Balancing act

Municipal politics is usually of interest only to residents of the city in question (and sometimes not even then), but the recent tax debate in Toronto is an exception.

For not only did it highlight a problem facing most of Canada's major cities — not enough money to provide the services residents demand — it also offered some fine examples of what not to do when a city council attempts to address the cash crunch.

Unlike the federal or provincial governments, Canadian municipalities are required by law to balance their books each year. This is a challenge when the demand for services is growing. In some provinces, especially Ontario, the provincial government has made things worse by downloading responsibilities onto cities without giving them the funds to pay for them. The result, as most city residents can attest, is a decline in services such as garbage removal, and eroding infrastructure.

Municipal politicians point out that provincial governments dictate how cities can raise revenue, leaving them reliant on two main sources: Property taxes, which — while stable — do not rise in line with economic growth; and grants from other levels of government, which can easily be taken away.

When Toronto was given new powers by Ontario at the start of this year, including the ability to raise new taxes, it looked as though the city had found a way through this impasse. But its first attempt to exercise those new powers, by imposing a land transfer tax and a vehicle registration tax, ended in failure when city council decided to defer a decision until after a provincial election in October.

I went to see the debate at Toronto City Hall on the day of the vote and found that there were lessons, both big and small, for other municipalities from the Toronto experience:

1. Pay closer attention to the public mood. The public galleries at city hall were packed the morning of the vote, with residents eager to hear the debate. But first they were treated to two hours of award presentations and agenda-setting before council finally turned to the substance of the meeting. Not surprisingly, the mood in the galleries grew increasingly ugly. It may well be that the councillors had already made up their minds and were not affected by the catcalls and shouts emanating from the galleries. Still, one wonders if council realized how seriously taxation was regarded by city residents. Was it really the right morning to show a longish video on the creation of the world's largest multicultural salad?
2. Pick your new taxes carefully. City staff insisted that they had consulted widely and thought deeply before proposing the land transfer tax and vehicle registration tax. Yet with the land transfer levy they managed to select a tax that angered a powerful vested interest group — realtors, who feared it would depress home sales and thus organized opposition against it. When asked why they had not selected road tolls or a congestion charge, which would be paid by non-residents as well as residents and more closely resembles a fair user fee, staff indicated that more consultation was needed. Both the land transfer tax and the vehicle registration charge had the virtue of being relatively simple to impose. Simplicity may be an advantage in taxation, but not if opposition defeats a tax before it can be implemented.
3. Pick your threats carefully and make them believable. The city warned that services, such as sidewalk snow clearing, would have to be cut if the new taxes were not approved. It is probably true that services would suffer. But staff could have made an effort to come up with a better list. On a warm, sunny day in July, the fact that the sidewalks would not be cleared of snow did not seem to be a pressing problem. The potential cuts to public transit announced later in the week were closer to the mark in that they underlined the seriousness of the fiscal situation. But they had a whiff of expediency about them. Why weren’t they mentioned before the council vote? If council is going to sell the idea of raising taxes, it has to do a better job of justifying the increases.
4. Show you've done your part. Taxpayers suspect that all governments are bloated bureaucracies that can be trimmed without any reduction in service. The city staff needed to demonstrate that all the fat had been cut. And they failed to do this convincingly. When asked, they repeated that savings worth millions had been made every year, but couldn't provide concrete examples. A fact sheet for the media was available giving just such details, yet its contents were not shared with the public.
5. Don't just stand there with your hand out. The fallback position for municipalities is to ask for more money from the province or the federal government. This is not a long-term solution. Money from other levels of government comes with strings attached and reflects the priorities of those governments, not those of the municipalities. It's not easy to raise taxes, but cities will have to make those tough decisions if they want to control how the revenues are used.

If Canadian cities are to emerge from the current cash crunch, every level of government will have to do its part. And they will have to co-ordinate their efforts.

Toronto's first attempt was a failure. It has until the fall to learn from its mistakes. Perhaps in the meantime, some other municipal council will show Toronto the way.