Cost of Living

Canadian municipalities could face $20B budget shortfall from 3 months of COVID-related closures

Property tax deferrals and pandemic closures mean significant drop in revenues for cities, as millions of dollars per week have evaporated leading to major cash crunches for the governments that deliver many of the front-line services Canadians expect.

Property tax deferrals and pandemic closures mean significant drop in revenues for cities

Cities across Canada are facing a growing fiscal crisis caused by the COVID-19 pandemic. Toronto alone could stand to lose $1.5 billion in revenues from three months of lockdown. (ChameleonsEye/Shutterstock)

Many Canadians may grumble this month as they open their property tax assessments. But by this time next year, that grumble could turn into a scream if municipalities can't figure out different ways to bring in revenue or balance their budgets. 

Cities across the country are facing a growing fiscal crisis, triggered at least in part by the COVID-19 pandemic.

As it turns out, hordes of people choosing to defer their property taxes, not taking public transit and not paying the user fees for public facilities (because they aren't using them) can burn a hole in any municipal pocket. 

"About a third of municipal government revenue nationally comes from property taxes," said Trevor Tombe, associate professor of economics at the University of Calgary. The rest comes from provincial transfers and user fees, such as subway or bus tickets.

 A man wearing glasses stands in front of a grey building.
Economist Trevor Tombe says cities across Canada could face up to $20 billion in shortfalls if experiences in jurisdictions such as Toronto are extrapolated nationally. (Hala Ghonaim/CBC)

"During a pandemic in particular, you not only have households being strained to the max because of displacement from employment and income and that creates challenges for paying property taxes, but you also see a huge drop in transit ridership and therefore a huge drop in transit revenue," Tombe said.

Cities cannot print money or run a deficit

Unlike the other two levels of government, municipalities cannot run a deficit budget by law.

Their borrowing powers are typically limited to big, long-term projects, such as a new transit line. Day-to-day items such as payroll for firefighters, road maintenance or wastewater management have to be paid for, in full, every year. 

It's the reason why our property taxes fluctuate yearly — so that cities can clear their taps.

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The problem now is the pandemic has thrown a wrench into everyone's plans. Toronto alone could stand to lose $1.5 billion from three months of lockdown.

"If Toronto's experience is applied nationally, just for some perspective, that represents about $20 billion dollars across all of Canada's cities in terms of their budget shortfalls for the coming year," Tombe said. 

Tough choices ahead for city councils

Many cities and towns have already passed bylaws to give local businesses some financial slack during the pandemic. 

But cities are responsible for providing some of the most essential services to Canadians: roads, fire fighting, police services or public transportation are just a few from a lengthy list. Mayors across the country say this leaves them with few choices.

"We get eight per cent of the tax, but do 90 per cent of the work," joked Fraser Tolmie, mayor of Moose Jaw, Sask. 

Moose Jaw Mayor Fraser Tolmie, pictured in January 2019, said the pandemic is one reason officers will not be promoted and firefighters will not be backfilled on holidays for the rest of the fiscal year. (CBC)
In May, Moose Jaw city council decided to rescind a planned 2.7-per-cent increase to property taxes, which was originally approved in late 2019. It also approved a one-time $500 tax credit for local businesses.

"We had made some final decisions to do a few things to go back to a zero per cent increase, which means right now in these present circumstances we cannot provide all the services," Tolmie said. 

Services affected include the city's various recreational facilities, which remain closed for the time being. Moose Jaw is also not going to open its popular outdoor pool this summer for its 35,000 residents. 

The city has also switched to a "dial-a-bus" service in response to the drop in ridership.

In order to maintain funding for Moose Jaw's fire and police departments, Tolmie said council had to find savings in human resources, meaning no promotions for officers, and no backfill for firefighters on holidays for the rest of this fiscal year. 

If the crisis continued to the end of the year, we'd be facing $100 million deficit. That's the equivalent to closing the entire city for two months.- Bonnie Crombie, Mayor of Mississauga, Ont.

Mississauga, Ont. is not immune to the financial pressures facing other municipalities.

"We're running through approximately $20 million per month. If the crisis continued to the end of the year, we'd be facing $100 million deficit. That's the equivalent to closing the entire city for two months," said the city's mayor, Bonnie Crombie.

If the pandemic continued another six months, Mississauga could be faced with a 17 per cent property tax increase — which she said is an an untenable option.

"Of course we won't do that. We'll be looking to be cutting programs and services, unfortunately," she said.

Mississauga Mayor Bonnie Crombie, pictured in 2019, said if the pandemic continues another six months, her city could be short $100 million. (CBC)

This would come after cuts already implemented by the City of Mississauga in response to the COVID-19 pandemic, including laying off about 2,000 temporary and causal workers.

What about a federal bailout?

Without a rescue package from other levels of government, cities would likely have few options: raise taxes, cut spending, or some combination of the two. 

While Prime Minister Justin Trudeau recently announced funding of $2.2 billion in annual infrastructure funding for municipalities, it isn't new funding. It will be paid out of the existing gas tax fund and will be delivered in one payment in June.

It gives municipalities earlier access to previously allotted money, but it may not resolve looming financial woes.

"We're suggesting that the federal and the provincial governments have provided assistance to every other sector in the economy, so now it's time to help cities," said Crombie, who is calling for a "new financial framework" to provide municipalities with funding.

Economist Trevor Tombe told CBC Radio's The Cost of Living that a higher level of government may be best able to take on this financial challenge.

"Ultimately I think it's a question around who does the borrowing? Who is best able to absorb this kind of a fiscal shock?" he said.

'This is a first step' | Infrastructure Minister Catherine McKenna

3 years ago
Duration 8:14
Infrastructure Minister Catherine McKenna on the federal government's decision to fast-track $2.2 billion to municipalities hit hard by the pandemic.

The provincial government is able to borrow money at lower rates than cities can, and the federal government can borrow money at lower interest rates than the provinces.

"Like in any disaster ... the federal government takes on a pretty significant share, sometimes, of the costs associated," said Tombe.

"The federal government is better able to carry the load, to carry that debt and to borrow in a much cheaper way than individual cities or individual provinces can."

The Federation of Canadian Municipalities has called on the federal government to provide at least $10 billion in emergency funding.

Written by Falice Chin and Anis Heydari, with files from Richard Raycraft and Kathleen Harris.
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