by Enid Slack and Richard M. Bird, 2015. ISBN 978-0-7727-0943-1

22. A Good Crisis: Canadian Municipal Credit Conditions After the Lehman Brothers Bankruptcy, by Kyle Hanniman, 2015. ISBN 978-0-7727-0945-5

23. Municipal Employee Pension Plans in Canada: An Overview, by Bob Baldwin, 2015. ISBN 978-0-7727-0949-3

24. Cities, Data, and Digital Innovation, by Mark Kleinman, 2016. ISBN 978-0-7727-0951-6

25. Can Tax Increment Financing Support Transportation Infrastructure Investment? by Murtaza Haider and Liam Donaldson, 2016. ISBN 978-0-7727-0953-0

26. Good Governance at the Local Level: Meaning and Measurement, by Zack Taylor, 2016. ISBN 978-0-7727-0956-1

27. More Tax Sources for Canada’s Largest Cities: Why, What, and How? by Harry Kitchen and Enid Slack, 2016. ISBN 978-0-7727-0959-2

28. Did the Land Transfer Tax Reduce Housing Sales in Toronto? by Murtaza Haider, Amar Anwar, and Cynthia Holmes, 2016. ISBN 978-0-7727-0961-5


– 42 –

29. Financing the Golden Age: Municipal Finance in Toronto 1950-1975, by Richard White, 2016. ISBN 978-0-7727-0971-4

30. Climate Change, Floods, and Municipal Risk Sharing, by Daniel Henstra and Jason Thistlethwaite, 2017. ISBN 978-0-7727-0973-8

31. The Evolving Role of City Managers and Chief Administrative Officers, by Michael Fenn and David Siegel, 2017. ISBN 978-0-7727-0977-6

32. (Re)creating Boundary Lines: Assessing Toronto’s Ward Boundary Review Process, by Alexandra Flynn, 2017. ISBN 978-0-7727-0979-0

33. Land Value Capture and Social Benefits: Toronto and São Paulo Compared, by Abigail Friendly, 2017. ISBN 978-0-7727-0981-3

34. Financing Urban Infrastructure in Canada: Who Should Pay? by Enid Slack and Almos T. Tassonyi, 2017. ISBN 978-0-7727-0989-9

35. Paying for Water in Ontario’s Cities: Past, Present, and Future, by Harry Kitchen, 2017. ISBN 978-0-7727-0991-2

36. Re-imagining Community Councils in Canadian Local Government, by Alexandra Flynn and Zachary Spicer, 2017. ISBN 978-0-7727-0987-5

37. Climate Finance for Canadian Cities: Is Debt Financing a Viable Alternative? by Gustavo Carvalho, 2018. ISBN 978-0-7727-0994-3

38. The Public Finance Challenges of Fracking for Local Governments in the United States, by Austin Zwick, 2018. ISBN 978-0-7727-0996-7

39. Returning to the Golden Rule of Balanced Budgets: The Institutional and Political Economy of Restricting Public Deficits and Debt, by Bernard Dafflon, 2018. ISBN 978-0-7727-0998-1

40. The Platform Economy and Regulatory Disruption: Estimating the Impact on Municipal Revenue in Toronto, by Zachary Spicer, 2018. ISBN 978-0-7727-1005-5

41. Development Charges in Ontario: Is Growth Paying for Growth? by Adam Found, 2019. ISBN 978-0-7727-1009-3

42. Does Local Government Autonomy Promote Fiscal Sustainability? Lessons from Illinois’s Home-Rule Municipalities, by Matthew Walshe, 2019. ISBN 978-0-7727-1011-6


– 43 –

43. Mind the Funding Gap: Transit Financing in Los Angeles County and Metro Vancouver, by Matthew Lesch, 2019. ISBN 978-0-7727-1016-1

44. The Practice of Municipal Cooperation: Australian Perspectives and Comparisons with Canada, by Graham Sansom, 2019. ISBN 978-0-7727-5502-5

45. Filling the Gaps: The Role of Business Improvement Areas and Neighbourhood Associations in the City of Toronto, by Alexandra Flynn, 2019. ISBN 978-0-7727-1020-8

46. The Fallacy of the “Creatures of the Provinces” Doctrine: Recognizing and Protecting Municipalities’ Constitutional Status, by Kristin R. Good, 2019. ISBN 978-0-7727-1023-9

47. Power and Purpose: Canadian Municipal Law in Transition, by Zack Taylor and Alec Dobson, 2020. ISBN 978-0-7727-1029-1

48. Collaborative Regional Governance: Lessons from Greater Manchester, by Alan Harding, 2020. ISBN 978-0-7727-2526-4

49. Theme and Variations: Metropolitan Governance in Canada, by Zack Taylor, 2020. ISBN 978-0-7727-2496-0

50. Policy in Place: Revisiting Canada’s Tri-Level Agreements, by Neil Bradford, 2020. ISBN 978-0-7727-2523-3

51. Cities in National Constitutions: Northern Stagnation, Southern Innovation, by Ran Hirschl, 2020. ISBN 978-0-7727-2517-2

Municipal Financing Opportunities in Canada:How Do CitiesUse �eir Fiscal Space?

IMFG Papers on Municipal Finance and Governance No. 52 • 2021


ISBN 978-0-7727-2532-5ISSN 1927-1921

Municipal Financing Opportunities in Canada: How Do Cities ...

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